Income Tax Appellate Tribunal - Delhi
Siel Ltd.,, vs Department Of Income Tax on 31 May, 2004
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'B' : NEW DELHI
BEFORE SHRI I.P.BANSAL, JM AND SHRI R.C.SHARMA, AM
ITA No.3467/Del/2004
Assessment Year : 2000-01
M/s Siel Limited, Vs. Asstt.Commissioner of Income Tax,
5th Floor, Kirti Mahal, Circle-8(1),
19, Rajendra Place, New Delhi.
New Delhi - 110 008.
PAN No.AAACS4902Q.
(Appellant) (Respondent)
ITA No.3444/Del/2004
Assessment Year : 2000-01
Asstt.Commissioner of Vs. M/s Siel Limited,
Income Tax, 5th Floor, Kirti Mahal,
Circle-8(1), 19, Rajendra Place,
New Delhi. New Delhi - 110 008.
PAN No.AAACS4902Q.
(Appellant) (Respondent)
Assessee by : Shri Tarandeep Singh, CA.
Revenue by : Shri Stephen George, CIT-DR.
ORDER
PER R.C.SHARMA, AM :
These are cross-appeals filed by the assessee and the Revenue against the order of CIT(A) dated 31.5.2004, wherein following grounds have been taken by the assessee :-
"1. That on the facts and circumstances of the case and in law the CIT(A) erred in upholding the disallowance, out of interest paid, the following interest calculated @ 15% p.a. On the investment made in shares and advance to M/s Jay Engineering Works Limited Rs.4,31,55,000 On advances to subsidiary companies Rs.4,56,66,440 Rs.8,88,21,440 2 ITA Nos.3467 & 3444/D/2004 1.1 That the CIT(A) in dealing with the grounds relating to the disallowance of aforesaid interest erred, on fact and in law, in totally ignoring and not abiding the direction of the Hon'ble 'C' Bench, Income Tax Appellate Tribunal, New Delhi, contained in the order in ITA Ano.3367/Del/2002 dated 28.10.2003 in assessee's own case for the assessment year 1998-99, which directions were equally applicable in as much as the facts of the assessment year under consideration were akin to the facts of the assessment year 1998-99.
1.2 That the CIT(A) erred in not accepting the assessee's contention, taken without prejudice and in the alternative, that the adoption of rate of interest of 15% p.a. was high and excessive.
1.3 That the CIT(A) erred in relying on the decision of Hon'ble Delhi High Court in the case of CIT Vs. Motor & General Finance Ltd. in upholding the addition/disallowance, even through the said decision has been reversed by the Apex Court reported as Motor & General Finance Ltd. Vs. CIT 267 ITR 381 (S.C.).
2. That on the facts and circumstances of the case and in law the CIT(A) erred in upholding the disallowance of Rs.3,46,000/- on account of provision for employees' leave encashment.
2.1 That the CIT(A) failed to appreciate that the increased liability on account of employees' leave encashment is based on actuarial valuation, a copy of which was submitted during assessment as well as appellate proceedings.
3. That on the facts and circumstances of the case and in law the CIT(A) erred in upholding the action of the Assessing Officer in holding that the sale price of 1,27,00,000 shares of Siel Tizit Ltd. sold by the assessee, be adopted at Rs.10/- per share, for the purpose of computation of capital gain, as against the sale actually made at US$ 6,00,000 equivalent to Rs.25,74,000/-.
3.1 That the CIT(A) ought to have held that in absence of any evidence with the department, indicating receipt of consideration higher than that stated by the assessee, the assessee's claim could not be disallowed on surmises and conjectures.
4. That the order passed by the CIT(A) is bad in law and void ab-initio."
2. The Revenue's ground of appeal reads as under:-
3 ITA Nos.3467 & 3444/D/2004"On the facts and in the circumstances of the case, the ld.CIT(A) has erred in directing the Assessing Officer to allow the benefit of indexation while working out the capital loss because once the CIT(A) has accepted that the transaction of sale of shares of Siel Tizit Ltd. was entered into by the assessee with the sole intention of booking capital loss, there cannot be allowed a substantial benefit on account of indexation."
3. Rival contentions have been heard and record perused. First grievance of the assessee relates to disallowance of interest expenditure. During the course of scrutiny assessment, the AO observed that the assessee company had given loans and advances to subsidiary companies amounting to Rs.3831.97 lakhs. These advances were treated by the AO as deployment of borrowed capital on which interest was being paid by the assessee company. The AO found that out of total advances given only amount of Rs.1.12 crores has been received as interest from subsidiary company. For the balance amount of advance, the AO treated that these do not represent business expediency therefore interest attributable to such advance is not allowable as business expenditure. The AO found that average interest payable on borrowed capital was 15%, therefore by applying the same rate of interest on the advance given free of interest, the AO computed the amount of interest to be disallowed. By the impugned order, the CIT(A) confirmed the action of the AO.
4. At the outset, learned AR placed on record the order of ITAT dated 28.10.2003 in assessee's own case for AY 1998-99 wherein similar issue was dealt by the Tribunal.
5. We have carefully gone through the order of the Coordinate Bench wherein it was observed that no disallowance should be made on the loans which had been advanced in earlier year and on which no disallowance was made in the earlier year on such advance on account of interest free advances. Similar issue has also 4 ITA Nos.3467 & 3444/D/2004 traveled before the Tribunal in assessee's own case for AY 1999-2000, wherein vide order dated 20.4.2005 the matter was restored back to the file of the AO for deciding the same as per the directions given by the Tribunal in AY 1998-99. Following was the observation of the Tribunal in its order dated 28.10.2003 for the AY 1998-99:-
"(ix) No disallowance should be made when money had been advanced in earlier year and no addition was made in the earlier years on such advances on account of interest free advances in earlier years. As held in the case of Sridevi Enterprises (supra), if no addition has been made in earlier years, then the opening balance should not be considered in the year in question and the inquiry is to be limited only to the increase in the year in question. This approach will also be in consonance with the rule of consistency and definiteness because to Revenue cannot be allowed to re-examine the nature of accounts maintained by the assessee and concluded assessments should not be ignored without actually reopening the assessment.
(xi) The entire interest free funds include owner's own capital accumulated profits and other interest free credits and loans. If total interest free advances including debit balances of partners do not exceed the total interest free funds available with the assessee, no interest is disallowable on account of utilization of funds for non-
business purposes and if it exceeds, the proportionate disallowance can be made. This view is supported by the decision of Hon'ble Calcutta High Court in the case of CIT Vs. Tingri Tea Co.Ltd. (supra) and also by the decision of Tribunal Ahmedabad 'A' Bench in the case of Torrent Financiers Vs. ACIT (supra).
(b) Then at pgs 76 and 77 conclusions are as under:-
"For the parity of reasons and as the appellant did not get effective opportunity to support his claim, the matter of all the three disallowances is remanded back to the assessing officer for taking a decision afresh with a direction to find out whether the borrowed moneys or part of it have been utilized for non-business purposes and what is the quantum thereof that is attributable to the investment in shares or advances made interest free. He shall also pass a speaking order as to how the explanation of the appellant that such investment or advances were made out to interest free funds 5 ITA Nos.3467 & 3444/D/2004 available with them cannot be accepted. He shall have regard to the ratio laid by the Tribunal in Meenakshi Synthetics (P) Ltd. supra. He shall however, give effective and reasonable opportunity of being heard to the assessee before raising any presumption or drawing any adverse inference. The assessing officer shall also consider the board's circular no.11/2001 dated 23.7.2001 in respect of investment in shares etc. before attracting provisions of Section 14A of the I.T.Act inserted by the Finance Act 2002 w.e.f. 11.5.2001 and application of sub section 5 of Section 115(o) of the Act before quantifying any disallowance on account of interest if any. The assessee shall cooperate."
6. It was also contended by learned AR that investment into equity and preferential shares capital of JEW was made in AY 1998-99, no fresh investment was made in AY 1999-2000 and 2000-01. Accordingly, as per learned AR, on the loans and advances given last in AY 1999-2000 and no fresh fund was introduced in AY 2000-01, should be made in terms of decision of Coordinate Bench in assessee's own case.
7. With regard to loan to M/s SFSLI, there was a fresh introduction of loan to the extent of Rs.23 lakhs during this year. The opening balance of Rs.1662.56 lakhs was for earlier years. It was also the contention of the learned AR that as regards M/s Siel Tizit Ltd. there was no fresh loan given during AY 2000-01 and that opening balance remains to be the same.
8. We have considered rival contentions and gone through the decisions of Coordinate Bench on the very same issue as discussed above. Respectfully following the same, we restore this ground relating to disallowance of interest, back to the file of the AO for deciding the same in terms of observation of the Coordinate Bench discussed hereinabove. We direct accordingly.
9. Next grievance relates to disallowance of provision for employees' leave encashment amounting to Rs.3,46,000/-. We have considered the rival contentions 6 ITA Nos.3467 & 3444/D/2004 and found that provision of Rs.49.25 lakhs made by the assessee as on 31.3.2000 as against provision of Rs.45.79 lacs as on 31.3.1999, and same was supported by actuarial valuation report. In view of the decision of Hon'ble Supreme Court in the case of Bharat Earth Movers - 245 ITR 428, no disallowance can be made for leave encashment paid on the basis of actual valuation. As the actuarial valuation report was filed before the AO and the CIT(A) had also not considered the same, in the interest of justice, we restore this ground also back to AO for deciding afresh after considering the actuarial valuation report in the light of decision in case of Supreme Court discussed above. We direct accordingly.
10. Next grievance of the assessee relates to CIT(A)'s action in upholding the AO's conclusion that sale price of Rs.1,27,00,000/- shares of Siel Tizit Ltd. (in short STL) shown by the assessee be adopted at Rs.10/- per share for the purpose of computing capital gain. Facts in brief are that the assessee had claimed Rs.10.12 crores as capital loss and the difference between the loss and the provision of diminution of assets amounting to Rs.0.48 lakhs in the P&L a/c. In the computation of income "loss on sale of long term investments for separate consideration under the head Capital Gains" was added to the profits at Rs.10,15,47,952/-. At the same time "Provision for diminution in the value of long term investment offered to tax in earlier year" was reduced from the profit/loss as per the P&L a/c at Rs.10,15,00,000/-. Through note 7 attached with the computation it was made clear that during the year under consideration 127 lakh shares were actually sold at a loss of Rs.1012.60 lakhs and that this loss has been added back in the regular computation of income, for separate consideration under the head "capital gains". Further from the computation of 'capital gains' it was seen that the loss was incurred on the sale of 1,27,00,000/- which were acquired at Rs.12,70,00,000/- in the year 1996-97 and were sold at Rs.2,57,40,000/- in the F.Y. 1999-00. The loss for the purposes of capital gains on this account comes to Rs.13,62,37,049/- after allowing indexing of the cost of acquisition of Rs.16,19,77,049/-.
7 ITA Nos.3467 & 3444/D/200411. The AO also observed that Note 13 of Schedule 12 containing notes to accounts that "the company is a joint venture partner of Siel Tizit Ltd. with Plansee Tizit (Austria) (in short Plansee) in which it had a holding of 50% of the paid up equity capital represented by 1,50,00,000 equity shares of Rs.10 each aggregating to Rs.1500 lakhs. In the previous years, the company renounced its entitlement to subscribe 30,00,000 equity shares of Rs.10 each of STL on rights basis in favour of Plansee thereby reducing its holding to 41.7%. As per agreement dated March 31, 1999 entered into by the assessee company with Plansee which was effected during the year on receipt of necessary government approvals, the company has renounced its entitlement to subscribe 41,66,667 equity shares of Rs.10 each of STL on rights basis in favour of Plansee and transferred 1,27,00,000 equity shares of STL held by it for a consideration of US$ 6,00,000."
"This agreement has further reduced the company's holding in STL to 5%. However, as per the said agreement, the company has the option to buy-back such numbers of shares within a period of 36 months from the date of acquisition of such shares by Plansee at a price to be mutually agreed between it and Plansee which will enable the company to reach it and Plansee which will enable the company to reach its holding upto 50% in the joint venture."
12. Questions with respect to the two transactions taken cumulatively were posed to the assessee. In response to the query why capital gains are not attracted in regard to renunciation of rights the assessee vide letter dated 24th Jan, 2003 replied that :
(a) Siel Tizit was a joint venture between Siel Ltd. and Plansee Tizit of Austria and right from its inception it required infusion of funds.8 ITA Nos.3467 & 3444/D/2004
(b) Siel Tizit offered for subscription to Siel Limited 30 lakh equity shares of Rs.10 each on Rights basis for cash at par for funding its requirement.
(c) The offer was considered but not taken up and the same was renounced in favour of Plansee Tizit by reserving the right to buy back within eighteen months at mutually agreed prices.
(d) Siel Ltd. did not receive any premium from M/s Plansee for renouncing the Right in their favour.
(e) In F.Y. 1999-00 Siel Ltd. sold 1,27,00,000 shares at a total consideration of Rs.2,57,40,000/-.
(f) The transaction was approved by the RBI. It's a different matter that the RBI's approval is in respect of remittance of the amount.
In the matter of renunciation of rights the assessee vide letter dated 26th Feb, 2003 replied the main features.
13. After considering assessee's reply, the AO concluded that the price of the shares sold at Rs.2.2 per share by which the assessee has incurred book losses of Rs.10.12 crores and actual loss of Rs.13.62 crores is not acceptable because of the following reasons.
(1) There was a close connection between the two joint venture partners who shared between themselves the control over shares of STL in a ratio.
(2) Different rates - when the rights were renounced at cash at part the sales should have been made also at par. If the two parties can agree for the buyback at mutually agreed prices then the prices at which the shares were sold also seem to be mutually agreed upon. It is also a fact through self concession by the assessee that rights were renounced without any price or payment of premium. It is more than clear that this arrangement finds echo in the low prices being paid for by Plansee on the purchase of 1,27,00,000 shares from Siel Ltd. The premium the 9 ITA Nos.3467 & 3444/D/2004 prices which Plansee would have been liable to pay has been built into the low costs it has incurred on the purchase of shares from its JV partner.
(3) The dates of agreement i.e. 31.3.99 and date of valuation i.e. signed on 22nd April, 99 and the RBI approval received vide letter dated 29th April, 1999 prove that this was part of an arrangement. It was already agreed in the agreement which was placed as evidence (as discussed above) that Plansee would buy 127 lakh shares held by Siel for US$ 6,00,000/-. The valuation is dated April, 1999. It more than proves that the valuation was an afterthought and only a ploy to get RBI's approval for remitting the amount otherwise it was not possible for the two JV partners to arrive at the value of $ US 6,00,000 before the valuation. (4) It is for reasons best known to the JV partners that where the need for getting the valuation done was when the rate was already available. Rights renunciation and the sale of shares which have been done by Siel Ltd. in favour of Plansee Tizit has taken place in such span of time where the rates could not have varied much. Rights renounced at Rs.10 at cash at par was the ideal rate which would have formed the basis of sale of shares to Plansee Tizit.
(5) The fact of the matter is that the assessee had retained with him the option to buy back shares but this time at prices mutually agreed. It is also corroborated that in the valuation that the shares were held only by the two JV partners and that it was not guided by market forces. (6) It has been done on the pretext that Siel Tizit was in need of funds. The rationale behind infusing additional funds at low prices defies logic. If the company's fund crunch was to be met by this sale it should have been done at higher prices or at least at par on which the rights have been renounced.
(7) No premium was received from Plansee Tizit. Its likely the premium was built into the low prices which were received by Siel Ltd.
10 ITA Nos.3467 & 3444/D/2004(8) Through this arrangement the assessee has been able to pass off capital losses without parting with its funds. The option retained for buy back point to a scheme which would be effectuated later.
14. Going by the above it is established that the assessee has used the mutuality involved in the dealings between the two JV partners to sell shares at prices deliberately made lower than comparable prices at which the rights renunciation was offered. The sale should have been made at Rs.10 per share at which the rights were renounced. If this was the case the assessee would not have incurred any loss on the sale of shares of Siel Tizit Limited to Plansee Tizit. It has been laid by the Honourable Supreme Court in the case of Mcdowell and Co.Ltd. Vs. Commercial Tax Officer, 154 ITR 148 (1985), that it is for the court to expose the real nature of the device adapted by the tax payer, whether it is legitimate avoidance of tax or evasion of tax under cloud of avoidance. It has been further held that tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges.
15. Going by the above the prices at which 1,27,00,000 shares of Siel Tizit Ltd. have been sold to Plansee Tizit at $ US 6,00,000/- at a per share rate of Rs.2.2 is not acceptable. The rates applicable should be cash at par at which the Rights Entitlement have been renounced in favour of Plansee Tizit. Going by this the losses booked by the assessee on this sale is not accepted. The book losses booked in the profit and loss account amounting to Rs.10.12 crores and the actual capital losses of Rs.13.62 crores are disallowed. On the same principles the provision of diminution of reserves to the extent of Rs.10.15 crores remains unutilized.
11 ITA Nos.3467 & 3444/D/200416. By the impugned order, CIT(A) confirmed the action of the AO, however he has directed the AO to give benefit of indexation while working out the capital loss. Aggrieved by this order of CIT(A), both assessee and Revenue are in appeal before us.
17. It was contended by learned AR that in terms of an agreement with Plansee entered on 31.3.1999, wherein it was agreed that Plansee would buy 1,27,00,000 equity shares of STL from the assessee for a consideration of US$ 6,00,000 for which necessary approval was received from FIPB and RBI, the shares were sold to Plansee and the same were valued by M/s S.S.Kothari & Associates at Rs.2.02 per share, accordingly there is no merit in the action of the lower authorities for treating transaction of sale of share at Rs.2.02 per share as bogus and thereby disallowing the genuine loss claimed by the assessee. By referring to the decision of K.P.Verghese - 131 ITR 596 rendered by Hon'ble Supreme Court, he drawn our attention to the following observation contained on page 616 of the report:-
"what in fact never accrued or was never received cannot be computed as capital gains u/s 48. In CIT v. Smt.Nadini Nopany 230 ITR 679(Cal), the assessee transferred certain shares in favour of another company on a value, which was less than the market value. It was held that the genuineness of the transaction of sale and purchase was not doubted, that it was not a case of any understatement or misstatement of value of the shares sold and there was no evidence direct or inferential nor was there any finding by the Income Tax Authority that the assessee received the difference between the value on which the shares were transferred and the market value. The value disclosed was accepted."
18. In terms of the ratio laid down in the above decision, learned AR contended that there cannot be tax on any notional capital gain. He further contended that there is another aspect of the matter of computation of capital gains which revolves around the expressions "full value of the consideration received or accruing as a result of the transfer of capital asset" appearing in section 48. Way 12 ITA Nos.3467 & 3444/D/2004 back in CIT vs. George Henderson & Co.Ltd. 66 ITR 622 (SC), it was held that the expression 'full value of the consideration' cannot be construed as having reference to the market value of the asset transferred but refers to the price bargained for by the parties. The court went on to hold that it can have no reference to the adequacy or inadequacy of the price bargained for. The ratio emerging from the judgement is that the full value of consideration has no reference to the market value, that it has reference to a price bargained by the parties and the question of any adequacy or inadequacy of the price bargained for is not permissible to be looked into. The judgement was applied subsequently in the case of CIT v. Gillanders Arbuthnot & Co. 87 ITR 407 (SC).
19. Learned AR vehemently argued that AO was not justified in rejecting the price bargain for two parties particularly when nothing has been brought on record to show that the price actually charged was not the one bargained for. As per learned AR, genuineness of the transaction cannot be doubted in view of the approval given by the RBI for sale of 1,27,00,000 equity shares, vide its letter dated 6.6.1999, wherein following was the content of the RBI letter:-
"2. We advise that we have no objection to Siel Ltd., New Delhi (SL), the resident shareholders Siel Tizit Ltd., New Delhi (STL) transferring 1,27,00,000 shares of Rs.10 each of STL in favour of Tizit Aktiengesellschaft, Austria (Plansee) for an aggregate consideration of US$ 600,000.
3. This permission may also be treated as Reserve Bank's permission u/s 29(1)(b) of FERA 1973 to Plansee for acquiring the above shares STL from SL, the above resident shareholder of STL.
4. This permission may also be treated as our permission to STL under section 19(4) for effecting consequential changes in its Register and under section 19(1)(a) of the FERA 1973 for the export of relevant share certificates to Plansee."
20. In terms of the above letter of the RBI, learned AR contended that RBI not only gave approval for the transfer of these shares to non resident company but the 13 ITA Nos.3467 & 3444/D/2004 approval was also given for the quantification of the consideration for the transaction and the consideration to be remitted through normal banking channels. As per learned AR, one reason given by the AO for disbelieving the transaction is "close connection between two J.V. Partners." This observation is misconceived because this transaction had its approval from the Reserve Bank of India and FIPB. In any case where there are only two J.V. Partners a connection is bound to exist; nothing turns on this observation. He further contended that the AO has not properly appreciated the fact that the true transaction i.e. transaction of sale of these shares at a price below par vis-à-vis the transaction of right shares issue at par. As per learned AR, these two transactions are totally distinct from each other and one does not limit scope of the other. As per learned AR, while the issue of right share involves increase of the capital of the company, the sale of the existing shares by a shareholder to another, on the other hand, does not affect the share capital. The latter transaction is bargained by two persons under which shares are sold by one shareholder to another. It is not relevant to judge the price bargained for the sale of existing shares by the issue price of a right share.
21. Learned AR further contended that Section 79 of the Companies Act 1956 provides that the company shall not issue shares at discount except as provided by this said section. Sub-section (2) provides the exceptions where company can issue shares at discount. Our attention was drawn to pages 738 to 743 of the commentary on Company Law by A.Ramaiya (at pages 51 to 56). It has been clarified in the commentary (at page 740) that the fact that market quotation is below par would not justify issuing shares at discount. Sub-section (2) limit on the discount on which shares can be issued. The right shares issued at par at Rs.10/- per share cannot have any rationale with the price bargained in respect of sale of existing shares by the assessee to Plansee. Accordingly, there is no merit in the observations of the Assessing Officer.
14 ITA Nos.3467 & 3444/D/200422. On the other hand, learned DR contended that there was a close connection with the two joint venture partners who share between themselves the control over shares of STL in a ratio. He contended that when the right issue was renounced at par, the sale price of the present share should have been made also at par. Learned DR drawn our attention to the respective date of the agreement which was signed by 22.4.1999 providing for purchase of 1,27,00,000 shares by Plansee held by the assessee, for a consideration of 6,00,000 US$ vis-à-vis valuation report dated April, 1999. As per learned DR, this valuation was after thought and only ploy to get RBI's approval for remitting the amount, otherwise it was not possible for the two joint venture partners to arrive at a value of 6,00,000 US$, before the date of valuation. He further placed reliance on the findings recorded by the lower authorities in their respective orders advancing reasons for disallowing the claim of loss on sale of shares.
23. We have considered the rival contentions, carefully gone through the orders of the authorities below and found from the record that in its computation of income the assessee has claimed a loss of Rs.10.12 crores as a capital loss. Through note 7 attached with the computation of income it was made clear that during the year under consideration, 1,27,00,000 shares were actually sold at loss of Rs.10.12 crores, which has been added back in the regular computation of income for separate consideration. On the plea that assessee has renounced right share at par in favour of Plansee, the AO was of the view that to claim bogus loss the assessee had sold its share at Rs.2.02 per share in place of face value of Rs.10. In support of the sale consideration of Rs.2.02 per share the assessee had submitted agreement entered into with STL, RBI approval duly mentioning the price at which shares are transferred as well as valuation report. No defect was pointed out by the AO either in the agreement nor in the valuation report wherein value of the share on the date of transaction was determined at Rs.2.02. No material was referred by the AO to reach to the conclusion as to why he has not accepted the value at which the shares were sold nor any material was brought on 15 ITA Nos.3467 & 3444/D/2004 record to indicate that assessee was in receipt of sale consideration over and above what was stated in the agreement. Merely because assessee has renounced the right shares at par will not mean that assessee has earned any income or premium on such renouncement. While computing capital gain under the provisions of Section 45 read with Section 48 expression "full value of consideration" received or accrued as a result of transfer of capital asset is to be seen and not the value arrived at by the AO. In view of the fact that no material was found indicating anything paid over and above the sale price of share agreed in the agreement, keeping in view of the decision of Hon'ble Supreme Court in the celebrated judgment of K.P.Verghese (supra) wherein it was held that onus lies on the department to prove that some consideration over and above the consideration stated in the sale deed have been invested, no addition can be made on presumptions and suspicions. In the latest case of CIT Vs. Shakuntala Devi (ITA No.345/2007), Hon'ble Delhi High Court held "it may be relevant to note that a division bench of the court comprising Dr.Arijit Prasayath and Justice D.K.Jain, as their lordships then were retreated that there must be a finding of the Revenue that the assessee had received amounts over and above the consideration stated in the sale deed, following the ratio of K.P.Verghese (supra). K.P.Verghese (supra) has also been followed and applied by the Supreme Court in CIT Vs. Godavari Corporation Limited 200 ITR 567. The decision in CIT Vs. Manoj Jain 287 ITR 285 is also to the same effect. In CIT Vs. Shivakami Company (P) Ltd. 151 ITR 79(SC), their Lordships have once again retreated that onus whether the assessee had received more consideration than what was stated in the documents of transfer, rested on the Revenue and in the absence of that burden having been being discharged, it would be legally impermissible to make any inferences against the assessee. The expression "full value of consideration" cannot be construed as having reference to the market value of the asset transferred but refers to the price bargained by the parties. This proposition has been laid down by the Hon'ble Supreme Court in the case of George Henderson & Co. (supra). Furthermore, the letter issued by the RBI clearly mentions transfer of share by the 16 ITA Nos.3467 & 3444/D/2004 assessee company as per the price agreed upon by the parties concerned. When nothing was brought on record by the AO to show that price actually charged was not the bargained for, there was no reason to take the sale price of the shares at Rs.10 in place of Rs.2.02 as bargained by the parties concerned. Accordingly, we do not find any merit in the action of the lower authorities for substituting the price bargained by them and recomputing the capital gains.
24. In the result, the appeal of the assessee is allowed in part whereas the appeal of the Revenue is dismissed.
Decision pronounced in the open Court on 30th September, 2009.
Sd/- Sd/-
(I.P.BANSAL) (R.C.SHARMA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 30.09.2009.
VK.
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
Deputy Registrar