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TMI Blog2019 (12) TMI 251X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding the disallowance of Long Term Capital Loss of Rs. 2,41,93,750/- incurred by the appellant on the sale of shares of I Call India Pvt. Ltd. 3. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding the addition of the amount of expenditure disallowed u/s. 14A, while computing the appellant's book profit u/s. 115JB. 4. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in dismissing Ground No. 9 of the appellant's appeal contesting adjustment by way of addition while computing the appellant's book profit u/s. 115JB, in respect of provision for doubtful debts amounting to Rs. 3,48,46,722/-. 5. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in dismissing the appellant's Ground No. 11 challenging levy of interest u/s. 234B (Rs. 10,59,696) and u/s. 234C (Rs. 1,62,168) on the ground that the levies were mandatory. 6. The appellant craves leave to add, amend and/or alter the ground o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atements of F.Y.2007-08 and 2008-09 as well as Statement of total income of F.Y.2007-08 and 2008-09 of (Call India Pvt. Ltd, (Annexure-l) In so far as basis of valuation of shams at the time of acquisition of shares is concerned, the valuation was done by way of negotiations having regard to the financial position of the company, the future of the BPO and call center business and the diversification of business interest of the assessee company." The assessee's contention is this that those shares were acquired by the assessee with a view to earn profit in future on sale of such shares of such company, which was engaged in the business of BPO and operation of call centre but due to bad economic condition in the western countries more particularly USA which is contributed significantly portion of Revenue for the said investee company the appellant company thought it fit to sale such shares even at loss. Further that, the valuation was done by way of negotiations having regard to the financial position of the company, the future of the BPO and call centre business and the diversification of business interest of the assessee company. However, it was submitted by the assessee that no a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irmed by the Learned CIT(A). Hence, the instant appeal before us. At the time of hearing of the instant appeal, the Learned Sr. Counsel appearing for the assessee submitted before us that the details of transaction including the balance sheet and the ledger account of those companies were duly submitted before the assessing officer whereupon the purchase made by the appellantcompany has not been disputed. He has also taken us to the balance sheet at Page 53 of the Paper Book in order to substantiate his argument. Apart from that, it was further argued that the Learned CIT(A) basically confirmed such disallowance on the fact that such transactions were entered into within the group entities thus both the purchase and sale transactions of shares are controlled transactions and finally holding the transaction not genuine; the same found to be manipulated on the basis of the facts and circumstances of the case is not permissible in view of judgments pronounced on identical facts by the Jurisdictional High Court in the matter of ACIT-vs-Biraj Investment Pvt. Ltd. Reported in (2012) 24 Taxman.com 273(Guj). Apart from that, he has also relied upon the judgment passed by the Co-ordinate B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances is based on business expediency or it was used as a tool of a colorable device to generate such loss. 10.3 It is an undisputed fact that all the parties which carried out such transaction were identifiable and there was also a consideration among such parties. The limited issue before us is that whether the assessee can sale listed shares off-marketat a price lesser than the price listed on the stock exchange. 10.4 The price prevailing on the stock exchange at the relevant time was Rs. 33.30 per share. It is an undisputed fact that among other things the price at the stock exchange is decided by demand and supply of the shares. It means if there is more supply of the shares in the market, the price of the share will fall and vice versa. Thus, if the assessee would have sold these shares through the network of the stock exchange, the possibility of the reduction in the value of shares in the market would not have been avoided. It is because at that relevant time the daily average number of shares traded in the stock exchange namely BSE & NSE were 4,87,085 and 9,56,701 respectively. The relevant details showing the average number of shares traded in the stock exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares. As per the provisions of section 50CA of the Act, the sale price of shares other than quoted shares shall be the fair market rate which shall be determined as prescribed under the rule 11UAA of the Income Tax Rule. 10.9 From the above provisions it is clear that the lawmakers have not brought any mechanism to determine the sale price of quoted shares if sold off-market. Thus it is transpired that the sale price of the quoted shares shall be the price as agreed between two parties if it is soldoff-market. 10.10 We also note that there is no provision under the head capital gain which empowered AO to determine the fair sale or purchase price of the quoted shares between the related parties unlike the provisions of section 40A(2) of the Act under the head business & profession. 10.11 Thus after considering the above facts, we are of the opinion that AO is not correct in challenging the sales consideration decided by the parties. There is no mechanism in the law, as discussed above, which allows AO to take the listed price of a share in place of actual sales consideration. 10.12 We also note that it is not the case of the Revenue that there was some inflow of money fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd judgments of this Court in CIT v. Dinesh Jain, HUF [2012] 25 taxmann.com 550/211 Taxman 23/[2013] 352 ITR 629 and CIT v. Gulshan Kumar [2002] 123 Taxman 111/257 ITR 703 (Del). 25. As noted above, Section 52 of the Act was omitted by Finance Act, 1987 with effect from 1st April, 1988. The said provision, therefore, was not applicable in the Assessment Year 1999-2000. We have referred to the aforesaid judgment in K.P. Vearghese case (supra) as this judgment was referred to and distinguished by the tribunal in the impugned order. We have also referred to K.P. Varghese case (supra) to elucidate that the legal ratio propounded with reference tothen applicable Section 52 of the Act would be against the Revenue even if the said Section was applicable. It is obvious that when Section 52 of the Act itself was not applicable, the Assessing Officer could not have substituted the actual sale consideration received by the Assessee with another figure stating that this was the fair market value. The aforesaid discussion would also take care of the argument that M/s GIPL had paid for foreign travel of the assessee. The fact that M/s GIPL had incurred any such expenditure would not be a groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. , and did not have the benefit of the House of Lords's pronouncement in Craven , the view taken by the Madras High Court appears to be correct and we are inclined to agree with it." 11.3 Further, we also note that Hon'ble Jurisdictional High Court in case of Banyan And Berry Vs. Commissioner Of Income Tax (222 ITR 831) held that tax planning within the law is permissible and only if any transaction which is reducing the tax liability cannot be regarded as a colorable device. The court also discussed the meaning of colorable device and case of McDowell & Co. Ltd vs. Commercial tax officer (supra) in detail. The relevant extract of the order is read as under: "From the aforesaid, it is apparent that on the factual aspect the Court was considering the case where in a going business a liability to pay duty which was legally of the assessee and which on such payment was to become part of its cost of commodity sold by it and to become part of its selling price to the buyers, was as a result of arrangement between the seller and buyer split into two, namely - duty so far paid separately directly to the tax authorities and the balance so paid to the seller; the arrangement was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o which one refers for escape or concealment. Subterfuge on historical principles means, an article or device to which a person refers in order to escape the force of an argument, an excuse with which conceals a clue.So also the expression dubious refers to a doubtful or of questionable character. That is to say what has been deprecated as tax planning for avoidance of tax are those acts which have doubtful, or questionable character as to their bona fide and righteousness. Not all legitimate acts of a taxpayer which in ordinary course of conducting his affairs a person does and are under law he is entitled to do, can be branded of questionable character on the anvil of McDowell (supra). We are unable to read in the aforesaid decision that any act of an assessee which results in reduction of his tax liability or expectation of tax benefit in future amounts to colorable device, a dubious method or subterfuge to avoid tax and can be ignored if the acts are unambiguous and bona fide, merely on the ground that treating those as deliberate would result in tax liability in future. While the planning adopted as a device to avoid tax had been deprecated, principle cannot be read as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also pertinent to note that the lower authorities did not doubt the details of the purchases and sales of the securities. 11.8 In view of the above, we are not inclined to uphold the finding of authorities below. Accordingly, we set aside the order of learned CIT(A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 19. We have heard the rival contentions and perused the materials available on records. In the instant case, the assessee has acquired the shares of AKAL at Rs. 500 per share represented by the premium of Rs. 490 and face value of Rs. 10 per share. The assessee acquired these shares on 20th March 2010 which were sold on 25th March 2010 at Rs. 150 per share resulting in total short-term capital loss of Rs. 3.50 crores which was treated by the AO as a colorable device to generate such loss. Accordingly, the AO disallowed the same and added to the total income of the assessee. The view taken by the AO was subsequently confirmed by the learned CIT (A). 19.1 Similarly, the assessee has claimed loss of Rs. 36,19,050 on account of forfeiture of share warrants of Arvind Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d shall, for the purposes of section 48, be deemed to be the full value of consideration received or accruing as a result of such transfer. Explanation.-For the purposes of this section, "quoted share" means the share quoted on any recognised stock exchange with regularity from time to time, where the quotation of such share is based on current transaction made in the ordinary course of business.]" 19.4 However, section 50CA is applicable w.e.f. 01st April 2018, therefore, for the assessment year under consideration there was no mechanism under the law to determine the sale price of unquoted shares. Similarly, there is also no provision under the provision of law to determine the price, which should be taken as the purchase cost of a capital asset. 19.5 Further, we also note that there is an amendment under the provisions of section 56(2)(x) of the Act which reads as under: "[(x) Where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017, --- XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX X (c) any property, other than immovable property, ----- (A) Without consideration, the aggregate fair market value of which exceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value, then it would be questionable, but it is not so, in the present case and hence, we find no merit in the orders of authorities below in holding that the loss claimed by selling the shares of GGDL to its 100% subsidiary below the book value should be ignored while setting it off against the other income, if any, in current year or for carry forward and set off in subsequent years. The loss was worked out at (-) Rs. 2,75,83,524/-. We reverse the orders of Assessing Officer and CIT(A) in this regard and hold that the total loss arising on the said transaction can be adjusted against the gain arising on sale of unquoted shares during the year and balance loss can be carried forward and set off against any other gain arising in the subsequent years." 19.8 We also note that in the case tax needs to be levied on the share capital & premium is taxable in the hands of the recipient. The share capital & premium can be brought to tax under the provisions of section 56(2) or 68 of the Act as the case may be. But there is no provision to tax the investment along with share premium amount in the hands of the payer or investor. It is an undisputed fact that the assessee has invested in AK ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a zero balance company asking for a share premium of Rs. 490 per share defies all commercial prudence, but at the same time one cannot ignore the fact that it is a prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of the shareholders whether they want to subscribe to such a heavy premium. The revenue authorities cannot question the charging of such of huge premium without any bar from any legislated law of the land." 19.10 Thus we hold that the investment made by the assessee at such a high premium and subsequent sale at a loss cannot be the basis holding that such loss is bogus in the given facts & circumstances. 20. Now the 2nd controversy arises whether the loss incurred by the assessee on account of the sale of the shares of AKAL is the result of the colorable device used to generate such loss. We want to explain such loss incurred by the assessee with the help of an example. 20.1 Supposing Mr. X acquires 10 shares of ABC Ltd having a face value of _ 10 per share at a premium of rupees 490.00 per share in the financial year 2009-10. Accordingly, Mr. X has shown an investment of _ 5000 in its balance sheet as on 31.3.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would intend to set off of such loss in the same financial year, then it would have done so in that year only. But the assessee has not done so. Thus had there been any planning of the assessee for creating such bogus loss than it should have claimed the set off of such loss in that year only. It is also pertinent to note that such loss was not set off till the date of the passing of the order by the ld. CIT-A dated 16-11-2015. 20.5 We also note that the assessee acquired the shares at the fag end of the financial year which was sold immediately after the acquisition which resulted in the loss as discussed above, but the same was not set off against any other income. 20.6 In addition to the above, we also note that the assessee could have split the transaction into two financial years by acquiring the shares of AKAL in one year and selling the same in the year of setoff of such loss. So that there should not have been any question of any disallowance. On the contrary, the assessee has not done so rather incurred the loss within 5 days from the acquisition of the shares. It is also pertinent to note that the shares were acquired at the fag end of the previous year, and there wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purposes. 21. We also want to explain such loss incurred by the assessee with the help of another example. 21.1 Supposing Mr. X, a trader in shares, acquires 10 shares of ABC Ltd having a face value of _ 10 per share at a premium of rupees 490.00 per share in the financial year 2009-10. Accordingly, Mr. X has shown stock in trade at _ 5000 in its books of accounts. Further Mr. X requires to value such stock in trade in the balance sheet as on 31.3.2010 which comes to Rs. 1500.00. Thus there shall be a loss of Rs. 3500 to the assessee which will be allowed to him as a business loss. 21.2 But in case Mr. X classified the shares in its balance sheet as an investment then the loss cannot be allowed to him on account devaluation of the investment at the year-end unless Mr. X sells these. Thus the loss allowable to the trader of shares cannot be disallowed if such shares were held as an investment. But such loss will be allowed only on the sale of such shares. 21.3 We also find support & guidance from the order of this Tribunal in the case of DCIT Vs. Orbit Finmark Pvt. Ltd. in ITA 100/Ahd/1999 dated 9/11/2012 wherein it was held as under : "10. After hearing both the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of RamlingaChoodambikaiMils Ltd. vs. CIT (1955) 281 ITR 952 and that of Gujarat High Court in the case of CIT Vs. KeshavlalChandulal (1996) 59 ITR 120 and held as under:- "In absence of evidence to show either that the sales were sham transaction or that the market price were in fact paid by the purchasers, the mere fact that goods were sold at a concessional rate to benefit to purchaser at the expenses of the company would not entitled to income-tax department to assess the difference between market price and price paid by the purchaser as profit of the company." 11. In view of the above and since no contrary decision was cited by the Revenue, we are not inclined to interfere with the order passed by ld. CIT(A) deleting the addition of Rs. 14,14,06,326/- and the same is hereby upheld. This ground of the Revenue is dismissed." 21.4 Further, in almost in a similar case Hon'ble Gujarat high court in case of Assistant Commissioner of Income-tax vs. Biraj Investment (P.) Ltd ( 24 taxmann.com 273) held as under: "14. Having thus heard the learned counsel for the parties, we find that the relevant facts are not in dispute. The respondent assessee sold shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 device contrived by the assessee to claim loss which it did not suffer and thereby seek set off against the capital gain received by it during the year under consideration. 18. In the case of CIT v. SakarlalBalabhai [1968] 69 ITR 186 (Raj.), a Division Bench of this Court observed that avoidance of tax cannot include every case of reduction of tax liability of an assessee. The assessee may enter into a transaction which has the effect of diminishing his income and consequently reducing his tax liability. In such a case, there would be no avoidance of tax, For example, a case where the assessee makes a gift of shares to his son. By reason of gift income from the shares would not accrue to the assessee but would accrue to the son and to that extent the income of the assessee would be diminished and his tax liability reduced. Thiscannot be regarded as a case of tax avoidance even if the motive of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn loss which it did not really suffer. In the present 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and hence the same is deleted. This ground of appeal is thus allowed. Ground No.3 The Learned CIT(A) has upheld the amount of expenditure disallowed u/s 14A while computing the appellant's book profit u/s 115JB. Upon examination of the computation of the total income, it appears that the assessee added back provision for doubtful debts of Rs. 27,625/- and provisions for doubtful loan of Rs. 3,48,19,097/-. The assessee has not added back the same while calculating the computation u/s.115JB of the Act against which the assessee submitted as follows before the Learned AO: "7. our good self has asked us to show cause as to why provision for doubtful loan of Rs. 3,48,19,097 should not be added to the book profit while computing tax as per the MAT provisions contained in Sec 115JB of the IT Act We reiterate the submission made vide point no 3 of our reply dated 4th September, 2009 wherein we stated that #?esaid provision for loan represents diminution in the value of asset being Lo3,~ itself and it 1$ not in the. nature of provision for unascertained liability. The Hon'bie Supreme Court in the case of CIT Vs HCL Comnet Systems & Services Ltd reported in 305 ITR 409 (SC) has h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn, confirmed by the first appellate authority. At the time of hearing of the instant appeal, the Learned Sr. Counsel appearing for the assessee submitted before that this issue is squarely covered by the Jurisdictional High Court in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 Taxmann.com 415 wherein the disallowance made u/s 14A of the Act has been held not to be disallowed u/s 115JB of the Act. The Learned DR, however, failed to make any contrary submission to that of the contentions made by the Learned AR. 18. We have heard the rival contentions of both the parties and perused the materials available on record. The AO in the instant case has made the disallowance u/s 14A r.w.r. 8D of the Income Tax Rules for Rs. 35825/- while determining the incomeunder normal computation of income. Further, the AO while determining the income under Minimum Alternate Tax (MAT) as per the provisions of section 115JB of the Act, has added the disallowance made under the normal computation of Income under section 14A r.w.r. 8D of Income Tax Rule for Rs. 35825/- in pursuance to the clause (f) of explanation 1 to section 115JB of the Act. However, we note that in the recent j ..... X X X X Extracts X X X X X X X X Extracts X X X X
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