TaxTMI 
TaxTMI 
2026 (5) TMI 456
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....served on the assessee in response to which the assessee filed the requisite details. The Assessing Officer completed the assessment u/s 143(3) of the Act on 01.03.2016 assessing the total income of the assessee at Rs. 5,55,85,528/-. 3. Subsequently the PCIT examined the record and noted that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue for the following reasons: a) Verification of the case record revealed that you sold 3,50,000 equity shares of Lord Ganesh Minerals Pvt. Ltd., Pune (LGMPL) to KSL Holding Pvt. Ltd., & received consideration of Rs. 21,87,50,000/-, vide share transfer form No.075773 dated 03-07-2012. You had claimed the selling expenses at Rs. 7,84,00,000/-. b) Further, on going through the case record, it is observed that you had cancelled the agreement dated 02-07-2012 for sale of shares entered in to with Nilesh Steel and Alloyes Pvt. Ltd for 2,14,375 shares out of 3,50,000 shares and with Dhanlaxmi TMT Bars Pvt. Ltd for 1,35,625 shares, out of 3,50,000 shares of LGMPL and agreed to pay consideration of Rs. 4,80,20,000/- & Rs. 3,03,80,000/- to Nilesh Steel & alloyes Pvt. Lt....
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....LGMPL and agreed to pay consideration of Rs. 4,80,20,000/- and Rs. 3,03,80,000/- to Nilesh Steel & Alloys Pvt. Ltd. and Dhanlaxmi TMT Bars Pvt. Ltd respectively for breach of contract entered into with both the parties on 07/05/2012 and 09/04/2012 respectively. However, while entering in to the agreement for sale of shares to the above mentioned parties the assessee could not get consent from the shareholder/director of Lord Ganesh Minerals Pvt. Ltd. Therefore, cancellation agreement for sale of shares executed without paying any stamp duty and the parties instead of going to court for settlement of dispute, if any, objected to the sale of shares to KSL Holding Pvt. Ltd and finally agreed to execute cancellation deed. However, cancellation agreement executed by both the parties is in the nature of colourable device to minimize the Long Term Capital Gains. Hence, categorizing payment of Rs. 7,84,00,000/- as selling expenses is not in order. Therefore deduction allowed of Rs. 7,84,00,000/- while computing LTCG is not in order. Hence, deduction claimed by the assessee while computing LTCG amounting to Rs. 7,84,00,000/- is disallowed and the same is treated as income from Long Term Cap....
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....r on, the appellant could not get consent of other shareholders for granting mining rights of iron-ore at Sundur, Hospet, Karnataka to Nilesh Steel & Alloys Pvt. Ltd. and M/s. Dhanlaxmi TMT bars Pvt. Ltd. Meanwhile there was also change in the government policies and there were restraints on transfer of iron-ore mining leases. In view of above facts, the appellant vide letter dated 09.06.2012 expressed his inability to sell the share to Nilesh Steel & Alloys Pvt. Ltd. and M/s. Dhanlaxmi TMT bars Pvt. Ltd. Consequently both the purchasers sought damages as per clause-12 of the agreements to sale pertaining to breach of contract. The clause-12 of the agreements to sale dated 09.04.2012 & 07.05.2012 categorically provided that as the vendor had assured to get all approvals, no objections from other shareholders and physical share certificates within one month from date of this contract and purchasers had also assured for immediate payment on compliance of same, therefore in the event of vendor failing to execute transfer deed and give delivery of shares within stipulated period, the purchasers shall be entitled to damages of Rs. 15 lakhs per day for delay on part of vendor. Besides, c....
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.... as well as criminal legal proceedings against vendor in the event of vendor selling shares without purchaser's written consent or vendor refusing to pay 70% of escalated price over and above price fixed in this agreement". Subsequently the appellant entered into cancellation agreements dated 02.07.2012 with both the purchasers namely Nilesh Steel & Alloys Pvt. Ltd. and M/s. Dhanlaxmi TMT bars Pvt. Ltd. as he got another proposal in consultation with the other shareholders of Lord Ganesha Minerals Pvt. Ltd. for sale of shares to KSL Holding Pvt. Ltd. The appellant accordingly sold his 3,50,000 shares to KSL Holding Pvt. Ltd. @ Rs. 625/- per share for a sale consideration of Rs. 21,87,50,000/- resulting into capital gains liability in his hands. The appellant thereafter paid an amount of Rs. 7,84,00,000/- to both the purchasers namely Nilesh Steel & Alloys Pvt. Ltd. and M/s. Dhanlaxmi TMT bars Pvt. Ltd. considering the clauses-12, 13 & 14 of agreements to sale and cancellation agreement dated 02.07.2012. The amount of Rs. 7,84,00,000/- was accordingly paid to both the purchasers through the banking channels and it was claimed as an expenditure while computing the long t....
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.... of appellant has argued that the AO had made the addition of Rs. 7,84,00,000/- alleging that it was colorable device but it was based on mere suspicion and surmises. There was not even an iota of evidence or justification for the AO to conclude that the cancellation agreement was a colorable device. It was argued that the AO had not brought on record any evidence even remotely justifying his said conclusion. The grievance of the AO that agreements for sale of shares/ cancellation were made on stamp paper of Rs. 100 and these were not registered, was totally unfounded. It was argued that these were agreements to sell shares i.e. not final transfer of shares. As per section 17 of Indian Registration Act, 1908, registration was required only for documents having subject matter of immovable property having consideration above Rs. 100/-. In the appellant's case, it was agreement to sell shares, being of moveable property. Therefore it did not require any registration under section 17 of Indian Registration Act, 1908. There were written contracts on stamp papers which were also notarized. In fact, no stamp duty was payable on such agreements. Stamp duty was payable only on final tra....
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....gabad has finalized the assessments . of both the recipients U/s 143(3) r.w.s. 153A for AY 2013-14 on 23.03.2016 in the case of M/s. Dhanlaxmi TMT Bars Pvt. Ltd. and on 28.03.2016 in the case of Nilesh Steel & Alloys Pvt. Ltd. and no adverse inference has been drawn in respect of said transactions entered into by them with the appellant as regards the proposed sale of shares and subsequent cancellation agreement. Thus there is nothing on record to suggest any collusion between the appellant and both the purchasers. The* Inference of the AO that cancellation agreement entered into by the appellant is a make-belief transaction has remained unsubstantiated. In view of above facts, there is nothing on record to justify the addition made by the AO. In the case of CIT Vs. Pivete Finance Ltd. (192 taxman 21), the assessee had continuously resorted to sale of shares to another group company to reduce the tax burden and the Revenue disallowed the resultant losses claimed by the assessee by treating the relevant transactions as a colourable device to reduce the tax burden by relying on the decision of Hon'ble Supreme Court in the case of Mc. Dowell & Co. Ltd. (154 ITR 148). On appeal, th....
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....The facts and circumstances which lead to McDowell's decision leave us in no doubt that the principle enunciated in the above case has not affected the freedom of the citizen to act in a manner according to his requirements, his wishes in the manner of doing any trade, activity or planning his affairs with circumspection, within the framework of law, unless the same fall in the category of colourable device which may properly be called a device or a dubious method or a subterfuge clothed with apparent dignity. 18. The aforesaid discussion would show that once the transaction is genuine merely because it has been entered into with a motive to avoid tax, it would not become a colourable device and consequently, earn any disqualification". In Consolidated Finvest & Holdings Limited Vs. ACIT in ITA No.494/Del/2011, the Hon'ble Delhi Tribunal examined a series of transactions between two related entities which resulted in capital loss in the hands of one entity. The assessee gave several advances to a related entity i.e. Jindal Polyfilms Limited When Jindal Polyfilms Limited was unable to repay these loans, it restructured the transaction by issuing optionally ....
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....). Accordingly this ground of appeal is dismissed. In the result, the appeal of the assessee is treated as partly allowed. 7. Aggrieved with such order of the Ld. CIT(A) the Revenue preferred an appeal before the Tribunal and the Tribunal vide ITA No.1559/PUN/2019 order dated 23.01.2023 restored the matter to the file of the Ld. CIT(A) by observing as under: "6. We have given our thoughtful consideration to the foregoing rival submissions and perused the lower authorities' respective findings. Suffice to say, it emerges from the learned CIT(A)'s detailed discussion that he has given much a weightage to the search action dated 02.05.2013 involving the recipient entities followed by the post-search enquiries and assessment in their respective cases to observe that the same had not yielded any incriminating material so far as the impugned claim of Rs. 7,84,00,000/- is concerned. All this constrains us to observe that the CIT(A) ought to have independently examined the genuineness of the assessee's impugned claim in light of the above prima facie suspicious circumstances rather than discussing the search action in case of the twin recipient companies wh....
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....ir PANs. 9.0 The main contention of the AO in the assessment order is that the payment to NSAPL and DTL by the assessee was a colourable device to reduce the tax liability. One of the reasons for such arriving at such a conclusion is that the companies NSAPL and DTL set-off their current year losses against the income of Rs. 4,80,20,000/- and Rs. 3,03,80,000/- accrued on account of sale of their rights. A colourable device means a sham arrangement or transaction, camouflaged as a real transaction, lacking in commercial substance, and done only to obtain a tax benefit. After examining the assessment order, and the arguments of the assessee, it is pertinent here to note the following points 1. NSAPL and DMT are in the field of iron and steel manufacture and their interest in acquiring the shares of LGMPL, another company engaged in similar manufacturing operations, is not unusual or atypical. The intention of the companies to acquire the shares of LGMPL from the assessee is therefore not in doubt. Similarly, the intention of the assessee to sell the shares to unrelated third parties for a valid price is a regular practice. 2. The assessee's agreement wi....
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....ransfer u/s 48 of the Act. That the recipient companies NSAPL and DTL set-off their losses against the compensation received from the assessee in the impugned year does not have a direct bearing on the issue at hand. As already stated, NSAPL and DTL are third parties and the assessee has no relation with them. Under normal circumstances, there is no payment to a third party without a valid business transaction. In the instant case, the records show that the initial agreement to sell the shares to NSAPL and DTL was a regular transaction of the assessee to offload his share in LGMPL for a profit and the subsequent cancellation of the agreement was done with a motive to realise higher profit from sale of shares to KSL at a price higher than the previous agreement. Therefore, it cannot be said that the transaction with NSAPL and DTL was done with a motive to obtain tax benefit. The contention of the AO that the payment of Rs 7,84,00,000 resulted in net outgo of the sale consideration which otherwise would be tax in the hands of the assessee is therefore not acceptable and rejected. In view of the above discussion, I hereby hold that the claim of the assessee is genuine and no ....
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....dd, amend or alter all or any of the grounds of appeal. 10. The Ld. DR strongly objected to the order passed by the Ld. CIT(A) / NFAC in deleting the addition made by the Assessing Officer. Referring to the copy of agreements entered with Dhanlaxmi TMT Bars Pvt Ltd (DPL) and Nilesh Steel and Alloys (P) Ltd. (NPL), he submitted that these are not registered agreements and no stamp duty was paid in respect of these agreements, therefore, the genuineness of the said agreements was not established. Further, the assessee has agreed to pay compensation to DPL and NPL and executed cancellation deed with DPL and NPL, instead of going to Court. This shows that these are nothing but colourable devices to reduce the tax liability. So far as the argument of the assessee that DPL and NPL had declared profit before tax of Rs. 1,35,26,542/- and Rs. 9,18,636/- after including the compensation of Rs. 3,03,80,000/- and Rs. 4,80,20,000/- in their Profit and Loss Account for assessment year 2013-14 is concerned, he submitted that if the said compensation receipts are excluded, the said companies had incurred losses. Therefore, the assessee by adopting calculated and colourable devises had diverted ....
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....ferred to as NPL] 115-127 3 02.07.2012 Cancellation Agreement entered by assessee with DPL and NPL agreeing to sell 3,50,000 shares @ Rs. 625 per share to Kalyani Steel Holdings Pvt. Ltd. and agreeing to pay compensation of Rs. 224 per share [(625 - 305) x 70%] to DPL and NPL 128 - 138 4 03.07.2012 3,50,000 shares of Lord Ganesha Minerals Pvt. Ltd. [LGMPL] owned by assessee sold to KSL Holdings Pvt. Ltd. 70 5 02.05.2013 Search Action u/s 132 conducted on DPL and NPL, however, no incriminating material indicating non genuineness of compensation received by them from assessee found during search nor any material indicating compensation returned back by them in cash to the assessee found during search action. 147 - 159 6 31.10.2013 ITR filed by assessee u/s 139(1) declaring sale consideration on transfer of 3,50,000 shares of LGMPL @ Rs. 625 per share and claiming deduction @ 224 per share against the same, while working out LTCG on sale of shares. 101-103 7 01.03.2016 Scrutiny Asst. Order u/s 143(3) passed by A.O. by accepting LTCG on sale of shares declared by assessee. 54-57 8 26.03.2018 Revision Order u/s 263 ....
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....R. has not cited any provisions of law which mandate the registration of agreement to sell in respect of shares of a company. Further, the Ld. DR has not cited any provisions of law which mandate the payment of stamp duty of more than Rs. 100/- on the impugned agreements. Even otherwise also, all the agreements have been duly notarized before Notary, Govt. of India which further substantiates the genuineness of these agreements. 13. So far as the objection of the Revenue that the assessee has agreed to pay compensation to DPL and NPL and executed cancellation deed with DPL and NPL, instead of going to Court is concerned, the Ld. Counsel for the assessee drew the attention of the Bench to the agreement dated 09.04.2012 entered by the assessee with Dhanlaxmi TMT Bars Pvt Ltd, copy of which is placed at pages 104 to 114 of the paper book and the agreement dated 07.05.2012 entered by the assessee with Nilesh Steel and Alloys Pvt Ltd, copy of which is placed at pages 115 to 127 of the paper book. Referring to clauses 4 and 5 of the Agreements to Sell entered with DPL and NPL, he submitted that as per the said clauses it was specifically agreed that within the stipulated time limit of....
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....share to DPL/NPL, the assessee was able to sell the shares at a much higher price of Rs. 625 per share instead of earlier agreed price of Rs. 305 per share and therefore it is a prudent business decision. Although these facts were duly clarified before the Assessing Officer vide reply dated 27.12.2019 as per pages 43-47 of the paper book he has not given due weightage. However, the Ld. CIT(A) / NFAC has rightly appreciated the above facts while allowing relief to the assessee. Referring to the decision of Hon'ble Supreme Court in the case of Sanjeev Lal vs. CIT reported in (2014) 365 ITR 389 (SC), he submitted that the Hon'ble Supreme Court in the said decision has held that even in respect of immovable property, an unregistered agreement to sell creates a legal right in favour of the purchaser and the vendor shall not sell to any other party without the consent of the purchaser which would otherwise entail the purchaser to initiate legal action against the vendor by way of suit for specific performance of contract. Therefore once the assessee was contractually bound by terms, then there was no point for the assessee to dispute the matter in Court and waste valuable time and resour....
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....sation was merely in the form of accommodation entry. He submitted that the search action u/s 132 was conducted in the above two companies on 02.05.2013 and no such material in support of the above suspicion could be gathered by the Revenue. Referring to the following decisions he submitted that under identical circumstances the compensation paid on cancellation of agreements has been held as genuine and allowed as deduction: 1. DCIT v. Sentinel Properties Pvt. Ltd. vide ITA No. 2130/Mum/2023 order dated 27.10.2023 2. Nitesh Estates Pvt. Ltd. v. DCIT reported in [(2022) 289 Taxman 45 (Karnataka HC)] 15. So far as the objection of the Revenue that the Ld. CIT(A) / NFAC has admitted certain additional evidences without following the procedure prescribed under Rule 46A of the IT Rules is concerned, he submitted that the Ld. CIT(A) / NFAC is legally empowered to carry out further enquiries u/s 250(4) of the Act, which the Assessing Officer had failed to conduct. Referring to pages 24 to 26 of the paper book, he submitted that the Ld. CIT(A) / NFAC in the instant case has conducted further enquiries by issuing notice u/s 250 dated 18.06.2024. The only additional evi....
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....sment order. He submitted that in the instant case the assessee was subjected to multiple rounds of investigations in the form of scrutiny assessment proceedings u/s 143(3) and revision assessment proceedings u/s 143(3) r.w.s. 263 of the Act. Thereafter, in two separate proceedings, the Ld. CIT(A) / NFAC in physical as well as faceless mode, have conducted further investigations and allowed relief to the assessee. Further the matter is very old and the assessee is a senior citizen not keeping good health and has retired from all active businesses. Under these circumstances if the Ld. DR is allowed to raise new grounds to justify the addition entailing further investigations, then this will be an unending process. Referring to the following decisions, he submitted that the Ld. DR is not permitted to improve the order of the Assessing Officer by bringing out new grounds to justify the addition and he is only permitted to support the order of the Assessing Officer: i) Balaji Developers v. ITO vide ITA No.375/PUNE/2024 order dated 24.03.2025 ii) Mahindra & Mahindra v. DCIT reported in (2009) 122 TTJ 577 (Mumbai) (Special Bench) iii) Bharatnagar Buildcon LLP v....
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....n of the Ld. DR that the agreements entered with DPL and NPL were not registered and no stamp duty was paid in respect of these agreements and therefore, the genuineness of the said agreements was not established. Further, the assessee has agreed to pay the compensation to DPL and NPL and executed cancellation deeds with DPL and NPL instead of going to the Court. It is his submission that DPL and NPL have declared meagre profit before tax of Rs. 1,35,26,542/- and Rs. 9,18,636/- respectively after including the compensation of Rs. 3,03,80,000/- and Rs. 4,80,20,000/- in their Profit and Loss Accounts for assessment year 2013-14. Therefore, if the said compensations were excluded, the said companies had incurred losses. It is also his submission that the Ld. CIT(A) had admitted certain additional evidences without following the due procedure as per the provisions of Rule 46A of the IT Rules. 23. It is submission of the Ld. Counsel for the assessee that there is no requirement to get the agreements registered since as per the provisions of section 17 of the Indian Registration Act, only immovable property documents are to be registered. It is his submission that as per Article 15, S....
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....hed. Further, the Ld. DR could not point out any provision which mandates the registration of transfer agreements for sale of shares and therefore cannot be held to be sham or dubious for non-registration of the same. It is also an admitted fact that both Dhanlaxmi TMT Bars Pvt Ltd and Nilesh Steel & Alloys Pvt Ltd are not related to the assessee, they have declared the compensation received from the assessee in their Profit and Loss Accounts and have declared profit and paid taxes @ 30%. The compensation so paid by the assessee to Dhanlaxmi TMT Bars Pvt Ltd and Nilesh Steel & Alloys Pvt Ltd is also as per the contractual agreement and not paid for breach of any contract as alleged by the Assessing Officer. 25. So far as the allegation of the Revenue that the assessee has agreed to pay compensation to Dhanlaxmi TMT Bars Pvt Ltd and Nilesh Steel & Alloys Pvt Ltd and instead of going to the Court is concerned, we find merit in the argument of the Ld. Counsel for the assessee that as long as the assessee is benefited and the compensation paid by the assessee was not towards breach of contract but paid to fulfill the contractual obligations and the assessee was able to sell the shar....