DCIT - 9(2), MUMBAI V. M/s. KINGPIN INVESTMENT & FINANCE P. LTD., MUMBAI

ITA 1288/MUM/2007

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2472 (ITAT-MUMBAI)
• Duration Of Justice: 9 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-10-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 09-02-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B D NAIK
• Assessee Lawyers: F V IRANI SHRI MITESH SHA H; DEEPAK PADACHH
• Keywords: Reopening of assessment; Unexplained cash credit; Business income; Share purchase agreement; Source of fund; Proportionate interest; Cost of acquisition; Speculation loss; Wrong claim; Difference of opinion; Sham transactions; Reason to believe; Change of opinion
• Section: 143(3); 43(5); 68; 148; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI BEFORE SHRI R.C. SHARMA, AM AND SHRI AMARJIT SINGH, JM ./ I.T.A. NOS.309,1717 &1718/MUM/2007 ( / ASSESSMENT YEAR: 2001-2002,2002-03 & 2003-04) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD MANDHANA MANOR-445, C WING, MOGUL LANE, MATUNGA(W), M UMBAI - 400 016 . / VS. DY. COMMISSIONER OF INCOME TAX CIRCLE-9(2), MUMBAI. ./ ./PAN/GIR NO. AABCH 7898H ( /APPELLANT ) : ( / RESPONDENT ) ./ I.T.A. NOS.1288,4447,1853 &1971/MUM/2007 ( / ASSESSMENT YEAR: 2001-2002,2002-03 & 2003-04) DY. COMMISSIONER OF INCOME TAX CIRCLE-9(2), MUMBAI. / VS. M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD MANDHANA MANOR-445, C WING, MOGUL LANE, MATUNGA(W), MUMBAI - 400 016. ./ ./PAN/GIR NO. AABCH 7898H ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI B.D. NAIK / RESPONDENT BY : SHRI F.V. IRANI SHRI MITESH SHAH AND SHRI DEEPAK PADACHH / DATE OF HEARING : 25/05/2016 !'# / DATE OF PRONOUNCEMENT : 20/07/2016 2 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD / O R D E R PER R.C. SHARMA, A. M.: THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE A S WELL AS THE REVENUE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF I NCOME TAX (APPEALS)- IX, MUMBAI (CIT(A) FOR SHORT) FOR THE ASSESSMENT YEAR S (A.Y.) 2001 2002 TO 2003-04 IN THE MATTER OF ORDER PASSED U/S 143(3) R .W.S 147 OF THE INCOME TAX ACT. 2. AS SOME OF ISSUES ARE COMMON IN ALL THE YEARS UN DER CONSIDERATION, ALL THESE APPEALS WERE HEARD TOGETHER AND ARE NOW DECIDED BY THIS CONSOLIDATED ORDER. 3. IN THE ASSESSMENT YEAR 2001-02, REVENUE IS AGGRI EVED FOR DELETION OF ADDITION MADE U/S 68 ON ACCOUNT OF UNPROVED LOANS TAKEN BY T HE ASSESSEE AND ALSO FOR DELETING DISALLOWANCE OF INTEREST THEREON. 4. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT ASSESSMENT FOR THE YEAR UNDER CONSIDERATION I.E. 20 01-02 WAS COMPLETED U/S. 143(3) OF THE ACT. LATER IN COURSE OF ASSESSMENT P ROCEEDINGS FOR THE A.Y.2002-03 THE AO DISALLOWED THE INTEREST PAID TO FORTY PARTIE S FROM WHOM THE ASSESSEE HAD CLAIMED TO HAVE RECEIVED LOANS, ON THE GROUND THAT THESE LOANS WERE NOT GENUINE. 3 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD CONSEQUENCE TO FINDINGS DURING THE COURSE OF ASSESS MENT PROCEEDINGS FOR A.Y.2002-03, THE AO REOPENED THE CASE OF THE ASSESS EE U/S.147 FOR THE YEAR UNDER CONSIDERATION. AS PER AO THE LOANS WERE NOT GENUINE AND HENCE THE AMOUNT OF SUCH LOANS WAS CHARGEABLE TO TAX. CONSIDERING THE SAID FACTS, ACCORDING TO THE AO, INCOME IN CASE OF THE ASSESSEE HAD ESCAPED THE ASSE SSMENT FOR THE YEAR UNDER CONSIDERATION AND AS SUCH HE ISSUED THE NOTICE U/S. 148 OF THE ACT AND COMPLETED THE ASSESSMENT U/S.143(3) R.W.S. 147 OF THE ACT WHERE I N THE AO MADE ADDITIONS U/S 68 TO THE DECLARED INCOME. BY THE IMPUGNED ORDER CIT(A ) CONFIRMED THE REOPENING OF ASSESSMENT. HOWEVER ADDITION MADE U/S 68 WAS DELETE D BY CIT(A) AFTER HAVING FOLLOWING OBSERVATION : 3.9 I HAVE GONE THROUGH THE CONTENTION OF THE APP ELLANT AS WELL AS THAT OF THE AO. IT IS NOT IN DISPUTE THAT THE APPELLANT HAD FAILED TO PRODUCE THE PARTIES IN WHOSE NAMES THE APPELLANT HAD CREDITED A MOUNTS IN ITS BOOKS OR ACCOUNTS. ALSO OUT OF THOSE FORTY PARTIES FIVE PART IES HAD DENIED SUCH TRANSACTIONS AND THEREFORE PRIMA-FACIE THIS IS A CA SE WHERE APPELLANT HAS FAILED TO PROVE THE TRANSACTION BETWEEN ITSELF AND THE CREDITORS APPEARING IN BOOKS. HOWEVER ON OPENING THE VEIL IT IS ALSO NOT IN DISPUTE THAT ENTIRE MONEY HAD SPRANG FROM THE BANK IN NATURE OF LOAN AN D THAT SUCH LOAN WERE THOUGH GRANTED TO VARIOUS PARTIES, THE CHEQUES WERE DIRECTLY ISSUED TO THE APPELLANT COMPANY WITHOUT EVEN HAVING ROUTED THE SA ME FROM THOSE CREDITORS ACCOUNT. IT IS ALSO NOT IN DISPUTE THAT BANK HAD DEBITED SUCH LOANS IN THE NAME OF THOSE FORTY PARTIES, WHICH INDICATE THAT THOSE PARTIES WERE HAVING THEIR BANK ACCOUNTS IN THOSE BANKS OR ALTERN ATIVELY BANKER OR THE APPELLANT COMPANY HAD INTRODUCED THEM AS AGENTS ON THEIR BEHALF TO PUT THEM IN THE STATUS OF UNDISCLOSED PRINCIPLE. WHATE VER MAY BE THE CASE WHAT IS IMPORTANT IS THAT UNDISPUTEDLY THE APPELLANT HAD RECEIVED LOAN FROM SOURCE WHICH SPRANG FROM A DEFINITE SOURCE WHOSE ID ENTITY, CREDITWORTHINESS AND GENUINENESS NO MORE REMAIN IN DOUBT. THE ONLY DISPUTE IS THAT THE CREDIT WHICH WERE APPEARING IN APPELLANT'S BOOKS 4 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD SHOWED DIFFERENT NAMES AS AGAINST MAIN SOURCE BEING BANK WOULD NOT BE THE SOLE GROUND FOR MAKING AN ADDITION IN THE HANDS OF THE APPELLANT MORE SO WHEN ENTIRE TRANSACTIONS ARE LOOKED INTO ON THE BASIS OF ALTERNATIVE ARGUMENTS OFFERED BY THE APPELLANT COMPANY AND ITS TRUE NATURE HAVING BEEN EXPLAINED AND FOUND TO BE CORRECT. FURTHER THE MATTER SHOULD BE ALSO LOOKED INTO ON THE BASIS OF FACT THAT APPELLANT COM PANY HAD CREDITED AMOUNTS IN THE NAMES OF ONLY THOSE FORTY PARTIES IN WHOSE NAMES THE BANKERS HAD DEBITED THE AMOUNT AS LOANS GIVEN TO TH EM AND THEREFORE EVEN UNDER THE PRUDENT POLICY THE APPELLANT WOULD BE EXP ECTED TO CREDIT THE AMOUNTS IN THE NAMES OF THOSE PARTIES IN WHOSE NAME S THE BANKERS HAD DEBITED SUCH AMOUNT AND THEREFORE MERELY BECAUSE TH OSE PARTIES WERE NOT TRACEABLE WOULD NOT ALTER THE MAIN SOURCE OF FUNDS OR ITS NATURE WHICH HAS BEEN EXAMINED AND FOUND CORRECT BY THE AO. IN THIS REGARD IT IS PERTINENT TO READ THE PROVISIONS OF SECTION 68 WHICH READS AS UN DER, 68. CASH CREDITS. 'WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND T HE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE T HEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION O F THE ASSESSING OFFICER, SATISFACTORY, THE SUM SO CREDITED MAY BE C HARGED TO INCOME- TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. ' PLAIN READING OF SECTION SUGGEST THAT WHEN ANY SUM IS FOUND CREDITED IN THE BOOKS OF THE ASSESSEE, THE ASSESSEE IS REQUIRED TO OFFER EXPLANATION REGARDING NATURE AND SOURCE OF SUCH CREDITS. THUS W HAT IS EXPECTED FROM THE ASSESSEE IS TO OFFER EXPLANATION ABOUT NATURE A ND SOURCE OF SUCH CREDITS. IN THE INSTANT CASE IT IS NOT IN DISPUTE THAT NATUR E OF CREDIT IS NOTHING BUT LOAN AND THAT THE SOURCE THOUGH CREDITED IN THE NAM ES OF DIFFERENT CREDITORS IT STEM FROM BANK AND THEREFORE WHEN THE ASSESSEE H AS EXPLAINED THE NATURE OF TRANSACTION AS ALSO ITS SOURCE THE AO IS NOT JUS TIFIED IN MAKING SUCH ADDITION. IT IS ALSO PERTINENT TO NOTE THAT AGAINST THE LOANS GIVEN BY THE BANK, THOUGH IN DIFFERENT NAMES, SECURITIES IN RESP ECT OF ALL THOSE PARTIES OR FOR THAT MATTER, FOR ENTIRE AMOUNT OF LOAN RECEIVED BY THE APPELLANT COMPANY WAS PROVIDED BY THE APPELLANT COMPANY OR IT S ASSOCIATES AND THEREFORE WHAT EMERGES OUT OF THESE FACTS SHOWS TH AT THOUGH THE LOANS WERE GRANTED IN THE NAMES OF DIFFERENT PARTIES PRIMA FAC IE IT WAS A CASE OF CONTRACT BETWEEN THE APPELLANT COMPANY AND THE BANK S AND THEREFORE WHEN THE FACTS OF THE CASE IS LOOKED INTO IN ITS SUBSTAN CE OVER ITS FORM THERE IS ALL THE MORE REASON TO ACCEPT THAT THE APPELLANT HAD EX PLAINED THE NATURE AND SOURCE OF SUCH CREDITS. SECTION 68 GIVES DISCRETION TO THE AO TO ADD THE CREDITS AS INCOME OR NOT AND THAT WHILE USING SUCH DISCRETION, AO IS EXPECTED TO ACT JUDICIOUSLY, AND WITHOUT ANY BIAS O R ARBITRARINESS. THE HON'BLE SUPREME COURT IN CASE OF SREELEKHA BANERJEE V CIT 49 ITR 0112 5 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD HAS OBSERVED THAT IF THE EXPLANATION GIVEN BY THE A SSESSEE SHOWS THAT THE RECEIPT WAS NOT OF AN INCOME NATURE THE DEPARTMENT CAN NOT ACT UNREASONABLY AND REJECT THE EXPLANATION HOLD THAT I T WAS INCOME. REFERENCE MAY BE ALSO MADE TO DECISION OF CALCUTTA HIGH COURT IN CASE OF SRIRAM JHABARMULL (KALIMGPONG) LIMITED V CIT 49 ITR 314'WH ERE IN IT HAS BEEN HELD THAT IT IS NOT CORRECT TO SAY THAT AO IS NOT E NTITLED TO REJECT THE EXPLANATION WITHOUT SOME POSITIVE EVIDENCE FALSIFYI NG THE ASSESSEES CASE. THE TRUE VIEW IS THAT WHILE, THE AO IS NOT BOUND TO ACCEPT AS TRUE AS ANY POSSIBLE EXPLANATION WHICH THE ASSESSEE MAY PUT FOR TH, HE CAN NOT ALSO ARBITRARILY REJECT THE ASSESSEES EXPLANATION. FURT HER SECTION 68 DOES NOT DEBAR THE ASSESSEE FROM OFFERING ALTERNATIVE EXPLAN ATION. THE M.P. HIGH COURT IN CASE OF ACIT V GHAI LIME STONE CO. 144 ITR 140 HAS HELD THAT ON A PROPER CONSTRUCTION, SECTION 68 DOES NOT DEBAR TH E ASSESSEE FROM OFFERING ALTERNATIVE EXPLANATION AND IF EITHER OF THEM IS AC CEPTED, THE CASH CREDIT CAN NOT BE CHARGED AS THE INCOME OF THE APPELLANT S IMILAR VIEW WAS ALSO TAKEN BY GAUHATI HIGH COURT IN CASE OF DHANSIRARN A GARWALLA V CIT 217 ITR 4. CONSIDERING THE ALTERNATIVE PLEA THAT FOR ALL PRACT ICAL PURPOSE THE AMOUNT IN QUESTION SHOULD BE TREATED AS BANK LOAN IN THE A PPELLANT'S FAVOUR IGNORING THE PARTIES IN WHOSE NAME THE AMOUNTS ARE APPEARING IN THE BANK AS WELL AS THE APPELLANT'S BOOKS OF ACCOUNTS AS THE SOURCE AND NATURE OF CREDITS ARE EXPLAINED, NO ADDITION CAN BE MADE U/S. 68 OF THE ACT, IT HAS BEEN CLEARLY ESTABLISHED THAT THE AMOUNT OF LOAN SP RANG FROM THE BANK, AND THAT THE APPELLANT'S EXPLANATION IN THIS REGARD HAS NOT BEEN REJECTED OR FOUND FAULT WITH AS IS EVIDENT FROM THE FACT THAT I N REMAND REPORT THE AO HAS NOT GIVEN ANY FINDINGS ON SUCH ALTERNATIVE EXPL ANATION SO PROVIDED AND THEREFORE WHEN THE ALTERNATIVE EXPLANATION IS FOUND TO BE CORRECT NO ADDITION SHOULD HAVE BEEN MADE PARTICULARLY WHEN IT IS ESTABLISHED THAT THE AMOUNT IN QUESTION WAS NOT AN INCOME IN ANY FORM OF THE APPELLANT.. THUS LOOKING TO THE FACT THAT THE AMOUNT IN QUESTION WAS RECEIVED AS LOAN WHICH STEM FROM BANK AND THAT AGAINST SUCH LOANS SECURITI ES WERE ALSO PROVIDED BY THE APPELLANT, IT WOULD BE INAPT TO TREAT SUCH C REDIT AS INCOME OF THE APPELLANT AND THUS TAKING CUE FROM VARIOUS JUDGEMEN TS REFERRED TO HEREIN I AM IN AGREEMENT WITH THE APPELLANT THAT ADDITION U/ S 68 SHOULD NOT HAVE BEEN MADE. IT IS ALSO PERTINENT TO NOTE THAT IN THE ORIGINAL ASSESSMENT PROCEEDINGS THE APPELLANT'S EXPLANATION WAS ACCEPTE D BY THE THEN OFFICER CONSIDERING THE SOURCE AS EXPLAINED AND THEREFORE A LSO I AM INCLINED TO ACCEPT THE ARGUMENT OF THE APPELLANT THAT THE AMOUN T IN QUESTION SHOULD NOT HAVE BEEN ADDED AS INCOME. IT IS ALSO PERTINENT TO NOTE THAT DEPARTMENTAL INQUIRY WAS ALSO CONDUCTED IN THIS REGARD WHERE THE AO HAD ISSUED 6 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD SUMMONS TO THE BANK TO PROVIDE THE NECESSARY EVIDEN CE RELATING TO SUCH TRANSACTIONS. IN RESPONSE TO WHICH THE AFORESAID BA NK HAS CONFIRMED THAT THEY HAD GIVEN LOANS IN THE NAME OF FORTY PARTIES A ND HAD ALSO SUBMITTED THE LOAN STATEMENTS, EVIDENCING THE FACT THAT AMOUNT IN QUESTION HAD BEEN RECEIVED FROM THE SAID BANK ONLY, WHICH COULD ALSO BE VERIFIED FROM BANK STATEMENT OF APPELLANT COMPANY WHEN CORRELATED WITH THE LOANS FROM THOSE PARTIES VIZ.A.VIZ. LOANS FROM BANK. THIS CLEARLY SH OWS THAT APPELLANT'S ARGUMENT THAT THE AMOUNT WAS NOTHING BUT BANK LOAN ALL THE MORE GETS SUPPORT FROM THE EVIDENCE INDEPENDENTLY GATHERED BY THE DEPARTMENT, WHICH WERE RECEIVED DIRECTLY FROM THE BANK IN RESPONSE TO SUMMONS ISSUED TO SUCH BANKS. CONSIDERING THESE FACTS I AM UNABLE TO ACCED E TO THE AOS ACTION IN MAKING SUCH ADDITIONS AS UNEXPLAINED CASH CREDIT AN D THEREFORE ADDITION MADE IN THIS REGARD IS DELETED. 5. AGAINST ABOVE ORDER OF CIT(A) REVENUE IS IN APPE AL BEFORE US. 6. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFU LLY GONE THROUGH ORDERS OF AUTHORITIES BELOW. WE HAD ALSO DELIBERATED ON THE J UDICIAL PRONOUNCEMENTS REFERRED BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS AS WELL AS CITED BY LD. AR AND DR. DURING THE COURSE OF HEARING BEFORE US. FROM THE RE CORD WE FOUND THAT MONEY IN THE BANK OF THE ASSESSEE COMPANY HAD DIRECTLY COME FROM THOSE BANK BY DEBITING ACCOUNTS OF LENDERS IN WHOSE NAMES SUCH CREDITS WER E SHOWN. AO HIMSELF HAD ISSUED SUMMONS DIRECTLY TO THE BANK FOR FURNISHING EVIDENCE RELATING TO SUCH TRANSACTION. IN RESPONSE TO WHICH BANK HAD CONFIRME D THAT THEY HAD GIVEN LOANS IN THE NAME OF FORTY PARTIES AND HAD ALSO SUBMITTED LO AN STATEMENT EVIDENCING THE FACT THAT AMOUNT IN QUESTION HAD BEEN RECEIVED FROM THE SAID BANK ONLY WHICH WERE VERIFIABLE FROM THE BANK STATEMENT OF ASSESSEE. WH EN CORRELATED WITH LOANS FROM 7 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD THOSE PARTIES VIZ. A.VIZ LOAN FROM BANK. FROM THE R ECORD WE FOUND THAT ALL SUCH LOANS WERE DISBURSED BY THE BANK OF PUNJAB LIMITED IN LENDERS NAMES. IN ALL THESE CASES IMMEDIATE SOURCE OF CREDIT IN THE BOOKS OF AC COUNTS OF THE ASSESSEE WAS BANK LOAN AND HENCE NATURE AND SOURCE OF ADVANCES WERE P ROVED BEYOND DOUBT AND HENCE ONCE SUCH NATURE AND SOURCE OF ADVANCES ARE E STABLISHED THERE IS NO INFIRMITY IN THE ORDER OF CIT(A) DELETING THE SAME. WE ALSO F OUND THAT INTEREST IN THOSE CASES WAS ALSO DIRECTLY PAID TO THE BANK BY THE ASSESSEE COMPANY. IN THIS REGARD THE ASSESSEE HAS SUBMITTED THE STATEMENT SHOWING LOANS RECEIVED AND INTEREST PAID TO THOSE PARTIES AS ACCOUNTED IN BOOKS OF ACCOUNTS ALO NG WITH THE BANK STATEMENT OF ASSESSEE AS WELL AS OF THOSE PARTIES EVIDENCING ALL THOSE TRANSACTIONS. SINCE ALL THE CHEQUES FROM THE LOAN CREDITORS WERE ISSUED BY THE BANK DIRECTLY IN FAVOUR OF ASSESSEE COMPANY, IRRESPECTIVE OF THE FACT THAT SUC H LOANS WERE DEBITED IN DIFFERENT NAMES BY THE BANK, RECEIPT OF SUCH CHEQUE S WERE DULY EXPLAINED BY THE BANK ADVANCING LOAN. WE ALSO FOUND THAT IN RESPECT OF THESE LOANS FROM THE BANK, THE ASSESSEE HAD PROVIDED SECURITY TO THE BANK, THE REFORE CONSIDERING THE FACTS THAT SUCH FUNDS STEMS FROM THE BANK REMAINS UNALTERED, A ND THAT AN INEXTRICABLE LINK IS BEING ESTABLISHED BEYOND DOUBT BETWEEN THE ASSESSEE COMPANY AND THE BANK LOANS SO RECEIVED ALSO PROVES THE NATURE OF SUCH CREDITS AND THE SOURCE THEREOF. WE HAD ALSO VERIFIED THE CONFIRMATION OF BANK AND THE BANK STATEMENT WHICH CLEARLY PROVES 8 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD THAT THESE LOANS WERE DIRECTLY RECEIVED FROM THE BA NK. EVEN THE AO DURING THE ASSESSMENT PROCEEDINGS ISSUE SUMMONS TO THE BANK AS KING FOR DETAILS OF SUCH LOANS AND STATEMENTS, IN RESPONSE THE BANK HAS PRODUCED A LL THE EVIDENCE LIKE BANK STATEMENTS OF ALL THE FORTY PARTIES, THEIR ACCOUNT OPENING FORMS, AS ALSO BANK HAS CATEGORICALLY ADMITTED THAT THE BANKS HAD ADVANCED LOANS TO THOSE FORTY PARTIES, AND CHEQUES WERE DIRECTLY ISSUED IN ASSESSEE FAVOUR, WH ICH GOES TO PROVE THAT THE ASSESSEE HAD PROVED NATURE AND SOURCE OF THE CREDIT S AND THEREFORE THERE IS NO QUESTION OF ADDITION U/S 68 OF THE ACT. DETAILED FI NDING RECORDED BY CIT(A) AT PARA 3.9 ARE AS PER MATERIAL ON RECORD AND HAS NOT BEEN CONTROVERTED BY LD. DR BY BRINGING ANY POSITIVE MATERIAL ON RECORD WHICH CLEA RLY PROVES THAT AMOUNT SO RECEIVED WAS NOTHING BUT BANK LOAN. AN INDEPENDENT EVIDENCE WAS GATHERED BY DEPARTMENT ALSO INDICATE RECEIPT OF LOAN DIRECTLY F ROM THE BANKS IN RESPONSE TO THE SUMMONS ISSUED TO SUCH BANKS. THE FINDINGS OF THE C IT(A) IS AS PER MATERIAL ON RECORD, THEREFORE DO NOT REQUIRE ANY INTERFERENCE O N OUR PART. ACCORDINGLY WE CONFIRM THE ACTION OF CIT(A) DELETING THE ADDITION MADE U/S 68 OF I.T. ACT. 7. AS WE HAVE ALREADY CONFIRMED THE ACTION OF CIT( A) DELETING THE ADDITIONS SO MADE, THE INTEREST THEREON SO DELETED BY CIT(A) DO NOT REQUIRE ANY INTERFERENCE AT OUR PART. 9 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD 8. REVENUE IS ALSO AGGRIEVED FOR DELETING ADDITION OF RS.1,50,000/- IN RESPECT OF DIFFERENTIAL RATE OF INTEREST ON LOAN GIVEN BY ASSE SSEE. 9. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND F ROM RECORD THAT ASSESSEE HAD GIVEN INTER CORPORATE DEPOSIT OF RS.75,00,000/- TO M/S. RAINBOW DENIM LTD (I.E. RAINBOW) ON 3-8-2000 ON WHICH INTEREST OF R S.6,13,870/- WAS RECEIVED @ 12.5% P.A. CONSIDERING THE FACT THAT THE ASSESSEE P AID INTEREST @ 18% P.A. ON CERTAIN BANK LOANS, THE AO ASKED THE ASSESSEE TO SH OW CAUSE AS TO WHY PROPORTIONATE INTEREST SHOULD NOT BE DISALLOWED. IT WAS SUBMITTED BY THE ASSESSEE THAT LOAN OF RS.75,00,000/- WAS GIVEN TO RAINBOW OU T OF FUNDS BORROWED FROM BANK OF INDIA, PUNE @ 12.25% P.A. HOWEVER, THE AO F OUND THAT THE ASSESSEE HAS PAID RS.75 LAKHS TO M/S. RAINBOW DENIM LTD. ON 3.8. 2000 ASSESSEE HAS A CREDIT BALANCE OF RS.240604/- AFTER ISSUING THE CHEQUE. TH E AO MADE AN ADDITION OF RS.1,50,000/- TO THE INCOME OF THE ASSESSEE. 10. BY THE IMPUGNED ORDER CIT(A) DELETED THE ADDITI ON AFTER OBSERVING AS UNDER: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, FINDINGS OF THE AO AND ARGUMENTS OF THE ARGUED BEFORE ME THAT THE APPELLAN T HAD GIVEN A LOAN OF RS. 75,00,000/ - TO RAINBOW @ 12.5%P.A. OUT OF FU NDS RECEIVED FROM BANK OF INDIA, PUNE BRANCH @12.25% P.A. HENCE THERE WAS NO LOSS OF INTEREST NOR THE FUNDS WERE GIVEN AT LOWER RATE OF INTEREST THAN THE RATE OF INTEREST PAID ON THE FUNDS RECEIVED BY THE APPELLAN T. IT IS SEEN THAT THE APPELLANT VIDE LETTER DATED 19-8-005 SUBMITTED RELE VANT CASH FLOW 10 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD STATEMENT. ON PERUSAL OF THE SAME I FOUND THAT THE APPELLANT RECEIVED LOAN OF RS.1,65,00,000/ - ON 3-8-2000 FROM BANK OF INDIA , PUNE AND THE APPELLANT HAD GIVEN LOAN OF RS.75,00,0001- TO 'RAIN BOW' ON 3-8-2000 OUT OF THE SAME. HENCE, PRIMA-FACIE IN MY OPINION NO PA RT OF LOAN WAS GIVEN AT A LOWER RATE OF INTEREST. AS REGARD OBSERVATION OF THE AO THAT AFTER ISSUING CHEQUE TO 'RAINBOW' THE APPELLANT HAD A DEBIT BALAN CE OF RS.72,59,396/ - IT IS BROUGHT TO MY NOTICE BY THE LD. AR THAT THE TRAN SACTIONS OF GIVING LOAN TO RAINBOW' AND RECEIVING LOAN FROM BANK OF INDIA, PU NE HAVE BEEN ENTERED ON THE SAME DAY I.E . 3-8-2000. THE ARGUMENT OF THE LD. AR THAT AS PER COMPUTER PROGRAM THE PAYMENTS ARE RECORDED FIRST AN D THE RECEIPTS ARE RECORDED THEREAFTER AND THEREFORE APPARENTLY IN BET WEEN THE DAY THERE APPEARED A DEBIT BALANCE BUT CONSIDERING THE TRANSA CTIONS FOR THE ENTIRE DAY THERE WAS NO SUCH DEBIT BALANCE APPEARS TO BE C ORRECT. THE NEXUS BETWEEN LOAN GIVEN TO 'RAINBOW' AND LOAN TAKEN FROM BANK OF INDIA, PUNE HAS BEEN ESTABLISHED AND CONSIDERING THE FACT THAT THE RATE OF INTEREST ON LOAN TAKEN FROM BANK OF INDIA, PUNE WAS 12.25% P.A. THERE CANNOT BE ANY DISALLOWANCE ON THE PLEA OF DIFFERENTIAL RATE OF IN TEREST IN RESPECT OF LOAN GIVEN TO 'RAINBOW' @12.5%P.A. 11. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM RECORD THAT THE ASSESSEE COMPANY HAD GIVEN A LOAN OF RS.75,00,000/- TO RAINBOW @ 12.5% P.A. OUT OF FUNDS RECEIVED FROM BANK OF INDIA, PUNE BRAN CH @ 12.5% P.A. HENCE THERE WAS NO LOSS OF INTEREST NOR THE FUNDS WERE GIVEN AT LOWER RATE OF INTEREST THAN THE RATE OF INTEREST PAID ON THE FUNDS RECEIVED BY THE ASSESSEE. THE ASSESSEE HAD GIVEN LOAN OF RS.75,00,000/- TO RAINBOW ON 03-08-2000 O UT OF THE ADVANCE TAKEN FROM BANK ON 03-08-2000. HENCE, NO PART OF LOAN WAS GIVE N AT A LOWER RATE OF INTEREST. AFTER RECORDING DETAILED FINDING TO THE EFFECT THAT NEXUS BETWEEN LOAN GIVEN TO RAINBOW AND LOAN TAKEN FROM BANK OF INDIA HAS BEEN ESTABLISHED AND THAT RATE OF INTEREST ON LOAN TAKEN FROM THE BANK OF INDIA WAS @ 12.25% P.A., THE CIT(A) HELD 11 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD THAT NO DISALLOWANCE IS WARRANTED ON ACCOUNT OF DIF FERENTIAL RATE OF INTEREST IN RESPECT OF RAINBOW @12.5%P.A. THE DETAILED FINDING RECORDED BY CIT(A) AT PARA 5.4 HAD NOT BEEN CONTROVERTED BY LD. DR. ACCORDINGL Y WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDINGS OF CIT(A) DELETING THE DI SALLOWANCE OF RS.1,50,000/- ON ACCOUNT OF DIFFERENCE IN INTEREST PAID AND RECEIVED . 12. REVENUE IS ALSO AGGRIEVED BY THE ACTION OF CIT( A) IN DIRECTING THE AO TO ALLOW AFTER VERIFICATION INTEREST EXPENSES OF RS.30 ,55,968/-. 13. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM RECORD THAT ADDITION OF RS.30,55,968/- WAS MADE BY THE AO BY WAY OF DISALLO WING INTEREST ON THE PLEA THAT BORROWED FUNDS WERE NOT USED FOR THE PURPOSES OF TH E BUSINESS. 14. BY THE IMPUGNED ORDER CIT(A) RESTORED BACK THE MATTER TO THE FILE OF AO WITH THE DIRECTION TO VERIFY THE FACTS AND TO DELET E THE ADDITION AFTER VERIFICATION. PRECISE OBSERVATION OF CIT(A) IS AS UNDER: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, FINDINGS OF THE AO, SUBMISSIONS OF THE APPELLANT. IT IS BROUGHT TO MY N OTICE BY THE ID. AR THAT THE CHEQUES OF RS.60,00,000/- FOR SHARE APPLICATION IN 'B4U' WAS ISSUED ON 12-9-2000 RESULTING IN NEGATIVE BALANCE IN THE BANK ACCOUNT AS PER BOOKS WHICH HAS BEEN RECOUPED BY SALE PROCEEDS RECEIVED O N 13-9-2000 TO 15-9- 2000. THE A0 HAS NOT DISPUTED THESE FACTS OF THE CA SE. IT IS ALSO BROUGHT TO MY NOTICE THAT THE NEGATIVE BALANCE IN THE BANK WAS AS PER BOOKS OF ACCOUNT 12 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD SINCE THE CHEQUE ISSUED FOR SHARE APPLICATION MONEY HAD REACHED TO THE BANK OF THE APPELLANT ON 20-9-2000 FOR REALISATION AND CONSIDERING THE FACT THAT SUFFICIENT MONEY HAS BEEN DEPOSITED IN THE BAN K OUT OF SALE PROCEEDS ON 13-9-2000 TO 15-9-2000 BEFORE THE CHEQUE REACHED TO THE BANK THE MONEY UTILISED FOR SHARE APPLICATION HAS BEEN FUNDED WITH SALE OF STOCK IN TRADE. AS REGARD SOURCE OF INVESTMENT IN SHARES OF RS.37.99 C RORES, IT IS SUBMITTED BY THE ID. AR THAT THE SAID INVESTMENT WAS MADE IN THE EARLIER YEARS WHICH IS EVIDENT FROM THE FACT THAT THE VALUE OF INVESTMENT AS AT 31-3-2001 AS WELL AS AT 31-3-2000 WAS SAME AS MAY BE SEEN FROM THE BALAN CE SHEET AS AT 31-3- 2001. IT IS SUBMITTED BY THE APPELLANT THAT IT HAD SUBMITTED THE CASH FLOW STATEMENT ALONGWITH LETTER DATED 19-9-2005 AND ALSO PRODUCED THE CASH BOOK BEFORE THE AO. I HAVE CONSIDERED THESE FACTS O F THE CASE AND FIND THAT AO HAS NOT LOOKED INTO THE FACT THAT CHEQUE ISSUED BY THE APPELLANT COMPANY HAD REACHED THE BANKER FOR ENCASHMENT ONLY AFTER THE FUNDS FROM LIQUIDATION OF SHARES HAD BEEN CREDITED IN THE BANK ACCOUNT AND THEREFORE IT WOULD BE INAPT TO ASSUME THAT LOAN FUNDS WERE USED FOR THE PURPOSE OF SUCH INVESTMENTS IN MAKING SHARE APPLICATION IN 'B4U'. T HE LD. AR ALSO INVITED MY ATTENTION ON THE BALANCE SHEET AS AT 31-3-2001 F ROM WHICH IT IS SEEN THAT THE APPELLANT WAS HOLDING INTEREST FREE FUNDS TO TH E EXTENT OF RS.52,56,63, 1001 - ON WHICH NO INTEREST WAS PAID. THE DETAILS O F WHICH ARE AS UNDER:- I) SHARE CAPITAL RS. 24,77,100/- II) SECURITIES PREMIUM RS. 33 ,30,000/- III) SHARE APPLICATION MONEY RS.23, 73,46 ,000/- IV) WELSPUN INDIA LTD. ADVANCE RS.28,25, 10,000/- TOTAL RS.52,56,63, 100/- IN VIEW OF THE ABOVE IT IS THEREFORE CLEAR THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT HAS COVERED INVESTMENT IN SHARE APPLICATION AND SHARES. IN VIEW OF THE ABOVE FACTS OF THE CASE IN MY OPINIO N THE BASIC PLEA THAT THE SHARE APPLICATION FOR RS.60,00,000/ - IN B4U HAS NO T BEEN FUNDED BY THE SALE PROCEEDS RECEIVED BY THE APPELLANT DURING THE PERIOD FROM 13-9-2000 TO 15-9-2000 APPEARS TO BE PRIMA FACIE ERRONEOUS AN D THEREFORE I, DIRECT THE AO TO VERIFY THE FACT AS TO WHETHER THE AMOUNT PAID OR SHARE APPLICATION IS ENCASHED AFTER THE ENCASHMENT OF LIQUIDATION OF SHARES AND IF THE SAME IS FOUND TO BE CORRECT THEN IN THAT CASE THE ADDITION OF RS.30,55,968/ - MADE TO THE INCOME OF THE APPELLANT BE DELETED. HOWEVER IN CASE IF THE SAID FACT IS 13 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD NOT FOUND TO BE CORRECT THEN IN THAT CASE DISALLOWA NCE MADE WOULD BE CONFIRMED. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 15. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT AFTER RECORDING THE DETAILED FINDING WITH REGARD TO THE INTEREST FREE F UND OWNED BY THE ASSESSEE TO THE EXTENT OF RS.52,56,63,100/-, CIT(A) DIRECTED THE AO TO VERIFY AS TO WHETHER THE AMOUNT PAID FOR SHARE APPLICATION IS ENCASHED AFTER THE ENCASHMENT OF LIQUIDATION OF SHARES AND IF THE SAME IS FOUND TO BE CORRECT TH EN IN THAT CASE THE ADDITION OF RS.30,55,968/- SHOULD BE DELETED. IN VIEW OF THE FA CT THAT FINDING RECORDED BY CIT(A) AT PARA 6.5 HAS NOT BEEN CONTROVERTED, WE DO NOT FIND ANY INFIRMITY IN THE DIRECTION SO GIVEN BY CIT(A) FOR DELETING ADDITION AFTER PROPER VERIFICATION. IN THE RESULT GROUND TAKEN BY THE REVENUE IS DISMISSED. IN THE RESULT, THE APPEAL FILED BY REVENUE IS DISMI SSED. 16. IN THE ASSESSMENT YEAR 2001-02 ASSESSEE IS AGGR IEVED FOR INVOKING THE EXPLANATION TO SECTION 73 IN RESPECT OF SHARE TRADI NG LOSS WHICH WAS TREATED BY THE AO AS SPECULATION LOSS UNDER EXPLANATION TO SECTION 73. 17. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM RECORD THAT ASSESSEE WAS ENGAGED IN PURCHASE AND SALE OF SHARES. BUSINES S PROFITS/LOSS HAS BEEN DECLARED 14 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD IN RESPECT OF THIS TRANSACTION. EVEN DURING THE COU RSE OF ASSESSMENT AO HAS ACCEPTED ASSESSEES BUSINESS AS DEALING IN SHARES. HOWEVER AO INVOKED EXPLANATION TO SECTION 73 AND DID NOT ALLOW SET OF F LOSS INCURRED ON PURCHASES AND SALE OF SHARES. BY THE IMPUGNED ORDER CIT(A) CONFIR MED THE ACTION OF AO. 18. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM RECORD THAT ASSESSEE HAD SUFFERED LOSS IN SHARE BUSINESS BUT THE PRINCIP AL BUSINESS OF ASSESSEE WAS PURCHASE AND SALE OF SHARES. INCOME IN ANY BUSINESS IS A POSITIVE INCOME AND LOSS IS NEGATIVE INCOME WHICH CAN BE SET OFF AGAINST POSITI VE INCOME OF THE SUBSEQUENT YEAR. WHEN THE ASSESSEE IS ENGAGED IN PURCHASE AND SALE OF SHARES WHETHER EXPLANATION TO SECTION 73 IS ATTRACTED WITH REFEREN CE TO THE AMENDMENT W.E.F. 1.4.15, HAS BEEN DEALT WITH BY THE COORDINATE BENC H IN CASE OF FIDUCIARY SHARES & STOCK (P.) LTD. VS. ACIT 70 TAXMANN.COM 23 (MUMBAI- TRIB.) WHEREIN MUMBAI TRIBUNAL HELD AS UNDER: SECTION 73 STIPULATES THAT ANY LOSS COMPUTED IN R ESPECT OF SPECULATION BUSINESS SHALL NOT BE SET-OFF EXCEPT AGAINST PROFIT S AND GAINS OF SPECULATION BUSINESS. SECTION 43(5) CLARIFIES 'SPECULATIVE TRAN SACTION' TO MEAN A TRANSACTION IN WHICH A CONTRACT FOR PURCHASE OR SAL E OF ANY COMMODITY INCLUDING STOCK AND SHARES IS PERIODICALLY OR ULTIM ATELY SETTLED OTHERWISE THAN BY ACTUAL DELIVERY. EXPLANATION 2 TO SECTION 2 8 STIPULATES THAT WHERE SPECULATIVE TRANSACTIONS CARRIED ON BY AN ASSESSEE ARE OF SUCH A NATURE SO AS TO CONSTITUTE A BUSINESS, THE SPECULATION BUSINE SS SHALL BE DEEMED TO BE DISTINCT AND SEPARATE FROM OTHER BUSINESS. SECTIONS 73, 43(5) AND EXPLANATION 2 TO SECTION 28 OF THE ACT ARE ON THE S TATUTE SINCE 01-04-1962. [PARA 5.6.1] 15 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD PURSUANT TO THE WANCHOO COMMITTEE REPORT OF DECEMBE R, 1971, EXPLANATION TO SECTION 73 WAS INSERTED BY THE TAXAT ION LAWS (AMENDMENT) ACT, 1975 WITH EFFECT FROM 01-04-1977. THEREFORE, P RIOR TO 01-04- 1977, IF ANY ASSESSEE WAS CARRYING ON ANY SPECULATIVE TRANSA CTIONS, I.E. A CONTRACT ULTIMATELY SETTLED OTHERWISE THAN BY ACTUAL DELIVER Y; WHICH ARE OF SUCH A NATURE TO CONSTITUTE A BUSINESS, THEN SUCH SPECULAT IVE TRANSACTIONS ARE CONSIDERED AS SPECULATION BUSINESS. IF THE ASSESSEE INCURS A LOSS IN SUCH SPECULATION BUSINESS, THEN THE LOSS FROM SUCH SPECU LATION BUSINESS CAN BE ADJUSTED ONLY AGAINST PROFITS OF ANOTHER SPECULATIO N BUSINESS AS PROVIDED UNDER SECTION 73 OF THE ACT. IN OTHER WORDS, TRANSACTIONS PRIOR TO 01-04-1977, WHICH WERE DELIVERY BASED, WERE NOT TREATED AS SPECULATIVE TRANSACTIONS AND HENCE THE LOSS ARISING FROM SUCH TRANSACTIONS WAS ALLOWED TO BE AD JUSTED AGAINST THE INCOME OF THE YEAR UNDER CONSIDERATION. AFTER THE I NSERTION OF EXPLANATION TO SECTION 73 OF THE ACT, COMPANIES OTHER THAN INVE STMENT COMPANIES OR FINANCE COMPANIES CARRYING ON BUSINESS OF PURCHASE AND SALE OF SHARES, THEN THE LOSS FROM SUCH BUSINESS WOULD BE TREATED A S SPECULATION BUSINESS LOSS. THEREFORE, BY VIRTUE OF THE INSERTION OF EXPLANAT ION TO SECTION 73 OF THE ACT, IF COMPANIES WHOSE PRINCIPAL BUSINESS IS OF PU RCHASE AND SALE OF SHARES SUFFER LOSSES FROM SHARE TRADING, THEN SUCH LOSS FROM SHARE TRADING IS TO BE TREATED AS SPECULATIVE BUSINESS LOSS. THE INT ENTION BEHIND THE INSERTION OF EXPLANATION TO SECTION 73 OF THE ACT HAS BEEN EX PLAINED BY THE CBDT, CIRCULAR NO. 204 DATED 24-07-1976 WAS TO CURB THE M ETHODS/DEVICES SOMETIMES RESORTED TO BY BUSINESS HOUSE CONTROLLING GROUPS OF COMPANIES TO MANIPULATE AND REDUCE THE TAXABLE INCOME 'OF COM PANIES UNDER THEIR CONTROL BY SHOWING LOSS ON PURCHASE AND SALE OF SHA RES OF GROUP COMPANIES. IT APPEARS THAT THE INTENTION OF THE LEGISLATURE, FROM A PERUSAL OF THE WANCHOO COMMITTEE REPORT AND CBDT CIRCULAR O. 204 DATED 24-07-1976, WAS NOT TO T REAT PURCHASE AND SALE OF SHARES BY COMPANIES WHOSE MAIN BUSINESS IS TRADING IN SHARES AS SPECULATIVE BUSINESS AND THEREFORE THE EXPLANATION TO SECTION 73 OF THE ACT SHOULD BE READ ONLY TO THE EXTENT OF THE PURPOSE FO R WHICH IT WAS INSERTED. THE SUBSEQUENT AMENDMENT MADE BY FINANCE (NO.2) ACT , 2014 IN THE EXPLANATION TO SECTION 73 OF THE ACT APPEARS TO BE MADE IN ORDER TO CLARIFY THE REAL INTENTION BEHIND THE INSERTION THEREOF, BY REMOVING THE OBVIOUS 16 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD HARDSHIP CAUSED TO VARIOUS ASSESSEES WHOSE MAIN BUS INESS IS TRADING IN SHARES. THE AMENDMENT HAS REMOVED THE ANOMALY AND BROUGHT THE AMBIT OF THE EXPLANATION TO SECTION 73 OF THE ACT IN LINE WITH T HE INTENTION OF THE LEGISLATURE BY PLACING THE COMPANIES WHOSE PRINCIPA L BUSINESS IS TRADING IN SHARES AS PART OF THE EXCEPTION TO EXPLANATION TO S ECTION 73 OF THE ACT, BECAUSE SUCH COMPANIES WERE NOT THE COMPANIES FOR W HOM THE EXPLANATION WAS INSERTED. [PARA 5.6.2] THE INSERTION F THE AMENDMENT IN THE EXPLANATION TO SECTION 73 OF THE ACT BY THE FINANCE (NO.2) ACT, 2014, IS CURATIVE AND CLASSIFICATORY IN NATURE. IF THE AMENDMENT IS APPLIED PROSPECTIVELY FROM ASSESSMENT YEAR 2015-16, A PIQUA NT SITUATION WOULD ARISE THAT AN ASSESSEE WHO HAS EARNED PROFIT FROM P URCHASE AND SALE OF SHARES IN ASSESSMENT YEAR 2015-16 WOULD BE TREATED AS NORMAL BUSINESS PROFIT AND NOT SPECULATION BUSINESS PROFIT IN VIEW OF THE EXCEPTION CARRIED OUT BY THE AMENDMENT IN EXPLANATION TO SECTION 73 O F THE ACT. IN THESE CIRCUMSTANCES, SPECULATION BUSINESS LOSS INCURRED B Y TRADING IN SHARES IN EARLIER YEARS WILL NOT BE ALLOWED TO BE SET-OFF AGA INST SUCH PROFIT FROM PURCHASE AND SALE OF SHARES TO SUCH COMPANIES IN AS SESSMENT YEAR 2015-16. FOR THIS REASON ALSO, THE AMENDMENT INSERTED TO EXP LANATION TO SECTION 73 OF THE ACT BY FINANCE (NO.2) ACT, 2014 IS TO BE APP LIED RETROSPECTIVELY FROM THE DATE OF THE INSERTION TO EXPLANATION TO SECTION 73 OF THE ACT. [PARA 5.6.3] THUS, THE AMENDMENT INSERTED IN EXPLANATION TO SE CTION 73 BY FINANCE (NO.2) ACT, 2014 WITH EFFECT FROM 01-04-2015 IS CLA RIFICATORY IN NATURE AND WOULD THEREFORE OPERATE RETROSPECTIVELY FROM 01-04- 1977 FROM WHICH DATE THE EXPLANATION TO SECTION 73 WAS PLACED ON THE STA TUTE SINCE THIS AMENDMENT TO SECTION 73 OF THE ACT ' .... OR A COMP ANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF TRADING IN SHA RES ..... ' BRINGS IN THE ASSESSEE WHOSE PRINCIPAL BUSINESS IS TRADING OF SHA RES. THEREFORE, THE LOSS INCURRED IN SHARE TRADING BUSINESS BY SUCH COMPANI ES, I.E. LIKE THE ASSESSEE WILL NOT BE TREATED AS SPECULATION BUSINESS LOSS BU T NORMAL BUSINESS LOSS, AND HENCE THE SAME LOSS CAN BE ADJUSTED AGAINST OTH ER BUSINESS INCOME OR INCOME FROM ANY OTHER SOURCES OF THE YEAR UNDER CON SIDERATION. IN THIS VIEW OF THE MATTER, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE ASSESSEE'S CLAIM FOR SETTING OFF THE LOSS FROM 'SHARE TRADING BUSINE SS' AGAINST 'OTHER BUSINESS INCOME AND INCOME FROM ANY OTHER SOURCES DURING TH E YEAR UNDER CONSIDERATION. 17 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD 19. IT IS CLEAR FROM THE ABOVE DECISION OF TRIBUNAL THAT AMENDMENT INSERTED IN EXPLANATION TO SECTION 73 BY FINANCE (NO.2) ACT,201 4 W.E.F. 01.04.2015 IS CLARIFICATORY IN NATURE AND WOULD OPERATE RETROSPEC TIVELY FROM 01.04.1977 FROM WHICH DATE THE EXPLANATION TO SECTION 73 WAS PLACED ON THE STATUTE. ACCORDINGLY THE COMPANIES WHOSE PRINCIPAL BUSINESS IS TRADING O F SHARES, LOSS INCURRED BY THE SAID COMPANY IN SHARE TRADING WILL NOT BE TREATED A S SPECULATION LOSS BUT NORMAL BUSINESS LOSS AND, HENCE THE SAME LOSS CAN BE ADJUS TED AGAINST OTHER BUSINESS INCOME OR INCOME FROM ANY OTHER SOURCES OF THE YEAR UNDER CONSIDERATION. RESPECTFULLY FOLLOWING THE PROPOSITION OF LAW LAID DOWN BY THE COORDINATE BENCH WE DELETE THE ADDITION MADE BY AO INVOKING EXPLANAT ION TO SECTION 73. WE DIRECT ACCORDINGLY. AY 2002-03 20. IN ITA NO. 1717/MUM/07 IN AY 2002-03, ASSESSEE IS AGGRIEVED FOR DISALLOWANCE OF LONG TERM CAPITAL LOSS TREATING THE SALE OF SHARES AS SHAM TRANSACTION. 21. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT FROM RECORD THAT THE ASSESSEE HAS CLAIMED LONG TERM CAPITAL LOSS OF RS.( -) RS.3,61,31,594/- ON SALE OF PREFERENCE SHARES. IN THE RETURN OF INCOME IT HAS S HOWN THE PURCHASE OF 245360 18 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD SHARES OF WELSPUN MERCANTILE P. LTD. AND 134240 SHA RES OF WELSUPUN TRADING P. LTD. FOR RS.245630000 AND RS.134240000/- RESPECTIVE LY. THESE SHARES WERE ALLOTTED ON 3.1.2000 BY BOTH THE COMPANIES. THE ASS ESSEE HAS ALSO FILED COPIES OF SHARE CERTIFICATES ALONG WITH ALLOTMENT LETTER ISSU ED BY BOTH THE COMPANIES ISSUED ON 23.3.2005. THE AO FOUND THAT THE COMPANY HAS ISS UED SINGLE SHARE CERTIFICATE OF 245630 IN CASE OF WELSPUN MERCANTILE P. LTD AND 134 240/- IN CASE OF WELSUPUN TRADING P. LTD. THE ASSESSEE HAS SOLD 215000 SHARES OF WELSPUN MERCANTILE P. LTD,. TO M/S GLOBAL HOME TAX LTD. FOR RS.21.50 CROR ES AND 30630 SHARES OF WELSPUN MERCANTILE P. LTD 134240 SHARES OF WELSPUN TRADING P. LTD TO M/S. SHEETAL FINANCIAL SERICES P. LTD. FOR RS.164870000/ -. THESE SHARES WERE PURCHASED AND SOLD AT THE SAME PRICE I.E. RS.1000 PER SHARE A ND WERE SOLD ON 1.10.2001 BY RAISING DEBIT NOTE IN THE NAME OF BOTH THE COMPANIE S. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED BY THE AO TO FIL E MEMORANDUM AND ARTICLES OF ASSOCIATION OF WELSPUN TRADING P. LTD AND WELSPUN M ERCANTILE P. LTD ALONG WITH SHARE TRANSFER CERTIFICATE AND THE SOURCE OF FUNDS FOR PURCHASE OF THESE SHARES. ON PERUSAL OF THE MEMORANDUM AND ARTICLES OF WELSUPN M ERCANTILE P. LTD THE AO NOTICED THAT HE COMPANY CAN ISSUE ONLY 238615 PREFE RENCE SHARES OF RS.100 EACH WHEREAS COMPANY HAS ALLOTTED 245630 PREFERENCE SHAR ES OF RS.100 EACH AT A PREMIUM OF RS.900/- PER SHARE. THE WELSPUN MERCANTI LE P. LTD HAS VIOLATED THE 19 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD CLAUSE V OF THE MOA. THE AO ALSO FOUND THAT NO WHER E ON THE SHARE CERTIFICATES THE PERCENTAGE OF DIVIDEND PAYABLE ON THE PREFERENC E SHARES WAS MENTIONED. FROM THE BALANCE SHEET THE AO NOTICED THAT THE ASSESSEE HAS INVESTED IN 12% NON- CUMULATIVE REDEEMABLE SHARES. BESIDES THIS AS PER A O, BOTH THE COMPANIES HAS ALSO VIOLATED THE PAYMENT OF STAMP DUTY FOR ISSUE OF SHA RES. BOTH THE COMPANIES HAVE AFFIXED RS. 1 STAMP DUTY WHICH SHOWS THAT PREFERENC E SHARES ISSUED BY THE COMPANY ITSELF IS VOID. ON PERUSAL OF THE TRANSFER DEED THE AO NOTICED THAT THE TRANSFEREE HAS SUPPRESSED THE CONSIDERATION TO AVOI D THE PAYMENT OF STAMP DUTY AS APPLICABLE. THE TRANSFEREE HAS SHOWN CONSIDERATION OF RS. 2.15 CRORES AND RS. 30,63,000/- IN CASE OF WELSPUN MERCANTILE P. LTD AN D RS. 1,34,24,000/- IN THE CASE OF WELSPUN TRADING P. LTD ACCORDINGLY THEY HAVE PAI D THE VALUE OF STAMP DUTY FOR TRANSFER OF SHARES. THE ASSESSEE HAS RAISED DEBIT N OTE OF RS. 21,50,00,000/- TO THE GLOBAL HOME TAX LTD. FOR SALE OF 2,15,000 SHARES OF WELSPUN MERCANTILE P. LTD WHEREAS TRANSFEREE HAS SHOWN A CONSIDERATION OF RS. 2.15 CRORES. THE ASSESSEE HAS RAISED TWO DEBIT NOTES OF RS. 13,42,40,000/- AND RS .3,06,30,000/- FOR SALE OF 134240 SHARES OF WELSPUN TRADING P. LTD AND 30360 S HARES OF WELSPUN MERCANTILE P. LTD. WHEREAS TRANSFEREE HAS SHOWN RS.L,3424,0001 - AND RS. 30,63,000/-. 20 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD 22. IN VIEW OF THE ABOVE OBSERVATION THE AO WAS OF THE VIEW THAT THE TRANSFEREE HAS INTENTIONALLY SUPPRESSED THE CONSIDERATION TO A VOID THE PAYMENT OF STAMP DUTY AS APPLICABLE. THE AO HAS ALSO ASKED THE ASSESSEE T O EXPLAIN THE SOURCE OF FUNDS USED TO FINANCE THESE INVESTMENTS TO WHICH THE ASSE SSEE VIDE ITS LETTER DATED 28.3.2005 SUBMITTED THE DETAILS OF SHARE APPLICATIO N MONEY PAID WITH SOURCE OF FUNDS (PAGE NO.13 OF THE ASSESSMENT ORDER). THE AO ALSO FOUND THAT IN THE A.Y. 2001-02 IN THE CASE OF M/S. WELSPUN INDIA LTD. A SP ECIAL AUDIT WAS DONE. ON PERUSAL OF THE AUDIT REPORT THE AO CAME TO THIS CON CLUSION THAT THE ASSESSEE COMPANY HAS NOT RECEIVED FULL CONSIDERATION FROM TH E TRANSFEREE COMPANY WHICH IS ALSO RELATED TO THE WELSPUN GROUP. IN VIEW OF THESE OBSERVATION AO HELD THAT IT IS NOTHING BUT SHAM TRANSACTION. 23. BY THE IMPUGNED ORDER CIT(A) CONFIRMED THE ACT ION OF AO AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 24. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM RECORD THAT THE PREFERENCE SHARES SO ALLOTTED TO ASSESSEE COMPANY A RE NON-CUMULATIVE AND BOTH THESE COMPANIES HAVE NOT DECLARED ANY DIVIDEND DURI NG THE PREVIOUS YEAR ON THESE PREFERENCE SHARES AND THEREFORE QUESTION OF SHOWING DIVIDEND INCOME DID NOT ARISE. 21 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD AS PER SECTION 205 OF THE COMPANIES ACT, 1956, NO D IVIDEND SHALL BE DECLARED OR PAID BY A COMPANY FOR ANY FINANCIAL YEAR EXCEPT OUT OF THE PROFITS. FURTHER THE COMPANY BECOMES LIABLE TO PAY DIVIDEND ON THE SHARE S ONLY WHEN IT DECLARES DIVIDEND AND DECLARATION OF THE DIVIDEND IS SOLELY IN THE HANDS OF THE COMPANY. IN THE CASE OF THESE PREFERENCE SHARES NO DIVIDEND WAS DECLARED BY THESE COMPANIES AND THEREFORE NON RECEIPT OF DIVIDEND BY THE ASSESS EE COMPANY SHOULD NOT BE VIEWED ADVERSELY SO AS TO DISALLOW LEGITIMATE CLAIM OF LONG TERM CAPITAL LOSS. 25. IN VIEW OF THE ABOVE WE DO NOT FIND ANY MERIT I N THE OBJECTION OF THE AO THAT SINCE THE ASSESSEE COMPANY HAS NOT SHOWN DIVIDEND I NCOME AS RECEIVED ON PREFERENCE SHARES OF BOTH THESE COMPANIES, THE TRAN SACTION OF LONG TERM CAPITAL LOSS IS A SHAM TRANSACTION. 26. AO HAS ALSO ALLEGED THAT 'SHAM TRANSACTION' IN RESPECT OF INVESTMENT IN PREFERENCE SHARES OF M/S. WELSPUN TRADING PVT. LTD. AND M/S. WELSPUN MERCANTILE PVT. LTD. ON THE GROUND THAT THE ASSESSEE HAD RECEI VED FUNDS FROM M/S. WELSPUN INDIA LTD. AND M/S GLOFAME COTTON YAM LTD, HOWEVER THERE IS NOTHING ILLEGAL AND UNLAWFUL IN TAKING FUNDS FROM OTHERS FOR MAKING INV ESTMENT IN SHARES. THE TRANSACTIONS OF PURCHASE OF PREFERENCE SHARES ARE S UPPORTED BY VALID AND LEGITIMATE 22 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD DOCUMENTS AND NAME OF THE ASSESSEE WAS ENTERED IN T HE REGISTER OF MEMBERS OF THE SAID COMPANIES. HENCE ON THE FACTS AND IN THE CIRCU MSTANCES, THE IMPUGNED TRANSACTIONS CANNOT BE TREATED AS SHAM OR BOGUS AS THE SAME ARE DULY SUPPORTED BY SUFFICIENT MATERIALS AND EVIDENCES. THE FACT THAT A SSESSEE PURCHASED PREFERENCE SHARES HAS BEEN ESTABLISHED WITH THE ALLOTMENT LETT ER, SHARE CERTIFICATE, CONSIDERATION PAID, ENTRIES IN THE BOOKS OF ACCOUNT AND STATUTORY RETURN WITH THE REGISTRAR OF COMPANIES AND LIKEWISE THE SALE OF PRE FERENCE SHARES IS SUPPORTED BY DEBIT NOTE, TRANSFER FORM, CONSIDERATION RECEIVED, ENTRIES IN THE BOOKS OF ACCOUNT AND STATUTORY RETURN WITH REGISTRAR OF COMPANIES. F URTHERMORE THE PURCHASE OF THESE PREFERENCE SHARES WERE SHOWN IN THE BALANCE SHEET A S AT 31-3- 2001 SUBMITTED ALONG WITH THE RETURN OF INCOME FOR THE A. Y.2001-0 2 AND THE SAME WAS ACCEPTED BY THE DEPARTMENT WHILE COMPLETING THE ASSESSMENT F OR THE A. Y.2001- 02 UN SCRUTINY. THE WORD 'BOGUS' ACCORDING TO OXFORD DICT IONARY MEANS 'SHAM', 'FICTITIOUS', 'SPURIOUS'. IN THIS CASE THERE WAS NO SUCH THING. IN THE CONTEXT OF DETERMINING WHETHER A TRANSACTION IS A BOGUS OR ILL USORY TRANSACTION OR A DEVISE, THE AO MUST BRING CONCRETE MATERIALS ON RECORD IN SUPPO RT THEREWITH. IT IS ONLY IF AND WHEN THERE ARE SOLID MATERIALS TO HOLD TAINT OF COL LUSION OR SHAMNESS OR UNGENUINENESS THAN THE ASSESSING OFFICER CAN DISREG ARD THE TERMS OF DOCUMENT AND DECIDE THE MATTER ON THE BASIS OF CONCRETE MATERIAL S. THE ID. AO COULD NOT BRING ON 23 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD RECORD ANY MATERIAL TO SHOW THE IMPUGNED TRANSACTIO NS TO BE SHAM TRANSACTION EXCEPT TO EXPRESS GUESS WORK AND SUSPICION WHICH HA VE NO ROLE TO PLAY IN ASSESSMENT PROCEEDINGS HOWSOEVER IT MAY BE GRAVE. C ONSIDERING THE RELEVANT FACTS TOGETHER IT IS ILLOGICAL TO PRESUME THAT THE ASSESS EE WAS ENGAGED IN SHAM TRANSACTION. NORMALLY THE SHAM TRANSACTIONS ARE ENT ERED INTO TO AVOID PAYMENT OF TAX HOWEVER IN THE CASE OF ASSESSEE THE IMPUGNED TR ANSACTIONS HAD RESULTED INTO NO ACTUAL PROFIT OR LOSS. THE LOSS AROSE DUE TO INDEXE D COST OF ACQUISITION AND HAS NOT BEEN CLAIMED AS SET OFF AGAINST ANY PROFIT. HENCE W ITH THIS LOGIC THE TRANSACTION SHOULD NOT BE DOUBTED TO BE SHAM OR BOGUS. 26.1 AS REGARD ALLEGATION OF THE LD. AO THAT THE AS SESSEE HAS NOT RECEIVED FULL CONSIDERATION FROM THE TRANSFEREE COMPANIES WE FOUN D THAT THE ALLEGATION OF THE LD. AO IS INCORRECT AND CONTRARY TO THE FACTS OF THE CA SE. IN FACT THE ASSESSEE HAD RECEIVED FULL CONSIDERATION ON SALE OF PREFERENCE S HARES AND THE SAME WAS RECORDED IN THE BOOKS OF ACCOUNT. IN SUPPORT THEREOF COPY OF LEDGER ACCOUNTS OF PREFERENCE SHARES AND THE COUNTER PARTIES TO WHOM SHARES WERE SOLD WERE PLACED ON RECORD. 27. WITH REGARD TO THE ALLEGATION OF THE LD. AO THA T THE ASSESSEE IS AN INSTRUMENT IN THE HANDS OF WELSPUN GROUP OF COMPANIES A FRONT FOR THEIR BACK DOOR OPERATIONS 24 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD IN THE SHARES WE FOUND THAT THE ALLEGATION OF THE L D. AO ARE INCORRECT SINCE NOTHING HAS BEEN BROUGHT ON RECORD IN SUPPORT OF SUCH SERIO US ALLEGATIONS. MERELY BECAUSE CERTAIN FUNDS WERE RECEIVED FROM M/S. WELSPUN INDIA LTD. AND M/S. GLOFAME COTTON YAM LTD. THE PURCHASE OF PREFERENCE SHARES B Y THE ASSESSEE COMPANY WOULD NOT AMOUNT TO BACK DOOR OPERATION OF WELSPUN GROUP OF COMPANIES. 28. FROM THE RECORD WE ALSO FOUND THAT NO CONCRETE MATERIALS AND EVIDENCES WERE BROUGHT ON RECORD BY THE AO TO SUBSTANTIATE HI S FINDINGS. EVEN THE AO COULD NOT POINT OUT ANY BENEFITS RECEIVED BY WELSPUN GROU P OF COMPANIES OUT OF THIS TRANSACTION. IT IS WELL SETTLED THAT MERE ALLEGATIO N WOULD NOT BE ENOUGH, BUT IN SUPPORT OF THE SAID ALLEGATION SPECIFIC MATERIALS M UST BE PLACED ON RECORD. THE BURDEN OF ESTABLISHING ALLEGATION IS VERY HEAVY ON THE PERSON WHO ALLEGES IT. IN FACT THE LD. AO MADE SUCH SERIOUS ALLEGATION VERY EASILY AND LIGHT HEARTEDLY WITHOUT PLACING ANY MATERIAL IN SUPPORT OF SUCH BELIEF. SUC H SERIOUS ALLEGATIONS DEMAND A CREDIBLE PROOF OF HIGH ORDER. HOWEVER NOTHING HAS B EEN BROUGHT ON RECORD BY THE LD. AO TO SHOW THAT SOME BENEFITS HAVE BEEN TRANSFE RRED TO OTHER COMPANIES. WE FOUND THAT ASSESSEE COMPANY HAD PURCHASED THE PREFE RENCE SHARES ON 3-1-2000 AT FACE VALUE AND SOLD THESE REFERENCE SHARES AT COST ON 1-10-2001. IT IS COMMONLY KNOWN THAT IN PREFERENCE SHARES NORMALLY THERE IS N O APPRECIATION IN VALUE OF THE 25 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD SHARES UNLESS THESE SHARES ARE CONVERTIBLE. HENCE P REFERENCE SHARES USUALLY COMMAND RICE NEAR TO ITS FACE VALUE. NEVERTHELESS T HE ASSESSEE INCURRED NO ACTUAL LOSS ON SALE OF THESE SHARES. HOWEVER, THE LOSS HAS RESULTED DUE TO INDEXED COST OF ACQUISITION IN ACCORDANCE WITH THE PROVISIONS OF SE CTION 48 WHICH WERE SUBSTITUTED FOR STATUTORY DEDUCTION ALLOWED EARLIER UNDER THE S AID SECTION. IN COMMON PARLANCE, A GAIN OR LOSS ON TRANSFER OF ANY ASSETS WOULD BE R EPRESENTED BY THE DIFFERENCE BETWEEN ITS SALE PRICE AND PURCHASE COST AND THE SA ME IS NIL IN THIS CASE. HOWEVER, IN VIEW OF SECTION 48 THE ASSESSEE WAS ELIGIBLE FOR BENEFIT OF INDEXATION AND AS SUCH THERE WAS LONG TERM CAPITAL LOSS AS PER METHODOLOG Y PROVIDED IN THE STATUTE AND MERELY BECAUSE AS PER THIS METHODLOGY THERE WAS LOS S, SUCH LOSS CAN NOT BE DISALLOWED ALLEGING THE SAME AS SHAM. 29. IN VIEW OF THE ABOVE DISCUSSION WE DO NOT FIND ANY MERIT IN THE ACTION OF AO FOR DISREGARDING LONG TERM CAPITAL LOSS INCURRED BY THE ASSESSEE. 30. AS PER MATERIAL PLACED ON RECORD THE ASSESSEE H AS DISCHARGED ONUS CASTED UPON HIM IN RESPECT OF LONG TERM CAPITAL LOSS SHOWN IN THE RETURN OF INCOME. IT WAS THE DEPARTMENT, WHO ASSERTED THE GENUINE TRANSACTIO NS TO BE SHAM TRANSACTION AND THEREFORE THE INITIAL BURDEN IS ON THE DEPARTMENT T O PROVE SUCH TRANSACTIONS TO BE 26 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD SHAM AND LOSS SUSTAINED THEREIN IS SOUGHT TO BE DIS ALLOWED. ONCE THE ASSESSEE GIVES AN EXPLANATION WHICH IN THE OPINION OF THE LD . AO IS NOT TRUE AND WHICH COULD NOT REASONABLY BE TRUE, THE BURDEN IS ON HIM TO PRO VE THAT WHAT HE HAS CLAIMED IS TRUE AND WHATEVER BURDEN IS ON THE DEPARTMENT STAND S SHIFTED THEREAFTER. FOR THIS PURPOSE RELIANCE IS PLACED ON DECISION IN THE CASE OF JUGGILAL KAMLAPAT V/S. CIT 52 ITR 811, 822 (ALL). IN THE CASE BEFORE US NOTHING C OULD BE PROVED CONCLUSIVELY BY THE ID. AO SO AS TO TREAT THE LEGITIMATE TRANSACTIO N AS SHAM. IT IS SETTLED LAW THAT ANY LOSS SOUGHT TO BE DISALLOWED, THE BURDEN LIES UPON THE DEPARTMENT TO PROVE THAT THE SAME IS SHAM OR BOGUS WITH CERTAIN CONCRETE MATERIA LS AND EVIDENCE. MERELY BECAUSE THERE WAS LONG TERM CAPITAL LOSS IN ACCORDA NCE WITH METHODLOGY PROVIDED IN SECTION 48 THE SAME CANNOT BE DISALLOWED IN SUMM ARY MANNER. 31. WE ALSO FOUND THAT INVESTMENT IN THESE PREFEREN CE SHARES HAS BEEN PROPERLY SHOWN IN BALANCE SHEET AS AT 31-3-2001 SUBMITTED WI TH THE DEPARTMENT WHILE FILING THE RETURN OF INCOME FOR THE A. Y.2001-02 AN D THE DEPARTMENT HAS ACCEPTED THE SAME AS GENUINE WHILE COMPLETING THE SCRUTINY A SSESSMENT FOR THE A. Y.2001- 02. HENCE THERE IS NO REASON AND BASIS IN TREATING SUCH PURCHASES AS SHAM IN THE SUBSEQUENT YEAR WITHOUT PROVING THE SAME CONCLUSIVE LY. 27 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD 32. BEFORE PARTING TO THE MATTER IT PERTINENT TO BR ING ON RECORD THAT APART FROM SALE OF THESE PREFERENCE SHARES THE ASSESSEE HAD AL SO SOLD CERTAIN OTHER SHARES DURING THE PREVIOUS YEAR. THE ID. AO HAS ACCEPTED S HORT TERM CAPITAL GAINS ON SALE OF SUCH SHARES. IF THE SHORT TERM CAPITAL GAINS ARE ACCEPTED ON THE BASIS OF SIMILAR MATERIALS AND EVIDENCES THEN LONG TERM CAPITAL LOSS OUGHT TO HAVE BEEN ACCEPTED WITH THE SAME LOGIC AND REASONS. AY: 2002-03 (ITA NO.1853/MUM/07) 33. REVENUE IS AGGRIEVED FOR DELETING THE DISALLOWA NCE OF INTEREST OF RS.94,42,728/-. 34. IN VIEW OF THE FINDING GIVEN BY US IN AY 2001-0 2, WE CONFIRM THE ACTION OF CIT(A) FOR DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST. 35. IN ITA NO.4447/MUM/08, REVENUE IS AGGRIEVED BY THE ACTION OF CIT(A) DELETING THE ADDITION MADE ON ACCOUNT OF CONVERSIO N OF STOCK IN TRADE INTO INVESTMENTS IN RESPECT OF ASSESSMENT FRAMED BY AO U/S 143(3) R.W.S.147 OF THE ACT FOR THE A.Y. 2002-03. 28 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD 36. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT WITHOUT GIVING ANY REASON THE AO HAS MADE ADDITION ON ACCOUNT OF CONVE RSION OF STOCK IN TRADE INTO INVESTMENTS. THE CIT(A) HAS DELETED THE SAME AFTER OBSERVING AS UNDER: 2.1. IN THE ASSESSMENT ORDER, THE AO HAS NOTED THA T THE ASSESSMENT WAS RE- OPENED U/S 148 AS HE HAD REASON TO BELIEVE THAT CER TAIN INCOME HAS ESCAPED ASSESSMENT IN THE SENSE THAT ASSESSEE HAS NOT SHOWN CLOSING STOCK OF RS.8,59,89,584/-. AS PER THE NOTE ON ACCOUNTS (SCHE DULE 12) OF THE FINANCIAL ACCOUNTS, THE COMPANY HAD DISCONTINUED TR ADING IN SHARES AND TAKING LONG TERM VIEW, THE STOCK IN HAND AS ON 31.3 .2002 IS CONVERTED INTO INVESTMENT AT THE CLOSING MARKET RATES. HENCE, THE ASSESSMENT WAS RE- OPENED AND COMPLETED U/S.147 R.W.S. 143(3) OF THE A CT. 2.2. SHRI. MITESH SHAH, C.A. AND AUTHORIZED REPRESE NTATIVE OF THE ASSESSEE COMPANY APPEARED AND SUBMITTED THAT THE A.O. IS NOT JUSTIFIED IN RE- OPENING THE ASSESSMENT AS THERE IS NO NEW MATERIAL WHICH HAS COME TO THE NOTICE OF THE A.O. FOR RE-OPENING THE ASSESSMENT. A CCORDING TO HIM, THERE MUST BE A NEXUS BETWEEN THE MATERIAL AND THE BELIEF OF THE A.O. FOR RE- OPENING THE ASSESSMENT U/S.147. HE RELIED ON THE FO LLOWING DECISIONS:- (1) ANANT KUMAR SAHARIA VS. CIT (232 ITR 533, 539) (GAUH). (2) HUM BOLDT WEDAG INDIA LTD. VS. ACIT (236 ITR 84 5,847) (CAL). ACCORDING TO HIM, THIS AMOUNTS TO CHANGE OF OPINION AND HENCE RE-OPENING OF THE ASSESSMENT IS INVALID. HE FURTHER RELIED ON THE FOLLOWING DECISIONS:- (1) VXL INDIA LTD. VS. ACIT (215 ITR 295,297) (GUJ) . (2) BIRLA VXL LTD. VS. ACIT (217 ITR 1,3-4) (GUJ). (3) SARADBHAI M. LAKHANI VS. ITO (231 ITR 779) (GUJ ). 2.3. I HAVE DULY CONSIDERED THE SUBMISSION OF THE A .R. I FIND THAT UNDER THE AMENDED PROVISIONS OF SECTION 147, THE A.O. HAS POW ERS TO RE-OPEN THE ASSESSMENT IF HE HAS REASON TO BELIEVE THAT CERTAIN INCOME HAS ESCAPED ASSESSMENT. IN THIS CASE, THE AO HAD REASONABLE BEL IEF THAT CERTAIN INCOME- HAS ESCAPED ASSESSMENT, THEREFORE HE INVOKED THE PR OVISIONS OF SECTION 147 AND RE-OPENED THE ASSESSMENT. THE RE-OPENING OF THE ASSESSMENT IS VALID AND APPEAL ON THIS GROUND IS DISMISSED. 29 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD 3. IN GROUNDS OF APPEAL NO.2, 3(A), 3(B) AND 3(C) T HE ASSESSEE IS AGGRIEVED BY ADDITION OF RS.8,59,89,584/- ON ACCOUNT OF SO CA LLED WRONG CLAIM OF DEDUCTION IN CONVERSION OF STOCK IN TRADE INTO INVE STMENT. 3 .1. IN THE ASSESSMENT ORDER, THE A.O. HAS NOTED T HAT THE ASSESSEE HAS CONVERTED STOCK IN TRADE TO INVESTMENT AMOUNTING TO RS.8,59,89,584/-. ACCORDING TO THE AO, THIS CLAIM IS WRONG. HENCE, HE MADE AN ADDITION OF RS.8,59,89,584/- TO THE TOTAL INCOME OF APPELLANT. 3.2. THE A.R. SUBMITTED THAT THE AO IS NOT JUSTIFIE D IN MAKING ADDITION OF RS.8,59,89,584/-. HE FURTHER SUBMITTED AS UNDER :- (A) ON PERUSAL OF SCHEDULE-S AND SCHEDULE-3 FORMING PART OF AUDITED STATEMENT OF ACCOUNTS IT MAY BE SEEN THAT THE CLOSI NG STOCK VALUED AT MARKET PRICE WORTH RS.8,59,89,304/- HAS BEEN TRANSFERRED F ROM TRADING ACCOUNT TO INVESTMENT FOR THE REASON THAT THESE SHARES HITHERT OBEFORE HELD AS STOCK IN TRADE HAS BEEN CONVERTED INTO INVESTMENT RESULTING IN NO. DEDUCTION FROM THE INCOME OF THE APPELLANT. HOWEVER, THE LD. AO PR OBABLY OBSERVING THAT THAT COST OF SHARES SOLD IS SHOWN AFTER DEDUCTING F ROM THE OPENING STOCK OF SHARES THE MARKET VALUE OF CLOSING STOCK CONVERTED INTO INVESTMENT FORMED AN ERRONEOUS OPINION THAT THE APPELLANT HAD CLAIMED DEDUCTION OF INVESTMENT FROM THE PROFIT. THE OPINION FORMED BY T HE ID.AO IS UNTRUE, MISCONCEIVED AND CONTRARY TO THE FACTS OF THE CASE. IT IS SUBMITTED THAT IT IS MERELY TRANSFER ENTRY FROM ONE DEBIT ACCOUNT TO ANO THER DEBIT ACCOUNT OF THE BALANCE SHEET ITEMS AND NO PART OF THESE SHARES WERE SOLD DURING THE PREVIOUS YEAR. IN .OTHER WORDS THE CLOSING STOCK OF SHARES HAS BEEN SHOWN AS INVESTMENT IN SHARES WHERE BOTH ARE ASSETS OF TH E APPELLANT. THE PROFIT OR LOSS WOULD ARISE IN SUBSEQUENT YEAR ON SALE OF T HESE SHARES. HENCE, THE ADDITION IS MADE BY THE ID. AO WITHOUT ANY BASIS AN D REASON AND AS SUCH THE SAME IS III FOUNDED AND LIABLE TO BE ANNULLED. AN ASSESSMENT BASED ON MERE CONJECTURE, SURMISE OR SUSPICION OR IRRELEVANT AND INADMISSIBLE MATERIAL IS INVALID AND UNSUSTAINABLE IN LAW. (B) IT IS SUBMITTED THAT IN WORKING OUT PROFIT FROM THE BUSINESS OF TRADING IN SHARES ONE HAS TO REDUCE THE COST OF SHARES SOLD F ROM THE SALE VALUE OF THE SHARES AND THE APPELLANT HAS FOLLOWED THE SAME PROC EDURE AS MAY BE SEEN FROM THE PROFIT AND LOSS ACCOUNT AND PROFIT/LOSS SH OWN IN THE PROFIT AND 30 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD LOSS ACCOUNT WAS TRUE AND FAIR WITHOUT CLAIMING ANY DEDUCTION FROM INVESTMENT AS ERRONEOUSLY THOUGHT BY THE ID. AO. (C) IT MAY BE SEEN THAT THE ID. A.O. HAS REJECTED T HE EXPLANATION OF YOUR APPELLANT SIMPLY SAYING 'I AM NOT CONVINCED ' WI THOUT GIVING ANY REASON. IT IS NOW SETTLED LAW THAT WHERE AN AUTHORI TY MAKES AN ORDER IN EXERCISE OF A QUASI-JUDICIAL FUNCTION, IT MUST RECO RD ITS REASONS IN SUPPORT OF THE ORDER IT MAKES. EVERY QUASI-JUDICIAL ORDER MUST BE SUPPORTED BY REASONS. SIMPLY TO SAY 'I AM NOT CONVINCED' DOES NO T MAKE THE ORDER A SPEAKING ORDER. IT IS NOTHING BUT MISCARRIAGE OF JU STICE IGNORING THE VITAL FACTS OF THE CASE. IT IS NOW SETTLED LAW THAT WHERE THE AUTHORITY MAKES AN ORDER IN EXERCISE OF QUASI-JUDICIAL FUNCTION, IT MU ST RECORD ITS REASON IN SUPPORT OF THE ORDER IT MAKES. THE QUASI-JUDICIAL A UTHORITY MUST PASS A SPEAKING' ORDER. THE REQUIREMENT OF A SPEAKING ORDE R CANNOT BE DISPENSED WITH ON THE MERE GROUND THAT THE AUTHORITY HAS BEEN VESTED WITH THE DISCRETIONARY POWER IN DECIDING A MATTER. (MOOL CHA ND MAHESH CHAND VS. CIT 115 ITR 1, 8- ALL) THE NON-SPEAKING ORDER WITHO UT GIVING REASONS IS INVALID AND IS LIABLE TO BE QUASHED. (HINDUSTAN SAN ITARY WARES & INDUSTRIES LTD. VS. CIT 118 ITR 21, 28 - CAL). WE A LSO RELY ON THE DECISION OF CIT VS. SUNDER LAL 96 ITR 310, 314 (ALL). (D) IN FACT THE ID. AO MISUNDERSTOOD THE ENTRIES OF CONVERSION OF STOCK OF SHARES INTO INVESTMENT IN SHARES AND ALSO FAILED TO BRING ON RECORD ANY EVIDENCE IN SUPPORT THEREOF EXCEPT TO RELY ON SUSPI CION AND GUESS WORK. IT IS AN ESTABLISHED PROPOSITION OF LAW THAT IN MAKING AN ASSESSMENT U/S.143(3), THE. ID. AO IS NOT ENTITLED TO MAKE A PURE GUESS AN D MAKE AN ASSESSMENT WITHOUT REFERENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL. THERE MUST BE SOMETHING MORE THAN BARE SUSPICION TO SUPPORT THE A SSESSMENT U/S.143(3) (DHAKESHWARI COTTON MILLS VS. CIT 261 ITR 775, 782- SC), IN OTHER WORDS, LL1E ASSESSMENT OF ANY PARTICULAR YEAR MUST NOT BE BASED ON MERE SUSPICION OR BARE GUESS WORK BUT ON LEGITIMATE MATE RIALS FROM WHICH REASONABLE INFERENCE OF INCOME HAVING BEEN EARNED D URING THE ACCOUNTING YEAR COULD BE DRAWN AND THAT THE INITIAL BURDEN OF FINDING SUCH MATERIAL, HOWEVER SLIGHT, IS ON THE INCOME-TAX AUTHORITIES AN D NOT ON THE ASSESSEE, (BANSHIDHAR OMKARMAL VS. CIT 23 ITR 253, 361). THER E IS NO PRESUMPTION OF BAD FAITH AGAINST AN ASSESSEE UNLESS THERE BE SU FFICIENT MATERIAL ON RECORD TO ESTABLISH AND SUSTAIN SUCH BAD FAITH. IN THE CASE OF YOUR APPELLANT THERE IS NOTHING ON RECORD WHICH COULD BERNADE THE BASIS FOR MAKING SUCH A HUGE ADDITION. IT CERTAINLY A LEAP IN THE DARK, WHI CH IS NOT PERMITTED IN MAKING ASSESSMENT. 31 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD YOUR APPELLANT THEREFORE HEREBY PRAYS YOUR HONOUR T O DELETE THE ADDITION MADE TO ITS INCOME TO MEET THE ENDS OF JUSTICE. 3.3. I HAVE DULY CONSIDER D THE SUBMISSION OF THE A .R. AND I FIND THAT THERE IS NOTHING WRONG IN CONVERTING STOCK IN TRADE TO INVES TMENT AND THERE IS NO REVENUE LOSS IF THE ASSESSEE COMPANY HAS SHOWN STOC K-IN- TRADE AS INVESTMENT IN THE BALANCE SHEET OF THE ASSESSEE COM PANY. SINCE, THERE IS NO REVENUE LOSS, NO ADDITION CAN BE MADE. THE A.O. IS DIRECTED TO DELETE THIS ADDITION. APPEAL ON THESE GROUNDS ARE ALLOWED. 37. WE HAVE CONSIDERED RIVAL CONTENTIONS, IN VIEW O F THE DETAILED FINDING GIVEN BY CIT(A) THERE IS NO REASON TO INTERFERE IN THE OR DER OF CIT(A) IN SO FAR AS WITHOUT GIVING ANY REASON THE AO HAS MADE ADDITION ON ACCOU NT OF CONVERSION OF SHARES HELD AS STOCK IN TRADE INTO INVESTMENTS ACCOUNT AS AT THE END OF THE YEAR. AY: 2003-04: 38. IN THE ASSESSMENT YEAR 2003-04 ASSESSEE IS AGG RIEVED FOR DISALLOWANCE OF LONG TERM CAPITAL LOSS OF RS.1,44,82,907/-, TREATIN G SHORT TERM CAPITAL LOSS OF RS.7,44,17,697/- THE SAME AS NOT PERTAINING TO AY 2 003-04. BY THE IMPUGNED ORDER OF CIT(A) CONFIRMED THE ACTION OF AO AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT ASSESSEE HAS CLAIMED SHORT TERM AND LONG TERM CAPITAL LOSS OF RS .87285686/ -. THE AO FOUND THAT ALL THE INVESTMENTS ARE SOLD BY PASSING A JOUR NAL ENTRY THROUGH DEBIT NOTE ON 31.3.2003. 32 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD 39. AS PER AO NO CONSIDERATION HAS CHANGED HANDS. F URTHER ON EXAMINATION OF DEMAT ACCOUNT THE AO FOUND THAT THE SHARES ARE TRAN SFERRED ON 3.4.2003 AND 11.4.2003. THE ASSESSEE HAS EXPLAINED THAT THE GENU INENESS OF THE SALE TRANSACTION IS PROVED BY DEBIT NOTE RECEIVED FROM PARTIES, DEMA T ACCOUNT AND LEDGER ACCOUNTS OF THE PARTIES. ALL PARTIES ARE ASSESSED TO TAX AND MAJORITY OF SALE IS MADE ON 31.3.2003 AND THE AMOUNT IS REFLECTED IN THE BOOKS BY PASSING JOURNAL ENTRIES. MERELY BECAUSE THE DELIVERY IS GIVEN IN THE FIRST A ND SECOND WEEK OF APRIL 2003 DOES NOT MAKE TRANSACTION OF SALE INVALID. 40. HOWEVER, AO DID NOT CONVINCE WITH ASSESSEES CO NTENTIONS AND DISALLOWED BOTH LONG TERM AND SHORT TERM CAPITAL LOSS. ACTION OF THE AO WAS CONFIRMED BY CIT(A) AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 41. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM RECORD THAT ALLEGATION OF THE AO THAT THE SHARES WERE SOLD DIRECTLY TO M/S . SHITAL FINANCIAL SERVICES LTD. (I. E. 'SHITAL') AND NOT THROUGH ANY BROKER IS NOT FULLY CORRECT. WE FOUND THAT PART OF THE SHARES WERE SOLD TO THE PERSONS OTHER THAN 'SHI TAL' AND FURTHER PART OF THE SHARES WERE SOLD THROUGH STOCK BROKERS ALSO. A STATEMENT S HOWING DETAILS OF SHARES SOLD THROUGH STOCK BROKERS A DIRECTLY AS SPOT TRANSACTIO N ALONG WITH THE NAME OF THE 33 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD BUYER PARTIES WAS SUBMITTED ON PERUSAL OF THE STATE MENT WE FOUND THAT ONLY 6,25,000 SHARES OF WELSPUN INDIA LTD. WERE SOLD TO 'SHITAL' AND THE REST OF SHARES WERE SOLD TO WELSPUN FINANCE LTD., GLOBAL HOMETEX L TD., CRESENT TRADING PVT. LTD., GAYANSHANKAR INVESTMENTS TRADING CO. PVT. LTD . AND FURTHER THROUGH CERTAIN STOCK BROKERS ALSO NAMELY, SICROP FINLEASE LTD. AND KEYNOTE CAPITAL LTD. FURTHER THE CONTENTION OF THE ID. AO THAT THE LISTED SHARES HAS TO BE SOLD THROUGH BROKER OF STOCK EXCHANGE ONLY IS NOT CORRECT. HOWEVER THERE I S NO RESTRICTION OF WHATSOEVER FOR SELLING LISTED SHARES THROUGH STOCK BROKERS ONL Y. THERE IS NOTHING ILLEGAL AND UNLAWFUL IN SELLING THE SHARES TO BUYERS DIRECTLY W HICH IS CALLED 'SPOT TRANSACTION' IN SHARES AND SECURITIES MARKET. IN THIS CASE BOTH THE PURCHASER AND SELLER HAVE AGREED TO THE TRANSACTIONS WHICH IS PERMITTED UNDER THE LAW AND AS SUCH NO OBJECTION CAN BE RAISED BY THE DEPARTMENT ON THIS A CCOUNT. HOWEVER THE TRANSACTIONS WERE ENTERED INTO AT PREVAILING MARKET RATE AND THE ID. AO HAS NOT RAISED ANY DOUBT ON THIS ASPECT. IN THE COURSE OF A SSESSMENT PROCEEDINGS THE ASSESSEE HAD SUBMITTED QUOTATION OF THE STOCK PRICE S IN SUPPORT THEREOF. IN VIEW OF THESE FACTS OF THE CASE THE CONCLUSION OF THE ID. A O IS BASE ON UNSUBSTANTIATED INFORMATION. 34 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD 42. WITH REGARD TO THE ALLEGATION OF THE AO THAT NO CONSIDERATION HAS CHANGED THE HANDS AND THE SHARES WERE TRANSFERRED THROUGH J OURNAL ENTRIES, IN MOST OF THE TRANSACTIONS, CONSIDERATION WAS RECEIVED BY CHEQUE BEFORE THE END OF THE PREVIOUS YEAR AS IS CLEAR FROM THE COPY OF ACCOUNT OF THE BU YER PARTIES AND STATEMENT SHOWING DETAILS OF SHARES SOLD. FURTHER THERE IS NO REQUIREMENT UNDER ANY LAW RELATING TO SALE OF GOODS OR EVEN OF IMMOVABLE PROP ERTY THAT THE PURCHASE CONSIDERATION HAS NECESSARILY GOT TO BE PAID IMMEDI ATELY IN CASH. ON THE OTHER HAND, IF THE VENDOR IS TREATED AS A CREDITOR OF THE PURCHASER AND CORRESPONDING DEBIT AND CREDIT ENTRIES ARE MADE IN THEIR RESPECTIVE BOO K THAT WOULD SUFFICIENTLY SERVE THE PURPOSE OF PAYMENT OF CONSIDERATION MONEY FOR T HE SAME. ACCORDING TO SECTION 43(2), PAID' INCLUDES AMOUNTS INCURRED ACCORDING T O THE METHOD UPON THE BASIS OF WHICH PROFITS OR GAINS ARE COMPUTED. ADMITTEDLY, TH E ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING AND HENCE, CREDITING THE ACCOU NT OF THE ASSESSEE IN THE BOOKS OF THE COUNTER PARTY AND DEBITING THE ACCOUNT OF TH E COUNTER PARTY IN THE BOOKS OF THE ASSESSEE SUFFICES THE PURPOSE OF ACTUAL PAYMENT S TOWARDS SALE OF THE SHARES. 43. WITH REGARD TO THE CLAIM OF THE LD. AO THAT EH CURRENT ACCOUNT WITH SHITAL WAS A LOAN ACCOUNT, THE OBSERVATIONS OF THE LD. AO ARE BASED ON HIS OWN ASSUMPTION AND NOT SUPPORTED BY ANY BASIS AND REASO N. WE FOUND THAT ASSESSEE HAD 35 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD RECEIVED ADVANCE PAYMENT OF RS.1,46,75,000/- ON 30- 01-2003 FROM SHITAL AGAINST SALE OF SHARES AND THIS ACCOUNT CANNOT BE T ERMED AS LOAN ACCOUNT. AS REGARD PHYSICAL DELIVERY OF THE SHARES GIVEN IN FIR ST AND SECOND WEEK OF APRIL, 2003 WE FOUND THAT SOME OF THE TRANSACTIONS OF SALES WER E COMPLETED ON 31-3-2003 AND THEREFORE THE DELIVERY WILL NATURALLY FOLLOW AFTER THE DATE OF TRANSACTIONS ONLY. ADMITTEDLY THE DEBIT NOTES WERE MADE ON 31-3-2003 A ND THEREFORE THE SAME SHOULD BE CONSIDERED AS DATE OF SALE. MERELY BECAUSE THE P HYSICAL DELIVERY OF THE SHARES WERE GIVEN IN THE FIRST AND SECOND WEEK OF APRIL, 2 003 THE TRANSACTIONS CANNOT BE TREATED AS NOT PERTAINING TO F. Y.2002-03 MORE PART ICULARLY WHEN THE PARTIES TO THE TRANSACTIONS CONFIRMED THE FACT THAT TRANSACTIONS W ERE CARRIED ON 31-3-2003 AND SAME IS SUPPORTED BY PROPER ACCOUNTING ENTRIES IN T HE BOOKS OF THE APPELLANT AS WELL AS COUNTER PARTIES. ACCORDINGLY WE SET ASIDE T HE ORDERS OF THE LOWER AUTHORITIES ON THIS GROUND. 44. AS PER DOCUMENTARY EVIDENCE PLACED ON RECORD WE FOUND THAT THE ASSESSEE HAS DISCHARGED ONUS CASTED UPON HIM FULLY AND PROPE RLY IN RESPECT OF LONG/SHORT TERM CAPITAL LOSSES SHOWN IN THE RETURN OF INCOME. IT WAS THE DEPARTMENT, WHO ASSERTED THE TRANSACTIONS NOT BELONGED TO F.Y. 2002 -03 AND THEREFORE THE INITIAL BURDEN IS ON THE DEPARTMENT TO PROVE SUCH TRANSACTI ONS BELONGED TO SUBSEQUENT 36 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD YEAR. ONCE THE ASSESSEE GIVES AN EXPLANATION WHICH IN THE OPINION OF THE LD. AO IS NOT TRUE AND WHICH COULD NOT REASONABLY BE TRUE, TH E BURDEN IS ON HIM TO PROVE THAT WHAT HE HAS CLAIMED IS TRUE AND WHATEVER BURDEN IS ON THE DEPARTMENT STANDS SHIFTED THEREAFTER. IN VIEW OF THE ABOVE, THE OPINI ON FORMED BY THE LD. AO THAT THE ENTIRE TRANSACTIONS WERE FABRICATED TO BOOK LOSS I N A.Y. 2003-04 IS NOT SUPPORTED BY ANY COGENT BASIS AND REASON OR MATERIALS IS NOT SUSTAINABLE. FURTHERMORE THE ASSESSEE HAS NOT CLAIMED ANY SET OFF OF THE CAPITAL LOSSES AND THENCE THERE IS NO REASON TO FORM AN OPINION THAT THE TRANSACTIONS WER E FABRICATED TO BOOK LOSS IN A.Y. 2003-04 SINCE NO BENEFITS HAVE ARISEN TO THE ASSESS EE OUT OF THESE TRANSACTIONS. IN FACT TRANSACTIONS OF SALES WERE MADE DURING THE PRE VIOUS YEAR IN THE ORDINARY COURSE OF BUSINESS AND THE SAME ARE SUPPORTED BY VALID AND LEGITIMATE MATERIALS AND AS SUCH THERE IS NO REASON AND BASIS IN TAKING A DIFFE RENT VIEW WITHOUT ESTABLISHING THE SAME. THE GUESS WORK AND SUSPICION, HOWSOEVER IT MA Y BE STRONG, HAVE NO ROLE TO PLAY IN ASSESSMENT PROCEEDINGS. 45. IN VIEW OF THE ABOVE WE CAN CONCLUDE THAT ASSES SEE HAD FURNISHED SUFFICIENT MATERIALS BEFORE THE AO AND AS SUCH PRIMA FACIE ONU S WAS DISCHARGED TO PROVE THE GENUINENESS OF THE ACQUISITION AND SALE OF SHARES. 37 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD 46. ACCORDINGLY GROUND TAKEN BY THE ASSESSEE WITH R EGARD TO ITS CLAIM OF LONG TERM AND SHORT TERM CAPITAL LOSSES IS ALLOWED IN IT S FAVOUR. A.Y. 2003-04 47. IN THE AY 2003-04 REVENUE IS AGGRIEVED FOR DISA LLOWANCE OF INTEREST. IN VIEW OF OUR FINDING GIVEN IN THE A.Y. 2001-02, WE CONFIR M THE ACTION OF CIT(A) FOR DELETING THE DISALLOWANCE OF INTEREST. REVENUE IS A LSO AGGRIEVED FOR DELETING COMMISSION INCOME. FROM THE RECORD WE FOUND THAT TH E AO HAS MADE AN ADDITION OF RS.12,883/- ON ACCOUNT OF COMMISSION INCOME ON T HE BASIS OF TDS CERTIFICATES OF M/S PODDAR PIGMENT LTD. WHICH SHOWS COMMISSION O F RS.9,78,540/- AS AGAINST COMMISSION OF RS.9,65,657/- SHOWN IN THE BOOKS OF A CCOUNT OF THE ASSESSEE. IT WAS CONTENDED BY LD. AR THAT DUE TO REVERSAL OF COMMISS ION BY M/S PODDAR PIGMENT LTD. ASSESSEE HAS NOT SHOWN ITS COMMISSION INCOME. IN THE INTEREST OF JUSTICE WE RESTORE THIS MATTER BACK TO THE FILE OF AO FOR VERI FICATION OF ACCOUNT OF PODDAR PIGMENT TO FIND OUT WHETHER THERE IS ANY REVERSAL O F ENTRY OF COMMISSION DUE TO RETURN OF MATERIAL BY THE BUYER. AFTER VERIFICATION AO IS TO DECIDE THE SAME AFRESH AS PER LAW. 49. IN THE RESULT, THESE APPEALS OF ASSESSEE AND RE VENUE ARE ALLOWED IN PART, IN TERMS INDICATED HEREIN ABOVE. 38 ITA NOS. 309, 1717&1718/M/ 07 1288, 4447, 1853&1971/M/07 (A.Y.2001 TO 2004) M/S. KINGPIN INVESTMENT & FINANCE PVT. LTD ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JULY, 2016 SD/- SD/- (AMARJIT SINGH) (R.C. SHARMA) &' / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; * DATED :20.07.2016 PS. ASHWINI / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT - CONCERNED 5. ./0 ''12 , 12# , / DR, ITAT, MUMBAI 6. 045 6 / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) $%, / ITAT, MUMBAI.