The Commissioner Of Income Tax, Central-Ii v. M/S. Kopran Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. INCOME TAX APPEAL NO.2457 OF 2009WITHINCOME TAX APPEAL NO.2217 OF 2009 The Commissioner of Income Tax, Central-IIVs. ..Appellant. M/s. Kopran Ltd. ..Respondent. ..... Mr. Suresh Kumar for the Appellant. Mr. Subhash S. Shetty i/b Arvind Rathod & Co. for the Respondent. .....CORAM : DR.D.Y.CHANDRACHUD & J.P.DEVADHAR, JJ. P.C. : 24[th] February, 2010. 1.Several questions of law have been formulated by the Revenue in the appeal against the decision of the ITAT dated 11[th] July, 2008. Basically all the questions revolve around one facet viz. whether the loss incurred by the assessee in the amount of Rs.11.42 Crores in respect of certain share transactions was validly allowed by the Tribunal. The Tribunal has held that the transaction relating to the sale of the shares in which the loss arose was a genuine transaction. Both the assessing officer and the CIT(A) had held to the contrary. 2.The shares in question were acquired by the assessee in a company known as KDL Biotech Limited under a scheme of arrangement which was approved by this Court under Sections 391 and 394 of the Companies Act, 1956. Under the scheme the assessee obtained 12% Optionally Convertible Cumulative Preference Shares (OCCPS) of the company. After divesting a portion of those to the existing shareholders of the company, the balance were converted into equity shares in accordance with the pricing formula. 26,48,409 shares were stated to have been sold by the assessee during the course of the Assessment Year 2002-03 to its group concerns. Though the shares being from the promoters quota were subject to a lock in period, it was the case of the assessee that under the SEBI guidelines a transfer of lock in securities amongst promoters was permissible. 3.The CIT(A) had adverted to certain aspects of the transaction in coming to the conclusion that it was not genuine. Among the circumstances which were relied upon by the CIT(A) was that for the sale of the shares two debit notes were prepared on 9[th] October, 2001 both bearing the same number; the share certificates and transfer forms did not bear the signatures of the transferees; the shares were not transacted on the stock exchange; though the debit notes were raised on 9[th] October, 2001, the demat account of the assessee reflects the transfer only in June 2002; the shares were from the promoters quota and the transferee was a group concern. 4.The contention of the assessee which has found favour with the Tribunal is that the sale price was consistent with the market quotations and was determined as a matter of commercial expediency. The assessee was undergoing a financial crisis and according to the assessee the financial institutions had suggested disinvestment of the shares in order to improve the liquidity position. According to the assessee though the shares were from the promoters quota, a transfer amongst group concerns was permissible under the SEBI guidelines. 4.The contention of the assessee which has found favour with the Tribunal is that the sale price was consistent with the market quotations and was determined as a matter of commercial expediency. The assessee was undergoing a financial crisis and according to the assessee the financial institutions had suggested disinvestment of the shares in order to improve the liquidity position. According to the assessee though the shares were from the promoters quota, a transfer amongst group concerns was permissible under the SEBI guidelines. 5.The Tribunal has observed that the price at which the shares were acquired is not in dispute. The assessee could not have sold the shares in a manner inconsistent with the SEBI guidelines, but those guidelines did permit the transfer of shares between group concerns of the promoters. The Tribunal accepted the case of the assessee that the divestment of the shares took place in the background of the circumstance that the assessee was suffering from a financial crisis and was monitored by financial institutions which required the divestment. The finding of fact which has been arrived at by the Tribunal is that the transaction was completed by physical delivery of the shares after executing the transfer deeds and this fact was found to be correct when the search action took place. The Tribunal noted that it was not the case of the assessing officer that the consideration stated was not the prevailing market price at the relevant time. The assessee had large outstandings and sold the shares in compliance with the directions of the financial institutions which specifically wanted divestment of the equity shares held by the assessee in KDL Biotech Limited. In the circumstances, the Tribunal has entered a finding of fact that this was a bonafide decision taken by the assessee company to sell the shares and in order to improve its liquidity position. In other words, the transaction was based on commercial exigencies and was not motivated by the object and purpose of generating a loss so that it could be offset against the capital gains which the assessee had derived from the sale of its brand. 6.In our view, the question as to whether the transaction was or was not a genuine transaction is primarily a question of fact. Though the CIT(A) has relied upon certain circumstances, the Tribunal has dealt with each of them as noted earlier and has come to the conclusion that the transaction was genuine. The findings of fact which have been arrived at by the Tribunal have not been demonstrated before the Court to be perverse. Nor for that matter has it been demonstrated before this Court during the course of the submissions of the Revenue that the transaction suffered from any illegality or from any violation of the SEBI guidelines. In this view of the matter, no substantial question of law would arise in the appeal. The appeal is accordingly dismissed. Income Tax Appeal 2217 of 2009 7.The order of the Tribunal which is questioned in the appeal relates to the deletion of a penalty imposed upon the assessee under Section 271(1)(c) of the Income Tax Act, 1961. The penalty that was imposed was consequential upon the finding of the assessing officer that the loss reported by the assessee in the transaction involving the sale of the shares referred to in the earlier part of this judgment was not genuine. Consequent upon the view of the Tribunal that the transaction was a genuine transaction, the appeal filed by the assessee questioning the imposition of penalty has also been allowed. Since we have confirmed the order of the Tribunal on the substantive issue, the deletion of the penalty would not suffer from any error. No substantial question of law would arise in the appeal. 8.In the circumstances, both the appeals shall stand dismissed. There shall be no order as to costs. (Dr. D.Y.Chandrachud, J.) (J.P. Devadhar, J.)