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TMI Blog2019 (4) TMI 1383X X X X Extracts X X X X X X X X Extracts X X X X ..... remium of 9,900/- per share and then the sale consideration i.e. premium of 760/- per share. In the absence of the same, the loss claimed by assessee is not justified and we uphold the orders of authorities below in denying the set off of short term capital loss of 15.08 crores on sale of shares of Vadhivare Specialty Chemicals Ltd. The grounds of appeal No.1 and 3 raised by assessee are thus, dismissed. Denial of set off of capital loss - sale of shares of Pentagon Manufacturing and Marketing Ltd. against long term capital gains arising on sale of shares of FEM - HELD THAT:- We thus, find no merit in the stand of AO that the transaction of booking loss by selling shares by the assessee to his daughter is colourable device, cannot be accepted. Once the transaction has been entered into within four corners of law and the transaction has not been doubted; where the shares which were held by assessee for long period were sold at a price which was more than NAV value of shares as on date of sale of shares, then it may be case of tax planning within four corners of law and the same cannot be brushed aside. Applying the ratio laid down by the Hon ble High Court of Punjab Haryana in Porri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, (ii) had no business purpose and, (iii) were undertaken with the sole purpose of avoiding tax. 4. The CIT(A) erred in holding that the transaction of sale of the shares of Pentagon Manufacturing and Marketing Ltd. @ Re. 1 per share was not a genuine business transaction. 5. The CIT(A) erred in : (a) holding that there was no basis for determining the sale price of the share of Pentagon Manufacturing and Marketing Ltd.@ Re.1 per share (b) determining the value of the said share at ₹ 3.35 instead of Re.0.11 on 22.02.2010, the date of sale of the said shares. 4. The Revenue in ITA No.448/PUN/2014, relating to assessment year 2010-11 has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case, the CIT(A) erred in deleting the addition of ₹ 5,34,47,817/- on account of loss claimed from sale of shares of Reliance Industries Ltd. 2. On the facts and in the circumstances of the case, the CIT(A) has erred in holding the transactions of purchase and sale of Reliance Industries shares by the assessee as tax planning within the four corners of law and subsequently permitting the same. 3. The order of the CIT(A) be vacat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd at premium of ₹ 9,900/-. The assessee thus, had shown cost of acquisition of the said shares at ₹ 16,50,00,000/-. The said company had issued 8 bonus shares on one share held on 27.01.2010 (within 13 days of acquiring the said shares, the company had issued 8 bonus shares). Immediately after the announcement of bonus shares, the assessee sold original 16,500 shares on 22.02.2010 to Manasi S. Pophale at the face value of ₹ 100/- and at premium of ₹ 760/- per share. The total sale consideration was ₹ 1.41 crores as against cost of acquisition of ₹ 16.50 crores and hence short term capital loss of ₹ 15.08 crores. On show cause notice, the assessee explained the transactions of sale of shares of Vadhivare Specialty Chemicals Ltd. and claimed that the said transactions were recorded by the company and were genuine and real transactions and cannot be said to be colourable device for claiming the set off against long term capital gains arising on sale of shares of FEM. He admitted that it is one of the methods of tax planning to reduce tax liability. The Assessing Officer vide para 6.5.1 analyzed the transactions and noted that the concern Vad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the shares were sold to daughter on 26.02.2010, the premium had reduced to ₹ 760/-, whereas on 13.01.2010, he had purchased the shares at premium of ₹ 9,900/- per share. The Assessing Officer questioned the fall in premium of shares from ₹ 9,900/- per share to ₹ 760/- per share within period of 44 days when there was no change in the company's functions. On the analysis of said facts, the Assessing Officer came to the conclusion that short term capital loss shown by the assessee on account of sale of shares of Vadhivare Specialty Chemical Ltd. was not genuine. Hence the Assessing Officer held the entire transaction to be colourable and self- serving and hence, the explanation of assessee vis-à-vis loss on sale of shares of Vadhivare Specialty Chemical Ltd. was not accepted. 7. The CIT(A) was of the view that all the steps taken by assessee were for avoidance of tax, so the loss on sale of shares of Vadhivare Specialty Chemical Ltd. of ₹ 15.08 crores cannot be set off against capital gains on sale of shares of FEM at ₹ 109.07 crores. The CIT(A) upheld the order of Assessing Officer in this regard. 8. The assessee is in appeal against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15.08 crores. The perusal of Balance Sheet, financials of the said company, wherein the company had not entered into any major transactions of carrying on the business reflects that there was no merit in purchase of shares at face value with premium of ₹ 9,900/- per share after few days of incorporation of the said company. Further, this purchase was on 13.01.2010 and on 27.01.2010 bonus shares were issued and on 29.01.2010 the shares were sold at face value of ₹ 100/- plus premium of ₹ 760/- per share. The assessee has failed to justify first the cost of purchase i.e. with premium of ₹ 9,900/- per share and then the sale consideration i.e. premium of ₹ 760/- per share. In the absence of the same, the loss claimed by assessee is not justified and we uphold the orders of authorities below in denying the set off of short term capital loss of ₹ 15.08 crores on sale of shares of Vadhivare Specialty Chemicals Ltd. The grounds of appeal No.1 and 3 raised by assessee are thus, dismissed. 12. Now, coming to the next issue raised vide grounds of appeal No.2 and 4 i.e. against non set off of long term capital loss of ₹ 1.93 crores on sale of Pentag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 3.35 per share. However, the assessee had sold shares at the value of ₹ 1 per share which was sold to the daughter of assessee. The Assessing Officer noted that this company was closely held company of the assessee and his family members and the assessee himself was the major shareholder of the company. The Assessing Officer was of the view that there was no rationale justification of selling the shares at the price of ₹ 1 per share. The Assessing Officer further held that The above transaction show that the assessee has sold the shares to his daughter at the price which is lower than the share price of the company. It proves that, this transaction has been carried out by the assessee' deliberately and intentionally as per his own wish without any rational justification. The only purpose behind this transaction was to incur long term capital loss so that it can be adjusted against the long term capital gains earned from sale of shares of Fem Care Pharma Limited. The transaction of sale of shares at the value of ₹ 1/- per share by the assessee is thus fabricated, manipulated and sham. The transactions is carried out by the assessee purposely so that it appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale was made to his daughter was not tax planning but device to evade taxes. He then placed reliance on series of decisions to point out that even where the transaction was pre-planned, but not a colourable device although entered into with motive that plan to reduce tax, the transaction cannot be brushed aside. We will refer to the said decisions at the relevant point of time. 17. The learned Departmental Representative for the Revenue on the other hand pointed out that the Assessing Officer has worked out the value of said shares at ₹ 3.35 per share, whereas the assessee sold the shares @ 1/- per share. 18. The learned Authorized Representative for the assessee in reply pointed out that the Assessing Officer had adopted the figures on 01.04.2009. Reference was made to page 21 of the order of Assessing Officer. However, the assessee's case is that it had sold the shares on 22.02.2010, then NAV has to be worked out as on 31.03.2010, wherein as against fund of ₹ 2.20 crores, there was loss of ₹ 2.18 crores. Hence, the net worth was Nil. However, as per computation of market value as on 31.03.2010, which is placed at page 124 of Paper Book in the case of Suni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,39,800 original shares and 3,00,000 preference shares for total value of ₹ 83,98,000/-. The entire shareholding was sold by the assessee to his daughter Manasi Pophale on 22.02.2010 @ 1/- per share for total consideration of ₹ 8,39,800/-, which resulted in loss of ₹ 1.93 crores (after indexation). The assessee claimed capital loss of ₹ 1.93 crores on sale of said shares and same was set off against capital gains declared by the assessee. The Assessing Officer did not accept the said set off of losses and was of the view that the same was carried out to evade taxes. However, the case of assessee was that it was genuine transaction and the shares were transferred to his daughter, which is not barred by any law and he admitted that it was case of legitimate tax planning. The Assessing Officer also denied the said loss set off in the hands of assessee on the ground that NAV of the said shares comes to ₹ 3.35. The assessee had sold the shares only at ₹ 1/- per share. For working out the figures of NAV, the Assessing Officer had adopted the figures as on 31.03.2009 i.e. opening of the year. However, the law requires that the same should be adopted at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Anr. (2003) 263 ITR 706 (SC) held that citizen is free to carry on his business within four corners of law and mere tax planning without any motive to avoid taxes through colourable device is not frowned upon. The Apex Court further held that the principle laid down in Mc Dowell & Co. Ltd. Vs. Commercial Tax Officer (supra) relied upon by the learned Departmental Representative for the Revenue applies to an artificial transaction and not a real transaction. 25. In another celebrated decision, the Apex Court in CIT Vs. Walfort Share and Stock Brokers (P.) Ltd. (2010) 326 ITR 1 (SC) considering the case of a company, which had purchased the shares before dividend and received the dividend thereafter, which was tax free, and later on sold the shares ex-dividend and claimed capital loss on sale of shares, had held that even assuming that the company had made use of provisions of section 10(33) of the Act, such use could not be said to be abuse of law. It further held that even assuming that the transaction was pre-planned, there was nothing to impeach the genuineness of the transaction and hence, capital loss on sale of shares was allowed in the hands of assessee. 26. The Hon'ble Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. 30. Another reason why the said loss was disallowed in the hands of assessee was that shares were sold by the assessee to his daughter. In this regard, we find support from the ratio laid down by Delhi Bench of Tribunal in Raghvendra Singh Vs. Inspecting Assistant Commissioner (1991) 39 ITD 463 (Delhi Trib.). In the facts of said case, the shares were sold by the said assessee to his daughter at loss. The legal form of transaction was accepted but the Assessing Officer did not allow the set off of loss on the ground that it was device to evade tax. The Tribunal allowed the claim of assessee especially when the legal form of transaction was accepted and there was no evidence to hold that the transfer was not legally effected. 31. The learned Departmental Representative for the Revenue had placed reliance on various decisions which are factually different and the said ratio are not applicable to the facts of present case, especially in view of the dictate of the Apex Court and the ratio laid down by the Hon'ble High Court of Calcutta in CIT Vs. Oberoi Hotels (P) Ltd. (supra) on identical issues. We thus, allow the claim of assessee. 32. Applying the ratio laid down by the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee therein had purchased shares of HCL Technologies Ltd. and after announcement of bonus shares of one share for every one share held on 16.03.2007, the assessee sold the original shares which resulted into loss of ₹ 15.01 crores. The claim of assessee of short term capital loss was denied by the authorities below on the ground that it was for avoidance of tax liability. The Tribunal applying the principle laid down by the Hon'ble Supreme Court in CIT Vs. Walfort Share and Stock Brokers (P.) Ltd. (supra) had held the said transaction to be genuine and allowed capital loss. The Hon'ble Bombay High Court while deciding appeal of Revenue held that Surely, the Revenue cannot object to the legitimate tax planning. Legitimately, if the assessee had claimed set off of loss against the gain in sale of shares, the Revenue cannot frown upon the same simply by pointing out that in the process, the assessee reduced his tax liability. 39. Applying the said principle to the facts of present case, wherein the facts of assessee are similar to the facts before the Hon'ble Bombay High Court in Pr. CIT Vs. Adar Cyrus Poonawalla (supra), we hold that the sale of shares of Relianc ..... 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