2019 (6) TMI 353 - AT - Income Tax

Addition u/s 68 - income from undisclosed source - long term capital gain by entering into off market transaction through plain agreement - share of a company listed in the Calcutta Stock Exchange - acquirer company also made public announcement in newspapers and made open offer to the shareholders - HELD THAT - When the transaction which has been concluded within four corners of Law cannot be treated as colorable device unless the revenue brings any material to prove such an allegation. In this case, as will appear from the aforesaid details and documents filed, the price at which the shares were sold had been not only intimated to the SEBI but even to Calcutta Stock Exchange both by the Acquirer and Seller. It is an accepted fact that whenever share in the Stock Exchange are sold as off market transaction, it is sold at the intrinsic value of shares and that is what has happened in this assessee s case under consideration. When purchase and sale of shares were supported by proper contract notes, deliveries of shares were received, the shares were purchased and sold through recognized broker and the sale considerations were received by account payee cheques, the transactions cannot be treated as bogus and the income so disclosed was assessable as LTCG. We find that in the instant case, the addition has been made only on the basis of the suspicion. The revenue had not brought any material on record to support its finding that there has been collusion / connivance between the Purchaser and the assessee for the introduction of its unaccounted money. Sale having taken place at the price duly approved by the SEBI, no adverse inference can be drawn against the assessee company simply on assumptions and presumptions and mere suspicion.Therefore, the addition made u/s 68, as income from undisclosed source was rightly deleted by the ld CIT(A). That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid addition. His order on this addition is therefore, upheld and the grounds of appeal of the Revenue are dismissed.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Legitimacy of the transaction and capital gain declared under Section 68 of the Income Tax Act.
3. Validity of the off-market transaction price of shares.
4. Allegation of organized connivance to convert undisclosed income into white money.
5. Consideration of intrinsic value versus market value of shares.
6. Acceptance of the transaction by other related concerns and authorities.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal filed by the Revenue for the assessment year 2007-08 was delayed by 15 days. The Revenue petitioned for the condonation of this delay. After hearing both parties and considering the reasons provided, the Tribunal condoned the delay and admitted the appeal for hearing.

2. Legitimacy of the Transaction and Capital Gain Declared Under Section 68 of the Income Tax Act:
The primary issue was whether the addition of ?12,86,00,032/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, treating it as undisclosed income, was justified. The AO questioned the genuineness of the transaction involving the sale of shares of "Dehra Dun Tea Co. Ltd." The shares were sold at ?15,611/- per share through an off-market transaction, whereas the last traded price 18 months prior was ?4.20 per share. The AO treated the difference as undisclosed income.

3. Validity of the Off-Market Transaction Price of Shares:
The assessee argued that the transaction was genuine and based on the intrinsic value of the shares, which was supported by various documents, including a share purchase agreement, escrow agreement, public announcements, SEBI approvals, and a valuation report of the company's assets. The intrinsic value, based on the land held by the company and other assets, justified the sale price of ?15,611/- per share. The Tribunal noted that the transaction was conducted transparently, with the entire consideration deposited in an escrow account.

4. Allegation of Organized Connivance to Convert Undisclosed Income into White Money:
The AO alleged that the transaction was a scheme to convert undisclosed income into white money, given the substantial difference between the last traded price and the sale price. However, the Tribunal found no evidence to support this allegation. The transaction was conducted in compliance with SEBI regulations, and the sale price was consistent for both promoters and public shareholders.

5. Consideration of Intrinsic Value Versus Market Value of Shares:
The Tribunal emphasized that the intrinsic value of the shares, based on the company's assets, was a valid basis for the transaction. The valuation report indicated that the land owned by the company was worth around ?137 crores, justifying the sale price. The Tribunal cited precedents where off-market transactions were accepted as genuine if supported by proper documentation and compliance with regulatory requirements.

6. Acceptance of the Transaction by Other Related Concerns and Authorities:
The assessee provided evidence that the transaction was accepted by other related concerns and authorities, including the SEBI and Calcutta Stock Exchange. The Tribunal noted that the AO did not acknowledge these documents in the assessment order. The Tribunal also referenced several judicial precedents supporting the view that transactions should not be disallowed based on mere suspicion or the non-appearance of brokers.

Conclusion:
The Tribunal concluded that the transaction was genuine, conducted within the legal framework, and based on the intrinsic value of the shares. The addition made by the AO under Section 68 was based on suspicion and not supported by concrete evidence. The Tribunal upheld the order of the CIT(A) deleting the addition and dismissed the Revenue's appeal. The Tribunal emphasized that transactions supported by proper documentation and regulatory compliance should not be treated as bogus.

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