Sh. Ashwani Khurana, New Delhi V. ACIT, New Delhi

ITA 1942/DEL/2012

• Counselvise Citation: 194220114 RSA 2012
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-09-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 27-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M B REDDY
• Assessee Lawyers: A K KHURANA
• Keywords: Related party transaction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH A AA A : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND SHRI SHRI SHRI SHRI R.K.GUPTA R.K.GUPTA R.K.GUPTA R.K.GUPTA, ,, , JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO.1942/DEL/2012 1942/DEL/2012 1942/DEL/2012 1942/DEL/2012 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2004 2004 2004 2004- -- -05 0505 05 SHRI ASHWANI KHURANA, SHRI ASHWANI KHURANA, SHRI ASHWANI KHURANA, SHRI ASHWANI KHURANA, 5, GREEN AVENUE, 5, GREEN AVENUE, 5, GREEN AVENUE, 5, GREEN AVENUE, VASANT KUNJ, VASANT KUNJ, VASANT KUNJ, VASANT KUNJ, NEW DELHI NEW DELHI NEW DELHI NEW DELHI. .. . PAN : PAN : PAN : PAN : AAEPK3731G. AAEPK3731G. AAEPK3731G. AAEPK3731G. VS. VS. VS. VS. ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CENTRAL CIRCLE CENTRAL CIRCLE CENTRAL CIRCLE CENTRAL CIRCLE- -- -12, 12, 12, 12, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.K.KHURANA, CA. RESPONDENT BY : SHRI M.B.REDDY, CIT-DR. ORDER ORDER ORDER ORDER PER G. PER G. PER G. PER G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VP VPVP VP : : : : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-XXXI, NEW DELHI DATED 28 TH FEBRUARY, 2012 FOR THE AY 2004-05. 2. AS MANY AS FIVE GROUNDS HAVE BEEN RAISED BY THE ASSESSE E. HOWEVER, AT THE TIME OF HEARING BEFORE US, ARGUMENTS WERE ADVANCED ONLY WITH REFERENCE TO GROUND NO.3. THEREFORE, ALL OTHER GROUNDS RAISED BY THE ASSESSEE ARE TREATED AS NOT PRESSED. 3. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERI AL PLACED BEFORE US. THE ASSESSING OFFICER HAS DISALLOWED THE CAP ITAL LOSS OF ` 7,84,979/- WITH THE FOLLOWING FINDING:- ITA-1942/DEL/2012 2 THE REPLY WAS CONSIDERED BUT NOT FOUND TO BE SATISFACT ORY AS IN M/S KARMA LAKELANDS PVT.LTD. THE ASSESSEE AND HIS WIFE BOTH ARE DIRECTORS. DURING THE YEARS M/S KARMA LAKELANDS HAS GROWN MANY FOLDS AND THUS THE SALE OF SHARES ON BOOK VALUE BETWEEN RELATED PARTIES IS WRONG. SINCE IT IS A RELATED PARTY TRANSACTION IN WHICH THE SHARES HAVE BEEN MERELY TRANSFERRED BETWEEN THE FAMILY MEMBERS AND THUS THE ASSESSEE HAS BOOKED AN ARTIFICIAL LOSS. THUS THE CAPITAL LOSS OF RS.7,84,979/- IS BEING DISALLOWED. THIS ADDED BACK TO THE INCOME OF THE ASSESSEE. 4. BEFORE THE LEARNED CIT(A), THE ASSESSEE MADE THE FOL LOWING SUBMISSION:- IN THIS CONNECTION IT IS SUBMITTED THAT THE APPELLANT SOLD HIS 401521 SHARES OF RS.10/- EACH OF M/S KARMA LAKELANDS PVT.LTD. ERSTWHILE M/S BALI HIRISE DEVELOPERS PVT.LTD. COMPANY TO HIS WIFE MRS. ANKI KHURANA @ 10 PER SHARES O F RS.40,15,210/-. THIS SELLING PRICE WAS AGREED ON THE B ASIS OF THE BREAKUP VALUE OF SHARES AS PER BALANCE SHEET O F THE COMPANY. COPY OF BALANCE SHEET AS AT 31/03/2004 OF THE COMPANY IS PLACED AT PAGE NO.29-40 OF PAPER BOOK. C HART SHOWING THE DETAIL OF CAPITAL GAIN ON SALE OF SHARES F OR A.Y. 2004-05 IS PLACED AT PAGE NO.28 OF PAPER BOOK. AS PE R THIS CHART IT IS CLEAR THAT THE APPELLANT SOLD 401521 SHARE S WHICH WAS PURCHASED BY HIM IN 1986-87, 1987-88 & 199 9- 2000. THESE SHARES WERE SOLD AGAINST THE CHEQUE PAYMENT, THE APPELLANT RECEIVED FROM HIS WIFE. SELL ING THE SHARES TO WIFE DOES NOT AMOUNT TO A SHAM TRANSACTION. IT IS A GENUINE AND ACTUAL DEAL OF SALE OF SHARES AT FACE VA LUE TO WIFE AND THE LOSS OCCURRED MAINLY DUE TO INDEXATION O F THE COST TO APPELLANT. THE TRANSACTION BETWEEN TWO RELATIVES/FAMILY MEMBERS, WHO ARE INDEPENDENT, NOT DOUBTED ABOUT THE GENUINENESS OF TRANSACTION BY THE ASSESSING OFFICER, CAN NOT BE TREATED AS AN ARTIFICIAL L OSS. THE SHARES ARE OF A PRIVATE LIMITED COMPANY AND NO DIVIDEND HAS EVER BEEN DECLARED BY IT IN EARLIER YE ARS. THE BREAKUP VALUE OF SHARE AS PER BALANCE SHEET AS ON 31/03/2003 AND 31/03/2004 IS GIVEN HERE. ITA-1942/DEL/2012 3 AS ON 31/03/2003 (RS.) AS ON 31/03/2004 (RS.) SHARE CAPITAL 90,20,320/- 1,00,00,000/- RESERVE & SURPLUS 11,56,354/- -- 1,01,76,674/- 1,00,00,000/- LESS : DEFERRED TAX ASSETS 2,78,680/- 16,84,275/- LESS : PROFIT & LOSS A/C -- 13,30,597/- NET BOOK VALUE 98,97,994/- 69,85,128/- NO. OF ISSUED SHARE 9,02,032 10,00,000 BREAKUP VALUE PER SHARE 10.97 6.98 SO, AS CALCULATED ABOVE THE BREAKUP VALUE OF SHARE C OMES RS.10.97 AS ON 31/3/2003 AND RS.6.98 AS ON 31/3/2004. SINCE APPELLANT IS A PVT.LTD. COMPANY AND NO DIVIDEN D DECLARED TILL DATE ETC. THE BREAKUP VALUE IF REDUC ED BY 20% COMES TO RS.8.78 AS ON 31/03/2003 AND RS.5.58 AS ON 31/3/2004. THEREFORE, THE BASIS OF ARRIVING AT THE SA LE PRICE OF SHARES ON WHICH THEY WERE SOLD IS LOGICAL AS PE R FINANCIAL STATEMENT OF COMPANY AND THE SALE PRICE OF RS.10/- PER SHARE IS NOT LESS THAN THE MARKET/BREAKUP VA LUE OF THE SHARES. THE ASSESSING OFFICER STATED IN ITS ORDER THAT M/S KARMA LAKELANDS PVT.LTD. HAS GROWN MANY FOLDS AND THUS THE SAL E OF SHARES ON BOOK VALUE BETWEEN RELATED PARTIES IS WRON G. IN THIS CONNECTION IT IS SUBMITTED THAT THE COMPANY GENERATED LOSS OF RS.38,92,546.47 AS ON 31/03/2004 AS COMPARED TO PROFIT RS.4,82,420.66 FOR THE YEAR ENDED 31/3/2003. COPY OF BALANCE SHEET OF M/S KARMA LAKEL ANDS PVT.LTD. IS PLACED AT PAGE NO.29-40 OF PAPER BOOK. THE EPS OF COMPANY IS (-) RS.2.49 AS ON 31/3/2004 AS COMPARED T O AS ON 31/03/2003 RS.0.82. SO, THERE WAS NOT MANY FOLD GROWTH IN STATUS OF COMPANY M/S KARMA LAKELANDS PVT.LTD . AS STATED BY THE ASSESSING OFFICER. THE ORDER OF THE A. O. IS BASED ON SURMISES AND CONJECTURES. 5. HOWEVER, THE CIT(A) REJECTED THE ASSESSEES ABOVE SUBM ISSION WITH THE FOLLOWING FINDING:- THE 2 ND GROUND IS REGARDING DISALLOWANCE OF LOSS OF RS.7,84,979/- ALLEGEDLY OCCURRED ON SALE OF SHARES TO H IS ITA-1942/DEL/2012 4 WIFE. THE AO HAS MENTIONED IN THE ASSESSMENT ORDER THAT THE REPLY OF THE APPELLANT ON THIS ISSUE WAS NOT SATISFAC TORY AS THE APPELLANT AND HIS WIFE BOTH WERE DIRECTORS OF T HE COMPANY I.E. M/S KARMA LAKELANDS WHOSE SHARES WERE SOLD AT LOSS BY THE APPELLANT. MOREOVER, THE APPELLANT HA D SOLD THE SHARES TO HIS WIFE. FROM THE ABOVE FACTS IT IS APPARENT THAT THIS TRANSACT ION IS A SHAM PERHAPS TO BOOK AN ARTIFICIAL LOSS. THERE SEEMS N O LOGIC TO TRANSFER/SALE SHARES TO A FAMILY MEMBER THAT T OO ON LOSS. I FIND NO FORCE IN THE ARGUMENT OF THE APPELLA NT FOR DISTRESS SALE OF SHARES ON LOSS TO WIFE WITHOUT ANY CONVINCING REASON OR EXIGENCY. I, THEREFORE, REJECT THIS GROUND OF APPEAL. 6. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDES AN D THE FACTS OF THE CASE, WE ARE UNABLE TO AGREE WITH THE FINDING OF THE ASSESSING OFFICER AS WELL AS CIT(A). THE ASSESSING OFFICER HAS OBSER VED THAT DURING THE YEARS, M/S KARMA LAKELANDS PVT.LTD. HAS GROW N MANIFOLDS AND THUS, THE SALE OF SHARES ON BOOK VALUE BETWEEN THE RELATED PARTIES IS WRONG. HOWEVER, IN SUPPORT OF THE ABOVE CONTENTIO N, THE ASSESSING OFFICER HAS NOT GIVEN ANY FACTS OR FIGURES. ON THE OT HER HAND, THE ASSESSEE HAS GIVEN THE BREAK UP OF ASSETS AND LIABILITIES OF THE SAID COMPANY AS ON 31 ST MARCH, 2003 AS WELL AS 31 ST MARCH, 2004 WHICH CLEARLY SHOWS THAT THE NET BOOK VALUE OF THE COMPANY HAS REDUCED BETWEEN 31 ST MARCH, 2003 TO 31 ST MARCH, 2004 AND THE BREAK UP VALUE OF THE SHARE IS EVEN LESS THAN THE BOOK VALUE OF THE SH ARES AT WHICH THE ASSESSEE HAS SOLD THE SHARES. THE LEARNED CIT(A) HAS UPHELD THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT THE TRANSACTION OF SALE OF SHARES IS A SHAM TRANSACTION. HOWEVER, WE DO NOT FIND ANY EVIDENCE OR BASIS FOR HOLDING THE SALE OF SHARES TO ASSESSE ES WIFE AS SHAM TRANSACTION. MERELY BECAUSE THE TRANSACTION IS BE TWEEN THE RELATIVES, IT, PER SE , CANNOT BE SAID TO BE SHAM OR BOGUS TRANSACTION. AT THE TIME OF HEARING BEFORE US, IT IS STATED BY THE LEARNED CIT-DR THAT THE COMPANY M/S KARMA LAKELANDS PVT.LTD. HAS SUBSTANTIAL AGRICULTURAL ITA-1942/DEL/2012 5 LAND, ITS VALUE HAS INCREASED MANIFOLDS AND, THEREFORE , THE SALE OF SHARES AT BOOK VALUE IS NOT CORRECT. HOWEVER, WE FIND THAT NO SUCH REASON IS GIVEN EITHER BY THE ASSESSING OFFICER OR BY THE CIT(A) AND, EXCEPT THE BALD STATEMENT, NO EVIDENCE IS PRODUCED TO POINT OUT THAT THE MARKET VALUE OF THE ASSETS WAS MUCH MORE THAN WHAT IS SHOWN IN THE BALANCE SHEET. IN VIEW OF THE TOTALITY OF THE A BOVE FACTS, WE ARE OF THE OPINION THAT THERE WAS NO JUSTIFICATION FOR THE D ISALLOWANCE OF CAPITAL LOSS OF ` 7,84,979/-. THE ASSESSING OFFICER IS DIRECTED TO ALLO W THE SAME. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY AL LOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 27 TH SEPTEMBER, 2013. SD/- SD/- ( (( (R.K.GUPTA R.K.GUPTA R.K.GUPTA R.K.GUPTA) )) ) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 27.09.2013 VK. COPY FORWARDED TO: - 1. APPELLANT : SHRI ASHWANI KHURANA, SHRI ASHWANI KHURANA, SHRI ASHWANI KHURANA, SHRI ASHWANI KHURANA, 5, GREEN AVENUE, VASANT KUNJ, NEW DELHI. 5, GREEN AVENUE, VASANT KUNJ, NEW DELHI. 5, GREEN AVENUE, VASANT KUNJ, NEW DELHI. 5, GREEN AVENUE, VASANT KUNJ, NEW DELHI. 2. RESPONDENT : ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRC CENTRAL CIRC CENTRAL CIRC CENTRAL CIRCLE LELE LE- -- -12, NEW DELHI. 12, NEW DELHI. 12, NEW DELHI. 12, NEW DELHI. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR