Smt. D.Lakshmi, Hyderabad v. DCIT, Hyderabad

ITA 343/HYD/2010 | 2006-2007
Pronouncement Date: 26-05-2010 | Result: Allowed

Appeal Details

RSA Number 34322514 RSA 2010
Bench Hyderabad
Appeal Number ITA 343/HYD/2010
Duration Of Justice 2 month(s) 24 day(s)
Appellant Smt. D.Lakshmi, Hyderabad
Respondent DCIT, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 26-05-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 26-05-2010
Date Of Final Hearing 27-04-2010
Next Hearing Date 27-04-2010
Assessment Year 2006-2007
Appeal Filed On 04-03-2010
Judgment Text
ITA 341 AND 5 OTHERS V.SIVA PRASAD & OTHERS. 1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B HYDERABAD BEFORE SHRI G.C. GUPTA VICE PRESIDENT AND SHRI AKBER BASHA ACCOUNTANT MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 341/HYD/10 2006-07 SHRI V. KRISHNAIAH HYD. DCIT CIR- 16(2) HYDERABAD. 342/HYD/10 2006-07 SHRI V. SIVA PRASAD HYD. -DO- 343/HYD/10 -DO- SMT. D. LAKSHMI HYD. DCIT CIR- 16(2) HYDERABAD. 344/HYD/10 -DO- SMT. V. KUMUDA HYDERABAD. -DO- 345/HYD/10 -DO- SMT. P. SUDHA LATHA HYDERABAD. -DO- 346/HYD/10 -DO- SHRI P. BALA MURALI KRISHNA HYD. -DO- APPELLANTS BY : MOHD. AFZAL RESPONDENT BY : SMT. VASUNDHRA SINHA O R D E R PER AKBER BASHA ACCOUNTANT MEMBER: THESE APPEALS FILED BY DIFFERENT ASSESSEES ARE DIRECTED AGAINST SEPARATE ORDERS OF THE CIT (A)-V HYDERABAD DA TED 18-2-2010 ALL PERTAINING TO THE ASSESSMENT YEAR 2006-07. SINCE COMM ON ISSUES ARE INVOLVED IN ALL THESE APPEALS THESE ARE TAKEN UP TOGETHER AND DISPOSED OFF BY THIS COMBINED ORDER FOR THE SAKE OF CONV ENIENCE. ITA 341 AND 5 OTHERS V.SIVA PRASAD & OTHERS. 2 2. COMMON EFFECTIVE GROUNDS RAISED BY THE ASSESSEES READ AS FOLLOWS. FOR THE SAKE OF BREVITY WE EXTRACT HEREUND ER GROUNDS FROM ITA NO.341/HYD/10- SRI.V. SIVA PRASAD HYDERABAD. 1. THE ORDER OF THE LEARNED CIT (A)-V HYDERABAD IS AGAINST THE LAW WEIGHT OF EVIDENCE AND PROBABILITIES OF THE CASE. 2. THE CIT (A) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER WHEREIN THE ASSESSING OFFICER HAS ADOPTED RS.82.875 PER SHARE IN RESPECT OF SHARES TRANSFERRED TO MATRIX SEA FOODS (P) LTD. WHEREAS THE SHARES WERE TRANSFERRED AT FACE VALUE OF RS.10 PER SHARE AND IN TUR N THE COMPANY ALLOTTED EQUAL NUMBER OF SHARES TO THE ASSESSEE OF SAME VALUE AND SAME NUMBER. 3. THE LEARNED CIT (A) ERRED IN NOT APPRECIATING THE FACT THAT THE SHARES WERE TRANSFERRED AT RS.10 TO MATRIX SEA FOOD S (P) LTD. TO FULFILL ONE OF THE CONDITIONS OF THE AGRE EMENT ENTERED BY THE ASSESSEE WITH CARGILL INDIA PVT. LIMITE D TO WHOM SHARES WERE SOLD BY THE ASSESSEE AT RS.82.875. THE CONDITION WAS TO CONSOLIDATE THE NUMBER OF SHARE HOLDERS TO 2 (TWO) ONLY THEREFORE 49% OF SHARE HOLDING WAS TRANSFERRED TO A NEW ENTITY SO AS TO FACILITATE THE TRA NSFER OF 51% SHARE HOLDING TO CARGILL INDIA PVT. LIMITED A T THE RATE OF 82.875. 4. THE LEARNED CIT (A) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER WHEREIN THE ASSESSING OFFICER HAS ADOPTED THE VALUE OF THE SHARE AT RS.82.875 AS AGAINST THE ACTU AL RATE OF TRANSFER AT RS.10 IN THE ABSENCE OF ANY PROVISIO N IN THE IT ACT TO ADOPT THE MARKET VALUE IN PLACE OF ACTU AL ITA 341 AND 5 OTHERS V.SIVA PRASAD & OTHERS. 3 VALUE OF RS.10/- WHICH IS THE FULL VALUE OF THE CONSIDERATION RECEIVED. 5. IN THE ABSENCE OF ANY THING FOUND CONTRARY TO THE SH ARE TRANSACTIONS WITH MATRIX SEA FOODS (P) LTD THE ASSESSING OFFICER IS BOUND TO ACCEPT THE FULL VALUE OF THE CONSIDE RATION AT RS.10. THEREFORE THE ASSUMPTION OF THE LEARNED COMMISSIONER IN CONFIRMING THE ORDER WHEREIN THE ASSESSING OFFICER ESTIMATED FULL VALUE OF THE CONSIDERATION OF SHARE AT RS.82.875 IS ERRONEOUS. 6. THE ASSESSING OFFICER ERRED IN ADOPTING RS.82.875 PER SHARE AS MARKET VALUE AS AGAINST THE ACTUAL SALE CONSIDERATION OF RS.10 THE LEARNED CIT FURTHER ERRED IN CONFIRMING THE RATE ADOPTED BY THE ASSESSING OFFICER ON AN ASSUMPTION OF CERTAIN FACTS ON SURMISES AND CONJECTURES.' 3. SINCE FACTS INVOLVED IN ALL THESE CASES ARE QUITE SIM ILAR AND IDENTICAL FOR THE SAKE OF BREVITY WE DEAL WITH THE FACTS MENTIONED IN THE CASE OF SRI V. SIVA PRASAD HYDERABAD (ITA NO.342/HY D/10). BRIEFLY STATED FACTS OF THIS CASE ARE THAT THE ASSESSEE IS A DIRECTOR OF MATRIX FEEDS & CHEMICALS PRIVATE LIMITED AND FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07 ON 30-10-2006 ADMITTING INC OME OF RS. 2 33 43 171. THEREAFTER HE FILED THE REVISED RETUR N ON 28-3-2007 REVISING THE INCOME TO RS.5 49 99 280. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE WAS A SHARE HOLDER IN A COMPANY CALLED MATRIX BIO SCIENCES PRIVATE LIMITED HOLDING 13 33 100 EQUITY SHARES. DUR ING THE YEAR UNDER CONSIDERATION THE ASSESSEE TRANSFERRED 669800 SHARES TO MATRIX SEA FOODS INDIA PVT. LTD. AT THE FACE VALUE OF RS.10 EACH ON 24-12- 2005. THE BALANCE 663300 SHARES WERE TRANSFERRED TO A COMPANY ITA 341 AND 5 OTHERS V.SIVA PRASAD & OTHERS. 4 CALLED CARGIL INDIA PVT. LTD ON 8-2-2006 @ RS.82.875 PER SHARE. SINCE THE TRANSACTIONS HAPPENED WITHIN TWO MONTHS OF EACH OTH ER THE ASSESSING OFFICER ASKED THE ASSESSEE AS TO WHY THE VALUE OF SH ARES TRANSFERRED TO MATRIX SEA FOODS INDIA PVT. LIMITED SHO ULD NOT BE PRESUMED TO HAVE BEEN SOLD AT THE SAME RATE I.E. RS.82. 875 PER SHARE. 4. IN ORDER TO EXPLAIN THE ABOVE TRANSACTIONS THE ASSESSE E STATED THAT HE ENTERED INTO A SHARE PURCHASE AGREEMENT WITH M /S CARGIL INDIA PVT. LIMITED FOR THE SALE OF 51% SHARE HOLDING OF M/S. MATRIX SEA FOODS INDIA PVT. LIMITED HOLDING 49% SHARES. THE ASSESSEE STATED THAT FOR THIS REASON THE BALANCE SHARES WERE TRANSFERRED TO M/S MATRIX SEA FOODS PVT. LIMITED AT THE RATE OF RS.10 PER SHARE. THE ASSESSING OFFICER DID NOT AGREE WITH THE CONTENTIONS OF THE ASSESSE E AND HELD THAT THE EXPLANATION OF THE ASSESSEE WAS NOT CORRECT AND THAT T HERE WERE NO STIPULATIONS IN THE SHARE PURCHASE AGREEMENT THAT SHARES W OULD BE SOLD TO M/S MATRIX SEA FOODS PRIVATE LIMITED AT THE F ACE VALUE. GIVING THE REASONS AS EXTRACTED AT PAGE 4 OF THE CIT(A)'S ORDE R HE VALUED THE SALE OF SHARE TRANSACTIONS WITH RESPECT OF M/S MATRIX S EA FOODS INDIA PRIVATE LIMITED AT THE RATE OF RS.82.875 PER SH ARE THE RATE AT WHICH IT IS SOLD TO CARGILL INDIA P. LTD. DURING THE SAME PERIOD IN COMPUTING THE CAPITAL GAINS. AGGRIEVED BY THE ORDER O F THE ASSESSING OFFICER THE ASSESSEE WENT IN APPEAL BEFORE THE CIT [A ] THE CIT [A] HELD THAT THE ENTIRE TRANSACTION IS NOT ABOVE BOARD AN D IS CLEARLY A COLORABLE DEVICE USED FOR REDUCING TAX LIABILITY WORTH OF CRORES OF RUPEES AND CONFIRMED THE ORDER PASSED BY THE ASSESSING OFFI CER. AGGRIEVED FURTHER THE ASSESSEE IS IN APPEAL BEFORE US. ITA 341 AND 5 OTHERS V.SIVA PRASAD & OTHERS. 5 5. THERE IS ONLY ONE EFFECTIVE ISSUE IN THE VARIOUS GRO UNDS OF APPEAL I.E. ADOPTING THE MARKET VALUE OF THE SHARES SOLD TO M/S MATRIX SEA FOODS INDIA PRIVATE LIMITED AT RS.82.875 PER SHARE AS SALES CONSIDERATION AGAINST THE VALUE OF RS.10 PER SHARE AS SALE S CONSIDERATION CLAIMED BY THE ASSESSEE. 6. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT TH E ASSESSEE TRANSFERRED SHARES TO MATRIX SEA FOODS AT RS.10/- P ER SHARE AND IN TURN THE COMPANY ALLOTTED THE EQUAL NUMBER OF SHARES TO THE ASSESSEE AT THE SAME VALUE AND IN NUMBER. THESE SHARES WER E TRANSFERRED BY THE ASSESSEE TO THE COMPANY TO FULFILL ONE OF THE CONDITIONS OF THE AGREEMENT ENTERED BY THE ASSESSEE WITH CARGILL INDIA TO WHOM THE SHARES WERE SOLD BY THE ASSESSEE AT RS.82.87 5 PER SHARE. THE CONDITION WAS TO CONSOLIDATE THE NUMBER OF SH ARE HOLDERS TO TWO ONLY. THEREFORE 49% OF THE SHARES WERE TRANSF ERRED TO A NEW ENTITY CALLED MATRIX SO AS TO FACILITATE THE TRANSFER OF BALANCE OF 51% SHARES TO CARGILL AT THE RATE OF 82.875 PER SHARE. SE CTION 48 OF THE INCOME-TAX ACT DOES NOT CONTEMPLATE THE USE OF FAIR MARK ET VALUE FOR COMPUTING THE CAPITAL GAINS. IN THE ABSENCE OF ANY PRO VISIONS IN THE INCOME-TAX ACT THE ASSESSING OFFICER IS NOT CORRECT IN ADOP TING THE MARKET VALUE IN THE PLACE OF ACTUAL SALE CONSIDERATION R ECEIVED. IN THE ABSENCE OF ANYTHING FOUND CONTRARY IN THE SHARE TRANSACTI ON WITH THE MATRIX THE ASSESSING OFFICER IS BOUND TO ACCEPT THE FULL V ALUE OF SALE CONSIDERATION RECEIVED AT RS.10 PER SHARE. THE ASSUMPTION OF THE LEARNED CIT IN CONFIRMING THE ACTION OF THE ASSESSING OF FICER IS ERRONEOUS AND BASED ON SURMISES AND CONJECTURES. DURING T HE COURSE OF HEARING HE PLACED RELIANCE ON THE CONDITION-F IN THE SHARE PURCHASE AGREEMENT AT PAGE-37 OF THE PAPER BOOK AND SUBMITTED THAT ITA 341 AND 5 OTHERS V.SIVA PRASAD & OTHERS. 6 THE ASSESSEE RECEIVED SALE CONSIDERATION BY WAY OF SHARES O NLY AND NOT BY CASH. IT IS FURTHER SUBMITTED THAT SECTION 52 OF THE ACT WHERE THE ASSESSING OFFICER IS OF THE OPINION THAT THE SALE CONSID ERATION OF THE CAPITAL ASSET IS LESS THAN THE MARKET VALUE THEN POWER W AS GIVEN TO THE ASSESSING OFFICER TO CONSIDER THE FAIR MARKET VALUE A S THE SALE CONSIDERATION HAS BEEN DELETED FROM THE STATUTE BOOKS WI TH EFFECT FROM 1-4-1988. HENCE THE QUESTION OF ADOPTING THE FAIR M ARKET VALUE DOES NOT ARISE. THE DEPARTMENT DID NOT PROVE ANY TRANSFER OF CASH OUT OF THE BOOKS OF ACCOUNT AND NO EVIDENCE WAS PRODUCED WITH RE GARD TO CASH TRANSACTIONS. THE BUYING COMPANY MATRIX BEING A NEW COMPANY HAS NO GENERATION OF CASH. HENCE THE ENTIRE ADDITIONS M ADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT (A) ARE ONLY B ASED ON SURMISES AND CONJECTURES. HE PLACED RELIANCE ON THE DECISION O F SUPREME COURT IN THE CASE OF DHAKESWARI COTTON MILLS LI MITED VS. CIT WEST BENGAL (1954) 26 ITR 775 (SC). 7. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPR ESENTATIVE RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE RIVAL PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THA T THE DEPARTMENT COMPLETELY IGNORED THE TERM 'FULL VALUE CONSIDERATION' REFERRED IN SECTION 48 OF THE INCOME-TAX ACT. THE AMOUNT RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET SHOULD BE T AKEN AS SALES CONSIDERATION. THE DEPARTMENT DID NOT BRING ANY EVID ENCE ON RECORD TO PROVE THAT AN AMOUNT OF DIFFERENCE BETWEEN RS.82.8 75 AND RS.10 PER SHARE IS RECEIVED BY THE ASSESSEE OUTSIDE THE BOOKS OF A CCOUNT I.E. ON MONEY. EVEN THE CIT (A) HAD CONFIRMED THE ORDER OF THE ASSESSING OFFICER ON HUMAN PRPOBABILITIES WITHOUT ANY SUPPORT FROM THE ITA 341 AND 5 OTHERS V.SIVA PRASAD & OTHERS. 7 PROVISIONS OF THE INCOME-TAX ACT. THERE WAS NO EVIDENCE D IRECT OR INFERENTIAL NOR WAS THERE ANY FINDING BY THE DEPARTM ENT THAT THE ASSESSEE INDEED RECEIVED ON MONEY ON THESE TRANSACTIONS. SI NCE THE DEPARTMENT FAILS TO PROVE THE WILLFUL DEVICE BY THE ASSESSEE TO AVOID THE TAXES THE DECISION IN THE CASE OF MC-DOWELL REPORTE D IN 154 ITR 148 RELIED ON BY THE REVENUE IS NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. WE FIND MERIT AND JUSTIFICATION IN THE CONTENTIONS OF THE ASSESSEE THAT HAD THE ASSESSEE NOT FULFILLED THE CONDITIONS L AID DOWN IN THE AGREEMENT THE TRANSACTIONS WITH CARGILL AT RS.82.8 75 PER SHARE WOULD NOT HAVE TAKEN PLACE AND THE ASSESSEE COULD NOT HA VE PAID ANY CAPITAL GAINS AS DECLARED IN THE RETURN OF INCOME. I T APPEARS THAT THE ENTIRE TRANSACTION WAS DONE BY THE ASSESSEE ONLY TO EARN R S.82.875 PER SHARE FROM CARGILL ON THE BALANCE AVAILABLE SHARES WITH THE ASSESSEE. IN OUR CONSIDERED OPINION BOTH THE TRANSACTION S IS TO BE CONSIDERED AS A WHOLE AND A SINGLE TRANSACTION CARRIED OU T BY THE ASSESSEE FOR EARNING SUBSTANTIAL CAPITAL GAINS. THE DEPARTM ENT HAS NOT PROVED THAT ON THE DATE OF SALE OF SHARES TO MATRIX THE ASSESSEE HAD ANY OTHER OFFER FROM ANY OTHER PERSON OTHER THAN CAR GILL TO PURCHASE SHARES FROM THE ASSESSEE AT HIGHER RATE THAN RS.10 PER SHA RE. EVEN IF WE APPLY THE PROVISIONS OF SECTION 52 OF INCOME-TAX ACT WHICH WAS NOT THERE IN THE ASSESSMENT YEAR UNDER CONSIDERATION THE BUR DEN IS ON THE DEPARTMENT TO PROVE THAT THE ASSESSEE RECEIVED SOME THIN G MORE THAN WHAT IS SHOWN. IN THE CASE UNDER CONSIDERATION THE DEP ARTMENT NEVER PROVED THAT THE ASSESSEE RECEIVED ANY ON-MONEY IN THE T RANSACTION WITH MATRIX. SINCE THE MATRIX IS NEWLY FORMED COMPA NY IT IS NOT POSSIBLE TO GENERATE SUCH HUGE AMOUNT TO PASS ON THE DIFF ERENCE BETWEEN RS. 82.875 AND RS.10/- IN OUTSIDE THE BOOKS OF THE ACCOUNT. HENCE CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCE THE ADDITIONS MADE BY THE ASSESSING OFFICER AND CONFIRMED BY T HE CIT (A) ITA 341 AND 5 OTHERS V.SIVA PRASAD & OTHERS. 8 IN THE ABSENCE OF ANY EVIDENCE OR PROOF GATHERED AT TH E TIME OF ASSESSMENT OR DURING THE APPELLATE PROCEEDINGS CANNOT BE SUSTAINED. IT IS SETTLED LAW THAT SECTION 45 OF THE INCOME-TAX ACT MUST BE READ WITH SECTION 48 OF THE ACT. IF THE COMPUTATION PROVISI ON CANNOT BE GIVEN EFFECT TO FOR ANY REASON THE CHARGE UNDER SECTION 45 OF THE ACT FAILS. SECTION 45 AND 48 OF THE ACT MUST BE READ TOG ETHER AS PART OF AN INTEGRATED CODE. NO PROFIT OR GAIN IN THE FORM OF CO NSIDERATION FOR TRANSFER CAN BE INFERRED BY THE PROCESS OF DEEMING OR O N PRESUMPTIVE BASIS. HYPOTHETICAL BENEFIT CANNOT BE TAXED UNDER SECTION 45 OF THE INCOME-TAX ACT. HENCE THE PROFIT OR GAIN ON ACCOUNT OF ABOVE TRANSACTIONS CANNOT BE ARRIVED AT ON A NOTIONAL OR HYPO THETICAL BASIS. IT IS WELL SETTLED LAW THAT TAX CAN BE LEVIED ONLY ON REAL INCOME. UNDER THESE CIRCUMSTANCES THE DEPARTMENT IS NOT CORRECT IN HOLD ING THAT THE ASSESSEE HAD DERIVED INCOME BEING A DIFFERENCE BETWEEN T HE MARKET VALUE AND THE PRICE ON WHICH THE SHARES WERE SOLD BY THE ASSESSEE IN OUR OPINION IS NOT CORRECT. IN VIEW OF THE ABOVE THE ADDITION MADE BY THE ASSESSING OFFICER BY ADOPTING THE TRANSFER PRICE AT RS. 82.875 PER SHARE CANNOT BE SUSTAINED. THE VALUE OF TRANSFERRED SHAR ES TO MATRIX IS TO BE TAKEN AT RS.10/- PER SHARE ONLY. WE DIRECT A CCORDINGLY. 7. IN THE RESULT ALL THE APPEALS FILED BY THE ASSESSEES ARE ALLOWED. ORDER WAS PRONOUNCED IN THE COURT ON 26 -5-2010. SD/- G.C.GUPTA SD/-/- AKBER BASHA VICE PRESIDENT ACCOUNTANT MEMBER. DT/- 26TH MAY 2010 ITA 341 AND 5 OTHERS V.SIVA PRASAD & OTHERS. 9 COPY FORWARDED TO: 1. MOHD. AFZAL ADVOCATE 11-5-465 SHERSONS'S RESI DENCY FLAT NO.402 CRIMINAL COURT ROAD RED HILLS HYDERABAD. 2 DCIT CIRCLE-16(2) HYDERABAD. 3. 4. THE CIT AP HYDERABAD. CIT(A)-V HYDERABAD. DR ITAT HYDERABAD. JMR *