ACIT Circle 38 (1), V. Madhu Arora,

ITA 372/DEL/2007

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9764 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 17-08-2009
• Assessment Year: 1995-1996
• Appeal Filed On: 22-01-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GARIMA BHAGAT
• Keywords: Cost of acquisition; Speculation loss; Avoidance of tax; Set aside; Capital Gains
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D: NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI DEEPAK R. SHAH, ACCOUNTANT MEMBER I.T.A.NO.372/DEL/2007 ASSESSMENT YEAR : 1995-96 ASSTT. COMMISSIONER OF INCOME-TAX, MADHU ARORA, CIRCLE 38(1), NEW DELHI. VS. 201, VIPPS CENTR E, MASJID MOTH, G.K.II, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : MS. GARIMA BHAGAT, SR. DR. RESPONDENT BY : SHRI SALIL AGGRAWAL, ADVOCATE. O R D E R PER DEEPAK R. SHAH, ACCOUNTANT MEMBER. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-XXVIII, NEW DE LHI, DATED 12.10.2006 FOR THE ASSESSMENT YEAR 1995-96, IN AN A PPEAL AGAINST THE ASSESSMENT FRAMED UNDER SECTION 143(3) READ WITH SE CTION 254 OF THE INCOME-TAX ACT, 1961 (THE ACT). 2. THE ASSESSEE WAS ALLOTTED SHARES IN THE COMPANY M/S. SATNAM OVERSEAS LTD., AT RS.10/- PER SHARE. SHE SOLD 8030 0 SHARES TO M/S. ANIL AGGARWAL & CO. AT RS.37/- PER SHARE AND OFFERED SHO RT TERM CAPITAL GAIN FOR TAXATION AS UNDER:- 2 SALE CONSIDERATION OF 80,300 SHARES @ RS.37/- RS. 29,71,100.00 PER SHARE SOLD ON 28.4.94. LESS: COST OF ACQUISITION (ALLOTTED ON 1.7.1993) RS. 8, 03,000.00 RS.21,68,100.00 ON 15.6.1994, SHE PURCHASED 80,300 SHARES FROM M/S. ANIL AGGARWAL & CO. AT RS.69.30 PER SHARE AMOUNTING TO RS.55,80,850/-. THESE SHARES WERE THEN SOLD TO M/S. VIKHYAT MERCANTILE & CREDITS (P) LTD., AT RS.59/- PER SHARE ON 7.7.1994, ACKNOWLEDGED VIDE CREDIT ADVICE OF M/S. V IKHYAT MERCANTILE & CREDITS (P) LTD. DATED 31.07.1994 OF THE COMPANY. THE ASSESSEE THUS SUFFERED SHORT TERM CAPITAL LOSS AS UNDER: COST OF ACQUISITION OF 80,300 SHARES @ RS.69.30 PER SHARE ON 15.6.94. RS.55,80,850/- SALE CONSIDERATION OF 80,300 SHARES @ RS.59/- PER SHARE ON 7.7.1994. RS.47,37,700/- SHORT TERM CAPITAL LOSS RS. 8,43,150 THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT DI D NOT ALLOW THE CAPITAL LOSS AND TERMED IT AS SPECULATIVE ON THE FOLLOWING BASIS: A) SHARES WERE SOLD BY THE ASSESSEE TO M/S. VIKHYAT MERCANTILE & CREDITS (P) LTD. WHICH IS CLOSELY HELD. B) SHARES ARE NOT TRANSFERRED IN HER NAME BEFORE SA LE OF M/S.VIKHYAT MERCANTILE & CREDITS (P) LTD. C) PAYMENT WAS NOT RECEIVED TILL 31.03.95 EVEN AFTE R 8 MONTHS. 3 AGGRIEVED BY THE ORDER, THE ASSESSEE FILED APPEAL W ITH CIT(APPEALS) AND SUBMITTED THAT DELIVERY WAS MADE AS IS EVIDENCE D BY THE DISTINCTIVE NO. OF SHARES. M/S.VIKHYAT MERCANTILE & CREDITS (P) LT D. FURTHER SOLD THESE SHARES IN OPEN MARKET. IT WAS ALSO ARGUED THAT IT IS NOT NECESSARY FOR THE PERSON BUYING THE SHARES TO GET THE SHARES TRANSFER RED IN HER NAME BEFORE SELLING. THE REQUIREMENT OF GETTING THE SHARES COM ES WHEN THERE IS A RECORD DATE FIXED BY COMPANY FOR DIVIDEND, RIGHT, BONUS OR WHEN TRANSFER DEED IS LIKELY TO BE INVALIDATED. THE CIT(A) ALLOWED THE A PPEAL. THE DEPARTMENT WENT INTO SECOND APPEAL BEFORE THE ITAT. THE ITAT HELD THAT EVIDENCE HAS BEEN PRODUCED BEFORE THEM IN PART AND THE EVIDENCE WAS NOT PRODUCED BEFORE LOWER AUTHORITIES. SO THE ITAT DIRECTED THAT THE EVIDENCE BE PRODUCED BEFORE THE ASSESSING OFFICER A ND, ACCORDINGLY, THE ORDER OF THE CIT(A) WAS SET ASIDE. 3. IN THE ASSESSMENT AFTER THE MATTER WAS SET ASIDE BY THE TRIBUNAL, THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO PRODUCE M/S. ANIL AGGARWAL & CO. ALONG WITH THEIR BOOKS OF ACCOUNT AND TO FURNIS H THE DATE AND CHEQUE NO. ON WHICH PAYMENT FOR SHARE PURCHASED WAS MADE AND H OW THE PAYMENT WAS RECEIVED FOR SHARES SOLD TO M/S. ANIL AGGARWAL & CO . THE ASSESSEE WAS ALSO ASKED TO FURNISH THE DETAILS OF PAYMENT FROM M/S. V IKHYAT MERCANTILE & CREDITS (P) LTD. THE ASSESSING OFFICER FRAMED FRES H ASSESSMENT HOLDING THAT THE TRANSACTION OF PURCHASE AND SALE OF SHARE THROU GH M/S. ANIL AGGARWAL & 4 CO. WAS NOT GENUINE. HE ACCORDINGLY, ADOPTED THE S ALE CONSIDERATION ACCRUING ON THE BASIS OF SHARE SOLD TO M/S. VIKHYAT MERCANTILE & CREDITS (P) LTD. AND AFTER REDUCING THE COST OF ACQUISITION ON THE BASIS OF ORIGINAL ALLOTMENT BROUGHT TO TAX CAPITAL GAIN. THUS THE CA PITAL GAIN WAS WORKED OUT AT RS.39,34,700/-. 4. BEFORE THE LEARNED CIT(A) THE ASSESSEE CONTENDED THAT IN ORIGINAL ASSESSMENT ONLY THE LOSS OF RS.8,43,150/- WAS NOT A LLOWED AND THE MATTER WAS REMANDED BACK TO FIND OUT WHETHER THE TRANSACTI ON IS SPECULATIVE IN NATURE. THUS IN THE FRESH ASSESSMENT THE ASSESSING OFFICER COULD NOT HAVE TRAVELLED BEYOND THE ISSUE IN DISPUTE. IT WAS CONT ENDED THAT BOTH THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES HAVE BE EN DULY PROVED. THERE IS NO DISPUTE THAT THE SHARES WERE ALLOTTED TO THE ASS ESSEE AT PAR. THESE SHARES WERE SOLD THROUGH M/S. ANIL AGGARWAL & CO. AND FOR WHICH THE ASSESSEE HAS PRODUCED THE BROKERS NOTE, BANK ACCOUNT AND STOCK EXCHANGE QUOTATION. IN RESPECT OF RE-PURCHASE OF SHARES FROM M/S. ANIL AGG ARWAL & CO., THE ASSESSEE HAS ALSO PRODUCED BROKERS NOTE, DISTINCTI VE NO. AND STOCK EXCHANGE QUOTATION. IN RESPECT OF SHARES SOLD TO M/S. VIKHY AT MERCANTILE & CREDITS (P) LTD., THERE IS NO DISPUTE. SINCE THERE WAS DEL IVERY OF SHARES, THE TRANSACTION IS NOT SPECULATIVE TRANSACTION AND HENC E INCOME DECLARED BY THE 5 ASSESSEE SHOULD BE ACCEPTED. THE LEARNED CIT(A) AF TER CONSIDERING THE SUBMISSIONS, HELD AS UNDER:- 4. I HAVE CONSIDERED THE FACTS OF THE CASE. IT IS NOTICED THAT THE A.O. HAS FRAMED THE FRESH ASSESSMENT AFTER IGNO RING THE SALE AND PURCHASE TRANSACTIONS MADE THROUGH M/S. ANIL AG GARWAL & CO. AND HAS WORKED OUT THE CAPITAL GAINS ONLY WITH RESPECT TO THE TRANSACTION WITH M/S. VIKHYAT MERCANTILE & CRED ITS (P) LTD., RESULTING IN SHORT TERM CAPITAL GAINS OF RS.3 9,34,700/-. THIS AHS BEEN DONE ON THE BASIS OF FOLLOWING GROUND S: I) THE SALE OF SHARES TO M/S. VIKHYAT MERCANTILE & CREDITS (P) LTD. WAS DIRECT WHEREAS IN BETWEEN SALE AND PURCHAS E OF SHARES WERE FINALIZED THROUGH SHARE BROKER M/S. ANIL AGGAR WAL & CO., JAIPUR. II) NO DETAILS WERE FURNISHED REGARDING THE PARTY W HO FIRST PURCHASED THE SHARES AND THEREAFTER SOLD THEM TO EA RN SHORT TERM CAPITAL GAIN OF RS.26,09,750/-. III) THE INFORMATION REGARDING PAYMENT MADE TO M/S. ANIL AGGARWAL & CO. WAS NOT GIVEN. 4.1 AS MENTIONED ABOVE, THE APPELLANT HAD GIVEN THE ADDRESS AND PAN/GIR NUMBER OF M/S. ANIL AGGARWAL & CO. ALON G WITH THE COPY OF BILLS AND COPY OF ITS INCOME TAX RETURN . THE GROUNDS MENTIONED BY THE ASSESSING OFFICER ARE NOT SUFFICIENT TO SHOW THAT THE TRANSACTIONS WITH M/S. ANIL AGGARW AL AND CO. WERE SHAM. THE APPELLANT HAS PRODUCED RELEVANT EVI DENCES BEFORE THE ASSESSING OFFICER WHICH HAVE NOT BEEN RE BUTTED. IN VIEW OF THE EVIDENCES SUCH AS BROKERS NOTE, BILLS, MEMO OF CONFIRMATION, DISTINCTIVE NUMBERS OF SHARES ETC., I T CAN NOT BE SAID THAT THE TRANSACTION ENTERED INTO BY THE APPEL LANT, WITH M/S. AGGARWAL & CO. WERE NON EXISTENT. IT IS NOT THE CA SE OF ASSESSING OFFICER THAT THE BROKER WAS FICTITIOUS. HENCE, APPEAL ON THIS GROUND IS ALLOWED. 5. IN THE ORIGINAL ASSESSMENT ORDER DATED 16.03.19 98, THE CAPITAL LOSS OF RS.8,43,150/- ON SALE OF SHARE WAS DENIED, 6 TREATING IT AS SPECULATIVE LOSS. CIT(A) HAD ALLOWE D THE APPEAL TREATING IT AS NON-SPECULATIVE. ON APPEAL, THE ITA T RESTORED THE ISSUE TO THE ASSESSING OFFICER TO ENABLE THE APPELL ANT TO FURNISH FURTHER EVIDENCES. THE APPELLANT FURNISHED EVIDENC ES TO SHOW THAT THE TRANSACTION RESULTING IN LOSS WAS A NON-SP ECULATIVE TRANSACTION. SO FAR AS THE ISSUE OF TRANSACTIONS B EING SPECULATIVE OR NON-SPECULATIVE IS CONCERNED, IT IS NOTICED THAT THERE HAS BEEN ACTUAL DELIVERY OF SHARES AND THE MONEY HAS ALSO BE EN TRANSFERRED, ALTHOUGH NOT IMMEDIATELY ON DELIVERY O F SHARES. THIS IS CLEAR FROM THE CERTIFICATE OF M/S. VIKHYAT MERCANTILE & CREDITS PVT. LTD. AND OTHER EVIDENCE SUCH AS BROKER S NOTE, DISTINCTIVE NUMBERS OF SHARES, RELEVANT CERTIFICATE S AND COPIES OF ACCOUNTS. HENCE, THE TRANSACTIONS CAN NOT BE SAID TO BE SPECULATIVE ONE. 6. IT IS, HOWEVER, NECESSARY TO HAVE A LOOK AT SOME PECULIAR FACTS OF THE CASE. A PERUSAL OF THE SEQUENCE OF TR ANSACTIONS CARRIED OUT BY THE APPELLANT SHOWS THAT IN THE FIRS T TRANSACTION SHE HAD SOLD THE SHARES ALLOTTED TO HER @ RS.10, FO R RS.37 PER SHARE, THUS EARNING CAPITAL GAINS OF RS.21,68,100/- . THEREAFTER, SHE PURCHASED SHARES FROM M/S. ANIL AGGARWAL & CO. @ RS.69.30 PER SHARE ON 15.6.1994. THE RATE OF THESE SHARES ON THAT DAY, AT DELHI STOCK EXCHANGE, WAS RS.67/-. TH E SHARES WERE THEN, SOLD TO M/S. VIKHYAT MERCANTILE & CREDIT S PVT. LTD., NEW DELHI AT RS.59 PER SHARE ON 7.7.1994. THE RATE OF THE SHARES ON THAT DAY ON DELHI STOCK EXCHANGE WAS RS.7 0/-. IT MAY BE NOTED THAT THE NUMBER OF SHARES BEING PURCHA SED AND SOLD IS CONSTANT AT 80,300. THE APPELLANT WAS ASKE D TO EXPLAIN AS TO WHY THE SHARES WERE PURCHASED AT A HIGHER RAT E AND THEN SOLD WITHIN A MONTH AT MUCH LOWER RATE THAN THE RAT E PREVAILING AT THE DELHI STOCK EXCHANGE. THE APPELLANT SUBMITT ED THAT M/S. VIKHYAT MERCANTILE & CREDITS PVT. LTD. IS ANOTHER C OMPANY. THE CO. IS TAXED @ 46% WHICH WAS MUCH HIGHER THAN T HE RATE OF 40% IN THE CASE OF AN INDIVIDUAL. HENCE, THERE WAS NO QUESTION OF AVOIDING ANY TAX. IT IS ALSO STATED THAT THE AC COUNTS OF M/S. VIKHYAT MERCANTILE & CREDITS PVT. LTD. ARE AUDITED AS PER THE COMPANIES ACT AND ALSO UNDER SECTION 44AB OF THE IN COME TAX ACT. IT IS CONTENDED THAT PURCHASE AND SALE OF SHA RES WAS DULY ACCOUNTED FOR. 7 6.1 THE REPLY GIVEN BY THE APPELLANT IS NOT CLEAR. IT DOES NOT EXPLAIN AS TO WHY WHEN EARLIER, ON 28.8.94, THE SHA RES WERE SOLD @ RS.37/-, LATER ON THEY WERE PURCHASED @ RS.69.30 I.E., AT A RATE HIGHER THAN THE PREVAILING RATE OF RS.67/-. A GAIN, NO PLAUSIBLE EXPLANATION IS FORTHCOMING ON THE ISSUE A S TO WHY THEY WERE SOLD WITHIN A MONTH I.E. ON 07.07.1994 AT A LO SS OF RS.11 PER SHARE VIS--VIS THE LOWEST RATE OF RS.70/- QUOT ED AT DELHI STOCK EXCHANGE ON THAT DAY. THE DEAL IS CLAIMED TO HAVE BEEN MADE IN OUT-OF-FLOOR SETTLEMENT AND THE SALE CONSID ERATION HAS BEEN RECEIVED AFTER MORE THAN 3 YEARS, ON 31.3.1998 , BY WAY OF TRANSFER ENTRY. IT IS ALSO NOTED THAT ON THE IMMED IATELY SUCCEEDING DAY I.E. ON 11.7.1994 THE PRICE OF SHARE S HAD INCREASED TO RS.72 SHARE. IT MAY ALSO BE MENTIONED HERE THAT M/S. VIKHYAT MERCANTILE & CREDITS PVT. LTD. IS A CL OSELY HELD COMPANY IN WHICH THE APPELLANTS HUSBAND IS A DIREC TOR. HE IS ALSO A DIRECTOR IN SATNAM OVERSEAS LTD. WHOSE SHARE S HAVE BEEN PURCHASED AND SOLD BY THE APPELLANT. IT HAS BEEN ST ATED THAT M/S. VIKHYAT MERCANTILES INCOME WAS CHARGEABLE @ 46% AS AGAINST 40% IN THE CASE OF AN INDIVIDUAL AND, THEREFORE, TH ERE WAS NO AVOIDANCE OF TAX. IT HAS, HOWEVER, NOT BEEN SHOWN THAT THE M/S. VIKHYAT MERCANTILE & CREDITS PVT. LTD. HAD ACTUALLY PAID ANY TAX. CONSIDERING ALL THE ATTENDANT CIRCUMSTANCES A ND ALSO THE FACT THAT THE EXPLANATION OF THE APPELLANT REGARDIN G SALE OF SHARE AT A LOWER RATE IS NOT FOUND TO BE SATISFACTORY, TH E CAPITAL LOSS OF RS.8,43,150/- ON SALE OF 80,300 SHARES ON 07.07.199 4 APPEARS TO BE A CONTRIVED ONE AND, THEREFORE, CANNOT BE ALLOWE D. THE REVENUE IS IN FURTHER APPEAL BEFORE US. THE AS SESSEE HAS NEITHER FILED ANY CROSS APPEAL NOR ANY CROSS OBJECTION. 5. THE LEARNED DR MS. GARIMA BHAGAT SUBMITTED THAT SINCE THE ASSESSEE FAILED TO PROVE THE IDENTITY OF M/S. ANIL AGGARWAL & CO. THROUGH WHOM THE ASSESSEE STATED TO HAVE SOLD SHARES FOR THE FIRST T IME AND THEREAFTER RE- PURCHASED FROM THEM, THIS TRANSACTION HAS TO BE IGN ORED AND THE CAPITAL GAIN HAS TO BE COMPUTED ON THE BASIS OF SALE CONSIDERATI ON ACCRUING FROM M/S. 8 VIKHYAT MERCANTILE & CREDITS PVT. LTD. AS REDUCED B Y THE ORIGINAL COST ON THE BASIS OF ORIGINAL ALLOTMENT. 6. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI SALIL AGGRAWAL ON THE OTHER HAND, REITERATED THE SUBMISSIONS MADE BEFORE THE LE ARNED CIT(A) AND HIS FINDING THEREON. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. T HERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE WAS HOLDING SHARE S BY WAY OF ORIGINAL ALLOTMENT FROM THE COMPANY. THESE SHARES ARE STATE D TO HAVE BEEN SOLD THROUGH BROKER M/S. ANIL AGGARWAL & CO. THE ASSESS EE IS IN POSSESSION OF BROKERS NOTE AND STOCK QUOTATION OF DELHI STOCK EX CHANGE IN THIS REGARD. IN RESPECT OF SHARES SOLD THROUGH M/S. ANIL AGGARWAL & CO., THE ASSESSEE WAS ENTITLED TO RECEIVE A SUM OF RS.29,71,100/-. HOWEV ER, AFTER THE SHARES WERE RE-PURCHASED FROM M/S. ANIL AGGARWAL & CO., THE ASS ESSEE WAS REQUIRED TO MAKE PAYMENT OF RS.55,80,850/-. THUS THE NET PAYME NT REQUIRED TO BE MADE TO M/S. ANIL AGGARWAL & CO. IS RS.26,09,750/-. THI S AMOUNT IS STATED TO BE PAID BY ACCOUNT PAYEE CHEQUE/DRAFT AND THE DETAILS OF PAYMENT IN THIS REGARD ARE AT PAGE 5 OF THE APPELLATE ORDER. THUS, THERE CANNOT BE ANY DISPUTE REGARDING SALE OF SHARES TO M/S. ANIL AGGARWAL & CO . ACCORDINGLY, THERE IS NO GROUND TO HOLD THAT THE TRANSACTION WITH ANIL AG GARWAL & CO. WAS A SHAM TRANSACTION. IF THE SAID BROKER IS NOT AVAILABLE, THE TRANSACTION DONE THROUGH 9 HIM BASED ON HIS BROKERS NOTE DULY ACKNOWLEDGED BY STOCK EXCHANGE QUOTATION CANNOT BE BRUSHED ASIDE IN SUCH A SITUATI ON. THERE IS NO INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) ACCEPTING PART O F THE TRANSACTION IN RESPECT OF SALE OF SHARES THROUGH M/S. ANIL AGGARWAL & CO. SINCE THE ASSESSEE IS NOT IN FURTHER APPEAL AND NO DISPUTE IS RAISED REGA RDING HIS FINDING GIVEN IN PARA 6.1 AS EXTRACTED HEREINABOVE, WE DECLINE TO IN TERFERE. 8. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 11 TH SEPTEMBER, 2009. SD/- SD/- (A.D. JAIN) (DEEPAK R. SHAH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11 TH SEPTEMBER, 2009. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.