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TMI Blog2012 (5) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the long term capital gain, the A.O. has got every right to find out the genuineness of such sale price. - matter remanded back to the file of the A.O. with a direction to give one more opportunity to the assessee to substantiate with evidence to the satisfaction of the A.O. Set off long term loss on sale of unlisted shares against long term capital gain on sale of shares - allegation that assessee had sold the shares to his wife at a sole purpose of generating loss. - Held that: the assessee had not furnished the valuation report before the A.O. during the course of assessment proceedings, we deem it proper to restore the issue to the file of the A.O. for fresh adjudication of the issue. - when the shares are sold to his wife at a lower price and the A.O. has given an observation that the same is just to offset the gain arising to the assessee, the same in our opinion, requires thorough scrutiny at the level of the A.O. This ground by the Revenue is accordingly allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 54 of the Act. 3.1 Before the ld. CIT(A), it was submitted that the pre-requisite for claiming exemption u/s 54F of the Act is that the assessee has within a period of one year before or two years after the date on which the transfer took place, purchased or, within a period of three years after that date constructed a residential house. The assessee has sold the shares on 5.10.2004 and the flat was purchased on 11.1.2005 i.e. within less than 4 months after the sale of the capital asset. Since the purchase is within the two years period, the exemption ought to have been granted. Referring to the decision of Hon'ble Bombay High Court in the case of CIT v. Mrs. Hilla J.B. Wadia [1995] 216 ITR 376, it was submitted that payment of substantial money within the prescribed period entitled the assessee to have acquired the right to a specific flat in such a building which is being constructed by the society for the purpose of section 54F. Since the assessee in the instant case has acquired the domain over the flat and had made investments in it before the expiry of two years from the date of transfer of the shares and since the agreements for the aforesaid flat were entered into be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Mrs. Hilla J.B. Wadia (supra), he held that the assessee has acquired the right to a specific flat in such a building which is being constructed by the society and he has made a substantial investment within the prescribed period which entitles him to obtain possession of the flat so constructed and in which he intends to reside. Further in view of the decision of Special Bench of ITAT in the case of Ms. Sushila M. Jhaveri (supra) where both the flats which are adjacent each other and having been renovated for use of one house for the purpose of residence and since the premises are actually being used as one house, the same is to be considered as single unit for the purpose of section 54F.He accordingly allowed the claim of deduction u/s 54F. Aggrieved with such order of the ld. CIT(A), the Revenue is in appeal before us. 4. The ld. D.R. while challenging the order of the ld. CIT(A) submitted that the facts in the present case are not matching which the facts in the case of Ms. Sushila M. Jhaveri (supra). Referring to the copy of agreement dtd. 10.1.2005 placed at page 68 to 95 of the paper book, the ld. D.R. drew the attention of the Bench to clause 17 of the agreement acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and having common kitchen, utility and passage etc. for bonafide need of larger accommodation. He submitted that the possession was given on 14.1.2006 as a single unit to Reliance Industries Ltd. He submitted that on 23.11.2006, the assessee entered into a Leave and Licence agreement with Reliance Industries Ltd. and both the units were let out as a single unit. Relying on the decision of Special Bench of ITAT in the case of Ms. Sushila M. Jhaveri (supra) and the decision of Hon'ble Karnataka High Court in the case of CIT v. D. Ananda Basappa [2009] 180 Taxman 4 and CIT v. Smt. K.G. Rukminiamma [2011] 196 Taxman 87/8 taxmann.com 121, and Mrs. Hilla J.B. Wadia's case (supra) and Saleem Fazelbhoy v. Dy. CIT [2007] 106 ITD 167 (Mum.) he submitted that the order of the Ld. CIT(A) should be upheld. 6. We have considered the rival arguments made by both the sides, pursued the orders of the Assessing Officer and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. The facts are not in dispute. The questions to be decided in the impugned grounds are as to whether the assessee is entitled to deduction u/s 54F on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see to claim benefit of deduction u/s 54F of the Act. The certificate obtained from the Architect is only a self serving document since nothing was given in writing by the builder to the assessee to exclusively use the common area. However, the assessee, in our opinion, is entitled to the benefit of deduction u/s 54F for one of the two units. Since Flat No. 701 gives the maximum benefit to the assessee, the cost being Rs. 95,85,000/-, the assessee, in our opinion, is entitled to deduction u/s 54F to this extent. We hold and direct accordingly. The ground raised by the Revenue is accordingly partly allowed. 7. Grounds of appeal No. 4 by the Revenue reads as under:- "The CIT(A) has erred in not appreciating the facts that the assessee had sold flat to his wife on loss deliberately to set off the long term capital gain on sale of shares and other assets. This is further cemented by the fact that the assessee had purposefully also not registered the sale agreement". 7.1 Facts of the case in brief are that the assessee was owner of flat No. 18B/03, 18B/04, 18B/13 and 18B/14 at Takshila, Off Mahakali Caves Road, Andheri (E), Mumbai along with his wife Mrs. Girija Ram. During the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from the summary of the bank transactions of the assessee. The agreements for the sale of these flats were also entered into between the assessee and his wife and full applicable stamp duty has been paid. The consideration for the flat is higher than the stamp duty ready reckoner value as certified by the valuer. The sale prices are supported by the valuation reports submitted by an independent valuer. Therefore, even if one has to consider the application of section 50C of the Act, if the fair market value of the flats at which they have been sold is higher than the valuation referred to in section 50C, then there would have been no addition. As regards the contention of the A.O. that the assessee could have gifted the flat to his wife it was submitted that as long as the transaction is genuine with proper consideration received and supported by valuation reports and agreements, the question whether the same should have been sold or gifted cannot be deliberated upon as it is a personal decision of the assessee. Various decisions were also brought to the notice of the ld. CIT(A) to the proposition that the sale transactions cannot be held to be sham. It was also argued that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal before us. 8. The ld. D.R. submitted that the A.O. brought on record the factual details according to which the assessee has sold flats to his wife just to minimize his tax liability and absorb the long term capital gain. In his alternate contention, he submitted that because of time constraint, the A.O. could not make proper enquiry, therefore, the matter may be restored to the file of the A.O. for further investigation. 9. The ld. counsel for the assessee, on the other hand, while supporting the order of the ld. CIT(A) submitted that all facts were before the A.O. and the ld.CIT(A). The ld. CIT(A) on the basis of the remand report from the A.O. has directed to allow the claim of long term capital loss. He submitted that the full consideration has been paid by wife of the assessee which has been routed through regular bank account. The stamp duty has been paid on the basis of ready reckoner rate. Only, the agreements were not registered. He submitted that the registration of the documents is not compulsory. Relying on a couple of decisions, he submitted that the ld. CIT(A) was justified in allowing the claim of the assessee. 10. We have considered the rival arguments made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s here also the assessee had sold the shares to his wife at a sole purpose of generating loss." 11.1 Facts of the case in brief are that the assessee has purchased 76,900 shares of George Philips during A.Y. 1999-2000 for a consideration of Rs. 10 lacs. Similarly, he has purchased 1000 shares of Melstar for a consideration of rs 7,200 and 1000 shares of Orient Info for a consideration of Rs. 4,89,563/- during the A.Y. 2000-01. The assessee sold the above shares to his wife and claimed long term capital loss. The details are as under:- A. Year Shares Purchase price Indexed cost Sale Price Profits 99-2000 George Philips 10,00,000 12,33,933 1,15,350 (-) 11,18,583 2000-01 Melstar 7,200 8884 5580 (-) 3304 2000-01 Orient Info 4,89,563 6,04,088 39,407 (-) 5,64,681 The A.O. noted that the assessee has deliberately created this loss to offset its short term profit. Further, the sales have been made of these unlisted companies of which no market value is available and there is no independent verification as to the basis of the sale price fixed between the assessee and his wife. After considering the explanation given by the assessee, the A.O. accepted the sale of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course of assessment proceedings, we deem it proper to restore the issue to the file of the A.O. for fresh adjudication of the issue. The contention of the ld. counsel for the assessee that all facts were before the A.O. and the remand report has been obtained, in our opinion, does not carry much weight. First of all the valuation report was not produced before the A.O. during the assessment proceedings. The power of the A.O. during remand proceedings are limited. Further, when the shares are sold to his wife at a lower price and the A.O. has given an observation that the same is just to offset the gain arising to the assessee, the same in our opinion, requires thorough scrutiny at the level of the A.O. Since the A.O. had no sufficient time available before him and the assessee has not submitted the full details during the assessment proceedings, therefore, we, in the interests of justice, deem it proper to restore the issue to his file for fresh adjudication. Needless to say the A.O. shall give adequate opportunity of being heard to the assessee and decide the issue as per law. We hold and direct accordingly. This ground by the Revenue is accordingly allowed for statistical pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny being entitled to recover the dues from Mr. Subhash Chopra. According to the A.O. Mr. Subhash Chopra was the friend of assessee for whom he had stood as a guarantor and then bailed him out when he defaulted. The obvious purpose for doing all these is to off set the gain of Rs. 36.91 lakhs and create a fiction of loss. According to the A.O. it is clear that the so called company M/s Shrushti Compsoft Pvt. Ltd. to whom the loan was sold is owned by another friend of assessee Mr Haldipur. This company was examined and it was seen that it was in the business of software development and imparting training to companies. For the last 2-3 years there was no activity at all and the Income-tax Returns of the company were filed for A.Y. 2005-06 and 2006-07 showing 'nil' income. The company being a professional company cannot buy distress assets since they do not have any experience or expertise. Further, the director of the company Mrs. Shobhana Haldipur could not explain as to how this value of Rs. 4,50,000/- was arrived at. The A.O. further noted that no effort has been made by the director or the company to recover the money and the said amount has been shown in the balance sheet. The d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antor, the assessee had very strangely entered into an agreement with a company called Shrushti Compsoft Pvt. Ltd. to sell this loan as a distress assets only for a sum of Rs. 4,50,000/-, with the company being entitled to recover the dues from Mr.Chopra. This act of the assessee is very strange because:- • Mr. Subhash Chopra was his friend for whom he had stood as a guarantor and then bailed him out when he defaulted. Such a friend would definitely pay back the loan and it is highly unimaginable that the assessee would 'Sell' such a loan for a paltry sum of Rs. 4,50,000/-. It is thus obvious that because this year, assessee had made a short term profit of Rs. 36.91 lakhs this type of arrangement was entered into by him to offset the said gain and create a fiction of loss. This becomes clear when it is seen that the so called company (Shrushti Compsoft Pvt. Ltd.) is owned by another friend of his - Mr. and Mrs. Haldipur. That company was examined and it was seen that it was in the business of software development and imparting training to companies. For the last 2-3 years there was no activity at all and the income tax returns of the company shown NIL income for A. Y. 2005-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a short term gain in this year, he would not have had entered into this sort of dubious deal with M/s. Shrushti Compsoft Pvt. Ltd. Accordingly, the assessee's claim of loss of Rs. 45.90 lakhs on account of sale of distressed asset is rejected. As the following paragraph will prove, the assessee entered into similar dubious transactions to even offset the long term loss. Penalty proceedings are initiated u/s. 271(1)(c) for submitting inaccurate particulars of income and concealing the same." 7.5 From the above, it is apparent that:- (i) There was no commercial benefit derived by the appellant in selling the said assets at a loss of Rs. 45,90,000/- except for reducing his tax liability. The result of the whole exercise is therefore a net loss. (ii) Shri Subhash Chopra against whom loan was outstanding and Mrs. and Mr. Haldipur of Shrusti Compsoft (P) Ltd. to whom the loan (distressed assets) has been sold are both friends of the appellant. (iii) There is no explanation or details given by the appellant regarding his efforts to recover the loan from Mr. Chopra. (iv) Although the A.O. issued summons to Shri Subhash Chopra and also to the officers of Cholamandalam Finance an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm the finding of A.O. and hold that said transfer of distressed assets by the appellant to M/s. Shrusti Compsoft (P) Ltd. is not a bonafide transfer and the same is null and void. The appellant is, therefore, not entitled to short term capital loss of Rs. 45,90,000/- on account of so called sale of distressed assets. In support of the same, Hon'ble Supreme Court's judgement in Mcdowell's case, 154 ITR 148 is quoted as under:- "We may also recall the observations of Viscount Simon in Latitla v. IRC [1943] 25 TC 107 (HL), p. 117:- "Of recent years much ingenuity has been expended in certain quarters in attempting to device methods of disposition of income by which those who were prepared to adopt them might enjoy the benefits of residence in this country while receiving the equivalent of such income, without sharing in the appropriate burden of British taxation. Judicial dicta may be cited which point out that, however elaborate and artificial such methods may be, those who adopt them are 'entitled' to do so. There is, of course, no doubt that they are within their legal rights, but that is no reason why their efforts, or those of the professional gentlemen who assist them in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire exercise is a sham and fictitious exercise just to reduce the tax liability. In this view of the matter and in view of the detailed order passed by the ld. CIT(A), we uphold the order of the ld. CIT(A). The ground raised by the assessee is accordingly dismissed. 19. Grounds of appeal No. 2 and the only ground in ITA No.430/M/2009 relate to set off of brought forward long term capital loss of Rs. 10,86,540/- for A.Y. 2001-02 against the long term capital gain on sale of shares. 19.1 The assessee vide petition dtd. 13.6.2008 in ITA No.4237/M/2008 requested to admit Ground no.2 as an additional ground and admit the same in view of the decision of the Hon'ble Supreme Court in the case of NTPC Ltd. v. CIT [1998] 229 ITR 383 and various other decisions. It was also submitted that all facts are already on record. 19.2 We have considered the rival arguments made by both the sides. Ground No.2 in ITA No.4237/M/2008 being a legal ground, the same is admitted in view of the decision of Hon'ble Supreme Court in the case of NTPC Ltd. (supra). 19.3 We find this ground was never raised before the ld. CIT(A) and the A.O. is silent on this issue. The Ld. Counsel for the assessee subm ..... 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