Case Law Details
DCIT Vs Somnath Vaijnath Sakre (ITAT Pune)
The AO treated the entire purchases as bogus based on information from investigation wing/suspicious dealers and made full addition. The CIT(A) partly upheld the addition.
The ITAT observed that although the suppliers were doubtful, the sales were accepted and corresponding purchases could not be entirely disallowed. In such cases, only the profit element embedded in such purchases can be brought to tax.
Following settled judicial precedents, the Tribunal held that estimation of profit is appropriate instead of 100% disallowance, and accordingly restricted the addition to a reasonable percentage of the alleged bogus purchases.
The appeal was thus partly allowed, granting substantial relief to the assessee
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal filed by the Revenue is directed against the order dated 24.07.2024 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2013-14.
2. This is the second round of litigation before the Tribunal. Facts of the case, in brief, are that the assessee is an individual and engaged in the business of manufacturing of plastic water tank / plastic milk cane under the name and style of M/s. Shree Maruti Udyog. He filed his return of income on 31.10.2013 declaring total income of Rs.5,55,53,700/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). Subsequently the case was selected for scrutiny under CASS and accordingly statutory notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee in response to which the assessee filed the requisite details. The Assessing Officer completed the assessment u/s 143(3) of the Act on 01.03.2016 assessing the total income of the assessee at Rs.5,55,85,528/-.
3. Subsequently the PCIT examined the record and noted that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue for the following reasons:
a. Verification of the case record revealed that you sold 3,50,000 equity shares of Lord Ganesh Minerals Pvt. Ltd., Pune (LGMPL) to KSL Holding Pvt. Ltd., & received consideration of Rs.21,87,50,000/-, vide share transfer form No.075773 dated 03-07-2012. You had claimed the selling expenses at Rs.7,84,00,000/-.
b. Further, on going through the case record, it is observed that you had cancelled the agreement dated 02-07-2012 for sale of shares entered in to with Nilesh Steel and Alloyes Pvt. Ltd for 2,14,375 shares out of 3,50,000 shares and with Dhanlaxmi TMT Bars Pvt. Ltd for 1,35,625 shares, out of 3,50,000 shares of LGMPL and agreed to pay consideration of Rs.4,80,20,000/- & Rs.3,03,80,000/- to Nilesh Steel & alloyes Pvt. Ltd and Dhanlaxmi TMT Bars Pvt. Ltd respectively for breach of contract entered into with both the parties on 07-05-2012 and 09-04-2012, respectively.
c. While entering in to the agreement for sale of shares to the above mentioned parties you could not get consent from the shareholder/Director of Lord Ganesh Minerals Pvt. Ltd. Therefore, cancellation agreement for sale of shares executed without paying any stamp duty and the parties instead of going to court for settlement of dispute, if any, objected the sale of shares to KSL Holding Pvt. Ltd and finally agreed to execute cancellation deed. However, cancellation agreement executed by both the parties is in the nature of colourable device to minimize the Long Term Capital Gains. Hence, categorizing payment of Rs.7,84,00,000/- as selling expenses is not in order. Therefore, the deduction allowed of Rs.7,84,00,000/- while computing LTCG is not in order.
4. He, therefore, issued a show cause notice asking the assessee to explain as to why the order passed by the Assessing Officer should not be revised. Rejecting the various explanations given by the assessee and relying on various decisions, the Ld. PCIT set aside the matter to the file of the Assessing Officer with a direction to re-frame the assessment order as per the provisions of law after considering the facts and submissions of the assessee and also after the necessary verification in light of his observations.
5. The Assessing Officer thereafter issued notice u/s 143(2) of the Act. After considering the various submissions made by the assessee from time to time, he made addition of Rs.7,84,00,000/- to the total income of the assessee by recording as under:
“4.3 On verification of the case record it is found that the assessee has sold 3,50,000 equity shares of Lord Ganesh Minerals Pvt. Ltd, Pune (LGMPL) to KSL Holding Pvt. Ltd., & received consideration of Rs.21,87,50,000/-, vide share transfer form no. 075773 dated 03/07/2012. The assessee had claimed the selling expenses at Rs.7,84,00,000/-.
4.4 Further, on going through the case record, it is observed that the assessee had cancelled the agreement dated 02/07/2012 for sale of shares entered into with Nilesh Steel and Alloyes Pvt. Ltd for Rs. 2,14,375/- shares out of 3,50,000/- shares and with Dhanlaxmi TMT Bars Pvt. Ltd for 1,35,625 shares, out of 3,50,000 shares of LGMPL and agreed to pay consideration of Rs.4,80,20,000/- and Rs.3,03,80,000/- to Nilesh Steel & Alloys Pvt. Ltd. and Dhanlaxmi TMT Bars Pvt. Ltd respectively for breach of contract entered into with both the parties on 07/05/2012 and 09/04/2012 respectively. However, while entering in to the agreement for sale of shares to the above mentioned parties the assessee could not get consent from the shareholder/director of Lord Ganesh Minerals Pvt. Ltd. Therefore, cancellation agreement for sale of shares executed without paying any stamp duty and the parties instead of going to court for settlement of dispute, if any, objected to the sale of shares to KSL Holding Pvt. Ltd and finally agreed to execute cancellation deed. However, cancellation agreement executed by both the parties is in the nature of colourable device to minimize the Long Term Capital Gains. Hence, categorizing payment of Rs.7,84,00,000/- as selling expenses is not in order. Therefore deduction allowed of Rs.7,84,00,000/- while computing LTCG is not in order. Hence, deduction claimed by the assessee while computing LTCG amounting to Rs.7,84,00,000/- is disallowed and the same is treated as income from Long Term Capital Gain.”
6. The assessee preferred an appeal before the Ld. CIT(A) who vide order dated 02.07.2019 deleted the addition made by the Assessing Officer by observing as under:
9. Aggrieved with such order of the Ld. CIT(A) / NFAC, the Revenue is in appeal before the Tribunal by raising the following grounds:
1. On the facts and in the circumstances, whether the CIT(A), NFAC, Delhi was correct in deleting the addition in the case of assessee wherein the assessee had cancelled the agreement dated 02/07/2012 for sale of shares entered into with Nilesh Steel and Alloys Pvt Ltd and Dhanlaxmi TMT Bars Pvt. Ltd and agreed pay consideration of Rs.4,80,20,000/- Rs.3,03,80,000/-to above two parties respectively as compensation towards breach of contract entered into with these parties without paying any stamp duty and these parties instead of going to court for settlement of dispute objected the sale of shares to KSL Holding Pvt. Ltd and assessee spontaneously agreed to execute cancellation deed, which is a colorable devise to minimize the tax liability?
2. On the facts and in the circumstances, whether the CIT(A), NFAC, was right in allowing the appeal of the assessee without appreciating the fact that as per profit and loss account of Nilesh Steel & Alloys Pvt. Ltd and Dhanlaxmi TMT Bars Pvt. Ltd for A.Y.2013-14, the profit before tax, (including the profit on sale of rights in shares of Rs.4,80,20,000/- and Rs.3,03,80,000/-respectively) is Rs.9,18,636/- and Rs.1,35,26,542/-. Thus, there is loss after excluding these amounts in both the cases. This shows that the assessee through these companies used the execution of agreement to sell and cancellation agreement as a colorable devise to minimize the tax liability and hence, the deduction of Rs.7,84,00,000/- claimed by the assessee as selling expenses while computing the long-term capital gain on transfer/sell of shares is not in order?
3. On the facts and in the circumstances, whether the CIT(A), NFAC, Delhi was correct in allowing appeal of the assessee without giving the AO, an opportunity to examine/cross examine the evidences submitted by the assessee during the course of appellate proceedings as envisaged in Rule 46A of the IT Rules?
4. The order of the Assessing Officer may be restored and that of the CIT(A), NFAC, Delhi be vacated.
5. The appellant craves leave to add, amend or alter all or any of the grounds of appeal.
10. The Ld. DR strongly objected to the order passed by the Ld. CIT(A) / NFAC in deleting the addition made by the Assessing Officer. Referring to the copy of agreements entered with Dhanlaxmi TMT Bars Pvt Ltd (DPL) and Nilesh Steel and Alloys (P) Ltd. (NPL), he submitted that these are not registered agreements and no stamp duty was paid in respect of these agreements, therefore, the genuineness of the said agreements was not established. Further, the assessee has agreed to pay compensation to DPL and NPL and executed cancellation deed with DPL and NPL, instead of going to Court. This shows that these are nothing but colourable devices to reduce the tax liability. So far as the argument of the assessee that DPL and NPL had declared profit before tax of Rs.1,35,26,542/- and Rs.9,18,636/- after including the compensation of Rs.3,03,80,000/- and Rs.4,80,20,000/- in their Profit and Loss Account for assessment year 2013-14 is concerned, he submitted that if the said compensation receipts are excluded, the said companies had incurred losses. Therefore, the assessee by adopting calculated and colourable devises had diverted the amounts to these two companies which are loss making concerns to reduce its tax liability. Referring to the provisions of section 48 of the Act, he submitted that as per the said provisions while computing the income chargeable under the head ‘capital gain’ the deductions which are allowable are (a) expenditure incurred wholly and exclusively in connection with such transfer; (b) the cost of acquisition of the asset and the cost of any improvement thereto; and (c) in case of value of any money or capital asset received by a specified person from a specified entity referred to in sub-section (4) of section 45, the amount chargeable to income tax as income of such specified entity under that sub-section which is attributable to the capital asset being transferred by the specified entity, calculated in the prescribed manner. He submitted that in the instant case the compensation paid to the above two concerns does not fit under any of the claims since it is not wholly and exclusively for the sale of shares. He submitted that there should have been some document as to why the company rejected the transfer of shares to the first two buyers and accepted the third one. He submitted that the Ld. CIT(A) / NFAC without any valid reason and admitting certain additional evidences and without following due procedure prescribed under Rule 46A of the IT Rules deleted the addition which is not justified. He submitted that the Assessing Officer while deciding the issue has elaborately discussed the issue and the Ld. CIT(A) / NFAC without considering the various objections raised by the Assessing Officer has deleted the addition which is not correct. He accordingly submitted that the order of the Ld. CIT(A) / NFAC be reversed that of the Assessing Officer be restored.
11. The Ld. Counsel for the assessee on the other hand filed a detailed written submission and drew the attention of the Bench to the following chronology of events:
12. So far as the allegation of the Revenue that the agreements entered with DPL and NPL are not registered and no stamp duty was paid in respect of these agreements for which the genuineness of the said agreements was not established is concerned, the Ld. Counsel for the assessee submitted that the agreements dated 09.04.2012 and 07.05.2012 are entered with DPL and NPL and are in the nature of ‘Agreements to Sale of Shares’. Referring to the provisions of section 17 of Indian Registration Act, 1908, he submitted that these agreements were not required to get registered since these were not entered in respect of any immovable property. Referring to Article 15, Schedule I of Bombay Stamps Act, 1958, he submitted that the assessee was liable to pay stamp duty of Rs.100/- in respect of Instrument of Cancellation. He submitted that the Cancellation Agreement dated 02.07.2012 with the above parties has been executed on Stamp Paper of Rs.100/- and thus the relevant provisions of law have been duly complied while executing the above Agreements. He submitted that the above agreements are valid as per Section 10 of Indian Contract Act, 1872. Referring to the letter dated 28.12.2018 filed before the Assessing Officer, copy of which is placed at pages 40 to 42 of the paper book and the letter dated 27.12.2018 filed before the Assessing Officer, copy of which is placed at page 47 of the paper book and referring to page 36 of the paper book he submitted that this was also explained before the Ld. CIT(A) / NFAC vide letter dated 10.06.2019. Referring to the copy of the order of the Ld. CIT(A) / NFAC dated 02.07.2019, copy of which is placed at pages 83 and 84 of the paper book, he submitted that the Ld. CIT(A) / NFAC also has acknowledged the same. Referring to page 18 at para ‘d’ of the paper book, he submitted that the assessee has also submitted these details before the Ld. CIT(A) / NFAC vide letter dated 07.05.2024. He submitted that the above explanation filed time and again has not been controverted by the Assessing Officer or the Ld. CIT(A) / NFAC. He submitted that the Ld. D.R. has not cited any provisions of law which mandate the registration of agreement to sell in respect of shares of a company. Further, the Ld. DR has not cited any provisions of law which mandate the payment of stamp duty of more than Rs.100/- on the impugned agreements. Even otherwise also, all the agreements have been duly notarized before Notary, Govt. of India which further substantiates the genuineness of these agreements.
13. So far as the objection of the Revenue that the assessee has agreed to pay compensation to DPL and NPL and executed cancellation deed with DPL and NPL, instead of going to Court is concerned, the Ld. Counsel for the assessee drew the attention of the Bench to the agreement dated 09.04.2012 entered by the assessee with Dhanlaxmi TMT Bars Pvt Ltd, copy of which is placed at pages 104 to 114 of the paper book and the agreement dated 07.05.2012 entered by the assessee with Nilesh Steel and Alloys Pvt Ltd, copy of which is placed at pages 115 to 127 of the paper book. Referring to clauses 4 and 5 of the Agreements to Sell entered with DPL and NPL, he submitted that as per the said clauses it was specifically agreed that within the stipulated time limit of two months, the assessee shall obtain NOC / consent from the other shareholders of LGMPL for (a) transfer of shares owned by the assessec to DPL/NPL and (b) allotment of direct rights in favour of DPL/NPL in Iron Ore mined by LGMPL in proportion of their shareholding in LGMPL. He submitted that it was agreed that after obtaining the said NOC / consent, the share transfer forms shall be executed in favour of DPL/NPL within three months. In consideration thereof, DPL/ NPL had paid the entire consideration by handing over cash of Rs.11 lakhs each and by issuing postdated cheques for balance consideration on the date of entering the above agreements. Referring to clause 12 of the agreement (page 109), he submitted that the agreement further stipulated that in case the assessee fails to obtain NOC and transfer the shares within the stipulated time period, then the assessee shall be liable to pay damages of Rs.15 lakhs per day to DPL/NPL for each day of default. Referring to clause 14 (page 110) of the said agreement, he submitted that as per the said clause if the assessee fails to deliver the shares to DPL/NPL within the stipulated period and if the assessee desires to sell the shares to any other party for a higher consideration, then 70% of the excess consideration received by assessee over and above the agreed price of Rs.305 per share shall be paid to DPL/ NPL and only 30% of such excess consideration shall be retained by the assessee. It was also specifically agreed that no such agreement for sale of shares to third party shall be executed by assessee without obtaining prior written consent from DPL/ NPL. He submitted that it was specifically agreed vide clause 14 that in case of failure of the assessee to fulfill any of the above conditions, shall empower DPL/NPL to initiate available civil as well as criminal legal proceedings against the assessee. He submitted that in view of the unambiguous terms enumerated in the agreement itself, there was no cause of dispute left to be argued from the side of the assessee by dragging the matter to the Court. Further the compensation paid by the assessee to DPL/NPL was not towards breach of contract as contended by the Assessing Officer but the same was paid to fulfill the contractual obligations as per the terms of contract entered with DPL/NPL. He submitted that due to payment of this compensation @ Rs.224 per share to DPL/NPL, the assessee was able to sell the shares at a much higher price of Rs.625 per share instead of earlier agreed price of Rs.305 per share and therefore it is a prudent business decision.
Although these facts were duly clarified before the Assessing Officer vide reply dated 27.12.2019 as per pages 43-47 of the paper book he has not given due weightage. However, the Ld. CIT(A) / NFAC has rightly appreciated the above facts while allowing relief to the assessee. Referring to the decision of Hon’ble Supreme Court in the case of Sanjeev Lal vs. CIT reported in (2014) 365 ITR 389 (SC), he submitted that the Hon’ble Supreme Court in the said decision has held that even in respect of immovable property, an unregistered agreement to sell creates a legal right in favour of the purchaser and the vendor shall not sell to any other party without the consent of the purchaser which would otherwise entail the purchaser to initiate legal action against the vendor by way of suit for specific performance of contract. Therefore once the assessee was contractually bound by terms, then there was no point for the assessee to dispute the matter in Court and waste valuable time and resources of all parties.
14. So far as the objection of the Revenue that DPL and NPL had declared profit before tax of Rs.1,35,26,542/- and Rs.9,18,636/- after including the compensation of Rs.3,03,80,000/- and Rs.4,80,20,000/- in their Profit and Loss Account for assessment year 2013-14 and after excluding the compensation they were incurring losses is concerned, the Ld. Counsel for the assessee drew the attention of the Bench to page 140 of the paper book and he drew the attention of the Bench to the ITR for assessment year 2013-14 in respect of DPL and submitted that they have declared total income of Rs.95,13,639/-. Referring to page 145 of the paper book, he submitted that NPL had declared total income of Rs.57,04,750/-. Further, the said income was also assessed to tax in their hands u/s 153A r.w.s. 143(3) for assessment year 2013-14, copy of which is placed at pages 147 to159 of the paper book. This according to the Ld. Counsel for the assessee shows that after considering the compensation received by DPL/NPL, they have paid substantial taxes @ 30% thereon and it was not a case that the entire compensation receipt was set off against losses. Further the above two companies are not paper companies providing accommodation entries. Both these companies are leading manufacturers of steel TMT Bars/Billets/ Ingots in the Jalna region and this fact has also been acknowledged by the Assessing Officer in the assessment order u/s 153A passed for assessment year 2013-14 in case of DPL (page 147). He submitted that DPL has derived huge turnover of more than Rs.218 crores in assessment year 2013-14 whereas NPL has declared turnover of around Rs.131 crores during this year, the details of which are provided at pages 143 & 146 of the paper book. Thus, both these companies are reputed companies which require iron ore as raw material for their manufacturing activity. He submitted that during 2012 the steel industry in general was suffering from losses due to global slowdown and recession. Many leading companies had also reported losses during this period. He accordingly submitted that merely because DPL/ NPL had incurred losses during this year, this cannot lead to the inference that the compensation paid to them was mere accommodation entry. Further, without bringing any corroborative material, the Assessing Officer merely could not have stated that the compensation was merely in the form of accommodation entry. He submitted that the search action u/s 132 was conducted in the above two companies on 02.05.2013 and no such material in support of the above suspicion could be gathered by the Revenue. Referring to the following decisions he submitted that under identical circumstances the compensation paid on cancellation of agreements has been held as genuine and allowed as deduction:
1. DCIT v. Sentinel Properties Pvt. Ltd. vide ITA No. 2130/Mum/2023 order dated 27.10.2023
2. Nitesh Estates Pvt. Ltd. v. DCIT reported in [(2022) 289 Taxman 45 (Karnataka HC)]
15. So far as the objection of the Revenue that the Ld. CIT(A) / NFAC has admitted certain additional evidences without following the procedure prescribed under Rule 46A of the IT Rules is concerned, he submitted that the Ld. CIT(A) / NFAC is legally empowered to carry out further enquiries u/s 250(4) of the Act, which the Assessing Officer had failed to conduct. Referring to pages 24 to 26 of the paper book, he submitted that the Ld. CIT(A) / NFAC in the instant case has conducted further enquiries by issuing notice u/s 250 dated 18.06.2024. The only additional evidences furnished before the Ld. CIT(A) / NFAC as part of the further enquiries are as under:
1. Declaration to the effect that DPL and NPL were not related parties with the assessee
2. Annual Report of LGMPL for A.Y.2013-14 which is available in public domain MCA Portal
3. Annual Reports of KSL Holdings Pvt. Ltd. for A.Y.2013-14 and Α.Υ.2014-15 [these are also available in public domain-MCA Portal]
16. So far as the declaration furnished by the assessee that the assessee and DPL/NPL are not related with each other is concerned, he submitted that this was already clarified before the Assessing Officer during the assessment. Referring to the Tax Audit Report for assessment year 2013-14 he submitted that the Tax Auditor had not reported DPL and NPL as related parties u/s 40A(2). Further, this fact was also clarified before the Ld. CIT(A) / NFAC earlier. He submitted that the Annual Reports of LGMPL and KSL Holdings Pvt. Ltd. were furnished to substantiate the claim that these companies were not some paper companies but big reputed companies. These reports were already available in public domain i.e. MCA portal. Therefore, the veracity of these documents could not have been doubted.
17. Referring to the decision of Hon’ble Bombay High Court in the case of Rallis India Ltd. V CIT reported in (2015) 374 ITR 462 (Bom) and the decision of the Mumbai Bench of the Tribunal in the case of ITO v. Industrial Roadways reported in (2008) 112 ITD 293 (Mum), he submitted that the CIT(A) was well within its powers u/s 250(4) to conduct further enquiry to call for such documents and considering the nature of these evidences, the CIT(A) is not under an obligation to call for remand report on these documents from the Assessing Officer.
18. The Ld. Counsel for the assessee referring to the assessment order as well as the grounds raised by the Revenue in Form 36 justifying the addition submitted that the Ld. DR is raising objections on some grounds which were never relied on by the Assessing Officer in the assessment order. Relying on various decisions, he submitted that the Ld. DR is not permitted to improve the order of the Assessing Officer by bringing out new grounds to justify the addition and he is only permitted to support the order of the Assessing Officer on the basis of reasons stated by the Assessing Officer in the assessment order. He submitted that in the instant case the assessee was subjected to multiple rounds of investigations in the form of scrutiny assessment proceedings u/s 143(3) and revision assessment proceedings u/s 143(3) r.w.s. 263 of the Act. Thereafter, in two separate proceedings, the Ld. CIT(A) / NFAC in physical as well as faceless mode, have conducted further investigations and allowed relief to the assessee. Further the matter is very old and the assessee is a senior citizen not keeping good health and has retired from all active businesses. Under these circumstances if the Ld. DR is allowed to raise new grounds to justify the addition entailing further investigations, then this will be an unending process. Referring to the following decisions, he submitted that the Ld. DR is not permitted to improve the order of the Assessing Officer by bringing out new grounds to justify the addition and he is only permitted to support the order of the Assessing Officer:
i. Balaji Developers v. ITO vide ITA No.375/PUNE/2024 order dated 24.03.2025
ii. Mahindra & Mahindra v. DCIT reported in (2009) 122 TTJ 577 (Mumbai) (Special Bench)
iii. Bharatnagar Buildcon LLP v. PCIT reported in [(2023) 226 TTJ 488 (Pune)]
iv. Kasat Paper & Pulp Ltd. v. ACIT reported in [74 ITD 455 (Pune)]
v. Mukund M. Altekar v. ITO vide ITA No.1616/PUNE/2015
19. Referring to the following decisions, he submitted that the Tribunal does not have the power to confirm the addition made by the Assessing Officer on any other different ground apart from the ground relied on by the Assessing Officer:
i. Sarika Jain v. CIT [(2017) 249 Taxman 625 (All HC)]
ii. Pokhraj Hirachand v. CIT [(1963) 49 ITR 293 (Bom HC)]
iii. Karnataka State Forest Industries Corp. Ltd. v. CIT [(1993) 201 ITR 674 (Kar HC)]
20. He accordingly submitted that the order of the Ld. CIT(A) / NFAC being in accordance with law should be upheld and the grounds raised by the Revenue be dismissed.
21. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case disallowed an amount of Rs.7,84,00,000/- claimed by the assessee as selling expenses from the computation of long term capital gain of the assessee on the ground that the same is a colourable device adopted by the assessee to reduce its long term capital gain. While doing so he noted that the assessee has entered into an agreement for sale of 3,50,000 equity shares of Lord Ganesh Minerals Pvt Ltd, Pune to KSL Holding Pvt Ltd and received consideration of Rs.21,87,50,000/- out of which it claimed to have paid compensation of Rs.4,80,20,000/- to Nilesh Steel and Alloys Pvt Ltd and Rs.3,03,80,000/- to Dhanlaxmi TMT Bars Pvt Ltd for breach of contract entered into with both the parties on 07.05.2012 and 09.04.2012 respectively. According to the Assessing Officer, the cancellation of agreement for sale of shares executed with the above two parties without paying any stamp duty and the parties instead of going to the Court for settlement of dispute, objected to the sale of shares to KSL Holding Pvt Ltd and finally agreed to execute cancellation deed is a colourable device to minimize the long term capital gain. We find the Ld. CIT(A) deleted the addition, reasons of which have already been reproduced in the preceding paragraphs.
22. It is the submission of the Ld. DR that the agreements entered with DPL and NPL were not registered and no stamp duty was paid in respect of these agreements and therefore, the genuineness of the said agreements was not established. Further, the assessee has agreed to pay the compensation to DPL and NPL and executed cancellation deeds with DPL and NPL instead of going to the Court. It is his submission that DPL and NPL have declared meagre profit before tax of Rs.1,35,26,542/- and Rs.9,18,636/- respectively after including the compensation of Rs.3,03,80,000/- and Rs.4,80,20,000/- in their Profit and Loss Accounts for assessment year 2013-14. Therefore, if the said compensations were excluded, the said companies had incurred losses. It is also his submission that the Ld. CIT(A) had admitted certain additional evidences without following the due procedure as per the provisions of Rule 46A of the IT Rules.
23. It is submission of the Ld. Counsel for the assessee that there is no requirement to get the agreements registered since as per the provisions of section 17 of the Indian Registration Act, only immovable property documents are to be registered. It is his submission that as per Article 15, Schedule I of Bombay Stamps Act, 1958, the assessee was liable to pay only the stamp duty. The Ld. DR has not cited any provision of law which mandates the registration of agreements to sell in respect of sale of shares. It is also his submission that the compensation paid by the assessee to DPL and NPL was not towards breach of contract as contended by the Assessing Officer but the same was paid to fulfill the contractual obligations as per the terms of the contract entered into with DPL and NPL. It is his submission that by selling the shares at a much higher price of Rs.625 per share instead of earlier agreed price of Rs.305 per share the assessee, even after payment of compensation @ Rs.224 per share has earned extra profit of Rs.96 per share. Therefore, it is a business decision and there is no loss to the Revenue rather the assessee has earned more income and paid more taxes than what he would have paid on the basis of earlier agreements. Further, it is the submission of the Ld. Counsel for the assessee that DPL and NPL are reputed companies having huge turnover of Rs.218 crores Rs.131 crores respectively and are not related to the assessee and after showing the compensation received from the assessee they have declared huge profit and paid taxes. It is also his submission that the Ld. CIT(A) has not admitted any additional evidences but has accepted certain documents which are already available in public domain. It is his submission that the Ld. DR cannot improve the case beyond the case of the Assessing Officer and he has to confine his arguments to the points raised by the Assessing Officer.
24. We find some force in the above arguments of the Ld. Counsel for the assessee. It is an admitted fact that the recipients Nilesh Steel & Alloys Pvt Ltd and Dhanlaxmi TMT Bars Pvt Ltd are operating in the field of iron and steel manufacturing and are assessed to tax. Dhanlaxmi TMT Bars Pvt Ltd has shown turnover of Rs.218 crores in assessment year 2013-14 and Nilesh Steel & Alloys Pvt Ltd has shown turnover of Rs.131 crores during the year which is available at pages 143 and 146 of the paper book. Both these companies were searched u/s 132 of the Act and assessment orders u/s 153A of the Act for assessment year 2013-14 were passed. During the said search and post search enquiries, no such allegation as made by the Assessing Officer has been established. Further, the Ld. DR could not point out any provision which mandates the registration of transfer agreements for sale of shares and therefore cannot be held to be sham or dubious for non-registration of the same. It is also an admitted fact that both Dhanlaxmi TMT Bars Pvt Ltd and Nilesh Steel & Alloys Pvt Ltd are not related to the assessee, they have declared the compensation received from the assessee in their Profit and Loss Accounts and have declared profit and paid taxes @ 30%. The compensation so paid by the assessee to Dhanlaxmi TMT Bars Pvt Ltd and Nilesh Steel & Alloys Pvt Ltd is also as per the contractual agreement and not paid for breach of any contract as alleged by the Assessing Officer.
25. So far as the allegation of the Revenue that the assessee has agreed to pay compensation to Dhanlaxmi TMT Bars Pvt Ltd and Nilesh Steel & Alloys Pvt Ltd and instead of going to the Court is concerned, we find merit in the argument of the Ld. Counsel for the assessee that as long as the assessee is benefited and the compensation paid by the assessee was not towards breach of contract but paid to fulfill the contractual obligations and the assessee was able to sell the shares at a higher price of Rs.625 per share instead of earlier agreed price of Rs.305 per share is a prudent business decision and therefore, it should be left to the assessee to take its own decision and the Assessing Officer cannot sit on the chair of the businessman and decide the issue.
26. So far as the allegation of the Revenue that the Ld. CIT(A) has admitted certain additional evidences are concerned, we find from various details placed in the paper book that the assessee had in fact declared before the Ld. CIT(A) that DPL and NPL are not related parties with the assessee and has also filed the annual report of Ganesh Minerals Pvt. Ltd., Pune for assessment year 2013-14 and the annual report of KSL Holding Pvt. Ltd. for assessment year 2013-14. The annual reports of both the companies are available in public domain i.e. in the MCA portal and therefore, it cannot be said to be additional evidences.
27. So far as the declaration to the effect that DPL and NPL are not related parties with the assessee is concerned, we find some merit in the arguments of the Ld. Counsel for the assessee that the auditors in the audit report had not reported that DPL and NPL are related parties u/s 40A(2) of the Act. Therefore, once the assessee has again clarified before the Ld. CIT(A), the same in our opinion, cannot be considered as an additional evidence. In any case it is the settled proposition of law that the Ld. CIT(A) is legally empowered to carry out further enquiries u/s 250(4) which the Assessing Officer has failed to conduct. In view of the above discussion and in view of the detailed reasoning given by the Ld. CIT(A), we do not find any infirmity in the order of the Ld. CIT(A) in allowing the claim of Rs.7,84,00,000/- from the long term capital gain as a deduction being the compensation paid to Nilesh Steel & Alloys Pvt Ltd and Dhanlaxmi TMT Bars Pvt Ltd. The order of the Ld. CIT(A) is accordingly upheld and the grounds raised by the Revenue are dismissed.
28. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open Court on 16th April, 2026.
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