SUPERSTAR EXPORTS PRIVATE LIMITED,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-2(3)(2), MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M):

M/s. Superstar Exports Pvt. Ltd.,

3.1. The brief facts of this issue are that the assessee company is engaged in the business of trading in shares. The ld AO observed that assessee had made long term borrowings from the following parties among other parties :-

 Goldlife Trading Co. Pvt Ltd  Riteplaza Trading Co. Pvt Ltd  Topcity Trading Co. Pvt Ltd The ld AO observed that the aforesaid parties were subsidiaries of assessee company wherein 97.56%, 97.56% and 97.75% of the shares of respective companies were held by the assessee company, which is evident from Form No. MGT-7 submitted to Registrar of Companies. The ld AO sought to verify the veracity of these loans by issuance of notice u/s 133(6) of the Act. The ld AO tabulated the date of receipt of loan and the balance of accumulated reserves in the respective companies as under:-

M/s. Superstar Exports Pvt. Ltd.,

4 5 1 2 3

Name of Loan Given in Date Reserves in Column 2 to the company FY 2014-15 Balance Sheet the extent of /Firm of the concern Column 4 Goldlife 16,00,000 20,05.2014 3,54,93,677 83,75,000 30,25,000 Trading Co. 20.05.2014 37.50,000 Pvt. Ltd. 22.05.2014 83,75,000 4,00,99,707 Riteplaza 30,00,000 22.05.2014 94,00,000 64,00.000 02.06,2014 Trading Co. Pvt. Ltd. 94,00,000 20,05.2014 3,89,39,951 Topcity 4,50,00,000 3,89,39,951 Trading Co. Pvt. Ltd. Total 5,67,14,951 3.2. The ld AO observed that the aforesaid loan transactions of the assessee clearly fall within the ambit of provisions of section 2(22)(e) of the Act and all the conditions stipulated therein were satisfied in the instant case. The ld AO observed that the assessee company holds shares more than 10% of voting power and substantial interest in the said companies. Accordingly, the ld AO sought to tax the monies received from the said companies to the extent of accumulated profits to the tune of Rs 5,67,14,951/- as deemed dividend u/s 2(22)(e) of the Act in the hands of the assessee company.

3.3. Before the ld CITA, the assessee filed detailed written submissions questioning the validity of making addition u/s 2(22)(e) of the Act. Later the assessee had not pressed this ground before the ld CITA. Accordingly, the ld CITA after noting this point, dismissed the ground of the assessee with regard to addition made towards deemed dividend.

M/s. Superstar Exports Pvt. Ltd.,

4. We have heard the rival submissions. The ld DR stated that this ground was not pressed by the assessee before the ld CITA and accordingly, the said ground deserves to be dismissed inlimine. Per contra, the ld AR filed an affidavit from the director of the assessee company that due to an error of judgement, this addition was not pressed before the ld CITA. Since the addition does not survive on facts in the eyes of law, he stated that the assessee had raised this ground before this tribunal. We find that the assessee had placed an affidavit withdrawing its claim of not pressing this ground before the ld CITA. In the interest of substantial justice, we are inclined to admit the same and adjudicate the issue on merits of the case. We find that the ld AR pleaded that assessee company or its promoters were not shareholders of the lending companies on the date of lending on 20.5.2014 , 22.5.2014 and 2.6.2014 , as the case may be. He stated that the assessee became shareholder in those lending companies only on 19.7.2014. He placed reliance on the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs Universal Medicare P Ltd reported in 324 ITR 263 (Bom) and in the case of CIT vs Impact Containers P Ltd reported in 367 ITR 346 (Bom). The ld AR however fairly stated that the date of shareholding may kindly be directed to be verified by the ld AO and if the contention of the assessee is found to be correct, then the addition made in the hands of the assessee company be directed to be deleted. We find lot of force in the argument of the assessee and accordingly, we direct the ld AO to verify the actual date of shareholding in those respective companies and to decide the issue on the basis of said fact and in the light of aforesaid decisions of Hon’ble Jurisdictional High Court. Accordingly, the Ground No. 2 raised by the assessee is allowed for statistical purposes to be disposed off as per the aforesaid directions.

M/s. Superstar Exports Pvt. Ltd.,

5.1. The brief facts of this issue are that the ld AO observed that a sum of Rs 1,30,00,000/- was borrowed by the assessee company from M/s Bridge and Building Construction Co. Pvt Ltd. The assessee could not provide PAN of the said company, address provided was found to be incorrect. Accordingly, the ld AO concluded that the identity of the lender, creditworthiness of the lender and genuineness of transactions were not proved by the assessee and hence the loan amount credited in the books was sought to be taxed as unexplained cash credit u/s 68 of the Act in the assessment. The assessee stated that it had filed loan confirmation from the said party and submitted before the ld CITA . the copy of bank statements of the assessee reflecting the said transaction together with PAN and ledger account of the party in their books. It was further submitted that the loan was received in earlier years which was supposed to be paid but for the severe cash crunch faced by the assessee, the same could not be repaid in time. This had resulted in not having cordial relations with the said party and hence the said party was not co-operating with the assessee for furnishing the necessary documents. The ld CITA however did not admit those additional evidences filed by the assessee before him and observed that since the loans were not repaid even till the proceedings before the ld CITA and no interest was paid on such loans. Moreover, since the address of the lender was found to be non-existent in the address given by the assessee company, the basic identity of the said lender was not proved by the assessee and accordingly there is no need to get into the genuineness of M/s. Superstar Exports Pvt. Ltd., the transactions and creditworthiness of the lender. With these observations, he upheld the action of the ld AO. Aggrieved , the assessee is in appeal before us.

5.2. We have heard the rival submissions. We find that the loan transactions of the assessee with M/s Bridge & Building Construction Co. Pvt Ltd are as under:- Financial Year 2013-14 (Asst Year 2014-15)

Loan received on 2.4.2013 - 1,00,00,000/- Less: Repaid on 3.4.2013 - 20,00,000/- ----------------- 80,00,000/- Add: Loan received on 3.6.2013 - 50,00,000/- ----------------- Balance as on 31.3.2014 1,30,00,000/- ----------------- The above data is taken from the ledger account of the concerned lender as appearing in the books of assessee company which was placed on record by the ld AR before us. We find that in the scrutiny assessment framed for the Asst Year 2014-15 by the ld AO u/s 143(3) r.w.s. 147 of the Act on 27.12.2018 , the ld AO had already added the sums received in Asst Year 2014-15 of Rs 1,50,00,000/- from Bridge & Building Construction Co. Pvt Ltd as unexplained income in the hands of the assessee company. The copy of the said assessment order for the Asst Year 2014-15 is enclosed in pages 62 to 82 of the Paper Book filed before us. When there was a specific query raised from the bench to the ld AR, that whether the addition made in the sum of Rs 1,30,00,000/- in Asst Year 2015-16 is the same as was made in Asst Year 2014-15, he answered in the affirmative , but however, stated that this fact may be directed to be verified by the ld AO. Hence in the interest of justice and fairplay, we deem it fit and appropriate, to remand this issue to the file of M/s. Superstar Exports Pvt. Ltd., ld AO with a direction to verify whether any sums were received during the year under consideration by the assessee company from Bridge & Building Construction Co. Pvt Ltd. If it is found that no sums were received during the year, then no addition could be made u/s 68 of the Act in Asst Year 2015-16. The ld AO is directed accordingly. Hence the Ground No. 3 raised by the assessee is allowed for statistical purposes.

6.1.The brief facts of this issue are that the assessee claimed long term capital loss of Rs 16,88,08,981/- on sale of shares of SQL Star International Limited worked out as under:- Exempt Capital Gain Index Cost Name of Sales Purchase Transfer Capital Gain Capital Company Price/Year Cost/Year Expenses without Gain with Indexation Indexation SQL LIMITED 000 000 000 165177854, 00 10488625.00 85260000.00 175666479.00 - 74771375.00 - -3631127.00 SQL 5142502.00 1662513.00 (2014-15) (2005-06) 165177854.00 LIMITED -3631127.00 1511375.00 3173888.00 (2014-15) 12009-10} 000 Total 12000000.00 38433888.00 180808981.00 000 000 000 - :.S 168808981.00 The ld AO observed that SQL Star International Limited was a BSE listed public limited company in which assessee is one of the promoters. The company was suspended from the BSE for penal reasons of various clauses of the listing agreement with the BSE. There is no evidence of assessee receiving any payment towards sale of these shares. Similar issue had cropped up in Asst Year 2014-15 and the long term capital loss was disallowed by treating it as fictitious. Accordingly, the loss claimed in M/s. Superstar Exports Pvt. Ltd., Asst Year 2015-16 was also treated as fictitious and disallowed by the ld AO in the assessment.

6.2. The assessee pleaded before the ld CITA that the shares of SQL Star International Limited were purchased by the assessee company in the earlier years and assessee was holding those investments as passive investors. Due to bad management decisions, the business of the said company did not do well and share prices fell steeply and that the company even got suspended from the exchange due to penal reasons of various clauses of listing agreement with the BSE. Due to various irregularities, the assessee wanted to sell the shares and out of their holding, they could sell 1650000 shares in Asst Year 2014-15 and balance 2402275 shares were sold in Asst Year 2015-16 which resulted into long term capital loss. The shares were sold to M/s Shiv Shakti Real Estate Pvt Ltd for Rs 1,20,00,000/- and monies were received through banking channels. The ld CITA however followed the order of his predecessor in Asst Year 2014-15 vide order dated 26.3.2018 and dismissed the claim of the assessee. Aggrieved, the assessee is in appeal before us.

6.3. We have heard the rival submissions. We find that the issue under dispute is squarely covered by the decision of the co-ordinate bench of this tribunal in assessee’s own case for the Asst Year 2014-15 in dated 26.2.2019 wherein the facts and the decision rendered thereon are as under:-

“2.1 Facts in brief that the assessee being resident corporate assessee engaged in trading of shares, derivatives and commodities during the impugned AY was assessed in scrutiny assessment u/s 143(3) on 29/12/2016 by Ld. Assistant Commissioner of Income Tax, Circle 2(3)(2), Mumbai [AO] wherein the income of the assessee was determined at Rs.529.73 Lacs as against „Nil‟ return e-filed by the assessee on 24/03/2015. The assessee has been denied the benefit of certain Long- Term

M/s. Superstar Exports Pvt. Ltd.,

Capital Loss [LTCL] of Rs.1187.26 Lacs stated to be incurred by the assessee during impugned AY, which is the sole subject matter of present appeal before us. 2.2 During assessment proceedings, it transpired that the assessee, being promoter of a Bombay Stock Exchange [BSE] Listed Public Company namely SQL Star International Ltd. [SQL], held 12.21% of the total shareholding in that entity. The company was suspended from BSE for violation of listing agreement. After suspension of the shares from BSE, the assessee claimed to have sold 16.50 Lacs shares on 31/03/2014 in an off-market transaction to an individual namely Shri Parag Dharamshi Sheth for a total sale consideration of Rs.24.75 lakhs, computed @ Rs.1/50 per share. The net Long-Term Capital Loss [LTCL] after allowing indexed cost of acquisition worked out to Rs.1187.26 Lacs, the set-off of which was claimed against Long-Term Capital Gain of Rs.529.73 Lacs earned by the assessee during impugned AY. Accordingly, the assessee was asked to furnish the supporting documentary evidences in order to prove the genuineness of the transactions. 2.3 The assessee submitted that SQL was delisted from BSE and it was loss-making company and therefore, the shares were sold at discounted price in an off-market transaction since there was no purchaser of these shares in the market. However, in the absence of requisite documentary evidences and noticing that the payment of the shares was not received by the assessee during impugned AY, Ld. AO treated the same as fabricated and sham transaction & disallowed the LTCL as claimed by the assessee. 3.1 Aggrieved, the assessee contested the same without any success before Ld. CIT(A) vide impugned order dated 26/03/2018 and submitted additional documentary evidences in terms of Rule-46A to substantiate the stated transaction. These evidences were in the shape of sale note dated 15/03/2014, copy of delivery instruction slip for transfer of stated shares, copy of ledger confirmation from purchaser of the shares i.e. Sh.Parag Dharamshi Sheth and Copy of demat account of the purchaser to evidence transfer of shares. Accordingly, a remand report was called against the same from Ld. AO, the relevant findings of which has been extracted on page numbers 4 & 5 of the impugned order. The Ld. AO doubted the delivery instruction slip submitted by the assessee and opined that Sale Note was not conclusive to determine the genuineness of the transaction and further, the assessee could not explain non- filling of ledger confirmation dated 04/04/2014 during assessment proceedings, although the same was filed during appellate proceedings. The doubts were raised as to completeness of the transactions. The fact that the assessee failed to produce the purchaser Shri Shah along with relevant documents to confirm the transaction was also noted.

M/s. Superstar Exports Pvt. Ltd., 3.2 The assessee agitated the remand report, inter-alia, on the ground that transaction was an off-market transaction without involvement of any broker / stock exchange and the same was duly supported by two delivery instruction slips and sale note dated 15/03/2014 which has been accepted by the purchaser. The attention was drawn to the demat statement to substantiate the delivery of shares. It was also contended that another similar off-market transaction which generated gains for the assessee during impugned AY was accepted by Ld. AO and therefore, the contrasting stand on the part of Ld. AO was not justified. 3.3 After due consideration of remand report, assessee‟s rebuttal and factual matrix, Ld. CIT(A) noted that sale consideration was not received by the assessee despite lapse of considerable period of time and further the assessee has not supported the sale consideration with any valuation report and therefore, upheld the stand of Ld. AO, against which the assessee is in further appeal before us.

M/s. Superstar Exports Pvt. Ltd.,

AY which has given rise to Long Term Capital Loss in the hands of the assessee. In support of the transaction, the assessee has placed on record sale note dated 15/03/2014, two delivery instruction slips in support of transfer of shares totaling to 16.50 Lacs number of shares, demat statement of the assessee as well as purchaser evidencing purchase of shares and ledger confirmation from the purchaser. Upon careful perusal of the same, we find that the assessee is stated to have sold these shares to Shri Parag Dharamshi Shah for a sale consideration of Rs.24.75 Lacs vide sale note dated 15/03/2014. Consequently, the assessee has issued two delivery instruction slip numbers 356586 & 356587 both dated 31/03/2014 for 12.50 Lacs & 4 Lacs number of shares respectively, directing its depository participants namely Systematix Shares & Stocks (I) Ltd. to transfer the shares to the purchaser. The assessee‟s demat statement with respect to its shareholding, as placed on page number-24 in the paper- book reveal that these shares have actually been debited / transferred from assessee‟s account on 31/03/2014 and the same has duly been credited on the same date to the account of the purchaser Client Id 21316474 held with Stock Holding Corporation of India Ltd. The ledger confirmation evidencing the transaction has been placed on page number-30 of the paper-book which has been confirmed by the purchaser on 04/04/2014. The amount of Rs.24.75 Lacs receivable from purchaser is reflected by the assessee in its Balance Sheet for impugned AY under the head other receivable and the books of accounts have duly been audited under law. The aforesaid sequential events lead us to form an opinion that the ownership of the share was, in fact, transferred by the assessee during impugned AY itself and the sale transaction was duly recognized by the assessee as well as the purchaser. The revenue has doubted the transaction primarily on the ground that the sale consideration was not received by the assessee during impugned AY and therefore, the transaction was merely a sham transaction. However, nothing on record suggest the same. It is trite law that addition could not be made merely on the basis of suspicion, conjectures or surmises without bringing on record any adverse material against the assessee to rebut the assessee‟s documentary evidences.

5.2 As per charging Section 48, the income chargeable under the head Capital Gains is to be computed by deducting from the full value of consideration received or accruing as a result of transfer of the capital asset. The term transfer as defined in Section 2(47) would include the sale, exchange or relinquishment of the asset. Since, in the present case, we have already concluded that the sale took place in the impugned AY itself, the impugned transaction, in terms of charging Section 48, were chargeable to tax in impugned AY only irrespective of the fact that sale consideration was actually received by the assessee or merely accrued to the assessee in impugned AY. The chargeability of the capital gains, in our opinion, was not dependent

M/s. Superstar Exports Pvt. Ltd., upon factum of actual receipt of sale consideration by the assessee and therefore, the stand of lower authorities, in this regard, could not be sustained. 5.3 So far as the valuation of shares is concerned, it is notable that the SQL was a listed entity whose trading was suspended from BSE during the month of December, 2013 when the last traded price of the Share was Rs.1.08 per share. It is also undisputed fact that the said entity was loss making entity and there was no ready buyer of its share upon its suspension from trading on stock exchange. The price of listed shares, in our opinion, are governed more by demand-supply factors and therefore, the sale consideration could not be rejected by revenue merely by suspecting the same without bringing on record any material to corroborate the fact that the price of the shares at relevant time was on the higher side. 5.4 Keeping in view the above facts and circumstances, we are of the considered opinion that the stand of first appellate authority in rejecting the assessee‟s Long Term Capital Loss could not be sustained. We order so. The appeal stands allowed.”

6.3.1. During the year under appeal, we find that the assessee is in a better footing in as much as it had received sale consideration for the shares. The evidences in the form of sale note for Rs 1,20,00,000/- is enclosed in page 57 of the paper book, ledger account of Shiv Shakti Real Estate Pvt Ltd in the books of assessee company enclosed in pages 58 and 59 of the paper book, bank statement of assessee company maintained with Axis Bank Current Account No. 004212323 evidencing the credit of sums on 22.1.2015 enclosed in page 60 of the paper book. Respectfully following the aforesaid decision of this tribunal in assessee’s own case for the Asst Year 2014-15 and in view of the aforesaid facts evidencing the receipt of sale consideration of shares, we direct the ld AO to allow the claim of long term capital loss of Rs 16,88,08,981/- to the assessee. Accordingly, the Ground No. 4 raised by the assessee is allowed.

M/s. Superstar Exports Pvt. Ltd.,

Order pronounced in the open court on this 19/06/2019