TaxTMI 
TaxTMI 
2020 (12) TMI 659
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of loss claimed of Rs. 10,18,15,500/- on sale and purchase of shares although no valuation report of share was submitted by the assessee justifying the huge loss incurred. 3. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the A.O. 4. It is, therefore, prayed that the order of the CIT(A) be set aside and that of the A.O. be restored to the above extent." 3. The first issue raised by the Revenue is that the Learned CIT(A) erred in cancelling/quashing the assessment framed under Section 147 read with Section 143(3) of the Act. 4. The facts in brief are that the assessee in the present case is a Private Limited Company and engaged in the business of financing and granting of loans and advances. The assessee for the year under consideration filed its return of income declaring total income of Rs. 7,40,330/- dated 30th September 2009 which was assessed under Section 143(3) of the Act at Rs. 25,92,480/- vide order dated 27th December 2011. 4.1. Subsequently, the AO on verification of the assessment records found that the assessee has claimed loss on the sale of shares with respect to certain private limited/ limited comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e year under consideration under the provisions of the Act. As such there was an amendment brought under section 56(2)(viia) of the Act requiring the valuation of shares but the same was effective from 01.06.2010. Thus such provisions are not applicable for the year under consideration (P.Y 2008-09 corresponding to A.Y 2009-10). Accordingly, no doubt can be pointed out on the purchase and sale price of the shares in the absence of any valuation report in the year under consideration. 4.6. In view of the above, the assessee contended that initiation of the proceedings under Section 148 of the Act represents the change of opinion based on the same set of documents which were available during the original assessment proceedings. Therefore, initiating reassessment proceeding without bringing any new tangible material on record is not desirable under the provisions of law. Accordingly, the assessee before the AO requested to drop the proceedings initiated 148/147 of the Act. 4.7. However, the AO rejected the contention of the assessee vide order dated 16th September 2014 and held the reassessment proceedings under Section 147 of the Act is well within the provisions of law. 5. Aggrie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the details filed by the assessee does not arise. 8. On the other hand, the Learned AR before us filed a Paper Book running from pages 1 to 582 and submitted that the proceedings under section 147 of the Act was initiated on the basis of same set of documents which were available during the original assessment proceedings which is nothing but change of opinion. Accordingly, the learned AR contended that the assessment framed under section 147 of the Act is liable to be quashed. 8.1 Both the learned DR and the AR before us vehemently supported the order of the respective authorities below as favourable to them. 9. We have heard the rival contentions of both the parties and perused the materials available on record. 9.1. The Provisions of Section 147 of the Act, authorizes the AO, if he has "reasons to believe" that the income has escaped assessment, to assess or reassess the income escaped from assessment. Now to form the reasons to believe for the escapement of income, the AO first, should be in possession of some /fresh new material which was previously not available with him viz a viz it impacts the aspect, that there is some undisclosed income. Secondly, the reason to believ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the point for consideration before the Hon'ble Supreme Court in the case of ITO vs. Tech Span India Ltd. reported in 404 ITR 10 where the same has been defined in Para 9 and 10, Para 9 of the order reads as under: "(9) Section 147 of the IT Act does not allow the re-assessment of an income merely because of the fact that the assessing officer has a change of opinion with regard to the interpretation of law differently on the facts that were well within his knowledge even at the time of assessment. Doing so would have the effect of giving the assessing officer the power of review and Section 147confers the power to re-assess and not the power to review." 9.9. In Para 9, the court has particularly highlighted the fact that, if the case is sought to be re-opened only on the basis of material, which was initially also available with the assessing authority at the time of making previous assessment, the same would amount to change of opinion provided there was no change in the facts as well as the Law. As such it is not available as an option to reopen the case u/s. 147/148 merely to reform a view, initially taken. Similarly Para 10 of the above order reads as under: "(10) To chec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ween power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989 , Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief." 9.13. Further, the Hon'ble Delhi High Court in case Director of Income-tax, International Taxation-II v. Rolls Royce Industrial Power India Ltd. [2017] 82 taxmann.com 166/394 ITR 547 (Delhi) also highlighted the fact that there was no new information on record which requires fresh examination and view once formed cannot be subjected to review, and held as under: "19. The fact of the matter is that during the course of the original assessments under Section 143 (3), t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0/- only, was not based on valuation of the shares of the companies. Undisputedly, all these details were available during the original assessment proceedings which can be verified from the following details. i. A table showing the purchase and sale of the equity shares of the private limited companies wherein the impugned loss was shown. Such table is placed on page 339 of the Paper Book. ii. The purchase receipts and the sale will of the shares along with shares transfer forms of all the private limited companies are placed on pages 340 to 358 of the Paper Book. iii. The confirmation of the parties to whom the assessee has sold the shares are placed on pages 359 to 355 of the Paper Book. 9.15. From the above details, we note that all the materials used by the AO in the initiation of reassessment proceedings was available before him during the assessment proceedings and after application of his mind the preceding AO framed the assessment. Therefore, the same cannot be used for initiating the proceedings under Section 147 of the Act. As such there has to be some new/fresh information on record, which requires a fresh examination. When there is no change in the facts and ci....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 2011 To, The Income Tax Officer, Ward-4(1), Ahmedabad. Respected Sir, Ref : Notice u/s. 142(1) of the Income Tax Act, 1961 dated 31-05-2011 for assessment proceedings of A.Y.2009-10. Sub : Submission of details / explanations. With reference to the captioned subject and in response to notice dated 31/5/2011 and in continuation of our earlier submissions dated 25/5/2011, 20/6/2011 and 15/7/2011, we are submitting herewith following details/explanations in the same chronological order as desired by your honour: XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 3.(Sr.No.13) Your honour has called for the details of loss on sale of shares. In this regard, we are submitting herewith the said details as per Exhibit-III.-" 9.19 The Exhibit-III showing the loss on the purchase and sale of shares is given here-in-below. "GANESH PLANTATIONS LTD. F.Y. 2008-09 A. Y. 2009-10 SHARESPURCHASE SHARES SOLD PROFIT / NAME OF COMPANY DATE QTY AMOUNT DATE QTY AMOUNT -LOSS KHANDELWAL INFRASTRUCTURE PVT LTD. 01-04-2008 80000 10000000 20-03-20.09 80000 800000 -9200000 &nb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion against the income shown by the assessee on the sale of rights in the land. The details of such loss stands as under: "(i) Winter Fresh Foods Pvt.Ltd. Rs. 22087500 (ii) Security Analysis India Pvt.Ltd. Rs. 54908000 (iii) TPL Finance Ltd. Rs. 12420000 (iv) Suraj Ltd. Rs. 9500000 (v) Khandelwal infrastructure Pvt.Ltd. Rs. 9200000 Total Loss Rs. 108115500" 10.2. The assessee in support of the impugned loss has furnished the details of the companies, confirmation of the parties, details of the purchases of the shares, sale of the shares, share transfer form, share certificates, copies of PAN, applications form for the allotment of shares and the bank statement/ bank book wherein the transactions for the purchase and sale of shares were recorded. 10.3. The assessee during the assessment proceeding also contended that there was no valuation of shares carried out in connection with the purchase and sale of the shares for determining the price for the purchase and sale of the shares. It was contended that there was no provision under the Act in force for the year under consideration requiring the assessee for determining the valuation of the share....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the above company at a premium of Rs. 90.00 per share and having face value at Rs.10 per share, aggregate to Rs. 100.00 per share without any valuation report of the shares. Furthermore, the company has shown losses of Rs. 66,99,106.00 in the financial year 2006-07 but the assessee has acquired the shares at premium as discussed above but without any basis. ii. The query raised to the company i.e. Suraj Limited whether it had sold its shares to any other company except the assessee at a price of Rs. 100, was not responded in reply to the notice furnished under section 133 (6) the Act. iii. Similarly, the assessee has not furnished any reason for buying shares of the loss incurring company at a premium as discussed above. As such no detail was submitted what the assessee expected for the growth of the company. iv. The shares were sold to the group company of Suraj Limited i.e. Suraj Impex Pvt. Ltd. at Rs.5 per share which resulted loss to the assessee of Rs.95 lakhs. As such, the assessee failed to justify for making the sale of the shares at loss within a period of few months from the purchase of shares. v. Similarly, the assessee could not justify that it had the infor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld furnish a copy of valuation report with regard to valuation of shares or any document which could justify the basis of valuation of shares or charging of high premium. Further, the assessee failed to explain as to what were the circumstances that compelled the assessee company to sell the shares at a low price as the assessee could not offer any valid documented / evidential explanation. The reply of the assessee on this issue has been found very general in nature. The assessee has also not been able to furnish any documentary evidence that prompted the assessee to buy the shares at a high premium. The assessee also had failed to furnish any documentary evidence with regard to the market price of the shares at the time of purchase as well as sale other than the general reply given on 02/01/2015. In view of the above, transactions of shares cannot be considered as genuine transaction. The nature of transactions in absence of evidences clearly proves that it a colourable device with intent to reduce the tax liability. Therefore, the claim of set off of loss of Rs. 108115500/- incurred on sales and purchase of shares against the profit of the business is not found justified....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of the assessee, deleted the addition made by the AO by observing as under: "3.9. With regard to the transactions in respect of transactions of shares of Security Analysis India Pvt. Ltd. and TPL Finance Limited, the appellant submitted the following documents in respect of the transactions, to the AO in the assessment proceedings vide its letter dated 22/07/2014. (i) Application form for allotment of equity shares by the appellant in the shares of Security Analysis (I) Pvt. Ltd. (ii) Copy of share certificates dated 09/06/2008 allotting the 2590 shares. (iii) Copy of Form No. 2, i.e. return filed by Security Analysis (India) Pvt. Ltd. in the ROC. (iv) Copy of PAN Card of Security Analysis (India) Pvt. Ltd. bearing PAN Number AAFCS 7479 B. (v) Copy of share transfer form in respect of the transfer of shares by the appellant in favour of Shree Ganesh Fin Trade Limited to whom the shares were sold. 3.10. Further, the appellant vide its letter dated 29/09/2014 to the AO, also submitted the copies of following documents which were also provided to the AO during the original assessment proceedings vide letter dated 12/12/2011:- (B) Following documents for the sale of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aken by the appellant from the purchasers or taking back from the sellers, over and above to the consideration has been proved, thus, in absence of any other material on record, the purchase rate and sale rate of the shares could not be doubted and same are held to be on the prevalent market rates. Therefore, the primary onus cast upon the appellant has been duly discharged. 3.13. (ii) Loss on sale of shares in Surai Limited: On inquiry by the AO u/s. 133(6) of the I. T. Act, M/s. Sura] Limited has stated that, it had allotted 1100000 shares of Rs. 10 each at a premium of Rs. 90/- to the appellant. The AO held that in absence of any valuation report or any basis of valuation, the purchase transaction of shares was not found justified. The AO also observed that M/s. Suraj Limited had not sold any shares to other companies except to the appellant company @ Rs. 100/- per share. Since as per the balance sheet of Suraj Limited, there were losses in F. Y. 2006-07 and it was an off market transaction and M/s. Suraj Limited was not a listed company, so there was no justification on the part of the appellant company to buy the shares at such a high premium, in absence of any valuation r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lant has sold some of the shares has been made giving rise to doubt the authenticity of the rates of transaction. The purchaser company was having PAN, hence its identity was established. Further, the payments have also been received by the appellant from it and the appellant had transferred the shares in its name. The complete addresses, PAN Nos., details of payments and confirmations from the sellers as well as the purchasers were available on record with the AO which prima facie proved the genuineness of the transactions of the shares. Thus, in absence of no adverse observations about the authenticity of these supporting documents, the payments having been routed through account payee cheques and no cash having been taken by the appellant from the purchasers or taking back to the sellers, over and above to the consideration has been proved, thus, the purchase rate and sale rate of the shares could not be doubted and same are held to be on the prevalent market rates. Therefore, the primary onus cast upon the appellant has been duly discharged. 3.16. (iii) Loss on sale of shares of Khandeiwal Infrastructure Pvt. Ltd. In response to the notice issued u/s. 133(6) of the I. T. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed 80000 shares as per the consideration agreed between the appellant and the company. This confirmation has not been controverted by way of bringing anything adverse on record. Further, in spite of available of all the documents on record, nothing was brought on record to doubt the transactions with the sellers from whom the appellant has purchased the shares and with the purchasers to whom said shares were sold by the appellant. No inquiries with the purchasers of the shares namely; Shri Shyamlal H. Gupta, Shri Dilip S. Khandelwal and Shri Ashok S. Khandelwal have been made to whom the appellant has sold the shares to verify the genuineness of the rate of the transaction. All the three purchasers were having PAN, hence their identity was established. Further, the payments have also been received by the appellant from them and the appellant had transferred the shares in their names. The complete addresses, PAN Nos., details of payments and confirmations from the sellers as well as the purchasers were available on record with the AO which prima facie proved the genuineness of the transactions of the shares. Thus, nothing adverse about the authenticity of these supporting documents ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... AO observed that in absence of any documentary evidences to establish the genuineness of the said transactions, the loss accounted for by the appellant was not found justified. Thus, the genuineness of the transaction could not be proved and remained unsubstantiated and the appellant has failed to discharge its onus in proving the genuineness of the transactions, as these transactions were made off market and such transactions were hot executed through stock exchange, and the same were not supported with any valuation report with regard to valuation of- shares. Thus, there was no justification for the high premium paid and sold the same on lower price. 3.21. With regard to the transactions in respect of purchase of shares of Winter Fresh Foods Pvt. Ltd., the appellant submitted the following documents in respect of the transaction, to the AO in the assessment proceedings vide letter dated 22/07/2014 and 29/09/2014 which were filed to the AO in original assessment proceedings vide letter dated 12/12/2011. (i) Copies of share transfer forms in respect of transfer of shares in favour of the appellant by the transferor / seller of the shares duly signed by each of them. (ii) Con....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... made the observations that - (i) The shares were purchased by the appellant at a price which was unreasonably high. There was no valuation report to justify the price. (ii) AO held that there was no circumstances which compelled the appellant company to sale these shares at a low price. (iii) AO also mentioned .that notices u/s. 133(6) were issued to various parties and some of them have not replied whereas the reply of the other parties were not satisfactory. (iv) The AO concluded that the transactions were not genuine and hence he added the entire loss in its income. 3.24. Having considered all the facts and submissions, it is found that with regard to valuation of the shares, since the shares were in respect of unlisted companies, and as per the provisions of law, for the year under consideration there was rto legal obligations on the part of the appellant to obtain the valuation report of each of such scrips of shares at the time of transaction. The provisions of section 56(2) (viia) has been introduced w.e.f. 01/06/2010 only and not applicable with retrospective effect. Therefore, any purchases / sale of shares before that date were left on the commercial sense of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....has purchased the shares of the companies at a high price and sold the same at a very low price which has resulted loss to it under the head capital gain. As such the price for the purchase and sale of shares was not based on any valuation report. Accordingly the learned DR contended that the loss claimed by the assessee cannot be allowed as genuine. 15. On the other hand, the ld. AR before us contended that there was no requirement under the Act for obtaining the valuation report with respect to the purchase and sale of shares for the year under consideration. 16. Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 17. We have heard the rival contentions of both the parties and perused the materials available on record. In the instant case, the assessee has claimed to have incurred losses on the purchase and sales of shares of certain private Ltd and limited companies amounting to Rs.10,81,15,500.00 which was disallowed by the AO for various reasons elaborated in the preceding paragraph. 17.1. One of the allegation of the AO was that the assessee has not furnished necessary details justifying the genuineness o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....anks as per Exhibit-VXII. (iv) The assessee company has to contend that it has incurred the genuine business loss on sale of shares and the same is required to be allowed in toto." 17.2. Admittedly, the primary onus to prove the correctness of the transaction is on the assessee as it has the special knowledge of the circumstances and privy to the facts of the case. Hence, the assessee has to satisfy the AO about the correctness of the impugned loss. After going through the details filed by the assessee as discussed above, we find that the assessee has discharged its onus to justify the loss claimed by it on the purchase and sale of the shares. Thus the onus shifts on the AO to disprove the contention of the assessee by collecting contrary evidence. But The AO has not brought any contrary evidence against the assessee to prove that the loss claimed by it was not a genuine loss. In other words no contrary evidence was collected or confronted by the AO against the contention of the assessee. Thus it can be inferred that the burden of proof has been discharged by the assessee. 17.3. A situation also arises that there was no compliance by certain parties against the notice issued by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....from time to time, where the quotation of such share is based on current transaction made in the ordinary course of business.]" 17.5. However, section 50CA is applicable w.e.f. 01st April 2018, therefore, for the assessment year under consideration there was no mechanism under the law to determine the sale price of unquoted shares. 17.6. Further, we also note that there is an amendment under the provisions of section 56(2)(x) of the Act which reads as under: "[(x) Where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017,------ --- XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (c) any property, other than immovable property, ----- (A) Without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (B) For a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration:" 17.7. A plain reading of the above provision reveals that the person being the recipient is subject to tax if it a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....factors such as elaborated below: a. the field in which the company is operating b. the competition that the companies facing c. the difficulty for making the entry in the particular field d. the background of the promoters e. the economic boom f. Govt. policy g. budget proposals h. future plans i. development chances j. existing growth in sales k. high capital l. reserve m. Positive net worth and no borrowings so on and so forth. 17.11. There are various companies incurring huge losses but price of their shares in market are high. Similarly there are various companies having high book value but trading at a very low price. Accordingly, we are of the view that the high profit/taxable income cannot be a criteria to decide the price of the share/script. Thus any unusual price rise/ fall in the shares of the company cannot be a basis to draw an inference that capital loss generated by the assessee is bogus in nature. Thus after considering the above facts, we are of the opinion that AO is not correct in challenging the loss declared by the assessee on the purchase and sale of shares. 17.12. We also note that it is not the case of the Revenue that there was ....