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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND SRI G. MANJUNATHA, AM (A.Y:2008-09) Mukesh Ramanlal Gandhi Addl. Comm. Of Income Blossoms, 6th Floor, Tax, Range-19(2), Opp. T.B. Zaveri, Parimal Chambers, Lal Near Asha Parekh Hospital, Vs. Baug, Mumbai-400 012 S.V. Road, Santacruz (W) Mumbai-400 054 PAN No.AAFPG8133R Appellant Respondent .. Assessee by .. Shri Sunil Moti Lala, AR Revenue by .. Shri Rajat Mittal, DR Date of hearing .. 15-11-2017 Date of pronouncement .. 06-12-2017 O R D E R PER MAHAVIR SINGH, JM:
This appeal by assessee is arising out of the order of Commissioner of Income Tax (A)-31, Mumbai, (in short ‘CIT(A)’) in appeal No. CIT(A)-34/Addl.CIT-19(2)/IT-195/10-11 dated 16-03-2015. The Assessment was framed by Additional Commissioner of Income Tax Range 19(2), Mumbai (in short ‘Addl. CIT’) for the A.Y. 2008-09 vide order dated 28-12-2010 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first issue in this appeal of the assessee is as regards to the order of CIT(A) confirming the action of the AO in making addition of long term capital gain by enhancing amount of ₹ 5,19,19,136/- on account of surrendering of shares of Angel Broking Limited (in short ‘ABL’) and Angel Capital and Debt Market Limited (in short ‘ACDL’) on account of restructuring/ swap of shares . For this assessee has raised following grounds: - Mukesh Ramanlal Gandhi (A.Y:2008 -09) “1) The Learned Commissioner of Income Tax Appeals-34 erred in confirming the Computation of Capital gain in case of Your Appellant as worked out by the Addl. Comm. Of Income Tax, Range 19(2). Mumbai at Rs. 7,80,82,391/- as against returned capital gain of Rs. 2,61,63,255/-. and thereby confirming the addition of Its. 5,19,19,136/- made by the Addl. Commissioner of Income Tax, Range 19(2). Mumbai.
1.1 The Learned Commissioner of Income Tax Appeals-34 erred in holding that the capita) gain in case of Your Appellant arising out of transfer of shares of M/s Angel Broking Ltd. and M/s Angel Capital and Debt Market Ltd. should be worked out on the basis of value of shares of M/s Angel Infin Pvt. Ltd., which is in his opinion was s. 65/- per share as against ₹ 32.42 as offered by M/s Angel Infin Pvt. Ltd., based on value determined by the approved valuer M/s Bhandari Dastur Gupta & Associates, Chartered Accountants appointed by Angel Group of companies to carry out Enterprise valuation for the purpose of restructuring.”
Briefly stated facts are that the assessee is one of the directors of the Angel Group of Companies. The assessee held 13,01,000/- shares of ABL and 3,00,000/- shares of ACDL. During the year under consideration Angel Infin Pvt. Limited (in short ‘AIPL) made an offer to the shareholders of the following five group companies to swap shares of these individual companies for the shares of AIPL (i) Angel Broking Limited (ii) Angel Mukesh Ramanlal Gandhi (A.Y:2008 -09) Capital and Debt Market Limited (iii) Angel Commodities Broking Private Limited (iv) Angel Securities Limited (v) Mimansa Software System Private Limited. The ratio of the exchange of the shareholders of the above five companies for the shares of AIPL were fixed in term of the offer letter issued by AIPL and also valuation of shares of respective companies as under: - Sr. Name of the Valuation per Exchange Net asset No company share ratio value ₹ 1. Angel Broking 35.15 1.0844 35.15 Limited 2. Angel Capital and 19.78 0.6101 16.16 Debt Market Limited 3. Angel Commodities 26.25 0.8907 19.78 Broking Private Limited 4. Angel Securities 16.16 0.4984 26.25 Limited 5. Mimansa Software 10.00 0.3804 32.42 System Private Limited 4. The aforesaid exchange/ swap ratio was arrived on the basis of valuation report prepared by Bhandari Dastur Gupta & Associate’s dated 31-08-2007, who have arrived at/determined the exchange price/swap ratio of shares of each of the aforesaid five companies in lieu of shares of AIPL based on the value of the shares of the aforesaid five companies as on 31-03-2007. Subsequent to the valuation of Angel Group of Companies, AIPIL issued an offer letter to the existing shareholders of the group of companies proposing to acquire shares of the group of companies and to offer shares of AIPL in lieu of share swap arrangements. As the assessee was holding 13,01,000 shares of ABL and 3,00,000 shares of ACDL and consequent to restructuring/ swap of shares of Angel Group of Companies, the assessee has been allotted 14,10,554 shares of AIPL in lieu of the 13,01,000 shares of ABL and 1,83,035 in lieu of shares of ACDL. The assessee has shown a long term capital gain arising out of transfer of shares of ABL and ACDL and allotment of shares of AIPL. The assessee worked out the long term capital gain as under: - Mukesh Ramanlal Gandhi (A.Y:2008 -09) Scripts Date of Qty Amount Index Indexed purchases cost Angel 1996-97 1,301,000 13,010,000 1.81 23,503,311 Brolking Angel 1997-98 300,000 1,200,000 1.66 1,997,583 Capital Date of Qty Amount Capital Capital sales gain as per gain books taxable 07-08 1410344 45730150 32720150 22226839 07-08 183035 5934000 4734000 3936417 51664150 37454150 26163255 Similarly, the assessee also computed the short term capital gain out of 15,93,589 shares of AIPL allotted in lieu of shares of ABL and ACDL, as the assessee has transferred 4,92,917 shares of AIPL to one of the directors of AIPL Shri Ashok Shah on 20-10-2007 at price of ₹65 per share. The working of short term capital gain of this transfer has been worked out by the assessee as under: - List of short term capital gain for the year 2007-08 Scripts Date of Qty Amount purchases Angel Infin Pvt. 23-04-2007 492917 15,980,369 Ltd. Date of sales Qty Amount Capital gain as per books 20-10-2007 492917 32,039,785 16059416
The assessee has taken the date of purchase of AIPL shares as on 23-04-2007 and price taken is at ₹. 32.42 per share for the purposes of computation of long term capital gains. But according to AO, the value of shares of AIPL is at ₹. 65 per share as against adopted by assessee has at ₹. 32.42 per share. According to AO, the assessee cannot adopt the acquisition date of shares as 23-04-2007, whereas, the shares of AIPL can be allotted after record date i.e. 16-10-2007 and on that date the Mukesh Ramanlal Gandhi (A.Y:2008 -09) share was priced at ₹ 65 per share. Accordingly, the AO reworked the long term capital gain vide Para 4.6.4, 4.6.5 as under:-
4.6.4 In this submission the assessee AR is trying to justify valuation for shares as on 20.10.2007. I am full agreement with the contention of the assessee regarding valuation of shares as on 20-10-2007 i.e. after 3 days of the Record Date from the balance sheet of M.s Angel Infin Pvt. Ltd. and that of the group companies it is seen that during the year under consideration net profits have jumped substantially and so the earning per share. From the details submitted during the course of assessment proceedings it is seen the AIPL had loss of ₹ 1.16 crores in the FY 2006-07; however, in FY 2007-08 AIPL has earned profit of ₹ 5.71 crores. Thus there is ]phenomenal rise in the profit of the company. Pursuant to the reorganization of Angel Group of companies, AIPL was converted into a holding company with ABL, ACDL. ACBPL. ASL. AFAPL and MSSPL as its 100% subsidiaries. In his submission dated 20.122010 the assessee AR has also pointed out that during FY 2007-08, the financial performance of Angel Group of companies improved substantially in line with the favorable capital market conditions prevailing in the economy. The above restructuring also led to enhancement in value of the shares of AIPL by virtue of it coming to hold controlling stake in Equity and commodity broking business, Mukesh Ramanlal Gandhi (A.Y:2008 -09) besides the commencement of its own Margin Financing Business. This therefore led to enhancement in the overall business valuation of the holding company. During the full FY, Angel Group achieved a profit before tax (PBT) figure of approx. Rs.58 crores on a consolidated basis in comparison to approx. Rs.6.70 crores achieved during the previous financial year i.e. FY 2006-07. Thus considering the issue in totality it becomes crystal clear that value of each shaTTfAlPtih6uighib1Eins.5/- during the period of 17" to 20th of Oct. 2007. This also apparent from the fact that during the year under consideration 16,59.624 equity shares of AIPL of Rs. 10 each were issued at a premium of Rs. 893.81 per share for cash.
Thus findings can be summarized as under:
(a) The Enterprise Valuation Report has only significance for determining swap ratio; (b) The RECORD DATE for drawing list of shareholders of Group companies was 16.10.2007; (C) The assessee held 13,01,000 shares of MIs Angel Broking Ltd. and 3,00.000 shares of MIs Angel Capital & Debt Market Ltd. till the RECORD DATE; (d) After RECORD DATE the assessee got 15,93,589 shares of AIPL as per the predetermined swap ratio on transfer of shares Mukesh Ramanlal Gandhi (A.Y:2008 -09) of MIs Angel Broking Ltd, and that of MIs Angel Capital & Debt Market Ltd.:
(e) There is no merit in the contention of the assessee regarding transfer of shares of MIs Angel Broking Ltd. & MIs Angel Capital & Debt Market Ltd. and allotment of shares of AIPL on any date prior to RECORD DATE:
(1) At the time of transfer of shares of MIs Angel Broking Ltd. & MIs Angel Capital & Debt Market Ltd. and allotment of shares of AIPL, shares of AIPL were valued, at least, at Rs.651- per shares.
4.6.5 In view of the factual matrix of the case as discussed above Long Term Capital Gain of the assessee on Transfer of the Shares of angel Group of Companies is worked out as under:
Scrips Date of Qty Amount Index Indexed purchases cost Angel 1996-97 1301000 13010000 1.81 23.503,311 Infin Pvt. Ltd. Angel 1997-98 300000 1200000 1.66 1997583 Capital 25500894 Date of Qty(shares Rate (of Amount Capital Transfer (next of AIPL) shares of gain day after AIPL) taxable record date) 17.10.2007 1410554 65 91686010 68182699 17.10.2007 183035 65 11897275 9899692 103583285 78082391 Mukesh Ramanlal Gandhi (A.Y:2008 -09) 5. Aggrieved, now assessee preferred appeal before CIT(A), who after considering the submissions of the assessee confirmed the action of the AO vide Para 9.1 and 9.2 as under:-
“9.1 I have duly considered the report of the AO and submission of the appellant and find that the AO's contention is that and the allotment of shares of APL, pursuant to re- organization, did not take place on any date prior to the "RECORD DATE" and further, at the time of transfer of shares of ABL and ACDL and allotment of shares of AIPL, the shares of AJPL were valued at minimum of Rs. 65/- per share, whereas, during the period 17th to 20th Oct 2007, value of each share was higher than Rs. 65/-, because shares of AIPL were issued at a premium Rs. 893.81 per share for cash later on during the year under consideration and the details furnished by the Bombay Stock Exchange also establish this fact. The appellant's contention on the other hand is that he was allotted 15,93,593/- shares of AIPL in Lieu of his share holding in ABL and ACDL on 28.11.2007, and, after obtaining the requisite approval of BSE, NSE. SEBI and other regulatory authorities, as required for the restructuring by the AIPL, the ABL filed an application for change in share holding with the BSE vide letter dated 13.09.2007, whereas, the AO in his report dated 26.11.2007; has stated that the ABL has filed an application dated 29.11.2007 to the BSE for change in share holding. The appellant has further stated Mukesh Ramanlal Gandhi (A.Y:2008 -09) that approval from the ESE, was also received by the ABL vide letter dated 27.11.2007 hence, it is evident from the above that the AC has completely misunderstood the facts of the case. The appellant's further contention is that the AO has completely ignored the additional evidence, which clearly states the fact that the share value of each of the individual group companies and the share swap ratio mentioned in the offer letter was based on the draft valuation report of the independent valuer, M/s Bhandari Dastur Gupta and re- iterated the fact that Rs. 65/- per share is the price at which the shares of AWL after restructuring of the group companies were sold by him to Mr. Denesh Thakkar and Mr. Ashok Shah, whereas, Rs. 32.42 per share is the value of shares of AWL prior to restructuring and the consideration for share swap and share exchange executed was predetermined on the basis of an offer letter dated 17.04.2000, which could not be tampered with. The appellant has also relied upon certain decisions of the Courts to state that it now a settled law that for the purposes of computing capital gains what is to be considered as sales consideration is the 'consideration received' on the transfer of capital asset and not the market value, which the asset wW fetch in the open market.
9.2 Upon due consideration of the facts gathered by the AO, as discussed in the order, Mukesh Ramanlal Gandhi (A.Y:2008 -09) as well as submissions of the appellant, I hold the view that what is to 'be considered in the case of the appellant is the time when the swapping Of the shares of ABL and ACDL with AWL took place, which was after 16.1th2007 and minimum price each share of AWL was to fetch after the "RECORD DATE", i.e. 16.10.2007 was Rs. 65/- and effective date of group recognition is 28.11.2007, and therefore, full value of shares of M/s AIPL has to be valued @ Rs. 65/- share. I, accordingly, confirm the finding of the AO on the above issue and also confirm the computation of long term capital at ₹ 7,80,82,391/- and dismiss the first ground of appeal.”
Aggrieved, now assessee is in appeal before Tribunal.
Before us the learned Counsel for the assessee first of all drew our attention to the mischief created by the AO as far as reproduction of the schedule A of the balance sheet regarding issued, subscribed and paid up capital, which is reproduced by AO in Para 4.3.4 as under: - “Schedule ‘A’ and Notes to account 2(d) of Sch. ‘R’of schedules forming part of Balance Sheet of M/s Angel Infin Pvt. Ltd as at march 31, 2008 describe in brief the scheme and gives 28th November 2007 as the effective date of reorganization of the group companies. The said notes are reproduced as under:
Mukesh Ramanlal Gandhi (A.Y:2008 -09) Schedule-‘A’ of the Balance sheet regarding issued, subscribed and paid up capital During the year the company has issued and allotted 9,051,747 equity shares of ₹10 each. Of the above, 1,659,624 Equity shares of ₹ 10 each were issued at a premium of ₹ 893.81 per share for cash and 6,776,921 equity shares of ₹ 10 each were issued for consideration other than cash.
The shares issued for consideration other than cash were issued to various shareholders of subsidiary companies acquired during the year base on an agreed swap ratio adopted by the Board of Directors of the Company with the respective shareholders. (Refer Note No.2(3) of Schedule ‘R’).
Notes to account 2(d) of Sch. ‘R’.
Pursuant to the scheme of Restructuring of Angel Group of Companies comprising of Angel Broking Limited, Angel Capital & Debt Market Limited, Angel Financial Advisors Private Limited and Angel securities Limited, Mimansa Software Sytems Private Limited, Angel Financial Advisors Private Limited and Mukesh Ramanlal Gandhi (A.Y:2008 -09) Angel Securities Limited, the company issued and allotted 6,776,921 equity shares of ₹ 10 each to various persons/ entities (being shareholders of Angel Group of companies), for consideration being equity shares respective Angel Group of Companies as per the Scheme of share Swap duly approved and agreed upon by the concerned parties. Accordingly, on issue of shares referred to above, the aforesaid companies became wholly owned subsidiaries of the company effective November 28,2017.
Further, the learned Counsel for the assessee also read out notes on accounts 2(d) of schedule R of the balance sheet filed in assessee’s paper book (which is original text) and the same reads as under: - “Pursuant to the scheme of Restructuring of Angel Group of Companies comprising of Angel Broking Limited, Angel Capital & Debt Market Limited, Angel Financial Advisors Private Limited and Angel securities Limited, Mimansa Software Sytems Private Limited, Angel Financial Advisors Private Limited and Angel Securities Limited, the company issued and allotted 6,776,921 equity shares of ₹ 10 each to various persons/ entities (being shareholders of Angel Group of companies), for consideration being equity shares Mukesh Ramanlal Gandhi (A.Y:2008 -09) respective Angel Group of Companies as per the Scheme of share Swap duly approved and agreed upon by the concerned parties. Additionally as per restructuring exercise, the company issued 615,202 equity shaers of ₹ 10 each at a premium of ₹ 22.42 per equity share for consideration received in cash. Accordingly, on issue of shares referred to above, the aforesaid companies became wholly owned subsidiaries of the company effective November 28,2017.”
The learned Counsel for the assessee took us through the issue of allotment of equity shares for cash consideration to 19 persons and allotment of equity shares for consideration other that cash to 28 persons as illustration given in the offer letter. As per the offer letter dated 17-04- 2007 and acceptance letter of the shareholders dated 23-04-2007, the swap ratio is worked out on the following valuation carried out by the Firm of chartered accountant, and the relevant clauses of the offer letter reads as under: - “The offer is made by the Angel Infin Private Limited ("AWL"), a company incorporated and registered under the Companies Act, 1956 and having its registered office at [3. AWL is a part of the Angel Group of Companies; the other companies in the group being Angel Broking Limited, a member of the Bombay Stock Exchange Limited ("BSE") and a stock broker registered with SEBI, Angel Capital & Debt Market Limited a member of the National Stock Mukesh Ramanlal Gandhi (A.Y:2008 -09) Exchange of India Limited ("NSE") and a stock broker registered with SF81, Angel Commodities Broking Private Limited, a member of the National Commodities and Derivatives Exchange Limited ('NCDEX") & Multi Commodities Exchange of India Limited (MCX"), Angel Securities Limited, a member of the SSE, Futures & Options segment, and Mimansa Software System Private Limited a company dealing in software development and management. The companies other than AWL are hereinafter collectively referred to as "Operating Companies". The Angel group offers various services such as Equity Broking & Advisory services, Commodity Broking & Advisory services, Depository Services, Portfolio Management Services and distribution of Mutual Funds and Initial Public Offerings. All the above companies are independent of each other and none of them is either a holding company or a subsidiary of the other. The above companies were formed at the time when most of the broking houses were closely held family owned business outfits.
It is now proposed to restructure the Angel Group into a holding company structure wherein AIPL would be the holding company for the Operating Companies. The objective of the proposed restructuring is to achieve better control over the operation and client service, to project the true valuation & net worth of the group's business to the potential investor, expand customer base and improve geographical presence by setting up branches, franchises, joint venture, associate Mukesh Ramanlal Gandhi (A.Y:2008 -09) network all over India and abroad, explore the possibility of mergers and to ensure true optimal valuation on listing on the stock exchanges.
AIPL proposes to acquire shares of the Operating Companies from the existing shareholders of the Operating Companies and to offer shares of AIPL as a consideration to the shareholders of the Operating Companies under a share swap arrangement and cash for fractional shareholdings. Accordingly, the Board of AIPL has proposed the following share swap arrangement (hereinafter known as "Scheme or Shares Swap"):- Based on the valuation carried by a firm of Chartered Accountants, the shares of AWL are proposed to be allotted to the offering shareholders of the Operating Companies in the following swap ratio:-
Company Against one share of Proposed allotment of face value of ₹ 10. Fully share in AIPL of Face paid up each held by the Value of ₹ 10 each. existing share holder on Under the scheme of the record date swap Angel Broking Limited 1 1.0844 Angel Capital & Debt 1 0.6101 Market Limited Angel Commodities 1 0.8097 Broking Private Limited Angel Securities Limited 1 0.4984 Mimansa Software 1. 0.3084 System Pvt. Ltd --------------------------------------------------------------------- Procedure for acceptance and settlement Shareholder of operating companies who wish to avail this offer should forward the following documents by hand delivery or by registered post to Mukesh Ramanlal Gandhi (A.Y:2008 -09) the registered office of AIPL at the address give below on or before close of business hours on the date of closure of offer i.e. 16th May 2007. a) Form of acceptance duly completed and signed in accordance with the instruction contained therein, by sole/ first shareholders whose names appear on the share certificates (in case of joint holding) in the same order in which their names appear in the Registrar of Members. b) Original share certificates C) Valid share transfer deed(s) duly signed by transferors by all shareholders (in case of joint holding) in the order and as per specimen signature lodged with the respective companies and duly attested by witness at the appropriate places. d) In case of non-receipt of the Letter of Offer, shareholders may send their acceptance of the Offer to the Registrar to the Offer, on a plain paper stating the Name, Address, Number of equity shares held, Distinctive Number., Folio Number, Number of equity shares offered, along with documents as mentioned above, so as to reach the AIPL on or before the date of closure of the Offer (i.e. 16' May 2007).
C) In case of physical shares, to the extent the equity shares are not accepted under the Offer, the rejected Share Certificates, transfer deeds and other documents, if any, will be returned by registered post by the AIPL to the shareholders /unregistered owners.”
Mukesh Ramanlal Gandhi (A.Y:2008 -09) 9. The learned Counsel for the assessee argued that the AO has simply misplaced reliance by making mischief and not relying on the actual facts. He stated that pursuant to the scheme of restructuring of Angel Group of Companies, the AIPL issued and allotted 67,76,921 equity shares of ₹. 10 each to various persons/entities being shareholder of Angel Group of Companies for the consideration being the equity shares of respective Angel Group of Companies as per the claim of shares swap duly approved and agreed upon by the concern parties. As per the restructuring exercise, the company issued 6,15,202 equity shares of ₹. 10 each at premium of ₹. 22.42 per equity shares for consideration received in cash. This offer was made on 17-04-2007 and acceptance of the shareholders was received on 24-04-2007. It means that the transaction for swap was completed in the month of April itself, i.e. on 24-04-2017. The AO has placed reliance on the record date i.e. 16.10.2007, which is nothing but the closing of scheme of restructuring/ swap of shares. The AO has totally misplaced reliance on the record date and also taken the consideration at ₹ 65 per share while computing long term capital gain as against adopted by the assessee at ₹. 32.42 per share.
We are of the view that there is solitary transaction for adopting the value of ₹ 65 per share that also on 20-10-2007 just 4 days after the record date of 16-10-2007. Now, the question arises when the date of acquisition of shares in exchange/swap in pursuant to scheme of restructuring/ swap of shares is to be adopted? The date will be 24.04 2007 i.e. the last date of closer of transaction of swap of shares or 16.10.2007 i.e. the record date. The details of exchange/swap in pursuant to scheme of restructuring/ swap of shares of Angel Group of Companies is as under:-
Mukesh Ramanlal Gandhi (A.Y:2008 -09) Class of shares(in Rs). Equity Number of shares allotted 615202 Nominal amount per share 10.00 Total nominal amount 6152020 Amount paid per share on 10.00 application Total amount on application 6152020 Amount due and payable per share on allotment (excluding premium) Total amount paid on allotment (excluding premium) Premium amount per share due 22.42 and payable (if any) Total premium amount due and 13792829 payable (if any) Premium amount paid per share 22.42 Total amount paid (f any) 13792829 Amount of discount er share (if 0.00 any) Total discount amount (if any) 11. Even the accounts of the assessee i.e. audited balance sheet clearly depict schedule ‘A’ of share capital tell the price of equity share at 10 each at a premium of ₹ 22.42 per share for cash were issued. The details cited by the learned Counsel read as under:-
SCHEDULE ‘ A’: SHARE CAPITAL AS at march As at March Authorised Equity shares: 31,2008 31,2007 Amount (Rs.) Amount (Rs.) 15,000,000 Equity Shares of Rs. 10 each (Previous year 5,000 Equity Shares of Rs. 10 each) 150,000,000 50,000,000 (Refer Note 2(b) of Schedule “R”) Total 150,000,000 50,000,000 Issued Subscribed and paid Up 13,438,247 Equity Shares of Rs. 10 each, fully paid up 134,382,470 43,865,000 (previous year 4,386,500 Equity Shares of Rs. 10 each) During the year the company has issued and allotted 9,051,747 equity shares of Rs. 10 each. Of the above, 1659,624 Equity Shares of Rs. 10 each were issued at a premium of Rs. 22.42 per share for cash and 6,776,921 Equity Shares of Rs. 10 each were issued for consideration other than cash. The shares issued for consideration other than cash were issued to various shareholders of subsidiary companies acquired during the year base on an agreed swap ratio adopted by the Board of Director of the company with the respective shareholders.
Mukesh Ramanlal Gandhi (A.Y:2008 -09) (Refer Note No.2 (d) of Schedule “R”) Total 134,382,470 43,865,000 12. From the above facts, it is clear that the AIPL made offer to the share holders of the five companies to exchange shares of these individual companies for the share of AIPL and qua that the shares of AIPL were fixed under the terms of offer letter issued by AIPL including valuation per share and exchange/swap ratio arrived at on the basis of a valuation report of an independent valuer dated 31-08-2007. The assessee accepted the offer of exchange of his holding of 13,01,000 shares of ABL and 3,00,000 shares of ACDL in lieu of which he received 14,10,554 shares of AIPL. Admittedly, the shares swap/exchange offered was made by AIPL on 16-04-2007 and was accepted by the assessee on 24-04-2007 and not on 20-10-2007 as alleged by AO taking the share price of AIPL at ₹ 65. The assessee has rightly returned the swap value of ₹ 32.42 as return by the assessee while calculating long term capital gains which was determined by the independent valuer. No doubt the assessee sold his part of holding in AIPL of 4,92,917 shares at ₹ 65 per share on 20-10-2007 and returned short term capital gain thereon, but the AO wrongly assumed this price as the price of swap / exchange ratio of AIPL shares because the reason for getting the higher value of shares of AIPL by the assessee on 20-10-2007 was at that point of time the value of AIPL includes the value of investment in all five companies and the consolidated strength of the company increased. The AO instead of appreciating the facts, ignore all the facts and has held the full value of consideration received by the assessee on exchange of shares of ABL and ACDL at ₹ 65 per share and not at ₹ 32.42 per share. According to us, the price per share of AIPL on 20-10-2007 cannot be compared with the value received by the assessee on swap / exchange of shares of ABL and ACDL because the shares of ABL and ACDL were exchanged for shares of AIPL on standalone basis and not on the basis of the sixth companies put together.
Mukesh Ramanlal Gandhi (A.Y:2008 -09) 13. For this, the learned counsel for the assessee placed reliance on provisions of section 50C of the Act and relied on the decision of co- ordinate Bench of this Tribunal of ITAT Delhi Bench in the case of ITO vs. Modipon Ltd. (2015) 154 ITD 369 (Delhi Trib.) wherein it is held that the consideration for sale of land was to be worked out on the basis of circle rate prevailing on the date of registration of agreement to sell and not by applying circle rates on the date of execution of sale deed. Similarly, in the present case before us also, the exchange / swap of shares of AIPL with that of ABL and ACDL, were exchanged on 23-04-2007 when offer was accepted by the assessee. The price on that date has to be accepted as true price, which is based on independent valuers’ report. Further the learned counsel also relied on the order of Delhi Tribunal in the case of Venus Financial Services Ltd. vs. ACIT in for AY 2009-10 dated 28-09-2015, wherein Tribunal has approached the exactly similar issue as under:-
Considering the above submission, we find that during the year, the assessee has furnished following computation of capital gains/loss:”
17. The Assessing Officer accepted the claimed loss regarding the shares transaction of Ultima and Solaris Holdings Ltd. but did not accept the claimed loss on sale of shares of the Pioneer Ltd. The Assessing Officer doubted the genuineness of the claim on the basis that the assessee could not produce the complete balance sheet of Pioneer Ltd., the papers submitted were not signed by the Mukesh Ramanlal Gandhi (A.Y:2008 -09) auditors or by the directors of the company, the book value of the shares as shown by Pioneer Ltd. is Rs.3.50 per share and hence the price claimed to have been received by the assessee is not acceptable. In its submissions before the Learned CIT(Appeals) and the ITAT, the assessee has tried to meet out these objections of the Assessing Officer by the submissions that the Assessing Officer had disallowed the loss ignoring the documents filed by the assessee during the course of assessment proceedings and the valuation report of independent valuer who had determined the value of shares by applying NAV Method, which is well accepted method under the provisions of Income-tax Act, 1961. It has been contended that the authorities below have overlooked that the shares were duly transferred in the name of other party and the consideration was received by cheque. Besides the contention of the assessee also remained that the long term capital gain or loss is to be computed in the manner laid down in section 48 of the Act wherein expression used is “full value of consideration received or accrued”. The main thrust behind this contention of the assessee was that there is no scope of any fair market value or estimation and in case of sale of shares, the Assessing Officer has no power to replace the value of the consideration agreed between the parties. The further contention of the assessee remained that the authorities below have completely discarded the valuation report of the valuer in respect of the value of shares, which report was prepared by the valuer applying NAV method.
Mukesh Ramanlal Gandhi (A.Y:2008 -09) 18. We find substance in the above contention of the assessee that it is settled position of law that in the case of sale, the Assessing Officer has no power to replace the value of the consideration agreed between the parties. In this regard, we find strength from the above cited decision of Hon'ble Delhi High Court in the case of Nilofar Singh (supra) holding that the expression “full value of consideration” used in section 48 of the Act does not have any reference to market value. Similar view has been expressed in other decision, cited hereinabove, by the Learned AR. We also agree with the contention of the learned that a report of a valuer is an important piece of evidence and the same cannot be discarded without there being any cogent material on record showing that the report of the valuer is not correct. It is well supported by the decisions cited of Hon'ble Delhi High Court in the case of S.K. Construction & Co. (supra). In the present case, the assessee had shown sale of 10 lacs shares of Pioneer Ltd. for a total consideration of Rs.1 lac only i.e. @ Rs.0.10 per share. The cost of such shares had been shown at Rs.4 crores i.e. Rs.40 per share. The summarized position of value per share computed by the assessee, auditors and valuer is as under:
Value per share as Value per share Value per share computed by appellant as per auditor as per company certificate independent valuer (0.17) (0.21) 0.10
The shares were sold to A.S.A. Agencies Pvt. Ltd. @ Rs.0.10 per share on 31.3.2009. The loss Mukesh Ramanlal Gandhi (A.Y:2008 -09) incurred on the sale of shares was Rs.4,47,75,491.
In view of the above cited decisions that the expression “full value of consideration” used in section 48 of the Income-tax Act, 1961 does not have any reference to market value, we are of the view that the Assessing Officer was having no power to replace the value of the consideration agreed between the parties with any fair market value or estimation. Only because the Pioneer Ltd. had shown the book value of shares at the rate of Rs.3.50 per share, the Assessing Officer was not justified to ignore the price agreed between the parties and to doubt the genuineness of the claimed loss, even ignoring the valuation report. We thus while setting aside orders of the authorities below direct the Assessing Officer to delete the disallowance of Rs.4,47,55,491 incurred on the sale of shares of the Pioneer Ltd. The issue is thus decided in favour of the assessee. The related grounds are accordingly allowed.”
From the above facts of the case and the precedent cited above, we are of the view that the AO should have adopted the swap/ exchange value at ₹ 32.42 per share of AIPL in exchange of shares of ABL and ACDL and that also taking date of swap/exchange as 24-04-2007. The AO is directed to compute the long term capital gain accordingly. We direct the AO accordingly. The orders of the lower authorities are reversed and this issue of assessee appeal is allowed
The next issue in this appeal of assessee is against the order of CIT(A) confirming the addition of low household withdrawals at ₹ 3.78 lacs.
Mukesh Ramanlal Gandhi (A.Y:2008 -09) 16. At the outset, the learned Counsel for the assessee stated that the AO has estimated the low household withdrawals without any evidence but due to smallness of the amount, he is not pressing this ground. As the learned Counsel for the assessee has not pressed this ground due to smallness of the amount, we dismiss the same.
In the result, the appeal of assessee is partly allowed.
Order pronounced in the open court on 06-12-2017.