DY.C.I.T. 16(2), MUMBAI V. MR. SADANAND B. SULE, MUMBAI

ITA 831/MUM/2009

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70658 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 26-06-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 06-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS JOTHILAKSHMI NAYAK
• Assessee Lawyers: K K VED; J D MISTRI MR NEERAJ SHETH
• Keywords: Capital asset; Gift; Share purchase agreement; Cost of acquisition; Scheme of amalgamation; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH, MUMBAI , BEFORE SHRI R.K.GUPTA, JM & SHRI N.K.BILLAIYA , AM ITA NO. 831 / MUM/ 20 09 ( ASSESSMENT YEAR : 200 5 - 06 ) DCIT, 16(2), MUMBAI VS. MR. SADANAND B. SULE, BUNGALOW, 1 ST FLOOR, SILVER OAK ESTATE, BHULABHAI DESAI ROAD, MUMBAI - 26. PAN/GIR NO. : A A QP S 3639 B ( APPELLA NT ) .. ( RESPONDENT ) /REVENUE BY : MRS. JOTHILAKSHMI NAYAK /ASSESSEE BY : MR. J.D.MISTRI, MR. NEERAJ SHETH & MR. K.K.VED. DATE OF HEARING : 26 TH JUNE, 201 3 DATE OF PRONOUNCEMENT : 7 TH AUGUST ,2013 O R D E R PER SHRI R.K.GUPTA J.M. : THIS APPEAL HAS BEEN FILED BY THE DEPARTMENT AGAINST THE ORDER OF LEARNED CIT(A) - XVI , MUMBAI FOR ASSESSMENT YEAR 2005 - 0 6 . 2 . THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS : - 1. THE LD.CIT(A) HAS FAILED IN APPRECIATING THAT THE ASSESSEE HAS NOT DISCHARGED ITS PRIMARY ONUS OF ESTABLISHING THE PURCHASE OF 1665 SHARES @ RS.2500/ - EITHER BY WAY OF PAYMENT, GIFT OR LOAN. 2. THE CIT(A) HAS ERRED IN NOT APPRECIA TING THE FACT THAT THE A O HAS ESTABLISHED THAT THE ASSESSEE HAD PAID ONLY RS.15,00,000/ - AS COST OF SHARES (I.E. COST OF 600 SHARES) WHERE AS ASSESSEE HAD BEEN CHANGING ITS STAND FROM TIME TO TIME AS REGARDS THE COST OF ACQUISITION OF SHARES? ITA NO. 831 / 09 2 3. THE CIT(A ) HAS ERRED IN NOT UNDERSTANDING THE FACT THAT NEITHER THE ASSESSEE NOR THE SELLER HAD ACKNOWLEDGED THE ANY SALE OR SALE RECEIVABLE OR OUTSTANDING DEBT IN LIEU OF SALE OF SHARES? 4. THE CIT(A) HAS FAILED IN ALLOWING THE ASSESSEE APPEAL BASED ON THE SUBMI SSION MADE BY THE ASSESSEE BEFORE HIM WITHOUT CARRYING OUT AN INDEPENDENT VERIFICATION OR REMANDING IT TO THE A O FOR FURTHER VERIFICATION OR ANY VERIFICATION BY THE REGISTRAR OF COMPANIES? 5. THE LD.CIT(A) FAILED TO APPRECIATE THAT SURROUNDING CIRCUMSTAN CE CONSIDERED BY THE AO IN TOTO TO ARRIVE AT THE CONCLUSION? 6. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3 . BRIEF FACTS OF THE CASE AS DISCUSSED IN THE ORDER OF LEARNED CIT(A) AT PAGES 4 TO 11 ARE UNDER : - THE APPELLANT SOLD 7,49,000 EQUITY SHARES AND 29,97,867 6% REDEEMABLE PREFERENCE SHARES OF LAVASA CORPORATION PVT. LTD IN THE YEAR UNDER CONSIDERATION, TO HINDUSTAN CONSTRUCTION CORPORATION LTD. THE CONSIDERATION RECEIVED BY THE APPELLANT WA S RS. 15,03,46,6601 - . THE APPELLANT DISCLOSED LONG TERM CAPITAL GAINS ON SALE OF 7,49,000 EQUITY SHARES AND 24,97,867 6% REDEEMABLE PREFERENCE SHARES OF LAVASA CORPORATION LTD AND SHORT TERM CAPITAL G AINS ON SALE OF 5,00,000 6% REDEEMABLE PREFERENCE SHARES OF LAVASA CORPORATION LTD. THE APPELLANT HAD OBTAINED 12,48,750 EQUITY SHARES AND 26,64,000 6% REDEEMABLE PREFERENCE SHARES OF LAVASA CORPORATION ON THE MERGER OF YASHOMALA LEASING & FINANCE (P) LTD. WITH LAKE CITY CORPORATION (FORMER NAME LAVASA CORPORAT ION) ON THE BASIS OF SCHEME OF AMALGAMATION APPROVED B Y THE BOMBAY HIGH COURT DATED 1 ST AUG. 2002. THE APPELLANT FURTHER PURCHASED 5,00,000 6% REDEEMABLE PREFERENCE SHARES IN THE YEAR 2003. AS REGARDS THE LONG TERM CAPITAL GAINS WAS CONCERNED THE APPELLANT HAD CONSIDERED THE INVESTMENT IN THE SHARES OF THE COMPANY, YASHOMALA LEASING AND FINANCE (P) LTD. AS THE COST OF ACQUISITION AS HE HAD OBTAINED THE SHARES SOLD, ON THE MERGER OF THE YASHOMALA FINANCE AND LEASING (P) L T D WITH L AKE CITY CORPORATION LTD. ( THE FORMER NAME OF LAVASA CORPORATION LTD). THE A PPELLANT PURCHASED 1664 SHARES OF YASHOMALA LEASING FINANCE PVT. LTD ON SO' APRIL, 2001 FROM MR. ARVIND BHALE AND MRS. JYOTI BHALE. YASHOMALA HAD DIRECTLY ALLOTTED ONE SHARE TO THE APPELLANT. WHEN THE RETURN WAS FILED IT WAS NOTED THAT THE APPELLANT PAID RS. 1,38,00,000 / - (RS.1,34,50,000 / - ) IN THE FINANCIAL YEAR 2001 - 02 AND RS. 3,50,000 / - IN THE FINANCIAL YEAR 2002 - 03) FOR THE ACQUISITION OF SHARES OF YASHOMALA FIN. & ITA NO. 831 / 09 3 LEASING (P) LTD. IT IS ON THIS BASIS THAT THE CAPITAL GAINS WAS COMPUTED. AS PER THIS COMPUTATION, THE COST OF ONE EQUITY SHARE IN LAVASA CORPORATION WAS RS. 6.59 AND THAT OF A PREFERENCE SHARE WAS RS.2.09. LATER ON, IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE APPELLANT BY COVER OF LETTER DATED 24.12.2007 FILED ANOTHER COMPUTATION. THIS WAS NECESSITATED BECAUSE OF THE APPELLANT STATED THAT HE PAID ONLY RS. 41,25,000 FOR 'THE PURCHASE OF 1664 SHARES OF YASHOMALA AND NOT RS. 1,38,00,000 AS STATED BY THE APPELLANT EARLIER. THEREFORE, THE COST OF ONE EQUITY SHARE WAS BROUGHT DOWN TO RS. 1.97 AND THAT OF PREFERENCE SHARES TO RS. 0.63. ON THE BASIS OF THIS RECOMPUTATION, APPELLANT CLAIMED A REFUND OF RS. 22.64 LAKHS. SUBSEQUENTLY YASHOMALA BY A COURT APPROVED SCHEME OF MERGER, MERGED WITH LAKE CITY CORP ORATION ( FORMER NAME OF LAVASA CORPORATION). THE SHARE HOLDER OF YASHOMALA RECEIVED 750 EQUITY SHARES AND 1600 6% REDEEMABLE PREFERENCE SHARES OF LAKE CITY CORPORATION FOR EVERY SHARE IN YASHOMALA FINANCE LEASING (P) LTD. ON THAT BASIS APPELLANT RECEIVED 12,48,750 EQUITY SHARES AND 26,64,000 6% REDEEMABLE PREFERENCE SHARES OF LAKE CITY CORPORATION ( FORMER NAME OF LAVASA CORPORATION LTD) FURTHER, APPELLANT PURCHASED 5,00,000 6% REDEEMABLE PREFERENCE SHARES OF LAKE CITY CORPORATION. THEREFORE, HE HAD A TOTA L OF 12,48,750 EQUITY SHARES AND 31,64,000 6% REDEEMABLE PREFERENCE SHARES OF LAKE CITY CORPORATION LTD. BY CERTIFICATE OF INCORPORATION DATED 8TH JUNE, 2004, THE NAME OF THE COMPANY WAS CHANGED FROM LAKE CITY CORPORATION LTD. TO LAVASA CORPORATION LTD. DU RING THE FINANCIAL YEAR 2004 - 05, THE APPELLANT SOLD 7,49 0 EQUITY SHARES AND 29,97,867 PREFERENCE SHARES OF LAVASA CORPORATION TO HINDUSTAN CONSTRUCTION CO. LTD. ') 3. TH E ASSESSING OFFICER, IN THE COURSE OF ASSESSMENT PROCEEDINGS REQUIRED THE APPELLANT TO FURNISH DETAILS/EXPLANATION AND ALSO OBTAINED INFORMATION FROM LAVASA CORPORATION LTD AND ALSO HINDUSTAN CONSTRUCTION CORPORATION LTD. DETAILS WERE ALSO OBTAINED THROUGH ASSISTANT DIRECTOR OF INCOME TAX ( INTERNATIONAL TAXATION) PUNE. ON PERUSAL OF THE DETAILS FILED/OBTAINED, THE A.O. NOTICED CERTAIN FEATURES. FIRST OF ALL, HE NOTED THAT THE APPELLANT HAD BEEN CHANGING STANDS; INITIALLY THE APPELLANT SAID HE PAID RS. 1,34,50,000/ - IN F.Y. 2001 - 02 FOR PURCHASING SHARES OF YASHOMALA, LATER HE SAID HE PAID ONLY RS. 41,25,000/ - FOR DOING SO. BUT EVEN THIS WAS NOT CORRECT AS HE PAID ONLY RS. 15,00,000/ - BEFORE THE DATE OF MERGER. SECONDLY, THE REPLY FILED BY LAVASA CORPORATION LTD SHOWS THAT THE COMPANY'S REPLIES/INFORMATION ARE NOT RELIABLE AS THE COMPANY CAM E INTO EXISTENCE ONLY ON 8.6.2004, WHEREAS THE ARTICLES OF ASSOCIATION IS DATED 3.2.2000. MOREOVER, THE SHARE REGISTER IS INCORRECT AS IT DID NOT REFLECT THE TRANSFER OF 7,49,000 SHARES IN 2004 - 2005. THIRDLY, THE REPLY FILED BY MR. ARVIND SHALE IS NOT RELI ABLE BECAUSE THE RETURNS OF INCOME FILED BY HIM DO NOT REFLECT THE SALE OF SHARES CORRECTLY. THE ORIGINAL RETURN OF INCOME FILED BY MR. SHALE FOR A.Y. 2001 - 02 SHOWS NO INCOME FROM CAPITAL GAINS. THE REVISED RETURN FOR A.Y. 2001 - 02 SHOWING SALE OF 391 SHARE S OF YASHOMALA AT THE RATE OF ITA NO. 831 / 09 4 R S .2500 PER SHARE WAS SIGNED AS ON 4.01.2005, BUT IT WAS FILED ONLY ON 4.01.07 ( OR 4.01.06). THE IMPORTANT OBSERVATION OF THE ASSESSING OFFICER IS THAT IT SHOULD BE ESTABLISHED THAT THE APPELLANT HAD ACTUALLY ACQUIRED THE S HARES IN THE YEAR 2001. ANY ASSET CAN BE ACQUIRED ONLY BY MAKING PAYMENT EITHER IN CASH OR KIND. THE APPELLANT STATED HE PAID RS. 1,38,00,0001 - FOR PURCHASING THE SHARES, LATER HE SAID HE PAID ONLY RS. 41,25,1001 - FOR ACQUIRING 1665 SHARES. AGAIN HE SAID H E ACQUIRED ONLY 1664 SHARES AND ONE WAS ACQUIRED DIRECTLY FROM THE COMPANY . MORE IMPORTANTLY, THE APPELLANT NOR YASHOMALA HAD SUBMITTED ANY EVIDENCE THAT THE APPELLANT HAD ACQUIRED 1665 SHARES OF THE COMPANY IN THE YEAR 2001 - 02. THE CONFIRMATION FROM MR. ARVIND SHALE CANNOT BE RELIED ON AS HE HAS NOT SHOWN ANY CAPITAL GAIN FROM THE TRANSACTION IN HIS ORIGINAL RETURN FOR A.Y. 2001 - 02. THE REVISED RETURN FILED BY MR. SHALE DOES NOT HAVE EVIDENTIARY VALUE AS IT WAS FILED MUCH LATER I N THE YEAR 2006 OR 2007. T HE APPELLANT FILED THE SHARE TRANSFER FORMS SHOWING DATE OF TRANSFER IN THE F.Y. 2000 - 01. MOREOVER IT HAS NEVER BEEN ESTABLISHED THAT MR & MRS. B HALE HAD THAT MANY SHARES IN YASHOMALA. MORE CRITICAL IS THAT IT HAS TO BE ESTA BLISHED THAT THE APPELLANT HAD 1 665 SHARES IN M/S YASHOMALA BEFORE IT MERGED WITH LAKE CITY CORPORATION IN SEPTEMBER 2002. IN THE ABSENCE OF SUCH PROOF, IT IS THE PAYMENT FOR PURCHASE OF SHARES THAT BECOMES RELEVANT. THE APPELLANT DID NOT RECEIVE THE SHARES BY WAY OF WILL, OR GIFT OR LOA N. HE ALSO DOES NOT APPEAR AS A DEBTOR IN THE RETURN FILED BY MR. & MRS. SHALE. SO THE ASSESSING OFFICER CONCLUDED THAT THE ONLY POSSIBLE WAY OF ACQUISITION OF THESE SHARES BY MAKIN G FULL PAYMENT TO THE SELLER. APPELLANT HAD ADMITTED IN THE RETURNS FILED F OR THIS ASSESSMENT YEAR AS WELL AS IN A.Y. 2003 - 04 THAT THE RATE OF PURCHASE OF SHARES OF YASHOMALA IS RS. 25001 - PER SHARES. APPELLANT HAD GIVEN EVIDENCE OF PAYMENT OF ONLY RS.15,00, 000/ - BEFORE YASHOMALA CEASED TO EXIST., I.E. BEFORE SEPTEMBER 2002. COPY OF BANK STATEMENT FILED ALSO SUPPORTS THIS CONCLUSION. FROM THE AMOUNT OF RS. 15,IAKHS APPELLANT CAN ACQUIRE ONLY 600 SHARES OF YASHOMALA WHICH ON MERGER WITH LAKE CITY CORPORATION LTD ( FORMER NAME OF LAVASA CORPORATION) COULD HAVE YIELDED HIM ONLY 4,50, 000 EQUITY SHARES AND 9,60,000 PREFERENCE SHARES OF LAKE CITY CORPORATION. APPELLANT DISPOSED OFF 2.50,000 SHARES IN F.Y. 2001 - 02 THUS THE APPELLANT WAS LEFT WITH ONLY 2,00,000 EQUITY SHARES AND 9,60,000 PREFERENCE SHARES OF LAKE CITY CORPORATION PVT.LTD ( FORMER NAME OF LAVASA CORPORATION) FOR DISPOSAL TO HCC LTD. RATE OF SALES HAS BEEN MENTIONED AS RS. 120.68 PER EQUITY SHARES. ACCORDINGLY RS. 2,41,36,000 CAN BE TREATED AS LONG TERM CAPITAL GAIN RESULTING FROM SALE OF EQUITY SHARES. SIMILARLY 9,60,000 PRE FERENCE SHARES ON SALE AT THE RATE OF RS.201 - PER SHARE WOULD YIELD LONG TERM CAPITAL GAINS OF RS. 1,92,00,000/ - . AS REGARDS THE SALE OF 5,00,000 PREFERENCE SHARES WHICH WERE ACQUIRED BY THE APPELLANT SUBSEQUENTLY THE SALE AND PURCHASE WERE AT THE SAME RAT E OF RS.201 - PER SHARE AND SO THERE IS NO CAPITAL GAIN ON THAT COUNT. THEREFORE THE BALAN CE RECEIPT OF RS. 9,70,10,660/ - CANNOT ITA NO. 831 / 09 5 BE TREATED AS TOWARDS SHARES ACQUIRED BY THE APPELLANT BY HIS DISCLOSED SOURCES. AS THE DATE OF RECEIPT OF THE UNACCOUNTED SHARE S IS NOT KNOWN, THE ENTIRE AMOUNT OF RS. 9,70,10,660/ - WAS TREATED AS SHORT TERM CAPITAL GAIN IN THE HANDS OF THE APPELLANT. 4. APPELLANT IS AGGRIEVED BY THE TREATMENT METED OUT TO THE RECEIPT ON THE SALE OF SHARES BY THE ASSESSING OFFICER. FIRSTLY THE AP PELLANT STATES THAT HE HAD 1 665 SHARES IN YASHOMALA LEASING & FINANCE CO. PVT.LTD BEFORE IT MERGED WITH LAKE CITY CORPORATION LTD. IN ORDER TO SUPPORT HIS STAND HE HAS SUBMITTED COPIES OF THE LETTERS OF CONFIRMATION FROM THE SELLERS, CONFIRMING THE SALE OF 1664 SHAR E S AND RECEIPT OF RS.41,25,OOOI - TOWARDS SALE CONSIDERATION. SECONDLY, COPIES OF SHARE CERTIFICATES FOR THE ENTIRE 1664 SHARES, WERE FILED SHOWING THE NAME OF THE APPELLANT. COPES OF SHARE TRANSFER FROM DULY STAMPED HAVE ALSO BEEN FILED. COPIES O F BANK STATEMENTS EVIDENCING PAYMENT OF RS. 41,25,000/ - TO MR AND MRS BHALE HAVE BEEN FILED WHICH WAS ALSO CONFIRMED BY THE ASSESSING OFFICER IN HIS ORDER. SHARE CERTIFICATE COPY OF ONE SHARE DIREC TLY ALLOTTED BY THE COMPANY IS ALSO INCLUDED . A L L THESE DET AILS WERE FILED BEFORE THE ASSESSING OFFICER TOO. THE APPELLANT, HAS ALSO FILED A COPY D THE SCHEME OF AMALGAMATION OF YASHOMALA LEASING AND FINANCE LID WITH LAKE CITY CORPORATION LTD APPROVED BY THE HIGH COURT OF BOMBAY DATED 1ST AUG. 2002. ACCORDING TO T HIS SCH E ME, FOR EVERY SHARE IN YASHOMALA, THE SHAREHOLDER GETS 750 EQUITY SHARES AND 16006% REDEEMABLE PREFERENCE SHARES OF LAKE CITY CORPORATION. ON THAT BASIS, APPELLANT RECEIVED 12,48,750 EQUITY SHARES AND 26,64,000 6% REDEEMABLE PREFERENCE SHARES OF LA KE CITY CORPORATION LTD ( FORMER NAME OF LAVASA CORPORATION). ACCORDING TO SECTION 49(2) OF THE INCOME TAX ACT, IN CASE OF AMALGAMATION/MERGER THE SHARES OF THE AMALGAMATING COMPANY WOULD BE CONSIDERED AS THE COST OF ACQUISITION OF SHARES OF THE AMALGAMATE D COMPANY. ACCORDINGLY, THE APPELLANT HAS CONSIDERED THE COST OF SHARES OF YASHOMALA AS THE COST OF THE SHARES OF LAKE CITY CORPORATION LTD. FURTHER THE APPELLANT PURCHASED 5,00,0006% REDEEMABLE PREFERENCE SHARES. THEREFORE, THE APPELLANT HAD 12,48,750 EQU ITY SHARES AND 31,64,000 6% REDEEMABLE PREFERENCE SHARES OF LCC. THE APPELLANT STATED THAT HE PAID FOR THE PURCHASE OF 5,00,000 PREFERENCE SHARES BY CHEQUE NO. 086755 DATED 11.8.2003 FOR RS. 50,00,000 AND CH. NO. 086758 DATED 6.10.03 FOR RS. 50,00,000/ - BO TH DRAWN ON MAHESH SAHAKARI SANK VIDE RECEIPT NO. 18 DT. 11.8.2003 AND RECEIPT NO.22 DATED 7.10.2003 RESPECTIVELY, COPIES OF WHICH WERE FILED WITH THE ASSESSING OFFICER ON 17/12/2007. I N THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2005 - 06, HE SOLD 7,49,000 E QUITY SHARES AND 29,97,867 REDEEMABLE PREFERENCE SHARES TO HCC LTD. FOR A NET CONSIDERATION OF RS. 15,03,46,6001 - . THE APPELLANT S TATED THAT HE PAID FOR THE PURCHASE OF 1664 SHARES FROM MR. ARVIND BHALE AND MRS. JYOTI BHALE IN THE FOLLOWING MANNER : - ITA NO. 831 / 09 6 SL. NO. DATE AMOUNT NAME OF THE SELLER CH. NO. CHEQUE DRAWN ON 1. 04.04.01 11,50,000 ARVIND BHALE 340013 HSBC 2 09.04.01 3,50,000 JYOTI BHALE 251,057 HDFC 3. 13.01.03 10,25,000 JYOTI BHALE 340025 HSBC 4. 13.01.03 16,00,000 ARVIND B HALE 989827 HDFC TOTAL 41,25,000 T HERE IS NO DISPUTE THAT THE COST OF SHARES IN YASHOMALA WAS RS. 41,25,000/ - . THE EARLIER FIGURE OF RS. 1,38,00,000/ - WAS A GENUINE MISTAKE WHICH WAS DETECTED IN THE COURSE OF ASSESSMENT PROCEEDINGS AND THEREFORE THE COMPUTATION OF CAPI TAL GAINS WAS CHANGED. THE ASSESSING OFFICER HAS ERRED IN OBSERVING THAT ONLY RS. 15,00,000/ - HAS BEEN PAID FOR PURCHASING 1665 SHARES OF YASHOMALA. THE ASSESSING OFFICER IGNORED THE PART PAYMENT OF RS. 26,25,0001 - BY EXPRESSING THE VIEW THAT THE ASSETS CA N BE ACQUIRED ONLY BY MAKING PAYMENT IN CASH OR KIND. THE APPELLANT STATES THAT ASSETS CAN ALSO BE ACQUIRED ON CREDIT. IN THE INSTANT CASE, THE APPELLANT HAD ACQUIRED THE SHARES OF YASHOMALA AT AN AGREED PRICE IN THE YEAR 2001 - 02 WITH PART PAYMENT AND WITH A PROMISE TO PAY THE BALANCE AMOUNT IN FUTURE. THE APPELLANT DISAGREES WITH THE ASSESSING OFFICER THAT THE ASSET CAN BE ACQUIRED ONLY BY MAKING THE PAYMENT IN CASH OR KIND. THE APPELLANT AGAIN SUBMITS THAT THE DISCUSSION ON THE MODE OF ACQUISITION - CASH, CREDIT OR DEFERRED PAYMENT BASIS DOES NOT HAVE MUCH RELEVANCE SINCE THE APPELLANT HAS PURCHASED THE SHARES OF YASHOMALA BY PAYING FOR THEM. THE ASSESSING OFFICER HAS OBSERVED THAT THE NAME OF THE APPELLANT DOES NOT APPEAR AS A DEBTOR IN THE RETURN OF INCO ME OF THE SELLER. HOWEVER, THE SELLER OF SHARES OF YASHOMALA IS AN INDIVIDUAL AND THEREFORE NOT REQUIRED TO DISCLOSE ASSETS AND LIABILITIES IN HIS RETURN OF INCOME. MOREOVER, WHEN THE SELLER WAS NOT UNDER AN OBLIGATION TO SHOW THE NAME OF THE APPELLANT A S A DEBTOR THEN THE SAME CANNOT BE MADE A BASIS TO CONCLUDE THAT THE APPELLANT HAS NOT PURCHASED THE SHARES OF YASHOMALA FROM THE SELLER. IT IS ALSO SUBMITTED THAT NON DISCLOSURE OF INCOME BY WAY OF CAPITAL GAINS BY THE SELLER IN HIS / HER RETURN CANNOT BE U SED AS A BASIS TO ARGUE THAT THE APPELLANT HAS NOT PURCHASED THE SAID SHARES. THE APPELLANT HAS PROVIDED VARIOUS DOCUMENTARY EVIDENCE TO ESTABLISH THAT IT HAS ACQUIRED THE SHARES IN QUESTION FROM MR AND MRS BHALE. HOWEVER, THE ASSESSING OFFICER IGNORED A' THE EVIDENCES THAT WERE SUBMITTED FOR PROVING THAT THE APPELLANT HAD 1665 SHARES OF YASHOMALA - BEFORE MERGER OF YASHOMALA WITH LCC, THE ASSESSING OFFICER THEN REASONED THAT THE .APPELLANT PAID ONLY RS. 15,00,000 AND USING THE PURCHASE PRICE OF RS. 2500 CO NCLUDED THAT HE BOUGHT ONLY 600 SHARES OF YASHOMALA. BUT THE APPELLANT HAD PROVIDED SUFFICIENT EVIDENCE TO SHOW THAT HE HAD 1665 SHARES OF YASHOMALA, WHICH ON MERGER OF YASHOMALA WITH LAKE CITY CORPORATION YIELDED HIM 12,48,750 EQUITY AND 26,64,000 6% ITA NO. 831 / 09 7 REDE EMABLE PREFERENCE SHARES OF LAKE CITY CORP ORATION . LATER ON HE ACQUIRED ANOTHER 5,00,000 6% REDEEMABLE PREFERENCE SHARES. THUS HE HAD 12,48,750 EQUITY SHARES AND 31,64,0006% REDEEMABLE PREFERENCE SHARES WITH HIM. THE APPELLANT SUBMITTED THAT THE ASSESSING OFFICER ERRED IN OBSERVING THAT LAVASSA CORPORATION LTD. WAS FORMED ONLY ON 8TH JUNE, 2004. THE COPY OF THE CERTIFICATE OF INCORPORATION, FILED IN THE COURSE OF ASSESSMENT PROCEEDINGS ONLY REFLECTED THE CHANGE IN THE NAME OF THE COMPANY FROM LAKE CITY COR PORATION TO LAVANA CORPORATION FROM 8TH JUNE, 2004. BASED ON THIS, IT IS INCORRECT ON THE PART OF THE A. O . TO STATE THAT ARTICLES OF ASSOCIATION OF LAVASSA CANNOT EXIST ON 3RD FEB. 2000. FURTHER IT IS NOT CORRECT IN OBSERVING THAT BECAUSE RECORDS ARE NOT A VAILABLE WITH REGISTRAR OF COMPANIES, THE SHARES OF YASHOMALA WERE NOT IN EXISTENCE. IT IS INAPPROPRIATE TO CONCLUDE THAT BECAUSE RECORDS ARE NOT AVAILABLE WITH REGISTRAR OF COMPANIES, THE SHARES OF YASHOMALA WERE NOT IN EXISTENCE. IT INAPPROPRIATE TO CONC LUDE THAT BECAUSE RECORDS ARE NOT AVAILABLE, THE SHARES ITSELF DID NOT EXIST. HE STATED FURTHER THAT IN THE COURSE OF ASSESSMENT, SUFFICIENT EVIDENCE WAS FURNISHED TO THE ASSESSING OFFICER BUT HE DID NOT APPRECIATE THE FACTS AND THE DOCUMENTARY EVIDENCE IN THE CORRECT PERSPECTIVE. THE ASSESSING OFFICER ERRED IN TREATING THE CONSIDERAT I ON OF RS. 9,70,10,660 REALISED FROM SALE OF 5,49,000 EQUITY SHARES AND 15,37,867 PREFERENCE SHARES OF LAVASA CORPORATION AS SHORT TERM CAPITAL GAINS. THE A. O . ERRED IN NOT GR ANTING THE BENEFIT OF COST OF ACQUISITION IN SPITE OF THE FACT THAT THE SHARES WERE HELD FOR MORE THAN ONE YEAR BEFORE THE SALE. T HE APPELLANT HAS REFERRED TO THE FACT THAT HE SUBMITTED THE COST OF ACQUISITION OF YASHOMALA SHARES AS RS. 1,38,00,000 WHEREA S IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE A. O . WAS INFORMED THAT HE PLAID ONLY RS. 41,25,000 / - . ACTUALLY THE COST OF ACQUISITION OF PREFERENCE SHARES OF RS. 1,00,00,000 WAS INADVERTENTLY MENTIONED AS THE COST OF ACQUISITION FOR EQUITY SHARES. THE APPE LLANT IN THE PROCESS DID NOT INDICATE ANY COST FOR COMPUTING THE CAPITAL GAINS FOR PREFERENCE SHARES. AS A RESULT HE OFFERED THE ENTIRE SALES CONSIDERATION AS SHORT TERM CAPITAL GAINS RELATING TO THIS TRANSACTION AS NIL AS THOSE PREFERENCE SHARES WERE SOLD AT COST. THE APPELLANT, IN THE PROCESS, HAD OFFERED A HIGHER AMOUNT OF TAX. THE MISTAKE IN THE COMPUTATION OF CAPITAL GAINS WAS NOT INTENTIONAL AND AS SOON AS HE REALIZED THE MISTAKE, HE RECTIFIED THE SAME. THE APPELLA NT HAS AGAIN STATED THAT THE A.O . IN ASSESSING THE UNDISCLOSED INCOME OF RS. 9,70,10,660 AS SHORT TERM CAPITAL GAINS, HAD ACCEPTED THE FACT THAT THERE WAS A CAPITAL ASSET WHICH THE APPELLANT SOLD IN THE RELEVANT ASSESSMENT YEAR. THUS THE A.O. TREATS THE INCOME AS 'CAPITAL GAINS'(PRESUMING THA T THE APPELLANT OWNED THE SHARES IN YASHOMALA) AND ON THE OTHER HAND CHALLENGED THE EXISTENCE OF SHARES OF YASHOMALA. THE APPELLANT ALSO FILED COPIES OF CERTIFICATES OF INCORPORATION SHOWING THE INCORPORATION DETAILS OF 'PEARLY SLUE LAKE RESORTS ITA NO. 831 / 09 8 PVT.LTD. ' CERTIFICATES INDICATING CHANGE OF NAME FROM 'PEARLY SLUE LAKE RESORTS PVT.LTD' TO ' LAKE CITY CORPORATION (P) LTD.' AND 'LAKE CITY CORPORATION PVT. LTD.' TO 'LAKE CITY CORPORATION LTD.' THERE IS A COPY OF CERTIFICATE SHOWING CHANGE OF NAME FROM 'LAKE CIT Y CORPORATION LTD.' TO LAVASA CORPORATION LTD. DATED 8.6.2004. 4 . THEREAFTER LEARNED CIT(A) AFTER DISCUSSING THE SUBMISSION OF THE ASSESSEE AND PERUSING THE ORDER OF THE LEARNED AO, FOUND THAT THE AO WAS NOT JUSTIFIED IN NOT ACCEPTING THE CLAIM OF THE A SSESSEE. ACCORDINGLY, ALL THE GROUNDS OF THE ASSESSEE WERE ALLOWED BY THE LEARNED CIT(A) . NOW, THE DEPARTMENT IS IN APPEAL HERE BEFORE THE TRIBUNAL. 5 . LEARNED DR STRONGLY PLACED RELIANCE ON THE ORDER OF THE AO. IT WAS SUBMITTED THAT PURCHASE OF THE SHAR ES AS FOUND DOUBTFUL AS NO CONCRETE EVIDENCE WAS FILED BY THE ASSESSEE BEFORE THE AO. THE ASSESSEE HAS CHALLENGED ITS STAND FROM TIME TO TIME AND THIS FACT HAS BEEN NOTED BY THE LEARNED AO IN HIS ORDER. ACCORDINGLY, THE AO WAS JUSTIFIED IN NOT ACCEPTING TH E CLAIM OF THE ASSESSEE. 6 . ON THE OTHER HAND, LEARNED AR OF THE ASSESSEE STATED THAT THE SALE OF SHARES HAS BEEN ACCEPTED AND SALE OF SHARES CANNOT BE EFFECTED WITHOUT ANY CHARGES. IT WAS SUBMITTED THAT ALL THE DETAILS WERE FILED BEFORE THE AO, HOWEVER, HE HAS NOT TAKEN ALL THE DETAILS IN RIGHT PERSPECTIVE. THEREAFTER SOME DETAILS WERE FILED BEFORE THE LEARNED CIT(A) AND THE CASE WAS EXPLAINED BEFORE HIM, WHO AFTER ANALYZING THE FACTUAL ASPECT OF THE CASE, FOUND THAT THERE WAS A VALID PURCHASE OF SHARES A ND, THEREFORE, THE AO WAS NOT JUSTIFIED IN NOT ACCEPTING THE ITA NO. 831 / 09 9 CLAIM OF THE ASSESSEE. IT WAS SUBMITTED THAT THE CONFIRMATION FROM THE PARTIES FROM WHOM THE SHARES WERE PURCHASED WERE FILED BEFORE THE AO HIMSELF. THE MAIN REASON OF THE AO WAS THAT THE SALE C ONSIDERATION WAS NOT PAID IN FULL AT THE TIME OF PURCHASES AND, THEREFORE, THE CLAIM IS NOT ALLOWABLE. THIS FACT HAS BEEN CONSIDERED BY THE LEARNED CIT(A) AND THEREAFTER HAS ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE. ATTENTION OF THE BENCH WAS DRAWN ON VARIOUS DETAILS PLACED ON RECORD. 7 . IN REPLY, LEARNED DR AGAIN STATED THAT THE AO IS CORRECT AS VARIOUS DISCREPANCIES WERE NOTED BY THE AO, WHICH WERE NOT EXPLAINED. ATTENTION OF BENCH WAS DRAWN ON RELEVANT PORTION OF THE ORDER OF THE AO. 8 . IN REPLY, LEARNED COUNSEL OF THE ASSESSEE STATED THAT THERE WERE MINOR DISCREPANCIES, HOWEVER, THEY WERE EXPLAINED BY FILING POSITIVE EVIDENCE. 9 . WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. WE HAVE ALSO CONSIDERED THE ORDER OF THE AO AND CIT(A ) . WE FOUND THAT THE LEARNED CIT(A) HAS EXAMINED THE ISSUE IN DETAIL AND IN RIGHT PERSPECTIVE. THE FINDINGS OF THE LEARNED CIT(A) HAVE BEEN RECORDED AT PAGES 11 TO 13, WHICH ARE AS UNDER : - I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE RECORDS AND DETAILS FILED. THE BASIS OF THE DECISIONS ARRIVED AT BY THE ASSESSING OFFICER IN HIS CONCLUSION THAT THE APPELLANT DID NOT HAVE 1665 SHARES IN YASHOMAL LEASING AND FINANCE CO. LTD. HE ARRIVED AT THAT CONCLUSION AS HE DID NOT GIVE CR EDENCE TO THE LETTERS OF CONFIRMATION OF MR. ARVIND B HALE AND MRS. JYOTI BHALE. MR. ARVIND BHALE AND MRS. JYOTI B HALE HAD ITA NO. 831 / 09 10 STATED THAT THEY HAD SOLD THE SHARES TO THE APPELLANT . BUT THE ASSESSING OFFICER, FOUND THAT THE SELLERS MR AND MRS B HALE HAD NOT DI SCLOSED THE CONSIDERATION IN THE RETURNS OF INCOME FILED BY THEM. THE APPELLANT CANNOT BE HELD RESPONSIBLE FOR THE NON DISCLOSURE OF INCOME BY THE SELLERS AND THAT CANNOT FORM THE BASIS OF THE ASSESSING OFFICERS CONCLUSION THAT THE SHARES WERE NOT IN EXIST ENCE OR THAT THESE SHARES WERE NOT TRANSFERRED TO THE APPELLANT. HE ALSO DID NOT GIVE CREDENCE TO THE COPIES OF SHARE CERTIFICATES AND SHARE TRANSFER FORMS FOR THE 1664 SHARES ACQUIRED BY THE APPELLANT. THE REASON FOR THIS REJECTION OR NON CONSIDERATION IS NOT CLEARLY STATED. PERHAPS IT HAS TO DO WITH THE NON - AVAILABILITY OF RECORDS WITH REGISTRAR OF COMPANIES. AS POINTED OUT BY THE APPELLANT, HE CANNOT BE HELD RESPONSIBLE FOR THAT SITUATION AND BASED ON THAT FACT, IT IS NOT CORRECT TO COME TO A CONCLUSION THAT THE SHARES WERE NOT IN EXISTENCE. ANOTHER OBSERVATION OF THE A.O. IS THAT THE APPELLANT DID NOT APPEAR AS A DEBTOR IN THE RETURN OF INCOME FILED BY MR. ARVIND SHALE AND MRS. JYOTI BH A LE. AS NOTED BY THE APPELLANT, THE INDIVIDUAL ASSESSEE IS NOT REQUIR ED TO DISCLOSE HIS/HER ASSETS AND LIABILITIES IN THE RETURN OF INCOME FILED BY HIM/HER. THE MOST RELEVANT OBSERVATION OF THE A.O. IS THAT AN ASSET CAN BE ACQUIRED ONLY BY CASH OR IN KIND. THIS OBSERVATION IS DEFINITELY NOT CORRECT AS ASSET CAN BE PURCHASED ON CREDIT TOO. IN THE INSTANT CASE. SHARES WERE ACQUIRED BY PAYING RS.15,00,000/ - IN APRIL 2001 AND THE BALANCE OF RS. 26,25,000/ - WAS PAID IN JANUARY, 2003. THE APPELLANT HAS GIVEN THE DETAILS OF THE CHEQUES AND THE BANKS ON WHICH THESE WERE DRAWN TO S UPPORT HIS STAND. THE A.O. HAS NOT DISPUTED THESE FACTS. THE ONLY DIFFICULTY WITH HIM IS THAT ONLY AN AMOUNT OF RS. 15,00,000/ - WAS PAID BEFORE Y ASHOMALA LEASING AND FINANCE PVT.LTD. MERGED WITH LAKE CITY CORPORATION LTD IN SEPTEMBER, 2002. BUT THAT CANNOT FORM THE BASIS OF THE CONCLUSION THAT ONLY RS. 15,00,000 WAS PAID TO ACQUIRE THE 1664 SHARES OF YASHOMALA. THE ONLY DISCREPANCY WHICH AROSE IN THIS CONNECTION WAS THE INITIAL COMPUTATION OF CAPITAL GAINS BASED ON A PAYMENT OF RS. 1,38,00,000/ - TO ACQUIRE 1664 SHARES OF YASHOMALA. THIS WAS EXPLAINED BY THE APPELLANT THAT HE INADVERTENTLY INCLUDED THE CONSIDERATION OF RS.1,00, 00 ,000/ - PAID SUBSEQUENTLY TO ACQUIRE 5,00,000 PREFERENCE SHARES OF LAKE CITY CORPORATION IN THE TOTAL CONSIDERATION PAID TO ACQUIRE 1 664 EQUITY SHARES OF YASHOMALA. THIS MISTAKE WAS REALIZED IN THE OF ASSESSMENT. PROCEEDINGS AND CORRECTED. AS PER THE ORIGINAL COMPUTATION HE WOULD HAVE ENDED UP PAYING MORE TAX. ON CAREFUL CONSIDERATION OF THE DETAILS FILED BY THE APPELLANT AND RECORDS, I CONCLUDE THAT THERE IS ENOUGH EVIDENCE TO SHOW THAT THE APPELLANT HAD ACQUIRED 1664 EQUITY SHARES OF YASHOMALA , A LEASING & FINANCE LTD. FROM MR. ARVIND BHALE AND MR. JYOTI BHALE. ONE EQUITY SHARE WAS DIRECTLY ALLOTTED BY THE COMPANY. THE APPELLANT HAS FI LED A COPY OF THE SCHEME OF AMALGAMATION OF YASHOMALA LEASING AND FINANCE LTD. WITH LAKE CITY CORPORATION DATED 151 AUGUST 2002 AND APPROVED BY THE BOMBAY HIGH COURT, ACCORDING TO WHICH FOR EVERY EQUITY ITA NO. 831 / 09 11 SHARE OF YASHOMALA A SHARE HOLDER GETS 750 EQUITY SHA RES AND 1600 6% REDEEMABLE PREFERENCE SHARES OF LAKE CITY CORPORATION LTD. THE APPELLANT RECEIVED 12,48,750 EQUITY SHARES AND 26,64,000 6% REDEEMABLE PREFERENCE SHARES OF LAKE CITY CORPORATION LTD. LATER ON, THE APPELLANT PURCHASED ANOTHER 5,00,000 6% REDE EMABLE PREFERENCE SHARES OF LAKE CITY CORPORATION. THE COPIES OF CERTIFICATES OF INCORPORATION FILED BY THE APPELLANT SHOW THAT LAVASSA CORPORATION LTD WAS INCORPORATED ON 11TH FEB. 2000 AS 'PEARLY BLUE LAKE RESORTS PVT.LTD.' ON 1IH DEC. 2000. THE NAME 'PE ARLY BLUE LAKE RESORTS PVT. LTD' WAS CHANGED TO THE LAKE CITY CORPORATION PRIVATE LTD'. ON 1ST AUGUST 2002 YASHOMALA LEASING AND FINANCE PRIVATE LTD AMALGAMATED WITH LAKE CITY CORPORATION PRIVATE LTD. ON 3RD MARCH, 2003, THE NAME ' THE LAKE CITY CORPORATIO N PRIVATE LTD' WAS CHANGED TO 'THE LAKE CITY CORPORATION LTD'. ON 8TH JUNE, 2004, THE NAME OF THE COMPANY WAS CHANGED FROM THE LAKE CITY CORPORATION LTD' TO 'LAVASSA CORPORATION LTD'. THEREFORE THERE IS NO BASIS FOR THE ASSESSING OFFICER TO CONCLUDE THAT L AVASA CORPORATION LTD WAS NOT IN EXISTENCE IN THE YEAR 2000. IN VIEW OF ALL THESE, I CONCLUDE THAT THE MODIFICATION MADE BY THE APPELLANT TO THE COMPUTATION OF INCOME AND THE ADDITION MADE TO TOTAL INCOME ARE NOT WARRANTED. THEREFORE, THE APPELLANT SUCCEED S IN THE APPEAL FILED BY HIM. THE GROUNDS OF APPEAL FILED ARE ALL CONNECTED TO THE BASIC ISSUE OF TREATING LONG TERM CAPITAL GAINS AS SHORT TERM CAPITAL GAINS AND THE CONCLUSION THAT A PORTION OF THE INCOME RELATES TO DISPOSAL OF ASSETS ACQUIRED OUT OF UND ISCLOSED INCOME. THE DISCUSSION IN THE PRECEDING PARAGRAPHS HAVE LED ME TO THE CONCLUSION THAT THE APPEAL FILED BY THE APPELLANT IS ALLOWABLE AND THEREFORE ALL THE GROUNDS OF APPEAL ARE ALLOWED. 10 . THE ABOVE FINDINGS OF THE LEARNED CIT(A) , IN OUR CONSI DERED VIEW ARE FINDINGS OF FACT. LEARNED CIT(A) HAS CONSIDERED ALL THE ISSUE ON THE BASIS OF FACTUAL MATRIX OF THE CASE. EACH AND EVERY DETAILS WERE TAKEN INTO CONSIDERATION BY THE LEARNED CIT(A) . LEARNED CIT(A) NOTED THAT LETTER OF CONFIRMATION OF MR. AR VIND BHALE AND MRS. JYOTI BHALE WAS NOT CONSIDERED BY THE AO. IF THE CONFIRMATION LETTER OF BOTH THE PARTIES ARE TAKEN INTO CONSIDERATION, THEN NO DOUBT REMAINS THAT THE ASSESSEE HAS PURCHASED SHARE FROM THESE TWO PARTIES. RS. 15 LAKHS WAS PAID AT THE TIME OF PURCHASE OF SHARES IN APRIL, 2001 AND BALANCE AMOUNT OF ITA NO. 831 / 09 12 RS. 26,25,000/ - WAS PAID IN JANUARY, 2003. ALL THE PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUES. HOWEVER, THE AO DID NOT CONSIDER THE PAYMENT MADE IN JANUARY, 2003 AS IN HIS VIEW THE PAYMENT SHO ULD HAVE BEEN MADE AT THE TIME OF SALE OF SHARES. IT IS NOT NECESSARY THAT ENTIRE SALE CONSIDERATION IS TO BE PAID BUT THE NECESSITY IS AS TO WHETHER THE SALE OF SHARE MADE WAS GENUINE OR NOT AND WHETHER THE SHARE CERTIFICATES WERE GIVEN TO THE PURCHASER OR NOT. FROM THE FACTS, IT IS SEEN THAT THE SHARES WERE PURCHASED BY THE ASSESSEE AND COMPANY HAS CERTIFIED THAT THE ASSESSEE HAS PURCHASED THE SHARES BECAUSE THE EQUITY SHARES WERE ALLOTTED TO THE ASSESSEE ON THE BASIS OF SHARE PURCHASED BY THE ASSESSEE FROM TWO PERSONS I.E. MR. ARVIND BHALE AND MRS. JYOTI BHALE. THERE MAY BE CERTAIN DISCREPANCIES BUT FACTUAL ASPECT CANNOT BE IGNORED AND THE DISCREPANCIES NOTED BY THE AO HAVE BEEN CLARIFIED BEFORE THE AO AS WELL AS BEFORE THE CIT(A). THEREFORE, WE FOUND T HAT THE ORDER OF THE CIT(A) CANNOT BE FAULTED FOR THE REASON THAT HE HAS ACCEPTED THE EXPLANATION OF THE ASSESSEE AS STATED BY LEARNED DR. THE EXPLANATION GIVEN BY ANY PARTY IS TO BE TAKEN INTO CONSIDERATION AND IF THE EXPLANATION IS CORRECT, THEN SAME H AS TO BE ACCEPTED. LEARNED CIT(A) FOUND THAT THE EXPLANATION AND CONFIRMATIONS FILED ON BEHALF OF THE ASSESSEE WERE CORRECT, AND, THEREFORE, HE ALLOWED THE APPEAL OF THE A SSESSEE. ACCORDINGLY, WE HOLD THAT THE LEARNED CIT(A) WAS JUSTIFIED IN ALLOWING THE A PPEAL OF THE ASSESSEE. THEREFORE, THE ORDER OF THE LEARNED CIT(A) IS CONFIRMED. 11 . IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISSED. ITA NO. 831 / 09 13 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF AUG. 2013 . SD/ - ( ) ( N.K.BILLAIYA ) SD/ - ( ) ( R.K.GUPTA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 07/08 /2013 . /PKM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI