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2019 (3) TMI 1713
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....nd circumstances of the case the ld. Commissioner of Income tax (appeals)ought to have appreciated the fact that the Assessing Officer has passed the Assessment order in utmost hurry without giving proper opportunities and as such the assessment order be treated as bad in law. 4. On appreciation of the facts and circumstances of the case the ld. Commissioner of Income tax (appeals) ought to have deleted the action of the ld. Assessing Officer, in disallowing the claim of short term capital loss to the extent of Rs. 81,69,60,025/-. The action of the ld. Commissioner of Income tax (Appeals) is contrary to the facts of the case and deserves to be deleted. 5. On appreciation of the facts and circumstances of the case the ld. Commissioner of Income tax (appeals) ought to have deleted the action of the ld. Assessing officer, in disallowing the claim of Software Consultancy expense of Rs. 2,42,66,000/-. The action of the ld. Commissioner of Income tax (Appeals) is contrary to the facts of the case and deserves to be deleted. 6. On appreciation of the facts and circumstances of the case the ld. Commissioner of Income tax (Appeals) ought to have deleted the action....
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....e purchase and sale of shares) which has resulted in such a huge variation in the purchase and sale price of the share. (b) The assessee has been unable to furnish the relevant balance sheets and the exact calculation of valuation of shares to justify purchase price. (c) The assessee has failed to Justify its contention made during the assessment proceedings that the shares have been purchase by it at cost of the seller of shares. This is inspite of several opportunities being given to the assessee to justify the above contention. (d) By the same logic, the assessee has failed to justify as to why the said shares were not sold by it at the cost it incurred to acquire them. (e) The assessee has failed to discharge the onus cast upon it by Sec 40A(2)(b).The assessee has not been able to furnish any evidences to establish that the shares of such concerns were purchased by some outside entities at the same price at which they were purchased by the assesse. Even in respect of the sale price, no evidence has been furnished to establish similar transactions entered into at the same price. (f) No evidence has been furnished to justify as t....
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....ble companies Hence, as a matter of strategy the shares of other companies were also sold" - thereby admitting that these group companies were never viable. Consequently, the assessee has failed to show how companies considered unviable by it could be viable for an outsider entity. Thus evidently there is careful and elaborate planning orchestrated by the assessee company within its group concerns, by virtue of which the various losses amounting to Rs. 81,69.60,025/- (Rs. 19,76,37,955/- + Rs. 7,82,26.822/- Rs. 8,80.94.970/- + Rs. 9,80,00,000/- + Rs. 35.50,00,278/-) have been brought into existence. Considering the discussion in paras 3.8.1 to 3.10 above, the total contrived losses amounting to Rs. 81,69,60.025/- (Rs. 19.76.37.955/- + Rs. 7,82.26.822/- + Rs. 8,80,94,970/- + Rs. 9.80,00.000/- + Rs. 35,50,00.278/-) are hereby treated as bogus losses and hence disallowed." 8 Ld. CIT(A) confirmed the order of AO and the relevant portion of Ld. CIT(A) is reproduced below:- "3.4 The AO's order, the contentions of the appellant and materials on record have been considered. The AO has disallowed loss declared on purchase and sale of shares in the shor....
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....sets which are claimed to be the basis of high valuation have gone. The claim that purchases would be deemed to have been made earlier since the appellant had entered into purchase agreement at an earlier date, is of little value given the fact that the transfer has been effected by only journal entries . It is also not clear why the purchase was not effected and why an agreement had to be entered into and purchase actual effected at a much later date. There is no justification provided either for purchase at such high prices, nor sales at face value, no basis of valuation for either have been filed, in spite of several opportunities provided to the appellant in assessment as also appellate proceedings. The companies being group companies, the onus also lay on the appellant u/s 40A(2)(b) of the Act. The appellant claims that the companies were closely held companies in which there were no transactions with outside entities, however even in these circumstances the appellant has failed to show how valuation of shares was arrived at either on their purchase or at the time of their sale. If the companies were not viable for the appellant, there is no reason as to why the same companies....
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....ter going through the orders passed by the revenue authorities. 10. Ld. AR reiterated the same arguments as were raised by him before the revenue authorities. As per Ld. AR, during the immediately preceding previous year i.e. in February 2008, SVJ Holdings Ltd (Star Group &Vijaya TV), seeing the market potential of the assessee company, approached it for a possible purchase of its Entertainment sector and started the negotiations for the same. Thus, accordingly an MOU was entered into by and between M/s SVJ Holdings Ltd as Investor, Vijay Television Pvt Ltd as the "company", Jupiter Entertainment Ventures Pvt Ltd and the assessee company as Sponsors in April 2008 to carry on the business in entertainment sector in a strategic partnership, for which the assessee had agreed to sell the stake in the subsidiaries for a consideration the detail of which is mentioned below: Name of the Company Activities of the Company Estimated Consideration [Pg 56] Asianet Communications Ltd. Entertainment Rs. 1,092.66 Crs Asianet News Pvt. Ltd. News Channel Rs. 4.80 Crs Asianet Radio Pvt. Ltd. FM Radio Station Rs. 1.80 Crs Asianet Infrastructure Pvt. Ltd. T....
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....td Asianet Communication Ltd 12-05-08 905,030 89,000,000 8 Fedex Finance Ltd Initial Allotment 12-12-08 200,000 100,000,000 9 Jupiter Capital (P) Ltd M K Chandrashekar 31-03-09 546,965 360,469,928 TOTAL 853,838,372 12 During the process of further negotiations, the assesse company acquired further 19,71,375 equity shares of Asianet Communications Ltd from unrelated parties as a strategic investment to consolidate the holding of the assessee company in Asianet Communication Ltd. There was a STCG on sale of said shares which was accepted by AO. 13 Ld. AR further submitted that the assessee company, finally sold only its investment in Asianet Communication Ltd to M/S SVJ Holding & Others at the agreed MOU Price of Rs. 1092.66 Crs, thus making a huge profit of Rs. 911.84 Crs by entering into Share Purchase agreement dated 27/8/2008. According to the Assessee, during the course of further discussions and negotiations between M/s SVJ Holdings & Others and the assessee company, M/s SVJ Holdings & Others showed disinterest in taking over the Hospitality and Real Estate sector of the assessee....
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.... on the assesse company. It was also submitted that all the transactions carried out by the Assessee company were genuine and supported by documentary and circumstantial evidence and were within the ambit of law. 15 On the other hand, learned DR relied on the orders of lower authorities and contended that as per observation of AO and Ld. CIT(A), the Short term capital loss was not genuine. Thus it was also contended that lower authorities have correctly added the same to the income of the assessee. He also, relied upon Section 106 of the Indian Evidence Act to state that as facts were within the knowledge of the Assessee Company, therefore the burden to prove lies on assessee. Whereas Ld. AR relied upon Section 114 of the Indian Evidence Act, 1872 to contend that the court may presume, the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct and public and private business, in their relation to the facts of the particular case. 16 After having gone through the orders passed by the revenue authorities as well as hearing the counsels for both the parties at length, we find that as per the facts of ....
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.... the Annual Returns of the companies for the year, filed with the ROC (Registrar of Companies). Thus, in this way, as per the assessee, the transfer of shares had taken place within the four corners of law. It is important to mention here that the share Purchase agreements bear the signature of witnesses and in case the AO doubted the genuineness of the said share purchase agreements, then he could have verified the same by examining the witnesses, but the said exercise had not been done by the AO. 18 The other objection raised by the AO was that no actual consideration was paid for the purchase of the shares but the transfer was by merely passing a journal entry and thus there was a book loss or paper loss. In this respect, we find from the records that purchase consideration was paid through "banking channels‟ and was thus not merely by passing journal entries. Therefore this objection raised by the AO is factually incorrect. 19 Ld. DR had drawn our attention to the fact that the purchase consideration was not paid immediately on entering into share purchase agreement. Whereas, according to Assessee, during the early stages of negotiations, the assessee didn't had....
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....the situation commanded at least the cost price to be paid by the assesse as assesse would have made more gains. 21 We further noticed that the Revenue Authorities had doubt regarding the negotiations between Assessee and M/s SVJ Holdings Ltd and Vijay television Pvt Ltd regarding purchase of "other businesses‟. In this regard, Ld. AR rightly pointed out that once Assessee had produced entire documentary evidence such as share purchase agreements etc and if at all, AO doubted the purpose behind such transactions as explained by Assessee then nothing prevented the AO from verifying the same from Vijay Television Pvt Ltd or SVJ Holdings Ltd which are independent third parties, but in the present case, such an exercise was not carried out by the AO. Further, the events subsequent to entering upon the MOU clearly show that the Investor Co. from initially showed the intention of buying the various companies engaged in GEC as well Non-GEC business, but had ultimately bought just the Entertainment Arm i.e. Asianet Communications Ltd in the Entertainment Sector. 22 Now with regard to valuation of shares, we find that once the commercially viable company M/s. Asianet Communicati....
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....annot be said that all tax planning is illegal/illegitimate/impermissible. Moreover, Reddy, J. himself says that he agrees with the majority. In the judgment of Reddy, J. there are repeated references to schemes and devices in contradistinction to "legitimate avoidance of tax liability" (paras 7-10, 17 & 18). In our view, although Chinnappa Reddy, J. makes a number of observations regarding the need to depart from the "Westminster" and tax avoidance - these are clearly only in the context of artificial and colourable devices. Reading McDowell, in the manner indicated hereinabove, in cases of treaty shopping and/or tax avoidance, there is no conflict between McDowell and AzadiBachao or between McDowell and Mathuram Agrawal." "The approach of both the corporate and tax laws, particularly in the matter of corporate taxation, generally is founded on the abovementioned separate entity principle, i.e., treat a company as a separate person. The Indian Income Tax Act, 1961, in the matter of corporate taxation, is founded on the principle of the independence of companies and other entities subject to income-tax. Companies and other entities are viewed as economic entities with lega....
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....11 cannot be applied in view of the decision in the case of Union of India v. AzadiBachaoAndolan [2003] 263 ITR 706& Vodafone International Holdings B.V. v. Union of India [2012] 341 ITR 1 (SC)." 25 Recently the Delhi ITAT in ACIT v M/s RJ Corp Ltd ITA.No.3661/Del./2014 Assessment Year 2009-2010 dtd 1/10/2018(Del)(Trib) had held that the fact that the assessee bought and sold shares of groups concerns with a view to book loss and off-set the capital gains from another transaction does not mean that the loss can be treated as bogus if the documentation is in order. In MadhuSarda vs. ITO (ITA No. 740/M/2012 dt. 29/3/2018(Mum)9(Tribunal) it was held that sale of shares to son cannot be held to be colourable device if transaction is within the four corner of law and valid. 26 The Ld AR has rightly relied on the decision in F. E. Dinshaw Limited. Vs CIT, [1959] 36 ITR 114 (Bom.)(HC) wherein it was held that in the absence of fraud, the questions whether the transaction had the effect of dismissing the assessee's taxable income and whether it was necessary for the assessee to enter into that transaction are irrelevant in determining whether expenditure relating to that transact....
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....the terms of the commercial agreement entered into when the agreement is held as valid and genuine and not collusive and the two parties are held to be dealing at arms' length while entering into the agreement dated August 20, 1963." 29 The Hon‟ble Supreme Court in two leading cases viz., in the case of CIT v. Durga Prasad More [1971] 82 ITR 540 and SumatiDayal v. CIT [1995] 214 ITR 801/80 Taxman 89 (SC) had held that even high degree of suspicion cannot replace the evidence on record. As pointed out above that the entire case of the lower authorities is on suspicion and without getting and cogent evidence on record. Even the circumstantial evidence do not support the revenue but support the Assessee. 30 We will now deal with the two decisions relied upon by the Ld DR at the time of hearing. Firstly the Learned DR relied upon the decision in Killick Nixon Ltd v DCIT [2012] 208 Taxman 45(Bom)(HC). The said decision is not applicable to the facts of the present case as in this case, Assessee had earned Long Term Capital gains [LTCG] on Sale of land of Rs. 49.72 crores in-order to discharge its liability as a guarantor for loans advanced to Geekay Exim India Ltd a comp....
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....ldtech Pvt. Ltd. a group company at premium for Rs. 7.50 crores out of said refundable security deposit. Thereafter, agreement with CharmwoodRealtech Pvt. Ltd. was cancelled and shares were paid as refund and thereby capita loss was incurred. Under these facts it was held by ITAT that once assessee had already sold the property and thereafter it again entered into agreement with respect to same land was done only to obtain a capital loss which could wipe out the capital gains on sale of land. Thus, it is clear that facts of both cases are completely different and ratio of said decision cannot be applied to the facts of present case. 34 In CIT vs. Sun Engineering (1992) 198 ITR 297 (SC) it was held that the judgement must be read as whole and the observations from the judgement have to be considered in the light of the questions which were before the Court and it is not proper to regard a word a clause or a sentence occurring in a judgement divorced from its context. As pointed out by us at the outset that present case is not a case wherein entire or substantial capital gains are wiped out by the Capital loss and thus the lower authorities have not analysed the facts of the prese....
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.... Estate Sector of the assessee company. As per the assessee, for the said negotiations, the assessee company had also purchased further investments in various other companies to consolidate and strengthen its market value. It was alleged that the intention of the assessee company was to explore the possibility of carrying on the business of running various regional languages channels in future. Therefore, keeping in mind the future expansion of the business the assessee company incurred expenditure amounting Rs. 2,42,66,000/- as consultancy fees towards purchase of software for running and maintaining channels. 40. On the other hand, learned DR relied on the orders passed by the lower authorities 41 After having heard the counsels for both the parties at length and after carefully gone through the orders of the authorities below, we are of the opinion that since incurring of expenses is not in doubt. As per the assessee, the expenses were incurred for carrying out business activity and were not personal expenses. Since the expenditure were incurred purely with a view of expanding the business of the assessee company, therefore as per the assessee, the same be allowed as an re....