DCIT, CHENNAI vs. TVS INVESTMENTS LRD.,, CHENNAI

आयकर अपीलीय अिधकरण “बी” �ायपीठ चे�ई म�। IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, CHENNAI माननीय �ी एबी टी. वक�, �ाियक सद" एवं माननीय �ी मनोज कुमार अ'वाल ,लेखा सद" के सम)। BEFORE HON’BLE SHRI ABY T. VARKEY, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपील सं./ (िनधा*रण वष* / Assessment Year: 2010-11) DCIT M/s. TVS Capital Funds (P) Limited (Formerly known as TVS Investments Limited) Corporate Circle-3(1) बनाम/ Jayalakshmi Estates, Chennai-600 034. Vs. No.29, (Old No.8), Haddows Road Chennai-600 006. �थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACT-1154-H (अपीलाथ�/Appellant) : (� थ� / Respondent) अपीलाथ�कीओरसे/ Appellant by : Dr. D. Praveen (JCIT) -Ld. DR � थ�कीओरसे/Respondent by : Shri R. Vijayaraghavan, (Advocate)-Ld. AR सुनवाईकीतारीख/Date of Hearing : 15-05-2024 घोषणाकीतारीख /Date of Pronouncement : 11-06-2024 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member)

Our findings and Adjudication 3. We find that as rightly held by Ld. CIT(A), identical issue stood covered in assessee’s favor by the decision of this Tribunal in assessee’s group concern in ACIT vs TVS Motor Company Ltd (supra). The findings of the Tribunal were as under: - 13. We have heard both the parties and perused the material on record. In this case, the assessee had sold the shares of TVS Finance and Services Ltd. (TVSF&S), both long term and short term, for a consideration of one paise per share which resulted in capital loss. Thereafter, the assessee set off the capital loss arising out of the sale of shares against the capital gains arising out of the sale of land owned by the assessee. According to the AO, the sale of shares at one paise per share was a colourable device to set off the capital gains. The AO fixed the sale price at Rs. 31.19per share and worked out the long term capital gains and short term capital gains. Against this, the assessee went in appeal before the CIT(Appeals) and pleaded that as per the corporate practice and SEBI regulations, the transactions were legal. Considering the various pleas of the assessee, the ClT(Appeals) allowed the claim of the assessee. 13.1 Now, the contention of the Id. DR, before us, is that these transactions were entered into by the assessee for evading tax on long term capital gain on sale of land and short term capital gain on investment and it cannot be allowed. Admittedly, in this case, net worth of TVSF&S is negative. TVSF&S is incurring continuously heavy losses and the said company went out on delisting, pursuant to the Securities and Exchange Board of lndiac(Delisting of Securities) Guidelines 2003. Further, TVS Investments Ltd. holds 2,07,06,435 fully paid-up equity shares in the TVSF&S representing 50.01% of fully paid-up equity share capital of the company as on Feb.9, 2008. The other promoter, being assessee company and Anusha Investments Ltd. hold in the aggregate 39.76% of the total paid-up equity share capital of the TVSF&S as on Feb. 9th 2008. TVS Investments Ltd. along with other promoters are together the promoters of the assessee company. The Directors and relatives hold in aggregate 7,162 equity shares consisting of 0.01% of the total paid-up equity share capital of the TVSF&S as on Feb. 9th, 2008. The accumulated losses of TVSF&S was RS. 99 crores as on 31.12.2007. Out of such losses, it is required to strengthen the net owned funds position and increase the long term capital base for future operations of the company. So, the main promoters holding nearly 89% of the share capital of TVSF&S i.e. TVS Investments Ltd. and TVSM, the assessee company agreed to buy the shares in accordance. with the listing agreement regulations mainly and with the sole intention of safeguarding the name TVS, protection of the TVS brand and credibility of the group. It was not adopted any tax planning in selling the shares of TVSF&S at a nominal price of one paise per share. It was only to safeguard the public image of "TVS Group". When there was a negative net worth of the assessee company, it is not practicable to keep such shares in the hands of the assessee company, otherwise it cause huge damage on public image, which cannot be rectified by any means. Hence, the selling of shares of one paisa per share was the conscious decision which was cautiously taken so as to safeguard the image of the company. It was the belief of the company that the acquisition through SEBI approved route of buyback price of the share held by the public would be in the larger interest of the company creditors, company shareholders and above all, in the interests of protecting the public image of TVS Group. In this background, if the whole scheme of things, that unfolded itself in the period 2008-12 is seen, it would be evident that if the sale of entire shares initially within the group into another company adding negligible value (when the net worth of the shares was clearly a negative figure of over Rs.40 per share), genuineness behind the closure can be understood. The parent company as a promoter was in a most unenviable position in sustaining the huge losses for having invested nearly Rs.100 crores in the venture at difference stage and finally sustaining a huge capital loss. The sale of shares of one paise per share is only the methodology followed by the assessee to avoid any future losses in monetary terms. Further, it is to be noted that the AO has referred to certain passages from Mc Dowell v CIT 154 [TR 148 (SC) to allege that the transaction by the assessee company, TVSM is a colourable device. There is no dispute that the AO can ignore a colourable device where the intention is to evade tax by resorting to dubious arrangements. In the entire assessment order, there is no discussion as to how and why the series of events had taken place. The payment of a price fixed by SEBI regulations cannot be treated as a "dubious method". If the value of a share is nil because the company has a negative net worth, the seller cannot expect any amount from the sale of such an unlisted share. Therefore, neither the purchase price of Rs. 31.19 nor the selling price of one paisa per share can be called as "resorting to dubious methods". Indeed, the purchase price could not have been altered nor could TVSM have received any price for a company that had closed its operations and had a negative net worth. Further, normally authorities concerned shall proceed on the basis of the professed intention of the parties to a document/ transaction/arrangement. If that is under doubt or disputed or challenged, then the authorities have the power to find out the real intention of the parties by removing facade to expose their real intention cleverly cloaked and if that intention is discovered to be evasion of tax, it cannot be given effect to merely because of steps taken as component parts of arrangement are legally correct or valid. All documents or transactions have to be given effect to even though they resulted in tax liability, provided that they are genuine and bona fide and it cannot be called as colourable device. In case, a transaction took place with the sole intention to protect the image of the company and that resulted in deduction of tax liability, it cannot be called as a dubious method followed by the assessee, as the parties involved therein have the right to indulge any tax planning and it cannot be taken away by any judgment of the Court. This right has to be considered and in fairness, ii should be appreciated that all transactions, which resulted in deduction of tax liability, cannot be considered as a device or subterfuge or colourable transaction. 13.2 Section 48 of IT Act provides for mode of computation of capital gains. The starting point of computation is the full value of consideration received or accruing. What in fact never accrued or was never received cannot be computed as capital gains u/s 48. In the case of KP Vargheese vs ITO Ernakulam 131 ITR 597, the Supreme Court has held as under :

The onus of establishing that the conditions of taxability are fulfilled is always on the Revenue and the burden lies on the Revenue to show that there is an understatement of consideration. Moreover, to throw the burden showing that there is no understatement of consideration on the assessee would be to cast an almost impossible burden upon him to establish a negative, viz., that he did not receive any consideration beyond what is declared by him. Once it is established by the Revenue that the consideration has been understated or to put differently the consideration actually received by the assessee is more than what is declared or disclosed by him and the Revenue is then, not required to show what is the state of understatement or what is actually received by the assessee.

Purchase and sale of TVSF&S was not part of any tax planning programme. Even if the share had been sold at a later point of time, there is no chance of a higher value being realized. The AO has cited the decision of the Madhya Pradesh High Court in Binodiram Balchand &Co. CIT (2001)118 Taxman 544. Indeed, the observations of the Madhya Pradesh High Court decision actually assist TVSM as the purchase price was based on SEBI regulations and the sale price was based on a valuation certificate. These cannot be called as lacking in transparency or bona tides. The AO has not given any finding that the purchase price or selling price was not correct. There is also no explanation as to how the purchase price of a share based on SEBI regulations can be deemed to be the selling price. The Bombay High Court decision in Killick Nixon Ltd. v DCIT 20 Taxmann.com 703: [20121208 Taxman 45, dealt with a transaction which was found to be sham and bogus. In the present case, there is no such finding by the AO. The AO has no power to ignore the price which was arrived at on the basis of SEBI regulations. It is also not disputed that TVSF&S had a negative net worth, was delisted and its shares could not be sold to any third party. in other words, the shares of TVSF&S were worthless. 13.3 In the case of CIT vs Biraj Investments Pvt Ltd. (2012) 24 Taxmann.com 273 (Guj), the assessee M/s Biraj investment Put Ltd had made LTCG on sale of shares in M/s Rustom spinners Ltd and incurred Long term capital loss on sale of shares in M/s Rustorn Mills & industries Ltd, and the purchase/sales were effected to another investment company of the same group viz Bijal investments Ltd. An held that since the husband of a common director of these companies was the MD of Rustom Mills, the transaction was a colorable device to evade the tax on L TCG. He also held that since the shares were pledged with IDBI Bank, there cannot be a delivery to effect the transfer of the shares in which Long term, capital loss was incurred. The High Court after accepting the contention that there was a transfer since seller had given an irrevocable power of attorney to the buyer and also received the full consideration had further held that in the absence of any provision in the Act preventing sale of shares to a company within the same group, it cannot be treated as colorable device. HC further held that it was always open to the taxpayer either to hold on the shares or sell the same to avoid any further loss if it is felt that the market value was diminishing. It is open to sell the same or some other share for profit during the same period. HC also observed that it was not even the case of the dept that the shares were sold at a price lower than the market price. 13.4 The Id. DR placed heavy reliance on the decision in the case of McDowell & Co. Ltd. (supra) to contend that transaction itself should be ignored as being a colourable device to avoid tax. Counsel drew our attention to some of the observations made in a recent decision in the case of Vodafone reported in 341 ITR, 1, wherein the ratio of the decision in the case of McDowell & Co Ltd., (supra) came up for consideration and it was held by the Apex Court in the case of Union of India v Azadi Bachao Andolan, 263 ITR 706 as follows :

... assessee contended that this is not a case of colourable device. The assessee in its own wisdom desired to dispose of certain loss making shares. No provision of the Act or any other provision of law prohibits the assessee from disposing of such assets. Simply because during the same year, the assessee also sold certain other shares for a profit, it cannot be stated that there was an attempt to avoid tax.

Hence, the ratio of the decision of the Apex Court in the case of McDowell & Co. Ltd. stands substantially diluted by virtue of subsequent decision in the case of Azadi Bachao Andalon (supra). In view of this, there is no provision in the Act which would prevent the assessee from selling loss making company shares. Simply because such shares were sold during the previous year when the assessee had also sold some shares at profit by itself would not mean that this is a case of colourable device or that there is a case of tax avoidance. Further, there is no restriction that such sale or transaction cannot be, effected with a group company. As long as the Revenue could not doubt the sale price of shares, it would not be open for the Revenue to contend that the assessee had shown loss which it did not really suffer. In the present case, it is not even the case of the Revenue that shares were sold at a price lower than the market rate. If that be so, the question of inflating the loss by transferring the shares to group company would not arise. Under ordinary circumstances, it is always open to the assessee in his own wisdom to either hold on to certain bunch of shares or to sell the same to avoid further loss, if he finds that market value of the shares is fast diminishing. It is equally open for the assessee to effect such sale during the same year when he also chooses to dispose of certain profit making shares. 13.5 It is pertinent to mention the following phase of above judgments:

... a case where the assessee makes a gift of shares to his son. By reason of gift income from the shares would not accrue to the assessee but would accrue to the son and to that extent the income of the assessee would be diminished and his tax liability reduced. This cannot be regarded as a case of tax avoidance even if the motive of the assessee in making the gift was to save tax on the income from shares at a higher rate applicable to him.

Under the circumstances, even without referring to the decision of the Apex Court in the case of Azadi Bachao Andolan (supra) and the observations made in the later decision in the case of Vodafone (supra), we do not find that this a case which would fall within the parameters of the decision in the case of McDowell & Company Ltd. (supra). 13.6 In the case of CIT vs Oberoi Hotels (P) ltd. 334 ITR 293(Kolkata) ; it was held as follows:

We also appreciate the reason of the Assessing Officer that the assessee company could have easily waited for a reasonable period of time for watching the market and could also have invested a further amount of Rs. 9 to 1 O Crore to revive the business of M/s SKB. It is not within the province of the Assessing Officer to ignore an otherwise genuine transaction and to brand it as a colourable one on the ground that it was the duty of the company to invest further amount or it should have waited for a reasonable period.

13.7 In the case of CIT vs S S Sankaralingam 176 CTR 520 (Madras), it was observed as under :

It is also found that there was no material to indicate that the assessee had received anything more than the stipulated sale consideration. The Tribunal has proceeded further to hold, and rightly, that though intrinsic value of the shares was more than the value for which it is sold, that by itself would not enable the assessing authority to ignore the transaction altogether. We see no error in the order of the Tribunal. The Tribunal has confirmed the order of the appellate authority regarding the deduction of capital loss from the total income by holding that the deduction made by the AO was unjustified.

13.8 Being so, in our opinion, when the AO has not doubted the purchase price, the selling price also cannot be doubted. The sale of shares of one paise is to avoid future huge liability and it is as per the SEBI regulations. Further, the AO has not doubted the net worth of TVSF&S as negative. The shares were delisted and it cannot be sold to a third party. When we analyze the actual background, it is not possible to hold that the assessee had adopted dubious method to sale the shares at one paise per share. Further, there is no material in the hands of the AO to show that the assessee has received anything more than the stipulated sale consideration and that sale consideration resulted in loss and that loss cannot be denied to set off or gain. In our opinion, the judgment of the Jurisdictional High Court of Madras in the case of CIT v. S.S.Sankaralingam, 176 CTR 520 is in similar line which supports the assessee's case. 13.9 Another allegation of the Id. DR is that the assessee company sold the shares to its sister concerns, TVS e-Access India Ltd. at the cost of one paise and where public shares to the sister concern is one paise, the cost is Rs. 25/- per share to one of the Directors, Smt. Mallika Srinivasan. In our opinion, simply because loss making shares were sold during the previous year, when the assessee has sold some shares at profit by itself would not mean that is a case of colourable device or that there is case of tax avoidance. This view is supported by the judgment of the Gujarat High Court in the case of ACIT v. Biraj Investment Pvt. Ltd. (86 CTR 69). Further, the ld. DR relied on the decision of the Apex Court in the case of McDowell & Co. ltd., cited supa. In our opinion, the facts of that case cannot be applied to the present case as discussed in earlier para. 13.10 It is to be noted that in the case of CIT v. Oberoi Hotels (P) Ltd. (334 ITR 293), the Calcutta High Court has held as under: "There is no dispute with the proposition of law that if there is conflict of opinions between the two Benches of the Supreme Court on a question of law, the one declared by the Larger Bench would prevail over the one pronounced by the other Bench. But if a Bench consisting of a smaller number of Judges interprets a decision of a Larger Bench of the Supreme Court in a different way which may be apparently opposed to the one taken by the Larger Bench, a subsequent Co-ordinate Bench of the Supreme Court may refuse to follow the interpretation of the latter one on the ground that it proposed to follow the earlier view expressed by a Larger Bench. But if the subsequent decision of the smaller Bench explaining the Larger Bench is placed before a High Court, the latter is bound to follow the subsequent one by the smaller one which interprets the decisions of the Larger Bench because that is the interpretation of the Larger Bench by a Bench of the Supreme Court and the High Court cannot make a different interpretation than the one made by the subsequent decision of the Supreme Court which is binding upon it. The position, however, would be different if the subsequent smaller Bench of the Supreme Court in ignorance of the earlier Larger Bench takes a contrary view from the one taken by the earlier Larger Bench. In that situation, the High Court is entitled to reject the view of the latter smaller Bench of the Supreme Court as per incuriam. The subsequent decision of a smaller Bench in the case of Azadi Bachao Ando/on, has taken note of the earlier decision in the case of McDowell & Co. Ltd. and has interpreted the same and thus, it is not a case of passing decision in ignorance of a binding decision. Therefore, in this case, the view taken by the Tribunal cannot be said to be wrong and is consistent with the one taken in the case of Azadi Bachao Ando/on. So long the decision in the case of Azadi Bachao Andolan is not held to be per incuriam by a Larger Bench decision of the Supreme Court, the High Courts should be bound by the explanation of that Bench given to the decision in the case of McDowell & Co. Ltd.-Union of India vs. Azadi Bachao Andolan&Anr. (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC) followed. Even on merit, the reason of the AO that the assessee company could have easily waited for a reasonable period of time for watching the market and could also have invested a further amount of Rs. 9 to 1O crores to revive the business of SKB is not appreciable. It is not within the province of the AO to ignore an otherwise genuine transaction and to brand it as a colourable one on the ground that it was the duty of the company to invest further amount or it should have waited for a reasonable period. Therefore, the view of the Tribunal and the CIT(A) as regards the nature of the transaction is found to be quite in conformity with the law of the land." 13.11 Further, on merits also, the issue is squarely covered by the same judgment, wherein it was observed that capital loss attributable to share transaction could not be disallowed; it is not within the province of the AO to ignore an otherwise genuine transaction and to brand it as a colourable one.

"The assessee having adduced all the requisite evidence to establish that the assessee held shares in a company and sold the same through a broker to a genuine purchaser and received payments through cheque, the transaction could not be treated as bogus." 14.2 Moreover, when purchases have not been doubted or disputed by the Revenue in this case, the decision of Hon'ble Punjab & Haryana Court relied by learned A.R. in the case of CIT vs. Anupam Kapoor reported in (2008) 299 ITR 179 (P&H) is very much relevant. The held portion of this decision is extracted herein below:-

Held, dismissing the appeals, that there was no material before the Assessing Officer which could have led to a conclusion that the transaction was a device to camouflage activities to defraud the Revenue. No such presumption could be drawn by the Assessing Officer merely on surmises and conjectures. The Tribunal took into consideration that it was only on the basis of a presumption that the Assessing Officer concluded that the assessee had paid cash and purchased the cheque. In the absence of any cogent material in this regard, having been placed on record, the Assessing Officer could not have reopened the assessment. The assessee had made an investment in a company, evidence whereof was with the Assessing Officer. Therefore, the Assessing Officer could not have added the income, which was rightly deleted by the Commissioner (Appeals) as well as the Tribunal Further, it was held as under: "The Tribunal was right in rejecting the appeal of the revenue by holding that the assessee was simply a shareholder of the company. He had made the investment in a company in which he was neither a director nor was he in control of the company. The assessee had taken shares from the market, the shares were listed and the transaction took place through a registered broker of the stock exchange. There was no material before the AO, which could have lead to a conclusion that the transaction was simpliciter a device to camouflage activities to defraud the Revenue. No such presumption could be drawn by the AO, merely on surmises and conjectures." 14.3 The Tribunal, Agra Bench in the case of Smt. Memo Devi (ITA No.396/Ag/2004 - reported as 7 DTR 158) wherein the Co-ordinate Bench observed as under : "The assessee has no relation with the directors of the company and was in no way in the capacity to affect the market price of shares. The increase in share prices by more than 25 times too cannot be the basis to assume that the transaction was bogus. Abnormal fluctuation in share prices is a normal phenomena - the learned counsel for the assessee filed a chart showing low and high prices of some quoted shares during the 52 weeks as per Economic Times dated 27.02.2007 from which it can be seen that some shares increased even by more than 100 times." 14.4 The Tribunal, Delhi 'C' Bench in the case of ITO vs. Naveen Gupta (5 SOT 94), has observed as under :"Nevertheless, it is also noteworthy that the A.O. has failed to establish that in lieu of the aforesaid sale proceeds, the assessee has surreptitiously introduced his unaccounted money in the bank account. After having perused the entire material that is available on record, there is no averment, much less any evidence, with the Revenue in this regard. While there may be enough grounds with the AO to carry out the impugned verification exercise to test the efficacy of the transactions resulting in long term material gains in the hand of the assessee but there is no cogent material or evidence to indicate that the impugned sale proceeds reflected unaccounted income of the assessee." 14.5 In the case of Umacharan Shaw & Bros vs. CIT (37 ITR 271), the Supreme Court has held that suspicion howsoever strong cannot take place of proof. From the entire appreciation of evidence, the AO has failed to establish that the assessee has sold the shares at higher price. 14.6 The Supreme Court in the case of Kishanchand Chellaram v. CIT (125 ITR 713), observed that "the amount cannot be assessed as undisclosed income of the assessee in the absence of positive material brought by the Revenue to prove that the amount in fact belonged to the asesseee as the burden lay on the Revenue.

by the revenue stand dismissed 5. The appeal stands dismissed. Order pronounced on 11th June, 2024