ACIT, BANGALORE vs. SRI. V. MADHUSUDHAN REDDY, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH ‘ A ’ BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T. A. No.694/Bang/2015 (Assessment Year : 2007-08) Asst. Commissioner of Income Tax, Circle 1(2)(1), Bangalore. …. Appellant. Vs. Sri V. Madhusudhan Reddy, 502, CMH Road, Indiranagar, Bangalore-560 038. ….. Respondent. PAN ABIPV 7234L Appellant By : Shri G.R. Reddy, CIT (D.R) Respondent By : Ms. Preethi S. Patel, Advocate. Date of Hearing : 6.10.2015. Date of Pronouncement : 9.10.2015. O R D E R Per Shri Jason P. Boaz, A.M. : This appeal by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-I, Bangalore dt.4.2.2015 for Assessment Year 2007-08. 2. The facts of the case, briefly, are as under :- 2.1 The assessee, an individual deriving income from salaries, house property and money lending, filed the return of income for Assessment Year 2007-08 on 24.10.2007 declaring loss of Rs.15,32,350. The return was processed and the case was subsequently taken up for scrutiny.

2 ITA No.694/Bang/2015 The assessment was completed under Section 143(3) of the Income Tax Act, 1961 (in short 'the Act') vide order dt.27.11.2009 wherein the income of the assessee was determined at Rs.14,68,168 in view of an addition of Rs.30,00,517 on account of disallowance of proportionate interest paid on account of interest free loans given to sister concerns and others. Thereafter, the CIT-III, Bangalore set aside this order of assessment by way of an order under Section 263 of the Act dt.30.3.2012 directing the Assessing Officer that an amount of Rs.15,63,22,000 was to be brought to tax as capital gains on the transfer of shares held by the assessee in M/s. Nutrine Confectionary and Sweets Pvt Ltd.. In pursuance thereof, the Assessing Officer, passed an order of assessment for Assessment Year 2007-08 under Section 143(3) rws 263 of the Act dt.14.3.2013, wherein the Assessing Officer determined the assessee's income at Rs.15,77,90,168 by bringing to tax the aforesaid amount of Rs.15,63,22,000 to tax in the assessee's hands. 2.2 In the meanwhile, the assessee had preferred an appeal before the Tribunal against the CIT-III, Bangalore’s order under Section 263 of the Act dt.30.3.2012. The co-ordinate bench of this Tribunal in its order in ITA No.574/Bang/2012 dt.12.4.2013 held, on merits, that the transfer of shares held by the assessee in Nutrine Confectionary & Sweets Pvt. Ltd., was not exigible for capital gains in the hands of the shareholders and accordingly decided this issue in favour of the assessee. 2.3 Aggrieved by the assessment order passed under Section 143(3) rws 263 of the Act dt.14.3.2013, the assessee preferred an appeal before the CIT (Appeals)-I, Bangalore. The

3 ITA No.694/Bang/2015 learned CIT (Appeals), following the above decision of this Tribunal in the assessee's own case in ITA No.574/Bang/2012 for Assessment Year 2007-08 allowed the assessee's appeal holding that the amount of Rs.15,63,22,000 on transfer of shares of Nutrine Confectionary & Sweets Pvt. Ltd. is not exigible to tax in the assessee's hands as capital gains. 4. Aggrieved by the order of the CIT (Appeals)-I, Bangalore dt.4.2.2015, the Revenue has preferred this appeal before the Tribunal raising the following grounds :- “ 1. The order of the learned CIT (Appeals), in so far as it is prejudicial to the interest of revenue, is opposed to law and the facts and circumstances of the case. 2. The CIT (Appeals) erred in placing reliance on the decision of Hon'ble ITAT wherein the Hon'ble ITAT did not recognized the colourable device employed by the assessee as envisaged by the Hon'ble Supreme Court in the case of Mc Dowell & Co. Ltd. (154 ITR 148), which resulted in massive tax evasion in the guise of tax planning laced with multi layered transactions. 3. The CIT (Appeals) erred in placing reliance on the decision of Hon'ble ITAT wherein the Hon'ble ITAT has not considered the fact that the shares belonging to the assessee were ultimately transferred to Godrej Group as a part of sale of business of the Nutrine Group to Godrej Group, routed through a series of transactions including the reconstitution of the defunct firm M/s. BV Reddy Enterprises to accommodate the shareholders of M/s. Nutrine Confectionery Co. Pvt. Ltd. and guising the numerous transactions as genuine in quick span of time, with a sheer motive of avoidance payment of actual capital gain. 4. The CIT (Appeals) erred in placing relianc eon the decision of Hon'ble ITAT wherein the Hon'ble ITAT held that the entire series of transactions by which the shares of M/s. Nutrine Confectionery Co. Pvt. Ltd. were ultimately transferred to M/s. Godrej Beverage & Foods Ltd. were all valid and such a course was permitted and within the frame work of law and that the transaction was not colourable or dubious device or subterfuge andwere legal and valid without appreciating the complete thought process and motive behind the series of transactions entered into by the assessee ;and family members. 5. The CIT (Appeals) erred in not appreciating the fact that the decision of the ITAT in assessee's own case in ITA No.574/Bang/2012 has not reached its finality as the department’s appeal before the High Court is pending.

4 ITA No.694/Bang/2015 6. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CIT (Appeals) be reversed in so far as the above mentioned issues are concerned and that of the Assessing Officer be reversed. 7. The appellant craves leave to add, alter, amend or delete any of the grounds that may be urged at the time of hearing of the appeal.” 5. The grounds at S.Nos.1, 6 & 7 are general in nature and therefore no adjudication is called for thereon. 6.1 In the grounds at S.Nos.2 to 6 (supra), Revenue, inter alia, challenges the impugned order of the learned CIT (Appeals) in placing reliance on the decision of the co-ordinate bench in the assessee's own case in ITA No.574/Bang/2012 dt.14.2.2013 to hold that the transfer of shares of M/s. Nutrine Confectionary & Sweets Pvt. Ltd. in the assessee's case were not exigible to tax as capital gains. It was also contended that the decision of the Tribunal (supra), ignoring the decision of the Hon'ble Apex Court in the case of Mc Dowell & Co. Ltd. (154 ITR 148), by holding that the entire series of transactions by which the shares of M/s. Nutrine Confectionary & Sweets Pvt. Ltd., which were ultimately transferred to M/s. Godrej Beverage & Foods Ltd. were valid and that since such a course was permitted within the framework of law, the said transactions were not colorable or dubious or subterfuge, has not reached finality as the Department’s appeal against the said order was pending disposal before the Hon'ble High Court of Karnataka. The learned Departmental Representative was heard in support of the grounds raised. 6.2 Per contra, the learned Authorised Representative for the assessee submitted that the issue of the exigibility to tax of capital gains on the transfer of shares of M/s. Nutrine

5 ITA No.694/Bang/2015 Confectionary & Sweets Pvt. Ltd., in the case on hand is covered in favour of the assessee by the decision of the co-ordinate bench of this Tribunal in the assessee's own case in ITA No.574/Bang/2012 dt.12.4.2013 for Assessment Year under consideration. Consequently, Revenue’s appeal is liable to be dismissed. 6.3.1 We have heard both parties and perused and carefully considered the material on record, including the decision of the co-ordinate bench of the Tribunal in the assessee's case; relied upon by the assessee. We find that the co-ordinate bench in its order in the assessee's own case in ITA No.574/Bang/2012 dt.12.4.2013 has held that the transfer of shares of M/s. Nutrine Confectionary & Sweets Pvt. Ltd. was not exigible to Capital Gains in the hands of the shareholders and accordingly held the issue in favour of the assessee. The relevant portion of the decision of the co-ordinate bench at para 5 thereof is extracted hereunder :- “ 5. We have heard the rival submissions and perused the materials on record. The Tribunal in ITA Nos.149 & 150/Bang/2011 & 158 & 159/Bang/2011 supra in identical circumstances has decided the issue on merits in favour of the assessee. The issue on merits is regarding taxability of capital gains of sale of shares of M/s. Nutrine Confectionery and Sweets Pvt. Ltd. (NCSPL). These shares were originally held by the assessee and fifteen persons. The Tribunal in the above case (four others, who were the shareholders of NCSPL) held that the transfer of the shares were not liable to long term capital gains in the hands of the shareholders and decided the matter in favour of the assessee. Since the facts of the instant case, we decide the issue on merits in favour of the assessee.”

Following the aforesaid decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 on the very same issue, we hold that the assessment of Rs.15,63,22,000 cannot be brought to tax as capital gains in the hands of the assessee and

6 ITA No.694/Bang/2015 accordingly uphold the impugned order of the learned CIT (Appeals). Consequently, Grounds at S.Nos.2 to 6 of Revenue’s appeal are dismissed. 7. In the result, Revenue’s appeal for Assessment Year 2007-08 is dismissed. Order pronounced in the open court on 9th October, 2015.

Sd/- Sd/- (ASHA VIJAYARAGHAVAN) (JASON P BOAZ) Judicial Member Accountant Member

*Reddy gp Copy to : 1. Appellant 2. Respondent 3. C.I.T. 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard File. (True copy) By Order

Asst. Registrar, ITAT, Bangalore