Dy. Commissioner of Income Tax -4, Kanpur V. Shri Sanjay Gupta, Kanpur

ITA 217/LKW/2012

• Counselvise Citation: 21723714 RSA 2012
• Duration Of Justice: 2 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-05-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 24-04-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ALOK MITRA
• Assessee Lawyers: S K GARG SHRI P K KAPOOR

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.217/LKW/2012 ASSESSMENT YEAR:2008 - 09 DY.C.I.T. - 4, KANPUR. VS. SHRI SANJAY GUPTA, 7/51, TILAK NAGAR, KANPUR. PAN:ACZPG8332N (APPELLANT) (RESPONDENT) ITA NO.218/LKW/2012 ASSESSMENT YEAR:2008 - 09 DY.C.I.T. - 4, KANPUR. VS. SHRI SAMEER GUPTA, 7/51, TILAK NAGAR, KANPUR. PAN:ACSPG2937Q (APPELLANT) (RESPONDENT) ITA NO.219/LKW/2012 ASSESSMENT YEAR:2008 - 09 DY.C.I.T. - 4, KANPUR. VS. SHRI RAHUL GUPTA, 7/51, TILAK NAGAR, KANPUR. PAN:AEOPG4551L (APPELLANT) (RESPONDENT) ITA NO.220/LKW/2012 ASSESSMENT YEAR:2008 - 09 DY.C.I.T. - 4, KANPUR. VS. SHRI SANDEEP GUPTA, 7/51, TILAK NAGAR, KANPUR. PAN:ACZPG8333P (APPELLANT) (RESPONDENT) 2 ITA NO.221/LKW/2012 ASSESSMENT YEAR:2008 - 09 DY.C.I.T. - 4, KANPUR. VS. SHRI YOGENDRA MOHAN GUPTA, 7/51, TILAK NAGAR, KANPUR. PAN:ACZPG8332N (APPELLANT) (RESPONDENT) ITA NO.226/LKW/2012 ASSESSMENT YEAR:2008 - 09 DY.C.I.T. - 4, KANPUR. VS. SHRI SIDDHARTH GUPTA, 7/51, TILAK NAGAR, KANPUR. PAN:AEWPG3950R (APPELLANT) (RESPONDENT) APPELLANT BY SHRI ALOK MITRA, D. R. RESPONDENT BY SHRI S. K. GARG, ADVOCATE SHRI P. K. KAPOOR, C.A. DATE OF HEARING 21/05/2014 DATE OF PRONOUNCEMENT 1 3 /06/2014 O R D E R PER BENCH: ALL THESE SIX APPEALS ARE FILED BY THE REVENUE IN THE CASE S OF DIFFERENT ASSESSEES ALL FOR ASSESSMENT YEAR 2008 - 09 AND THESE APPEALS ARE DIRECTED AGAINST SEPARATE ORDERS OF CIT(A) - I, KANPUR ALL DATED 31/01/2012. SINCE THE ISSUE INVOLVED IN ALL THESE APPEALS IS COMMON , ALL THESE APPEALS ARE BEING DISPOSED OF BY WA Y OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. IT WAS AGREED BY BOTH THE SIDES THAT THE APPEAL FILED BY THE REVENUE IN THE CASE OF SHRI YOGENDRA MOHAN GUPTA I.E. I.T.A. NO.221/LKW/2012 MAY BE CONSIDERED FIRST AND THE DECISION IN THIS APPEAL MAY BE FOLLOWED IN THE 3 REMAINING APPEALS. HENCE, WE REPRODUCE THE GROUNDS RAISED IN I.T.A. NO.221/LKW/2012, WHICH ARE AS UNDER: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) WAS RIGHT IN DELETING THE ADDITION MADE BY A.O IN SPITE OF THE FACT THAT THESE SHARES WERE PURCHASED BY THE ASSESSEE ON AN EXTRANEOUS CONSIDERATION FOR THE BENEFIT OF PREFERENCE SHARE HOLDERS BEING ASSESSEE HIMSELF OF THE COMPANY WHICH IS IN VIOLATION OF SECTION 40A(2A)(B) OF THE I.T. ACT. 2. IN DOING SO, LD. CIT(A) DID NOT CONSIDER THE FACT THAT BY DOING SO THE ASSESSEE DID NOT LOSE THE TITLE OF THE FUND AS THIS WAS USED TO FINANCE THE REDEMPTION OF PREFERENCE SHARE HELD BY THE ASSESSEE HIMSELF BEING THE DIRECTOR OF THE COMPANY AND WHICH WERE SUBSEQUENTLY SOLD ON ABYSMALLY LOW PRICES JUST TO BENEFIT THE ASSESSEE WHICH RESULTED IN LOSS ON ACCOUNT OF SHORT TERM CAPITAL GAIN. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN GIVING RELIEF TO THE ASSESSEE AS THE FACT OF THE CASE IS SQUARELY CO VERED BY THE DECISION IN THE CASE OF BHARAT HARI SINGHANIA VS. ACIT, ITAT (CAL) 58 ITD 189 AND M/S KERELA SMALL INDUSTRIAL DEVELOPMENT CORPORATION LTD. VS. CIT (KERLA) 270 ITR 452 WHERE THE CAPITAL LOSS ARISING OUT OF SALES OF SHARES UNDER THE SAME FACTS A ND CIRCUMSTANCES WERE DISALLOWED BY THE HON'BLE COURT. 4. THAT THE ORDER OF LD. COMMISSIONER OF INCOME TAX (A) - I, KANPUR BEING ERRONEOUS IN LAW AND ON THE FACTS DESERVES TO BE VACATED AND THAT THE ORDER OF ASSESSING OFFICER IS RESTORED. 5. THE APPELLANT CRAVES LEAVE TO MODIFY ANY OF THE GROUNDS OF THE APPEAL GIVEN ABOVE AND OR ADD ANY FRESH GROUNDS AS AND WHEN IT IS CONSIDERED TO DO SO. 3. LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER. HE ALSO SUBMITTED THAT THE COMPANY I.E. SHAKUMBARI SU GAR AND ALLIED INDUSTRIES LIMITED (SSAIL) WAS NOT A LISTED COMPANY. HE FURTHER SUBMITTED 4 THAT THE SHARES OF THIS COMPANY WERE PURCHASED BY THE ASSESSEE @RS.10/ - PER SHARE ON 07/12/2007 AND THESE SHARES WERE SOLD AFTER FEW DAYS @RS.3.15 PER SHARE. HE SUBM ITTED THAT THE PURCHASE PRICE PAID BY THE ASSESSEE IS EXCESSIVE AND, THEREFORE, THE DISALLOWANCE IS JUSTIFIED U/S 40A(2A)(B) OF THE ACT. HE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: (I) KERALA SMALL INDUSTRIES DEVELOPMENT CORPORATION LTD. VS COMMISSIONER OF INCOME - TAX [2004] 270 ITR 452 (KER) 4. AS AGAINST THIS, LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF CIT(A). HE ALSO SUBMITTED THAT THE TRANSACTION FOR THE SALE OF SHARES OF SSAIL WAS DONE AS PER AGREED CONDITIONS BETWEEN TWO UNRELATED INDEPENDENT ENTITIES. HE ALSO SUBMITTED THAT THE COPY OF AGREEMENT IS AVAILABLE ON PAGE NO. 17 TO 29 OF THE PAPER BOOK. HE FURTHER SUBMITTED THAT THE ASSESSEE DID NOT RECEIVE ANY BENEFIT EITHER IN CASH OR OTHERWISE ON THE SALE OF THESE SHARES T O THE PURCHASERS. HE ALSO SUBMITTED THAT THERE WAS NO MA TERIAL ON RECORD OF DEPARTMENT TO INDICATE THAT THE SAID SALE OF SHARES WAS BOGUS OR THE SELLERS HAD OBTAINED ANY OTHER BENEFIT FROM THE PURCHASERS. HE ALSO SUBMITTED THAT THE STATEMENT OF SALE VALU E AS PER PURCHASE AGREEMENT IS AVAILABLE ON PAGE NO. 9 OF THE PAPER BOOK AND THIS VALUE IS ON THE BASIS THAT PREFERENCE SHARES ARE NOT REDEEMED AND LIABILITY OF UNSECURED LOAN IS NOT PAID. HE FURTHER SUBMITTED THAT AS PER THIS VALUATION STATEMENT, THE NET VALUE OF THE ASSETS OF SSAIL HAS BEEN WORKED OUT AT MINUS FIGURE OF RS.1912.47 LACS. HE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: (I) COMMISSIONER OF INCOME - TAX VS KHARWAR (B.M.) [1969] 72 ITR 603 (SC) (II) UNION OF INDIA VS AZADI BAC HAO ANDOLAN [2003] 263 ITR 706 (SC) 5 4.1 HE ALSO DRAWN OUR ATTENTION TO SUMMARY OF PAYMENTS ON PAGE 33 OF THE PAPER BOOK AND POINTED OUT THAT AFTER REPAYMENT OF PREFERENCE SHARES AND ACCUMULATED UNPAID DIVIDEND (ARREAR OF DIVIDEND) , THE N ET EQUITY SHARE VALUE AS ON 31/10/2007 HAS BEEN WORKED OUT AT RS.1085.37 LACS AND ACCORDINGLY , THE BUYER I.E. M/S INDIA GLYCOL LTD. (IGL), PAID THE AMOUNT OF RS.1000 LAC FOR PURCHASE OF 31724200 SHARES AND BALANCE AMOUNT OF RS.85.37 LAC WAS WITHHELD AS PER CLAUSE NUMBER 5.9 OF THE AGREEMENT TO BE PAID ON TRANSFER OF REMAINING 4 LAC SHARES. THE SALE PRICE WAS WORKED OUT AT 3.15216 ON THE BASIS OF SALE CONSIDERATION OF RS.1000 LAC S F OR 31724200 SHARES. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND THE JUDGMENTS CITED BY BOTH THE SIDES. WE FIND THAT THE OBJECTION OF THE ASSESSING OFFICER IS THAT THE PURCHASE PRICE PAID BY THESE ASSESSEES TO SSAIL FOR PURCHASE OF SHARES ON 07/12/2007 IS EXCESSIVE BECAUSE ONLY AFTE R 8 DAYS, THESE SHARES WERE SOLD BY THE ASSESSEE AT RS.3.15 PER SHARE. THE ASSESSING OFFICER DID NOT FIND THE EXPLANATION OF THE ASSESSEE SATISFACTORY AND CONSEQUENTLY , HE HELD THAT THIS TRANSACTION OF PURCHASE AND SALE OF SHARES IS BOGUS IN RESPECT OF FR ESH 19 LAC S SHARES PURCHASED ON 07/12/2007 FOR RS.190 LAC S , WHICH WERE SOLD ON 15/12/2007 FOR A SALE CONSIDERATION OF RS.59,84,119/ - RESULTING IN LOSS OF RS.1,30,10,881/ - . HOWEVER, IT SEEMS THAT THE ASSESSING OFFICER ALLOWED THE LONG TERM CAPITAL LOSS IN RESPECT OF SALE OF OLD SHARES AT THE SAME PRICE @RS.3.15 PER SHARE BUT THIS IS ALSO NOT CLEAR BECAUSE OF SPECIFIC DIRECTION OF THE BENCH, THE LEARNED AR OF THE ASSESSEE HAS NOT FURNISHED THE COPY OF COMPUTATION OF INCOME AND THIS ASPECT IS NOT DISCUSSED AT ALL IN THE ASSESSMENT ORDER OR IN THE ORDER OF LEARNED CIT (A) . IT IS NOTED BY THE ASSESSING OFFICER ON PAGE NO. 3 OF THE ASSESSMENT ORDER THAT THE TOTAL HOLDING OF THE SHARES OF SSAIL WITH THE ASSESSEE AS ON 15/12/2007 (DATE OF SALE) WAS 10.10 LAC S SHAR ES VALUING RS.101 LAC INCLUDING 19 LAC S SHARES 6 ACQUIRED ON 07/12/2007 FOR RS.190 LAC. IN OUR CONSIDERED OPINION, EVEN IF IT IS NOTED BY THE ASSESSING OFFICER THAT THE SALE PRICE IN RESPECT OF FRESH PURCHASE OF SHARES TO THE EXTENT OF 19 LAC SHARES OF SSAI L ON 07/12/2007 ON THE FACE VALUE OF RS.10/ - PER SHARE WAS EXCESSIVE, THEN HE CAN DISALLOW THE SHORT TERM CAPITAL LOSS IN RESPECT OF SALE OF 19 LAC S SHARES BUT THE LOSS IN RESPECT OF REMAINING OLD SHARES HAS TO BE ALLOWED AS LONG TERM CAPITAL LOSS. IN COU RSE OF HEARING, IT WAS REQUIRED BY THE BENCH AND THE LEARNED A.R. OF THE ASSESSEE WAS DIRECTED TO FILE COPY OF COMPUTATION OF INCOME FILED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME IN WHICH THE ASSESSEE HAS CLAIMED SHORT TERM CAPITAL LOSS OF RS.1,30, 10,881/ - AS PER NOTING OF THE ASSESSING OFFICER IN PARA 4 OF THE ASSESSMENT ORDER B ECAUSE IT IS NOT CLEAR FROM THE ASSESSMENT ORDER AS TO HOW MUCH LONG TERM CAPITAL LOSS WAS CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME IN RESPECT OF OLD SHARES OF THE SA ME COMPANY HELD BY THE ASSESSEE PRIOR TO 07/12/2007. IN PARA 4.4 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOTED THAT TOTAL HOLDING OF SHARES OF SSAIL WITH THE ASSESSEE AS ON 15/12/2007 (DATE OF SALE) WERE 10.10 LAC S VALUING RS.101 LAC INCLUDING 19 LAC S SHARES OF THE SAME COMPANY ACQUIRED BY THE ASSESSEE ON 07/12/2007 AT THEIR FACE VALUE @RS.10/ - PER SHARE. IT IS NOT UNDERSTANDABLE AS TO WHEN 19 LAC S SHARES WERE ACQUIRED BY THE ASSESSEE ON 07/12/2007, HOW THE SHARE HELD IN SSAIL ON 15/12/2007 WAS ONLY 10.10 LAC SHARES. THE CONFUSION IS FURTHER INCREASED AS PER THE DETAILS OF SHARE HOLDING AVAILABLE ON PAGE 30 & 31 OF THE PAPER BOOK. ON THIS PAGE, IT IS SEEN THAT THE SHARE HOLDING OF SHRI YOGENDRA MOHAN GUPTA IS STATED TO BE 21.60 LAC SHARES INCL UDING 19 LAC SHARES ACQUIRED BY THE ASSESSEE ON 07/12/2007. WE DO NOT KNOW WHICH FIGURE IS CORRECT REGARDING TOTAL SHARE HOLDING AND HOW MUCH LONG TERM CAPITAL LOSS WAS CLAIMED BY THE ASSESSEE IN RESPECT OF SALE OF OLD SHARES HELD BY THE ASSESSEE AND WHET HER THE SAME WAS ALLOWED BY THE ASSESSING OFFICER OR NOT. THE ORDER OF LEARNED CIT (A) IS WITHOUT THROWING ANY LIGHT ON THESE ASPECTS. HENCE, IN 7 OUR CONSIDERED OPINION, THE MATTER HAS TO GO BACK TO THE FILE OF THE LEARNED CIT (A) FOR FRESH DECISION AFTER EXAMINING ALL THESE FACTS BUT SUCH DECISION SHOULD BE AS PER THESE GUIDELINES. 6. SINCE THE ASSESSEE WAS ALSO HOLDING 2.6 0 LAC SHARES AS ON 07/12/2007 (IF THE FIGURES GIVEN ON PAGES 30 & 31 OF PAPER BOOK ARE CORRECT) BEFORE ACQUIRING FURTHER SHARES OF SSAIL, THE MARKET VALUE OF THESE SHARES SHOULD BE WORKED OUT ON THE BASIS OF NET ASSETS VALUE OF THE COMPANY SSAIL ON 07/12/2007 BY DIVIDING TOTAL NET ASSETS VALUE ON THAT DATE BY TOTAL NUMBER OF SHARES OF THAT COMPANY BE FORE FURTHER ISSUE OF SHARES ON THAT DATE. THE FRESH SHARES SHOULD BE CONSIDERED AS ISSUED AND THERE AFTER SOLD ON SUCH MARKET VALUE PER SHARE OF THE OLD SHARES FOR RAISING SAME AMOUNT RESULTING IN INCREASE IN NUMBER OF SHARES ISSUED BECAUSE WHATEVER LOSS IS INCURRED BY THE COMPANY AND CONSEQUENTLY THE SHARE HOLDERS, THE SAME WAS INCURRED TILL THIS DATE AND IT CANNOT BE SAID THAT FURTHER LOSS WAS INCURRED BETWEEN 07.12.2007 TO 15.12.2007 . HENCE, THE LOSS IN THE HANDS OF THE SHARE HOLDER SHOULD ALSO BE IN R ESPECT OF OLD SHARES ONLY HELD BY HIM ON 07.12.2007. IT SHOULD BE PRESUMED THAT M ORE SHARES WERE ISSUED TO GARNER ENOUGH FUNDS FOR MAKING REPAYMENT OF PREFERENCE SHARES ALONG WITH THE ACCUMULATED DIVIDEND AND OTHER LIABILITIES. THEREAFTER, THE SALE OF SHA RES ON 15/12/2007 SHOULD BE PRESUMED AT THE SAME PRICE BECAUSE THE MARKET VALUE OF THE ASSETS/SHARES OF THE COMPANY WILL REMAIN SAME BECAUSE INCREASE IN SHARE CAPITAL WILL RESULT INTO DECREASE OF LIABILITY I.E. PREFERENCE SHARES , ACCUMULATED DIVIDEND AND O THER BANK LOANS ETC. BY SAME AMOUNT AND AS A CONSEQUENCE THEREOF, THE NEW SHARES TO BE ACQUIRED BY THE ASSESSEE ON 07/12/2007 WILL BE SOLD AT THE SAME PRICE AND IT WILL NOT RESULT INTO ANY SHORT TERM CAPITAL LOSS BUT THE LONG TERM CAPITAL LOSS IN RESPECT O F SALE OF OLD SHARES WILL GO UP. IN OUR CONSIDERED OPINION, SUCH INCREASE D LONG TERM CAPITAL LOSS ON SALE OF OLD SHARES SHOULD BE ALLOWED TO THE ASSESSEE AS LONG TERM CAPITAL LOSS . LEARNED CIT (A) 8 SHOULD DECIDE THE ISSUE IN THIS MANNER. WE WANT TO MAKE I T CLEAR THAT THE ASSESSEE SHOULD CO OPERATE AND BRING ON RECORD ALL DETAILS AND EVIDENCES BEFORE LEARNED CIT (A) TO ENABLE HIM TO CARRY OUT THESE DIRECTIONS. LEARNED CIT (A) MAY OBTAIN REMAND REPORT FROM THE A.O. IF HE FEELS NECESSARY OR HE CAN DECIDE THE ISSUE HIMSELF AS HIS POWERS ARE CO TERMINUS WITH A.O. NEEDLESS TO SAY, HE SHOULD PROVIDE ADEQUATE OPPORTUNITY OF HEARING TO BOTH SIDES . 7. REGARDING THE JUDGMENTS CITED BY BOTH THE SIDES, WE ARE OF THE CONSIDERED OPINION THAT THESE JUDGMENTS ARE NOT RELEVANT IN THE PRESENT SITUATION BECAUSE COMPLETE FACTS ARE NOT AVAILABLE BEFORE US AS DISCUSSED ABOVE AND THEREFORE, WE HAVE HELD AS PER THE FA CTS OF THE PRESENT CASE, AS DISCUSSED ABOVE THAT THE PURCHASE PRICE PAID BY THE ASSESSEE FOR ACQUIRING NEW SHARES ON 07/12/2007 HAS TO BE DETERMINED AS PER THE MARKET VALUE OF THE SHARES OF THE COMPANY SSAIL ON 07/12/2007 AND THESE JUDGMENTS ARE NOT ON THI S ASPECT. SO FAR THE ISSUE OF NEW SHARES AT A PRICE BELOW THAN THE FACE VALUE IS CONCERNED, WE FIND THAT SUCH ISSUE OF SHARES AT A DISC OUNT IS PERMISSIBLE AS PER THE C OMPANIES A CT AND HENCE, THERE IS NO PROBLEM ON THAT ASPECT. ACCORDINGLY, THE ORDER OF C IT(A) IS SET ASIDE AND THE MATTER IS RESTORED TO HIS FILE FOR FRESH DECISION IN THE LIGHT OF THE ABOVE DISCUSSION. THE ASSESSEE SHOULD CO - OPERATE AND PROVIDE THE WORKING OF MARKET VALUE OF SHARES AS ON 07/12/2007 PRIOR TO ISSUE OF FRESH SHARES. THE PRICE OF NEW SHARES TO BE ISSUED SHOULD BE WORKED OUT ON THE BASIS OF MARKET VALUE OF ASSETS ON 07.12.2007 DIVIDED BY NO. OF OLD SHARES AND QUANTITY OF NEW SHARES TO BE ISSUED SHOULD BE WORKED OUT BY DIVIDING THE AMOUNT REQUIRED FOR REPAYMENT OF LIABILITY BY SU CH MARKET VALUE OF SHARES AS ON 07/12/2007. THE SALE PRICE OF THE SHARES AS ON 15/12/2007 SHOULD BE THE SAME PRICE AS DETERMINED BY MARKET VALUE ON 07.12.2007 AND THIS WILL RESULT INTO NO PROFIT NO LOSS IN RESPECT OF NEW SHARES TO BE ACQUIRED ON 07/12/200 7 BUT THE LONG TERM CAPITAL LOSS IN RESPECT O F SALE OF OLD SHARES WILL GO UP. 9 8. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. 9. SINCE, IT WAS AGREED BY BOTH SIDES THAT FACTS IN ALL REMAINING APPEALS ARE IDENTICAL, ALL THESE APPEALS ARE ALSO DECIDED ON SIMILAR LINE. 10. IN THE COMBINED RESULT, ALL THESE SIX APPEALS OF THE REVENUE STAND ALLOWED FOR STATISTICAL PURPOSES. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 3 /06/2014. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR