BRAHMAR CELLULOSE PRODUCTS PRIVATE LIMITED,CHENNAI vs. DEPUTY COMMISSIONER OF INCOME TAX, CHENNAI
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Before: Shri S.S. Viswanethra Ravi & Shri Jagadish
PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER:
This appeal by the assessee is directed against the order dated 04.12.2023 passed by the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [NFAC], Delhi for the assessment year 2012-13.
This appeal was filed on 23.01.2024 and after scrutiny, the Registry fixed the date of hearing on 13.06.2024. The assessee remained absent
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on 13.06.2024 and the hearing of appeal was adjourned to 01.07.2024. The Registry intimated the said date of hearing through notice dated 20.06.2024 by registered post. Again on 01.07.2024, the assessee remained absent and the hearing of appeal was adjourned to 05.08.2024. The Registry again issued notice dated 10.07.2024 to the assessee, but, however, none present on 05.08.2024. Having no option, we proceed to hear the ld. DR on merits and pass order considering the material available on record.
Ground Nos. 1 & 2 raised by the assessee in challenging the action of the ld. CIT(A) in treating the reassessment proceedings as valid in law.
In this regard, we note that the ld. CIT(A) [NFAC] issued notice intimating the date of hearing to the assessee. The assessee filed written submissions. The ld. CIT(A), considering the statement of facts given in Form 35 and written submissions, held no evidence whatsoever brought on record in support of the claim in contending the reassessment being invalid under law. Before us, no evidence whatsoever filed in support of ground Nos. 1 & 2 challenging the action of the ld. CIT(A) in confirming the reassessment proceedings initiated by issuing notice under section 148 of the Income Tax Act, 1961 [“Act” in short] and completing the
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assessment under section 143(3) r.w.s. 147 of the Act is invalid, thus, ground Nos. 1 & 2 as raised by the assessee are dismissed.
Ground No. 3 raised by the assessee in challenging the action of the ld. CIT(A) in confirming the addition made on account of difference between the sale price and market value of the factory building in the facts and circumstances of the case.
The ld. DR Ms. R. Anita, Addl. CIT drew our attention to page 2 of the assessment order and argued that the assessee admitted net short term capital gains of ₹.14,61,66,217/-, which is the net figure by considering the STCG on sale of depreciable assets to an extent of ₹.21,61,66,217/- from which the STCL on sale of shares (being loss) of ₹.7 crores on sale of shares. She argued that the assessee admitted the sale consideration of factory building at ₹.7,45,44,453/-, but the same is ₹.7,61,00,000/- as per the information available with the Department and confirmed by the assessee during the scrutiny proceedings and accordingly, the difference of ₹.16,00,000/- was brought to tax. The ld. DR argued that the ld. CIT(A) [NFAC] rightly confirmed the addition made by the Assessing Officer.
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We have perused the impugned order, wherein, the ld. CIT(A) discussed the entire facts and circumstances of the case in detail and the relevant portion at para 8.2.1 & 8.2.2 are reproduced herein below: 8.2.1 As evident from the statement of facts given by the appellant in form no. 35 that the appellant company entered into a Business Transfer Agreement with DMV- Fonterra Excipients GmbH and Co KG on 08th August 2011 for total consideration of Euro 57,50,000 at an exchange rate of Rs. 70.67 per Euro thus total sales consideration amounts to Rs.40,63,87,054. The Appellant company vide its transfer agreement sold all its depreciable assets including factory building at an agreed price of Rs.40,63,87,054, The appellant company vide its reply letter dated 10th December, 2019 stated that the sale deed for transfer of factory land and building was not executed during Business Transfer Agreement during August 2011 as the transfer formalities with SIPCOT were in process and then the appellant company entered into conveyance deed in the month of December 2011 for registration of factory land and building and necessary stamp duty was paid and the deed was registered in December 2011. The Ld. AO considered the market value of 7.61 Crores as sale consideration on the day of registration and added Rs.16 lakhs being the difference between market value and agreement value on account of sale value of building. 8.2.2 The only dispute leading to addition of Rs.16,00,000/- is whether the value of factory land and building sold by the appellant is to be adopted as on the date of business transfer agreement during October, 2011 or as on the date of conveyance deed in the month of December, 2011 when the transfer deed was registered and stamp duty paid by the appellant. Considering the facts of the case, I am of the considered view that the transfer of any immovable property gets effected by virtue of the registration of the transfer agreement and not on any other date prior to such date. In the instant case, the appellant has registered the conveyance deed transferring the factory land and building in the month of December, 2011 and paid the stamp duty as per the valuation in the month of December, 2011. I am therefore of the considered view that the sale value of the factory land and building is required to be considered as the sale value shown in the month of December, 2011. The action of the A.O. in bringing to tax the differential amount of Rs. 16,00,000/- is therefore in accordance with the provision of law and hence upheld. This ground of appeal raised by the appellant is thus dismissed. 8. From the above, we note that the point at issue before the ld. CIT(A) as to whether the value of factory land and building sold by the
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assessee is to be adopted as on the date of business transfer agreement executed during October, 2011 or as on the date of conveyance deed in the month of December, 2011 when the transfer deed was registered and stamp duty paid by the assessee. We note that the assessee adopted the market value of the factory land and building as on the date of business transfer agreement executed during October, 2011, but, however, the Assessing Officer considered the market value of the factory land and building as on the date of conveyance deed executed in the month of December, 2011 when the transfer deed was registered and stamp duty paid by the assessee. The ld. CIT(A) observed that the transfer of any immovable property gets effected by virtue of the registration of the transfer agreement and not on any other date prior to such date. We note that the ld. CIT(A) confirmed the market value of the factory land and building being adopted by the Assessing Officer as on the date of conveyance deed executed in the month of December, 2011. Hence, we find no infirmity in the order passed by the ld. CIT(A) and the same is justified. Thus, the ground No. 3 raised by the assessee is dismissed.
Ground No. 4 raised by the assessee in challenging the action of the ld. CIT(A) in confirming the order of the Assessing Officer in disallowing short term capital loss of ₹.7,00,00,000/-.
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We note that the assessee claimed sale price of 20,00,000 shares at face value of ₹.10/- per share with premium of ₹.35/- from four entities Shri G. Bharat, Shri G. Siddharth, Shri G. Ramesh and Shri G. Sandeep. We note that the assessee has stated that the said transfer did not materialize and decided to resale the said shares to the same above said 4 entities at a face value of ₹.10/- per share only. The Assessing Officer doubted the said transaction for the reasons recorded, which are reflecting in page 3 of the assessment order and disallowed ₹.7,00,00,000/-. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the ld. CIT(A). The ld. CIT(A), by considering the submissions of the assessee, observed that there is no evidence to explain the fall of intrinsic value of shares within a short period of time and confirmed the order of the Assessing Officer.
The ld. DR relied on the order of the ld. CIT(A).
We note that before the Assessing Officer the assessee failed to produce any valuation report or genuineness of the circumstances and other conditions, which compelled the assessee company to purchase the shares at ₹.45/-. We also noted that the assessee failed to produce share transaction statement, bank account statements for ₹.45/- being paid for
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each share and ₹.10/- received on resale, confirmations by way of financials from the four entities with whom the whole gamut of purchase and sales of shares took place. Thus, the Assessing Officer disallowed the entire loss of ₹.7,00,00,000/- claimed by the assessee. After considering the facts and circumstances of the case along with statement of facts and written submissions, the ld. CIT(A) found the submissions of the assessee are not acceptable in the absence of any documentary evidence and passed a detailed order. The relevant portions at para 9.2.1 to 9.2.13 are reproduced herein below for ready reference: 9.2.1 Briefly the facts of the case is that in the return of income filed the appellant declared Short Term Capital Gain of Rs.14,61,66,217/- on account of sale of depreciable asset against which Short Term Capital Loss on sale of shares of Rs.7 crore was set off by the appellant. The A.O. noted that the appellant company bought 20,00,000 shares of M/s. Microbial Technologies India on 15th June 2011 which were held by M/s Liquor India Limited through 4 persons namely Shri G. Bharat, Shri G. Siddharth, Shri G. Ramesh and Shri G. Sandeep who were holding the shares equally. These shares were bought at the rate of Rs.45/- per share (face value of Rs. 10/- per share with premium of Rs 35/- per share). Subsequently the appellant company sold these shares to the same four persons only at the face value of Rs. 10/- per share. Accordingly the appellant company claimed Short Term Capital Loss of Rs. 7 Crores which is set off against STCG of Rs.14.61 crores. In the assessment completed, the A.O. disallowed this loss for the reasons given in the assessment order. 9.2.2 During the course of appellate proceedings, the appellant submitted the certificate of intrinsic value calculation made by M/s. M. B. Kasar and Co., CA in support of the contention that using the net asset valuation method, the intrinsic value per share of the appellant company is at Rs.45/-. No further written submission or any other has been submitted by the appellant during the course of appellate proceedings. 9.2.3 It is an admitted fact that the appellant purchased 20,00,000 shares of Microbial Technologies India of face value of Rs. 10/- with premium @ Rs.35/- per share on 01.04.2011 for the total purchase price of Rs.9 crore
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from 4 different persons mentioned above. The appellant sold these 20,00,000 shares of Microbial technologies India to the same 4 persons on 28.02.2012@ face value of Rs. 10/- per share for total sale consideration of Rs.2 crore (without premium of Rs.35/- per share). Accordingly Short Term Capital Loss of Rs.7 crore is claimed by the appellant on the transaction of purchase and sale of these shares. 9.2.4 It is surprising to note that the appellant purchases 20,00,000 shares of M/s. Microbial Technologies India with premium @ Rs.35/- per share from 4 individuals and after a short period of time sales all these shares to the same 4 individuals but at the face value without considering the value of share premium which was paid at the time of purchase of these shares thereby incurring loss. This transaction of purchase and sale of shares do not appears to be a genuine transaction. It is noted by the A.O. that during the course of assessment proceedings, the appellant failed to provide copy of bank statement showing the payment made towards purchase of these shares and payment received towards sale of these shares. It is difficult to accept that any prudent businessman who has purchased the shares @Rs.45/- per share (face value of Rs.10 plus premium of Rs. 35 per share) would sale these shares to the same persons from whom the shares were bought @ face value. Considering the nature of transaction, in my opinion two situations arises i.e. either the premium of Rs.35/- per share calculated by the valuer is excessive and unreasonable or the shares of the company though commanding price of Rs.45/- per share, the appellant has sold shares only at face value passing on undue benefit to the other persons and incurring bogus loss. 9.2.5 In case it is considered that the intrinsic value per share determined by the valuer as per net asset value method is correct, there is no evident reason to explain the fall of intrinsic value of shares within a short period of time. In that case, the appellant should have sold the shares at the minimum price of Rs.45/- per share and not at the face value of Rs.10/- per share. It is also to be considered that the transaction of purchase and sale of 20,00,000 share of the appellant company is with the same 4 individuals who were earlier holding all these 20,00,000 shares of Microbial Technologies India. 9.2.6 It is noted from the valuation report of M/s. M. B. Kasar and Co. certifying the intrinsic value of share as at 31.03.2011 at Rs.45/- per share that the same is on the basis of various assumptions and the valuing the fixed asset of M/s. Microbial Technologies India being land admeasuring 3 acres as per reckoner value and considering the market value of stock as on the date of calculation. Thus if the intrinsic value of share as on 31.03.2011 is at Rs.45/- per share, the appellant has not provided any explanation or documentary evidences to justify that the same has fallen to the face value @ Rs. 10/- per share.
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9.2.7 Another situation is that the intrinsic value of share determined by the valuer is by adopting various wrong assumptions and wrong values of fixed asset and stock, thus determining the wrong intrinsic value per share of M/s. Microbial Technologies. 9.2.8 In both these situations it is evident that the transaction of purchase and sale of 20,00,000 shares of Microbial Technologies India shown by the appellant resulting into Short Term Capital Loss of Rs.7 crore is not a genuine transaction. 9.2.9 It is important that when examining the genuineness of the transactions entered into by the appellant, we must bear in mind Hon'ble Supreme Court's observation, in the case of CIT v. Durga Prasad More [(1971) 82 ITR 540 (SC)], to the effect that "Science has not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and Tribunals have to judge the evidence before them by applying the test of human probabilities". 9.2.10 Similarly, in a later decision in the case of Sumati Dayal v. CIT [(1995) 214 ITR 801 (SC)), Hon'ble Supreme Court rejected the theory that it is for alleger to prove that the apparent is not real, and observed that, "This, in our opinion, is a superficial approach to the problem. The matter has to be considered in the light of human probabilities. Similarly the observation that if it is alleged that these tickets were obtained through fraudulent means, it is upon the alleger to prove that it is so, ignores the reality. The transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available. In our opinion, the majority opinion after considering surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winning from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably. We will be superficial in our approach in case we examine the claim of the appellant solely on the basis of documents filed by the appellant and overlook clear the unusual pattern in the documents filed by the appellant and pretend to be oblivious of the ground realities". 9.2.11 Hon'ble Supreme Court in the case of Durga Prasad More has further observed that "it is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an appellant who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the
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present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents". 9.2.12 Thus genuineness of a transaction is one of the most important foundational and critical factors in determining whether explanation given by the appellant is acceptable or not and the genuineness of transaction is required to be examined in the light of ground realities. Considering the facts of the case, it is needless to say that the appellant failed to provide proper details and explanation and authentic supporting documentary evidences to establish the genuineness of transaction of purchase and sale of impugned shares. 9.2.13 In view of the above discussion, I am of the opinion that the transaction of purchase and sale of 20,00,000 shares of Microbial Technologies India by the appellant company from the same set of 4 persons with the purchase price of Rs.45/- and sale price @ Rs. 10/- per share resulting into Short Term Capital Loss of Rs.7 crores is not a genuine transaction. Thus the resultant Short Term Capital Loss shown by the appellant is bogus loss. Therefore appellant's claim of set off of this Short Term Capital Loss of Rs.7 crores against Short Term Capital Gain of Rs.14.61 crores is not allowable. The action of the A.O. in disallowing the same is therefore justified and hence the same is confirmed. This ground of appeal raised by the appellant is thus dismissed. 13. On perusal of the above and based on our discussion made herein above, nothing was brought on record to show why the assessee within a short period of time sold the above said shares to the same 4 entities without charging premium and moreover, the assessee could not produce any details of share transaction statement, bank account statements for ₹.45/- being paid for each share and ₹.10/- received on resale, confirmations by way of financials from the four entities with whom the whole transaction was undertaken. Therefore, we find no infirmity in the order of the ld. CIT(A) and the same is justified.
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Ground Nos. 5 & 6 raised by the assessee are consequential in nature and requires no adjudication.
In the result, the appeal filed by the assessee dismissed. Order pronounced on 21st August, 2024 at Chennai.
Sd/- Sd/- (JAGADISH) (S.S. VISWANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, 21.08.2024 Vm/-
आदेश की �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant, 2.��थ�/ Respondent, 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR & 5. गाड� फाईल/GF.
