ACIT Vs Safari Mercantile Pvt. Ltd. (ITAT Mumbai)
Conclusion: Where there was no transfer of shares but only a pledge of shares for purposes of obtaining a loan and revenue not disputed the fact of return of loan and also receipt of pledged shares creditor, no capital gain could be charged. Only income was actually received or accrued upon sale of shares had to be taxed and not any contingent deferred income, notional or hypothetical income taxed as capital gain income in the hands of assessee.
Held: Assessee was an investment company belonging to the GTL. In this case, the regular assessment was completed by the AO u/s 143(3) determining the total income at Rs.240,84,19,450/- as against the gross total income of Rs.74,18,37,910/- shown by assessee. The business of assessee during the year under consideration was investment in stocks and shares. Assessee had 31,34,000 of GTL shares as on 31.03.2000 as opening balance. During the year the assessee had sold its 5,94,100 shares on which capital gains was offered to tax. Further, during the year, the Classic Credit Ltd. (CCL) had requested the assessee to advance 5,00,000 shares as a loan. CCL had stated that it would return on 04.11.2000. However, the same was not returned to the assessee. It was seen that LIPL had 2,62,500/- of GTL shares as on 31.03.2000 as opening balance. Also GCCPL had 3,08,780 of GTL shares as on 31.03.2000 as opening balance. On 01.12.2000, LIPL sold their 75,000 shares of GTL and GCCPL sold their 75,000 shares of GTL @ Rs.1000/- per share (75,000 shares each company) through NH Securities Ltd. resulting in sale consideration of Rs.15 crores (Rs.7.5 crores each company). On the same date i.e. 01.12.2000 the assessee wrote a letter to CCL and requested to adjust delivery of 1,50,000 shares against the loan shares 5,00,000. On 15.03.2001, LIPL and on 20.03.2001 GCCPL delivered 1,50,000 shares of GTL to assessee. It was found that assessee received its part loan i.e. 1,50,000 shares through adjustment against sale of shares. However, balance outstanding loan of 3,50,000 shares was not returned by CCL despite several request of the assessee. During the original assessment proceedings, AO treated whole transaction of 5,00,000 shares of GTL as Long Term Capital Gains (LTCG). In respect of 1,50,000 shares, AO held that it was sold by assessee and computed capital gains at Rs.12,07,50,000/- and shares of 3,50,000 never received by assessee and thus treated the same as sale consideration and computed capital gains at Rs.35,23,75,000/-. Aggrieved by the order of AO, assessee filed an appeal before CIT(A). CIT(A) deleted the addition in respect of 3,50,000 shares ; in respect of 1,50,000 shares, CIT(A) confirmed the addition made by the AO treating the same as a sale consideration. Against the order of CIT(A), assessee filed an appeal before the Tribunal on the issue of 1,50,000 shares whereas the Revenue filed an appeal on deletion of 3,50,000 shares. It was held that the assessee had advanced 5,00,000 shares of GTL by way of loan. 1,50,000 shares were with assessee and hence could not be assessed as capital gains ; remaining 3,50,000 shares which were lent to CCL were never received back, nor any consideration was received. Where there was no transfer of shares but only a pledge of shares for purposes of obtaining a loan and revenue not disputed the fact of return of loan and also receipt of pledged shares creditor, no capital gain could be charged. Only income was actually received or accrued upon sale of shares had to be taxed and not any contingent deferred income, notional or hypothetical income taxed as capital gain income in the hands of the Assessee. Followed Reliance Communication Infrastructure Ltd. (2012)254 CTR 251(Bom.)(HC) and Hemal Raju Shete (2016) 239 Taxman 176 (Bom)(HC)
FULL TEXT OF THE ITAT JUDGEMENT
This is an appeal filed by the Revenue. The relevant assessment year is 2001-02. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-6, Mumbai and arises out of the assessment completed u/s 254of the Income Tax Act 1961, (The ‘Act’).
2. The grounds of appeal filed by the Revenue read as under: –
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A)has erred in relying on the finding of the predecessor with regard to transfer of 3,50,000/-shares and quoting it in para-5.2 of the order without appreciating the detailed discussion made by the AO in the order giving effect to the order of the Hon’ble tribunal.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred granting relief to the assessee with regard to transfer of 3,50,000/- shares overlooking the fact that definition of transfer in section 2(47) is an inclusive definition and the AO had correctly formed an opinion regarding transfer of shares after detailed enquiries.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in granting relief to the assessee with regard to transfer of 1,50,000/- shares relying on the fact that the group companies had disclosed sale consideration and offered for taxation without appreciating the fact that the assessee company is also liable for payment of taxes on such transfer as it amounts to sale and resale.
4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in granting relief to the assessee with regard to transfer of 1,50,000/- shares overlooking the fact that the AO had correctly formed an opinion transfer of shares after detailed enquires.
5. For, these and other grounds that may be urged at the time of hearing, the decision of the Ld. CIT(A) may be set aside and that of the AO restored.
3. Briefly stated, the facts of the case are that the assessee (now merged with Vahanvati Consultant Pvt. Ltd.) is an investment company belonging to the Global Telesystems Ltd. (GTL). In this case, the regular assessment was completed by the AO u/s 143(3) on 30.03.2004 determining the total income at Rs.240,84,19,450/- as against the gross total income of Rs.74,18,37,910/- shown by the assessee. The business of the assessee during the year under consideration was investment in stocks and shares. The assessee had 31,34,000 of GTL shares as on 31.03.2000 as opening balance. During the year the assessee had sold its 5,94,100 shares on which capital gains was offered to tax. Further, during the year, the Classic Credit Ltd. (CCL) had requested the assessee vide letter dated 19.10.2000 to advance 5,00,000 shares as a loan. CCL had stated that it would return on 04.11.2000. However, the same was not returned to the assessee. It is seen that Leesha Investment Pvt. Ltd. (LIPL) had 2,62,500/- of GTL shares as on 31.03.2000 as opening balance. Also Global Credit Corporation Pvt. Ltd. (GCCPL) had 3,08,780 of GTL shares as on 31.03.2000 as opening balance. On 01.12.2000, LIPL sold their 75,000 shares of GTL and GCCPL sold their 75,000 shares of GTL @ Rs.1000/- per share (75,000 shares each company) through NH Securities Ltd. resulting in sale consideration of Rs.15 crores (Rs.7.5 crores each company). On the same date i.e. 01.12.2000 the assessee wrote a letter to CCL and requested to adjust delivery of 1,50,000 shares against the loan shares 5,00,000. On 15.03.2001, LIPL and on 20.03.2001 GCCPL delivered 1,50,000 shares of GTL to assessee. It is found that the assessee received its part loan i.e. 1,50,000 shares through adjustment against sale of shares. However, balance outstanding loan of 3,50,000 shares was not returned by CCL despite several request of the assessee. During the original assessment proceedings, the AO treated whole transaction of 5,00,000 shares of GTL as Long Term Capital Gains (LTCG). In respect of 1,50,000 shares, the AO held that it was sold by the assessee and computed capital gains at Rs.12,07,50,000/- and shares of 3,50,000 never received by the assessee and thus treated the same as sale consideration and computed capital gains at Rs.35,23,75,000/-. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that the Ld. CIT(A) accepted the contention of the assessee and deleted the addition of Rs.35,23,75,000/- in respect of 3,50,000 shares ; in respect of 1,50,000 shares, the Ld. CIT(A) confirmed the addition made by the AO treating the same as a sale consideration. Against the order of the Ld. CIT(A), the assessee filed an appeal before the Tribunal on the issue of 1,50,000 shares whereas the Revenue filed an appeal on deletion of 3,50,000 shares. Before the Tribunal, the assessee filed an additional evidence in the form of confirmation letter dated 20.04.2004 from CCL. The Tribunal vide order dated 30.06.2009 held as under :
“30. At the time of hearing before us, the assessee has moved an application U/R 29 of the ITAT Rules, 1963 seeking admission of the additional evidence in the form of letter dtd. 20.04.2004 issued by CCL confirming the transactions involving giving of 5 lacs shares by the assessee company of GTL on loan and adjustment of 1,50,000 shares out of the same against sale made by two group companies. As stated in the said application, the assessee company was neither informed by the A.O. about the non-service of summons on CCL nor was it specifically called upon by him to file the latest confirmation from the said party. It is submitted that no opportunity thus was given by the A.O. to the assessee in this regard to file the confirmation of CCL before completing the assessment and despite this factual position, the confirmation letter obtained by the assessee company from CCL and produced before the id. CIT (A) in the form of additional evidence has not been considered by him while deciding this issue. Keeping in view these submissions made by the assessee, we are of the view that the additional evidence filed by the assessee in the form of confirmation letter issued by CCL which is vital to decide the issue under consideration can appropriately be admitted. The Id. D.R. has not raised any material objection in this regard. He, however, has contended that if the additional evidence is admitted by the Tribunal, an opportunity may be given to A.O. to examine/verify the same. We find merit in this contention of the Id. D. R. Moreover, as submitted by the Id. Counsel for the assessee, 1,50,000 shares adjusted by CCL against sale of shares by two group companies as per request made by the assessee company have been subsequently received back by the assessee company from the said two group companies. The observation of the Id. CIT(A) that the said shares no longer remained with the assessee company may not be correct since the assessee company, as claimed by the Id. Counsel for the assessee still holds these 1,50,000 shares. He has also pointed out from the copies of relevant assessment orders that the capital gain arising from sale of these 1,50,000 shares has already been offered and taxed in the hands of the said two group companies. If it is so, the addition of the same amount on account of capital gain arising from the same 1,50,000 shares as made in the hands of the assessee company would amount to double addition which is not permissible. In our opinion, all these factual aspects of the matter also require verification and since the same has not been done either by the A.O. or by the Id. CIT (A), it would be fair and proper and in the interest of justice to restore this issue to the file of A.O. for further examination. Accordingly, we set aside the impugned order of Id. CIT(A) on this issue and restore the matter to the file of A.O. for deciding the same afresh after taking into consideration the additional evidence filed by the assessee and after verifying the submissions made on behalf of the assessee as narrated above. Needless to observe that the A.O. shall afford proper and sufficient opportunity to the assessee of being heard. The appeal of the Revenue on Ground No. 2 and the appeal of the assessee are accordingly treated as allowed for statistical purposes.”
In the order u/s 143(3) r.w.s. 254 of the Act dated 24.12.2010, the AO restricted the addition of Rs.47,31,25,000/- in the following manner :
