GARDEN VIEW REALTORS PVT LTD., MUMBAI V. INCOME TAX OFFICER-3(1)(4), MUMBAI

ITA 314/MUM/2023

AI Insights

The case involves Garden View Realtors Pvt. Ltd., which appealed against the order of the CIT(A) confirming the disallowance of loss on the sale of shares, treated as a sham transaction by the Assessing Officer. The shares in question were of SVA India Limited, which the appellant had converted from investments to inventories and later sold at a significant loss. The tribunal noted that the CIT(A) had not adequately considered the appellant's submissions and remanded the issue back to the Assessing Officer, emphasizing the need for the appellant to prove the genuineness of the transaction.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 113578 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 14-05-2023
• Assessment Year: 2004-2005
• Appeal Filed On: 01-02-2023
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL "SMC" BENCH, MUMBAI SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 314/MUM/2023 (Assessment Year: 2004-05) Garden View Realtors Pvt. Ltd., 161-C Wing, Mittal Tower, Barrister Rajni Patel Marg, Nariman Point, Mumbai - 400021 [PAN: AAACG1917F] Income Tax Officer – 3(1)(4), Mumbai Room No. 666, Aayakar Bhavan, M.K. Road, Mumbai - 400020 ............... Vs ................ Appellant Respondent Appearance For the Appellant/Assessee For the Respondent/Department : : Shri Narayan Atal Shri Sridhar Govind Menon Date Conclusion of hearing Pronouncement of order : : 15.05.2023 16.05.2023 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal arises out of the order, dated 07/12/2022, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)] under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] which in turn arose from the Assessment Order dated 30/12/2016, passed pursuant to the order, dated 03/12/2015, passed by the Tribunal in ITA No. 2544/Mum/2012 whereby, inter alia, issue relating to disallowance of loss on sale of shares was restored to the file of the ITA No.314/Mum/2023 (Assessment Year :2004-05) 2 Assessing Officer. This is the second round of appeal wherein the Appellant has raised following ground of appeal: “1. The Learned Commissioner of Income Tax (Appeals)- National Faceless Appeal Centre, Delhi (hereinafter referred to as Ld. CIT(A) erred in confirming the disallowance made by the Assessing Officer of the Loss on Sale of shares by treating the transaction as a Sham Transaction. Your appellant submits that the sale transaction is genuine and at arm’s length with the relative of the Director and therefore, ought to be allowed”. 2. The relevant facts in brief are that the Appellant, a private limited company, purchased 50,000/- shares of SVA India Limited at INR 40/- each (face value of INR 10/- plus premium of INR 30/-). Subsequently, during the financial year ended March 31, 1997, the aforesaid investment was converted into inventories and recorded in the books of accounts at the cost of INR 100/- per share. Out of 11,000 equity shares of SVA India Limited held by the Appellant as inventories as on 01/04/2004, 9,000 shares were sold during the relevant previous year at INR 2/- each. In the return of income, the Appellant offered to tax the long term capital gains arising in the hands of the Appellant on conversion of investments into inventories computed at INR 5,40,000/- [9,000 shares x (INR 100/- per share minus INR 40/- per share)], and claimed business loss of INR 8,82,000/- [9,000 shares x (INR 2/- per share minus INR 100/- per share)]. The Assessing Officer denied the loss arising from sale of shares of SVA India Limited held as inventory. The CIT(A) also dismissed the ground raised in appeal by the Appellant challenging the rejection of the aforesaid claim of loss arising from sale of shares of SVA India Limited. Leading to the filing of the present appeal. ITA No.314/Mum/2023 (Assessment Year :2004-05) 3 3. The Ld. Authorised Representative for the Appellant appearing before us submitted that the transaction of sale of shares of SVA India Limited was a genuine transaction undertaken on arm’s length basis. The shares were purchased in 1995 by way of subscription to the public issue as investment, and thereafter, converted into stock-in-trade during the financial year 1996-97. SVA India Limited was engaged in the business of finance. However, on account of disputes relating to the management of the company the business of the company was impacted and the value of shares dropped. On 31/03/2004, the Appellant sold 9,000 shares of SVA India Limited to Mrs. Anjana Gupta at the rate of INR 2/- per share, being the price at which the shares were last quoted on the stock exchange. In order to support his contentions, the Ld. Authorised Representative for the Appellant relied upon copy of Balance Sheet and Profit & Loss Account for the year ended 31/03/1997 and 31/03/2004, letter from stock exchange, Mumbai showing the last traded price of shares of SVA India Limited at INR 2/-, copy of share transfer form, copy of Debit Note dated 31/03/2004, issued to Mrs. Anjana Gupta and the certificate issued by the CA of Mrs. Anjana Gupta supporting sale of shares at INR 2/- . He submitted that the CIT(A) had failed to consider the aforesaid material while confirming the order of the Assessing Officer holding the transaction to be a sham transaction. 4. Per contra, the Ld. Departmental Representative submitted that pursuant to the directions issued by the Tribunal vide order, dated 03/12/2015 in ITA No. 2544/Mum/2012, the Assessing Officer had granted sufficient opportunity to the Appellant to prove the genuineness of the transaction. However, the Appellant failed to file ITA No.314/Mum/2023 (Assessment Year :2004-05) 4 any documentary evidence in respect of acquisition of shares. The shares were sold to Mrs. Anjana Gupta at INR 2/- each who in turn sold the shares to Mr. Vinod Gupta, the Director of SVA India Limited on 03/08/2005 at book value. In this regard, the Ld. Departmental Representative placed reliance on the certificate, dated 01/11/2008, issued by the Chartered Accountant of Mrs. Anjana Gupta (placed at page 12 of the paper-book). 5. We have considered the rival submissions and perused the material on record. On perusal of the Assessment Order, dated 30/12/2016, we find that the Assessing Officer had rejected the Appellant’s claim for business loss arising from transfer of 9,000 shares of SVA India Limited to Mrs. Anjana Gupta at INR 2/- per share holding the same to be a sham transaction. In appeal, the CIT(A) confirmed the order passed by the Assessing Officer holding that the Appellant was not entitled to loss on sale of shares. While concluding as aforesaid, the CIT(A) noted in paragraph 9.8 of the order impugned that even during the course of appellate proceedings, the Appellant neither filed any submissions in support of genuineness of loss arising from sale of shares, nor produced any evidence. In the appellate proceedings before us, it was contended by the Ld. Authorised Representative for the Appellant that relevant documents/submissions were filed before the CIT(A). However, the CIT(A) failed to consider the same. We note that in paragraph 4.1, the CIT(A) has recorded that the Appellant has filed certain written submissions and has requested that the appeal be disposed on the basis of the same. Therefore, we find merit in the contentions advanced on behalf of Appellant that the CIT(A) failed to consider the relevant submissions/documents filed before the CIT(A). ITA No.314/Mum/2023 (Assessment Year :2004-05) 5 However, the averments made by the Ld. Authorised Representative for the Appellant during the appellate proceedings before us regarding the circumstances in which the price of shares of SVA India Limited fell from INR 100/- in 1997, when the investment was converted into inventory, to INR 2/- the price at which shares were sold, are not supported by relevant documents/details. Apart from the Balance Sheet drawn by the Appellant for the Financial Year 1996-97, there is nothing on record to support the averment that the shares of SVA India Limited were subscribed by way of public issue. The sale of shares by the Appellant is supported by a Debit Note, dated 31/03/2004 and the shares transfer form. There is nothing on record to show actual payment of consideration. Further, as per the certificate issued by the Chartered Accountant of Mrs. Anjana Gupta the shares which were sold by the Appellant to Mrs. Anjana Gupta at INR 2/- per share on 31/03/2004 were sold on book value to Mr. Vinod Gupta, Director of SVA India Limited at book value on 03/08/2005. Therefore, the reasoning/rational for selling the shares of INR 2/- also requires substantiation. Despite the aforesaid, the Ld. Authorised Representative for the Appellant asserted that the transaction of sale of shares as well as the consequent loss was genuine. Since, the CIT(A) failed to consider the submissions/documents and/or confront the Appellant, the Appellant was denied the opportunity to establish the genuineness of the transaction by filing the necessary documents and details. Keeping in view the aforesaid submissions of the Ld. Authorised Representative for the Appellant, and the insufficiency of the material on record to put quietus to the issue, we are constrained to remand the issue back to the file of the Assessing Officer. It is ITA No.314/Mum/2023 (Assessment Year :2004-05) 6 clarified that the Appellant would be under obligation to discharge the onus, as cast under law, to establish genuineness of the transaction of purchase/sale of shares of SVA India Limited and the loss arising therefrom. In view of the above, Ground No. 1 raised by the Appellant is allowed for statistical purposes. 6. In result, the present appeal preferred by the Appellant is allowed for statistical purposes. Order pronounced on 16.05.2023. Sd/- Sd/- (Prashant Maharishi) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 16.05.2023 Alindra, PS ITA No.314/Mum/2023 (Assessment Year :2004-05) 7 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त/ The CIT 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध, आयकर अपीलीय अदधकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदधकरण, म ुंबई / ITAT, Mumbai