RAJU R. SHETE (HUF), MUMBAI V. DCIT CIR 3, MUMBAI

ITA 2904/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62514 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 30-04-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 12-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RUPINDER BRAR
• Assessee Lawyers: M A GOHEL
• Section: 143(3); 45(5); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER. I.T.A. NO. 2902/MUM/2011. ASSESS MENT YEAR : 2006-07. SHRI RAJU SHETE, DY. COMMISSIONER OF 74 LOHTSE RUIA PARK, VS. INCOME-TAX-3, JUHU TARA ROAD, JUHU, THANE. MUMBAI-400 049. PAN AALPS9355D APPELLANT. RESPONDENT. I.T.A . NO.2904/MUM/2011 ASSESS MENT YEAR : 2006-07. SHRI RAJU SHETHE (HUF), DY. COMMISSIONER OF MUMBAI. VS. INCOME-TAX-3, MUMBAI. APPELLANT. RESPONDENT. APPELLANT BY : SHRI M.A. GOHEL. RESPONDENT BY : MS. RUPINDER BRAR. DATE OF HEARING : 30-04-2012 DATE OF PRONOUNCEMENT : 06-06-2012 O R D E R PER P.M. JAGTAP, A.M. : THESE TWO APPEALS FILED BY THE TWO ASSESSEES AGAINS T TWO SEPARATE ORDERS PASSED BY LEARNED CIT-II, THANE ON 08-03-2011 INVO LVE COMMON ISSUES AND THE SAME, THEREFORE, HAVE BEEN HEARD TOGETHER AND ARE B EING DISPOSED OF BY THIS SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2 ITA NO.2902/MUM/2011 ITA NO. 2904/MUM/2011 2. THE ASSESSEES IN THE PRESENT CASES WERE HOLDING SHARES ALONG WITH TWO OTHER PERSONS IN A COMPANY KNOWN AS UNISOL INFRASERVICES PVT. LTD. AS UNDER : 1) RAJU SHETE 1,19,000 SHARES (39.66%) 2) RAJU SHETE (HUF) 2,500 SHARES (.84%) 3) INDIRA R. SHETE 1,03,500 SHARES (34.50%) 4) HEMANT SHETE 95,000 SHARES (25%) DURING THE YEAR UNDER CONSIDERATION, M/S RADHAKRISH NA HOSPITALITY SERVICES PVT. LTD. PURCHASED ALL THE SHARES OF UNISOL INFRASERVIC ES PVT. LTD. FROM THE FOUR SHAREHOLDERS INCLUDING THE ASSESSEES IN THE PRESENT CASES. AS PER THE AGREEMENT FOR SALE OF SHARES, RADHAKRISHNA HOSPITALITY PVT. LTD. PAID INITIAL CONSIDERATION OF RS.2.70 CRORES TO ALL THE FOUR OWNERS OF THE SAID S HARES INCLUDING THE ASSESSEES. TAKING INTO CONSIDERATION THEIR RESPECTIVE SHARES I N THE SAID INITIAL CONSIDERATION, THE ASSESSEES COMPUTED LONG TERM CAPITAL GAINS ARIS ING FROM SALE OF SHARES OF UNISOL INFRASERVICES PVT. LTD. AND DECLARED THE SAM E IN THE RETURNS OF INCOME FILED FOR THE YEAR UNDER CONSIDERATION CLAIMING EXEMPTION U/S 54EC. IN THE ASSESSMENTS COMPLETED U/S 143(3) ON 24-12-2008, THE AO ACCEPTE D THE LONG TERM CAPITAL GAINS AS DECLARED BY THE ASSESSEES IN THEIR RETURNS OF IN COME. THE RECORDS OF THE SAID ASSESSMENTS CAME TO BE EXAMINED BY THE LEARNED CIT AND ON SUCH EXAMINATION, HE FOUND THAT AS PER CLAUSE 3.2 OF THE AGREEMENT FOR S ALE OF SHARES, THE CONSIDERATION FOR SALE OF SHARES WAS FIXED AT RS.20 CRORES OUT OF WHICH RS.2.70 CRORES WAS PAID AS INITIAL CONSIDERATION AND BALANCE AMOUNT WAS TO BE PAID IN A DEFERRED MANNER AS PROVIDED IN THE SAID AGREEMENT. SINCE THE CAPITAL G AIN WAS DECLARED BY THE ASSESSEE ON SALE OF SHARES TAKING INTO CONSIDERATION INITIAL CONSIDERATION OF RS.2.70 CRORES ONLY AND THE SAID DECLARATION WAS ACCEPTED BY THE A O IN THE ASSESSMENT COMPLETED U/S 143(3), THE LEARNED CIT WAS OF THE VIEW THAT TH E ASSESSMENT ORDERS PASSED BY THE AO U/S 143(3) IN THE CASES OF THE ASSESSEES WER E ERRONEOUS AS WELL AS 3 ITA NO.2902/MUM/2011 ITA NO. 2904/MUM/2011 PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE, THE REFORE, ISSUED NOTICES U/S 263 TO THE ASSESSEES REQUIRING THEM TO SHOW CAUSE AS TO WH Y THE SAID ASSESSMENTS SHOULD NOT BE SET ASIDE AND CAPITAL GAIN SHOULD NOT BE COM PUTED BY TAKING SALE CONSIDERATION OF SHARES AT RS.20 CRORES. IN REPLY, IT WAS SUBMITTED BY THE ASSESSEE THAT INTERPRETATION AS SOUGHT TO BE GIVEN BY THE LE ARNED CIT TO CLAUSE 3.2 OF THE AGREEMENT FOR SALE OF SHARES WAS ERRONEOUS. IT WAS SUBMITTED THAT INITIAL CONSIDERATION OF RS.2.70 CRORES ONLY WAS AGREED FOR SALE OF ENTIRE SHARE CAPITAL OF UNISOL INFRASERVICES PVT. LTD. AND THE DEFERRED CON SIDERATION WAS TO BE PAID DEPENDING ON THE FINANCIAL POSITION OF THE SAID COM PANY FOR THE SUBSEQUENT FOUR FINANCIAL YEARS ENDING ON 31 ST MARCH,2007, 31 ST MARCH, 2008, 31 ST MARCH, 2009 AND 31 ST MARCH, 2010. IT WAS SUBMITTED THAT DEFERRED CONSID ERATION THUS WAS NOT CERTAIN AND CLAUSE 3.2 OF THE AGREEMENT MERELY PROVIDED THA T INITIAL CONSIDERATION AND THE DEFERRED CONSIDERATION SHALL NOT EXCEED RS.20 CRORE S. IT WAS SUBMITTED THAT THE AMOUNT OF RS.20 CRORES INDICATED IN CLAUSE 3.2 OF T HE AGREEMENT THUS WAS NOT THE CONSIDERATION AGREED UPON BUT THE SAME WAS THE MAXI MUM AMOUNT PAYABLE AGAINST SALE OF SHARES INCLUDING INITIAL CONSIDERATION AND DEFERRED CONSIDERATION. IT WAS POINTED OUT THAT THE TOTAL CONSIDERATION RECEIVED B Y THE FOUR OWNERS OF THE SHARES AS PER THE FORMULA GIVEN IN THE AGREEMENT WAS RS.12.81 CRORES INCLUDING INITIAL CONSIDERATION AND NOT RS.20 CRORES. IT WAS SUBMITTE D THAT THE DEFERRED CONSIDERATION RECEIVED BY THE ASSESSEE IN THE SUBSEQUENT YEARS WA S OFFERED TO TAX IN THOSE YEARS IN CONSONANCE WITH THE PROVISIONS OF SECTION 45(5) AND THERE WAS THUS NO UNDER ASSESSMENT OF CAPITAL GAIN. IT WAS ALSO CONTENDED T HAT THE VIEW TAKEN BY THE AO WHILE ACCEPTING THE DECLARATION OF CAPITAL GAIN MAD E BY THE ASSESSEE, IN ANY CASE, WAS A POSSIBLE VIEW WHICH COULD NOT BE SUBSTITUTED BY THE LEARNED CIT BY HIS OWN VIEW U/S 263. 4 ITA NO.2902/MUM/2011 ITA NO. 2904/MUM/2011 3. THE SUBMISSIONS MADE BY THE ASSESSEE AS ABOVE WE RE NOT FOUND ACCEPTABLE BY THE LEARNED CIT. ACCORDING TO HIM, THE TOTAL CON SIDERATION FOR SALE OF SHARES BY THE SHETE FAMILY HAD BEEN FIXED AT RS.20 CRORES AS PER THE AGREEMENT FOR SALE OF SHARES AND THERE BEING NOTHING MENTIONED IN THE SAI D AGREEMENT THAT THE SALE CONSIDERATION WOULD BE LESS THAN RS.20 CRORES, THE CAPITAL GAIN CHARGEABLE IN THE HANDS OF THE ASSESSEES WAS REQUIRED TO BE WORKED OU T BY TAKING INTO ACCOUNT THE SALE CONSIDERATION OF RS.20 CRORES. AS REGARDS THE RELIANCE OF THE ASSESSEE ON THE PROVISIONS OF SECTION 45(5), THE LEARNED CIT HELD T HAT THE SAID PROVISIONS WERE APPLICABLE IN CASE OF THE COMPULSORY ACQUISITION OF PROPERTY WHERE COMPENSATION IS ENHANCED SUBSEQUENTLY AND THE SAME, THEREFORE, WERE NOT APPLICABLE IN THE FACTS OF THE ASSESSEES CASE. HE HELD THAT THE ASSESSMENT OR DERS PASSED BY THE AO U/S 143(3) ACCEPTING THE CAPITAL GAIN AS DECLARED BY TH E ASSESSEES THUS WERE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND SETTING ASIDE THE ASSESSMENTS, HE DIRECTED THE AO TO RECOMPUTE THE INCOME OF THE ASSE SSEE FROM CAPITAL GAIN ON SALE OF SHARES BY ADOPTING PROPORTIONATE AMOUNT OF SALE CONSIDERATION OF RS.20 CRORES BY THE ORDERS PASSED U/S 263, WHICH ARE IMPUGNED BY THE ASSESSEES IN THE PRESENT APPEALS FILED BEFORE THE TRIBUNAL. 4. THE LEARNED COUNSEL FOR THE ASSESSEES INVITED OU R ATTENTION TO THE RELEVANT CLAUSE 3 OF THE AGREEMENT FOR SALE OF SHARES TO SHO W THAT THE INITIAL CONSIDERATION AGREED TO BE PAID FOR SALE OF SHARES WAS ONLY RS.2. 70 CRORES. HE SUBMITTED THAT THE DEFERRED CONSIDERATION WAS PAYABLE DEPENDING ON THE FINANCIAL POSITION OF M/S UNISOL INFRASERVICES PVT. LTD. FOR THE SUBSEQUENT F OUR YEARS AND SUCH CONSIDERATION AS WELL AS INITIAL CONSIDERATION WAS AGREED TO BE M AXIMUM UPTO RS.20 CRORES. HE CONTENDED THAT THE AMOUNT OF RS.20 CRORES AS INDICA TED IN CLAUSE 3.2 WAS THUS THE MAXIMUM CONSIDERATION AGREED TO BE PAID FOR SALE OF SHARES AND NOT THE AGREED FIXED CONSIDERATION AS PRESUMED BY THE LEARNED CIT. HE INVITED OUR ATTENTION TO THE 5 ITA NO.2902/MUM/2011 ITA NO. 2904/MUM/2011 RELEVANT DETAILS PLACED AT PAGE NO.28 OF HIS PAPER BOOK TO POINT OUT THAT ALL THE FOUR OWNERS OF THE SHARES INCLUDING TWO ASSESSEES FINALL Y RECEIVED DEFERRED CONSIDERATION OF RS.2,79,94,320/- ONLY IN THE SUBSE QUENT YEARS RELEVANT TO ASSESSMENT YEARS 2008-09 AND 2009-10 AND THE SAME W AS OFFERED TO TAX AS CAPITAL GAINS IN THOSE YEARS. HE CONTENDED THAT THE REVISIO N MADE BY THE LEARNED CIT U/S 263 THUS WAS BASED ON ERRONEOUS INTERPRETATION OF C LAUSE 3.2 OF THE AGREEMENT FOR SALE OF SHARES AND SINCE THE CAPITAL GAINS DECLARED BY THE ASSESSEES IN THE RETURNS OF INCOME FILED FOR THE YEAR UNDER CONSIDERATION WAS I N ACCORDANCE WITH THE PROVISIONS OF SECTION 45, THERE WAS NO ERROR IN THE ASSESSMENT ORDERS PASSED BY THE AO U/S 143(3) ACCEPTING THE DECLARATION MADE BY THE ASSESSEES IN THEIR RETURNS. HE SUBMITTED THAT SIMILAR ADDITIONS WERE MADE ON ACCOU NT OF CAPITAL GAIN ARISING FROM SALE OF SHARES OF UNISOL INFRASERVICES PVT. LTD. IN THE CASES OF OTHER TWO OWNERS, NAMELY, INDIRA R. SHETEA AND HEMAL SHETE TAKING INT O CONSIDERATION THE TOTAL SALE CONSIDERATION AT RS.20 CRORES AND THE ADDITION SO M ADE HAS BEEN DELETED BY THE LEARNED CIT(APPEALS) IN THE CASES OF BOTH THESE PER SONS. HE INVITED OUR ATTENTION IN THIS REGARD TO THE RELEVANT ORDERS OF THE LEARNED C IT(APPEALS) PLACED AT PAGE NO.29 TO 34 AND 35 TO 46 OF HIS PAPER BOOK TO SHOW THAT A SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE LEARNED CIT(APPEAL S) ON MERIT. 5. THE LEARNED DR, ON THE OTHER HAND, STRONGLY RELI ED ON THE IMPUGNED ORDERS OF THE LEARNED CIT PASSED U/S 263 IN SUPPORT OF THE REVENUES CASE AND SUBMITTED THAT THE SAME ARE SUFFICIENT TO SHOW HOW THE ASSESS MENT ORDERS PASSED BY THE AO U/S 143(3) WERE ERRONEOUS AND PREJUDICIAL TO THE IN TEREST OF THE REVENUE CALLING FOR REVISION U/S 263. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE RELEVANT MATERIAL ON RECORD INCLUDING THE RELEVANT CLAUSES OF THE AGR EEMENT FOR SALE OF SHARES ENTERED INTO BETWEEN FOUR OWNERS OF THE SHARES AND M/S RAD HAKRISHNA HOSPITALITY SERVICES 6 ITA NO.2902/MUM/2011 ITA NO. 2904/MUM/2011 PVT. LTD. WHICH PURCHASED THE SHARES FROM THE SAID OWNERS. AS PER THE RELEVANT TERMS OF THE SAID AGREEMENT, CONSIDERATION FOR SALE OF SHARES WAS AGREED TO BE PAID IN TWO STAGES. THE INITIAL CONSIDERATION OF RS.2.70 CRORES WAS TO BE PAID AT THE TIME OF AGREEMENT WHEREAS THE DEFERRED CONSIDERATION WA S TO BE PAID IN THE SUBSEQUENT YEARS DEPENDING ON THE FINANCIAL POSITION OF UNISOL INFRASERVICES PVT. LTD. IN THE SUBSEQUENT FOUR YEARS UPTO 31 ST MARCH, 2010 AS PER THE FORMULA GIVEN IN THE AGREEMENT. THE AMOUNT OF DEFERRED CONSIDERATION THU S WAS UNCERTAIN AND IT WAS NOT POSSIBLE TO QUANTIFY THE SAME SINCE IT WAS TO BE DE TERMINED IN FUTURE ON THE BASIS OF FINANCIAL POSITION OF UNISOL INFRASERVICES PVT. LTD . OF SUBSEQUENT FOUR YEARS. THE AGGREGATE CONSIDERATION INCLUDING INITIAL AND DEFER RED CONSIDERATION, HOWEVER, WAS CAPPED AT RS.20 CRORES LESS DEBT PLUS CASH AS PER CLAUSE 3.2 OF THE AGREEMENT AND THUS MAXIMUM AMOUNT OF CONSIDERATION, IN OUR OPINIO N, WAS ERRONEOUSLY TAKEN BY THE LEARNED CIT AS AGREED TOTAL CONSIDERATION FOR S ALE OF SHARES FOR TREATING THE ASSESSMENTS MADE BY THE AO U/S 143(3) AS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. AS SUBMITTED BY THE LEARNE D COUNSEL FOR THE ASSESSEE, THE TOTAL DEFERRED CONSIDERATION OF RS.2.80 CRORES ONLY WAS FINALLY RECEIVED FOR SALE OF SHARES FROM RADHAKRISHNA HOSPITALITY SERVICES PVT. LTD. IN SUBSEQUENT TWO YEARS RELEVANT TO ASSESSMENT YEARS 2008-09 AND 2009-10 BY ALL THE FOUR OWNERS OF THE SHARES INCLUDING THE ASSESSEES AS PER THE FORMULA G IVEN IN THE AGREEMENT WHICH WAS BASED ON FINANCIAL POSITION OF UNISOL INFRASERVICES PVT. LTD. FOR THE SUBSEQUENT FOUR YEARS AND THE SAME WAS OFFERED TO TAX AS CAPITAL GA IN BY THEM IN THOSE YEARS WHICH, IN OUR OPINION, WAS AS PER THE PROVISION OF SECTION 45(5) ALTHOUGH THE SAME APPLICABLE IN CASE OF COMPULSORY ACQUISITION OF ASS ETS IS NOT STRICTLY APPLICABLE IN THE CASE OF THE ASSESSEE. IN ANY CASE, ONLY THE INI TIAL CONSIDERATION OF RS.2.70 CRORES WAS CERTAINLY PAYABLE AS CONSIDERATION FOR SALE OF SHARES AND THAT ALONE, IN OUR OPINION, COULD BE TAKEN INTO CONSIDERATION FOR COMP UTING PROFITS OR GAINS ARISING 7 ITA NO.2902/MUM/2011 ITA NO. 2904/MUM/2011 FROM THE SALE OF SHARES WHICH WAS CHARGEABLE TO TAX IN THE YEAR UNDER CONSIDERATION AND THE DEFERRED CONSIDERATION, THE RECEIPT OF WHIC H WAS NEITHER CERTAIN NOR THE QUANTUM THEREOF WAS ASCERTAINABLE WITH ANY REASONAB LE CERTAINTY, COULD NOT BE TAKEN INTO CONSIDERATION. THE CAPITAL GAINS DECLARE D BY THE ASSESSEE ON SALE OF SHARES OF UNISOL INFRASERVICES PVT. LTD. BY TAKING INTO CONSIDERATION THE INITIAL CONSIDERATION ALONE, THEREFORE, WAS RIGHTY ACCEPTE D BY THE AO IN THE ASSESSMENT COMPLETED U/S 143(3) AND, IN OUR OPINION, THERE WAS NO ERROR IN THE SAID ASSESSMENTS AS ALLEGED BY THE LEARNED CIT CALLING F OR REVISION U/S 263. THE AMOUNT OF RS.20 CRORES CAPPED AS MAXIMUM CONSIDERATION IN CLUDING THE DEFERRED CONSIDERATION WHICH WAS PAYABLE IN FUTURE DEPENDING ON FINANCIAL POSITION OF THE SUBSEQUENT YEARS THUS COULD NOT BE SAID TO HAVE ACC RUED TO THE ASSESSEE BY VIRTUE OF AGREEMENT FOR SALE OF SHARES AND THE LEARNED CIT, I N OUR OPINION, WAS NOT JUSTIFIED IN REVISING THE ASSESSMENTS MADE BY THE AO U/S 143( 3) BY TAKING THE SAID AMOUNT AS CONSIDERATION FOR COMPUTATION OF CAPITAL GAINS. THE IMPUGNED ORDERS OF THE LEARNED CIT PASSED U/S 263, THEREFORE, ARE SET ASID E AND THE ASSESSMENT ORDERS MADE BY THE AO U/S 143(3) ARE RESTORED. 7. IN THE RESULT, THE APPEALS OF THE ASSESSEES ARE ALLOWED. ORDER PRONOUNCED ON THIS 6TH DAY OF JUNE, 2012. SD/- SD/- (AMIT SHUKLA) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 6TH JUNE, 2012 8 ITA NO.2902/MUM/2011 ITA NO. 2904/MUM/2011 COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, D-BENCH. (TRUE COPY) BY ORDE R ASSTT. REGI STRAR, ITAT, MUMBAI BEN CHES, MUMBA I, WAKODE