TaxTMI 
TaxTMI 
TaxTMI 
2018 (10) TMI 675
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.... as also the purchasers and the sellers of shares were entities belonging to RPG. The AO found that in the non-STT paid transaction, the assessee company had declared substantial loss under the head "Capital Gains" which after being set off against STT paid Short Term Capital Gain of Rs. 1,33,67,748/- was claimed for carry forward. According to AO, the transactions involving purchase and sale of shares being entirely conducted within the RPG Group entities, he considered the same to be colourable device so as to provide the assessee tax benefit for the year under consideration as also in the subsequent years. Although the AO assessed the profits derived on sale of investments in RPG Group Companies sold within the same group but disallowed the loss of Rs. 34,96,00,895/- declared on sale of share/investments of RPG group entities. Aggrieved by the AO's order, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to allow the relief to the assessee by observing as under: "5. I have carefully considered the submissions of the A/R. I have also examined the details of purchase and sale of shares which the assessee conducted during the year. I have also given my due c....
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.... 8 cases securities transacted were of RPG group companies. In all 8 cases the shares were acquired from and shares were transferred to companies belonging to RPG Group. The AO did not bring on record any material to show that in the books of the corresponding parties the transactions were not given effect to or that in the hands of sellers or purchasers the sale or purchase transactions were doubted or disbelieved. I further find that in the impugned order the AO accepted the assessee's transactions in shares of 4 companies to be genuine and bona fide and accordingly gain of Rs. 2,86,59,932/- which the assessee earned from transfer of shares to four group companies was assessed to tax. I therefore find that only where the assessee incurred loss the AO doubted and disbelieved the genuineness of the assessee's transactions involving purchase and sale of shares and securities of group companies. On these facts therefore I find that the AO's action was inconsistent while holding that the transaction amongst group companies involving shares of the group companies was an artificial arrangement amounting to colourable device adopted for avoidance of tax. If the intention of t....
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....aid short term capital gain of Rs. 1,33,67,748/-. No prudent assessee would have resorted to generation of loss of Rs. 35 crores just to save tax @ 10% on SIT paid short term capital gain of Rs. 1,33,67,748/. I therefore find that the AO's premise that the assessee created artificial loss by adopting colourable device for the purpose of tax avoidance appears to be untenable. From the computation of total income filed with return I find that out of the loss of Rs. 35 crores the assessee claimed carry forward of loss u/s 74 to the extent of Rs. 30,80,00,032/-. In the course of appellate proceedings the AR of the assessee filed particulars of returns filed upto AY 2015-16 from which it was noted that in the income-tax returns of A Ys 2011-12 and 2013-14 the assessee had claimed set-off only for Rs. 4,21,309/- and thereafter the remaining loss assessable under the head short term capital gain lapsed in AY 2014-15 since investment division of the appellant company was demerged and merged into Rainbow Investments Ltd and in terms of section 72A benefit of carry forward was not available to the resultant company. From these facts and figures I find that out of the total short term c....
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....nd and had been held as "colourable device" have been held to be genuine in the hands of the group companies. Further, I note that for avoiding payment of tax on short term capital gain of approximately 4 crores, the assessee had no need to generate artificial loss in excess of Rs. 35 crores. If the intention was only tax avoidance and nothing else the assessee would not have indulged in creation of loss in excess of Rs. 35 crores. I also find that in the subsequent year the benefit of set-off claimed was only Rs. 4.21 lacs and the rest of the loss of Rs. 30.76 crores was never set-off against any income since such loss lapsed in AY 2014-15 upon demerger taking effect. On the facts of the assessee's case therefore the ratio laid down in the judgement of the Bombay High Court is found not applicable. 10 . In the present case however, the assessee maintained identical set of documentary evidences in support of purchase / sale transactions of all group companies. In transactions where the assessee made gains, genuineness of the transactions was accepted by the AO. But the transactions in which loss was suffered only were considered to be sham. I therefore find that the AO's ....
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....ration for transfer of a capital asset means the price actually bargained for by the parties to the sale. The consideration for the transfer of a capital asset is what the transferor receives in lieu of the asset he parts with. In the present case the transactional documents show that the assessee had conducted purchase and sale of shares of 8 companies. The manner of conducting these transactions, the manner in which these were accounted in assessee's books and the documents maintained in support of these transactions were same and identical. Four purchase/sale transactions in which the assessee made gain were accepted without question. In other words genuineness of 4 transactions was accepted. However 4 transactions in which assessee incurred loss have been held to be sham and bogus without bringing on record any conclusive material to disprove these transactions. The AO has held the transactions resulting in loss were colourable device, adopted for avoidance of tax. However the facts on record show that there was no need for the assessee to create loss to the extent of Rs. 35 crores for avoiding payment of current tax. Further almost 88% of the loss suffered by the assesse....
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.... those cases also the purchasers and sellers were RPG group companies only. The Ld. AR pointed out that during the FY 2009-10, the income under the head STCG was declared in respect of sale of investments in 9 companies and in 5 instances the assessee did not incur any loss but in fact earned gain and which the AO has assessed without question only because the assessee did not report any loss. It is only in respect sale of all investments that the assessee had incurred loss. In support of this submission, the Ld. DR drew our attention to page 33 of the paper book which provided the break-up of short term investments sought during the year extract whereof is as follows: Details of STCG-Non-STT Paid Scrip Qty. Book Value Sale Value Gain/Loss Brabourne Investments Ltd 1343100 134310000 13431000 -120879000 Brabourne Investments Ltd 27486 680979 274860 -406119 Chattarpati Investments Ltd 111120 38253400 2778000 -35475400 Duncan Investments & Industries Ltd 4000 1 4000 3999 Eastern Aviation & Industries Ltd 65815 6082008 314815 -5767193 Fairluck Commercial Co Ltd (Deb) 575000 48875000 57500000 8625000 KEC International Ltd 36890 337 20031270 200....
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.... of the Ld. CIT(A) allowing the relief and does not want us to interfere with the reasoned order passed by the Ld. CIT(A). 6. After giving our thoughtful consideration the submission of both the parties, we find that the entire controversy has arisen on account of the investment transactions, which were conducted by the assessee company in relation to share belonging to the RPG group to which the assessee belonged. Since such transactions were entirely carried out within the group entities also involved the investments in group entities resulted in both profit and loss, which fact raised suspicion on the part of the AO regarding the economic rationale behind such transaction. Even in the course of appellate proceedings before us, a query was put to the Ld. AR with regard to the purpose for which such intra-group transactions were conducted during the relevant year. In response, the Ld. AR clarified that all the transactions related to intra group investment between intra group companies and did not involve any third parties. He clarified that these companies belonged to the RPG group of which Shri R. P. Goenka the eminent industrialist who was the principal promoter and the said g....