THE ACIT 3(2), MUMBAI v. M/S. INDIAN EXPRESS NEWSPAPERS (BOM) LTD, MUMBAI

ITA 2258/MUM/2008 | 2001-2002
Pronouncement Date: 15-12-2010 | Result: Dismissed

Appeal Details

RSA Number 225819914 RSA 2008
Assessee PAN AAACI2555F
Bench Mumbai
Appeal Number ITA 2258/MUM/2008
Duration Of Justice 2 year(s) 8 month(s) 12 day(s)
Appellant THE ACIT 3(2), MUMBAI
Respondent M/S. INDIAN EXPRESS NEWSPAPERS (BOM) LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 15-12-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted I
Tribunal Order Date 15-12-2010
Date Of Final Hearing 11-08-2010
Next Hearing Date 11-08-2010
Assessment Year 2001-2002
Appeal Filed On 03-04-2008
Judgment Text
1 ITA 2258/MUM/08 M/S INDIAN EXPRESS NEWSPAPERS (BO M) LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I BEFORE SHRI D. MANMOHAN V.P. AND SHRI P.M. JAGTAP A.M. ITA NO. 2258/MUM/08 ASSESSMENT YEAR 2001-02 ASSTT. COMMISSIONER OF INCOME TAX -3(2) ROOM NO. 608 6 TH FLOOR AAYAKAR BHAWAN M.K. ROAD MUMBAI 20. VS. INDIAN EXPRESS NEWSPAPERS (BOM) LTD. EXPRESS TOWERS NARIMAN POINT MUMBAI 21. PAN NO. AAACI2555F APPELLANT RESPONDENT APPELLANT BY SHRI SANJEEV DUTT RESPONDENT BY SHRI V. MOHAN ORDER PER P.M. JAGTAP A.M. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LD. CIT(A) -III MUMBAI DATED 14.1.2008. 2. IN GROUND NO. 1 THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN TREATING THE SERVICE CHARGES OF ` 18 86 77 689/- AS INCOME OF THE ASSESSEE FROM BUSI NESS AS AGAINST INCOME FROM OTHER SOURCES TREATED BY THE A.O. 3. AT THE TIME OF HEARING BEFORE US THE LEARNED RE PRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THE ISSUE INVOLVED IN GROUND NO. 1 IS S QUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE ORDER OF TH E TRIBUNAL DATED 28.9.07 PASSED IN ASSESSEES OWN CASE FOR A.Y. 1996-97 TO 1999-2000 I N ITA NO. 489 TO 492/MUM/2004. A COPY OF THE SAID ORDER IS ALSO PLACED ON RECORD AND A PERUSAL OF THE SAME SHOWS THAT A 2 ITA 2258/MUM/08 M/S INDIAN EXPRESS NEWSPAPERS (BO M) LTD. SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN F AVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN PARA NO. 35:- THE FIRST ISSUE IN REVENUES APPEALS FOR ALL THE YE ARS IS THAT THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT O N SERVICE CHARGES RECEIVED FROM TENANTS FOR VARIOUS SERVICES SUCH AS AIR CONDITIONI NG LIFT ETC. AS BUSINESS INCOME AND NOT UNDER THE HEAD INCOME FROM OTHER SOURCES. IT IS NOTICED THAT IN DECIDING THE ISSUE CIT(A) FOLLOWED THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS. THE TRIBUNAL HELD THAT THE SERVI CE CHARGES RECEIVED BY THE ASSESSEE FROM ITS TENANTS IN EXPRESS TOWERS FOR VAR IOUS SERVICES RENDERED BY IT WERE OF THE NATURE OF BUSINESS INCOME AND NOT INCOME FRO M OTHER SOURCES. IN TAKING THIS VIEW TRIBUNAL RELIED ON THE DECISION OF THE JURISDI CTIONAL HIGH COURT RENDERED IN 137 ITR 339 (BOM). THE SLP FILED BY THE DEPARTMENT AGA INST THAT JUDGMENT OF THE BOMBAY HIGH COURT WAS REJECTED BY THE APEX COURT IN 197 ITR (ST.) 191 (SC). FACTS BEING IDENTICAL RESPECTFULLY FOLLOWING THE P RECEDENT WE UPHOLD THE IMPUGNED ORDER OF THIS COUNT. 4. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDER ATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF A.Y. 1996-97 TO 1999-2000 WE RESPECTFULLY FOLLOW THE ORDER OF THE TRIBUNAL FOR THE SAID YEARS AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) TREATING THE SERVICE CHARGES RECEIVED BY THE ASSESSEE AS INCOME FROM BUSINESS. GROUND NO. 1 OF REVENUES APPEAL IS ACCORDINGLY DIS MISSED. 5. IN GROUND NO. 2 THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS. 2 29 60 000/- MADE BY THE A.O. TO THE TOTAL INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY . 6. AT THE TIME OF HEARING BEFORE US THE LEARNED RE PRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL DATED 28.9.2007 (SUPRA) IN ASSESSEES OWN CASE FOR EARLIER YEARS WHEREIN A SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE A SSESSEE FOR THE FOLLOWING REASONS GIVEN IN PARA NO. 37:- THE LAST ISSUE IN REVENUES APPEAL FOR ASSESSMENT Y EARS 1997-98 1998-99 AND 1999-2000 PERTAINS TO DELETION OF ADDITION MADE IN TERMS OF SECTION 2391). WE HAVE HEARD THE PARTIES ON THE ISSUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE 3 ITA 2258/MUM/08 M/S INDIAN EXPRESS NEWSPAPERS (BO M) LTD. PROPERTY IN QUESTION WAS IN THE OCCUPATION OF VERY OLD TENANTS AND THEIR TENANCY WAS GOVERNED BY THE BOMBAY RENT CONTROL ACT. THE ASSES SEE ENTERED INTO AN AGREEMENT WITH ITS SISTER CONCERNS TO ENABLE IT TO HAVE SOME OF THE TENANTS EVICTED. THE SISTER CONCERN SPENT AN AMOUNT OF RS. 11 CRORES IN GETTING THE PREMISES VACATED AND TAKEN THE SAME AS LEASE FROM THE ASSESSEE @ RS. 25 PER SQ . FT. WHILE THE SAME SISTER CONCERN HAS LET OUT THE SAME PREMISES AT MUCH HIGHE R RATE. THE LEARNED CIT(A) NOTED THAT THE TRANSACTION WAS NOTA NORMAL TRANSACT ION WHERE THE ASSESSEE WAS IN FREE AND VACANT POSSESSION OF THE PREMISES. THE PREMISE S WERE ENCUMBERED AND IT WAS ONLY AFTER THE SISTER CONCERN PUT IN SPECIAL EFFORT S THAT THE OLD TENANTS WERE GOT EVICTED. IN THE PROCESS THE SISTER CONCERN INCURR ED SIZEABLE EXPENDITURE. THE LEARNED CIT(A) THEREFORE HELD THAT THE LEASE AGREE MENT WITH THE SISTER CONCERN DESERVES TO BE VIEWED IN THE CONTEXT OF THESE OVERR IDING FACTORS AND THE ENCUMBRANCES ATTACHING TO THE PROPERTY. OVER AND A BOVE THE EXPENDITURE OF RS. 11 CRORES THE SISTER CONCERN PLACED AN INTEREST FREE D EPOSIT OF RS. 15 CRORES WITH THE ASSESSEE. THE CIT(A) CONSIDERED THE RENT @ RS. 25/ -PER SQ. FT. AS THE RENT AT WHICH THE PROPERTY COULD HAVE BEEN EXPECTED TO FETCH OWNI NG TO THE BASIC FACTS PECULIAR TO THE CASE. THIS IN OUR VIEW IS THE CORRECT APPRECI ATION OF THE FACTUAL POSITION THAT PREVAILED IN THE CASE. THE DEPARTMENT HAS NOT MADE OUT A CASE THAT THE RENT RECEIVED BY THE ASSESSEE WAS RECEIVED FROM THE OLD TENANTS . FURTHER THE QUESTION OF INCLUSION OF NOTIONAL ADVANTAGE TO THE ACTUAL RENT RECEIVED BY THE ASSESSEE FOR COMPUTING THE INCOME FROM HOUSE PROPERTY IN CIT V S. JK INVESTORS (BOMBAY) LTD. 248 ITR 723(BOM). THE HONBLE JURISDICTIONAL HIGH COURT HELD THAT VALUE OF ADVANTAGE LIKE NOTIONAL INTEREST ON DEPOSIT DOES NO T FORM PART OF ACTUAL RENT AS CONTEMPLATED BY S. 23(1)(B). IN VIEW OF THE ABOVE WE HOLD THAT THE CIT(A) WAS JUSTIFIED IN HIS ACTION. THE GROUND RAISED BY THE REVENUE IS REJECTED IN ALL THE THREE YEARS UNDER CONSIDERATION. 7. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDER ATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF EARLI ER YEARS WE RESPECTFULLY FOLLOW THE ORDER OF THE TRIBUNAL FOR THE SAID YEARS AND UPHOLD THE I MPUGNED ORDER OF THE LD. CIT(A) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE. GROUND NO. 2 OF REVENUES APPEAL IS ACCORDINGLY DISMISSED. 8. IN GROUND NO. 3 & 4 THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN ALLOWING THE CLAIM OF THE ASSESSEE FOR LONG TERM AN D SHORT TERM CAPITAL LOSS OF RS. 96 15 639/- AND RS. 56 42 700/- RESPECTIVELY ARISI NG FROM SALE OF SHARES TO M/S EGMONT INTERNATIONAL HOLDING LTD. 4 ITA 2258/MUM/08 M/S INDIAN EXPRESS NEWSPAPERS (BO M) LTD. 9. THE FACTS OF THE CASE RELEVANT TO THIS ISSUE ARE THAT THE ASSESSEE COMPANY ENTERED INTO A JOINT VENTURE WITH M/S EGMONT INTERNATIONAL OF DENMARK AND A NEW CORPORATE ENTITY NAMELY M/S INDIA EXPRESS EGMONT PUBLICATIONS LTD. WAS FORMED ON 11 TH OCTOBER 1993 WITH AN OBJECTIVE TO PUBLISH WIDE RANGE OF WAL T DISNEY COMIC BOOKS ACTIVITY BOOKS JUVENILE COMIC BOOKS STORY BOOKS EDUCATION AL BOOKS ETC. THE INITIAL PERIOD WAS A GESTATION PERIOD FOR THE SAID COMPANY RESULTING INT O ACCUMULATED LOSS OF ABOUT RS. 4.45 CRORES UP TO 31 ST MARCH 2000. IN ORDER TO FINANCE THE SAME THE AS SESSEE COMPANY INVESTED AN AMOUNT OF RS. 1.20 CRORES AS ADDITIONAL SHARE CAPITAL IN ACCORDANCE WITH THE TERMS OF AGREEMENT WITH A JOINT VENTURE PARTNER. T HE ASSESSEE COMPANY HOWEVER COULD NOT INFUSE FURTHER FUNDS REQUIRED BY THE SAID JOINT VENTURE COMPANY AND EXPRESSED ITS DESIRE TO EXIST FROM THE JOINT VENTURE. ACCORDINGL Y AN AGREEMENT WAS ENTERED INTO BETWEEN THE TWO JOINT VENTURE PARTNERS WHEREBY IT W AS AGREED AFTER NEGOTIATION THAT OUT OF TOTAL 28 LACS SHARES HELD BY THE ASSESSEE COMPANY 27 90 000 SHARES WOULD BE PURCHASED BY EGMONT PUBLICATIONS LTD. FOR A TOTAL CONSIDERATI ON OF RS. 1.60 CRORES. THE SAID SHARES THUS WERE SOLD BY THE ASSESSEE TO ITS JOINT VENTURE PARTNER AT A PRICE OF RS. 5.74 PER SHARE AS AGAINST THE FACE VALUE OF RS. 10/- PER SHARE AT WHICH THE SAME HAD BEEN PURCHASED BY IT. THE SAID SALE TRANSACTION RESULTED IN LONG TERM AND SHORT TERM CAPITAL LOSS TO THE ASSESSEE WHICH WAS CLAIMED IN THE RETURN OF INCOME FILED FOR THE YEAR UNDER CONSIDERATION. THIS CLAIM OF THE ASSESSEE HOWEVER WAS DISALLOWED BY T HE A.O. AS ACCORDING TO HIM THE TRANSACTION OF SALE OF SHARES WAS ONLY A DEVICE USE D BY THE ASSESSEE COMPANY TO DELIBERATELY CREATE LONG TERM AND SHORT TERM CAPITA L LOSS IN ORDER TO SET IF OFF AGAINST LONG TERM CAPITAL GAIN EARNED IN THE YEAR UNDER CONSIDER ATION. HE NOTED IN THIS CONTEXT THAT THERE WAS NO BASIS WHATSOEVER WAS GIVEN BY THE ASSE SSEE FOR THE VALUE OF RS. 5.74 PER SHARE AT WHICH THE SHARES WERE SOLD TO EGMONT PUBLI CATIONS LTD. HE ALSO NOTED THAT THE ASSESSEE COULD NOT GIVE ANY SATISFACTORY REASON FOR DECIDING TO EXIT FROM THE JOINT VENTURE. HE FURTHER NOTED THAT JUST 6 MONTHS PRIOR TO EXIT F ROM THE JOINT VENTURE THE ASSESSEE HAD INVESTED RS. 1.20 CRORES IN THE SAME SHARES AT THE FACE VALUE OF RS. 10/- PER SHARE. ACCORDING TO THE A.O. THERE WAS NO REASON FOR REDU CTION IN THE VALUE OF SAID SHARES FROM RS. 10/- TO RS. 5.74 WITHIN A PERIOD OF 6 MONTHS. THE CLAIM OF THE ASSESSEE FOR LONG TERM 5 ITA 2258/MUM/08 M/S INDIAN EXPRESS NEWSPAPERS (BO M) LTD. AND SHORT TERM CAPITAL LOSS AS CLAIMED IN THE RETUR N OF INCOME THEREFORE WAS DISALLOWED BY THE A.O. 10. THE MATTER WAS CARRIED BEFORE THE LD. CIT(A) AN D IT WAS ARGUED ON BEHALF OF THE ASSESSEE BEFORE HIM THAT INCURRING OF LOSS BY A NEW CORPORATE ENTITY ENTERING THE FIELD OF PUBLICATION IS A NORMAL PHENOMENON OF BUSINESS OF P UBLISHING INDUSTRY. THE ASSESSEE SUBMITTED THAT IT WAS FELT NECESSARY IN THE YEAR UN DER CONSIDERATION BY BOTH THE JOINT VENTURE PARTNER TO INTRODUCE ADDITIONAL FUNDS IN OR DER TO MEET THE LOSS AND REVIVE THE BUSINESS OF THE JOINT VENTURE COMPANY. IT WAS SUBM ITTED THAT THE ASSESSEE COMPANY HOWEVER WAS NOT IN A POSITION TO INVEST MORE FUNDS IN THE JOINT VENTURE COMPANY AND IT THEREFORE OFFERED TO EXIT FROM THE JOINT VENTURE. IT WAS SUBMITTED THAT THE SALE CONSIDERATION OF RS. 1.6 CRORES FOR TRANSFER OF SHA RES HELD BY THE ASSESSEE IN THE JOINT VENTURE COMPANY WAS AGREED ON A LUMPSUM BASIS UNDER AN EXPLICIT AGREEMENT AND THE SAME WAS FOUND TO BE FAVOURABLE TO THE ASSESSEE KEE PING IN VIEW THAT THE BOOK VALUE OF SHARES OF JOINT VENTURE COMPANY AT THAT STAGE WAS I N THE VICINITY OF RS. 2/- PER SHARE. AS REGARDS THE OBJECTION OF THE A.O. TO THE PRICE OF R S. 10/- PER SHARE PAID BY THE ASSESSEE COMPANY WHILE MAKING AN INVESTMENT OF RS. 1.20 CROR ES JUST 6 MONTHS PRIOR TO ITS EXIST IT WAS SUBMITTED THAT THE ASSESSEE COMPANY AT THAT STAGE HAD A DESIRE TO CONTINUE IN THE JOINT VENTURE AND THE PRICE OF RS. 10/- WAS PAID AS PER THE UNDERSTANDING WITH THE JOINT VENTURE PARTNER. IT WAS CONTENDED THAT WHEN THE AS SESSEE COMPANY DECIDED TO BACK OUT FROM THE JOINT VENTURE COMPANY ON ACCOUNT OF ITS OW N FINANCIAL CONSTRAINS AFTER A PERIOD OF 6 MONTHS THE SITUATION HOWEVER WAS DIFFERENT AND THE DEAL WORKED OUT WITH THE JOINT VENTURE PARTNER WAS A COMPOSITE ONE FOR SALE OF ALM OST THE ENTIRE SHARES HELD BY THE ASSESSEE IN THE JOINT VENTURE COMPANY. IT WAS CONT ENDED THAT THE LUMPSUM CONSIDERATION OF RS. 1.60 CRORES FOR THE SAID DEAL WAS MUTUALLY A GREED AFTER NEGOTIATION AND THE SAME WAS EVIDENCED BY AN EXPLICIT AGREEMENT BETWEEN THE ASSESSEE COMPANY AND THE JOINT VENTURE PARTNER. IT WAS CONTENDED THAT THE JOINT V ENTURE PARTNER OWNING A RENOWNED BRAND NAME OF PUBLICATION HAD NO INTEREST OR INVOLVEMENT IN THE AFFAIRS OF THE ASSESSEE COMPANY AND THE TRANSACTION FOR SALE OF SHARES WITH THE SAI D COMPANY BEING AT ARMS LENGTH PRICE 6 ITA 2258/MUM/08 M/S INDIAN EXPRESS NEWSPAPERS (BO M) LTD. THERE WAS NO REASON FOR THE A.O. TO DOUBT OR DISPUT E THE SAME AND TO DISALLOW THE SHORT TERM AND LONG TERM CAPITAL LOSS CLAIMED BY THE ASSE SSEE ARISING FROM THE SAID TRANSACTION. 11. THE LD. CIT(A) FOUND MERIT IN THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE COMPANY ON THIS ISSUE AND DELETED THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF ASSESSEES CLAIM FOR LONG TERM AND SHORT TERM CAPIT AL LOSS ARISING FROM SALE OF SHARES TO M/S EGMONT INTERNATIONAL HOLDINGS LTD. FOR THE FOLL OWING REASONS GIVEN IN PARA NO. 15 OF HIS IMPUGNED ORDER:- I HAVE PERUSED THE FACTS OF THE CASE AND I FIND TH AT THERE IS AN EXPLICIT WRITTEN AGREEMENT BETWEEN APPELLANT AND EGMONT INTE RNATIONAL HOLDINGS FOR PURCHASE OF SHARES HELD BY APPELLANT. IN TERMS OF THIS AGREEMENT A LUMPSUM OF RS. 1.6 CRORES HAS BEEN DECIDED. APPARENTLY THIS LUMPS UM PRICE IS A NEGOTIATED PRICE. THE VALUATION OF SHARES ON 31.3.2000 IN ACCORDANCE WITH THE BALANCE OF THE COMPANY WAS ONLY RS. 2 PER SHARE. APPELLANT HAS RECEIVED M ORE THAN RS. 5 PER SHARE. I ALSO FIND THAT THE TRANSACTION OF SALE OF SHARES WAS UND ERTAKEN WITH THE INVOLVEMENT AND APPROVAL OF FIPB THE ORGANIZATION OF THE GOVERNMEN T OF INDIA CONTROLLING INVESTMENT BY FOREIGN CORPORATE ENTITIES IN INDIA. IT WAS ONLY AFTER APPROVAL FROM THIS AGENCY THAT THE TRANSACTION WAS FINALIZED. TH E LEARNED COUNSEL OF APPELLANT HAS ALSO INFORMED THAT IT WAS FOR THIS REASON THAT TILL THE TIME APPROVAL OF FIPB WAS RECEIVED THE SALE CONSIDERATION WAS KEPT IN ESCROW ACCOUNT WITH CITI BANK WHO WERE ALSO MADE A PARTY TO THE ENTIRE TRANSACTION. TO DOUBT THE GENUINENESS OF SUCH A TRANSACTION OF APPELLANT WITH A MULTINATIONAL GIANT IN THE PUBLICATION INDUSTRY ON FLIMSY GROUND IS NOT JUSTIFIED. THE ASSESSING OFFI CER HAS ARGUED THAT APPELLANT HAS NOT GIVEN SOUND REASONS FOR TAKING THE EXIT FROM JO INT VENTURE. THIS IS NOT THE AREA WHERE ASSESSING OFFICER CAN STEP INTO. THAT TO MY MIND IS AN EXCLUSIVE JURISDICTION OF THE CONCERNED PARTY BEING THE APPELLANT. THE C ONTENTION OF APPELLANT THAT ONLY 6 MONTHS BEFORE SHARES AT FACE VALUE WERE PURCHASED B Y APPELLANT DOES NOT IN ITSELF MAKE THE TRANSACTION A BOGUS TRANSACTION. APPELLAN T HAS CATEGORICALLY ARGUED THAT EVEN AT THAT POINT OF TIME THE BOOK VALUE OF SHARE S WAS ONLY RS. 2 AND YET WITH THE EXPECTATION OF CONTINUING IN THE JOINT VENTURE APP ELLANT HAD MADE THE INVESTMENT. IN SUCH A SITUATION WITHOUT ANY CONCRETE FINDING AGAI NST THE AGREEMENT AND WITHOUT CHALLENGING THE GENUINENESS OF THE AGREEMENTS DISA LLOWANCE OF RESULTANT LOSS IS NOT JUSTIFIED. THE ASSESSING OFFICER IS DIRECTED TO AL LOW BOTH LONG TERM AND SHORT TERM CAPITAL LOSS RESULTING FROM THE TRANSACTION UNDER C ONSIDERATION. THUS THE GROUNDS OF APPEAL BEARING NOS. 12 AND 13 ARE ACCORDINGLY ALLOW ED. 12. THE LD. D.R. AT THE OUTSET STRONGLY RELIED ON THE REASONS GIVEN BY THE A.O. IN PARA NO. 17 OF THE ASSESSMENT ORDER TO DISALLOW THE ASSE SSEES CLAIM FOR SHORT TERM AND LONG TERM CAPITAL LOSS TREATING THE RELEVANT TRANSACTION S AS NOT GENUINE. HE SUBMITTED THAT THE SHARES WERE SOLD BY THE ASSESSEE @ RS. 5.64 PER SHA RE GIVING RISE TO THE SHORT TERM CAPITAL 7 ITA 2258/MUM/08 M/S INDIAN EXPRESS NEWSPAPERS (BO M) LTD. LOSS IN QUESTION WHEREAS JUST 6 MONTHS PRIOR TO THE DATE OF THE SAID SALE THE ASSESSEE COMPANY HAD ITSELF PURCHASED SHARES OF THE SAME COM PANY AT A PRICE OF RS. 10/- PER SHARE. HE SUBMITTED THAT THE BASIS FOR THE SAID VALUE AT W HICH THE SHARES WERE SOLD BY THE ASSESSEE COULD NOT BE EXPLAINED BY IT. EVEN THE REA SONS FOR DECIDING TO EXIT FROM THE JOINT VENTURE COMPANY ALSO COULD NOT BE SATISFACTORILY EX PLAINED BY THE ASSESSEE COMPANY. HE CONTENDED THAT EVEN THOUGH THE APPROVAL OF FIPB WAS TAKEN FOR TRANSACTION OF SALE OF SHARES BY THE ASSESSEE COMPANY AS REQUIRED THE SAM E BY ITSELF IS NOT SUFFICIENT TO ESTABLISH THE GENUINENESS OF THE TRANSACTION. HE C ONTENDED THAT THE ASSESSEE HAS CLEARLY FAILED TO ESTABLISH THAT THE TRANSACTION OF SALE OF SHARES GIVING RISE TO SHORT TERM AND LONG TERM CAPITAL LOSS WAS AT ARMS LENGTH AND KEEPING I N VIEW THIS FAILURE OF THE ASSESSEE AS WELL AS OTHER FACTS OF THE CASE THE GENUINENESS OF TRANSACTION OF SALE WAS RIGHTLY DOUBTED BY THE A.O. AND THE CLAIM OF THE ASSESSEE FOR LOSS WAS DISALLOWED BY HIM. IN SUPPORT OF THIS CONTENTION HE RELIED ON THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF CIT VS. KARAMCHAND THAPPER AND BROS 176 ITR 535 AND THAT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF ITC CLASSIC FINANCE LIMITED VS. DCIT 26 4 ITR 124. 13. THE LEARNED COUNSEL FOR THE ASSESSEE ON T HE OTHER HAND STRONGLY RELIED ON THE IMPUGNED ORDER OF THE LD. CIT(A) IN SUPPORT OF THE ASSESSEES CASE THAT THE TRANSACTION OF SALE OF SHARES WAS GENUINE TRANSACTION AND THE LONG TERM AND SHORT TERM CAPITAL LOSS ARISING THERE FROM WAS RIGHTLY CLAIMED. HE SUBMITT ED THAT THERE WAS A GLOBAL RECESSION DURING THE RELEVANT PERIOD AND SINCE THE JOINT VENT URE COMPANY WAS CONTINUOUSLY RUNNING INTO LOSS ADDITIONAL FUNDS WERE REQUIRED TO BE INF USED FOR ITS SURVIVAL. HE SUBMITTED THAT A STAGE HOWEVER CAME THAT IT WAS NOT POSSIBLE FOR THE ASSESSEE AS A JOINT VENTURE PARTNER TO INTRODUCE MORE FUNDS IN THE JOINT VENTURE COMPAN Y. HE SUBMITTED THAT AN AGREEMENT THEREFORE WAS ARRIVED AT BETWEEN THE ASSESSEE COMPA NY AND JOINT VENTURE PARTNER WHEREBY THE JOINT VENTURE PARTNER AGREED TO PURCHASE SHARES HELD BY THE ASSESSEE COMPANY FOR LUMPSUM CONSIDERATION OF RS. 1.76 CRORES. HE SUBMI TTED THAT THE SAID CONSIDERATION GIVING A PRICE OF RS. 5.64 PER SHARE AS AGAINST THE BOOK VALUE OF RS. 2/- PER SHARE WAS FOUND TO BE QUITE ATTRACTIVE BY THE ASSESSEE COMPAN Y AND A BUSINESS DECISION WAS TAKEN TO 8 ITA 2258/MUM/08 M/S INDIAN EXPRESS NEWSPAPERS (BO M) LTD. MAKE AN EXIT FROM THE JOINT VENTURE BY SELLING THE SHARES TO A JOINT VENTURE PARTNER. HE SUBMITTED THAT AN EXPLICIT AGREEMENT WAS ACCORDINGL Y ENTERED INTO BETWEEN THE ASSESSEE COMPANY AND THE OTHER JOINT VENTURE PARTNER FOR TRA NSFER OF SHARES AND SINCE THE SAID AGREEMENT/ARRANGEMENT WAS APPROVED EVEN BY THE FIPB THERE WAS NO REASON FOR THE A.O. TO DOUBT THE GENUINENESS OF TRANSACTION OF SALE OF SHARES. HE CONTENDED THAT THE JOINT VENTURE PARTNER WHO PURCHASED THE SHARES FROM THE A SSESSEE COMPANY IS NOT RELATED TO THE ASSESSEE COMPANY SO AS TO DOUBT THE PRICE AGREED FO R TRANSFER OF SHARES. HE CONTENDED THAT THE LD. CIT(A) THEREFORE WAS FULLY JUSTIFIED I N ACCEPTING THE GENUINENESS OF THE SAID TRANSACTION AND ALLOWING THE CLAIM OF THE ASSESSEE FOR SHORT TERM AND LONG TERM CAPITAL LOSS ARISING FROM THE SAID TRANSACTION OF SALE OF S HARES. AS REGARDS THE CASE LAWS CITED BY THE LD. D.R. HE SUBMITTED THAT THE SAME ARE DISTIN GUISHABLE ON FACTS AND THUS HAVE NO APPLICATION TO THE FACTS OF THE CASE. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE REASON FOR MAKI NG AN EXIT FROM THE JOINT VENTURE COMPANY BY SELLING THE SHARES HELD BY IT TO THE JOI NT VENTURE PARTNERS WAS EXPLAINED BY THE ASSESSEE AS ITS INABILITY TO INFUSE MORE FUNDS IN THE SAID COMPANY. THE SAID JOINT VENTURE COMPANY WAS ADMITTEDLY RUNNING INTO LOSSES AND AS A RESULT OF ACCUMULATION OF SUBSTANTIAL LOSS THERE WAS A REQUIREMENT OF INFUSI NG MORE FUNDS FOR THE SURVIVAL OF THE SAID COMPANY. AS A MATTER OF FACT THE ASSESSEE CO MPANY AND THE JOINT VENTURE PARTNER HAD INTRODUCED SOME ADDITIONAL FUNDS IN THE FORM OF SHARE CAPITAL IN THE SAID COMPANY ON THE EARLIER OCCASION. SINCE THE ASSESSEE COMPANY W AS NOT IN A POSITION TO INFUSE MORE FUNDS IN THE JOINT VENTURE COMPANY AN UNDERSTANDIN G WAS REACHED BY IT WITH THE JOINT VENTURE PARTNER WHEREBY THE JOINT VENTURE PARTNER A GREED TO PURCHASE THE SHARES HELD BY THE ASSESSEE IN THE JOINT VENTURE COMPANY AT A LUMP SUM CONSIDERATION OF RS. 1.76 CRORES. THE TERMS AND CONDITIONS OF THE SAID UNDERSTANDING WERE FORMALISED IN THE FORM OF AN EXPLICIT AGREEMENT AND THE SAID AGREEMENT WAS APPRO VED BY THE FIPB. THE A.O. HOWEVER DOUBTED THE GENUINENESS OF THE TRANSACTION INVOLVING THE TRANSFER OF SHARES OF JOINT VENTURE COMPANY BY THE ASSESSEE COMPANY AND D ISALLOWED ITS CLAIM FOR LONG TERM 9 ITA 2258/MUM/08 M/S INDIAN EXPRESS NEWSPAPERS (BO M) LTD. AND SHORT TERM CAPITAL LOSS ARISING FROM SUCH TRANS FER MAINLY FOR TWO REASONS. FIRSTLY HE HELD THAT THE SAID TRANSFER OF SHARES WAS EFFECTED AT A PRICE OF RS. 5.64 AS AGAINST RS. 10/- PER SHARE PAID BY THE ASSESSEE COMPANY ITSELF WHILE INTRODUCING ADDITIONAL FUNDS JUST SIX MONTHS EARLIER. IN THIS REGARD IT HAS BEEN EXPLAI NED ON BEHALF OF THE ASSESSEE COMPANY THAT THERE WAS AN UNDERSTANDING BETWEEN THE JOINT V ENTURE PARTNERS TO INTRODUCE THE ADDITIONAL FUNDS REQUIRED BY THE JOINT VENTURE COMP ANY IN EQUAL PROPORTION AT A FACE VALUE OF RS. 10/- PER SHARE. MOREOVER THE ADDITIONAL FU NDS WERE INTRODUCED BY THE ASSESSEE COMPANY IN THE JOINT VENTURE COMPANY BY WAY OF PURC HASE OF SHARES @ RS. 10/- EACH FOR THE SURVIVAL AND REVIVAL OF THE SAID COMPANY AS AN INVESTOR WITH NO IDEA OF MAKING EXIT FROM THE JOINT VENTURE AT THAT STAGE. THE OTHER OB JECTION OF THE A.O. WAS THAT THE ASSESSEE FAILED TO GIVE ANY BASIS FOR THE PRICE OF RS. 5.64 PER SHARE AT WHICH THE SHARES IN THE JOINT VENTURE COMPANY WERE SOLD BY IT TO THE JOINT VENTUR E PARTNER. HOWEVER AS RIGHTLY SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE THE AUTH ORITIES BELOW AS WELL AS BEFORE US THE BOOK VALUE OF THE SHARES OF THE JOINT VENTURE COMPA NY AT THE TIME OF TRANSFER WAS ONLY RS. 2/- AND THIS BEING THE UNDISPUTED POSITION THE PRI CE OF RS. 5.64 PER SHARE AGREED BETWEEN THE ASSESSEE COMPANY AND JOINT VENTURE PARTNER WAS QUITE FAVOURABLE TO THE ASSESSEE. IN OUR OPINION THE REASONS GIVEN BY THE A.O. FOR DOUB TING THE GENUINENESS OF THE TRANSACTION OF SHARES WHICH WAS DULY SUPPORTED BY A N AGREEMENT AS WELL AS APPROVAL OF FIPB TO THE SAID AGREEMENT WERE NOT TENABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LD. CIT(A) WAS FULLY JUSTIFIED IN ACCEPTING THE SAID TRANSACTION AS GENUINE AND IN ALLOWING THE CLAIM OF THE ASSESSEE FOR SHORT TERM A ND LONG TERM CAPITAL LOSS. 15. AT THE TIME OF HEARING BEFORE US THE LD . D.R. HAS CITED TWO CASES IN SUPPORT OF THE ACTION OF A.O. IN DISALLOWING THE CLAIM OF THE ASSE SSEE FOR SHORT TERM AND LONG TERM CAPITAL LOSS. A PERUSAL OF THE SAME HOWEVER SHOW S THAT THE SAID CASE LAWS CITED BY THE LD. D.R. ARE DISTINGUISHABLE ON FACTS. FOR INSTANC E IN THE CASE OF KARAMCHAND THAPPER & BROS (SUPRA) THE TRANSACTION FOR SALE OF SHARES WA S SHOWN TO BE MADE AT RS. 2.50 PER SHARE AS AGAINST THE MARKET QUOTATION OF RS. 8.06 P ER SHARE AND THE SAID TRANSACTION THEREFORE WAS HELD TO BE NOT GENUINE AND THE LOSS A RISING FROM THE SAID TRANSFER WAS 10 ITA 2258/MUM/08 M/S INDIAN EXPRESS NEWSPAPERS (BO M) LTD. DISALLOWED. SIMILARLY IN THE CASE OF ITC CLASSIC FINANCE LTD. (SUPRA) THE SHARES WERE SOLD AT RS. 18.90 PER SHARE ON MARCH 1991 WHEREAS T HE SHARES WERE QUOTED AT RS. 59/- AT THE STOCK EXCHANGE WHEN THE COUNTER OPENED ON 27 JU NE 1991. IN THE PRESENT CASE THERE IS NOTHING TO SHOW THAT THE MARKET VALUE OF SHARES SOLD BY THE ASSESSEE AT RS. 5.64 PER SHARE WAS ACTUALLY MORE THAN THE SAID PRICE SO AS T O DRAW ANY INFERENCE THAT THE TRANSACTION OF SALE OF THE SAID SHARES WAS NOT GENU INE. ON THE OTHER HAND THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AS WELL AS THE MA TERIAL AVAILABLE ON RECORD CLEARLY SUGGEST THAT THE SAID TRANSACTION WAS A GENUINE ONE HAVING BEEN ENTERED INTO BY THE ASSESSEE COMPANY IN ITS OWN BUSINESS INTEREST. WE THEREFORE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) TREATING THE SAID TRANSACTION AS GENUINE AND ALLOWING THE CLAIM OF THE ASSESSEE FOR SHORT TERM AND LONG T ERM CAPITAL LOSS. 16. IN THE RESULT THE APPEAL OF THE REVENU E IS DISMISSED. ORDER PRONOUNCED ON 15 TH DECEMBER 2010. SD/- SD/ - (D. MANMOHAN) (P.M. JAGTAP) VICE PRESIDENT ACCOUNT ANT MEMBER MUMBAI DATED 15 TH DECEMBER 2010. RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) III MUMBAI 4. THE CIT- MC III MUMBAI 5. THE DR BENCH I 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI 11 ITA 2258/MUM/08 M/S INDIAN EXPRESS NEWSPAPERS (BO M) LTD. DATE INITIALS 1. DRAFT DICTATED 8.12.10 10.12.10 SR.P.S./P.S. 2. DRAFT PLACED BEFORE AUTHOR 9.12.10 10.12.10 SR.P.S./P.S. 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER. - J.M./A.M. 4.DRAFT DISCUSSED/ APPROVED BY SECOND MEMBER. J.M./A.M. 5. APPROVED DRAFT COMES TO THE SR.P.S./P.S. SR.P.S./P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S. 8. DATE OF WHICH FILE GOES TO THE HEAD CLERK. 9. DATE OF DISPATCH OF ORDER.