DCIT, New Delhi V. M/s. Leading Line Merchant Traders Pvt. Ltd., New Delhi

ITA 754/DEL/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0190 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: SMC 1
• Next Hearing Date: 28-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 10-02-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NITIN MALHOTRA; MANOJ KUMAR SHARMA CMA
• Assessee Lawyers: OM PRAKASH MEENA
• Keywords: Fair market value; Valuation report

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : SMC-I : NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER ITA NO.754/DEL/2014 ASSESSMENT YEAR : 2009-10 DCIT, CIRCLE-4(1), NEW DELHI. VS. LEADING LINE MERCHANT TRADERS PVT. LTD., 608, PADMA TOWER-1, RAJENDRA PLACE, NEW DELHI. PAN: AAACL9001B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MANOJ KUMAR SHARMA, CMA & SHRI NITIN MALHOTRA, CA RESPONDENT BY: SHRI OM PRAKASH MEENA, SR.DR ORDER THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORDER PASSED BY THE CIT(A) ON 19.11.2013 IN RELATION TO ASSESSMENT YEAR 2009-10. 2. THE FIRST GROUND IS AGAINST THE DELETION OF D ISALLOWANCE OF LOSS OF RS.3,35,66,618/- CLAIMED TO HAVE BEEN INCURRED BY T HE ASSESSEE ON SALE OF SHARES OF M/S PIONEER LTD. ITA NO.754/DEL/2014 2 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF GOODS AND LAND ETC. THE ASSESSEE DECLARED TOTAL LONG-TERM CAPITAL LOSS OF RS.6,34,22,609/- ON ACCOU NT OF SALE OF UNLISTED SECURITIES. ON PERUSAL OF THE DETAILS, IT WAS OBSE RVED BY THE AO THAT THE ASSESSEE CLAIMED TO HAVE SOLD SHARES INTER ALIA OF M/S PIONEER LTD., AT RS.0.10/- PER SHARE IN THE YEAR UNDER CONSIDERATION WHICH WERE SUBSCRIBED BY IT AT RS.40/-, BEING, FACE VALUE OF RS.10/- AND SHARE PREMIUM OF RS.30/- PER SHARE. ON BEING CALLED UPON TO JUSTIFY THE CLA IM OF LOSS OF RS.3,35,66,618/-, THE ASSESSEE SUBMITTED THAT THE S HARES OF M/S PIONEER LTD. SOLD BY IT WERE INDEPENDENTLY VALUED BY M/S PRICEWA TER HOUSE COOPERS PVT. LTD. AT RS.0.10/- PER SHARE AND IT IS THE SAME PRICE AT WHICH THE ASSESSEE SOLD SUCH SHARES TO M/S ASA AGENCIES PVT. LTD. THE AO OBSERVED THAT M/S ASA AGENCIES PVT. LTD., IS A SHAREHOLDER OF THE ASS ESSEE AS WELL, WHICH HAD ENTERED INTO SEVERAL SALE AND PURCHASE TRANSACTIONS . A SUM OF RS.8 CRORE WAS SHOWN AS PAYABLE TO THIS COMPANY SINCE FINANCIA L YEAR 2006-07 AND WAS FINALLY SETTLED ONLY ON 27.3.2009. IN THIS BAC KGROUND OF FACTS, THE AO OPINED THAT THERE WAS NO REASONABLE BASIS TO JUSTIF Y THE SALE OF SHARES WORTH RS. 3 CRORE FOR A SUM OF RS.75,000/- ONLY AND, FURT HER, THE TRANSACTION WAS NOT WITH AN INDEPENDENT PARTY AT FAIR MARKET VALUE. HE, THEREFORE, ITA NO.754/DEL/2014 3 DISALLOWED LONG-TERM CAPITAL LOSS OF RS.3.35 CRORE SHOWN ON THE SALE OF SHARES OF M/S PIONEER LTD. THE LD. CIT(A) GOT CONV INCED WITH THE SUBMISSIONS ADVANCED ON BEHALF OF THE ASSESSEE AND ORDERED FOR THE DELETION OF ADDITION. THE REVENUE IS AGGRIEVED AGAINST THE D ELETION OF THIS DISALLOWANCE. 4. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD. IT IS NOTICED THAT THE SHARES OF M/S PIO NEER LTD., A CLOSELY HELD COMPANY, WHICH IS ALSO A RELATED CONCERN OF THE ASS ESSEE WERE ISSUED TO THE ASSESSEE ON 30.3.2007. SUCH SHARES WITH FACE VALUE OF RS.10/- WERE ISSUED AT RS.40 PER SHARE, WHICH INCLUDED A PREMIUM OF RS .30/- PER SHARE. THESE SHARES WERE SOLD BY THE ASSESSEE ON 7.2.2009 TO M/S ASA AGENCIES PVT. LTD., WHICH IS, AGAIN, A SHAREHOLDER OF THE ASSESSE E COMPANY. THESE SHARES WERE SOLD @ 10 PAISE PER SHARE AS AGAINST THE PURC HASE PRICE OF RS.40/- PER SHARE. IT IS FURTHER INTERESTING TO NOTE THAT M/S PIONEER LTD., WHOSE SHARES THE ASSESSEE CLAIMS TO HAVE SUBSCRIBED TO AND SOLD TO M/S ASA AGENCIES, IS ALSO A GROUP CONCERN. IN OTHER WORDS, THE ASSESSEE , COMPANY WHOSE SHARES WERE APPARENTLY TRANSACTED AND THE ALLEGED PURCHASE R OF SHARES ARE ALL RELATED ENTERPRISES. ON A SPECIFIC QUERY, THE LD. AR ADMITTED THAT SHARES OF M/S PIONEER LTD, WERE SUBSCRIBED TO BY THE ASSESSEE ON THE BASIS OF PRIVATE ITA NO.754/DEL/2014 4 PLACEMENT AND NO PUBLIC ISSUE WAS BROUGHT OUT. THIS SHOWS THAT THE SHARES OF M/S PIONEER LTD. WERE NOT LISTED ON ANY STOCK EX CHANGE. WHEN I CONSIDER THE FACTS AND CIRCUMSTANCES OF THE CASE IN ENTIRETY, NAMELY, THE ASSESSEE PURCHASING SHARES OF M/S PIONEER LTD. ON 3 0.3.2007 FOR A SUM OF RS.40/- AND, THEN, SELLING SUCH SHARES TO ASA AGENC IES PVT. LTD., AT 10 PAISE PER SHARE AND THE FURTHER FACT THAT ALL THE C OMPANIES ARE RELATED TO EACH OTHER, I AM UNABLE TO ACCEPT THE GENUINENESS OF THE ENTIRE TRANSACTION IN SHARES. NO MATERIAL HAS BEEN BROUGHT ON RECORD TO INDICATE THE NET WORTH OF M/S PIONEER LTD. JUSTIFYING THE ISSUE PRICE AT RS. 40/- PER SHARE WHEN THE ASSESSEE COMPANY SUBSCRIBED TO ITS SHARES. THE ASS ESSEE IS HARPING ON SOME VALUATION REPORT OF PRICEWATER HOUSE COOPERS INDICA TING THE NET WORTH OF SHARES OF PIONEER LTD. AT 10 PAISE PER SHARE AT A G AP OF LESS THAN TWO YEARS. THIS IS CLEARLY A FAADE CREATED BY THE GROUP COMPA NIES AMONGST THEMSELVES TO BOOK LOSS INTO ASSESSEES ACCOUNTS WI TH THE ULTERIOR MOTIVE. I AM UNABLE TO UNDERSTAND THE RATIONALE IN THE ASSESS EE ACQUIRING THE SHARES OF ITS OWN GROUP COMPANIES AT RS. 40 PER SHARE AND THE N OFFLOADING THE SAME TO ITS OWN GROUP COMPANY AT A THROW AWAY PRICE OF 1 0 PAISE PER SHARE AND BOTH THE TRANSACTIONS BEING OFF-MARKET AS THE SHARE S OF M/S PIONEER LTD. ARE ADMITTEDLY NOT LISTED ON ANY STOCK EXCHANGE IN THE COUNTRY. ITA NO.754/DEL/2014 5 5. THE HONBLE SUPREME COURT IN SUMATI DAYAL VS. CIT (1995) 214 ITR 801 (SC) CONSIDERED A QUESTION WHETHER THE APPARENT CAN B E CONSIDERED AS REAL. IT WAS OBSERVED THAT APPARENT MUST BE CONSIDE RED REAL UNTIL IT IS SHOWN THAT THERE ARE REASONS TO BELIEVE THAT THE APPARENT IS NOT THE REAL AND THAT THE TAXING AUTHORITIES ARE ENTITLED TO LOOK INTO THE SU RROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY AND THE MATTER HAS TO BE CONSI DERED BY APPLYING THE TEST OF HUMAN PROBABILITIES. IT WAS FURTHER OBSERVED THAT AN INFERENCE SHOULD BE DRAWN ON THE BASIS OF THE CIRCUMSTANCES AVAILABLE O N THE RECORD. CONSIDERING THE CIRCUMSTANCES OF THE TRANSACTION IN THAT CASE, THE HONBLE SUPREME COURT HAS HELD THAT AN INFERENCE COULD REAS ONABLY BE DRAWN THAT THE WINNING TICKETS WERE PURCHASED BY THE APPELLANT AFTER THE EVENT AND THE AUTHORITIES WERE RIGHT IN DRAWING AN ADVERSE INFERE NCE AGAINST THE ASSESSEE. 6. ADVERTING TO THE FACTS OF THE INSTANT CASE, I FI ND THAT THE AO WAS FULLY JUSTIFIED IN REJECTING THE GENUINENESS OF THE TRANS ACTION OF PURCHASE AND SALE OF SHARES ON THE TEST OF HUMAN PROBABILITY. THE EN TIRE STORY CONCOCTED BY THE ASSESSEE AND ITS GROUP CONCERNS IS AIMED AT DEF RAUDING THE REVENUE WITH ULTERIOR MOTIVE. SUCH A COURSE OF ACTION ADOP TED BY THE ASSESSEE, WHICH IS NOTHING MORE THAN A CAMOUFLAGE, CANNOT BE ACCEPTED. MY CONCLUSION IS FORTIFIED BY THE VERY FACT THAT WHEN THE AO EXAMINED THE ITA NO.754/DEL/2014 6 ENTIRE POSITION IN DETAIL AND FOUND OUT THE IRREGUL ARITIES AS DISCUSSED ABOVE, THE ASSESSEE CAME OUT WITH A PROPOSAL BEFORE THE AO THAT HE COULD ASSESS THE LOSS AT NIL ATTRIBUTING ANY REASON, BUT, NOT BY WAY OF DISALLOWANCE ATTRACTING PENALTY U/S 271(1)(C) OF THE ACT. THE SA ME SUBMISSION WAS REITERATED BEFORE THE LD. CIT(A) AS WELL WHICH HAS BEEN INCORPORATED ON PAGE 9 OF THE IMPUGNED ORDER. DESPITE ALL THESE GO INGS-ON, THE LD. CIT(A) CHOSE TO DELETE THE ADDITION, WHICH IN MY CONSIDERE D OPINION, WAS NOT JUSTIFIED. I, THEREFORE, OVERTURN THE IMPUGNED ORDE R AND RESTORE THE ACTION OF THE AO ON THIS ISSUE. 7. THE ONLY OTHER GROUND IS AGAINST THE DELETION OF DISALLOWANCE OF LOSS OF RS.97,35,260/- CLAIMED TO HAVE BEEN INCURRED BY THE ASSESSEE ON SALE OF SHARES OF M/S SOLARIS HOLDINGS LTD. THE FACTS APRO POS THIS ISSUE ARE THAT THE ASSESSEE PURCHASED PREFERENCE SHARES OF M/S SOLARIS HOLDINGS LTD., A GROUP CONCERN FROM M/S AVANTHA HOLDINGS LTD., ANOTHER GRO UP CONCERN ON 15.5.2006 FOR A SUM OF RS.8 CRORE. THESE SHARES WE RE CLAIMED TO HAVE BEEN SOLD TO M/S ASA AGENCIES PVT. LTD., AGAIN, A GROUP CONCERN FOR A SUM OF RS.8 CRORE. LOSS OF RS.97,35,260/- WAS CLAIMED ON ACCOUNT OF INDEXATION OF PURCHASE PRICE OF SHARES. THE AO NOTICED THAT THE ASSESSEE DID NOT MAKE ANY PAYMENT FOR PURCHASE OF SHARES OF M/S SOLARIS H OLDINGS LTD., EVEN TILL ITA NO.754/DEL/2014 7 THE DATE OF ITS SALE AND IT WAS ONLY THEREAFTER THA T THE PURCHASE CONSIDERATION WAS CLAIMED TO HAVE BEEN PAID. HE, THEREFORE, DISA LLOWED LOSS OF RS.97.35 LAC. THE LD. CIT(A) OVERTURNED THE IMPUGNED ORDER. THE REVENUE IS AGGRIEVED AGAINST THE DELETION OF ADDITION. 8. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESSEE CLAIME D TO HAVE PURCHASED SHARES OF M/S SOLARIS HOLDINGS LTD., ON 15.5.2006 FROM M/S AVANTHA HOLDINGS LTD., FOR A SUM OF RS.8 CRORE. NO PAYMENT WAS MADE FOR THE PURCHASE OF THESE SHARES TILL THE ALLEGED LIQUIDATION OF SUCH S HARES IN 2009 TO M/S ASA AGENCIES PVT. LTD. WHEN I CONSIDER THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THIS TRANSACTION, IT BECOMES CLEAR THAT IT IS AG AIN A NON-GENUINE TRANSACTION ENTERED INTO WITH THE OBJECT OF DEPRIVI NG THE REVENUE OF LEGITIMATE TAX DUE TO THE EXCHEQUER. IT IS TOTALLY UNACCEPTABLE THAT A PERSON WHO HAS SOLD SHARES FOR RS.8 CRORE WILL SIT QUIETLY FOR MORE THAN 2 YEARS AND WILL GET PAYMENT ONLY WHEN HIS BUYER, IN TURN, SELLS SUCH SHARES. CONSIDERING THESE OFF MARKET TRANSACTIONS OF PURCHA SE AND SALE OF THE SHARES OF M/S SOLARIS, RELATION BETWEEN THE BUYER ASSESSEE SELLER AND COMPANIES WHOSE SHARES WERE TRANSACTED, ALL BEING GROUP CONCE RNS, AND THE FURTHER FACT THAT THE SELLER DID NOT CLAIM PAYMENT FROM THE ASSE SSEE FOR MORE THAN 2 ITA NO.754/DEL/2014 8 YEARS, COUPLED WITH THE OTHER RELATED FACTS LEAD ME TO AN IRRESISTIBLE CONCLUSION THAT THE TRANSACTIONS IN THE SHARES OF M /S SOLARIS HOLDINGS LTD., WERE NOT GENUINE. THE REASONS NOTED ABOVE WHILE DIS CUSSING THE LONG TERM CAPITAL LOSS FROM THE SHARES OF M/S PIONEER LTD., A PPLY WITH FULL FORCE TO THIS TRANSACTION AS WELL. IN MY CONSIDERED OPINION, THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. I, THEREFORE, R ESTORE THE VIEW TAKEN BY THE AO. 9. IN THE RESULT, THE APPEAL FILED BY THE REV ENUE IS ALLOWED. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 2 9 TH JULY, 2015. SD/- (R.S. SYAL) ACCOUNTANT MEMBER DATED: 29 TH JULY, 2015. DK COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR DY. REGISTRAR, ITAT, NEW DELHI