1. to 11. [These paras are not reproduced here as they involve minor issues').
12. We shall now proceed to consider the third ground. The brief facts are these. The assessee held shares in a company by name Harsh Archana Trading & Investments Ltd. It went into voluntary liquidation. The liquidators distributed 4,32,000 shares of Marico Industries Ltd. to the assessee-company on 28-12-1995. The market value of these shares as on that date was Rs. 7,12,80,000 @ Rs. 165 per share. After deducting the deemed dividend of Rs. 1,80,748, capital gains of Rs. 7,10,99,252 were computed under Section 46(2) of the Income-tax Act in the assessment. In the return, the assessee had declared such gains at the same figure but claimed capital loss of Rs. 6,32,62,694 (Fig. same in both original and revised returns). This loss the working of which was given in Annexure 4 to the return, arose on account of the sale of 60,00,000 shares which the assessee-company held in its wholly-owned subsidiary by name Epro Biotechnologies Ltd. a company engaged in the business of seed development, considered to be a high-risk venture.
These shares were sold to a group of persons - Ashok Sampat, Meena Sampat, Vijan Bhangar, Nirupa Bhangar and Vikram Parekh - on 30th March, 1996 for a price of Rs. 10,00,000. The loss on the sale of shares was worked out in Annexure 4 to the return as follows:Computation of Capital Gains on Sale of Shares of EPRO Biotechnologies Ltd.Long term Cost Indexed Costfinancial year 1989-90 25,00,000 40,84,302financial year 1991-92 65,00,000 9,17,892financial year 1995-96 5,10,00,000 5,10,00,000Less: Sales Value of 60,00,000 shares 10,00,000Long/Short term capital loss 6,32,62,694 13. The Assessing Officer enquired into the loss in the course of the assessment proceedings., The assessee explained that EPRO had borrowed heavily from Indian Bank, that the borrowing amounted to Rs. 275.68 lakhs in March, 1995, that the assessee had stood guarantee for the loan, that on account of adverse business conditions EPRO's accumulated losses stood at Rs. 5. 76 crores as on 31-3-1995 and during the year ended 31-3-1996, a further loss of Rs. 54 lakhs had been suffered and that it was considered expedient that further capital be infused into EPRO so that the same can be utilised for repayment of the bank loan.
EPRO also had to repay the assessee a sum of Rs. 238. 68 lakhs, an amount that had been given to it by the assessee from time to time.
This was in addition to the investment of Rs. 90 lakhs as share capital of EPRO (9 lakhs shares of Rs. 10 each). A decision was therefore taken to issue rights. shares. It was decided to issue 51 lakhs shares at the rate of Rs. 10 each. In all amounting to Rs. 5. 10 crores. The rights shares were thus allotted to the assessee which was the only shareholder of EPRO. The consideration for the rights shares was satisfied by the payment of Rs. 271. 32 lakhs by the assessee to EPRO and adjustment of the debt of Rs. 238. 68 lakhs which EPRO owed to the assessee-company. Accordingly, the amount of Rs. 271. 32 lakhs was paid by cheque on 26-3-1996. On the same day or the next, the amount was taken back by the assessee as security deposit against the loan to Indian Bank because the assessee was the guarantor for repayment of the loan. The debt of Rs. 238. 68 lakhs was adjusted against the balance price for the shares.
14. It was then that explained in the above scenario the assessee could find a buyer for the shares of EPRO. The purchaser was Ashok Sampat. He was confident of settling the dues to Indian Bank for a lesser figure and get the guarantee binding the assessee released. EPRO had no assets to repay its sundry creditors amounting to Rs. 27. 25 lakhs and they were pressing for payment. The interest to Indian Bank was 20% and was mounting by approx. Rs. 10 lakhs per month. It was therefore a prudent deal, so far as the assessee was concerned, to dispose of the shares to a willing buyer. The price of Rs. 10 lakhs for the shares was for getting rid of a company which had a negative worth of Rs. 30 lakhs.
There was thus a clear profit of Rs. 40 lakhs. The new management of EPRO had later on been forced to pay Rs. 300 lakhs to Indian Bank by December, 1998 as against the dues of Rs. 275. 67 lakhs outstanding as on 31-3-1998 since Ashok Sampat could not strike a deal with the bank on account of allegations against the top personnel of the bank. The assessee was thus saved of another Rs. 25 lakhs. The total savings were thus Rs. 65 lakhs, assuming that the assessee-company also would have been able to obtain the same terms as Ashok Sampat was able to obtain from the Bank.
15. It was also pointed out that once the shares were sold, the further liability to Indian Bank was to be to the account of EPRO under the new management of Ashok Sampat and the further liability of the assessee towards interest etc. on the loan ceased.
16. It was thus pleaded that the decision to increase the shares capital of EPRO and then dispose of the assessee's holdings was dictated by commercial consideration's, that the transaction had been entered into bona fide in the interests of the Company and that therefore the loss should be allowed.
17. The Assessing Officer was not convinced by the assessee's explanation. He was of the view that the entire transaction lacked transparency which is evident in a genuine transaction. It was put through within one week. No funds were actually exchanged. The assessee-company did not suffer a single paisa from its cash flow. The whole idea was conceived and put through to avoid payment of capital gains tax on the receipt of shares of Marico Industries Ltd. on the liquidation of Harsh Archana Trading & Investment Ltd. in December, 1995. The purchase of rights shares was a "purchase only on document. " The assessee paid Rs. 27. 1. 32 lakhs by cheque to EPRO on 26th March, 1996 and on the very same day took it back "in the gurb off security deposit. " Further, in order to put through the transaction, the assessee required an obliging person and found one in Ashok Sampat. The assessee-company had considerable influence/control over him. He was a main distributor of the products of Marico Industries Ltd. (Marico) in which the directors of the assessee have majority stake. He carries on business from the office which is situated in the building owned by the family which controls the assessee-company and Marico. There was undue hurry shown in putting through the sale of shares of EPRO. The entire transaction-meetings of the board of directors, passing of resolutions regarding the rights issue, offer, subscription, notice to Govt.
authorities, transfer of shares and their registration etc. -was completed in four days between 26th March, 1996 and 30th March, 1996.
18. The Assessing Officer further observed that as per the agreement with Ashok Sampat dated 30th March, 1996 on execution of the agreement the purchaser was entitled to be registered as a shareholder of EPRO.He was so registered on the same day, i. e. 30-3-1996 which was considered by the Assessing Officer as something which normally does not happen in business. No payment for the shares had been made by Sampat by that date. The payment was made on 8th May and 5th September of 1996, beyond the stipulated date which was 31-7-1996 and that too without interest, though the agreement provided for interest at 18% from the date of the agreement till realisation.
19. Further, according to the Assessing Officer the scrutiny of the bank account of the assessee revealed that the purchase of EPRO shares was a paper transaction. He noticed that for investing Rs. 271. 32 lakhs in EPRO as part payment. of the rights shares, the assessee had borrowed Rs. 3 crores from Abuzu Holding and Meghraj Finance Service Pvt. Ltd. on 22-3-1996. Originally this amount had been borrowed to repay an inter-corporate deposit of Rs. 3 crores taken from Jindal Vijaynagar Steel Ltd. on 27-3-1996. But on 26-3-1996, out of the amount borrowed from Abuzu and Meghraj, the assessee issued a cheque for Rs. 2,71,31,785 in favour of EPRO and on the same day took back a cheque for Rs. 271 lakhs from EPRO and used this amount to pay back the inter-corporate deposit of Rs. 3 crores taken from Jindal Vijaynagar Steels.
20. The Assessing Officer further observed that though the assessee entered into an agreement with Ashok Sampat on 30-3-1996 requiring EPRO to make a security deposit of Rs. 271 lakhs with the assessee, in reality the deposit had already been taken on 26th March itself when the assessee was in total control of EPRO and Sampat had no stake in EPRO. Thus, according to the Assessing Officer, the entire transaction "was given a facade of sale purchase wherein no actual transfer of fund took place".
21. The Assessing Officer also considered it significant that the deal was completed just before the end of the accounting year.
22. For the above reasons, the Assessing Officer held that the transaction for the sale of EPRO shares was "merely a financial veil used to avoid the tax liability". He therefore disallowed the loss of Rs. 6, 32,62,694.
23. On appeal, the CIT(A) endorsed the view taken by the Assessing Officer. The reasons given by him are substantially the same as those of the Assessing Officer. 24. The assessee-company is in further appeal before the Tribunal to contend that the view taken by the income-tax authorities vis-a-vis the sale of EPRO shares is erroneous and unjustified. It was submitted that the sale was a bona fide commercial transaction which any prudent businessman placed in similar circumstances would resort to. The conclusion of the departmental authorities that the entire transaction was a facade carried out to reduce the incidence of taxation was assailed.
25. The revenue's case is that the transaction was not a bona fide commercial transaction, but one the motive of which was the reduction of the tax liability arising on account of capital gains under Section 46(2). It was pointed out that EPRO was a mere shell-company without any assets or properties and held out no attraction for any investor.
Ashok Sampat was under the control and influence of the assessee-company because of business connections and this was used to hurriedly put through the make-believe sale of the shares. He did not have the business acumen or background and was not an independent agent. He acted under. the control and directions of the assessee. The irregularities in the documentation are also significant. So is the fact that there was no actual flow of funds between the assessee and EPRO. Ashok Sampat paid the price of the shares sold to him without adhering to the terms of the agreement but still no interest was charged. All the steps taken by the assessee right from the increase in the share capital of EPRO by issue of rights shares, the security deposit, the undue hurry shown in putting through the transaction, the- non-adherence to business norms etc. all showed that it was only a make-believe affair or sham.
26. The above is the summary of the rival contentions. Several other points were raised by both the sides and authorities were also cited and all of these would be considered presently.
27. In our opinion, the loss claimed cannot be allowed. The reasons follow.
In order to answer the question, one has to take a look at the financial position of EPRO. Its balance sheet as ort 31-3-1995 (with the figures for 31-3-1996 given side by side) is at pages 62 to 70 of the paper-book filed by the assessee. Its accumulated losses as on 31-3-1995 were Rs. 5. 76 crores. The current liabilities were Rs. 37.
63 lakhs. The unsecured loans, including the loan from Indian Bank, stood at Rs. 4. 70 crores. As against these, the share capital was only Rs. 90 lakhs. The fixed assets - freehold land, farm building, plant and machinery etc. - were only Rs. 19. 96 lakhs (after depreciation).
The cash and bank balances were just Rs. 2. 12 lakhs. The loss for the year ending 31-3-1995 itself amounted to a high figure of Rs. 67. 12 lakhs. Thus the financial position as exhibited in the balance sheet is itself sufficient to discourage any prudent businessman from taking over the company. Its business is of seed development, stated to be a "high-risk business" by the assessee in its letter dated 15th January, 1999 to the Assessing Officer. It has not been stated either by the assessee or Ashok Sampat that the fixed assets held some attraction in the sense that there were prima properties which could be either developed or turned to profit. In fact what Sampat has said in his letter dated 6th October, 1998 (page 35 of the paper-book) to the Assessing Officer is that there was a "unique opportunity of earning a large surplus" by getting the Indian Bank to waive a large amount of loan with overdue interest (para 4). In para 10 he has said that he and his associates purchased the shares "as a business venture to earn out of the savings in the liability to the Indian Bank" and that because of changed circumstances the plan did not fructify. But there is no indication as to how he proposed to go about it. The loan to the bank was substantial. No bank would have waived it fully. In fact, even Sampat had no such hopes. He expected to get a "substantial amount" waived. But even assuming that he is successful, the amount payable by him to the bank would still be substantial. EPRO's business had failed as judged from the accumulated losses and there was no hope of generating funds from the business in the near future. It is difficult to imagine a person taking over a sick company with accumulated losses of Rs. 5. 76 crores and with no attractive assets or investments and whose business is admittedly a high-risk business merely because there was a possibility of the bank waving a substantial part of the loan, which stood at Rs. 271 lakhs. We therefore, find it difficult to accept the claim that Sampat was attracted by the mere prospect of achieving a saving in the amount of loan due to the bank.
To answer this question, we have to take a look at his background. He is the son of the sister of Mr. Mariwala, who is a director of the assessee-company. He is stated to be one of the main distributors for the products of Marico in which the directors of the assessee-company are said to have a majority-stake. He is a partner in a firm carrying on business in the name of Gopaldas & Co., which showed a turnover of Rs. 7. 10 crores, out of which the products of Marico, according to the Assessing Officer, accounted for Rs. 6. 81 crores i. e., almost 96%. He is carrying on individual business from the same building which is owned by the family controlling Marico and the assessee-company. These facts do show that he is a man of some means but to embark upon a high-risk business, that too by taking over a sick unit which has a huge accumulated loss and a negative worth requires much more resources. He responded to the summons issued by the Assessing Officer and filed a letter dated 6th October, " 1998 which is at page 35 of the paper-book. Therein, he has sought to explain why he bought the shares of EPRO. But he does not explain wherefrom he was going to pay off the bank loan which would be quite substantial, even granting that he is able to obtain a substantial waiver. This is significant, in our opinion, because as we shall presently see the funds came from the assessee-company itself in December, 1998. Therefore, he was perhaps confident that the assessee-company would bail him out. But that in turn also shows that it was so arranged that the funds would come from the assessee-company. And if the assessee-company was going to pump in the funds, why sell the shares of EPRO in the first place The assessee-company itself could have, without going through the motions of selling the shares, paid off the bank loan.
On this aspect though there cannot be any direct evidence in the very nature of things, an inference can be drawn from the surrounding circumstances, that the assessee was. He is closely related to one of the directors of the assessee-company (sister's son). He is also a distributor for Marico products. Marico and the assessee-company have common directors related to each other. He functions from the building owned by the family which controls Marico and the assessee-company.
There was some debate as to whether the sale of Marico products actually constituted 96% of the turnover of Sampat's business as alleged by the Assessing Officer and we found that the basis of the Assessing Officer's allegation is a letter written by Sampat himself (through his chartered accountants) on 17th March, 1999. In para 2 of this letter, it was stated that the turnover of M/s. Gopaldas& Co., a firm in which he is a partner was Rs. 7. 10 crores including Rs. 6. 81 crores of Marico. Therefore what the Assessing Officer has stated in para 9. 4 of the assessment order is not off the mark. All these facts by themselves may not conclusively establish that Sampat was under the control and influence of the assessee-company, but taken together with the other features and surrounding circumstances they do indicate that in Ashok Sampat the assessee-company found an unprotesting or obliging medium to put through the series of steps envisaged for claiming the loss.
For purchasing the rights shares, the assessee had to pay Rs. 271. 32 lakhs. The assessee had earlier taken an inter-corporate deposit of Rs. 3 crores from Jindal Vijaynagar Steels Ltd. To repay this, the assessee borrowed Rs. 3 crores from Abuzu Holding and Meghraj Finance Services Pvt. Ltd. on 22-3-1996. The inter-corporate deposits had to be repaid on 27-3-1996. Instead of doing so, the assessee diverted Rs. 271. 32 lakhs out of the borrowing from Abuzu and Meghraj and issued a cheque on 26-3-1996 in favour of EPRO for the purchase of rights shares. On the same day, it took a cheque for a like amount from EPRO by way of security deposit and out of this amount paid back Jindal Vijaynagar Steels. Thus what was given as purchase price for the rights shares was taken back immediately on the ground that the assessee wanted to safeguard itself against the enforcement of the bank guarantee by the Indian Bank. The intention was perhaps that since the negotiations were underway with Sampat (they had started in December, 1995) for the disposal of the shares nothing should happen before the deal is finalised which would compel the assessee to part with its funds in discharge of the loan from Indian Bank as otherwise the whole object of the sale would be frustrated. Thereafter things happened lighting-fast and in hardly a week's time the sale was put through the EPRO went into the hands of the new management headed by Ashok Sampat. The bank guarantee was still enforceable and had not been cancelled. The decision of the assessee to hold on to the security deposit till the new management of EPRO finds funds and pays off the bank loan is not strange, granted. But finally, when attempts allegedly made by Sampat to obtain a substantial waiver of the loan failed, one would have expected the new management of EPRO to clear the dues out of its own funds. But that was not the case. In December, 1998, the security deposit held by the assessee-company was utilised to clear the bank dues. This has been confirmed by the assessee in para 12 of its letter dated 15-1-1999 to the Assessing Officer and by Sampat's Chartered Accountants in their letter dated 17-3-1999 to the Assessing Officer (para 3). No doubt, EPRO had borrowed monies from others also, but those amounts were insignificant considering the amount given by the assessee-company. It can thus be seen that the amount paid as purchase price for rights shares was taken back as security deposit and later utilised for repayment of the bank loan. This result could have been achieved even without the sale of the shares to Sampat and that the assessee chose to introduce a step which would give it an opportunity to make a heavy loss which can be claimed against the capital gains of Rs. 7. 10 crores arising under Section 46(2) cannot be lost sight of.
That takes us to the motive and timing of the transaction. It was argued on behalf of the assessee that it could plan its affairs in such a manner that it leaves the assessee with the least tax burden.
Reference was made to the Madras High Court Judgment in M. V.Valliappan v. CIT [1988] 170 ITR 238 at 280-282 where Lord Templeman's observations on tax planning are extracted and the Gujarat High Court judgment in the case of Banyan & Berry v. CIT [1996] 222 ITR 831 at 851. As against these, on behalf of the Revenue reliance was placed on the decision of the Supreme Court in McDowell & Co. Ltd. v. CTO [1985] 154 ITR 1483 at 161,that of the Gujarat High Court in the case of CIT v. Sakarlal Balabhai [1968] 69 ITR 186, and the order of the Calcutta Bench of the Tribunal in the case of Unique Invin Ltd. v. Asstt. CIT [2000] 74 ITD 43. We have considered these decisions. The gist of these authorities appears to us to be that whereas tax planning can be tolerated, tax evasion by dubious means cannot be countenanced. Where the transaction put through or steps taken by the assessee need not have been taken in order to achieve a commercial result or object, and were taken only with a view to reducing the tax burden, then though such transactions or steps may be legal and actually put through, they are hollow and colourable devices. They are not then to be considered as having been undertaken necessarily for achieving the commercial object or purpose but as having been undertaken with the oblique motive of evading taxes. One such consideration is to examine the timing of the transaction. It is not in dispute that in December, 1995 the assessee received shares of Marico on the liquidation of Harsh Archana Trading & Investment Ltd. and became liable for capital gains under Section 46(2). The gains amounted to Rs. 7. 10 crores. It was around the same time that it started negotiations with Ashok Sampat, as confirmed by him in his letter to the Assessing Officer. Thus the seeds of the device sought to be adopted by the assessee were sown once it came to know that it would be liable to pay tax on huge capital gains under Section 46(2). Apparently it had taken some time for the details of the device to be worked out. Time was however running out and the sale of shares had to be put through before the end of the accounting year. That is the reason for the unseemly hurry which makes it appear as if Ashok Sampat could not wait any longer to take over a loss-making, worthless, defunct unit which was nothing but a shell. Its Profit & Loss account (page 63 of the paper-book) shows no sales for the year ended 31-3-1996, no business activity and its Balance Sheet as on that date shows no assets. The only assets shown is the security deposit left with the assessee-company. As against this, the liability to Indian Bank and other outstanding liabilities amounting to Rs. 27.
57 lakhs remained. Ashok Sampat would only be discharging the dues to the Bank and that cannot be called a business, even assuming that he was looking for taking over a business. There is no evidence of his plans to revive the business of EPRO, which admittedly was a high-risk business. The bank liability was going up by approx. Rs. 5 lakhs per month. EPRO was thus a non-viable unit with a negative worth.
Therefore, the speed with which the sale of shares was put through and the formalities under the company law were gone through, all between 25-3-1996 and 30-3-1996, reveals not only the real motive of the assessee-company but also the hold which it had over Sampat. The only object of putting through the sale of shares with such speed is that of claiming the loss against the capital gains under Section 46(2). Thus, in our view, both the motive and the timing of the transaction go to show that it is a make-believe affair.
An agreement was entered into between the assessee and Ashok Sampat according to which he was entitled to be registered as a shareholder of EPRO on execution of the agreement and payment was to. be made on or before 31-7-1996 with 18% interest. The payment was actually made on 8th May and 5th September, 1996 but without interest, though interest was payable from the date of the agreement till realisation. If it was a commercial transaction and the purchaser of the shares was not connected with the assessee, we are sure interest would have been charged. The non-adherence to the beneficial terms of the agreement is another indication that the sale of shares was a make-believe affair.
It was pointed out on behalf of the assessee that it obtained a three-fold advantage because of the sale of the shares which provided the commercial justification therefor: (z) By putting in Rs. 271 lakhs, the assessee wiped out the loan of Rs. 3 crores to the Indian Bank; (ii) the assessee got Rs. 10 lakhs from Ashok Sampat (for the shares) and (iii) the assessee was relieved of the liability of Rs. 27. 57 lakhs which EPRO owed as "other liabilities". It was also submitted that it was sufficient to see if the assessee is able to offer commercial justification for the sale and it was not further necessary for the assessee to show that even from the point of view of Sampat, the transaction was so justified. In this connection it was even suggested that from his point of view the deal might have been imprudent, but so far as the assessee is concerned, it was not so and that is what should matter. As we have already adverted to, the question is whether the step i. e., the sale of shares, was a necessary step in order to achieve the result, viz., the whipping off of the liability to Indian Bank. We are of the view that it was not necessary and the some result could have been achieved by paying off the bank with assesseq's own funds; in fact that is what ultimately happened - the money taken as security deposit was used to pay off the bank. It is possible to imagine a situation where the assessee purchases the rights shares, pays Rs. 271 lakhs to EPRO, takes it back as security deposit and then pays it to the Bank as guarantor. If Ashok Sampat could persuade the bank to settle the loan for a substantially lesser amount, his services could have been engaged for a remuneration. It was not necessary that he should be persuaded, to buy the shares of EPRO. This is on the assumption that he wielded some influence over the bank and could get things done his way. There is of course no evidence brought on record to show the kind of negotiations he had with the Bank.
Therefore, the whole story of Sampat being in a position to negotiate with the Bank for settling the dues for a substantially lesser sum does not seem acceptable, apart from not being proved.
It was contended that the plans went away later and since the bank itself was alleged to have been involved in a controversy, Sampat could not get things done his way. Some paper cuttings to show the bank's reported involvement in the controversy were filed. But there is no evidence to show that Sampat negotiated with the Bank in the first place. Therefore we consider the alleged involvement of the Bank in a controversy to be irrelevant.
It was argued on behalf of the assessee that what was sold was not the business of EPRO, but its shares. Such a subtle distinction or too fine a refinement, with respect, does not fit into the general framework of the case. The shares, for all practical purposes, give a sort of ownership of the company (specially when there is only one shareholder or the shareholders are closely connected or belong to the same group as in this case) and consequently also of the business of the company.
The argument of the Revenue was that EPRO could have held out no attraction to Sampat as it had no business. We are of the opinion that it is well-taken and cannot be successfully countered by arguing that the shares are different from the company's business.
A question was then posed on behalf of the assessee as to what would the Assessing Officer have done had the shares been sold at a profit and capital gains had arisen. Certainly that would have been taxed. It was then asked that if the buyer of the shares had not paid the monies, would the Assessing Officer have desisted from taxing the gains. The answer would be in the negative. On the basis of these two answers, it was contended that all that Section 45 requires is a transfer of the asset in the year and if that is satisfied, no further questions need be asked. The suggestion was that the receipt or non-receipt of the consideration during the year is not the criterion and so long as there was a transfer of the capital asset, Section 45 read with Section 48 is attracted and if a loss is claimed it should be allowed. We are unable to accept the argument. Under the Income-tax Act, the income-tax authorities are empowered to go behind the apparent to find out the real and if a transaction, on the basis of the evidence and the surrounding circumstances of the case, appears to them to be non-genuine or a facade or a make-believe affair, got up to evade the tax liability or if it appears that the series of steps taken to achieve the desired result is sham or collusive, they can ignore the transaction. Such power is not taken away by the provisions of Section 45 or 48.
It was further contended that hurry or haste in putting through the sale of shares is not conclusive and the decision of the Hon'ble Bombay High Court in 81 ITR 236 (sic) was cited. Taken by itself and in the light of an acceptable or plausible explanation for the hurry or haste, it may not be decisive, but in the present case there has been undue hurry not properly explained which, in conjunction with the surrounding circumstances and other facts of the case, does indicate an oblique motive.
It was then pointed out that there were capital gains in the later years also, the suggestion being that even if the sale of EPRO shares were to take place in those years the loss would have had to be allowed against and that therefore there was no oblique motive in getting the sale and formalities put through in the last few days of this accounting year. The positive way of proving that there was no oblique motive is to give valid reasons for the haste and that is not forthcoming. It was open to the assessee to show the real reasons for the haste, if such reasons were other than that the assessee wanted to claim a tax benefit.
It was then said in answer to the Revenue's charge that the sale of shares was not bona fide or at arm's length, that it was not mala fide either. Suffice to say that the bona fides of the sale have not been satisfactorily proved despite the need therefore on account of the peculiar facts and circumstances of the-case.
A chart was filed on behalf of the assessee-company showing a breaking-up of the claim. The chart was so presented as to claim that so far as the 9 lakhs shares which the assessee originally held in EPRO are concerned, the loss of Rs. 13, 12,694, being the difference between the sale price of Rs. 1,50,000 and the indexed cost, was to be allowed at any rate. So far as the debt of Rs. 238. 68 lakhs which EPRO owed to the assessee is concerned, it was contended that the assessee could have assigned the, same, the debt being an actionable claim, for a lesser price and in that case the loss would have had to be allowed on the basis of the decision of the Gujarat High Court in CIT v. Minor Bababhai alias Lavkumar Kantilal [1981] 128 ITR I1. But the ld. Sr. DR rightly countered the contention on the ground that such breaking-up of the claim cannot be permitted because that was not how the transaction was effected. The claim of the assessee is that the loss arose on the sale of shares in EPRO to Ashok Sampat and that is how it has to be considered. The claim has to be examined on the basis of the facts as they are stated to have happened and not on any hypothetical notions.
We therefore do not consider it proper to examine the claim after breaking it up artificially.
29. For all the above reasons, we are in agreement with the view taken by the Income-tax authorities that the capital loss of Rs. 6, 32,62,694 cannot be allowed to be adjusted against the capital gains of Rs. 7, 10, 99, 252. The ground is dismissed.
30. The appeal of the assessee is partly allowed. But since in the main issue, the assessee has failed, the Revenue shall be entitled to costs, which we assess at Rs. 10,000. The costs shall be deposited by the assessee with the Registry of the Tribunal within 120 days from the date of the service of this order and shall be paid to the respondent, on its making an application for withdrawal of the same.