Income Tax Appellate Tribunal - Jaipur
Assistant Commissioner Of Income Tax , ... vs M/S. Angel Infrastructure Private ... on 6 December, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES "A", JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 464/JP/2018
fu/kZkj.k o"kZ@Assessment Year :2009-10
M/s Angel Infrastructure (P) Ltd., cuke D.C.I.T.,
B-5, Vrindavan Apartment, Kings Road, Vs. Circle-2,
Nirman Nagar, Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAFCA 2023 B
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 761/JP/2018
fu/kZkj.k o"kZ@Assessment Year :2009-10
A.C.I.T., cuke M/s Angel Infrastructure (P) Ltd.,
Circle-2, Vs. B-5, Vrindavan Apartment, Kings
Jaipur. Road, Nirman Nagar, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAFCA 2023 B
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Gautam Jain &
Shri Lalit Mohan (Adv)
jktLo dh vksj ls@ Revenue by : Shri Varinder Mehta,
Smt. Rolee Agarwal (CIT-DR) &
Shri Hitesh Agarwal (ACIT-A.O.)
lquokbZ dh rkjh[k@ Date of Hearing : 30/10/2018
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 06/12/2018
vkns'k@ ORDER
PER: VIJAY PAL RAO, J.M. These cross appeals are directed against the order dated 16/03/2018 of ld. CIT(A)-I, Jaipur for the A.Y. 2009-10.
2 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT
2. First we take the appeal filed by the assessee wherein the assessee has raised following grounds of appeal:
"1. That the learned Commissioner of Income Tax (Appeals)'has grossly erred both in law and on facts in upholding the initiation of proceedings under section 147 of the Act and, completion of assessment under section 147/143(3) of the Act without appreciating that the same were without jurisdiction and hence deserved to be quashed as such.
1.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that there was no specific relevant, reliable and tangible material on record to form a "reason to believe" that income of the appellant had escaped assessment and in view thereof the proceedings initiated are illegal, untenable and therefore unsustainable.
1.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that reasons recorded mechanically without application of mind do not constitute valid reasons to believe for assumption of jurisdiction u/s 147 of the Act.
1.3 That in absence of any valid approval obtained under section 151 of the Act, initiation of proceedings u/s 147 of the Act and assessment framed u/s 147/143(3) of the Act are invalid and deserve to be quashed as such."
1.4 That the learned Commissioner of Income Tax (Appeals) had failed to appreciate that the statement recorded in the course of survey has no evidentiary value and therefore, such statement so recorded could not be relied upon and in absence of any other tangible material to form an opinion that income of the assessee has escaped assessment and therefore, edifice of the present proceedings was factually and legally misconceived and hence unsustainable.
1.5 That various judicial pronouncements relied upon by the learned Commissioner of Income Tax (Appeals) without granting any 3 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT opportunity to the appellant are wholly inapplicable to the facts of the appellant company.
2. That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in upholding a disallowance of Rs. 29,70,00,000/- on account of short term capital loss on sale of shares of SKH Auto Components Ltd.
2.1 That the finding of the learned Commissioner of Income Tax (Appeals) that short term capital loss on sale of shares of M/s. SKH Auto by the appellant to M/s Sharsh Finance and Investment Co. Pvt. Ltd. was not a genuine one and the entire set of transaction was nothing but a colorable device to reduce the tax liability of the appellant company, is factually incorrect, legally misconceived and wholly untenable.
2.2 That further the finding that the transaction undertaken was by the related parties and loss was not a genuine loss also overlooks the factual matrix and evidence placed on record by the appellant company.
2.3 That the learned Commissioner of Income Tax (Appeals) has recorded various adverse findings without appreciating that once a transaction has been executed and materialized and there is no dispute as to its execution and materialization, then the claim accepted in the case of M/s Sharsh Finance and Investment Pvt. Ltd. could not be regarded as sham in the case of appellant company. 2.4 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that there is no material on record to prove that the transaction was not actually executed by the appellant and therefore, the assumption that it was done with an intent to book the losses is irrelevant consideration and thus, the findings recorded are contrary to law, facts of case and hence untenable. 2.5 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in failing to appreciate the written submissions furnished and evidence tendered by the appellant company and overlooking the judicial pronouncements relied upon by the appellant.
4 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT 2.6 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in recording various adverse inferences which are contrary to the facts on record, material placed on record and, are otherwise unsustainable in law and therefore, disallowance so upheld is absolutely unwarranted.
3. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding a disallowance of Rs. 24,25,83,400/- on account of loss on sale of commercial space to M/s Laurel Infrastructure Pvt. Ltd.
3.1 That here too, the finding of the learned Commissioner of Income Tax (Appeals) that the transactions of sale of commercial space are nothing but structured transactions in order to incur capital loss and with the sole purpose of incurring the loss, are based on factually and legally misconceptions and in any case are irrelevant consideration so as to determine the liability of loss claimed by the appellant company.
3.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that all what is relevant to determine the eligibility of loss claimed by the appellant is incurring of loss in as much as that assessee should have owner of a capital asset and assessee must transfer a capital asset and since both the facts are not in dispute, the alleged purpose behind the capital asset in the year under consideration are irrelevant and extraneous considerations and as such, denial of loss claimed by the appellant is not in accordance with law and hence untenable.
3.3 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in recording various adverse inferences which are contrary to the facts on record, material placed on record and, are otherwise unsustainable in law and therefore, disallowance so upheld is absolutely unwarranted.
It is therefore, prayed that it be held that assessment made by the learned Assessing Officer and sustained by the learned Commissioner of Income Tax (Appeals) deserves to be quashed as such. It be further held disallowances made and upheld by the 5 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT learned Commissioner of Income Tax (Appeals) be deleted and appeal of the appellant company be allowed."
3. Ground No. 1 of the assessee's appeal is regarding validity of reopening of the assessment U/s 147/148 of the Income Tax Act, 1961 (in short the Act). The assessee is a private limited company and engaged in the business of Real Estate Development. The assessee filed its e-return of income U/s 139(1) of the Act on 29/9/2009 declaring total income of Rs. 1,01,20,800/-. The return of income was processed U/s 143(1) of the Act on 17/03/2011 wherein the Assessing Officer made adjustment on account of disallowance of set off of short term capital loss of Rs. 66,66,30,267/- against the long term capital gain of Rs. 64,58,87,697/-. Aggrieved by the action of disallowance of set off of short term capital loss, the assessee filed an application U/s 154 of the Act on 15/09/2012. The Assessing Officer accepted the claim of setting of short term capital loss against the long term capital gain while passing the order U/s 154 of the Act on 10/01/2013. Thereafter a survey U/s 133A of the Act was conducted at the premises of Krishna Maruti Groups on 03/03/2016. During the survey, statement of Shri Ashok Kapur, Director of the assessee company and other persons were recorded on 04/3/2016 by the DDIT(Inv.) Faridabad. The Assessing Officer received information from DDIT(Inv), Faridabad on 14/3/2016 that the short term capital loss 6 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT on forfeiture of share application money of HH Interior and Auto Component Pvt. Ltd. of Rs. 29.70 crores as well as short term capital loss of Rs. 24.00 crores on account of sale of commercial space at Prestige Mall are not genuine and are liable to be disallowed under the provisions of the IT Act. The Assessing Officer consequently reopened the assessment by issuing a notice U/s 148 of the Act on 31/3/2016. The Assessing Officer completed the assessment U/s 143(3) read with Section 147 of the Act on 22/12/2016 and disallowed the claim of set off of short term capital loss and also made disallowance of transfer expenses. Thus, the total income of the assessee was assessed at Rs. 66,29,69,740/-.
4. The assessee challenged the action of the Assessing Officer before the ld. CIT(A) and also raised the issue of validity of reopening. The ld. CIT(A) granted part relief to the assessee, therefore, both the assessee and the department have challenged the impugned order by filing cross appeals before the ITAT.
5. Before us, the assessee has challenged the validity of reopening of the assessment on various legal objections:
(i) The assessment was reopened merely on the basis of information of the Investigation Wing without application of independent mind by the Assessing Officer to form the belief that the income 7 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT assessable to tax has escaped assessment thereby the reopening is based on borrowed satisfaction.
(ii) The approval granted U/s 151 of the Act is not valid as the same is mechanical without application of mind.
(iii) The ITO, Ward 3(1), Jaipur had no jurisdiction as on the date of recording the reasons on 21/3/2016 but the jurisdiction of the assessee was transferred from ITO Ward 7(2), Jaipur only on 30/3/2016. Hence, the initiation of the proceedings U/s 147/148 of the Act is bad in law for want of jurisdiction.
6. We will deal with each of the above said objections against the reopening of the assessment one by one as under:
(i) Reopening is based on borrowed satisfaction:- The ld counsel for the assessee has referred to the acknowledge of return of income processed U/s 143(1) of the Act dated 17/3/2011 at page 74 of the paper book and submitted that the Assessing Officer made adjustment of disallowance of claim of setting of short term capital loss of Rs. 66,66,30,267/- against the long term capital gain of Rs.
64,58,87,694/-. Thereafter the assessee filed an application U/s 154 of the Act on 15/09/2012 and the Assessing Officer vide order dated 10/1/2013 passed U/s 154 of the Act accepted the claim of setting of short term capital loss against the long term capital gain and thereby 8 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT accepted the returned income. Thus, the Assessing Officer while passing the order U/s 154 of the Act was satisfied with the genuineness and correctness of the claim of short term capital loss and allowed the same U/s 70 of the Act. The ld. counsel for the assessee then referred to the report of the Investigation Wing, Faridabad as well as the reasons recorded by the Assessing Officer and submitted that the reasons recorded for reopening of the assessee do not constitute reasons to believe to validly assumed jurisdiction U/s 147 of the Act. The reasons recorded by the Assessing Officer are vague, highly non-specific and reflect non-application of mind much less independent application of mind. The Assessing Officer has not applied his mind on the relevant particulars and material filed by the assessee alongwith the return of income and during the proceedings U/s 154 of the Act. Therefore, the Assessing Officer has ignored the relevant material available with him on the assessment record while recording the reasons for reopening. It is a case of borrowed satisfaction on the basis of information received from the Investigation Wing and therefore, the reopening is bad in law. He has asserted that there was no tangible material with the Assessing Officer to show that the claim of short term capital loss is bogus or the transactions are not genuine. The ld. counsel for the assessee has relied upon the following decisions:
9 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT
(i) Pr.CIT Vs. G&G Pharma India Ltd. 384 ITR 147 (Del).
(ii) Pr.CIT Vs. RMG Polyvinyl (I) Ltd. 396 ITR 5 (Del)
(iii) Pr.CIT Vs. Meenakshi Overseas (P) Ltd. 395 ITR 677 (Del)
(iv) Rajiv Agarwal Vs ACIT 395 ITR 255.
(v) Sree Meenakshi Mills Ltd. Vs Commissioner of Income-tax.
7. On the other hand, the ld CIT-DR has submitted that the enquiry conducted by the DDIT(Inv), Faridabad reveals the fact that the alleged transaction of application money and transfer of the property between the related parties are only accommodation entries to create artificial loss to be set off against the taxable income of the assessee. The Director of the assessee company as well as the group copies accepted the bogus claim in their statements recorded by the Investigation Wing and therefore, the report of DDIT(Inv), Faridabad constitute a tangible material to form the belief that the income assessable to tax has escaped assessment. The ld. CIT-DR further contended that when there is no original assessment in the case of the assessee then the issue of genuineness of claim was never considered by the Assessing Officer prior to the recording of reasons for reopening of the assessment. The Assessing Officer has given the relevant details of the transactions and claim of short term capital loss. In the reasons recorded, which constitutes a tangible material to form a reasonable belief that the income assessable to tax has escaped assessment. The ld. CIT-DR has referred to the statement of Shri Ashok Kapur recorded by the Investigation Wing and submitted that he admitted 10 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT the transaction between the assessee and other group companies were with a view to avoid tax and therefore it constitutes a tangible material for forming the belief by the Assessing Officer. The ld. CIT-DR has further submitted that at the stage of reopening of the assessment what is required is prima facie reasonable belief and not to establish the correctness of the fact recorded in the reasons for reopening. Thus, what is needed at the stage of reopening is the nexus between the material and believe that there was escapement of income. The relevance of reasons is justifiable and not the adequacy or sufficiency. The ld. CIT-DR has relied upon the findings of the ld. CIT(A) on this issue and submitted that the ld. CIT(A) has placed reliance on various decisions on the point which are applicable on the facts of the present case.
8. We have considered the rival submissions as well as relevant material on record. The assessee filed its return of income for the year under consideration on 29/9/2009 declaring total income of Rs. 1,01,20,800/-. The return of income was processed U/s 143(1) of the Act on 17/3/2011 and income of the assessee was assessed at Rs. 65,60,00,500/- on account of disallowance of claim of set off of short term capital loss of Rs. 66,66,30,267/- against the long term capital gain. Subsequently on the application of the assessee U/s 154 of the Act, the Assessing Officer passed an order dated 10/01/2013 as under:
11 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT 12 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT Thus, it is clear that the transaction of purchase of 77800 equity shares of Larson & Tubro Ltd (L&T) and bonus issued of 1:1 allotted to the assessee and subsequent sale of 77800 shares by the assessee resulting short term capital loss was duly recoded in the books of account and part of return of income. Similarly the facts and transactions were part of return of income and books of account regarding the investment in subscription of 4,40,000 shares of M/s HH Interior and Auto Component Pvt. Ltd. in respect of which the assessee paid Rs. 29.70 crores as call money towards the allotment of shares and payment of final call money of Rs. 9.90 crores was due when the assessee transferred those 4,40,000 shares of M/s HH Interior and Auto Component Pvt. Ltd. to the group company M/s Sharash Finance & Investment Co. P. Ltd.. The third transaction was sale of commercial space in Prestige Mall at Shivaji Place, District Centre, Main Ring Road, Raja Garden, New Delhi to M/s Loral Infrastructure Pvt. Ltd. was also part of return of income and duly recorded in the books of account of the assessee. These transactions were very much in the knowledge of the Assessing Officer at the time of processing of return of income U/s 143(1) of the Act when an adjustment on account of short term capital loss of Rs. 66,66,30,267/- was made and subsequently passing the order U/s 154 of the Act on 10/01/2013. The Assessing Officer did not doubt the genuineness of the transactions, 13 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT however, the allowability of the claim as per the provisions of the Act was objected by the Assessing Officer while making the adjustment at the time of processing of the return of income U/s 143(1) of the Act. The Assessing Officer despite the order U/s 154 of the Act did not chose to disallow the claim by initiating the proceedings U/s 147/148 of the Act prior to the information received from the DDIT(Inv.), Faridabad. The Assessing Officer reopened the assessment by recording the reasons as under:
Reasons recorded for initiation of assessment proceedings u/s 147 of the Income Tax Act, 1961 in the case of - M/s Angel Infrastructure Pvt. Ltd., B-5, Vrindavan Apartment, Kings Road, Jaipur for the assessment year 2009-10. Name & address of the assessee M/s Angel Infrastructure Pvt. Ltd., B-5, Vrindavan Apartment, Kings Road, Jaipur, Rajasthan.
Permanent Account No. AAFCA2023B Status Company Previous Year 2008-09 Assessment year 2009-10 Date of recording the reason 21-03-2016
As per information received on from office of the Deputy Director of Income Tax (Investigation)-1, Faridabad through his letter No. 4365 dated 14/3/2016.
The issues identified in the case of M/s Angel Infrastructure Pvt. Ltd.. PAN- (AAFCA2023B) have to seen in the context that the company is a part of the Krishna Group owned and controlled by one. Sh. Ashok Kapur. The flagship concerns of Krishna Group and Krishna Maruti Limited and SKH Metals Limited. The main promoters of the group are Mr. Ashok Kapur, Mrs. Aarti Kapur and their son Mr. Sunandan Kapur. Their trusted employees and family members have been made Directors in the several concerns of the Krishna Group. The following past/present directors of the company M/s Angel Infrastructure Private Limited have a close relationship with the Krishna Group.
Name Relationship with Krishna Group.
Ajit Khullar He is a relative of Sh. Ashok Kapur and is a director in several
14 ITA 464 & 761/JP/2018_
M/s Angel Infrastructure P Ltd. Vs DCIT
group companies. He is also a supplier of raw material to the Krishna Group. (Statement of Sh. Ajit Khullar is enclosed as Annexure-A) Parvesh Soni He is a Director and CEO of the Metals Division of the Krishna Group and is an old trusted employee of Sh. Ashok Kapur. (Statement of Sh. Parvesh Soni is enclosed as Annexure-B) Issues:-
During the course of enquiries in this office. It has been noticed that the company M/s Angel Infrastructure Private Limited (PAN-AAFCA2023B) has suppressed the capital gains received on sale of shares of a company by the name of M/s Advance Automation & Process Control Pvt. Ltd..
Angel Infrastructure Pvt. Ltd. sold 1377 equity shares of Advance Automation & Process Control Pvt. Ltd. and earned profit of Rs. 65 Cr. As per computation sheet downloaded from ROC, Angel Infrastructure Pvt. Ltd. incurred losses of Rs. 29.7 Cr. on account of forfeiture of the share application money paid to HH Interior and Auto Component Pvt. Ltd.
Angel Infrastructure Pvt. Ltd. has also claimed loss of Rs. 24.25 Cr. on account of sale of a commercial property admeasuring 109342 sq. feet. It has also claimed loss of Rs. 12.94 Cr. on account of sale of 77800 shares of Larson & Tubro. The details are as per the table given below:
Long Term profit on Sale of Shares Amount (Rs.)
31/03/2009
Sale Value of 1377 Eq. Shares of Advance 713594978.5
Automation & process Control Pvt. Ltd.
Less cost of Acquisition 55493800
Less Transfer Exp. 5577243 652623935.50
Misc. Income 10.00
Total A 674181887.40
Less
Short Term Loss on sale of shares and property
A. Shares
Sale of 77800 Eq. Shares of Larson & Tubro 70513408.87
Less, Cost of Acquisition of 77800 Eq. Sh. 199940244.29 129426835.42
(77800 Bonus shares received on above valued
At nil cost on FIFO Basis)
Sale of 440000 Eq. Sh of SKH Auto Components 0
Ltd.
Less: Cost of Acquisition of 440000 of Rs. 7.50 297000000.00 297000000.00
partly paid Eq. Sh. Including premium of Rs.
667.5 per share paid
Total A
B. Property
Sale Value of 109342.53 Sq. Ft of Commercial 301841600.00
space
15 ITA 464 & 761/JP/2018_
M/s Angel Infrastructure P Ltd. Vs DCIT
Less: Transfer expenses 25000
301816600.00
Less: Cost of Acquisition of 109342.53 Sq.Ft. 544400000.00 242583400.00
(Copy of computation sheet downloaded from ROC is enclosed as Annexure-C) Financial statement of Advanced Automation & Process Control Pvt. Ltd. was downloaded from ROC/ITD and analysed it was noticed that Advanced Automation & Process Control Pvt. Ltd.
Owned an industrial plot bearing No. 187, Phase-I in the Industrial Estate, Udyog Vihar, Gurgaon, Haryana admeasuring 7800.09 Sq. meters allotted by Haryana State Industrial and Infrastructure Development Corporation Limited, together with constructions standing thereon. The plot was revalued in its books of account at Rs. 159 Cr.. Advanced Automation & Process Control Pvt. Ltd. was merged into Rolta Limited after the scheme of amalgamation was approved by the Hon'ble High Court, Bombay w.e.f. 01/04/2009.
Thus an industrial plot bearing No. 187, Phase-I in the Industrial Estate, Udyog Vihar, Gurgaon was revalued at Rs. 159 Cr. before merger of Advanced Automation & Process Control Pvt. Ltd. with Rolta Limited. Sg. Kamal Singh acquired one share as a nominee of Rolta Limited of Advanced Automation & Process Control Pvt. Ltds as part of amalgamation scheme. On field enquiry, it was found that an industrial plot bearing No. 187, Phase-I in the Industrial Estate, Udyog Vihar, Gurgaon is in possession of Rolta Limited and is having its corporate office on this plot. Directors of Advanced Automation & Process Control Pvt. Ltd. were as under:
Name of the Director Address
Mr. Ajit Khullar B-5/13, Azad Apartments, Sri Aurbindo
Marg, New Delhi.
Kamal Mehra R-680, New Rajender Nagar, Delhi
Consequently the company M/s Angel Infrastructure Pvt. Ltd. received an amount of Rs. 71,35,94,978 on account of sale of shares of the company Advanced Automation & Process Control Pvt. Ltd. against this receipt, the company has claimed a capital gain of Rs. 67,41,81,887/-. In order to avoid paying taxes on the capital gains of Rs. 67,41,81,887/-. The company M/s Angel Infrastructure Pvt. Ltd. has entred into bogus/sham transactions with entities owned and controlled by one Sh. Ashok Kapur of the Krishna Group.
IN ORDER TO DETERMINE THE TRUE NATURE OF THE TRANSACTIONS BETWEEN THE COMPAHY ANGEL INFRASTRUCTURE PRIVATE LIMITED AND VARIOUS GROUP COMPANIES OF THE KRISHNA GROUP A SURVEY UNDER THE PROVISIONS OF THE INCOME TAX ACT 1961 WAS CONDUCTED AT THE VARIOUS PREMISES OF THE KRISHNA GROUP ON 03RD MARCH, 2016 BY DDIT(INVESTIGATION)-I, FARIDABAD.
16 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT The transactions are discussed in detail with reference to the survey findings:-
Loss on account of Share Application Money to M/s HH Interior and Auto Component Pvt. Ltd. (Formerly known as M/s SKH Auto Components Limited):
In the computation of the income the company Angel Infrastructure Private Limited has shown the following loss on account of sale of shares of SKH Auto Components Ltd.Sale of 440000 Eq. Sh of SKH Auto Components 0
Ltd.
Less: Cost of Acquisition of 440000 of Rs. 7.50 297000000.00 297000000.00 partly paid Eq. Sh. Including premium of Rs. 667.5 per share paid Total A As per minutes of meeting SKH Auto Components Limited held on 28/02/2009. Angel Infrastructure Pvt. Ltd. was allotted 4,40,000 shares at face value of Rs. 10 and premium of Rs. 890/-. As per minutes, Rs. 19,80,00,000/- was received on or before 28/02/2009 as share application cum allotment money (@450 per share for 4,40,000 shares). It was also resolved during the meeting that balance payments shall be paid as under:
a) First call of Rs. 225/- per share payable on or before 15th March, 2009.
b) Second and final call of Rs. 225/- per share payable on or before 15th April, 2009.
(Copy of details of share allotment and Board's resolution downloaded from ROC is enclosed as Annexure-E) Subsequently the entire amount of Share Application Money paid by M/s Angel Infrastructure Pvt. Ltd. to M/s HH Interior and Auto Component Pvt. Ltd. has been shown as forfeited by M/s HH Interior and Auto Component Pvt. Ltd. As a result the entire amount has been claimed as a capital loss in the hands of M/s Angel Infrastructure Pvt. Ltd.
It is relevant to note here that Sh. Ashok Kapur and his family members own and control the company M/s HH Interior and Auto Component Pvt. Ltd., the details of shareholders are as under:-
Name of company As on 31/03/2008 As on 31/03/2009 Latest HH Interior & Auto Sharsh Finance & Sunandan Kapur- No shareholding Components Pvt. Ltd. Investment Co. Pvt. 10.44%, Ashok detail available AAACK4360J Ltd. (99.50%) Kapur 64% in the ITD Sharsh Finance & system. As on Investment Pvt. Ltd. 31/03/2013.
(22%)
Sharsh Finance & Investment Ashok Kapur 99% Ashok Kapur 99% Ashok Kapur
Co. Pvt. Ltd. AAHCS 1410L 92% As on
31/3/2014.
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M/s Angel Infrastructure P Ltd. Vs DCIT
Details of shareholding downloaded from ITD system is enclosed as Annexure-F) From the above table it is amply clear that Sh. Ashok Kapur and his family members hold 100% interest in the company HH Interior and Auto Component Pvt. Ltd. through Sharsh Finance & Investment Co. Pvt. Ltd.
Further it is to be noted that the Directors of the company HH Interior & Auto Components Pvt. Ltd. are the family members and trusted employees of Sh. Ashok Kapur.
Name of company As on 31/03/2008 As on 31/03/2009 Latest
HH Interior & Auto Parvesh Soni Paresh Soni Parvesh Soni
Components Pvt. Ltd. A.K. Bedi Shruti Kapur A.K. verma
AAACK4360J S.L. Sethi Shreya Jain A.K. Bedi
A.K. Bedi D.K. Nanda (as
S.L. Sethi on 31/03/2013)
(Details of directorship download from ROC and ITD System is enclosed as Annexure- G) The relationship of the various directors with the Krishna group is discussed as under:
Name of the Director Relationship with the Krishna Group Sh. A.K. Verma He is Manager at Manesar Plant of Krishna Maruti Ltd. The fact is evident on an analysis of his Income Tax Return as he is drawing a salary from the Krishna Group. The fact has been admitted by Sh. Ashok Kapur in his statement recorded during the course of survey.
Sh. D.K. Nanda He used to be an employee of the Krishna Group. The fact has been admitted by Sh.Ashok Kapur in his statement recorded during the sources of survey.
Sh. Paresh Soni He is a Director and CEO of the Metals Divisions of the Krishna Group. He was present at one of the premises during the course of survey and his statement was recorded. He has admitted that he was working for Sh. Ashok Kapur and his family members.
Sh. A.K. Bedi He used to be an employee of the Krishna Group. The fact has been admitted by Sh. Ashok Kapur in his statement recorded during the course of survey.
Sh. Ajit Khullar Sh. Ajit Khullar is one of the suppliers of the Krishna Group.
He deals in seat trims and has been associated with the group for more than 10 years. He is also a relative of Sh. Ashok Kapur. In his statement recorded during course of survey he has stated that he become a director of the direction of Sh. Ashok Kapur and has no knowledge of the affairs of the companies in which he is a Director.
Shruti Kapur She is a daughter of Sh. Ashok Kapur. The Chairman of the Krishna Group.
Shreya Jain She is a daughter of Sh. Ashok Kapur. The Chairman of the Krishna Group.
(Copy of statement of above mentioned person is enclosed as Annexure-H) 18 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT From the above discussion, it is clear that the company M/s HH Interior and Auto Component Pvt. Ltd. (Formerly known as M/s SKH Auto Components Limited) is an entity owned and controlled by Sh. Ashok Kapur. Thus, the share application money of Rs. 29,70,00,000/- given by M/s Angel Infrastructure Pvt. Ltd. to M/s HH Interior and Auto Component Pvt. Ltd. (Formerly known as M/s SKH Auto Components Pvt. Ltd.) and the consequent forfeiture of the same by HH Interior and Auto Component Pvt.
Ltd. (Formerly known as M/s SKH Auto Components Pvt. Ltd.) is not a transaction between two independent parties. These two related parties have entered into this transaction in order to create a fictitious loss in the hands of M/s Angel Infrastructure Private Limited. The loss has been artificially generated to be set off against the gain accruing to M/s Angel Infrastructure Private Limited on account of shares of Advanced Automation & Process Control Pvt. Ltd. as discussed above. Loss on account of sale of property:-
In the return of income for the A.Y. 2009-10, the assessee M/s Angel Infrastructure Pvt. Ltd. has claimed the following loss on sale of property:
Sale value of 109342.53 Sq. Ft. commercial space 301841600.00 Less: Transfer expenses 25000 301816600.00 Less: Cost of Acquisition of 109342.53 Sq. Ft. 54,44,00,000.00 242583400.00 During the course of survey proceeding the statement of Sh. Ashok Kapur is recorded. He was asked to provide the details regarding the above sale of property and the consequent losses. He has submitted as under:
The company M/s Angel Infrastructure Pvt. Ltd. had entered into an agreement sell with M/s Laurel Infrastructure Pvt. Ltd. on 12/03/2009 for the sale of commercial space admeasuring 1,09,342.53 sq.ft of the PARADISE MALL a total consideration of Rs. 30,18,41,600/-. The company M/s Angel Infrastructure Pvt. Ltd. had in turn bought the above mentioned commercial space from various entities as per the details given below:
Sr. Name of the seller Total area Dated of Total sale
No. agreement to sell consideration
1. ABR Auto Pvt. Ltd. 11,676.17 15.09.2008 Rs. 5,85,39,000/-
2. Sharsh Finance & Investment 34,686.29 15.09.2008 Rs. 17,28,39,000/-
Co. P. Ltd.
3. Mr. Ashok Kapur 23,723.34 15.09.2008 Rs. 11,89,68,800/-
4. Mrs. Arti Kapur 4,817.32 15.09.2008 Rs. 2,32,40,200/-
5. Roz ka Meo Component Pvt. 34,439.42 15.09.2008 17,08,13,000/-
Ltd.
Total 1,09,342.53 Rs. 54,44,00,000/-
(Copy of all agreement to sell is enclosed as Annexure-I) Since the above was sold for Rs. 30,18,41,600/- to M/s Laurel Infrastructure Pvt. Ltd. vide agreement dated 12/03/2009 the company M/s Angel Infrastructure Pvt. Ltd. incurred a loss of 19 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT Rs. 24,25,58,400/-. This loss has been set off against the capital gain earned by M/s Angel Infrastructure Pvt. Ltd. from the sale of the shares of M/s Advanced Automation and process Control Pvt. Ltd.. Hence no capital gain tax was paid.
On an analysis of the above details it was noticed that the company M/s Angel Infrastructure Pvt. Ltd. claims to have purchased the commercial space from Sh. Ashok Kapur, his wife Mrs. Arti Kapur and the companies which are owned and controlled by Sh. Ashok Kapur. The details of the shareholding pattern of the companies from whom commercial space has been bought are as below:
Name of the company As on 31/03/2008 As on 31/03/2009 Latest ABR Auto Pvt. Ltd. Shruti Kapur 99% Arti Kapur 21.83% Ashok Kapur AADCA5137C Ashok kapur 70.90% 92% (As on 31/03/2013) Sharsh Finance & Ashok Kapur 99% Ashok Kapur 99% Ashok Kapur Investment Co. Pvt. Ltd. 92% (As on AAHCS 1410 L 31/03/2014) Roz ka Meo Components Arti Kapur 99% Arti Kapur 99% Shreya Jain 99% Pvt. Ltd. (As on 31/03/2014 Thus the completed shareholding of these companies is with Sh. Ashok Kapur and his family members (Details of shareholding downloaded from ITD system is enclosed as Annexure-J) The details of the directors of these companies are tabulated as under:
Name of the company As on 31/03/2008 As on 31/03/2009 Latest ABR Auto Pvt. Ltd. Arti Kapur Arti Kapur Arti Kapur AADCA5137C Shruti Kapur Shruti Kapur Shruti Kapur Shreya Jain Shreya Jain Shreya Jain A.K. Bedi A.K. Bedi A.K. Bedi Parvesh Soni Parvesh Soni Parvesh Soni (as on 31/03/2013 Sharsh Finance & Arti Kapur Arti Kapur Arti Kapur Investment Co. Pvt. Ltd. Shruti Kapur Shruti Kapur Shruti Kapur AAHCS 1410 L Shreya Jain Shreya Jain Shreya Jain A.K. Bedi A.K. Bedi A.K. Bedi (as on Parvesh Soni Parvesh Soni 31/03/3014) Roz ka Meo Components Arti Kapur Arti Kapur Arti Kapur Pvt. Ltd. Shruti Kapur Shruti Kapur Shruti Kapur Shreya Jain Shreya Jain Shreya Jain A.K. Bedi A.K. Bedi A.K. Bedi (as on Parvesh Soni Parvesh Soni 31/03/3014) (Details of Directors downloaded from ITD system is enclosed as Annexure-K) Thus the director of the companies is either the family members of Ashok Kapur on his trusted employees. The details are as under:
Name of the Director Relationship with the Krishna Group
20 ITA 464 & 761/JP/2018_
M/s Angel Infrastructure P Ltd. Vs DCIT
Mrs. Arti Kapur She is the wife of Sh. Ashok Kapur
Sh. Parvesh Soni He is a Director and CEO of the Metals Divisions of the Krishna
Group. He was present at one of the premises during the course of survey and his statement was recorded. He has admitted that he was working for Sh. Ashok Kapur and his family members.
Sh. A.K. Bedi He used to be an employee of the Krishna Group. The fact has been admitted by Sh. Ashok Kapur in his statement recorded during the course of survey.
Shruti Kapur She is a daughter of Sh. Ashok Kapur, the Chairman of the Krishna Group.
Shreya Jain She is a daughter of Sh. Ashok Kapur, the Chairman of the Krishna Group.
From the above discussion, the following conclusions are in order:-
1. The transaction for purchase and sale of property entered into by M/s Angel Infrastructure Pvt. Ltd. is with related parties. Hence, these are not arms length transactions. The full value of consideration adopted in these transactions is not the actual value of the property being bought and sold. The value has been artificially adjusted to generate artificial capital loss in the hands of M/s Angel Infrastructure Pvt.
Ltd.
2. The capital loss has been claimed merely on the basis of agreement to sell. No transfer of the underlying assets has actually taken place. Thus the authenticity of the transaction is in serious doubt.
3. These entities are ultimately owned and controlled and Sh. Ashok Kapur, the whole scheme has been put in place in order to avoid the payment of taxes on the capital gains generated out of the sale of shares of Advanced Automation & Control Pvt. Ltd.
The above facts were confro9nted to Sh. Ashok Kapur during the course of survey proceedings. He has agreed that the company M/s Angel Infrastructure Pvt. Ltd. will forego the set off of capital losses claimed. He has submitted that the company will revise its return for the A.Y. 2009-10 and offer for the entire amount of gains on the sales of shares of Advanced Automation & Process Control reproduced below:
Q.19. Please refer to the sale of shares of M/s Angel Infrastructure Pvt. Ltd. and Advanced Automation & process control Pvt. Ltd. provide the complete details of the total sale consideration capital gain arising and the consequent set off of losses through various transactions entered into by M/s Angel Infrastructure Pvt. Ltd.. The transaction was done on 12/09/2008.
Ans. The details are as under:
1. Total sale consideration for shares of M/s Advance 154 Cr (Approx) Automation and process control Pvt. Ltd.
21 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT
2. Shares of M/s Angel Infrastructure Pvt. Ltd. 77 Cr.
3. Capital gains arising in the hand of M/s Angel 65 Cr.
Infrastructure Pvt. Ltd. (Claim to be verified)
4. Loss set off through forfeiture by M/s HH Interior and 30 Cr.
Auto Component Pvt. Ltd.
5. Loss set off through agreement to sell with M/s Laurel 24 Cr Infrastructure Pvt. Ltd.
6. Loss set off through sale of shares of L&T Stock Market 11 Cr. (Approx) Transactions I am submitting a copy of the trial balance of M/s Angel Infrastructure Pvt. Ltd. that reflects the above losses.
Q.20 Please refer to the discussion above, it has been clearly brought out that the transaction entered by the M/s Angel Infrastructure Pvt. Ltd. with the group company are same transaction in order to avoid paying the due taxes on the capital gain of Rs. 65 Cr. and discussed above. Please explain.
Ans. In this regard we would like to submit that the transaction entered by the group companies were with a view to further the business interest of the entities involved. However since these entities belong to the Krishna group and are owned and operated by Sh. Ashok Kapur serious allegations have been leveled regarding the genuineness of the transaction we also understand that doubts has been raised regarding the transaction not being at arm length prices. In view of the above we hereby undertake that we will forgo the claim of the losses on the following transaction:
S. No. Description of the transaction Amount Involved F.Y. Involved
1. Loss on account of forfeiture of share 30 Cr 2008-09 application money by M/s HH Interior and Auto Component Pvt. Ltd.
2. Loss on account of sale of property at 24 Cr 2008-09 Prestige Mall to M/s Laurel Infrastructure Pvt.
Ltd.
Total 54 Cr.
Thus as directed we will file a revised return in the case of M/s Angel Infrastructure Pvt. Ltd. (PAN AAFCA2023B) for the A.Y. 2009-10 (Pertaining to F.Y. 2008-09) after disallowing the loss claimed of Rs. 54 Cr. as discussed above. Accordingly an amount of Rs. 54 Cr will be offered to tax as per the provision of Income Tax Act, 1961. The due taxes on this amount Rs. 54 Cr. will be paid as soon as possible. I am authorized to give the above commitment as M/s Angel Infrastructure Pvt. Ltd. is one of my group company owned and operated by me through my employees. Q. 21 Do you want to say anything else?
Ans. It is hereby clarified that the above said understanding has been provided in order to avoid litigation and to buy peace in mind with a request neither penalty nor any punitive action may kindly be initiated against group.
22 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT (Copy of statement of Sh. Ashok Kapur is enclosed as Annexure-l) In view of the above facts mentioned above, it is established and also admitted by the assessee that the capital losses claimed by M/s Angel Infrastructure Pvt. Ltd. is not genuine and is liable to be disallowed under the provision of the Income Tax Act, 1961. During the year M/s Angel Infrastructure Pvt. Ltd. earned capital gain of Rs. 65 Cr in order to avoid to paying taxes on capital gain of Rs. 65,00,00,000/-, the company has entered into bogus transaction with entities owned controlled by Shri Ashok Kapur. I have carefully examined all the details of transaction as mentioned above, therefore, I have reason to believe that the case is fit for reopen U/s 147 of Income Tax Act, 1961. I have reason to believe that the income of the assessee for Rs. 65,00,00,000/- for the A.Y. 2009-10 has escaped assessment due to failure on the part of assessee to disclose fully and truly all material facts for his assessments which is well covered within the meaning of the provision of Section 147 of Income Tax Act, 1961. Therefore, kind approval in terms of provisions of Section 151 of the IT Act, 1961 may please be accorded for initiating proceedings U/s 147 and to issue notice U/s 148 of the IT Act, 1961."
The transaction as mentioned in the reasons recorded by the Assessing Officer are duly recorded in the books of account of the assessee as well as the other group companies. The Assessing Officer while passing the order U/s 154 of the Act had already considered the relevant record pertaining to these transactions of sale of shares, subscription in the equity shares of M/s HH Interior and Auto Component Pvt. Ltd. (SKH Auto component Pvt. Ltd.) and subsequent transfer of the shares to another group company resulting loss. The loss on sale of commercial space and loss on sale of shares of L&T Ltd. are also very much part of the relevant record considered by the Assessing Officer at the time of passing the order U/s 154 of the Act. Therefore, except the change of opinion on the same set of facts, nothing new has been brought on record as a result of 23 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT the survey conducted by the DDIT (Inv.) Faridabad which is the basis of forming the belief by the Assessing Officer at the time of recording the reasons. The reasons recorded by the Assessing Officer running in 11 pages, but except the particulars of the assessee with PAN and assessment year at page 1 of the reasons recorded and last page of reasons recorded all other contents are nothing but reproduction of the information received by the Assessing Officer from the DDIT(Inv.), Faridabad. Even in the said report, no new material or fact much less the incriminating material was either discovered or impounded by the investigation party. The only new material in the entire process was the statements of Sh. Ashok Kapur, Director of Krishna Maruti group recorded during the survey. The relevant part of the statement of Sh. Ashok Kapur is reproduced in the letter dated 13/3/2016 vide which the DDIT (Inv.) Faridabad sent the information to the Assessing Officer. At the cost of repletion, we reproduce the said part of the statement as under:
Q.19. Please refer to the sale of shares of M/s Angel Infrastructure Pvt. Ltd. and Advanced Automation & process control Pvt. Ltd. provide the complete details of the total sale consideration capital gain arising and the consequent set off of losses through various transactions entered into by M/s Angel Infrastructure Pvt. Ltd.. The transaction was done on 12/09/2008.
Ans. The details are as under:
1. Total sale consideration for shares of M/s Advance 154 Cr (Approx) Automation and process control Pvt. Ltd.
2. Shares of M/s Angel Infrastructure Pvt. Ltd. 77 Cr.
3. Capital gains arising in the hand of M/s Angel 65 Cr.
Infrastructure Pvt. Ltd. (Claim to be verified)
24 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT
4. Loss set off through forfeiture by M/s HH Interior and 30 Cr.
Auto Component Pvt. Ltd.
5. Loss set off through agreement to sell with M/s Laurel 24 Cr Infrastructure Pvt. Ltd.
6. Loss set off through sale of shares of L&T Stock Market 11 Cr. (Approx) Transactions I am submitting a copy of the trial balance of M/s Angel Infrastructure Pvt. Ltd. that reflects the above losses.
Q.20 Please refer to the discussion above, it has been clearly brought out that the transaction entered by the M/s Angel Infrastructure Pvt. Ltd. with the group company are same transaction in order to avoid paying the due taxes on the capital gain of Rs. 65 Cr. and discussed above. Please explain.
Ans. In this regard we would like to submit that the transaction entered by the group companies were with a view to further the business interest of the entities involved. However since these entities belong to the Krishna group and are owned and operated by Sh. Ashok Kapur serious allegations have been leveled regarding the genuineness of the transaction we also understand that doubts has been raised regarding the transaction not being at arm length prices. In view of the above we hereby undertake that we will forgo the claim of the losses on the following transaction:
S. No. Description of the transaction Amount Involved F.Y. Involved
1. Loss on account of forfeiture of share 30 Cr 2008-09 application money by M/s HH Interior and Auto Component Pvt. Ltd.
2. Loss on account of sale of property at 24 Cr 2008-09 Prestige Mall to M/s Laurel Infrastructure Pvt.
Ltd.
Total 54 Cr.
Thus as directed we will file a revised return in the case of M/s Angel Infrastructure Pvt. Ltd. (PAN AAFCA2023B) for the A.Y. 2009-10 (Pertaining to F.Y. 2008-09) after disallowing the loss claimed of Rs. 54 Cr. as discussed above. Accordingly an amount of Rs. 54 Cr will be offered to tax as per the provision of Income Tax Act, 1961. The due taxes on this amount Rs. 54 Cr. will be paid as soon as possible. I am authorized to give the above commitment as M/s Angel Infrastructure Pvt. Ltd. is one of my group company owned and operated by me through my employees. Q. 21 Do you want to say anything else?
Ans. It is hereby clarified that the above said understanding has been provided in order to avoid litigation and to buy peace in mind with a request neither penalty nor any punitive action may kindly be initiated against group.
25 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT There is nothing in the said statement to reveal that any particular of income was not disclosed by the assessee in the original return of income or during the proceedings U/s 154 of the Act. The entire report contains the details and facts which were recorded in the books of account as well as duly disclosed by the assessee in the return of income. Even Sh. Ashok Kapur in his statement has not disclosed any new fact which was not recorded in the books of account or not available in the public domain. The statement of Sh. Ashok Kapur clearly reveals that as directed by the investigation team he agreed to file revised return of income to offer the capital gain to tax. The text and tenor of the statement of Sh. Ashok Kapur shows that it was not a surrender much less a voluntary surrender but the same was obtained at the time of recording the statement during the survey which is against the instructions issued by the CBDT in Circular No. 286/2/2003 dated 10/03/2003 as well as vide Instruction No. File No. 28/98/2013 dated 18/3/2014. The Investigation Wing arrived to the conclusion that the transaction of booking short term capital loss are bogus and the same are claimed to avoid tax on long term capital gain. However, the basis of this conclusion is the alleged attempt of the assessee to avoid tax but no material or the transaction itself was found to be out of the book of account or discovered during the survey proceedings. Therefore, it is nothing but a difference of opinion of the 26 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT Investigation Wing on the same set of facts already considered by the Assessing Officer while passing the order U/s 154 of the Act. Though, the order U/s 154 of the Act does not constitute a decision of the Assessing Officer on the merits of an issue, however, if the Assessing Officer was not satisfied with the claim and explanation based on supporting evidence then even if the issue could not be decided in the proceedings U/s 154 of the Act, it was very much open to the Assessing Officer to initiate the proceedings U/s 147/148 of the Act on its own just after the order passed U/s 154 of the Act. The non-initiation of the proceedings U/s 147/148 of the Act by the Assessing Officer on its own and subsequently reopening the assessment based on the report of the Investigation Wing revealing no new fact raises serious question as to whether the Assessing Officer has applied his independent mind while forming the belief that income assessable to tax has escaped assessment. The report of the Investigation Wing is rather in the shape of information then discovery of any new fact not disclosed earlier. The Hon'ble Delhi High Court in the case of Pr.CIT Vs. G&G Pharma India Ltd. (supra) while considering the issue of validity of reopening based on the report of Investigation Wing has held in para 12 as under:
"12. In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10th February 2003, from four entities which were termed as accommodation entries, which information was given to him by the Directorate of Investigation, the AO stated: "I have also perused 27 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its own unaccounted money in its bank account by way of above accommodation entries." The above conclusion is unhelpful in understanding whether the AO applied his mind to the materials that he talks about particularly since he did not describe what those materials were. Once the date on which the so called accommodation entries were provided is known, it would not have been difficult for the AO, if he had in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the Assessee, which must have been tendered along with the return, which was filed on 14th November 2004 and was processed under Section 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded: "it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries". In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decisions discussed hereinbefore, the basic requirement that the AO must apply his mind to the materials in order to have reasons to believe that the income of the Assessee escaped assessment is missing in the present case."
The Hon'ble High Court after considering the statement of the Assessing Officer in the reasons recorded held that the basic requirement to have reasons to believe that the income of the assessee has escaped assessment is that the Assessing Officer must apply his mind to the material. A similar view has been taken by the Hon'ble Delhi High Court in the case of PCIT Vs RMG Polyvinyl (supra) in para 12 as under:
"12. Recently, in its decision dated 26th May, 2017 in ITA No. 692/2016 Pr.
CIT v. Meenakshi Overseas [2017] 82 taxmann.com 300 (Delhi), this Court discussed the legal position regarding reopening of assessments where the return filed at the initial stage was processed under Section 143(1) of the Act and not under Section 143(3) of the Act. The reasons for the reopening of the assessment in that case were more or less similar to the reasons in the present case, viz., information was received from the Investigation Wing regarding accommodation entries provided by a 'known' accommodation entry provider. There, on facts, the Court came to the conclusion that the reasons were, in fact, 28 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT in the form of conclusions "one after the other" and that the satisfaction arrived at by the AO was a "borrowed satisfaction" and at best "a reproduction of the conclusion in the investigation report."
Thus, it was held that the reopening on borrowed satisfaction is not valid. The issue was discussed in detail by the Hon'ble High Court in the case of PCIT Vs. Meenakshi Overseas (P) Ltd. (supra) in para 24 to 26 and 37 as under:
"24. The reopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the bare minimum mandatory requirement of the first part of Section 147 (1) of the Act.
25. At this stage it requires to be noted that since the original assessment was processed under Section 143 (1) of the Act, and not Section 143 (3) of the Act, the proviso to Section 147 will not apply. In other words, even though the reopening in the present case was after the expiry of four years from the end of the relevant AY, it was not necessary for the AO to show that there was any failure to disclose fully or truly all material facts necessary for the assessment.
26. The first part of Section 147 (1) of the Act requires the AO to have "reasons to believe" that any income chargeable to tax has escaped assessment. It is thus formation of reason to believe that is subject matter of examination. The AO being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre- condition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment.
Xxxxxxxx Xxxxxxxxx
37. For the aforementioned reasons, the Court is satisfied that in the facts and circumstances of the case, no error has been committed by the ITAT in the impugned order in concluding that the initiation of the proceedings under Section 147/148 of the Act to reopen the assessments for the AYs in question does not satisfy the requirement of law.
29 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT The Hon'ble High Court has laid down the principle that the Assessing Officer being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. The reasons to believe must demonstrate link between the tangible material and the formation of belief that the income has escaped assessment. The recording of reasons to belief and no reasons to suspect is the precondition to the assumption of jurisdiction U/s 147 of the Act. In the case of Rajiv Agarwal Vs ACIT (supra), the Hon'ble High Court has held in para 11 as under:
"11. Secondly, the Assessing Officer's belief that income of an assessee has escaped assessment must be based on tangible material. It has been explained in a number of decisions that there must be a "close nexus" or "live link" between tangible material and the reason to believe that income has escaped assessment. It follows that the material on the basis of which reassessment proceedings can be initiated must be credible material which could lead to such belief. Clearly, an unsubstantiated complaint cannot be the sole basis for forming a belief that income of an assessee has escaped assessment. Even in cases where the Assessing Officer comes across certain unverified information, it is necessary for him to take further steps, make inquiries and garner further material and if such material indicates that income of an assessee has escaped assessment, form a believe that income of the assessee has escaped assessment. Plainly, in this case, the assessee had not acquired any material to form such belief. On the contrary, when it is pointed out to the Assessing Officer that SHPL had not assigned any policy to Rajiv Agarwal, the said fact was completely overlooked. Similarly, in the case of Vijay Laxmi Agarwal, the Assessing Officer failed to take into account the fact that the assessee had paid a sum of Rs. 2,08,000, which was more than surrender value of the policy, for assignment of the policy in her favour. This too was completely ignored by the Assessing Officer."
Therefore, the Assessing Officer is required to form a belief on the basis of independent application of mind on the information or material received from the Investigation Wing. It is clear that the Investigation 30 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT Wing took a view that the transactions were bogus. The Assessing Officer without discussing anything as to how the transaction is bogus has reopened the assessment on the borrowed satisfaction of the Investigation Wing. In the report of the Investigation Wing, there is no allegation that the claim of the assessee is not based on actual transaction but the satisfaction of the department is guided by the fact that due to the alleged transaction, the assessee avoided the tax liability on the long term capital gain earned during the year. The possibility of arranging the transactions in a way to save the tax would not be a ground to hold that the transaction itself is bogus. If a transaction is valid and permissible under the law the motive of the transaction cannot render it bogus. It may be a case of impermissible claim of short term capital loss as per the provisions of the Act but neither the Investigation Wing nor the Assessing Officer has proceeded on those lines that the claim is not allowable under the provisions of the Act rather the sole basis of disallowance of claim is treating the transaction as non-genuine. The Assessing Officer has not brought any material to show that the transaction as claimed is not based on the actual purchase and sale or the documents substantiating the transactions are bogus. It is also not a case of discovery of new fact during the investigation but the department has tried to give the colour to the transaction as bogus without any material 31 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT in support of that satisfaction. The sole basis is the alleged motive of avoiding the tax on capital gain but there is no prohibition against the illegitimate tax planning while entering into the transaction of purchase and sale. Therefore, a tax planning is not prohibited as in case of tax avoidance as a device or design which is not permissible under the law. Therefore, when actual nature of transaction and the claim of the assessee are not found to be at variance then the formation of the belief the Assessing Officer is without any basis but is based merely on surmises and conjectures.
8.1 There is no allegation either in the report of the Investigation Wing or in the reasons recorded by the Assessing Officer about the bogus claim of short term capital loss of Rs. 12.94 crores on sale of equity shares of L&T Limited. Even otherwise the short term capital loss declared by the assessee is not arising from forfeiture of share application money but it was due to transfer of shares prior to the payment of the final call money. However, the Assessing Officer in the concluding part of the reasons recorded has stated that in order to avoid the tax on capital gain of Rs. 65.00 crores, the assessee has entered into the bogus transactions. Even the transaction of sale of commercial space in Prestige Mall was not found to be bogus either by the Investigation Wing or alleged by the Assessing Officer in the reasons recorded but the only allegation was that 32 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT it was not at Arm's Length Price being a transaction between the related parties. However, the Assessing Officer in the concluding para of reasons recorded, assumed that all the transactions are bogus to form the belief that the income assessable in tax has escaped assessment. Therefore, there is a wide disconnect between the reasons recorded and formation of belief which shows that the Assessing Officer has not applied his independent mind while recording the reasons for reopening of the assessment. It is discernable from the record and reasons recorded by the Assessing Officer that the reopening is based on borrowed satisfaction. Hence, we hold that the reopening of assessment is not valid and the same is liable to be quashed. We order accordingly.
9. The next objection raised by the assessee is against the mechanical approval of reopening without application of mind:- The ld. counsel for the assessee has submitted that the ld. Pr.CIT has granted approval in mechanical manner without application of mind. Even the assessment record was not produced before the approving authority as it was also not available with the Assessing Officer at the time of recording the reasons due to change of jurisdiction. The satisfaction of the approving authority has to be recorded which can be reflected in the briefest possible manner. In the case of the assessee, the approving authority has exercised the power in mechanical manner rather than objectively and thereby no 33 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT compliance of statutory requirement U/s 151 of the Act. He has relied upon the following decisions:
(i) Pr. CIT Vs M/s N.C. Cables Ltd. 391 ITR 11.
(ii) CIT Vs. S. Goyanka Lime & Chemical Ltd. 231 Taxman 73 (MP), which has been upheld by the Hon'ble Supreme Court reported in 237 Taxman 378.
(iii) Central India Electric Supply Co. Ltd. Vs ITO 333 ITR 237 (Del)
(iv) Chhugamal Rajpal vs. S.P. Chaila & Ors. 79 ITR 603 (SC) Thus, the ld counsel has pleaded that in absence of compliance of Section 151 of the Act, the notice issued U/s 148 is invalid and liable to be quashed.
10. On the other hand, the ld. CIT-DR has submitted that all relevant material was before the ld. Pr.CIT at the time of granting of approval U/s 151 of the Act. The ld. CIT-DR has referred to the letter of the Assessing Officer and submitted that the reasons recorded by the Assessing Officer were duly annexed to the Assessing Officer's letter seeking approval of the competent authority. The matter was first put up before the ld. Addl.CIT and then before the ld. Pr.CIT who after considering the reasons recorded has granted the approval. The ld. CIT-DR has further contended that there is no prescribed format of granting approval or recording satisfaction U/s 151 of the Act, therefore, once the approval is given on 34 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT satisfaction of the reasons recorded by the Assessing Officer then detailed reasoning of satisfaction is not required. The ld. CIT-DR has supported the approval as valid and based on satisfaction of the ld. Pr.CIT.
11. We have considered the rival submissions as well as relevant material on record. The Assessing Officer sent the proposal for obtaining the sanction of ld. Pr.CIT vide letter dated 30/3/2016. The copy of the proposal and sanction of ld. Pr.CIT is placed at page NO. 1 and 2 of the department's paper book as under:
Proposal for obtaining sanction of The Pr. Commissioner of Income Tax-1, Jaipur for issue of notice u/s 148 of the Income-tax Act, 1961, 1 Name and address of the assessee M/s Angel Infrastructure Pvt.
Ltd., B-5 Vrindavan Apartment, Kings Road, Jaipur, Rajasthan.
2. PAN AAFCA2023B
3. Status Company
4. Ward Ward 3(1), Jaipur
5. Assessment year in respect of which it A.Y. 2009-10 is proposed to issue notice issued U/s 148
6. The quantum of income which has Rs. 65,00,00,000/-
escaped assessment
7. Whether the provisions of Section Provisions of Section 147 147(a), 147(b) or 147(c) are applicable. explanation 2(b) is applicable
8. Whether the assessment is proposed for YES the first time, if the reply is in affirmative please state
(a) Whether any voluntary return had YES already been filed, and
9. If the answer to item 8 is in the --
negative, please state
(a) The income originally assessed Rs. 65,60,08,500/-
(b) Whether it is a case of under assessment, assessment at too low rate assessment which has been made the subject of excessive relief or allowing or 35 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT excessive loss or depreciation:
10. Whether the provisions of section This is a case where income 150(1) are applicable. If the reply is in has escaped assessment. affirmative, the relevant facts may be stated against item No. 11 and it may be brought out that the provisions of sections 150(2) would not stand in the way of initiating proceeding U/s 147.
11 Reasons for the belief that the income Reasons as per annexure page
has escaped assessment 1 to 11.
In view of the reasons it is requested that necessary approval as laid down under sub-section (2) of Section 151 of the IT Act, 1961 may kindly be accorded.
Dated 30-03-2016 (G P Awasthi),
Income Tax Officer
Ward 3(1), Jaipur
12 Comments of the Additional Recording
Commissioner of Income Tax on the
reasons recorded by A.O.
(Purushottam Kashyap),
Additional Commissioner of Income Tax
Range-3, Jaipur
13 Whether the Pr. CIT is satisfied on the YES
reason recorded by the A.O. that it is fit
case for issue of notice U/s 148.
(S.K. Chowdhari),
Principal Commissioner of Income Tax-1
Jaipur
It is evident from the above proposal and sanction that the ld. Pr.CIT has marked as "Yes" in the column and signed the same. Since the limitation for issuing the notice U/s 148 of the Act was expiring on 31/3/2016, therefore, the ld. Pr.CIT was having no time to examine the relevant record and therefore, the sanction was granted in compelling circumstances. Further the sanction by the writing "Yes" does not exhibit 36 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT any thought process in exercising the power U/s 151 of the Act. The Hon'ble Delhi High Court in the case of Pr.CIT Vs. M/s N.C. Cables Ltd. (supra) has held in para 11 as under:
"11. Section 151 of the Act clearly stipulates that the Commissioner of Income-tax (Appeals), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression "approved" says nothing. It is not as if the Commissioner of Income-tax (Appeals) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer. For these reasons, the court is satisfied that the findings by the Income-tax Appellate Tribunal cannot be disturbed."
Thus, the requirement to record the satisfaction is to reflect the satisfaction in briefest possible manner from the record. The approval granted in the ritualistic and formal manner rather than meaningful is not satisfying the requirement U/s 151 of the Act. In the case of CIT Vs. S. Goyenka Lime & Chemical Ltd. (supra), the Hon'ble M.P. High Court has held in para 7 to 10 as under:
"7. We have considered the rival contentions and we find that while according sanction, the Joint Commissioner, Income Tax has only recorded so "Yes, I am satisfied". In the case of Arjun Singh (supra), the same question has been considered by a Coordinate Bench of this Court and the following principles are laid down:--
'The Commissioner acted, of course, mechanically in order to discharge his statutory obligation properly in the matter of recording sanction as he merely wrote on the format "Yes, I am satisfied" which indicates as if he was to sign only on the dotted line. Even otherwise also, the exercise is shown to have been performed in less than 24 hours of time which also goes to indicate that the Commissioner did not apply his mind at all while granting sanction. The satisfaction has to be with objectivity on objective material.'
37 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT
8. If the case in hand is analysed on the basis of the aforesaid principle, the mechanical way of recording satisfaction by the Joint Commissioner, which accords sanction for issuing notice under section 148, is clearly unsustainable and we find that on such consideration both the appellate authorities have interfered into the matter. In doing so, no error has been committed warranting reconsideration.
9. As far as explanation to Section 151, brought into force by Finance Act, 2008 is concerned, the same only pertains to issuance of notice and not with regard to the manner of recording satisfaction. That being so, the said amended provision does not help the revenue.
10. In view of the concurrent findings recorded by the learned appellate authorities and the law laid down in the case of Arjun Singh (supra), we see no question of law involved in the matter, warranting reconsideration." The Hon'ble High Court has held that merely writing on the format "Yes I am satisfied" indicates as if he was to sign only on the dotted line and therefore, the mechanical way of recording satisfaction is clearly unsustainable. Similarly the Hon'ble Delhi High Court in the case of Central India Electric Supply Co. Ltd. Vs ITO (supra) has held as para 19 as under:
"19. In respect of the first plea, if the judgments in Chugamal Rajpal's case (supra); Chanchal Kumar Chatterjee's case (supra); and Govinda Choudhury & Sons' case (supra) are examined, the absence of reasons by the Assessing Officer does not exist. This is so as along with the proforma, reasons set out by the Assessing Officer were, in fact, given. However, in the instant case, the manner in which the proforma was stamped amounting to approval by the Board leaves much to be desired. It is a case where literally a mere stamp is affixed. It is signed by a Under Secretary underneath a stamped 'Yes' against the column which queried as to whether the approval of the Board had been taken. Rubber stamping of underlying material is hardly a process which can get the imprematur of this Court as it suggests that the decision has been taken in a mechanical manner. Even if the reasoning set out by the ITO was to be agreed upon, the least, which is expected, is that an appropriate endorsement is made in this behalf setting out brief reasons. Reasons are the link between the material placed on record and the conclusion reached by an authority in respect of an issue, since they help in discerning the manner in which conclusion is reached by the concerned authority. Our opinion is fortified 38 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT by the decision of the Apex Court in Union of India v. M.L Capoor AIR 1974 SC 87 wherein it was observed as under :-
"27. ... We find considerable force in the submission made on behalf of the respondents that the "rubber-stamp" reason given mechanically for the supersession of each officer does not amount to "reasons for the proposed supersession". The most that could be said for the stock reason is that it is a general description of the process adopted in arriving at a conclusion. ...
28. ... If that had been done, facts on service records of officers considered by the Selection Committee would have been correlated to the conclusions reached. Reasons are the links between the materials on which certain conclusions are based and the actual conclusions. They disclose how the mind is applied to the subject-matter for a decision whether it is purely administrative or quasi-judicial. They should reveal a rational nexus between the facts considered and the conclusions reached. Only in this way can opinions or decisions recorded be shown to be manifestly just and reasonable. ..."
[Emphasis supplied] This is completely absent in the present case. Thus, we find force in the contention of learned counsel for the appellant that there has not been proper application of mind by the Board and if a proper application had taken place, there would have been no reason to re-open the closed chapter in view of what we are setting out hereinafter.
Second & Third Pleas"
The Hon'ble High Court has held that merely affixing a stamp as "Yes"
and signing underneath reveals that the decision has been taken in mechanical manner. Thus, as held by the Hon'ble High Court in the series of decisions that the process of granting sanction U/s 151 of the Act for issuing the notice U/s 148 of the Act is a safeguard provision against any misuse of power by the Assessing Officer, therefore, there must be something on record to demonstrate the application of mind. The satisfaction of the sanctioning authority may be in briefest manner but it shall reflect the application of mind of the authority. The requirement of 39 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT recording the satisfaction is to reflect the mind of the authority and the same can be ascertained only from the reading of record and not from the reading of mind of the authority. Therefore, in absence of any satisfaction reflect from the record, the statutory requirement U/s 151 of the Act is not satisfied and consequently the notice issued U/s 148 of the Act is not valid for want of jurisdiction. Hence, in view of the peculiar facts of the case and binding precedent we hold that the approval granted U/s 151 of the Act is mechanical and without application of mind renders the notice issued U/s 148 of the Act as invalid and unsustainable in law. Accordingly, we quash the notice issued U/s 148 of the Act on this ground also.
12. The next objection of the assessee is regarding lack of jurisdiction of the Assessing Officer U/s 124 of the Act at the time of recording the reasons. The ld counsel for the assessee has submitted that the reasons for reopening of the assessment were recorded by the ITO, Ward 3(1), Jaipur on 21/3/2016 whereas the jurisdiction of the assessee was transferred to ITO Ward 3(1), Jaipur from ITO Ward 7(2), Jaipur only on 30/3/2016. He has referred to page No. 50 of the department's paper book wherein the PAN details and jurisdiction as per ITBA data base are given and thus contended that the jurisdiction from ITO Ward 7(2), Jaipur was transferred to ITO Ward 3(1), jaipur on 30/3/2016 and hence the 40 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT ITO Ward 3(1), Jaipur was not vested with jurisdiction of the assessee as on 21/3/2016 when the reasons were recorded. The ld. counsel has submitted that prior to the order dated 30/3/2016, the jurisdiction was vested with the ITO Ward 7(2), Jaipur as evident from the intimation dated 17/2/2011issued U/s 143(1) of the Act and subsequent orders passed U/s 154 of the Act. Thus, it is explicit that no reasons were recorded by the ITO Ward 3(1), Jaipur after assuming jurisdiction on 30/3/23016 and consequently proceedings U/s 148 of the Act are ex facie bad in law and illegal. The reasons dated 21/3/2016 are not valid reasons when the ITO Ward 3(1), Jaipur was not the Assessing Officer of the assessee on the said date, consequently the proceedings initiated U/s 147/148 of the Act are illegal and nullity.
13. On the other hand, the ld. CIT-DR has submitted that the details as referred by the ld. counsel for the assessee in the database are not updated details as there are orders passed U/s 127 of the Act in respect of the transfer of jurisdiction from ITO Ward 7(2), Jaipur to ITO Ward 3(1), Jaipur. He has filed copies of order dated 06/1/2015 passed U/s 127 of the Act whereby the jurisdiction of the assessee company was transferred from ACIT(OSD), Circle-7, Jaipur to ITO Ward 3(1), Jaipur. Thus, the ITO Ward 3(1), Jaipur was having a valid jurisdiction at the time of recording the reasons on 21/3/2016. The ld CIT-DR has also filed 41 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT copies of the notices issued U/s 143(2) and 142(1) of the Act. The ld. CIT-DR has also filed a copy of the order dated 04/10/2016 passed U/s 127 of the Act whereby the jurisdiction of the assessee was again transferred from ITO Ward 3 to ACIT Circle-2, Jaipur who has finally completed the assessment. Thus, the ld CIT-DR has submitted that there is no ambiguity as far as the jurisdiction of assessee was vested with ITO Ward 3(1), Jaipur at the time of recording the reasons on 21/3/2016. 13.1 In rebuttal, the ld. counsel for the assessee has submitted that the orders referred and filed by the ld. CIT-DR regarding transfer of the jurisdiction were never served on the assessee and it was also not part of the income tax business application data base (ITBA) thus, these are nonest order when the same were not communicated to the assessee.
14. We have considered the rival submissions as well as relevant material on record. Though as per ITBA database, the jurisdiction of the assessee was shown as transferred from ITO Ward 7(2), Jaipur to ITO Ward 3(1), Jaipur on 30/3/2016 however, the ld CIT-DR has filed copies of order dated 06/01/2015 alongwith letter of the Assessing Officer whereby the jurisdiction of the assessee was transferred from ITO Ward 7(2), Jaipur to ITO Ward 3(1), Jaipur with immediate effect. Thus, it is clear that an order passed U/s 127 of the Act on 06/01/2015 was very much inexistence transferring the jurisdiction of the assessee from 42 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT ACIT(OSD), Circle-7, Jaipur to ITO Ward 3(1), Jaipur, though, the same was not updated and reflected in the ITBA database maintained by the department. It is nothing but non-updating the information and data in the ITBA website of the department. There is another discrepancy in the record about the order passed U/s 127 of the Act dated 04/10/2016 which is shown in the ITBA database as the date of transfer on 17/10/2016. Therefore, the information available on ITBA database is not matching with the physical orders on record. However, once the physical orders are available on the record then the non-availability of same on the ITBA database would not change the fact of order passed U/s 127 of the Act. Accordingly, we do not find any substance or merit on this objection of the assessee and the same is dismissed.
15. Ground No. 2 of the assessee's appeal is regarding the disallowance of short term capital loss on transfer of share of M/s HH Interior and Auto Component Pvt. Ltd.. As per the resolution passed in the Board's meeting dated 27/2/2009 it was decided that the assessee was subscribed to 4,40,000 equity shares of M/s HH Interior and Auto Component Pvt. Ltd. at Rs. 900 per share aggregating total investment of Rs. 39.60 crores. These shares were offered alongwith right to subscribe 14% secured debenture of Rs. 100 each at a discounted price of Rs. 10 each and such right was exercisable after expiry of two years from the date of full 43 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT payment towards subscription of shares. The assessee paid 50% of the issue price of these shares at the time of allotment and also the first call money total amounting to Rs. 29.70 crores. The payment was made up to 15/3/2009 as reflected in the bank statement as well as ledger account of investment in shares. Subsequently on 23/3/2009 in the Board's meeting of the assessee it was decided that the shares of M/s HH Interior and Auto Component Pvt. Ltd. to be transferred to the group company M/s Sharash Finance & Investment Company Pvt. Ltd. due to financial difficulties. Accordingly the shares were stated to have been transferred as per the agreement between the assessee and M/s Sharash Finance & Investment Company Pvt. Ltd. In the process of transfer, certain correspondences and other documents were also executed between the parties such as request letter for transfer of shares in favour of M/s Sharash Finance & Investment Company Pvt. Ltd.. Indemnity bond was also executed for transfer of shares by M/s Sharash Finance & Investment Company Pvt. Ltd. and consequently the time period for subscribing the debentures was also extended by M/s HH Interior and Auto Component Pvt. Ltd. up to 15/4/2017 and thereafter up to 15/4/2020. Finally the assessee subscribed debentures on 20/12/2017 and paid a sum of Rs. 4.40 crores. In the return of income, the assessee declared short term capital loss on sale of shares of M/s HH Interior and Auto Component Pvt.
44 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT Ltd. of Rs. 29.70 crores. During the assessment proceedings, the Assessing Officer proposed to disallow the short term capital loss on sale of shares which was set off against the income from other sources. In response to the show cause notice, the assessee submitted that this was not forfeiture of share applicable money rather there is short term capital loss due to transfer of shares. The assessee contended that it is a case of transfer of equity shares held by the assessee of M/s HH Interior and Auto Component Pvt. Ltd. to M/s Sharash Finance & Investment Company Pvt. Ltd. which has resulted short term capital loss. The Assessing Officer disallowed the claim of the short term capital loss by holding that the alleged transaction of transfer of share is nothing but a sham transaction. The Assessing Officer was of the view that the transaction is between related parties and not at arm's length so as to create fictitious loss in the hands of assessee company to be set off against the profit from sale of shares and other incomes. Hence, as per the Assessing Officer, it was an attempt to avoid tax liability.
16. The assessee challenged the action of the Assessing Officer before the ld. CIT(A) but could not succeed.
17. Before us, the ld counsel for the assessee has submitted that the finding of the Assessing Officer and the ld. CIT(A) is based on conjectures 45 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT and surmises and not on fact basis. The investment in the shares of M/s HH Interior and Auto Component Pvt. Ltd. was duly recorded in the books of account and was also accepted by the Assessing Officer. The terms of allotment of shares clearly spelled out that the assessee had subscribed 4,40,000 shares @ Rs. 900 per share total amounting to Rs. 39.60 crores out of which Rs. 29.70 crores stood remitted by the assessee. Ld. counsel has explained that the assessee paid call money of Rs. 19.80 crores on application money being 50% of the subscription price and a sum of Rs. 9.90 crores as first call money. The payment of total amount to Rs. 29.70 crores is evident from the record as well as other documentary evidence submitted by the assessee before the authorities below. However, on account of cash crunch it was found expedient to transfer these shares of M/s HH Interior and Auto Component Pvt. Ltd. to one of the group concern M/s Sharash Finance & Investment Company Pvt. Ltd.. The ld. counsel has referred to the various documents produced before the Assessing Officer which includes the copy of minutes of meetings of Board of Directors of assessee dated 23/3/2009, the copy of share transfer agreement between the assessee and M/s Sharash Finance & Investment Company Pvt. Ltd. dated 23/3/2009, copy of indemnity bond dated 24/3/2009 given by M/s Sharash Finance & Investment Company Pvt. Ltd. for transfer of shares. Copy of letter dated 23/3/2009 by M/s Sharash 46 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT Finance & Investment Company Pvt. Ltd. for request of transfer of shares, copy of return of income and copy of order passed U/s 153A read with Section 143(3) of the Act in the case of M/s Sharash Finance & Investment Company Pvt. Ltd., copy of order of the ld. CIT(A) in case of M/s Sharash Finance & Investment Company Pvt. Ltd. wherein the allotment of shares in favour of M/s Sharash Finance & Investment Company Pvt. Ltd. were not disputed by the Assessing Officer or by the ld. CIT(A). The ld. counsel has further submitted that the companies to the transitions are independent legal entities and the transaction between the companies are not barred by any law. The loss incurred by the assessee is a legitimate and real transaction duly supported by the documentary evidence as well as recorded in the regular books of account of the assessee as well as the other company connected to the transaction. The books of account are duly audited without any qualifying remarks by the Auditors on these transactions. The ld. counsel contended that merely because the parties to the transactions are the group companies cannot be a reason or ground for holding the transaction as sham when there is no material or fact to show that the transaction of transfer of shares and loss arising from the said transfer is not a real or genuine. All the group entities are assessed to tax and the transaction of purchase of shares by M/s Sharash Finance & Investment Company Pvt.
47 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT Ltd. as well as payment of the final call money of Rs. 9.90 crores by the said company was not disputed by the Assessing Officer while passing the assessment order U/s 143(3) of the Act. He has referred to the assessment order dated 28/3/2014 passed U/s 153A read with Section 143(3) of the Act in the case of M/s Sharash Finance & Investment Company Pvt. Ltd.. The shares of M/s HH Interior and Auto Component Pvt. Ltd. were subscribed by the seven group companies including the assessee at the same rate of premium. The investment made by all other group companies has been duly recorded and accepted in their books of account and also assessed to tax by the department when there is no dispute regarding the subscription of the shares by the other group companies then the said investment made by the assessee on the similar terms cannot be doubted. Thus, once the fact of allotment of shares is not in dispute then the fact of transfer of shares cannot be disputed when all relevant evidence as well as final call money of Rs. 9.90 crores paid by M/s Sharash Finance & Investment Company Pvt. Ltd. were produced before the Assessing Officer. The ld. counsel has further submitted that share certificates were also issued in favour of M/s Sharash Finance & Investment Company Pvt. Ltd. hence the transfer of shares by the assessee and subsequently the final allotment in favour of M/s Sharash Finance & Investment Company Pvt. Ltd. after the final call money 48 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT payment of Rs. 9.90 crores. Was duly established from the record. Hence, the counsel has submitted that when the assessee produced all the relevant supporting evidence to establish the fact of subscription to the shares of M/s HH Interior and Auto Component Pvt. Ltd. and subsequent transfer of the shares to M/s Sharash Finance & Investment Company Pvt. Ltd. then treating the said transaction as bogus or share is without any basis but only a proposed assumption which is contrary to the facts on record. The Assessing Officer presumed the transaction as forfeiture of share application money whereas it was a transfer of shares by the assessee which has resulted short term capital loss. In support of his contention, the ld counsel has relied upon the decision of Hon'ble Supreme Court in the case of Cit Vs. Grace Collis 248 ITR 232 and submitted that the Hon'ble Supreme Court has held that the definition 'transfer' as per Section 2(47) of the Act contemplates the extinguishment of rights in a capital asset distinct and independent of such extinguishment consequent upon the transfer thereof. Thus, once the assessee has transferred its right in shares of M/s HH Interior and Auto Component Pvt. Ltd. then it is a transfer of capital asset as per definition U/s 2(24) of the Act. He has relied upon the decision of Hon'ble Karnataka High Court in the case of DCIT Vs. BPL Sanyo Finance Ltd. 312 ITR 63 (Kar) and submitted that the relinquishment of asset or extinguishment of 49 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT any right therein fall in the definition of transfer U/s 2(47) of the Act. In the said case, the forfeiture of share application money was held to be relinquishment of asset or extinguishment of right therein. He has relied upon the decision of Hon'ble Delhi High Court dated 20/01/2010 in the case of CIT Vs. Shri Chand Ratan Bagri in ITA No. 31/2010. The ld counsel has also relied upon the following decisions:
(i) Shree Minakshi Mills Ltd. Vs. CIT 31 ITR 28 (SC)
(ii) Union of India Vs Aazadi Bachao Andolan 263 ITR 706 (SC)
Thus, the ld counsel has submitted that the transaction is to be tested as per the provisions of Section 45 of the Act and not U/s 28 to 41 of the Act. Therefore, the aspect of commercial substance is not relevant for the transaction of transfer of capital asset. No incriminating material or fact was found or detected during the survey U/s 133A of the Act. All the facts as narrated in the report of the DDIT (Inv.), Faridabad are already on the record and in the books of account of the assessee. The statement recorded during the survey has not evidentiary value without corroborating evidence. In support of his contention, he has relied upon the following decisions:
(i) Paul Mathews & Sons vs. Commissioner of Income-tax 263 ITR 101 (Ker)
50 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT
(ii) Commissioner of Income-tax vs. S. Khader Khan Son 300 ITR 157 (Mad).
(iii) Commissioner of Income-tax, Salem vs. S. Khader Khan Son 352 ITR 480 (SC).
The ld. counsel has referred to the series of decisions on this point that the statement recorded during the survey has not evidentiary value in absence of any corroborating/documentary evidence. He has also referred to the Instruction File No. 286/2003 dated 10/03/2003 as well as the Instruction No. File No. 286/98/2013 dated 18/03/2014 issued by the CBDT and submitted that the CBDT has repeatedly suspected the taxing authority that instead of obtaining the statement under hands of coercion during the search or survey more emphasis be given in collecting the documentary evidence. No justification for the Assessing Officer to rely upon either alleged admission of the Director during the course of survey proceedings so as to deny the legitimate claim. The ld. counsel has submitted that as soon as shares were allotted to the assessee even though they were partly paid, these were owned by the assessee and thus became capital asset. The amount paid by the assessee against the allotment of shares was not forfeited by the issuing company but partly paid shares were transferred by the assessee to M/s Sharash Finance & Investment Company Pvt. Ltd. without any consideration resulting loss of Rs. 29.70 crores as short term capital loss. The right to subscribe the 51 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT debenture at a discounted price is a valuable right and the value of right to subscribe in the debentures at discounted price is included in the price of the shares of M/s HH Interior and Auto Component Pvt. Ltd. The assessee transferred the shares alone and retained the right to subscribe the debentures issued at discounted price, the income tax authorities cannot question the justification of the decision taken by the assessee company. The prudency and business decision can alone be taken by a businessman and the Assessing Officer cannot step into the shoes of a business man to judge the prudency of the decision. It is prerogative of the businessman to organize its affairs in a manner best suited to it and the revenue authority cannot step into the shoes of the businessman. The revenue cannot question the transaction on the ground that the same was not prudent and consequently held as sham. The ld. counsel has supported his contention with the following decisions:
(i) CIT Vs. Malayalam Plantations Ltd. 53 ITR 140 (SC)
(ii) CIT Vs. Walchand & Co. 65 ITR 381 (SC).
18. On the other hand, the ld CIT-DR has submitted that the loss claimed by the assessee is not permissible as per the provisions of the Act as the basic nature of the transaction does not imply as transfer of capital asset or short term capital loss. In fact, it is forfeiture of the money paid by the assessee for allotment of shares as the assessee claimed to have 52 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT transferred these shares without any consideration to sister concerns. During the survey proceedings as well as in post survey investigations of M/s Krishna Maruti Group and M/s Rolta Pvt. Ltd., it was found that the transaction of sale and purchase of shares between M/s HH Interior and Auto Component Pvt. Ltd. and the assessee is not a transaction between the two independent parties. There is no dispute that Sh. Ashok Kapur and his family members owned and having controlled over the group companies including M/s HH Interior and Auto Component Pvt. Ltd.. Hence, it is clear that the share application money of Rs. 20.70 crores given by the assessee to M/s HH Interior and Auto Component Pvt. Ltd. and consequent forfeiture of same is not a transaction between the two independent parties. Two related parties have entered into this transaction in order to create a fictitious loss in the hand of the assessee. The said loss artificially generated with a view to be set off against the gain according to the assessee on account of sale of shares of M/s Advance Automation & Process Control Pvt. Ltd.. The Assessing Officer has clearly brought out the fact that there was no financial problems at the time when the shares were claimed to have been transferred without any consideration as the assessee received huge fund of Rs. 71.36 crores on sale of shares of M/s Advance Automation & Process Control Pvt. Ltd.. Thus the entire transaction of purchase and sale and creating artificial 53 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT short term capital loss was a preconceived design to avoid tax liability on the capital gain arising from sale of shares as well as other income. The assessee instead of transferring the shares to the group concern without any consideration would have requested for extension of time for making the payment of final call money of Rs. 9.90 crores as all these companies are group companies and it was not difficult for them to get the extension of time. Even otherwise when the assessee was holding 77800 bonus shares of M/s L&T Ltd. which could fetch much more that 99 crores required for making the payment of final call money then the decision for transferring the shares without any consideration is a structure transaction with a view to avoid tax. He has relied upon the orders of the authorities below.
19. We have considered the rival submissions as well as relevant material on record. The Assessing Officer disallowed the claim of short term capital loss of transfer of shares of M/s HH Interior and Auto Component Pvt. Ltd. on the ground that the transaction itself is not genuine and it is sham. The Assessing Officer has given the reasons for treating the transaction as sham that the motive to enter into the alleged transfer is to avoid tax on capital gain of Rs. 65.00 crores arising from sale of shares of other companies and further the transaction is between the related parties, therefore, not at the arm's length. It is 54 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT pertinent to note that a transaction is said to be bogus or sham if it is shown on paper but is not a real transaction, therefore, what is purported or apparent is not real but it has been given a colour of transaction. In other words a transaction is arranged or designed in such a way that it is not an actual transaction of transfer of asset or goods and the consideration has not changed hands but it is given only a colour of such transaction. Accordingly, a colourable device cannot be allowed as part of tax planning. It is settled proposition of law that each and every tax planning is not illegal or illegitimate or impermissible. Tax planning may be legitimate provided it is within the framework of law, however, colourable device cannot be a part of tax planning and therefore not permissible under the law. Even avoiding of tax liability by permissible tax planning or so arranging the commercial affairs that change of tax is reduced is not prohibited and a tax payer may resort to such planning to minimize the tax liability. The assessee is entitled to arrange his affairs as to avoid taxation but the arrangement must be real and genuine and not sham or make believe. There is a distinction between the legitimate avoidance and tax evasion as held by the Hon'ble Gujarat High Court in the case of Shakarlal Balabhai Vs. ITO 100 ITR 97 (Guj), therefore, the genuine arrangement would be permissible and may result in an assessee escaping tax. These are well settled legal propositions as considered from 55 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT time to time by the Hon'ble High Courts as well as the Hon'ble Supreme Court in the various decisions including the decision in the case of Mc. Dowell & Co. Ltd. Vs. Commercial Tax Officer 154 ITR 148 (SC) as well as in the case of Union of India Vs. Aazadi Bachao Andolan (Supra). Thus, the legitimate tax planning within the framework of law is permissible. If we analyse the present matter in the light of the settled legal propositions, we find that the transfer of shares by the assessee was actual and real transaction as evident from the relevant record and sequence of events taken place completing the chain of sequences required for a genuine transaction. There is no denial that the assessee subscribed 4,40,000 equity shares of M/s HH Interior and Auto Component Pvt. Ltd. and paid a total amount of Rs. 29.70 crores except the last call money payment of Rs. 9.90 crores and at this stage, the assessee decided to transfer those shares to M/s Sharash Finance & Investment Company Pvt. Ltd. which is a group company without any consideration in fact a token consideration of Rs. one. It is pertinent to note that the subscription of shares by the assessee of M/s HH Interior and Auto Component Pvt. Ltd. was not a simple case of allotment of shares but this subscription also carried another right of subscription of the equal number of debentures of face value of Rs. 100 at a discounted price of Rs. 10 and carried interest @ 14% per annum. Therefore, the 56 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT premium paid against the issue of shares in fact was received back in the shape of discount in subscription of the debentures of the said company. Hence, the assessee even if transferred the shares without any consideration and incurred loss of Rs. 29.7 crores in consequence of the said transfer the right to subscribe these debentures was retained by the assessee and not transferred alongwith shares. The Assessing Officer as well as the ld. CIT(A) has not considered these transactions from the prospective of the right acquired by the assessee to subscribe the debentures at discounted rate and the benefit on account of discount in subscription of the debenture offset the premium paid on the subscription of equity shares. The Assessing Officer has not disputed the documents in respect of the subscription of the shares, however, the objection of the Assessing Officer is the motive of the assessee to transfer the shares so as to create the short term capital loss to be set off against the capital gain arising from the transfer of shares as well as other income. We find that as per the record produced by the assessee, the claim of transfer of shares by the assessee to M/s Sharash Finance & Investment Company Pvt. Ltd. has been established without any iota of doubt. The assessee produced copy of minutes of meetings of the Board wherein a resolution was passed for transfer of shares. An agreement between the assessee and M/s Sharash Finance & Investment Company Pvt. Ltd. whereby the 57 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT shares in question were transferred by the assessee in favour of the said company. The indemnity bond was also executed by M/s Sharash Finance & Investment Company Pvt. Ltd. to pay the final call money due against the shares so that the right to subscribe the debentures by the assessee would not be affected due to default in payment of call money. It is not in dispute that the final call money of Rs. 9.9 crores was paid by M/s Sharash Finance & Investment Company Pvt. Ltd. and the shares were finally transferred in favour of the said company. The Assessing Officer has not brought anything on record or has given a finding that the payment of final call money was not actually made by M/s Sharash Finance & Investment Company Pvt. Ltd. but it was made by the assessee. Therefore, to arrive at a conclusion that the transaction is not genuine but only shown on the paper, the Assessing Officer ought to have established the fact that it was not a real transfer but only a colour is given as a transfer of shares. The other fact of the transfer of shares being agreement between the parties, the issue of share certificate in the name of M/s Sharash Finance & Investment Company Pvt. Ltd. are duly established from the record. The Assessing Officer without giving any finding that the documents and share certificates are bogus has held that the transaction is bogus on the ground that the motive of transaction between the related parities is to set off the artificial capital loss against 58 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT the capital gain and thereby avoid the tax liability by the assessee on the capital gain. Even if it is accepted for the sake of argument that the motive of the transfer was to reduce or avoid the tax liability on the capital gain but if the said transaction is real and is permissible under the law then the mere motive would not render the same as bogus transaction. In the case of DCIT Vs. BPL Sanyo Finance Ltd. (supra), the Hon'ble Karnataka High Court while considering an issue of capital loss on forfeiture of share application money has held in para 7 to 13 as under:
"7. To decide the question of law as formulated herein above, it is necessary to look into the definition of transfer as appearing in section 2(47) of the Act, relevant portion thereof is reproduced herein below :
"2.(47) 'transfer, in relation to a capital asset, includes,--
(i) the sale, 'exchange' or relinquishment of the asset; or
(ii) the extinguishment of any rights therein ; or
(iii) the compulsory acquisition thereof under any law ; or
(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment; "
8. The Tribunal has considered the meaning of the word "allotment", as appeared in the Guide to the Companies Act, 1956. The same is reproduced hereinbelow :
"What is termed 'allotment is generally neither more nor less than the acceptance by the company of the offer to take shares. To take the common case, the offer is to take a certain number of shares or such a less number as may be allotted. That offer is accepted by the allotment either of the total number mentioned in the offer or a less number, to be taken by the person who made the offer, This constitutes a binding contract to take that number according to the offer and acceptance. To my mind, there is no magic whatever in the term 'allotment' as used in these circumstances. It is said that the allotment is an appropriation of a specific number of 59 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT shares. An allotment is an appropriation, not of specific shares, but of a certain number of shares."
9. The above passage has been quoted in the Commentary of the Companies Act mentioned herein above from a decision in Florence Land and Public Works Co., In re [1885] 29 Ch D 421 at 426.
10. On account of the aforesaid fact that the binding contract existed between the assessee and the investee company, the irresistible conclusion that can be drawn on the aforesaid facts and circumstances is that as soon as the allotment is made, the assessee would be deemed to have acquired a right in such shares even if the call monies or the full face value of the shares has not been paid. Thus, in a case where only share application money is paid and the balance is yet to be paid on actual allotment of shares, the holder of such allotment would be recognised as a member of the investee company. Thus, it cannot be said that the assessee had not acquired right in such shares on account of its failure to deposit the balance amount for allotment of shares. The aforesaid view would attract the provisions of section 2(47) of the Act. The extinguishment of any rights therein as appeared in section 2(47) of the Act, covers every possible transaction resulting in the destruction, annihilation, extinction, termination, cessation or cancellation, by satisfaction or otherwise of all or any of the bundle of rights whether qualitative or quantitative, which the assessee has in a capital asset whether or not such an asset is corporeal or incorporeal.
11. In the case on hand consequent to the assessee's default in not paying the balance of money on allotment, its right in the shares stood extinguished on its forfeiture by the investee company. The loss suffered by the assessee, i.e., non-recovery of share application money is consequent to the forfeiture of its right in the shares and the same is to be understood to be within the scope and ambit of transfer. In this view of the matter, the Tribunal was justified in holding that it would amount to short-term capital loss to the assessee. No other point was urged before us.
12. With regard to the extinguishment of any rights, we may profitably refer to the judgment of the Supreme Court in the case of CIT v. Mrs. Grace Collis [2001] 248 ITR 323. In the said case, it has been held as under
(page 329) :
"It is true that the definition of 'transfer' in section 2(47) of the Act is an 'inclusive' definition and, therefore, extends to events and transactions which may not otherwise be 'transfer' according to its ordinary, popular and natural sense."
13. For the aforesaid reasons, we are of the considered opinion that the questions posed have to be answered in favour of the assessee and against the Revenue. The appeal accordingly stands disposed of."
60 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT The Hon'ble High Court has accepted the loss on account of forfeiture of share application money due to non-payment of the balance amount of allotment of shares as capital loss arising from transfer of capital asset being relinquishment of asset/extinguishment of the right therein. In the case in hand, the assessee decided to transfer the shares to the group concern instead of opting the forfeiture of share application money already paid by the assessee. The transfer to the group company instead of allowing the forfeiture was a decision taken by the assessee in its best interest as the assessee was having a right to subscribe in the debentures carrying 14% per annum at a discounted price of Rs. 10 each. Therefore, when the forfeiture is held as transfer of capital asset by the Hon'ble High Court then the transfer of shares for consideration of balance call money to be paid by the transferee is a case on better footings to be held as transfer of capital asset and a capital loss from the said transfer. The Hon'ble Delhi High Court in the case of CIT Vs. Shri Chand Ratan Bagri in ITA No. 31/2010 (supra) has also upheld the view that the forfeiture of convertible warrants has resulted into extinguishment of rights of the assessee to obtain the shares and therefore, has resulted capital loss in the hands of the assessee. Therefore, as far as the transaction of transfer of shares in question is concerned, the same is nothing but transfer of capital asset as held in the various decisions relied upon by the assessee.
61 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT 19.1 Once the assessee has produced all relevant evidence to establish the genuineness and the transaction actually taken place then treating the same as bogus on the ground that the motive of the transaction is to avoid the tax liability is not sustainable in law. The Assessing Officer has misunderstood the entire facts and the nature of transaction as recorded at page No. 16 of the assessment order as under:
"Hence, it is amply clear that the company M/s HH Interior and Auto Component Pvt. Ltd. {Formerly Known as M/s SKH Auto Components Limited} is an entity owned and controlled by Sh. Ashok Kapur. Thus, the Share application money of Rs. 29.70.00.000/- given by M/s Angel Infrastructure private Limited to M/s HH Interior and Auto Component Pvt. Ltd. and the consequent forfeiture of the same by HH Interior and Auto Component Pvt. Ltd. is not a transaction between two independent parties. These two related parties have entered into this transaction in order to create a fictitious loss in the hands of M/s Angel Infrastructure Private Limited. The loss has been artificially generated to be set-off against the gain accruing to M/s Angel Infrastructure Private Limited on account of sale of shares of Advanced Automation & Process Control Pvt. Ltd."
"Moreover, on perusal of submission filed by the assessee, it is transpired that the company Angel Infrastructure Pvt. Ltd. has called the meeting of Board of Directors to decide the sale the shares of SKH auto Components Pvt. Ltd. to Sharsh Finance & Investment P. Ltd. and board meeting was held on 23.03.2016 (after conducting the survey by investigation team on 03.03.2016). Therefore, calling the board meeting on 23.03.2016 and passing a resolution is this regard is an afterthought plan so that Assessee Company can cover up the tax liability accrued on account of capital gain under the shadow of bogus loss. If the said loss were genuine, the remedial action could have been taken by the company immediately and not after a gap of seven years."
Therefore, the Assessing Officer has given much emphasis on the point that it was a forfeiture of the money paid by the assessee and since subscription of shares by the assessee of a related party, therefore the 62 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT Assessing Officer was of the view that the forfeiture is nothing but a predesigned transaction between the related parties to create fictitious loss. This observation of the Assessing Officer is contrary to the facts on record that it was not a forfeiture of money paid by the assessee as share application and call money but it was a transfer of the shares after allotment and before the final call money was to be paid by the assessee. Therefore, the consideration for transfer in real term is the final call money of Rs. 9.90 crores to be paid by the assessee was finally paid by the transferee company. The second objection of the Assessing Officer is that the Board Meeting was held on 23/3/2016 after the survey dated 03/3/2016 is in fact absolute incorrect and contrary to the fact that the said Board meeting was held on 23/3/2009 and not on 23/3/2016, therefore, the question of afterthought plan does not arise as held by the Assessing Officer. The ld CIT-DR has fairly accepted this fact that the Board meeting was held on 23/3/2009 and not on 23/03/2016 as it was rightly recorded by the ld. CIT(A) at page No. 167 of the impugned order. As regards the statement recorded by the Investigation Wing, Faridabad, we find that there is nothing in the statement to show that the transaction is bogus. The relevant para of the statement is recorded by the ld. CIT(A) at page No. 44 to 46 as under:
63 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT Q.19. Please refer to the sale of shares of M/s Angel Infrastructure Pvt. Ltd. and M/s Advanced Automation & process control Pvt. Ltd. provide the complete details of the total sale consideration capital gain arising and the consequent set off of losses through various transactions entered into by M/s Angel Infrastructure Pvt. Ltd.. The transaction was done on 12/09/2008.
Ans. The details are as under:
1. Total sale consideration for shares of M/s Advance 154 Cr (Approx) Automation and process control Pvt. Ltd.
2. Shares of M/s Angel Infrastructure Pvt. Ltd. 77 Cr.
3. Capital gains arising in the hand of M/s Angel 65 Cr.
Infrastructure Pvt. Ltd. (Claim to be verified)
4. Loss set off through forfeiture by M/s HH Interior and 30 Cr.
Auto Component Pvt. Ltd.
5. Loss set off through agreement to sell with M/s Laurel 24 Cr Infrastructure Pvt. Ltd.
6. Loss set off through sale of shares of L&T Stock Market 11 Cr. (Approx) Transactions I am submitting a copy of the trial balance of M/s Angel Infrastructure Pvt. Ltd. that reflects the above losses.
Q.20 Please refer to the discussion above, it has been clearly brought out that the transaction entered by the M/s Angel Infrastructure Pvt. Ltd. with the group company are same (should be sham) transaction in order to avoid paying the due taxes on the capital gain of Rs. 65 Cr. and discussed above. Please explain. Ans. In this regard we would like to submit that the transaction entered by the group companies were with a view to further the business interest of the entities involved. However since these entities belong to the Krishna group and are owned and operated by Sh. Ashok Kapur serious allegations have been leveled regarding the genuineness of the transaction we also understand that doubts has been raised regarding the transaction not being at arm length prices. In view of the above we hereby undertake that we will forgo the claim of the losses on the following transaction:
S. No. Description of the transaction Amount Involved F.Y. Involved
1. Loss on account of forfeiture of share 30 Cr 2008-09 application money by M/s HH Interior and Auto Component Pvt. Ltd.
2. Loss on account of sale of property at 24 Cr 2008-09 Prestige Mall to M/s Laurel Infrastructure Pvt.
Ltd.
Total 54 Cr.
Thus as directed we will file a revised return in the case of M/s Angel Infrastructure Pvt. Ltd. (PAN AAFCA2023B) for the A.Y. 2009-10 (Pertaining to F.Y. 2008-09) after disallowing the loss claimed of Rs. 54 Cr. as discussed above. Accordingly an amount of Rs. 54 Cr will be offered to tax as per the provision of Income Tax Act, 1961. The due 64 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT taxes on this amount Rs. 54 Cr. will be paid as soon as possible. I am authorized to give the above commitment as M/s Angel Infrastructure Pvt. Ltd. is one of my group company owned and operated by me through my employees. Q. 21 Do you want to say anything else?
Ans. It is hereby clarified that the above said understanding has been provided in order to avoid litigation and to buy peace in mind with a request neither penalty nor any punitive action may kindly be initiated against group. Thus, the so called surrender was obtained by the search team and the same is without any incriminating material. Therefore, the statement recorded during the survey proceedings without documentary evidence cannot be a basis to make the addition in absence of any corroborating evidence. The CBDT in the Instruction No. 286/2/2003 dated 10/03/2003 has directed the taxing authorities to refrain from such confessions if not based on reliable evidence as the same does not serve any useful purpose. It was therefore, advised that there should be focus and concentration on collection of evidence of income, which leads to the information on what has not been disclosed or is not likely to be disclosed. It is a clear direction by the CBDT that while recording statement during the course of search and seizure and survey operations, no attempt should be made to obtain confession as to the disclosed income. These directions were reiterated by the CBDT in the Instruction No. F. No. 286/98/2013-IT dated 18/3/2014, therefore, there are unambiguous guidelines and instructions by the CBDT that undue 65 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT influence/coercion in recording of statements shall be viewed by the Board adversely. Hence in absence of any tangible material found during the survey proceedings, the statement recorded would not be sufficient to make the addition. There is no dispute as we have discussed all the facts while deciding the issue of validity of reopening that all these transactions were duly recorded in the books of account of all the relevant parties and also disclosed in the return of income filed by the assessee as well as the other party. The revenue has accepted the investment in the shares of M/s HH Interior and Auto Component Pvt. Ltd. made by the other group companies as well as in case of M/s Sharash Finance & Investment Company Pvt. Ltd. while passing the order U/s 153A read with Section 143(3) of the Act. This fact has not been disputed by the department before us that the Assessing Officer has not disturbed these transactions in the hand of the other group concerns including M/s Sharash Finance & Investment Company Pvt. Ltd.. Further it is the decision of the assessee to manage its financial affairs in the best interest of the assessee and in the prevailing circumstances. Even if a decision is not in the interest of the assessee, the Assessing Officer cannot substitute the same or step into the shoe of the assessee to judge the prudence of the decision. The scope of enquiry and decision in the assessment proceedings is to examine the correctness and eligibility of the claim as per the provisions 66 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT of the Act and not to judge the prudence of the decision of the assessee. It is settled rule of law that the prudency and commercial expediency of the decision is the prerogative of the businessman and the taxing authority cannot substitute the decision taken by the businessman. The Hon'ble Supreme Court in the case of CIT Vs. Malayalam Plantations Ltd. 53 ITR 140 (SC) has held that it is prerogative of the businessman to organize its affairs in a manner best suited to it and the revenue authority cannot step into the shoes of business man. It is not for the revenue to attack the transaction on the ground that the same was imprudent. Once the transaction is treated as transfer of capital asset then the provisions of Section 40A(2) of the Act cannot be attracted due to the reason that the transaction is between the related parties. since the claim is short term capital loss and not the business loss suffered by the assessee, therefore, it would not attract the provisions of Section 40A(2) of the Act. Moreover, it is otherwise not a payment to the related party so as to fall in the category of transaction between the specified persons as per Section 40A(2) of the Act.
19.2 Accordingly, in view of the above discussion as well as the following the various decisions on the point we hold that the transaction of transfer of shares in question cannot be treated as non-genuine merely because the assessee incurred loss and set off of the same against the capital 67 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT gain. Hence, the orders of the authorities below qua this issue are set aside and the addition made by the Assessing Officer is deleted.
20. Ground No. 3 of the assessee's appeal is regarding disallowance of loss on sale of commercial space. On 31/07/2004 M/s Gold Cause Construction Pvt. Ltd. purchased commercial plot No. 23 measuring 11427 Sq.Mtr. at Shivaji Place District Centre, Main Ring Road, Raja Garden, New Delhi from Municipal Corporation of Delhi (MCH) Slum and JJ Department Remunerative projects Cell in open auction alongwith all perpetual leasehold rights in the said plot. In the month of March, 2005, M/s Gold Cause Construction Pvt. Ltd. allotted commercial space to various parties including 5 parties as under:
Sr. Name of the buyer Total Area Rate per Sq. Ft. Total sale No. (Sq.Ft) consideration on
i) ABR Auto Pvt. Ltd. 11676.17 4,231 4,94,00,000/-
ii) Sharsh Finance & 34686.29 4,199 14,56,50,000/-
Investment Co. Pvt. Ltd.
iii) Mr. Ashok Kapur 23,723.34 4,198 9,96,00,000/-
iv) Mrs. Arti Kapur 4,817.32 4,235 2,04,00,000/-
v) Roz Ka Meo Component 34,439.42 4,178 14,39,00,000/-
Pvt. Ltd.
Total 1,09,342.53 45,89,50,000/-
Thus, the total commercial space measuring 109342.53 Sq.Ft was allotted to the above five parties for a total consideration of Rs. 45,89,50,000/-.
Thereafter the assessee on 15/09/2008 purchased commercial space allotted to these parties through five separate agreements for a total 68 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT consideration of Rs. 54.44 crores. Thus the assessee purchased rights of the commercial space measuring 1,09,342.53 Sq.Ft at Paradise Mall to be constructed at Shivaji Place, District Centre, Main Ring Road, Raja Garden, New Delhi. Thereafter the assessee sold the said commercial space/right in commercial space to M/s Laurel Infrastructure Pvt. Ltd. on 12/3/2009 for a consideration of Rs. 30,18,41,600/- and as a result the assessee incurred loss of Rs. 24,25,83,400/- from sale of the said commercial space to a group concerned. Initially as per the agreement dated 12/3/2009 between the assessee and M/s Laurel Infrastructure Pvt. Ltd., a sum of Rs. 7,54,60,400/- was received at the time of the said agreement and the balance consideration of Rs. 22,63,81,200/- was to be received within a period of 10 days i.e. up to 22/3/2009, however, subsequently as per the amended agreement dated 22/3/2009 the time period for payment of the balance consideration was extended by a period of six months. The assessee claimed loss of Rs. 24,25,58,400/- in its return of income which was disallowed by the Assessing Officer on the ground that a transaction of sale is bogus and consequently the claim of short term capital loss arising from alleged sale of commercial space is also bogus. The Assessing Officer has also disallowed the transfer expenses of Rs. 25,000/- claimed by the assessee. The ld. CIT(A) confirmed the disallowance made by the Assessing Officer.
69 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT
21. Before us, the ld counsel for the assessee has submitted that the Assessing Officer has given the reasons for treating the transaction as bogus that the sale and purchase agreements were on non-judicial stamp paper of Rs. 50/- and are not registered with Stamp Authorities. However, the sale and purchase are two elements which move in tandem to complete a sale transaction. The department has accepted one element of the transaction in the hand of the purchaser then how the transaction of the sale in the hand of the assessee can be treated as bogus, therefore, no presumption can be raised against the genuineness of the second element. The ld counsel has pointed out that in the instant case, the sale by the seller (first allottee) was accepted and therefore, there cannot be case for denial of purchase of the commercial space by the assessee. Further the transaction of purchase was executed on non-judicial stamp paper of Rs. 50/- which was accepted by the Assessing Officer whereas the sale of the same commercial space on non-judicial stamp paper of Rs. 56/- cannot be disputed. Further the Assessing Officer has raised objection of non-registration of the agreements but in the case of the assessee what was the transferred and sold was the right in the commercial space in a mall to be constructed. Thus, the ld counsel for the assessee has submitted that as per the definition of Section 2(47) of the act once the right in the capital asset/immovable property is extinguished, 70 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT it amounts to transfer of the property. In support of his contention, he has relied upon the decision of Ahmadabad Benches of the Tribunal in the case of Smt. Sapnaben Dipakbhai Patel Vs. ITO 73 taxmann.com 288. He has also relied upon the decision of Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia of Bombay vs. Commissioner of Income-tax 260 ITR 491 as well as decision of Hon'ble Supreme Court in the case of K.P. Varghese Vs. ITO 131 ITR 597 and submitted that the Hon'ble Court has held that it is not enough for the revenue to show that the fair market value of property as on the date of transfer exists full value consideration declared by the assessee. In respect of the transfer by any amount of not less than 15% of the value so declared when there is no case of Assessing Officer that the consideration for transfer has been understated by the assessee or the consideration actually received by the assessee is more than what is declared or disclosed by it then the burden is on the Assessing Officer to establish that the assessee has not correctly declared or disclosed the consideration received by it. The entire consideration of the Assessing Officer is on the point that the assessee has declared short term capital loss in order to avoid the tax liability on the capital gain. The ld counsel then submitted that the central aspect of the issue has not been appreciated by the Assessing Officer that the property was under consideration and in absence of any immovable 71 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT property have not been constructed, there was no occasion for execution of registration of title of the property U/s 17 of the Registration Act, 1908. The property was finally constructed in the year 2016, thus once the property was under construction, the allegation and basis to assume that non-registration of the document would not transfer the title is misconceived and untenable. The Assessing Officer has raised objection that the transactions were between the related parties and there was no financial crisis to sale the property in distress. However, when the Assessing Officer has not disputed the fair market price of the property as on the date of sale and also accepted the purchase of the said commercial space in the hand of M/s Laurel Infrastructure Pvt. Ltd. then the said transaction cannot be denied in the hand of the assessee. At the time of purchase by the assessee, the sale was duly accepted in the case of selling parties and when the property was sold by the assessee, the transfer was accepted by the Assessing Officer in the hand of the purchaser M/s Laurel Infrastructure Pvt. Ltd., therefore, the transaction of purchase and sale in the hand of the assessee cannot be denied. The ld. counsel has further contended that when the provisions of domestic transfer prices as specified in Section 92BA are not applicable for the assessment year under consideration as the said amendment was made by the Finance Act, 2012 w.e.f. 01/04/2013 then it cannot be a ground 72 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT for treating the transaction as not at Arm's length or bogus. The ld. counsel has further contended that the transactions of purchase and sale of commercial space in question is real one and therefore, merely because the assessee has incurred loss on the said transaction, the same cannot be treated as bogus. He has pointed out that the original allottees of the commercial space from whom the assessee purchased, have paid full consideration on or before 04/11/2014 and the transaction of the said purchase and subsequent sale to the assessee was duly recorded in their books of account including balance sheet which has been accepted by the department. The assessee sold the said commercial space to M/s Laurel Infrastructure Pvt. Ltd. vide the agreement dated 12/3/2009 and the consideration received by the assessee on the date of agreement and thereafter as per the extended period is part of the record and duly reflected in the bank account of the parties as well as in the books of account, therefore, the transaction of sale against the said consideration which has exchanged hand has been established from the record. Hence, the ld counsel has prayed that once the assessee has established the genuineness of the claim and produced all the relevant evidence then the short term capital loss is liable to be allowed and the addition made by the Assessing Officer may be deleted.
73 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT
22. On the other hand, the ld CIT-DR has submitted that the assessee claimed to have sold the commercial space vide agreement dated 12/3/2009 which is executed on a non-judicial stamp paper of Rs. 50/- and therefore, in absence of registration of the agreement it is not a valid transaction of transfer of immovable property. The alleged transaction of purchase as well as sale were between the related parties and were not made at arm's length price, therefore, in absence of the present circumstances, the sale of the commercial space at huge loss of Rs. 24.25 crores does not support the normal transaction of transfer of commercial space. Hence, the Assessing Officer has rightly raised the objection about the transaction not at arm's length. The entire transaction of purchase and sale between the related parties are arranged with the view to avoid tax on the capital gain and therefore, these transactions are not real transactions but only arranged with a design to avoid tax. It is to be noted that as per the account of M/s Gold Cause Construction Pvt. Ltd. (developer), as appearing in the books of account of M/s Sharash Finance & Investment Co. P. Ltd., a sum of Rs. 14,56,50,000/- was appearing as debit balance on 01/04/2008 and the same amount was credited on 01/04/2008 through a general entry with a narration by advance against the property. A similar position is in respect of remaining agreements except in case of Sh. Ashok Kapur wherein debit balance was appearing 74 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT as on 01/04/2008 and a sum of Rs. 9.96 crores were credited on 01/04/2008 through a general entry. Hence, the entire transaction of purchase of commercial space by the five companies from whom the assessee purchased the said commercial space was not free from doubt. Since all the companies to the transaction of purchase and sale are a group companies and controlled by one Sh. Ashok Kapur, therefore, these are nothing but structured transaction in order to incur capital loss which may be set off against the capital gain on sale of shares by the assessee. The assessee has not explained the circumstances which has compelled the assessee for selling the commercial space at such a huge loss within a short period of six months of its purchase. Therefore, when the entire transactions of purchase, sale and books of loss is arising from the arrangements between the related parties then the transaction was rightly held as bogus transactions for the sole purpose of creating short term capital loss to be set off against the taxable income. He has relied upon the orders of the authorities below.
23. We have considered the rival submissions as well as relevant material on record. The Assessing Officer disallowed the loss on sale of commercial space measuring 1,09,342.53 Sq.Ft in Paradise Mall, Shivaji Place, District Centre, Main Ring Road, Raja Garden, New Delhi. It is not in dispute that the commercial space which is subject matter of 75 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT transaction was yet to be constructed by the developer M/s Gold Cause Construction Pvt. Ltd.. Initially the commercial space in question was acquired by five persons for a total consideration of Rs. 45,89,50,000/-, the details of the commercial space allotted by the developer to these five persons have been reproduced in the foregoing paragraph of this order. Thus, it is clear that the commercial space was initially allotted in the month of March, 2005. The assessee purchased the said rights of the commercial space measuring 1,09,342.53 Sq.Ft in Paradise Mall, Shivaji Place, District Centre, Main Ring Road, Raja Garden, New Delhi for a consideration of Rs. 54.44 crores vide agreement dated 15/9/2008. The details of the transactions are as under:
Sr. Name of the buyer Total Area Total sale
No. (Sq.Ft) consideration.
i) ABR Auto Pvt. Ltd. 11676.17 5,85,39,000/-
ii) Sharsh Finance & 34686.29 17,28,39,000/-
Investment Co. Pvt. Ltd.
iii) Mr. Ashok Kapur 23,723.34 11,89,68,800/-
iv) Mrs. Arti Kapur 4,817.32 2,32,40,200/-
v) Roz Ka Meo Component 34,439.42 17,08,13,000/-
Pvt. Ltd.
Total 1,09,342.53 54,44,00,000/-
Subsequently on 12/3/2009, the assessee sold the rights in the commercial space in question to the group company M/s Laurel Infrastructure Pvt. Ltd., for a consideration of Rs. 30,18,41,600/- vide agreement dated 12/3/2009. The main objection of the Assessing Officer is that the purchase and sale in question was through unregistered 76 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT agreements and therefore, the transactions are not valid. Further the Assessing Officer has held that the transaction is not at arm's length, therefore, the transaction claimed by the assessee are bogus transaction for claiming loss to be set off against the profits on sale of shares. It is pertinent to note that the acquisition of the right of commercial space in the mall was also through unregistered agreements and similarly the assessee transferred the said right of commercial space through unregistered agreements. The Assessing Officer has not disputed the transaction of purchase of the said commercial space by five companies/persons in their assessments and further the Assessing Officer has also accepted the transaction of purchase of the said commercial space by M/s Laurel Infrastructure Pvt. Ltd. from the assessee. The ld. counsel for the assessee has referred to the assessment orders in respect of these parties and pointed out that the Assessing Officer has not disputed the fact of initial allotment of the commercial space to these five persons and also accepted the transaction of purchase of commercial space by M/s Laurel Infrastructure Pvt. Ltd. from the assessee. The ld. CIT-DR has not disputed the fact that the department has not disputed the transactions in the hands of the other parties either five persons from whom the assessee purchased or the purchaser to whom the assessee sold the commercial space. Since it is the assessee who has claimed the 77 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT loss from the transaction of purchase and sale of commercial space, the Assessing Officer has question the transaction and disallowed the claim by treating the same as bogus. Therefore, once the transaction was accepted in the case of persons from whom the assessee has purchased the commercial space as well as in the hand of the person to whom the assessee has sold the commercial space in question then the genuineness of the transaction cannot be questioned and the same cannot be a ground for denying the claim of short term capital loss. The Assessing Officer cannot take a different stand on the same transaction in case of different parties to the same transaction, therefore, accepting the transactions in the hands of other parties it is not permissible to question the transaction in the hand of the assessee. As far as the non-registration of the agreement is concerned, it is also not in dispute that it is not a title document in respect of an immovable property but what is transferred through these agreements is a right in the immovable property. Therefore, the right of commercial space in the mall yet to be constructed was transferred through the agreement and once the transaction was accepted in cases of both the parties i.e. seller as well as purchaser and consideration has change hands and finally developer given possession of the constructed commercial space to the final purchaser then the said transaction cannot be held to be bogus for want of registration of the 78 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT agreement. The Assessing Officer has not disputed the purchase consideration paid by the assessee to the sellers who are five persons and even not disputed the transaction of allotment of the space by the developer to those five persons against the consideration. Once the consideration has changed hands from one party to another party then the entries in the books of account will not change the transaction from genuine to non-genuine. The terms and conditions under which the purchase and sale of the commercial space took place between the parties has been strictly complied with by each of the parties through payment of the consideration and correspondence of acknowledgement of transfer apart from the execution of the agreements. Therefore, once the payment of consideration by the assessee as well as receipt of the sale consideration by the assessee is established from the record as it has change hands through banking channels then the transaction cannot be held as an artificial transaction. Since it is not an immovable property but it was only a right in the immovable property, therefore, when all the parties to the transaction in question have accepted the transaction through agreements and the Assessing Officer has accepted the same in the hand of all other parties then the transaction in hand of the assessee cannot be questioned.
79 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT 23.1 There may be a possibility of understatement of the sale consideration which has resulted loss of Rs. 24.25 crores to the assessee, however, the Assessing Officer has not even made any attempt to determine the fair market price of the commercial space as on the date of sale and further it is not the case of the Assessing Officer that the assessee has received the consideration more than which is declared by the assessee. Therefore, though the transaction is between the related parties but once the Assessing Officer has not given a finding that the sale consideration is suppressed or understated then the transaction between the related parties cannot be held as bogus. Even otherwise when it is a transaction of sale of capital asset, there is no provision in the Act to adopt a deemed consideration on the principle of transfer pricing. The provisions of domestic transfer pricing has been brought into statute by the Finance Act, 2012 w.e.f. 01/4/2013, therefore, the said provision U/s 92BA of the Act are not applicable for the year under consideration. Further since this is not a business transaction or sale of the stock in trade but it is a transaction falling under the provisions of Section 45 of the Act, therefore, the provisions of Section 40A(2)(b) of the Act are not applicable. There must be a consistency and uniformity of view while taking the decision by the Assessing Officer on the transaction arising and resulting from one common exercise of relinquishment of right by one 80 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT party and acquisition of the same by another. Thus, the Assessing Officer is not permitted to take two opposite stance; one in the case of one party and another in the case of other party of the same transaction. The Assessing Officer has not given any finding that either the price of the commercial space is excessive or the sale price is suppressed in comparison to the fair market price of the same. Further the Assessing Officer accepted the sale of right of commercial space in question in hand of the purchaser while passing the assessment U/s 153A read with Section 143(3) of the Act in the case of M/s Laurel Infrastructure Pvt. Ltd. vide order dated 24/3/2014. Copy of the said order is placed at page NO. 704 to 707 of the paper book. Therefore, when the transaction of purchase and sale is real as evident from the record as well as from the facts of payment and receipt of the consideration then the action of the Assessing Officer treating the transaction as sham or bogus is without any tangible material rather contrary to the facts duly supported and substantiated by evidence. The ld. CIT(A) has confirmed the disallowance on the similar lines as it was disallowed by the Assessing Officer, hence in absence of any fact or finding given by the Assessing Officer that either the purchase price was excessive or the sale price is suppressed the addition made by disallowing the short term capital loss is not justified and the same is deleted.
81 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT
24. Now we take up the revenue's appeal, wherein the revenue has raised following grounds:
"(i) Whether in the fact and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding the Capital Gains on sale of 1377 equity shares of M/s Advance Automation & Process Control Pvt. Ltd.
as Long Term Capital Gain without appreciating the fact that in the guise of sale of share the assessee has sold immovable property situated at Plot no. 187, HSIDC Gurgaon and that the said transaction is in the nature of short term capital gain?
(ii) Whether in the facts and in the circumstance of the case and in law, the Ld. CIT was justified in not appreciating the facts brought on record by the AO after piecing the corporate veil and bring to the fore the basic facts of the case relating to the sale of shares of M/s Advance Automation and Process Control Pvt. Ltd.?
(iii) Whether in the facts and in the circumstance of the case and in law, the Ld. CIT was justified in allowing the appeal of the assessee and thus directing the AO to allow set off of short term capital loss on sale of shares of M/s L&T without appreciating the facts as brought on record by the AO?
The appellant craves the right to amend alter or add to any of the grounds of appeal given above."
25. Grounds No. 1 and 2 of the revenue's appeal are interlinked and are regarding profit on sale of shares of M/s Advance Automation & Process Control Pvt. Ltd. treated by the Assessing Officer as short term capital gain as against the long term capital gain declared by the assessee which was accepted by the ld. CIT(A). The assessee acquired 50% of the share holding equal to 1377 shares of M/s Advance Automation & Process Control Pvt. Ltd. on 05/5/2006. The remaining 50% shares were held by one Shri Ashok Kumar Munjal 37.5% and M/s H&H Real Estate Pvt. Ltd. 12.5%. Thereafter the entire share holding of M/s Advance Automation & 82 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT Process Control Pvt. Ltd. was disinvested by all three share holders including the assessee to M/s Rolta Pvt. Ltd. on 21/7/2008. The assessee claimed the profit on sale of the shares as long term capital gain as the shares were sold after more than two years of acquisition. However, the Assessing Officer held that it is a transaction of sale of immovable property held by M/s Advance Automation & Process Control Pvt. Ltd. through transfer of the entire holdings and treated the profit as short term capital gain. The ld. CIT(A) has accepted the claim of the assessee and held that the land was owned by the company which is a separate legal entity and therefore what was transferred by the assessee was only shares of the said company and not the property owned by the company.
26. Before us, the ld CIT-DR has submitted that during the survey and post survey investigation, Shri Rajiv Agarwal, Director of M/s Rolta Pvt. Ltd. in his statement stated that M/s Rolta Pvt. Ltd. wanted to buy land and building in an around Gurgaon and identified the land which was owned by M/s Advance Automation & Process Control Pvt. Ltd.. The price of the property was negotiated at Rs. 154 crores, however, subsequently, the property was purchased by taking over 100 shares of M/s Advance Automation & Process Control Pvt. Ltd. as it was agreed by the shareholders of the said company. This clearly established that the underlying asset was sold and transfer of shares of M/s Advance 83 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT Automation & Process Control Pvt. Ltd. was only a facade to minimize the tax liability. Thus, the ld. CIT-DR has submitted that the substance of the transaction is transfer of the immovable property being land and building through the transfer of entire shareholdings of the said company. Since the said property was sold less than three years from the date of acquiring the shares by the assessee, therefore, the profit arising from the said transaction was treated as short term capital gain by the Assessing Officer. He has relied upon the order of the Assessing Officer.
27. On the other hand, the ld counsel for the assessee has submitted that the finding of the Assessing Officer are based on fundamental misconception of both the facts and law. It was contended that the Assessing Officer has not disputed that there was transfer of shares alone by the assessee as share holder of M/s Advance Automation & Process Control Pvt. Ltd.. The assessee received the sale consideration on account of sale of shares of M/s Advance Automation & Process Control Pvt. Ltd. and not on account of sale of land and building even there was no document for transfer of the immovable property being land and building owned by the said company. Thus, under no stretch of imagination, it can be held that the assessee transferred any immovable property and not shares. The land and building was owned by M/s Advance Automation & Process Control Pvt. Ltd. and not by the shareholders and therefore, the 84 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT sale of land and building can be done only by the company and not by the shareholders. Thus, the ld counsel has submitted that it is only a case of sale of shares, therefore, the profit from the transaction is long term capital gain. He has further contended that it is settled proposition of law that the revenue is entitled to invoke the lifting of corporate veil if the fact so warrants but onus is on the revenue to establish the dominion object of the transfer and how the said transaction resulted into evasion or avoidance of tax. There is no material on record which could establish that the transaction of sale of shares would result in any form of tax evasion or avoidance by the assessee. He has relied upon the decision of the Hon'ble Supreme Court in the case of Vodafone International Holdings B.V. Vs Union of India 341 ITR 1 (SC) and submitted that the Hon'ble Supreme Court has held that the transaction of share has to be accepted as such and such a transaction cannot be recategorised as the transaction of controlling interest or business shall be held by the company whose shares have been transferred. The ld. counsel has pointed out that in the said case also, the revenue attempted to assess the capital gain on sale of capital asset held by the company and thereby to look through the agreements to bring to the tax and income in respect of the sale consideration arising on sale of shares. However, the Hon'ble Supreme Court has held that it is not "look through test" but "look at test" which 85 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT must be applied so as to accept the claim of the assessee. The ld. counsel has also relied upon the decision of Hon'ble Supreme Court in the case of Union of India Vs. Aazadi Bachao Andolan (supra) and submitted that the doctrine of piercing the veil of incorporation cannot be applied in general but it can be applied only to life the mast and to taken into account what lies behind in order to prevent fraud. Therefore, in the normal case of transaction even resulting in reduction of tax liability would not warrant applied the doctrine of lifting of corporate veil. He has supported the order of the ld. CIT(A).
28. We have considered the rival submissions as well as relevant material on record. The Assessing Officer has not disputed that the assessee acquired 50% shareholding of M/s Advance Automation & Process Control Pvt. Ltd. on 05/05/2006. The status of the assessee qua M/s Advance Automation & Process Control Pvt. Ltd. is only the share holder holding 50% of the equity shares of the said company. The ownership of the said company got changed when the assessee alongwith other share holders Shri Ashok Kumar Munjal and H&H Real Estate Pvt. Ltd. sold the entire shareholding of M/s Advance Automation & Process Control Pvt. Ltd. to M/s Rolta Pvt. Ltd.. The said transaction of sale of share was undisputedly after more than two years from the date of acquisition. The assessee claimed the profit arising from the sale of 86 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT shares as long term capital gain and the said claim cannot be disputed in normal circumstances of sale of shares after two years, however, the Assessing Officer held that the company M/s Advance Automation & Process Control Pvt. Ltd. was having only the asset as plot of land and building thereon and therefore, what was sold by the assessee and other shareholders of the said company was the asset being the land and building. Accordingly, the Assessing Officer treated the sale of shares of M/s Advance Automation & Process Control Pvt. Ltd. as the transactions of sale of land and consequently the gain was treated as short term capital gain being the sale was less than three years. It is not the case of the Assessing Officer that the transaction of entire share holding was a design to play fraud with the sole purpose of avoiding tax but the transaction as such was not questioned by the Assessing Officer. The Assessing Officer has tried to lift the corporate veil and held that behind the transaction of sale of shares what was really transferred was the land held by the said company. It is pertinent to note that when the land was owned and held by M/s Advance Automation & Process Control Pvt. Ltd. then the said asset can be sold only by the said company or on behalf of the said company. The shareholders have not ownership right or title over the asset held by the company and consequently have no right to transfer the asset in their personal capacity. The purchaser of the share holding of 87 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT M/s Advance Automation & Process Control Pvt. Ltd. from the assessee might have the interest in the land and building held by the company and therefore, the said motive of the purchaser cannot be a reason or ground for lifting the corporate veil and reclassifying the transaction from sale of shares to sell of land and building. Therefore, the motive of M/s Rolta Pvt. Ltd. who has acquired the entire shareholding of M/s Advance Automation & Process Control Pvt. Ltd. from the assessee and other shareholders would not change the nature of transaction warranting the lifting of corporate veil. Even otherwise the purchaser of shareholdings would not become the owner of land and building held by M/s Advance Automation & Process Control Pvt. Ltd. as the ownership of the land will remain intact with M/s Advance Automation & Process Control Pvt. Ltd.: Being the 100% holding company, M/s Rolta Pvt. Ltd. would be able to control the affairs of the said company and can use the business asset to its best interest therefore, the transaction which was only sale of shares cannot be reclassified as sale of land. The ld. CIT(A) has considered and decided this issue in para 4 to 4.8 as under:
"4. I have duly considered the submissions of the appellant, assessment order and the material placed on record. It may be mentioned that the word "Company" imports an association of number of individuals formed for a common purpose. When such an association is incorporated, it becomes a
88 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT body corporate, a legal entity, separate and distinct from such individuals. Such incorporation must owe its existence to a statutory authority. The Corporation/Company, in law, is a juristic person and has a separate legal entity of its own. Once incorporated, the entity of Company is entirely separate from that of its shareholders. It bears its own name; has a seal of its own; its assets are separate and distinct from those of its members; it can sue and be sued exclusively for its own purpose; liability of members or shareholders is limited to the capital invested by them; creditors of Company cannot obtain satisfaction from the assets of shareholders/members of company and similarly creditors of members/shareholders have no right to the assets of Company. This position was recognised in Salomon v. Salomon & Co. 1897 AC 22. When the shares of a company are bought, it cannot be said that the shareholder acquired any interest in the assets of the company, therefore by the same analogy when the shares are transferred, it cannot be said that the shareholders has transferred the assets of the company. It may be mentioned that in case of Mrs. Bacha F. Guzdar Vs CIT 27 ITR 01, it was observed by the Hon'ble Apex Court that:
"That a shareholder acquires a right to participate in the profits of the company may be readily conceded but it is not possible to accept the contention that the shareholder acquires any interest in the assets of the company. The use of the word "assets" in the passage quoted above cannot be exploited to warrant the inference that a shareholder, on investing money in the purchase of shares, becomes entitled to the assets of the company and has any share in the property of the company. A shareholder has got no interest in the property of the company though he has undoubtedly a right to participate in the profits if and when the company decides to divide them. The interest of a shareholder vis-a-vis the company was explained in the Sholapur Mills case [1950] SCR 869 at
904. That judgment negatives the position taken up on behalf of the appellant that a shareholder has got a right in the property of the company. It is true that the shareholders of the company have the sole determining voice in administering the affairs of the company and are entitled, as the articles of association, to declare that dividends should be distributed out of the profits of the company to the shareholders but the
89 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT interest of the shareholder either individually or collectively does not amount to more than a right to participate in the profits of the company. The company is a juristic person and is distinct from the shareholders. It is the company which owns the property and not the shareholders." (emphasis supplied).
4.1 It is to be noted that the immovable property under consideration at Plot No. 187, HSIDC Gurgaon was owned by M/s AAPCPL only and not by its shareholders and they were not having authority or right over the assets of M/s AAPCPL. The title of the immovable property remained with M/s AAPCPL, even after the transfer of equity shares by the appellant company along with other two share holders to M/s Rolta India Ltd. The possession and enjoyment of the immovable property remained with M/s AAPCPL. The three shareholders of M/s AAPCPL have transferred their shareholdings only and not the immovable property of M/s AAPCPL. 4.2 It may be mentioned that in the case of Vodafone International Holdings Vs Union of India And Another 341 ITR 01 (SC), it was observed by the Hon'ble Apex Court that:
"A controlling interest is on incident of ownership of shares in a company, something which flows out of the holding of shares. A controlling interest is, therefore, not an identifiable or distinct capital asset independent of the holding of shares. The control of a company resides in the voting power of its shareholders and shares represent an interest of a shareholder which is made up of various rights contained in the contract embedded in the articles of association. The right of a shareholder may assume the character of a controlling interest where the extent of the shareholding enables the shareholder to control the management. Shares, and the rights which emanate from them, flow together and cannot be dissected.
The tax consequences of a share sale would be different from the tax consequences of an asset sale. A slump sale would involve tax consequences which could be different from the fax consequences of a sale of assets on itemized basis" (emphasis supplied) 90 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT 4.3 It is to be noted that the dispute under consideration is squarely covered by the decision of the Hon'ble Karnataka High Court in the case of Bhoruka Engineering Industries. Ltd. 356 ITR 25 (Kar.), wherein, it was held that:
"19. In view of the judgment of the Apex Court in Vodafone, it is held that "tax planning may be legitimate provided it is within the framework of law".
"Colourable devices cannot be a part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid payment of tax by resorting to dubious methods". It is an obligation of every citizen to pay the faxes without resorting to subterfuges. Therefore, though all tax planning is illegal / illegitimate / impermissible, the revenue cannot tax a subject without a statute to support and in the course we also acknowledge that every taxpayer is entitled to arrange his affairs so that his taxes shall be as low as possible and that he is not bound to choose that pattern which will replenish the treasury. A Citizen may legitimately claim the advantage of any express: terms or of any omissions that he can find in his favour in faxing statutes. His legal right so to dispose of his capital and income as to attract upon himself the least amount of tax is fully recognized. The legal right of taxpayer to decrease the amount of what otherwise would be his taxes, or altogether to avoid them by means which tire law permits, cannot be doubted. If the taxpayer is in a position to carry through a transaction in two alternative ways, one of which will result in liability to tax and the other of which will not, is at liberty to choose the latter and to do so effectively in the absence of any specific tax avoidance provision. The fact that the motive for a transaction may be to avoid tax does not invalidate it unless a particular enactment so provides. A tax-saving motivation does not justify the taxing authorities or the Courts in nullifying or disregarding a taxpayer's otherwise proper and bona fide choice among courses of action. Tax planning may be legitimate provided it is within the framework of law. The intention of the legislature in a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. In a taxing Act, it is not possible to" assume any intention or governing purpose of the statute more than what is stated in the plain language. Therefore, as long as the arrangement of the assessee to avoid payment of tax do not contravene any statutory provision and is achieved within the four corners of law, it cannot be found fault with. If the transaction in question is sham or colourable and entered into with the sole intention of evading payment of tax, then such a transaction would not have any legitimacy. Therefore, a colourable device cannot be a part of tax planning. Therefore, in each case, the transaction in question and the material on 91 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT record has to be carefully examined to find out whether the transaction is "sham" or "unreal" or "colourable device" to evade payment of tax.
20. In the instant case, as set out above, according to the revenue, on the day the assessee transferred their share from BFSL, the only property which was available in BFSL was this land. Before transfer of the shares, the BFSL has systematically reduced this investment except that of the land instead of trading its shares through BSE. The shares were" traded through Magadh Stock Exchange. In the agreement entered into for transfer of shares, reference is only made to the sale of the land. Therefore, what was attempted to for transfer of shares is nothing but the transfer of immovable property. On the date of transfer, BFSL has become a Shell company. Therefore, it was a deliberate structural device to avoid tax implications. The grievance is, the property which was purchased for 3.75 crore was sold to a consideration of Rs. 89,28,36,500/-, the assessee share being Rs. 20,29,08,626/- without paying capital gain tax. From these facts, it is clear DLFCDL paid the market value and purchased the shares from the assessee. Therefore, the transaction of shares is not a nominal one. It is not a sham transaction. It is a real transaction for valuable consideration. The effect of the transaction is DLFCDL having acquired the shares became entitled to enjoy the asset of the company which was held by BFSL. For effecting the said transfer, instead of trading those shares through Bangalore Stock Exchange, it was traded through Magadh Stock Exchange. The material on record shows no trading activities took place in the BSE to the' relevant period. The attempt on the part of the assessee to trade their shares through other Stock Exchange was not fulfilled. But they were able to trade the said shares through Magadh Stock Exchange was fulfilled though the trading licence of Magadh Stock Exchange had been suspended earlier, subsequently it was revoked and after such revocation, the assessee traded the shares through Magadh Stock Exchange and therefore, the requirements of selling has been complied with. For each share, the assessee wanted permission from SEBI without being made available to the open public at a price of Rs. 2,250/-. When it is traded through Magadh Stock Exchange, each share has fetched a sum of Rs. 4,290/- and BFSL admittedly has paid Rs. 89,28,36,500/- for the entire extent of 15 acres of land for which, a sum of Rs. 20,29,08,626/- being the share value of the assessee. In the light of these undisputed facts, it cannot be said that the transfer of share by the assessee to BFSL was a colourable device to avoid payment of tax. If BFSL has sold the shares by executing a registered sale deed and received the sale consideration, then, BFSL ought to have paid capital gains on the said consideration. That is one mode through which BFSL-could have sold the property belonging to it. The law also provides 92 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT for transfer of shares by the shareholders and this route the assessee has adopted in the instant case. By transferring 98.3% of shares held by the shareholders, virtually, the complete control of the company has been handed over to the BFSL and they have received the consideration for the shares held by them, may be proportionate to the value of the land on the date of transfer. But that does not make the transaction "colourable" or "unreal" or "sham."
21......
24. In the instant case, the assessee is holding the shares in BFSL from 01.10.1984. Therefore, it is a long term Capital asset. The transaction has taken place subsequent to 28.09.2004 as such the second condition is fulfilled. They have paid the security transaction tax to Magadha Stock Exchange. Where all these three conditions stipulated under Section 10(38) of the Act are fulfilled, the assessee is entitled to the benefit flowing therefrom i.e., the income from such transfer shall, not be included in the total income of the assessee for the previous year. Merely because if a registered sale deed has been executed by BFSL selling the land in favour of DFL-CDL in which event capital gain should have been paid on the sale consideration, is no reason to hold that when a shareholder of BFSL transfer his share for a consideration, after complying with the legal requirements, is not entitled to the benefit of tax exemption. All the authorities are carried away by this aspect: of the matter and because the assessee was able to avoid payment of income tax, consequently the Department was deprived of the tax, they have come to the conclusion that it is a colourable device and tax planning to avoid payment of tax. The assessee by resorting to such o tax planning, has taken advantage of the benefit of the law or the loopholes in the law, which had enured to his benefit. After seeing how this loophole has been exploited within four corners of the law, it is open to the Parliament to amend the law plugging the loophole. However, by any judicial interpretation we cannot read into the Section, which was not intended to, by the Parliament at the time of enacting this provision. The language employed in Section 10(38) of the Act is simple and unambiguous and it makes no distinction between the transfer of share of company with an immovable asset and movable asset, instead of executing a sale deed in respect of the immovable property by the company, which is owning the land. If the shareholder chooses to transfer the lands and part with the land to the purchaser of the shares, it would be a valid legal transaction in law and merely because they were able to avoid payment of tax, it cannot be said to be a colourable device or a sham transaction or an unreal transaction.
93 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT
25. As set out above, the transaction is real, valuable consideration is paid, all legal formalities are complied with and what is transferred is the Shares and not the immovable property. The finding of the Assessing Authority that it is a transfer of immovable property is contrary to law and contrary to the material on record. They committed a serious error in proceeding on the assumption that the effect of transfer of share is transfer of immovable property and therefore, if the veil of the company is lifted what appears to them is transfer of immovable property. Such a finding is impermissible in law. Unfortunately, three authorities committed the very same mistake which is ex facie, illegal, contrary to settled legal position and therefore, requires to be set aside. In that view of the matter, we pass the following order:
(a) Appeal is allowed.
(B) The impugned order passed by all the three authorities is hereby set aside.
(c) The substantial question of law is answered in favour of the assessee and against the revenue." (emphasis supplied) 4.4 In the case of DCIT Vs Maya Appliances (P.) Ltd. [2017] 82 taxmann.com 447 (Chennai - Trib.), though the issue was relating to application of provisions of section 50C of the Act but it was held by the Hon'ble Tribunal that by transferring the shares, the assets of the company were not transferred by the shareholders. It would be appropriate to reproduce the relevant extracts as under:
"5. We have heard both the parties and perused the material on record. In this case, the main contention of the Id. A.R is that the provisions of the section 50C does not attract to the transactions, which ore not registered with the Stomp Duty Valuation Authority and there was no direct transfer of land and building or both. In the present case, the assessee company, sold the shores of M/s. General Wood Industries (P) Ltd., at its prevailing book value to the following persons:--
Mr. T.T. Varadarajan 50% -12,000 shores at Rs. 100 - Rs. 12 lakhs Mrs. Mayo Varadarajan 50% -12,000 shores of Rs. 100 - Rs. 12 lakhs 94 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT Thus, the ownership of the company viz. M/s. General Wood Industries (PJ Ltd., now owned by the above two persons jointly. According to Id. Assessing Officer, the assessee sold the actual land and building in the guise of sole of shores to the above persons and the provisions of the section 50C of the Act is applicable, though the properties ore not registered with the Stomp Valuation Authority. In the instant case, what was transferred by the assessee, even the shares in M/s. General Wood Industries (P) Ltd., and not the land and building or both. The assets transferred being the shares, which was never port of assessment of Stamp Duty Authority of the State Government. In such circumstances that cannot be no question of invoking the provisions of the section 50C of the Act or there is no direct transfer as enumerated in Sec.50C of the Act r.w.s 2(47) of the Act. Being so, Ld. CIT (A) had taken a correct view of the facts of the case by placing reliance on the judgement of Karnataka High Court in the case of Bhoruka Engineering Inds. Ltd. (supra) and also the judgement of Tribunal in the case of Asif Abdul Kader Fazlani (supra). Accordingly, we are inclined to uphold the order of Ld. CIT (A). Hence, the ground raised by the Revenue stands dismissed.
6. In the result, the appeal of the Revenue is dismissed."(emphasis supplied) 4.5 In the case of Irfan Abdul Kader Fazlani Vs ACIT [2013] 29 taxmann.com 424 (Mumbai - Trib.), the assessee was a shareholder of KMPL. The company KMPL had issued 3813 shares, out of which assessee was holding 306 shares. KMPL also owned two flats. During relevant assessment year, assessee alongwith other shareholders sold all the shares of KMPL to one 'R'. The income earned from sale of shares was declared under head 'Long term capital gain1. The AO concluded that by engineering the sale of the shares of all other shareholders of the company i.e. KMPL, the assessee effectively transferred the immovable property belonging to the assessee, therefore, it is an indirect way of transferring the immovable properties i.e. flats, for lesser consideration and, therefore, the provisions of section 50C had application to the facts of the case. Consequently, the AO has applied the guidelines prices of the flats and worked out the capital gains. It was held by the Hon'ble ITAT, Mumbai that:
''The capital assets that are covered under the provisions are land or building or both. Expression "transfer" shall have to be a direct transfer as defined u/s 95 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT 2(47) of the Act which does not include the tax planning adopted by the assessee. It is settled issue that the provisions of section 50C are deemed provisions and, therefore, the same have to be interpreted strictly in accordance with the spirit of the provisions. In the light of the above legal interpretation of section 50C of the Act, we need to examine the facts of the present case. In the instant case, what transferred by the assessee are the shares in the company and not the land or building or both. Assessee does not have full ownership on the flats which are owned by the company. The transfer of shares was never a part of the assessment of the Stamp duty Authorities of the State Government. The company was deriving income, taxable under the head 'income from property' for more than a decade. The expression "assessable" is inserted in section 50C(1) of the Act is not relevant for the impugned assessment years. In such circumstances, the AO's decision to invoke the provisions of section 50C to the tax planning adopted by the assessee is not proper and it does not have the sanction of the provisions of IT Act." (emphasis supplied) 4.6 In a recent decision dated 13.12.2017, in the case of Shri Navrattan Kothari vs. ACIT in ITA No. 425/JP/2017, it was observed by the Hon'ble ITAT, Jaipur that:
"7.....................
Further; reassessment proceedings were initiated by the AO on the premise that the assessee has not disclosed the purchase consider of the alleged land, however, it is pertinent to note that the assessee did not purchase any land as it remained with M/s Shri Kalyan Buildmart Pvt. Ltd. and there is no change of the ownership of the said land as belong to M/s Kalyan Build mart Pvt. Ltd. We find that there is no transaction of sale and purchase of land in question between the assessee and Shri Madan Mohan Gupta. What was transferred by Shri Madan Mohan Gupta and his wife Smt. Shashi Kala Gupta were the shares of M/s Kalyan Buildmart Pvt. Ltd. which owned the land in question. There may be a case of under valuation of shares and understatement of consideration paid by the assessee however, it is not a case of purchase of land." (emphasis supplied) 4.7 It is also noted that the appellant has held the equity shares of M/s AAPCPL for more than a period of 12 months, therefore, these shares become the long term capital assets and consequently, the capital gains on the transfer of such equity shares is to be assessed as long term capital 96 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT gains. If, tor the time being, it is assumed that M/s AAPCPL has reduced its tax liability on sale of immovable property through sale of transfer of equity shares by the three shareholders, as alleged by the AO in the assessment order, then the action has to be taken in the hands of M/s AAPCPL and not in the hands of the appellant.
4.8 In view of the above discussion, looking to the facts and circumstances of the case, it is held that the AO was not justified in concluding that the appellant has sold the immovable property owned by M/s AAPCPL, which is contradictory to the fact that even after the transfer of equity shares by the appellant company and other two shareholders, the immovable property was still in the name of M/s AAPCPL, it was in its possession only and was being enjoyed by it. Thus, the AO is hereby directed to treat the capital gain on the sale of shares of M/s AAPCPL held by the appellant as long term capital gain. Hence, this ground of appeal is hereby allowed."
Once the plain and simple fact is not in dispute that what is transferred by the assessee is the shares of M/s Advance Automation & Process Control Pvt. Ltd. and not the asset owned by the said company then the ownership of the asset held by the company does not effect by change of ownership of the company itself. The change in the shareholdings of the company shall not amount to change of the holding of asset by the company. It is settled proposition of law that the company is separate legal entity then its share holders. The asset owned by the company would remain the asset of the company irrespective of change of shareholding of such company. The changing hands of shares of company 97 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT would amount the change of ownership of the company and not the change of ownership of the asset held by the company. The Hon'ble Supreme Court in the case of Vodafone International Holdings B.V. Vs Union of India (supra) while considering the identical issue in para 168, 169 and 179 has held as under:
"168. Substantial territorial nexus between the income and the territory which seeks to tax that income, is of prime importance to levy tax. Expression used in Section 9(1)(i) is "source of income in India" which implies that income arises from that source and there is no question of income arising indirectly from a source in India. Expression used is "source of income in India" and not "from a source in India". Section 9 contains a "deeming provision" and in interpreting a provision creating a legal fiction, the Court is to ascertain for what purpose the fiction is created, but in construing the fiction it is not to be extended beyond the purpose for which it is created, or beyond the language of section by which it is created. [See CIT v. Shakuntala AIR 1966 SC 719, Mancheri Puthusseri Ahmed v. Kuthiravattam Estate Receiver [1996] 6 SCC 185.
169. Power to impose tax is essentially a legislative function which finds in its expression Article 265 of the Constitution of India. Article 265 states that no tax shall be levied except by authority of law. Further, it is also well settled that the subject is not to be taxed without clear words for that purpose; and also that every Act of Parliament must be read according to the natural construction of its words. Viscount Simon quoted with approval a passage from Rowlatt, J. expressing the principle in the following words:
"In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. [Cape Brandy Syndicate v. IRC [1921] 1 KB 64, P. 71 (Rowlatt, J.)]"
...............
176. Section 9(1)(i ), therefore, in our considered opinion, will not apply to the transaction in question or on the rights and entitlements, stated to have transferred, as a fall out of the sale of CGP share, since the Revenue has failed to establish both the tests, Resident Test as well the Source Test."
98 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT In view of the above facts and circumstances and as well as the settled proposition of law that the tax planning may be legitimate provided its within the framework of law and every tax payer is entitled to arrange its affairs so that his taxes shall be as low as possible and not bound to chose that pattern which will replenish the treasury. We hold that the transaction of sale of shares is a real transaction of transfer of shares and nothing else when there is no allegation of any fraudulent intention behind the transaction and avoidance of tax but the assessee has offered the income as long term capital gain which was proposed by the Assessing Officer to assessee as short term capital gain. Accordingly we do not find any error or illegality in the impugned order of the ld. CIT(A) qua this issue.
29. Ground No.3 of the revenue's appeal is regarding disallowance of short term capital loss on sale of shares of L&T Ltd. by the Assessing Officer by invoking the provisions of Section 94(8) of the Act, which was deleted by the ld. CIT(A). The assessee purchased 77800 equity shares of L&T Ltd. for a consideration of Rs. 19,99,40,244/- in the month of September, 2008. Subsequently M/s L&T Ltd. has decided to issue and allot bonus shares in the ratio of 1:1 and the assessee was allotted equal number of bonus shares on 08/10/2008. Thereafter the assessee 99 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT sold 77800 equity shares in three trenches for a total consideration of Rs. 7,05,13,409/-. The details of sales of shares are as under:
Date No of shares Amount (Rs.)
03/11/2009 58400 9,11,72,453/-
19/03/2010 15440 2,49,56,444/-
23/03/2010 3500 56,55,715/-
29/03/2010 460 7,35,012/-
Thus, the assessee incurred short term capital loss of Rs. 12,94,26,835/- on sale of 77800 equity shares of L&T Ltd. During the assessment proceedings, the Assessing Officer proposed to invoke Section 94(8) of the Act contemplates bonus striping and thereby ignoring the loss arising from the said transaction of purchase and sale of shares of L&T Ltd. The assessee objected to the proposed disallowance, however, the Assessing Officer finally disallowed the claim of short term capital loss and consequently made the addition on this account of Rs. 12,94,26,835/-.
30. On appeal, the ld CIT(A) has held that the provisions of Section 94(8) of the Act are not applicable in case of purchase and sale of shares as the said Section is applicable only in case of purchase and sale of units.
31. Aggrieved by the order of the ld. CIT(A), the revenue has raised this ground. Before us, the ld CIT-DR has submitted that the Assessing Officer has not only invoked the provisions of Section 94(8) of the Act but also held that the purchase and sale of shares are not genuine transaction 100 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT and disallowed the claim of short term capital loss. The ld CIT-DR has further contended that the sale of shares is after the bonus shares were issued and consequently the cost of acquisition would be adjusted cost of total number of shares held by the assessee after the bonus issued. The ld. CIT-DR has relied upon the order of the Assessing Officer.
32. On the other hand, the ld counsel for the assessee has submitted that the assessee sold the original quantity of shares held by it prior to the bonus share issued. Therefore, the purchase price of the original shares shall be considered for computing the capital gain or loss. The cost of bonus shares is NIL and therefore, on sale of bonus shares, the capital gain would be computed by taking the cost of acquisition at NIL. He has further contended that the Assessing Officer himself admitted that the assessee had purchased shares of L&T Ltd. and sold such shares after having received bonus shares, then the finding of the Assessing Officer questioning the genuineness of the transaction is contrary to the accepted facts. He has thus, contended that the order of the Assessing Officer is nothing but invalid and without any basis just to disallow the claim of the assessee. The ld counsel has submitted that the details of purchase and sale of shares were very much available on record as the shares were credited in the DEMAT account of the assessee and sold from the DEMAT account of assessee, therefore, the entire transaction of purchase and 101 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT sale is from the DEMAT account of the assessee which cannot be disputed. The assessee also produced all the relevant documents being brokers note, ledge account, transaction statement, copy of DEMAT account and copy of the bank statement reflecting the payment of purchase consideration and receipt of sale consideration. The bonus shares were also reflected in the ledger account as well as in the other record. It is also a transaction which can be verified independently from independent sources. Hence, the ld counsel has submitted that the Assessing Officer without conducting any enquiry in respect of the genuineness of the transaction has given a very casual and vague finding. He has pointed out that since there are two lot of shares acquired by the assessee, one the original lot of 77800 equity shares and subsequently equal number of bonus shares issued by the company. Therefore, what was sold by the assessee was the original shares based on the FIFO method. He has supported the order of the ld. CIT(A) on this issue.
33. We have considered the rival submissions as well as relevant material on record. The shares of L&T Ltd. are listed in the stock exchange and further the Assessing Officer itself has given details of purchase, bonus shares and sale of the shares by the assessee in the assessment order. Therefore, the question of genuineness of the purchase and sale of shares was not the subject matter of enquiry of the 102 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT Assessing Officer in the assessment order. Hence, the casual observation of the Assessing Officer regarding the genuineness of the purchase and sale is contrary to the admitted facts on record. Even otherwise when the assessee has produced all the supporting evidence of purchase and sales shares of L&T Ltd. which is a listed company then if the Assessing Officer was having any serious doubt about the genuineness of the transaction, the same could have been verified by conducting any independent enquiry from independent sources. Hence, we do not find any substance or merits in the said finding of the Assessing Officer which is contrary to the admitted facts on record. As regards the applicability of the provisions of Section 94(8) of the Act we note that the said provision is applicable in the case of purchase and sale of units and in between the bonus units were issued and received by the unit holder. There is a distinction in the language employed in Section 94(7) and 94(8) of the Act. The provisions of Section 94(7) are applied to securities as well as units whereas the provisions of Section 94(8) of the Act stipulates the disallowance of loss on purchase and sale of units within the specific period to the record date subject to the condition that the additional units were also allotted without any payment. Thus, the provisions envisage disallowance of loss on purchase and sale of units (Mutual Funds) and not purchase and sale 103 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT of shares or securities. The ld. CIT(A) dealt this issue in para 3.1 to 3.3 as under:
"3.1 It is evident from the above details that the appellant company has purchased shares of M/s L&T cum bonus i.e. it was entitled for the bonus shares and when, it sold the shares, the price was ex-bonus i.e. purchaser was not entitled for bonus shares. The bonus shares were issued to the appellant on 08.10.2008 without any cost. It could be seen from the provisions of section 94(8) of the Act that these are applicable to only "Units" and the meaning of "Unit" is assigned to in clause (b) of the Explanation to Section 115AB which provides that "Unit" means a unit of a mutual fund or UTI. Thus, it is clear that equity shares are not covered under the provisions of section 94(8) Act and as such these are not applicable in the instant case under consideration. It is also noted that as per provisions of section 55(2) (iiia) of the Act, the cost of acquisition of bonus shares is to be taken as Nil and therefore, the cost of shares acquired cum bonus would not be diluted on account of issue of bonus shares to the appellant.
3.2 It is noted that the sale and purchase of these shares were executed on stock exchange through stock brokers and the appellant has paid STT on purchase as well sale of these shares. It is further noted that the AO has issued show cause notice u/s 94(8) of the Act but has made disallowance by holding that the genuineness of the purchase and sale of shares of L & T could not be proved by the appellant as the complete details were not provided. I fail to understand on what basis, the AO has arrived to the conclusion that the purchase and sale of shares of M/s L&T were not genuine without discussing the matter in the assessment order.
3.3 In view of the above discussion and looking to the totality of facts and circumstances of the case, it is held that the AO was not justified in
104 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT disallowing short term capital loss of Rs. 12,94,26,835/- on the purchase and sale of shares of M/s L & T and thus, the AO is hereby directed to allow the same to the appellant company. Hence, this ground of appeal is hereby allowed."
It is clear that it is not a case of dividend striping as provided in Section 94(7) but it is a case of bonus issue of shares, therefore, the provisions of Section 94(8) of the act cannot be applied in case of purchase and sale of shares/securities. The term unit is defined under the explanation to Section 94(8) of the Act as under:
Section 94(8) Explanation.--For the purposes of this section,--
(a) "interest" includes a dividend ;81
[(aa) "record date" means such date as may be fixed by--
(i) a company for the purposes of entitlement of the holder of the securities to receive dividend; or
(ii) a Mutual Fund or the Administrator of the specified undertaking or the specified company as referred to in the Explanation to clause (35) of section 10, for the purposes of entitlement of the holder of the units to receive income, or additional unit without any consideration, as the case may be;]
(b) "securities" includes stocks and shares ;
(c) securities shall be deemed to be similar if they entitle their holders to the same rights against the same persons as to capital and interest and the same remedies for the enforcement of those rights, notwithstanding any difference in the total nominal amounts of the respective securities or in the form in which they are held or in the manner in which they can be transferred;
82 [(d) "unit" shall have the meaning assigned to it in clause (b) of the Explanation to section 115AB.] 105 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT Therefore, as per clause (d), unit defined as the meaning assigned to it in clause (b) of explanation to Section 115AB of the Act which reads as under:
"(b) "unit" means unit of a mutual fund specified under clause (23D) of section 10 or of the Unit Trust of India;"
Therefore, the unit is defined as unit of mutual fund or Unit Trust of India. The said definition of unit does not include share or security. We may fortify this view by the decision of Banglore Benches of the Tribunal in the case of DCIT Vs. B.G. Mahesh 43 taxmann.com 158 (Bang Trib) in para 6.4.4 to 6.4.7 as under:
"6.4.4 Section 94(8) of the Act was introduced w.e.f. 1.4.2005 (viz. Assessment Year 2005-06) to curb the practice of creation of losses through bonus stripping as has been carried out by the assessee in the case on hand. This section has been introduced under Chapter X of the Act - "Special Provisions relating to Avoidance of Tax". Section 94 of the Act in Chapter X of the Act bears the heading "Avoidance of tax by certain transactions in securities."
The provisions of section 94(8) of the Act read as under :
'94 (8) Where --
(a) any person buys or acquires any units within a period of three months prior to the record date;
(b) such person is allotted additional units without any payment on the basis of holding of such units on such date;
(c) such person sells or transfers all or any of the units referred to in clause (a) within a period of nine months after such date, while continuing to hold all or any of the additional units referred to in clause (b), then, the loss, if any, arising to him on account of such purchase and sale of all or any of such units shall be ignored for the purposes of computing his income chargeable to tax and notwithstanding anything contained in any other provision of this Act, the amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of such additional units referred to in clause (b) as are held by him on the date of such sale or transfer.
106 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT Explanation. -- For the purposes of this section, -
(a) "interest" includes a dividend ;
(aa) "record date" means such date as may be fixed by--
(i) a company for the purposes of entitlement of the holder of the securities to receive dividend; or
(ii) a Mutual Fund or the Administrator of the specified undertaking or the specified company as referred to in the Explanation to clause (35) of section 10 the purposes of entitlement of the holder of the units to receive income, or additional unit without any consideration, as the case may be;
(b) "securities" includes stocks and shares ;
(c) securities shall be deemed to be similar if they entitle their holders to the same rights against the same persons as to capital and interest and the same remedies for the enforcement of those rights, notwithstanding any difference in the total nominal amounts of the respective securities or in the form in which they are held or in the manner in which they can be transferred;
(d) "unit" shall have the meaning assigned to it in clause (b) of the Explanation to section 115AB.' 6.4.5 Briefly stated, section 94(8) of the Act states that the loss, if any, arising to a person on account of purchase and sale of original "units" shall be ignored for the purpose of computing his income chargeable to tax if the following conditions are satisfied :
(i) The person buys or acquires any units within a period of 3 months prior to record date;
(ii) he is allotted additional units (bonus units) without any payment, on the basis of holding such units on such date;
(iii) he sells or transfers all or any of the units excluding bonus units within a period of nine months from such date;
(iv) on the date of such transfer he continues to hold all or any (at least one) of the additional units (viz. bonus units);
then the amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of such additional units as are held by him on the date of such sale or transfer.
6.4.6 The learned CIT(Appeals), however, has observed that the provisions of section 94(8) of the Act are applicable only to "units" which means units of Mutual Funds only. There is no ambiguity in the matter as the Explanation in section 94(8) of the Act clearly defines "securities" as including "stocks and shares" and defines "units" to have the 107 ITA 464 & 761/JP/2018_ M/s Angel Infrastructure P Ltd. Vs DCIT same meaning as assigned in Explanation to section 115AB of the Act; wherein "units" are defined as units of Mutual Funds only. In this view of the matter, the provisions of section 98(4) of the Act have no applicability to securities, which includes shares. 6.4.7 The learned CIT(Appeals) also observed that in a similar provision introduced to curb dividend stripping i.e. section 94(7) of the Act, both units and securities are included. Section 94(7) of the Act for "bonus stripping" was introduced by Finance Act, 2001 w.e.f. 1.1.2003 whereas section 94(8) of the Act for "bonus stripping" was introduced in Finance Act, 2004 w.e.f. 1.4.2005. Hence it can be inferred that the intention of legislative was to exclude the shares of companies from the ambit of the provisions of section 94(8) of the Act. In view of the above discussion in paras 6.3.1 to 6.4.7 of this order, we concur with the finding of the learned CIT(Appeals) that there is no legislative authority to deny the loss intentionally created by the assessee; for what the law has not envisaged and has specifically excluded cannot be read into the same by the Assessing Officer. We, therefore, uphold the order of the learned CIT(Appeals)." In view of the facts and circumstances of the case and when the subject matter of purchase and sale of shares and not the units, therefore, the provisions of Section 94(8) of the Act are not applicable, accordingly we do not find any error or illegality in the order of the ld. CIT(A) qua this issue, the same is upheld.
34. In the result, appeal of the assessee is partly allowed and the appeal of the revenue is dismissed.
Order pronounced in the open court on 06th December, 2018.
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(VIKRAM SINGH YADAV) (VIJAY PAL RAO)
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Tk;iqj@Jaipur
fnukad@Dated:- 06th December, 2018
*Ranjan
108 ITA 464 & 761/JP/2018_
M/s Angel Infrastructure P Ltd. Vs DCIT
vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s Angel Infrastructure (P) Ltd., Jaipur.
2. izR;FkhZ@ The Respondent- The DCIT/A.C.I.T., Circle-2, Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 464 & 761/JP/2018) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar