9911796707
TMI Blog2013 (7) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the AO in A.Y. 2004-05, consequent to the directions of the ITAT the AO disallowed an amount of ₹ 50,000/- as amount in relation to investment activities under section 14A. Therefore, on the facts of the case restrict the disallowance to a part of administrative expenses at ₹ 50,000/-, which is reasonable. Ground is partly allowed. Recalculating the long term capital gains in stead of long term capital loss - assessee purchased shares of its subsidiary & subsequently sold all the shares held as investment at loss - AO was of the opinion that the said sale of shares is not a genuine sale and disallowed the loss on the ground that sale is made to related parties to evade tax redetermining the sale price on the basis of (a) book value, (b) price as mentioned at d-mat Bank A/c of HDFC, and (c) yield method and arrived at an average sale price of ₹ 74.13 per share also invoking provisions of section 2(22B)(i) - Held that:- It seems to be an error in mentioning the value as the said company is a private limited company and there cannot be any market value as it is not quoted in the Stock Exchange. Therefore, part of AO's finding about the value of demat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 28(iv) also is not applicable, as only revenue receipt can be taken as income u/s. 28(iv). It is also clear that forfeiture of share application money is not casual or non recurring receipt and hence not taxable u/s. 10(3). Thus since the amount is capital in nature the same cannot be brought to tax. In favour of assessee. Value of leasehold land received by the assessee company - CIT(A) deleted the addition - Held that:- Receipt of leasehold land at Nil value is not an income u/s. 56(1) but a capital receipt in the hands of the assessee. The receipt is on account of leasehold land only as per tri-party agreement with MIDC and MLPL with the assessee. Hence, the nature of receipt is capital in nature and not taxable in the hands of the assessee. The A.O. is directed to delete this addition. Against revenue. - ITA No.1979/Mum/2009, ITA No.2077/Mum/2009 - - - Dated:- 10-5-2013 - Shri B. Ramakotaiah And Dr. S. T. M. Pavalan, JJ. For the Petitioner : Shri S. E. Dastur Shri Niraj Sheth For the Respondent : Shri Pravin Varma ORDER Per B. Ramakotaiah, AM. These are cross appeals by the assessee and the Revenue against the order of the CIT(A)-6, Mumbai dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and Power Ltd. 313 ITR 340. With reference to facts, it was submitted that investments are directly related to certain borrowed funds on which no interest was paid and therefore disallowance of interest/14A does not arise. the details of investments are as under: - Name of the Company No. of Shares Date of Investment Amount (Rs.) Date Particulars Amount Morarjee Castiglioni Ltd. 1,000,000 28.11.2003 6,410,000 28.11.2003 28.11.2003 Out of sum borrowed from Nozaak Investment Fin. Ltd. on which no interest was paid 6,140,000 Morarjee International sri 20,000 9.02.2005 560,500 Payment for purchase of Investments is out of receipts from sales to various customers as per bank statement enclosed at page 2 to page 3 560,500 Integra Apparel Textiles (P) Ltd. 425,000 28.02.2005 17,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade in two companies are out of borrowed funds on which no interest was paid. The finding of the AO is as under: - The major investment made this year was in PMP Components P. Ltd. of ₹ 4,07,38,535/- on 28.11.2003 which was made out of funds procured from M/s. Nozaki Finance Investment P. ltd. - ₹ 4,72,00,000/- on 23.11.2003 i.e. the same day. No interest is paid to M/s. Nozaki Finance Investment P. Ltd. Similarly, another investment of ₹ 64,10,000/- was made in Morarjee Castiglani Ltd. on 28.11.2003 which was also made out of funds borrowed from M/s. Nozaki Finance Investment P. Ltd. on the same day. As the nexus of interest free funds Investment is proved, the interest is not required to be considered for disallowance u/s 14A. Therefore, since the investments made in the earlier year are continuing in this year, question of disallowance of interest under section 14A on the above does not arise. 9. With reference to investment in Integra Apparel Textiles (P) Ltd., these amounts are out of advance received. Therefore, these amounts also do not call for any disallowance. The investment subsidiary Morarjee International Sri was made out of rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a genuine sale and disallowed the loss on the ground that sale is made to related parties to evade tax. Further, he redetermined the sale price of such shares on the basis of (a) book value, (b) price as mentioned at d-mat Bank A/c of HDFC, and (c) yield method and arrived at an average sale price of ₹ 74.13 per share. While doing so, he also invoked provisions of section 2(22B)(i) of the I.T. Act. He, further, also made certain observations on the companies having indulged in various tax planning devices to evade tax similar to the observations made in other group companies with reference to sale and purchase of shares. These were noted down specifically in pare 5.7 and also 5.20 as various practices adopted by the assessee company and its other group entities in artificially creating a series of transactions with related parties with an intention to evade taxes and siphon away public funds. In the result, the AO substituted the sale price and worked out the capital gain thereby brining to tax an amount of ₹ 12,61,09,523/- as against the loss claimed of ₹ 17,34,376/-. 11. Before the CIT(A), the assessee submitted that there was actual loss of ₹ 0.11 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied by the AO was not correct. 14. The learned D.R., however, relied to the order passed by the AO as they are also in appeal on the same issue and reiterated the facts, methodology adopted by the assessee and the decision in the case of McDowell Co. to submit that the action of the AO is correct. 15. We have considered the issue and examined the record. As far as the price adopted by the AO, we cannot approve the value as taken by the demat authorities as there seems to be an error in mentioning the value as the said company is a private limited company and there cannot be any market value as it is not quoted in the Stock Exchange. Therefore, part of AO's finding about the value of demat statement is not correct. With reference to the future profit and also adoption of book value there is nothing brought on record by the AO how these amounts were arrived at. Therefore, we are unable to support the substitution of value even on facts. Be that as it may, first of all, the AO does not have power under the I.T. Act to substitute 'fair market value' for 'full value of consideration'. There are specific provisions for substitution of fair market value for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fair market value for the full value of consideration. 16. The Hon'ble Supreme Court in CIT vs. George Henderson and Co. Ltd. (1967) 66 ITR 622 (SC) on the issue that the market value of the shares which were allotted at ₹ 136/- per share was ₹ 620/- per share considered the expression full value of consideration as occurring in section 12B(2) of the Indian Income Tax Act and , 1922, which is analogous to section 48 of the Act has held as under:- ............ It is manifest that the consideration for the transfer of capital asset is what the transferor receives in lieu of the asset he parts with, namely, money or money's worth and, therefore, the very asset transferred or parted with cannot be the consideration for the transfer. It follows that the expression full consideration in the main part of section 12B(2) cannot be construed as having a reference to the market value of the asset transferred but the expression only means the full value of the thing received by the transferor in exchange for the capital asset transferred by him. The consideration for the transfer is the thing received by the transferor in exchange for the asset transferred and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir Lordships after applying the principles enunciated in George Henderson and Co. Ltd. supra has observed and held as under ( page 419):- Now let us see what is the impact of section 12B(2) on the transaction? Under that provision, the amount of capital gains has to be computed after making certain deductions from the full value of the consideration for which the sale is made. What exactly is the meaning of the expression full value of the consideration for which sale is made ? It is the consideration agreed to be paid or is it the market value of the consideration ? In the case of sale for a price, there is no question of any market value unlike in the case of an exchange. Therefore, in case of sales to which the first proviso to sub-section (2) of section 12B is not attracted, all that we have to see is what is the consideration bargained for. As mentioned earlier, to the facts of the present case, the first proviso is not attracted. As seen earlier, the price bargained for the sale of the shares and securities was only rupees seventy-five lakhs. The facts of this case squarely fall within the rule laid down by this court in Commissioner of Income-tax vs. George Henderson ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 and 18 as under:- 15. It is, therefore, clear that sub-section (2) cannot be invoked by the revenue unless there is understatement of the consideration in respect of the transfer and the burden of showing that there is such understatement is on the revenue. Once it is established by the revenue that the consideration for the transfer has been understated or, to put it differently, the consideration actually received by the assessee is more that what is declared or disclosed by him, sub-section (2) is immediately attracted, subject, of course, to the fulfillment of the condition of 15 per cent or more difference, and the revenue is then not required to show what is the precise extent of the understatement or, in other words, what is the consideration actually received by the assessee. That would in most cases be difficult , if not impossible, to show and hence sub-section (2) relieves the revenue of all burden of proof regarding the extent of understatement of concealment and provides a statutory measure of the consideration received in respect of the transfer. It does not create any fictional receipt. It does not deem as receipt something which is not in fact received. It me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed by him, and there is no concealment or suppression of the consideration........... 19. In Rupee Finance Management (P) Ltd. (2008) 22 SOT 174 (Mum); (2009) 120 ITD 539 (Mum) it has been held in penultimate para of the order that:- As already held in the order of Rupee Finance Management Pvt. Ltd. there is no allegation much less, any evidence to show that these assesses before us have received monies in excess of amounts of sale consideration recorded and disclosed in the transaction for the sale of shares. The first appellate authority has rightly noted that under section 48 the starting point for computation of capital gains is the amount of full value of consideration received or accruing as a result of transfer of the capital asset. The Hon'ble Supreme Court in the case of K.P.Varghese (supra) held that sub-section (2) of section 52 can be invoked only when the full value of the consideration is received in respect of a transfer is shown at a lesser figure than that which is actually received by the assessee. It further laid down that the burden of proving such understatement of consideration is on the revenue and that the sub-section has no applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the other decisions relied on by ld. D.R. However, in view of the principles enunciated by the Hon'ble Supreme Court, in the above decisions referred in para 31 to 36 and the Tribunal decision in para 37 of this order we are of the view that the full value of the sale price received by the assessee was only ₹ 0.10p Per share and, hence, the short term capital loss shown by the assessee at ₹ 5,21,28,059/- is accepted and the order passed by the Assessing Officer and the ld. CIT(A) in this regard are set aside. The grounds taken by the assessee are, therefore, allowed and the grounds taken by the revenue are rejected. 21. In view of the above, we have no hesitation in allowing the grounds raised by the assessee on the issue and direct the AO to adopt the full value of consideration as received by the assessee and to recompute the long term capital gains or losses accordingly. The orders of the AO and the CIT(A) to that extent are modified. Ground is allowed. 22. Appeal of the assessee is considered partly allowed. ITA No. 2077/Mum/2009 23. Revenue has raised the following grounds: - 1. On the facts and in the circumstances of the case and in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been structured in a way so that the company is benefited and also its related parties and all the while by evading taxes. He has further noted that section 56 has a very wide and encompassing scope. It covers every income and has no scope of letting out anything. As such the waiver of loan is also clearly an income taxable in the ambit of section 56. He has also invoked provisions of section 28(iv) which says that no value of any benefit or perquisite, whether convertable into money or not, arising from business or exercise of profession is to be taxed under section 28(iv). Accordingly, he has treated the forfeiture of share application money of ₹ 13.24 crores as income from other sources in the hands of the appellant. He relied on the following decisions: - a. J.K. Cotton Spinning Wvg. Mills Co. Ltd. vs. State of Uttar Predesh 19 FJR 436, AIR (1961) (SC) 1170, 1174(2) b. CIT vs. S. Teja Singh 35 ITR 408 (SC) c. Mulji Tribhuvan Sevak V. Dakor Municipality, AIR 1922 (Bombay) 247, 251(2) d. Controller of Estate Duty vs. Ahilya Kasinath Sawant Ors 134 ITR 268 e. CIT vs. Satyanarayan 238 ITR 855 f. Caltex Oil vs. CIT 202 ITR 375 g. Bajaj Tempo Limited 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same is capital in nature and not taxable in the hands of the assessee. The A.O. is directed to delete this addition. This ground of appeal is allowed. 28. After considering the rival contentions, we do not see any reason to interfere with the findings of the CIT(A). Since the amount is capital in nature the same cannot be brought to tax. Therefore, we uphold the order of the CIT(A) and reject the ground of the Revenue. 29. Ground No. 3 pertains to deletion of an amount of ₹ 4,05,36,593/- being the value of leasehold land received by the assessee company. 30. The facts of this ground are that in the assessment order the AO has noted that the assessee has received leasehold land of ₹ 4,05,36,593/- from its associate company M/s. Morarjee Legler Pvt. Ltd. (MLPL). The assessee further submitted that MLPL entered into an agreement with MIDC on 23.11.1995 for a leasehold land for consideration of ₹ 1,05,31,100/-. However, due to varius reasons MLPL could not develop the property. It was further noted by the AO that this property was transferred to the assessee at Nil value whereas MLPL had recorded the value of this leasehold land in their books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
