M/s K.K.Patel Finance Ltd., Indore V. The ACIT 5(1), Indore

ITA 440/IND/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7108 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 02-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARUN DEWAN
• Assessee Lawyers: K C AGRAWAL
• Keywords: Additional evidence; Avoidance of tax; Tax effect; Onus to prove
• Section: 133(6)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO.440/IND/2010 AY: 2006-07 M/S. K.K. PATEL FINANCE LTD., INDORE PAN AABCK 4282 G ..APPELLANT V/S. ACIT-5(1), INDORE ..RESPONDENT ASSESSEE BY : SHRI K.C. AGRAWAL, CA DEPARTMENT BY : SHRI ARUN DEWAN, SR. DR ORDER PER JOGINDER SINGH THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, IN DORE, DATED 17.3.2010 ON THE GROUND THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LOSS ON SALE OF SHAR ES OF RS.28 LACS IS DISALLOWED, WHICH IS NOT PROPER. 2 2. THE ASSESSEE HAS ALSO TAKEN AN ADDL. GROUND THAT LD. CIT(A) ERRED IN NOT ADMITTING ADDL. EVIDENCES SO FI LED UNDER RULE 46A OF INCOME TAX RULES. 3. DURING HEARING OF THIS APPEAL, THE CRUX OF ARGUM ENTS ON BEHALF OF THE ASSESSEE IS THAT THE ASSESSING OFF ICER DISALLOWED THE LOSS OF RS.28 LACS WITHOUT ASSIGNING ANY REASON MERELY ON THE PLEA THAT THE ASSESSEE COULD N OT JUSTIFY THE SALE OF THE SHARES CAUSING HUGE LOSSES. THERE IS NO REASON TO OPINE THE LOSSES TO BE BOGUS AS THE SOLD SHARES ARE OF A CLOSELY HELD AND UNQUOTED COMPANY ESPECIALLY WHEN THE ASSESSING OFFICER WAS HAVING SUFFICIENT TIME TO INQUIRE ABOUT THE SHARES. IT WAS ALSO PLEADED THAT THE ASSESSEE IS ALSO HAVING INTEREST I NCOME, THEREFORE, IT IS NOT COMING IN EXCEPTION CLAUSE ESP ECIALLY WHEN THE NECESSARY DETAILS WERE FILED BEFORE THE LD . ASSESSING OFFICER AS WELL AS BEFORE THE LD. CIT(A). OUR ATTENTION WAS ALSO INVITED TO EXPLANATION TO SEC. 7 3 OF THE ACT. IT WAS FURTHER EXPLAINED THAT THE LD. ASSESSIN G 3 OFFICER HAS NOT DOUBTED THE PURCHASE OF THE SHARES FOR WHICH OUR ATTENTION WAS INVITED TO PAGE 10 & 11 OF THE PAPER BOOK. IT WAS CLARIFIED BY THE LD. COUNSEL FOR ASSESSEE THAT THERE WAS CERTAIN PROBLEM IN IPOS AND THE DECISION WAS TAKEN AT THE ADVICE OF MERCHANT BANKER RESULTING INTO TO TAKE A DECISION EITHER TO GO OUT OR TO SELL THE SHARES. THE ASSESSEE DECIDED TO SELL THE SAME W HICH CAUSED LOSSES. ON A QUERY FROM THE BENCH, AS TO WHY THE SHARES WERE SOLD AT LOSSES, IT WAS CLARIFIED BY THE LD. COUNSEL FOR ASSESSEE THAT TO SAVE THE ASSESSEE FROM HUGE LOSSES, IT WAS DEEMED RIGHT TO FACE LESSER LOSSES. THE PURCHASE AND SALE OF THE SHARES WAS CLAIMED TO BE CONFIRMED AND ALL THE TRANSACTIONS ARE THROUGH CHEQ UES. IT WAS ALSO CLARIFIED THAT NONE OF THE DIRECTORS AR E RELATED TO EACH OTHER. AS THERE WAS NO BUYER IN THE MARKET, THEREFORE, UNDER THE FACTS, THESE SHARES WERE SOLD IN LOSSES. IT WAS ALSO CLAIMED THAT DUE INQUIRY WAS MA DE BY THE ASSESSING OFFICER AND EVEN THE LD. CIT(A) SOUGH T THE REMAND REPORT FROM THE ASSESSING OFFICER. ON THE OT HER 4 HAND, THE LD. SR. DR DEFENDED THE ASSESSMENT ORDER/IMPUGNED ORDER BY CONTENDING THAT THE LOSSES WERE SHOWED ARTIFICIALLY WITH THE INTENTION TO REDU CE THE TAX EFFECT. IT WAS ALSO PLEADED THAT BOGUS LOSSES W ERE SHOWED TO BE INCURRED BY THE ASSESSEE COMPANY AND T HE GENUINENESS OF THE LOSSES COULD NOT BE EXPLAINED. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON FILE. BRIEF FACTS ARE THAT THE ASSESSEE IS A NON-BANKING FINANCE COMPANY AS WE LL AS INVESTMENT COMPANY DECLARED INCOME OF RS.27,661/ - ALONG WITH AUDITED FINAL ACCOUNTS. DURING THE RELEV ANT PERIOD, THE ASSESSEE COMPANY INCURRED LOSS OF RS.28 LACS ON THE SALE OF SHARES OF SWASTIK COAL CORPN. LTD. ( IN SHORT SCCL) FOR RS.8 LACS, WHICH WERE PURCHASED FOR RS.36 LACS. UNDISPUTEDLY, THE ASSESSEE, DURING ASSESSMENT PROCEEDINGS, FILED THE COPY OF SHARE APPLICATION FOR PURCHASE OF SHARES OF SCCL, COPY OF BANK STATEMENT EVIDENCING THE PAYMENTS, DETAILS OF SALE OF 5 SHARES OF SCCL TO JAIN SECURITIES AND FINANCE LTD. THE CRUX OF THE ARGUMENTS IS THAT THE EXPLANATION, IF A NY, RAISED BY THE ASSESSING OFFICER WERE DULY EXPLAINED /FILED FROM TIME TO TIME FOR WHICH OUR ATTENTION WAS INVIT ED AT PAGES 6 TO 13 OF THE PAPER BOOK. THE LOSSES OF RS.2 8 LACS WERE DISALLOWED BY THE LD. ASSESSING OFFICER BY OBS ERVING AS UNDER: ASSESSEE HAS SHOWN LOSSES FROM SALE OF SHARES OF M/S. SCCL AMOUNTING TO RS.28,00,000/-. ASSESSEE HAS SHOWN PURCHASES OF 80,000 SHARES @RS.45/- PER SHARE ON 14.11.2005 AND SALE OF THE SAME ON 29.3.2006 @RS.10/- PER SHARE. ASSESSEE WAS ASKED TO FURNISH THE BASIS OF DECIDING THE PRICE OF SHARES OF M/S. SCCL. IN ITS REPLY DATED 29.12.2008 ASSESSEE FURNISHED A COPY OF EXTRACTS OF MINUTES OF THE BOARD MEETING OF K.K. PATEL FINANCE LTD. HELD AT ITS REGISTERED OFFICE ON 20 TH MARCH 2006. STATING, THE BOARDS OF DIRECTORS LOOKING FOR THE IMMEDIATE REQUIREMENT OF THE FUND IN THE COMPANY AND DECIDED TO SALE SOME OF SHARES HELD IN STOCK OF COMPANY. IT IS DECIDED ALSO THAT DIRECTORS ARE AUTHORISED TO SALE SOME STOCK OF SHARES IMMEDIATELY IN THE CASE OF LOSS ALSO WITHOUT CONTENTION OF THE ASSESSEE THAT THE 6 SHARES WERE SOLD DUE TO IMMEDIATE REQUIREMENT OF FUNDS IS NOT ACCEPTABLE. ON PERUSAL OF THE SUBMISSIONS FILED BY THE ASSESSEE, IT IS SEEN THAT AT THE SAME TIME (NEARBY TO THE ABOVE DATE I.E. 29.3.2008), ASSESSEE HAS PURCHASED SHARES OF OTHER COMPANIES. ASSESSEE COULD NOT JUSTIFY THE SALE OF SHARES ON SUCH HUGE LOSS, WHICH INDICATES THAT THESE ARE BOGUS LOSSES SHOWN INCURRED BY THE ASSESSEE COMPANY. SOLD SHARES ARE OF AN CLOSELY HELD AND UNQUOTED COMPANY AND IT IS A PROBABILITY THAT THESE TRANSACTIONS SHOULD HAVE BEEN MADE FOR TAX EVASION. SINCE ASSESSEE HAS BEEN FAILED TO PROVE THE GENUINENESS OF THE SAID LOSSES AND AT THIS STAGE FURTHER ENQUIRY IS NOT POSSIBLE, THE LOSSES SHOWN BY THE ASSESSEE ARE HEREBY DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. IF THE AFORESAID OBSERVATION OF THE LD. ASSESSING O FFICER IS ANALYSED, FIRSTLY, THE SALE WAS MADE BY THE RESOLUT ION MADE BY THE BOARD OF DIRECTORS, FIRSTLY AS THERE WA S IMMEDIATE REQUIREMENT OF FUNDS IN THE ASSESSEE COMP ANY AND SECONDLY, THE ASSESSEE PURCHASES SHARES OF OTHE R COMPANIES. IT IS ALSO CLEAR THAT THE LD. ASSESSING OFFICER DID NOT MAKE ANY INQUIRY ABOUT THE ALLEGED LOSSES A ND NO 7 REASON HAS BEEN MENTIONED IN THE ASSESSMENT ORDER F OR SUCH DISALLOWANCE. THE ASSESSING OFFICER AT NO STAG E CALLED FOR EXPLANATION FROM THE ASSESSEE REGARDING ALLEGED BOGUS LOSS. THE SUBMISSIONS OF THE ASSESSEE WERE NO T CONSIDERED BY THE LD. ASSESSING OFFICER. THE QUESTIONNAIRE ISSUED BY THE LD. CIT(A) DATED 10.1.2 008 IS AVAILABLE FROM PAGES 1 TO 5 OF THE PAPER BOOK AND T HE REPLY OF THE ASSESSEE, FILED BEFORE THE LD. ASSESSI NG OFFICER IS AVAILABLE AT PAGES 6 TO 13 OF THE PAPER BOOK. TH E REPLY DATED 16.9.2008, FILED BY THE ASSESSEE BEFORE THE L D. ASSESSING OFFICER, IS AS UNDER: SEPTEMBER 16, 2008 TO, THE ACIT, RANGE 5(1), INDORE SUB: REGARDING ASSESSMENT PROCEEDINGS OF K.K. PATEL FINANCE LTD. (PAN AABCK 4282 G) FOR ASSESSMENT YEAR 2006-07 SIR, WITH REFERENCE TO SUBJECT CITED ABOVE, WE ARE FURNISHING THE FOLLOWING DETAILS: - 8 1. THE COMPANY WAS PLANNING TO EXPAND BUSINESS IN MUMBAI, THEREFORE IT TOOK OFFICE ON RENT IN MUMBAI AT BORIVALI (W). HOWEVER, THE PLANS OF THE COMPANY COULD NOT BE MATERIALIZED AND SO, AS OF NOW THE COMPANYS ADDRESS IS OFFICE NO. 201, DHENU MARKET, 565/1, M.G. ROAD, INDORE (MP) - 452001 2. THE METHOD OF ACCOUNTING ADOPTED BY THE COMPANY DURING THE PERIOD RELEVANT TO THE AY 06-07 IS ON MERCANTILE BASIS AND THE VALUATION OF CLOSING STOCK EMPLOYED DURING THAT PERIOD WAS COST OR MARKET VALUE (WHICHEVER IS LOWER). 3. WE ARE ENCLOSING HEREWITH THE COMPARATIVE CHARTS FOR THE F.Y. 03-04 TO 05-06 AS REQUIRED (AS ANNEXURE TO POINT NO.3 (I) TO (IX). 4. FULL DETAILS OF SHARES & SECURITIES, AS REQUIRED, ENCLOSED HEREWITH AS ANNEXURE TO POINT NO.4(1)(A). 5. FULL DETAILS OF INTEREST RECEIVED ENCLOSED HEREWITH AS ANNEXURE TO POINT NO.4(1)(B). 6. DETAILS OF EXPENSES CLAIMED IN P & L ACCOUNT IS ENCLOSED HEREWITH. ALL THE EXPENSES INCURRED ARE COMMENSURATE WITH THE BUSINESS OPERATIONS OF THE COMPANY. 7. THE DETAILS OF EXPENSES CLAIMED FOR PAYMENT OF SALARY FOR THE A.Y. 06-07 ARE ENCLOSED HEREWITH. 8. THE COPIES OF DEMAT ACCOUNTS WHICH ARE MAINTAINED WITH THE COMPANYS DEPOSITORY PARTICIPANTS FOR THE A.YS. 05-06 TO 07-08 ARE ENCLOSED HEREWITH AS ANNEXURE 5. 9 9. THE COPIES OF BOOKS OF ACCOUNT FOR THE A.YS. 05-06 TO 07-08 WITH RESPECT TO THE ACCOUNT OF BROKERS ARE FURNISHED HEREWITH AS ANNEXURE 6. 10. THE COPIES OF TIME STAMPED CONTRACT NOTES AND BILLS ISSUED BY THE BROKERS WITH DETAILS FOR THE F.Y. 04-05 & 05-06 ARE ENCLOSED HEREWITH AS ANNEXURE 7. 11. THE PROOF IN SUPPORT OF S.T.T. PAID FOR THE YEAR IS FURNISHED HEREWITH AS ANNEXURE 8. 12. THE COPIES OF ACCOUNTS MAINTAINED WITH THE BANKS FOR F.Y. 05-06 ARE FURNISHED HEREWITH AS ANNEXURE 9. 13. DETAILS OF ALL THE ACCOUNTS OF DEBTORS HAVING CREDIT BALANCE AND CREDITORS HAVING DEBIT BALANCE ENCLOSED HEREWITH AS ANNEXURE 10. 14. COPY OF LEDGER OF MUNICIPAL TAX & LEGAL & PROFESSIONAL CHARGES ENCLOSED HEREWITH AS ANNEXURE 11. 15. LIST OF PRESENT DIRECTORS AND PERSON AUTHORISED TO OPERATE BANK ACCOUNT IS ENCLOSED HEREWITH AS ANNEXURE 12. 16. COPIES OF LEDGER OF INVESTMENT MADE ALONG WITH COPIES OF SHARE APPLICATION MONEY ENCLOSED HEREWITH AS ANNEXURE 13. 17. COPY OF AGREEMENT WITH M/S. GIRIRAJ CONSTRUCTION ENCLOSED HEREWITH AS ANNEXURE 14. 18. ALL BOOKS OF ACCOUNT ARE BEING SUBMITTED HEREWITH AS ANNEXURE 15. HOPE THIS WILL FULFILL ALL YOUR REQUIREMENTS RELATED TO SCRUTINY. THANKING YOU, FOR K.K. PATEL FINANCE LTD. SD/- 10 DIRECTOR ENCL. A/A TO, DATE: 29.12.2008 THE ACIT, RANGE-5(1), INDORE SUB: REGARDING ASSESSMENT PROCEEDINGS OF OUR COMPANY FOR A.Y. 2006-07. RESPECTED SIR, PLEASE REFER PREVIOUS HEARING DULY ATTENDED BY OUR A.R. C.A. ASHWIN SETHI. YOU HAD ASKED SOME CLARIFICATION WITH REGARDS TO SHARE TRADING OF OUR COMPANY THROUGH YOUR NOTE SHEET. AS REQUIRED WE ARE GIVING HERE WITH FOLLOWING CLARIFICATIONS: - 1) LOSSES IN TRADING IN SHARES WITH REFERENCE TO SEC. 73 OF I.T. ACT, 1961 SECTION 73 IS DESCRIBING THE NATURE OF SPECULATIVE BUSINESS IN THE CASE OF A COMPANY. THE BRIEF PROVISIONS ARE REPRODUCED HEREUNDER: - SPECULATION BUSINESS IN THE CASE OF A COMPANY (EXPLANATION TO SEC. 73): - THIS PROVISION IS APPLICABLE IF FOLLOWING CONDITIONS ARE SATISFIED 1. TAXPAYER IS A COMPANY. 2. IT IS NOT A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. ALTERNATIVELY, IT IS A COMPANY WHOSE PRINCIPAL BUSINESS IS OTHER THAN THAT OF BANKING OR THE GRANTING OF LOANS AND ADVANCES. 11 3. THE BUSINESS OF THE COMPANY CONSISTS OF THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES. IF THE ABOVE CONDITIONS ARE SATISFIED, SUCH COMPANY SHALL BE DEEMED TO BE CARRYING ON A SPECULATIONS BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF PURCHASE/SALE OF SUCH SHARES. HOWEVER, THE ABOVE EXPLANATION TO SEC. 73 DOES NOT APPLY TO FOLLOWING COMPANIES: EXCEPTION 1 COMPANIES WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. EXCEPTION 2 COMPANIES WHOSE PRINCIPAL BUSINESS IS THE BUSINESS OF BANKING OR THE BUSINESS OF GRANTING LOANS AND ADVANCES. EXCEPTION 3 COMPANIES NOT DOING BUSINESS IN SHARES. EXCEPTION 4 COMPANIES DOING BUSINESS IN UNITS OF UTI (AS UNITS ARE NOT SHARES) CIT V. APPOLLO TYRES LTD. [1998] 101 TAXMAN 167 (KER). EXCEPTION 5 COMPANIES DEALING IN GOVERNMENT SECURITIES ANZ GRINDLAYS BANK V. CIT [2004] 88 ITD 53 (DELHI). EXCEPTION 2 (AS SUPRA) CLEARLY APPLICABLE TO OUR COMPANY AS THE MAIN OBJECT OF THE COMPANY IS TO DEAL IN BANKING BUSINESS LIKE LOANS AND ADVANCES TO THE PARTIES, FROM WHOM THE COMPANY RECEIVED THE INTEREST. THE COMPANY IS A REGISTERED NBFC COMPANY, A COPY OF THE CERTIFICATE OF REGISTRATION ALONG WITH COPY OF MEMORANDUM & ARTICLES OF THE COMPANY 12 WERE DULY SUBMITTED TO YOUR GOODSELF VIDE OUR LETTER DATED 17 TH NOVEMBER, 2008 FOR YOUR KIND REFERENCE. THE COMPANY CHARGED THE RATE OF INTEREST TO THE PARTIES AS PER THEIR CREDITWORTHINESS, IDENTITY, PREVIOUS EXPERIENCE WITH THE PARTY AND THE MARKET CONDITION, THE SAID SECTION 73 IS NOT APPLICABLE TO OUR COMPANY AS THE COMPANY IS A REGISTERED COMPANY UNDER THE COMPANIES ACT, 1956 AND PRINCIPAL BUSINESS OF THE COMPANY IS TO LEND THE MONEY TO THE PARTIES AS ITS NORMAL BUSINESS. THE EXPLANATION TO THE SAID SECTION CLEARS THAT WHERE ANY PART OF THE BUSINESS OF A COMPANY (OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME OF OTHER SOURCES) OR A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES) CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES.) AS EXPLAINED ABOVE IT IS VERY MUCH CLEAR THAT THE COMPANY IS A REGISTERED NBFC AND ITS PRINCIPAL BUSINESS IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES. SIMULTANEOUS YOU CAN VERY WELL VERIFY THAT THE MAIN RECEIPT OF THE COMPANY IS FROM INTEREST AND MORE THAN 90% OF ITS 13 FUNDS HAVE BEEN UTILISED FOR ITS PRINCIPAL BUSINESS. THEREFORE SECTION 73 IS NOT ATTRACTED TO THE COMPANY. 2 AS REGARDS SALE OF SHARES OF SWASTIK COAL CORPORATION (INDIA) LIMITED, THE COMPANY HAS INVESTED THE SUM OF RS. 3600000/- IN CAPITAL OF SWASTIK COAL CORPORATION (INDIA) LIMITED. THE INVESTMENT WAS DONE AFTER ALL CALCULATION WITH REGARDS TO GROWTH, PROSPERITY OF INVESTEE COMPANY. AT THE TIME OF INVESTMENT WE WERE HAVING SOME INFORMATION REGARDING GOOD FUTURE PLANS OF THE INVESTEE COMPANY, WHICH MAY RESULT IN GOOD APPRECIATION TO OUR INVESTMENT. HOWEVER, AFTER SOME TIME WE CAME TO KNOW ABOUT SUSPENSION OF FUTURE PLANS OF THE INVESTEE COMPANY, THESE MAY RESULT IN SOME NEGATIVITY ON PART OF OUR INVESTMENT. TO SAVE THE EROSION IN OUR INVESTMENT WE SEARCH OUT THE BUYER AND SOLD THE SHARES AT RS. 10/- PER SHARE, WHICH RESULT IN LOSS TO THE COMPANY. HOWEVER, WHATEVER BEST DECISION COULD BE TAKEN BY THE MANAGEMENT IN THE INTEREST OF THE COMPANY WAS TAKEN AT THAT TIME. THE SHARES OF SWASTIK COAL CORPORATION WERE ALLOTTED TO THE COMPANY AT PARTLY PAID OF RS. 5/- PLUS PREMIUM WERE ULTIMATELY SOLD BY THE COMPANY AT RS. 10/-. THIS RESULTS IN LOSS TO COMPANY. AS THE CLEAR INTENTION WAS TO SAVE OUR INVESTMENT IN BEST INTEREST OF THE COMPANY, YOU ARE KINDLY REQUESTED TO CONSIDER THE FACTS IN OUR FAVOUR. HOPE THIS WILL FULFIL ALL YOUR REQUIREMENTS RELATED TO PROCEEDINGS, SHALL YOU NEED ANY FURTHER INFORMATION, PLEASE LET US KNOW. 14 5. ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE PREFERRED WRITTEN SUBMISSIONS WHICH WERE SENT TO TH E LD. ASSESSING OFFICER FOR HIS COMMENTS. HOWEVER, THE LD . CIT(A) AFFIRMED THE ASSESSMENT ORDER. 6. IF TOTALITY OF FACTS ARE ANALYSED, ONE FACT IS CLEARLY OOZING OUT THAT THE ASSESSING OFFICER NEVER CALLED ANY EXPLANATION AFTER THE REPLY OF THE ASSESSEE AND MER ELY PRESUMED THE CLAIM OF THE ASSESSEE TO BE BOGUS. EVE N SUPPORTIVE EVIDENCE WERE FILED BEFORE THE LD. CIT(A ) FOR CLAIMING THE LOSS. THE GIST OF SUBMISSIONS, FILED B EFORE THE LD. CIT(A), ARE AVAILABLE IN THE WRITTEN SUBMISSIONS/SYNOPSIS FILED BEFORE US. AT ANY STAGE, NOTHING CONTRARY MATERIAL HAS BEEN BROUGHT ON RECOR D BY THE ASSESSING OFFICER/LD. CIT(A) IN MAKING/UPHOLDIN G THE ADDITION. EVEN THE OBSERVATION OF THE ASSESSING OFF ICER IS NOT CERTAIN AND IT IS BASED UPON PROBABILITIES. RAT HER THE OBJECT OF THE TRANSACTION BY THE ASSESSEE SHOULD BE CLEARLY SPELT OUT THAT IT WAS WITH THE PURPOSE OF T AX 15 EVASION. THE ASSESSING OFFICER HAS USED THE WORK PROBABILITY AND NO INDEPENDENT FINDING HAS BEEN GIV EN THAT THE CLAIM OF THE ASSESSEE IS BOGUS. IN THE ABS ENCE OF CLEAR FACTS, NO DECISION CAN BE TAKEN ON THE BASIS OF PROBABILITIES. POSSIBILITIES AND PROBABILITIES ARE NORMALLY USED WHEN THE PRIMARY EVIDENCE IS NOT IN EXISTENCE. IMPOSSIBILITY OF ANY FURTHER INQUIRY, AT THE RELEVA NT STAGE, BY THE ASSESSING OFFICER CANNOT BE THE GROUND FOR M AKING THE ADDITION. IT IS NOT THE CASE THAT THE ASSESSEE WAS NON- COOPERATIVE RATHER THE ASSESSEE ATTENDED THE ASSESS MENT FROM TIME TO TIME AND EVEN FILED WRITTEN SUBMISSION S. BOOKS OF ACCOUNT WERE ALSO SUBMITTED DURING THE ASSESSMENT PROCEEDINGS WHICH WERE EXAMINED BY HIM A S IS EVIDENT FROM THE OPENING PARA OF THE ASSESSMENT ORDER. THE BOOKS WERE NEITHER REJECTED NOR ANY DISCREPANCY WAS FOUND. EVEN DURING ASSESSMENT PROCEEDINGS, THE CLAI M OF THE ASSESSEE WAS THAT THE SHARES WERE SOLD DUE TO IMMEDIATE REQUIREMENT OF THE FUNDS (MENTIONED IN PA RA 2 OF THE ASSESSMENT ORDER). NO REASONING HAS BEEN 16 MENTIONED IN THE ASSESSMENT ORDER AS TO WHY THE CLA IM OF THE ASSESSEE IS NOT ACCEPTABLE. DURING HEARING B EFORE US, IT WAS CONTENDED BY THE LD. COUNSEL FOR ASSESSE E THAT THOROUGH MARKET STUDY WAS DONE BY THE ASSESSEE AND TO SAVE ITSELF FROM FURTHER LOSSES, IT WAS DECIDED TO SELL THE SHARES, KEEPING IN VIEW THE BUSINESS EXPEDIENCY/NECESSITY. OUR ATTENTION WAS INVITED TO THE CORRESPONDENCE TOOK PLACE BETWEEN THE ASSESSEE AND SWASTIK COAL CORPN. BETWEEN 29.7.20065 TO 18.3.2006 . SO FAR AS THE RULE IN MCDOWELL & CO. VS. CTO (1985) 154 ITR 148 (SC) IS CONCERNED, IT STILL HOLDS THE FIELD AND HITS TAX PLANNING AND DEVICES WITH CLEAR INTENT OF EVASI ON OF TAX. IN CWT VS. ARVIND NAROTTAM DAS (1998) 173 ITR 479 (SC) AND UNION OF INDIA VS. PLYWORLD ELECTRONICS P. LTD. (184 ITR 308) (SC), THE HONBLE APEX COURT CARVED O UT AN EXCEPTION FROM THE MCDOWELL RULE HOLDING THAT IF TH E IMPUGNED TRANSACTIONS WERE BONA FIDE AND HAVING A C LEAR FINANCIAL OR ECONOMIC OBJECTIVE, THE MCDOWELL RULE SHALL NOT HIT EVEN IF TAX SAVING IS INCIDENTAL TO SUCH 17 TRANSACTIONS. IF THESE JUDICIAL PRONOUNCEMENTS ARE KEPT IN JUXTA-POSITION WITH THE FACTS OF THE PRESENT APP EAL, THE SALE WAS COMPELLED BY BUSINESS NECESSITY TO SAVE TH E ASSESSEE FROM FURTHER LOSSES. WHOLE TRANSACTION IS ROUTED THROUGH BANK, THEREFORE, MERELY ON PRESUMPTION, IT CANNOT BE TREATED AS BOGUS UNLESS AND UNTIL, ANY CO GENT MATERIAL IS BROUGHT ON RECORD. WE ARE AWARE THAT EA CH AND EVERY TRANSACTION THROUGH BANKING CHANNEL MAY N OT BE TREATED SACROSANCT BUT AT THE SAME TIME, WITHOUT ANY REASON, IT CANNOT BE DOUBTED TO BE BOGUS. EVERY TRANSACTION MAY NOT RESULT INTO PROFIT. THE LD. CIT (A) FORWARDED THE WRITTEN SUBMISSIONS ALONG WITH ADDITI ONAL EVIDENCE, FILED BEFORE HIM, TO THE LD. ASSESSING OF FICER AND THESE ARE MERELY SUPPORTIVE CORRESPONDENCE. IT IS NOT THE CASE THAT THE ADDL. EVIDENCE, IF ANY, WAS NOT B ROUGHT TO THE NOTICE OF THE ASSESSING OFFICER. SINCE THE R EMAND REPORT WAS SENT TO THE FILE OF THE ASSESSING OFFICE R, THEREFORE, IT IS REASONABLY CLEAR THAT THE ASSESSIN G OFFICER WAS GIVEN OPPORTUNITY TO RESPOND AND EVEN IF UP TO THAT 18 STAGE, IF HE WAS HAVING ANY ADVERSE MATERIAL AGAINS T THE ASSESSEE WITH HIM, NOTHING PREVENTED HIM TO BRING T HE SAME TO THE NOTICE OF THE LD. CIT(A). NO SUCH FACTS WERE BROUGHT TO OUR NOTICE, THEREFORE, SIMPLY THE CASE D ECIDED ON THE BASIS OF POSSIBILITIES AND PROBABILITIES CAN NOT WITHSTAND AT THE TOUCHSTONE OF JUDICIAL SCRUTINY. T HE ONLY REASON FOR DISALLOWANCE OF LOSS IS THAT THE ASSESSE E COULD NOT JUSTIFY THE SALE OF SHARES AT HUGE LOSSES, AUTOMATICALLY DOES NOT INDICATE THAT THE TRANSACTIO N WAS BOGUS. THE ASSESSING OFFICER WAS HAVING SUFFICIENT TIME FROM AUGUST SEP. 2008 TO 31.12.2008 AND AGAIN WHE N THE LD. CIT(A) ASKED THE COMMENTS FROM HIM IN THE F ORM OF REMAND REPORT. HOWEVER, NO FURTHER INQUIRY WAS M ADE, IF SO DESIRED, THEREFORE, THE CONTENTION OF THE LD. CIT(A) THAT THE ASSESSEE DELIBERATELY SUPPRESSED THE EVIDE NCE, IF ANY, IS ALSO NOT BASED ON FACTS WHEN SUFFICIENT EVI DENCE WAS PRODUCED BY THE ASSESSEE. THERE IS NO REASON TO SUSPECT THE SAME, HOWEVER, IF THE DEPARTMENT STILL FEELS, NOTHING PREVENTED THE SAME TO EXAMINE IT FURTHER OR TO 19 BRING CONTRARY MATERIAL ON RECORD BUT THAT WAS NOT DONE. IN VIEW OF THESE FACTS, NO ADVERSE INFERENCE COULD BE DRAWN AGAINST THE ASSESSEE. THE ASSESSEE IS ONLY EXPECTED TO FURNISH EVIDENCE WHICH WAS AVAILABLE WI TH HIM TO JUSTIFY ITS CLAIM, THEREFORE, WITHOUT REBUTT ING OR PROVING THE SAME OTHERWISE, THE TRANSACTION CANNOT BE TREATED AS BOGUS DISBELIEVING THE EXPLANATION OFFER ED BY THE ASSESSEE. THE HONBLE APEX COURT IN UMACHAND SH AH VS. CIT (37 ITR 271) HAS CLEARLY HELD THAT WHERE TH ERE ARE MANY SURMISES AND CONJECTURES AND THE CONCLUSION IS THE RESULT OF SUSPICION, THE SAME CANNOT TAKE THE S HAPE OF EVIDENCE, HOWEVER, STRONG IT MAY BE. IDENTICAL R ATIO WAS LAID DOWN BY HONBLE P & H HIGH COURT IN CIT VS . RAMESH BHAYANA (296 ITR 101). AS FAR AS THE TRANSACTIONS ARE CONCERNED, THE PART Y INVOLVES IN THE TRANSACTION ARE NEITHER RELATED TO EACH OTHER NOR HAVING COMMON INTEREST IN THE ASSESSEE COMPANY. THE SHARES WERE CLAIMED TO BE PURCHASED BY 20 PROPER APPLICATIONS, PAYMENT IS BY CHEQUE, COMPANIE S WHOSE SHARES WERE PURCHASED ARE ASSESSED TO TAX. AT NO STAGE, PURCHASES HAVE BEEN DOUBTED. SIMILARLY, SALE OF SHARES TO JAYANT SECURITIES AND FINANCE LTD. WERE VERIFIED BY THE ASSESSING OFFICER U/S 133(6) AND NO THING CONTRARY WAS FOUND, THUS, ONUS WAS PROPERTY DISCHAR GED BY THE ASSESSEE. THE DECISION FROM HONBLE GAUHATI HIGH COURT IN CIT VS. JANKI TEXTILES & IND. LTD. 132 TAX MAN 231 WHEREIN IT WAS HELD THAT ONCE THE ASSESSEE PLAC ED MATERIAL ON RECORD TO INDICATE THAT SHARE TRANSACTI ON ENTERED BY THE COMPANY HAVE BEEN SUPPORTED BY EVIDENCE OF PURCHASE AND SALES OF SHARES AND ALSO O THER DOCUMENTARY EVIDENCE SHOWING THAT ALL THE PAYMENTS WERE MADE/RECEIVED THROUGH ACCOUNT PAYEE CHEQUES. I N THE ABSENCE OF CONTRARY MATERIAL, IT COULD NOT HAVE BEEN HELD BY THE ASSESSING OFFICER THAT THE TRANSACTIONS WERE BOGUS, FURTHER SUPPORTS THE CASE OF THE ASSESSEE. I F THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EVIDEN CE, FILED BY THE ASSESSEE, AND THE SAME IS NOT DISPUTED , IT 21 CANNOT BE TREATED TO BE BOGUS RATHER THE ASSESSEE DISCHARGED THE ONUS OF PROVING THE LOSS. THIS VIEW IS FURTHER SUPPORTED BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF JAYANTILAL KISHORILAL VS. CIT (154 ITR 821) (MP). RELIANCE CAN ALSO BE PLACED UPON THE DECISION FROM HONBLE APEX COURT IN CIT VS. BEDI & CO. (230 ITR 580) AND CIT VS. PRAGAT I COOPERATIVE BANK LTD. (278 ITR 179) (GUJ) WHEREIN I T WAS HELD THAT IT IS SETTLED LAW THAT ONUS TO PROVE THAT APPARENT IS NOT REAL HEAVILY LIES ON THE PERSON WHO CLAIMS IT TO BE SO. UNLESS AND UNTIL SUCH ONUS IS DISCHARG ED, NO ADVERSE VIEW CAN BE TAKEN BY THE ASSESSING AUTHORIT Y. ON SUSPICION, RELIANCE CAN BE PLACED UPON THE DECISION S IN RANCHI HANDLOOM EMPORIUM VS. CIT (235 ITR 604) (PAT ), CIT VS. ANUPAM KAPOOR (299 ITR 179) (PAT) AND ITO V S. S. PANNM BALAM AND OTHERS (240 ITR 171) (MAD). IT I S ALSO PERTINENT TO NOTE THAT PURCHASE OF SHARES WERE MADE FROM SCCL AND PAYMENTS WERE MADE BY CHEQUES. THE SALE OF SHARES WERE MADE AFTER ANALYSING POSITION O F THE 22 COMPANY AND THE PAYMENTS WERE RECEIVED BY CHEQUES. THUS, TRANSACTION SO EFFECTED ARE PROPER AND INDEPE NDENT TO EACH OTHER. THUS, THERE WAS SUFFICIENT MATERIAL WITH THE ASSESSING OFFICER TO CONSIDER THAT THESE WERE A CTUAL TRANSACTIONS. THE DECISION IN CIT VS. KUNDAN INVEST MENT LTD. (263 ITR 626) (CAL) WHEREIN IT WAS HELD THAT M ERE FACT THAT SHARES SOLD AT LOSS IMMEDIATELY AFTER PURCHASE AND THE ASSESSEE COULD NOT BE ABLE TO PRODUCE SHARE BRO KER WOULD NOT DISENTITLE THE ASSESSEE FROM CLAIMING LOS S FROM THE SHARES. IDENTICAL VIEW WAS TAKEN IN CIT VS. EME RALD COMMERCIAL CO. (250 ITR 539). THE RATIO LAID DOWN I N CIT VS. KARAMCHAND THAPAR & BROS. P. LTD. (176 ITR 535) (SC) FURTHER SUPPORTS THE CASE OF THE ASSESSEE. THE LD. CIT/DR HAS MENTIONED THE DECISION FROM THE HONBLE APEX COURT IN THE CASE OF MCDOWELL WHICH WAS DULY SUMMED UP BY HONBLE GUJRAT HIGH COURT IN BANYAN & BERRY VS. CIT (131 CTR 127) (GUJ), 222 ITR 831 (SC) , WHEREIN, IT WAS HELD AS UNDER: 23 THE COURT (IN MCDOWELL) NOWHERE SAID THAT EVERY ACTION OR INACTION ON THE PART OF TAX PAYER WHICH RESULTS IN REDUCTION IN TAX LIABILITY TO WHICH HE MAY BE SUBJECTED IN FUTURE, IS TO BE VIEWED WITH SUSPICION AND BE TREATED AS DEVICE FOR AVOIDANCE OF TAX IRRESPECTIVE OF THE LEGITIMACY OR GENUINENESS OF THE ACT. THE PRINCIPAL ENUNCIATED IN THE ABOVE CASE HAS NOT AFFECTED THE FREEDOM OF THE CITIZEN TO ACT IN A MANNER ACCORDING TO HIS REQUIREMENTS, HIS WISHES IN THE MATTER OF DOING ANY TRADE, ACTIVITY OR PLANNING HIS AFFAIRS WITH CIRCUMSPECTION, WITHIN THE FRAMEWORK OF LAW, UNLESS THE SAME FALLS IN THE CATEGORY OF COLOURABLE DEVICE. EACH AND EVERY TRANSACTION CANNOT BE SAID TO BE IN THE CATEGORY OF COLOURABLE DEVICE ON PRESUMPTIVE BASIS RATHER THERE MUST BE COGENT MATERIAL ON RECORD IN REACHING SUCH CONCLUSION. SO FAR AS THE OBSERVATION IN PARA 4.4.1 TO 4.4.3 OF THE IMPUGNED ORDER, THE CONTENTION OF THE LD. COUNSEL FOR ASSESSEE IS THAT THE MANAGEMENT OF THE COMPANY SCCL ARE IN NO WAY RELATED TO THE DIRECTORS OF THE ASSESSEE COMPANY AND IT WAS A PROPER BUSINESS D EAL 24 CONSIDERING THE FUTURE PROSPECTS. THE ASSESSEE ACQU IRED THE SHARES AND THE PAYMENTS WERE MADE BY THE CHEQUE S. THE SHARES WERE CLAIMED TO BE SOLD AFTER ANALYSING THE POSITION OF THE ASSESSEE COMPANY, POSTPONING THE IP O, AND DECISION WAS TAKEN TO SELL THE SAME TO GRAB ANY OTHER OPPORTUNITY. THE BUYER OF SHARES MADE THE PAYMENTS BY CHEQUES AND SHARES OF THE SCCL WERE CLAIMED TO BE N OT OFFERED TO THE PUBLIC EVEN TILL DATE. THERE WAS REG ULAR CORRESPONDENCE BETWEEN THE PARTIES WITH REGARD TO T HE TRANSACTIONS. AT PAGE 66 OF THE PAPER BOOK, THERE I S A LETTER OF SCCL TO THE ASSESSEE WHEREIN IT HAS BEEN ADMITTED THAT THEY MAY PRIMITIVE/PROMOTER ALLOTMENT TO 8 PERSONS OF 7,32,253 SHARES OF THE COMPANY. OUT OF THE TOTAL ALLOTMENT, THE ASSESSEE WAS ONLY HOLDING 80,0 00 SHARES. WHEN MAIN CONSIDERATION OF PURCHASE OF SHAR ES IPO OF SCCL WAS PUT ON HOLD FOR INDEFINITE PERIOD, THE ASSESSEE WAS FORCED TO TAKE COMMERCIAL DECISION. IN SUCH SITUATION, THERE WERE ONLY OPTIONS EITHER TO HOLD T HE SHARES OR TO SELL THE SAME. SINCE THERE WERE OTHER 25 OPPORTUNITIES, INSTEAD OF WAITING, THE ASSESSEE TOO K THE DECISION OF SALE OF SUCH SHARES. BEING CLOSELY HELD COMPANY, BUYERS WERE CLAIMED TO BE LIMITED AS THERE WAS NO FREE AND OPEN TRADING IN SHARES. FURTHER IN THE CASE OF THE CLOSELY HELD COMPANY, SHARES ARE RETAINED EITHE R TO HAVE CONTROL OF MANAGEMENT OR TO SUPPORT MANAGEMENT HOLDING CONTROL. THIS IS NOT THE CASE HERE. THE SAL E WAS MADE AT A PRICE WHICH COULD BE OBTAINED IN THE PREV AILING CIRCUMSTANCES. SINCE THE PURCHASER HAS CONFIRMED TH E TRANSACTIONS U/S 133(6), THEREFORE, THERE WAS NO SC OPE FOR THE LD. ASSESSING OFFICER TO DOUBT THE SALE TRANSACTIONS. THE DEAL WAS PURELY COMMERCIAL DEAL W ITH COMMERCIAL PRUDENCE AND NOTHING IS ON RECORD INDICA TING THAT THE LOSS WAS CLAIMED TO BE BOGUS. EVEN OTHERWI SE, THE BUSINESSMAN IS THE BEST JUDGE IN HIS INTEREST U NDER THE PECULIAR FACTS AND CIRCUMSTANCES, THEREFORE, TH ERE IS NOTHING ON RECORD EXCEPT PROBABILITIES, SURMISES AN D CONJECTURES, THAT TOO, WITHOUT ANY COGENT MATERIAL ON RECORD ESPECIALLY WHEN THE ACCOUNTS ARE AUDITED, 26 TRANSACTIONS ARE PROPERLY RECORDED, SALES ARE VERIF IED, PURCHASES ARE NOT DOUBTED, THEREFORE, IN VIEW OF TH E DECISION IN ITO VS. MADANLAL SINGHAL & SONS (100 IT J 647) (JOD), THE TRANSACTION OF PURCHASE AND SALES, UNDER THE FACTS AND CIRCUMSTANCES CANNOT BE TREATED AS BO GUS, THEREFORE, THIS APPEAL OF THE ASSESSEE IS ALLOWED. SINCE WE HAVE ALLOWED THE APPEAL OF THE ASSESSEE, THEREFORE, WE DO NOT FEEL IT APPROPRIATE TO GO INTO NON-ADMISSION OF ADDL. EVIDENCE UNDER RULE 46A FILED BEFORE THE LD. CIT(A) . FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.8.2011. SD/- SD/- (R.C. SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 19 TH AUGUST, 2011 COPY TO: APPELLANT/RESPONDENT/CIT/CIT(A)/DR/GUARD F ILE