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TMI Blog2018 (12) TMI 1822X X X X Extracts X X X X X X X X Extracts X X X X ..... e application of mind of the authority. The requirement of recording the satisfaction is to reflect the mind of the authority and the same can be ascertained only from the reading of record and not from the reading of mind of the authority. Therefore, in absence of any satisfaction reflect from the record, the statutory requirement U/s 151 of the Act is not satisfied and consequently the notice issued U/s 148 of the Act is not valid for want of jurisdiction. Hence, in view of the peculiar facts of the case and binding precedent we hold that the approval granted U/s 151 of the Act is mechanical and without application of mind renders the notice issued U/s 148 of the Act as invalid and unsustainable in law. Accordingly, we quash the notice issued U/s 148 of the Act on this ground. Lack of jurisdiction of AO u/s 124 at the time of recording the reasons - Jurisdiction of the assessee was shown as transferred from ITO Ward 7(2), Jaipur to ITO Ward 3(1), Jaipur on 30/3/2016 however, the ld CIT-DR has filed copies of order dated 06/01/2015 alongwith letter of the Assessing Officer whereby the jurisdiction of the assessee was transferred from ITO Ward 7(2), Jaipur to ITO Ward 3(1), Ja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the related parties but once the AO has not given a finding that the sale consideration is suppressed or understated then the transaction between the related parties cannot be held as bogus. Even otherwise when it is a transaction of sale of capital asset, there is no provision in the Act to adopt a deemed consideration on the principle of transfer pricing. The provisions of domestic transfer pricing has been brought into statute by the Finance Act, 2012 w.e.f. 01/4/2013, therefore, the said provision U/s 92BA of the Act are not applicable for the year under consideration. Since this is not a business transaction or sale of the stock in trade but it is a transaction falling under the provisions of Section 45 of the Act, therefore, the provisions of Section 40A(2)(b) of the Act are not applicable. There must be a consistency and uniformity of view while taking the decision by the Assessing Officer on the transaction arising and resulting from one common exercise of relinquishment of right by one party and acquisition of the same by another. Thus, the Assessing Officer is not permitted to take two opposite stance; one in the case of one party and another in the case of other p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision is applicable in the case of purchase and sale of units and in between the bonus units were issued and received by the unit holder. There is a distinction in the language employed in Section 94(7) and 94(8) of the Act. The provisions of Section 94(7) are applied to securities as well as units whereas the provisions of Section 94(8) of the Act stipulates the disallowance of loss on purchase and sale of units within the specific period to the record date subject to the condition that the additional units were also allotted without any payment. Thus, the provisions envisage disallowance of loss on purchase and sale of units (Mutual Funds) and not purchase and sale of shares or securities. It is clear that it is not a case of dividend striping as provided in Section 94(7) but it is a case of bonus issue of shares, therefore, the provisions of Section 94(8) of the act cannot be applied in case of purchase and sale of shares/securities. Thus when the subject matter of purchase and sale of shares and not the units, therefore, the provisions of Section 94(8) of the Act are not applicable, accordingly we do not find any error or illegality in the order of the ld. CIT(A) qua this is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax (Appeals) without granting any opportunity to the appellant are wholly inapplicable to the facts of the appellant company. 2. That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in upholding a disallowance of ₹ 29,70,00,000/- on account of short term capital loss on sale of shares of SKH Auto Components Ltd. 2.1 That the finding of the learned Commissioner of Income Tax (Appeals) that short term capital loss on sale of shares of M/s. SKH Auto by the appellant to M/s Sharsh Finance and Investment Co. Pvt. Ltd. was not a genuine one and the entire set of transaction was nothing but a colorable device to reduce the tax liability of the appellant company, is factually incorrect, legally misconceived and wholly untenable. 2.2 That further the finding that the transaction undertaken was by the related parties and loss was not a genuine loss also overlooks the factual matrix and evidence placed on record by the appellant company. 2.3 That the learned Commissioner of Income Tax (Appeals) has recorded various adverse findings without appreciating that once a transaction has been executed and materialized and there is no dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able. 3.3 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in recording various adverse inferences which are contrary to the facts on record, material placed on record and, are otherwise unsustainable in law and therefore, disallowance so upheld is absolutely unwarranted. It is therefore, prayed that it be held that assessment made by the learned Assessing Officer and sustained by the learned Commissioner of Income Tax (Appeals) deserves to be quashed as such. It be further held disallowances made and upheld by the learned Commissioner of Income Tax (Appeals) be deleted and appeal of the appellant company be allowed. 3. Ground No. 1 of the assessee s appeal is regarding validity of reopening of the assessment U/s 147/148 of the Income Tax Act, 1961 (in short the Act). The assessee is a private limited company and engaged in the business of Real Estate Development. The assessee filed its e-return of income U/s 139(1) of the Act on 29/9/2009 declaring total income of ₹ 1,01,20,800/-. The return of income was processed U/s 143(1) of the Act on 17/03/2011 wherein the Assessing Officer made adjustment on account of disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O, Ward 3(1), Jaipur had no jurisdiction as on the date of recording the reasons on 21/3/2016 but the jurisdiction of the assessee was transferred from ITO Ward 7(2), Jaipur only on 30/3/2016. Hence, the initiation of the proceedings U/s 147/148 of the Act is bad in law for want of jurisdiction. 6. We will deal with each of the above said objections against the reopening of the assessment one by one as under: (i) Reopening is based on borrowed satisfaction:- The ld counsel for the assessee has referred to the acknowledge of return of income processed U/s 143(1) of the Act dated 17/3/2011 at page 74 of the paper book and submitted that the Assessing Officer made adjustment of disallowance of claim of setting of short term capital loss of ₹ 66,66,30,267/- against the long term capital gain of ₹ 64,58,87,694/-. Thereafter the assessee filed an application U/s 154 of the Act on 15/09/2012 and the Assessing Officer vide order dated 10/1/2013 passed U/s 154 of the Act accepted the claim of setting of short term capital loss against the long term capital gain and thereby accepted the returned income. Thus, the Assessing Officer while passing the order U/s 154 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuineness of claim was never considered by the Assessing Officer prior to the recording of reasons for reopening of the assessment. The Assessing Officer has given the relevant details of the transactions and claim of short term capital loss. In the reasons recorded, which constitutes a tangible material to form a reasonable belief that the income assessable to tax has escaped assessment. The ld. CIT-DR has referred to the statement of Shri Ashok Kapur recorded by the Investigation Wing and submitted that he admitted the transaction between the assessee and other group companies were with a view to avoid tax and therefore it constitutes a tangible material for forming the belief by the Assessing Officer. The ld. CIT-DR has further submitted that at the stage of reopening of the assessment what is required is prima facie reasonable belief and not to establish the correctness of the fact recorded in the reasons for reopening. Thus, what is needed at the stage of reopening is the nexus between the material and believe that there was escapement of income. The relevance of reasons is justifiable and not the adequacy or sufficiency. The ld. CIT-DR has relied upon the findings of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r while making the adjustment at the time of processing of the return of income U/s 143(1) of the Act. The Assessing Officer despite the order U/s 154 of the Act did not chose to disallow the claim by initiating the proceedings U/s 147/148 of the Act prior to the information received from the DDIT(Inv.), Faridabad. The Assessing Officer reopened the assessment by recording the reasons as under: Reasons recorded for initiation of assessment proceedings u/s 147 of the Income Tax Act, 1961 in the case of M/s Angel Infrastructure Pvt. Ltd., B-5, Vrindavan Apartment, Kings Road, Jaipur for the assessment year 2009-10. Name address of the assessee M/s Angel Infrastructure Pvt. Ltd., B-5, Vrindavan Apartment, Kings Road, Jaipur, Rajasthan. Permanent Account No. AAFCA2023B Status Company Previous Year 2008-09 Assessment year 2009-10 Date of recording the reason 21-03-2016 As per information received on from office of the Deputy Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount (Rs.) 31/03/2009 Sale Value of 1377 Eq. Shares of Advance Automation process Control Pvt. Ltd. 713594978.5 Less cost of Acquisition 55493800 Less Transfer Exp. 5577243 652623935.50 Misc. Income 10.00 Total A 674181887.40 Less Short Term Loss on sale of shares and property A. Shares Sale of 77800 Eq. Shares of Larson Tubro 70513408.87 Less, Cost of Acquisition of 77800 Eq. Sh. 199940244.29 129426835.42 (77800 Bonus shares received on above valued At nil cost on FIFO Basis) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B-5/13, Azad Apartments, Sri Aurbindo Marg, New Delhi. Kamal Mehra R-680, New Rajender Nagar, Delhi Consequently the company M/s Angel Infrastructure Pvt. Ltd. received an amount of ₹ 71,35,94,978 on account of sale of shares of the company Advanced Automation Process Control Pvt. Ltd. against this receipt, the company has claimed a capital gain of ₹ 67,41,81,887/-. In order to avoid paying taxes on the capital gains of ₹ 67,41,81,887/-. The company M/s Angel Infrastructure Pvt. Ltd. has entred into bogus/sham transactions with entities owned and controlled by one Sh. Ashok Kapur of the Krishna Group. IN ORDER TO DETERMINE THE TRUE NATURE OF THE TRANSACTIONS BETWEEN THE COMPAHY ANGEL INFRASTRUCTURE PRIVATE LIMITED AND VARIOUS GROUP COMPANIES OF THE KRISHNA GROUP A SURVEY UNDER THE PROVISIONS OF THE INCOME TAX ACT 1961 WAS CONDUCTED AT THE VARIOUS PREMISES OF THE KRISHNA GROUP ON 03RD MARCH, 2016 BY DDIT(INVESTIGATION)-I, FARIDABAD. The transactions are discussed in detail with reference to the survey findings:- Loss on account of Share Application Money to M/s HH Interior and Auto Compone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As on 31/03/2013. Sharsh Finance Investment Co. Pvt. Ltd. AAHCS 1410L Ashok Kapur 99% Ashok Kapur 99% Ashok Kapur 92% As on 31/3/2014. Details of shareholding downloaded from ITD system is enclosed as Annexure-F) From the above table it is amply clear that Sh. Ashok Kapur and his family members hold 100% interest in the company HH Interior and Auto Component Pvt. Ltd. through Sharsh Finance Investment Co. Pvt. Ltd. Further it is to be noted that the Directors of the company HH Interior Auto Components Pvt. Ltd. are the family members and trusted employees of Sh. Ashok Kapur. Name of company As on 31/03/2008 As on 31/03/2009 Latest HH Interior Auto Components Pvt. Ltd. AAACK4360J Parvesh Soni A.K. Bedi S.L. Sethi Paresh Soni Shruti Kapur Shreya Jain A.K. Bedi S.L. Sethi Parvesh Soni A.K. verma A.K. Bedi D.K. Nanda (as on 31/03/2013) (Deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kapur. Thus, the share application money of ₹ 29,70,00,000/- given by M/s Angel Infrastructure Pvt. Ltd. to M/s HH Interior and Auto Component Pvt. Ltd. (Formerly known as M/s SKH Auto Components Pvt. Ltd.) and the consequent forfeiture of the same by HH Interior and Auto Component Pvt. Ltd. (Formerly known as M/s SKH Auto Components Pvt. Ltd.) is not a transaction between two independent parties. These two related parties have entered into this transaction in order to create a fictitious loss in the hands of M/s Angel Infrastructure Private Limited. The loss has been artificially generated to be set off against the gain accruing to M/s Angel Infrastructure Private Limited on account of shares of Advanced Automation Process Control Pvt. Ltd. as discussed above. Loss on account of sale of property:- In the return of income for the A.Y. 2009-10, the assessee M/s Angel Infrastructure Pvt. Ltd. has claimed the following loss on sale of property: Sale value of 109342.53 Sq. Ft. commercial space 301841600.00 Less: Transfer expenses 25000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Control Pvt. Ltd.. Hence no capital gain tax was paid. On an analysis of the above details it was noticed that the company M/s Angel Infrastructure Pvt. Ltd. claims to have purchased the commercial space from Sh. Ashok Kapur, his wife Mrs. Arti Kapur and the companies which are owned and controlled by Sh. Ashok Kapur. The details of the shareholding pattern of the companies from whom commercial space has been bought are as below: Name of the company As on 31/03/2008 As on 31/03/2009 Latest ABR Auto Pvt. Ltd. AADCA5137C Shruti Kapur 99% Arti Kapur 21.83% Ashok kapur 70.90% Ashok Kapur 92% (As on 31/03/2013) Sharsh Finance Investment Co. Pvt. Ltd. AAHCS 1410 L Ashok Kapur 99% Ashok Kapur 99% Ashok Kapur 92% (As on 31/03/2014) Roz ka Meo Components Pvt. Ltd. Arti Kapur 99% Arti Kapur 99% Shreya Jain 99% (As on 31/03/2014 Thus the completed sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ashok Kapur in his statement recorded during the course of survey. Shruti Kapur She is a daughter of Sh. Ashok Kapur, the Chairman of the Krishna Group. Shreya Jain She is a daughter of Sh. Ashok Kapur, the Chairman of the Krishna Group. From the above discussion, the following conclusions are in order:- 1. The transaction for purchase and sale of property entered into by M/s Angel Infrastructure Pvt. Ltd. is with related parties. Hence, these are not arms length transactions. The full value of consideration adopted in these transactions is not the actual value of the property being bought and sold. The value has been artificially adjusted to generate artificial capital loss in the hands of M/s Angel Infrastructure Pvt. Ltd. 2. The capital loss has been claimed merely on the basis of agreement to sell. No transfer of the underlying assets has actually taken place. Thus the authenticity of the transaction is in serious doubt. 3. These entities are ultimately owned and controlled and Sh. Ashok Kapur, the whole scheme has been put in place in order to avoid the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest of the entities involved. However since these entities belong to the Krishna group and are owned and operated by Sh. Ashok Kapur serious allegations have been leveled regarding the genuineness of the transaction we also understand that doubts has been raised regarding the transaction not being at arm length prices. In view of the above we hereby undertake that we will forgo the claim of the losses on the following transaction: S. No. Description of the transaction Amount Involved F.Y. Involved 1. Loss on account of forfeiture of share application money by M/s HH Interior and Auto Component Pvt. Ltd. 30 Cr 2008-09 2. Loss on account of sale of property at Prestige Mall to M/s Laurel Infrastructure Pvt. Ltd. 24 Cr 2008-09 Total 54 Cr. Thus as directed we will file a revised return in the case of M/s Angel Infrastructure Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , subscription in the equity shares of M/s HH Interior and Auto Component Pvt. Ltd. (SKH Auto component Pvt. Ltd.) and subsequent transfer of the shares to another group company resulting loss. The loss on sale of commercial space and loss on sale of shares of L T Ltd. are also very much part of the relevant record considered by the Assessing Officer at the time of passing the order U/s 154 of the Act. Therefore, except the change of opinion on the same set of facts, nothing new has been brought on record as a result of the survey conducted by the DDIT (Inv.) Faridabad which is the basis of forming the belief by the Assessing Officer at the time of recording the reasons. The reasons recorded by the Assessing Officer running in 11 pages, but except the particulars of the assessee with PAN and assessment year at page 1 of the reasons recorded and last page of reasons recorded all other contents are nothing but reproduction of the information received by the Assessing Officer from the DDIT(Inv.), Faridabad. Even in the said report, no new material or fact much less the incriminating material was either discovered or impounded by the investigation party. The only new material in the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons have been leveled regarding the genuineness of the transaction we also understand that doubts has been raised regarding the transaction not being at arm length prices. In view of the above we hereby undertake that we will forgo the claim of the losses on the following transaction: S. No. Description of the transaction Amount Involved F.Y. Involved 1. Loss on account of forfeiture of share application money by M/s HH Interior and Auto Component Pvt. Ltd. 30 Cr 2008-09 2. Loss on account of sale of property at Prestige Mall to M/s Laurel Infrastructure Pvt. Ltd. 24 Cr 2008-09 Total 54 Cr. Thus as directed we will file a revised return in the case of M/s Angel Infrastructure Pvt. Ltd. (PAN AAFCA2023B) for the A.Y. 2009-10 (Pertaining to F.Y. 2008-09) after disallowing the loss claimed of ₹ 54 Cr. as discussed above. Accordingly an amount of ₹ 54 Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim and explanation based on supporting evidence then even if the issue could not be decided in the proceedings U/s 154 of the Act, it was very much open to the Assessing Officer to initiate the proceedings U/s 147/148 of the Act on its own just after the order passed U/s 154 of the Act. The non-initiation of the proceedings U/s 147/148 of the Act by the Assessing Officer on its own and subsequently reopening the assessment based on the report of the Investigation Wing revealing no new fact raises serious question as to whether the Assessing Officer has applied his independent mind while forming the belief that income assessable to tax has escaped assessment. The report of the Investigation Wing is rather in the shape of information then discovery of any new fact not disclosed earlier. The Hon ble Delhi High Court in the case of Pr.CIT Vs. G G Pharma India Ltd. (supra) while considering the issue of validity of reopening based on the report of Investigation Wing has held in para 12 as under: 12. In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10th February 2003, from four entities which were termed as accom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reasons in the present case, viz., information was received from the Investigation Wing regarding accommodation entries provided by a 'known' accommodation entry provider. There, on facts, the Court came to the conclusion that the reasons were, in fact, in the form of conclusions one after the other and that the satisfaction arrived at by the AO was a borrowed satisfaction and at best a reproduction of the conclusion in the investigation report. Thus, it was held that the reopening on borrowed satisfaction is not valid. The issue was discussed in detail by the Hon'ble High Court in the case of PCIT Vs. Meenakshi Overseas (P) Ltd. (supra) in para 24 to 26 and 37 as under: 24. The reopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. In the case of Rajiv Agarwal Vs ACIT (supra), the Hon'ble High Court has held in para 11 as under: 11. Secondly, the Assessing Officer's belief that income of an assessee has escaped assessment must be based on tangible material. It has been explained in a number of decisions that there must be a close nexus or live link between tangible material and the reason to believe that income has escaped assessment. It follows that the material on the basis of which reassessment proceedings can be initiated must be credible material which could lead to such belief. Clearly, an unsubstantiated complaint cannot be the sole basis for forming a belief that income of an assessee has escaped assessment. Even in cases where the Assessing Officer comes across certain unverified information, it is necessary for him to take further steps, make inquiries and garner further material and if such material indicates that income of an assessee has escaped assessment, form a believe that income of the assessee has escaped assessment. Plainly, in this case, the assessee had not acquired any material to form such belief. On the contrary, when it is pointed out to the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as in case of tax avoidance as a device or design which is not permissible under the law. Therefore, when actual nature of transaction and the claim of the assessee are not found to be at variance then the formation of the belief the Assessing Officer is without any basis but is based merely on surmises and conjectures. 8.1 There is no allegation either in the report of the Investigation Wing or in the reasons recorded by the Assessing Officer about the bogus claim of short term capital loss of ₹ 12.94 crores on sale of equity shares of L T Limited. Even otherwise the short term capital loss declared by the assessee is not arising from forfeiture of share application money but it was due to transfer of shares prior to the payment of the final call money. However, the Assessing Officer in the concluding part of the reasons recorded has stated that in order to avoid the tax on capital gain of ₹ 65.00 crores, the assessee has entered into the bogus transactions. Even the transaction of sale of commercial space in Prestige Mall was not found to be bogus either by the Investigation Wing or alleged by the Assessing Officer in the reasons recorded but the only allegation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer s letter seeking approval of the competent authority. The matter was first put up before the ld. Addl.CIT and then before the ld. Pr.CIT who after considering the reasons recorded has granted the approval. The ld. CIT-DR has further contended that there is no prescribed format of granting approval or recording satisfaction U/s 151 of the Act, therefore, once the approval is given on satisfaction of the reasons recorded by the Assessing Officer then detailed reasoning of satisfaction is not required. The ld. CIT-DR has supported the approval as valid and based on satisfaction of the ld. Pr.CIT. 11. We have considered the rival submissions as well as relevant material on record. The Assessing Officer sent the proposal for obtaining the sanction of ld. Pr.CIT vide letter dated 30/3/2016. The copy of the proposal and sanction of ld. Pr.CIT is placed at page NO. 1 and 2 of the department s paper book as under: Proposal for obtaining sanction of The Pr. Commissioner of Income Tax-1, Jaipur for issue of notice u/s 148 of the Income-tax Act, 1961, 1 Name and address of the assessee M/s Angel Infrastructure Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax Officer Ward 3(1), Jaipur 12 Comments of the Additional Commissioner of Income Tax on the reasons recorded by A.O. Recording (Purushottam Kashyap), Additional Commissioner of Income Tax Range-3, Jaipur 13 Whether the Pr. CIT is satisfied on the reason recorded by the A.O. that it is fit case for issue of notice U/s 148. YES (S.K. Chowdhari), Principal Commissioner of Income Tax-1 Jaipur It is evident from the above proposal and sanction that the ld. Pr.CIT has marked as Yes in the column and signed the same. Since the limitation for issuing the notice U/s 148 of the Act was expiring on 31/3/2016, therefore, the ld. Pr.CIT was having no time to examine the relevant record and therefore, the sanction was granted in compelling circumstances. Further the sanction by the writing Yes does not exhibit any thought process in exercising the power U/s 151 of the Act. The Hon ble Delhi High Court in the case of Pr.CIT Vs. M/s N.C. Cables Ltd. (supra) has held in para 11 as under: 11. Section 151 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n doing so, no error has been committed warranting reconsideration. 9. As far as explanation to Section 151, brought into force by Finance Act, 2008 is concerned, the same only pertains to issuance of notice and not with regard to the manner of recording satisfaction. That being so, the said amended provision does not help the revenue. 10. In view of the concurrent findings recorded by the learned appellate authorities and the law laid down in the case of Arjun Singh (supra), we see no question of law involved in the matter, warranting reconsideration. The Hon'ble High Court has held that merely writing on the format Yes I am satisfied indicates as if he was to sign only on the dotted line and therefore, the mechanical way of recording satisfaction is clearly unsustainable. Similarly the Hon ble Delhi High Court in the case of Central India Electric Supply Co. Ltd. Vs ITO (supra) has held as para 19 as under: 19. In respect of the first plea, if the judgments in Chugamal Rajpal's case (supra); Chanchal Kumar Chatterjee's case (supra); and Govinda Choudhury Sons' case (supra) are examined, the absence of reasons by the Assessing Officer does not exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n had taken place, there would have been no reason to re-open the closed chapter in view of what we are setting out hereinafter. Second Third Pleas The Hon'ble High Court has held that merely affixing a stamp as Yes and signing underneath reveals that the decision has been taken in mechanical manner. Thus, as held by the Hon'ble High Court in the series of decisions that the process of granting sanction U/s 151 of the Act for issuing the notice U/s 148 of the Act is a safeguard provision against any misuse of power by the Assessing Officer, therefore, there must be something on record to demonstrate the application of mind. The satisfaction of the sanctioning authority may be in briefest manner but it shall reflect the application of mind of the authority. The requirement of recording the satisfaction is to reflect the mind of the authority and the same can be ascertained only from the reading of record and not from the reading of mind of the authority. Therefore, in absence of any satisfaction reflect from the record, the statutory requirement U/s 151 of the Act is not satisfied and consequently the notice issued U/s 148 of the Act is not valid for want of juri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a valid jurisdiction at the time of recording the reasons on 21/3/2016. The ld CIT-DR has also filed copies of the notices issued U/s 143(2) and 142(1) of the Act. The ld. CIT-DR has also filed a copy of the order dated 04/10/2016 passed U/s 127 of the Act whereby the jurisdiction of the assessee was again transferred from ITO Ward 3 to ACIT Circle-2, Jaipur who has finally completed the assessment. Thus, the ld CIT-DR has submitted that there is no ambiguity as far as the jurisdiction of assessee was vested with ITO Ward 3(1), Jaipur at the time of recording the reasons on 21/3/2016. 13.1 In rebuttal, the ld. counsel for the assessee has submitted that the orders referred and filed by the ld. CIT-DR regarding transfer of the jurisdiction were never served on the assessee and it was also not part of the income tax business application data base (ITBA) thus, these are nonest order when the same were not communicated to the assessee. 14. We have considered the rival submissions as well as relevant material on record. Though as per ITBA database, the jurisdiction of the assessee was shown as transferred from ITO Ward 7(2), Jaipur to ITO Ward 3(1), Jaipur on 30/3/2016 however, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. due to financial difficulties. Accordingly the shares were stated to have been transferred as per the agreement between the assessee and M/s Sharash Finance Investment Company Pvt. Ltd. In the process of transfer, certain correspondences and other documents were also executed between the parties such as request letter for transfer of shares in favour of M/s Sharash Finance Investment Company Pvt. Ltd.. Indemnity bond was also executed for transfer of shares by M/s Sharash Finance Investment Company Pvt. Ltd. and consequently the time period for subscribing the debentures was also extended by M/s HH Interior and Auto Component Pvt. Ltd. up to 15/4/2017 and thereafter up to 15/4/2020. Finally the assessee subscribed debentures on 20/12/2017 and paid a sum of ₹ 4.40 crores. In the return of income, the assessee declared short term capital loss on sale of shares of M/s HH Interior and Auto Component Pvt. Ltd. of ₹ 29.70 crores. During the assessment proceedings, the Assessing Officer proposed to disallow the short term capital loss on sale of shares which was set off against the income from other sources. In response to the show cause notice, the assessee su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Finance Investment Company Pvt. Ltd. dated 23/3/2009, copy of indemnity bond dated 24/3/2009 given by M/s Sharash Finance Investment Company Pvt. Ltd. for transfer of shares. Copy of letter dated 23/3/2009 by M/s Sharash Finance Investment Company Pvt. Ltd. for request of transfer of shares, copy of return of income and copy of order passed U/s 153A read with Section 143(3) of the Act in the case of M/s Sharash Finance Investment Company Pvt. Ltd., copy of order of the ld. CIT(A) in case of M/s Sharash Finance Investment Company Pvt. Ltd. wherein the allotment of shares in favour of M/s Sharash Finance Investment Company Pvt. Ltd. were not disputed by the Assessing Officer or by the ld. CIT(A). The ld. counsel has further submitted that the companies to the transitions are independent legal entities and the transaction between the companies are not barred by any law. The loss incurred by the assessee is a legitimate and real transaction duly supported by the documentary evidence as well as recorded in the regular books of account of the assessee as well as the other company connected to the transaction. The books of account are duly audited without any qualifying rema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is but only a proposed assumption which is contrary to the facts on record. The Assessing Officer presumed the transaction as forfeiture of share application money whereas it was a transfer of shares by the assessee which has resulted short term capital loss. In support of his contention, the ld counsel has relied upon the decision of Hon'ble Supreme Court in the case of Cit Vs. Grace Collis 248 ITR 232 and submitted that the Hon'ble Supreme Court has held that the definition transfer as per Section 2(47) of the Act contemplates the extinguishment of rights in a capital asset distinct and independent of such extinguishment consequent upon the transfer thereof. Thus, once the assessee has transferred its right in shares of M/s HH Interior and Auto Component Pvt. Ltd. then it is a transfer of capital asset as per definition U/s 2(24) of the Act. He has relied upon the decision of Hon ble Karnataka High Court in the case of DCIT Vs. BPL Sanyo Finance Ltd. 312 ITR 63 (Kar) and submitted that the relinquishment of asset or extinguishment of any right therein fall in the definition of transfer U/s 2(47) of the Act. In the said case, the forfeiture of share application money was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee to M/s Sharash Finance Investment Company Pvt. Ltd. without any consideration resulting loss of ₹ 29.70 crores as short term capital loss. The right to subscribe the debenture at a discounted price is a valuable right and the value of right to subscribe in the debentures at discounted price is included in the price of the shares of M/s HH Interior and Auto Component Pvt. Ltd. The assessee transferred the shares alone and retained the right to subscribe the debentures issued at discounted price, the income tax authorities cannot question the justification of the decision taken by the assessee company. The prudency and business decision can alone be taken by a businessman and the Assessing Officer cannot step into the shoes of a business man to judge the prudency of the decision. It is prerogative of the businessman to organize its affairs in a manner best suited to it and the revenue authority cannot step into the shoes of the businessman. The revenue cannot question the transaction on the ground that the same was not prudent and consequently held as sham. The ld. counsel has supported his contention with the following decisions: (i) CIT Vs. Malayalam Pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time. Even otherwise when the assessee was holding 77800 bonus shares of M/s L T Ltd. which could fetch much more that 99 crores required for making the payment of final call money then the decision for transferring the shares without any consideration is a structure transaction with a view to avoid tax. He has relied upon the orders of the authorities below. 19. We have considered the rival submissions as well as relevant material on record. The Assessing Officer disallowed the claim of short term capital loss of transfer of shares of M/s HH Interior and Auto Component Pvt. Ltd. on the ground that the transaction itself is not genuine and it is sham. The Assessing Officer has given the reasons for treating the transaction as sham that the motive to enter into the alleged transfer is to avoid tax on capital gain of ₹ 65.00 crores arising from sale of shares of other companies and further the transaction is between the related parties, therefore, not at the arm s length. It is pertinent to note that a transaction is said to be bogus or sham if it is shown on paper but is not a real transaction, therefore, what is purported or apparent is not real but it has been given a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... token consideration of Rs. one. It is pertinent to note that the subscription of shares by the assessee of M/s HH Interior and Auto Component Pvt. Ltd. was not a simple case of allotment of shares but this subscription also carried another right of subscription of the equal number of debentures of face value of ₹ 100 at a discounted price of ₹ 10 and carried interest @ 14% per annum. Therefore, the premium paid against the issue of shares in fact was received back in the shape of discount in subscription of the debentures of the said company. Hence, the assessee even if transferred the shares without any consideration and incurred loss of ₹ 29.7 crores in consequence of the said transfer the right to subscribe these debentures was retained by the assessee and not transferred alongwith shares. The Assessing Officer as well as the ld. CIT(A) has not considered these transactions from the prospective of the right acquired by the assessee to subscribe the debentures at discounted rate and the benefit on account of discount in subscription of the debenture offset the premium paid on the subscription of equity shares. The Assessing Officer has not disputed the documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or avoid the tax liability on the capital gain but if the said transaction is real and is permissible under the law then the mere motive would not render the same as bogus transaction. In the case of DCIT Vs. BPL Sanyo Finance Ltd. (supra), the Hon ble Karnataka High Court while considering an issue of capital loss on forfeiture of share application money has held in para 7 to 13 as under: 7. To decide the question of law as formulated herein above, it is necessary to look into the definition of transfer as appearing in section 2(47) of the Act, relevant portion thereof is reproduced herein below : 2.(47) 'transfer, in relation to a capital asset, includes,- (i) the sale, 'exchange' or relinquishment of the asset; or (ii) the extinguishment of any rights therein ; or (iii) the compulsory acquisition thereof under any law ; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment; 8. The Tribunal has considered the meaning of the word allotment , as appeared in the Guide to the Companies Act, 1956. The same is reproduced herei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its forfeiture by the investee company. The loss suffered by the assessee, i.e., non-recovery of share application money is consequent to the forfeiture of its right in the shares and the same is to be understood to be within the scope and ambit of transfer. In this view of the matter, the Tribunal was justified in holding that it would amount to short-term capital loss to the assessee. No other point was urged before us. 12. With regard to the extinguishment of any rights, we may profitably refer to the judgment of the Supreme Court in the case of CIT v. Mrs. Grace Collis [2001] 248 ITR 323. In the said case, it has been held as under (page 329) : It is true that the definition of 'transfer' in section 2(47) of the Act is an 'inclusive' definition and, therefore, extends to events and transactions which may not otherwise be 'transfer' according to its ordinary, popular and natural sense. 13. For the aforesaid reasons, we are of the considered opinion that the questions posed have to be answered in favour of the assessee and against the Revenue. The appeal accordingly stands disposed of. The Hon'ble High Court has accepted the loss on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties. These two related parties have entered into this transaction in order to create a fictitious loss in the hands of M/s Angel Infrastructure Private Limited. The loss has been artificially generated to be set-off against the gain accruing to M/s Angel Infrastructure Private Limited on account of sale of shares of Advanced Automation Process Control Pvt. Ltd. Moreover, on perusal of submission filed by the assessee, it is transpired that the company Angel Infrastructure Pvt. Ltd. has called the meeting of Board of Directors to decide the sale the shares of SKH auto Components Pvt. Ltd. to Sharsh Finance Investment P. Ltd. and board meeting was held on 23.03.2016 (after conducting the survey by investigation team on 03.03.2016). Therefore, calling the board meeting on 23.03.2016 and passing a resolution is this regard is an afterthought plan so that Assessee Company can cover up the tax liability accrued on account of capital gain under the shadow of bogus loss. If the said loss were genuine, the remedial action could have been taken by the company immediately and not after a gap of seven years. Therefore, the Assessing Officer has given much emphasis on the point th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Loss set off through forfeiture by M/s HH Interior and Auto Component Pvt. Ltd. 30 Cr. 5. Loss set off through agreement to sell with M/s Laurel Infrastructure Pvt. Ltd. 24 Cr 6. Loss set off through sale of shares of L T Stock Market Transactions 11 Cr. (Approx) I am submitting a copy of the trial balance of M/s Angel Infrastructure Pvt. Ltd. that reflects the above losses. Q.20 Please refer to the discussion above, it has been clearly brought out that the transaction entered by the M/s Angel Infrastructure Pvt. Ltd. with the group company are same (should be sham) transaction in order to avoid paying the due taxes on the capital gain of ₹ 65 Cr. and discussed above. Please explain. Ans. In this regard we would like to submit that the transaction entered by the group companies were with a view to further the business interest of the entities involved. However since these entities belong to the Krishna group and are owned and operated by Sh. Ashok Kapur serious allegations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the information on what has not been disclosed or is not likely to be disclosed. It is a clear direction by the CBDT that while recording statement during the course of search and seizure and survey operations, no attempt should be made to obtain confession as to the disclosed income. These directions were reiterated by the CBDT in the Instruction No. F. No. 286/98/2013-IT dated 18/3/2014, therefore, there are unambiguous guidelines and instructions by the CBDT that undue influence/coercion in recording of statements shall be viewed by the Board adversely. Hence in absence of any tangible material found during the survey proceedings, the statement recorded would not be sufficient to make the addition. There is no dispute as we have discussed all the facts while deciding the issue of validity of reopening that all these transactions were duly recorded in the books of account of all the relevant parties and also disclosed in the return of income filed by the assessee as well as the other party. The revenue has accepted the investment in the shares of M/s HH Interior and Auto Component Pvt. Ltd. made by the other group companies as well as in case of M/s Sharash Finance Investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer is deleted. 20. Ground No. 3 of the assessee s appeal is regarding disallowance of loss on sale of commercial space. On 31/07/2004 M/s Gold Cause Construction Pvt. Ltd. purchased commercial plot No. 23 measuring 11427 Sq.Mtr. at Shivaji Place District Centre, Main Ring Road, Raja Garden, New Delhi from Municipal Corporation of Delhi (MCH) Slum and JJ Department Remunerative projects Cell in open auction alongwith all perpetual leasehold rights in the said plot. In the month of March, 2005, M/s Gold Cause Construction Pvt. Ltd. allotted commercial space to various parties including 5 parties as under: Sr. No. Name of the buyer Total Area (Sq.Ft) Rate per Sq. Ft. Total sale consideration on i) ABR Auto Pvt. Ltd. 11676.17 4,231 4,94,00,000/- ii) Sharsh Finance Investment Co. Pvt. Ltd. 34686.29 4,199 14,56,50,000/- iii) Mr. Ashok Kapur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction as bogus that the sale and purchase agreements were on non-judicial stamp paper of ₹ 50/- and are not registered with Stamp Authorities. However, the sale and purchase are two elements which move in tandem to complete a sale transaction. The department has accepted one element of the transaction in the hand of the purchaser then how the transaction of the sale in the hand of the assessee can be treated as bogus, therefore, no presumption can be raised against the genuineness of the second element. The ld counsel has pointed out that in the instant case, the sale by the seller (first allottee) was accepted and therefore, there cannot be case for denial of purchase of the commercial space by the assessee. Further the transaction of purchase was executed on non-judicial stamp paper of ₹ 50/- which was accepted by the Assessing Officer whereas the sale of the same commercial space on non-judicial stamp paper of ₹ 56/- cannot be disputed. Further the Assessing Officer has raised objection of non-registration of the agreements but in the case of the assessee what was the transferred and sold was the right in the commercial space in a mall to be construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said commercial space in the hand of M/s Laurel Infrastructure Pvt. Ltd. then the said transaction cannot be denied in the hand of the assessee. At the time of purchase by the assessee, the sale was duly accepted in the case of selling parties and when the property was sold by the assessee, the transfer was accepted by the Assessing Officer in the hand of the purchaser M/s Laurel Infrastructure Pvt. Ltd., therefore, the transaction of purchase and sale in the hand of the assessee cannot be denied. The ld. counsel has further contended that when the provisions of domestic transfer prices as specified in Section 92BA are not applicable for the assessment year under consideration as the said amendment was made by the Finance Act, 2012 w.e.f. 01/04/2013 then it cannot be a ground for treating the transaction as not at Arm s length or bogus. The ld. counsel has further contended that the transactions of purchase and sale of commercial space in question is real one and therefore, merely because the assessee has incurred loss on the said transaction, the same cannot be treated as bogus. He has pointed out that the original allottees of the commercial space from whom the assessee purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreements except in case of Sh. Ashok Kapur wherein debit balance was appearing as on 01/04/2008 and a sum of ₹ 9.96 crores were credited on 01/04/2008 through a general entry. Hence, the entire transaction of purchase of commercial space by the five companies from whom the assessee purchased the said commercial space was not free from doubt. Since all the companies to the transaction of purchase and sale are a group companies and controlled by one Sh. Ashok Kapur, therefore, these are nothing but structured transaction in order to incur capital loss which may be set off against the capital gain on sale of shares by the assessee. The assessee has not explained the circumstances which has compelled the assessee for selling the commercial space at such a huge loss within a short period of six months of its purchase. Therefore, when the entire transactions of purchase, sale and books of loss is arising from the arrangements between the related parties then the transaction was rightly held as bogus transactions for the sole purpose of creating short term capital loss to be set off against the taxable income. He has relied upon the orders of the authorities below. 23. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valid. Further the Assessing Officer has held that the transaction is not at arm s length, therefore, the transaction claimed by the assessee are bogus transaction for claiming loss to be set off against the profits on sale of shares. It is pertinent to note that the acquisition of the right of commercial space in the mall was also through unregistered agreements and similarly the assessee transferred the said right of commercial space through unregistered agreements. The Assessing Officer has not disputed the transaction of purchase of the said commercial space by five companies/persons in their assessments and further the Assessing Officer has also accepted the transaction of purchase of the said commercial space by M/s Laurel Infrastructure Pvt. Ltd. from the assessee. The ld. counsel for the assessee has referred to the assessment orders in respect of these parties and pointed out that the Assessing Officer has not disputed the fact of initial allotment of the commercial space to these five persons and also accepted the transaction of purchase of commercial space by M/s Laurel Infrastructure Pvt. Ltd. from the assessee. The ld. CIT-DR has not disputed the fact that the departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nowledgement of transfer apart from the execution of the agreements. Therefore, once the payment of consideration by the assessee as well as receipt of the sale consideration by the assessee is established from the record as it has change hands through banking channels then the transaction cannot be held as an artificial transaction. Since it is not an immovable property but it was only a right in the immovable property, therefore, when all the parties to the transaction in question have accepted the transaction through agreements and the Assessing Officer has accepted the same in the hand of all other parties then the transaction in hand of the assessee cannot be questioned. 23.1 There may be a possibility of understatement of the sale consideration which has resulted loss of ₹ 24.25 crores to the assessee, however, the Assessing Officer has not even made any attempt to determine the fair market price of the commercial space as on the date of sale and further it is not the case of the Assessing Officer that the assessee has received the consideration more than which is declared by the assessee. Therefore, though the transaction is between the related parties but once the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... term capital loss is not justified and the same is deleted. 24. Now we take up the revenue s appeal, wherein the revenue has raised following grounds: (i) Whether in the fact and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding the Capital Gains on sale of 1377 equity shares of M/s Advance Automation Process Control Pvt. Ltd. as Long Term Capital Gain without appreciating the fact that in the guise of sale of share the assessee has sold immovable property situated at Plot no. 187, HSIDC Gurgaon and that the said transaction is in the nature of short term capital gain? (ii) Whether in the facts and in the circumstance of the case and in law, the Ld. CIT was justified in not appreciating the facts brought on record by the AO after piecing the corporate veil and bring to the fore the basic facts of the case relating to the sale of shares of M/s Advance Automation and Process Control Pvt. Ltd.? (iii) Whether in the facts and in the circumstance of the case and in law, the Ld. CIT was justified in allowing the appeal of the assessee and thus directing the AO to allow set off of short term capital loss on sale of shares of M/s L T withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the substance of the transaction is transfer of the immovable property being land and building through the transfer of entire shareholdings of the said company. Since the said property was sold less than three years from the date of acquiring the shares by the assessee, therefore, the profit arising from the said transaction was treated as short term capital gain by the Assessing Officer. He has relied upon the order of the Assessing Officer. 27. On the other hand, the ld counsel for the assessee has submitted that the finding of the Assessing Officer are based on fundamental misconception of both the facts and law. It was contended that the Assessing Officer has not disputed that there was transfer of shares alone by the assessee as share holder of M/s Advance Automation Process Control Pvt. Ltd.. The assessee received the sale consideration on account of sale of shares of M/s Advance Automation Process Control Pvt. Ltd. and not on account of sale of land and building even there was no document for transfer of the immovable property being land and building owned by the said company. Thus, under no stretch of imagination, it can be held that the assessee transferred an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n record. The Assessing Officer has not disputed that the assessee acquired 50% shareholding of M/s Advance Automation Process Control Pvt. Ltd. on 05/05/2006. The status of the assessee qua M/s Advance Automation Process Control Pvt. Ltd. is only the share holder holding 50% of the equity shares of the said company. The ownership of the said company got changed when the assessee alongwith other share holders Shri Ashok Kumar Munjal and H H Real Estate Pvt. Ltd. sold the entire shareholding of M/s Advance Automation Process Control Pvt. Ltd. to M/s Rolta Pvt. Ltd.. The said transaction of sale of share was undisputedly after more than two years from the date of acquisition. The assessee claimed the profit arising from the sale of shares as long term capital gain and the said claim cannot be disputed in normal circumstances of sale of shares after two years, however, the Assessing Officer held that the company M/s Advance Automation Process Control Pvt. Ltd. was having only the asset as plot of land and building thereon and therefore, what was sold by the assessee and other shareholders of the said company was the asset being the land and building. Accordingly, the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any imports an association of number of individuals formed for a common purpose. When such an association is incorporated, it becomes a body corporate, a legal entity, separate and distinct from such individuals. Such incorporation must owe its existence to a statutory authority. The Corporation/Company, in law, is a juristic person and has a separate legal entity of its own. Once incorporated, the entity of Company is entirely separate from that of its shareholders. It bears its own name; has a seal of its own; its assets are separate and distinct from those of its members; it can sue and be sued exclusively for its own purpose; liability of members or shareholders is limited to the capital invested by them; creditors of Company cannot obtain satisfaction from the assets of shareholders/members of company and similarly creditors of members/shareholders have no right to the assets of Company. This position was recognised in Salomon v. Salomon Co. 1897 AC 22. When the shares of a company are bought, it cannot be said that the shareholder acquired any interest in the assets of the company, therefore by the same analogy when the shares are transferred, it cannot be said that the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings Vs Union of India And Another 341 ITR 01 (SC), it was observed by the Hon ble Apex Court that: A controlling interest is on incident of ownership of shares in a company, something which flows out of the holding of shares. A controlling interest is, therefore, not an identifiable or distinct capital asset independent of the holding of shares. The control of a company resides in the voting power of its shareholders and shares represent an interest of a shareholder which is made up of various rights contained in the contract embedded in the articles of association. The right of a shareholder may assume the character of a controlling interest where the extent of the shareholding enables the shareholder to control the management. Shares, and the rights which emanate from them, flow together and cannot be dissected. The tax consequences of a share sale would be different from the tax consequences of an asset sale. A slump sale would involve tax consequences which could be different from the fax consequences of a sale of assets on itemized basis (emphasis supplied) 4.3 It is to be noted that the dispute under consideration is squarely covered by the decision of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d payment of tax do not contravene any statutory provision and is achieved within the four corners of law, it cannot be found fault with. If the transaction in question is sham or colourable and entered into with the sole intention of evading payment of tax, then such a transaction would not have any legitimacy. Therefore, a colourable device cannot be a part of tax planning. Therefore, in each case, the transaction in question and the material on record has to be carefully examined to find out whether the transaction is sham or unreal or colourable device to evade payment of tax. 20. In the instant case, as set out above, according to the revenue, on the day the assessee transferred their share from BFSL, the only property which was available in BFSL was this land. Before transfer of the shares, the BFSL has systematically reduced this investment except that of the land instead of trading its shares through BSE. The shares were traded through Magadh Stock Exchange. In the agreement entered into for transfer of shares, reference is only made to the sale of the land. Therefore, what was attempted to for transfer of shares is nothing but the transfer of immovable property. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares held by the shareholders, virtually, the complete control of the company has been handed over to the BFSL and they have received the consideration for the shares held by them, may be proportionate to the value of the land on the date of transfer. But that does not make the transaction colourable or unreal or sham. 21 24. In the instant case, the assessee is holding the shares in BFSL from 01.10.1984. Therefore, it is a long term Capital asset. The transaction has taken place subsequent to 28.09.2004 as such the second condition is fulfilled. They have paid the security transaction tax to Magadha Stock Exchange. Where all these three conditions stipulated under Section 10(38) of the Act are fulfilled, the assessee is entitled to the benefit flowing therefrom i.e., the income from such transfer shall, not be included in the total income of the assessee for the previous year. Merely because if a registered sale deed has been executed by BFSL selling the land in favour of DFL-CDL in which event capital gain should have been paid on the sale consideration, is no reason to hold that when a shareholder of BFSL transfer his share for a consideration, after complying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he substantial question of law is answered in favour of the assessee and against the revenue. (emphasis supplied) 4.4 In the case of DCIT Vs Maya Appliances (P.) Ltd. [2017] 82 taxmann.com 447 (Chennai - Trib.), though the issue was relating to application of provisions of section 50C of the Act but it was held by the Hon ble Tribunal that by transferring the shares, the assets of the company were not transferred by the shareholders. It would be appropriate to reproduce the relevant extracts as under: 5. We have heard both the parties and perused the material on record. In this case, the main contention of the Id. A.R is that the provisions of the section 50C does not attract to the transactions, which ore not registered with the Stomp Duty Valuation Authority and there was no direct transfer of land and building or both. In the present case, the assessee company, sold the shores of M/s. General Wood Industries (P) Ltd., at its prevailing book value to the following persons:- Mr. T.T. Varadarajan 50% -12,000 shores at ₹ 100 - ₹ 12 lakhs Mrs. Mayo Varadarajan 50% -12,000 shores of ₹ 100 - ₹ 12 lakhs Thus, the ownership of the company v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or building or both. Expression transfer shall have to be a direct transfer as defined u/s 2(47) of the Act which does not include the tax planning adopted by the assessee. It is settled issue that the provisions of section 50C are deemed provisions and, therefore, the same have to be interpreted strictly in accordance with the spirit of the provisions. In the light of the above legal interpretation of section 50C of the Act, we need to examine the facts of the present case. In the instant case, what transferred by the assessee are the shares in the company and not the land or building or both. Assessee does not have full ownership on the flats which are owned by the company. The transfer of shares was never a part of the assessment of the Stamp duty Authorities of the State Government. The company was deriving income, taxable under the head 'income from property' for more than a decade. The expression assessable is inserted in section 50C(1) of the Act is not relevant for the impugned assessment years. In such circumstances, the AO's decision to invoke the provisions of section 50C to the tax planning adopted by the assessee is not proper and it does not have the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he plain and simple fact is not in dispute that what is transferred by the assessee is the shares of M/s Advance Automation Process Control Pvt. Ltd. and not the asset owned by the said company then the ownership of the asset held by the company does not effect by change of ownership of the company itself. The change in the shareholdings of the company shall not amount to change of the holding of asset by the company. It is settled proposition of law that the company is separate legal entity then its share holders. The asset owned by the company would remain the asset of the company irrespective of change of shareholding of such company. The changing hands of shares of company would amount the change of ownership of the company and not the change of ownership of the asset held by the company. The Hon'ble Supreme Court in the case of Vodafone International Holdings B.V. Vs Union of India (supra) while considering the identical issue in para 168, 169 and 179 has held as under: 168. Substantial territorial nexus between the income and the territory which seeks to tax that income, is of prime importance to levy tax. Expression used in Section 9(1)(i) is source of income in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of tax but the assessee has offered the income as long term capital gain which was proposed by the Assessing Officer to assessee as short term capital gain. Accordingly we do not find any error or illegality in the impugned order of the ld. CIT(A) qua this issue. 29. Ground No.3 of the revenue s appeal is regarding disallowance of short term capital loss on sale of shares of L T Ltd. by the Assessing Officer by invoking the provisions of Section 94(8) of the Act, which was deleted by the ld. CIT(A). The assessee purchased 77800 equity shares of L T Ltd. for a consideration of ₹ 19,99,40,244/- in the month of September, 2008. Subsequently M/s L T Ltd. has decided to issue and allot bonus shares in the ratio of 1:1 and the assessee was allotted equal number of bonus shares on 08/10/2008. Thereafter the assessee sold 77800 equity shares in three trenches for a total consideration of ₹ 7,05,13,409/-. The details of sales of shares are as under: Date No of shares Amount (Rs.) 03/11/2009 58400 9,11,72,453/- 19/03/2010 15440 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that the order of the Assessing Officer is nothing but invalid and without any basis just to disallow the claim of the assessee. The ld counsel has submitted that the details of purchase and sale of shares were very much available on record as the shares were credited in the DEMAT account of the assessee and sold from the DEMAT account of assessee, therefore, the entire transaction of purchase and sale is from the DEMAT account of the assessee which cannot be disputed. The assessee also produced all the relevant documents being brokers note, ledge account, transaction statement, copy of DEMAT account and copy of the bank statement reflecting the payment of purchase consideration and receipt of sale consideration. The bonus shares were also reflected in the ledger account as well as in the other record. It is also a transaction which can be verified independently from independent sources. Hence, the ld counsel has submitted that the Assessing Officer without conducting any enquiry in respect of the genuineness of the transaction has given a very casual and vague finding. He has pointed out that since there are two lot of shares acquired by the assessee, one the original lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onus i.e. purchaser was not entitled for bonus shares. The bonus shares were issued to the appellant on 08.10.2008 without any cost. It could be seen from the provisions of section 94(8) of the Act that these are applicable to only Units and the meaning of Unit is assigned to in clause (b) of the Explanation to Section 115AB which provides that Unit means a unit of a mutual fund or UTI. Thus, it is clear that equity shares are not covered under the provisions of section 94(8) Act and as such these are not applicable in the instant case under consideration. It is also noted that as per provisions of section 55(2) (iiia) of the Act, the cost of acquisition of bonus shares is to be taken as Nil and therefore, the cost of shares acquired cum bonus would not be diluted on account of issue of bonus shares to the appellant. 3.2 It is noted that the sale and purchase of these shares were executed on stock exchange through stock brokers and the appellant has paid STT on purchase as well sale of these shares. It is further noted that the AO has issued show cause notice u/s 94(8) of the Act but has made disallowance by holding that the genuineness of the purchase and sale of shares o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India; Therefore, the unit is defined as unit of mutual fund or Unit Trust of India. The said definition of unit does not include share or security. We may fortify this view by the decision of Banglore Benches of the Tribunal in the case of DCIT Vs. B.G. Mahesh 43 taxmann.com 158 (Bang Trib) in para 6.4.4 to 6.4.7 as under: 6.4.4 Section 94(8) of the Act was introduced w.e.f. 1.4.2005 (viz. Assessment Year 2005-06) to curb the practice of creation of losses through bonus stripping as has been carried out by the assessee in the case on hand. This section has been introduced under Chapter X of the Act - Special Provisions relating to Avoidance of Tax . Section 94 of the Act in Chapter X of the Act bears the heading Avoidance of tax by certain transactions in securities. The provisions of section 94(8) of the Act read as under : '94 (8) Where - (a) any person buys or acquires any units within a period of three months prior to the record date; (b) such person is allotted additional units without any payment on the basis of holding of such units on such date; (c) such person sells or transfers all or any of the units referred to in clause (a) within a peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viz. bonus units); then the amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of such additional units as are held by him on the date of such sale or transfer. 6.4.6 The learned CIT(Appeals), however, has observed that the provisions of section 94(8) of the Act are applicable only to units which means units of Mutual Funds only. There is no ambiguity in the matter as the Explanation in section 94(8) of the Act clearly defines securities as including stocks and shares and defines units to have the same meaning as assigned in Explanation to section 115AB of the Act; wherein units are defined as units of Mutual Funds only. In this view of the matter, the provisions of section 98(4) of the Act have no applicability to securities, which includes shares. 6.4.7 The learned CIT(Appeals) also observed that in a similar provision introduced to curb dividend stripping i.e. section 94(7) of the Act, both units and securities are included. Section 94(7) of the Act for bonus stripping was introduced by Finance Act, 2001 w.e.f. 1.1.2003 whereas section 94(8) of the Act for bonus stripping was introduced in Finance Act, 2004 w.e.f. 1.4.2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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