THE ACIT C-21(1), Mumbai V. SHRI JAYESH P. CHOKSI, Mumbai

ITA 1770/MUM/2005

• Counselvise Citation: 177019914 RSA 2005
• Duration Of Justice: 7 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 11-04-2012
• Assessment Year: 1999-2000
• Appeal Filed On: 07-03-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIVASA RAO
• Assessee Lawyers: AJAY R SINGH; R V SHAH
• Keywords: Business income; Share purchase agreement; Earning of tax free income; Valuation report; Sham transactions
• Section: 14A

Judgement Text

1 ITA 1840 & 17 70/ M/2005, SHRI JAYESH P. CHOKSI IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H BEFORE SHRI B. RAMAKOTAIAH, A.M. AND SHRI S.S. GODA RA, J.M. ITA NO. 1840/MUM/2005 ASSESSMENT YEAR 1999-2000 SHRI JAYESH P. CHOKSI, GUFIC HOUSE, SUBHASH ROAD A VILE PARLE (E), MUMBAI 400 057. PAN AACPC001D VS. ACIT, CIR. 21(1), C-10, B.K. COMPLEX, BANDRA, MUMBAI 400 057. APPELLANT RESPONDENT ITA NO. 1770/MUM/2005 ASSESSMENT YEAR 1999-2000 ACIT, CIR. 21(1), C-10, B.K. COMPLEX, BANDRA, MUMBAI 400 057. VS. SHRI JAYESH P. CHOKSI, GUFIC HOUSE, SUBHASH ROAD A VILE PARLE (E), MUMBAI 400 057. PAN AACPC001D APPELLANT RESPONDENT ASSESSEE BY SHRI AJAY R. SINGH & SHRI R.V. SHAH REVENUE BY SHRI GOLI SRINIVASA RAO DATE OF HEARING 11.04.2012 DATE OF PRONOUNCEMENT 20.04.2012 ORDER PER B. RAMAKOTAIAH, A.M. THESE ARE CROSS APPEALS FILED BY ASSESSEE AND REVENUE AGAINST THE ORDER DATED 31.12.2004 OF LD. CIT(A) XXI, MUMBAI RELATING TO ASSESSMENT YEAR 1999- 2000. 2 ITA 1840 & 17 70/ M/2005, SHRI JAYESH P. CHOKSI 2. THE ASSESSEE FILED ELABORATE GROUNDS AND SUBSEQU ENTLY REVISED GROUNDS ON TWO ISSUES. THE FIRST ISSUE RELATES TO DISALLOWA NCE OF INTEREST OF RS. 27,24,724/- MADE BY A.O. BY INVOKING PROVISIONS O F SECTION 14A OF THE ACT. SINCE LD. CIT(A) GAVE RELIEF OF RS. 5,01,904/- IN HIS ORDER, REVENUE IN ITS APPEAL HAS CONTESTED ACTION OF LD. CIT(A) IN GIVI NG RELIEF TO ASSESSEE. THUS ON THIS ISSUE THERE ARE CROSS GROUNDS OF APPEAL. TH E OTHER ISSUE CONTESTED BY ASSESSEE RELATES TO CLAIM OF LONG TERM CAPITAL LOSS OF RS. 1,74,59,306/- ON SALE OF SHARES. 3. WE HAVE HEARD LD. COUNSEL FOR ASSESSEE ALONG WI TH LD. D.R IN DETAIL. THE ASSESSEE HAS ALSO PLACED ON RECORD PAPER BOOK FURNI SHING VARIOUS DETAILS AND THE ORDERS RELIED UPON ON ISSUE OF DISALLOWANCE OF INTEREST U/S 14A OF THE ACT. THE A.O. IN HIS ASSESSMENT ORDER HAS DISCUSSED SCH EDULES TO BALANCE SHEET AS ON 31 ST MARCH 1999 VIDE PARA NOS 2,3,4,5,6 & 7. HE NOTED THAT ASSESSEE HAD RECEIVED AN AMOUNT OF RS. 18,85,762/- WHICH WAS TAXABLE AS BUSINESS INCOME. HE NOTED THAT ASSESSEE INVESTED A SUM OF RS. 64,90,880/- IN SHARES ON WHICH ASSESSEE RECEIVED DIVIDEND OF RS. 1,59,12 1/- AND CLAIMED EXEMPTION U/S 10(33) OF THE ACT. HE ALSO NOTED THAT ASSESSEE INVESTED A SUM OF RS. 3,98,80,539/- IN LANDS, SHOPS, GARAGES AND FLATS. HE ALSO NOTED THAT ASSESSEE HAS GIVEN ADVANCES TO VARIOUS PARTIES AMOUNTING TO RS. 11,39,86,306/- AND ASSESSEE HAS NOT SHOWN ANY INCOME FROM THESE ADVANC ES AND DEPOSITS. HE ALSO NOTED THAT ASSESSEE HAD HIS OWN CAPITAL AND B ORROWED FUNDS WHICH WAS UTILISED FOR MAKING INVESTMENTS. AT PARA NO. 7 OF HIS ORDER, A.O. HAS NOTED AS UNDER:- 7. THE LOANS TAKEN BY THE ASSESSEE HAVE BEEN MOSTL Y UTILISED FOR MAKING (I) INVESTMENTS IN LANDS, SHOPS, GARAGES AND S FLATS (II) INVESTMENTS IN SHARES AND (III) ADVANCES & DEPOSITS . IT IS EVIDENT FROM THE ABOVE DISCUSSION THAT THE ASSESSEE HAS NOT SHOWN ANY INCOME OUT OF THESE ACTIVITIES. HENCE THE INTEREST OF RS. 32,44,528/- PAID BY THE ASSESSEE IS DISALLOWED U/S 14A OF THE I NCOME TAX ACT. 3 ITA 1840 & 17 70/ M/2005, SHRI JAYESH P. CHOKSI FOR THIS PURPOSE, PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME TAX ACT ARE INITIATED. 3.1 ON THE ABOVE REASON STATED, A.O. DISALLOWED AN AMO UNT OF RS. 32,44,528/- TOWARDS INTEREST PAID BY ASSESSEE U/S 14A OF THE ACT. 3.2 BEFORE LD. CIT(A), ASSESSEE SUBMITTED THAT IT HAS RECEIVED INTEREST FREE LOANS AND ALSO MADE INTEREST BEARING LOANS AND ADVA NCES TO EIGHT PARTIES ON WHICH INTEREST RECEIVED WAS ACCOUNTED AS SUCH. HE SUBMITTED THAT ASSESSEE HAS PAID INTEREST IN RESPECT OF LOANS TAKEN FROM A SSESSEES MINOR SON TO WHOM INTEREST AMOUNTING TO RS. 13,43,156/- WAS PAID AND THIS INCOME HAS BEEN ASSESSED IN ASSESSEES HANDS, THEREFORE, ENTIRE D ISALLOWANCE WAS NOT CALLED FOR. ASSESSEE FURTHER SUBMITTED THAT ASSESSEE HA D SUFFICIENT FUNDS TO ADVANCE/ INVEST, AFTER TAKING INTO ACCOUNT INTEREST FREE ADVANCES OF RS. 11.60 CRORES , PROFIT ON SALE OF SHARES OF RS. 2.56 CRORE S AND ADDITIONAL CAPITAL OF RS. 2.52 CRORES, TOTALLING RS. 16.68 CRORES THAT WAS AV AILABLE TO ASSESSEE WHEREAS ADVANCES GIVEN WERE ONLY 12.46 CRORES. IT WAS SUBM ITTED THAT ASSESSEE HAS TAKEN LOANS TO REPAY EXISTING LOANS TO EXTENT OF R S. 11.77 CRORES. INVESTMENT IN SHARES AND PROPERTIES OF RS. 51.46 LAKHS AND INT EREST FREE ADVANCES AS ON 31.3.1999 OF RS. 12.46 CRORES COMES TO RS. 13.04. INTEREST FREE FUNDS AND CAPITAL AS ON 31.3.1999 AT RS. 16.58 CRORES WAS AVA ILABLE TO ASSESSEE. THEREFORE HE SUBMITTED THAT DISALLOWANCE U/S 14A IS NOT WARR ANTED. LD. CIT(A), HOWEVER, WORKED OUT PROPORTION OF FUNDS AVAILABLE TO ASSESSEE COMES TO RS. 5.89 CRORES AND SINCE ASSESSEE PAID INTEREST OF R S. 32.26 LAKHS, COST OF INTEREST BEARING LOANS RECEIVED AND CAPITAL COMES T O 0.05% AND GAVE RELIEF OF RS. 5,01,904/-. HENCE, ASSESSEE IS AGGRIEVED ON CONFIRMED AMOUNT, WHEREAS REVENUE IS AGGRIEVED ON THE RELIEF GIVEN TO ASSESS EE OF RS. 5.01,904/-. 4. IT WAS THE SUBMISSION OF LD. COUNSEL FOR ASSES SEE THAT CIT(A) WAS NOT JUSTIFIED ON DISALLOWANCE MADE ON NOTIONAL BASIS B Y ADOPTING AVERAGE METHOD INSPITE OF ASSESSEE SUBMISSION THAT OWN FUNDS ARE MORE THAN INTEREST FREE ADVANCES MADE DURING THE YEAR. HE FURTHER SUBMITTE D THAT INVESTMENT MADE 4 ITA 1840 & 17 70/ M/2005, SHRI JAYESH P. CHOKSI CANNOT BE CONSIDERED AS NON-GENERATING ASSETS AND I F INTEREST IS DISALLOWED THE SAME MAY BE CAPITALIZED TOWARDS COST OF ASSET. F URTHER EVEN IF THERE WAS NO INCOME FROM INVESTED ASSET, INTEREST RELATABLE TO S UCH INVESTMENT WAS ALLOWABLE. FOR THIS PROPOSITION HE RELIED ON DECI SION IN CASE OF CIT VS. RAJENDRA PRASAD MOODY REPORTED IN 114 ITR 519 (SC). HE FURTHER SUBMITTED THAT FOLLOWING THE PRINCIPLES IN THE CASE OF CIT V. RELIANCE UTILITIES & POWER LTD. REPORTED IN (2009) 313 ITR 340 (BOM) (344) IF THERE WERE INTEREST FREE FUNDS AVAILABLE TO ASSESSEE SUFFICIENT TO MEET ITS INVES TMENTS AND AT THE SAME TIME ASSESSEE HAD RAISED A LOAN, IT CAN BE PRESUMED THAT INVESTMENTS WERE FROM THE INTEREST FREE FUNDS AVAILABLE. THE LD. COUNSEL FOR ASSESSEE ALSO RELIED ON DECISION OF CO-ORDINATE BENCH OF ITAT IN THE CASE OF ZIRCON FINANCE LEASING P. LTD. IN ITA NO. 5046/MUM/2003 ON SIMILAR FACTS AND CIRCUMSTANCES WHICH CONFIRMED ORDER OF LD. CIT(A) IN DELETING ADDITI ON WHILE ESTIMATING DISALLOWANCE OF RS. 2000/- ON DIVIDEND EARNED. ACC ORDINGLY, HE SUBMITTED THAT NO DISALLOWANCE SHOULD BE MADE SINCE FACTS ARE SIM ILAR IN THIS CASE. 5. WE HAVE EXAMINED THE ISSUE ON BASIS OF FACTS AV AILABLE ON RECORD. WE HAVE TO ADMIT THAT WE ARE UNABLE TO UNDERSTAND THE BASIS FOR WORKING OUT AVERAGE DISALLOWANCE MADE BY LD. CIT(A) IN HIS ORD ER. IT WAS SUBMITTED THAT ASSESEE HAD ITS OWN FUNDS BOTH CAPITAL PLUS INTERES T FREE BORROWINGS WHICH WAS SUFFICIENT TO ADVANCE TO COMPANIES AND ALSO INVESTM ENT IN PROPERTY AND SHARES. THIS ASPECT WAS NOT EXAMINED BY LD. CIT(A) AT ALL. THE ASSESSEE ALSO SUBMITTED THAT INTEREST AMOUNT OF RS. 13,43,136/- THAT WAS PA ID TO ASSESSEES MINOR SON WAS SHOWN AS TAXABLE IN ASSESSEES HANDS IN ACCORDA NCE WITH PROVISIONS OF SECTION 64 OF THE ACT AND THIS INCOME HAS BEEN ASSE SSED IN ASSESSEES HANDS. WE FIND THAT THERE IS NO DISPUTE ON THE FACT THAT ASSESSEE HAD SUFFICIENT FUNDS AVAILABLE TO HIM MORE THAN INTEREST FREE ADVANCES MADE BY HIM. IT WAS ALSO NOT IN DISPUTE THAT ASSESSEE HAS OFFERED LONG TERM CAPI TAL GAIN IN HIS HANDS AND ALSO FROM HIS MINOR SON IN THE COMPUTATION OF INCOM E. THE INCOMES ON INVESTMENTS IN SHARES WAS THUS BECAME TAXABLE AND N OT TAX FREE. FOLLOWING THE PRINCIPLES IN THE CASE OF RELIANCE UTILITIES & POWE R LTD. (SUPRA) WHEN THERE ARE 5 ITA 1840 & 17 70/ M/2005, SHRI JAYESH P. CHOKSI OWN FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO ME ET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD BORROWED LOANS, IT CAN B E PRESUMED THAT INVESTMENTS WERE MADE FROM INTEREST FREE FUND AVAI LABLE. WE ARE OF THE OPINION THAT THERE IS NO NEED TO DISALLOW ANY AMOUN T U/S 14A OF THE ACT. FURTHER, IT IS ALSO SUBMITTED THAT LOANS TAKEN DURI NG THE YEAR WERE UTILIZED FOR REPAYING THE LOANS OF EARLIER YEARS WHEREAS THE INV ESTMENTS WERE CARRIED OVER FROM EARLIER YEARS. THE A.O. AS WELL AS THE LD. CI T(A) WITHOUT EXAMINING THE PROVISIONS OF SECTION 36(1)(III) & U/S 57 MADE THE DISALLOWANCE WHICH IS NOT CORRECT. WE ARE OF THE OPINION THAT NO DISALLOWANC E IS REQUIRED CONSIDERING THE FACTS OF THE CASE. 5.1 ON SIMILAR FACTS, THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S ZIRCON FINANCE & LEASING P. LTD. IN ITA NO. 504 6/MUM/2003 FOR A.Y. 1999-2000 DATED 3.2.2012 HAS EXAMINED THE ISSUE AN D SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECTED THE A.O. TO MAKE ADDITI ON OF RS. 2000/- U/S 14A. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELO W: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY AND FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. WE FIND THAT LD. CIT(A) HAS OBSERVED THAT TOTAL FUNDS AVAILABLE WER E RS. 13,73,22,719/- AND NOT RS. 12,59,72,752/-. THE DET AILS OF THE SAME HAVE BEEN WORKED OUT AS UNDER:- SR. NO. PARTICULARS RS. RS. INTEREST FREE FUNDS 1 SHARE CAPITAL 11,240 2 RESERVES & SURPLUS 10,493,970 3 INTEREST FREE LOANS 68,202,288 4 ADVANCES FROM RANBAXY LABORATORES 90,057,465 INTEREST BEARING FUNDS 47,265,254 137,322,719 WE FURTHER FIND THAT DOCUMENTS REGARDING AVAILABILI TY OF FUNDS WERE FILED FOR THE FIRST TIME BEFORE THE CIT(A). THE RE VENUE HAS NOWHERE TAKEN A GROUND THAT RULE 46A HAS BEEN VIOLATED. TH E DOCUMENTS ARE MAINLY IN THE SHAPE OF COMPUTATION OF INCOME, BALAN CE SHEET, AND AVAILABILITY OF FUNDS ETC. THE ADDITIONAL FUNDS AV AILABLE ARE STATED TO BE A SUM OF RS. 1,13,49,967/- WHICH WERE RECEIVED B Y THE ASSESSEE 6 ITA 1840 & 17 70/ M/2005, SHRI JAYESH P. CHOKSI FROM RANBAXY LABORATORIES LTD. ON ACCOUNT OF ADVANC E PAYMENT AGAINST SALE OF SHARES. HOWEVER, IF THESE FUNDS WE RE NOT AVAILABLE TO THE ASSESSEE AS OBSERVED BY THE FIRST APPELLATE AUT HORITY THE REVENUE SHOULD HAVE BROUGHT SOME EVIDENCE TO SHOW THAT OBSE RVATIONS OF THE LD. CIT(A) ARE NOT CORRECT. THEREFORE, IN OUR OPIN ION, LD. CIT(A) HAS CORRECTLY WORKED OUT THE AVAILABILITY OF INTEREST F REE FUNDS AND THE WORKING CLEARLY SHOWS THAT INTEREST FREE FUNDS WERE AVAILABLE TO THE ASSESSEE TO THE EXTENT OF RS. 9,00,57,465/- AND INT EREST FREE ADVANCES WERE ONLY OF RS. 8,32,34,434/-. THUS, ALL INTEREST FREE ADVANCES HAVE BEEN GIVEN OUT OF INTEREST FREE FUNDS AND NO DISALLOWANCE IS CALLED FOR. FURTHER, EVEN IF THE S O CALLED INVESTMENT IN SHARES AMOUNTING TO RS. 35,72,162/- HAD COME FRO M INTEREST FREE ADVANCES, BECAUSE AFTER GIVING INTEREST FREE ADVANC ES FROM INTEREST FREE FUNDS, ASSESSEE WILL STILL BE LEFT WITH THE SU RPLUS FUNDS AS UNDER:- INTEREST FREE FUNDS AVAILABLE RS. 9,00,57,465 LESS INTEREST FREE ADVANCES RS. 8,32,34,434 BALANCE SURPLUS FUNDS RS. 68,23,031 THEREFORE, NO DISALLOWANCE CAN BE MADE U/S 14A IN R ESPECT OF INTEREST. AS FAR AS DISALLOWANCE OF EXPENDITURE IS CONCERNED, WE AGREE WITH THE SUBMISSIONS OF THE LD. COUNSEL OF TH E ASSESSEE THAT NO PURPOSE WOULD BE SERVED IF THE MATTER IS REMANDED B ACK BECAUSE A SMALL AMOUNT OF RS. 39,474/-HAS BEEN RECEIVED AS DI VIDEND. CONSIDERING THE OVER ALL CIRCUMSTANCES WE ESTIMATE THE EXPENDITURE FOR EARNING THIS EXEMPT INCOME AT RS.2000/-. ACCORD INGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) TO THIS EXTENT AN D DIRECT THE A.O. TO MAKE ADDITION OF RS. 2000/- U/S 14A. THEREFORE, TH IS GROUND IS PARTLY ALLOWED. 5.2 AS THE FACTS ARE SIMILAR AND DISALLOWANCE MADE WAS ALSO SIMILAR IN ASSESSEES CASE, NO DISALLOWANCE CAN BE MADE U/S 14 A OF THE ACT OUT OF THE INTEREST CLAIM. HOWEVER AS SEEN FROM THE ASSESSMEN T ORDER, THE ASSESSEE HAS RECEIVED INTEREST FREE DIVIDEND INCOME OF RS. 1,59, 121/- WHICH WAS CLAIMED EXEMPT U/S 10(33). WE ARE OF THE OPINION THAT AN A MOUNT OF RS. 5000/- CAN BE CONSIDERED AS EXPENDITURE FOR EARNING OF SUCHDIVIDE ND, THEREFORE, AN AMOUNT OF RS. 5000/- IS APPROPRIATE FOR DISALLOWANCE U/S 14A. ACCORDINGLY, WE MODIFY THE ORDER OF CIT(A) ON THE ISSUE. WE DIRECT THE A.O . TO MAKE ADDITION OF RS. 5000/- ONLY. THE GROUND RAISED BY ASSESSEE IS PARTL Y ALLOWED. SINCE THE CONFIRMATION MADE BY THE LD. CIT(A) ITSELF WAS NOT UPHELD, THERE IS NO QUESTION 7 ITA 1840 & 17 70/ M/2005, SHRI JAYESH P. CHOKSI OF CONSIDERING REVENUE GROUND ON REDUCTION GRANTED BY CIT(A). ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 6. THE OTHER ISSUE RAISED BY THE ASSESSEE RELATES T O CLAIM OF LONG TERM CAPITAL LOSS OF RS. 1,74,59,306/- ON SALE OF SHARES . THE ASSESSEE SOLD SOME SHARES TO M/S HOTAL JAL AND HAS MADE CAPITAL GAIN O F RS. 3,85,72,309/-. THE ASSESSEE CLAIMED CAPITAL LOSS OF RS. 1,74,59,306/- ON SALE OF SHARES OF M/S ANDROMEDA HOLDINGS P. LTD., M/S GUFIC LTD. AND M/S ASIA NETWORK LTD. THE A.O. WAS OF THE OPINION THAT THE TRANSACTIONS OF SA LE OF SHARES IN ALL THESE RELATED COMPANIES/PERSONS ON WHICH LOSS WAS CLAIMED ARE MALAFIDE AND SHAM TRANSACTIONS. THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAS ADOPTED A COLORABLE DEVICE TO REDUCE THE TAX LIABILITY IN RES PECT OF CAPITAL GAINS ON SALE OF SHARES OF M/S HOTEL JAL LTD. HOWEVER, THE A.O.S F INDING ON VALUE OF SALE PRICE WAS THAT M/S ASIA NETWORK LTD. WAS NO LONGER IN EX ISTENCE AS ADMITTED BY THE ASSESSEE. IN RESPECT OF GUFIC LTD., THE ASSESSEE C OULD NOT FURNISH ANY BASIS FOR DETERMINATION OF SALE PRICE OF SHARES WHEREAS VALUE OF EQUITY SHARES OF M/S ANDROMEDA HOLDINGS PVT. LTD. WAS NIL AMOUNT. THE LD. CIT(A) HOWEVER AGREED WITH THE OPINION OF THE A.O. THAT THE PRESENT TRANS ACTION FALL IN THE CATEGORY OF COLORABLE DEVICE. 6.1 IT WAS SUBMITTED THAT THE ASSESSEE HAD INVESTED IN THESE SHARES LONG BACK AND THERE WAS NO DISPUTE ABOUT THE INVESTMENTS AND SALE OF SHARES OF THE ABOVE COMPANIES. THE ONLY OBJECTION BY THE A.O.IN D ENYING THE LONG TERM CAPITAL LOSS IS THAT THESE SHARES ARE SOLD TO THE D AUGHTER AND THE GROUP CONCERN AND WAS OF THE OPINION THAT THE ASSESSEE ADOPTED TH IS COLORABLE DEVICE TO REDUCE HIS TAX LIABILITY. IT WAS FURTHER SUBMITTED THAT THE GROUP CONCERN ALSO HAD SIMILAR CAPITAL GAINS ON SALE OF SHARES AND THI S ISSUE WAS DECIDED BY THE ITAT IN THE CASE OF M/S ZIRCON FINANCE LEASING P. L TD. AND THE ITAT HAS CONSIDERED THAT IT CAN BE CALLED AS AN INSTRUMENT O F TAX PLANNING AND NOT COLORABLE TRANSACTION. 8 ITA 1840 & 17 70/ M/2005, SHRI JAYESH P. CHOKSI 6.2 WE HAVE CONSIDERED THE ISSUE AND EXAMINED FACTS AVAILABLE ON RECORD. THE ASSESSEE SOLD THE SHARES OF HOTAL JAL LTD. AND HAS MADE SUBSTANTIAL CAPITAL GAIN. ASSESSEE ALSO SOLD OTHER SHARES ON WHICH THE RE WAS LOSS WHICH WAS CLAIMED IN COMPUTATION. THERE IS NO DISPUTE TO THE FACT OF HOLDING OF SHARES OR SALE/ VALUE THERE OF. THE ONLY OBJECTION OF THE A.O . IN DENYING THE CLAIM OF THE ASSESSEE IS THAT THE ASSESSEE HAD SOLD THE SHARES T O DAUGHTER AND TO GROUP CONCERN. HE WAS OF THE OPINION THAT THIS IS A COLO RABLE TRANSACTION SO AS TO REDUCE THE LONG TERM CAPITAL GAIN. SIMILAR ISSUE AR OSE IN THE CASE OF GROUP CONCERN WHEREIN THE SAID COMPANY HAD LONG TERM CAPI TAL GAIN AND ALSO HAD LOSSES. IN THAT CASE ALSO THE A.O. DENIED THE LONG TERM CAPITAL GAIN ON THE REASON THAT THE TRANSACTIONS ARE COLORABLE TRANSACT IONS. THE FINDINGS OF ITAT IN THE CASE OF DCIT V. M/S ZIRCON FINANCE & LEASING P. LTD. IN ITA NO. 5046/MUM/2003 ORDER DTD. 3.2.2012 FOR A.Y. 1999-200 0 ARE AS UNDER:- 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY IN THE LIGHT OF THE MATERIAL ON RECORD AS WELL AS THE JUDGMENTS CITED BY BOTH THE PARTIES. WE FIND FORCE IN THE SUBMISSIONS OF THE LD . COUNSEL OF THE ASSESSEE. THE ASSESSEE HAD CLAIMED TOTAL CAPITAL LO SS OF RS.3,30,15,982/- CONSISTING OF LOSS ON ACCOUNT OF S ALE OF SHARES OF PLUS CHANNEL AMOUNTING TO RS.2,15,00,000/- AND LOSS ON A CCOUNT OF SALE OF SHARES OF ANDROMEDA HOLDINGS PVT. LTD AMOUNTING TO RS.1,15,15,982/- . AS FAR AS THE SHARES OF ANDROMEDA HOLDINGS PVT. L TD ARE CONCERNED ASSESSEE HAS PURCHASED 60,000 SHARES DURING A.Y 96- 97 FOR RS.1,00,20,000/-. THE SHARES WERE ISSUED TO THE ASS ESSEE VIDE CERTIFICATE NO.13 BEARING DISTINCTIVE NOS.940001 TO 1000000. THIS CERTIFICATE WAS SPLIT INTO TWO CERTIFICATES CONTAIN ING 30,000 SHARES EACH BY CERTIFICATE NOS.15 & 16 ON 17-7-98. THE FACT REG ARDING SPLITTING UP OF SHARES IS NOTED ON TOP OF THE SHARE CERTIFICATE ITSELF. THEREFORE THERE IS NO FORCE IN THE SUBMISSIONS OF LD. DR THAT SHARE S OF ANDROMEDA HOLDINGS PVT. LTD WERE ACQUIRED ON 17-7-98. ONCE TH E SHARES OF ANDROMEDA HOLDINGS PVT. LTD WERE PURCHASED IN A.Y 9 6-97, NATURALLY THE PURCHASE WAS ACCEPTED BY THE DEPARTMENT AS NO A DVERSE INFERENCE WAS TAKEN IN THE EARLIER YEAR. DURING THE YEAR IF A SSESSEE HAS SOLD THE SHARES OF ANDROMEDA HOLDINGS PVT. LTD BECAUSE ITS V ALUE HAS GONE DOWN BECAUSE OF THE LOSS IN THE SUBSIDIARY COMPANY DUE TO DISPUTE WITH PBCI, THEN NO FAULT CAN BE FOUND IN SUCH A SAL E TRANSACTION. MERELY BECAUSE 30,000 SHARES HAVE BEEN SOLD TO MS. DHYUTI CHOKSI, DAUGHTER OF THE DIRECTOR OF THE ASSESSEE COMPANY, I T CANNOT LEAD TO A CONCLUSION THAT THIS IS A SHAM TRANSACTION. AS FAR AS THE LOSS ON ACCOUNT OF PLUS CHANNEL IS CONCERNED, WE AGAIN FIND THAT THE TRANSACTION CANNOT BE CALLED SHAM. THE ASSESSEE WAS ALREADY THE PROMOTER OF ANDROMEDA HOLDINGS PVT. LTD ALONG WITH THE RENOWNED 9 ITA 1840 & 17 70/ M/2005, SHRI JAYESH P. CHOKSI PERSONALITIES, NAMELY, MR. MAHESH BHATT, MR. AMIT K HANNA, MR. DILIP PIRAMAL GROUP, AND MR. AJIT GULABCHAND OF HINDUSTA N CONSTRUCTIONS GROUP. PLUS CHANNEL LTD. WAS INVOLVED IN MAKING OF TV SERIALS, PICTURES AND MUSIC ALBUMS ETC. DURING THE YEAR ENDI NG 31-3-98 THE REVENUE FROM SALES AND SERVICES AND COMMISSION ETC. WAS ABOUT RS.41 CRORES APPROXIMATELY, WHICH SHOWS THAT THE COMPANY WAS DEFINITELY DOING BUSINESS. THEREFORE, IF BEING THE PROMOTER AS SESSEE PURCHASES FURTHER SHARES, NO FAULT CAN BE FOUND. THE SHARES W ERE STATED TO HAVE BEEN PURCHASED AT RS.100 PER SHARE AS PER THE VALUA TION. HOWEVER, THE VALUATION REPORT AS ON 31-3-98 SHOWS THAT PLUS CHANNEL LTD. HAD ALREADY INCURRED A LOSS OF RS.17.87 CRORES AGAINST THE EQUITY SHARES OF RS.16 CRORES WHICH MEANS WHOLE OF THE EQUITY HAS AL READY BEEN ERODED. THE NET WORTH OF THE COMPANY WAS COMPUTED A T RS.5,37,37,158/- AGAINST THE OUTSTANDING PREFERENCE SHARES OF 92800000. THUS, THE VALUE OF EACH SHARE WOULD WORK OUT TO RS.58 PER PREFERENCE SHARE. THE LD. CIT(A) HAS ALREADY REDUCE D THE COST OF THESE SHARES TO RS.58 PER SHARE AND REDUCED THE CONSEQUEN TIAL LOSS INCURRED ON SALE OF SUCH SHARES AGAINST WHICH ASSESSEE HAS N OT FILED ANY APPEAL. WHEN BECAUSE OF THE DISPUTE WITH PBCI THE C OMPANY WENT INTO LIQUIDATION NATURALLY THERE WOULD BE AN APPREHENSIO N OF FURTHER LOSS AND IF AT THAT STAGE SHARES WERE SOLD AT A LOSS, IT CANNOT BE SAID THAT THE TRANSACTION IS SHAM. AGAIN, MERELY BECAUSE SHAR ES HAVE BEEN SOLD TO MS. VIPULA CHOKSI THE WIFE OF THE DIRECTOR OF TH E ASSESSEE COMPANY, WOULD NOT MAKE THE TRANSACTION SHAM. ANOTHER FACT W HICH HAS BEEN CONSIDERED BY THE AO IS THAT ASSESSEE COULD NOT PRO DUCE COPIES OF THE SHARE CERTIFICATES. IT WAS STATED DURING THE COURSE OF THE HEARING THAT BECAUSE OF THE LIQUIDATION PROCEEDINGS ALL PAPERS A ND FILES WERE TAKEN OVER BY THE LIQUIDATOR. THOUGH WE DO NOT SUBSCRIBE MUCH SIGNIFICANCE TO THIS FACT BECAUSE AFTER THE TRANSACTION SHARES M UST HAVE BEEN GIVEN BY THE COMPANY TO MS. DHYUTI CHOKSI, MR. PANKAJ PAN DYA AND MS. VIPULA CHOKSI IN MARCH, 1999, I.E. THE DATE OF TRAN SFER WHEREAS LIQUIDATION PROCEEDINGS HAVE COMMENCED SOMEWHERE IN 2000. HOWEVER, AT THE SAME TIME IT IS NOT DISPUTED THAT M ONEY HAS ALREADY BEEN RECEIVED BY THE ASSESSEE COMPANY THROUGH CHEQU ES IN THE MONTH OF MARCH, 99 ITSELF. MOREOVER, THE BOARDS RESOLUTI ON SHOWING THE TRANSFER OF SHARES WAS ALSO PRODUCED BEFORE THE AO AS WELL AS THE LD. CIT(A). EVEN IF IT IS ASSUMED FOR THE ARGUMENTS SAK E THAT THE ABOVE ONLY SHOWS THAT ASSESSEE WAS TRYING TO GENERATE LOS S IN THE ABOVE TRANSACTION, THERE IS NOTHING WRONG WITH THE SAME B ECAUSE IT CAN BE CALLED AS AN INSTRUMENT OF TAX PLANNING. AS POINTED OUT BY THE LD. COUNSEL OF THE ASSESSEE THAT IN THE CASE OF WALFORT SHARE BROKERS P. LTD. [SUPRA] WHEREIN THE HON'BLE SUPREME COURT WAS SEIZED WITH THE QUESTION WHETHER THE TRANSACTIONS OF PURCHASE AND S ALE OF MUTUAL FUNDS WERE GENUINE WHEREIN AN ADVERTISEMENT WAS ISS UED BY THE MUTUAL FUND THAT ONE COULD GET TAX ADVANTAGE BY GET TING TAX FREE DIVIDEND AND ADVANTAGE OF CAPITAL LOSS, EVEN THEN S UCH TRANSACTION WAS HELD TO BE GENUINE BY THE HON'BLE APEX COURT. T HEREFORE, IN OUR OPINION, THESE TRANSACTIONS CANNOT BE CALLED SHAM T RANSACTIONS AND ACCORDINGLY WE CONFIRM THE ORDER OF THE LD. CIT(A). 10 ITA 1840 & 17 70/ M/2005, SHRI JAYESH P. CHOKSI 6.3 SINCE THE FACTS AND CIRCUMSTANCES ARE SIMILAR, WE AGREE WITH THE ABOVE FINDING OF THE ITAT WHEREIN IT WAS HELD THAT JUST B ECAUSE OF ASSESSEE SOLD SHARES TO DAUGHTER AND SISTER CONCERN, IT CANNOT B E CONSIDERED THAT THE TRANSACTIONS ARE SHAM TRANSACTIONS. THE A.O. HAS N OT DISPUTED THE VALUATION OF SHARE OR SALE PRICE. THERE IS ALSO NO DISPUTE T O THE FACT THAT THESE ARE INVESTMENTS AND GAIN OR LOSS ARE LONG TERM IN NATU RE. IT WAS ALSO NOTICED THAT AO ACCEPTED LONG TERM CAPITAL GAIN OFFERED BY ASSES SEE WITHOUT ANY QUESTION. IN OUR OPINION, THESE TRANSACTIONS CANNOT BE TREATE D AS SHAM TRANSACTIONS AS ASSESSEE IS WELL WITHIN HIS RIGHTS TO SET OFF LOSS INCURRED ON SALE OF SHARES, THEREFORE, WE REVERSE THE FINDINGS OF THE LD. A.O. AND THE LD. CIT(A) AND DIRECT THE A.O. TO ALLOW THE LONG TERM CAPITAL GAIN/ LOSS AS SUCH. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED AND THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 20 TH APRIL 2012 IN OPEN COURT SD/- SD/- (S.S. GODARA) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 20 -04-2012. RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXI,MUMBAI 4. THE CIT XXI, MUMBAI 5. THE DR BENCH, H 6. MASTER FILE // TUE COPY// 11 ITA 1840 & 17 70/ M/2005, SHRI JAYESH P. CHOKSI BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI