TaxTMI 
TaxTMI 
2017 (2) TMI 1121
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....lms Pvt. Ltd. which was to be paid to the assessee. But no such amount was shown by the assessee in its accounts ending in F.Y.2002-03, and therefore, this sum was also required to be treated as deemed income in the hands of the assessee. He recorded the following reasons for reopening of the assessment: "1. Name & Address of the assessee : Shri S. Venkaraman Iyer, 9/A, City Crown Apartment' Parle Point, Surat. 2. Permanent Account Number : AAFPI 1894 K 3. Status : Individual 4. Assessment year to which is proposed to issue notice u/s. 148. j : A.Y.2004-051 Reasons recorded u/s 148(2) of the I.T. ACT. 1961. The assessee was a director and shareholder of M/s. Manish Packaging Pvt. Ltd., M/s. Vikas Metalizers Pvt. Ltd. and M/s. Manish Multi Pack firms Pvt. Ltd. of the Manish Group. In the said companies, the assessee and his family was a 25% shareholder and certain Patel family 'held 75% share. Owing to some dispute, the assessee and his family based on the agreement reached and executed on 24.11.2003, transferred their shareholding to the Patel family. a) Assessee incurred Short Term Capital Loss of Rs. 26,44,800/1 on transfer of his sharehol....
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....family themselves and that the value so determined was agreed to by Patel family, The sale price per share was determined at Rs. 1.30 being the intrinsic value of share as on 31.03.2003. The fact was that, the market value of the share at the time of purchase on 10.09.2003, like at the time of sale, was also Rs. 1.30 Only as against Rs. 10/- per share paid by assessee. However, the purchase price and sale price of the shares were determined with different yardsticks. It is therefore, evident that, the investment in shares at the higher rate of Rs. 10/- by the assessee who was also a director it, when the market value was Rs. 1.30/-, was a colorable device adopted to evade tax. Incidentally, the intrinsic value of the share on the record date or on the actual date of transfer i.e. on 24.11.2003, if computed in accordance with the method adopted by the company would have been much higher. For the fact that in computing the intrinsic value of share, the paid up share capital is not taken into account but share application money is considered as liability for reducing gross assets. In the instance case, on the date of transfer; shares had been allotted against the share application m....
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....o the assessee, by M/s.Manish Multi Packfilms Pvt. ltd. However, the balance sheet of M/s. Manish Multi Packfilms Pvt. Ltd. for the F.Y.2002-03 do not exhibit any sum by way of loans or deposits received. Similarly, the balance sheet of assessee for the F.Y.2002-03 also do not exhibit any investment, loan or deposit with M/s. Manish Multi Packfilms Pvt. Ltd., except for a sum of Rs. 10,62,000/- given as advance. Assessee was allotted shares of M/s. Manish Multi Packfilms Pvt. Ltd, on 10.09.2003 against the advance of Rs. 10,62,000/-. Thus, it is clear that assessee did not deposit any sum in M/s. Manish Multi Packfilms Pvt. ltd. In view of these facts, the sum of Rs. 28,90,500/- is required be treated as .deemed income. In view of the above, I have reason to believe that the Short Term Capital Loss of Rs. 26,44,800/- claimed on transfer of share holding in M/s. Manish Multi Packfilms Pvt. Ltd. is require to be disallowed and a sum of Rs. 28,90,500/- is shown as amount of deposit and capital repayable to the assessee by M/s. Manish M|ulti Packfilms Pvt. Ltd. is requires to be treated as deemed income for A.Y.2004-05, has 'escaped assessment within the meaning of section 147 of....
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....asset along with cost of improvement thereto and the expenses incurred on transfer of a capital asset from full value of consideration received or accruing as a result of transfer of capital asset. There is no reference to the market value of capital asset transferred in section 48 or in any other section except section 50C, which is applicable only in case of sale of landed property. In the case of Judgment of Hon'ble Gujarat High Court rendered in the case ofCIT Vs. Shri Girish Damjibhai Patel (supra), Hon 'ble Gujarat High Court has also referred to the same provisions of section 48 and on the basis of same section 48 of the Act, it was held that since section 48 of the Act does not have any reference to the market value but only to the consideration * referred to in the sale deed,... Hence ratio of this decision of Hon'ble Gujarat High Court is this that for the purpose of working out capital gain, the sale consideration received by the assessee or accrued sale consideration has to be adopted because there is no reference in section 48 to the market value of the asset for the purpose of computing the capital gain. .... "8. Considering the facts of the present ca....
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....ciate the fact that obviously transactions entered into after March 2003 and subsequent periods would not find a place in the balance sheet of 31st March, 2003. The ARs further stated that all the above facts were brought to the notice of the AO during the time of re-assessment as well as original assessment proceedings and that the appellant had not received any additional amount of Rs. 28,90,500/-by way of any income and hence be deleted. 5.3 DECISION: I have both gone through the assessment order as well as submission of the ARs. Basically, as discussed in Ground No. 1, the assessment is liable to be quashed but even on merits also I have discussed this issue in Ground No. 1. The details submitted by the appellant clearly showed that the account was squared up in the F.Y. 2003-2004 and all the transactions had taken place after 31-03-2003 and therefore, the contention of the AO that the said sum was not reflected in the balance sheet of M/s. Manish Multipack Films Pvt. Ltd. as on 31-03-2003 is illogical. When any transaction has not taken place on or before 31-03- 2003, then obviously, the same could not be reflected in the balance sheet as on 31-03-2003. It is clearly seen ....
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....es, no action shall be taken under section 147 unless it is established that income chargeable to tax has escaped on account of failure of the assessee to disclose fully and truly all the material facts necessary for his assessment. Thus the AO was bound to demonstrate that the assessee has failed to disclose material facts fully and truly which has resulted escapement of income. If he fails to demonstrate this aspect, then, in the case where scrutiny assessment has been made and four years have expired, he cannot take action under section 147 of the Income Tax Act. A perusal of the reasons (extracted supra) would indicate that the AO has nowhere demonstrated this fact. Apart from the above, a perusal of the assessment order passed under section 143(3) would indicate that all these facts have duly been considered and the AO has accepted the stand of the assessee. The finding recorded by the AO in the original assessment order is worth to note. It reads as under: "4. During the year under consideration the assessee has shown total Long Term Capital Gain of Rs. 58,76,830/- and has shown a short term capital loss of Rs. 26,44,800/-. Thus totaling net Long Term Capital Gain Rs. 32,32,....
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....in recent future and the prospects of the business were very poor. Moreover, there were the chances of incurring huge loss in the said project and our client had envisaged the said fact and decided to transfer the share as per agreed rate. It is respectfully submitted that since our client was a minority share holder in a Company and the dispute had arisen amongst the two groups and therefore, our client had no alternative but to quit in as much as it was felt by him that otherwise in future he would not fetch this value. Moreover, the huge amount of deposit in form of unsecured loans with the companies as well as Capital balance and loans in various partnership firms were also stuck up and therefore, our client had to agree with the terms of settlement and the offered price of equity shares of the companies. Thus it was a kind of distressed sale. The entire settlement of partition was made in terms of a Memorandum of Understanding made by the two groups and the same was made as per the terms and conditions of the said MOU. Accordingly, our client had actually received the sale consideration for transfer of shares as per the agreed price between both the parties. 3. Thus your ho....
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....resume that the sale consideration is not properly shown by him. It was a commercial expediency and needs and circumstances of the assessee which compelled him to transfer all his interest in the business for which he received a consideration which was reasonable according to him under the than prevailing circumstances and the same was disclosed by him in the return of income. I have considered the submission made by the assessee and after going though a copy of the MOD which is placed on record, it appears that the reasons stated by the assessee's A.R appears to true and the assessee has sold the shares in distress and thus has incurred a loss which has been set off against the long term capital gain. Further, the calculation of value of shares has been determined as per the balance sheet submitted by the assessee and as per accounting norms set by the Chartered Account's Association of India." 8. As far as second aspect is concerned, allegation of the AO in the reasons is that in the memorandum of arrangement to the sale of shares shows that a sum of Rs. 28,90,500/- was to be received by the assessee from M/s.Manish Multi Packfilms Pvt. Ltd. It was a sum advanced by t....