D.C.I.T Cir - 8,kolkata, Kolkata V. M/s Celica Developers Pvt Ltd, Kolkata

ITA 1233/KOL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4623 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 03-08-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 13-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Fair market value; Sham transactions
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO.1233/KOL/2013 ASSESSMENT YEARS:2006-07 DCIT, CIRCLE-8, AAYAKAR BHAWAN, 5 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA-69 / V/S . M/S CELICA DEVELOPERS PVT. LTD., 24, PARK STREET, KOLKATA-16 [ PAN NO.AABCC 3820 C ] /APPELLANT .. /RESPONDENT /BY APPELLANT SHRI SALLONG YADEN, ADDL-CIT-DR /BY RESPONDENT SHRI RAVI TULSIYAN, FCA /DATE OF HEARING 03-08-2016 /DATE OF PRONOUNCEMENT 24-08-2016 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-CENTRAL I, KOLKATA DATED 19.02.2013. ASSESSMENT WAS FRAMED BY DCIT, CC-VI, KOLKATA U/S 263/143(3) OF THE INCOME TAX ACT , 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 29.12.2011 FOR A SSESSMENT YEAR 2006-07. ONLY GROUND RAISED BY THE REVENUE PER ITS APPEAL IS AS U NDER:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN AW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.99,89,510/ - TO THE SHORT TERM CAPITAL GAIN ARISING FROM THE TRANSFER OF SHARES OF M/S MAG MA LEASING LTD. AT THE BOOK VALUE WITHOUT HAVING REGARD TO THE FACT THAT T HE TRANSACTIONS OF TRANSFER OF THE SHARES WERE NOT GENUINE AND A DEVICE TO AVOID T AXES. ITA NO.1233/KOL/2013 A.Y. 20 06-07 DCIT, CIR-8, KOL. VS. M/S CELICA DEVELO PERS PVT. LTD. PAGE 2 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN GIVING RELIEF TO THE ASSESSEE COMPANY BY D ELETING THE ADDITION MADE ON ACCOUNT OF TRANSFER OF SHARES AT BOOK VALUE WITHOU T HAVING CONSIDERED THAT TRANSACTION OF LISTED SHARES AT THE PRICE LOWER THA N THE QUOTED PRICE WAS NOT LEGALLY PERMISSIBLE. 3. THAT THE APPELLANT RESERVES THE RIGHT TO AMEND, ALTER OR ADD TO ANY GROUND OF APPEAL BEFORE OR AT THE TIME OF HEARING OF THE APPE AL. SHRI RAVI TULSIYAN, LD. AUTHORIZED REPRESENTATIVE A PPEARED ON BEHALF OF ASSESSEE AND SHRI SALLONG YADEN, LD. DEPARTMENTAL REPRESENTATIVE APPEARED ON BEHALF OF REVENUE 2. SINGLE ISSUE RAISED BY REVENUE IS THAT LD. CIT(A ) ERRED IN DELETING THE ADDITION MADE BY ASSESSING OFFICER FOR 99,89,510/- ON ACCOUNT OF BOGUS TRANSACTIONS AND T O EVADE TAX LIABILITY. 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE IN THE PR ESENT CASE IS A PRIVATE LIMITED COMPANY AND FOR THE YEAR UNDER CONSIDERATION HAS FI LED ITS RETURN INCOME SHOWING INCOME FROM BUSINESS OF HOUSE PROPERTY AND CAPITAL GAIN FOR AN AMOUNT OF 82,22,167/-. THEREAFTER THE CASE WAS SELECTED FOR S CRUTINY SUBSEQUENTLY NOTICES U/S. 143(2) AND 142(1) OF THE ACT WERE ISSUED. THE ASSES SEE HAS SHOWN 2.65 LACS SHARES OF MAGMA LEASING LTD. (MLL FOR SHORT) AS ON 01.04.2005 AND ITS VALUE WAS SHOWN AT 72,87,500/-. THESE SHARES OF MLL WERE LISTED ON THE STOCK EXCHANGE OF THE COUNTRY. THE ASSESSEE, DURING THE YEAR, HAS TRANSFERRED 2,25 ,700 SHARES AT BOOK VALUE THOUGH THE VALUE OF THE STOCK EXCHANGE WAS TOO MUCH HIGH. THE AO OBSERVED THE DIFFERENCE BETWEEN THE BOOK VALUE AND MARKET VALUE OF THE SHAR E AT 44.03 PER SHARE, THEREFORE THE TOTAL INCOME FROM CAPITAL GAIN FROM THE SALE OF 2,25,700 SHARE OF MLL COMES TO 99,98,510/- BUT ASSESSEE HAS SHOWN NO INCOME IN ITS HAND. ACCORDINGLY, AO TREATED THE DIFFERENCE AMOUNT OF 99,98,510/- AS SHORT TERM CAPITAL GAINS (STCG FOR S HORT) AND ADDED TO THE TOTAL INCOME OF ASSESSEE. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHERE THE ASSESSEE IN SUPPORT ITS SALE OF SHARE SUBMITTED THE BILLS DI SCLOSING THE DETAILS AND PRICE OF THE ITA NO.1233/KOL/2013 A.Y. 20 06-07 DCIT, CIR-8, KOL. VS. M/S CELICA DEVELO PERS PVT. LTD. PAGE 3 SHARES AT WHICH THESE WERE SOLD AND CONSIDERING THE SAME, LD. CIT(A) DELETED THE ADDITION MADE BY AO BY OBSERVING AS UNDER:- 5. I HAVE PERUSED THE RELEVANT ORDERS. I HAVE ALSO CONSIDERED THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT AND THE JUDICIAL DE CISIONS RELIED UPON. I FIND THAT THE APPELLANT HAD 2,65,000 SHARES OF MAGMA LEA SING LTD VALUED AT RS.72,87,500/- THE BOOK VALUE BEING RS.27.50 PER SH ARE. DURING THE YEAR, THE APPELLANT SOLD 2,25,700 SHARES TO 16 PARTIES @ RS.2 7.50 PER SHARE. THE APPELLANT REVALUED RESIDUARY 39,300 SHARES @ RS.71. 50 PER SHARE AND TRANSFERRED THE EQUIVALENT CREDIT OF RS.17,41,097/- TO THE REVALUATION RESERVE ACCOUNT. THIS PROMPTED THE AO TO HOLD THAT THE SALE PRICE SHOULD BE TAKEN AT RS.71.50 PER SHARE IN RESPECT OF SALE OF 2,25,700 S HARES. HOWEVER, I FIND THAT THE ACTION OF THE AO IS ARBITRARY AND WITHOUT ANY B ASIS AS THERE IS NO MATERIAL OR EVIDENCE ON RECORD TO SHOW THAT THE SHARES WERE ACTUALLY SOLD @ RS.71.50 PER SHARE. THE AO HAS BROUGHT NO INCRIMINATING MATE RIAL- ON RECORD TO SHOW THAT THE APPELLANT RECEIVED BY WAY OF SALE CONSIDER ATION ANYTHING MORE THAN WHAT HAS BEEN DECLARED BY IT IN ITS RETURN. I FIND MERIT IN THE ARGUMENT THAT THERE IS NO PROVISION IN THE INCOME TAX ACT WHICH A UTHORIZES THE AO TO INCREASE THE DECLARED SALE CONSIDERATION BY THE FAI R MARKET VALUE OF THE TRANSFERRED ASSET. IN FACT, THERE IS NO PROVISION I N THE INCOME TAX ACT WHICH PROHIBITS SALE OF SHARES AT A PRICE LESS THAN THE M ARKET VALUE. THE AO CAN INCREASE THE VALUE OF THE SALE CONSIDERATION ONLY W HEN THERE IS POSITIVE MATERIAL ON RECORD TO ESTABLISH THAT THE CONSIDERATION FOR T HE TRANSFER OF THE CAPITAL ASSET HAS BEEN UNDERSTATED BY AN ASSESSEE; OR, IN OTHER W ORDS, THE FULL VALUE OF THE CONSIDERATION IN RESPECT OF THE TRANSFER HAS BEEN S HOWN AT A LESSER FIGURE THAN THAT ACTUALLY RECEIVED BY THE ASSESSEE. BUT THEN, T HE BURDEN OF PROVING SUCH UNDERSTATEMENT OR CONCEALMENT SHALL LIE ON THE REVE NUE. THE ONUS IS ON THE AO TO BRING POSITIVE MATERIAL ON RECORD TO SHOW THAT T HE SALE CONSIDERATION HAS BEEN UNDERSTATED AND THAT THE ASSESSEE HAS ACTUALLY RECEIVED MORE THAN WHAT HAS BEEN DECLARED BY HIM. BUT, IN THE PRESENT CASE, THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE SHARES WERE TRANSFERRED BY THE APPELLANT AT A HIGHER RATE THAN WHAT HAS BEEN DECLARED IN THE RETURN. THE AO HAS MERELY ADOPTED A HYPOTHETICAL FIGURE TO ESTIMATE THE SALE CONSIDERAT ION. IN THE CASE OF K P VARGHEESE 131 ITR 597, THE HON'BLE SUPREME COURT HA S HELD THAT IT WAS FOR THE REVENUE TO ESTABLISH THAT THE SALE CONSIDERATION WA S UNDERSTATED BY THE ASSESSEE; AND, IN CASE THERE IS NO SUPPORTING MATER IAL ON RECORD, THE AO HAS NO AUTHORITY TO SUBSTITUTE THE FAIR MARKET VALUE OF TH E TRANSFERRED CAPITAL ASSET FOR THE SALE CONSIDERATION. IN THE CASE OF SHRI RAMALIN GA CHOODAMBIKAI MILLS LTD. 28 ITR 952, IT WAS HELD BY THE HON'BLE HIGH COURT O F MADRAS THAT IF THERE WAS NO EVIDENCE TO SHOW THAT EITHER THE SALES WERE SHAM TRANSACTIONS OR THE MARKET PRICES WERE PAID BY THE PURCHASERS; THEN THE MERE F ACT THAT THE GOODS WERE SOLD AT A CONCESSIONAL RATE TO BENEFIT THE PURCHASERS AT THE EXPENSE OF THE COMPANY WOULD NOT ENTITLE THE INCOME TAX DEPARTMENT TO ASS ESS THE DIFFERENCE BETWEEN THE MARKET PRICE AND THE PRICE PAID BY THE PURCHASE RS AS PROFITS OR THE COMPANY. IN VIEW OF THE ABOVE, I AM OF THE CONSIDER ED OPINION THAT IN ABSENCE OF ANY MATERIAL ON RECORD TO SHOW THAT HIGHER PRICE WAS ACTUALLY PAID TO THE ITA NO.1233/KOL/2013 A.Y. 20 06-07 DCIT, CIR-8, KOL. VS. M/S CELICA DEVELO PERS PVT. LTD. PAGE 4 APPELLANT BY THE PURCHASERS, THE AO HAD NO LEGAL SA NCTION OR AUTHORITY TO INCREASE THE SALE CONSIDERATION AS HE HAS DONE IN H IS ASSESSMENT ORDER. THE COMPUTATION OF SHORT-TERM CAPITAL GAINS AS DONE BY THE AO IS NOT IN ACCORDANCE WITH THE PROVISIONS OF LAW; AND, THE SAME IS DIRECT ED TO BE DELETED. THE GROUNDS RAISED BY THE APPELLANT ARE ALLOWED. BEING AGGRIEVED BY THIS ORDER OF LD CIT(A) REVENUE IS IN APPEAL BEFORE US. 5. BEFORE US LD. SUBMITTED THAT AS PER THE SECURITY EXCHANGE BOARD OF INDIAS REGULATION, ASSESSEE CANNOT SALE ITS SHARE AT A PRI CE LESS THAN EXCHANGE PRICE, THEREFORE, ASSESSEE MUST HAVE RECEIVED SOME CONSIDERATION OVER AND ABOVE THE BOOK VALUE WHICH HAS NOT BEEN DISCLOSED IN IT RETURNED INCOME AND HE VEHEMENTLY RELIED ON THE ORDER OF ASSESSING OFFICER. ON THE OTHER HAND, LD. BEFORE US SUBMITTED PAPER BO OK WHICH COMPRISES PAGES FROM 1 TO 51 AND STATED THAT THERE IS NO PROVISION FROM TH E SEBI FOR SELLING THE SHARE AT A PRICE LESS THAN THE EXCHANGE PRICE AND HE RELIED ON THE O RDER OF LD. CIT(A) AND REQUESTED THE BENCH TO UPHOLD THE SAME. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FOREGOING DISCUSSION, WE FIND THAT ASSESSEE HAS SOLD ITS LISTED SHARE AT A BOOK VALUE BUT AO REJECTED ITS BOOK VALUE OF THE SHARE AND TOOK THE SALE CONSIDERATION AT A PRICE WHICH WAS PREVAILING AT TH E RELEVANT TIME IN THE STOCK EXCHANGE. HOWEVER, LD. CIT(A) HAS DELETED THE ADDIT ION MADE BY AO. NOW THE PRESENT ISSUE BEFORE US ARISES SO AS TO WHETHER THE DIFFERENCE BETWEEN THE BOOK VALUE AND THE MARKET VALUE AMOUNTS TO THE STCG. IN THE SI MILAR FACTS AND CIRCUMSTANCES OF THE PRESENT CASE IN HAND, VARIOUS COURTS HAVE DECID ED THIS ISSUE IN FAVOUR OF ASSESSEE AND RELEVANT CASE LAWS CITED BELOW:- A) K.P. VARGHESE VS. ITO & ANR. (2981) 24 CTR 358 ( SC), WHEREIN THE HEAD-NOTE:- CAPITAL GAINSAPPLICABILITY OF S. 52(2)UNDERSTATEM ENT OF CONSIDERATIONIF, THE REVENUE SEEKS TO BRING A CASE WITHIN SUB-S. (2), IT MUST SHOW NOT ONLY THAT THE FAIR MARKET VALUE OF THE CAPITAL ASSET AS ON THE DATE OF THE TRANSFER EXCEEDS THE FULL VALUE OF THE CONSIDERATION DECLARED BY THE ASSESSEE BY NOT L ESS THAN 15 PER CENT OF THE VALUE SO DECLARED, BUT ALSO THAT THE CONSIDERATION HAS BEEN UNDERSTATED AND THE ASSESSEE HAS ACTUALLY RECEIVED MORE THAN WHAT IS DECLARED BY HIM THERE ARE TWO DISTINCT CONDITIONS WHICH HAVE TO BE SATISFIED BEFORE SUB-S. (2) CAN BE INVOKED BY THE REVENUE ITA NO.1233/KOL/2013 A.Y. 20 06-07 DCIT, CIR-8, KOL. VS. M/S CELICA DEVELO PERS PVT. LTD. PAGE 5 AND THE BURDEN OF SHOWING THAT THESE TWO CONDITIONS ARE SATISFIED RESTS ON THE REVENUESUB-S. (2) HAS NO APPLICATION IN THE CASE O F AN HONEST AND BONA FIDE TRANSACTION WHERE THE CONSIDERATION RECEIVED BY THE ASSESSEE HAS BEEN CORRECTLY DECLARED OR DISCLOSED BY HIM, AND THERE IS NO CONCE ALMENT OR SUPPRESSION OF THE CONSIDERATION B) SRI RAMALINGA CHOODAMBIKAI MILLS LTD. V. CIT (19 55) 28 ITR 952 (MAD), WHEREIN THE HEAD-NOTE INCOMEACCRUALASSESSEE-COMPANY ENGAGED IN THE BUSI NESS OF MANUFACTURE AND SALE OF YARNGOODS SOLD BY COMPANY TO DIRECTORS AT CONCESSIONAL PRICEFINDING BY THE ITO THAT THE SALES WERE NOT BONA FIDE AND WERE EFFECTED TO BENEFIT THE PURCHASERS AT THE EXPENSE OF COMPANYNOT JUSTIFIEDDIFFERENCE BETWEEN MARKET PRICE AND PRICE PAID BY DIRECTOR CANNOT BE ASSESSED AS COMPANY'S IN COME IN THE ABSENCE OF EVIDENCE TO SHOW THAT SALES WERE SHAM TRANSACTIONS OR THAT T HE MARKET PRICES WERE IN FACT PAID BY PURCHASERSMERE FACT THAT GOODS WERE SOLD AT CON CESSIONAL RATE WOULD NOT ENTITLE THE ITO TO ASSESS THE SAME AS PROFITS OF THE COMPAN Y RESPECTFULLY FOLLOWING THE PRECEDENT AS MENTIONED A BOVE WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) ACCORDINGLY WE UPHOLD THE SAME. THIS GROUND OF REVENUES APPEAL IS DISMISSED. 7. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 24/08/2016 SD/- SD/- (S.S.VISWANETHRA RAVI) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER *DKP ! - 24/08/2016 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-DCIT, CIRCLE-8, AAYAKAR BHAWAN 5 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOL KATA-69 2. /RESPONDENT-M/S CELICA DEVELOPERS PVT. LTD., 24, PARK STREET, KOLKATA-16 3. '# % / CONCERNED CIT 4. % - / CIT (A) 5. &'( ))'# , '# / DR, ITAT, KOLKATA 6. (*+ / GUARD FILE. BY ORDER/ , /TRUE COPY/ / '#,