TaxTMI 
TaxTMI 
2019 (3) TMI 1713
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....ppeals)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 of the ld. AO, in initiating penalty proceedings u/s. 271(1)(c) of the I.T. Act on suo....
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..... (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 to why the face value was taken as sale price. Merely furnishing the balance sheet as on 31 03 2009 do not in any way justify the sale of the said shares ....
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....onsidered 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 short term. The appellant has in the main contended that (a) the acquisition of shares was in the nature of strategic investment and to consolidate before selling the same, (b) the original intention was to sell the appellant company but the sam....
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....t 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 would be viable to outside entities. The Apex Court has in the case of McDowell & Co. v Commercial Tax Officer 154 ITR 148 (SC) held that the Courts are now concerning themselves with not merely the genuineness of a transaction, but with the int....
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....tar 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. Teleport &Uplinking Rs. 9.40 Crs 11 As per Ld. AR, M/s SVJ Holdings & others also expressed a possibility of looking at further investments in other companies of the assessees group and thus with a view to expand business opportunities and to increase the valuation of the company, since there....
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....vestment 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 company. Also with regards to the News, Radio and Infrastructure companies, they expressed their inability to buy those shares due to restrictions under FDI Regulations. Thereafter, according to Assessee as with a view to divesting the entire company, the assessee company had already entered into agreements for purchase of shares of the aforesaid other companies, the assessee company adhered to the agreement and transferred the shares in the name of the assessee company. However, since ....
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....e 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 the present case, the AO was of the view that assessee had created a colourable device with a motive to avoid the tax and that is why, the entire short term capital loss was generated to avoid the tax on the long term capital gain. Whereas on the contrary, the AO had not been able to substantiate the conclusion drawn by him because from the factual findings we noticed that the entire long term gain or substantial long term gain was not wiped out by the short term capital loss. The Long Term Capital Gains was to the tune of Rs. 911.84 crores, whereas the short term capital loss which had been set-off was only to the tue of Rs....
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.... 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 the required liquidity and the funds to directly buy out the stakes in the above companies and also since the MOU with M/s. SVJ Holdings & Others was entered into in April 08, and negotiation were being carried out for the other companies, therefore as per the submission of the assessee, they decided to get the shares transferred directly in the favour of M/s SVJ Holdings & Others, if negotiations are successful, so as to avoid double payment of share transfer fees. Accordingly it entered into a share purchase agreement with the companies for buying their stakes, to justify and strengthen their claim of having investments in Hosp....
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....VJ 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 Communications Ltd, was sold at a huge profit, no prudent businessman will, hold on to other companies purchased with the sole intention of selling them to M/s SVJ Holdings & Others. It is shown by the assessee that the Face value of the shares were more than book value and thus sale at face value cannot be seen with suspicion. The Ld AR had rightly pointed out that in A.Y. 2008-2009 there was no method prescribed for valuing the shares of Pvt Ltd company and it is only w.e.f 1/10/2009 that Rule 11U and Rule 11UA had been introduced prescribing method for valuation of shares. As discussed above, we feel that Assessee while purchasing the shares ....
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....nflict 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 legal independence vis-a- vis their shareholders/participants. It is fairly well accepted that a subsidiary and its parent are totally distinct tax payers. Consequently, the entities subject to income-tax are taxed on profits derived by them on standalone basis, irrespective of their actual degree of economic independence and regardless of whether profits are reserved or distributed to the shareholders/participants. Furthermore, shareholders/participants, that are subject to (personal or corporate) income-tax, are generally taxed on profits derived in consideration of their shareholding/participations, such as capital gains. Now a days, it is fairly well....
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....f 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 transaction should be allowed under s. 10(2)(xv). The matter has to be viewed in the light of principles of commercial trading and commercial expediency. What is required is that the expenditure must be germane to the business of the assessee and not something which is de hors the business of the assessee. If it is an expenditure of the nature of compensation for termination, of the services of an employee, the closer test would seem to us to be that of commercial expediency. If the payment is made under -the honest belief that the claim by the employee for compensation or damages is justified and the assessee has acted in the matter of the settlement of the claim as an ....
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....evenue 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 company belonging to G.K. RathiGroup . The said long term capital gains was set off against short term capital loss [STCL] of Rs. 49.73 crores on sale of shares of its subsidiaries so as to wipe out the entire gains. 31. Whereas as per the facts of the present case, the Long Term capital gains is Rs. 911.84 crore, whereas the Short Term Capital Loss is Rs. 81.69 crores i.e. the Assessee even after set off of loss has paid tax on LTCG of Rs. 830.15 crores. Further, in this case, the Assessee purchased shares or made investments in its subsidiaries by subscribing shares at a premium even though it was a cash starved company. The funds for investment came from G.K. Rathi Group. The amount i....
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....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 present case in the correct perspective. 35 Keeping in view the facts of the present case as well as the above discussion, we are of the view that the treatment of short term capital loss of Rs. 81,69,60,025/- as not genuine is not in accordance with law. Thus, the findings of Lower authorities are based on assumptions and without considering the facts and events in correct perspective. Therefore, keeping in view the totality of facts and circumstances of the present case, we are of the considered view that the disallowance of short term capital loss is not justified. Resultantly, this ground raised by the assessee stands allowed. 36 Now we take up ground No 5. In this ground the Assessee has ch....