ACIT, Meerut V. Sh. Ashish Gupta, Meerut

ITA 225/DEL/2012

• Counselvise Citation: 22520114 RSA 2012
• Duration Of Justice: 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-06-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 13-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS ANUSHA KHURANA
• Assessee Lawyers: M P RUSTAGI
• Keywords: Earning of tax free income; Non passing of speaking order

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A NEW DELHI) BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.225/DEL/2012 ASSESSMENT YEAR : 2002-03 ACIT, SHRI ASHISH GUPTA, CIRCLE-1, 219-RAILWAY ROAD, MEERUT. V. MEERUT. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AAQPG AAQPG AAQPG AAQPG- -- -8110 8110 8110 8110- -- -K KK K APPELLANT BY : MRS. ANUSHA KHURANA, SR. DR. RESPONDENT BY : SHRI M.P. RUSTAGI, ADVOCATE. ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE OR DER OF LD CIT(A) DATED 31.10.2011. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER:- 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED IN ACCEPTING THE ASSESSEES VERSION DESPIT E THE CLEAR CUT OBSERVATION MADE BY THE LD ITAT IN PARA 7 OF PAGE 6 OF ITS ORDER DATED 16.12.2010 THAT THE EARLIER ORDER DA TED 11.7.2007 PASSED IN THIS CASE BY LD CIT(A) WAS BASED ON SURMISES AND W AS A NON SPEAKING ONE & THAT THE ASSESSEE HAD NOT DISCLOSE D HIS MOTIVE FOR MAKING SUCH INVESTMENT. THEREFORE, LD CIT (A) WAS NOT AT ALL JUSTIFIED IN ALLOWING LOSS ` .1,04,45,051/- IN SPITE OF THE FACT THAT THE ASSESSEE COULD NOT FURNISH ANY GENUINE AND ACC EPTABLE ITA NO225/DEL/2012 2 REASONS FOR SALE OF SHARES AT A PRICE MUCH BELOW THE A CTUAL VALUE OF SHARES ON THE DATE OF SALE. 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED IN IGNORING THE FACT THAT AS PER BAL ANCE SHEET OF THE COMPANY RATE AT THE TIME OF PURCHASE WAS ` .533/- PER SHARE AND AT THE TIME OF SALE WAS ` .665/- PER SHARE HENCE THERE WAS A PROFIT OF ` .132/- PER SHARE WHEREAS ASSESSEE HAS SHOWN LOSS OF ` .625/- (750-125) PER SHARE WHICH PROVES THAT BOTH THE TRANSACTIONS WERE COLLUSIVE WHICH HAVE BEEN ACCEPTED B Y THE LD CIT(A) ON FILMSY GROUNDS TAKEN BY THE ASSESSEE IGNORING CATEGORICAL FINDINGS OF THE LD ITAT. 3. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) WAS JUSTIFIED IN LAW IN DELETING THE ADDITION DESPITE THE FACT THAT THE HON'BLE ITAT HAD CATEGORICALLY OBSERVE D THAT EARNING OF EXEMPT INCOME OF ` ..6.30 CRORES INDICATED THAT ASSESSEE WAS WELL VERSED WITH THE INVESTMENTS AND BUSINESS ACTIVITIES WHO WOULD NOT VENTURE IN A TRANSACTION FOR BOOKING LOSS TO THIS MAGNITUDE DESPITE WHICH THE CIT(A) HAS IGNORED ASSESSING OFFICERS REASONINGS FOR ADDITION THAT THERE WAS NO LO GIC BEHIND SELLING SHARES JUST FOR ` .18,75,000/- WHICH WERE PURCHASED FOR ` .1,12,50,000/-. 4. WHETHER LD CIT(A) WAS JUSTIFIED IN ACCEPTING THE VIEW OF THE OF HIS PREDECESSOR DESPITE CATEGORICAL OBSERVATION OF LD IT AT THAT THERE MUST BE SOMETHING UNDERLYING AND EVIDENTLY THE OBSERVATIONS MADE BY THEM WOULD NOT IMPAIR OR INJURE THE CASE OF ASSESSING OFFICER. 5. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER O F THE CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICE R RESTORED. ITA NO225/DEL/2012 3 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAD FIL ED HIS RETURN OF INCOME ON 31.10.2002 AND THE CASE WAS PROCESSED U/S 1 43(1) AND INTIMATION WAS ISSUED ON 28.2.2003. HOWEVER, THE CASE OF THE ASSESSEE WAS REOPENED U/S 147/148 OF THE ACT. DURING COURSE OF RE-ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HA D SHOWN CAPITAL LOSS OF ` .53,70,390/- WHICH WAS CARRIED FORWARD TO THE NEXT YEAR. ON EXAMINATION OF ASSESSEES CLAIM OF LONG TERM CA PITAL LOSS, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAD PURCHASED ON 31.3. 2000 15000 EQUITY SHARES OF M/S MANKIND PHARMA PVT. LTD. FO R A TOTAL CONSIDERATION OF ` .1,12,50,000/- WHICH THE ASSESSEE HAD SOLD ON 15.5.2001 FOR TOTAL CONSIDERATION OF ` .18,75,000/- THUS INCURRING A LONG TERM CAPITAL LOSS OF ` .93,75,000/-. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE BOOK VALUE OF SHARE AT THE TIME OF PURCHASE MADE BY THE ASSESSEE WAS ` .533/- PER SHARE WHEREAS AS ON 31.3.2001 THE BOOK VALUE WAS ` .665/- PER SHARE. THE ASSESSING OFFICER FURTHER OBSERVED THAT THESE SHARES WERE SOLD AT SUCH A HUGE LOSS WITHIN SUCH SHORT PERIOD TO THE MANAGING DIRECTOR OF THE COMPANY AND THEREFORE HE FORMED AN OPINION THAT IT WAS A COLLUSIVE TRANSACTIO N AND FOR THE PURPOSE OF CALCULATION OF CAPITAL GAIN OR LOSS CALCULA TED THE SALE VALUE ON THE BASIS OF BOOK VALUE ON THE DATE OF SALE. THE ASSE SSEE FILED APPEAL BEFORE LD CIT(A) AND LD CIT(A) GAVE RELIEF T O THE ASSESSEE. THE REVENUE THEN FILED APPEAL BEFORE HON'BLE ITAT & HON 'BLE ITAT THOUGH ITS ORDER DATED 16.122.2010 REMITTED BACK THE FILE T O THE OFFICE OF LD CIT(A) FOR RE-ADJUDICATION. 3. IN THE SECOND ROUND BEFORE LD CIT(A), THE LD AR R EITERATED HIS EARLIER STAND AND SUBMITTED AS UNDER:- I) THAT THE APPELLANT HAS APPLIED TO M/S MANKIND PHARMA PVT. LTD. ON 31 ST MARCH, 2000 FOR ALLOTMENT OF 15000 EQUITY SHARES @ ` .100/- EACH AT A PREMIUM OF ` .650/- PER SHARE AND THESE ITA NO225/DEL/2012 4 SHARES WERE NOT PURCHASED FROM THE OPEN MARKET BUT WER E ALLOTTED BY THE COMPANY. II) THAT APPELLANT WAS ALLOTTED EQUITY SHARES OF M/S MANK IND PHARMA PVT. LTD. NUMBERING 32045 TO 47044VIDE BOARD OF DIRECTORS RESOLUTION DATED 31.3.2000 AND FORM NO.2 REGARDING RETURN OF ALLOTMENT FOR SHARES WERE FILED W ITH THE REGISTRAR OF COMPANIES ON 28.4.2000. III) THAT WITH THE ABOLITION OF ANY CONTROL ON SHARE PREM IUM, THE COMPANIES ARE FREE TO ISSUE SHARES AT ANY AMOUNT OF PREM IUM AT THEIR OWN. IV) THAT THESE SHARES WERE SOLD BY THE APPELLANT ON 28.5.20 01 TO SMT. PRABHA ARORA AND SHRI RAJIV JUNEJA FOR A TOTAL SUM OF ` .18,75,000/- AND THE SALES PROCEEDS WERE RECEIVED THRO UGH CROSSED CHEQUES. V) THAT IN VIEW OF THE RESTRICTION IMPOSED BY THE COMPAN IES ACT, 1956 AS WELL AS BY ARTICLE OF ASSOCIATION OF THE COMPA NY, THE APPELLANT WAS FORCED TO SELL THE SHARES ONLY TO THE EXI STING SHAREHOLDERS AND THAT TOO WITH THE APPROVAL OF BOARD OF DIRECTORS OF THE COMPANY. VI) THAT AT THE TIME OF MAKING PURCHASE OF SHARES OF M/S MA NKIND PHARMA PVT. LTD. THE INTENTION OF THE APPELLANT WAS TO ACQUIRE THE MAJORITY OF SHARES IN TIME TO COME AND TO CONTROL THE AFFAIRS OF A DEVELOPING COMPANY. HOWEVER, HE FAILED TO ACQUIRE THE MAJORITY SHARES AND THEREFORE HE HAD TO SE LL THE SHARES ONLY TO THE EXISTING SHAREHOLDERS AS PER PROVISIONS OF THE COMPANIES ACT. VII) THAT APPELLANT IS NEITHER RELATED TO ANY OF THE DIRE CTOR OF M/S MANKIND PHARMA PVT. LTD. NOR ANY OF THE APPELLANTS RELATION IS RELATED TO ANY OF THE DIRECTOR OF M/S MANKIND PHARMA PVT. LTD. ITA NO225/DEL/2012 5 VIII) THAT THE APPELLANT WAS NOT IN A POSITION TO CONTROL A ND SUPERVISE AFFAIRS OF THE COMPANY. IX) THAT THE PERSON TO WHOM THE SHARES WERE SOLD BY THE APPELLANT ARE NEITHER RELATED TO THE APPELLANT NOR RELATED TO ANY OF THE RELATIVES OF THE APPELLANT. 4. THE LD CIT(A) AFTER HEARING THE SUBMISSIONS OF THE A SSESSEE ALLOWED THE APPEAL OF THE ASSESSEE. THE RELEVANT PARAGR APH OF LD CIT(A)S ORDER IS REPRODUCED BELOW:- I HAVE CONSIDERED THE FACTS OF THE CASE AND ASSESSING OFF ICERS ORDER AND GONE THROUGH THE ORDERS OF MY LD PREDECESSOR AND THE HON'BLE ITAT CAREFULLY. THE HON'BLE ITAT HAVE OBSE RVED THAT THE ASSESSING OFFICER HAD MADE A VERY RELEVANT QUERY REQUIR ING THE APPELLANT TO DISCLOSE THE BASIS OF MAKING THE INVESTMENT AND DISPOSING OF THESE INVESTMENTS WITHIN A VERY SHORT TIME. THEY HAVE OBSERVED THAT THE APPELLANT DID NOT DISCLOSED THE IR MOTIVE FOR MAKING THE INVESTMENT BEFORE THE ASSESSING OFFICER A ND SUCH DISCLOSURE WAS MADE BEFORE THE CIT(A) ONLY. THE ITAT H AVE FURTHER OBSERVED THAT THE CIT(A) DID NOT GO INTO THE EXPLANATION AND PASSED A NON SPEAKING ORDER IN FIVE LINES. I HAVE GONE THROUGH THE CASE RECORDS THOROUGHLY. I FI ND THAT THE APPELLANT HAD GIVEN ALL POSSIBLE EXPLANATIONS BEFORE T HE ASSESSING OFFICER FROM TIME TO TIME AND PARTICULARLY TH ROUGH HIS LETTER DATED 26.12.2006 WHICH IS PLACED ON THE ASSESSME NT RECORDS OF THE ASSESSING OFFICER. IT IS SO ACKNOWLEDGED O N THE ORDER SHEET ENTRY DATED 26.12.2006 ALSO. AT PAGE 2 OF ITS REPLY DATED 26.12.2006., IT HAS BEEN SUBMITTED AS UNDER:- ITA NO225/DEL/2012 6 THAT AT THE TIME OF MAKING INVESTMENT IN THE SHARES O F MANKIND PHARMA PVT. LTD. THE INTENTION OF THE APPELLANT WAS TO ACQUIRE THE MAJORITY OF SHARES; IN TIME TO COME; AND TO CONTROL T HE AFFAIRS OF A DEVELOPING COMPANY. THE APPELLANT, HOWEVER, FAILED TO ACQUIRE THE MAJORITY SHARES, IN SPITE OF ALL HIS EFFORTS MADE B Y HIM; SO THE APPELLANT SOLD THE SHARES; TO ANY OF THE WILLING PUR CHASERS AT THAT TIME. THE SHARES IN QUESTION WERE NOT SOLD TO THE MANAG ING DIRECTOR OF MANKIND PHARMA PVT. LTD. ALONE. THE APP ELLANT WANTS TO ADD THAT IN A PRIVATE LTD. COMPANY, THE SELLER OF THE SHARES CAN SELL HIS SHARES ONLY TO AN EXISTING SHARE HOLDER AND/ OR TO THE PERSON APPROVED BY THE BOARD OF DIRECTORS OF THE SAID COMPANY. THAT THE APPELLANT HAS SUFFERED LOSS LONG TERM CAPITA L GAIN LOSS AS UNDER:- COST 31.3.2001 ` .1,12,50,000/- INDEXED COST. ` .1,23,20,051/- SALE: 28.5.2001 10,50,000/- 28.5.2001 8,25,000/- ` .18,75,000/- LONG TERM CAPITAL LOSS. ` .1,04,45,051/- THAT THE LOSS SUFFERED BY THE APPELLANT IS A GENUINE LO SS ON THE PURCHASE AND SALE OF INVESTMENTS AND OUGHT TO HAVE BEE N ALLOWED IN FULL BY THE LD ASSESSING OFFICER IN VIEW OF THE FOLLOWING:- A) THAT THE APPELLANT IS ENGAGED IN THE INVESTMENTS OF SHA RES IN A NUMBER OF COMPANIES, BESIDES THE SHARES OF MANKIND PHARMA PVT. LTD. ITA NO225/DEL/2012 7 B) THAT MANKIND PHARMA PVT. LTD. IS NOT A FAMILY COMPAN Y OF THE APPELLANT AND/OR ANY OF THE APPELLANTS RELATIVE. C) THAT THE APPELLANT IS NEITHER RELATED TO ANY OF THE DIRECTORS OF MANKIND PHARMA PVT. LTD. NOR ANY OF THE APPELLANTS RELATION IS RELATED TO ANY OF THE DIRECTORS OF MANKIND PHARMA PV T. LTD. D) THAT THE APPELLANT WAS NOT A POSITION TO CONTROL AND SUPERVISE THE AFFAIRS OF THE COMPANY MANKIND PHARMA PVT. LT D. BEING THE HOLDER OF A VERY LITTLE SHAREHOLDING IN THAT COM PANY. E) THAT THE PERSONS TO WHOM THE SHARES WERE SOLD BY THE APPELLANT NAMELY SMT. PRABHA ARORA AND SHRI RAJIV J UNEJA ARE NEITHER RELATED TO THE APPELLANT NOR RELATED TO ANY OF THE RELATIVES OF THE APPELLANT. THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER WERE REITERATED BEFORE THE CIT(A). IT IS PRESUMED THAT THE PREDECESSOR OF MINE APPLIED HIS MIND TO THE FACTS AND THE EXPLANA TION OF THE APPELLANT BEFORE ALLOWING THE LONG TERM CAPITAL LOSS. ON PERUSAL OF ALL RELEVANT FACTS, I HAVE NO REASONS TO DISAGREE WI TH THE VIEW HELD BY MY LD PREDECESSOR. THE LONG TERM CAPITAL LOSS C LAIMED AT ` .1,04,45,051/- IS THEREFORE ALLOWED. 5. AGGRIEVED, THE REVENUE HAS AGAIN FILED APPEAL BE FORE THIS TRIBUNAL. 6. THE LD DR ARGUED BEFORE US THAT IT IS A COLLUSIVE A CTIVITY ON THE PART OF ASSESSEE AND IS NOT A GENUINE TRANSACTION AS THE A SSESSEE HIMSELF SEEMS TO BE A SEASONED INVESTOR AND HE HAS BEEN IN VESTING IN MANY COMPANIES. THEREFORE, HE ARGUED THAT THE ORDER OF ASSESSING OFFICER BE UPHELD. ITA NO225/DEL/2012 8 7. ON THE OTHER HAND, LD AR ARGUED THAT ASSESSING OFFIC ER CANNOT REPLACE THE SALE VALUE OF SHARES WITH MARKET VALUE. HE FURTHER ARGUED THAT SECTION 48 CLEARLY STATES THAT SALE VALUE IS TO BE CONSIDERED FOR THE PURPOSE OF CALCULATION OF CAPITAL GAIN OR CAPITAL LO SS AND FULL VALUE WHATEVER HAS BEEN RECEIVED BY THE ASSESSEE HAS TO BE CON SIDERED AND ASSESSING OFFICERS CONTENTION THAT FULL VALUE CANNOT BE LESS THAN BOOK VALUE IS NOT CORRECT AND IS NOT AS PER LAW. . HE FURTH ER ARGUED THAT THERE IS NO EVIDENCE OF COLLUSIVE TRANSACTION AS NONE OF THE PERSON INVOLVED IN TRANSACTION OF SALE & PURCHASE RELATIVES. THE LD AR RELIED UPON THE FOLLOWING JUDGMENTS:- 1. COMMISSIONER OF INCOME TAX, WEST BENGAL, AND ANO THER. V. GEORGE HENDERSON AND CO. LTD. 66 ITR 622. 2. COMMISSIONER OF INCOME-TAX V. SMT. NILOFER I. SI NGH [2009] 309 ITR 233 (DEL) 8. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PAR TIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE CASE OF THE ASSESSEE HAD TRAVELED UP TO THE STAG E OF ITAT AND HON'BLE ITAT VIDE ITS ORDER DATED 16.12.2010 HAD REM ANDED BACK TO THE OFFICE OF LD CIT(A) BEING A NON SPEAKING ORDER OF LD CIT(A) AND AGAIN IN THE SECOND ROUND OF APPEAL THE CASE HAS REAC HED BEFORE US. WE HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND HAVE GONE THROUGH THE ASSESSMENT ORDER, LD CIT(A)S ORDER AND ORD ER OF THE HON'BLE ITAT, WE HAVE NOTED THAT SALE AND PURCHASE OF SHARE WAS DONE THROUGH CHEQUES AND TRANSFER OF SHARES WAS PROPERLY SUP PORTED BY THE TRANSFER DEEDS AND COMPLETE FORMALITIES WERE DONE BY T HE ISSUING COMPANY IN RESPECT OF ALLOTMENT OF SHARES AND TRANSFE R OF SHARES. NOTHING ADVERSE WAS BROUGHT BY THE ASSESSING OFFICER EXC EPT HIS BELIEF THAT ASSESSEE IS NOT EXPECTED TO SELL SHARES BELOW THE BOOK VALUE. SECTION 48 CLEARLY STATES THAT FOR THE PURPOSE OF CAL CULATION OF CAPITAL ITA NO225/DEL/2012 9 GAIN ON SHARES, IT IS ONLY THE SUM RECEIVED WHICH CAN BE CONSIDERED FOR CALCULATION OF CAPITAL GAIN. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE LD CIT(A) HAS RIGHTLY CON SIDERED THE LOSS DECLARED BY ASSESSEE. IN VIEW OF THE ABOVE, WE DO NOT SEE ANY REASON TO INTERFERE IN THE ORDER OF LD CIT(A). 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 10. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH DAY OF AUGUST, 2012. SD/- SD/- (R.P. TOLANI) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 9.8.2012. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 28.6.2012 DATE OF DICTATION 6.8.2012 DATE OF TYPING 7.8.2012 DATE OF ORDER SIGNED BY 9.8.2012 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET 9.8.2012 & SENT TO THE BENCH CONCERNED. ITA NO225/DEL/2012 10