Smt. Carmel Prabhu, Bangalore V. ITO, Bangalore

ITA 1137/BANG/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51281 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 20-09-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 08-10-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRATAP SINGH
• Assessee Lawyers: V SRINIVASAN
• Keywords: Speculation loss
• Section: 143(3); 131

Judgement Text

PAGE 1 OF 9 ITA NO.1137/BANG/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI N K SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K, J.M ITA NO.1137/BANG/2010 (ASSESSMENT YEAR 1998-99) SMT. CARMEL PRABHU, #80, LAVELLE ROAD, BANGALORE. - APPELLANT PA NO.AIWPP 6394A VS THE INCOME TAX OFFICER, WARD-1(1), BANGALORE. - RESPONDENT DATE OF HEARING : 20/09/2011 DATE OF PRONOUNCEMENT : 29/09/2011 APPELLANT BY : SHRI V SRINIVASAN, C.A. RESPONDENT BY : SHRI PRATAP SINGH, ADDL. CIT ORD ER PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER OF LEARNED CIT(A)-I, BANGALORE DA TED 09/09/2010. THE RELEVANT ASST. YEAR IS 1998-99. 2. THE SOLITARY ISSUE THAT IS RAISED IN THIS APPEAL IS WHETHER THE CIT(A) IS JUSTIFIED IN HOLDING THAT THE TRANSFE R OF SHARE APPLICATION MONEY OF THE ASSESSEE IN FAVOUR OF SRI A NTONY PINTO CANNOT BE CONSIDERED AS GENUINE. PAGE 2 OF 9 ITA NO.1137/BANG/2010 2 3. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE IS AN INDIVIDUAL. SHE FILED HER RET URN OF INCOME FOR THE CONCERNED ASST. YEAR ON 2.11.1999 DEC LARING A TOTAL INCOME OF RS.2,19,965/-. IN THE SAID RETURN, THE A SSESSEE HAD CLAIMED A CAPITAL LOSS OF RS.33,12,000/- ON THE TRANSFER OF AN ACTIONABLE CLAIM BEING THE INVESTMENT IN SHARE APPLICATION MONIES IN M/S SKYLINE ACQUATECH EXPORTS LTD., WHERE THE ASSESSEE IS A DIR ECTOR. THE ASSESSEE HAD MADE AN INVESTMENT OF A SUM OF RS.36,8 0,000/- TOWARDS SHARE APPLICATION MONEY IN M/S SKYLINE ACQUATECH EXPO RTS LTD. THE ASSESSEE IS SAID TO HAVE TRANSFERRED HER RIGHTS IN RESPECT OF THIS INVESTMENT TO ONE MR. ANTONY PINTO FOR A CONSIDERATI ON OF RS.3,68,000/-. THE ASSESSEE HAD CLAIMED THE DIFFER ENCE BETWEEN THE CONSIDERATION REALIZED ON TRANSFER OF SHARE APPLICA TION MONEY I.E. RS.3,68,000/- AND THE AMOUNT ORIGINALLY INVESTED IN THE COMPANY I.E. RS.36,80,000/- AS A CAPITAL LOSS IN THE RETURN OF I NCOME FILED BY HER. 3.1 WHILE CONCLUDING THE ORIGINAL ASSESSMENT FOR T HE ABOVE ASST. YEAR U/S 143(3) OF THE ACT, THE AO HAD TAKEN T HE VIEW THAT THE CAPITAL LOSS SO CLAIMED BY THE ASSESSEE WAS IN THE N ATURE OF A SPECULATION LOSS ONLY AND THEREFORE, THE SAID LOSS C OULD NOT BE SET OFF AGAINST OTHER INCOME. FURTHERMORE, THE AO HAD ALSO HELD THAT THE ASSESSEE HAD NOT SUBSTANTIATED THE CLAIM OF CAPITAL LOSS AND ON THESE TWO COUNTS, THE AO DISALLOWED THE CLAIM OF CAPITAL LOSS AND COMPUTED THE TOTAL INCOME OF THE ASSESSEE AT RS.34,55,560/-. PAGE 3 OF 9 ITA NO.1137/BANG/2010 3 3.2 AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A), WHO OBSERVE D THAT THE LOSS IN QUESTION WAS NOT A SPECULATION LOSS AND HE, THEREFO RE, DIRECTED THE AO TO ALLOW THE CLAIM OF CAPITAL LOSS. 3.3 AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE FILED APPEAL BEFORE THE ITAT. THE TRIBUNAL VIDE ITS ORD ER DATED 2.11.2004 UPHELD THE ORDER OF THE CIT(A) ON THE GROUND THAT T HE LOSS IN QUESTION WAS NOT A SPECULATION LOSS. HOWEVER, THE ITAT RE MANDED THE ISSUE RELATING TO THE VERACITY OF THE CLAIM OF CAPITAL LOS S TO THE AO FOR FRESH CONSIDERATION. TO GIVE EFFECT TO THE AFORESA ID ORDER OF THE ITAT, THE AO TOOK UP THE CASE OF THE ASSESSEE ONCE AGAIN AND PROCEEDED TO PASS THE IMPUGNED ORDER U/S 143(3) RWS 254 OF THE ACT DATED 29.3.2006. 3.4 IN THE IMPUGNED ORDER, THE AO HAS ONCE AGAIN D ISALLOWED THE CAPITAL LOSS OF RS.33,12,000/- CLAIMED BY THE AS SESSEE ON THE GROUND THAT THE ASSESSEE HAS FAILED TO PROVE THAT T HE CLAIM OF CAPITAL LOSS WAS GENUINE. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUT HORITY. 5. BEFORE THE FIRST APPELLATE AUTHORITY IT WAS SUBM ITTED THAT THE COMPANY M/S SKYLINE ACQUATECH EXPORTS LTD. W AS SUFFERING HUGE LOSSES AND THE ASSESSEE, BEING A DIRECTOR OF T HE COMPANY, APPREHENDED THAT THE INVESTMENT MADE BY HER IN THE A FORESAID PAGE 4 OF 9 ITA NO.1137/BANG/2010 4 COMPANY WILL BE TOTALLY LOST AND WITH A VIEW TO SECUR E AND SALVAGE ATLEAST A PART OF THE INVESTMENT THE ASSESSEE TRANS FERRED HER RIGHTS IN RESPECT OF THIS INVESTMENT TO ONE MR. ANTONY PINT O FOR A CONSIDERATION OF RS.3,68,000/-. IT WAS FURTHER SUB MITTED THAT THE ASSESSEE HAD IN COURSE OF THE PROCEEDING BEFORE THE AO FILED A CONFIRMATION LETTER DATED 6.10.2005 FROM MR. ANTONY PINTO WHO CONFIRMED THAT HE HAD PURCHASED THE RIGHTS OF THE A SSESSEE IN THE SHARE APPLICATION MONIES INVESTED IN M/S SKYLINE ACQ UATECH EXPORTS LTD. HOWEVER, THE AO DID NOT CHOOSE TO ACCEPT OR BELIEVE THE CONFIRMATION LETTER SO FILED BY MR. ANTONY PINTO AND SUMMONS WAS ISSUED TO HIM TO APPEAR BEFORE THE AO. WHEN THE SU MMONS WAS ISSUED, MR. ANTONY PINTO COULD NOT APPEAR BEFORE THE AO AND THUS THE AO CONCLUDED THAT THE TRANSACTION WAS NOT GENUINE. 6. ELABORATE WRITTEN SUBMISSIONS WERE FILED BEFORE THE CIT(A). THE WRITTEN SUBMISSIONS OF THE ASSESSEE AN D THE REPORT OF THE AO ARE REPRODUCED IN THE IMPUGNED ORDER OF THE CIT(A) FROM PAGES 2 TO 7. THE CIT(A) CONFIRMED THE ACTION OF T HE AO AND HELD THAT THE TRANSACTION IN QUESTION IS A SHAM TRANSACT ION. THE RELEVANT FINDING OF THE CIT(A) READS AS FOLLOWS:- 5. I HAVE GONE THROUGH THE ABOVE. I HOLD THE VIEW THAT AO WAS JUSTIFIED IN HOLDING THE TRANSACTION SHAM EVEN IF IT IS FOUND THAT THE IDENTITY OF MR. ANTONY PINTO IS NOT DOUBTED AND THE CONFIRMATION OF HAVING BEEN DONE THE TRANSACTION OF PURCHASE OF SHARES OF M/S SKYLINE AQUATECH EXPORT LTD. FROM MRS. CARMEL PRABHU, DIRECTOR OF THE COMPANY AND APPELLANT BY MR. ANTONHY PINTO PAGE 5 OF 9 ITA NO.1137/BANG/2010 5 HAS BEEN CONFIRMED IN THE STATEMENT RECORDED BY AO INSOMUCH AS ALL SAID AND DONE THE SHARES CLAIMED TO HAVE ASSIGNED BY THE APPELLANT TO MR. ANTONY PINTO HAS NOT GOT TRANSFERRED IN THE BOOKS OF THE COMPANY OR HAVE PASSED THROUGH THE FORMALITIES OF TRANSFER AS PER COMPANY LAW. THUS, EVEN IF IT IS AGREED, BUT NOT ADMITTED, THAT THE APPELLANT WAS TO TRANSFER THE SHARE IN LIEU OF THE LOAN TAKEN BY MR. PETER J R PRABHU, HUSBAND OF THE APPELLANT FROM THE DECEASED FATHER OF MR. ANTONY PINTO AND THUS GETTING NO BENEFIT OR PROFIT FROM SUCH TRANSACTION. THUS, THE MARSHALING OF FACTS AND EXAMINATION THEREOF OBJECTIVELY LEADS ME TO CONCLUDE THAT THE TRANSACTIONS OF SHARES MAY HAVE BEEN INTENDED BUT DID NOT FRUCTIFY AND THEREFORE CANNOT BE HELD AS GENUINE AND THEREFORE THE CLAIM OF THE LOSS AND SET OFF AGAINST THE EARNED CAPITAL GAINS DESERVES TO BE DISALLOWED. HENCE ADDITION IS CONFIRMED. APPEAL IS DISMISSED. THE LEARNED ITATS SUSPICION ABOUT THE GENUINENESS OF TRANSACTION IS FOUND TRUE ON OBJECTIVE ANALYSES OF FACTS INVOLVED IN THIS CASE. 7. THE LEARNED AR SUBMITTED THAT THE FACT OF INVES TMENT OF SHARE APPLICATION MONEY BY THE ASSESSEE AMOUNTING TO RS.36,80,000/- IN M/S SKYLINE ACQUATECH EXPORTS LTD. IS NOT IN DISP UTE AND THE SAME IS EVIDENT FROM THE SCHEDULE OF THE BALANCE SHEET O F THE ASSESSEE FOR THE YEAR ENDING 31/3/1997. IT WAS SUBMITTED THAT TH E COMPANY M/S SKYLINE ACQUATECH EXPORTS LTD. WAS SUFFERING FROM HU GE LOSSES AND HENCE, THE AMOUNT DUE FROM THE COMPANY WAS ASSIGNED TO MR. ANTONY PINTO AS CHANCES OF RECOVERING THE MONEY FROM THE CO MPANY WAS VERY SLIM. THEREFORE, THE ASSESSEE WANTED TO MAKE GAIN FROM THE INVESTMENT AND IN THAT SENSE, A SUM OF RS.36,80,000 /- AS SHARE PAGE 6 OF 9 ITA NO.1137/BANG/2010 6 APPLICATION MONEY WAS ASSIGNED WAS CONSIDERED AS GAI NS. NOW COMING TO THE ASPECT OF MR. ANTONY PINTO HAVING INVESTED RS .36,80,000/-, IT WAS SUBMITTED THAT MR. ANTONY PINTO HAS DETAILED THE REASONS FOR THE INVESTMENT IN HIS LETTER DATED 30.12.2008 AND HE HA S CONFIRMED THE ABOVE TRANSACTION. IN THE LIGHT OF THE ABOVE CONTE NDING CIRCUMSTANCES, IT CANNOT BE HELD THAT THE TRANSACTI ONS ARE NOT GENUINE AND THE CIT(A) HAS ERRED IN HOLDING THE SAME AS SHAM . THE LEARNED AR ALSO RELIED ON THE JUDGEMENT OF THE HONBLE ALLA HABAD HIGH COURT (72 ITR 766) AND CONTENDED THAT THERE IS NO PRESUMP TION THAT WITNESSES APPEARING FOR AN ASSESSEE WILL COME FORWA RD TO GIVE FALSE EVIDENCE TO OBLIGE THE ASSESSEE. 8. THE LEARNED DR ON THE OTHER HAND STRONGLY RELIED ON THE FINDINGS/CONCLUSIONS OF THE INCOME TAX AUTHORITIES. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS, DILIGENTLY PERUSED THE RELEVANT CASE RECORDS AND ALS O THE DOCUMENTARY EVIDENCES ADDUCED BY THE LD. A R DURING T HE COURSE OF HEARING IN THE SHAPE OF A PAPER BOOK. 9.1. AT A GLANCE OF THE RELEVANT RECORDS, IT HAS B EEN NOTICED THAT EVEN THOUGH THE ASSESSEE HAD BEEN PERSISTENTLY URGED DURING THE COURSE OF ASSESSMENT PROCEEDINGS TO PRODUCE ANY EVIDENCE TO SUBSTANTIATE THE LOSS ALLEGED TO HAVE BEEN SUFFERED ON TRANSFER OF RIGHT TO ACQUIRE SHARES, THE ASSESSEE HAD CHOSEN NO T TO COMPLY WITH. AFTER SUSTAINED EFFORTS OF THE AO AND ALSO A PLEA P UT-FORTH BY THE ASSESSEE BEFORE THE FIRST APPELLATE AUTHORITY THAT A N OPPORTUNITY PAGE 7 OF 9 ITA NO.1137/BANG/2010 7 SHOULD BE AFFORDED TO HER TO PRODUCE MR. PINTO BEFO RE THE AO TO JUSTIFY THE ALLEGED TRANSACTION, THE AO HAD ABLE TO RECORD MR. PINTOS STATEMENT U/S 131 OF THE ACT AS LATEST AS ON 29.1.2 010 WHEREIN MR. PINTO HAD PROCLAIMED WHILE ANSWERING TO QN.1 THAT HOWEVER, I HAD A CREDIT BALANCE WITH SKYLINE GROUP FOR INHERITED C REDIT BALANCE OF MY FATHER LATE H.C. PINTO OF ABOUT RS.3,88,190/- WITH THE COMPANY. THE CREDIT BALANCE WAS LATER SHIFTED TO M R. PETER J.R.PRABHU, BEING MY BROTHER-IN-LAW, HUSBAND OF MY SISTER MRS. CARMEL PRABHU AND PROMOTER OF SKYLINE GROUP. WITH REGARD TO DOCUMENTARY EVIDENCE FOR THE TRANSFER OF ASSETS I.E. , TRANSFER OF ALLEGED SHARES OR ANY AGREEMENT FROM THE ASSESSEE, M R. PINTO WAS FORTHRIGHT IN CONCEDING THAT [ANSWER TO Q.3] EXCEPT A LETTER DT.13.1.1998 OF MY SISTER MRS. CARMEL PRABHU ASSIGN ING THE RIGHTS FOR TRANSFER OF SHARE APPLICATION, I HAVE NO OTHER EVIDENCE OR AGREEMENT FOR TRANSFER OF ANY ASSET. I HAD APPR OACHED MY SISTER FOR CLEARANCE OF MY DEEMED PROMISSORY NOTE F OR WHICH IN THE FORM OF A LETTER, THEY HAVE ASSIGNED THE RIGHTS FOR SHARE APPLICATION TRANSFER. I HAVE NOT DEMANDED FOR ANY SHARE APPLICATION TRANSFER. I HAVE NO OTHER EVIDENCE TO PRODUCE. TO ILLUSTRATE FURTHER, MR. PINTO IN HIS COMMUNICATION TO THE AO [COURTESY: P 47 48 OF PB AR] HAD SOLEMNIZED THAT 3.DURING THE FINANCIAL YEAR 1997-98, I WAS SUDDENLY HARD PRESSED FOR FUNDS AND, THEREFORE, WAS FREQUENTLY MAKING EFFORTS TO RE ALIZE OUR INVESTMENTS. AT THIS STAGE, MRS. CARMEL PRABHU MAD E AN OFFER TO ME TO TAKE THE INVESTMENT MADE BY HER IN THE COM PANY, M/S. SKYLINE ACQUATECH PVT. LTD., FOR A CONSIDERATION OF PAGE 8 OF 9 ITA NO.1137/BANG/2010 8 RS.3,68,000/-. THIS AMOUNT WAS MORE OR LESS THE EX TENT OF INVESTMENT THAT WAS MADE AND OUTSTANDING WITH MR. P ETER PRABHU AT THE RELEVANT TIME.. 9.2. WHILE LOOKING AT THE SEQUENCE OF EVENTS VICE- VERSA THE AFFIRMATION OF THE ASSESSEE AS WELL AS THE STATEMEN T OF MR. PINTO ON OATH, ONE COULD SAFELY INFER THAT THE WHOLE AFFAIR H AS BEEN ORCHESTRATED AS A MARRIAGE OF CONVENIENCE TO BAIL OUT THE ASSESSEE AND NOTHING ELSE. MOREOVER, MR. PINTO HAD, DURING THE COURSE OF RECORDING HIS STATEMENT, FAIRLY CONCEDED THAT, I HAD APPROACHED MY SISTER FOR CLEARANCE OF MY DEEMED PROMISSORY NOTE F OR WHICH IN THE FORM OF A LETTER, THEY HAVE ASSIGNED THE RIGHTS FOR SHARE APPLICATION TRANSFER. I HAVE NOT DEMANDED FOR ANY SHARE APPLICATION TRANSFER. WHEN MR. PINTO HAD INSISTED NONE OTHER THAN HIS SISTER THE ASSESSEE FOR CLEARANCE OF THE AL LEGED DEEMED PROMISSORY NOTE, SHE HAD READILY ASSIGNED THE RIGHTS FOR SHARE APPLICATION TRANSFER, BUT, HE HAD NOT DEMANDED FOR ANY SHARE APPLICATION TRANSFER. KEEPING APART THE BLOOD RELA TIONSHIP BETWEEN THE ASSESSEE AND MR. PINTO, A PRUDENT INVESTOR HIMS ELF, HE OUGHT TO HAVE INSISTED FOR SHARE APPLICATION TRANSFER AS HE HAD DEMANDED THE CLEARANCE OF DEEMED PROMISSORY NOTE NOT IN THE CAPAC ITY OF BROTHER SISTER RELATIONSHIP, BUT, IN THE CAPACITY AS A INVE STOR WITH THE DIRECTOR OF SAEL. MOREOVER, NO DOCUMENTARY EVIDENCE HAS BEEN FORTH-COMING EITHER FROM THE ASSESSEE OR FROM THE A LLEGED INVESTOR TO SAFELY ARRIVE AT A CONCLUSION THAT THE TRANSACTIO N WAS INDEED A PAGE 9 OF 9 ITA NO.1137/BANG/2010 9 GENUINE ONE. HOWEVER, THE AO, IN HIS REMAND REPORT TO THE FIRST APPELLATE AUTHORITY HAD CLEARLY BROUGHT OUT THAT THE CLAIM OF THE ASSESSEE THAT THE ACTIONABLE CLAIM OF RS.3.68 LAKHS ASSIGNED TO MR. ANTONY PINTO WITH AN INTENTION TO MAKE A GAIN OUT OF THE COMPANY WAS WRONG AND BASELESS. 9.3. THE CASE LAW RELIED ON BY THE ASSESSEE (CITED) HAS NO RELEVANCE TO THE ISSUE ON HAND AS THE MATTER IN THE PRESENT CASE IS ENTIRELY ON THE DIFFERENT FOOTING. 9.4. IN OVERALL CONSIDERATION OF THE FACTS A ND CIRCUMSTANCES OF THE ISSUE AS DELIBERATED UPON IN THE FORE-GOING PAR AGRAPHS, WE ARE OF THE UNANIMOUS VIEW THAT THERE WAS NO INFIRMITY IN TH E FINDING OF THE CIT (A) WHICH REQUIRES OUR INTERVENTION. IT IS ORD ERED ACCORDINGLY. 10. IN THE RESULT, THE ASSESSEES APPEAL IS DISMIS SED. THE ORDER PRONOUNCED ON THE 29 TH DAY OF SEPTEMBER, 2011 AT BANGALORE. SD/- SD/- (N K SAINI) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE C IT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.