MADHU SARDA, MUMBAI V. ITO 19(2)(4), MUMBAI

ITA 7410/MUM/2012

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0139 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-02-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 14-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHAR
• Assessee Lawyers: HARISH M KAPADIA
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Share purchase agreement; Question of law; Cost of acquisition; Fair market value; Avoidance of tax; Notional interest; Onus to prove
• Section: 143(3); 50C; 10

Judgement Text

ITA NO. 7410/M/2012 MADHU SARDA 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH B, MU MBAI BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 7410//MUM/2012 (ASSESSMENT YEAR-2006-07) IN THE MATTER OF MRS. MADHU SARDA , 38,VIKAS CENTER, S.V. ROAD, SANTACRUZ (WEST) MUMBAI-400054 PAN: AAJPS 5135R APPELLANT/ ASSESSEE VERSUS INCOME TAX OFFICER, -19(4) MUMBAI RESPONDENT/ REVEN UE ASSESSEE BY : SH. HARISH M. KAPADIA ADVOCATE REVENUE BY : SH. V. VIDHYADHAR (SR.DR) DATE OF HEARING : 09.03.2018 DATE OF PRONOUNCEMENT : 09.03.2018 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. THIS APPEAL BY ASSESSEE UNDER SECTION 253 OF INCOME -TAX ACT IS DIRECTED AGAINST THE ORDER OF COMMISSIONER (APPEALS)-35 MUMB AI DATED 4 TH SEPTEMBER 2012, WHICH IN TURN ARISES FROM ASSESSMEN T ORDER PASSED UNDER SECTION 143(3) ON 26 DECEMBER 2008 FOR ASSESSMENT Y EAR 2006-07. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL; (1) THE HONBLE COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN CONFIRMING THE ORDER OF LEARNED ASSESSING OFFICER BY NOT ALLOW ING LONG TERM CAPITAL LOSS OF RS. 29,14,440/-SUFFERED IN RESPECT OF LOSS ON SALE OF SHARES HELD BY THE ASSESSEE SINCE 1991 BY TREATING THE SUCH SHARE TRANSACTION AS SHAM ITA NO. 7410/M/2012 MADHU SARDA 2 TRANSACTION. IT IS SUBMITTED THAT THE APPELLANT HAS INCURRED LOSS RESPECT OF SHARES HELD AND LONG TERM CAPITAL LOSS AS CLAIMED S HOULD BE ALLOWED IN FULL. 2. BRIEF FACTS OF THE CASE ARE THAT FOR ASSESSMENT YEA R 2006-07 THE ASSESSEE FILED RETURN OF INCOME ON 30 JULY 2006 DECLARING TO TAL TAXABLE INCOME OF RS.10,68,030/-. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 8 TH SEPTEMBER 2008. THE ASSESSING OFFICER WHILE PASSIN G THE ASSESSMENT ORDER DISALLOWED THE SET OFF OF LOSS ON ACCOUNT OF LONG TERM CAPITAL LOSS SUFFERED BY ASSESSEE ON SALE OF SHARES AGAINST THE PROFIT OF LONG TERM CAPITAL GAIN EARNED ON SALE OF IMMOVABLE ASSET. ON APPEAL BEFORE LD. COMMISSIONER (APPEALS), THE ACTION OF ASSESSING OFF ICER WAS CONFIRMED. THUS, AGGRIEVED BY THE ORDER OF LD. COMMISSIONER (A PPEALS) THE ASSESSEE FILED PRESENT APPEAL BEFORE US. 3. WE HAVE HEARD THE LEARNED AR OF THE ASSESSEE AND TH E LEARNED DR FOR REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. THE LEARNED AR OF THE ASSESSEE SUBMITS THAT DURING THE YEAR UNDER CON SIDERATION ASSESSEE SOLD 900 SHARES OF NATIONAL TILES & INDUSTRIES PRIV ATE LTD (NTPL) AT THE RATE OF RS. 100/-PER SHARE ON THEIR FAIR MARKET VAL UE. THESE SHARES WERE HELD BY THE ASSESSEE FOR LAST 15 YEARS. THE ASSESSE E PURCHASED THE SHARE IN THE YEAR 1991 FROM NEC INVESTMENT COMPANY. DURING T HE RELEVANT FINANCIAL YEAR THE ASSESSEE ALSO SOLD A PROPERTY SI TUATED IN SANTACRUZ MUMBAI. AFTER CLAIMING INDEXATION BENEFIT THE ASSES SEE OFFERED LONG TERM CAPITAL GAIN OF RS. 25 LACS (APPROX) ON SALE OF SUC H PROPERTY. IT WAS ITA NO. 7410/M/2012 MADHU SARDA 3 SUBMITTED THAT ASSESSEE ALSO SOLD 900 SHARES OF NAT IONAL TILES & INDUSTRIES PRIVATE LTD TO HER SON. HER SON HAD RETU RNED FROM ABROAD AFTER COMPLETING HIS EDUCATION AND WAS INTERESTED IN STAR TING HIS OWN BUSINESS. THE AFORESAID 900 SHARE WAS SOLD AT THE FAIR MARKET VALUE. THE SHARES WERE TRANSFERRED BY EXECUTING SHARE TRANSFER FORM A ND AFTER PAYING THE REQUISITE STAMP DUTY, THE COMPANY NTPL ALSO PASSED A BOARD RESOLUTION FOR TRANSFER OF THOSE SHARES. THE CONSIDERATION OF SHARE WAS EFFECTED TO THROUGH BANKING CHANNEL. THE LEARNED AR OF THE ASSE SSEE DRAWN OUR ATTENTION ABOUT THE FAIR MARKET VALUE ARRIVED BY AS SESSEE, AS FURNISHED BEFORE COMMISSIONER (APPEALS), (PAGE NO. 74 OF PB). IT WAS SUBMITTED THAT TRANSACTIONS IS GENUINE, MERELY BECAUSE THE AS SESSEE HAS CLAIMED SET- OFF OF CAPITAL LOSS AGAINST THE CAPITAL GAIN EARNED DURING THE SAME PERIOD, WHICH CANNOT BE SAID TO BE A COLOURABLE DEVICE OR M ETHOD ADOPTED BY ASSESSEE TO AVOID THE TAX. TRANSACTIONS OF SALE OF SHARE WERE GENUINE AND TRANSACTED AT A PROPER VALUATION. THE LOWER AUTHORI TY HAS NOT DISPUTED THE GENUINITY OF TRANSACTION. ALL THE TRANSACTIONS CAR RIED BY ASSESSEE ARE VALID IN LAW, AND CANNOT BE TREATED AS NON-EST MERELY ON THE BASIS OF SOME ECONOMIC DETRIMENT OR IT MAY BE PREJUDICIAL TO THE INTEREST OF REVENUE. THE LEARNED AR OF THE ASSESSEE FURTHER SUBMITS, MAI NLY BECAUSE THE PERIOD CO-EXISTED OR PERMITTED THE ASSESSEE TO SET OFF HER CAPITAL LOSS AGAINST THE CAPITAL GAIN EARNED ITSELF WOULD NOT GI VE RISE TO THE PRESUMPTION THAT THE TRANSACTION WAS IN THE NATURE OF COLOURABLE DEVICE. IN ITA NO. 7410/M/2012 MADHU SARDA 4 SUPPORT OF HIS SUBMISSION HIS SUBMISSIONS THE RELIA NCE IS MADE ON THE FOLLOWING CASE LAW ; (I) CIT VS GEORGE HENDERSON & CO LTD 66 ITR 622 (SC ) (II) K.P. VERGHESE VERSUS ITO 131 ITR 597(SC) (III) UNION OF INDIA VERSUS AZADI BACHAO ANDOLAN 263 ITR 706(SC) (IV) CIT VS MORARJEE TEXTILE LTD ITXA 778/2014 DT. 24.01 .2017(BOMBAY) (V) MORARJEE TEXTILE LTD VS. ACIT, ITA 1979/M/09 DATED 10.05.2013 (VI) CIT VS. HEDE CONSULTANCY CO. PVT. LIMITED, 231 TAXM AN 421(BOMBAY) (VII) CIT VS. SHRIRAM INVESTMENTS [2017] 77 TAXMANN.COM 1 13(MADRAS) (VIII) CIT VS. SPECIAL PRINTS LTD 356 ITR 404(GUJARAT) (IX) ACIT VS. BIRAJ INVESTMENT PVT. LTD. 210 TAXMAN 418( GUJARAT) (X) PORRITS & SPENCER (ASIA) LTD. VS. CIT, 329 ITR 222( P&H) (XI) RUPEE FINANCE & MANAGEMENT PVT. LTD VS. ACIT 120 IT D 539(MUM) (XII) NARIMAN POINT BUILDING SERVICES & TRADING PVT. LTD VS. CIT 54 SOT 7 (MUMBAI) (XIII) TAINWALA CHEMICALS & PLASTICS INDIA LTD. VS. ACIT 4 7 SOT 169(MUM) (XIV) MISHAPAR INVESTMENTS LTD. VS. ITO, 8 SOT 532(MUM) (XV) DCIT VS. JINDAL EQUIPMENT LEASING AND CONSULTANCY S ERVICES LTD. 131 ITD 263(DELHI) (XVI) ACIT VS. TURNER MORRISON & CO. LTD. 47 ITD 638(CAL ) 4. ON THE OTHER HAND THE LEARNED AR FOR THE REVENUE SU PPORTED THE ORDER OF AUTHORITIES BELOW. IT WAS SUBMITTED THAT NATIONAL T ILES & INDUSTRIES PRIVATE LTD IS OWNED AND MANAGED BY THE FAMILY MEMB ERS OF THE ASSESSEE. THE ASSESSEE SOLD THE SHARES TO HIS SON. THE ASSESSEE DEVELOPED A COLOURABLE DEVICE UNDER THE GUISE OF SHARE TRANSA CTION TO AVOID THE TAX. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESS ING OFFICER DISALLOW THE ITA NO. 7410/M/2012 MADHU SARDA 5 SET OFF OF LONG TERM CAPITAL LOSS ON SALES OF SHARE S AGAINST THE LONG- TERM CAPITAL GAIN HOLDING THAT THE ASSESSEE HAS CH OSEN THE SALE OF SHARES TO HER SON ONLY AFTER THE ASSESSEE HAS GAIN ON SALE OF FLAT, THOUGH THE ASSESSEE WAS HOLDING THE SHARE FROM ASSESSMENT YEAR 1991-92. FURTHER THE ASSESSEE HAS NOT MADE EFFORTS TO SELL THE SHARES TO THE THIRD PARTY. THUS, IT IS A SHAM TRANSACTION. THE SECOND OBJECTION OF ASSE SSING OFFICER WAS THAT THE WORTH OF THE COMPANY IS NOT NEGATIVE AS ON THE DATE ON THE SELLING THE SHARES ON THE FACE VALUE TO HER SON. THE ASSESSEE H AS ALLOWED HER SON TO CAPITALIZE 900 SHARES AT RS. 90,000/- AS THE ASSESS EE HAS TAKEN THE BENEFIT OF LONG TERM CAPITAL LOSS. BEFORE THE LD CIT(A) THE ASSESSEE FURNISHED THE WORKING OF VALUATION OF SHARES AS PER WEALTH TAX RU LES, 1957. THE WORKING OF VALUATION IS REFERRED HERE; AS PER RULE-1D AS PER WEALTH TAX RULES 1957. TOTAL ASSET OF COMPANY AS ON 31.03.2005 RS.1,55,69,651/- LESS: TOTAL LIABILITY OF THE COMPANY AS ON31.03.200 5 RS.509,68,050/- -------- ----------------- RS. ( -) 35368050/- TOTAL NO. OF SHARES 25,000 VALUE OF THE EQUITY SHARES (-) RS.141/95/- PER SHARES BREAKUP VALUE PER SHARE BEING 80% OF ABOVE (-) RS. 1699/13/- AS AGAINST THE SAME, THE ASSESSEE HAS SOLD THE SHAR ES @ RS.100/- PER SHARES WHICH IS FACE VALUE OF EACH EQUITY SHARE. 6. THE ASSESSEE ALSO FURNISHED THE COPY OF INCOME TAX RETURN OF HER SON SHOWING THE INVESTMENTS IN SHARES, COPY OF SHARE TR ANSFER FORM AND SHARE CERTIFICATE AND COPY OF BANK STATEMENT TO SUBSTANTI ATE THE GENUINITY OF TRANSACTION. THE LD CIT(A) CONFIRMED THE ACTION O F THE ASSESSING OFFICER ON SIMILAR LINES. WE HAVE NOTED THAT THE LOWER AUTH ORITIES HAVE NOT ITA NO. 7410/M/2012 MADHU SARDA 6 DISPUTED THE WORKING OF VALUATION OF SHARES. THE GR OUNDS FOR DENIAL OF SET OFF OF LONG-TERM CAPITAL LOSS AGAINST THE LONG- T ERM CAPITAL GAIN IS BECAUSE OF RELATED PARTIES TRANSACTION. 7. THE HONBLE APEX COURT IN UOI VS AZADI BACHAO ANDOL AN [2003] TAXMAN373 (SC) HELD THAT AN ACT WHICH IS OTHERWISE VALID IN LAW CANNOT BE TREATED AS NON-EST MERELY ON THE BASIS OF SOME UNDERLYING MOTIVE SUPPOSEDLY RESULTING IN SOME ECONOMIC DETRIMENT OR PREJUDICE TO THE NOTIONAL INTEREST AS PERCEIVED BY THE REVENUE. 8. FURTHER, HONBLE BOMBAY HIGH COURT IN CIT VS HEDE CONSULTANCY CO. (P.) LTD. [2014] 49 TAXMANN.COM 56 (BOMBAY) HELD T HAT WHEN THE ASSESSEE SOLD SHARES OF A COMPANY AT A PRICE QUOTED AT STOCK EXCHANGE WHEREAS SHARES OF SISTER CONCERN WERE SOLD AT LOSS BECAUSE SAID COMPANY WAS IN RED, THERE BEING NO DOUBT ABOUT GENUINENESS OF SHARE TRANSACTIONS, ASSESSEE'S CLAIM FOR SET OFF OF LOSS ARISING FROM S ALE OF SHARES OF SISTER CONCERN AGAINST INCOME ARISING FROM SHARES OF OTHER COMPANY WAS TO BE ALLOWED. THE HONBLE GUJARAT HIGH COURT IN CIT VS S PECIAL PRINTS LTD [2013] 33 TAXMAN.COM HELD THAT ONCE A TRANSACTION I S GENUINE AND TRADED AT PROPER VALUATION , EVEN IF ENTERED WITH A MOTIVE TO AVOID TAX, WOULD NOT BECOME COLOURABLE DEVICE SUBJECT TO ANY DISQUALIFIC ATION. 9. SIMILARLY HONBLE PUNJAB AND HARYANA HIGH COURT IN PORRITIS & SPENCER (ASIA) LTD VS CIT [2010] 190 TAXMAN 174 (P&H) WHILE CONSIDERING THE QUESTION OF LAW IF THE TRIBUNAL WAS RIGHT IN HO LDING THAT THE ITA NO. 7410/M/2012 MADHU SARDA 7 TRANSACTION FOR PURCHASE AND SALE OF SHARE THE APPE LLANT WITH BANK, AFTER HOLDING THAT THE TRANSACTION WERE GENUINE, WERE(A) NOT BONAFIDE TRANSACTION, (B) ENTERED WITH A MOTIVE TO AVOID THE LIABILITY OF TAX HELD AS UNDER; 17. HONBLE THE SUPREME COURT ALSO PROCEEDED TO APPROV E THE FOLLOWING VIEW OF GUJARAT HIGH COURT IN BANYAN AND BERRY V. CIT [1996] 222 ITR 831 WHILE INTERPRETING MCDOWELLS & CO. LTD.S CASE ( SUPRA ) :- THE COURT NOWHERE SAID THAT EVERY ACTION OR INACTI ON ON THE PART OF THE TAXPAYER WHICH RESULTS IN REDUCTION OF TAX LIAB ILITY TO WHICH HE MAY BE SUBJECTED IN FUTURE, IS TO BE VIEWED WITH SU SPICION AND BE TREATED AS A DEVICE FOR AVOIDANCE OF TAX IRRESPECTI VE OF LEGITIMACY OR GENUINENESS OF THE ACT; AN INFERENCE WHICH UNFORTUN ATELY, IN OUR OPINION, THE TRIBUNAL APPARENTLY APPEARS TO HAVE DR AWN FROM THE ENUNCIATION MADE IN MCDOWELLS CASE [1985] 154 ITR 148 (SC). THE RATIO OF ANY DECISION HAS TO BE UNDERSTOOD IN THE C ONTEXT IT HAS BEEN MADE. THE FACTS AND CIRCUMSTANCES WHICH LEAD TO MCD OWELLS DECISION LEAVE US IN NO DOUBT THAT THE PRINCIPLE EN UNCIATED IN THE ABOVE CASE HAS NOT AFFECTED THE FREEDOM OF THE CITI ZEN TO ACT IN A MANNER ACCORDING TO HIS REQUIREMENTS, HIS WISHES IN THE MANNER OF DOING ANY TRADE, ACTIVITY OR PLANNING HIS AFFAIRS W ITH CIRCUMSPECTION, WITHIN THE FRAMEWORK OF LAW, UNLESS THE SAME FALL I N THE CATEGORY OF COLOURABLE DEVICE WHICH MAY PROPERLY BE CALLED A DE VICE OR A DUBIOUS METHOD OR A SUBTERFUGE CLOTHED WITH APPAREN T DIGNITY. 18. THE AFORESAID DISCUSSION WOULD SHOW THAT ONCE THE TRANSACTION IS GENUINE MERELY BECAUSE IT HAS BEEN ENTERED INTO WIT H A MOTIVE TO AVOID TAX, IT WOULD NOT BECOME A COLOURABLE DEVISE AND, C ONSEQUENTLY, EARN ANY DISQUALIFICATION. HONBLE THE SUPREME COURT IN THE CONCLUDING PARAS OF ITS JUDGMENT IN AZADI BACHAO ANDOLANS CASE ( SUPRA ) HAS REJECTED THE SUBMISSION THAT AN ACT, WHICH IS OTHERWISE VALID IN LAW, CANNOT BE TREATED AS NON EST MERELY ON THE BASIS OF SOME UNDERLYING MOTIVE SUPP OSEDLY RESULTING IN SOME ECONOMIC DETRIMENT OR PREJUDICE T O THE NATIONAL INTEREST ITA NO. 7410/M/2012 MADHU SARDA 8 AS PER THE PERCEPTION OF THE REVENUE. THE AFORESAID VIEW LOOKS TO BE THE CORRECT VIEW. IT HAS READY SUPPORT FROM THE DIVISIO N BENCH JUDGMENT OF THIS COURT RENDERED IN THE CASE OF SATYA NAND MUNJAL ( SUPRA ) AND THE DIVISION BENCH JUDGMENT OF ORISSA HIGH COURT IN THE CASE OF INDUSTRIAL DEVELOPMENT CORPN. OF ORISSA LTD. ( SUPRA ) AND VARIOUS OTHER JUDGMENTS OF DELHI AND MADRAS HIGH COURTS ( SUPRA ). 20. WHEN THE PRINCIPLES LAID DOWN IN THE CASE OF AZADI BACHAO ANDOLAN ( SUPRA ) ARE APPLIED TO THE FACTS OF THE PRESENT CASE IT B ECOMES EVIDENT THAT THE QUESTION IS LIABLE TO BE ANSWERED IN FAVOUR OF THE ASSESSEE-APPELLANT AND AGAINST THE REVENUE-RESPONDENT. IN THE PRESENT CASE, THE TRANSACTION CONCERNING PURCHASE OF UNITS HAS BEEN HELD TO BE GE NUINE BY THE TRIBUNAL. IT IS ALSO EVIDENT THAT THE BASIC OBJECT OF PURCHAS ING THE UNITS BY THE ASSESSEE-APPELLANT WAS TO EARN DIVIDENDS, WHICH ARE TAX-FREE UNDER SECTION 80M OF THE ACT AND TO SELL THE UNITS BY SUFFERING L OSSES. THUS, IT CANNOT BE CONCLUDED BY ANY STRETCH OF IMAGINATION THAT THE AS SESSEE-APPELLANT USED ANY COLOURABLE DEVISE, PARTICULARLY WHEN IT HAS BEE N RECOGNIZED WITH EFFECT FROM 1-4-2002 BY INCORPORATING SUB-SECTION (7) OF S ECTION 94 OF THE ACT. BY INSERTING THE AFORESAID PROVISION, THE PARLIAMEN T HAS NOW RECOGNIZED AND REGULATED THE PURCHASE AND SALE OF UNITS AND TH E DIVIDENDS/INCOME RECEIVED FROM SUCH UNITS. THEREFORE, QUESTION NO. 2 IS LIABLE TO BE ANSWERED AGAINST THE REVENUE-RESPONDENT. 10. THE COORDINATE BENCH OF MUMBAI TRIBUNAL IN MORARJE E TEXTILE LTD VS ACIT IN ITA NO.1979/M/2009, WHILE CONSIDERING THE S IMILAR GROUND OF APPEAL HELD AS UNDER; 15. WE HAVE CONSIDERED THE I SSUE AND EXAMINED THE RECORD. AS FAR AS THE PRICE ADOPTED BY THE AO, WE CANNOT APPROVE THE VALUE AS T AKEN BY THE DEMAT AUTHORITIES AS THERE SEEMS TO BE AN ERROR IN MENTIO NING THE VALUE AS THE SAID COMPANY IS A PRIVATE LIMITED COMPANY AND THERE CANN OT BE ANY MARKET VALUE AS IT IS NOT QUOTED IN THE STOCK EXCHANGE. THEREFORE, PART OF AO'S FINDING ABOUT THE VALUE OF DEMAT STATEMENT IS NOT CORRECT. WITH R EFERENCE TO THE FUTURE PROFIT AND ALSO ADOPTION OF BOOK VALUE THERE IS NOTHING BR OUGHT ON RECORD BY THE AO ITA NO. 7410/M/2012 MADHU SARDA 9 HOW THESE AMOUNTS WERE ARRIVED AT. THEREFORE, WE AR E UNABLE TO SUPPORT THE SUBSTITUTION OF VALUE EVEN ON FACTS. BE THAT AS IT MAY, FIRST OF ALL, THE AO DOES NOT HAVE POWER UNDER THE I.T. ACT TO SUBSTITUTE 'FAIR MARKET VALUE' FOR 'FULL VALUE OF CONSIDERATION'. THERE ARE SPECIFIC PROVISIONS FO R SUBSTITUTION OF FAIR MARKET VALUE FOR FULL VALUE OF CONSIDERATION LIKE COMPUTAT ION UNDER SECTION 50C AND 50D IN THE I.T. ACT AT PRESENT BUT IN THE RELEVANT ASSESSMENT YEAR, TH E AO HAS NO POWER TO ADOPT THE 'FAIR MARKET VALUE' IN PLACE OF 'FULL VALUE OF CONSIDERATION'. THE METHOD OF COMPUTATION AS PRESCR IBED UNDER SECTION 48 SUPERFICIALLY MENTION THAT 'INCOME CHARGEABLE UNDE R THE HEAD 'CAPITAL GAINS' SHALL BE COMPUTED, BY DEDUCTING FROM THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPI TAL ASSET THE FOLLOWING AMOUNT, NAMELY: - (I) EXPENDITURE INCURRED WHOLLY AND EXCLU SIVELY IN CONNECTION WITH SUCH TRANSFER, AND (II) THE COST OF ACQUISITION OF THE ASSET AND THE COST OF ANY IMPROVEMENT THERETO'. THE 'FULL VALUE OF CONSIDERAT ION' IS CLEARLY DIFFERENT FROM THE 'FAIR MARKET VALUE'. SECTION 50D INSERTED W.E.F. 01.04.2013 PERMITS FAIR MARKET VALUE BEING THE FULL VALUE OF CONSIDERATION IN CERTAIN CASES WHERE AS A RESULT OF TRANSFER OF CAPITAL ASSET BY AND ASSESSEE THE CONSIDERATION RECEIVED OR ACCRUING IS NOT ASCERTAINABLE OR CANNOT BE DETERMIN ED. UNDER SECTION 50C , THERE IS SPECIAL PROVISION FOR SUBSTITUTION OF FULL VALUE OF CONSIDERATION IN CASES WHERE STAMP AUTHORITIES ADOPTS A PARTICULAR VALUE, I.E. DEEMED TO BE THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING. REFERE NCE TO VALUATION OFFICER UNDER SECTION 55A IS ALSO FOR THE LIMITED PURPOSE OF ARRIVING AT THE COST OF ASSET AT THE FAIR MARKET VALUE IN CERTAIN CIRCUMSTANCES B UT IT DOES NOT EMPOWER THE AO TO SUBSTITUTE THE 'FAIR MARKET VALUE' TO 'FULL V ALUE OF CONSIDERATION'. THESE TWO WORDS, 'FULL VALUE OF CONSIDERATION' AND 'FAIR MARKET VALUE ' ARE DIFFERENTLY USED IN THE INCOME TAX ACT AND FAIR MARKET VALUE CANNOT BE SUBSTITUTED IN PLA CE OF FULL VALUE OF CONSIDERATION, UNLESS IT IS SPECIF ICALLY EMPOWERED BY THE ACT. THE AO HAS ALSO WRONGLY RELIED ON SECTION 2(22B)(I) , WHICH IS AS UNDER: 'THE FAIR MARKET VALUE, IN RELATION TO A CAPITAL ASSETS, MEANS - (I) THE PRICE THAT THE CAPITAL ASSET WOULD ORDINARILY FETCH ON SALE IN THE OPEN MARKET ON THE RELEVANT DATE'. THIS FAIR MARKET VALUE SUBSTITUTION IS APPLI CABLE ONLY TO THE SITUATION WHERE THE AO IS EMPOWERED TO DETERMINE THE FAIR MAR KET VALUE UNDER THE ACT. AS FAR AS COMPUTATION OF CAPITAL GAINS ON SALE OF S HARES ARE CONCERNED ITA NO. 7410/M/2012 MADHU SARDA 10 UNDER SECTION 48 IT DOES NOT EMPOWER THE AO TO SUBSTITUTE THE FAIR MARKET VALUE FOR THE FULL VALUE OF CONSIDERATION.. 16. THE HON'BLE SUPREME COURT IN CIT VS. GEORGE HENDERSON AND CO. LTD . (1967) 66 ITR 622 (SC) ON THE ISSUE THAT THE MARKET VALUE OF THE SHARES WHICH WERE ALLOTTED AT RS. 136/- PER SHARE WAS RS. 620/- PER SHARE CONSIDERED THE EXPRESSION ' FULL VALUE OF CONSIDERATION' AS OCCURR ING IN SECTION 12B(2) OF THE INDIAN INCOME TAX ACT AND , 1922, WHICH IS ANALOGOU S TO SECTION 48 OF THE ACT HAS HELD AS UNDER:- ' ............ IT IS MANIFEST THAT THE CONSIDERATIO N FOR THE TRANSFER OF CAPITAL ASSET IS WHAT THE TRANSFEROR RECEIVES IN LIEU OF THE ASSET H E PARTS WITH, NAMELY, MONEY OR MONEY'S WORTH AND, THEREFORE, THE VERY ASSET TRANSF ERRED OR PARTED WITH CANNOT BE THE CONSIDERATION FOR THE TRANSFER. IT FOLLOWS T HAT THE EXPRESSION 'FULL CONSIDERATION' IN THE MAIN PART OF SECTION 12B(2) CANNOT BE CONSTRUED AS HAVING A REFERENCE TO THE MARKET VALUE OF THE ASSET TRANSFERRED BUT THE EXPRESSION ONLY MEANS THE FULL VALUE OF THE THING R ECEIVED BY THE TRANSFEROR IN EXCHANGE FOR THE CAPITAL ASSET TRANSFERRED BY HIM. THE CONSIDERATION FOR THE TRANSFER IS THE THING RECEIVED BY THE TRANSFEROR IN EXCHANGE FOR THE ASSET TRANSFERRED AND IT IS NOT RIGHT TO SAY THAT THE ASS ET TRANSFERRED AND PARTED WITH IS ITSELF THE CONSIDERATION FOR THE TRANSFER. THE M AIN PART OF SECTION 12B(2) PROVIDES THAT THE AMOUNT OF A CAPITAL GAIN SHALL BE COMPUTED AFTER MAKING CERTAIN DEDUCTIONS FROM THE 'FULL VALUE OF T HE CONSIDERATION FOR WHICH THE SALE, EXCHANGE OR TRANSFER OF THE CAPITAL ASSET IS MADE.' IN CASE OF A SALE, THE FULL VALUE OF THE CONSIDERATION IS THE FULL SAL E PRICE ACTUALLY PAID. THE LEGISLATURE HAD TO USE THE WORDS 'FULL VALUE OF THE CONSIDERATION' BECAUSE IT WAS DEALING NOT MERELY WITH SALE BUT WITH OTHER TYPES O F TRANSFER, SUCH AS EXCHANGE, WHERE THE CONSIDERATION WOULD BE OTHER THAN MONEY. IF IT IS THEREFORE HELD IN THE PRESENT CASE THAT THE ACTUAL PRICE RECEIVED BY THE RESPONDENT WAS AT THE RATE OF RS.136 PER SHARE THE FULL VALUE OF THE CONSIDERA TION MUST BE TAKEN AT THE RATE OF RS.136 PER SHARE. THE VIEW THAT WE HAVE EXPRESSE D AS TO THE INTERPRETATION OF THE MAIN PART OF SECTION 12B(2) IS BORNE OUT BY THE FACT THAT IN THE FIRST PROVISO TO SECTION 12B(2) THE EXPRESSION 'FULL VALUE OF THE CONSIDERATION' I S USED IN CONTRADISTINCTION WITH 'FAIR MARKET VALUE OF THE CA PITAL ASSET' AND THERE IS AN EXPRESS POWER GRANTED TO THE INCOME-TAX OFFICER TO 'TAKE THE FAIR MARKET VALUE ITA NO. 7410/M/2012 MADHU SARDA 11 OF THE CAPITAL ASSET TRANSFERRED' AS 'THE FULL VALU E OF THE CONSIDERATION' IN SPECIFIED CIRCUMSTANCES. IT IS EVIDENT THAT THE LEG ISLATURE ITSELF HAS MADE A DISTINCTION BETWEEN THE TWO EXPRESSIONS 'FULL VALUE OF THE CONSIDERATION' AND 'FAIR MARKET VALUE OF THE CAPITAL ASSET TRANSFERRED ' AND IT IS PROVIDED THAT IF CERTAIN CONDITIONS ARE SATISFIED AS MENTIONED IN TH E FIRST PROVISO TO SECTION 12B(2) , THE MARKET VALUE OF THE ASSET TRANSFERRED, THOUGH NOT EQUIVALENT TO THE FULL VALUE OF THE CONSIDERATION FOR THE TRANSFER, M AY BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION. TO GIVE RISE TO THIS FI CTION THE TWO CONDITIONS OF THE FIRST PROVISO ARE(1) THAT THE TRANSFEROR WAS DIRECT LY OR INDIRECTLY CONNECTED WITH THE TRANSFEREE , AND(2) THAT THE TRANSFER WAS EFFEC TED WITH THE OBJECT OF AVOIDANCE OR REDUCTION OF THE LIABILITY OF THE ASSE SSEE UNDER SECTION 12B . IF THE CONDITIONS OF THIS PROVISO ARE NOT SATISFIED THE MA IN PART OF SECTION 12B(2) APPLIES AND THE INCOME-TAX OFFICER MUST TAKE INTO ACCOUNT THE FULL VALUE OF THE CONSIDERATION FOR THE TRANSFER.' 17. IN CIT VS. GILLANDERS ARBUTHNOT & CO . (1973) 87 ITR 407 (SC) THEIR LORDSHIPS AFTER APPLYING THE PRINCIPLES ENUNCIATED IN GEORGE HENDERSON AND CO. LTD. SUPRA HAS OBSERVED AND HELD AS UNDER ( PAG E 419):- 'NOW LET US SEE WHAT IS THE IMPACT OF SECTION 12B(2) ON THE TRANSACTION? UNDER THAT PROVISION, THE AMOUNT OF CAPITAL GAINS HAS TO BE COMPUTED AFTER MAKING CERTAIN DEDUCTIONS FROM THE FULL VALUE OF THE CONSI DERATION FOR WHICH THE SALE IS MADE. WHAT EXACTLY IS THE MEANING OF THE EXPRESSION 'FULL VALUE OF THE CONSIDERATION FOR WHICH SALE IS MADE'? IT IS THE CO NSIDERATION AGREED TO BE PAID OR IS IT THE MARKET VALUE OF THE CONSIDERATION ? IN THE CASE OF SALE FOR A PRICE, THERE IS NO QUESTION OF ANY MARKET VALUE UNLIKE IN THE CASE OF AN EXCHANGE. THEREFORE, IN CASE OF SALES TO WHICH THE FIRST PROV ISO TO SUB-SECTION (2) OF SECTION 12B IS NOT ATTRACTED, ALL THAT WE HAVE TO SEE IS WHAT IS THE CONSIDERATION BARGAINED FOR. AS MENTIONED EARLIER, TO THE FACTS OF THE PRESENT CASE, THE FIRST PROVISO IS NOT ATTRACTED. AS SEEN E ARLIER, THE PRICE BARGAINED FOR THE SALE OF THE SHARES AND SECURITIES WAS ONLY RUPE ES SEVENTY-FIVE LAKHS. THE FACTS OF THIS CASE SQUARELY FALL WITHIN THE RULE LA ID DOWN BY THIS COURT IN COMMISSIONER OF INCOME-TAX VS. GEORGE HENDERSON & C O. LTD. THEREIN THIS COURT OBSERVED :- ITA NO. 7410/M/2012 MADHU SARDA 12 'IN CASE OF A SALE, THE FULL V ALUE OF THE CONSIDERATION IS THE FULL SALE PRICE AC TUALLY PAID. THE LEGISLATURE HAD TO USE THE WORDS 'FULL VA LUE OF THE CONSIDERATION' BECAUSE IT WAS DEALING NOT MERELY WITH SALE BUT WIT H OTHER TYPES OF TRANSFER, SUCH AS EXCHANGE, WHERE THE CONSIDERATION WOULD BE OTHER THAN MONEY. IF IT IS THEREFORE HELD IN THE PRESENT CASE THAT THE ACTUAL PRICE RECEIVED BY THE RESPONDENT WAS AT THE RATE OF RS.136 PER SHARE THE FULL VALUE OF THE CONSIDERATION MUST BE TAKEN AT THE RATE OF RS.136 P ER SHARE. THE VIEW THAT WE HAVE EXPRESSED AS TO THE INTERPRETATION OF THE MAIN PART OF SECTION 12B(2) IS BORNE OUT BY THE FACT THAT IN THE FIRST PROVISO TO SECTION 12B(2) THE EXPRESSION 'FULL VALUE OF THE CONSIDERATION' IS USED IN CONTRA DISTINCTION WITH 'FAIR MARKET VALUE OF THE CAPITAL ASSET' AND THERE IS AN EXPRESS POWER GRANTED TO THE INCOME- TAX OFFICER TO 'TAKE THE FAIR MARKET VALUE OF THE C APITAL ASSET TRANSFERRED' AS 'THE FULL VALUE OF THE CONSIDERATION' IN SPECIFIED CIRCU MSTANCES. IT IS EVIDENT THAT THE LEGISLATURE ITSELF HAS MADE A DISTINCTION BETWEEN T HE TWO EXPRESSIONS 'FULL VALUE OF THE CONSIDERATION' AND 'FAIR MARKET VALUE OF THE CAPITAL ASSET TRANSFERRED' AND IT IS PROVIDED THAT IF CERTAIN CONDITIONS ARE SATIS FIED AS MENTIONED IN THE FIRST PROVISO TO SECTION 12B(2) , THE MARKET VALUE OF THE ASSET TRANSFERRED, THOUGH NOT EQUIVALENT TO THE FULL VALUE OF THE CONSIDERATION F OR THE TRANSFER, MAY BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION. TO GIVE RISE TO THIS FICTION THE TWO CONDITIONS OF THE FIRST PROVISO ARE(1) THAT THE TRA NSFEROR WAS DIRECTLY OR INDIRECTLY CONNECTED WITH THE TRANSFEREE , AND(2) T HAT THE TRANSFER WAS EFFECTED WITH THE OBJECT OF AVOIDANCE OR REDUCTION OF THE LI ABILITY OF THE ASSESSEE UNDER SECTION 12B . IF THE CONDITIONS OF THIS PROVISO ARE NOT SATISFI ED THE MAIN PART OF SECTION 12B(2) APPLIES AND THE INCOME-TAX OFFICER MUST TAKE INTO ACCOUNT THE FULL VALUE OF THE CONSIDERATION FOR THE TRANSFER.' APPLYING THE PRINCIPLES ENUNC IATED IN THAT DECISION WE THINK THAT THE FULL VALUE OF THE SALE PRICE RECEIVED BY THE ASSESSEE WAS ONLY RUPEES SEVENTY- FIVE LACKHS. THAT BEING SO, THE CAPITAL GAINS MADE BY THE COMPAN Y WERE RS. 27,04,772 AS HELD BY THE HIGH COURT.' 18 IN K.P.VARGHESE VS. ITO (1981) 7 TAXMAN 13(SC); (1981) 131 ITR 597 (SC) IT HAS BEEN HELD VIDE PARA 15 AND 18 AS UNDER: - ITA NO. 7410/M/2012 MADHU SARDA 13 ' 15. IT IS, THEREFORE, CLEAR THAT SUB-SECTION (2) CA NNOT BE INVOKED BY THE REVENUE UNLESS THERE IS UNDERSTATEMENT OF THE CONSIDERATION IN RESPECT OF THE TRANSFER AND THE BURDEN OF SHOWING THAT THERE IS SUCH UNDERS TATEMENT IS ON THE REVENUE. ONCE IT IS ESTABLISHED BY THE REVENUE THAT THE CONS IDERATION FOR THE TRANSFER HAS BEEN UNDERSTATED OR, TO PUT IT DIFFERENTLY, THE CON SIDERATION ACTUALLY RECEIVED BY THE ASSESSEE IS MORE THAT WHAT IS DECLARED OR DISCL OSED BY HIM, SUB-SECTION (2) IS IMMEDIATELY ATTRACTED, SUBJECT, OF COURSE, TO TH E FULFILLMENT OF THE CONDITION OF 15 PER CENT OR MORE DIFFERENCE, AND THE REVENUE IS THEN NOT REQUIRED TO SHOW WHAT IS THE PRECISE EXTENT OF THE UNDERSTATEMENT OR , IN OTHER WORDS, WHAT IS THE CONSIDERATION ACTUALLY RECEIVED BY THE ASSESSEE. TH AT WOULD IN MOST CASES BE DIFFICULT , IF NOT IMPOSSIBLE, TO SHOW AND HENCE SU B-SECTION (2) RELIEVES THE REVENUE OF ALL BURDEN OF PROOF REGARDING THE EXTENT OF UNDERSTATEMENT OF CONCEALMENT AND PROVIDES A STATUTORY MEASURE OF THE CONSIDERATION RECEIVED IN RESPECT OF THE TRANSFER. IT DOES NOT CREATE ANY FIC TIONAL RECEIPT. IT DOES NOT DEEM AS RECEIPT SOMETHING WHICH IS NOT IN FACT RECEIVED. IT MERELY PROVIDES A STATUTORY BEST JUDGMENT ASSESSMENT OF THE CONSIDERA TION ACTUALLY RECEIVED BY THE ASSESSEE AND BRINGS TO TAX CAPITAL GAINS ON THE FOOTING THAT THE FAIR MARKET VALUE OF THE CAPITAL ASSET REPRESENTS THE ACTUAL CONSIDERATION UNTRULY DECLARE D OR DISCLOSED BY HIM. THIS APPROACH IN CONSTRUCTION OF SUB-SECTION (2) FALLS IN LINE WITH THE SCHEME OF THE PROVISIONS RELATING TO TAX ON CAPITAL GAINS. IT MAY BE NOTED THAT SECTION 52 IS NOT A CHARGING SECTION BUT IS A COMPUTATION SEC TION. IT HAS TO BE READ ALONG WITH SECTION 48 WHICH PROVIDES THE MODE OF COMPUTATION AND UNDER WHICH THE STARTING POINT OF COMPUTATION I S 'THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING'. WHAT IN FACT N EVER ACCRUED OR WAS NEVER RECEIVED CANNOT BE COMPUTED AS CAPITAL GAINS UNDER SECTION 48 . THEREFORE, SUB- SECTION (2) CANNOT BE CONSTRUED AS BRINGING WITHIN THE COMPUTATION OF CAPITAL GAINS AN AMOUNT WHICH, BY NO STRETCH OF IMAGINATION , CAN BE SAID TO HAVE ACCRUED TO THE ASSESSEE OR BEEN RECEIVED BY HIM AND IT MUST BE CONFINED TO CASES WHERE THE ACTUAL CONSIDERATION RECEIVED FOR T HE TRANSFER IS UNDERSTATED AND SINCE IN SUCH CASES IT IS VERY DIFFICULT , IF N OT IMPOSSIBLE, TO DETERMINE AND PROVE THE EXACT QUANTUM OF THE SUPPRESSED CONSIDERA TION, SUBSECTION (2) PROVIDES THE STATUTORY MEASURE FOR DETERMINING THE CONSIDERATION ACTUALLY RECEIVED BY THE ASSESSEE AND PERMITS THE REVENUE TO TAKE THE FAIR MARKET VALUE ITA NO. 7410/M/2012 MADHU SARDA 14 OF THE CAPITAL ASSET AS THE FULL VALUE OF THE CONSI DERATION RECEIVED IN RESPECT OF THE TRANSFER. XXXXXX XXXXXX XXXXXXXX 18. WE MUST, THEREFORE, HOLD THAT SUB-SECTION (2) O F SECTION (2) OF SECTION 52 CAN BE INVOKED ONLY WHERE THE CONSIDERATION FOR THE TRA NSFER HAS BEEN UNDERSTATED BY THE ASSESSEE OR, IN OTHER WORDS, THE CONSIDERATI ON ACTUALLY RECEIVED BY THE ASSESSEE IS MORE THAN WHAT IS DECLARED OR DISCLOSED BY HIM AND THE BURDEN OF PROVING SUCH UNDERSTATEMENT OR CONCEALMENT IS ON TH E REVENUE. THIS BURDEN MAY BE DISCHARGED BY THE REVENUE BY ESTABLISHING FA CTS AND CIRCUMSTANCES FROM WHICH A REASONABLE INFERENCE CAN BE DRAWN THAT THE ASSESSEE HAS NOT CORRECTLY DECLARED OR DISCLOSED THE CONSIDERATION RECEIVED BY HIM AND THERE IS UNDERSTATEMENT OR CONCEALMENT OF CONSIDERATION IN R ESPECT OF THE TRANSFER. SUB- SECTION (2) HAS NO APPLICATION IN CASE OF AN HONEST AND BONA FIDE TRANSACTION WHERE THE CONSIDERATION RECEIVED BY THE ASSESSEE HA S BEEN CORRECTLY DECLARED OR DISCLOSED BY HIM, AND THERE IS NO CONCEALMENT OR SUPPRESSION OF THE CONSIDERATION........... ' 19. . IN RUPEE FINANCE & MANAGE MENT (P) LTD. (2008) 22 SOT 174 (MUM); (2009) 120 ITD 539 (MUM) IT HAS BEEN HELD IN PENULT IMATE PARA OF THE ORDER THAT: ' AS ALREADY HELD IN THE ORDER OF RUPEE FINANCE & MANAGEMENT PVT. LTD. THERE IS NO ALLEGATION MUCH LESS, ANY EVIDENCE TO SHOW THAT THESE ASSESSES BEFORE US HAVE RECEIVED MONIES IN EXCESS OF AMOUNTS OF SALE C ONSIDERATION RECORDED AND DISCLOSED IN THE TRANSACTION FOR THE SALE OF SHARES . THE FIRST APPELLATE AUTHORITY HAS RIGHTLY NOTED THAT UNDER SECTION 48 THE STARTING POINT FOR COMPUTATION OF CAPITAL GAINS IS THE AMOUNT OF FULL VALUE OF CONSID ERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER OF THE CAPITAL ASSET. THE H ON'BLE SUPREME COURT IN THE CASE OF K.P.VARGHESE (SUPRA) HELD THAT SUB-SECTION (2) OF SECTION 52 CAN BE INVOKED ONLY WHEN THE FULL VALUE OF THE CONSIDERATI ON IS RECEIVED IN RESPECT OF A TRANSFER IS SHOWN AT A LESSER FIGURE THAN THAT WHIC H IS ACTUALLY RECEIVED BY THE ASSESSEE. IT FURTHER LAID DOWN THAT THE BURDEN OF P ROVING SUCH UNDERSTATEMENT OF CONSIDERATION IS ON THE REVENUE AND THAT THE SUB -SECTION HAS NO APPLICATION ITA NO. 7410/M/2012 MADHU SARDA 15 IN THE CASE OF A BONA FIDE TRANSACTION, WHERE THE T RUE CONSIDERATION RECEIVED BY THE ASSESSEE HAS BEEN DECLARED OR DISCLOSED BY HIM. SECTION 50C , HAS COME INTO THE STATUTE ONLY WITH EFFECT FROM 1.4.2003 BY FINANCE ACT , 2002 AND IS NOT APPLICABLE TO THE IMPUGNED ASSESSMENT YEARS. HENCE, FOR THE PERIOD PRIOR TO THE INSERTION OF SECTION 50C NO ADDITION CAN BE MADE BY INVOKING THE RATIO OF T HIS SECTION. THE FIRST APPELLATE AUTHORITY AT PAGE 21 O F HIS ORDER HAS RIGHTLY OBSERVED THAT, WHAT IN FACT NEVER ACCRUED OR WAS NEVER RECEIVED CANNOT BE COMPUTED AS CAPITAL GAIN. HE RELIED ON THE DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. SMT. NANDINI NOPANI (1998) 230 ITR 679. HE RIGHTLY HELD THAT IT IS MANIFEST THAT THE CONSIDERATION FOR THE TRANSFER OF CAPITAL ASSET IS WHAT THE TRANSFEROR RECEIVES, IN LIEU OF ASSETS HE PARTS WITH, I.E. MONEY OR MONIES WORTH AND THAT THE EXPRESSION 'FULL CONSIDERATION' CANNOT BE CONSTRUED AS HAVING REFERENCE TO THE MARKET VALUE OF THE ASSETS TRANSFERRED BUT REFERS TO THE PRICE BARGAINED FOR BY THE PARTIES AND IT CANNOT RE FER TO THE ADEQUACY OF THE CONSIDERATION. HE ALSO RIGHTLY OBSERVED THAT THE LE GISLATURE HAS USED THE WORDS 'FULL VALUE OF THE CONSIDERATION' AND NOT 'FAIR MAR KET VALUE OF THE ASSETS TRANSFERRED'. HE RECORDED THAT THE ASSESSING OFFICE R HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE ASSESSEE HAS RECEIVED MORE THAN WHAT HAS BEEN DISCLOSED IN THE BOOKS AND UNDER THESE CIRCUMSTANCE S THE DIFFERENCE CANNOT BE BROUGHT TO TAX UNDER THE HEAD 'CAPITAL GAINS'. WE F ULLY AGREE WITH THESE FINDINGS AND THE APPEALS FILED BY THE REVENUE FAIL. ' 20. IN VIEW OF THE PRINCIPLES LAID DOWN ABOVE, WE CANNOT UPHOLD THE ORDERS OF THE AO AND THE CIT(A) IN REDETERMINING THE FULL VAL UE OF CONSIDERATION BY ADOPTING THE FAIR MARKET VALUE. SINCE THE PROVISION S OF THE ACT DOES NOT PROVIDE FOR SUBSTITUTION OF THE VALUES AND THE SAID PROVISI ONS FOR SUBSTITUTION PROVIDED UNDER THE ACT IS NOT APPLICABLE TO THE FACTS OF THE CASE, WE CANNOT APPROVE THE ACTION OF THE AO IN REVALUING THE SALE PRICE. SIMIL AR VIEW WAS TAKEN BY THE COORDINATE BENCH IN THE CASE OF MGM SHAREHOLDERS BE NEFIT TRUST (SUPRA) WHEREIN THE ITAT ULTIMATELY DID NOT APPROVE THE SUB STITUTION OF SALE PRICE ON THE FACTS OF THAT CASE. THE FINAL FINDING IN PARA 4 1 IS AS UNDER: - '41. THERE IS NO QUARREL ON THE PRINCIPLE OF LAW LA ID DOWN IN THE OTHER DECISIONS RELIED ON BY LD. D.R. HOWEVER, IN VIEW OF THE PRINC IPLES ENUNCIATED BY THE ITA NO. 7410/M/2012 MADHU SARDA 16 HON'BLE SUPREME COURT, IN THE ABOVE DECISIONS REFER RED IN PARA 31 TO 36 AND THE TRIBUNAL DECISION IN PARA 37 OF THIS ORDER WE A RE OF THE VIEW THAT THE FULL VALUE OF THE SALE PRICE RECEIVED BY THE ASSESSEE WA S ONLY RS.0.10P PER SHARE AND, HENCE, THE SHORT TERM CAPITAL LOSS SHOWN BY TH E ASSESSEE AT RS.5,21,28,059/- IS ACCEPTED AND THE ORDER PASSED B Y THE ASSESSING OFFICER AND THE LD. CIT(A) IN THIS REGARD ARE SET ASIDE. THE GR OUNDS TAKEN BY THE ASSESSEE ARE, THEREFORE, ALLOWED AND THE GROUNDS TAKEN BY TH E REVENUE ARE REJECTED.' 21. IN VIEW OF THE ABOVE, WE HAVE NO HESITATION IN ALLOWING THE GROUNDS RAISED BY THE ASSESSEE ON THE ISSUE AND DIRECT THE AO TO A DOPT THE FULL VALUE OF CONSIDERATION AS RECEIVED BY THE ASSESSEE AND TO RE COMPUTE THE LONG TERM CAPITAL GAINS OR LOSSES ACCORDINGLY. THE ORDERS OF THE AO AND THE CIT(A) TO THAT EXTENT ARE MODIFIED. GROUND IS ALLOWED. 11. THE COORDINATE BENCH OF THE TRIBUNAL ON SIMILAR FAC TS IN ACIT VS TURNER MORRISON & CO. LTD [1993] 47 ITD HELD AS UNDER ( WE ARE EXTRACTING THE ENTIRE FACT AS THE FACT OF THE CASE IS ALMOST SIMIL AR) ; 2. THE APPEAL ARISES THIS WAY. DURING THE YEAR, THE A SSESSEE SOLD A FLAT IN BOMBAY AND THERE WAS A CAPITAL GAIN OF RS. 35,70,66 1. ON 24-12-1985 THE ASSESSEE SOLD TWO LAKH EQUITY SHARES OF M/S. GR AHMAS TRADING CO. (I) LTD. AND 10,500 EQUITY SHARES OF M/S. SHALIMAR WORKS LTD. THE COST PRICE OF THESE SHARES (RS. 10 FACE VALUE) WAS RS. 2 4,05,332 AND RS. 13,40,514. THESE SHARES WERE HELD AS INVESTMENTS IN THE ASSESSEES BALANCE-SHEET. THESE SHARES HAVE BEEN HELD BY THE A SSESSEE FOR QUITE SOME TIME. THEY WERE SOLD FOR RS. 1 LAKH IN RESPECT OF THE SHARES IN M/S. GRAHMAS TRADING CO. (I) LTD. AND FOR RS. 2,625 IN R ESPECT OF THE SHARES IN M/S. SHALIMAR WORKS LTD. THE LONG-TERM CAPITAL L OSS CAME TO RS. 36,43,221. THE LOSS WAS SET OFF AGAINST THE CAPITAL GAINS IN THE RETURN. THE ITO DID NOT ACCEPT THE CLAIM. HE SUMMONED THE B ROKER TO WHOM THE SHARES WERE SOLD UNDER SECTION 131 OF THE ACT AND E XAMINED HIM AS WELL AS HIS BOOKS OF ACCOUNT. HE NOTICED THAT 75,000 SHA RES OF M/S. GRAHMAS TRADING CO. (I) LTD. HAD BEEN SOLD BY THE BROKER ON 7-5-1987 FOR A PROFIT ITA NO. 7410/M/2012 MADHU SARDA 17 OF 3 PAISE PER SHARE AND SHARES OF M/S. SHALIMAR WO RKS LTD. WERE STILL LYING WITH HIM UNSOLD. ACCORDING TO THE ITO, IT WAS NOT ACCEPTABLE THAT A PRUDENT SHARE BROKER WOULD LOCK UP A SUM OF RS. 1,0 2,625 FOR A PERIOD OF 1 YEARS MERELY TO EARN A PROFIT OF 3 PAISE PER SHA RE. HE, THEREFORE, TOOK THE VIEW THAT THE SALE OF SHARES BY THE ASSESSEE WA S A COLOURABLE DEVICE RESORTED TO MERELY FOR AVOIDING THE TAX ON THE CAPI TAL GAINS. HE INVOKED THE DOCTRINE IN MCDOWELL & CO. LTD. V. CTO [1985] 154 ITR 148 (SC) AND DISALLOWED THE CAPITAL LOSS. ON APPEAL, THE CIT (A) TOOK THE VIEW THAT SINCE THE ITO DID NOT CHALLENGE THE GENUINENES S OF THE SALE OF SHARES TO THE BROKER IT WAS NOT OPEN TO HIM TO DEFEAT THE ASSESSEES CLAIM MERELY BECAUSE THE ASSESSEE SOUGHT TO SET OFF THE C APITAL LOSS AGAINST THE CAPITAL GAIN. THE CIT(A) ALSO FOUND THAT THERE WAS NOTHING ON RECORD TO SUGGEST THAT THERE WAS COLLUSION BETWEEN THE ASSESS EE AND THE SHARE BROKER IN EFFECTING THE SALE OF SHARES AND IN THE A BSENCE OF THIS, THE MCDOWELL DOCTRINE HAD BEEN WRONGLY INVOKED. IN THIS VIEW OF THE MATTER HE UPHELD THE ASSESSEES CLAIM. 3. THE REVENUE IS IN APPEAL TO CONTEND THAT THE CIT(A ) SHOULD HAVE UPHELD THE VIEW OF THE ITO. WE ARE UNABLE TO UPHOLD THE CO NTENTION. FIRSTLY THERE IS NOTHING ON RECORD TO SHOW THAT THE SALE OF SHARE S TO THE SHARE BROKER WAS SHAM. THE CIT(A) HAS RECORDED A CATEGORICAL FIN DING THAT THERE IS NOTHING ON RECORD TO SUGGEST ANY COLLUSION BETWEEN THE ASSESSEE AND THE SHARE BROKER. EVEN THE ITO DOES NOT APPEAR TO TAKE A VIEW THAT THE SALE OF SHARES TO THE SHARE BROKER IS SHAM OR A MAKE-BELIEF TRANSACTION IN SPITE OF HAVING SUMMONED THE BROKER AND HAVING EXAMINED HIM AND HIS BOOKS OF ACCOUNT. IN THE ABSENCE OF ANY SUCH CONCLUSION, THE VIEW OF THE ITO THAT THE ASSESSEE IS NOT ENTITLED TO CLAIM SET OFF OF TH E LOSS IN THE SHARE TRANSACTION AGAINST THE LONG-TERM CAPITAL GAIN IS N OT JUSTIFIED. SECONDLY, EVEN ASSUMING THAT THE ASSESSEE HAD DELIBERATELY CH OSEN TO SELL THE SHARES IN THE ACCOUNTING YEAR. HAVING HELD THEM FOR QUITE A LONG PERIOD, IT CANNOT BE STATED THAT THE ASSESSEE CANNOT TAKE ADVANTAGE O F THE PROVISIONS OF THE INCOME-TAX ACT. AS THE FACTS WOULD SHOW, THE SHARES WERE NOT WORTH MUCH AND IN ANY CASE THERE WAS NO POINT IN THE ASSE SSEE HOLDING ON TO THEM. IT IS NOT AS IF THE SHARES WERE BLUE-CHIP INV ESTMENTS AND WERE SOLD ITA NO. 7410/M/2012 MADHU SARDA 18 FOR A LESSER PRICE DELIBERATELY TO PURCHASE A LOSS TO BE SET OFF AGAINST THE CAPITAL GAINS. THE SHARES IN ANY CASE WOULD HAVE TO BE SOLD ONLY AT A LOSS; THAT THE ASSESSEE CHOSE THIS PARTICULAR YEAR, THAT TOO TOWARDS THE CLOSE OF THE ACCOUNTING YEAR WHICH WAS THE CALENDAR YEAR. DO ES NOT AUTOMATICALLY LEAD TO THE CONCLUSION THAT THE LOSS SHOULD BE DISA LLOWED AND SHOULD NOT BE SET OFF AGAINST THE LONG-TERM CAPITAL GAINS. FOR ONE THING, AS STATED EARLIER. THE TRANSACTION IS A GENUINE TRANSACTION A ND NOTHING HAS BEEN SAID AGAINST IT. NO FACTS HAVE BEEN BROUGHT ON RECORD TO IMPEACH THE GENUINENESS OF THE SALE OF SHARES. IF SO MUCH IS GR ANTED, THERE IS NOTHING TO PREVENT THE ASSESSEE FROM SELLING THE SHARES IN ORDER TO REDUCE THE TAX LIABILITY IN RESPECT OF THE CAPITAL GAINS. THE DOCT RINE LAID DOWN IN MEDOWELL DOES NOT APPLY TO THE CASES LIKE THE PRESE NT ONE IN M.V. VALLIAPPAN V. ITO [1988] 170 ITR 238 , THE MADRAS HIGH COURT HELD THAT A LEGITIMATE TRANSACTION WHICH DOES NOT AMOUNT TO A DUBIOUS DEVICE IS NOT HIT EVEN BY THE NEW APPROACH ADOPTED BY THE SUPREME COURT IN MCDOWELL & CO. LTD.S CASE ( SUPRA ). IN THAT CASE A PARTIAL PARTITION EFFECTED BY THE ASSESSEE WAS NOT RECOGNISED ON THE GROUND THAT UNDER SECTION 171(9) OF THE ACT. ANY PARTIAL PARTITION EF FECTED AFTER 31-12-1978 CANNOT BE RECOGNISED BY THE ITO. THE PROVISIONS OF SECTION 171(9) WERE CHALLENGED AS BEING VIOLATIVE OF ARTICLE 14 OF THE CONSTITUTION OF INDIA. ONE OF THE DEFENCES OF THE REVENUE BEFORE THE HIGH COURT WAS THAT THE DERECOGNITION OF PARTIAL PARTITION WAS ENACTED AS A MEASURE TO PREVENT TAX EVASION AND SHOULD, THEREFORE, BE UPHELD HAVING REG ARD TO THE DECISION IN MCDOWELLS CASE. IT WAS WHILE REPELLING THE ABOVE D EFENCE THAT THE MADRAS HIGH COURT PRESIDED OVER BY HIS LORDSHIP, TH E LEARNED CHIEF JUSTICE M.N. CHANDURKAR, HELD THAT A REAL AND GENUI NE TRANSACTION WHICH IS NOT A DUBIOUS DEVICE FOR AVOIDING THE TAX IS NOT HIT EVEN BY THE DOCTRINE OF MCDOWELL & CO. LTD. ( SUPRA ). IN UNION OF INDIA V. PLAY WORLD ELECTRONICS (P.) LTD. [1990] 184 ITR 308 THE SUPREME COURT HAS HELD THAT TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITHI N THE FRAME WORK OF THE LAW. IN THE PRESENT CASE IT CAN HARDLY BE SUGGE STED THAT THE ASSESSEE CANNOT TAKE ADVANTAGE OF THE PROVISIONS OF THE INCO ME-TAX ACT TO CLAIM SET OFF OF THE CAPITAL LOSS AGAINST THE CAPITAL GAI N. THE DEPARTMENT WOULD HAVE TO GO TO THE EXTENT OF PROVING THE SALE OF SHA RES AS A SHAM ITA NO. 7410/M/2012 MADHU SARDA 19 TRANSACTION IF IT WERE TO SO SUGGEST. BUT THAT IS N OT THE CASE HERE AND AS STATED EARLIER NO EVIDENCE HAS BEEN LET IN TO SHOW THAT THE SALE OF THE SHARES WAS NOT GENUINE OR WAS A COLLUSIVE TRANSACTI ON. THUS THE TRANSACTION IS GENUINE AND IS ALSO WITHIN THE FRAME WORK OF LAW BUT IT RESULTS IN A TAX ADVANTAGE TO THE ASSESSEE. IN SUCH CIRCUMSTANCES THE TAX ADVANTAGE CANNOT BE STATED TO THE RESULT OF A DUBIO US DEVICE. WE ARE FORTIFIED IN THIS VIEW BY THE OBSERVATIONS AT PARAG RAPH 16 AT PAGE 53 OF THE DECISION IN THE CASE OF SUTLEJ COTTON MILLS LTD. V. ASSTT. CIT [1993] 45 ITD 22 (CAL.) (SB). 4. FOR THE AFORESAID REASONS WE UPHOLD THE ORDER OF T HE CIT(A) DIRECTING THE ITO TO SET OFF THE CAPITAL LOSS OF RS. 36,43,22 1 AGAINST THE CAPITAL GAINS ARISING ON THE SALE OF SHARES. 12. CONSIDERING THE FACTUAL MATRIX OF THE CASE AN D LEGAL DISCUSSIONS CITED ABOVE WE ARE CONVINCED THAT THE SHARES WERE SOLD BY ASSESSEE AT THE FAIR MARKET VALUE. IN OUR VIEW THE TRANSACTIONS BEING G ENUINE, MERELY BECAUSE THE ASSESSEE HAS CLAIMED SET-OFF OF CAPITAL LOSS AGAINST THE CAPITAL GAIN EARNED DURING THE SAME PERIOD, CANNOT BE SAID TO BE A COLOURABLE DEVICE OR METHOD ADOPTED BY ASSESSEE TO AVOID THE TAX. THE SHARES WERE TRANSFERRED BY EXECUTING SHARE TRANSFER FORM AND AFTER PAYING THE REQUISITE STAMP DUTY. THE COMPANY NTPL A LSO PASSED A BOARD RESOLUTION FOR TRANSFER OF THOSE SHARES (PAGE -35OF PB). THE CONSIDERATION OF SHARE WAS EFFECTED TO THROUGH BANK ING CHANNEL (PAGE 14 OF PB). THE FAIR MARKET VALUE ARRIVED BY ASSESSE E, AS FURNISHED BEFORE COMMISSIONER (APPEALS), (PAGE NO. 74 OF PB). THE BALANCE SHEET OF NTPL FOR ASSESSMENT YEARS 2004-05 TO 2006- 07 IS AT (PAGE 76- 81OF PB). IN OUR VIEW THE TRANSACTIONS OF SALE OF S HARE WERE GENUINE ITA NO. 7410/M/2012 MADHU SARDA 20 AND TRANSACTED AT A PROPER VALUATION. THE LOWER AUT HORITY HAS NOT DISPUTED THE GENUINITY OF TRANSACTION. THE TRANSACT IONS CARRIED BY ASSESSEE ARE VALID IN LAW, CANNOT BE TREATED AS NON-EST MERELY ON THE BASIS OF SOME ECONOMIC DETRIMENT OR IT MAY BE PREJU DICIAL TO THE INTEREST OF REVENUE. FURTHER, IF THE PERIOD CO-EXIS TED OR PERMITTED THE ASSESSEE TO SET OFF HER CAPITAL LOSS AGAINST THE CA PITAL GAIN EARNED, WOULD ITSELF NOT GIVE RISE TO THE PRESUMPTION THAT THE TRANSACTION WAS IN THE NATURE OF COLOURABLE DEVICE. WE NOTICE THAT THE ASSESSEE HAS TAKEN INDEXED CASE OF ACQUISITION OF SHARE AT RS. 30,40,4 00/-. WE NOTICE THAT THE ASSESSING OFFICER HAS NOT EXAMINED THE SAME AND ACCORDINGLY DIRECT HIM TO VERIFY THE COMPUTATION GIVEN BY THE A SSESSEE AND ALLOW SET OFF OF CORRECT AMOUNT OF LONG TERM CAPITAL LOSS AGAINST LONG TERM CAPITAL GAIN. IN THE RESULT, THE GROUNDS OF AP PEAL RAISED BY THE ASSESSEE ARE TREATED AS ALLOWED. 13. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH DAY OF MARCH 2018. SD/- SD/- ( B.R.BASKARAN ) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 09/03/2018 S.K.PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. ITA NO. 7410/M/2012 MADHU SARDA 21 BY ORDER (ASSTT.REGISTRAR) ITAT, MUMBAI 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE C