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O R D E R. PER I. C. SUDHIR, J. M. :
The Revenue has questioned first appellate order on the following grounds :-
“ 1. Whether the Ld. Commissioner of Income Tax (Appeal) has erred in deleting protective assessment in the present
2 I.T. Appeal No. 3678/Del/2013 Assessment Year : 2006-07. case, ignoring the decision of Supreme Court in the case of Laljee Haridass Vs. ITO and Ors. 43 ITR 387 (SC) ?
2. Whether the Ld. Commissioner of Income Tax (Appeal) has erred in ignoring the fact that corresponding substantive addition in the hands of other persons has not attained finality, as the concerned assessee are in appeal against the decision of ITAT ?
3. Whether the Ld. Commissioner of Income Tax (Appeal) has erred in ignoring the fact that if protective assessment is deleted before adjudication on substantive addition finalized, its very purpose will be defeated ? ”
Heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and the decisions relied upon.
The relevant facts are that the assessee (successor of Bhoruka Financial Services Ltd.) a non-banking financial company incorporated in the year 1971, filed the return of income on 29.11.2006 declaring a total income of Rs.3,41,16,390/-. The promoters of assessee held 98.73% of the equity shares and the remaining 1.27% shares were held by 26 public share holders. The total number of shares held by the 3 I.T. Appeal No. 3678/Del/2013 Assessment Year : 2006-07.
promoters were 1,98,850. These shares were sold to DLF Commercial Developers Ltd. (in short DLFCDL) during the month of August, 2005. Most of the shares in the assessee company belonging to Bhoruka Group of Company were held by Shri S. N. Aggarwal and his family members, either in their individual capacity or as partners of the concerns. From the record the Assessing Officer noted that the assessee for a large period of its existence at Bhoruka Group Company had carried on the business of financial investment of the group and no other business was carried on. On 16.06.2004 and 30.6.2004, the assessee acquired land of 15 acres situated at Whitefield, Bangalore for Rs.3.75 crores from Bhoruka Steels Ltd., which appeared at Rs.4.21 crores in the balance sheet as on 31.03.2005, which was inclusive of development expenses on the land.
3.1 The promoters of the assessee sought permission from SEBI to exempt them from making public announcement in respect of sale of 1,98,850 equity shares to DLFCDL. The promoters of the assessee disclosed the rate of Rs.2,400/- per share for the purpose of selling the shares to DLFCDL. Though the share was listed in Bangalore Stock Exchange, it was hardly traded and it was gathered that the last quoted
4 I.T. Appeal No. 3678/Del/2013 Assessment Year : 2006-07. value of the share was Rs.5/- in 1985. The Assessing Officer noted further that during financial year 2004-05, the DFSL sold all the listed equity shares. Accordingly, the investments which were worth Rs.4.61 crores as on 31.03.2004 got reduced to Rs.3.85 crores as on 31.03.2005. The investments as on 31.03.2005 were the equity shares of Bhoruka Power Corporation Ltd., which was sold during the financial year 2005- 06. During August 2005, DLFCDL purchased the shares of DFSL at a negotiated rate of Rs.4,490/- per share for a total consideration of Rs.88.97 crores. By virtue of this deal, the promoters of assessee have sold their stake to DLFCDL 3.2 Survey under section 133A of the I. T. Act was carried out on 18.08.2005 on the assessee by DDIT (Investigation) Bangalore. On examination of the balance sheet of assessee as on 31.03.2004, 31.03.2005 and 30.6.2006 it was found that the assessee had systematically reduced its investment except that of the land which was purchased from Bhoruka Steels Ltd. the Assessing Officer held that the events prove the intention of the assessee to empty the balance sheet leaving land as the only asset in the balance sheet. The Directors and promoters of the assessee disposed off all other assets held by it except
5 I.T. Appeal No. 3678/Del/2013 Assessment Year : 2006-07. land before the shares were sold to DLFCDL. The Assessing Officer accordingly concluded that the intention of the Directors and promoters of the assessee was to transfer the under-lying assets, being land, to the buyer company i.e. DLFCDL. He was of the view that DLFCDL could not have bought the shares of the assessee at a substantial rate of Rs.4,490/- per share if assessee was not having the land of 15 acres as its asset. While substantive additions as short term capital gains have been made in the cases of the Promoters of the assessee company on the respective sale considerations received by them on sale of shares, treating the sale consideration as for the sale of land, the Assessing Officer of the assessee company brought the entire sale consideration of Rs.89,08,10,218/- to short term capital gains tax on protective basis on the following basis. The ld. CIT (Appeals) has allowed the first appeal preferred by the assessee against the above action of the Assessing Officer. This action of the ld. CIT (Appeals) has questioned by the Revenue in the present appeal on the above grounds.
3.3 In support of the grounds, the ld. CIT [DR] has basically placed reliance on the assessment order. The ld. AR, on the other
6 I.T. Appeal No. 3678/Del/2013 Assessment Year : 2006-07. hand, tried to justify the first appellate order and also placed reliance on the following decisions :-
(i) Bhoruka Engineering Inds. Ltd. Vs. DCIT (2013) – TIOL – 479 – Hon'ble High Court – Kar. – IT.;
(ii) ACIT Vs. M/s. Pragya Enterprises, ITA. No. 1580/Bang./2013 & Others; Order dated 10.04.2015 – Assessment Year 2006-07.
We have discussed the facts of the case hereinabove in detail in the foregoing paragraphs with finding of the Assessing Officer. Having gone through the orders of the authorities below, we find that the Assessing Officer had brought the entire sale consideration of Rs.89,08,10,218/- to short term capital gains tax in the hands of the assessee on protective basis while substantive addition as short term capital gains has been made in the hands of promoters of the assessee company on the respective sale consideration received by them on sale of shares, treating the sale consideration as for the sale of land. The Assessing Officer held the actions of the assessee as colourable device. The ld. CIT (Appeals) noted that the land owned
7 I.T. Appeal No. 3678/Del/2013 Assessment Year : 2006-07. by the assessee company has not changed hands / title. The land existed in the books of assessee during the year under consideration. The colourable device adopted by the promoters was examined by the Department and it was brought to tax in their hands. Therefore, the ld. CIT (Appeals) held that nothing becomes taxable in the hands of the assessee company on account of the transaction in question. There is no dispute that assessee company is not the seller of the shares, but it is only the promoters, who sold the shares of the assessee company. The ld. CIT (Appeals) has accordingly held that protective addition made in the hands of the assessee company as an abundant pre-caution, particularly when substantive additions made in the hands of the promoters has been upheld by the Tribunal, does not have any legs to stand. The ld. CIT (Appeals) has recorded that the Assessing Officer may consider taking appropriate action, as deemed fit, in case the order of the Tribunal in the case of Bhoruka Engineering Inds. Ltd. or other share holders is reversed / rendered against the Department. We find that the first appellate order on the issue is comprehensive and reasoned one as the same is also supported by the decision of Hon’ble High Court of Karnataka in the case of Bhoruka
8 I.T. Appeal No. 3678/Del/2013 Assessment Year : 2006-07.
Engineering Inds. Ltd. Vs. DCIT (supra). The first appellate order is thus upheld.
In result, appeal is dismissed.
The order is pronounced in the Open Court on : 28th July, 2017.