Case Law Details
ITAT New Delhi held In the case of Venus Financial Services Ltd. vs. ACIT that the Assessing Officer has no power to replace the value of the consideration agreed between the parties with any fair market value or estimation. Only because the company whose shares have been sold, had shown the book value of shares at the rate of Rs.3.50 per share, the Assessing Officer was not justified to ignore the price agreed between the parties and to doubt the genuineness of the claimed loss, even ignoring the valuation report.
Facts of the Case
The assessee company was engaged in the business of investments and purchase/sale of land and immoveable property. The assessee claimed capital loss of Rs.5,21,22,725. The Assessing Officer asked to furnish complete details of shares sold during the year on which loss was claimed. The assessee showed long term capital losses on sale of shares of three unlisted companies, namely, the Pioneer Ltd., Ultima and Solaris Holding Ltd. These shares were sold by the assessee at par and the loss arisen was due to indexed cost. The Assessing Officer accepted the claimed loss regarding the shares transaction of Ultima and Solaris Holdings Ltd. but did not accept the claimed loss on sale of shares of the Pioneer Ltd. as the assessee was failed to produce complete documents along with copy of share transferred deed and confirmation of the buyer for consideration. The Assessing Officer accordingly held that the loss claimed by the assessee on sale of unlisted shares of Pioneer Ltd. remained unsubstantiated and unverified and added the claimed loss of Rs.4,47,55,491 by way of disallowance.
Contention of the Assessee
The ld counsel of the assessee submitted that the assessee has claimed long term capital loss of Rs.4,47,55,491 on the sale of shares of Pioneer Ltd., which shares were allotted to the assessee in the assessment year 2007-08 for a consideration of Rs.4 crores. The assessee had also sold the shares of two other unlisted companies, namely, Solaris Holdings and Ultima Hygiene Ltd. The shares of these two companies were sold at par and the loss accrued due to indexation was allowed by the Assessing Officer.
In respect to non submission of complete documents, the ld counsel of the assessee submitted that it is not correct as complete documents were filed by the assessee as it is evident from the submissions of the assessee before the Learned CIT (A).
In respect to observation of the Assessing Officer that the book value of the shares as shown by Pioneer Ltd. is Rs.3.50 per share, he submitted that the Assessing Officer has failed to compute the capital gain in accordance with sec. 45 read with sec. 48 of the Income-tax Act, 1961. The basis adopted by the Assessing Officer to value shares at the rate of Rs.3.50 has not been at all mentioned in the assessment order nor any supporting evidence has been brought on record. Thus, the value of shares at the rate of Rs.3.50 adopted by the Assessing Officer in place of Rs.0.10 per share is not valid. The authorities below have overlooked that the shares were duly transferred in the name of other party and the consideration was received by cheque.
It is the settled position of law that in case of sale, the Assessing Officer has no power to replace the value of consideration agreed between the parties. In support, he placed reliance on the following decisions, Nilofer Singh – 309 ITR 233 (Delhi); George Handorson – 66 ITR 622 (S.C); Gillanders Arbuthonot – 87 ITR 407 (S.C); Morarji Textile Ltd. – ITA No. 1979/Bom/2009; and MGM Benefit Trust – ITA No. 316/Bum/2009 dt. 26.11.2009.
He further submitted that the Assessing Officer has accepted the sales consideration received by the assessee as genuine as it is evident from the fact that while computing the income of the assessee, the Assessing Officer has adopted the net figure of loss as computed by the assessee in its computation and no separate addition of Rs.1 lac has ever been made. Thus the Assessing Officer and Learned CIT (Appeals) both have accepted the sales consideration figure.
The ld counsel of the assessee submitted that report of valuer is an important piece of evidence and the same cannot be discarded without their being any cogent material on record showing that the report of valuer is not correct. In this regard, he placed reliance on the judgment of Hon’ble jurisdictional Delhi High Court in the case of S.K. Construction & Co. – 167 Taxman 171 (Delhi).
The Learned AR submitted further that the transaction among the group company is not prohibited under the law and an assessee can sell shares at lesser price to its subsidiary. In this regard, he placed reliance on the judgment of Hon’ble Supreme Court in the case of CIT vs. Calcutta Discount – 91 ITR 8 (S.C) holding that a company can sold shares to its subsidiary at lower price and has wisdom to reduce its tax liability.
The Learned AR submitted further that there is no reason to doubt the genuineness of the claimed transaction. As per the provisions of sec. 70(2), a long term capital loss can only be set off with long term gain and not otherwise and in the year under consideration, there was no long term gain available with the assessee. Therefore, there was no ulterior motive of the assessee behind the transaction as has been alleged by the Learned CIT (Appeals). The assessee has lost the opportunity of carrying forward this loss in upcoming years by virtue of amalgamation. Therefore, it can be said that the transaction entered by the assessee was a bona fide and genuine transaction without any colorable device.
Contention of the Revenue
The ld counsel of the revenue supported the order of CIT (A).
Held by CIT (A)
The CIT (A) uphold the disallowance of Rs.4,47,55,491 claimed in respect of loss under the head “capital gain” treating the transaction doubtful.
Held by ITAT
It is settled position of law that in the case of sale, the Assessing Officer has no power to replace the value of the consideration agreed between the parties. In the case of Nilofar Singh 309 ITR 233 (Delhi), Hon’ble Delhi High Court held that the expression “full value of consideration” used in section 48 of the Act does not have any reference to market value. The same views were taken in the case of George Handorson – 66 ITR 622 (S.C); Gillanders Arbuthonot – 87 ITR 407 (S.C); Morarji Textile Ltd. – ITA No. 1979/Bom/2009; and MGM Benefit Trust – ITA No. 316/Bum/2009 dated. 26.11.2009.
We also agree with that a report of a valuer is an important piece of evidence and the same cannot be discarded without there being any cogent material on record showing that the report of the valuer is not correct. It is well supported by the decisions cited of Hon’ble Delhi High Court in the case of S.K. Construction & Co. 167 Taxman 171(Delhi).
Also only on the basis that the Pioneer Ltd. had shown the book value of shares at the rate of Rs.3.50 per share, the Assessing Officer was not justified to ignore the price agreed between the parties and to doubt the genuineness of the claimed loss, even ignoring the valuation report.
We thus while setting aside orders of the authorities below direct the Assessing Officer to delete the disallowance of Rs.4,47,55,491 incurred on the sale of shares of the Pioneer Ltd.
Accordingly, appeal of the assessee allowed.
