THE DCIT, CIRCLE-2(1), THRISSUR vs. SRI.K.P. JOHNY, THRISSUR

Assessee by: Shri T.M. Sreedharan, Sr. Advocate (with Smt. Divya Ravindran, Adv. with him) Revenue by: Smt. J.M. Jamuna Devi, Sr. DR Date of Hearing: 13.07.2023 Date of Pronouncement:09.10.2023 O R D E R Per Sanjay Arora, AM These are cross Appeals by the Assessee and the Revenue, arising out of the Order dated 04.01.2019 by the Commissioner of Income Tax (Appeals), Thrissur [CIT(A)], partly allowing the assessee’s appeal contesting his assessment under ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT section 147 read with s. 143(3) of the Income Tax Act, 1961 (hereinafter "the Act") dated 14.12.2017 for Assessment Year (AY) 2014-15.

2. The background facts of the case are that the assessee, a dealer in old vehicles, was issued and served a notice u/s.148(1) of the Act on 20.03.2017, consequent to the survey under section 133A of the Act at the business premises of one, Shri Ittoop Konuparamban, Chalakkudy, Thrissur, also the place of the assessee’s residence, on 13.03.2015, on the basis of the material impounded there-from and the subsequent statement of Shri Ittoop and, indeed, the assessee himself. The assessee, who had not filed any return of income for the year, was found to have made investments during the relevant year in a company, Manko Natural Flavours and Extracts Pvt. Ltd. (Manko), floated by him and Sh. Ittoobp, as also in immovable properties. The assessee, in response, returned an income of Rs.10,00,000 on 21.08.2017, as income from other sources. In fact, earlier, vide a statement u/s.131(1) of the Act dated 16.12.2016, extracted in the assessment order itself, the assessee admitted to running a provision store at Market Road, Chalakkudy, in the name of his wife, Celine Johny, in the trade name ‘Manappuram Traders’, since 1983. Even as some details of his income and personal assets, viz. motor cars, were shared, no details of the investment in Manko (also referred to as ‘the company’), in which headmits to be a Director since it’s inception (fy 2003-04), owning 50% shares, as also unsecured loans, were furnished. A perusal of his bank account, as well as the books of account of Manko, revealed investments by him during the year, as indeed sale of shares in Manko vide an Agreement dated 20/2/2014. The same having been not returned, forms the subject matter of assessment. The instant appeal follows part relief in first appeal; both sides challenging the impugned order in part.

3. Before us, both the sides relied on the orders by the Revenue authorities, i.e., as favourable thereto. The assessee’s statement dated 16.12.2016, as well as a part of the Agreement dated 20.02.2014, both extracted in the assessment order, being not clear, the parties were required to furnish a legible copy thereof, and the hearing closed. Page 2 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT 4. We shall take up each of the adjustments to the returned income under appeal. The first such is the addition of Rs.70,50,000 toward unexplained investment by way of unsecured loan in Manko during the relevant previous year. The same was explained as sourced from an over-draft (OD) account with Catholic Syrian Bank, Chalakkudy. That is, bank borrowing, channelled through bank transfers. A perusal of the OD account, however, revealed cash deposits in the said account at Rs. 97.64 lakhs during the year. No source was explained. The assessee had in fact not utilized the OD account, but used it instead as a conduit for routing his unaccounted cash. The investment in Manko was thus unexplained and, accordingly, deemed as income u/s. 69 of the Act, and confirmed in appeal for the same reason.

5. We have heard the parties, and perused the material of record. No improvement in his case was made by the assessee-appellant, while the Revenue relied on the orders by the Revenue authorities, tabulating, date-wise,the cash deposits in the bank account and the corresponding bank transfers to the company (Manko), which are for the period (01.04.2013 to 11.10.2013) and (01.04.2013 to 04.01.2014) respectively. The OD account, never really utilized, had been, as rightly inferred by the Assessing Officer (AO), deployed as a ruse, a cover-up so to speak, the source of bank transfers to and, thus, investment in Mankoby the assessee being the unexplained cash deposits in his bank (OD) account. Why, rather, we wonder did the AO, then, not make addition for the same, i.e., for Rs.97.64 lakhs instead, which would obviate the need for a separate addition for Rs.70.50 lakhs toward investment in the company or, making it, regard it as on protective basis, while that for Rs.97.64 lakhs would be on substantive basis. Even allowing credit for Rs.21.40 lakhs, withdrawn cash from the OD account, i.e., assuming it being recycled, which would though have to be shown so, would reduce the addition qua unexplained cash deposit to Rs.76.24 lakhs. Be that it as may, we confirm the impugned addition for Rs.70.50 lakhs. We decide accordingly. This decides Grounds 2 to 4 of the assessee’s appeal; Gd. 1 being general in nature warranting no adjudication. (also refer para 10.1) Page 3 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT 6. The assessee next agitates the part sustenance in first appeal of an addition for Rs.51,72,056 toward unexplained investment in immovable property (IP),i.e., at Rs.35,72,056. The assessee was, on the basis of sale documents found during survey, found to have purchased property, as under:- Sl. No. Date of Purchase Doc. No. Amount (Rs.) 1 25/09/2013 4563/13 10,23,000 2 17/12/2013 5712/2013 8,20,000 3 17/01/2014 284/2014 16,00,000 Total 34,43,000 Another Rs.17,29,056 was paid to one, Ousech, on 05.04.2013 for purchase of property. The entire sum (Rs.51,72,056) being unexplained as to its source, was brought to tax as unexplained investment. In appeal, the assessee obtained part relief on the basis of payment of Rs.16,00,000 supra on 17.01.2014 as being out of Rs.50 lakhs received on 23.12.2013 as consideration on sale of shares (in Manko). The relevant part of the appellate order reads as under: - “8.3 I have perused the assessment order. The assessment order clearly states that the assessee has made a payment by cheque on 5-4-2013 for amount of Rs.17,29,056/- to Ousech but no evidences are produced. Thus, it is not a withdrawal by appellant as contested. Moreover, the appellant has not brought any material/evidence on record to substantiate his claim that the said payment is linked with purchase of other properties mentioned by the Assessing Officer. In fact, in its submission, the appellant has made a strong claim only for Rs.16,00,000/- which as per appellant was paid out of consideration of Rs.50,00,000/- received by him against sale of shares. It is seen that an amount of Rs. 16,00,000/- is shown to have been invested on 17.1.2014. The appellant’s explanation regarding source of Rs. 16,00,000/- appears to be correct and is thus accepted. Therefore, in the circumstances of the case, I give a relief of Rs. Sixteen lacs (16,00,000) out of total addition of Rs.51,72,056/-. The balance amount of Rs.35,72,056/- stands confirmed. The ground is partially allowed.”

7. We have heard the parties, and perused the material of record. Apart from a bald statement as to the investment in property being made out of cash withdrawals from the bank account of self and wife, not produced at any stage, the assessee has not brought any material on record to substantiate his case. In fact, as found(refer paras 4,5), the bank accounts were used for channelizing unaccounted money, so that Page 4 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT nothing turns on their having been not produced, perhaps also explaining their non- furnishing. We, accordingly, finding no infirmity in the impugned order, confirm the addition sustained. We decide accordingly.

8. Coming to the Revenue’s appeal, the only issue arising is the capital gain on sale of 42,500 shares in Manko (including 500 held in the name of his wife), constituting 50% of the 85,000 shares therein; the balance 50% being held, similarly, by Sh.Ittoop and his wife, Lissy Ittoop. The bone of contention between the parties is the consideration arising on the sale of the entire shareholding to Vidya Herbs Pvt. Ltd. (VHPL), a Bangalore-based company in the same business as Manko. While the Revenue, on the basis of the Agreement dated 20.02.2014 between these4 shareholders, constituting the party of the first part, and VHPL, acting through it’s Directors (K. Shyam Prasad and Veena Shyam Prasad), as party of the second part, regards it at the stated sum of Rs.675 lakhs, the assessee claims it to be Rs.100 lakhs. Save for 500 shares acquired by the assessee during fys. 2003-04 & 2004-05, the balance 42,000 shares being acquired during the current year (i.e., from 31.3.2013 to 17.2.2014, to be precise), gain thereon has been assessed as short-term capital gain (STCG) as against long-term capital gain on 500 shares, at rs. 291.53 lacs and rs. 2.93 lacs respectively. Thus, while the assessee claims to have received only Rs.50 lakhs, as per the AOhe has received Rs.337.50 lakhs, even if indirectly in part, i.e., Rs.287.50 lakhs. Further, while the AO has based his findings on the sale agreement and, as we shall presently see, Manko’s confirmation, the ld. CIT(A) has, in accepting the total sale consideration at Rs.100 lakhs, which the Revenue objects, considered, in addition, the books and Balance Sheet (as on 31.03.2014) of Manko.

9. We have heard the parties, and perused the material of record. 9.1 Our first observation in the matter is the difference in the number of shares sold. Though not altering the overall consideration, i.e., Rs.100 lakhs or, as the case may be, Rs.675 lakhs, the same shall have a direct bearing on the sale consideration per share, impacting the capital gain arising inasmuch as the cost of acquisition of Page 5 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT each share would, in either case, be at Rs.100 per share, i.e., its par value/issue price. While the AO has taken the assessee’s shares (along with that of his wife) at 42,500 shares, the assessee per his submission before the ld. CIT(A), states them at 42,000. The same, surprisingly not mentioned in the sale agreement pursuant to which the shares have been sold, the paid-up share capital in the Balance-Sheet as on 31/3/2014 is at Rs. 84 lac, validating the assessee’s claim in its respect. This is again surprising as the AO clearly states the dates of acquisition of 42,000 shares, with the balance 500 stated as acquired in fy 2003-04 (425) and fy 2004-5 (75)(at pgs. 13, 14 of his order), and which would only be on the basis of the information provided by the assessee. Be that as it may, is it then that the assessee had no (or at best 500) shares prior to the current year; the first tranche of 14000 shares, ‘costing’ Rs. 14 lac (i.e., of 42,000 shares, on which STCG arises) having been allotted during the current year on being applied for only on 31/3/2013? This, as would be presently seen, is the first among the many intrigues that one comes across as he proceeds to unravel the simple task of price at which the shares have been sold per a formal document executed on 20/2/2014 between the buyers and sellers of shares, which, going by the Manko’s Balance-sheet, is thus clearly 84,000.The entirety of the assessee’s shares (42,000), thus, stand acquired by him only during the current year.

9.2 Coming to the aspect of sale consideration, the second determinant of the share price – the first being the number of shares, we reproduce the relevant part of the sale agreement dated 20.02.2014, as under: “AND WHEREAS First Party agreed to sell its entire shares in the company named MANKO NATURAL FLAVOURS & EXTRACTS PVT. LTD. in favour of the Second party company VIDYA HERBS Pvt. Ltd. for a total consideration of 6,75,00,000/- (Rupees six crore and seventyfive lakh only) and entered into an agreement with terms and conditions therefor. Thereafter the First party company carried out its internal audit jointly with the Second party and as mutually agreed consideration has been paid to the First party as follows 1) Cheque # 435112 Dt 23/12/2013 =Rs. 50,00,000/- 2) Cheque #435113 Dt 23/12/2013 =Rs. 50,00,000/- Page 6 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT 3) Cheque #974150 Dt 10/01/2014 = Rs. 100,00,000/- 4) Cheque #974149 Dt 03/02/2014 = Rs.75,00,000/- 5) Cheque # 594884 Dt 17/02/2014 = Rs.50,00,000/- 6) SBINH14049330795 = Rs. 3,03,86,682 Dt. 18/02/2014 7) SBINH14049328558 = Rs. 31,69,629 Dt. 18/02/2014 8) SBINH14049328538 = Rs. 14,43,689 Dt. 18/02/2014 Total: Rs 6,75,00,000/-” (emphasis, supplied)

The primary facts are undisputed, and for which, apart from the sale agreement, we may refer to the Manko’s reply dated 05.12.2016, reproduced at page 12 of the assessment order, reproducing it in its relevant part, as under: “With reference to the above we are herewith producing the following details:

1. 1. We had entered into an agreement with the erstwhile directors of Manko Natural Flavours & Extracts Ltd. consisting of Mr. K.P. Johny (1) & Mrs. Celine Johny(1) &other two to purchase the entire shares of the company Equity shares of 84,000--- (not clear) --- for a total consideration of Rs.6.75,00,000 (Rupees Six Crores & Seventy Five Lakhs Only). Copy of the agreement is enclosed herewith.

2. The number of shares purchased are as follows: a) From Mr. K.P. Johny (1) : 41,500 b) From Mrs. CelineJohny (1): 500” [(1) the names, K.O. Ittoop & Lizzy Ittoop appear in the letter on record, called for by the Bench in view of the letter extracted in the assessment order (pg. 12) being not clear; the assessee’s file was stated by the ld. Sr. DR as not available with the concerned AO for the time being, so that the corresponding letter of even date in the case of Sh. Ittoop, similarly called for by him from Manko, was produced by her](emphasis, supplied) The same is, thus, clearly, at Rs. 675 lacs. Further, the entire of it stands paid, firstly, prior to the execution of the share sale agreement and, two, by VHPL, the buyer, either to or for and on behalf of the first party, the sellers, as ought to be the case. There is in fact no dispute between the parties on any aspect of the transaction, executed, as apparent, after much deliberation, exercising due caution and diligence, in a carefully thought-out manner, over a period of time, envisaging a number of Page 7 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT actions, including internal audit of Manko. The first payments, made equally to both the constituents of the first party, including the assessee, it may be noted, is made on 23/12/2013, so that the negotiations for and determination of the sale consideration and, thus, the share price, of which internal audit is an integral part, preceded it. 9.3 The share price for 84000 shares is, thus, Rs. 803.57 (Rs. 675 lac/0.84 lac) per share. What, then, one may ask, is the controversy about? Why, a mere mention of the number of shares – on which aspect there is no doubt, or the share price itself, in the Share Agreement (SA),would have had the effect of scotching or obliterating any such controversy, which arises, not, as one may expect, between the parties to the Agreement, but between the assessee and the Revenue. 9.4 The Controversy The basis of the assessee’s case, since accepted by the first appellate authority, is that only Rs. 100 lacs (out of Rs.675 lacs) found its way to the principal shareholders, Sh. Ittoop and the assessee, at Rs. 50 lacs each, and the balance Rs. 575 lacs paid by VHPL, the buyer, under the Agreement, to Manko, and which in turn utilized the same to discharge it’s secured and unsecured debt, being to bank (Rs. 350 lacs) and it’s said two Directors (at Rs.225.79 lacs). How could the same be then regarded as part of the share consideration? The Balance-Sheet (as on 31/3/2014) of Manko, and account of VHPL in it’s books, is pressed into service. That is, only Rs. 1 cr. has been received by the shareholders; the balance being to Manko for paying off its liabilities, proved by it’s books, extracted in the relevant part in the impugned order. As such, even as SA specifies the sale consideration at Rs. 675 lacs, it delineates its payment, being Rs. 575 lacs to the company itself, which credits the same to VHPL, substituting thus the credit to bank and it’s erstwhile directors in its accounts. How could VHPL be the beneficiary of a sum paid by it as consideration? The same is only an investment by it, which is to be therefore excluded from the gross consideration? This sums-up the assessee’s case.

ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT Discussion 9.5 We may at this stage examine the SA which, having been acted upon and given effect to, is to be the final arbiter in the matter; there being no dispute between the parties in its respect. The clauses subsequent to the preface reproduced at para 9.2 above, state that on such transfer, VHPL shall become the absolute owner of all assets, movable and immovable, of Manko; that it has been put in possession of all the assets; that all statutory liabilities up to 28.02.2014, as indeed to it’s employees, have been discharged, or would in any case be the liability of the first party. It is thus plain that the company (Manko) has been acquired by VHPL, with all its assets, tangible and intangible, as on 28.02.2014, for a consideration of Rs.675 lakhs, by acquiring all the shares therein. The AO has on that basis adopted the sale consideration of the share-holding in Manko at Rs.675 lakhs inasmuch as there is thus no question of capital gains being not reckoned with reference to the said amount. The transfer date, strangely unspecified in the SA, is understandably 28.02.2014, even as apparently (Cl.1), the shares stand transferred prior thereto, presumably on receipt of the entire consideration, where-upon the share agreement has been executed, reducing what has, or is to transpire, in writing. The AO records it as ‘17/2/2014’, on which date the last of the purchases (being at 6000 shares)is made by the assessee, i.e., from Sh. Ittoop, the other co-promoter and Director. The sellers having sold the shares at a value reckoned on the basis of the assets of the company being free of any charge, have directed the buyers to pay, for and on their behalf, the bank directly in liquidation of the company’s secured debt. Why, it may well be an understanding that either the sellers shall, prior to the sale, pay off the said debt or, in the alternative, VHPL shall retain a part of the consideration to pay off the same, i.e., utilize a part of the consideration toward the same, and which explains the transfer of funds to Manko’s bank loan/advance accounts in the same sum in which they outstand as on the date of their discharge as reflected in it’s accounts. The amount having been credited to VHPL itself, retaining thus it’s ownership therein, ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT cannot be regarded as part of the consideration discharged by it, so that the same is to be reduced in reckoning the actual consideration. This explains the respective cases. 9.6 The matter warrants, and was accordingly, examined by us in detail. The assessee’s case, seemingly appealing, is seriously flawed, both on facts and in law. Income by way of capital gain arises on transfer of a capital asset, chargeable to tax u/s. 45 of the Act, i.e., on accrual, on which there is no doubt in the instant case. That is, the law deems that payment shall follow, or stands already received, as in fact is in the instant case, and there is under the Act no concept of bad debt in computing capital gains. A transfer may get aborted, in which case there would be no transfer, a precondition for accrual of capital gain. What value, then, i.e., in law, the non-receipt or the short receipt of the sale consideration? There is in fact no short receipt, i.e., vis-à-vis the stated consideration of rs. 675 lacs, even on facts. The Agreement clearly provides that the entire payment arising there-under is to be, and indeed is being paid, to the party of the first part, the sellers, defined to include their assigns, nominees, etc., i.e., to it’s account. What has admittedly been sold to VHPL, the buyer, is 84,000 shares in Manko, at a stated consideration of Rs.6.75 cr., which sum thus arises to the shareholders and, in fact, paid only to them per the share agreement dated 20.2.2014. This is further endorsed by Manko vide it’s letter dated 05.12.2016. This should therefore be the end of the matter, irrespective of the destination of the said consideration. Payment by the buyer of shares, to the extent not directly thereto, is, in terms of the Agreement itself, which provides for the payment only to the first party, the sellers, and none else, is thus only for on behalf of the sellers. That being so, would it matter to whom the ‘indirect’ payment is in fact made? The law is not concerned with the application or the utilization of income; the charge to tax arising on its accrual, on which aspect there is no doubt, with the buyer having in fact paid the entire sum. It has not been explained at any stage as to how the payment of sale consideration in respect of shares therein arises to Manko? Which would ordinarily ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT only be against issue of shares by it. It would be a different matter though where the payment by VHPL is credited by the payee-company to the account of the sellers; being only a variant of the direct payment, made, instead to the beneficiary’s bank, to his account with a third party. Manko also cannot also be regarded as a nominee or assignee of the sellers inasmuch receipt is not credited by it to it’s own reserves. The legal relationship and status arising out of SA only is to be had regard of (CIT v. B.M. Kharwar [1969] 72ITR603 (SC)).The accounting entries in Manko, crediting VHPL instead of the seller-shareholders, are without any legal or contractual basis. It is not a case of, or could be regarded as one of sale, in lump sum, of it’s assets by the company, i.e., Manko, in which case the capital gain would arise thereto. It is undisputedly a case of sale of shares therein, and the underlying assets continue to be owned, both before and after 20/2/2014, the date of SA, by Manko. In fact, even in such a case, it is the cost of acquisition of the relevant assets, and not the outstanding secured debt there-against, that would stand to be deducted, adopting, in case of a depreciable asset, it’s WDV. When it is therefore stated therein that VHPL would thus become the absolute owner of it’s assets, the same is to be understood as stated in a loose manner; the acquisition of the entire share-holding in Manko, a private company, giving it complete control over and a de facto ownership it’s business and assets. In fact, it is only considering the control afore-said that the prospect of liquidation of secured debt, with a view to have a clear title thereto, which a buyer (of the relevant asset) may want, was considered by us, to though no consequence. In other words, the transaction, whichever way one may look at it, remains inexplicable. Continuing further, how could, one may ask, the manner of discharge of the sale consideration determine the said consideration? There is no stipulation, as for payment of statutory liabilities, for payment of secured (or unsecured) debt, in the SA. The same is thus not a condition of the Agreement. Reading such a condition, which does not in fact exist, is only doing violence to its express terms. The same is in fact not required as all that the buyer needs to, in such a case do, is to reduce the Page 11 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT sale consideration to that extent. Share valuation, it is to be appreciated, represents the unitized net worth of the company, implying reduction of all existing and known liabilities from it’s assets. That is, the liabilities, including to bank, stand already reduced in arriving at the sale consideration, implying retention of funds – to the extent of the admitted liabilities of Manko as on the transfer date. The liquidation of loan liabilities. of Mankoby VHPL, could thus be regarded as on it’s own violation, and of no consequence per seas regards share valuation. Yes, it has its qualitative advantages, viz. ensuring – as a matter of caution, that the same stand correctly stated in accounts – nothing more and, nothing less, as indeed one discerns the purpose of the internal audit to be, report of which or its findings have not been brought on record even as, as apparent, the same preceded the share transfer agreement, and was instituted with the sole purpose of arriving at the correct share valuation. The same, forming part of the due diligence exercise, is a very relevant document for the purpose and, understandably, the valuation of the assets and liabilities of the investee company, ascertaining its net worth (as on a cut-off date).The stipulation of payment of other liabilities by 28/2/2014 serves another purpose. Both the current assets and liabilities get, without impacting the net worth, extinguished on payment and, thus, proved to that extent, also obviating the need for their valuation (including the aspect of realizability, as in the case of trade debtors), which they otherwise must. In fact, the buyer being in the same business, has, as apparent, a clear understanding of its potential, and the manner of deployment of the assets, tangible and intangible, for it’s purposes, which also explains it’s stipulation of Manko being completely employee- free, a condition which a share purchaser cannot normally put, indicating clearly of it being accompanied by, and a case of, change in management. No wonder, then, that the net worth of the company, at Rs. 154.68 lacs as on 31/3/2013, the beginning of the current year, fell to (-) Rs. 4.71 lacs as on 31/3/2014, its end, suggesting a massive write-off of assets and/or booking of all known liabilities, including to employees on termination of their services. Statutory liabilities cannot be transferred by agreement, much less one for share transfer and, in any case, continue to be of Manko. The said Page 12 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT liabilities have accordingly been determined and provided for, clearly with a view to eschew any liability arising later on that count. That is, the transfer is based on audited financials, approved by the Board of, firstly, Manko, followed by that of the buyer-company, arising out a common exercise carried out. This also explains the non-mention of any of the fixed assets, except generically, in the Agreement, i.e., other that lease-hold rights in 40.47 acres of land, clearly, a prime asset.

9.7 (A) The purport of the foregoing is to emphasize that the takeover of Manko has been, and only expectedly, a very elaborate and carefully planned affair, carried out in a series of steps over a period of time. This would also place in perspective the following disquieting facts noticed, which cannot but be regarded as deliberate: - (a) The SA, a carefully planned document, makes no mention in the respect of the following details of the property being agreed to be transferred thereby, i.e., the shares in Manko: - the number of shares - the share price - the date of transfer (b) Non-reference to the internal audit report or its findings, vital for share valuation; (c) Complete silence and non-explanation as to how and why payment of sale consideration, being, in clear terms of SA to the party of the first part, the seller, stands made to Manko, the company for purchase of shares in whom the payment was being made; (d) Complete silence and non-explanation as to how the payment of sale consideration by VHPL, the buyer, though without doubt to the party of the first part, is credited, rather than to the two principal shareholders, to the payer-buyer itself, which thus becomes beneficiary of the sum paid by it! (e) There is no mention of the assets and liabilities of Manko in the SA, which are in fact being acquired through purchase of shares therein. This emphasizes once again the absence of the internal audit report, which would inferably, on one hand, appraise the operations and, on the other, evaluate the assets and liabilities. That apart, there is no reference therein to the current assets and liabilities (or the net current assets). This is relevant as the same, stated at realizable values, sale consideration to that extent can safely be attributed thereto. That is, the sale consideration cannot be fixed Page 13 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT without reference thereto, level of which in a running concern keeps changing from day to day, even as the same can be fixed qua fixed assets, which, being retained, get freezed at the value placed thereon. B. Juxtapose the foregoing with the following surrounding facts and circumstances of the case: (a) The assessee, despite being an equal (50%) stakeholder in Manko,has an almost nil investment therein upto 31.03.2013, on which date share application (pending allotment as on that date) for 14,000 shares (for Rs. 14 lakhs) is made.This is clearly a part of the process of sale of Manko, which thus commences in March, 2013. (b) The assessee, despite not having any disclosed source of funds explaining the same, yet ‘transfers’ ‘funds’, commencing 31.03.2013, to 17.02.2014, at Rs.112.50 lakhs in the company, being at Rs. 42 lakhs and Rs.70.50 lakhs by way of share capital and unsecured loans respectively; the former including rs. 28 lacs by way of secondary purchase of shares. (c) The company’s net worth of Rs.140.68 lakhs (Rs. 154.68 lacs, including share application money of Rs. 14 lacs) as on 31.03.2013, includes fixed assets at Rs.334.71 lakhs (at book-value), comprising, besides others, lease-hold rights in 40.47ares of land; factory building; plant and machineries; intangibles, i.e., a substantial fixed asset inventory. (d) Consideration against the assessee’s entire share-holding in Manko (i.e., 42,000) is stated as received, at Rs.50 lakhs, on 23.12.2013, even as the shareholding therein, as on that date, is at 36,000 shares! In fact it is doubtful thatthe shares were transferred as on 23.12.2013 inasmuch as the ‘condition’ of discharge of liabilities, for which the time provided (to the first party) perthe SA, i.e.,up to 28.02.2014, had not expired. The internal audit and other bank formalities; the erstwhile Directors could well be the guarantors, which (guarantee) could be released only on discharge of the bank liability, may not have been completed by then. (e) Further, while Rs.57.62 lakhs stood advanced to the company on 31.03.2013, another Rs.70.50 lakhs were transferred during the year, continuing up to 04.01.2014. That is, while he infuses loan in the company in which the shareholding is being acquired to be sold soon after and, in fact, Rs.50 lakhs received in December, 2013 itself (as against investment of Rs.42 lakhs), only to start receiving it back on 07.02.2014 onwards, and in full by 26.02.2014;[[[[ ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT C. Clearly, there is much more at wor kthan meets the eye. We highlight the following inexplicable conduct of the assessee which, while at one hand, makes his case different from that of Shri Ittoop, also clearly suggests the two acting in cahoots: (a) There is a frantic pumping in of money by the assessee in Manko, which is subject to acquisition. Why? Nobody would give loan only to receive it back some time later, unless of course it serves a purpose. What is that? This is particularly considering that the same shall not increase the net worth (of the investee-company) at all and, besides, equally importantly, the assessee has no explained money for investment. Needless to add, no business purpose of the same has been stated, which may though be rendered superfluous if no there was no actual transfer of funds. (b) Likewise for the share capital. The entire shareholding of 42,000 shares, which is the subject matter of sale, stands acquired by the assessee during the year, and at par. Why would any person risk his capital, which is itself under transfer? Why would another (i.e., Shri Ittoop) transfer his investment of several years, just prior to its sale, and at par? That is, why would one, while selling his shares at over Rs. 800 per share, sell them the same to another, at Rs. 100 per share? (c) How is that the assessee receives (on 23.12.2013) the entire share consideration for 42,000 shares, i.e., even prior to their acquisition, which goes right up to 17.02.2014?Though, in view of the time of their purchase, applicable to the entire purchase,the last tranche of 6000 shares, value of which gets decided prior to 23.12.2013, are thus purchased/acquired by the assessee-seller on 17.02.2014, i.e., the day of their sale, and at a profit of 700% of cost; 9.8 Reference, at this stage is drawn to section 56(2)(vii) of the Act, which reads as under in its relevant part: - “56. (1) Income of every kind which is not to be excluded from …………. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely:— …………………………… (vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009 but before the 1st day of April, 2017,— ……………………………. (c) any property, other than immovable property,— (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; Page 15 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration:” The same brings the difference between the transfer consideration of a property, moveable or immovable, i.e., with reference to its fair market value (FMV) as on the date of transfer, as income from other sources of the recipient of the property. The provision, on the statute for long, has since 01.04.2014, i.e., AY 2014-15 onwards, been extended in scope qua movable property to include transfers at lower than the fair market value, as against at nil earlier. We have found the sale consideration of the entire share capital in Manko as at Rs.675 lakhs, i.e., at Rs.803.57 per share. The stated cost thereof, either on its purchase (from another shareholder) or on allotment (by the company), is stated at Rs.100 per share. The purchase being proximate in time to the sale of shares, being with reference to a transaction between two unrelated parties, i.e., an arm’s length transaction, the same can safely be regarded as its fair market value. Accordingly, the difference of Rs.703.57 per share would stand to be taxed as income from other sources u/s. 56(2)(vii)(c).

9.9 Findings There is, as afore-noted, no stipulation in the SA for the discharge of loan liabilities by the sellers. It is only where so, and monies accordingly brought in by them by way of share capital, that would increase the net worth of the company to that extent. Per contra, such a condition, presumed by the ld. CIT(A), would, where met by the buyer, be equivalent to reduction of the sale consideration to Rs. 325 lacs, i.e., by Rs. 350 lacs of bank liability, and not, again, to Rs. 100 lacs. This is as only in such a case that it can be said that the VHPL discharged the sellers’ liability to that extent, justifying the corresponding credit thereto by Manko. The credit in the books of Manko to the account of VHPLhas no basis in the SA. There is also, we note, no reference to the accounts of VHPL, the buyer, or any statement by it, but of Manko, a third party (to the agreement). It discharging the sale consideration thus, would only Page 16 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT reflect the same as investment (in shares in Manko) in it’s accounts. Could it (VHPL) possibly say that it has, in discharge of the sale consideration as a buyer, paid the seller by paying itself? Could, again, it be said that the sellers’ assigned the consideration to the buyer? This is precisely what the ld. CIT(A), in effect, holds. That apart, could, one may ask, such be the intention of the parties which, as afore-stated, could be easily expressed, as all that was necessary in case the share consideration was indeed Rs.100 lakhs, was to specify the said amount in the SA dated 20.02.2014. Nothing more and, nothing less, aborting the controversy, which impels one to regard it as contrived. These liabilities, regarded as material by the ld. CIT(A) in determining the share price, stand reckoned in determining the net worth and, thus sale consideration, being unitized net worth. That is, the payment of liability is an irrelevant fact. True, it is the intent of the parties that is to be deciphered, but the same cannot be against its explicit and unambiguously worded terms. Why, Manko itself clarifies both, the number of shares and total consideration, per it’s letter dated 05.12.2016, confirming thus the contents of the SA, which stands acted upon and given effect to by the parties, and on its terms. Sure, subsequent conduct is relevant. But it is the assessee who is to explain the same, more so when it becomes un- understandable, going against the grain, the very essence of the transaction itself. The conduct, nowhere explained by either the assessee or Manko – who rather confirms the two determinants of share price, i.e., their number and consideration, is inexplicable, both in principle and on facts. The Agreement, it may be appreciated, cannot be read either as an impossibility or, again, against its express terms. When, therefore, it says the sale consideration is at Rs.675 lakhs, it only means that. Again, it is clearly stated that the entire payment of Rs. 675 lacs, detailed therein, is to the party of first part, the seller. The settled principle of interpretation is that adverse inferences shall follow non-furnishing of the relevant evidence (Union of India v. Rai Deb Singh Bist [1973] 88 ITR 200 (SC)). The ld. CIT(A) has in reading it as implying a sale consideration of Rs.100 lakhs, i.e., at a near par value of Rs.119 per share, has, as afore-noted, been guided by the manner of discharge of the sale Page 17 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT consideration, making it a self-defeating exercise. It also violates the legal principle that the taxability of income under Act arises on its accrual, and not on the basis of its destination. We have already explained that capital gain, chargeable u/s. 5 r/w s. 45 of the Act, is on the basis of accrual. No interpretation contrary to the statutory provisions can hold. We have already noted the meticulous effort and planning that has gone into the entire exercise, even as the conduct relied upon in support of the argument defeats the agreement, which is to be, and has been in fact, given effect to. The interpretation accorded tantamount to stating that the sale consideration has been wrongly mentioned in the agreement, qua which there is no contention. Two, that agreement envisages a payment of Rs.575 lakhs by the buyer, VHPL, to itself. What the assessee, in fact, wants us to believe is that it (along with Sh. Ittoop) paid Rs. 350 lacs – inasmuch as the same is to their account, to be able to get Rs. 100 lacs, implying a net worth of (-) Rs. 250 lacs, i.e., much lower than its book-value as on 31/3/2014! These interpretations, which are in fact ludicrous, cannot be accepted. VHPL, on purchase, becomes the sole shareholder in Manko, and could always, as it indeed does, transfer sums to Manko either for investment therein, or for paying off it’s liabilities. Nothing, therefore, turns thereon. Why, on take-over, it becomes it’s de facto liability, so that there is every reason for it to pay off the same. Even otherwise, it could, where so required for any reason, have been paid by VHPL, and without in any manner impacting the sale consideration, being only a substitution of one creditor by another.The reading of the same as being toward discharge of the obligation for payment of the loan liabilities on the sellers is presumptuous. Both the share valuation and the sale consideration as per the SA are, without doubt, at Rs. 803.57 per share. There is, further, no doubt on the transfer of shares and the accrual of the consideration thereon, and on which rests the charge to tax on capital gain. The manner of discharge of consideration, otherwise irrelevant, has nowhere been explained. In fact, just as in the case of the bank OD account, the unsecured loan account in Manko has been used as the conduit for transfer of unaccounted money, which is not surprising considering that it is the funds routed Page 18 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT through the OD account that get parked in the company as ‘unsecured loan’, so that the same could be “withdrawn” immediately thereafter (refer paras 4,5 of this order). This, once again, emphasizes the need for the internal audit report, of which there is no whisper at any stage. In fact, in view of the amended law, whereby income arises on the purchase of shares, the transfer thereof itself becomes irrelevant. We, accordingly, delineate our specific findings, as under: (a) The assessee’s shareholding in Manko prior to their transfer to VHPL is 42,000 shares, allotted and purchased during the year at 14,000 and 28,000 respectively, representing 50% of the paid-up share capital in the said company, sold in its entirety to VHPL vide sale agreement dated 20.02.2014, which has to be given effect to. (b) The sale consideration arising on the said transfer is Rs.6.75 crores (i.e., @ Rs.803.57 per share), consequent to its determination per an internal audit of it’s accounts and operations instituted by the buyers and sellers of the shares. Of this, 50%, i.e., Rs.337.50 lakhs, is to the account of the assessee. (c) The allotment to/purchase of shares by the assessee at Rs.100/- per share, i.e., the same rate at which the existing shareholders (holding 100% of the then paid-up capital) had acquired it, i.e., Rs.100 per share, is thus at Rs.703.57 per share below its fair value, i.e., the value determined on an assessment of the net worth of the company. There is, we find, no dispute qua share valuation; there being rather a deliberate attempt not to disclose the underlying assets of the company or the internal audit report that preceded the agreement, and the only issue raised, without reference to VHPL, the buyer, is the sale consideration arising on the transfer of shares. (d) The receipt by way of allotment and purchase of shares is itself receipt of income to the extent of the excess value thereof over their acquisition cost, under section 2(24)(xv) of the Act. (e) There is no ‘short payment’ of sale consideration to the assessee, claimed at Rs.287.50 lakhs. The same is even otherwise inconsequential, both on facts and in law. (f) Channelling of receipt through his unsecured loan in the company is a plot to avoid tax. Further, the same, as it appears on the basis of the material on record, unbalanced. As against an opening balance of rs. 57.62 lacs, and additions for rs. 70.50 lacs during the year, the closing balance, which stands paid in full, neutralizing it, is rs. 133.11 lacs, leaving thus a difference of rs. 5 lacs.

B. Decision (a) No long term capital gain arises to the assessee inasmuch as the entire shareholding of 42,000 shares sold during the year stands acquired during the year, with there being nothing on record to exhibit acquisition of 500 shares earlier. (b) The assessee is liable to be assessed u/s. 56(2)(vii)(c) of the Act at Rs.337.50 lakhs, the fmv of 42000 shares in Manko acquired by him during the relevant year, less the cost shown to have been incurred on their acquisition, representing thus the differential between the two. (c) No short term capital gain would arise to the assessee on the sale of 42,000 shares during the year for Rs.337.50 lakhs in view of the same, the sale value agreed upon between the parties, at around the same time, in a transaction between unrelated parties, being, under the circumstances, also their deemed cost u/s.49(4). (d) Inasmuch as we have found the assessee’s unsecured loan account being used as a conduit for receipt of sale consideration, he shall, on account of double tax, be allowed a reduction of Rs.70.50 lakhs separately assessed u/s.69 of the Act, i.e., while assessing income u/s. 45 or, as the case may be, section 56(2)(vii)(c) of the Act; OR alternatively, no separate addition for rs. 70.50 lacs u/s. 69 is called for. (e) The assessee shall also explain the apparent difference of rs. 5 lacs in his loan account with Manko, which shall, where unexplained, deemed as income u/s. 69.However, if the said funds stand transferred during the year thereto, the assessee shall be entitled to like deduction as for rs. 70.50 lacs. [[ [[ 10.2 We may also clarify that we are conscious that we may be, in view of the manner in which we have decided the instant appeals, charged with having altered the issue under appeal and, thus, exceeded our purview. The charge is misconceived. Capital gain admittedly arises to the assessee on the shares purchased during the year, with the dispute revolving around the sale consideration received, which we have found, on the basis of the material on record; surrounding facts and circumstances; the explanations furnished, to be at Rs.803.57 per share, as claimed by the Revenue, as against Rs.119.05 by the assessee, both placing reliance on the same Agreement. The law in case of a differential deems the acquisition of property (shares) as itself Page 23 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT imbedded with the income in the form of property received at less than its fair market value. The shares, admittedly purchased during the current year, and sold on the same date or within a couple of months of their purchase, which itself is a long drawn process, the said sale consideration, representing an arm’s length transaction between unrelated parties, has been deemed as their fair market value on the date of purchase, attracting section 56(2)(vii)(c) of the Act. That is to say, the same income, rather than being assessed as capital gain, stands to be assessed as income from other sources. The same though obviates the need for sale (transfer), not in dispute in the instant case, which revolves around the quantum of sale consideration or, rather, its receipt. The mandate and the rule of law has in any case to be upheld, and this clarification is only toward non-grant of opportunity, which we would readily have, restoring the matter back for the purpose, as we have toward the cost incurred, finding no material on record to support the claim of having actually incurred the cost claimed, nor indeed any finding in its respect, having been in fact presumed at the sum claimed. That apart, the application of s. 56(2) rests on the same factual findings as qua STCG. As is well-settled, the Tribunal is to deal with and determine questions which arise out of the subject matter of appeal, in light of the evidences, and consistently with the justice of the case (CIT vs. Walchand & Co. Pvt. Ltd. [1967] 65 ITR 381). The subject matter of appeal, again, there is no gainsaying, flowing from the ratio afore-stated, is to broadly construed (CIT vs. Edward Keventer (Successor) Pvt. Ltd. [1980] 123 ITR 200 (Del))(refer para 2 of the order). There is no estoppel against law, and the proceedings under the Act are not in the nature of lis between the parties nor an assessment there-under a suit for adjudication of a civil dispute (Gadgil (S.S.) v. Lal &Co. [1964] 53 ITR 231 (SC)). It is, it is to be appreciated, the correct legal position that is relevant, and not the view that the parties may take of their rights in the matter (CIT v. C. Parakh & Co. (India) Ltd. [1956] 29 ITR 661 (SC);Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC)). In Kapurchand Shrimal vs. CIT [1981] 131 ITR 451 (SC), the Hon’ble Apex Court explained that an appellate authority has the jurisdiction as well as the duty to correct all errors in the Page 24 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT proceedings under appeal, and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh, unless forbidden by the statute from doing so. 10.3 We decide accordingly.

ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN Before Shri Sanjay Arora, Accountant Member and Shri Manomohan Das, Judicial Member (Assessment Year: 2014-15) K.P. Johny Asst. CIT, Manappuram House Circle – 2(1) Hospital Road, Chalakkudy Aayakar Bhavan vs. Thrissur 680307 Sakthan Thampuran Nagar [PAN:ACGPJ4958G] Thrissur 680001 (Appellant) (Respondent) (Assessment Year: 2014-15) Asst. CIT, K.P. Johny Circle – 2(1) Manappuram House Aayakar Bhavan Hospital Road, Chalakkudy vs. Sakthan Thampuran Nagar Thrissur 680307 Thrissur 680001 [PAN: ACGPJ4958G] (Appellant) (Respondent) CORRIGENDUM Per: Sanjay Arora, AM Order under section 254(1) of the Income Tax Act, 1961 (‘the Act’) in the captioned appeals was passed on 09.10.2023. It is, however, found that there have occurred certain typing errors and omissions in the said order, which are, therefore, sought to be rectified through this corrigendum order. The same being only correction of those errors, does not therefore per se cause any prejudice to either party. The details are as under: 1. Para 9.6 (at page 10): The words ‘first part’ in the sentence beginning with the words “Payment by the buyer of shares ......” be read as ‘first party’. Page 26 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT 2. Para 9.7(A)( at page 13):The words ‘firs part’ in clause (c) be read as ‘first part’.

3. Para 9.9 (at pg. 16): a). The following sentence be read after the sentence ending with the words ‘a third party (to the agreement)’: (at pg. 16) “It discharging the sale consideration thus, would only reflect the same as investment (in shares in Manko) in it’s accounts.” (b) A word ‘on’ be read before the word ‘facts’ in the sentence beginning with the words “The conduct, nowhere explained by either….” (at pg. 17) (c) The words ‘has implying’ and ‘fact’ in the sentence beginning with the words: “The ld. CIT(A) has in reading it……”, be read as ‘as implying’ and ‘manner’ respectively. (pg. 17) (d) A coma (,) be read after the word ‘accrual’ in the sentence beginning with the words “It also violates the legal principle......” (at pg. 17) 4. Para 10.1 (a) The symbol ‘(A)’ be read at the beginning of the first sub-para of the said para at page 19 of the order. b) The word ‘his’ be read before the word ‘investment’ in the sentence beginning with the words “A 50% partner......” (at pg. 21) (c) The word ‘as’ in the sentence beginning with the words “This explains the transfer of funds......” be omitted, and a coma (,) be read after the word ‘bizarre’. (d) Para 10.1 (B): The word ‘price’ before the word ‘differential’ in sub-para (b), be omitted. (at pg. 23) 5. Para 10.2: The word ‘arises’ in the sub-paragraph beginning with the words “As is well-settled, the Tribunal is......”, be read as ‘arise’. (at pg. 24) Sd/- Sd/- (Manomohan Das) (Sanjay Arora) Judicial Member Accountant Member Cochin, Dated: October 13, 2023 Copy to: 1. The Appellant 2. The Respondent By Order 3. The Pr. CIT concerned 4. The Sr. DR, ITAT, Cochin Assistant Registrar Page 27 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT 5. Guard File ITAT, Cochin ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN Before Shri Sanjay Arora, Accountant Member and Shri Manomohan Das, Judicial Member (Assessment Year: 2014-15) K.P. Johny Asst. CIT, Manappuram House Circle – 2(1) Hospital Road, Chalakkudy Aayakar Bhavan vs. Thrissur 680307 Sakthan Thampuran Nagar [PAN:ACGPJ4958G] Thrissur 680001 (Appellant) (Respondent) (Assessment Year: 2014-15) Asst. CIT, K.P. Johny Circle – 2(1) Manappuram House Aayakar Bhavan Hospital Road, Chalakkudy vs. Sakthan Thampuran Nagar Thrissur 680307 Thrissur 680001 [PAN: ACGPJ4958G] (Appellant) (Respondent)

Assessee by: Shri T.M. Sreedharan, Sr. Advocate (with Smt. Divya Ravindran, Adv. with him) Revenue by: Smt. J.M. Jamuna Devi, Sr. DR Date of Hearing: 13.07.2023 Date of Pronouncement:09.10.2023 O R D E R Per Sanjay Arora, AM These are cross Appeals by the Assessee and the Revenue, arising out of the Order dated 04.01.2019 by the Commissioner of Income Tax (Appeals), Thrissur ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT [CIT(A)], partly allowing the assessee’s appeal contesting his assessment under section 147 read with s. 143(3) of the Income Tax Act, 1961 (hereinafter "the Act") dated 14.12.2017 for Assessment Year (AY) 2014-15.

ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT 9.1 Our first observation in the matter is the difference in the number of shares sold. Though not altering the overall consideration, i.e., Rs.100 lakhs or, as the case may be, Rs.675 lakhs, the same shall have a direct bearing on the sale consideration per share, impacting the capital gain arising inasmuch as the cost of acquisition of each share would, in either case, be at Rs.100 per share, i.e., its par value/issue price. While the AO has taken the assessee’s shares (along with that of his wife) at 42,500 shares, the assessee per his submission before the ld. CIT(A), states them at 42,000. The same, surprisingly not mentioned in the sale agreement pursuant to which the shares have been sold, the paid-up share capital in the Balance-Sheet as on 31/3/2014 is at Rs. 84 lac, validating the assessee’s claim in its respect. This is again surprising as the AO clearly states the dates of acquisition of 42,000 shares, with the balance 500 stated as acquired in fy 2003-04 (425) and fy 2004-5 (75)(at pgs. 13, 14 of his order), and which would only be on the basis of the information provided by the assessee. Be that as it may, is it then that the assessee had no (or at best 500) shares prior to the current year; the first tranche of 14000 shares, ‘costing’ Rs. 14 lac (i.e., of 42,000 shares, on which STCG arises) having been allotted during the current year on being applied for only on 31/3/2013? This, as would be presently seen, is the first among the many intrigues that one comes across as he proceeds to unravel the simple task of price at which the shares have been sold per a formal document executed on 20/2/2014 between the buyers and sellers of shares, which, going by the Manko’s Balance-sheet, is thus clearly 84,000.The entirety of the assessee’s shares (42,000), thus, stand acquired by him only during the current year.

9.2 Coming to the aspect of sale consideration, the second determinant of the share price – the first being the number of shares, we reproduce the relevant part of the sale agreement dated 20.02.2014, as under: “AND WHEREAS First Party agreed to sell its entire shares in the company named MANKO NATURAL FLAVOURS & EXTRACTS PVT. LTD. in favour of the Second party company VIDYA HERBS Pvt. Ltd. for a total consideration of 6,75,00,000/- (Rupees six crore and seventyfive lakh only) and entered into an agreement with terms and conditions therefor. Thereafter the First party company Page 34 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT carried out its internal audit jointly with the Second party and as mutually agreed consideration has been paid to the First party as follows 1) Cheque # 435112 Dt 23/12/2013 =Rs. 50,00,000/- 2) Cheque #435113 Dt 23/12/2013 =Rs. 50,00,000/- 3) Cheque #974150 Dt 10/01/2014 = Rs. 100,00,000/- 4) Cheque #974149 Dt 03/02/2014 = Rs.75,00,000/- 5) Cheque # 594884 Dt 17/02/2014 = Rs.50,00,000/- 6) SBINH14049330795 = Rs. 3,03,86,682 Dt. 18/02/2014 7) SBINH14049328558 = Rs. 31,69,629 Dt. 18/02/2014 8) SBINH14049328538 = Rs. 14,43,689 Dt. 18/02/2014 Total: Rs 6,75,00,000/-” (emphasis, supplied)

The primary facts are undisputed, and for which, apart from the sale agreement, we may refer to the Manko’s reply dated 05.12.2016, reproduced at page 12 of the assessment order, reproducing it in its relevant part, as under: “With reference to the above we are herewith producing the following details:

1. 1. We had entered into an agreement with the erstwhile directors of Manko Natural Flavours & Extracts Ltd. consisting of Mr. K.P. Johny (1) & Mrs. Celine Johny(1) &other two to purchase the entire shares of the company Equity shares of 84,000--- (not clear) --- for a total consideration of Rs.6.75,00,000 (Rupees Six Crores & Seventy Five Lakhs Only). Copy of the agreement is enclosed herewith.

2. The number of shares purchased are as follows: a) From Mr. K.P. Johny (1) : 41,500 b) From Mrs. CelineJohny (1): 500” [(1) the names, K.O. Ittoop & Lizzy Ittoop appear in the letter on record, called for by the Bench in view of the letter extracted in the assessment order (pg. 12) being not clear; the assessee’s file was stated by the ld. Sr. DR as not available with the concerned AO for the time being, so that the corresponding letter of even date in the case of Sh. Ittoop, similarly called for by him from Manko, was produced by her](emphasis, supplied)

ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT The same is, thus, clearly, at Rs. 675 lacs. Further,the entire of it stands paid, firstly, prior to the execution of the share sale agreement and, two, by VHPL, the buyer,either to or for and on behalf of the first party, the sellers, as ought to be the case. There is in fact no dispute between the parties on any aspect of the transaction, executed, as apparent, after much deliberation, exercising due caution and diligence, in a carefully thought-out manner, over a period of time, envisaging a number of actions, including internal audit of Manko. The first payments, made equally to both the constituents of the first party, including the assessee, it may be noted, is made on 23/12/2013, so that the negotiations for and determination of the sale consideration and, thus, the share price, of which internal audit is an integral part, preceded it. 9.3 The share price for 84000 shares is, thus, Rs. 803.57 (Rs. 675 lac/0.84 lac) per share. What, then, one may ask, is the controversy about? Why, a mere mention of the number of shares – on which aspect there is no doubt, or the share price itself, in the Share Agreement (SA),would have had the effect of scotching or obliterating any such controversy, which arises, not, as one may expect, between the parties to the Agreement, but between the assessee and the Revenue. 9.4 The Controversy The basis of the assessee’s case, since accepted by the first appellate authority, is that only Rs. 100 lacs (out of Rs.675 lacs) found its way to the principal shareholders, Sh. Ittoop and the assessee, at Rs. 50 lacs each, and the balance Rs. 575 lacs paid by VHPL, the buyer, under the Agreement, to Manko, and which in turn utilized the same to discharge it’s secured and unsecured debt, being to bank (Rs. 350 lacs) and it’s said two Directors (at Rs.225.79 lacs). How could the same be then regarded as part of the share consideration? The Balance-Sheet (as on 31/3/2014) of Manko, and account of VHPL in it’s books, is pressed into service. That is, only Rs. 1 cr. has been received by the shareholders; the balance being to Manko for paying off its liabilities, proved by it’s books, extracted in the relevant part in the impugned order. As such, even as SA specifies the sale consideration at Rs. 675 lacs, it Page 36 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT delineates its payment, being Rs. 575 lacs to the company itself, which credits the same to VHPL, substituting thus the credit to bank and it’s erstwhile directors in its accounts. How could VHPL be the beneficiary of a sum paid by it as consideration? The same is only an investment by it, which is to be therefore excluded from the gross consideration? This sums-up the assessee’s case. Discussion 9.5 We may at this stage examine the SA which, having been acted upon and given effect to, is to be the final arbiter in the matter; there being no dispute between the parties in its respect. The clauses subsequent to the preface reproduced at para 9.2 above, state that on such transfer, VHPL shall become the absolute owner of all assets, movable and immovable, of Manko; that it has been put in possession of all the assets; that all statutory liabilities up to 28.02.2014, as indeed to it’s employees, have been discharged, or would in any case be the liability of the first party. It is thus plain that the company (Manko) has been acquired by VHPL, with all its assets, tangible and intangible, as on 28.02.2014, for a consideration of Rs.675 lakhs, by acquiring all the shares therein. The AO has on that basis adopted the sale consideration of the share-holding in Manko at Rs.675 lakhs inasmuch as there is thus no question of capital gains being not reckoned with reference to the said amount. The transfer date, strangely unspecified in the SA, is understandably 28.02.2014, even as apparently (Cl.1), the shares stand transferred prior thereto, presumably on receipt of the entire consideration, where-upon the share agreement has been executed, reducing what has, or is to transpire, in writing. The AO records it as ‘17/2/2014’, on which date the last of the purchases (being at 6000 shares)is made by the assessee, i.e., from Sh. Ittoop, the other co-promoter and Director. The sellers having sold the shares at a value reckoned on the basis of the assets of the company being free of any charge, have directed the buyers to pay, for and on their behalf, the bank directly in liquidation of the company’s secured debt. Why, it may well be an understanding that either the sellers shall, prior to the sale, pay off the ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT said debt or, in the alternative, VHPL shall retain a part of the consideration to pay off the same, i.e., utilize a part of the consideration toward the same, and which explains the transfer of funds to Manko’s bank loan/advance accounts in the same sum in which they outstand as on the date of their discharge as reflected in it’s accounts. The amount having been credited to VHPL itself, retaining thus it’s ownership therein, cannot be regarded as part of the consideration discharged by it, so that the same is to be reduced in reckoning the actual consideration. This explains the respective cases. 9.6 The matter warrants, and was accordingly, examined by us in detail. The assessee’s case, seemingly appealing, is seriously flawed, both on facts and in law. Income by way of capital gain arises on transfer of a capital asset, chargeable to tax u/s. 45 of the Act, i.e., on accrual, on which there is no doubt in the instant case. That is, the law deems that payment shall follow, or stands already received, as in fact is in the instant case, and there is under the Act no concept of bad debt in computing capital gains. A transfer may get aborted, in which case there would be no transfer, a precondition for accrual of capital gain. What value, then, i.e., in law, the non-receipt or the short receipt of the sale consideration? There is in fact no short receipt, i.e., vis-à-vis the stated consideration of rs. 675 lacs, even on facts. The Agreement clearly provides that the entire payment arising there-under is to be, and indeed is being paid, to the party of the first part, the sellers, defined to include their assigns, nominees, etc., i.e., to it’s account. What has admittedly been sold to VHPL, the buyer, is 84,000 shares in Manko, at a stated consideration of Rs.6.75 cr., which sum thus arises to the shareholders and, in fact, paid only to them per the share agreement dated 20.2.2014. This is further endorsed by Manko vide it’s letter dated 05.12.2016. This should therefore be the end of the matter, irrespective of the destination of the said consideration. Payment by the buyer of shares, to the extent not directly thereto, is,in terms of the Agreement itself, which provides for the payment only to the first part, the sellers, and none else, is thus only for on behalf of the sellers. That being so, ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT would it matter to whom the ‘indirect’ payment is in fact made? The law is not concerned with the application or the utilization of income; the charge to tax arising on its accrual, on which aspect there is no doubt, with the buyer having in fact paid the entire sum. It has not been explained at any stage as to how the payment of sale consideration in respect of shares therein arises to Manko? Which would ordinarily only be against issue of shares by it. It would be a different matter though where the payment by VHPL is credited by the payee-company to the account of the sellers; being only a variant of the direct payment, made, instead to the beneficiary’s bank, to his account with a third party. Manko also cannot also be regarded as a nominee or assignee of the sellers inasmuch receipt is not credited by it to it’s own reserves. The legal relationship and status arising out of SA only is to be had regard of (CIT v. B.M. Kharwar [1969] 72ITR603 (SC)).The accounting entries in Manko, crediting VHPL instead of the seller-shareholders, are without any legal or contractual basis. It is not a case of, or could be regarded as one of sale, in lumpsum, of it’s assets by the company, i.e., Manko, in which case the capital gain would arise thereto. It is undisputedly a case of sale of shares therein, and the underlying assetscontinue to be owned, both before and after 20/2/2014, the date of SA, by Manko.In fact, even in such a case, it is the cost of acquisition of the relevant assets, and not the outstanding secured debt there-against, that would stand to be deducted, adopting, in case of a depreciable asset, it’s WDV. When it is therefore stated therein that VHPL would thus become the absolute owner of it’s assets, the same is to be understood as stated in a loose manner; the acquisition of the entire share-holding in Manko, a private company, giving it complete control over and a de facto ownership it’s business and assets. In fact, it is only considering the control afore-said that the prospect of liquidation of secured debt, with a view to have a clear title thereto, which a buyer (of the relevant asset) may want, was considered by us, to though no consequence. In other words, the transaction, whichever way one may look at it, remains inexplicable. Continuing further, how could, one may ask, the manner of discharge of the sale consideration determine the said consideration? There is no stipulation, as Page 39 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT for payment of statutory liabilities, for payment of secured (or unsecured) debt, in the SA. The same is thus not a condition of the Agreement. Reading such a condition, which does not in fact exist, is only doing violence to its express terms. The same is in fact not required as all that the buyer needs to, in such a case do, is to reduce the sale consideration to that extent. Share valuation, it is to be appreciated, represents the unitized net worth of the company, implying reduction of all existing and known liabilities from it’s assets. That is, the liabilities, including to bank, stand already reduced in arriving at the sale consideration, implying retention of funds – to the extent of the admitted liabilities of Manko as on the transfer date. The liquidation of loan liabilities of Manko by VHPL, could thus be regarded as on it’s own violation, and of no consequence per seas regards share valuation. Yes, it has its qualitative advantages, viz. ensuring – as a matter of caution, that the same stand correctly stated in accounts – nothing more and, nothing less, as indeed one discerns the purpose of the internal audit to be, report of which or its findings have not been brought on record even as, as apparent, the same preceded the share transfer agreement, and was instituted with the sole purpose of arriving at the correct share valuation. The same, forming part of the due diligence exercise, is a very relevant document for the purpose and, understandably, the valuation of the assets and liabilities of the investee company, ascertaining its net worth (as on a cut-off date).The stipulation of payment of other liabilities by 28/2/2014 serves another purpose. Both the current assets and liabilitiesget, without impacting the net worth, extinguished on payment and, thus, proved to that extent, also obviating the need for their valuation (including the aspect of realizability, as in the case of trade debtors), which they otherwise must. In fact, the buyer being in the same business, has, as apparent, a clear understanding of its potential, and the manner of deployment of the assets, tangible and intangible, for it’s purposes, which also explains it’s stipulation of Manko being completely employee- free, a condition which a share purchaser cannot normally put, indicating clearly of it being accompanied by, and a case of, change in management. No wonder, then, that the net worth of the company, at Rs. 154.68 lacs as on 31/3/2013, the beginning of the Page 40 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT current year, fell to (-) Rs. 4.71 lacs as on 31/3/2014, its end, suggesting a massive write-off of assets and/or booking of all known liabilities, including to employees on termination of their services. Statutory liabilities cannot be transferred by agreement, much less one for share transfer and, in any case, continue to be of Manko. The said liabilities have accordingly been determined and provided for, clearly with a view to eschew any liability arising later on that count. That is, the transfer is based on audited financials, approved by the Board of, firstly, Manko, followed by that of the buyer-company, arising out a common exercise carried out. This also explains the non-mention of any of the fixed assets, except generically, in the Agreement, i.e., other that lease-hold rights in 40.47 acres of land, clearly, a prime asset.

9.7 (A) The purport of the foregoing is to emphasize that the takeover of Manko has been, and only expectedly, a very elaborate and carefully planned affair, carried out in a series of steps over a period of time. This would also place in perspective the following disquieting facts noticed, which cannot but be regarded as deliberate: - (a) The SA, a carefully planned document, makes no mention in the respect of the following details of the property being agreed to be transferred thereby, i.e., the shares in Manko: - the number of shares - the share price - the date of transfer (b) Non-reference to the internal audit report or its findings, vital for share valuation; (c) Complete silence and non-explanation as to how and why payment of sale consideration, being, in clear terms of SA to the party of the firs part, the seller, stands made to Manko, the company for purchase of shares in whom the payment was being made; (d) Complete silence and non-explanation as to how the payment of sale consideration by VHPL, the buyer, though without doubt to the party of the first part, is credited, rather than to the two principal shareholders, to the payer-buyer itself, which thus becomes beneficiary of the sum paid by it! ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT (e) There is no mention of the assets and liabilities of Manko in the SA, which are in fact being acquired through purchase of shares therein. This emphasizes once again the absence of the internal audit report, which would inferably, on one hand, appraise the operations and, on the other, evaluate the assets and liabilities. That apart, there is no reference therein to the current assets and liabilities (or the net current assets). This is relevant as the same, stated at realizable values, sale consideration to that extent can safely be attributed thereto. That is, the sale consideration cannot be fixed without reference thereto, level of which in a running concern keeps changing from day to day, even as the same can be fixed qua fixed assets, which, being retained, get freezed at the value placed thereon. B. Juxtapose the foregoing with the following surrounding facts and circumstances of the case: (a) The assessee, despite being an equal (50%) stakeholder in Manko,has an almost nil investment therein upto 31.03.2013, on which date share application (pending allotment as on that date) for 14,000 shares (for Rs. 14 lakhs) is made.This is clearly a part of the process of sale of Manko, which thus commences in March, 2013. (b) The assessee, despite not having any disclosed source of funds explaining the same, yet ‘transfers’ ‘funds’, commencing 31.03.2013, to 17.02.2014, at Rs.112.50 lakhs in the company, being at Rs. 42 lakhs and Rs.70.50 lakhs by way of share capital and unsecured loans respectively; the former including rs. 28 lacs by way of secondary purchase of shares. (c) The company’s net worth of Rs.140.68 lakhs (Rs. 154.68 lacs, including share application money of Rs. 14 lacs) as on 31.03.2013, includes fixed assets at Rs.334.71 lakhs (at book-value), comprising, besides others, lease-hold rights in 40.47ares of land; factory building; plant and machineries; intangibles, i.e., a substantial fixed asset inventory. (d) Consideration against the assessee’s entire share-holdingin Manko (i.e., 42,000) is stated as received, at Rs.50 lakhs, on 23.12.2013, even as the shareholding therein, as on that date, is at 36,000 shares! In fact it is doubtful thatthe shares were transferred as on 23.12.2013 inasmuch as the ‘condition’ of discharge of liabilities, for which the time provided (to the first party) per the SA, i.e., up to 28.02.2014, had not expired. The internal audit and other bank formalities; the erstwhile Directors could well be the guarantors, which (guarantee) could be released only on discharge of the bank liability, may not have been completed by then. (e) Further, while Rs.57.62 lakhs stood advanced to the company on 31.03.2013, another Rs.70.50 lakhs were transferred during the year, continuing up to 04.01.2014. That is, while he infuses loan in the company in which the shareholding is being Page 42 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT acquired to be sold soon after and, in fact, Rs.50 lakhs received in December, 2013 itself (as against investment of Rs.42 lakhs), only to start receiving it back on 07.02.2014 onwards, and in full by 26.02.2014;[[[[ C. Clearly, there is much more at work than meets the eye. We highlight the following inexplicable conduct of the assessee which, while at one hand, makes his case different from that of Shri Ittoop, also clearly suggests the two acting in cahoots: (a) There is a frantic pumping in of money by the assessee in Manko, which is subject to acquisition. Why? Nobody would give loan only to receive it back some time later, unless of course it serves a purpose. What is that? This is particularly considering that the same shall not increase the net worth (of the investee-company) at all and, besides, equally importantly, the assessee has no explained money for investment. Needless to add, no business purpose of the same has been stated, which may though be rendered superfluous if no there was no actual transfer of funds. (b) Likewise for the share capital. The entire shareholding of 42,000 shares, which is the subject matter of sale, stands acquired by the assessee during the year, and at par. Why would any person risk his capital, which is itself under transfer? Why would another (i.e., Shri Ittoop) transfer his investment of several years, just prior to its sale, and at par? That is, why would one, while selling his shares at over Rs. 800 per share, sell them the same to another, at Rs. 100 per share? (c) How is that the assessee receives (on 23.12.2013) the entire share consideration for 42,000 shares, i.e., even prior to their acquisition, which goes right up to 17.02.2014?Though, in view of the time of their purchase, applicable to the entire purchase,the last tranche of 6000 shares, value of which gets decided prior to 23.12.2013, are thus purchased/acquired by the assessee-seller on 17.02.2014, i.e., the day of their sale, and at a profit of 700% of cost; 9.8 Reference, at this stage is drawn to section 56(2)(vii) of the Act, which reads as under in its relevant part: - “56. (1) Income of every kind which is not to be excluded from …………. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely:— …………………………… (vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009 but before the 1st day of April, 2017,— ……………………………. Page 43 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT (c) any property, other than immovable property,— (ii) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration:” The same brings the difference between the transfer consideration of a property, moveable or immovable, i.e., with reference to its fair market value (FMV) as on the date of transfer, as income from other sources of the recipient of the property. The provision, on the statute for long, has since 01.04.2014, i.e., AY 2014-15 onwards, been extended in scope qua movable property to include transfers at lower than the fair market value, as against at nil earlier. We have found the sale consideration of the entire share capital in Manko as at Rs.675 lakhs, i.e., at Rs.803.57 per share. The stated cost thereof, either on its purchase (from another shareholder) or on allotment (by the company), is stated at Rs.100 per share. The purchase being proximate in time to the sale of shares, being with reference to a transaction between two unrelated parties, i.e., an arm’s length transaction, the same can safely be regarded as its fair market value. Accordingly, the difference of Rs.703.57 per share would stand to be taxed as income from other sources u/s. 56(2)(vii)(c).

9.9 Findings There is, as afore-noted, no stipulation in the SA for the discharge of loan liabilities by the sellers. It is only where so, and monies accordingly brought in by them by way of share capital, that would increase the net worth of the company to that extent. Per contra, such a condition, presumed by the ld. CIT(A), would, where met by the buyer, be equivalent to reduction of the sale consideration to Rs. 325 lacs, i.e., by Rs. 350 lacs of bank liability, and not, again, to Rs. 100 lacs. This is as only in such a case that it can be said that the VHPL discharged the sellers’ liability to that extent, justifying the corresponding credit thereto by Manko. The credit in the books ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT of Manko to the account of VHPL has no basis in the SA. There is also, we note, no reference to the accounts of VHPL, the buyer, or any statement by it, but of Manko, a third party (to the agreement).Could it (VHPL) possibly say, that it has, in discharge of the sale consideration as a buyer, paid the seller by paying itself? Could, again, it be said that the sellers’ assigned the consideration to the buyer? This is precisely what the ld. CIT(A), in effect, holds. That apart, could, one may ask, such be the intention of the parties which, as afore-stated, could be easily expressed, as all that was necessary in case the share consideration was indeed Rs.100 lakhs, was to specify the said amount in the SA dated 20.02.2014. Nothing more and, nothing less, aborting the controversy, which impels one to regard it as contrived. These liabilities, regarded as material by the ld. CIT(A) in determining the share price, stand reckoned in determining the net worth and, thus sale consideration, being unitized net worth. That is, the payment of liability is an irrelevant fact. True, it is the intent of the parties that is to be deciphered, but the same cannot be against its explicit and unambiguously worded terms. Why, Manko itself clarifies both, the number of shares and total consideration, per it’s letter dated 05.12.2016, confirming thus the contents of the SA, which stands acted upon and given effect to by the parties, and on its terms. Sure, subsequent conduct is relevant. But it is the assessee who is to explain the same, more so when it becomes un- understandable, going against the grain, the very essence of the transaction itself. The conduct, nowhere explained by either the assessee or Manko – who rather confirms the two determinants of share price, i.e., their number and consideration, is inexplicable, both in principle and facts. The Agreement, it may be appreciated, cannot be read either as an impossibility or, again, against its express terms. When, therefore, it says the sale consideration is at Rs.675 lakhs, it only means that. Again, it is clearly stated that the entire payment of Rs. 675 lacs, detailed therein, is to the party of first part, the seller. The settled principle of interpretation is that adverse inferences shall follow non-furnishing of the relevant evidence (Union of India v. Rai Deb Singh Bist [1973] 88 ITR 200 (SC)). The ld. CIT(A) has in reading it has Page 45 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT implying a sale consideration of Rs.100 lakhs, i.e., at a near par value of Rs.119 per share, has, as afore-noted, been guided by the fact of discharge of the sale consideration, making it a self-defeating exercise. It also violates the legal principle that the taxability of income under Act arises on its accrual and not on the basis of its destination. We have already explained that capital gain, chargeable u/s. 5 r/w s. 45 of the Act, is on the basis of accrual. No interpretation contrary to the statutory provisions can hold. We have already noted the meticulous effort and planning that has gone into the entire exercise, even as the conduct relied upon in support of the argument defeats the agreement, which is to be, and has been in fact, given effect to. The interpretation accorded tantamount to stating that the sale consideration has been wrongly mentioned in the agreement, qua which there is no contention. Two, that agreement envisages a payment of Rs.575 lakhs by the buyer, VHPL, to itself. What the assessee, in fact, wants us to believe is that it (along with Sh. Ittoop) paid Rs. 350 lacs – inasmuch as the same is to their account, to be able to get Rs. 100 lacs, implying a net worth of (-) Rs. 250 lacs, i.e., much lower than its book-value as on 31/3/2014! These interpretations, which are in fact ludicrous, cannot be accepted. VHPL, on purchase, becomes the sole shareholder in Manko, and could always, as it indeed does, transfer sums to Manko either for investment therein, or for paying off it’s liabilities. Nothing, therefore, turns thereon. Why, on take-over, it becomes it’s de facto liability, so that there is every reason for it to pay off the same. Even otherwise, it could, where so required for any reason, have been paid by VHPL, and without in any manner impacting the sale consideration, being only a substitution of one creditor by another.The reading of the same as being toward discharge of the obligation for payment of the loan liabilities on the sellers is presumptuous. Both the share valuation and the sale consideration as per the SA are, without doubt, at Rs. 803.57 per share. There is, further, no doubt on the transfer of shares and the accrual of the consideration thereon, and on which rests the charge to tax on capital gain. The manner of discharge of consideration, otherwise irrelevant, has nowhere been explained. In fact, just as in the case of the bank OD account, the Page 46 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT unsecured loan account in Manko has been used as the conduit for transfer of unaccounted money, which is not surprising considering that it is the funds routed through the OD account that get parked in the company as ‘unsecured loan’, so that the same could be “withdrawn” immediately thereafter (refer paras 4,5 of this order). This, once again, emphasizes the need for the internal audit report, of which there is no whisper at any stage. In fact, in view of the amended law, whereby income arises on the purchase of shares, the transfer thereof itself becomes irrelevant. We, accordingly, delineate our specific findings, as under: (a) The assessee’s shareholding in Manko prior to their transfer to VHPL is 42,000 shares, allotted and purchased during the year at 14,000 and 28,000 respectively, representing 50% of the paid-up share capital in the said company, sold in its entirety to VHPL vide sale agreement dated 20.02.2014, which has to be given effect to. (b) The sale consideration arising on the said transfer is Rs.6.75 crores (i.e., @ Rs.803.57 per share), consequent to its determination per an internal audit of it’s accounts and operations instituted by the buyers and sellers of the shares. Of this, 50%, i.e., Rs.337.50 lakhs, is to the account of the assessee. (c) The allotment to/purchase of shares by the assessee at Rs.100/- per share, i.e., the same rate at which the existing shareholders (holding 100% of the then paid-up capital) had acquired it, i.e., Rs.100 per share, is thus at Rs.703.57 per share below its fair value, i.e., the value determined on an assessment of the net worth of the company. There is, we find, no dispute qua share valuation; there being rather a deliberate attempt not to disclose the underlying assets of the company or the internal audit report that preceded the agreement, and the only issue raised, without reference to VHPL, the buyer, is the sale consideration arising on the transfer of shares. (d) The receipt by way of allotment and purchase of shares is itself receipt of income to the extent of the excess value thereof over their acquisition cost, under section 2(24)(xv) of the Act. (e) There is no ‘short payment’ of sale consideration to the assessee, claimed at Rs.287.50 lakhs. The same is even otherwise inconsequential, both on facts and in law. (f) Channelling of receipt through his unsecured loan in the company is a plot to avoid tax. Further, the same, as it appears on the basis of the material on record, unbalanced. As against an opening balance of rs. 57.62 lacs, and additions for rs. 70.50 lacs during the year, the closing balance, which stands paid in full, neutralizing it, is rs. 133.11 lacs, leaving thus a difference of rs. 5 lacs. Page 47 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT 10. In Sum 10.1 The share sale agreement (SA), preceded by due diligence, read as a whole, and holistically, as it ought to, in contradistinction with one part of it being in conflict with the other, is found as having been given effect to, on its, explicitly stated and clearly worded, terms, by the parties. There is no dispute between them on either of the two determinants of share price, i.e., number of shares and the total consideration, as indeed as by whom and to whom the same is to paid, i.e., the buyer and the seller respectively and, accordingly, has been adopted as such. The issue arising having both factual and legal aspects, stands considered in entirety. The controversy raised is found as not qua share valuation (see para 9.3), nor even qua sale consideration, but that paid by and, accordingly, received by, the parties to the Agreement; the manner of its discharge raising doubt as to if it had actually been (to the extent of Rs. 575 lacs) and, by implication, of the stated consideration being not the actual consideration. The conduct, not explained, is found as full of intrigue, and the controversy arising as contrived and avoidable. A significant component of the assessee’s argument is the repayment of secured and unsecured loans by Manko, i.e., out of the amounts received from VHPL. The same is de hors the SA, and the ld. CIT(A) has misled himself into reading such a condition therein. The accounts of Manko, pressed into service, are seriously wanting in explanation. The interpretation placed thereon, i.e., credit to VHPL, in reducing sale consideration, is without any legal or contractual basis. Rather, in this case the money flows back to the assessee ostensibly against unsecured loans. And which also explains the frantic raising of the assessee’s unsecured loan, even through unaccounted money, in the company prior to the receipt of the consideration. The company’s account is, in the same manner as the bank OD account (refer paras 4,5 of this order), used by the assessee as conduit. Further, even as there is no doubt on the accrual of income in the instant case, which, on transfer, is chargeable to tax under section 2(24)(vi) r/w s. 45 of the Act, ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT the transfer itself is rendered redundant as income arises to the assessee on receipt of shares in Manko during the year, at 42,000, allotted and purchase at 14,000 and 28,000 respectively, on which there is no dispute, which concerns the sum at which the same stand sold. The shares being sold during the same year, their value, at Rs.803.57 per share, represents an arm’s length transaction between unrelated parties, is thus a fair estimate of the FMV thereof. The difference between the cost incurred, claimed at Rs.100 per share, i.e., Rs.42 lacs, which though would have to be explained and proved as to its source, and the FMV, is chargeable to tax as income from other sources u/s. 2(24)(xv) r/w s. 56(2)(vii)(c) of the Act. This FMV would be the deemed cost of shares u/s.49(4) of the Act on their subsequent sale, resulting thus in nil short-term capital gain. That is, the SA becomes a reference point. The pumping-in of money by the assessee in Manko, and even as he has no explained source thereof, becomes understandable in the light of the subsequent developments. A 50% partner & co-promoter in the Manko since inception, as admitted vide statement u/s.131(1) of the Act, investment therein is at a fraction of the other, equal partner, at least on record. It therefore became necessary to raise it to the required level in view of the proposed sale of the company. How could he sell his 50% shareholding therein, working to 42,000 shares, when the same is at best at 500? The increase in unsecured loans is not shown to be guided by any business purpose, with the company being on sale and, besides, he having no disclosed source of income to exhibit the investment or the transfer of funds, was increased so as to match the sum that would finally be required to be withdrawn from the company, attracting thus no tax. This explains the transfer of funds at Rs.70.50 lakhs (or is it rs. 75.50 lacs) during the year, as well as their timing, to which our attention was drawn by Smt. Devi, the ld. Sr. DR, stating it to be quixotic and as wholly inconsistent; rather, bizarre in view of the surrounding developments; the assessee in fact exiting the said company by selling his stake therein. Why, he even does not have money to purchase the property – which we find him to be regularly purchasing, on 17.01.2014, explaining it from the funds received against share sale on 23.12.2013. That is, he is Page 49 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT unable to undertake his own, regular trade, which gets financed out of the sale of his stake in Manko, the application of which ought to have been inquired by the ld. CIT(A) before accepting the assessee’s claim. In fact, the receipt of the entire sale consideration of Rs.50 lakhs, i.e., as claimed, on 23.12.2013, itself defies logic as even the purchase of shares by the assessee, which continues up to 17.02.2014, is not complete by then. The receipt of the entire consideration for property without the same being in the assessee’s ownership, is without basis in facts. This also underlines the need for, and the inexplicable omission – which we find as deliberate, in not recording the number of shares and their ownership in the SA, as also explains our stating of the entire exercise as being a very planned and carefully though-out affair. So, however, the sum of Rs.70.50 lakhs having been already brought to tax as unexplained bank deposit, the assessee shall be allowed deduction in computing his income qua shares. Though, true, the subsequent sale of shares is not a concomitant of the income u/s. 56 of the Act, arising on the purchase of shares, the fact of the matter is that the money has been siphoned off through the unsecured loan, which forms a part of the consideration of Rs. 675 lakhs, in which the assessee’s share, therefore, is Rs.337.50 lacs. Though therefore the subsequent sale of shares could be safely ignored, i.e., is to no effect as regards income u/s. 56 of the Act, as indeed the receipt of sale consideration for income u/s. 45, arising on accrual, the reduction is necessitated with a view to avoid tax on the sale value of shares. Income, assessable under the Act u/s. 56, at Rs.337.50 lakhs, less the amount found actually invested on the shares allotted/purchased, would require being further reduced, so as to avoid double tax, by Rs.70.50 lakhs. This in fact would also have been case where, instead of s. 56(2)(vii)(c) of the Act, which in the form applied comes into effect only from AY 2014-15, the current year, is chargeable u/s. 45 of the Act. The other equally valid alternative is to, in view of our finding of the account being a conduit to facilitate receipt of sale consideration without tax, and no real sums invested, delete the addition of Rs.70.50 lakhs, confirmed by us in the assessee’s appeal (vide para 5 of the order). The two disparate additions are linked in Page 50 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT view of the conspectus of the case and the flow of the same funds, though leading to invocation of separate sections under the Act, once again emphasizing that the Act is to be read as a whole and, further, both the assessee’s and the Revenue’s appeals are to be, as in the instant case, decided together.

B. Decision (a) No long term capital gain arises to the assessee inasmuch as the entire shareholding of 42,000 shares sold during the year stands acquired during the year, with there being nothing on record to exhibit acquisition of 500 shares earlier. (b) The assessee is liable to be assessed u/s. 56(2)(vii)(c) of the Act at Rs.337.50 lakhs, the fmv of 42000 shares in Manko acquired by him during the relevant year, less the cost shown to have been incurred on their acquisition, representing thus the price differential between the two. (c) No short term capital gain would arise to the assessee on the sale of 42,000 shares during the year for Rs.337.50 lakhs in view of the same, the sale value agreed upon between the parties, at around the same time, in a transaction between unrelated parties, being, under the circumstances, also their deemed cost u/s.49(4). (d) Inasmuch as we have found the assessee’s unsecured loan account being used as a conduit for receipt of sale consideration, he shall, on account of double tax, be allowed a reduction of Rs.70.50 lakhs separately assessed u/s.69 of the Act, i.e., while assessing income u/s. 45 or, as the case may be, section 56(2)(vii)(c) of the Act;OR alternatively, no separate addition for rs. 70.50 lacs u/s. 69 is called for. (e) The assessee shall also explain the apparent difference of rs. 5 lacs in his loan account with Manko, which shall, where unexplained, deemed as income u/s. 69.However, if the said funds stand transferred during the year thereto, the assessee shall be entitled to like deduction as for rs. 70.50 lacs. [[ [[ 10.2 We may also clarify that we are conscious that we may be, in view of the manner in which we have decided the instant appeals, charged with having altered the issue under appeal and, thus, exceeded our purview. The charge is misconceived. Capital gain admittedly arises to the assessee on the shares purchased during the year, with the dispute revolving around the sale consideration received, which we have found, on the basis of the material on record; surrounding facts and circumstances; the explanations furnished, to be at Rs.803.57 per share, as claimed by the Revenue, Page 51 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT as against Rs.119.05 by the assessee, both placing reliance on the same Agreement. The law in case of a differential deems the acquisition of property (shares) as itself imbedded with the income in the form of property received at less than its fair market value. The shares, admittedly purchased during the current year, and sold on the same date or within a couple of months of their purchase, which itself is a long drawn process, the said sale consideration, representing an arm’s length transaction between unrelated parties, has been deemed as their fair market value on the date of purchase, attracting section 56(2)(vii)(c) of the Act. That is to say, the same income, rather than being assessed as capital gain, stands to be assessed as income from other sources. The same though obviates the need for sale (transfer), not in dispute in the instant case, which revolves around the quantum of sale consideration or, rather, its receipt. The mandate and the rule of law has in any case to be upheld, and this clarification is only toward non-grant of opportunity, which we would readily have, restoring the matter back for the purpose, as we have toward the cost incurred, finding no material on record to support the claim of having actually incurred the cost claimed, nor indeed any finding in its respect, having been in fact presumed at the sum claimed. That apart, the application of s. 56(2) rests on the same factual findings as qua STCG. As is well-settled, the Tribunal is to deal with and determine questions which arises out of the subject matter of appeal, in light of the evidences, and consistently with the justice of the case (CIT vs. Walchand & Co. Pvt. Ltd. [1967] 65 ITR 381). The subject matter of appeal, again, there is no gainsaying, flowing from the ratio afore-stated, is to broadly construed (CIT vs. Edward Keventer (Successor) Pvt. Ltd. [1980] 123 ITR 200 (Del))(refer para 2 of the order). There is no estoppel against law, and the proceedings under the Act are not in the nature of lis between the parties nor an assessment there-under a suit for adjudication of a civil dispute (Gadgil (S.S.) v. Lal &Co. [1964] 53 ITR 231 (SC)). It is, it is to be appreciated, the correct legal position that is relevant, and not the view that the parties may take of their rights in the matter (CIT v. C. Parakh & Co. (India) Ltd. [1956] 29 ITR 661 (SC);Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC)). In Kapurchand Shrimal vs. CIT Page 52 ITANos. 206 & 254/Coch/2019 (AY: 2014-15) K.P. Johny vs. Asst. CIT [1981] 131 ITR 451 (SC), the Hon’ble Apex Court explained that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal, and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh, unless forbidden by the statute from doing so. 10.3 We decide accordingly.