The DCIT, Central Circle-1(1), Ahmedabad V. Shri Hashmukh N.Vora(HUF), Ahmedabad

ITA 2521/AHD/2007

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 7789 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 29-06-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 08-06-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P M SHUKLA
• Assessee Lawyers: SAUNAK MAJUMDAR
• Keywords: Speculation loss; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI T.K.SHARMA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING : 29/06/09 DRAFTED ON: 29/07/0 9 ITA NO.2521/AHD/2007 ASSESSMENT YEAR : 2003-04 THE DCIT CENTRAL CIRCLE-1(1) AHMEDABAD VS. SHRI HASMUKH N.VORA (HUF) PROP. OF VORA ASSOCIATES 304, ANAND CHAMBERS NR. OLD HIGH COURT RLY.CROSSING AHMEDABAD PAN/GIR NO. : AAAHV 9375 F (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI P.M. SHUKLA, SR.DR RESPONDENT BY: SHRI SAUNAK MAJUMDAR O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD.CIT(APPEALS)-III, AHMEDABAD DATED 30/03/2007 PASSED FOR ASSESSMENT YEAR 2003-04 BY TA KING FOLLOWING GROUND(S):- 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECT ING TO DELETE THE ADDITION OF RS.7,34,994/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LOSS ON SALE OF SHA RES ITA NO.2521/AHD/2007 THE DCIT VS. SHRI HASMUKH N.VORA (HUF) ASST.YEAR - 2003-04 - 2 - SHOWN BY THE ASSESSEE WHICH WAS TREATED AS THE LOSS ARISING OUT OF SHAM AND BOGUS TRANSACTIONS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE A.O. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT( A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED TO THE ABOVE EXTENT. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE HAS CLAIMED A LOSS OF RS.7,34,994/- IN RESPECT OF THE SALE/PURCHASE OF THE SHARES OF THE RELIANCE INDUSTR IES (RIL), AS A BUSINESS LOSS. THE ASSESSING OFFICER OBSERVE D THAT 56,538 SHARES OF RIL WERE PURCHASED @ RS.269/- PER SHARE ON 07/11/2002 AND SOLD ON 11/11/2002 @ RS.256/- PER SH ARE I.E. AT THE LOSS SHOWN, WHILE TRADING WITH THE RELATED C ONCERN, M/S.PARKLIGHT SECURITIES LTD. THE ASSESSING OFFIC ER FURTHER NOTED THAT THE ACCOUNT WITH THIS COMPANY HAD BEEN S HOWN AS SQUARED UP IN THE AUDIT REPORT BUT ACTUALLY, CLO SING BALANCE WAS RS.7,34,994/-. ALSO THAT THE SETTLEME NT DATE OF THE PURCHASES WAS 12/11/2002 BUT THESE WERE BEING S OLD BEFORE I.E. 11/11/2002 WITHOUT RECEIPT OF PAYMENT A ND / OR ITA NO.2521/AHD/2007 THE DCIT VS. SHRI HASMUKH N.VORA (HUF) ASST.YEAR - 2003-04 - 3 - THE APPEARANCE OF THESE TRANSACTIONS IN ANY DEMAT ACCOUNT. FURTHER, M/S.PARKLIGHT SECURITIES LTD. HA D ALSO SHOWN LOSS AND THEREFORE PROFITS HAD BEEN REDUCED B Y THE ASSESSEE IN THIS MANNER. THE ASSESSING OFFICER REJ ECTED REPLY/EXPLANATION OF THE ASSESSEE IN THIS REGARD ST ATING BROADLY THAT (1) M/S. PARKLIGHT SECURITIES WAS A RELATED CONCER N. THERE WAS NO PANIC IN THE MARKET AND THE RATE OF RIL ON ADJOINING DATES WERE FAVOURABLE, YET THE SALE WAS MADE. (2) THE SETTLEMENT DATE WAS NOT YET OVER BUT SALE WAS MADE BEFORE THAT, TO PRE-EMPT THE DELIVERY/PAYMENT OF CONSIDERATION/DEMAT ACCOUNT AND THUS FORMED ONLY PAPER TRANSACTION WITHIN THE SHORT PERIOD BETWEEN 07/11/2002 TO 11/11/2002. (3) THE LOSS HAD BEEN CLAIMED WITHOUT ACTUAL PURCHASE OR SALE AS IS EVIDENCED BY THE LACK OF ITA NO.2521/AHD/2007 THE DCIT VS. SHRI HASMUKH N.VORA (HUF) ASST.YEAR - 2003-04 - 4 - PROOF OF DELIVERY, PAYMENT AND RECEIPT IN BANKS, ENTRIES IN DEMAT ACCOUNT. (4) THE PURCHASE HAVE BEEN MADE @ RS.269/- I.E. THE MAXIMUM PRICE ON THE DATE OF PURCHASE, WHILE SALES @ RS.256/- PER SHARE WAS SHOWN AT THE LOWEST CLOSING PRICE. (5) THE SALE MADE BEFORE SETTLEMENT PERIOD INDICATED THAT THERE WAS NO DELIVERY AND THAT TRNASACTIUONS DID NOT EXIST. IT ALSO INDICATED THA T THE SHARES REMAINED IN NAME OF M/S.PARKLIGHT SECURITIES WHICH SOLD DIRECTLY LATER. (6) THE ENTIRE TRANSACTIONS WERE COLLUSIVE AND THE LOSS WAS CONTRIVED. THE ASSESSING OFFICER POINTED OUT TO THE DECISION OF THE ITAT, CALCUTTA, REPORTED IN 74 ITD 43 AND OF CALCUTTA HIGH COURT 236 ITR 950 IN THIS REGARD. THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAKARLAL BALABHAI 69 ITR 156 AND IN CASE OF MCDOWELL 154 ITR 148(SC) WAS ITA NO.2521/AHD/2007 THE DCIT VS. SHRI HASMUKH N.VORA (HUF) ASST.YEAR - 2003-04 - 5 - REFERRED TO AFFIRM THAT THE TRANSACTIONS WERE SHAM AND PART OF TAX EVASION. THE ASSESSING OFFICER THEREFORE MADE THE ADDITION. 3. AGGRIEVED BY THE ASSESSEE WENT IN APPEAL BEFORE THE LD. CIT(APPEALS) AND MADE THE FOLLOWING SUBMISSION S:- (A) THE ASSESSING OFFICER HAS PROCEEDED ON INCORR ECT PRESUMPTION AND IMPROPER APPRECIATION OF FACTS. THUS WHAT WAS SQUARED UP WAS, THE TRANSFER OF FUNDS BETWEEN THE ASSESSEE AND M/S.PARKLIGHT BETWEEN THE PERIOD 01/04/2002 TO 31/03/2003. THE ACCOUNT CONTAINED ONLY TRANSACTIONS RELATED TO BANK AND WAS IN THE NATURE OF CURRENT ACCOUNT. THE ASSESSING OFFICER HAD MISCONSTRUED IT TO MEAN THAT IT WAS FOR ALL THE TRANSACTIONS WITH M/S.PARKLIGHT. ON THE OTHER HAND, THE ACCOUNT RELATING TO TRANSACTIONS OF SHARES WAS SEPARATE AND IN IT THE TRANSACTIONS WITH M/S.PARKLIGHT, OCCURRING IN NOVEMBER-2002 HAD BEEN ENTERED. ITA NO.2521/AHD/2007 THE DCIT VS. SHRI HASMUKH N.VORA (HUF) ASST.YEAR - 2003-04 - 6 - IT WAS ON THE CLOSING OF ACCOUNTS THAT THE NET BALANCE WAS TRANSFERRED. IN FACT, THE OUTSTANDING, APPEARED IN SCHEDULE-7 I.E. SUNDRY CREDITORS, OF THE AUDITED ACCOUNTS/AUDIT REPORT IN FROM NO.3CD, AND REFERRED TO BY THE ASSESSING OFFICER. A COPY OF THE AUDIT REPORT AND ITS SCHEDULE AND OF THE ACCOUNT OF M/S.PARKLIGHT SECURITIES LTD. WAS FILED IN SUPPORT OF THESE CONTENTION. (B) THE ASSUMPTION OF THE ASSESSING OFFICER THAT TH E SALE HAD BEEN CONTRIVED, WAS ALSO INCORRECT ON FACTS, SINCE M/S.PARKLIGHT HAD ALSO SHOWN LOSS IN I TS RETURNED INCOME. THE ASSESSING OFFICER WRONGLY REMARKED THAT THE PROFITS HAVE BEEN REDUCED IN THIS MANNER, BY DOING THE TRANSACTIONS WITH THE RELATED PERSON, WHICH IN TURN, HAS RETURNED THE LOS S THIS YEAR (PAGE 2 OF ASSESSING OFFICERS ORDER). AS A MATTER OF FACT, IN THE RETURN OF INCOME OF THE RELATED CONCERN, M/S.PARKLIGHT SECURITIES, IT HAD ITA NO.2521/AHD/2007 THE DCIT VS. SHRI HASMUKH N.VORA (HUF) ASST.YEAR - 2003-04 - 7 - RETURNED POSITIVE INCOME OF RS.9.07 LAKHS IN ITS RETURN FOR A.Y. 2003-04, FILED ON 24 TH OCTOBER-2003, WITH THE ACIT, CENTRAL CIRCLE-1(3), AHMEDABAD (COPY FILED). MOREOVER, THE ASSESSEE WAS THE ONLY PERSON COMPETENT TO DECIDE ITS COURSE OF ACTION IN BUSINESS, REGARDING THE TIMING OF SALE AND PURCHASE AND EVEN OTHERWISE, NO ONE CAN FORESEE THE TREND IN SHARE MARKET, AS NOTICED BY THE ASSESSING OFFICER, WITH THE BENEFIT OF HIND SIGHT. THE DOUBT OF ASSESSING OFFICER ABOUT THE TIMING OF THE TRANSACTION WAS IRRELEVANT. (C) SIMILARLY, THE OBSERVATION OF THE ASSESSING OFF ICER THAT THE ASSESSEE CONTRIVED TO AVOID ENTRIES IN DEMAT ACCOUNT, WAS INCORRECT SINCE THE SHARES PURCHASED ON 07/11/2002 WERE SOLD BEFORE THE DUE DATE OF SETTLEMENT ON 12/11/2002 AND SO THE MATTER OF TRANSFERRING THESE SHARES IN THE DEMAT ACCOUNT OF THE ASSESSEE DID NOT ARISE. IN THIS ITA NO.2521/AHD/2007 THE DCIT VS. SHRI HASMUKH N.VORA (HUF) ASST.YEAR - 2003-04 - 8 - REGARD, A COPY OF THE PRINT OUT OF THE WEBSITE OF NSDL DATED 13 TH APRIL-2006 (SUBMITTED TO ASSESSING OFFICER) WAS FILED TO SUBSTANTIATE THE RECORDINGS O F ALL THESE DEAL. IN ADDITION, COPIES OF THE LETTERS FILED BEFORE THE AHMEDABAD STOCK EXCHANGE, ON 12 TH & 14 TH NOVEMBER-2002 WERE ALSO FURNISHED TO SUPPORT THE ARGUMENT THAT THE CONTRACT NOTES OF THE TRANSACTION, ENTERED ON PRINCIPAL TO PRINCIPAL BASIS, HAD BEEN INTIMATED, IN RESPECT OF THIS OFF MARKET TRANSACTION, IN ACCORDANCE WITH THE EXISTING RULES. A COPY OF THE RETURN OF M/S.PARKLI GHT SECURITIES WAS ALSO ENCLOSED TO INDICATE THAT M/S.PARKLIGHT SECURITIES ACTED AS BROKER ONLY IN RESPECT OF THESE TRANSACTIONS. THUS, IT WAS ARGUE D THAT THERE WAS NO COLLUSION, AS ALLEGED BY THE ASSESSING OFFICER AND THE TRANSACTIONS WERE EFFECTED AT THE PREVAILING MARKET RATE. ITA NO.2521/AHD/2007 THE DCIT VS. SHRI HASMUKH N.VORA (HUF) ASST.YEAR - 2003-04 - 9 - 4. IN APPEAL, THE LD. CIT(APPEALS) DECIDED THE ISSU E BY OBSERVING AS UNDER:- 6. THE CONTENTIONS ALONG WITH DETAILS ON RECORD WERE CAREFULLY CONSIDERED. IT IS SEEN THAT THE PURCHAS E/SALE OF SHARES OF RIL WERE CARRIED OUT, OFF MARKET FOR W HICH THE AHMEDABAD STOCK EXCHANGE WAS DULY INFORMED. M/S.PARKLIGHT ACTED ONLY AS A BROKER AND SO IT COUL D NOT BE SAID THAT THERE WAS A TRANSACTION WITH A RELATED PARTY. THE SHARES WERE PURCHASES/SOLD WITHIN THE S ALE SETTLEMENT PERIOD I.E. T + 3 SCHEME AND THE SHARES WERE NOT TAKEN DELIVERY OF, AND HENCE NOT ENTERED I N DEMAT ACCOUNT. THE SUSPICION OF THE ASSESSING OFFI CER ABOUT THE TIMING AND RATE, REMAINS A SURMISE IN ABSENCE OF ANY EVIDENCE TO THE CONTRARY AND ON CONSIDERING THE UNCERTAINTY INHERENT IN THE SHARE MARKET. IN THESE FACTS AND CIRCUMSTANCES, THE ASSUMPTION OF THE ASSESSING OFFICER ABOUT THE TRANSACTIONS BEING NON-GENUINE IN NATURE/CONTRIVED, IS NOT SUPPORTED BY FACTS/DETAILS ON RECORD AND SO THE ADDITION MADE BY HIM CANNOT BE UPHELD AND IS DELETED. 6.1. IT IS HOWEVER, SEEN THAT THERE WAS NO CONSEQUENTIAL DELIVERY EFFECTED AND SO THE LO9SS OF RS.7,34,994/- FROM THE AFORESAID TRANSACTION IS BE TREATED AS SPECULATION LOSS. 5. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE ASSESSING OFFICER. ITA NO.2521/AHD/2007 THE DCIT VS. SHRI HASMUKH N.VORA (HUF) ASST.YEAR - 2003-04 - 10 - 6. THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESS EE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT( APPEALS) AND JUSTIFIED THE ORDER OF THE LD. CIT(APPEALS). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS A VAILABLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE CLAIMED TO HAVE SUFFERED LOSS OF RS. 7,34,994/- ON PURCHASE AND SAL E OF SHARES OF RIL., WHICH WAS DISALLOWED BY THE ASSESSING OFFI CER ON THE GROUND THAT THE SAME WAS NON-GENUINE. HOWEVER, LD. CIT(APPEALS) OBSERVED THAT THE SHARES WERE PURCHASE D ON 07-11-2002 WHICH ARE DULY SUPPORTED BY THE CONTRACT NOTE OF M/S. PARKLIGHT SECURITIES LTD. WHO IS A REGISTERED MEMBER OF AHMEDABAD STOCK EXCHANGE. SIMILARLY, SALE TRANSACT ION OF THE SAID SHARES WERE ALSO SUPPORTED BY THE CONTRACT NOTE OF THE SAME SHARE BROKER. THE LD. CIT(APPEALS) OBSERV ED THAT AS THESE TRANSACTIONS WERE OFF MARKET TRANSACTIONS, THE SHARE BROKER DULY INFORMED THE DETAILS OF TRANSACTIONS TO THE STOCK EXCHANGE AS PER THE RULES OF STOCK EXCHANGE. IN TH E ABOVE ITA NO.2521/AHD/2007 THE DCIT VS. SHRI HASMUKH N.VORA (HUF) ASST.YEAR - 2003-04 - 11 - CIRCUMSTANCES, THE LD. CIT(APPEALS) HELD THAT THE TRANSACTIONS WERE GENUINE AND THEREFORE THE LOSS CA NNOT BE DISALLOWED. HOWEVER, HE FOUND THAT THE TRANSACTIO NS WERE SETTLED OTHERWISE THEN BY ACTUAL DELIVERY OF SHARES AND THEREFORE DIRECTED THE ASSESSING OFFICER TO TREAT T HE LOSS AS ARISING FROM SPECULATIVE TRANSACTION AND ACCORDINGL Y, TO GIVE EFFECT OF THE SAME AS PER LAW. WE FIND THAT NO MAT ERIAL COULD BE BROUGHT ON RECORD BEFORE US BY THE LD. DEPARTMENTAL REPRESENTATIVE TO CONTROVERT THE ABOVE FINDINGS OF THE LD. CIT(APPEALS). WE FIND THAT THE ASSESSING OFFICER ALLEGED THE TRANSACTIONS AS BOGUS MERELY BE CAUSE THESE TRANSACTIONS WERE SETTLED OTHERWISE THEN BY A CTUAL DELIVERY AND ACTUAL PAYMENT OF THE FULL AMOUNT OF P URCHASE AND SALE VALUE AND BECAUSE THE TRANSACTIONS WERE WI TH RELATED PARTIES. IN OUR CONSIDERED OPINION FROM TH E ABOVE OBSERVATION IT CANNOT BE CONCLUDED THAT THE TRANSAC TIONS WERE BOGUS OR SHAM. IT IS NOT THE CASE OF THE REVE NUE THAT THE PRICE AT WHICH SHARES WERE PURCHASED AND SOLD B Y THE ITA NO.2521/AHD/2007 THE DCIT VS. SHRI HASMUKH N.VORA (HUF) ASST.YEAR - 2003-04 - 12 - ASSESSEE WERE NOT THE MARKET VALUE OF THE SHARES AT THE RELEVANT TIME. FURTHER, THE TRANSACTIONS WERE DULY SUPPORTED BY CONTRACT NOTE OF REGISTERED SHARE BROKER AND THE DETAILS OF THE ABOVE TRANSACTIONS WERE ALSO REPORTED TO THE STOCK EXCHANGE. FURTHER, IT IS NOT THE CASE OF THE REVEN UE THAT THE ASSESSEE HAS NOT MADE THE PAYMENT OF ACTUAL AMOUNT OF LOSS SUFFERED BY IT IN THE TRANSACTIONS. NO MATERI AL WAS BROUGHT ON RECORD AFTER MAKING ANY INQUIRY OR INVES TIGATION TO SHOW THAT THE TRANSACTIONS WERE BOGUS AND ACTUAL LY NO LOSS WAS SUFFERED BY THE ASSESSEE. THUS, IN OUR CO NSIDERED OPINION, THE TRANSACTIONS WERE CONSIDERED AS BOGUS OR SHAM BY THE ASSESSING OFFICER ONLY ON THE BASIS OF DOUBT S OR CONJECTURES AND THE SAME CANNOT BE SUSTAINED. IN V IEW OF THE ABOVE, WE DO NOT FIND ANY GOOD REASON TO INTERF ERE WITH THE ORDER OF THE LD. CIT(APPEALS). THEREFORE, THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ITA NO.2521/AHD/2007 THE DCIT VS. SHRI HASMUKH N.VORA (HUF) ASST.YEAR - 2003-04 - 13 - ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 31 ST JULY, 2009. SD/- SD/- ( T.K. SHARMA ) ( N.S. SAINI ) JUDICIAL MEMBER A CCOUNTANT MEMBER AHMEDABAD; DATED 31/07/2009 T.C. NAIR COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-III, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD