TaxTMI 
TaxTMI 
2019 (4) TMI 1383
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....The CIT(A) erred in confirming the disallowance of short term capital loss of Rs. 15,08,10,000 arising on the sale of shares of Vadivarhe Specialty Chemicals Ltd. 2. The CIT(A) erred in confirming the disallowance of long term capital loss of Rs. 1,93,16,031 arising on the sale of shares of Pentagon Manufacturing and Marketing Ltd. 3. The CIT(A) erred in holding that the transactions of subscription to the shares of Vadivarhe Speciality Chemicals Ltd.@ a premium of Rs. 9,900 per share and sale of 16,500 shares @ Rs. 860 per share by the appellant were :- (i) not genuine and, (ii) had no business purpose and, (iii) were undertaken with the sole purpose of avoiding tax. 4. The CIT(A) erred in holding that the transaction of sale of the shares of Pentagon Manufacturing and Marketing Ltd. @ Re. 1 per share was not a genuine business transaction. 5. The CIT(A) erred in : (a) holding that there was no basis for determining the sale price of the share of Pentagon Manufacturing and Marketing Ltd.@ Re.1 per share (b) determining the value of the said share at Rs. 3.35 instead of Re.0.11 on 22.02.2010, the date of sale of the said shares. 4. The Revenue in ITA No.448/PUN/2....
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....ssee then was asked to furnish details of short term capital loss and long term capital loss claimed against the aforesaid shares. The first transaction was sale of shares of Vadhivare Specialty Chemicals Ltd. and the assessee had claimed loss of Rs. 15.08 crores. The Assessing Officer noted that the assessee had floated this company on 23.02.2009 and he was holding 4,940 shares at the face value of Rs. 100/-. Subsequently, the assessee purchased 16,500 shares on 13.01.2010 again at face value of Rs. 100/- and at premium of Rs. 9,900/-. The assessee thus, had shown cost of acquisition of the said shares at Rs. 16,50,00,000/-. The said company had issued 8 bonus shares on one share held on 27.01.2010 (within 13 days of acquiring the said shares, the company had issued 8 bonus shares). Immediately after the announcement of bonus shares, the assessee sold original 16,500 shares on 22.02.2010 to Manasi S. Pophale at the face value of Rs. 100/- and at premium of Rs. 760/- per share. The total sale consideration was Rs. 1.41 crores as against cost of acquisition of Rs. 16.50 crores and hence short term capital loss of Rs. 15.08 crores. On show cause notice, the assessee explained the t....
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....ew that premium of Rs. 9,900/- per share was decided by assessee on his own wish as he was the major shareholder of the company and the other shareholders were also his family members. The assessee thus, had no bonafide justification to purchase the shares at a premium of Rs. 9,900/- per share and this purchase clearly reflected the intention of assessee when subsequently, he sold the shares to his daughter. The Assessing Officer further notes that when the shares were sold to daughter on 26.02.2010, the premium had reduced to Rs. 760/-, whereas on 13.01.2010, he had purchased the shares at premium of Rs. 9,900/- per share. The Assessing Officer questioned the fall in premium of shares from Rs. 9,900/- per share to Rs. 760/- per share within period of 44 days when there was no change in the company's functions. On the analysis of said facts, the Assessing Officer came to the conclusion that short term capital loss shown by the assessee on account of sale of shares of Vadhivare Specialty Chemical Ltd. was not genuine. Hence the Assessing Officer held the entire transaction to be colourable and self- serving and hence, the explanation of assessee vis-à-vis loss on sale of shar....
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.... Specialty Chemicals, the funding was provided through share capital. The company on 27.01.2010 issued bonus shares in the ratio of 8:1 and on 29.01.2010 the assessee sold 16,500 shares at face value of Rs. 100/- and premium of Rs. 760/- per share. The said sale was to his daughter Manasi S. Pophale for total consideration of Rs. 1.42 crores and hence, the short term capital loss of Rs. 15.08 crores. The perusal of Balance Sheet, financials of the said company, wherein the company had not entered into any major transactions of carrying on the business reflects that there was no merit in purchase of shares at face value with premium of Rs. 9,900/- per share after few days of incorporation of the said company. Further, this purchase was on 13.01.2010 and on 27.01.2010 bonus shares were issued and on 29.01.2010 the shares were sold at face value of Rs. 100/- plus premium of Rs. 760/- per share. The assessee has failed to justify first the cost of purchase i.e. with premium of Rs. 9,900/- per share and then the sale consideration i.e. premium of Rs. 760/- per share. In the absence of the same, the loss claimed by assessee is not justified and we uphold the orders of authorities below ....
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.... net worth worked out to Rs. 47,00,602/- and considering this value of net worth, the net asset value per share came to Rs. 3.35. The Assessing Officer was of the view that on the basis of NAV as on 31.03.2009, the value of shares was Rs. 1570/- per share but after considering the effect of loss, the value of shares was Rs. 3.35 per share. However, the assessee had sold shares at the value of Rs. 1 per share which was sold to the daughter of assessee. The Assessing Officer noted that this company was closely held company of the assessee and his family members and the assessee himself was the major shareholder of the company. The Assessing Officer was of the view that there was no rationale justification of selling the shares at the price of Rs. 1 per share. The Assessing Officer further held that The above transaction show that the assessee has sold the shares to his daughter at the price which is lower than the share price of the company. It proves that, this transaction has been carried out by the assessee' deliberately and intentionally as per his own wish without any rational justification. The only purpose behind this transaction was to incur long term capital loss so that it ....
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....challenged the orders of Assessing Officer and CIT(A) in denying the set off of this loss for the reason that there was no justification for valuing the shares so low; the assessee had lots of money and therefore, there was no reason to sell the shares and also that the sale was made to his daughter was not tax planning but device to evade taxes. He then placed reliance on series of decisions to point out that even where the transaction was pre-planned, but not a colourable device although entered into with motive that plan to reduce tax, the transaction cannot be brushed aside. We will refer to the said decisions at the relevant point of time. 17. The learned Departmental Representative for the Revenue on the other hand pointed out that the Assessing Officer has worked out the value of said shares at Rs. 3.35 per share, whereas the assessee sold the shares @ 1/- per share. 18. The learned Authorized Representative for the assessee in reply pointed out that the Assessing Officer had adopted the figures on 01.04.2009. Reference was made to page 21 of the order of Assessing Officer. However, the assessee's case is that it had sold the shares on 22.02.2010, then NAV has to be wor....
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.... and not out of profits of earlier years. Taking the said figure, the breakup value of shares as on 31.03.2010 as worked out at page 124 of Paper Book in the case of Sunita A. Ramnathkar was Rs. 0.11 per share. The assessee had held 5,39,800 original shares and 3,00,000 preference shares for total value of Rs. 83,98,000/-. The entire shareholding was sold by the assessee to his daughter Manasi Pophale on 22.02.2010 @ 1/- per share for total consideration of Rs. 8,39,800/-, which resulted in loss of Rs. 1.93 crores (after indexation). The assessee claimed capital loss of Rs. 1.93 crores on sale of said shares and same was set off against capital gains declared by the assessee. The Assessing Officer did not accept the said set off of losses and was of the view that the same was carried out to evade taxes. However, the case of assessee was that it was genuine transaction and the shares were transferred to his daughter, which is not barred by any law and he admitted that it was case of legitimate tax planning. The Assessing Officer also denied the said loss set off in the hands of assessee on the ground that NAV of the said shares comes to Rs. 3.35. The assessee had sold the shares onl....
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....hown by the assessee on sale of another set of shares, then is it a case of tax planning or tax avoidance. 24. The Hon'ble Supreme Court in Union of India & Anr. Vs. Azadi Bachao Andolan & Anr. (2003) 263 ITR 706 (SC) held that citizen is free to carry on his business within four corners of law and mere tax planning without any motive to avoid taxes through colourable device is not frowned upon. The Apex Court further held that the principle laid down in Mc Dowell & Co. Ltd. Vs. Commercial Tax Officer (supra) relied upon by the learned Departmental Representative for the Revenue applies to an artificial transaction and not a real transaction. 25. In another celebrated decision, the Apex Court in CIT Vs. Walfort Share and Stock Brokers (P.) Ltd. (2010) 326 ITR 1 (SC) considering the case of a company, which had purchased the shares before dividend and received the dividend thereafter, which was tax free, and later on sold the shares ex-dividend and claimed capital loss on sale of shares, had held that even assuming that the company had made use of provisions of section 10(33) of the Act, such use could not be said to be abuse of law. It further held that even assuming that the....
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....ted further amount or waited for a reasonable period for the business to grow. The contention of Assessing Officer was rejected and the loss was allowed in the hands of assessee. 30. Another reason why the said loss was disallowed in the hands of assessee was that shares were sold by the assessee to his daughter. In this regard, we find support from the ratio laid down by Delhi Bench of Tribunal in Raghvendra Singh Vs. Inspecting Assistant Commissioner (1991) 39 ITD 463 (Delhi Trib.). In the facts of said case, the shares were sold by the said assessee to his daughter at loss. The legal form of transaction was accepted but the Assessing Officer did not allow the set off of loss on the ground that it was device to evade tax. The Tribunal allowed the claim of assessee especially when the legal form of transaction was accepted and there was no evidence to hold that the transfer was not legally effected. 31. The learned Departmental Representative for the Revenue had placed reliance on various decisions which are factually different and the said ratio are not applicable to the facts of present case, especially in view of the dictate of the Apex Court and the ratio laid down by the Ho....
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....2, relating to assessment year 2007-08, order dated 30.01.2015. 38. In the case before the Tribunal in Adar Poonawalla Vs. Addl.CIT (supra), facts were similar. The assessee therein had purchased shares of HCL Technologies Ltd. and after announcement of bonus shares of one share for every one share held on 16.03.2007, the assessee sold the original shares which resulted into loss of Rs. 15.01 crores. The claim of assessee of short term capital loss was denied by the authorities below on the ground that it was for avoidance of tax liability. The Tribunal applying the principle laid down by the Hon'ble Supreme Court in CIT Vs. Walfort Share and Stock Brokers (P.) Ltd. (supra) had held the said transaction to be genuine and allowed capital loss. The Hon'ble Bombay High Court while deciding appeal of Revenue held that Surely, the Revenue cannot object to the legitimate tax planning. Legitimately, if the assessee had claimed set off of loss against the gain in sale of shares, the Revenue cannot frown upon the same simply by pointing out that in the process, the assessee reduced his tax liability. 39. Applying the said principle to the facts of present case, wherein the facts of a....