The Commissioner Of Income Tax-Iii,Coimbatore v. Shri K.p.d.sigamanipan: Acwpd4021E

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 30.01.2019 CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MR.JUSTICE N.SATHISH KUMAR Tax Case (Appeal) Nos.21 to 23 of 2011 The Commissioner of Income Tax-III,Coimbatore -vs- ... Appellantin all the Appeals Shri K.P.D.SigamaniPAN: ACWPD4021E ... Respondentin TCA.No.21 of 2011Shri K.P.RamasamyPAN: AARPR1787J... Respondentin TCA.No.22 of 2011Shri P.NatarajPAN: ABOPN9966D ... Respondentin TCA.No.22 of 2011 COMMON PRAYER: Tax Case (Appeals) filed under Section 260-Aof the Income Tax Act, 1961 against the order of theIncome-tax Appellate Tribunal, “B” Bench, Chennai, dated30.07.2010, passed in I.T.A.No.412/2010, I.T.A.No.413/2010and I.T.A.No.414/2010 for the assessment year 2007-2008against the Appellate order passed by the commisioer ofIncome Tax(A)-I,Coimbatore, dated 05.03.2010 AppealNos.145/09-10 (in TC(A) 21/2011),146/09-10(in TC(A)22/2011), 144/09-10 (in TC(A) 23/2011) Respectively,against the Assessment Order Passed by the AssistantCommisonerOfIncomeTaxCompanyCircleI(3)Coimbatore,Dated 20.12.2009 made in PAN/GIR Nos ACNPD 4021E(in TC(A) 21/2011), AARPR 1787 J (in TC(A) NO.22/2011 andABOPN 9966D Respectively. For Appellantin all the appeals :Mr.T.R.SenthilkumarSenior Standing CounselMs.K.G.Usharani https://hcservices.ecourts.gov.in/hcservices/ For Respondentin all the appeals:Mr.A.S.SriramanMr.S.Sridhar COMMON JUDGMENT (Common Judgment was delivered by T.S.Sivagnanam, J.) These tax case appeals filed by the revenue underSection 260-A of the Income Tax Act, 1961 (hereinafterreferred to as "the Act") are directed against the orderpassed by the Income Tax Appellate Tribunal, 'B' Bench,Chennai, dated 30.07.2010, passed in I.T.A.No.412/2010,I.T.A.No.413/2010 and I.T.A.No.414/2010 for the assessmentyear 2007-2008. 2.These tax case appeals have been admitted on08.03.2011 on the following substantial questions of law:"(i) Whether on the facts andcircumstances of the case, the Income-TaxAppellate Tribunal was is right in law indirecting the assessing officer to accept theclaim of the assessee in respect of theforfeiture of the partly paid up the sharesof M/s.KPR Sugar Mills P.Limited as ShortTerm Capital Loss is valid?(ii) Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was is right in law indirecting the assessing officer to accept theclaim of the assessee in respect of theforfeiture of the partly paid up the sharesof M/s.KPR Sugar Mills P.Limited as ShortTerm Capital Loss, even though the assessmentwascompletedunderSection143(3)disallowing of Short Term Capital Loss onaccount of call monies paid to KPR SugarMills Ltd since it was treated as a shamtransaction as the facts of the case fellwithin the ambit of decision of Hon'bleSupreme Court in the case of MCDOWELLSLIMITED reported in 154 ITR 148?" 3.We have heard Mr.T.R.Senthil Kumar, learned SeniorStanding Counsel assisted by Ms.K.G.Usharani, learnedcounsel for the appellant/revenue and Mr.A.S.Sriraman,learned counsel for the respondent/assessee. 3.We have heard Mr.T.R.Senthil Kumar, learned SeniorStanding Counsel assisted by Ms.K.G.Usharani, learnedcounsel for the appellant/revenue and Mr.A.S.Sriraman,learned counsel for the respondent/assessee. 4.The assessees are brothers and founder shareholdersof various Companies commonly known as M/s.KPR Group.During the year 2005-06, two of the Companies gotamalgamated and the name was changed to M/s.KPR Limited.The third Company was converted into Public Limited Companyand shares were also listed in the Stock Exchange. Theassessee being the major shareholders in M/s.KPR MillsLimited filed their return of income for the assessmentyear 2007-08 admitting long term capital gain and sale ofshares of M/s.KPR Mills Limited. Against these long termcapital gains, the assessees had claimed set off of shortterm capital loss of Rs.10.90 Crores which arose on accountof forfeiture of call monies paid to M/s.KPR Sugar Millswhich was promoted by the assessees and other familymembers. The claim was made relying upon the decision ofthe High Court of Karnataka in the case of DCIT vs. BPLSanyo Finance Ltd. [312 ITR 63]. The Assessing Officerdisallowed the claim of short term capital gains on theground that the transaction was sham as it was structuredonly to evade tax arising on sale of shares. Against thesaid order, the assessees preferred an appeal before theCommissioner of Income Tax (Appeals)-I (CIT(A)) to confirmthe findings of the Assessing Officer. Against which theassessees preferred an appeal before the Tribunal which wasallowed by the impugned order. Challenging the same, therevenue is before us by way of these appeals raising theabove substantial questions of law. 5.The Tribunal threadbare analysed the nature oftransaction done by the assessees in the process ofestablishing M/s.KPR Sugar Mills. The Tribunal noted thatno prudent businessmen would permit loss of capital undernormal circumstances and it is only under unavoidablecircumstances that a person lets go or permits forfeitureof his capital. Further, the Tribunal pointed that theforfeiture of capital is not the claim of the revenue thatthe money is re-routed and has come back into the coffersof the assessees. The money which was invested in M/s.KPRSugar Mills P. Ltd which was unable to even set up onaccount of the litigation commenced by the competitorM/s.Renuka Sugars Ltd. who had challenged the licensegranted to M/s.KPR Sugar Mills P. Ltd. and the Ho'bleSupreme Court had also granted stay. Thus, taking note ofthe factual situation into consideration, the Tribunal heldthat the decision taken by the assessees cannot obviouslybe treated as a sham or colourable devise. We are inagreement with the finding recorded by the Tribunal whichwas rendered on re-appreciation of the factual details.Furthermore, the Tribunal had noted that there is nowhisper or any allegation that the amount invested in the forfeited shares has come back to the assessees in any formwhatsoever. Further, the Tribunal noted that theforfeiture are not claimed to be bogus nor it has beenshown to be a fraud or colourable devise. Thus, on factsthe Tribunal convinced that the forfeited shares cannot betreated to be a fraudulent transaction or colourable device. forfeited shares has come back to the assessees in any formwhatsoever. Further, the Tribunal noted that theforfeiture are not claimed to be bogus nor it has beenshown to be a fraud or colourable devise. Thus, on factsthe Tribunal convinced that the forfeited shares cannot betreated to be a fraudulent transaction or colourable device. 6.We have perused the order passed by the CIT(A) andwe find that the CIT(A) has not given any positive findingas to how the transaction to be termed as a colourabledevice or fraudulent transaction. In fact the orderproceeds on surmises and conjunctures and there is nofinding to the effect that a colourable device wasconceived by the assessee to defraud the revenue. Thus,for the above reasons, there is no ground made out tointerfere with the factual finding rendered by theTribunal. Accordingly, these tax case appeals aredismissed and consequently, the substantial questions oflaw arising for consideration are answered against therevenue. No costs. Sd/- Assistant Registrar(CS VI) //True Copy// Sub Assistant Registrar cseTo The Income-tax Appellate Tribunal, “B” Bench, Chennai. 2.The Commisioner of Income tax(A)-I,Coimbatore 3.The Assistant Commionser of Inceme TaxCompany Circle I(3),Coimbatore. 4.The commisioner of Income tax III,Coimbatore +1cc to Mr.T.R.Senthilkumar , Advocate SR.No. 8538+1cc to Mr.S.Sridhar , Advocate SR.No. 7821Tax Case (Appeal) Nos.21 to 23 of 2011A.SK(11/03/2019)