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TMI Blog2016 (11) TMI 1148X X X X Extracts X X X X X X X X Extracts X X X X ..... BAT Enterprises Limited @ ₹ 1195 per share vide share purchase agreement dated 06-03- 2007 . The Revenue has also accepted the purchase of equity shares of BEC Industrial Investment Company Private Limited @ ₹ 1195/- per share from the assessee and his family members vide share purchase agreement dated 06-03-2007 in the hands of BAT Enterprises Limited while framing assessment u/s 143(3) of the Act for the assessment year 2007-08 of BAT Enterprises Limited. The assessment orders are placed in the file w.r.t. Mr. Satish Amritlal Shah and BAT Enterprises Limited for the assessment year 2007-08. Thus no reasons to interfere in the working of capital gains furnished by the assessee computed in the manner by taking actual sale consideration @ ₹ 1195 per equity shares of BEC Industrial Investment Company Private Limited as full value of consideration as contemplated u/s. 48 of the Act. As such we set aside the orders of the ld. CIT(A) and the AO computing capital gains by adopting NAV @ ₹ 202 per share and bringing to tax balance amount of ₹ 20,25,720/- as unexplained income under the head ‘income from other sources’ which in our considered view cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration of ₹ 24,37,800 Less: Cost of acquisition of 2040 shares @ ₹ 100/- per share ₹ 2,04,000 Long term capital gain as per books ₹ 22,33,800 The assessee after taking indexed cost at ₹ 8,17,928/- and further having invested ₹ 16,20,000/- in Government REC bonds had offered net taxable capital gain at Rs. Nil. The A.O. observed that it was necessary to verify whether this exorbitant high sale price of share at ₹ 1195/- per share was justified and based on same working or was it arbitrary , and the assessee wanted to avoid tax which he otherwise was required to pay. The A.O. observed that the transaction of sale of shares related to a Private Limited Company which is not a listed company in any stock exchange therefore the generally valuation adopted is based on Net asset Value (NAV) method of the company of which the shares belongs. The assessee was directed to file the Balance Sheet of BEC Industrial Investment Company Private Ltd. and on verification of the Balance Sheet, it was observed that the NAV of the above company was j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sheet of the above company BEC Chemicals Private Limited that the said company is in-fact a loss making company. It has incurred a loss of ₹ 16,43,220/- for the year ended March, 2007, which was further increased to net loss of ₹ 31,43,652/- for the year ended March, 2008 and moreover the company has not declared any dividend also. Thus, It was observed that the subsidiary company which is loss making and not paying any dividend cannot add value to the holding company and hence the AO rejected the contentions of the assessee. The AO also observed that the said BEC Chemicals Private Ltd. has issued 15000 new shares @ ₹ 100/- each at par during the year ended 31-03-2008 which itself is contradictory to assessee s claim of high valuation. Thus, if the assessee claim would have been right, the said company BEC Chemicals Private Ltd would have also issued shares at a premium of ₹ 1100 per share. It was also observed that the registered office of M/s BEC Industrial Investment Company Pvt. Ltd. in which the assessee was holding shares and the corporate office of BAT Enterprises Ltd., the buyer of the shares, is same premises and even Fax and phone number of both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xed in pursuance to mutual agreement and there is no provision under the Act whereby to reduce the value of share sold. The ld. CIT(A) rejected the contentions of the assessee and agreed with the finding of the A.O. that there was no basis for taking an exorbitant value @ ₹ 1195 per share as compared to the NAV of ₹ 202/- worked out by the A.O. . It was observed by learned CIT(A) that M/s BEC Chemicals Pvt. Ltd. is a loss making company and hence valuation of shares of BEC Industrial Investment Company Private Limited @ ₹ 1195/- per share against face value of ₹ 100 per share was not reasonable. Further it was observed that the assessee himself admitted that it was fixed mutually among the buyers and the assessee which proves that there was no basis for the same. The A.O. adopted the scientific formula being NAV method for valuing the shares. The A.O. is duty bound to check the valuation and to tax correct income. The ld. CIT(A) accordingly held that the A.O. has rightly taxed the income of ₹ 20,25,720/- under the head Income from other sources as unexplained income and the learned CIT(A) upheld the assessment order dated 20-12- 2010 passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chemicals P. Ltd. is worked out which comes to ₹ 562/- per share of ₹ 100/- face value and market value of fixed assets such as land and building was not considered. It was also submitted that the assessee has entered into share purchase agreement dated 6th March, 2007 whereby the sellers have agreed to sell their equity shares at an agreed price of ₹ 1195/- per share, which is placed at paper book page 57 to 79. The ld. Counsel also drew our attention to the share transfer form which is placed at paper book page 80 81 wherein the assessee has transferred 2040 shares of BEC Industrial Investment Company Pvt. Limited to BAT Enterprises Limited for a total consideration of ₹ 24,37,800/-. The consideration was received by way of cheque, the photocopy of the same is placed at paper book page 83. The confirmation letter from M/s BAT Enterprises Ltd. having confirmed the purchase of 2040 shares of ₹ 100/- at the price of ₹ 1195/- per share by the assesse is placed at paper book page 85. The Board Resolution passed by the BAT Enterprises Limited is also placed at paper book page 86 approving the purchase of 2040 shares of BEC Industrial Investment Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointly with Mr. Amritlal T. Shah i.e. the assessee in BEC Industrial Investment Company Private Limited. The assessee had sold 2040 equity shares of face value of ₹ 100/- per share of BEC Industrial Investment Company Private Ltd. to BAT Enterprises Ltd. @ ₹ 1195/- per share whereby the assessee has received ₹ 24,37,800/- as sales consideration and the long term capital gain was worked out as per provisions and scheme of the Act and the same was invested by the assessee in REC Bonds claiming exemption u/s 54EC of the Act whereby long term capital gain declared in the return of income was at Rs. Nil. The assessee along with his family members namely Mrs Shantiben Amritlal Shah and Mr Satish Amritlal Shah entered into two share purchase agreements dated 06-03-2007 and 07-04-2007 with BAT Enterprises Limited and others which are placed in the paper book page 57-79 whereby the assessee and his above family members agreed to sell the equity shares of BEC Industrial Investment Company Private Limited at ₹ 1195/-per share to BAT Enterprises Limited. The said valuation is based upon the price mutually agreed and negotiated between both the parties i.e. the willing b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from directorship of these companies persuant to sale of 5000 equity shares held by himself and his family members held in BEC Industrial Investment Company Private Limited which were sold to BAT Enterprises Limited which is borne out from clause 2.3(iv) of the share purchase agreement dated 06-03-2007 whereby Resolutions were also obtained from these companies accepting the resignation of the assessee as Director of these companies. The said share purchase agreement dated 06- 03-2007 also stipulates that the assessee shall be relieved from the personal guarantees provided by him for working capital finance as well as term loan or any other personal guarantees to Bank and financial institution in his capacity as a Director of these companies namely BEC Industrial Investment Company Private Limited and BEC Chemicals Private Limited . Thus, in our considered view the entire transaction of sale of 5000 equity shares of BEC Industrial Investment Company Private Limited @ ₹ 1195 per shares by the assessee( out of total 5000 equity shares sold, the assessee selling 2040 equity shares) and his family members is a genuine and bonafide transaction which is to enable restructuring an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee and his family members with BAT Enterprises Limited vide share purchase agreements dated 06-03-2007 and 07-04-2007.Similarly that the BEC Industrial Investment Company Private Limited and BAT Enterprises Limited has common address etc and the assessee ould be able to manipulate the transaction are again having no relevance and are merely conjectures and conjectures . In-fact on perusal of share purchase agreement dated 06-03- 2007 and 07-04-2007 will reveal that persuant to these agreement, the assessee and his family members have agreed to shift the offices of their companies and concerns from IBI house by 30-4-2007 , clause 4.6 of the agreement dated 06-3-2007(page 65/paper book). Nothing incriminating has been brought on record by the Revenue and conjectures and surmises has no place while computing and bringing to tax income of the tax-payer within the chargeability to tax under the provisions and scheme of the Act . The Revenue has also accepted the capital gains based on actual sale consideration in the case of Mr Satish Amritlal Shah while framing assessment u/s 143(3) of the Act for the assessment year 2007-08 in the hands of Mr Satish Amritlal Shah wherein the said Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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