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TMI Blog2017 (3) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... free advances along with order of Hon. Gujarat High Court about merger of assessee with Suraj Stainless Ltd. to whom interest free advances were given. We, therefore, set aside the order of ld. CIT(A) and allow this ground of assessee.- Decided in favour of assessee Rent Exp. Of Mumbai Office - treated as Business expenses - Held that:- There is fair possibility of situation when a company plans its future business trend and may have to explore various avenues with relation thereto. It seems that assessee with the fore-sightedness and in order to improve and expand business and also to save extra hotel charges thought it amicable to take flats on lease in Mumbai. In the given facts and circumstances of the case and in absence of any contrary reasons brought on record by the Revenue against the impugned expenditure booked by the assessee except a casual approach, we are inclined to believe that assessee has claimed genuine expenditure of rent. We set aside the order of ld. CIT(A) and allow this ground. - Decided in favour of assessee - ITA No. 1632/Ahd/2012 - - - Dated:- 9-1-2017 - Shri R.P. Tolani, JM And Shri Manish Borad, AM Appellant by : Shri G. C. Pipara, AR Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,000 shares each of these three companies were sold at the face value of ₹ 10/- per share and total consideration of ₹ 4,50,000/- was received which gave rise to short term capital loss of ₹ 1,75,50,000/-. Ld. AR further submitted that all these transactions were executed off market and not through recognized Stock Exchange. However, proper documentation relating to their transfer mode of payment and copy of bank statement were placed on record. But ld. Assessing Officer was of the view that the short term capital loss has arisen from the transactions with related parties u/s 40A(2)(b) of the Act and these transactions are sham as the assessee has adopted colourable device for setting off long term capital gain by the impugned short term capital loss. When the matter came before ld. CIT(A) the view taken by ld. Assessing Officer was confirmed by him by observing as follows :- Decision: I have carefully perused the assessment order and the submissions given by the appellant. The facts show that the appellant company had purchased shares of the group companies at a premium and sold the same shares within an interval of less than one year to its directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name of company whose shares were sold Income F.Y, 2008-09 Income F.Y. 2007-08 1. Suraj Commodity Pvt. Ltd 31045 6782 2, Suraj Retail Pvt. ltd 31045 6782 3, Suro| Star Trading Pvt, ltd 30745 6782 The above facts show that the Interest income shown by the group companies was less In earlier year i.e. the year in which the shares were Issued on premium, It has increased marginally In the current A. Y. However, there is no major change in other business or any plan which is apparent from the balance sheets or the audit report of the company. Therefore, the factors leading to the decision for purchasing the shares at a premium and sale of shares to directors are same and there is no change in the affairs of the companies whose shares have been purchased / sold, The decision to sale shares is, therefore, without any logic and is apparently a colorable method to reduce the tax liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 5538 of 2010 in the case of Killick Nixon Limited Vs. DCIT is worth mentioning. The Hon'ble Court has dealt with the similar facts ana* has held that the transactions were sham. The Hon ble Judges have considered all the leading judgments of the Hon'bi Supreme Court on issue and have analyzed the principle. It would be appropriate to quote from the judgment given by Hon ble Judges which is relevant to ihe issue and regarding the clarity between tax planning and fax evasion. The relevant extracts are asunder: 14. So far as the principle Said down in the matter of Omar Safety Monamed Soft (supra) is concerned there can be no dispute about the proposition laid down therein. However we have not been shown how the Tribunal was in breach of the some. We find that the Tribunal has considered the evidence of purchase and sale of shares to book long term and snort term tosses and taking all the evidence together including the surrounding circumstances reached a finding that the purchase and sole of shares is not genuine. So faros the decision of /he Supreme Court in Vodafone International (dated 20 January 2012) is concerned, the Court considered Us decisions in the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o (supra) and Mathuram Agarwal (supra), in the present case the purchase and sale of shares, so as to take long term and short term capital loss was found as a matter of fact by all the three authorities to be a sham. Therefore authorities came to a finding that the same was not genuine. So far as the question Nos.(ii), (iii) fiv} and (v) ore concerned, we hold that these- are pure questions of facts and as there are concurrent finding of the authorities below, no question of /aw arises for this Court to interfere. In view of above facts and discussion, the ground of appeal is dismissed. 7. During course of proceedings before the Tribunal, ld. AR submitted that the impugned transactions of sale of shares of the three companies made to directors were a part of their family arrangement as the company was amalgamated with the group company which is a listed entity. As regards market price of shares it is to be noted that being a unlisted and rather a private limited company pricing is not available and price paid is a mutually agreed price between the buyers and sellers for the transactions and no market proof is available. However, sale note/debit note raised by the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in the computation of income and has, therefore, acted with bias mind for the treatment of sale of investment on two different footings as per his own will. Ld. AR also objected to the observation of ld. Assessing Officer that in the event if the transaction is treated as genuine, the loss should be considered as speculation as no evidence of delivery of shares is given. Ld. AR firmly argued that there was proper delivery of equity shares of private limited companies through share transfer deed and bank account clearly indicates that the sale consideration has been passed which is contrary to the allegation of ld. Assessing Officer that only loss amount has been paid. 9. Further since the transaction between the related parties does not change the character of transaction as speculative or non- speculative only but if the condition specified in section 43(5) is fulfilled it is a non-speculative transaction which is not so in the case of assessee and therefore, loss from sale of shares by the company should be treated as short term capital loss. 10. Ld. AR further submitted that the Id. CIT(A) has dismissed the ground without proper consideration and appreciation of the el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the purpose of family arrangement. The shares in question of the private limited companies were transferred in the name of Directors at face value as part of family arrangement as stated hereinabove and the delivery of shares were given while incorporating their names in the share certificate, copy of which were submitted to the AO. Further, the sale consideration of such shares has been actually received by the company and is duly reflected in the bank account and books of accounts. The necessary documents such as debit/credit note, copy of share transfer forms and Bank Statement as well as of the directors as well as company showing payment/receipt of sale consideration were also furnished to the A.O. The comparison made by the AO of the transactions during the year with earlier years is incorrect, since in earlier years the transactions with related parties were in respect of listed securities and were without delivery of shares while during the year it is of private limited companies with proper delivery. The observation of the A.O. that no circumstances or need has been mentioned by the Company for carrying out such transactions is also incorrect since the Company had cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sham transactions with a view to evade tax. 14. We have heard the rival contentions and perused the material placed before us and also gone through the decisions relied on. Through this ground assessee is aggrieved with the order of ld. CIT(A) confirming the action of ld. Assessing Officer treating short term capital loss of ₹ 1,75,50,000/- as sham transaction as well as speculative in nature. From perusal of record we find that in the computation of income assessee has shown long term capital gain of ₹ 2,97,13,752/- from sale of 3336 shares of Kamla Mansions Pvt. Ltd. Against this long term capital gain of ₹ 2,91,13,752/- assessee has claimed short term capital loss of ₹ 1,75,50,000/- from sale of shares of three companies purchased on 22.2.2008. Details of transactions giving rise to the short term capital loss of ₹ 1,75,50,000/- are as under :- Sl. No. Name of company whose shares were sold , No. ol shares Dote of purchase by me company Purchase price Date of Sale to persons specified Sale price t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a transaction of long term capital gain of the group company through which assessee earned ₹ 2,97,13,752/- as long term capital gain and the genuineness and authenticity of the long term capital gain transaction has not been disputed by the ld. Assessing Officer. We further observe that the view taken by ld. Assessing Officer about the impugned transaction of short term capital loss of ₹ 1,75,50,000/- as speculative in nature cannot stand for in the given circumstances where there is physical delivery of shares by the company at the time of purchase on 22.2.2008, physical delivery of shares at the time of sale on 23.12.2008, full value of consideration for purchase and sale has been entered through account payee cheque. Copies of share transfer deeds are available on Paper Book from pages 39 to 56. Details of shares transfer are duly recorded in the statutory books of the company and also being filed in the annual return submitted with the Registrar of Companies. 16. We further find that the observation of ld. Assessing Officer that the transactions entered into in this year are similar to those entered in Asst. Year 2007-08 and 2008-09 is also not correct for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y adopting the market value of the asset. No infirmity in the working of the auditor was pointed out. The assessee had sold the shares at a value slightly higher than the market value determined by the auditor. The assessee had also explained the circumstances in which he sold the shares. Considering the totality of the facts and circumstances there was no justification for disallowing the capital loss from the sale of the shares. [Para ll] 20. We further observe that Hon. Jurisdictional High Court in the case of ACIT vs. Biraj Investment Pvt. Ltd. in Tax Appeal No.260 of 2000 has dealt with similar issue wherein assessee sold certain shares of Rustom Spinners Ltd. and had shown a long term capital gain of ₹ 1,46,792/- and short term capital gain of ₹ 7,41,563/- on sale of such shares. The assessee had also sold 80200 equity shares of Rustom Mills and Industries Ltd. for total consideration of ₹ 4,01,000/- and incurred a long term capital loss of ₹ 8,38,798/-. Observing all these facts ld. Assessing Officer was of the view that entire transaction which has been entered into between the group company are of a colourable device as the assessee company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransferring, or enabling the enjoyment of, any immovable property. Explanation - for the purpose of sub-clauses (v) and (vi) immovable property shall have the same meaning as in clause (d) of section 269UA. It may be that by virtue of pledging of shares with IDBI, having handed over the original share certificates to such financial institution along with the duly signed transfer forms, in so far as the assessee's relation with IDBI is concerned, there would be a serious question of validity of such transaction. We are, however, in the present proceedings, not concerned with such internal possible dispute between the assessee and the said financial institution. It may also be that if the purchaser Company desired to have such shares transferred in its name, such attempt would run into serious road block. Primarily, without the original share certificates in possession of the purchaser company, which was in possession of the IDBI Bank, the Company would not, in view of section 108 of the Companies Act, be able to register such transfer. Sub-section (1) of section 108 provides that a company shall not register a transfer of shares in or debentures of, unless a proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent case, it is not even the case of the Revenue that shares were sold at a price lower than the market rate. If that be so, the question of inflating the loss by transferring the shares to group company would not arise. Under ordinary circumstances, it is always open to the assessee in his own wisdom to either hold on to certain bunch of shares or to sell the same to avoid further loss, if he finds that market value of the shares is fast diminishing. It is equally open for the assessee to effect such sale during the same year when he also chooses to dispose of certain profit making shares. In the present case, of course, there is a further angle of the shares in question being pledged to IDBI and therefore it would not be possible for the assessee to deliver the original share certificates to its purchaser along with the duly signed transfer forms. As already noted, such special angle may have repercussion insofar as the legal relation between the assessee and the IDBI is concerned and insofar as the purchaser's right to have shares transferred in its name is concerned. This, however, by itself would not establish that the sale of shares was only a paper transaction and a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of shares through share transfer deed finding its proper place in the statutory records prepared by the company and duly submitted to the Registrar of Companies in the annual return. (e) Identity of the buyers is not in dispute. (f) The transactions of purchase made by the assessee purchasing shares at ₹ 1,80,00,000/- in F.Y.2007-08 is not in dispute. (g )Transactions of purchase and sale have been entered through proper banking channel. (h) Revenue has not doubted the purchase price of the shares in the earlier year. (i) Revenue has also not brought any material on record to prove that the price at which the shares have been sold during the year are less than the fair market price. (j) Insertion of section 56(2)(viia) has been made by Finance Act, 2010 w.e.f. 1.6.2010 for the calculation of deemed income if sale is not applicable to assessee as it is not retrospective in nature. (k) There is no iota of evidence to prove that the impugned transactions giving rise to short term capital loss of ₹ 1,75,50,000/- was a colourable device and entire arrangement was a paper arrangement. (l) Assessee has merely made legitimate tax planning within the fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and there is no benefit of doubt. As mentioned above, the appellant has taken a loan from Punjab National Bank for running day to day affairs in the form of current account, and therefore, the receipts out of sale proceeds also cannot be considered as interest free. The appellant has not been able to clearly prove the nexus between the interest free funds and the borrowings and accordingly, the disallowance made by the A. O. is upheld and the ground of appeal is dismissed. 25. Aggrieved, assessee is now in appeal before the Tribunal. 26. Ld. AR submitted that as regards non charging of Interest on Advances of ₹ 20.86 crore to M/s. Suraj Stainless Limited, referred to the financial statement of the company to clarify that the company has interest free fund of ₹ 19,31 Crore at the time of advances and the company was going to be merged with M/s. Suraj Stainless Limited from 01.04.2009 as per Scheme of Amalgamation and therefore the management has not charged interest on such advances. Ld. AR further submitted that non-charging of interest on loans cannot by itself be a sufficient ground for disallowing interest paid on loans taken by it in the absence of any nexus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact is also not disputed that assessee was having sufficient interest free funds at its disposal in the form of reserve and surplus of ₹ 19.84 crores as well as interest free funds of ₹ 2.84 crores aggregating to ₹ 22.12 crores. Further referring to the decision of the Co-ordinate Bench in the case of Torrent Financiers Ltd. vs. ACIT (supra) wherein the Co-ordinate Bench has observed as under :- Held: Entire interest-free funds available with the assessee is to be considered. The entire interest-free funds include owner s own capital, accumulated profits and other interest-free creditors and loans, if total interest-free advances including debit balances of partners do not exceed the total interest-free funds available with the assessee, no interest is disallowable on account of utilisation of fund for non-business purposes and if it exceeds, the proportionate disallowance can be made. The AO is required to recalculate the figures of disallowance of interest paid on borrowed funds, therefore, the order of CIT(A) on this issue is set aside and the issue is restored back to the file of AO for the limited purpose to recalculate disallowance of interest pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inding that the appellant had been dealing in shares for last so many years and the business was being done on line and, therefore, there was no justifiable purpose. The appellant has also not given any evidence that the guest house or the flat has In fact been used for the purpose of business. In absence of any such justification, I am constrained to uphold the disallowance made by the A. O. The ground of appeal is accordingly dismissed. 33. Aggrieved, assessee is now in appeal before the Tribunal. 34. Ld. AR submitted that assessee is a limited company and is regularly engaged in the business. The directors of the company used to visit Mumbai frequently for office purpose and in order to reduce the hotel expenses it was decided in the interest of the company to hire a Guest House at Mumbai so that as and when the directors visit Mumbai they can stay therein. Registered deed of leave and licence was entered on 19.11.2008, TDS was deducted on the payment made and all transactions have been entered through proper banking channel. Ld. AR referred and relied on the following decisions :- 1, CIT vs. South India Vicose Ltd. (2003) 259 ITR 107 (Mad) 2. CIT v. Ahmedabad Mf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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