VISHAL P. MEHTA, MUMBAI v. DCIT CEN CIR 5, MUMBAI

ITA 3586/MUM/2009 | 2007-2008
Pronouncement Date: 26-02-2010 | Result: Allowed

Appeal Details

RSA Number 358619914 RSA 2009
Assessee PAN AFOPM9240F
Bench Mumbai
Appeal Number ITA 3586/MUM/2009
Duration Of Justice 8 month(s) 23 day(s)
Appellant VISHAL P. MEHTA, MUMBAI
Respondent DCIT CEN CIR 5, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 26-02-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted F
Tribunal Order Date 26-02-2010
Date Of Final Hearing 22-02-2010
Next Hearing Date 22-02-2010
Assessment Year 2007-2008
Appeal Filed On 02-06-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F MUMBAI BEFORE SHRI R V EASWAR SENIOR VICE PRESIDENT AND SHRI B RAMAKOTAIAH ACCOUNTANT MEMBER I T A NO: 3586/MUM/2009 (ASSESSMENT YEAR: 2007-08) MR VISHAL P MEHTA MUMBAI APPELLANT (PAN: AFOPM9240F) VS DEPUTY COMMISSIONER OF INCOME TAX RESPONDENT CENTRAL CIRCLE 5 MUMBAI I T A NO: 3646/MUM/2009 (ASSESSMENT YEAR: 2007-08) DEPUTY COMMISSIONER OF INCOME TAX APPELLANT CENTRAL CIRCLE 5 MUMBAI VS MR VISHAL P MEHTA MUMBAI RESPONDENT ASSESSEE BY: DR K SHIVARAM / SHRI PARIMAL M PARIKH REVENUE BY: SHRI RAJARSHI DWIVEDY O R D E R R V EASWAR SENIOR VICE PRESIDENT: THESE ARE CROSS APPEALS RELATING TO THE ASSESSMENT YEAR 2007- 08. THE ONLY ISSUE TO BE DECIDED IN BOTH THE APPEA LS IS WHETHER THE CAPITAL GAINS (LONG TERM) ON THE SALE OF SHARES CAN BE COMPUTED BY DISCARDING THE ACTUAL SALE PRICE DECLARED BY THE AS SESSEE. 2. THE ASSESSEE IS AN INDIVIDUAL AND WE ARE CONCERN ED WITH THE YEAR ENDED 31 ST MARCH 2007. HE HELD 55700 SHARES OF M/S DIMEXON DIAMONDS LIMITED WHICH HE SOLD TO A COMPANY BY NAM E M/S PANKAJ K MEHTA INVESTMENT PRIVATE LIMITED AT THE RATE OF RS. 148/- PER SHARE. THE PRICE WAS STATED TO BE THE AGREED PRICE. THE A SSESSING OFFICER WAS OF THE VIEW THAT THE PRICE DECLARED BY THE ASSE SSEE AS THE AGREED 2 PRICE WAS TOO LOW AND HENCE NOT ACCEPTABLE. HE NOT ED THAT ON THE BASIS OF THE NET ASSETS METHOD THE NET ASSET VALUE PER SHARE CAME TO RS.541.80 AS PER THE VALUATION REPORT PREPARED BY M /S CHAITANYA C DALAL & COMPANY AND THAT ON THE BASIS OF THE PROFIT EARNING CAPACITY THE VALUE PER SHARE CAME TO RS.195/-. THE ASSESSIN G OFFICER ALSO NOTED THAT AS PER THE GUIDELINES ISSUED BY THE CONT ROLLER OF CAPITAL ISSUES THE FAIR VALUE OF A SHARE WAS RS.202.40. H E FURTHER NOTED THAT AS PER THE VALUATION REPORT OF M/S V R PANDYA & COM PANY THE VALUE ON THE BASIS OF NET ASSETS CAME TO RS.653/- PER SHA RE. IN THE LIGHT OF THESE FIGURES THE ASSESSING OFFICER WAS NOT PREPAR ED TO ACCEPT THE COMPUTATION OF THE CAPITAL GAINS ON THE BASIS OF TH E AGREED PRICE OF RS.148/- PER SHARE. HE FURTHER NOTED THAT SOME OF THE MEMBERS OF THE FAMILY OF THE ASSESSEE HAD BOUGHT SHARES OF THE SAM E COMPANY FROM ONE KAMRUDDIN BHANJI ON 28.03.2005 AT RS.300/- PER SHARE. HE THEREFORE CAME TO THE CONCLUSION THAT THE AGREED PR ICE OF RS.148/- CANNOT BE THE BASIS OF THE COMPUTATION OF THE CAPIT AL GAINS. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE H AD SOLD THE SHARES TO A COMPANY WHICH WAS ALSO A FAMILY CONCERN AND TH US THERE WAS NO POINT IN SAYING THAT THE PRICE OF RS.148/- WAS AN A GREED PRICE. FROM THE DETAILS COLLECTED BY HIM REGARDING THE ASSESSME NTS OF THE FAMILY MEMBERS THE ASSESSING OFFICER ALSO NOTED THAT OUT OF 8 PERSONS ONLY 4 PERSONS HAVE SHOWN LONG TERM CAPITAL GAINS AND THE REMAINING 4 PERSONS HAD SHOWN LONG TERM CAPITAL LOSS. HE THUS CONCLUDED THAT THE TRANSACTION WAS ENTERED INTO TO REDUCE THE TAX INCI DENCE WHICH ATTRACTED THE RULE LAID DOWN BY THE SUPREME COURT I N THE CASE OF 3 MCDOWELL & CO. LTD. VS. CTO (1985) 154 ITR 148 (SC) . HE ALSO REFERRED TO SECTION 50C OF THE INCOME TAX ACT 1961 WHICH CAME INTO EFFECT FROM 01.04.2003 AND OBSERVED THAT THOUGH THI S SECTION RELATED TO IMMOVABLE PROPERTY; IT AFFORDS A SOUND ANALOGY ALSO IN CASES OF MOVABLE PROPERTIES SUCH AS SHARES. FOR ALL THESE R EASONS HE COMPUTED THE CAPITAL GAINS ON THE BASIS OF THE FAIR VALUE OF THE SHARE WHICH HE TOOK AT RS.414/- WHICH RESULTED IN AN ADD ITION OF RS.1 48 16 200/- TO THE CAPITAL GAINS DECLARED BY T HE ASSESSEE. 3. ON APPEAL THE CIT(A) CONSIDERED THE MATTER ELAB ORATELY AND ENDORSED THE DECISION OF THE ASSESSING OFFICER THAT THE ACTUAL PRICE OF RS.148/- PER SHARE CANNOT FORM THE BASIS OF THE COM PUTATION OF THE CAPITAL GAINS AS THERE WAS NO MATERIAL OR EVIDENCE TO PROVE THAT IT WAS HONESTLY DONE IN GOOD FAITH AND BONA FIDE. HAVING THUS UPHELD THE DECISION OF THE ASSESSING OFFICER TO ENHANCE THE SA LE PRICE HE DIRECTED THE ASSESSING OFFICER TO ADOPT THE FULL VALUE OF TH E CONSIDERATION FOR PURPOSES OF CAPITAL GAINS ON THE BASIS OF THE PROFI T EARNING CAPACITY RELIANCE BEING PLACED FOR THIS PURPOSE ON THE JUDGM ENTS OF THE SUPREME COURT IN THE CASE OF CWT VS. MAHADEO JALAN & OTHERS (1972) 86 ITR 621 (SC) AND CGT VS. SMT KUSUMBEN D M AHADEVIA (1980) 122 ITR 38 (SC). HE FURTHER DIRECTED THE AS SESSING OFFICER TO CONSIDER THE BALANCE SHEET OF THE COMPANY AS ON 31. 03.2005 AS THE BASIS FOR APPLYING THE PROFIT EARNING CAPACITY. TH E ASSESSEES APPEAL WAS THUS PARTLY ALLOWED. 4. WHILE THE ASSESSEE HAS CHALLENGED THE ORDER OF T HE CIT(A) ON THE GROUND THAT NOTHING MORE THAN RS.148/- PER SHAR E CAN BE TAKEN FOR 4 THE PURPOSE OF COMPUTING THE CAPITAL GAINS THE REV ENUE HAS CHALLENGED THE ORDER OF THE CIT(A) ON THE GROUND TH AT THE ASSESSING OFFICERS FIGURE OF RS.414/- PER SHARE WHICH WAS AR RIVED AT ON THE BASIS OF THE GUIDELINES ISSUED BY THE MINISTRY OF FINANCE DEPARTMENT OF ECONOMIC AFFAIRS FOR VALUATION OF SHARES SHOULD BE RESTORED. 5. THE QUESTION BEFORE US IS WHETHER THE CAPITAL GA INS ON THE SALE OF SHARES SHOULD BE COMPUTED ON THE BASIS OF THE AG REED PRICE OF RS.148/- PER SHARE OR ON THE BASIS OF RS.414/- PER SHARE BEING THE VALUE ARRIVED AT ON THE BASIS OF THE GUIDELINES BY THE CONTROLLER OF CAPITAL ISSUES. AS PER SECTION 48 OF THE INCOME TA X ACT 1961 THE CAPITAL GAINS CAN BE COMPUTED ONLY BY TAKING THE FU LL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF THE CAPITAL ASSET AND NOTHING MORE. THERE IS NO MATERI AL OR EVIDENCE REFERRED TO IN THE ASSESSMENT ORDER TO SHOW THAT TH ERE WAS ANY SUPPRESSION OF THE SALE PRICE OF RS.148/- PER SHARE . IN SUCH CIRCUMSTANCES WHATEVER BE THE SURROUNDING CIRCUMST ANCES THE SALE PRICE DECLARED BY THE ASSESSEE CANNOT BE DISTURBED. FURTHER IT HAS BEEN HELD IN A SERIES OF JUDGMENTS OF THE SUPREME C OURT THAT WHILE COMPUTING CAPITAL GAINS IN THE ABSENCE OF ANY EVID ENCE TO SHOW UNDERSTATEMENT OF CONSIDERATION ONLY THE ACTUAL PR ICE RECEIVED BY THE ASSESSEE CAN BE TREATED AS FULL VALUE OF THE CONSID ERATION AND NOTHING MORE; PLEASE SEE CIT VS. GEORGE HENDERSON & CO. LTD . (1967) 66 ITR 622 (SC) K P VARGHESE VS. ITO (1981) 131 ITR 597 ( SC) AND CIT VS. SHIVAKAMI CO. (P) LTD. (1986) 159 ITR 71 (SC). IN ALL THESE CASES IT HAS BEEN HELD THAT THE COMPUTATION OF CAPITAL GAINS HAS TO PROCEED 5 ONLY ON THE BASIS OF THE CONSIDERATION DECLARED BY THE ASSESSEE UNLESS THERE IS EVIDENCE OR MATERIAL TO SHOW SUPPRE SSION OR UNDERSTATEMENT OF CONSIDERATION. RESPECTFULLY FOLL OWING THESE RULINGS WE HOLD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIE D IN ENHANCING THE ACTUAL SALE PRICE OF RS.148/- PER SHARE AND IN COMP UTING THE CAPITAL GAINS ON THAT BASIS. 6. THE SURROUNDING CIRCUMSTANCES MENTIONED IN THE O RDERS OF THE DEPARTMENTAL AUTHORITIES ARE FIRSTLY THAT SOME FA MILY MEMBERS HAD ACQUIRED THE SHARES OF THE SAME COMPANY FROM ONE KA MRUDDIN BHANJI AT THE RATE OF RS.300/- PER SHARE IN MARCH 2005. T HIS MAY GIVE RISE TO SUSPICION AND PROVOKE FURTHER ENQUIRY BUT MERELY F OR THIS REASON ALONE THE AGREED PRICE OF RS.148/- PER SHARE CANNOT BE DI SCARDED. IT IS ALSO STATED BEFORE US THAT KAMRUDDIN BHANJI IS NOT RELAT ED TO ANY OF THE FAMILY MEMBERS AND HE HELD 118000 SHARES OF M/S DIM EXON DIAMONDS LIMITED WHICH THE FAMILY MEMBERS WANTED TO ACQUIRE AT ANY COST SO THAT THEY GAIN FULL CONTROL OVER THE COMPANY. THIS CONSIDERATION PERHAPS WEIGHED IN THEIR MIND WHEN THEY PAID RS.300 /- PER SHARE. IN ANY CASE THERE IS NO ALLEGATION THAT THE ASSESSEE HIMSELF ACQUIRED THE SHARES AT RS.300/- PER SHARE IN MARCH 2005. THE SE COND CIRCUMSTANCE ACCORDING TO THE INCOME TAX AUTHORITI ES IS THAT THE ASSESSEE AS WELL AS THE COMPANY TO WHICH HE SOLD TH E SHARES ARE PART OF THE SAME GROUP AND THEREFORE IT IS MEANINGLESS TO SAY THAT THE PRICE OF RS.148/- PER SHARE WAS AN AGREED PRICE. A LITTLE BACKGROUND HAS TO BE GIVEN HERE AS TO WHY THE ASSESSEE PARTED WITH THE SHARES. IT WOULD APPEAR THAT THERE WAS AN ORAL FAMILY ARRANGEM ENT BETWEEN THE 6 VARIOUS PERSONS CONSTITUTING THE FAMILY THE TERMS OF WHICH WERE RECORDED IN A MEMORANDUM OF FAMILY ARRANGEMENT. TH E CIRCUMSTANCES WHICH RESULTED IN THE FAMILY ARRANGEM ENT ARE THAT ON 19.12.2003 SMT MANIBEN MEHTA PASSED AWAY LEAVING A WILL DATED 30.10.1981. SHE HAD 4 SONS OF WHICH THE ASSESSEE WAS ONE AND ONE DAUGHTER. THERE AROSE DISAGREEMENT AND DISPUTES BE TWEEN THE SONS NAMELY THE ASSESSEE HIS BROTHERS KAUSHIK AND PANK AJ MEHTA AFTER THE DEATH OF THEIR MOTHER ON ACCOUNT OF ALLEGED UNE QUAL DISTRIBUTION OF THE ASSETS AND INCOME OF THE MEHTA FAMILY. THERE W ERE ALSO DISPUTES REGARDING DIFFERENT BUSINESSES CARRIED ON BY THE FA MILY INCLUDING DISPUTES AS TO BUSINESS POLICY ETC. THE DISPUTES ACCORDING TO THE MEMORANDUM HAD REACHED A POINT WHERE THE FAMILY RE LATIONS WERE GETTING STRAINED AND THE BUSINESSES ALSO SUFFERED. IT HAD BECOME IMPERATIVE THAT MATTERS RELATING TO OWNERSHIP OF PR OPERTY AND INVESTMENT OF SHARES IN COMPANIES NEEDED TO BE SETT LED EITHER THROUGH A MEDIATOR OR AFTER INTERSE NEGOTIATIONS. IT WAS F ELT THAT IF THE DISPUTES ARE TAKEN TO THE COURTS A SUBSTANTIAL PART OF THE FAMILY ASSETS WILL BE SPENT IN WASTEFUL EXPENDITURE AND THERE WOULD ALSO BE ENORMOUS DELAY WHICH WOULD BE DETRIMENTAL TO THE INTEREST OF THE F AMILY. THE FAMILY MEMBERS THEREFORE SAT AND CONDUCTED LONG NEGOTIAT IONS AND DELIBERATIONS BETWEEN THEMSELVES AND ARRIVED AT AN ORAL FAMILY ARRANGEMENT ON 15.03.2005 IN RESPECT OF SEVERAL IMM OVABLE PROPERTIES BUSINESS CONCERNS SHARES OF LIMITED CO MPANIES ALL OF WHICH WERE MENTIONED IN THE SCHEDULE TO THE MEMORANDUM A COPY OF WHICH IS PLACED AT PAGES 10 TO 43 OF THE PAPER BOOK. IT HAS BEEN CERTIFIED IN 7 THE PAPER BOOK THAT THE MEMORANDUM RECORDING THE OR AL FAMILY ARRANGEMENT WAS FILED BEFORE THE ASSESSING OFFICER. THE VARIOUS TERMS AND CONDITIONS AND THE ACTUAL DISTRIBUTION OF THE FAMILY ASSETS AND BUSINESSES AMONGST THE 8 OR 9 FAMILY MEMBERS UN DER THE FAMILY ARRANGEMENT NEED NOT DETAIN US BUT SUFFICE TO SAY THAT THE ASSESSEE HAD TO SELL THE SHARES HELD BY HIM IN M/S DIMEXON D IAMONDS LIMITED TO THE COMPANY CALLED M/S PANKAJ K MEHTA INVESTMENT PR IVATE LIMITED WHICH WAS ALSO A FAMILY CONCERN. THE GENUINENESS O R THE BONA FIDE OF THE FAMILY ARRANGEMENT HAS NOT BEEN CALLED IN QUEST ION BY THE DEPARTMENTAL AUTHORITIES. COURTS GIVE EFFECT TO A FAMILY SETTLEMENT UPON THE BROAD AND GENERAL GROUND THAT THE OBJECT I S TO SETTLE EXISTING AND FUTURE DISPUTES REGARDING PROPERTY AMONGST THE MEMBERS OF THE FAMILY. THE CONSIDERATION FOR THE SETTLEMENT IS TH E EXPECTATION THAT IT WILL RESULT IN ESTABLISHING AMITY AND GOODWILL AMON GST PERSONS BEARING RELATIONSHIP WITH ONE ANOTHER. IT IS FOR THIS REAS ON THAT THE ASSESSEE SOLD THE SHARES AT RS.148/- PER SHARE AND SINCE THE SALE HAD TO BE MADE IN THE BACKGROUND OF THE FAMILY ARRANGEMENT T HE GENUINENESS OF THE SALE OR THE AUTHENTICITY OF THE SALE PRICE CANN OT BE CALLED IN QUESTION. THE FAMILY ARRANGEMENT IS A STRONG CIRCU MSTANCE IN FAVOUR OF THE VIEW THAT NOTHING MORE THAN RS.148/- PER SHARE WAS ACTUALLY RECEIVED BY THE ASSESSEE. THIS ASPECT HAS NOT RECE IVED THE TREATMENT WHICH IT DESERVED IN THE ORDERS OF THE DEPARTMENTAL AUTHORITIES. THIS IS WITHOUT PREJUDICE AND IN ADDITION TO THE LEGAL POSI TION THAT IN THE ABSENCE OF ANY EVIDENCE OF UNDERSTATEMENT OR SUPPRE SSION OF SALE CONSIDERATION THE SALE PRICE DECLARED BY THE ASSES SEE HAS TO BE 8 ACCEPTED FOR THE PURPOSE OF SECTION 48. THIS ASPEC T ALSO TAKES CARE OF THE STATEMENT MADE IN THE ORDER OF THE CIT(A) THAT IT WAS THE DUTY OF THE ASSESSEE TO PLACE MATERIAL OR EVIDENCE TO PROVE THAT THE VALUATION OF RS.148/- PER SHARE WAS HONESTLY DONE IN GOOD FAI TH AND IN A BONA FIDE MANNER. 7. IT IS ALSO SEEN THAT THE COMPANY M/S. PANKAJ K.M EHTA INVESTMENT PVT. LTD. TO WHOM THE ASSESSEE SOLD THE SHARES AT RS.148/- PER SHARE IN TURN SOLD THE SHARES ON 30.10.2006 AT THE RATE OF RS.150/- PER SHARE. THE CAPITAL GAINS WAS COMPUTED ACCORDING LY IN THE RETURN OF THE COMPANY FOR THE ASSESSMENT YEAR 2007-08 AS IS S EEN FROM THE COMPUTATION OF ITS TAXABLE INCOME PLACED AT PAGES 1 79 TO 182 OF THE PAPER BOOK FILED AT OUR INSTANCE. THE CAPITAL GAIN S AS DECLARED IN THE RETURN OF THE COMPANY WAS ACCEPTED IN THE ASSESSMEN T ORDER PASSED IN THE COMPANYS CASE UNDER SECTION 143(3) ON 17.11 .2009. A COPY OF THE ASSESSMENT ORDER IS PLACED AT PAGES 167 TO 169 OF THE PAPER BOOK WHICH SHOWS THAT THE TOTAL INCOME DECLARED BY THE C OMPANY IN THE RETURN INCLUDING THE CAPITAL GAINS HAS BEEN ACCEPT ED THE ONLY ADJUSTMENT MADE BEING A DISALLOWANCE OF RS.4 47 496 /- UNDER SECTION 14A. THE SAME POSITION HOLDS GOOD IN THE CASE OF AN OTHER COMPANY BY NAME M/S.PARESH K.MEHTA INVESTMENT PVT. LTD. TO WHO M ALSO SHARE OF M/S.DIMEXON DIAMONDS LTD. WERE SOLD AT THE RATE OF RS.148/- PER SHARE. THIS COMPANY IN TURN SOLD THE SHARES ON 30.1 0.2006 FOR RS.150/- PER SHARE AND DECLARED THE CAPITAL GAINS A CCORDINGLY IN ITS RETURN OF INCOME COPY OF WHICH HAS BEEN PLACED AT PAGES 170 TO 174 OF THE PAPER BOOK. THE CAPITAL GAINS DECLARED IN T HE RETURN WAS 9 ACCEPTED IN THE ASSESSMENT ORDER PASSED UNDER SECTI ON 143(3) ON 17.11.2009. THESE FACTS ALSO SHOW THAT THE CAPITAL GAINS IN THE ASSESSEES CASE HAVE TO BE COMPUTED ONLY ON THE BAS IS OF THE AGREED PRICE OF RS.148/- PER SHARE SINCE THE DEPARTMENT H AS ACCEPTED THE SALE PRICE OF RS.150/- PER SHARE IN THE CASE OF THE ABOVE TWO COMPANIES. 8. FOR THE ABOVE REASONS WE DIRECT THE ASSESSING OF FICER TO COMPUTE THE CAPITAL GAINS ON THE SALE OF THE SHARES OF M/S DIMEXON DIAMONDS LIMITED ON THE BASIS OF THE AGREED SALE PR ICE OF RS.148/- PER SHARE. 9. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED AND THE APPEAL OF THE DEPARTMENT IS DISMISSED WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED ON 26 TH FEBRUARY 2010. SD/- SD/- (B RAMAKOTAIAH) (R V E ASWAR) ACCOUNTANT MEMBER SENIOR VICE PRESI DENT MUMBAI DATED 26 TH FEBRUARY 2010 SALDANHA COPY TO: 1. MR VISHAL P MEHTA 704 / 705 RAHEJA CHAMBERS FREE PRESS JOURNAL ROA D NARIMAN POINT MUMBAI 400 021 2. DCIT CENTRAL CIRCLE 5 3. CIT-CENTRAL I 4. CIT(A)-CENTRAL II 5. DR F BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI