ACIT (OSD) 1, C.R. 7, MUMBAI V. RASESH B. KANAKIA, MUMBAI

ITA 941/MUM/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8871 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 24-11-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 02-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Search and seizure; Bonafide belief; Period of limitation; Condonation of delay
• Section: 153A; 132

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C, MU MBAI BEFORE SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.941/MUM/2011 FOR A Y : 2007-08 ACIT-CENTRAL CIRCLE - 23, R. NO. 464, 4 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400020. VS. SH. RASESH B. KANAKIA, 18,ASHISH, VALLABH NAGAR, ROAD NO.4, NEAR COOPER HOSPITAL, VILE PARLE (W), MUMBAI -56 PAN: AABPK3454F (APPELLANT) (RESPONDENT) C.O. NO.256/MUM/2014 IN ITA NO.941/MUM/2011 FOR A Y : 2007-08 SH. RASESH B. KANAKIA, 18,ASHISH, VALLABH NAGAR, ROAD NO.4, NEAR COOPER HOSPITAL, VILE PARLE (W), MUMBAI -56 PAN: AABPK3454F VS. ACIT-CENTRAL CIRCLE - 23, R. NO. 464, 4 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400020. (APPELLANT) (RESPONDENT) ITA NO.942/MUM/2011 FOR A Y : 2007-08 ACIT-CENTRAL CIRCLE - 23, R. NO. 464, 4 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400020. VS. SH. HIMANSHU KANAKIA, 20, VRUSTI, SWASTIK C.H.S., ROAD NO.2, JVPD SCHEME, VILE PARLE (W), MUMBAI -56 PAN: AASPK5262C (APPELLANT) (RESPONDENT) C.O. NO.257/MUM/2014 IN ITA NO.942/MUM/2011 FOR A Y : 2007-08 SH. HIMANSHU KANAKIA, 20, VRUSTI, SWASTIK C.H.S., ROAD NO.2, JVPD SCHEME, VILE PARLE (W), MUMBAI -56 PAN: AASPK5262C VS. ACIT-CENTRAL CIRCLE - 23, R. NO. 464, 4 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400020. (APPELLANT) (RESPONDENT) ITA N0.941,942/M/2011 CO NO. 256,257/M/2014 2 REVENUE BY SH. RAHUL RAMAN SR CIT- DR ASSESSEE BY SH. S.E. DASTUR SR ADVOCATE WITH SH. GAUTAM S. THAEKER ADVOCATE DATE OF HEARING 24.11.2016 DATE OF PRONOUNCEMENT 25.01.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER BENCH; 1. THESE TWO APPEALS FILED BY REVENUE UNDER SECTION 25 3 OF INCOME TAX ACT (ACT) AGAINST SEPARATE ORDERS OF COMMISSIONER (AP PEALS)-40, MUMBAI DATED 26.10.1010 FOR AY: 2007-08. THE ASSESSEE(S) HAVE FILED CROSS OBJECTIONS IN BOTH THE APPEALS. AS FACTS OF THE BOT H THE APPEALS AND THE CROSS OBJECTIONS ARE COMMON, HENCE BOTH THE APPEA L AND THE OBJECTIONS WERE CLUBBED, HEARD AND ARE DECIDED BY CONSOLIDATED ORDER TO AVOID CONFLICTING DECISION. FIRST WE SHALL TAKE UP APPEAL ITA NO.941/MUM/2011 FILLED BY REVENUE AND CROSS OBJECTIONS FILED BY ASS ESSEE AS C.O. NO. 256/M/2014 FOR ASSESSMENT YEAR: 2007-08. 2. THE BRIEF FACTS OF THE CASE ARE SEARCH AND SEIZURE ACTION UNDER SECTION 132 WAS CARRIED OUT ON 19.07.2007 AT THE PREMISES OF AS SESSEE AND ON SUBSEQUENT DATE ON ASSOCIATED GROUP OF ASSESSEE. CO NSEQUENT UPON THE SEARCH AND SEIZURE PROCEEDING UNDER SECTION 153A WA S INITIATED. THE ASSESSEE WAS SERVED WITH NOTICE UNDER SECTION 153A ON 25 AUGUST 2008. IN COMPLIANCE OF THE NOTICE UNDER SECTION 153A THE ASSESSEE FILED THE RETURN OF INCOME ON 11 SEPTEMBER 2008 DECLARING TOT AL INCOME OF RS. 14,45,77,810/-. IN THE RETURN OF INCOME THE ASSESSE E OFFERED LONG TERM CAPITAL GAIN OF RS. 13,92,00,000 /-FOR TAXATION AT THE SPECIAL RATE OF 10% AS PER THE PROVISO OF SUBSECTION (1) OF SECTION 112 OF THE ACT. DURING THE ASSESSMENT THE ASSESSEE ALSO CLAIMED THE EXPENSES I N RELATION TO TRANSFER OF SHARE I.E. IPO EXPENSES OF RS. 81,85,487/- THE ASSE SSMENT WAS COMPLETED ON 31 DECEMBER 2009, U/S 143(3). THE AO WHILE PASSI NG ASSESSMENT DISALLOWED IPO EXPENSES AND HELD THAT THE ASSESSE S LIABLE TO TAX AT THE ITA N0.941,942/M/2011 CO NO. 256,257/M/2014 3 RATE OF 20% AS THE ASSESSEES CASE DO NOT FALL UNDE R THE AMBIT OF 2 ND PROVISO OF SUBSECTION(1) OF SECTION 112 OF THE ACT . ON APPEAL BEFORE COMMISSIONER (APPEALS) THE CLAIM OF ASSESSEE WITH R EGARD TO CHARGE OF TAX @ 10% WAS ALLOWED. HOWEVER, THE GROUND RELATED WITH THE CLAIM OF IPO EXPENSES WAS DISMISSED. 3. THUS, AGGRIEVED BY THE ORDER OF COMMISSIONER (APPEA LS) THE REVENUE HAS FILED PRESENT APPEAL RAISING THE GROUNDS OF APPEAL THAT LD COMMISSIONER (APPEALS) ERRED IN TREATING THE LONG TERM CAPITAL G AIN ON SALES OF SHARE AS A LISTED SECURITY TO BE TAXED AT 10% WITHOUT APP RECIATING THE FACT THAT SAID SHARE WERE SOLD MUCH PRIOR TO THE DATE OF LIST ING IN THE RECOGNISED STOCK EXCHANGE AND CAPITAL GAIN ARISING OUT OF THE SAME WAS LIABLE TO BE TAXED AT THE RATE OF 20%. ON SERVICE OF THE NOTICE OF APPEAL THE ASSESSEE HAS FILED CROSS OBJECTION RAISING THE GROUNDS OF OB JECTION THAT LD COMMISSIONER (APPEALS) ERRED IN LAW AND ON FACTS IN NOT ALLOWING THE DEDUCTION OF IPO EXPENSES FROM SALE PROCEEDS OF SHA RE WHILE COMPUTING LONG TERM CAPITAL GAIN TAX. AS PER OUR CONSIDERED O PINION THE MAIN ISSUE URGED IN THE APPEALS ARE WHETHER THE ASSESSE E HAVE TRANSFERRED LISTED SHARES OR UNLISTED SHARES? 4. WE HAVE HEARD SH. SH. RAHUL RAMAN SR. DR (LD DR) FOR THE REVENUE AND SH. S.E. DASTUR LD. SR ADVOCATE ASSISTED BY SH. GAU TAM S. THAEKER ADVOCATE (LD AR) FOR ASSESSEE. THE LD DR FOR TH E REVENUE STRONGLY SUPPORTED THE ORDER OF AO. THE LD DR ARGUED THAT TH E ASSESSEE OFFERED UNLISTED SHARE FOR SALE ALONG WITH THE PUBLIC ISSUE . THE ASSESSEE TRANSFERRED THE SHARES WHICH WERE NOT THE LISTED SH ARE WHEN OFFERED FOR SALE. IT WAS FURTHER ARGUED THAT THE ASSESSEE HAS CANVASSED THAT THE ASSESSEE TRANSFERRED THE LISTED SHARES OF THE COMPA NY IN WHICH THE ASSESSEE IS ONE OF THE MAIN DIRECTORS. THE LD DR FO R THE REVENUE FURTHER RELIED ON THE DECISIONS OF DELHI TRIBUNAL IN UDAI PUNJ VS DCTI [2011]15 TAXMAN.COM 179( DELHI) AND FURTHER THE DECISION OF HONBLE DELHI HIGH COURT IN UDAI PUNJ VS CIT VIDE ITA NO 183/2012 DATED 09.07.2012 ITA N0.941,942/M/2011 CO NO. 256,257/M/2014 4 (ARISING OUT OF THE APPEAL IN THE SAME CASE). ON TH E OTHER HAND LD AR FOR THE ASSESSEE ARGUED THAT ASSESSEE IS ONE OF THE PRO MOTER OF M/S CINEMAX PRIVATE LTD, A COMPANY INCORPORATED UNDER THE PROVI SIONS OF COMPANIES ACT. THE ASSESSEE WAS MANAGING DIRECTOR OF M/S CINE MAX P. LIMITED. THE SAID COMPANY DECIDED TO ISSUE A PUBLIC ISSUE OF 7000000 SHARES. THE ASSESSEE ALONG WITH ANOTHER CO-DIRECTOR SH. HIMANSH U KANAKIA DECIDED TO OFFER THEIR SHARE AGGREGATING 19,20,000 SHARES (960 000 SHARES EACH) IN THE SAME PUBLIC ISSUE. IN THE OFFER DOCUMENT THE PROMOT ER WERE REFERRED AS THE SELLING SHAREHOLDERS. IN THE OFFER PROSPECTUS CONTA INED AN EQUITY SHARES OFFERED ARE PROPOSED TO BE LISTED ON STOCK EXCHANGE S AND REFERRED THAT IN PRINCIPLE APPROVAL FROM THE EXCHANGES ARE RECEIVED ON 20 SEPTEMBER 2006 FROM NATIONAL STOCK EXCHANGE AND ON 11 NOVEMBE R 2006 FROM BOMBAY STOCK EXCHANGE. THE LD AR FOR THE ASSESSEE F URTHER ARGUED THAT ON 23 OCTOBER 2006 IN PRINCIPLE APPROVAL WAS RECEIV ED FROM NATIONAL STOCK EXCHANGE. ON 16 TH NOV 2006 IN PRINCIPLE APPROVAL WAS RECEIVED FROM BOMBAY STOCK EXCHANGE. AND ON 08 TH JANUARY 2007 THE ISSUE WAS OPENED. THE ISSUE WAS CLOSED ON 24 JANUARY 2007. A LL THE SHARES WERE TRANSFERRED FROM DE-MAT ACCOUNT OF PROMOTERS TO ESC ROW ACCOUNT OF REGISTRAR. ON THE 7 TH FEB 2007 THE ALLOTMENT OF SHARES WERE FINALISED. O N 8 TH FEB 2007 NEW SHARE AND SHARES OF PROMOTERS WERE MI NGLED AND CREDITED TO INVESTORS ACCOUNT. ON 12 FEBRUARY 2007 LISTING INFORMATION WAS RECEIVED. ON 14 TH FEB 2007 TRADING OF SHARES COMMENCED IN STOCK EXCHANGE. THE LD. AR OF THE ASSESSEE FURTHER ARGUE D THAT THE OFFER OF SALE OF SHARES WAS SUBJECT TO THE CONDITION OF LISTING W ITH THE NATIONAL STOCK EXCHANGE AND BOMBAY STOCK EXCHANGE AND IT WAS A CON DITION PRECEDENT IN THE PROSPECTUS OF PUBLIC ISSUE, THAT THE LISTED SHA RE WOULD BE TRANSFERRED TO THE PROSPECTING BUYER. THE CONCERNED BANK ALSO RELE ASED THE FUND AFTER SUBMISSION OF THE LISTING PERMISSION ON 15 TH FEB 2007 AND THE ASSESSEE ALSO RECEIVED THE SALE PROCEEDS AFTER 15 FEBRUARY 2 007. HENCE, THE ASSESSEE TRANSFERRED THE LISTED SHARE TO THE BUYERS AND IS LIABLE FOR LONG- ITA N0.941,942/M/2011 CO NO. 256,257/M/2014 5 TERM CAPITAL GAIN TAX @ 10%. THE LEARNED AR FOR THE ASSESSEE FURTHER IS RELIED ON THE DECISIONS OF HONBLE APEX COURT IN C IT VS J.H. GOLTA 156 ITR 323( SC), BAJAJ TEMPO LTD VS CIT 196 ITR 188( SC), RISHYASHRINGA JEWELLERY LTD VS STOCK EXCHANGE BOMBA Y ( 1995) 6 SCC 714, DECISION OF BOMBAY HIGH COURT IN CIT VS SMT DA RSHNA A. SHAH ITA NO. 546 OF 2008 DATED 19 TH SEPT 2008 AND THE DECISION OF MUMBAI TRIBUNAL IN DCIT VS RAJIV A. SHAH [2007] 12 SOT 84 (MUM), 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE PAR TIES AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. BEFORE APPRECI ATING THE FACTS OF THE CASE, WE MAY FIRST REFER THE CERTAIN STATUTORY PROV ISION RELATED WITH THE TRANSFER OF MOVABLE PROPERTY. THE SALES OF GOODS AC T 1930, INDIAN CONTRACT ACT 1872 AND THE COMPANIES ACT 1956. THE SALES OF GOODS ACT ; SECTION 2(7) GOODS MEANS ANY KIND OF MOVEABLE PROPERTY OTHER THAN ACTIONABLE CLAIMS AND MONEY; AND INCLUDES STOC K AND SHARE, GROWING CROP, GRASS, AND THINGS ATTACHED TO FORMING PART OF THE LAND WHICH ARE AGREED TO BE SEVERED BEFORE SALE OR UNDER THE CONTRACT OF SALE. SECTION 4. SALE AND AGREEMENT TO SALE . - (1) A CONTRACT OF SALE OF GOODS IS A CONTRACT WHEREBY THE SELLER TRANSFERS OR AGREES TO TRANSFER THE PROPERTY IN GOODS TO THE BUYERS FOR A PRICE. TH ERE MAY BE CONTRACT OF SALE BETWEEN ONE PART- OWNER AND OTHER. (2) A CONTRACT OF SALE MAY BE ABSOLUTE OR CONDITION AL. (3) WHERE UNDER THE CONTACT OF SALE THE PROPERTY I N GOODS IS TRANSFERRED FROM THE SELLER TO THE BUYER, THE CONTRACT IS CALLE D A SALE, BUT WHERE THE TRANSFER OF PROPERTY IN THE GOODS IS TO TAKE PL ACE AT FUTURE TIME OR SUBJECT TO SOME CONDITION THEREAFTER TO BE FULFILLE D, THE CONTRACT IS CALLED AN AGREEMENT TO SELL. (4) AN AGREEMENT TO SELL BECOMES A SALE WHEN THE TI ME ELAPSED OR THE CONDITIONS ARE FULFILLED SUBJECT TO WHICH THE PROPE RTY IN THE GOODS IS TO BE TRANSFERRED. SECTION 5. CONTRACT OF SALE HOW MADE .- (1) A CONTRACT OF SALE IS MADE BY AN OFFER TO BUY OR TO SELL GOODS FOR A PRI CE AND THE ACCEPTANCE OF SUCH OFFER. THE CONTRACT MAY PROVIDE FOR THE IMMEDIATE DELIVERY OF GOODS OR IMMEDIATE PAYMENT OF THE PRICE OR BOTH, OR FOR THE DELIVERY OR PAYMENTS BY INSTALMENTS, OR THAT TH E DELIVERY OR PAYMENT OR BOTH SHALL BE POSTPONED. (2) SUBJECT TO THE PROVISIONS OF ANY LAW FOR THE TIME I N FORCE, A CONTRACT OF SALE MAY BE MADE IN WRITING, OR BY WORD OF MOUTH, O R PARTLY IN WRITING AND PARTLY BY WORDS OF MOUTH OR MAY BE IMPLIED FROM THE CONDUCT OF THE PARTIES . THE INDIAN CONTRACT ACT ; ITA N0.941,942/M/2011 CO NO. 256,257/M/2014 6 SECTION 2 INTERPRETATION CLAUSE .- IN THIS ACT THE FOLLOWING WORDS AND EXPRESSIONS ARE USED IN THE FOLLOWING SENSES, UNLES S A CONTRARY INTENTION APPEARS FROM THE CONTEXT:- (A) WHEN ONE PERSON SIGNIFIES TO ANOTHER HIS WILLINGNES S TO DO OR TO ABSTAIN FROM DOING ANYTHING, WITH A VIEW TO OBTAIN ING THE ASSENT OF THAT OTHER TO SUCH ACT OR ABSTINENCE, HE IS SET TO MAKE A PROPOSAL ; (B) WHEN THE PERSON TO WHOM THE PROPOSAL IS MADE SIGNIF IES HIS ASSENT THERETO, THE PROPOSAL IS SAID TO BE ACCEPTED. A PRO POSAL WHEN ACCEPTED, BECOME A PROMISE ; (C) ........... (D) ........... (E) EVERY PROMISE AND EVERY SET OF PROMISES, FORMING TH E CONSIDERATION FOR EACH OTHER, IS AN AGREEMENT ; (F) ........... (G) ........... (H) AN AGREEMENT ENFORCEABLE BY LAW IS A CONTRACT; SECTION 31. CONTINGENT CONTRACT - A CONTINGENT CONTRACT IS A CONTRACT TO DO OR NOT TO DO SOMETHING, IF SOME EVEN T, COLLATERAL TO SUCH CONTRACT, DOES OR DOES NOT HAPPEN. COMPANIES ACT 1956 ALLOTMENT OF SHARES AND DEBENTURES TO BE DEAL T IN ON A STOCK EXCHANGE. SECTION 73. ( 1) EVERY COMPANY INTENDED TO OFFER SHARES, DEBENTUR ES TO THE PUBLIC FOR SUBSCRIPTION BY THE ISSUE A PROSP ECTUS SHALL, BEFORE SUCH ISSUE, MAKE AN APPLICATION TO ONE OR MORE RECO GNISED STOCK EXCHANGE IS FOR PERMISSION FOR THE SHARES OR DEBENT URE INTENDING TO BE SO OFFERED TO BE DEALT WITH IN THE STOCK EXCHANG E OR EACH SUCH STOCK EXCHANGE . (1A) WHERE A PROSPECTUS, WHETHER ISSUED GENERALLY OR NOT , HE STATES THAT AN APPLICATION UNDER SUB-SECTION (1) HAS BEEN MADE FOR PERMISSION OF THE SHARES OR DEBENTURES OFFERED THE REBY TO BE DEALT IN ONE OR MORE RECOGNISED STOCK EXCHANGES, SUCH PROSPE CTUS SHALL STATE THE NAME OF THE STOCK EXCHANGE OR, AS THE CAS E MAY BE, EACH SUCH STOCK EXCHANGE, AND ANY ALLOTMENT MADE ON AN A PPLICATION IN PERSONS OF SUCH PROSPECTUS SHALL, WHENEVER MADE, BE WHITE, IF THE PERMISSION HAS NOT BEEN GRANTED BY THE STOCK EXCHAN GE OR EACH SUCH STOCK EXCHANGE, AS THE CASE MAY BE, BEFORE THE EXPI RY OF 10 WEEKS FROM THE DATE OF THE CLOSING OF THE SUBSCRIPTION LI STS: PROVIDED THAT WHERE AN APPEAL AGAINST THE DECISION OF AND A RECOGNISED STOCK EXCHANGE REFUSING PERMISSION FOR T HE SHARES OR DEBENTURES TO BE DEALT IN ON THAT STOCK EXCHANGE HA S BEEN REFERRED UNDER SECTION 22 OF THE SECURITIES CONTRACT(REGULAT ION) ACT 1956, SUCH ALLOTMENT SHED NOT DEVOID UNTIL THE DISMISSAL OF THE APPEAL. (2) THE PERMISSION HAS NOT BEEN APPLIED UNDER SUB-SECT ION(1), OR SUCH PERMISSION HAVING BEEN APPLIED FOR, HAS NOT BEEN GR ANTED AS AFORESAID, THE COMPANY SHALL FORTHWITH REPAY WITHOU T INTEREST ALL MONEY RECEIVED FROM THE APPLICANTS IN PERSONS OF TH E PROSPECTUS, AND, IF ANY SUCH MONEY IS NOT REPAID WITHIN 8 DAYS AFTER THE COMPANY ITA N0.941,942/M/2011 CO NO. 256,257/M/2014 7 BECOME LIABLE TO PAY IT, THE COMPANY AND EVERY DIRE CTOR OF THE COMPANY WHO IS AN OFFICER IN DEFAULT SHELL, ALL AND FROM THE EXPIRY OF THE 8 TH DAY BE JOINTLY AND SEVERALLY LIABLE TO PAY THAT MO NEY WITH INTEREST AT SUCH RATE, NOT LESS THAN 4% AND NOT MOR E THAN 15%, AS MAY BE PRESCRIBED, HAVING REGARD TO THE LENGTH OF T HE PERIOD OF DELAY IN MAKING THE REPAYMENT OF SUCH MONEY. (2A) WHERE PERMISSION HAS BEEN GRANTED BY THE RECOGNISE D STOCK EXCHANGE OR STOCK EXCHANGES FOR DEALING IN ANY SHAR E OR DEBENTURE IN SUCH A STOCK EXCHANGE OR EACH SUCH A STOCK EXCHA NGE AND THE MONEY RECEIVED FROM THE APPLICANTS FOR SHARE OR DEB ENTURE ARE IN EXCESS OF THE AGGREGATE OF THE APPLICATION MONEY RE JECTING TO THE SHARES OR DEBENTURE IN RESPECT OF WHICH ALLOTMENT H AVE BEEN MADE, THE COMPANY SHALL REPAY THE MONEY TO THE EXTENT OF SUCH ACCESS FORTHWITH WITHOUT INTEREST, AND IF SUCH MONEY IS NO T REPAID WITHIN 8 DAYS, FOR THE DAY OF THE COMPANY BECOME LIABLE TO P AY IT, THE COMPANY AND EVERY DIRECTOR OF THE COMPANY WHO IS AN OFFICER IN DEFAULT, ON AND FROM THE EXPIRY OF ITS DAY, BE JOIN TLY AND SEVERALLY LIABLE TO PAY THAT MONEY WITH INTEREST AT SUCH RATE , NOT LESS THAN 4% AND NOT MORE THAN 15%, AS MAY BE PRESCRIBED, HAVING REGARD TO THE LENGTH OF THE PERIOD DELAY IN MAKING THE REPAYMENT OF SUCH MONEY. (2B)......... (3) ALL MONEY RECEIVED AS AFORESAID SHALL BE KEPT IN A SEPARATE BANK ACCOUNT MAINTAINED WITH THEIR SCHEDULED BANK, UNTIL THE PERMISSION HAS BEEN GRANTED, OR WHERE AN APPEAL HAS BEEN PREFE RRED AGAINST THE REFUSAL TO GRANT SUCH PERMISSION, UNTIL THE DISPOSA L OF THE APPEAL, AND THE MONEY STANDING IN SUCH SEPARATE ACCOUNT SHALL, WHERE THE PERMISSION HAS NOT BEEN APPLIED FOR THE AFORESAID O R HAS NOT BEEN GRANTED, BE REPAID WITHIN THE TIME AND IN THE MANNE R SPECIFIED IN SUB- SECTION (2), AND IF DEFAULT IS MADE IN COMPLYING WI TH THIS SUB-SECTION, THE COMPANY AND EVERY OFFICER OF THE COMPANY WHO IS IN DEFAULT, SHALL BE PUNISHABLE WITH FINE WHICH MAY BE EXTENT TO RS. 50,000/- (3A)--------- (4) ANY CONDITION PURPORTING TO REQUIRE OR BIND ANY APP LICANT FOR SHARE OR DEBENTURE TO WAIVE COMPLIANCE WITH ANY OF THE RE QUIREMENT TO THIS SECTION SHALL BE VOID . 6. THE AO DURING THE ASSESSMENT PROCEEDINGS OBSER VED THAT THE ASSESSEE HAS SHOWN THE LONG TERM CAPITAL GAIN ON SALES OF S HARES OF RS. 13,92,00,000/-. THE ASSESSEE WAS HOLDING10249720 SH ARE OF M/S CINEMAX INDIA LTD. THE ASSESSEE OFFERED 960000 EQUI TY SHARE UNDER IPO AS THE PART OF OFFERED FOR SALE AND AS A RESULT OF THESE TRANSACTION THE ASSESSEE EARNED LONG-TERM CAPITAL GAIN OF RS. 1 3,92,00,000/-. THE ASSESSEE OFFERED LONG-TERM CAPITAL GAINS FOR TA XATION AT THE SPECIAL RATE OF 10% AS PER THE PROVISO TO SUB-SECTI ON (1) OF SECTION ITA N0.941,942/M/2011 CO NO. 256,257/M/2014 8 112 OF INCOME TAX ACT. THE SAID PROVISO PRESCRIBES CONCESSIONAL RATE OF 10% IN CASE OF TRANSFER OF LISTED SHARES. THE ASSESSEE WAS SHOW CAUSE AS TO WHY THE LONG-TERM CAPITAL GAIN OF RS. 13.92 CRORE SHOULD NOT BE TAXED AT SPECIAL RATE OF 20% WI THOUT APPLYING THE PROVISO AS THE AO FELT THAT THE ASSESSEE TRANSFERRE D UNLISTED SHARES. THE ASSESSEE FILED HIS REPLY, EXPLAINING THE FACTS LEADING TO THE EARNING OF THE CAPITAL GAIN. IN THE REPLY THE ASSES SEE SPECIFICALLY CONTENDED THAT THE PROSPECTUS OF PUBLIC ISSUE CONTA INED THE STATEMENT THAT EQUITY SHARES OFFERED ARE PROPOSED TO BE LIST ED ON STOCK EXCHANGES AND IN PRINCIPLE APPROVAL FROM THE STOCK EXCHANGE HAVE BEEN RECEIVED FROM THE STOCK EXCHANGES CONCERNED. IT WAS FURTHER CONTENDED THAT ON THE BASIS OF NECESSARY PERMISSION THE ALLOTMENT WAS FINALISED ON 7 FEB 2007 AND FINALLY LISTED ON 1 4/02/2007. THE ASSESSEE TRANSFERRED THE LISTED SHARE. THE CASE OF ASSESSEE IS THAT THE SHARED OFFERED TO THE PUBLIC CANNOT BE CONSIDERED A S TRANSFERRED UNTIL COMPLETION OF FINAL LISTING OF SHARES. ACCORDINGLY, IT WAS CONTENDED THAT THE ASSESSEE IS LIABLE TO LONG-TERM CAPITAL GA IN AT THE CONCESSIONAL RATE OF 10% INSTEAD OF 20%. THE CONTEN TION OF ASSESSEE WAS NOT ACCEPTED BY AO. THE AO CONCLUDED THAT SHARE S HELD BY THE ASSESSEE ARE CAPITAL ASSET. THE ASSESSEES RIGHT IN THE SHARE WERE TRANSFERRED ON THE DATE WHEN THE SAME WERE HANDED O VER TO THE REGISTRAR. THE DATE OF TRANSFER IS TO BE DETERMINED WHICH FALLS BEFORE THE DATE OF SHARE WHEN LISTED. THE AO FURTHER CONCL UDED THAT THE ALLOTMENT OF SHARES TO THE GENERAL PUBLIC HAS BEEN DONE BEFORE LISTING OF THE SHARE ON THE RECOGNISED STOCK EXCHANGE AND T HAT ASSESSEE HAS ALREADY TRANSFERRED THE SHARE BEFORE LISTING. THE L D CIT(A) WHILE CONSIDERING THE CONTENTION OF THE ASSESSEE OBSERVED THAT FOR THE LIABILITY OF CAPITAL GAIN TAX ARISE ON SALE, EXCHAN GE OR RELINQUISHMENT OF THE ASSET, ONE NEEDS TO DECIDE AS TO WHEN THE SA LE HAS TAKEN PLACE FOR DECIDING THE STATUS ABOUT THE TIME OF TRANSFER. IN CASE OF ASSESSEE ITA N0.941,942/M/2011 CO NO. 256,257/M/2014 9 THE SALE OF THE SHARE WERE TRANSACTED THROUGH IPO. THE VARIOUS FORMALITIES WERE COMPLIED BEFORE ISSUANCE OF SHARES TO THE PUBLIC. THE ASSESSEE TOOK NECESSARY PERMISSION FROM RECOGNI SED STOCK EXCHANGE, ISSUED A RED HERRING PROSPECTUS, ENTERED INTO ESCROW MECHANISM WITH THE BANKERS AND ENTERING INTO UNDERW RITING ARRANGEMENTS AND FOLLOWING THE GUIDELINES ISSUED BY SEBI. MOST OF THE DOCUMENTS THROUGH WHICH THE PERMISSION WAS GRAN TED ARE PUBLIC DOCUMENTS. THE SHAREHOLDERS SUBSCRIBING TO THE SHA RE HAS TO READ THE OFFER DOCUMENT AND ONLY IN CASES SATISFIED HE WILL APPLY TO THE SHARE. THE LD CIT(A) FURTHER CONSIDERED THAT THE OFFER DOC UMENT IS A SORT OF CONTRACT WHEREBY THE ASSESSEE SHAREOWNERS HAVE TO F ULFIL CERTAIN CONDITION AND ISSUING COMPANY HAS ALSO TO CARRY CER TAIN OBLIGATIONS. UNDER THE SALE OF GOODS ACT, THE TRANSACTIONS IS CO MPLETED ONLY WHEN THE CONDITION ARE FULFILLED BY THE PARTIES. TH E LD CIT(A) FURTHER EXAMINED THE CASE OF ASSESSEE, IF ALL THE LEGAL REQ UIREMENT AND FORMALITIES ATTACHED TO THE SALE OF SHARES THROUGH PUBLIC ISSUE WERE FULFILLED OR NOT. IN THE PROSPECTUS IT WAS PROPOSED THAT SHARES WILL BE LISTED ON THE RECOGNISED STOCK EXCHANGE AND IT WAS THE RESPONSIBILITIES OF THE ASSESSEE TO GET THE SHARE L ISTED, AND IN CASE OF FAILURE TO GET THE SHARES LISTED, THE AMOUNT RECEIV ED FROM THE PROSPECTIVE SHAREHOLDERS WAS TO BE REFUNDED WITH IN TEREST. THE LD COMMISSIONER (APPEALS) WHILE RELYING UPON THE DECIS ION OF CIT VS RAJIV A SHAH(SUPRA) CONCLUDED THAT THAT THE SALE OF THE SHARES OF ASSESSEE WAS OF A LISTED SECURITY AND LIABLE TO TAX AT THE CONCESSIONAL RATE OF 10% INSTEAD OF 20%. 7. WE FURTHER INDEPENDENTLY CONSIDERED THE CONTEN TIONS OF THE RESPECTIVE LD REPRESENTATIVE OF THE PARTIES AND GONE THROUGH T HE VARIOUS DECISIONS AND THE DOCUMENTS PLACED ON RECORD. WE MA Y ALSO REFER VARIOUS DATES AND EVENTS FOR APPRECIATION OF THE FA CTS AND THE RELEVANT DOCUMENTS ON RECORD, WHICH ARE NOT IN DISPUTE AND A RE AS FOLLOWS; ITA N0.941,942/M/2011 CO NO. 256,257/M/2014 10 DATE EVENTS / DETAILS PAPER BOOK / PG NO 28.09.2006 CINEMAX INDIA LTD ENTERED IN MOU WITH ENAM FINANCIAL CONSULTANT PVT AND JM MORGAN STANLEY P.LTD AND ELDELWISS CAPITAL LTD AND AMBIT CORPORATE FINANCE P LTD FOR PUBLIC ISSUE OF 8,920,000 ( 7,000,000 FRESH ISSUE PLUS 1,920,000 OF SHAREHOLDERS) 1-22 23.10.2006 IN PRINCIPLE APPROVAL RECEIVED FROM NSE 22-25 16.11.2006 IN PRINCIPLE APPROVAL RECEIVED FROM BSE 26-27 18.01.2007 ISSUE OPENED (COPY OF RED HERRING PROSPECTS) 13-21 24.01.2007 ISSUE CLOSED AND SHARES WERE TRANSFERRED FROM DE-MAT ACCOUNT OF PROMOTERS TO ESCROW ACCOUNT OF REGISTRAR ---- 07.02.2007 BASIS OF ALLOTMENT WAS FINALISED ------ 08.02.2007 NEW SHARES & PROMOTERS SHARES MINGLED AND CREDITED TO INVESTORS ACCOUNTS ----- 12.02.2007 LISTING PERMISSION WAS RECEIVED ----- 14.02.2007 DAY OF FORMAL LISTING AND TRADING STARTE D ----- 15.02.2007 SALE CONSIDERATION OF SHARE WAS TRANSFE R TO THE ACCOUNT OF ASSESSEE ----- THERE IS NO DISPUTE ABOUT THE VARIOUS DATES AN D EVENTS AND THE SALE OF SHARES THROUGH PUBLIC OFFER. THE PURCHASER ACCEPTED THE PUBLIC OFFER. FURTHER, THERE IS NO DISPUTE ABOUT THE GAIN ARISING OUT OF SALE OF SHARE. THE ONLY DISPUTE IS IF THE SHARES WERE LISTED OR UN LISTED ON THE DATE OF TRANSFER. THE TRANSACTIONS OF SHARES HAVE TO BE EFF ECTED AS PER THE GUIDELINES OF SEBI. THE ASSESSEE OFFERED HIS SHARE FOR SALE ALONG WITH THE PUBLIC ISSUE. THE OFFER OF THE ASSESSEE W AS SHOWN AS CONDITIONAL AS REFERRED IN THE PROSPECTUS. SUB-SECTION (2) OF SECTION 4 OF THE SALES O F GOODS ACT, SIGNIFY THAT SALE MAY BE ABSOLUTE OR CONDITIONAL. FURTHER, SECTI ON 5 OF THE SALES OF GOODS ACT PRESCRIBED THAT THE SALE BECOMES ABSOLUTE S IF THE CONDITIONS ARE FULFILLED. SECTION 31 OF THE INDIAN CONTRACT ACT ALSO DEFINES THE CONTINGENT CONTRACT. SECTION 31 OF INDI AN CONTRACT ACT SPECIFY THAT THE PARTY MAY AGREE TO DO SOME EVENT, COLLATERAL TO SUCH ITA N0.941,942/M/2011 CO NO. 256,257/M/2014 11 CONTRACT IF IT DOES OR DOES NOT HAPPEN. FURTHER SEC TION 73 OF THE COMPANIES ACT ALSO PRESCRIBED CERTAIN CONDITIONS WH ICH ARE MANDATORILY TO BE COMPLIED. AS PER OUR CONSIDERED O PINION THE ASSESSEE HAS TO COMPLY ALL THE CONDITIONS CONTAINE D U/S 73 OF THE COMPANIES ACT. THERE IS NO DISPUTE REGARDING DATES AND THE EVENTS AS REFERRED IN PARA 7 (SUPRA). ON CAREFUL CONSIDERATIO N OF RIVAL SUBMISSION, WE ARE OF THE VIEW THAT THERE ARE TWO I MPORTANT QUESTIONS FOR OUR CONSIDERATION IS; (I) WHAT WAS THE NATURE A ND CHARACTER OF SECURITIES OFFERED BY THE ASSESSEE TO THE GENERAL P UBLIC AND (II) WHEN THE TRANSFER OF THE SHARES CAN BE SAID TO HAVE COMP LETED. TO FIND OUT THE ANSWER OF FIRST QUESTION, WE MAY NOTE THAT WHEN THE ASSESSEE OFFERED HIS SHARES FOR OFFER TO SALE, THE SHARES WE RE NOT LISTED. ON 08.02.2007 THE SHARES WERE MINGLED WITH NEW SHARES OF PROMOTERS AND CREDITED TO THE ACCOUNT OF INVESTORS. MOREOVER, THE LISTING PERMISSION WAS RECEIVED ONLY ON 12.02.2007. THUS, W E ARE OF THE VIEW THAT WHEN THE ASSESSEE OFFERED HIS SHARES, TH E SHARES WERE NOT LISTED IN ANY STOCK EXCHANGE AND ALSO WHEN SHARES W ERE CREDITED TO THE ACCOUNTS OF INVESTORS ON 08.02.2007. HENCE, THE NATURE AND CHARACTER OF SHARES OFFERED BY THE ASSESSEE WERE U NLISTED SHARES. THE LISTING PERMISSION WAS RECEIVED ONLY ON 12.02.2 007. THE LISTING PERMISSION ONLY COMPLETES THE SALE TRANSACTION AND IN OUR VIEW IT DOES NOT CHANGE THE NATURE AND CHARACTER OF SHARES OFFERED BY ASSESSEE. HENCE, WE HOLD THAT THE ASSESSEE TRANSFE RRED THE UNLISTED SHARES. AS PER OUR OPINION THE RATIO OF THE DECISIO N OF HONBLE DELHI HIGH COURT IN UDAI PUNJ VS CIT (SUPRA) IS SQUARELY APPLICABLE ON THE FACTS OF THE PRESENT CASE. IN THE RESULT WE ACCEPT THE APPEAL FILED BY REVENUE AND ALLOW THE GROUND OF APPEAL IN FAVOUR OF REVENUE. 8 . IN ITA NO. 942/M/2011, THE REVENUE HAS RAISED IDENTICAL GROUND OF APPEAL; THE FACTS OF THE APPEAL ARE ALSO IDE NTICAL AS IN ITA ITA N0.941,942/M/2011 CO NO. 256,257/M/2014 12 NO.941/M/2011. AS WE HAVE ACCEPTED THE APPEAL OF THE REVENUE ON THE IDENTICAL GROUNDS HENCE, THIS APPEAL IS ALSO AL LOWED WITH THE SAME OBSERVATION. 9. NOW, WE SHALL TAKE UP THE CROSS OBJECTION NO.25 7/M/2014, FILED BY THE ASSESSEE. WE HAVE NOTICED THAT THE CROSS OBJECT ION WAS FILED AFTER 661 DAYS BEYOND THE PRESCRIBED PERIOD OF LIMITATION . THE NOTICE OF THE APPEAL FILED BY THE REVENUE WAS SERVED ON THE A SSESSEE ON 23/01/2013 AND THE C.O WAS FILED ONLY ON 15/12/2014 . NO APPLICATION FOR CONDONATION OF DELAY WAS FILED AT T HE TIME OF FILING THE CROSS OBJECTIONS. THE ASSESSEE WAS SERVED WITH THE DEFECT MEMO DATED 17.12.2015. AGAIN, THE ASSESSEE NOT REMOVED T HE OBJECTION (DEFECT) RAISED BY REGISTRY WITHIN 10 DAYS PERIOD AS PRESCRIBED ON THE DEFECT MEMO. THE ASSESSEE FILED THE APPLICATION FOR CONDONATION OF DELAY ONLY ON 24.08.2016 (AFTER ABOUT 8 MONTHS) ALO NG WITH THE AFFIDAVIT OF ASSESSEE, ALLEGEDLY ATTESTED ON 23.12. 2015. THE APPROACH OF THE ASSESSEE IS VERY CASUAL AND THE APPLICATION FILED IN SUCH A CASUAL MANNER AS IT IS ONLY A FORMALITY. WE ARE TAK ING A SERIOUS NOTE OF THE CASUAL APPROACH OF THE ASSESSEE. THE PERUSA L OF THE AFFIDAVIT FILED IN SUPPORT OF THE APPLICATION FOR CONDONATION OF DELAY APPLICATION BY THE ASSESSEE DOES NOT CONTAIN EVEN T HE OATH (SOLEMNLY AFFIRMATION) OF THE ASSESSEE WHICH IS THE PRIMARY A ND ESSENTIAL CONTENTS OF ANY AFFIDAVIT. 10. IN THE AFFIDAVIT THE ASSESSEE PLEADED THAT THE ASSESSEE WAS UNDER BONA FIDE BELIEF THAT THE ISSUE RAISED IN THE C.O WOULD BE URGED WITHOUT SPECIFICALLY FILING APPEAL OR CROSS OBJECTIONS WHIL E ARGUING THE APPEAL OF THE REVENUE. THE ASSESSEE WAS ADVISED BY HIS COU NSEL WHILE PREPARING FOR HEARING OF THE APPEAL AND THUS, THE C .O WAS FILED. IT IS FURTHER AVERRED IN THE AFFIDAVIT THAT DELAY IN FILI NG THE AFFIDAVIT (NOT THE C.O) IS DUE TO INADVERTENT ERROR AND ON ACCOUNT OF BONAFIDE ITA N0.941,942/M/2011 CO NO. 256,257/M/2014 13 BELIEF. IT IS SPECIFICALLY PLEADED THAT THE DELAY I S DESERVES TO BE CONDONED. 11. WE HAVE HEARD THE LD. AR OF THE ASSESSEE AND LD . DR FOR THE REVENUE. THE LD. AR OF THE ASSESSEE ARGUED THAT THE ASSESSEE WAS UNDER THE BONAFIDE BELIEF THAT THE ISSUES RAISED IN THE CROSS OBJECTION WOULD BE ARGUED AND WILL BE COVERED WHILE DECIDING THE APPEAL FILED BY THE REVENUE. IT WAS FURTHER ARGUED THAT AS PER T HE PROVISO ATTACHED WITH SECTION 112 OF THE ACT, THE ASSESSEE IS ENTITL ED FOR DEDUCTIONS OF THE EXPENSES OF IPO. ON THE OTHER HAND THE LD DR F OR THE REVENUE ARGUED THAT THE ASSESSEE HAS TAKEN A CONSCIOUS DECI SION NOT TO FILE APPEAL AFTER THE DISMISSAL OF THE GROUNDS OF APPEAL URGED BEFORE THE FIRST APPELLATE AUTHORITY. THE CAUSE FOR CONDONATIO N OF DELAY PLEADED IN THE APPLICATION AND AFFIDAVIT ARE CONCOC TED ONE. THE LD DR PRAYED TO DISMISS THE APPLICATION FOR CONDONATION O F DELAY. 12. WE HAVE CONSIDERED THE RIVAL CONTENTION OF TH E PARTIES AND PERUSED THE APPLICATION FOR CONDONATION OF DELAY IN FILING THE C.O AND THE AFFIDAVIT IN SUPPORT THEREOF. THE CONTENTS OF THE A FFIDAVIT DOES NOT DISCLOSE AS TO WHEN THE ASSESSEE WAS ADVISED TO FIL E THE CROSS OBJECTION, THE PLEA OF THE ASSESSEE IS VAGUE. THE A SSESSEE HAS NOT DISCLOSED ANY PLAUSIBLE REASON FOR CONDONATION OF D ELAY. THE REASONS EXPLAIN IN THE APPLICATION ARE NOT SUFFICIENT ONE. THE APPLICATION AND THE AFFIDAVIT ARE FILED WITH CASUAL APPROACH. THE A PPLICATION AND THE SUPPORTING AFFIDAVIT DOES NOT DISCLOSE THE SUFFICIE NT REASON TO CONDONE THE DELAY TO CONVINCE US TO CONDONE THE DEL AY, HENCE, THE SAME IS DISMISSED. AS WE HAVE DISMISSED THE APPLICA TION OF CONDONATION OF DELAY THUS, IN THE RESULT THE CO IS NOT MAINTAINABLE BEING BARRED BY TIME LIMIT. 13. IN CO NO 257/M/2014, THE ASSESSEE HAS ALSO FI LED APPLICATION FOR CONDONATION OF DELAY. THE APPLICANT/ ASSESSEE PLEAD ED THE IDENTICAL ITA N0.941,942/M/2011 CO NO. 256,257/M/2014 14 GROUND FOR CONDONATION OF DELAY. AS WE HAVE ALREADY DISMISSED THE APPLICATION FOR CONDONATION OF DELAY IN CO NO.256/M /2014, THUS THE APPLICATION FOR CONDONATION OF DELAY FILED IN THIS CO IS DISMISSED WITH SIMILAR DIRECTION. IN THE RESULT THE CO IS NO T MAINTAINABLE BEING BARRED BY TIME LIMIT. 14. IN THE RESULT BOTH THE APPEAL FILED BY THE REVENUE ARE ALLOWED AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSE D. ORDER ANNOUNCED IN OPEN COURT ON THIS 25 TH DAY OF JANUARY 2017. SD/- SD/- (B.R. BASKARAN) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 25/01/2017 COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/