Ravish Sood ORDER
Pramod Kumar, Vice President
1. This appeal is directed against the order dated 15th February 2017, passed by the learned CIT(A) in the matter of assessment under section 143(3) r.w.s. 147 of the Income Tax Act, 1961, for the assessment year 2010-11. The appeal is time-barred by two days, but the assessee has moved a condonation petition praying that the delay, which had arisen on account of delay in delivery of papers by the courier agency, be condoned. Having perused the petition and material on record, and having rival contentions on this condonation petition, we are inclined to condone the delay and proceed to take up the matter on merits.
2. The short issue that we are required to adjudicate in this appeal, as learned representatives fairly agree, is whether or not the authorities below were justified in declining set off of long term capital loss of Rs. 1,11,66,165, incurred by the assessee on the sale of shares in a company by the name of VCAM Investment Managers Pvt. Ltd., against the long term capital gains of Rs. 95,12,556, earned by the assessee on the sale of a property.
3. The assessee before us is a non-resident Indian now fiscally domiciled in the United States. During the relevant previous year, the assessee sold a property, of which he was 50% co-owner, and reported an earning of long term capital gain of Rs. 95,12,556. The quantification of this gain is not in dispute. The assessee also reported a long term capital loss of Rs. 1,11,87,578 on sale of certain shares in VCAM Investment Managers Pvt. Ltd. (VCAM, in short). The Assessing Officer was of the view that "the (this) long term capital loss was attributed on account of equity shares of VCAM (Investment Managers Pvt. Ltd.) which appears to be prima facie fictitious and not entitled to be adjusted against any taxable income". It was in this backdrop that the assessment was reopened, and this round of proceedings started. The Assessing Officer probed this transaction in detail, and the information was requisitioned even from the purchaser of these shares- one Kevin Saldhana. These shares were held by the assessee since 3rd April 2007 i.e. when the said company VCAM was incorporated, and were purchased by Kevin Saldhana for Rs. 2,95,445 on 25th March 2010- even though the payment was stated to be made for Rs. 3,00,000. The Assessing Officer took note of this discrepancy and treated this as evidence of lack of bonafides. It was also noted that this person had some other transactions with the assessee, which indicated that the transaction was not a genuine transaction but simply a sham and make-belief story. The Assessing Officer further noted that even after the sale of these shares, the address of the VCAM in the records of the Registrar of Companies continued to be premises of the assessee. There was, however, no dispute that as against total assets of Rs. 1,00,00,000, miscellaneous expenditure amounted to Rs. 97,04,555, and the net worth of these shares was only Rs. 2,95,445, resulting in net asset value price of the shares at Rs. 2.95 each. The Assessing Officer noticed that the valuation report also commented that the method of valuation presumes continuity of business" and commonly accepted approach for valuation "capitalises average earnings, past and projected at an appropriate rate of capitalisation to arrive at a fair market value per share". It was then noted that these observations in the valuation report had been ignored. It was further noted that no business is carried on by VCAM after the sale of shares which showed that Saldhana did not purchase the shares 'with an intention to continue to carry on the business of the company" or "any other business activity of the company". The Assessing Officer noted that the assessee knew Saldhana for over 10 years and had close business connections with him. It was then noted that under sections 23 and