Hemraj Mahabir Prasad Ltd., Kolkata V. ACIT, CIR-5, KOLKATA, Kolkata

ITA 1379/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1760 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 18-05-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 17-06-2014
• Court: TRIBUNAL
• Department Lawyers: SNEHANGSHU BISWAL
• Assessee Lawyers: SUBODH AGARWAL

Judgement Text

1 ITA NO. 1379/KOL/2014 HEMRAJ MAHABIR PRASAD LTD.,AY 2007-08 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA [BEFORE SHRI J. SUDHAKAR REDDY, AM & SHRI A. T. VA RKEY, JM] I.TA NO. 1379 /KOL/2014 ASSESSMENT YEAR: 2007-08 HEMRAJ MAHABIR PRASAD LTD. (PAN: AAACH7478L) VS. ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-5, KOLKATA. APPELLANT RESPONDENT DATE OF HEARING 18.05.2017 DATE OF PRONOUNCEMENT 24.05.2017 FOR THE APPELLANT SHRI SUBODH AGARWAL, ADVOCATE FOR THE RESPONDENT SHRI SNEHANGSHU BISWAL, JCIT, SR . DR ORDER PER SHRI A.T.VARKEY, JM THIS APPEAL PREFERRED BY THE ASSESSEE IS AGAINST TH E ORDER PASSED BY THE LD. CIT(A)-VI, KOLKATA DATED 13.03.2014 FOR AY 2007-08 ON THE FOLLOWING GROUNDS: 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF RS.20,8 5,000/- MADE BY THE AO ON ACCOUNT OF LOSS SUFFERED IN THE SHARE TRADING ACTIVITY BY WRON GLY TREATING THE TRANSACTION AS A COLOURABLE DEVICE. 2. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT THE LOSS OF RS.20,85,000/- SUFFERED BY THE ASSESSEE WILL HAVE TO BE TREATED AS SPECULATIVE IN NATURE WITHIN THE PURVIEW OF THE EXP LANATION TO SEC. 73 OF THE ACT. 2. THE BRIEF FACTS OF THE CASE AS NOTED BY THE LD. CIT(A) ARE THAT THE ASSESSEE HAD DURING THE YEAR PURCHASED AND SOLD SHARES OF INDIAN STANDARD METAL CO. LTD. THE PURCHASE OF 2400 SHARES OF THE SAID COMPANY WAS MAD E FROM KAVERI MANAGEMENT SERVICES (P) LTD AND SOLD TO JOREHAUT INDIA LTD. SI MILARLY 500 SHARES ARE PURCHASED FROM JOREHAUT INDIA LTD AND SOLD TO KAVERY MANAGEME NT SERVICES (P) LTD. BY THIS WAY, THE ASSESSEE INCURRED LOSS OF RS.20,85,000/- ON THE SAID TRANSACTIONS. THE AO RAISED A 2 ITA NO. 1379/KOL/2014 HEMRAJ MAHABIR PRASAD LTD.,AY 2007-08 QUERY IN RESPECT OF ABOVE TRANSACTIONS. IN REPLY, I T WAS STATED BY THE ASSESSEE THAT THE SHARES ARE PURCHASED ON THE HOPE OF REVIVAL OF BUSI NESS OF THE COMPANY NAMELY THE INDIAN STANDARD METAL COMPANY LTD. HOWEVER, SUCH RE VIVAL DID NOT TAKE PLACE AND THE SHARES HAD TO BE SOLD AT A LOSS. THE AO, HOWEVER, D ID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND OBSERVED THAT THE SHARES WERE PURCHASE D AND SOLD DURING THE SAME FINANCIAL YEAR, INVOLVING TRANSACTIONS WITH THE SAM E TWO PRIVATE LIMITED COMPANIES, WHICH RESULTED IN HUGE LOSS. ACCORDING TO THE AO, T HIS WAS A COLOURABLE DEVICE AND ACCORDINGLY, HE DISALLOWED THE CLAIM OF LOSS AS CLA IMED BY THE ASSESSEE. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). BEFORE HIM THE ASSESSEE REITERATED THE SAME SUBMISSION AS MADE BEFORE THE AO AND ALSO SUBMITTED THAT THE PURCHASE AND SALE TRANSACTIONS WERE DULY SUPPORTED BY THE DOCUME NTARY EVIDENCE SUCH AS BILLS AND EXPLAINED THE CIRCUMSTANCES UNDER WHICH THE PURCHAS E AND TRANSACTIONS WERE MADE. IT WAS CONTENDED BEFORE THE LD. CIT(A) THAT MERELY BEC AUSE THE TRANSACTIONS RESULTED IN LOSS DO NOT MEAN THAT THE TRANSACTIONS WERE NOT GEN UINE. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) UPHELD THE ORDER OF THE AO BY OBSERVING AS UNDER: 5. I HAVE CONSIDERED THE FACTS OF THE CASE. THE A SSESSING OFFICER HAD TREATED THE TRANSACTIONS OF SHARE TO BE A COLOURABLE DEVICE WHE REAS THE APPELLANT HAS CONTENDED THAT THE TRANSACTIONS WERE GENUINE. IT IS DEFINITEL Y UNUSUAL THAT SHARES OF A COMPANY ARE PURCHASED FROM ONE PRIVATE LIMITED COMPANY, SOLD TO ANOTHER PRIVATE LIMITED COMPANY IN THE SAME FINANCIAL YEAR AT A LOSS AND THE SAME S HARE IS PURCHASED FROM THE SECOND COMPANY AND SOLD TO THE FIRST COMPANY AGAIN AT A LO SS. HOWEVER, ACCORDING TO THE APPELLANT THIS DOES NOT MEAN THAT THE TRANSACTION W AS NOT GENUINE. ACCORDING TO IT, SHARES WERE PURCHASED WITH HOPE OF REVIVAL OF THE C OMPANY CONCERNED AND HAD TO BE SOLD AT A LOSS DUE TO REVIVAL NOT TAKING PLACE. THE DETAILS OF SALE AND PURCHASE TRANSACTIONS WERE EXAMINED. IT IS NOTED THAT THE AP PELLANT HAD PURCHASED 2400 SHARES FROM KAVERI MANAGEMENT SERVICES (P) LTD. (KMSPL) IN 21.11.2006 AT PRICE OF RS.1000/- PER SHARES, WHICH WERE SOLD TO JOREHAUT I NDIA LTD. IN 23.02.2007 AT RS 325/- PER SHARE. SIMILARLY 500 SHARES OF THE INDIAN STAND ARD METAL COMPANY LTD HAD BEEN PURCHASED FROM JOREHAUT INDIA LTD. (JIL) ON 10.04.2 006 AT RS.1255/- PER SHARE WHICH WERE SOLD ON 23.02.2007 TO KAVERI MANAGEMENT PVT. L TD. AT RS. 325/- PER SHARE. IT CAN BE SEEN THAT THERE WAS SUBSTANTIAL AND SHARP FALL I N THE PRICE. IN FACT, IN THE FIRST CASE THE PRICE OF SHARE IS REDUCED FROM RS.1000/- TO RS.325/ - IN A PERIOD OF ABOUT THREE MONTHS. THE SHARE BEING UNQUOTED, NO MARKET QUOTATION IS AV AILABLE. THE APPELLANT HAS ALSO NOT GIVEN ANY JUSTIFICATION FOR PRICE SUCH AS BREAK-UP' VALUE ETC. OR REASON FOR SUCH A SHARP FALL IN PRICE. THE PATTERN, WHERE SHARES BOUGHT FRO M KMSPL ARE SOLD AT LOSS TO JIL AND SHARES OF SAME COMPANY ARE BOUGHT FROM JIL ARE SOLD TO KMSPL AGAIN AT LOSS IS ALSO QUITE PECULIAR. KMSPL AND JIL HAVE A COMMON ADDRESS (26, SHAKESPEARE SARANI) AND 3 ITA NO. 1379/KOL/2014 HEMRAJ MAHABIR PRASAD LTD.,AY 2007-08 BETWEEN THEMSELVES, THEY END UP HOLDING SAME 3100 S HARES AS BEFORE, BUT THE APPELLANT MAKES LOSS OF RS.20.85 LACS IN THE PROCESS. THE APP ELLANT OTHERWISE ALSO APPEARS TO BE RELATED TO THE PARTIES, AS IT HAD EARLIER GIVEN INT EREST FREE ADVANCE OF RS. 6.19 CRORES TO KMSPL, AS STATED IN THE ASSESSMENT ORDER. FROM THE SURROUNDING FACTS AND CIRCUMSTANCES, THE TRANSACTION DEFINITELY APPEARS T O BE IN NATURE OF COLOURABLE DEVICE. UNDER THESE FACTS AND CIRCUMSTANCES, THE ARGUMENT T HAT THE TRANSACTIONS ARE SUPPORTED BY TILE DOCUMENTS LIKE BILLS ETC. HAS LITTLE MEANIN G. RATHER, IT IS EXPECTED THAT WHEN AN ASSESSEE CARRIES ON SOME NON-GENUINE TRANSACTIONS, THE SAME WOULD BE APPARENTLY SUPPORTED BY MAKE-BELIEF DOCUMENTARY EVIDENCE AND T HE COUNTER-PARTIES WOULD ALSO CONFIRM THE SAME, AS THE ENTIRE ARRANGEMENT WOULD H AVE BEEN COLLUSIVE IN NATURE. UNDER SUCH CIRCUMSTANCES, IT IS FACILE TO ARGUE THA T WHAT IS APPARENT ON PAPER HAS TO BE ACCEPTED AS REAL. IN ITS DECISION IN THE CASE OF CI T VS. DURGA PRASAD MORE 82 ITR 540 (SC), HON'BLE SUPREME COURT HAS HELD THAT APPARENT MUST BE CONSIDERED AS REAL ONLY UNTIL IT IS SHOWN THAT THERE ARE REASONS TO BELIEVE THAT THE APPARENT IS NOT REAL. FURTHER, IN THE DECISION OF APEX COURT IN THE CASE OF SUMATI DAYAL VS. CIT 214 ITR 801 (SC), IT HAS BEEN HELD THAT THE MATTER HAS TO BE CONSIDERED IN THE LIGHT OF HUMAN PROBABILITIES AND SURROUNDING CIRCUMSTANCES. THE FACTS AND CIRCUM STANCES IN THE APPELLANT'S CASE, AS DISCUSSED EARLIER, CLEARLY LEAD TO INFERENCE THAT T HE TRANSACTIONS UNDER CONSIDERATION WERE NOT GENUINE SHARE TRADING TRANSACTIONS. 6. EVEN OTHERWISE, IT IS UNDISPUTED THAT THE SAID L OSS HAD OCCURRED ON ACCOUNT OF TRANSACTIONS IN SHARES MADE BY THE .APPELLANT COMPA NY. THE ATTENTION OF THE APPELLANT WAS DRAWN TOWARDS EXPLANATION TO SECTION 73 OF THE I.T.ACT, 1961 WHICH STATES, THAT.- WHERE ANY PART OF BUSINESS OF A COMPANY (OTHER THA N A COMPANY WHOSE GROSS TOTAL INCOME CONSIST MAINLY OF INCOME WHICH IS CHAR GEABLE UNDER THE HEADS 'INTEREST ON SECURITIES', 'INCOME FROM HOUSE PROPER TY',' CAPITAL GAINS' AND 'INCOME FROM OTHER SOURCES' OR A COMPANY THE PRINCI PAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR GRANTING OF LOANS AND ADVANC ES) CONSISTS IN PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSE OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULA TION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSIST OF THE PURCHASE AND SALE OF SUCH SHARES.' THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT WAS ASKED AS TO WHY THE EXPLANATION TO SECTION 73 OF THE ACT WOULD NOT BE APPLICABLE IN TH IS CASE. DESPITE BEING GIVEN AMPLE OPPORTUNITY, NO EXPLANATION HAS BEEN OFFERED. IT MA Y BE NOTED THAT THE APPELLANT IS NOT A COMPANY WHOSE PRINCIPAL BUSINESS IS BUSINESS OF BAN KING OR GRANTING OF LOANS AND ADVANCES, NOR ITS GROSS TOTAL INCOME MAINLY CONSIST S OF INCOME CHARGEABLE UNDER THE HEADS 'INTEREST ON SECURITIES', INCOME FROM HOUSE P ROPERTY, CAPITAL GAINS AND 'INCOME FROM OTHER SOURCES'. CONSIDERING THIS, EXPLANATION TO SECTION 73 OF THE ACT IS ATTRACTED ON THE TRANSACTION IN SHARES CARRIED OUT BY THE APP ELLANT. HENCE EVEN IF THE SHARE TRANSACTIONS ARE NOT TREATED AS COLOURABLE DEVICE, THE LOSS ARISEN FROM THE SAME WILL HAVE TO BE TREATED AS SPECULATIVE IN NATURE WHICH C ANNOT BE SET OFF AGAINST NON- SPECULATIVE INCOME. 7. CONSIDERING ALL THE ABOVE FACTS AND CIRCUMSTANCE S, I UPHOLD THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE LOSS OF RS.20, 85,000/- AS COLOURABLE DEVICE. WITHOUT PREJUDICE, THE LOSS IS ALSO HELD TO BE SPECULATIVE IN LIGHT OF EXPLANATION TO SECTION 73. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE LD. AR COULD NOT POI NT OUT ANY ERROR IN THE REASONED ORDER PASSED BY THE LD. CIT(A) AND SINCE WE CONCUR WITH T HE VIEW OF THE LD. CIT(A) AND WE 4 ITA NO. 1379/KOL/2014 HEMRAJ MAHABIR PRASAD LTD.,AY 2007-08 DO NOT FIND ANY MERIT IN THE APPEAL FILED BY THE AS SESSEE. SINCE WE DO NOT FIND ANY OTHER REASON TO SUPPORT THE ORDER OF THE LD. CIT(A), WE A RE NOT GIVING ANY OTHER GROUND TO SUPPORT THE ORDER OF THE LD. CIT(A). FOR THIS, WE R ELY ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. K. Y. PILLIA H & SONS (1967) 63 ITR 44 (SC), WHEREIN IT HAS BEEN HELD AS UNDER: THE APPELLATE TRIBUNAL IS THE FINAL FACT-FINDING A UTHORITY AND NORMALLY IT SHOULD RECORD ITS CONCLUSION ON EVERY DISPUTED QUESTION RA ISED BEFORE IT, SETTING OUT ITS REASONS IN SUPPORT OF ITS CONCLUSION. BUT IN FAILING TO REC ORD REASONS, WHEN THE APPELLATE TRIBUNAL FULLY AGREES WITH THE VIEW EXPRESSED BY TH E APPELLATE ASSISTANT COMMISSIONER AND HAS NO OTHER GROUND TO RECORD IN SUPPORT OF ITS CONCLUSION, IT DOES NOT ACT ILLEGALLY OR IRREGULARLY, MERELY BECAUSE IT DOES NOT REPEAT T HE GROUNDS OF THE APPELLATE ASSISTANT COMMISSIONER ON WHICH THE DECISION WAS GIVEN AGAINS T THE ASSESSEE OR THE DEPARTMENT. SINCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE LD. AR COULD NOT CONTROVERT THE SAME BY PRODUCING ANY COGENT MAT ERIAL ON RECORD, THEREFORE, THE ORDER OF THE LD. CIT(A) IS UPHELD. APPEAL OF ASSESSEE IS DISMISSED. 4. IN THE RESULT, APPEAL OF ASSESSEE IS DISMISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 24.05.201 7 SD/- SD/- (J. SUDHAKAR REDDY) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 24TH MAY, 2017 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT HEMRAJ MAHABIR PRASAD LTD., 28/2, SHAKE SPEARE SARANI, 8 TH FLOOR, ROOM N. 803, KOLKATA-700 017. 2 RESPONDENT ACIT, CIRCLE-5, KOLKATA. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .