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TMI Blog2024 (3) TMI 374X X X X Extracts X X X X X X X X Extracts X X X X ..... quashed. 2. That the CIT(A) erred in upholding adjustment of Rs.2, 12,31,641/- in Book Profit of the appellant company for the purpose of Section 115JB of the Act without considering the facts of the case and also the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. vs. CIT (2002) 255 ITR 273 (SC) and other judgements. 3. That the CIT(A) erred in upholding the disallowance made by the AO of Rs. 11,04,54,306/- in the amount of Long Term Capital Loss to be carried over without appreciating the facts of the case and the legal position that the appellant company had correctly determined the amount of Capital Loss adopting the rate at which shares were actually sold and the AO could not determine the Capital Loss on notional basis by wrongly adopting the rate as was prevailing in the stock exchange on the relevant date disregarding the volume of the shares and also the agreement entered into by the appellant company in respect of sale of shares under reference. 4. That the appellant company craves leave to add, alter, modify, withdraw any of the grounds hereinabove at any time or hereinafter and at the time of hearing of the appeal." 3. We have heard the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was show caused by the ld. AO as to why the same should not be considered for the purpose of computation of book profits u/s 115JB of the Act. The assessee in its reply admitted that when the shares were gifted to the aforesaid persons in Asst Year 2012-13, the cost of investment was charged off to profit and loss account , which was a capital expenditure, and the same was added back in the computation of income under normal provisions of the Act. However, erroneously, it was omitted to be added back in the computation of book profits u/s 115JB of the Act. It was submitted that merely because a particular receipt is directly credited to reserves and surplus instead of routing it through profit and loss account, the said receipt cannot be brought to tax while computing book profits u/s 115JB of the Act. It was pointed out that the accounts of the assessee have been duly prepared in accordance with the provisions of the Companies Act and the same had been duly approved by the shareholders in the Annual General Meeting. Hence the ld. AO is not empowered to tinker with the audited financial statements by making certain additions / deletions except those items which are reflecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Asst Year 2012-13, at the time of gifting of shares, the value thereon was not added back by the assessee in the computation of book profits u/s 115JB of the Act and hence when the said shares were partially surrendered during the year under consideration, the receipt thereof would have to suffer tax u/s 115JB of the Act in Asst Year 2015-16. Though this argument prima facie becomes acceptable on the grounds of equity, in our considered opinion, the same cannot be brought to tax in Asst Year 2015-16 u/s 115JB of the Act. It is not in dispute, the total income of the assessee is determined u/s 115JB of the Act for Asst Year 2015-16. It is not in dispute that the assessee had not sought any benefit with regard to the subject mentioned receipt on account of surrender of gift of shares while computing its income under normal provisions of the Act for Asst Year 2015-16. However, in order to tinker with the audited financial statements read together with the notes thereon, the ld. AO would be empowered to do the same only in respect of items that are specifically mentioned in Explanation 1 to section 115JB(2) of the Act. The law in this regard is very well settled by the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 015 47.10,93,750/- 49,14,63,760/- 27163114 (35,23.71.995) 24.02.2010 69,54.04,557/- 30.03.2015 40.50.15,000/- (29.03,89,557) TOTAL 198,31,70.948 1,36.75.72.510/- (61,55,98.438 On perusal of the chart mentioned above, it has come to notice that there is a huge Long Term Capital loss against the investment made by the assesse. It is further seen that the shares were sold to the group company M/s RHC Holding Pvt. Ltd. The assessee company is a part of Religare group of companies. The shares have not been sold at the quoted price at the exchange. Therefore, prima-facie it appeared that the transaction is not a genuine transaction but a sham transaction entered to create artificial/contrived losses Thus, vide order sheet dated 13.12.2017. The assessee was asked to explain that why the sale consideration in respect of sale of shares to group company is not taken at the market price since the said shares is a listed share and is traded frequently on the recognized stock exchange. The assessees vide his submission dated 26.12.2017 submitted here as under: "In regard to valuation of shares and determination of sale consideration at Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 240 (Del)" 9. The contention of the assessee has been examined The shares that have been sold was listed and quoted at the stock exchange. The assessee's average cost price per share comes to Rs. 335.53 (as per the books of accounts). These shares have been transferred to the group companies M/s RCH Holdings Pvt. Ltd. at a price of Rs. 335 per share and thereby creating a cash loss/books loss of Rs. 2163622/-. The market price of the shares is as under- Date Open Price High Price Low Price 1 Last Price Close Price No. of shares sold Value as per market price(at lowest price as per Rule 11UA) 13.03.2013 383.00 399.50 372.60 372.65 377.35 2873306 1070593816 30.03.2015 337.90 344.95 337.00 343.00 342.20 1209000 407433000 Total 1478026816 Thus against the market price of Rs. 1478026816/-, the assessee has actually charged Rs. 1367572510/-. Thus, an amount of Rs. 110454306/-is the amount of loss artificially created out of incestuous transaction made by the assessee. The profits on sale of STT paid shares(ON market) is exempted while the income from off market transactions are taxable. The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 54,306/- and had even allowed the remaining loss of Rs 50,51,44,132/- to be carried forward. 12. Now another issue that crops up is that when the prevailing market price is very much available to the assessee to effect the sale transaction through a registered stock broker in a recognized stock exchange, whether it is justified in ignoring the same and effect an off-market trade at a mutually agreed price as explained supra. In this regard, we find that the assessee had been consistently maintaining the same stand that normally the shares of Religare Enterprises Ltd that were traded in the last 11 months during the year under consideration were in the range of 55000 to 60000 shares only, whereas the impugned transaction is to the extent of 4082306 shares in two tranches. Hence obviously when this kind of huge quantity of shares that were subjected to transfer more particularly between the group companies, it is quite possible that the market price of the shares of Religare Enterprises Ltd would have plummeted drastically due to panic situation created, which would in turn would result in huge loss to various retail investors. Considering this, the assessee had chosen to transact t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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