INCOME TAX OFFICER-23(1)(2), MUMBAI V. INDIA COMMERCIAL LOAN TRUST SERIES I 2010, MUMBAI

ITA 4790/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2952 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 06-07-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR K SHIVARAM; RAHUL HAKANI ARS
• Assessee Lawyers: ANANDI VARMA
• Keywords: Bogus purchase; Share purchase agreement; Avoidance of tax; Agreed addition; Commercial expediency; Onus to prove; Revenue expenditure
• Section: 271(1)(c); 250

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE HONBLE SH. SANDEEP GOSAIN, JM & HONBLE SH. G. MANJUNATHA, AM ./ I.T.A. NO . 4790/MUM/2017 ( / ASSESSMENT YEAR: 2007 - 08 ) M/S ASIANET TV HOLDINGS PVT. LTD. R. R. GUPTA & ASSOCIATES, CAS, B - 6, SHALIMAR CHS LTD, OPP - KHIRA INDL. ESTATE, B. W. BHARGAVA RD, SANTACRUZ (W), MUMBAI - 400 054 / VS. ACIT RG 8(1) MUMBAI, PIN - ./ ./ PAN NO. A A BCR3246B ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : DR. K. SHIVARAM & RAHUL HAKANI, AR S / RESPONDENTBY : SHRI ANANDI VARMA , D R / DATE OF HEARING : 15.01 .201 9 / DATE OF PRONOUNCEMENT : 01.03.2019 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : 1 THE PRESENT APPEAL FILED BY THE ASSESSEE IS CHALLENGING AGAINST THE ORDER OF LD. CIT(A) - 16, MUMBAI 2 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. DATED 17/3/2014 FOR A.Y.2009 - 2010 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2 FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION I.E A.Y.20 09 - 2010 WHICH READS AS UNDER: - 1. THE ORDER OF THE ASSESSMENT IS CONTRARY TO THE FACTS AND PREJUDICIAL TO THE ASSESSEE. 2. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW, THE ADDITIONS MADE BY THE LD. ASSESSING OFFICER AND SUBSEQUENTLY CONFIRMED BY THE HONORABLE COMMISSIONER OF INCOME TAX (APPEALS) ARE CONTRARY TO LAW AND BASED ON ERRONEOUS UNDERSTANDING OF THE FACTS. 3. ON APPRECIATION OF THE FACTS AND CI RCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS)OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSING OFFICER HAS PASSED THE ASSESSMENT ORDER IN UTMOST HURRY WITHOUT GIVING PROPER OPPORTUNITIES AND AS SUCH THE ASSESSMENT ORDER BE TREATE D AS BAD IN LAW. 4. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE DELETED THE ACTION OF THE LD. ASSESSING OFFICER, IN DISALLOWING THE CLAIM OF SHORT TERM CAPITAL LOSS TO THE EXTENT OF RS. 81,69,60,025/ - . THE ACTION OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS 3 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. CONTRARY TO THE FACTS OF THE CASE AND DESERVES TO BE DELETED. 5. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAV E DELETED THE ACTION OF THE LD. ASSESSING OFFICER, IN DISALLOWING THE CLAIM OF SOFTWARE CONSULTANCY EXPENSE OF RS.2,42,66,000/ - . THE ACTION OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO THE FACTS OF THE CASE AND DESERVES TO BE DELETED. 6. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE DELETED THE ACTION OF THE LD. AO, IN INITIATING PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE I.T. ACT ON SUO MOTO AGREED ADDITIONS DECLARED BY W AY OF FILING REVISED INCOME DURING ASSESSMENT PROCEEDINGS. THE ACTION OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO THE FACTS OF THE CASE AND DESERVES TO BE DELETED. 7. YOUR PETITIONER RESERVES THE RIGHT TO ADD, AMEND, MODIFY OR ALTER THE ABO VE GROUNDS OF APPEAL AT ANY STAGE OF APPELLATE PROCEEDINGS. 3 AT THE VERY OUTSET, LD. AR SUBMITTED AT BAR THAT ASSESS EE IS NOT PRESSING GROUND NOS 1 TO 3 AND 6 , 7 . THEREFORE, CONSIDERING THE STATEMENT OF LD. AR, GROUND 4 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. NO. 1 TO 3 AND 6, 7 ARE DISMISSED AS NOT PRESSED. THUS, ONLY GROUND NO 4 AND 5 REMAINS TO BE ADJUDICATED ON MERITS . 4 FIRST OF ALL, W E SHALL TAKE UP GROUND NO 4 FOR DISPOSAL. THIS GROUND RELATES TO CHALLENGING THE ORDER OF LD. CIT( A) IN UPHOLDING THE DISALLOWANCE MADE BY AO WITH REGARD TO THE CLAIM OF SHORT TERM CAPITAL LOSS . 5 WE HAVE HEARD THE COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED, JUDGMENT CITED BY THE PARTIES AND THE ORDERS PASSED B Y THE REVENUE AUTHORITIES. 6. AS PER THE FACTS OF THE PRESENT CASE, ASSESSEE IS IN THE BUSINESS OF INVESTMENT IN SHARES, MANAGEMENT CONSULTANTS, ADVISORS IN VARIOUS FIELD OF GENERAL ADMINISTRATION, SECRETARIAL, COMMERCIAL, FINANCIAL, ETC. THE RETURN OF IN COME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY THE ASSESSEE ON 29.9.2009 . THE ASSESSEE HAD SHOWN SHORT TERM CAPITAL LOSS AND HENCE, THE SAID LOSS WAS SET OFF BY THE ASSESSEE AGAINST THE SHORT TERM AND LONG TERM CAPITAL GAINS. THE AO AFTER VERIFYING THE GENUINENESS OF THE CLAIM OF CAPITAL GAINS AS WELL AS CAPITAL LOSS HAD PASSED THE ORDER OF ASSESSMENT BY HOLDING THAT THE SHORT TERM CAPITAL LOSS WAS CREATED AS AN AFTERTHOUGHT TO REDUCE THE TAX INCIDENCE ARISING ON SALE OF SHARES OF ASIANET COMMUNICATIONS LTD. THE RELEVANT 5 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. OBSERVATIONS OF THE ORDER OF ASSESSMENT ARE REPRODUCED BELOW: - 3.8.12 FROM THE ABOVE QUERIES AND THE REPLY THERETO DATED 06 - 07 - 2011 OF THE ASSESSEE (REPRODUCED ON PAGES 6 TO 17) IT CAN BE CONCLUDED THAT (A) THE ASSESSEE HAS BEEN UNABLE TO FURNISH THE BASIS OF VALUATION OF THE PURCHASE PRICE AT WHICH THE SHARES HAVE BEEN ACQUIRED. THE ASSESSEE HAS NOT BEEN ABLE TO HIGHLIGHT ANY SPECIFIC OCCURRENCE IN THE FINANCIAL AFFAIRS/STATEMENTS OF THE COMPANIES (DURING THE PERIOD BETWEEN THE PURCHASE AN D SALE OF SHARES) WHICH HAS RESULTED IN SUCH A HUGE VARIATION IN THE PURCHASE AND SALE PRICE OF THE SHARE. (B) THE ASSESSEE HAS BEEN UNABLE TO FURNISH THE RELEVANT BALANCE SHEETS AND THE EXACT CALCULATION OF VALUATION OF SHARES TO JUSTIFY PURCHASE PRICE. (C) THE A SSESSEE HAS FAILED TO JUSTIFY ITS CONTENTION MADE DURING THE ASSESSMENT PROCEEDINGS THAT THE SHARES HAVE BEEN PURCHASE BY IT AT COST OF THE SELLER OF SHARES. THIS IS INSPITE OF SEVERAL OPPORTUNITIES BEING GIVEN TO THE ASSESSEE TO JUSTIFY THE ABOVE CONTENTI ON. (D) BY THE SAME LOGIC, THE ASSESSEE HAS FAILED TO JUSTIFY AS TO WHY THE SAID SHARES WERE NOT SOLD BY IT AT THE COST IT INCURRED TO ACQUIRE THEM. 6 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. (E) THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS CAST UPON IT BY SEC 40A(2)(B).THE ASSESSEE HAS NOT BEEN ABLE TO F URNISH ANY EVIDENCES TO ESTABLISH THAT THE SHARES OF SUCH CONCERNS WERE PURCHASED BY SOME OUTSIDE ENTITIES AT THE SAME PRICE AT WHICH THEY WERE PURCHASED BY THE ASSESSE. EVEN IN RESPECT OF THE SALE PRICE, NO EVIDENCE HAS BEEN FURNISHED TO ESTABLISH SIMILAR TRANSACTIONS ENTERED INTO AT THE SAME PRICE. (F) NO EVIDENCE HAS BEEN FURNISHED TO JUSTIFY AS TO WHY THE FACE VALUE WAS TAKEN AS SALE PRICE. MERELY FURNISHING THE BALANCE SHEET AS ON 31 03 2009 DO NOT IN ANY WAY JUSTIFY THE SALE OF THE SAID SHARES AT FACE VAL UE WHEN THE SAID SHARES HAVE BEEN ACQUIRED AT A MUCH HIGHER COST DURING THE SAME FINANCIAL YEAR (AND IN SOME CASES DURING THE SAME MONTH, AND IN ONE EXTREME CASE DURING THE SAME DATE') 3.8.13 THUS IT IS EVIDENT THAT THE ASSESSEE HAS FAILED TO PROVE THAT THE ACQUISITION OF THE SHARES OF THE PRIVATE LIMITED GROUP COMPANIES WAS TO GET A BETTER PRICE FOR THE SHARES SOLD TO VIJAYA TELEVISION PVT. LTD SINCE VIJAYA TELEVISION PVT LTD NEITHER WANTED TO PURCHASE THE SHARES NOR COULD HAVE PURCHASED THESE SHARES DUE TO FDI RESTRICTIONS AND NEVER STOOD TO BENEFIT IN ANY MANNER ON ACCOUNT OF SUCH SHAREHOLDING OF THE ASSESSE. 7 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. 7. ACCORDINGLY, THE AO FINALLY CONCLUDED AS UNDER : 3.10 FROM THE FOREGOING IT IS EVIDENT THAT THE ASSESSEE HAS FAILED TO PROVE ANDI JUSTIFY ITS CLAIM OF SHORT TERM CAPITAL LOSS OF RS.81.69,60,025/ - PERTAINING TO SHARES OF THE CLOSELY HELD GROUP COMPANIES OTHER THAN THE DEMERGED PVT. LTD. GROUP COMPANIES FOR THE REASONS THAT - A) THEASSESSEE HAS FAILED TO SUBSTANTIATE ITS BUSINESS COMPULSION TO ACQUIRE THESE SHARES BY AN AGREEMENT FOR PURCHASE WITHOUT ACTUALLY PURCHASING THESE SHARES. B) THEASSESSEE HAS FAILED TO SUBSTANTIATE THAT IT WAS COMPELLED TO SHOW ACQUISITION OF THESE SHARES EVEN THOUGH THE CONCERNED COMPANIES WERE CLOSELY HELD GROUP COM PANIES IN WHICH THERE WERE NO TRANSACTIONS WITH OUTSIDE ENTITIES. C) THEASSESSEE HAS FAILED TO SUBSTANTIATE THAT THE SHARES OF THESE CLOSELY HELD GROUP COMPANIES COULD HAVE BEEN PURCHASED BY ANY OUTSIDE ENTITY CONTRAVENING FDI RESTRICTIONS D) THEASSESSEE HAS FAILED TO SUBSTANTIATE THAT VIJAY TELEVISION PVT. LTD. OR ANY OTHER COMPANY HAD EXPRESSED THEIR INTENT TO ACQUIRE THE SHARES OF THESE COMPANIES. 8 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. E) THEASSESSEE HAS FAILED TO SUBSTANTIATE THE GENUINENESS OF THE PURCHASE AND SALE PRICE OF THE IMPUGNED S HARES. F) THEASSESSEE HAS FAILED TO SUBSTANTIATE THE GENUINENESS OF THE ALLEGED TRANSACTIONS OF PURCHASE AND SALE OF THE SHARES OF THE CLOSELY HELD COMPANIES WHICH WERE REFLECTED ONLY IN THE FORM OF JOURNAL ENTRIES IN THE BOOKS OF THE ASSESSEE COMPANY AND THE SAID COMPANIES G) THEASSESSEE COMPANY HAS REPEATEDLY STATED 'NO WISE PERSON WILL HOLD ON TO THE NON - VIABLE COMPANIES HENCE, AS A MATTER OF STRATEGY THE SHARES OF OTHER COMPANIES WERE ALSO SOLD' - THEREBY ADMITTING THAT THESE GROUP COMPANIES WERE NEVER VIABLE. CONSEQUENTLY, THE ASSESSEE HAS FAILED TO SHOW HOW COMPANIES CONSIDERED UNVIABLE BY IT COULD BE VIABLE FOR AN OUTSIDER ENTITY. THUS EVIDENTLY THERE IS CAREFUL AND ELABORATE PLANNING ORCHESTRATED BY THE ASSESSEE COMPANY WITHIN ITS GROUP CONCERNS, BY VIRTUE OF WHICH THE VARIOUS LOSSES AMOUNTING TO RS.81,69.60,025/ - (RS.19,76,37,955/ - + RS.7,82,26.822/ - RS.8,80.94.970/ - + RS.9,80,00,000/ - + RS.35.50,00,278/ - ) HAVE BEEN BROUGHT INTO EXISTENCE. 9 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. CONSIDERING THE DISCUSSION IN PARAS 3.8.1 TO 3.10 ABOVE, THE TOTAL CONTRIVED LOSSES AMOUNTING TO RS.81,69,60.025/ - (RS.19.76.37.955/ - + RS.7,82.26.822/ - + RS.8,80,94,970/ - + RS.9.80,00.000/ - + RS.35,50,00.278/ - ) ARE HEREBY TREATED AS BOGUS LOSSES AND HENCE DISALLOWED. 8 LD. CIT(A) CONFIRMED THE ORDER OF AO AN D THE RELEVANT PORTION OF LD. CIT(A) IS REPRODUCED BELOW: - 3.4 THE AO'S ORDER, THE CONTENTIONS OF THE APPELLANT AND MATERIALS ON RECORD HAVE BEEN CONSIDERED. THE AO HAS DISALLOWED LOSS DECLARED ON PURCHASE AND SALE OF SHARES IN THE SHORT TERM. THE APPELL ANT HAS IN THE MAIN CONTENDED THAT (A) THE ACQUISITION OF SHARES WAS IN THE NATURE OF STRATEGIC INVESTMENT AND TO CONSOLIDATE BEFORE SELLING THE SAME, (B) THE ORIGINAL INTENTION WAS TO SELL THE APPELLANT COMPANY BUT THE SAME DID NOT MATERIALIZE, (C) ALL SH ARE TRANSACTIONS DO NOT NECESSARILY RESULT IN PROFIT AND ALL TRANSACTIONS HAVE TO BE VIEWED AS A WHOLE, (D) THE BALANCE SHEETS SUPPORT THE VALUATION OF THE SHARES PURCHASED, THE NET WORTH OF A COMPANY IS NOT ALWAYS INDICATIVE OF THE VALUE OF SHARES, THE VA LUE IS ALSO BASED ON INTANGIBLE ASSETS, (E) THERE WAS A TIME GAP BETWEEN PURCHASE AND SALE OF SHARES SINCE THE APPELLANT HAD ENTERED INTO AGREEMENT TO PURCHASE THE SHARES AT A MUCH EARLIER DATE THAN THE ACTUAL DATE OF TRANSFER, (F) THE COMPANIES WHERE SHAR E TRADING WAS DONE ARE 10 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. INDEPENDENT ENTITIES HAVING SEPARATE SHAREHOLDERS, DIRECTORS AND AUDITORS. THE APPELLANT HAS FILED TO DEMONSTRATE AS TO HOW THE PURCHASE OF SHARES WAS A STRATEGIC INVESTMENT, THE ONUS WAS CAST UPON THE APPELLANT, WHICH IT FAILED TO DISCHARGE. THE APPELLANT WAS IN THE BUSINESS OF MEDIA/TELEVISION BROADCASTING AND THERE HAS BEEN NOTHING BROUGHT ON RECORD TO SHOW HOW PURCHASE OF SHARES IN RESORT BUSINESS, REAL ESTATE, SOFTWARE AND FINANCIAL SERVICES REPRESENTED STRATEGIC INVESTMENT. NO BUSINESS COMPULSION IS SHOWN AS TO THE REASON FOR SUCH INVESTMENT. THE SHARES PURCHASED WERE OF PRIVATE LIMITED COMPANIES, GROUP COMPANIES. THE BALANCE SHEETS HAVE BEEN FURNISHED, HOWEVER THE BASIS OF VALUATION AT SUCH HIGH VALUES HAVE NOT BEEN SUPPORTED B Y GIVING THE BASIS OF VALUATION. THE APPELLANT CLAIMS THAT THE SHARE VALUE IS ALSO BASED ON VALUE OF INTANGIBLE ASSETS WHICH WOULD NOT BE REFLECTED IN THE COMPANY'S NET WORTH, HOWEVER THE APPELLANT HAS NOT FURNISHED ANY DETAILS OF INTANGIBLE ASSETS OF THE SAID COMPANIES WHICH WOULD HAVE LED TO HIGH VALUATION OF THE SHARES. THERE IS ALSO NO REASON SHOWN AS TO HOW THE SALE PRICES PLUMMETED TO SUCH LOW LEVELS AT THE TIME OF SALE WHICH WAS SOON AFTER THE DATE OF SALE. THE AO HAS POINTED OUT THE COMMON DIRECTORS IN SOME COMPANIES, ALL THESE BEING GROUP COMPANIES, IT IS ALL THE MORE SIGNIFICANT THAT SHARES HAVE BEEN PURCHASED AT HIGH PRICES AND SOLD AT FACE 11 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. VALUE WITHOUT SHOWING ANY REASON OR ANY SPECIFIC OCCURRENCE IN THE ECONOMIC OR FINANCIAL AFFAIRS OF THE SAID COMPANIES FOR THE DOWNWARD VALUATION, AND WHERE THE INTANGIBLE ASSETS WHICH ARE CLAIMED TO BE THE BASIS OF HIGH VALUATION HAVE GONE. THE CLAIM THAT PURCHASES WOULD BE DEEMED TO HAVE BEEN MADE EARLIER SINCE THE APPELLANT HAD ENTERED INTO PURCHASE AGREEMENT AT AN EARLIER DATE, IS OF LITTLE VALUE GIVEN THE FACT THAT THE TRANSFER HAS BEEN EFFECTED BY ONLY JOURNAL ENTRIES . IT IS ALSO NOT CLEAR WHY THE PURCHASE WAS NOT EFFECTED AND WHY AN AGREEMENT HAD TO BE ENTERED INTO AND PURCHASE ACTUAL EFFECTED AT A MUCH L ATER DATE. THERE IS NO JUSTIFICATION PROVIDED EITHER FOR PURCHASE AT SUCH HIGH PRICES, NOR SALES AT FACE VALUE, NO BASIS OF VALUATION FOR EITHER HAVE BEEN FILED, IN SPITE OF SEVERAL OPPORTUNITIES PROVIDED TO THE APPELLANT IN ASSESSMENT AS ALSO APPELLATE PR OCEEDINGS. THE COMPANIES BEING GROUP COMPANIES, THE ONUS ALSO LAY ON THE APPELLANT U/S 40A(2)(B) OF THE ACT. THE APPELLANT CLAIMS THAT THE COMPANIES WERE CLOSELY HELD COMPANIES IN WHICH THERE WERE NO TRANSACTIONS WITH OUTSIDE ENTITIES, HOWEVER EVEN IN THES E CIRCUMSTANCES THE APPELLANT HAS FAILED TO SHOW HOW VALUATION OF SHARES WAS ARRIVED AT EITHER ON THEIR PURCHASE OR AT THE TIME OF THEIR SALE. IF THE COMPANIES WERE NOT VIABLE FOR THE APPELLANT, THERE IS NO REASON AS TO WHY THE SAME COMPANIES WOULD BE VIAB LE TO OUTSIDE ENTITIES. THE APEX COURT HAS IN THE CASE OF MCDOWELL & CO. V COMMERCIAL TAX OFFICER 154 ITR 148 (SC) HELD THAT THE 12 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. COURTS ARE NOW CONCERNING THEMSELVES WITH NOT MERELY THE GENUINENESS OF A TRANSACTION, BUT WITH THE INTENDED EFFECT OF IT FOR F ISCAL PURPOSES. NO ONE CAN GET AWAY WITH A TAX AVOIDANCE PROJECT WITH THE MERE STATEMENT THAT THERE IS NOTHING ILLEGAL ABOUT IT. TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITHIN THE FRAMEWORK OF LAW. COLOURABLE DEVICES CANNOT BE PART OF TAX PLANNING AN D IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONOURABLE TO AVOID THE PAYMENT OF TAX BY RESORTING TO DUBIOUS METHODS. THE HON'BLE SUPREME COURT IN DURGA PRASAD MORE 82 ITR 540 (SC) HAS HELD THAT THOUGH AN APPARENT STATEMENT MUST BE CONSIDER ED REAL UNTIL IT WAS SHOWN THAT THERE WERE REASONS TO BELIEVE THAT THE APPARENT WAS NOT THE REAL, IN A CASE WHERE A PARTY RELIED ON SELF - SERVING RECITALS IN DOCUMENTS, IT WAS FOR THAT PARTY TO ESTABLISH THE TRUTH OF THOSE RECITALS: THE TAXING AUTHORITIES W ERE ENTITLED TO LOOK IN TO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY OF SUCH RECITALS. IN THE CASE SUMATIDAYAL VS COMMISSIONER OF INCOME TAX 214 ITR 801 (SC) IT IS HELD THAT - IN OUR OPINION, THE MAJORITY OPINION AFTER CONSIDERING SURROUNDING C IRCUMSTANCES AND APPLYING THE TEST OF HUMAN PROBABILITIES HAS RIGHTLY CONCLUDED THAT THE APPELLANT'S CLAIM ABOUT THE AMOUNT BEING HER WINNING FORM RACES IS NOT GENUINE. IT CANNOT BE SAID THAT THE EXPLANATION OFFERED BY THE APPELLANT IN RESPECT OF THE SAID AMOUNTS HAS BEEN REJECTED UNREASONABLY AND THAT THE FINDING THAT THE SAID AMOUNTS ARE INCOME OF THE APPELLANT FROM OTHER SOURCES IS NOT BASED ON 13 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. EVIDENCE. THE ABOVE CITED DECISIONS OF THE APEX COURT ALLOW THE REVENUE AUTHORITIES TO LOOK BEYOND THE APPARENT TRANSACTION AND TO SEE THE REAL TRANSACTIONS BEYOND THE FACADE PRESENTED BY THE TAX PAYER. IN THE PRESENT CASE, THE CIRCUMSTANCES IN WHICH THE PURCHASE OF SHARES AND SALE OF SHARES WERE EFFECT CLEARLY SHOW THAT THE TRANSACTIONS WERE NOT GENUINE, RATHER T HE PURCHASE SALE OF SHARES WAS ORCHESTRATED AS TO ENABLE THE APPELLANT TO SET OFF ITS CAPITAL GAINS DURING THE RELEVANT ASSESSMENT YEAR. THE AO'S ACTION IN DISALLOWING SHORT TERM TO THE EXTENT OF RS 81,69,60,025/ - IS THUS CONFIRMED. 9 AFTER HAVING HEAR D THE COUNSELS FOR BOTH THE PARTIES AT LENGTH AND AFTER GOING THROUGH THE ORDERS PASSED BY THE REVENUE AUTHORITIES. 10. LD. AR REITERATED THE SAME ARGUMENTS AS WERE RAISED BY HIM BEFORE THE REVENUE AUTHORITIES. AS PER LD. AR, DURING THE IMMEDIATELY PRECED ING PREVIOUS YEAR I.E. IN FEBRUARY 2008, SVJ HOLDINGS LTD (STAR GROUP &VIJAYA TV), SEEING THE MARKET POTENTIAL OF THE ASSESSEE COMPANY, APPROACHED IT FOR A POSSIBLE PURCHASE OF ITS ENTERTAINMENT SECTOR AND STARTED THE NEGOTIATIONS FOR THE SAME. THUS, A CCORDINGLY AN MOU WAS ENTERED INTO BY AND BETWEEN M/S SVJ HOLDINGS LTD AS INVESTOR, VIJAY TELEVISION PVT LTD AS THE COMPANY, JUPITER 14 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. ENTERTAINMENT VENTURES PVT LTD AND THE ASSESSEE COMPANY AS SPONSORS IN APRIL 2008 TO CARRY ON THE BUSINESS IN ENTERTAINME NT SECTOR IN A STRATEGIC PARTNERSHIP , FOR WHICH THE ASSESSEE HAD AGREED TO SELL THE STAKE IN THE SUBSIDIARIES FOR A CO NSIDERATION THE DETAIL OF WHICH IS MENTIONED BELOW: NAME OF THE COMPANY ACTIVITIES OF THE COMPANY ESTIMATED CONSIDERATION [PG 56] ASIANET COMMUNICATIONS LTD. ENTERTAINMENT RS. 1,092.66 CRS ASIANET NEWS PVT. LTD. NEWS CHANNEL RS. 4.80 CRS ASIANET RADIO PVT. LTD. FM RADIO STATION RS. 1.80 CRS ASIANET INFRASTRUCTURE PVT. LTD. TELEPORT &UPLINKING RS. 9.40 CRS 11 AS PER LD. AR, M/S SVJ HOLDINGS & OTHERS ALSO EXPRESSED A POSSIBILITY OF LOOKING AT FURTHER INVESTMENTS IN OTHER COMPANIES OF THE ASSESSEES GROUP AND THUS WITH A VIEW TO EXPAND BUSINESS OPPORTUNITIES AND TO INCREASE THE VALUATION OF THE COMPANY, SINCE THERE WAS A POSSIBILIT Y TO SELL THE ENTIRE COMPANY TO SVJ HOLDINGS & OTHERS, THE ASSESSEE COMPANY MADE THE FOLLOWING FURTHER INVESTMENTS AS UNDER: 15 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. NAME OF THE COMPANY ACTIVITIES OF THE COMPANY ASIANET COMMUNICATIONS LTD. ENTERTAINMENT CRYSTAL RESORTS PVT. LTD. RESORTS NAHAL PROPERTIES PVT. LTD. RESORTS ENERTEC CONTROLS PVT. LTD. LAND BANK ADVANCED AUDIO SOLUTIONS PVT. LTD. DEALERS IN HOME THEATRES VIDHYACOM TECHNOLOGIES PVT. LTD. LAND BANK MICROCON INTERNATIONAL LTD.. LAND BANK ASIANET MEDIA LTD. SATELLITE RIGHTS FOR MOVIES FEDEX FINANCE LTD. FINANCIAL SERVICES ASIANET RADIO PVT. LTD. FM RADIO STATION ASIANET INFRASTRUCTURE PVT. LTD. UPLINKING ASIANET NEWS PVT. LTD. NEWS CHANNEL JUPITER CAPITAL PVT. LTD. FINANCIAL SERVICES 9 FOR PURCHASING THE SHARES OF ABOVE COMPANIES, ASSESSEE HAD ENTERED INTO PURCHASE AGREEMENTS FOR THE PURCHASE OF THE ABOVE SHARES. THE SAID AGREEMENTS WERE ENTERED DURING THE PERIOD APRIL 08 TO JUNE 08 DURING WHICH TIME NEGOTIATIONS WERE BEING CARRIED ON BETWEEN THE ASSESSEE AND M/S. SVJ HO LDINGS & OTHERS. THE ASSESSEE COMPANY HAD ENTERED INTO THE FOLLOWING AGREEMENTS FOR PURCHASE OF THE SAID SHARES. 16 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. 12 DURING THE PROCESS OF FURTHER NEGOTIATIONS, THE ASSESSE COMPANY ACQUIRED FURTHER 19,71,375 EQUITY SHARES OF ASIANET COMMUNICATIONS LTD FROM UNRELATED PARTIES AS A STRATEGIC INVESTMENT TO CONSOLIDATE THE HOLDING OF THE ASSESSEE COMPANY IN ASIANET COMMUNICATION LTD. THERE WAS A STCG ON SALE OF SAID SHARES WHICH WAS ACCEPTED BY AO. 13 LD. AR FURTHER SUBMITTED THAT T HE AS SESSEE COMPANY, FINALLY SOLD ONLY ITS INVESTMENT IN ASIANET COMMUNICATION LTD TO M/S SVJ HOLDING & OTHERS AT THE AGREED MOU PRICE OF RS. 1092.66 CRS, THUS MAKING A SR. NO. NAME OF COMPANY PURCHASE FROM AGREEMENT OF DATE SHARES AMT/RS. 1 CRYSTAL RESORTS (P) LTD HINDUSTAN INFRA PROJECTS & 05 - 04 - 08 249,876 110,800,295 ENGINEERING PVT LTD 2 NAHAL PROPERTIES (P) LTD HINDUSTAN INFRA PROJECTS & 05 - 04 - 08 56,563 51,206,900 ENGINEERING PVT LTD 3 ENERTEC CONTROLS (P) LTD HINDUSTAN INFRA PROJECTS & 05 - 04 - 08 657,810 32,890,500 ENGINEERING PVT LTD 4 ADVANCE AUDIO SOLUTIONS (P) HINDUSTAN INFRA PROJECTS & 05 - 04 - 08 2,658 17,500,000 LTD ENGINEERING PVT LTD 5 VIDHYACOM TECHNOLOGIES (P) JUPITER STRATEGIC 11 - 06 - 08 373,020 23,993,568 LTD TECHNOLOGIES P LTD (AXIS AEROSPACE & TECHNOLOGIES P. LTD) 6 MICROCON INTERNATIONAL LTD JUPITER STRATEGIC (AXIS 11 - 06 - 08 10,013,727 67,977,181 AREOSPACE & TECHNOLOGIES P. LTD) 7 ASIANET MEDIA LTD ASIANET COMMUNICATION LTD 12 - 05 - 08 905,030 89,000,000 8 FEDEX FINANCE LTD INITIAL ALLOTMENT 12 - 12 - 08 200,000 100,000,000 9 JUPITER CAPITAL (P) LTD M K CHANDRASHEKAR 31 - 03 - 09 546,965 360,469,928 TOTAL 853,838,372 17 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. HUGE PROFIT OF RS. 911.84 CRS BY ENTERING INTO SHARE PURCHASE AGREEMENT DATED 27/8/2008. ACC ORDING TO THE ASSESSEE , DURING THE COURSE OF FURTHER DISCUSSIONS AND NEGOTIATIONS BETWEEN M/S SVJ HOLDINGS & OTHERS AND THE ASSESSEE COMPANY, M/S SVJ HOLDINGS & OTHERS SHOWED DISINTEREST IN TAKING OVER THE HOSPITALITY AND REAL ESTATE SECTOR OF THE ASSESSEE COMPANY. ALSO WITH REGARDS TO THE NEWS, RADIO AND INFRASTRUCTURE COMPANIES, THEY EXPRESSED THEIR INABILITY TO BUY THOSE SHARES DUE TO RESTRICTIONS UNDER FDI REGULATIONS. THEREAFTER, ACCORDING TO ASSESSEE AS WITH A VIEW TO DIVESTING THE ENTIRE COMPANY, THE ASSESSEE COMPANY HAD ALREADY ENTERED INTO AGREEMENTS FOR PURCHASE OF SHARES OF THE AFORESAID OTHER COMPANIES, THE ASSESSEE COMPANY ADHERED TO THE AGREEMENT AND TRANSFERRED THE SHARES IN THE NAME OF THE ASSESSEE COMPANY. HOWEVER, SINCE MORE THAN 90% OF THE BUSINESS WAS TRANSFERRED IN THE FORM OF SALE OF SHARES OF ASIANET COMMUNICATIONS LTD TO M/S SVJ HOLDINGS & OTHERS, THE ASSESSEE WAS LEFT WITH INVESTMENTS IN OTHER COMPANIES, MADE WITH A VIEW TO CONSOLIDATE AND STRENGTHEN THE COMPANY AND SELL ITS ENTIRE ST AKE TO M/S SVJ HOLDINGS. & OTHERS, THUS IT WAS DECIDED TO SELL THE OTHER INVESTMENTS TO VARIOUS ASSOCIATE COMPANIES. IT WAS FURTHER SUBMITTED THAT S INCE THE INVESTMENTS HAD NO VALUE, ASSESSEE TRANSFERRED THE SAID SHARES AT FACE VALUE AND INCURRED SHORT TER M CAPITAL LOSS OF RS. 81,69,60,025/ - . THUS, THE OVERALL GAIN FROM THE DEAL WITH 18 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. M/S SVJ HOLDINGS & OTHERS, WAS RS. 830.15 CRS. THE DETAILS OF SALES ARE AS UNDER : SR. NO. NAME OF COMPANY SALE TO DATE OF SALE NO. OF SHARES AMT/RS. 1 CRYSTAL RESORTS (P) LTD SURYA SAMUDRA HOSPITALITY 27 - 03 - 09 249,876 2,498,760 VENTRUES P LTD 2 NAHAL PROPERTIES (P)LTD SURYA SAMUDRA HOSPITALITY 27 - 03 - 09 56,563 5,656,300 VENTRUES P LTD 3 ENERTEC CONTROLS (P)LTD HIPE REALTY DEVELOPERS P 27 - 03 - 09 657,810 6,578,100 LTD 4 ADVANCE AUDIO SOLUTIONS (P) JUPITER ENTERTAINMENT 27 - 03 - 09 2,658 26,580 LTD VENTURES PVT LTD 5 VIDHYACOM TECHNOLOGIES (P) HINDUSTAN INFRA PROJECTS & 27 - 03 - 09 373,020 3,730,200 LTD ENGINEERING PVT LTD 6 MICROCON INTERNATIONAL LTD HINDUSTAN INFRA PROJECTS & 27 - 03 - 09 10,013,727 10,013,727 ENGINEERING PVT LTD 7 ASIANET MEDIA LTD RAJEEV CHANDRASHEKAR 12 - 01 - 09 905,030 905,030 8 FEDEX FINANCE LTD FEDEX SECURITIES LTD 31 - 03 - 09 : 200,000 2,000,000 9 JUPITER CAPITAL (P) LTD ' ASIANET MEDIA LTD 31 - 03 - 09 54,965 5,469,650 TOTAL 36,878,347 14. IN THIS WAY, IT WAS SUBMITTED BY LD. AR THAT THE LOWER AUTHORITIES ERRED IN IMPUTING MOTIVE OF TAX AVOIDANCE ON THE ASSESSE COMPANY. IT WAS ALSO SUBMITTED THAT A LL THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE COMPANY WERE GENUINE AND SUPPORTED BY DOCUMENTARY AND CIRCUMSTANTIAL EVIDENCE AND WERE WITHIN THE AMBIT OF LAW. 19 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. 15 ON THE OTHER HAND, LEARNED DR RELIED ON THE ORDERS OF LOWER AUTHORITIES AND CONTENDED THAT AS PER OBSERVATION O F AO AND LD. CIT(A) , THE SHORT TERM CAPITAL LOSS WAS NOT GENUINE . THUS IT WAS ALSO CONTENDED THAT LOWER AUTHORITIES HAVE CORRECTLY ADDED THE SAME TO THE INCOME OF THE ASSESSEE. HE ALSO, RELIED UPON SECTION 106 OF THE INDIAN EVIDENCE ACT TO STATE THAT AS FA CTS WE RE WITHIN THE KNOWLEDGE OF THE ASSESSEE COMPANY, THEREFORE THE BURDEN TO PROVE LIES ON ASSESS E E. WHEREAS LD. AR RELIED UPON SECTION 114 OF THE INDIAN EVIDENCE ACT, 1872 TO CONTEND THAT T HE COURT MAY PRESUME , THE EXISTENCE OF ANY FACT WHICH IT THINKS LIKELY TO HAVE HAPPENED, REGARD BEING HAD TO THE COMMON COURSE OF NATURAL EVENTS, HUMAN CONDUCT AND PUBLIC AND PRIVATE BUSINESS, IN THEIR RELATION TO THE FACTS OF THE PARTICULAR CASE. 16 AFTER HAVING GONE THROUGH THE ORDERS PASSED BY THE REVENUE AUTHORITIES AS WELL AS HEARING THE COUNSELS FOR BOTH THE PARTIES AT LENGTH, WE FIND THAT AS PER THE FACTS OF THE PRESENT CASE, THE AO WAS OF THE VIEW THAT ASSESSEE HAD CREATED A COLOURABLE DEVICE W ITH A MOTIVE TO AVOID THE TAX AND THAT IS WHY, THE ENTIRE SHORT TERM CAPITAL LOSS WAS GENERATED TO AVOID THE TAX ON THE LONG TERM CAPITAL GAIN. WHEREAS ON THE CONTRARY, THE AO HAD NOT BEEN ABLE TO SUBSTANTIATE THE CONCLUSION DRAWN BY HIM BECAUSE FROM THE F ACTUAL FINDINGS WE NOTICED THAT THE ENTIRE LONG TERM GAIN OR SUBSTANTIAL LONG TERM GAIN WAS NOT WIPED OUT BY 20 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. THE SHORT TERM CAPITAL LOSS. THE LONG TERM CAPITAL GAINS WAS TO THE TUNE OF RS 911.84 CRORES , WHEREAS THE SHORT TERM CAPITAL LOSS WHICH HAD BEEN S ET - OFF WAS ONLY TO THE TUE OF RS 81.69 CRORES. HENCE, IN THE CIRCUMSTANCES, IT IS DIFFICULT TO IPSO - FACTO ATTRIBUTE ANY MOTIVE TO THE ASSESS E E FOR AVOIDING THE TAX. 18 WE HAVE ALSO PERUSED THE MOU DTD 26/4/2008, WHICH WAS ENTERED INTO WITH INDEPENDENT THIR D PARTIES I . E . SVJ HOLDING PVT LTD [INVESTOR CO ]AND VIJAY TELEVISION PRIVAT E LIMITED. THE GENUINENE SS OR THE VERACITY OF THE MOU WAS NOT DOUBT ED BY THE AO . AS PER THE MOU , IT WAS MANIFESTLY CLEAR THAT THE INVESTOR WAS READY TO PURCHASE GEC OPERATIONS I . E . ENTERTAINMENT BUSINESS CARRIED OUT BY ASIANET COMMUNICATIONS LTD AS WELL AS NON GEC OPERATIONS I.E NEWS, RADIO AND TELEPORT CARRIED OUT BY OTHER GROUP COMPANIES. HOWEVER, EVENTUALLY WHEN THE ULTIMATE SHARE PURCHASE AGRE EMENT WAS ENTERED INTO ON 27/8/200 8 AT THAT TIME, ONLY THE ENTERTAINMENT BUSINESS WAS PURCHASED. ACCORDING TO ASSESSEE , THE FACT THAT THOUGH THE INVESTOR CO . HAD AGREED TO BUY OTHER BUSINESS , BUT EVENTUALLY BOUGHT ONLY ENTERTAINMENT BUSINESS GOES TO SUPPORT THE CONTENTION OF THE ASSESS E E THAT ASSESSEE WAS NEGOTIATING TO SELL OTHER BUSINESSS OF THE GROUP NOT MENTIONED IN THE MOU SO AS TO COMMAND BETTER PRICE FOR THE WHOLE DEAL. THUS AS PER THE CONTENTION OF THE ASSESSEE, THEY HAD TAKEN A PRUDENT DECISION TO PURCHASE THE SHARES OF ITS GROUP CONCERNS 21 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. DOING VARIETY OF BUSINESS SUCH AS RESOR TS, HOSPITALITY ETC SINCE THAT C OULD FETCH BETTER DEAL. 17 WE HAVE ALSO PERUSED THE SHARE PURCHASE AGREEMENTS. HOWEVER, W E FI ND THAT THE PURCHASE OF SHARES WERE BONA - FIDE AS SHARES WE RE TRANSFERRED IN NAME OF ASSESSEE AND ASSESSEE HAS PAID THE ACTUAL CONSIDERATION. IN THIS RESPECT, T HE ASSESSEE HAD ENTERED INTO A DULY EXECUTED SHARE PURCHASE AGREEMENT WITH THE ABOVE COMPANIES SO AS TO BUY OUT THEIR STAKE . THE SAID TRANSFERS W AS DULY RECORDED IN THE ANNUAL RETURNS OF THE COMPANIES FOR THE YEAR, FILED WITH THE ROC ( REGISTRAR OF COMPANIES ) . THUS, IN THIS WAY, AS PER THE ASSESSEE, THE TRANSFER OF SHARES HAD TAKEN PLACE WITHIN THE FOUR CORNERS OF LAW. IT IS IMPORTANT TO MENTION HER E THAT THE SHARE PURCHASE AGREEMENTS BEAR THE SIGNATURE OF WITNESSES AND IN CASE THE AO DOUBTED THE GENUINENESS OF THE SAID SHARE PURCHASE AGREEMENTS , THEN HE COULD HAVE VERIFIED THE SAME BY EXAMINING THE WITNESSES, BUT THE SAID EXERCISE HAD NOT BEEN DONE BY THE AO . 18 THE OTHER OBJECTION RAISED BY THE AO WAS THAT NO ACTUAL CONSIDERATION WAS PAID FOR THE PURCHASE OF THE SHARES BUT THE TRANSFER WAS BY MERELY PASSING A JOURNAL ENTRY AND THUS THERE WAS A BOOK LOSS OR PAPER LOSS. IN THIS RESPECT, W E FIND FROM THE RECORDS THAT PURCHASE CONSIDERATION WAS PAID THROUGH BANKING CHANNELS AND 22 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. WAS THUS NOT MERELY BY PASSING JOURNAL ENTRIES. THEREFORE THIS OBJECTION RAISED BY THE AO IS FACTUALLY INCORRECT. 19 LD. DR HAD DRAWN OUR ATTENTION TO THE FACT THAT THE PURCHASE CONSIDERATION WAS NOT PAID IMMEDIATELY ON ENTERING INTO SHARE PURCHASE AGREEMENT. WHEREAS, A CCORDING TO ASSESSEE, DURING THE EARLY STAGE S OF NEGOTIATIONS, THE ASSESSEE DIDN'T HAD THE REQUIRED LIQUIDITY AND THE FUNDS TO DIRECTLY BUY OUT THE STAKES IN THE ABOVE COMPANIES AND ALSO SINCE THE MOU WITH M/S. SVJ HOLDINGS & OTHERS WAS ENTERED INTO IN APRIL 08, AND NEGOTIATION WERE BEING CARRIED OUT FOR THE OTHER COMPANIES, THEREFORE AS PER THE SUBMISSION OF THE ASSESSEE, THEY D ECIDED TO GET THE SHARES TRA NSFERRED DIRECTLY IN THE FAVO U R OF M/S SVJ HOLDINGS & OTHERS, IF NEGOTIATIONS ARE SUCCESSFUL, SO AS TO AVOID DOUBLE PAYMENT OF SHARE TRANSFER FEES. ACCORDINGLY IT ENTERED INTO A SHARE PURCHASE AGREEMENT WITH THE COMPANIES FOR BUYING THEIR STAKES, TO JUSTIF Y AND STRENGTHEN THEIR CLAIM OF HAVING INVESTMENTS IN HOSPITALITY AND REAL ESTATE SECTOR AT THE TIME OF NEGOTIATIONS WITH M/S. SVJ HOLDINGS & OTHERS. THUS, ACCORDING TO THE SUBMISSIONS OF THE ASSESSEE, THAT INSTEAD OF BORROWING AND PAYING INTEREST IT WAS P RUDENT TO PAY THE PURCHASE CONSIDERATION AFTER RECEIVING THE SALE CONSIDERATION FROM M/S SVJ HOLDINGS & OTHERS. WE FIND THE ABOVE EXPLANATION OF THE ASSESS E E APPEALS TO THE CONSCIOUS, EVEN OTHERWISE IT WAS AFTER - ALL A COMMERCIAL BUSINESS DECISION OF THE A SSESSE. THEREFORE, 23 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. W E FIND MERIT IN THE ARGUMENT OF THE ASSESSEE THAT AS A PRUDENT BUSINESSMAN IN ORDER TO AVOID DOUBLE SHARE TRANSFER FEES AND FURTHER INSTEAD OF BORROWING AND PAYING INTEREST , IT WAS MORE PRUDENT TO PAY PURCHASE CONSIDERATION OUT OF SALE CONSIDERATION AS RECEIVING SAID SALE CONSIDERATION WAS ALMOST CERTAIN IN VIEW OF THE MOU. 20. THE AO COULD NOT BRING ON RECORD ANY EVIDENCE TO SHOW THAT SHARE PURCHASE AGREEMENTS WE RE BA CK DATED OR PRODUCT OF AN AFTER THOUGHT, THEREFORE IN SUCH CIRCUMSTAN CES, MERELY DELAY IN PAYMENT OF CONSIDERATION WILL NOT MAKE THE TRANSACTIONS OF SHARE PURCHASE BOGUS. WE ALSO AGREE WITH THE ARGUMENTS OF THE ASSE SSE E THAT LOOKING AT A BIGGER OPPORTUNITY OF SELLING ITS ENTIRE STAKE TO M/S. SVJ HOLDINGS & OTHERS, THE ASSE SSEE COMPANY AGREED TO PAY THE COST TO THE SELLERS AS ITS PURCHASE PRICE. THE TOTAL COST OF THE PURCHASE OF THE ABOVE COMPANIES WAS ONLY RS. 85.38 CRS, WHICH WAS QUITE INSIGNIFICANT, CONSIDERING THE FACT THAT, THE ASSESSEE COMPANY SOLD ITS STAKE IN ASIANET COMMUNICATION LTD TO M/S SVJ HOLDINGS & OTHERS FOR A CONSIDERATION OF RS. 1092.66 CRS. IN - FACT BY PAYING THE COST TO SELLER GROUP COMPANIES EVEN THE GROUP COMPANIES HAVE NOT BOOKED LOSSES. THUS, EVEN IF THE BOOK VALUE OF THE SHARES WERE LESS, ACCORDING TO THE AVERMENTS OF THE ASSESSEE, THE SITUATION COMMANDED AT LEAST THE COST PRICE TO BE PAID BY THE ASSESSE AS ASSESSE WOULD HAVE MADE MORE GAINS. 24 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. 21 WE FURTHER NOTICED THAT T HE REVENUE AUTHORITIES HAD DOUBT REGARDING THE N EGOTIATIONS BETWEEN ASSESSEE AND M/S SVJ HOLDINGS LTD AND VIJAY TELEVISION PVT LTD REGARDING PURCHASE OF OTHER BUSINESSES . IN THIS REGARD, LD. AR RIGHTLY PO INTED OUT THAT ONCE ASSESSEE HAD PRODUCED ENTIRE DOCUMENTARY EVIDENCE SUCH AS SHARE PURCHASE AGREE MENTS ETC AND IF AT ALL, AO DOUBTED THE PURPOSE BEHIND SUCH TRANSACTIONS AS EXPLAINED BY ASSESSEE THEN NOTHING PREVENTED THE AO FROM VERIFYING THE SAME FROM VIJAY TELEVISION PVT LTD OR SVJ HOLDINGS LTD WHICH ARE INDEPENDEN T THIRD PARTIES, BUT IN THE PRESEN T CASE, SUCH AN EXERCISE WAS NOT CARRIED OUT BY THE AO. FURTHER, THE EVENTS SUBSEQUENT TO ENTERING UPON THE MOU CLEARLY SHOW THAT THE INVESTOR CO . FROM INITIALLY SHOWED THE INTENTION OF BUYING THE VARIOUS COMPANIES ENGAGED IN GEC AS WELL NON - GEC BUSINESS, BUT HAD ULTIMATELY BOUGHT JUST THE ENTERTAINMENT ARM I.E. ASIANET COMMUNICATIONS LTD IN THE ENTERTAINMENT SECTOR. 22 NOW WITH REGARD TO VALUATION OF SHARES, WE FIND THAT O NCE THE COMMERCIALLY VIABLE COMPANY M/S. ASIANET COMMUNICATIONS LTD, WAS SOLD AT A HUGE PROFIT, NO PRUDENT BUSINESSMAN WILL, HOLD ON TO OTHER COMPANIES PURCHASED WITH THE SOLE INTENTION OF SELLING THEM TO M/S SVJ HOLDINGS & OTHERS. IT IS SHOWN BY THE ASSESS E E THAT THE FACE VALUE OF THE SHARES WERE MORE THAN BOOK VALUE AND THUS SALE AT FA CE VALUE CANNOT BE SE EN WITH 25 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. SUSPICION. THE LD AR HAD RIGHTLY POINTED OUT THAT IN A.Y. 2008 - 2009 THERE WAS NO METHOD PRESCRIBED FOR VALUING THE SHARES OF PVT LTD COMPANY AND IT IS ONLY W.E.F 1/10/2009 THAT RULE 11U AND RULE 11UA HAD BEEN INTRODUCED PRESCRI BING METHOD FO R VALUATION OF SHARES. AS DISCUSSED ABOVE , WE FEEL THAT ASSESSEE WHILE PURCHASING THE SHARES WAS JUSTIFIED TO PAY MORE THAN THE BOOK VALUE OF SHARES I.E AT LEAST THE COST TO THE SELLERS AS PURCHASE OF SAID SHARES WOULD GIVE MORE BENEFITS TO T HE ASSESSE COMPANY. FURTHER, WHILE SELLING THE SHARES THE MAXIMUM ASSESSE COULD HAVE GOT IS THE FACE VALUE AS SAME WAS MORE THAN THE BOOK VALUE AND HOLDING OF SAID SHARES WAS NOT BENEFICIAL TO THE ASSESSE COMPANY AFTER M/S SVJ HOLDINGS REFUSED TO PURCHASE SAID SHARES. IN TOTALITY IN THIS WAY, THE ASSESSEE COMPANY EARNED A HUGE PROFIT OF RS. 830.15 CRS AND CAPITAL GAINS WERE DECLARED FOR THE SAME. 23 THE HONBLE SUPREME COURT IN THE CASE OF VODAFONE INTERNATIONAL HOLDINGS B.V. V. UNION OF INDIA [2012] 341 ITR 1(SC) HAD EXPLAINED THE CORRECT INTERPRETATION OF MCDOWELL & CO. LTD. V. CTO [1985] 154 ITR 148 (SC) THAT LEGITIMATE TAX PLANNING CANNOT BE CONSIDERED AS SHAM . THE RELEVANT PORTION OF SAID DECISION IS AS UNDER : THE MAJORITY JUDGMENT IN MCDOWELL & CO. LTD. CASE (SUPRA) HELD THAT 'TAX PLANNING MAY 26 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. BE LEGITIMATE PROVIDED IT IS WITHIN THE FRAMEWORK OF LAW' (PARA 45). IN THE LATTER PART OF PARA 45, IT HELD THAT 'COLOURABLE DEVICE CANNOT BE A PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE THE BELIEF THAT IT IS HONOURABLE TO AVOID PAYMENT OF TAX BY RESORTING TO DUBIOUS METHODS'. IT IS THE OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES WITHOUT RESORTING TO SUBTERFUGES. THE ABOVE OBSERVATIONS SHOULD BE READ WITH PARA 46 WHERE THE MAJORITY HOLDS 'ON THIS A SPECT ONE OF US, CHINNAPPA REDDY, J. HAS PROPOSED A SEPARATE OPINION WITH WHICH WE AGREE'. THE WORDS 'THIS ASPECT' EXPRESS THE MAJORITY'S AGREEMENT WITH THE JUDGMENT OF REDDY, J. ONLY IN RELATION TO TAX EVASION THROUGH THE USE OF COLOURABLE DEVICES AND BY RESORTING TO DUBIOUS METHODS AND SUBTERFUGES. THUS, IT CANNOT BE SAID THAT ALL TAX PLANNING IS ILLEGAL/ILLEGITIMATE/IMPERMISSIBLE. MOREOVER, REDDY, J. HIMSELF SAYS THAT HE AGREES WITH THE MAJORITY. IN THE JUDGMENT OF REDDY, J. THERE ARE REPEATED REFERENCES TO SCHEMES AND DEVICES IN CONTRADISTINCTION TO 'LEGITIMATE AVOIDANCE OF TAX LIABILITY' (PARAS 7 - 10, 17 & 18). IN OUR VIEW, ALTHOUGH CHINNAPPA REDDY, J. MAKES A NUMBER OF OBSERVATIONS REGARDING THE NEED TO DEPART FROM THE 'WESTMINSTER' AND TAX 27 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. AVOIDANCE - THESE ARE CLEARLY ONLY IN THE CONTEXT OF ARTIFICIAL AND COLOURABLE DEVICES. READING MCDOWELL, IN THE MANNER INDICATED HEREINABOVE, IN CASES OF TREATY SHOPPING AND/OR TAX AVOIDANCE, THERE IS NO CONFLICT BETWEEN MCDOWELL AND AZADIBACHAO OR BETWEEN MCDOWELL A ND MATHURAM AGRAWAL. THE APPROACH OF BOTH THE CORPORATE AND TAX LAWS, PARTICULARLY IN THE MATTER OF CORPORATE TAXATION, GENERALLY IS FOUNDED ON THE ABOVEMENTIONED SEPARATE ENTITY PRINCIPLE, I.E., TREAT A COMPANY AS A SEPARATE PERSON. THE INDIAN INCOME TAX ACT, 1961, IN THE MATTER OF CORPORATE TAXATION, IS FOUNDED ON THE PRINCIPLE OF THE INDEPENDENCE OF COMPANIES AND OTHER ENTITIES SUBJECT TO INCOME - TAX. COMPANIES AND OTHER ENTITIES ARE VIEWED AS ECONOMIC ENTITIES WITH LEGAL INDEPENDENCE VIS - A - VIS THEIR SHAREHOLDERS/PARTICIPANTS. IT IS FAIRLY WELL ACCEPTED THAT A SUBSIDIARY AND ITS PARENT ARE TOTALLY DISTINCT TAX PAYERS. CONSEQUENTLY, THE ENTITIES SUBJECT TO INCOME - TAX ARE TAXED ON PROFITS DERIVED BY THEM ON STANDALONE BASIS, IRRESPECTIVE OF THEIR ACTUAL DEGREE OF ECONOMIC INDEPENDENCE AND REGARDLESS OF WHETHER PROFITS ARE RESERVED OR DISTRIBUTED TO THE SHAREHOLDERS/PARTICIPANTS. FURTHERMORE, SHAREHOLDERS/PARTICIPANTS, THAT 28 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. ARE SUBJECT TO (PERSONAL OR CORPORATE) INCOME - TAX, ARE GENERALLY TAXED ON PROFITS DERIVED IN CONSIDERATION OF THEIR SHAREHOLDING/PARTICIPATIONS, SUCH AS CAPITAL GAINS. NOW A DAYS, IT IS FAIRLY WELL SETTLED THAT FOR TAX TREATY PURPOSES A SUBSIDIARY AND ITS PARENT ARE ALSO TOTALLY SEPARATE AND DISTINCT TAXPAYERS. 24. THUS, AS THE TRANSA CTIONS IN THE ABOVE CASE WERE CARRIED OUT WITHIN THE FRAMEWORK OF LAW AND BETWEEN TWO SEPARATE LEGAL ENTITIES, THEREFORE THE TRANSACTIONS CANNOT BE TERMED AS SHAM JUST BECAUSE THERE IS LOWER OUTFLOW OF TAXES. THE DECISION OF THE HONBLE SUPREME COURT HA D B EEN APPLIED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V HEDE CONSULTANCY CO. (P.) LTD [2015] 231 TAXMAN 421 (BOM)(HC) WHEREIN THE COURT WAS DEALING WITH A CASE WHEREIN REVENUE ALLEGED THAT SHARES OF SISTER CONCERN WERE SOLD AT A LOSS TO REDUCE PROFITS ON SALE OF SHARES ON STOCK EXCHANGE. THE HONBLE BOMBAY HIGH COURT HELD THAT THERE WAS NO EVIDENCE TO SHOW THAT TRANSACTIONS WERE ILLEGITIMA TE . THE CHENNAI TRIBUNAL IN COROMANDEL CABLES LTD V ACIT [2016] 71 TAXMANN.COM 346 (CHENNAI)(TRIB.) HAS HELD AS UNDER : FURTHER, THE REVENUE AUTHORITIES CANNOT START WITH THE QUESTION AS TO WHETHER THE IMPUGNED TRANSACTION IS A TAX DEFERMENT/SAVING DEVICE . BUT IT SHOULD APPLY THE 'LOOK AT' TEST TO ASCERTAIN TRUE LEGAL NATURE OF THE 29 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. TRANSACTION. THE AUTHORITIES MAY INVOKE THE 'SUBSTANCE OVER FORM' PRINCIPLE OR 'PIERCING THE CORPORATE VEIL' TEST ONLY AFTER IT IS ABLE TO ESTABLISH ON THE BASIS OF THE FACTS AN D CIRCUMSTANCES SURROUNDING THE TRANSACTION THAT THE IMPUGNED TRANSACTION IS A SHAM OR TAX AVOIDANT. EVERY STRATEGIC PLAN SHOULD BE LOOKED AT IN A HOLISTIC MANNER. MERELY BECAUSE THE TAX IS NOT PAYABLE OR RECEIVABLE COULD NOT MAKE THE ENTIRE TRANSACTION A SHAM OR A TAX AVOIDANT. IN OUR OPINION, THE JUDGMENT OF THE SUPREME COURT IN THE CASES OF MCDOWELL & CO. LTD. V. CTO [1985] 154 ITR 148/22 TAXMAN 11 CANNOT BE APPLIED IN VIEW OF THE DECISION IN THE CASE OF UNION OF INDIA V. AZADIBACHAOANDOLAN [2003] 263 IT R 706& VODAFONE INTERNATIONAL HOLDINGS B.V. V. UNION OF INDIA [2012] 341 ITR 1 (SC). 25 RECENTLY THE DELHI ITAT I N ACIT V M/S RJ CORP LTD ITA.NO.3661/DEL./2014 ASSESSMENT YEAR 2009 - 2010 DTD 1/10/2018(DEL)(TRIB) HA D HELD THAT THE FACT THAT THE ASSESSEE BOUGHT AND SOLD SHARES OF GROUPS CONCERNS WITH A VIEW TO BOOK LOSS AND OFF - SET THE CAPITAL GAINS FROM ANOTHER TRANSACTION DOES NOT MEAN THAT THE LOSS CAN BE TREATED AS BOGUS IF THE DOCUMENTATION IS IN ORDER . I N MADHUSARDA VS. ITO (ITA NO. 740/M/2012 DT. 29 /3/2018(MUM)9(TRIBUNAL) IT WAS HELD THAT SALE OF SHARES TO SON CANNOT BE HELD TO BE COLOURABLE DEVICE IF TRANSACTION IS WITHIN THE FOUR CORNER OF LAW AND VALID. 30 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. 26 THE LD AR HAS RIGHTLY RELIED ON THE DECISION IN F. E. DINSHAW LIMITED. VS CIT, [1959] 36 I TR 114 (BOM.)(HC) WHEREIN IT WAS HELD THAT I N THE ABSENCE OF FRAUD, THE QUESTIONS WHETHER THE TRANSACTION HAD THE EFFECT OF DISMISSING THE ASSESSEE'S TAXABLE INCOME AND WHETHER IT WAS NECESSARY FOR THE ASSESSEE TO ENTER INTO THAT TRANSACTION ARE IRRELEVANT IN DETERMINING WHETHER EXPENDITURE RELATING TO THAT TRANSACTION SHOULD BE ALLOWED UNDER S. 10(2)(XV). THE MATTER HAS TO BE VIEWED IN THE LIGHT OF PRINCIPLES OF COMMERCIAL TRADING AND COMMERCIAL EXPEDIENCY. WHAT IS REQUIRED IS THAT THE EXPENDITURE MUST BE GERMANE TO THE BUSINESS OF THE ASSESSEE AND NOT SOMETHING WHICH IS DE HORS THE BUSINESS OF THE ASSESSEE. IF IT IS AN EXPENDITURE OF THE NATURE OF COMPENSATION FOR TERMINATION, OF THE SERVICES OF AN EMPLOYEE, THE CLOSER TEST WOULD SEEM TO US TO BE THAT OF COMMERCIAL EXPEDIENCY. IF THE PAYMENT IS MADE UNDER - THE HONEST BELIEF THAT THE CLAIM BY THE EMPLOYEE FOR COMPENSATION OR DAMAGES IS JUSTIFIED AND THE ASSESSEE HAS ACTED IN THE MATTER OF THE SETTLEMENT OF THE CLAIM AS AN ORDINARY PRUDENT BUSINESS MAN WOULD ACT, IT WOULD NOT BE FOR THE DEPARTMENT TO S AY THAT THE CLAIM WOULD NOT HAVE SUCCEEDED IN ITS ENTIRETY OR EVEN PARTLY IN A COURT OF LAW. IN SUCH A CASE THE DEPARTMENT CANNOT INSIST ON FRAMING ITS OWN STANDARD OF REASONABLENESS OR PRUDENCE. WHEN FACED WITH A CLAIM FOR COMPENSATION OR DAMAGES BY A SER VANT WHOSE SERVICES HAVE BEEN WRONGFULLY TERMINATED, IT IS THE EMPLOYER TO 31 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. VIEW THE MATTER AS ONE OF COMMERCIAL EXPEDIENCY. IF HE FINDS THAT THE CLAIM IS JUSTIFIED AND DOES NOT ALLOW ANY COLLATERAL CONSIDERATION TO COLOUR HIS JUDGMENT, IT WOULD CERTAINLY B E OPEN TO HIM TO SETTLE THE CLAIM FOR A REASONABLE AMOUNT AND IT IS DIFFICULT TO SEE SHOW IN SUCH A CASE IT SHOULD BE COMPETENT TO THE DEPARTMENT TO SET UP ITS OWN VIEWS OF THE MATTER AND SAY THAT THE CLAIM OF THE EMPLOYEE WAS NOT LEGALLY VERY SOUND. 27 I T IS ALSO A FUNDAMENTAL PRINCIPLE UNDER THE INCOME TAX ACT THAT THE CONTRACT BETWEEN THE PARTIES IS TO BE UNDERSTOOD AS IS UNDERSTOOD BY THE PARTIES AND AO CANNOT GIVE HIS OWN INTERPRETATION TO THE CONTRACT. IN CIT V ARUNDUA (1990) 186 ITR 494 (496) (CAL.) (HC) IT WAS HELD AS UNDER: IF THE COMPANY AND THE EMPLOYEE HAD UNDERSTOOD THE AGREEMENT IN A CERTAIN WAY AND HAD ACTED UPON THAT AGREEMENT, IT IS NOT OPEN TO THE INCOME TAX OFFICER TO GIVE ANOTHER INTERPRETATION AND TAX THE ASSESSEE ON A HYPOTHETICAL AMOUNT. 28. IN D.S. BIST & S ONS V CIT (1984) 149 ITR 276 (281) (DELHI)(HC) IT WAS HELD AS UNDER : WE ARE OF THE OPINION THAT THE VALUATION OF THE SHARES AND THE VALUATION OF A DEBT TO A PARTY PROCEEDS ON SEVERAL DIVERGENT CONSIDERATIONS. UNLESS THERE IS SOLID MATERIAL ON RECORD BEFORE THE INCOME TAX AUTHORITIES, IT IS NOT PERMISSIBLE TO RE - 32 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. WRITE THE TERMS OF THE COMMERCIAL AGREEMENT ENTERED INTO WHEN THE AGREEMENT IS HELD AS VALID AND GENUINE AND NOT COLLUSIVE AND THE TWO PARTIES ARE HELD TO BE DEALING AT ARMS' LENGTH WHILE ENTER ING INTO THE AGREEMENT DATED AUGUST 20, 1963. 29 THE HONBLE SUPREME COURT IN TWO LEADING CASES VIZ., IN THE CASE OF CIT V. DURGA PRASAD MORE [1971] 82 ITR 540 AND SUMATIDAYAL V. CIT [1995] 214 ITR 801/80 TAXMAN 89 (SC) HAD HELD THAT EVEN HIGH DEGREE OF SUSPICION CANNOT REPLACE THE EVIDENCE ON RECORD. AS POINTED OUT ABOVE THAT THE ENTIRE CASE OF THE LOWER AUTHORITIES IS ON SUSPICION AND WITHOUT GETTING AND COGENT EVIDENCE ON RECORD. EVEN THE CIRCUMSTANTIAL EVIDENCE DO NOT SUPPORT THE R EVENUE BUT SUPPORT THE ASSESSEE. 30 WE WILL NOW DEAL WITH THE TWO DECISIONS RELIED UPON BY THE LD DR AT THE TIME OF HEARING. FIRSTLY THE LEARNED DR RELIED UPON THE DECISION IN KILLICK NIXON LTD V DCIT [2012] 208 TAXMAN 45(BOM)(HC). THE SAID DECISION IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AS IN THIS CASE, ASSESSEE HAD EARNED LONG TERM CAPITAL GAINS [LTCG] ON SALE OF LAND OF RS 49.72 CRORES IN - ORDER TO DISCHARGE ITS LIABILITY AS A GUARANTOR FOR LOANS ADVANCED TO GEEKAY EXIM INDIA LTD A COMPANY BELONGING TO G.K. RATHIGROUP . THE SAID LONG TERM CAPITAL GAINS WAS SET OFF AGAINST SHORT TERM CAPITAL LOSS [STCL] OF RS 49.73 CRORES 33 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. ON SALE OF SHARES OF ITS SUBSIDIARIES SO AS TO WIPE OUT THE ENTIRE GAINS. 31. WHEREAS AS PER THE FACTS OF THE PRESENT CASE, THE LONG TERM CAPITAL GAINS IS RS 911.84 CRORE, WHEREAS THE SHORT TERM CAPITAL LOSS IS RS 81.69 CRORES I . E . THE ASSESSEE EVEN AFTER SET OFF OF LOSS HAS PAID TAX ON LTCG OF RS 830.15 CRORES. FURTHER, IN THIS CA SE, THE ASSESSEE PURCHASED SHARES OR MADE INVESTMENTS IN ITS SUBSIDIARIES BY SUBSCRIBING SHARES AT A PREMIUM EVEN THOUGH IT WAS A CASH STARVED COMPANY. THE FUNDS FOR INVESTMENT CAME FROM G.K. RATHI GROUP. THE AMOUNT INVESTED IN THE SUBSIDIARIES WERE TRANSF ERRED BY THE SAID SUBSIDIARIES TO G K RATHIGROUP COMPANY. THUS, ASSESSEE HAD GIVEN GUARANTEE IN FAVOUR OF GK RATHI GROUP WHICH LED TO SALE OF LAND, THE AMOUNT INVESTED FOR PURCHASE OF SHARES CAME FROM GK RATHI GROUP AND SAID AMOUNTED WAS AGAIN ROUTED BACK TO G.K. RATHI GROUP. 32. HOWEVER THE FACTS OF THE PRESENT CASE ARE ALTOGETHER DIFFERENT. IN THE PRESENT CASE , THE SHARES WERE PURCHASED OUT OF MONEY S PROVIDED BY M/S SVJ HOLDINGS WHICH IS A THIRD PARTY AND FURTHER SHARES WERE PURCHASED AT COST TO GROUP CO MPANY AND NOT AT A PREMIUM. ALSO, SUCH CIRCUITOUS NATURE OF TRANSACTIONS ARE NOT INVOLVED IN THE FACTS OF THE PRESENT CASE. 33 SECONDLY THE LD DR HAS RELIED UPON THE DECISION IN THE CASE OF DCIT V M/S B.S INFOSOLUTION PVT. LTD. ITA NO 2989/DEL/2016 AY 2 012 - 2013 BENCH E, NEW 34 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. DELHI, ITAT DTD. 23.8.2018. THE S AID DECISION IS NOT APPLICABLE TO THE FA CTS OF THE PRESENT CASE. IN THE ABOVE CASE, ASSESSEE HAD EARNED CAPITAL GAINS ON SALE OF LAND OF RS 3.48 CRORES TO M/S Q.A. INFOTECH PVT. LTD. THE SAID CAPITAL GAINS WAS SET OFF AGAINST CAPITAL LOSS OF RS 5.18 CRORES ON SALE OF SHARES SO AS TO WIPE OUT THE ENTIRE GAINS . WHEREAS, I N THE FACTS OF THE PRESENT CASE, THE LONG TERM CAPITAL GAINS IS RS 911.84 CRORES, WHEREAS THE SHORT TERM CAPITAL LOSS IS RS 81.69 CRORE S I.E. THE ASSESSEE EVEN AFTER SET OFF OF LOSS HAS PAID TAX ON L TCG OF RS 830.15 CRORES. IN THE ABOVE CASE (SUPRA) , THE SAME LAND AFTER IT BEING SOLD TO M/S Q.A. INFOTECH PVT. LTD. AND RECEIPT OF SUBSTANTIAL CONSIDERATION WAS SOLD TO M/S CHARMWOOD REALTECH PVT. LTD. WHO PAID REFUNDABLE SECURITY DEPOSIT OF RS 10 CRORES. THEREAFTER, ASSESSEE SUBSCRIBED SHARES OF VENKATESHWARABUILDTECH PVT. LTD. A GROUP COMPANY AT PREMIUM FOR RS 7.50 CRORES OUT OF SAID REFUNDABLE SECURITY DEPOSIT. THEREAFTER, AGREEMENT WITH CH ARMWOODREALTECH PVT. LTD. WAS CANCELLED AND SHARES WERE PAID AS REFUND AND THEREBY CAPITA LOSS WAS INCURRED. UNDER THESE FACTS IT WAS HELD BY ITAT THAT ONCE ASSESSEE HAD ALREADY SOLD THE PROPERTY AND THEREAFTER IT AGAIN ENTERED INTO AGREEMENT WITH RESPECT TO SAME LAND WAS DONE ONLY TO OBTAIN A CAPITAL LOSS WHICH COULD WIPE OUT THE CAPITAL GAINS ON SALE OF LAND. THUS, IT IS CLEAR THAT FACTS OF BOTH CASES ARE COMPLETELY DIFFERENT AND RATIO OF SAID DECISION CANNOT BE APPLIED TO THE FACTS OF PRESENT CASE. 35 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. 34 IN CIT VS. SUN ENGINEERING (1992) 198 ITR 297 (SC) IT WAS HELD THAT THE JUDGEMENT MUST BE READ AS WHOLE AND THE OBSERVATIONS FROM THE JUDGEMENT HAVE TO BE CONSIDERED IN THE LIGHT OF THE QUESTIONS WHICH WERE BEFORE THE COURT AND IT IS NOT PROPER TO REGARD A WORD A CLAUSE OR A SENTENCE OCCURRING IN A JUDGEMENT DIVORCED FROM ITS CONTEXT. AS POINTED OUT BY US AT THE OUTSET THAT PRESENT CASE IS NOT A CASE WHEREIN ENTIRE OR SUBSTANTIAL CAPITAL GAINS ARE WIPED OUT BY THE CAPITAL LOSS AND THUS THE LOWER AUTHORITIES HAVE NOT ANALYSED THE FACTS OF THE PRESENT CASE IN THE CORRECT PERSPECTIVE. 35 KEEPING IN VIEW THE FACTS OF THE PRESENT CASE AS WELL AS THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT THE TREATMENT OF SHORT TERM CAPITAL LOSS OF RS 81,69,60,025 / - AS NOT GENUINE IS NOT IN ACCORDANCE WITH LAW. THUS, T HE FINDINGS OF LOWER AUTHORITIES ARE BASED ON ASSUMPTIONS AND WITHOUT CONSIDERING THE FACTS AND EVENTS IN CORRECT PERSPECTIVE. THEREFORE, KEEPING IN VIEW THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE ARE OF THE CONSIDERED VIEW THAT THE DISALLO WANCE OF SHORT TERM CAPITAL LOSS IS NOT JUSTIFIED. RESULTANTLY, THIS GROUND RAISED BY THE ASSESSEE STANDS ALLOWED. 36 NOW W E TAKE UP GROUND NO 5. IN THIS GROUND THE ASSESSEE HAS CHALLENG ED THE DISALLOWANCE OF THE CLAIM OF 36 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. RS.2,42,66,000/ - PAID TOWARDS SOFTWARE CONSULTANCY CHARGES. 37. AS PER THE B RIEF FACTS OF THE CASE , THE ASSESSEE COMPANY PAID PROFESSIONAL CHARGES OF RS. 2,42,66,000/ - TO M/S. AXIS AEROSPACE AND TECHNOLOGIES (P) LTD ON TH E BASIS OF AN AGREEMENT ENTERED INTO ON 05.01.2009. THE SAID COMPANY WAS REQUIRED TO PROVIDE TECHNICAL AND SOFTWARE CONSULTANCY SERVICE AS TURNKEY SOLUTION, FOR UPGRADING THE BROADCASTING SOFTWARE AND INTEGRATING VARIOUS EMBEDDED SOFTWARE IN THE EQUIPMENTS IN PCR AND FOR INSERTION OF ADVERTISEMENTS, MONTAGE ETC. PCR HAS EQUIPMENT FROM SONY, PANASONIC AND APPLE. THE SAID S OFTWARE IS REQUIRED TO INTEGRATE ALL THESE PROGRAMMES. AS PER THE ASSESSEE, T HE AGREEMENT WAS ENTERED INTO BASICALLY WITH AN INTENTION TO DEVELOP A BROADCASTING SOFTWARE REQUIRED FOR RUNNING A CHANNEL. 38 WHEREAS, A S PER AO AND LD. CIT(A) , THE SAID EXPENSES WE RE NOT FOR BUSINESS OF THE ASSESSEE AND THUS NOT ALLOWABLE. 39 WE HAVE HEARD BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED T HE MATERIAL PLACED ON RECORD. AS PER LD. AR, THE EXPENSES WERE INCURRED KEEPING IN MIND THE EXPANSION OF THE BUSINESS - ACTIVITY OF THE ASSESSEE COMPA NY. THE EXPENDITURE INCURRED WERE FOR THE PURPOSE OF BUSINESS ACTIVITY OF THE COMPANY AND THEREFORE HAD BE EN CLAIMED AS REVENUE EXPENDITURE . ACCORDING TO THE 37 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. ASSESSEE, THE COMPANY WAS HOLDING SUBSTANTIAL INVESTMENTS IN M/S. ASIANET COMMUNICATIONS LTD WHICH WAS RUNNING NEWS CHANNEL AND GENERAL ENTERTAINMENT COMMERCIAL CHANNELS. DURING THE YEAR, NEGOTIATIONS WER E ONBETWEEN THE ASSESSEE COMPANY AND M/S SVJ HOLDINGS & OTHERS FOR BUYING THE STAKE OF THE ASSESSEE COMPANY IN ENTERTAINMENT, HOSPITALITY AND REAL ESTATE SECTOR OF THE ASSESSEE COMPANY. AS PER THE ASSESSEE, F OR THE SAID NEGOTI ATIONS, THE ASSESSEE COMPANY HAD ALSO PURCHASED FURTHER INVESTMENTS IN VARIOUS OTHER COMPANIES TO CONSOLIDATE AND STRENGTHEN ITS MARKET VALUE. IT WAS ALLEGED THAT THE INTENTION OF THE ASSESSEE COMPANY WAS TO EXPLORE THE POSSIBILITY OF CARRYING ON THE BUSINESS OF RUNNING VARIOUS REGION AL LANGUAGES CHANNELS IN FUTURE. THEREFORE, K EEPING IN MIND THE FUTURE EXPANSION OF THE BUSINESS THE ASSESSEE COMPANY INCURRED EXPENDITURE AMOUNTING RS. 2,42,66,000/ - AS CONSULTANCY FEES TOWARDS PURCHASE OF SOFTWARE FOR RUNNING AND MAINTAINING CHANNELS. 4 0. ON THE OTHER HAND, LEARNED DR RELIED ON THE ORDERS PASSED BY THE LOWER AUTHORITIES 41 AFTER HAVING HEARD THE COUNSELS FOR BOTH THE PARTIES AT LENGTH AND AFTER CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW, W E ARE OF THE OPINION THAT SINCE INCURRING OF EXPENSES IS NOT IN DOUBT. AS PER THE ASSESSEE, THE EXPENSES WERE INCURRED FOR CARRYING OUT 38 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. BUSINESS ACTIVITY AND WE RE NOT PERSONAL EXPENSES. S INCE THE EXPENDITURE WERE INCURRED PURELY WITH A VIEW OF EXPANDING THE BUSINESS OF THE ASSESSEE COMP ANY, THEREFORE AS PER THE ASSESSEE, THE SAME BE ALLOWED AS AN REVENUE EXPENDITURE U/S 37(1). 42 THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. BOMBAY BURMAH TRADING CO. LTD. (2017) 250 TAXMAN 436 (BOM.)(HC) SLP REJECTED (2018) 256 TAXMAN 393 (SC) HAS HELD THAT UPGRADATION OF TECHNOLOGY IS HELD TO BE REVENUE EXPENDITURE. THE MADRAS HIGH COURT IN CIT VS. LAKSHMI VILAS BANK LTD. (2018) 258 TAXMAN 193 (MAD.)(HC) HAS HELD THAT THAT ADVANCE TECHNOLOGY SOFTWARE BECAME ABSOLUTE WITH IN SHORT INTERVALS A ND THUS SOFTWARE EXPENDITURE IS REVENUE EXPENDITURE. IN CIT - 3 VS. IDEA CELLULAR LTD. (2016) 76 TAXMANN.COM 77 (BOMB.)(HC) AND CHEMPLASTSAMMAR LTD. VS. ACIT (2018) 97 TAXMANN.COM 347(MAD.)(HC) IT IS HELD THAT IF PROJECT WAS ABANDONED EXPENDITURE HAS TO AL LOWED AS REVENUE EXPENDITURE. 43 T HEREFORE CONSIDERING THE FACTS OF THE PRESENT CASE AND ALSO KEEPING IN MIND THE PRINCIPLES LAID DOWN IN THE ABOVE JUDGMENTS, WE ARE OF THE VIEW THAT THE EXPENSES OF RS. 2,42,66,000/ - INCURRED BY THE ASSESSEE FOR CARRYING OUT BUSINESS ACTIVITY WERE NOT PERSONAL EXPENSES AND WERE INCURRED FOR EXPANDING THE BUSINESS AND THUS IN 39 I.T.A. NO. 4790 /MUM/201 4 M/SASIANET TV HOLDINGS PVT. LTD. THIS WAY, THE SAME WERE INCURRED IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE. THEREFORE THE SAME ARE ALLOWED AS REVENUE EXPENSES. 44 IN THE NET RESULT GROUND NO 5 RAISED BY THE ASSESSEE IS ALLOWED. 45 . IN THE NET RESULT , THE APPEAL FILED BY THE ASS ESSEE STANDS ALLOWED WITH NO ORDER AS TO COST. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST MARCH , 2019. SD/ - SD/ - ( G. MANJUNATHA ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 01 . 0 3 .201 9 SR.PS . DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBA I