Egon Investments & Finance Pvt.Ltd., Baroda V. The ACIT.,Circle-1(2), Baroda

ITA 3432/AHD/2010

• Counselvise Citation: 343220514 RSA 2010
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-10-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 27-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Cost of acquisition; Initiation of penalty proceedings; Fair market value
• Section: 45(2); 143(3)

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI D.K.TYAGI, JM AND A. MOHAN ALANKAMON Y, AM. ERGON INVESTMENTS & FINANCE (P) LTD., CREATIVE CASTLE, 70 SAMPATRAO COLONY, PRODUCTIVITY ROAD, ALKAPURI, BARODA. VS. ASSTT. CIT, CIRCLE-1(2), BARODA. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI JAIMIN GANDHI, AR RESPONDENT BY:- SHRI SAMIR TEKRIWAL, SR.DR DATE OF HEARING : 21/10/2011 DATE OF PRONOUNCEMENT :31.10.2011. O R D E R PER D. K. TYAGI, JUDICIAL MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A) DATED 25.10.2010 FOR ASST. YEAR 2004-05 RAIS ING FOLLOWING GROUNDS:- (1) THE LD. CIT(A) HAS GROSSLY ERRED IN PARTLY CONFIRMI NG THE ACTION OF AO IN REDUCING THE BUSINESS LOSS CLAIMED BY THE APPELLANT ON SALE OF SHARES BY TAKING THE SHARE VALUE AT RS.1.52 PER SHARE INSTEAD OF RS.0.26 AT WHICH THE APPELLANT ENTERED I NTO THE TRANSACTION. ITA NO.3432/AHD/2010 ASST. YEAR :2004-05 ITA NO.3432/AHD/2010 ASST. YEAR 2004-05 2 (2) THE LD. CIT(A) HAS FURTHER ERRED IN TREATING THE LO SS ON SALE OF SHARES AS CAPITAL LOSS AND NOT BUSINESS LOSS AS CLA IMED BY THE APPELLANT. (3) THE LD. CIT(A) HAS FAILED IN APPRECIATING THE EVIDE NCES AND SUBMISSIONS OF THE APPELLANT WHILE ADJUDICATING THE ABOVE GROUNDS OF APPEAL. (4) INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) ARE NOT JUSTIFIED. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF TRADING IN SHARES, FINANCE AND INVESTME NT. THE ASSESSEE FILED ITS RETURN OF INCOME ON 26.10.2004 DECLARING LOSS O F RS.3242900/-. THE ASSESSMENT U/S 143(3) OF THE I.T. ACT WAS FINALIZED BY THE AO ON 29.9.2006 DETERMINING LONG TERM CAPITAL LOSS OF RS. 2418313/- AND SHORT TERM CAPITAL LOSS OF RS.23643/-. DURING THE YEAR UN DER CONSIDERATION THE ASSESSEE HAD SOLD 332940 SHARES OF THE COMPANY MARK ET CREATORS TO SHRI RASHMI ACHARYA, DIRECTOR OF THE ASSESSEE COMPANY AN D SHRI J.A. SHAH AT AN AVERAGE PRICE OF RS.0.26 PER SHARE ON 10.2.2004. THE AO CALCULATED THE SALE PRICE AT RS.7.95 PER SHARE BY PLACING RELI ANCE ON WEALTH TAX RULES AND CONVERTING THE BUSINESS LOSS INTO LONG TE RM AND SHORT TERM CAPITAL LOSS. 3. THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST APP ELLATE AUTHORITY WHEREIN IT WAS SUBMITTED THAT THE LAW DOES NOT GIVE ANY RIGHT TO THE AO TO REPLACE THE ACTUAL SALE PRICE BY ANY OTHER SALE PRI CE. IT WAS STATED THAT THERE WAS NO MARKET FOR SUCH A HUGE DEAL ON BOMBAY STOCK EXCHANGE ITA NO.3432/AHD/2010 ASST. YEAR 2004-05 3 AND THAT TRANSACTION WAS IN PHYSICAL FORM COULD NOT BE TRADED THROUGH THE STOCK EXCHANGE AND THE TRANSACTION IN STOCK EXCHANG E IN DEMAT FORM WERE OF 100-1100 SHARES DURING FEB-MARCH 2004 AND THAT B Y 25.3.2004 THE PRICE HAD COME DOWN TO 60 PAISE PER SHARE AND THAT CONSIDERING THESE FACTS IT WAS THE DECISION OF THE ASSESSEE TO DISINV EST THE SHARES AT THE PRICE CONSIDERED APPROPRIATE. IT WAS STATED THAT ON 25.3. 2004 THE PRICE WAS 60 PAISE PER SHARE AND THAT THE ASSESSEE HAD ADOPTED T HE RATE OF 26 PAISE PER SHARE ON 10.2.2004 WHICH WAS EXTREMELY FAIR. WITHOU T PREJUDICE IT WAS SUBMITTED THAT THE AVERAGE SALE PRICE BETWEEN 3.2.2 004 TO 30.3.2004 WAS RS.1.15 PER SHARE WHICH IS TO BE CONSIDERED FOR ARR IVING AT THE BUSINESS LOSS. IT WAS THUS PRAYED THAT THE ADDITION BE DELET ED. ATTENTION WAS ALSO DRAWN TO THE DECISION OF APEX COURT IN THE CASE OF CWT VS. MAHADEV JALAN 86 ITR 621. 4. THE LD. CIT(A) CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE ASSESSEE AND DECIDED THE ISSUE BY OBSERVING AS UNDER :- 4.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, THE SUBMISSIONS OF THE APPELLANT AND THE ASSESSMENT ORDER. MARKET CREA TOR IS A PUBLIC LIMITED COMPANY LISTED ON THE BOMBAY STOCK EXCHANGE AND THE PRICE ON SHARES WAS 9.2.2004 WAS RS.1.52 PER SHARE. THE APPE LLANT COMPANY HAS OFF LOADED THE SHARES IN PHYSICAL FORM TO ITS DIREC TORS ON 10.2.2004 ALLEGEDLY AT MUTUALLY APPROPRIATE PRICE OF 26 PAISE PER SHARE. THERE IS NO LOGICAL OR RATIONAL BASIS FOR CHOOSING THE SAID PRI CE AS THE SAID RATE HAS NO RELATION TO THE STOCK EXCHANGE PRICE AND THE TRA NSACTION APPEARS TO BE COLLUSIVE JUST TO BENEFIT THE BUYERS I AM IN AGREEM ENT WITH THE APPELLANT THAT WEALTH TAX RULE IS NOT APPLICABLE FOR ASCERTAI NING THE SALE PRICE WHEN THE DIRECT QUOTE IS AVAILABLE FROM THE STOCK E XCHANGE. FURTHER IT IS NOT IN DOUBT THAT APPELLANT COMPANY IS TRADING IN S HARES AND THE LOSS ITA NO.3432/AHD/2010 ASST. YEAR 2004-05 4 WOULD BE BUSINESS LOSS AND THE DISALLOWANCE WOULD B E OF RS.332940 X (1.52 -0.26) I.E. RS.419505/-. THE DECISION CITED B Y THE APPELLANT THE HON. APEX COURT IS NOT APPROPRIATE AS IT IS IN THE CONTE XT OF WEALTH TAX VALUATION OF SHARES AND EVEN THERE IT IS HELD BY HO N. COURT THAT IN THE CASE OF PUBLIC LIMITED COMPANY THE STOCK EXCHANGE Q UOTE WOULD THE PRICE PREVAILING ON THE VALUATION DATE. THEREFORE, DISALL OWANCE OF LOSS OF RS.419505/- IS CONFIRMED. GROUND IS PARTLY ALLOWED. FURTHER AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT T HE ISSUE IS NOW SQUARELY COVERED BY THE DECISIONS OF THE TRIBUNAL I N THE CASE OF ALLURE INVESTMENTS & FINANCE (P) LTD. VS. ACIT IN ITA NO.3 431/AHD/2010 ASST. YEAR 2004-05 VIDE ORDER DATED 5.8.2011 AND IN THE CASE OF CURA FINSTOCK (P) LTD. VS. ACIT IN ITA NO.3474/AHD/2010 ASST. YEAR 2004- 05 VIDE ORDER DATED 9.9.2011, WHEREIN ON IDENTICAL FACTS AND CIRCUMSTANCES, THE APPEALS OF THE ASSESSEES WERE A LLOWED. THEREFORE, IT WAS PRAYED THAT THE ORDER OF LD. CIT(A) BE SET ASID E AND THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 6. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE RS OF AUTHORITIES BELOW. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND GOIN G THROUGH THE MATERIAL PLACED ON RECORD, WE AGREE WITH THE SUBMIS SIONS OF THE LD. COUNSEL OF THE ASSESSEE THAT THE ISSUE IS NOW COVER ED BY THE DECISIONS OF THE TRIBUNAL IN THE CASES OF ALLURE INVESTMENTS & F INANCE (P) LTD. (SUPRA) ITA NO.3432/AHD/2010 ASST. YEAR 2004-05 5 AND IN THE CASE OF CURA FINSTOCK (P) LTD. (SUPRA). ON IDENTICAL FACTS AND CIRCUMSTANCES OF THE CASE, THE TRIBUNAL IN THE CASE OF ALLURE INVESTMENTS & FINANCE (P) LTD. (SUPRA) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEES BY OBSERVING AS UNDER :- '7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED T HE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTH ORITIES BELOW AS WELL AS THE JUDGMENTS CITED BY BOTH THE SIDES. WE FIND T HAT AS PER SECTION 48, CAPITAL GAIN HAS TO BE WORKED OUT AFTER REDUCING TH E COST OF ACQUISITION OF CAPITAL ASSET ALONG WITH COST OF IMPROVEMENT THERET O AND THE EXPENSES INCURRED ON TRANSFER OF A CAPITAL ASSET FROM FULL V ALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET. THERE IS NO REFERENCE TO THE MARKET VALUE OF THE CAPITAL ASSET TRANSFERRED IN SECTION 48 OR IN ANY OTHER SECTION EXCEPT SECTION 5 0C, WHICH IS APPLICABLE ONLY IN CASE OF SALE OF LANDED PROPERTY. IN THE CAS E OF JUDGMENT OF HON 'BLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS. SHRI GIRISH DAMJIBHAI PATEL (SUPRA), HON'BLE GUJARAT HIGH COURT HAS ALSO REFERRED TO THE SAME PROVISIONS OF SECTION 48 AND ON THE BAS IS OF SAME SECTION 48 OF THE ACT, IT WAS HELD THAT SINCE SECTION 48 OF TH E ACT DOES NOT HAVE ANY REFERENCE TO THE MARKET VALUE BUT ONLY TO THE CONSI DERATION REFERRED TO IN THE SALE DEED, THERE IS NO ERROR IN THE ULTIMATE CO NCLUSION ARRIVED AT BY THE C1T(A) AS WELL AS BY THE TRIBUNAL IN THAT CASE. HENCE, RATIO OF THIS DECISION OF HON'BLE GUJARAT HIGH COURT IS THIS THAT FOR THE PURPOSE OF WORKING OUT CAPITAL GAIN, THE SALE CONSIDERATION RE CEIVED BY THE ASSESSEE OR ACCRUED SALE CONSIDERATION HAS TO BE ADOPTED BEC AUSE THERE IS NO REFERENCE IN SECTION 48 TO THE VALUE OF THE ASSET F OR THE PURPOSE OF COMPUTING THE CAPITAL GAIN., REGARDING THIS CONTENT ION THAT THE ASSET IN THE PRESENT CASE IS QUOTED QUOTED AND NOT LANDED PROPERTY AS IN THE CASE OF DECISION OF BOMBAY COURT OR SHARES OF PRIVATE LT D. CO., AS IN THE CASE OF ITAT ORDER SUPRA, WE ARE OF THE CONSIDERED OPINI ON THAT IT DOES NOT HAVE ANY ON THE RATIO OF THE JUDGMENT AND THE LEGAL POSITION. LEGAL POSITION REMAINS THE SAME IRRESPECTIVE OF THE TYPE OF CAPITAL ASSET AND WE DO NOT FIND ANY MERIT IN THIS CONTENTION OF THE LD. D.R. OF THE REVENUE THAT THIS JUDGMENT OF HON'BLE GUJARAT HIGH COURT IS NOT ABLE IN THIS CASE BECAUSE ASSETS IN THAT WAS LANDED PROPERTY WHEREAS IN PRESENT CASE, IT IS QUOTED SHARE. AS PER THE RATIO LAID DOWN BY HON'BLE GUJARAT HIGH COURT, CAPITAL GAIN HAS TO BE COMPUTED ON THE BASIS OF CON SIDERATION ACCRUING OR RECEIVED FOR TRANSFER OF CAPITAL ASSET AND FOR THAT PURPOSE, NO REFERENCE IS REQUIRED TO BE MADE TO THE MARKET VALUE OF THE ASSE T IN QUESTION BECAUSE THERE IS NO PROVISION IN SECTION 48 OF THE ACT. IN THAT JUDGMENT, REFERENCE ITA NO.3432/AHD/2010 ASST. YEAR 2004-05 6 HAS BEEN MADE TO SECTION 45(2) ALSO WHERE IT IS SPE CIFIED THAT MARKET VALUE OF THE ASSET IN QUESTION HAS TO BE CONSIDERED WHERE THERE IS CONVERSION BY THE OWNER OF THE CAPITAL ASSET INTO S TOCK IN TRADE BUT IT WAS HELD THAT PROVISION OF SECTION 45(2) ARE NOT APPLIC ABLE IN THE CASE OF SALE OF CAPITAL ASSET AND THE SAME IS APPLICABLE WHERE T HERE IS CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE. IT WAS NOTED BY HON'BLE GUJARAT HIGH COURT IN PARAGRAPH 19 THAT COUNSEL FOR THE REVENUE WAS UNABLE TO POINT OUT ANY OTHER PROVISION IN WHICH IN A SITUATION LIK E THE PRESENT CASE, THE ASSESSING OFFICER COULD HAVE MADE A REFERENCE TO A VALUER FOR ASCERTAINING THE FAIR MARKET VALUE OF THE ASSETS IN QUESTION AS ON THE DATE OF ITS TRANSFER IN THE PRESENT CASE ALSO, NO PROVIS ION IN THE INCOME TAX ACT HAS BEEN BROUGHT TO OUR NOTICE AS PER WHICH, MARKET VALUE CAN BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF CAPITA L GAIN. REGARDING THE RELIANCE PLACED BY LD. D.R. OF THE REVENUE ON THE J UDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF MCDOWELL & CO. L TD. VS. C.T.O. (SUPRA), WE FIND THAT IN THAT CASE, THE ISSUE INVO LVED WAS REGARDING LEGAL TAX PLANNING OR TAX AVOIDANCE. IN THE PRESENT CASE, WE FIND THAT EVEN AFTER ADDITION MADE BY THE A. O. OF RS.4,19,504/ -, THE LOSS ASSESSED BY THE A. O. IS OF RS.28,23,396/-. THE FACTS OF THE PRESENT CASE DOES NOT INDICATE THAT THERE WAS ANY CASE OF WILLFUL TAX AVOIDANCE OR TAX EVASION. HENCE, IN OUR CONSIDERED OPINION, THE JUDG MENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF MCDOWELL & CO. LTD. V S. C. T. O. (SUPRA) HAS NO RELEVANCE IN THE PRESENT CASE BECAUSE WE FIN D THAT IN THE PRESENT CASE, THE REASONS ARE ALSO GIVEN FOR ADOPTING LOWER PRICE OF RS.0.26 PER SHARE AS AGAINST THE QUOTATION AT BOMBAY STOCK EXCH ANGE OF RS. 1.52 PER SHARE. IT IS SUBMITTED THAT THE ASSESSEE COMPA NY HAS SOLD THE SHARES IN PHYSICAL FORM TO THE RELATED PARTY WHEREAS THE S HARES TRADED AT BOMBAY STOCK EXCHANGE WERE DEMAT SHARES AND IF THE ASSESSEE WANTS TO SALE THE SHARES AT A STOCK EXCHANGE, IT HAS GOT THE SHARES DEMATERIALIZED WHICH WILL REQUIRE TIME AND WILL ALSO HAVE ITS COST AND MOREOVER, THE QUANTITY OF SHARES TRADED IN THE STOCK EXCHANGE IN VARIOUS MONTHS OF THE FINANCIAL YEAR AT VARIOUS DATES IN THE MONTH OF MAR CH,2004 OR IN FEBRUARY,2004 WAS 100 SHARES ON SOME DATES, 200 SHA RES ON SOME DATES, 300 SHARES ON SOME DATES AND 1100 SHARES ON ONE DAT E ONLY WHEREAS THE QUANTITY OF SHARES SOLD BY THE ASSESSEE IS 3,32,94 0 SHARES. IT WAS SUBMITTED THAT IT CANNOT BE SAID THAT THE PRICE CHA RGED BY THE ASSESSEE WAS UNREASONABLY HE FACTS OF THE PRESENT CASE. 8. CONSIDERING THE FACTS OF THE PRESENT CASE IN ITS ENTIRETY AS DISCUSSED ABOVE BY RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS. GIRISH DAMJI BHAI PATEL (SUPRA), WE ARE OF THE CONSIDERED OPINION THAT FOR THE COMPUTAT ION OF CAPITAL GAIN IN THE PRESENT CASE, THE A.O. SHALL WORK OUT THE CAPIT AL GAIN/CAPITAL LOSS ON ITA NO.3432/AHD/2010 ASST. YEAR 2004-05 7 THE BASIS OF CONSIDERATION RECEIVED BY THE ASSESSEE AND NOT ON THE BASIS OF ALLEGED MARKET VALUE OF THE SHARES SOLD BY THE ASSE SSEE. WE DIRECT THE A.O. ACCORDINGLY.' ADMITTEDLY, THE FACTS OF THE ASSESSEES CASE ARE ID ENTICAL BECAUSE THE ASSESSEE HAS SOLD THE SHARES OF THE SAME COMPANY ON THE SAME DATE AND AT THE SAME PRICE. FOLLOWING THE ABOVE ORDER OF THE TR IBUNAL, WE ARE OF THE VIEW THAT FOR COMPUTATION OF CAPITAL GAIN IN THE PR ESENT CASE, THE AO SHALL WORK OUT THE CAPITAL GAIN/CAPITAL LOSS ON THE BASIS OF CONSIDERATION RECEIVED BY THE ASSESSEE. WE DIRECT THE AO ACCORDIN GLY. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 31.10.2011. SD/- SD/- (A. MOHAN ALANKAMONY) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICI AL MEMBER AHMEDABAD, MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD ITA NO.3432/AHD/2010 ASST. YEAR 2004-05 8 1.DATE OF DICTATION 21/10/2010. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER 25/10/2011 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 DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..