DCIT 1(3), MUMBAI V. VENKATESHWARA SECURITIES P.LTD, MUMBAI

ITA 1045/MUM/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0285 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 19-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 06-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Share purchase agreement; Cost of acquisition
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH F, MU MBAI BEFORE SHRI B.R. BASKARAN ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 1045/MUM/2013 (ASSESSM ENT YEAR- 2009-10) DCIT 1(3 ) ROOM NO. 540, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. VS. M/S VENKATESHWARA SECURITIES PVT. LTD. LOTUS HOUSE, 33-A, NEW MARINE LINES, MUMBAI -400020 PAN: AABCV6095J (APPELLANT) (RESPONDENT) REVENUE REPRESENTED BY : MS. POOJA SWARUP (DR) ASSESSEE REPRESENTED BY : SHRI SANJAY M. SHAH (AR) DATE OF HEARING : 17.08.2017 DATE OF ORDER : 17.08.2017 ORDER UNDER SECTION 254(1) OF INCOME-TAX ACT PER PAWAN SINGH JUDICIAL MEMBER ; 1. THIS APPEAL BY REVENUE UNDER SECTION 253 OF INCOME- TAX ACT (ACT) IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER (APP EALS)- 2, MUMBAI DATED 26.11.2012 FOR ASSESSMENT YEAR (AY) 2009-10. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN HOLDING THAT LONG TERM CAPITAL LOSS ARISING ON SALE OF SHARES OF METROPOLITAN HEART INSTITUTE & RESEARCH C ENTRE PVT. LTD. (MHIRCL) IS GENUINE IGNORING THE FACT THAT THE AO I N HIS ASSESSMENT ORDER HAS CLEARLY ESTABLISHED THAT THE MHIRCL WAS NOT IN EXISTENCE ON THE DATE OF TRANSFER OF SHARES?' 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN HOLDING THAT LONG TERM CAPITAL LOSS ARISING ON SALE OF FLAT WAS MATERIALIZE DURING THE YEAR UNDER CONSIDER ATION IGNORING THE FACT THAT THE REGISTRATION OF SALE DEED TOOK PLACE ON 24.06.2 009 ONLY AND THUS, THE ASSESSEE FAILED TO SATISFY THE BASIC CONDITION LAID DOWN U/S 53A OF THE TRANSFER OF THE PROPERTY ACT FOR THE TRANSACTION TO BE CONSIDERED AS A ITA NO. 1045/M/2013 M/S VENKATES HWARA SECURITIES PVT. LTD. 2 'TRANSFER' WITHIN THE MEANING OF PROVISION OF SECTI ON 2(47)(V) OF THE IT ACT AND THEREBY TO QUALIFY FOR THE LONG TERM CAPITAL LO SS?' 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED RETURN OF INCOME FOR RELEVANT AY ON 30.09.2009 DECLARING TOTAL INCOME AT RS. 1,36,49,615/-. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 27.12.2011. THE ASSESSING OFFICER (AO) WHILE PASSING THE ASSESSMENT ORDER DISALLOWED THE LONG TERM CAPITAL LOSS (LTCL) OF RS. 89,00,000/ - ON SALE OF SHARES METROPOLITAN HEART INSTITUTE & RESEARCH CENTRE PVT. LTD. (MHIRCL) AND ALSO LTCL ON SALE OF FLATS FOR RS.19,56,105/-. ON A PPEAL BEFORE THE LD. CIT(A) BOTH THE DISALLOWANCE WAS DELETED. THUS, AGG RIEVED BY THE ORDER OF LD. CIT(A), THE REVENUE HAS FILED THE PRESENT AP PEAL BEFORE US. 3. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE ( DR) FOR THE REVENUE AND LD. AUTHORIZED REPRESENTATIVE (AR) OF ASSESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRST GROUND OF APPE AL RELATES TO ALLOWING THE LTCL ON SALE OF SHARES OF METROPOLITAN HEART IN STITUTE & RESEARCH CENTRE PVT. LTD. (MHIRCL). THE LD. DR FOR THE REV ENUE ARGUED THAT THE ASSESSEE CLAIMED LTCL OF RS. 89.20 LAKHS ON SALE OF SHARES, WHICH WAS SET OFF OF AGAINST THE LONG TERM CAPITAL GAIN (LTCG ) OF RS. 3.50 CRORE. THE ASSESSEE ARTIFICIALLY BOOKED A LOSS ON ACCOUNT OF SALE OF 74,25,500 SHARES OF M/S METROPOLITAN HEART INSTITUTE OF RESEA RCH CENTRE P. LTD. (MHIRCL). THE M/S MHIRCL IS ONE OF THE GROUP COMPAN Y OF ASSESSEE. THE SHARES WERE SOLD TO MRS. AJIT KUMAR KARSANDAS H AMLAI FOR A ITA NO. 1045/M/2013 M/S VENKATES HWARA SECURITIES PVT. LTD. 3 CONSIDERATION OF RS. 74,250/- ONLY @ 0.10/- PER SHA RE. NO VALUATION WAS PREPARED FOR VALUING THE SHARE; THE ASSESSEE HAS SH OWN THE PURCHASE COST AT RS. 10 PER SHARE WHILE SALE WAS BOOKED AT RS. 0. 10/- PER SHARE THEREBY ARISING AS HUGE LONG TERM INDEX LOSS OF RS. 89.28 L AKHS. THE COMPANY M/S MHIRCL WAS TAKEN OVER BY ANOTHER COMPANY IN THE AUCTION HELD BY THE BANKER UNDER SARFAESI ACT. THE SHARES WERE TRAN SFERRED TO MR. AJIT KUMAR KARSANDAS HAMLAI, WHO IS DIRECTOR IN BOTH THE COMPANIES. THE TRANSACTION WAS BETWEEN THE INTERESTED PARTIES AND WAS SHOWN ONLY TO AVOID THE TAX. THE LD. DR FOR THE REVENUE FURTHER A RGUED THAT RATIO OF CONCLUSION ARRIVED BY LD. DR FOR THE REVENUE IS WIT HOUT ANY LOGIC HOLDING THAT THERE IS NO RESTRICTION ON SALE OR TRA NSACTION WITHIN GROUP COMPANY. THE ASSESSEE HAS CREATED A DEVICE TO AVOID LEGITIMATE TAX DUE TO THE REVENUE. THE LD. CIT(A) HAS NOT REBUTTED THE FI NDING OF AO. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUPPORTED TH E ORDER OF LD. CIT(A). IT WAS ARGUED THAT DURING THE RELEVANT YEAR, THE AS SESSEE-COMPANY SOLD THE SHARES OF FOLLOWING COMPANIES: QTY COST INDEXED VALUE SALE VALUE LOSS/PROFIT A) METROPOLITAN HEART INSTITUTE & RESEARCH INSTITUTE (PVT.) LTD. 742500 74,25,000 90,02,813 74,250 (89,28,563) B) DATAR LTD 90,000 9,00,000 11,78,812 10,000 (11,61,812) C) V-TECH PVT. (LTD) 50,000 5,00,000 6,06,250 3,56,49,287 30,50,43,037 ITA NO. 1045/M/2013 M/S VENKATES HWARA SECURITIES PVT. LTD. 4 4. THE ASSESSEE HAS SET OFF OF LTCL OF TWO COMPANIES A GAINST THE LTCG ON 3 RD COMPANY I.E. V-TECH PVT. LTD. IN ACCORDANCE WITH S ECTION 74 OF THE ACT. THE AO ACCEPTED THE SET OFF OF LONG TERM OF LO SS OF SHARES OF DATAR LTD. AGAINST THE LTCG OF V-TECH PVT. LTD. HOWEVER, DENIED THE LOSS IN RESPECT OF M/S MHIRCL. M/S. MHIRCL IS PVT. LTD. COM PANY WHICH SEIZED TO DO BUSINESS AND AS PER AUDITED BALANCE-SH EET ON 31.03.2009 HAD ACCUMULATED LOSS OF RS. 6,30,51,502/-. THE COMPANY HAD NO ASSET EXCEPT THE ACCUMULATED BUSINESS LOSS. THUS, THE BRE AKUP VALUE OF COMPANYS SHARE WAS ZERO. MR. AJIT KUMAR KARSANDAS HAMLAI BEING DIRECTOR OF THE COMPANY ACQUIRED THE SHARE AND PAID RS. 74,250/-. IT WAS FURTHER ARGUED THAT THE ASSESSEE CLAIMED THE LTCL I N ACCORDANCE WITH LAW. THE AO ALLOWED THE LOSS IN RESPECT OF ONE SCRI PT OF SHARE. HOWEVER, DENIED SET OFF OF LOSSES FOR ANOTHER SCRIPTS. THE A SSESSEE HAS SHOWN THE CAPITAL GAIN OF MORE THAN RS. 3.50 CRORE DURING THE YEAR UNDER CONSIDERATION. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE AO DEN IED THE SET OFF OF LTCL OF RS 89,28,563/- IN RESPECT OF SALE OF SHARES OF M/S MHIRCL. THE AO MADE A BELIEF OF SUSPICIOUS TRANSACTION AS IT WA S BETWEEN THE RELATED PARTIES. THE ANOTHER OBJECTION OF AO WAS THAT THE A SSESSEE HAS NOT FILED COPY OF RETURN OF INCOME OF M/S MHIRCL FOR THE RELE VANT AY. THE AO FORMED HIS OPINION THAT THE TRANSACTION BETWEEN THE RELATED PARTIES IS TO ITA NO. 1045/M/2013 M/S VENKATES HWARA SECURITIES PVT. LTD. 5 AVOID THE TAX. WE HAVE NOTED THAT THE ASSESSEE HAS SHOWN THE LTCG OF MORE THAT RS. 3.50 CRORE. THE AO HAS ALLOWED THE SE T OFF OF LOSS OF RS.11,61,812/- IN RESPECT OF SCRIPT/SHARE OF DATAR LTD. HOWEVER, DENIED THE SET OFF OF LOSS FOR M/S MHIRCL. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE ALLOWED THE CLAIM/LOSS O F ASSESSEE WITH THE FOLLOWING OBSERVATION: 2.10 I HAVE GONE THROUGH THE ISSUE. FROM THE COPY OF THE SHARE CERTIFICATE FILED BY THE APPELLANT, IT IS SEEN THAT THE APPELLA NT'S SHARES IN THE COMPANY METROPOLITAN HEART INSTITUTE & RESEARCH CENTRE (IND IA) LTD WAS TRANSFERRED TO MR. AJIT KUMAR KARSANDAS HAMLAI ON 02/0112009 AN D SALE PROCEEDS WAS ALSO RECEIVED BY THE APPELLANT IN JANUARY 2009. IT IS ALSO SEEN THAT THE BREAK- UP VALUE OF THE SHARES IS NEGATIVE AND HENCE THE SA LE PRICE FIXED APPEARS TO BE CORRECT. FURTHER IT IS NOTHING WRONG FOR AN ASSESSE E TO ARRANGE HIS AFFAIRS IN A LEGITIMATE MANNER IN ORDER TO PAY MINIMUM TAX. THE TAX AUTHORITIES CAN DISALLOW THE CLAIM ONLY IF THE TRANSACTION IS NOT G ENUINE. IN THIS CASE THERE IS NOTHING AVAILABLE ON RECORD TO SHOW THAT THE TRANSA CTION IS NOT GENUINE. THE APPELLANT COULD HAVE EXECUTED THE TRANSACTION IN OR DER TO REDUCE THE TAX LIABILITY. THAT WILL NOT MAKE THE TRANSACTION AS NO T GENUINE. FURTHER THE APPELLANT'S CASE IS FULLY SUPPORTED BY THE HON'BLE GUJARAT HIGH COURT'S DECISION IN THE CASE OF ACIT V/S BIRAJ INVESTMENT P . LTD TAX APPEAL NO.260 OF 2000 ORDER DATED 07/08/2012. IN VIEW OF ALL THESE FACTS, I HOLD THAT THE APPELLA NT IS ENTITLED TO CLAIM THE LONG TERM CAPITAL LOSS ON THE SALE OF SHARES OF THE ABOV E SAID COMPANY. THE AO IS DIRECTED TO ALLOW THE CLAIM OF LONG TERM CAPITAL LO SS AS CLAIMED BY THE APPELLANT. 6. WE HAVE SEEN THAT THE AO HAS NOT DOUBTED THE GENUIN ENESS OF TRANSACTION. THE AO DISALLOWED THE SET OFF OF LOSS FORMING AN OP INION THAT TRANSACTION IN BETWEEN INTERESTED PARTIES. THE LD. CIT (A) AFTE R CONSIDERING THE FACT THAT THE ASSESSEE HAS SHOWN THE SUBSTANTIAL LTCG DU RING THE YEAR. THE AO HAS ALLOWED THE CAPITAL LOSS ONLY IN RESPECT OF ONE SCRIPT AND DISALLOWED FOR ANOTHER SCRIPT. WE HAVE SEEN THAT TH E LD. CIT(A) PASSED THE ORDER BY FOLLOWING THE DECISION OF HONBLE GUJRAT H IGH COURT IN ACIT VS ITA NO. 1045/M/2013 M/S VENKATES HWARA SECURITIES PVT. LTD. 6 BIRAJ INVESTMENT P. LTD (SUPRA). NO CONTRARY DECISI ON WAS BROUGHT TO OUR NOTICE. THUS, THE LD DR FOR THE REVENUE FAILED TO C ONVINCE US, AS TO WHY THE ORDER OF LD CIT (A) IS NOT LAWFUL. HENCE, THIS GROUND OF APPEAL RAISED BY REVENUE HAS NO FORCE AND THE SAME IS DISMISSED. 7. GROUND NO.2 RELATES TO ALLOWING THE LTCL ON SALE OF FLAT. THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF AO AND WOULD ARG UE THAT THE ASSESSEE HAS ARTIFICIALLY BRING THE CAPITAL LOSS IN THE YEAR UNDER CONSIDERATION, THOUGH IT IS CLEAR FROM THE DATE OF AGREEMENT, DATE OF REGISTRATION OF SALE- DEED AND THE ADVANCE RECEIVED AGAINST THE SALE OF F LAT THAT ALL TRANSACTION ARE NOT RELATED WITH THE AY UNDER CONSIDERATION. ON THE OTHER HAND THE LD AR FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LD C IT(A). IT WAS ARGUED THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATI ON TRANSFERRED THE OWNERSHIP OF TWO RESIDENTIAL FLATS IN HILL VIEW T PS, SHARDHANAND ROAD, VILLE PARLE (E), IN FAVOUR OF ONE OF ITS DIRECTOR. THE SALE DEED WAS EXECUTED ON BEHALF OF ASSESSEE ON 27.03.2009; HOWEV ER THE REGISTRATION BEFORE SUB-REGISTRAR TOOK PLACE ON 26.04.2009. THE COPY OF THE SALE DEED DATED 27.03.2009 IS PLACED ON RECORD AT PAGE NO.73 TO 103 OF PB. THE REQUISITE STAMP DUTY OF RS. 6,75,000/- WAS PAID ON 25 TH MARCH 2009. THE POSSESSION OF THE FLATS WAS ALSO HANDED OVER TO THE PURCHASER ON 27.03.2009 IN ACCORDANCE WITH THE CLAUSE NO.16 OF T HE SALE DEED. THE LD AR ALSO DRAWN OUR ATTENTION ON CLAUSE 12(III) AND 1 6 OF THE TRANSFER DEED/ SALE DEED DATED 27.03.2009. IT WAS ARGUED THAT THE FLATS WAS UNDER THE ITA NO. 1045/M/2013 M/S VENKATES HWARA SECURITIES PVT. LTD. 7 TENANCY OF M/S CITI BANK AND THE BANK HAS PAID THE ADVANCE RENT UP TO 31.12.2009. WHILE EXECUTING THE SALE DEED THE ASSES SEE HAS A CREDIT BALANCE OF RS.11,44,868/- WHICH WAS APPROPRIATED TO WARD THE SALE CONSIDERATION. FURTHER CLAUSE 12(III) OF THE SALE DEED CLEARLY MENTIONS THAT RENT OF RS.6,61,257/- RECEIVED BY THE ASSESSEE FROM 01.04.2009 TO 31.12.2009 IS ALSO APPROPRIATED AGAINST THE SALE CO NSIDERATION. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE LD REPRESENTATIVES OF THE PARTIES AND HAVE GONE THROUGH THE ORDERS OF THE AUT HORITIES BELOW. THE AO OBJECTED WHILE ALLOWING THE SET OFF OF LOSS FOR THREE REASONS. FIRSTLY, CITI BANK HAS PAID RENT TO THE ASSESSEE UP TO 31.03 .2009, THUS THE ASSESSEE REMAINED IN POSSESSION OF THE PROPERTY TIL L 31.03.2009. SECONDLY, THE REGISTRATION OF SALE DEED TOOK AFTER 31.03.2009 . THIRDLY, THE CONSIDERATION WAS RECEIVED IN THE SUBSEQUENT YEAR, WHICH IMPLIES THAT NO CONSIDERATION WAS RECEIVED ON 27.03.2009. WE HAVE E XAMINED THE VARIOUS CLAUSES IN THE SALE DEED. THE PERUSAL OF THE SALE D EED SHOWS THAT IT WAS EXECUTED ON 27.03.2009. CLAUSE 12(III) OF SALE DEED REVEALS THAT PAYMENTS OF ADVANCE RENT RECEIVED FROM CITI BANK IS DULY REF LECTED THEREIN. FURTHER THE ASSESSEE ASSIGNED THE LEAVE AND LICENSE E OF CITI BANK IN FAVOUR OF THE PURCHASER. THE BALANCE OF COMPENSATIO N ON ACCOUNT OF 9 MONTH WAS DULY ADJUSTED AGAINST THE SALE CONSIDERAT ION. FURTHER CLAUSE 16 OF THE SALE REVEALS THAT THE POSSESSION OF THE PREM ISES ALONG WITH COMMON AREA WAS HANDED OVER TO THE ASSESSEE. THE PAYMENT OF REQUISITE STAMP ITA NO. 1045/M/2013 M/S VENKATES HWARA SECURITIES PVT. LTD. 8 DUTY ON 25.03.2009 WAS NOT DISPUTED BY THE AO. IN O UR VIEW THE TRANSFEREE BECOME THE OWNER OF THE PROPERTY WHEN HE HAD PAID THE CONSIDERATION, EXECUTED THE TRANSFER / SALE DEED, A ND OBTAINED THE POSSESSION THEREOF. THE REGISTRATION OF THE INSTRUM ENT IS THEREAFTER A LEGAL FORMALITY. EVEN OTHERWISE AS PER SECTION 24 OF REGI STRATION ACT, THE DOCUMENT CAN BE PRESENTED FOR ITS REGISTRATION WITH IN FOUR MONTHS FROM THE DATE OF ITS EXECUTION. SECTION 47 OF REGISTRATI ON ACT FURTHER PROVIDES THAT THE REGISTERED DOCUMENTS SHALL OPERATE FROM TH E DATE OF ITS EXECUTION AND NOT FROM DATE OF REGISTRATION. WE HAVE SEEN TH AT THE AO HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO DISBELIEVE THE CO NTENTION OF THE ASSESSEE. IN VIEW OF THE ABOVE DISCUSSION WE DO NOT FIND ANY REASON FOR INTERFERING IN THE ORDER OF LD CIT(A). HENCE, THIS GROUND OF APPEAL RAISED BY REVENUE IS ALSO FAILED. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH DAY OF AUGUST 2017. SD/- SD/- (B.R. BASKARAN) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 17/8/2017 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT .REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/