TaxTMI 
TaxTMI 
2020 (5) TMI 78
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.... income of Rs. 31,80,06,380/-. The facts as recorded in the assessment order, the assessee company sold 6749 shares of SDB Cisco India ltd., which were obtained by the assessee from M/s. Sical Logistics Ltd., under demerger scheme approved by the Hon'ble Madras High Court vide its order dated 20. 12. 2007. Pursuant of the share purchase agreement dated 04. 03. 2010, the assessee sold 6749 shares on 09. 08. 2010 to M/s. Innovative salary services and payroll advisory Pvt Ltd., for a total consideration of Rs. 94,65,83202/-. On this sale of shares, the assessee derived a long term capital gains of Rs. 84,59,77,432/-, which was admittedly offered to tax in the return of income. The assessee also sold immovable property at Pattinamarudur and derived a long term capital gains of Rs. 107,35,200/-. Hence, the total long term capital gains disclosed by the assessee in the return of income was Rs. 85,67,12,637/-. The assessee also had certain capital loss of Rs. 56,48,52,180/- on sale of debts due from certain debtors. This capital loss was sought to be set off by the assessee with the long term capital gains. 4. The assessee company entered into an agreement assigning the debts to M/....
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....sets to its creditors; that the Asset Construction company felt that it could generate some small upside in the transaction provided the advance is assigned to it at a fractional price. Accordingly, the assessee company thought it fit to assign these advances in favour of M/s. Golden Star Asset Consultants (P) Ltd., and was able to get rid of these advances from its books and present a true and fair view of its accounts to its share holders. 6. 1 With regard to ICD and loans and advances figure due from M/s. MCC Finance Ltd. amounting to Rs. 10. 99 crores, the assessee submitted that the said company was in winding up at the time of signing of assignment agreement and all efforts of recovery of amount from the said company were in vain. The assessee submitted that by assigning the recoverability of the said dues to an independent specialist i. e. M/s. Golden Star Asset Consultants (P) Ltd., considerable time of management, which is valuable would be saved and the management of the assessee company would be able to focus on their own business rather than pursue legal cases and recovery of old advances. 7. A copy of aforesaid two Assignment Agreements were submitted before t....
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....hanged through takeover code regulations duly approved by SEBI and as such, the old liabilities standing in the books of API were assumed/taken over by the earlier promoters, namely M/s. South India Travels P Ltd. Accordingly, API replied that they had not shown claims payable to Sicagen India Ltd., i. e. assessee company in their books. API had further replied before the Ld. A. O that the assignee company i. e. M/s. Golden Star Asset Consultants (P) Ltd., had been advised to prefer their claims with M/s. South India Travels P Ltd., and not them. 9. Similarly information was called for u/s. 133(6) of the Act by the ld. A. O from M/s. MCC Finance Ltd., to understand the present position of the debts payable to the assessee company. In response thereto, M/s. MCC Finance Ltd., submitted that pursuant to the order of the Hon'ble Madras High Court in the matter of scheme of arrangement and revival of M/s. MCC Finance Ltd., the said company had requested the assessee company for exercising option with regard to dues of Rs. 10. 99 crores, which is as under:- "a) 3 year Zero Interest bonds for 40% of the amount outstanding at the time of winding up including intrest upto Jun....
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....very made thereon should have been disclosed as business profits in the year of recovery i. e. in A. Y 2013-14. However, the assignee company, neither disclosed the fact of allotment of shares in its books of accounts nor had admitted any profit on allotment of shares in their returns of income. Accordingly, the ld. A. O concluded that so called assignee company had no intention to take over the assigned debts from the assessee company. Accordingly, he concluded that the said transaction cannot be construed as a valid transfer i. e. extinguishment of rights within the meaning of Section 2(47) of the Act. The ld. A. O further held since it is not a property transfer, the capital loss claimed by the assessee on alleged assignment of debts to a third party is not allowable for set off against the long term capital gains derived by the assessee. 11. The ld. A. O further observed that API had been sent out of the purview of BIFR on 23. 02. 2004 itself. Hence, API is no longer a sick company as alleged by the assessee before us. Hence, the contention of the assessee that debt was not recoverable from API could not be accepted and based on this, the ld. A. O concluded that the assignme....
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....eing fully aware that debt owed by M/s. MCC Finance Ltd., was going to be discharged in the form of shares, it is not understood as to how the same could be assigned to a third party for a paltry sum. Accordingly he concluded that the entire exercise of assigned loans to the third party was a dishonest and fraudulent motive on the part of assessee-company to arrive at a bogus capital loss. Based on the aforesaid facts, the ld. AO concluded that the entire agreement entered into with M/s. Golden Star Asset Consultants (P) Ltd., was a clandestine arrangement and needs to be concluded as a sham transaction with a fraudulent motive to evade capital gains tax on sale of shares and sale of property. With these observations, the Ld. A. O disallowed the entire capital loss on sale of debts claimed by the assessee to the tune of Rs. 56,48,55,180/-. 13. The learned CIT(A) granted relied to the assessee by observing as under:- "5. 2. 2. Having gone through the various submissions and paper books filed with me, I shall now go into the adjudication of these grounds raised. I have perused the copy of agreement of assignment of debts, the statement recorded by the AO under secti....
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.... Finance Ltd Rs. 10. 99 crores Facts relating to API: Automobile Products of India Limited was a company producing the famous "Lambretta" scooter brand. It went into BIFR during 1992 and during this period N/S. South India Corporation Agencies Limited (Sical) advances money via lCD route to the extent of Rs. 39. 18 Crores towards the revival of the company. Sical had given this money to API in order to revive API and as under the belief, that upon the revival of API, its money's would be recovered in entirety. API had valuable property at Bhandup, Mumbal at that time. Within few years in 1999-2005 API'S properties were sold and liquidated and funds had to be used to settle a certain corporate guarantee. Sical continued to hold these balances in its books and in between the name was changed to Sical Logistics Limited. In 200 7-08, Sical Logistics Ltd did a demerger under the auspices of the High court of Madras and during the demerger these assets were transferred to Sicagen India Limited under Court order. Sicagen India Limited then followed up its balances with API and API was 1n discussion with them. In the meantime Sicagen India Limited came under pressure f....
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..... We have however certain court orders and press cuttings to show that MCC Finance Ltd has taken enormous steps to repay its creditors. However the assets of MCC Finance Ltd are insufficient to repay the depositors and the promoters have resorted to selling lands/assets in their personal capacity as well as in companies which belonged to the group to settle the depositors of MCC Finance Ltd. Also the following is the scheme submitted by the company in 2004 which details that public deposits of upto 3 lacs will be settled upto 65% deposits exceeding 3 lacs will settled at 50% and further deposits will he settled at 25%. We feel that since Sicagen India Ltd has got a claim which will rank below public deposits it will not get the same treatment and assurances of the promoters of MCC Finance Ltd. It is not within contemplation that the promoters will bring in their personal funds to repay amounts other than public deposit which itself they have repaid only partially. Hence we can only give a valuation of 5% of the value of advances given by Sicagen India Ltd which comes to around Rs. 11 crores comes to Rs. 55 lacs. However as the company is in liquidation and the pro....
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....01. The cash and balance position has worsened since 31-3-2001. From the above it can be clearly made out that there is no residual value for unsecured lenders. Hence a notional value of 1% can be given. Advances given Rs. 388,00,000. 1% of above is Rs. 3,88,000 MAC Clothing Limited & Pro fad Limited The total advances given to MAC Clothing Limited & Profad Ltd were Rs. 2. 95 crores. These advances were given to MAC Clothing & Profad during 1990s by Sical Logistics Limited. It was transferred to Sicagen India Limited during 2007-08 via demerger. At the time of grant of lCD, Profad was a viable advertising company & MAC Clothing was doing some viable garment business Both these business went into difficulty. Pro fad 2002 end / 2003 went into liquidation and these assets were sold to Golden Star Assets Consultants Pvt Ltd at agreed consideration. The relevant extract of valuation report is enclosed. b. MAC CLOTHING LTD Valuation of Advances given by Sicagen India Lid to MAC Clothing Ltd Recoverable value/replacement value/book value Based on last drawn estimates of accounts Fixed Asset Current Assets, Loans....
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.... under section 131 of IT Act recorded by the AO on 03. 02. 2014, Shri M. Rajamani, Director of the M/s Golden Star Asset Consultants Pvt. Ltd., has categorically confirmed the assignment of debts to the company in which he is a Director and also the value of the assigned price. The relevant questions put by the AD and answers given_by the S ri M Rajamani are reproduced herewith for the proper appreciation of the case "Q. No. 7: With regard to debts assigned to your company by M/s Sicagn India Ltd., your company has paid Rs. 53 Iakhs for these debts. How is valuation made? Please give details. Ans: On the discussion with assigner company (i. e MIs Sicagen India Ltd.,) the valuation was 1 to 2% of total debts. Q. No. 8: What is the rational for making valuation? Ans: Since the collection risk was more, we have bargained to get the debts assigned for 1% of the value. " Shri M. Rajamani also explained before AC the existence of the debts by the companies, the quality of the debts and the existence of the legal rights for co!Iection of the debts possessed by M/s Golden Star Assets Consultants Pvt. Ltd., and the efforts made to recover the deb....
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....t registration of movables is optional as per Registration Act 1908. Therefore, it is incorrect on the part of the AO to say that the document is not valid as t has not been registered. As regards the M/s API Ltd. issue, it is clear from examination of records that M/s API Ltd. has confirmed that it has borrowed money from Sical Logistics Ltd. from whom this debt was transferred to the assessee. Mi's API Ltd has also confirmed that there has been a change of promoters and that all old liabilities were transferred to the earner promoters namely M/s South India Travels P Ltd. This clearly confirms that there existed adbt owed by M,/s API Ltd. to M/s Sical Logistics Ltd. and subsequently to the assessee. Also the financial health of M/s API Ltd. at the time of transfer of debt was not satisfactory and even though the company has come out of BIFR, it appears to be suffering from financial hardship. It is also seen from various submissions made by the assessee that the change in promoters of M/s API Ltd. has happened after the date of assignment. On the date of assignment, there is no doubt that this debt was owed by M/s API Ltd and subsequently transferred to old promoters. Therefore, ....
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....o not find the ratio of the decision rendered by Honourable ITAT PUNE 'A' BENCH dt. 06. 05. 2013 in the case M/s GKN Sinter Metals Ltd. relied upon by the AO to be of any assistance to the facts connected to the case in hand. The above case deals with an assignment of trading debts and the subsequent write off as revenue loss. The Honourable ITAT PUNE 'A' BENCH in that case decided the issue at Para 20. 6 of the order on the basis of the facts that the assignor had undertaken to collect the debts on behalf of the assignee and has remitted the same periodically. The purchase consideration involved in the transaction with assignee company was Rs. 1/- being nominal price. The Honourable ITAT PUNE 'A' BENCH came to conclusion about the colorable devise adopted by M/s GKN Sinter metals Pvt. Ltd., on the ground that the same was done to compensate Mahindra and Mahindra for the surrender of the 51% share holding. In the present case, the assignee is collecting the entire debts from the parties and no amount is being paid to the assessee company i. e assignor, over and above the purchase consideration. The transactions entered by the appellant company with M/s Golden Star Assets Consultant....
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....naction on the part of the tax payer which results in reduction in tax liability cannot be viewed with suspicion and be treated as a devise for avoidance of tax irrespective of legitimacy or genuineness of the act. The decision of the Supreme Court in the Mc Doweli's case has not affected the freedom of the citizen to act in a manner according to his requirements and his wishes in the matter of doing any trade activity or planning his affairs with circumspection, within the frame work of law, unless the same falls in the category of colorable devise or a dubious method of subterfuge clothed with apparent dignity. The Hon'ble Supreme Court in the case of Union of India Vs Azadi Bachao Andolan stated [263 ITR 706] after referring Mc Dowell & Co. case, has approved the decision of Madras High Court in the case of Mr. M. V. Valliappan Vs ITO [170 ITR 238]. Applying this ratio laid down in these decisions, I find that in the present case, the arrangement between the Appellant and M/s Golden Star Assets Consultants Pvt. Ltd., was perfectly legitimate and arrived at on the commercial considerations and on arm's length principle. On these facts, I do not find force in the AO's all....
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....ss income in their income tax returns for subsequent years in the year of recovery of such debts. Accordingly, he argued that the entire transaction needs to be construed as sham with a malafide intention to evade payment of taxes on both the ends. In this regard, we are in agreement with the argument advanced by the Ld. A. R. that merely because the assignee company had not disclosed business income in their income tax returns for subsequent years in the year of recovery of debts, that would not prejudice the right of the assessee company to claim capital loss in the year of extinguishment of their right in favour of the assignee company. We hold that in case, if the assignee company had not offered the business income as stated by the Ld. D. R. in the subsequent years of recovery of debts, the Revenue should take action in the hands of assignee company for those respective years in the manner known to law. That again, in our considered opinion, cannot come in the way of not accepting the stand of the assessee. To this extent, the argument of the Ld. DR is not accepted. The Ld. D. R. vehemently argued before us that the loans payable by API to the assessee company had been take....
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....on 20. 08. 2010 on which date, debt was recoverable was only from API and not from M/s. South India Travel Pvt Ltd. At the cost of repetition, the debt was taken over by erstwhile promoter of API i. e. M/s. South India Travel Pvt Ltd., only on 02. 12. 2011 which falls in assessment year 2012-13. Hence, this argument of the Ld. D. R. is dismissed. Hence, we deem it fit and appropriate, in the interest of justice and fair play, to remit this aspect of the issue to the file of Ld. A. O. for adjudication in the light of the aforesaid facts and crucial date of 02. 12. 2011 being the date of transfer of debts from API to M/s. South India Travel Pvt Ltd. 17. With regard to debts recoverable from MCC Finance Ltd., the Ld. A. O. took the view that this assignment was premediated as MCC Finance Ltd., allotted shares in lieu of the debt outstanding towards M/s. Golden Star Asset Consultants (P) Ltd., shortly after transfer. Also Mr. Rajamani was one of the Directors on the board of the assessee company became a Director in MCC Finance Ltd. This sequence of event of Mr. Rajamani leaving the assessee company, floating a new company and joining the board of MCC Finance Ltd., appears to be a p....