The ACIT, Circle-3, Surat V. Shri Venkatarman S. Iyer, Surat

ITA 1698/AHD/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9234 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-02-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 11-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: MS. MANISH
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Deemed to accrue or arise in india; Cost of acquisition; Commercial expediency; Reason to believe
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 48; 13; 153

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ ITA.NO.1698/AHD/2013 / ASSTT. YEAR: 2004-2005 ACIT, CIR.3 SURAT. VS SHRI VENKATARAMAN S. IYER, 9/A, CITY CROWN APARTMENT PARLE POINT SURAT 395 007. PAN : AAFPI 1894 K ! / (APPELLANT) '# ! / (RESPONDENT) REVENUE BY : SHRI JAMES KURIAN, SR.DR ASSESSEE BY : SHRI RASES SHAH / DATE OF HEARING : 07/02/2017 / DATE OF PRONOUNCEMENT: 21/02/2017 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST OR DER OF THE LD.CIT(A)-IV, SURAT DATED 25.3.2013 PASSED FOR THE ASSTT.YEAR 2004-05. 2. IN THE FIRST GROUND OF APPEAL, THE REVENUE HAS P LEADED THAT THE LD.CIT(A) HAS ERRED IN QUASHING RE-ASSESSMENT ORDER BY HOLDING THAT REOPENING OF THE ASSESSMENT UNDER SECTION 147 OF TH E INCOME TAX ACT IS BAD IN LAW. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED HIS RETURN OF INCOME ON 31.3.2005 DECLARING TOTAL INCOME AT RS.33 ,37,155/-. ASSESSMENT ORDER WAS PASSED UNDER SECTION 143(3) OF THE ACT ON 27.11.2006. THE LD.AO ITA NO.1698/AHD/2013 2 HAS RECORDED REASONS BY HARPING ON A BELIEF THAT S HORT TERM CAPITAL LOSS CLAIM OF RS.26,44,800/- WAS NOT ADMISSIBLE TO HIM AND SIM ILARLY A SUM OF RS.28,90,500/- WAS SHOWN AS DEPOSITS IN THE ACCOUNT S OF M/S.MANISH MULTIPACK FILMS PVT. LTD. WHICH WAS TO BE PAID TO T HE ASSESSEE. BUT NO SUCH AMOUNT WAS SHOWN BY THE ASSESSEE IN ITS ACCOUNTS EN DING IN F.Y.2002-03, AND THEREFORE, THIS SUM WAS ALSO REQUIRED TO BE TREATED AS DEEMED INCOME IN THE HANDS OF THE ASSESSEE. HE RECORDED THE FOLLOWING RE ASONS FOR REOPENING OF THE ASSESSMENT: 1. NAME & ADDRESS OF THE ASSESSEE : SHRI S. VENKARAMAN IYER, 9/A, CITY CROWN APARTMENT' PARLE POINT, SURAT. 2. PERMANENT ACCOUNT NUMBER : AAFPI 1894 K 3. STATUS : INDIVIDUAL 4. ASSESSMENT YEAR TO WHICH IS : A.Y.2004-051 PROPOSED TO ISSUE NOTICE U/S. 148. J REASONS RECORDED U/S 148(2) OF THE I.T. ACT. 1961. THE ASSESSEE WAS A DIRECTOR AND SHAREHOLDER OF M/S. MANISH PACKAGING PVT. LTD., M/S. VIKAS METALIZERS PVT. LTD. AND M/S. MANI SH MULTI PACK FIRMS PVT. LTD. OF THE MANISH GROUP. IN THE SAID COMPANIES, THE ASS ESSEE AND HIS FAMILY WAS A 25% SHAREHOLDER AND CERTAIN PATEL FAMILY 'HELD 75% SHARE. OWING TO SOME DISPUTE, THE ASSESSEE AND HIS FAMILY BASED ON THE A GREEMENT REACHED AND EXECUTED ON 24.11.2003, TRANSFERRED THEIR SHAREHOLD ING TO THE PATEL FAMILY. A) ASSESSEE INCURRED SHORT TERM CAPITAL LOSS OF RS. 26,44,800/1 ON TRANSFER OF HIS SHAREHOLDING OF 304000 SHARES IN M/S, MANISH MU LTI PACKFILMS PVT. LTD. FOR A CONSIDERATION OF RS.3,95,200/- @ RS.L.30/-.THE SH ORT TERM CAPITAL LOSS SO INCURRED IS, ADJUSTED AGAINST LONG TERM CAPITAL GAI N OF 58,76,830/-. THE RATE PER SHARE OF RS. 1.30 IS ARRIVED AT BASED ON THE IN TRINSIC VALUE OF THE SHARE OF THE COMPANY, ON THE LAST DATE OF THE AUDITED BALANC E SHEET FOR THE YEAR ENDING 31 ST MARCH, 2003. THE INTRINSIC VALUE IS THE AVERAGE VA LUE PER SHARE ARRIVED AT BY DIVIDING THE NET OF ASSETS (GROSS ASSETS LESS GR OSS LIABILITIES) OF THE COMPANY BY THE TOTAL NUMBER OF ITS SHARES. ON PERUSAL OF TH E RECORDS, IT IS SEEN THAT- ASSESSEE WAS NOT A SHAREHOLDER IN THE COMPANY AS ON 31.03.2003 I.E. CUT OFF DATE FOR FIXING THE VALUE OF SHARE. AS ON 31.03.2003, PAID UP SHARE-, CAPITAL OF T HE COMPANY WAS RS.1,00,000/- CONSISTING OF 10000 SHARES OF THE VALUE OF RS.10/- EACH. ITA NO.1698/AHD/2013 3 THE INTRINSIC VALUE OF SHARE IS COMPUTED FOR 10000 SHARES. SHARE APPLICATION MONEY TOTALING TO RS.58,50,000/-, IS TR EATED AS LIABILITY THEREBY REDUCING THE VALUE OF SHARE. IN CLAUSE-11(I) OF THE AGREEMENT, THE INTRINSI C VALUE OF THE SHARE AS ON 31.03.2003 OF RS.1.30 PER SHARE, IS DETERMINED A ND DECLARED AS THE MARKET VALUE OF THE SHARE. THE AUDITORS OF THE COMPANY TOO ARRIVED AT THE SAME DECISION I.E. TO DETERMINE THE MARKET VALUE OF THE SHARE AT RS.1.30/-. ASSESSEE PURCHASED 304000 SHARES OF THE COMPANY ON 10.09.2003 ONLY. THE CONSIDERATION PAID FOR THE PURCHASE OF TH ESE SHARES WAS RS.30,40,000/- @ RS.10/- SHARE EVEN THOUGH THE MARK ET PRICE WAS RS.1.30/- THESE 304000 SHARES WERE SOLD @1.30 FOR A MEAGER CONSIDERATION OF RS.3,95,200/- WITHIN DAYS OF THE PURCHASE (I.E. ON 24.11.2003). IN POINT NO. 2 OF THE SUBMISSION DATED 17.10.2006 M ADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE JUSTIFIED DISPOSIN G OFF THE SHARE FOR INSIGNIFICANT VALUE, BY CLAIMING THAT IT WAS 'KIND OF DISTRESSED SALE'. HOWEVER, THE CONTENTION IS IN CONTRADICTION OF THE CLAIM IN POINT NO.3 OF THE SUBMISSION, WHEREIN, IT IS MENTIONED THAT THE VALUE OF THE SHAR ES WERE DETERMINED AS PER THE METHOD RECOGNIZED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THAT THE TRANSFER OF SHARES FOR SUCH INSIGNIFICANT CONSI DERATION WAS NOT OUT OF DISTRESS BECOMES FURTHER CLEAR FROM CLAUSE-LL(I) OF THE AGREEMENT, WHEREIN, IT IS MADE AMPLY CLEAR THAT THE VALUATION OF THE SHARES W AS UNDERTAKEN BY ASSESSEE AND FAMILY THEMSELVES AND THAT THE VALUE SO DETERMI NED WAS AGREED TO BY PATEL FAMILY, THE SALE PRICE PER SHARE WAS DETERMINED AT RS.1.30 BEING THE INTRINSIC VALUE OF SHARE AS ON 31.03.2003. THE FACT WAS THAT, THE MARKET VALUE OF THE SHARE AT THE TIME OF PURCHASE ON 10.09.2003, LIKE A T THE TIME OF SALE, WAS ALSO RS.1.30 ONLY AS AGAINST RS.10/- PER SHARE PAID BY A SSESSEE. HOWEVER, THE PURCHASE PRICE AND SALE PRICE OF THE SHARES WERE DE TERMINED WITH DIFFERENT YARDSTICKS. IT IS THEREFORE, EVIDENT THAT, THE INVE STMENT IN SHARES AT THE HIGHER RATE OF RS.10/- BY THE ASSESSEE WHO WAS ALSO A DIRE CTOR IT, WHEN THE MARKET VALUE WAS RS.1.30/-, WAS A COLORABLE DEVICE ADOPTED TO EVADE TAX. INCIDENTALLY, THE INTRINSIC VALUE OF THE SHARE ON T HE RECORD DATE OR ON THE ACTUAL DATE OF TRANSFER I.E. ON 24.11.2003, IF COMP UTED IN ACCORDANCE WITH THE METHOD ADOPTED BY THE COMPANY WOULD HAVE BEEN MUCH HIGHER. FOR THE FACT THAT IN COMPUTING THE INTRINSIC VALUE OF SHARE, THE PAID UP SHARE CAPITAL IS NOT TAKEN INTO ACCOUNT BUT SHARE APPLICATION MONEY IS C ONSIDERED AS LIABILITY FOR REDUCING GROSS ASSETS. IN THE INSTANCE CASE, ON THE DATE OF TRANSFER; SHARES HAD BEEN ALLOTTED AGAINST THE SHARE APPLICATION MONEY, DISCHARGING THAT LIABILITY AND HENCE, THE VALUE PER SHARE WOULD HAVE BEEN MUCH HIG HER. IN VIEW OF THE ABOVE FACTS AND TAKING INTO ACCOUNT THE OBSERVATIONS OF THE HON. S.C. IN THE CASE OF M/S. MCDOWELL & CO.LTD ., THE SHORT TERM CAPITAL LOSS OF RS.26,44,800/- REQUIRES DISALLOWANCE AND IN COME FROM THE TRANSACTION TREATED AS 'NIL'. AS SHORT TERM CAPITAL LOSS IS SET OFF AGAINST LONG TERM ITA NO.1698/AHD/2013 4 CAPITAL GAIN; THE UNDERASSESSMENT OF INCOME FROM LO NG TERM CAPITAL GAIN WORKS OUT TO RS.26,44,800/- B) AS PER CLAUSE-LL(I) OF THE AGREEMENT, THE VALUAT ION OF THE SHARES OF THE THREE COMPANIES IN RESPECT OF WHICH THE SHARES WERE TRANS FERRED BY THE ASSESSEE WAS DETERMINED AFTER TAKING INTO ACCOUNT ALL THE RE LEVANT CONSIDERATIONS WHICH INCLUDED GOODWILL AND COMPENSATION. HOWEVER, IT IS SEEN FROM THE STATEMENT GIVING 'CALCULATION OF VALUATION OF SHARES ON INTRI NSIC METHOD' FOR THE THREE COMPANIES, FURNISHED ALONG WITH THE SUBMISSION DATE D 17.10.2006, THAT THE VALUE PER SHARE WAS DETERMINED BY COMPUTING ONLY TH E NET ASSET OF THE COMPANIES (I.E. GROSS ASSETS LESS GROSS LIABILITIES ) DIVIDED BY TOTAL NUMBER OF SHARE OF THE COMPANIES. THUS, THE ELEMENT OF COMPEN SATION OR GOODWILL, AS STATED IN THE AGREEMENT IS NOT INCLUDED IN THE VALU ATION OF THE SHARE. THE FOLLOWING FACTS, EMERGING FROM THE AGREEMENT, INDIC ATE THAT THE ASSESSEE HAS BEEN DULY COMPENSATED EVEN THOUGH THE COMPENSATION IS NOT INCLUDED IN THE VALUATION OF SHARE. THE AGREEMENT, EXPRESSLY RESTRA INED THE ASSESSEE AND FAMILY AND PROHIBITED THEM FROM CARRYING ON THE SAME BUSINESS AS THAT OF THE GROUP COMPANIES AND FIRMS FOR A PERIOD OF SEVEN AND HALF YEARS, PERSONALLY OR THROUGH ANY OTHER SOURCE. FROM DIVULGING ANY INFORMATION OR TECHNICAL K NOW-HOW, FROM INFLUENCING, INDUCING, EMPLOYEES OF THE COMPANIES; FROM USING ANY NAME RESEMBLING 'MANISH' FOR ANY BU SINESS THEY SET UP THE ABOVE RESTRAINS TANTAMOUNT TO THE ABOVE RESTRAI NTS TANTAMOUNT TO 'NON- COMPETE ACCORD', IS UNLIKELY THAT THE ASSESSEE IS N OT COMPENSATED. THE AGREEMENT HAD REFERRED TO COMPENSATION, BUT THE VAL UE OF COMPENSATION DOES NOT REFLECT IN, CONSIDERATION SHOWN AS RECEIVED. TH E MATTER REGARDING ACTUAL COMPENSATION AND GOODWILL RECEIVED REQUIRE FURTHER INVESTIGATION FOR SAFEGUARDING REVENUE : C) IN ANNEXURE-I FORMING PART OF THE AGREEMENT, A SUM OF RS.28,90,500/- IS SHOWN AS AMOUNT OF DEPOSIT AND CAPITAL REPAYABLE TO THE ASSESSEE, BY M/S.MANISH MULTI PACKFILMS PVT. LTD. HOWEVER, THE B ALANCE SHEET OF M/S. MANISH MULTI PACKFILMS PVT. LTD. FOR THE F.Y.2002-0 3 DO NOT EXHIBIT ANY SUM BY WAY OF LOANS OR DEPOSITS RECEIVED. SIMILARLY, THE B ALANCE SHEET OF ASSESSEE FOR THE F.Y.2002-03 ALSO DO NOT EXHIBIT ANY INVESTMENT, LOAN OR DEPOSIT WITH M/S. MANISH MULTI PACKFILMS PVT. LTD., EXCEPT FOR A SUM OF RS.10,62,000/- GIVEN AS ADVANCE. ASSESSEE WAS ALLOTTED SHARES OF M/S. MANIS H MULTI PACKFILMS PVT. LTD, ON 10.09.2003 AGAINST THE ADVANCE OF RS.10,62, 000/-. THUS, IT IS CLEAR THAT ASSESSEE DID NOT DEPOSIT ANY SUM IN M/S. MANISH MUL TI PACKFILMS PVT. LTD. IN VIEW OF THESE FACTS, THE SUM OF RS.28,90,500/- IS R EQUIRED BE TREATED AS .DEEMED INCOME. IN VIEW OF THE ABOVE, I HAVE REASON TO BELIEVE THAT THE SHORT TERM CAPITAL LOSS OF RS.26,44,800/- CLAIMED ON TRANSFER OF SHARE HOLD ING IN M/S. MANISH MULTI PACKFILMS PVT. LTD. IS REQUIRE TO BE DISALLOWED AND A SUM OF RS.28,90,500/- IS SHOWN AS AMOUNT OF DEPOSIT AND CAPITAL REPAYABLE TO THE ASSESSEE BY M/S. MANISH M|ULTI PACKFILMS PVT. LTD. IS REQUIRES TO BE TREATED AS DEEMED INCOME ITA NO.1698/AHD/2013 5 FOR A.Y.2004-05, HAS 'ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE I.T. ACT. 4. THE LD.AO HAS ACCORDINGLY DISALLOWED SHORT TERM LOSS AS WELL AS MADE ADDITION OF RS.28,90,500/- TO THE TOTAL INCOME OF T HE ASSESSEE. 5. ON APPEAL, THE LD.CIT(A) HAS QUASHED THE REASSES SMENT ORDER. THE LD.CIT(A) HAS FURTHER EXAMINED THE ISSUE ON MERIT A ND DELETED BOTH THE ADDITIONS. DISCUSSION MADE BY THE LD.CIT(A) ON THES E TWO ISSUES READS AS UNDER: 4.4 DECISION: I HAVE BOTH GONE THROUGH THE ASSESSMENT ORDER AS WE LL AS SUBMISSION OF THE ARS. BASICALLY, AS DISCUSSED IN GROUND NO. 1, T HE ASSESSMENT IS LIABLE TO BE QUASHED BUT EVEN ON MERITS THE CASE IS COVERED BY THE OPINION OF THE HON'BLE 'B' BENCH OF ITAT, AHMEDABAD IN THE CASE OF ALLURE INVESTMENTS & FINANCE PVT. LTD. VS. ACIT [IT A NO. 3431 / AHD / 2010J. THE APPELLANT HAD SUBSCRIBED TO PURCHASE 304 000 SHARES OF M/S. MANISH MULTIPACK FILMS PVT. LTD. AND FOR THAT PURPOSE HE HAD PAID SHARE APPLICATION MONEY OF RS.30,40,0007- AT T HE RATE OF RS.10/- PER SHARE BEING FACE VALUE AND THE SAID SHARES WERE ALLOTTED ON 10-09- 2003. THE SHARE APPLICATION MONEY RECEIVED FROM THE APPELLANT WAS REFLECTED IN THE STATEMENT OF ACCOUNTS OF M/S. MANI SH MULTIPACK FILMS PVT. LTD IN AY 2003-04. THE APPELLANT HAD TRANSF ERRED 304000 EQUITY SHARES OF M/S. MANISH MULTIPACK FILMS PVT. LTD. AT AN AGREED PRICE OF RS.1.30/- IN TERMS OF SETTLEMENT AGREEMENT IN FORM OF MOU DATED 24- 11-2003. IN CLAUSE 1 L(I) OF MOU IT WAS CATEGORICAL LY PROVIDED THAT THE RETIRING PARTIES (I.E THE APPELLANT'S FAMILY GROUP) HAD AGREED TO THE VALUATION OF SHARES WHICH WAS DETERMINED AFTER CONS IDERING ALL THE FACTORS LIKE GOODWILL AND COMPENSATION. THE AO DID NOT BRING ANY EVIDENCE ON RECORD TO CONTRADICT THIS CLAUSE AND CO ULD NOT PROVE WITH EVIDENCE THAT ANY ADDITIONAL COMPENSATION OR AM AMO UNT OF GOODWILL WAS RECEIVED BY THE APPELLANT OR HIS GROUP. THE AO FAILED TO ADVANCE ANY EVIDENCE TO PROVE THAT ANY EXTRA SALE CONSIDERA TION OVER AND ABOVE THE AGREED PRICE OF RS.1.30/- PER EQUITY SHARE WAS PAID BY THE BUYERS TO THE APPELLANT. UNDER SUCH S, ADOPTION OF ANY OT HER VALUE, SAY RS.10/- ADOPTED BY THE AO, IS NOTHING BUT THE PRESUMPTION A ND GUESSWORK OR REPLACEMENT OF SALE VALUE. THE HON'BLE ITAT, AHMEDA BAD IN ALLURE ITA NO.1698/AHD/2013 6 INVESTMENTS & FINANCE PVT. LTD. VS. ACIT [ITA NO. 3 431 / AHD / 2010] HAS HELD AS UNDER. 'WE FIND THAT AS PER SECTION 48, CAPITAL GAIN HAS T O BE WORKED OUT AFTER REDUCING THE COST OF ACQUISITION OF CAPITAL ASSET A LONG WITH COST OF IMPROVEMENT THERETO AND THE EXPENSES INCURRED ON TR ANSFER OF A CAPITAL ASSET FROM FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER OF CAPITAL ASSET. THERE IS NO REFERENCE TO THE MARKET VALUE OF CAPITAL ASSET TRANSFERRED IN SECTION 48 OR IN ANY O THER SECTION EXCEPT SECTION 50C, WHICH IS APPLICABLE ONLY IN CASE OF SA LE OF LANDED PROPERTY. IN THE CASE OF JUDGMENT OF HON'BLE GUJARA T HIGH COURT RENDERED IN THE CASE OFCIT VS. SHRI GIRISH DAMJIBHA I PATEL (SUPRA), HON 'BLE GUJARAT HIGH COURT HAS ALSO REFERRED TO TH E SAME PROVISIONS OF SECTION 48 AND ON THE BASIS OF SAME SECTION 48 O F THE ACT, IT WAS HELD THAT SINCE SECTION 48 OF THE ACT DOES NOT HAVE ANY REFERENCE TO THE MARKET VALUE BUT ONLY TO THE CONSIDERATION REFERR ED TO IN THE SALE DEED,... HENCE RATIO OF THIS DECISION OF HON'BLE GU JARAT HIGH COURT IS THIS THAT FOR THE PURPOSE OF WORKING OUT CAPITAL GA IN, THE SALE CONSIDERATION RECEIVED BY THE ASSESSEE OR ACCRUED S ALE CONSIDERATION HAS TO BE ADOPTED BECAUSE THERE IS NO REFERENCE IN SECTION 48 TO THE MARKET VALUE OF THE ASSET FOR THE PURPOSE OF COMPUT ING THE CAPITAL GAIN. .... '8. CONSIDERING THE FACTS OF THE PRESENT CASE IN IT S ENTIRETY AS DISCUSSED ABOVE AND BY RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS. GIRISH DAMJIBHAI PATEL (SUPRA), WE ARE OF THE CONSIDERED OPINION THA T FOR THE COMPUTATION OF CAPITAL GAIN IN THE PRESENT CASE, TH E AO SHALL WORK OUT THE CAPITAL GAIN/CAPITAL LOSS ON THE BASIS OF CONSI DERATION RECEIVED BY THE ASSESSEE AND NOT ON THE BASIS OF ALLEGED MARKET VALUE OF THE SHARES SOLD BY THE ASSESSEE. ' RESPECTFULLY FOLLOWING THE ABOVE DECISION O F HON'BLE ITAT,AHMEDABAD DISALLOWANCE OF SHORT TERM CAPITAL L OSS OF ?26,44,800/- IS HELD TO BE UNJUSTIFIABLE AND DELETE D. THIS GROUND OF APPEAL IS ALLOWED. 5. GROUND NO.3 - ADDITION OF RS.28.90,500/- ON ACCOUNT OF DEPOSITS ADVANCED TO M/S. MANISH MULTIPACK FILMS PV T. LTD: 5.1 OBSERVATION OF THE AO: ITA NO.1698/AHD/2013 7 THE RELEVANT OBSERVATION OF THE AO WHILE MAKING THE DISALLOWANCE IS RE-PRODUCED BELOW: 'HOWEVER, THE BALANCE SHEET OF M/S. MANISH MULTIPAC K FILMS PVT. LTD. FOR THE F. Y. 2002-2003 DID NOT EXHIBIT ANY SUM BY WAY OF LOANS OR DEPOSITS RECEIVED. SIMILARLY THE BALANCE SHEET OF T HE ASSESSEE FOR F.Y. 2002-03 ALSO DID NOT EXHIBIT ANY INVESTMENT, LOAN O R DEPOSIT WITH M/S. MANISH MULTIPACK FILMS PVT. LTD. EXCEPT FOR A SUM O F RS.10,62,000/- GIVEN AS ADVANCE. IN VIEW OF THE ABOVE, THE AMOUNT OF RS.28,90,5OO/- SHOWN AS DEPOSIT AND CAPITAL REPAYABLE TO THE ASSES SEE BY M/S. MANISH MULTIPACK FILMS PVT. LTD IS TREATED AS DEEMED INCOM E AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5.2 SUBMISSION OF THE ARS: THE ARS BEFORE ME, SUBMITTED THAT DURING THE YEAR U NDER CONSIDERATION, THE APPELLANT HAD ADVANCED LOANS ON VARIOUS DATED T O M/S. MANISH MULTIPACK FILMS PVT. LTD. AGGREGATING TO RS.29,30,5 00/- DURING F.Y. 2003-2004 I.E. AFTER 31-03-2003 AND IT WAS QUITE OB VIOUS THAT THE SAID AMOUNT WOULD NEVER BE REFLECTED IN THE BALANCE SHEE T OF THE COMPANY AS WELL AS THE APPELLANT AS ON 31-03-2003 I.E. FOR F.Y. 2002-03 BECAUSE THE TRANSACTIONS HAD TAKEN PLACE AFTER 31-03-2003 B UT BEFORE 24-11- 2003. THE ARS FURTHER SUBMITTED THAT AT THE TIME O F SEPARATION, A MOU WAS EXECUTED ON 24-11-2003 WHEN A SUM OF RS.28,90,5 00/- WAS PAYABLE BY THE COMPANY TO THE APPELLANT WHICH WAS NOTHING B UT THE ABOVE REFERRED ADVANCES AND THAT THE APPELLANT HAD RECEIV ED BACK THE SAID AMOUNT BEFORE 31-03-2004 AS PER THE DETAILS IN THE MOU ITSELF. THE ARS FURTHER ARGUED THAT THE AO FAILED TO APPRECIATE THE FACT THAT OBVIOUSLY TRANSACTIONS ENTERED INTO AFTER MARCH 200 3 AND SUBSEQUENT PERIODS WOULD NOT FIND A PLACE IN THE BALANCE SHEET OF 31ST MARCH, 2003. THE ARS FURTHER STATED THAT ALL THE ABOVE FAC TS WERE BROUGHT TO THE NOTICE OF THE AO DURING THE TIME OF RE-ASSESSME NT AS WELL AS ORIGINAL ASSESSMENT PROCEEDINGS AND THAT THE APPELL ANT HAD NOT RECEIVED ANY ADDITIONAL AMOUNT OF RS.28,90,500/-BY WAY OF ANY INCOME AND HENCE BE DELETED. 5.3 DECISION: I HAVE BOTH GONE THROUGH THE ASSESSMENT ORDER AS WE LL AS SUBMISSION OF THE ARS. BASICALLY, AS DISCUSSED IN GROUND NO. 1, T HE ASSESSMENT IS LIABLE TO BE QUASHED BUT EVEN ON MERITS ALSO I HAVE DISCUSSED THIS ISSUE ITA NO.1698/AHD/2013 8 IN GROUND NO. 1. THE DETAILS SUBMITTED BY THE APPEL LANT CLEARLY SHOWED THAT THE ACCOUNT WAS SQUARED UP IN THE F.Y. 2003-20 04 AND ALL THE TRANSACTIONS HAD TAKEN PLACE AFTER 31-03-2003 AND T HEREFORE, THE CONTENTION OF THE AO THAT THE SAID SUM WAS NOT REFL ECTED IN THE BALANCE SHEET OF M/S. MANISH MULTIPACK FILMS PVT. LTD. AS O N 31-03-2003 IS ILLOGICAL. WHEN ANY TRANSACTION HAS NOT TAKEN PLACE ON OR BEFORE 31-03- 2003, THEN OBVIOUSLY, THE SAME COULD NOT BE REFLECT ED IN THE BALANCE SHEET AS ON 31-03-2003. IT IS CLEARLY SEEN THAT THE AO HAS GROSSLY MISUNDERSTOOD THE FACT IN AS MUCH AS ALL THE TRANSA CTIONS WERE MADE BY CHEQUES AND THE CROSS CONFIRMATION FROM THE BOOKS O F THE ACCOUNTS OF THE APPELLANT AS WELL AS M/S. MANISH MULTIPACK FILM S PVT. LTD. WERE ALSO SUBMITTED DURING THE ASSESSMENT AND REASSESSME NT PROCEEDINGS. ALSO THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT ANY SUCH TRANSACTION HAD TAKEN PLACE BEFORE 31-03-2003 AND REMAINED UNRE CORDED IN THE BOOKS OF ACCOUNTS. UNDER SUCH CIRCUMSTANCES, THE AD DITION OF RS.28,90,500/- IS TOTALLY UNJUSTIFIABLE AND IS DELE TED. HENCE, THIS GROUND STANDS ALLOWED. 6. THE LD.DR RELIED UPON THE ORDER OF THE AO AND SU BMITTED THAT THE LD.AO HAS RIGHTLY RECORDED REASONS THAT THE ASSESSE E HAS CLAIMED EXCESSIVE SHORT TERM CAPITAL LOSS WHICH WAS NOT ADMISSIBLE TO THE ASSESSEE. ON THE OTHER HAND, THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THA T THIS ISSUE WAS EXAMINED BY THE AO IN THE ORIGINAL ASSESSMENT PROCEEDINGS, A ND AFTER DUE APPLICATION OF MIND, HE ACCEPTED THE CLAIM OF THE ASSESSEE. THE L D.COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TOWARDS PAGE NO.39 OF THE PAPER BOOK WHERE THE COPY OF THE ORIGINAL ASSESSMENT ORDER DATED 27.11.2006 PASS ED UNDER SECTION 143(3) OF THE ACT HAS BEEN PLACED ON RECORD. 7. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. THE ASSESSMENT YEAR INVOLVED HEREIN IS ASSTT.YEAR 2004-05. THE ASSESSMENT IN THE FIRST ROUND WAS MADE UNDER SECTIO N 143(3) ON 27.11.2006. A NOTICE UNDER SECTION 148 OF THE ACT HAS BEEN ISSU ED AFTER 25.10.2010 I.E. THE AO HAS RECORDED REASONS ON 25.10.2010, MEANING THER EBY, NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED AFTER EXPIRY OF F OUR YEARS FROM THE END OF ITA NO.1698/AHD/2013 9 THE RELEVANT ASSESSMENT YEAR I.E. ASSTT.YEAR 2004-0 5. SECTION 147 OF THE INCOME TAX ACT CONTEMPLATES THAT IF THE AO HAS REAS ON TO BELIEVE THAT NO INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY SUBJECT TO PROVISO OF SECTIONS 148 TO 153 ASSES S OR RE-ASSESS SUCH INCOME, AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX, WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY. PROVI SO APPENDED TO SECTION 147 PUTS AN EMBARGO UPON THE POWERS OF THE AO FOR R EOPENING OF THE ASSESSMENT IN CASE WHERE AN ASSESSMENT WAS MADE UND ER SECTION 143(3) OF THE INCOME TAX ACT FOR RELEVANT ASSESSMENT YEAR AND FOU R YEARS HAVE EXPIRED FROM THE END OF THE ASSESSMENT YEAR. IN SUCH CASES , NO ACTION SHALL BE TAKEN UNDER SECTION 147 UNLESS IT IS ESTABLISHED THAT INC OME CHARGEABLE TO TAX HAS ESCAPED ON ACCOUNT OF FAILURE OF THE ASSESSEE TO DI SCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT. THUS THE AO WAS BOUND TO DEMONSTRATE THAT THE ASSESSEE HAS FAILED TO DISCLOS E MATERIAL FACTS FULLY AND TRULY WHICH HAS RESULTED ESCAPEMENT OF INCOME. IF HE FAILS TO DEMONSTRATE THIS ASPECT, THEN, IN THE CASE WHERE SCRUTINY ASSESSMENT HAS BEEN MADE AND FOUR YEARS HAVE EXPIRED, HE CANNOT TAKE ACTION UNDER SEC TION 147 OF THE INCOME TAX ACT. A PERUSAL OF THE REASONS (EXTRACTED SUPRA ) WOULD INDICATE THAT THE AO HAS NOWHERE DEMONSTRATED THIS FACT. APART FROM THE ABOVE, A PERUSAL OF THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) WO ULD INDICATE THAT ALL THESE FACTS HAVE DULY BEEN CONSIDERED AND THE AO HAS ACCE PTED THE STAND OF THE ASSESSEE. THE FINDING RECORDED BY THE AO IN THE OR IGINAL ASSESSMENT ORDER IS WORTH TO NOTE. IT READS AS UNDER: 4. DURING THE YEAR UNDER CONSIDERATION THE ASSESSE E HAS SHOWN TOTAL LONG TERM CAPITAL GAIN OF RS.58,76,830/- AND HAS SH OWN A SHORT TERM CAPITAL LOSS OF RS.26,44,800/-. THUS TOTALING NET L ONG TERM CAPITAL GAIN RS.32,32,030/-. AFTER SETTING OFF BY THE LAST YEAR CAPITAL GAIN OF RS.6,21,547/- BUT ASSESSEE HAS SHOWN TOTAL CAPITAL GAIN OF RS.26,10,483/- FOR TAXATION. THE ASSESSEE WAS ASKED TO EXPLAIN THE ITA NO.1698/AHD/2013 10 REASON FOR SUCH A HUGE LOSS AND THE REASONS WHY HE NEEDED TO SALE OF SUCH STOCK DURING THE YEAR. THE ASSESSEE VIDE HIS L ETTER DATED 17-10- 2006 HAS STATED THAT :- 1. OUR ABOVE NAMED CLIENT SHRI S. VENKATARAMAN LYER WA S A DIRECTOR AND SHARE HOLDER OF M/S. MANISH PACKAGING PVT. LTD. , M/S. VIKAS METALIZERS PVT. LTD. AND M/S. MANISH MULTI PACKFILM S PVT. LTD. IN THESE COMPANIES, HE HIMSELF AND HIS FAMILY MEMBERS WERE HOLDING ABOUT 25% SHARES WHEREAS THE MAJORITY SHARE HOLDING IN ALL THESE COMPANIES WERE HELD BY PATEL FAMILY GROUP. OUR CLIE NT FAMILY WAS ALSO HAVING SHARES IN DIFFERENT PARTNERSHIP FIRMS W ITH 25% SHARE AND THE SAID PATEL FAMILY WAS HAVING 75% SHARE. DUR ING THE CONDUCT OF THE AFFAIRS OF THE COMPANIES AND PARTNER SHIP FIRMS SOME DIFFERENCES HAD ARISEN AND THEREFORE, THEY DECIDED TO SEPARATE ON SETTLEMENT OF ACCOUNTS. IT IS QUITE OBVIOUS THAT OU R CLIENT AND HIS FAMILY MEMBERS WERE IN MINORITY AND THEREFORE THEY HAD VERY LITTLE Y ON TERMS AND CONDITIONS OF SETTLEMENT. IN TERMS OF THE SETTLEMENT AGREEMENT, IT WAS DECIDE D MUTUALLY THAT OUR CLIENT AND HIS FAMILY MEMBERS WOULD TRANSF ER THE SHARE HOLDINGS IN THE COMPANY ON THE BASIS OF INTRINSIC V ALUE OF SHARE AS ON THE LAST DATE OF AUDITED BALANCE SHEET I.E. AS O N 31ST MARCH 2003. ACCORDINGLY, OUR CLIENT HAD TRANSFERRED THE S HARES OF DIFFERENT COMPANIES AT THE FOLLOWING RATES. MANISH PACKAGING PVT. LTD. AT RS. 40/= PER EQUITY SHARE VIKAS METALIZERS PVT. LTD. AT RS. 6/- PER EQUITY SH ARE MANISH MULTI PACKFILMS PVT. LTD. AT RS. 1.30PS. PER EQUITY SHARE M/S.MANISH PACKAGING PVT. LTD. WAS THE PIVOTAL C OMPANY AND RUNNING BUSINESS SINCE LAST MANY YEARS AND HAVING G OOD RESERVES AND SURPLUS AND THEREFORE, THE VALUATION OF SHARE W AS AT A HIGHER RATE. M/S. VIKAS METALIZERS PVT. LTD. WAS RUNNING I N LOSSES DURING LAST SO MANY YEARS AND THERE WAS A HUGE AMOUNT OF A CCUMULATED LOSSES OF EARLIER YEARS AND THE BUSINESS POTENTIALI TY WAS ALSO NOT SO BRIGHT AND THEREFORE, OUR CLIENT HAD TO SELL THE SHARES AT RS. 6/= PER SHARE. IN CASE OF M/S. MANISH MULTI PACKFILMS P VT, LTD. THE INVESTMENTS WERE ALREADY MADE BUT, THE PROJECT CO ULD NOT BE COMMISSIONED DUE TO TECHNICAL REASONS AND THERE WER E NO CHANCE OF COMMISSIONING THE PROJECT IN RECENT FUTURE AND THE PROSPECTS OF THE BUSINESS WERE VERY POOR. MOREOVER, THERE WERE THE C HANCES OF ITA NO.1698/AHD/2013 11 INCURRING HUGE LOSS IN THE SAID PROJECT AND OUR CLI ENT HAD ENVISAGED THE SAID FACT AND DECIDED TO TRANSFER THE SHARE AS PER AGREED RATE. IT IS RESPECTFULLY SUBMITTED THAT SINCE OUR CLIENT WAS A MINORITY SHARE HOLDER IN A COMPANY AND THE DISPUTE HAD ARISEN AMON GST THE TWO GROUPS AND THEREFORE, OUR CLIENT HAD NO ALTERNATIVE BUT TO QUIT IN AS MUCH AS IT WAS FELT BY HIM THAT OTHERWISE IN FUTURE HE WOULD NOT FETCH THIS VALUE. MOREOVER, THE HUGE AMOUNT OF DEPO SIT IN FORM OF UNSECURED LOANS WITH THE COMPANIES AS WELL AS CAPIT AL BALANCE AND LOANS IN VARIOUS PARTNERSHIP FIRMS WERE ALSO STUCK UP AND THEREFORE, OUR CLIENT HAD TO AGREE WITH THE TERMS OF SETTLEMEN T AND THE OFFERED PRICE OF EQUITY SHARES OF THE COMPANIES. THUS I T WAS A KIND OF DISTRESSED SALE. THE ENTIRE SETTLEMENT OF PARTITION WAS MADE IN TERMS OF A MEMORANDUM OF UNDERSTANDING MADE BY THE TWO GR OUPS AND THE SAME WAS MADE AS PER THE TERMS AND CONDITIONS O F THE SAID MOU. ACCORDINGLY, OUR CLIENT HAD ACTUALLY RECEIVED THE SALE CONSIDERATION FOR TRANSFER OF SHARES AS PER THE AGREED PRICE BETWEEN BOTH THE PARTIES. 3. THUS YOUR HONOUR WILL APPRECIATE THAT OUR CLIEN T HAD TO SELL THE SHARES AS PER THE PREVAILING CIRCUMSTANCES AND OUT OF COMMERCIAL EXPEDIENCY AND THE VALUE OF SHARES WAS DETERMINED A S PER THE METHOD AS RECOGNIZED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND AFTER CONSIDERING THE CORRECT, JUST AND F AIR AND AGREED VALUE BY BOTH THE GROUPS AND APPROVED BY THE AUDITO RS OF THE COMPANIES. UNDER THESE CIRCUMSTANCES OUR CLIENT HAD INCURRED CAPITAL LOSS IN M/S. MANISH MULTI PACKFILMS PVT. LT D. A COPY OF MEMORANDUM OF UNDERTAKING IS ENCLOSED FOR YOUR READ Y REFERENCE. WE HAVE ALSO ENCLOSED A STATEMENT SHOWING CALCULATI ON OF VALUATION %F SHARES AND AUDITED ACCOUNTS OF DIFFERE NT COMPANIES FOR YOUR KIND PERUSAL. 4. IT IS RESPECTFULLY SUBMITTED THAT OUR ABOVE NAME D CLIENT HAD SHOWN FULLL VALUE OF CONSIDERATION IN RESPECT OF TRANSFER OF SHARES AND ACTUALLY RECEIVED THE AMOUNT AS SHOWN IN THE RETURN OF INCOME. THERE WERE CERTAIN SPECIAL CIRCUMSTANCES UNDER WHIC H THE VALUE OF SHARES WERE DETERMINED BY BOTH THE CROUPS RE- AMICA BLE SETTLEMENT OF PARTITION IN THE BUSINESS AND TRIE VALUE WAS ARR IVED AT AFTER CONSIDERING DIFFERENT FACTORS. HERE THE OPINION OF HON'BLE SUPREME COURT IN K.P. VARGHESE VS. ITO [131 ITR 597] IS QUI TE RELEVANT WHEREIN IT WAS OBSERVED THAT IT IS A WELL SETTLED R ULE OF LAW THAT THE ONUS OF ESTABLISHING THAT THE CONDITIONS OF TAXABIL ITY ARE FULFILLED IS ITA NO.1698/AHD/2013 12 ALWAYS ON THE REVENUE AND THE BURDEN LIES ON THE RE VENUE TO SHOW THAT THERE IS AN UNDERSTATEMENT OF THE CONSIDERATIO N. MOREOVER TO THROW THE BURDEN OF SHOWING THAT THERE IS NO UNDERS TATEMENT OF CONSIDERATION ON THE ASSESSEE WOULD BE TO CAST AN A LMOST AN IMPOSSIBLE BURDEN UPON HIM TO ESTABLISH A NEGATIVE, NAMELY, THAT HE DID NOT RECEIVE ANY CONSIDERATION BEYOND THAT DE CLARED BY HIM. IT IS WELL RECOGNIZED RULE OF CONSTRUCTION THAT A S TATUTORY PROVISION MUST BE SO CONSTRUED, IF POSSIBLE, THAT ABSURDITY A ND MISCHIEF MAY BE AVOIDED. IT WOULD INDEED BE MOST HARSH AND INEQU ITABLE TO TAX THE ASSESSEE ON INCOME WHICH IS NEITHER ARISEN TO H IM NOR IS RECEIVED BY HIM. IT IS FURTHER SUBMITTED THAT IN THE CASE OF OUR CLI ENT THE ACTUAL SALE CONSIDERATION RECEIVED BY HIM IS WELL SUPPORTED BY DOCUMENTARY EVIDENCE IN FORM OF AN AGREEMENT BETWEEN TWO GROUPS AND IT CLEARLY SHOWN THAT THE VALUE OF SHARES WHICH WAS AC TUALLY RECEIVED BY OUR CLIENT IS FULLY DISCLOSED IN THE RETURN OF I NCOME. THEREFORE THERE IS NO REASON TO PRESUME THAT THE SALE CONSIDE RATION IS NOT PROPERLY SHOWN BY HIM. IT WAS A COMMERCIAL EXPEDIEN CY AND NEEDS AND CIRCUMSTANCES OF THE ASSESSEE WHICH COMPELLED H IM TO TRANSFER ALL HIS INTEREST IN THE BUSINESS FOR WHICH HE RECEI VED A CONSIDERATION WHICH WAS REASONABLE ACCORDING TO HIM UNDER THE THAN PREVAILING CIRCUMSTANCES AND THE SAME WAS DISC LOSED BY HIM IN THE RETURN OF INCOME. I HAVE CONSIDERED THE SUBMISSION MADE BY THE ASSESS EE AND AFTER GOING THOUGH A COPY OF THE MOD WHICH IS PLACED ON RECORD, IT APPEARS THAT THE REASONS STATED BY THE ASSESSEE'S A.R APPEARS TO TRUE AND THE ASSESSEE HAS SOLD THE SHARES IN DISTRESS AND THUS H AS INCURRED A LOSS WHICH HAS BEEN SET OFF AGAINST THE LONG TERM CAPITA L GAIN. FURTHER, THE CALCULATION OF VALUE OF SHARES HAS BEEN DETERMINED AS PER THE BALANCE SHEET SUBMITTED BY THE ASSESSEE AND AS PER ACCOUNTI NG NORMS SET BY THE CHARTERED ACCOUNT'S ASSOCIATION OF INDIA. 8. AS FAR AS SECOND ASPECT IS CONCERNED, ALLEGATION OF THE AO IN THE REASONS IS THAT IN THE MEMORANDUM OF ARRANGEMENT TO THE SALE OF SHARES SHOWS THAT A SUM OF RS.28,90,500/- WAS TO BE RECEIVED BY THE ASSESSEE FROM M/S.MANISH MULTI PACKFILMS PVT. LTD. IT WAS A SUM A DVANCED BY THE ASSESSEE ITA NO.1698/AHD/2013 13 TO THE COMPANY. THE AO HAS OBSERVED THAT A PERUSAL OF THE BALANCE SHEET FOR THE F.Y.2002-03 I.E. 31.3.2003 DOES NOT DISCERN THA T THE ASSESSEE HAS ADVANCED ANY AMOUNT. THE STAND OF THE ASSESSEE IS THAT THIS SUM WAS ADVANCED AFTER 31.3.2003 AND IT WAS REPAID DURING T HE F.Y.2003-04 ITSELF. THEREFORE, IT WILL NOT REFLECT IN THE BALANCE SHEET OF MANISH MULTI PACKINGFILMS PVT. LTD. IN F.Y.2002-03. THE AO HAS SOUGHT TO REOPEN THE ASSESSMENT AFTER EXPIRY OF FOUR YEARS WITHOUT ESTAB LISHING NEXUS OF THE DETAILS. HE HAS NOT ANALYTICALLY EXAMINED THE ALLEGED ADVANC E GIVEN BY THE ASSESSEE AND HIS BELIEF THAT THIS AMOUNT SHOULD BE AVAILABLE IN THE BALANCE SHEET FOR F.Y.2002-03. WHEN THE ASSESSEE HAS NOT PAID ANY AM OUNT IN F.Y.2002-03 TO THE COMPANY HOW IT WILL APPEAR IN THE BALANCE SHEET . WITHOUT LOOKING TO THE ACCOUNTS, HE SIMPLY RECORDED THE REASONS. THUS, TH ERE IS NO BASIS FOR REOPENING OF THE ASSESSMENT AND THE LD.CIT(A) HAS R IGHTLY QUASHED IT. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD.CIT(A). IT IS UPHELD. APPEAL OF THE REVENUE IS DISMISSED. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE COURT ON 21 ST FEBRUARY, 2017 AT AHMEDABAD. SD/- SD/- (MANISH BORAD) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 21/02/2017