ASSISTANT COMMISSIONER OF INCOME TAX LTU CIRCLE 1 CHENNAI, CHENNAI vs. PRUDENTIAL SUGAR CORPORATION LIMITED, CHITOOR
आयकर अपीलीय अिधकरण, ‘ए’ Ɋायपीठ, चेɄई
IN THE INCOME TAX APPELLATE TRIBUNAL
‘A’ BENCH, CHENNAI
ŵी एस एस िवʷनेũ रिव, Ɋाियक सद˟ एवं ŵी एस. आर. रघुनाथा, लेखा सद˟ के समƗ
BEFORE SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER
आयकर अपील सं./ITA No.:2298/Chny/2024
िनधाŊरण वषŊ / Assessment Year: 2018-19
The Assistant Commissioner of Income Tax,
LTU, Circle -1,
Mandal – 517 587. (अपीलाथŎ/Appellant)
[PAN:AAACP-4338-D]
(ŮȑथŎ/Respondent)
अपीलाथŎ की ओर से/Appellant by : Ms. E. Pavuna Sundari, C.I.T.
ŮȑथŎ की ओर से/Respondent by : Shri. D. Anand, Advocate
सुनवाई की तारीख/Date of Hearing
: 08.05.2025
घोषणा की तारीख/Date of Pronouncement
: 17.07.2025
आदेश /O R D E R
PER S. R. RAGHUNATHA, AM:
This appeal by the revenue is filed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2018-19, vide order dated 22.04.2024. 2. The revenue has raised the following grounds of appeal:
The order of the learned Commissioner of Income Tax (Appeals) in ITA No. ITBA/NFAC/S/250/24-25/1064272174(1) dt. 22.04.2024 for the Assessment year 2018-19 is erroneous in law, facts and circumstances of the case.
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The learned CIT(A) erred in deleting the disallowance of Long Term Capital Loss of Rs.24 crores made by the AO wherein the ratio of the decision of the Hon'ble Supreme Court in the case Durga Prasad More (82 ITR 540) and Sumati Dayal (80 Taxman 39) of examining the transactions by applying the test of preponderance of human probability and after duly considering the surrounding circumstances related to the transactions claimed was not followed and it was apparent the said transactions were sham if one considers the following abnormal features related to the said transactions:
a) The Directors, Shri Kishor Jhunjhunwala and Shri Vinod Baid of the assessee company were also Directors in the said two companies, M/S Discovery
Infoways Ltd., and M/s Prudential Ammana Sugars Ltd., whose shares were purchased and sold.
b) The shares were purchased by the assessee in the companies, M/s Discovery
Infoways Ltd., and M/s Prudential Ammana Sugars Ltd., of face value Rs.10 per share by paying a premium of Rs.90 per share and Rs.40 per share respectively during Financial Year 2014-15. Though both the companies were registering losses, were having a negative net worth and from were not having any business activities, however during Financial Year 2014-15 they received aggregate premium of Rs.11.25 crores and Rs.10 crores respectively from various subscribers including the assessee.
c) The valuation reports submitted by the assessee of M/s Sibasankar and Associates on the valuation of shares of these two companies at the time of purchase and sale of shares had no basis and did not explain as to how the market value of the shares at the time of purchase and sale were arrived at.
For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing officer be restored.
The brief facts of the case are that the assessee is a company filed its return of income for the AY 2018-19 declaring a total income of Rs.3,24,17,990/- on 05.10.2018. The case was selected for limited scrutiny under CASS and accordingly statutory notices were issued to the assessee. During the assessment proceedings, the AO found that the assessee has earned capital gains through slump sale u/s.50(B) of the Act by transferring an undertaking on a slump sale basis to M/s.Netam Sugar Private Limited in terms of the order dated 21.03.2017 of the Hon’ble Supreme Court. As per the report of an accountant in Form No.3CEA under sub section (3) of section 50B of the Act, the consideration received for slump sale was Rs.1,30,15,59,570/- and net worth of undertaking was determined at Rs.77,68,31,171/-.
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The assessee entered into business transfer agreement with the buyer on 04.04.2015. During the same time i.e. in 2014, the assessee had purchased shares of two closely held companies (Discovery Infoways Limited and Prudential Ammana Sugar Limited) for a consideration of Rs.12.50 Crores each as detailed below:
Date of Purchase
Name of Company
Quantity
(Nos.)
Amount (Rs.)
10.09.2014
Discovery Infoways Limited
12,50,000
12,50,00,000/-
10.09.2014
Prudential
Ammana
Sugar
Limited
25,00,000
12,50,00,000/-
During the financial year 2017-18 (AY 2018-19), the assessee sold all the above shares acquired for Rs.1.00 crore. Thereby, claiming a Long Term Capital Loss of Rs.24.00 Crores. Details of such sale transactions are given below:
Date of Sale
Name of Company
Quantity
(Nos.)
Amount (Rs.)
31.03.2018
Discovery Infoways Limited
12,50,000
50,00,000
31.03.2018
Prudential
Ammana
Sugar
Limited
25,00,000
50,00,000
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.
The assessee filed the details of sale transactions including the ledger accounts of Discovery Infoways Limited and Prudential Ammana Sugar Limited along with bank statement reflecting the transaction details of shares purchased. Further, the assessee stated that the shares were sold on the basis of value ascertained upon analysing financials of the respective companies as well as multiple market prevailing circumstances. Further, the assessee also filed a debit note which was issued on 31.03.2018 to prudential stock and securities limited based on the financial statements for the A.Y.2014-15 of the companies in which the assessee had :-4-: ITA. No.:2298/Chny/2024
purchased the shares. On perusal of the submission of the assessee the AO had observed the following about the companies in which the assessee had invested in shares:
“4.2.1 Analysis of financial statements of Discovery Infoways Limited:-
A. The company has incurred losses amounting to Rs.1,41,05,750.73 for F.Y. 2013-14 and Rs.25,23,745.09 for F.Y. 2014-15. B. The purchases during the F.Y. 2013-14 were Rs.72,456/- which significantly increased to Rs.1,01,68,898/- during F.Y. 2014-15. C. Operational expenses for F.Y. 2013-14 were Rs.21,022/- which increased to Rs.2,01,187/- during F.Y. 2014-15. Major operations expenses include
Audit fees, Bank charges, share trading differences, ROC filing fees, DP charges, professional fees.
D. Audit fees for F.Y. 2013-14 is Rs.1,100/- and for F.Y. 2014-15 is Rs.
5,100/-. 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.10,00,000/- as on 31.03.2014 to Rs.
2,55,00,000/- as on 31.03.2015. F. During the F.Y. 2014-15 company has received share premium of Rs.11,25,00,000/-.
G. Major application of funds:- a. Investment in shares Rs.6,22,69,800/- as on 31.03.2015
b Advances given Rs.6,47,32,319.56/- as on 31.03.2015
H. The net worth of the company as on 31.03.2014 (just before purchase of shares by the assessee) stood at Rs.1,92,89,315/- in negative.
From the above observations, it appears that the Financial statements does not show any genuine business activity conducted by this company.
2.2 Analysis of financial statements of Prudential Ammana Sugars Limited:-
A. The company has incurred losses amounting to Rs.2,756/- for F.Y. 2013-14
and profit of Rs.9,895/- for F.Y. 2014-15. B. There is no purchase and sale transaction during the FY 2014-15. C. Other expenses for F.Y. 2013-14 was Rs.2,756/ which significantly increased to Rs.7,52,794/- during F.Y. 2014-15. Major other expenses include
Audit fees, Bank charges. Travelling & conveyance, ROC filing fees, Business promotion expenses and subscriptions.
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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/-.
The net worth of the company as on 31.03.2014 (just before purchase of shares by the assessee) stood at Rs.6,82,841/- in negative.
From the above observations, it appears that Financial statements does not show any genuine business activity conducted by this company.
Further, the AO observed that the slump sale of the undertaking took place on 26.04.2017 (AY 2018-19) giving rise to capital gain from slump sale amounting to Rs.52,47,28,399/-. The assessee ought to have been paid the advance tax on the same.
Therefore, the AO came to a conclusion that the Long Term Capital Loss on sale of shares to the tune of Rs.24.00 crores have not been supported by any valid and reasonable explanations and documents and hence, brought to tax by holding as under: “4.4. The assessee has failed to submit any evidence before us to reasonably justify undertaking the purchase of such unlisted shares at such a huge premium. In the judgement by Hon'ble Delhi ITAT in the case of Hillman Properties Pvt. The relevant portion of the judgement is being reproduced below:
"Merely showing that transactions were carried out through Banking channel in the facts and circumstances of the case is not sufficient to prove the genuineness of the transaction in the matter. Courts and Tribunals have to Judge the evidence
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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."
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).
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.
A show cause notice dated 25.03.2021 was issued to the assessee along with Draft Assessment Order. The assessee was asked to submit its reply by 30.03.2021. In its response dated 30.03.2021, the assessee has stated the following:
That we invested in preference shares of both the companies on the basis of the comprehensive analysis and future prospects in the year 2014-15 and all transactions were carried out through banks in normal business operations, as such absolutely genuine and legitimate. However, subsequently we ascertained on the basis of the financials and other parameters as well as future prospects of the investments that we should not continue with the existing investments in preference shares of Mis Prudential Ammana Sugars Limited and M/s Discovery
Infoways Limited in the financial year 2017-18, as both the companies could not expand and diversify as plan to venture earlier, as such we thought it was wise to liquidate the said investments on the best of price available and accordingly we sold out, we further reiterate that all the transactions were carried out with utmost
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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.
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.
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/-
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-:
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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