2012 (10) TMI 753 - AT - Income Tax

Capital Gain - genuine transaction of purchase and sale - AO was of the view that the entire transaction was a sham & circular transaction. - Held that - The only aspect, which is material and affecting the interest of the parties, is the purchase price at which the assessee purchased the shares. The inflated price paid by the assessee over and about the market price of the shares is only to assist and help the group concern and not for any wise investment based on a prudent business decision. The entire chain of events clearly established that the assessee has purposefully purchased the shares at a higher price than the market rate available on the date of purchase and thereafter sold the shares by incurring loss. The purpose and intention behind these transactions is so apparent and obvious that what is shown by the parties is not the real. The facts and circumstances as well as the relevant material can lead to only one conclusion that all these exercise of purchase of sharers was meant to assist the group company in order to satisfy the conditions for availing the finance from the ICICI Ltd. - decides in favour of revenue

Summary

Issues Involved:
1. Whether the transaction of purchase of shares of Jindal Vijaynagar Steel Limited (JVSL) by the assessee was a bona fide business or investment transaction.
2. Whether the Assessing Officer (AO) was justified in adopting the market price of shares at the time of purchase for computing capital gains/losses in subsequent years.

Issue-wise Detailed Analysis:

1. Bona Fide Business or Investment Transaction:
The assessee's appeals were directed against the orders of the Commissioner of Income Tax (Appeals) [CIT(A)] for the assessment years 2001-02 and 2002-03. The main contention was whether the transaction of purchasing shares of JVSL was a bona fide business or investment transaction. The assessee claimed to have purchased shares worth Rs. 14 crores during the assessment year 2001-02. The AO noted that the assessee received an advance of Rs. 14 crores from another group concern, M/s Virindavan Services Pvt. Ltd. (VSPL), for the supply of MS Slabs. This amount was then invested in JVSL shares at Rs. 10 per share through a private placement. The AO observed that the assessee was not engaged in the business of MS Slabs and did not supply any goods to VSPL, indicating that the transaction was circular and aimed at assisting JVSL in meeting ICICI Ltd's precondition for financial assistance. The AO concluded that the transaction was a sham, not intended for the assessee's business.

2. Adoption of Market Price for Computation of Capital Gains/Losses:
For the assessment year 2002-03, the assessee sold the shares at Rs. 7.25 per share and claimed a long-term capital loss of Rs. 4,53,96,552. The AO, based on the findings for the previous year, adopted the market price of Rs. 5.80 per share at the time of purchase to compute the capital gains, resulting in a long-term capital gain of Rs. 1,63,00,000 instead of the claimed loss. The CIT(A) upheld the AO's action, agreeing that the transaction was not for any genuine business activity but to help JVSL comply with ICICI Ltd's conditions. The Tribunal noted that the assessee did not provide any material to dispute the facts recorded by the authorities, including the market price of shares being between Rs. 5.80 to Rs. 6 per share at the time of purchase. The Tribunal agreed with the lower authorities that the inflated purchase price was to assist the group concern and not based on a prudent business decision.

Conclusion:
The Tribunal dismissed the assessee's appeals, concurring with the lower authorities that the transactions were sham and intended to assist JVSL in meeting financial conditions set by ICICI Ltd. The Tribunal upheld the CIT(A)'s orders, confirming that the AO was justified in adopting the market price of shares for computing capital gains/losses. The appeals were dismissed, and the findings of the lower authorities were upheld.