DCIT, New Delhi V. M/s. B.S. Infosolution Pvt. Ltd., New Delhi

ITA 2989/DEL/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3372 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 25-05-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAVIKANT GUPTA
• Keywords: Valuation report

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI E BEN CH, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI K.N. CHARY, JUDICIAL MEMBE R ITA NO. 2989/DEL/2016 [ASSESSMENT YEAR: 2012-13] THE DY. C.I.T. VS. M/S B.S. INFOSOLUTION PVT LTD CIRCLE 5(1) C/O SHRI SUNIL GANDHI [DIR ECTOR] NEW DELHI G-275, SARITA VIHAR, NEW DELHI PAN : AACCB 9339 A [APPELLANT] [RESPONDENT] DATE OF HEARING : 14.08.2018 DATE OF PRONOUNCEMENT : 23.08.2018 ASSESSEE BY : SHRI VINOD JAIN, FCA. REVENUE BY : SHRI RAVI KANT GUPTA, SR. DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, WITH THIS APPEAL, THE REVENUE HAS CHALLENGED THE CO RRECTNESS OF THE ORDER OF THE COMMISSIONER OF INCOME TAX [APPEAL S] -2, NEW DELHI DATED 19.02.2016 PERTAINING TO ASSESSMENT YEAR 2012 -13. 2 2. THE SOLE GRIEVANCE OF THE REVENUE IS THAT THE CI T(A) ERRED IN DELETING THE ADDITION OF RS. 5,18,68,407/- ON ACCOU NT OF DISALLOWANCE OF ASSESSEES CLAIM OF LONG TERM CAPITAL LOSS. 3. FACTS, AS EMANATING FROM THE RECORDS, SHOW THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SOLD A PROPER TY BEARING NO. A-8, SECTOR 68, NOIDA, GAUTAM BUDH NAGAR TO M/S Q.A. INF OTECH PVT LTD [QIPL] FOR A TOTAL CONSIDERATION OF RS. 9.60 CRORES . ON SUCH SALE, CAPITAL GAIN OF RS. 3,48,39,960/- WAS DECLARED. TH E AO FOUND THAT THE SAID CAPITAL GAIN WAS SET OFF AGAINST THE CLAIM OF LOSS OF RS. 5,18,68,407/- INCURRED ON THE SALE OF SHARES. 4. THE AO EXAMINED THE SEQUENCE OF EVENTS AND CAME TO THE CONCLUSION THAT THE PURCHASE AND SALE OF SHARES WAS NOTHING BUT A COLOURABLE DEVICE TO GENERATE LOSS TO BE SET OFF AG AINST CAPITAL GAIN. 5. WHEN THE MATTER WAS AGITATED BEFORE THE FIRST AP PELLATE AUTHORITY, THE FIRST APPELLATE AUTHORITY, IN HIS WI SDOM, ACCEPTED THE TRANSACTION AS GENUINE AND ALLOWED THE CLAIM OF SET OFF OF LOSS. 3 6. BEFORE PROCEEDING FURTHER, LET US EXAMINE THE PR INCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF DU RGA PRASAD MORE 82 ITR 540 [SC]. THE RELEVANT FINDINGS OF THE HON' BLE SUPREME COURT READ AS UNDER: IT IS TRUE THAT AN APPARENT MUST BE CONSIDERED RE AL UNTIL IT IS SHOWN THAT THERE ARE REASONS TO BELIEVE THAT THE AP PARENT IS NOT THE REAL. IN A CASE OF THE PRESENT KIND A PARTY WHO RELIES ON A RECITAL IN A DEED HAS TO ESTABLISH THE TRUTH OF THO SE RECITALS OTHERWISE IT WILL BE VERY EASY TO MAKE SELF-SERVING STATEMENTS IN DOCUMENTS EITHER EXECUTED OR TAKEN BY A PARTY AND R ELY ON THOSE RECITALS. IF ALL THAT AN ASSESSEE WHO WANTS TO EVAD E TAX IS TO HAVE SOME RECITALS MADE IN A DOCUMENT EITHER EXECUTED BY HIM OR EXECUTED IN HIS FAVOUR THEN THE DOOR WILL BE LEFT W IDE OPEN TO EVADE TAX. A LITTLE PROBING WAS SUFFICIENT IN THE P RESENT CASE TO SHOW THAT THE APPARENT WAS NOT THE REAL. THE TAXING AUTHORITIES WERE NOT REQUIRED TO PUT ON BLINKERS WHILE LOOKING AT THE DOCUMENTS PRODUCED BEFORE THEM. THEY WERE ENTITLED TO LOOK INTO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALI TY OF THE RECITALS MADE IN THOSE DOCUMENTS. 4 7. THIS WAS FURTHER ENDORSED BY THE HON'BLE SUPREME CO URT IN THE CASE OF SUMATI DAYAL 214 ITR 801 WHEREIN THE HON'BL E SUPREME COURT HELD AS UNDER: DISMISSING THE APPEAL THAT THE SETTLEMENT COMMISSI ON AFTER CONSIDERING THE SURROUNDING CIRCUMSTANCES AND APPLY ING THE TEST OF HUMAN PROBABILITIES HAD RIGHTLY CONCLUDED THAT T HE APPELLANTS CLAIM ABOUT THE AMOUNT BEING HER WINNINGS FROM RACE S WAS NOT GENUINE. 8. NOW WE WILL EXAMINE HOW THE RATIOS LAID DOWN BY HON'BLE SUPREME COURT [SUPRA] APPLY ON THE FACTS OF THE CAS E IN HAND. AS MENTIONED ELSEWHERE, THE ASSESSEE SOLD PROPERTY TO QIPL. THOUGH THERE WAS NO FORMAL AGREEMENT BETWEEN THE ASSESSEE AND QIPL, THE ASSESSEE FIRST RECEIVED RS. 2 CRORES ON 31.12.2010 AND ANOTHER RS. 2 CRORES ON 30.03.2011. THOUGH FOR THE SECOND TRANSA CTION, THE DATE MENTIONED IS 30.03.2010, BUT BOTH THE LD. AR AND TH E LD. DR POINTED OUT THAT THE SAME SHOULD BE READ AS 30.03.2011. 9. ON 28.02.2011, THE ASSESSEE ENTERED INTO A COLLA BORATION AGREEMENT WITH M/S CHARMWOOD REALTECH PVT LTD [CRPL ] TO DEVELOP THE PROPERTY FOR WHICH THE ASSESSEE HAD TAKEN PART CONSIDERATION AS MENTIONED HEREINABOVE. 5 10. IT IS NOT UNDERSTOOD THAT ONCE THE PROPERTY WAS AGREED TO BE SOLD TO QIPL AND PART CONSIDERATION WAS RECEIVED, THEN W HY THE SAME PROPERTY WAS ENTERED INTO A COLLABORATION AGREEMENT WITH CRPL, WHICH IS A GROUP COMPANY? 11. PURSUANT TO THE COLLABORATION AGREEMENT, THE AS SESSEE RECEIVED RS. 10 CRORES AS REFUNDABLE SECURITY DEPOSIT/EARNES T MONEY FROM CRPL. RS. 9 CRORES WAS RECEIVED DURING THE F.Y. 2010-11 A S UNDER: DATE CHEQUE NO. AMOUNT PAID 03.03.2011 44206 1,50,00,000/- 07.03.2011 44209 3,00,00,000/- 07.03.2011 44207 3,00,00,000/- 12.03.2011 44210 1,50,00,000/- TOTAL 9,00,00,000/- 12. AFTER RECEIVING THE SUM OF RS. 9 CRORES FROM CR PL, THE ASSESSEE TRANSFERRED RS. 7.50 CRORES IMMEDIATELY TO THE ACCO UNT OF M/S VENKATESHWARA BUILDTECH PVT LTD [VBPL] WHICH IS ALS O A GROUP COMPANY. 13. THEREAFTER, ON 15.03.2011, VBPL ALLOTTED 3,75,0 00 SHARES HAVING FACE VALUE OF RS. 10 PER SHARE AT A PREMIUM OF RS. 190/- PER SHARE. THIS MEANS THAT THE SHARES OF VBPL WORTH RS. 7.50 C RORES WERE 6 PURCHASED BY THE ASSESSEE OUT OF THE FUND TRANSFERR ED FROM CRPL [ALL GROUP COMPANIES]. 14. ON 22.07.2011, THE ASSESSEE ENTERED INTO A DEED OF CANCELLATION OF COLLABORATION AGREEMENT WITH CRPL AND THE AMOUNT RECEIVED FROM CRPL WAS RETURNED BACK AS UNDER: DATE PARTICULARS AMOUNT 20.03.2012 SHARES VENKTESHWARA 375000 @ RS. 82.50 3,09,37,500.00 30.03.2012 ORIENTAL BANK OF COMMERCE BEING AMOUNT PAID 5,90,62,500.00 TOTAL 9,00,00,000.00 15. THUS, THE SHARES WHICH WERE PURCHASED FOR A CON SIDERATION OF RS. 7.50 CRORES WERE SOLD/TRANSFERRED FOR RS. 3,09,37,5 00/- AND THE LOSS OF SALE OF SHARES WAS GENERATED. 16. AT THIS STAGE, IT IS PERTINENT TO NOTE THAT THE ASSESSEE PAID A PREMIUM OF RS. 190/- ON THE SHARES OF A COMPANY WHI CH WAS INCORPORATED ON 03.01.2011 AND ITS FIRST F.Y. ENDED ON 31.03.2011 AND THE DATE OF PURCHASE OF SHARES IS 15.03.2011. THOU GH THE PREMIUM IS JUSTIFIED BY A VALUATION REPORT, BUT THE SAME APPEA RS TO BE A SELF- SERVING DOCUMENT BECAUSE A COMPANY WHICH IS INCORPO RATED IN JANUARY 7 2011 CANNOT FETCH A HEFTY PREMIUM OF RS. 190/- IN A SPAN OF THREE MONTHS. 17. ON 31.03.2011, THE BOOK VALUE OF SHARES OF VBPL IS MENTIONED AT RS. 82/- 18. NO PRUDENT PERSON WITH SOME COMMERCIAL PRUDENCE WOULD PAY A HEFTY PREMIUM OF RS. 190/- ON A BOOK VALUE OF RS. 8 2/-, HOLD IT FOR ONE YEAR, AND THEN SELL THE SAME SHARES AT BOOK VALUE. SHARES OF VBPL WERE SOLD ON 20.03.2012. 19. THE AFORESTATED SEQUENCE OF TRANSACTIONS HAS TO BE CONSIDERED IN THE LIGHT OF THE PRINCIPLES LAID DOWN BY THE HON'BL E APEX COURT IN THE CASE OF DURGA PRASAD MORE [SUPRA] AND SUMATI DAYAL [SUPRA]. 20. THE SAME PROPERTY WAS THE SUBJECT MATTER OF TWO DISTINCT TRANSACTIONS ONE WITH QIPL AND THE OTHER WITH CRP L, THOUGH ULTIMATELY THE PROPERTY WAS SOLD TO QIPL. THIS MEA NS THAT WHEN THE ASSESSEE RECEIVED PART CONSIDERATION FROM QIPL, IT WAS WELL AWARE THAT THE TRANSACTION IS GOING TO RESULT INTO CAPITAL GAI NS AND TO AVOID SUCH CAPITAL GAINS LIABILITY THE ASSESSEE USED CRPL AND VBPL AS CONDUITS TO GENERATE LOSS IN SHARES TO BE SET OFF AGAINST THE C APITAL GAIN. THUS, THE 8 SURROUNDING CIRCUMSTANCES AND HUMAN PROBABILITIES A RE TO BE TAKEN INTO ACCOUNT WHILE CONSIDERING THE EVIDENCES EMANAT ING FROM THE RECORDS. 21. THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF WIPRO LTD 50 TAXMANN.COM 421 HAS HELD AS UNDER: THE QUESTION WHETHER A TRANSACTION IS SHAM OR COLO RABLE AND ENTERED INTO WITH THE SOLE INTENTION OF EVADING PAYMENT OF TAX IS PURELY A QUESTION OF FACT. ON APPRECIATION OF THE MATERIAL ON RECORD AND THEREAFT ER KEEPING IN MIND THE STATUTORY PROVISIONS IN PARTICU LAR, THE CHARGING SECTION AND THE SECTION UNDER WHICH THE TA X IS EXEMPTED, THE COURT HAS TO RECORD THE FINDING OF FA CT. UNLESS THE STATUTORY PROVISIONS PROVIDE FOR EXEMPTI ON FROM PAYMENT OF TAX, THE QUESTION OF AN ASSESSEE TR YING TO TAKE ADVANTAGE OF THE SAID PROVISION WOULD NOT ARIS E. THEREFORE, IN EACH CASE, THE QUESTION IS, THE WAY T HE ASSESSEE HAS AVOIDED TO PAY TAX RELYING ON THE STAT UTORY PROVISIONS IS LEGITIMATE OR NOT IS TO BE CONSIDERED BY THE COURT. THE COURT HAS TO BEAR IN MIND THAT IT IS WRO NG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONORA BLE TO AVOID THE PAYMENT OF TAX BY RESORTING TO DUBIOUS ME THODS. AN OBLIGATION IS CAST ON EVERY CITIZEN TO PAY THE T AXES 9 WITHOUT RESORTING TO SUBTERFUGES. WHEN THE STATUTE PROVIDES CERTAIN RIGHTS, WHICH IF PROPERLY APPLIED WOULD REDUCE THE TAX BURDEN ON THE ASSESSEE OR EXEMPTS HI M FROM THE PAYMENT OF THE ASSESSEE IS ENTITLED TO THE SAID BENEFIT. HOWEVER, IF HE IS INVOKING THE SAID PROVIS IONS WITH THE INTENTION OF EVADING PAYMENT OF TAX, THEN IT WO ULD BE A COLORABLE DEVICE TO AVOID PAYMENT OF TAX, WHICH CAN NOT BE ENTERTAINED BY THE COURT. IT IS IN THIS CONTEXT, CO URT HAS TO FIND OUT WHETHER THE TRANSACTION IS REAL OR UNRE AL AND THEN RECORD A FINDING WHETHER IT IS A COLORABLE DEV ICE OR SHAM TRANSACTION. THE AFORESAID UNDISPUTED AND ADMITTED MATERIAL ON RECORD DISCLOSES THAT THE PURCHASE OF SHARES OF WFL AT PREMIUM IN ONE BREADTH AND SELLING THE SHARES OF TH E SAID COMPANY FOR A PITTANCE AT THE RATE OF LESS THAN A P AISA IN OTHER BREADTH, WHICH CLEARLY SHOWS THE INTENTION BE HIND THIS ARRANGEMENT SECONDLY, THE SAID SHARES ARE SOLD TO THE EX-EMPLOYEES WHO CONTINUED TO HOLD THE SAID SHARES WITHOUT BRINGING ANY FRESH CAPITAL FOR CONDUCTING T HE BUSINESS OF WFL. 22. WHILE DISALLOWING THE CLAIM OF CAPITAL LOSS THE HIGH COURT HAS ALSO HELD AS UNDER: 10 IT IS A DEVISE ADOPTED TO EVADE PAYMENT OF TAX ON THE CAPITAL GAINS EARNED BY THE ASSESSEE COMPANY. THOUG H THE PROXIMITY OF THE DATE BETWEEN THE SALE OF SHARES AN D PURCHASE OF SHARES AND DISINVESTMENT ALONE CANNOT B E A CRITERIA TO HOLD THE TRANSACTION IS A SHAM TRANSACT ION AND THE PROFIT EARNED FROM SALE OF SHARES IN WNL IS REA L AND LOSS INCURRED BY THE SALE OF SHARES IS ALSO REAL AN D THOUGH THERE WAS NO BAR FOR SALE OF SHARES AT THROW AWAY P RICE AND SOMETIMES, THE BUSINESSMAN ACT IN UNDUE EXERCIS E AND HASTY AND WITHOUT ANY RATIONALE ANY ONE OF THEM IS NOT SUFFICIENT TO HOLD A TRANSACTION AS SHAM TRANSACTIO N. BUT THE CUMULATIVE EFFECT OF ALL THESE INSTANCES UNEQUI VOCALLY POINTS OUT THE REAL INTENTION BEHIND THIS TRANSACTI ON AND LEADS TO A IRRESISTIBLE CONCLUSION THAT THIS TAX PL ANNING IS DONE WITH THE INTENTION TO AVOID PAYMENT OF TAX ON CAPITAL GAINS AND IT IS NOT A CASE OF LEGITIMATE TAX PLANNI NG BUT A DEVISE TO AVOID PAYMENT OF TAX . 23. CONSIDERING THE SEQUENCE OF EVENTS DISCUSSED HE REINABOVE, IN THE LIGHT OF THE PRINCIPLES LAID DOWN BY THE HON'BLE SU PREME COURT AND ALSO BY THE HON'BLE KARNATAKA HIGH COURT, WE HAVE NO HES ITATION TO HOLD THAT THE SHARE TRANSACTION IS NOTHING BUT A SHAM TR ANSACTION, A COLOURABLE DEVICE TO AVOID CAPITAL GAINS TAX LIABIL ITY AND, THEREFORE, 11 HAS TO BE IGNORED. THE FIRST APPELLATE AUTHORITY H AS ACCEPTED THE TRANSACTION WITHOUT CONSIDERING THE FACT THAT WHAT IS APPARENT IS NOT REAL ON THE FACTS OF THE CASE IN HAND. WE, THERE FORE, SET ASIDE THE FINDINGS OF THE CIT(A) AND RESTORE THAT OF THE AO. THE ASSESSMENT ORDER IS UPHELD. THE SOLE GROUND RAISED BY THE REV ENUE IS ALLOWED. 24. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 23.0 8.2018. SD/- SD/- [K.N. CHARY] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 23 AUGUST, 2018 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 12 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER