The ACIT,(OSD)-I, Circle-4, Ahmedabad V. Shri Deepakbhai N.Parikh, Ahmedabad

ITA 1879/AHD/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0107 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-09-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 27-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Gift; Salary income; Share purchase agreement; Earning of tax free income; Source of fund; Wrong claim; Corroborative evidences; Avoidance of tax; Valuation report
• Section: 143(3); 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD BEFORE SHRI S. S. GODARA, JM, & SHRI MANISH BORA D, AM. ITA NO.1879/AHD/2011 ALONG WITH CO NO.211/AHD/2011 ASST. YEAR: 2008-09 ACIT(OSD), CIRCLE-4, AHMEDABAD. VS. DEEPAKBHAI N. PARIKH, 2 ND FLOOR NAVDEEP HOUSE, ASHRAM ROAD, AHMEDABAD. APPELLANT RESPONDENT PAN AAWPP5857P AND ITA NO.2015/AHD/2011 ALONG WITH CO 212/AHD/2011 ASST. YEAR: 2008-09 ACIT, CIRCLE-7, AHMEDABAD. VS. SMT. KUSUM LATABEN N. PARIKH, 2 ND FLOOR NAVDEEP HOUSE, ASHRAM ROAD, AHMEDABAD. APPELLANT RESPONDENT PAN ABHPP4059N APPELLANT BY SHRI K. MADHUSUDAN, SR.DR RESPONDENT BY SHRI S. N. SOPARKAR, AR DATE OF HEARING: 14/9/2016 DATE OF PRONOUNCEMENT: 07/11/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . ITA NO. 1879 & 2015/AHD/2011 ASST. YEAR 2008-09 2 THESE TWO APPEALS BY REVENUE AND THE CROSS OBJECTI ONS BY TWO DIFFERENT ASSESSEES FOR ASST. YEAR 2008-09 OUT OF WHICH ITA NO.1879/AHD/2011 ALONG WITH CROSS OBJECTION NO.211/ AHD/2011 IN THE CASE OF DEEPAKBHAI N. PARIKH ARE DIRECTED AGAI NST THE ORDER OF LD. CIT(A)-VIII, AHMEDABAD DATED 1805/2011 VIDE APP EAL NO.CIT(A)- VIII/ACR-4/660/10-11 ARISING OUT OF THE ORDER U/S 1 43(3) OF THE IT ACT, 1961 (IN SHORT THE ACT) FRAMED ON 27/12/2010 BY ACI T(OSD), CIRCLE- 4, AHMEDABAD; AND ITA NO.2015/AHD/2011 ALONG WITH C.O.NO.212/AHD/2011 IN THE CASE OF SMT. KUSUMLATABE N N. PATIKH ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A)-VI, AH MEDABAD, DATED 10/06/2011 IN APPEAL NO.CIT(A)-VI/CIR.7/287/10-11 A RISING OUT OF ORDER U/S 143(3) OF THE ACT ALSO FRAMED ON 27/10/20 12 BY ADDL.CIT, RANGE-7, AHMEDABAD. AS THE ISSUES RAISED IN THESE A PPEALS AND THE CROSS OBJECTIONS BY THE ASSESSEES ARE COMMON IN NAT URE THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE WILL TAKE UP ITA NO.1879/AHD/2011 FOR A SST. YEAR 2008-09. GROUNDS RAISED BY THE REVENUE ARE AS BELOW :- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.3,85,28,505/- MADE BY THE AO ON ACCOUNT OF LONG TERM CAPITAL LOSS ON SALE OF SHARES OF M. H. MILLS & INDS. LTD. WITHOUT APPRE CIATING THE FACT THAT A WRONG CLAIM MADE BY THE ASSESSEE IN A RETURN, WHICH HAD N OT BEEN SUBJECTED TO SCRUTINY WOULD NOT ENABLE THE ASSESSEE TO PERPETUAT E THE WRONG CLAIM IN SUBSEQUENT YEARS. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.1,15,043/-MADE BY THE AO ON ACCOUNT OF DISALLOWA NCE U/S 14A OF THE ACT, . 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. ITA NO. 1879 & 2015/AHD/2011 ASST. YEAR 2008-09 3 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT (A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED TO TH E ABOVE EXTENT. . 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS AN INDIVIDUAL EARNING INCOME FROM SALARY, CAPITAL GAIN AND FROM O THER SOURCES. RETURN OF INCOME FOR ASST. YEAR 2008-09 WAS FILED O N 31.07.2008 DECLARING TOTAL INCOME AT RS.4,81,02,307/-. RETURN WAS PROCESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY CASE WAS SELECTED F OR SCRUTINY ASSESSMENT. A NOTICE U/S 143(2) FOLLOWED BY NOTICE U/S 142(1) WAS ISSUED. NECESSARY DETAILS WERE FILED AND EXAMINED D URING THE COURSE OF ASSESSMENT PROCEEDINGS LD. ASSESSING OFFICER OBS ERVED THAT ASSESSEE EARNED LONG TERM CAPITAL GAIN FROM SALE OF LAND AND ADJUSTED SOME PORTION OF IT BY SETTING OFF WITH THE LONG TERM CAPITAL LOSS FROM SALE OF SHARES. LD. ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE HAS SOLD SOME PORTION OF EQUITY SHARES THR OUGH RECOGNIZED STOCK EXCHANGE & CLAIMED EXEMPTION U/S 10(38) OF TH E ACT AND REMAINING PORTION OF EQUITY SHARES WHICH WERE MAINL Y GIFTED DURING THE YEAR BY RELATIVES WERE SOLD OFF-MARKET INCURRIN G LONG TERM CAPITAL LOSS WHICH WAS HITHERTO SET OFF AGAINST THE LONG TE RM CAPITAL GAIN FROM SALE OF LAND. LD. ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE HAS RESORTED TO COLOURABLE DEVICE WITH THE INTENTION TO LOWER DOWN THE TAX LIABILITY ON ACCOUNT OF LONG TERM CAPITAL GAIN FROM SALE OF LAND AND THEREFORE, DID NOT ALLOW THE SET OFF OF LONG TERM C APITAL LOSS OF RS.3,85,28,505/- INCURRED FROM OFF MARKET SALE OF E QUITY SHARES. LD. ASSESSING OFFICER ALSO MADE A DISALLOWANCE U/S 14A OF THE ACT R.W.R 8D OF THE IT RULES, 1962 (IN SHORT THE RULES) AT RS .115043/- BEING 0.5% OF THE AVERAGE VALUE OF INVESTMENT OF RS.2.30 CRORES. ACCORDINGLY INCOME WAS ASSESSED AT RS.8,67,45,900/- .. ITA NO. 1879 & 2015/AHD/2011 ASST. YEAR 2008-09 4 4. IN APPEAL BEFORE LD. CIT(A) ASSESSEE SUCCEEDED I N GETTING RELIEF AS LD. CIT(A) DELETED THE DISALLOWANCE MADE BY ASSE SSING OFFICER FOR SETTING OFF OF LONG TERM CAPITAL LOSS OF RS. 3,85,2 8,505/- AND ALSO DELETED THE DISALLOWANCE OF RS. 115043/- MADE U/S 1 4A OF THE ACT R.W.R 8D OF THE RULES. 5. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE THE T RIBUNAL. FIRST ISSUE RAISED BY REVENUE IS AGAINST THE ACTION OF LD . CIT(A) DELETING THE ADDITION OF RS.3,85,28,505/- MADE BY ASSESSING OFFICER ON ACCOUNT OF LONG TERM CAPITAL LOSS ON SALE OF SHARES OF M. H. MILLS & INDUSTRIES LTD. WITHOUT APPRECIATING THE FACT THAT WRONG CLAIM WAS MADE BY ASSESSEE IN THE RETURN OF INCOME. 6. LD. DR VEHEMENTLY ARGUED SUPPORTING THE ORDER OF ASSESSING OFFICER AND ALSO RELIED ON THE DECISION OF HON. BOM BAY HIGH COURT IN THE CASE OF KILLICK NIXON LTD. VS. DCIT (2012) 20 T AXMANN.COM 703 (BOM) AND FURTHER SUBMITTED THAT ASSESSEE HAS INTEN TIONALLY ENTERED INTO A SHAM TRANSACTION BY SELLING EQUITY SHARES IN OFF MARKET WITH THE INTENTION TO EVADE LONG TERM CAPITAL GAIN TAX ON SA LE OF LAND BY SETTING OFF OF LONG TERM CAPITAL LOSS. 7. ON THE OTHER HAND, LD. AR APART FROM RELYING ON THE SUBMISSIONS MADE BEFORE LD. CIT(A) FURTHER BRIEFED THAT ALL THE TRANSACTIONS ENTERED INTO BY ASSESSEE I.E. SALE OF LAND, SALE OF EQUITY SHARES THROUGH RECOGNIZED STOCK EXCHANGE BY PAYING SECURIT Y TRANSACTION TAX, GIFTS OF EQUITY SHARES FROM RELATIVES AND SALE OF GIFTED SHARES ITA NO. 1879 & 2015/AHD/2011 ASST. YEAR 2008-09 5 THROUGH OFF MARKET HAVE BEEN ENTERED ON THE FAIR MA RKET VALUE AND REVENUE/ASSESSING OFFICER HAS NOT RAISED ANY OBJECT ION ABOUT THE GENUINENESS. LD. AR FURTHER CONTENDED THAT HON. SUP REME COURT IN THE CASE OF MC. DWELL & CO. VS. CIT (1985) 154 ITR 148 (SC) HAS HELD THAT TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITHI N THE FRAME WORK OF LAW. COLORABLE DEVICE CANNOT BE A PART OF T AX PLANNING AND IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONORABLE TO AVOID THE PAYMENT OF TAX BY RESORTING TO DUBIOUS ME THOD. IT IS THE OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES HONEST LY WITHOUT RESORTING TO SUBTERFUSES. LD. AR FURTHER REFERRED AND RELIED ON THE FOLLOWIN G JUDGMENTS/DECISIONS :- 1. JUDGMENT OF HON. GUJARAT HIGH COURT IN THE CASE OF BIRAJ INVESTMENT P. LTD. 210 TAXMAN 418. 2. JUDGMENT OF HON. GUJARAT HIGH COURT IN CASE OF S PECIAL PRINTS LTD. 356 ITR 404. 3. ORDER OF HON. GUJARAT HIGH COURT IN CASE OF ATIR TEXTILE INDUS. P. LTD. 230 TAXMAN 104 4. ORDER OF ITAT, AHMEDABAD BENCH IN THE CASE OF SU HRID S. SARABHAI KAIVANA.34 ITR (T) 342 5. ORDER OF ITAT, MUMBAI IN CASE OF RAPTAKOS BRETT & CO. LTD. 58 TAXMANN.CON 115 6. DECISION OF ITAT MUMBAI IN CASE OF LEGG MASON AS IN (EX JAPAN) ANALYST FUND 61 SOT 277 7. ORDER OF ITAT AHMEDABAD IN CASE OF HINA NITIN PA RIKH 144 ITR 157 8. JUDGMENT OF HON. GUJARAT HIGH COURT IN CASE OF P RUDENT FINANCE P. LTD. 225 TAXMAN 125S LD. AR ALSO SUBMITTED THAT IMPUGNED EQUITY SHARES O N SALE OF WHICH ASSESSEE HAS SUFFERED LONG TERM CAPITAL LOSS WERE R ECEIVED AS GIFT FROM RELATIVE ON 30 TH APRIL, 2007. LD. ASSESSING OFFICER HAS NOT ITA NO. 1879 & 2015/AHD/2011 ASST. YEAR 2008-09 6 CHALLENGED THE GENUINENESS OF THE GIFT AT ANY POINT OF TIME DURING ASSESSMENT PROCEEDINGS. FURTHER THERE IS NO PROHIBI TION IN THE LAW TO ENTER INTO SALE OF EQUITY SHARES OFF MARKET AND THE FACTS NEED TO BE APPRECIATED THAT THE OFF MARKET SALE WAS AT THE SAM E PRICE AT WHICH THE EQUITY SHARES WERE TRADED ONLINE ON RECOGNIZED STOCK EXCHANGE. ASSESSEE HAS WORKED ONLY WITHIN THE FOUR CORNERS OF LAW BY CLAIMING EXEMPTION AT SOME PORTION OF LONG TERM CAPITAL GAIN U/S 10(38) OF THE ACT, ENTERED INTO OFF MARKET SALE OF SHARES INCURRI NG LONG TERM CAPITAL LOSS AND CLAIMING IT AS SET OFF VALIDLY AGAINST THE LONG TERM CAPITAL GAIN FROM SALE OF LAND WITHIN THE PROVISIONS OF SECTION 70(3) OF THE ACT. THEREFORE, LD. CIT(A) HAS RIGHTLY APPRECIATED THE F ACTS AND HAS DELETED THE DISALLOWANCE MADE BY LD. ASSESSING OFFI CER AND HAS RIGHTLY ALLOWED THE SET OFF OF LONG TERM CAPITAL LO SS FROM SALE OF SHARES AS AGAINST LONG TERM CAPITAL GAIN FROM SALE OF LAND . 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD PLACED BEFORE US. THROUGH THIS GROUND NO.1 REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) DELETING THE ADDITION MADE BY ASSESSING OFFICER BY NOT ALLOWING SET OFF OF LONG TERM CAPITA L LOSS ON SALE OF SHARES OF M.H. MILLS & INDUS. LTD. AS AGAINST LONG TERM CAPITAL GAIN FROM SALE OF LAND. WE FIND THAT DURING THE YEAR UND ER APPEAL ASSESSEE EARNED LONG ERM CAPITAL GAIN OF RS.12,19,16,490/- R EALIZED ON SALE OF AGRICULTURAL LAND AT HANSOL. AGAINST THIS LONG TERM CAPITAL GAIN FROM SALE OF LAND ASSESSEE CLAIMED SET OFF OF LOSS OF RS .3,85,28,505/- AROSE FROM OFF MARKET SALE OF SHARES OF M.H.MILLS & INDUS. LTD. AND M. H. PACKAGING IND. LTD. FURTHER EQUITY SHARES THE SALE OF WHICH GAVE RISE TO A LONG TERM CAPITAL LOSS WERE RECEIVED AS GIFT IN THE ITA NO. 1879 & 2015/AHD/2011 ASST. YEAR 2008-09 7 BEGINNING OF THE YEAR. HOWEVER, GENUINENESS OF THE GIFTS HAS NOT BEEN QUESTIONED BY THE REVENUE. FURTHER DURING THE YEAR ASSESSEE ALSO EARNED LONG TERM CAPITAL GAIN AT RS.10,42,332/ - FROM SALE OF SHARES BEING LISTED SECURITIES ON RECOGNIZED STOCK EXCHANGE AFTER PAYING SECURITY TRANSACTION TAX AND THE SAME WAS CL AIMED AS EXEMPT U/S 10(38) OF THE ACT. 9. ANALYZING THE FACTS WE FIND THAT LD. ASSESSING O FFICERS MAIN OBSERVATION WAS THAT ASSESSEE HAS INTENTIONALLY FIR ST RECEIVED GIFTS FROM RELATIVES OF EQUITY SHARES AND THEN SOLD THEM OFF MARKET INCURRING LOSS AND CLAIMING IT AS SET OFF AGAINST L ONG TERM CAPITAL GAIN ON SALE OF LAND IN ORDER TO MINIMIZE LONG TERM CAPI TAL GAIN ON SALE OF LAND TO THE EXTENT OF SET OFF OF LOSS OF RS. 3,85,2 8,505/- AGAINST THE LONG TERM CAPITAL GAIN OF RS.12,19,16,409/-. WE FUR THER OBSERVE THAT LD. CIT(A) HAS DELETED THE IMPUGNED DISALLOWANCE AN D ALLOWED THE CLAIM OF ASSESSEE BY OBSERVING AS FOLLOWS :- 4. I HAVE CAREFULLY CONSIDERED THE FINDINGS OF THE A.O. AS WELL AS SUBMISSIONS OF THE APPELLANT. THE APPELLANT FILED HIS RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 4,81,02,307/- ON 31/07/2008. THE RETURN WAS PROCESS ED U/S. 143(1) OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY AND THE NOT ICE U/S. 143(2) OF THE ACT WAS ISSUED. SUBSEQUENTLY, NOTICES U/S. 142(1) OF TH E ACT WERE ALSO ISSUED. IN RESPONSE TO THE SAME, THE APPELLANT, THROUGH AUTHOR IZED REPRESENTATIVE SUBMITTED ALL THE DETAILS / INFORMATION / EXPLANATI ONS CALLED FOR BY THE A.O. 4.1 THE FACTS OF THE CASE IN BRIEF IS THAT THE AP PELLANT IS THE DIRECTOR OF M. H. MILLS AND INDUSTRIES LTD. THE MAIN SOURCES OF INCOME ARE THE SALARY RECEIVED FROM SAID MILL AND THE CAPITAL GAIN - LONG TERM AS WELL AS SH ORT TERM. THERE ARE THREE SOURCES OF LONG TERM CAPITAL GAIN: 1) SALE OF SHARES OF OTHER COMPANIES - ON MARKET, W HICH HAS BEEN CLAIMED AS EXEMPT. . ITA NO. 1879 & 2015/AHD/2011 ASST. YEAR 2008-09 8 2) SALE OF SHARES OF M.H. MILLS & INDUSTRIES LTD. - OFF MARKET. THE LOSS SUFFERED BY THE APPELLANT HAS BEEN SET OFF AGAINST THE LONG TERM CAPITAL GAIN ON SALE OF LAND. . 3) SALE OF LAND. THE LONG TERM CAPITAL GAIN IS OFFE RED FOR TAX AFTER SET OFF OF LONG TERM CAPITAL LOSS ON SALE OF SHARES OF M. H. M ILLS & INDUSTRIES LTD. 4.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E A.O. ASKED TO PROVIDE THE DETAILS OF ALL THE ABOVE TRANSACTIONS AND ITS GENUI NENESS VIDE DIFFERENT ORDER SHEET ENTRIES. THE APPELLANT WAS FURTHER ASKED TO PROVIDE THE DETAILS OF SHARES RECEIVED AS GIFT AND PROVE THE GENUINENESS, CREDITWORTHINESS AN D IDENTITY OF THE DONORS. THE APPELLANT FILED ALL THE REQUIRED DETAILS FROM TIME TO TIME. THE DONORS OF THE SHARES SHRI JANAKBHAI DEEPAKBHAI PARIKH AND SHRI BIRENBHAI DEEPAKBHAI PARIKH ATTENDED BEFORE THE A.O. AND FILED THE COPY OF THEIR RETURN OF INCOME AND CAPITAL ACCOUNT TO PROVE THE 3 INGREDIENTS OF THE GIFT RECEIVED BY THE APPELLANT. AFTER VERIFYING THE DETAILS AND EXPLANATIONS OF THE APPELLANT, THE A.O. ACCEPTE D THE GIFT AS GENUINE. 4.3 THE APPELLANT HAS SOLD THE SHARES OF M.H. MILLS AND INDUSTRIES LTD. 'OFF MARKET', WHICH RESULTED IN A LONG TERM CAPITAL LOSS OF RS. 3 ,85,28,505/-. THERE WAS NO DIFFERENCE IN THE OFF MARKET AND ON MARKET SALE PRI CE OF THESE SHARES. THIS FACT HAS ALSO BEEN CONFIRMED BY THE A.O. IN THE ASSESSMENT O RDER. THE A.O.'S OBJECTION IN RESPECT OF THE TRANSACTION OF SALE OF SHARES OF M.H . MILLS & INDUSTRIES LTD. 'OFF MARKET' IS THAT THE SHARES OF THE SAID COMPANY WERE LISTED ON THE STOCK EXCHANGE AND HAD IT BEEN SOLD ON MARKET, THEN IN THAT CASE THE LONG TER M CAPITAL LOSS WOULD HAVE BEEN EXEMPT AND THEREFORE, IN THAT CASE THE APPELLANT CO ULD NOT CLAIM SET OFF OF SUCH EXEMPT LONG TERM CAPITAL LOSS. THUS, AS PER THE A.O ., THIS IS A CLEAR PLANNING ON THE PART OF THE APPELLANT TO SELL THE SHARES OF LISTED COMPANY OFF MARKET BECAUSE THE APPELLANT WAS VERY WELL AWARE OF THE MARKET PRICE O F COMPANY AND IT WAS DELIBERATELY DONE TO CLAIM THE BENEFIT OF LOSS WHICH WOULD HAVE NOT BEEN PERMITTED IN CASE OF ON MARKET TRANSACTION. AS PER THE A.O., THE NEED FOR S ALE OF SHARES OFF MARKET AS AGAINST ON MARKET OPTION AVAILABLE TO THE APPELLANT ARE AS UNDER: 1. THE BENEFIT OF THE LOSS CAN BE CLAIMED IF THE SH ARES ARE SOLD OFF MARKET. 2. THE NEED FOR SALE OF THE SHARES OF A LISTED COM PANY OFF MARKET IS A PROPER PLANNING TO REDUCE THE GAIN FROM SALE OF LAND. 3. THE APPELLANT HAS ACQUIRED THE SHARES FROM RELAT IVE AS GIFTS SO THAT THE SALE OF SHARES IN BULK CAN BE CONCLUDED AND THE GAIN ON SALE OF AND CAN BE REDUCED. 4.4 ACCORDINGLY, THE A.O. IS OF THE VIEW THAT THE A PPELLANT HAS CHALKED OUT A PLAN WITH A VIEW TO EVADE THE TAX BY ADOPTING THE METHOD WHIC H CAN NOT BE OPTED OTHERWISE. CONSIDERING ALL THE DETAILS AND CIRCUMSTANCES OF TH E CASE, THE A.O. IS OF THE VIEW THAT THE TRANSACTION OF SALE OF SHARES ENTERED INTO BY T HE APPELLANT RESULTING INTO LONG TERM CAPITAL LOSS IS MERELY AN ARTIFICE OR A DEVICE EMPL OYED SO AS TO REDUCE TAX LIABILITY. THE A.O. HAS CONSIDERED THE TRANSACTION OF SALE OF THE SHARES OF M. H. MILLS & INDUSTRIES LTD. OFF MARKET AS COLOURABLE DEVICE SO AS TO REDUCE THE TAX LIABILITY OF THE APPELLANT RESULTING OUT OF THE LONG TERM CAPITA! GA IN. THE A.O. HAS RELIED UPON THE JUDGMENTS OF HON'BLE SUPREME COURT IN THE CASE OF M CDOWELL & CO. LTD. VS. ITA NO. 1879 & 2015/AHD/2011 ASST. YEAR 2008-09 9 COMMERCIAL TAX OFFICER 154 ITR 148 AND WORKMEN VS. ASSOCIATED RUBBER INDUSTRY LTD. 157 ITR 77. .:-.'- \ - 4.5 ON THE OTHER HAND, THE AUTHORIZED REPRESENTATIV E OF THE APPELLANT HAS SUBMITTED WITH SUPPORTING EVIDENCES THAT THE TRANSACTION OF S ALE OF SHARES OF M.H. MILLS & INDUSTRIES LTD. IS FACTUAL, VALID AND GENUINE. ALL THE DETAILS IN CONNECTION WITH THE SALE OF THE SHARES OF THE SAID COMPANY WERE FURNISHED TO THE A.O. WHICH HAS BEEN VERIFIED BY HIM AND ACCEPTED AS GENUINE. MERELY BEC AUSE THE SALE OF THE SHARES HAVE BEEN DONE OFF MARKET, WHICH IS ONE OF THE VALI D AND LEGAL OPTION AVAILABLE TO THE APPELLANT, IT CAN NOT BE SAID THAT THE TRANSACTION IS SHAM OR IS HAVING COLOURABLE DEVICE SO AS TO EVADE THE TAX LIABILITY. IT HAS BEE N SUBMITTED THAT OFF MARKET TRANSACTIONS OF SALE OF SHARES ARE REGULARLY CARRIE D OUT IN THE MARKET AND ARE IN NORMAL IN NATURE. UNDER THE INCOME TAX ACT, 1961, COMPANIE S ACT, 1956 AND THE THE REGULATORY FRAMEWORK OF SEBI, THE OFF MARKET TRANSA CTIONS ARE PERMISSIBLE AND NOT PROHIBITED. THE APPELLANT HAS PLACED ON RECORD THE COPY OF THE JUDGMENT DELIVERED BY SECURITIES APPELLATE TRIBUNAL, MUMBAI IN THE CASE O F JATIN MANUBHAI SHAH & OTHERS VS. ADJUDICATING OFFICER, SEBI (APPEAL NO. 16 OF 20 10), WHEREIN IT HAS BEEN HELD THAT OFF MARKET TRANSACTIONS ARE PERMISSIBLE IN LAW. ACC ORDINGLY, IT HAS BEEN CONTENDED BY THE APPELLANT THAT SINCE OFF MARKET TRANSACTIONS AR E PERMISSIBLE UNDER VARIOUS LAWS OF THE LAND, NO ADVERSE INFERENCE IS REQUIRED TO BE DR AWN AGAINST THE APPELLANT IN RESPECT OF THE OFF MARKET TRANSACTIONS DONE BY HIM MERELY BECAUSE SUCH OFF MARKET TRANSACTIONS HAVE RESULTED IN LOSS AND NOT GAIN. WH EN UNDER THE INCOME TAX ACT, THERE ARE DIFFERENT MODES OF TAXATION OF LONG TERM CAPITAL GAIN AVAILABLE TO THE APPELLANT, THEN HE CAN CHOOSE ANY OF THE MODES OF T AXATION SO AS TO PLAN HIS AFFAIRS WHICH IS NOT PROHIBITED BY LAW, BUT IT IS STRICTLY AS PER THE PROVISIONS CONTAINED IN THE INCOME TAX ACT. IT IS FURTHER CONTENDED THAT THE SHARES ARE REQUIRE D TO BE SOLD THROUGH RECOGNIZED STOCK EXCHANGE AND STT IS REQUIRED TO BE PAID ONLY WHEN THE APPELLANT DESIRES TO CLAIM SUCH RESULTANT TRANSACTION OF CAPITAL GAIN AS EXEMPT. HOWEVER, THIS MAY NOT THE CASE FOR ALL THE ASSESSEES AND THERE ARE MANY ASSES SEES, WHO WOULD CHOOSE OR WOULD OPT FOR THE TRANSACTION, WHICH TAKE PLACE OUT SIDE STOCK EXCHANGE NOT PAYING STT AND THEREFORE, BEAR THE CONSEQUENCES OF INCOME TAX PROVISIONS. IN APPELLANT'S CASE, THE FACT REGARDING PURCHASE/ACQUISITION OF TH E SHARES IS NOT IN DISPUTE. SIMILARLY, THE COST OF SHARES AS ENVISAGED U/S. 49 OF THE ACT, SALE OF SHARES AT THE CORRECT MARKET PRICE TO PURELY OUTSIDER / THIRD PAR TY AND REALIZATION OF SALE PROCEEDS ARE ALSO NOT IN DISPUTE. ONCE ALL THE INGREDIENTS O F GENUINE SALE HAS BEEN FULLY EXAMINED AND VERIFIED BY THE A.O., IT CAN NOT BE CO NSIDERED AS SHAM OR BOGUS OR MERE ARTIFICE OR DEVICE EMPLOYED BY THE APPELLANT S O AS TO REDUCE THE TAX LIABILITY. 4.6 IN THE LEGAL SUBMISSION, THE AUTHORIZED REPRESE NTATIVE HAS POINTED OUT THE DIFFERENCE BETWEEN THE TERM 'TAX AVOIDANCE' AND 'TA X EVASION'. TAX AVOIDANCE IS THE LEGAL UTILIZATION OF THE TAX REGIME TO ONE'S OW N ADVANTAGE, TO REDUCE THE AMOUNT OF TAX THAT IS PAYABLE BY MEANS THAT ARE WITHIN THE LAW. ON THE OTHER HAND, TAX EVASION IS THE GENERAL TERM FOR EFFORTS NOT TO PAY TAXES BY ILLEGAL MEANS. IN RESPECT OF THE RELIANCE ON THE DECISION IN CASE OF MCDOWELL & CO. (CITED SUPRA) BY THE A.O THE AUTHORIZED REPRESENTATIVE HAS DRAWN MY ATTENTION TO THE OBSERVATIONS MADE IN THE SAID CASE ON PAGE NO. 171 WHICH IS AS UNDER' ITA NO. 1879 & 2015/AHD/2011 ASST. YEAR 2008-09 10 'TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITH IN THE FRAMEWORK OF LAW. COLOURABLE DEVICES CANNOT BE PART OF TAX PLANNING A ND IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONOUR ABLE TO AVOID THE PAYMENT OF TAX BY RESORTING TO DUBIOUS METHOD. IT IS THE OBLIG ATION OF EVERY CITIZEN TO PAY THE TAXES HONESTLY WITHOUT RESORTING TO SUBTERFUGES '. FURTHER, IT HAS BEEN SUBMITTED ON BEHALF OF THE APP ELLANT THAT AFTER THE DECISION OF HON'BLE SUPREME COURT IN CASE OF MCDOWELL, THER ARE NUMBER OF JUDGMENTS WHEREIN THE CASE OF MCDOWELL HAS BEEN CONSIDERED AT LENGTH AND THEN THE HON'BLE SUPREME COURT AND OTHER HIGH COURTS HAVE CONSISTENTLY HELD THAT MCDOWELL CAN NOT BE APPLIED ON AND OFF IN ALL CASE OF TAX PLANNING OR T AX AVOIDANCE WITHIN FOUR CORNERS OF LAW I.E. LEGALLY. THE LEGAL DECISIONS RELIED UPON B Y THE APPELLANT ARE AS UNDER: R . I. UNION OF INDIA & ANR, VS. AZADI BACHAO ANDOLAN 2 63 ITR 706 (SC) II. M. V. VALLIAPPAN & ORS.VS. ITO 170 ITR 238 (MAD) ; III. BANYAN & BERRY VS. CIT 222 ITR 831 (GUJ) IV. CIT VS. GEORGE WILLIAMSON (ASSAM) LTD. 265 ITR 626 (GAU) V. CIT VS. ROCKMAN CYCLE INDUSTRIES (P) LTD. 326 ITR 2 91 (P&H) VI. CIT VS. BIHARIJI CONSTRUCTION (INDIA) LTD. 289 ITR 03 (GAU) , VII. INDUSTRIAL DEVELOPMENT CORP. OF ORISSA LTD. VS. CIT 268 ITR 130 (ORI) VIII. M/S. PORRITS & SPENCER (ASIA) LTD. VS. CIT, FARIDAB AD (ITA NO.10 OF 2004 (P&H)) IX. E'TRADE MAURITIUS LTD. (ARR) 324 ITR 1 ( ARR) X. ACIT VS. TURNER MORISON & CO. LTD, 47 ITD 638 (ITAT CALCUTTA) I HAVE GONE THROUGH THE ABOVE JUDGMENTS AND FOUND T HAT EYEN AFTER THE DECISION OF MCDOWELL'S CASE, THE HON'BLE SUPREME COURT AND OTHE R HIGH COURTS HAVE CONSISTENTLY HELD THAT THE ASSESSEE CAN STILL ARRAN GE HIS AFFAIRS LEGITIMATELY TO REDUCE THE IMPACT OF TAX, IF IT IS DONE WITHIN THE FOUR CO RNERS OF LAW. IN THE PRESENT CASE OF THE APPELLANT HE HAS DONE THE SAME ABSOLUTELY GENUI NE WITHIN THE FOUR CORNERS OF LAW AND THE SET OFF OF LONG TERM CAPITAL LOSS ON SALE O F SHARES AGAINST THE LONG TERM CAPITAL GAIN ON SALE OF LAND IS THE CONSEQUENCE OF THE DIFFERENT PROVISIONS OF THE ACT AND NO OTHER DEVICE OR DUBIOUS TRANSACTION TO REDUC E THE TAX LIABILITY AS OBSERVED BY THE A.0 IN THE ASSESSMENT ORDER. 10. FURTHER ON GOING THROUGH THE JUDGMENT OF HON. B OMBAY HIGH COURT HEAVILY RELIED BY LD. DR IN THE CASE OF KILL ICK NIXON LTD. VS. DCIT (SUPRA) WE FIND THAT THE FACTS DEALT IN THIS C ASE ARE DIFFERENT TO THE EXTENT THAT THE LONG TERM CAPITAL LOSS CLAIMED AS SET OFF WERE INVESTIGATED BY LD. ASSESSING OFFICER AND WERE FOUN D TO BE CIRCUITOUS TRANSACTION BY WAY OF PURCHASE AT EXORBITANT PRICE AND SUBSEQUENTLY SOLD AT NEGLIGIBLE/THROW AWAY PRICE AND, THEREFORE, SAID TRANSACTION OF ITA NO. 1879 & 2015/AHD/2011 ASST. YEAR 2008-09 11 SHARES WERE TREATED AS SHAM AND GENUINENESS OF THE TRANSACTION WAS DOUBTED BY ASSESSING OFFICER. 11. WHEREAS THE FACTS OF THE CASE BEFORE US ARE DIF FERENT TO THE EXTENT THAT NONE OF THE TRANSACTIONS HAS BEEN TREAT ED AS NON-GENUINE BY ASSESSING OFFICER RATHER HE HAS JUST DOUBTED THE MODUS OPERANDI ADOPTED BY THE ASSESSEE TO LOWER DOWN THE LONG TERM CAPITAL GAIN TAX LIABILITY ON SALE OF LAND. THEREFORE, THE CASE RELI ED ON BY LD. DR CANNOT BE APPLIED TO THE CASE BEFORE US AS THE FACTS ARE D IFFERENT. 11.1 FURTHER FROM GOING THROUGH THE DECISIONS/JUDGM ENTS REFERRED AND RELIED ON BY LD. AR WE FIND THAT HON. JURISDICT IONAL HIGH COURT IN THE CASE OF ACIT VS. BIRAJ INVESTMENT (P) LTD. (SUP RA) HAS OBSERVED AS UNDER :- 17. WE ARE NOT INCLINED TO ACCEPT THE REVENUE'S CON TENTION THAT THIS WAS A COLOURABLE DEVICE AND THAT THE ENTIRE ARRANGEMENT WAS A PAPER ARRANGEMENT. FIRSTLY, THERE IS NO PROVISION IN THE ACT WHICH WOULD PREVENT THE ASSESS EE FROM SELLING LOSS MAKING SHARES. SIMPLY BECAUSE SUCH SHARES WERE SOLD DURING THE PRE VIOUS YEAR WHEN THE ASSESSEE HAD ALSO SOLD SOME SHARES AT PROFIT BY ITSELF WOULD NOT MEAN THAT THIS IS A CASE OF COLOURABLE DEVICE OR THAT THERE IS A CASE OF TAX AVOIDANCE. FU RTHER, THERE IS NO RESTRICTION THAT SUCH SALE OR TRANSACTION CANNOT BE EFFECTED WITH A GROUP COMPANY. AS LONG AS THE REVENUE COULD NOT DOUBT THE SALE PRICE OF THE SHARES, IT WO ULD NOT BE OPEN FOR THE REVENUE TO CONTEND THAT THE ASSESSEE HAD SHOWN LOSS WHICH IT D ID NOT REALLY SUFFER. IN THE PRESENT CASE, IT IS NOT EVEN THE CASE OF THE REVENUE THAT S HARES WERE SOLD AT A PRICE LOWER THAN THE MARKET RATE. IF THAT BE SO, THE QUESTION OF INFLATI NG THE LOSS BY TRANSFERRING THE SHARES TO GROUP COMPANY WOULD NOT ARISE. UNDER ORDINARY CIRCU MSTANCES, IT IS ALWAYS OPEN TO THE ASSESSEE IN HIS OWN WISDOM TO EITHER HOLD ON TO CER TAIN BUNCH OF SHARES OR TO SELL THE SAME TO AVOID FURTHER LOSS, IF HE FINDS THAT MARKET VALUE OF THE SHARES IS FAST DIMINISHING. IT IS EQUALLY OPEN FOR THE ASSESSEE TO EFFECT SUCH SALE DURING THE SAME YEAR WHEN HE ALSO CHOOSES TO DISPOSE OF CERTAIN PROFIT MAKING SHARES. IN THE PRESENT CASE, OF COURSE, THERE IS A FURTHER ANGLE OF THE SHARES IN QUESTION BEING PLE DGED TO IDBI AND THEREFORE IT WOULD NOT BE POSSIBLE FOR THE ASSESSEE TO DELIVER THE ORIGINA L SHARE CERTIFICATES TO ITS PURCHASER ALONG WITH THE DULY SIGNED TRANSFER FORMS. AS ALREADY NOT ED, SUCH SPECIAL ANGLE MAY HAVE REPERCUSSION INSOFAR AS THE LEGAL RELATION BETWEEN THE ASSESSEE AND THE IDBI IS CONCERNED ITA NO. 1879 & 2015/AHD/2011 ASST. YEAR 2008-09 12 AND INSOFAR AS THE PURCHASER'S RIGHT TO HAVE SHARES TRANSFERRED IN ITS NAME IS CONCERNED. THIS, HOWEVER, BY ITSELF WOULD NOT ESTABLISH THAT T HE SALE OF SHARES WAS ONLY A PAPER TRANSACTION AND A DEVICE CONTRIVED BY THE ASSESSEE TO CLAIM LOSS WHICH IT DID NOT SUFFER AND THEREBY SEEK SET OFF AGAINST THE CAPITAL GAIN R ECEIVED BY IT DURING THE YEAR UNDER CONSIDERATION. 18. IN THE CASE OF COMMISSIONER OF INCOME TAX V. SA KARLAL BALABHAI, 69 ITR 186, A DIVISION BENCH OF THIS COURT OBSERVED THAT AVOIDANC E OF TAX CANNOT INCLUDE EVERY CASE OF REDUCTION OF TAX LIABILITY OF AN ASSESSEE. THE ASSE SSEE MAY ENTER INTO A TRANSACTION WHICH HAS THE EFFECT OF DIMINISHING HIS INCOME AND CONSEQ UENTLY REDUCING HIS TAX LIABILITY. IN SUCH A CASE, THERE WOULD BE NO AVOIDANCE OF TAX, FO R EXAMPLE, A CASE WHERE THE ASSESSEE MAKES A GIFT OF SHARES TO HIS SON. BY REASON OF GIF T INCOME FROM THE SHARES WOULD NOT ACCRUE TO THE ASSESSEE BUT WOULD ACCRUE TO THE SON AND TO THAT EXTENT THE INCOME OF THE ASSESSEE WOULD BE DIMINISHED AND HIS TAX LIABILITY REDUCED. THIS CANNOT BE REGARDED AS A CASE OF TAX AVOIDANCE EVEN IF THE MOTIVE OF THE ASS ESSEE IN MAKING THE GIFT WAS TO SAVE TAX ON THE INCOME FROM SHARES AT A HIGHER RATE APPLICAB LE TO HIM. 19. UNDER THE CIRCUMSTANCES, EVEN WITHOUT REFERRING TO THE DECISION OF THE APEX COURT IN THE CASE OF AZADI BACHAO ANDOLAN (SUPRA)AND THE OBS ERVATIONS MADE IN THE LATER DECISION IN THE CASE OF VODAFONE (SUPRA), WE DO NOT FIND THA T THIS A CASE WHICH WOULD FALL WITHIN THE PARAMETERS OF THE DECISION IN THE CASE OF MCDOW ELL & COMPANY LTD (SUPRA). 12. FURTHER HON. JURISDICTIONAL HIGH COURT IN THE C ASE OF CIT VS. SPECIAL PRINTS LTD. (2013) 33 TAXMAN.COM 463 (GUJAR AT) ADJUDICATED SIMILAR FACTS AND OBSERVED AS UNDER :- 6. WE ARE OF THE OPINION THAT THE APPELLATE COMMIS SIONER AS WELL AS THE TRIBUNAL HAVING EXAMINED ALL ASPECTS OF THE MATTER AND IN PA RTICULAR THE VALUATION REPORT AND HAVING COME TO THE CONCLUSION THAT SUCH REPORT DID NOT SUFFER FROM ANY LEGAL INFIRMITIES, NO INTERFERENCE IS CALLED FOR. 7. IF ONE PERUSES THE ORDER OF THE ASSESSING OFFICE R AS A WHOLE, PRIMARILY, HE WAS CONCERNED ABOUT THE ASSESSEE HAVING SOLD SIZEABLE N UMBER OF SHARES INVITING CONSIDERABLE LOSS DURING THE SAME PERIOD, WHEN THE ASSESSEE HAD SOLD CERTAIN ASSETS AND EARNED CAPITAL GAIN. SURELY, MERELY BECAUSE THE ASSESSEE CLAIMED S ET OFF OF CAPITAL LOSS AGAINST THE CAPITAL GAIN INCURRED DURING THE SAME PERIOD BY ITS ELF CANNOT BE BRANDED AS A COLOURABLE DEVICE OR METHOD FOR TAX AVOIDANCE. IF BOTH THE TRA NSACTIONS ARC GENUINE AND ALSO TRADED AT PROPER VALUATION, MERELY BECAUSE THE PERIOD CO-EXIS TED OR PERMITTED THE ASSESSEE TO SET OFF ITS CAPITAL LOSS AGAINST SOME CAPITAL GAIN, BY ITSE LF WOULD NOT GIVE RISE TO THE PRESUMPTION THAT THE TRANSACTION WAS IN THE NATURE OF COLOURABL E DEVICE. EVEN IF THE ASSESSES CONSCIOUSLY ENTERED INTO ME TRANSACTION WITH AN OBJ ECT OF EARNING SET OFF. MAY BE A CASE ITA NO. 1879 & 2015/AHD/2011 ASST. YEAR 2008-09 13 OF TAX PLANNING HUT AS LONG AS SUCH TAX PLANNING IS AT ACHIEVED THROUGH LEGITIMATE MEANS, THE REVENUE SURELY CAN NOT OBJECT TO THE SAME. 7.1 THE FACT THAT THE ASSESSEE SOLD ONLY 12 LAKH SH ARES OUT OF MORE THAN 15 LAKH SHARES OF A CERTAIN SCRIP HELD BY IT AGAIN BY ITSELF CAN HARD LY BE A FACTOR TO BRAND THE ASSESSEE OF COLOURABLE DEVICE. IT MAY BE ONE OF THE FACTORS TO SET THE ASSESSING OFFICER THINKING, WITHOUT THERE BEING ANYTHING ADDITIONAL IN, THE FOR M OF THE VALUATION ITSELF BEING ARTIFICIAL, THE REVENUE CANNOT OBJECT TO THE ASSESSEE SELLING O F ITS SHAREHOLDING. 8. IN THE PRESENT CASE THEREFORE, WHAT ESSENTIALLY BOILS DOWN TO IS WHETHER THE SHARES WERE SOLD AT A CORRECT PRICE OR AT THE PRICE WHICH WAS A RTIFICIALLY ARRIVED AT TO INFLATE THE LOSS. IN THIS RESPECT, WE HAVE ALREADY NOTICED THAT THE CIT [A] AS WELL AS THE TRIBUNAL BOTH HAD GONE TO THE FACTUAL FINDINGS PERTAINING TO THE METH ODOLOGY ADOPTED BY THE VALUER IN VALUING THE SHARES. WE HAVE ALSO NOTICED THAT THE A SSESSING OFFICER: EXCEPT FOR DOUBTING SUCH VALUATION, ON THE BASIS OF CIRCUMSTANCES, DID NOT HAVE ANYTHING CONCRETE AT HAND TO HOLD THAT THE PRICE OF RS. 6.25 PER SHARE WAS NOT T HE CORRECT PRICE. IN THE CIRCUMSTANCES, WE DO NOT FIND THAT THE TRIBUNAL HAD COMMITTED ANY ERROR. 9. BEFORE CLOSING, WE MAY NOTICE THAT IN CASE OF PO RRITS & SPENCER (ASIA) LTD. VS. CIT (2010) 231 190 TAXMAN 174. THE PUNJAB & HARYANA HIG H COURT HAD SOMEWHAT SIMILAR SITUATION TO TACKLE WITH. REFERRING TO AND RELYING ON THE DECISION OF THE APEX COURT IN CASE OF UNION OF INDIA VS. AZADI BACHAO ANDOLON (2 003) 263 ITR 706 (SC) AND THE DECISION OF THIS COURT IN CASE OF BANYAN & BERRY VS . CIT [(1996)222 ITR 831/84 TNXMAN 515 (GUJ)] IT WAS OBSERVED .THAT ONCE THE TR ANSACTION IS GENUINE MERELY BECAUSE IT HAS BEEN ENTERED INTO WITH A MOTIVE TO AVOID TAX . IT WOULD NOT BECOME COLOURABLE DEVICE, EARNING ANY DISQUALIFICATION. IT \\AS OBSER VED AS UNDER: '18. THE AFORESAID DISCUSSION WOULD SHOW THAT ONCE THE TRANSACTION IS GENUINE MERELY BECAUSE IT HAS BEEN ENTERED INTO WITH A MOTI VE TO AVOID TAX. IT WOULD NOT BECOME A COLOURABLE DEVISE AND CONSEQUENTLY EARN AN Y DISQUALIFICATION.HON. THE SUPREME COURT IN THE CONCLUDING PARAS OF ITS JUDGME NT IN AZADI BACHAO ANDOLON HAS REJECTED THE SUBMISSION THAT AN ACT, WHICH IS O THERWISE VALID IN LAW, CANNOT BE TREATED AS NON EST MERELY ON THE BASIS OF SOME UNDE RLYING MOTIVE SUPPOSEDLY RESULTING IN SOME ECONOMIC DETRIMENT OR PREJUDICE T O THE NATIONAL INTEREST AS PER THE PERCEPTION OF THE REVENUE. THE AFORESAID VIEW L OOKS TO BE THE CORRECT VIEW. IT HAS READY-SUPPORT FROM THE DIVISION BENCH JUDGMENT OF THIS COURT RENDERED IN THE CASE OF SATYA NAND MUNJAL (SUPRA) AND THE DIVISION BENCH JUDGMENT OF ORISSA HIGH COURT IN THE CASE OF INDUSTRIAL DEVELOPMENT CO RPORATION OF ORISSA) LTD (SUPRA) AND VARIOUS OTHER JUDGMENTS OF DELHI AND MA DRAS HIGH COURTS (SUPRA) 13. SUMMARIZING THE FACTS OF THE ASSESSEES CASE IN THE LIGHT OF ABOVE REFERRED JUDICIAL PRONOUNCEMENTS, WE FIND THA T LD. ASSESSING ITA NO. 1879 & 2015/AHD/2011 ASST. YEAR 2008-09 14 OFFICER HAS NOT CHALLENGED THE GENUINENESS OF FOLLO WING TRANSACTIONS RELATED TO THE ISSUE BEFORE US: (1) LONG TERM CAPITAL GAIN ON SALE OF AGRICULTURAL LAND. (2) GIFT OF 179750 OF EQUITY SHARES OF M.H. MILLS LTD. ON 30.4.2007 AND GIFT OF 145317 EQUITY SHARES OF M. H. MILLS FRO M JANAK D. PARIKH ON BEHALF OF JANAKBHAI DEEPAKBHAI HUF ON 30 .4.2007 WHICH WERE PURCHASED BY THE DONORS DURING THE PERIO D 1986-87 TO 1996-67 AND 1992-93 TO 2001-02 RESPECTIVELY. (3) OFF MARKET SALE OF EQUITY SHARES WITHOUT PAYING STT BUT THE SALE PRICE OF EQUITY SHARES SOLD OF OFF MARKET WAS AT PAR WITH ONLINE MARKET PRICE ON THE DATE OF ENTERING INTO TH E SALE TRANSACTION. (4) CLAIM OF ASSESSEE U/S 70(3) FOR SET OFF OF CAPI TAL LOSS AGAINST LONG TERM CAPITAL GAIN FROM SALE OF LAND. THE ONLY POINT RAISED BY ASSESSING OFFICER WAS THAT THERE WAS A CLEAR PLANNING ON THE PART OF ASSESSEE TO SELL THE SHARES OF LISTED MARKET COMPANY IN ORDER TO CLAIM THE BENEFIT OF LONG TERM CAPITAL LOSS WHICH WOULD NOT HAVE BEEN PERMITTED IN THE CASE OF ON MAR KET SALE TRANSACTION. AS PER SECTION 108 OF THE COMPANIES AC T, 1956 OFF MARKET TRANSACTIONS ARE PERMISSIBLE BY SECURITY EXC HANGE BOARD OF INDIA. IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE WE OBSERVE THAT JUDGMENT OF HON. SUPREME COURT IN THE CASE OF MC. DWELL & CO. (SUPRA) SQUARELY APPLIES TO THE ASSESSEE WHEREIN HO N. SUPREME COURT HAS OBSERVED AS UNDER :- 'TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITH IN THE FRAMEWORK OF LAW. COLOURABLE DEVICES CANNOT BE PART OF TAX PLANNING A ND IT IS WRONG TO ITA NO. 1879 & 2015/AHD/2011 ASST. YEAR 2008-09 15 ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONOUR ABLE TO AVOID THE PAYMENT OF TAX BY RESORTING TO DUBIOUS METHODS. IT IS THE OBLI GATION OF EVERY CITIZEN TO PAY THE TAXES HONESTLY WITHOUT RESORTING TO SUBTERFUGES .' . AND, THEREFORE, ALL THE TRANSACTIONS ENTERED INTO B Y THE ASSESSEE ARE WITHIN THE FRAME WORK OF LAW AND CANNOT BE TERMED A S A COLOURABLE DEVICE TO EVADE TAX RATHER IT IS ASSESSEES RIGHT O F TAX PLANNING WHICH HE HAS USED TO REDUCE HIS TAX LIABILITY BY ENTERING INTO ALL THE TRANSACTIONS PERMISSIBLE BY LAW. WE, THEREFORE, FIN D NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A). WE UPHOLD T HE SAME. ACCORDINGLY THIS GROUND OF REVENUE IS DISMISSED. 14. THE SECOND GROUND RAISED BY THE REVENUE IS AGAI NST DELETION OF DISALLOWANCE OF RS.1,15,043/- U/S 14A OF THE ACT R.W.R 8D OF THE RULES BY WAY OF APPLYING 0.5% ON AVERAGE VALUE OF I NVESTMENT OF RS.2.30 CRORES. WE OBSERVE THAT LD. CIT(A) HAS DELE TED THE IMPUGNED DISALLOWANCE BY OBSERVING AS FOLLOWS :- 7. I HAVE CAREFULLY CONSIDERED THE OBSERVATION AN D FINDINGS OF THE A.O. AS WELL AS /SUBMISSIONS OF THE APPELLANT. I HAVE VERIFIED THE COMPUTATION OF TOTAL INCOME PROVIDED IN THE PAPER BOOK FILED BY THE APPELLANT A ND IT HAS BEEN NOTICED THAT THE APPELLANT HAS NOT CLAIMED ANY EXPENSES FROM ANY OF THE INCOME UNDER THE DIFFERENT HEADS OF INCOME. FROM THE PROVISIONS OF SEC. 14A, I T IS CLEAR THAT FOR THE PURPOSE OF DISALLOWANCE U/S. 14A, THERE MUST BE SOME EXPENDITU RE INCURRED BY THE ASSESSEE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND SUCH EXPENDITURE MUST HAVE BEEN CLAIMED BY THE ASSESSEE WHILE COMPUTING THE TOTAL INCOME. THEREFORE, IF THERE IS NO EXPENDITURE INCUR RED BY THE ASSESSEE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL IN COME AND HAS NOT BEEN CLAIMED BY THE ASSESSEE WHILE COMPUTING THE TOTAL INCOME, T HE PROVISIONS OF SECTION 14A OF THE ACT WOULD NOT APPLY. THE DECISION OF HON'BLE MU MBAI IT AT (SB) IN THE CASE OF M/S. DAGA CAPITAL MANAGEMENT PVT. LTD. AND THE DECI SION OF HON'BLE DELHI TRIBUNAL IN THE CASE OF CHEMINVEST LTD. VS. 1TO RELIED UPON BY THE LD. A.O. ARE NOT APPLICABLE IN APPELLANT'S CASE SINCE THE FACTS OF T HE SAID CASES AND THE FACTS OF THE APPELLANT'S CASE ARE DIFFERENT. ITA NO. 1879 & 2015/AHD/2011 ASST. YEAR 2008-09 16 IN VIEW OF THE ABOVE DISCUSSION, I AM OF THE CONSID ERED VIEW THAT THE DISALLOWANCE U/S, 14A R.W. RULE 8D MADE BY THE A.O. IS UNJUSTIFI ED AND HENCE THE SAME IS DELETED. ACCORDINGLY, THE APPELLANT GETS RELIEF OF RS. 1,15, 083/-. 15. WE FURTHER OBSERVE THAT ASSESSEES SOURCE OF IN COME IS FROM SALARY, LONG TERM CAPITAL GAIN AND INCOME FROM OTHE R SOURCES. ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE AGAINST TA XABLE INCOME WHICH CAN BE LINKED TO THE INVESTMENTS MADE FETCHIN G EXEMPT INCOME. CERTAINLY PROVISIONS OF SECTION 14A OF THE ACT CAN BE APPLIED TO THE ASSESSEE ONLY IF THERE IS SOME EXPENDITURE I NCURRED BY ASSESSEE IN RELATION TO THE INCOME WHICH DOES NOT F ORM PART OF THE TOTAL INCOME AND SUCH EXPENDITURE HAVE BEEN CLAIMED BY THE ASSESSEE AGAINST THE TAXABLE INCOME. IN OTHER WORDS IF THE ASSESSEE HAS BEEN CARRYING ON ANY BUSINESS ACTIVITY AND HAS CLAIMED CERTAIN EXPENDITURE AGAINST THE REVENUE OR HAS CLAIMED EXPE NDITURE UNDER INCOME FROM OTHER SOURCES U/S 57 OF THE ACT THEN RE VENUE WOULD HAVE A CASE FOR CALCULATING THE DISALLOWANCE. HOWEV ER, NO SUCH FACTS ARE EXISTING IN THE CASE OF ASSESSEE AS ASSESSEE HA S NOT CLAIMED ANY EXPENDITURE AGAINST SALARY INCOME, OR INCOME FROM O THER SOURCES AS VERIFIABLE FROM THE COMPUTATION OF INCOME PLACED AT PAGE 10 TO 14 OF THE PAPER BOOK. WE ARE, THEREFORE, OF THE VIEW THAT NO DISALLOWANCE IS CALLED FOR U/S 14A OF THE ACT AND NO INTERFERENCE I S CALLED FOR IN THE ORDER OF LD. CIT(A). WE UPHOLD THE SAME. ACCORDINGL Y, THIS GROUND OF REVENUE IS ALSO DISMISSED. 16. GROUND NOS. 3 & 4 ARE OF GENERAL NATURE, WHICH NEED NO ADJUDICATION. ITA NO. 1879 & 2015/AHD/2011 ASST. YEAR 2008-09 17 17. C.O. OF THE ASSESSEE HAS NOT BEEN PRESSED. THER EFORE, THE CO IS DISMISSED AS NOT PRESSED. 18. NOW WE TAKE ITA NO.2015/AHD/2011 IN THE CASE O F SMT. KUSUMLATABEN N. PARIKH WHEREIN REVENUE HAS RAISED A SINGLE ISSUE AGAINST THE ACTION OF LD. CIT(A) ALLOWING SET OFF O F LONG TERM CAPITAL LOSS AT RS.3,48,93,607/- FROM SALE OF SHARES OFF MA RKET. 19. AT THE OUTSET LD. AR APPRAISED THAT THE FACTS O F THE CASE IN THIS APPEAL ARE SIMILAR TO THE FACTS OF THE CASE IN ITA NO.1879/AHD/2011 IN THE CASE OF DEEPAK N. PARIKH. FURTHER WE ALSO OBSER VE THAT LD. CIT(A) HAS DELETED THE IMPUGNED DISALLOWANCE BY OBSERVING AS FOLLOWS :- 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSE SSMENT ORDER AND APPELLANT'S SUBMISSION. ASSESSING OFFICER DISALLOWE D APPELLANT'S CLAIM OF LONG- TERM CAPITAL LOSS ON SALE OF SHARES OFF MARKET. APP ELLANT SUBMITTED THAT THE LAND FROM WHICH THE APPELLANT HAS EARNED LONG TERM CAPITAL GAIN WAS IN CO- OWNERSHIP WITH HER SON SHRI DEEPAKBHAI N. PARIKH. I N CASE OF SAID CO-OWNER SHRI DEEPAKBHAI N. PARIKH, SIMILAR DISALLOWANCE ON ACCOUNT OF SET OTF LONG TERM CAPITAL LOSS ON SALE OF SHARES WAS MADE BY THE A.O. IN THE APPEAL, THE LD. CIT(A)-VIII, AHMEDABAD HAS PASSED THE APPELLATE ORDER ALLOWING THE APPEAL FOR THE ASST. YEAR 2008-09 ON THIS GROUND IN FAVOR OF THE SAID CO- OWNER. I HAVE GONE THROUGH THE APPEAL ORDER DATED 1 8-05-2011 PASSED BY CIT (A) VIII, AHMEDABAD IN THE CASE OF CO-OWNER. TH E RELEVANT PART OF DECISION IS QUOTED BELOW- ' I HAVE GONE THROUGH THE ABOVE JUDGMENTS AND FOUND THAT EVEN AFTER THE DECISION OF MC-DOWEL'S CASE, THE HONORABLE SUPR EME COURT AND OTHER HIGH COURTS HAVE CONSISTENTLY HELD THAT THE A SSESSEE CAN STILL ARRANGE HIS AFFAIRS LEGITIMATELY TO REDUCE THE IMPA CT OF TAX, IF IT IS DONE WITHIN THE FOUR CORNERS OF LAW. IN THE PRESENT CASE OF THE APPELLANT, HE HAS DONE THE SAME ABSOLUTELY GENUINE WITHIN THE FOU R CORNERS OF LAW AND THE SET OFF OF LONG-TERM CAPITAL LOSS ON THE SA LE OF SHARES AGAINST THE LONG-TERM CAPITAL GAIN ON SALE OF LAND IS THE C ONSEQUENCE OF THE ITA NO. 1879 & 2015/AHD/2011 ASST. YEAR 2008-09 18 DIFFERENT PROVISIONS OF THE ACT AND NOT OTHER DEVIC E OR DUBIOUS TRANSACTION TO REDUCE THE FAX LIABILITY AS OBSERVED BY THE AO IN THE ASSESSMENT ORDER. ON THE BASIS OF FACTS DISCUSSED THE ABOVE, I AM OF THE CONSIDERED OPINION THAT THE AO HAS MADE THE DISALLOWANCE OF SE T OFF OF LONG-TERM CAPITAL LOSS ON SALE OF SALES OF M H MILLS AND INDU STRIES LTD MERELY BECAUSE THE TRANSACTION HAS BEEN DONE OFF MARKET WH ICH HAS RESULTED IN THE LONG TERM CAPITAL LOSS. THE GIFT OF SHARES O F THE SAID COMPANY RECEIVED BY THE APPELLANT FROM HIS CLOSE RELATIVES HAS BEEN ACCEPTED BY THE AO AS GENUINE AND NOT BOGUS. THE TRANSACTION OF SALE OF SHARES OF M H MILLS AND INDUSTRIES LTD TO THIRD-PARTY HAS ALS O BEEN ACCEPTED BY THE AO AS GENUINE AND NOT BOGUS. WHEN THE STATUTE P ROVIDES ALTERNATIVE OPTIONS OF TAXATION IN THE CASE OF LONG -TERM CAPITAL GAIN, THE ASSESSEE HAS A LEGAL AND VALID RIGHT TO CHOOSE ANY OF THE OPTIONS AND FAXING AUTHORITY CANNOT QUESTION WHY A PARTICULAR O PTION HAS BEEN CHOSEN AND NOT THE OTHER ONE. .IN THE PRESENT CASE OF THE APPELLANT, HE'S HAVING TWO LEGAL OPTIONS AVAILABLE FOR SELLING THE SHARES. 'ON MARKET' AND 'OFF MARKET' AND HE HAD CHOOSE THE 'OFF MARKET' OPTION WHILE EVALUATING THE TAX IMPLICATION OF IT. THE AO CANNOT QUESTION THE APPELLANT ON THE DECISION TAKEN BY HIM WHICH IS LEG AL, VALID AND WITHIN FOUR CORNERS OF LAW. IN MY CONSIDERED VIEW, THERE S EEMS NO COLORABLE DEVICE IN THE TRANSACTIONS OF SALE OF SHARES OF M H MILLS AND INDUSTRIES LTD OFF MARKET BY THE APPELLANT WHICH HAS EVENTUALL Y RESULTED IN THE LOSS. AO HAS NOT BROUGHT ON RECORD ANY COGENT MATER IAL EVIDENCE IN SUPPORT OF THE ALLEGATION THAT THE TRANSACTION OF S ALE OF SHARES OF M H MILLS AND INDUSTRIES LTD OFF MARKET IS A COLORABLE DEVICE TO AVOID THE FAX. IN VIEW OF THE DETAILED DISCUSSION HELD ABOVE, THE DISALLOWANCE MADE BY THE AO FOR SET OFF OF LONG-TERM CAPITAL LOSS ON SALE OF SHARES OF M H MILLS AND INDUSTRIES LTD IS NOT JUSTIFIED AND THERE FORE IS DELETED.' SINCE FACTS OF THE APPELLANT'S CASE IS IDENTICAL TO THAT OF HER SON IN WHOSE CASE AFORESAID APPEAL ORDER IS PASSED. SINCE APPELLANT W AS CO-OWNER OF THE LAND WHICH RESULTED IN LONG-TERM CAPITAL GAIN AND IN THE HANDS OF OTHER CO-OWNER, ON IDENTICAL FACTS AND CIRCUMSTANCES, LONG-TERM CAP ITAL LOSS IS ALLOWED, THIS ISSUE IS SQUARELY COVERED IN APPELLANT'S FAVOUR. LI KE HER SON, APPELLANT ALSO RECEIVED GIFTS IN THE FORM OF SHARES FROM CLOSE REL ATIVES. THESE SHARES WERE SOLD OFF MARKET RESULTING IN LONG-TERM CAPITAL LOSS WHICH WAS SET OFF AGAINST LONG-TERM CAPITAL GAIN RECEIVED ON SALE OF LAND. TH EREFORE IT IS CLEAR THAT ISSUE INVOLVED AND FACTS IN BOTH THE CASES ARE IDENTICAL. CONSIDERING THE APPELLANT'S SUBMISSION ON FACTS AND LAW, I AGREE WITH THE DECIS ION GIVEN IN THE AFORESAID APPEAL ORDER. RESPECTFULLY FOLLOWING THE ORDER OF C IT (A) VIII, AHMEDABAD, I ITA NO. 1879 & 2015/AHD/2011 ASST. YEAR 2008-09 19 ALSO DELETE THE ADDITION MADE BY THE ASSESSING OFFI CER ON THE SAME REASONS MENTIONED ABOVE. 20. FROM GOING THROUGH THE DECISION OF LD. CIT(A) A ND THE FACTS PLACED BEFORE US, WE FIND THAT THEY ARE VERBATIM SI MILAR TO THE FACTS DEALT BY US IN ITA NO.1879/AHD/2011. WE HAVE DECIDE D THE ISSUE IN FAVOUR OF ASSESSEE BY OBSERVING THAT THE ASSESSEE S HOULD BE ALLOWED SET OFF OF LONG TERM CAPITAL LOSS FROM SALE OF SHAR ES OFF MARKET AGAINST THE LONG TERM CAPITAL GAIN ON SALE OF LAND AS THEY HAVE BEEN ENTERED WITHIN THE PERMISSIBLE FOUR CORNERS OF LAW AND THE MODUS OPERANDI OF THE ASSESSEE IS NOT THAT OF TAX EVASION BUT OF TAX PLANNING. APPLYING OUR DECISION IN ITA NO.1789/AHD/2011, WE FIND NO RE ASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND UPHOLD THE SAME. T HIS GROUND OF REVENUE IS DISMISSED. 21. CROSS OBJECTION BY THE ASSESSEE HAS NOT BEEN P RESSED AND HENCE DISMISSED AS NOT PRESSED. 22. IN THE RESULT, BOTH THE APPEALS OF REVENUE AND THE CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH NOVEMBER, 2016 SD/- SD/- (S. S. GODARA) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 7/11/2016 ITA NO. 1879 & 2015/AHD/2011 ASST. YEAR 2008-09 20 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 02/11/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 03/11/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7/11/2016 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: