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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri S.S.Godara & Dr. A.L. Saini
O R D E R
PER S.S.Godara, Judicial Member:
- This instant three cases for assessment year 2010-11 to two different assessees (sister concern) M/s Usha Martin Ventures Ltd and M/s Umil Shares & Stock Broking Ltd. The Revenue has field its appeal ITA & CO 44/Kol/2018 A.Y. 2010-11 ACIT Cri-6(2) Kol. vs. M/s Usha Martin Ventures’Umil Share & Stock Broking Ltd. Page 2 No.199/Kol/2018 former assessee’s case against the Commissioner of Income Tax (Appeals)-10 Kolkata’s dated 17.11.2017 passed in case No.391/CIT(A)-10/Cir-6/2010-11. Its second appeal latter assessee’s case ITA No.303/Kol/2018 and taxpayer’s cross objection No.44/Kol/2018 are directed against the CIT(A)-10, Kolkata’s order dated 01.12.2017 passed in case No.390/CIT(A)-10/Cir-6/10-11/2014-15/Kol. Relevant proceedings are u/s 143(3) of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case file(s) perused.
Both the Learned representatives are fair enough during the course of hearing that all issues raised in the instant three cases are identical in nature. We have heard the instant “lis” together. The same are disposed of by our detailed adjudication.
The Revenue’s identical first substantive grievance challenges correctness of CIT(A)’s order reversing Assessing Officer’s action disallowing assessee’s Long Term Capital Loss (LTCL) of shares sale amounting to ₹6,07,02,817/- and ₹20,95,69,036/-; respectively. Its case is that the CIT(A) has erred in law and on facts in taking into consideration assessee’s submissions without cognizance of break-up value of the shares sold. Our attention is invited to identical findings the CIT(A)’s detailed discussion as under:- “The impugned matter has been dealt by the Ld. AO as under: On investigation, during the curse of the scrutiny assessment, it is found from the return, computation and audited accounts filed in the course of the assessment proceedings that the assessee has claimed Short Term Capital Gain on sale/Redemption of Units of various Mutual Funds without STT of Rs22,70,049/-, Long Term Capital Gain of Rs.85,02,925/- on sale of immovable properties (After indexation) Long Term Capital Loss of Rs.6,07,02,817/- on sale of unquoted equity share (After indexation) Long Term Capital Gain of Rs.9,97,07,084/- on sale of quoted equity shares (With STT). ‘As per details submitted by the assessee it was found that the sale price of Equity Shares of Unquoted shares of M/s UMIL Share & Stock Broking Services Ltd (Break Up value Rs24/- per share) UT or Construction Steel Ltd (Breakup value Rs.113.55 per share) & Usha Breco Ltd (Breakup value Rs.27.19 per share) were below the Breakup value of those shares. Therefore the sale value of those shares are not accepted. In the case of sale of shares of Usha Communication & Tech Ltd and LancoInfratech Ltd it is found that the ,303/Kol/2018 & CO 44/Kol/2018 A.Y. 2010-11 ACIT Cri-6(2) Kol. vs. M/s Usha Martin Ventures’Umil Share & Stock Broking Ltd. Page 3 recorded sale price is higher than the breakup value/market value of those shares. Therefore the same is accepted. In view of above, the Long Term Capital Loss of Rs.6,07,02,817/- on sale of equity share without STT (after Indexation) is not acceptable and the same has been recomputed at Rs.37,42,487//- taking the breakup value of sharers of these companies as stated in aforesaid paragraph.
Sl Name of No of Cost price Index cost Sale price Profit/loss companies share (Rs) (Rs) (Rs) (Rs) 1 UIL Share & 1,40,000 13,67,336 24,96,836 3,60,000 8,63,364 Stock Broking Services Ltd. 2 U-Tor 1,51,671 96,40,050 1,40,80,920 1,72,22,242 31,41,322 Construction Steel Ltd 3 Usha Breco 1,15,866 11,58,660 32,83,736 31,50,397 (-) Ltd 1,33,339 4 LancoInfratech 596 3,17,905 3,45,216 2,16,556 (-) Ltd 1,28,660 Total 1,24,83,951 2,02,06,708 2,39,49,195 37,42,487
Regarding sale of share Usha Communication Tech. Ltd. it is observed that: The entire sale proceed was made to its related/associated/group company viz Umil Share & Stock Brokers Ltd. Value per share, as per accounts of Usha Communication Tech Ltd furnished by the AR of the assessee, is negative. The above mentioned company as reported was a foreign company and was not listed in India. A huge loss of Rs.4,47,88,034 [Index cost Rs.11,21,35,134 (cost price7,55,758) – sale price Rs.6,73,47,100] occurred in the transaction of above share. The AR of assessee has stated, in compliance to our query that the above transaction was made through off market but the transfer of share was duly reflected in the books of both the company’s The above submission has been considered but the same is not treated as convincing and tenable. Since the assessee fails to establish how the sale value of share was determined since the book value became negative as submitted by the AR of the assessee. In view of the nature of transaction, the manner in which it is undertaken and the surrounding circumstances clearly show that the transactions of Usha Communications. In view of above discussion it is held Tech Ltd is nothing but internal arrangement among own group companies to create artificial loss. In view of above discussion it is held long term capital loss to the tune of Rs.4,47,88,034/- is not genuine and therefore the said loss is disallowed and the carried forward loss is recalculated accordingly.
ITA No.199,303/Kol/2018 & CO 44/Kol/2018 A.Y. 2010-11 ACIT Cri-6(2) Kol. vs. M/s Usha Martin Ventures’Umil Share & Stock Broking Ltd. Page 4 As such on account of above disallowance of Long term Capital Loss (without STT) net gain arises under this (LTCG non STT) HEAD WORKS OUT Rs.37,42,487/-. For furnishing of inaccurate particulars in the above matter penalty proceeding u/s. 271(1)(c) is initiate.”
The CIT(A) has reversed the impugned disallowance by following this tribunal’s order in former assessee’s case in preceding assessment year 2009-10 involving decided on 29.01.2016 as follows:- “3. The relevant observation of the Hon'ble in ITA No.847/Kol/2013 dated 29th `Januara,2016 on the identical issue is as under: ‘5. We have heard both the parties and perused thee materials available on record. Ld. AR submitted paper book which is running at pages 1 to 71 and index of case laws which is running at pages 1 to 43. On analyzing the case decision of Hon'ble Supreme Court in the case of McDowell & Co Ltd. (supra) it would be found that “tax planning may be legitimate provided it is within the framework of law.” In the case on hand, the genuineness of the transactions is not doubted. There is no allegation that the losses incurred on sale of shares are not authorized or illegal. Ld. AR submitted that when the transactions are genuine and within the ambit of legal provisions, the same could not be termed as colourable devise on the ground that the said transaction resulted in reduction of taxes. The assessee submits that if the decision of Hon'ble Supreme Court in the case of McDowell And Co. Ltd. (supra) is understood in that sense then every transaction resulting in losses or where there exists provisions relation to exemption of income from tax would be considered as colourable devise. In such cases, even the tan of LTCG on sale of STT paid shares & securities resulting in exempt capital gains would be treated as “colourable devise” since the LTCG would result in reduction / avoidance of taxes. The assessee submits that the AO was not justified in alleging that the sale of shares resulting in losses was “colourable devise” t disallow the same following the two decision relied by Ld. CIT(A). Ld. AR further submitted that the decision of Hon'ble Supreme Court in the case of McDowell And Co Ltd. (supra) was not correctly understood by Assessing Officer/ There it was found that the assessee resorted to dubious methods which are not authorized by law to avoid excise duty chargeable on manufacturer of liquor by the Department and transactions, itself were found to be illegal. In these facts of the case, Hon'ble Supreme Court held that avoiding taxes by means of illegal transactions adopting dubious method giving them the shape of legality would be colourable device. Further, Ld. AR sub mitted that it is for the assessee to arrange its affairs in a manner which reduces its tax liability./ so far the assessee does not violate the provisions of any statute, the transactions resulting in reduction of taxes could not be termed as “colourable devise” as envisaged in the case of McDowell And Co Ltd. (supra).
On the other hand, Ld. DR vehemently relied on the orders of authorities below.
From the aforesaid discussion, we find that assessee has sold shares to its group company and booked a loss of ₹56,76,211/- under the head “capital gains”. The Assessing Officer found that the purpose of selling share at a price less than market value / book value was to escape from the tax liability therefore, it was disallowed by AO. However, from, the above facts, we understand that genuineness of the transaction of sale and purchase of share with assessee and buyer-company has not been doubted by AO. The ld. DR could not bring anything on record that the transaction was a colourable device to reduce the tax liability. There has to be cogent reasons for holding a transaction as colourable device to reduce the tax liability. In the instant case the transaction was with the group company and at the price less than the book value. In our view this observation of the AO does not make the transaction as colourable device to reduce the tax burden. We are also relying in the decision of jurisdictional High Court in the case of CIT v. Smt. Nandini Nopany (1998) 230 ITR 679 (Cal), wherein the Hon'ble jurisdictional High Court has held:- ‘Upon consideration of all the above facts and also the question that the market value of the shares transferred by the assessee was Rs.20,67,876, the Assessing Officer rejected the contention of the assessee regarding the transfer of shares and added the difference between the amount of Rs.13,34,392 and Rs.20,67,876 and thus held that the assessee had earned an income of Rs.7,57,382. Being aggrieved, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) who after considering the facts and circumstances of the case reversed the order of the Assessing Officer being of the opinion that there was no case for substituting the disclosed value of consideration on transfer by the shares and he accordingly deleted the addition made on that account in the income of thee assessee by the Assessing Officer. Being aggrieved, the Revenue filed an appeal before the Tribunal. The Tribunal upheld the finding of the Commissioner of Income-tax (Appeals) by agreeing with the contentions. Thus, under those circumstances, the aforesaid question of law has been referred to us for our opinion. The genuineness of the transaction of the sale and purchase of the shares between the assessee and Vishwa Mangal Trading Co. Pvt. Ltd., has not been doubted by the Assessing Officer. This has not even been questioned by the Department. It is not disputed that the assessee had transferred those shares at the book value cost maintained by her. It is also not disputed that the book value cost was lower than the market value of the shares. In fact it is admitted that the market value of those shares was to the tune of Rs.20,67,876. Under those circumstances, holding that the assessee had derived any income, being the difference between the market value and the price on which the shares were sold by the assessee, in our opinion, was not correct. We are of the view that the Tribunal rightly upheld the finding of the Commissioner of Income-tax (Appeals). It is not a case where any ITA No.199,303/Kol/2018 & CO 44/Kol/2018 A.Y. 2010-11 ACIT Cri-6(2) Kol. vs. M/s Usha Martin Ventures’Umil Share & Stock Broking Ltd. Page 6 understatement of value or misstatement of value of the shares sold was made by the assessee. This is a case where the assessee had sold the shares at a value admittedly lower A.Y 2009-10 Usha Martin Ventures Ltd. v. DCIT Cir-6 Kol page 7 than the market price. Yet the shares could not be assessed on the difference amount being her income because no inference can be drawn in the facts and circumstances of the case that the design of the assessee was such that she concealed certain facts and she received the difference of the value by fraudulent means.. There was no evidence direct or inferential, nor was there any finding by any income-tax authority that the as indulged in such a practice. We are fortified in our view by a judgment of the Supreme Court in the case of CIT v. Shivakami Co. Pvt. Ltd. [1986] 159 ITR 71 (SC) We also find support in our view from a Division bench judgement of the Bombay High Court in the case of India Finance and Construction Co. Pvt. Ltd. v. B.N.Panda, Dy. CIT [1993] 200 ITR 710.’ Taking a consistent view of Hon'ble Supreme Court in the case of McDowell And Co Ltd. (supra) and in terms of the decision of Hon'ble jurisdictional High Court in the case of Smt. Nandini Nopany (supra), we reverse the orders of authorities below and hold accordingly. These common grounds of assessee are allowed.” [Unquote] 4. Thus, in the light of the said observations of the Hon'ble jurisdictional ITAT in similar and identical facts in the own case of the assessee for the assessment Year 2009-10, in terms of the binding decision of Hon'ble jurisdictional High Court in the case of Smt. Nandini Nopany, it is held that the action of the Ld. AO in making the impugned disallowance of losses of Rs.6,07,02,817 claimed on sale of shares of group companies and the re- computation of the Profit from the said transactions in the sum of Rs.37,42,487 to be unsustainable in law. The grounds of appeal
are therefore allowed.”
5. Learned CIT-DR fails to dispute the clinching fact that Revenue’s pleadings have nowhere pin-pointed any exception on facts or law in impugned assessment year 2010-11 in assessees’ cases vis-à-vis those involved in said preceding assessment year. We make it clear that there is no dispute about the genuineness of the assessee’s share transactions per se. Coupled with this, learned co-ordinate bench has admittedly followed hon'ble jurisdictional high court (supra) settling the law on the very issue. We therefore find no force in Revenue’s instant first substantive grievance raised in both appeal(s).
6. Next comes Revenue’s identical second substantive ground that the CIT(A) has erred in law and on facts in calculating assessee’s gains on sale of ,303/Kol/2018 & CO 44/Kol/2018 A.Y. 2010-11 ACIT Cri-6(2) Kol. vs. M/s Usha Martin Ventures’Umil Share & Stock Broking Ltd. Page 7 land amounting to ₹86,26,729/- and ₹44,39,870/- (assessment year-wise) as LTCG than STCG treated by the Assessing Officer. Suffice to say, it transpires at the outset that these two assessees had sold their Ranchi land in the relevant previous year giving rise to capital gains in issue. The Assessing Officer admittedly applied sec.50 of the Act stipulating capital gains computation on transfer of depreciable assets to assess the said gains as STCG. The CIT(A)’s order in both cases has partly accepted the assessee’s arguments that they had not claimed any depreciation regarding land in question by including in their respective block of assets for the purpose of computing depreciation. He has directed the Assessing Officer to verify the relevant fact in this regard. We conclude these peculiar facts that the Revenue cannot be held to be an aggrieved party against the CIT(A)’s findings at this stage since the issue is very much open before the Assessing Officer as to whether assessee had included the relevant land in their block of assets or no so as to attract sec. 50 of the Act. The Revenue’s identical substantive ground raised in both the appeals fails therefore.
7. Lastly comes the third identical issue of correctness of sec. 14A r.e.s. 8D disallowance amounting to ₹3,10,94,241/- and ₹44,45,663/- (assessee- wise); respectively. It transpires that the co-ordinate bench (supra) also finds that Assessing Officer had nowhere recorded any satisfaction stipulated u/s14A(2) of the Act. There is no dispute about these two assessees to have derived exempt income in principle in the relevant previous year. The sole question herein is that of computation of corresponding disallowance. The Assessing Officer arrived at a figure of ₹3,10,94,241/- comprising of direct expenditure, proportionate interest at administrative expenditure involving figures of ₹552/- ₹280,70,693 and ₹13,22,996/- coming to ₹3,10,94,241/- in issue. His computation in latter assessee’s case relates to only the first and last head(s) involving sums of ₹252 and ₹44,45,411/- totaling to ₹44,45,663/- (supra). the CIT(A)’s order in former assessee’s case holds that the assessee’s interest free funds are much more than its corresponding investments in tax free income investment as on 31.03.2009 and 31.03.2010 ,303/Kol/2018 & CO 44/Kol/2018 A.Y. 2010-11 ACIT Cri-6(2) Kol. vs. M/s Usha Martin Ventures’Umil Share & Stock Broking Ltd. Page 8 reading figures of ₹6,94,646/- and ₹154,552.116; respectively. The assessee’s share capital, reserves and surplus funds have figures of ₹564,23,750/- and ₹457,976,819.64; respectively i.e. more than its tax free investments. This tribunal’s decision in REI Agro Ltd. vs. DCIT [20113] 35 taxmann.com 404 (Kolkata-Trib.) as upheld in hon'ble jurisdictional high court’s as well as hon'ble Bombay high court’s decision in CIT vs. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bom) holds that necessary presumption that arises in such a case is of deployment of interest free investments funds only in exempt income yielding investments. We do not find any merit in Revenue’s former argument regarding Rule 8D(2)(ii) of the Income Tax Rules, 1962 proportionate interest issue therefore
8. Coming to last head in former assessee’s case and sole head in latter assessee’s case of administrative expenditure disallowed under third limb of Rule 8D, both parties fail to dispute that the CIT(A) has directed the Assessing Officer to re-compute the impugned disallowance qua the exempt income yielding investment only as per this tribunal’s co-ordinate bench’s decision in REI Agro Ltd. vs. DCIT (2013) 144 ITD 141 (Kol) upheld in hon'ble jurisdictional high court. The Revenue’s third substantive ground in both these two appeals is declined therefore.
9. We now advert to assessee’s cross-objection that the Assessing Officer had nowhere recorded mandatory satisfaction us/1 4A r.w.s. 8D disallowance before computing the impugned disallowance. We find that the assessee had suo motu disallowed administrative expenditure whose correctness failed before the Assessing Officer as per the prescribed formula under Rule 8D. He declined the said computation therefore to arrive at the impugned administrative head expenditure of ₹44,45,411/-. We observe in these facts that the Assessing Officer had duly taken note of assessee’s computation as well as its relevant books of account before arriving at the impugned administrative disallowance. The assessee’s cross-objection is rejected & CO 44/Kol/2018 A.Y. 2010-11 ACIT Cri-6(2) Kol. vs. M/s Usha Martin Ventures’Umil Share & Stock Broking Ltd. Page 9 therefore. We make it clear before parting that we have not touched upon the first head of direct expense (supra). The Revenue as well as latter assessee in their respective pleadings therefore. The assessee’s cross-objection 44/Kol/2018 raising the instant sole substantive ground fails therefore.
10. We now advert the Revenue’s fourth and last substantive grounds seeking to revive sec. 115JB MAT adjustment on the 14A r.w.s. 8D disallowance. Suffice to say, this tribunal’s special bench decision in ACIT vs. Viveet Investment Pvt. Ltd. 165 ITD 27 (Del) holds that said statutory provision does not cover any disallowance made u/s 14A read with Rule 8D. We according affirm the CIT(A)’s findings qua instant last issue as well.