AKTIEBOLAGET ELECTROLUX SWEDEN, MUMBAI V. ADDL DIT (IT) RG I, MUMBAI

ITA 7628/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2936 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 31-08-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 26-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Share purchase agreement; Retrospective amendment; Fair market value; Valuation report; Scheme of amalgamation; Commercial expediency
• Section: 2(14); 234B; 147; 148

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI ABENCH , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER & PARTHASARATHY CHOUDHURY,JUDICIAL MEMBER /.ITA NO.7628/MUM/2012, /ASSESSMENT YEAR-2006-07 /.ITA NO.8695/MUM/2010, /ASSESSMENT YEAR-2007-08 AKTIEBOLAGET ELECTROLUX SWEDEN C/O. SRBC & ASSOCIATES14 TH FLOOR, THE RUBY, 29 SENAPATI BAPAT MARG, DADAR (W),MUMBAI-400 028. PAN: AADCA 9239 R VS INCOME TAX OFFICER-1(3) RANI MANSION, 2 ND FLOOR MURBAD ROAD, KALYAN MUMBAI. ( / APPELLANT) ( / RESPONDENT) /ASSESSEE BY : SHRI RAJAN VORA / REVENUE BY : SHRI K. KRISHNA MURTY / DATE OF HEARING : 02-09 -2015 / DATE OF PRONOUNCEMENT : 21-10-2015 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDERS DT. 06/09/2012 AND 27/09/200 9 OF DRP-I, MUMBAI, THE ASSESSEE, HAS RAISED FOLLOWING GROUNDS OF APPEAL FOR THE ABOVE MENTIONED TWO ORDERS RESPECTIVELY: ITA/7628/MUM/2012,AY.-2006-07: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, REASSESSMENT PROCEEDING CANNOT BE INITIATED BASED O N MERE SUSPICION 1. THE AO HAD ERRED IN REOPENING THE ASSESSMENT PRO CEEDINGS ON MERE SUSPICIONS, SURMISES, AND CONJECTURES WITHOUT PREJUDICE TO GROUND NO 1 DISALLOWANCE OF CLAIM OF LONG TERM & SHORT TERM CAP ITAL LOSS 2. THE AO HAD ERRED IN DISALLOWING THE CLAIM OF LON G TERM CAPITAL LOSS AMOUNTING TO INR 5,37,00, 60,118 AND SHORT TERM CAPITAL LOSS AMOUNTING TO INR 82,70,74,879 ARISING ON SALE OF SHARES OF ELECTROLUX KELVINATOR LIMITED (EKL), AS CLAIMED BY THE APPELLANT IN THE RETURN OF INCOME FILED FOR THE SUBJECT ASSESSMENT YEAR. TAXING SHORT TERM CAPITAL GAINS AND LONG TERM CAPIT AL GAINS 3. THE AO HAD ERRED IN TAXING THE LONG TERM CAPITAL GAIN AMOUNTING TO INR 2,89,57,262 AND SHORT TERM CAPITAL GAIN AMOUNTING TO INR 4,50,950,ARISING TO AKTIEBOLAGET ELECTROLUX ON REDEMPTION OF PREFERENCE SHARES OF ELECTROLUX KELVINATOR LIMITED. NON GRANT OF CREDIT OF TDS 4. THE AO HAD ERRED IN NOT FOLLOWING THE DIRECTIONS OF THE DRP AND DENYING THE CREDIT IN RESPECT OF TAX DEDUCTED AT SOURCE (TDS) ON ROYALTY RECEIVED FROM VIDEOCON INDUSTRIES LIMITED, AS CLAIMED BY THE APPELLANT IN THE RETURN OF INCOME FO R THE SUBJECT ASSESSMENT YEAR LEVY OF INTEREST UNDER SECTION 234A, 234B AND 234 C 5. THE AO HAD ERRED IN LEVYING INTEREST UNDER SECTI ON 234A, 234B AND 234C OF THE ACT INITIATION OF PENALTY PROCEEDING UNDER SECTION 271( 1)(C) OF THE ACT 6. THE AO HAD ERRED IN INITIATING PENALTY PROCEEDIN G UNDER SECTION 271(1)(C) OF THE ACT. ITA/8695/M/10 ,AY.07-08 &7628/M/12 ( 06-07) AKTIEBOLAGET 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP HAD, 7. ERRED IN HOLDING THAT THE TRANSACTION IS NOT A C ASE OF TRANSFER OF SHARES RATHER A TRANSFER OF TH E ENTIRE BUSINESS BY THE APPELLANT AND ACCORDINGLY, T REATING IT AS A SLUMP SALE. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. ITA/8695/MUM/2010,AY.07-08: DISALLOWANCE OF CLAIM OF LONG TERM & SHORT TERM CAP ITAL LOSS 1. ERRED IN DISALLOWING THE CLAIM OF LONG TERM CAPITAL LOSS AMOUNTING TO INR 25,03,89,402 AND SHORT TERM CAPITAL LOSS AMOUNTING TO INR 69,06,751, ARISING ON SALE OF SHARES OF ELECTROLUX KELVINATOR LIMITED (EKL), AS CLAIMED BY THE APPELLA NT IN THE RETURN OF INCOME FILED FOR THE SUBJECT ASSESSMENT YEAR. NON GRANT OF CREDIT OF TDS 2. ERRED IN NOT FOLLOWING THE DIRECTIONS OF THE DR P AND DENYING THE CLAIM OF TAX DEDUCTED AT SOURCE (TDS) ON ROYALTY PAYMENTS FROM VIDEOCON INDU STRIES LIMITED, AS CLAIMED BY THE APPELLANT IN THE RETURN OF INCOME FOR THE SUBJECT ASSESSMENT YEAR BY HOLDING THAT CREDIT FOR TDS WILL BE GRANTED IN THE YEAR OF LOSS WITHOUT APPRECIATING TH E FACT THAT TDS CREDIT IS ARISING OUT OF ROYALTY INCOME WHICH IS OFFERED TO TAX IN THE SUBJECT ASSES SMENT YEAR. LEVY OF INTEREST UNDER SECTION 234B & 234C 3. ERRED IN LEVYING INTEREST UNDER SECTION 234B AND 234C OF THE ACT WITHOUT GIVING CREDIT FOR ROYALTY INCOME WHICH IS OFFERED TO TAX IN THE SUBJE CT ASSESSMENT YEAR. 4.WITHOUT PREJUDICE TO ABOVE, ERRED IN LEVYING INTE REST UNDER SECTION 234B & 234C OF THE ET WITHOUT APPRECIATING THAT THE APPELLANT BEING NON-R ESIDENT COMPANY, ITS ENTIRE INCOME IS SUBJECT TO DEDUCTION OF TAX AT SOURCE. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE HON'BLE DRP HAD, , 5. ERRED IN HOLDING THAT THE VALUATION REPORT OBTAI NED BY THE APPELLANT TO SELL THE SHARES TO V N DHOOT WAS A QUALIFIED REPORT AND CANNOT BE RELIED U PON WITHOUT APPRECIATING THAT THE METHODS ADOPTED FOR VALUING SHARES ARE ONE OF THE PERMISSIB LE METHODS AND HENCE, CANNOT BE REJECTED ON THE BASIS OF CONJECTURES AND SURMISES. 6. ERRED IN HOLDING THAT THE TRANSACTION IS NOT A CASE OF TRANSFER OF SHARES RATHER A TRANSFER OF UNDERTAKING BY THE APPELLANT AND ACCORDINGLY, TREAT ING IT AS A SLUMP SALE. 7. ERRED IN NOT APPRECIATING THE FACT THAT THE TRA NSFER OF SHARES HAPPENED IN THE YEAR UNDER CONSIDERATION AND NOT ON THE DATE OF ENTERING INTO SHARE PURCHASE AGREEMENT AND HOLDING THAT THE LOSS IS NOT ASSESSABLE IN THE SUBJECT ASSESSMEN T YEAR. DURING THE COURSE OF HEARING THE AUTHORISED REPRESE NTATIVE(AR)DID NOT PRESS GROUNDS NO. SO,SAME STAND DISMISSED AS NOT PRESSED. ITA/7628/MUM/2012,AY.-2006-07:BRIEF FACTS: ASSESSEE-COMPANY,M/S AKTIEBOLAGET ELECTROLUX(ABE),I NCORPORATED AND BASED IN SWEDEN,IS ENGAGED IN THE BUSINESS OF MANUFACTURE,SALE AND EXP ORT OF WHITE GOODS.ON THE BASIS OF ASSESSMENT PROCEEDINGS,COMPLETED FOR THE AY.2007-08 ,AS PER THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP),THE AO RE-OPENED THE ASSESSM ENT FOR THE YEAR UNDER CONSIDERATION, INVOKING THE PROVISIONS OF SECTION 147 OF THE ACT.T HE ASSESSEE OBJECTED THE RE-OPENING OF THE ASSESSMENT AND STATED THAT THE EARLIER RETURN FILED BY IT SHOULD BE TAKEN AS RETURN FILED IN RESPONSE TO THE NOTICE OF SECTION 148 OF THE ACT.THE AO DEAL T WITH THE ISSUE OF CLAIM MADE BY IT UNDER THE HEADS LTCL AND STCL.AFTER CONSIDERING THE SUBMISSIO N OF THE ASSESSEE,THE AO FORWARDED A DRAFT ORDER TO THE ASSESSEE ON 15.12.2011.AGGRIVED BY HIS ORDER,IT APPROACHED THE DRP ON 31. 01. 2012.VIDE ITS ORDER,06.09.2012,THE DRP ISSUED DIREC TIONS TO THE AO.ON 18.10.2012,THE AO ITA/8695/M/10 ,AY.07-08 &7628/M/12 ( 06-07) AKTIEBOLAGET 3 COMPLETED THE ASSESSMENT U/S.143(3)R.W.S.148 R.W.S. 144C (13)OF THE ACT,DETERMINING THE INCOME OF THE ASSESSEE AT RS.3,24,70,122/-. 2. GROUND NO.2 ABOUT DISALLOWING THE CLAIM OF LTCL AMO UNTING TO RS.5,37,00,60,118/-AND STCL OF RS.82,70,74,879/-ARISING ON SALE OF SHARES OF E LECTROLUX KELVINATOR LIMITED (EKL).DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESS EE WAS HOLDING MAJORITY OF SHARES IN EKL, THAT EKL WANTED TO DELIST ITS SHARES FROM STOCK EXC HANGES,THAT AS THE MAJORITY SHAREHOLDER THE ASSESSEE MADE AN OPEN OFFER TO BUY THE SHARES OF M INORITY SHAREHOLDERS AS PER SEBI RULES 2003, THAT SUBSEQUENT TO SAID OPEN OFFER THE SHAREHOLDING OF THE ASSESSEE IN EKL WAS INCREASED TO 90. 21%, THAT IN THE YEAR 2005 IT ADDITIONALLY SUBSCRIB ED TO THE SHARES OF EKL WHICH INCREASED ITS SHARE HOLDING TO 91.85%,THAT THE SHARES OF EKL WERE THEN DELISTED FROM THE STOCK EXCHANGES, THAT AS PER THE DELISTING GUIDELINES THE ASSESSEE HAD TO PROVIDE AN EXIT OPPORTUNITY TO THE SHAREHOLDERS WHO HAVE NOT EXERCISED THEIR RIGHT IN THE EARLIER O PEN OFFER,THAT IT CAME UP WITH THE EXIT OFFER FOR RESIDUARY SHAREHOLDERS BETWEEN 11/02/2005 AND 11/02 /2006,THAT IT ACQUIRED 2,50, 63,026 SHARES THROUGH THE EXIT OFFER,THAT IT ENTERED IN TO SALE A GREEMENT DATED 07/07/2005 WITH MR.V.N.DHOOT (VND)OF VIDEOCON INDUSTRIES LIMITED(VIL)FOR SALE OF HIS EXISTING EQUITY SHAREHOLDING (91.85%) DELISTING OFFER SHARES AND ALSO 1,65,00,000 PREFERE NCE SHARES HELD BY IT IN EKL. FROM THE SHARE PURCHASE AGREEMENT,THE AO FOUND THAT THE ASSESSEE OFFERED TO SELL ITS EXISTING SHARE HOLDING TO THE TUNE OF 41,18,99,418 AND ALSO 2,50,63,026 SHARE S ACQUIRED THROUGH THE OPEN OFFER, THAT 41,18, 99,418 EQUITY SHARES WERE SOLD FOR RS. 1/- AND 1,65 ,00,000 PREFERENCE SHARES WERE SOLD FOR USD 9(RS.420/-),THAT IT SUFFERED LTCL OF RS.3,87,77,46, 609/-AND STCL OF RS.82,70,74,879/-ON TRANSFER OF THE ABOVE MENTIONED 41,18,99,418 EQUIT Y SHARES OF EKL,THAT IT ALSO SUFFERED LTCL OF RS.149,23,13,508/- ON TRANSFER OF 1,65,00,000 PR EFERENCE SHARES OF EKL, PURSUANT TO SALE AGREEMENT DATED 07/07/ 2005,THAT DURING THE AY.UN DER APPEAL IT HAD EARNED LTCG OF RS. 2,89, 57,262/- AND STCG RS. 4,50,950/- ON THE BALANCE 1, 35,00,000 PREFERENCE SHARES AFTER REDEEMING IT AT PAR.AFTER ADJUSTING THE GAINS,IT CLAIMED NET LTCL OF RS.5,34,11,02,855/- AND STCL OF RS. 82,66,23, 929/- IN THE RETURN.THE AO DIRECTED THE A SSESSEE TO SUBSTANTIATE THE ABOVE TRANSACTION OF SALE OF SHAREHOLDING OF EKL HELD BY IT FOR A COM BINED PRICE OF RS. 421/-.THE ASSESSEE FILED A SHARE PURCHASE AGREEMENT DATED.07.07.2005,ENTERED I N TO WITH VND.IT CONTENDED THAT AT THE TIME OF SALE OF INITIAL 91.85% OF SHAREHOLDING OF EKL TH E VALUE OF ENTIRE EQUITY SHAREHOLDING WAS ADOPTED AT RS 1/- AND VALUE OF PREFERENCE SHAREHOLD ING WAS ADOPTED AT RS763/-AS PER VALUATION REPORT OF PWC DATED 05/07/2005,THAT THE VALUE OF US D 1 FOR SALE OF 2, 50,63,026 SHARES ACQUIRED THROUGH EXIT OFFER WAS TAKEN ON THE BASIS OF CERTI FICATE,DATED 13/05/ 2006,ISSUED BY CA. G. D. APTE,THAT THE ACCUMULATED LOSSES OF EKL,AS ON 31/12 /2004,WAS RS.664 CRORES,THAT IT WAS INCURRING LOSSES AND THIS TREND WAS UNLIKELY TO REV ERSE IN THE IMMEDIATE FUTURE, THAT EKL'S ABILITY TO CONTINUE AS A GOING CONCERN WAS DEPENDENT ON THE CONTINUOUS FINANCIAL SUPPORT OF ABE,THAT IT HAD EVALUATED VARIOUS BUYERS BEFORE FINALISING VND AS A BUYER OF EKL'S SHARES. 2.A. AFTER CONSIDERING THE SUBMISSIONS,THE AO HELD THAT THE PRICE PER SHARE IN THE MONTH OF JULY, 2004 IN THE BOMBAY STOCK EXCHANGE WAS RS.9.88/-,BEI NG THE PRICE PER SHARE BEFORE THE DELISTING OF THE COMPANY,THAT IT HAD CHOSEN TO SELL ITS ENTI RE STAKE OF SHARES HELD IN EKL AT A NEGLIGIBLE PRICE INSTEAD OF SELLING THE SHARES THROUGH STOCK EXCHANGE AT A HIGHER VALUE,THAT THE RATES IN THE STOCK EXCHANGE INDICATED THAT THE IT COULD HAVE ACQ UIRED MUCH HIGHER PRICES THEN SELLING THE ENTIRE STAKE FOR USD 9 AND USD 1,THAT THE ASSESSEE 'S ARGUMENT-THAT THE COMPANY WAS LOSS MAKING AND THEREFORE IT HAD TO BE SOLD AT A NEGLIG IBLE PRICE-WAS NOT TENABLE,THAT IT BEING THE HOLDER OF MORE THAN 76% OF EQUITY SHARES OF EKL WO ULD NOT HAVE SUBSCRIBED TO THE RIGHTS ISSUE ITA/8695/M/10 ,AY.07-08 &7628/M/12 ( 06-07) AKTIEBOLAGET 4 FOR ACQUIRING FURTHER STAKE IN A SICK COMPANY,THAT OPEN OFFER FOR ACQUIRING THE SHARES WAS ON THE ASSESSEE HAD ALREADY ENTERED INTO AN AGREEMENT FOR SALE OF SHARES TO VND AT A NEGLIGIBLE VALUE, THAT IT CONTINUED TO INVEST IN THE SHARE OF EKL EVE N THOUGH THE FINANCIAL POSITION WAS KNOWN TO IT, THAT HAVING ALREADY AGREED TO SELL WHATEVER SHA RES ACQUIRED AT USD 1 IT CHOSE TO ACQUIRE 2, 50,63,026 SHARES AT RS 10/- EACH,AMOUNTING TO RS.25 ,06,30,260/-,THAT THOSE SHARES WERE ACQUIRED BY IT AT RS.10 PER SHARE AFTER AGREEING TO SELL THE ENTIRE STAKE AT USD 1,THAT EKL WAS AMALGAMAT - ED WITH VIL W.E.F, 01/01/2005,THAT THAT THE TRANSAC TION OF THE SALE OF EXISTING SHARES AT USD 9 AS WELL AS SHARES ACQUIRED BY THE ASSESSEE THROUGH OP EN OFFER AT USD 1WAS ARRANGED ONE,THAT FROM THE REPORT OF PRICE WATERHOUSE,DATED 05/07/2005,IT WAS CLEAR THAT THE AUDITOR HAD ADOPTED THE METHOD OF BOOK VALUE MULTIPLE OF BOMBAY STOCK EXCH ANGE NATIONAL INDEX AND PRICE-EARNING MULTIPLE OF BOMBAY STOCK EXCHANGE NATIONAL INDEX,TH AT IT HAD NOT TAKEN INTO CONSIDERATION THE VALUATION OF ASSETS HELD BY EKL FOR DETERMINATION O F ITS WORTH,THAT THE FINANCIAL STATEMENTS REVEALED THAT EKL WAS HAVING ASSETS LIKE FREE HOLD LAND, LEASED HOLD LAND, BUILDINGS AND PLANT & MACHINERY,THAT THE MARKET VALUE OF THOSE ASSETS HAD NOT BEEN TAKEN INTO CONSIDERATION FOR ARRIVING AT NET WORTH AND CORRECT VALUE OF THE SHARES,THAT THE ASSESSEE'S ARGUMENT-THAT IT HAD CONTACTED OTHER PROSPECTIVE BUYERS BEFORE CRYSTALLISING OR FI NALIZING DEAL WITH VND-WAS NOT SUBSTANTIATED,THAT IT HAD NOT GIVEN THE DETAILS OF ANY SUCH PROSPECTIVE BUYER,THAT THE TRANSACTION FOR SALE OF ENTIRE STAKE FOR JUST USD 9 AND USD 1 WAS ONLY AN ARRANGEMENT MOTIVATED TO CLAIM TAX BENEFIT, THAT ULTIMATELY EKL HAD AMALGAMATED W ITH VIL OF WHICH VND WAS CHAIRMAN AND MANAGING DIRECTOR,THAT EKL HAD BEEN AMALGAMATED WIT H VIL W.E.F. 01/01/ 2005 IN TERMS OF THE SCHEME OF AMALGAMATION APPROVED BY THE BOMBAY HIGH COURT,THAT IN ACCORDANCE WITH THE SCHEME THE ENTIRE BUSINESS AND UNDERTAKING OF EKL STOOD TRANSFERRED AND VESTED IN VIL W.E.F. 01/01/2005,THAT IT WAS HARD TO BELIEVE THAT THE CO MPANY WHICH WAS HOLDING MAJORITY OF STAKE IN EKL WAS UNAWARE OF SUCH AMALGAMATION,THAT THE TRAN SFER OF SHARES WAS NOT MADE AT MARKET PRICE,THAT THE VALUATION OF THE SHARES HAD NOT BEEN DONE CORRECTLY,THAT SHARES WERE ACQUIRED FOR HIGHER PRICE AFTER AGREEING FOR SELLING THE SAME FO R NEGLIGIBLE PRICE.THE AO DIRECTED THE ASSESSEE TO FILE EXPLANATION AS TO WHY THE LOSSES CLAIMED ON SALE OF SHARES SHOULD NOT BE DISALLOWED. 2.B. THE ASSESSEE FILED A DETAILED REPLY BEFORE THE AO.H E CONSIDERED THE SAID REPLY AND THE REPLY FILED BY THE ASSESSEE FOR THE AY.2007-08.AFTER CONS IDERING BOTH THE REPLIES,HE HELD THAT THE ASSESSEE HAD NOT BEEN ABLE TO JUSTIFY THE TRANSACT ION FOR SALE OF ITS 41,18,99,418 EQUITY SHARES AND 1,65,00,000 PREFERENCE SHARES AT MEAGER AMOUNT OF USD 9 AS PER THE AGREEMENT, AND ALSO 2,50,63,026 SHARES OF EKL ACQUIRED BY IT THROUGH OP EN OFFER FOR A CONSIDERATION OF RS.25,06,30, 260/- WERE SOLD FOR MERE USD 1,THAT IT HAD RELIED UPON THE VALUATION REPORT DATED 05/05/2005 ISSUED BY PWC,THAT VALUE DETERMINED BY PWC FOR ENT IRE ASSET WAS RS. 1/-,THAT SAME COULD NOT BE ACCEPTED,THAT WHILE PREPARING THE VALUATION REP ORT PWC HAD NOT TAKEN INTO CONSIDERATION THE MARKET VALUE OF ASSETS HELD BY THE COMPANY,THAT ACC ORDING TO THE AGREEMENT THE ASSESSEE HAD ENTERED INTO CONTRACT FOR SALE OF SHARES, WITH VND VIDE AGREEMENT DATED 07/07/ 2005,THAT THE CERTIFICATE OF CA IN RESPECT OF THESE SHARES WAS DA TED 13/05/2006,THAT IT WAS NOT CLEAR HOW COULD A PERSON RELY ON CERTIFICATE ISSUED BY CA ON 13/05/ 2006 FOR ENTERING INTO AN AGREEMENT ON 07/07/2005,THAT THE CERTIFICATE DATED 13/05/2006 CO ULD NOT HAVE BEEN GIVEN BY VND TO THE ASSESSEE PRIOR TO THE SAID DATE,THAT THE CONSENT TO SELL AND BUY THE EQUITY SHARES WAS GIVEN BY THE ASSESSEE TO VND ON 27/10/2006,THAT UNDERTAKING THAT VND WAS ELIGIBLE FOR ACQUIRING SHARES OF EKL HAD ALSO BEEN GIVEN BY HIM ON 27/10 /2006,THAT AT THE TIME OF FILING SCHEME OF AMALGAMATION SHARES WERE HELD BY THE ASSESSEE,THAT THE TRANSACTION FOR SALE OF SHARES AT USD 9 AND USD 1 ENTERED INTO BY THE ASSESSEE WITH VND W AS AN ARRANGED ONE,THAT VIDE LETTER DATED ITA/8695/M/10 ,AY.07-08 &7628/M/12 ( 06-07) AKTIEBOLAGET 5 26/02/2005 AMBIT CORPORATE FINANCE P.LTD.(AMBIT)WAS ASKED FOR PROVIDING SERVICES WITH REGARD TO IDENTIFYING POTENTIAL BUYERS NAMELY STRATEGIC AN D FINANCIAL FOR SALE OF STAKE IN EKL,THAT ON PERUSAL OF THE SAID LETTER IT COULD BE SEEN THAT NO THING HAD BEEN MENTIONED ABOUT THE NET WORTH OF THE EKL AND PRICE FOR THE SALE OF STAKE,THAT THE A SSESSEE HAD AGREED TO PAY FEES OF RS. 2 CRORES FOR THE SERVICES TO IDENTIFY AND EVALUATE PROSPECTI VE BUYERS,THAT ULTIMATELY EVEN AFTER PAYING RS. 2 CRORES FOR IDENTIFYING POTENTIAL BUYERS IT HAD S ETTLED FOR SELLING ITS STAKE AT NEGLIGIBLE AMOUNT, THAT IT HAD PREFERRED NOT TO DISCLOSE OR PROVIDE T HE NAMES OF SUCH POTENTIAL BUYERS, EVALUATED AND IDENTIFIED BY AMBIT,THAT IT COULD BE SAFELY PRESUME D THAT BY NOT DISCLOSING THE NAMES OF OTHER BUYERS THE ASSESSEE WANTED TO JUSTIFY THE SALE OF ITS STAKE FOR A MEAGER AMOUNT OF USD 9 AND USD 1,THAT THE ASSESSEES SUBMISSION-THAT IT HAD EV ALUATED OTHER BUYERS BEFORE FINALIZING THE DEAL-WAS THEREFORE NOT SUBSTANTIATED.HE REFERRED TO THE CASE OF SUMATI DAYAL(214ITR80)AND HELD THAT THE TRANSACTION ENTERED IN TO BY THE ASSESSEE WITH VND FAILED ON TEST HUMAN PROBABILITY.THE AO RECOMPUTED THE CAPITAL GAINS.HE REFERRED TO THE DIRECTIONS OF THE DRP AND HELD THAT THE DRP HAD CONFIRMED THE ACTION OF THE AO.HE COMPLETED THE ASSESSMENT DETERMINING THE INCOME AT RS.3.24 CRORES,AS STATED EARLIER AND DISALLOWED THE CLAIM OF LTCL OF 387.77 CRORES AND STLC OF RS.82.70 CRORES,MADE BY THE ASSESSEE. 3. BEFORE US,THE AR CONTENDED THAT THE STCL/LTCLCLAIME D IN THE RETURN OF INCOME WERE PROPERLY DISCLOSED BY IT AND WERE DULY EXPLAINED IN THE COMPUTATION OF INCOME,THAT THE OPTION OF SELLING ITS OWN SHAREHOLDING THROUGH THE STOCK EXCH ANGE WAS NO LONGER AVAILABLE WITH ABE AS THE PROCESS OF DELISTING OF SHARES WAS STARTED MUCH BEFORE THE DIVESTMENT OF SHARES BY IT,THAT IT WAS A SEPARATE AND INDEPENDENT PROCESS,THAT THE SHA RES OF EKL WERE NOT TRADED ON THE STOCK EXCHANGE ON THE DATE WHEN IT WAS AGREED TO SELL SHA RES TO VND I. E. ON 07.07.2005,THAT THE SHARE PRICE BEFORE DELISTING COULD NOT BE THE GUIDING FA CTOR IN VALUING SHARES OF EKL,THAT IT WAS SELLING ITS STAKE TO VND,A RESIDENT,IT HAD TO COMPLY WITH T HE FEMA REGULATIONS,THAT THE SHARES HAD BEEN VALUED AS PER THE METHOD PRESCRIBED UNDER THE FORE IGN EXCHANGE MANAGEMENT(TRANSFER OR ISSUE OF SECURITY BY A PERSON RESIDENT OUTSIDE INDIA) RE GULATIONS, 2000,THAT THE NET WORTH OF EKL WAS NEGATIVE AND IT HAD HUGE LIABILITIES,THAT IT WA S BENEFICIAL FOR THE ASSESSEE TO SELL OF THE SHARES THE THEN BUYER AT USD 1 AND SAVE ITSELF FROM LEGAL HASSLES IN SETTLING THE LIABILITIES,THAT THE VALUATION OF EKL'S SHARES HAD BEEN DONE BY THE INDE PENDENT CHARTERED ACCOUNTANTS,THAT THE AO SHOULD NOT SIT IN THE JUDGMENT OF ABE AS TO WHOM IT SHOULD SELL ITS STAKE,THAT THE DECISION TO SELL SHARES TO VND WAS DRIVEN BY THE COMMERCIAL FACTORS ,THAT THE BUYER AND THE ASSESSEE WERE UNRELATED PARTIES,THAT THAT IN RESPECT OF TRANSACTI ON BETWEEN UNRELATED PARTIES TERMS OF AGREEMENT CANNOT BE REWORKED,THAT TRANSACTION OF SALE HAD BEE N TAKEN PLACE IN THE SCHEME OF AN AMALGAMATION OF THE COMPANIES WHEREIN NUMBER OF COM PANIES LIKE INTRON LTD., ELECTROLUX INDIA LTD. MERGED INTO EKL,THAT TRANSACTION HAD NOT BEEN VIEWED AS THAT OF TRANSFER OF SHARES BUT AS TRANSFER OF UNDERTAKING BY THE ASSESSEE,THAT THE AL LEGATION THAT THE TRANSACTION WAS A SLUMP SALE COULD NOT BE SUPPORTED BY ANY EVIDENCE AND WAS MERE LY BASED ON SURMISES AND CONJECTURES,THAT THE ASSESSEE HAD NOT CLAIMED SUCH LOSS AGAINST ANY INCOME TILL DATE,THAT THE CONTENTION-THAT IT COULD HAVE ACQUIRED MUCH HIGHER PRICE THAN SELLING THE ENTIRE STAKE IN EKL FOR JUST USD 1-WAS WITHOUT CONSIDERING THE FACTS OF THE CASE AND MERE LY BASED ON ASSUMPTIONS,THAT POST SALE OF ENTIRE SHARE HOLDING IN EKL BY THE ASSESSEE IN JULY ,2005 IT DID NOT MAINTAIN AUDITED FINANCIAL STATEMENTS FOR EKL,THAT THOUGH THE APPOINTED DATE O F AMALGAMATION WAS PRIOR TO SALE OF SHARES IN EKL BY ABE THE IMPLEMENTATION WAS ACCORDED APPR OVAL ONLY ON 30.06.2006,THAT AND IT ACTUALLY GOT EFFECTIVE ON 21.07.2006,THAT IT INDICA TED THAT ABE WAS NOT INVOLVED IN THE PROCESS OF AMALGAMATION AS THE ENTIRE PROCESS UNDERTOOK POST THE SALE OF INITIAL SHARE HOLDING BY ABE TO ITA/8695/M/10 ,AY.07-08 &7628/M/12 ( 06-07) AKTIEBOLAGET 6 VND,THAT THE FINAL RECORD DATE FOR FIXING THE ENTIT LEMENT OF SHARES OF VIL PURSUANT TO SCHEME OF AMALGAMATION WAS POST THE SALE OF BALANCE SHARES BY THE ASSESSEE,THAT ABE EVALUATED VARIOUS BUYERS/ OPTIONS BEFORE CRYSTALLISING/FINALISING ON VND AS THE BUYER FOR EKL'S SHARES,THAT FOR UNDERTAKING AN EXERCISE OF IDENTIFICATION AND EVAL UATION OF POTENTIAL BUYERS/ OPTIONS ABE HAD ENGAGED AMBIT CORPORATE FINANCE PRIVATE LTD(AMBIT) ,THAT EVALUATION OF VARIOUS BUYERS WAS BEING PERFORMED AND THAT TOO BY A PROFESSIONAL FIRM ,THAT THE OPTION OF SELLING ITS OWN SHAREHOLDING THROUGH THE STOCK EXCHANGE IN JULY,200 4 WAS NO LONGER AVAILABLE WITH ABE,THAT ABE WAS UNABLE TO PROVIDE THE NAMES OF SUCH POTENT IAL BUYERS EVALUATED AND IDENTIFIED AS THIS INFORMATION WAS HIGHLY CONFIDENTIAL AND ABE WAS BO UND BY THE CORPORATE GOVERNANCE NORMS AND CERTAIN CONFIDENTIALITY AGREEMENTS SIGNED WITH SUCH POTENTIAL BUYERS,THAT THE PROCESS OF DELISTING OF SHARES STARTED MUCH BEFORE THE DIVEST MENT OF SHARES BY ABE AND WAS A SEPARATE AND INDEPENDENT PROCESS,THAT IN ALL THE TRANSACTIONS WI TH ABE I.E. ACQUISITION OF SHARES FROM RESIDUAL SHAREHOLDERS OR SALE TO VND NO RELATED PARTY TO AB E WAS INVOLVED,THAT SHARE ACQUISITION TRANSACTIONS BY ABE WERE SPECIFICALLY MONITORED UND ER THE SEBI DELISTING GUIDELINES,THAT IT COULD NOT BE SAID THAT THE TRANSACTIONS OF SALE OF SHARES ACQUIRED IN THE OPEN WAS ARRANGED ONE,THAT THE VALUE OF CONSIDERATION TO BE TAKEN INT O ACCOUNT FOR THE PURPOSES OF COMPUTATION OF CAPITAL GAINS TAX WAS THE CONSIDERATION ACTUALLY R ECEIVED BY THE ASSESSEE OR WHAT ACCRUES TO THE ASSESSEE,THAT THE CONSIDERATION ACTUALLY RECEIVED B Y THE ASSESSEE OR WHAT ACCRUED TO THE ASSESSEE WAS USD 1,THAT ON THAT BASIS WHICH THE GAIN OR LOSS HAD TO BE DETERMINED,THAT COMPUTATION COULD NOT BE MADE AT ON NOTIONAL OR HYPOTHETICAL BASIS,TH AT EKL DID NOT HAVE A CLEAR TITLE IN RESPECT OF THE FREEHOLD LAND AND BUILDING THEREON AT NANDALUR ,THAT THE REGISTRATION OF THE CONVEYANCE,DEED AND OTHER LEGAL FORMALITIES WERE IN PROGRESS,THAT E KL HAD CLOSED DOWN THE OPERATIONS OF NANDALUR PLANT IN AUGUST 2003,THAT CONSEQUENT TO CL OSURE EKL HAD FULLY WRITTEN DOWN THE VALUE OF THE RELATED LAND AND BUILDING AMOUNTING TO RS.2 ,165.81 LACS TO NIL,BEING THE NET REALIZABLE VALUE,THAT THE AO IGNORED THAT THE AMOUNT OF CONTIN GENT LIABILITIES ASSOCIATED WITH EKL AND ALSO PENDING LITIGATION IN VARIOUS DISPUTED MATTERS AGAI NST EKL,THAT EVEN IF THE VALUATION OF THESE ASSETS WAS UNDERTAKEN THE SAME COULD NOT HAVE RESU LTED IN ANY POSITIVE WORTH SUBSTANTIAL ENOUGH TO BE DIFFERENT FROM THE VALUATION AS PER THE BOOK VALUE MULTIPLE/PRICE EARNING MULTIPLE AS PER THE VALUATION REPORT ISSUED BY PRICE WATERHOUS,THA T SEBI AND THE RBI HAD KNOWLEDGE OF ENTIRE TRANSACTION HAD APPROVED IT,THAT THE AO HAD NO RIGH T TO CHALLENGE THE ACTUAL CONSIDERATION RECEIVED BY THE ASSESSEE UNLESS HE PROVED THAT CONS IDERATION WAS NOT REFLECTED CORRECTLY.HE RELIED UPON THE CASES OF DHAWAN INVESTMENT & TRADING CO. L TD.(238 ITR 486), ATLAS CORPORATION (57 ITD 139), KAMESHWARI FINANCE & LEASING (P) LTD. (10 2 TTJ 461) ETC. ON A SPECIFIC QUERY BY THE BENCH ABOUT CLAIM OF CARRY FORWARD AND SET OFF OF T HE CAPITAL LOSS IN SUBSEQUENT YEARS,THE AR STATED THAT BEFORE THE AO DURING THE ASSESSMENT PRO CEEDINGS THE ASSESSEE HAD AGREED THAT IT WOULD GIVE UP ITS CLAIM TO THE SAID LOSS AND IT WOU LD NOT SET OFF SAME AGAINST ANY CAPITAL GAINS WHICH IT MIGHT EARN IN FUTURE,THAT THE AO IGNORED T HE SUBMISSIONS MADE BY THE ASSESSEE WITHOUT ASSIGNING ANY REASON.IT WAS ALSO STATED THAT THE TI ME PERIOD FOR CLAIMING SET OFF HAD ALSO LAPSED.WITH REGARD TO THE OBSERVATION OF THE DRP TH AT THE TRANSACTION OF SALE OF SHARES WAS TO BE TREATED AS TRANSFER OF BUSINESS,THE AR MADE FURTHER SUBMISSION.HE STATED THAT TRANSACTION DID NOT CONSTITUTE TRANSFER OF UNDERTAKING,THAT IF THE DRP S CONTENTION WAS TO BE ACCEPTED IT WOULD MEAN THAT ADJUSTMENT WERE TO BE MADE IN THE ASSESSMENT O F EKL FOR THE AY.2006-07,THAT EKL HAD ALREADY AMALGAMATED WITH VIL W.E.F.1.1.2005,THAT TH E FACTUAL POSITION WAS IGNORED BY BOTH THE AUTHORITIES.THE AR ALSO CHALLENGED THE OBSERVATION OF THE DRP THAT TRANSFER OF SALE OF SHARES IN THE AY.2007-08 WAS NOT RELEVANT TO THE SAID AY.,BUT WAS RELATED TO THE AY.2006-07.HE ARGUED ITA/8695/M/10 ,AY.07-08 &7628/M/12 ( 06-07) AKTIEBOLAGET 7 THAT AS ON THE DATE OF ENTERING IN TO SALE PURCHASE AGREEMENT WITH VND TO TRANSFER THE SHARES THE ASSESSEE HAD TRANSFERRED SHARES HELD BY IT I.E.2,50 ,63,026 SHARES,THAT THE ASSESSEE HAD ACQUIRED THE SHARES UNDER EXIT OFFER OVER THE PERIOD FROM MA RCH 2005 TO MARCH 2006,THAT THE TRANSACTION OF THE SALE OF SHARES HAD TO BE CONSIDERED IN AY.20 07-08,THAT THE SALE OF SHARES ALSO TOOK PLACE IN 2007-08, THAT THE AO RE-OPENED THE AY.FOR THE YEAR UNDER APPEAL AFTER THE ASSESSMENT FOR NEXT AY.WAS COMPLETED,THAT HE WAS AWARE OF ALL THE ABOVE FACTS,THAT EVEN THEN HE IGNORED THE FACTS AND MADE ADDITION FOR THE AY.UNDER CONSIDERATION.TH E AR PLACED RELIANCE ON THE DECISIONS OF PREMIER AUTOMOBILES(264 ITR 193),D.S.BIST & SONS(14 9 ITR 276), BRAITHWAITE & CO.(INDIA) LTD.(111 ITR 542),SALITHO ORES LTD.(344 ITR161),OB E RO I HOTELS(P)LTD.(334ITR293). 2.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE BASIC ISSUES TO BE DECIDED ARE WHETHER THE TRANSACTION ENTERED IN T O BY THE ASSESSEE IN TRANSFERRING THE SHARES TO VND FOR USD 9 AND USD 1 WAS BONAFIDE AND AS A RESUL T THE LTCL AND STCL CLAIMED BY IT WERE ALLOWABLE.WE FIND THAT DURING THE FY.2005-06,A BE ENTERED INTO A SHARE PURCHASE AGREEMENT,7/7/2005 WITH VND FOR THE SALE OF ALL ITS EXISTING EQUITY SHARE HOLDING IN EKL INCLUDING ALL SUCH EQUITY SHARES, ABE WOULD ACQUIRE AS A RESULT OF THE EXIT OFFER, AT A TOTAL VALUE OF USD 1, THAT THE SALE OF SHARES IN EKL BY ABE TO VND RESULTED IN THE LTCL OF 3,87,77,46,609/-STCL OF RS.82,70,74,879/-,THAT IT H AD AGREED TO SELL ALL ITS EXISTING SHAREHOLDING AND SUBSEQUENT ACQUISITIONS VIA A SINGLE ARRANGEMEN T,I.E. SHARE PURCHASE AGREEMENT, DATED 07.07. 2005 WITH VND, THAT WHILE SELLING THE SHARES ACQUI RED UNDER THE OPEN/ EXIT OFFER,IT HAD AGREED TO SELL 25,063,026 SHARES FOR USD 1 RELYING ON THE VAL UATION CERTIFICATE PROVIDED BY VND AND ISSUED BY THE CHARTERED ACCOUNTANTS,G.D. APTE & CO, WHICH CERTIFIED THAT THE SALES CONSIDERATION OF USD 1 COULD BE TAKEN AS THE FAIR MARKET VALUE FO R 25,063,026 EQUITY SHARES,THAT AT THE TIME OF SALE OF INITIAL 91.85% SHAREHOLDING OF EKL,THE ASSE SSEE HAD RELIED UPON THE VALUATION REPORT OF 05.07.2005 ISSUED BY PRICE WATERHOUSE WHICH EVIDENC ED THAT THE VALUE OF EQUITY SHARE CAPITAL OF EKL AS ON 30.06.2005 WAS ASSESSED AT RS.1/,THAT THE ACCUMULATED LOSSES AT THE END OF 31.12.2004 HAD EXCEEDED FIFTY PERCENT OF EKL 'S NET WORTH, THA T EKL GOT AMALGAMATED WITH VIL PRIOR TO THE CLOSE OF ITS FINANCIAL YEAR ENDING IN SEPTEMBER,THA T ABE HAD SOLD OFF ITS EXISTING SHAREHOLDING IN ENTIRETY IN EKL TO VND IN JULY 2005 AND THE SHA RES ACQUIRED UNDER THE OPEN OFFER FROM MINORITY SHAREHOLDERS OF EKL TO IN THE YEAR 2006,TH AT EKL AMALGAMATED WITH VIL WITH RETROSPECTIVE EFFECT FROM 01.01.2005,THAT THE SCHE ME OF AMALGAMATION OF EKL WITH VIL RECEIVED SANCTION OF THE HON'BLE HIGH COURT OF JUD ICATURE AT BOMBAY ON 30.06. 2006,THAT SOME OF THE PREFERENCE SHARES HELD BY IT IN EKLWERE REDE EMED AT PAR RESULTING IN LONG TERM AND SHORT TERM GAIN OF RS.2,89,57,262/- AND RS.4,50,950/- RE SPECTIVELY WHICH WERE DULY DECLARED IN THE RETURN OF INCOME,THAT TOTAL LTCL AND STCL DECLARED BY THE ASSESSEE FOR THE AY.S.2006-07 AND 2007-08 WAS RS.642.50 CRORES I.E.RS. 559.14 CRORES FOR THE AY.05-06(RS.534.11 CRORES+25.03 CRORES)AND RS.83.35 CRORES(RS.86.66 CRORES+69.06 LA KHS) FOR THE NEXT AY.,THAT THE ASSESSEE INFORMED THE AO THAT TO BUY PEACE AND AVOID LITIGAT ION IT WOULD NOT SET OFF THE LOSS AGAINST ANY FUTURE INCOME TO BE EARNED UNDER THE HEAD CAPITAL G AINS.IT IS A FACT THAT THE PERIOD OF CLAIMING THE LOSS HAD ALSO LAPSED WHEN THE APPEAL WAS HEARD BY U S.THE AO AND THE DRP WERE OF THE OPINION THAT THE ENTIRE TRANSACTION WAS ENTERED IN TO CLAIM TAX BENEFIT.WE FIND THAT THE ASSESSEE HAD NOT CLAIMED ANY TAX BENEFIT IN FORM OF SETTING OFF OF I TS TAXABLE INCOME AGAINST THE CARRIED FORWARD LOSSES-LTCL AND STLC-IN THE SUBSEQUENT YEARS. WE WOULD LIKE TO REPRODUCE THE ONE OF THE OBSERVATI ON MADE BY THE AO,TO HOLD THE TRANSACTION NON-GENUINE AND THE SENTENCE READS AS UNDER: .BECAUSE IT IS QUITE POSSIBLE THAT THE ASSESSEE MIGHT HAVE BEEN OFFERED MORE PRICE THAN IT ITA/8695/M/10 ,AY.07-08 &7628/M/12 ( 06-07) AKTIEBOLAGET 8 HAD RECEIVED THROUGH THE TRANSACTION WITH DHOOT. IN OUR OPINION,ANY POSSIBILITY CANNOT TAKE PLACE OF AN EVIDENCE AND ASSESSMENTS MADE WITHOUT EVIDENCES CANNOT BE SUSTAINED.WE AGREE THAT THE TRA NSACTION PRIMA FACIE NEEDED VERIFICATION AND INVESTIGATION,AS THE SALE PRICE WAS MEAGER,AS POINT ED OUT BY THE AO AND THE DRP.BUT,IT WAS ONLY THE STARTING POINTED FOR SCRUTINISING THE MATTER DE EPLY AND BRING SOME EVIDENCES TO PROVE THAT THE TRANSACTION WAS SHAM.WE FIND THAT THE AO OR THE DRP HAVE NOT BROUGHT ANYTHING ON RECORD THAT COULD LEAD TO CONCLUSION THAT SALE AND PURCHASE AGR EEMENT IN QUESTION WAS A COLOURABLE DEVICE. HERE,WE WOULD LIKE TO DISCUSS THE JUDGMENT OF OBERO I HOTELS(P)LTD.(334ITR293)OF HONBLE CALCUTTA HIGH COURT.FACTS OF THE CASE WERE THAT SKB HELD A LICENCE FROM PEPSICO INC. U. S. A., FOR USE OF THE TRADE MARK PEPSICOLA,LEHAR, MIRINDA, ETC., IN CONJUNCTION WITH AN INDIAN TRADE MARK IN RELATION TO BEVERAGE PRODUCTS TO BE BOTTLED, SOL D, DISTRIBUTED AND MARKETED IN THE VIJAYWADA TERRITORY OF ANDHRA PRADESH,THAT THE LICENCE AGREEM ENT WAS INITIALLY FOR A PERIOD OF TEN YEARS, RENEWABLE FOR AN ADDITIONAL TERM OF FIVE YEARS,THAT THE ASSESSEE-COMPANY DECIDED TO TAKE OVER SKB WITH ALL OF ITS ASSETS AND LIABILITIES INCLUDIN G THE RIGHTS UNDER THE CONTRACT FOR USING THE TRADE MARK OF PEPSICO INC.,U. S. A.,THAT THE TOTAL INVEST MENT IN ACQUIRING THE SHARES OF SKB WAS RS.8, 78,11,500/-, THAT THE PAYMENTS WERE MADE THROUGH AC COUNT PAYEE CHEQUES,THAT SUBSEQUENTLY THE ASSESSEE SOLD ITS SHAREHOLDING IN SKB FOR RS.18,33, 752/-,THAT THE ASSESSEE SUSTAINED A LOSS OF RS.8,59,77,725/-.ACCORDING TO THE AO THE ASSESSEE-C OMPANY COULD HAVE EASILY WAITED FOR A REASONABLE PERIOD OF TIME FOR WATCHING THE MARKET A ND COULD ALSO HAVE INVESTED A FURTHER AMOUNT OF RS. 9 TO 10 CRORES TO REVIVE THE BUSINESS OF SKB .CONSEQUENTLY,HE OBSERVED THAT THE ENTIRE TRANSACTION WAS A COLOURABLE ONE AND SHOULD BE CONS IDERED AS HAVING BEEN ENTERED INTO WITH THE INTENTION OF OFFSETTING THE LONG-TERM CAPITAL GAIN OF RS.4,03,89,154/- WHICH THE ASSESSEE DID ACTUALLY EARN DURING THE RELEVANT ACCOUNTING PERIOD AND THUS, DECLINED TO ALLOW THE CLAIM OF THE ASSESSEE TOWARDS SHORT-TERM CAPITAL LOSS.THE FAA HE LD THAT THE TRANSACTION SHOULD BE TREATED TO BE GENUINE AND NOT A COLOURABLE ONE AND THE LOSS AR ISING TO THE ASSESSEE-COMPANY SHOULD BE TREATED AS LONG-TERM CAPITAL LOSS AND HE DIRECTED T HE AO TO TREAT THE LOSS ACCORDINGLY.THIS WAS UPHELD BY THE TRIBUNAL.ON APPEAL TO THE HIGH COURT AS UNDER: .IT WAS NOT WITHIN THE PROVINCE OF THE ASSESSING O FFICER TO IGNORE AN OTHERWISE GENUINE TRANSACTION AND TO BRAND IT AS A COLOURABLE ONE T HE LOSS WAS DEDUCTIBLE. IN OUR OPINION,AO OR THE FAA/DRP DOES NOT POWER TO QUESTION THE PRUDENCE OF A BUSINESS TRANSACTION ENTERED WITHIN FOUR CORNERS OF LAW.IN T HE MATTER OF SALITHTO ORES LTD.(344ITR161) THE HONBLE BOMBAY HIGH COURT(PANAJI)HAS HELD THAT THE EXPENDITURE INCURRED FOR PURSUIT OF THE BUSINESS OR EXPLOITATION OF A BUSINESS OPPORTUNITY CANNOT BE DENIED BY THE TAX AUTHORITIES ON THE GROUND THAT THE BUSINESS DECISION WAS IMPRUDENT AND THAT IT WAS A MATTER OF COMMERCIAL EXPEDIENCY AND THE ASSESSEE WAS THE BEST JUDGE OF I T.SO,IF CONSIDERING THE FINANCIAL CONDITIONS OF THE ELK THE ASSESSEE ENTERED IN TO A TRANSACTION TO SELL THE SHARES THEN THE JUDGMENT OF THE ASSESSEE HAS TO BE TAKEN AS FINAL-NO ONE CAN SUBSTI TUTE HIS WISDOM.BUT.IF THE AO CAN BRING EVIDENCE TO PROVE THAT THE TRANSACTION HAD MORE FAC ETS THAN THE MEETING THE EYES,THE SITUATION WILL CHANGE.BUT,IN THE CASE BEFORE US,THERE IS NO SUCH E VIDENCE TO HOLD THAT TRANSACTION IS NON- GENUINE. WE ARE ALSO OF THE OPINION THAT FULL VALUE OF CONSI DERATION CANNOT BE SUBSTITUTED BY FAIR MARKET VALUE(FMV).WE WOULD LIKE TO REFER TO THE MATTER OF K.P.VARGHESE(131ITR597),WHEREIN IT HAS BEEN HELD BY THE HONBLE APEX COURT THAT SUB-SECTIO N (2) OF S. 52 OF THE ACT CAN BE INVOKED ONLY WHERE THE CONSIDERATION FOR THE TRANSFER OF A CAPIT AL ASSET HAS BEEN UNDERSTATED BY THE ASSESSEE, OR, IN OTHER WORDS, THE FULL VALUE OF THE CONSIDERA TION IN RESPECT OF THE TRANSFER IS SHOWN AT A LESSER FIGURE THAN THAT ACTUALLY RECEIVED BY THE AS SESSEE, AND THE BURDEN OF PROVING SUCH ITA/8695/M/10 ,AY.07-08 &7628/M/12 ( 06-07) AKTIEBOLAGET 9 UNDERSTATEMENT OR CONCEALMENT IS ON THE REVENUE AND THAT THE SUB-SECTION HAS NO APPLICATION IN THE CASE OF AN HONEST AND BONA FIDE TRANSACTION WHE RE THE CONSIDERATION RECEIVED BY THE ASSESSEE HAS BEEN CORRECTLY DECLARED OR DISCLOSED BY HIM.IN SHORT,FULL VALUE OF CONSIDERATION CANNOT BE SUBSTITUTED BY FMV.IN THE CASE BEFORE US,THE FULL V ALUE OF CONSIDERATION HAD BEEN DISCLOSED BY THE ASSESSEE AND SAME CANNOT BE REPLACED UNTIL AND UNLESS RELIABLE EVIDENCE IS BROUGHT ON RECORD BY THE AO. WE FIND THAT THE DRP WAS OF THE OPINION THAT THE TR ANSACTION SHOULD BE TREATED AS SLUM SALE RATHER THAN SALE OF SHARES.IN OUR OPINION,APPROACH OF THE DRP WAS NOT AS PER LAW.SLUMP SALE COULD HAVE TAKEN PLACE IN CASE OF ELK,NOT IN THE CASE OF THE A SSESSEE.IN THE CASE OF PREMIER AUTOMOBILES(SUPRA) THE HONBLE BOMBAY HIGH COURT HA S HELD AS UNDER: UNDER SECTION 2(14) OF THE INCOME-TAX ACT, 1961, C APITAL ASSET IS DEFINED TO MEAN PROPERTY OF ANY KIND HELD BY AN ASSESSEE WHETHER CONNECTED OR N OT CONNECTED WITH HIS BUSINESS OR PROFESSION. THE WORD PROPERTY IN THE DEFINITION OF CAPITAL A SSET IN SECTION 2(14) WOULD INCLUDE AN UNDERTAKING ACQUIRED AS A WHOLE. IN THE CASE OF A S LUMP SALE, THERE IS A SALE FOR CONSIDERATION. THAT CONSIDERATION IS PAID TO THE TRANSFEROR COMPAN Y AND NOT TO SHAREHOLDERS. A SLUMP SALE AGREEMENT IS CONTRACTUAL IN NATURE. THE ONLY CONDIT ION IN THE CASE OF SLUMP SALE IS THAT THE SALE SHOULD BE FOR A LUMP SUM SALE PRICE. THEREFORE, IN THE CASE OF A SLUMP SALE, THERE IS A TRANSFER OF THE ENTIRE BUSINESS ACTIVITY FOR A FIXED PRICE AND SALE VALUE IS NOT ATTRIBUTED TO INDIVIDUAL ITEMS OF ASSETS. THE ENTIRE CHAIN OF EVENTS-INCLUDING DELISTING OF S HARES,PERMISSION OF SEBI AND RBI, AGREEMENT WITH THIRD AND UNRELATED PARTY,LOSSES SUFFERED BY E LK,EROSION OF VALUE OF SHARES OF ELK, VALUATION BY INDEPENDENT VALUER-WE HOLD THAT THE TR ANSACTION ENTERED IN TO BY THE ASSESSEE WAS GENUINE AND LTCL AND STCL SUFFERED BY IT ON SALE OF SHARES AND ON REDEMPTION OF PREFERENCE SHARES OF EKL HAS TO BE ALLOWED.GROUNDS NO.2-3 ARE DECIDED IN FAVOUR OF THE ASSESSEE. 3. NEXT GROUND DEALS WITH DENYING THE CREDIT IN RESP ECT OF TAX DEDUCTED AT SOURCE (TDS) ON ROYALTY RECEIVED FROM VIL.BEFORE US,THE AR STATED T HAT THE AO HAD NOT FOLLOWED THE INSTRUCTIONS OF THE DRP AND HAD NOT GIVEN CREDIT FOR TDS.CONSIDE RING THE DIRECTIONS OF THE DRP THE AO SHOULD HAVE GIVEN CREDIT FOR THE TAX PAID BY THE AS SESSEE,AFTER VERIFICATION.IF HE HAS NOT GIVEN THE CREDIT SO FAR, HE SHOULD DO THE NEEDFUL,AFTER MAKIN G VERIFICATION.GROUND STANDS ALLOWED FOR STATISTICAL PURPOSES. 4. GROUND NO.5 IS ABOUT LEVY OF INTEREST UNDER SECTIO N 234A, 234B AND 234C.THE AR STATED THAT THE GROUND IS CONSEQUENTIAL IN NATURE.THEREFORE,SAM E NEEDS NO SEPARATE ADJUDICATION. 5. LAST GROUND OF APPEAL IS ABOUT INITIATION OF PENALT Y U/S.271(1)OF THE ACT.IN OUR OPINION THE ISSUE RAISED IS PREMATURE.HENCE,SAME IS DISMISSED. ITA/8695/MUM/2010-AY.2007-08: 6. FIRST THREE GROUND OF APPEAL RAISED BY THE ASSESSEE ,DEAL WITH DISALLOWANCE OF CLAIM OF LONG TERM & SHORT TERM CAPITAL LOSS ,NON GRANT OF CREDIT OF TDS AND LEVY OF INTEREST UNDER SECTION 234B & 234C.WHILE DECIDING THE APPEAL FOR THE EARLI ER YEAR,WE HAVE ADJUDICATED THE IDENTICAL ISSUES. FOLLOWING THE SAME GROUND PERTAINING TO DIS ALLOWANCE OF STCL AND LTCL IS DECIDED IN FAVOUR OF THE ASSESSEE.THE AO IS DIRECTED TO VERIFY THE CLAIM ABOUT THE TAX DEDUCTED AT SOURCE AND ALLOW THE CLAIM MAID BY THE ASSESSEE.AS DECIDED THE ISSUE OF LEVY OF INTEREST U/S.234 IS CONSEQUENTIAL IN NATURE AND HENCE IS NOT BEING ADJU DICATED. ITA/8695/M/10 ,AY.07-08 &7628/M/12 ( 06-07) AKTIEBOLAGET 10 7. NEXT THREE GROUNDS ARE ABOUT THE OBSERVATIONS MADE BY THE DRP.WE HAVE HELD THAT THE TRANSACTION ENTERED IN TO BY THE ASSESSEE WITH VND WAS NOT A NON GENUINE TRANSACTION AND THAT IT WAS A CASE OF SALE OF SHARES AND NOT A SLUMP SALE. IN OUR OPINION,THE TRANSACTION TOOK PLACE IN THE YEAR WHEN SHARE PURCHASE AGREEMENT WAS INKED.THEREF ORE,THE LOSS ARISING OUT OF THE SAID TRANSACTION WOULD BE ALLOWED IN THAT YEAR.ALL THE N EW GROUNDS RAISED BY THE ASSESSEE STAND ALLOWED. AS A RESULT,APPEALS FILED BY THE ASSESSEE FOR BOTH THE AY.S.STAND PARTLY ALLOWED. . . . ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST ,OCTOBER,2015. 21 ,2015 SD/- SD/- ( / PARTHASARATHY CHOUDHURY) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE: 21 . 10 .2015 . . . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.