ACIT Circle-I, V. Aditya Gupta,

ITA 1862/DEL/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 6813 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 02-11-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 13-05-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R P SINGH
• Keywords: Avoidance of tax; Capital Gains

Judgement Text

ITA NO. 1862/DEL/2008 A.Y. 2004-05 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 1862/DEL/2008 A.Y. : 2004-05 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-I, MEERUT VS. SH. ADITYA GUPTA, 219, RAILWAY ROAD, MEERUT (PAN: AAEPC7844A) (APPELLANT ) (RESPONDENT ) ASSEESSEE BY : NONE DEPARTMENT BY : S HRI R.P. SINGH, SR. D.R. ORDER PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 18.12. 2008 PERTAINING TO ASSESSMENT YEAR 2004-05. 2. THE FIRST ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW IN ALLOWING THE BENEFIT OF LONG TERM CAPITAL LOSS AT ` 15,04,919/- INSTEAD OF ` 9,53,894/- ALLOWED BY THE ASSESSING OFFICER. 3. IN THIS REGARD, ASSESSEE HAS SHOWN PURCHASES OF 12500 EQUITY SHARES OF M/S R.B. CREDITS (P) LTD. AT THE RATE OF ` 40/- PER SHARE ON 23.8.1999 AND ALSO PURCHASE OF 10000 EQUITY SHARES ON 19.9.2001 AT THE RATE OF ` 100/- PER SHARE OF THE SAME COMPANY. ASSESSEE SOLD ALL THESE SHARES @ ` 10/- PER SHARE ON 29.9.2003 TO SMT . SUMITRA GUPTA ITA NO. 1862/DEL/2008 A.Y. 2004-05 2 AND CLAIMED LONG TERM CAPITAL LOSS OF ` 15,04,919/-. ASSESSING OFFICER HELD THAT INTRINSIC VALUE OF M/S R.B. CREDIT (P) LTD AS ON 31.3.2004 WAS AT ` 34.49 AND HENCE, ADOPTED SALE PRICE OF ` 34.4 9 PER SHARE AND RECOMPUTED THE CAPITAL LOSS. 4. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) S ASSESSEE INTER-ALIA SUBMITTED THAT :- THE SCHEME OF TAX LEVY ON CAPITAL GAINS CONCERNS REA LITIES. THE STARTING POINT OF COMPUTATION UNDER SECTION 48(1 )(A) THE FULL VALUE OF THE CONSIDERATION RECEIVED OR AC CRUING. WHAT IN FACT NEVER ACCRUED OR WAS NEVER RECEIVED CA NNOT BE COMPUTED AS CAPITAL GAINS. IT WAS FURTHER SUBMITTED T HAT ASSESSING OFFICER WHILE CALCULATING THE PROFIT O R LOSS ON THE PURCHASE AND SALE OF SHARES OF R.B. CREDITS PRIVATE LIMITED HAS VALUED THESE SHARES OR INTRINSIC VALUE METHOD ( OR SAY BREAK UP VALUE METHOD OR BOOK VALUE METHOD) ON THE DATE OF SALE OF THE SHARES WHICH IS AGAINST THE SETTLE D LAW; SO THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE PART OF THE LOSS AS CLAIMED BY THE ASSESSEE IS ILLEGAL AND DESERVE TO BE KNOCKED DOWN IN TOTO. 4.1 CONSIDERING THE ASSESSEES SUBMISSIONS, LD. CO MMISSIONER OF INCOME TAX (APPEALS) HELD AS UNDER:- ON ISSUE OF PURCHASE AND SALE OF SHARES OF R.B. CR EDITS PVT. LTD. IN ASSESSEES OWN CASE FOR A.Y. 2002-03, WHERE SIMIL AR PURCHASE AND SALE OF SHAERS OF MANKIND PHARMA PVT. LT D. WERE INVOLVED; MY LD. PREDECESSOR LD. COMMISSIONER O F ITA NO. 1862/DEL/2008 A.Y. 2004-05 3 INCOME TAX (APPEALS) HAS VIDE ORDER NO. 526/06-07 D ATED 11.7.2007 HAS HELD THAT :- I HAVE GONE THROUGH THE FACTS OF THE CASE AND SUBMISSIONS OF APPELLANT. THE ASSESSING OFFICER THOUGH HAS MADE NOTE THAT THE TRANSFER WAS INCURRED THROUGH COLLUSIVE TRANSACTION, NOTHING HAS BEEN BROUGHT ON RECORD AT ALL TO SUBSTANTIATE THE SAME. IT IS IN ADMITTED FACT THAT THE APPELLANT IS NO WAY RELATED TO THE COMPANY M/S MANKIND PHARMA PVT. LTD. AND ITS DIRECTORS. CONSIDERING THE MATERIAL ON RECORD AND ITS LEGAL ASPECT. I ALLOW THE BENEFIT OF LONG TERM CAPITAL LOSS OF ` 1,04,45,051/- TO THE APPELLANT DISALLOWED INSTEAD OF ` 23,45,051/- ALLOWED BY ASSESSING OFFICER. IN THIS YEAR ALSO, FACTS ARE SIMILAR, I ALSO OBSERVE D THAT THERE IS SATISFACTORY EXPLANATION FOR MAKING SUCH PURCHAS E AT HIGHER ATE AND SELLING THE SAME AT LOWER RATE. THE RE IS NO RELATION BETWEEN THE ASSESSEE AND THE PURCHASER A ND THE COMPANY WHOSE SHARES ARE UNDER CONSIDERATION; AND TH US, THERE IS NO REASON FOR ANY COLLUSIVE TRANSACTION. I HOLD THAT THE CAPITAL LOSS AS CLAIMED BY THE ASSES SEE IS ALLOWED. ITA NO. 1862/DEL/2008 A.Y. 2004-05 4 5. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEFO RE US. 6. FOLLOWING HAVE BEEN URGED IN THIS REGARD:- IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE ORD ER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW IN IGNORING THE FACT THAT THE ASSESSEE PURCHASED 12 500 SHARES @ ` 40/- PER SHARE AND 10,000 SHARE @ ` 100/ - PER SHARE FROM M/S RB CREDITS PVT. LTD. AND SOLD THE SAM E @ ` 10/- PER SHARE WEHRE AS THE INSTRINSIC VALUE OF THE SE SHAERS AS ON 31.3.2004 WAS ` 34.49/-. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE ORDE R OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW IN IGNORING THE FACT THAT THE VALUE OF THE UNQUOTED SHARES OF A CLOSELY HELD PVT. LTD. COMPANY IS TO BE DETERMINED A S PER THE BOOK VALUE ON THE DATE OF TRANSACTION. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE ORDE R OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW IN IGNORING THE FACT THAT THE ASSESSEE HAD PURCHASE D THE SHARES FROM THE DIRECTORS OF M/S RB CREDITS PVT. LTD. AND SOLD TO SMT. SUMITRA GUPTA, W/O SHRI OM PRAKASH VAISH, WHO IS THE EXISTING SHARE HOLDER, WITH THE APPROVAL OF THE BOARD OF DIRECTORS OF R.B. CREDITS PVT. LTD. 7. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE AND PERUSED THE RECORDS. DESPITE SEVERAL NOTICES, ASSESS EE HAS NOT COME FOR PARTICIPATING IN THE HEARING. HENCE, WE DEEM IT APPROPRIATE TO DECIDE THE ISSUE EXPARTE. ITA NO. 1862/DEL/2008 A.Y. 2004-05 5 7.1 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE DO NOT FIND OURSELVES IN AGREEMENT WITH THE DECISION OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN THIS REGARD. ASSESSING OFFICER HAS FOUND THAT THE INTRINSIC V ALUE OF SHARES AS ON 31.2.2004 WAS AT ` 34.49. THEN SALE OF SHARES MUCH BELOW THIS PRICE AT ` 10/- IS UNDOUBTEDLY A COLLUSIVE TRANSACTION. NO REASON HAS BEEN ADVANCED AS TO WHY THE INTRINSIC VALUE ADOPTED SHO ULD BE IGNORED. UNDER THE CIRCUMSTANCES, PRINCIPALLY WE ARE IN AGRE EMENT WITH THE ORDER OF THE AO. HOWEVER, WE FIND THAT ASSESSING OFFICER HAS COMPUTED THE VALUE OF SHARES BY ADDING UP PAID UP SH ARE CAPITAL, RESERVE FUNDS, SHARE PREMIUM ACCOUNT AND SURPLUS P& L ACCOUNT AND DIVIDING THE SAME BY THE NUMBER OF SHARES. 7.2 LD. DEPARTMENTAL REPRESENTATIVE IN THIS REGARD HAS POINTED OUT THAT RULE 1D OF THE WEALTH TAX RULES, 1957 CAN BE AP PLIED. HOWEVER, WE FIND THAT RULE 1D HAS BEEN OMITTED BY WEALTH TAX SECOND (AMENDMENT) RULES, 1989 W.E.F. 1.4.89. HENCE, IN OUR OPINION, THE INTRINSIC VALUE OF SHARES HAS TO BE ARRIVED AT PROP ERLY BY CONSIDERING THE EXCESS OF ASSETS OVER LIABILITIES WHICH HAS NO T BEEN DONE BY THE ASSESSING OFFICER. HENCE, WE REMIT THIS ISSUE TO THE FILES OF THE ASSESSING OFFICER TO CONSIDER THE ISSUE AFRESH, IN LIGHT OF THE ABOVE OBSERVATIONS. 8. THE NEXT ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW IN IGNORING THE FACTS TH AT THE ASSESSEE PURCHASED UNITS OF RELIANCE VISION FUNDS AT THE RA TE OF 21.72 PER UNIT AMOUNTING TO ` 25 LACS ON 23.2.2004 AND SOLD THE SAM E AT THE RATE OF ` 11.26 PER UNIT AMOUNTING TO ` 1270880.36 ON 8.3.2 004. THE ASSESSEE GOT 1,12,866.817 BONUS UNITS ON 23.2.2004. IF THE DEEMED ITA NO. 1862/DEL/2008 A.Y. 2004-05 6 VALUE OF THESE UNITS IS CONSIDERED ON THE DATE OF S ALE OF UNITS AT ` 11.26 PER UNIT, THERE WAS NO LOSS ACCRUED TO THE ASSESSEE . 9. ON THIS ISSUE THE ASSESSING OFFICER NOTED THAT THERE WAS SHORT TERM CAPITAL LOSS SHOWN BY THE ASSESSEE IN THE TRA NSACTION RELATING TO THE RELIANCE VISION FUNDS. THE ASSESSEE PURCHASED T HE 112866.817 UNITS AT THE RATE OF 21.72 PER UNIT AMOUNTING TO TOT AL OF ` 25,00,000/- ON 22.3.2004 AND SOLD THESE 11286.817 AT ` 11.26 UN IT AMOUNTING TOTAL OF ` 1270880.36 ON 8.3.2004. THIS TRANSACTI ON RELATE TO SHORT TERM CAPITAL LOSS OF 1229119.64 BUT FURTHER INVEST IGATION SHOW THAT BONUS WAS ANNOUNCED 20.3.2004 AND BONUS UNIT AT TH E RATE OF 1 UNIT FOR EVERY UNIT HELD AS ON RECORD DATE WAS DECLARED BY THE RELIANCE VISION FUNDS GROWTH PLAN BONUS OPTION, BECAUSE OF THIS BONUS OPTION THE ASSESSEE GOT BONUS OF 112866.817 ON 23.2.2004. IN ASSESSING OFFICER S VIEW THIS TRANSACTION IS SIMILAR TO DIVI DEND STRIPPING OR BOND WASHING. SO HE HELD THAT THESE TRANSACTIONS FALL UNDER THE AVOIDANCE OF TAX BY CERTAIN TRANSACTION IN SECURITIES U/S 94(7). 9.1 HENCE, THE ASSESSING OFFICER HELD THAT SINCE T HE TRANSACTIONS OF PURCHASE AND SALE ARE WITHIN THE PURVIEW OF SECTI ON 94(7)(A), 94(7)(B) AND 94(7)(C) THE SHORT TERM CAPITAL LOSS IS BEING DI SALLOWED. 10. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOM E TAX (APPEALS) HELD THAT HE AGREED WITH THE CONTENTION OF THE ASSESSEE THAT RELEVANT PROVISION APPLICABLE TO THE PRACTICE OF BO NUS STRIPING ARE SECTION 94(8) WHICH WAS, HOWEVER, INSERTED W.E.F. A .Y. 2005-06. THUS, THE ASSESSING OFFICER HAS WRONGLY APPLIED THE PROV ISIONS IN THE PRESENT ITA NO. 1862/DEL/2008 A.Y. 2004-05 7 A.Y. I.E. A.Y. 2004-05. THEREFORE, THE ADDITION OF ` 12,29,120/- IS TO BE DELETED. 11. AGAINST THIS ORDER THE REVENUE IS IN APPEAL B EFORE US. 12. LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE ASSESSING OFFICER . 13. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. WE FIND THAT ASSESSING OFFICER HAS ERRED IN APPLYING THE SECTIO N 94(7) WHICH RELATES TO DIVIDEND OR INCOME ON SUCH SECURITIES OR UNIT RECEIVED OR RECEIVABLE. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS RIGHTLY HELD THAT APPLICABLE SECTION 94(8) WHICH READS AS UNDER: - WHERE (A) ANY PERSON BUYS OR ACQUIRES ANY UNITS WITHIN A P ERIOD OF THREE MONTHS PRIOR TO THE RECORD DATE; (B) SUCH PERSON IS ALLOTTED ADDITIONAL UNITS WITHOUT AN Y PAYMENT ON THE BASIS OF HOLDING OF SUCH UNITS ON SUCH DATE; (C) SUCH PERSON SELLS OR TRANSFERS ALL OR ANY OF THE UN ITS REFERRED TO IN CLAUSE (A) WITHIN A PERIOD OF NINE MONTHS AF TER SUCH DATE, WHILE CONTINUING TO HOLD ALL OR ANY OF THE AD DITIONAL UNITS REFERRED TO IN CLAUSE (B) THEN, THE LOSS, IF ANY, ARISING TO HIM ON ACCOUNT OF SUCH PURCHASE AND SALE OF ALL OR ANY OF SUCH UNITS SHALL BE IGNOR ED FOR THE PURPOSES OF COMPUTING HIS INCOME CHARGEABLE TO TAX AN D NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PRO VISION OF THIS ACT, THE AMOUNT OF LOSS SO IGNORED SHALL BE DEEMED TO BE THE COST OF PURCHASE OR ACQUISITION OF SUCH ADDITIONAL UNITS REFERRED ITA NO. 1862/DEL/2008 A.Y. 2004-05 8 TO IN CLAUSE (B) AS ARE HELD BY HIM ON THE DATE OF SUCH SALE OR TRANSFER. 13.1 SECTION 94(8) WAS SUBSTITUTED BY THE FINANCE (NO. 2) ACT, 2004 W.E.F. 1.4.2005. THE PRESENT YEAR 2004-05 FOR W HICH SECTION 94(8) HAS NO APPLICATION. HENCE, WE DO NOT FIND ANY INFIR MITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ACCOUNT AND, HENCE, AFFIRM THE SAME. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 4/11/2010. SD/- SD/- [C.L. SETHI] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE 4/11/2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES