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Facts
The assessee claimed a short-term capital loss of Rs. 61,13,842/- from the sale of shares of M/s Eurobearings India Pvt. Limited (EUBI) to her father, which she had acquired from M/s Alps Investment Private Limited, a company owned by her parents. The Assessing Officer and CIT(A) disallowed the loss, treating the transaction as a "colourable device" to avoid tax, citing family involvement, absence of formal reorganisation documents, and alleged discrepancies in ROC filings.
Held
The tribunal held that mere family involvement or related entities do not automatically render a transaction a "colourable device." It noted that the AO did not dispute the adjustment of sale consideration via book entry, and that the onus was on the Revenue to prove the transaction was not real. Suspicion, however strong, cannot be a substitute for evidence. Therefore, the transaction was deemed genuine.
Key Issues
Whether the sale of shares between family members and related entities, resulting in a short-term capital loss, was a genuine transaction or a 'colourable device' to avoid tax, and where the burden of proof lies in such cases.
Sections Cited
143(3), 143(3A), 143(3B), 143(2), 11UA
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Income Tax Appellate Tribunal, DELHI BENCHES: G : NEW DELHI
Before: SHRI ANUBHAV SHARMA & SHRI MANISH AGARWAL
Assessment Year: 2018-19 Saumya Mittal, Vs ACIT-1, C10, Kalindi Colony, Moradabad. New Delhi – 110 065. PAN: ACHPM0134E (Appellant) (Respondent) Assessee by : Shri Ajay Wadhwa, Advocate; Ms Ragini Handa, Advocate; & Shri Saksham Garg, CA Revenue by : Shri Manish Gupta, Sr. DR Date of Hearing : 02.06.2025 Date of Pronouncement : 25.06.2025 ORDER PER ANUBHAV SHARMA, JM:
This appeal is preferred by the assessee against the order dated 27.06.2024 of the Ld. Commissioner of Income-tax (Appeals), NFAC, Delhi (hereinafter referred to as the Ld. First Appellate Authority or ‘the Ld. FAA’, for short) in Appeal No.NFAC/2017-18/10041921 arising out of the appeal before it against the order dated 26.03.2021 pssed u/s 143(3) r.w.s. 143(3A) & 143(3B) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the National e-Assessment Centre, Delhi (hereinafter referred to as the Ld. AO), respectively.
Heard and perused the records. The facts coming up from records and rival submissions are that assessee filed return filed on 25.03.2019, declaring income of ₹87,30,790/ and the case of the Assessee was selected for complete scrutiny to examine foreign financial interest and notice under section 143(2) of the Act issued on 22.09.2019. During the impugned AY, the Assessee was a Managing Director in M/s Eurobearings India Pvt. Limited (“EUBI”) and a partner in M/s Ultratech Engineers Inc. On 28.03.2018, the Assessee sold 135,86,332 shares of EUBI for Rs. 74,72,480/- which were acquired for Rs. 135,86,332 in Feb-March 2017 and claimed short term capital loss of Rs. 61,13,842. The assessment was completed on 26.03.2021 under section 143(3) of the Act wherein the Ld. AO disallowed the short-term capital loss on the sale of shares of EUBI for the following reasons: i. That the Assessee had purchased the shares from M/s Alps Investment Private Limited owned by his parents and sold it to his parents and claimed loss of Rs.61,13,842/-, hence it was a colorful device to claim loss. ii. That there is no entry in the bank account of the Assessee for purchase and sale of shares. iii. That the Assessee’s name is appearing in the list of transferors as well as in the list of transferees. The number of shares in the name of Assessee has increased rather than decreased. iv. As per annual return Form MGT-7 for FY 2017-18 of EUBI filed with ROC on 21.06.2019, the Assessee has 4,07,58,966 equity shares which establishes that no sale of shares of EUBI has taken place during the impugned AY. v. As per the list of shareholders of EUBI filed with ROC on 12.06.2019, the Assessee, his brother and mother jointly have 4,07,58,966 equity shares as on 31.03.2018, which establishes that no sale of shares of EUBI has taken place during the impugned AY.
The Ld. CIT(A) vide order dated 27.06.2024 dismissed the appeal of the Assessee on the following grounds:
i. The value of the shares of EUBI as per audited financials as on 31.03.2016 on the date of purchase was not revealed by the Assessee by submitting a similar certificate as per Rule 11UA of Income Tax Rules. ii. The Assessee has purchased on 06.03.2017 at a higher rate than the actual value from M/s Alps Investment Private Limited,ie, the company owned and controlled by the Assessee’s parents iii. The reason for the transfer and gift submitted by the Assessee was the reorganisation of the family business. However, there is no MOU or any other agreement or settlement deed or partition deed furnished by the 3. Assessee in support of his claim that there was a reorganisation of the family business. The entire transaction effected by the Assessee with the help of his close family members is in the nature of colourable device so as to avoid the payment of tax which arises on account of sale of shares held by the Assessee in Busybees Logistics Solutions Pvt.Ltd.
4. Ld. Counsel has relied all the evidences filed in PB to support the contention that the transaction was genuine and we like to reproduce the same here, as can be conveniently picked from the submissions; “1. DETAILS FILED IN RESPECT OF ALLOTTMENT OF SHARES BY EUBI TO ALPS INVESTMENT PRIVATE LIMITED i. Form SH 1 showing 10 shares of EUBI were transferred from Mr. Malay Mittal to Alps investment Private limited on 11.03.2015 at page 25- 26 of PBK. ii. Copy of Form No. PAS 3 dated 05.01.2016 for 48,05,856 shares at Rs. 1 per share allotted by EUBI on 18.12.2015 to Alps Investment Private Limited along with board resolution and list of allotteesPage 92 – 100 of PBK iii. Admitted by the Ld. AO that as per list of shareholders filed with ROC, as on 31.03.2016, Alps Investment Private Limited has 48,05,856 shares of EUBI – refer para 6.9 (a) at page 13 of assessment order iv. Copy of Form No. PAS 3 dated 27.07.2016 for 60,00,000 and 2,99,53,100 shares at Rs. 1 per share allotted by EUBI on15.07.2016 to Alps Investment Private Limited along with board resolution and list of allotteesPage 101 – 109 of PBK 2. DETAILS FILED IN RESPECT OF PURCHASE OF SHARES BY ASSESSEE FROM ALPS INVESTMENT PRIVATE LIMITED i. Copy of bank statement reflecting payment made by Assessee on 10.01.2017 and 13.02.2017 for acquisition of 1,35,86,322 shares of EUBI from Alps Investment Private Limited– refer page 49-50 of PBK ii. Form SH 1 and Debenture cum share certificate at page 25-32 of PBK showing the Assessee, his mother and brother as transferee of shares of EUBI as on 06.03.2017 iii. Form SH 4 Securities transfer form dated 23.02.2017 showing purchase of shares of EUBI from Alps Investment Private Limited by the Assessee, his mother and brother at page 23-24 of PBK iv. Admitted by the Ld. AO that as per Annual Return Form MGT-7 filed with ROC on 18.12.2017, the Assessee has 1,35,86,322 shares of EUBI and no share was held by the Assessee in FY 2015-16 as per annual return filed on 24.11.2016 – refer page 11of assessment order v. Admitted by the Ld. AO that as per list of shareholders filed with ROC on 27.11.2017, the Assessee, his brother and mother jointly hold 407,58,966 shares of EUBI as on 31.03.2017– refer para 6.9 (b) and (c) at page 13-14 of assessment order 3. DETA1ILS FILED IN RESPECT OF SALE OF SHARES BY ASSESSEE TO FATHER i. Form SH 4 Securities transfer form dated 28.03.2018 showing transfer of shares of EUBI by the Assessee to his father at page 33-34 of PBK ii. Acknowledgement dated 28.03.2018 from EUBI for endorsing the transfer of shares of EUBI by Assessee to his father and receipt of Form SH 4 with share certificates at page 110 of PBK iii. Proof of adjustment of sale consideration of Rs. 74,72,480/- by the Assesses from the outstanding advance payable to his father as on 1.4.2017, amounting to Rs. 3,21,00,000/-, duly disclosed in "Annexure-D of Loans, Advances & Payables is at page 35 of PBK iv. The sale consideration was arrived at as per the valuation done by a Chartered Accountant as per Rule 11UA of the Income tax Rules. Valuation report of 1,35,86,322 shares of EUBI sold by Assessee to his father is at page 51 of PBK 4. DETAILS FILED IN RESPECT OF SHARES ACQUIRED AS GIFT BY THE ASSESSEE FROM HIS MOTHER AND BROTHER i. Confirmation from Assessee’s mother regarding gift of her share of 1,35,86,322 shares in EUBI to Assessee on 28.03.2018 along with her ITR for AY 2018-19 –refer page 52-53 of PBK ii. Confirmation from Assessee’s brother regarding gift of his share of 1,35,86,322 shares in EUBI to Assessee on 28.03.2018 along with his ITR for AY 2018-19 –refer page 54-55 of PBK iii. Form SH 4 Securities transfer form dated 28.03.2018 showing transfer of shares of EUBI by the Assessee’s brother and mother to Assessee at page 33-34 of PBK iv. Acknowledgement dated 28.03.2018 from EUBI for endorsing the transfer of shares of EUBI by Assessee to his father and receipt of Form SH 4 with share certificates at page 110 of PBK 5. DETAILS FILED IN RESPECT OF VALUATION OF SHARES OF EUBI i. Copy of ITR Acknowledgment of EUBI for A.Y 2017-18 to 2019-20 showing loss in all years referPage 66 – 68 of PBK ii. Copy of audited financials of EUBI for A.Y 2017-18 to 2019-20 refer page 69 – 91 of PBK iii. The sale consideration was arrived at as per the valuation done by a Chartered Accountant as per Rule 11UA of the Income tax Rules. Valuation report of 1,35,86,322 shares of EUBI sold by Assessee to his father is at page 51 of PBK 6. DETAILS FILED TO PROVE THAT THE SHARE TRANSFER WAS REGISTERED IN FY 2018-19 BY EUBI i. Abstract of Board Resolution passed at the Board Meeting held on 25.07.2018 of EUBI regarding registration and transfer of 407,58,966 shares Page 136 of PBK ii. Minutes of meeting of BOD OF EUBI held on 25.07.2018 referPage 145 – 149 of PBK iii. Acknowledgement from EUBI on transfer of 407,58,966 shares on 25.07.2018 Page 137 of PBK iv. Acknowledgement from EUBI showing the Assessee and his father as shareholders of 407,58,966 shares as on 31.03.2019 Page 138 of PBK viii. Copy of MGT -7 of EUBI for F.Y 2018-19 Along with acknowledgement from EUBI on transfer of 407,58,966 shares on 25.07.2018 Page 137 of PBK andshowing the Assessee and his father as shareholders of 407,58,966 shares as on 31.03.2019 Page 138 of PBK 6 v. Form MGT – 8 of EUBI for F.Y 2018-19 dated 30.09.2019 confirming the transfer of 407,58,966 shares held by the Assessee, his brother and mother to the Assessee and his father on 25.07.2018 Page 165 – 168 of PBK”
5. Now what comes up is that the shares were transferred on 28.03.2018, but the company registered the transfer in its books only in July 2018, following the Board of Directors (BOD) meeting held on 25.07.2018. Therefore, the share transfer is reflected in the company’s records in FY 2018–19, not FY 2017–18. The case of assessee is that while filing Form MGT-7, the Company Secretary may have mistakenly shown all 40,758,966 shares as being held by Samuya Mittal, although the shares were jointly purchased. However, as per the List of Shareholders as on 31.03.2018 attached with Form MGT-7, 40,758,966 shares were held jointly by the Assessee, his mother, and his brother. Also at para (c) of page 14 of Assessment Order, the AO himself admitting that Neeru Mittal, Saumya Mittal and Malay Mittal has 4,07,58,966 shares.
6. What ever be the state of affair in the record of company or as reported by the company to the ROC, the fact is that the date of transfer of shares will be considered as 28.03.2018, if otherwise all the ingredients of transactions are established by the assessee. The most vital piece of evidence about the genuineness of any contractual transaction is the proof of payment of consideration and in this case assessee has claimed that by way of adjustment of outstanding balance payable to his father the sale consideration of Rs.74,72,480/- was adjusted. Now the evidence in this regard is the outstanding 7 advance payable to his father as on 01.04.2017, amounting to Rs.3,21,00,000/- duly disclosed in Annexure-D of Loans, Advances & Payables available at page 35 of the paper book. The same shows adjustment of the sale consideration. AO has not disputed this opening balance as well as the closing balance. Now, merely because the transactions involves the family members of the assessee and that the entities though being private limited companies are owned and controlled by appellant’s family members that cannot be a basis to allege that the entire transactions is a colourable device to avoid payment of taxes arising on account of sale of shares held by appellant in Busybees Logistics Solutions Pvt. Ltd. The assessee had claimed before the tax authorities that there was a reorganization of family business, however, on the basis of that no MOU or any other agreement or settlement deed or partition deed has been furnished by the assessee in support of her claim that there was a reorganization of family business. The claim cannot be doubted unless otherwise any of the parties has disputed the same. An oral agreement between the family members reflected in the transactions should be given equal credibility. Only on the basis of certain deficiencies found in the information maintained by the ROC drawing inferences that transaction has not taken place at all is not justified when the movement of consideration even if by way of book entry is accepted by the tax authorities. If such discrepancy in the record maintained by the ROC is made basis for doubting the whole transaction of sale of shares as a sham transaction, then, that would result into casting an onus on the assessee to prove that what is 8 apparent by way of execution of necessary documents of sale of shares and movement of consideration, in the past or present, while actually the onus should be on the Revenue to prove that apparent is not real. Suspicion howsoever strong cannot taken place of evidence which support the claim of the assessee. Thus ground no 1 to 8 on merits and other being consequential are sustained. The appeal is allowed.