AMRITLAL T. SHAH, MUMBAI V. ITO 19(1)(3), MUMBAI

ITA 766/MUM/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3109 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 03-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A RAMACHANDRAN
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Depreciation; Salary income; Share purchase agreement; Cost of acquisition
• Section: 143(3)

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.766 /MUM/2012 ( / ASSESSMENT YEAR : 2008-09) SHRI AMRITLAL T. SHAH, B-4, KHANDELWAL CO-OP SOCIETY, PLOT NO. 485/486, 17 TH ROAD, KHAR (W), MUMBAI 400 052. / V. ITO 19(1)(3), MUMBAI. ./ PAN : AACPS7522D ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY DR. K. SHIVARAM REVENUE BY : SHRI A. RAMACHANDRAN / DATE OF HEARING : 30-6-2016 / DATE OF PRONOUNCEMENT : 22-09-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE , BEING ITA NO. 766/MUM/2012, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 16 TH DECEMBER, 2011 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 22, M UMBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2008- 09, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE ASSESSMENT ORDER DATED 20 TH DECEMBER, 2010 PASSED BY THE LEARNED ASSESSING OFF ICER (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INC OME TAX ACT,1961 (HEREINAFTER CALLED THE ACT). ITA 766 /MUM/2012 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL, MUMBA I (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1. THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO WHO VALUED THE SALE CONSIDERATION OF SHARES AT RS. 202/- AS AGAINST RS.1195/- PER SHARES SHOWN BY THE ASSESSEE, THEREBY A SSESSING THE CONSIDERATION OF RS. 20,25,720/- AS UNEXPLAINED INC OME WITHOUT APPRECIATING THAT THERE IS NO PROVISION UNDER THE ACT WH EREBY THE AO COULD REDUCE THE VALUE OF SALE CONSIDERATION OF SHA RES SOLD AND TAX THE DIFFERENCE AMOUNT AS UNEXPLAINED INCOME . 2. THE ID. CIT(A) FAILED TO APPRECIATE THAT THE VALUE O F SHARES IS ACCEPTED BY DEPARTMENT IN A.Y. 2007-08 IN CASE OF MR . SATISH A. SHAH (SON) THUS THE COMPUTATION CAPITAL GAIN BY THE ASSESSEE MAY BE ALLOWED AND BENEFIT U/S. 54EC OF THE ACT MAY ALSO BE ALLOWED. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FROM SALARY, INCOME FROM HOUSE PROPERTY, CAP ITAL GAINS AND INCOME FROM OTHER SOURCES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S. 14 3(3) READ WITH SECTION 143(2) OF THE ACT, IT WAS OBSERVED BY THE A.O. THAT THE ASSESSEE HAS SOLD 2040 EQUITY SHARES OF FACE VALUE OF RS. 100/- PER SHARE IN BEC INDUSTRIAL INVESTMENT COMPANY PVT. LTD. TO ANOTHER COMPANY BAT ENTERPRISES LTD. AND BOOKED A NET PROFIT OF RS. 22,33,800/-. THE DETAIL S OF WHICH ARE AS UNDER:- SALE OF 2040 SHARES @ RS. 1195/- PER SHARE AT A TO TAL SALE CONSIDERATION OF RS. 24,37,800 LESS: COST OF ACQUISITION OF 2040 SHARES @ RS. 100/ - PER SHARE RS. 2,04,000 LONG TERM CAPITAL GAIN AS PER BOOKS RS. 22,33,80 0 ______________ ITA 766 /MUM/2012 3 THE ASSESSEE AFTER TAKING INDEXED COST AT RS. 8,17, 928/- AND FURTHER HAVING INVESTED RS. 16,20,000/- IN GOVERNMENT REC BONDS H AD OFFERED NET TAXABLE CAPITAL GAIN AT RS. NIL. THE A.O. OBSERVED THAT IT WAS NECESSARY TO VERIFY WHETHER THIS EXORBITANT HIGH SALE PRICE OF SHARE AT RS. 1195/- PER SHARE WAS JUSTIFIED AND BASED ON SAME WORKING OR WAS IT ARBIT RARY , AND THE ASSESSEE WANTED TO AVOID TAX WHICH HE OTHERWISE WAS REQUIRED TO PAY. THE A.O. OBSERVED THAT THE TRANSACTION OF SALE OF SHARES REL ATED TO A PRIVATE LIMITED COMPANY WHICH IS NOT A LISTED COMPANY IN ANY STOCK EXCHANGE THEREFORE THE GENERALLY VALUATION ADOPTED IS BASED ON NET ASSET V ALUE (NAV) METHOD OF THE COMPANY OF WHICH THE SHARES BELONGS. THE ASSESSEE WAS DIRECTED TO FILE THE BALANCE SHEET OF BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LTD. AND ON VERIFICATION OF THE BALANCE SHEET, IT WAS OBSERVED THAT THE NAV OF THE ABOVE COMPANY WAS JUST RS. 202/- PER SHARE. THE CALCULAT ION IS AS UNDER BASED ON ANNUAL REPORT OF THE COMPANY AS ON 31 ST MARCH, 2007:- ISSUED, SUBSCRIBED AND PAID UP CAPITAL OF COMPANY RS.35,00,00 (35000 SHARES OF RS. 100/- EACH) ADD: RESERVE AND SURPLUS GENERAL RESERVE RS. 8,50,000/- P&L ACCOUNT RS. 27,21,831/ - TOTAL NET ASSETS RS. 70,71,831/- ============= NAV PER SHARE = NET ASSETS OF THE COMPANY RS. 70,71,831 -------------------------------- = ------------- ---- =RS.202 PER SHARE NO. OF SHARES 35,000 THUS ASSESSEE WAS ASKED TO EXPLAIN THE JUSTIFICATIO N AND WORKING OF THE VALUATION OF SHARES OF BEC INDUSTRIAL INVESTMENT CO MPANY PRIVATE LIMITED TAKEN BY THE ASSESSEE AT RS. 1195/- PER SHARE WHICH ARE SOLD TO BAT ENTERPRISES LTD. ITA 766 /MUM/2012 4 THE ASSESSEE IN REPLY SUBMITTED THAT BEC INDUSTRIAL INVESTMENT COMPANY PVT. LTD. IS 100% HOLDING COMPANY OF BEC CHEMICALS PVT. LTD. AND AS SUCH VALUATION OF SHARE OF BEC INDUSTRIAL INVESTMENT COM PANY PVT. LTD. DEPENDS UPON THE VALUATION OF BEC CHEMICALS PVT. LTD. , AND BEC CHEMICALS PVT. LTD. IS A MANUFACTURING COMPANY HAVING TURNOVER OF MORE THAN RS. 10 CRORES AND ALSO IT IS EOU. IT WAS SUBMITTED THAT BEC CHEMICALS PVT. LTD. IS ALSO HAVING FACTORY AT ROHA, WHOSE VALUATION OF SHARES AS PER B OOKS IS RS.562/- PER SHARE AND IF DEPRECIATION TILL DATE IS NOT CONSIDERED BOO K VALUE COMES TO RS.1406/- PER SHARE AS ON 31 ST MARCH, 2007 , AND APART FROM THE ABOVE GOODWILL VALUATION IS ALSO TO BE CONSIDERED AS WELL NECESSIT Y OF THE BUYER IS TO BE TAKEN INTO ACCOUNT WHILE NEGOTIATING PRICE OF THE SHARE. IT WAS ALSO SUBMITTED THAT WHEN VALUATION OF SHARES OF PRINCIPAL COMPANY IS DE RIVED, VALUATION OF SUBSIDIARY IS ALSO TAKEN INTO ACCOUNT. THE A.O. CONSIDERED THE SUBMISSION OF THE ASSESSEE BUT REJECTED THE SAME. THE A.O. OBSERVED THAT THE ASSESSEE HAS NOT PROVIDE D ANY WORKING OR BASIS OF VALUATION OF ADOPTING SALE PRICE AT RS.1,195/- PER SHARE OF BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITED. THEREFORE, IT S EEMS THAT THE SAME IS TAKEN ARBITRARILY WITHOUT ANY CALCULATION OR BASE. THE A.O. OBSERVED FROM THE BALANCE SHEET OF THE ABOVE COMPANY BEC CHEMICALS PR IVATE LIMITED THAT THE SAID COMPANY IS IN-FACT A LOSS MAKING COMPANY. IT H AS INCURRED A LOSS OF RS.16,43,220/- FOR THE YEAR ENDED MARCH, 2007, WHIC H WAS FURTHER INCREASED TO NET LOSS OF RS. 31,43,652/- FOR THE YEAR ENDED MARCH, 2008 AND MOREOVER THE COMPANY HAS NOT DECLARED ANY DIVIDEND ALSO. THU S, IT WAS OBSERVED THAT THE SUBSIDIARY COMPANY WHICH IS LOSS MAKING AND NOT PAYING ANY DIVIDEND CANNOT ADD VALUE TO THE HOLDING COMPANY AND HENCE T HE AO REJECTED THE CONTENTIONS OF THE ASSESSEE. ITA 766 /MUM/2012 5 THE AO ALSO OBSERVED THAT THE SAID BEC CHEMICALS PR IVATE LTD. HAS ISSUED 15000 NEW SHARES @ RS. 100/- EACH AT PAR DURING THE YEAR ENDED 31-03-2008 WHICH ITSELF IS CONTRADICTORY TO ASSESSEES CLAIM O F HIGH VALUATION. THUS, IF THE ASSESSEE CLAIM WOULD HAVE BEEN RIGHT, THE SAID COMP ANY BEC CHEMICALS PRIVATE LTD WOULD HAVE ALSO ISSUED SHARES AT A PREM IUM OF RS.1100 PER SHARE. IT WAS ALSO OBSERVED THAT THE REGISTERED OFFICE OF M/S BEC INDUSTRIAL INVESTMENT COMPANY PVT. LTD. IN WHICH THE ASSESSEE WAS HOLDING SHARES AND THE CORPORATE OFFICE OF BAT ENTERPRISES LTD., THE B UYER OF THE SHARES, IS SAME PREMISES AND EVEN FAX AND PHONE NUMBER OF BOTH THE COMPANIES ARE SAME WHICH PROVES THAT BOTH THE COMPANIES ARE UNDER SAME MANAGEMENT AND THE ASSESSEE WAS IN A POSITION TO INFLUENCE BOTH THE CO MPANIES. HENCE, THE BUYER OF SHARES CANNOT BE SAID TO BE GENUINE AND IT CONTR ADICTS ASSESSEES CLAIM THAT THE VALUATION ALSO DEPEND UPON NECESSITY OF BU YER. THUS, IT WAS HELD BY THE AO THAT THE ASSESSEE WAS INTERESTED IN BOTH THE COMPANIES NAMELY BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITED WHOSE SHARES WERE SOLD AND BAT ENTERPRISES LIMITED , WHO PURCHASED THE SHARES FROM ASSESSEE AND THUS, THE ASSESSEE WAS IN A POSITION TO INFLUENCE THEIR BUSINESS AND THAT IS WHY HE HAD TO RECEIVE LA RGE SUM OF MONEY TO AVOID TAX BURDEN WHEREBY THE SALE OF SHAREHOLDING IN BEC INDUSTRIAL INVESTMENT COMPANY PVT. LTD. TO BAT ENTERPRISES LTD. WAS MADE AT AN UNJUSTIFIABLY AND ABNORMALLY HIGH PRICE OF RS.1195/- PER SHARE IN ORD ER TO AVOID THE TAX LIABILITY AND ALSO TO GET THE BENEFIT U/S 54EC OF THE ACT , THUS CAUSING HUGE LOSS TO THE REVENUE. THE A.O. CONSIDERING THE ABOVE FACTS, WORKED OUT T HE INCOME UNDER THE HEAD CAPITAL GAINS AS UNDER:- TOTAL CONSIDERATION ON SALE OF 2040 SHARES @ RS. 202/- PER SHARE RS. 4,12,080/- ITA 766 /MUM/2012 6 LESS: INDEXED COST OF 2040 SHARES RS. 8,17,928/- LONG TERM CAPITAL LOSS(ALLOWED TO BE CARRY FORWARD) (-) RS.4,05,848/- =========== AND THE DIFFERENCE BETWEEN THE SALE PROCEED SHOWN B Y THE ASSESSEE AND THE SALE PROCEED BASED ON NAV OF SHARES @ RS. 202/- PER SHARE WAS WORKED OUT BY THE AO AT RS. 20,25,720/- WHICH WAS TAXED IN THE HANDS OF THE ASSESSEE AS UNEXPLAINED INCOME UNDER THE HEAD INCOME FROM OTHE R SOURCES INSTEAD OF INCOME FROM CAPITAL GAINS , VIDE ASSESSMENT ORDE R DATED 20 TH DECEMBER, 2010 PASSED BY THE AO U/S 143(3) OF THE ACT. 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 20-12-20 10 PASSED BY THE A.O. U/S. 143(3) OF THE ACT, THE ASSESSEE FILED THE FIR ST APPEAL BEFORE THE LD. CIT(A). 5. BEFORE THE LD. CIT(A) , THE ASSESSEE REITERATED THE SUBMISSIONS WHAT WERE MADE BEFORE THE A.O. WHICH ARE NOT REPEATED AN D SUBMITTED THAT THE SALE OF SHARES TO ITS PROMOTERS BY BEC CHEMICALS PVT. LT D. AT PAR IS FOR SUBSEQUENT PERIOD AND HENCE NOT RELEVANT. IT WAS S UBMITTED THAT THE RATE OF RS. 1195/- PER SHARE OF BEC INDUSTRIAL INVESTMENT C OMPANY PRIVATE LIMITED WAS FIXED IN PURSUANCE TO MUTUAL AGREEMENT AND THER E IS NO PROVISION UNDER THE ACT WHEREBY TO REDUCE THE VALUE OF SHARE SOLD. THE LD. CIT(A) REJECTED THE CONTENTIONS OF THE ASSE SSEE AND AGREED WITH THE FINDING OF THE A.O. THAT THERE WAS NO BASIS FOR TAK ING AN EXORBITANT VALUE @ RS. 1195 PER SHARE AS COMPARED TO THE NAV OF RS.202 /- WORKED OUT BY THE A.O. . IT WAS OBSERVED BY LEARNED CIT(A) THAT M/S B EC CHEMICALS PVT. LTD. IS A LOSS MAKING COMPANY AND HENCE VALUATION OF SHARES OF BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITED @ RS. 1195/- PE R SHARE AGAINST FACE VALUE OF RS 100 PER SHARE WAS NOT REASONABLE. FURTH ER IT WAS OBSERVED THAT THE ASSESSEE HIMSELF ADMITTED THAT IT WAS FIXED MUT UALLY AMONG THE BUYERS AND THE ASSESSEE WHICH PROVES THAT THERE WAS NO BAS IS FOR THE SAME. THE A.O. ITA 766 /MUM/2012 7 ADOPTED THE SCIENTIFIC FORMULA BEING NAV METHOD FOR VALUING THE SHARES. THE A.O. IS DUTY BOUND TO CHECK THE VALUATION AND TO TA X CORRECT INCOME. THE LD. CIT(A) ACCORDINGLY HELD THAT THE A.O. HAS RIGHTLY T AXED THE INCOME OF RS.20,25,720/- UNDER THE HEAD INCOME FROM OTHER SO URCES AS UNEXPLAINED INCOME AND THE LEARNED CIT(A) UPHELD THE ASSESSME NT ORDER DATED 20-12- 2010 PASSED BY THE AO U/S. 143(3) OF THE ACT, VIDE APPELLATE ORDER DATED 16.12.2011 PASSED BY LEARNED CIT(A). 6. AGGRIEVED BY THE APPELLATE ORDER DATED 16.12.201 1 PASSED BY THE LD. CIT(A), THE ASSESSEE FILED SECOND APPEAL WITH THE TRIBUNAL. 7. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS SOLD 2040 EQUITY SHARES OF FACE VALUE OF RS. 100/- PER S HARE IN M/S BEC INDUSTRIAL INVESTMENT COMPANY PVT. LTD. TO BAT ENTERPRISES LTD . @ RS. 1195/- PER SHARE. THE A.O. ADOPTED THE VALUE OF SALE PER SHAR E AT RS. 202/- BASED UPON THE NET ASSET VALUE (NAV) AND THE BALANCE INCOME HA S BEEN TREATED AS UNEXPLAINED INCOME UNDER THE HEAD INCOME FROM OTHE R SOURCES AND BROUGHT TO TAX AS SUCH. THE LD. COUNSEL TOOK US THROUGH TH E ORDERS OF THE LD. CIT(A) AND SUBMITTED THAT THE LD.CIT(A) HAS NOT CONSIDERED THE ARGUMENTS RAISED BY THE ASSESSEE IN PROPER PERSPECTIVE. THE LD. COUNS EL CONTENDED THAT IT IS MUTUAL AGREEMENT BETWEEN THE BUYER AND THE SELLER A ND THE PRICE WAS FIXED AT RS. 1195/- PER SHARE OF BEC INDUSTRIAL INVESTMENT C OMPANY PRIVATE LIMITED. THE LD. COUNSEL SUBMITTED THAT BEC INDUSTRIAL INVES TMENT CO. PVT. LTD WAS HOLDING 100% SHARES IN BEC CHEMICALS PRIVATE LIMITE D WHO HAS FACTORY AT ROHA AND ALSO HAVING TURNOVER OF MORE THAN RS. 10 C RORES AND IS AN EOU UNIT. THE LD. COUNSEL SUBMITTED THAT THE VALUATION OF SHARES OF BEC CHEMICALS PVT. LTD., WHICH IS ALSO HAVING FACTORY A T ROHA, AS PER THE BOOK IS RS. 562/- PER SHARE AND IF DEPRECIATION IS NOT CONS IDERED, THE BOOK VALUE COMES TO RS. 1406/- PER SHARE, AS ON 31 ST MARCH, 2007.IT WAS SUBMITTED THAT THE ABOVE VALUATION DOES NOT INCLUDE INCREASED VALU ATION OF LAND AND BUILDING ITA 766 /MUM/2012 8 HELD BY THE SAID BEC CHEMICALS PRIVATE LIMITED AS A LSO GOODWILL OF THE SAID COMPANY. THE LD. COUNSEL DREW OUR ATTENTION TO PAPE R BOOK PAGE NO. 5 FILED WITH THE TRIBUNAL WHEREBY A LETTER DATED 29 TH OCTOBER, 2010 ADDRESSED BY THE ASSESSEE TO THE A.O. WHEREIN DETAIL EXPLANATIONS WA S GIVEN BY THE ASSESSEE TO JUSTIFY THE VALUATION OF SHARES . THE LD. COUNSEL ALSO TOOK US THROUGH THE AUDITED ACCOUNTS OF BEC INDUSTRIAL INVESTMENT CO. P VT. LTD. AND THE BEC CHEMICALS PVT. LTD. AS ON 31 ST MARCH, 2007. THE SHARE CAPITAL OF BEC INDUSTRIAL INVESTMENT CO. PVT. LTD. IS RS. 70 LAKHS WHILE THE RESERVES AND SURPLUS IS RS. 3.23 CRORES. THE LD. COUNSEL ALSO TO OK US THROUGH PAPER BOOK PAGE 108 WHEREIN THE CALCULATION OF BOOK VALUE OF B EC CHEMICALS P. LTD. IS WORKED OUT WHICH COMES TO RS. 562/- PER SHARE OF RS . 100/- FACE VALUE AND MARKET VALUE OF FIXED ASSETS SUCH AS LAND AND BUILD ING WAS NOT CONSIDERED. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAS ENTERED IN TO SHARE PURCHASE AGREEMENT DATED 6 TH MARCH, 2007 WHEREBY THE SELLERS HAVE AGREED TO SEL L THEIR EQUITY SHARES AT AN AGREED PRICE OF RS.1195/- PER S HARE, WHICH IS PLACED AT PAPER BOOK PAGE 57 TO 79. THE LD. COUNSEL ALSO DREW OUR ATTENTION TO THE SHARE TRANSFER FORM WHICH IS PLACED AT PAPER BOOK P AGE 80 & 81 WHEREIN THE ASSESSEE HAS TRANSFERRED 2040 SHARES OF BEC INDUSTR IAL INVESTMENT COMPANY PVT. LIMITED TO BAT ENTERPRISES LIMITED FOR A TOTAL CONSIDERATION OF RS. 24,37,800/-. THE CONSIDERATION WAS RECEIVED BY WAY OF CHEQUE, THE PHOTOCOPY OF THE SAME IS PLACED AT PAPER BOOK PAGE 83. THE C ONFIRMATION LETTER FROM M/S BAT ENTERPRISES LTD. HAVING CONFIRMED THE PURCH ASE OF 2040 SHARES OF RS. 100/- AT THE PRICE OF RS. 1195/- PER SHARE BY T HE ASSESSE IS PLACED AT PAPER BOOK PAGE 85. THE BOARD RESOLUTION PASSED BY THE BAT ENTERPRISES LIMITED IS ALSO PLACED AT PAPER BOOK PAGE 86 APPROV ING THE PURCHASE OF 2040 SHARES OF BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITED. THE LD. COUNSEL SUBMITTED THAT THERE IS NO PROVISION UNDER THE ACT TO SUBSTITUTE FULL VALUE OF CONSIDERATION. SECTION 48 OF THE ACT CLEA RLY DEFINES THAT THE FULL VALUE OF THE CONSIDERATION I.E. ACTUAL SALES CONSIDERATIO N SHOULD BE TAKEN FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN. IT WAS FURT HER SUBMITTED THAT ITA 766 /MUM/2012 9 ASSESSMENT HAS BEEN FRAMED IN THE CASE OF MR. SATIS H AMRITLAL SHAH FOR THE ASSESSMENT YEAR 2007-08 WHEREIN HE ALSO SOLD 1665 E QUITY SHARES OF BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITED UNDER THE SHARE PURCHASE AGREEMENT DATED 06-03-2007 @ RS.1195/- PER SHARE AN D THERE IS NO ADDITION MADE BY THE REVENUE AND CAPITAL GAINS DECLARED HAVE BEEN ACCEPTED BY THE REVENUE IN THE ASSESSMENT FRAMED IN THE CASE OF MR. SATISH AMRITLAL SHAH U/S 143(3) OF THE ACT. THE ASSESSMENT ORDER DATED 20-08-2009 PASSED IN THE CASE OF MR SATISH AMRITLAL SHAH FOR THE ASSESSMENT YEAR 2007-08 U/S. 143(3) OF THE ACT HAS BEEN PLACED AT PAPER BOOK PAGE 96 TO 101. SIMILARLY, IT WAS SUBMITTED THAT ASSESSMENT HAS BEEN FRAMED IN THE CA SE OF BAT ENTERPRISES LTD. FOR THE ASSESSMENT YEAR 2007-08 U/S 143(3) OF THE ACT WHEREBY NO ADDITIONS HAVE BEEN MADE BY THE REVENUE. 8. THE LD. D.R., ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND ALS O PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASS ESSEE IS A SHAREHOLDER OF THE COMPANY NAMELY BEC INDUSTRIAL INVESTMENT COMPAN Y LIMITED ALONG WITH HIS FAMILY MEMBERS HOLDING IN AGGREGATE 5000 EQUITY SHARES OF BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITED OF FA CE VALUE OF RS 100 EACH OF WHICH 2040 EQUITY SHARES WERE HELD BY THE ASSESS EE . THUS, THE ASSESSEE FAMILY MEMBER ALSO HOLD EQUITY SHARES IN THE SAID C OMPANY AND AGGREGATE SHAREHOLDING OF THE FAMILY IS 5000 EQUITY SHARES OF FACE VALUE OF RS.100 EACH IN BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITE D OUT OF THE TOTAL SHARES BEING 35000 EQUITY SHARES ISSUED BY BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITED. OUT OF THE SHAREHOLDING CONSISTING OF 5000 EQUITY SHARES OF BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITED , THE ASSESSEE HOLDS 2040 EQUITY SHARES JOINTLY WITH MRS. SHANTABEN AMRI TLAL SHAH , MRS SHANTABEN AMRITLAL SHAH HOLDS 1295 EQUITY SHARES JO INTLY WITH MR. AMRITLAL ITA 766 /MUM/2012 10 T. SHAH I.E. THE ASSESSEE , WHILE MR SATISH AMRITL AL SHAH HOLDS 1665 EQUITY SHARES JOINTLY WITH MR. AMRITLAL T. SHAH I.E. THE A SSESSEE IN BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITED. THE ASSESSEE H AD SOLD 2040 EQUITY SHARES OF FACE VALUE OF RS. 100/- PER SHARE OF BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LTD. TO BAT ENTERPRISES LTD. @ RS. 1195/- PER SHARE WHEREBY THE ASSESSEE HAS RECEIVED RS. 24,37,800/- A S SALES CONSIDERATION AND THE LONG TERM CAPITAL GAIN WAS WORKED OUT AS PE R PROVISIONS AND SCHEME OF THE ACT AND THE SAME WAS INVESTED BY THE ASSESSE E IN REC BONDS CLAIMING EXEMPTION U/S 54EC OF THE ACT WHEREBY LONG TERM CAP ITAL GAIN DECLARED IN THE RETURN OF INCOME WAS AT RS. NIL. THE ASSESSEE ALON G WITH HIS FAMILY MEMBERS NAMELY MRS SHANTIBEN AMRITLAL SHAH AND MR SATISH A MRITLAL SHAH ENTERED INTO TWO SHARE PURCHASE AGREEMENTS DATED 06-03-2007 AND 07-04-2007 WITH BAT ENTERPRISES LIMITED AND OTHERS WHICH ARE PLACE D IN THE PAPER BOOK PAGE 57-79 WHEREBY THE ASSESSEE AND HIS ABOVE FAMILY MEM BERS AGREED TO SELL THE EQUITY SHARES OF BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITED AT RS. 1195/-PER SHARE TO BAT ENTERPRISES LIMITED. THE SA ID VALUATION IS BASED UPON THE PRICE MUTUALLY AGREED AND NEGOTIATED BETWE EN BOTH THE PARTIES I.E. THE WILLING BUYER AND THE WILLING SELLER AND VIDE T HESE SHARE PURCHASE AGREEMENTS IT WAS AGREED TO SELL SHARE HOLDING IN B EC INDUSTRIAL INVESTMENT CO. P. LTD. @ RS. 1195/- PER EQUITY SHARE TO BAT EN TERPRISES LIMITED. FURTHER IT IS ON RECORD THAT BEC INDUSTRIAL INVESTM ENT CO. P. LTD. IS A 100% HOLDING COMPANY OF BEC CHEMICALS PRIVATE LTD. (PAGE 24/PAPER BOOK) AND HENCE THE VALUATION OF SHARE OF THE FORMER DEPENDS ON THE VALUATION OF THE SHARES OF LATER WHICH VALUE OF SHARES OF BEC CHEMIC ALS PRIVATE LIMITED HAS NECESSARILY TO BE INCLUDED FOR COMPUTING VALUE OF S HARE OF BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITED WHICH IS 100% HO LDING OF BEC CHEMICALS PRIVATE LIMITED WHO WAS HAVING A MANUFACT URING UNIT AT ROHA AND IS AN EOU UNIT , WHEREBY THE BOOK VALUE OF THE SHAR E OF BEC CHEMICALS PRIVATE LIMITED , AS PER THE BOOKS WAS RS. 562/- PE R SHARE AS ON 31ST MARCH, 2007 AND IF DEPRECIATION IS EXCLUDED THE BOOK VALUE COMES TO RS. 1406/- PER ITA 766 /MUM/2012 11 SHARE. THIS VALUE IS SUPPORTED BY THE AUDITED FINAN CIAL STATEMENT OF BEC CHEMICALS PRIVATE LIMITED AND THE VALUATION DETAILS WHICH ARE PLACED AT PAGE 7-55 & 108/PAPER BOOK . THE SAID VALUATION DETAILS STATES THAT GOODWILL OF BEC CHEMICALS PRIVATE LIMITED IS NOT CONSIDERED IN THIS VALUATION AND ALSO MARKET VALUE OF LAND AND BUILDING OF BEC CHEMICALS PRIVATE LIMITED IS ALSO NOT CONSIDERED WHILE VALUING THE ABOVE PRICE WHICH IS COMPUTED FROM THE AUDITED FINANCIAL STATEMENTS BEING NAV OF BEC CHEMI CALS PRIVATE LIMITED WITH OR WITHOUT DEPRECIATION. THE COPIES OF AUDITED FINANCIAL STATEMENTS OF BEC CHEMICALS PRIVATE LIMITED IS FILED BY THE ASSES SEE FOR THE FINANCIAL YEAR 2006-07 WHICH SHOWS THAT SHARE CAPITAL OF BEC CHEMI CALS PRIVATE LIMITED IS RS 70 LACS AND RESERVES AND SURPLUS IS RS. 323.07 L ACS AS AT 31-03-2007 AS PER AUDITED FINANCIAL STATEMENTS OF BEC CHEMICALS P RIVATE LIMITED THE SAID VALUATION IS NOT DISPUTED BY THE REVENUE. IT IS THE SAY OF THE ASSESSEE THAT EVEN MARKET VALUE OF LAND AND BUILDING HELD BY THE BEC CHEMICALS PRIVATE LIMITED IS ALSO TO BE FACTORED WHILE VALUING BEC CH EMICALS PRIVATE LIMITED APART FROM GOODWILL OF BEC CHEMICALS PRIVATE LIMITE D. ON PERUSAL OF THE SHARE PURCHASE AGREEMENTS DATED 06-03-2007 AND 07-0 4-2007, IT CLEARLY REVEALS THAT THE ASSESSEE WAS DIRECTOR OF BEC INDUS TRIAL INVESTMENT COMPANY PRIVATE LIMITED AND BEC CHEMICALS PRIVATE LIMITED O N THE DATE OF SALE OF AFORE-STATED AND HE RESIGNED FROM DIRECTORSHIP OF THESE COMPANIES PERSUANT TO SALE OF 5000 EQUITY SHARES HELD BY HIMSELF AND H IS FAMILY MEMBERS HELD IN BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITED W HICH WERE SOLD TO BAT ENTERPRISES LIMITED WHICH IS BORNE OUT FROM CLAUSE 2.3(IV) OF THE SHARE PURCHASE AGREEMENT DATED 06-03-2007 WHEREBY RESOLUT IONS WERE ALSO OBTAINED FROM THESE COMPANIES ACCEPTING THE RESIGNA TION OF THE ASSESSEE AS DIRECTOR OF THESE COMPANIES. THE SAID SHARE PURCHAS E AGREEMENT DATED 06- 03-2007 ALSO STIPULATES THAT THE ASSESSEE SHALL BE RELIEVED FROM THE PERSONAL GUARANTEES PROVIDED BY HIM FOR WORKING CAPITAL FIN ANCE AS WELL AS TERM LOAN OR ANY OTHER PERSONAL GUARANTEES TO BANK AND FINAN CIAL INSTITUTION IN HIS CAPACITY AS A DIRECTOR OF THESE COMPANIES NAMELY BE C INDUSTRIAL INVESTMENT ITA 766 /MUM/2012 12 COMPANY PRIVATE LIMITED AND BEC CHEMICALS PRIVATE L IMITED . THUS, IN OUR CONSIDERED VIEW THE ENTIRE TRANSACTION OF SALE OF 5 000 EQUITY SHARES OF BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITED @ RS. 1195 PER SHARES BY THE ASSESSEE( OUT OF TOTAL 5000 EQUITY SHARES SOLD, THE ASSESSEE SELLING 2040 EQUITY SHARES) AND HIS FAMILY MEMBERS IS A GENUINE AND BONAFIDE TRANSACTION WHICH IS TO ENABLE RESTRUCTURING AND RE-ALIGNING TH E SHAREHOLDING PATTERN OF THESE COMPANIES WHEREBY THE ONE SHAREHOLDERS GROUP CONSISTING OF THE ASSESSEE AND HIS FAMILY MEMBERS HOLDING 5000 EQUITY SHARES IN BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITED HAVE SOLD AND EXITED FROM THE SHAREHOLDING HELD BY THEM IN BEC INDUSTRIAL INVEST MENT COMPANY PRIVATE LIMITED IN FAVOUR OF BAT ENTERPRISES LTD. AT A MUTU ALLY AGREED NEGOTIATED PRICE BETWEEN THE WILLING SELLER AND WILLING BUYER TO MAKE AN EXIT FROM THE SHAREHOLDING IN BEC INDUSTRIAL INVESTMENT COMPANY P RIVATE LIMITED AND ITS SUBSIDIARIES . THE EXIT FROM THE CLOSELY HELD COMP ANY BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITED WITH ITS SUBSIDI ARIES COULD IN COMMERCIAL PARLANCE DEFINITELY COMMAND PREMIUM IN ADDITION TO THE NORMAL PRICE BASED ON NAV AS FIRST OF ALL THE VALUATION OF THE SUBSIDI ARY WOULD GET EMBEDDED IN THE PRICE OF SHARE OF BEC INDUSTRIAL INVESTMENT COM PANY PRIVATE LIMITED AND THAT VALUATION HAS TO BE DONE BASED ON PRESENT VALU E OF ENTERPRISE AND NOT NECESSARILY THE BOOK VALUE AS REPRESENTED BY FINANC IAL STATEMENTS AND ALSO CONTROLLING PREMIUM IS EMBEDDED IN THE PRICE FOR TH E SHARES PAID BY ACQUIRING SHAREHOLDERS TO THE SELLING SHAREHOLDER GROUP TO VEST/STRENGTHEN THEIR CONTROL IN THE BEC INDUSTRIAL INVESTMENT PRIV ATE LIMITED WHICH SHALL GET EMBEDDED IN MUTUALLY AGREED NEGOTIATED PRICE BETWEE N THE BUYER AND THE SELLER, HENCE, UNDER THESE CIRCUMSTANCES AND ON ANA LYZING THE WHOLE TRANSACTIONS IN PROPER PERSPECTIVE , WE HAVE NO HES ITATION IN HOLDING BASED ON MATERIAL ON RECORD THAT THE ENTIRE TRANSACTION FOR SALE OF SHARE REPRESENTED THROUGH SHARE PURCHASE AGREEMENTS DATED 06-03-2007 AND 07-04-2007 PRODUCED BY THE ASSESSEE IS A GENUINE AND BONAFIDE TRANSACTION OF SALE OF SHARES HELD BY THE ASSESSEE AND HIS FAMILY MEMBERS IN BEC INDUSTRIAL ITA 766 /MUM/2012 13 INVESTMENT COMPANY PRIVATE LIMITED TO BAT ENTERPRIS ES LIMITED AND THE ASSESSEE HAS RIGHTLY COMPUTED THE CAPITAL GAIN IN T HE RETURN OF INCOME FILED WITH THE REVENUE BY TAKING ACTUAL SALE CONSIDERATIO N OF 2040 EQUITY SHARES @ RS 1195/- PER SHARE AS FULL VALUE OF CONSIDERATION AS CONTEMPLATED U/S. 48 OF THE ACT. THE ISSUE OF SHARES BY BEC CHEMICALS PRIVA TE LIMITED TO THE PROMOTERS SUBSEQUENTLY AT FACE VALUE AT RS 100 PER SHARES IS ALL IRRELEVANT CONSIDERATION HAVING NO BEARING ON ESTABLISHING THE GENUINENESS AND BONAFIDE OF TRANSACTIONS FOR SALE AND PURCHASE OF SHARE EXECUTED BY THE ASSESSEE AND HIS FAMILY MEMBERS WITH BAT ENTERPRISE S LIMITED VIDE SHARE PURCHASE AGREEMENTS DATED 06-03-2007 AND 07-04-2007 .SIMILARLY THAT THE BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITED A ND BAT ENTERPRISES LIMITED HAS COMMON ADDRESS ETC AND THE ASSESSEE OUL D BE ABLE TO MANIPULATE THE TRANSACTION ARE AGAIN HAVING NO RELEVANCE AND A RE MERELY CONJECTURES AND CONJECTURES . IN-FACT ON PERUSAL OF SHARE PURCHASE AGREEMENT DATED 06-03- 2007 AND 07-04-2007 WILL REVEAL THAT PERSUANT TO TH ESE AGREEMENT, THE ASSESSEE AND HIS FAMILY MEMBERS HAVE AGREED TO SHIF T THE OFFICES OF THEIR COMPANIES AND CONCERNS FROM IBI HOUSE BY 30-4-2007 , CLAUSE 4.6 OF THE AGREEMENT DATED 06-3-2007(PAGE 65/PAPER BOOK). NOT HING INCRIMINATING HAS BEEN BROUGHT ON RECORD BY THE REVENUE AND CONJECTUR ES AND SURMISES HAS NO PLACE WHILE COMPUTING AND BRINGING TO TAX INCOME OF THE TAX-PAYER WITHIN THE CHARGEABILITY TO TAX UNDER THE PROVISIONS AND SCHEM E OF THE ACT . THE REVENUE HAS ALSO ACCEPTED THE CAPITAL GAINS BASED ON ACTUAL SALE CONSIDERATION IN THE CASE OF MR SATISH AMRITLAL SHAH WHILE FRAMING ASSES SMENT U/S 143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2007-08 IN THE HANDS OF MR SATISH AMRITLAL SHAH WHEREIN THE SAID MR. SATISH AMRITLAL SHAH ALSO SOLD 1665 EQUITY SHARES OF BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITED T O BAT ENTERPRISES LIMITED @ RS 1195 PER SHARE VIDE SHARE PURCHASE AGR EEMENT DATED 06-03- 2007 . THE REVENUE HAS ALSO ACCEPTED THE PURCHASE O F EQUITY SHARES OF BEC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITED @ RS 1195/- PER SHARE FROM THE ASSESSEE AND HIS FAMILY MEMBERS VIDE SHARE PURC HASE AGREEMENT DATED ITA 766 /MUM/2012 14 06-03-2007 IN THE HANDS OF BAT ENTERPRISES LIMITED WHILE FRAMING ASSESSMENT U/S 143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2007-08 OF BAT ENTERPRISES LIMITED. THE ASSESSMENT ORDERS ARE PLAC ED IN THE FILE W.R.T. MR. SATISH AMRITLAL SHAH AND BAT ENTERPRISES LIMITED F OR THE ASSESSMENT YEAR 2007-08. WE DO NOT FIND ANY REASONS TO INTERFERE IN THE WORKING OF CAPITAL GAINS FURNISHED BY THE ASSESSEE COMPUTED IN THE MAN NER BY TAKING ACTUAL SALE CONSIDERATION @ RS.1195 PER EQUITY SHARES OF B EC INDUSTRIAL INVESTMENT COMPANY PRIVATE LIMITED AS FULL VALUE OF CONSIDERAT ION AS CONTEMPLATED U/S. 48 OF THE ACT. AS SUCH WE SET ASIDE THE ORDERS OF THE LD. CIT(A) AND THE AO COMPUTING CAPITAL GAINS BY ADOPTING NAV @ RS 202 PE R SHARE AND BRINGING TO TAX BALANCE AMOUNT OF RS. 20,25,720/- AS UNEXPLAINE D INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES WHICH IN OUR CONSI DERED VIEW CANNOT BE SUSTAINED IN THE EYES OF LAW. WE ACCORDINGLY ALLOW THE APPEAL OF THE ASSESSEE AS INDICATED ABOVE. WE ORDER ACCORDINGLY. 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IN ITA NO. 766/MUM/2012 FOR THE ASSESSMENT YEAR 2008-09 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND SEPTEMBER, 2016. # $% &' 22-09-2016 ( ) SD/- SD/- (MAHAVIR SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 22-09-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS ITA 766 /MUM/2012 15 !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI A BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI