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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT (A)-5, Mumbai, in appeal No. IT-195/12-13/453/13-14 dated 31-03-2014. The Assessment was framed by ITO ward-2(2)(3), Mumbai for the A.Y. 2010-11 vide order dated 14-12- 2012 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in revaluing the sale consideration of unquoted shares and thereby reducing the long term capital gain and consequently restricting the deduction under section 54EC of the Act. For this assessee has raised following three grounds: - “Capital Gain:
1. The Learned CIT(A) erred in confirming the order of the Assessing officer in valuing the sale consideration of unquoted shares of MIs. Mathsons Securities Pvt. Ltd. at Rs. 21.20 per share as against Rs. 76.81 per share arrived by the assessee, thereby working the Long Term Capital gain at Rs. 3,59,916/- as against Rs. 64,77,839/- declared by the assessee.
Shri. Bipin H. Mathrawala; 2010-11 2. The Learned CIT(A) erred in confirming the order of the Assessing Officer in treating the excess gain of Rs. 61,17,923/- (2,32,077 - 84,50,000/-) as income from other sources and restricting the deduction under section 54EC to the extent of Long term Capital Gain ofRs.3,59,916/-.
3. The Learned CIT(A) erred in confirming the action of the Assessing officer and also failed to appreciate that there is no provision under the Act whereby the Assessing officer could reduce the actual value of sale consideration of shares sold with the value so determined U/R. 11 UA(b) and tax the difference amount as income from other sources.”
3. Briefly stated facts are that the assessee is a partner in a firm M/s Mathrawala & Sons since 1986. During the year under consideration assessee sold unquoted equity shares of M/s Mathsons Securities Pvt. Ltd. of 1,10,000/- equity shares to his brother Shri Sharad Mahatrawala on 22-04-2009 and 02-05-2009 for a total consideration of Rs. 84.50 lakhs at the rate of Rs. 76.81 per share. The assessee declared long term capital gain on this sale of unquoted sates of Rs. 64,77,839/- and claim deduction under section 54EC of the Act at Rs. 50,00,000/-. The AO re-worked the long term capital gain on sale of unquoted shares at Rs. 3,59,916 and disallowed the excess claim of long term capital gain at Rs. 61,17,923/- and assessed this as income from other sources. The assessee before AO submitted that the unquoted shares of M/s Mathsons Securities Pvt. Ltd. are sold at an average price of Rs.75 and the face value of which is Rs.10/-. According to assessee, the valuation of shares is fair and reasonable, considering the reserves and the value of assets held by Mathsons Securities Pvt. Ltd. to support his claim. It was argued that Mathsons Securities Pvt. Ltd. had office in Swastik Chambers, Chembur with built up area around 900 sq. ft. and the market value which was around Rs. 1.80 crore in the March 2009. But the AO was not convinced and he determined the valuation per share at Rs. 21.20 per share by determining the value on the basis of Rule 11UA (b) of the Income Tax Rules 1962 (hereinafter the ‘Rules’). The AO determined the sale value of unquoted shares at Rs. 23,32,077/- as against the sale consideration received by assessee at Rs. 84.50 lakhs. Aggrieved assessee preferred the appeal before CIT(A), who also confirmed
Shri. Bipin H. Mathrawala; 2010-11 the action of the AO exactly on identical reasoning. Aggrieved now assessee in second appeal before Tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. Before us, assessee claimed that the valuation of shares of Mathsons Securities Pvt. Ltd. is fair and reasonable considering the reserves and surplus and value of assets held by Mathsons Securities Pvt. Ltd. It was explained that the market value of Mathsons Securities Pvt. Ltd. office at Chambur is more than Rs.1.80 crore in the year 2009. However, the book value is at Rs. 5 lakhs only. It was explained that the company has held equity shares and other shares whose market value is much higher than the book value. It was explained that Rule 11UA(b) read with section 56 of the Act is not applicable to the assessee as it reads as were as individual received in previous year from any person any property for consideration which is less than the aggregate fair market value of the property by an amount of exceeding Rs. 50,000/-. The aggregate value money of such property has exists such consideration, income shall be chargeable to income tax under the head income from other sources. It was explained that the assessee has not sold unquoted shares of Mathsons Securities Pvt. Ltd. at a price less than the market value and hence he argued that the rule prescribed under Rule 11UA(b) of the rules is not applicable. The learned Counsel for the assessee also stated that during appellate proceedings before CIT(A), the assessee obtained a new valuation report from the firm M/s SSPA & Co. and who is experts in the line of valuation, have valued the unquoted shares of Mathsons Securities Pvt. Ltd. at Rs. 71.30/-. The relevant valuation report of SSPA & Co. is enclosed at pages 58-98 of assessee’s paper book. Similarly, the valuation report of Mr. Pankaj B. Mehta dated 10-01-2014 is also enclosed at pages 99-100. It was explained that even in assessee’s sons case i.e. Shri Gaurav Bipin Mhatrawala, had sold the shares of Mathsons Securities Pvt. Ltd. to Shri Sharad Mhatrawala valuing the unquoted shares at Rs. 76.05/- and Revenue has accepted the same. The relevant assessment order in the case of Shri Gaurav Bipin Mhatrawala dated 18-03- 2013 is enclosed at assessee’s paper book pages 83.
5. The learned Counsel for the assessee also submitted copy of Tribunals order in the case of Shri Amritlal T. Shah v. ITO in dated 22-09-
Shri. Bipin H. Mathrawala; 2010-11 2016, wherein (one of us is party to the order) exactly on identical issues held as under: -
“9……The exit from the closely held company BEC Industrial Investment Company Private limited with its subsidiaries could in commercial parlance definitely command premium in addition to the normal price based on NAV as first of all the valuation of the subsidiary would get embedded in the price of share of BEC Industrial Investment company Private Limited and that valuation has to be done based on present value of enterprise and not necessarily the book value as represented by financial statements and also controlling premium is embedded in the price for the shares paid by acquiring shareholders to the selling shareholder group to vest/strengthen their control in the BEC Industrial Investment Private Limited which shall get embedded in mutually agreed negotiated price between the buyer and the seller, hence, under these circumstances and on analyzing the whole transactions in proper perspective , we have no hesitation in holding based on material on record that the entire transaction for sale of share represented through share purchase agreements dated 06-03-2007 and 07-04-2007 produced by the assessee is a genuine and bonafide transaction of sale of shares held by the assessee and his family members in BEC Industrial Investment Company Private Limited to BAT Enterprises Limited and the assessee has rightly computed the capital gain in the return of income filed with the Revenue by taking actual sale consideration of 2040 equity shares @ Rs 1195/- per share as full value of consideration as contemplated u/s. 48 of the Act. The issue of shares by BEC Chemicals Private Limited to the promoters subsequently at face value at Rs 100 per shares is all irrelevant consideration having no bearing on establishing the genuineness and bonafide of transactions for sale and purchase of share executed by the assessee and his family members with BAT Enterprises Limited vide share purchase agreements dated 06-03-2007 and 07-04-2007.Similarly that the BEC Industrial Investment Company Private Limited and BAT Enterprises Limited has common address etc and the assessee ould be able to manipulate the transaction are again having no relevance and are merely conjectures and conjectures . In-fact
Shri. Bipin H. Mathrawala; 2010-11 on perusal of share purchase agreement dated 06-03- 2007 and 07-04- 2007 will reveal that persuant to these agreement, the assessee and his family members have agreed to shift the offices of their companies and concerns from IBI house by 30-4-2007 , clause 4.6 of the agreement dated 06-3-2007(page 65/paper book). Nothing incriminating has been brought on record by the Revenue and conjectures and surmises has no place while computing and bringing to tax income of the tax-payer within the chargeability to tax under the provisions and scheme of the Act. The Revenue has also accepted the capital gains based on actual sale consideration in the case of Mr Satish Amritlal Shah while framing assessment u/s 143(3) of the Act for the assessment year 2007-08 in the hands of Mr Satish Amritlal Shah wherein the said Mr. Satish Amritlal Shah also sold 1665 equity shares of BEC Industrial Investment Company Private Limited to BAT Enterprises Limited @ Rs 1195 per share vide share purchase agreement dated 06-03- 2007 . The Revenue has also accepted the purchase of equity shares of BEC Industrial Investment Company Private Limited @ Rs 1195/- per share from the assessee and his family members vide share purchase agreement dated 06-03-2007 in the hands of BAT Enterprises Limited while framing assessment u/s 143(3) of the Act for the assessment year 2007-08 of BAT Enterprises Limited. The assessment orders are placed in the file w.r.t. Mr. Satish Amritlal Shah and BAT Enterprises Limited for the assessment year 2007-08. We do not find any reasons to interfere in the working of capital gains furnished by the assessee computed in the manner by taking actual sale consideration @ Rs.1195 per equity shares of BEC Industrial Investment Company Private Limited as full value of consideration as contemplated u/s. 48 of the Act. As such we set aside the orders of the ld. CIT(A) and the AO computing capital gains by adopting NAV @ Rs 202 per share and bringing to tax balance amount of Rs. 20,25,720/- as unexplained income under the head ‘income from other sources’ which in our considered view cannot be sustained in the eyes of law. We accordingly allow the appeal of the assessee as indicated above. We order accordingly.”
Shri. Bipin H. Mathrawala; 2010-11 6. We find that the assessee has submitted the following details before the AO as well as before CIT(A) and now before us also:-
Valuation of shares of Mathson Securities Pvt. Ltd as on 31-03-2009 from SSPA & Co. CA
Valuation report filed of Mr. Pankaj B. Mehta dated 10-01-2014.
Working of Value of the Office of Mhatrawala and Sons Ins. Bro. Pvt. Ltd. as on 31-03-2009 as per valuation report.
4. List of the Shares Sold in off market (without STT) as on 31-03-0210 along with report of stock price shows on the date of sale of shares.
Balance Sheet & Profit & Loss account for A.Y. 2007-08 to A.Y. 2011- 12 of Mhatrawala & Sons Insurance Brokers Pvt. Ltd.
Certificate from IRDA for renewal of License for the period 03-03-2009 to 02-03-2012 of Mhatrawala & Sons Insurance Brokers Pvt. Ltd.
In view of the above facts and the issue is covered by the coordinate Bench decision in the case of Amritlal T. Shah (supra), we direct the AO to take the value of unquoted shares sold by assessee as per valued by assessee and allow deduction u/s 54EC also. Hence, the appeal of the assessee is allowed.