TVS Motor Company Ltd., CHENNAI V. ACIT, CHENNAI

CO 45/CHNY/2016

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4248 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 11-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 09-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 01-04-2016
• Court: TRIBUNAL
• Department Lawyers: R VIJAYARAGHAVAN
• Assessee Lawyers: V VIVEKANANDAN
• Keywords: Capital asset; Gift; Income from undisclosed sources; Principle of natural justice; Earning of tax free income; Application of stay; Question of law; Cost of acquisition; Avoidance of tax; Assessment record; Commercial expediency; Rule 8D; Set aside; Capital Gains
• Section: 14A; 64

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . ! ' , # '$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER . /ITA NO. 329/MDS/2016 / ASSESSMENT YEAR : 2010-11 AND C.O.NO.45/MDS/2016 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-3(1), CHENNAI 34. ( /APPELLANT) V. M/S. TVS MOTOR COMPANY LTD., NO.29/8, JAYALAKSHMI ESTATES, HADDOWS ROAD, CHENNAI 600 006. PAN AAACS7032B RESPONDENT/CROSS-OBJECTOR) / APPELLANT BY : SHRI V. VIVEKANANDAN, CIT / RESPONDENT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE / DATE OF HEARING : 09.06.2016 !' / DATE OF PRONOUNCEMENT : 11.08.2016 % / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER - - ITA 329/16 & CO 45/15 2 OF INCOME-TAX(APPEALS) DATED 23.11.2015 FOR THE ASS ESSMENT YEAR 2010-11. 2. THE FIRST GROUND IN REVENUES APPEAL IS AS UNDER : 2.1 THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSE SSING OFFICER TO RESTRICT THE DISALLOWANCE TO 56,64,493/- AS CLAIMED BY THE ASSESSEE WITHOUT CONSIDERING THE PROVISION OF SECTION 14A R.W.S.8D WHEREIN APPLYING THE RULE 8D FOR CALCULATING DISALLOWANCE IS MANDATORY A S PER SECTION 14A(2) WITH EFFECT FROM 1.4.2007. 2.1 CORRESPONDING GROUND IN ASSESSEES APPEAL READS AS UNDER : 2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N CONFIRMING THE DISALLOWANCE OF 56,64,493/ - U/S.14A OF THE INCOME TAX ACT. THE COMMISSIONER OF INCOME TA X (APPEALS) OUGHT TO HAVE APPRECIATED THAT ONLY THE INVESTMENTS WHICH EARNED THE EXEMPT INCOME ALONE IS TO BE CONSIDERED FOR WORKING OUT THE DISALLOWANCE AND OUGHT TO HAVE RESTRICTED THE DISALLOWANCE TO 6,46,250 WHICH IS WORKED OUT ON THAT BASIS. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF 13,73,026/- WHICH IS EXEMPT FROM INCOME TAX. THE ASSESSEE HAD VOLUNTARILY DISALLOWED A SUM OF 27,461/- REPRESENTING 2% OF DIVIDEND INCOME AS EXPE NDITURE U/S 14A. DURING THE COURSE OF ASSESSMENT, THE ASSES SEE VOLUNTARILY OFFERED FOR DISALLOWANCE U/S.14A A SUM OF 56,64,493/- AFTER TAKING INTO CONSIDERATION A REASO NABLE PORTION - - ITA 329/16 & CO 45/15 3 OF SALARY OF THE PERSONS WHO WERE DEALING WITH THE INVESTMENT ACTIVITIES AND A PORTION OF CONVEYANCE, POSTAGE, TE LEPHONE AND BANK CHARGES TOWARDS EXPENDITURE. HOWEVER, WHILE CO MPLETING THE ASSESSMENT, THE AO INVOKED RULE 8D AND DISALLOW ED A SUM OF 15,89,52,574/- U/S. 14A. 3.1 THE AO HAS MADE THE AFORESAID DISALLOWANCE WITH THE FOLLOWING OBSERVATIONS:- DURING THE YEAR UNDER CONSIDERATION FRESH INVESTME NTS TO THE EXTENT OF RS.261.55 CRORES WERE MADE. EVEN THO UGH THE ASSESSEE HAS CONSIDERED SALARY RELATED EXPENDIT URE OF THE PERSONS ENGAGED IN THE TREASURY MANAGEMENT AND PROPORTIONATE POSTAGE, TELEPHONE, CONVEYANCE AND BA NK CHARGES FOR DISALLOWANCE, CONSIDERING THE HUGE INVESTMENTS OF RS. 739-26 CRORES SHOWN IN THE BALAN CE SHEET, THE AMOUNT OFFERED FOR DISALLOWANCE BY THE C OMPANY IS NOT AT ALL REASONABLE. THEREFORE, IT IS HEREBY C ONSIDERED NECESSARY TO DETERMINE THE EXPENDITURE AS PER SECTI ON 14A R.W. RULE 8D' AND THE SAME NEED TO BE EXCLUDED FROM THE TOTAL EXPENDITURE OF THE ASSESSEE.' 4. ON APPEAL, CIT(APPEALS) OBSERVED AS UNDER : A) THE AO HAS MECHANICALLY APPLIED RULE 8D WITHOUT CONSIDERING THE APPLICABILITY OF DIFFERENT LIMBS OF CALCULATION. B) THE AO HAS OMITTED TO CONSIDER THAT THE APPELLAN T HAD SUFFICIENT OWN FUND WHICH WAS UTILIZED FOR INVESTME NT. THEREFORE, THERE WAS NO NECESSITY TO INVEST OUT OF BORROWED FUND. C) THE CIT(A) HAS HELD IN THE PREVIOUS AY 2008-09 I N APPELLANT'S OWN CASE THAT THE INVESTMENT OUT OF APP ELLANT'S - - ITA 329/16 & CO 45/15 4 OWN FUND SHOULD BE CONSIDERED WHILE CALCULATING THE DISALLOWANCE UNDER RULE 8D. D) IN VIEW OF THE DECISIONS OF THE ITAT, CHENNAI AN D THE HIGH COURT, RELIED ON BY THE APPELLANT, THE INVESTM ENT IN SUBSIDIARY COMPANIES OUGHT NOT TO HAVE BEEN CONSID ERED FOR THE DISALLOWANCE UNDER RULE 8D. E) SIMILARLY THE INVESTMENT OUT OF WHICH NO DIVIDEN D WAS DECLARED SHOULD BEEN EXCLUDED FROM THE CALCULATION UNDER RULE 8D. F) IT IS CLEAR FROM THE ASSESSMENT ORDER THAT DURIN G THE ASSESSMENT PROCEEDINGS, THE APPELLANT HAD VOLUNTARI LY OFFERED FOR DISALLOWANCE U/S.14A, A SUM OF RS.56,64 ,493/- AS PER THE WORKING GIVEN IN ANNEXURE-1. HOWEVER, BEFORE THE CIT(A), THE APPELLANT HAS SUBMI TTED THE WORKING AS IN ANNEXURE-2 AS PER WHICH, THE DISALLOW ANCE U/S. 14A WORKS OUT TO RS.6,46,250/-. 6.4 IN VIEW OF MY REMARKS IN PARA 6.3, AFTER CONSID ERING THE APPELLANT'S SUBMISSION AND THE DECISIONS RELIED ON AS MENTIONED UNDER PARA 6.2, I AM OF THE CONSIDERED OP INION THAT THE APPELLANT'S VOLUNTARY OFFER OF DISALLOWANC E U S. 14A DURING THE ASSESSMENT PROCEEDINGS AS PERANNEXURE-1 TO THIS ORDER IS ACCEPTABLE. THE AO IS DIRECTED TO VER IFY THE FIGURES IN THE CALCULATION GIVEN IN ANNEXURE-1 WITH REFERENCE TO THE ASSESSMENT RECORD AND TO RESTRICT THE DISALL OWANCE U/S. 14A TO 56,64,493 - IN PLACE OF RS.1,59,52,574 AS ADMITTED BY THE AO IN THE ASSESSMENT ORDER. THIS GR OUND IS PARTLY ALLOWED. 4.1 AGAINST THIS, THE REVENUE IS IN A PPEAL BEFORE US. 5. THE LD. DR SUBMITTED THAT THE CIT(APPELA S) CANNOT REMIT THE ISSUE BACK TO THE FILE OF THE AO FOR FRESH CONS IDERATION. IT IS TAKEN AWAY FROM W.E.F. 1.6.2001. 5.1 COMING TO THE CROSS OBJECTION, THE LD. AR SUBMITTED THAT THE DISALLOWANCE U/S.14A SHALL BE ONLY 6,46,250/- - - ITA 329/16 & CO 45/15 5 WHICH EARNED THE EXEMPTED INCOME AND THE DISALLOWAN CE SHOULD BE RESTRICTED TO THAT EXTENT. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN PLEA OF THE LD. A.R IS THAT INVESTMENT IS IN A SISTER CONCERN AND ASSOCIATED CO MPANIES AND SUBSIDIARIES AND INTEREST PERTAINED TO BORROWINGS U SED FOR EARNING EXEMPT INCOME FROM THE INVESTMENTS ONLY TO BE CONSIDERED AND HE DREW OUR ATTENTION TO THE PAPER B OOK SHOWING THAT THE INVESTMENTS ARE IN EQUITY SHARES OF SISTER CONCERNS AND THESE INVESTMENTS ARE MADE ON ACCOUNT OF COMMERCIAL EXPEDIENCY. HE PLACED RELIANCE ON THE JUDGMENT OF DELHI HIGH COURT IN THE CASE OF CIT VS. BHARTI OVERSEAS PVT. L TD., DATED 17 TH DECEMBER, 2015 WHEREIN HELD THAT EXPENDITURE IN REL ATION TO INCOME WHICH IS EXEMPT SHALL BE AGGREGATE OF EXPEND ITURE ATTRIBUTABLE TO TAX EXEMPTED INCOME, AND WHERE THERE IS COMMON EXPE NDITURE, THAT CANNOT BE ATTRIBUTABLE TO EITHER TAX EXEMPT INCOME OR TAXABLE INCOME. HE ALSO SUBMITTED THAT INTEREST ON BORROWINGS WHICH IS AVAI LABLE FOR SPECIFIC PURPOSE CANNOT BE CONSIDERED FOR DISALLOWA NCE U/S.14A R.W.RULE 8D. IN OUR OPINION, THE TRIBUNAL CONSIDERE D THIS ISSUE IN THE CASE OF FARIDA SHOES PVT. LTD. IN ITA NOS.2102 & - - ITA 329/16 & CO 45/15 6 2103/MDS./15 FOR ASSESSMENT YEARS 2011-12 & 2012-12 VIDE ORDER DATED 08.01.16 WHEREIN HELD THAT:- 5.1 COMING TO THE MERITS OF THE ISSUE REGARDING DISALLOWANCE U/S.14A R.W. RULE 8D OF THE I.T.RULES, IN OUR OPINION, SIMILAR ISSUE WAS CONSIDERED BY THIS TRIBU NAL IN THE CASE OF ACIT V. M/S. BEST & CROMPTON ENGINEERIN G LTD. IN ITA NO.1603/MDS/2012 DATED 16.7.2013, WHEREIN IT WAS OBSERVED THAT INTEREST ON BORROWINGS USED FOR THE B USINESS PURPOSE CANNOT BE CONSIDERED FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S.14A R.W. RULE 8D(2)(II) OF THE IT RULES AND THE RELEVANT PORTION IS REPRODUCED AS BELOW: 10. HEARD BOTH SIDES. PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE DECISION OF CALCUTTA BENCH OF T HIS TRIBUNAL RELIED ON BY THE ASSESSEES COUNSEL. THIS ISSUE HAS BEEN CONSIDERED ELABORATELY BY THE COMMISSIONER OF INCOM E TAX(APPEALS) AND DELETED THE INTEREST ON BANK LOAN AND TERM LOANS WHICH WERE NOT UTILIZED FOR MAKING ANY INVEST MENTS HAVING TAX FREE INCOME. WHILE HOLDING SO, THE COMMI SSIONER OF INCOME TAX (APPEALS) HELD AS UNDER:- 5.2.1 HAVING HELD THAT PROVISIONS OF RULE 0D ARE A PPLICABLE, LET US NOW EXAMINE WHETHER THE AMOUNT HAS BEEN CORRECTLY Q UANTIFIED. THE AO HAD CALCULATED THE DISALLOWANCE AT ` NIL, > 1,04,38,000/- AND > 26,87,000/- UNDER (I), (II) & (III) OF RULE 8 0 (2)RESPECTIVELY. THERE IS NO DISPUTE REGARDING THE FIRST COMPONENT, BECAUSE IT IS NIL. WITH REGARD TO THE SECOND COMPONENT BEING THE EXPENDITURE BY WAY OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTAB LE TO ANY PARTICULAR INCOME OR RECEIPT, THE AO HAS DETERMINED THE AMOUNT AT > 1,04,38,000/. THE AO HAS TAKEN INTO ACCOUNT THE E NTIRE INTEREST EXPENDITURE OF > 5,79,46,000/- FOR COMPUTING THE AB OVE DISALLOWANCE. THE ID.AR, IN HIS SUBMISSION, HAS GIV EN THE BREAK- UP OF INTEREST WHICH INCLUDES (1) INTEREST ON BANK LOANS: >67,92,000/- (2) INTEREST ON TERM LOANS > 3,82,11, 000/- AND (3) INTEREST ON OTHER ACCOUNTS: > 1,29,43,000/-. IF LOA NS HAVE BEEN SANCTIONED FOR SPECIFIC PROJECTS/EXPANSION AND HAVE BEEN UTILIZED TOWARDS THE SAME, THEN OBVIOUSLY THEY COULD NOT HAV E BEEN UTILIZED FOR MAKING ANY INVESTMENTS HAVING TAX-FREE INCOMES. FROM THE COPY OF THE SANCTION LETTERS FROM STATE BANK OF BIKANER & JAIPUR IT CAN BE SEEN THAT THE LOAN WAS GRANTED WIT H A SPECIFIC - - ITA 329/16 & CO 45/15 7 REQUIREMENT THAT THE LOAN SHALL BE UTILIZED FOR PUR CHASE OF IMPORTED MACHINERY WHILE IN THE CASE OF LOAN FROM F EDERAL BANK, IT IS SEEN THAT THE LOAN WAS TO BE UTILIZED FOR EXPANS ION OF PROJECTS. SANCTION OF BOTH THESE LOANS PROHIBIT UTILIZATION O F FUNDS FOR PURPOSES OTHER THAN FOR THE UTILIZATION FOR WHICH T HEY ARE SANCTIONED. FROM THE LEDGER EXTRACT FOR THE YEAR EN DED 31.03.2008 FOR BOTH LOAN ACCOUNTS, IT IS SEEN THAT NO AMOUNT HAS BEEN UTILIZED FOR INVESTMENT IN SUBSIDIARIES WHICH EARNS TAX-FREE INCOME. THE LOAN AMOUNTS WERE FULLY DISBURSED AND U TILIZED IN THE YEAR ENDED 31.03.2008 (A.Y. 2008-09) ITSELF. TAKING INTO ALL THE FACTS AS STATED ABOVE, I AM OF THE CONSIDERED OPINI ON THAT IF LOANS/BORROWED AMOUNTS ARE GRANTED FOR SPECIFIC PROJECTS/EXPANSION AND NO AMOUNT FROM THE SAME HAS BEEN DIRECTLY UTILIZED FOR INVESTMENTS, THEN THE FIRST A ND SECOND LIMB OF RULE 80 ATTRIBUTING THE INTEREST PAYMENTS TO THE IN VESTMENTS WILL NOT BE APPLICABLE. ACCORDINGLY, INTEREST ON BANK LO AN AND TERM LOAN AMOUNTING TO > 67,92,000/- AND > 3,82,11,000/- RESPECTIVELY ARE TO BE EXCLUDED FROM THE CALCULATION TO DETERMIN E THE DISALLOWANCE UNDER RULE 8D(2)(II). THE AO IS, THERE FORE, DIRECTED TO TAKE INTO ACCOUNT ONLY THE REMAINING INTEREST ON OT HER ACCOUNTS AMOUNTING TO > 1,29,43,000/- FOR COMPUTING THE PROP ORTIONATE DISALLOWANCE UNDER RULE 80(2)(II). 11. ON GOING THROUGH THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), WE FIND THAT THE COMMISSIONER OF INC OME TAX (APPEALS) EXCLUDED THE INTEREST ON BANK LOAN AND TE RM LOANS FROM THE CALCULATION OF DISALLOWANCE UNDER RULE 8D(2)(II ) AS THE ASSESSEE HAS UTILIZED THE BANK LOAN AND TERM LOAN F OR THE PURPOSE OF PURCHASE OF MACHINERIES AND FOR EXPANSION OF PRO JECTS AND THESE LOANS WERE SPECIFICALLY SANCTIONED FOR SPECIF IC PROJECT AND SUCH LOANS WERE ALSO USED FOR THE PURPOSE FOR WHICH THEY WERE SANCTIONED. IN THE CIRCUMSTANCES, WE FIND THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS RIGHTLY EXCLUDED SUCH I NTEREST FROM THE PURVIEW OF COMPUTATION OF DISALLOWANCE UNDER RU LE 8D(2)(II). 12. THE DECISION OF CALCUTTA BENCH OF THIS TRIBUNAL IN THE CASE OF CHAMPION COMMERCIAL CO.LTD. (SUPRA) ALSO SUPPORTS T HE VIEW OF THE COMMISSIONER OF INCOME TAX (APPEALS). THE TRIBU NAL HAD CONSIDERED A SITUATION WHEN THE LOANS WERE UTILIZED FOR THE PURCHASE OF MACHINERIES, INTEREST ARISING OUT OF SU CH LOANS, WHETHER SUCH INTEREST IS TO BE EXCLUDED FOR THE PUR POSE OF COMPUTING DISALLOWANCE UNDER RULE 8D(2)(II), THE TR IBUNAL HELD THAT SUCH INTEREST HAS TO BE EXCLUDED. WHILE HOLDIN G SO, IT HAS HELD AS UNDER:- - - ITA 329/16 & CO 45/15 8 11. THERE IS NO DISPUTE ABOUT WORKING OF THIS METH OD SO FAR AS RULE 8D(2)(I) AND (III) IS CONCERNED. IT IS ONLY WITH REGARD TO THE COMPUTATION UNDER RULE 8D(2)(II) THAT THE ASSESSING OFFICER AND THE CIT(A) HAVE DIFFERENT APPROACHES. THIS PROVISION ADMITTEDLY DEALS WITH A SITUATION IN WHICH THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULA R INCOME OR RECEIPT . CLEARLY, THEREFORE, THIS SUB C LAUSE SEEKS TO ALLOCATE COMMON INTEREST EXPENSES TO TAX ABLE INCOME AND TAX EXEMPT INCOME. IN OTHER WORDS, GOING BY THE PLAIN WORDINGS OF RULE 8D(2)(II) WHAT IS SOU GHT TO BE ALLOCATED IS EXPENDITURE BY WAY OF INTEREST..WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT AND THE ONLY CATEGORI ES OF INCOME AND RECEIPT, SO FAR AS SCHEME OF RULE 8 D IS CONCERNED, ARE MUTUALLY EXCLUSIVE CATEGORIES OF TA X EXEMPT INCOME AND RECEIPT AND TAXABLE INCOME AND RECEIPT. NO OTHER CLASSIFICATION IS GERMANE TO THE CONTEXT IN WHICH RULE 8 D IS SET OUT, NOR DOES THE SCHEME OF SECTION 14 A LEAVE ANY AMBIGUITY ABOUT IT . 12. IRONICALLY, HOWEVER, THE DEFINITION OF VARIABLE A EMBEDDED IN FORMULA UNDER RULE 8D(2)(II) IS CLEARLY INCONGRUOUS INASMUCH WHILE IT SPECIFICALLY EXCLUDES INTEREST EXPENDITURE DIRECTLY RELATED TO TAX EXEMPT INCOME, IT DOES NOT EXCLUDE INTEREST EXPENDITURE DI RECTLY RELATED TO TAXABLE INCOME. RESULTANTLY, WHILE RULE 8D(2)(II) ADMITTEDLY SEEKS TO ALLOCATE EXPENDITURE BY WAY OF INTEREST, WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT IT ENDS UP ALLOCATING EXPENDITURE BY WAY OF INTEREST, WHICH IS NOT DIREC TLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, PLUS INTEREST WHICH IS DIRECTLY ATTRIBUTABLE TO TAXABLE INCOME (EMPHASIS BY UNDERLINING SUPPLIED BY US). THIS INCONGRUITY WILL BE MORE GLARING WITH THE HELP OF FOLLOWING SIMPLE EXAMPLE: IN THE CASE OF A & CO LTD , TOTAL INTEREST EXPENDITURE IS > 1,00,000, OUT OF WHICH INTEREST EXPENDITURE IN RESPECT OF ACQUIRING SHARES FROM WHICH TAX FREE DIVIDEND EARNED IS > 10,000. OUT OF THE BALANCE > 90,000, THE ASSESSEE HAS PAID INTEREST OF - - ITA 329/16 & CO 45/15 9 >80,000 FOR FACTORY BUILDING CONSTRUCTION WHICH CLE ARLY RELATES TO THE TAXABLE INCOME. THE INTEREST EXPENDI TURE WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICUL AR RECEIPT OR INCOME IS THUS ONLY > 10,000. HOWEVER, IN TERMS OF THE FORMULA IN RULE 8D (2)(II), ALLOCATION OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT WILL BE FOR > 90,000 BECAUSE, AS PER FORMULA THE VALUE OF A (I.E. SUCH INTEREST EXPENSES TO BE ALLOCATED BETWEEN TAX EXEMP T AND TAXABLE INCOME) WILL BE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUN T OF INTEREST INCLUDED IN CLAUSE (I) [ I.E. DIRECT IN TEREST EXPENSES FOR TAX EXEMPT INCOME] INCURRED DURING THE PREVIOUS YEAR. LET US SAY THE ASSETS RELATING TO T AXABLE INCOME AND TAX EXEMPT INCOME ARE IN THE RATIO OF 4: 1. IN SUCH A CASE, THE INTEREST DISALLOWABLE UNDER RUL E 8 D(2)(II) WILL BE > 18,000 WHEREAS ENTIRE COMMON INTEREST EXPENDITURE WILL ONLY BE > 10,000/-. 13. THE INCONGRUITY ARISES BECAUSE, AS THE WORDINGS OF RULE 8D(2)(II) EXIST, OUT OF TOTAL INTEREST EXPENSE S, INTEREST EXPENSES DIRECTLY RELATABLE TO TAX EXEMPT INCOME ARE EXCLUDED, INTEREST EXPENSES DIRECTLY RELATABLE TO TAXABLE INCOME, EVEN IF ANY, ARE NOT EXCLUDED. 14. THE QUESTION THEN ARISES WHETHER WE CAN TINKER WITH THE FORMULA PRESCRIBED UNDER RULE 8D(2)(II) OF THE INCOME TAX RULES, OR CONSTRUE IT ANY OTHER MANNER OTHER THAN WHAT IS SUPPORTED BY PLAIN WORDS OF THE RULE 8 D (2)(II). 15. WE FIND THAT NOTWITHSTANDING THE RIGID WORDS OF RULE 8D(2)(II), THE STAND TAKEN BY THE REVENUE AUTHORITI ES ABOUT ITS APPLICATION, AS WAS BEFORE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO LTD VS DCIT (328 ITR 81) WHEN CONSTITUTIONAL VALIDITY OF R ULE 8 D WAS IN CHALLENGE, IS THAT IT IS ONLY THE INTEREST ON BORROWED FUNDS THAT WOULD BE APPORTIONED AND THE AMOUNT OF EXPENDITURE BY WAY OF INTEREST THAT WILL BE TAKEN (AS 'A' IN THE FORMULA) WILL EXCLUDE ANY EXPENDITURE BY WAY OF INTEREST - - ITA 329/16 & CO 45/15 10 WHICH IS DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT (FOR EXAMPLEANY ASPECT OF THE ASSESSEE'S BUSINESS SUCH AS PLANT/MACHINERY ETC.). THEREFORE, IT IS NOT ONLY THE INTEREST DIRECTLY ATTRIBUTABLE TO TAX EXEMPT INCOME, I.E. UNDER RULE 6D(2)(I), BUT ALSO INTEREST DIRECTLY RELATABLE TO T AXABLE INCOME, WHICH IS TO BE EXCLUDED FROM THE DEFINITION OF VARIABLE A IN FORMULA AS PER RULE 6D(2)(II), AND RIGHTLY SO, BECAUSE IT IS ONLY THEN THAT COMMON INTEREST EXPENSES, WHICH ARE TO BE ALLOCATED AS INDIRECTLY RELATABLE TO TAXABLE INCOME AND TAX EXEMPT INCOME, CAN BE COMPUTED. THIS IS CLEAR FROM THE FOLLOWING OBSERVATIONS MADE BY THEIR LORDSHIPS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE (SUPRA): 60. IN THE AFFIDAVIT-IN-REPLY THAT HAS BEEN FILED O N BEHALF OF THE REVENUE AN EXPLANATION HAS BEEN PROVIDED OF THE RATIONALE UNDERLYING R. 8D. IN THE WRITTEN SUBMISSI ONS WHICH HAVE BEEN FILED BY THE ADDL. SOLICITOR GENERA L IT HAS BEEN STATED, WITH REFERENCE TO R. 8D(2)(II) THA T SINCE FUNDS ARE FUNGIBLE, IT WOULD BE DIFFICULT TO ALLOCA TE THE ACTUAL QUANTUM OF BORROWED FUNDS THAT HAVE BEEN USE D FOR MAKING TAX-FREE INVESTMENTS. IT IS ONLY THE INT EREST ON BORROWED FUNDS THAT WOULD BE APPORTIONED AND THE AMOUNT OF EXPENDITURE BY WAY OF INTEREST THAT WILL BE TAKEN (AS 'A' IN THE FORMULA) WILL EXCLUDE ANY EXPENDITURE BY WAY OF INTEREST WHICH IS DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT (F OR EXAMPLEANY ASPECT OF THE ASSESSEE'S BUSINESS SUCH AS PLANT/MACHINERY ETC.) THE JUSTIFICATION THAT H AS BEEN OFFERED IN SUPPORT OF THE RATIONALE FOR R. 8D CANNOT BE REGARDED AS BEING CAPRICIOUS, PERVERSE OR ARBITR ARY. APPLYING THE TESTS FORMULATED BY THE SUPREME COURT IT IS NOT POSSIBLE FOR THIS COURT TO HOLD THAT THERE IS W RIT ON THE STATUTE OR ON THE SUBORDINATE LEGISLATION PERVE RSITY, CAPRICE OR IRRATIONALITY. THERE IS CERTAINLY NO 'MA DNESS IN THE METHOD'. 16. ONCE THE REVENUE AUTHORITIES HAVE TAKEN A PARTICULAR STAND ABOUT THE APPLICABILITY OF FORMULA SET OUT IN RULE 8 D(2)(II), AND BASED ON SUCH A STAND - - ITA 329/16 & CO 45/15 11 CONSTITUTIONAL VALIDITY IS UPHELD BY HONBLE HIGH C OURT, IT CANNOT BE OPEN TO REVENUE AUTHORITIES TO TAKE ANY O THER STAND ON THE ISSUE WITH REGARD TO THE ACTUAL IMPLEMENTATION OF THE FORMULA IN THE CASE OF ANY ASSESSEE. VIEWED THUS, THE CORRECT APPLICATION OF T HE FORMULA SET OUT IN RULE 8D(2)(II) IS THAT, AS HAS B EEN NOTED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE (SUPRA), AMOUNT OF EXPENDITURE BY WAY OF INTEREST THAT WILL BE TAKEN (AS 'A' IN THE FORMULA) WILL EXCLUDE ANY EXPENDITURE BY WAY OF INTEREST WHICH IS DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT (FOR EXAMPLEANY ASPECT OF THE ASSESSEE'S BUSINESS SUCH AS PLANT/MACHINERY ETC.) . ACCORDINGLY, EVEN BY REVENUES OWN ADMISSION, INTEREST EXPENSES DIRECTLY ATTRIBUTABLE TO TAX EXEMPT INCOME AS ALSO DIRECTLY ATTRIBUTABLE TO TAXABLE INCOME, ARE REQUIRED TO BE EXCLUDED FROM COMPUTATION OF COMMON INTEREST EXPENSES TO BE ALLOCATED UNDER RULE 8D(2)(II). 17. TO THE ABOVE EXTENT, THEREFORE, WE HAVE TO PROC EED ON THE BASIS THAT RIGOUR OF RULE 8 D (2)(II) IS REL AXED IN ACTUAL IMPLEMENTATION, AND REVENUE AUTHORITIES, HAV ING TAKEN THAT STAND WHEN CONSTITUTIONAL VALIDITY OF RU LE 8 D WAS IN CHALLENGE BEFORE HONBLE HIGH COURT, CANNOT NOW DECLINE THE SAME. IDEALLY, IT IS FOR THE CENTRAL BO ARD OF DIRECT TAXES TO MAKE THE POSITION CLEAR ONE WAY OR THE OTHER EITHER BY INITIATING SUITABLE AMENDMENT TO RU LE 8D(2)(II) OR BY ADOPTING AN INTERPRETATION AS PER P LAIN WORDS OF THE SAID RULE, BUT EVEN ON THE FACE OF THI NGS AS THEY ARE AT PRESENT , IN OUR HUMBLE UNDERSTANDING, REVENUE AUTHORITIES CANNOT TAKE ONE STAND WHEN DEMONSTRATING LACK OF PERVERSITY, CAPRICE OR IRRAT IONALITY IN RULE 8D BEFORE HONBLE HIGH COURT, AND TAKE ANOT HER STAND WHEN IT COMES TO ACTUAL IMPLEMENTATION OF THE RULE IN REAL LIFE SITUATIONS. THEREFORE, EVEN AS WE ARE ALIVE TO THE FACT THAT THE STAND OF THE LEARNED DEPARTMENTAL REPRESENTATIVE IS IN ACCORDANCE WITH T HE STRICT WORDING OF RULE 8D(2)(II), WE HAVE TO HOLD T HAT, FOR THE REASONS SET OUT ABOVE, THIS RIGID STAND CANNOT BE APPLIED IN PRACTICE. - - ITA 329/16 & CO 45/15 12 13. IN VIEW OF THE DECISION OF THE CALCUTTA BENCH O F THIS TRIBUNAL CITED ABOVE, WE UPHOLD THE ORDER OF THE CO MMISSIONER OF INCOME TAX (APPEALS) IN EXCLUDING THE INTEREST O N BANK LOAN AND TERM LOANS FOR THE PURPOSE OF COMPUTING DISALLO WANCE UNDER RULE 8D(2)(II). THE GROUNDS RAISED BY THE REV ENUE ARE REJECTED ON THIS ISSUE. 6.1 IN VIEW OF THE ABOVE DECISION, WE ARE OF THE OPINIO N THAT THE INTEREST ON BORROWING WHICH ARE MADE FOR S PECIFIC PURPOSE OF BUSINESS CANNOT BE CONSIDERED FOR THE PU RPOSE OF RULE 8D OF THE INCOME TAX RULES. FURTHER, INVESTMEN TS IN SISTER CONCERNS OR SUBSIDIARIES WITH WHICH THE ASSE SSEE IS HAVING BUSINESS TRANSACTIONS, THAT INVESTMENTS CANN OT BE CONSIDERED FOR THE PURPOSE OF APPLICABILITY OF RULE -8D. FOR THIS PROPOSITION WE RELY ON THE JUDGMENTS OF TRIBU NAL IN THE CASE OF SUN TV NETWORKS IN ITA NO.1340 & 1341/MDS./ 15 & 1578 TO 1579/MDS/15 WHEREIN HELD THAT:- 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EI THER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE MAIN CONTENTION OF THE ASSESSEE IS THAT THE AVA ILABLE SHARE CAPITAL INCLUDING RESERVES AND SURPLUS WAS >2 385.7 CRORES AS ON 31.03.2010. THE AVAILABLE SHARE CAPITA L IS >1970.4 CRORES AND RESERVES AND SURPLUS IS > 21,886 .7 CRORES. THE INVESTMENTS MADE IN MUTUAL FUNDS INCLUD ING SUBSIDIARY COMPANIES ARE ONLY > 541.11 CRORES. THER EFORE, IT CANNOT BE SAID THAT THE ASSESSEE HAS DIVERTED TH E BORROWED FUNDS FOR MAKING ANY INVESTMENT EITHER IN THE SISTER CONCERNS OR IN THE MUTUAL FUNDS. WHEN THE AS SESSEE HAS SUFFICIENT SHARE CAPITAL, RESERVES AND SURPLUS, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THERE CA NNOT BE ANY DISALLOWANCE TOWARDS THE INTEREST PAID ON THE B ORROWED FUNDS UNDER SECTION 14A OF THE ACT. FOR THE PURPOSE OF - - ITA 329/16 & CO 45/15 13 DISALLOWING INTEREST INCOME UNDER SECTION 14A READ WITH RULE 8D, THERE SHOULD BE NEXUS BETWEEN THE BORROWED FUNDS AND INVESTMENT MADE BY THE ASSESSEE IN THE SH ARE CAPITAL AND MUTUAL FUNDS. IN THE ABSENCE OF ANY NEX US, THE PRESUMPTION IS THAT THE ASSESSEE HAS INVESTED THE A VAILABLE INTEREST-FREE FUNDS IN SHARE CAPITAL AND MUTUAL FUN DS. FURTHERMORE, MAKING INVESTMENT IN SISTER CONCERNS I S FOR COMMERCIAL EXPEDIENCY IN VIEW OF THE JUDGMENT OF AP EX COURT IN S.A. BUILDERS LTD. V. CIT (2007) 288 ITR 1 . IT IS NOT THE CASE OF THE REVENUE THAT THE SISTER CONCERN OR ANY OF THE DIRECTORS HAS MISUSED THE FUNDS INVESTED BY THE ASSESSEE. WHEN THE SISTER CONCERN USES THE FUNDS ON LY FOR BUSINESS PURPOSE, THERE WAS COMMERCIAL EXPEDIENCY F OR MAKING INVESTMENT. THEREFORE, THIS TRIBUNAL IS OF T HE CONSIDERED OPINION THAT THERE CANNOT BE ANY DISALLO WANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF T HE INCOME-TAX RULES, 1962. 13. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS UNABLE T O UPHOLD THE ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY, T HE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE. THE ENTIRE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. 6.2 WE ALSO RELY IN THE CASE OF BEACH MINERS CO. PVT LT D. VS. ACIT IN ITA NO.2110/MDS./14 DATED 06.08.15 WHEREIN HELD THAT: 6.1. GROUND NO.3 DISALLOWANCE OF EXPENDITURE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT FOR > 3,11 ,34,630/- SINCE THE ASSESSEE HAD MADE INVESTMENTS OF > 71,55, 33,570/- FOR EARNING EXEMPT INCOME. AT THE OUTSET, WE FIND THAT THERE IS NO MERIT FOR THE REVENUE TO MAKE ADDITION OF > 3,11,34,630/- INVOKIN G THE PROVISIONS OF SECTION 14A OF THE ACT BECAUSE THE IN VESTMENT MADE OF > 71,55,33,570/-, BEARS NO COST IN THE FOR M OF INTEREST OR WHATSOEVER, SINCE THE FUNDS BY WHICH TH E INVESTMENT IS MADE IS ASSESSEES OWN FUNDS. FURTHER , THESE INVESTMENTS ARE MADE ONLY WITH SISTER COMPANIES OF THE ASSESSEE AND NO COST CAN BE ATTRIBUTED FOR THE MANA GEMENT OF SUCH FUNDS. THEREFORE, WE HEREBY DELETE THE ADDITI ON OF > 3,11,34,630/- MADE BY THE LD. ASSESSING OFFICER INV OKING THE PROVISIONS OF SECTION 14A OF THE ACT. THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED IN ITS FAVOUR . - - ITA 329/16 & CO 45/15 14 6.3 IN VIEW OF THE ABOVE JUDGMENTS, THE AO HAS TO CONSIDER THE ASSESSEES OWN FUND I.E. CAPITAL AND RESERVES AS AVAILABLE ON THE DATE OF INVESTMENT WHICH YIELDS EXEMPTED INC OME AND THEREAFTER HE SHALL APPLY THE FORMULA IN RULE 8D AN D ALSO EXCLUDE INVESTMENTS IN SUBSIDIARIES AS HELD BY THE ABOVE ORDER OF CO-ORDINATE BENCH. WITH THIS OBSERVATION, WE RE MIT THE ISSUE TO THE FILE OF AO FOR FRESH CONSIDERATION. HENCE, T HIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 7. THE NEXT GROUND IN REVENUES APPEAL IS AS UNDER : 3.1 THE LEARNED CIT(A) ERRED IN ALLOWING THE ASSE SSEES CLAIM OF SALE OF SHARES BELONGS TO ITS SISTER CONCE RN, M/S. TVS FINANCE AND SERVICES LIMITED AT PRICE OF 1 PAIS E IS ACCEPTABLE WHEREAS THE PURCHASE PRICE PER SHARE IS 31.19 PER SHARE AND IT WAS PURCHASED BY THE ASSESSE E COMPANY JUST 47 DAYS BEFORE THE DATE OF SALE OF SHA RES BY THE ASSESSEE COMPANY AT 1 PAISE PER SHARE. 8. THE FACTS OF THE CASE ARE THAT D URING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SOLD THE SHARES OF TVS FINANCE AND SERVICES LTD (TVSFSL), BOTH LONG TERM AND SHORT TERM, FOR A CONSIDERATION OF ONE PAISA PER SHARE WHICH RESULTED IN CAPITAL LOSS. THEREAFTER, THE ASSESSEE SET OFF THE CAPITAL LOSS A RISING - - ITA 329/16 & CO 45/15 15 OUT OF THE AFORESAID SALE OF SHARE AGAINST THE CAPI TAL GAIN ARISING OUT OF SALE OF LAND OWNED BY THE APPEL LANT. THE ASSESSING OFFICER FOUND THAT THE SALE OF SHARES AT ONE PAISA PER SHARE WAS A COLOURABLE DEVICE TO SET OFF THE CAPITAL GAINS. THEREAFTER, THE ASSESSING OFFICE R FIXED THE SALE PRICE AT RS.31.19 PER SHARE AND WORK ED OUT THE LONG TERM CAPITAL GAINS AND SHORT TERM CAPI TAL GAINS. THE ASSESSEE HAS OBJECTED TO THE SAME BY STATING THAT THE AFORESAID TRANSACTIONS WERE LEGAL, AND AS PER THE CORPORATE PRACTICE AND SEBI REGULATIONS. 9.1 THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE SUBMITTED THAT TVS MOTOR COMPANY LTD (TMCL FOR BREVITY) HAD ENTERED INTO AN AGREEMENT WI TH M/S. TVS INVESTMENTS LTD. FOR PURCHASE OF SHARES OF M/S. TVS FINANCE AND SERVICES LTD (TFSL FOR BREVITY ) IN FINANCIAL YEAR 2008-09 FOR A TOTAL VALUE OF RS. 3 CRORES, IN ORDER TO HAVE INTEREST IN THE BUSINESS O F TFSL, WHICH WOULD HELP IN FINANCING THE PRODUCTS MANUFACTURED BY TMCL. THE ASSESSEE WAS ASKED TO PRODUCE COPY OF THE ABOVE MENTIONED AGREEMENT - - ITA 329/16 & CO 45/15 16 ENTERED INTO WITH TVS INVESTMENTS LTD WITH THE ASSESSEE COMPANY. HOWEVER, DESPITE SEVERAL OPPORTUNITIES GIVEN, THE ASSESSEE WAS NOT ABLE TO PRODUCE THE SAME. FURTHER, THE AMOUNT OF RS.3 CRORE S HAS BEEN SHOWN AS INTER CORPORATE DEPOSITS IN THE FINANCIALS OF THE COMPANY, M/S. TVS INVESTMENTS LTD AGAINST WHICH THE ASSESSEE COMPANY WAS RECEIVING INTEREST. IF, AS CLAIMED BY THE ASSESSEE THAT THE AMOUNT OF RS.3 CRORES WAS ONLY AN ADVANCE PAID TOWARDS PURCHASE OF SHARES OF TESL, THEN THE SAME NEED NOT HAVE BEEN CLASSIFIED AS `INTER CORPORATE DEPOSIT' IN THE FINANCIALS OF TVS INVESTMENTS LTD A ND MORE FURTHER, THERE IS NO NEED TO RECEIVE INTEREST ON SUCH SUM. MOREOVER, THE AGREEMENT IS SET TO HAVE BEEN ENTERED TO PROVIDE THE ASSESSEE COMPANY, TO FURTHER BUSINESS OPPORTUNITIES BY WAY OF CREDIT SUP PORT TO ITS CUSTOMERS. HOWEVER, AS SEEN FROM THE FINANCI ALS OF THE ASSESSEE COMPANY FOR THE FINANCIAL YEAR 2009 - 10, THE COMPANY HAS DISPOSED THE SHARES PURCHASED, IMMEDIATELY I.E ON 03.03.2010 FOR A PALTRY SUM OF R S. - - ITA 329/16 & CO 45/15 17 0.01(IE ONE PAISA) PER SHARE. 9.2 ACCORDING TO THE AO, IT IS EVIDENT THAT THE AVERMENT OF THE ASSESSEE THAT THEY PURCHASED THE SHARES OF TFSL FOR FURTHERING ITS BUSINESS IS DEVOI D OF ANY RATIONAL OR BUSINESS PRUDENCE AS THEY WOULD NOT HAVE SOLD THE SHARES OF TFSL IMMEDIATELY IF IT IS T RUE INTENTION WAS TO HAVE BUSINESS INTEREST IN TFSL. FURTHER, NO PRUDENT BUSINESSMEN WOULD BUY A SHARE WHOSE NET WORTH IS NEGATIVE AND WHICH WAS SOLD TO O NE OF ITS RELATED COMPANIES AT A PALTRY RATE OF 1 PAIS A PER SHARE FOR A HUGE CONSIDERATION @ 31.19 PER SHARE. I N OTHER WORDS, THE ASSESSEE HAD PURCHASED THE SHARE O F TFSL AT A COST WHICH IS 3119 TIMES ITS TRADABLE VAL UE. 9.3 THE AO EXAMINED THE REASONS BEHIND SUCH AN ARBITRARY TRANSACTION BETWEEN THE ASSESSEE AND ITS RELATED GROUP CONCERNS I.E TVS INVESTMENTS LTD AND TVS E-ACCESS INDIA LTD. HE MENTIONED THAT THE TV S INVESTMENTS LTD. TFSL AND TVS E-ACCESS INDIA LTD AR E GROUP CONCERNS MANAGED BY COMMON CHAIRMAN WHEREAS THE ASSESSEE COMPANY TVS MOTORS LTD. IS - - ITA 329/16 & CO 45/15 18 MANAGED BY A DIFFERENT CHAIRMAN. HENCE, FOR THIS PRECISE REASON, THE ASSESSEE HAS SOLD THE SHARES OF TFSL TO TVS E-ACCESS INDIA LTD FOR A PALTRY RATE OF 1 PAISA PER SHARE WHEREAS PURCHASED THE SAME SHARES AT A HUGE RATE OF RS.31.19 PER SHARE FROM M/S. TVS INVESTMENTS LTD, SO THAT ITS TWIN OBJECTIVES CAN BE ACHIEVED I.E SHARES OF TFSL COULD BE RETAINED WITHI N THE GROUP ITSELF AND ON THE OTHER HAND BOOK HUGE CAPITAL LOSS. IT IS ALSO PERTINENT TO NOTE HERE THA T THE ASSESSEE HAD ADMITTED HUGE LONG TERM CAPITAL GAIN O N SALE OF LAND AS STATED ELSEWHERE IN THIS ORDER AND IN ORDER TO EVADE LONG TERM CAPITAL GAINS TAX, THE ASSESSEE HAD BOOKED HUGE CAPITAL LOSS BY SELLING TH E SHARES OF TFSL TO TVS E-ACCESS INDIA LTD AS STATED ABOVE. 9.4 FURTHER, THE AO OBSERVED THAT THE ASSESSEE COMPANY HAD SOLD THE SHARES OF TFSL DURING THE FINANCIAL YEAR AND BOOKED LONG TERM CAPITAL LOSS. DURING THE SCRUTINY PROCEEDINGS, IT WAS FOUND THAT, FOR THE FINANCIAL YEAR 2009-10 THE CASE OF M/S. TVS - - ITA 329/16 & CO 45/15 19 INVESTMENTS LTD, IT WAS NOTICED THAT ONE SMT. MALLI KA SRINIVASAN HAS SOLD SUCH SHARES AT A COST OF RS.25 PER SHARE RESULTING IN CAPITAL GAINS. THE SAME SALE CONSIDERATION WAS ADOPTED IN THE ASSESSEE'S CASE AL SO AND DUE ADDITION WAS MADE. IT WAS THE CONTENTION OF THE ASSESSEE THAT SUCH COMPARISON BETWEEN INDIVIDUA L (SMT. MALLIKA SRINIVASAN) AND ITSELF CANNOT BE DONE AS THE PRICE OF RS-25 PER SHARE IS EXIT PRICE AVAILABL E TO A 'RETAIL INVESTOR'. BY THIS CONTENTION, THE SAID COM PANY HAS. MEANT THAT FOR 'OTHER THAN RETAIL INVESTOR'' T HE SALE PRICE WOULD BE @ 1 PAISA ONLY. IF THIS SPECIFIC CONTENTION IS TO BE ADMITTED, THEN THE ASSESSEE WHI CH IS A LISTED COMPANY, SHOULD HAVE ALSO BOUGHT THE SHARES OF TFSL @ 1 PAISA ONLY WHICH IS NOT THE CASE . 9.5 IN VIEW OF THE ABOVE DISCUSSION, THE AO HELD T HAT THE ENTIRE GAMUT OF TRANSACTION BETWEEN THE ASSESSE E COMPANY AND ITS GROUP CONCERNS WAS CARRIED OUT WITH A SINGLE MOTIVE TO EVADE TAX IN THE GUISE OF TRANSFER OF A CAPITAL ASSET I.E SHARES OF TFSL. THIS IS ONLY A COLOURABLE DEVICE AND A DESIGN ADOPTED BY THE - - ITA 329/16 & CO 45/15 20 ASSESSEE COMPANY TO EVADE PAYMENT OF TAX CONSISTENTLY OVER A PERIOD OF YEARS. 9.6 THE AO PLACED RELIANCE ON THE JUDGMENT OF TH E SUPREME COURT IN THE CASE OF MC DOWELL VS CTO (154 ITR 148) SC, ON THE ISSUE OF WHETHER A COLOURABLE DEVICE CAN BE USED TO EVADE TAX, HAS HELD AS UNDER: 'TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITHIN THE FRAMEWORK OF L AW. COLOURABLE DEVICES CANNOT BE PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONOURABLE TO AVOID THE PAYMENT OF TAX BY RESORTING TO DUBIOUS METHODS. IT IS THE OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES HONESTLY WITHOUT RESORTING TO SUBTERFUGES. IT IS NEITHER FAIR NOR DESIRABLE TO EXPECT THE LEGISLATURE TO INTERVENE AND TAKE CARE OF EVERY DEVICE AND SCHEME TO AVOID TAXATION. IT IS UP TO THE COURT TO TAKE STOCK TO DETERMINE THE NATURE OF THE NEW AND SOPHISTICATED LEGAL DEVICES TO AVOID TAX AND CONSIDER WHETHER THE SITUATION CREATED BY THE DEVICES COULD BE RELATED TO THE EXISTING LEGISLATION WITH THE AID OF 'EMERGING' TECHNIQUES OF INTERPRETATION WAS DONE IN RAMSAY. BURMA OIL AND DAWSON, TO EXPOSE THE DEVICES FOR WHAT THEY REALLY ARE AND TO REFUSE TO GIVE JUDICIAL BENEDICTION. 9.7 FURTHER, HE PLACED RELIANCE ON THE JUDGMENT OF THE HIGH COURT OF MADHYA PRADESH IN THE CASE OF BINODIRAND & CO VS CIT (2001)(118 TAXMAN 544)(MP) - - ITA 329/16 & CO 45/15 21 ON THE ISSUE OF WHETHER THE TAXING AUTHORITY HAS TH E POWER TO PROBE COLOURABLE, HAS HELD AS UNDER: THERE MAY BE SUCH TRANSACTIONS BUT THOSE TRANSACTIONS ARE TO BE BROUGHT INTO THE ACCOUNT BOOKS IN A PROPER WAY AND THAT TOO WITH TRANSPARENCY, FOR THE PURPOSE OF SHOWING THAT TRANSPARENCY AND BONA FIDE, IT IS OBLIGATORY ON THE PART OF THE FIRM WHICH IS AVOIDING SUCH LOANS TO SISTER CONCERNS OR SUBSIDIARY CONCERNS TO SHOW THAT PROPER EFFORTS WERE MADE FOR THE PURPOSE OF RECOVERY OF SUCH ADVANCES/LOANS, OTHERWISE SUCH ENTRIES WOULD BE SUSCEPTIBLE TO INVITING OF AN INFERENCE ADVERSELY, PUTTING SUCH ENTRIES IN THE GAMUT OF ATTEMPTS AT REDUCING THE TAXABLE INCOME BY REDUCING THE PROFIT AND RESULTANT REDUCTION IN THE CAPITAL. THEREFORE, THE TAXING OFFICERS ARE AT LIBERTY TO PUT TO SCRUTINY SUCH TRANSACTIONS. THEY ARE ENTITLED TO PROBE THE VERACITY OF SUCH TRANSACTIONS AND COME TO A CONCLUSION WHETHER A TRANSACTION IS BONA FIDE OR AN ATTEMPT TO CONCEAL THE TAXABLE INCOME AND EVADE PAYMENT OF TAX.' 9.8 HE ALSO PLACED RELIANCE ON THE JUDGMENT OF T HE BOMBAY HIGH COURT IN THE CASE OF KILLICK NIXON LIMI TED VS DCIT (20 TAXMAN. COM 703), WHEREIN IT WAS HELD AS UNDER: SEC 254 OF THE INCOME TAX ACT, 1961 READ WITH RUL E 11 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963 - APPELLATE TRIBUNAL - ORDERS OF - ASSESSMENT YEAR 20 01- 02- ASSESSEE TRANSFERRED CERTAIN LAND TO BANK - ASS ESSEE CLAIMED TO HAVE INCURRED LONG TERM AND SHORT TERM C APITAL - - ITA 329/16 & CO 45/15 22 LOSSES ON SHARE TRADING TRANSACTIONS- ACCORDINGLY, IT SET OFF SAID LOSSES AGAINST CAPITAL GAIN EARNED ON SALE OF LAND - ASSESSING OFFICER FOUND THAT ASSESSEE ENTERED INT O SHAM AND BOGUS SHARE TRADING TRANSACTIONS RESULTING IN C APITAL LOSS WITH PURPOSE TO REDUCE TAX LIABILITY AROSE ON CAPITAL GAIN - ASSESSING OFFICER, THEREFORE, DISCARDED CAPI TAL LOSSES- COMMISSIONER (APPEALS) CONFIRMED ORDER OF ASSESSING OFFICER TRIBUNAL ALSO CONFIRMED ORDER O F ASSESSING OFFICER AND WHILE DOING SO, REFERRED TO A DECISION OF SUPREME COURT IN THE CASE OF SUMATI DAY AL V CIT (1995) 214 ITR 801/80 TAXMAN 80 TO HELD THAT EVIDENCE PRODUCED MUST BE ANALYSED BY APPLYING THEO RY OF SURROUNDING CIRCUMSTANCES AND HUMAN PROBABILITIE S ASSESSEE ALLEGED THAT WITHOUT BRINGING SAID CASE TO NOTICE OF PARTIES, REVENUE HAD CAUSED PREJUDICE TO ITS CAS E; ALL IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND OF R ULE 11 WHETHER SINCE DECISION OF SUPREME COURT IN SUMATI DAYAL CASE (SUPRA) WAS CITED BY TRIBUNAL ONLY FOR PURPOSE OF REITERATING WELL SETTLED AND ESTABLISHED POSITIO N OF LAW, IT COULD NOT BE SAID TO HAVE CAUSED- HELD YES -WHET HER WHEN A TRANSACTION IS SHAM AND NOT GENUINE AS-INSTA NT CASE , THEN IT COULD NOT BE CONSIDERED TO BE APART OF TAX PLANNING OR LEGITIMATE AVOIDANCE OF TAX LIABILITY I SSUES IN INSTANT CASE WERE PURELY - HELD YES - WHETHER FURTH ER SINCE QUESTIONS WHICH THERE WERE CONCURRENT FINDING S OF AUTHORITIES BELOW, IT WAS TO BE THERE WAS NO QUESTI ON OF LAW TO BE CONSIDERED - HELD YES. (IN FAVOUR OF REV ENUE ). FURTHER THEIR LORDSHIPS HAVE HELD THAT : THE SUPREME COURT IN THE VODAFONE INTERNATIONAL HOLDINGS B. V VS UNION OF INDIA (2012) 204 TAXMAN 408 / 17 TAXMAN. COM 202 (SC) MAKES IT VERY CLEAR THAT A COLOURABLE DEVICE CANNOT BE A PART OF TAX PLANNING. THEREFORE WHERE A TRANSACTION IS SHAM AND NOT GENUINE AS IN THE INSTANT CASE THEN IT CANNOT BE CONSIDERED TO BE A PART OF TAX PLANNING OR-LEGITIMATE AVOIDANCE OF TAX LIABILITY. IN THE INSTANT CASE THE PURCHASE AND SALE OF SHARES SO AS TO TAKE LONG TERM AND SHORT TERM CAPITAL LOSS, WAS FOUND AS A - - ITA 329/16 & CO 45/15 23 MATTER OF FACT BY ALL THE THREE AUTHORITIES TO BE A SHAM'. 9.9 THUS, CONSIDERING THE PRECEDENCE RENDERED IN T HE ABOVE CASES CITED SUPRA AND ALSO KEEPING IN MIND TH E FACTS AND CIRCUMSTANCES OF THIS INSTANT CASE, THE A O HELD THAT, RATE PER SHARE OF TFSL SHARES SOLD TO TV S E- ACCESS INDIA LTD HAS TO BE ADOPTED AT THE SAME RATE PER SHARE AS THAT OF THE TRANSACTIONS BETWEEN THE ASSESSEE COMPANY AND TVS INVESTMENTS LTD I.E @ 31.19 PER SHARE AND ACCORDINGLY, THE LONG TERM CAPI TAL GAIN IS WORKED OUT TO 167, 47, 07, 618/- AND SHORT TERM CAPITAL GAIN IS 3, 07, 09,115/-. 10. ON APPEAL, THE CIT(APPEALS) OBSERVED THAT ON THE ISSUE OF ASSESSING OFFICER'S ADOPTION OF HIGHER SEL LING PRICE AT 31.19/- PER SHARE IN PLACE OF ASSESSEE'S ACTUAL SE LLING PRICE OF 1 PAISA PER SHARE, HE ANALYSED THE OBSERVATIONS OF THE A.O. MENTIONED UNDER PARA 16.2, ASSESSEE'S SUBMISSION UN DER PARA 16.3 AND THE ASSESSEES REBUTTAL POINT-BY-POINT UND ER PARA 16.4 OF CIT(APPEALS) ORDER AND SUMMARIZED HIS REMARKS U NDER PARA - - ITA 329/16 & CO 45/15 24 16.5 OF HIS ORDER. FROM THE ABOVE ANALYSIS, THE CI T(APPEALS) CAME TO THE FOLLOWING CONCLUSION: A. I AGREE WITH THE APPELLANT THAT THE AO HAS NOT G IVEN ANY FINDING THAT THE PURCHASE PRICE OR SELLING PRICE WA S NOT CORRECT. THE AO HAS NOT EXPLAINED AS TO HOW THE PUR CHASE PRICE OF A SHARE BASED ON SEBI REGULATIONS CAN BE DEEMED TO BE THE SELLING PRICE. B. THE AO HAS NOT DISPUTED THAT TVSF&S HAD A NEGATI VE NET WORTH, WAS DELISTED AND ITS SHARES COULD NOT BE SOL D TO ANY THIRD PARTY. C. IN VIEW OF THE STRONG CONTENTION OF THE APPELLAN T, I AM OF THE OPINION THAT THE PAYMENT OF A PRICE FIXED BY SE BI REGULATIONS CANNOT BE TREATED AS A 'DUBIOUS METHOD' . THEREFORE, NEITHER THE PURCHASE PRICE OF RS. 31.19 NOR THE SELLING PRICE OF ONE PAISA PER SHARE CAN BE TERMED AS 'RESORTING TO DUBIOUS METHODS'. D. IN THE ABSENCE OF A SPECIFIC PROVISION UNDER THE I-T ACT, THE AO'S ADOPTION OF RS. 31.19 PER SHARE IS UNTENAB LE. E. IT APPEARS THAT THE AO HAS NOT CONSIDERED THE FA CTUAL BACKGROUND WHICH REQUIRED TVSM TO PAY RS. 31.19 PER SHARE. THE AO HAS SIMPLY ASSUMED THAT TVSM HAD 'ADOPTED' THIS PRICE WHEN THIS WAS THE ACTUAL COST INCURRED BY TVSM IN COMPLYING WITH SEBI REGULATIONS. IT IS A USUAL AND LEGAL CORPORATE PROCEDURE THAT AS A CO-PROMOTER , TVSM HAD TO ACQUIRE THE SHARES FROM THE PUBLIC UNDER THE CIRCUMSTANCES MENTIONED ABOVE. F. AFTER STUDYING THE SEQUENCE OF EVENTS, IT IS CLE AR THAT MOST OF THE SHARES WERE ACQUIRED BY TVSM FROM 2002 ONWAR DS FOR RS. 10/- PER SHARE. BUT WHEN THE COMPANY'S NET WORTH IS NEGATIVE, THEN THE PURCHASE PRICE HAS TO BE ONLY ON E PAISA PER SHARE. I CONCUR WITH THE APPELLANT THAT THE SHA RES PURCHASED FROM 2002 TO 2005 HAD NOTHING TO DO WITH THE PRICE OF RS. 31.19 PER SHARE AND ONLY SEVEN LAKLH SHARES WERE ACQUIRED AT THIS PRICE. THEREFORE, I DO NOT SE E ANY JUSTIFICATION FOR THE AO IN COMPUTING CAPITAL GAINS OF ALMOST - - ITA 329/16 & CO 45/15 25 RS. 170 CRORES BY ADOPTING THE PRICE OF RS. 31.19 P ER SHARE FOR ALL SHARES. G. THE APPELLANT HAS SUBMITTED A COPY OF THE UNDERS TANDING SIGNED BY BOTH TVSM AND TVSI TO SUBSTANTIATE THAT B OTH TVSM AND TVSI AGREED TO SHARE THE ACQUISITION COST AND RELATED EXPENSES OF BOOK BUILDING IN THE RATIO IN W HICH TVSI AND TVSM HOLD TVSF&S SHARES IN THE CAPITAL STRUCTUR E OF TVSF&S. H. THE DECISIONS RELIED ON BY THE ASSESSING OFFICER ARE NOT APPLICABLE TO THE APPELLANT'S CASE. THE DECISIONS R ELIED ON BY THE APPELLANT ARE DIRECTLY APPLICABLE TO THE ISS UE UNDER CONSIDERATION, AS ELABORATED UNDER PARA. 16.4. THEREFORE, I AM NOT CONVINCED BY THE AO'S INFERENCE THAT TVSM BOUGHT THE SHARES OF TVSF&S FROM TVSI, ARBITRA RILY AND WITH A VIEW TO BOOK CAPITAL LOSS BY BUYING SHAR ES AT RS. 31.19 PER SHARE. THE AO HAS IGNORED THE FACT THAT T VSM HAS ACQUIRED TVSF&S SHARES IN VARIOUS STAGES IN VAR IOUS YEARS FROM 2002 ONWARDS, MAJOR CHUNK OF THEM @ RS. 10 PER SHARE, AND LATER AT DIFFERENT PRICES. I AGREE W ITH THE APPELLANT'S CONTENTION THAT VALUING THE ENTIRE PURC HASE MADE BY TVSM AT VARIOUS PRICES AT RS.. 31.19 PER SHARE I S GROSSLY INCORRECT AND IS AGAINST THE FACTUAL POSITION. THER EFORE, IN MY CONSIDERED OPINION, THE AO IS NOT CORRECT IN' ADOPT ING THE PRICE AT RS. 31.19 PER SHARE AS THE DEEMED SELLING PRICE. IN VIEW OF THE ABOVE CONCLUSION I HAVE DRAWN FROM THE ANALYSIS OF FACTS AND CIRCUMSTANCES, AND THE DECISIONS IN FA VOUR OF THE APPELLANT, THE AO IS DIRECTED TO ACCEPT THE ACT UAL SELLING PRICE OF ONE 13AISA PER SHARE AS DECLARED BY THE AP PELLANT. THE GROUNDS ON THIS ISSUE ARE ALLOWED. AGAINST THIS, THE REVENUE IS IN APPEAL. 11. THE LD. DR SUBMITTED THAT MOU WITH TVS MOTO RS ARE NOT PRODUCED BEFORE THE AO. HENCE, THERE IS VIOLATION OF RULE 46A. ACCORDING TO HIM, A S PER THE ASSESSEE'S SUBMISSIONS, M/S. - - ITA 329/16 & CO 45/15 26 TVS MOTOR COMPANY LIMITED (TMCL FOR BREVITY) HAD ENTERED INTO AN AGREEMENT WITH M/S. TVS INVESTMENTS LTD, FOR PURCHASE OF SHARES OF M/S. TVS FINANCE & SERVIC ES LIMITED. (TFSL FOR BREVITY) IN FINANCIAL YEAR 2008- 09 FOR A TOTAL VALUE OF 3 CRORES, IN ORDER TO HAVE INTEREST IN THE BUSINESS OF TFSL WHICH WOULD HELP IN FINANCING THE PRODUCTS MANUFACTURED BY TMCL. THE ASSESSEE WAS ASKED TO PRODUCE COPY OF THE ABOVE MENTIONED AGREEM ENT ENTERED INTO WITH TVS INVESTMENT LTD WITH THE ASSESSEE COMPANY. HOWEVER, DESPITE SEVERAL OPPORTUNITIES GIVEN, THE ASSESSEE WAS NOT ABLE TO PRODUCE THE SAME. FURTHER, THE AMOUNT OF 3 CRORES HAS BEEN SHOWN AS INTER CORPORATE DEPOSITS IN THE FINANCIALS OF THE C OMPANY, M/S. T'VS INVESTMENT LTD, AGAINST WHICH THE ASSESSEE COMPANY WAS RECEIVING INTEREST. IF, AS CLAIMED BY T HE ASSESSEE THAT THE AMOUNT OF 3 CRORES WAS ONLY AN ADVANCE PAID TOWARDS PURCHASE OF SHARES OF TFSL, THEN THE SAME NEED NOT HAVE BEEN CLASSIFIED AS `INTER CORPORATE DEPOSITS' IN TH E FINANCIALS OF M/S. TVS INVESTMENTS LTD AND MORE FURTHER, - - ITA 329/16 & CO 45/15 27 THERE IS NO NEED TO RECEIVE INTEREST ON SUCH SUM. M OREOVER, THE AGREEMENT IS SET TO HAVE BEEN ENTERED TO PROVID E THE ASSESSEE COMPANY, TO FURTHER BUSINESS OPPORTUNITIES BY WAY OF CREDIT SUPPORT TO ITS CUSTOMERS. HOWEVER, AS SEEN FROM THE FINANCIALS OF THE ASSESSEE COMPANY FOR THE FINANCIAL YEAR 2009-10, THE COMPANY HAS DISPOSED THE SHARES PURCHASED, IMMEDIATELY, I.E. ON 03.03.2010 F OR A PALTRY SUM OF RE. 0.01 (I.E. 1 PAISE) PER SHARE. 12. THE LD. AR RELIED ON THE SUBMISSIONS MADE B Y THE ASSESSEE AND CONTENDED AGAINST THE ASSESSING OFFICER'S ADOPTION OF DEEMED SELLING PRICE AT 31.19/- PER SHARE. THE LD. AR SUBMITTED HIS ARGUMENTS AS UNDER: 1) AT THE OUTSET, THE ASSESSEE SUBMITS THAT IN THE ENTIRE SCHEME OF THINGS, VIZ., A. PROMOTION OF FINANCE ARM FOR FACILITATING MARKETING OF TWO WHEELERS MANUFACTURED BY THE APPELLANT COMPANY (TVS MOTOR COMPANY LIMITED) (TVSM), B. NECESSARY FUNDS BEING INVESTED IN THE YEARS 2001-2005, C. FACING ACUTE MELT DOWN IN THE BUSINESS PROSPECTS FOLLOWING ECONOMICS LOWDOWN - - ITA 329/16 & CO 45/15 28 D. COMPETITION IN FINANCE BUSINESS INSTITUTIONS, BETWEEN NBFC'S AND OTHER BANKING E. INABILITY TO INFUSE NECESSARY FUNDS IN THE LATER HALF OF THE PERIOD 2001-2 010 BY THE APPELLANT COMPANY TVSM, AND F. STRICTER NBFC NORMS IMPOSED BY RBI ON CAPITAL ADEQUACY AND MAINTENANCE OF NECESSARY NET OWNED FUNDS, ALL THESE DEVELOPMENTS FORCED THE INEVITABLE CLOSURE OF TVS FINANCE AND SERVICES LIMITED (TVSFS). 2) THE PROCESS OF CLOSING DOWN TVSFS IN VOLVED A. PROTRACTED DISCUSSIONS ON POSSIBLE ALTERNATIVES TO GET COMPETENT AND AFFORDABLE PARTNERS TO TAKE OVER THE BUSINESS. B. INABILITY TO PROCURE A SUITABLE PARTNER TO CARRY ON THE FINANCING BUSINESS AND C. FOLLOWING MANY REGULATORY PROVISIONS APPLICABLE TO LISTED COMPANIES BY THE STOCK EXCHANGE REGULATIONS AND LISTING AGREEMENT, MADE THE PROMOTERS OF TVSFS THINK VERY SERIOUSLY AS TO HOW THEY CAN SALVAGE TVSFS AT LEAST COST AS POSSIBLE. 3) IT WAS A SORRY STATE OF AFFAIRS THAT WHEN ONE OF THE COMPANIES IN THE TVS GROUP VIZTVSFS.1WAS INCURRING HUGE LOSSES, BUT, BEING A LISTED COMPANY WITH PUBLIC HAVING MADE IN INTO TVSFS, LEADING TO AN UNAVOIDABLE COLLAPSE, IT IMPACTED THE CREDIBILIT Y OF THE GROUP AS AAND WOULD CREATE A GREAT SLUR AND A SCAR ON THE BRAND NAVE 'TVS'. 4) THE APPELLANT COMPANY, BEING A PROMOTER AND A MAJOR SHAREHOLDER OF THE FINANCE ARM TVSFS HAD TO NECESSARILREVTY PENTHE CAUSING OF GREAT DAMAGE TO THE BRAND EQUITY 'TVS' FOR WHICH TO ASSUAGE THE PUBLIC, PAYING THE RIGHT PRICE AS LAID DOWN UNDER THE LISTING REGULATIONS BECAME A NECESSITY. SO THE MAIN PROMOTERS HOLDING NEARLY 89% OF THE SHARE - - ITA 329/16 & CO 45/15 29 CAPITAL OF TVSFS I.E., TVS INVESTMENTS LIMITED AND TVSM, THE APPELLANT COMPANY AGREED TO BUY BACK THE SHARES IN ACCORDANCE WITH THE LISTING AGREEMENT REGULATIONS MAINLY AND WITH THE SOLE INTENTION OF SAFEGUARDING THE NAME TVS GROUP PROTECTION OF THE TVS BRAND AND CREDIBILITY OF THE GROUP. 5) IT WAS NOT ANY TAX PLANNING OR TAX AVOIDANCE METHOD WHICH WAS INTENDED TO BE ADOPTED IN SELLING TVSFS SHARES AT A NOMINAL PRICE OF 1 PAISA PER SHARE. THIS WAS AN UNPLEASANT AND INEVITABLE NECESSITY TO CUT DOWN THE LOSSES OF FAILED- BELEAGUERED FINANCE ARM, ONLY TO SAFEGUARD THE PUBLIC IMAGE OF TVS AMONG THE INVESTING COMMUNITY. 6) IT WAS NO DOUBT A HOBSON'S CHOICE OF EITHER CLOSING DOWN THE BUSINESS AGREEING TO SUFFER WITH ALL RELATED CONSEQUENCES OR TO CONTINUE THE BUSINESS BY RESTRUCTURING ONLY THROUGH MAKING ADDITION AL INFUSION OF CAPITAL WHICH WAS ITSELF AN IMPOSSIBLE STRAIN ON THE PROMOTERS. SO, THE CHOICE OF CLOSING DOWN THE UNIT WAS TAKEN, THOUGH AT THE SAME TIME ANYTHING AFFECTING THE CREDIBILITY OF TH E PROMOTER COMPANY AND ALSO THE ENTIRE TVS GROUP NEEDED TO BE CONSIDERED WHILE TAKING THESE STEPS CAUTIOUSLY. 7) IT WAS SERIOUSLY BELIEVED BY THE PROMOTERS ON BEHALF OF THE TVS GROUP THAT THE ACQUISITION THROUGH SEBI APPROVED ROUTE OF BUYBACK PRICE OF THE SHARES HELD BY THE PUBLIC WOULD BE IN THE LARGE R INTEREST OF THE COMPANY'S CREDITORS, COMPANY'S SHAREHOLDERS, AND ABOVE ALL, IN THE INTERESTS OF PROTECTING THE IMAGE OF TVS GROUP. IN THIS BACKGROUND, IF THE WHOLE SCHEME OF THINGS, THAT UNFOLDED ITSELF IN THE PERIOD 2008-12 IS SEEN, IT WOULD BE EVIDENT THAT WITH THE SALE OF THE ENTIRE SHARES INITIALLY WITHIN THE GROUP INTO ANOTHER COMPANY ADDING NEGLIGIBLE VALUE (WHEN THE NET - - ITA 329/16 & CO 45/15 30 WORTH OF THE SHARES WAS CLEARLY A NEGATING FIGURE OVER RS.40 PER SHARE),THE GENUINENESS BEHIND THE CLOSURE CAN BE APPRECIATED. THE PARENT COMPANY AS PROMOTER WAS IN A MOST UNENVIABLE POSITION IN SUSTAINING THE HUGE LOSSES FOR HAVING INVESTED NEARLY RS. 100CR IN THE VENTURE AT DIFFERENT STAGES AND FINALLY SUSTAINING A HUGE CAPITAL LOSS. 8) THE QUANTUM OF LOSS OR THE METHOD BY WHICH THE LOSS WAS WORKED OUT FOR PURPOSE OF TAX RELIEF IS ON LY INCIDENTAL BUT THE FACTUM OF STARTING THE COMPANY, UTILISING IT FOR FINANCING THE VEHICLE SALES AND SUPPORTING IT IN ALL WAYS LEFT THE APPELLANT COMPAN Y, TVSM, AT THE END WITH THE EROSION OF ITS ENTIRE INVESTMENT; THUS IT IS NO WAY BACKED BY A TAX PLANNING SCHEME. THE FACTUAL LOSSES IN QUANTITATIVE TERMS WERE HUGE WHICH THE PROMOTERS HAD TO BEAR. INCIDENTALLY LOSSES SUSTAINED WERE AVAILED TO SALVAGE, AND TO MITIGATE TO THE EXTENT POSSIBLE THE HUGE LOSS IN MONETARY TERMS IN THE INVESTMENT MADE INTO THE SHARE CAPITAL OF TVSFS. THE WHOLE PROCESS ADOPTED I.E, A. SALE OF SHARE TO ANOTHER GROUP COMPANY TVS E-ACCESS B. LATER TO EMPLOYEES AND C. FOR AN EVENTUAL CLOSURE OF TVSFS SHOULD BE VIEWED IN THE ABOVE BACKDROP TO SALVAGE THE CREDIBILITY OF TVS GROUP AND PROTECTING TVS BRAND IMAGE. 12.1 HE ALSO DREW OUR ATTENTION TO THE ASSESSEE'S PARA-WISE REBUTTAL OF THE ASSESSING OFFICER'S OBSERVATIONS AS RECORDED BY THE CIT(APPEALS) IN HIS - - ITA 329/16 & CO 45/15 31 ORDER AS FOLLOWS : PARA 11.3 IN ASSESSMENT ORDER DATED 3.3.2014: AS CAN BE SEEN FROM THE ABOVE, THE ASSESSEE HAS ADOPTED A DIFFERENTIAL PRICE OF SHARES I.E. @ RS. 3 1.19 PER SHARE WHILE BUYING FROM M/S TVS INVESTMENTS LIMITED AND RE. 0.01 (I.E 1 PAISA) PER SHARE WHEN SELLING THE SAME SHARES TO M.S TVS E-ACCESS INDIA L TD WITHIN 47 DAYS. DURING THE COURSE OF HEARING, THE ASSESSEE WAS REQUESTED TO EXPLAIN AS TO WHY SUCH DIFFERENTIAL RA TE PER SHARE WAS ADOPTED FOR SALE OF SHARES OF TVS FINANCE & SERVICES LIMITED. PARA 11.6 IN ASSESSMENT ORDER DATED 3.3.2014: THUS IT IS CLEARLY EVIDENT THAT THE AVERMENT OF THE ASSESSEE THAT THEY PURCHASED THE SHARES OF TFSL FOR FURTHERING ITS BUSINESS IS DEVOID OF ANY RATIONAL O R BUSINESS PRUDENCE AS THEY WOULD NOT HAVE SOLD THE SHARES OF TFSL IMMEDIATELY IF ITS TRUE INTENTION WA S TO HAVE BUSINESS INTEREST IN TFSL. FURTHER, NO PRUDENT BUSINESSMAN WOULD BUY A SHARE WHOSE NET WORTH IS NEGATIVE AND WHICH WAS SOLD TO ONE OF ITS RELATED COMPANIES AT A PALTRY RATE OF 1 PAISA PER SHARE FOR A HUGE CONSIDERATION @ 31.19 PER SHARE. IN OTHER WORDS, THE ASSESSEE HAD PURCHASED THE SHARE OF TFSL AT A COST WHICH IS 3119 TIMES ITS TRADEABLE VALUE. ASSESSEE'S (TVSM) REBUTTAL OF AO'S CONTENTION TVSF&S WAS INITIALLY ENGAGED IN PROVIDING CORPORATE FINANCE AND MADE PROFITS TILL THE FINANCIAL YEAR 20 00-01. THEREAFTER, IT BEGAN PROVIDING FINANCE FOR PURCHASE OF TWO-WHEELERS MANUFACTURED BY TV SM AND BECAME AN IN-HOUSE FINANCE COMPANY. TVSM INVESTED 4,61,54,592 SHARES IN TVSF&S @ RS.10/- PER SHARE IN 2002-03, TVSM HAS ACQUIRED SHARES IN TVSF&S FROM AUGUST 2002 ONWARDS AND THE LAST MAJOR PURCHASE WAS MADE IN MARCH 2005. THE TOTAL COST OF SHARES ACQUIR ED - - ITA 329/16 & CO 45/15 32 BY TVSM IS RS. 86.91 CRORES AFTER INDEXATION. THESE SHARES WERE SOLD IN MARCH, 2010 AT ONE PAISA PER SHARE RESULTING IN A LONG TERM CAPITAL LOSS OF ALMO ST RS. 120 CRONES. TVSM HAD ALSO PURCHASED 7, 04, 349 SHARES OF TVSF&S AT RS. 31.19 PER SHARE FROM TVS INVESTMENT LTD. FOR A CONSIDERATION OF RS 2.19 CROR ES ON JANUARY 15, 2010. THIS LOT WAS SOLD ON MARCH 3, 2010 (WITHIN TWO MONTHS) FOR ONE PAISA PER SHARE T O TVS E-ACCESS INDIA LTD. RESULTING IN 2.2 CRORES (APPROXIMATELY). IT IS NECESSARY TO UNDERSTAND WHY THE SHARES WERE EVENTUALLY SOLD FOR JUST ONE PAISA PER SHARE. TVSM EXPLAINED THAT TVSF&S WAS A NON-BANKING FINANCE COMPANY WHICH WAS ALSO LISTED IN THE STOCK EXCHANGE . AFTER 2001 -02, TVSF&S INCURRED LOSSES YEAR AFTER YEAR AND, BY FINANCIAL YEAR 2006 - 07, THE ACCUMULA TED LOSSES STOOD AT RS. 75 CRORES. ALL NBFCS ARE GOVERN ED BY RBI REGULATIONS WHICH, INTER ALIA, REQUIRE MAINTENANCE OF CAPITAL ADEQUACY RATIO (CAR) AND ALS O A MINIMUM BASE OF NET-OWNED FUNDS WITHOUT WHICH FINANCE ACTIVITIES CANNOT BE CARRIED ON. THE GLOBAL 9 FINANCIAL CRISIS IN 2008 ALSO BADLY HIT THE TWO WHE ELER INDUSTRY LEADING TO A 20% DROP IN THE SALE OF TWO- WHEELERS BY TVSM. CONSEQUENTLY, IT COULD NOT INFUSE FURTHER AMOUNTS THAT WERE NECESSARY FOR TVSF&S TO COMPLY WITH CAR NORMS. IN NOVEMBER 2007, TVSF&S SUSPENDED ITS BUSINESS ON THE DIRECTIONS OF RBI AND CONTINUED TO INCUR FURTHER LOSSES. TVSF&S SURRENDER ED THE CERTIFICATE OF REGISTRATION GRANTED BY RBI ON 22/7/2009. THE PRIME MOTIVE OF SETTING UP A CAPTIVE FINANCE COMPANY, OWNED AND CONTROLLED BY A MANUFACTURER ('PARENT') IS UNDERWRITING THE SALE OF THE PARENT MANUFACTURER'S PRODUCTS. A CAPTIVE FINANCING ARM FUNCTIONS PRIMARILY AS AN EXTENSION OF A PARENT'S MARKETING ACTIVITIES. THE CAPTIVE UNIT FACILITATES THE SALE OF GOODS OR SERVI CES BY PROVIDING FINANCING TO THE PARENT'S DEALER ORGANISA TION - - ITA 329/16 & CO 45/15 33 (WHOLESALE FINANCING) OR END CUSTOMERS (RETAIL FINANCING). THE CAPTIVE FINANCE OPERATIONS CAN BE STRUCTURED AS A SEPARATE LEGAL ENTITY OF THE PARENT OR AS A DISTINCT OPERATING DIVISION OR BUSINESS LINE. THIS WOULD EXPLAIN THE INTERDEPENDENCE OF A FINANCE ARM TVSF&S AND MANUFACTURER, TVSM. THIS ALSO WOULD EXPLAIN THAT THERE WAS NO TAX PLANNING OR TAX AVOIDANCE INTENDED WHEN THE SALE OF TVSF&S SHARES AT ONE PAISA PER SHARE, THIS BECAME AN UNPLEASANT INEVITABLE NECESSITY TO GET OUT OF FAILED LOSS BELEAGUERED FINANCE ARM. TVSF&S, A NBFC GOVERNED BY PRUDENTIAL REGULATIONS OF RESERVE BANK OF INDIA (RBI) HAS BEEN INCURRING HUGE LOSSES IN ITS BUSINESS AND UP TO THE FINANCIAL YEAR 2006-07 THE ACCUMULATED LOSSES OF THE COMPANY STOOD AT RS. 75 CRORES. DURING THE FINANCIAL YEAR 2007-08, CONSEQUENT ON TH E INADEQUATE CAPITAL ADEQUACY RATIO (CAR) OF TVSF&S, RBI ADVISED THE COMPANY THAT THE COMPANY HAD NOT COMPLIED WITH THE NORMS OF MINIMUM NET OWNED FUNDS BASE TO CONTINUE THE NBFC BUSINESS AND ALSO HAD NOT COMPLIED WITH THE, CAR NORMS. THE ECONOMIC MELTDOWN OF 2008-09 MADE IT DIFFICULT FOR TVSM TO OFFER SUPPORT TVSF&S IN ANY SUBSTANTIAL WAY AND THE LOSSES OF TVSF&S WERE MOUNTING ON THE ONE SIDE AND THE BUSINESS STOOD SUSPENDED ON THE OTHER. FROM 2008-09 ONWARDS, THE COMPANY WAS FACED WITH THE HOBSON'S CHOICE OF CLOSING DOWN THE BUSINESS WI TH ALL RELATED CONSEQUENCES OR CONTINUE THE BUSINESS B Y RESTRUCTURING BY MAKING FRESH INVESTMENTS. IT HAD T O OPT, AND IT OPTED, FOR THE LATTER CHOICE AS THE CLO SURE WOULD HAVE NOT ONLY AFFECTED THE CREDIBILITY OF THE COMPANY AND THE SCL / TVSM, BUT IT COULD ALSO HAVE AFFECTED THE TVS GROUP AS A WHOLE. FINALLY, TVSM HAD TO UNDERTAKE THE MAIN RESPONSIBIL ITY OF RESTRUCTURING TVSF&S BUSINESS, AS IT ALSO NEEDED AN IN-HOUSE FINANCE COMPANY. - - ITA 329/16 & CO 45/15 34 THE RESTRUCTURE OF TVSF&S WAS DRIVEN ON ACCOUNT OF THE FOLLOWING: THAT TVSM NEEDED AN IN-HOUSE FINANCE COMPANY TO EFFECTIVELY COMPETE IN THE MARKET. IT IS AN INDISPUTABLE POSITION THAT WITHOUT AUTO FINANCING T HE GROWTH OF AUTO BUSINESS WOULD BE LIMITED. DECLARING INSOLVENCY OF TVSF&S WOULD HAVE FAR REACHING ADVERSE CONSEQUENCES TO THE TVS GROUP. DESPITE THE LOSSES AND THE DIFFICULTIES MOUNTING ON THE SIDE OF TVSF&S, TVSM COULD GET TVSF&S TO FINANCE A TOTAL OF 4.43 LAKH ADDITIONAL VEHICLES SO LD DURING 2001 TO NOVEMBER 2007 WHICH IT COULD NOT HAVE SOLD OTHERWISE, ON WHICH, IT EARNED AN INCOME OF RS. 387.62 CR, ON MARGINAL COSTING PRINCIPLES. THUS IT WOULD BE CLEAR THAT THE ENTIRE LOSS OF TVSF&S ARE GENUINE AND THAT MOST OF THE LOSSES MOUNTED ONLY AFTER SUSPENSION OF THE BUSINESS. MEANWHILE, STOCK EXCHANGE REGULATIONS REQUIRE THAT A LISTED COMPANY SHOULD HAVE AT LEAST 25% OF ITS SHARE CAPITAL HELD BY THE PUBLIC. THE PUBLIC SHAREHOLDING IN FEB 2008 WAS AS FOLLOWS: # SHAREHOLDERS SHARES NUMBER IN LAKHS % HELD 1 TVS INVESTMENTS LTD. 207.06 50.01% 2 TVS MOTOR COMPANY LTD. 164.53 39.74% 3 ANUSHA INVESTMENTS LTD 0.07 0.02% 4 PUBLIC SHAREHOLDING 42.35 10.23% TOTAL 414.01 100.00% AS PER THE LISTING AGREEMENT WITH THE STOCK EXCHANG ES WHERE THE COMPANYS SHARES WERE LISTED (BSE AND MSE ) THE PUBLIC HOLDING REQUIRED TO BE KEPT WAS 25%. AS AGAINST THE ABOVE, THE PUBLIC SHAREHOLDING WAS ONLY 10.23% AT THAT - - ITA 329/16 & CO 45/15 35 TIME. THE BOMBAY STOCK EXCHANGE ALSO SOUGHT TO KNO W THE COMPANYS ACTION IN THIS REGARD. ONE OF THE PROMOTERS, NAMELY, TVS INVESTMENTS LTD. DECIDED TO ACQUIRE THE 42.35 LAKH EQUITY SHARES AND GO FOR DELISTING. THIS WAS CONSIDERED IN THE BEST INTERES T OF THE PUBLIC SHAREHOLDERS. TVS INVESTMENTS LTD. ALSO BEL IEVED THAT THE ACQUISITION FROM PUBLIC SHAREHOLDER OF THE EQUITY SHARES WAS IN THE LARGER INTERESTS OF THE COMPANY, CREDITORS AND SHAREHOLDERS THEMSELVES, BESIDES BEING IN THE L ARGER INTEREST OF THE TVS GROUP ITSELF. HOWEVER, THE PROMOTERS HELD 90% OF THE CAPITAL OF T VSF&S AND THE PUBLIC HOLDING WAS ONLY 10%. THE PROMOTERS OF TVSF&S HAD TO EITHER INCREASE THE PUBLIC HOLDING TO 25% OR BUY-BACK THE REMAINING 10% SHARES BY AN OPEN OFFER AFTER FOLLOWING THE BOOK-BUILDING PROCESS PRESCRIBED IN T HE RELEVANT SEBI GUIDELINES. AS TVSF&S HAD SUSPENDED ITS BUSINESS FROM NOVEMBER 2007, THERE WAS NO QUESTION OF INCREASING THE PUBLIC SHAREHOLDING TO 25%; THERE WA S THUS NO OPTION BUT TO MAKE AN OPEN OFFER AS MENTIONED AB OVE. THE SEBI GUIDELINES DETERMINE THE FLOOR PRICE OF EQ UITY SHARES BUT DETAILS OF HOW THE OFFER PRICE WAS ARRIV ED AT RS. 20.29 PER SHARE. AS PER THE BOOK BUILDING PROCESS , THE MAXIMUM NUMBER OF SHARES WERE TENDERED AT RS. 25 AN D A COMPANY CALLED TVS INVESTMENT LTD., WHICH WAS ONE O F THE PROMOTERS OF TVSF&S, ACQUIRED ALL THE SHARES THAT W ERE TENDERED BY THE PUBLIC AT RS. 25 PER SHARE. UNDER THE SEBI GUIDELINES, ONLY ONE OF THE PROMOTERS HAS TO MAKE T HE PUBLIC OFFER TO ACQUIRE SHARES IN PREPARATION FOR THE EVEN TUAL DELISTING. AS TVSM WAS ALSO THE PROMOTER OF TVSF&S , IT WAS AGREED THAT THE TWO PROMOTER COMPANIES WOULD EQ UALLY SPLIT THE COST INCURRED IN THE BUY-BACK OF SHARES F ROM THE PUBLIC AT RS. 25 PER SHARE. THE ENTIRE DELISTING E XPENSES AMOUNTED TO RS. 6.19 PER SHARE AND THE RESULTANT CO ST OF - - ITA 329/16 & CO 45/15 36 ACQUISITION FOR TVSM AND FOR TVS INVESTMENT LTD. WA S RS. 31.19 PER SHARE. THE BOOK-BUILDING PROCESS TOOK PLACE IN MARCH 2008. THUS, THE PRICE AT WHICH THE SHARES WERE ACQUIRED FROM TVS IN VESTMENT LTD., WAS RS. 31.19 PER SHARE. ONLY 7,04,349 SHARE S WERE PURCHASED IN JANUARY 15, 2010 AT A PRICE OF RS. 31. 19 PER SHARE AS PART OF TVSMS OBLIGATION TO ACQUIRE THE S HARES FROM THE PUBLIC AS A CO-PROMOTER. IN ADDITION, TVSM HAD EARLIER ACQUIRED 8,67,62,192 SHARES OF TVSF&S ON VARIOUS DA TES DURING THE PERIOD 2002-2005 FOR A TOTAL CONSIDERATI ON OF RS. 86.91 CRORES. TVSM HAD, THEREFORE, ACQUIRED MOST OF THESE SHARES BETWEEN 2002 TO 2005 AT A FACE VALUE OF RS. 10/- IN JANUAR Y 2010, IT ACQUIRED ABOUT 7.04 LAKH SHARES AT A PRICE OF RS. 3 1.19 PER SHARE ARRIVED AT ON THE BASIS OF BOOK BUILDING PRIC E OF RS. 25 PER SHARE PLUS DELISTING EXPENSES OF RS. 6.19 PER S HARE WHICH HAD TO BE PAID TO TVS INVESTMENTS LTD., AS PART OF THE OBLIGATION OF TVSM AS CO-PROMOTER . IT MUST ALSO BE NOTED THAT THE NUMBER OF SHARES WHICH WERE ACQUIRED AS A RESULT OF THE BOOK-BUILDING PROCESS FOR DELISTING WAS APPROXI MATELY 15 LAKH SHARES AND 50% OF THE COST OF THEREOF HAD TO B E PAID FOR BY TVSM. PARA 11.5 IN ASSESSMENT ORDER DATED 3.3.2014 THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN CONSIDERE D CAREFULLY. AS PER THE ASSESSEES SUBMISSIONS, M/S TVS MOTOR COMPANY LIMITED (TMCL FOR BREVITY) HAD ENTERED INTO AN AGREEMENT WITH M/S TVS INVESTMENTS LTD FOR PURCHASE OF SHARS OF M/S TVS FINANCE & SERVICES LIMITED (TFSL FOR BRE VITY) IN FINANCIAL YEAR 2008-09 FOR A TOTAL VALUE OF RS. 3 C RORES, IN ORDER TO HAVE INTEREST IN THE BUSINESS OF TFSL WHICH WOUL D HELP IN FINANCING THE PRODUCTS MANUFACTURED BY TMCL. THE A SSESSEE WAS ASKED TO PRODUCE COPY OF THE ABOVE MENTIONED AG REEMENT ENTERED INTO WITH TVS INVESTMENT LTD WITH THE ASSES SEE COMPANY. HOWEVER, DESPITE SEVERAL OPPORTUNITIES GI VEN, THE ASSESSEE WAS NOT ABLE TO PRODUCE THE SAME. FURTHER , THE AMOUNT OF RS. 3 CRORES HAS BEEN SHOWN AS INTER CORP ORATE - - ITA 329/16 & CO 45/15 37 DEPOSITS IN THE FINANCIALS OF THE COMPANY, M/S TVS INVESTMENT LTD., AGAINST WHICH THE ASSESSEE COMPANY WAS RECEIV ING INTEREST. IF, AS CLAIMED BY THE ASSESSEE THAT THE AMOUNT OF RS. 3 CRORES WAS ONLY AN ADVANCE PAID TOWARDS PURCHASE OF SHARES OF TFSL, THEN THE SAME NEED NOT HAVE BEEN CLASSIFIE D AS INTER CORPORATE DEPOSITS IN THE FINANCIALS OF M/S TVS IN VESTMENTS LTD AND MORE FURTHER, THERE IS NO NEED TO RECEIVE I NTEREST ON SUCH SUM. MOREOVER, THE AGREEMENT IS SET TO HAVE B EEN ENTERED TO PROVIDE THE ASSESSEE COMPANY, TO FURTHER BUSINESS OPPORTUNITIES BY WAY OF CREDIT SUPPORT TO ITS CUSTO MERS. HOWEVER, AS SEEN FROM THE FINANCIALS OF THE ASSESSE E COMPANY FOR THE FINANCIAL YEAR 2009-10, THE COMPANY HAS DIS POSED THE SHARES PURCHASED, IMMEDIATELY, I.E., ON 03.03.2010 FOR A PALTRY SUM OF RE. 0.01 (I.E., 1 PAISA) PER SHARE. APPELLANTS (TVSM) REBUTTAL OF AOS CONTENTION THE AMOUNT GIVEN AS ICD WITH INTEREST IS PERFECTLY NORMAL TRANSACTION. THE FACILITY IS TO AVAIL THE BENEFIT OF FINANCE ARM. WHAT WAS GIVEN AS ICD WITH INTEREST, WITH SUBSEQUEN T DEVELOPMENTS THE PROPOSAL WAS TO CLOSE DOWN THE BUS INESS AND RETURN THE ICD AFTER ADJUSTING THE SELLING PRIC E. WHEN MORE INFUSION OF FUNDS WAS NOT POSSIBLE, AND DECISION TO CLOSE DOWN THE BUSINESS WAS IMPOSED INEVITABLY BY RBI AND STOC K EXCHANGE REGULATIONS, THIS ICD WAS USED TO ADJUST A GAINST SALE PROCEEDS OF SHARES. THE SAME ICD HAS BEEN ADJ USTED AGAINST THE PRICE PAYABLE BY TVSM FOR 7,04,349 SHAR ES PURCHASED AS PER UNDERSTANDING @ RS. 31.19 PER SHAR E. ADJUSTMENT OF ICD AGAINST THE PRICE PAYABLE IS A NO RMAL ACCOUNTING PROCEDURE TO SETTLE THE ICD BY ADJUSTING AGAINST SALE PRICE DUE. THERE IS NO STATUTORY BASIS FOR AO TO ADOPT THE PRI CE OF RS. 31.19 PER SHARE AS AGAINST THE SELLING PRICE OF ONE PAISA PER SHARE. NONE OF THE SECTIONS DEALING WITH CAPITAL G AINS PERMIT ADOPTION OF THE PRICE AT WHICH TVSM HAD TO PAY FOR THE SHARES AS A RESULT OF THE BOOK-BUILDING PROCESS. IN CALCU LATING CAPITAL GAINS, SECTION 45 HAS SEVERAL INSTANCES WHERE THE F AIR MARKET - - ITA 329/16 & CO 45/15 38 VALUE OR SOME OTHER SUM IS DEEMED TO BE THE CONSIDE RATION RECEIVABLE FOR TRANSFER OF THE ASSET. IN THE ABSEN CE OF A STATUTORY POWER, THE ADOPTION OF RS. 31.19 PER SHAR E IS IMPERMISSIBLE. THE AO HAS ALSO COMPLETELY IGNORED THE FACTUAL BAC KGROUND THAT REQUIRED TVSM TO PAY RS. 31.19 PER SHARE. THE AO HAS SIMPLY ASSUMED THAT TVSM HAD ADOPTED THIS PRICE W HEN THIS WAS THE ACTUAL COST INCURRED BY TVSM IN COMPLYING W ITH SEBI REGULATIONS. AS A CO-PROMOTER, TVSM WAS OBLIGED TO ACQUIRE THE SHARES FROM THE PUBLIC. THE AO HAS SERIOUSLY ERRED IN ADOPTING THE PRICE O F RS. 31.19 PER SHARE AS THE DEEMED SELLING PRICE. MOST OF THE SHARES HAD BEEN ACQUIRED BY TVSM FROM 2002 ONWARDS FOR RS. 10/ - PER SHARE. INDEED, THE ADOPTION OF RS. 31.19 AS THE PR ICE PER SHARES DEFIES ELEMENTARY COMMON SENSE. IF COMPANY S NET WORTH IS NEGATIVE, THEN THE PRICE AT WHICH THE SHAR ES CAN BE DISPOSED OFF HAS TO BE ONLY ONE PAISA PER SHARE OR SOME INSIGNIFICANT AMOUNT. THE SHARES PURCHASED FROM 200 2 TO 2005 HAD NOTHING TO DO WITH THE PRICE OF RS. 31.19 PER S HARE; ONLY SEVEN LAKH SHARES HAD BEEN ACQUIRED AT THIS PRICE. THERE IS NO JUSTIFICATION FOR THE AO IN COMPUTING CAPITAL GAINS OF ALMOST RS. 170 CRORES BY ADOPTING THE PRICE OF RS. 31.198 PER SHARE FOR ALL SHARES VIZ., 8,67,62,192 SHARES ACQUIRED BETWEEN 20 02-2004. TVSM BOUGHT 7,04,349 SHARES I.E., 50% OF TVSF&S SH ARES FROM TVSI, OUT OF THE 15,90,829 SHARES ACQUIRED THR OUGH BOOK BUILDING PROCESS. TVSF&S SHARES WERE ACQUIRED BY T VSI FROM THE PUBLIC THROUGH BOOK BUILDING PROCESS AS LAID DO WN UNDER SEBI REGULATIONS. BOTH TVSM AND TVSI AGREED TO SHARE THE ACQUISITIO N COST AND EXPENSES OF BOOK BUILDING IN THE RATIO IN WHICH TVS I AND TVSM HOLD TVSF&S SHARES IN THE CAPITAL STRUCTURE OF TVSF &S. COPY OF THE UNDERSTANDING SIGNED BY BOTH TVSM AND TVSI I S ENCLOSED ( ANNEXURE 1 ). - - ITA 329/16 & CO 45/15 39 IT IS THE OBLIGATION OF TVSM, AS CO-PROMOTER, TO GE T TVSF&S SHARES FROM TVSI BECAUSE TVSI BOUGHT TVSF&S SHARES FROM THE PUBLIC UNDER OPEN OFFER LAID DOWN FOR DELISTING THROUGH BOOK BUILDING PROCESS UNDER SEBI REGULATIONS. HENCE TVSM, AS A CO- PROMOTER, IS OBLIGED TO BUY TV SF&S SHARES TO THE EXTENT OF TVSM'S HOLDING IN THE SHARE CAPITAL OF TVSF&S FROM TVSI AND ALSO AT THE SAME PRICE AT WHIC H IT, WAS ACQUIRED FROM THE PUBLIC UNDER BOOK BUILDING PROCES S VIZ., 31.19 PER SHARE WHICH IS THE AGREED PRICE FOR CO- PROMOTE R TO ACQUIRE FROM TVSI. IT IS NOT CORRECT TO SAY THAT TVSM BOUGHT THESE SHA RES OF TVSF&S FROM TVSI, ARBITRARILY AND WITH A VIEW TO BO OK CAPITAL LOSS, AT RS. 31.19 PER SHARE. THE FACT IS TVSM HAS ACQUIRED TVSF&S SHARES IN VARIOUS STAGES IN VARIOUS YEARS FR OM 2002 ONWARDS, MAJOR CHUNK OF THEM @ RS. 10 PER SHARE, AN D LATER AT DIFFERENT PRICES. THE NUMBER OF SHARES BOUGHT FROM TVSI AS PART OF THE BOOK BUILDING PROCESS WAS ABOUT 7, 04,349 SH ARES ONLY @ RS. 31.19 PER SHARE. PLEASE REFER TO ANNEXURE 2 . TO TREAT THE ENTIRE PURCHASE MADE BY TVSM @ VARIOUS PRICES OF RS. 10, ETC., PER SHARE, AS SHARES ACQUIRED AT RS. 31.19 PER SHARE IS GROSSLY INCORRECT AND IS AGAINST FACTUAL P OSITION. PARA 11.7 IN ASSESSMENT ORDER DATED 3.3.2014 NOW LET US ANALYSE THE REASONS BEHIND SUCH AN ARBIT RARY TRANSACTIONS BETWEEN THE ASSSSEE AND ITS RELATED GR OUP CONCERNS I.E. TVS INVESTMENTS LTD AND TVS E-ACCESS INDIA LTD . IT IS PERTINENT TO NOTE AT THIS POINT THAT THE TVS INVEST MENTS LTD, TFSL AND TVS E-ACCESS INDIA LTD ARE GROUP CONCERNS MANAG ED BY COMMON CHAIRMAN WHEREAS THE ASSESSEE COMPANY TVS MO TORS LTD IS MANAGED BY A DIFFERENT CHAIRMAN. HENCE, FOR THIS PRECISE REASON, THE ASSESSEE HAS SOLD THE SHARES OF TFSL TO TVS E- ACCESS INDIA LTD. FOR A PALTRY RATE OF 1 PAISA PER SHARE WHEREAS PURCHASED THE SAME SHARES AT A HUGE RATE OF RS.31.1 9 PER SHARE FROM M/S.TVS INVESTMENT LTD, SO TAHT ITS TWIN OBJECTIVES CAN BE ACHIEVED I.E. SHARES OF TFSL COULD BE RETAIN ED WITHIN THE GROUP ITSELF AND ON THE OTHER HAND BOOK HUGE CAPITA L LOSS. IT IS - - ITA 329/16 & CO 45/15 40 ALSO PERTINENT TO NOTE HERE THAT THE ASSESSEE HAD A DMITTED HUGE LONG TERM CAPITAL GAIN ON SALE OF LAND AS STATED EL SEWHERE IN THIS ORDER AND IN ORDER TO EVADE LONG TERM CAPITAL GAINS TAX, THE ASSESSEE HAD BOOKED HUGE CAPITAL LOSS BY SELLING TH E SHARES OF TFSL TO TVS E-ACCESS INDIA LTD AS STATED ABOVE. ASSESSEE'S TVSM REBUTTAL OF AO'S CONTENTION IT IS NOT CORRECT TO SAY THAT IT IS ARBITRARY; MANA GEMENT OF COMPANIES OF A GROUP BY ONE CHAIRMAN AND MANAGEMENT OFASSESSEE COMPANY, TVSM, BY ANOTHER CHAIRMAN HAS N O RELEVANCE TO THE ISSUE ON HAND.' TVSF&S WAS USED ALL THE YEARS FROM 2001 AS A FINANC E ARM TO SUPPORT SALE OF TVSM VEHICLES. ALL COMPANIES BELONG TO THE SAME TVS GROUP. WHEN BUSINESS INTEREST, PRUDENCE TO USE CAPTIVE FINANCE ARM TO SUPPORT OEM LIKE TVSM IS A C OMMON BUSINESS PRACTICE IN THE INDUSTRY, FACTS ABOUT TVSF &S BUSINESS FROM 2001 TO 2010 AND INVOLVEMENT OF TVSM WITH TVSF &S IN THIS PERIOD SHOULD BE SEEN FROM A BUSINESSMAN ANGLE . WHEN THE FOREGOING ACCOUNT OF INTERDEPENDENCE OF TVSM AND TV SF&S ALL THROUGH 2001-2002 IS STUDIED, IT WOULD BE OBVIOUS T HAT TO ATTRIBUTE SINGULAR MOTIVE IN SELLING TVSF&S SHARES AT A LOSS TO ADJUST AGAINST CAPITAL GAINS ACCRUING ON SALE OF LA ND IS A BASELESS ARGUMENT. IN FACT THERE WAS NO INTENTION T O RETAIN TVSF&S SHARES WITHIN THE GROUP SINCE SUBSEQUENTLY T HEY WERE DISPOSED AND TVSF&S IS GETTING A SCHEME APPROVED BY THE COURT FOR MAKING TVSF&S DEFUNCT AND LIQUIDATED. 4. PARA 11.8 IN ASSESSMENT ORDER DATED 3.3.2014 IT IS PERTINENT TO NOTE THAT THE ASSESSEE COMPANY H AD SOLD THE SHARES OF TFSL DURING THE FINANCIAL YEAR AND BOOKED LONG TERM CAPITAL LOSS. DURING THE SCRUTINY PROCEEDINGS, IT W AS FOUND THAT, FOR THE ASSESSMENT YEAR 2009-10 INT EH CASE OF M/S. TVS INVESTMENTS LTD. IT WAS NOTICED THAT ONE SMT.MALLIK A SRINVIASAN HAS SOLD SUCH SHARES AT A COST OF RS.25 PER' SHARE RESULTING IN CAPITAL GAINS. THE SAME SALE CONSIDERATION WAS ADOP TED IN THE ASSESSEE'S CASE ALSO AND DUE ADDITION WAS MADE. WH ILE FILING. THE APPLICATION FOR STAY OF DEMAND IN THAT ASSESSME NT YEAR, THE - - ITA 329/16 & CO 45/15 41 COMPANY M/S.TVS INVESTME NTS LTD HAD CONTENDED THAT SUCH COMPARISON BETWEEN AN INDIVIDUAL (SMT.MALIIKA SRINI VASAN) AND ITSELF CANNOT BE DONE AS THE PRICE OF RS.25 /- PER SHARE IS EXIT PRICE AVAILABLE TO A 'RETAIL INVESTOR' BY THIS CON T T' EN ION, T H E SAID COMPANY HAS MEANT THAT FOR `OTHER THAN RETAIL INVEST OR', THE SALE PRICE WOULD BE @ 1PAISA ONLY. IF THIS SPECIFIC CONTENTIO N IS TO BE ADMITTED, THEN THE ASSESSEE WHICH IS A LISTED COMPANY, SH OULD HAVE ALSO BOUGHT THE SHARES OF TFSL @ 1 PAISA ONLY WHICH IS NOT THE CASE. ASSESSEE'S TVSM REBUTTAL O AO'S CONTENTION (A) COMPARING MRS. MALLIKA SRINIVASAN'S OFFER, HER HOLDING IN TVSF&S @ RS. 25 PER SHARE IS ALSO ILLOGICAL AND HAS NO SUBSTANCE. THIS IS BECAUSE SHE IS A SHAREHOLDER, UN DER THE PUBLIC CATEGORY, HOLDING A FEW HUNDRED SHARES, WHIC H WAS OFFERED BY HER IN THE EXIT ROUTE PROVIDED TO THE PU BLIC UNDER THE BOOK BUILDING PROCESS ASSOCIATED WITH THE DELISTING OF SHARES. (B)ANY PUBLIC SHAREHOLDER AS A RETAIL INVESTOR, WHO SURRENDER THE SHARES, WOULD HAVE GOT THE SAME RS. 25 PER SHARE WH ICH WAS THE EXIT PRICE' DERIDED AS PER THE SEBI REGULATIONS UNDER THE BOOK BUILDING PROCESS. HENCE IT IS NOT CORRECT TO S AY THAT THEY FIXED RETAIL INVESTOR PRICE @ RS. 25 PER SHARE AND OTHER THAN RETAIL INVESTOR PRICE AT 1 PAISA PER SHARE. (C) REGULATIONS OF SEBI FOR DELISTING AND PRICE OUG HT TO BE OFFERED TO THE PUBLIC SHAREHOLDER ON THE BASIS OF B OOK BUILDING PROCESS SHOULD BE RECOGNISED AND WHEN SO DONE, THE SALE PRICE ADOPTED FOR SALE OF SOME TVSF&S SHARES HELD BY TVSM TO TVSEA AT 1 PAISA CANNOT BE COMPARED BECAUSE ONE IS THROUGH DELISTING PROCESS PRICE AND ANOTHER IS ARRANGEMENT OF THE PROMOTERS TO RECOGNISE THE NIL VALUE OR NEGATIVE VA LUE OF THE SHARES HELD BY THEM IN HUGE QUANTITIES AS PROMOTERS . WHEN THEY WANT TO EXIT THE COMPANY AND PLAN FOR RESTRUCTURING OF THE FINANCE BUSINESS, TO SELL THE SHARES TO A GROUP COMPANY AT A VALUE BORNE IN THE BALANCE SHEET WITH NEGATIVE NETWORTH AND CER TIFIED BY THE VALUER IS TO BE RECOGNISED. 5. PARA 11.9 IN ASSESSMENT ORDER DATED 3.3. 2014 - - ITA 329/16 & CO 45/15 42 IN VIEW OF THE ELABORATE DISCUSSION AND REASONING G IVEN IN THE ABOVE MENTIONED PARAGRAPHS, I AM INCLINED TO HOLD T HAT THE ENTIRE GAMUT OF TRANSACTIONS BETWEEN THE ASSESSEE C OMPANY AND ITS GROUP CONCERNS WAS CARRIED OUT WITH A SINGU LAR MOTIVE TO EVADE TAX IN THE GUISE OF TRANSFER OF A CAPITAL ASS ET I.E., SHARES OF TFSL. THIS IS ONLY A COLOURABLE DEVICE AND A DES IGN ADOPTED BY THE ASSESSEE COMPANY TO EVADE PAYMENT OF TAX CON SISTENTLY OVER A PERIOD OF YEARS. 6. PARA 11.10 IN ASSESSMENT ORDER DATED 3.3.2014 DECISIONS RELIED ON BY THE A.O AND THE APPELLANT T HE HON'BLE SUPREME COURT IN THE CASE OF MC DOWELL VS CTO (154 ITR 148) (SC) ON THE ISSUE OF WHETHER A COLOURABLE DEVICE CA N BE USED TO EVADE TAX, HAS HELD AS UNDER: 'TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITH IN THE FRAMEWORK OF LAW. COLOURABLE DEVICES CANNOT BE PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE OR ENTERT AIN THE BELIEF' THAT IT IS HONOURABLE TO AVOID THE PAYMENT OF TAX RESORTING TO DUBIOUS METHODS. IT IS THE OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES HONESTLY WITHOUT RESORTING TO SUBTERFUGES. IT IS NEITHER FAIR NOR DESIRABLE TO EXPECT THE LEG ISLATURE TO INTERVENE AND TAKE CARE OF EVERY DEVICE AND SCHEME TO AVOID TAXATION. IT IS UP TO THE COURT TO TAKE STOCK TO DETERMINE THE NATURE OF THE NEW AND SOPHISTICATED L EGAL DEVICES TO AVOID TAX AND CONSIDER WHETHER THE SITUA TION CREATED BY THE DEVICES COULD BE RELATED TO THE EXIS TING LEGISLATION WITH THE AID OF `EMERGING' TECHNIQUES O F INTERPRETATION WAS DONE IN RAMSAY, BURMA OIL AND DAWSON, TO EXPOSE THE DEVICES FOR WHAT THEY REALLY ARE AND TO REFUSE TO GIVE JUDICIAL BENEDICTION' - - ITA 329/16 & CO 45/15 43 FURTHER, THE HON'BLE HIGH COURT OF MADHYA PRADESH IN THE CASE OF BINODIRAM BALCHAND & CO. VS CIT (2001) (118 TAXM AN 544) (MP), ON THE ISSUE OF WHETHER THE TAXING AUTHORITY HAS THE POWER TO PROBE SUCH COLOURABLE DEVICES, HAS HELD AS UNDER: PLANNING OR LEGITIMATE AVOIDANCE OF TAX LIABILITY - HELD. YES WHETHER FURTHER SINCE ISSUES IN INSTANT CASE W ERE PURELY QUESTIONS OF FACTS ON WHICH THERE WERE CONCU RRENT FINDINGS OF AUTHORITIES BELOW, IT WAS TO BE HELD TH AT THERE WAS NO QUESTION OF LAW TO BE CONSIDERED - HELD, YES (IN FAVOUR OF REVENUE)' FURTHER, THEIR LORDSHIPS HAVE HELD THAT 'THE SUPREME COURT IN THE VODAFONE INTERNATIONAL HOLDINGS BV V. UNION OF INDIA (2012) 204 TAXMAN 408 /17 TAXMANN.COM 202 (SC) MAKES IT VERY CLEAR THAT A COLOURABLE DEVICE CANNOT BE A PART OF TAX PLANNING. THEREFORE, WHERE A TRANSACTION IS SHAM AND NOT GENU INE AS IN THE INSTANT CASE THEN IT CANNOT BE CONSIDERED TO BE A PART OF TAX PLANNING OR LEGITIMATE AVOIDANCE OF TAX LIABILITY. IN THE INSTANT CASE, THE PURCHASE AND SALE OF SHARE S SO AS TO TAKE LONG-TERM AND SHORT-TERM CAPITAL LOSS, WAS FOUND AS A MATTER OF FACT BY ALL THE THREE AUTHORITIES TO BE A SHAM' 7. PARA 11.11 IN ASSESSMENT ORDER DATED 3 .3.2014 THUS CONSIDERING THE AUTHORITATIVE PRECEDENCE RENDE RED BY THEIR LORDSHIPS IN THE CASE LAWS CITED SUPRA AND AL SO KEEPING IN MIND THE FACTS AND CIRCUMSTANCES OF THE INSTANT CAS E, I AM HOLDING THAT, RATE PER SHARE OF TFSL SHARES SOLD TO TVS E- ACCESS INDIA LTD. HAS TO BE ADOPTED AT THE SAME RAT E PER SHARE AS THAT OF THE TRANSACTIONS BETWEEN THE ASSESSEE CO MPANY AND TVS INVESTMENTS LTD I.E. @ RS.31.19 PER SHARE AND ACCORDINGLY, THE LONG TERM CAPITAL GAIN IS WORKED O UT TO RS. 167,47,07,618/- AND SHORT TERM CAPITAL GAIN IS - - ITA 329/16 & CO 45/15 44 RS.3,07,09,115 AS PER ANENXURE-2. ASSESSEE'S REBUTTAL OF AO'S CONTENTION THE AO HAS REFERRED TO CERTAIN PASSAGES FROM MC DOW ELL V CIT 154 ITR 148 (SC) TO ALLEGE THAT THE TRANSACTION BY TVSM IS A COLOURABLE DEVICE. THERE IS NO DISPUTE THAT THE AO CAN IGNORE A COLOURABLE DEVICE WHERE THE INTENTION IS TO EVADE T AX BY RESORTING TO DUBIOUS ARRANGEMENTS. IN THE ENTIRE AS SESSMENT ORDER, THERE IS NO DISCUSSION AS TO HOW AND WHY THE SERIES OF EVENTS HAD TAKEN PLACE. THE PAYMENT OF A PRICE FIXE D BY SEBI REGULATIONS CANNOT BE TREATED AS A 'DUBIOUS METHOD' . IF THE VALUE OF A SHARE IS NIL BECAUSE THE COMPANY HAS A N EGATIVE NET WORTH, THE SELLER CANNOT EXPECT ANY AMOUNT FROM THE SALE OF SUCH AN UNLISTED SHARE. THEREFORE, NEITHER THE PURC HASE PRICE OF RS. 31,19 NOR THE SELLING PRICE OF ONE PAISA PER SH ARE CAN BE CALLED AS 'RESORTING TO DUBIOUS METHODS'. INDEED, T HE PURCHASE PRICE COULD NOT HAVE BEEN ALTERED NOR COULD TVSM HA VE RECEIVED ANY PRICE FOR A COMPANY THAT HAD CLOSED IT S OPERATIONS AND HAD A NEGATIVE NET WORTH. SECTION 48 OF IT ACT PROVIDES FOR MODE OF COMPUTATI ON OF CAPITAL GAINS. THE STARTING POINT OF COMPUTATION IS THE FUL L VALUE OF CONSIDERATION RECEIVED OR ACCRUING. WHAT INFACT NEV ER ACCRUED OR WAS NEVER RECEIVED CANNOT BE COMPUTED AS CAPITAL GAINS U/S 48. KP VARGHEESE VS ITO ERNAKULAM 131 ITR 597 (SC). PURCHASE AND SALE OF TVSF&S WAS NOT PART OF ANY TAX PLANNING PROGRAMME. EVEN IF THE SHARE HAD BEEN SOLD AT A LAT ER POINT OF TIME, THERE IS NO CHANCE OF A HIGHER VALUE BEING RE ALIZED. THE AO HAS CITED THE DECISION OF THE MADHYA PRADESH HIGH COURT IN BINODIRAM BALCHAND &CO. CIT (2001)'L 18 TA XMAN 544. INDEED, THE OBSERVATIONS OF THE MADHYA PRADESH HIGH COURT DECISION ACTUALLY ASSIST TVSM AS THE PURCHASE PRICE WAS BASED ON SEBI REGULATIONS AND THE SALE PRICE WAS BASED ON A VALUATION CERTIFICATE. THESE CANNOT BE CALLED AS LA CKING IN - - ITA 329/16 & CO 45/15 45 TRANSPARENCY OR BONA FIDES. THE AO HAS NOT GIVEN AN Y. FINDING THAT THE PURCHASE PRICE OR SELLING PRICE WA S NOT CORRECT. THERE IS ALSO NO EXPLANATION AS TO HOW THE PURCHASE PRICE OF A SHARE BASED ON SEBI REGULATIONS CAN BE DEEMED TO BE THE SELLING PRICE. THE BOMBAY HIGH COURT DECISION IN KI LLICK NIXON LTD. V DCIT 20 TA..XMANN.COM 703: [2012]208 TAXMAN 4,5, DEALT WITH A TRANSACTION WHICH WAS FOUND TO BE SHAM AND BOGUS. IN THE PRESENT CASE, THERE IS NO SUCH FINDIN G. THE AO HAS NO POWER TO IGNORE THE PRICE WHICH WAS ARRIVED AT ON THE BASIS OF SEBI REGULATIONS. IT IS ALSO NOT DISPUTED THAT TVSF&S HAD A NEGATIVE NET WORTH, WAS DELISTED AND ITS SHAR ES COULD NOT BE SOLD TO ANY THIRD PARTY. TO PUT IT BLUNTLY, THE SHARES OF TVSF&S WERE WORTHLESS. 12.2 HE ALSO PLACED RELIANCE ON THE FOLLOWING JUDGMENTS: (1) CIT VS BIRAJ INVESTMENTS PVT LTD. (2012) 24 TAXMANN .COM 273 (GUJ) : (2) CIT VS OBEROI HOTELS (P) LTD. 334 ITR 293(KOLKA TA) (3) CIT VS S S SANKARALINGAM 176 CTR 520 (MADRAS) 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE ASSESSEE HAD SOLD THE SHARES OF TVS FINANCE AND SERVICES LTD. (TVSF&S), BOTH LONG T ERM AND SHORT TERM, FOR A CONSIDERATION OF ONE PAISE PER SH ARE WHICH RESULTED IN CAPITAL LOSS. THEREAFTER, THE ASSESSEE SET OFF THE CAPITAL LOSS ARISING OUT OF THE SALE OF SHARES AGAI NST THE CAPITAL GAINS ARISING OUT OF THE SALE OF LAND OWNED BY THE ASSESSEE. ACCORDING TO THE AO, THE SALE OF SHARES AT ONE PAIS E PER SHARE WAS A COLOURABLE DEVICE TO SET OFF THE CAPITAL GAIN S. THE AO - - ITA 329/16 & CO 45/15 46 FIXED THE SALE PRICE AT 31.19PER SHARE AND WORKED OUT THE LONG TERM CAPITAL GAINS AND SHORT TERM CAPITAL GAINS. A GAINST THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS) AND PLEADED THAT AS PER THE CORPORATE PRACTICE AND SEBI REGULAT IONS, THE TRANSACTIONS WERE LEGAL. CONSIDERING THE VARIOUS P LEAS OF THE ASSESSEE, THE CIT(APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE. 13.1 NOW, THE CONTENTION OF THE LD. DR, BEFOR E US, IS THAT THESE TRANSACTIONS WERE ENTERED INTO BY THE ASSESSE E FOR EVADING TAX ON LONG TERM CAPITAL GAIN ON SALE OF LA ND AND SHORT TERM CAPITAL GAIN ON INVESTMENT AND IT CANNOT BE AL LOWED. ADMITTEDLY, IN THIS CASE, NET WORTH OF TVSF&S IS NE GATIVE. TVSF&S IS INCURRING CONTINUOUSLY HEAVY LOSSES AND T HE SAID COMPANY WENT OUT ON DELISTING, PURSUANT TO THE SECU RITIES AND EXCHANGE BOARD OF INDIA(DELISTING OF SECURITIES) GU IDELINES 2003. FURTHER, TVS INVESTMENTS LTD. HOLDS 2,07,06, 435 FULLY PAID-UP EQUITY SHARES IN THE TVSF&S REPRESENTING 50 .01% OF FULLY PAID-UP EQUITY SHARE CAPITAL OF THE COMPANY A S ON FEB., 9 TH 2008. THE OTHER PROMOTER, BEING ASSESSE COMPANY AN D ANUSHA INVESTMENTS LTD. HOLD IN THE AGGREGATE 39.76 % OF THE TOTAL PAID-UP EQUITY SHARE CAPITAL OF THE TVSF&S AS ON FEB. 9 TH , - - ITA 329/16 & CO 45/15 47 2008. TVS INVESTMENTS LTD. ALONG WITH OTHER PROMOT ERS ARE TOGETHER THE PROMOTERS OF THE ASSESSEE COMPANY. TH E DIRECTORS AND RELATIVES HOLD IN AGGREGATE 7,162 EQU ITY SHARES CONSISTING OF 0.01% OF THE TOTAL PAID-UP EQUITY SHA RE CAPITAL OF THE TVSF&S AS ON FEB. 9 TH , 2008. THE ACCUMULATED LOSSES OF TVSF&S WAS 99 CRORES AS ON 31.12.2007. OUT OF SUCH LOSSES, IT IS REQUIRED TO STRENGTHEN THE NET OWNED FUNDS POSITION AND INCREASE THE LONG TERM CAPITAL BASE FOR FUTURE OPERATIONS OF THE COMPANY. SO, THE MAIN PROMOTERS HOLDING NEARLY 89% OF THE SHARE CAPITAL OF TVSF&S I.E. TVS INVESTMENTS LT D. AND TVSM, THE ASSESSEE COMPANY AGREED TO BUY THE SHARES IN ACCORDANCE WITH THE LISTING AGREEMENT REGULATIONS M AINLY AND WITH THE SOLE INTENTION OF SAFEGUARDING THE NAME TV S, PROTECTION OF THE TVS BRAND AND CREDIBILITY OF THE GROUP. IT WAS NOT ADOPTED ANY TAX PLANNING IN SELLING THE SHARES OF TVSF&S AT A NOMINAL PRICE OF ONE PAISE PER SHARE. IT WA S ONLY TO SAFEGUARD THE PUBLIC IMAGE OF TVS GROUP. WHEN TH ERE WAS A NEGATIVE NET WORTH OF THE ASSESSEE COMPANY, IT IS N OT PRACTICABLE TO KEEP SUCH SHARES IN THE HANDS OF THE ASSESSEE COMPANY, OTHERWISE IT CAUSE HUGE DAMAGE ON PUBLIC I MAGE, - - ITA 329/16 & CO 45/15 48 WHICH CANNOT BE RECTIFIED BY ANY MEANS. HENCE, THE SELLING OF SHARES OF ONE PAISA PER SHARE WAS THE CONSCIOUS DEC ISION WHICH WAS CAUTIOUSLY TAKEN SO AS TO SAFEGUARD THE I MAGE OF THE COMPANY. IT WAS THE BELIEF OF THE COMPANY THAT THE ACQUISITION THROUGH SEBI APPROVED ROUTE OF BUYBACK PRICE OF THE SHARE HELD BY THE PUBLIC WOULD BE IN THE LARGER INTEREST OF TH E COMPANY CREDITORS, COMPANY SHAREHOLDERS AND ABOVE ALL, IN T HE INTERESTS OF PROTECTING THE PUBLIC IMAGE OF TVS GROUP. IN TH IS BACKGROUND, IF THE WHOLE SCHEME OF THINGS, THAT UNF OLDED ITSELF IN THE PERIOD 2008-12 IS SEEN, IT WOULD BE EVIDENT THAT IF THE SALE OF ENTIRE SHARES INITIALLY WITHIN THE GROUP INTO AN OTHER COMPANY ADDING NEGLIGIBLE VALUE (WHEN THE NET WORTH OF THE SHARES WAS CLEARLY A NEGATIVE FIGURE OF OVER 40 PER SHARE ), GENUINENESS BEHIND THE CLOSURE CAN BE UNDERSTOOD. THE PARENT C OMPANY AS A PROMOTER WAS IN A MOST UNENVIABLE POSITION IN SUS TAINING THE HUGE LOSSES FOR HAVING INVESTED NEARLY 100 CRORES IN THE VENTURE AT DIFFERENCE STAGE AND FINALLY SUSTAINING A HUGE CAPITAL LOSS. THE SALE OF SHARES OF ONE PAISE PER SHARE IS ONLY THE METHODOLOGY FOLLOWED BY THE ASSESSEE TO AVOID ANY F UTURE LOSSES IN MONETARY TERMS. FURTHER, IT IS TO BE NOTE D THAT THE AO - - ITA 329/16 & CO 45/15 49 HAS REFERRED TO CERTAIN PASSAGES FROM MC DOWELL V C IT 154 ITR 148 (SC) TO ALLEGE THAT THE TRANSACTION BY THE ASSE SSEE COMPANY, TVSM IS A COLOURABLE DEVICE. THERE IS NO D ISPUTE THAT THE AO CAN IGNORE A COLOURABLE DEVICE WHERE TH E INTENTION IS TO EVADE TAX BY RESORTING TO DUBIOUS ARRANGEMENT S. IN THE ENTIRE ASSESSMENT ORDER, THERE IS NO DISCUSSION AS TO HOW AND WHY THE SERIES OF EVENTS HAD TAKEN PLACE. THE PAYME NT OF A PRICE FIXED BY SEBI REGULATIONS CANNOT BE TREATED A S A 'DUBIOUS METHOD'. IF THE VALUE OF A SHARE IS NIL BECAUSE THE COMPANY HAS A NEGATIVE NET WORTH, THE SELLER CANNOT EXPECT ANY AMOUNT FROM THE SALE OF SUCH AN UNLISTED SHARE. THEREFORE, NEIT HER THE PURCHASE PRICE OF RS. 31.19 NOR THE SELLING PRICE O F ONE PAISA PER SHARE CAN BE CALLED AS 'RESORTING TO DUBIOUS ME THODS'. INDEED, THE PURCHASE PRICE COULD NOT HAVE BEEN ALTE RED NOR COULD TVSM HAVE RECEIVED ANY PRICE FOR A COMPANY TH AT HAD CLOSED ITS OPERATIONS AND HAD A NEGATIVE NET WORTH. FURTHER, NORMALLY AUTHORITIES CONCERNED SHALL PROCEED ON THE BASIS OF THE PROFESSED INTENTION OF THE PARTIES TO A DOCUMEN T/ TRANSACTION/ARRANGEMENT. IF THAT IS UNDER DOUBT OR DISPUTED OR CHALLENGED, THEN THE AUTHORITIES HAVE THE POWER TO FIND OUT THE - - ITA 329/16 & CO 45/15 50 REAL INTENTION OF THE PARTIES BY REMOVING FACADE TO EXPOSE THEIR REAL INTENTION CLEVERLY CLOAKED AND IF THAT INTENTI ON IS DISCOVERED TO BE EVASION OF TAX, IT CANNOT BE GIVEN EFFECT TO MERELY BECAUSE OF STEPS TAKEN AS COMPONENT PARTS OF ARRANGEMENT AR E LEGALLY CORRECT OR VALID. ALL DOCUMENTS OR TRANSACTIONS H AVE TO BE GIVEN EFFECT TO EVEN THOUGH THEY RESULTED IN TAX LI ABILITY, PROVIDED THAT THEY ARE GENUINE AND BONA FIDE AND IT CANNOT BE CALLED AS COLOURABLE DEVICE. IN CASE, A TRANSACTIO N TOOK PLACE WITH THE SOLE INTENTION TO PROTECT THE IMAGE OF THE COMPANY AND THAT RESULTED IN DEDUCTION OF TAX LIABILITY, IT CAN NOT BE CALLED AS A DUBIOUS METHOD FOLLOWED BY THE ASSESSEE, AS THE PAR TIES INVOLVED THEREIN HAVE THE RIGHT TO INDULGE ANY TAX PLANNING AND IT CANNOT BE TAKEN AWAY BY ANY JUDGMENT OF THE COURT. THIS RIGHT HAS TO BE CONSIDERED AND IN FAIRNESS, IT SHOULD BE APPRECIATED THAT ALL TRANSACTIONS, WHICH RESULTED IN DEDUCTION OF TAX LIABILITY, CANNOT BE CONSIDERED AS A DEVICE OR SUBTERFUGE OR C OLOURABLE TRANSACTION. 13.2 SECTION 48 OF IT ACT PROVIDES FOR MODE OF COMPUTATION OF CAPITAL GAINS. THE STARTING POINT OF COMPUTATION IS THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING. WHAT I N FACT NEVER - - ITA 329/16 & CO 45/15 51 ACCRUED OR WAS NEVER RECEIVED CANNOT BE COMPUTED AS CAPITAL GAINS U/S 48. IN THE CASE OF KP VARGHEESE VS ITO ER NAKULAM 131 ITR 597, THE SUPREME COURT HAS HELD AS UNDER : THE ONUS OF ESTABLISHING THAT THE CONDITIONS OF TA XABILITY ARE FULFILLED IS ALWAYS ON THE REVENUE AND THE BURD EN LIES ON THE REVENUE TO SHOW THAT THERE IS AN UNDERSTATEM ENT OF CONSIDERATION. MOREOVER, TO THROW THE BURDEN SH OWING THAT THERE IS NO UNDERSTATEMENT OF CONSIDERATION ON THE ASSESSEE WOULD BE TO CAST AN ALMOST IMPOSSIBLE BURD EN UPON HIM TO ESTABLISH A NEGATIVE, VIZ., THAT HE DID NOT RECEIVE ANY CONSIDERATION BEYOND WHAT IS DECLARED B Y HIM. ONCE IT IS ESTABLISHED BY THE REVENUE THAT T HE CONSIDERATION HAS BEEN UNDERSTATED OR TO PUT DIFFER ENTLY THE CONSIDERATION ACTUALLY RECEIVED BY THE ASSESSEE IS MORE THAN WHAT IS DECLARED OR DISCLOSED BY HIM AND THE REVENUE IS THEN, NOT REQUIRED TO SHOW WHAT IS THE S TATE OF UNDERSTATEMENT OR WHAT IS ACTUALLY RECEIVED BY THE ASSESSEE. PURCHASE AND SALE OF TVSF&S WAS NOT PART OF ANY TAX PLANNING PROGRAMME. EVEN IF THE SHARE HAD BEEN SOLD AT A LAT ER POINT OF TIME, THERE IS NO CHANCE OF A HIGHER VALUE BEING RE ALIZED. THE AO HAS CITED THE DECISION OF THE MADHYA PRADESH HIG H COURT IN BINODIRAM BALCHAND &CO. CIT (2001)118 TAXMAN 544. I NDEED, THE OBSERVATIONS OF THE MADHYA PRADESH HIGH COURT D ECISION ACTUALLY ASSIST TVSM AS THE PURCHASE PRICE WAS BASE D ON SEBI REGULATIONS AND THE SALE PRICE WAS BASED ON A VALUA TION - - ITA 329/16 & CO 45/15 52 CERTIFICATE. THESE CANNOT BE CALLED AS LACKING IN T RANSPARENCY OR BONA FIDES. THE AO HAS NOT GIVEN ANY FINDING THAT T HE PURCHASE PRICE OR SELLING PRICE WAS NOT CORRECT. THERE IS AL SO NO EXPLANATION AS TO HOW THE PURCHASE PRICE OF A SHARE BASED ON SEBI REGULATIONS CAN BE DEEMED TO BE THE SELLING PR ICE. THE BOMBAY HIGH COURT DECISION IN KILLICK NIXON LTD. V DCIT 20 TAXMANN.COM 703: [2012]208 TAXMAN 45, DEALT WITH A TRANSACTION WHICH WAS FOUND TO BE SHAM AND BOGUS. I N THE PRESENT CASE, THERE IS NO SUCH FINDING BY THE AO. T HE AO HAS NO POWER TO IGNORE THE PRICE WHICH WAS ARRIVED AT ON THE BASIS OF SEBI REGULATIONS. IT IS ALSO NOT DISPUTED THAT TVSF&S HAD A NEGATIVE NET WORTH, WAS DELISTED AND ITS SHAR ES COULD NOT BE SOLD TO ANY THIRD PARTY. IN OTHER WORDS, THE S HARES OF TVSF&S WERE WORTHLESS. 13.3 IN THE CASE OF CIT VS BIRAJ INVESTMENTS PVT LTD. (2012) 24 TAXMANN.COM 273 (GUJ), THE ASSESSEE M/S BIRAJ IN VESTMENT PUT LTD HAD MADE LTCG ON SALE OF SHARES IN M/S RUST OM SPINNERS LTD AND INCURRED LONG TERM CAPITAL LOSS ON SALE OF SHARES IN M/S RUSTORN MILLS & INDUSTRIES LTD, AND T HE PURCHASE/SALES WERE EFFECTED TO ANOTHER INVESTMENT COMPANY - - ITA 329/16 & CO 45/15 53 OF THE SAME GROUP VIZ BIJAL INVESTMENTS LTD. AN HEL D THAT SINCE THE HUSBAND OF A COMMON DIRECTOR OF THESE COMPANIES WAS THE MD OF RUSTOM MILLS, THE TRANSACTION WAS A COLORABLE DEVICE TO EVADE THE TAX ON LTCG. HE ALSO HELD THAT SINCE THE SHARES WERE PLEDGED WITH IDBI BANK, THERE CANNOT BE A DELI VERY TO EFFECT THE TRANSFER OF THE SHARES IN WHICH LONG TER M, CAPITAL LOSS WAS INCURRED. THE HIGH COURT AFTER ACCEPTING THE C ONTENTION THAT THERE WAS A TRANSFER SINCE SELLER HAD GIVEN AN IRREVOCABLE POWER OF ATTORNEY TO THE BUYER AND ALSO RECEIVED TH E FULL CONSIDERATION HAD FURTHER HELD THAT IN THE ABSENCE OF ANY PROVISION IN THE ACT PREVENTING SALE OF SHARES TO A COMPANY WITHIN THE SAME GROUP, IT CANNOT BE TREATED AS COLO RABLE DEVICE. HC FURTHER HELD THAT IT WAS ALWAYS OPEN TO THE TAXP AYER EITHER TO HOLD ON THE SHARES OR SELL THE SAME TO AVOID ANY FU RTHER LOSS IF IT IS FELT THAT THE MARKET VALUE WAS DIMINISHING. IT I S OPEN TO SELL THE SAME OR SOME OTHER SHARE FOR PROFIT DURING THE SAME PERIOD. HC ALSO OBSERVED THAT IT WAS NOT EVEN THE CASE OF T HE DEPT THAT THE SHARES WERE .SOLD AT A PRICE LOWER THAN THE MAR KET PRICE. 13.4 THE LD. DR PLACED HEAVY RELIANCE ON THE DECISION IN THE CASE OF MCDOWELL & CO. LTD. (SUPRA) TO CONTEND THAT - - ITA 329/16 & CO 45/15 54 TRANSACTION ITSELF SHOULD BE IGNORED AS BEING A COL OURABLE DEVICE TO AVOID TAX. COUNSEL DREW OUR ATTENTION TO SOME OF THE OBSERVATIONS MADE IN A RECENT DECISION IN THE CASE OF VODAFONE REPORTED IN 341 ITR, 1, WHEREIN THE RATIO OF THE DE CISION IN THE CASE OF MCDOWELL & CO LTD., (SUPRA) CAME UP FOR CON SIDERATION AND IT WAS HELD BY THE APEX COURT IN THE CASE OF UN ION OF INDIA V AZADI BACHAO ANDOLAN, 263 ITR 706 AS FOLLOWS : ...ASSESSEE CONTENDED THAT THIS IS NOT A CASE OF COLOURABLE DEVICE. THE ASSESSEE IN ITS OWN WISDOM DESIRED TO DISPOSE OF CERTAIN LOSS MAKING SHARES. N O PROVISION OF THE ACT OR ANY OTHER PROVISION OF LAW PROHIBITS THE ASSESSEE FROM DISPOSING OF SUCH ASSETS. SIMPLY BECAUSE DURING THE SAME YEAR, THE ASSESSEE ALSO SOL D CERTAIN OTHER SHARES FOR A PROFIT, IT CANNOT BE STA TED THAT THERE WAS AN ATTEMPT TO AVOID TAX. HENCE, THE RATIO OF THE DECISION OF THE APEX COURT IN THE CASE OF MCDOWELL & CO. LTD. STANDS SUBSTANTIALLY DILUTED BY VIRTUE OF SUBSEQUENT DECISION IN THE CASE OF AZADI BACHAO AND ALON (SUPRA). IN VIEW OF THIS, THERE IS NO PROVISION IN THE ACT WHICH WOULD PREVENT THE ASSESSEE FROM SELLING LOSS MAKING COMPANY SHARES. SIMPLY BECAUSE SUCH SHARES WERE SOLD DURING THE PREVIOUS YEAR WHEN THE ASSESSEE HAD ALSO SOLD SOME SHARES AT PROFIT BY ITSELF WOULD NOT MEAN THAT THIS IS A CASE OF COLOURABLE - - ITA 329/16 & CO 45/15 55 DEVICE OR THAT THERE IS A CASE OF TAX AVOIDANCE. FU RTHER, THERE IS NO RESTRICTION THAT SUCH SALE OR TRANSACTION CANNOT BE, EFFECTED WITH A GROUP COMPANY. AS LONG AS THE REVENUE COUL D NOT DOUBT THE SALE PRICE OF SHARES, IT WOULD NOT BE OPE N FOR THE REVENUE TO CONTEND THAT THE ASSESSEE HAD SHOWN LOSS WHICH IT DID NOT REALLY SUFFER. IN THE PRESENT CASE, IT IS N OT EVEN THE CASE OF THE REVENUE THAT SHARES WERE SOLD AT A PRICE LOW ER THAN THE MARKET RATE. IF THAT BE SO, THE QUESTION OF INFLATI NG 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 CER TAIN 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 TH E SAME YEAR WHEN HE ALSO CHOOSES TO DISPOSE OF CERTAIN PROFIT M AKING SHARES. 13.5 IT IS PERTINENT TO MENTION THE FOLLOWING P HASE OF ABOVE JUDGMENTS: ...A CASE WHERE THE ASSESSEE MAKES A GIFT OF SHARE S TO HIS SON. BY REASON OF GIFT INCOME FROM THE SHARES W OULD NOT ACCRUE TO THE ASSESSEE BUT WOULD ACCRUE TO THE SON - - ITA 329/16 & CO 45/15 56 AND TO THAT EXTENT THE INCOME OF THE ASSESSEE WOULD BE DIMINISHED AND HIS TAX LIABILITY REDUCED. THIS CANN OT BE REGARDED AS A CASE OF TAX AVOIDANCE EVEN IF THE MOT IVE OF THE ASSESSEE IN MAKING THE GIFT WAS TO SAVE TAX ON THE INCOME FROM SHARES AT A HIGHER RATE APPLICABLE TO H IM. UNDER THE CIRCUMSTANCES, EVEN WITHOUT REF ERRING TO THE DECISION OF THE APEX COURT IN THE CASE OF AZADI BAC HAO ANDOLAN (SUPRA) AND THE OBSERVATIONS MADE IN THE LATER DECI SION IN THE CASE OF VODAFONE (SUPRA), WE DO NOT FIND THAT THIS A CASE WHICH WOULD FALL WITHIN THE PARAMETERS OF THE DECISION IN THE CASE OF MCDOWELL & COMPANY LTD. (SUPRA). 13.6 IN THE CASE OF CIT VS OBEROI HOTELS (P) LT D. 334 ITR 293(KOLKATA) ; IT WAS HELD AS FOLLOWS: WE ALSO APPRECIATE THE REASON OF THE ASSESSING OFF ICER THAT THE ASSESSEE COMPANY COULD HAVE EASILY WAITED FOR A REASONABLE PERIOD OF TIME FOR WATCHING THE MARKET A ND COULD ALSO HAVE INVESTED A FURTHER AMOUNT OF RS. 9 TO 10 CRORE TO REVIVE THE BUSINESS OF M/S SKB. IT IS NOT WITHIN THE PROVINCE OF THE ASSESSING OFFICER TO IGNORE AN OTHERWISE GENUINE TRANSACTION AND TO BRAND IT AS A COLOURABLE ONE ON THE GROUND THAT IT WAS THE DUTY O F THE COMPANY TO INVEST FURTHER AMOUNT OR IT SHOULD HAVE WAITED FOR A REASONABLE PERIOD. 13.7 IN THE CASE OF CIT VS S S SANKARALINGAM 1 76 CTR 520 (MADRAS), IT WAS OBSERVED AS UNDER : - - ITA 329/16 & CO 45/15 57 IT IS ALSO FOUND THAT THERE WAS NO MATERIAL TO IND ICATE THAT THE ASSESSEE HAD RECEIVED ANYTHING MORE THAN THE STIPULATED SALE CONSIDERATION. THE TRIBUNAL HAS PRO CEEDED FURTHER TO HOLD, AND RIGHTLY, THAT THOUGH INTRINSI C VALUE OF THE SHARES WAS MORE THAN THE VALUE FOR WHICH IT IS SOLD, THAT BY ITSELF WOULD NOT ENABLE THE ASSESSING AUTHO RITY TO IGNORE THE TRANSACTION ALTOGETHER. WE SEE NO ERROR IN THE ORDER OF THE TRIBUNAL. THE TRIBUNAL HAS CONFIRMED T HE ORDER OF THE APPELLATE AUTHORITY REGARDING THE DEDU CTION OF CAPITAL LOSS FROM THE TOTAL INCOME BY HOLDING THAT THE DEDUCTION MADE BY THE AO WAS UNJUSTIFIED.' 13.8 BEING SO, IN OUR OPINION, WHEN THE AO H AS NOT DOUBTED THE PURCHASE PRICE, THE SELLING PRICE ALSO CANNOT B E DOUBTED. THE SALE OF SHARES OF ONE PAISE IS TO AVOID FUTURE HUGE LIABILITY AND IT IS AS PER THE SEBI REGULATIONS. FURTHER, TH E AO HAS NOT DOUBTED THE NET WORTH OF TVSF&S AS NEGATIVE. THE S HARES WERE DELISTED AND IT CANNOT BE SOLD TO A THIRD PARTY. W HEN WE ANALYZE THE ACTUAL BACKGROUND, IT IS NOT POSSIBLE TO HOLD T HAT THE ASSESSEE HAD ADOPTED DUBIOUS METHOD TO SALE THE SH ARES AT ONE PAISE PER SHARE. FURTHER, THERE IS NO MATERIAL IN THE HANDS OF THE AO TO SHOW THAT THE ASSESSEE HAS RECEIVED ANYTH ING MORE THAN THE STIPULATED SALE CONSIDERATION AND THAT SAL E CONSIDERATION RESULTED IN LOSS AND THAT LOSS CANNOT BE DENIED TO SET OFF OR GAIN. IN OUR OPINION, THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT OF - - ITA 329/16 & CO 45/15 58 MADRAS IN THE CASE OF CIT V. S.S.SANKARALINGAM, 176 CTR 520 IS IN SIMILAR LINE WHICH SUPPORTS THE ASSESSEES CA SE. 13.9 ANOTHER ALLEGATION OF THE LD. DR IS THAT T HE ASSESSEE COMPANY SOLD THE SHARES TO ITS SISTER CONCERNS, TVS E-ACCESS INDIA LTD. AT THE COST OF ONE PAISE AND WHERE PUBLI C SHARES TO THE SISTER CONCERN IS ONE PAISE, THE COST IS 25/- PER SHARE TO ONE OF THE DIRECTORS, SMT. MALLIKA SRINIVASAN. IN OUR OPI NION, SIMPLY BECAUSE LOSS MAKING SHARES WERE SOLD DURING THE PRE VIOUS YEAR, WHEN THE ASSESSEE HAS SOLD SOME SHARES AT PROFIT B Y ITSELF WOULD NOT MEAN THAT IS A CASE OF COLOURABLE DEVICE OR THAT THERE IS CASE OF TAX AVOIDANCE. THIS VIEW IS SUPPORTED B Y THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF ACIT V. BI RAJ INVESTMENT PVT. LTD. (86 CTR 69). FURTHER, THE LD. DR RELIED ON THE DECISION OF THE APEX COURT IN THE CASE OF MCDOWELL & CO. LTD ., CITED SUPA. IN OUR OPINION, THE FACTS OF THAT CASE CANNOT BE AP PLIED TO THE PRESENT CASE AS DISCUSSED IN EARLIER PARA. 13.10 IT IS TO BE NOTED THAT IN THE CASE OF CIT V. OBEROI HOTELS (P) LTD. (334 ITR 293), THE CALCUTTA HIGH CO URT HAS HELD AS UNDER: THERE IS NO DISPUTE WITH THE PROPOSITION OF LAW TH AT IF THERE IS CONFLICT OF OPINIONS BETWEEN THE TWO BENCH ES OF - - ITA 329/16 & CO 45/15 59 THE SUPREME COURT ON A QUESTION OF LAW, THE ONE DEC LARED BY THE LARGER BENCH WOULD PREVAIL OVER THE ONE PRONOUNCED BY THE OTHER BENCH. BUT IF A BENCH CONSI STING OF A SMALLER NUMBER OF JUDGES INTERPRETS A DECISION OF A LARGER BENCH OF THE SUPREME COURT IN A DIFFERENT WA Y WHICH MAY BE APPARENTLY OPPOSED TO THE ONE TAKEN BY THE LARGER BENCH, A SUBSEQUENT CO-ORDINATE BENCH OF THE SUPREME COURT MAY REFUSE TO FOLLOW THE INTERPRETATI ON OF THE LATTER ONE ON THE GROUND THAT IT PROPOSED TO FO LLOW THE EARLIER VIEW EXPRESSED BY A LARGER BENCH. BUT IF TH E SUBSEQUENT DECISION OF THE SMALLER BENCH EXPLAINING THE LARGER BENCH IS PLACED BEFORE A HIGH COURT, THE LAT TER IS BOUND TO FOLLOW THE SUBSEQUENT ONE BY THE SMALLER O NE WHICH INTERPRETS THE DECISIONS OF THE LARGER BENCH BECAUSE THAT IS THE INTERPRETATION OF THE LARGER BE NCH BY A BENCH OF THE SUPREME COURT AND THE HIGH COURT CAN NOT MAKE A DIFFERENT INTERPRETATION THAN THE ONE MADE B Y THE SUBSEQUENT DECISION OF THE SUPREME COURT WHICH IS BINDING UPON IT. THE POSITION, HOWEVER, WOULD BE DI FFERENT IF THE SUBSEQUENT SMALLER BENCH OF THE SUPREME COUR T IN IGNORANCE OF THE EARLIER LARGER BENCH TAKES A CONTR ARY VIEW FROM THE ONE TAKEN BY THE EARLIER LARGER BENCH . IN THAT SITUATION, THE HIGH COURT IS ENTITLED TO REJEC T THE VIEW OF THE LATTER SMALLER BENCH OF THE SUPREME COURT AS PER INCURIAM. THE SUBSEQUENT DECISION OF A SMALLER BENC H IN THE CASE OF AZADI BACHAO ANDOLON, HAS TAKEN NOTE OF THE EARLIER DECISION IN THE CASE OF MCDOWELL & CO. LTD. AND HAS INTERPRETED THE SAME AND THUS, IT IS NOT A CASE OF PASSING DECISION IN IGNORANCE OF A BINDING DECISION . THEREFORE, IN THIS CASE, THE VIEW TAKEN BY THE TRIB UNAL CANNOT BE SAID TO BE WRONG AND IS CONSISTENT WITH T HE ONE TAKEN IN THE CASE OF AZADI BACHAO ANDOLON. SO LONG THE DECISION IN THE CASE OF AZADI BACHAO ANDOLAN IS NOT HELD TO BE PER INCURIAM BY A LARGER BENCH DECISION OF TH E SUPREME COURT, THE HIGH COURTS SHOULD BE BOUND BY T HE EXPLANATION OF THAT BENCH GIVEN TO THE DECISION IN THE CASE OF MCDOWELL & CO. LTD.UNION OF INDIA VS. AZAD I BACHAO ANDOLAN&ANR. (2003) 184 CTR (SC) 450 : (2003 ) 263 ITR 706 (SC) FOLLOWED. - - ITA 329/16 & CO 45/15 60 EVEN ON MERIT, THE REASON OF THE AO THAT THE ASSESS EE COMPANY COULD HAVE EASILY WAITED FOR A REASONABLE PERIOD OF TIME FOR WATCHING THE MARKET AND COULD AL SO HAVE INVESTED A FURTHER AMOUNT OF RS. 9 TO 10 CRORE S TO REVIVE THE BUSINESS OF SKB IS NOT APPRECIABLE. IT I S NOT WITHIN THE PROVINCE OF THE AO TO IGNORE AN OTHERWIS E GENUINE TRANSACTION AND TO BRAND IT AS A COLOURABLE ONE ON THE GROUND THAT IT WAS THE DUTY OF THE COMPANY T O INVEST FURTHER AMOUNT OR IT SHOULD HAVE WAITED FOR A REASONABLE PERIOD. THEREFORE, THE VIEW OF THE TRIBU NAL AND THE CIT(A) AS REGARDS THE NATURE OF THE TRANSAC TION IS FOUND TO BE QUITE IN CONFORMITY WITH THE LAW OF THE LAND. 13.11 FURTHER, ON MERITS ALSO, THE ISSUE IS S QUARELY COVERED BY THE SAME JUDGMENT, WHEREIN IT WAS OBSERVED THAT CAPITAL LOSS ATTRIBUTABLE TO SHARE TRANSACTION COULD NOT BE DISALLOWED; IT IS NOT WITHIN THE PROVINCE OF THE AO TO IGNORE AN O THERWISE GENUINE TRANSACTION AND TO BRAND IT AS A COLOURABLE ONE. 14. IN OUR OPINION, IT WAS THE DUTY OF THE AO T O BRING ON RECORD SUFFICIENT EVIDENCES AND MATERIALS TO PROVE THAT THE DOCUMENTS FILED BY THE ASSESSEE WERE BOGUS, FALSE O R FABRICATED AND THE LONG TERM CAPITAL LOSS SHOWN BY THE ASSESSEE IS THERE NOT AT ALL. THE ONLY MATERIAL TO SUPPORT THE CONCLUSION OF THE AO IS THAT EITHER THE PURCHASE OF SHARES BY THE ASSESSEE WAS AT 31.19 PER SHARE OR THE ASSESSEE HAS SOLD THE SHARES TO THE SISTER CONCERN, TVS E-ACCESS PVT. LTD. AT - - ITA 329/16 & CO 45/15 61 A COST OF ONE PAISE PER SHARE, WHEREAS THE SAME SHARES WERE SOLD TO ONE OF THE DIRECTORS, SMT. MALLIKA SRINIVAS AN AT THE RATE 25 PER SHARE. HOWEVER, NONE OF THE JUDICIAL PRONO UNCEMENTS SUPPORT THIS PLEA OF THE AO, SPECIFICALLY, THE JUDG MENT OF THE GUJARAT HIGH COURT IN THE CASE OF BIRAJ INVESTMENT PVT. LTD. (SUPRA). WHILE MAKING THIS KIND OF ADDITION BY THE AO, THE BURDEN ON THE AO IS VERY HEAVY TO ESTABLISH THAT TH E ASSESSEE HAS ACTUALLY RECEIVED THE EXCESS CONSIDERATION THAN DISCLOSED BY THE ASSESSEE. 14.1 IT IS PERTINENT TO MENTION HERE THAT THE OR DER OF THE TRIBUNAL IN THE CASE OF ITO V. SMT. KUSUMLATA REPORTED IN (2006) 105 TTJ (JD.) 265,THE JODHPUR BENCH HAS HELD AS UNDER: THE ASSESSEE HAVING ADDUCED ALL THE REQUISITE EVIDENCE TO ESTABLISH THAT THE ASSESSEE HELD SHARES IN A COMPANY AND SOLD THE SAME THROUGH A BROKER TO A GENUINE PURCHASER AND RECEIVED PAYMENTS THROUGH CHEQUE, THE TRANSACTION COULD NOT BE TREATED AS BOGUS. 14.2 MOREOVER, WHEN PURCHASES HAVE NOT BEEN DOU BTED OR DISPUTED BY THE REVENUE IN THIS CASE, THE DECISION OF HONBLE PUNJAB & HARYANA COURT RELIED BY LEARNED A.R. IN TH E CASE OF CIT VS. ANUPAM KAPOOR REPORTED IN (2008) 299 ITR 17 9 (P&H) - - ITA 329/16 & CO 45/15 62 IS VERY MUCH RELEVANT. THE HELD PORTION OF THIS DEC ISION IS EXTRACTED HEREIN BELOW :- HELD, DISMISSING THE APPEALS, THAT THERE WAS NO MA TERIAL BEFORE THE ASSESSING OFFICER WHICH COULD HAVE LED T O A CONCLUSION THAT THE TRANSACTION WAS A DEVICE TO CAMOUFLAGE ACTIVITIES TO DEFRAUD THE REVENUE. NO SU CH PRESUMPTION COULD BE DRAWN BY THE ASSESSING OFFICER MERELY ON SURMISES AND CONJECTURES. THE TRIBUNAL TO OK INTO CONSIDERATION THAT IT WAS ONLY ON THE BASIS OF A PRESUMPTION THAT THE ASSESSING OFFICER CONCLUDED TH AT THE ASSESSEE HAD PAID CASH AND PURCHASED THE CHEQUE . IN THE ABSENCE OF ANY COGENT MATERIAL IN THIS REGAR D, HAVING BEEN PLACED ON RECORD, THE ASSESSING OFFICER COULD NOT HAVE REOPENED THE ASSESSMENT. THE ASSESSE E HAD MADE AN INVESTMENT IN A COMPANY, EVIDENCE WHEREOF WAS WITH THE ASSESSING OFFICER. THEREFORE, THE ASSESSING OFFICER COULD NOT HAVE ADDED THE INCOME, WHICH WAS RIGHTLY DELETED BY THE COMMISSIONER (APPEALS) AS WELL AS THE TRIBUNAL FURTHER, IT WAS HELD AS UNDER: THE TRIBUNAL WAS RIGHT IN REJECTING THE APPEAL OF THE REVENUE BY HOLDING THAT THE ASSESSEE WAS SIMPLY A SHAREHOLDER OF THE COMPANY. HE HAD MADE THE INVESTMENT IN A COMPANY IN WHICH HE WAS NEITHER A DIRECTOR NOR WAS HE IN CONTROL OF THE COMPANY. THE ASSESSEE HAD TAKEN SHARES FROM THE MARKET, THE SHAR ES WERE LISTED AND THE TRANSACTION TOOK PLACE THROUGH A REGISTERED BROKER OF THE STOCK EXCHANGE. THERE WAS NO MATERIAL BEFORE THE AO, WHICH COULD HAVE LEAD TO A CONCLUSION THAT THE TRANSACTION WAS SIMPLICITER A D EVICE TO CAMOUFLAGE ACTIVITIES TO DEFRAUD THE REVENUE. NO SU CH PRESUMPTION COULD BE DRAWN BY THE AO, MERELY ON SURMISES AND CONJECTURES. - - ITA 329/16 & CO 45/15 63 14.3 THE TRIBUNAL, AGRA BENCH IN THE CASE OF SMT . MEMO DEVI (ITA NO.396/AG/2004 REPORTED AS 7 DTR 158) W HEREIN THE CO-ORDINATE BENCH OBSERVED AS UNDER :- THE ASSESSEE HAS NO RELATION WITH THE DIRECTORS OF THE COMPANY AND WAS IN NO WAY IN THE CAPACITY TO AFFECT THE MARKET PRICE OF SHARES. THE INCREASE IN SHARE PRICE S BY MORE THAN 25 TIMES TOO CANNOT BE THE BASIS TO ASSUM E THAT THE TRANSACTION WAS BOGUS. ABNORMAL FLUCTUATIO N IN SHARE PRICES IS A NORMAL PHENOMENA THE LEARNED COUNSEL FOR THE ASSESSEE FILED A CHART SHOWING LOW AND HIGH PRICES OF SOME QUOTED SHARES DURING THE 52 WEE KS AS PER ECONOMIC TIMES DATED 27.02.2007 FROM WHICH I T CAN BE SEEN THAT SOME SHARES INCREASED EVEN BY MORE THAN 100 TIMES. 14.4 THE TRIBUNAL, DELHI C BENCH IN THE CASE OF ITO VS. NAVEEN GUPTA (5 SOT 94), HAS OBSERVED AS UNDER :- NEVERTHELESS, IT IS ALSO NOTEWORTHY THAT THE A.O. HAS FAILED TO ESTABLISH THAT IN LIEU OF THE AFORESAID S ALE PROCEEDS, THE ASSESSEE HAS SURREPTITIOUSLY INTRODUC ED HIS UNACCOUNTED MONEY IN THE BANK ACCOUNT. AFTER HAVING PERUSED THE ENTIRE MATERIAL THAT IS AVAILABLE ON RE CORD, THERE IS NO AVERMENT, MUCH LESS ANY EVIDENCE, WITH THE REVENUE IN THIS REGARD. WHILE THERE MAY BE ENOUGH GROUNDS WITH THE AO TO CARRY OUT THE IMPUGNED VERIFICATION EXERCISE TO TEST THE EFFICACY OF THE T RANSACTIONS RESULTING IN LONG TERM MATERIAL GAINS IN THE HAND O F THE ASSESSEE BUT THERE IS NO COGENT MATERIAL OR EVIDENC E TO INDICATE THAT THE IMPUGNED SALE PROCEEDS REFLECTED UNACCOUNTED INCOME OF THE ASSESSEE. 14.5 IN THE CASE OF UMACHARAN SHAW & BROS VS. C IT (37 ITR 271), THE SUPREME COURT HAS HELD THAT SUSPICION - - ITA 329/16 & CO 45/15 64 HOWSOEVER STRONG CANNOT TAKE PLACE OF PROOF. FROM THE ENTIRE APPRECIATION OF EVIDENCE, THE AO HAS FAILED TO ESTABLISH THAT THE ASSESSEE HAS SOLD THE SHARES AT HIGER PRICE. 14.6 THE SUPREME COURT IN THE CASE OF KISHANCHAND CHELLARAM V. CIT (125 ITR 713), OBSERVED THAT THE AMOUNT CANNOT BE ASSESSED AS UNDISCLOSED INCOME OF THE ASSESSEE IN THE ABSENCE OF POSITIVE MATERIAL BROUGH T BY THE REVENUE TO PROVE THAT THE AMOUNT IN FACT BELONGED T O THE ASESSEEE AS THE BURDEN LAY ON THE REVENUE. 15. IN VIEW OF THE DISCUSSION GIVEN ABOVE, IT APPEARS TO US THAT EVIDENCE COLLECTED BY THE AO IS NOT SUFFICI ENT TO ESTABLISH HIS STAND THAT THERE WAS UNDERSTATEMENT O F SALES CONSIDERATION AND IT IS NOT POSSIBLE TO HOLD THAT I T IS ONLY DUBIOUS OR BOGUS OR COLLUSIVE TRANSACTION, AS IT IS CONTROLLED BY COMMON MANAGERIAL PERSONS. WHEN WE APPRECIATE T HE ENTIRE EVIDENCE IN WHOLESOME MANNER, IT CANNOT BE OVERLOOKED ON THE SIMPLE REASON THAT THE SURROUNDIN G CIRCUMSTANCES WOULD SHOW THAT THE CLAIM OF THE ASSE SSEE CANNOT BE SAID THAT IT IS OPPOSED TO THE NORMAL COU RSE OF - - ITA 329/16 & CO 45/15 65 HUMAN THINKING AND CONDUCT OR HUMAN PROBABILITIES. THIS PRINCIPLE HAS BEEN LAID DOWN BY THE SUPREME COURT I N TWO LEADING CASES : (1) CIT V. DURGAPRASAD MORE (82 ITR 540) & (2) SUMATHI DAYAL V. CIT (214 ITR 801) 15.1 EVEN APPLYING THIS PRINCIPLE TO THE PRESENT CASE, WE HAVE DIFFICULTY IN REJECTING THE ASSESSEES PLEA AS OPPOSED TO THE NORMAL COURSE OF HUMAN CONDUCT. THE CIRCUMSTANCES SURROUNDING THE CASE ALSO, IN OUR VIE W, ARE NOT STRONG ENOUGH TO JUSTIFY THE REJECTION OF THE A SSESSES PLEA AS FANTASTIC OR OUTRAGEOUS. 16. WE HAVE ALSO CONSIDERED THE ENTIRE BACKGROUND OF THE CASE AND CIRCUMSTANCES UNDER WHICH THE ASSESSEE WAS FORCED TO SALE THE SHARES AT VERY VERY LOW PRICE. ACTUALLY, WHEN THE COMPANIES NETWORTH IS NEGATIVE, IT IS ENDE AVOUR OF THE EVERY PERSON TO GET RID OF THAT LIABILITY TO SAVE FROM FUTURE LIABILITIES. IN OTHER WORDS, IN THIS MODERN ECONOMY, THE SHARE PRICE IS SUBJECT TO HIGH VOLATILE AND VAL UE OF SHARES, WHICH MAY BE VERY HIGH ON ONE DAY AND DUE T O CHANGE OF CIRCUMSTANCES IT MAY COLLAPSE IN THE MARK ET ON VERY NEXT DAY AND IT MAY GO EVEN NIL VALUE, DUE TO - - ITA 329/16 & CO 45/15 66 CIRCUMSTANCES BEYOND THE CONTROL OF THE DIRECTORS O R MANAGEMENT OF THE COMPANY. A PERSON, WHO IS DEALIN G IN SHARES WOULD BECOME A MILLIONAIRE IN A SINGLE DAY. SIMILARLY, A PERSON MAY BECOME PENNILESS OR INSOLVE NT ON VERY NEXT DAY. IT IS NOT UNCOMMON IN THE SHARE MAR KET, HAPPENING OF SUCH EVENTS. FOR THESE THINGS, WE CAN NOT ATTRIBUTE ANY MOTIVES AND IT IS BECAUSE OF MARKET C ONDITIONS PREVAILING AT THE PARTICULAR POINT OF TIME OR BECAU SE OF GOVERNMENT POLICIES AND NOBODY SHALL BE BLAMED. IN OUR OPINION, WHEN THE PRICES WILL GO UP AND DOWN, THAT MAY RESULT IN GAIN OR LOSS, IT CANNOT BE SAID THAT IT I S COLOURABLE DEVICE ADOPTED BY THE ASSESSEE. WE HAVE TO SEE THE GROUND REALITIES, ONE WHO DEALS IN SHARES IN THE OP EN MARKET, KNOWS THE DEPTH OF THE SAME AND NOT THE AO. IN OUR OPINION, THE REASON ADVANCED BY THE LD. DR TO H OLD THAT IT IS NOT COLOURABLE DEVICE HOLDS NO WATER. 16.1 FURTHER, C COMPARING MRS. MALLIKA SRINIVASAN'S SALE OF SHARES OF HER HOLDING IN TVSF&S @ RS. 25 PER SHARE IS ALSO ILLOGICAL AND HAS NO SUBSTANCE. THIS IS BECAUSE SHE IS A SHAREHOLDER, UNDER THE PUBLIC CATEGORY, HOLDING A F EW HUNDRED - - ITA 329/16 & CO 45/15 67 SHARES, WHICH WAS OFFERED BY HER IN THE EXIT ROUTE PROVIDED TO THE PUBLIC UNDER THE BOOK BUILDING PROCESS ASSOCIATED W ITH THE DELISTING OF SHARES. ANY PUBLIC SHAREHOLDER AS A R ETAIL INVESTOR, WHO SURRENDER THE SHARES, WOULD HAVE GOT THE SAME R S. 25 PER SHARE WHICH WAS THE EXIT PRICE' DERIDED AS PER THE SEBI REGULATIONS UNDER THE BOOK BUILDING PROCESS. HENCE, IT IS NOT CORRECT TO SAY THAT THEY FIXED RETAIL INVESTOR PRIC E @ RS. 25 PER SHARE AND OTHER THAN RETAIL INVESTOR PRICE AT 1 PAI SA PER SHARE. 16.2 FURTHER, REGULATIONS OF SEBI FOR DELISTI NG AND PRICE OUGHT TO BE OFFERED TO THE PUBLIC SHAREHOLDER ON THE BASI S OF BOOK BUILDING PROCESS SHOULD BE RECOGNISED AND WHEN SO D ONE, THE SALE PRICE ADOPTED FOR SALE OF SOME TVSF&S SHARES H ELD BY TVSM TO TVSEA AT 1 PAISA CANNOT BE COMPARED BECAUSE ONE IS THROUGH DELISTING PROCESS PRICE AND ANOTHER IS ARRA NGEMENT OF THE PROMOTERS TO RECOGNISE THE NIL VALUE OR NEGATIVE VA LUE OF THE SHARES HELD BY THEM IN HUGE QUANTITIES AS PROMOTERS . WHEN THEY WANT TO EXIT THE COMPANY AND PLAN FOR RESTRUCTURING OF THE FINANCE BUSINESS, TO SELL THE SHARES TO A GROUP COMPANY AT A VALUE BORNE IN THE BALANCE SHEET WITH NEGATIVE NETWORTH AND CER TIFIED BY THE VALUER IS TO BE RECOGNISED. - - ITA 329/16 & CO 45/15 68 16.3 THE LD. DR RELIED ON THE FOLLOWING DECISIO NS : (1) M/S. ASHINI LEASE AND FINANCE V. CIT (2008) (21 7 CTR 17(SC) (2)CIT V. VACHANBAND INVESTMENT LTD. (2012) 28 TAXMANN.COM 211 (DELHI). BOTH THESE JUDGMENTS HAVE NO RELEVANCE TO THE FACTS OF THE PRESENT CASE AND THESE JUDGMENTS WERE DELIVERED ON DIFFERENT CONTEXT AND THE RELIANCE PLACED BY THE LD . DR IS TOTALLY MISCONCEIVED. IN VIEW OF THE ABOVE DISCUSS ION, WE ARE INCLINED TO DISMISS THE GROUND TAKEN BY THE REV ENUE ON THIS ISSUE. 17. IN THE RESULT, THE REVENUES APPEAL AS WELL AS THE ASSESSEES CROSS OBJECTION ARE ALLOWED FOR STATISTI CAL PURPOSES. ORDER PRONOUNCED ON THURSDAY, THE 11 TH OF AUGUST, 2016 AT CHENNAI. SD/- SD/- ( #$ % ) ( & ' ( # ) )$*+,+-./0+1234+-51+*667+182 9 :; /JUDICIAL MEMBER :;<=>>6/-?+-?@A0BA1 &9 /CHENNAI, C: /DATED, THE 11 TH AUGUST, 2016. MPO* - - ITA 329/16 & CO 45/15 69 :D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H2 /CIT(A) 4. H /CIT 5. FIJ K /DR 6. JLM /GF.