TaxTMI 
TaxTMI 
2018 (12) TMI 1822
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....e learned Commissioner of Income Tax (Appeals) has failed to appreciate that there was no specific relevant, reliable and tangible material on record to form a "reason to believe" that income of the appellant had escaped assessment and in view thereof the proceedings initiated are illegal, untenable and therefore unsustainable. 1.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that reasons recorded mechanically without application of mind do not constitute valid reasons to believe for assumption of jurisdiction u/s 147 of the Act. 1.3 That in absence of any valid approval obtained under section 151 of the Act, initiation of proceedings u/s 147 of the Act and assessment framed u/s 147/143(3) of the Act are invalid and deserve to be quashed as such." 1.4 That the learned Commissioner of Income Tax (Appeals) had failed to appreciate that the statement recorded in the course of survey has no evidentiary value and therefore, such statement so recorded could not be relied upon and in absence of any other tangible material to form an opinion that income of the assessee has escaped assessment and therefore, edifice of the present ....
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....rences which are contrary to the facts on record, material placed on record and, are otherwise unsustainable in law and therefore, disallowance so upheld is absolutely unwarranted. 3. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding a disallowance of Rs. 24,25,83,400/- on account of loss on sale of commercial space to M/s Laurel Infrastructure Pvt. Ltd. 3.1 That here too, the finding of the learned Commissioner of Income Tax (Appeals) that the transactions of sale of commercial space are nothing but structured transactions in order to incur capital loss and with the sole purpose of incurring the loss, are based on factually and legally misconceptions and in any case are irrelevant consideration so as to determine the liability of loss claimed by the appellant company. 3.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that all what is relevant to determine the eligibility of loss claimed by the appellant is incurring of loss in as much as that assessee should have owner of a capital asset and assessee must transfer a capital asset and since both the facts are not in dispu....
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.... 24.00 crores on account of sale of commercial space at Prestige Mall are not genuine and are liable to be disallowed under the provisions of the IT Act. The Assessing Officer consequently reopened the assessment by issuing a notice U/s 148 of the Act on 31/3/2016. The Assessing Officer completed the assessment U/s 143(3) read with Section 147 of the Act on 22/12/2016 and disallowed the claim of set off of short term capital loss and also made disallowance of transfer expenses. Thus, the total income of the assessee was assessed at Rs. 66,29,69,740/-. 4. The assessee challenged the action of the Assessing Officer before the ld. CIT(A) and also raised the issue of validity of reopening. The ld. CIT(A) granted part relief to the assessee, therefore, both the assessee and the department have challenged the impugned order by filing cross appeals before the ITAT. 5. Before us, the assessee has challenged the validity of reopening of the assessment on various legal objections: (i) The assessment was reopened merely on the basis of information of the Investigation Wing without application of independent mind by the Assessing Officer to form the belief that the income assess....
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.... satisfaction on the basis of information received from the Investigation Wing and therefore, the reopening is bad in law. He has asserted that there was no tangible material with the Assessing Officer to show that the claim of short term capital loss is bogus or the transactions are not genuine. The ld. counsel for the assessee has relied upon the following decisions: (i) Pr.CIT Vs. G&G Pharma India Ltd. 384 ITR 147 (Del). (ii) Pr.CIT Vs. RMG Polyvinyl (I) Ltd. 396 ITR 5 (Del) (iii) Pr.CIT Vs. Meenakshi Overseas (P) Ltd. 395 ITR 677 (Del) (iv) Rajiv Agarwal Vs ACIT 395 ITR 255. (v) Sree Meenakshi Mills Ltd. Vs Commissioner of Income-tax. 7. On the other hand, the ld CIT-DR has submitted that the enquiry conducted by the DDIT(Inv), Faridabad reveals the fact that the alleged transaction of application money and transfer of the property between the related parties are only accommodation entries to create artificial loss to be set off against the taxable income of the assessee. The Director of the assessee company as well as the group copies accepted the bogus claim in their statements recorded by the Investigation Wing and theref....
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....see and subsequent sale of 77800 shares by the assessee resulting short term capital loss was duly recoded in the books of account and part of return of income. Similarly the facts and transactions were part of return of income and books of account regarding the investment in subscription of 4,40,000 shares of M/s HH Interior and Auto Component Pvt. Ltd. in respect of which the assessee paid Rs. 29.70 crores as call money towards the allotment of shares and payment of final call money of Rs. 9.90 crores was due when the assessee transferred those 4,40,000 shares of M/s HH Interior and Auto Component Pvt. Ltd. to the group company M/s Sharash Finance & Investment Co. P. Ltd.. The third transaction was sale of commercial space in Prestige Mall at Shivaji Place, District Centre, Main Ring Road, Raja Garden, New Delhi to M/s Loral Infrastructure Pvt. Ltd. was also part of return of income and duly recorded in the books of account of the assessee. These transactions were very much in the knowledge of the Assessing Officer at the time of processing of return of income U/s 143(1) of the Act when an adjustment on account of short term capital loss of Rs. 66,66,30,267/- was made and subsequ....
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....mployee of Sh. Ashok Kapur. (Statement of Sh. Parvesh Soni is enclosed as Annexure-B) Issues:- During the course of enquiries in this office. It has been noticed that the company M/s Angel Infrastructure Private Limited (PAN-AAFCA2023B) has suppressed the capital gains received on sale of shares of a company by the name of M/s Advance Automation & Process Control Pvt. Ltd.. Angel Infrastructure Pvt. Ltd. sold 1377 equity shares of Advance Automation & Process Control Pvt. Ltd. and earned profit of Rs. 65 Cr. As per computation sheet downloaded from ROC, Angel Infrastructure Pvt. Ltd. incurred losses of Rs. 29.7 Cr. on account of forfeiture of the share application money paid to HH Interior and Auto Component Pvt. Ltd. Angel Infrastructure Pvt. Ltd. has also claimed loss of Rs. 24.25 Cr. on account of sale of a commercial property admeasuring 109342 sq. feet. It has also claimed loss of Rs. 12.94 Cr. on account of sale of 77800 shares of Larson & Tubro. The details are as per the table given below: Long Term profit on Sale of Shares Amount (Rs.) 31/03/2009 Sale Value of 1377 Eq. Shares of Advance Automation & process Co....
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....n the Industrial Estate, Udyog Vihar, Gurgaon is in possession of Rolta Limited and is having its corporate office on this plot. Directors of Advanced Automation & Process Control Pvt. Ltd. were as under: Name of the Director Address Mr. Ajit Khullar B-5/13, Azad Apartments, Sri Aurbindo Marg, New Delhi. Kamal Mehra R-680, New Rajender Nagar, Delhi Consequently the company M/s Angel Infrastructure Pvt. Ltd. received an amount of Rs. 71,35,94,978 on account of sale of shares of the company Advanced Automation & Process Control Pvt. Ltd. against this receipt, the company has claimed a capital gain of Rs. 67,41,81,887/-. In order to avoid paying taxes on the capital gains of Rs. 67,41,81,887/-. The company M/s Angel Infrastructure Pvt. Ltd. has entred into bogus/sham transactions with entities owned and controlled by one Sh. Ashok Kapur of the Krishna Group. IN ORDER TO DETERMINE THE TRUE NATURE OF THE TRANSACTIONS BETWEEN THE COMPAHY ANGEL INFRASTRUCTURE PRIVATE LIMITED AND VARIOUS GROUP COMPANIES OF THE KRISHNA GROUP A SURVEY UNDER THE PROVISIONS OF THE INCOME TAX ACT 1961 WAS CONDUCTED AT THE VARIOUS PREMISES OF THE KRISHNA GROUP ON 03RD....
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..../2013. Sharsh Finance & Investment Co. Pvt. Ltd. AAHCS 1410L Ashok Kapur 99% Ashok Kapur 99% Ashok Kapur 92% As on 31/3/2014. Details of shareholding downloaded from ITD system is enclosed as Annexure-F) From the above table it is amply clear that Sh. Ashok Kapur and his family members hold 100% interest in the company HH Interior and Auto Component Pvt. Ltd. through Sharsh Finance & Investment Co. Pvt. Ltd. Further it is to be noted that the Directors of the company HH Interior & Auto Components Pvt. Ltd. are the family members and trusted employees of Sh. Ashok Kapur. Name of company As on 31/03/2008 As on 31/03/2009 Latest HH Interior & Auto Components Pvt. Ltd. AAACK4360J Parvesh Soni A.K. Bedi S.L. Sethi Paresh Soni Shruti Kapur Shreya Jain A.K. Bedi S.L. Sethi Parvesh Soni A.K. verma A.K. Bedi D.K. Nanda (as on 31/03/2013) (Details of directorship download from ROC and ITD System is enclosed as Annexure-G) The relationship of the various directors with the Krishna group is discussed as under: Name of the Director Relationship with the Krishna ....
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..../s Angel Infrastructure Private Limited. The loss has been artificially generated to be set off against the gain accruing to M/s Angel Infrastructure Private Limited on account of shares of Advanced Automation & Process Control Pvt. Ltd. as discussed above. Loss on account of sale of property:- In the return of income for the A.Y. 2009-10, the assessee M/s Angel Infrastructure Pvt. Ltd. has claimed the following loss on sale of property: Sale value of 109342.53 Sq. Ft. commercial space 301841600.00 Less: Transfer expenses 25000 301816600.00 Less: Cost of Acquisition of 109342.53 Sq. Ft. 54,44,00,000.00 242583400.00 During the course of survey proceeding the statement of Sh. Ashok Kapur is recorded. He was asked to provide the details regarding the above sale of property and the consequent losses. He has submitted as under: The company M/s Angel Infrastructure Pvt. Ltd. had entered into an agreement sell with M/s Laurel Infrastructure Pvt. Ltd. on 12/03/2009 for the sale of commercial space admeasuring 1,09,342.53 sq.ft of the PARADISE MALL a total consideration of Rs. 30,18,41,600/-.....
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.... company As on 31/03/2008 As on 31/03/2009 Latest ABR Auto Pvt. Ltd. AADCA5137C Arti Kapur Shruti Kapur Shreya Jain A.K. Bedi Parvesh Soni Arti Kapur Shruti Kapur Shreya Jain A.K. Bedi Parvesh Soni Arti Kapur Shruti Kapur Shreya Jain A.K. Bedi P arvesh Soni (as on 31/03/2013 Sharsh Finance & Investment Co. Pvt. Ltd. AAHCS 1410 L Arti Kapur Shruti Kapur Shreya Jain A.K. Bedi Parvesh Soni Arti Kapur Shruti Kapur Shreya Jain A.K. Bedi Parvesh Soni Arti Kapur Shruti Kapur Shreya Jain A.K. Bedi (as on 31/03/3014) Roz ka Meo Components Pvt. Ltd. Arti Kapur Shruti Kapur Shreya Jain A.K. Bedi Parvesh Soni Arti Kapur Shruti Kapur Shreya Jain A.K. Bedi Parvesh Soni Arti Kapur Shruti Kapur Shreya Jain A.K. Bedi (as on 31/03/3014) (Details of Directors downloaded from ITD system is enclosed as Annexure-K) Thus the director of the companies is either the family members of Ashok Kapur on his trusted employees. The details are as under: Name of the Director ....
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....onsequent set off of losses through various transactions entered into by M/s Angel Infrastructure Pvt. Ltd.. The transaction was done on 12/09/2008. Ans. The details are as under: 1. Total sale consideration for shares of M/s Advance Automation and process control Pvt. Ltd. 154 Cr (Approx) 2. Shares of M/s Angel Infrastructure Pvt. Ltd. 77 Cr. 3. Capital gains arising in the hand of M/s Angel Infrastructure Pvt. Ltd. (Claim to be verified) 65 Cr. 4. Loss set off through forfeiture by M/s HH Interior and Auto Component Pvt. Ltd. 30 Cr. 5. Loss set off through agreement to sell with M/s Laurel Infrastructure Pvt. Ltd. 24 Cr 6. Loss set off through sale of shares of L&T Stock Market Transactions 11 Cr. (Approx) I am submitting a copy of the trial balance of M/s Angel Infrastructure Pvt. Ltd. that reflects the above losses. Q.20 Please refer to the discussion above, it has been clearly brought out that the transaction entered by the M/s Angel Infrastructure Pvt. Ltd. with the group company are same transaction in order to avoid paying the due taxes on the capital gain of Rs....
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.... company has entered into bogus transaction with entities owned controlled by Shri Ashok Kapur. I have carefully examined all the details of transaction as mentioned above, therefore, I have reason to believe that the case is fit for reopen U/s 147 of Income Tax Act, 1961. I have reason to believe that the income of the assessee for Rs. 65,00,00,000/- for the A.Y. 2009-10 has escaped assessment due to failure on the part of assessee to disclose fully and truly all material facts for his assessments which is well covered within the meaning of the provision of Section 147 of Income Tax Act, 1961. Therefore, kind approval in terms of provisions of Section 151 of the IT Act, 1961 may please be accorded for initiating proceedings U/s 147 and to issue notice U/s 148 of the IT Act, 1961." The transaction as mentioned in the reasons recorded by the Assessing Officer are duly recorded in the books of account of the assessee as well as the other group companies. The Assessing Officer while passing the order U/s 154 of the Act had already considered the relevant record pertaining to these transactions of sale of shares, subscription in the equity shares of M/s HH Interior and Auto....
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....l Infrastructure Pvt. Ltd. 24 Cr 6. Loss set off through sale of shares of L&T Stock Market Transactions 11 Cr. (Approx) I am submitting a copy of the trial balance of M/s Angel Infrastructure Pvt. Ltd. that reflects the above losses. Q.20 Please refer to the discussion above, it has been clearly brought out that the transaction entered by the M/s Angel Infrastructure Pvt. Ltd. with the group company are same transaction in order to avoid paying the due taxes on the capital gain of Rs. 65 Cr. and discussed above. Please explain. Ans. In this regard we would like to submit that the transaction entered by the group companies were with a view to further the business interest of the entities involved. However since these entities belong to the Krishna group and are owned and operated by Sh. Ashok Kapur serious allegations have been leveled regarding the genuineness of the transaction we also understand that doubts has been raised regarding the transaction not being at arm length prices. In view of the above we hereby undertake that we will forgo the claim of the losses on the following transaction: S. No. Description of the....
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....med to avoid tax on long term capital gain. However, the basis of this conclusion is the alleged attempt of the assessee to avoid tax but no material or the transaction itself was found to be out of the book of account or discovered during the survey proceedings. Therefore, it is nothing but a difference of opinion of the Investigation Wing on the same set of facts already considered by the Assessing Officer while passing the order U/s 154 of the Act. Though, the order U/s 154 of the Act does not constitute a decision of the Assessing Officer on the merits of an issue, however, if the Assessing Officer was not satisfied with the claim and explanation based on supporting evidence then even if the issue could not be decided in the proceedings U/s 154 of the Act, it was very much open to the Assessing Officer to initiate the proceedings U/s 147/148 of the Act on its own just after the order passed U/s 154 of the Act. The non-initiation of the proceedings U/s 147/148 of the Act by the Assessing Officer on its own and subsequently reopening the assessment based on the report of the Investigation Wing revealing no new fact raises serious question as to whether the Assessing Officer has a....
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....ped assessment is that the Assessing Officer must apply his mind to the material. A similar view has been taken by the Hon'ble Delhi High Court in the case of PCIT Vs RMG Polyvinyl (supra) in para 12 as under: "12. Recently, in its decision dated 26th May, 2017 in ITA No. 692/2016 Pr. CIT v. Meenakshi Overseas [2017] 82 taxmann.com 300 (Delhi), this Court discussed the legal position regarding reopening of assessments where the return filed at the initial stage was processed under Section 143(1) of the Act and not under Section 143(3) of the Act. The reasons for the reopening of the assessment in that case were more or less similar to the reasons in the present case, viz., information was received from the Investigation Wing regarding accommodation entries provided by a 'known' accommodation entry provider. There, on facts, the Court came to the conclusion that the reasons were, in fact, in the form of conclusions "one after the other" and that the satisfaction arrived at by the AO was a "borrowed satisfaction" and at best "a reproduction of the conclusion in the investigation report." Thus, it was held that the reopening on borrowed satisfaction is not valid. T....
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....mitted by the ITAT in the impugned order in concluding that the initiation of the proceedings under Section 147/148 of the Act to reopen the assessments for the AYs in question does not satisfy the requirement of law. The Hon'ble High Court has laid down the principle that the Assessing Officer being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. The reasons to believe must demonstrate link between the tangible material and the formation of belief that the income has escaped assessment. The recording of reasons to belief and no reasons to suspect is the precondition to the assumption of jurisdiction U/s 147 of the Act. In the case of Rajiv Agarwal Vs ACIT (supra), the Hon'ble High Court has held in para 11 as under: "11. Secondly, the Assessing Officer's belief that income of an assessee has escaped assessment must be based on tangible material. It has been explained in a number of decisions that there must be a "close nexus" or "live link" between tangible material and the reason to believe that income has escaped assessment. It follows that the material on the basis of which reassessmen....
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....llowance of claim is treating the transaction as non-genuine. The Assessing Officer has not brought any material to show that the transaction as claimed is not based on the actual purchase and sale or the documents substantiating the transactions are bogus. It is also not a case of discovery of new fact during the investigation but the department has tried to give the colour to the transaction as bogus without any material in support of that satisfaction. The sole basis is the alleged motive of avoiding the tax on capital gain but there is no prohibition against the illegitimate tax planning while entering into the transaction of purchase and sale. Therefore, a tax planning is not prohibited as in case of tax avoidance as a device or design which is not permissible under the law. Therefore, when actual nature of transaction and the claim of the assessee are not found to be at variance then the formation of the belief the Assessing Officer is without any basis but is based merely on surmises and conjectures. 8.1 There is no allegation either in the report of the Investigation Wing or in the reasons recorded by the Assessing Officer about the bogus claim of short term capital loss....
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....n 73 (MP), which has been upheld by the Hon'ble Supreme Court reported in 237 Taxman 378. (iii) Central India Electric Supply Co. Ltd. Vs ITO 333 ITR 237 (Del) (iv) Chhugamal Rajpal vs. S.P. Chaila & Ors. 79 ITR 603 (SC) Thus, the ld counsel has pleaded that in absence of compliance of Section 151 of the Act, the notice issued U/s 148 is invalid and liable to be quashed. 10. On the other hand, the ld. CIT-DR has submitted that all relevant material was before the ld. Pr.CIT at the time of granting of approval U/s 151 of the Act. The ld. CIT-DR has referred to the letter of the Assessing Officer and submitted that the reasons recorded by the Assessing Officer were duly annexed to the Assessing Officer's letter seeking approval of the competent authority. The matter was first put up before the ld. Addl.CIT and then before the ld. Pr.CIT who after considering the reasons recorded has granted the approval. The ld. CIT-DR has further contended that there is no prescribed format of granting approval or recording satisfaction U/s 151 of the Act, therefore, once the approval is given on satisfaction of the reasons recorded by the Assessing Officer then detailed ....
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....may kindly be accorded. Dated 30-03-2016 (G P Awasthi), Income Tax Officer Ward 3(1), Jaipur 12 Comments of the Additional Commissioner of Income Tax on the reasons recorded by A.O. Recording (Purushottam Kashyap), Additional Commissioner of Income Tax Range-3, Jaipur 13 Whether the Pr. CIT is satisfied on the reason recorded by the A.O. that it is fit case for issue of notice U/s 148. YES (S.K. Chowdhari), Principal Commissioner of Income Tax-1 Jaipur It is evident from the above proposal and sanction that the ld. Pr.CIT has marked as "Yes" in the column and signed the same. Since the limitation for issuing the notice U/s 148 of the Act was expiring on 31/3/2016, therefore, the ld. Pr.CIT was having no time to examine the relevant record and therefore, the sanction was granted in compelling circumstances. Further the sanction by the writing "Yes" does not exhibit any thought process in exercising the power U/s 151 of the Act. The Hon'ble Delhi High Court in the case of Pr.CIT Vs. M/s N.C. Cables Ltd. (supra) has held in para 11 as under: "11. Section 151 of....
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....ered into the matter. In doing so, no error has been committed warranting reconsideration. 9. As far as explanation to Section 151, brought into force by Finance Act, 2008 is concerned, the same only pertains to issuance of notice and not with regard to the manner of recording satisfaction. That being so, the said amended provision does not help the revenue. 10. In view of the concurrent findings recorded by the learned appellate authorities and the law laid down in the case of Arjun Singh (supra), we see no question of law involved in the matter, warranting reconsideration." The Hon'ble High Court has held that merely writing on the format "Yes I am satisfied" indicates as if he was to sign only on the dotted line and therefore, the mechanical way of recording satisfaction is clearly unsustainable. Similarly the Hon'ble Delhi High Court in the case of Central India Electric Supply Co. Ltd. Vs ITO (supra) has held as para 19 as under: "19. In respect of the first plea, if the judgments in Chugamal Rajpal's case (supra); Chanchal Kumar Chatterjee's case (supra); and Govinda Choudhury & Sons' case (supra) are examined, the absence of reas....
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....has not been proper application of mind by the Board and if a proper application had taken place, there would have been no reason to re-open the closed chapter in view of what we are setting out hereinafter. Second & Third Pleas" The Hon'ble High Court has held that merely affixing a stamp as "Yes" and signing underneath reveals that the decision has been taken in mechanical manner. Thus, as held by the Hon'ble High Court in the series of decisions that the process of granting sanction U/s 151 of the Act for issuing the notice U/s 148 of the Act is a safeguard provision against any misuse of power by the Assessing Officer, therefore, there must be something on record to demonstrate the application of mind. The satisfaction of the sanctioning authority may be in briefest manner but it shall reflect the application of mind of the authority. The requirement of recording the satisfaction is to reflect the mind of the authority and the same can be ascertained only from the reading of record and not from the reading of mind of the authority. Therefore, in absence of any satisfaction reflect from the record, the statutory requirement U/s 151 of the Act is not sat....
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....(OSD), Circle-7, Jaipur to ITO Ward 3(1), Jaipur. Thus, the ITO Ward 3(1), Jaipur was having a valid jurisdiction at the time of recording the reasons on 21/3/2016. The ld CIT-DR has also filed copies of the notices issued U/s 143(2) and 142(1) of the Act. The ld. CIT-DR has also filed a copy of the order dated 04/10/2016 passed U/s 127 of the Act whereby the jurisdiction of the assessee was again transferred from ITO Ward 3 to ACIT Circle-2, Jaipur who has finally completed the assessment. Thus, the ld CIT-DR has submitted that there is no ambiguity as far as the jurisdiction of assessee was vested with ITO Ward 3(1), Jaipur at the time of recording the reasons on 21/3/2016. 13.1 In rebuttal, the ld. counsel for the assessee has submitted that the orders referred and filed by the ld. CIT-DR regarding transfer of the jurisdiction were never served on the assessee and it was also not part of the income tax business application data base (ITBA) thus, these are nonest order when the same were not communicated to the assessee. 14. We have considered the rival submissions as well as relevant material on record. Though as per ITBA database, the jurisdiction of the assessee was show....
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....sferred to the group company M/s Sharash Finance & Investment Company Pvt. Ltd. due to financial difficulties. Accordingly the shares were stated to have been transferred as per the agreement between the assessee and M/s Sharash Finance & Investment Company Pvt. Ltd. In the process of transfer, certain correspondences and other documents were also executed between the parties such as request letter for transfer of shares in favour of M/s Sharash Finance & Investment Company Pvt. Ltd.. Indemnity bond was also executed for transfer of shares by M/s Sharash Finance & Investment Company Pvt. Ltd. and consequently the time period for subscribing the debentures was also extended by M/s HH Interior and Auto Component Pvt. Ltd. up to 15/4/2017 and thereafter up to 15/4/2020. Finally the assessee subscribed debentures on 20/12/2017 and paid a sum of Rs. 4.40 crores. In the return of income, the assessee declared short term capital loss on sale of shares of M/s HH Interior and Auto Component Pvt. Ltd. of Rs. 29.70 crores. During the assessment proceedings, the Assessing Officer proposed to disallow the short term capital loss on sale of shares which was set off against the income from other ....
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....nt between the assessee and M/s Sharash Finance & Investment Company Pvt. Ltd. dated 23/3/2009, copy of indemnity bond dated 24/3/2009 given by M/s Sharash Finance & Investment Company Pvt. Ltd. for transfer of shares. Copy of letter dated 23/3/2009 by M/s Sharash Finance & Investment Company Pvt. Ltd. for request of transfer of shares, copy of return of income and copy of order passed U/s 153A read with Section 143(3) of the Act in the case of M/s Sharash Finance & Investment Company Pvt. Ltd., copy of order of the ld. CIT(A) in case of M/s Sharash Finance & Investment Company Pvt. Ltd. wherein the allotment of shares in favour of M/s Sharash Finance & Investment Company Pvt. Ltd. were not disputed by the Assessing Officer or by the ld. CIT(A). The ld. counsel has further submitted that the companies to the transitions are independent legal entities and the transaction between the companies are not barred by any law. The loss incurred by the assessee is a legitimate and real transaction duly supported by the documentary evidence as well as recorded in the regular books of account of the assessee as well as the other company connected to the transaction. The books of account are du....
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....r share is without any basis but only a proposed assumption which is contrary to the facts on record. The Assessing Officer presumed the transaction as forfeiture of share application money whereas it was a transfer of shares by the assessee which has resulted short term capital loss. In support of his contention, the ld counsel has relied upon the decision of Hon'ble Supreme Court in the case of Cit Vs. Grace Collis 248 ITR 232 and submitted that the Hon'ble Supreme Court has held that the definition 'transfer' as per Section 2(47) of the Act contemplates the extinguishment of rights in a capital asset distinct and independent of such extinguishment consequent upon the transfer thereof. Thus, once the assessee has transferred its right in shares of M/s HH Interior and Auto Component Pvt. Ltd. then it is a transfer of capital asset as per definition U/s 2(24) of the Act. He has relied upon the decision of Hon'ble Karnataka High Court in the case of DCIT Vs. BPL Sanyo Finance Ltd. 312 ITR 63 (Kar) and submitted that the relinquishment of asset or extinguishment of any right therein fall in the definition of transfer U/s 2(47) of the Act. In the said case, the forfeiture of s....
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.... issuing company but partly paid shares were transferred by the assessee to M/s Sharash Finance & Investment Company Pvt. Ltd. without any consideration resulting loss of Rs. 29.70 crores as short term capital loss. The right to subscribe the debenture at a discounted price is a valuable right and the value of right to subscribe in the debentures at discounted price is included in the price of the shares of M/s HH Interior and Auto Component Pvt. Ltd. The assessee transferred the shares alone and retained the right to subscribe the debentures issued at discounted price, the income tax authorities cannot question the justification of the decision taken by the assessee company. The prudency and business decision can alone be taken by a businessman and the Assessing Officer cannot step into the shoes of a business man to judge the prudency of the decision. It is prerogative of the businessman to organize its affairs in a manner best suited to it and the revenue authority cannot step into the shoes of the businessman. The revenue cannot question the transaction on the ground that the same was not prudent and consequently held as sham. The ld. counsel has supported his contention with t....
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....nies and it was not difficult for them to get the extension of time. Even otherwise when the assessee was holding 77800 bonus shares of M/s L&T Ltd. which could fetch much more that 99 crores required for making the payment of final call money then the decision for transferring the shares without any consideration is a structure transaction with a view to avoid tax. He has relied upon the orders of the authorities below. 19. We have considered the rival submissions as well as relevant material on record. The Assessing Officer disallowed the claim of short term capital loss of transfer of shares of M/s HH Interior and Auto Component Pvt. Ltd. on the ground that the transaction itself is not genuine and it is sham. The Assessing Officer has given the reasons for treating the transaction as sham that the motive to enter into the alleged transfer is to avoid tax on capital gain of Rs. 65.00 crores arising from sale of shares of other companies and further the transaction is between the related parties, therefore, not at the arm's length. It is pertinent to note that a transaction is said to be bogus or sham if it is shown on paper but is not a real transaction, therefore, what is pu....
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....group company without any consideration in fact a token consideration of Rs. one. It is pertinent to note that the subscription of shares by the assessee of M/s HH Interior and Auto Component Pvt. Ltd. was not a simple case of allotment of shares but this subscription also carried another right of subscription of the equal number of debentures of face value of Rs. 100 at a discounted price of Rs. 10 and carried interest @ 14% per annum. Therefore, the premium paid against the issue of shares in fact was received back in the shape of discount in subscription of the debentures of the said company. Hence, the assessee even if transferred the shares without any consideration and incurred loss of Rs. 29.7 crores in consequence of the said transfer the right to subscribe these debentures was retained by the assessee and not transferred alongwith shares. The Assessing Officer as well as the ld. CIT(A) has not considered these transactions from the prospective of the right acquired by the assessee to subscribe the debentures at discounted rate and the benefit on account of discount in subscription of the debenture offset the premium paid on the subscription of equity shares. The Assessing ....
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....otive of the transfer was to reduce or avoid the tax liability on the capital gain but if the said transaction is real and is permissible under the law then the mere motive would not render the same as bogus transaction. In the case of DCIT Vs. BPL Sanyo Finance Ltd. (supra), the Hon'ble Karnataka High Court while considering an issue of capital loss on forfeiture of share application money has held in para 7 to 13 as under: "7. To decide the question of law as formulated herein above, it is necessary to look into the definition of transfer as appearing in section 2(47) of the Act, relevant portion thereof is reproduced herein below : "2.(47) 'transfer, in relation to a capital asset, includes,- (i) the sale, 'exchange' or relinquishment of the asset; or (ii) the extinguishment of any rights therein ; or (iii) the compulsory acquisition thereof under any law ; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment; " 8. The Tribunal has considered the meaning of the word "allotment", as ap....
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....9;s default in not paying the balance of money on allotment, its right in the shares stood extinguished on its forfeiture by the investee company. The loss suffered by the assessee, i.e., non-recovery of share application money is consequent to the forfeiture of its right in the shares and the same is to be understood to be within the scope and ambit of transfer. In this view of the matter, the Tribunal was justified in holding that it would amount to short-term capital loss to the assessee. No other point was urged before us. 12. With regard to the extinguishment of any rights, we may profitably refer to the judgment of the Supreme Court in the case of CIT v. Mrs. Grace Collis [2001] 248 ITR 323. In the said case, it has been held as under (page 329) : "It is true that the definition of 'transfer' in section 2(47) of the Act is an 'inclusive' definition and, therefore, extends to events and transactions which may not otherwise be 'transfer' according to its ordinary, popular and natural sense." 13. For the aforesaid reasons, we are of the considered opinion that the questions posed have to be answered in favour of the assess....
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....consequent forfeiture of the same by HH Interior and Auto Component Pvt. Ltd. is not a transaction between two independent parties. These two related parties have entered into this transaction in order to create a fictitious loss in the hands of M/s Angel Infrastructure Private Limited. The loss has been artificially generated to be set-off against the gain accruing to M/s Angel Infrastructure Private Limited on account of sale of shares of Advanced Automation & Process Control Pvt. Ltd." "Moreover, on perusal of submission filed by the assessee, it is transpired that the company Angel Infrastructure Pvt. Ltd. has called the meeting of Board of Directors to decide the sale the shares of SKH auto Components Pvt. Ltd. to Sharsh Finance & Investment P. Ltd. and board meeting was held on 23.03.2016 (after conducting the survey by investigation team on 03.03.2016). Therefore, calling the board meeting on 23.03.2016 and passing a resolution is this regard is an afterthought plan so that Assessee Company can cover up the tax liability accrued on account of capital gain under the shadow of bogus loss. If the said loss were genuine, the remedial action could have been taken by the ....
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....fied) 65 Cr. 4. Loss set off through forfeiture by M/s HH Interior and Auto Component Pvt. Ltd. 30 Cr. 5. Loss set off through agreement to sell with M/s Laurel Infrastructure Pvt. Ltd. 24 Cr 6. Loss set off through sale of shares of L&T Stock Market Transactions 11 Cr. (Approx) I am submitting a copy of the trial balance of M/s Angel Infrastructure Pvt. Ltd. that reflects the above losses. Q.20 Please refer to the discussion above, it has been clearly brought out that the transaction entered by the M/s Angel Infrastructure Pvt. Ltd. with the group company are same (should be sham) transaction in order to avoid paying the due taxes on the capital gain of Rs. 65 Cr. and discussed above. Please explain. Ans. In this regard we would like to submit that the transaction entered by the group companies were with a view to further the business interest of the entities involved. However since these entities belong to the Krishna group and are owned and operated by Sh. Ashok Kapur serious allegations have been leveled regarding the genuineness of the transaction we also understand that doubts has been raised ....
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....uction No. F. No. 286/98/2013-IT dated 18/3/2014, therefore, there are unambiguous guidelines and instructions by the CBDT that undue influence/coercion in recording of statements shall be viewed by the Board adversely. Hence in absence of any tangible material found during the survey proceedings, the statement recorded would not be sufficient to make the addition. There is no dispute as we have discussed all the facts while deciding the issue of validity of reopening that all these transactions were duly recorded in the books of account of all the relevant parties and also disclosed in the return of income filed by the assessee as well as the other party. The revenue has accepted the investment in the shares of M/s HH Interior and Auto Component Pvt. Ltd. made by the other group companies as well as in case of M/s Sharash Finance & Investment Company Pvt. Ltd. while passing the order U/s 153A read with Section 143(3) of the Act. This fact has not been disputed by the department before us that the Assessing Officer has not disturbed these transactions in the hand of the other group concerns including M/s Sharash Finance & Investment Company Pvt. Ltd.. Further it is the decision of ....
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....) Slum and JJ Department Remunerative projects Cell in open auction alongwith all perpetual leasehold rights in the said plot. In the month of March, 2005, M/s Gold Cause Construction Pvt. Ltd. allotted commercial space to various parties including 5 parties as under: Sr. No. Name of the buyer Total Area (Sq.Ft) Rate per Sq. Ft. Total sale consideration on i) ABR Auto Pvt. Ltd. 11676.17 4,231 4,94,00,000/- ii) Sharsh Finance & Investment Co. Pvt. Ltd. 34686.29 4,199 14,56,50,000/- iii) Mr. Ashok Kapur 23,723.34 4,198 9,96,00,000/- iv) Mrs. Arti Kapur 4,817.32 4,235 2,04,00,000/- v) Roz Ka Meo Component Pvt. Ltd. 34,439.42 4,178 14,39,00,000/- Total 1,09,342.53 45,89,50,000/- Thus, the total commercial space measuring 109342.53 Sq.Ft was allotted to the above five parties for a total consideration of Rs. 45,89,50,000/-. Thereafter the assessee on 15/09/2008 purchased commercial space allotted to these parties through five separate agreements for a total consideration of Rs. 54.44 crores. Thus the assessee purchased rights of the commercial space....
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....ace on non-judicial stamp paper of Rs. 56/- cannot be disputed. Further the Assessing Officer has raised objection of non-registration of the agreements but in the case of the assessee what was the transferred and sold was the right in the commercial space in a mall to be constructed. Thus, the ld counsel for the assessee has submitted that as per the definition of Section 2(47) of the act once the right in the capital asset/immovable property is extinguished, it amounts to transfer of the property. In support of his contention, he has relied upon the decision of Ahmadabad Benches of the Tribunal in the case of Smt. Sapnaben Dipakbhai Patel Vs. ITO 73 taxmann.com 288. He has also relied upon the decision of Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia of Bombay vs. Commissioner of Income-tax 260 ITR 491 as well as decision of Hon'ble Supreme Court in the case of K.P. Varghese Vs. ITO 131 ITR 597 and submitted that the Hon'ble Court has held that it is not enough for the revenue to show that the fair market value of property as on the date of transfer exists full value consideration declared by the assessee. In respect of the transfer by any amount of no....
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....ase and sale of commercial space in question is real one and therefore, merely because the assessee has incurred loss on the said transaction, the same cannot be treated as bogus. He has pointed out that the original allottees of the commercial space from whom the assessee purchased, have paid full consideration on or before 04/11/2014 and the transaction of the said purchase and subsequent sale to the assessee was duly recorded in their books of account including balance sheet which has been accepted by the department. The assessee sold the said commercial space to M/s Laurel Infrastructure Pvt. Ltd. vide the agreement dated 12/3/2009 and the consideration received by the assessee on the date of agreement and thereafter as per the extended period is part of the record and duly reflected in the bank account of the parties as well as in the books of account, therefore, the transaction of sale against the said consideration which has exchanged hand has been established from the record. Hence, the ld counsel has prayed that once the assessee has established the genuineness of the claim and produced all the relevant evidence then the short term capital loss is liable to be allowed and ....
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....gements between the related parties then the transaction was rightly held as bogus transactions for the sole purpose of creating short term capital loss to be set off against the taxable income. He has relied upon the orders of the authorities below. 23. We have considered the rival submissions as well as relevant material on record. The Assessing Officer disallowed the loss on sale of commercial space measuring 1,09,342.53 Sq.Ft in Paradise Mall, Shivaji Place, District Centre, Main Ring Road, Raja Garden, New Delhi. It is not in dispute that the commercial space which is subject matter of transaction was yet to be constructed by the developer M/s Gold Cause Construction Pvt. Ltd.. Initially the commercial space in question was acquired by five persons for a total consideration of Rs. 45,89,50,000/-, the details of the commercial space allotted by the developer to these five persons have been reproduced in the foregoing paragraph of this order. Thus, it is clear that the commercial space was initially allotted in the month of March, 2005. The assessee purchased the said rights of the commercial space measuring 1,09,342.53 Sq.Ft in Paradise Mall, Shivaji Place, District Centre, ....
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.... space. Since it is the assessee who has claimed the loss from the transaction of purchase and sale of commercial space, the Assessing Officer has question the transaction and disallowed the claim by treating the same as bogus. Therefore, once the transaction was accepted in the case of persons from whom the assessee has purchased the commercial space as well as in the hand of the person to whom the assessee has sold the commercial space in question then the genuineness of the transaction cannot be questioned and the same cannot be a ground for denying the claim of short term capital loss. The Assessing Officer cannot take a different stand on the same transaction in case of different parties to the same transaction, therefore, accepting the transactions in the hands of other parties it is not permissible to question the transaction in the hand of the assessee. As far as the non-registration of the agreement is concerned, it is also not in dispute that it is not a title document in respect of an immovable property but what is transferred through these agreements is a right in the immovable property. Therefore, the right of commercial space in the mall yet to be constructed was tran....
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....e when it is a transaction of sale of capital asset, there is no provision in the Act to adopt a deemed consideration on the principle of transfer pricing. The provisions of domestic transfer pricing has been brought into statute by the Finance Act, 2012 w.e.f. 01/4/2013, therefore, the said provision U/s 92BA of the Act are not applicable for the year under consideration. Further since this is not a business transaction or sale of the stock in trade but it is a transaction falling under the provisions of Section 45 of the Act, therefore, the provisions of Section 40A(2)(b) of the Act are not applicable. There must be a consistency and uniformity of view while taking the decision by the Assessing Officer on the transaction arising and resulting from one common exercise of relinquishment of right by one party and acquisition of the same by another. Thus, the Assessing Officer is not permitted to take two opposite stance; one in the case of one party and another in the case of other party of the same transaction. The Assessing Officer has not given any finding that either the price of the commercial space is excessive or the sale price is suppressed in comparison to the fair market p....
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....." 25. Grounds No. 1 and 2 of the revenue's appeal are interlinked and are regarding profit on sale of shares of M/s Advance Automation & Process Control Pvt. Ltd. treated by the Assessing Officer as short term capital gain as against the long term capital gain declared by the assessee which was accepted by the ld. CIT(A). The assessee acquired 50% of the share holding equal to 1377 shares of M/s Advance Automation & Process Control Pvt. Ltd. on 05/5/2006. The remaining 50% shares were held by one Shri Ashok Kumar Munjal 37.5% and M/s H&H Real Estate Pvt. Ltd. 12.5%. Thereafter the entire share holding of M/s Advance Automation & Process Control Pvt. Ltd. was disinvested by all three share holders including the assessee to M/s Rolta Pvt. Ltd. on 21/7/2008. The assessee claimed the profit on sale of the shares as long term capital gain as the shares were sold after more than two years of acquisition. However, the Assessing Officer held that it is a transaction of sale of immovable property held by M/s Advance Automation & Process Control Pvt. Ltd. through transfer of the entire holdings and treated the profit as short term capital gain. The ld. CIT(A) has accepted the claim of th....
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....ore, the sale of land and building can be done only by the company and not by the shareholders. Thus, the ld counsel has submitted that it is only a case of sale of shares, therefore, the profit from the transaction is long term capital gain. He has further contended that it is settled proposition of law that the revenue is entitled to invoke the lifting of corporate veil if the fact so warrants but onus is on the revenue to establish the dominion object of the transfer and how the said transaction resulted into evasion or avoidance of tax. There is no material on record which could establish that the transaction of sale of shares would result in any form of tax evasion or avoidance by the assessee. He has relied upon the decision of the Hon'ble Supreme Court in the case of Vodafone International Holdings B.V. Vs Union of India 341 ITR 1 (SC) and submitted that the Hon'ble Supreme Court has held that the transaction of share has to be accepted as such and such a transaction cannot be recategorised as the transaction of controlling interest or business shall be held by the company whose shares have been transferred. The ld. counsel has pointed out that in the said case also,....
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....ed as short term capital gain being the sale was less than three years. It is not the case of the Assessing Officer that the transaction of entire share holding was a design to play fraud with the sole purpose of avoiding tax but the transaction as such was not questioned by the Assessing Officer. The Assessing Officer has tried to lift the corporate veil and held that behind the transaction of sale of shares what was really transferred was the land held by the said company. It is pertinent to note that when the land was owned and held by M/s Advance Automation & Process Control Pvt. Ltd. then the said asset can be sold only by the said company or on behalf of the said company. The shareholders have not ownership right or title over the asset held by the company and consequently have no right to transfer the asset in their personal capacity. The purchaser of the share holding of M/s Advance Automation & Process Control Pvt. Ltd. from the assessee might have the interest in the land and building held by the company and therefore, the said motive of the purchaser cannot be a reason or ground for lifting the corporate veil and reclassifying the transaction from sale of shares to sell ....
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....'ble Apex Court that: "That a shareholder acquires a right to participate in the profits of the company may be readily conceded but it is not possible to accept the contention that the shareholder acquires any interest in the assets of the company. The use of the word "assets" in the passage quoted above cannot be exploited to warrant the inference that a shareholder, on investing money in the purchase of shares, becomes entitled to the assets of the company and has any share in the property of the company. A shareholder has got no interest in the property of the company though he has undoubtedly a right to participate in the profits if and when the company decides to divide them. The interest of a shareholder vis-a-vis the company was explained in the Sholapur Mills case [1950] SCR 869 at 904. That judgment negatives the position taken up on behalf of the appellant that a shareholder has got a right in the property of the company. It is true that the shareholders of the company have the sole determining voice in administering the affairs of the company and are entitled, as the articles of association, to declare that dividends should be distributed out of the profit....
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.... it was held that: "19. In view of the judgment of the Apex Court in Vodafone, it is held that "tax planning may be legitimate provided it is within the framework of law". "Colourable devices cannot be a part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid payment of tax by resorting to dubious methods". It is an obligation of every citizen to pay the faxes without resorting to subterfuges. Therefore, though all tax planning is illegal / illegitimate / impermissible, the revenue cannot tax a subject without a statute to support and in the course we also acknowledge that every taxpayer is entitled to arrange his affairs so that his taxes shall be as low as possible and that he is not bound to choose that pattern which will replenish the treasury. A Citizen may legitimately claim the advantage of any express: terms or of any omissions that he can find in his favour in faxing statutes. His legal right so to dispose of his capital and income as to attract upon himself the least amount of tax is fully recognized. The legal right of taxpayer to decrease the amount of what otherwise would be his taxes, or altogether to avoid the....
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....uctural device to avoid tax implications. The grievance is, the property which was purchased for 3.75 crore was sold to a consideration of Rs. 89,28,36,500/-, the assessee share being Rs. 20,29,08,626/- without paying capital gain tax. From these facts, it is clear DLFCDL paid the market value and purchased the shares from the assessee. Therefore, the transaction of shares is not a nominal one. It is not a sham transaction. It is a real transaction for valuable consideration. The effect of the transaction is DLFCDL having acquired the shares became entitled to enjoy the asset of the company which was held by BFSL. For effecting the said transfer, instead of trading those shares through Bangalore Stock Exchange, it was traded through Magadh Stock Exchange. The material on record shows no trading activities took place in the BSE to the' relevant period. The attempt on the part of the assessee to trade their shares through other Stock Exchange was not fulfilled. But they were able to trade the said shares through Magadh Stock Exchange was fulfilled though the trading licence of Magadh Stock Exchange had been suspended earlier, subsequently it was revoked and after such revocation,....
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....es are carried away by this aspect: of the matter and because the assessee was able to avoid payment of income tax, consequently the Department was deprived of the tax, they have come to the conclusion that it is a colourable device and tax planning to avoid payment of tax. The assessee by resorting to such o tax planning, has taken advantage of the benefit of the law or the loopholes in the law, which had enured to his benefit. After seeing how this loophole has been exploited within four corners of the law, it is open to the Parliament to amend the law plugging the loophole. However, by any judicial interpretation we cannot read into the Section, which was not intended to, by the Parliament at the time of enacting this provision. The language employed in Section 10(38) of the Act is simple and unambiguous and it makes no distinction between the transfer of share of company with an immovable asset and movable asset, instead of executing a sale deed in respect of the immovable property by the company, which is owning the land. If the shareholder chooses to transfer the lands and part with the land to the purchaser of the shares, it would be a valid legal transaction in law and mere....
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....Industries (PJ Ltd., now owned by the above two persons jointly. According to Id. Assessing Officer, the assessee sold the actual land and building in the guise of sole of shores to the above persons and the provisions of the section 50C of the Act is applicable, though the properties ore not registered with the Stomp Valuation Authority. In the instant case, what was transferred by the assessee, even the shares in M/s. General Wood Industries (P) Ltd., and not the land and building or both. The assets transferred being the shares, which was never port of assessment of Stamp Duty Authority of the State Government. In such circumstances that cannot be no question of invoking the provisions of the section 50C of the Act or there is no direct transfer as enumerated in Sec.50C of the Act r.w.s 2(47) of the Act. Being so, Ld. CIT (A) had taken a correct view of the facts of the case by placing reliance on the judgement of Karnataka High Court in the case of Bhoruka Engineering Inds. Ltd. (supra) and also the judgement of Tribunal in the case of Asif Abdul Kader Fazlani (supra). Accordingly, we are inclined to uphold the order of Ld. CIT (A). Hence, the ground raised by the Revenue stand....
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.... the sanction of the provisions of IT Act." (emphasis supplied) 4.6 In a recent decision dated 13.12.2017, in the case of Shri Navrattan Kothari vs. ACIT in ITA No. 425/JP/2017, it was observed by the Hon'ble ITAT, Jaipur that: "7..................... Further; reassessment proceedings were initiated by the AO on the premise that the assessee has not disclosed the purchase consider of the alleged land, however, it is pertinent to note that the assessee did not purchase any land as it remained with M/s Shri Kalyan Buildmart Pvt. Ltd. and there is no change of the ownership of the said land as belong to M/s Kalyan Build mart Pvt. Ltd. We find that there is no transaction of sale and purchase of land in question between the assessee and Shri Madan Mohan Gupta. What was transferred by Shri Madan Mohan Gupta and his wife Smt. Shashi Kala Gupta were the shares of M/s Kalyan Buildmart Pvt. Ltd. which owned the land in question. There may be a case of under valuation of shares and understatement of consideration paid by the assessee however, it is not a case of purchase of land." (emphasis supplied) 4.7 It is also noted that the appellant has ....
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.... tax. Expression used in Section 9(1)(i) is "source of income in India" which implies that income arises from that source and there is no question of income arising indirectly from a source in India. Expression used is "source of income in India" and not "from a source in India". Section 9 contains a "deeming provision" and in interpreting a provision creating a legal fiction, the Court is to ascertain for what purpose the fiction is created, but in construing the fiction it is not to be extended beyond the purpose for which it is created, or beyond the language of section by which it is created. [See CIT v. Shakuntala AIR 1966 SC 719, Mancheri Puthusseri Ahmed v. Kuthiravattam Estate Receiver [1996] 6 SCC 185. 169. Power to impose tax is essentially a legislative function which finds in its expression Article 265 of the Constitution of India. Article 265 states that no tax shall be levied except by authority of law. Further, it is also well settled that the subject is not to be taxed without clear words for that purpose; and also that every Act of Parliament must be read according to the natural construction of its words. Viscount Simon quoted with approval a passage from....
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....23/03/2010 3500 56,55,715/- 29/03/2010 460 7,35,012/- Thus, the assessee incurred short term capital loss of Rs. 12,94,26,835/- on sale of 77800 equity shares of L&T Ltd. During the assessment proceedings, the Assessing Officer proposed to invoke Section 94(8) of the Act contemplates bonus striping and thereby ignoring the loss arising from the said transaction of purchase and sale of shares of L&T Ltd. The assessee objected to the proposed disallowance, however, the Assessing Officer finally disallowed the claim of short term capital loss and consequently made the addition on this account of Rs. 12,94,26,835/-. 30. On appeal, the ld CIT(A) has held that the provisions of Section 94(8) of the Act are not applicable in case of purchase and sale of shares as the said Section is applicable only in case of purchase and sale of units. 31. Aggrieved by the order of the ld. CIT(A), the revenue has raised this ground. Before us, the ld CIT-DR has submitted that the Assessing Officer has not only invoked the provisions of Section 94(8) of the Act but also held that the purchase and sale of shares are not genuine transaction and disallowed the claim of short term capi....
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....original shares based on the FIFO method. He has supported the order of the ld. CIT(A) on this issue. 33. We have considered the rival submissions as well as relevant material on record. The shares of L&T Ltd. are listed in the stock exchange and further the Assessing Officer itself has given details of purchase, bonus shares and sale of the shares by the assessee in the assessment order. Therefore, the question of genuineness of the purchase and sale of shares was not the subject matter of enquiry of the Assessing Officer in the assessment order. Hence, the casual observation of the Assessing Officer regarding the genuineness of the purchase and sale is contrary to the admitted facts on record. Even otherwise when the assessee has produced all the supporting evidence of purchase and sales shares of L&T Ltd. which is a listed company then if the Assessing Officer was having any serious doubt about the genuineness of the transaction, the same could have been verified by conducting any independent enquiry from independent sources. Hence, we do not find any substance or merits in the said finding of the Assessing Officer which is contrary to the admitted facts on record. As regards....
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....has arrived to the conclusion that the purchase and sale of shares of M/s L&T were not genuine without discussing the matter in the assessment order. 3.3 In view of the above discussion and looking to the totality of facts and circumstances of the case, it is held that the AO was not justified in disallowing short term capital loss of Rs. 12,94,26,835/- on the purchase and sale of shares of M/s L & T and thus, the AO is hereby directed to allow the same to the appellant company. Hence, this ground of appeal is hereby allowed." It is clear that it is not a case of dividend striping as provided in Section 94(7) but it is a case of bonus issue of shares, therefore, the provisions of Section 94(8) of the act cannot be applied in case of purchase and sale of shares/securities. The term unit is defined under the explanation to Section 94(8) of the Act as under: Section 94(8) Explanation.-For the purposes of this section,- (a) "interest" includes a dividend ; 81 [(aa) "record date" means such date as may be fixed by- (i) a company for the purposes of entitlement of the holder of the securities to receive dividend; or ....
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....after such date, while continuing to hold all or any of the additional units referred to in clause (b), then, the loss, if any, arising to him on account of such purchase and sale of all or any of such units shall be ignored for the purposes of computing his income chargeable to tax and notwithstanding anything contained in any other provision of this Act, the amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of such additional units referred to in clause (b) as are held by him on the date of such sale or transfer. Explanation. - For the purposes of this section, - (a) "interest" includes a dividend ; (aa) "record date" means such date as may be fixed by- (i) a company for the purposes of entitlement of the holder of the securities to receive dividend; or (ii) a Mutual Fund or the Administrator of the specified undertaking or the specified company as referred to in the Explanation to clause (35) of section 10 the purposes of entitlement of the holder of the units to receive income, or additional unit without any consideration, as the case may be; (b) "securities" includes stocks a....
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....ion 94(8) of the Act for "bonus stripping" was introduced in Finance Act, 2004 w.e.f. 1.4.2005. Hence it can be inferred that the intention of legislative was to exclude the shares of companies from the ambit of the provisions of section 94(8) of the Act. In view of the above discussion in paras 6.3.1 to 6.4.7 of this order, we concur with the finding of the learned CIT(Appeals) that there is no legislative authority to deny the loss intentionally created by the assessee; for what the law has not envisaged and has specifically excluded cannot be read into the same by the Assessing Officer. We, therefore, uphold the order of the learned CIT(Appeals)." In view of the facts and circumstances of the case and when the subject matter of purchase and sale of shares and not the units, therefore, the provisions of Section 94(8) of the Act are not applicable, accordingly we do not find any error or illegality in the order of the ld. CIT(A) qua this issue, the same is upheld. 34. In the result, appeal of the assessee is partly allowed and the appeal of the revenue is dismissed. Order pronounced in the open court on 06th December, 2018. ============= Document 1 INCOME TAX D....