TaxTMI 
TaxTMI 
2020 (12) TMI 659
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....as erred in law and/or on facts in deleting the disallowance 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 l....
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....ed that there was no requirement for valuing the shares on the purchase and sale for the 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 reassessmen....
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....fact can also be verified from the assessment order. Therefore, the question of forming the opinion on 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 availab....
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....ous assessment despite there was absolutely no change in the facts as well as Law. 9.8. The term 'Change of Opinion' was particularly 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....
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....ing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between 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 ....
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.... sale of shares was manipulated to wipe out the profit on the sale of rights in the land. Furthermore, the purchase price and the sale price of the shares, resulting losses of Rs. 10,81,15,500/- 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 s....
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....e above query was duly replied by the assessee during the original assessment proceedings vide letter dated 31.05.2011. The relevant extract of the letter is reproduced as under: "From: Ganesh Plantation Ltd., Ganesh Corporate House 100 Feet Road, Hebatpur, Thaltej, Ahmedabad. July 23, 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 lo....
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....facts in totality, we do not find any reason to interfere in the order of the Learned CIT (A). Hence the ground of appeal of the Revenue is dismissed. 10. The 2nd issue raised by the Revenue is that the learned CIT (A) erred in deleting the disallowance of loss made by the AO for Rs.10,18,15,500.00 on account of purchase and sale of shares. 10.1. The assessee in the year under consideration has incurred the loss of Rs.10,18,15,500.00 on the purchase and sale of shares of certain private limited companies/ limited companies. None of the company was listed company. Such loss was set off by the assessee in the year under consideration 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....
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....ineness of the transactions for the purchase and sale of the shares. I. Loss with respect to the shares of Security Analysis India Pvt. Ltd. for Rs. 5.49 crores i. The notice issued under section 133(6) of the Act to Security Analysis India Pvt. Ltd. was not responded. ii. The assessee sold the shares of the above company at a loss of Rs. 5.49 crores to its group company namely M/s Ganesh Fin trade Pvt. Ltd. iii. The assessee as well as the company has not submitted any documentary evidence in support of the genuineness of the transactions for the purchase and sale of the shares. II. Loss with respect to the shares of Suraj Limited for Rs. 95 Lacs i. The assessee was allotted the shares of 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....
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....the genuineness of the transactions for the purchase and sale of the shares, resulting such huge loss. 10.7. In view of the above, the AO disallowed the loss of Rs. 10,81,15,500.00 claimed by the assessee by observing as under: "3.7. Considering the above facts and circumstances, the genuineness of share transactions could not be proved and remained unsubstantiated. The essential documents and evidences for the verification of genuineness of the share transaction have also not been produced by the assessee and the assessee failed to discharge its onus of proving the genuineness of the transaction. It is relevant to mention that all these transactions were executed between such parties "off market". Such transactions were not executed through stock exchange Neither the assessee nor the companies the shares of which were purchased and sold could 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 asse....
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....discovered that such companies are not going to bring any public issue viz a viz will not become public limited companies. Thus it was decided to sale of the shares at a negotiated price. 12.2. The assessee also contended that there was no requirement under the provisions of law for valuing the shares of the private limited companies in the year under consideration. As such, the requirement was brought under the statute under the provisions of section 56(2)(viia) of the Act which is effective from 1-6-2010. 12.3. In view of the above, the assessee argued that the transaction of purchase and sale of shares resulting the loss of Rs. 10,81,15,500.00 cannot be treated as a colourable device for setting off against the capital gain income. Accordingly, the assessee prayed to the learned CIT (A) to delete the addition made by the AO. 12.4. The learned CIT (A) after considering the submission 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 tran....
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.... verify rate of sale of sellers. The purchasers of both the scrips were having PAN, hence their identity was established. Further, the payments have also been received by the appellant from them by banking channels and the appellant had transferred the shares in their names. 3.1.2. In fact, the appellant during the course of reassessment proceedings vide its letter dated 02/01/2015 has provided the changed address of the company namely; TPL Finance Limited i.e. 1 / 4, Mittal Chambers, Niharika Park, Opp. Uco Bank, Khanpur, Ahmedabad. However, no inquiry on the changed address of the company was made. 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 were pointed out. Since the payments have been routed through account payee cheques and no cash having been taken 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 mate....
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....f allotment filed in ROC containing the appellant being allottee for the allotment of shares on 24/09/2007. (iv) Copy of share certificate of M/s. Suraj Limited in the name of appellant dated 24/09/2007. (v) Copies of sale note for sale of shares to Suraj Impex Pvt. Ltd. dated 24/03/2009. The PAN No. of Sura] Impex Pvt. Ltd. was AACCS9971 R. 3.15. It has been noticed that the AO has issued the notice u/s. 133(6) of the I. T. Act to M/s. Suraj Ltd. and in response to the same, the said company has confirmed that the appellant company had purchased 1100000 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 has been 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 inquiry with the purchasers of the shares namely; Suraj Impex Pvt. Ltd. to whom appellant has sold some of the shares has been made giving rise to doubt the authenticity of the ....
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..../2008 was made with the cheque of Tamilnadu Mercantile Bank Ltd. bearing cheque No. 947554 dated 23/02/2008 was made. (iii) Further, one more application for allotment of 20000 shares was made on 28/02/2008 with the cheque of Rs. 25 lacs of Tamilnadu Mercantile Bank Ltd. dated 28/02/2008. (iv) Further, one more application for allotment of 20000 shares was made on 14/02/2008 with the cheque of Rs. 25 lacs with the cheque of Tamilnadu Mercantile Bank Ltd. bearing No. 92726788 dated 14/02/2008. (v) Also submitted the copy of share transfer form in respect of sale of shares by appellant to various parties. (vi) Confirmation for sale of shares with transfer forms. (vi) Copy of bank statement of the appellant through which payments have been made towards the purchases and credit of the sale proceeds of the bank account in Tamil Nadu Mercantile Bank Ltd. Also submitted the bank book of the appellant. 3.18. It has been noticed that the AO has issued 1he notice u/s. 133(6) of the I. T. Act to M/s. Khanelwal Infrastructure Pvt. Ltd. and in response to the same, the said company has confirmed that the appellant company had purchased 80000....
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.... AFPPJ1033A 29000 01/04/2008 Chenani MeenaM. AEBPC0610F 52000 200 10400000 19/3/2009 Joikishan Jethwani AHIPJ7179G 29500 01/04/2008 Kukreja HorishM. AFOPK6389P 7750 200 1550000 19/3/2009 01/04/2008 Chenani Rajkumar M. AEBPC0615A 16500 200 3300000 19/3/2009 116250 200 23250000 116250 Rate 10 Amt 1162500 3.20. In response to the notice u/s. 133(6) of the I. T. Act, M/s. WFFPL has stated that the appellant company has purchased the shares from different parties as per the consideration agreed between the transferor and appellant. The AO observed that in absence of any valuation report and any other documentary evidences, the purchase of shares @ Rs. 200/-per share as against the face value of Rs. 10 was not the genuine transaction. Since the shares were purchased from the various parties and hence notices u/s. 13....
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....thing has been brought on record to doubt the genuineness of the transactions with the sellers from whom the appellant has purchased the shares and with the purchasers to whom said shares were sold. Merely the parties have not made any response to the notices u/s. 133(6) would not be enough to disbelieve the transactions since the appellant did not have any control over the said parties. As per the judicial pronouncements, due to absence of the reply from the aforesaid parties, no adverse view can be taken against the appellant. 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, no adverse observations about the authenticity of these supporting documents have been found. Since the payments have been routed through account payee cheque and no cash having been taken by the appellant from the purchasers or taking back to the sellers, has been proved, thus, in absence of other material on record, the purchase rate and sale rate of the shares could not be doubted and same were held to be on the pre....
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.... on loss was due to decrease the burden of interest upon the investment by liquidating the shares at the earliest when there were no hopes for higher rates to be realised in future. In fact, in response to the notice u/s. 133(6), the replies have also been received by the appellant from Khandelwal Infrastructure Ltd., Suraj Ltd. & Winter Fresh Foods Pvt. Ltd. which were confirming to the transactions taken place by the appellant. In fact in the case of TPL Finance Ltd., no notice by the said company has been received on its changed address. Since in respect of all the share transactions the appellant has provided the supporting evidences in the form of application for shares to the company, copies of share certificates, Form No.2 filed by the company to the ROC wherein the name of the appellant company was appearing as a shareholder, PAN Card copies of the companies, sale note for sale of shares, confirmation letters and payments / receipts through banking channels which have been elaborately discussed in the preceding paras for each of the scrips separately and in these circumstances, there remained no doubt on the genuineness of the transactions. 3.25. In view of the afo....
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....ies Analysis (India) Pvt. Ltd. along with Board Resolution as per Exhibit-IV. (b) Xerox copy of Share Certificate as per Exhibit-V. (c) Form no.2 filed by Securities Analysis (India) Pvt. Ltd. for the allotment of shares to the assessee company as per Exhibit-VI. (d) PAN Card of Securities Analysis (India) Pvt. Ltd. as per Exhibit-VII. (e) Share transfer form along with sale note for sale of shares to Shree Ganesh Fintrade Ltd. as per Exhibit-VIII. (C) We are attaching herewith the following documents for TPL Finance Ltd. (a) Confirmation regarding sale of shares of TPL Finance Ltd. along with share transfer form as per Exhibit-IX. (D) We are attaching herewith the following documents for Suraj Ltd. (a). Application form for allotment of equity shares as per Exhibit-X. (b). PAN Card of Suraj Ltd. as per Exhibit-XI. (c). Form No.2 for allotment of shares to the company along with Xerox copy of share certificate as per Exhibit-XII. (d) Sale note for sale of shares of Suraj Ltd. as per Exhibit-XIII. (E) We are attaching herewith the following documents for Khandelwal Infrastruct....
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....n-response of the notice issued under section 133(6) of the Act to the parties. In holding so we draw the support and guidance from the judgment of Hon'ble Gujarat High Court in the case of Rohini Builders reported in 127 Taxman 523, where the head note reads as under: "- Whether merely because summons issued to some of creditors could not be served or they failed to appear before Assessing Officer, could not be ground to treat those credits as non-genuine - Held, yes -" 17.4. The next question arises about the non-availability of valuation report of the shares of the companies in which the assessee has incurred losses. In this regard we note that there was no provision under the Act requiring the assessee, being transferor of the shares, to furnish the valuation report of the shares of the companies in respect of which it has incurred the loss. The lawmakers to determine the transfer value of unquoted share brought special provision by introducing Section 50CA of the Act which reads as under: "[Special provision for full value of consideration for transfer of share other than quoted share. 50CA. Where the consideration received or accruing as a result....
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....r consideration prescribing the guidelines for pricing of the shares unlike the provisions contained under section 50C of the Act concerning immovable properties under the head capital gain. Thus in the absence of any specific provision to determine the sale price of the shares of the company, we are inclined to hold that the price declared by the assessee is correct and within the provisions of law. 17.9. Without prejudice to the above, we note that the AO on one hand has recorded his finding with respect to the shares of certain companies that its face value stands at Rs.10 but the assessee has purchased the same at a higher value. The basis of arriving at the conclusion that the assessee has purchased the shares at a higher value was non-availability of shares valuation. In other words the AO himself has admitted the value of the shares of certain companies at Rs.10 but he has not given any benefit of such value while working out the loss with respect to purchase and sale of shares. As such the AO has treated the entire loss on the purchase and sale of shares as not genuine which is contrary to the observations made by him during the assessment proceedings. In fact the AO, in....