ACIT, New Delhi V. Ms. Piya Singh, New Delhi

ITA 2917/DEL/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6826 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 03-01-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 03-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: F R MEENA
• Assessee Lawyers: RUPESH J AIN
• Keywords: Question of law; Cost of acquisition; Commercial expediency
• Section: 260A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F NEW DELHI BEFORE SH. H.S. SIDHU, JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO. 2917 /DEL/ 2011 ASSESSMENT YEAR: 2006 - 07 ACIT, CIRCLE - 47(1), 426, MAYUR BHAVAN, NEW DELHI VS. MS. PIYA SINGH, 15, AURANGZEB ROAD, NEW DELHI PAN : APDPS6582D (APPELLANT) (RESPONDENT) APPELLANT BY SH. F.R. MEENA, SR.DR RESPONDENT BY SH. RUPESH JAIN, ADV. & SH. DEEPESH JAIN, CA DATE OF HEARING 03.01.2017 DATE OF PRONOUNCEMENT 14.02.2017 ORDER PER O.P. KANT , A. M. : THIS APPEAL BY THE R EVENUE IS DIRECTED AGAINST O RDER DATED 29/03/2011 OF LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - XXX, NEW DELHI FOR ASSESSMENT YEAR 2006 - 07 , RAISING FOLLOWING GROUNDS: I) DELETING THE ASSESSING OFFICER TO ALLOW THE LONG TERM CAPITAL LOSS AND THEREBY DELETING THE ADDITION OF RS.2,09,90,799/ - MADE BY THE AO ON ACCOUNT OF LONG TERM CAPITAL GAIN ON SALE OF APARTMENT: II) CONCLUDING THE FACT THAT THE ASSESSEE INCURRED CAPITAL LOSS FIRST IN POINT OF TIME AND CAPITAL GAINS WERE ARRIVED AT MUCH LATER DATE NOT CONSIDERING THAT IT WAS NOT ONLY ON 01.03.2006 I.E. ON THE DATE OF SALE THAT THE ASSESSEE CAME TO KNOW THAT SHE WAS GOING TO EARN PROFIT ON HER INVESTMENT IN THE APARTMENT RATHER IT WAS WELL WITHIN HER KNOWLEDGE THAT THE VALU E OF INVESTMENT IN THE PROPERTY WAS APPRECIATING AND AS SHE INVESTED IN THE PROPERTY ONLY FOR THE PURPOSE OF EARNING PROFIT, THE SALE OF SHARES SEVEN MONTHS BEFORE 2 ITA NO. 2917/DEL/2011 AY: 2006 - 07 THE SALE OF APARTMENT, TO THE COMPANY CONTROLLED BY HERSELF AND HER FAMILY MEMBERS AND INCUR RING LOSS THEREON IS NOTHING BUT A CONTRIVED TRANSACTION TO UNJUSTLY CLAIM THE BENEFIT OF LONG TERM CAPITAL LOSSES; III) DIRECTING THE ASSESSING OFFICER TO ALLOW THE BROKERAGE EXPENSES WHILE COMPUTING THE CAPITAL GAINS ON SALE OF APARTMENT IGNORING THE FA CT THAT THE ASSESSEE SURRENDERED BACK THE APARTMENT TO THE BUILDER AND NOT SOLD IT IN THE OPEN MARKET WHICH IS EVIDENCED FROM THE FACT THAT THE INSTRUMENT OF EVIDENCING SALE IS ONLY A LETTER DATED 01.03.2006 FROM THE BUILDER AND NO SEPARATE AGREEMENT OR SA LE DEED WAS ENTERED INTO WHICH SUBSTANTIATE THE FACT THAT EXPENDITURE WAS NOT ACTUALLY INCURRED BY THE ASSESSEE ON ACCOUNT OF BROKERAGE. THE APPELLANT CRAVES THE RIGHT TO ALTER, AMEND , ADD OR SUBSTITUTE THE GROUNDS OF APPEAL. 2. F ACTS IN BRIEF OF THE CASE ARE AS FOLLOWS: (I ) THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE, WHO IS AN INDIVIDUAL, SOLD 3,00,000 / - PREFERENCE SHARES OF THREE COMPANIES , I.E., 1,00,000 PREFERENCE SHARES EACH OF M/S . MEDICARE I NVESTMENT LTD . , M/S . MAXOPP I NVESTMENT LTD . AND M/S . CHEMINVEST LTD . ON 17/08/2005 TO M/S . TROPHY HOLDING PRIVATE LIMITED AT THE RATE OF RS.100 PER SHARE. THE ASSESSEE PURCHASED THESE PREFERENCE SHARES IN THE YEAR 1996 AT THE FACE VALUE OF RS.100 PER SHARE. THE ASSESSEE RECORDE D LONG - TERM CAPITAL L OSS OF RS.2,30,60, 499/ - ON SALE OF SHARES DUE TO INDEXATION OF THE COST OF ACQUISITION. (II) DURING THE YEAR, THE ASSESSEE ALSO TRANSFERRED THE APARTMENT AT ARALIAS DLF C ITY , GURGAON ON 01/03/2006, WHICH WAS ACQUIRED IN FEBRUARY 2003, TO M/S . DLF LTD . AND EARNE D LONG - TERM CAPITAL GAIN OF RS.2,09,90, 799/ - ON TRANSFER OF THE APARTMENT. (III) THE ASSESSEE CLAIMED SE T OFF OF LONG - TERM CAPITAL LOSS OF RS.2,30,60,499/ - ARISEN ON TRANSFER OF SHARES , AGAINST TH E LONG - TERM CAPITAL GAIN OF RS.2,09, 90,799/ - FROM TRANSFER OF AFORESAID APARTMENT. 3 ITA NO. 2917/DEL/2011 AY: 2006 - 07 (IV) IN SCRUTINY PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT, THE COMPANY WHO PURCHASED THE PREFERENCE SHARES FROM THE ASSESSEE WAS A CLOSELY HELD INVESTMENT COMPANY OWNED AND CONTROLLED BY THE FAMILY MEMBERS OF THE AS SESSEE. THE ASSESSING OFFICER HELD THAT THE LOSS ARISING ON SALE OF SHARES WAS NOT GENUINE OBSERVING THAT THE SHARES REMAINED WITH THE FAMILY MEMBERS OF THE ASSESSEE EVEN SUBSEQUENT TO THE TRANSFER. HE FURTHER HELD THAT SET OFF OF SUCH LONG - TERM CAPITAL LO SS ARISING ON SALE OF PREFERENCE SHARES AGAINST THE LONG - TERM CAPITAL GAIN EARNED ON SALE OF APARTMENT AFTER SEVEN MONTHS, WAS NOTHING BUT A CALCULATED DEVICE JUST TO GENERATE CAPITAL LOSSES FOR BEING SET OF F AGAINST THE CAPITAL GAIN INCOME. THE ASSESSING OFFICER CONCLUDED THAT THE AFORESAID TRANSACTION OF SALE OF SHARES WAS JUST A CONTRIVED TRANSACTION TO UNJUSTLY CLAIM THE BENEFIT OF LONG - TERM CAPITAL LOSSES. (V) IN VIEW OF THE ABOVE FINDING, THE ASSESSING OFFICER DID NOT ALLOW THE LONG - TERM CAPITAL LOSS CLAIMED WITH ASSESSEE AND ASSESSED THE LONG - TERM CAPITAL GAIN ON SALE OF THE APART MENT IS INCOME OF THE ASSESSEE. (VI) THE ASSESSING OFFICER ALSO DISALLOWE D THE CLAIM OF BROKERAGE OF RS.10,21, 342/ - PAID ON SALE OF THE APARTMENT ON THE GROUND THAT IT WAS S URRENDERED BACK BY THE ASSESSEE TO THE BUILDER AND IT WAS NOT SOLD IN THE OPEN MARKET. (VII ) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) ON THE ISSUE OF ALLOWAB ILITY OF LONG - TERM CAPITAL LOSS , OBSERVED WHICH IS SUMMARIZED AS UNDER: A) THE ASSESSEE PURCHASED THE PREFERENCE SHARES BY MAKING PAYMENT THROUGH CHEQUE. THE SALE CONSIDERATION WAS ALSO RECEIVED BY THE ASSESSEE THROUGH CHEQUE AND THE SHARES WERE DELIVERED PHYSICALLY TO THE TRANSFEREE. 4 ITA NO. 2917/DEL/2011 AY: 2006 - 07 B) THE PREFERENCE SHARES WERE UNQUOTED AND THERE WAS NO MARKET AVAILABLE FOR THE SAME AND THEREFORE THE ASSESSEE COULD NOT HAVE REALISED ANYTHING MORE THAN THE CONSIDERATION FOR WHICH THE SHARES WERE SOLD CONSIDERING THAT NO DIVIDEND WAS DECLARED BY THE SAID COMPANY AND THERE WAS NO PREMIUM PAYABLE ON SALE OF SHARES. C) THE PURCHASE PRICE AND SALE PRICE OF THE SHARES SOLD WAS NOT DISPUTED BY THE ASSESSING OFFICER AND THERE WAS NO FINDING BY THE ASSESSING OFFICER THAT CONSIDERATION RECEIVED BY THE ASSESSEE WAS NOT THE ACTUAL CONSIDERATION RECEIVED. D) THE LOSS WAS ON ACCOUNT OF THE INDEXATION OF THE COST OF THE SHARES. E) THE SALE OF APARTMENT IN THE SAME YEAR IN WHICH THE SHARES ARE SOLD WOULD NOT RESULT IN DENYING THE CLAIM OF SET OFF OF LONG - TERM CAPITAL LOSS TO THE A SSESSEE. (VI) IN VIE W OF ABOVE OBSERVATIONS, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) , SET - ASIDE THE ORDER OF THE ASSESSING OFFICER AND DIRECTED TO ALLOW THE LONG - TERM CAPITAL LOSS CLAIMED BY THE ASSESSEE. ON THE ISSUE OF BROKERAGE EXPENSES, HE WAS OF THE VIEW THAT SAID EXPENDITURE WAS BONAFIDE AND SUPPORTED BY THE BROKERS RECEIPT, PAYMENT BY CHEQUE ETC . AND , THEREFORE , HE ALLOWED THE SAID EXPENSES WHILE COMPUTING THE CAPITAL GAIN ON SALE OF THE APARTMENT. 2.1 AGGRIEVED WITH THE ABOVE FINDING OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS), THE R EVENUE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 3. IN GROUND NO. 1 AND 2, THE R EVENUE HAS CONTESTED THE ALLOWING SET OFF OF LONG - TERM CAPITAL LOSS ON SALE OF PREFERENCE SHARES AGAINST THE LONG TERM CAPITAL GAIN EARNED ON SALE OF APARTMENT BY THE LD. CIT(A). 3. 1 BEFORE US, THE LEARNED S ENIOR DEPARTMENTAL R EPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE TRANSACTION 5 ITA NO. 2917/DEL/2011 AY: 2006 - 07 OF SALE OF PREFERENCE SHARES WAS ARRANGED ONLY TO REDUCE THE TAX LIABILITY ON SALE OF THE APARTMENT AND IT WAS NOT A GENUINE SALE TRANSACTION AS EVEN AFTER TRANSFER, THE SHARES REMAINED WITH THE COMPANY, OWNED AND CONTROLLED BY THE FAMILY MEMBERS OF THE ASSESSEE. HE FURTHER SUBMITTED THAT THE ASSESSEE PURCHASED THE APARTMENT FOR THE PURPOSE OF EARNING PROFIT AND SHE WA S WELL AWARE OF THE APPRECIATION IN PRICE OF THE APARTMENT AND THE SALE OF PREFERENCE SHARES TO A COMPANY CONTROLLED BY HERSELF AND HER FAMILY MEMBERS WAS ARRANGED TO CREATE THE LOSS, WAS NOTHING BUT A CONTRIVED TRANSACTION TO UNJUSTLY CLAIM THE BENEFIT OF LONG - TERM CAPITAL LOSS. 3.2 ON THE OTHER HAND, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT BOTH THE TRANSACTIONS OF SALE OF PREFERENCE SHARES AND SALE OF APARTMENT WERE IN REGULAR COURSE. HE FURTHER SUBMITTED THAT PREFERENCE SHARES WERE SOLD APPRO XIMATELY 7 MONTHS BEFORE THE SALE OF THE APARTMENT. HE FURTHER SUBMITTED THAT THE ALLEGATION OF THE TRANSFER OF SHARES AS CONTRIVED TRANSACTION ARE BASELESS AS THE LONG - TERM CAPITAL LOSS ON SALE OF SHARES HAPPENED FIRST IN POINT IN TIME AND THERE IS A WIDE GAP BETWEEN THE SAID TRANSACTION OF SALE OF FLAT WHICH TOOK PLACE IN MARCH , 2006 AND RESULTED IN LONG - TERM CAPITAL GAINS. HE SUBMITTED THAT IT WAS NOT A CASE WHERE THE CAPITAL GAIN AROSE FIRST IN POINT IN TIME AND THEREAFTER TO SET OFF SUCH GAINS, THE CAPITAL LOSS WAS INCURRED IN A CONTRIVED/ARTIFICIAL TRANSACTION. HE FURTHER SUB MITTED THAT IF THERE WOULD NOT HAVE BEEN ANY TRANSACTION OF TRANSFER OF THE APARTMENT DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE WOULD HAVE BEEN ELIGIBLE TO CARRY FORWARD THE CAPITAL LOSS ARISING ON SALE OF PREFERENCE SHARES TO FUTURE YEARS IN ACCORDA NCE WITH LAW AND CLAIMS SET OFF OF THE SAME IN FUTURE YEARS AGA INST ANY LONG - TERM CAPITAL GAIN . 3.3 IT WAS ALTERNATIVELY SUBMITTED THAT EVEN IT WAS A CALCULATED TRANSACTIONS RESULTING IN LOW TAX OUTFLOW AND TAX SAVING TO THE ASSESSEE, 6 ITA NO. 2917/DEL/2011 AY: 2006 - 07 EVEN THEN THE SAME C OULD NOT BE HELD TO BE NON - GENUINE A S SUCH A TRANSACTION MAY AT THE BEST BE REG ARDED AS A TAX PLANNING MEASURE , WHICH IS LEGALLY PERMISSIBLE UNDER THE ACT AND THERE CAN BE NO ALLEGATION OF ANY COLOURABLE DEVICE TO EVADE THE TAX. IN SUPPORT OF THE CONTENTI ONS, THE LEARNED COUNSEL RELIED ON THE FOLLOWING CASE LAWS: (I) DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HEDE CONSULTANCY COMPANY PRIVATE LIMITED REPORTED IN 266 CTR 594. (II) D ECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VERSUS ENAM SECURITI ES PRIVATE LIMITED REPORTED IN 345 ITR 64 (III) DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VERSUS PARRY AND COMPANY LIMITED IN ITA NO. 2139/MDS/2007 3.4 W E HAVE HEARD THE RIVAL SUBMISSION OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING THE DECISIONS CITED BY THE LEARNED COUNSEL OF THE ASSESSEE. 3.5 I N THE CASE OF DCIT VS. PARRY AND COMPANY L IMITED (SUPRA), THE ASSESSEE SO LD EQUITY SHARES OF M/S PARRYS C ONFECTIONERY LTD . TO SISTER CONCERN AND CLAIMED LONG - TERM CAPITAL LOSS. THE ASSESSING OFFICER DISALLOWED THE CAPITAL LOSS TREATING THE TRANSACTION TO BE SHAME IN NATURE. THE TRIBUNAL , HOWEVER , HELD THAT MERELY BECAUSE TRANSACTIONS ENTERED INTO BY AN ASSESSEE WITH THE MOTIVE TO SAVE TAX, THE TRANSACTION CANNOT BE REGARDE D OR CALLED AS A COLOURABLE DEVICE SO LONG AS THE TRANSACTION IS VALID IN LAW. THE TRIBUNAL AFTER CONSIDERING THE FACTS OF THE CASE HELD AS UNDER: 5. AFTER HEARING THE RIVAL CONTENTIONS AND PERUSING THE RECORD, WE NOTE THAT THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE AS REGARDS SETTING OFF OF CARRY FORWARD LOSS ON SALE OF EQUITY SHARES OF M/S. PCL ON THE GROUND THAT THERE WAS A CONTROL OF HOLDING COMPANY M/S. EID PARRY (INDIA) LTD. OVER THE ASSESSEE M/S. PCL AND M/S. SIL THROUGH SHARE HOLDING AND COMMON DIRECTORS. THE ASSESSING OFFICER 7 ITA NO. 2917/DEL/2011 AY: 2006 - 07 STRENGTHENED HIS VIEWS BY CONSIDERING THAT SUBSEQUENT TO THE SALE OF PCL SHARES BY THE ASSESSEE TO SIL, THE EXTENT OF EQUITY SHARES OF EID PARRY GROUP OVER THE SAID COMPANY DID NOT DIMINISH AT ALL. THE ASSESSING OFFICER SUSPECTED THAT THE ASSESSEE SOLD THE SHARES TO THE SISTER CONCERN AND BOOKED THE CAPITAL LOSS TO AVOID TAX ON CAPITAL GAIN ON SALE OF SHARES TO M/S. BUSH BOAKE ALIEN (I) LTD. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE WAS AWARE OF THE SALE OF SHARES OF M/S. BUSH BOAKE ALLEN (I) LTD, DURING THE FINANCIAL YEAR 2001 - 02 AS EARLY AS ON 6.3.2002 WHEN THE FOREIGN INVESTMENT PROMOTION BOARD WAS STATED TO HAVE APPROVED THE BUY BACK SCHEME OF M/S. BUSH BOAKE ALLEN (I) LTD. THEREFORE THE ASSESSIN G OFFICER CONCLUDED THAT THE TRANSACTION OF SALE OF PCL SHARES TO THE SISTER CONCERN IS A SHAM TRANSACTION FOR CREATING ARTIFICIAL CAPITAL LOSS SO THAT THE SAME CAN BE SET OFF AND CARRIED FORWARD AGAINST THE CAPITAL GAIN ARISING OUT OF SALE OF SHARES OF M/ S. BUSH BOAKE ALLEN (I) LTD. THE ASSESSING OFFICER TRIED TO BRING THE TRANSACTION UNDER THE CATEGORY OF FRAUD AND THEN APPLIED A KATINA OF JUDGMENTS DEALING WITH THE ISSUE OF LIFTING THE CORPORATE VEIL FOR THE PURPOSE OF ASCERTAINING THE FRAUD COMMITTED BE HIND THE CORPORATE SMOKE SCREEN. WE FIND THAT THE SUSPISION OF THE ASSESSING OFFICER IS SOLELY BASED ON THE GROUND THAT THE ASSESSEE HAD THE KNOWLEDGE ABOUT PURCHASING BACK OF ITS SHARE BY M/S. BUSH BOAKE ALLEN (I) LTD. AND THEREFORE THE ASSESSEE SOLD THE SHARE OF PCL TO ITS SISTER CONCERN AND BOOKED THE CAPITAL LOSS WITH A VIEW TO AVOID TAX ON CAPITAL GAIN ARISING OUT THE PROSPECTIVE SALE OF SHARE OF M/S. BUSH BOAKE ALLEN (I) LTD. BUT FACTUALLY THE ASSESSING OFFICER WAS NOT CORRECT AND THE VIEW OF THE ASSE SSING OFFICER WAS PASSED PURELY ON ESTIMATION WITHOUT ANY SUBSTANTIAL EVIDENCE. IT IS WORTHWHILE TO MENTION THAT THE SALE OF PCL SHARES TOOK PLACE ON 26.3.02 AND THE GOVERNMENT PERMISSION WAS OBTAINED FOR PURCHASING OF ITS SHARE BY M/S. BUSH BOAKE ALLEN (I ) LTD. WAS ONLY ON 20.5.02. THEREAFTER THE BOARD RESOLUTION OF ASSESSEE WAS PASSED FOR SELLING OF SHARES OF M/S. BUSH BOAKE LTD, AT A PRICE OF RS.3.90 PER SHARE ON 28.5.02. SIMILARLY M/S. BUSH BOAKE ALLEN (I) LTD. ALSO PASSED A RESOLUTION AS REGARDS PURCHA SE OF SHARES FROM THE ASSESSEE COMPANY AT A PRICE OF RS.3.90 PER SHARE ON 29.5.02. THE PARTIES ENTERED INTO AN AGREEMENT FOR TRANSFER OF SHARES ON 6.6.02. THEREFORE IT IS CLEAR THAT THE ASSESSING OFFICER HAS IMAGINED BEYOND STRETCH THAT THE ASSESSEE WAS HA VING KNOWLEDGE OF SALE OF SHARES OF M/S. BUSH BOAKE ALLEN (I) LTD. BECAUSE THE SALE OF PCL SHARES LOOK PLACE EVEN BEFORE GRANT OF PERMISSION BY THE GOVERNMENT OF INDIA TO M/S. BUSH BOAKE ALLEN (I) LTD. MOREOVER, WE ARE IN AGREEMENT WITH THE CONTENTION OF T HE LEARNED COUNSEL OF THE ASSESSEE THAT THE ASSESSEE 8 ITA NO. 2917/DEL/2011 AY: 2006 - 07 WAS NOT A PARTY OR HAD INFLUENCE IN THE DECISION TAKEN BY M/S. BUSH BOAKE ALLEN (I) LTD. FOR PURCHASE OF SHARES. EVEN FOR THE SAKE OF ARGUMENT., IF IT IS PRESUMED THAT THE ASSESSEE SOLD THE PCL SHARES TO SAVE TAX ON CAPITAL GAINS ARISING OUT OF SALE OF SHARES OF M/S. BUSH BOAKE ALLEN THE SAID TRANSACTION COULD NOT BE CONSIDERED AS FRAUDULENT OR COLOURABLE DEVICE, AS FAR AS THE TRANSACTION IS VALID IN LAW. BEFORE THE COMMISSIONER (A) THE ASSESSEE RELIED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. AZADI BACHAO ANDOLAN AND ANOTHER (263 ITR 706). THE HON BLE APEX COURT IN THE SAID JUDGEMENT HAS HELD THAT MERELY BECAUSE A TRANSACTION IS ENTERED INTO BY AN ASSESSEE WITH A MOTIV E TO SAVE TAX, THE TRANSACTION CANNOT BE REGARDED OR CALLED AS A COLOURABLE DEVICE SO LONG AS THE TRANSACTION IS VALID IN LAW. MOREOVER, WHEN THE TRANSACTION IS WITHIN THE PARAMETERS OF LAW THEN THE INCOME - TAX AUTHORITIES CANNOT ENTER INTO THE SHOE OF THE ASSESSEE TO DECIDE THE PRUDENCE OF COMMERCIAL EXPEDIENCY OF PARTICULAR TRANSACTION. WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER MISERABLY FAILED TO ESTABLISH THAT THE TRANSACTION IS FRAUDULENT AND A COLOURABLE DEVICE. IN VIEW OF THE ABOVE, WE FIND NO MERIT IN THE APPEAL OF THE REVENUE AND UPHELD THE ORDER OF THE COMMISSIONER (A). 3.6 IN THE CASE OF CIT VS. HEDE CONSULTANCY C OMPANY (P) LTD. (SUPRA) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) NOTED THAT THE TRANSACTION IN RES PECT OF SALE OF SHARES OF HEDE N AVIGATION LTD . RESULTED IN LONG - TERM CAPITAL LOSS HAD PRECEDED THE TRANSACTION INVOLVING THE SHORT FROM CAPITAL GAINS SELLING THE SHARES OF MACKHINON AND MACKENZIE COMPANY L IMITED. THE HON BLE BOMBAY HIGH COURT DID NOT FIND THE TRANSACTION COLOURABLE. THE FINDING OF THE HON BLE HIGH COURT IS REPRODUCED AS UNDER: 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED COUNSEL AND WE HAVE ALSO GONE THROUGH THE RECORDS. THE CIT(A) WHILST DISPOSING OF THE APPEAL PREFERRED BY THE RE SPONDENTS, BY ORDER DT. 18TH OCT., 2002, UPON APPRECIATING THE MATERIAL ON RECORD, HAS COME TO THE CONCLUSION THAT THE .PRICE AT WHICH THE RESPONDENTS HAD PURCHASED THE SHARES AND THEREAFTER HAS SOLD THE SHARES, IS NOT IN DISPUTE. THE LEARNED CIT(A) HAS AL SO NOTED THAT THE TRANSACTION IN RESPECT OF THE SALE OF SHARES OF HEDE NAVIGATION BTD., RESULTING IN LONG - TERM CAPITAL LOSS HAD PRECEDED THE TRANSACTION INVOKING THE SHORT - TERM CAPITAL GAINS SELLING THE SHARES OF MACKHINON & MACKENZIE CO. LTD. THE 9 ITA NO. 2917/DEL/2011 AY: 2006 - 07 CIT(A) A LSO NOTED THAT THE LOSS TRANSACTIONS THEREFORE CANNOT BE SAID TO HAVE BEEN INFLUENCED BY THE GAIN TRANSACTIONS. THE CIT(A) HAS ALSO NOTED THAT THE AO HAS NOT DISPUTED ABOUT ANY OF THE TRANSACTIONS THAT HAVE BEEN DULY COMPLETED' UNDER THE LAW NOR THAT THE C ONSIDERATION RECEIVED WAS NOT THE MARKET PRICE. IT IS FURTHER NOTED THAT THE SHARES OF MACKHINON & MACKENZIE CO. LTD. WERE SOLD AT THE PRICE QUOTED AT THE STOCK EXCHANGE WHEREAS LOW PRICE OF M/S HEDE NAVIGATION LTD. S SHARES @ 10 PAISA PER SHARE STANDS EXP LAINED BY THE FACT ADMITTED BY THE AO THAT THE SAID COMPANY WAS IN RED. THE CIT(A) ALSO NOTED THAT EVEN IN CASE THE SECOND TRANSACTION HAD NOT TAKEN PLACE, THE LONG - TERM CAPITAL LOSS WOULD HAVE BEEN ACCEPTED BY THE AO AND THE COMPANY WOULD HAVE BEEN ALLOWE D TO CARRY FORWARD THE SAID LOSS. THE LEARNED C1T(A) HAS ALSO NOTED THAT WHERE TRANSACTIONS WERE GENUINE, SUCH LONG - TERM CAPITAL LOSS CAN BE ALLOWED TO BE SET, OFF. IN THE APPEAL PREFERRED BEFORE THE TRIBUNAL, THE SAID FINDINGS OF FACTS ARRIVED AT BY THE C IT(A) HAVE BEEN UPHELD AND IT HAS BEEN HELD THAT THE LEARNED CIT(A) HAS GIVEN COGENT REASONS FOR COMING TO THE CONCLUSION THAT BOTH THE TRANSACTIONS WERE GENUINE AND THAT IT IS NOT THE CASE OF THE DEPARTMENT THAT THE SHARES OF HEDE NAVIGATION LTD., HAD A H IGHER PRICE THAN THE PRICE AT WHICH IT HAS BEEN SOLD. IN THE PRESENT APPEAL, WE FIND THAT THERE IS NO CHALLENGE BY THE APPELLANTS TO THE FINDINGS OF THE TRIBUNAL THAT THE TRANSACTIONS WERE GENUINE AND THAT THE PRICE AT WHICH THE SHARES WERE SOLD WERE NOT I NFLATED. IN SUCH CIRCUMSTANCES, THE CONTENTION OF SHR. Y.V. NADKARNI, LEARNED COUNSEL APPEARING FOR THE RESPONDENTS, THAT AS THE GENUINENESS OF THE TRANSACTIONS HAS NOT BEEN DISPUTED BY THE APPELLANTS NOR HAS BEEN ASSAILED IN THE PRESENT APPEAL, THE QUESTI ON OF CONTENDING THAT THE TRANSACTIONS WERE COLOURABLE TRANSACTIONS (DOES NOT ARISE) HAS TO BE ACCEPTED. THE FINDINGS OF FACTS ARRIVED AT BY THE TRIBUNAL CANNOT BE REASSESSED BY THIS COURT IN THE PRESENT APPEAL. THE APEX COURT IN THE SAID JUDGMENT IN THE C ASE OF M. JANARDHANA RAO VS. JT. CIT (SUPRA) HAS OBSERVED AT PARAS 10 AND 18 (SIC - 15) THUS : 10. SOME OF THE PROVISIONS OF S. 260A ARE IN PARI MATERIA WITH VARIOUS SUB. SECTIONS OF S. 100, CPC. THE PROVISIONS ARE SS. 260A(1), 260A(2)(C), 260A(3), 260A(4) OF THE ACT CORRESPONDING TO SS. 100(1), 100(3), 100(4) AND 100(5) OF CPC .. 15. AN APPEAL UNDER S. 260A CAN ONLY BE IN RESPECT OF A SUBSTANTIAL QUESTION OF LAW . THE EXPRESSION SUBSTANTIAL QUESTION OF LAW HAS NOT BEEN DEFINED ANYWHERE IN THE STATUTE. BUT IT HAS ACQUIRED A DEFINITE CONNOTATION THROUGH VARIOUS JUDICIAL PRONOUNCEMENTS. IN SIR 10 ITA NO. 2917/DEL/2011 AY: 2006 - 07 CHUNILAL V. MEHTA & SON LID VS CENTURY SPG. & MFG. CO. LTD. AIR 1962 SC 1314 THIS COURT LAID DOWN THE FOLLOWING TESTS TO DETERMINE WHETHER A SUBSTANTIAL QU ESTION OF LAW IS INVOLVED. THE TESTS ARE : (1) WHETHER DIRECTLY OR INDIRECTLY IT AFFECTS SUBSTANTIAL RIGHTS OF THE PARTIES, OR (2) THE QUESTION IS OF GENERAL PUBLIC IMPORTANCE, OR (3) WHETHER IT IS AN OPEN QUESTION IN THE, SENSE THAT THE ISSUE IS NOT SETTL ED BY PRONOUNCEMENT OF THIS COURT OR PRIVY COUNCIL OR BY THE FEDERAL COURT, OR (4) THE ISSUE IS NOT FREE FROM DIFFICULTY, AND (5) IT CALLS FOR A DISCUSSION FOR ALTERNATIVE VIEW. THERE IS NO SCOPE FOR INTERFERENCE BY THE HIGH COURT WITH A FINDING RECORDED W HEN SUCH FINDING COULD BE TREATED TO BE A FINDING OF FACT. 3.7 IN THE CASE OF CIT VS. ENAM SECURITIES PRIVATE L IMITED (SUPRA) ALSO THE ISSUE OF SALE OF PREFERENCE SHARES WAS INVOLVED AND THE ASSESSING OFFICER HELD THAT THERE WAS NO TRANSFER AND THE ASSESSEE WAS NOT ENTITLED TO INDEXATION ON THE REDEMPTION OF NON - CUMULATIVE REDEEMABLE PREFERENCE SHARES. THE HON BLE BOMBAY HIGH COURT IN THE CASE OBSERVED AS UNDER: 4. THE ASSESSEE HAD SUBSCRIBED TO THE PURCHASE OF 4 LAKH PREFERENCE SHARES EACH OF RS.10 0/ - OF AN AGGREGATE VALUE OF RS.4 CRORES FROM A COMPANY BY THE NAME OF ENAM FINANCE CONSULTANTS PVT. LTD. IN 1992. THE PREFERENCE SHARES WERE TO CARRY A DIVIDEND OF FOUR PERCENT PER ANNUM AND WERE TO BE REDEEMABLE AFTER THE EXPIRY OF TEN YEARS FROM THE DAT E OF ALLOTMENT. DURING THE COURSE OF ASSESSMENT YEAR 2001 - 02, THE ASSESSEE REDEEMED THREE LAKH SHARES AT PAR AND CLAIMED A LONG TERM LOSS OF RS. 2.73 CRORES AFTER AVAILING OF VBC 4 ITXA5372.10 - 27.4 THE BENEFIT OF INDEXATION. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF SET OFF OF LONG TERM CAPITAL LOSS THAT AROSE ON REDEMPTION AGAINST LONG TERM CAPITAL GAIN ON THE SALE OF OTHER SHARES ON THE GROUND THAT (I) BOTH THE ASSESSEE AND THE COMPANY IN WHICH THE ASSESSEE HELD THE PREFERENCE SHARES, WERE MA NAGED BY THE SAME GROUP OF PERSONS; AND (II) THERE WAS NO TRANSFER AND THAT THE ASSESSEE WAS NOT ENTITLED TO INDEXATION ON THE REDEMPTION OF NON - CUMULATIVE REDEEMABLE PREFERENCE SHARES. THE CIT(A) ON THE OTHER HAND, ALLOWED THE BENEFIT WHICH WAS CLAIMED BY THE ASSESSEE. THE TRIBUNAL HAS AFFIRMED THE VIEW OF THE CIT(A) HOLDING THAT THE GENUINENESS AND CREDIBILITY OF THE CAPITAL TRANSACTION WAS NOT DISPUTED FOR THE PREVIOUS TEN YEARS. BOTH THE COMPANIES WERE JURIDICAL ENTITIES; THE FACT THAT THE COMPANIES WER E UNDER 11 ITA NO. 2917/DEL/2011 AY: 2006 - 07 COMMON MANAGEMENT WOULD NOT INDICATE THAT THE TRANSFER WAS SHAM AND THAT THE VIEW OF THE APPELLATE AUTHORITY WAS PURELY BASED ON SURMISES AND CONJECTURES. THE TRIBUNAL HAS FOLLOWED THE JUDGMENT OF THE SUPREME COURT IN ANARKALI SARABHAI VS. CIT , 1 IN HOLDING THAT THE REDEMPTION OF PREFERENCE SHARES RESULTS IN A TRANSFER WITHIN THE MEANING OF SECTION 2(47) . FINALLY, THE TRIBUNAL HAS HELD THAT THE NON - CUMULATIVE REDEEMABLE PREFERENCE SHARES CANNOT BE EQUATED WITH DEBENTURES OR BONDS. ACCORDING TO THE TRIBUNAL, SHARE CAPITAL ISSUED IN THE FORM OF NON - CUMULATIVE REDEEMABLE PREFERENCE SHARES CAN NEVER BE REGARDED AS DEBENTURES OR BONDS. A DEBENTURE IS A LO AN TAKEN BY THE COMPANY. THE COMPANIES' ACT, 1956 ENVISAGES TWO TYPES OF CAPITAL, EQUITY SHARE CAPITAL AND PREFERENCE SHARE CAPITAL. HENCE, THE TRIBUNAL CAME TO THE CONCLUSION THAT SINCE REDEEMABLE PREFERENCE SHARES ARE NOT BONDS OR DEBENTURES, THE ASSESSE E 1 (1997) 224 ITR 422 (SC) VBC 5 ITXA5372.10 - 27.4 WOULD NOT BE DEPRIVED OF THE BENEFIT OF INDEXATION UNDER SECTION 48 OF THE INCOME TAX ACT, 1961. 3.8 IN THE INSTANT CASE, WE FIND THAT THE ASSESSEE WAS HOLDING PREFERENCE SHARES IN GROUP COMPANIES AND SOLD THOSE SHARES TO THE COMPANY, WHICH IS OWNED BY THE ASSESSEE AND HER FAMILY MEMBERS. THE ASSESSING OFFICER OBSERVED THAT EVEN AFTER SALE, THE SHARES REMAINED WITH THE FAMILY AND THUS IT WAS A CONTRIVED T RANSACTION TO UNJUSTLY CLAIM THE BENEFIT OF LONG - TERM CAPITAL LOSS AND IT WAS A CALCULATED DEVICE TO GENERATE THE LOSS FOR BEING S ET OF AGAINST THE CAPITAL GAIN . I N VIEW OF THE ASSESSING OFFICER, THE TRANSACTION HAS BEEN CARRIED OUT TO NEUTRALIZE, THE LONG - TERM CAPITAL GAIN ON TRANSFER OF APARTMENT. WE ARE NOT AGREED WITH THE CONTENTION OF THE LEARNED S ENIOR DEPARTMENTAL REPRESENTATIVE SUPPORTING THE ORDER OF THE ASSESSING OFFICER. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS OBSERVED THAT THE ASSESSEE PURCHASED THE SHARES THROUGH CHEQUE PAYMENT AND ALSO RECEIVED THE PAYMENT THROUGH CHEQUE ON SALE OF SHARES. THE CIT(A) HAS FURTHER OBSERVED THAT SHARES WERE DELIVERED PHYSICALLY TO THE PURCHASER COMPANY AND THUS THE ASSESSEE HAS TRANSFERRED T HE SHARES IN ACCORDANCE WITH LAW. IN OUR OPINION, THE TRANSACTION IS WITHIN THE PARAMETERS OF LAW AND IN SUCH 12 ITA NO. 2917/DEL/2011 AY: 2006 - 07 CIRCUMSTANCES THE ASSESSING OFFICER CANNOT HOLD THE TRANSACTION A S A CONTRIVED TRANSACTION MERELY BECAUSE THE SALE WAS TO A COMPANY IN WHICH THE A SSESSEE AND HER FAMILY MEMBERS ARE HA VING CONTROLLING STAKE. FURTHER, IT CANNOT BE ALSO CONSIDERED AS CONTRIVED TRANSACTION BECAUSE THE TRANSACTION OF SALE OF SHARES WAS DONE PRIOR TO SALE OF APARTMENT AND ASSESSEE WAS AWARE OF INCREASING PRICES OF THE APA RTMENT. THE ASSESSEE CAN PLAN TO REDUCE ITS TAX LIA BILITY THROUGH LEGITIMATE MEANS . BEFORE THE COMMISSIONER OF INCOME T AX (A PPEALS ) , THE ASSESSEE RELIED ON THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF UNION OF INDIA VERSUS AZADI BACHAO ANDOL AN AND ANOTHER (263 ITR 706). THE HON BLE SUPREME COURT IN THE SAID JUDGMENT HAS HELD THAT MERELY BECAUSE THE TRANSACTION IS ENTERED INTO BY THE ASSESSEE WITH THE MOTIVE TO SAVE THE TAX, THE TRANSACTION CANNOT BE REGARDED AS COLOURABLE DEVICE SO LONG AS TH E TRANSACTION IS VALID IN LAW. WE HAVE OBSERVED THAT SIMILAR FINDING HAS BEEN GIVEN BY THE TRIBUNAL IN THE CASE OF PARRY AND CO. LIMITE D (SUPRA). IN THE CASE OF HEDE CONSULTANCY C OMPANY PRIVATE L IMITED (SUPRA), THE HON BLE BOMBAY HIGH COURT HAS OBSERVED TH AT MERELY CAPITAL LOSS PRECEDED BEFORE THE CAPITAL GAIN, CANNOT BE A GROU ND FOR HOLDING THE TRANSACTION A S A COLOURABLE. THE LD. COMMISSIONER OF INCOME - TAX ( APPEALS) HAS DECIDED THE ISSUE IN DISPUTE WITH THE OBSERVATIONS, AS UNDER: J. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND ALSO PERSUED THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER. I FIND MERIT IN THE CONTENTION OF THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE APPELLANT. THE APPELLANT HAD ACQUIRED 1,00,000 PR EFERENCE SHARES EACH OF M/S. MEDICARE INVESTMENT LTD., M/S. MAXOPP INVESTMENT LTD. AND M/S. CHEM INVEST LTD. @ RS. 100 PER SHARE IN THE ASSESSMENT YEAR 1996 - 97. THE AMOUNTS WERE PAID BY WAY OF CHEQUE AND CONSIDERATION HAD ACTUALLY MOVED FROM THE COFFERS OF THE APPELLANT IN LIEU WHEREOF THE PREFERENCES SHARES WERE ALLOTTED TO THE APPELLANT WHICH WAS EVIDENT FROM THE CONFIRMATION CERTIFICATES ISSUED BY EACH OF THE THREE COMPANIES CONFIRMING THE ISSUE OF SUCH SHARES FOR CONSIDERATION OF RS.1 CRORE, RESPECTIVEL Y. 13 ITA NO. 2917/DEL/2011 AY: 2006 - 07 THE CONFIRMATION CERTIFICATES CLEARLY ESTABLISHES THE FACTUM OF PAYMENT OF CONSIDERATION BY THE APPELLANT. THE SALE CONSIDERATION WAS ALSO RECEIVED BY THE APPELLANT THROUGH CHEQUE AND THE ABOVE SHARES WERE PHYSICALLY DELIVERED TO THE TRANSFEREE. K. I T IS THE CASE OF THE ASSESSING OFFICER THAT THE PURCHASER COMPANY, M/S TROPHY HOLDINGS(P)LTD WAS A CLOSELY HELD COMPANY OWNED AND CONTROLLED BY THE MEMBERS OF THE APPELLANT AND THEREFORE THE LOSS ARISING ON SALE OF SHARES WAS NOT GENUINE. HOWEVER, IT IS NO TICED THAT THE PREFERENCE SHARES WERE UNQUOTED AND THERE WAS NO MARKET AVAILABLE FOR THE SAME. THEREFORE, THE APPELLANT COULD NOT, IN MY VIEW, HAVE REALIZED ANYTHING MORE THAN THE CONSIDERATION FOR WHICH THE SHARES WERE SOLD CONSIDERING THAT NO DIVIDEND WA S DECLARED BY THE SAID COMPANY AND THERE WAS NO PREMIUM PAYABLE ON SALE OF SHARES. THE APPELLANT HAS SOLD THE ABOVE SHARES TO REALIZE ITS INVESTMENT BY TRANSFERRING THE SHARES AT BOOK VALUE. L. IN THESE CIRCUMSTANCES, IN MY CONSIDERED OPINION, IT WOULD NOT BE CORRECT TO HOLD THE TRANSACTION AS NON GENUINE MERELY BECAUSE THE SHARES WERE TRANSFERRED TO A GROUP COMPANY. IT HAS BEEN NOTICED THAT THE PURCHASE PRICE AND SALE PRICE OF VARIOUS SHARES SOLD DURING THE RELEVANT ASSESSMENT YEAR 2006 - 07 WAS NOT DISPU TED BY THE ASSESSING OFFICER. THERE WAS NO FINDING BY THE ASSESSING OFFICER THAT THE CONSIDERATION RECEIVED BY THE APPELLANT WAS NOT THE ACTUAL CONSIDERATION RECEIVED. THE COST INCURRED BY THE APPELLANT IN THE YEAR OF ACQUISITION IS ALSO NOT IN DISPUTE.THE APPELLANT HAD SOLD THE SHARES AT THE BOOK VALUE AND AS A RESULT OF COST INFLATION INDEX PROVIDED IN THE STATUTE TO COMPUTE INDEXED COST OF ACQUISITION, THE ACTUAL COST OF RS.3,00,000/ - WAS INDEXED AND INDEXED COST OF ACQUISITION OF RS.5,30,60,499/ - WAS AR RIVED AT BY THE ANNELLANT WHICH RESULTED IN LONG TERM CAPITAL LOSS. M. IT IS FURTHER THE CASE OF THE ASSESSING OFFICER THAT THE SET OFF OF THE LONG TERM CAPITAL LOSS ARISING ON SALE OF PREFERENCE SHARES AGAINST THE LONG TERM CAPITAL GAIN ON SALE OF APAR TMENT WAS A CALCULATED DEVICE TO GENERATE THE CAPITAL LOSSES FOR BEING SET OFF AGAINST THE CAPITAL GAIN INCOME. THERE IS NO DISPUTE THAT THE GAIN ARISING ON SALE OF FLAT RESULTED IN LONG TERM CAPITAL GAINS TO THE APPELLANT. THE ONLY DISPUTE IS WHETHER THE LONG TERM CAPITAL LOSS ARISING ON SALE OF THE ABOVE PREFERENCE SHARES WAS GENUINE OR NOT; IF NOT THE SAME COULD NOT BE SET OFF AGAINST LONG TERM CAPITAL GAINS AS HAS BEEN DONE BY THE APPELLANT. ON A CAREFUL CONSIDERATION OF FACTS, IT HAS BEEN NOTICED THAT THE APPELLANT HAD SOLD THE FLAT IN DLF CITY IN 14 ITA NO. 2917/DEL/2011 AY: 2006 - 07 MARCH, 2006 WHILE THE SHARES IN RESPECT OF WHICH THE LOSS WAS INCURRED WERE TRANSFERRED ON 17.08.2005. THEREFORE, THE CAPITAL LOSS WAS INCURRED FIRST IN POINT OF TIME AND CAPITAL GAINS WERE ARRIVED AT MUCH LAT ER DATE. THE ASSESSING OFFICER COULD HAVE, IF AT ALL, DENIED THE CLAIM OF LOSS IN A CASE WHERE CAPITAL GAIN WAS FIRST EARNED AND IN ORDER TO REDUCE THE CAPITAL GAIN TAX LIABILITY THE SHARES WERE SOLD TO GENERATE CAPITAL LOSS, SO AS TO SET OFF THE GAINS AGA INST THE LOSS. ON THE CONTRARY, THE APPELLANT HAS INCURRED CAPITAL LOSS FIRST IN POINT OF TIME. THEREFORE, MERELY THE APPELLANT SOLD THE AFORESAID APARTMENT IN THE SAME YEAR IN WHICH THE SHARES WERE SOLD WOULD NOT RESULT IN DENYING THE CLAIM OF SET OFF OF LONG TERM CAPITAL LOSS TO THE APPELLANT. N. IN VIEW OF THE AFORESAID, IN MY VIEW THE ASSESSING OFFICER ERRED IN NOT ALLOWING THE LONG TERM CAPITAL LOSS TO BE SET OFF AGAINST THE LONG TERM CAPITAL GAIN ARISING ON SALE OF APARTMENT. THE ORDER OF THE ASSES SING OFFICER IS SET ASIDE AND HE IS HEREBY DIRECTED TO ALLOW THE LONG TERM CAPITAL LOSS CLAIMED BY THE APPELLANT. THE GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 3.9 IN OUR OPINION , THE FINDING OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ON THE ISS UE IN DISPUTE IS COMPREHENSIVE AND WELL REASONED AND NO INTERFERENCE ON OUR PART IS REQUIRED. ACCORDINGLY , WE UPHOLD THE FINDING OF THE LD. COMMISSIONER OF INCOME TAX APPEALS ON THE ISSUE IN DISPUTE AND DISMISS THE GROUNDS NO. 1 AND 2 OF THE APPEAL. 4. IN GROUND NO. 3, THE R EVENUE HAS CHALLENGED THE BROKERAGE EXPENSES WHILE COMPUTING THE CAPITAL GAIN ON SALE OF APARTMENT, ALLOWED BY THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS). 4 .1 FACTS IN BRIEF IN RESPECT OF ISSUE IN DISPUTE ARE THAT THE ASSESSEE B OOKED AN APARTMENT WITH THE BUILDER M/S. DLF LTD AT GURGAON AND ENTERED INTO AN AGREEMENT WITH THE BUILDER ON 26/07/2003. THE ASSESSEE MADE PAYMENT OF RS. 2,30,02, 130/ - TO THE BUILDER FROM 17/02/2003 TO 05/09/2005. THE ASSESSEE CLAIMED TO HAVE SOLD THE APARTMENT BACK TO THE BUILDER ON 01/03/2006 FOR A SUM OF RS. 4,63,40,378 / - AND EARNED LONG - TERM CAPITAL GAIN ON THE SALE OF APARTMENT. IN THE COMPUTATION OF THE LONG - TERM CAPITAL GAIN, THE ASSESSEE CLAI MED BROKERAGE COMMISSION OF 15 ITA NO. 2917/DEL/2011 AY: 2006 - 07 RS. 10,21,342/ - OUT OF SALE CONSIDERATION. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE SURRENDERED BACK THIS APARTMENT TO THE BUILDER AND NOT SOLD IN THE OPEN MARKET AND THEREFORE IT WAS NOT A CASE WHERE BROKERAGE WAS PAID TO THE BROKER FOR ANY SERVICES RENDERED BY HIM. BEFORE T HE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS), THE ASSESSEE CLAIMED THAT THE SERVICES OF THE BROKER WERE ESSENTIAL FOR FACILITATING THE SALE, NEGOTIATING THE RATE & TERMS OF SALE ETC AND IT WAS ONLY AS A RESULT OF THE EFFORTS OF THE BROKER, THE TRANSACTI ON RESUL TED IN SALE OF FLAT TO M/S DLF U NIVERSAL LTD. THE LEARNED COMMISSIONER OF INCOME TAX ALLOWED THE GROUND OF THE ASSESSEE. 4 .2. BEFORE US, THE LEARNED SR. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSES SING OFFICER WHEREAS THE LEARNED C OUNSEL OF THE ASSESSEE RELIED ON THE ORDER OF THE LEATHER COMMISSIONER OF INCOME - TAX ( APPEALS). 4 .3 WE HAVE HEARD THE RIVAL SUBMISSION OF PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE REVENUE HAS CHALLENGED THAT THE EXPENDITURE WAS NOT ACTUALLY INCURRED ON ACCOUNT OF BROKERAGE. WE FIND FROM THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX( APPEALS) THAT THE ASSESSEE SUBMITTED THE DOCUMENTS IN SUPPORT OF THE CLAIM, WHICH INCLUDED BROKER S RECEIPT AND PAYMENT BY CHEQUE ETC. THE LEARNED COMMISS IONER OF INCOME - TAX (APPEALS) OBSERVED THAT THE APPELLANT COULD NOT HA VE NEGOTIATED THE TRANSACTION ON HER OWN AND THE INFORMATION REGARDING THE MARKET RATE, ETC WAS REQUIRED T O GET THE BEST DEAL. THE LEARNED COMMISSIONER OF INCOME - TAX( APPEALS) FURTHER AG REED WITH THE CONTENTION OF THE ASSESSEE THAT IT IS NORMAL PRACTICE TO AVAIL THE SERVICES OF THE BROKER WHO BECAUSE OF THEIR KNOWLEDGE OF THE MARKET, NEGOTIATION SKILLS ETC ARE ABLE TO NOT ONLY GET A BETTER DEAL FOR THEIR CLIENTS BUT ALSO ADVISE THEM AS TO DOCUMENTATION REQUIREMENTS, PROCEDURAL FORMALITIES ETC . AND FACILITATE THE SALE TRANSACTION. 16 ITA NO. 2917/DEL/2011 AY: 2006 - 07 4 .4 WE FIND THAT, THE ASSESSEE SUBMITTED EXPLANATION ABOUT THE GENERAL ROLE OF BROKERS IN SALE DEALS OF PROPERTIES AND STATED THAT THE BROKER PLAYED A ROLE IN NEGOTIATING THE DEAL. THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) ON THE BASIS OF SAID EXPLANATI ON, ALLOWED THE APPEAL OF THE ASSESSEE. WE HAVE PERUSED THE ORDER OF THE ASSESSING OFFICER AS WELL AS THE IMPUGNED ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS). IN OUR OPINION, NO DOCUMENTARY EVIDENCES IN SUPPORT OF SERVICES OF NEGOTIATING THE DEAL BY THE BROKER SH. RAJEEV MATHUR, IN THE PRESENT DEAL OF SURRENDERI NG THE FLAT BACK TO THE BUILDER , WERE SUBMITTED BY THE ASSESSEE EITHER BEFORE THE ASS ESSING OFFICER OR BEFORE THE L EARNED COMMISSIONER OF INCOME - TAX (APPEALS). IN THE CIRCUMSTANCES, WE FEEL IT APPROPRIATE TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING AFRESH AFTER TAKING INTO ACCOUNT THE EVIDENCE IN SUPPORT OF SERVICES RENDERED BY THE BROKER . IT IS NEVERTHELESS TO MENTION THAT ASSESSEE SHALL BE AFFORDED SUFFICIENT OPPORTUNITY OF HEARING. THE GROUND OF THE APPEAL IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 5 . IN THE RESULT , APPEAL IS ALLOWED PARTLY FOR STATISTICAL PURPOSE. THE DECISION IS PRO NOUN CED IN THE OPEN COURT ON 1 4 T H FEBRUARY , 201 7 . S D / - S D / - ( H.S. SIDHU . ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 4 T H FEBRUARY , 201 7 . RK / - (D.T.D) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI