Mrs. Aruna Uday Shinde, Pune V. ACIT, Circle-9, Pune

ITA 2144/PUN/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2963 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 30-10-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DHEERAJ KUMAR JAIN
• Assessee Lawyers: S N DOSHI
• Keywords: Share purchase agreement; Cost of acquisition; Fair market value; Corroborative evidences
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E , , !'!! # , $ % BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 2144/PN/2012 $& ' !(' / ASSESSMENT YEAR : 2008-09 MRS. ARUNA UDAY SHINDE, PLOT NO. 212, S. NO. 21, YAMUNA NAGAR, NIGDI, PUNE 411044 PAN : AERPS8696F ....... / APPELLANT )& / V/S. ACIT, CIRCLE-9, AKURDI, PUNE / RESPONDENT ASSESSEE BY : SHRI S.N. DOSHI REVENUE BY : SHRI DHEERAJ KUMAR JAIN / DATE OF HEARING : 05-11-2015 / DATE OF PRONOUNCEMENT : 04-01-2016 * / ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS)-V, PUNE DATED 01-08- 2012 FOR THE ASSESSMENT YEAR 2008-09. 2 ITA NO. 2144/PN/2012, A.Y. 2008-09 2. IN APPEAL, THE ASSESSEE HAS RAISED SOLITARY GROUND AG AINST CONFIRMING THE ADDITION OF RS.6,25,49,232/- AS LONG TERM CAPIT AL GAIN. THE GROUND RAISED BY THE ASSESSEE IN APPEAL READS AS UNDER: 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE THE ASSESSING OFFICER HAS ERRED IN SUSTAINING THE LONG TERM CAPITAL GAIN OF R S.6,25,49,232/- REJECTING THE ADDITIONAL GROUND AND SUBMISSION MADE THEREON ONLY BY ASSIGNING THE REASON THAT APPELLANT HERSELF HAS OFF ERED THE LONG TERM CAPITAL GAIN OF RS.5,80,27,549/- ALTHOUGH SUBMITTED THAT THE SAME WAS OFFERED ERRONEOUSLY AND NOT AS PER LAW. 3. THE FACTS OF THE CASE AS EMANATING FROM THE RECORDS ARE: THE ASSESSEE IS AN INDIVIDUAL AND IS A CABLE OPERATOR. THE AS SESSEE IS CARRYING ITS BUSINESS UNDER THE NAME AND STYLE OF M/S. MA NORANJAN VIDEO AND CABLE SERVICES. THE ASSESSEE FILED HER RETURN O F INCOME FOR THE ASSESSMENT YEAR UNDER APPEAL ON 31-10-2008 DECLA RING TOTAL INCOME OF RS.5,88,90,700/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY NOTICE U/S. 143(2) WAS ISSUED TO THE ASSESSEE ON 22-06-2010. IN THE RETURN OF INCOME, THE ASSESSEE H AD DECLARED LONG TERM CAPITAL GAIN OF RS.5,80,27,549/- ON ACCOUNT OF SLUM P SALE OF HER PROPRIETARY BUSINESS M/S. MANORANJAN VIDEO AND CA BLE SERVICES. THE ASSESSING OFFICER COMPUTED THE LONG TERM CAPITAL GAIN AT RS.6,25,49,232/- AND THUS, MADE ADDITION OF RS.45,21,683/- UN DER THE HEAD LONG TERM CAPITAL GAIN. APART FROM THE ABOVE ADDITIO N, THE ASSESSING OFFICER MADE DISALLOWANCE IN RESPECT OF DEPRECIATIO N U/S. 40(A)(IA) CLAIMED ON CAR AND ADDITION ON ACCOUNT OF NET PROFIT MARGIN. THE ASSESSING OFFICER COMPUTED THE TOTAL INCOME OF THE ASS ESSEE AS RS.6,48,62,782/-. 3 ITA NO. 2144/PN/2012, A.Y. 2008-09 AGGRIEVED BY THE ASSESSMENT ORDER DATED 27-12-2010, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF I NCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE IMPUG NED ORDER CONFIRMED THE ADDITION IN RESPECT OF LONG TERM CAPI TAL GAIN. NOW, THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL ASSAILING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS). 4. SHRI S.N. DOSHI APPEARING ON BEHALF OF THE ASSESSEE SUBMIT TED THAT THE ASSESSEE HAD A PROPRIETARY CONCERN IN THE NA ME OF M/S. MANORANJAN VIDEO AND CABLE SERVICES. THE BROTHER OF THE ASSESSEE SHRI LALIT R. SHINDE IS ALSO HAVING A PROPRIETARY CONCERN IN THE NAME OF M/S. MANORANJAN SATELLITE CABLE NETWORK. THE ASSESSEE AND SH RI LALIT R. SHINDE FORMED A COMPANY M/S. MANORANJAN SATELLITE PVT. LTD . AND PURCHASED 500 SHARES EACH IN THE SAID COMPANY @ RS.100 /- PER SHARE IN THE YEAR 2000. THEREAFTER, THE ASSESSEE AND SHRI LALIT R. SHINDE ENTERED INTO A JOINT VENTURE AGREEMENT WITH M/S. DEN D IGITAL ENTERTAINMENT NETWORK P. LTD. (HEREINAFTER REFERRED TO AS THE DEN NETWORK) ON 28-12-2007. AS PER THE JOINT VENTURE AGR EEMENT THE ASSESSEE AND SHRI LALIT R. SHINDE AGREED TO SELL 253 AND 2 52 SHARES RESPECTIVELY TO DEN NETWORK FOR A SALE CONSIDERATION OF RS.12,50,00,000/- W.E.F. 01-03-2008. THE JOINT VENTURE AGREEMENT IS AT PAGES 6 TO 14 OF THE PAPER BOOK. THE ASSESSEE AND SH RI LALIT R. SHINDE AGREED TO MERGE THEIR RESPECTIVE PROPRIETARY BUSINESS FIR MS WITH M/S. MANORANJAN SATELLITE PVT. LTD. W.E.F. 01-03-2008. THE ASSETS OF THE PROPRIETARY BUSINESS OF THE ASSESSEE WERE VALUED AT RS.9 LACS AND THAT OF SHRI LALIT R. SHINDE AT RS.16 LACS. M/S. DEN NETWORK SU BSCRIBED TO 10 SHARES OF M/S. MANORANJAN SATELLITE PVT. LTD. FOR A TOTA L CONSIDERATION OF RS.25 LACS AND PURCHASED 253 SHARES FROM THE 4 ITA NO. 2144/PN/2012, A.Y. 2008-09 ASSESSEE FOR A SALE CONSIDERATION OF RS.6,26,23,763/- AND 2 52 SHARES FROM SHRI LALIT R. SHINDE FOR A SALE CONSIDERATION OF RS.6,49,13,7 18/-. DURING THE COURSE OF SUBMISSIONS, THE LD. AR CONTENDED THA T THE ASSESSEE HAD COMMITTED ERROR IN OFFERING THE SAID AMOUNT AS CAPITAL GAIN. BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), THE A SSESSEE HAD RAISED ADDITIONAL GROUND THAT THE ASSESSEE WAS NOT LIABLE FOR LONG TERM CAPITAL GAIN ON THE SALE OF BUSINESS AT ALL. AN EXAMIN ATION OF AGREEMENTS EXECUTED WITH DEN NETWORK WOULD SHOW THAT THE ASSESSEE HAD RECEIVED RS.6,26,23,763/-. THIS AMOUNT HAS BEEN RECEIV ED IN RESPECT OF : I. TRANSFER OF 253 EQUITY SHARES OF M/S. MANORANJAN SATELLITE PVT. LTD., II. TRANSFER OF ASSETS VALUED AT RS.9 LACS OF PROPRIETARY BUSI NESS M/S. MANORANJAN VIDEO AND CABLE SERVICES, AND III. FOR THE UNDERTAKINGS/ASSURANCES OF THE PERFORMANCE OF T HE JOINT VENTURE BUSINESS VALID UP TO 28-12-2010. THUS, THE SALE CONSIDERATION HAS TO BIFURCATED TOWARDS T HE ABOVE THREE COMPONENTS. 4.1 THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN N OT ACCEPTING THE ABOVE BIFURCATION OF THE TOTAL CONSIDERATION RECEIVED BY THE ASSESSEE. THE COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN HOLDING THAT THE AMOUNT OF RS.6,26,23,763/- IS TOWARDS TH E SALE CONSIDERATION OF 253 EQUITY SHARES OF M/S. MANORANJAN SAT ELLITE PVT. LTD. IT WOULD BE EVIDENT FROM THE RECORDS THAT THE SHA RES OF M/S. MANORANJAN SATELLITE PVT. LTD. WOULD NOT HAVE SO MUCH OF V ALUE FOR THE REASON THAT THE SAID COMPANY IS A PRIVATE LIMITED COMP ANY AND ITS 5 ITA NO. 2144/PN/2012, A.Y. 2008-09 SHARES ARE NOT LISTED. MOREOVER, RIGHT FROM THE BEGINNING THE COMPANY WAS NOT DOING WELL, THEREFORE, IT HAD NOT DECLARED ANY DIVIDE ND. THE SALE CONSIDERATION OF 253 SHARES HAS TO BE WORKED OUT B Y TAKING INTO CONSIDERATION THE INTRINSIC VALUE OF SHARES AS ON 01-03-20 08 I.E. THE DATE OF TRANSFER OF SHARES. THE INTRINSIC VALUE OF SHARES OF M/S. MANORANJAN SATELLITE PVT. LTD. AS ON 29-02-2008 IS RS.2976 /- PER SHARE. THE LD. AR REFERRED TO PAGE 37A OF THE PAPER BOO K TO SHOW THE CALCULATION OF THE INTRINSIC VALUE OF SHARES. THUS, THE SALE CONSIDERATION FOR 253 SHARES WOULD BE RS.7,52,928/-. THE S ALE CONSIDERATION FOR THE TRANSFER OF ASSETS AS PER THE JOINT VENTURE AGREEMENT IS RS.9 LACS. THE BALANCE AMOUNT OF RS.6,09,70,8 35/- IS RECEIVED TOWARDS THE PERFORMANCE UNDERTAKING/GUARANTEE GIVEN BY THE ASSESSEE. THE LD. AR SUBMITTED THAT ON THE TRANSFER OF 2 53 EQUITY SHARES THE LONG TERM CAPITAL GAIN WOULD BE : SALE CONSIDERATION AS PER INTRINSIC VALUE RS.7,52,928/- LESS: INDEXED COST OF ACQUISITION OF THE SHARES TRANSFERRED RS.3,43,36/- LONG TERM CAPITAL GAIN RS.7,18,592/- THERE WOULD BE NO CAPITAL GAIN ON TRANSFER OF ASSETS AS T HE WRITTEN DOWN VALUE OF ASSETS AS ON 01-01-2008 IS THE SA ME THAT HAS BEEN RECEIVED ON TRANSFER OF ASSETS I.E. RS.9 LACS. AS REG ARDS THE TAX LIABILITY OF RS.6,09,70,835/-, THE LD. AR SUBMITTED THAT THE SAID AMOUNT HAS BEEN RECEIVED CONDITIONALLY TOWARDS THE PERFORMANCE ASSURANCE/WARRANTY GIVEN BY THE ASSESSEE. IF AT ALL THE SAID AMOUNT IS TO BE ASSESSED TO TAX IT WOULD BE IN THE ASSESSMENT YE AR 2011-12 AS THE PERFORMANCE WARRANTIES WOULD COME TO AN END ON 28-12-2 010 I.E. IN THE FINANCIAL YEAR 2010-11. IN ANY CASE THE AMOUNT RECE IVED IN RESPECT 6 ITA NO. 2144/PN/2012, A.Y. 2008-09 OF PERFORMANCE GUARANTEE CANNOT BE TREATED AS INCOME IN THE IMPUGNED ASSESSMENT YEAR AS THE AMOUNT IS REFUNDABLE ON NON-COM PLIANCE OF THE UNDERTAKING AND TERMINATION OF THE AGREEMENT ON OR BEFOR E 28-12-2010. 4.2 THE LD. AR SUBMITTED THAT MERELY BECAUSE THE ASSESS EE HAS ERRONEOUSLY DECLARED THE LONG TERM CAPITAL GAIN IN RESPE CT OF THE ENTIRE AMOUNT OF RS.6,25,86,282/- THAT WOULD NOT PER-SE ME AN THAT SHE IS BARRED FROM SUBMITTING THE REAL NATURE OF THE TRANSACT ION WHICH IS ALSO SUBSTANTIATED BY THE FACTS AND ALL THE CORROBORATIVE EVIDENCES. IT IS THE REAL INCOME THAT ONLY CAN BE TAXED. ANY RECEIPT WH ICH IN FACT IS NOT THE REAL INCOME CANNOT BE TAXED EVEN IF IT IS SO DECLARE D BY THE ASSESSEE ERRONEOUSLY. IN SUPPORT OF HIS SUBMISSIONS THE LD. AR PLA CED RELIANCE ON THE FOLLOWING DECISIONS: I. DELHI STOCK EXCHANGE ASSOCIATION LTD. VS. CIT, 41 ITR 495 (SC); II. CIT VS. J.D. ITALIA, 141 ITR 948 (AP). 5. ON THE OTHER HAND SHRI DHEERAJ KUMAR JAIN REPRESENT ING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF THE CO MMISSIONER OF INCOME TAX (APPEALS). THE LD. DR SUBMITTED THAT THE CON TENTIONS OF THE LD. AR THAT SUM OF RS.6,09,70,835/- IS TOWARDS PERFORMANCE GUARANTEE IS ERRONEOUS AND AFTERTHOUGHT. THE LD. DR REFERRED TO CLA USE (2) OF THE JOINT VENTURE AGREEMENT AT PAGE 9 TO SHOW THAT THE T OTAL CONSIDERATION OF RS.12,75,00,000/- IS PAID TOWARDS TRANSFER OF SHARES. THE LD. DR FURTHER SUBMITTED THAT EVEN IF THE CONTENTION OF THE ASSE SSEE IS ACCEPTED THAT THE LIABILITY OF THE ASSESSEE COMES TO AN E ND ON 28-12-2010, THE COMMISSIONER OF INCOME TAX (APPEALS) PASSE D THE IMPUGNED ORDER ON 01-08-2012, THE ASSESSEE IN HER RETU RN OF INCOME 7 ITA NO. 2144/PN/2012, A.Y. 2008-09 SHOULD HAVE OFFERED THE AFORESAID AMOUNT IN HER RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12. THERE IS NOTHING ON RECO RD TO SHOW THAT THE ASSESSEE HAD OFFERED THE SAID AMOUNT IN THE RETURN OF INCOME FOR ASSESSMENT YEAR 2011-12. THE ASSESSEE HAS ARTIFICIALLY B IFURCATED THE SALE CONSIDERATION TO SUPPRESS THE INCOME AND THEREBY R EDUCING THE TAX INCIDENCE. THE LD. DR STRONGLY DEFENDED THE FINDINGS ON THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE AND PRA YED FOR DISMISSING THE APPEAL OF THE ASSESSEE. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENT ATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORIT IES BELOW. WE HAVE ALSO EXAMINED THE AGREEMENTS PLACED ON RECORD BY THE ASSESSEE. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF VIDEO AND C ABLE SERVICES THROUGH HER PROPRIETORSHIP FIRM M/S. MANORANJAN VIDEO AND CABLE SERVICES. THE ASSESSEE ALONG WITH SHRI LALIT R. SHINDE INCO RPORATED A COMPANY, M/S. MANORANJAN SATELLITE PVT. LTD., WHEREIN BOTH A CQUIRED 500 SHARES EACH. DURING THE PERIOD RELEVANT TO THE ASS ESSMENT YEAR UNDER APPEAL M/S. DEN NETWORK ENTERED INTO A JOINT VENT URE AGREEMENT WITH THE ASSESSEE, SHRI LALIT R. SHINDE AND M/S. MANORANJAN SATELLITE PVT. LTD. FOR TRANSFER OF SHARES, ASSETS AND BUSINESS. A J OINT VENTURE AGREEMENT DATED 28-12-2007 WAS EXECUTED AMONGST THE AFORESAID PARTIES. APART FROM THE JOINT VENTURE AGREEMENT, SHARE SUBSCRIPTION, SHARE PURCHASE AND SHAREHOLDERS AGREEMENT DATED 01-0 3-2008 (HEREINAFTER REFERRED TO AS THE SHARE PURCHASE AGREEME NT) AND ASSET TRANSFER AGREEMENT DATED 01-03-2008 WERE EXECUTED. T HE LATTER AGREEMENT WAS BETWEEN M/S. MANORANJAN SATELLITE PVT. LT D. AND M/S. MANORANJAN VIDEO AND CABLE SERVICES. AS PER THE SHARE PURCHASE AGREEMENT, M/S. DEN NETWORK ACQUIRED 253 SHARES OF THE ASSESSEE A ND 8 ITA NO. 2144/PN/2012, A.Y. 2008-09 252 SHARES OF SHRI LALIT R. SHINDE IN M/S. MANORANJAN SATELLIT E PVT. LTD. THE DEN NETWORK ALSO ACQUIRED 10 EQUITY SHARES IN M/S. MANORANJAN SATELLITE PVT. LTD. THEREBY INCREASING ITS HOLDING IN THE SAID COMPANY TO 51%. AS PER THE JOINT VENTURE AGREEMENT D ATED 28-12-2007 M/S. DEN NETWORK AGREED TO PAY TOTAL CONSIDERATION OF RS.12,75,00,000/- IN A PHASED MANNER TO THE ASSESSEE AND SHRI LALIT R. SHINDE FOR TRANSFERRING ASSETS OF THE PROPRIETORSHIP FIRM TO M/S. MANORANJAN SATELLITE PVT. LTD. AND SHARES TO M/S. DEN NET WORK. THE RELEVANT EXTRACT OF THE AGREEMENT IS REPRODUCED HERE-IN-UNDER: 1. BUSINESS PURCHASE 1.1 BASED ON THE REPRESENTATION AND WARRANTIES GIVE N BY THE EXISTING SHAREHOLDERS/EXISTING COMPANY IN CLAUSE 4 OF THIS AGREEMENT, DEN SHALL ACQUIRE 51% OF THE EXISTI NG COMPANYS BUSINESS, SUBJECT TO CONDUCT OF THE FOLLO WING EVENTS: (A) XXXXXXXXXX (B) ASSET TRANSFER AGREEMENTS I. THE EXISTING SHAREHOLDER A, BEING THE PROPRIETOR OF THE PROCTORSHIP FIRM, M/S. MANORANJAN SATELLITE CABLE NETWORK (EXISTING FIRM A), SHALL TRANSFER/SELL THE ASSETS OF THE EXISTING FIRM A TO THE EXISTING COMPANY, AT FAIR MARKET VALUE (INCLUSIVE O F ALL APPLICABLE TAXES), AND WITH THE SOLE INTENT OF CARRYING OUT THE EXISTING FIRM AS BUSINESS UNDER THE EXISTING COMPANY. THE LIST OF SUCH ASSETS OF T HE EXISTING FIRM A IS LISTED OUT IN ANNEXURE A ATTACHE D TO THIS AGREEMENT. IN THIS REGARD, THE EXISTING SHAREHOLDER A, EXISTING FIRM A, AND THE EXISTING COMPANY SHALL EXECUTE AN ASSET TRANSFER AGREEMENT. THE ASSET TRANSFER AGREEMENT MUST BE EXECUTED AND THE ASSETS MUST BE TRANSFERRED ON THE 30 TH DAY FROM THE EFFECTIVE DATE. II. XXXXXXXXXX XXXXXXXXX 9 ITA NO. 2144/PN/2012, A.Y. 2008-09 2. CONSIDERATION BASED ON THE REPRESENTATION AND WARRANTIES GIVEN BY THE EXISTING SHAREHOLDERS/EXISTING COMPANY IN CLAUSE 4 OF THIS A GREEMENT, DEN HAS AGREED TO PAY A CONSIDERATION OF RS.12,75,00,000/- (RUPEES TWELVE CRORES SEVENTY FIVE LACS ONLY) (CONSIDERATION) TO THE EXISTING COMPANY/EXISTING SHAREHOLDERS IN THE FOLLOWING MANN ER. (A) UPON EXECUTION OF THE AGREEMENT: RS.25 LACS TO THE EXISTING SHAREHOLDER A UPON EXECUTION OF THE AGREEMENT. DEN HAS PAID AN AM OUNT OF RS. 25 LACS (RUPEES TWENTY FIVE LACS ONLY) VIDE CHEQUE NO. 3999 98 DATED DECEMBER 27 TH , 2007 TO THE EXISTING SHAREHOLDER A, THROUGH THE E XISTING FIRM A, THE RECEIPT OF WHICH IS ACKNOWLEDGED BY THE EXISTING SH AREHOLDER A. (B) UPON EXECUTION OF THE DEFINITIVE AGREEMENTS: RS. 25 LACS TO THE EXISTING COMPANY; AND RS. 25 LACS TO THE EXISTING SHAREHOLDER B (C) BY MARCH 10 TH , 2008: RS.2,04,06,859/- TO EXISTING SHAREHOLDER A RS.2,04,93,141/- TO EXISTING SHAREHOLDER B (D) BY MARCH 30 TH , 2008: RS.2,04,06,859/- TO EXISTING SHAREHOLDER A RS.2,04,93,141/- TO EXISTING SHAREHOLDER B (E) UPON IPO: RS.1.91 CRORES WORTH SHARES OF DEN (AT IPO PRICE) T O EXISTING SHAREHOLDER A RS.1.91 CRORES WORTH SHARES OF DEN (AT IPO PRICE) T O EXISTING SHAREHOLDER B (F) IN ADDITION TO THE ABOVE MENTIONED CONSIDERATION, D EN SHALL PAY AN ADDITIONAL SUM OF RS.5 CRORES (RUPEES FIVE CRORES O NLY) AS PERFORMANCE BONUS TO THE EXISTING SHAREHOLDER IF TH E FOLLOWING TARGETS ARE FULFILLED BY THE JVC WITH THE HELP OF THE EXIST ING SHAREHOLDERS: 10 ITA NO. 2144/PN/2012, A.Y. 2008-09 10000 DIRECT CONNECTIONS, OVER AND ABOVE THE DIRECT CONNECTIONS MENTIONED IN 4(II)(I), ARE ADDED WITHIN 12 MONTHS O F INCORPORATION OF THE JVC. REVENUE FROM MINIMUM 10000 ADDITIONAL INDIRECT CONNE CTIONS START COMING IN THE JVC WITHIN 12 MONTHS OF INCORPO RATION OF THE JVC. HOWEVER, IT IS AGREED BETWEEN THE PARTIES THAT IN C ASE, WITHIN 12 MONTHS OF INCORPORATION OF JVC, THE NEW DIRECT CONNECTIONS BROUGHT IN BY THE EXISTING SHAREHOLDER ARE LESS THAN SUCH NUMBERS AS ARE MENTIONED ABOVE, THE PERFORMANCE BONUS LO BE PAID BY DEN SHAL L BE ADJUSTED AND THE EXISTING SHAREHOLDERS WILL BE PAID PROPORTIONA TELY. 7. AS PER THE SHARE PURCHASE AGREEMENT DATED 01-03-2 008 M/S. DEN NETWORK AGREED TO PAY CONSIDERATION OF RS.25 LACS TO M/S. MANORANJAN SATELLITE CABLE NETWORK FOR ACQUIRING 10 EQUITY SHARES HAVING FACE VALUE OF RS.100/- EACH AT THE PREMIUM OF RS.2,49,900/- PER SHARE AND PAID A CONSIDERATION OF RS.12,50,00,000/- TO THE ASSESSEE AND SHRI LALIT R. SHINDE FOR ACQUIRING 503 EQUITY SHARES OF M /S. MANORANJAN SATELLITE PVT. LTD. THE RELEVANT CLAUSE OF SHAR E PURCHASE AGREEMENT IS REPRODUCED HERE-IN-BELOW: ARTICLE 3 CONSIDERATION IN LIEU OF THE ABOVE MENTIONED ACQUISITION, DEN SHA LL PAY A CONSIDERATION OF RS.25,00,000/- (RUPEES TWENTY FIVE LACS ONLY) TO THE EXISTING COMPANY FOR SUBSCRIBING TO 10 EQUITY SHARES OF THE EXISTING COMPANY FOR RS.100/- EACH AT A PREMIUM OF RS.2,49,900/- (APPROX ) PER SHARE AND A CONSIDERATION OF RS.12,50,00,000/- (RUPEES TWELVE C RORES FIFTY LACS ONLY) TO THE EXISTING SHAREHOLDERS FOR ACQUIRING 50 3 EQUITY SHARES OF THE EXISTING COMPANY. (DETAILS BELOW): (A) CONSIDERATION FOR SHARE SUBSCRIPTION (I) RS.25,00,000/- (RUPEES TWENTY FIVE LACS ONLY) T O THE EXISTING COMPANY PAYABLE ON THE EXECUTION OF THIS AGREEMENT. 11 ITA NO. 2144/PN/2012, A.Y. 2008-09 UPON EXECUTION OF THIS AGREEMENT. DEN HAS ALREADY P AID AN AMOUNT OF RS.25 LACS (RUPEES TWENTY FIVE LACS ONLY) VIDE CHEQUE NO. 401312 DATED FEBRUARY 26, 2008 DRAWN ON SYNDICA TE BANK, HAUZ KHAS, NEW DELHI TO THE EXISTING COMPANY, THE R ECEIPT OF WHICH IS ACKNOWLEDGED BY THE EXISTING SHAREHOLDER A AND THE EXISTING SHAREHOLDER B ON BEHALF OF THE EXISTING CO MPANY. THIS AMOUNT OF RS.25 LACS SHALL BE UTILIZED BY THE EXIST ING COMPANY FOR IMMEDIATE SETTLEMENT OF DUES ACCRUING ON ACCOUNT THE EXISTING SHAREHOLDER A TRANSFERRING THE ASSETS OF HIS PROPR IETORSHIP FIRM, MANORANJAN SATELLITE CABLE NETWORK (EXISTING FIRM A ). IN FAVOR OF THE EXISTING COMPANY UNDER THE ASSET TRANSFER AGREE MENT DATED FEBRUARY.., 2008, AND THE EXISTING SHAREHOLDER B T RANSFERRING THE ASSETS OF HIS PROPRIETORSHIP FIRM, MANORANJAN V IDEO & CABLE SERVICES (EXISTING FIRM B), IN FAVOR OF THE EXISTING COMPANY UNDER THE ASSET TRANSFER AGREEMENT DATED FEBRUARY.2008. (B) CONSIDERATION FOR SHARE PURCHASE : RS.12.50 CRO RES (RUPEES TWELVE CRORES FIFTY LACS ONLY) RS.25 LACS TO EXISTING SHAREHOLDER A DEN HAS PAID AN AMOUNT OF RS.25 LACS (RUPEES TWENTY FIVE LACS) VIDE CHEQUE NO. 399998 DATED DECEMBER 27 TH , 2007 DRAWN ON SYNDICATE BANK, HAUZ KHAS, NEW DELHI TO THE PROPRIE TORSHIP FIRM, MANORANJAN SATELLITE CABLE NETWORK WHEREIN THE EXIS TING SHAREHOLDER A IS THE PROPRIETOR, THE RECEIPT OF WHI CH IS ACKNOWLEDGED BY THE EXISTING SHAREHOLDER A. UPON EXECUTION OF THE THIS AGREEMENTS: RS. 25 LACS TO THE EXISTING SHAREHOLDER B UPON EXECUTION OF THIS AGREEMENT, DEN HAS ALREADY P AID AN AMOUNT OF RS.25 LACS (RUPEES TWENTY FIVE LACS) VIDE CHEQUE NO . 401313 DATED DECEMBER 26 TH , 2008 DRAWN ON SYNDICATE BANK, HAUZ KHAS, NEW DELH I TO THE EXISTING SHAREHOLDER B THE RECEIPT OF WHICH IS ACKNOWLEDGED BY THE EXISTING SHAREHOLDER B. BY MARCH 10 TH , 2008 : RS.2,04,06,859/- TO EXISTING SHAREHOLDER A RS.2,04,93,141/- TO EXISTING SHAREHOLDER B 12 ITA NO. 2144/PN/2012, A.Y. 2008-09 BY APRIL, 30 TH , 2008: RS.2,03,69,379/- TO EXISTING SHAREHOLDER A RS.2,05,30,621/- TO EXISTING SHAREHOLDER B UPON IPO: RS.1.91 CRORES WORTH SHARES OF DEN (AT IPO PRICE) T O EXISTING SHAREHOLDER A RS.1.91 CRORES WORTH SHARES OF DEN (AT IPO PRICE) T O EXISTING SHAREHOLDER B IN CASE IPO OF DEN DOES NOT TAKE PLAE ON OR BEFORE 31 ST JULY 2009, THE ENTIRE AMOUNT OF RS.3.82 CRORES SHALL BE PAID F ORTHWITH TO THE EXISTING SHAREHOLDERS ALONGWITH INTEREST @ 12% P.A. FROM 30 TH APRIL, 2008. 3.2 IN ADDITION TO THE ABOVE MENTIONED CONSIDERATIO N, DEN SHALL PAY AN ADDITIONALLY RS.5 CRORES (RUPEES FIVE CRORES ONL Y) AS PERFORMANCE BONUS TO EXISTING SHAREHOLDER ONLY IF THE FOLLOWING TARGETS ARE FULFILLED BY THE EXISTING COMPANY: 10000 DIRECT CONNECTIONS, OVER AND ABOVE THE DIRECT CONNECTIONS MENTIONED IN 12.2 (I), ARE ADDED WITHIN 12 MONTHS F ROM THE DATE OF THIS AGREEMENT. REVENUE FROM MINIMUM 10,000 ADDITIONAL INDIRECT CON NECTIONS START COMING IN THE JVC WITHIN 12 MONTHS FROM THE DATE OF THIS AGREEMENT. HOWEVER, IT IS AGREED BETWEEN THE PARTIES THAT IN C ASE, THE NEW DIRECT CONNECTIONS BROUGHT IN BY THE EXISTING SHAREHOLDER ARE LESS THAN SUCH NUMBERS AS MENTIONED ABOVE WITHIN 12 MONTHS OF THE EFFECTIVE DATE, THE PERFORMANCE BONUS SHALL BE ADJUSTED AND PAID PROPOR TIONATELY. 8. THE LD. AR HAS ALSO PLACED ON RECORD ASSET TRANSFER AG REEMENT BETWEEN M/S. MANORANJAN SATELLITE PVT. LTD. AND M/S. MANOR ANJAN VIDEO AND CABLE SERVICES A PROPRIETORSHIP FIRM OF THE ASSES SEE. A PERUSAL OF THE SAID AGREEMENT WOULD SHOW THAT THE COMPA NY M/S. 13 ITA NO. 2144/PN/2012, A.Y. 2008-09 MANORANJAN SATELLITE CABLE NETWORK PURCHASED ASSETS OF T HE PROPRIETORSHIP FIRM FROM THE ASSESSEE FOR A CONSIDERATION OF RS.9 LACS. 9. THE ASSESSEE IN ITS RETURN OF INCOME ADMITTED SLUMP SA LE OF ITS PROPRIETARY BUSINESS FOR A CONSIDERATION OF RS.6,25,00,000/- I.E. ONE HALF OF RS.12,50,00,000/- I.E. TOTAL CONSIDERATION RECEIVED FROM M /S. DEN NETWORK AND AFTER REDUCING THE COST OF SELLING AND CO ST OF ACQUISITION OF SHARES, HAS RETURNED LONG TERM CAPITAL GAIN OF RS.5,80,27,549/-. THE ASSESSING OFFICER MADE ADDITION OF RS.45,21,683/- BY REWORKING THE LONG TERM CAPITAL GAIN AS UNDER: FULL VALUE CONSIDERATION RECEIVED FOR SALE OF 273 SHARES M/S. MANORANJAN SATELLITE PVT. LTD. RS.6,25,86,282/- LESS : COST OF SELLING RS. NIL COST OF ACQUISTION (21/8/2000) (27,300 X 551/406) RS.37,050/- ------------------- LONG TERM CAPITAL GAIN RS.6,25,49,232/- THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE IS NOT LIABLE FOR ANY LONG TERM CAPITAL GAIN ON THE TRANSFER OF SHARES. IN THE RETURN OF INCOME THE ASSESSEE HAS ERRONEOUSLY OFFERED THE AMOU NT FROM TRANSFER OF SHARES AS LONG TERM CAPITAL GAIN IN THE IMPUGN ED ASSESSMENT YEAR. 10. ACCORDING TO THE LD. AR THE EQUITY SHARES OF M/S. MANO RANJAN SATELLITE PVT. LTD. TRANSFERRED TO M/S. DEN NETWORK HAS TO BE VALUED ON THE BASIS OF INTRINSIC VALUE OF SHARES. THE LD. AR HAS GIVEN THE DETAILED CALCULATION OF INTRINSIC VALUE OF SHARE OF M/S. MANORANJAN SA TELLITE PVT. LTD. AS ON 29-02-2008 AT PAGE 37A OF THE PAPER BOOK. THE ASSESSEE HAS CALCULATED THE INTRINSIC VALUE OF SHARE AT RS.2,976/- P ER SHARE. 14 ITA NO. 2144/PN/2012, A.Y. 2008-09 ACCORDING TO THE ASSESSEE THE ASSESSEE HAS EARNED LO NG TERM CAPITAL GAIN OF RS.7,18,592/- ON TRANSFER OF 253 EQUITY SHARES WHIC H IS COMPUTED AS UNDER: SALE CONSIDERATION AS PER INTRINSIC VALUE RS.7,52,928/- LESS: INDEXED COST OF ACQUISITION OF THE SHARES TRANSFERRED RS.3,43,36/- LONG TERM CAPITAL GAIN RS.7,18,592/- ACCORDING TO THE ASSESSEE THE AMOUNT OF RS.6,26,23,763/- RECEIVED BY THE ASSESSEE FROM M/S. DEN NETWORK IS ON AC COUNT OF : (I) SALE CONSIDERATION OF SHARES RS.7,52,928/-, (II) SALE CONSIDERAT ION OF ASSETS AS AGREED IN JV AGREEMENT RS.9 LACS AND (III) THE B ALANCE RS.6,09,70,835/- IS TOWARDS WARRANTIES AND GUARANTEES GIVE N BY THE ASSESSEE FOR ENSURING MINIMUM BUSINESS FOR DEN NETWORK. 11. THE BIFURCATION OF THE CONSIDERATION HAS BEEN REJECTED BY THE COMMISSIONER OF INCOME TAX (APPEALS) FOR THE FOLLOWING REASONS: 13. I FIND THAT THE ARTIFICIAL BIFURCATION OF THE SALE CONSIDERATION OF RS.6,26,23,763/- BY THE APPELLANT ON THE ABOVE LINE S IS WITHOUT ANY BASIC AND LOGIC IN VIEW OF THE FACT THAT THERE IS N O SUCH BIFURCATION IN THE AGREEMENT ITSELF. THE APPELLANT'S CLAIM REGARDING INTRINSIC VALUE OF SHARES IS ALSO WITHOUT ANY BASIS AS THE AGREEMENT V ALUE HAS TO BE TAKEN AS SALE CONSIDERATION. IT IS NOT A CASE OF NOTIONAL VALUATION THAT INTRINSIC VALUATION OF SHARE CAN BE RESORTED TOO. THE APPELLA NT'S CONTENTION THAT CERTAIN) COMMITMENTS TO BE FULFILLED BY THE APPELLA NT FOR 3 YEARS I.E. UPTO 28.10.2010, FAILING WHICH AGREEMENT COULD HAVE BEEN RENEGOTIATED OR EVEN TERMINATED AND DEN WAS ENTITLED TO SUCH REFUND OF THE AMOUNT PAID, CAPITAL GAIN WAS LIABLE TO BE TAXED IN A.Y. 2 011-12, IS BEREFT OF ANY MERIT WARRANTY CLAUSE AND PERFORMANCE CLAUSES ARE M ADE PART OF STANDARD AGREEMENT BY PARTIES IN ORDER TO PROTECT T HEIR INTEREST. JUST BECAUSE WARRANTY CLAUSE EXISTS IN RESPECT OF SALES AGREEMENT FOR 3 YEARS, IT CANNOT BE SAID THAT SALES WILL MATERIALIZ E AFTER 3 YEARS AND NOT ON THE INVOICE DATE. THEREFORE, I DO NOT FIND ANY M ERIT IN THE ADDITIONAL GROUND OF APPEAL FILED BY THE APPELLANT. THE APPELL ANT HAS ALSO CITED CERTAIN CASE LAWS WHICH ARE DISTINGUISHABLE ON FACT S AND NO SUPPORT CAN BE SEEN TO THE APPELLANTS CASE ON ACCOUNT OF THESE CASE LAWS. WE CONCUR WITH THE FINDINGS OF THE FIRST APPELLATE AUTHORITY. 15 ITA NO. 2144/PN/2012, A.Y. 2008-09 12. A PERUSAL OF THE AGREEMENTS WOULD SHOW THAT NOWHERE IN THE AGREEMENT IT HAS BEEN STATED THAT THE CONSIDERATION PA ID BY M/S. DEN NETWORK IS IN RESPECT OF THE THREE COMPONENTS AS STATE D BY ASSESSEE, AND NO SUCH BIFURCATION HAS BEEN GIVEN IN ANY OF THE AGREEMENTS PLACED ON RECORD BY THE ASSESSEE. ON THE CONTRARY A PERUS AL OF SHARE PURCHASE AGREEMENT WOULD SHOW THAT M/S. DEN NETWORK H AS PURCHASED 10 EQUITY SHARES OF M/S. MANORANJAN SATELLITE P VT. LTD. AT A PREMIUM OF RS.2,49,900/- PER SHARE. THUS, THE INTRINSIC VALU E CALCULATED BY THE ASSESSEE FOR DETERMINING THE VALUE OF SH ARES OF THE SAID COMPANY FOR TRANSFER ON THE SAME DATE DOES NOT HO LD GROUND. IF THE COST OF SHARES AT WHICH M/S. DEN NETWORK PURCHASED THE SHARES OF M/S. MANORANJAN SATELLITE PVT. LTD. IS APPLIED TO THE SHARES TRANSFERRED BY THE ASSESSEE, IT WOULD GIVE MORE REALISTIC RESULTS 25,00,000/10 X 253 = RS.6,32,50,000/-. IN SO FAR AS THE PAYMENT TOWARDS TRANSFER OF FIXED ASSE T IS CONCERNED, A PERUSAL OF ASSET TRANSFER AGREEMENT AT PAG ES 32 TO 35 OF THE PAPER BOOK WOULD SHOW THAT THE ASSESSEE HAD TRAN SFERRED THE ASSETS OF THE PROPRIETORSHIP FIRM TO M/S. MANORANJAN SAT ELLITE PVT. LTD. FOR A CONSIDERATION OF RS.9 LACS IN COMPLIANCE OF THE JV AGRE EMENT. THUS, THE CONSIDERATION RECEIVED BY ASSESSEE ON TRANSFER OF SHARES FROM M/S. DEN NETWORK DOES NOT INCLUDE CONSIDERATION FOR TRANS FER OF ASSETS. 13. AFTER THOROUGHLY EXAMINING THE DOCUMENTS ON RECORD, WE ARE NOT CONVINCED WITH THE ARGUMENTS OF THE LD. AR OF THE ASSESSE E ON THE BIFURCATION OF CONSIDERATION OR THAT THE ASSESSEE IS NOT LIABLE FOR LONG TERM CAPITAL GAIN ON TRANSFER OF SHARES IN THE IMPUGNED AS SESSMENT 16 ITA NO. 2144/PN/2012, A.Y. 2008-09 YEAR. IN OUR CONSIDERED VIEW THAT THE ASSESSEE HAS RIG HTLY DISCLOSED IN PRINCIPLE THE LONG TERM CAPITAL GAIN FROM SALE OF SHARE IN T HE IMPUGNED ASSESSMENT YEAR (SUBJECT TO THE COMPUTATION O F CORRECT AMOUNT OF LONG TERM CAPITAL GAIN). WE UPHOLD THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE AND DISMIS S THE APPEAL OF THE ASSESSEE. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON MONDAY, THE 04 TH DAY OF JANUARY, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 04 TH JANUARY, 2016 RK *+,$-.'/'(- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-V, PUNE 4. ' / THE CIT-V, PUNE 5. !*+ %%,- , ,- , . /01 , / DR, ITAT, A BENCH, PUNE. 6. + 2 34 / GUARD FILE. // ! % // TRUE COPY// #5 / BY ORDER, %6 ,1 / PRIVATE SECRETARY, ,- , / ITAT, PUNE