ASSISTANT COMMISSIONER OF INCOME TAX LTU CIRCLE 1 CHENNAI, CHENNAI vs. PRUDENTIAL SUGAR CORPORATION LIMITED, CHITOOR

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Date of Name of Company Quantity Amount (Rs.) Purchase (Nos.) 10.09.2014 Discovery Infoways Limited 12,50,000 12,50,00,000/- 10.09.2014 Prudential Ammana Sugar 25,00,000 12,50,00,000/- Limited

Date of Name of Company Quantity Amount (Rs.) Sale (Nos.) 31.03.2018 Discovery Infoways Limited 12,50,000 50,00,000 31.03.2018 Prudential Ammana Sugar 25,00,000 50,00,000 Limited 6. The aforesaid Long Term Capital Loss, on sale of the shares was set off against Long Term Capital Gain arose on account of slump sale.

:-5-: ITA. No.:2298/Chny/2024 D. Audit fees for F.Y. 2013-14 is Rs 1,100/- and for F.Y. 2014-15 is Rs. 1,000/-. Both these amounts were not paid till the end of F.Y. 2014-15. The audit fees payable to the auditor is a very miniscule amount. E. Share capital has increased from Rs. 1,20,00,000/ as on 31.03.2014 to Rs. 5,10,,00,000/ as on 31.03.2015. F. During the F.Y. 2014-15 company has received share premium of Rs.10,00,00,000/- G. Major application of funds :- a. Current Loans and advances given Rs.78,48,744/- and Rs.12,78,39,820/- as on 31.03.2015 b. Non current advances given Rs.25,64,112/- H. The only income is Interest on unsecured loan amounting to Rs.7,66,397/-.

:-6-: ITA. No.:2298/Chny/2024 before them by applying the test of human probability. If the said test is applied in this matter, it is clearly established that assessee failed to prove identity of the accommodation entry providers, their creditworthiness and genuine of the transaction in the matter. We, therefore, do not find any justification to interfere with the Orders of the authorities below in making the addition of Rs. 50 lakhs." 4.5. The preponderance of probabilities only denotes the simultaneous existence of several facts', each probable in itself, albeit low, so as to cast a serious doubt on the truth of the presented 'facts', which together make up for a bizarre circumstance, leading to the inference of collusiveness or a device set up to conceal the truth, i.e., in the absence of credible evidences. In view of the observations mentioned, it can be concluded from the above facts and circumstances that there was a planning and design of purchasing preference shares at higher value and then selling them at a very lower cost to book huge capital loss to avoid payment of taxes. Needless to say, that income tax proceedings are civil proceedings and the degree of proof required is by preponderance of probabilities. Therefore, applying the test of preponderance of probabilities, and considering the entire sequence of events, it can be concluded that the intention of the assessee all-way long was to book LTCL which in turn would be set off against the capital gain from slump sale. In coming to this view, reliance was placed on theory of human probability as enunciated by the honourable supreme court in case of CIT v/s Durga Prasad More (82 ITR 540) and CIT v/s Sumati Dayal (80 ΤΑΧΜΑΝ 89). 4.6. In such circumstance, the view that these transactions of purchase and sale of shares of these closely held companies was conducted solely with the intention of booking LTCL which can be set off against the LTCG earned on slump sale. These are mere book entries using banking channel between parties whose management are related. Taking this view, the setting off of Rs. 24 cores cannot be allowed. Therefore, the same is being disallowed and added back to the income of the 5. As the assessee has understated its income by claiming bogus LTCL which are not allowable as per law, penalty proceedings under section 270A of the act are being initiated on this issue. Since these are false entries recorded in books of account in my view, I am satisfied that this is underreporting in the nature of misreporting as per provisions of section 270A.

:-7-: ITA. No.:2298/Chny/2024 genuineness backed with the proper analyses on the basis of the information available. That we further reiterate that entire investments decisions were made upon comprehensive analyzes of data available with complete decisive strategy in fair in transparent manner without any biased, moreover we undertook different scientific approaches to analyze financial implications keeping in mind prospect to risk and return out of the investment, as such upon getting full satisfied about the investments prospects we gone ahead and invested in anticipation of lucrative returns, but unfortunately things/decisions could not fall in our lines of expectations, as such later on we ascertained that we should not continue with the investments in both the companies and we decided to liquidate the same on the base price available. That we further state that we analyzed duly audited accounts of both the companies before investing as well as got apprised by the presentations given by them in connection with the existing operations and future plans, as such the entire transactions were carried out with reasonable care in routine business operations and best of the decisions were made appropriately on the basis information and data available. 6.1 The arguments given by the assessee in its reply to show cause notice have already been considered while making the Draft assessment order. The plea taken by the assessee that the transactions were done through banking channel, hence, they are absolutely genuine and legitimate. Such a plea is not acceptable. This argument ios already considered in para 4.4 of this order. The assessee has failed to prove reasonableness and genuineness of these transactions. Therefore, the addition on account of booking of bogus long term capital loss is not being disturbed with.

7. With these remarks, the total income of the assessee is computed as under: Income as per the return filed : 3,24,17,987/- : Add: Disallowance of LTCL. 24,00,00,000/- : Assessed Total Income 27,24,17,987/- : Rounded off 27,24,17,990/- 10. Aggrieved by the order of the AO the assessee challenged the order before the ld.CIT(A), NFAC, Delhi. Before the ld.CIT(A) the assessee reiterated the facts and further submitted the following: The appellant made detailed submissions which are reiterated above, however the gist of submissions is as follows: “…… The appellant is a public listed company having more than 5000 shareholders engaged in in agro commodities activities particularly sugar manufacturing since 1993-94. AO has alleged that even though same price was paid for purchase of shares the quantity of the shares bought were different. It is not understood as to what is the relevance of such a baseless allegation when the price range could be different which :-8-: ITA. No.:2298/Chny/2024

was exactly the case in hand. The appellant had purchased 12,50,000/- shares of Discovery Infoways Ltd having face value of Rs.10/- per share and at a premium of Rs.90 per share resulting in total consideration paid of Rs.12,50,00,000/-. Further the appellant had purchased 25,00,000 shares of Prudential Ammana Sugar Ltd with face value of Rs.10 per share and at a premium of Rs.40/- per share aggregating to total payments made of Rs.12,50,00,000/-. We have invested in preference shares of both the companies on the basis of the comprehensive analysis and future prospects in the year 2014-15. It has been stated by the AO that the appellant has paid premium for purchase of the shares which is not reasonable and the companies of whose shares the appellant had invested are not worthy companies. It is to be submitted that the investments which had been made by the appellant is after the evaluation of the future prospects of the company and on the basis of the chartered accountant's opinion and advice as per the certificate available in the paper book. The purchase of the shares has been made in AY 2015-16 wherein proper procedure has boon followed and duly recorded in the respective books of accounts. The Income Tax Department has also assessed the appellant company as well as the companies in which such investment was made and there are no pending proceedings in respect of the companies and therefore there can be no doubt raised as to the valuation/purchase of the shares. On the issue of excess premium paid the appellant is relying on the various case Iaws. Issue in respect of no genuine business activities carried out by the companies namely, Discovery Infoways and Prudential Ammana Sugar Ltd. Again such an allegation made by the AC is absolutely baseless on the basis of both the companies being companies which are regularly filing their Income tax returns as well as assessed to tax by the Income Tax Department. The Investments were made during Financial Year 2014-15 relevant to AY 2015-16 and assessments have been framed in respect of the parent company as well as the companies in whose shares the appellant had Invested for AY 2015-16 and there is no adverse remark whatsoever by the Department in respect of the purchase / Investment and the same has been accepted as genuine and therefore at this stage no adverse inference can be cast upon it. The appellant on the other hand has repeatedly submitted that the transactions are genuine, the purchase and sale of the shares are supported by bills and vouchers, the payments made for purchase have been made through account payee cheque, the shares purchased were of private limited companies who were regularly filling their returns having a PAN number and complying to the Registrar of Companies Act and the shares which were sold were again to a limited company who were regularly filling their return and complying with the rules and regulations before the ROC. It is the allegation of the AO that the appellant has made sale of the shares close to the slump sale. It is to be submitted that the slump sale took place on 26.4.2017 whereas sale of the shares was on 31.3.2018 before the end of the previous year and therefore there is no link whatsoever between the slump sale and the sale of shares. The allegation that no advance tax was paid by the assessee against slump sale is also baseless as because tax evasion and tax planning are two separate things and tax planning does not tantamount to tax evasion. The appellant was already looking into the prospect of selling the shares as the company was not making profits and incurring losses and it wanted to liquidate its investments since a long period. The appellant also on many occasions has passed the Board Resolution of its Intention to sell the shares and liquidate its investments and on the best opportunity it has done so during the year.

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The AO has made addition only on the basis of suspicion and on the basis that the appellant had earned Capital Gains on slump sale of Rs.52,47,28,399/-whereas no material filed by the appellant has been controverted by the AO and neither the AO has made any enquiry whatsoever and therefore, on the basis of numerous case laws cited above the addition is not sustainable. Determination of order With respect to charging of high premium, the matter is well covered by various judicial decisions that once the identities and creditworthiness of the share applicants and genuineness of the transaction are established, the transaction cannot merely be termed bogus merely on the basis of high premium paid for investment in shares. Relevant case laws on the matter relied by the appellant are; (a) PCIT vs. Chain House International (P.) Ltd. [2018] 98 com 47 (Madhya Pradesh) (b) Principal Commissioner of Income Tax v. Rohtak Chain Co. (P.) Ltd. [2019] 110 taxmann.com 59 (SC), (c) Principal Commissioner of Income-tax v. Bharat Securities (P.) Ltd. [2020] 113 taxmann.com 32 (SC). The Courts have held that in applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of business, reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the Revenue. In this case the business expediency of the investment has been explained by the appellant. Relying on the same, it is inferred that fixing of share premium is a commercial decision and cannot be disputed. Reliance in this regard is also placed on the following decisions of the apex Court: Ø CIT vs. Malayalam Plantations Limited: 53 ITR 140 (SC) Ø CIT vs. Walchand & Co. etc. (1967) 65 ITR 381ØJ K Woollen Manufacturers vs. CIT: 72 ITR 612(SC) CIT vs. Birla Cotton Spg And Wvg. Mills Ltd., 82 ITR 166 (SC) Ø Madhav Prasad Jatia vs. CIT UP 118 ITR 200 (SC) (Ø S.A. Builders Ltd. vs. CIT: 288 ITR 1 (SC) It has been mentioned by the Ld. AO that the assessee had purchased 12,50,000 shares of Discovery Infoways Ltd on 10.9.2015 for total consideration of Rs. 12,50,00,000/- and purchased 25,00,000 shares of Prudential Ammana Sugar Ltd on 10.9.2014 for total consideration of Rs.12,50,00,000/-, The AO has alleged that even though same price was paid for purchase of shares the quantity of the shares bought were different. The appellant has contested that the price of share is determined after analyzing financials and prospects of the future business opportunities of both the companies. This justification of appellant is acceptable as it is up to the investor to make the decision with regard to every investment made. The investment decision can be different for different companies, Ld. AO has mentioned that that the appellant has made sale of the shares close to the slump sale. Ld. AO has mentioned that no advance tax was paid by the assessee against slump sale as the appellant had intention to set off against LTCG. The appellant has submitted that the slump sale took place on 26.4.2017 whereas sale of the shares was on 31.3.2018 before the end of the previous year and therefore there is no link whatsoever between the slump sale and the sale of shares. The issue here is genuineness of both the transactions. Regarding slump sale of the business, Ld AO has not disputed it in the order, only point of difference is capital loss claimed. Moreover, being a listed company, appellant informed the shareholders and SEBI with regard to slump sale of the business. On the three basic ingredients for establishing the genuineness of investment made viz., identity, creditworthiness of the subscribers and the genuineness of the transactions, appellant submitted that all of these are fulfilled. In this respect gist of :-10-: ITA. No.:2298/Chny/2024 submission as under: (1) On identity: the appellant is a public listed company. regularly convening shareholder meetings SEBI and MCA compliant and have filed their income tax returns regularly. The appellant emphasized that identity of investor is well established and this has also not been doubted by the Ld. AO. ii) On creditworthiness: To establish the creditworthiness of the investor with respect to investment made, the audited financial statements of FY 2014-2015 onwards has been submitted. The Ld. AO has also not refuted that appellant had sufficient fund for making investment in the share capital of the two companies companies namely. M/s Discovery Infoways Ltd and Prudential Ammana Sugar Ltd. AO has mentioned that no genuine business activities carried out by the companies namely, M/s Discovery Infoways and Mis Prudential Ammana Sugar Ltd. The appellant in the reply has stated that these are regularly filing their income tax returns as well as assessed to tax by the Income Tax Department. The Income Tax Department has framed assessments in respect of these companies. The appellant has contested that the price of share is determined after analyzing financials and prospects of the future business opportunities of both the companies. In my considered opinion, the decision of investment is the commercial decision of the appellant. It is noted that Ld. AO has relied upon the decision in the case of ITA.No.6530/Del./2014 M/s. Hillman Properties Pvt. Ltd., New Delhi. The facts of this case are totally different as in case of M/s. Hillman Properties Pvt. Ltd, the A.O. has received specific information from Investigation Wing that assessee has received accommodation entries from two parties, the details of the same are mentioned in the reasons which have not been disputed by the assessee as well. The report received from the DIT (Inv.) Wing further reveals that enquiries were initiated to probe into some Bank account which was used to issue cheques to entry seeker or beneficiary against cash paid by them to the entry operator. The A.O. has specifically recorded the fact in the assessment order that initially in different account of the Investors, the cash have been deposited from where the amount have been transferred to the another accounts of Investors and then transferred to assessee. These information are specific to show that against the cash, entry has been provided to the assessee by entry providers. The assessee failed to produce any evidence before the tax authorities. Hon'ble ITAT held that it is clearly established that assessee failed to prove identity of the accommodation entry providers, their creditworthiness and genuine of the transaction in the matter. The case of appellant is not the case of accommodation entry as that of the assesse in case of M/s. Hillman Properties Pvt. Ltd., New Delhi. The AO in its order has relied upon the decision in the case of CIT v Durga Prasad More 82 ITR 540 (SC) and Sumati Dayal v CIT 214 ITR 801 (SC) and has invoked the test of human probabilities. The appellant is relying upon the decision of the Supreme Court in the case of CIT vs. Orissa Corporation Pvt. Ltd 159 ITR 78 (SC). which has discussed scope of initial burden and as to what extent assessee has an obligation to discharge the burden. The appellant is relying upon the decision of Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 (SC) and Sreelekha Banerjee vs. CIT (1963) 49 ITR 112 (SC).

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Order pronounced in the court on 17th July, 2025 at Chennai.