The ITO, Ward-4(1),, Baroda v. Newton Investment Co.Pvt.Ltd.,, Baroda

ITA 125/AHD/2007 | 2002-2003
Pronouncement Date: 16-07-2010 | Result: Dismissed

Appeal Details

RSA Number 12520514 RSA 2007
Bench Ahmedabad
Appeal Number ITA 125/AHD/2007
Duration Of Justice 3 year(s) 6 month(s) 7 day(s)
Appellant The ITO, Ward-4(1),, Baroda
Respondent Newton Investment Co.Pvt.Ltd.,, Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 16-07-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 16-07-2010
Date Of Final Hearing 23-06-2010
Next Hearing Date 23-06-2010
Assessment Year 2002-2003
Appeal Filed On 08-01-2007
Judgment Text
- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI MUKUL SHRAWAT JM AND D.C.AGRAWAL AM INCOME-TAX OFFICER WARD 4(1) BARODA. VS. NEWTON INVESTMENT CO. (P) LTD. 804/B GIDC MAKARPURA BARODA. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI GAURAV BATHAM DR REVENUE BY:- SHRI S. N. SOPARKAR AR O R D E R PER D. C. AGRAWAL ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FO LLOWING GROUND:- (1) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIR ECTING THE AO TO ADOPT THE VALUE OF SHARES OF NEWTON ENGINEERING AND CONSTRUCTION COMPANY LTD. (NECCL) AT RS.10 PER SHAR E INSTEAD OF BOOK VALUE OF RS.32.20 PER SHARE CALCULA TED BY DIVIDING THE SUM OF SHARE CAPITAL PLUS GENERAL RESE RVES (AS ON 31.03.1996) BY THE NUMBER OF SHARES ADOPTED BY THE AO FOR THE PURPOSE OF DETERMINING LONG TERM CAPITAL GAIN. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY IS A COMPANY IN WHICH PUBLIC IS NOT SUBSTANTIALLY INTERESTED AND IS ENGAGED IN THE BUSINESS OF INVESTMENT AND FINANCING IN SECURITIES SUCH AS S HARES DEBENTURES ETC. SINCE 1990. IN THE RETURN OF INCOME FILED ASSESSEE DECLARED TOTAL LOSS OF RS.6 73 745/- AND BOOK PROFIT OF RS.6 30 926/- UNDE R SECTION 115JB. THIS RETURN WAS ACCEPTED UNDER SECTION 143(1) OF THE ACT . SUBSEQUENTLY THE ITA NO.125/AHD/2007 ASST. YEAR :2002-03 2 RETURN WAS PICKED UP FOR SCRUTINY AND PROCEEDINGS W ERE INITIATED UNDER SECTION 143(2). 3. THE ISSUE BEFORE US IS WHAT SHOULD BE VALUE OF T HE SHARES HELD BY THE ASSESSEE IN M/S NEWTON ENGG. CONSTRUCTION CO. L TD. (NECCL) FOR THE PURPOSE OF CALCULATING THE LONG TERM CAPITAL GA INS WHEN THIS COMPANY I.E. NECCL WAS MERGED WITH M/S HI-TECH ORGOCHEM LTD .(HOL) AND NEW COMPANY WAS FORMED WITH THE NAME OF M/S NEWTON ENGG . & CHEMICALS LTD. (NECL). THE ASSESSEE HAD OFF LOADED THE SHARES IN NECCL AND SALE CONSIDERATIONS WERE ADJUSTED AGAINST THE ADVANCES R ECEIVED FROM ASSESSEES OWN SHARE APPLICANTS AS SHARE APPLICATIO N MONEY WHICH WAS LATER CONVERTED INTO UNSECURED LOAN. IN THIS WAY SH ARE APPLICATION MONEY STANDING IN THE NAMES OF SHARE APPLICANTS OF ASSESS EE AND SUBSEQUENTLY TREATED AS UNSECURED LOAN WAS ADJUSTED AGAINST THE SALE CONSIDERATION OF THE SHARES HELD BY THE ASSESSEE IN NECCL. FOR THE P URPOSE OF WORKING OUT CAPITAL GAINS ASSESSEE HAD ADOPTED SALE PRICE A T RS.10 PER SHARE AS PER FOLLOWING TABLE:- SL. NO. NAME OF COMPANY NO. OF SHARES COST OF SHARES DATE OF PURCHASE SALE CONSIDERA- TION INDEXED COST CAPITAL GAIN/LOSS 1. HITECH ORGOCHEM LTD. 151300 1513000 27.9.93 252671 2641549 (-)2388878 2. NEWTON ENGG. & CONST.CO.(BONUS SHARES) 256500 - 31.12.92 2565000 - 2565000 3. NEWTON ENGG.& CONST.CO. 7500 75000 30.3.92 75000 175549 (-)100549 4. NEWTON ENGG & CON.CO. 2500 25000 31.3.92 25000 53518 (-)28518 5. NEWTON ENGG & CON.CO. 45000 450000 92-93 450000 859641 (-)409641 6. NEWTON ENGG & CON.CO. 15000 150000 30.9.96 150000 209506 (-)59508 7. NEWTON ENGG & CON. CO. 60000 600000 27.2.97 600000 838033 (-)238033 281300 4117671 4777798 (-)660127 3 FROM THE ABOVE TABLE THE AO OBSERVED THAT SHARES OF NECCL HAS BEEN TRANSFERRED AT FACE VALUE OF RS.10 PER SHARE BUT AC CORDING TO THE AO THIS CONSIDERATION OF TRANSFER IS LOW IF COMPARED WITH T HE GENERAL RESERVE AND PAID UP SHARE CAPITAL OF THE COMPANY M/S NECCL. IN THIS REGARD WE REFER TO PARA 4.2 FROM THE ORDER OF AO AS UNDER :- 4.2 IN THIS REGARD THE BALANCE SHEET OF M/S NEWTO N ENGG. & CONSTRUCTION CO. HAS BEEN PERUSED PRIOR TO THE EFFECT OF AMALGAMATION. T HE PAID UP SHARE CAPITAL OF M/S NECCL WAS RS.22500000 CONSISTING OF 250000 SHARES O F RS.10/- EACH. THE GENERAL RESERVE WAS RS.50000000/-. HENCE COST PER SHARE OF M/S NECCL WORKS OUT TO RS.32.2 PER SHARE AS UNDER :- COST PER SHARE = 22500000 + 50000000 = RS. 32.2 2250000 HE THUS CONSIDERED THAT CONSIDERATION FOR TRANSFER OF SHARES OF M/S NECCL SHOULD RS.32.20 PER SHARES AND NOT RS.10 PER SHARE ADOPTED BY ASSESSEE COMPANY FOR WORKING OUT ANY LOSS ON TRANSF ER OF THESE SHARES. ON THIS BASIS AO CALCULATED CAPITAL GAINS ON TRANSF ER OF SHARES. 4. THE LD. CIT(A) HELD THAT ADOPTING SALE CONSIDERA TION OF THE SHARES OF NECCL AT RS.10 PER SHARE IS IN CONFORMITY WITH T HE ASSESSEES OWN VALUATION. THE LD. CIT(A) OBSERVED THAT ADOPTING TH E VALUE OF SHARES AT RS.32.20 PER SHARE OF NECCL IS NOT CORRECT FOR FOLL OWING REASONS:- FIRST THE DATE OF TRANSFER WAS 31.3.2002 AND NOT 31.3.1996. THEREFORE CALCULATING THE VALUE OF SHARES BASED ON THE BALANCE SHEET OF A DATE MUCH BEFORE THE DATE OF TRANSFER WOULD NO T GIVE THE CORRECT POSITION. SECONDLY NECCL HAD LOST ITS IDENTITY COM PLETELY UPON AMALGAMATION WITH HOL. A NEW COMPANY KNOWN AS NECL CAME INTO EXISTENCE. HOWEVER IT CONTINUED TO BE LISTED UNDER THE OLD NAME OF HOL. AS PER THE TAXMANNS EQUITY SHARE QUOTATIONS 2002 TAXMAN PUBLICATIONS NEW DELHI AT PAGE-27 SHARE OF M/S H OL HAS BEEN SHOWN AS QUOTED ON THE EXCHANGE AT RS.5.00 PER SHAR E. HOWEVER I AM INCLINED FOR THE SAKE OF CONSISTENCY TO HOLD THAT AS DONE IN THE CASE OF SHARES OF HOL IN THE CASE OF SHARES OF NECCL ALSO THE VALUE OF EACH SHARE AS ON THE DATE OF TRANSFER BE CONSIDERED NEIT HER AT RS.32.20 (AS 4 DONE BY THE AO) NOR AT RS.5/- (AS ASSERTED BY THE A SSESSEE) BUT AT RS.10/- AS IN THE CASE OF HOL. THE AO IS DIRECTED T O RECOMPUTED THE CAPITAL GAIN/LOSS ACCORDINGLY. 5. THE LD. DR SUBMITTED THAT VALUATION DONE BY THE AO IS IN CONFORMITY WITH THE BOOK VALUE OF THE SHARES OF NEC CL AND THEREFORE IT SHOULD BE UPHELD. 6. ON THE OTHER HAND LD. AR SUBMITTED THAT THERE I S NO PROVISION IN THE INCOME-TAX ACT ENABLING THE AO TO SUBSTITUTE HI S OWN VALUATION OF CAPITAL ASSET AS SALE CONSIDERATION AS AGAINST THE SALE CONSIDERATION AGREED BETWEEN THE PARTIES. HE SUBMITTED THAT IN CASE OF I MMOVABLE PROPERTY THE IS EMPOWERED TO SUBSTITUTE THE VALUATION DONE BY ST AMP VALUATION AUTHORITIES AS SALE CONSIDERATION IN PLACE OF SALE CONSIDERATION DECLARED BY THE ASSESSEE IF VALUATION DONE BY STAMP VALUATION A UTHORITIES FOR THE PURPOSE OF LEVY OF STAMP DUTY IS MORE THAN THE SALE CONSIDERATION DECLARED BY THE ASSESSEE. HE SUBMITTED THAT AS PER SECTION 48 FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF CAPITAL ASSET ALONE COULD BE ADOPTED FOR THE PURPOSE OF DET ERMINING CAPITAL GAINS AND FOR REDUCTION THERE-FROM THE AMOUNT OF EXPENDIT URE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF CAPITAL ASSET AND THE COST OF ACQUISITION OF THE ASSET AND COST OF ANY IM PROVEMENT THERETO. THERE IS NO PROVISION ENABLING THE AO TO S UBSTITUTE ANY OTHER CONSIDERATION OTHER THAN WHAT IS RECEIVED OR ACCRUI NG AS A RESULT OF TRANSFER. IN THE PRESENT CASE SALE CONSIDERATION OF RS.10/- ALONE HAS ACCRUED TO THE ASSESSEE THEN THERE IS NO OCCASION T O SUBSTITUTE IT WITH ANY BOOK VALUE OF THE SHARES WHICH HAS NEITHER BEEN REC EIVED NOR ACCRUED TO THE ASSESSEE. 5 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE OF INTERFERENCE IN THE ORDER OF LD. CIT(A). THE REASONS ARE THAT EVEN THOU GH BOOK VALUE OF THE SHARES OF NECCL DETERMINED BY AO MAY BE CORRECT BUT SUCH BOOK VALUE CANNOT BE SUBSTITUTED AS SALE CONSIDERATION IN PLAC E OF THE SALE CONSIDERATION AGREED BETWEEN THE PARTIES. WHEREVER LEGISLATURE THOUGHT IT FIT TO DEEM A DIFFERENT AMOUNT AS CONSIDERATION TH EY HAVE SO PROVIDED IN THE STATUTE. SECTION 50C IS ONE SUCH PROVISION WHER E SALE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER BY THE ASSESSEE OF A CAPITAL ASSET BEING LAND OR BUILDING OR BOTH IS LESS THAN THE VALUE ADOPTED OR ASSESSED BY STAMP VALUATION AUTHORITIES FOR THE PUR POSES OF PAYMENT OF STAMP DUTY IN RESPECT OF SUCH TRANSFER THEN THE VA LUE SO ADOPTED BY STAMP VALUATION AUTHORITIES SHALL BE DEEMED TO BE V ALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF SUCH TRANSFER. THUS FOR CALCULATING CAPITAL GAINS UNDER SECTION 48 SUCH DEEMED FULL VAL UE OF CONSIDERATION WOULD BE SUBSTITUTED IN PLACE OF CONSIDERATION SHOW N BY THE ASSESSEE TO HAVE BEEN RECEIVED OR ACCRUING TO HIM. 8. UNDER SECTION 55A AO HAS BEEN EMPOWERED TO REFE R THE CAPITAL ASSET TO A VALUATION OFFICER FOR THE VALUATION AS O N THE DATE OF TRANSFER PROVIDED CERTAIN CONDITIONS MENTIONED IN SECTION 55 A ARE SATISFIED. 9. THERE ARE ALSO PROVISIONS IN CHAPTER IV FOR COMP UTATION OF INCOME FROM CAPITAL GAINS WHICH EMPOWERS THE AO TO DISTURB THE COST OF ACQUISITION OF THE CAPITAL ASSET AS PROVIDED UNDER SECTION 49 WHICH ARE AS UNDER :- SECTION 49(3) & 49(4) 49[(3)- NOTWITHSTANDING ANYTHING CONTAINED IN SUB-S ECTION (1) WHERE THE CAPITAL GAIN ARISING FROM THE TRANSFER OF A CAPITAL ASSET REFERRED TO IN 6 CLAUSE (IV) OR AS THE CASE MAY BE CLAUSE (V) OF S ECTION 47 IS DEEMED TO BE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS BY VIRTUE OF THE PROVISIONS CONTAINED IN SECTION 47A THE COST OF AC QUISITION OF SUCH ASSET TO THE TRANSFEREE-COMPANY SHALL BE THE COST FOR WHI CH SUCH ASSET WAS ACQUIRED BY IT]. 49[(4)- WHERE THE CAPITAL GAIN ARISES FROM THE TRAN SFER OF A PROPERTY THE VALUE OF WHICH HAS BEEN SUBJECT TO INCOME-TAX UNDER CLAUSE (VII) OF SUB- SECTION (2) OF SECTION 56 THE COST OF ACQUISITION OF SUCH PROPERTY SHALL BE DEEMED TO BE THE VALUE OF WHICH HAS BEEN TAKEN INTO ACCOUNT FOR THE PURPOSES OF THE SAID CLAUSE (VII).] 10. HON. DELHI HIGH COURT IN DEV KUMAR JAIN VS. ITO (2009) 309 ITR 240 (DEL) HELD THAT EXPRESSION FULL VALUE OF SALE CONSIDERATION IS NOT THE SAME AS FAIR MARKET VALUE AS APPEARING IN SECTION 5 5A. THUS FOR THE PURPOSES OF COMPUTING THE CAPITAL GAINS THERE IS NO NECESSITY FOR COMPUTING THE FAIR MARKET VALUE. HON. HIGH COURT HE LD THAT IF THERE IS NOTHING ON RECORD TO SHOW THAT ASSESSEE HAS RECEIVE D CONSIDERATION FOR THE SALE OF PROPERTY IN EXCESS OF WHAT IS SHOWN IN THE AGREEMENT TO SELL THEN ACTUAL SALE RECORDED IN THE AGREEMENT TO SELL AND R ECEIVED BY THE ASSESSEE COULD NOT BE SUBSTITUTED BY THE VALUE AS ADOPTED BY THE DVO U/S55A. IN THE PRESENT CASE THE AO HAS CALCULATED THE FAIR MA RKET VALUE OF THE SHARES ON THE BASIS OF BOOK VALUE. THERE IS NO EVIDENCE TH AT SHARES OF NECCL HAVE BEEN TRANSACTED AT VALUE HIGHER THAN RS.10/- A S AT THE TIME WHEN ASSESSEE HAD MADE ADJUSTMENT IN THE ACCOUNT OF ITS OWN SHARE APPLICANTS. THERE IS ALSO NO EVIDENCE THAT ASSESSEE HAS RECEIVE D ANY CONSIDERATION OVER AND ABOVE AT WHICH IT HAS TRANSFERRED THE SHAR ES TO ITS OWN SHAREHOLDERS. THEREFORE AS PER THIS LEGAL POSITION WE HOLD THAT AO WAS NOT JUSTIFIED IN SUBSTITUTING THE BOOK VALUE OF RS. 32.20 PER SHARE AS AGAINST RS.10/- AT WHICH ASSETS WERE ACTUALLY TRANS FERRED. THUS WE CONFIRM THE ORDER OF LD. CIT(A) AND DISMISS THE APP EAL FILED BY THE REVENUE. 7 11. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 16/7/2010 SD/- SD/- (MUKUL SHRAWAR) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD DATED : 16/7/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD