The ACIT, Circle-6, Surat V. Shri Akbarali bakirbhai lokhandwala, Surat

ITA 3385/AHD/2009

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0249 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 23-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Share purchase agreement; Procedural lapse; Tax effect
• Section: 68; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , .. , '# ' $ BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI T.R.MEENA, ACCOUNTANT MEMBER APPEAL(S) BY SL.NO(S) ITA NO(S) ASSESSMENT YEAR(S) APPELLANT(S) RESPONDENT(S) 1. 3385/AHD/2009 2006-07 ACIT CIRCLE-6 SURAT AKBARALI BAKIRBHAI LOKHANDWALA 12/2881, MAIN ROAD SAIYADPURA SURAT PAN:AAFPL 5321 C 2 3386/AHD/2009 2006-07 -DO- SAKINA SHEESH LOKHANDWALA, SURAT (ADDRESS SAME) PAN:AAKPL3809 L 3 3387/AHD/2009 2006-07 -DO- SHEESH BAKIRBHAI LOKHANDWALA, SURAT (ADDRESS SAME) PAN:AAFPL 5264L REVENUE BY : SHRI Y.P.VERMA, SR.D.R. ASSESSEES BY : SHRI MEHUL R.SHAH / DATE OF HEARING : 12/12/2012 / DATE OF PRONOUNCEMENT : 15/2/13 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : ALL THESE THREE APPEALS OF DIFFERENT RESPONDENT-AS SESSEES HAVE BEEN FILED BY THE REVENUE ARISING FROM THREE SEPARA TE ORDERS OF CIT(A)- IV, SURAT ALL IDENTICALLY DATED 28.8.2009. THE REV ENUE HAS CHALLENGED THE ALLOWANCE OF SET OFF OF CAPITAL LOSS AND DELET ION OF ADDITION U/S.68 OF ITA NOS.3385,3386 & 3387/AHD/2009 ACIT VS. AKBARALI BAKIRBHAI LOKHANDWALA & OTHERS ASST.YEAR 2006-07 - 2 - THE ACT BY LD.CIT(A). THE SET OFF OF LOSS WAS AMOU NTED TO RS.9,90,000/- AND THE ADDITION U/S.68 WAS AMOUNTED TO RS.1,10,000 /- IDENTICALLY IN ALL THE THREE APPEALS. FOR THE SAKE OF COMPLETENESS, G ROUND NO.1 FROM ITA NO.3385/AHD/2009 (SUPRA) IS REPRODUCED BELOW:- [1] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD.CIT(A)-IV, SURAT HAS ERRED IN ALLOWING SET O FF OF THE CAPITAL LOSS OF RS.9,90,000/- DISALLOWED BY THE AO AND ALSO DELETING THE ADDITION OF RS.1,10,000/- MADE BY THE AO U/S.68 OF THE ACT. 2. AT THE OUTSET, LD.AR MR.MEHUL R.SHAH HAS OBJECT ED THE FILING OF APPEAL BY THE REVENUE DEPARTMENT ON THE GROUND OF T AX EFFECT INVOLVED. IN SUPPORT, AN ORDER OF THE TRIBUNAL AS WELL AS CBD T INSTRUCTIONS HAVE BEEN CITED. BUT THE FACT IS THAT ALL THE THREE APP EALS HAVE THE IDENTICAL ISSUE AND THE CONSEQUENTIAL TAX EFFECT CANNOT BE SA ID TO BE LOWER THAN THE MANDATORY LIMIT FIXED BY THE CBDT, HENCE CONSIDERIN G THE CUMULATIVE TAX EFFECT, WE HEREBY HOLD THAT THESE APPEALS OF TH E REVENUE DEPARTMENT DESERVE TO BE HEARD ON MERITS. HEREINBELOW, WE PRO CEED ACCORDINGLY. 3. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER WERE THAT THE ASSESSEES ARE SUBJECT TO TAX IN INDIV IDUAL CAPACITY AS A PARTNER IN THE FIRM. THEY HAVE DISCLOSED LONG TERM CAPITAL GAIN RESPECTIVELY OF RS.15,32,094/- RECEIVED ON SALE OF AN IMMOVABLE PROPERTY. THEY HAVE ALSO SHOWN SHORT-TERM CAPITAL LOSS OF RS.9,90,000/- RESPECTIVELY ON ACCOUNT OF TRANSFER OF SHARES. PE RUSAL OF ACCOUNTS SHOWS THAT THE ASSESSEE HAD ACQUIRED 1,37,500 EQUITY SHAR ES OF M/S.ALTRET PERFORMANCE CHEMICALS GUJARAT PRIVATE LIMITED ON 09 .08.2004 AT THE VALUE RS.10 PER EQUITY SHARE AMOUNTING TO RS.13,75, 000. THE ASSESSEE ITA NOS.3385,3386 & 3387/AHD/2009 ACIT VS. AKBARALI BAKIRBHAI LOKHANDWALA & OTHERS ASST.YEAR 2006-07 - 3 - HAS SHOWN THAT OUT OF SUCH SHARE HOLDING, TOTAL 1,1 0,000 SHARES WERE SOLD TO ONE USHA N.GAJIWALA ON 30.03.2006 AT THE VALUE O F RS.1 PER EQUITY SHARE AMOUNTING TO RS.1,10,000. THIS TRANSACTION R ESULTED INTO SHORT-TERM CAPITAL LOSS OF RS.9,90,000 (RS.11,00,000 RS.1,10 ,000). 3.1. IT WAS NOTED BY THE AO ON EXAMINATION OF THE A UDIT REPORT OF THE COMPANY M/S.ALTRET PERFORMANCE CHEMICALS GUJARAT PR IVATE LIMITED THAT THE ASSESSEE HAPPENED TO BE A RELATED PARTY FO R THE COMPANY. IT WAS NOTED BY THE AO THAT THE CLOSE RELATIVES OF THE ASS ESSEE ARE THE DIRECTORS AND SHAREHOLDERS OF THE SAID COMPANY. THE AO HAS D OUBTED THAT WHY THE SHARES WERE SOLD ONLY AT RE.1/- PER SHARE, ALTHOUGH THE SUBSCRIBED PRICE WAS RS.10/- PER SHARE. IT HAS ALSO BEEN NOTED THAT NO SUBSTANTIAL DIVIDEND WAS RECEIVED. ACCORDING TO AO, THERE WAS NO REASON WHICH HAD PROMPTED TO SALE THE SHARES ON SUCH A LOW PRICE WIT HOUT RECOVERING THE INVESTMENT. IN HIS OPINION, THE ASSESSEE HAS MADE THE SAID TRANSACTION ONLY TO GET THE BENEFIT OF SETTING OFF OF CAPITAL L OSS WITH THE TAXABLE CAPITAL GAIN. THE AO HAS ISSUED LETTERS TO REGISTR AR OF COMPANIES AND THEREAFTER HE HAS ARRIVED AT THE CONCLUSION THAT AS PER THE REGISTRAR OF COMPANIES REPLY, THERE WAS NO CHANGE IN THE SHAREHO LDING PATTERN OF THE COMPANY. ON THE OTHER HAND, THE ASSESSEE HAD SUBMI TTED AGREEMENT FOR SALE OF SHARES. THE CLAIM OF THE ASSESSEE WAS THAT THE TRANSFER OF SHARES HAD ACTUALLY TOOK PLACE AND THE TRANSFER OF SHARES GOVERNED BY THE CONTRACT EXECUTED BETWEEN THE TRANSFEROR AND THE TR ANSFEREE AS PRESCRIBED VIDE CBDT CIRCULAR NO.704. THE AO HAS FINALLY CONC LUDED THAT THE TRANSFER OF SHARES WAS NOT GENUINE AND HENCE DISALL OWED THE SET OFF OF THE ITA NOS.3385,3386 & 3387/AHD/2009 ACIT VS. AKBARALI BAKIRBHAI LOKHANDWALA & OTHERS ASST.YEAR 2006-07 - 4 - LOSS AGAINST THE LONG TERM CAPITAL GAIN. BEING AGG RIEVED, THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 4. AFTER HEARING THE SUBMISSIONS, THE LD.CIT(A) HAS HELD AS UNDER:- I HAVE GONE THROUGH THE SUBMISSIONS OF THE A.O. AS WELL AS OF THE A.R. OF THE APPELLANT. THE SHARES OF THE M/ S.ALTRET PERFORMANCE CHEMICALS GUJARAT PVT.LTD. WAS TRANSFER RED ON 30-3- 2006 BY EXECUTING AGREEMENT FOR SALE OF SHARES DATE D 30-3-2006 ALONG ACTUAL DELIVERY OF SHARES WHICH IS EVIDENT FR OM THE SAID AGREEMENT WHICH IS DULY SIGNED BY BOTH THE PARTIES AND WITH WITNESSES. THE APPELLANT SUBMITTED THE CONFIRMATIO N OF THE PURCHASER VIZ. USH NARENDRA GAJIWALA WHO PURCHASED THE SHARES ALONG WITH COMPLETE ADDRESS, PAN, ACKNOWLEDGEMENT R ECEIPT AND BALANCE-SHEET WHICH IS SUFFICIENT PROOF IN ABSENCE OF PERSONAL ATTENDANCE DUE TO THE FACT THAT THEY WERE OUT OF IN DIA. THE APPELLANT SUBMITTED THE AUDITED REPORT OF THE COMPA NY FOR THREE YEARS WHICH SUGGEST THAT THE BOOK VALUE OF THE COMP ANY AS ON THE DATE OF TRANSFER I.E. ON 30-03-2006 WAS ARRIVED AT ONLY RS.1.18/- PER SHARE AND THEREFORE THE TRANSACTION CANNOT BE D OUBTED. AS PER SECTION 10 OF THE INDIAN CONTRACT ACT, 1872, ALL AG REEMENTS ARE CONTRACTS IF THEY ARE MADE BY THE FREE CONSENT OF P ARTIES COMPETENT TO CONTACT, FOR A LAWFUL CONSIDERATION AND WITH A L AWFUL OBJECT, AND ARE NOT HEREBY EXPRESSLY DECLARED TO BE VOID. IN T HIS CASE, THE AGREEMENT FOR SALE OF SHARES WITH ACTUAL DELIVERY O F SHARES IS A VALID DOCUMENT SIGNED BY BOTH THE PARTIES WITH WITN ESS. IT IS ALSO FACT THAT THE APPELLANT DUE TO TRANSFER OF SHARES HAS WIPED OFF HIS CAPITAL OF RS.9,90 LAKHS AND NO PRUDE NT MAN FOR THE TAX LIABILITY OF RS.2.00 LAKHS WOULD DO SUCH TRANSA CTIONS. THE APPELLANTS FAMILY WAS HOLDING MAJORITY OF SHAR ES IN THE SAID COMPANY, DOES NOT MEAN THAT THE TRANSACTIONS A RE NOT GENUINE. THE SHARE HOLDING AFTER THE TRANSFER OF S HARE BY THE LOKHANDWALA FAMILY, RANA FAMILY BECAME THE MAJORITY OF SHARE HOLDING. THE MODE OF TRANSACTIONS BY CASH IS PERMI TTED BY LAW UNLESS PROVED OTHERWISE. THE CIRCULAR NO.704 DATED 28-04-1995 AND THE JUDGMENT IN THE CASE OF AMRITSAR MAX TELECO M VENTURES ITA NOS.3385,3386 & 3387/AHD/2009 ACIT VS. AKBARALI BAKIRBHAI LOKHANDWALA & OTHERS ASST.YEAR 2006-07 - 5 - LTD. VS. ACIT RELIED UPON BY THE APPELLANT IS SQUAR ELY APPLICABLE TO THE APPELLANT. THE APP ACQUIRED THE SHARES TRANSFER FORM AS ON 02- 03-2006 FROM THE REGISTRAR OF COMPANIES DULY ENDORSED BY V. A.VIJAYAN MENON, THE REGISTRAR OF COMPANIES AND DULY SIGNED B Y BOTH THE PARTIES WITH WITNESSES AND WITH PROPER STAMP IS A G OOD PIECE OF EVIDENCE FOR TREATING THE TRANSACTION AS GENUINE. THE AGREEMENT FOR SALE OF SHARES SPECIFICALLY STATE S THE ACTUAL DELIVERY OF SHARES AND THE RECEIPT OF AMOUNT AND THEREFORE THERE IS NO REASON IN DISBELIEVING THE GENUINE TRAN SACTIONS OF THE ASSESSEE. JUST BECAUSE OF THE TECHNICAL AND PROCED URAL LAPSE BY THE PURCHASER AND THE COMPANY IN TRANSFERRING THE S HARES IN THE ROC CANNOT BE REGARDED AS NON-GENUINE TRANSACTIONS. THERE ARE ADMITTEDLY CERTAIN PROCEDURAL LAPSES VIS- -VIS R.O.C., AS MUCH AS CHANGED SHARE HOLDING HAS NOT BE EN INTIMATED IN TIME TO THEM. THERE IS ALSO AN UNDISPUTED FACT THAT THE TRANSFEREES COULD NOT BE PRODUCED PERSONALLY BEFORE THE ASSESSING OFFICER ON ACCOUNT OF BEING NOT IN THE COUNTRY. BUT THE MOOT QUESTION TO BE ADDRESSED REMAIN WHETHE R TECHNICAL NON-ADHERENCE OF PROCEDURE AS PER COMPANI ES LAW WOULD OVER RIDE THE SUBSTANCE OR SALE/TRANSFER OF SHARES AS PER I.T. LAW. IN MY HUMBLY OPINION, IT WILL NOT. 5. FROM THE SIDE OF THE REVENUE, LD.SR.DR MR.Y.P.VE RMA HAS SUPPORTED THE ACTION OF THE AO AND ARGUED THAT THE TRANSACTION WAS ONLY TO REDUCE THE LIABILITY ON LONG TERM CAPITAL GAIN, HENCE THE TRANSACTION WAS NOTHING BUT A SHAM TRANSACTION. ON THE OTHER HAND, FROM THE SIDE OF THE RESPONDENT-ASSESSEES LD.AR HAS PLACED ON RECORD RES OLUTION OF THE BOARD, SHARE TRANSFER FORM, AGREEMENT OF SALE OF SH ARES AND PLACED RELIANCE ON CIRCULAR NO.704 OF CBDT DATED 28/04/199 5. IN THE SAID CIRCULAR, IT IS NOTED THAT IN CASE THE TRANSACTIONS TAKE PLACE DIRECTLY ITA NOS.3385,3386 & 3387/AHD/2009 ACIT VS. AKBARALI BAKIRBHAI LOKHANDWALA & OTHERS ASST.YEAR 2006-07 - 6 - BETWEEN THE PARTIES AND NOT THROUGH STOCK EXCHANGES , THE DATE OF CONTRACT OF SALE AS DECLARED BY THE PARTIES SHALL B E TREATED AS DATE OF TRANSFER PROVIDED IT IS FOLLOWED UP BY THE ACTUAL D ELIVERY OF SHARES AND THE TRANSFER DEEDS. RELIANCE HAS ALSO BEEN PLACED ON M AX TELECOM VENTURES LTD. VS. ASST.CIT REPORTED AT (2008)114 ITD 46. 6. WE HAVE HEARD BOTH THE SIDES. WE HAVE ALSO PER USED THE EVIDENCES PLACED ON RECORD AS PER THE COMPILATION F ILED. A COPY OF THE RESOLUTION OF THE BOARD OF THE DIRECTORS WITNESSED THE REVISED SHAREHOLDING AND RESOLVE THAT THE TRANSFER OF SHARE S HAS DULY BEEN RECORDED. 6.1. THE ASSESSEE HAS ENTERED INTO AN AGREEMENT FOR SALE OF THE SHARES, DESCRIBING THEREIN SHARE CERTIFICATES DISTINCTIVE NUMBERS. WE HAVE ALSO NOTED THAT THE CIT(A) HAS GIVEN DUE CREDENCE ON CER TAIN OTHER EVIDENCES, SUCH AS, CONFIRMATION OF THE PURCHASER, I.E. UN GAJ IWALA, HIS PAN AND ACKNOWLEDGEMENT RECEIPT AS ALSO THE AUDIT REPORT OF THE COMPANY CONFIRMING THE BOOK VALUE OF THE SHARES AS ON THE D ATE OF TRANSFER. SO, IT WAS HELD THAT THERE WAS AN ACTUAL DELIVERY OF SHAR ES. WE HAVE ALSO NOTED THAT CBDT VIDE CIRCULAR NO.704 DATED 28/4/1995 HAS ISSUED INSTRUCTION IN RESPECT OF DETERMINATION OF DATE OF TRANSFER A ND THE DISTINCTION HAS BEEN DRAWN WHEN THE TRANSACTION IS EITHER THROUGH S TOCK EXCHANGE OR DIRECTLY BETWEEN THE PARTIES. WHEN IT IS DIRECTLY BETWEEN THE PARTIES, THEN THE DATE OF TRANSFER IS THE ACTUAL DELIVERY OF SHAR ES WITNESSED BY A TRANSFER DEED. THUS, THE TOTALITY OF THE FACTS AND CIRCUMST ANCES OF THE CASE DEMANDS TO AFFIRM THE FACTUAL AS ALSO THE LEGAL FIN DINGS OF THE LD.CIT(A). ITA NOS.3385,3386 & 3387/AHD/2009 ACIT VS. AKBARALI BAKIRBHAI LOKHANDWALA & OTHERS ASST.YEAR 2006-07 - 7 - THE SAME ARE HEREBY CONFIRMED AND THIS PART OF THE GROUND OF THE REVENUE IS HEREBY DISMISSED. 7. THE OTHER GRIEVANCE OF THE REVENUE IS IN RESPECT OF DELETION OF AN ADDITION MADE U/S.68 OF THE ACT. THE AO HAS HELD T HAT THE SHARES HAD NOT ACTUALLY CHANGED THE HANDS AND THE ENTIRE TRANSFER WAS NOTHING BUT A MAKE BELIEF ARRANGEMENT. DUE TO THIS REASON, THE C ASH AMOUNT RECEIVED ON TRANSFER OF RS.1,10,000/- WAS HELD AS THE MONEY OF THE ASSESSEE ROUTED THROUGH SUCH ARRANGEMENT. IN THE OPINION OF AO, TH E IMPUGNED RECEIPT WAS NOT THE SALE PROCEEDS, HENCE BY INVOKING THE PR OVISIONS OF SECTION 68 THE AMOUNT WAS TAXED. THE FIRST APPELLATE AUTHORIT Y HAS DELETED THE ADDITION AND NOW THE REVENUE IS CHALLENGING THE DEL ETION. 8. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE HAVE ALREADY TAKEN A VIEW HEREINABOVE THAT THE TRANSFER OF SHARES HAD TAKEN PLACE, THEREFORE WE HEREBY HOLD THAT THERE WAS NO O CCASION ON THE PART OF THE AO TO DISBELIEVE THE SAID SHARE TRANSACTION. R ESULTANTLY, WE HEREBY CONFIRM THE FINDINGS OF LD.CIT(A) AND DISMISS THIS PART OF THE REVENUE AS WELL. 9. IN THE RESULT, ALL THE REVENUES APPEALS ARE DIS MISSED. SD/- SD/- ( .. ) ( ) ( T.R. MEENA ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 15/ 2 /2013 .., . ../ T.C. NAIR, SR. PS ITA NOS.3385,3386 & 3387/AHD/2009 ACIT VS. AKBARALI BAKIRBHAI LOKHANDWALA & OTHERS ASST.YEAR 2006-07 - 8 - '& ' ()* +'*, / COPY OF THE ORDER FORWARDED TO : 1. '#$% / THE APPELLANT 2. &'$% / THE RESPONDENT. 3. ()(*+ , / CONCERNED CIT 4. , ('#) / THE CIT(A)-IV, SURAT 5. /01 & *+, '# '*+, '2) / DR, ITAT, AHMEDABAD 6. 134 5 / GUARD FILE. '&- / BY ORDER, '/# & //TRUE COPY// ./ / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION DATED 13.2.13 (DICTATION-PAD 1 6 PAGES ATTACHED) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 14.2.13 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 15.2.13 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 15.2.13 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER