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TMI Blog2018 (4) TMI 382X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed should be allowed in full. 2. Brief facts of the case are that for assessment year 2006-07 the assessee filed return of income on 30 July 2006 declaring total taxable income of Rs. 10,68,030/-. The assessment was completed under section 143(3) on 8th September 2008. The assessing officer while passing the assessment order disallowed the set off of loss on account of long term capital loss suffered by assessee on sale of shares against the profit of long term capital gain earned on sale of immovable asset. On appeal before ld. Commissioner (Appeals), the action of assessing officer was confirmed. Thus, aggrieved by the order of ld. Commissioner (Appeals) the assessee filed present appeal before us. 3. We have heard the learned AR of the assessee and the learned DR for revenue and perused the material available on record. The learned AR of the assessee submits that during the year under consideration assessee sold 900 shares of National Tiles & Industries Private Ltd (NTPL) at the rate of Rs. 100/-per share on their fair market value. These shares were held by the assessee for last 15 years. The assessee purchased the share in the year 1991 from NEC Investment Company. Du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Gujarat) (ix) ACIT vs. Biraj Investment Pvt. Ltd. 210 Taxman 418(Gujarat) (x) Porrits & Spencer (Asia) Ltd. vs. CIT, 329 ITR 222(P&H) (xi) Rupee Finance & Management Pvt. Ltd vs. ACIT 120 ITD 539(Mum) (xii) Nariman Point Building Services & Trading Pvt. Ltd vs. CIT 54 SOT 7 (Mumbai) (xiii) Tainwala Chemicals & Plastics India Ltd. vs. ACIT 47 SOT 169(Mum) (xiv) Mishapar Investments Ltd. vs. ITO, 8 SOT 532(Mum) (xv) DCIT vs. Jindal Equipment Leasing and Consultancy Services Ltd. 131 ITD 263(Delhi) (xvi) ACIT vs. Turner Morrison & Co. Ltd. 47 ITD 638(Cal) 4. On the other hand the learned AR for the revenue supported the order of authorities below. It was submitted that National Tiles & Industries Private Ltd is owned and managed by the family members of the assessee. The assessee sold the shares to his son. The assessee developed a colourable device under the guise of share transaction to avoid the tax. 5. We have considered the rival submission of the parties and have gone through the orders of authorities below. The assessing officer disallow the set off of Long Term Capital loss on sales of shares against the Longterm Capital Gain holding that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of share transactions, assessee's claim for set off of loss arising from sale of shares of sister concern against income arising from shares of other company was to be allowed. The Hon'ble Gujarat High Court in CIT Vs Special Prints Ltd [2013] 33 taxman.com held that once a transaction is genuine and traded at proper valuation, even if entered with a motive to avoid tax, would not become colourable device subject to any disqualification. 9. Similarly Hon'ble Punjab and Haryana High Court in Porritis & Spencer (Asia) Ltd VS CIT [2010] 190 TAXMAN 174 (P&H) while considering the question of law if the Tribunal was right in holding that the transaction for purchase and sale of share the appellant with Bank, after holding that the transaction were genuine, were(a) not bonafide transaction, (b) entered with a motive to avoid the liability of tax held as under; "17. Hon'ble the Supreme Court also proceeded to approve the following view of Gujarat High Court in Banyan and Berry v. CIT [1996] 222 ITR 831 while interpreting McDowell's & Co. Ltd.'s case (supra) :- "The court nowhere said that every action or inaction on the part of the taxpayer which results in reduction of tax li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion No. 2 is liable to be answered against the revenue-respondent." 10. The coordinate bench of Mumbai Tribunal in Morarjee Textile Ltd Vs ACIT in ITA No.1979/M/2009, while considering the similar ground of appeal held as under; "15. We have considered the issue and examined the record. As far as the price 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 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 50C and 50D in the I.T. Act at present but in the relevant assessment year, the consideration'. The method of computation as prescribed under section 48 superficially mention that "income chargeable under the head 'Capital Gains' namely: - (i) expenditure incurred wholly and exclusively in connection with such transfer, and (ii) the cost of acquisition of the asset and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer of the capital asset is made." In case of a sale, the full value of the consideration is the full sale price actually paid. The legislature had to use the words "full value of the consideration" because it was dealing not merely with sale but with other types of transfer, such as exchange, where the consideration would be other than money. If it is therefore held in the present case that the actual price received by the respondent was at the rate of Rs. 136 per share the full value of the consideration must be taken at the rate of Rs. 136 per share. The view that we have expressed as to the interpretation of the main part of section 12B(2) is borne out by the fact that in the first proviso to section 12B(2) the expression "full value of the consideration" is used in contradistinction with "fair market value of the capital asset" and there is an express power granted to the Income-tax Officer to "take the fair market value of the capital asset transferred" as "the full value of the consideration" in specified circumstances. It is evident that the legislature itself has made a distinction between the two expressions "full value of the consideration" and "fair market value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 136 per share. The view that we have expressed as to the interpretation of the main part of section 12B(2) is borne out by the fact that in the first proviso to section 12B(2) the expression "full value of the consideration" is used in contradistinction with "fair market value of the capital asset" and there is an express power granted to the Incometax Officer to "take the fair market value of the capital asset transferred" as "the full value of the consideration" in specified circumstances. It is evident that the legislature itself has made a distinction between the two expressions "full value of the consideration" and "fair market value of the capital asset transferred" and proviso to section 12B(2), the market value of the asset transferred, though not 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be construed as bringing within the computation of capital gains an amount which, by no stretch of imagination, can be said to have accrued to the assessee or been received by him and it must be confined to cases where the actual consideration received for the transfer is understated and since in such cases it is very difficult, if not impossible, to determine and prove the exact quantum of the suppressed consideration, subsection (2) provides the statutory measure for determining the consideration actually received by the assessee and permits the revenue to take the fair market value of the capital asset as the full value of the consideration received in respect of the transfer. xxxxxx xxxxxx xxxxxxxx 18. We must, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assets he parts with, i.e. money or monies worth and that the expression 'full consideration' cannot be construed as having reference to the market value of the assets transferred but refers to the price bargained for by the parties and it cannot refer to the adequacy of the consideration. He also rightly observed that the Legislature has used the words 'full value of the consideration' and not 'fair market value of the assets transferred'. He recorded that the Assessing Officer has not brought on record any material to show that the assessee has received more than what has been disclosed in the books and under these circumstances the difference cannot be brought to tax under the head 'Capital gains'. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; years merely to earn a profit of 3 paise per share. He, therefore, took resorted to merely for avoiding the tax on the capital gains. He invoked the doctrine in McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148 (SC) and disallowed the capital loss. On appeal, the CIT (A) took the view to the broker it was not open to him to defeat the assessee's claim capital gain. The CIT(A) also found that there was nothing on record to McDowell doctrine had been wrongly invoked. In this view of the matter he upheld the assessee's claim. 3. The revenue is in appeal to contend that the CIT(A) should have upheld the view of the ITO. We are unable to uphold the contention. Firstly there was sham. The CIT(A) has recorded a categorical finding that there is share broker. Even the ITO does not appear to take a view that the sale of shares to the share broker is sham or a make-belief transaction in spite of account. In the absence of any such conclusion, the view of the ITO that transaction against the long-term capital gain is not justified. Secondly, in the accounting year. having held them for quite a long period, it cannot Income-tax Act. As the facts would show, the shares were not worth them. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... colourable device or method adopted by assessee to avoid the tax. The shares were transferred by executing share transfer Form and after paying the requisite Stamp duty. The company NTPL also passed a Board Resolution for transfer of those shares (Page-35of PB). The consideration of share was effected to through banking channel (Page 14 of PB). The fair market value arrived by assessee, as furnished before Commissioner (Appeals), (page No. 74 of PB). The balance sheet of NTPL for assessment years 2004-05 to 2006-07 is at (page 76- 81of PB). In our view the transactions of sale of share were genuine and transacted at a proper valuation. The lower authority has not disputed the genuinity of transaction. The transactions carried by assessee are valid in law, cannot be treated as non-est merely on the basis of some economic detriment or it may be prejudicial to the interest of revenue. Further, if the period co-existed or permitted the assessee to set off her capital loss against the capital gain earned, would itself not give rise to the presumption that the transaction was in the nature of colourable device. We notice that the assessee has taken indexed case of acquisition of share a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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