DCIT,Central Circle-III, Kolkata, Kolkata V. M/s. Apeejay House(P)Ltd, Kolkata

ITA 1249/KOL/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4273 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-09-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 28-08-2012

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI K.NARSIMHA CHARY, JUDICIAL MEMBER ITA NO.1249/KOL/2012 ASSESSMENT YEAR:2008-09 DCIT, CENTRAL CIRCLE-II, PODDAR COURT18 RABINDRA SARANI (5 TH FLOOR), KOLKATA-700 001 / V/S . M/S APPEJAY HOUSE (P) LTD., 15, PARK STREET, KOLKATA-700 016 [ PAN NO.AACCA 1959 K ] /APPELLANT .. /RESPONDENT /BY APPELLANT SHRI S.MS TAUHEED, JCIT-SR-DR /BY RESPONDENT SHRI MANISH TIWARI, FCA /DATE OF HEARING 25-10-2016 /DATE OF PRONOUNCEMENT 09-11-2016 /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 15.06.2012. ASSESSMENT WAS FRAMED BY DCIT, CENTRAL CIRCLE-III, KOLKATA U/S 143(3) OF THE INCOM E TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 31.1 2.2010 FOR ASSESSMENT YEAR 2008-09. SHRI S.MS TAUHEED, LD. DEPARTMENTAL REPRESENTATIVE APPEARED ON BEHALF OF REVENUE AND SHRI MANISH TIWARI, LD. AUTHORIZED REPRESENTATI VE APPEARED ON BEHALF OF ASSESSEE. ITA NO.1249/KOL/2012 A.Y. 2 008-09 DCIT CC-III, KOL. VS. M/ S APEEJAY HOUSE (P) LTD. PAGE 2 2. THE SOLITARY ISSUE RAISED BY REVENUE IN THIS APP EAL IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY ASSESSING OFFICER FOR 3,51,50,000/- ON ACCOUNT OF SHORT TERM CAPITAL LOSS (STCL FOR SHORT). 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE IN THE PR ESENT CASE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN BUSINESS OF RENTALS OF PROPE RTIES. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAS FILED ITS RETURN OF INC OME ON 28.09.2008 DECLARING TOTAL INCOME OF 15,04,58,160/-. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY NOTICE U/S. 143(2)/142(1) OF THE ACT WA S ISSUED TO ASSESSEE. THE ASSESSMENT WAS FRAMED U/S. 143(3) OF THE ACT AT A T OTAL INCOME OF RS.19,02,53,000/- AFTER MAKING CERTAIN ADDITIONS / DISALLOWANCES TO T HE TOTAL INCOME OF ASSESSEE WHICH ARE DISCUSSED AS UNDER : DURING THE YEAR, ASSESSEE SUBSCRIBED 1.90 LAC EQUIT Y SHARES OF M AND M AUTO INDUSTRIES LTD. (MMAIL FOR SHORT) HAVING FACE VALUE RS. 10/- PER SHARE BUT THESE WERE PURCHASED AT RS. 200 PER SHARE ON 08.01.2008 AND 25 .02.2008 RESPECTIVELY. THEREAFTER THE ASSESSEE SOLD THE SHARES ON 28.03.2008 @ 15/- P ER SHARE TO MR. JIT PAUL (MJP FOR SHORT) FOR A SUM OF RS 28.50 LACS. AS A RESULT OF P URCHASE-AND-SALE OF SHARE, ASSESSEE INCURRED LOSS OF RS. 3,51,50,000/-. ON QUESTION BY AO FOR THE AFORESAID LOSS ASSESSEE SUBMITTED THAT IT WANTED TO DIVERSIFY AND EXPAND TH E BUSINESS ACTIVITIES IN NORTH INDIA IN CAR INDUSTRY. THEREFORE, SUCH SHARES WERE SUBSCR IBED AT A PREMIUM DIRECTLY FROM MMAIL BY WAY OF ALLOTMENT. THE VALUE OF THE SHARES FOR THE PURCHASE WAS DETERMINED KEEPING IN VIEW THE CUMULATIVE PROFIT AF TER TAX OF THE COMPANY IN THE NEXT 10 YEARS. HOWEVER, ASSESSEE LEFT THE IDEA FOR VENTU RING IN ANY OTHER BUSINESS IN NORTH INDIA AND PURCHASED SOME PROPERTY FOR ITS BUSINESS EXPANSION IN WEST BENGAL. THEREFORE, THESE SHARES WERE SOLD TO MJP AT THE PRE VAILING MARKET RATE @ 15/- PER SHARE. HOWEVER, AO DISREGARDED THE PLEA OF ASSESSEE BY OBSERVING AS UNDER:- A) THE ASSESSEE PURCHASED A PIECE OF LAND OF 1.860 ACRES IN HOOGHLY, WEST BENGAL DATED 17.10.2007. ANOTHER PIECE OF LAND OF 0.218 AC RES ADJACENT TO THE AFORESAID LAND WAS ALSO PURCHASED ON 28.01.2008. TH EREFORE THE MAJOR PART OF THE LAND WAS ACQUIRED BY ASSESSEE IN OCTOBER, 2007 PRIOR TO THE DATE OF ITA NO.1249/KOL/2012 A.Y. 2 008-09 DCIT CC-III, KOL. VS. M/ S APEEJAY HOUSE (P) LTD. PAGE 3 ACQUISITION OF SHARES OF MMAIL IN JAN. / FEB. 2008. THEREFORE, THE REASON CITED BY ASSESSEE FOR THE SALE OF SHARES IN ORDER TO PUR CHASE THE SAID PROPERTY FOR EXPANSION ITS BUSINESS IN WEST BENGAL DOES NOT HOLD GOOD. B) THE ASSESSEE PURCHASED SHARES AT A VERY HIGH VAL UE KEEPING IN MIND THE PREVAILING GROWTH RATE OF CAR INDUSTRY OF THE NEXT 10 YEARS BUT, IN FACT, ASSESSEE SOLD SHARES IMMEDIATELY WITHIN COUPLE OF MONTHS. C) THE SHARES WERE SOLD TO MJP WHO IS A KEY MANAGEM ENT PERSON OF APEEJAY SURRENDRA GROUP. IT WAS ALSO FOUND THAT MJP IS HAVI NG SUBSTANTIAL INTEREST IN THE COMPANY OF THE ASSESSEE WITHIN THE MEANING OF S EC. 40A(2)(B) OF THE ACT. ACCORDINGLY, AO IN VIEWS OF THE MATTER, FOUND THAT LOSS INCURRED BY ASSESSEE FOR RS.3,51,50,000/- IS NOT GENUINE AND THEREFORE IT WA S DISALLOWED BY ADDING IT TO THE TOTAL INCOME OF ASSESSEE. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT THE FINDING OF AO ARE BASED ON SURMISE AND CONJECTURE. THE SHARES WERE ALLOTTED TO ASSESSEE BY MMAIL DIRECTLY. THE PAYMENT WAS MADE THROUGH CHEQUE AND THE PRICE WAS DETERMINE D CONSIDERING THE PROFIT AFTER TAX OF EARLIER YEAR AND FUTURE BUSINESS PLAN. HOWEV ER, ON A LATER DATE ASSESSEE DECIDED TO EXIT ON THE BASIS OF NEGATIVE MARKET REPORT. THE TRANSACTIONS RESULTING LOSS TO THE ASSESSEE CANNOT BE DOUBTED MERELY ON THE GROUND THA T SUCH TRANSACTION WAS CLOSED WITHIN THE COUPLE OF MONTHS. THE SHARES WERE PURCHA SED AND SOLD AS PER THE DECISION OF THE MANAGEMENT. THE REVENUE AUTHORITY CANNOT STE P INTO THE SHOES OF MANAGEMENT TO DECIDE THE BUSINESS DECISION OF ASSESSEE. THE SH ARES WERE SOLD AT FAIR MARKET VALUE BASED ON THE FINANCIAL STATEMENT FOR THE FY 2006-07 . THE PROVISIONS OF SEC. 40A(2)(B) ARE NOT APPLICABLE AS IT DEALS FOR THE DISALLOWANCE OF EXCESSIVE AND UNREASONABLE EXPENDITURE ON ACCOUNT OF GOODS AND SERVICES BY TH E PERSON SPECIFIED U/S 40A(2)(B) OF THE ACT. THE PROVISION OF THE AFORESAID SECTION DOES NOT APPLY TO THE INSTANT CASE. ACCORDINGLY, LD. CIT(A) AFTER CONSIDERING THE SUBMI SSION OF ASSESSEE DELETED THE ADDITION MADE BY AO BY OBSERVING AS UNDER:- ITA NO.1249/KOL/2012 A.Y. 2 008-09 DCIT CC-III, KOL. VS. M/ S APEEJAY HOUSE (P) LTD. PAGE 4 6. I HAVE PERUSED THE ASSESSMENT ORDER AND THE MAT ERIAL ON RECORD. I HAVE ALSO CONSIDERED THE SUBMISSIONS MADE ON BEHALF OF T HE APPELLANT COMPANY. THERE IS NO DISPUTE REGARDING COST OF ACQUISITION O F 190000 SHARES OF M & M AUTO INDUSTRIES LTD. THE DISPUTE RELATES TO THE SAL E PRICE OF RS.15/- PER SHARE AND THE APPLICABILITY OF THE PROVISIONS OF SECTION 40A(2). I FIND THAT NO MATERIAL EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE AO TO ES TABLISH THAT THE LOSS ON SALE OF SHARES IS NON-GENUINE. SIMPLY BECAUSE THE S ALE WAS MADE TO A RELATED PARTY, IT CANNOT BE CONCLUDED THAT THE LOSS IS BOGU S. IN COURSE OF THE ASSESSMENT PROCEEDINGS THE APPELLANT HAS FILED PRIMARY EVIDENC E RELATING TO ACQUISITION AND SALE OF SHARES OF M & M AUTO INDUSTRIES LTD. DE TAILS OF BANKING TRANSACTION, AUDITED ACCOUNTS OF M & M AUTO INDUSTR IES LTD., THE BASIS FOR CALCULATION OF FAIR MARKET VALUE OF THE SHARES OF M & M AUTO INDUSTRIES LTD AT RS.15/-. THE AO HAS FOUND NO DEFECT OR DISCREPANCY IN SUCH DETAILS OR DOCUMENTS. THE APPELLANT HAS PRODUCED AT THE ASSESS MENT STAGE THE COMPUTATION BY WHICH THE FAIR MARKET VALUE OF THE S HARE OF M & M AUTO INDUSTRIES LTD WAS CALCULATED AT RS.15/- ON THE BAS IS OF THE AUDITED RESULTS OF THE SAID COMPANY FOR FY 2006-07 WHICH HAS NOT BEEN DISPUTED OR DISPROVED BY THE AO. THE LD. AR CONTENDED THAT THE SELLING PRICE OF RS.15/- PER SHARE MATCHES WITH THE BREAK-UP VALUE AS PER AUDITED ACCO UNTS OF M/S M & M AUTO INDUSTRIES LTD FOR FY 2006-07 WHICH IS VERIFIABLE W ITH REFERENCE TO THE SAID AUDITED ACCOUNTS FURNISHED AT THE ASSESSMENT STAGE. THE SALE PRICE @ RS.15 PER SHARE IS AT PAR WITH THE BREAK-UP VALUE OF M/S M & M AUTO INDUSTRIES LTD AS PER AUDITED ACCOUNTS FOR FY 2006-07. THEREFORE IT CANNO T BE SAID THAT THE SELLING PRICE WAS LOW OR THAT THE LOSS WAS NOT GENUINE. I F IND MERIT IN THE ARGUMENT THAT THOUGH THE REVENUE WAS FREE TO INQUIRE ABOUT THE GE NUINENESS OF A CLAIM OF LOSS, THE TIMING AT WHICH A TAX PAYER SHOULD MAKE INVESTM ENT AND DISPOSE SUCH INVESTMENT DEPENDS ON THE DECISION OF THE MANAGEMEN T AND NOT ON THE ADVICE OF THE REVENUE. EVERY TRANSACTION MAY NOT RESULT IN PR OFIT. WHEN THE TRANSACTIONS ARE ROUTED THROUGH THE BANKING CHANNEL, IT CANNOT B E HELD AS NON-GENUINE SOLELY ON THE BASIS OF SUSPICION, CONJECTURES AND S URMISES. THE HON'BLE SUPREME COURT HAS, IN THE CASE OF UMA CHAND SHAH VS CIT 37 ITR 271 , CLEARLY HELD THAT WHERE THERE ARE MANY SURMISES AND CONJECTURES AND THE CONCLUSION IS THE RESULT OF SUSPICION, THE SAME CAN NOT TAKE SHAPE OF EVIDENCE HOWEVER STRONG IT MAY BE. SIMILAR RATIO WAS LAID DO WN BY HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. RAMESH BHAYANA 296 ITR 101 , I AGREE WITH THE LD. AR THAT THE PROVISIONS OF SECTIO N 40A(2) ARE INTENDED TO DISALLOW EXPENDITURE WHICH IS EXCESSIVE OR UNREASON ABLE HAVING REGARD TO MARKET VALUE OF GOODS OR SERVICES IN COMPUTING THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION; AND, T HAT THEY ARE NOT MEANT FOR DISALLOWING CAPITAL LOSS. 7. THE OBSERVATION OF THE AO THAT THE SALE PRICE WA S EXCESSIVELY AND UNREASONABLY LOW IS BASED PURELY ON PRESUMPTIONS AN D ASSUMPTIONS. THE AO HAS BROUGHT NO MATERIAL ON RECORD WHICH COULD EVEN REMOTELY SUGGEST THAT THE SALE PRICE WAS LOW. THE AO HAS NOT DISCUSSED AS TO HOW HE ARRIVED AT THE CONCLUSION THAT THE SALE PRICE OF SHARE WAS LOWER T HAN ITS FAIR MARKET VALUE. ITA NO.1249/KOL/2012 A.Y. 2 008-09 DCIT CC-III, KOL. VS. M/ S APEEJAY HOUSE (P) LTD. PAGE 5 THE AO HAS NOT EVEN SUGGESTED AS TO WHAT SHOULD BE THE FAIR MARKET VALUE OF THE SHARES. THE DECISION OF THE AO IS NOT BASED ON PROPER FINDINGS. THE AO HAS FOUND NO DEFECT IN THE DOCUMENTS PRODUCED BEFORE HI M. THE AO HAS ALSO FAILED TO PROPERLY ANALYSE THE MATERIAL AVAILABLE ON RECOR D. I FIND THAT THE APPELLANT HAS SATISFACTORILY EXPLAINED THE ISSUES RAISED BY T HE AO. HOWEVER, THE EXPLANATION FILED BY THE APPELLANT HAS BEEN REJECTE D BY THE AO MORE ON PRESUMPTIONS THAN ON FACTUAL GROUND. AN ASSESSMENT HAS TO BE MADE ON THE BASIS OF THE MATERIAL AVAILABLE ON RECORD. BUT, IN THE PRESENT CASE, PRESUMPTIONS HAVE LED THE AO TO A STATE OF AFFAIRS WHERE SALIENT EVIDENCES WERE OVERLOOKED AND THE MATERIAL ON RECORD WAS IGNORED. ON THE OTHER HAND, THE AO HAS BROUGHT ON POSITIVE MATERIAL ON RECORD TO SUBST ANTIATE OR SUPPORT HIS CONCLUSION THAT THE SALE PRICE OF THE SHARE WAS LOW ER THAN ITS FAIR MARKET VALUE. THE DECISION OF THEE AO IN TREATING THE LOSS AS FIC TITIOUS IS NOT ONLY ARBITRARY AND WITHOUT ANY BASIS, BUT, IT IS ALSO CONTRARY TO THE MATERIAL ON RECORD. IN VIEW OF THE ABOVE, I AM OF THE OPINION THAT THE CAPITAL LOSS AS CLAMED BY THE APPELLANT ON SALE OF SHARES OF M & M AUTO TRADERS L TD IS ALLOWABLE AS GENUINE. THE DISALLOWANCE OF LOSS AS MADE BY THE AO IS NEITHER SUSTAINABLE IN LAW NOR ON FACTS. THE AO IS DIRECTED TO ALLOW THE L OSS OF RS.3,51,50,000/- AS GENUINE. GROUND NO. 1 IS ALLOWED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 5. BEFORE US BOTH THE PARTIES RELIED ON THE ORDERS OF AUTHORITIES BELOW AS FAVOURABLE TO THEM. LD. AR FOR THE ASSESSEE FILED P APER BOOK WHICH IS COMPRISING PAGES 1 TO 71 AND HE REITERATED THE SAME SUBMISSION S AS MADE BEFORE LD. CIT(A). 6. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE AFORESAID DISCUSSION WE FIND THAT THE ASSE SSEE HAS INCURRED LOSSES ON THE PURCHASE AND SALE OF SHARES AMOUNTING TO RS. 3,51,5 0,000.00 WHICH WAS DISALLOWED BY THE AO ON THE GROUND OF GENUINENESS. THE SHARES WER E SUBSCRIBED DIRECTLY FROM THE COMPANY AT A VERY HIGH RATE BUT SOLD IN COUPLE OF M ONTHS IMMEDIATELY AT LOW RATE WHICH RESULTED LOSS TO THE ASSESSEE. THIS LOSS WAS DISALLOWED BY THE AO. HOWEVER THE SAME WAS ALLOWED BY THE LD. CIT BY HOLDING THAT THE AO FAILED TO BRING ANY DEFECT IN THE TRANSACTION OF PURCHASE AND SALE OF THE SHARES. NOW THE CRUX OF THE CASE BEFORE US IS AS TO WHETHER SUCH LOSS IS ALLOWABLE IN THE AFOR ESAID FACTS & CIRCUMSTANCES. FROM THE FACTS WE FIND THAT THE AO HAS NOT BROUGHT ANY D EFECT EITHER IN THE PURCHASE OF THE SHARES. BUT THE SALE VALUE WAS REJECTED BY THE AO B Y HOLDING THAT SALE WAS MADE TO THE PERSON AS SPECIFIED UNDER 40A(2)(B) OF THE ACT. HOW EVER WE FIND THAT THE PROVISIONS ITA NO.1249/KOL/2012 A.Y. 2 008-09 DCIT CC-III, KOL. VS. M/ S APEEJAY HOUSE (P) LTD. PAGE 6 OF SECTION 40A(2)(B) OF THE ACT DEALS WITH THE DISA LLOWANCE OF EXPENDITURE WHERE THE PAYMENT HAS BEEN MADE TO THE SPECIFIED PERSON. THER EFORE IN OUR CONSIDERED VIEW THE DISALLOWANCE OF THE LOSS ON ACCOUNT OF SALE OF THE SHARES CANNOT BE COVERED UNDER THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. AS SUCH WE FIND NO PLAUSIBLE REASONS FOR MAKING THE DISALLOWANCE OF THE LOSS CLAIMED BY THE ASSESSEE ON ACCOUNT OF SALE OF THE SHARES. THE TRANSACTIONS CANNOT BE DOUBTED WITHOUT FINDING OUT ANY CONCRETE DEFECTS. IN THIS CONNECTION WE ARE PUTTING OUR RELIANCE IN T HE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF UMA CHAND SHAH VS CIT 37 ITR 271 . THE RELEVANT EXTRACT OF THE JUDGMENT IS REPRODUCED BELOW:- TAKING INTO CONSIDERATION THE ENTIRE CIRCUMSTANCES OF THE CASE, THERE WAS NO MATERIAL ON WHICH THE ITO COULD COME TO THE CONCLUS ION THAT THE FIRM WAS NOT GENUINE. THERE ARE MANY SURMISES AND CONJECTURES, A ND THE CONCLUSION IS THE RESULT OF SUSPICION WHICH CANNOT TAKE THE PLACE OF PROOF IN THESE MATTERS. THE FIRM SHALL BE REGISTERED UNDER S. 26A FOR THE ASST. YR. 1948-49. FROM THE ABOVE, IT IS CLEAR THAT THE AO CANNOT DISA LLOW THE TRANSACTIONS OF PURCHASE AND SALE OF THE SHARES MERELY ON HIS PREMISE AND CO NJUNCTURE. THE LD. AR HAS FURNISHED ALL THE DETAILS WITH REGARD TO THE PURCHA SE AND SALE OF THE SHARES WITH THE VALUATION BUT THE AO FAILED TO BRING ANY DEFECT IN THOSE DETAILS. THE LD. DR FAILED TO BRING ANYTHING CONTRARY TO THE FINDINGS OF LD. CIT( A). CONSIDERING THE ABOVE, WE IN OUR CONSIDERED OPINION FIND NO INFIRMITY IN THE ORD ER OF LD. CIT(A) AND THEREFORE NO INTERFERENCE IS REQUIRED IN THE SAID ORDER. HENCE, THE GROUND OF THE REVENUE IS DISMISSED. AO IS DIRECTED ACCORDINGLY. 7. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 09/11/2016 SD/- SD/- (K.NARSIMHA CHARY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER *DKP, SR.P.S ! - 09/11/2016 / KOLKATA ITA NO.1249/KOL/2012 A.Y. 2 008-09 DCIT CC-III, KOL. VS. M/ S APEEJAY HOUSE (P) LTD. PAGE 7 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-DIT, CC-III, PODDAR COURT, 18 RABINDRA S ARANI 5 TH FL, KOL-01 2. /RESPONDENT-M/S APEEJAY HOUSE (P) LTD., 15 PARK STR EET, KOLKATA-16 3. '# % / CONCERNED CIT 4. % - / CIT (A) 5. &'( ))'# , '# / DR, ITAT, KOLKATA 6. (*+ / GUARD FILE. BY ORDER/ , /TRUE COPY/ / '#,