Shri K.P.Ramasamy, Coimbatore v. ACIT, Coimbatore

ITA 413/CHNY/2010 | 2007-2008
Pronouncement Date: 30-07-2010 | Result: Allowed

Appeal Details

RSA Number 41321714 RSA 2010
Assessee PAN ACWPD4021E
Bench Chennai
Appeal Number ITA 413/CHNY/2010
Duration Of Justice 3 month(s) 25 day(s)
Appellant Shri K.P.Ramasamy, Coimbatore
Respondent ACIT, Coimbatore
Appeal Type Income Tax Appeal
Pronouncement Date 30-07-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 30-07-2010
Date Of Final Hearing 22-07-2010
Next Hearing Date 22-07-2010
Assessment Year 2007-2008
Appeal Filed On 05-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI BEFORE SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER AN D SHRI GEORGE MATHAN JUDICIAL MEMBER .. I.T.A. NOS. 412/MDS/2010 ASSESSMENT YEAR : 2007-08 SHRI K.P.D. SIGAMANI 5 AKS NAGAR THADAGAM ROAD COIMBATORE-641 001. VS. THE ASST. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE-I(3) COIMBATORE. (PAN: ACWPD4021E ) I.T.A. NO. 413/MDS/2010 ASSESSMENT YEAR : 2007-08 SHRI K.P. RAMASAMY VS. THE ASST. COMMISS IONER OF 5 AKS NAAR THADAGAM ROAD INCOME-TAX CO. C IRCLE-I(3) COIMBATRE-641 001. COIMBATORE. PAN : AARPR1787J AND I.T.A. NO. 414/MDS/2010 ASSESSMENT YEAR 2007-08 SHRI P. NATARAJ VS. THE ASST. COMMISSIONER OF 5 AKS NAGAR THADAGAM ROAD INCOME-T AX CO. CIRCLE-I(3) COIMBATORE-641 001. COIMBATORE. PAN: ABOPN9966D (APPELLANTS) (RESPNDENT) I.T.A. NO.412 413 & 414/MDS/2010 2 APPELLANTS BY : SHRI S. SRIDHAR RESPONDENT BY : SHRI P.B. SEKARAN O R D E R PER GEORGE MATHAN JUDICIAL MEMBER : ITA NO. 412/MDS/2010 IS AN APPEAL FILED BY THE ASS ESSEE SHRI K.P.D. SIGAMANI AGAINST THE ORDER OF THE CIT(A)-I COIMBAT ORE IN APPEAL NO.145/09-10 DATED 5-3-2010 FOR THE ASSESSMENT YEAR 2007-08. ITA NO. 413/MDS/2010 IS AN APPEAL FILED BY THE ASSESSEE SHRI K.P. RAMASAMY AGA INST THE ORDER OF THE CIT(A)- I COIMBATORE IN APPEAL NO. 146/09-10 DATED 5-3-201 0 FOR THE ASSESSMENT YEAR 2007-08. ITA NO. 414/MDS/2010 IS AN APPEAL BY THE ASSESSEE SHRI P. NATARAJ AGAINST THE ORDER OF THE CIT(A)-I COIMBATORE IN AP PEAL NO. 144/09-10 DATED 5- 3-2010 FOR THE ASSESSMENT YEAR 2007-08. AS THERE I S ONLY ONE ISSUE IN ALL THE THREE APPEALS AS ALL THE THREE APPEALS ARE INTER-CO NNECTED THE THREE APPEALS ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. SHRI S. SRIDHAR ADVOCATE REPRESENTED ON BEHALF OF THE ASSESSEES AND SHRI P. B. SEKARAN CIT-DR REPRESENTED ON BEHALF OF THE REVENUE. 3. IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRE SENTATIVE AT THE TIME OF HEARING THAT ALL THE THREE APPELLANTS ARE BROTHERS AND ARE THE FOUNDER SHARE- HOLDERS OF COMPANIES UNDER THE KPR GROUP NAMELY M/ S. KPR MILLS P. LTD. M/S. KPR SPINNING MILLS P. LTD. AND M/S. KPR COTTON MILL S P. LTD. IT WAS THE I.T.A. NO.412 413 & 414/MDS/2010 3 SUBMISSION THAT THE SAID COMPANIES WERE ENGAGED IN THE MANUFACTURE AND SALE OF YARN AND KNITTED GARMENTS. DURING THE YEAR 2005 -06 M/S. KPR MILLS P. LTD. AND M/S. KPR SPINNING MILLS P. LTD. GOT AMALGAMATED WITH M/S. KPR COTTON MILLS P. LTD. AND THE NAME OF THE COMPANY WAS THEREAFTER CHANGED TO M/S. KPR MILLS LTD. M/S. KPR MILLS LTD. WAS CONVERTED INTO A PUBL IC LIMITED COMPANY AND THE SHARES WERE ALSO LISTED IN THE STOCK EXCHANGE. DURI NG THE YEAR 2006-07 THE PROMOTERS DECIDED TO ADMIT A PRIVATE EQUITY PARTNER INTO THE COMPANY AND CONSEQUENTLY SOLD 9.17% OF THEIR HOLDING IN THE COM PANY FOR AN AGGREGATE VALUE OF ` . 44 77 78 962/-. THE THREE APPELLANTS HAD SOLD THE IR HOLDINGS WITH THE INTENTION OF DIVERSIFYING INTO ANOTHER SECTOR AND U TILIZED THE PROCEEDS TOWARDS INVESTMENT IN M/S. KPR SUGAR MILLS P. LTD. WHICH WA S INCORPORATED ON 3-3-2006. THE FUNDS INVESTED BY THE PROMOTERS WERE UTILIZED F OR ACQUIRING THE NECESSARY LANDS IN KARNATAKA FOR SETTING UP A SUGAR FACTORY. THE ASSESSEES HAD CONSEQUENTLY PAID THE AMOUNT ON ACCOUNT OF THE SHAR E APPLICATION MONEY AND ON ACCOUNT OF THE SHARE ALLOTMENT. SUBSEQUENTLY AS U NEXPECTED DISPUTES AROSE WITH ANOTHER COMPANY VIZ. M/S. RENUKA SUGAR MILLS WHICH WAS ALSO FUNCTIONING IN KARNATAKA AND WAS ENGAGED IN THE MANUFACTURE OF SUGAR M/S. KPR SUGAR MILLS COULD NOT PROCEED IN SETTING UP THE FACTORY AND FIN ALLY HAD TO ABANDON THE PROJECT. THE ASSESSEE PROMOTERS HAD INVESTED HUGE AMOUNTS INTO THE COMPANY M/S. KPR SUGAR MILLS P. LTD. IN THE FORM OF SHARE A PPLICATION MONEY AND SHARE ALLOTMENT MONEY. DUE TO LITIGATION AND THE FAILURE IN REGARD TO THE SETTING UP OF I.T.A. NO.412 413 & 414/MDS/2010 4 THE SUGAR FACTORY THE PROMOTERS BEING THE ASSESSE ES HEREIN DECIDED NOT TO INVEST FURTHER AMOUNT INTO THE COMPANY AS IT WAS FE LT THAT THE LIKELIHOOD OF SETTING UP OF THE FACTORY LOOKED REMOTE AND THE ADV ANCES ALREADY MADE TO THE SUPPLIERS OF MACHINERY AND CIVIL BUILDERS BECAME BA D ON ACCOUNT OF THE DISCONTINUANCE OF THE PROJECT WORK. CONSEQUENTLY T HE ASSESSEES HEREIN BEING THE PROMOTERS OF M/S. KPR SUGAR MILLS P. LTD. DID N OT PAY THE FIRST AND FINAL CALL MONEY IN RESPECT OF THE SHARES OF M/S. KPR SUGAR MI LLS P. LTD. AS THE FIRST AND FINAL CALL MONEY WAS NOT PAID THE SHARES ALLOTTED TO THE ASSESSEES WERE FORFEITED AS PER THE REQUIREMENTS OF THE COMPANY LAW. IT WAS THE SUBMISSION THAT THE FORFEITURE OF THE SHARES HAD TAKEN PLACE ONLY BECAU SE THE ASSESSEES BEING THE APPELLANTS HEREIN FAILED TO MAKE THE FIRST AND FINA L CALL MONEY AND THE FORFEITURE OF THE SHARES BEING PARTLY PAID UP SHARES WAS ALSO WITH THE DUE CONSENT OF THE PROMOTERS. IT WAS THE SUBMISSION THAT THE FORFEITU RE WAS PERMITTED SO AS TO LIMIT THE LIABILITY THAT THE APPELLANTS WOULD HAVE TO SUF FER IN THE EVENT OF ANY COMPENSATORY CLAIMS COMING UP AGAINST M/S. KPR SUGA R MILLS P. LTD. IT WAS ALSO THE SUBMISSION THAT IT WAS A PURE BUSINESS DECISION TO SUFFER THE LOSS IN RESPECT OF THE MONIES PAID TOWARDS THE ACQUISITION OF THE S HARES IN M/S. KPR SUGAR MILLS P. LTD. IT WAS THE SUBMISSION THAT THE LITIGATION BETWEEN M/S. RENUKA SUGAR MILLS LTD. AND THE ASSESSEES AGAINST THE ESTABLISHMENT OF THE SUGAR FACTORY AT ALMEL BY THE ASSESSEE IN ACCORDANCE WITH THE SUGARCANE (CONT ROL) (AMENDMENT) ORDER 2006 WAS EVEN TODAY PENDING BEFORE THE HON'BLE SUPR EME COURT AND ALL THE I.T.A. NO.412 413 & 414/MDS/2010 5 MONIES INVESTED BY M/S. KPR SUGAR MILLS P. LTD. IN RESPECT OF THE ACQUISITION OF THE MACHINERY HAS GONE TO WASTE AND ONLY A FOUNDATI ON IN RESPECT OF THE FACTORY REMAINS AND THAT TOO IN A DILAPIDATED CONDITION. T HE POSSIBILITY OF RECOVERING ANYTHING FROM M/S. KPR SUGAR MILLS P. LTD. IS REMOT E MORE SO IMPOSSIBLE. IT WAS THE SUBMISSION THAT AS A CONSEQUENCE OF THE FORFEIT URE OF THE PARTLY PAID UP SHARES THE APPELLANTS HAD CLAIMED THE LOSS ARISING ON ACCOUNT OF THE FORFEITURE OF THE SHARES AS A CAPITAL LOSS WHICH HAS BEEN CLAIMED FOR SET OFF AGAINST THE LONG TERM CAPITAL GAINS GENERATED BY THE ASSESSEES ON AC COUNT OF THE SALE OF THE 9.17% OF THEIR SHARE-HOLDING IN M/S. KPR MILLS LTD. THE LEARNED AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO PAGE 56 OF THE PAPER BOOK WHICH IS THE COPY OF THE CERTIFICATE OF INCORPORATION AND ARTICL ES OF ASSOCIATION OF M/S. KPR SUGAR MILLS P. LTD. AS PER THE SAID CERTIFICATE M /S. KPR SUGAR MILLS P. LTD. WAS INCORPORATED ON 3-3-2006 AND AS PER THE ARTICLES OF ASSOCIATION THE MAIN ACTIVITY OF THE COMPANY WAS TO RUN A SUGAR FACTORY AND THE F IRST AND PERMANENT DIRECTORS OF THE COMPANY ARE SHRI K.P. RAMASAMY SHRI K.P.D. SIGAMANI AND SHRI P.NATARAJ ALL THE THREE WHO ARE THE APPELLANTS IN THESE APPEALS. HE FURTHER DREW OUR ATTENTION TO PAGE 75 OF THE PAPER BOOK WHICH WA S THE COPY OF THE RETURN FILED BY M/S. KPR SUGAR MILLS P. LTD. WHICH SHOWED BASICALLY INCOME FROM SALE OF CHILLY AND INTEREST FROM BANK. HE FURTHER DREW OUR ATTENTION TO PAGES 20 38 AND 55 OF THE PAPER BOOK WHICH WERE THE COPIES OF THE S HARE CERTIFICATES ISSUED TO THE THREE APPELLANTS WHICH HAVE BEEN SPECIFICALLY S EALED AS FORFEITED DUE TO NON- I.T.A. NO.412 413 & 414/MDS/2010 6 RECEIPT OF ALLOTMENT/CALL MONEY AS ON 31.3.2007. H E FURTHER DREW OUR ATTENTION TO PAGE 122 OF THE PAPER BOOK WHICH WAS THE COPY OF THE LETTER ADDRESSED TO THE ASSESSING OFFICER IN RESPECT OF THE STATUS OF THE C ASE PENDING BEFORE THE KARNATAKA HIGH COURT AT BANGALORE AND THE SUPREME C OURT NEW DELHI AGAINST M/S. KPR SUGAR MILLS P.LTD. BY M/S. SHREE RENUKA SU GARS LTD. OF BELGAUM. IT WOULD BE WORTHWHILE TO EXTRACT THIS LETTER FOR BETT ER APPRECIATION: FILED BEFOE THE ASSISTANT COMMISIONER OF INCOME TAX COMPANY CIRCLE-I(3) CBE IN THE CASE OF MR. P. NATARAJ (PAN ; ABOPN 9966 D0 FOR THE ASST. YR. 2007-08 K.P.R. SUGAR MILLS (P) LIMITED COIMBATORE ******** STAUS OF THE CASES PENDING BEFORE THE HIGH COURT OF KARNATAKA AT BANGALORE AND THE SUPREME COURT NEW DELHI AGAINST THE COMPANY BY M/S. SHREE RENUKA SUGARS LIMITED BELGAUM 1. THE WRIT PETITION FILED BY M/S. SHREE RENUK A SUGARS LIMITED BEFORE THE HIGH COURT OF KARNATAKA AT BANGA LORE TO ESTABLISH THAT THEY HAVE A SUPERIOR RIGHT FOR ESTAB LISHING THE SUGAR FACTORY AT ALMEL IN ACCORDANCE WITH THE SUGAR CANE (CONTROL) (AMENDMENT) ORDER 2006 (G.O. DATED 23.12. 2006) OVER K.P.R. SUGAR MILLS (P ) LIMITED COIMBATORE V IDE W.P. NO. 1102/2007 (GE-EC) ON 18-01-2007. THE COURT HAS GRANT ED STAY AGAINST YOUR ASSESSEE COMPANY ON 19.01.2007. 2. YOUR ASSESSEE COMPANY HAS FILED A COUNTER PETITION TO VACATE THE STAY AND GOT VACATED ON 28.03.2007. I.T.A. NO.412 413 & 414/MDS/2010 7 3. M/S. SRS LIMITED BELGAUM HAVE FILED AN APP EAL WRIT PETITION (W.A. NO: 743/2007 (GM-EC) DATED 12.04.2007 BEFORE THE KARNATAKA HIGH COURT BENCH AGAINST THE O RDER DATED 28.03.2007 PASSED BY A SINGLE JUDGE AND GOT A STAY ORDER ON 16.04.2007. 4. YOUR ASSESSEE COMPANY HAS GOT THE STA Y VACATED ON 27-03-2008. IN THE MEAN TIME HIGH COURT HAS ORDERE D (DATED24-0108) THE COMMISSIONER OF SUGAR CANES TO F ILE A REPORT ON THE EFFECTIVE STEPS TAKEN BY BOTH THE PAR TNERS OF THE CASE AND THE COMMISSIONER OF SUGAR CANES HAS SUBMIT TED THE REPORT ON 27-02-2008. 5. M/S. SRS LIMITED HAVE APPROACHED SU PREME COURT AGAINST THE ORDER OF THE HIGH COURT DATED 27-03-08 AND GOT THE STAY ON 22.04.08 TO MAINTAIN STATUS QUO. 6. THE WRIT APPEAL NO. 743/2007 (WRIT P ETITION NO.: 1102/2007) WAS TRANSFERRED TO THE CIRCUIT BENCH OF THE HIGH COURT OF KARNATAKA OF GULBARGA AND THE CIRCUIT BENC H HAS PASSED AN ORDER ON THE WRIT APPEAL ON 16-04-2009 WI TH A DIRECTION TO THE UNDER SECRETARY DIRECTORATE OF SU GARS GOVERNMENT OF INDIA NEW DELHI TO CONDUCT A PERSONA L HEARING WITH THE PARTIES OF THE CASE TO VERIFY THE RELEVANT DOCUMENTS IN SUPPORT OF THEIR CASE AND TO DECIDE ON THE ISSUE . 7. BUT M/S. SRS LIMITED HAVE FILED SLP (NO. 11773 OF 2009)BEFORE THE SUPREME COURT OF INDIA AGAINST T HE ORDER OF THE CIRCUIT BENCH OF GULBARGA. THE SUPREME COUR T OF INDIA HAS GRANTED STAY ON 24-08-09 AND STAYED THE OPERATI ON OF THE ORDER OF THE HIGH COURT DATED 16.04.2009. THE CASE IS PENDING TILL DATE BEFORE THE SUPREME COURT. A. VETRIVEL AUTHORISED REPRESENTATIVE ENCLD: THE ABOVE REFERRED ORDERS ARE ENCLOSED FOR YOUR RECORDS. THUS IT WAS THE SUBMISSION THAT M/S. KPR SUGAR MILL S P. LTD. WAS INCORPORATED IN MARCH 2006. THE COMPANY HAD PURCHASED LAND AND HA D ALSO INVESTED IN THE I.T.A. NO.412 413 & 414/MDS/2010 8 PURCHASE OF MACHINERY SUBSTANTIALLY BY DECEMBER 20 06 AND IN JANUARY 2007. THE COMPANY WAS HIT BY THE LITIGATION INITIATED BY M/S. SHREE RENUKA SUGARS LTD. BELGAUM WHICH BROUGHT THE SETTING UP OF THE F ACTORY OF M/S. KPR SUGAR MILLS P. LTD. TO A HALT AND CONSEQUENTIAL NON-REVIVAL TIL L TODAY. IT WAS THE SUBMISSION THAT THE APPELLANTS HEREIN HAVE ALSO SUBSTANTIALLY LOST HOPE IN REGARD TO THE POSSIBILITY OF SETTING UP OF THE SUGAR FACTORY. IT WAS THE SUBMISSION THAT THE CLAIM OF THE SET OFF OF THE CAPITAL LOSS AGAINST TH E LONG TERM CAPITAL GAINS HAD BEEN DISBELIEVED BY THE ASSESSING OFFICER ON THE GR OUND THAT THE APPELLANTS HAD SHOWN THEIR WILLINGNESS FOR THE FORFEITURE OF THE S HARE MONEY AND THAT THE STAY ORDER OBTAINED BY M/S. SHREE RENUKA SUGARS LTD ON 1 9-012007 HAD ALSO BEEN VACATED ON 28-03-2007 AND THAT M/S. KPR SUGAR MILLS HAD FORFEITED THE SHARE MONEY AND THE FIRST CALL MONEY ON 31-03-2007 WHEN T HERE WERE NO LEGAL DISPUTES BETWEEN M/S. SHREE RENUKA SUGARS LTD. AND M/S. KPR SUGARS P. LTD. IT WAS THE SUBMISSION THAT THE LEARNED ASSESSING OFFIC ER HAD NOT LOOKED INTO THE FACTS BEYOND 28-03-2007 AS IN FACT M/S. KPR SUGAR M ILLS HAD FILED PETITION FOR VACATING THE STAY BEFORE THE KARNATAKA HIGH COURT A ND THE STAY WAS VACATED ON 28.03.2007 AND M/S. SHREE RENUKA SUGARS LTD. FILED A WRIT APPEAL ON 12.04.2007 AND A STAY WAS OBTAINED ON 16.04.2007 WHICH STAY WA S AGAIN VACATED ON 27.03.2008 AND M/S. SHREE RENUKA SUGARS LTD. APPROA CHED THE SUPREME COURT AGAINST THE ORDER OF THE HIGH COURT VACATING THE ST AY ON 27-03-2008 AND HAS GOT A STAY FROM THE SUPREME COURT ON 22-04-2008 FOR MAI NTAINING STATUS QUO AND IN I.T.A. NO.412 413 & 414/MDS/2010 9 THE MEANTIME RECONCILIATION HAD BEEN DIRECTED BETWE EN M/S. SHREE RENUKA SUGARS LTD. AND THE ASSESSEE THROUGH THE UNDER SECR ETARY DIRECTORATE OF SUGAR GOVT. OF INDIA NEW DELHI WHICH WAS ALSO CHALLENGED BY M/S. SHREE RENUKA SUGARS LTD. BEFORE THE SUPREME COURT AND EVEN THE R ECONCILIATION WAS STAYED BY THE HON'BLE SUPREME COURT ON 24-08-2009 ALONG WITH THE ORDER OF THE HIGH COURT DIRECTING THE UNDER SECRETARY DIRECTORATE OF SUGAR GOVT. OF INDIA TO VERIFY THE DOCUMENTS AND DECIDE THE ISSUE. IT WAS THUS TH E SUBMISSION THAT AT EVERY STAGE THE ASSESSEE HAD TO LIFT THE STAY OBTAINED BY M/S. SHREE RENUKA SUGARS LTD. AND ANOTHER STAY WAS OBTAINED FROM HIGHER JUDI CIAL FORUM AND EVERY ATTEMPT MADE BY M/S. KPR SUGAR MILLS P. LTD. TO SET UP THE FACTORY WAS SUCCESSFULLY SABOTAGED BY M/S. SHREE RENUKA SUGAR MILLS LTD THER EBY FORCING THE APPELLANTS TO GIVE UP ANY HOPE OF SETTING UP THE SUGAR FACTORY . IT WAS THE FURTHER SUBMISSION THAT THE LEARNED ASSESSING OFFICER WAS A LSO OF THE VIEW THAT THE APPELLANTS HAD PLANNED THE TRANSACTION IN SUCH A WA Y SO AS TO CLAIM THE SHORT TERM CAPITAL GAINS ON ACCOUNT OF THE FORFEITURE TAK ING SHELTER UNDER THE CITED DECISION IN THE CASE OF DCIT V. BPL SANYO FINANCE L TD. REPORTED IN 312 ITR 63 (KAR). IT WAS THE FURTHER SUBMISSION THAT THE LEAR NED ASSESSING OFFICER HAD ALSO HELD THAT THE FORFEITURE OF THE SHARES WAS A COLOUR ABLE DEVICE AND HAD INVOKED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF MCDOWELL & CO. V. COMMERCIAL TAX OFFICER (1985) 59 STC 277. IT WAS T HE SUBMISSION THAT THE LEARNED CIT(A) DID NOT CONSIDER THE SUBMISSIONS OF THE ASSESSEE AND HAD UPHELD I.T.A. NO.412 413 & 414/MDS/2010 10 THE ORDER OF THE ASSESSING OFFICER. IT WAS THE FUR THER SUBMISSION THAT THE LOSS INCURRED BY THE ASSESSEE IN RESPECT OF THE ATTEMPTE D SETTING UP OF THE SUGAR FACTORY THROUGH M/S. KPR SUGAR MILLS P. LTD. IS NOT DISPUTED. IT WAS THE SUBMISSION THAT THERE WAS NO COLOURABLE DEVICE AND IN FACT NOTHING AS CLAIMED BY THE ASSESSEE HAS BEEN EVEN SHOWN TO BE A COLOURABLE DEVICE OR AN UNTRUE CLAIM. IT WAS THE SUBMISSION THAT THE ORDER OF THE LEARNED CIT(A) WAS LIABLE TO BE REVERSED AND THE ASSESSEE IS ENTITLED TO THE CLAIM OF SHORT TERM CAPITAL LOSS ON ACCOUNT OF THE FORFEITURE OF THE SHARES. 4. IN REPLY THE LEARNED DR SUBMITTED THAT THE DECI SION IN THE CASE OF BPL SANYO FINANCE LTD. WAS NOT APPLICABLE INSOFAR AS IN THE SAID CASE THE FORFEITURE OF THE SHARE APPLICATION MONEY WAS BY AN UNRELATED COM PANY WHEREAS IN THE PRESENT CASE THE APPELLANTS WERE THE DIRECTORS MOR E SO THE PERMANENT DIRECTORS OF THE COMPANY M/S. KPR SUGAR MILLS P. LTD. AND TH E FORFEITURE OF THE SHARE MONEY WAS ONLY A COLOURABLE DEVICE FOR CLAIMING THE SHORT TERM CAPITAL LOSS. IT WAS THE SUBMISSION THAT THE HON'BLE SUPREME COURT D ECISION IN THE CASE OF MCDOWEL & CO. SQUARELY APPLIES TO THE PRESENT CASE. HE VEHEMENTLY SUPPORTED THE ORDERS OF THE ASSESSING OFFICER AND THE LEARNED CIT(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ON QU ERY FROM THE BENCH IT HAS BEEN SPECIFICALLY AGREED BY BOTH THE SIDES THAT THE APPELLANTS HEREIN HAVE INVESTED THEIR MONIES IN THE SHARE APPLICATION OF M /S. KPR SUGAR MILLS P. LTD. IT HAS ALSO BEEN AGREED BY BOTH THE SIDES THAT M/S. KP R SUGAR MILLS LTD. HAS NOT I.T.A. NO.412 413 & 414/MDS/2010 11 BEEN ABLE TO EVEN SET UP ITS FACTORY. IT HAS BEEN SPECIFICALLY COMMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE ON BEHALF OF THE APPELLANTS THAT THE POSSIBILITY OF THE SUGAR FACTORY BEING SET UP IN KARNATAKA IS T OO ROMOTE A POSSIBILITY ESPECIALLY IN VIEW OF THE FACT THAT THE FUNDS ALREA DY INVESTED IN THE ACQUISITION OF THE MACHINERIES HAVE ALREADY BEEN LOST AND THE STRU CTURES PUT UP HAVE ALSO BECOME DILAPIDATED DUE TO EFFLUX OF TIME VAGARIES OF NATURE AND NON-AVAILABILITY OF MAINTENANCE. THUS THE FACTS AS ARE AVAILABLE AR E THAT THE APPELLANTS HAVE INVESTED THE MONIES IN THE ACQUISITION OF SHARES. THEY DID OBTAIN A LICENCE FOR STARTING A SUGAR FACTORY. AGAINST THE LICENCE GRANT ED TO M/S. KPR SUGAR MILLS P.LTD. M/S. SHREE RENUKA SUGARS LTD. FILED A WRIT PETITION. MATTERS ARE PENDING BEFORE THE HON'BLE SUPREME COURT. STAY HAS BEEN GR ANTED BY THE HON'BLE SUPREME COURT. THE LITIGATION ISSUES ARE NOT DISPU TED. THE CORRESPONDENCE FROM THE VARIOUS SUPPLIERS OF THE MACHINERY CLEARLY SHOW S THAT THE PROCESS OF THE SETTING UP OF THE FACTORY HAS BEEN PUT ON HOLD AND THE SUPPLIER HAS ALSO SPECIFICALLY MENTIONED THAT ONLY AFTER LIFTING OF T HE HOLD THE RE-NEGOTIATION OF THE DELIVERY AND PRICE IMPLICATIONS WOULD BE DISCUSSED. THIS IS AS EARLY AS IN MARCH 2007. FURTHER THE LETTER DATED 02-07-208 BY M/S. K PR SUGAR MILLS P. LTD. TO M/S. PRATIBHA CONSTRUCTIONS ENGINEERS WHEREIN THE ASSESSE E HAS INVOKED THE FORCE MAJEURE CLAUSE IN RESPECT OF THE COMPENSATION DEMAN DED BY THE CONTRACTORS FOR THE CONSTRUCTION OF THE SUGAR MILL OR THE ACT OF TH E APPELLANTS TAKING A CONSCIOUS DECISION TO PERMIT THE FORFEITURE OF THE PARTLY PAI D UP SHARES INVESTED BY THEM IN I.T.A. NO.412 413 & 414/MDS/2010 12 THE SHARES OF M/S. KPR SUGAR MILLS P. LTD. CANNOT B E SAID TO BE A COLOURABLE DEVICE. ONE SHOULD APPRECIATE THAT THE THREE APPEL LANTS ARE THE PERMANENT DIRECTORS IN M/S. KPR SUGAR MILLS P. LTD. AND THEY VERY WELL KNEW THAT THE POSSIBILITY OF M/S. KPR SUGAR MILLS P. LTD. SETTING UP THE FACTORY GOING INTO PRODUCTION AND GETTING OUT OF THE LEGAL ENTANGLEMEN TS IS A REMOTE POSSIBILITY. THEY VERY WELL KNEW THAT M/S. SHREE RENUKA SUGARS L TD. WOULD NOT PERMIT THEM TO SET UP THE FACTORY AS IT WOULD BE A COMPETITION FOR M/S. SHREE RENUKA SUGARS LTD. IN THE CIRCUMSTANCES THE DECISION TAKEN BY TH E THREE SHAREHOLDERS WHO ARE ALSO THE PERMANENT DIRECTORS OF M/S. KPR SUGAR MILL S P. LTD. IN LETTING THE FORFEITURE OF THE PARTLY PAID UP SHARES IS NOTHING BUT A PURE BUSINESS DECISION INSOFAR AS BY PUMPING IN MORE MONEY BY PAYING THE FINAL CALL ON THE SHARES EVEN THAT MONEY WOULD BE LOST. ONE SHOULD APPRECIA TE THAT OUT OF ` . 44 CRORES THE THREE APPELLANTS HAD GENERATED ON THE SALE OF T HE 9.17% OF THEIR HOLDING IN M/S. KPR MILLS LTD. THE THREE APPELLANTS HAVE ALTO GETHER INVESTED NEARLY ` . 35 CRORES PLUS IN M/S. KPR SUGAR MILLS P. LTD. IN THE FORM OF ITS PARTLY PAID UP SHARES. THE FACT THAT THE APPELLANTS HAVE LOST THI S MONEY INSOFAR AS M/S. KPR SUGAR MILLS P. LTD. IS AS ON DATE UNABLE TO EVEN SE T UP ITS FACTORY MUCH LESS COMMENCE ITS OPERATIONS REMAINS UNDISPUTED. EVEN AS SUMING THAT THE APPELLANTS COULD HAVE DELAYED THE FORFEITURE OF THE SHARES STILL IT IS ONLY A MATTER OF TIME BEFORE THE FORFEITURE WOULD HAVE TAKEN PLAC E AS PER THE PROVISIONS OF THE COMPANIES ACT. OTHERWISE THE APPELLANTS WOULD HAVE TO PUMP IN MORE MONEY I.T.A. NO.412 413 & 414/MDS/2010 13 BEING THE FINAL CALL OF THE SHARE APPLICATION WHICH WOULD IN FACT BE THROWING GOOD MONEY AFTER BAD MONEY AND IF THE TOTAL SHARE MONEY IS CLAIMED AS LOSS THE NEXT QUESTION WOULD BE WHEN THE ASSESSEE KNEW THAT THE COMPANY WOULD NOT BE ABLE TO SET UP ITS FACTORY AND THAT THE COMPANY WOU LD BE A FAILURE WHY DID THE ASSESSEE PUMP IN FURTHER MONEY? THIS IS WHERE A D ECISION AS A PRUDENT BUSINESS MAN IS TO BE CONSIDERED. NO PRUDENT BUSIN ESS MAN WOULD PERMIT LOSS OF CAPITAL UNDER NORMAL CIRCUMSTANCES. IT IS ONLY UNAVOIDABLE CIRCUMSTANCES THAT A PERSON LETS GO OR PERMITS FORFEITURE OF HIS CAPIT AL. BY THE FORFEITURE OF THIS CAPITAL IT IS NOT THE CLAIM OF THE REVENUE THAT THE MONEY IS RE-ROUTED AND HAS COME BACK INTO THE COFFERS OF THE APPELLANTS. THE M ONEY HAS BEEN SUNK IN M/S. KPR SUGAR MILLS P. LTD. AND M/S. KPR SUGAR MILLS P. LTD. IS UNABLE TO EVEN SET UP ITS SUGAR FACTORY AND THE POSSIBILITY OF SETTING UP THE SUGAR FACTORY ITSELF IS REMOTE. SUCH A DECISION TAKEN BY THE APPELLANTS HE REIN CANNOT OBVIOUSLY BE TREATED AS A SHAM OR COLOURABLE DEVICE. IT CANNOT BE CALLED A TAX PLANNING. NO BUSINESSMAN WOULD LOSE OR PERMIT FORFEITURE OF HIS CAPITAL REPRESENTING HIS PARTLY PAID UP SHARES TO AVOID PAYMENT OF TAXES ESPECIALLY WHEN THE MONEY IS NEVER GOING TO COME BACK TO HIM. HOW THIS TRANSACTION IS TO BE TREATED AS A COLOURABLE DEVICE OR WHAT IS TAX PLANNING THAT THE APPELLANTS HAVE DONE IS NOT COMING OUT OF THE ORDERS OF THE AUTHORITIES BELOW. THAT THE APPE LLANTS HAVE LOST THEIR CAPITAL WHICH REPRESENTED INVESTMENTS IN THE PARTLY PAID UP SHARES OF M/S. KPR SUGAR MILLS P. LTD. IS UNDISPUTED. THERE IS NO WHISPER MUCH LESS THAN ALLEGATION THAT I.T.A. NO.412 413 & 414/MDS/2010 14 THE AMOUNT INVESTED IN THE FORFEITED SHARES HAS COM E BACK TO THE APPELLANTS IN ANY FORM WHATSOEVER. IN SUCH A SITUATION OBVIOUSLY THE LOSS WOULD BE A SHORT TERM CAPITAL LOSS AND THE TRANSACTION CANNOT BE TRE ATED AS A COLOURABLE DEVICE OR A SHAM TRANSACTION. IN THE CASE OF BPL SANYO FINA NCE LTD. IT IS TRUE THE PARTIES ARE UNRELATED AND IN THE CASE OF THE ASSESSEES HERE IN IT IS THE DIRECTORS AND THE COMPANY. BUT THAT BY ITSELF WOULD NOT AFFECT THE P RINCIPLES LAID DOWN IN THE SAID DECISION. ONE SHOULD REMEMBER THAT EACH ENTITY IS AN ASSESSEE SEPARATE AND THE RELATIONSHIP DOES NOT AFFECT THE DECISION. FURTHER THE FORFEITURE HAS NOT BEEN CLAIMED TO BE BOGUS NOR HAS IT BEEN SHOWN TO BE A F RAUD OR A COLOURABLE DEVICE. THE LOSS OF MONEY IN THE FORM OF PARTLY PAID UP SHA RES REMAINS AN UNDISPUTED FACT IN THE HANDS OF THE ASSESSEES. IN THE CIRCUM STANCES WE ARE OF THE VIEW THAT THE PRINCIPLES LAID OWN IN THE DECISION OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF DCIT V. BPL SANYO FINANCE LTD. REFERRED TO SUPRA SQUARELY APPLY TO THE FACTS OF THE APPELLANTS CASE. CONSEQUENTLY THE ORD ER OF THE LEARNED CIT(A) ON THIS ISSUE STANDS REVERSED AND THE ASSESSING OFFICE R IS DIRECTED TO ACCEPT THE CLAIM OF THE ASSESSEES IN RESPECT OF THE FORFEITURE OF THE PARTLY PAID UP SHARES OF M/S. KPR SUGAR MILLS P.LTD. AS SHORT TERM CAPITAL L OSS. IN THE CIRCUMSTANCES THE APPEALS OF THE ASSESSEES ARE ALLOWED. I.T.A. NO.412 413 & 414/MDS/2010 15 6. THE ORDER WAS PRONOUNCED IN THE COURT ON 30-07-2 010. SD/- SD/- (ABRAHAM P. GEORGE) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI DATED THE 30 TH JULY 2010. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE