Case Law Details
ACIT (OSD) Vs. Deepakbhai N. Parikh (ITAT Ahemdabad)
ITAT held that assessee should be allowed set off of long term capital loss from sale of shares off market against the long term capital gain on sale of land as they have been entered within the permissible four corners of law and the modus operandi of the assessee is not that of tax evasion but of tax planning.
Assessing officer has made the dis allowance of set off of long-term capital loss on sale of sales of M H Mills and industries Ltd. merely because the transaction has been done off market which has resulted in the long term capital loss. The gift of shares of the said company received by the appellant from his close relatives has been accepted by the assessing officer as genuine and not bogus. The transaction of sale of shares of M H Mills and industries Ltd. to third-party has also been accepted by the assessing officer as genuine and not bogus. When the statute provides alternative options of taxation in the case of long-term capital gain, the assessee has a legal and valid right to choose any of the options and faxing authority cannot question why a particular option has been chosen and not the other one. .In the present case of the appellant, he’s having two legal options available for selling the shares. “On market” and “off market” and he had choose the “off market” option while evaluating the tax implication of it. The assessing officer cannot question the appellant on the decision taken by him which is legal, valid and within four corners of law. In my considered view, there seems no colorable device in the transactions of sale of shares of M H Mills and Industries Ltd. off market by the appellant which has eventually resulted in the loss. assessing officer has not brought on record any cogent material evidence in support of the allegation that the transaction of sale of shares of M H Mills and industries Ltd. off market is a colorable device to avoid the fax.
In view of the detailed discussion held above, the dis allowance made by the assessing officer for set off of long-term capital loss on sale of shares of M H Mills and industries Ltd. is not justified and therefore is deleted.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
These two appeals by Revenue and the Cross Objections by two different assessees for assessment year 2008-09 out of which ITA No. 1879/Ahd/2011 along with Cross Objection No. 211/Ahd/2011 in the case of Deepakbhai N. Parikh are directed against the order of learned Commissioner (Appeals)-VIII, Ahmedabad dated 1805/2011 vide Appeal No. Commissioner (Appeals)VIII/ACR-4/660/10-11 arising out of the order under section 143(3) of the Income Tax Act, 1961 (in short the Act) framed on 27-12-2010 by ACIT(OSD), Circle-4, Ahmedabad; and ITA No. 2015/Ahd/2011 along with C.O. No. 212/Ahd/2011 in the case of Smt. Kusumlataben N. Patikh are directed against the order of learned Commissioner (Appeals)-VI, Ahmedabad, dated 10-6-2011 in Appeal No. Commissioner (Appeals)-VI/Cir.7/287/10-11 arising out of order under section 143(3) of the Act also framed on 27-10-2012 by Addl.CIT, Range-7, Ahmedabad. As the issues raised in these appeals and the Cross Objections by the assessees are common in nature they are being disposed of by this common order for the sake of convenience.
2. First we will take up ITA No. 1879/Ahd/2011 for assessment year 2008-09. Grounds raised by the Revenue are as below :–
1. The learned Commissioner (Appeals) has erred in law and on facts in deleting the addition of Rs. 3,85,28,505 made by the assessing officer on account of long term capital loss on sale of Shares of M. H. Mills & Inds. Ltd. without appreciating the fact that a wrong claim made by the assessee in a return, which had not been subjected to scrutiny would not enable the assessee to perpetuate the wrong claim in subsequent years.
2. The learned Commissioner (Appeals) has erred in law and on facts in deleting the addition of Rs. 1,15,043 made by the assessing officer on account of dis allowance under section 14A of the Act.
3. On the facts and in the circumstances of the case, the learned Commissioner (Appeals) ought to have upheld the order of the assessing officer.
4. It is, therefore, prayed that the order of the learned Commissioner (Appeals) may be set aside and that of the assessing officer may be restored to the above extent.
3. Briefly stated facts are that the assessee is an individual earning income from salary, capital gain and from other sources. Return of income for assessment year 2008-09 was filed on 31-7-2008 declaring total income at Rs. 4,81,02,307. Return was processed under section 143(1) of the Act. Subsequently case was selected for scrutiny assessment. A notice under section 143(2) followed by notice under section 142(1) was issued. Necessary details were filed and examined during the course of assessment proceedings learned assessing officer observed that assessee earned long term capital gain from sale of land and adjusted some portion of it by setting off with the long term capital loss from sale of shares. Learned assessing officer was of the view that assessee has sold some portion of equity shares through recognized stock exchange & claimed exemption under section 10(38) of the Act and remaining portion of equity shares which were mainly gifted during the year by relatives were sold off-market incurring long term capital loss which was hitherto set off against the long term capital gain from sale of land. Learned assessing officer was of the view that assessee has resorted to colourable device with the intention to lower down the tax liability on account of long term capital gain from sale of land and therefore, did not allow the set off of long term capital loss of Rs. 3,85,28,505 incurred from off market sale of equity shares. Learned assessing officer also made a dis allowance under section 14A of the Act read with rule 8D of the Income Tax Rules, 1962 (in short the rules) at Rs. 115043 being 0.5% of the average value of investment of Rs. 2.30 crores. Accordingly income was assessed at Rs. 8,67,45,900..
4. In appeal before learned Commissioner (Appeals) assessee succeeded in getting relief as learned Commissioner (Appeals) deleted the dis allowance made by assessing officer for setting off of long term capital loss of Rs. 3,85,28,505 and also deleted the dis allowance of Rs. 115043 made under section 14A of the Act read with rule 8D of the rules.
5. Aggrieved, Revenue is now in appeal before the Tribunal. First issue raised by Revenue is against the action of learned Commissioner (Appeals) deleting the addition of Rs. 3,85,28,505 made by assessing officer on account of long term capital loss on sale of shares of M. H. Mills & Industries Ltd. without appreciating the fact that wrong claim was made by assessee in the return of income.
6. Learned Departmental Representative vehemently argued supporting the order of assessing officer and also relied on the decision of Hon. Bombay High Court in the case of Killick Nixon Ltd. v. DCIT in (IT Appeal No. 5518 of 2010, dt. 6-3-2012) and further submitted that assessee has intentionally entered into a sham transaction by selling equity shares in off market with the intention to evade long term capital gain tax on sale of land by setting off of long term capital loss.
7. On the other hand, learned Authorized Representatives apart from relying on the submissions made before learned Commissioner (Appeals) further briefed that all the transactions entered into by assessee i.e. sale of land, sale of equity shares through recognized stock exchange by paying security transaction tax, gifts of equity shares from relatives and sale of gifted shares through off market have been entered on the fair market value and Revenue/assessing officer has not raised any objection about the genuineness. Learned Authorized Representatives further contended that Hon. Supreme Court in the case of Mc. Dwell & CO. v. CIT (1985) 154 ITR 148 (SC) has held that tax planning may be legitimate provided it is within the frame work of law. Colorable device cannot be a part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid the payment of tax by resorting to dubious method. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuses. Learned Authorised Representatives further referred and relied on the following judgments/decisions :–
1. Judgment of Hon. Gujarat High Court in the case of Biraj Investment (P) Ltd. 210 Taxman 418.
2. Judgment of Hon. Gujarat High Court in case of Special Prints Ltd. 356 ITR 404.
3. Order of Hon. Gujarat High Court in case of Atir Textile Indus. (P) Ltd. 230 Taxman 104
4. Order of ITAT, Ahmedabad Bench in the case of Suhrid S. Sarabhai Kaivana.34 ITR (T) 342
5. Order of ITAT, Mumbai in case of Raptakos Brett & Co. Ltd. (2015) 69 SOT 383 (Mumbai – Trib.)
6. Decision of ITAT Mumbai in case of Legg Mason Asin (Ex Japan) analyst Fund 61 SOT 277
7. Order of ITAT Ahmedabad in case of Hina Nitin Parikh 144 ITR 157
8. Judgment of Hon. Gujarat High Court in case of Prudent Finance (P) Ltd. 225 Taxman 125
Learned Authorized Representatives also submitted that impugned equity shares on sale of which assessee has suffered long term capital loss were received as gift from relative on 30-4-2007. Learned assessing officer has not challenged the genuineness of the gift at any point of time during assessment proceedings. Further there is no prohibition in the law to enter into sale of equity shares off market and the facts need to be appreciated that the off market sale was at the same price at which the equity shares were traded online on recognized stock exchange. Assessee has worked only within the four corners of law by claiming exemption at some portion of long term capital gain under section 10(38) of the Act, entered into off market sale of shares incurring long term capital loss and claiming it as set off validly against the long term capital gain from sale of land within the provisions of section 70(3) of the Act. Therefore, learned Commissioner (Appeals) has rightly appreciated the facts and has deleted the dis allowance made by learned assessing officer and has rightly allowed the set off of long term capital loss from sale of shares as against long term capital gain from sale of land.
8. We have heard the rival contentions and perused the record placed before us. Through this ground no.1 Revenue has challenged the action of learned Commissioner (Appeals) deleting the addition made by assessing officer by not allowing set off of long term capital loss on sale of shares of M.H. Mills & Indus. Ltd. as against long term capital gain from sale of land. We find that during the year under appeal assessee earned long erm capital gain of Rs. 12,19,16,490 realized on sale of agricultural land at Hansol. Against this long term capital gain from sale of land assessee claimed set off of loss of Rs. 3,85,28,505 arose from off market sale of shares of M.H.Mills & Indus. Ltd. and M. H. Packaging Ind. Ltd. Further equity shares the sale of which gave rise to a long term capital loss were received as gift in the beginning of the year. However, genuineness of the gifts has not been questioned by the Revenue. Further during the year assessee also earned long term capital gain at Rs. 10,42,332 from sale of shares being listed securities on recognized stock exchange after paying security transaction tax and the same was claimed as exempt under section 10(38) of the Act.
9. Analyzing the facts we find that learned assessing officer’s main observation was that assessee has intentionally first received gifts from relatives of equity shares and then sold them off market incurring loss and claiming it as set off against long term capital gain on sale of land in order to minimize long term capital gain on sale of land to the extent of set off of loss of Rs. 3,85,28,505 against the long term capital gain of Rs. 12,19,16,409. We further observe that learned Commissioner (Appeals) has deleted the impugned dis allowance and allowed the claim of assessee by observing as follows :–
4. I have carefully considered the findings of the assessing officer as well as submissions of the appellant.
The appellant filed his return of income declaring total income of Rs. 4,81,02,307 on 31-7-2008. The return was processed under sections 143(1) of the Act. The case was selected for scrutiny and the notice under sections 143(2) of the Act was issued. Subsequently, notices under sections 142(1) of the Act were also issued. In response to the same, the appellant, through authorized representative submitted all the details/information/explanations called for by the assessing officer.
4.1 The facts of the case in brief is that the appellant is the Director of M. H. Mills and Industries Ltd. The main sources of income are the salary received from said Mill and the Capital Gain–Long Term as well as Short term. There are three sources of long term capital gain :–
(1) Sale of shares of other companies–on market, which has been claimed as exempt.
(2) Sale of shares of M.H. Mills & Industries Ltd.–off market. The loss suffered by the appellant has been set off against the long term capital gain on sale of land.
(3) Sale of land. The long term capital gain is offered for tax after set off of long term capital loss on sale of shares of M. H. Mills & Industries Ltd.
4.2 During the course of assessment proceedings, the assessing officer asked to provide the details of all the above transactions and its genuineness vide different order sheet entries. The appellant was further asked to provide the details of shares received as gift and prove the genuineness, creditworthiness and identity of the donors. The appellant filed all the required details from time to time. The donors of the shares Shri Janakbhai Deepakbhai Parikh and Shri Birenbhai Deepakbhai Parikh attended before the assessing officer and filed the copy of their return of income and capital account to prove the 3 ingredients of the gift received by the appellant. After verifying the details and explanations of the appellant, the assessing officer accepted the gift as genuine.
4.3 The appellant has sold the shares of M.H. Mills and Industries Ltd. “off market”, which resulted in a long term capital loss of Rs. 3,85,28,505. There was no difference in the off market and on market sale price of these shares. This fact has also been confirmed by the assessing officer in the assessment order. The assessing officer.’s objection in respect of the transaction of sale of shares of M.H. Mills & Industries Ltd. “off market” is that the shares of the said company were listed on the stock exchange and had it been sold on market, then in that case the long term capital loss would have been exempt and therefore, in that case the appellant could not claim set off of such exempt long term capital loss. Thus, as per the assessing officer., this is a clear planning on the part of the appellant to sell the shares of listed company off market because the appellant was very well aware of the market price of company and it was deliberately done to claim the benefit of loss which would have not been permitted in case of on market transaction. As per the assessing officer., the need for sale of shares off market as against on market option available to the appellant are as under :–
1. The benefit of the loss can be claimed if the shares are sold off market.
2. The need for sale of the shares of a listed company off market is a proper planning to reduce the gain from sale of land.
3. The appellant has acquired the shares from relative as gifts so that the sale of shares in bulk can be concluded and the gain on sale of and can be reduced.
4.4 Accordingly, the assessing officer is of the view that the appellant has chalked out a plan with a view to evade the tax by adopting the method which can not be opted otherwise. Considering all the details and circumstances of the case, the assessing officer is of the view that the transaction of sale of shares entered into by the appellant resulting into long term capital loss is merely an artifice or a device employed so as to reduce tax liability. The assessing officer has considered the transaction of sale of the shares of M. H. Mills & Industries Ltd. off market as colourable device so as to reduce the tax liability of the appellant resulting out of the long term capita! gain. The assessing officer has relied upon the judgments of Hon’ble Supreme Court in the case of McDowell & Co. Ltd. v. Commercial Tax Officer 154 ITR 148 and Workmen v. Associated Rubber Industry Ltd. 157 ITR 77.
4.5 On the other hand, the authorized representative of the appellant has submitted with supporting evidences that the transaction of sale of shares of M.H. Mills & Industries Ltd. is factual, valid and genuine. All the details in connection with the sale of the shares of the said company were furnished to the assessing officer which has been verified by him and accepted as genuine. Merely because the sale of the shares have been done off market, which is one of the valid and legal option available to the appellant, it can not be said that the transaction is sham or is having colourable device so as to evade the tax liability. It has been submitted that off market transactions of sale of shares are regularly carried out in the market and are in normal in nature. Under the Income Tax Act, 1961, Companies Act, 1956 and the the regulatory framework of SEBI, the off market transactions are permissible and not prohibited. The appellant has placed on record the copy of the judgment delivered by Securities Appellate Tribunal, Mumbai in the case of Jatin Manubhai Shah & Others v. Adjudicating Officer, SEBI (Appeal No. 16 of 2010), wherein it has been held that off market transactions are permissible in law. Accordingly, it has been contended by the appellant that since off market transactions are permissible under various laws of the land, no adverse inference is required to be drawn against the appellant in respect of the off market transactions done by him merely because such off market transactions have resulted in loss and not gain. When under the Income Tax Act, there are different modes of taxation of long term capital gain available to the appellant, then he can choose any of the modes of taxation so as to plan his affairs which is not prohibited by law, but it is strictly as per the provisions contained in the Income Tax Act.
It is further contended that the shares are required to be sold through recognized Stock Exchange and STT is required to be paid only when the appellant desires to claim such resultant transaction of capital gain as exempt. However, this may not the case for all the assessees and there are many assessees, who would choose or would opt for the transaction, which take place outside Stock Exchange not paying STT and therefore, bear the consequences of Income Tax provisions. In appellant’s case, the fact regarding purchase/ acquisition of the shares is not in dispute. Similarly, the cost of shares as envisaged under sections 49 of the Act, sale of shares at the correct market price to purely outsider/third party and realization of sale proceeds are also not in dispute. Once all the ingredients of genuine sale has been fully examined and verified by the assessing officer., it can not be considered as sham or bogus or mere artifice or device employed by the appellant so as to reduce the tax liability.
4.6 In the legal submission, the authorized representative has pointed out the difference between the term “Tax Avoidance” and “Tax Evasion”. Tax avoidance is the legal utilization of the tax regime to one’s own advantage, to reduce the amount of tax that is payable by means that are within the law. On the other hand, tax Evasion is the general term for efforts not to pay taxes by illegal means. In respect of the reliance on the decision in case of McDowell & Co. (cited supra) by the assessing officer the authorized representative has drawn my attention to the observations made in the said case on page no. 171 which is as under”
“Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid the payment of tax by resorting to dubious method. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges”.
Further, it has been submitted on behalf of the appellant that after the decision of Hon’ble Supreme Court in case of McDowell, ther are number of judgments wherein the case of McDowell has been considered at length and then the Hon’ble Supreme Court and other High Courts have consistently held that McDowell can not be applied on and off in all case of Tax Planning or Tax Avoidance within four corners of law i.e. legally. The legal decisions relied upon by the appellant are as under :– r .
(i) Union of India & Anr, v. Azadi Bachao Andolan 263 ITR 706 (SC)
(ii) M.V. Valliappan & Ors.Vs. ITO 170 ITR 238 (Mad) ;
(iii) Banyan & Berry v. CIT 222 ITR 831 (Guj)
(iv) CIT v. George Williamson (Assam) Ltd. 265 ITR 626 (Gau)
(v) CIT v. Rockman Cycle Industries (P) Ltd. 326 ITR 291 (P&H)
(vi) CIT v. Bihariji Construction (India) Ltd. 289 ITR 3 (Gau) ,
(vii) Industrial Development Corp. of Orissa Ltd. v. CIT 268 ITR 130 (Ori)
(viii) M/s. Porrits & Spencer (Asia) Ltd. v. CIT, Faridabad (ITA No. 10 of 2004 (P&H))
(ix) E’Trade Mauritius Ltd. (ARR) 324 ITR 1 (ARR)
(x) ACIT v. Turner Morison & Co. Ltd, 47 ITD 638 (ITAT Calcutta)
I have gone through the above judgments and found that eyen after the decision of McDowell’s case, the Hon’ble Supreme Court and other High Courts have consistently held that the assessee can still arrange his affairs legitimately to reduce the impact of tax, if it is done within the four corners of Law. In the present case of the appellant he has done the same absolutely genuine within the four corners of law and the set off of long term capital loss on sale of shares against the long term capital gain on sale of land is the consequence of the different provisions of the Act and no other device or dubious transaction to reduce the tax liability as observed by the assessing officer in the assessment order.
10. Further on going through the judgment of Hon. Bombay High Court heavily relied by learned Departmental Representative in the case of Killick Nixon Ltd. v. DCIT (supra) we find that the facts dealt in this case are different to the extent that the long term capital loss claimed as set off were investigated by learned assessing officer and were found to be circuitous transaction by way of purchase at exorbitant price and subsequently sold at negligible/throw away price and, therefore, said transaction of shares were treated as sham and genuineness of the transaction was doubted by assessing officer.
11. Whereas the facts of the case before us are different to the extent that none of the transactions has been treated as non-genuine by assessing officer rather he has just doubted the modus operandi adopted by the assessee to lower down the long term capital gain tax liability on sale of land. Therefore, the case relied on by learned Departmental Representative cannot be applied to the case before us as the facts are different.
11.1 Further from going through the decisions/judgments referred and relied on by learned Authorised Representatives we find that Hon. Jurisdictional High Court in the case of ACIT v. Biraj Investment (P) Ltd. (supra) has observed as under :–
17. We are not inclined to accept the Revenue’s contention that this was a colourable device and that the entire arrangement was a paper arrangement. Firstly, there is no provision in the Act which would prevent the assessee from selling loss making shares. Simply because such shares were sold during the previous year when the assessee had also sold some shares at profit by itself would not mean that this is a case of Colourable Device or that there is a case of Tax Avoidance. Further, there is no restriction that such sale or transaction cannot be effected with a group company. As long as the Revenue could not doubt the sale price of the shares, it would not be open for the Revenue to contend that the assessee had shown loss which it did not really suffer. In the present case, it is not even the case of the Revenue that shares were sold at a price lower than the market rate. If that be so, the question of inflating the loss by transferring the shares to group company would not arise. Under ordinary circumstances, it is always open to the assessee in his own wisdom to either hold on to certain bunch of shares or to sell the same to avoid further loss, if he finds that market value of the shares is fast diminishing. It is equally open for the assessee to effect such sale during the same year when he also chooses to dispose of certain profit making shares. In the present case, of course, there is a further angle of the shares in question being pledged to IDBI and therefore it would not be possible for the assessee to deliver the original share certificates to its purchaser along with the duly signed transfer forms. As already noted, such special angle may have repercussion insofar as the legal relation between the assessee and the IDBI is concerned and insofar as the purchaser’s right to have shares transferred in its name is concerned. This, however, by itself would not establish that the sale of shares was only a paper transaction and a device contrived by the assessee to claim loss which it did not suffer and thereby seek set off against the capital gain received by it during the year under consideration.
18. In the case of CIT v. Sakarlal Balabhai, 69 ITR 186, a Division Bench of this Court observed that avoidance of tax cannot include every case of reduction of tax liability of an assessee. The assessee may enter into a transaction which has the effect of diminishing his income and consequently reducing his tax liability. In such a case, there would be no avoidance of tax, For example, a case where the assessee makes a gift of shares to his son. By reason of gift income from the shares would not accrue to the assessee but would accrue to the son and to that extent the income of the assessee would be diminished and his tax liability reduced. This cannot be regarded as a case of tax avoidance even if the motive of the assessee in making the gift was to save tax on the income from shares at a higher rate applicable to him.
19. Under the circumstances, even without referring to the decision of the Apex Court in the case of Azadi Bachao Andolan (supra)and the observations made in the later decision in the case of Vodafone (supra), we do not find that this a case which would fall within the parameters of the decision in the case of McDowell & Company Ltd. (supra).
12. Further Hon. Jurisdictional High Court in the case of CIT v. Special Prints Ltd. (2013) 356 ITR 404 (Gujarat) adjudicated similar facts and observed as under :–
6. We are of the opinion that the appellate Commissioner as well as the Tribunal having examined all aspects of the matter and in particular the valuation report and having come to the conclusion that such report did not suffer from any legal infirmities, no interference is called for.
7. If one peruses the order of the assessing officer as a whole, primarily, he was concerned about the assessee having sold sizeable number of shares inviting considerable loss during the same period, when the assessee had sold certain assets and earned capital gain. Surely, merely because the assessee claimed set off of capital loss against the capital gain incurred during the same period by itself cannot be branded as a colourable device or method for tax avoidance. If both the transactions arc genuine and also traded at proper valuation, merely because the period co-existed or permitted the assessee to set off its capital loss against some capital gain, by itself would not give rise to the presumption that the transaction was in the nature of colourable device. Even if the assesses consciously entered into me transaction with an object of earning set off. may be a case of Tax Planning Hut as long as such tax planning is at achieved through legitimate means, the revenue surely can not object to the same.
7.1 The fact that the assessee sold only 12 lakh shares out of more than 15 lakh shares of a certain scrip held by it again by itself can hardly be a factor to brand the assessee of colourable device. It may be one of the factors to set the assessing officer thinking, without there being anything additional in, the form of the valuation itself being artificial, the Revenue cannot object to the assessee selling of its shareholding.
8. In the present case therefore, what essentially boils down to is whether the shares were sold at a correct price or at the price which was artificially arrived at to inflate the loss. In this respect, we have already noticed that the Commissioner (Appeals) as well as the Tribunal both had gone to the factual findings pertaining to the methodology adopted by the valuer in valuing the shares. We have also noticed that the assessing officer: except for doubting such valuation, on the basis of circumstances, did not have anything concrete at hand to hold that the price of Rs. 6.25 per share was not the correct price. In the circumstances, we do not find that the Tribunal had committed any error.
9. Before closing, we may notice that in case of Porrits & Spencer (Asia) Ltd. v. CIT (2010) 231 190 Taxman 174. the Punjab & Haryana High Court had somewhat similar situation to tackle with. Referring to and relying on the decision of the Apex Court in case of Union of India v. Azadi Bachao Andolon (2003) 263 ITR 706 (SC) and the decision of this Court in case of Banyan & Berry v. CIT ((1996) 222 ITR 831/84 Tnxman 515 (Guj)) it was observed .that once the transaction is genuine merely because it has been entered into with a motive to avoid tax. it would not become colourable device, earning any disqualification. It \\as observed as under :–
“18. The aforesaid discussion would show that once the transaction is genuine merely because it has been entered into with a motive to avoid tax. it would not become a colourable devise and consequently earn any disqualification. Hon. the Supreme Court in the concluding paras of its judgment in Azadi Bachao Andolon has rejected the submission that an act, which is otherwise valid in law, cannot be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interest as per the perception of the Revenue. The aforesaid view looks to be the correct view. It has ready-support from the Division Bench judgment of this Court rendered in the case of Satya Nand Munjal (supra) and the Division Bench judgment of Orissa High Court in the case of Industrial Development Corporation of Orissa) Ltd. (supra) and various other judgments of Delhi and Madras High Courts (supra)
13. Summarizing the facts of the assessee’s case in the light of above referred judicial pronouncements, we find that learned assessing officer has not challenged the genuineness of following transactions related to the issue before us :–
(1) Long term capital gain on sale of agricultural land.
(2) Gift of 179750 of equity shares of M.H. Mills Ltd. on 30-4-2007 and gift of 145317 equity shares of M. H. Mills from Janak D. Parikh on behalf of Janakbhai Deepakbhai HUF on 30-4-2007 which were purchased by the donors during the period 1986-87 to 1996-67 and 1992-93 to 2001-02 respectively.
(3) Off market sale of equity shares without paying STT but the sale price of equity shares sold of off market was at par with online market price on the date of entering into the sale transaction.
(4) Claim of assessee under section 70(3) for set off of capital loss against long term capital gain from sale of land.
The only point raised by assessing officer was that there was a clear planning on the part of assessee to sell the shares of listed market company in order to claim the benefit of long term capital loss which would not have been permitted in the case of on market sale transaction. As per section 108 of the Companies Act, 1956 off market transactions are permissible by Security Exchange Board of India. In the given facts and circumstances of the case we observe that judgment of Hon. Supreme Court in the case of Mc. Dwell & Co. (supra) squarely applies to the assessee wherein Hon. Supreme Court has observed as under :–
“Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges.”.
and, therefore, all the transactions entered into by the assessee are within the frame work of law and cannot be termed as a colourable device to evade tax rather it is assessee’s right of tax planning which he has used to reduce his tax liability by entering into all the transactions permissible by law. We, therefore, find no reason to interfere with the order of learned Commissioner (Appeals). We uphold the same. Accordingly this ground of Revenue is dismissed.
14. The second ground raised by the Revenue is against deletion of dis allowance of Rs. 1,15,043 under section 14A of the Act read with rule 8D of the rules by way of applying 0.5% on average value of investment of Rs. 2.30 crores. We observe that learned Commissioner (Appeals) has deleted the impugned dis allowance by observing as follows :–
7. I have carefully considered the observation and findings of the assessing officer as well as/submissions of the appellant. I have verified the computation of total income provided in the Paper Book filed by the appellant and it has been noticed that the appellant has not claimed any expenses from any of the income under the different heads of income. From the provisions of section 14A, it is clear that for the purpose of dis allowance under sections 14A, there must be some expenditure incurred by the assessee in relation to the income which does not form part of the total income and such expenditure must have been claimed by the assessee while computing the total income. Therefore, if there is no expenditure incurred by the assessee in relation to the income which does not form part of the total income and has not been claimed by the assessee while computing the total income, the provisions of section 14A of the Act would not apply. The decision of Hon’ble Mumbai ITAT (SB) in the case of M/s. Daga Capital Management (P) Ltd. and the decision of Hon’ble Delhi Tribunal in the case of Cheminvest Ltd. v. ITO relied upon by the learned assessing officer are not applicable in appellant’s case since the facts of the said cases and the facts of the appellant’s case are different.
In view of the above discussion, I am of the considered view that the dis allowance under section 14A read with rule 8D made by the assessing officer is unjustified and hence the same is deleted. Accordingly, the appellant gets relief of Rs. 1,15,083.
15. We further observe that assessee’s source of income is from salary, long term capital gain and income from other sources. Assessee has not claimed any expenditure against taxable income which can be linked to the investments made fetching exempt income. Certainly provisions of section 14A of the Act can be applied to the assessee only if there is some expenditure incurred by assessee in relation to the income which does not form part of the total income and such expenditure have been claimed by the assessee against the taxable income. In other words if the assessee has been carrying on any business activity and has claimed certain expenditure against the revenue or has claimed expenditure under income from other sources under section 57 of the Act then Revenue would have a case for calculating the dis allowance. However, no such facts are existing in the case of assessee as assessee has not claimed any expenditure against salary income, or income from other sources as verifiable from the computation of income placed at page 10 to 14 of the paper book. We are, therefore, of the view that no dis allowance is called for under section 14A of the Act and no interference is called for in the order of learned Commissioner (Appeals). We uphold the same. Accordingly, this ground of Revenue is also dismissed.
16. Ground nos. 3 & 4 are of general nature, which need no adjudication.
17. C.O. of the assessee has not been pressed. Therefore, the CO is dismissed as not pressed.
18. Now we take ITA No. 2015/Ahd/2011 in the case of Smt. Kusumlataben N. Parikh wherein Revenue has raised a single issue against the action of learned Commissioner (Appeals) allowing set off of long term capital loss at Rs. 3,48,93,607 from sale of shares off market.
19. At the outset learned Authorised Representatives appraised that the facts of the case in this appeal are similar to the facts of the case in ITA No. 1879/Ahd/2011 in the case of Deepak N. Parikh. Further we also observe that learned Commissioner (Appeals) has deleted the impugned dis allowance by observing as follows :–
2.3 I have considered the facts of the case, assessment order and appellant’s submission. Assessing officer disallowed appellant’s claim of longterm capital loss on sale of shares off market. Appellant submitted that the land from which the appellant has earned long term capital gain was in co ownership with her son Shri Deepakbhai N. Parikh. In case of Said Co-Owner Shri Deepakbhai N. Parikh, similar dis allowance on account of set otf long term capital loss on sale of shares was made by the assessing officer In the appeal, the learned Commissioner (Appeals)-VIII, Ahmedabad has passed the Appellate Order allowing the appeal for the assessment year 2008-09 on this ground in favor of the said co owner. I have gone through the appeal order dated 18-5-2011 passed by Commissioner (Appeals) VIII, Ahmedabad in the case of Co-Owner. The relevant part of decision is quoted below-
“ I have gone through the above judgments and found that even after the decision of Mc-dowel’s case, the honorable Supreme Court and other high Courts have consistently held that the assessee can still arrange his affairs legitimately to reduce the impact of tax, if it is done within the four corners of law. In the present case of the appellant, he has done the same absolutely genuine within the four corners of law and the set off of long-term capital loss on the sale of shares against the long-term capital gain on sale of land is the consequence of the different provisions of the act and not other device or dubious transaction to reduce the fax liability as observed by the assessing officer In the assessment order.
On the basis of facts discussed the above, I am of the considered opinion that the assessing officer has made the dis allowance of set off of long-term capital loss on sale of sales of M H Mills and industries Ltd. merely because the transaction has been done off market which has resulted in the long term capital loss. The gift of shares of the said company received by the appellant from his close relatives has been accepted by the assessing officer as genuine and not bogus. The transaction of sale of shares of M H Mills and industries Ltd. to third-party has also been accepted by the assessing officer as genuine and not bogus. When the statute provides alternative options of taxation in the case of long-term capital gain, the assessee has a legal and valid right to choose any of the options and faxing authority cannot question why a particular option has been chosen and not the other one. .In the present case of the appellant, he’s having two legal options available for selling the shares. “On market” and “off market” and he had choose the “off market” option while evaluating the tax implication of it. The assessing officer cannot question the appellant on the decision taken by him which is legal, valid and within four corners of law. In my considered view, there seems no colorable device in the transactions of sale of shares of M H Mills and Industries Ltd. off market by the appellant which has eventually resulted in the loss. assessing officer has not brought on record any cogent material evidence in support of the allegation that the transaction of sale of shares of M H Mills and industries Ltd. off market is a colorable device to avoid the fax.
In view of the detailed discussion held above, the dis allowance made by the assessing officer for set off of long-term capital loss on sale of shares of M H Mills and industries Ltd. is not justified and therefore is deleted.”
Since facts of the appellant’s case is identical to that of her son in whose case aforesaid appeal order is passed. Since appellant was co-owner of the land which resulted in long-term capital gain and in the hands of other co-owner, on identical facts and circumstances, long-term capital loss is allowed, this issue is squarely covered in appellant’s favour. Like her son, appellant also received gifts in the form of shares from close relatives. These shares were sold off market resulting in long-term capital loss which was set off against long-term capital gain received on sale of land. Therefore it is clear that issue involved and facts in both the cases are identical. Considering the appellant’s submission on facts and law, I agree with the decision given in the aforesaid appeal order. Respectfully following the order of Commissioner (Appeals) VIII, Ahmedabad, I also delete the addition made by the assessing officer on the same reasons mentioned above.
20. From going through the decision of learned Commissioner (Appeals) and the facts placed before us, we find that they are verbatim similar to the facts dealt by us in ITA No. 1879/Ahd/2011. We have decided the issue in favour of assessee by observing that the assessee should be allowed set off of long term capital loss from sale of shares off market against the long term capital gain on sale of land as they have been entered within the permissible four corners of law and the modus operandi of the assessee is not that of tax evasion but of tax planning. Applying our decision in ITA No. 1789/Ahd/2011, we find no reason to interfere with the order of learned Commissioner (Appeals) and uphold the same. This ground of Revenue is dismissed.
21. Cross Objection by the assessee has not been pressed and hence dismissed as not pressed.
22. In the result, both the appeals of Revenue and the Cross Objections of the assessee are dismissed.
