Durai Arun Kumar, CHENNAI V. ACIT Non Corporate Circle 13(1), CHENNAI

ITA 1033/CHNY/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7856 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 26-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V M MAHIDAR
• Assessee Lawyers: T BANUSEKAR
• Keywords: Capital asset; Share purchase agreement; Principle of natural justice; Cost of acquisition
• Section: 54F

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH : CHENNAI . . . , . , [BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER] ./I.T.A. NO.1033/CHNY/2018 / ASSESSMENT YEAR : 2013-14 MR. DURAI ARUN KUMAR, NEW NO.5/3, OLD NO.19, GANGAI AMMAN KOIL STREET, VADAPALANI, CHENNAI-600 026. VS. ASSISTANT C OMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE 13(1), CHENNAI. (PAN:AAFPA2868M) ( / APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI T.BANUSEKAR, C.A. /RESPONDENT BY : SHRI V.M.MAHIDAR, JC IT /DATE OF HEARING : 20 .12 . 2018 /DATE OF PRONOUNCEMENT : 04 .01 . 201 9 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST AN ORDER DATED 31.01.2018 OF COMMISSIONER OF INCOME TAX (APP EALS)-14, CHENNAI. GROUNDS TAKEN BY THE ASSESSEE ARE REPRODUCED HEREUN DER:- 1. FOR THAT THE ORDER OF THE COMMISSIONER OF INCOM E TAX (APPEALS) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANC ES OF THE CASE TO THE EXTENT PREJUDICIAL TO THE INTERESTS OF THE APPELLANT AND IS OPPOSED TO THE PRINCIPLES OF NATURAL JUSTICE , EQUITY AND FAIR PLAY. ITA NO. 1033 /CHNY/2018 :- 2 -: 2. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE ORDER OF THE ASSESSING OFFIC ER IS WITHOUT JURISDICTION. 3. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN UPHOLDING THE ADDITION OF RS.1 ,93,91 ,2691- AS SHORT TERM CAPITAL GAINS 4. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE GAIN ON SALE OF 85,000 SHARE S IS TAXABLE AS LONG TERM CAPITAL GAINS 5. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE DATE OF ALLOTMENT IS THE DAT E OF ACQUISITION AS PER THE PROVISIONS OF SECTION 2(42A) 6. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE SHARE ALLOTMENT HAS BEEN MAD E AND APPROVED IN THE BOARD MEETING HELD ON 22.08.2011 7. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE ALLOTMENT OF SHARES HAS BEEN ENTERED IN THE REGISTER OF MEMBERS ON 22.08.2011 8. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONCLUDING THAT THE SHARES WERE NOT HELD FOR MOR E THAN 1 YEAR BASED ON THE DATE MENTIONED IN THE SHARE CERTI FICATE 9. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN UPHOLDING THE PROPORTIONATE DISALLOWANCE OF EXEM PTION CLAIMED U/S.54F 10. FOR THAT THE APPELLANT OBJECTS TO THE LEVY OF I NTEREST ULS.234B. ITA NO. 1033 /CHNY/2018 :- 3 -: 2. FACTS APROPOS ARE THAT ASSESSEE HAD SOLD 2,50,00 0 SHARES OF ONE M/S. LIPI POLYMERS PVT.LTD TO ONE M/S.ASCENT GM BH AND LEISTER AG, BOTH OF WHICH WERE FOREIGN COMPANIES, FOR A TO TAL CONSIDERATION OF 5,99,00,000/-. SALE AS PER ASSESSEE WAS EFFECTED ON 11.01.2013. ASSESSEE HAD COMPUTED LONG TERM CAPITAL GAINS AT 5,58,73,351/- ON THE ABOVE SALE AFTER DEDUCTING IND EXED COST OF ACQUISITION OF 36,59,795/-. ASSESSING OFFICER AFTER VERIFYING SHAR E CERTIFICATES, REQUIRED THE ASSESSEE TO EXPLAIN HO W SOME OF THE SHARES WHICH WERE ACQUIRED IN 2012 COULD BE CONSIDE RED AS LONG TERM ASSETS. REPLY OF THE ASSESSEE WAS AS UNDER:- THIS LEAVES US WITH BALANCE 85000 SHARES WHICH YOU HAVE MENTIONED IN YOUR NOTICE AS HAVING BEEN ACQUIRED ON 9.8.2012. HOWEVER, ACTUALLY THESE SHARES WERE ALSO ALLOTTED BY THE COMPANY ON 22.8.2011, I ENCLOSE A C OPY OF THE BOARD MEETING MINUTES HELD ON 22.8.2011 WHEREIN YOU WILL FIND THAT THE SUBJECT OF ALLOTMENT OF SHARES T O MYSELF AS WELL AS TO OTHER SHAREHOLDER. NAMELY MR. MATHEW VARGHESE, HAS BEEN DULY INCLUDED AS ITEM NO.5 OF TH E AGENDA. BUT THE ACTUAL ISSUE OF SHARE CERTIFICATE F OR THESE SHARES WAS CARRIED ONLY ON 9.8.2012. 1 ENCLOSE COPY OF THE BOARD MEETING MINUTES DATED 9.8.2012 WHEREIN YOU WI LL FIND THAT THE RELEVANT RESOLUTION FAR ISSUE OF SHAR ES IN ITEM NO.5 OF THE AGENDA IS DULY INCLUDED. I ALSO ENCLOSE COPIES OF THE RELEVANT FOLIOS, NAMELY FOLIO NOS. 00001 AND 00002 OF THE REGISTER OF MEMBERS OF THE COMPANY WHEREIN Y OU WILL FIND THAT APPROPRIATE ENTRIES HAVE BEEN MADE A BOUT ALLOTMENT OF 85000 SHARES EACH HAVING BEEN MADE TO THE TWO SHORE HOLDERS ON 22.8.2011. WHILE THE ISSUE OF SHARE CERTIFICATES WAS MADE ON 9.8.2012, ITA NO. 1033 /CHNY/2018 :- 4 -: HOWEVER, WHILE FINALIZING THE FINANCIAL STATEMENTS OF THE COMPANY FOR THE FINANCIAL YEAR 2011-12, THE STATUTO RY AUDITORS OF THE COMPANY HAVE OVER LOOKED THE ALLOTM ENT OF SHARES ON 22.8.2011 AND THEY HAVE SHOWN THE SUM A RS.17 LAKHS AS SHARE APPLICATION MONEY ON 31.3.201 2. THIS HAS BEEN CARRIED THROUGH IN THE EXTRACT OF THE FINANCIALS ENTERED IN THE RETURN OF INCOME FILED BY THE COMPANY. THIS MISTAKE HAS BEEN CARRIED OUT AS PREVI OUS FIGURES IN FINANCIAL STATEMENTS OF THE COMPANY FOR THE FINANCIAL YEAR 2012-13. IT IS BECAUSE, FOR FINANCIA L YEAR 2012-13, PURSUANT TO THE CHANGE IN CONTROL AND MANAGEMENT OF THE COMPANY, THE PREVIOUS STATUTORY AUDITORS WERE REPLACED BY NEW FIRM OF STATUTORY AUD ITORS. WHEN I SPECIFICALLY ENQUIRED THE EARLIER STATUTORY AUDITORS AS TO HOW THIS LAPSE HAS OCCURRED, THEY INFORMED TH AT, IN THE FIRST INSTANCE, THERE WERE SIGNIFICANT CHANGES MADE IN THE REPORTING FORMAT AND SCHEDULES UNDER THE COMPAN IES ACT 1956 BY WHICH A NEW FORMAT OF FINANCIAL STATEME NTS AND DISCLOSURE REQUIREMENTS WERE PRESCRIBED IN SCHE DULE VI TO THE COMPANIES ACT 1956 WHICH PUT ADDITIONAL PRESSURE ON THEM IN PREPARING THE FINANCIAL STATEME NTS. FURTHER, THAT WAS THE TIME THAT WHEN WE HAD ALMOST CONCLUDED OUR NEGOTIATIONS FOR SALE OF THE COMPANY AS SUCH AND HENCE THE PROSPECTIVE BUYERS URGENTLY WANT ED THE AUDITED FINANCIALS FOR THE FINANCIAL YEAR 2011- 12. BECAUSE OF THAT, THEY EXPLAINED THAT THE MISTAKE HA D OCCURRED. BOTH THE DIRECTORS, NAMELY MYSELF AND MY CO- DIRECTOR MR. MATHEW VARGHESE WERE TECHNICAL PERSONS AND COULD NOT COMPREHEND THE NUANCES OF DISCLOSURES IN THE FINANCIAL STATEMENTS. WE WERE VERY KEEN TO SUBMIT T HE SAME TO THE PROSPECTIVE BUYERS, NAMELY, LEISTER TECHNOLOGY AG OF SWITZERLAND WHO ARE THE PRESENT OW NERS OF THE COMPANY. THIS EXPLAINS THE DISCREPANCY BETWE EN THE LEGAL REALITY OF PAID UP SHARE CAPITAL AS PER T HE DOCUMENTS, NAMELY, BOARD MINUTES AS WELL AS REGISTE R OF MEMBERS AND THE AUDITED FINANCIAL STATEMENTS. IN TH IS CONTEXT, I FURTHER WISH TO SUBMIT THAT OUT OF RS.17 LAKHS ITA NO. 1033 /CHNY/2018 :- 5 -: FOR WHICH SHARES WERE ALLOTTED BY THE COMPANY ON 2282011 (AT 85000 SHARES TO EACH OF THE TWO DIRECTO RS), A SUM OF RS.13 IAKHS WAS ALREADY PAID BY 2009 ITSELF AND HAS BEEN UTILIZED BY THE COMPANY FOR ITS BUSINESS A CTIVITIES. ANOTHER SUM OF RS.4 LAKHS WAS PAID IN JUNE 2012 BY THE TWO DIRECTORS. AGAINST THIS, THE ALLOTMENT HAS HAPP ENED ON 22.8.2011. IN THIS CONTEXT, I ALSO WISH TO HIGHLIGH T THAT IN MORE THAN ONE PLACE IN THE VARIOUS SUB CLAUSES OF C LAUSE (I) TO EXPLANATION 1 TO SECTION 2(42A) WHICH DEFINE S THE TERM SHORT TERM CAPITAL ASSET IT HAS BEEN HELD TH AT IN THE CASE OF SHARES OR OTHER FINANCIAL ASSETS, THE HOLDI NG PERIOD SHALL BE RECKONED FROM THE DATE OF ALLOTMENT OF SUC H FINANCIAL ASSET. YOUR KIND ATTENTION IS INVITED TO SUB-CLAUSES (D)(F) AND (HB). HENCE MY SUBMISSION THAT EVEN THOU GH THE CERTIFICATE FOR THE AFORESAID 85000 SHARES WAS ISSUED ON 9.8.2012, SINCE THE SOME WERE ALLOTTED ON 22.8.2 011 ITSELF, THOSE SHARES ARE ALSO LONG TERM SHARES AND I HAVE RIGHTLY C/AIMED EXEMPTION UNDER SECTION 54F FOR THE SAME. 3. AS CAN BE SEEN FROM ASSESSEES REPLY, HIS CONTE NTION WAS THAT 85000 EQUITY SHARES, WHICH THE ASSESSING OFFIC ER CONSIDERED TO BE SHORT TERM CAPITAL ASSET, WAS ALLOTTED TO HIM ON 22.08.2011. IN SUPPORT OF THE ABOVE CONTENTION, ASSESSEE HAD FURN ISHED COPY OF THE MINUTES OF A BOARD MEETING OF M/S. LIPI POLYM ERS PVT. LTD. HELD ON 22.08.2011. ASSESSEE ALSO FURNISHED COPY OF T HE RELEVANT FOLIO IN REGISTER OF MEMBERS, MAINTAINED BY THE SAID COMP ANY. NEVERTHELESS, ASSESSEE DID ADMIT THAT STATUTORY AUD ITORS OF THE ASSESSEE COMPANY HAD SHOWN A SUM OF 17,00,000/-, AS SHARE ITA NO. 1033 /CHNY/2018 :- 6 -: APPLICATION MONEY ON 31.03.2012, OVERLOOKING THE A LLOTMENT OF SHARES TO THE ASSESSEE ON 22.08.2011. 4. HOWEVER, ASSESSING OFFICER WAS NOT IMPRESSED BY THE ABOVE. ACCORDING TO HIM, MEETING OF THE BOARD OF TRUSTEES OF M/S. LIPI POLYMERS PVT. LTD., MINUTES OF WHICH WERE PLACED BE FORE HIM, COULD NOT BE CONSIDERED AS CREDIBLE, SINCE ASSESSEE HIMSE LF WAS THE CHAIRMAN OF THE SAID MEETING. FURTHER, AS PER LEARN ED ASSESSING OFFICER, SECTION 113 OF COMPANIES ACT, 1956 MANDATE D ISSUE OF SHARE CERTIFICATES WITHIN THREE MONTHS FROM THE DAT E OF ALLOTMENT. ACCORDING TO HIM, IF THE DATE OF ALLOTMENT AS CLAIM ED BY THE ASSESSEE WAS 22.08.2011, SHARE CERTIFICATES OUGHT T O HAVE BEEN ISSUED TO THE ASSESSEE ON OR BEFORE 21.11.2011. ASS ESSING OFFICER ALSO NOTED THAT ANNUAL RETURN OF M/S. LIPI POLYMER S PVT. LTD. FOR FINANCIAL YEAR 2011-12 INDICATED THAT A SUM OF 17,00,000/- WAS SHARE APPLICATION MONEY AS ON 31.03.2012. AS PER AS SESSING OFFICER, SHARE CERTIFICATE WAS PRIMA-FACIE EVIDENCE OF OWNERSHIP OF SHARES AND THEREFORE, DATE MENTIONED IN SHARE CERT IFICATES, WHICH WAS 09.08.2012, ALONE COULD BE CONSIDERED AS THE D ATE ON WHICH THE SHARES WERE VESTED WITH THE ASSESSEE . ACCORDI NG TO HIM, DATE OF TRANSFER OF THE SHARES GIVING RISE TO THE CAPITA L GAINS HAD ITA NO. 1033 /CHNY/2018 :- 7 -: HAPPENED ON 11.01.2013 AND THIS WAS WITHIN ONE YEAR FROM THE DATE AS PER THE SHARE CERTIFICATES. HE THEREFORE HELD SUCH GAINS ARISING OUT ON SALE OF 85,000 SHARES, AS SHORT TERM CAPITA L GAIN. ASSESSEE WAS ALSO NOT ALLOWED THE CLAIM OF DEDUCTION MADE UN DER SECTION 54F OF THE ACT. REASON CITED BY THE LEARNED ASSESSI NG OFFICER FOR DENYING SUCH CLAIM WAS THAT SUMS GIVEN BY THE ASSE SSEE TO ONE MR. ANNAMALAI GANESAN AND ONE MR. SUNDARAMURTHY OST ENSIBLY FOR ACQUIRING A HOUSE PROPERTY WAS PARTLY REFUNDED BY THEM. 5. AGGRIEVED, ASSESSEE MOVED IN APPEAL TO COMMISSIO NER OF INCOME TAX(APPEALS). LEARNED CIT(A) AFTER CONSIDE RING THE SUBMISSIONS OF THE ASSESSEE UPHELD THE ORDER OF ASS ESSING OFFICER WITH REGARD TO TREATMENT OF GAINS ARISING FROM TRAN SFER OF 85000 SHARES AS SHORT TERM. SINCE HE UPHELD THE ORDER OF ASSESSING OFFICER WITH REGARD TO THE ISSUE OF SHORT TERM CAP ITAL GAINS, QUESTION REGARDING DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 54F OF ACT WAS NOT CONSIDERED BY HIM. 6. NOW, BEFORE US, LEARNED AR STRONGLY ASSAILING TH E ORDERS OF LOWER AUTHORITIES SUBMITTED THAT THERE WERE ONLY TW O SHAREHOLDERS FROM THE VERY BEGINNING FOR M/S. LIPI POLYMERS PVT. LTD. THEREFORE, ITA NO. 1033 /CHNY/2018 :- 8 -: ACCORDING TO HIM, ANY BOARD MEETING OF THE SAID CO MPANY NECESSARILY HAD TO BE CHAIRED BY ONE OF THESE TWO PERSONS. ACCORDING TO HIM, EARLIER ALLOTMENT OF SHARES ALSO WAS BASED ON BOARD RESOLUTIONS. LEARNED AR FURTHER SUBMITTED TH AT TOTAL NUMBER OF EQUITY SHARES IN M/S. LIPI POLYMERS PVT. LTD. WA S 5,00,000. OF THESE 2,50,000 SHARES WERE ALLOTTED TO THE ASSESSE E AND BALANCE 2,50,000 SHARES TO THE ONLY OTHER SHAREHOLDER NAMEL Y SHRI MATHEW VARGHESE. ACCORDING TO HIM, DATE OF ALLOTMENT OF E QUITY SHARES TO THESE TWO PERSONS WERE AS UNDER:- DURAI ARUN KUMAR MATHEW VARGHESE DATE NO. OF SHARES DATE NO. OF SHARES 16.07.2008 5,000 16.07.2008 5,000 04.03.2009 1,50,000 04.03.2009 1,50,000 3 0.06.2010 10,000 30.06.2010 10,000 22.08.2011 85,000 22.08.2011 85,000 CONTENTION OF LEARNED AR WAS THAT WHOLE OF 5,00,0 00 SHARES WERE TRANSFERRED BY THE ABOVE PERSONS TO M/S.ASCENT GMB H AND M/S. LEISTER AG. ACCORDING TO HIM, ASSESSING OFFICER T REATED 85,000 SHARES OUT OF THAT TOTAL 2,50,000, SHARES SOLD BY THE ASSESSEE TO M/S. ASCENT GMBH ON A DIFFERENT FOOTING. AS PER THE LEARNED AR, GAINS ARISING ON TRANSFER OF 165000 SHARES WERE ACC EPTED BY THE LD. ASSESSING OFFICER AS LONG TERM IN NATURE. ACCORDIN G TO HIM, IN THE ITA NO. 1033 /CHNY/2018 :- 9 -: ASSESSMENT DONE ON SHRI MATHEW VARGHESE, THE GAIN S ARISING ON TRANSFER OF ALL 2,50,000 SHARES WERE ACCEPTED AS L ONG TERM IN NATURE. CONTENTION OF THE LEARNED AR WAS THAT 5000 SHARES ALLOTTED TO THE ASSESSEE ON 16.07.2008, WHICH WAS ALSO A PA RT OF SALE TO M/S. ASCENT GMBH, WAS SPLIT TO 4900 AND 100 SHARE S ON 24.10.2012. THE SHARE CERTIFICATES FOR THESE 49 00 AND 100 SHARES GAVE THE DATE AS 24.10.2012. HOWEVER, THIS AS PER LEARNED AR, WAS ACCEPTED AS LONG TERM ASSET BY THE LD. ASSESSIN G OFFICER. CONTENTION OF LEARNED AR WAS DATE SHOWN IN SHAR E CERTIFICATES WOULD NOT ALWAYS BE CONCLUSIVE WITH REGARD TO DATE OF ISSUE OF THE SHARES. AS PER LEARNED AR, LOWER AUTHORITIES FELL IN ERROR IN CONSIDERING SURPLUS ARISING OUT OF SALE OF 85000 SH ARES OUT OF THE TOTAL 2,50,000 SHARES AS SHORT TERM CAPITAL GAINS. VIS--VIS THE CLAIM FOR UNDER SECTION 54F OF THE ACT, ACCORDING TO LEAR NED AR, LOWER AUTHORITIES HAVE NOT CAREFULLY VERIFIED THE ISSUE S INCE PART OF THE SHARES WERE CONSIDERED AS SHORT TERM CAPITAL ASSET. 7. PER CONTRA, LEARNED DR STRONGLY SUPPORTING THE ORDERS OF LOWER AUTHORITIES SUBMITTED THAT DATE GIVEN IN THE SHARE CERTIFICATE ALONE COULD BE CONSIDERED AS THE DATE ON WHICH ASSE SSEE WAS VESTED WITH THE SHARES. THUS, ACCORDING TO HIM, PER IOD OF HOLDING ITA NO. 1033 /CHNY/2018 :- 10 -: HAD TO BE RECKONED ONLY FROM THE SAID DATE. AS PER LEARNED DR, COMPUTATION WAS CORRECTLY DONE BY ASSESSING OFFICER . 8. WE HAVE PERUSED RECORDS AND HEARD RIVAL CONTENTI ONS. IT IS NOT DISPUTED BY THE ASSESSEE THAT DATE GIVEN IN THE SHARE CERTIFICATE FOR 85,000 SHARES, SURPLUS ARISING ON SALE OF WHIC H WAS CONSIDERED BY THE LOWER AUTHORITIES AS SHORT TERM CAPITAL GAIN WAS 9.8.2012. HOWEVER, CONTENTION OF THE ASSESSEE IS THAT THESE S HARES WERE ALLOTTED TO HIM ON 22.08.2011. COPY OF THE MINUTES OF MEETING OF THE BOARD OF DIRECTORS OF M/S.LIPI POLYMERS PVT.LT D HELD ON 22.08.2011 HAS BEEN PLACED ON RECORD, IN SUPPORT OF THE ABOVE CONTENTION. ITEM NO.5 THEREIN READS AS UNDER:- ALLOTMENT OF SHARES THE DIRECTORS NOTED THAT AS ON 31.03.2011, THERE IS A SUM OF RS. 13,00,000/- PENDING ALLOTMENT AS SHARE APPLICATION MONEY. THEY ALSO NOTED THAT DURING THIS YEAR, ON 04.06.2011 AND 06.06.2011 THE COMPANY HAS RECEIVED RS. 2,00,000/- EACH FROM T HE EXISTING SHAREHOLDERS MR. D ARUN KUMAR AND MR. MATHEW VARGHE SE AS SHARE APPLICATION MONEY RESPECTIVELY. PURSUANT TO THAT, THE DIRECTORS RESOLVED THAT THE COMPANY SHALL INCREASE ITS PAID UP CAPITAL THROUGH ALLOTMENT OF 1,70,000 EQUITY SHARE OF RS. 10 EACH PER SHARE TO BELOW MENTIONED PERSONS: ITA NO. 1033 /CHNY/2018 :- 11 -: S.NO. NAME & OCCUPATION OF THE ALLOTTEES FATHERS / HUSBANDS NAME ADDRESS NO. OF SHARES TOTAL AMOUNT 1. MR.MATHEW VARGHESE MR.AMPRAVIL MAMMEM MATHEW C-15,KOTTUR VILLA, 5, LOCK STREET, KOTTURPURAM,CHENNAI85. 85,000 8,50,000 2. MR.DURAI ARUN KUMAR MR.DURAI LAKSHMANA PERUMAL NO.19, OLD NO.5/3, GANGAIAMMAN KOIL STREET, KODAMBAKKAM, CHENNAI-24. 85,000 8,50,000 TOTAL 1,70,000 17,00,000 ASSESSING OFFICER HAD REFUSED TO CONSIDER THE ABOVE MINUTES, SINCE ACCORDING TO HIM, EVEN THE STATUTORY AUDITORS WHO H AD DONE THE AUDIT FOR THE YEAR ENDING 31.03.2012 HAD SHOWN T HE SUM OF 17 LAKHS RELATING TO THE ABOVE 1,70,000 SHARES AS SHA RE APPLICATION MONEY. ACCORDING TO HIM, IF THE SHARES, AS CLAIMED BY THE ASSESSEE STOOD ALREADY ALLOTTED, THEN SHARE APPLICATION MONE Y WOULD HAVE BEEN SHOWN AS EQUITY SHARE CAPITAL. WHAT WE FIND IS THAT, THE ASSESSEE HAD IN A REPLY GIVEN TO THE ASSESSING OFFI CER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, SPECIFICALLY STAT ED THAT THERE WAS A MISTAKE ON THE PART OF THE STATUTORY AUDITORS , DUE TO CHANGE IN THE REPORTING FORMAT AND SCHEDULES, UNDER THE COMP ANIES ACT 1956. IT IS NOT DISPUTED THAT ASSESSEE HAD ALREADY PAID THE VALUE OF EQUITY SHARES TO THE COMPANY, MUCH PRIOR TO 22.08.2 011. IT IS ALSO NOT DISPUTED THAT AS ON 31.03.2011 A SUM OF 13 LAKHS WAS PENDING FOR ALLOTMENT UNDER THE HEAD SHARE APPLICAT ION MONEY AND IN THE MONTH OF JUNE,2011 COMPANY HAD FURTHER RECE IVED A FURTHER ITA NO. 1033 /CHNY/2018 :- 12 -: SUM 4 LAKHS @ 2 LAKHS EACH FROM SHRI DURAI ARUN KUMAR AND SHRI MATHEW VARGHESE. WE FIND GREAT STRENGTH IN T HE ARGUMENT OF THE ASSESSEE THAT MINUTES OF THE BOARD MEETING OUGH T NOT HAVE BEEN DISBELIEVED JUST FOR A REASON THAT SUCH ME ETING WAS CHAIRED BY THE ASSESSEE. MINUTES OF BOARD MEETING OF A COM PANY LIMITED BY SHARES IS A RECORD WHICH IS CONSIDERED TO BE SACROS ANCT AND REFLECTING THE IMPORTANT DECISIONS TAKEN BY THE COM PANY. UNLESS IT IS PROVED BEYOND DOUBT THAT SUCH MINUTES WERE FRAU DULENTLY PREPARED OR FABRICATED, IN OUR OPINION, IT COULD NO T HAVE BEEN DISBELIEVED. LD. ASSESSING OFFICER HAD PROCEEDED ON THE BASIS OF MERE SUSPICION WITHOUT ANY EVIDENCE TO SHOW THAT TH E MINUTES WERE FRAUDULENT. IN OUR OPINION, LOWER AUTHORITIES FELL IN ERROR IN IGNORING SUCH MINUTES AND GIVING PREFERENCE TO THE HEAD UND ER WHICH SHARE APPLICATION MONEY WAS SHOWN IN THE BALANCE SHEET O F THE COMPANY AS ON 31.03.2012. AS MENTIONED BY THE LEARNED AR, D ATE GIVEN IN THE SHARE CERTIFICATE MAY NOT ALWAYS BE CONCLUSIVE REGARDING THE DATE OF ALLOTMENT OF SHARES. DATE GIVEN IN A SHARE CERTIFICATES AND DATE OF ACTUAL ALLOTMENT CAN DIFFER DUE TO VARIOUS REASONS. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CAS E, WE ARE OF THE OPINION THAT 85,000 EQUITY SHARES IN QUESTION CO ULD BE DEEMED AS ALLOTTED TO THE ASSESSEE ON 22.08.2011. TRANSFER TH EREOF HAVING ITA NO. 1033 /CHNY/2018 :- 13 -: BEEN DONE ON 11.01.2013 THE ENSUING GAINS CAN BE C ONSIDERED ONLY AS LONG TERM. WE SET ASIDE THE ORDERS OF THE L OWER AUTHORITIES IN THIS REGARD AND DIRECT THE LD. ASSESSING OFFICE R TO CONSIDER THE GAINS ARISING TO THE ASSESSEE ON SALE OF THE SHARES AS LONG TERM CAPITAL GAIN. GROUND NOS. 3 TO 8 OF THE ASSESSEE ST AND ALLOWED. 9. ADVERTING TO GROUND NO.9, WHICH IS AGAINST THE DISALLOWANCE OF EXEMPTION CLAIMED UNDER SECTION 54F OF THE ACT, WE FIND THAT LOWER AUTHORITIES HAD NOT CAREFULLY EXAMI NED THIS, SINCE SUBSTANTIAL PORTION OF THE CAPITAL GAINS WAS CONSID ERED AS SHORT TERM, AGAINST WHICH SUCH EXEMPTION WAS NOT AVAILABL E. IN THE CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION, T HE QUESTION WHETHER ASSESSEE WAS ELIGIBLE TO CLAIM EXEMPTION U NDER SECTION 54F OF THE ACT REQUIRES A REVISIT BY ASSESSING OFFI CER. WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE A ND REMIT IT BACK TO THE FILE OF ASSESSING OFFICER FOR CONSIDERATION AFR ESH. GROUND NO.9 IS ALLOWED FOR STATISTICAL PURPOSES. 10. GROUND NO.1 IS GENERAL IN NATURE AND GROUND NO. 10 IS CONSEQUENTIAL EFFECT WHICH NEED NO ADJUDICATION. ITA NO. 1033 /CHNY/2018 :- 14 -: 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D PRO-TANTO. ORDER PRONOUNCED ON FRIDAY, THE 4 TH OF JANUARY, 2019, AT CHENNAI. SD/- ( . . . ) ( N.R.S. GANESAN ) / JUDICIAL MEMBER SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER / CHENNAI / DATED:- 04 TH JANUARY, 2019. SOMU / COPY TO: 1 . / APPELLANT 3. ( ) / CIT(A) 5. / DR 2. / RESPONDENT 4. / CIT 6. / GF