SWISS REINSURANCE COMPANY LTD, MUMBAI V. DCIT (IT) RG 4(2)(2), MUMBAI

ITA 6531/MUM/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0011 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2014-2015
• Appeal Filed On: 08-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SS IYENGAR
• Assessee Lawyers: P J PARDIWALA SR
• Keywords: Capital asset; Double taxation relief; Share purchase agreement; Permanent establishment; Cost of acquisition; Wholly owned subsidiary; Fair market value; Valuation report; Competent authority; Capital Gains
• Section: 56(2); 43; 48; 9(1); 9(1); 9(1); 13

Judgement Text

1 ITA 6531/MUM/2017 THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR (VICE PRESIDENT) AND SHRI SAKTIJIT DEY (JUDICIAL MEMBER) I.T.A. NO.6531/MUM/2017 (ASSESSMENT YEAR: 2014-15) SWISS REINSURANCE COMPANY LTD A 701, 7 TH FLOOR, ONE BKC, PLOT NO.C- 66, BANDRA KURLA COMPLEX, MUMBAI- 400 051 PAN : AACCS2650M VS DEPUTY COMMISSIONER OF INCOME-TAX (INTERNATIONAL TAXATION)-RANGE 4(2)(2), MUMBAI APPELLANT RESPONDENT APPELLANT BY SHRI PJ PARDIWALA, SR.COUNSEL RESPONDENT BY SHRI SS IYENGAR, SR.DR DATE OF HEARING 21-05-2021 DATE OF PRONOUNCEMENT 20-07-2021 O R D E R PER SAKTIJIT DEY, JM:- CAPTIONED APPEAL HAS BEEN FILED BY THE ASSESSEE AS SAILING THE FINAL ASSESSMENT ORDER DATED 10-10-2017 PASSED UNDER SECT ION 143 (3) R.W.S. 144C(13) OF THE INCOME-TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2014-15 IN PURSUANCE TO THE DIRECTIONS OF THE LEARNED DISPUTE RESOLUTION PANEL- II (DRP, IN SHORT), MUMBAI. 2. GROUND 1 BEING GENERAL IN NATURE, DOES NOT REQUI RE SPECIFIC ADJUDICATION. 3. IN GROUNDS 2 AND 3, ASSESSEE HAS CHALLENGED THE TAXABILITY OF INCOME RECEIVED FROM RE-INSURANCE BUSINESS IN INDIA. 2 ITA 6531/MUM/2017 4. BRIEFLY THE FACTS ARE, THE ASSESSEE IS A COMPANY INCORPORATED IN SWITZERLAND AND IS ALSO A TAX RESIDENT OF THAT COUNTRY. AS STAT ED BY THE ASSESSING OFFICER, THE ASSESSEE IS A GLOBAL RE-INSURER AND PROVIDES RE-INS URANCE SERVICES TO VARIOUS INSURANCE COMPANIES, INCLUDING, INDIAN INSURANCE CO MPANIES THROUGH ITS BRANCHES ACROSS THE GLOBE. ASSESSEES BRANCH AT SINGAPORE PR OVIDES RE-INSURANCE SERVICES TO VARIOUS INDIAN INSURANCE COMPANIES. AS OBSERVED BY THE ASSESSING OFFICER, THE ASSESSEE HAS A WHOLLY OWNED SUBSIDIARY IN INDIA NAM ED AS SWISS REINSURANCE SERVICES PVT LTD (SRSIPL). ASSESSEE HAS ENTERED INT O AN AGREEMENT WITH SRSIPL ON 01-04-2009 FOR AVAILING CERTAIN SERVICES FROM THE I NDIAN SUBSIDIARY, THE DETAILS OF WHICH ARE ENUMERATED IN THE AGREEMENT. AS PER THE T ERMS OF THE AGREEMENT, FOR RENDERING SERVICES, THE INDIAN SUBSIDIARY IS REMUNE RATED AT COST (+) MARK-UP OF 12%. IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSES SING OFFICER, ON VERIFYING MATERIALS ON RECORD, NOTICED THAT DURING THE YEAR U NDER CONSIDERATION THE ASSESSEE HAD RECEIVED INSURANCE PREMIA AGGREGATING TO THE TUNE OF RS.1639,97,85,017/- FROM INDIAN INSURERS. NOTICING THIS, THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE AFORESA ID AMOUNT RECEIVED FROM RE- INSURANCE BUSINESS IN INDIA SHOULD NOT BE BROUGHT T O TAX IN INDIA. IN RESPONSE, IT WAS SUBMITTED BY THE ASSESSEE THAT SINCE IT HAS NEI THER ANY BUSINESS CONNECTION NOR ANY PERMANENT ESTABLISHMENT (PE) IN INDIA, THE AMOUNT RECEIVED FROM RE- INSURANCE BUSINESS CANNOT BE TAXED IN INDIA AS PER ARTICLE 7 OF THE INDIA SWITZERLAND DOUBLE TAXATION AVOIDANCE AGREEMENT (DT AA, IN SHORT). THE ASSESSING OFFICER, HOWEVER, DID NOT ACCEPT THE CLAI M OF THE ASSESSEE. HE WAS OF THE VIEW THAT SINCE THE ASSESSEE HAD ENTERED INTO A SER VICE AGREEMENT WITH ITS INDIAN SUBSIDIARY, VIZ. SRSIPL FOR AVAILING VARIOUS SERVIC ES, SUCH AS, RISK ASSESSMENT SERVICES, MARKET INTELLIGENCE AND ADMINISTRATIVE SU PPORT SERVICES ETC. FOR 3 ITA 6531/MUM/2017 REMUNERATION, SRSIPL IS A DEPENDENT AGENT OF THE AS SESSEE; HENCE, WOULD CONSTITUTE A PE UNDER ARTICLE 5.5 OF INDIA SWITZERL AND DTAA. THEREFORE, THE AMOUNT RECEIVED TOWARDS RE-INSURANCE BUSINESS WOULD BE TAXABLE IN INDIA. HAVING HELD SO, THE ASSESSING OFFICER ESTIMATED THE TOTAL PROFITS OF THE RE-INSURANCE BUSINESS AT 10% OF THE RE-INSURANCE PREMIUM COLLECT ED. OUT OF SUCH PROFIT ESTIMATED AT 10%, THE ASSESSING OFFICER ATTRIBUTED 50% TO THE INDIAN PE AND BROUGHT IT TO TAX AT THE APPLICABLE RATE. 5. AGAINST THE AFORESAID DECISION OF THE ASSESSING OFFICER, ASSESSEE RAISED OBJECTIONS BEFORE LEARNED DRP. BEFORE LEARNED DRP, T HOUGH, THE ASSESSEE SPECIFICALLY CONTENDED THAT IDENTICAL ISSUE ARISING IN ITS OWN CASE IN ASSESSMENT YEAR 2010-11 HAS BEEN DECIDED IN FAVOUR OF THE ASSE SSEE BY THE TRIBUNAL BY HOLDING THAT SRSIPL DOES NOT CONSTITUTE A PE, HOWE VER, LEARNED DRP UPHELD THE DECISION OF THE ASSESSING OFFICER. 6. SHRI PJ PARDIWALLA, LEARNED SENIOR COUNSEL APPEA RING FOR THE ASSESSEE SUBMITTED, IDENTICAL ISSUE ARISING IN ASSESSEES OW N CASE IN PRECEDING ASSESSMENT YEARS HAVE BEEN CONSISTENTLY DECIDED IN FAVOUR OF T HE ASSESSEE. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE RELEVANT ORDERS OF THE TR IBUNAL PLACED IN THE PAPER BOOK. THUS, HE SUBMITTED, THE ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE, THOUGH, FAIRLY SUBMITTED THAT THE TRIBUNAL HAS DECIDED IDENTICAL ISSUE IN FAVOUR OF T HE ASSESSEE IN THE PRECEDING ASSESSMENT YEARS; HOWEVER, HE RELIED UPON THE OBSER VATIONS OF THE ASSESSING OFFICER AND LEARNED DRP. 8. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. THE CORE ISSUE ARISING FOR CONSIDERATION IS, WHETHE R SRSIPL CONSTITUTES A PE OF THE 4 ITA 6531/MUM/2017 ASSESSEE IN INDIA SO AS TO BRING THE BUSINESS PROFI T OF THE ASSESSEE TO TAX IN INDIA IN TERMS OF INDIA-SWITZERLAND DTAA. AS WE FIND, IDENTI CAL ISSUE CAME UP FOR CONSIDERATION FOR THE FIRST TIME BEFORE THE TRIBUNA L IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2010-11. WHILE DECIDING THE ISSUE I N ITA NO.1667/MUM/2014 DATED 13-02-2015, THE TRIBUNAL, AFTER ANALYZING THE SERVICE AGREEMENT BETWEEN ASSESSEE AND SRSIPL AND ALL OTHER RELEVANT FACTS, C ONCLUDED THAT NEITHER THE ASSESSEE HAS ANY BUSINESS CONNECTION IN INDIA AS PE R EXPLANATION 2 TO SECTION 9(1) OF THE ACT NOR DOES IT HAVE ANY PE IN INDIA. THE TR IBUNAL, IN VERY CLEAR TERMS HELD THAT SRSIPL CANNOT BE CONSIDERED AS A SERVICE/DEPEN DENT AGENT PE OF THE ASSESSEE. THE SAME VIEW WAS REITERATED BY THE TRIBU NAL WHILE DECIDING APPEALS FOR ASSESSMENT YEARS 2011-12 AND 2012013 VIDE ITA NOS 1 350 & 1351/MUM/2016 DATED 223-01-2018, FOR ASSESSMENT YEAR 2013-14 VID E ITA NO.2759/MUM/2017 DATED 04-07-2017 AND FOR ASSESSMENT YEAR 2015-16 IN ITA NO.4898/MUM/2018 DATED 26-12-2018. THUS, FROM THE FACTS DISCUSSED AB OVE IT IS AMPLY CLEAR THAT THE ISSUE, WHETHER SRSIPL CAN BE CONSIDERED AS A PE OF THE ASSESSEE IN INDIA HAS ARISEN TIME AND AGAIN BEFORE THE TRIBUNAL AND THE TRIBUNAL HAS CONSISTENTLY DECIDED IN FAVOUR OF THE ASSESSEE. IN FACT, THE IMPUGNED DIREC TION OF THE LEARNED DRP WOULD REVEAL THAT THOUGH LEARNED DRP WAS CONSCIOUS OF THE FACT THAT THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN ASSE SSMENT YEAR 2010-11; HOWEVER, SINCE THE REVENUE HAS FILED AN APPEAL AGAINST THE D ECISION OF THE TRIBUNAL, LEARNED DRP DECIDED THE ISSUE AGAINST THE ASSESSEE JUST FOR THE SAKE OF KEEPING IT ALIVE. HOWEVER, WE ARE UNABLE TO ACCEPT THE AFORESAID REAS ONING OF LEARNED DRP. THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE AS REFERRED TO ABOVE, WE DECIDE THE ISSUE IN F AVOUR OF THE ASSESSEE BY HOLDING THAT SINCE SRSIPL IS NOT A PE OF THE ASSESS EE, THE PROFITS EARNED FROM RE- 5 ITA 6531/MUM/2017 INSURANCE BUSINESS CANNOT BE BROUGHT TO TAX IN INDI A IN TERMS OF ARTICLE 7 OF INDIA SWITZERLAND DTAA. ACCORDINGLY, ADDITION IS DELETED . THESE GROUNDS ARE ALLOWED. 9. IN GROUNDS 4 AND 5, ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF LONG-TERM CAPITAL LOSS ARISING FROM SALE OF SHARES. 10. BRIEFLY THE FACTS EMERGING FROM RECORD ARE, THE ASSESSEE WAS HOLDING 12,34,476 SHARES CONSTITUTING ABOUT 26% OF THE TOTA L SHARES OF AN INDIAN COMPANY, VIZ. TTK HEALTHCARE SERVICES PVT LTD (TTK, IN SHORT). THESE SHARES WERE ACQUIRED BY THE ASSESSEE IN TRANCHES UNDER THE FORE IGN DIRECT INVESTMENT (FDI, IN SHORT) ROUTE DURING THE PERIOD FROM 08-03-2007 TO 0 5-08-2010. ALL THE SHARES HAVING FACE VALUE OF RS.10/- WERE ACQUIRED BY THE A SSESSEE WITH PREMIUM VARYING BETWEEN RS.35 TO RS.5,141.05. DURING THE YEAR UNDE R CONSIDERATION, THE ASSESSEE SOLD ALL ITS SHARES TO VIDAL HEALTHCARE SERVICES PV T LTD AT MUTUALLY AGREED TERMS OF RS.5 PER SHARE. IN THE PROCESS, ASSESSEE INCURRED L ONG TERM CAPITAL LOSS OF RS.49,92,40,510/- AND CARRY FORWARD OF SUCH LOSS WA S CLAIMED IN THE RETURN OF INCOME FILED FOR THE IMPUGNED ASSESSMENT YEAR. AFTE R EXAMINING THE FACTS RELATING TO ACQUISITION OF SALE OF SHARES OF TTK BY THE ASSE SSEE, THE ASSESSING OFFICER CALLED FOR VARIOUS DETAILS AND ASKED THE ASSESSEE TO EXPLA IN THE JUSTIFICATION OF SELLING THE SHARES AT LOSS WHEN THEY WERE PURCHASED WITH VERY H IGH PREMIUM. THE ASSESSING OFFICER ALSO CALLED UPON THE ASSESSEE TO FURNISH TH E VALUATION OF THE SHARES AT THE TIME OF ACQUISITION AS WELL AS AT THE TIME OF SALE UNDER DISCOUNTED CASH FLOW (DCF) METHOD AS WELL AS UNDER RULE 11UA. IN RESPONSE TO T HE QUERY RAISED, THE ASSESSEE FURNISHED ALL THE DETAILS AND ALSO EXPLAINED THE RE ASONS FOR DISPOSING OF THE SHARES AT A LESSER VALUE. FURTHER, THE ASSESSEE ALSO FURNI SHED VALUATION REPORT OF THE SHARES BOTH, UNDER NET ASSET VALUE AND CAPITALIZATI ON OF EARNING METHOD, AS PER WHICH THE VALUE OF SHARES WERE ARRIVED AT RS.14.36 PER SHARE AND RS.13.82 PER 6 ITA 6531/MUM/2017 SHARE RESPECTIVELY. ADDITIONALLY, THE ASSESSEE ALSO FURNISHED A VALUATION REPORT UNDER DCF METHOD VALUING THE SHARE AT (-) RS.363/-. AFTER EXAMINING THE FACTUAL DETAILS, THE ASSESSING OFFICER NOTICED THAT DESPITE THE FACT THAT TTK WAS INCURRING CASH LOSS IN FINANCIAL YEARS 2008-09 AND 2009-10, T HE ASSESSEE WENT AHEAD IN BUYING SHARES WITH HEAVY PREMIUM. FURTHER, HE OBSER VED, WHEN THE ASSESSEE WAS CALLED UPON TO VALUE THE SHARES OF TTK AS PER RULE 11UA, THE ASSESSEE SUBMITTED THAT RULE 11UA PRESCRIBES THE METHODOLOGY FOR DETER MINING THE FAIR MARKET VALUE OF UNQUOTED SHARES OF A COMPANY FOR THE PURPOSE OF SECTION 56(2)(VIIA) AND (VIIB) OF THE ACT. FURTHER, THE ASSESSEE SUBMITTED, BOTH S ECTION 56((2)(VIIA) AND RULE 11UA ARE ATTRACTED TO THE RECIPIENT OF SHARES WHERE THERE IS AN INADEQUATE CONSIDERATION PAID BY SUCH RECIPIENT ON PURCHASE OF SHARES. THEREFORE, IT WAS SUBMITTED, SINCE THE ASSESSEE HAS SOLD THE SHARES, SECTION 56(2)(VIIA) AND RULE 11UA WOULD NOT BE APPLICABLE. THE ASSESSING OFFICE R, HOWEVER, WAS NOT CONVINCED WITH THE AFORESAID SUBMISSIONS OF THE ASSESSEE. HE OBSERVED, THERE IS NO JUSTIFIABLE REASON FOR THE ASSESSEE IN INVESTING IN SHARES OF TTK WITH VERY HIGH PREMIUM AND THEREAFTER SELLING THEM AT HUGE LOSS. T HEREAFTER, REFERRING TO AND ANALYZING VARIOUS OTHER FACTUAL ASPECTS, THE ASSESS ING OFFICER ULTIMATELY CONCLUDED THAT THE LONG TERM CAPITAL LOSS CLAIMED BY THE ASSE SSEE ON SALE OF SHARES IS AN ARTIFICIAL LOSS; HENCE, CANNOT BE ALLOWED. ACCORDI NGLY, HE DISALLOWED THE LONG TERM CAPITAL LOSS CLAIMED BY THE ASSESSEE AND CONSEQUENT LY, DENIED THE CARRY FORWARD OF THE SAID LOSS TO SUBSEQUENT ASSESSMENT YEAR. ASS ESSEE CHALLENGED THE AFORESAID DECISION OF ASSESSING OFFICER BEFORE LEARNED DRP. A FTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF FACTS AND MATERIALS ON RECORD, LEARNED DRP ULTIMATELY CONCURRED WITH THE DECISION OF THE ASSESSING OFFICER THAT THE LOSS CLAIMED BY THE ASSESSEE IS AN ARTIFICIAL L OSS. IN TERMS OF THE AFORESAID 7 ITA 6531/MUM/2017 DIRECTIONS OF LEARNED DRP, THE ASSESSING OFFICER PA SSED THE IMPUGNED ASSESSMENT ORDER DISALLOWING ASSESSEES CLAIM OF LONG TERM CAP ITAL LOSS. 10. THE LEARNED SENIOR COUNSEL FOR THE ASSESSEE SUB MITTED, SINCE THE ASSESSEE HAS ACQUIRED THE SHARES OF TTK THROUGH FDI ROUTE, I T HAS TO FOLLOW THE RULES AND REGULATIONS FRAMED BY INSURANCE REGULATORY & DEVELO PMENT AUTHORITY OF INDIA (IRDA) AND RESERVE BANK OF INDIA (RBI). HE SUBMITTE D, AS PER SUCH REGULATION, THERE IS AN UPPER LIMIT FOR INVESTING IN SHARES OF AN INDIAN COMPANY, WHICH CANNOT EXCEED 26% OF THE WHOLE SHARES. HE SUBMITTED, THE I NVESTMENT IN SHARES THROUGH FDI ROUTE WAS APPROVED BY ALL THE REGULATORY AUTHOR ITIES INCLUDING RBI. COPIES OF SUCH APPROVALS WERE FURNISHED BOTH BEFORE THE ASSES SING OFFICER AND LEARNED DRP. HE SUBMITTED, INVESTMENT IN SHARES OF TTK WAS ALSO APPROVED IN A BOARD RESOLUTION. HE SUBMITTED, AS PER FEMA REGULATIONS, NO SHARES CAN BE SOLD TO A NON RESIDENT AT A LESSER VALUE. IN THIS CONTEXT, HE DRE W OUR ATTENTION TO THE BOARD RESOLUTION AS WELL AS THE APPROVAL OF THE COMPETENT AUTHORITY WHILE PURCHASING SHARES OF TTK. DRAWING OUR ATTENTION TO THE AUDITED FINANCIAL STATEMENTS OF TTK, LEARNED SENIOR COUNSEL SUBMITTED, TTK WAS INCURRING HUGE LOSS CONSISTENTLY OVER THE YEARS. HOWEVER, TO INFUSE CAPITAL IN TTK FOR OV ERCOMING THE LOSS, THE ASSESSEE HAS TO MAKE INVESTMENT BY SUBSCRIBING TO SHARES AT A PREMIUM. HE SUBMITTED, IT IS A PRUDENT COMMERCIAL DECISION OF THE ASSESSEE TO RE VIVE A LOSS MAKING COMPANY, WHEREIN, THE ASSESSEE HAD STAKE. DRAWING OUR ATTENT ION TO PAGE 248 OF THE PAPER BOOK, THE HE SUBMITTED, ON 01-11-2011, IRDA HAD RAI SED A QUERY BY ASKING TTK TO JUSTIFY THE PAYMENT OF UNDULY HIGH PREMIUM BY THE AS SESSEE FOR BUYING THE SHARES, WHEREAS, DURING THE SAME PERIOD SHARES WERE ISSUED AT PAR TO THE INDIAN PROMOTER. HE SUBMITTED, IN RESPONSE TO THE QUERY RA ISED BY THE IRDA, TTK HAD FURNISHED ITS REPLY JUSTIFYING SUBSCRIPTION OF SHARE S AT HIGH PREMIUM BY THE 8 ITA 6531/MUM/2017 ASSESSEE. THE LEARNED COUNSEL SUBMITTED, ASSESSEE H AD TO SUBSCRIBE TO SHARES OF TTK TO KEEP THE COMPANY GOING. 11. COUNTERING VARIOUS ALLEGATIONS OF THE ASSESSING OFFICER, LEARNED SENIOR COUNSEL SUBMITTED, VARIOUS ALLEGATIONS MADE BY THE ASSESSING OFFICER ARE WITHOUT ANY BASIS. HE SUBMITTED, WHEN THE EVENTS OF ACQUISI TION AND SALE OF SHARES HAVE NOT BEEN DOUBTED AND IS FACTUALLY PROVED, THE LOSS ARISING FROM SUCH TRANSACTION CANNOT BE TREATED AS ARTIFICIAL LOSS, AS IT HAS TO BE COMPUTED IN TERMS OF SECTION 48 AND OTHER PROVISIONS OF THE ACT. FURTHER, HE SUBMIT TED, THE ALLEGATION OF THE ASSESSING OFFICER THAT TO SET OFF THE CARRY FORWARD LOSS AGAINST THE LONG TERM CAPITAL GAIN ARISING IN FUTURE, THE ASSESSEE HAS DEVISED TH IS MECHANISM, IS WHOLLY BASELESS AS AT THE TIME OF SALE OF SHARES, THE ASSESSEE COUL D NOT HAVE FORESEEN THE FUTURE EVENT OF CAPITAL GAIN ARISING IN ASSESSMENT YEAR 20 16-17. THUS, HE SUBMITTED, THE LOSS ARISING FROM SALE OF SHARES BEING GENUINE HAS TO BE ALLOWED. THE LEARNED SENIOR COUNSEL SUBMITTED, IN SUPPORT OF VALUATION O F SHARES THE ASSESSEE HAS FURNISHED VALUATION REPORT OF AN EXPERT WHICH HAS N OT BEEN CONTROVERTED BY THE ASSESSING OFFICER BY BRINGING HIS OWN VALUATION DON E THROUGH AN EXPERT. FURTHER, HE SUBMITTED, THERE IS NO REQUIREMENT FOR THE ASSES SEE TO FURNISH VALUATION UNDER RULE 11UA AS IT IS ONLY REQUIRED WHILE APPLYING SEC TION 56(2)(VIIA) OF THE ACT, THAT TOO, IN CASE OF A PURCHASER OF SHARES. HE SUBMITTED , THE ONLY PROVISION WHICH COULD HAVE BEEN APPLIED BY THE ASSESSING OFFICER FO R DETERMINING THE FAIR MARKET VALUE OF SHARES IS SECTION 56CA. HOWEVER, THE SAID SECTION HAVING COME TO THE STATUTE ON 01-04-2018, WOULD NOT BE APPLICABLE TO T HE IMPUGNED ASSESSMENT YEAR. IN SUPPORT OF HIS CONTENTION, THE LEARNED SE NIOR COUNSEL RELIED UPON A DECISION OF HONBLE SUPREME COURT IN CASE OF CIT VS GEORGE ANDERSON & CO LTD (1967) 66 ITR 622 (SC). 9 ITA 6531/MUM/2017 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE, IN ADD ITION TO SUBMISSIONS MADE AT THE TIME OF HEARING, HAS ALSO FILED A WRITTEN SU BMISSION. THE SUBMISSIONS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE CAN BE SUMMARIS ED, AS UNDER:- THE ASSESSEE CONTINUED TO BUY SHARES OF TTK IN FINA NCIAL YEAR 2010-11 AT HUGE PREMIUM, IN SPITE OF THE FACT THAT THE ASSESSE E HAS MADE UP ITS MIND OF DIVESTING ITS INTEREST IN TTK IN THE VERY SAME F INANCIAL YEAR ITSELF. THE COMPANY, TO WHOM THE STOCK WAS PROPOSED TO BE SOLD, I.E. VIDAL HEALTHCARE SERVICES LTD WAS INCORPORATED JUST 15 DAYS PRIOR TO DISCLOSURE OF DIVESTMENT OF INTEREST, I.E. ON 24-08-2010. DURING THE ENTIRE PERIOD, SHRI GIRISH RAO, THE PROM OTER OF VIDAL HEALTHCARE SERVICES LTD WAS INTRINSICALLY LINKED TO THE ASSESS EE AND TTK AND WAS ALSO THE CO-FOUNDER AND MANAGING DIRECTOR OF TTK FROM 20 02 TO 2007. HE WAS ALSO ASSOCIATED WITH THE ASSESSEE AS GENERAL MANAGE R OF RE-HEALTHCARE SERVICES PVT LTD. HE ALSO FOUNDED VIDAL HEALTHCARE SERVICES LTD. FURTHER, THE ASSESSEE FAILED TO PRODUCE SHRI GIRISH RAO BEFO RE THE DEPARTMENTAL AUTHORITY. DURING 2013-14, WHEN THE SHARES OF TTK WERE SOLD AT RS.5, THE COMPANY BOASTED ITS SECOND HIGHEST RESERVE/SURPLUS FROM FIN ANCIAL YEAR 2009-10 ONWARDS. IT IS SEEN FROM RECORD THAT IN ASSESSMENT YEAR 2016 -17, THE ASSESSEE HAS SET OFF THE LONG TERM CAPITAL LOSS OF RS.49.92 CRORES A GAINST THE CAPITAL GAIN OF RS.107.12 CRORES. THUS THE ASSESSING OFFICER CORREC TLY OBSERVED THAT THE LOSS WAS ARTIFICIALLY CREATED FOR SETTING OFF AGAINST FU TURE GAIN. THE VERY FACT THAT THE ASSESSEE HAD PURCHASED SHARE S AT HUGE PREMIUM, WHEREAS, THE SHARES WERE SOLD AT PART VALUE TO OTHE R SHAREHOLDERS AND 10 ITA 6531/MUM/2017 SUBSEQUENT SALE OF SHARES BY THE ASSESSEE SOLD AT A SUBSTANTIALLY LOW VALUE OF RS.5 PER SHARE, DOES NOT REFLECT NATURAL BEHAVIO UR OF A PRUDENT BUSINESSMAN. 13. IN SUPPORT OF HIS CONTENTION, HE RELIED UPON TH E DECISION OF ITAT, DELHI BENCH IN CASE OF HERESH W. CHADHA L/H OF LATE W. N. CHADHA VS DCIT (2011) 43 SOT 544(DEL). FURTHER, RELYING UPON THE DECISION OF VODAFONE INTERNATIONAL HOLDINGS B.V. VS UOI (2012) 341 ITR 1 (SC) AND APPL YING THE TEST/RATIO LAID DOWN THEREIN TO ASCERTAIN WHETHER THE TRANSACTION ENTERE D INTO BY THE ASSESSEE RELATING TO PURCHASE AND SALE OF SHARE IS BONAFIDE OR NOT, L EARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED, VERY FACT THAT THE ASSESS EE HAD PURCHASED THE SHARES AT HUGE PREMIUM AS AGAINST SIMILAR SHARES SOLD AT PAR VALUE TO OTHER SHAREHOLDERS AND THE ASSESSEE SUBSEQUENTLY SOLD THE SHARES AT BE LOW PAR VALUE CLEARLY INDICATES THAT IT IS A SHAM TRANSACTION USING COLOURABLE DEVI CE TO CREATE ARTIFICIAL LOSS. HE SUBMITTED, LOOKING AT THE ENTIRE SCENARIO RELATING TO THIS TRANSACTION, IT IS EVIDENT THAT AT THE TIME OF INVESTMENT IN SHARES THE ASSESS EE HAD GIVEN A PUBLIC STATEMENT IN SEPTEMBER, 2020 OF DIVESTING ITS ENTIRE STOCK IN TTK. THEREFORE, THERE WAS NO COMMERCIAL BASIS FOR INVESTING IN SUCH HIGH VALUE, MORE PARTICULARLY, WHEN THE VALUE OF SHARE AS PER DCF METHOD WAS (-) RS.364/-. FURTHER, HE SUBMITTED, THOUGH THE SALE OF SHARE WAS ORIGINALLY CONTEMPLATED BY TH E ASSESSEE IN SEPTEMBER, 2010; HOWEVER, THE SHARES WERE ULTIMATELY SOLD ON 13-06-2 013 AT A HUGE LOSS. HE SUBMITTED, IT IS ALSO INTERESTING TO NOTE THAT JUST 15 DAYS PRIOR TO THE ANNOUNCEMENT OF DIVESTMENT OF SHARES, VIDAL HEALTHC ARE SERVICES LTD WAS FORMED. THEREFORE, THE CHAIN OF EVENTS GO TO SHOW T HAT THE CLOSE ASSOCIATION OF SHRI GIRISH RAO WITH THE ASSESSEE COMPANY WAS EMPLO YED TO UNDERTAKE THIS TRANSACTION GENERATING HUGE LOSS; HENCE, THE ASSESS EE HAS FAILED THE TIMING TEST. 11 ITA 6531/MUM/2017 FURTHER, HE SUBMITTED, THOUGH TTK WAS INCURRING LOS SES DURING THE RELEVANT PERIOD; HOWEVER, THE ASSESSEE CONTINUED TO BUY SHAR ES AT HUGE PREMIUM WHICH DEFUSE COMMERCIAL AND BUSINESS PRUDENCE. THEREFORE , THE ASSESSEE ALSO FAILED COMMERCIAL / BUSINESS PURPOSE TEST. 14. FINALLY, HE SUBMITTED, ASSESSEE HAS ARTIFICIALL Y ARRANGED THE ENTIRE TRANSACTION TO BOOK THE HUGE LONG TERM CAPITAL LOSS WHICH DEMONSTRATES THAT THE ENTIRE TRANSACTION RELATING TO PURCHASE AND SALE OF SHARES IS A SHAM TRANSACTION USING COLOURABLE DEVICE. THUS, HE SUBMITTED, THE D ISALLOWANCE OF LOSS CLAIMED BY THE ASSESSEE SHOULD BE SUSTAINED. 15. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D MATERIALS ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISION CITED BEFORE US. UNDISPUTEDLY, THE ASSESSEE, THROUGH FDI ROUTE HAD PURCHASED, IN TRANC HES, SHARES OF TTK AT A SUBSTANTIALLY HIGH PREMIUM. IT IS ALSO A FACT THAT ASSESSEE HAD SOLD THE SHARES SO ACQUIRED IN THE IMPUGNED ASSESSMENT YEAR AT A BELOW PAR VALUE OF RS.5/- PER SHARE TO AN INDIAN ENTITY. IN THE PROCESS, ASSESSEE HAS INCURRED LONG TERM CAPITAL LOSS. THE ASSESSING OFFICER, ALLEGING THAT THE LOSS SO CLAIMED BY THE ASSESSEE HAS BEEN ARTIFICIALLY CREATED, HAS DISALLOWED THE SAME. THE REASONING OF THE ASSESSING OFFICER FOR DOING SO, BROADLY, IS AS UNDER:- SUMMARY OF SEQUENCE OF EVENTSF NARRATED ABOVE): 1. SWISS RE INVESTED IN TTK AT A PREMIUM THROUGHOUT FY 2007,FY 2008 AND FY 2009. 2. BERKSHIRE HATHAWAY PROVIDED FUNDS TO HELP THE SW ISS REINSURER BOUNCE BACK AFTER IT ANNOUNCED LOSSES IN 2008 AND 2009. 3. IN JANUARY 2010, THE BERKSHIRE HATHAWAY AND SWI SS RE AGREED TO A RETROCESSION TRANSACTION, UNDER WHICH BERKSHIRE HAT HAWAY TOOK ON A PORTFOLIO OF SWISS RE'S ANNUALLY RENEWABLE LIFE INSURANCE POL ICIES, LIMITING SWISS RE'S EXPOSURE TO CLAIMS. 4. IN 2010, SWISS RE INVESTED IN TTK IN TWO MAJOR TRANCHES AT A HUGE PREMIUM OF RS. 4703.71 AND RS. 5131.05. 5. TTK CONTINUED TO ALLOT THE SAME SHARES WHICH IT ALLOTTED TO SWISS RE AT A PREMIUM, TO ITS OTHER SHAREHOLDERS AT PAR VALUE, IE , RS. 10 12 ITA 6531/MUM/2017 6. SWISS RE CONTINUED TO BUY SHARES OF TTK IN FY 20 1 0-1 1 AT HUGE PREMIUMS OF RS. 4703 AND RS 5131 TILL 05.08.2010 IN SPITE OF THE FACT THAT SWISS RE HAD MADE UP ITS MIND OF DIVESTING ITS INTE RESTS IN TTK IN FY 2010- 11 ITSELF. THE COMPANY TO WHOM THE STAKE WAS PROPOS ED TO BE SOLD WAS VIDAL HEALTHCARE SERVICES PVT LTD AND IT WAS INCORPORATED ON 24 AUGUST. 2010 I.E. IUST 15 DAYS PRIOR TO THIS BIG ANNOUNCEMENT, BY MR GIRISH RAO. 7. ALL SUCH DECISIONS ARE BACKED BY MONTHS OF DETAI LED NEGOTIATIONS AND INTERNAL DISCUSSIONS. THIS CLEARLY BRINGS BUT THE . FACT THAT THE ASSESSEE WAS ALREADY IN THE PROCESS OF NEGOTIATIONS OF THE SALE OF SHARES OF TTK TO VIDAL EVEN WHEN IT WAS ACTIVELY INVESTING IN TTK AT A PRE MIUM. THE ASSESSEE THOUGH REFUSED TO SUBMIT ANY DETAILS IN THIS REGARD , INSPITE OF SPECIFICALLY ASKING FOR THE SAME. 8. DURING THE ENTIRE TIME, MR GIRISH RAO WAS INTRI CATELY LINKED TO SWISS RE, TTK AND VIDAL. MR. GIRISH RAO WAS THE CO-FOUNDER AN D ACTED AS MANAGING DIRECTOR OF TTK FROM 2002 TO 2007. HE WAS ALSO ASSO CIATED WITH SWISS RE AS THE GENERAL MANAGER OF SWISS RE HEALTH CARE SERVICE S PVT LTD, HE FOUNDED AND WAS ALSO THE MAJORITY STAKEHOLDER IN VIDAL.THE ASSESSEE FAILED TO PRODUCE MR. RAO, INSPITE OF SPECIFICALLY ASKING FOR THE SAME DURING THE SCRUTINY PROCEEDINGS. 9. INSPITE OF THE DECISION TAKEN IN 2010, SWISS RE DID NOT SELL ITS STAKE IN TTK IN 2010 10. DURING 2013, SWISS RE GOT EMBROILED IN A LEGAL TUSSLE WITH HATHAWAY BERKSHIRE WHICH THREATENED TO DRAG SWISS RE IN ARBI TRATION PROCEEDINGS. 11. DURING LATE 2013, THEY NEGOTIATED A DEAL WHEREB Y SWISS RE WOULD 'RECAPTURE' SOME OF THE RISK, IN EXCHANGE FOR PAYME NT BY BERKSHIRE HATHAWAY OF $610 MILLION. 12. DURING THE SAME TIME BERKSHIRE HATHAWAY TOOK ON AS MUCH AS $4 BILLION IN LIABILITIES FROM CIGNA TO REDUCE CIGNA'S RISK. 13. SUBSEQUENTLY IN 2013, CIGNA TTK HEALTH INSURANC E COMPANY LTD, GOT REGULATORY APPROVAL OF IRDAL. 14. DURING 2013, WHEN THE SHARES OF TTK WERE SOLD A T RS. 5, THE COMPANY/BOOSTED ITS SECOND HIGHEST RESERVES AND SURPLUS FROM FY 2009-10 ONWARDS. 15. THE VALUE PAID FOR THE SHARES OF TTK WAS MUCH A BOVE THE VALUE ESTIMATED BY RULE S> 11 UA VALUATION. SIMILARLY THE VALUATION OF THE SHARES OF TTK DURING THE SALE (RS. 5) WERE MUCH LOWER THAN WH AT RULE 11 UA PREDICTED (RS. 58) 16. AS PER RULE 11UATHE SALE OF THE SHARES WOULD AC TUALLY RESULT IN GAINS TO SWISS RE (RS 58- RS.23) IE. RS. 25/SHARE. 17. FROM THE RECORDS IT IS SEEN THAT IN AY 2016-17, THE ASSESSEE HAS UTILIZED THIS LOSS OF RS. 49.92 CRORES TO BE SET OFF AGAINST THE CAPITAL GAINS OF RS. 107.12 CRORES ARISING OUT OF AN INTERNAL CORPORATE RESTRUCTURING OF THE ASSESSEE ITSELF. THUS THE ENTIRE TRANSACTION IN SUM AND SUBSTANCE IS A COLOURFUL DEVICE A. TO INFLATE THE COST OF THE SHARES OF TTK AND THE N SELLING THEM AT BELOW PAR VALUE TO ACCOMMODATE HATHAWAY BERKSHIRE'S INTERESTS THROU GH CIGNA AS PART OF ITS DEAL OUTSIDE INDIA. B. TO CAUSE WINDFALL GAINS TO IVLK GIRISH'RAO 13 ITA 6531/MUM/2017 C. USE THE CURRENT YEAR LOSS TO SET OFF.THE CAPIT AL GAINS ARISING IN FUTURE YEARS OF THE ASSESSEE ITSELF AND HENCE LOWER ITS OWN TAX LIABILI TY IN THE FUTURE YEARS. 16. IT IS A FACT THAT ASSESSEE HAD CHALLENGED THE D ISALLOWANCE OF LONG TERM CAPITAL LOSS BEFORE LEARNED DRP AND IN COURSE OF PR OCEEDINGS BEFORE LEARNED DRP, THE ASSESSEE HAD CONTESTED EACH OF THE AFORESAID RE ASONING OF THE ASSESSING OFFICER WITH COUNTER ARGUMENTS SUPPORTED BY EVIDENC E. HOWEVER, LEARNED DRP HAS ENDORSED THE DECISION OF THE ASSESSING OFFICER, MOR E OR LESS, ACCEPTING THE REASONING OF THE ASSESSING OFFICER. NOW, THE SOLE I SSUE BEFORE US IS, WHETHER THE LONG TERM CAPITAL LOSS CLAIMED BY THE ASSESSEE IS A LLOWABLE OR NOT. BEFORE WE PROCEED TO DECIDE THE CORE ISSUE, IT IS NECESSARY T O OBSERVE, BY SHARE PURCHASE AGREEMENT DATED 08-12-2006, THE ASSESSEE HAD INITIA LLY PURCHASED SHARES OF TTK NUMBERING 11,11,236 EQUITY SHARE OF RS.10/ FACE VA LUE AT RS.45. SUBSEQUENTLY, THE ASSESSEE HAD PURCHASED SHARES ON 29-09-2009, 05 -03-2010 AND 05-08-2010 AT A SUBSTANTIALLY HIGH PREMIUM. THE TOTAL SHAREHOLDIN G OF THE ASSESSEE IN TTK WAS TO THE EXTENT OF 26%. THE BALANCE 74% SHARE IN TTK WAS HELD BY TTK GROUP. ON A PERUSAL OF DOCUMENTARY EVIDENCES PLACED ON RECORD, IT IS ABSOLUTELY CLEAR THAT THE SHARES OF TTK PURCHASED ON DIFFERENT DATES BETWEEN 08-03-2007 AND 05-08-2010 WITH A PREMIUM WAS APPROVED BY THE REGULATORY AUTHO RITIES, SUCH AS, IRDA AND RBI. IT IS ALSO A FACT THAT AS PER FEMA REGULATIONS , THE ASSESSEE CANNOT HOLD MORE THAN 26% OF THE TOTAL SHAREHOLDING UNDER THE FDI RO UTE. THERE IS NO ALLEGATION THAT THE AFORESAID CONDITION HAS BEEN VIOLATED BY T HE ASSESSEE. 17. BE THAT AS IT MAY, IN THE PRECEDING YEARS WHERE IN THE ASSESSEE HAD PURCHASED THE SHARES, NO DOUBT HAS BEEN RAISED BY T HE DEPARTMENTAL AUTHORITIES EITHER IN CASE OF THE ASSESSEE OR IN CASE OF TTK. T HEREFORE, THE ALLEGATION OF THE REVENUE AUTHORITIES AT THE TIME OF SALE OF SHARES I N THE IMPUGNED ASSESSMENT YEAR 14 ITA 6531/MUM/2017 THAT THE COST OF ACQUISITION OF SHARES IS DOUBTFUL IS WHOLLY IMMATERIAL AND BASED PURELY ON CONJECTURES AND SURMISES. BEFORE THE DEPAR TMENTAL AUTHORITIES, THE ASSESSEE HAD SUBMITTED REPORT OF INDEPENDENT VALUER S DETERMINING THE VALUE OF SHARES. WHEREAS, NO VALUATION REPORT HAS BEEN OBTAI NED BY THE DEPARTMENTAL AUTHORITIES TO COUNTER THE VALUATION OF THE ASSESSE E. BEFORE LEARNED DRP, THE ASSESSEE HAS VERY CATEGORICALLY EXPLAINED THE REASO NS FOR PURCHASING THE SHARES AT HIGH PREMIUM. EACH OF THE OBJECTIONS RAISED BY THE A SSESSING OFFICER IN THE ASSESSMENT ORDER WHILE DENYING THE LONG TERM CAPITA L LOSS HAS BEEN COUNTERED BY THE ASSESSEE BEFORE LEARNED DRP WITH SPECIFIC/TO TH E POINT SUBMISSION. THE ASSESSEE HAS CLEARLY EXPLAINED THE EXTENT OF CONTRO L AND MANAGEMENT ASSESSEE WAS HAVING IN TTK AFTER ACQUIRING THE SHARES. 18. FURTHER, THE ASSESSEE HAD ALSO EXPLAINED BEFORE THE DEPARTMENTAL AUTHORITIES THAT AS PER FEMA REGULATIONS, THE OFFER ON RIGHT BASIS OF UNLISTED SHARES TO A FOREIGN RESIDENT SHALL BE AT A PRICE NO T LESS THAN THE PRICE AT WHICH THE OFFER ON RIGHT BASIS IS MADE TO THE RESIDENT SHAREH OLDER. SINCE SHARES TO RESIDENT SHAREHOLDERS IS ISSUED AT PAR, THE ASSESSEE BOUGHT THE SHARES AT A PREMIUM. FURTHER, AS PER FEMA REGULATIONS THE PRICE OF UNLIS TED SHARES ISSUED TO A FOREIGN COMPANY SHOULD NOT BE LESS THAN THE VALUATION OF SH ARES DONE BY A CHARTERED ACCOUNTANT AS PER DCF METHOD. COMPLYING WITH THE AF ORESAID REGULATION, SHARES OF TTK WERE ISSUED TO THE ASSESSEE AT A PRICE NOT L ESS THAN THE FAIR MARKET VALUE AS PER THE VALUATION REPORT. AS REGARDS THE DECISION O F INVESTING IN SHARES AT A HIGH PREMIUM, IT IS A COMMERCIAL DECISION OF THE ASSESSE E AND IS NOT IN VIOLATION OF ANY RULES OR REGULATIONS INCLUDING FEMA REGULATIONS. IT IS OBSERVED FROM THE FACTS AND MATERIALS ON RECORD, THE ASSESSING OFFICER, WHILE C OMING TO HIS CONCLUSION HAS NOT PROPERLY APPRECIATED THE FACTS ON RECORD AND HAS BA SED HIS CONCLUSION ON EITHER 15 ITA 6531/MUM/2017 HALF-BAKED FACTS OR PURELY ON PRESUMPTION AND SURMI SES. THE SUBMISSIONS OF THE ASSESSEE THAT SINCE TTK DURING THE FINANCIAL YEARS 2008-09 AND 2009-10 WAS FACING FINANCIAL HARDSHIP AND TO HELP TTK TIDE OVER THE HA RDSHIP THE ASSESSEE HAD INFUSED THE ADDITIONAL CAPITAL BY SUBSCRIBING TO SHARES AT A PREMIUM, HAS NOT BEEN PROPERLY APPRECIATED IN SPITE OF THE FACT THAT THE LOSS INCURRED BY TTK IS AN UNDISPUTED FACTUAL POSITION. FURTHER, THE EXPLANATI ON OF THE ASSESSEE THAT EVEN AFTER INFUSION OF SUCH CAPITAL, THE REVENUE OF TTK CONTINUED TO DECLINE, NECESSITATING ASSESSEES DECISION TO DISPOSE OF ITS SHAREHOLDING, HAS NOT BEEN COUNTERED WITH STRONG AND VALID REASONING. 19. IT IS FURTHER RELEVANT TO OBSERVE, IN COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS BEFORE LEARNED DRP THE ASSESSEE HAS FURNISH ED VALUATION REPORT DETERMINING THE VALUE OF THE SHARES UNDER DCF METHO D. AS PER SUCH VALUATION REPORT, VALUE OF SHARES WAS DETERMINED AT RS.7.19 P ER SHARE. THEREFORE, THE SALE OF SHARES BY THE ASSESSEE AT RS.5 PER IS NOT IN EXC ESS OF THE VALUE OF SHARE DETERMINED BY THE VALUER, IN COMPLIANCE WITH THE FE MA REGULATIONS. IT IS A MATTER OF RECORD THAT THE SALE OF SHARES BY THE ASSESSEE T O VIDAL HEALTHCARE SERVICES LTD AT THE AGREED PRICE OF RS.5 PER SHARE HAS BEEN APPR OVED AND SANCTIONED BY THE REGULATORY AUTHORITIES, SUCH AS, IRDA. IT IS RELEVA NT TO OBSERVE, VIDE LETTER DATED 01-11-2011, A COPY OF WHICH IS AT PAGE 248 OF THE P APER BOOK, IRDA HAD CALLED UPON TTK TO EXPLAIN THE REASON FOR SELLING SHARES T O THE ASSESSEE AT A SUBSTANTIALLY HIGH PREMIUM AS AGAINST SALE OF SIMILAR SHARES TO R ESIDENT SHAREHOLDERS AT FACE VALUE OF RS.10/-. PERTINENTLY, IN RESPONSE TO THE Q UERY RAISED, TTK SUBMITTED ITS REPLY ON 09-11-2011 EXPLAINING THE REASONS FOR SELL ING THE SHARES AT A HIGH PREMIUM TO THE ASSESSEE. HOWEVER, AFTER RECEIVING A SSESSEES REPLY THERE IS NO ADVERSE OBSERVATION/ACTION BY THE REGULATORY AUTHOR ITY WITH REGARD TO THE SALE OF 16 ITA 6531/MUM/2017 SHARES. THEREFORE, WHEN THE PURCHASE AND SALE OF SH ARES OF TTK BY THE ASSESSEE ARE WITHIN THE LEGAL FRAME WORK, THERE IS NO JUSTIFI CATION ON THE PART OF THE DEPARTMENTAL AUTHORITIES IN IMPUTING MOTIVE AND ALL EGING THAT THE TRANSACTION HAS BEEN ARRANGED TO CREATE ARTIFICIAL LOSS. 20. ONE OF THE ALLEGATIONS MADE BY THE ASSESSING OF FICER IS, TO TAKE THE BENEFIT OF SET OFF OF LONG TERM CAPITAL LOSS OF THE IMPUGNE D ASSESSMENT YEAR AGAINST THE CAPITAL GAIN ARISING IN 2016-17 THE ASSESSEE HAS AR RANGED THE TRANSACTION. IN OUR VIEW, THE AFORESAID REASONING OF THE ASSESSING OFFI CER IS FALLACIOUS AS AT THE TIME OF PURCHASE OF SHARES AND SALE THEREOF, THE ASSESSEE C OULD NOT HAVE FORESEEN OR ANTICIPATED THE FUTURE EVENT OF CAPITAL GAIN ARISIN G IN ASSESSMENT YEAR 2016-17. THEREFORE, THE ALLEGATIONS BASED ON WHICH THE ASSES SING OFFICER HAS DENIED THE CLAIM OF LONG TERM CAPITAL LOSS ARE EITHER PRESUMPT IVE OR IRRELEVANT AND WITHOUT ANY BASIS. SIMPLE FACTS ARE, THE ASSESSEE HAD PURC HASED A CAPITAL ASSET BY WAY OF SHARES AND AFTER HOLDING IT FOR CERTAIN PERIOD, HAS SOLD IT IN THE IMPUGNED ASSESSMENT YEAR AT A LOSS. THE FACT THAT THE SHARE S SOLD BY THE ASSESSEE ARE LONG TERM CAPITAL ASSET IS NOT DISPUTED. THEREFORE, ONCE THE ASSESSEE HAD SOLD ITS LONG TERM CAPITAL ASSET, THE COMPUTATIONAL PROVISIONS CO NTAINED IN SECTION 48 AND 49 OF THE ACT WOULD AUTOMATICALLY GET TRIGGERED AND THE G AIN/LOSS ARISING OUT OF SUCH TRANSACTION HAS TO BE COMPUTED IN TERMS OF SECTIONS 48 AND 49 OF THE ACT. 21. IN THE FACTS OF THE PRESENT CASE, UNDISPUTEDLY, AFTER APPLYING THE COMPUTATIONAL PROVISIONS OF SECTIONS 48 AND 49 OF T HE ACT TO THE SALE TRANSACTION OF SHARES OF TTK, LONG TERM CAPITAL LOSS ARISES. TH EREFORE, THE ASSESSEE IS ENTITLED TO CLAIM SUCH LONG TERM CAPITAL LOSS. AS REGARDS TH E ALLEGATION OF THE ASSESSING OFFICER THAT ASSESSEE HAD NOT VALUED THE SHARES UND ER RULE 11UA, WE FULLY AGREE WITH THE SUBMISSIONS OF LEARNED COUNSEL FOR THE AS SESSEE THAT RULE 11UA IS 17 ITA 6531/MUM/2017 APPLICATION FOR VALUATION OF ASSETS SPECIFIED UNDER SECTION 56(2)(VII), 56(2)(VIIA) AND 56(2)(VIID). THEREFORE, RULE 11UA CANNOT BE APP LIED FOR DETERMINING THE VALUE OF UNLISTED EQUITY SHARES FOR ANY PURPOSE OTHER THA N SECTION 56(2) OF THE ACT. IN ANY CASE OF THE MATTER, THE ASSESSEE, ON ITS PART, HAS FURNISHED VALUATION REPORT OF AN EXPERT DETERMINING THE VALUE OF SHARES. WHEREAS, NO SUCH VALUATION HAS BEEN DONE BY THE ASSESSING OFFICER TO COUNTER ASSESSEES VALUATION. SIMILARLY, THE ALLEGATION OF THE ASSESSING OFFICER THAT THE PROMOT ER OF VIDAL HEALTHCARE SERVICES LTD, SHRI GIRISH RAO WAS LINKED TO THE ASSESSEE IS WHOLLY IRRELEVANT. UNDISPUTEDLY, VIDAL HEALTHCARE SERVICES LTD IS AN INDEPENDENT COR PORATE ENTITY HAVING ITS OWN SEPARATE IDENTITY. IT IS NO WAY RELATED TO THE ASSE SSEE. THEREFORE, EVEN ASSUMING THAT SHRI GIRISH RAO AT SOME POINT OF TIME WAS AN E MPLOYEE OF THE ASSESSEE OR SOMEHOW RELATED TO TTK WOULD NOT BE ENOUGH TO CONCL UDE THAT THE ASSESSEE AND VIDAL HEALTHCARE SERVICES LTD ARE RELATED PARTIES. 22. AS REGARDS THE ALLEGATION OF THE ASSESSING OFF ICER THAT THE ASSESSEE HAS INVESTED IN TTK AT A PREMIUM AND THEREAFTER SOLD TH E SHARES AT A LOSS TO BENEFIT WARREN BUFFETS HATHAWAY BERKSHIRE, IN OUR VIEW, IS TOTALLY IRRELEVANT FOR DECIDING THE ISSUE IN DISPUTE. RATHER, THESE ALLEGATIONS VIN DICATE THAT THE ASSESSING OFFICER HAS ALLOWED HIS DECISION MAKING PROCESS TO BE CLOUD ED BY IRRELEVANT MATERIAL, PRESUMPTION AND SURMISES. IN VIEW OF THE AFORESAID , WE HOLD THAT THE ASSESSEE HAVING INCURRED LONG TERM CAPITAL LOSS IN COURSE OF A GENUINE TRANSACTION RELATING TO SALE OF SHARES, IS ELIGIBLE TO CLAIM SET OFF AND CARRY FORWARD OF SUCH LOSS. WE ORDER ACCORDINGLY. THESE GROUNDS ARE ALLOWED. 23. IN THE RESULT, APPEAL IS ALLOWED. 18 ITA 6531/MUM/2017 ORDER PRONOUNCED IN THE OPEN COURT ON 20/07/2021. SD/- SD/- PRAMOD KUMAR SAKTIJIT DEY VICE PRESIDENT JUDICIAL MEMBER MUMBAI, DT : 20/07/2021 PAVANAN