M/S ANGEL INFRASTRUCTURE (P) LTD.,JAIPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, JAIPUR

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)

ITA 464 & 761/JP/2018_ 50 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

ITA 464 & 761/JP/2018_ 51 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).

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

ITA 464 & 761/JP/2018_ 52 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

ITA 464 & 761/JP/2018_ 53 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.

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

ITA 464 & 761/JP/2018_ 54 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

ITA 464 & 761/JP/2018_ 55 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

ITA 464 & 761/JP/2018_ 56 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

ITA 464 & 761/JP/2018_ 57 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

ITA 464 & 761/JP/2018_ 58 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; "

ITA 464 & 761/JP/2018_ 59 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.”

ITA 464 & 761/JP/2018_ 60 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.

ITA 464 & 761/JP/2018_ 61 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

ITA 464 & 761/JP/2018_ 62 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:

ITA 464 & 761/JP/2018_ 63 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

ITA 464 & 761/JP/2018_ 64 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

ITA 464 & 761/JP/2018_ 65 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

ITA 464 & 761/JP/2018_ 66 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

ITA 464 & 761/JP/2018_ 67 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.

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

ITA 464 & 761/JP/2018_ 68 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.

ITA 464 & 761/JP/2018_ 69 M/s Angel Infrastructure P Ltd. Vs DCIT

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,

ITA 464 & 761/JP/2018_ 70 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

ITA 464 & 761/JP/2018_ 71 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

ITA 464 & 761/JP/2018_ 72 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.

ITA 464 & 761/JP/2018_ 73 M/s Angel Infrastructure P Ltd. Vs DCIT

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

ITA 464 & 761/JP/2018_ 74 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.

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

ITA 464 & 761/JP/2018_ 75 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

ITA 464 & 761/JP/2018_ 76 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

ITA 464 & 761/JP/2018_ 77 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

ITA 464 & 761/JP/2018_ 78 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.

ITA 464 & 761/JP/2018_ 79 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

ITA 464 & 761/JP/2018_ 80 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.

ITA 464 & 761/JP/2018_ 81 M/s Angel Infrastructure P Ltd. Vs DCIT

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 &

ITA 464 & 761/JP/2018_ 82 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.

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

ITA 464 & 761/JP/2018_ 83 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.

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

ITA 464 & 761/JP/2018_ 84 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

ITA 464 & 761/JP/2018_ 85 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).

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

ITA 464 & 761/JP/2018_ 86 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

ITA 464 & 761/JP/2018_ 87 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

ITA 464 & 761/JP/2018_ 88 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

ITA 464 & 761/JP/2018_ 89 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)

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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

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record has to be carefully examined to find out whether the transaction is "sham" or "unreal" or "colourable device” to evade payment of tax.

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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……

ITA 464 & 761/JP/2018_ 93 M/s Angel Infrastructure P Ltd. Vs DCIT

(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

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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.

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

ITA 464 & 761/JP/2018_ 95 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

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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

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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.”

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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.

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

ITA 464 & 761/JP/2018_ 99 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/-.

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.

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

ITA 464 & 761/JP/2018_ 100 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.

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

ITA 464 & 761/JP/2018_ 101 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.

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

ITA 464 & 761/JP/2018_ 102 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

ITA 464 & 761/JP/2018_ 103 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

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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.]

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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.

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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

ITA 464 & 761/JP/2018_ 107 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.

appeal of the revenue is dismissed. Order pronounced in the open court on 06th December, 2018.

Sd/- Sd/- ¼foØe flag ;kno½ ¼fot; iky jko½ (VIKRAM SINGH YADAV) (VIJAY PAL RAO) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member

Tk;iqj@Jaipur fnukad@Dated:- 06th December, 2018 *Ranjan

ITA 464 & 761/JP/2018_ 108 M/s Angel Infrastructure P Ltd. Vs DCIT

आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- M/s Angel Infrastructure (P) Ltd., Jaipur. 1. izR;FkhZ@ The Respondent- The DCIT/A.C.I.T., Circle-2, Jaipur. 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 464 & 761/JP/2018) 6. vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत