TaxTMI 
TaxTMI 
2019 (6) TMI 353
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....al raised by the Revenue are as follows: (i) That on the facts and circumstances of the case, the ld. CIT(A) has erred in deleting the addition made u/s 68 of the IT Act ignoring the fact that the alleged sale of shares of "Dehra Dun Tea Co. Ltd." took place at a price of Rs. 15,611/- per share and the trading was not through the Stock Market and that the market price of the scrip as confirmed by the SEBI stood at Rs. 4.20/- per share as quoted 18 months before the date of transaction. (ii) And that there was no intention on the part of both buyer and seller to determine the market condition of demand and supply in spite of availability of proper mechanism. (iii) And that the prices of each shares were sold at 3717% of the last quoted price of it in the open market and the buyer or seller did not go through the mechanism of classifying those shares as is normally done before trading in inactive shares. (iv) That the assessee craves for leave to add, delete or modify any of the grounds of appeal before or at the time of hearing. 4. Brief facts qua the issue are that the assessee company filed its return of income for the assessment year 2007-08....
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....he sale price of Rs. 15,611/- per share, as reported by the assessee and to cover it, all the said transaction was not, as mandatorily required reported to the Calcutta Stock Exchange to hide the bogusness of the said transaction. The entire facts goes to show that the said transaction was through organized connivance between the buyers and the sellers to convert their undisclosed income into white, in total disregard to free pricing objective with which shares are listed in the Stock Exchange. 6. Considering the above facts and circumstances of the case, the assessing officer computed the long term capital gain by applying the last traded price in the Stock Exchange i.e. Rs. 4.20 per share and that remaining amount was treated as "undisclosed income" as per Section 68 of the I.T. Act, as under Before making the addition of Rs. 12,86,00,032/-,the assessee was given sufficient opportunities by serving show cause letters by AO, but no plausible explanation could be put forward by assessee to disprove the above. Therefore, assessing officer made addition under section 68 of the Act to the tune of Rs. 12,86,00,032/-. 7. Aggrieved by the stand so taken by the Assessing Officer,....
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....count with HSBC. Since the shares of the said company were listed on Calcutta Stock Exchange hence in terms and Regulation of SEBI (Substantial Acquisition of Shares and Takeover) regulation 1997, the acquirer company i.e. M/s Logical Buildwell Pvt. Ltd. (now known as M/s Loam Realtors Pvt. Ltd.) was required by SEBI to acquire shares of other shareholders in accordance with such SEBI Regulations up to 20% at Rs. 15,611/-. Accordingly, the acquirer company made public announcement in newspapers to purchase up to 20% of the remaining shares at the negotiated price of Rs. 15,611/- per share. After publication of the open offer to the shareholders, the merchant Bankers applied to SEBI for their approval and SEBI after giving direction and changes approved the Letter of Offer. Subsequently, the acquirer company made in the open offer and the acquirer made a public announcement published in the newspaper dated 25.9.2006. Accordingly, the acquirer company acquired the remaining 20% shares @ 15,611/- per share only through the transparent process of public offer and the shares were acquired from other than related concerns also at Rs. 15,611/- per share. The Counsel submitted a copy of Ba....
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....of the total shares of DTCL, vide an agreement dated 10.07.2006, the assessee along with such other related concerns agreed to sell such 53.38% equity shares @ 15,611/- per equity share in off market transaction and not through Calcutta Stock Exchange where the shares were listed. Consequently, the assessee considered such sale price of the said shares in its computation of income under the head capital gain and reported a total long term capital gain of Rs. 12,85,87,563/-. The A.O. in the course of assessment proceedings sent notices to Calcutta Stock Exchange where the said shares were listed and the said Stock Exchange reported the last traded price of the said scrip at Rs. 4.20 per share around 18 months before the date of alleged transaction. The A.O. in its order alleged that the said transaction was a bogus transaction between the buyer and seller to convert their undisclosed income into white money. Consequently, the A.O. treated the sale price of said shares at only Rs. 4.20 per share and considering the difference of the cost price of Rs. 5.71 and such sale price ( as considered by A.O. ) of Rs. 4.20 per share considered at Rs. 12,469/- as a net long-term capital loss and....
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....007 (pb 294 to 291). (14) Copy of order sheet dated 23.11.2009 showing,"Sri S. C. Soni appeared today and filed the Publication of open offer published in Financial Express on 13.7.2006 wherein the open offer was given by Logical Buildwell Pvt. Ltd. (Purchaser) for acquisition of shares of Dehradun Tea Co. Ltd. @ 15611/- per shares to other shareholders ( holding balance 46.62% of stake). He stated the said offer is approved by the SEBI. This document was produced to justify the sale of shares of the above Co. by "A" @ 15611/- on the basis of written agreement entered into between the Purchaser "Logical Buildwell Pvt, Ltd." and the 'A' & others on 10.7.2006 in which 'A' and other sold 53.38% of stake. As regards the taxation @ 10% on Capital Gain on said transaction Sri Soni stated that since the shares was listed in Calcutta Stock Exchange the Capital Gain is taxed @ 10% even though the transaction is not executed / routed through the exchange. The same is noted." (15) Certificate of Incorporation dated 14.03.2006 of M/s Logical Buildwell Pvt. Ltd. and Certificate dated 01.09.2007 regarding change of name from M/s Logical Buildwell Pvt. Ltd. to M/....
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.... shown capital gains from sale of shares in off-market transactions which transactions were confirmed by share brokers, A.O. was not justified in making addition of the amount of capital gains under sec. 68 on mere suspicion and enquiry from stock exchange-In off-market transactions in shares, any enquiry from the stock exchange will not yield result in favour of Revenue-Revenue has to see whether the sale has been effected or not as per the documents and as per the acceptance and admission of the respective stock brokers. Held: In off-market transactions, any enquiry from the stock exchange will not yield result in favour of the Revenue. The Revenue has to see whether the sale has been effected or not as per the documents and as per the acceptance and admission of the respective stock brokers. As it has been assertively argued by the Authorized Representative that both the stock brokers had not denied transactions and the capital gain has been shown, the A.O. Simply by casting doubt for alleged purchase of house property for Rs. 11,00,000/- cannot treat the same as cash credit. Suspicion cannot replace the real evidential documents. Simply by arguing it to be a case of ma....
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....ed in the case of the assessee as well. The assessee has submitted that the purchaser of the share of the above named Company i.e. Dehradoon Tea Co. Ltd., namely, Logica Buildwell (P) Ltd. [now known as Loam Realtors (P) Ltd.] has purchased the shares from other persons as well @ Rs. 15611/- per share and to substantiate the same the assessee has submitted a copy of Balance Sheet of the said purchaser. Further, the assessee has taken a plea in his submission that the transaction of purchase of such shares by M/s. Logical Buildwell (P) Ltd has been accepted by the same IT.O. and the assessee has also submitted a copy of assessment order of such person [i.e. Mr. Mudit Kumar -PAN - AFWPK2452F]. Thus, on the same issue the same assessing officercannot take two different views. 13. We note that the transaction of sale and purchase of shares was not done through the Kolkata Stock Exchange where M/s. Dehra doon Tea Company Ltd (DTCL) was listed. Therefore, ld AO was of the view that the entire sale was done through off line transaction so as to bypass the proper mechanism for market determination of the price of shares. On this issue, it may be clarified that a transaction of shares ca....
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....hares of M/s. DTCL. We note that these issues were duly brought to the knowledge of the A.O. by the assessee through letters dated 19/12/2009 and 29/12/2009 (pb227 to 233) but AO did not acknowledge this in his assessment order. 14. We note that in the Assessment Order, the A.O. has alleged that although 18 months before the sale of shares, the shares of M/s. DTCL were transacted for only Rs. 4.20 per share, these were sold at Rs. 15,611/- per share by the promoters reflecting an appreciation of 3,717 % in the price of shares. The A.O. has further stated that such appreciation could not have been achieved in the process of normal trading through a stock exchange (Capping Mechanism), the assessee, therefore, through "Organised Connivance" sold the shares through an agreement and thereby converted black money into white. The assessee had explained this to the A.O. through letter dated 29/12/2009 by stating as below : "Regarding the last traded price (about 18 months previous to the date of transaction) we may state that the shares of the company were thinly and infrequently traded in the stock exchange and hence the price did not reflect the true market price or net worth....
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....letter dated 17.10.2006 wherein the valuer's report valuing the land at around Rs. 137.00 crores was duly intimated. It may kindly be appreciated that intrinsic value of shares in determined only by the value of assets and liabilities of the company. It may not be out of place to mention that acquirer has also purchased the shares in open public offer from other public shareholders at such rate i.e. Rs. 15,611/- per share only." We note that M/s DTCL, as on the date of sale had only a marginal production of tea in terms of the installed capacity. Because of change in climatic condition of Dehradoon it was no longer to possible to produce tea commercially. Hence, the purchaser was not taking over a tea estate in order to run it commercially. Instead, it was aiming to unlock the intrinsic value of the property located in Dehradoon and which as per the registered valuer was worth Rs. 137 crores. In addition, M/s DTCL also had a surplus fund of Rs. 8.25 crores and some other assets. A seller will most naturally like to get the best value of its assets and this is what M/s DTCL did. 15. We note that the transaction which has been concluded within four corners of Law cannot be trea....
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.... time and where the Court is satisfied that the transaction satisfies all the parameters of participation in investment then in such a case, the court need not go into questions such a de facto control vs. legal control, legal rights vs. practical rights, etc., in the context of determining taxability. (c ).Videocon International Ltd. (STRP No. 4 of 2000. Karnataka High Court)- The Hon`ble Karnataka High court observed in the aforesaid case (only important extracts) as follows: "From the aforesaid discussion, it is clear that there is no inconsistency or deviation in the approach to the interpretation of the taxation law in England, America as well as India. It is now well settled that a citizen is entitled to arrange his affairs as not to attract taxes imposed by the State, so far as he can do so within the law. Every man is entitled to order his affairs in such a manner that the tax planning under the appropriate Acts is less than it other wise would be. If he succeeds in ordering them so to secure the said result, his ingenuity is to be respected and he cannot be compelled to pay an increased tax. He may legitimately claim the advantages of any express terms or of an....
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.... arbitrary or capriciously without sufficient ground, on suspicion or on imaginary or irrelevant grounds. In CIT vs. Orissa Corporation Pvt. Ltd. (1986) 159 ITR 78(SC) the Apex Court held that where the assessee furnishes full details regarding creditors, it is upto the Department to persue the matter further. As stated earlier also all the aforesaid evidences were duly made available to the A.O. at the time of assessment and before CIT(A) also at the appeal stage and all these were forwarded by CIT(A) to the A.O. for submitting the remand report but in the Remand Report the A.O. simply reiterated what had been said in the Assessment Order. In this case, as will appear from the aforesaid details and documents filed, the price at which the shares were sold had been not only intimated to the SEBI but even to Calcutta Stock Exchange both by the Acquirer and Seller. It is an accepted fact that whenever share in the Stock Exchange are sold as off market transaction, it is sold at the intrinsic value of shares and that is what has happened in this case. In Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288(SC), the Supreme Court disapproved the practice of making additions in the....
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....nce with CSE ,wherein some brokers and certain scrip were suspended by SEBI, for which he sought time to produce evidence in this regard. In the subsequent hearing, the ld DR did not advance any argument by producing any evidence to prove his bald allegation on the subject mentioned transaction. In these circumstances, we find that the bald allegation raised by the ld DR that this transaction is part of the scam is hereby dismissed and rejected and we proceed to hear this case and the issue before us based on the materials available on record. We also find that it was never the case of the lower authorities that the subject mentioned transaction was part of any scam that cropped up in Kolkata. We find that the document relied upon by the revenue in terms of MCA data which is reflected in the annual report of G.K.Consultants Ltd (being a listed company) that trading of that share had happened in BSE in Oct and Nov 2004 at Rs. 6.60 and Rs. 8.40 respectively. Apart from these two months, no trading had happened in BSE with respect to the subject mentioned scrip. Hence it could be safely concluded that this scrip was thinly traded in BSE and accordingly the assessee brought the shares ....
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.... in (2001) 244 ITR 422 (Cal) is very well founded wherein it was held that :- "Perusal of the details furnished revealed that the purchase and sale of the shares could not be accepted as having been transacted on the same date. Payment by account payee cheques had not been disputed. Merely because some broker failed to appear, the assessee should not be punished for the default of a broker, and also on mere suspicion the assessee's claim should not be denied." Similarly in another decision of the Hon'ble Calcutta High Court in the case of CIT vs Emerald Commercial Ltd reported in (2002) 120 Taxman 282 dated 23.3.2001, it was held that :- "Admittedly the details of purchase and sale of shares were furnished. The payment and receipt were by account payee cheque. The identity of seller and purchaser was not in dispute. The disallowance was basically made on the ground that the assessee failed to produce the brokers for verification of the transaction. Following the view on a similar issue in the case of CIT vs Carbo Industrial Holdings Ltd (2000) 244 ITR 422 (Cal) , non-production of the share broker by the assessee did not disentitle it for claim o....
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....money. 2.9.6. In view of the aforesaid facts and findings and the judicial precedents relied upon , we have no hesitation in directing the ld AO to accept the claim of exemption of LTCG of the assessee arising out of sale of shares of G.K.Consultants Ltd and accordingly allow the ground raised by the assessee in this regard." 18. We note that on identical facts, the Coordinate Bench of ITAT Kolkata in the case of Surya Prakash Toshniwal -HUF, in ITA No.1213/Kol/2016, for A.Y.2005- 06, held as follows: "11. We have heard the rival contentions and perused the materials available on record. In the present case the assessee has shown income from long term capital gain for Rs. 14,46,529.00 which was claimed as exempted income under section 10(38) of the Act. However, the assessing officer treated the same as income from other sources by holding such income as bogus and from undisclosed sources which was routed in the disguise of long term capital gain. The addition made by the AO was also upheld by the learned CIT(A). Now the issues before us arises for our adjudication so as to whether the long term capital gain income claimed by the assessee is bogus income in the....
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....guilty under the income tax proceedings. The assessee in the instant case has made the transactions for the sale and purchase of the shares through a valid stock broker who was in existence at the relevant time with the stock exchange and this fact has not been doubted by the lower authorities. In view of the above we hold that the lower authorities had not brought on record sufficient reasons for disallowing the claim of the assessee. In this connection we rely in the case of CIT versus Carbo Industrial Holdings Limited reported in 116taxman159 where the Hon'ble jurisdictional High Court has held as under : "If the share broker, even after issue of summons does not appear, for that reason, the claim of the assessee should not be denied, specially in the cases when the existence of broker is not in dispute, nor the payment is in dispute. Merely because some broker failed to appear, assessee should not be punished for the default of a broker and on mere suspicion the claim of assessee should not be denied." Similarly we also find guidance and support from the judgment of Hon'ble jurisdictional High Court in the case of CIT Vs. Emerald Commercial Ltd. reported in 12....