Commissioner Of Income Tax, Central Iv, Mumbai v. M/S.rosy Blue (India) Private Limited

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.61 OF 2011 Commissioner of Income Tax, Central IV, Mumbai Versus M/s.Rosy Blue (India) Private Limited ..Appellant. ..Respondent. Mr.Arvind Pinto with Ms.Padma Divakar for the appellant.Mr.P.J. Pardiwala, Senior Advocate with Ms.U.M. Jhaveri for the respondent. P.C. : CORAM : J.P. Devadhar &A.R. Joshi, JJ. DATE : 6[th] January 2012 1.Whether the Income Tax Appellate Tribunal was justified in deleting the addition of Rs.5.08 crores made by the assessing officer under Section 69B of the Income Tax Act, 1961 is the question raised in this appeal. 2.The assessment year involved herein is AY 2006-07. 3.The respondent (hereinafter referred to as the assessee) is engaged in the business of importing rough diamonds, cutting and polishing them and exporting the finished diamonds. M/s.Ocean Crown Diamonds (P) Limited (‘Ocean’ for short) is a sister concern of the assessee, which was also engaged in the export of diamonds. Fifty per cent of the shares of Ocean were held by the assessee and the remaining fifty per cent shares were held by one Mr.A Mehta, who was the working partner looking after the day-to-day activities of Ocean. Mr.Ajay Mehta expired some time in February 2005. On his death, Smt.Sonal Mehta, wife of Mr.Ajay Mehta sold fifty per cent shares of Ocean to the assessee at the negotiated price of Rs.2,500/- per share having face value of Rs.100/- per share. 4.The assessing officer computed the market value of the shares by adopting the break-up value method at Rs.5,407/- per share and accordingly made addition of Rs.5.08 crores being the difference between Rs.5,407/- and Rs.2,500/- per share. 5.On appeal filed by the assessee, the Commissioner of Income Tax (A) noticed that the market value of the shares as per the valuation report submitted by the Chartered Accountant of the assessee was Rs.2,960/- per share, where as, the shares were acquired by the assessee at a negotiated price of Rs.2,500/- per share. Accordingly, the Commissioner of Income Tax (Appeals) sustained the addition to the extent of Rs.80,49,540/- being the difference between Rs.2,960/- and Rs.2,500/-. 6.Challenging the aforesaid order, both the assessee as well as the Revenue filed appeals before the Income Tax Appellate Tribunal. By the impugned order dated 30[th] July 2010, the Tribunal dismissed the appeal filed by the Revenue and allowed the appeal filed by the assessee. Challenging the aforesaid order, the Revenue has filed the present appeal. 7.Mr.Pinto, learned counsel for the Revenue submitted that the break-up value method is a recognized method and, therefore, the market value of the shares determined by the assessing officer by adopting the said method ought to have been followed by the Tribunal. He submitted that since the market value of the shares was Rs.5,407/- per share, the explanation given by the assessee that they negotiated the price and as a result of negotiation the shares were purchased at Rs.2,500/- is totally unconvincing and, therefore, the Income Tax Appellate Tribunal ought to have adopted the market value determined by the assessing officer. 8.We see no merit in the above contention. Admittedly, the shares of Ocean were held by the assessee and Mr.Ajay Mehta in the ratio of 50:50. It is not in dispute that Mr.Ajay Mehta was looking after the entire business activity of Ocean. 8.We see no merit in the above contention. Admittedly, the shares of Ocean were held by the assessee and Mr.Ajay Mehta in the ratio of 50:50. It is not in dispute that Mr.Ajay Mehta was looking after the entire business activity of Ocean. 9.On his death, Mrs.Sonal Mehta wife of Ajay Mehta as legal heir was entitled to the shares, but could not carry on the business. Hence, Mrs.Mehta offered the shares to the assessee and though the Chartered Accountant had determined the market value at Rs.2,960/- per share, the assessee negotiated with Mrs.Metha and purchased the shares at Rs.2,500/- per share. Section 69B of the Income Tax Act, 1961, the required conditions are (a) that the assessee must be found to be the owner of any bullion, jewellery or other valuable article; (b) the assessing officer finds that the amount expended on making or acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in the books of account maintained by the assessee; and (c) the explanation offered by the assessee is not in the opinion of the assessing officer satisfactory. 10.The Tribunal has recorded a finding of fact that there is no evidence to show that the assessee had paid something more than what was recorded in the books of account for acquiring the shares of Ocean except the market value determined by the assessing officer. It is not the case of the Revenue that the method adopted by the Chartered Accountant in determining the market value of the shares is erroneous. Therefore, if the parties on the basis of the market value determined by the Chartered Accountant have further negotiated the price and completed the deal, then, there is no reason to doubt the genuineness of the transaction. 11.The Tribunal has rightly held that the purchase of shares cannot be treated on par with the purchase of gold or silver articles from the market. There are several limitation in determining the value of the shares. Therefore, in the absence of any material to doubt the genuineness of the transaction value and in the absence of any material to show that the assessee has paid more amount than that is recorded in the books, merely on the basis of the possible valuation permitted in law, it could be presumed that the assessee has paid more amount than what is recorded in the books maintained by the assessee. 12.In the result, in our opinion, the decision of the Tribunal is based on finding of facts and no substantial question of law arises from the order of the Income Tax Appellate Tribunal. Accordingly, we see no merit in the appeal and the same is hereby dismissed with no order as to costs. (A.R. Joshi, J.) (J.P. Devadhar, J.)