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TMI Blog2016 (8) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... share, as against the actual price of Rs. 275 adopted by the assessee, as evidenced by a Share Purchase agreement and passing on the consideration through banking channels. The assessee-company transferred 18,18,180 equity shares in Silicon Builders to M/s Classic Realty Pvt. Ltd., during the assessment year under appeal, i.e., 2010-11, for a consideration of Rs. 50,00,00,000. These shares were acquired by it during AY's 2008-09 and 2009-10 at a cost of Rs. 50,00,00,000. M/s Silicon Builders was holding 1,50,00,000 shares in M/s Raghuram Cements Ltd (later known as M/s. Bharathi Cement Corporation P. Ltd.) since AY 2008-09. During the scrutiny, the AO directed the assessee company to show cause as to why the shares of Silicon builders should not be valued, adopting the value of M/s. Bharathi Cement Corporation P Ltd., Shares at Rs. 671.20 per share. The relevant notes, on the order sheet, of the AO reproduced in the assessment order itself at page No.2, are as under: "It is observed that the assessee has invested Rs. 50 crores in M/s Silicon Builders P. Ltd., in F. Y. 2007-08. One of the underlying asset of M/s. Silicon Builders P Ltd is 1.5 crores share of M/s Raghuram Cemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s transferred the shares of M/s Silicon Builders @ Rs. 275 per share being its cost of acquisition to M/s Classic Realty Pvt Ltd, belonging to promoters of the cement company and explained the reasons therefor as follows during the assessment proceedings The promoters of the cement company have not taken separate consideration for transferring the controlling stakes, and also provided an exit to the investment with almost 100% appreciation on their investment. Hence the assessee sold the shares of Silicon Builders at cost considering commercial expediency and interests of the group. " 2.6. However, the AO has not accepted the above submissions of the assessee and has gone ahead with adopting the share price of M/s.Bharathi Cement Corporation P Ltd., at Rs. 1,450 in order to value the shares of M/s. Silicon Builders. AO's observations are as follows: "The transaction appears to be collusive in nature as the shares were transferred to a company promoted by Sri Y.S Jagan Mohan Reddy. It is evident from the fact that group of companies owned by Sri Nimmagadda Prasad have been investing in the companies floated by Sri Y S Jagan Mohan Reddy at very high premium even when there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 011-12. Further, charging the difference in Fair Market Value and full value of consideration in the hands of the transferee and not in the hands of transferor. In other words, it can be stated that there are no provisions in the Act for the assessment year 2010-11, being the period under appeal to substitute the Full value of consideration with Fair market value. 5.1. The CIT(A) further observed that as it is clear that specific provisions are available in the 'Act' for substitution of fair market value with full value of consideration like section 50C and 50D at present. However, the method of computation as prescribed under section 48 superficially mentions that "income chargeable under the head 'Capital Gains' shall be computed, by deducting from the full value of consideration received or accruing as a result of the transfer of the capital asset the following amount, namely: _ (i) expenditure incurred wholly and exclusively in connection with such transfer, and (ii) the cost of acquisition of the asset and the cost of any improvement thereto". Therefore, the 'full value of consideration' is clearly different from the 'fair market value'. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c Reality, a company belongs to the promoters of M/s Bharati Cement Corporation, is a sham transaction to facilitate the benefit to the promoters of M/s Bharati Cement Corporation Limited. 3. Whether in the facts and circumstances of the case the CIT(A) is justified in holding that the sale consideration is to be adopted at Rs. 275/- without considering the fact that the assessee on one hand sold shares of M/s. Silicon Builders Limited(which in turn held shares of Bharati Cement Corporation whose market value was Rs. 671/-) at Rs. 275/- to M/s. Claasic Reality which belongs to promoters of Bharati Cement Corporation and on the other hand its other group companies purchases shares of Bharati Cement Corporation at Rs. 1450/- from the promoters of the Bharathi Cement Corporation." 7. Before us, the ld. AR of the assessee submitted that the issue in dispute is squarely covered by the decision of the coordinate bench of this Tribunal in the case of M/s Suguni Constructions Pvt. Ltd., vide ITA No. 582/Hyd/2015, order dated 20/11/2015, a copy of which is available on record. 8. On the other hand, the ld. DR has neither controverted to the submissions of the ld. AR nor brought any con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee with that of 'market value', save provision of S.50C which is only applicable to capital asset in the form of land or building. In the present case, there is no dispute about the fact that the assessee has received only Rs. 50 cores and it is also not the case of the department that over and above Rs. 50 cores the assessee has received any amount, and hence, as the full value of the consideration is Rs. 50 crores as against the value of the shares of 50 crores, the capital gain worked out to be 'nil' under S.48 of the Act. For the reasons given above, it cannot be said that short-term capital gains as held by the learned CIT in the order passed under S.263 has escaped assessment . Moreover, the case of the assessee is supported by the interpretation given by the Hon'ble Supreme Court to the expression "full value of consideration" in the case of George Henderson & Co. Ltd. (supra)." Similar view has also been expressed by another bench of this Tribunal at Mumbai in the case of Morarjee Textiles Ltd. and Another V/s. ACIT (ITA No.1979/Mum/2009 for assessment year 2005-06) dated 10.5.2013, to which one of us, viz. Accountant Member, is a signatory, wherein, vide paras 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances but it does not empower the AO to substitute the 'fair market value' to 'full value of consideration'. These two words, 'full value of consideration' and 'fair market value ' are differently used in the Income Tax Act and fair market value cannot be substituted in place of full value of consideration, unless it is specifically empowered by the Act. The AO has also wrongly relied on section 2(22B)(i), which is as under: "the fair market value, in relation to a capital assets, means - (i) the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date". This fair market value substitution is applicable only to the situation where the AO is empowered to determine the fair market value under the Act. As far as computation of capital gains on sale of shares are concerned under section 48 it does not empower the AO to substitute the 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 Rs. 136/- per share was Rs. 620/- per share consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "fair market value of the capital asset transferred" and it is provided that if certain conditions are satisfied as mentioned in the first proviso to section 12B(2), the market value of the asset transferred, though not equivalent to the full value of the consideration for the transfer, may be deemed to be the full value of the consideration. To give rise to this fiction the two conditions of the first proviso are(1) that the transferor was directly or indirectly connected with the transferee , and(2) that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under section 12B. If the conditions of this proviso are not satisfied the main part of section 12B(2) applies and the Income-tax Officer must take into account the full value of the consideration for the transfer." 17. In CIT vs. Gillanders Arbuthnot & Co. (1973) 87 ITR 407 (SC) Their 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 certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of the consideration. To give rise to this fiction the two conditions of the first proviso are(1) that the transferor was directly or indirectly connected with the transferee , and(2) that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under section 12B. If the conditions of this proviso are not satisfied the main part of section 12B(2) applies and the Incometax Officer must take into account the full value of the consideration for the transfer." Applying the principles enunciated in that decision we think that the full value of the sale price received by the assessee was only rupees seventy- five lakhs. That being so, the capital gains made by the company were Rs. 27,04,772 as held by the High Court." 18 In K.P.Varghese vs. ITO (1981) 7 Taxman 13(SC); (1981) 131 ITR 597 (SC) it has been held vide para 15 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, hold that sub-section (2) of section (2) of section 52 can be invoked only where the consideration for the transfer has been understated by the assessee or, in other words, the consideration actually received by the assessee is more than what is declared or disclosed by him and the burden of proving such understatement or concealment is on the revenue. This burden may be discharged by the revenue by establishing facts and circumstances from which a reasonable inference can be drawn that the assessee has not correctly declared or disclosed the consideration received by him and there is understatement or concealment of consideration in respect of the transfer. Subsection (2) has no application in case of an honest and bona fide transaction where the consideration received by the assessee has been correctly declared or 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '. We fully agree with these findings and the appeals filed by the revenue fail." 20. In view of the principles laid down above, we cannot uphold the orders of the AO and the CIT(A) in redetermining the full value of consideration by adopting the fair market value. Since the provisions of the Act does not provide for substitution of the values and the said provisions for substitution provided under the Act is not applicable to the facts of the case, we cannot approve the action of the AO in revaluing the sale price. Similar view was taken by the Coordinate Bench in the case of MGM Shareholders Benefit Trust (supra) wherein the ITAT ultimately did not approve the substitution of sale price on the facts of that case. The final finding in para 41 is as under: - "41. There is no quarrel on the principle of law laid down 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 Rs. 0.10p Per share and, hence, the short term c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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