CIT vs. TREND EAST WEST LPB BOTTLING LTD

$-8 *IN THE Itn cil HIGH COURT OF DELHI AT NEW DELHI 1915',2010 I'hrough : ..... Appcllant Ms. Rashmi Cl'ropra. Adr,. o/ /al Versus I I{lrNI) En S I WEST LPII BOTTI-lNG Ll'D ..... Respondcnt I'hroueh : None. CORAM: I{ON'BLE MR. JUSTICE SANJIV KHANNA TION'B[,E MR. JUSTICE R.V.EASWAR ORDER 09.05.2012 We have heard counsel for the appellant-Revenue at length. Though the substantial amounts are involved in three additions made by the Assessing Officer, we notice that the assessment order is cryptic. It has been passed without proper verification, examination of the relevant facet and issues. The issues being factual, we are required to examine whether or not the findings recorded by the Income Tax Appellate Tribunal (tribunal, for short) affirming the order of the Commissioner of Income Tax (Appeals), [C|T(A)] is perverse. 2. The first disallowance relates to long term capital loss of RsJ,87,43,1501- on sale of shares of M/s GSR Hotels Pvt. Ltd. The Assessing Officer has held that shares of M/s GSR Hotels Pvt. Ltd. were unquoted shares and their market value was not known and were sold to a related company AB Sugars Ltd., who had confirmed the purchase e Digitally Signed By:AMULYA Signature Not Verified

ta but the transaction itself was doubtful and not bona fide. M/s GSR Hotels Pvt. Ltd. was an unlisted company and the market price was not known. Face value of each share was Rs. l-0 and these were transferred at Rs. 1-.50 per share. 3. The CIT(A) noticed and referred to the reply of the assessee that M/s GSR Hotels Pvt. Ltd. was to construct a five star hotel in State of punjab but the entire project could not be executed in view of litigation with Municipal Corporation of Chandigarh in the High Court. The litigation had remained pending before the High Court for five years. 4. lt was the contention of the assessee that shares has become dead as no land was allotted. The project was a complete failure and had failed to take off. The assessee had submitted a valuation report. The Assessing Officer has not commented on the valuation report, initially on the ground that it has not been taken on record as an additional evidence. The CIT(A), thereafter, called for second remand report from the Assessing Officer after the valuation report was taken on record. Again the Assessing Officer refused to give comment on the valuation report but relied on assessment order and quantum of loss. 5. lt is noticeable that Assessing Officer did not invoke Section 404(2) of the Income Tax Act, 1961. He did not get shares valued or himself compute the fair value of shares. He disallowed entire loss without referring to the factual matrix and explanation/reasons given by the assessee. The year of purchase of shares is not mentioned in the assessment order. The Revenue has not denied that there was litigation in High Court and the hotel project had failed to take off' a

.J 6. The second transaction relates to loss of Rs.4,20,00,000/- arising from transfer of shares of M/s Chaddha Sugars Pvt. Ltd. by the respondent-assessee to Rajinder Singh and Hardeep Singh. The said persons had advanced loans of Rs. 45 lacs and Rs. 55 lacs respectively, vide agreement dated 20th December, 200L. The loan was to be repaid within L80 days. Rs. L5 lacs was repaid to Rjunder Singh. Instead of repaying the balance loan, the respondent assessee transferred the shares of M/s Chaddha Sugars Pvt. Ltd. to Rajinder Singh and Hardeep Singh. They claimed long term capital loss on the said transfer of Rs. 4,2O,O0,OO0/-. The Assessing officer referred to reply/confirmation filed by Rajinder Singh and Hardeep Singh but observed that they did not appear in person. He noticed that they were directors in M/s Chaddha Sugars Pvt. Ltd. and were holding substantial shares in the said company. The Assessing Officer held that the transfer by adjustment was only an eye wash as both Rajinder Singh and Sh. Hardeep Singh were already existing shareholders. He averred that shares of M/s Chaddha Sugars Pvt. Ltd. were unquoted shares and were not listed and there was no need to sell the shares at a throw away price. 7. The CIT (A) took on record the share valuation report and due diligence report of M/s Chaddha Sugars Pvt. Ltd. As per share valuation report, the fair market value of each share of M/s Chaddha Sugars Pvt. Ltd. was Re. 1.06. The shares were sold/transferred at Rs. 4 per share. Rajinder Singh and Hardeep Singh were already existing shareholders and after transfer of shares there shareholding increased. Thus, they were not gaining anything by the transfer as even earlier they were directors and their shareholding was substantial. I

t 8. Assessing Officer in the remand report did not controvert/contradict the valuation report. lt is not understood and it is not stated on what basis, the Assessing Officer had came to the conclusion that shares of M/s Chaddha Sugars Pvt. Ltd. were transferred at throw away price. The Assessing Officer has not referred to the balance sheet and projections of M/s Chaddha Sugars Pvt. Ltd. The fair market value based on yield method was Rs. 1-.06 per share' Revenue in the appeal referred before the tribunal did not care to file any computation to show that the fair market value of the share was higher or value should have been computed by any other method. 9. The third addition made by the Assessing Officer was on account of disallowance of short term capital loss of Rs. 1,38,86,439/- in share trading. The Assessing Officer observed that the huge loss of Rs.1-,38,86,4391- could not have been incurred on trading within a short period of 15 days or so, between 11.3.2003 to 26.3.2OO3. The assessee had filed copy of transactions and share trading account. The trading was through the brokers M/s N.N. Jain & Co. The broker had filed details of the transactions along with the copy of documents. As per the assessment order, person in charge of M/s N.N. Jain & Co. was summoned and had appeared with documents. They confirmed the transactions and the loss suffered. The Assessing Officer did not question the directors/employees of the respondent/assessee or make any further enquiries. The CIT(A) examined the transactions and has stated that the said transactions in the name of respondent assessee were duly recorded in the stock exchange and were supported by documents. He has stated that the transactions related to shares of reputed companies like Infosys, Bharat Petroleum, TISCO, Ranbaxy, 0

Satyam, etc. However, he observed that the assessee had not taken physical delivery of the shares. He accordingly held that the loss was a speculative loss and not a short term capital loss. The aforesaid decision of the CIT(A) was accepted by the assessee. The Revenue had filed an appeal before the tribunal, but the appeal had been dismissed. 10. The findings on the three disallowances are purely factual. There is no material or evidence before us to show that the findings recorded by the tribunal are perverse. The view taken by the CIT(A) and the tribunal when compared with the findings/evidence mentioned by the Assessing Officer is plausible and reasonable. The appeal is dismissed. No costs. I r/.- ( -'I\ SANJIV KHANNA,f. MAY 09,2012 ll'r ,