2017 (5) TMI 19 - AT - Income Tax

Adopting the sale consideration of shares to be the index cost of acquisition - Held that - The returned income for assessment year 2006-07 and 2007-08 was for ₹ 26,775 and ₹ 9465/- respectively. Advance and self assessment tax was not paid, only TDS was claimed. The total share capital of the company was of ₹ 9,70,000/- only and the reserve and surplus declared were ₹ 79,16,450/-. The ld AR has not produced further details of the sales and closing stock as declared in the P&L account even when these were asked by the Bench. All these facts in respect of these two purchase companies suggest that these companies were not having sufficient worth to purchase the shares of crores of rupees when the market value of the shares was zero due to the negative net worth of the company MSIL and when the sales of the shares were suspended at stock exchange. The transaction was claimed to be through negotiations but how these two companies of small worth agreed to purchase shares of negative worth by paying crores rupees. By this transaction, the assessee had claimed loss of ₹ 80,88,29,697/- on the inquiry from the Bench. Ld. AR stated that the assessee had not utilized the benefit of this loss till date. Therefore, all these factual aspects need to be looked into prior to finalization of the issue. Hence, in the interest of justice and equity, the issues under appeal are restored back to the file of ld. CIT(A) to decide de novo. Accordingly, the appeal of the revenue is allowed for statistical purposes only.

Issues Involved:
1. Basis for adopting the sale consideration of shares to be the indexed cost of acquisition.
2. Discrepancies in names/signatures of authorized signatories and addresses of the companies to whom shares were sold.
3. Financial condition of the companies to whom shares were sold.

Detailed Analysis:

1. Basis for Adopting the Sale Consideration of Shares to be the Indexed Cost of Acquisition:
The primary issue is whether the CIT(A) erred in holding that no basis was given for adopting the sale consideration of shares to be the indexed cost of acquisition. The Assessing Officer (AO) doubted the sale consideration shown by the assessee and assumed it to be at par with the indexed cost of acquisition, leading to the disallowance of the entire long-term capital loss claimed by the assessee. The AO’s contention was that the sale consideration was not reliable due to discrepancies in signatures and the financial condition of the purchasing companies.

The CIT(A) found that the shares of M/s. Modern Syntex (India) Ltd. (MSIL) could not have been sold through the stock exchange as trading had been suspended since 07/01/2002. The CIT(A) agreed with the assessee that the sale consideration was not suppressed or underreported, as there was no documentary evidence to support the AO’s claim. The CIT(A) held that the AO’s action of disallowing the long-term capital loss was not justified.

2. Discrepancies in Names/Signatures of Authorized Signatories and Addresses of the Companies to Whom Shares were Sold:
The AO raised concerns about the differences in names and signatures of authorized signatories and addresses of the companies involved in the sale. The assessee explained that the deed of assignment was dated 21/03/2006, and the confirmation was signed on 14/11/2011, which could account for the differences. The CIT(A) accepted this explanation, noting that the differences in signatures over a gap of more than five years did not invalidate the transaction.

3. Financial Condition of the Companies to Whom Shares were Sold:
The AO questioned the financial soundness of the companies that purchased the shares, noting that their declared income was less than ?50,000 for the relevant assessment year. The AO argued that these transactions were sham and a device to defraud the revenue. The assessee countered that the financial condition of the purchasing companies was not relevant to the transaction and provided details such as PAN numbers, names, and addresses of the companies.

The Tribunal found that the purchasing companies had low declared incomes and different addresses in various documents, raising doubts about their financial capacity to buy shares worth crores. The Tribunal noted that the market value of the shares was zero due to the negative net worth of MSIL and the suspension of trading in its shares. The Tribunal concluded that these factual aspects needed further examination and restored the issues to the CIT(A) for a de novo decision.

Conclusion:
The Tribunal allowed the revenue's appeal for statistical purposes, emphasizing the need for a thorough re-examination of the facts by the CIT(A). The Tribunal highlighted the discrepancies in the financial condition and documentation of the purchasing companies, which warranted a detailed review to ensure justice and equity. The order was pronounced in the open court on 27/04/2017.

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