SUDHAKAR RAM, MUMBAI V. ADDL CIT, 20(3), MUMBAI

ITA 4237/MUM/2008

• Counselvise Citation: 423719914 RSA 2008
• Duration Of Justice: 3 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 06-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 16-06-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B JAYA KUMAR
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Gift; Opportunity of being heard; Additional evidence; Fair market value; Valuation report; Revised return
• Section: 50C; 54F; 139(5); 54; 10; 154

Judgement Text

1 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E BEFORE SHRI N.V. VASUDEVAN, J.M. AND SHRI R.K. PAND A, A.M. ITA NO. 4692/MUM/2008 ASSESSMENT YEAR 2005-06 A.C.I.T. 20(3), ROOM NO. 506, PIRAMAL CHAMBERS, PAREL, MUMBAI - 12. VS. SHRI SUDHAKAR RAM, 18-B/4, TAKSHASHILA, MAHAKALI CAVES ROAD, ANDHERI (E), MUMBAI. 400 093. PAN AAIPR 8221N APPELLANT RESPONDENT ITA NO. 4237/MUM/2008 ASSESSMENT YEAR 2005-06 ITA NO. 430/MUM/2009 ASSESSMENT YEAR 2005-06 SHRI SUDHAKAR RAM, 18-B/4, TAKSHASHILA, MAHAKALI CAVES ROAD, ANDHERI (E), MUMBAI. 400 093. PAN AAIPR 8221N VS. A.C.I.T. 20(3), ROOM NO. 506, PIRAMAL CHAMBERS, PAREL, MUMBAI - 12. APPELLANT RESPONDENT ASSESSEE BY MR. DIVYESH I SHAH MR. AZIZ MUTVALLI DEPARTMENT BY MR. B. JAYAKUMAR DATE OF HEARING 06.09.2011 DATE OF PRONOUNCEMENT 31.10.2011 ORDER PER R.K. PANDA A.M. 2 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM ITA NO. 4692/MUM/2008 FILED BY THE REVENUE AND ITA NO. 4237/MUM/2008 FILED BY THE ASSESSEE ARE CROSS APPEA LS AND ARE DIRECTED AGAINST THE ORDER DTD. 31.3.2008 OF THE LD. CIT(A) XXXII, MUMBAI RELATING TO A.Y. 2005-06. ITA NO. 430/MUM/2009 FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DTD. 10.09.2008 OF THE LD. CIT(A) PASSED AGAINST ORDER U/S 154 OF THE ACT RELATING TO A.Y. 2005-06. FOR THE SAKE OF C ONVENIENCE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER. ITA NO. 4692/MUM/1992 FOR A.Y.2005-06 (BY THE REVEN UE) 2. IN GROUNDS OF APPEAL NO. 1 TO 3, THE REVENUE HAS CHALLENGED THE ORDER OF THE LD. CIT(A) IN DIRECTING THE A.O. TO AL LOW THE ASSESSEES CLAIM FOR EXEMPTION U/S 54F OF THE ACT IN RESPECT OF TWO SEPA RATE FLATS PURCHASED BY THE ASSESSEE OUT OF THE CAPITAL GAIN. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS AN INDIVIDUAL AND EARNED LONG TERM CAPITAL GAIN OF ` 2,89,96,269/- ON ACCOUNT OF SALE OF 89,014 SHARES OF M/S NEWGEN IMAGING AND ` 5,41,860/- ON ACCOUNT OF SALE OF FLAT NO. 18-B/04, TAKSHASHILA BOTH TOTALING TO ` 2,95,38,130/-. THE ASSESSEE CLAIMED LONG TERM CAPITAL GAIN AS EXEMPT U /S 54 OF THE ACT BEING INVESTMENT IN A NEW HOUSE. FROM THE VARIOUS DETAIL S SUBMITTED BY THE ASSESSEE, THE A.O. NOTED THAT THE ASSESSEE HAS SHOW N INVESTMENT IN TWO NEW FLATS IN ENCHANTE BUILDING, KHAR (WEST) AS FOLL OWS:- FLAT NO. 701 - ` 93,15,000 FLAT NO. 702 - ` 96,85,000/- THE A.O. NOTED THAT THE BUILDING WAS UNDER CONSTRUC TION STAGE AND THE ASSESSEE HAD CHOSEN TO PAY THE ENTIRE ADVANCE AND T HEREFORE EXEMPTION U/S 54 CANNOT BE GIVEN. FURTHER, THESE ARE TWO SEP ARATE PROPERTIES AND 3 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM DEDUCTION UNDER THIS SECTION CANNOT BE CLAIMED ON T WO DIFFERENT FLATS AS A SINGLE UNIT. SINCE THEY ARE IN A VERY NASCENT STAG E, IT CANNOT BE KNOWN THAT THEY WOULD BE USED AS ONE PROPERTY. ON BEING F URTHER QUESTIONED BY THE A.O., THE ASSESSEE REVISED THE ABOVE AMOUNT OF INVESTMENT IN THESE TWO FLATS AT ` 2,32,13,500/- WHICH INCLUDES STAMP DUTY, REGISTRAT ION, RENOVATION CHARGES AND ARCHITECTS FEE OF ` 25,33,600/-. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND HOLD ING THAT THE ASSESSEE FAILED TO SATISFACTORILY EXPLAIN THE MAIN ARGUMENT THAT THE BUILDING WAS IN THE INITIAL AND NASCENT STAGE WHEN THE PAYMENT WAS MADE TO AN OBLIGING BUILDER TO WHOM THE ASSESSEE HAD ALSO ADVANCED LOAN S, THE A.O. REJECTED THE CLAIM OF LONG TERM CAPITAL GAIN U/S 54 OF THE A CT. 3.1 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT TH E PRE-REQUISITE FOR CLAIMING EXEMPTION U/S 54F OF THE ACT IS THAT THE A SSESSEE HAS WITHIN A PERIOD OF ONE YEAR BEFORE OR TWO YEARS AFTER THE DA TE ON WHICH THE TRANSFER TOOK PLACE, PURCHASED OR, WITHIN A PERIOD OF THREE YEARS AFTER THAT DATE CONSTRUCTED A RESIDENTIAL HOUSE. THE ASSESSEE HAS SOLD THE SHARES ON 5.10.2004 AND THE FLAT WAS PURCHASED ON 11.1.2005 I .E. WITHIN LESS THAN 4 MONTHS AFTER THE SALE OF THE CAPITAL ASSET. SINCE THE PURCHASE IS WITHIN THE TWO YEARS PERIOD, THE EXEMPTION OUGHT TO HAVE BEEN GRANTED. REFERRING TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. MRS. HILLA J.B. WADIA REPORTED IN 216 ITR 376, IT WAS SU BMITTED THAT PAYMENT OF SUBSTANTIAL MONEY WITHIN THE PRESCRIBED PERIOD E NTITLED THE ASSESSEE TO HAVE ACQUIRED THE RIGHT TO A SPECIFIC FLAT IN SUCH A BUILDING WHICH IS BEING CONSTRUCTED BY THE SOCIETY FOR THE PURPOSE OF SECTI ON 54F. SINCE THE ASSESSEE IN THE INSTANT CASE HAS ACQUIRED THE DOMAI N OVER THE FLAT AND HAD MADE INVESTMENTS IN IT BEFORE THE EXPIRY OF TWO YEA RS FROM THE DATE OF TRANSFER OF THE SHARES AND SINCE THE AGREEMENTS FOR THE AFORESAID FLAT WERE ENTERED INTO BETWEEN THE BUILDER AND THE ASSESSEE O N 11.1.2005, WHICH IS 4 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM WELL BEFORE THE COMPLETION OF TWO YEARS FROM THE DA TE OF TRANSFER OF THE SHARES, THEREFORE, THE ASSESSEE IS ENTITLED TO CLAI M DEDUCTION U/S 54F. 3.2 AS REGARDS THE OBJECTION OF THE A.O. THAT THE A SSESSEE HAS ACQUIRED TWO FLATS AND THEREFORE EXEMPTION U/S 54F WOULD NOT BE AVAILABLE, THE ASSESSEE RELIED ON THE DECISION OF THE SPECIAL BENC H OF ITAT IN THE CASE OF ITO VS. SUSHILA M. JHAVERI REPORTED IN 14 SOT 394 W HEREIN IT HAS BEEN HELD THAT WHERE MORE THAN ONE UNITS ARE PURCHASED W HICH ARE ADJACENT TO EACH OTHER AND ARE CONVERTED INTO ONE HOUSE FOR THE PURPOSE OF RESIDENCE BY HAVING COMMON PASSAGE, COMMON KITCHEN ETC. THEN IT WOULD BE A CASE OF INVESTMENT IN ONE RESIDENTIAL HOUSE AND CONSEQUE NTLY THE ASSESSEE WOULD BE ENTITLED TO EXEMPTION. IT WAS SUBMITTED T HAT IN THE ASSESSEES CASE THE FLAT NO. 701 & 702 ARE ADJACENT TO EACH OT HER AND HAVE BEEN CONVERTED INTO A SINGLE HABITABLE UNIT. THE ASSESS EE HAS INCURRED AN AMOUNT OF ` 25,33,000/- ON SUCH CONVERSION AND RELATED WORK. THE COMBINED UNITS HAVE A COMMON KITCHEN, PASSAGE ETC. AS IS APPARENT FROM THE SUBSEQUENT LEAVE AND LICENCE AGREEMENT DTD. 23. 11.2006 WHICH WAS ENTERED INTO BETWEEN THE ASSESSEE AND M/S RELIANCE INDUSTRIES LTD. FOR THE ACCOMMODATION OF ITS EXECUTIVE. REFERRING TO THE A GREEMENT WITH RELIANCE INDUSTRIES LTD., IT WAS SUBMITTED THAT THE UNITS SO LEASED OUT ARE FOR THE SOLE USE OF THE SAID EXECUTIVE AND HIS FAMILY MEMBE RS AS A SINGLE HOUSE. A CERTIFICATE OBTAINED FROM HIS ARCHITECT WAS FILED B EFORE THE LD. CIT(A) TO THE PROPOSITION THAT BOTH THE UNITS 701 & 702 ARE CONVE RTED INTO ONE DWELLING UNIT. IT WAS ACCORDINGLY SUBMITTED THAT THE ASSESS EE IS ENTITLED TO EXEMPTION U/S 54F OF THE ACT. 3.3 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE AND THE ADDITIONAL EVIDENCES FILED BEFORE HIM, THE LD. CIT( A) CALLED FOR A REMAND REPORT FROM THE A.O. CONSIDERING THE REMAND REPORT GIVEN BY THE A.O. AND 5 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM THE OBJECTION OF THE ASSESSEE, HE DIRECTED THE A.O. TO ALLOW THE BENEFIT OF DEDUCTION U/S 54F TO THE ASSESSEE. WHILE DOING SO, HE NOTED THAT TWO FLATS HAVE BEEN RENOVATED/CONVERTED TO ONE DWELLING UNIT AND ARE BEING USED AS SUCH. THE RENOVATION HAD STARTED RIGHT IN JANUARY, 2005 I.E. EVEN BEFORE THE POSSESSION OVER THE FLATS WAS TAKEN AND THEY WE RE RENOVATED SOON THEREAFTER. RELYING ON THE DECISION OF HONBLE BOM BAY HIGH COURT IN THE CASE OF MRS. HILLA J.B. WADIA (SUPRA), HE HELD THAT THE ASSESSEE HAS ACQUIRED THE RIGHT TO A SPECIFIC FLAT IN SUCH A BUI LDING WHICH IS BEING CONSTRUCTED BY THE SOCIETY AND HE HAS MADE A SUBSTA NTIAL INVESTMENT WITHIN THE PRESCRIBED PERIOD WHICH ENTITLES HIM TO OBTAIN POSSESSION OF THE FLAT SO CONSTRUCTED AND IN WHICH HE INTENDS TO RESI DE. FURTHER IN VIEW OF THE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE O F SUSHILA M. JHAVERI (SUPRA) WHERE BOTH THE FLATS WHICH ARE ADJACENT EAC H OTHER AND HAVING BEEN RENOVATED FOR USE OF ONE HOUSE FOR THE PURPOSE OF RESIDENCE AND SINCE THE PREMISES ARE ACTUALLY BEING USED AS ONE HOUSE, THE SAME IS TO BE CONSIDERED AS SINGLE UNIT FOR THE PURPOSE OF SECTIO N 54F.HE ACCORDINGLY ALLOWED THE CLAIM OF DEDUCTION U/S 54F. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 4. THE LD. D.R. WHILE CHALLENGING THE ORDER OF THE LD. CIT(A) SUBMITTED THAT THE FACTS IN THE PRESENT CASE ARE NOT MATCHING WHICH THE FACTS IN THE CASE OF SUSHILA M. JHAVERI (SUPRA). REFERRING TO THE COPY OF AGREEMENT DTD. 10.1.2005 PLACED AT PAGE 68 TO 95 OF THE PAPER BOOK, THE LD. D.R. DREW THE ATTENTION OF THE BENCH TO CLAUSE 17 OF THE AGRE EMENT ACCORDING TO WHICH THE ASSESSEE HAS PURCHASED FLAT NO. 702 ON TH E 7 TH FLOOR OF THE BUILDING. REFERRING TO COPY OF AGREEMENT DTD. 11.1 .2005 PLACED AT PAGE 111 TO 138 OF THE PAPER BOOK, THE LD. D.R. DREW THE ATTENTION OF THE BENCH TO PARA NO. 17 ACCORDING TO WHICH THE ASSESSEE PURC HASED FLAT NO. 701 ON THE 7 TH FLOOR OF THE BUILDING. THUS, THE ASSESSEE HAS PURC HASED TWO 6 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM SEPARATE FLATS AT THE 7 TH FLOOR OF THE BUILDING. REFERRING TO PAGE 100 OF T HE PAPER BOOK, THE LD. D.R. DREW THE ATTENTION OF THE BENCH TO THE TYPICAL FLOOR PLAN OF THE TWO FLATS WHICH ARE SITUATED IN FRONT O F EACH OTHER AND ARE NOT ADJACENT TO EACH OTHER. HE SUBMITTED THAT IN BETWE EN TWO FLATS, THERE ARE PASSAGE, LOBBY AND STAIRCASE ETC. THERE IS NO INTE RCONNECTION BETWEEN THE TWO FLATS. THEREFORE, THE DECISION OF THE SPECIAL B ENCH OF THE TRIBUNAL IN THE CASE OF SUSHILA M. JHAVERI (SUPRA) IS NOT APPLI CABLE. HE SUBMITTED THAT NEITHER THE A.O. NOR THE CIT(A) HAS GIVEN A FINDING THAT UNLESS THE LIFT AND STAIRCASE ARE DEMOLISHED BOTH THE FLATS CANNOT BE C LUBBED TOGETHER AS SINGLE UNIT AND THEREFORE IT CANNOT BE SAID THAT TH ESE ARE TWO ADJACENT FLATS. HE SUBMITTED THAT BECAUSE OF TIME CONSTRAIN S, THE A.O. COULD NOT MAKE PROPER ENQUIRY. THEREFORE, THE ISSUE MAY BE SE NT BACK TO A.O. FOR FRESH ADJUDICATION. 5. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND SUBMITTED THAT ALL THE FACTS WERE BEFORE THE A.O. AND THE LD. CIT( A) AND THE LD. CIT(A) CALLED FOR A REMAND REPORT ON THE BASIS OF VARIOUS EVIDENCES FILED BY THE ASSESSEE AND COPY OF THE SAME IS PLACED AT PAGE 210 OF THE PAPER BOOK. THEREFORE, THE MATTER NEED NOT BE SENT BACK TO THE A.O. SO FAR AS THE ISSUE RELATING TO THE ALLOWABILITY OF SECTION 54F DEDUCTI ON HE SUBMITTED THAT THE ASSESSEE SOLD SHARES ON 5.10.2004 ON WHICH THE LONG TERM CAPITAL GAIN AROSE. THE LAST DATE FOR CLAIMING BENEFIT U/S 54F W AS 4 TH OCTOBER, 2006. THE ASSESSEE HAS ENTERED INTO TWO SEPARATE AGREEMEN TS WITH THE BUILDERS FOR THE PURPOSE OF TWO SEPARATE FLATS WHICH ARE REG ISTERED ON 14.1.2005. THE ENTIRE CONSIDERATION WAS PAID BEFORE 31.3.2005. THE ASSESSEE INCURRED ADDITIONAL EXPENDITURE FOR CONVERTING BOTH THE FLATS TO A SINGLE UNIT HAVING COMMON PASSAGE AND KITCHEN. REFERRING TO PAGE 159 OF THE PAPER BOOK, THE LD. COUNSEL FOR THE ASSESSEE DREW T HE ATTENTION OF THE BENCH TO THE ARCHITECTS CERTIFICATE ACCORDING TO W HICH THE FLAT NO. 701 & 7 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM 702 WERE USED AS A SINGLE UNIT AND HAVING COMMON KI TCHEN, UTILITY AND PASSAGE ETC. FOR BONAFIDE NEED OF LARGER ACCOMMODAT ION. HE SUBMITTED THAT THE POSSESSION WAS GIVEN ON 14.1.2006 AS A SINGLE U NIT TO RELIANCE INDUSTRIES LTD. HE SUBMITTED THAT ON 23.11.2006, T HE ASSESSEE ENTERED INTO A LEAVE AND LICENCE AGREEMENT WITH RELIANCE IN DUSTRIES LTD. AND BOTH THE UNITS WERE LET OUT AS A SINGLE UNIT. RELYING O N THE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF SUSHILA M. JHAVERI (SU PRA) AND THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. D. ANANDA BASAPPA REPORTED IN 180 TAXMAN 4 (KAR) AND CIT VS. SMT. K.G . RUKMINIAMMA REPORTED IN 196 TAXMAN 87 (KAR), AND 216 ITR 376 AN D 106 ITD 167 HE SUBMITTED THAT THE ORDER OF THE LD. CIT(A) SHOULD B E UPHELD. 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THE FACTS ARE NOT IN DIS PUTE. THE QUESTIONS TO BE DECIDED IN THE IMPUGNED GROUNDS ARE AS TO WHETHER T HE ASSESSEE IS ENTITLED TO DEDUCTION U/S 54F ON ACCOUNT OF LONG TE RM CAPITAL GAIN FOR PURCHASE OF TWO FLATS WHICH WERE NOT FULLY COMPLETE D BEFORE THE EXPIRY OF STATUTORY PERIOD OF TWO YEARS FROM THE DATE OF THE CAPITAL GAIN WHICH AROSE ON SALE OF SHARES AND WHETHER BOTH THE FLATS CAN BE TERMED AS A SINGLE UNIT. FROM THE VARIOUS DETAILS FURNISHED BY THE AS SESSEE AND THE FACTS ENUMERATED BY THE A.O. AND THE LD. CIT(A), IT IS SE EN THAT THE SHARES WERE SOLD ON 5.10.04 AND THE ASSESSEE HAS MADE FULL PAYM ENT TO THE BUILDER BEFORE 31.3.2005 ALTHOUGH THE FLATS WERE COMPLETED AND POSSESSION GIVEN IN THE MONTH OF JANUARY, 2006. SINCE THE ASSESSEE HAS MADE THE FULL CONSIDERATION BEFORE THE STATUTORY PERIOD OF 2 YEAR S FROM THE DATE OF SALE OF SHARES AND HAS ACQUIRED THE RIGHT IN THE TWO FLATS WHICH IS BEING CONSTRUCTED BY THE BUILDER, THEREFORE, IN VIEW OF T HE DECISION OF THE HONBLE 8 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM BOMBAY HIGH COURT IN THE CASE OF MRS. HILLA J.B. WA DIA (SUPRA) THE BENEFIT OF DEDUCTION U/S 54F CANNOT BE DENIED TO THE ASSESS EE. 6.1 NOW, COMING TO THE NEXT ISSUE I.E WHETHER THE A SSESSEE IS ENTITLED TO CLAIM THE BENEFIT OF DEDUCTION U/D 54F FOR BOTH THE FLATS TREATING THE SAME AS SINGLE UNIT, WE DO NOT AGREE WITH THE CONTENTION OF THE LD. CIT(A) WHO HAS FOLLOWED THE DECISION OF THE SPECIAL BENCH OF I TAT IN THE CASE OF SUSHILA M. JHAVERI (SUPRA). IN THAT CASE IT HAS BEE N HELD THAT WHERE MORE THAN ONE UNITS ARE PURCHASED WHICH ARE ADJACENT TO EACH OTHER AND THE SAME ARE CONVERTED INTO ONE HOUSE FOR THE PURPOSE O F RESIDENCE HAVING COMMON PASSAGE/KITCHEN ETC. THEN IT WOULD BE A CASE OF INVESTMENT IN ONE UNIT AND CONSEQUENTLY THE ASSESSEE WOULD BE ENTITLE D TO EXEMPTION. HOWEVER, IN THE INSTANCE CASE, THE ASSESSEE HAS PUR CHASED TWO SEPARATE FLATS UNDER TWO SEPARATE AGREEMENTS. ALTHOUGH BOTH THE FLATS ARE SITUATED AT THE SAME FLOOR, HOWEVER, FROM THE DRAWING/DESIGN OF THE FLATS FILED IN THE PAPER BOOK, IT IS ABSOLUTELY CLEAR THAT BOTH THE FL ATS ARE NOT ADJACENT TO EACH OTHER BUT ARE OPPOSITE TO EACH OTHER AND ARE S EPARATED FROM EACH OTHER BY COMMON PASSAGE, LOBBY STAIRCASE ETC. THE LD. COUNSEL FOR THE ASSESSEE ALSO CONCEDED THAT THERE IS NO AGREEMENT W ITH THE BUILDER THAT THE PASSAGE AND STAIRCASE ETC. ARE TO BE EXCLUSIVEL Y USED BY THE ASSESSEE AND NOT BY ANY OTHER FLAT OWNER IN THE SAME BUILDIN G. MERELY BECAUSE THE ASSESSEE HAS LET OUT THE TWO FLATS TO ONE PERSON FO R USE AS A SINGLE UNIT, THE SAME, IN OUR OPINION, CANNOT ENTITLE THE ASSESS EE TO CLAIM BENEFIT OF DEDUCTION U/S 54F OF THE ACT. THE CERTIFICATE OBTA INED FROM THE ARCHITECT IS ONLY A SELF SERVING DOCUMENT SINCE NOTHING WAS G IVEN IN WRITING BY THE BUILDER TO THE ASSESSEE TO EXCLUSIVELY USE THE COMM ON AREA. HOWEVER, THE ASSESSEE, IN OUR OPINION, IS ENTITLED TO THE BENEFI T OF DEDUCTION U/S 54F FOR ONE OF THE TWO UNITS. SINCE FLAT NO. 701 GIVES THE MAXIMUM BENEFIT TO THE ASSESSEE, THE COST BEING ` 95,85,000/-, THE ASSESSEE, IN OUR OPINION, IS 9 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM ENTITLED TO DEDUCTION U/S 54F TO THIS EXTENT. WE H OLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY PARTLY ALLOWED. 7. GROUNDS OF APPEAL NO. 4 BY THE REVENUE READS AS UNDER:- THE CIT(A) HAS ERRED IN NOT APPRECIATING THE FACTS THAT THE ASSESSEE HAD SOLD FLAT TO HIS WIFE ON LOSS DELIBERA TELY TO SET OFF THE LONG TERM CAPITAL GAIN ON SALE OF SHARES AND OT HER ASSETS. THIS IS FURTHER CEMENTED BY THE FACT THAT THE ASSES SEE HAD PURPOSEFULLY ALSO NOT REGISTERED THE SALE AGREEMENT . 7.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE WA S OWNER OF FLAT NO. 18B/03, 18B/04, 18B/13 & 18B/14 AT TAKSHILA, OFF MA HAKALI CAVES ROAD, ANDHERI (E), MUMBAI ALONG WITH HIS WIFE MRS. GIRIJA RAM. DURING THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE HAS SHOW N SALE OF HIS HOUSE TO HIS WIFE BY JUST MAKING AGREEMENT AND AS USUAL C ONTINUED TO LIVE THERE. FLAT NO. 18B/03 WAS SHOWN TO HAVE BEEN PURCHASED IN THE ASST. YEAR 1985-86 FOR A CONSIDERATION OF ` 1,68,000/-, FLAT NO. 18B/13 WAS SHOWN TO HAVE BEEN PURCHASED DURING A.Y. 2000-01 FOR A CO NSIDERATION OF ` 50,83,606/-, FLAT NO. 18B/14 WAS SHOWN TO HAVE BEEN PURCHASED IN THE A.Y. 1995-96 FOR A CONSIDERATION OF ` 14 LACS. THE ASSESSEE SOLD THE ABOVE THREE FLATS DURING THE IMPUGNED ASSESSMENT YEAR FOR A CONSIDERATION OF ` 38,58,750/- BY JUST MAKING AGREEMENTS. ACCORDING T O THE A.O. SUCH TRANSFER OF THE FLATS WAS MADE WITH THE SOLE INTENT ION OF CREATING A SHORT TERM LOSS BECAUSE OTHERWISE THE ASSESSEE WOULD HAVE TO PAY HUGE TAX ON ACCOUNT OF SHORT TERM / LONG TERM CAPITAL GAIN. FU RTHER, ACCORDING TO THE A.O. IF THE INTENTION WAS TO JUST TRANSFER THE OWNE RSHIP TO HER, THE SAME COULD HAVE BEEN GIFTED TO HER. SINCE THE ASSESSEE DURING THE IMPUGNED ASSESSMENT YEAR HAS MADE LONG TERM PROFIT OF ` 3.19 CRORES AND SHORT TERM CAPITAL GAIN OF ` 36.91 LAKHS, THE A.O. CAME TO THE CONCLUSION THAT THE ASSESSEE HAS ENTERED INTO MANY DUBIOUS TRANSACTIONS SO AS TO AVOID 10 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM PAYING TAX ON THE SAME. HE, THEREFORE, WAS OF THE OPINION THAT THE SO- CALLED SALE IS NOT A VALID SALE AND ASKED THE ASSES SEE TO EXPLAIN AS TO WHY THE LONG TERM CAPITAL LOSS ON SALE OF THE FLATS SHO ULD NOT BE DISALLOWED. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE, THE A.O. NOTED THAT THE ASSESSEE IN HIS BALANCE SHEET HAS DISCLOSED THE INVESTMENT IN FLAT NO. 18B/13AT ` 20,68,750/- AND THE INVESTMENT IN THE OTHER FLATS NO. 18B/13 AND 14 WAS NEVER DISCLOSED AND IN FACT ARE HIS UNAC COUNTED INVESTMENT. THERE IS QUITE A LOT OF CONTRADICTION IN THE VARIOU S DETAILS SUBMITTED BY THE ASSESSEE. THE SALE AGREEMENT OF FLATS WERE NOT DEL IBERATELY REGISTERED TO AVOID PROVISIONS OF SECTION 50-C. REJECTING THE VA RIOUS EXPLANATIONS GIVEN BY THE ASSESSEE, THE A.O. DISALLOWED THE CLAIM OF L ONG TERM CAPITAL LOSS OF ` 53,49,200/- ON ACCOUNT OF SALE OF THREE FLATS. 7.2 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT ME RELY BECAUSE THE TRANSACTION HAS TAKEN PLACE WITH THE WIFE OF THE AS SESSEE, THE SAME CANNOT BE REGARDED AS SHAM. IN THE INSTANCE CASE, THE TRA NSFEROR CEASES TO RETAIN THE TITLE. THE CONSIDERATION HAS ACTUALLY PASSED FR OM HIS WIFE TO THE ASSESSEE WHICH CAN BE VERIFIED FROM THE SUMMARY OF THE BANK TRANSACTIONS OF THE ASSESSEE. THE AGREEMENTS FOR THE SALE OF TH ESE FLATS WERE ALSO ENTERED INTO BETWEEN THE ASSESSEE AND HIS WIFE AND FULL APPLICABLE STAMP DUTY HAS BEEN PAID. THE CONSIDERATION FOR THE FLAT IS HIGHER THAN THE STAMP DUTY READY RECKONER VALUE AS CERTIFIED BY THE VALUER. THE SALE PRICES ARE SUPPORTED BY THE VALUATION REPORTS SUBMITTED BY AN INDEPENDENT VALUER. THEREFORE, EVEN IF ONE HAS TO CONSIDER THE APPLICATION OF SECTION 50C OF THE ACT, IF THE FAIR MARKET VALUE OF THE FLA TS AT WHICH THEY HAVE BEEN SOLD IS HIGHER THAN THE VALUATION REFERRED TO IN SE CTION 50C, THEN THERE WOULD HAVE BEEN NO ADDITION. AS REGARDS THE CONTEN TION OF THE A.O. THAT THE ASSESSEE COULD HAVE GIFTED THE FLAT TO HIS WIFE IT WAS SUBMITTED THAT AS LONG AS THE TRANSACTION IS GENUINE WITH PROPER CONS IDERATION RECEIVED AND 11 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM SUPPORTED BY VALUATION REPORTS AND AGREEMENTS, THE QUESTION WHETHER THE SAME SHOULD HAVE BEEN SOLD OR GIFTED CANNOT BE DELI BERATED UPON AS IT IS A PERSONAL DECISION OF THE ASSESSEE. VARIOUS DECISIO NS WERE ALSO BROUGHT TO THE NOTICE OF THE LD. CIT(A) TO THE PROPOSITION THA T THE SALE TRANSACTIONS CANNOT BE HELD TO BE SHAM. IT WAS ALSO ARGUED THAT THE ASSESSEE IS ENTITLED TO ARRANGE HIS AFFAIRS WITHIN THE FOUR CORNERS OF L AW SO AS TO MINIMIZE HIS TAXES. HOWEVER UNAPPRECIATIVE THE REVENUE MAY BE O F HIS INGENUITY, THE ASSESSEE CANNOT BE MADE TO PAY HIGHER TAX. AS LONG AS THIS ARRANGEMENT IS NOT A COLOURABLE DEVICE, THE TAX PLANNING CANNOT BE HELD AS ILLEGITIMATE. IT WAS SUBMITTED THAT THE TITLE OF THE THREE FLATS HAS BEEN LEGALLY PASSED ON TO HIS WIFE AS THEY STAND TRANSFERRED BY THE ASSESS EE IN HER NAME THROUGH RESPECTIVE SALE DEEDS. THE REQUISITE STAMP DUTY HA S BEEN PAID ON THE BASIS OF MARKET VALUATION AND SALE CONSIDERATION. T HEREFORE, THE PROVISIONS OF SECTION 50C OF THE ACT ARE ALSO NOT VIOLATED. T HERE IS NO BAR IN THE LAW REGARDING TRANSFER OF PROPERTY BY HUSBAND TO WIFE A ND THE TRANSACTION CANNOT BE REGARDED AS DIFFERENT FROM THIRD PARTY TR ANSACTION AND, HENCE, CANNOT BE DISCRIMINATED ON ACCOUNT OF ABOVE FACTS. RELYING ON A NUMBER OF DECISIONS, IT WAS SUBMITTED THAT NO DISALLOWANCE CAN BE MADE ON ACCOUNT OF LONG TERM CAPITAL LOSS AND THE SAME SHOU LD BE ALLOWED. 7.3 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE , THE LD. CIT(A) DIRECTED THE A.O. TO ALLOW THE CLAIM OF THE ASSESSE E. WHILE DOING SO, HE NOTED THAT THE ASSESSEE GOT THE VALUE OF THE SAID F LATS ASCERTAINED AS PER READY RECKONER FOR STAMP DUTY PURPOSES THROUGH AN I NDEPENDENT TECHNO LEGAL CONSULTANT MR. ASHWIN V. SHETTY. THE THREE F LATS HAVE BEEN SOLD BY THE ASSESSEE TO HIS WIFE VIDE THREE SALE DEEDS DATE D 7.01.2005 FOR PRICE EQUAL TO FIGURE OF REGISTERED VALUER WHICH WAS SLIG HTLY HIGHER THAN THE STAMP DUTY RATE. THE TRANSFER IS REGISTERED WITH T HE SOCIETY AND THE TITLE OF THE FLAT IS IN THE NAME OF WIFE SMT. GIRIJA RAM. T HE REGISTRATION OF THESE 12 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM DOCUMENTS IS NOT MANDATORY UNDER INDIAN REGISTRATIO N ACT. NOTHING HAS BEEN BROUGHT OUT BY THE A.O. TO SAY THAT THE TRANSA CTION IS SHAM TRANSACTION. THE A.O. HAS ONLY PRESUMED THINGS AND ARRIVED AT CERTAIN CONCLUSIONS BASED ON SUCH PRESUMPTIONS. THE A.O. HA S NOT BEEN ABLE TO ESTABLISH AS TO HOW THE SAID TRANSFER CAN BE TREATE D AS VOID. NO FACTS HAVE BEEN DISCOVERED EITHER THROUGH INVESTIGATION OR OTH ERWISE TO ESTABLISH THAT THE TRANSFER IS DEFECTIVE OR IT HAS IN REALITY NOT TAKEN PLACE. RELYING ON A COUPLE OF DECISIONS, THE LD. CIT(A) DIRECTED THE A. O. TO ALLOW THE NET CAPITAL LOSS ON SALE OF THREE FLATS AMOUNTING TO ` 46,54,822/-. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE REVENUE IS IN APP EAL BEFORE US. 8. THE LD. D.R. SUBMITTED THAT THE A.O. BROUGHT ON RECORD THE FACTUAL DETAILS ACCORDING TO WHICH THE ASSESSEE HAS SOLD FL ATS TO HIS WIFE JUST TO MINIMIZE HIS TAX LIABILITY AND ABSORB THE LONG TERM CAPITAL GAIN. IN HIS ALTERNATE CONTENTION, HE SUBMITTED THAT BECAUSE OF TIME CONSTRAINT, THE A.O. COULD NOT MAKE PROPER ENQUIRY, THEREFORE, THE MATTER MAY BE RESTORED TO THE FILE OF THE A.O. FOR FURTHER INVESTIGATION. 9. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, WHILE SUPPORTING THE ORDER OF THE LD. CIT(A) SUBMITTED TH AT ALL FACTS WERE BEFORE THE A.O. AND THE LD.CIT(A). THE LD. CIT(A) ON THE BASIS OF THE REMAND REPORT FROM THE A.O. HAS DIRECTED TO ALLOW THE CLAI M OF LONG TERM CAPITAL LOSS. HE SUBMITTED THAT THE FULL CONSIDERATION HAS BEEN PAID BY WIFE OF THE ASSESSEE WHICH HAS BEEN ROUTED THROUGH REGULAR BANK ACCOUNT. THE STAMP DUTY HAS BEEN PAID ON THE BASIS OF READY RECK ONER RATE. ONLY, THE AGREEMENTS WERE NOT REGISTERED. HE SUBMITTED THAT THE REGISTRATION OF THE DOCUMENTS IS NOT COMPULSORY. RELYING ON A COUPLE O F DECISIONS, HE SUBMITTED THAT THE LD. CIT(A) WAS JUSTIFIED IN ALLO WING THE CLAIM OF THE ASSESSEE. 13 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US . THE ONLY DISPUTE IN THE IMPUGNED GROUND IS AS TO WHETHER THE LONG TERM CAPITAL LOSS CLAIMED BY TH E ASSESSEE ON ACCOUNT OF SALE OF FLATS BE ALLOWED OR NOT. FROM THE VARIO US DECISIONS CITED BY THE LD. COUNSEL FOR THE ASSESSEE, WE AGREE THAT THERE I S NO REQUIREMENT UNDER THE LAW TO GO FOR REGISTRATION OF THE SALE AGREEMEN TS. HOWEVER, WHEN THE AGREEMENT FOR SALE IS MADE AND THE STAMP DUTY HAS B EEN PAID AND THE LOSS HAS BEEN CLAIMED WHICH HAS BEEN SET OFF AGAINST THE LONG TERM CAPITAL GAIN, THE A.O. HAS GOT EVERY RIGHT TO FIND OUT THE GENUINENESS OF SUCH SALE PRICE. WE FIND THE LD. CIT(A) ACCEPTED THE CONTENT ION OF THE ASSESSEE ON THE BASIS OF THE VALUATION REPORT GIVEN BY THE REGI STERED VALUER. ON A PERUSAL OF THE VALUATION REPORT GIVEN BY THE REGIST ERED VALUER WE FIND HE HAS DETERMINED THE FAIR MARKET VALUE OF THE PROPERT Y ON THE BASIS OF ENQUIRIES MADE WITH THE REPUTED BUILDERS, ESTATE AG ENTS AND OTHER INVESTORS IN THE VICINITY USING MARKET VALUE METHO D TAKING INTO ACCOUNT ALL THE FACTORS MENTIONED AS ABOVE IN THE SAID REPO RT. HOWEVER, NOT A SINGLE INSTANCE OF SALE OF SUCH PROPERTY IN THE VIC INITY HAS BEEN GIVEN BY VERIFYING THE RECORDS OF THE DISTRICT SUB. REGISTRA R. THEREFORE, THE SAME APPARENTLY APPEARS TO BE A SELF SERVING DOCUMENT. WE ALSO FIND SOME FORCE IN THE SUBMISSION OF THE LD. D.R. THAT BECAUSE OF T IME CONSTRAINT BY THE A.O., IT WAS NOT EXAMINED PROPERLY BY THE AO AND, T HEREFORE, THE MATTER MAY BE SENT BACK TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE AND IN THE IN TERESTS OF JUSTICE, WE DEEM IT PROPER TO RESTORE THE MATTER BACK TO THE FILE OF THE A.O. WITH A DIRECTION TO GIVE ONE MORE OPPORTUNITY TO THE ASSESSEE TO SUB STANTIATE WITH EVIDENCE TO THE SATISFACTION OF THE A.O. REGARDING THE GENUI NENESS OF SALE PRICE OF 14 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM THE THREE FLATS. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 11. GROUNDS OF APPEAL NO. 5 BY THE REVENUE READS A S UNDER:- THE LD. CIT(A) HAS ERRED IN ALLOWING THE ASSESSEE T O SET OFF LONG TERM LOSS ON SALE OF UNLISTED SHARES OF M/ S GEORGE PHILIPS MEDICAL ENG. PVT. LTD. AGAINST LONG TERM C APITAL GAIN ON SALE OF SHARES OF M/S NEWGEN IMAGINE SYSTEM PVT. LT D. AS HERE ALSO THE ASSESSEE HAD SOLD THE SHARES TO HIS WIFE A T A SOLE PURPOSE OF GENERATING LOSS. 11.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE HA S PURCHASED 76,900 SHARES OF GEORGE PHILIPS DURING A.Y. 1999-2 000 FOR A CONSIDERATION OF ` 10 LACS. SIMILARLY, HE HAS PURCHASED 1000 SHARES OF MELSTAR FOR A CONSIDERATION OF RS 7,200 AND 1000 SH ARES OF ORIENT INFO FOR A CONSIDERATION OF ` 4,89,563/- DURING THE A.Y. 2000-01. THE ASSESSEE SOLD THE ABOVE SHARES TO HIS WIFE AND CLAIMED LONG TERM CAPITAL LOSS. THE DETAILS ARE AS UNDER:- A. YEAR SHARES PURCHASE PRICE INDEXED COST SALE PRICE PROFITS 99-2000 GEORGE PHILIPS 10,00,000 12,33,933 1,15,350 (-)11,18,583 2000-01 MELSTAR 7,200 8884 5580 (-) 3304 2000-01 ORIENT INFO 4,89,563 6,04,088 39,407 (-) 5, 64,681 THE A.O. NOTED THAT THE ASSESSEE HAS DELIBERATELY C REATED THIS LOSS TO OFFSET ITS SHORT TERM PROFIT. FURTHER, THE SALES H AVE BEEN MADE OF THESE UNLISTED COMPANIES OF WHICH NO MARKET VALUE IS AVAI LABLE AND THERE IS NO INDEPENDENT VERIFICATION AS TO THE BASIS OF THE SAL E PRICE FIXED BETWEEN THE ASSESSEE AND HIS WIFE. AFTER CONSIDERING THE EXPLAN ATION GIVEN BY THE ASSESSEE, THE A.O. ACCEPTED THE SALE OF SHARES OF M ELSTAR AND ORIENT INFO. SINCE THE ASSESSEE WAS ABLE TO SUBSTANTIATE THE SAM E WITH CORROBORATIVE EVIDENCE. HOWEVER, AS REGARDS THE SHARES OF GEORGE PHILIPS, SINCE THE ASSESSEE COULD NOT SUBSTANTIATE THE SALE VALUE AND HAS SIMPLY STATED THAT 15 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM IT IS THE SHARE VALUE WITHOUT ANY PROOF, THE A.O. R EJECTED THE CLAIM OF LOSS ON SALE OF SHARES OF GEORGE PHILIPS. 12. BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT TH E CONSIDERATION FOR SALE OF SHARES IS NOT AT A THROWAWAY PRICE AND AS PER TH E VALUATION REPORT OF THE SHARES OF THAT COMPANY AS CARRIED OUT BY AN INDEPEN DENT VALUER. AS AGAINST THE VALUATION OF ` 61,520/-, THE ACTUAL CONSIDERATION RECEIVED WAS ` 1,15,350/-. THE ACTUAL SALE CONSIDERATION WAS REC EIVED BY THE ASSESSEE FROM HIS WIFE IS REFLECTED IN THE BANK ACCOUNT AND THE TRANSFER DEED AS REQUIRED UNDER THE LAW WAS ALSO EXECUTED. ALTHOUGH THE FAIR VALUE REPORT WAS NOT FURNISHED BEFORE THE A.O., IT WAS REQUESTED TO THE LD. CIT(A) TO ACCEPT THE SAME AS AN ADDITIONAL EVIDENCE. 12.1 BASED ON THE ARGUMENTS ADVANCED BEFORE HIM AND AFTER OBTAINING THE REMAND REPORT, THE LD. CIT(A) DIRECTED THE A.O. TO ALLOW THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS EXECUT ED THE TRANSFER DEED FOR THE SHARES AS REQUIRED UNDER THE COMPANY LAW AN D THE SALE VALUE OF THE SHARES IS SUPPORTED BY A VALUATION REPORT. FUR THER, THE ASSESSEE HAS RECEIVED THE CONSIDERATION FOR THE TRANSACTION. AG GRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 12.2 THE LD. D.R. SUBMITTED THAT THE SHARES ARE UNQ UOTED SHARES OF A PRIVATE LIMITED COMPANY AND THE SHARES ARE SOLD TO HIS WIFE AT A LOWER PRICE. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHE R HAND, SUPPORTED THE ORDER OF THE LD. CIT(A). 12.3 AFTER HEARING BOTH THE SIDES, WE FIND THE IMPU GNED A.Y.IS 2005-06 AND THE VALUATION IS BASED ON THE AUDITORS STATEMEN T AS ON 31.3.2004. WE FIND THE A.O. IN HIS REMAND REPORT HAS STATED THE C ONTENTION OF THE 16 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM ASSESSEE THAT PURCHASE OF SHARES HAS BEEN ACCEPTED BY THE DEPARTMENT IN THE CASE OF MRS. GIRIJA RAM IS ABSOLUTELY UNTRUE AN D MISLEADING. IN THE SCRUTINY ASSESSMENT FOR A.Y. 2005-06, IT WAS SUBMIT TED THAT THE A.O. HAD NO OCCASION TO EXAMINE THIS ISSUE. UNDER THESE CIR CUMSTANCES AND IN VIEW OF THE ABOVE OBSERVATION BY THE A.O. IN HIS REMAND REPORT AND CONSIDERING THE FACT THAT THE ASSESSEE HAD NOT FURNISHED THE VA LUATION REPORT BEFORE THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDING S, WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE A.O. FOR FR ESH ADJUDICATION OF THE ISSUE. THE CONTENTION OF THE LD. COUNSEL FOR THE AS SESSEE THAT ALL FACTS WERE BEFORE THE A.O. AND THE REMAND REPORT HAS BEEN OBTA INED, IN OUR OPINION, DOES NOT CARRY MUCH WEIGHT. FIRST OF ALL THE VALUA TION REPORT WAS NOT PRODUCED BEFORE THE A.O. DURING THE ASSESSMENT PROC EEDINGS. THE POWER OF THE A.O. DURING REMAND PROCEEDINGS ARE LIMITED. FURTHER, WHEN THE SHARES ARE SOLD TO HIS WIFE AT A LOWER PRICE AND TH E A.O. HAS GIVEN AN OBSERVATION THAT THE SAME IS JUST TO OFFSET THE GAI N ARISING TO THE ASSESSEE, THE SAME IN OUR OPINION, REQUIRES THOROUGH SCRUTINY AT THE LEVEL OF THE A.O. SINCE THE A.O. HAD NO SUFFICIENT TIME AVAILABLE BEF ORE HIM AND THE ASSESSEE HAS NOT SUBMITTED THE FULL DETAILS DURING THE ASSES SMENT PROCEEDINGS, THEREFORE, WE, IN THE INTERESTS OF JUSTICE, DEEM IT PROPER TO RESTORE THE ISSUE TO HIS FILE FOR FRESH ADJUDICATION. NEEDLESS TO SA Y THE A.O. SHALL GIVE ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECIDE THE ISSUE AS PER LAW. WE HOLD AND DIRECT ACCORDINGLY. THIS GROUND BY THE REVENUE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 13. GROUNDS OF APPEAL NO. 6 BY THE REVENUE IS IN SU PPORT OF GROUNDS OF APPEAL NO. 4 & 5. WE HAVE ALREADY DECIDED THE ISSU E BY RESTORING THE MATTER TO THE FILE OF THE A.O. FOR FRESH ADJUDICATI ON. THESE GROUNDS ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 17 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM 14. GROUNDS OF APPEAL NO. 7 BY THE REVENUE BEING GE NERAL IN NATURE IS DISMISSED. 15. IN THE RESULT, THE REVENUES APPEAL IN ITA NO. 4692/MUM/2008 FOR A.Y. 2005-06 IS PARTLY ALLOWED FOR STATISTICAL PURP OSE. ITA NO. 4237/MUM/2008 (BY ASSESSEE FOR A.Y. 2005-06 ) & ITA NO. 430/MUM/2009 (BY ASSESSEE FOR A.Y. 2005-06) 16. THE ASSESSEE IN HIS GROUNDS OF APPEAL NO. 1 IN ITA NO.4237/MUM/2008 HAS CHALLENGED THE ORDER OF THE LD . CIT(A) IN CONFIRMING THE DISALLOWANCE OF SHORT TERM CAPITAL L OSS AMOUNTING TO ` 45,90,000/- ON SALE OF DISTRESSED ASSETS. 16.1 FACTS OF THE CASE IN BRIEF ARE THAT THE A.O. D URING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD MADE SHORT TERM CAPITAL GAIN OF ` 36,91,611/- ON SALE OF SHARES OF NEWGEN IMAGING. THE ASSESSEE HAS NEUTRALIZED THE SHORT TERM CAPITAL GAI N BY SHOWING SHORT TERM CAPITAL LOSS OF ` 45,90,000/- ON SALE OF ASSETS. ON BEING QUESTIONE D BY THE A.O., IT WAS SUBMITTED THAT THE ASSESSEE HAD GIVEN SECURITY OF SHARES AS A GUARANTOR FOR A LOAN TAKEN BY ONE MR. S UBHASH CHOPRA FROM M/S CHOLAMANDALAM FINANCE & INVESTMENT CO. LTD. SIN CE SHRI CHOPRA HAD DEFAULTED, THE ASSESSEE HAD PAID A SUM OF ` 50,40,000/- ON 05.04.2004 TOWARDS BALANCE DUE ON THE SAID LOAN AND GOT RELEASED THE SHARES PLEDGED FOR THE LOAN OF SUBHASH CHOPRA. THE A.O. NOTED THAT MR. SUBHASH CHOPRA HAD PLEDGED HIS SHARES OF MASTEK LTD . THE ASSESSEE HAD ALSO PLEDGED HIS SHARES OF MASTEK LTD. AS ADDITIONA L SECURITY. ACCORDING TO THE A.O. IT WAS NOT CLEAR AS TO WHETHER THE LENDER COMPANY ENCASHED THE 18 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM SHARES OF MR. SUBHASH CHOPRA AND HOW MUCH WAS THE T OTAL LOAN AND HOW MUCH SHARES THE ASSESSEE HAD PLEDGED. THE A.O. ACC ORDINGLY ISSUED SUMMONS TO MR. SUBHASH CHOPRA AND M/S CHOLAMANDALAM FINANCE & INVESTMENT CO. LTD. DESPITE REPEATED SUMMONS AND EV EN IMPOSITION OF PENALTY ON BOTH THE PERSONS, THEY DID NOT ATTEND TH E OFFICE FOR WHICH HE COULD NOT VERIFY THE FACTS. THE A.O. FURTHER NOTED THAT THE ASSESSEE HAS STRANGELY ENTERED INTO AN AGREEMENT WITH A COMPANY CALLED SHRUSHTI COMPSOFT PVT. LTD. TO SELL THIS LOAN AS A DISTRESS ASSET ONLY FOR A SUM OF ` 4,50,000/- WITH THE COMPANY BEING ENTITLED TO RECOV ER THE DUES FROM MR. SUBHASH CHOPRA. ACCORDING TO THE A.O. MR. SUBHASH CHOPRA WAS THE FRIEND OF ASSESSEE FOR WHOM HE HAD STOOD AS A GUARA NTOR AND THEN BAILED HIM OUT WHEN HE DEFAULTED. THE OBVIOUS PURPOSE FOR DOING ALL THESE IS TO OFF SET THE GAIN OF ` 36.91 LAKHS AND CREATE A FICTION OF LOSS. ACCORDI NG TO THE A.O. IT IS CLEAR THAT THE SO CALLED COMPANY M/S SHRUSHTI COMPSOFT PVT. LTD. TO WHOM THE LOAN WAS SOLD IS OWNED BY ANOTHER FRIEND OF ASSESSEE MR HALDIPUR. THIS COMPANY WAS EXAMINED AND IT WAS SEE N THAT IT WAS IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND IMPARTING TRAI NING TO COMPANIES. FOR THE LAST 2-3 YEARS THERE WAS NO ACTIVITY AT ALL AND THE INCOME-TAX RETURNS OF THE COMPANY WERE FILED FOR A.Y. 2005-06 AND 2006-07 SHOWING NIL INCOME. THE COMPANY BEING A PROFESSIONAL COM PANY CANNOT BUY DISTRESS ASSETS SINCE THEY DO NOT HAVE ANY EXPERIEN CE OR EXPERTISE. FURTHER, THE DIRECTOR OF THE COMPANY MRS. SHOBHANA HALDIPUR COULD NOT EXPLAIN AS TO HOW THIS VALUE OF ` 4,50,000/- WAS ARRIVED AT. THE A.O. FURTHER NOTED THAT NO EFFORT HAS BEEN MADE BY THE D IRECTOR OR THE COMPANY TO RECOVER THE MONEY AND THE SAID AMOUNT HAS BEEN S HOWN IN THE BALANCE SHEET. THE DIRECTORS REPORT OF THE COMPANY DOES NO T SHOW ANYTHING ABOUT THE SAID COMPANY HAVING VENTURED INTO A NEW LINE OF BUSINESS. THEREFORE, THE A.O. WAS OF THE OPINION THAT THE SAID ARRANGEME NT HAS BEEN ENTERED INTO JUST TO ACCOMMODATE THE ASSESSEE AND CREATE A FICTION OF LOSS TO ENABLE 19 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM HIM TO AVOID THE TAX ON THE SHORT TERM CAPITAL GAIN . THE A.O. ACCORDINGLY ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE SO CALL ED SHORT TERM CAPITAL LOSS ON SALE OF ASSETS SHOULD NOT BE DISALLOWED. R EJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE, THE A.O. DISALL OWED AN AMOUNT OF ` 45,90,000/- ON ACCOUNT OF SALE OF DISTRESS ASSETS. [ 17. IN APPEAL, THE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. BY HOLDING AS UNDER:- 7.4 I HAVE CONSIDERED THE ARGUMENTS OF THE A.R. AND HAVE ALSO EXAMINED THE RECORDS. THE A.O. HAS DISALLOWED THIS LOSS ON THE GROUND THAT THE ASSESSEE FAILED TO SATISFACTORI LY EXPLAIN THE NEED OF SELLING THE SO CALLED DISTRESSED ASSETS AT SUCH A HUGE LOSS, AND SO FAR AS THE EXCUSE THAT THE APPELLANT W ANTED TO WIND-UP HIS AFFAIRS IN INDIA AND MOVING TO US IS CO NCERNED, THE APPELLANT DID NOT SIMILARLY DISPOSE OFF HIS OTHER A SSETS. THE A.O.S OBSERVATIONS IN THIS REGARD ARE WORTH HIGHLI GHTING :- A) THE ASSESSEE HAD STATED THAT HE HAD GIVEN SECU RITY OF HIS SHARES AS A GUARANTOR TO A LOAN TAKEN BY ONE MR. SU BHASH CHOPRA FROM M1S. CHOLAMANDALAM FINANCE & INVESTMENT CO. LTD. AS PER THE ASSESSEE, MR. CHOPRA HAD DEFAULTED, AND HE HAD PAID A SUM OF RS. 50,40,000/- ON 5/04/04 TOWARDS BA LANCE DUE ON THE SAID LOAN AND GOT RELEASED THE SHARES PLEDGE D FOR THE LOAN OF SUBHASH CHOPRA. FROM THE DETAILS BY THE ASS ESSEE, IT IS SEEN THAT MR. SUBHASH CHOPRA HAD PLEDGED HIS SHARES OF MASTEK LTD. ASSESSEE ALSO HAD PLEDGED HIS/HIS FAMIL YS SHARES OF MASTEK LTD. AS ADDITIONAL SECURITY. IT IS NOT CL EAR AS TO WHETHER THE LENDER COMPANY ALSO ENCASHED THE SHARES OF MR. CHOPRA. IT IS ALSO NOT CLEAR AS TO HOW MUCH WAS THE TOTAL LOAN, HOW MUCH SHARES THE ASSESSEE HAD PLEDGED. TILL DATE ALL THIS INFORMATION HAS NOT BEEN SUBMITTED BY THE ASSESSEE. SUMMONS WAS ISSUED TO MR. SUBHASH CHOPRA AND MJS. CHOLAMAND ALAM FINANCE & INVESTMENT CO. LTD. DESPITE REPEATED SUMM ONS AND EVEN IMPOSITION OF PENALTY BOTH THE PERSONS/CONCERN HAVE 20 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM REFUSED TO ATTEND THE OFFICE AND THEREFORE THE FACT S COULD NOT BE VERIFIED. B) SECONDLY, AFTER THE SO CALLED REPAYMENT OF THE LOAN OF MR. SUBHASH CHOPRA AS A GUARANTOR, THE ASSESSEE HAD VER Y STRANGELY ENTERED INTO AN AGREEMENT WITH A COMPANY CALLED SHRUSHTI COMPSOFT PVT. LTD. TO SELL THIS LOAN AS A DISTRESS ASSETS ONLY FOR A SUM OF RS.4,50,000/-, WITH THE COMPANY B EING ENTITLED TO RECOVER THE DUES FROM MR.CHOPRA. THIS A CT OF THE ASSESSEE IS VERY STRANGE BECAUSE MR. SUBHASH CHOPRA WAS HIS FRIEND FOR WHOM HE HAD STOOD AS A GUARANTOR AND THEN BAILED HIM OUT WHEN H E DEFAULTED. SUCH A FRIEND WOULD DEFINITELY PAY BACK THE LOAN AND IT IS HIGHLY UNIMAGINABLE THAT THE ASSESSE E WOULD SELL SUCH A LOAN FOR A PALTRY SUM OF RS.4,5 0,000/- . IT IS THUS OBVIOUS THAT BECAUSE THIS YEAR, ASSESS EE HAD MADE A SHORT TERM PROFIT OF RS. 36.91 LAKHS THIS TY PE OF ARRANGEMENT WAS ENTERED INTO BY HIM TO OFFSET THE S AID GAIN AND CREATE A FICTION OF LOSS. THIS BECOMES CLE AR WHEN IT IS SEEN THAT THE SO CALLED COMPANY (SHRUSHTI COM PSOFT PVT. LTD.) IS OWNED BY ANOTHER FRIEND OF HIS MR. & MRS. HALDIPUR. THAT COMPANY WAS EXAMINED AND IT WAS SEEN THAT IT WAS IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND IMPARTING TRAINING TO COMPANIES. FOR THE LAST 2-3 Y EARS THERE WAS NO ACTIVITY AT ALL AND THE INCOME TAX RET URNS OF THE COMPANY SHOWN NIL INCOME FOR A. Y. 2005-06 & 2006-0 7. THE PROMOTERS OF THE COMPANY MR. & MRS. HALDIPUR ARE NOW DEVELOPING SOME COURSE CONTENT IN TRAINING AT MYSORE. SUCH A COMPANY OF PROFESSIONALS HAVE NOW BEEN SHOWN AS BUYING A DISTRESS LOSS, SOMETHING IN WHICH THEY DONT HAVE ANY PRIOR EXPERIENCE OR EXPER TISE. ON BEING QUESTIONED, THE DIRECTOR OF THE COMPANY MR S. SHOBHANA HALDIPUR COULD NOT EXPLAIN AS TO HOW THIS VALUE OF RS. 4,50,000/- WAS ARRIVED AT. IT IS ALSO SEEN THAT TILL THIS DATE NO EFFORT HAS BEEN MADE BY HER OR TH E COMPANY TO RECOVER THE LOAN AND THE SAID AMOUNT HAS BEEN SHOWN IN THE BALANCE SHEET OF THE COMPANY AS ADVANCE. NOTHING IN THE DIRECTORS REPORT OR IN THE AUDITORS REMARKS SHOWS THAT THE SAID COMPANY HAS VENTURED INTO A NEW LINE OF BUSINESS. THUS, IT IS C LEAR THAT THE SAID ARRANGEMENT HAS BEEN ENTERED INTO JUST TO ACCOMMODATE THE ASSESSEE AND CREATE A FICTION OF LO SS TO ENABLE HIM TO AVOID THE TAX ON THE SHORT TERM CAPIT AL GAIN MADE BY HIM DURING THE YEAR. 21 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM IN THE LIGHT OF THE ABOVE, THE ASSESSEE WAS ASKED T O EXPLAIN WHY THE SO CALLED SHORT TERM CAPITAL LOSS ON SALE OF AS SETS SHOULD NOT BE DISALLOWED. IN THIS REPLY DATED 2 7/1 2/2007, THE ASSESSEE HAS MERELY REITERATED THE FACTS, WITHOUT OFFERING ANY COMMENT ON THE ABOVE OBSERVATIONS. HE HAS FURTHER STATED THAT HE HAD MOV ED TO US. DURING APRIL, 2005 AND HAD TO WIND UP HIS AFFAIRS I N INDIA AND THEREFORE, HE HAD DISPOSED OFF THE ABOVE DISTRESSED ASSET AT A MUTUALLY AGREED PRICE OF RS. 4,50,000/- IT WAS A CO MMERCIAL CALL TAKEN BY HIM AND THE LOSS HAS BEEN RIGHTFULLY OFFSE T. ACCORDINGLY, HE HAS OBJECTED TO THE DISALLOWANCE OF THE SHORT TERM CAPITAL LOSS. THE ASSESSEE S REPLY HAS BEEN CONSIDERED BUT THE S AME DOES NOT APPEAR TO BE REASONABLE AND IS DEVOID OF ANY ME RIT. THE ASSESSEE HAS FAILED TO SATISFACTORILY EXPLAIN THE N EED OF SELLING THE SAID LOAN, WHICH COULD HAVE BEEN RECOVERED FROM HIS CLOSE FRIEND. AS REGARDS WINDING UP OF THE AFFAIRS AND MO VING TO US., IT IS NOTHING BUT A VERY WEAK ARGUMENT AS NO OTHER ASSET WAS SIMILARLY DISPOSED OFF THE ASSESSEE CONTINUES TO HA VE ALL HIS HOUSE PROPERTIES AND IS A REGULAR VISITOR TO INDIA. IN FACT, SINCE HE IS THE MD. OF MASTEK LTD., HIS COMPANY HAS AS MU CH PRESENCE IN INDIA, AS IN US., F NOT MORE. HIS ENTIR E COMPANY RESOURCES ARE AT HIS DISPOSAL AND SO ARE HIS OTHER FRIENDS AND RELATIVES IN MUMBAI AND INDIA AND HE COULD HAVE VER Y WELL PURSUED THE LOAN. IN FACT, F HE DID NOT HAVE A SHOR T TERM GAIN IN THIS YEAR, HE WOULD NOT HAVE HAD ENTERED INTO THIS SORT OF DUBIOUS DEAL WITH M/S.SHRUSHTI COMPSOFT PVT. LTD. A CCORDINGLY, THE ASSESSEE S CLAIM OF LOSS OF RS. 45.90 LAKHS ON ACCOUNT OF SALE OF DISTRESSED ASSET IS REJECTED. AS THE FOLLOW ING PARAGRAPH WILL PROVE, THE ASSESSEE ENTERED INTO SIMILAR DUBIO US TRANSACTIONS TO EVEN OFFSET THE LONG TERM LOSS. PEN ALTY PROCEEDINGS ARE INITIATED U/S. 2 71(1)(C) FOR SUBMI TTING INACCURATE PARTICULARS OF INCOME AND CONCEALING THE SAME. 7.5 FROM THE ABOVE, IT IS APPARENT THAT: (I) THERE WAS NO COMMERCIAL BENEFIT DERIVED BY THE APPE LLANT IN SELLING THE SAID ASSETS AT A LOSS OF RS.45,90,000/- EXCEPT FOR 22 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM REDUCING HIS TAX LIABILITY. THE RESULT OF THE WHOLE EXERCISE IS THEREFORE A NET LOSS. (II) SHRI SUBHASH CHOPRA AGAINST WHOM LOAN WAS OUTSTANDI NG AND MRS. & MR. HALDIPUR OF SHRUSTI COMPSOFT (P) LTD. TO WHOM T HE LOAN (DISTRESSED ASSETS) HAS BEEN SOLD ARE BOTH FRIENDS OF THE APPELLANT. (III) THERE IS NO EXPLANATION OR DETAILS GIVEN BY T HE APPELLANT REGARDING HIS EFFORTS TO RECOVER THE LOAN FROM MR. CHOPRA. (IV) ALTHOUGH THE A.O. ISSUED SUMMONS TO SHRI SUBHA SH CHOPRA AND ALSO TO THE OFFICERS OF CHOLAMANDALAM FINANCE & INVESTMENT LTD., NO ONE COMPLIED WITH THE SUMMONS T O VERIFY THE FACTS. (V) IT WAS STRANGE ON THE PART OF THE COMPANY SHRUS TI COMPSOFT (P) LTD. TO PURCHASE THE SAID DISTRESSED ASSETS BECAUSE THEY ARE IN SOFTWARE DEVELOPMENT, AND HAVE NOT DONE ANY BUSINES S IN LAST 2-3 YEARS AND HAVE HAD NO SUCH EXPERIENCE OR EXPERT ISE IN DEALING WITH ANY SUCH DISTRESSED ASSETS. THE DIRECT OR OF THE COMPANY MRS. SHOBHANA HALDIPUR WAS EXAMINED BY THE A.O. REGARDING THE REASON FOR PURCHASE OF THE SAID ASSET AND ALSO AS TO HOW THE PURCHASE VALUE OF RS.4,50,000/- WAS ARRI VED AT, BUT SHE COULD NOT GIVE ANY EXPLANATION IN THIS REGARD. ALSO, THE SAID COMPANY DID NOT MAKE ANY EFFORT TO RECOVER THE LOAN FROM MR. CHOPRA TILL THE TIME OF ASSESSMENT PROCEEDINGS WERE GOING ON ALTHOUGH ALMOST 2 YEARS HAD PASSED. (VI) THE APPELLANTS EXPLANATION REGARDING THE NEED TO SELL THE SAID ASSET IS ALSO NOT SATISFACTORY IN VIEW OF DETAILED OBSERVATIONS OF THE A.O. 23 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM (VII) ON THE WHOLE THE SAID ARRANGEMENT TO CREATE A SHORT TERM CAPITAL LOSS APPEARS TO BE A FISHY AFFAIR AND THE T RANSACTION DOES NOT APPEAR TO BE BONAFIDE, SPECIALLY IN VIEW O F THE FACT THAT NEITHER MR. SUBHASH CHOPRA, NOR CHOLAMANDALAM FINAN CE & INVESTMENT COMPANY LTD. COME FORWARD TO ANSWER THE QUERIES OF THE A.O. (VIII) VIDE LETTER DATED 01.11.2003, SHRI SUBHASH C HOPRA THANKED THE APPELLANT FOR PLEDGING HIS SHARES OF MASTEK LIM ITED AS ADDITIONAL SECURITY AGAINST LOAN TAKEN BY SHRI SUBH ASH CHOPRA. BUT NOTHING IS DISCLOSED THEREAFTER, AS TO WHAT HAPPENED TO THOSE PLEDGED SHARES OF APPELLANT AND O F SHRI CHOPRA. (IX) NO DOCUMENTS TO SUPPORT THE FACT THAT THE APPE LLANT WAS A GUARANTOR FOR SUBHASH CHOPRA FOR THE SAID LOAN HAVE BEEN FURNISHED. ALSO, NO DETAILS OF CIRCUMSTANCES UNDER WHICH THE LOAN WAS RECOVERED FROM THE APPELLANT AND NOT FROM SHRI CHOPRA HAVE BEEN DISCLOSED. LOAN SANCTION DOCUMENTS FOR LOAN OF SHRI CHOPRA AND DETAILS OF LOANS HAVE ALSO NOT B EEN DISCLOSED. (X) OVERALL, THE ABSENCE OF SHRI CHOPRA AND CHOLAMA NDALAM FINANCE DURING THE ASSESSMENT PROCEEDINGS BEFORE A. O. AND LACK OF EFFORTS FOR RECOVERY OF LOAN FROM MR. CHOPR A BY THE APPELLANT AND THEREAFTER BY M/S SHRUSTI COMPSOFL (P ) LTD. IS QUITE INTRIGUING WHICH ESTABLISHES THAT THE WHOLE A RRANGEMENT IS NOT BONAFIDE AND HAS BEEN MADE ONLY ON PAPER TO AVAIL SET-OFF OF SHORT TERM CAPITAL LOSS AGAINST SHORT TERM CAPIT AL GAIN. 7.6 IN VIEW OF ABOVE THEREFORE, I CONFIRM THE FIND ING OF A.O. AND HOLD THAT SAID TRANSFER OF DISTRESSED ASSETS BY THE APPELLANT TO M/S. SHRUSTI COMPSOFT (P) LTD. IS NOT A BONAFIDE TR ANSFER AND THE SAME IS NULL AND VOID. THE APPELLANT IS, THEREFORE, NOT ENTITLED TO 24 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM SHORT TERM CAPITAL LOSS OF RS.45,90,000/- ON ACCOUN T OF SO CALLED SALE OF DISTRESSED ASSETS. IN SUPPORT OF THE SAME, HONBLE SUPREME COURTS JUDGEMENT IN MCDOWELLS CASE, 154 ITR 148 I S QUOTED AS UNDER :- WE MAY ALSO RECALL THE OBSERVATIONS OF VISCOUNT SIM ON IN LATITLA V. IRC [1943) 25 TC 107 (HL), P. 117 : OF RECENT YEARS MUCH INGENUITY HAS BEEN EXPENDED I N CERTAIN QUARTERS IN ATTEMPTING TO DEVICE METHODS OF DISPOSI TION OF INCOME BY WHICH THOSE WHO WERE PREPARED TO ADOPT TH EM MIGHT ENJOY THE BENEFITS OF RESIDENCE IN THIS COUNTRY WHI LE RECEIVING THE EQUIVALENT OF SUCH INCOME, WITHOUT SHARING IN T HE APPROPRIATE BURDEN OF BRITISH TAXATION. JUDICIAL DI CTA MAY BE CITED WHICH POINT OUT THAT, HOWEVER ELABORATE AND A RTIFICIAL SUCH METHODS MAY BE, THOSE WHO ADOPT THEM ARE ENTITLED TO DO SO. THERE IS, OF COURSE, NO DOUBT THAT THEY ARE WITHIN THEIR LEGAL RIGHTS, BUT THAT IS NO REASON WHY THEIR EFFORTS, OR THOSE OF THE PROFESSIONAL GENTLEMEN WHO ASSIST THEM IN THE MATTE R, SHOULD BE REGARDED AS A COMMENDABLE EXERCISE OF INGENUITY OR AS A DISCHARGE OF THE DUTIES OF GOOD CITIZENSHIP. ON THE CONTRARY, ONE RESULT OF SUCH METHODS, IF THEY SUCCEED, IS, OF COU RSE, TO INCREASE PRO TANTO THE LOAD OF TAX ON THE SHOULDERS OF THE GREAT BODY OF GOOD CITIZENS WHO DO NOT DESIRE, OR DO NOT KNOW HOW, TO ADOPT THESE MANOEUVRES. ANOTHER CONSEQUENCE IS THAT THE LEGISLATURE HAD MADE AMENDMENTS TO OUT INCOME-TAX C ODE WHICH AIM AT NULL(J5ING THE EFFECTIVENESS OF SUCH SCHEMES. TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITHI N THE FRAMEWORK OF LAW. COLOURABLE DEVICES CANNOT BE PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONOURABLE TO AVOID THE PAYMENT OF TAX B Y RESORTING TO DUBIOUS METHODS. IT IS THE OBLIGATION OF EVERY CITI ZEN TO PAY THE TAXES HONESTLY WITHOUT RESORTING TO SUBTERFUGES. 7.7 GROUND OF APPEAL NO.2 IS THEREFORE, DISMISSED. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE AS SESSEE IS IN APPEAL BEFORE US. 25 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM 18. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. FROM THE VARIOUS DOCUME NTS FILED IN THE PAPER BOOK AS WELL AS SUBMISSIONS MADE BEFORE THE A.O. AN D THE LD. CIT(A) WE FIND THERE IS NO COMMERCIAL BENEFIT TO THE ASSESSEE IN SELLING THE ASSETS AT A LOSS OF ` 45,90,000/-. THERE WAS NO COMMERCIAL RELATIONSHIP BETWEEN MR. SUBHASH CHOPRA AND THE ASSESSEE EXCEPT THE FACT THAT THEY ARE FRIENDS. THE ASSESSEE STOOD AS A GUARANTOR FOR THE LOAN TAKEN BY MR. SUBHASH CHOPRA. THE SAME, IN OUR OPINION, IS IN HIS PERSONAL CAPACITY. IF ANY LOSS IS INCURRED, THE SAME HAS TO BE FROM HIS P ERSONAL ACCOUNT AND CANNOT BE ALLOWED AS A BUSINESS LOSS AS SALE OF DI STRESSED ASSETS. THE PERSON FOR WHOM THE ASSESSEE STOOD AS GUARANTOR AND THE PERSON TO WHOM THE LOAN HAS BEEN SOLD ARE BOTH FRIENDS OF THE ASSE SSEE AND THEREFORE THE ENTIRE EXERCISE, IN OUR OPINION, IS BETWEEN INTERES TED PERSONS AND IS MERE PAPER WORK JUST TO OFF SET THE SHORT TERM CAPITAL G AIN OF ` 34,83,008/-. WE FURTHER FIND DESPITE THE SUMMONS ISSUED TO BOTH THE PARTIES, THEY NEVER APPEARED BEFORE THE A.O. AND THE ASSESSEE ALSO FAIL ED TO PRODUCE THEM BEFORE THE AO FOR HIS EXAMINATION. THEREFORE, THE S URROUNDING CIRCUMSTANCES CLEARLY PROVE THAT THE ENTIRE EXERCIS E IS A SHAM AND FICTITIOUS EXERCISE JUST TO REDUCE THE TAX LIABILIT Y. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE DETAILED ORDER PASSED BY THE LD. CIT(A), WE UPHOLD THE ORDER OF THE LD. CIT(A). THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY DISMISSED. 19. GROUNDS OF APPEAL NO. 2 AND THE ONLY GROUND IN ITA NO.430/M/2009 RELATE TO SET OFF OF BROUGHT FORWARD LONG TERM CAPITAL LOSS OF ` 10,86,540/- FOR A.Y. 2001-02 AGAINST THE LONG TERM CAPITAL GAIN ON SALE OF SHARES. 26 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM 19.1 THE ASSESSEE VIDE PETITION DTD. 13.6.2008 IN I TA NO.4237/M/2008 REQUESTED TO ADMIT GROUND NO.2 AS AN ADDITIONAL GRO UND AND ADMIT THE SAME IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF NTPC LTD. REPORTED IN 229 ITR 383 AND VARIOUS OTHER DECISIONS. IT WAS ALSO SUBMITTED THAT ALL FACTS ARE ALREADY ON RECORD. 19.2 WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. GROUND NO.2 IN ITA NO.4237/M/2008 BEING A LEGAL GR OUND, THE SAME IS ADMITTED IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF NTPC LTD. (SUPRA). 19.3 WE FIND THIS GROUND WAS NEVER RAISED BEFORE T HE LD. CIT(A) AND THE A.O. IS SILENT ON THIS ISSUE. THE LD. COUNSEL FOR T HE ASSESSEE SUBMITTED THAT AT THE TIME OF FILING OF RETURN, THE ASSESSEE INADVERTENTLY MISSED OUT THE CLAIM FOR CARRY FORWARD OF LOSS FOR THE YEAR 20 01-02. THE ASSESSEE, THEREFORE, WHILE GRANTING APPEAL EFFECT U/S 250, RE QUESTED THE A.O. TO GRANT SET OFF OF THE CARRIED FORWARD LOSS AGAINST THE CHA RGEABLE LONG TERM CAPITAL GAIN OF THE CURRENT YEAR. THE A.O. DID NOT GRANT T HE SAME. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). HOWEVER , THE LD. CIT(A) HELD THAT SINCE THE ASSESSEE HAS NOT MADE THE CLAIM IN THE RE TURN OF INCOME FILED U/S 139(1), THEREFORE, THE SAME CANNOT BE DONE WITH OUT TAKING RECOURSE TO REVISED RETURN U/S 139(5) OF THE ACT. RELYING ON T HE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GOETZE INDIA REPORTED IN 284 323, HE HELD THAT THE ENTITLEMENT OF SET OFF OF CARRIED FORWARD LONG TERM CAPITAL LOSS FROM A.Y. 2001-02 AGAINST LONG TERM CAPITAL GAIN IN THE CURRENT YEAR WOULD HAVE BEEN AVAILABLE ONLY IF THE ASSESSEE HAD FILED A REV ISED RETURN U/S 139(5) OF THE ACT. IT IS NOT ALLOWABLE BECAUSE THE ASSESSEE HAS NOT CLAIMED THE SAME IN THE RETURN OF INCOME. HE ACCORDINGLY UPHELD THE ACTION OF THE A.O. 27 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE AS SESSEE IS IN APPEAL BEFORE US. 19.4 AFTER HEARING BOTH THE SIDES WE FIND THE CO-OR DINATE BENCH OF THE TRIBUNAL IN THE CASE OF CHICAGO PNEUMATICS INDIA LT D. REPORTED IN 15 SOT 252 HAS HELD THAT THE ASSESSEE HAS A RIGHT TO MAKE A NEW CLAIM BEFORE THE ASSESSING AUTHORITY WITHOUT RECOURSE TO FILING OF A REVISED RETURN. THEREFORE WE ADMIT THE GROUND RAISED BY THE ASSESSE E AND RESTORE THE ISSUE TO THE FILE OF THE A.O. TO VERIFY THE RECORDS OF THE ASSESSEE IN THE DEPARTMENT AND DECIDE THE ALLOWABILITY OF THE CLAIM OF SET OFF OF BROUGHT FORWARD LOSS FROM THE CAPITAL GAIN IN ACCORDANCE WI TH LAW. WE HOLD AND DIRECT ACCORDINGLY. 19.5 GROUNDS OF APPEAL NO. 3 BY THE ASSESSEE IN ITA NO.4237/M/2008 BEING GENERAL IN NATURE IS DISMISSED. 20. IN THE RESULT, REVENUES APPEAL IN ITA NO. 4692 /MUM/2008 FOR A.Y. 2005-06 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ASSESSEES APPEAL IN ITA NO. 4237/MUM/2009 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND ITA NO. 430/MUM/2009 FOR A.Y. 2004-05 IS ALLOWED FOR STATIS TICAL PURPOSES. ORDER PRONOUNCED ON 31.10.2011. SD/- SD /- (N.V. VASUDEVAN) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED : 31.10.2011 RK 28 ITA 4692/ M/08, 4237/M/08 & 430/M/09 SHRI S UDHAKAR RAM COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED, MUMBAI 4. THE CIT CONCERNED, MUMBAI 5. THE DR BENCH, E 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI