ACIT 1(3), MUMBAI V. CHETAN DURGADAS MEHRA, MUMBAI

ITA 1747/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55818 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 20-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 05-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Assessee Lawyers: LATA PARULEKAR
• Keywords: Business income; Question of law

Judgement Text

ITA NO 1747 OF 2010 CHETAN DURGADAS MEHRA MUMBAI PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO. 1747/MUM/2010 (ASSESSMENT YEAR: 2006-07) ASSTT. COMMISSIONER OF INCOME CHETAN DURGADAS MEHRA TAX-1(3) ROOM NO.540/564 20, MOTI MAHAL, DINSHAW 5 TH FLOOR AAYAKAR BHAVAN WACHHA ROAD,CHURCHGATE MK ROAD, MUMBAI VS MUMBAI 400 020 PAN NO. AABPM 4010 H APPELLANT RESPONDENT DEPARTMENT BY: SHRI C.G.K. NAIR, SR.DR ASSESSEE BY: SHRI VIJAY MEHTA AND MS. LATA PARULEKAR DATE OF HEARING: 20/12/2011 DATE OF PRONOUNCEMENT: 28/12/2011 O R D E R PER B. RAMAKOTAIAH, A.M. THIS IS A REVENUE APPEAL AGAINST THE ORDERS OF THE CIT (A)-2 MUMBAI DATED 14/12/2009. THE REVENUE HAS RAISED THE ONLY GROUND WHICH IS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN DELETING THE DISALLOWANCE OF LOSS OF ` 1,43,42,628/- ARISING FROM THE SHARE TRANSACTION WHEN THERE WAS NO APPARENT BUSINE SS MOTIVE IN THE SAID TRANSACTION. 2. ABOVE ISSUE ARISES AS ASSESSING OFFICER CONSIDERED THE SALE OF SHARES BY THE ASSESSEE TO THE FIRM IN WHICH HE IS A PARTNER AS A NON GENUINE TRANSACTION. CONSEQUENTLY HE RE-WORKED OUT THE P&L ACCOUNT AS STATED IN PAGE 8 OF THE ASSESSMENT ORDER AND DETERMINED THE LOSS FROM THE BUSINESS AT A LESSER FIGURE OF ` .52,56,153/- AS AGAINST ` 1,95,98,779/- INCURRED BY THE ASSESSEE IN THE BUSIN ESS OF PURCHASE AND SALE OF SHARES AND SECURITIES. THE REA SONS FOR ITA NO 1747 OF 2010 CHETAN DURGADAS MEHRA MUMBAI PAGE 2 OF 11 ASSESSING OFFICERS ACTION IN DISALLOWING THE AMOUN T IS THAT (A) THE SHARES WERE NOT TRANSFERRED OUT OF THE DEMAT ACCOUN T (B) THE ASSESSEE HAS NOT OBTAINED THE REAL PRICE OF ` .55/- AS PER THE BOOK VALUE AS AGAINST ` .26/- STATED TO BE THE MARKET PRICE (C) THAT WHEN THE ASSESSEE DECIDED TO SELL THE SHARES HE WAS AWAR E THAT THERE IS A FALL IN THE MARKET PRICE AND IN HIS CAPACITY AS MAN AGING DIRECTOR OF THE COMPANY, HE SOLD SHARES TO THE PARTNERSHIP FIRM . THAT DECISION IS NOT PRUDENT DECISION AND (D) THE PARTNERSHIP FIR M IS A RELATED ENTITY SO THE OFF MARKET TRANSACTIONS CANNOT BE ACC EPTED AS GENUINE TRANSACTIONS. THE CIT (A) HOWEVER, AFTER CONSIDERIN G THE ASSESSEES SUBMISSIONS DISAPPROVED THE ACTION OF THE ASSESSING OFFICER AND DIRECTED THE ASSESSING OFFICER TO ALLOW THE LOSS AS CLAIMED. HIS FINDINGS IN PARA 14 TO 19 ARE AS UNDER: 14. I HAVE PERUSED THE FACTS OF THE CASE, THE ARGU MENTS OF THE ASSESSING OFFICER AND THE DETAILED SUBMISSIONS MADE BEFORE ME BY LEARNED COUNSEL OF APPELLANT. THE FIRS T THING THAT STRIKES MY MIND IS THE FACT THAT APPELLANT IS DOING BUSINESS IN SHARES, IS DEALING IN SHARES AND HE IS NOT INVESTING IN SHARES. THIS FACT IS CRITICAL BECAUSE WHEN AN ASSESSEE IS DOING BUSINESS IN SHARES, HIS DECISIONS OF PURCHASE AND SALE OF SHARES WOULD BE GUIDED BY COMMERCIAL CONSIDERATIONS AND NOT BY CONSIDERATIONS OF AN INVESTOR, OF WHAT IS THE POTENTIAL IN TERMS OF T HE MAXIMUM PRICE THAT ONE MIGHT GET IN THE TIMES TO CO ME AND CONSEQUENTLY TO WAIT FOR THE MOMENT. TO MY MIND THEREFORE THE FACT OF THE BOOK VALUE BEING ` 55/- PER SHARE IS OF NO CONSIDERATION FOR THE PERSON WHO IS DOING BUSINESS IN SHARES, WHO IS DEALING IN SHARES, FOR WHOM THE CONSIDERATIONS TO SELL SHARES CAN BE FAR AND MANY W HICH AN INVESTOR MAY NOT EVEN BE ABLE TO THINK OF. THE F ACTS OF THE TRANSACTIONS NOT HAVING BEEN ROUTED THROUGH THE STOCK EXCHANGE IS AGAIN A COMMERCIAL CONSIDERATION WHICH ONLY THE PERSON DOING BUSINESS IN SHARES CAN THINK OF. I N THE PROCESS, APPELLANT HAS NOT ONLY SAVED UPON THE TRANSACTION COST THAT HE WOULD HAVE INCURRED BY UNDERTAKING TRANSACTIONS THROUGH THE STOCK MARKET B UT, HAS ALSO MADE A HIGHER PROFIT IN THE PROCESS SINCE THE MARKET DEPTH OF THE SHARES UNDER CONSIDERATION WAS NOT ADEQUATE TO SALE OF 575000 NUMBERS OF SHARES WITHOU T DRASTICALLY AFFECTING THE MARKET PRICE. IN THE OFF MARKET ITA NO 1747 OF 2010 CHETAN DURGADAS MEHRA MUMBAI PAGE 3 OF 11 TRANSACTION APPELLANT WAS THEN ABLE TO SELL ALL THE SHAREHOLDING OF 575000 NUMBERS OF SHARES AT THE PREVAILING MARKET PRICE OF ` .26/- PER SHARE WHICH HE WOULD HAVE NEVER GOT IF THE SHARES WERE SOLD THROUG H THE STOCK EXCHANGE. THE FACT OF THE DEPTH OF THE MARKET NOT BEING SUFFICIENT HAS ALSO BEEN OBSERVED BY THE ASSE SSING OFFICER IN THE ORDER OF ASSESSMENT WHERE HE HAS GI VEN DATA OF SALE TRANSACTIONS OF THE SHARES UNDER CONSIDERATION ON THE DATE OF THE TRANSACTIONS AS WE LL AS IN THE MONTH PASSED BY. 15. THE CONTENTION OF ASSESSING OFFICER THAT APPELL ANT, IN HIS ACTION AS PART OF THE PARTNERSHIP FIRM WHICH HAS PURCHASED THE SHARES, WAS DUTY BOUND TO TAKE A PRUD ENT DECISION AND COULD NOT HAVE TAKEN A DECISION ON BEH ALF OF PARTNERSHIP FIRM WHICH IS LIKELY TO CREATE A LOSS T O THE PARTNERSHIP FIRM IS OF NO SIGNIFICANCE FOR THE PURP OSE AT HAND. THIS IS BECAUSE ASSESSING OFFICER HAS NOT AT ALL MENTIONED HOW THAT PARTNERSHIP FIRM IS GOING TO INC UR A LOSS IN THE TRANSACTION UNDER CONSIDERATION. HE HAS NOT EVEN TRIED TO PROBE INTO WHETHER THE PARTNERSHIP FI RM HAS PURCHASED THE SHARES AS AN INTEGRAL PART OF BUSINES S TRANSACTION, IS A DEALER IN SHARES, OR, FOR THE SAK E OF INVESTMENT IN SHARES. EVIDENTLY IN THIS SITUATION A S EXISTING, AN INVESTOR WOULD BE EAGER TO PURCHASE SH ARES UNDER CONSIDERATION AT ` .26/- PER SHARE WHERE THE BOOK VALUE OF THE SHARES IS ` .52/- PER SHARE. THESE ARE ASPECTS NOT HAVING BEEN CONSIDERED BY ASSESSING OFFICER, TH ESE ARGUMENTS DO NOT CARRY ANY WEIGHT FOR DECIDING THE ISSUE UNDER CONSIDERATION. 16. IN THE CONCLUDING PARAGRAPH ASSESSING OFFICER HAS ARGUED THAT THE ASSESSEE WANTED TO HOLD THE SHARES AND AT THE SAME TIME WANTS TO AVAIL OF THE BENEFIT OF F ALL IN MARKET PRICE. THERE IS NOTHING WRONG IN THIS STRATE GY AND, THE STRATEGY IN ITSELF CANNOT DECIDE THE ISSUES OF TAXATION UNDER CONSIDERATION. IT IS A FACT THAT APPELLANT IS THE MANAGING DIRECTOR OF THE COMPANY WHOSE SHARES ARE UNDER CONSIDERATION. FOR WHATEVER REASONS APPELLANT DECIDED TO SELL THE SHARE HE WAS HOLDING. THE APPEL LANT HAS A BUYER IN THE FORM OF A PARTNERSHIP FIRM WHERE HE ALSO IS A PARTNER, HE WOULD NATURALLY PREFER THE SH ARES TO BE PURCHASED BY THAT PARTNERSHIP FIRM IN ORDER TO R ETAIN THE CONTROL BY THE VIRTUE OF THE SHAREHOLDING IN TH E COMPANY AND, ALSO TO RETAIN THE EXPECTATION OF FUTU RE PROFITS IN CASE OF THE SHARE PRICES RISING TO THE L EVEL OF BOOK VALUE OF SHARES. TO MY MIND THIS IS A VERY PRUDENT ITA NO 1747 OF 2010 CHETAN DURGADAS MEHRA MUMBAI PAGE 4 OF 11 DECISION MADE BY APPELLANT AND NO ADVERSE CONCLUSIO NS CAN BE DRAWN FROM HERE. 17. THE ONLY REMAINING ARGUMENT OF ASSESSING OFFIC ER IS THE TECHNICAL REQUIREMENT MENTIONED BY HIM THAT A SEPARATE AND INDEPENDENT DEMAT ACCOUNT OF THE PARTNERSHIP FIRM SHOULD HAVE BEEN OPENED. ASSESSING OFFICER HAS RELIED UPON PARA NO.42 OF SEBI (DEPOSIT ORIES AND PARTICIPANTS) REGULATIONS REQUIRING SEPARATE DE MAT ACCOUNT TO BE OPENED BY EVERY PARTICIPANT IN THE NA ME OF EACH OF THE BENEFICIAL OWNERS AND PROHIBITING MIXIN G UP OF SECURITIES OWNED BY VARIOUS BENEFICIAL OWNERS. IN T HE SAME FLOW OR ARGUMENTS, ASSESSING OFFICER HAS PUT T HE ONUS OF OPENING SEPARATE DEMAT ACCOUNT UPON THE ASSESSEE WHEN HE OBSERVES AS UNDER: ---- ---- SECTION 42 OF THE SEBI (DEPOSITORY AND PARTICIPANTS) REGULATIONS, 1996 LEAVES IT FOR THE ASSESSEE NO OTHER OPTION OTHER THAN TO HAVE A SEPARATE DEMAT ACCOUNT SEPARATELY FOR THE PURPOSE OF HAVING THE HOLDINGS OF THE PARTNERSHIP FIRM. 18. THIS CONTENTION OF ASSESSING OFFICER IS TECHNIC ALLY NOT CORRECT. THE REQUIREMENTS OF SEBI ARE NOT FOR T HE ASSESSEE BUT FOR THE BROKERS OPERATING IN THE STOCK EXCHANGE. IT IS THE BROKER WHO HAS TO ENSURE THAT S EPARATE DEMAT ACCOUNT IS OPENED FOR EACH BENEFICIAL OWNER O F THE SHARES. AS A TRADER, OR AS AN INVESTOR, THE APPELLA NT IS UNDER NO OBLIGATION DIRECTLY OR INDIRECTLY TO FOLLO W SECTION 42 OF SEBI GUIDELINES RELIED UPON BY ASSESSING OFFI CER. ON THE CONTRARY I FIND THAT THERE ARE PRESCRIBED PROCE DURES TO BE FOLLOWED IN SITUATIONS WHERE THERE IS MIXING OF SHARES IN A COMMON DEMAT ACCOUNT. LEARNED COUNSEL OF APPELLANT HAS ELABORATED THESE REQUIREMENTS IN THE COURSE OF APPELLATE PROCEEDINGS BEFORE ME AND HAS EXPLAINE D THAT ALL SUCH REQUIREMENTS PRESCRIBED BY THE SEBI AND TH E COMPANIES LAW HAVE BEEN FOLLOWED BY APPELLANT. THES E REQUIREMENTS AND HOW THESE HAVE BEEN FOLLOWED HAS B EEN SPELT OUT IN THE PRECEDING PARAGRAPHS OF THIS ORDER . TO MY MIND THERE IS NO TECHNICAL DEFAULT ON THE PART OF T HE ASSESSEE IN CONTENDING TO HOLD THE SHARES BENEFICIA LLY OWNED BY THE PARTNERSHIP FIRM IN THE DEMAT ACCOUNT IN THE INDIVIDUAL NAME OF APPELLANT. THIS IS PARTICULARLY IN THE BACKGROUND FACTS OF THE PRESCRIBED PROCEDURES HAVIN G BEEN FOLLOWED BY APPELLANT, THAT OF APPELLATE HAVIN G FILED FORM NO.I PRESCRIBED/S 187C(1) AND OF THE COMPANI ES ACT AND, THE COMPANY WISEMAN LTD HAVING IN TURN FIL ED FORM NO.22 B PRESCRIBED UNDER SECTION 187C(4) OF TH E ITA NO 1747 OF 2010 CHETAN DURGADAS MEHRA MUMBAI PAGE 5 OF 11 COMPANIES ACT. THESE FORMS ARE DECLARATIONS THAT SH ARES BENEFICIALLY OWNED BY A THIRD PERSON, IN THE INSTA NT CASE THE PARTNERSHIP FIRM CONSIDERED BY ASSESSING OFFICE R ARE HELD IN THE DEMAT ACCOUNT OF AN INDIVIDUAL, IN THIS CASE THE APPELLANT. TO MY MIND THERE IS ABSOLUTELY NO DE FAULT ON THE PART OF THE APPELLANT WITH REGARD TO THE ASP ECT OF THE ISSUE UNDER CONSIDERATION. I ALSO FIND THAT ON THIS ISSUE, HON'BLE MUMBAI TRIBUNAL HAVE IN THE CASE OF MISHAPAR INVESTMENTS LTD., REPORTED IN 8 SOT 532 RE LIED UPON BY LEARNED COUNSEL OF APPELLANT, HAVE AFTER TA KING INTO ACCOUNT THE FACT THAT THE SHARES CONTINUED TO REMAIN IN ASSESSEES OWN NAME EVEN AFTER THE TRANSFER, HEL D THAT THE TRANSACTION WAS GENUINE. THE FACTS IN THAT CASE WERE SIMILAR TO THE FACTS UNDER CONSIDERATION HERE. THE ARGUMENTS PLACED BY LEARNED COUNSEL OF APPELLANT CONSEQUENTLY FIND SUPPORT FROM MUMBAI ITAT AS WELL. I ALSO FIND THAT CONTRACT NOTES IN RELATION TO THE TR ANSACTION UNDER CONSIDERATION HAVE BEEN SIGNED AND EXIST. FUR THER, TRANSFER OF MONEY HAS TAKEN PLACE CONSEQUENT TO THE TRANSACTION. BOTH THESE FACTS HAVE BEEN IGNORED BY ASSESSING OFFICER IN COMING TO THE CONCLUSION AS HE DID. TO MY MIND THESE FACTORS ALSO CANNOT BE IGNORED FOR DE CIDING THE ISSUE UNDER CONSIDERATION. 19. TO CONCLUDE, AS IVE DETAILED IN THE PARAGRAPHS ABOVE, THE TRANSACTION HAS TAKEN PLACE AT THE PREVA ILING MARKET PRICE WITH PRUDENT COMMERCIAL CONSIDERATIONS OF MINIMIZING EXPENSES AND MAXIMIZING PROFITS, A LOGIC AL BUSINESS CONSIDERATION, WITH ALL LEGAL FORMALITIES OF CONTRACT NOTES AND INTIMATIONS UNDER THE COMPANIES LAW HAVING BEEN FOLLOWED. THE CORRESPONDING TRANSFER OF FUNDS HAS TAKEN PLACE. THERE IS NO OCCASION OF ANY LOSS T O THE PARTNERSHIP FIRM WHICH HAS PURCHASED THE SHARES AS OBSERVED BY ASSESSING OFFICER IN HIS ORDER OF ASSES SMENT. CONSEQUENT TO DETAILED REASONS CONTAINED IN THE PRE CEDING PARAGRAPHS, I AM OF THE VIEW THAT THE TRANSACTION U NDER CONSIDERATION IS GENUINE AND NOTHING ADVERSE LIKE A SHAM TRANSACTION CAN AT ALL BE CONCLUDED FROM THE FACTS UNDER CONSIDERATION. AS A RESULT THE DISALLOWANCE OF LOSS AS DONE BY ASSESSING OFFICER IS NOT JUSTIFIED IN THE FACTS OF THE CASE. CONSEQUENTLY THE FIRST GROUND OF APPEAL OF DISALLOWANCE OF LOSS IS ALLOWED. 3. THE LEARNED DEPARTMENTAL REPRESENTATIVE REITERATED THE ARGUMENTS OF THE ASSESSING OFFICER TO SUBMIT THAT T HE TRANSACTIONS CANNOT BE ACCEPTED AS GENUINE WHEREAS THE LEARNED C OUNSEL ITA NO 1747 OF 2010 CHETAN DURGADAS MEHRA MUMBAI PAGE 6 OF 11 REITERATED THE ARGUMENTS MADE BEFORE THE CIT (A) AN D RELIED ON THE FINDINGS THERE IN. 4. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE FACTS ON RECORD AND RIVAL CONTENTIONS. THERE IS NO DISPUTE W ITH REFERENCE TO THE FACT THAT THE ASSESSEE IS NOT AN INVESTOR BUT I S SHOWING AS BUSINESS INCOME ON SALE AND PURCHASE OF SHARES. IT IS ALSO NOT IN DISPUTE THAT IN EARLIER YEARS THE ASSESSEE HAS SHOW N THESE AMOUNTS IN THE BALANCE SHEET UNDER THE CURRENT ASSETS AND N OT AS INVESTMENT AND HE HAS OPENING STOCK OF SHARES OF WE IZMANN LTD AS ON 1.4.2005 IN VARIOUS NUMBERS PURCHASED AT A PRICE OF ` .5/- TO MAXIMUM ` .70.02. THE SHARES IN THE COMPANY AND GROUP COMPANIES OF WEIZMANN LTD ARE TO THE EXTENT OF ` .8.23 CRORES. ONE LOT OF SHARES OF 10,16,700 WERE ACQUIRED AT THE PRI CE OF ` .50/- TO COST ` .5,08,35,000. OUT OF THESE SHARES, SHARES TO THE EX TENT OF 5,75,000 WERE SOLD ON 3.3.2006 TO M/S DHANRAJ ENTER PRISES, A PARTNERSHIP FIRM IN WHICH THE ASSESSEE IS A PARTNER , AT A PRICE OF ` .26/- REALIZING SALE VALUE OF ` 1,49,50,000/-. AS SEEN FROM THE NOTES OF THE BALANCE SHEET IT WAS CLEARLY MENTIONED THAT INVENTORIES OF SHARES OR SECURITIES ARE VALUED AT A COST WHICH IS NOT IN CONFORMITY WITH THE ACCOUNTING STANDARD ON VALUATION OF INVENT ORIES ISSUED BY THE ICAI. THIS INDICATES THAT EVEN THOUGH THE ASSES SEE IS TREATING THE SHARES AS STOCK IN TRADE, HE HAS NOT CLAIMED AN Y LOSS IN THE VALUATION IN EARLIER YEARS. IN THIS YEAR, THE ASSES SEE SOLD THE SHARES IN OFF MARKET TRANSACTION TO PARTNERSHIP FIRM AND A S POINTED OUT BY THE CIT (A), THE MONEYS WERE RECEIVED THROUGH BANK ON SALE OF SHARES. THEREFORE, ON FACTS THE TRANSACTION RESULTE D IN BUSINESS LOSS WHICH THE ASSESSEE HAS NOT SET OFF TO ANY OTHER INC OME DURING THE YEAR BUT ONLY CLAIMED IT TO BE CARRIED FORWARD TO T HE NEXT YEAR. IT IS ALSO ON RECORD THAT IMMEDIATELY AFTER ENTERING INTO CONTRACT NOTE DATED 3.3.2006, THE ASSESSEE HAS FILED A DECLARATIO N AND COMPANY IN TURN FILED A RETURN WITH THE REGISTRAR OF COMPANIES ON 23.3.2006 ITA NO 1747 OF 2010 CHETAN DURGADAS MEHRA MUMBAI PAGE 7 OF 11 UNDER SECTION 187C OF THE COMPANIES ACT INDICATING THE SHARES THAT ARE HELD IN BENEFICIARY ACCOUNT AS PER THE PROVISIO NS OF COMPANIES ACT 1956. THIS RETURN WAS ACCOMPANIED BY THE DECLAR ATION UNDER SECTION 187C(1) AND 187C(2). THEREFORE, IT CANNOT B E STATED THAT THE TRANSACTION OF SALE OF SHARES IS NOT GENUINE. 5. WITH REFERENCE TO THE REASONS GIVEN BY THE ASSESSIN G OFFICER FOR CONSIDERING THE TRANSACTIONS AS NON GENUINE ONE , AS RIGHTLY POINTED OUT BY THE CIT (A), SECTION 42 OF SEBI (DEP OSITORIES & PARTICIPANTS) REGULATIONS, 1996 DOES NOT APPLY TO T HE INDIVIDUAL PERSONS BUT ONLY TO THE DEPOSITORY AND PARTICIPANTS AS DEFINED UNDER THE SEBI ACT. THEREFORE, THE REASONING THAT T HE SEPARATE DEMAT ACCOUNT IS NOT MAINTAINED CANNOT BE ACCEPTED. WITH REFERENCE TO THE PRICE ALSO THE SHARE IS A QUOTED S HARE IN THE STOCK EXCHANGE AND THERE IS NO DISPUTE OF THE FACT THAT T HE PRICE AT WHICH IT WAS SOLD WAS AS PER THE MARKET PRICE AVAILABLE O N THAT DAY. EVEN THE ASSESSING OFFICER ACCEPTS THAT THE ASSESSEE SOL D AT THE MARKET PRICE BUT HIS CONTENTION WAS THAT BEING MANAGING DI RECTOR OF THE COMPANY HE SHOULD HAVE TAKEN A PRUDENT DECISION TO SELL AT HIGHER PRICE I.E. AT THE BOOK VALUE. THIS ARGUMENT ALSO CA NNOT BE ACCEPTED AS A PRUDENT BUSINESS MAN IT IS HIS DECISION TO SEL L AT A PARTICULAR PRICE AND THE ASSESSING OFFICER CANNOT SUBSTITUTE T HE DECISION UNLESS HE ESTABLISHES THAT DIFFERENCE IN PRICE WAS RECEIVED IN ANY OTHER FORM. IT IS NOT THE CASE OF THE ASSESSING OFF ICER THAT THE ASSESSEE HAS RECEIVED MORE THAN WHAT IS ACCOUNTED F OR. ASSESSEE SOLD THE SHARES TO THE PARTNERSHIP FIRM IN WHICH HE IS A PARTNER AND RECEIVED THE MONEY. THE TRANSACTIONS BETWEEN THESE TWO RELATED PARTIES CANNOT BE DOUBTED JUST BECAUSE THE PURCHASI NG CONCERN IS THE ONE IN WHICH THE ASSESSEE HAS INTEREST. THE ASS ESSEE WAS NOT DEBARRED UNDER THE LAW FROM ENTERING INTO ANY TRANS ACTION WITH A GROUP CONCERN. THE SAID TRANSACTIONS CANNOT BE DOUB TED UNLESS THE CONTRARY WAS BROUGHT ON RECORD. AS THERE IS NO DISP UTE WITH ITA NO 1747 OF 2010 CHETAN DURGADAS MEHRA MUMBAI PAGE 8 OF 11 REFERENCE TO THE SALE OF SHARES AND AS THERE IS EVI DENCE THAT THE ASSESSEE HAS FULFILLED ALL PRESCRIBED CONDITIONS UN DER SECTION 41 AND SECTION 187C OF THE COMPANIES ACT, THERE IS NO NEED TO SUSPECT THE TRANSACTION AS WAS DONE BY THE ASSESSING OFFICER. 6. SIMILAR ISSUE WAS CONSIDERED BY THE INCOME TAX APPE LLATE TRIBUNAL IN THE CASE OF MISHAPAR INVESTMENTS LTD 8 SOT 532 MUMBAI, WHICH CIT(A) RELIED, WHEREIN ON FOLLOWING FACTS IT WAS HELD: FACTS THE ASSESSEE HELD CERTAIN SHARES OF A COMPANY N WHICH WERE TRANSFERRED TO A FIRM S IN WHICH THE ASSESSEE WAS A PARTNER. THE TRANSFER OF SHARES WAS DULY RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AS WELL AS OF S. THE CONSIDERATION FOR TRANSFER WAS CREDI TED BY S TO THE ASSESSEES CURRENT ACCOUNT AS A PARTNER AND THE SHARES WERE ALSO SHOWN IN THE BALANCE SHEET OF S AS ON 31.3.2000 UNDER THE HEAD INVESTMENTS. THE ASSESSEES BALANCE SHEET, THE CONSIDERATION WAS SHOWN TO BE DUE FROM PARTNERSHIP FIRM S. AT THE T IME WHEN THE SHARES WERE TRANSFERRED IN FAVOUR OF S T HEY WERE PLEDGED WITH I AND B THROUGH PLEDGE AGREEM ENT. DESPITE THE TRANSFER OF THOSE SHARES BY THE ASSESSE E IN FAVOUR OF S THOSE SHARES REMAINED IN THE NAME OF THE ASSESSEE BEING ONE OF THE PARTNER IN THE FIRM S. THE SHARES WERE SOLD AT THE PREVAILING MARKET RATE AND THE ASSESSEE CLAIMED CAPITAL LOSS ON TRANSFER OF THOSE SHARES OF N TO THE FIRM. THE ASSESSING OFFICER DISALLOWE D THE CLAIM CONSIDERING THAT THE TRANSACTION WAS SHAM FOR THE REASONS THAT THE SAID TRANSACTION WAS ENTERED UPON BETWEEN6THE GROUP CONCERN, THE PHYSICAL DELIVERY OF SHARES WAS NOT GIVEN TO S AS THE SAME WERE PLEDGE D AND THAT THE SHARES WERE NOT TRANSFERRED IN THE NAM E OF S. THE ASSESSING OFFICER FURTHER HELD THAT THERE WAS NO PHYSICAL TRANSFER OF MONEY FROM S TO THE ASSESSEE AND THE TRANSACTION WAS ENTERED UPON WITH A VIEW TO AVO ID PAYMENT OF TAX. ON APPEAL, THE COMMISSIONER (APPEAL S) CONFIRMED THE IMPUGNED ORDER. HELD THE ASSESSEE WAS NOT DEBARRED UNDER LAW FROM ENTERI NG INTO ANY TRANSACTIONS WITH THE GROUP CONCERN. IF TH E ASSESSEE DEALT WITH ITS GROUP CONCERN ACCORDING TO LAW, ITA NO 1747 OF 2010 CHETAN DURGADAS MEHRA MUMBAI PAGE 9 OF 11 THE SAID TRANSACTION COULD NOT BE DOUBTED BY THE RE VENUE UNLESS A CONTRARY WAS BROUGHT ON RECORD. THE ANSWER TO THE QUESTION AS TO WHETHER THE PHYSICAL DELIVERY OF SHARES WAS MUST WHILE SELLING THEM WOULD DEPEND UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE. UNDISPUTEDLY THE SHARES ARE CONSIDERED TO BE GOODS AND ITS SALE IS GOVERNED BY THE PROVISIONS OF THE SALE OF GOODS ACT . ACCORDING TO THE PROVISIONS OF SECTION 20 OF THE SA LE OF GOODS ACT, WHERE THERE IS AN UNCONDITIONAL CONTRACT FOR SALE OF A SPECIFIC GOODS IN A DELIVERABLE STATE, TH E PROPERTY IN THE GOODS PASSES TO THE BUYER WHEN THE CONTRACT IS MADE AND IT IS IMMATERIAL WHETHER THE T IME OF PAYMENT OF PRICE OR THE TIME O DELIVERY OF GOODS OR BOTH IS POSTPONED. IN THE INSTANT CASE, THOUGH PHYSICAL DEL IVERY OF GOODS WAS NOT AFFECTED, BUT THE CORRESPONDING EN TRIES WITH REGARD TO THE CONSIDERATION WERE PASSED IN THE BOOKS OF THE SELLER AS WELL AS OF THE BUYER. WITH R EGARD TO THE TRANSFER OF NAME WITH N THE SHARES COULD NOT BE TRANSFERRED IN THE NAME OF THE PARTNERSHIP FIRM. TH EY WERE TO BE REGISTERED IN THE NAME OF ONE OF THE PAR TNERS. SINCE THE SHARES WERE SOLD BY ONE OF THE PARTNERS T O THE PARTNERSHIP FIRM, THEY REMAINED IN THE NAME OF SAME PARTNER I.E. THE SELLER THOUGH COMPANY N WAS DULY INFORMED REGARDING THAT FACT. PARTNERSHIP FIRM S WAS RECOGNIZED AS A BENEFICIAL OWNER OF THOSE SHARES IN THE RECORD OF N. WITH REGARD TO THE TRANSFER OF MONEY FROM S TO THE ASSESSEE, IT WAS NOTICED THAT MONEY WAS NOT TRANSFERRED, BUT NECESSARY ENTRIES WERE PASSED IN T HE BOOKS OF ACCOUNT OF THE ASSESSEE AS WELL AS OF THE PARTNERSHIP FIRM AND IN THE PARTNERSHIP FIRM THE CONSIDERATION AMOUNT WAS SHOWN IN THE NAME OF PARTN ER UNDER THE HEAD PARTNERS CURRENT ACCOUNT. LIKEWISE , IN THE BOOKS OF THE ASSESSEE, THAT AMOUNT WAS SHOWN TO BE RECOVERED FROM THE PARTNERSHIP FIRM. ACCORDING TO PROVISIONS OF SECTION 20 OF THE SALE OF GOODS ACT, IF THE GOODS ARE IDENTIFIED AND PARTIES INTEND TO PASS THE PROPERTY TO THE BUYER, THE PAYMENT CAN BE DEFERRED. BUT, IN THE INSTANT CASE, NECESSARY ENTRIES WERE MADE IN THE BOOKS OF ACCOUNT. ONLY THE PHYSICAL PAYMENT OF SALE CONSIDERATION WAS DEFERRED. HENCE, THE TRANSACTION ENTERED UPON BY THE ASSESSEE WAS NOT HIT BY ANY PROVISION OF ANY RELEVANT LAW. 7. IN THE CASE OF CIT VS. GILLETTE DIVERSIFIED OPERATI ONS (P) LTD 324 ITR 226 (DELHI), RELIED ON BY THE LEARNED COUNS EL, THE HON'BLE DELHI HIGH COURT HELD AS UNDER: ITA NO 1747 OF 2010 CHETAN DURGADAS MEHRA MUMBAI PAGE 10 OF 11 HELD DISMISSING THE APPEAL, THAT AS NOTED BY THE COMMISSIONER (APPEALS) AS WELL AS BY THE TRIBUNAL, THE SHARES IN QUESTION WERE HELD BY THE ASSESSEE-COMPAN Y FOR MORE THAN THREE YEARS BEFORE THEY WERE SOLD. TH E ASSESSEE-COMPANY WAS VERY MUCH ENTITLED IN LAW TO S ELL THE SHARES HELD BY IT AT ANY TIME, WHICH IT CONSIDE RED TO BE APPROPRIATE FOR SUCH SALE. IT WAS FOR THE HOLDER OF THE SHARES AND NOT FOR THE REVENUE TO DECIDE, WHEN TO S ELL THE SHARES HELD BY IT. IF THE SALE OF SHARES WAS NO T ILLEGAL, IT COULD HAVE BEEN MADE TO ANYONE, INCLUDI NG A GROUP COMPANY. THERE WAS NOTHING ILLEGAL IN THE ASSESSEE-COMPANY SELLING SHARES HELD BY IT, FOR THE PURPOSE OF REDUCING ITS LIABILITIES. IT WAS ALSO AB SOLUTELY IMMATERIAL THAT THE LIABILITIES OF THE ASSESSEE-COM PANY WERE TOWARDS GROUP COMPANIES. SIMILARLY, IT WAS ALS O IMMATERIAL THAT THE SHARES SOLD BY THE ASSESSEE- COMPANY WERE OF ANOTHER GROUP COMPANY. IT WAS ALSO IMMATERIAL AS TO WHO THE PURCHASER OF THE SHARES WA S, SO LONG AS THE SHARES WERE NOT SOLD AT A PRICE WHIC H WAS HIGHER OR LOWER THAN THEIR FAIR PRICE AND THERE WAS NO RESTRICTION ON SALE OF SUCH SHARES TO A GROUP COMPA NY. AS NOTED BY THE TRIBUNAL, NEITHER THE ASSESSEE-COMP ANY NOR THE AMALGAMATED COMPANY ADJUSTED THE CAPITAL LO SS ON ACCOUNT OF SALE OF THESE SHARES AGAINST ANY LONG -TERM CAPITAL GAIN EVEN TILL THE ASSESSMENT YEAR 2002-03. NO TAX BENEFIT WAS, THEREFORE, OBTAINED BY THE ASSESSE E- COMPANY FOR AT LEAST TWO YEARS AFTER THE CAPITAL LO SS WAS BOOKED BY IT. HENCE, IT COULD NOT BE SAID THAT THE TRANSACTIONS IN QUESTION WERE A COLOURABLE DEVICE, MEANT TO GAIN SOME UNFAIR TAX ADVANTAGE. NO SUBSTANTIAL QUESTION OF LAW AROSE TO INTERFERE WITH THE ORDER O F THE TRIBUNAL . 8. IN THE CASE OF CIT VS. PITTY BROS (P) LTD 120 ITR 7 09, THE HON'BLE BOMBAY HIGH COURT HELD AS UNDER: MERELY BECAUSE THE ASSESSEE-COMPANY AND ITS VENDOR FIRM ARE SISTER CONCERNS OR ARE HAVING COMMON DIREC TORS AND PARTNERS, IT WOULD NOT NECESSARILY MAKE THE PUR CHASE AN ARRANGEMENT OR A DEVICE TO PALM OFF THE SHARES O F THE TOBACCO COMPANY AT AN INFLATED PRICE. THE TRIBUNAL HAS IN ITS WELL-CONSIDERED ORDER DEALT WITH THE VARIOUS AS PECTS WHICH INFLUENCED THE ITO AND THE AAC AND HAS DEALT WITH THE SAME IN PARA 5 OF ITS APPELLATE ORDER. WE ARE I N SUBSTANTIAL AGREEMENT WITH THE APPROACH OF THE TRIB UNAL. HAVING STATED THIS, IT WOULD FOLLOW THAT WE SEE NO REASON TO INTERFERE WITH THE CONCLUSION ARRIVED AT BY THE TRIBUNAL ITA NO 1747 OF 2010 CHETAN DURGADAS MEHRA MUMBAI PAGE 11 OF 11 FROM THE FACTS FOUND; AND IF THAT BE OUR VIEW, THEN THE QUESTION REFERRED TO US IS REQUIRED TO BE ANSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. THE QUES TION IS ACCORDINGLY SO ANSWERED. 9. KEEPING IN VIEW THE PRINCIPLES LAID DOWN BY THE ABO VE JUDGMENTS AND THE FACTS OF THE CASE, WE ARE OF THE OPINION THAT THE CIT (A) HAS COME TO PROPER CONCLUSION THAT THE TRAN SACTIONS OF THE ASSESSEE IN SALE OF SHARES CANNOT BE CONSIDERED AS NON-GENUINE SO AS TO DENY THE LOSS INCURRED BY ASSESSEE. IN VIEW O F THIS, THE ORDER OF THE CIT (A) IS UPHELD. THE GROUND IS DISMISSED. 10. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH DECEMBER, 2011. SD/- SD/- (V.DURGA RAO) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER VNODAN/SPS MUMBAI, DATED 28 TH DECEMBER, 2011. COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI