Rajendra L.Agarwal, Pune V. Income-tax Officer, (International Taxation -I), Pune

ITA 2330/PUN/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1652 (ITAT-PUNE)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-07-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 05-10-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Capital asset; Depreciation; Transfer pricing; Share purchase agreement; Opportunity of being heard; Principle of natural justice; International transaction; Additional evidence; Cost of acquisition; Fair market value; Valuation report; Capital expenditure
• Section: 56; 54F; 49(4); 48; 10(33)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AW ASTHY, JM . / ITA NO. 2330/PUN/2017 / ASSESSMENT YEAR : 2012-13 SHRI RAJENDRA L. AGARWAL, 312, AURORA TOWER, CAMP, PUNE-411 001 PAN : AAPPA6210P .... / APPELLANT / V/S. THE INCOME TAX OFFICER, (INTERNATIONAL TRANSACTION-I), PUNE / RESPONDENT ASSESSEE BY : SHRI SUNIL PATHAK REVENUE BY : SHRI RAJEEV KUMAR & SHRI AJAY MODI, / DATE OF HEARING : 03.07.2018 / DATE OF PRONOUNCEMENT : 31.08.2018 / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL FILED BY ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-13, PUNE DATED 17.07.2017 FOR ASSESSMENT YEAR 2012-13. 2. THE ASSESSEE RAISED VARIOUS GROUNDS IN THE APPEAL RU NNING IN FOUR PAGES. SUBSEQUENTLY, DURING PROCEEDINGS BEFORE US, THE ASSESSE E RAISED ABRIDGED GROUNDS AND THE SAME ARE EXTRACTED AS UNDER: ON FACTS AND IN LAW, 1. THE LEARNED CIT(A) ERRED IN DENYING THE DEDUCTIO N OF RS.59,09,972/- U/S. 54F IN RESPECT OF THE FOLLOWING EXPENSES INCURRED B Y THE APPELLANT. A. SOCIETY TRANSFER FEE, DEVELOPMENT AND INFRA CHARGES RS.54,38,898/- 2 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL B. ADVOCATE FEE RS.2,68,500/- C. IMPROVEMENT EXPENSES INCURRED ON THE HOUSE RS.2, 02,574/- 2. THE LEARNED CIT(A) ERRED IN DISALLOWING THE SET OFF OF SHORT TERM CAPITAL LOSS OF RS.8,39,15,000/- INCURRED BY THE APPELLANT ON SALE OF EQUITY SHARES AGAINST THE CAPITAL GAINS CHARGEABLE TO TAX. 3. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE ABO VE TRANSACTION OF SALE OF EQUITY SHARES WAS SHAM AND NOT GENUINE. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 3. BRIEFLY STATED RELEVANT FACTS INCLUDE THAT THE ASSESSE E IS A NON-RESIDENT AND FILED RETURN OF INCOME DECLARING TOTAL INCOME AT RS.19,43,96,130 /-. THE ASSESSEE IS ENGAGED IN DIVERSE BUSINESS ACTIVITIES WHICH INCLUDE MAINTE NANCE OF RACE HORSES, TRADING IN SHARE, PROMOTION AND DEVELOPMENT OF REA L ESTATE PROPERTIES, HORSE BREEDING ETC. DURING ASSESSMENT PROCEEDINGS, THE A SSESSING OFFICER MADE CERTAIN DISALLOWANCES AND DETERMINED ASSESSEES INCOME A T RS.28,99,67,172/-. THE DETAILS OF THE DISALLOWANCES, WHICH ARE THE BONE OF CON TENTION BEFORE US, INCLUDE THE FOLLOWING: (A) THE CLAIM OF DEDUCTION U/S.54F OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) IN RESPECT OF EXPENDITURE DETA ILED IN GROUND NO. 1 OF THE APPEAL. THE ASSESSING OFFICER ADDED THE AGGREGATE SUM OF RS.61,71,472/- ON THIS ACCOUNT. (B) FURTHER, THE ASSESSING OFFICER NOTICED THAT THE ASSESSE E CLAIMED INELIGIBLE SHORT TERM CAPITAL LOSS AND, ON THIS ACCOUNT, THE A SSESSING OFFICER DISALLOWED THE LOSS OF RS.8,39,15,000/-. ASSESSED INCOME IS COM PUTED AT RS.28,99,67,170/- AGAINST THE RETURN INCOME OF RS.19.44 CROR E ( ROUNDED OFF). 4. ON THESE ADDITIONS, THE CIT(A) HELD THAT THE DISALLOWANCE OF RS.61,71,472/- AND ANOTHER SUM OF RS.2,68,500/- SHOULD BE DISALLOWED. HE, AC CORDINGLY, INCREASED THE DISALLOWANCE ON THIS ACCOUNT THE CLAIM U/S.5 4F OF THE ACT. FURTHER, 3 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL THE CIT(A) CONFIRMED THE DISALLOWANCE OF RS.8,39,15,000/-ON AC COUNT OF SHORT TERM CAPITAL LOSS AND TREATED THE SAME AS INCOME OF THE ASSESSEE. 5. AGGRIEVED WITH ALL THESE ADDITIONS, THE ASSESSEE IS IN AP PEAL BEFORE US RAISING ABRIDGED GROUNDS AS EXTRACTED ABOVE. 6. WE SHALL NOW PROCEED TO GROUND WISE ADJUDICATION IN TH E FOLLOWING PARAGRAPHS. I. CLAIM OF DEDUCTION U/S.54F OF THE ACT 7. THE GROUND NO.1 OF APPEAL RELATES TO CLAIM OF DEDUCTION U/S. 54F OF THE ACT AND DEALS WITH ALL THE THREE SUCH ISSUES I.E. (I) ALLOWABILITY OF T HE SOCIETY TRANSFER FEE OF RS.54,38,898/-; (II) ADVOCATE FEE OF RS.2,68,500/- AND (III) IMP ROVEMENT EXPENSES INCURRED ON HOUSE OF RS.2,02,574/- FOR THE PURP OSE OF SECTION 54F OF THE ACT. THE ASSESSING OFFICER IS OF THE OPINION THAT THES E AMOUNTS ARE NOT TO BE ALLOWED AS DEDUCTABLE EXPENDITURE QUA THE COST OF ACQUISITION U/S. 5 4F OF THE ACT. THE ASSESSING OFFICER DID NOT DEAL WITH THIS ASPECT MUCH IN HIS ORDER AND HOWEVER, AO HELD THEY CANNOT BE CONSIDERED COST OF ACQU ISITION OF THE ASSET. HOWEVER, THE CIT(A) DEALT WITH THIS ISSUE IN PARA 2.3.1 ONWAR DS OF HIS ORDER. THE FACTS INCLUDE THAT THE ASSESSEE OWNED LAND AT THATHAWA DE, MULSHI, PUNE AND THE SAME WAS SOLD BY ASSESSEE AND EARNED CAPITAL GAIN OF RS.2 6,37,61,074/-. OUT OF THIS AMOUNT, THE ASSESSEE INVESTED RS.16,36,33,087/- FOR PU RCHASING A RESIDENTIAL BUNGALOW AT SIND CO-OPERATIVE HOUSING SOCIETY IN THE MONTH OF NOVEMBER, 2011 AND CLAIMED DEDUCTION U/S. 54F OF THE ACT. THIS AMOUNT OF RS.16,36,33,087/- HAS FOUR SEGMENTS I.E. RS.15,73,32,013/- ( DD CHARGE FOR PAYMENT) + RS.2,68,500/-; (LEGAL FEES) + RS.2,02,574/-; AND (FITNES S EXPENDITURE OF BUNGALOW) + RS.58,30,000/- (SOCIETY SHARE TRANSFER FEES). IN THE ORDER, THE ASSESSING OFFICER NOTED THAT SOCIETY SHARE TRANSFER OF RS.5 8,30,000/- WAS PAID IN THE FINANCIAL YEAR 2011-12, THE YEAR UNDER CONSIDERATION AND THE SUM OF RS.2,02,574/- WAS INCURRED ON BUNGALOW FITNESS BEFORE OCC UPYING THE SAME. 4 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL HOWEVER, FOR WANT OF EVIDENCE AND LAW TO ALLOW SUCH EXPEN DITURE, THE ASSESSING OFFICER DISALLOWED THE SAME. THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT THE SOCIETY SHARE TRANSFER FEES WAS PAID TO THE SIND CO-OPE RATIVE HOUSING SOCIETY THROUGH CROSS ACCOUNT PAYEE CHEQUE AND HE INCURRED EXPENSES FOR MAKING THE BUNGALOW FIT FOR OCCUPATION OF RS.2,02,574/- AND FURNISHED REQ UISITE EVIDENCE. FURTHER, THE ASSESSEE SUBMITTED THAT THIS KIND OF EXPEND ITURE IS ALLOWABLE U/S.54F OF THE ACT. THE ASSESSEE CLAIMED THAT ALL THE DE TAILS ARE AVAILABLE BEFORE THE ASSESSING OFFICER. HOWEVER, THE SAME WAS IGNORED BY TH E ASSESSING OFFICER. FURTHER, REFERRING TO THE REMAND REPORT OF THE ASSESSING OFFICER ON THIS ASPECT, LD. AR SUBMITTED THAT THE ASSESSEE FILED EVIDENCES OF PAYM ENT OF SOCIETY TRANSFER CHARGES, TRANSFER OF FUNDS THROUGH THE BANK CHANNELS, OT HER EVIDENCES WHICH WERE SENT TO ASSESSING OFFICER BY THE CIT(A) FOR AOS COMM ENTS. NO ADVERSE FINDING WAS GIVEN BY THE ASSESSING OFFICER IN THIS RESPECT AN D THEREFORE, THE CLAIM OF ASSESSEE SHOULD HAVE BEEN ALLOWED BY THE CIT(A) INSTEA D OF RESORTING TO CONFIRMING TO THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. EVENTU ALLY, THE CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER ON ALL THESE AC COUNTS AS PER DISCUSSION GIVEN IN PARA 2.3 AND ITS SUB PARAS. FOR THE SAKE OF COMPLETENESS, PARA 2.3.12 TO 2.3.17 ARE EXTRACTED HEREIN BELOW FOR WANT OF REASONS TO THE DECISION OF CIT(A). 2.3.12 FURTHER, THE LEGAL POSITION MAY BE APPRECIAT ED THAT IN THE ABSENCE OF THE REVISED AGREEMENT, THE BUYER ALWAYS HAS THE RIGHT T O RECOVER THIS PAYMENT MADE BY HIM FROM THE SELLER OR HE MAY HAVE RECOVERED IN CAS H FROM THE SELLER. THEREFORE , THE PAYMENT CANNOT BE ALLOWED IN THE HANDS OF THE APPEL LANT BECAUSE THE PAYMENT OF THE SOCIETY CHARGES WAS THE SELLER'S LIABILITY ACCO RDING TO THE AGREEMENT. THIS LIABILITY CAN BE ENFORCED ANYTIME UNDER THE LAW BY THE BUYER . IN THE CASE OF THE APPELLANT ENFORCING THE LIABILITY ON THE SELLER, TH E DEDUCTION ALLOWED TO THE APPELLANT MERELY BECAUSE HE HAS PAID SUCH EXPENSES WOULD BECO ME INCORRECT AS HE ALREADY MAY HAVE RECOVERED THE AMOUNT IN CASH O R EVEN BY CHEQUE AT A LATER DATE. THEREFORE , THE DEDUCTION OF RS.54,38,898/- CANNOT BE ALLOWED IN THE HANDS OF THE APPELLANT IN THE ABSENCE OF THE APPELLANT WAIVING H IS RIGHTS OVER THE SELLER WITH RESPECT TO THIS PAYMENT. 2.3 . 13 WITH RESPECT TO THE REMAINING AMOUNT OF RS.9,71, 472 , I FIND THAT T HE LEARNED AO HAS NOT QUESTIONED THE GENUINENESS OF THE EXPEND I TURE NOR HAS HE DOUBTED THE NATURE OF THE EXPENDITURE . THE APPELLANT HAS STATED THAT IT HAS I NCURRED THE TOTAL EXPENDITURE OF RS.16,32,41,985 AS A COST OF PURCHAS ED RESIDENTIAL HOUSE PROPERTY. THE BREAK-UP OF THE EXPENDITURE IS AS UNDER : 5 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL AMOUNT (RS.) COST OF BUNGALOW INCLUDING STAMP DUTY, REGISTRATION CHARGES AND BANK CHARGES 15,73,32,013/- LEGAL EXPENSES 2,68,500/- EXPENSES INCURRED FOR MAKING THE BUNGALOW FIR FOR OCCUPATION 2,02,574/- SOCIETY SHARE TRANSFER FEE AND INFRASTRUCTURE CHARGES 54,38,898/- 16,32,41,985/- 2.3.14 WITH RESPECT TO THE LEGAL EXPENSES OF RS 2,6 8,500, IT CANNOT BE CONSIDERED TO BE PAYABLE TO THE SOCIETY. THERE IS NO PROVISION IN LAW TO ALLOW THE DEDUCTION OF THE LEGAL EXPENSES INCURRED TOWARDS THE INVESTMENT MADE IN THE RESIDENTIAL PROPERTY. THE LAW GRANTS THE DEDUCTION OF THE EXPENSES INCURR ED IN CONNECTION WITH TRANSFER OR EXPENSES, WHICH ARE INTEGRAL PART OF THE INVESTMENT BUT THE LAW DOES NOT GRANT THE DEDUCTION OF EXPENSES INCURRED IN CONNECTION WITH T HE INVESTMENT MADE IN THE PROPERTY. LEGAL EXPENSES IN MY VIEW, CANNOT BE CONS IDERED AS AN INTEGRAL PART OF THE COST OF THE PROPERTY. ACCORDINGLY, I CONFIRM THE DE CISION OF THE LEARNED AO TO NOT TO GRANT THE DEDUCTION OF THE LEGAL EXPENSES OF RS 2,6 8,500. 2.3.15 AS FAR AS THE EXPENSES OF RS 2,02,574 INCURR ED FOR MAKING THE BUNGALOW FIT FOR OCCUPATION IS CONCERNED, THE LEARNED AO HAS DIS ALLOWED IT BECAUSE IT HAS NOT BEEN INCURRED TOWARDS THE TRANSFER OF THE CAPITAL A SSET OF THE LAND SOLD. HOWEVER, IN MY VIEW, THE DEDUCTION CANNOT BE DENIED ON THAT GRO UND. ACCORDING TO ME, THE EXPENDITURE INCURRED TO MAKE THE RESIDENCE FIT FOR OCCUPATION CAN BE ALLOWED IF BY INCURRING SUCH EXPENDITURE INHABITABLE BUILDING CAN BE CONVERTED IN TO HABITABLE RESIDENCE. 2.3.16 THEREFORE, THE ISSUE HERE IS NOT OF THE LAW BUT OF THE FACTS. THE APPELLANT HAS NOWHERE MENTIONED THAT HOW THE INCURRING OF THE EXP ENDITURE OF RS 2,02,574 MADE THE BUNGALOW FIT FOR OCCUPATION, WHICH OTHERWISE WA S NOT FIT FOR HABITATION. NORMALLY, REPAIRS OR EXPENDITURE INCURRED ON PROPER TY WOULD MAKE IT HABITABLE ACCORDING TO THE REQUIREMENTS OR TASTE OF THE PURCH ASER. HOWEVER, IN ORDER TO CONSTITUTE REPAIRS AS A PART OF THE INVESTMENT IN R ESIDENCE, SUCH REPAIRS SHOULD BE SUCH THAT IT WOULD CONVERT THE INHABITABLE PROPERTY INTO THE PROPERTY FIT FOR HABITATION. SUCH FACT RELATED TO THE NATURE OF THE REPAIRS CARRIED OUT BY THE APPELLANT HAS NOT BEEN BROUGHT OUT BY THE APPELLANT. THEREFO RE, I CONSIDER THAT THE APPELLANT HAS INCURRED EXPENDITURE FOR IMPROVEMENT OF THE. PR OPERTY. ACCORDINGLY, I AGREE WITH THE LEARNED AO THAT THE DEDUCTION OF RS 2,02,574 CA NNOT BE GRANTED. 2.3.17 WITH THE RESULT, I CONFIRM THE DENIAL OF T HE TOTAL DEDUCTION AMOUNTING TO RS.61,71,472/- AS DONE BY THE LEARNED AO. AS PER THE CIT(A), THE ASSESSEE IS A BUYER OF THE BUNGA LOW AND THE SOCIETY TRANSFER FEE NEEDS TO BE PAID BY THE SELLER. FURTHER, THE LEGAL EXPENDITURE + ADVOCATE EXPENDITURE + FITNESS EXPENDITURE CANNOT BE INC LUDED IN THE COST OF ACQUISITION. AGGRIEVED WITH THE SAID ORDER OF THE CIT(A), THE ASSESSEE FILED THE PRESENT APPEAL WITH THE GROUNDS EXTRACTED ABOVE. 6 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL BEFORE THE TRIBUNAL 8. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE AMOUNTS I.E. RS.54,38,898/- + RS.2,68,500/- + RS.2,02,574/- TOTALING RS. 59,09,972 /- ARE REQUIRED TO BE ALLOWED AS DEDUCTABLE EXPENDITURE FOR THE PURPOSE OF SECTION 54F OF THE ACT FOR THE FOLLOWING REASONS: A. REFERRING TO THE LEGAL EXPENDITURE OF RS.2,68,500/-, LD. CO UNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID AMOUNT WAS PAID FOR (I) TITLE SEARCH (II) PROPERTY CONSULTANCY (III) LEGAL CONSULTANCY. ALL THESE WERE INCURRED IN C ONNECTION WITH THE INVESTMENT OF CAPITAL GAINS IN THE RESIDENTIAL BUNGALOW LOCAT ED AT SINDH CO- OPERATIVE HOUSING SOCIETY, PUNE. RELYING ON THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. BENGAL ASSAM INVESTORS LTD ., 72 ITR 319, THE LD. COUNSEL SUBMITTED THAT LEGAL EXPENSES INCURRED IN CONNECT ION WITH THE ASSET AND TITLE SEARCH VERIFICATION ETC. CONSTITUTES ALLOWABLE EXPENDITU RE AS PART OF THE COST OF ACQUISITION. IT WAS SO DECIDED RELYING ON THE APEX COUR T JUDGMENT IN THE CASE OF HOWRAH TRADING CO. LTD. VS. CIT, 36 ITR 215 (SC). FURTHER , THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THE DECISION OF HON'BLE CALCUTTA HIGH COURT IS VERY MUCH RELEVANT IN THE INSTANT CASE FOR THE FOLLOWING LEGAL PROPOSITIONS: EXPENDITURE INCURRED FOR GETTING SHARES REGISTERED IN THE NAME OF THE ASSESSEE AND FOR CONDUCTING SUITS FILED FOR AMENDING THE RULES O F THE COMPANY HAS TO BE CONSIDERED AS CONSTITUTING PART OF COST OF ACQUISIT ION FOR PURPOSE OF COMPUTATION OF CAPITAL GAIN . 9. THE LD. DR FOR THE REVENUE HEAVILY PLACED RELIANCE ON THE ORDERS OF ASSESSING OFFICER AND THE CIT(A). 10. ON HEARING BOTH THE PARTIES, ON THE ALLOWABILITY OF RS.2 ,68,500/-, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER DISALLOWED THE CLAIM O F THE ASSESSEE FOR WANT OF EVIDENCE. WE ALSO FIND THAT THERE WAS REQUIREMENT OF LEGAL ASSISTANCE AS WELL AS REQUIREMENT OF LEGAL CONSULTANCY AND OTHER TITLE SEA RCH ACTIVITIES BEFORE 7 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL INVESTMENT IS MADE IN A BUNGALOW. IN OUR OPINION, FURNISHING ALL THE DETAILS BY ASSESSEE THE ASSESSING OFFICER IS THE LEGAL REQUIREMENT WHE N THE ASSESSEE MAKES A CLAIM BEFORE HIM. THE PRINCIPLES OF ONUS DEMANDS THAT THE ASSESSEE SHALL DEMONSTRATE, THE SAID EXPENDITURE WAS ACTUALLY INCURRED IN CONNECTION WITH THE ASSET UNDER CONSIDERATION AND NOT IN CONNECTION WITH OTH ER ASSET, IF ANY. WITH THESE OBSERVATIONS, WE REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATION AND ALLOW THE CLAIM OF ASSESSEE SUBJECT TO FURNISH ALL THE EVIDENCES AND DETAILS. THE ASSESSING OFFICER SHALL GRANT RE ASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH SET PRIN CIPLES OF NATURAL JUSTICE. ACCORDINGLY, FIRST PART OF GROUND NO.1 RAISED IN AP PEAL BY ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE . 11. THE SECOND PART OF THE GROUND NO. 1 RELATES TO IM PROVEMENT/FITNESS EXPENSE INCURRED ON THE HOUSE AT RS.2,02,574/-. IT IS THE CLAIM OF THE ASSESSEE THAT THIS EXPENDITURE WAS INCURRED FOR MAKING NEW ASSET I.E. RESIDENTIAL BUNGALOW OF SIND CO-OPERATIVE HOUSING SOCIETY FIT FOR HABITATION/OCCUP ATION OF THE ASSESSEE. AGAIN, IT IS THE CASE OF THE ASSESSING OFFICER TH AT THE ASSESSEE FAILED TO FURNISH REQUISITE EVIDENCES. IN OUR VIEW, FURNISHING ALL THE DETAILS BY AS SESSEE AND EXAMINING THE SAME BY THE ASSESSING OFFICER, THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED IN PRINCIPLE. HOWEVER, THE ASSESSEE IS UNDER OBLIGATION TO FURNISH NECESSARY DOCUMENTS REGARDING EXPENDITURE INCURRED BEFO RE THE ASSESSING OFFICER AND THE ASSESSING OFFICER WITH SIMILAR DIRECTIONS AS GIVEN PAR A 10 OF THIS ORDER, SHALL ALLOWED THE CLAIM OF ASSESSEE. THE ASSESSING OFFICER SHALL GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANC E WITH SET PRINCIPLES OF NATURAL JUSTICE. ACCORDINGLY, SECOND PART OF GROUND NO.1 RAISED IN A PPEAL BY ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE . 12. THE THIRD PART OF GROUND NO. 1 RELATES TO ALLOWABILITY O F SOCIETY TRANSFER FEE, DEVELOPMENT AND INFRA CHARGES OF RS.54,38,898/-. THE ASSES SING OFFICER 8 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL DISALLOWED THIS CLAIM HOLDING THAT THESE EXPENSES WERE INCUR RED IN THE ASSESSMENT YEAR 2013-14 AND NOT DURING THE ASSESSMEN T YEAR 2012-13. FURTHER, THE ASSESSEE FAILED TO PRODUCE DOCUMENTARY EVIDENCE IN S UPPORT OF THE CLAIM. THE CIT(A) IN PARA 2.3.12, HELD THAT THE PAYMENT OF THE SOCIET Y CHARGES WERE THE SELLERS LIABILITY ACCORDING TO THE AGREEMENT AND NOT THAT OF THE ASSES SEE. 12.1 BEFORE US, LD. COUNSEL FOR THE ASSESSEE FILED ADDITIONAL E VIDENCES, BY WAY OF CORRECTED UNREGISTERED AGREEMENT SHOWING (A) THE ENHA NCED CONSIDERATION TO THE EXTENT OF THE SAID SOCIETY TRANSFER FEES AND (B) TAKIN G SELLERS RESPONSIBILITY TO MAKE PAYMENT TO THE SOCIETY TRANSFER CHARGES TO SINDH CO-OPERATIVE HOUSING SOCIETY. IT IS NOT THE CASE OF THE REVENUE THAT THE SIND H CO-OPERATIVE HOUSING SOCIETY PAID THE AMOUNT TO ASSESSEE IN CASH OUTSIDE THE BOOKS. AS PER LD. AR, IN VIEW OF THE ADDITIONAL EVIDENCES, THE ISSUE MAY GO BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION. LD. DR HOWEVER, SUBMITTED THAT THE SA ID CORRECTED AGREEMENT CONSTITUTES AN AFTERTHOUGHT AND IT SHOULD NOT BE ADMITTE D. REBUTTING THE SAME, THE LD.AR FILED WRITTEN NOTES ON THIS ISSUE AND REQUESTED FOR ADMISSION AS WELL AS ADJUDICATION. FOR THE SAKE OF COMPLETENESS, THE SAME IS EXTRACTED AS UNDER: 1.2 SOCIETY TRANSFER FEE - THE ASSESSEE PURCHASED BUNGLOW IN SINDH CO-OP SOCIE TY FROM SHRI DILIP GONDHALEKAR AND SHRI PRADEEP GONDHALEKAR. FOR THIS PURPOSE, THEY HAD ENTERED INTO AN UNDERSTANDING ( PAGE 106 AND 107) AS PER WH ICH THE ASSESSEE WAS TO PAY A SUM OF RS.15,51,00,000/- TO THE SELLERS AND THE SEL LERS WERE TO INCUR THE LIABILITY OF THE SOCIETY TRANSFER CHARGES. LATER ON, IT WAS DECI DED BETWEEN THEMSELVES THAT THE ASSESSEE WOULD INCUR SOCIETY CHARGES AND ACCORDINGL Y, HE PAID A SUM OF RS.14,98,02,000/- TO THE SELLERS AS PER THE SALE DE ED ( PAGE 71 TO 107). HOWEVER, INADVERTENTLY, THE SALE DEED ON PAGE 76 MENTIONED T HAT THE SELLERS WOULD BEAR THE SOCIETY TRANSFER CHARGES OF RS.52 LAKHS OUT OF THE ABOVE CONSIDERATION RECEIVED FROM THE ASSESSEE. IN FACT, THE CONSIDERATION WAS REDUCE D FROM RS.15.51 CRS. EARLIER AGREED, TO RS.14,98,02,000/- FOR THE REASON THAT TH E ASSESSEE WOULD BEAR THE SOCIETY TRANSFER CHARGES. 1.3] IN REALITY, THE ASSESSEE HAS PAID THESE CHARG ES OF RS.53,23,000/- TO THE SOCIETY AND THE COPIES OF THE DEMAND DRAFTS ARE ENCLOSED ON PAGE 108 AND ON PAGE 113, THE ASSESSEE HAS GIVEN THE EXTRACT OF ACCOUNT OF THIS B UNGALOW IN HIS BOOKS WHEREIN THE WITHDRAWALS FROM ICICI BANK FOR THE PURPOSES OF THE ABOVE DDS ARE REFLECTED. 1.4] THE A.O. AND THE CIT(A) DENIED THIS DEDUCTION ON THE GROUND THAT AS PER THE SALE DEED, THE SELLERS WERE TO INCUR THIS LIABILITY . THE APPELLANT CONTENDED THAT IT WAS A MISTAKE IN THE SALE DEED. AS THE CONSIDERATIO N WAS REDUCED FROM RS.15.51 CRS. AS ORIGINALLY AGREED (PAGE 106) TO RS.14,98,02 ,000/-, IT WAS UNDERSTANDING 9 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL BETWEEN THE APPELLANT AND THE SELLERS THAT THE APPE LLANT WOULD BEAR THE SOCIETY TRANSFER CHARGES. THE CIT(A) HELD THAT THE APPELLAN T HAD NOT PROVED THAT THE LIABILITY WAS TO BE INCURRED BY HIM AND NOT BY THE SELLERS AN D THUS, HE DENIED THE DEDUCTION. 1.5] THE APPELLANT SUBMITS THAT AFTER THE CIT(A) DE CISION HE HAS ENTERED INTO A SUPPLEMENTARY AGREEMENT DATED 13.09.2017 FOR CORREC TING THE ORIGINAL DEED. THIS AGREEMENT IS PLACED ON PAGE 211 OF PAPER BOOK 2 AND THE SELLERS HAVE CONFIRMED IN THIS AGREEMENT THAT THEY HAD NOT BORNE THE TRANSFER FEE AND IT WAS TO BE BORNE BY THE APPELLANT. AS THIS AGREEMENT IS MADE AFTER THE DECISION OF CIT(A), IT IS PRODUCED AS AN ADDITIONAL EVIDENCE. THE APPELLANT SUBMITS TH AT THE SAME MAY KINDLY BE ADMITTED AS IT IS NECESSARY TO DECIDE THIS GROUND O F APPEAL. THUS, THE APPELLANT REQUESTS FOR ALLOWANCE OF THE ABOVE DEDUCTION OF TR ANSFER FEE U/S 54F. 1.6] IN THIS CONTEXT, THE LEARNED CIT D.R. SUBMITTE D THAT THE FACTS NOT BEING ON RECORD, THE ADDITIONAL GROUND SHOULD NOT BE ADMITTE D. SECONDLY, THE SALE DEED IS VERY CLEAR THAT THE SELLERS HAD TO BEAR THE TRANSFE R FEE AND NOT THE APPELLANT. SECONDLY, HE SUBMITTED THAT THE TRANSFER FEE IS PAI D IN THE NEXT YEAR AND THEREFORE, THE DEDUCTION SHOULD NOT BE ALLOWED. 1.7] IN REPLY, IT WAS CLARIFIED THAT THE ASSESSEE I S NOT SUBMITTING ANY ADDITIONAL GROUND BUT IT IS A CASE OF SUBMISSION OF ADDITIONAL EVIDENCE IN THE FORM OF THE CORRECTION DEED. THEREFORE, THERE IS NO NECESSITY T HAT THE FACTS SHOULD BE ON RECORD AS CONTENDED BY THE LEARNED D.R. SECONDLY, EVEN BEF ORE THE CIT(A), THE ASSESSEE HAD CLARIFIED THAT HE HAD BORNE THE SOCIETY TRANSFE R FEE AND NOT THE SELLERS. THUS, THE CORRECTION DEED IS NOTHING BUT THE CONFIRMATION BY THE SELLERS OF THE FACTUAL POSITION PLACED BY THE ASSESSEE IN THE APPELLATE PROCEEDINGS . SECONDLY, IT WAS SUBMITTED THAT THE FACT THAT THE TRANSFER FEE IS PAID IN THE NEXT YEAR IS IRRELEVANT BECAUSE FOR THE PURPOSES OF COMPUTATION OF CAPITAL GAINS, THE Y EAR IN WHICH SUCH EXPENDITURE IS INCURRED IS IRRELEVANT. WHAT IS MATERIAL IS THAT TH IS TRANSFER FEE IS PAID FOR THE PURPOSES OF ACQUISITION OF THE NEW HOUSE BY THE ASS ESSEE AND THUS, IT IS A PART OF THE COST OF THE HOUSE. LASTLY, RELIANCE WAS PLACED ON BOMBAY H.C. DECISION IN THE CASE OF SUSHILA ZAVERI [286 ITR 428] WHEREIN THE CO URT HAS HELD THAT SUBSEQUENT EVENTS TILL THE STAGE OF DECISION MUST BE CONSIDERE D BY AN AUTHORITY. IN VIEW OF THESE FACTS, IT WAS SUBMITTED THAT THE ASSESSEE IS JUSTIF IED IN MAKING THE ABOVE CLAIM OF TRANSFER FEE U/S. 54F. 12.2 ON CONSIDERING THE NEWLY FILED DOCUMENTS WHICH WERE N OT EXISTED AT THE RELEVANT POINT OF TIME, WE ARE OF THE OPINION THAT IT IS IN T HE INTEREST OF JUSTICE THAT THESE DOCUMENTS ARE ADMITTED AND REMITTED BACK TO THE FILE OF ASS ESSING OFFICER TO CONSIDER THE SAME AND DECIDE THE ISSUE AFRESH AFTER CONS IDERING ENHANCED AMOUNT RECEIVED BY THE ASSESSEE AND THE FACT OF MAKING PAYMENT OF ASSESSEE TO SIND CO-OPERATIVE HOUSING SOCIETY TOWARDS SOCIETY TRANSFER FEES. 12.3 FURTHER, ON PERUSAL OF THE BANK STATEMENTS, WE FIND T HAT THE ASSESSEE ACTUALLY RECEIVED HIGHER SUM THAN THE AMOUNT SPECIFIED IN THE ORIGINAL SALE REGISTERED DEED AND PAID THE SAME TO THE SINDH CO-OPER ATIVE SOCIETY AS PER THE DEMAND OF SINDH CO-OPERATIVE HOUSING SOCIETY. IT IS UNDISPU TED FACT. THEREFORE, 10 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL WE ARE OF THE OPINION THAT IN PRINCIPLE, THE CLAIM OF THE AS SESSEE SHOULD BE ALLOWED ON THE ENHANCEMENT WHICH WAS CONSIDERED BY THE AO. HOWE VER, THE SAME IS SUBJECT TO THE VERIFICATION OF THE EVIDENCE AND DOCUME NTS FILED BY ASSESSEE BEFORE THE ASSESSING OFFICER DURING REMAND PROCEEDINGS. THE ASSESSING OFFICER SHALL GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH SET PRINCIPLES OF NATURAL JUSTICE. ACCORDINGLY, THIRD PART OF THE GROUND NO. 1 IS ALLOWED FOR STATISTICAL PURPOSE . 13. IN THE RESULT, GROUND NO.1 RAISED IN APPEAL BY ASSESS EE IS ALLOWED FOR STATISTICAL PURPOSE. II. CLAIM OF SHORT TERM CAPITAL LOSS GROUND NOS. 2 AND 3 14. GROUND NO.2 RAISED IN APPEAL BY ASSESSEE RELATES TO DISALLOWANCE OF SHORT TERM CAPITAL LOSS OF RS.8,39,15,000/-. THE BACKGROUND FACTS OF THE ISSUE, AS P ER ASSESSMENT ORDER, INCLUDE THAT THE ASSESSEE PURCHASED 3.50 LAKH SHARES OF M/S. SHIVALIK GOLF & FOREST RESORTS LTD. (IN SHORT THE SHIVALIK) FROM M/S. INSTANT AUTOGAS EQPT. MFG. PVT. LTD. (IN SHORT THE INSTANT), NEW DELHI FOR TOTAL CONSIDERATION OF RS.8,50,00,000/- IN OCTOBER, 2011. HOWEVER , THE TOTAL BOOK VALUE OF THE 3.50 LAKH SHARES IN FINANCIAL STATEMENT OF THE INSTANT IS RS.7,00,00,000/- (RS.200/- PER SHARE). THE PURCHASE CONSID ERATION FOR SHARE WORKS OUT AROUND RS.242.86/- PAISE PER SHARE (RS.8,50,00,00 0/-/3,50,000 SHARE). THUS, THE EACH SHARE WITH BOOK VALUE OF RS.200/- P ER SHARE IS PURCHASED BY THE ASSESSEE @ RS.242.85/-PAISE. FOR WANT OF VALUATION REPORT, THE ASSESSING OFFICER DISBELIEVED THE TRANSACTION OF PURCHASE OF THE ASSES SEE. FURTHER, ASSESSEE SOLD THE SAID 3.50 LAKH SHARES ON 07.03.2012 TO TAPTI SYN THETHIC PVT. LTD. (IN SHORT THE TAPTI) FOR SALE VALUE OF RS.10,85,000/- ( RS.3/- PER SHARE). THUS, THE ASSESSEE SOLD THE SHARE WITH THE LOSS OF RS.240/- PER SH ARE APPROXIMATELY WITH IN GAP OF 5 MONTHS ONLY. AS SUCH, THERE IS NO VALUATION REP ORT TO SUPPORT THE SALE 11 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL PRICE OF THE SHARES AS ON MARCH, 2012. CONSEQUENTLY TH E ASSESSING OFFICER DISAPPROVED THE CLAIM OF SHORT TERM CAPITAL LOSS FOR RS.8,39,1 5,000/-. THE ASSESSING OFFICER DISCUSSED THIS ISSUE AT PARA 7 OF THE ASS ESSMENT ORDER AND THE SAME IS EXTRACTED AS UNDER: 07. SHARES OF SHIVALIK GOLD & FOREST RESORTS LTD. THE ASSESSEE DURING THE YEAR HAS SOLD SHARES AS U NDER: THE 3,50,000 SHARES OF SHIVALIK GOLF & FORESTS RESORTS LTD. WAS ACQUIRED BY THE ASSESSEE FROM INSTANT AUTOGAS EQPT. MFG. PVT. LTD., NEW DELHI FOR A TOTAL CONSIDERATION OF RS. 8,50,00,000/- IN OCTOBER, 2011. THE ASSESSEE ALSO SUBMITTED BALANCE SHEET AS ON 31/03/2006 OF INSTANT AUTOGAS EQPT. MFG. PVT. LTD. WHEREIN 3,50,000/- SHARES OF SHIVALIK GOLF & FORESTS RESORTS LTD. ARE REFLECTED AS INVESTMENT. THE TOTAL VALUE OF WHICH AS MENTION IS RS. 7,00,00,000/- ). HOWEVER, NO VALUATION REPORT SUBSTANTIATING THE COST OF ACQUISI TION OF THESE SHARES AS ON OCTOBER, 2011 HAS BEEN SUBMITTED BY THE ASSESSEE. SIMILARLY, NO VALUATION REPORT OF THE SHARES AS ON MACH, 2012 I.E. THE DATE OF SALE OF SH ARES 0 TAPTI SYNTETHIC PVT. LTD. HAS BEEN PROVIDED BY THE ASSESSEE. IN THE ABSENCE O F A DOCUMENTARY EVIDENCE SUBSTANING EITHER THE COST OF ACQUISITION OR VALUE OF SALE CONSIDERATION THE ENTIRE LOSS FROM SHORT TERM CAPITAL GAIN OF RS. 8,39,15,000/- HAS BEEN DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. PENALTY, PROCEEDINGS U/S. 271(1) (C) ARE INITIATED SEPARATELY FOR FURNISHING IN ACCURATE PARTICULARS O F INCOME. THEREFORE, AO SUSPECTED THE PURCHASE AND SALE TRANSAC TION OF SHARES WHICH GAVE RISE TO THE SHORT TERM CAPITAL LOSS OF RS.8.39 CRORE AND TREATED THE SAME AS INCOME OF THE ASSESSEE. ASSESSED INCOME IS DETERMINED AT RS.28,99,67 ,172/-. 15. BEFORE THE CIT(A) : DURING FIRST APPELLATE PROCEEDINGS, THE ASSESSEE FURNISHED VALUATION REPORTS BOTH AT THE TIME OF ACQUIRING S HARES AND ALSO AT THE TIME OF SALE OF SHARE TO THE TAPTI. FURTHER, ASSESSEE FILE D WRITTEN SUBMISSIONS S / N DETAILS DATE OF YEAR OF ACQ. (QTY X RATE) COST OF ACQ. INDE XED COST OF ACQ. INDEX ED IMPR OVE MENT COST SALE DATE SALE CONSID - ERATIO N SELLI NG EXPE NSES EXEM P TIONS BOOK PROFIT CAPTIAL GAIN 1 SHIVALIK GOLF & FOREST RESORTS LTD. 31.03.20 11 85000000 N/A N/A 07.03.20 12 1085000 0 0 0 -83915000 TOTAL 85000000 N/A N/A 1085000 0 0 0 -83915000 12 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL AND THE SAME ARE EXTRACTED IN PARA 2.5.2 OF THE ORDER OF CIT(A). REMANDING THE SAME TO AO, THE CIT(A) CALLED FOR REMAND REPORT FROM HIM. T HE SAID VALUATION REPORTS WERE FURNISHED BY ASSESSEE FOR THE FIRST TIME BEFO RE THE CIT(A). THE ASSESSEE ALSO FURNISHED OTHER EVIDENCES BEFORE THE CIT(A ). THE REMAND REPORT IS EXTRACTED IN PARA 2.5.3 OF THE ORDER OF CIT(A). THE ASSES SING OFFICER DID NOT ACCEPT THE SAID VALUATION REPORTS AND HELD THE ASSESSEE DID NOT ADOPT FAIR AND SUSTAINABLE METHODS FOR VALUATION OF UNQUOTED SHARE SOLD IN OFF MARKET AND THEREFORE, AS PER REVENUE ADDITIONAL EVIDENCE WAS NOT TO BE ADMITTED BY THE CIT(A). IN THE SAID VALUATION REPORTS, THE VALUER FOLLOWED N AV METHOD FOR PURCHASING OF SHARE FROM THE INSTANT AND FOLLOWED DISCOU NTED CASH FLOW (DCF) METHOD FOR SALE OF THE SHARE TO THE TAPTI. THE CIT(A) CON SIDERED THE REMAND REPORT AND DISCUSSED THE CONTENTS OF VALUATION REPORT A ND ALSO TOOK NOTE OF THE ASSESSEES REPLY ON THE REMAND REPORT PREPARED BY T HE ASSESSING OFFICER. HOWEVER, AS SUCH, THERE IS NO CATEGORICAL REJECTION REGAR DING VALUATION REPORT OF THE ASSESSEE IN THE ORDER OF CIT(A). EVENTUALLY, CIT(A) IS OF THE OPINION THAT THE VALUATION REPORT FURNISHED BY THE ASSESSEE DOES NOT MEE T THE QUALITY STANDARD. IN THIS REGARD, THE CIT(A) DISCUSSED THE FACT THAT THE VA LUATION OF SHARES OF THE SHIVALIK WAS DONE WITHOUT PHYSICAL VERIFICATION OF THE PREMISE S AND ALSO QUESTIONED ABOUT THE PRUDENCE OF ASSESSEE ENTERING INTO SUCH TRANSACTIONS. THE CIT(A) FURTHER HELD THAT NO PRUDENT BUYER WOULD PURCHASE SHARE OF A COMPANY @ RS.242.85 PER SHARE IN OCTOBER, 2011 AND SOLD EACH SHARE @ RS.3.10/- PAISE PER SHARE ON 07.03.2012 I.E. WITHIN GAP OF 5 MONTHS ONLY. HE ALS O DISCUSSED THAT WITHIN THE GAP OF 5 MONTHS, THERE IS NO REASON FOR THE SH ARE PRICE TO FALL FROM RS. 242/-. THE ASSESSEE EXPLAINED ABOUT THE COURT LITIGATION O N THE PROPERTY HELD BY THE COMPANY I.E. THE SHIVALIK . HOWEVER, THE ASSESSEE NE ITHER ELABORATED NOR HAS SUBSTANTIATED THE NATURE OF THE COURT LITIGATION FACED BY THE SHIVALIK BEFORE THE CIT(A). EVENTUALLY, THE CIT(A) REJECTED THE CONTENTIONS OF THE ASSESSEE. REFERRING TO THE DCF METHOD, THE CIT(A) COMMENTED THAT THE ASSE SSEES VALUATION REPORT 13 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL DOES NOT PROVIDE ANY BASIS FOR USING THE PARTICULAR DISCOU NTING FACTOR OF 16.75%. THE ASSESSEE ADOPTED NAV METHOD WHILE PURCHASING 3,50,00 0 SHARES FROM THE INSTANT. EVENTUALLY, RELYING ON THE DECISION OF HON'BLE S UPREME COURT OF INDIA IN THE CASE OF CIT VS. DURGA PRASAD MORE, 82 ITR 540 (SC), THE CIT(A) HELD THAT THE VALUATION REPORT OF THE ASSESSEE ARE UNRELIABLE. THE CIT(A) FURTHER HELD THAT THE ASSESSEE FAILED TO DEMONSTRATE CORRECTNESS OF THE SHORT TERM CAPITAL LOSS. FOR WANT OF GENUINENESS OF THE VALUATION REPORT, THE CIT(A) CON FIRMED THE FINDINGS OF ASSESSING OFFICER ON THE ASSESSEES CLAIM OF SHORT TERM CA PITAL LOSS OF RS.8,39,15,000/-. CONTENTS OF PARA 2.5.9 TO 2.5.19 OF THE ORDE R OF CIT(A) ARE RELEVANT IN THIS REGARD AND THE SAME ARE EXTRACTED AS UNDER: 2.5.9 I HAVE CONSIDERED THE FACTS AND ARGUMENTS OF THE APPELLANT. ACCORDING TO ME THE APPELLANT HAS ESTABLISHED THE EXISTENCE OF THE SELLER (INSTANT AUTOGAS) FROM WHOM THE APPELLANT PURCHASED THE SHARES OF SHIVALIK GOLF AND FOREST RESORTS PVT. LTD. THE APPE L LANT HAS ALSO FU R NISHED THE PHOTOCOPIES OF THE SHARE CERTIFICATES, WH I CH HAVE NOT BEEN DOUBTED BY THE LEARNED AO. HOWEVER , ACCORDING TO ME, THESE FACTS ARE NOT RELEVANT AS FAR AS THE QUANTUM OF LOS S CLAIMED BY THE APPELLANT IS CONCERNED . 2 . 5 . 10 AT THE OUTSET, THE LEGAL POSITION NEEDS T O BE APPRECIATED THAT I T IS THE APPELLANT WHO HAS CLAIMED THE LOSS AND HAS REDUCED HIS TAX LIABILITY . THEREFORE, THE ONUS I S ON THE APPELLANT TO ESTABL I SH THAT IT HAS INDEED INCURRED LOSS C L AIMED BY HIM . I N THIS CONNECTION, I T MAY BE SEEN THAT THE APPELLANT HAS PURCHASED SHAR ES @ RS.242 . 85 PER SHARE OF THE UNLISTED COMPANY, WHICH HAS THE FOLLOWING FINANCIAL TRACK RECORD. ACTUAL FINANCIAL OF SHIVALIK GOLF & FORESTS RESORTS PVT.LTD. PROJECTED FINANCIALS OF SHIVALIK GOLD & FORESTS RES ORTS PVT. LTD. SR. NO. PARTICULARS 31 MAR, 09 31 MAR 10 31 MAR 11 1 REVENUE 3,57,785 3,65,745 3,72,500 2 EXPENDITURE (ADJUSTED FOR LOSS ON ACCOUNT OF SHARE AND FIXED ASSETS) 51,21,330 32,72,506 49,38,864 3 NET PROFIT/LOSS AS PER PROFIT AND LOSS ACCOUNT (47,63,345) (29,06,761) (45,66, 364) SR. NO. PARTICULARS 31 MAR, 12 31 MAR 13 31 MAR 14 1 REVENUE 3,91,125 4,10,681 4,31,215 14 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL 2 . 5.11 FOR THE VALUATION OF SHARE, THE CHARTERED ACCO UNTANT HAS USED THE PROJECTED VALUATION OF ASSET. THIS VALUATION HAS BEEN DONE ON THE BASIS OF THE DATA, DOCUMENTS AND INFORMATION PROVIDED TO THE VAL UER. IN OTHER WORDS, THE VALUATION OF THE SHARES OF SHIVALIK GOLF AND FOREST RESORTS LTD IS APPARENTLY DONE WITHOUT PHYSICALLY EXAMINING THE ASSETS, WITHOUT AS CERTAINING ANY ENCUMBRANCES ON THE ASSETS HE COMPANY . THESE FACTS MATTER BECAUSE THE APPELLANT HAS I NVESTED AN AMOUNT OF RS 8 . 6 CR IN AN UNLISTED COMPANY. IF THE APPELLANT HAS INVESTED ON THE BASIS OF ANY OTHER IN FORMATION AVAILABLE WITH HIM SUCH AS BRIGHT PROSPECTS OF THE COMPANY ETC , THE APPELLANT HAS NOT SPECIFICALLY DISCUSSED AS TO ON WHAT GROUND HE HAS CONSIDERED TH AT THE LOSS MAKING COMPANY- SHIVALIK GOLF HAD BRIGHT PROSPECTS . NO PRUDENT BUYER WOULD BUY SHARES OF A COMPANY BASED IN MUMBAI WITHOUT CARRYIN G OUT I OWN VERIFICATIONS , BUT ONLY ON THE BASIS OF THE VALUATION REPORT OF TH E CA, WHO IS BASED IN PUNE AND MERELY BECAUSE SELLER (INSTANT AUTOGAS , IN THIS CASE) HAD VALUED SHARES AT HIGH VALUE . 2.5 . 12 OTHER IMPORTANT FACT TO BE APPRECIATED IS THAT T HE APPELLANT HAS PURCHASED THE SHARE @ RS 242 . 85 PER SHARE IN OCTOBER, 2011 . THE SAME WAS SOLD @ RS 3 . 1 PER SHARE ON 07 . 03.2012. THE FALL IN SHARE PRICE HAS TAKEN PLACE WITHIN 4-5 MONTHS FR OM THE MONTH OF PURCHASE. THE APPELLANT HAS STATED IN HIS COMMENTS TO THE LEARNED AO'S THE REMAND REPORT THAT FALL IN SHARE PRICE WAS ATTRIB TED TO THE NEWS REGARDING THE COURT LITIGATI ON ON THE PROPERTY HELD BY THE COMPANY . HOWEVER, THE APPELLANT HAS NEITHER ELABORATED NOR H AS SUBSTANTIATED THE NATURE OF COURT LITIGATION FACED BY SHIVALIK ON THE BASIS OF WHICH, IT DECIDED TO BEAR THE LOSS OF RS 8.4 CR. 2 . 5 . 13 THE APPELLANT HAS STATED THAT THE VARIATION OF R S1 . 16 PER SHARE HAS BEEN DONE ON THE BASIS OF THE DCF . HOWEVER , THE PERUSAL OF THE REPORT SHOWS THAT IT HAS BEEN PREPARED IN A VERY SUPERFICIAL MANNER TO A RRIVE AT THE RESULT SUITABLE TO THE APPELLANT. THE APPELLANT'S VALUATION REPORT DOE S NOT PROVIDE ANY BASIS FOR US I NG THE PARTICULAR D I SCOUNTING FACTOR OF 16.75% NOR HAS HE EXPLAINED AS TO WHY HE HAS USED DIFFE R ENT METHODS FOR THE ACQUISITION AND SALE . 2.5.14 IT MAY NOT BE OUT OF PLACE TO MENTION THAT T HE RULE 11 UA OF THE INCOME TAX RULES PROVIDE FOR THE DCF METHOD FOR THE VALUATION OF THE UNQUOTED EQUITY SHARES FOR THE PURPOSE OF THE SECTION 56 OF THE INCOME TAX ACT . THE RULE HAS PROVIDED FOR THE DETERMINATION OF FAIR MARKET VALUE OF UNQUOTED EQUI TY SHARES ON THE BASIS OF THE FOLLOWING FORMULA: A-L X (PV) (PE) 2.5.15 FURTHER, IT IS KNOWN THAT THE WORKING OUT OF VALUE IN ACCORDANCE WITH THE DISCOUNTED CASH FLOW METHOD REQUIRES FOLLOWING STEP S: STEP 1: ARRIVE AT PROJECTED PROFIT AFTER TAX STEP 2: ADD BACK NON-CASH COSTS I.E. DEPRECIATION E TC STEP 3: SUBTRACT CAPITAL EXPENDITURES. STEP 4: SUBTRACT INCREASES IN WORKING CAPITAL. STEP 5: TAKE INTO ACCOUNT THE EFFECT OF CHANGES IN DEBTS. STEP 6: DISCOUNT THE FCFF FOR EACH YEAR AT THE COST OF CAPITAL. STEP 7: ADD THE TERMINAL VALUE ACCRUING IN THE FINA L YEAR. STEP 8: ARRIVE AT THE VALUE OF EQUITY BY SUBTRACTIN G THE DEBT VALUE. 2 EXPENDITURE (ADJUSTED FOR LOSS ON ACCOUNT OF SHARE AND FIXED ASSETS) 52,84,584 56,54,505 60,50,312 3 NET PROFIT/LOSS AS PER PROFIT AND LOSS ACCOUNT (48,93,459) (52,43,824) (56,19,105) 15 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL STEP 9: ARRIVE AT THE VALUE OF EQUITY SHARE BY DIVI NG THE NUMBER OF SHARES TO THE VALUE OF EQUITY 2.5.16 THE VALUERS REPORT ARRIVED AT WITHOUT FOLLO WING THE ABOVE PROCESS CANNOT BE CONSIDERED TO BE RELIABLE. THEREFORE, THE FACT THAT THE APPELLANT HAS GENUINELY INCURRED LOSS CANNOT BE ESTABLISHED. IN THESE CIRCU MSTANCES, ACCORDING TO ME, THE FACT OF THE APPELLANT MAKING ALL THE PAYMENTS BY CH EQUE OR THE LEARNED AO NOT CONDUCTING ANY ENQUIRIES OR NOT HAVING THE EVIDENCE OF CASH COMING BACK TO THE APPELLANT ARE IRRELEVANT. ACCORDING TO ME, ON THE G IVEN FACTS, NO PRUDENT PERSON WOULD HAVE INVESTED IN A COMPANY ON THE BASIS OF TH E NATURE OF THE VALUATION REPORTS SUBMITTED BY THE APPELLANT AND CONSIDERING THE FINANCIAL TRACK RECORD OF THE COMPANY . IN VIEW OF THESE FACTS, I AM OF HE CONSIDERED OPINI ON THAT LEGAL FROM OF THIS ARRANGEMENT SHOULD BE DISREGARDED AND THE ARRANGEME NT SHOULD BE LABELED AS SHAM ONLY ENTERED FOR THE PURPOSE OF BOOKING LOSS T O REDUCE THE APPELLANT'S TAXABLE INCOME . 2.5.17 THE HONORABLE SUPREME COURT HAS APPLIED THE TEST OF 'CONDUCT OF PERSON WITH ORDINARY PRUDENCE ' AND TEST OF 'HUMAN PROBABILITIES ' IN MANY CASES . IT MAY NOT BE OUT OF PLACE TO MENTION THAT THE 5 MEMBER BENCH OF THE HONORABLE SUPREME COURT IN THE CASE OF SUMATI DAYAL VS. CIT(1995) 214 ITR 801( SC) APPLIED THE TEST OF HUMAN PROBABILITIES TO DECIDE AGAINST THE ASSESSEE . IT HELD THAT AS LAID DOWN IN CIT V DURGA PRASAD MORE (1971) 821TR 540 (SC) , THE APPARENT MUST BE CONSIDERED AS REAL UNTIL IT IS SHOWN THAT THERE ARE REASONS TO BELIEVE THAT THE APPARENT IS NOT THE REAL AND T HE TAX AUTHORITIES ARE ENTITLED TO LOOK AT THE SURR OUNDING CIRCUMSTANCES TO FIND OUT THE REALITIES AND THE MATTER HAS TO BE CONSIDER ED BY APPLYING THE TEST OF HUMAN PROBABILITIES. 2.5.18 ACCORDING TO ME, BY APPLYING THESE TESTS AND FOR THE REASONS THAT THE APPELLANT FAILED TO ESTABLISH THE HIGH PURCHASE PRI CE OF THE SHARES ARRIVED AT BY THE PROJECTED VALUATION OF ASSETS AND WITHOUT VERIFYING THE ASSETS PHYSICALLY, THE REASON FOR FALL IN SHARE PRICE OF THE UNLISTED SHARES OF S HIVALIK GOLF AND FOREST PVT LTD WITHOUT ANY VALID REASON, AND HENCE, THE SHARE VALU ATION REPORT SUBMITTED BY THE APPELLANT DOES NOT CARRY ANY WEIGHT. FURTHER, THE A PPELLANT HAS NOT EXPLAINED AS TO WHY IT PREPARED THE VALUATION REPORTS OF PURCHASE A ND SALE BY USING DIFFERENT METHODS. THE APPELLANT HAS ALSO NOT EXPLAINED AS TO WHY IT DID NOT FURNISH THE VALUATION REPORTS DURING THE ASSESSMENT PROCEEDINGS DESPITE THE FACT THAT THEY WERE AVAILABLE WITH HIM. IT MIGHT AGAIN BE MENTIONED THA T THE ONUS WAS ON THE APPELLANT TO ESTABLISH THAT HE HAS INDEED INCURRED LOSS. THIS HAS NOT BEEN DONE BY THE APPELLANT. THEREFORE, THE GENUINENESS OF THE LOSS C LAIMED BY THE APPELLANT IS NOT ESTABLISHED. 2.5.19 WITH THE RESULT, I CONFIRM THE DECISION OF T HE LEARNED AO TO DISALLOW THE SHORT TERM CAPITAL LOSS OF RS 8,39,15,000. 16. BEFORE US, NARRATING THE ABOVE REFERRED FACTS FROM T HE ORDERS OF AO/CIT(A), THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS NO DISPUTE ABOUT THE FACTS OF THE PRESENT CASE. LD. COUNSEL FOR THE ASSESSEE Q UESTIONED ON CONCLUSION OF ORDER OF CIT(A) ON THE FOLLOWING ISSUES: (I) PHYSICAL VERIFICATIO N BY VISITING THE PREMISES OF THE COMPANY AND THE ASSET WHILE VALUATION REP ORT IS BEING MADE; (II) ASSESSEE PURCHASED THE SHARE @ RS.242.85 PER SHARE AN D SOLD THE SAME @ 3.10/- PAISE AND THE FALL IN SHARE WAS ATTRIBUTED TO THE NEWS RE GARDING THE COURT 16 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL LITIGATION; (III) QUALITY OF VALUATION REPORT AND; (IV) CORRECTNESS OF NAV METHOD ADOPTED BY ASSESSEE AND DCF METHOD ADOPTED BY THE A SSESSING OFFICER IN VALUATION REPORT. 17. WRITTEN SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSE SSEE ON THESE ISSUES: A. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THA T THESE ARE THE BUSINESS DECISIONS AND THE ASSESSING OFFICER AGAIN QUESTIONE D ABOUT THE SAID BUSINESS DECISIONS OF THE ASSESSEE. FURTHER, THE LD. COUNSEL MENTIONED THAT IT IS NOT THE CASE OF THE REVENUE, THE AS SESSEE HAS NOT MADE PAYMENT TO THE INSTANT FOR BUYING SHARES. B. MENTIONING BOOK VALUE OF SHARE OF RS.7,00,00,000/- IN THEIR BALANCE SHEET SUBMITTED THAT THE ASSESSEE ONLY INCREASED THE VALUE OF SHARE WHILE MAKING THE PAYMENT TO THE INSTANT. RELYING ON TH E ASSESSMENT ORDER FILED BY THE INSTANT TO THE DEPARTMENT, LD. COUN SEL SUBMITTED THAT THE REVENUE AUTHORITIES ACCEPTED THE BOOK VALUE OF THE SHA RE OF THE INSTANT COMPANY AND THEREFORE, QUESTIONED ON THE FINDING S OF ASSESSING OFFICER IN REJECTING THE CLAIM OF ASSESSEE. IN THIS REGARD, L D. COUNSEL SUBMITTED FINANCIAL STATEMENT OF THE INSTANT BEFORE US W HICH INDICATES THE INVESTMENT OF THE INSTANT IN SHIVALIK AND SOLD THE S AME TO THE ASSESSEE. C. REFERRING TO THE VALUATION REPORT, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT NAV METHOD OF VALUATION WAS ONE OF THE A PPROVED METHODS AND THEREFORE, THE SAID METHOD CANNOT BE REJECTED OUT-R IGHTLY. D. REFERRING TO THE VALUE OF LAND WHICH WAS INCREASED THE PRIC E VALUE OF THE SHARE FROM RS.200/- TO RS.243/- PER SHARE, THE LD. COUNS EL SUBMITTED THAT ALL THESE ARE MATTER OF FACT AND THE ASSESSING OFFICER FAILED TO VERIFY THE SAME AND FOUND DISCREPANCIES AGAINST THE CLAIM OF THE ASSESSEE. LD. COUNSEL FURTHER SUBMITTED THAT THE ASSESSING OFFICER FAILED T O BRING ANY INCRIMINATING EVIDENCE AGAINST THE ASSESSEE IN CONNECTION W ITH THE PURCHASE OF SHARE FROM THE INSTANT AND SOLD THE SHARE TO THE TAPTI. E. LD. COUNSEL ALSO SUBMITTED THAT IT IS NOT A CASE OF THE RE VENUE THAT THERE IS A HUGE CASH FLOW IN THE POCKET OF THE ASSESSEE AN D THEREFORE, THE CLAIM OF ASSESSEE IS PROPER AND SHOULD HAVE BEEN ACCEP TED BY THE ASSESSING OFFICER WITHOUT REJECTING THE SAME. FURTHER, LD. COUNSEL FOR THE ASSESSEE RELYING ON THE VARIOUS DECISIONS MENTIONED THAT IN THE INSTANT CASE AS DOCUMENTATION IS FULLY PROVED AND ALL THE PAYMENTS ARE MADE THROUGH BANKING CHANNELS, CLAIM OF THE ASSESSEE CAN NOT BE REJECTED JUST LIKE THAT BY THE ASSESSING OFFICER AND THE CIT(A). F. REFERRING TO THE OPEN MARKET TRANSACTIONS BY THE ASSES SEE WITH THE INSTANT ON ONE SIDE AND TO THE TAPTI ON OTHER, LD. C OUNSEL SUBMITTED 17 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL THAT THE SAME ARE IN PROPER METHOD OF TRANSACTION AS SPECIFIED BY CBDT CIRCULAR NO.4 OF 2007 DATED JUNE, 15. G. FURTHER, RESPONDING TO THE DRS DEMAND FOR REMANDING AN D MENTIONING THAT THERE IS NO CASE FOR REMITTING THE ISSUE BACK TO TH E FILE OF ASSESSING OFFICER FOR SECOND ROUND, LD. COUNSEL SUBMITTED REMITTING THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER IS ONLY REQUIRED WHEN C ERTAIN FACTS ARE NEEDED FOR ADJUDICATION ARE MISSING. IN THIS CASE, NO S UCH CASE IS MADE OUT BY THE REVENUE. THE REQUEST OF REVENUE, IF ANY, FOR REMITTING THE ISSUE BACK SHOULD NOT BE ENTERTAINED. H. REFERRING THE REQUEST FOR REMITTING THE ISSUE BACK BY THE REVENUE TO INVOKE THE PROVISIONS OF SECTION 49(4) AND 56(VIIA) OF THE ACT, LD. COUNSEL SUBMITTED THAT THESE PROVISIONS SHALL NOT BE APPLIC ABLE TO FACTS OF THE INSTANT CASE AS THE ASSESSING OFFICER HAS CO-TERM INUS POWER AND IS FREE TO TAKE ANY ACTION TO THE TAPTI FOR TAX AS PER STATUTE. 17.1 SUBSEQUENTLY, LD. AR FILED ANOTHER NOTE REPLYING TO T HE CONTENTION OF THE LD. DR. THE CONTENTS OF PARA 2.1 TO 2.5 OF THE NOTE ARE R ELEVANT. THE SAME ARE EXTRACTED AS UNDER: 2. GROUND NO.1 AND 3CLAIM OF SHORT TERM CAPITAL LO SS ON SALE OF SHARES OF SHIVALIK GOLF AND FOREST RESORTS LTD.-RS.8,39,15,00 0/- 2.1 THE ASSESSEE HAD INCOME FROM CAPITAL GAINS AGAI NST WHICH THE ASSESSEE CLAIMED THE SET OFF OF LOSS ON SALE OF SHARES OF SH IVALIK GOLF AND FOREST RESORTS LTD. OF RS.8,39,15,000/-. THE A.O. AND THE CIT(A) HELD T HAT THIS LOSS IS NOT GENUINE AND THUS, THEY DISALLOWED THE SET OFF OF THIS LOSS AGAI NST THE CAPITAL GAINS. THE FACTS RELATING TO THIS ISSUE ARE STATED HEREUNDER A. THE ASSESSEE IS AN NRI STAYING III DUBAI. THE INVESTMENT CONSULTANTS ADVISED HIM FOR PURCHASE OF SHARES OF SHIVALIK GOLF AND FOREST RESORTS P LTD. (SHIVALIK) ACCORDINGLY, THE ASSESSEE PURCHASED 3,50 ,000 SHARES FROM INSTANT AUTO GAS EQUIPMENT MFG. P LTD. (INSTANT) AT A COST OF RS .8,50,00,000/- AND THE SAME WERE REGISTERED IN ASSESSEE'S NAME ON 06.10.2011. I NSTANT HAD PURCHASED THESE SHARES FOR RS.7 CRS. AS PER ITS BALANCE SHEET AS ON 31.03.2008 (PAGE 134). SHIVALIK WAS TO SET UP A GOLF COURSE WITH VARIOUS AMENITIES. THE ASSESSEE CONSIDERED THAT SHIVALIK WOULD HAVE A GOOD POTENTIAL FOR ITS BUSINE SS AND THEREFORE, HE PURCHASED THE SHARES. B. THEREAFTER, THE ASSESSEE MADE ENQUIRIES WITH SHI VALIK AND FOUND THAT THERE WERE DISPUTES ABOUT THE LAND AND ALSO AMONGST THE F AMILY MEMBERS OF THE PROMOTERS WHO WERE FROM MAHARAJA GAIKWAD FAMILY OF BARODA. C. THE ASSESSEE DECIDED TO DISPOSE OF THIS INVESTME NT AS HE FOUND THAT THE SHARES WILL NOT HAVE ANY POTENTIAL TO GROW AND HE D ID NOT MAKE A GOOD INVESTMENT. ACCORDINGLY, HE FOUND A WILLING BUYER FOR HIS SHARE S IN TAPTI SYNTHETIC P LTD. (TAPTI) WHICH WAS ALREADY A SHAREHOLDER OF SHIVALIK. THE AS SESSEE SOLD HIS SHARES TO TAPTI FOR RS.10,85,000/- AND THE SHARES WERE TRANSFERRED IN THE NAME OF TAPTI ON 07.03.2012 AS NOTED IN THE SHARE CERTIFICATES (125 TO 129) AND CLAIMED SHORT TERM CAPITAL LOSS OF RS.8,39,15,000/-. 18 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL D. THE ASSESSEE SUBMITTED THE SHARE CERTIFICATES OF SHIVALIK ON PAGES 124 TO 129 WHICH CLEARLY INDICATED THAT THE ASSESSEE BECAM E THE OWNER OF THE SHARES ON 06.10.2011 AND SOLD THEM TO TAPTI ON 07.03.2012. IN SUPPORT OF THE GENUINENESS OF THE TRANSACTION THE ASSESSEE SUBMITTED THE FOLLOWIN G ARGUMENTS. 2.2] A. FIRSTLY , THE ASSESSEE IS NOT RELATED TO ANY OF THESE THREE C ONCERNS I.E. SHIVALIK, INSTANT, TAPTI. THUS, THE TRANSACTIONS WE RE AT ARM'S LENGTH. B. THE SHARE CERTIFICATES ON PAGE 124 TO 129 CLEARL Y PROVE THAT THE ASSESSEE HAD PURCHASED THESE SHARES FROM INSTANT AND SOLD THEM T O TAPTI ON 07.03.2012. C. INSTANT HAS SHOWN THE CONSIDERATION OF RS.8.50 C RS. ON SALE OF ITS SHARES IN THE RETURN (PAGE 144). ON PAGE 134, INSTANT HAS SHOWN T HE COST OF THESE SHARES AT RS.7 CRS. IN ITS BALANCE SHEET AS ON 31.03.2008. FROM TH IS FACT, THE ASSESSEE CONSIDERED THAT THE PRICE OF RS.8.50 CRS. WAS REASONABLE. D. SHIVALIK BALANCE SHEET IS GIVEN ON PAGE 152 TO 1 74. SHIVALIK BELONGED TO GAIKWAD FAMILY I.E. MAHARAJA OF BARODA AND THEREFOR E, THE ASSESSEE THOUGHT THAT THE COMPANY IS HAVING GOOD PROMOTERS AND THE GOOD P OTENTIAL AND THEREFORE, HE INVESTED IN THESE SHARES. E. WHEN THE ASSESSEE REALIZED THAT BECAUSE OF THE D ISPUTES, SHIVALIK WON'T BE ABLE TO DEVELOP THE GOLF COURSE FOR LONG TIME, HE DECIDE D TO SELL THE SHARES OF SHIVALIK AND GET OUT OF THE INVESTMENT. TAPTI WAS ALREADY A SHAREHOLDER OF SHIVALIK AND IT PURCHASED THE SHARES. THE CONFIRMATION OF TAPTI IS GIVEN ON PAGE 151 AND THE SHARE CERTIFICATES ON PAGES 124 TO 129 CLEARLY SHOW THAT THE ASSESSEE SOLD THE SHARES ON 07.03.2012 TO TAPTI. THE ASSESSEE HAS GIVEN THE BAL ANCE SHEET OF SHIVALIK AS ON 31.03.2017 AS AN ADDITIONAL EVIDENCE. IT IS DOWNLOA DED FROM THE INTERNET AND IT SHOWS THAT EVEN TODAY, SHIVALIK HAS NOT DEVELOPED T HE GOLF COURSE. THIS SHOWS THAT THE ASSESSEE'S JUDGMENT THAT SHIVALIK WILL NOT BE A BLE TO DEVELOP THE GOLF COURSE FOR A LONG TIME WAS CORRECT. F. THUS, THE ASSESSEE PROVED THE CAPITAL LOSS WAS I NCURRED DURING THE YEAR. THERE IS NO REASON TO HOLD THAT THESE TRANSACTIONS OF PURCHA SE AND SALE OF SHIVALIK SHARES ARE NOT GENUINE AS DONE BY CIT(A) AND THE A.O. THE SHARE CERTIFICATES CLEARLY INDICATE THAT THE ASSESSEE PURCHASED THE SHARES FRO M INSTANT AND SOLD THEM TO TAPTI. SECONDLY, THE DEPT. HAD NOT PROVED THAT THE ASSESSEE RECEIVED ANY CONSIDERATION IN CASH FROM TAPTI OVER AND ABOVE RS. 10,85,000/- SHOWN BY THE ASSESSEE. G. THE ASSESSEE HAS GIVEN VARIOUS CASE LAWS IN ITS LEGAL COMPILATION. A NOTE REGARDING THESE CASE LAWS IS ALSO SUBMITTED SEPARAT ELY DURING THE COURSE OF HEARING. IN SHORT, THESE CASE LAWS LAY DOWN THE FOL LOWING PRINCIPLES. H. IN THE CASE OF AZADI BACHAO ANDOLAN (SR. NO.1), SC HELD THAT THE TAX PLANNING IS LEGALLY PERMISSIBLE IF IT IS DONE WITHOUT ANY MOTIV E TO EVADE TAXES THROUGH COLOURABLE DEVICES. IN THIS CASE, IT IS SUBMITTED THAT THE ASS ESSEE DID NOT HAVE ANY RELATION WITH INSTANT AND TAPTI AND THUS, THEIR TRANSACTION WERE NOT COLOURABLE AT ALL AND SECONDLY, THE SHARE CERTIFICATES CLEARLY PROVE THAT THE ASSESSEE HAD PURCHASED AND SOLD THE SHARES OF SHIVALIK AND HENCE, THERE IS NO WARRANT TO DISALLOW THE CAPITAL LOSS. I. IN THE CASE LAWS (WALFORT, RAGHVENDRA SINGH, BHO RUKA ENGINEERING AND EVEREADY) AT SR. NO.2, 3, 4, 5 OF LEGAL COMPILATION, IT HAS B EEN HELD THAT IF THE LEGAL FORM OF TRANSFER OF SHARE IS ACCEPTED, THE CAPITAL LOSS IS ALLOWABLE. SECONDLY, IN THE CASE OF WALFORT, SC HELD THAT EVEN IF THE ASSESSEE HAS INTE NTIONALLY SOLD THE SHARES IN ORDER TO BOOK CAPITAL LOSS, THE SAME IS ALLOWABLE AS PER LAW BECAUSE ASSESSEE HAS RESORTED TO USE OF LAW AND NOT ABUSE OF LAW. THIS V IEW IS ALSO ACCEPTED IN THE CASES OF BHORUKA AND EVEREADY. ACCORDINGLY, THE ASSESSEE SUBMITS THAT EVEN IF, IT IS CONSIDERED THAT THE ASSESSEE INTENTIONALLY SOLD THE SHARES TO BOOK THE CAPITAL LOSS IN 19 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL THIS YEAR BECAUSE HE HAD CAPITAL GAINS, STILL AS TH E TRANSACTIONS OF PURCHASE AND SALE OF SHARES OF SHIVALIK ARE REAL, THE CAPITAL LO SS HAS TO BE ALLOWED. J. IN THE CASE OF OBEROI HOTEL (PAGE 111) THE ASSES SEE PURCHASED THE SHARES FOR RS.8,78,11,500/- AND SOLD THEM IMMEDIATELY AT A NOMI NAL PRICE OF RS.18,33,752/- AS THE COMPANY WAS NOT DOING WELL, IT WAS HELD THAT THE CAPITAL LOSS WAS ALLOWABLE FOR SET OFF AGAINST THE CAPITAL GAINS. SIMILARLY, I N THE CASE OF SHRIKANT PITTIE (121), THE ASSESSEE CONVERTED THE DEBENTURES INTO SHARES OF RS .100/- EACH AND SOLD THEM TO THE CONCERN OF HIS ACCOUNTANT AT RS.0.1 PER SHARE I MMEDIATELY AND BOOKED THE CAPITAL LOSS. IT AT HELD THAT THE TRANSACTION WAS G ENUINE AND THEREFORE, ALLOWED THE LOSS. ON SAME PRINCIPLES, IN OUR CASE ALSO, THE LOS S IS ALLOWABLE. K. IN THE CASE OF ARUN KUMAR & CO. (PAGE 175), BOMBAY H.C. HELD THAT THE SALE CONSIDERATION SHOWN BY THE ASSESSEE HAS TO BE ACCEP TED UNLESS THE DEPT. PROVES THAT THE ASSESSEE HAS RECEIVED SOME HIGHER CONSIDER ATION. SIMILAR IS THE RATIO OF ITAT, MUMBAI DECISION IN THE CASE OF KAMAT CLUB (PA GE 165) AND DELHI H.C. DECISION IN ARJUN MALHOTRA (PAGE 182) WHEREIN THE COURTS HAV E FOLLOWED THE SC DECISION IN THE CASE OF KP VERGHESE [131 ITR 597] IN WHICH SC H ELD THAT AS PER SECTION 48, THE CONSIDERATION SHOWN BY THE ASSESSEE HAS TO BE ACCEP TED UNLESS THE A.O. PROVES THAT THE ASSESSEE ACTUALLY RECEIVED HIGHER CONSIDERATION THAN WHAT IS SHOWN. THUS, IN OUR CASE ALSO, THE DEPT. HAS NOT PROVED THAT THE AS SESSEE HAS RECEIVED A HIGHER AMOUNT FROM TAPTI THAN WHAT IS SHOWN, THE CONSIDERA TION SHOWN BY THE ASSESSEE MUST BE ACCEPTED. L. IN VIEW OF THE ABOVE LEGAL POSITION, THE ASSESSE E SUBMITS THAT THE CAPITAL LOSS INCURRED BY HIM ON SALE OF SHIVALIK SHARES SHOULD B E ALLOWED TO BE SET OFF AGAINST THE CAPITAL GAINS. 2.3 IN REPLY, THE LEARNED CIT. DR MADE THE FOLLOWING POINTED BY LD. DR- A. THE VALUATION REPORTS (146 TO 149) SUBMITTED BY THE ASSESSEE IN SUPPORT OF THE VALUATION OF SHARE PRICE OF SHIVALIK ARE TOTALL Y SKETCHY AND THEY ARE NOT RELIABLE. B. THE BALANCE SHEET OF SHIVALIK ON PAGE 163 HAS NO T SHOWN THE ADDITIONAL PURCHASE OF THESE SHARES AS ON 31.03.2012 AND THERE FORE, THE TRANSACTION IS NOT GENUINE. C. THE SALE OF SHIVALIK SHARES AT A VERY LOW PNCE M ADE BY THE ASSESSEE SHOWS THAT THE TRANSACTION IS NOT GENUINE. ASSESSEE HAS N OT PROVED THAT THERE WERE DISPUTES IN SHIVALIK SO THAT GOLF COURSE WOULD NOT BE DEVELOPED. D. THE CONSEQUENCES OF SECTION 56(2)(VIIA) HAVE NOT BEEN LOOKED INTO IN THIS CASE AND THEREFORE, HE REQUESTED FOR SET ASIDE OF THE AS ST. 2.4] IN REPLY, THE FOLLOWING POINTS WERE SUBMITTED - A. THE ASSESSEE HAS NOT PURCHASED AND SOLD SHIVALIK SHARES AFTER CONSULTING ANY VALUER AND THEREFORE, EVEN IF, THE VALUER'S REPORTS ARE VAGUE, THEY HAVE NO BEARING ON THE ALLOWANCE OF CAPITAL LOSS INCURRED BY THE ASSES SEE. B. AS ALREADY CLARIFIED THE ASSESSEE WAS NOT RELATE D TO INSTANT, SHIVALIK OR TAPTI AND THEREFORE, THE QUESTION OF DOUBTING THE PURCHASE AN D SALE PRICE OF THE SHARES DOES NOT ARISE. FOR THIS PURPOSE, THE ASSESSEE IS SUBMIT TING COPY OF THE AFFIDAVIT CONFIRMING THAT HE HAD NO RELATION / CONNECTION WIT H ANY OF THESE ENTITIES. THUS, THE VALUER'S REPORTS ARE NOT RELEVANT FOR DECIDING THIS ISSUE. C. WHEN THE ASSESSEE PURCHASED THE SHARES OF SHIVAL IK, HE CONSIDERED THAT INSTANT HAD PURCHASED THE SAME SHARES FOR RS.7 CRS AND THUS , THE PURCHASE PRICE OFRS.8.50 CRS WAS REASONABLE. SECONDLY, WHEN HE FOUND, ON ENQ UIRIES THAT SHIVALIK WON'T BE 20 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL ABLE TO DEVELOP THE GOLF COURSE IN NEAR FUTURE, HE SOLD THE SHARES AT A NOMINAL VALUE. THUS, HIS JUDGMENT WAS BONA FIDE. THE ASSESS EE HAS GIVEN THE CHART REGARDING THE FALL IN SHARE OF GITANJALI GEMS. IT W AS QUOTED AROUND RS.100/- BUT WHEN THE NEWS CAME THAT THE PROMOTER SHRI CHOKSI HA S COMMITTED FRAUDS WITH THE BANKS, THE SHARE PRICE CAME DOWN TO RS.2.80 PER SHA RE IN A DAY. HENCE, THE VALUATION IN SUCH CASES IS BASED ON ONE'S JUDGMENT. THUS, THE TRANSACTION OF THE ASSESSEE WAS GENUINE. D. SHIVALIK ON PAGE 163 HAS NOT SHOWN THESE PURCHAS ES OF SHARES BY TAPTI AS ON 31.03.2012. IN THIS CONTEXT, THE ASSESSEE SUBMITTED THE BALANCE SHEET OF SHIVALIK AS ON 31.03.2016 AND THEREIN ALSO, THE COMPANY HAS NOT SHOWN THESE SHARES OF TAPTI. HENCE, FOR THE MISTAKE COMMITTED BY THE ACCOUNTANT OF SHIVALIK, ASSESSEE CANNOT BE HELD RESPONSIBLE. THE ASSESSEE HAS PURCHASED AND SO LD THE SHARES AS PER THE SHARE CERTIFICATES ON PAGES 124 TO 129 AND RECEIVED THE C ONSIDERATION. THIS ITSELF ESTABLISHES THE GENUINENESS OF SALE OF SHARES TO TA PTI. E. THE ASSESSEE HAS NOT PROVEN THE DISPUTES ABOUT T HE LAND AND MANAGEMENT OF SHIVALIK AS ASSESSEE IS NOT A PARTY TO THESE DISPUT ES AND THEREFORE, HE CANNOT GET THE EVIDENCES FROM SHIVALIK. BUT THE FACT THAT EVEN TODAY, SHIVALIK HAS NOT BEEN ABLE TO DEVELOP THE GOLF COURSE ITSELF SHOWS THAT THE AS SESSEE'S CONTENTION THAT THE DISPUTES ARE THERE IS CORRECT. F. THE QUESTION OF APPLYING THE PROVISION OF SECTIO N 56(2)(VIIA) IN THE ASSESSEE'S CASE DOES NOT ARISE. IT MAY BE APPLICABLE IN THE CASE OF TAPTI. HENCE, NO PURPOSE WOULD BE SERVED BY SETTING ASIDE THE ASST. OF THE ASSESSE E. 2.5] ACCORDINGLY, THE ASSESSEE SUBMITS THAT HIS CAS E IS TOTALLY GENUINE AND THE CAPITAL LOSS ON SALE OF SHIVALIK SHARES SHOULD BE A LLOWED. 18. PER CONTRA, THE LD. DR FOR THE REVENUE HEAVILY PLAC ED RELIANCE ON THE ORDERS OF THE ASSESSING OFFICER AND CIT(A). THE LD. FOR THE R EVENUE FURTHER SUBMITTED THAT THE VALUATION REPORTS FURNISHED BY ASSESS EE BOTH FOR ACQUIRING SHARE AS WELL AS SELLING THE SHARES, ARE NOT RELIABLE ONCE. L D. DR SUBMITTED THAT VALUATION REPORTS FALL SHORT OF ARMS LENGTH PRINCIPLE AND T HEREFORE, THEY WERE REJECTED BY THE ASSESSING OFFICER AND CIT(A). LD. DR, HOWEVE R, SUBMITTED THAT THIS ISSUE REQUIRES REVISIT TO THE FILE OF ASSESSING OFFICER FOR EXAM INING ENTIRE TRANSACTIONS AND PURCHASE OF SHARES QUA LIKELY WITHDRAWA L OF CASH AT SOME POINT OF TIME WHICH IS PLAUSIBLE FOR EXAMINING TO UNEARTH THE LAYER OF VARIOUS TRANSACTIONS. REFERRING TO THE DECISION OF HON'BLE JURISDICTIO NAL HIGH COURT IN THE CASE OF ULTRATECH CEMENT LTD., ITA NO.1060 OF 2014 DATED 18 TH APRIL, 2017, LD. DR SUBMITTED THAT THE ADDITIONAL GROUNDS COULD NOT RAISE BEFORE THE APPELLATE AUTHORITY, WHEN NO CLAIM FOR DEDUCTION WAS MADE BEFORE THE ORIGINAL AUTHORITY. 21 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL WE FIND THIS DECISION IS NOT FIT AND PROPER TO APPLY ON THE NARRATED FACTS OF THE CASE. DECISION OF THE TRIBUNAL 19. WE HEARD BOTH THE PARTIES ON THE ISSUE RELATING TO ALLOWABILITY OF CLAIM OF SHORT TERM CAPITAL LOSS OF RS.8,39,15,000/-. IN THIS REGARD, WE PERUSED THE PAPER BOOK ON ONE SIDE AND THE WRITTEN SUBMISSIONS OF BOTH THE PARTIES ON THE OTHER. THE AO DISALLOWED THE CLAIM OF SAID SHORT TERM CAPITAL LOSS AND CONSEQUENTIAL SET OFF AGAINST THE CAPITAL GAINS. ORIGINALLY AO APPLIED THE TAX R ATE OF 30% ON THE DISALLOWANCE AND THE SAME WAS RECTIFIED U/S.154 OF THE ACT. RESULTANTLY, AO APPLIED THE TAX RATE OF 20% APPLICABLE TO THE CAPITAL GAINS. CIT(A) CONFIRMED THE CONCLUSIONS OF THE AO. THE ESSENTIAL FACTS THAT LED THE OFFICERS TO TAKE SUCH EXT REME DECISION AGAINST THE ASSESSEE INCLUDE THAT THE ASSESSEE, AN NRI PURCHASED 3.50 LAKH SHARES OF M/S. SHIVALIK GOLF & FOREST RESORTS LTD. FROM M/S. INSTANT AUTOGAS EQUIPMENT MANUFACTURING PVT. LTD., NEW DELHI @ RS.242.85 PER SHARE IN THE OFF- MARKET AGAINST THE NET ASSET VALUE OF THE SHARES OF THE INSTANT (THE SELLER) OF RS.200/- PER SHARE. AO DID NOT RAISE ANY ISSUE ON THE P URCHASE TRANSACTION OF SHARES. AFTER HOLDING PERIOD OF 5 MONTHS, THESE SHARES WE RE SOLD TO TAPTI SYNTHETIC PVT. LTD. @ RS.3.10 PAISE PER SHARE. TAPTI AND SHIVALIK ARE RELATED CONCERNS AND SHARES THE COMMON ADDRESS AND ALSO THE DIRECTORS. HOWEVER, CONSIDERING THE EXTREMELY LOW SALE PRICE, AO DISBELIEVED THE SALE TRANSACTION AND THEREFORE ASSESSEES CLAIM OF SHORT TERM CAPITAL LOSS OF R S.8,39,15,000/- WAS DISALLOWED. BY DISALLOWING THE LOSS, IN EFFECT, AO REJECTED THE SALE PRICE TAG OF RS.3.10 PAISE PER SHARE OF SHIVALIK AND APPLIED THE HIGHER FIGURE OF RS.242.85 PAISE PER SHARE. ALTHOUGH AO DID NOT MENTION THE SAME IN SO MANY WORDS, IN THIS CASE, AO ATTEMPTED TO TAX HIGHER CONSIDERATION OF RS .8,49,97,500 (3.5 LAKH SHARES X RS.242.85 PAISE PER SHARE) SALE OF SHARES OF SH IVALIK IN PLACE OF BOOK 22 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL FIGURE OF RS.10,85,000/-. AO DID NOT POSSESS ANY DIRECT EVID ENCE TO SUBSTANTIATE HIS DECISION OF DISBELIEVING. FURTHER, AO DID NOT REJECT THE SALE BILLS, RELATED FINANCIAL TRANSACTION OF RS.10,85,000/- RECEIVED BY THE ASSES SEE, BANK TRANSACTION ETC. THEREFORE, WE NEED TO EXAMINE IF SUCH A DECISION OF AO/CIT(A) IS LEGALLY SUSTAINABLE. 20. BASED ON THESE FACTS, AS WE FIND, THE CASE OF THE ASSESSEE IS THAT THE SALE TRANSACTION OF 3.50 LAKH SHARES OF SHIVALIK TO TAPTI IS GENUINE AND, UNDER ADVERSE SITUATIONS OF NO MARKET FOR THESE SHARES, THE S AID 3.5 LAKH SHARES WERE TO BE SOLD IN ORDER TO REALISE WHATEVER THE SALE PROCEEDS T HAT CAN BE REALISED OUT OF THE SALE OF SHARES TO MINIMIZE THE CAPITAL LOSS. IN THIS R EGARD, ASSESSEE RELIES HEAVILY ON THE CREDIBLE VALUATION REPORTS ON ONE SIDE AND FURTHER, ASSESSEE RELIES HEAVILY ON THE PURCHASE/SALE BILLS OF SHARES, BANK STATEME NTS, CHEQUE PAYMENTS/RECEIPTS INVOLVING THE PURCHASE AND SALE OF THE SAID 3.5 LAKH SHARES OF SHIVALIK ETC. REVENUE DID NOT FIND ANY DISCREPANCY IN THE SE DOCUMENTARY EVIDENCES AND THE SAME STANDS ACCEPTED BY THE AO. E ARNING RS.10,85,000/- IN THIS TRANSACTION CONSTITUTES A WISE AND PRUDENT DECISION COMMERCIALLY FROM THE ASSESSEES POINT OF VIEW. ASSESSEE CLAIMED THAT EXCEPT DISBELIEVING THE ENTIRE TRANSACTION OF SALE OF SHARES NAMING WHOLE THIS AS SHAM, TH E AO DID NOT BRING ANY CONTRARY EVIDENCE TO DEMONSTRATE THAT THE (1) SALE VALUE IS UNDERPRICED; (2) THE SALE LINKED DOCUMENTS/TRANSACTION/EVIDENCES ARE SHAM OR ASSESSEE IS BENEFITTED BY WAY OF RECEIVING THE CASH FROM TAPTI OUTSID E THE BOOKS; (3) ANY OTHER SWAPPING OF BENEFITS, WHICH IS TAXABLE IN THE ASSESSEE S HANDS ETC., AS PER THE ASSESSEE, SURMISES AND DOUBTS DOMINATED THE MIND OF AO, WHICH LED HIM TO THE DECISION OF DISALLOWING THE CLAIM OF SAID GENUINE SHORT TER M CAPITAL LOSS. FURTHER, ASSESSEE SUBMITS THAT THE AO IS NOT LEGALLY JUS TIFIED IN DISALLOWING THE LOSS OR TRANSACTION AS SHAM. IN THIS REGARD, LD. COUNSEL RELY ON PLETHORA OF DECISIONS WHICH SHALL BE DISCUSSED IN THE LATER PART OF THIS ORDER. 23 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL 21. PER CONTRA, THE CASE OF THE REVENUE IS THAT THE ASSESSEE PURCHASED THE SHARES @ RS.245.82 PER SHARE IN THE MONTH OF OCTOBER, 20 11 AND THE SAME ARE SOLD TO TAPTI ON 07-03-2012 @ RS.3.10 PAISE PER SHARE, I.E. WITHIN A GAP OF 5 MONTHS. ACCORDING TO THE AO, NO PRUDENT INVESTOR IN SHARES SHALL EN TER INTO SUCH LOSS YIELDING TRANSACTION. FURTHER, AS PER THE AO, THE LOSS , WHICH IS GENERATED IN THE MANNER MENTIONED ABOVE, ONLY AIMED AT SET OFF AGAINS T THE LONG TERM CAPITAL GAINS EARNED BY THE ASSESSEE ON SALE OF OTHER ASSET. ASSESSEE AVOIDED PAYING CAPITAL GAIN TAXES ACCRUED ON THE TRANSFER OF OTHER ASSETS. OTHERWISE, IT IS ADMITTED FACT THAT THE AO DID NOT BRING AN Y INCRIMINATING EVIDENCE AGAINST THE ASSESSEE TO DEMONSTRATE THAT THE SAID SALE TRANSACTION IS SHAM AND THE DOCUMENTARY EVIDENCES SUBMITTED BY THE A SSESSEE TO SUPPORT HIS CLAIM IS UNSUSTAINABLE FOR ANY REASON. BEFORE TRAVELLING INT O THE DISCUSSION ON THE EVIDENCES AND THE RELEVANT LEGAL PROPOSITION, WE PROCE ED TO SUMMARISE THE FACTS DIAGRAMMATICALLY AS UNDER : TRANSFER MOVEMENT OF 3.5 SHARES OF SHIVALIK AND CONSIDERATION DETAILS BIRDS EYE VIEW 22. REGARDING THE EVIDENCE RELATING TO THE SALE TRA NSACTION OF 3.5 LAKH SHARES, THE ASSESSEE RECEIVED A SUM OF RS.10,85,000/- @ RS.3.10 PAISE PER SHARE ON SALE CONSIDERATION OF RS.3.5 LAKH SHARES. ASSESSE E DISCHARGED THE ONUS FROM HIS SIDE. THE CONFIRMATION LETTERS, BANK STATEMENT, LEDG ER EXTRACTS ETC., ARE FURNISHED BY THE ASSESSEE. TAPTI ALSO CONFIRMED THE TRA NSACTION. THUS, BOTH THE SELLER AND THE BUYER CONFIRMED THE SALE TRANSACTION A ND THE DETAILS. FURTHER, INSTANT PURCHASED @ RS.200/- PER SHARE FOR SUM OF RS.7 CRORES ASSESSEE PURCHASED @ RS.242.85 PER SHARE FOR SUM OF RS.7,49,97,500 IN OCTOBER, 2011 TAPTI PURCHASED @3.10 PER SHARE FOR SUM OF RS.10,85,000/- ON 07-03-2012 24 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL ASSESSEE FURNISHED THE SALE BILLS, BANK STATEMENTS, ETC. TO ESTABLISH THE GENUINENESS OF THE TRANSACTION. AO ACCEPTED THE SAME A ND NO DISCREPANCY IS MADE OUT BY THE AO. NO ADVERSE FINDINGS ON THE GENUINEN ESS ARE COMMUNICATED TO THE ASSESSEE FOR HIS EXPLANATION OR CROSS EXAMINATION IF ANY. THEREFORE, WE FIND ASSESSEE DISCHARGED THE ONUS AND THE SAME IS SHIFTED TO AO. ON THE OTHER HAND, ON SHIFTING OF ONUS TO THE AO, THER E IS NO DIRECT OR INDIRECT EVIDENCE GARNERED BY THE AO TO DEMONSTRATE TH AT THE SALE TRANSACTION IS SHAM OR FAKE OR FABRICATED ETC. REVENUE MERELY CONCLUDE S BASED ON SURMISES THAT THE LOSS IS GENERATED WITH THE INTENTION TO AVOID PA YMENT OF LONG TERM CAPITAL GAIN TAX EARNED ON THE SALE OF OTHER LONG TERM CAPITAL AS SETS. OTHERWISE, THERE IS NO DIRECT EVIDENCE TO DEMONSTRATE THAT THE ASSESSEE R ECEIVED THE PROCEEDS IN CASH OUTSIDE THE BOOKS OF ACCOUNT FROM TAPTI. OTHERWISE, AO IS EMPOWERED BY THE STATUTE BY VIRTUE OF SEC 131, 133(6), 133 OF THE ACT ETC. FO R GATHERING THE EVIDENCE REGARDING THE CONCEALMENT OF INCOME OF FURNISHING OF INACCUR ATE PARTICULARS OF INCOME. AO DID NOT MAKE USE OF THE SAID PROVISIONS IN THIS CASE. FURTHER, LD. DR FOR THE REVENUE LABOURED HARD TO DEFEND THE ORDER OF THE AO. LD. DR HIGHLIGHTED CERTAIN ERRORS IN THE RETURNS FILED BEFORE THE REGISTRAR OF COMPANIES UNDER COMPANYS ACT BY THE TAPTI. IN THIS REGARD, LD. DR SUBMITTED THAT TAPTI FAILED TO INCLUDE SAID TRANSACTION OF ACQUISITION OF SHIVALIK SHARES OF 3.5 LAKH. FURTHER, THE REVENUE RELIES ON THE SAID DISCLOS URE INCONSISTENCIES OF TAPTI WITH REGARD TO ITS ACQUISITION OF SHARES FROM THE ASSESSEE IN ITS RETURN FILED WITH THE REGISTRAR OF COMPANIES. ACCORDING TO THE REVE NUE, THE SAID RETURNS FILED BY TAPTI DOES NOT INCLUDE THE 3.5 LAKH SHARES ACQUIRED FROM THE ASSESSEE BY TAPTI. ON THIS ISSUE, THE STAND OF THE ASSESSEE IS THAT THE ASSESSEE CANNOT PERFORM THE IMPOSSIBILITIES, I.E. FILING THE PROPER RETURN TO REGIS TRAR OF COMPANIES INCLUDING THE SAID 3.5 LAKH SHARES. IT IS FOR THE TAPTI TO EXPLAIN THE INCONSISTENCY AND THE ASSESSEE CANNOT BE HELD RESPONSIB LE. LD. DR DID NOT 25 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL INFORM ANY ACTION UNDERTAKEN BY THE AO OF TAPTI OR ROC IN THE SAID OMISSIONS/ERRORS ETC. THUS, IT IS AN ADMITTED FACT THAT THERE IS NO DIRECT EVIDE NCE TO DEMONSTRATE THAT THE ASSESSEE RECEIVED ANY OTHER CONSIDERATION IN C ASH OR OTHERWISE FROM TAPTI OUTSIDE THE BOOKS OF ACCOUNT. OTHERWISE, THE CIRC UMSTANCES THAT LED THE REVENUE TO DECIDE AGAINST THE ASSESSEE INCLUDE, THE HUGE PRICE DROP FROM RS.242.85 PER SHARE TO RS.3.10 PAISE PER SHARE IN A TIME S PAN OF 5 MONTHS AND THE SAME IS THE PREDOMINANT FACTOR IF CREATED DOUBT IN T HE MINDS OF THE ASSESSING AUTHORITY. HENCE, THE AOS IS UNFAVOURABLE DECISION AGAINST THE ASSESSEE IS A PRIMARY DOUBT-BASED RATHER THAN FACT-BASED. FURTHER, IT IS A FACT THAT AO UNDISPUTEDLY UNDOUBTED THE PURCHASE TRANSACTION OF 3.5 LAKH SHARES FROM THE INSTANT. THEREFORE, THE NARROW ISSUE FOR ADJUDICATION IS GENUINENESS OF THE SALE TRANSACTION ONLY. THE CAUSE FOR SALE OF SHARES IN THE MAN NER THAT YIELDED LOSS IS THE FURTHER DROP IN THE MARKET VALUE OF THE SHARES, ASS OCIATED LEGAL LITIGATIONS, FINANCIAL DOLDRUMS M/S. SHIVALIK GOLF & FORESTS RESORTS LTD. IS UNDERGOING DURING THAT PERIOD ETC. WHEN THE ASSESSEE VISITED INDIA VARIOUS UNFAVOURABLE DETAILS RELATING TO THE SHARES HAVE COME TO HIS NOTICE. T HEREFORE, CONSIDERING THE DESPERATE SALE PROPOSAL OF THESE SHARES, THE TAPTI, WHIC H IS RELATED ONE TO M/S. SHIVALIK GOLF & FORESTS RESORTS LTD., CAME FORWARD TO BUY THE SHARES PROBABLY FOR THEIR CONTROL AND MANAGEMENT OF M/S. SHIVALIK GOLF & FORE STS RESORTS LTD. THUS, THE ASSESSEE IS NOT WITHOUT SOME REASON TO SELL O F THESE 3.5 LAKH SHARES AT THROW AWAY PRICE TO THE TAPTI. AS SUCH, IT IS NOT THE CASE OF THE REVENUE THAT THE NAV OF SHIVALIK IS MUCH HIGHER TO COMMAND HIGHER PRIC E THAN RS.3.10 PAISE PER SHARE IN THE OPEN MARKET. AO DID NOT EVER REFERR ED THE MATTER TO THE FILE OF DVO FOR VALUATION OF IMPUGNED SHARES. FURTHER, WE FIND IT IS A CASE OF MERE DOUBT AND SURMISES IN THE MINDS OF AO WHICH MADE HIM TO DENY THE BENEFIT OF SHORT TERM CAPITAL LO SS. YES, THERE IS A 26 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL PROBLEM WITH REGARD TO THE DROP IN THE SHARE VALUE AND THE SAME IS NOT WITHOUT ANY EXPLANATION. FURTHER, AO DID NOT MAKE OUT ANY CASE T O SHOW WHY THE INSTANT PURCHASED THESE SHARES AT RS.200/- AND SOLD THEM TO ASSESSEE @ RS.242.35 PER SHARE AND THEY ARE BASED ON THE SOUND N AV OF THE SHIVALIK. AS SUCH, THE ASSESSEE IS AN INTERESTED PARTY TO ANY OF THE SE CONCERNS NAMELY. INSTANT SHIVALIK AND TAPTI. THUS, AO DID NOT HAVE SOUND PROOF TO DENY THE CLAIM OF CAPITAL LOSS. OTHERWISE, THE DOCUMENTATION MAINTAINED BY THE ASSESSEE QUA THE SALE TRANSACTION OF SHARES TO TAPTI IS FREE FROM ANY CONTROVERSY. AO HAS NOT MADE OUT ANY CASE THAT THE DOCUMENTATION IS BOGUS AND THE CONSIDERATION RECEIVED BY HIM IS ALSO NOT FAKE. IN FACT, AO/CIT(A) FAILED TO DISCHARGE ONUS IN THIS MATTER. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINI ON THAT THE DECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE WILL HELP THE ASSESSEE . 23. ON CULLING OUT SOME RELEVANT LEGAL AND RELEVANT FINDINGS OF THE SUPREME COURT/HIGH COURT/ITAT, THE FOLLOWING ARE FOUND RELEVANT FOR THE LEGAL PROPOSITIONS IN FAVOUR OF THE ASSESSEE. THE REQUIREMENT OF LAW FOR CALLING A TRANSACTION AS SHAM OR OTHERWISE ARE : THE CASE LAWS IN SUPPORT OF THE ASSESSEE'S CLAIM TH AT IN THE PRESENT CASES, THE CLAIM OF CAPITAL LOSS IS NOT SHAM BUT IT IS AN ALLO WABLE DEDUCTION -- I. UNION OF INDIA V.AZADI BACHAO ANDOLAN [263 ITR 7 06 (SC)] IN THIS CASE IT HAS BEEN HELD THAT CITIZEN IS FREE TO CARRY ON HIS BUSINESS WITHIN FOUR COMERS OF LAW AND MERE TAX PLANNING WITHOUT ANY MOT IVE TO EVADE TAXES THROUGH COLOURABLE DEVICES IS NOT FROWNED UPON. IT IS FURTH ER HELD THAT MACDOWELL PRINCIPLE APPLIES TO ARTIFICIAL TRANSACTION AND NOT A REAL TR ANSACTION. II. SUPREME COURT WALFORT SHARES AND SECURITIES [32 6 ITR 1] IN THIS CASE, THE ASSESSEE COMPANY PURCHASED THE SH ARES CUM DIVIDEND, RECEIVED THE DIVIDEND THEREAFTER, WHICH WAS TAX FREE AND LAT ER ON, SOLD THE SHARES EX DIVIDEND AND CLAIMED THE CAPITAL LOSS. IT WAS HELD THAT ASSUMING THAT THE ASSESSEE MADE THE USE OF PROVISION OF SECTION 10(33), SUCH U SE COULD NOT BE SAID TO BE ABUSE OF LAW. EVEN ASSUMING THAT THE TRANSACTION WAS PRE PLANNED, THERE WAS NOTHING TO IMPEACH THE GENUINENESS OF THE TRANSACTI ON AND HENCE, THE LOSS WAS ALLOWED. III. RAGHVENDRA SINGH [39 ITD 463 (DEL.)] 27 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL IN THIS CASE, IT WAS HELD THAT THE LEGAL FORM OF TR ANSFER OF SHARES WAS ACCEPTED BY THE A.O. AND THEREFORE, IN ABSENCE OF ANY FINDING THAT THE TRANSFER IS INVA LID, CAPITAL LOSS HAS TO BE ALLOWED. IV. KARNATAKA H.C. IN THE CASE OF BHORUKA ENGINEERI NG INDIA LTD. IN THIS CASE, THE COURT HELD THAT AS LONG AS THE ARRANGEMENT OF THE ASSESSEE TO AVOID TAX PAYMENT DOES NOT CONTRAVENE ANY STATUTORY PROVISION AND IT IS ACHIEVED WITHIN FOUR COMERS OF LAW, IT CANNOT BE FO UND FAULT WITH. V. EVEREADY INDUSTRIES INDIA LTD. V. CIT [334 ITR 4 13 ( CAL)] IN THIS CASE IT HAS BEEN HELD THAT CITIZEN IS FREE TO CARRY ON HIS BUSINESS WITHIN FOUR COMERS OF LAW AND MERE TAX PLANNING WITHOUT ANY MOTIVE TO EVADE TAXES THROUGH COLOURABLE DEVICES IS NOT FROWNED UPON. VI. CIT VS. OBEROI HOTELS PVT. LTD. [334 ITR 293 (C AL)] IN THIS CASE, THE ASSESSEE PURCHASES THE SHARES OF THE COMPANY SKB IN 1991 AND LATER ON, ALSO SUBSCRIBED TO THE ADDITIONAL SHARES AT A HEFTY PREMIUM OF RS.1800/- PER SHARE OF RS.100/- FACE VALUE. HOWEVER, IMMEDIATE LY THEREAFTER, THE ASSESSEE SOLD HIS SHARES AT THE PRICE OF RS.18,33,752/- AS A GAINST THE COST OF RS.8,78,11,500/-. THUS, IT BOOKED THE SHORT TERM CA PITAL LOSS OF RS.8,59,77,725/- THE SAME WAS ALLOWED BY THE HON'BLE H.C. ON THE GROUND THAT THE TRANSACTION WAS GENUINE. THE A.O. HAD HELD IT TO BE COLOURABLE TRAN SACTION ON THE GROUND THAT THE COMPANY COULD HAVE INVESTED FURTHER AMOUNT OR WAITED FOR A REASONABLE PERIOD FOR THE BUSINESS TO GROW. THIS CONTENTION OF T E A. O. WAS REJECTED AND THE LOSS WAS ALLOWED. VII. ITAT, PUNE IN THE CASE OF SHRI SHRIKANT PITTIE - IN THIS CASE, THE ASSESSEE HAD SUBSTANTIAL CAPITAL GAINS. HE HAD GIVEN FUNDS TO TWO GROUP CONCERNS PITTIE AGRO AND PITTIE SOLAR LTD. THE LOANS WERE CONVERTED INTO SHARES. THESE COMPANIES WERE LOSS MA KING COMPANIES. THE ASSESSEE RECEIVED THE SHARES OF THESE COMPANIES AT A FACE VA LUE OF RS.100/-. BECAUSE THESE COMPANIES WERE LOSS MAKING COMPANIES, HE SOLD THE SHARES AT A NOMINAL PRICE OF RS.0.1 PER SHARE TO A CONCERN OF HIS C.A. THE LOSS WAS DISALLOWED BY THE A.O. ITAT, HAS ALLOWED THE ABOVE CAPITAL LOSS T O BE SET OFF AGAINST THE CAPITAL GAINS. THE RELEVANT PART OF THE ITAT ORDER IS IN PA RA 6.5.1 TO 6.5.8 (PAGES 168 TO 176). ACCORDINGLY, THE LOSS IN THIS CASE IS ALSO ALLOWABLE . VIII. BOMBAY H.C. DECISION IN THE CASE OF M/S. B. A RUNKUMAR & CO.- IN THIS CASE, THE ASSESSEE SOLD THE SHARES AND DECL ARED THE CAPITAL LOSS. THE A.O. SUBSTITUTED THE CONSIDERATION RECEIVED BY A HIGHER FIGURE BASED ON THE BREAKUP VALUE OF THE SHARES. ACCORDINGLY, THE LOSS WAS DISALLOWED. HON'BLE COURT HELD THAT THE REVENUE HAS NOT PROVED THAT THE ASSES SEE HAS RECEIVED HIGHER CONSIDERATION THAN WHAT IS ACTUALLY SHOWN ON SALE O F SHARES. ACCORDINGLY, THE CONSIDERATION SHOWN BY THE ASSESSEE FOR SALE OF SHA RES HAS TO BE ACCEPTED AS THERE IS NO PROVISION TO SUBSTITUTE THE CONSIDERATION BY A DIFFERENT FIGURE. HENCE, THE COURT ALLOWED THE CAPITAL LOSS. IX. ITAT MUMBAI IN THE CASE OF KAMAT CLUB PVT. LTD . HEREIN THE SAME ISSUE WAS INVOLVED AS IN THE ABOVE CASE OF B ARUNKUMAR & CO. ACCORDINGLY, ITAT ALLOWED THE CAPITAL LOSS. IT ALSO FOLLOWED THE DECISION OF SC IN THE CASE OF K P VARGHESE [131 ITR 597] WHEREIN SC HELD THAT FOR THE PURPOSES OF SECTION 48, IF THE DEPT. WANTS TO TAX HIGHER CONSIDERATION, FIRSTLY, I T HAS TO PROVE THAT THE ASSESSEE HAS ACTUALLY RECEIVED SOME CONSID ERATION OVER AND ABOVE, THAT SHOWN BY HIM. 28 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL X. DELHI H.C. ARJUN MALHOTRA- THE RATIO IS SAME AS THAT OF BOMBAY H.C. IN THE CASE OF ARUNKUMAR & CO. 24. FURTHER, THE CBDT CIRCULAR NO.6/2016 DATED 29-02-20 16, IN SPIRIT, DIRECTS THE AO NOT TO DISTURB THE CLAIM OF THE ASSESSEE RELATING TO THE CAPITAL GAINS ORDINARILY UNLESS THE CASE OF THE ASSESSEE FALLS UNDER EXC EPTIONS IN THE SAID CIRCULAR. IN THIS CASE, AO DID NOT DISTURB THE HEAD OF IN COME AND HOWEVER, SUPPLIED HIGHER CONSIDERATION OR DENIED TO CLAIM SET OFF OF T HE LOSS AGAINST THE CAPITAL GAINS. VIDE THE PARA NO.3(A) OF THE CIRCULAR (SUPRA), T HE PERIOD OF HOLDING IS GIVEN A GO BY. THEREFORE, PERIOD OF HOLDING OF 5 MONTHS IN THIS CASE NEEDS TO BE NOT CONSIDERED AGAINST THE ASSESSEE. ON EXAMINING THE FACTS OF THE PRESENT CASE, AS ALREADY STATED EARLIER, THE SUSPICION AND SURMISES ARE THE ESSENTIAL INGREDIENTS FOR THE AO TO CONCLUDE AGAINST THE ASSESSEE IN DENYING T HE SHORT TERM CAPITAL GAINS. AO HAS NOT BROUGHT OUT BROUGHT OUT ANYTHING TH AT THE CASE OF THE ASSESSEE FALLS UNDER THE EXCEPTIONS MENTIONED IN THE CIRCULAR. THUS, THE LEGAL SCOPE IN MATTERS OF CLAIM OF LOSS ON SALE OF CAPITAL ASSETS AND SUBSEQUENT SET OFF, IF ANY, IS SETTLED ONE BY VARIOUS DE CISIONS OF HONBLE SUPREME COURT/HIGH COURT AND ALSO BY THE COORDINATE BE NCH OF THE TRIBUNAL IN THE CASE OF SHRIKANT PITTIE (SUPRA). AO IS PREVENTED FROM SUBSTITUTING THE SALE PRICE BY A DIFFERENT FIGURE ( IN THE CASE OF M/S.ARUN KUMAR & CO.) (SUPRA). IN CASE, AO WANT TO TAX HIGHER CONSIDERATION, FIRSTLY, AO NEED S TO PROVE THAT ACTUALLY ASSESSEE RECEIVED SOME CONSIDERATION OVER AND ABOVE TH E RECORDED ONE (IN THE CASE OF K.P. VERGHESE) (SUPRA). FURTHER, THE AO CANNOT DEC IDE THE TIMING OF SALE OF THE ASSETS BY STATING THAT HE SHOULD HAVE WAITED FOR MARKET TO IMPROVE (IN THE CASE OF OBEROI HOTELS PVT. LTD.) (SUPRA). ON FACTS ALSO, WE FIND THE ASSESSEE DISCHARGED THE ONUS BY FURNISHING THE DETAILS OF PURCHASE, SALE AND ALSO THE DETAILS OF BUYERS FOR FACILITATING 29 ITA NO. 2330/PUN/2017 SHRI RAJENDRA L. AGARWAL INVESTIGATION IF ANY. ON DISCHARGE OF PRIMARY ONUS, THE AO A LSO FAILED TO DISCHARGE HIS SIDE OF ONUS BEFORE DENYING THE CLAIM. THEREFORE, IN OUR VIEW, THE IMPUGNED SALE TRANSACTION OF SA LE OF 3.5 LAKH SHARES OF SHIVALIK CANNOT BE HELD SHAM IN THE ABSENCE O F ANY CONTRARY EVIDENCES. AS HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF B. ARUNKUMAR & CO. (SUPRA), AO IS NOT PERMITTED TO SUBSTITUTE THE HIGHE R FIGURE OF RS.242.35 PAISE PER SHARE IN PLACE OF ACCOUNTED FIGURE OF RS.3.10 PAISE PER SHARE OF SHIVALIK. ACCORDINGLY, THE GROUND NOS. 2 AND 3 ARE ALLOWED. 25. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 31 ST DAY OF AUGUST, 2018. SD/- SD/- ( /VIKAS AWASTHY) ( . /D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 31 ST AUGUST, 2018. SB/SATISH # # # # / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS)-13, PUNE. 4. THE CIT CENTRAL, PUNE. 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.)