DCIT 9(2), MUMBAI vs. KARMA MOBILITY SOLUITONS INDIA P.LTD, MUMBAI

Karma Mobility Solutions DCIT- 9(2) Room No. 218, 2NDFloor, India Pvt. Ltd. बिधम/ Rang Sharda, K. C. Marg, AayakarBhavan, M. K. Vs. Bandra(w) Road, Mumbai-400020 Mumbai-400050. स्थायीलेखासं./जीआइआरसं./ PAN No. AADCK4914H (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant by : Shri B. Sriniwas, DR प्रत्यथीकीओरसे/Respondentby : Shri Sanjay Jhanwar, AR सुनवाईकीतारीख/ : 09.04.18 Date of Hearing घोषणाकीतारीख / : 07.06.18 Date of Pronouncement आदेश / O R D E R

Per Sandeep Gosain, Judicial Member:

Karma Mobility Solutions India Pvt. Ltd. 1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was correct in allowing the claim of the assessee that the cost of acquisition of shares of M/s RPG Cellucom India Pvt Ltd was at Rs.58,91,35,840/- and not Rs.16,70,00,000/- as found by the AO without considering the facts available on record.

2. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was correct in allowing the benefit of indexation while computing the capital loss, arising out of transfer of shares of M/s RPG Cellucom India Pvt Ltd to Spice Group at Rs.42,62,07,851/- as against Rs.28,00,000/ -reworked by the AO without considering the facts available on record.

4. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.

Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties,partly allowed the appeal of the assessee. Now before us, the revenue has preferred the present appeal by raising the above grounds.

Revised Ground No. 1& 2 3. These grounds raised by the revenue are inter-connected and inter-related and relates to challenging the order of Ld. CIT(A)in allowing the claim of the assessee that the cost of acquisition of shares of M/s RPG Cellucom India Pvt Ltd was at Karma Mobility Solutions India Pvt. Ltd. Rs.58,91,35,840/- and not Rs.16,70,00,000/- as found by the AO and in allowing the benefit of indexation while computing the capital loss, therefore we though it fit to dispose of the same by this common order.

3.3. I have perused the assessment order and written submissions of the appellant. It is settled position of Law that cost of acquisition to be adopted for calculation of capital gain has to be the actual cost and not the notional cost. The judgement of Hon'ble Calcutta High Court in the case of CIT vs Steel Group Ltd (131 ITR 234) is a direct case on this issue decided Karma Mobility Solutions India Pvt. Ltd. by following Hon'ble Supreme Court judgement holding as follows:-

13. Thus., having regard to the principle enunciated by the Supreme Court that while computing the capital gains the assessee was concerned with the cost of acquisition, that is, the price which was paid by the assessee for acquiring the capital asset on the date it was acquired subject to such adjustments as laid down u/S. 55, the assessee has no concern with what would be the value of that asset on some subsequent occasion, in other words, subsequent events need not be taken into consideration. The ratio of this decision was followed by a Division Bench of this Court in the case of Sutlej Cotton Mills Ltd vs CIT (119 ITR 666), though there may he some factual discrepancy, with which we are not concerned, Mr,Balai Pal also referred to the decision of The Bombay High Court in the case of W. H. Brady & Company Ltd vs CIT (10 CTR 321). But having regard to the ratio of the Supreme Court decision and the Calcutta High Court decision referred to above, this decision has got no application.

Thus, fair value or notional cost (derived cost) is irrelevant for the purpose of computing capital gains. When the actual cost of acquisition of any asset is available, no notional figure should be substituted for Karma Mobility Solutions India Pvt. Ltd. determination of the cost of acquisition. The question of substitution or estimation or deriving the cost of acquisition arises only where actual cost of acquisition is not available or the transaction of acquisition of asset is not genuine or there is doubt about the facts relating to the cost. Once there is no doubt on the facts and evidences relating to the cost there is no question of substitution of the cost. Applied to the facts of this case, none of the facts and evidences on the record have been doubted by the Assessing Officer as each of them is supported by documentary evidence on record.

3.3.1. The transaction document shows that the amount of loan receivable from Cellucom in the books of appellant has been converted into equity. This is also evident from record that the amount of outstanding loan were Rs. 5691,35,840/-being the aggregate of own loan of the appellant amounting to Rs. 494135,84/-and cost of loan of RPG group acquired by the appellant at Z.7.5 crore. There is also no dispute that by way of such conversion of loan into equity what where received were 1,80,00000 equity shares of Z,10 each, The resolution of respective companies and the financial statements showing such conversion are on record. Thus, the cost of 1.80,00,0001- equity shares has to be taken at outstanding loan amount of Rs. 56,91,35,840/-. In other words, in this transaction the Karma Mobility Solutions India Pvt. Ltd. appellant has forgone the loan of Rs. 56,91,35,840/- and received 180,00,000 equity shares ofRs. 10 each in lieu thereof. Therefore, the cost of such equity shares is the amount of loan forgone for acquiring such shares. There can be no other commercial or legal view on the cost of acquisition of shares when such cost is available in terms of absolute monetary terms as per the transaction document.

3.3.2. Although in the present case, the loan was converted into shares and not the debentures but since debentures are also debts and a form of loan, it is relevant to take the assistance from the statutory provisions applicable in respect of the determination of cost of shares which are converted from debentures. According to section 49(2A) of the Income tax Act where any debenture or bond has been converted into shares then the concerned cost of debentures has to be considered as the cost of shares. Since debenture is a kind of loan therefore, applying the same principle the cost of loan (which is obviously the same as outstanding balance of loan) should be treated to be cost of shares. Thus, the cost ofRs. 1,80,00,000 shares acquired by way of conversion of loan into equity deserves to be taken at Rs.56,91,35,840/-, Karma Mobility Solutions India Pvt. Ltd. 3.3.3. In respect of remaining shares, which are acquired for cash consideration at face value, there is no dispute about the cost of acquisition and the cost of 20 lakhs shares is to be taken at Rs. 2 crore (9980000 + 10020000) being the free value of shares paid for acquiring these shares. Accordingly, the cost of entire 2,00,00,000 equity shares has to be taken at Rs.58,91,35,840/- (56,9135,840 + 2,00,00,000). The capital gain / loss is required to be worked out by adopting such cost. There is no dispute about the consideration received from transfer of these 200,00,000 shares by the appellant and the expenditure incurred in connection with sale of these shares. Therefore, the Assessing Officer is directed to recalculate the capital gains/losses by adopting the cost of 2,00,00,000 shares at Rs.58,91,35,840/-. This ground of appeal is allowed.

After having gone through the facts of the present case, judgment cited by both the parties as well as considering the orders passed by revenue authorities and submissions made by both the parties, we find that Ld. CIT(A) has rightly appreciated the facts of the present case and correctly held that when the actual cost of acquisition of any asset is available for computing Karma Mobility Solutions India Pvt. Ltd. capital gains, then the fair value or notional cost (derived cost) is irrelevant for the purpose of computing capital gains. The question of substitution or estimation or deriving the cost of acquisition arises only where actual cost of acquisition is not available or the transaction of acquisition of asset is not genuine or there is doubt about the facts relating to the cost. It was also correctly held by Ld. CIT(A) that once there is no doubt on the facts and evidences relating to the cost, then there is no question of substitution of the cost and none of the above facts and evidences on the record have been doubted by the AO as each of facts and evidences/transactions are supported by documentary evidence on record. Ld. CIT(A) further rightly held that the transaction document reflects that the amount of loan receivable from Cellucom in the books of assessee has been converted into equity and the same is also evident from record that the amount of outstanding loan were Rs. 56,91,35,840/-being the aggregate of own loan of the assessee amounting to Rs. 49,41,35,84/- and cost of loan of RPG group acquired by the assessee at Rs.7.5 crore. Hence, in this way Ld. CIT(A) come to the conclusion that there Karma Mobility Solutions India Pvt. Ltd. is no dispute that by way of such conversion of loan into equity what were received were 1,80,00000 equity shares of Rs. 10 each. Even the resolution of respective companies and the financial statements showing such conversion are on record, which is part of paper book. Therefore, after analyzing the actual cost of Rs. 1,80,00,000/- equity shares were taken at outstanding loan amount of Rs. 56,91,35,840/- and in this transaction the assessee has forgone the loan of Rs. 56,91,35,840/- and received 180,00,000 equity shares of Rs. 10 each in lieu thereof. Therefore, the cost of such equity shares was the amount of loan forgone for acquiring such share and there could be no other commercial or legal view on the cost of acquisition of shares when such cost is available in terms of absolute monetary terms as per the transaction document. We also find that Ld. CIT(A) had rightly held that the loan was converted into shares and not the debentures, but since debentures are also debts and a form of loan. Therefore, complying the same principles, it was held that the cost of loan (which is obviously the same as outstanding balance of loan) should be treated to be cost of shares. Thus, the cost of Rs.

Karma Mobility Solutions India Pvt. Ltd. 1,80,00,000 shares acquired by way of conversion of loan into equity deserves to be taken at Rs.56,91,35,840/-.

Moreover, no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld.CIT(A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld.CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, these grounds raised by the revenue stands dismissed. Revised Ground No. 3& 4

7. These grounds are general in nature, thus requires no specific adjudication.

8. In the net result, the appeal filed by the revenue stands dismissed. Order pronounced in the open court on 7th June, 2018 Sd/- Sd/- (R. C. Sharma) (Sandeep Gosain) लेखासदस्य / Accountant Member न्याययकसदस्य / Judicial Member मुंबई Mumbai;यदनांकDated : 07.06.2018 Sr.PS. Dhananjay Karma Mobility Solutions India Pvt. Ltd. आदेशकीप्रनिनिनिअग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी/ The Appellant 2. प्रत्यथी/ The Respondent आयकरआयुक्त(अपील) / The CIT(A) 3. 4. आयकरआयुक्त/ CIT- concerned 5. यवभागीयप्रयतयनयध, आयकरअपीलीयअयधकरण, मुंबई/ DR, ITAT, Mumbai 6. गार्डफाईल / Guard File आदेशधिुसधर/ BY ORDER,