TaxTMI 
TaxTMI 
2019 (12) TMI 251
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....equiring adjudication by him. 2. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding the disallowance of Long Term Capital Loss of Rs. 2,41,93,750/- incurred by the appellant on the sale of shares of I Call India Pvt. Ltd. 3. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding the addition of the amount of expenditure disallowed u/s. 14A, while computing the appellant's book profit u/s. 115JB. 4. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in dismissing Ground No. 9 of the appellant's appeal contesting adjustment by way of addition while computing the appellant's book profit u/s. 115JB, in respect of provision for doubtful debts amounting to Rs. 3,48,46,722/-. 5. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in dismissing the appellant's Ground No. 11 challenging levy of interest u/s. 234B (Rs. 10,59,696) and u/s. 234C (Rs. 1,62,168) on the ground that the levies were man....
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....said investee company has had huge amount of accumulated loss. We are submitting herewith the financial statements of F.Y.2007-08 and 2008-09 as well as Statement of total income of F.Y.2007-08 and 2008-09 of (Call India Pvt. Ltd, (Annexure-l) In so far as basis of valuation of shams at the time of acquisition of shares is concerned, the valuation was done by way of negotiations having regard to the financial position of the company, the future of the BPO and call center business and the diversification of business interest of the assessee company." The assessee's contention is this that those shares were acquired by the assessee with a view to earn profit in future on sale of such shares of such company, which was engaged in the business of BPO and operation of call centre but due to bad economic condition in the western countries more particularly USA which is contributed significantly portion of Revenue for the said investee company the appellant company thought it fit to sale such shares even at loss. Further that, the valuation was done by way of negotiations having regard to the financial position of the company, the future of the BPO and call centre business and the diver....
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....d hence said loss of Rs. 2,41,93,750/- was disallowed and added to the total income of the assessee which was, in turn, confirmed by the Learned CIT(A). Hence, the instant appeal before us. At the time of hearing of the instant appeal, the Learned Sr. Counsel appearing for the assessee submitted before us that the details of transaction including the balance sheet and the ledger account of those companies were duly submitted before the assessing officer whereupon the purchase made by the appellantcompany has not been disputed. He has also taken us to the balance sheet at Page 53 of the Paper Book in order to substantiate his argument. Apart from that, it was further argued that the Learned CIT(A) basically confirmed such disallowance on the fact that such transactions were entered into within the group entities thus both the purchase and sale transactions of shares are controlled transactions and finally holding the transaction not genuine; the same found to be manipulated on the basis of the facts and circumstances of the case is not permissible in view of judgments pronounced on identical facts by the Jurisdictional High Court in the matter of ACIT-vs-Biraj Investment Pvt. Ltd....
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....subsequently confirmed by the learned CIT (A). 10.2 Now the controversy arises whether the loss claimed by the assessee in the given facts and circumstances is based on business expediency or it was used as a tool of a colorable device to generate such loss. 10.3 It is an undisputed fact that all the parties which carried out such transaction were identifiable and there was also a consideration among such parties. The limited issue before us is that whether the assessee can sale listed shares off-marketat a price lesser than the price listed on the stock exchange. 10.4 The price prevailing on the stock exchange at the relevant time was Rs. 33.30 per share. It is an undisputed fact that among other things the price at the stock exchange is decided by demand and supply of the shares. It means if there is more supply of the shares in the market, the price of the share will fall and vice versa. Thus, if the assessee would have sold these shares through the network of the stock exchange, the possibility of the reduction in the value of shares in the market would not have been avoided. It is because at that relevant time the daily average number of shares trade....
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.... 10.8 From the plain reading of the above provision we note that the law was amended to bring the transaction of unquoted sale and purchase of shares under the net of income tax concerning the sale price of the shares. As per the provisions of section 50CA of the Act, the sale price of shares other than quoted shares shall be the fair market rate which shall be determined as prescribed under the rule 11UAA of the Income Tax Rule. 10.9 From the above provisions it is clear that the lawmakers have not brought any mechanism to determine the sale price of quoted shares if sold off-market. Thus it is transpired that the sale price of the quoted shares shall be the price as agreed between two parties if it is soldoff-market. 10.10 We also note that there is no provision under the head capital gain which empowered AO to determine the fair sale or purchase price of the quoted shares between the related parties unlike the provisions of section 40A(2) of the Act under the head business & profession. 10.11 Thus after considering the above facts, we are of the opinion that AO is not correct in challenging the sales consideration decided by the parties. There i....
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....ection 52 was not meant to apply to tax capital gains on the basis that the assessee might have gained or could have gained a higher price which in factwas not received. Reference can be also made to CITv. Godavari Corpn. Ltd. [1993] 68 Taxman 344/200 ITR 567 (SC) and judgments of this Court in CIT v. Dinesh Jain, HUF [2012] 25 taxmann.com 550/211 Taxman 23/[2013] 352 ITR 629 and CIT v. Gulshan Kumar [2002] 123 Taxman 111/257 ITR 703 (Del). 25. As noted above, Section 52 of the Act was omitted by Finance Act, 1987 with effect from 1st April, 1988. The said provision, therefore, was not applicable in the Assessment Year 1999-2000. We have referred to the aforesaid judgment in K.P. Vearghese case (supra) as this judgment was referred to and distinguished by the tribunal in the impugned order. We have also referred to K.P. Varghese case (supra) to elucidate that the legal ratio propounded with reference tothen applicable Section 52 of the Act would be against the Revenue even if the said Section was applicable. It is obvious that when Section 52 of the Act itself was not applicable, the Assessing Officer could not have substituted the actual sale consideration received by the....
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....hat every transaction or arrangement which is perfectly permissible under law, which has the effect of reducing the tax burden of the assessee, must be looked upon with disfavour. Though the Madras High Court had occasion to refer to the judgment of the Privy Council in IRC v. Challenge Corporation Ltd. , and did not have the benefit of the House of Lords's pronouncement in Craven , the view taken by the Madras High Court appears to be correct and we are inclined to agree with it." 11.3 Further, we also note that Hon'ble Jurisdictional High Court in case of Banyan And Berry Vs. Commissioner Of Income Tax (222 ITR 831) held that tax planning within the law is permissible and only if any transaction which is reducing the tax liability cannot be regarded as a colorable device. The court also discussed the meaning of colorable device and case of McDowell & Co. Ltd vs. Commercial tax officer (supra) in detail. The relevant extract of the order is read as under: "From the aforesaid, it is apparent that on the factual aspect the Court was considering the case where in a going business a liability to pay duty which was legally of the assessee and which on such payment....
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....en used in its ordinary dictionary meaning as per Shorter Oxford Dictionary means 'inneuity, something device, arrangement, plan, contrivance, a plot or a trick. Black's Dictionary refers to device as contrivance, a scheme, trick. Subterfuge - according to ordinary meaning as per the Shorter Oxford English Dictionary - means that to which one refers for escape or concealment. Subterfuge on historical principles means, an article or device to which a person refers in order to escape the force of an argument, an excuse with which conceals a clue.So also the expression dubious refers to a doubtful or of questionable character. That is to say what has been deprecated as tax planning for avoidance of tax are those acts which have doubtful, or questionable character as to their bona fide and righteousness. Not all legitimate acts of a taxpayer which in ordinary course of conducting his affairs a person does and are under law he is entitled to do, can be branded of questionable character on the anvil of McDowell (supra). We are unable to read in the aforesaid decision that any act of an assessee which results in reduction of his tax liability or....
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.... the income as per the provisions of the Act. As the assessee has not claimed the set off of such loss, we are of the view that the same cannot be held as the result of the colorable device. 11.7 We also note that the purchase and sale of the shares by the assessee of the shares of Arvind Ltd were duly supported with the relevant shreds of evidence which are placed on pages 50 to 53 of the paper book. It is also pertinent to note that the lower authorities did not doubt the details of the purchases and sales of the securities. 11.8 In view of the above, we are not inclined to uphold the finding of authorities below. Accordingly, we set aside the order of learned CIT(A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 19. We have heard the rival contentions and perused the materials available on records. In the instant case, the assessee has acquired the shares of AKAL at Rs. 500 per share represented by the premium of Rs. 490 and face value of Rs. 10 per share. The assessee acquired these shares on 20th March 2010 which were sold on 25th March 2010....
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....ovision by introducing Section 50CA of the Act which reads as under: "[Special provision for full value of consideration for transfer of share other than quoted share. 50CA. Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being share of a company other than a quoted share, is less than the fair market value of such share determined in such manner as may be prescribed 40a , the value so determined shall, for the purposes of section 48, be deemed to be the full value of consideration received or accruing as a result of such transfer. Explanation.-For the purposes of this section, "quoted share" means the share quoted on any recognised stock exchange with regularity from time to time, where the quotation of such share is based on current transaction made in the ordinary course of business.]" 19.4 However, section 50CA is applicable w.e.f. 01st April 2018, therefore, for the assessment year under consideration there was no mechanism under the law to determine the sale price of unquoted shares. Similarly, there is also no provision under the provision of law to determine the price, which shou....
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....cern from whom the assessee has raised loan to the extent of Rs. 18 crores and the decision was taken to repay the loan and arrest the payment of interest on such loans, the shares of the group concern were sold in off market transaction to BVHPL. The said transaction is not a colorable device. Further, the assessee has sold the shares on the market price prevailing on the date of sale and no fault can be found with such transactions undertaken by the assessee. In case as against the market value, the other concern had purchased the shares at a higher value, then it would be questionable, but it is not so, in the present case and hence, we find no merit in the orders of authorities below in holding that the loss claimed by selling the shares of GGDL to its 100% subsidiary below the book value should be ignored while setting it off against the other income, if any, in current year or for carry forward and set off in subsequent years. The loss was worked out at (-) Rs. 2,75,83,524/-. We reverse the orders of Assessing Officer and CIT(A) in this regard and hold that the total loss arising on the said transaction can be adjusted against the gain arising on sale of unquoted sha....
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....hares at a premium is the prerogative of AKAL which cannot be questioned. Similarly, the decision of the assessee to subscribe the shares of AKAL at a premiumis its prerogative which cannot be questioned. The only test to treat the sum of share capital as income under section 68 of the Act or 56 of the Act and that too in the hands of the recipient i.e. AKAL in the instant case. In this regard, we find support & guidance from the judgment of Mumbai Tribunal in the case of Green Infra Limited Vs. ITO reported in 38 taxmann.com 253 wherein it was held as under: "No doubt a non est company or a zero balance company asking for a share premium of Rs. 490 per share defies all commercial prudence, but at the same time one cannot ignore the fact that it is a prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of the shareholders whether they want to subscribe to such a heavy premium. The revenue authorities cannot question the charging of such of huge premium without any bar from any legislated law of the land." 19.10 Thus we hold that the investment made by the assessee at such a high premium and subsequent sale at a loss ....
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....the example given above. In the case on hand, the shares were sold within 5 days from the date of acquisition. Accordingly, the loss was incurred in the same financial year in which the assessee acquired the shares. The transaction resulting the loss creates suspicion in the mind that it was generatedfor the purpose of the loss in order to set off the taxable income. Now the next doubt arises that such loss must have been set off against the income. But the fact is that the assessee has not claimed the set off of such loss in the year under consideration. In our considered view this fact cannot be ignored. It is because if the assessee would intend to set off of such loss in the same financial year, then it would have done so in that year only. But the assessee has not done so. Thus had there been any planning of the assessee for creating such bogus loss than it should have claimed the set off of such loss in that year only. It is also pertinent to note that such loss was not set off till the date of the passing of the order by the ld. CIT-A dated 16-11-2015. 20.5 We also note that the assessee acquired the shares at the fag end of the financial year which was sold immedia....
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....rt in the case of CIT Vs. A. Raman & Co. reported in 67 ITR 11 wherein it was held as under: "Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented." 20.9 Thus from the above, we note that the conduct of the assessee is suggesting that the loss was not created purposefully to meet some malafide purposes. 21. We also want to explain such loss incurred by the assessee with the help of another example. 21.1 Supposing Mr. X, a trader in shares, acquires 10 shares of ABC Ltd having a face value of _ 10 per share at a premium of rupees 490.00 per share in the financial year 2009-10. Accordingly, Mr. X has shown stock in trade at _ 5000 in its books of accounts. Further Mr. X requires to value such stock in trade in the balance sheet as on 31.3.2010 which comes to R....
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....and she received the difference of the value by fraudulent means. There was no evidence direct or inferential, nor was there any finding by any income-tax authority that the assessee indulged in such a practice. We are fortified in our view by a judgment of the Supreme Court in the case of CIT v. Shivakami Co. Pvt. Ltd. [1986] 159 ITR 71 (SC). We also find support in our view from a Division Bench judgment of the Bombay High Court in the case of India Finance and Construction Co. Pvt. Ltd. v. B.N . Panda, Dy. CIT[1993] 200 ITR 710." A.Y. 1994-95 We further find that the order of ld. CIT(A) is in conformity with the decision of jurisdictional High Court in the case of MarghabhaiKishabhai Patel & Co. (supra) wherein Hon'ble Court referred to the case of Madras High Court in the case of RamlingaChoodambikaiMils Ltd. vs. CIT (1955) 281 ITR 952 and that of Gujarat High Court in the case of CIT Vs. KeshavlalChandulal (1996) 59 ITR 120 and held as under:- "In absence of evidence to show either that the sales were sham transaction or that the market price were in fact paid by the purchasers, the mere fact that goods were sold at a concessional rate to benefit to purchaser at t....
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....price lower than the market rate. If that be so, the question of inflating the loss by transferring the shares to group company would not arise. Under ordinary circumstances, it is always open to the assessee in his own wisdom to either hold on to certain bunch of shares or to sell the same to avoid further loss, if he finds that market value of the shares is fast diminishing. It is equally open for the assessee to effect such sale during the same year when he also chooses to dispose of certain profit making shares. In the present case, of course, there is a further angle of the shares in question being pledged to IDBI and therefore it would not be possible for the assessee to deliver the original share certificates to its purchaser along with the duly signed transfer forms. As already noted, such special angle may have repercussion insofar as the legal relation between the assessee and the IDBI is concerned and insofar as the purchaser's right to have shares transferred in its name is concerned. This, however, by itself would not establish that the sale of shares was only a paper transaction and a device contrived by the assessee to claim loss which it did not suffer ....
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....t in the matter of ACIT-vs-Biraj Investment (P.) Ltd. while deciding the identical issue the Hon'ble High Court was pleased to observe as follows: "17. We are not inclined to accept the Revenue's contention that this was a colourable device and that the entire arrangement was a paper arrangement. Firstly, there is no provision in the Act which would prevent the assessee from selling loss making shares. Simply because such shares were sold during the previous year when the assessee had also sold some shares at profit by itself would not mean that this is a case of colourable device or that there is a case of tax avoidance. Further, there is no restriction that such sale or transaction cannot be effected with a group company. As long as the Revenue could not doubt the sale price of the shares, it would not be open for the Revenue to contend that the assessee had shown loss which it did not really suffer. In the present case, it is not even the case of the Revenue that shares were sold at a price lower than the market rate. If that be so, the question of inflating the loss by transferring the shares to group company would not arise. Under ordinary circumstances, ....
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....stions in the affirmative, i.e. in favour of the assessee and against the Revenue. Tax Appeal is accordingly dismissed." It appears that only because of the reason that the shares were sold to the related parties. The transaction has been held to be colorable devise in order to evade tax tough the entire books of accounts were placed before the authorities below where the entire transaction was reflected. The transaction has been levelled as ingenuine, manipulated without taking into consideration this particular aspect of the matter that there is no provision in the Act which would prevent the assessee from selling loss making share even in the present facts and circumstances of the case. Hence, respectfully relying upon the order passed by the co-ordinate Bench and jurisdictional High Court we find no reason for disallowance of the long term capital loss to the tune of Rs. 2,41,93,750/- incurred by the appellant and hence the same is deleted. This ground of appeal is thus allowed. Ground No.3 The Learned CIT(A) has upheld the amount of expenditure disallowed u/s 14A while computing the appellant's book profit u/s 115JB. Upon examination of the computation of the total....
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.... be added bach to net profit only if clause (o) of Explanation to section 115JA stands attracted - Held, yes - Whether clause (c) of said Explanation is attracted only if amount is set aside as provision; provision is made for meeting a liability; and provision is for an unascertained liability - Held, yes - Whether whore debt was amount receivable by assesses, any provision madatowards irrecovenabi/ity of said debt could be said fo be s provision for fiabi/ity so as to attract clause (c) of Explanation and could be added back to net profit for purpose of computing book profit under section 115JA-HeJd, no Accordingly, provision for doubtful dobtis not required to be added wMe computing taxability u/s 1 \ 5JB of the IT Act." However such plea of the assessee was not found suitable and hence the expenses was disallowed u/s 14A to the tune of Rs. 2,01,79,762/- and was added to the book profits u/s 115JB explanation 1(f) of the Act which was, in turn, confirmed by the first appellate authority. At the time of hearing of the instant appeal, the Learned Sr. Counsel appearing for the assessee submitted before that this issue is squarely covered by the Jurisdictional High Court in th....