Smt. Shantaben V. Shah, through L/H Shri M.V. Shah, Dhoraji V. The Deputy Commissioner of Income Tax, Circle-2, RAJKOT-GUJARAT

ITA 603/RJT/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50070 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 23-06-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 17-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KRISHNA PRABHAKAR
• Keywords: Capital asset; Fair market value
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI N.R.S. GANESA N (JM) I.T.A. NO.603/RJT/2008 (ASSESSMENT YEAR 1998-99) SMT. SHANTABEN V SHAH VS DY.CIT, CIR.2 THROUGH L/H SHRI M.V. SHAH RAJKOT C/O LAXMI CUTLERY STORES BAZAR ROAD, DHORAJI PAN : AJUPS5490D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIMAL DESAI RESPONDENT BY: SHRI KRISHNA PRABHAKAR O R D E R PER N.R.S. GANESAN, JM THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF CIT(A)-III, AHMEDABAD DATED 30-09-2008 AND PERTAINS TO ASSESSME NT YEAR 1998-99. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS DETER MINATION OF FAIR MARKET VALUE OF THE SHARES FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN. 3. SHRI VIMAL DESAI, THE LD.REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE SOLD SHARES OF NEWTON SYNTHETICS PVT LTD ( HEREINAFTER REFERRED TO AS NSPL) AND CLAIMED LONG TERM CAPITAL LOSS OF RS. 3 ,08,075. ACCORDING TO THE LD.REPRESENTATIVE, THE ASSESSEE HAS PURCHASED 830 S HARES OF NSPL FROM SHRI JAYANTILAL F VORA FOR RS.400 PER SHARE. SUBSEQUENT LY, THE SAME WAS SOLD ON 23- 03-1998 TO SHRI MAHENDRA V SHAH, WHO IS NONE OTHER THAN THE SON OF THE ASSESSEE AND DIRECTOR OF NSPL FOR RS. 100 PER SHARE . IN THE FIRST ROUND OF LITIGATION, THIS TRIBUNAL, BY AN ORDER DATED 01-09- 2006 IN ITA NO.05/RJT/2006 HAD REMANDED BACK THE MATTER TO THE FILE OF THE ASSESSI NG OFFICER TO EXAMINE THE MOTIVE BEHIND THE SALE OF SHARES TO ASSESSEES SON. CONSEQUENT TO THE ORDER OF THE TRIBUNAL, THE ASSESSING OFFICER REVALUED THE SH ARES AT RS.275.54 PER SHARE. ITA NO.603/RJT/208 2 HOWEVER, THE ASSESSING OFFICER COULD NOT FIND ANY M OTIVE BEHIND THE SALE OF SHARES TO ASSESSEES SON. REFERRING TO THE ASSESSM ENT ORDER, THE LD.REPRESENTATIVE SUBMITTED THAT THE ASSESSING OFFI CER VALUED THE SHARE IN ANOTHER METHOD AND OBSERVED THAT THE ASSESSEE HAS NO REASON FOR SELLING THE SHARES AT RS.100 PER SHARE. THEREFORE, ACCORDING TO THE LD.R EPRESENTATIVE, THE ASSESSING OFFICER HAS NO MATERIAL TO SHOW THAT THE TRANSACTIO N WAS MOTIVATED FOR THE PURPOSE OF CLAIMING LOSS. REFERRING TO THE JUDGMEN T OF THE APEX COURT IN K.P. VERGHESE VS ITO 131 ITR 597 (SC), THE LD.REPRESENTA TIVE SUBMITTED THAT IN THE CASE BEFORE THE APEX COURT, THE ASSESSEE, WHO PURCH ASED THE HOUSE IN THE YEAR 1958 FOR RS.16,500 SOLD THE HOUSE AT THE SAME PRICE TO HIS DAUGHTER IN LAW AND FIVE OF HIS CHILDREN. A SIMILAR DOUBT WAS RAISED W ITH REGARD TO THE MOTIVE FOR SALE OF THE HOUSE CONTENDING THAT THERE WAS AN UNDER STA TEMENT OR CONCEALMENT OF THE VALUE OF THE HOUSE. ACCORDING TO THE LD.REPRES ENTATIVE, THE APEX COURT FOUND THAT WHEN THE CONSIDERATION FOR TRANSFER OF THE HOU SE IS ALLEGED BY THE REVENUE TO BE UNDERSTATED BY THE ASSESSEE OR THE CONSIDERATION ACTUALLY RECEIVED BY THE ASSESSEE IS ALLEGED TO BE MORE THAN WHAT IS DECLARE D OR DISCLOSED, THE BURDEN OF PROVING SUCH UNDERSTATEMENT OR CONCEALMENT IS ON TH E REVENUE. THE SUPREME COURT OBSERVED THAT THE ASSESSING OFFICER HAS TO NE CESSARILY ESTABLISH THAT THE ASSESSEE HAS RECEIVED MORE THAN WHAT WAS DISCLOSED. IT DOES NOT CREATE ANY FICTIONAL FACET. IN VIEW OF THIS JUDGMENT OF THE A PEX COURT, ACCORDING TO THE LD. REPRESENTATIVE, THERE IS NO QUESTION OF ANY ADDITIO N. 4. ON THE CONTRARY, SHRI KRISHNA PRABHAKAR, THE LD. DR SUBMITTED THAT THE ASSESSEE SOLD THE SHARES TO HIS OWN SON. WHEN THE ASSESSEE PURCHASED THE SHARES FOR RS.400 PER SHARE, WHY DID SHE SELL THE S AME AT RS.100 PER SHARE. REFERRING TO THE ORDER OF THE TRIBUNAL IN THE FIRST ROUND OF LITIGATION IN ITA NO.05/RJT/2006, THE LD.DR SUBMITTED THAT THE ASSESS EES SON IS DIRECTOR OF THE COMPANY AND THE SALE OF SHARES IS AT A PREMIUM FOR CONTROLLING THE MANAGEMENT OF THE COMPANY. ACCORDING TO THE LD.REPRESENTATIVE , IN THE ABSENCE OF ANY EXPLANATION WITH REGARD TO THE MINIMUM REQUIREMENT OF TRANSACTION, SALE OF SHARES TO THE ASSESSEES SON @RS.100 PER SHARE CANN OT BE ACCEPTED. REFERRING ITA NO.603/RJT/208 3 TO THE ORDER OF THE ASSESSING OFFICER, THE LD.DR SU BMITTED THAT THE VALUATION OF THE SHARES MADE BY THE ASSESSEE IS ON THE BASIS OF THE BALANCE-SHEET PREPARED BY THE ASSESSEE. THEREFORE, WHEN THE ASSESSING OFFICE R CAME TO THE CONCLUSION THAT THE VALUE OF THE SHARE IS RS.275.54 , THE SALE OF S HARE AT RS.100 PER SHARE IS NOT JUSTIFIED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND HAVE ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE IMPU GNED SHARES WERE SOLD TO NONE OTHER THAN THE SON OF THE ASSESSEE AT RS.100 P ER SHARE. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEES SON IS ONE OF THE DIRECTORS OF THE COMPANY. THEREFORE, PROBABLY FOR THE PURPOSE OF HAVING A CON TROLLING INTEREST IN THE COMPANY, THE SHARES MUST HAVE BEEN TRANSFERRED. TH E QUESTION ARISES THUS FOR CONSIDERATION IS WHETHER THE SALE CONSIDERATION DIS CLOSED @100 PER SHARE IS FOR THE PURPOSE OF COMPUTATION OF CAPITAL LOSS OR DID A NY OTHER CONSIDERATION PASS ON TO THE ASSESSEE. THE ASSESSEE VALUED THE SHARE BY FOLLOWING ONE METHOD. THE ASSESSING OFFICER VALUED THE SHARES BY FOLLOWING AN OTHER METHOD. AS PER THE METHOD OF COMPUTATION MADE BY THE ASSESSEE, THE SHA RE WAS VALUED AT RS.140 PER SHARE. HOWEVER, AS PER THE METHOD ADOPTED BY T HE ASSESSING OFFICER, IT WAS VALUED AT RS.275.54 PER SHARE. THE MAIN CONTENTION OF THE LD.DR IS THAT THE TRANSACTION IS BETWEEN THE CLOSE RELATIVES, I.E. TH E MOTHER AND SON AND THE CONSIDERATION IS UNDERSTATED. THE ISSUE OF ALLEGED UNDERSTATEMENT OF VALUE BY THE REVENUE WAS EXAMINED ELABORATELY BY THE APEX CO URT IN THE CASE OF KP VERGHESE VS ITO (SUPRA). IN THE CASE BEFORE THE A PEX COURT, THE ASSESSEE PURCHASED A HOUSE AT ERNAKULAM IN THE YEAR 1958 FOR RS.16,500.. IN THE YEAR 1965, THE SAID HOUSE WAS SOLD TO HIS DAUGHTER IN LA W AND FIVE CHILDREN FOR THE SAME PRICE. INITIALLY THE RETURN OF INCOME WAS ACC EPTED, WHICH SHOWED NO CAPITAL GAIN AS A RESULT OF TRANSFER. HOWEVER, THE ASSESSI NG OFFICER REOPENED THE ASSESSMENT BY ISSUING NOTICE U/S 148. THE ASSESSEE RAISED OBJECTION AGAINST THE RE-ASSESSMENT PROPOSED BY THE ASSESSING OFFICER ON THE GROUND THAT THOUGH THE SALE OF THE HOUSE BY THE ASSESSEE WAS IN FAVOUR OF HIS DAUGHTER IN LAW AND FIVE OF HIS CHILDREN, WHO WERE PERSONS DIRECTLY CON NECTED WITH HIM, THE ITO COULD ITA NO.603/RJT/208 4 NOT INVOKE THE AID OF SECTION 52(1) FOR BRINGING TH E SUM OF RS.48,500 TO TAX BECAUSE THERE WAS ADMITTEDLY NO UNDERSTATEMENT OF C ONSIDERATION IN RESPECT OF THE TRANSFER OF THE HOUSE AND IT WAS NOT POSSIBLE T O SAY THAT THE TRANSFER WAS EFFECTED BY THE ASSESSEE WITH THE OBJECT OF AVOIDAN CE OR REDUCTION OF HIS LIABILITY UNDER SECTION 45 OF THE ACT. THEREFORE, THE ASSESS ING OFFICER RESTRICTED HIS DECISION BY SAYING THAT SECTION 52(2) DID NOT REQUI RE A CONDITION PRECEDENT THAT THERE SHOULD BE UNDERSTATEMENT OF CONSIDERATION IN RESPECT OF TRANSFER AND IT WAS ENOUGH TO ATTRACT THE APPLICABILITY OF SUB SECTION (2) IF THE FAIR MARKET VALUE OF THE PROPERTY ON THE DATE OF TRANSFER EXCEEDED THE FULL VALUE OF THE CONSIDERATION DECLARED BY THE ASSESSEE BY AN AMOUNT NOT LESS THA N 15% OF THE VALUE SO DECLARED. THE ASSESSEE CHALLENGED THE ORDER OF THE ASSESSING OFFICER BEFORE THE KERALA HIGH COURT BY WAY OF A WRIT PETITION. WHEN THE MATTER REACHED THE APEX COURT, THE SUPREME COURT, AFTER EXAMINING THE PROVI SIONS OF THE ACT AND CASE LAWS CITED ON THE SUBJECT, OBSERVED AS FOLLOWS: .IF, THEREFORE, THE REVENUE SEEKS TO BRING A CASE WITHIN SUB-S.(2), IT MUST SHOW NOT ONLY THAT THE FAIR MARKET VALUE OF THE CAPITAL ASSET AS ON THE DATE OF THE TRANSFER EXCEEDS THE FULL VAL UE OF THE CONSIDERATION DECLARED BY THE ASSESSEE BY NOT LESS THAN 15% OF THE VALUE SO DECLARED, BUT ALSO THAT THE CONSIDERATION HAS BEEN UNDERSTATED AND THE ASSESSEE HAS ACTUALLY RECEIVED MORE THAN WHAT IS DECLARED BY HIM. THERE ARE TWO DISTINCT CO NDITIONS WHICH HAVE TO BE SATISFIED BEFORE SUB-S. (2) CAN BE INVOK ED BY THE REVENUE AND THE BURDEN OF SHOWING THAT THESE TWO CO NDITIONS ARE SATISFIED RESTS ON THE REVENUE. IT IS FOR THE REVE NUE TO SHOW THAT EACH OF THESE TWO CONDITIONS IS SATISFIED AND THE R EVENUE CANNOT CLAIM TO HAVE DISCHARGED THIS BURDEN WHICH LIES UPO N IT, BY MERELY ESTABLISHING THAT THE FAIR MARKET VALUE OF THE CAPI TAL ASSET AS ON THE DATE OF THE TRANSFER EXCEEDS BY 15% OR MORE THE FUL L VALUE OF THE CONSIDERATION DECLARED IN RESPECT OF THE TRANSFER A ND THE FIRST CONDITION IS, THEREFORE, SATISFIED. THE REVENUE MU ST GO FURTHER AND PROVE THAT THE SECOND CONDITION IS ALSO SATISFIED. MERELY BY SHOWING THAT THE FIRST CONDITION IS SATISFIED, THE REVENUE CANNOT ASK THE COURT TO PRESUME THAT THE SECOND CONDITION TOO IS FULFILLED, BECAUSE EVEN IN A CASE WHERE THE FIRST CONDITION OF 15% DIFFERENCE IS SATISFIED, THE TRANSACTION MAY BE A PERFECTLY HO NEST AND BONA FIDE TRANSACTION AND THERE MAY BE NO UNDERSTATEMENT OF T HE CONSIDERATION. THE FULFILLMENT OF THE SECOND CONDI TION HAS, THEREFORE, TO BE ESTABLISHED INDEPENDENTLY OF THE F IRST CONDITION AND ITA NO.603/RJT/208 5 MERELY BECAUSE THE FIRST CONDITION IS SATISFIED, NO INFERENCE CAN BE NECESSARILY FOLLOW THAT THE SECOND CONDITION IS ALS O FULFILLED. EACH CONDITION HAS GOT TO BE VIEWED AND ESTABLISHED INDE PENDENTLY BEFORE SUB-S.(2) CAN BE INVOKED AND THE BURDEN OF D OING SO IS CLEARLY ON THE REVENUE.. THE SUPREME COURT FURTHER HELD AT PAGE 618 AS FOLLO WS: WE MUST, THEREFORE, HOLD THAT SUB-S.(2) OF S.52 C AN BE INVOKED ONLY WHERE THE CONSIDERATION FOR THE TRANSF ER HAS BEEN UNDERSTATED BY THE ASSESSEE OR, IN OTHER WORDS, THE CONSIDERATION ACTUALLY RECEIVED BY THE ASSESSEE IS MORE THAN WHAT IS DECLARED OR DISCLOSED BY HIM AND THE BURDEN OF PROVING SUCH AN UNDERSTATEMENT OR CONCEALMENT IS ON THE REVENUE. T HIS BURDEN MAY BE DISCHARGED BY THE REVENUE BY ESTABLISHING FA CTS AND CIRCUMSTANCES FROM WHICH IS REASONABLE INFERENCE CA N BE DRAWN THAT THE ASSESSEE HAS NOT CORRECTLY DECLARED OR DIS CLOSED THE CONSIDERATION RECEIVED BY HIM AND THERE IS AN UNDER STATEMENT OR CONCEALMENT OF THE CONSIDERATION IN RESPECT OF THE TRANSFER. SUB- SECTION (2) HAS NO APPLICATION IN THE CASE OF AN HO NEST AND BONA FIDE TRANSACTION WHERE THE CONSIDERATION RECEIVED B Y THE ASSESSEE HAS BEEN CORRECTLY DECLARED OR DISCLOSED BY HIM, AN D THERE IS NO CONCEALMENT OR SUPPRESSION OF THE CONSIDERATION. W E FIND THAT IN THE PRESENT CASE, IT WAS NOT THE CONTENTION OF THE REVENUE THAT THE PROPERTY WAS SOLD BY THE ASSESSEE TO HIS DAUGHTER-I N-LAW AND FIVE OF HIS CHILDREN FOR A CONSIDERATION WHICH WAS MORE THAN THE SUM OF RS.16,500 SHOWN TO BE THE CONSIDERATION FOR THE PRO PERTY IN THE INSTRUMENT OF TRANSFER AND THERE WAS AN UNDERSTATEM ENT OR CONCEALMENT OF THE CONSIDERATION IN RESPECT OF THE TRANSFER. IT WAS COMMON GROUND BETWEEN THE PARTIES AND THAT WAS A FI NDING OF FACT REACHED BY THE I.T. AUTHORITIES THAT THE TRANSFER O F THE PROPERTY BY THE ASSESSEE WAS A PERFECTLY HONEST AND BONA FIDE T RANSACTION WHERE THE FULL VALUE OF THE CONSIDERATION RECEIVED BY THE ASSESSEE WAS CORRECTLY DISCLOSED AT THE FIGURE OF RS.16,500. THEREFORE, ON THE CONSTRUCTION PLACED BY US, SUB-S.(2) OF HAD NO APPLICATION TO THE PRESENT CASE AND THE ITO COULD HAVE NO REASON TO BE LIEVE THAT ANY PART OF THE INCOME OF THE ASSESSEE HAD ESCAPED ASSE SSMENT SO AS TO JUSTIFY THE ISSUE OF A NOTICE UNDER S. 148. THE ORDER OF REASSESSMENT MADE BY THE ITO PURSUANT TO THE NOTICE ISSUED UNDER S. 148 WAS ACCORDINGLY WITHOUT JU8RISDICTION AND TH E MAJORITY JUDGES OF THE FULL BENCH WERE IN ERROR IN REFUSING TO QUAS H IT. 6. IN VIEW OF THE ABOVE JUDGMENT OF THE APEX COURT, THE REVENUE HAS TO SHOW THAT THE ASSESSEE ACTUALLY RECEIVED MORE THAN WHAT IS DISCLOSED OR DECLARED IN ITA NO.603/RJT/208 6 THE RETURN OF INCOME. THE BURDEN OF PROVING THE UND ERSTATEMENT OR CONCEALMENT, IF ANY, IS ON THE REVENUE. IN THE CASE BEFORE US, IT IS NOT THE CONTENTION OF THE REVENUE THAT THE ASSESSEE HAS RECEIVED ANYTHING MOR E THAN WHAT WAS DISCLOSED. THE CONTENTION OF THE REVENUE IS THAT THE FAIR MARK ET VALUE OF THE SHARE ON THE DATE OF SALE IS RS.275.54. IN THE ABSENCE OF ANY M ATERIAL TO SUGGEST THAT THE ASSESSEE HAS RECEIVED MORE THAN WHAT WAS DISCLOSED / DECLARED, THERE CANNOT BE ANY UNDERSTATEMENT OR CONCEALMENT IN RESPECT OF THE TRANSFER OF SHARES. IN VIEW OF THE JUDGMENT OF THE APEX COURT, THE ADDITIO N MADE BY THE LOWER AUTHORITIES IS NOT JUSTIFIED. ACCORDINGLY, BY RESP ECTFULLY FOLLOWING THE JUDGMENT OF THE APEX COURT IN THE CASE OF KP VERGHESE VS ITO (S UPRA), WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELETE THE ADDITION . 7. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15-07-2011. (A.L. GEHLOT) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER RAJKOT, DT : 15 TH JULY, 2011 PK/- COPY TO: 1. ASSESSEE 2. REVENUE 3. THE CIT(A)-III, RAJKOT 4. THE CIT-II, RAJKOT 5. THE DR, I.T.A.T., RAJKOT (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT