Shri Rasiklal S.Mardia, Ahmedabad V. The ACIT., Cent.Circle-2(2), Ahmedabad

ITA 495/AHD/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1773 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-12-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 02-02-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MEENA
• Assessee Lawyers: P D SHAH
• Keywords: Fair market value; Block assessment; Set aside; Liquidation

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBLE SH RI N.S. SAINI, A.M.) I.T.A. NO. 495/AHD./2007 ASSESSMENT YEAR : 2002-2003 RASIKLAL S. MARDIA, AHMEDABAD -VS. - ASSISTANT COMMISSIONER OF INCOME TAX, (P.A. NO. AAPPM 5974 J) CENTRAL CIRCLE-2(2), AHM EDABAD (APPELLANT) (R ESPONDENT) APPELLANT BY : SHRI P.D. SHAH RESPONDENT BY : SHRI S. K. MEENA O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER :- THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER DATED 30.03.2006 OF LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) -III, AHMEDABAD FOR THE ASSESSMENT YEAR 2002-03. 2. THE ONLY GROUND RAISED IN THIS APPEAL IS AS UNDE R :_ THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEAL S) HAS ERRED IN FACTS AND IN LAW IN NOT ACCEPTING THE APPELLANTS A PPEAL TO ALLOW THE LOSS OF RS.21,00,000/- ON SHARES OF MARDIA LEASING AND FINANCIAL SERVICES LTD. THE APPELLANT HUMBLY AND RESPECTFULLY PRAYS THE HON'BLE TRIBUNAL TO DIRECT THE LD. A.O. TO ALLOW THE LOSS O F RS.21,00,000/-, WHILE COMPUTING THE TOTAL INCOME. 3. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THE AFORESAID GROUND OF APPEAL ARE THAT THE ASSESSEE IS AN INDIVIDUAL EARNING INCOME FROM SALAR Y, SHARE TRADING BUSINESS AND INCOME FROM OTHER SOURCES. FOR THE ASSESSMENT YEAR UNDER APPEAL , THE FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.8,43,255/- ON 31.07.2002. IN THE RETUR N OF INCOME, THE ASSESSEE CLAIMED RS.21,00,000/- AS BUSINESS LOSS ON SHARES OF MARDIA LEASING & FINANCIAL SERVICES LTD. IN THE ASSESSMENT ORDER, THE A.O. OBSERVED THAT THE ASSESS EE PURCHASED 5 LAKH SHARES OF M/S. MARDIA LEASING & FINANCIAL SERVICES LTD. ON 23.01.2002 AT RS.5/- EACH VALUING RS.25,00,000/- FROM SMT. PREM MARDIA, WIFE OF THE ASSESSEE. THESE SHARE S WERE LYING AS CLOSING STOCK AT THE YEAR AND VALUED BY THE ASSESSEE AT THE RATE OF RS.0.8 PER SH ARES, I.E. RS.4 LAKHS FOR 5 LAKHS SHARES. THE DIFFERENCE BETWEEN THE PURCHASE PRICE AND CLOSING S TOCK VALUE BEING RS.21,00,000/- IS CLAIMED AS BUSINESS LOSS. ACCORDING TO A.O., THE ASSESSEE COUL D NOT SUBSTANTIATE THE PURCHASE PRICE OF RS.5/- PER SHARE IN THE MONTH OF JANUARY,2002 AND VALUE OF RS.0.8 PER SHARE ADOPTED IN THE CLOSING 2 STOCK. BEFORE THE A.O., THE ASSESSEE STATED THAT PU RCHASE WAS MADE IN AN OFF MARKET RATE. M/S. MARDIA LEASING AND FINANCIAL SERVICES LTD. WAS FINA NCIALLY SICK COMPANY AND THERE WAS HUGE OUTSTANDING INCOME-TAX DEMAND OF RS.17 TO 18 CRORES ON ACCOUNT OF SEARCH ASSESSMENT WHICH WAS DELETED. THERE WAS ALSO HUGE OUTSTANDING AMOUNT OF RS.13 TO 14 CRORES TO DENA BANK. THERE WAS A PROPOSAL FROM DENA BANK FOR SETTLEMENT OF OUT STANDING DUES. WITH THESE DEVELOPMENTS THERE WAS A CHANCE OF REVIVAL/ RESTRUCTURING OF THE COMPANY AND, THEREFORE, THE ASSESSEE TOOK BUSINESS DECISION TO PURCHASE THE SHARES FROM HIS W IFE @ RS.5/- PER SHARE. THE A.O., HOWEVER, FOUND THE SUBMISSION PUT FORWARD BY THE ASSESSEE AS UNACCEPTABLE BECAUSE FINANCIAL RESULT OF M/S. MARDIA LEASING AND FINANCIAL SERVICES LTD. WER E VERY POOR. THE A.O. ALSO REPRODUCED THE FINANCIAL RESULTS IN THE BODY OF ASSESSMENT ORDER W HICH INDICATED HUGE LOSS OF RS.2319.40 CRORES FOR THE FINANCIAL YEAR 2001-02. THE COMPANY WAS PRO MOTED BY THE ASSESSEE-GROUP. MAJORITY SHARES WERE HELD BY THE FAMILY MEMBERS AND WERE BEI NG TRADED BY FAMILY MEMBERS OR ASSOCIATED COMPANIES ONLY. THE WIFE OF THE ASSESSEE WAS SHOWIN G INCOME FROM SHARE TRADING BUT ON GOING THROUGH HER RETURN OF INCOME, IT WAS NOTED THAT EVE N WITH PURCHASE OF SHARE AT THE RATE OF RS.5/- PER SHARE BY THE ASSESSEE THERE WAS LOSS IN HER HAN DS FROM SHARE TRADING. ACCORDING TO A.O., THE ASSESSEE FAILED TO PRODUCE ANY EVIDENCE IN SUPPORT OF PURCHASE PRICE ADOPTED @ RS.5/- PER SHARE. ACCORDING TO A.O., THE PURCHASE MADE BY THE ASSESSE E WAS ONLY TO BOOK THE LOSS AND EVADE TAX. THE A.O. ACCORDINGLY HELD THAT THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF MCDOWELL VS.- CTO REPORTED IN 154 ITD 140(SC) AND THE DECIS ION OF THE ITAT, MUMBAI IN THE CASE OF KANITLAL MANILAL & CO. VS.-DCIT REPORTED IN 82 ITD 354 WERE APPLICABLE IN THE CASE OF ASSESSEE. HE ACCORDINGLY DISALLOWED THE LOSS OF RS. 21,00,000/- CLAIMED BY THE ASSESSEE. 4. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS), THE ASSESSEE CONTENDED AS UNDER :- THE APPELLANT WAS THE DIRECTOR OF MARDIA LEASING AN D FINANCIAL SERVICES LTD. THIS COMPANY WAS A FINANCIALLY SICK COMPANY AND WAS FACING TWO MAJOR PROBLEMS [1) HUGE OUTSTANDING INCOME-TAX LIABILITY OF AROUND RS. 17-18 CRORES ON ACCOUNT OF SEARCH ASSESSMENT AND [2] CASE FILED BY DENE BAN K BEFORE DEBT RECOVERY TRIBUNAL. AHMEDABAD TO RECOVER THEIR OUTSTANDING AM OUNT OF APPROXIMATELY RS, 13-14 CRORES. DURING THE YEAR UNDER CONSIDERATION, THERE AROSE A TREMENDOUS SCOPE FOR THE REVIVAL OF THIS COMPANY AN ACCOUNT OF SCOPE FOR SOLUTION OF BOTH THESE FINANCIAL PROBLEMS. THE ID. CIT(APPEALS) QUAS HED THE WHOLE BLOCK ASSESSMENT IN THE BEGINNING OF THE YEA-- UNDER CONS IDERATION. [THE COPY OF THE C1T( APPEAL S)'S ORDER QUASHING THE BLOCK ASSESSMEN T PROCEEDINGS HAVING DEMAND OF MORE THAN RS, 17 CRORES, IS ENCLOSED HERE WITH AS ANNEXURE-2 FOR YOUR 3 HONOUR'S READY REFERENCE]. SECONDLY, DURING THE YEA R UNDER CONSIDERATION. DURING AUGUST, 2001, THE COMPANY RECEIVED A PROPOSAL FROM DENA BANK FOR ONE TIME SETTLEMENT OF WHOLE OUTSTANDING DUES AND THE SCOPE WAS OPENED UP TO MAKE THE COMPANY FREE FROM BANK'S LIABILITY BY ONE TIME SETT LEMENT WITH THE BANK, AND IN THIS CONNECTION THE MANAGEMENT ALSO ORGANIZED TWO-T HREE MEETINGS WITH THE HIGHER AUTHORITIES OF DENA BANK. [COPY OF THE LETTE R- RECEIVED FROM DENA BANK IS ENCLOSED HEREWITH AS ANNEXURE-3]. CONSIDERING THE CHANCE; OF REVIVAL AND RESTRUCTURIN G OF THIS COMPANY, THE APPELLANT THOUGHT IT FIT TO TAKE THIS OPPORTUNITY A RID TOOK A BUSINESS DECISION TO PURCHASE THE SHARES OF MARDIA LEASING AND FINANCIAL SERVICES LIMITED IN BULK WITH THE INTENTION TO EARN PROFIT ON TRADING OF THE SE SHARES SUBSEQUENTLY ON REVIVAL OF THIS COMPANY, AND THEREFORE, THE APPELLANT PURCH ASED THESE SHARES FOR HIS TRADING BUSINESS AT THE BEST NEGOTIATED PRICE. THE APPELLANT PURCHASED 5 LAKH SHARES AT RS. 5 EACH, AND FURTHER THE SHARES WERE T RANSFERRED IN THE NAME OF THE APPELLANT. HOWEVER, THE REVIVAL OF THE COMPANY COUL DN'T MATERIALIZE AND THE QUOTED VALUE OF THE SHARE DIMINUTED TO RS, 0.80 PAI SE PER SHARE AT THE YEAR-END. THE ID ASSESSING OFFICER DISALLOWED THE LOSS ON THE SE SHARES HOLDING THAT THE COMPANY IN QUESTION WAS NOT DOING WELL DURING LAST 2 YEARS AND THE FACT THAT THE TRANSACTIONS ARE DONE WITHIN THE FAMILY. WITHOUT CO NSIDERING AND WITHOUT COMMENTING ON THE CONSCIOUS BUSINESS DECISION OF TH E APPELLANT, THE ID. A.O. HAS HOLD ARBITRARILY THAT THE PURCHASE WAS MODE BY THE APPELLANT ONLY TO BOOK THE LOSS AND THEREBY EVADE THE TAX. THE ID. ASSESSING OFFICE R HAS NOT APPRECIATED THE CORRECT FACTS AND WITH A PRE-DETERMINED MIND DISALL OWED THE LOSS WITHOUT UNDERSTANDING THAT THE APPELLANT KNOWS HIS BUSINESS INTEREST BEST AS AN EXPERIENCED BUSINESSMAN, AND IT IS NOT OPEN TO THE DEPARTMENT TO PRESCRIBE HIM HIS BUSINESS DECISION END QUESTION THE JUSTIFICATIO N OF HIS BUSINESS DECISION. FURTHER, THE ID. A.O. HAS FAILED TO APPRECIATE THE REAL BUSINESS FACTS THAT NOBODY CAN PREDICT THAT EVERY BUSINESS DECISION WILL INVAR IABLY RESULT INTO A PROFITABLE SUCCESS. THE APPELLANT WOULD LIKE TO GIVE ONE STRAIGHT AND S IMPLE ILLUSTRATION TO EXPLAIN THE ISSUE. AS YOUR HONOUR ARE WELL AWARE THAT THE COMPA NY NAMELY MARDIA STEEL LIMITED PROMOTED BY THE APPELLANT HAS BEEN ORDERED TO BE WOUND UP NEARLY THREE YEARS BACK. MOW IF THE APPELLANT ADVISE YOU TO INVE ST IN THE SHARES OF MARDIA STEEL LIMITED [IN LIQUIDATION] ON THIS DATE, YOU MA Y BE SURPRISED AND SHOCKED AT THIS PROPOSAL. HOWEVER, THIS BUSINESS DECISION MAY TURN TO WINDFALL GAINS FOR YOU. BECAUSE THE COMPANY IS UNDER THE PROCESS OF REVIVAL AND MEETINGS OF SHAREHOLDERS, CREDITORS AND BANKERS HAVE BEEN ARRAN GED AS PER THE ORDER OF HON'BLE GUJARAT HIGH COURT. HOWEVER, IF THIS REVIVA L PROPOSAL DOESN'T SUCCEED, YOU MAY END UP WITH LOSS. AND THIS IS THE BUSINESS DECISION, WHICH MAY SUCCEED OR WHICH MAY FAIL. 5. AFTER CONSIDERING THE AFORESAID SUBMISSION OF TH E ASSESSEE, IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CONFIRM ED THE DISALLOWANCE BY GIVING THE DETAILED REASONS IN PARA 12 ON PAGE 16 OF THE IMPUG NED ORDER, WHICH READS AS UNDER :- 4 12. I HAVE CAREFULLY CONSIDERED THE RELEVANT FACT S AND PROVISIONS OF LAW WITH REGARD TO THE ISSUE INVOLVED AND FIND THAT THE APPE LLANT FAILS TO BRING ON RECORD ANY RELIABLE REASONING FOR ADOPTING PURCHASE PRICE OF RS. 5/- PER SHARE OF MARDIA LEASING AND FINANCIAL SERVICES LTD. THE CLAIM OF TH E APPELLANT THAT THERE WAS A CHANCE OF REVIVAL HARDLY HAS ANY MERITS BECAUSE IF THAT WAS THE CASE, THE PUBLIC AT LARGE WOULD HAVE ATTRACTED TOWARDS THE SHARES AND S HARE WOULD HAVE TRADED IN THE STOCK MARKET AT A HIGHER PRICE. NO BIG EVENT HAPPEN ED BETWEEN THE MONTH OF JANUARY 2002 AND 31 S ' OF MARCH 2002 WHICH JUSTIFY PURCHASE OF SHARES @ RS. 5/- PER SHARE IN JANUARY,20Q2 AND THE CLOSING STOCK VAL UE OF THE SHARES @ RS. 0,8 PER SHARE. THE QUOTATION OF RS. Q R 8 PER SHARE IN MARCH 02 APPEARING IN GUJARAT SAMACHAR IS ON ACCOUNT OF TRANSFER WITHIN A GROUP O F A SMALL NUMBER OF SHARES. I, THEREFORE FIND THAT THE TRANSACTION_WAS_DONE BY THE APPELLANT ONLY WITH_THE SOLE PURPOSE OF EVADE TAX. THIS IS FURTHER SO BECAUSE THE APPELLANT EVEN AFTER SET OFF OF LOSS OF RS. 21,00,000/- WAS HAVING TAXABLE INCOME O F RS. 8,00,000/- AND THERE WAS A CLEAR ATTEMPT ON THE PART OF THE APPELLANT TO RED UCE TAXABLE INCOME FROM 30.67 LAKH TO RS. 8.67 LAKH BY CLAIMING A FICTITIOUS LO SS OF RS. 21,00,000/-. AT THE SAME TIME, I ALSO FIND THAT THE WIFE OF THE APPELLA NT SMT. PREM MARDIA WAS ABLE TO DIGEST A PROFIT OF RS. 0.5 PER SHARE WITH NET LOSS FROM SHARE TRADING EVEN AFTER SALE OF THESE SHARES @ RS. 5/- PER SHARE TO THE APPELLAN T AGAINST THE PURCHASE PRICE OF 4.5 PER SHARE IN HER HAND. THE CLAIM OF THE APPELLA NT THAT THE DEPARTMENT CANNOT INTERFERE IN THE BUSINESS DECISION OF THE APPELLANT HARDLY HAS ANY MERITS. THIS IS SO BECAUSE, THE PURCHASE PRICE OF A SHARE HAS TO BE DE CIDED BY MARKET FORCES AND_THE_OFF MARKET TRANSACTION BETWEEN THE APPEL LANT AND HIS WIFE AND WAS OBVIOUSLY STRUCK AT_MANIPULATED PRICE IN ORDER TO_D EFEND_THE PURPOSE OF REVENUE BECAUSE THE APPELLANT FALLS TO BRING ON RECORD AN Y JUSTIFICATION FOR ADOPTING SUCH HIGHER PURCHASE PRICE. IN FACT IF THE APPELLANT_WA NTED TO ACQUIRE_THESE SHARES WITH_THE_GENUINE HOPE_OF REVIVAL OF THE COMPANY, HE COULD HAVE PURCHASED THE SAME THROUGH STOCK MARKET WHERE_PUBLIC AT LARGE WOU LD HAVE OFFERED THE SHARES AT A MUCH LOWER PRICE. I, THEREFORE HOLD THAT THE A SSESSING OFFICER WAS JUSTIFIED IN DISALLOWING THE CLAIM OF LOSS BY THE APPELLANT_AND THE RATIO OF APEX COURT IN THE CASE OF MCDOWELL (SUPRA) SQUARELY APPLIES TO THE CA SE OF THE APPELLANT. THE DISALLOWANCE IS, THEREFORE, CONFIRMED . AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS), THE ASSESSEE IS IN APPEAL BEFORE US. 6. AT THE TIME OF HEARING ON BEHALF OF ASSESSEE SHR I P.D. SHAH APPEARED AND CONTENDED THAT THE ASSESSEE PAID THE PURCHASE CONSIDERATION, SHARE S OF M/S. MARDIA LEASING & FINANCIAL SERVICES LTD. WERE TRANSFERRED IN THE COMPANY RECOR D, THE NECESSARY INTIMATION OF THE TRANSACTION WAS GIVEN TO ROC AND APPLICABLE DUTIES THEREON WAS ACTUALLY PAID. THEREFORE, THE TRANSACTION IN QUESTION CANNOT BE HELD AS SHAM AND IT CAN NOT BE S AID THAT IT HAS BEEN CARRIED OUT WITH AN INTENTION TO BOOK LOSS AND EVADE THE TAXES. 5 6.2. THE LD. COUNSEL CONTENDED THAT IN THE ABSENCE OF ANY CONTRARY EVIDENCES, MERELY PURCHASE OF SHARES FROM WIFE CANNOT BE GROUND TO HOLD THAT T HE TRANSACTION HAS BEEN CARRIED OUT WITH THE INTENTION TO BOOK LOSS AND TO EVADE TAX. HE ALSO CO NTENDED THAT TO CURB THE TRANSACTION WITH THE RELATED PARTIES, THERE IS SPECIFIC PROVISION UNDER SECTION 40A(2) OF THE INCOME TAX ACT. AS PER THIS PROVISION, THE ENTIRE LOSS OF RS.21,00,000/- C ANNOT BE DISALLOWED. THE ONLY COURSE OF ACTION OPENED TO A.O. WAS TO ASCERTAIN WHETHER THE PURCHAS E PRICE PAID FOR SHARES OF M/S. MARDIA LEASING & FINANCIAL SERVICES LTD. WAS EXCESSIVE OR UNREASONABLE. NO SUCH EXERCISE WAS DONE BY THE A.O. 6.3. THE LD. COUNSEL OF THE ASSESSEE CONTENDED THAT THE A.O. HAS NOT BROUGHT ON RECORD ANY MATERIAL EVIDENCE, WHICH SUGGESTS THAT THE PAYMENT IS EXCESSIVE OR UNREASONABLE ON THE DATE OF PURCHASE OF SHARES OF M/S. MARDIA LEASING & FINANCI AL SERVICES LTD. AND, THEREFORE, NO DISALLOWANCE UNDER SECTION 40A(2) OF THE ACT IS CAL LED FOR. IN THIS REGARD, RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS :- (I) CIT VS.- UDHOJI SHRIKRISHANDAS [139 ITR 827 (MP)]; (II) COMSAT MAX LIMITED VS.- DCIT [ (2009)29 SOT 436 (DELHI)]; (III) S.L. PODDAR VS.- ITO [9 TTJ (PAT) 370]. 7. ELABORATING HIS ARGUMENT, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS THE DIRECTOR OF MARDIA LEASING & FINANCIAL SERVICES LTD. THIS COMPANY WAS A FINANCIAL SICK COMPANY AND WAS FACING TWO MAJOR PROBLEMS, I.E. (1) HUGE OUTSTANDING INCOME-TAX LIABILITY OF AROUND RS.17-18 CRORES ON ACCOUNT OF SEARCH ASSESSM ENT AND (2) CASE FILED BY DENA BANK BEFORE DEBT RECOVERY TRIBUNAL, AHMEDABAD TO RECOVER THEIR OUTSTANDING AMOUNT OF APPROXIMATELY RS.13-14 CRORES. DURING THE YEAR UNDER CONSIDERATIO N, THERE AROSE A TREMENDOUS SCOPE FOR THE REVIVAL OF THIS COMPANY ON ACCOUNT OF SCOPE FOR SOL UTION OF BOTH THESE FINANCIAL PROBLEMS. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) QUASHED THE WHOLE BLOCK ASSESSMENT IN THE BEGINNING OF THE YEAR UNDER CONSIDERATION. 8. IT WAS ALSO CONTENDED BY THE LD. COUNSEL OF THE ASSESSEE THAT IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL IN AUGUST, 2001 , THE COMPANY RECEIVED A PROPOSAL FROM DENA BANK FOR ONE TIME SETTLEMENT OF WHOLE OUTSTAND ING DUES AND THE SCOPE WAS OPENED UPTO 6 MAKE THE COMPANY FREE FROM BANKS LIABILITY BY ONE TIME SETTLEMENT WITH THE BANK AND IN THIS CONNECTION, THE MANAGEMENT ALSO ORGANIZED TWO-THREE MEETINGS WITH THE HIGHER AUTHORITIES OF DENA BANK. CONSIDERING THE CHANCES OF REVIVAL AND R ESTRUCTURING OF THE COMPANY, THE ASSESSEE THROUGH IT FIT TO MAKE THIS OPPORTUNITY AND TOOK A BUSINESS DECISION TO PURCHASE THE SHARES OF MARDIA LEASING & FINANCIAL SERVICES LTD. IN BULK WI TH THE INTENTION TO EARN PROFIT ON TRADING OF THESE SHARES SUBSEQUENTLY THE ASSESSEE PURCHASED 5 LAKH SHARES AT RS.5/- EACH OF FACE VALUE OF RS.10/- EACH. HOWEVER, THE REVIVAL OF THE COMPANY C OULD NOT MATERIALIZE AND THE QUOTED VALUE OF THE SHARE REDUCED TO RS.0.80 PER SHARE AT THE YEAR END. ON THE BASIS OF THE FACTS AND CIRCUMSTANCES, THE LD. COUNSEL OF THE ASSESSEE SUBM ITTED THAT PURCHASE OF THESE SHARES FOR TRADING BUSINESS WAS FAIR AND REASONABLE, THEREFORE, THE DI SALLOWANCE OF RS.21,00,000/- BE DELETED. 9. ON THE OTHER HAND, SHRI S.K. MEENA, LD. DEPARTME NTAL REPRESENTATIVE SUPPORTED THE ORDER OF AUTHORITIES BELOW. HE SUBMITTED THAT BEING THE D IRECTOR, THE ASSESSEE WAS FULLY AWARE OF THE INSIDE POSITION OF THE COMPANY. THE PURCHASE OF SHA RES OF M/S. MARDIA LEASING & FINANCIAL SERVICES LTD. WAS MADE BY HIS WIFE FULLY KNOWING TH E SHARES AS STOCK-IN-TRADE AND ITS VALUE AT THE END OF THE FINANCIAL YEAR WILL BE ALMOST NIL AND WI LL BE NEGLIGIBLE SO THAT HE CAN CLAIM HUGE BUSINESS LOSS, WHICH CAN BE ADJUSTED AGAINST OTHER INCOME. SINCE THE TRANSACTION WAS MADE BY HIS WIFE, THE ASSESSEE WAS ALSO FULLY AWARE OF THE FINA NCIAL AFFAIR OF HIS WIFE. IN THE FACTS AND CIRCUMSTANCES, THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF MCDOWELL VS.- CTO REPORTED IN 154 ITD 140(SC) IS SQUARELY APPLICABLE TO THE FACTS OF THE ASSEESSEES CASE. THEREFORE, DISALLOWANCE OF RS.21,00,000/- MADE BY T HE A.O. BE UPHELD. 10. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. MERELY THE ASSESSEE MADE PURCHASE OF SHARES FROM HIS WIFE CANNOT BE A GROUND TO HOLD THAT THE TRANSACTION HAS BEEN CARRIED OUT WITH THE INTENTION TO BOOK LOSS AND TO EVADE TAX. IN ORDER TO CURB THE TRANSACTION WITH THE RELATED PARTIES, T HERE IS A SPECIFIC PROVISION UNDER SECTION 40A(2) OF THE INCOME TAX ACT, 1961. ADMITTEDLY, INSTEAD OF INVOKING THIS SPECIFIC PROVISION OF SECTION 40A(2) OF THE INCOME TAX ACT RESORTED TO APPLY THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF MCDOWELL VS.- CTO (SUPRA), IT APPEARS THAT THE ASSESSEE HAS ALSO NOT FURNISHED THE NECESSARY DETAILS TO A.O. IN SUPPORT OF PREVAILING FAIR MARKET VALUE OF THE SHARES ON THE DATE OF PURCHASES. THE FAIR MARKET VALUE OF THE SHARES ARE QUOTED IN THE STOCK EXCHANGE. THE BALANCE- 7 SHEET OF THE COMPANY ARE ALSO AVAILABLE. IN THESE C IRCUMSTANCES, IN OUR OPINION, IT WILL MEET THE END OF JUSTICE, IF THE IMPUGNED ORDER OF LEARNED CO MMISSIONER OF INCOME TAX(APPEALS) BE SET ASIDE AND HE BE DIRECTED TO APPLY THE SPECIFIC PROV ISION OF SECTION 40A(2) OF THE INCOME TAX ACT, 1961. THE PROVISION OF SECTION 40A(2) OF THE INCOME TAX ACT READS AS UNDER :- 40A(2)(A): WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPE CT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON 91 REFERRED TO IN CLAUSE (B) OF THIS SUB-SECTION, AND THE 92 [ASSESSING] OFFICER IS OF OPINION THAT SUCH EXPENDI TURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MAD E OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEF IT DERIVED BY OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONS IDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION . 93 [* * *] (B) THE PERSONS REFERRED TO IN CLAUSE (A) ARE THE FOLLOWING, NAMELY : (I)WHERE THE ASSESSEE IS AN ANY RELATIVE OF THE A SSESSEE; INDIVIDUAL (II)WHERE THE ASSESSEE IS A ANY DIRECTOR OF THE C OMPANY, PARTNER COMPANY, FIRM, ASSOCIATION OF THE FIRM, OR MEMBER OF THE AS SO OF PERSONS OR HINDU UNCIATION OR FAMILY, OR ANY RELATIVE OF DIVIDED FAMILY SUCH DIRECTOR, PA RTNER OR MEMBER; (III) ANY INDIVIDUAL WHO HAS A SUBSTANTIAL INTERE ST IN THE BUSINESS OR PROFESSION OF THE ASSESSEE, OR ANY RELATIVE OF SUCH INDIVIDUAL; (IV) A COMPANY, FIRM, ASSOCIATION OF PERSONS OR H INDU UNDIVIDED FAMILY HAVING A SUBSTANTIAL INTEREST IN THE BUSINESS OR PROFESSION OF THE ASSESSEE OR ANY DIRECTOR, PARTNER OR MEMBER OF SUCH COMPANY, FIRM, ASSOCIATION OR FAM ILY, OR ANY RELATIVE OF SUCH DIRECTOR, PARTNER OR MEMBER; (V) A COMPANY, FIRM, ASSOCIATION OF PERSONS OR HI NDU UNDIVIDED FAMILY OF WHICH A DIRECTOR, PARTNER OR MEMBER, AS THE CASE MAY BE, HA S A SUBSTANTIAL INTEREST IN THE BUSINESS OR PROFESSION OF THE ASSESSEE; OR ANY DIRE CTOR, PARTNER OR MEMBER OF SUCH COMPANY, FIRM, ASSOCIATION OR FAMILY OR ANY RELATIV E OF SUCH DIRECTOR, PARTNER OR MEMBER; (VI) ANY PERSON WHO CARRIES ON A BUSINESS OR PROF ESSION, (A) WHERE THE ASSESSEE BEING AN INDIVIDUAL, OR ANY RELATIVE OF SUCH ASSESSEE, HAS A SUBSTANTIAL INTEREST IN THE BUSINESS OR PROFESSION OF THAT PERSON; OR (B) WHERE THE ASSESSEE BEING A COMPANY, FIRM, ASSO CIATION OF PERSONS OR HINDU UNDIVIDED FAMILY, OR ANY DIRECTOR OF SUCH COMPANY, PARTNER OF SUCH FIRM OR MEMBER 8 OF THE ASSOCIATION OR FAMILY, OR ANY RELATIVE OF SU CH DIRECTOR, PARTNER OR MEMBER, HAS A SUBSTANTIAL INTEREST IN THE BUSINESS OR PROFE SSION OF THAT PERSON. EXPLANATION .FOR THE PURPOSES OF THIS SUB-SECTION, A PERSON SH ALL BE DEEMED TO HAVE A SUBSTANTIAL INTEREST IN A BUSINESS OR PROFESSION, I F, (A) IN A CASE WHERE THE BUSINESS OR PROFESSION IS CARRIED ON BY A COMPANY, SUCH PERSON IS, AT ANY TIME DURING THE PREVIOUS YEAR, TH E BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND W HETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) CARRYING NOT LESS THAN TWEN TY PER CENT OF THE VOTING POWER; AND (B)IN ANY OTHER CASE, SUCH PERSON IS, AT ANY TIME D URING THE PREVIOUS YEAR, BENEFICIALLY ENTITLED TO NOT LESS THAN TWENTY PER C ENT OF THE PROFITS OF SUCH BUSINESS OR PROFESSION. FOR THIS PURPOSE, THE ASSESSEE SHALL FURNISH THE BA LANCE-SHEET OF THE COMPANY, VARIOUS QUOTATIONS ON THE DATE OF PURCHASES. IN CASE, THE QUOTATIONS O N THE DATE OF PURCHASE OF SHARES ARE NOT AVAILABLE, IN THAT EVENT, THE ASSESSEE SHALL FURNIS H THE FAIR MARKET VALUE OF THE QUOTATIONS OF SHARES IMMEDIATELY BEFORE THE DATE OF PURCHASE AND IMMEDIA TELY AFTER THE DATE OF PURCHASE. THE A.O. MAY VERIFY THE SAME, MAY MAKE ALSO AN INDEPENDENT E NQUIRY TO FIND OUT FAIR MARKET VALUE OF THE SHARES ON THE DATE OF PURCHASE, RE-COMPUTE THE INCO ME OF THE ASSESSEE AFRESH. 11. IN THE RESULT, FOR STATISTICAL PURPOSES, THE AP PEAL OF THE ASSESSEE IS TREATED AS ALLOWED. THE ORDER PRONOUNCED IN THE COURT ON 11.12.2009 SD/- SD/- (N.S. SAINI) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 11 / 12 / 2009 COPY OF THE ORDER IS FORWARDED TO: 1) THE ASSESSEE (2) THE DEPARTMENT 3) CIT(A) CONCERNED; (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.