DCIT, CHENNAI V. Sicagen India Limited, CHENNAI

ITA 2608/CHNY/2014

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4079 (ITAT-CHENNAI)
• Duration Of Justice: 5 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2020
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 16-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SINNIVASA RAOC I T
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital asset; Business income; Share purchase agreement; Avoidance of tax; Valuation report; Liquidation; Capital Gains
• Section: 2(14); 133(6); 13; 22; 131

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI , ! ' # $% BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT & SHRI M. BALAGANESH, ACCOUNTANT MEMBER ./ I.T.A.NO.2608/CHNY/2014 / ASSESSMENT YEAR :2011-12 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(3), AAYAKAR BHAVAN, NEW BLOCK, 121,ROOM NO.706, M G ROAD, CHENNAI 600 034. VS. M/S.SIC AGEN INDIA LTD ., 4 TH FLOOR,SPIC HOUSE, 88,ANNA SALAI, CHENNAI 600 032. [PAN AAKCS 5770 J] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : MR.SINNIVASA RAO,C.I.T, D.R /RESPONDENT BY : MR.S.SRIDHAR,ADVOCATE / DATE OF HEARING : 24 .02.2020 ! / DATE OF PRONOUNCEMENT : 28 .02.2020 $' / O R D E R PER M. BALAGANESH, ACCOUNTANT MEMBER: THE REVENUE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-VI, CHENNAI IN ITA ITA NO.2608/CHNY/201 4 :- 2 -: NO.1744/13-14/A-VI, DATED 30.07.2014 FOR THE ASSESS MENT YEAR 2011-12. 2. THE ONLY EFFECTIVE ISSUE TO BE DECIDED IN THIS APPE AL IS AS TO WHETHER THE LD.CIT(A) WAS JUSTIFIED IN ALLOWING CAP ITAL LOSS CLAIMED BY THE ASSESSEE ON THE DEBTS IN THE SUM OF .56,48,55,180/- IN THE FACTS AND CIRCUMSTANCES OF T HE CASE. 3. THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSES SEE IS ENGAGED IN THE BUSINESS OF MARKETING OF BUILDING MATERIALS, COMMERCIAL VEHICLES, BOAT BUILDING, TRAVELS, SPECIALITY CHEMIC ALS AND MANUFACTURING OF DRUMS AND BARRELS. THE ASSESSEE HA D FILED ITS RETURN OF INCOME OF .31,80,06,380/-. THE FACTS AS RECORDED IN THE ASSESSMENT ORDER, THE ASSESSEE COMPANY SOLD 674 9 SHARES OF SDB CISCO INDIA LTD., WHICH WERE OBTAINED BY THE AS SESSEE FROM M/S.SICAL LOGISTICS LTD., UNDER DEMERGER SCHEME APP ROVED BY THE HONBLE MADRAS HIGH COURT VIDE ITS ORDER DATED 20.1 2.2007. PURSUANT OF THE SHARE PURCHASE AGREEMENT DATED 04.0 3.2010, THE ASSESSEE SOLD 6749 SHARES ON 09.08.2010 TO M/S.INNO VATIVE SALARY SERVICES AND PAYROLL ADVISORY PVT LTD., FOR A TOTAL CONSIDERATION OF .94,65,83202/-. ON THIS SALE OF SHARES, THE ITA NO.2608/CHNY/201 4 :- 3 -: ASSESSEE DERIVED A LONG TERM CAPITAL GAINS OF .84,59,77,432/-, WHICH WAS ADMITTEDLY OFFERED TO TAX IN THE RETURN O F INCOME. THE ASSESSEE ALSO SOLD IMMOVABLE PROPERTY AT PATTINAMAR UDUR AND DERIVED A LONG TERM CAPITAL GAINS OF RS.107,35,200/ -. HENCE, THE TOTAL LONG TERM CAPITAL GAINS DISCLOSED BY THE ASSE SSEE IN THE RETURN OF INCOME WAS .85,67,12,637/-. THE ASSESSEE ALSO HAD CERTAIN CAPITAL LOSS OF .56,48,52,180/- ON SALE OF DEBTS DUE FROM CERTAIN DEBTORS. THIS CAPITAL LOSS WAS SOUGHT TO BE SET OFF BY THE ASSESSEE WITH THE LONG TERM CAPITAL GAINS. 4. THE ASSESSEE COMPANY ENTERED INTO AN AGREEMENT ASSIGNING THE DEBTS TO M/S.GOLDEN STAR ASSET CONSUL TANTS (P) LTD., CHENNAI AND ACCORDINGLY, ASSIGNED THE DEBTS WORTH .57,01,55,180/- DUE FROM DEBTORS TO M/S.GOLDEN STAR ASSET CONSULTANTS (P) LTD., FOR A SUM OF .53 LAKHS. BY THIS PROCESS, THE ASSESSEE INCURRED CAPITAL LOSS OF .56,48,52,180/-. IN RESPONSE TO A QUERY RAISED BY THE A.O WITH REGARD T O ALLOWABILITY OF THE AFORESAID CAPITAL LOSS, THE ASSESSEE COMPANY SUBMITTED THE DOCUMENTS LIKE DEMERGER SCHEME APPROVED BY THE HON BLE MADRAS HIGH COURT, BALANCE SHEET OF M/S.SICAL LOGIS TICS LTD. AS ON ITA NO.2608/CHNY/201 4 :- 4 -: 30.09.2006( BEING THE DATE OF DEMERGER). PURSUANT TO THE DEMERGER, WITH EFFECT FROM 01.10.2006, CERTAIN DIVI SIONS OF M/S.SICAL LOGISTICS LTD., WERE TRANSFERRED TO THE A SSESSEE COMPANY AND ACCORDINGLY, ALL THE ASSETS & LIABILITI ES OF TRANSFERRED UNDERTAKING WERE TRANSFERRED TO THE ASSESSEE AT THE VALUES APPEARING IN THE BOOKS OF ACCOUNT OF M/S.SICAL LOGI STICS LTD., AS A RESUT OF THIS, THE LOANS AND ADVANCES TO THE TUNE OF .24,728.67 LAKHS GOT VESTED WITH THE ASSESSEE. THE AFORESAI D LOANS AND ADVANCES ADMITTEDLY INCLUDED INTER CORPORATE DEPOSI TS (ICDS) AND OTHER LOANS AND ADVANCES GIVEN TO THE FOLLOWING FIV E PARTIES TO THE TUNE OF .57 CRORES. NAME OF COMPANIES AMOUNTS IN CRORES PURPOSE AUTOMOBILE PRODUCTS OF INDIA (APP) 39.18 ICD - INTER CORPORATE DEPOSIT MAC CLOTHING 1.13 ICD SICAL SHIPS 3.88 ICD PROFAD 1.82 ICD MCC FINAN CE 10.99 ICD & LOANS AND ADVANCES 57.00 ITA NO.2608/CHNY/201 4 :- 5 -: 5. THE ASSESSEE SUBMITTED BEFORE THE A.O THAT IT H AD COME UNDER SEVERE PRESSURE FROM SHAREHOLDERS, AUDITORS, BANKERS TO MARK THE MARKET VALUE OF THESE ADVANCES. ACCORDINGL Y, IT WAS FORCED TO ASSIGN THE AMOUNTS DUE FROM THE AFORESAID FIVE PARTIES TO AN INDEPENDENT ASSET RECONSTRUCTION COMPANY I.E. M/S.GOLDEN STAR ASSET CONSULTANTS (P) LTD. OUT OF THE AFORESA ID FIVE PARTIES, THE LOSS CLAIMED BY THE ASSESSEE WITH REGARD TO MA C CLOTHING, SICAL SHIPS,PROFAD AMOUNTING TO .1.13 CRORES, 3.88 CRORES AND .1.82 CRORES RESPECTIVELY ARE NOT DISPUTED BY THE R EVENUE BEFORE US. 6. WITH REGARD TO ICD AMOUNT DUE FROM M/S.AUTOMOBI LE PRODUCTS OF INDIA LTD. (API) IN THE SUM OF .39.18 CRORES, THE ASSESSEE SUBMITTED THAT THE SAID COMPANY WAS SICK C OMPANY AND WAS NOT ABLE TO SERVICE ANY DEBTS; THAT THE SAID C OMPANY HAD DISPOSED OF ALL ITS ASSETS IN EARLIER YEARS, THER EBY LEAVING NO ASSETS TO ITS CREDITORS; THAT THE ASSET CONSTRUCTIO N COMPANY FELT THAT IT COULD GENERATE SOME SMALL UPSIDE IN THE TRA NSACTION PROVIDED THE ADVANCE IS ASSIGNED TO IT AT A FRACTIO NAL PRICE. ACCORDINGLY, THE ASSESSEE COMPANY THOUGHT IT FIT TO ASSIGN THESE ADVANCES IN FAVOUR OF M/S.GOLDEN STAR ASSET CONSULT ANTS (P) LTD., ITA NO.2608/CHNY/201 4 :- 6 -: AND WAS ABLE TO GET RID OF THESE ADVANCES FROM ITS BOOKS AND PRESENT A TRUE AND FAIR VIEW OF ITS ACCOUNTS TO ITS SHARE HOLDERS. 6.1 WITH REGARD TO ICD AND LOANS AND ADVANCES FIGU RE DUE FROM M/S.MCC FINANCE LTD. AMOUNTING TO .10.99 CRORES, THE ASSESSEE SUBMITTED THAT THE SAID COMPANY WAS IN WINDING UP A T THE TIME OF SIGNING OF ASSIGNMENT AGREEMENT AND ALL EFFORTS OF RECOVERY OF AMOUNT FROM THE SAID COMPANY WERE IN VAIN. THE ASSE SSEE SUBMITTED THAT BY ASSIGNING THE RECOVERABILITY OF T HE SAID DUES TO AN INDEPENDENT SPECIALIST I.E. M/S.GOLDEN STAR ASSE T CONSULTANTS (P) LTD., CONSIDERABLE TIME OF MANAGEMENT, WHICH I S VALUABLE WOULD BE SAVED AND THE MANAGEMENT OF THE ASSESSEE C OMPANY WOULD BE ABLE TO FOCUS ON THEIR OWN BUSINESS RATHE R THAN PURSUE LEGAL CASES AND RECOVERY OF OLD ADVANCES. 7. A COPY OF AFORESAID TWO ASSIGNMENT AGREEMENTS W ERE SUBMITTED BEFORE THE LD.A.O THE LD.A.O OBSERVED T HAT ONE MR.RAJAMANI, DIRECTOR OF M/S.GOLDEN STAR ASSET CONS ULTANTS (P) LTD., ALONG WITH MR.P.L.PALANIAPPAN WERE APPOINTED AS THE FIRST DIRECTOR OF THE SAID COMPANY, WHICH WAS INCORPORATE D ON 26 TH DECEMBER, 2008 WITH THE MAIN ACTIVITY OF THE BUSINE SS BEING ITA NO.2608/CHNY/201 4 :- 7 -: RECOVERY OF DEBTS. IN EFFECT, THE SAID COMPANY IS B ASICALLY ASSET RE-CONSTRUCTION COMPANY INCORPORATED FOR RECOVERY O F DEBTS. MR.RAJAMANI, DIRECTOR OF THE ASSIGNEE COMPANY WAS EX AMINED ON OATH BY THE LD.A.O DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S.131 OF THE ACT. MR.RAJAMANI IN HIS STATEMENT STA TED THAT HE WAS WORKING IN SPIC LTD. FOR MORE THAN 30 YEARS AND KNOWS MOST OF THE EXECUTIVES IN THE GROUP. HENCE, HE STARTED THE COMPANY ALONG WITH MR.P.L.PALANIAPPAN FOR COLLECTION OF COR PORATE DEBTS. WHEN SPECIFICALLY ASKED BY THE LD.A.O ABOUT THE COL LECTIONS MADE SO FAR, OUT OF THESE DEBTS, MR.RAJAMANI STATED THAT THE SHARES WERE ALLOTTED BY M/S.MCC FINANCE LTD. WORTH .10.99 CRORES AND .25 CRORES IN LIEU OF DEBTS OUTSTANDING TO THE ASSE SSEE COMPANY AND M/S.EXPRESS CARRIERS PVT LTD RESPECTIVELY ON 27 .03.2013. WHEN ASKED WHETHER THE SAID RECOVERY OF DEBT IN THE FORM OF ALLOTMENT OF SHARES HAD BEEN OFFERED TO TAX AS A BU SINESS INCOME FOR ASSESSMENT YEAR 2013-14, HE REPLIED THAT NO SUC H INCOME WAS ADMITTED IN THE RETURNS FILED FOR A.Y 2013-14. ON A QUESTION AS TO HOW THE ASSIGNED DEBTS WERE TREATED IN THE BOOKS OF ACCOUNTS OF M/S.GOLDEN STAR ASSET CONSULTANTS (P) LTD., IT WAS STATED BY MR.RAJAMANI THAT THE AMOUNT OF .53 LAKHS PAID TO THE ASSESSEE ITA NO.2608/CHNY/201 4 :- 8 -: COMPANY WAS SHOWN UNDER LOANS AND ADVANCES ON THE A SSET SIDE OF THE BALANCE SHEET, BUT THE ASSIGNED LOANS WERE N OT REFLECTED IN THE BOOKS OF ACCOUNT. WITH REGARD TO ANOTHER QUES TION, WHETHER THE ASSIGNEE COMPANY I.E. M/S.GOLDEN STAR ASSET CON SULTANTS (P) LTD., HAS ANY EXPERIENCE IN COLLECTING AND RECOVE RING THE DEBTS. MR.RAJAMANI STATED THAT THE SAID COMPANY HAS NO EXPE RIENCE. 8. WITH REGARD TO AMOUNTS DUE FROM API, THE LD.A.O CALLED FOR INFORMATION U/S.133(6) OF THE ACT FROM API. IN RES PONSE THERETO, API VIDE ITS LETTER DATED 06.02.2014 SUBMITTED THAT THE ASSESSEE COMPANY HAD LENT .39.18 CRORES TO API DURING THE PERIOD WHEN API WAS UNDER THE PURVIEW OF BOARD FOR INDUSTRIAL A ND FINANCIAL RECONSTRUCTION (BIFR). SUBSEQUENTLY, PURSUANT TO DE MERGER API, THE PROMOTERS OF API GOT CHANGED THROUGH TAKEOVER C ODE REGULATIONS DULY APPROVED BY SEBI AND AS SUCH, THE OLD LIABILITIES STANDING IN THE BOOKS OF API WERE ASSUMED/TAKEN OVE R BY THE EARLIER PROMOTERS, NAMELY M/S.SOUTH INDIA TRAVELS P LTD. ACCORDINGLY, API REPLIED THAT THEY HAD NOT SHOWN CL AIMS PAYABLE TO SICAGEN INDIA LTD., I.E. ASSESSEE COMPANY IN THE IR BOOKS. API HAD FURTHER REPLIED BEFORE THE LD.A.O THAT THE ASSI GNEE COMPANY I.E. M/S.GOLDEN STAR ASSET CONSULTANTS (P) LTD., H AD BEEN ADVISED ITA NO.2608/CHNY/201 4 :- 9 -: TO PREFER THEIR CLAIMS WITH M/S.SOUTH INDIA TRAVELS P LTD., AND NOT THEM. 9. SIMILARLY INFORMATION WAS CALLED FOR U/S.133(6) OF THE ACT BY THE LD.A.O FROM M/S.MCC FINANCE LTD., TO UNDERSTAND THE PRESENT POSITION OF THE DEBTS PAYABLE TO THE ASSESSEE COMPA NY. IN RESPONSE THERETO, M/S.MCC FINANCE LTD., SUBMITTED T HAT PURSUANT TO THE ORDER OF THE HONBLE MADRAS HIGH COURT IN TH E MATTER OF SCHEME OF ARRANGEMENT AND REVIVAL OF M/S.MCC FINANC E LTD., THE SAID COMPANY HAD REQUESTED THE ASSESSEE COMPANY FOR EXERCISING OPTION WITH REGARD TO DUES OF .10.99 CRORES, WHICH IS AS UNDER:- A) 3 YEAR ZERO INTEREST BONDS FOR 40% OF THE AMOUN T OUTSTANDING AT THE TIME OF WINDING UP INCLUDING INTREST UPTO JUNE 2000 WILL BE ALLOTTED TO THE CREDITORS OR THEIR AUTHORIZED NOMINESS, IN F ULL SETTLEMENT OF THEIR DUES. SCUH BONDS SHALL BE REDEEMABLE AT THE END OF THE THIRD YEAR OR IN LIEU OF SUCH REDEMPTION AT THE OPTION OF THE CREDIT OR, BE CONVERTIBLE INTO EQUITY SHARES OF R.10 EACH AT PAR. OR B) THE EQUITY SHARES OF .10/- EACH A A PREMIUM OF .15/- PER SHARE WILL BE ALLOTTED TO THE CREDITORS OR THEIR AUTHORIZED NO MINEES FOR THE AMOUNT OUTSTANDING AT THE TIME OF WINDING UP INCLUD ING INTEREST UPTO JUNE 2000 IN FULL SETTLEMENT OF THE DUES. ITA NO.2608/CHNY/201 4 :- 10 -: THE CREDITORS SHALL EXERCISE EITHER OF THE ABOVE OP TIONS WITHIN THIRTY DAYS OF THE SANCTION OF THE SCHEME BY THIS HONBLE COURT, UPON SUCH EXERCISE OF OPTION BY THE CREDITORS, THE BOARD OF D IRECTORS OF THE COMPANY SHALL, ACT ACCORDINGLY TO GIVE EFFECT TO TH E SAME. PURSUANT TO THIS OPTION GIVEN BY M/S.MCC FINANCE LT D., THE ASSESSEE COMPANY HAD WRITTEN A LETTER TO M/S.MCC F INANCE LTD., NOMINATING M/S.GOLDEN STAR ASSET CONSULTANTS (P) LT D., I.E. THE ASSIGNEE COMPANY FOR ALLOCATION OF EQUITY SHARES IN ITS FAVOUR TO THE EXTENT ELIGIBLE FOR AN AMOUNT OF .10.99 CRORES. 10. IN VIEW OF THE AFORESAID FACTS, THE A.O OBSERVE D THAT: A)THE AMOUNT PAID BY M/S.GOLDEN STAR ASSET CONSULTA NTS (P) LTD., TO THE ASSESSEE COMPANY WERE ONLY SHOWN AS LOANS AN D ADVANCES IN THE ASSET SIDE OF THE BALANCE SHEET WITHOUT ACKN OWLEDGING THE DEBTS IT HAD PURCHASED FROM THE ASSESSEE COMPANY PU RSUANT TO THE ASSIGNMENT AGREEMENT. IN OTHER WORDS, THE LD.A. O OBSERVED THAT NAME OF THE DEBTOR COMPANY WERE NOT BROUGHT IN TO THE BOOKS OF ACCOUNTS OF THE ASSIGNEE COMPANY, WHICH ME ANS THAT ASSIGNEE HAS NOT TAKEN OVER THE RIGHTS ALLEGEDLY EX TINGUISHED BY THE ASSESSEE COMPANY. ITA NO.2608/CHNY/201 4 :- 11 -: B) WHEN M/S.MCC FINANCE LTD., ALLOTTED SHARES IN LI EU OF OUTSTANDING DEBTS TO AN EXTENT OF RS.10.99 CRORES, THE SAID ASSIGNEE COMPANY I.E. M/S.GOLDEN STAR ASSET CONSULT ANTS (P) LTD., DID NOT ADMIT ANY PROFIT ON ACCOUNT OF THIS TRANSAC TION IN THEIR INCOME TAX RETURNS TO THE TUNE OF .10,70,70,000/- WHICH IS WORKED OUT AS UNDER:- VALUE OF SHARES ALLOTTED 10,90,00,000 LESS COST BASED FOR ASSIGNMENT OF DEBT 19,30,000 PROFIT DERIVED IN F.Y 2012-13 10,70,70,000 THE A.O OBSERVED THAT THE ASSIGNEE COMPANYS BUSINE SS WAS TO PURCHASE THE ASSIGNED DEBT, THEN THE DIFFERENCE IN VALUE BETWEEN COST PAID FOR PURCHASE OF THOSE DEBTS AND RECOVERY MADE THEREON SHOULD HAVE BEEN DISCLOSED AS BUSINESS PROFITS IN THE YEAR OF RECOVERY I.E. IN A.Y 2013-14. HOWEVER, THE ASSIGNEE COMPANY, NEITHER DISCLOSED THE FACT OF ALLOTMENT OF SHARES I N ITS BOOKS OF ACCOUNTS NOR HAD ADMITTED ANY PROFIT ON ALLOTMENT O F SHARES IN THEIR RETURNS OF INCOME. ACCORDINGLY, THE LD.A.O CO NCLUDED THAT SO CALLED ASSIGNEE COMPANY HAD NO INTENTION TO TAKE OV ER THE ASSIGNED DEBTS FROM THE ASSESSEE COMPANY. ACCORDIN GLY, HE CONCLUDED THAT THE SAID TRANSACTION CANNOT BE CONST RUED AS A ITA NO.2608/CHNY/201 4 :- 12 -: VALID TRANSFER I.E. EXTINGUISHMENT OF RIGHTS WITHIN THE MEANING OF SECTION 2(47) OF THE ACT. THE LD. A.O FURTHER HELD SINCE IT IS NOT A PROPERTY TRANSFER, THE CAPITAL LOSS CLAIMED BY THE ASSESSEE ON ALLEGED ASSIGNMENT OF DEBTS TO A THIRD PARTY IS NOT ALLOWABLE FOR SET OFF AGAINST THE LONG TERM CAPITAL GAINS DERIVED BY THE ASSESSEE. 11. THE LD. A.O FURTHER OBSERVED THAT API HAD BEEN SENT OUT OF THE PURVIEW OF BIFR ON 23.02.2004 ITSELF. HENCE, AP I IS NO LONGER A SICK COMPANY AS ALLEGED BY THE ASSESSEE BEFORE US . HENCE, THE CONTENTION OF THE ASSESSEE THAT DEBT WAS NOT RECOVE RABLE FROM API COULD NOT BE ACCEPTED AND BASED ON THIS, THE LD .A.O CONCLUDED THAT THE ASSIGNMENT OF SUCH DEBT IN FAVOU R OF M/S.GOLDEN STAR ASSET CONSULTANTS (P) LTD., WAS DON E ONLY WITH SOLE INTENTION OF REDUCING THE CAPITAL GAINS TAX BY THE ASSESSEE. MOREVOVER THE LD.A.O ALSO PLACED RELIANCE ON THE RE PLY GIVEN BY API U/S.133(6) OF THE ACT WHEREIN THEY HAD CATEGORI CALLY STATED THAT THEY DID NOT OWE ANY MONEY TO THE ASSESSEE COM PANY AND THAT THE DEBT HAD ALREADY BEEN TAKEN OVER BY THEIR EARLIER PROMOTERS, M/S.SOUTH INDIA TRAVELS P LTD., THE LD. AO EVEN CROSS VERIFIED THESE FACTS FROM THE ANNUAL REPORTS PUBLIS HED BY THE API ITA NO.2608/CHNY/201 4 :- 13 -: FROM A.YS 2008-09 TO 2012-13. BASED ON THE PERUSAL OF THE BALANCE SHEETS OF API FOR THE AFORESAID PERIODS, TH E LD.A.O CONCLUDED THAT IF THE ASSIGNMENT OF DEBTS WERE GENU INE, THEN THE ASSIGNEE COMPANY TAKING OVER THE DEBT WOULD HAVE DE FINITELY DONE DUE DILIGENCE TO VERIFY THE CLAIM OF THE ASSIG NOR. BASED ON THIS, HE OBSERVED THAT THIS CLEARLY SHOWS THAT SO C ALLED ASSIGNMENT OF DEBTS TO A THIRD PARTY AS SUBMITTED BY THE ASSES SEE WAS ONLY A MUTUAL ARRANGEMENT TO ARRIVE AT BOGUS CAPITAL LOSS FOR CONSEQUENTIAL SET OFF WITH LONG TERM CAPITAL GAINS . ACCORDINGLY, THE LD.AO CONCLUDED THAT THE ASSESSEE HAS MISREPRES ENTED THE FACTS AND DID NOT REVEAL THE TRUE NATURE OF TRANSAC TIONS THAT TOOK PLACE BETWEEN API AND ASSESSEE COMPANY. 12. WITH REGARD TO DEBTS RECOVERABLE FROM M/S.MCC FINANCE LTD., THE A.O OBSERVED THAT ASSESSEE COMPANY WAS WE LL AWARE OF THE FACT THAT THE DEBTOR COMPANY HAD FILED A SCHEME OF ARRANGEMENT BEFORE THE HONBLE MADRAS HIGH COURT AN D HAD DECIDED TO LIQUIDATE THE LIABILITY BY ALLOTMENT OF SHARES WITH A FACE VALUE OF .10 AT PREMIUM OF .15 PER SHARE FOR THE OUTSTANDING AMOUNTS AGAINST THE ASSESSEE COMPANY. IN THESE CIRC UMSTANCES, HE OBSERVED THAT IT IS NOT KNOWN HOW THE DEBT HAD B ECOME ITA NO.2608/CHNY/201 4 :- 14 -: IRRECOVERABLE TO ASSIGN THE SAME TO THE THIRD PART Y I.. M/S.GOLDEN STAR ASSET CONSULTANTS (P) LTD. THE LD. AO ALSO OBS ERVED THAT MR.RAJAMANI, WHO IS A FOUNDER DIRECTOR OF M/S.GOLDEN STAR ASSET CONSULTANTS (P) LTD., WAS ALSO A DIRECTOR IN THE A SSESSEE COMPANY AT SOME POINT OF TIME. HE OBSERVED THAT SEQ UENCE OF EVENTS OF RETIREMENT OF MR.RAJAMANI FROM THE ASSESS EE COMPANY, FLOATING A NEW COMPANY FOR RECOVERING DEBTS AND J OINING AS A DIRECTOR OF COMPANY I.E M/S.MCC FINANCE LTD.,IS NO T A MATTER OF CO-EXISTENCE, BUT APPEARS TO BE PRE-PLANNED STRATEG Y ADOPTED BY THE ASSESSEE COMPANY. THE LD.A.O FURTHER OBSERVED T HAT BEING FULLY AWARE THAT DEBT OWED BY M/S.MCC FINANCE LTD., WAS GOING TO BE DISCHARGED IN THE FORM OF SHARES, IT IS NOT U NDERSTOOD AS TO HOW THE SAME COULD BE ASSIGNED TO A THIRD PARTY FOR A PALTRY SUM. ACCORDINGLY HE CONCLUDED THAT THE ENTIRE EXERCISE O F ASSIGNED LOANS TO THE THIRD PARTY WAS A DISHONEST AND FRAUDU LENT MOTIVE ON THE PART OF ASSESSEE-COMPANY TO ARRIVE AT A BOGUS C APITAL LOSS. BASED ON THE AFORESAID FACTS, THE LD.AO CONCLUDED T HAT THE ENTIRE AGREEMENT ENTERED INTO WITH M/S.GOLDEN STAR ASSET C ONSULTANTS (P) LTD., WAS A CLANDESTINE ARRANGEMENT AND NEEDS TO BE CONCLUDED AS A SHAM TRANSACTION WITH A FRAUDULENT M OTIVE TO ITA NO.2608/CHNY/201 4 :- 15 -: EVADE CAPITAL GAINS TAX ON SALE OF SHARES AND SALE OF PROPERTY. WITH THESE OBSERVATIONS, THE LD.A.O DISALLOWED THE ENTIRE CAPITAL LOSS ON SALE OF DEBTS CLAIMED BY THE ASSESSEE TO TH E TUNE OF .56,48,55,180/-. 13. THE LEARNED CIT(A) GRANTED RELIED TO THE ASSES SEE BY OBSERVING AS UNDER:- 5.2.2. HAVING GONE THROUGH THE VARIOUS SUBMISSIONS AND PAPER BOOKS FILED WITH ME, I SHALL NOW GO INTO THE ADJUDI CATION OF THESE GROUNDS RAISED. I HAVE PERUSED THE COPY OF AGREEMEN T OF ASSIGNMENT OF DEBTS, THE STATEMENT RECORDED BY THE AO UNDER SECTION 131 OF THE IT ACT FROM SHRI M. RAJAMANI, DI RECTOR OF M/S GOLDEN STAR ASSETS CONSULTANTS PVT. LTD. ON 07.02.2 014 AND 03.02.2014 AND ALSO PERUSED THE VALUATION REPORT DT . 20.08.2010 PREPARED BY M/S BANYAN CONSULTANCY SERVICES PVT. LT D., IN RESPECT OF VALUATION OF THE DEBTS AS ON 20.08.2010. THE ASS ESSEE COMPANY HAS ASSIGNED DEBTS (ICDS) DURING THE ASSESSMENT YEA R WHICH ARE NO DOUBT A CAPITAL ASSET U/S 2(14) OF THE ACT. I HA VE PERUSED THE AGREEMENT OF ASSIGNMENT OF DEBTS ENTERED BY THE APP ELLANT ON 09.09.2010 AND 25.03.2011 WITH M/S GOLDEN STAR ASSE TS CONSULTANTS PVT. LTD. THE COMPANY HAS EXECUTED A VA LID ASSIGNMENT DEEDS DULY ENTERED BETWEEN TWO PARTIES A ND EVIDENCED BY NECESSARY BOARD RESOLUTIONS. THE AGREE MENT OF ASSIGNMENT OF DEBTS DT. 09.09.2010 AND 25.03.2011 A LSO SHOW THAT THE VALID CONSIDERATION WAS PASSED VIDE CHEQUE NO. 173684 OF RS. 50,00,000/- AND CHEQUE NO.173688 OF RS. 3,00,00 0/- BETWEEN THE PARTIES AND THE RIGHTS CONTAINED IN THESE DEBTS HAS BEEN EFFECTIVELY TRANSFERRED WITHIN THE DEFINITION OF SE CTION 2(47) OF THE IT ACT. AS PER THE SECTION 18(D) OF THE REGISTRATIO N ACT 1908, THE REGISTRATION OF MOVABLE PROPERTY IS NOT MANDATORY. IT IS ONLY OPTIONAL. THERE IS ALSO NO DOUBT THAT M/S. GOLDEN S TAR ASSET CONSULTANTS P LTD. HAS RECORDED THESE TRANSACTIONS IN ITS BOOKS AND HENCE THE TRANSFER IS COMPLETE IN ALL RESPECTS. THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY IN THE MEETING HE LD ON 12.08.2010 AND 22.03.2011 HAVE AUTHORIZED THE MANAG ING DIRECTOR OF THE COMPANY FOR ASSIGNMENT OF THE DEBTS DUE FROM THE VARIOUS COMPANIES FOR A CONSIDERATION OF RS.50,00,0 00/- AND RS.3,00,000/- RESPECTIVELY TO M/S GOLDEN STAR ASSET S CONSULTANTS PVT. LTD., AS THE DEBTS WERE OUTSTANDING FOR A LONG PERIOD OF TIME. REGARDING THE QUALITY OF THE DEBTS ASSIGNED BY ASSE SSING COMPANY ITA NO.2608/CHNY/201 4 :- 16 -: AND THE BASIS OF FIXATION OF THE SALE PRICE OF THE DEBTS, THE AR OF THE APPELLANT VIDE HIS SUBMISSION DT. 03.07.2014 FI LED DETAILED SUBMISSION (EXTRACTS TAKEN FORM VALUATION REPORT) A S A BRIEF HISTORY OF EACH OF THE DEBTS ASSIGNED AND THE CIRCUMSTANCES UNDER WHICH THE DEBTS BECAME BAD. THE LIST OF ADVANCES WHICH WERE ASSIGNED DURING THE AY 2011-12 WAS AS FOLLOWS: AUTOMOBILE PRODUCTS OF INDIA LTD (API) RS.39.L8CR ORES MAC CLOTHING LTD RS.1.13 CRORES SICAL SHIPS LTD RS. 3.88 CRORES PROFAD LTD RS. 1.82 CRORES MCC FINANCE LTD RS.10.99 CRORES FACTS RELATING TO API: AUTOMOBILE PRODUCTS OF INDIA LIMITED WAS A COMPANY PRODUCING THE FAMOUS LAMBRETTA SCOOTER BRAND. IT WENT INTO BIFR DURING 1992 AND DURING THIS PERIOD N/S. SOUTH INDIA CORPOR ATION AGENCIES LIMITED (SICAL) ADVANCES MONEY VIA LCD ROUTE TO THE EXTENT OF RS.39.18 CRORES TOWARDS THE REVIVAL OF THE COMPANY. SICAL HAD GIVEN THIS MONEY TO API IN ORDER TO REVIVE API AND AS UNDER THE BELIEF, THAT UPON THE REVIVAL OF API, ITS MONEYS W OULD BE RECOVERED IN ENTIRETY. API HAD VALUABLE PROPERTY AT BHANDUP, MUMBAL AT THAT TIME. WITHIN FEW YEARS IN 1999-2005 APIS PROPERTIES WERE SOLD AND LIQUIDATED AND FUNDS HAD T O BE USED TO SETTLE A CERTAIN CORPORATE GUARANTEE. SICAL CONTINU ED TO HOLD THESE BALANCES IN ITS BOOKS AND IN BETWEEN THE NAME WAS C HANGED TO SICAL LOGISTICS LIMITED. IN 200 7-08, SICAL LOGISTI CS LTD DID A DEMERGER UNDER THE AUSPICES OF THE HIGH COURT OF MA DRAS AND DURING THE DEMERGER THESE ASSETS WERE TRANSFERRED T O SICAGEN INDIA LIMITED UNDER COURT ORDER. SICAGEN INDIA LIMI TED THEN FOLLOWED UP ITS BALANCES WITH API AND API WAS 1N DI SCUSSION WITH THEM. IN THE MEANTIME SICAGEN INDIA LIMITED CAME UN DER PRESSURE FROM VARIOUS SHARE HOLDERS AND SOLD THE AS SET TO N/S. GOLDEN STAR ASSET CONSULTANTS P. LTD. HENCE THE LOA N AT THE TIME IT WAS GRANTED WAS GIVEN BY SICAL LOGISTICS WAS A GOOD ONE BUT SUBSEQUENTLY THE ADVANCE BECAME BAD OWING TO CHANGE IN BUSINESS CIRCUMSTANCES. WE ALSO ENCLOSE THE EXTRACT FROM THE VALUATION REPORT FOR YOUR REFERENCE. A. AUTOMOBILE PRODUCTS OF INDIA LTD. VALUATION OF ADVANCES GIVEN BY SICAGEN INDIA LTD TO AUTOMOBILE PRODUCTS OF INDIA LTD. RECOVERABLE VALUE/REPLACEMENT V ALUE/BOOK VALUE FIXED ASSET CURRENT ASSETS, 6,093,503 6,667,226 ITA NO.2608/CHNY/201 4 :- 17 -: LOANS & ADVANCES CURRENT LIABILITIES & PROVISIONS ADJUSTED UNSECURED LOANS 21,927,517 466,373,433 12,760,729 488,300,960 PERCENTAGE OF ASSETS AVAILABLE AS AGAINST LOANS 0.026 LOANS GIVEN BY SICAGEN INDIA LTD TO AUTOMOBILE PROD UCTS OF INDIA LTD AMOUNTS TO RS.39,18,00,000/-. THE ABOVE TABLE SHOWS THE PERCENTAGE OF ASSETS AVAI LABLE AS AGAINST LOAN AT 2.6%. BASED ON THIS PERCENTAGE WE MAY SAY THAT THE LOAN C AN BE VALUED AT RS.1,02,38,877/-. HOWEVER AS THE PROCESS INVOLVED IN DEBT COLLECTION IS LONG DRAWN AND MAY INVOLVE HEAVY COLLECTION COST THE ADVANCE I S VALUED AT 50% OF THE SAME. THIS WORKS OUT TO RS.1,02,38,877*50% WHICH IS 51,19 ,438/- MCC FINANCE LIMITED M/S. MCC FINANCE LIMITED WAS A COMPANY DEALING IN S HARE SERVICES AND NBFC ACTIVITIES. N/S. SICAL LOGISTICS LTD (EARLIER SOUTH INDIA CORPORATION AGENCIES LIMITED) HAD LENT MONEY VIA LCD TO MCC FINANCE LTD DURING 1995-2000 AT VARIOUS DATES A S MCC FINANCE LTD WENT INTO LIQUIDATION AND WENT INTO THE HANDS OF LIQUIDATOR. DURING 2000-2008, MCC SLOWLY STARTED TO SETTLE IN PUBLIC DEPOSIT DUES, TAX ARREARS AND OTHER SECURED DEBTS. THERE WAS HUGE DOUBT ON HOW IT WOULD ADDRESS IT UNSECURED DEB TS. M/S. SICAGEN INDIA LIMITED RECEIVED THESE ADVANCES FROM N/S. SOUTH INDIA CORPORATION AGENCIES LIMITED / M/S. SICAL LOG ISTICS LIMITED IN 2007-08 VIA DEMERGER APPROVED BY HONOURABLE HIGH CO URT OF MADRAS. AFTER TRYING TO RECOVER DUES FOR 3 YEARS, M /S. SICAGEN INDIA LIMITED SOLD THESE ASSETS TO GOLDEN STAR ASSE T CONSULTANTS PVT LTD IN AY 2011- 2012. THE RELEVANT EXTRACT FROM THE VALUATION REPORT IS ALSO ENCLOSED. E. MCC FINANCE LIMITED WE ARE UNABLE TO ACCESS ANY REGISTRAR OF COMPANIES FILINGS AS THE COMPANY IS UNDER LIQUIDATION. WE HAVE HOWEVER CERTA IN COURT ORDERS AND PRESS CUTTINGS TO SHOW THAT MCC FINANCE LTD HAS TAKEN ENORMOUS STEPS TO REPAY ITS CREDITORS. HOWEVER THE ASSETS OF MCC ITA NO.2608/CHNY/201 4 :- 18 -: FINANCE LTD ARE INSUFFICIENT TO REPAY THE DEPOSITOR S AND THE PROMOTERS HAVE RESORTED TO SELLING LANDS/ASSETS IN THEIR PERSONAL CAPACITY AS WELL AS IN COMPANIES WHICH BELONGED TO THE GROUP TO SETTLE THE DEPOSITORS OF MCC FINANCE LTD. ALSO THE FOLLOWING IS THE SCHEME SUBMITTED BY THE COMPANY IN 2004 WHICH DETAI LS THAT PUBLIC DEPOSITS OF UPTO 3 LACS WILL BE SETTLED UPTO 65% DEPOSITS EXCEEDING 3 LACS WILL SETTLED AT 50% AND FURTHER DE POSITS WILL HE SETTLED AT 25%. WE FEEL THAT SINCE SICAGEN INDIA LTD HAS GOT A CLAI M WHICH WILL RANK BELOW PUBLIC DEPOSITS IT WILL NOT GET THE SAME TREATMENT AND ASSURANCES OF THE PROMOTERS OF MCC FINANCE LTD. IT IS NOT WITHIN CONTEMPLATION THAT THE PROMOTERS WILL BRING IN THEI R PERSONAL FUNDS TO REPAY AMOUNTS OTHER THAN PUBLIC DEPOSIT WHICH IT SELF THEY HAVE REPAID ONLY PARTIALLY. HENCE WE CAN ONLY GIVE A VALUATION OF 5% OF THE VAL UE OF ADVANCES GIVEN BY SICAGEN INDIA LTD WHICH COMES TO AROUND RS.11 CRORES COMES TO RS.55 LACS. HOWEVER AS THE COMPANY IS IN LIQUIDATION AND THE PROCESS OF WINDING UP AND MAKIN G REPRESENTATIONS BEFORE THE LIQUIDATOR IS CUMBERSOME WE HAVE TO GIVE A 50% DISCOUNT TO THIS VALUE. HENCE WE BELIEVE THAT A VALUE OF 27.5 LACS SHALL BE FAIR. SICAL SHIPS LIMITED SICAGEN INDIA LIMITED HAD LENT MONEYS TO SICAL SHIP S LIMITED TO THE EXTENT OF RS.388 CRORES AMONG OTHER AMOUNTS DUR ING 2001- 2005. SICAL SHIPS LIMITED WAS A VERY GOOD SHIPPING COMPANY AND HAD TREMENDOUS BUSINESS DURING 1990S. DURING THE Y EAR 2003 THE COMPANY WENT INTO LIQUIDATION AND THE BUSINESS OF S ICAL SHIPS LTD COLLAPSED. THESE ADVANCES GIVEN BY SICAL LOGISTICS LIMITED WERE TRANSFERRED TO SICA GEN INDIA LIMITED AT THE TIME O F DEMERGER AND SICAGEN INDIA LIMITED PURSUED CLAIMS WITH OFFICIAL LIQUIDATOR. BUT THE LIST OF UNSECURED DEBTS WERE TOO MANY AND INCLU DED LEASING DUES TO FOREIGN CHARTERING COMPANIES AND FUEL DUES TO VARIOUS COMPANIES. THERE WAS GREAT UNCERTAINTY ON THE REALI SABILITY OF THESE DEBTS AND SICAGEN INDIA LIMITED FELT THAT IT WAS BETTER TO DISPOSE THIS ADVANCE RATHER THAN COLLECT THESE DEBT S. A BRIEF EXTRACT FROM VALUATION REPORT IS ENCLOSED. D. SICAL SHIPS LIMITED: THE NEXT SET OF ADVANCES THAT HAVE TO BE VALUED ARE THOSE RELATING TO SICAL SHIPS LTD. WE HAVE GONE THROUGH THE MINISTRY OF COMPANY AFFAIR S WEBSITE AND OTHER PUBLICATIONS WHICH SHOW THAT SICAL SHIPS LTD IS UNDER COMPULSORY LIQUIDATION SCHEME AND NOT UNDER VOLUNTA RY LIQUIDATION SCHEME. THE COMPANYS CIN NUMBER IS U63012TN1988LC0 15422. THERE ARE ALSO NO BALANCE SHEETS PREPARED AS ON DAT E AS THE COMPANY IS UNDER WINDING UP. HOWEVER A COPY OF THE COURT ORDER DATED 10TH DECEMBER 2001 IN THE MATTER OF MCC FINAN CE LTD (IN LIQUIDATION) VERSUS RESERVE BANK OF INDIA (A COPY O F WHICH IS ITA NO.2608/CHNY/201 4 :- 19 -: ATTACHED TO THIS REPORT) CLEARLY STALES IN PARA 9 T HE FINANCIAL POSITION OF SICAL SHIPS LTD. PARA 9 IS AS FOLLOWS: IT IS FURTHER STATED THAT THE CAPITAL AND RESERVE O F THE SECOND RESPONDENT COMPANY (SICAL SHIPS LTD) WHICH STOOD AT RS.3388.25 LAKHS AS ON 31-3-1996 HAS BEEN COMPLETELY ERODED AN D THE COMPANY HAS NEGATIVE NETWORTH OF RS. 4962.03 IAKHS. ALL FIXED ASSETS OF THE SECOND RESPONDENT COMPANY EXCEPT VEHI CLES ACQUIRED UNDER HIRE- PURCHASE AGREEMENT AMOUNTING T O RS.23.85 IAKHS ARE MORTGAGED WITH ICICI LTD, A FINANCIAL INS TITUTION AS SECURITY FOR VARIOUS LOANS RECEIVED BY THE COMPANY AMOUNTING TO RS,4236.26 LAKHS ON 31 -3-2001. THE CASH AND BALANC E POSITION HAS WORSENED SINCE 31-3-2001. FROM THE ABOVE IT CAN BE CLEARLY MADE OUT THAT THER E IS NO RESIDUAL VALUE FOR UNSECURED LENDERS. HENCE A NOTIONAL VALUE OF 1% CAN BE GIVEN. ADVANCES GIVEN RS.388,00,000. 1% OF ABOVE IS RS.3,88,000 MAC CLOTHING LIMITED & PRO FAD LIMITED THE TOTAL ADVANCES GIVEN TO MAC CLOTHING LIMITED & PROFAD LTD WERE RS.2.95 CRORES. THESE ADVANCES WERE GIVEN TO M AC CLOTHING & PROFAD DURING 1990S BY SICAL LOGISTICS LIMITED. I T WAS TRANSFERRED TO SICAGEN INDIA LIMITED DURING 2007-08 VIA DEMERGER. AT THE TIME OF GRANT OF LCD, PROFAD WAS A VIABLE AD VERTISING COMPANY & MAC CLOTHING WAS DOING SOME VIABLE GARMEN T BUSINESS BOTH THESE BUSINESS WENT INTO DIFFICULTY. PRO FAD 2 002 END / 2003 WENT INTO LIQUIDATION AND THESE ASSETS WERE SOLD TO GOLDEN STAR ASSETS CONSULTANTS PVT LTD AT AGREED CONSIDERATION. THE RELEVANT EXTRACT OF VALUATION REPORT IS ENCLOSED. B. MAC CLOTHING LTD VALUATION OF ADVANCES GIVEN BY SICAGEN INDIA LID TO MAC CLOTHING LTD RECOVERABLE VALUE/REPLACEMENT VALUE/BOOK VALUE BASED ON LAST DRAWN ESTIMATES OF ACCOUNTS FIXED ASSET CURRENT ASSETS, LOANS & ADVANCES 25,000 ---- 400,000 25,000 CURRENT LIABILITIES & PROVISIONS 5,618 .. 425,000 5,618 NET ASSET VALUE TOTAL LIABILITIES OF MAC CLOTHING LTD. 419,382 13,875,000 419,832 ITA NO.2608/CHNY/201 4 :- 20 -: REALISABLE VALUE TO LENDERS PERCENTAGE VALE OF LENDERS 0.030 LOANS GIVEN BY SICAGEN INDIA LTD TO MAC CLOTHING LT D AMOUNTS TO RS.1,13,00,000/- THE ABOVE TABLE SHOWS THE PERCENTAGE OF ASSETS AVAI LABLE AS AGAINST LOAN AT 3.0%. BASED ON THIS PERCENTAGE WE MAY SAY THAT THE LOAN C AN BE VALUED AT RS. 3,41,550/-. HOWEVER AS THE PROCESS INVOLVED IN DEBT COLLECTION IS LONG DRAWN AND MAY INVOLVE HEAVY COLLECTION COST THE ADVANCE I S VALUED AT 50% OF THE SAME. THIS WORKS OUT TO RS.3,41,550*50% WHICH IS RS,1,70, 775/- C. PROFAD LIMITED VALUATION OF ADVANCES GIVEN BY SICAGEN INDIA. LTD T O PROFAD LIMITED RECOVERABLE VALUE/REPLACEMENT VALUE/BOOK VALUE BASED ON LAST DRAWN ESTIMATES OF ACCOUNTS FIXED ASSET - ALMOST FULLY DEPRECIATE CURRENT ASSETS, LOANS & ADVANCES 5,000,000 ---- 1,000,000 5,000,000 6,000,000 NET ASSET VALUE TOTAL SECURED LIABILITIES OF PROFAD REALISABLE VALUE TO LENDERS 6,000,000 18,800,000 6,000,000 PERCENTAGE VALE OF LENDERS 0.319 LOANS GIVEN BY SICAGEN INDIA LTD TO PROFAD RS.1,82, 00,000. ITA NO.2608/CHNY/201 4 :- 21 -: THE ABOVE TABLE SHOWS THAT THE NET ASSET VALUE AVAI LABLE IS INSUFFICIENT TO MEET THE SECURED LIABILITIES. HENCE UNSECURED CREDITORS ARE NOT ELIGIBLE FOR FUNDS. HENCE THESE ADVANCES ARE VALUED AT A NOTIONAL VALUE OF 1%. 1% O.RS.182,00,0U0 COMES TO RS. 1,80,000. THE TOTAL MARKET VALUE OF THE DEBTS DETERMINED BY T HE VALUER WAS RS.1,13,58,210/-. THE MARKET VALUE OF THE DEBTS AS ON 20.08.2010 ARRIVED,BY THE VALUER WAS BASED ON THE NET WORTH OF THE COMPANIES TO WHOM THE LOANS WERE GIVEN BY SICAGEN I NDIA LIMITED IN THE EARLIER PERIODS AND A PROBABLE COST OF COLLE CTION INVOLVED IN THE COLLECTION OF DEBTS. NONE OF THE COMPANIES TO W HOM THE LOANS WERE GIVEN BY THE ASSESSEE COMPANY HAVE DENIED THE EXISTENCE OF THE OUTSTANDING DEBTS DUE TO THE APPELLANT COMPANY AND NONE OF THE COMPANIES HAVE ALSO DENIED THE EXISTENCE OF_THE ADVERSE CIRCUMSTANCES LEADING TO THE OUTSTANDING DEBTS. IN RESPONSE TO QUESTION NOS. 7 & 8 OF THE STATEMENT UNDER SECTION 131 OF IT ACT RECORDED BY THE AO ON 03.02.2014, SHRI M. RAJAMANI, DIRECTOR OF THE M/S GOLDEN STAR ASSET CONSULTANTS PVT. LTD., HA S CATEGORICALLY CONFIRMED THE ASSIGNMENT OF DEBTS TO THE COMPANY IN WHICH HE IS A DIRECTOR AND ALSO THE VALUE OF THE ASSIGNED PRICE . THE RELEVANT QUESTIONS PUT BY THE AD AND ANSWERS GIVEN_BY THE S RI M RAJAMANI ARE REPRODUCED HEREWITH FOR THE PROPER APP RECIATION OF THE CASE Q. NO. 7: WITH REGARD TO DEBTS ASSIGNED TO YOUR CO MPANY BY M/S SICAGN INDIA LTD., YOUR COMPANY HAS PAID RS. 53 IAK HS FOR THESE DEBTS. HOW IS VALUATION MADE? PLEASE GIVE DETAILS. ANS: ON THE DISCUSSION WITH ASSIGNER COMPANY (I.E M IS SICAGEN INDIA LTD.,) THE VALUATION WAS 1 TO 2% OF TOTAL DEB TS. Q. NO. 8: WHAT IS THE RATIONAL FOR MAKING VALUATION ? ANS: SINCE THE COLLECTION RISK WAS MORE, WE HAVE BA RGAINED TO GET THE DEBTS ASSIGNED FOR 1% OF THE VALUE. SHRI M.RAJAMANI ALSO EXPLAINED BEFORE AC THE EXISTE NCE OF THE DEBTS BY THE COMPANIES, THE QUALITY OF THE DEBTS AN D THE EXISTENCE OF THE LEGAL RIGHTS FOR CO!IECTION OF THE DEBTS POS SESSED BY M/S GOLDEN STAR ASSETS CONSULTANTS PVT. LTD., AND THE E FFORTS MADE TO RECOVER THE DEBTS. FURTHER, SHRI M. RAJAMANI IN REP LY TO QUESTION NO.16 TO THE STATEMENT RECORDED UNDER SECTION 131 O F THE IT ACT ON 03.02.2014 STATED THAT HE HAS AGREED TO THE COMP UTATION OF THE BUSINESS INCOME IN THE HANDS OF THE COMPANY FOR THE AY 2013- 14 ON THE TRANSACTIONS DONE BY M/S GOLDEN STAR ASSE TS CONSULTANTS PVT. LTD. WITH M/S MCC FINANCE LIMITED FOR THE AY 2013-14. THE ACTUAL COLLECTION OF THE DEBTS DUE FRO M M/S MCC FINANCE LIMITED BY M/S GOLDEN STAR ASSETS CONSULTAN TS PVT. LTCL, HAPPENED AFTER ONE YEAR FROM THE DATE OF ASSIGNMENT . NOW COMING TO THE ISSUE OF M/S. GOLDEN STAR ASSET C ONSULTANTS P LTD NOT SHOWING THE DEBTS IN ITS BOOKS AT FULL VALU E AND ONLY AT ITA NO.2608/CHNY/201 4 :- 22 -: PURCHASE PRICE, I FIND THAT THE JOINT COMMISSIONER OF INCOME TAX,, COMPANY RANGEVI VIDE HIS LETTER IN C.NO /C.R.VI/INFORMATION/2014-15, DT.09.05.2014 FORWARDE D THE INFORMATION TO DEPUTY COMMISSIONER OF INCOME TAX, C OMPANY CIRCLE 11(2), WHO IS ASSESSING THE CASE OF M/S GO LDEN STAR ASSETS CONSULTANTS PVT. LD., CHENNAI TO THE EFFECT THAT M/S GOLDEN STAR ASSETS CONSULTANTS PVT. LTD. HAD NOT SHOWN THE BUSINESS PROFIT OF RS.10,70,70,000/- FOR THE A.Y. 2013-14 IN ITS INCOME TAX RETURN FILED WITH THE_DEPARTMENT. ALSO MERELY BECAU SE M/S. GOLDEN STAR ASSET CONSULTANTS P LTD HAS NOT ACCOUNT ED AN ALLOTMENT OF SHARES IN RESPECT OF DEBT BY MCC IN A. Y 2013-14, DOES NOT AFFECT THE TRANSFER OF DEBT IN THE HANDS O F THE ASSESSEE IN A.Y. 2011-12. IT IS NOT CORRECT TO TAKE EVENTS THAT HAVE TAKEN PLACE AFTER THE DATE OF ASSIGNMENT AND EVALUATE WHETER A PROPER TRANSFER HAS HAPPENED ON THE DATE OF ASSIGNMENT. AL SO THE FACT THAT THE COMPANY HAS SHOWN THESE DEBTS IN PREOUS YE AR AS GOOD AND RECOVERABLE DOES NOT IN ANY WAY AFFECT THE CAPI TAL LOSS SUSTAINED BY THE COMPANY ON HAS DEMERGER FROM M/S. SICAL LOGISTICS LTD. UNDER HIGH COURT ORDER. IT HAS TRIED TO COLLECT THESE DEBTS BUT HAS DECIDED TO SELL THE SAME DURING THE A Y 2011-12 AFTER HAVING COME UNDER PRESSURE FROM VARIOUS SHARE HOLDERS. ONLY DURING THE AY 2011-12 HAS THE COMPANY ASSIGNED THE DEBTS TO DEBT COLLECTING COMPANY AND HAS REALIZED CONSIDE RATION AND SUFFERED A CAPITAL LOSS. THIS IS NOT AFFECTED BY TH E ASSESSMENT OF MANAGEMENT IN PREVIOUS YEARS THAT THE DEBT WAS GOOD AND RECOVERABLE. NOW COMING TO THE ISSUE OF UNREGISTERED ASSIGNMENT AGREEMENT, I HAVE GONE THROUGH THE EXPLANATION GIVEN BY THE ASSE SSEE CLEARLY STATING THAT REGISTRATION OF MOVABLES IS OPTIONAL A S PER REGISTRATION ACT 1908. THEREFORE, IT IS INCORRECT ON THE PART OF THE AO TO SAY THAT THE DOCUMENT IS NOT VALID AS T HAS NOT BEEN RE GISTERED. AS REGARDS THE M/S API LTD. ISSUE, IT IS CLEAR FROM EX AMINATION OF RECORDS THAT M/S API LTD. HAS CONFIRMED THAT IT HAS BORROWED MONEY FROM SICAL LOGISTICS LTD. FROM WHOM THIS DEBT WAS TRANSFERRED TO THE ASSESSEE. MIS API LTD HAS ALSO CONFIRMED THAT THERE HAS BEEN A CHANGE OF PROMOTERS AND THAT ALL O LD LIABILITIES WERE TRANSFERRED TO THE EARNER PROMOTERS NAMELY M/S SOUTH INDIA TRAVELS P LTD. THIS CLEARLY CONFIRMS THAT THERE EXI STED ADBT OWED BY M,/S API LTD. TO M/S SICAL LOGISTICS LTD. AND SU BSEQUENTLY TO THE ASSESSEE. ALSO THE FINANCIAL HEALTH OF M/S API LTD. AT THE TIME OF TRANSFER OF DEBT WAS NOT SATISFACTORY AND EVEN THOU GH THE COMPANY HAS COME OUT OF BIFR, IT APPEARS TO BE SUFF ERING FROM FINANCIAL HARDSHIP. IT IS ALSO SEEN FROM VARIOUS SU BMISSIONS MADE BY THE ASSESSEE THAT THE CHANGE IN PROMOTERS OF M/S API LTD. HAS HAPPENED AFTER THE DATE OF ASSIGNMENT. ON THE DATE OF ASSIGNMENT, THERE IS NO DOUBT THAT THIS DEBT WAS OW ED BY M/S API LTD AND SUBSEQUENTLY TRANSFERRED TO OLD PROMOTERS. THEREFORE, IT ITA NO.2608/CHNY/201 4 :- 23 -: CAN BE CONCLUDED THAT THE AO HAS BROUGHT ON RECORD, FACTS PERTAINING TO CHANGE OF PROMOTER WHICH ARE EVENTS O CCURRING AFTER THE DATE OF ASSIGNMENT, TO ARRIVE AT CONCLUSIONS AS ON THE DATE OF ASSIGNMENT, WHICH IS ERRONEOUS. THE FACT THAT BALAN CE SHEETS OF M/S API LTD. DID NOT RE1ECT THE LIABILITY TOWARDS T HE ASSESSEE IS NOT RELEVANT IN JUDGING IF THERE EXISTED A VALID DEBT I N THE BOOKS OF THE ASSESSEE. AS REGARDS THE ISSUE PERTAINING TO M/S MCC FINANCE LTD., THE VIEW TAKEN BY THE AC THAT THE ARRANGEMENT BETWEEN T HE ASSESSEE, M/S. GOLDEN STAR ASSET CONSULTANTS P LTD AND M/S MC C FINANCE LTD. APPEARS PREMEDITATED IS INCORRECT. MR. RAJAMAN I, A DIRECTOR OF MIS. GOLDEN STAR ASSET CONSULTANTS P LTD. HAS ACQUI RED THE DEBT PAYABLE BY M/S MCC FINANCE LTD. FROM THE ASSESSEE W HEN M/S MCC FINANCE LTD. WAS UNDER LIQUIDATION DURING AY 20 11-12. IT IS A CLEARLY UNDERSTOOD FACT THAT WHEN A COMPANY IS UNDE R LIQUIDATION IT IS UNDER THE CONTROL OF OFFICIAL LIQUIDATOR AND NOT THE BOARD OF DIRECTORS. FURTHER, M/S MCC FINANCE LTD. CAME OUT O F LIQUIDATION BY ORDER OF MADRAS HIGH COURT DATED 09.11.2012 AND MR. RAJAMANI BECAME A DIRECTOR IN M/S MCC FINANCE LTD. ON 15.11. 2012. MR. RAJAMANI, UPON BECOMING A DIRECTOR SIGNED THE SHARE CERTIFICATES WHICH WERE ALLOTTED TO M/S. GOLDEN STAR_ASSET CONSU LTANTS PVT LTD. I DO NOT FIND ANYTHING WRONG IN A LENDER OF A COMPA NY NAMELY M/S. GOLDEN STAR ASSET CONSULTANTS P LTD., PROPOSI NG A DIRECTOR TO THE BOARD OF ITS BORROWER. THESE EVENTS ARE ALL MUC H AFTER THE DATE OF ASSIGNMENT AND CANNOT BE USED TO JUDGE THE TRANSACTION AS ON THE DATE OF ASSIGNMENT WHICH WAS IN A.Y 2011- 12. A REGARDS THE TRANSACTION M/S.GOLDEN STAR ASSET CO NSULTANTS P LTD., IT CAN BE OBSERVED THAT THE ASSIGNMENT AGREEM ENT HAS BEEN VALIDLY ENTERED INTO, DULY SUPPORTED BY BOARD RESOL UTIONS OF A LISTED COMPANY. IT CAN ALSO BE SEEN THAT A VALUATION REPOR T PREPARED BY AN EXPERT HAS NOT BEEN CONSIDERED BY THE AO. FURTHE R, VALID CONSIDERATION HAS PASSED BETWEEN THE PARTIES FOR TH E PURCHASE OF DEBTS. MR. RAJAMAROF M/S. GOEN STAR ASSET CONSULTAN TS P LTD. POSSESSES KNOWLEDGE AND RELATIONSHIPS OF VARIOUS EX ECUTIVES CONNECTED WITH THE DEBTOR COMPANIES. HE IS ALSO AWA RE OF THE TRANSACTIONS SURROUNDING THE DEBTS. MERELY BECAUSE HE HAS NOT INCURRED SUFFICIENT ADMINISTRATIVE COST OR LEGAL CO ST, IT CANNOT BE SAID THAT THE ARRANGEMENT IS CLANDESTINE. I DO NOT FIND THE RATIO OF THE DECISION RENDERED BY HONOURABLE ITAT PUNE A BENCH DT. 06.05.2013 IN THE CASE M/S GKN SINTER METALS LTD. RELIED UPON BY THE AO TO BE OF ANY ASSI STANCE TO THE FACTS CONNECTED TO THE CASE IN HAND. THE ABOVE CASE DEALS WITH AN ASSIGNMENT OF TRADING DEBTS AND THE SUBSEQUENT WRIT E OFF AS REVENUE LOSS. THE HONOURABLE ITAT PUNE A BENCH IN THAT CASE DECIDED THE ISSUE AT PARA 20.6 OF THE ORDER ON THE BASIS OF THE FACTS THAT THE ASSIGNOR HAD UNDERTAKEN TO COLLECT T HE DEBTS ON BEHALF OF THE ASSIGNEE AND HAS REMITTED THE SAME PE RIODICALLY. THE ITA NO.2608/CHNY/201 4 :- 24 -: PURCHASE CONSIDERATION INVOLVED IN THE TRANSACTION WITH ASSIGNEE COMPANY WAS RS.1/- BEING NOMINAL PRICE. THE HONOURA BLE ITAT PUNE A BENCH CAME TO CONCLUSION ABOUT THE COLORAB LE DEVISE ADOPTED BY M/S GKN SINTER METALS PVT. LTD., ON THE GROUND THAT THE SAME WAS DONE TO COMPENSATE MAHINDRA AND MAHIND RA FOR THE SURRENDER OF THE 51% SHARE HOLDING. IN THE PRESENT CASE, THE ASSIGNEE IS COLLECTING THE ENTIRE DEBTS FROM THE PA RTIES AND NO AMOUNT IS BEING PAID TO THE ASSESSEE COMPANY I.E AS SIGNOR, OVER AND ABOVE THE PURCHASE CONSIDERATION. THE TRANSACTI ONS ENTERED BY THE APPELLANT COMPANY WITH M/S GOLDEN STAR ASSET S CONSULTANTS PVT. LTD., ARE AT ARMS LENGTH. THE QUALITY OF THE DEBTS BEING OUTSTANDING OVER LONG PERIOD WERE ALSO NOT DISPUTED . THE FACTS OF THE PRESENT CASE ARE NOT IDENTICAL TO THE FACTS IN THE CASE OF M/S GKN SINTER METALS LIMITED. THE FACTS OF M/S GKN SIN TER METALS LTD. DECIDED BY HONOURABLE ITAT PUNE A BENCH CITED (SU PRA) HAVE NO BEARING ON THE ASSESSEES CASE. ON THE OTHER HAN D, I FIND THAT THE FACTS OF THE ASSESSEES CASE ARE IDENTICAL TO F ACTS CONTAINED IN A DECISION OF THE AHMEDABAD TRIBUNAL IN THE CASE OF M/S TORRENT PHARMACEUTICALS LTD VS ACIT IN ITA NO.333 AND 346/A HD/2006. HERE, THE TRIBUNAL HAS ALLOWED CAPITAL LOSS OI SALE OF DEBTS TO AN ASSET COLLECTION COMPANY. TO SUN UP, I FIND THE TRANSACTIONS BETWEEN THE ASSE SSEE AND M/S. GOLDEN STAR ASSET CONSULTANTS P LTD RELATING TO ASS IGNMENT OF DEBTS TO BE A VALID TRANSACTION DONE AT ARMS LENGT H WHICH HAS RESULTED IN CAPITAL LOSS OCCURRING FROM TRANSFER OF CAPITAL ASSET WITHIN THE FRAME WORK OF LAW. THEREFORE, THERE IS N O NEED TO PIERCE THE CORPORATE VEIL AND GO BEYOND THE CIRCUMSTANCES AND FACTS THAT EXISTED ON THE DATE OF ASSIGNMENT. THE DECISIONS RE LIED ON BY REVENUE VIZ. MC DOWELL & CO VS CTO, CIT VS. A. RAMA N & CO. AND CIT VS. B.M. KARWAR DO NOT HAVE ANY BEARING ON THE ASSESSEES CASE AS THE TRANSACTION ENTERED INTO BY THE ASSESSE E IS NOT IN THE NATURE OF TAX AVOIDANCE OR COLORABLE DEVISE. THE MADRAS HIGH COURT, IN THE CASE OF M. V. VALLIAP PAN V ITO [170 ITR 238] HAS HELD THAT THE DECISION OF THE SUPREME COURT IN THE CASE OF MC DOWELL LTD., VS CTO [154 ITR 148] CANNOT BE READ AS LAYING DOWN THAT EVERY ATTEMPT AT TAX PLANNING IS I LLEGITIMATE AND MUST BE IGNORED OR THAT EVERY TRANSACTION OR ARRANG EMENT WHICH IS PERFECTLY PERMISSIBLE UNDER LAW WHICH HAS THE EFFEC T OF REDUCING THE TAX BURDEN OF THE ASSESSEE MUST BE LOOKED UPON WITH DISFAVOR. IN MY OPINION, IF A TRANSACTION IS OTHERWISE GENUIN E AND IS CONDUCTED WITHIN THE FOUR CORNERS OF LAW AND THE TR ANSACTION IS NOT PROVED TO BE SHAM OR BOGUS OR WHERE THE TRANSACTION IS NOT PREORDAINED THEN THE SAID TRANSACTION CANNOT BE TER MED AS TAX AVOIDANCE MEASURE MERELY BECAUSE THE INCIDENCE OF T AX IS MINIMIZED IN THE HANDS OF THE PARTIES. THE SIMILAR VIEW IS TAKEN BY THE HONOURABLE GUJARAT HIGH COURT IN THE CASE OF BANUYAN & BERRY V CIT [222 ITR 831]. I N THIS ITA NO.2608/CHNY/201 4 :- 25 -: JUDGEMENT, THE GUJARAT HIGH COURT HELD THAT EVERY A CTION OR INACTION ON THE PART OF THE TAX PAYER WHICH RESULTS IN REDUCTION IN TAX LIABILITY CANNOT BE VIEWED WITH SUSPICION AND B E TREATED AS A DEVISE FOR AVOIDANCE OF TAX IRRESPECTIVE OF LEGITIM ACY OR GENUINENESS OF THE ACT. THE DECISION OF THE SUPREME COURT IN THE MC DOWELIS CASE HAS NOT AFFECTED THE FREEDOM OF TH E CITIZEN TO ACT IN A MANNER ACCORDING TO HIS REQUIREMENTS AND HIS W ISHES IN THE MATTER OF DOING ANY TRADE ACTIVITY OR PLANNING HIS AFFAIRS WITH CIRCUMSPECTION, WITHIN THE FRAME WORK OF LAW, UNLES S THE SAME FALLS IN THE CATEGORY OF COLORABLE DEVISE OR A DUBI OUS METHOD OF SUBTERFUGE CLOTHED WITH APPARENT DIGNITY. THE HONB LE SUPREME COURT IN THE CASE OF UNION OF INDIA VS AZADI BACHAO ANDOLAN STATED [263 ITR 706] AFTER REFERRING MC DOWELL & CO . CASE, HAS APPROVED THE DECISION OF MADRAS HIGH COURT IN THE C ASE OF MR. M.V. VALLIAPPAN VS ITO [170 ITR 238]. APPLYING THIS RATIO LAID DOWN IN THESE DECISIONS, I FIND THAT IN THE PRESENT CASE, THE ARRANGEMENT BETWEEN THE APPELLANT AND M/S GOLDEN STAR ASSETS CONSULTANTS PVT. LTD., WAS PERFE CTLY LEGITIMATE AND ARRIVED AT ON THE COMMERCIAL CONSIDERATIONS AND ON ARMS LENGTH PRINCIPLE. ON THESE FACTS, I DO NOT FIND FOR CE IN THE AOS ALLEGATION THAT THE ASSIGNMENT OF DEBTS WAS SHAM TR ANSACTION, BOGUS TRANSACTION AND WAS A COLORABLE DEVISE FOR TA X EVASION. THEREFORE, GROUND NOS. 2 TO 10 DEALING WITH THE CLA IM OF CAPITAL LOSS OF RS.56,48,55,180/- IS ALLOWED . AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. THE PRIMARY FACTS STA TED HEREIN ABOVE REMAIN UNDISPUTED AND HENCE, THE SAME ARE NOT REITERATED FOR THE SAKE OF BREVITY. AT THE OUTSET, WE FIND THA T THE ASSIGNEE COMPANY M/S.GOLDEN STAR ASSET CONSULTANTS (P) LTD., IS A RELATED PARTY WITH THE ASSESSEE COMPANY, IN VIEW OF THE FAC T THAT MR.RAJAMANI WAS EARLIER DIRECTOR IN ASSESSEE COMPANY AND ALSO A FOUNDER DIRECTOR IN M/S.GOLDEN STAR ASSET CONSULTAN TS (P) LTD. WE ITA NO.2608/CHNY/201 4 :- 26 -: FIND THAT THE LOSS ARISING ON ACCOUNT OF DEBTS ADVA NCED TO MAC CLOTHING LTD.,SICAL SHIPS LTD., AND PROFAD LTD. ARE NOT IN DISPUTE BEFORE US. THE DISPUTE IS ONLY WITH REGARD TO THE C APITAL LOSS ARISING OUT OF ADVANCE GIVEN TO API AND MCC FINANCE LTD. THE LD. D.R. ARGUED THAT ASSIGNEE COMPANY HAD PAID .53 LAKHS TO THE ASSESSEE COMPANY ALLEGEDLY FOR ACQUIRING THE DEBTS ON ASSIGNMENT BASIS. WHILE THAT IS SO, THERE IS NO RE ASON FOR THE ASSIGNEE COMPANY TO SHOW THE SAID PAYMENTS UNDER TH E HEAD LOANS AND ADVANCES IN THE ASSET SIDE OF THE BA LANCE SHEET. THE LD. D.R. ARGUED THAT THE CORRECT WAY OF REFLECTING THE TRANSACTION WOULD BE REFLECTING THE DEBTS RECOVERABLE FROM API AND MCC FINANCE LTD., AS SUNDRY DEBTORS IN THE BALANCE SHEE T OF ASSIGNEE COMPANY. THE LD. A.R. FURTHER ARGUED THAT WITH REGA RD TO MCC FINANCE LTD., THE ASSIGNEE COMPANY WAS ALLOTTED SHA RES WORTH .10.99 CRORES AT A PREMIUM OF .15 PER SHARE AND HENCE, THE ASSIGNEE COMPANY HAD RECOVERED THE ENTIRE DUES SUBS EQUENTLY FROM MCC FINANCE LTD., OUGHT TO HAVE DISCLOSED BUSI NESS INCOME ON SUCH RECOVERY. THIS WAS ADMITTEDLY NOT DONE BY ASSIGNEE COMPANY AS EVIDENT FROM THE STATEMENT RECORDED FROM MR.RAJAMANI ON OATH IN THE CAPACITY OF DIRECTOR OF M /S.GOLDEN ITA NO.2608/CHNY/201 4 :- 27 -: STAR ASSET CONSULTANTS (P) LTD. BY THIS PROCESS, TH E LD. D.R. WAS TRYING TO DRIVE HOME THE POINT THAT THE ASSESSEE CO MPANY ON ONE HAND HAD ASSIGNED DEBTS WORTH .57 CRORES FOR A PALTRY SUM OF .53 LAKHS IN FAVOUR OF ASSIGNEE COMPANY AND CLAIMED CAPITAL LOSS THEREON AND CORRESPONDINGLY THE ASSIGNEE COMPANY AL SO (BEING A RELATED PARTY) DID NOT OFFER ANY BUSINESS INCOME IN THEIR INCOME TAX RETURNS FOR SUBSEQUENT YEARS IN THE YEAR OF REC OVERY OF SUCH DEBTS. ACCORDINGLY, HE ARGUED THAT THE ENTIRE TRAN SACTION NEEDS TO BE CONSTRUED AS SHAM WITH A MALAFIDE INTENTION T O EVADE PAYMENT OF TAXES ON BOTH THE ENDS. IN THIS REGARD, WE ARE IN AGREEMENT WITH THE ARGUMENT ADVANCED BY THE LD. A.R . THAT MERELY BECAUSE THE ASSIGNEE COMPANY HAD NOT DISCLOS ED BUSINESS INCOME IN THEIR INCOME TAX RETURNS FOR SUBSEQUENT Y EARS IN THE YEAR OF RECOVERY OF DEBTS, THAT WOULD NOT PREJUDICE THE RIGHT OF THE ASSESSEE COMPANY TO CLAIM CAPITAL LOSS IN THE Y EAR OF EXTINGUISHMENT OF THEIR RIGHT IN FAVOUR OF THE ASSI GNEE COMPANY. WE HOLD THAT IN CASE, IF THE ASSIGNEE COMPANY HAD N OT OFFERED THE BUSINESS INCOME AS STATED BY THE LD. D.R. IN THE SU BSEQUENT YEARS OF RECOVERY OF DEBTS, THE REVENUE SHOULD TAK E ACTION IN THE HANDS OF ASSIGNEE COMPANY FOR THOSE RESPECTIVE YEAR S IN THE ITA NO.2608/CHNY/201 4 :- 28 -: MANNER KNOWN TO LAW. THAT AGAIN, IN OUR CONSIDERED OPINION, CANNOT COME IN THE WAY OF NOT ACCEPTING THE STAND O F THE ASSESSEE. TO THIS EXTENT, THE ARGUMENT OF THE LD. DR IS NOT ACCEPTED. THE LD. D.R. VEHEMENTLY ARGUED BEFORE US THAT THE LOANS PAYABLE BY API TO THE ASSESSEE COMPANY HAD BE EN TAKEN OVER BY ERSTWHILE PROMOTERS OF API I.E. M/S.SOUTH I NDIA TRAVEL PVT LTD., HENCE, API AS SUCH, IS NOT LIABLE TO MAKE ANY PAYMENT TO THE ASSESSEE. THIS FACT HAS BEEN DULY CONFIRMED BY THEM IN RESPONSE TO NOTICE UNDER SECTION 133(6) OF THE ACT DIRECTLY BEFORE THE LD.A.O. IN WRITING. IN OTHER WORDS, THE ASSESSE E SHOULD ONLY RECOVER THE AMOUNTS FROM M/S.SOUTH INDIA TRAVEL PVT LTD., AND NOT FROM API. THE LD. D.R. VEHEMENTLY ARGUED THAT W HILE THIS IS SO, WHERE IS THE NEED FOR THE ASSESSEE TO ASSIGN TH IS PARTICULAR DEBT IN FAVOUR OF M/S.GOLDEN STAR ASSET CONSULTANTS (P) LTD., FOR A PALTRY SUM AND INCUR CAPITAL LOSS THEREON AND CONSE QUENTLY SET OFF OF THE SAME WITH LONG TERM CAPITAL GAINS ON SALE OF SHARES AND PROPERTY. TO BUTTRESS THIS ARGUMENT, THE LD. A.R. D REW OUR ATTENTION TO PAGE-55 OF THE PAPER BOOK CONTAINING S UBMISSIONS MADE BEFORE THE LD.CIT(A) WHEREIN IT WAS CATEGORICA LLY SUBMITTED THAT THE DEBT PAYABLE BY API TO THE ASSESSEE WAS TA KEN OVER BY ITA NO.2608/CHNY/201 4 :- 29 -: M/S.SOUTH INDIA TRAVEL PVT LTD., ONLY ON 02.12.2011 , WHICH IS BEYOND THE ASSESSMENT YEAR UNDER CONSIDERATION. 15. THE LD. A.R ARGUED THAT THE ASSESSEE AT THE T IME OF ASSIGNMENT OF THE DEBT TO M/S.GOLDEN STAR ASSET CON SULTANTS (P) LTD., COULD NOT HAVE ENVISAGED OR PRE-EMPTED SUBSEQ UENT ASSIGNMENT OF DEBT BY API IN FAVOUR OF M/S.SOUTH IN DIA TRAVEL PVT LTD., HENCE, THE ASSESSEES ACTION OF ASSIGNMENT OF DEBT OF API COULD NOT BE FOUND FAULT WITH. BUT WE FIND FROM THE ORDER OF THE LD.CIT(A) THAT NO SPECIFIC FINDING HAS BEEN GIVEN B Y HIM WITH REGARD TO THIS CRUCIAL FACT OF 02.12.2011 I.E. THE DATE ON WHICH THE DEBT WAS TAKEN OVER BY M/S.SOUTH INDIA TRAVEL PVT L TD., FROM API. WE FIND THAT THIS REQUIRES FACTUAL VERIFICATION BY THE LD.A.O. BY CONSIDERING THE VARIOUS DOCUMENTS WITH SUPPORTING E VIDENCES, WHICH TRIGGERED THE TRANSFER OF DEBT FROM BOOKS OF API TO THEIR ERSTWHILE PROMOTERS, M/S.SOUTH INDIA TRAVEL PVT LTD . 16. THE LD. D.R. BEFORE US VEHEMENTLY ARGUED THAT V ALUATION REPORT FURNISHED M/S.BANYAN CONSULTANCY SERVICES, S TATING THAT DEBTS RECOVERY FROM API WOULD NOT FETCH ITS BOOK VA LUE IS TO BE IGNORED AS SUCH, IN VIEW OF THE FACT THAT DEBT SHOU LD HAVE BEEN RECOVERED BY TH ASSESSEE ONLY FROM M/S.SOUTH INDIA TRAVEL PVT ITA NO.2608/CHNY/201 4 :- 30 -: LTD. ACCORDINGLY, HE ARGUED THAT THE VALUATION REPO RT RELIED UPON BY LD. A.R. IS COMPLETELY FAULTY. WE FIND THAT VALU ATION REPORT IS ISSUED BY THE CONCERNED CONSULTANT ON 20.08.2010 ON WHICH DATE, DEBT WAS RECOVERABLE WAS ONLY FROM API AND NO T FROM M/S.SOUTH INDIA TRAVEL PVT LTD. AT THE COST OF REPE TITION, THE DEBT WAS TAKEN OVER BY ERSTWHILE PROMOTER OF API I.E. M/ S.SOUTH INDIA TRAVEL PVT LTD., ONLY ON 02.12.2011 WHICH FALLS IN ASSESSMENT YEAR 2012-13. HENCE, THIS ARGUMENT OF THE LD. D.R. IS DI SMISSED. HENCE, WE DEEM IT FIT AND APPROPRIATE, IN THE INT EREST OF JUSTICE AND FAIR PLAY, TO REMIT THIS ASPECT OF THE ISSUE TO THE FILE OF LD.A.O. FOR ADJUDICATION IN THE LIGHT OF THE AFORESA ID FACTS AND CRUCIAL DATE OF 02.12.2011 BEING THE DATE OF TRANS FER OF DEBTS FROM API TO M/S.SOUTH INDIA TRAVEL PVT LTD. 17. WITH REGARD TO DEBTS RECOVERABLE FROM MCC FINA NCE LTD., THE LD.A.O. TOOK THE VIEW THAT THIS ASSIGNMENT WAS PREMEDIATED AS MCC FINANCE LTD., ALLOTTED SHARES IN LIEU OF THE DEBT OUTSTANDING TOWARDS M/S.GOLDEN STAR ASSET CONSULTAN TS (P) LTD., SHORTLY AFTER TRANSFER. ALSO MR.RAJAMANI WAS ONE OF THE DIRECTORS ON THE BOARD OF THE ASSESSEE COMPANY BECAME A DIREC TOR IN MCC FINANCE LTD. THIS SEQUENCE OF EVENT OF MR.RAJAMANI L EAVING THE ITA NO.2608/CHNY/201 4 :- 31 -: ASSESSEE COMPANY, FLOATING A NEW COMPANY AND JOINING THE BOARD OF MCC FINANCE LTD., APPEARS TO BE A PREPLANNED STR ATEGY ADOPTED BY THE ASSESSEE, IN ORDER TO ARRIVE AT BOGU S CAPITAL LOSS ESPECIALLY SINCE THE ASSIGNMENT WAS DONE AT A PALTR Y SUM. 18. WE FIND FROM THE SEQUENCE OF EVENTS NARRATED H EREIN ABOVE, MR.RAJAMANI BECAME A DIRECTOR OF M/S.GOLDEN S TAR ASSET CONSULTANTS (P) LTD., ONLY ON 15.11.2012 I.E. AFTER THE DATE OF ASSIGNMENT OF DEBT IN FAVOUR OF ASSIGNEE COMPANY. I T IS AN UNDISPUTED FACT THAT MCC FINANCE LTD., WAS UNDER LI QUIDATION TILL NOVEMBER 2011 AND THERE WAS NO DIRECTORS DURING LIQ UIDATION AND THAT THE COMPANY WAS ONLY MANAGED BY OFFICIAL LIQUI DATOR. WE FIND THAT LEARNED CIT(A) HAD GIVEN A CATEGORICAL FI NDING IN PAGE- 22 OF HIS ORDER THAT MCC FINANCE LTD., CAME OUT OF LIQUIDATION BY AN ORDER OF MADRAS HIGH COURT DATED 09.11.2012, MR. RAJAMANI BECAME A DIRECTOR IN MCC FINANCE LTD., ONLY ON 15.1 1.2012. WE FIND THAT MR.RAJAMANI UPON BECOMING A DIRECTOR IN MC C FINANCE LTD., HAD SIGNED THE SHARE CERTIFICATES WHICH WERE ALLOTTED TO THE ASSIGNEE COMPANY M/S.GOLDEN STAR ASSET CONSULTANTS (P) LTD. IT IS NORMAL PRACTICE THAT THE LENDER COMPANY WOULD PR OPOSE A DIRECTOR TO THE BOARD OF BORROWING COMPANY. THE BO RROWING ITA NO.2608/CHNY/201 4 :- 32 -: COMPANY IN THE INSTANT CASE WOULD BE MCC FINANCE LT D., PURSUANT TO THE ASSIGNMENT OF DEBT. HENCE, THE EVENT THAT H AD HAPPENED AFTER THE DATE OF ASSIGNMENT OF DEBT, CANNOT BE USE D TO JUDGE THE TRANSACTION, WHICH HAD HAPPENED ON THE DATE OF ASSI GNMENT IN ASSESSMENT YEAR 2011-12. ACCORDINGLY, THE ARGUMEN T OF THE LD. D.R. IS DISMISSED. 18. TO SUM UP, THE TRANSACTIONS IN RESPECT OF ASSI GNMENT OF DEBT RECOVERABLE FROM API, IS REMITTED BACK TO THE FILE OF A.O. AND TRANSACTIONS IN RESPECT OF DEBT RECOVERY FROM MCC F INANCE LTD., IS DECIDED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISPOSED OFF IN THE AFORESAID MA NNER. 19. IN THE RESULT, THE APPEAL OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSI ON OF HEARING ON 28 TH FEBRUARY, 2020, AT CHENNAI. SD/- SD/- ( ) (MAHAVIR SINGH) '#$ /VICE PRESIDENT %& '()* ) (M. BALAGANESH) # $% / ACCOUNTANT MEMBER +, / CHENNAI ITA NO.2608/CHNY/201 4 :- 33 -: -. / DATED: 28 TH FEBRUARY,2020. K S SUNDARAM .*(( /0(10 / COPY TO: ( 1 . / APPELLANT 3. ( 2(34 / CIT(A) 5. 05)( 6 / DR 2. / RESPONDENT 4. ( 2 / CIT 6. )7(8 / GF