Income Tax Appellate Tribunal - Delhi
Shri Amit Kumar Garg Prop., Bhiwani vs Ito, Bhiwani on 28 February, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'A' NEW DELHI
BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER
AND
SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
ITA No. 6029/Del /2014
Assessment Year: 2007-08
Income Tax Officer, Amit Kumar Garg,
Ward-1, Prop. M/s Amit Trading Corporation,
vs
Bhiwani. Loharu Road,
Bhiwani-127021
(PAN: ADCPG3789K)
(Appellant) (Respondent)
Cross Objection No. 167/Del/2015
(IN ITA No. 6029/Del /2014)
Assessment Year: 2007-08
Amit Kumar Garg, Income Tax Officer,
Prop. M/s Amit Trading Corporation, Ward-1,
vs
Loharu Road, Bhiwani.
Bhiwani-127021
(Appellant) (Respondent)
Appellant by : Shri Ravi Kant Gupta, Sr. DR
Respondent by : Shri Gautam Jain, Adv.
Shri Pitush Kumar Kamal, Adv.
Date of Hearing : 24.01.2018
Date of Pronouncement: 28.02.2018
ORDER
PER SUDHANSHU SRIVASTAVA, J.M.
This is an appeal preferred by the revenue against order dated 29.08.2014 passed by the Ld. CIT (A) - Rohtak for AY ITA No. 6029/Del/2014 CO No. 167/Del/2015 Assessment year 2007-08 2007-08 whereas the cross objection has been filed by the assessee.
2. The facts, in brief, are that assessee had filed return of income on 14.12.2007 declaring income of Rs. 96,600/- under section 139(1) of the Income Tax Act, 1961 (hereinafter called 'the Act') and the assessment was completed on 9.11.2009 at an income of Rs. 3,96,600/- under section 143(3) of the Act. Consequent to an information received from Assistant Commissioner of Income Tax, Circle Alwar, notice was issued under section 148 of the Act and consequently, an order of re- assessment was made whereby an addition was made of Rs. 73,66,250/- on account of short term capital gain on sale of shares by the assessee in the instant year. The Assessing Officer, while making addition, noted that according to the Memorandum of Understanding (MoU) dated 17.7.2016 with M/s. Techpro Systems Ltd., shareholders of M/s. Blossoms Automotive Pvt. Ltd. had sold their shareholding of 4,00,000 shares for consideration of Rs. 12.72 crores @ Rs.318/- per share. The AO has further noted that on realizing the heavy 2 ITA No. 6029/Del/2014 CO No. 167/Del/2015 Assessment year 2007-08 tax liability on account of capital gain from transfer of shares, the shareholders transferred their shareholding to Kolkata based companies and later on got these shares transferred from Kolkata based companies to M/s. Techpro Systems Ltd. at the same rate i.e. Rs. 318/- per share which was decided in MoU dated 17.07.2006 with M/s. Techpro Systems Ltd. The AO noted that the assessee was holding 33,000 shares of M/s. Blossom Automotive Pvt. Ltd. and as a result, total short term capital gain, which accrued to the shareholders, was Rs. 8,71,00,000/- which was taxable, on proportionate basis, in the hands of the assessee. The same was determined by the AO in the following manner:
A) Short Term Capital Gain = 8,71,00,000 X 31000 on transfer of 31000 shares 4,00,000 through Kolkata based companies = Rs. 6750250/-
B) Short Term Capital Gain on transfer of 2000 shares directly to M/s Techpro Systems Ltd.
Sale consideration @ 318/- per share Rs.636000/- Cost of Acquisition @ 10 per share Rs. 20000/-
STCG Rs. 616000/-
Total Short Term Capital Gain A + B = Rs. 7366250/-. 3 ITA No. 6029/Del/2014 CO No. 167/Del/2015 Assessment year 2007-08 2.1 On appeal before the Ld. CIT (A), the assessee contended that identical issue had arisen before the ITAT Jaipur Bench in the case of M/s. Singhal Securities Pvt. Ltd. and vide common order in ITA Nos. 853, 854 and 855/JP/2011 dated 31.1.2012, the addition had been deleted. The CIT (A), following the aforesaid orders, deleted the addition. Now the revenue has approached the ITAT and has raised the following grounds of appeal-
"1. On the facts and in the circumstances of the case, the Ld. CIT (A) erred in deleting the addition of Rs.67,00,250/- pout of total addition of Rs.73,66,250/- on account of sale of shares of M/s. Blossom Automobiles Pvt. Ltd.
2. On the facts and in the circumstances of the case Ld. CIT ( A) failed to appreciate that transactions of sale of 31,000 shares of M/s. Blossom Automobiles Pvt. Ltd made by assessee Sh. Amit Kumar Garg along with other shareholders of M/s Blossom Automotive Pvt. Ltd with Kolkata based companies was only a sham transactions which was entered into only to dilute tax liability arising on account of capital gains due to transfer of plot of land via transfer of shares.
3. On the facts and in the circumstances of the case Ld.CIT(A) failed to appreciate that MOU was entered into between the shareholders of M/s.Blossom Automotive Pvt. Ltd and M/s. Techpro Systems Ltd on 17.07.2006 for transferring their total shareholdings of 4 lacs shares for a consideration of Rs.12.72 crores @ Rs.318/- per share, 4 ITA No. 6029/Del/2014 CO No. 167/Del/2015 Assessment year 2007-08 whereas the shares to Kolkatta based companies were transferred on 31.07.2006 @ Rs.100/- per share i.e. after the date of MOU with m/s. Techpro System Ltd., which were retransferred within a period of 3 months by Kolkatta based companies to M/s. Techpro System Ltd at the same rate as mentioned in MOU i.e. Rs.318/- per share m/s. Techpro System Ltd only to dose the revenue by not paying due capital gain tax in the transactions.
4. Ld.CIT (A) erred on the facts and in the circumstances of the case by not appreciating that the object of the transferring shares to M/s. Techpro System Ltd through Kolkatta based companies was actually a transfer of plot to M/s. Techpro System ltd in the form of shares which was sole asset of the company without paying stamp duty and capital gain tax on it.
5. Ld. CIT (A) erred in not appreciating the facts and circumstances that as per MOU dt 17.07.2006 between assessee along with other co-shares made an agreement with M/s. Techpro System Ltd to sell the shares @ 318/- per share but assessee transferred these shares to Kolkatta based companies @ 100 per shares which were again re-transferred to M/s. Techpro Systems ltd @ 318/- within a period of three months from the of transfer.
6. On the facts and in the circumstances of the case, Ld. CIT(A) failed to appreciate that order of Hon'ble ITAT Jaipur Bench in the case of Singhal Security Pvt. Ltd relief upon by the Ld.CIT (A) has been contested in appeal by the revenue before the Hon'ble Rajasthan High Court, Jaipur bench and it is pending for adjudication.
7. The appellant craves leaves to add, or amend any grounds of appeal during the course of the proceedings before Hon'ble ITAT."5 ITA No. 6029/Del/2014 CO No. 167/Del/2015
Assessment year 2007-08
3. The learned DR relied on the order of Assessing Officer and submitted that since an appeal had been filed before the Hon'ble High Court against the order of ITAT Jaipur Bench in the case of M/s. Singhal Securities Pvt. Ltd., on which the Ld. CIT (A) had placed reliance, and which was sub judice, the addition may kindly be upheld.
4. The learned AR relied on the order of the Ld. CIT(A) and the order of ITAT in the case of shareholders namely M/s. Singhal Credit Management Ltd. in ITA No. 853/JP/11 for assessment year 2007-08. The Ld. AR also submitted that the appeal filed by the revenue in the case of M/s. Singhal Securities Pvt. Ltd., before the Hon'ble High Court, also stands dismissed by an order dated 13.9.2017 of the Hon'ble High Court in ITA No. 221/2012 and therefore, even otherwise, there is no valid justification in this appeal.
5. The Ld. AR also submitted that the CO of the assessee was not being pressed.
6. We have heard the rival submissions and perused the material on record. All the Grounds raised in this appeal relate 6 ITA No. 6029/Del/2014 CO No. 167/Del/2015 Assessment year 2007-08 to deletion of addition of Rs. 67,00,250/- out of total addition of Rs. 73,66,250/- on account of sale of shares of M/s. Blossom Automobiles Pvt. Ltd. We find that the issue is no longer res integra and stands concluded by the decision of the ITAT in the case of M /s. Singhal Credit Management Ltd. vs. ACIT in ITA No. 853/JP/2014 for assessment year 2007-08 wherein the ITAT, having regard to the same MoU entered into by the shareholders, held as under:
"2.12 We have heard both the parties. The assessee is a share holder of the company named M/s. Blossom Automotives Pvt. Ltd. The company BAPL was incorporated on 19-07-2005. M/s. BAPL purchased the plot no. S.P.496-497, Industrial Area, Bhiwadi as per sale deed dated 5-04-2006 for Rs. 4.01 crores from M/s. Teletube Ltd. The shares of BAPL were held by the members of assessee family, the family members of Shri Sanjeev Kumar Agarwal, Shri Rakesh Kumar Agarwal. and Shri Prem Kumar Garg. Out of total shares of 4.00 lacs, the shares of 1.46 lacs were held by the assessee company and family members of Shri S.K. Singhal. The holding of the group of Shri Singhal was to the extent of 36.5%. The assessee company was having 35,000 shares. These 35,000 shares have been sold. From the sale of 35,000 shares, the assessee company showed nil capital gain. 10,000 shares were sold at Rs. 100/- per share and these shares were also allotted at Rs. 100/- per share. The face value of the share was Rs. 10/- per share and at the allotment, the premium of Rs. 90/- per share was paid for shares of M/s.7 ITA No. 6029/Del/2014 CO No. 167/Del/2015
Assessment year 2007-08 Blossom Automotives Pvt. Ltd. There is no dispute between the assessee and the revenue so far as sale of 10,000 shares are concerned. The revenue is of the view that assessee has earned Short term capital gain of Rs. 54,53,750/- on 25,000 shares. According to the AO, the entire shares of M/s. Blossom Automotives Pvt. Ltd. have been purchased by M/s. Techpro System Ltd. at Rs. 318/- per share. The total consideration for 4.00 lacs shares will be Rs. 12.72 crores. M/s. Blossom Automotives Pvt. Ltd. purchased a plot for a sum of Rs. 4.01 crores. Thus the consideration of Rs. 12.72 crores was considered as value of the plot and by reducing the cost of plot, the profit was determined at Rs. 8.71 crores. Thus the profit is on 4.00 lacs shares. The AO accordingly computed the Short term capital gain of Rs. 54,43,750/- as per calculation given in the assessment order.
Capital gain = AxB
C
8,71,00,000 x 25,000 = Rs. 54,43,750
4,00,000
A = Total Short term capital gain earned by the shareholders. B = No. of share held and transfer by the assessee C = total shares of M/s. Blossom Automotives Pvt. Ltd. which has been transferred to M/s. Techpro System Ltd. In the written submission, the ld. DR has heavily relied upon the fact that Short term capital gain has arisen in the hands of the Shri S.K. Singhal and his associates. When the private limited company is incorporated then person behind such private limited company will approach some other persons who may became a co-associate and then they persuade their known persons to acquire shares of private limited company. Looking to the business acumen of the promoter, other known persons become willing to purchase the shares. Such investment by other 8 ITA No. 6029/Del/2014 CO No. 167/Del/2015 Assessment year 2007-08 persons is for their own benefit. The profits and loss arising, if any, will accrue to those persons. In the instant case, it has not been established that the persons who have acquired the shares have not utilized the profit earned by them for their own purposes. The shares were not held by one single group. There is nothing on record to say that there was a collusion amongst the group to sell all the shares at Rs. 318/- per share. The assessee company sold 10,000 shares on 28-04-2006. Other shares were also sold by invoice dated 28-04-2006. The revenue has heavily relied on the MOU dated 17-07- 2006. This MOU is available at pages 7 2 to 75 of the paper book. The MOU is between Shri Prem Kumar Garg, M/s. Techpro System Ltd. and M/s. Blossom Automotives Pvt. Ltd. In the MOU, it is mentioned that seller alongwith shareholders of the M/s. Blossom Automotives Pvt. Ltd. have absolute right to sell the shares free from lien charges and the names of such shareholders were given in Annexure A to the MOU. This Annexure A to the MOU is available at pages 74 of the paper book filed by the assessee company. The Annexure to the MOU was not available with the revenue and the same was obtained from M/s. Techpro System Ltd. u/s 133(6) of I.T. Act. This is clear from page 77 of the paper book filed by the assessee company. In the Annexure A to the MOU, the name of the company is not appearing. However, the name of M/s. Yuthika Commercial Pvt Ltd. is available in this Annexure and share holding of this concern in Annexure A was shown at 55,000 shares. This shows that as on 17-07-2006, the assessee company has already sold the shares to M/s. Yuthika Commercial Pvt Ltd. The revenue has relied the date of transfer as from the date as appearing in the transfer form. In this form, the date is mentioned as 31-07-2006. The revenue is of the opinion that shares were transferred subsequently and in order to avoid 9 ITA No. 6029/Del/2014 CO No. 167/Del/2015 Assessment year 2007-08 the payment of tax, such shares have been shown to have been sold on 28-04-2006.
2.13 Before us, the ld. AR of the assessee company drew our attention to the confirmations of the transfer forms issued by M/s. Yuthika Commercial Pvt Ltd.. In this, it is mentioned that 25,000 shares were purchased by M/s. Yuthika Commercial Pvt Ltd. vide invoice dated 28-04-2006 by giving post dated cheque. The transfer deed dated 14-07-2006 was received on 15-07-2006. In the case of transfer of shares, the transfer took place as and when the shares were delivered. It is not necessary that there should be a contract note. When a person wants to gift the shares then he can hand over the transfer deed alongwith share certificates to the donee. This system was prevalent when shares were in the paper form. It was a normal practice that blank deed which is to be given to the buyer. In case the buyer wants to sell it before getting it transferred in his name then he can sell those shares without getting his name registered as shareholder in the company register. The Hon'ble Apex Court in the case of Howrah Trading Co. Ltd. v. CIT [1959] 36 ITR 215 recognised the validity of 'Blank Transfers'. The name of the transferor is entered and the transferor signs the transfer with the share scrip annexed and hands it over to the transferee who if he chooses, may complete the transfer by entering his name and then apply to the company to register his name in the place of that of the transferor.
2.14 It is interesting to note that all the shares of M/s. Blossom Automotives Pvt. Ltd. have been purchased at Rs. 318/-per share by M/s. Techpro System Ltd. from the shareholders who were having their holding in the company as on 17-07-2006. The shareholders having the shares as on 17-07-2006 have offered the gain arising from sale of shares by treating the sale consideration at Rs. 318/- per share.10 ITA No. 6029/Del/2014 CO No. 167/Del/2015
Assessment year 2007-08 Hence, it is not the case that there is a tax evasion. The entities which purchased the shares before 17- 07-2006 and has offered the profit. It is not the case of the revenue that such entities have given back profit to the persons from whom such shares were purchased before 17-07-2006. Hence, it is not the case of tax evasion.
...
If it was a slump sale then profit was in the hands of M/s. Blossom Automotives Pvt. Ltd. The same AO has made the assessment of M/s. Blossom Automotives Pvt. Ltd. and in that case, it is nowhere held that the company has made sale of assets. The income which has been taxed in the hands of M/s. Blossom Automotives Pvt. Ltd. is income from house property and it represented the rental value of the plot owned by the company. In the instant case, the AO has computed the Short term capital gain by considering the profit arising on account of sale of land. The same AO has made the assessment in the case of Shikha Singhal and Shri Rajat Singhal in which profit has been considered Long term capital gain on sale of shares. In their case, the sale has not been considered as a sale of assets but has been considered sale of shares. In case transfer of the shares is then Long term capital gain arises if holding period of is one year or more while in the case of immovable property the capital gain is long term in case the period for holding is more than three years. The AO cannot blow hot and cold. Thus the sale of shares in the case of other shareholders has been considered as sale of shares and not sale of the assets. Therefore, there was no case of increasing the capital gain when there is no iota of evidence to suggest that the assessee has received consideration over and above the consideration received. The AO has neither examined Shri P.K. Garg nor Directors of 11 ITA No. 6029/Del/2014 CO No. 167/Del/2015 Assessment year 2007-08 the M/s. Techpro System Ltd.. Without examining, the AO could not have doubted the genuineness of the transactions. The MOU was acted upon and there is nothing on record with the company which purchased the shares from the assessee company and has passed on money from M/s. Techpro System Ltd. to the assessee.
2.17 We do agree that the revenue has a right to pierce the veil. However, for that purpose, the revenue is required to collect the evidence to show that what is apparent is not real. The AO obtained the Annexure for the MOU from M/s. Techpro System Ltd. u/s 133(6) of I.T. Act. In that Annexure, the name of the assessee is not appearing. The AO has neither examined any director of M/s. Techpro System Ltd. or director the assessee company. The date of 31-07- 2006 as appearing in the transfer form does not conclusively suggest that the shares were transferred on that date. This is also evident from the fact that the assessee company received consideration in his bank account on 19-07-2006. The AO has not examined Shri Pawan Kumar Garg who acted on behalf of other shareholders for the sale of the shares of the assessee company to M/s. Techpro System Ltd. There is also no evidence to suggest that Calcutta based companies were in any way connected with M/s. Singhal Credit Group or with the shareholders of the assessee company. In case the AO was of the opinion that such Calcutta based companies acted as intermediary for evasion of tax then the AO should have at least examined the directors of the some of the companies. It is not the case of the revenue that those Calcutta based companies have not shown profit from sale of the shares at Rs. 318/- per share. It is also not the case of the revenue that all shareholders of the assessee company sold the 12 ITA No. 6029/Del/2014 CO No. 167/Del/2015 Assessment year 2007-08 shares to the Calcutta based companies at Rs. 100/- per share and thereafter all the shares were sold by Calcutta based companies to M/s. Techpro System Ltd. If there are evidence in the form of documents then the materials are to be collected to rebut the contents of the documents. We therefore, feel that it was not a case where there was evasion of tax by selling these shares.
2.18 In Ground No. 1, it is not disputed by the assessee company that search warrant was not issued against the assessee company. A single search warrant can be issued in the name of number of concerns. Once search warrant has been issued then the AO is required to pass the assessment order u/s 153A read with Section 143(3) of the Act. Hence, the Ground No. 1 of the assessee is dismissed. 2.19 The second ground of appeal of the assessee is against confirmation of addition of Rs. 55,34,750/-. We had already discussed this issue in earlier paras. There is nothing on record that the assessee has received consideration over and above consideration shown in the transfer deed for the sale of shares. We therefore, feel that the AO was not justified in making the addition of Rs. 55,43,750/-.
2.20 The third ground of appeal of the assessee is that the ld. CIT (A) has erred in holding the transfer of shares of M/s. Techpro System Ltd. instead of M/s. Yuthika Commercial Pvt Ltd. and worked out the Short term capital gain on sale of land. 2.21 Looking to the discussions contained in this order, we hold that there is no evidence to suggest that the assessee company has sold the shares to M/s. Techpro System Ltd. The assessee company has sold shares to M/s. Yuthika Commercial Pvt Ltd. There is a case of sale of shares and not sale of assets. Thus the third ground of appeal of the assessee is decided in favour of the assessee."13 ITA No. 6029/Del/2014 CO No. 167/Del/2015
Assessment year 2007-08 6.1 Having regard to the aforesaid decision of the Coordinate Bench on identical issue, we feel that there is no merit in the case of revenue to upset the finding of the Ld. CIT (A) who has followed the aforesaid order of Tribunal and, therefore, in light of the above findings, addition so deleted is found to have been validly deleted and grounds raised by the revenue are rejected. It has been also pointed out that appeal filed by the revenue also stands dismissed by an order dated 13.9.2017 of the Hon'ble High Court in ITA No. 221/2012 and therefore, even otherwise, there is no valid justification in this appeal.
7. As CO No. 167/Del/2016, filed by the assessee was not pressed, the same is dismissed.
8. In the final result, the CO of the assessee and the appeal filed by the revenue are dismissed.
The order is pronounced in the open court on 28th February, 2018.
Sd/- Sd/- (R.K. PANDA) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 28th FEBRUARY, 2018 'GS' 14 ITA No. 6029/Del/2014 CO No. 167/Del/2015 Assessment year 2007-08 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY By Order ASSISTANT REGISTRAR 15