DY CIT RG 8(3), Mumbai V. M/S ZIRCON FINANCE & LEASING P LTD, Mumbai

ITA 5046/MUM/2003

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59810 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 6 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 02-01-2012
• Assessment Year: misc
• Appeal Filed On: 04-07-2003
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: IN CIRCUMSTANCES OF CA SE
• Keywords: Share purchase agreement; Earning of tax free income; Proportionate interest; Valuation report; Sham transactions
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE APPELLATE APPELLATE APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI D. MANMOHAN (VICE PRESIDENT) & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.5046/MUM/2003 A.Y 1999-2000 DY. COMMISSIONER OF I.T., RANGE 8(3), MUMBAI. VS. M/S ZIRCON FINANCE & LEASING P. LTD., GUFFIC HOUSE, A SUBHASH ROAD, VILE PARLE (E), MUMBAI 400 057. PAN: APPLIED FOR (APPELLANT) (RESPONDENT) APPELLANT BY : MR. SUBACHAN RAM. CIT DR RESPONDENT BY : MR. PORUS KAKA. DATE OF HEARING: 2-01-2012. DATE OF PRONOUNCEMENT: 03-02-2012. O R D E R PER T.R.SOOD, AM: IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING GRO UNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF INTERE ST OF RS.7,62,693/- U/S 36(1)(III) AND ALSO INTEREST OF RS.1,81,246/- I NVOKING THE PROVISIONS OF SECTION 14A WITHOUT PROPER APPRECIATION OF THE F ACTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE A. 0 TO ALLOW THE SET OFF OF LOSS OF RS.2,30,15,982/- AGAINST THE CAPITAL GAIN OF RS.5,3 9,80,000/- WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE A.O WHICH PROVES THAT THE SHARE TRANSACTION RESULTING IN THE LOSS WAS A S HAM TRANSACTION AND A DEVISE TO AVOID CAPITAL GAIN TAX . 2. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS PAID INTEREST TO THE TUNE OF RS.64,01,824/- AND HAS ALSO RECEIVED INTEREST AMOUNTING ITA NO.5046 OF 2003 2 TO RS.32,62,806/- AND FINANCE CHARGES OF RS.7,00,63 6/-. IT WAS NOTED THAT ASSESSEE HAS GRANTED CERTAIN INTEREST FREE ADV ANCES, THEREFORE, A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE AS TO WHY PROPORTIONATE INTEREST SHOULD NOT BE DISALLOWED U/S.36[1] AND ALS O PROPORTIONATE DISALLOWANCE U/S.14A. IT WAS MAINLY CONTENDED THAT ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AND INTEREST FREE LO ANS WERE GRANTED OUT OF SUCH INTEREST FREE FUNDS AND, THEREFORE, THERE W AS NO NEED TO DISALLOW ANY INTEREST. IT WAS ALSO REPRESENTED THAT SEC.14A WAS NOT APPLICABLE TO THE ASSESSEE. THE AO AFTER EXAMINING THE SUBMISSIONS WORKED OUT THE AVAILABILITY OF FUNDS AS UNDER: INTEREST FREE FUNDS 31.3.96 31. 3.99 SHARE RS.2,11,240 RS.2,11,240 RESERVES & SURPLUS NIL RS.1,04,93,970 INT. FREE BORROWINGS RS.6,04,52,070 RS.6,82,02,288 RS.6,06,63,310 RS.7,89,07,498 ============ =========== INTEREST BEARING FUNDS BORROWALS RS.3,15,45,081 RS. 4,72,65,254 TOTAL FUNDS RS.9,22,08,391 RS.12,61,72,752 INVESTMENT IN SHARES RS.1,36,73,162 RS. 35, 72,162 RS.86,22,662 INTEREST FREE ADVANCES RS. 8,32,34,434 INTEREST BEARING ADVANCES RS. 4,62,67,877 HE ALSO DISCUSSED CERTAIN CASE LAWS AND OBSERVED TH AT INTEREST FREE FUNDS AVAILABLE WERE ONLY RS.7,89,07,498/- OUT OF T HE TOTAL FUNDS OF ITA NO.5046 OF 2003 3 RS.12,61,72,752/-. ACCORDINGLY, HE WORKED THE PROPO RTIONATE OF INTEREST AS UNDER: PROP. INV. 4,72,65,254 X 1,50,32,146 56,31,043 12,61,72,752 PROP. INT. 64,01,824 X 56,31,042 = 7,62,693 4,72,65,254 3. THE AO FURTHER FOUND THAT ASSESSEE HAD MADE INVE STMENT IN SHARES TO THE TUNE OF RS.35,72,162/- WHICH WAS OUT OF THE BORROWED FUNDS, THEREFORE, SEC.14A WAS CLEARLY APPLICABLE AN D DISALLOWED PROPORTIONATE INTEREST AND EXPENDITURE AMOUNTING TO RS.1,81,246/- WHICH WAS WORKED OUT AS UNDER: PROP. INV. 47265254 X 3572162 = 13,18,158/- 1261,72,752 PROP. INT. 13,38,158 X 64,01,824 = 1,81,246/- 47265254 4. BEFORE THE LD. CIT(A) IT WAS MAINLY SUBMITTED TH AT AO HAS NOT WORKED OUT THE AVAILABILITY OF FUNDS CORRECTLY. IT WAS POINTED OUT THAT A SUM OF RS.1,13,49,967/- WHICH WAS RECEIVED FROM RAN BAXY LABORATORIES LTD. AGAINST PROPOSED SALE OF SHARES W ERE ALSO AVAILABLE WHICH HAVE NOT BEEN CONSIDERED. ONCE SUFFICIENT FUN DS WERE AVAILABLE, THEN NO INTEREST COULD BE DISALLOWED AND IN THIS RE GARD CERTAIN CASE LAW WAS ALSO RELIED. IT WAS FURTHER SUBMITTED THAT SEC. 14A WAS NOT APPLICABLE IN VIEW OF THE DECISION OF THE HON'BLE S UPREME COURT IN THE CASE OF RAJASTHAN STATE WARE HOUSING CORPORATION VS . CIT [242 ITR 450]. IN ANY CASE, ONCE THE ENHANCED AVAILABILITY O F FUNDS WAS ITA NO.5046 OF 2003 4 CONSIDERED, THEN IT WOULD BE CLEAR THAT INVESTMENT IN SHARES WAS OUT OF INTEREST FREE FUNDS. THE LD. CIT(A) FOUND FORCE IN THE SUBMISSIONS AND OBSERVED THAT ACTUAL INTEREST FREE FUNDS AVAILABLE WERE RS.9,00,57,465/- AND NOT RS.7,89,07,498/- AS OBSERV ED BY THE AO. THEREFORE, INTEREST FREE ADVANCES TO THE EXTENT OF RS.8,32,34,434/- WERE COVERED BY THE INTEREST FREE FUNDS AND ACCORDI NGLY THERE WAS NO JUSTIFICATION IN DISALLOWANCE OF INTEREST AND ACCOR DINGLY THE DISALLOWANCE ON ACCOUNT OF INTEREST WAS DELETED. IN VIEW OF THIS ENHANCED FUNDS AVAILABILITY DISALLOWANCE U/S.14A WA S ALSO DELETED. 5. BEFORE US LD. DR MAINLY RELIED ON THE ORDER OF T HE AO AND POINTED OUT THAT AO HAD CORRECTLY WORKED OUT THE DI SALLOWANCE. IT WAS SUBMITTED THAT AVAILABILITY OF FUNDS WAS CONSIDERED AS PER THE CHART FURNISHED BY THE ASSESSEE THEREFORE THE DISALLOWANC E WAS JUSTIFIED. IN RESPECT OF DISALLOWANCE U/S.14A HE ARGUED THAT THE MATTER MAY BE REMANDED TO THE FILE OF THE AO IN THE LIGHT OF THE DECISION OF THE HON'BLE HIGH COURT IN THE CASE OF GODREJ & BOYCE MF G. CO.LTD. VS. DCIT [328 ITR 81]. 6. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE R EITERATED THE SUBMISSIONS MADE BEFORE THE FIRST APPELLATE AUTHORI TY. HE ALSO POINTED OUT THAT IT IS NOT CORRECT THAT AO HAS CALCULATED T HE AVAILABILITY OF FUNDS AS PER THE CHART FURNISHED BY THE ASSESSEE AND IN T HIS REGARD REFERRED TO VARIOUS DOCUMENTS IN THE PAPER BOOK. IN RESPECT OF DISALLOWANCE ITA NO.5046 OF 2003 5 U/S.14A HE SUBMITTED THAT IN VIEW OF THE AVAILABILI TY OF INTEREST FREE FUNDS FOR INVESTMENT IN SHARES NO INTEREST CAN BE D ISALLOWED U/S.14A. AS FAR AS THE DISALLOWANCE OF EXPENDITURE IS CONCER NED, HE CONTENDED THAT NO PURPOSE WOULD BE SERVED IF THE MATTER IS RE STORED BECAUSE IT IS A VERY OLD APPEAL FOR THE YEAR 1999-2000. IN ANY CA SE, ASSESSEE HAS EARNED ONLY RS.39,474/- AS DIVIDEND INCOME AND THE TRIBUNAL MAY ITSELF MAKE A REASONABLE DISALLOWANCE ON ACCOUNT OF EXPEND ITURE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. WE FIND THAT LD. CIT(A) HAS OBSERVED THAT TOTAL FUNDS AVAIL ABLE WERE RS.13,73,22,719/- AND NOT RS.12,59,72,752/-. THE DE TAILS OF THE SAME HAVE BEEN WORKED OUT AS UNDER: SR.NO. PARTICULARS RS. RS. INTEREST FREE FUNDS 1 SHARE CAPITAL 11,240 2 RESERVES & SURPLUS 10,493,970 3 INTEREST FREE LOANS 68,202,288 4 ADVANCES FROM RANBAXY LABORATORIES LTD. 11,349,967 90,057,465 INTEREST BEARING FUNDS 47,265,254 137,322,719 WE FURTHER FIND THAT DOCUMENTS REGARDING AVAILABILI TY OF FUNDS WERE FILED FOR THE FIRST TIME BEFORE THE CIT(A). THE REV ENUE HAS NOWHERE TAKEN A GROUND THAT RULE 46A HAS BEEN VIOLATED. THE DOCUMENTS ARE MAINLY IN THE SHAPE OF COMPUTATION OF INCOME, BALAN CE SHEET, AND ITA NO.5046 OF 2003 6 AVAILABILITY OF FUNDS ETC. THE ADDITIONAL FUNDS AVA ILABLE ARE STATED TO BE A SUM OF RS.1,13,49,967/- WHICH WERE RECEIVED BY TH E ASSESSEE FROM RANBAXY LABORATORIES LTD. ON ACCOUNT OF ADVANCE PAY MENT AGAINST SALE OF SHARES. HOWEVER, IF THESE FUNDS WERE NOT AVAILAB LE TO THE ASSESSEE AS OBSERVED BY THE FIRST APPELLATE AUTHORITY, THEN REVENUE SHOULD HAVE BROUGHT SOME EVIDENCE TO SHOW THAT OBSERVATIONS OF THE LD. CIT(A) ARE NOT CORRECT. THEREFORE, IN OUR OPINION, LD. CIT(A) HAS CORRECTLY WORKED OUT THE AVAILABILITY OF INTEREST FREE FUNDS AND THE WORKING CLEARLY SHOWS THAT INTEREST FREE FUNDS WERE AVAILABLE TO THE ASSE SSEE TO THE EXTENT OF RS.9,00,57,465/- AND INTEREST FREE ADVANCES WERE ON LY OF RS.8,32,34,434/-. THUS, ALL INTEREST FREE ADVANCES HAVE BEEN GIVEN OUT OF INTEREST FREE FUNDS AND NO DISALLOWANCE IS CALLE D FOR. FURTHER, EVEN IF THE SO CALLED INVESTMENT IN SHARES AMOUNTING TO RS. 35,72,162/- HAD COME FROM INTEREST FREE ADVANCES, BECAUSE AFTER GIV ING INTEREST FREE ADVANCES FROM INTEREST FREE FUNDS, ASSESSEE WILL ST ILL BE LEFT WITH THE SURPLUS FUNDS AS UNDER: INTEREST FREE FUNDS AVAILABLE RS.9,00,57,465 LESS: INTEREST FREE ADVANCES RS.8,32,34,434 BALANCE SURPLUS FUNDS RS. 68,23,031 =========== THEREFORE, NO DISALLOWANCE CAN BE MADE U/S.14A IN R ESPECT OF INTEREST. AS FAR AS DISALLOWANCE OF EXPENDITURE IS CONCERNED, WE AGREE WITH THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE THAT NO PURPOSE WOULD BE SERVED IF THE MATTER IS REMANDED BACK BECAUSE A SMALL AMOUNT OF ITA NO.5046 OF 2003 7 RS.39,474/- HAS BEEN RECEIVED AS DIVIDEND. CONSIDER ING THE OVER ALL CIRCUMSTANCES WE ESTIMATE THE EXPENDITURE FOR EARNI NG THIS EXEMPT INCOME AT RS.2,000/-. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) TO THIS EXTENT AND DIRECT THE AO TO MAKE ADD ITION OF RS.2000/- U/S.14A. THEREFORE, THIS GROUND IS PARTLY ALLOWED. 8. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURIN G THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSE E HAD SOLD 400 SHARES OF HOTEL JAL LTD. FOR A SUM OF RS.5,39,84,1 00/-. ON THIS CAPITAL GAIN AMOUNTING TO RS.5,29,36,936/- WAS EARNED. THE ASSESSEE HAD ALSO BOOKED SHORT TERM CAPITAL LOSS AMOUNTING TO RS .2,15,00,000/- IN SHARES OF PLUS CHANNEL AND A SUM OF RS.1,15,15,982/ - ON SALE OF SHARES OF ANDROMEDA HOLDINGS PVT. LTD. THUS, THIS LOSS OF RS.33,01,59,832/- HAD BEEN SET OFF AGAINST THE CAPITAL GAINS ARISING FROM THE SALE OF SHARES OF HOTEL JAL LTD. FROM THE DETAILS FILED IT WAS NOTICED THAT SHARES OF ANDROMEDA HOLDINGS PVT. LTD. HAVE BEEN SOLD TO M S. DHYUTI CHOKSI, MR. PANKAJ PANDYA AND SHARES OF PLUS CHANNEL HAVE B EEN SOLD TO MS. VIPULA CHOKSI. MS. DHYUTI CHOKSI WAS DAUGHTER OF TH E DIRECTOR OF THE ASSESSEE COMPANY AND MS. VIPULA CHOKSI WAS WIFE OF THE DIRECTOR OF THE COMPANY. DESPITE REPEATED REQUESTS ASSESSEE COU LD NOT FILE COPY OF THE SHARE CERTIFICATE TO SHOW THAT SHARES HAVE B EEN TRANSFERRED TO MS. DHYUTI CHOKSI, MR. PANKAJ PANDYA AND MS. VIPULA CHOKSI. INSTEAD A COPY OF THE BOARDS RESOLUTION OF PLUS CHANNEL DATE D 10-3-1999 WAS ITA NO.5046 OF 2003 8 FURNISHED SHOWING THAT 2,50,000 SHARES HAVE BEEN TR ANSFERRED TO MS. VIPULA CHOKSI. THE AO NOTED THAT WHEN PLUS CHANNEL WAS CONTINUOUSLY INCURRING LOSSES, THEN WHY ASSESSEE PURCHASED SUCH SHARES. IN RESPONSE, IT WAS POINTED OUT THAT SOME PROMINENT FI NANCERS INCLUDING RIL WERE LIKELY TO MAKE INVESTMENT IN THAT COMPANY AND ASSESSEE ALSO PURCHASED THE SHARES BUT WHEN THE PRICES WERE FALLI NG TO CURTAIL THE LOSS FURTHER ASSESSEE SOLD THESE SHARES. THE VALUAT ION REPORTS WERE ALSO FILED TO SHOW THAT VALUE OF THE SHARES AT THE TIME OF THE PURCHASE AND SALE. THE AO AFTER EXAMINING THESE FACTS AND AF TER ANALYZING VARIOUS CASE LAWS INCLUDING THE DECISION OF THE HON 'BLE SUPREME COURT IN THE CASE OF MCDOWELL [164 ITR 148] AND CIT VS. 6 3 ITR 609 WAS OF THE VIEW THAT THIS LOSS HAS BEEN MERELY A TRANSACTI ON TO GENERATE A LOSS SO THAT SAME CAN BE SET OFF AGAINST THE PROFITS ON SALE OF THE SHARES OF HOTEL JAL LTD. HE OBSERVED THAT SHARES HAVE BEEN SO LD TO THE WIFE AND DAUGHTER OF THE DIRECTOR AND EVIDENCE OF TRANSFER O F SHARES WAS NOT AVAILABLE, THEREFORE, IT WAS MERELY A SHAM TRANSACT ION. HE ALSO FOUND THAT IT WAS STATED THAT CERTAIN AMOUNTS WERE DUE BY PLUS CHANNEL TO PRASAR BHARATI BROADCASTING CORPORATION OF INDIA (P BCI) AND IT WAS STATED THAT PLUS CHANNEL COULD NOT MEET THE COMMITM ENT MADE TO PBCI AND THAT IS WHY PBCI HAD MOVED A WINDING PETITION. ACCORDING TO THE AO WHEN ASSESSEE ALREADY KNEW THIS INFORMATION, THE N WHY SUCH SHARES WERE PURCHASED AT ALL. HE ALSO NOTICED FROM THE BALANCE SHEET ITA NO.5046 OF 2003 9 OF PLUS CHANNEL THAT SHAREHOLDERS FUNDS HAVE INCRE ASED FROM RS.25.28 CRORES ON 31-3-1997 TO RS.35.45 CRORES, WHEREAS LOS SES REFLECTED IN THE PROFIT & LOSS ACCOUNT HAD ALSO INCREASED FROM RS.7. 02 CRORES ON 31-3- 97 TO RS.17.83 CRORES ON 31-3-98 AND, THEREFORE, TH ERE WAS NO JUSTIFICATION FOR PURCHASE OF SUCH SHARES. IN THIS BACKGROUND HE WAS OF THE VIEW THAT THIS IS A SHAM TRANSACTION AND ACCORD INGLY HE DISALLOWED THE LOSS INCURRED ON ACCOUNT OF SALE OF SHARES OF P LUS CHANNEL AND ANDROMEDA HOLDINGS PVT. LTD. 9. ON APPEAL BEFORE THE LD.CIT[A] IT WAS MAINLY SUB MITTED THAT THE TRANSACTION REGARDING SALE OF SHARES OF PLUS CHANNE L AND ANDROMEDA HOLDINGS PVT. LTD. WAS A GENUINE TRANSACTION DULY S UPPORTED BY THE DOCUMENTARY EVIDENCE AND AO HAS NOT BEEN ABLE TO PR OPERTY APPRECIATE THE EVIDENCE. IT WAS POINTED OUT THAT AS SESSEE HAD PURCHASES 60000 SHARES OF ANDROMEDA HOLDINGS PVT. L TD. IN A.Y 1996- 97 AND THE PURCHASE HAD ALREADY BEEN ADMITTED AS GE NUINE IN THE EARLIER YEAR. IT WAS FURTHER POINTED OUT THAT PLUS CHANNEL IS A SUBSIDIARY COMPANY OF ANDROMEDA HOLDINGS PVT. LTD. AND THOSE C OMPANIES WERE PROMOTED BY MR. DILIP PIRAMAL GROUP, MR. J. P. CHOK SY GROUP, MR AMIT KHANNA, MR. MAHESH BHATT, MR. AJIT GULABCHAND OF HI NDUSTAN CONSTRUCTIONS GROUP. MR. JAYESH CHOKSI WAS HOLDING MINORITY SHARES IN THE SAID COMPANY ON 31-3-98 SINCE RIGHTS SHARES WER E ISSUED TO A THIRD PARTY, MR.CHOKSEY ALSO PURCHASED THE SHARES OF ANDR OMEDA HOLDINGS ITA NO.5046 OF 2003 10 PVT. LTD. BECAUSE OF THE WELL KNOWN PERSONALITIES I N THE COMPANY. PLUS CHANNEL WAS IN THE ENTERTAINMENT SECTOR AND CARRIED ON ACTIVITIES LIKE PRODUCING TELEVISION SERIALS, ACQUIRING MOVIES COPY RIGHTS, PRODUCTION OF FILMS AND SELLING MUSIC CASSETTES. THERE WAS A BIG EXPANSION SCOPE IN THIS BUSINESS. HOWEVER, DURING THE F.Y 1998-99 CERT AIN DISPUTES WITH PBCI AROSE ON ACCOUNT OF LEVY OF EXCISE DUTY ON TEL ECAST FEES ON SERIALS. DUE TO THIS DISPUTE IT WAS DECIDED TO DISP OSE OF THE SHARES AND ASSESSEE COMPANY SOLD 2,50,000 SHARES OF PLUS CHANN EL TO MS. VIPULA CHOKSI FOR A CONSIDERATION OF RS.35 LAKHS ON 8-3-99 AND PAYMENT WAS RECEIVED BY CHEQUE OF RS.25 LAKHS AND RS.10 LAKHS ON 8-3-99 AND 9-3-99 RESPECTIVELY. THE SHARES WERE TRANSFERRED 10 -3-99 AND WERE HANDED OVER TO MS. VIPULA CHOKSI ALONG WITH THE TRA NSFER FORM WHICH WAS DULY FILED BY HER WITH THE COMPANY. COPY OF TH E RESOLUTION PROVING THE TRANSFER WAS FILED BEFORE THE AO. 10. IT WAS FURTHER POINTED OUT THAT ASSESSEE WAS HO LDING 60,000 SHARES IN ANDROMEDA HOLDINGS PVT. LTD. VIDE CERTIFI CATE NO.13 BEARING DISTINCTIVE NO.940001 TO 10,00,000. THIS CERTIFICAT E WAS SPLIT INTO TWO CERTIFICATES AND SHARES WERE SPLIT BY MEANS OF SEPA RATE CERTIFICATE NO.15 BEARING DISTINCTIVE NO.940001 TO 9700000 FOR 30,000 SHARES WHICH HAVE BEEN SOLD TO MS. DHYUTI CHOKSI. THE OTHE R LOT OF 30,000 SHARES WAS SOLD TO MR. PANKAJ PANDYA. THE AO HAS UN NECESSARILY DOUBTED THE TRANSFER OF THESE SHARES IN THE ABSENCE OF THE SHARE ITA NO.5046 OF 2003 11 CERTIFICATE WHEN THE BOARDS RESOLUTION CONFIRMING THE SAME WAS FILED. ONCE A TRANSACTION OF TRANSFER HAS BEEN REGISTERED BY THE COMPANY THE SAME IS EFFECTIVE TO PASS ON THE BENEFICIAL OWNERSH IP IN SUCH SHARES AND TRANSFEREE GETS ALL THE RIGHTS AS THE SHAREHOLD ER. EVEN THE ANNUAL RETURN OF THE COMPANY CLEARLY SHOWS THAT SHARES HAV E BEEN TRANSFERRED TO THE PERSONS WHOM THEY ARE CLAIMED TO HAVE BEEN S OLD. 11. IT WAS ALSO POINTED OUT THAT THERE WERE NEWS PA PERS REPORT IN BUSINESS STANDARD IN THEIR BOMBAY EDITION THAT EV EN RELIANCE GROUP WAS INTERESTED IN INVESTING IN THIS COMPANY BECAUSE THEY WANTED TO VENTURE INTO THE ENTERTAINMENT BUSINESS. PLUS CHANN EL WAS ALREADY IN THE BUSINESS OF PRODUCING PROGRAMS OF T.V. SERIALS AND MUSIC ALBUMS AND HAD ALSO PRODUCED SOME HINDI MOVIES, THEREFORE, THE WHOLE TRANSACTION COULD NOT BE CALLED A SHAM TRANSACTION. THE LD. CIT(A) AFTER EXAMINING THE ABOVE SUBMISSIONS FOUND THAT OUT OF T HE 60,000 SHARES OF ANDROMEDA HOLDINGS PVT. LTD WHICH WERE PURCHASED DU RING THE PREVIOUS YEAR RELEVANT TO THE A.Y 1996-97 FOR RS.1,00,20,000 /-, 30,000 SHARES WERE SOLD TO MS. DHYUTI CHOKSI ON 31-7-98 AND BALAN CE 30,000 SHARES WERE SOLD TO MR. PANKAJ PANDYA ON 8-3-1999. THE SAL ES HAVE BEEN AFFECTED AS PER THE MARKET VALUE. SINCE PURCHASE OF THESE SHARES WAS NEVER IN DISPUTE, THEREFORE, THERE WAS NO QUESTION OF DOUBTING THE TRANSACTION BECAUSE SHARES HAVE BEEN DULY TRANSFERR ED, CONSIDERATION HAS BEEN RECEIVED THROUGH BANK AND SALE AMOUNT WAS DULY RECORDED IN ITA NO.5046 OF 2003 12 THE ASSESSEES BOOKS. SIMILARLY IN THE CASE OF SALE OF 2,50,000 SHARES OF PLUS CHANNEL TO MS. VIPULA CHOKSI THE SALE CONSIDER ATION HAS BEEN RECEIVED THROUGH BANK AND SHARES HAVE BEEN TRANSFER RED ON 10-3-1999. THEREFORE, MS. VIPULA CHOKSI HAS BECOME LEGAL OWNER OF THE SHARES. HE ALSO OBSERVED THAT THESE APPEARS TO BE NORMAL BUSIN ESS TRANSACTIONS BECAUSE A TRANSACTION HAS TO BE DEALT WHETHER SAME IS GENUINE OR SHAM, FROM THE FACT WHETHER ALL LEGAL FORMALITIES HAVE BE EN COMPLETED IN EXECUTING THE TRANSACTION OR NOT. A TRANSACTION CAN BE SAID TO BE A SHAM TRANSACTION IF THE SAME IS NOT COMPLETED AS PER THE NORMS PREVALENT IN THE PARTICULAR BUSINESS. THE TRANSACTION HAS TO BE JUDGED, WHETHER THE SAME IS GENUINE OR SHAM, FROM THE FACTS WHETHER ALL LEGAL FORMALITIES HAVE BEEN COMPLETED IN EXECUTING THE TRANSACTIONS O R NOT. A TRANSACTIONS CAN BE SAID TO BE A SHAM TRANSACTIONS, IF THE SAME IS NOT COMPLETED AS PER THE NORMS PREVALENT IN THE PARTICU LAR BUSINESS. IT IS NOTICED THAT NONE OF THESE TRANSACTIONS LACK ANY IN FIRMITY ON ACCOUNT OF THE PROCEDURE ETC. THESE TRANSACTIONS ARE NOT CIRCU ITOUS TRANSACTIONS. THE PURCHASERS HAVE PAID THE SALE CONSIDERATION THR OUGH CHEQUES FROM THEIR OWN FUNDS; SHARES ARE DULY TRANSFERRED BY THE APPELLANT COMPANY IN THE NAME OF THE BUYERS AND THE NAMES OF THE TRAN SFEREES ARE DULY RECORDED IN THE RESPECTIVE COMPANIES REGISTERS. IT IS ALSO NOTICED THAT THE VALUATION REPORTS SHOWING THE VALUE OF THE SHAR ES ON THE DATE OF THE TRANSFERS HAVE ALSO BEEN FILED. THE APPELLANT HAS N OT SOLD THE SHARES AT ITA NO.5046 OF 2003 13 LESS THAN THE MARKET VALUE. THUS TO HIM THESE TRANS ACTIONS HAVE BEEN EXECUTED IN A NORMAL MANNER AND DURING THE COURSE O F BUSINESS AND CANNOT BE SAID AS PAPER OR SHAM TRANSACTIONS. DOUBT S ABOUT THESE TRANSACTIONS CANNOT BE RAISED MERELY ON THE GROUND THAT THE BUYERS ARE RELATED TO ONE OF THE DIRECTOR OF THE COMPANY. HOWE VER, AT THE SAME TIME HE ALSO FOUND THAT DURING THE PREVIOUS YEAR SH ARES OF PLUS CHANNEL WERE PURCHASED FROM GUFFIC LTD. ON 1-4-1998 FOR A C ONSIDERATION OF RS.2,50,00,000/-. THE SHARES WERE ORIGINALLY ALLOTT ED TO M/S. GUFFIC LTD. AND ASSESSEE HAS PURCHASED THE SAME FOR RS.100 PER SHARE. HOWEVER, DURING THE ENQUIRIES MADE THAT ON THE DATES OF TRAN SACTION THE MARKET VALUE WAS ONLY RS.58 PER SHARE WHICH WAS ADMITTED B Y THE AUTHORISED REPRESENTATIVE OF THE APPELLANT. ACCORDINGLY, LD. C IT(A) REDUCED THE COST OF THESE SHARES TO RS.58 PER SHARE AND THE TOTAL CO ST OF THE SHARES WAS RECKONED AT RS.1,45,00,000/-, INSTEAD OF RS.2.5 CRO RES. ACCORDINGLY THE LOSS ON SALE OF PLUS CHANNEL WAS DETERMINED AT RS.1 ,15,00,000 [COST OF SHARES RS.1,45,00,000 MINUS SALE PRICE RS.35,00,000 ] AND NOT RS.2,15,00,000/- WHICH WAS HELD TO BE ALLOWABLE. 12. BEFORE US LD. DR CARRIED US THROUGH THE ASSESSM ENT ORDER AND POINTED OUT THAT AO HAS NOTED VARIOUS DISCREPANCIES . HE ARGUED THAT WHEN PLUS CHANNEL WAS CONTINUOUSLY INCURRING LOSSES WHAT WAS THE JUSTIFICATION FOR PURCHASE OF SUCH SHARES. THE SHAR ES HAVE BEEN PURCHASED AND THEN SOLD TO THE WIFE AND DAUGHTER OF THE DIRECTOR WHICH ITA NO.5046 OF 2003 14 CLEARLY SHOWS THAT THESE SHARES WERE PURCHASED ONLY FOR THE PURPOSE OF GENERATING LOSSES TO BE SET OFF AGAINST THE PROFIT ON SALE OF SHARES OF HOTEL JAL LTD. THE TRANSACTION HAS NOT BEEN PROVED FULLY AND EVEN THE COPY OF THE SHARE CERTIFICATE SHOWING THE TRANSFER OF SHARES WAS NOT FILED BY THE ASSESSEE, WHICH ONLY SHOWS THAT ASSESS EE HAS NOT HANDED OVER THE SHARES. HE ALSO REFERRED TO PAGES 36 & 37 WHICH IS THE COPY OF THE SHARE CERTIFICATE WHICH SHOWS THAT THESE SHARES HAVE BEEN ALLOTTED ON THE 17 TH DAY OF JULY 98 AND THE SAME ARE STATED TO HAVE BEE N SOLD TO MS. DHYUTI CHOKSI ON 31-7-98 I.E. WITHIN A VERY SHORT TIME, WHICH ITSELF SHOWS THAT THE TRANSACTION IS SHAM. HE ALSO STRONGLY RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT VS. DURGA PRASAD MORE [82 ITR 540] WHEREIN IT WAS CLEARLY OBS ERVED THAT THE TAXING AUTHORITIES ARE NOT EXPECTED TO PUT ON BLIND ERS RATHER THEY WERE ENTITLED TO LOOK INTO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY OF THE TRANSACTION. 13. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A). HE POINTED OUT THAT AS FAR AS 60,000 SHARES OF ANDROMEDA HOLDINGS PVT. LTD ARE CO NCERNED, SAME WERE PURCHASED IN A.Y 96-97 AND THE PURCHASE HAD AL READY BEEN AFFECTED. HE ALSO REFERRED TO THE SHARE CERTIFICATE AND POINTED OUT THAT THESE SHARES WERE ALLOTTED ORIGINALLY IN A.Y 1996-9 7 ONLY AND AS SUBMITTED BEFORE THE CIT(A) THERE WAS ONLY ONE CERT IFICATE NO.13 ITA NO.5046 OF 2003 15 BEARING DISTINCTIVE NOS.94,0001 TO 10,00,000. THIS CERTIFICATE WAS ISSUED ON 31-8-95. THE CERTIFICATE ISSUED ON 17 TH DAY OF JULY , 98 IS IN LIEU OF THE ORIGINAL CERTIFICATE WHICH HAS BEEN SPLIT INTO 30,000 SHARES EACH AND THE FACT OF SPLITTING OF SHARES HAS BEEN CLEARL Y MENTIONED ON TOP OF THE CERTIFICATE ITSELF. THUS, SHARES WERE ACTUALLY PURCHASED IN A.Y 96-97 AND LD. DR HAS WRONGLY OMITTED TO READ THE FACT OF SPLITTING. 60,000 SHARES OF ANDROMEDA HOLDINGS PVT. LTD INTO TWO PART S OF 30,000 SHARES EACH AND WHICH WERE SOLD TO MS. DHYUTI CHOKSI AND M R. PANKAJ PANDYA AND THE CONSIDERATION HAS BEEN RECEIVED THROUGH CHE QUES AND CREDITED TO THE BANK ACCOUNT. AS FAR AS SHARES OF PLUS CHANN EL ARE CONCERNED, HE POINTED OUT THAT ASSESSEE WAS, IN FACT, ONE OF T HE PROMOTERS ALONG WITH THE RENOWNED PERSONALITIES OF FILM INDUSTRY AN D INDUSTRIAL WORLD SUCH AS MR. MAHESH BHATT, MR. AMIT KHANNA, MR. DILI P PIRAMAL GROUP, AND MR. AJIT GULABCHAND OF HINDUSTAN CONSTRUCTIONS GROUP. PLUS CHANNEL WAS A SUBSIDIARY OF ANDROMEDA HOLDINGS PVT. LTD AND WAS ENGAGED IN THE BUSINESS OF PRODUCTION OF TV SERIALS , FILMS, MUSIC ALBUMS ETC. THOUGH PLUS CHANNEL HAD SUFFERED LOSSES BUT SINCE RENOWNED PERSONALITIES WERE INVOLVED, ASSESSEE PREF ERRED TO BUY MORE SHARES IN APRIL, 98. THE LOSSES WERE BASICALLY DUE TO DISPUTE REGARDING EXCISE TO BE CHARGED ON INTRODUCTION OF FILMS ETC. AND EVERY ONE WAS HOPEFUL THAT SUCH EXCISE DUTY WOULD BE REMOVED BECA USE EVEN FIICI (FEDERATION OF INDIAN INDUSTRY & COMMERCE). HOWEVER , ULTIMATELY ITA NO.5046 OF 2003 16 WHEN THE DISPUTE WITH PBCI COULD NOT BE SETTLED THE ASSESSEE DECIDED TO SELL THE SHARES. SINCE PLUS CHANNEL COULD NOT MA KE THE PAYMENT OF PBCI, PBCI MOVED A PETITION FOR WINDING UP AND ULTI MATELY THE COMPANY WENT INTO LIQUIDATION. THEREFORE, AT BEST, REVENUE CAN MAKE A CASE THAT SHARES HAVE BEEN SOLD TO THE WIFE AND D AUGHTER OF THE DIRECTOR OF THE ASSESSEE COMPANY TO GENERATE SOME L OSSES; BUT IN THAT CASE IT AMOUNTS TO ONLY TAX PLANNING AND IT CANNOT BE SAID THAT THE TRANSACTION IS SHAM OR A COLOURABLE DEVICE HAS BEEN USED. HE POINTED OUT THAT EVEN SHARE CERTIFICATES COULD NOT BE PRODU CED BECAUSE ALL THE RECORDS WERE TAKEN OVER BY THE LIQUIDATOR OF THE CO MPANY. HE REFERRED TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF WALFORT SHARE AND STOCK BROKERS P. LTD. [326 ITR 1] WHEREIN ASSESSEE HAD PURCHASED CERTAIN UNITS OF CHOLA FREEDOM TECHNOLOGY MUTUAL FUND. THIS FUND HAD ADVERTISED IN NEWS PAPERS THAT TAX FR EE DIVIDEND OF 40% COULD BE EARNED IF INVESTMENTS WERE MADE BEFORE THE RECORD DATE I.E. MARCH 24, 2000. THE ASSESSEE BECAME ENTITLED TO DIV IDEND OF RS.4 PER UNIT AND EARNED A DIVIDEND OF RS.18212862.80, AS A RESULT OF PAY OUT OF THE DIVIDEND THE NAV GOT REDUCED FROM RS.17.23 P ER UNIT ON MARCH 24,2000 TO RS.13.23 PER UNIT ON MARCH 27, 2000. THE ASSESSEE SOLD ALL THE UNITS ON 27-3-2000 AT NAV AT RS.13.23 PER UNIT AND RECEIVED A SUM OF RS.59055207.75. THE ASSESSEE ALSO RECEIVED AN IN CENTIVE OF RS.2376778 ON THIS TRANSACTION. THUS, ASSESSEE RECE IVED A TOTAL SUM OF ITA NO.5046 OF 2003 17 RS.7,96,44,847/- [I.E. RS.18212862.80 + RS.59055207 .75 + RS.2376778] AGAINST THE INITIAL INVESTMENT OF RS.8, 00,00,000. FOR THE PURPOSE OF INCOME TAX ASSESSEE CLAIMED DIVIDEND OF RS.18212862.90 AS EXEMPT U/S.10[33] OF THE ACT AND ALSO CLAIMED A SET OFF OF RS.20944793 AS LOSS INCURRED ON THE SALE OF UNITS T HEREBY SEEKING TO REDUCE THE OVER ALL TAX LIABILITY. THE LD. COUNSEL POINTED OUT THAT IT IS ABSOLUTELY CLEAR FROM THIS TRANSACTION THAT THOUGH IN THE FINANCIAL YEAR ASSESSEE HAD INCURRED A LOSS OF ABOUT RS.3.5 LAKHS, WHERE AS THERE WAS DEFINITELY LOTS OF GAINS IN TERMS OF TAXES TO BE PA ID BY THE ASSESSEE. THEREFORE, IT IS CLEAR THAT THE WHOLE TRANSACTION W AS ENTERED INTO FOR THE PURPOSE OF GAINING THE TAX ADVANTAGE. EVEN THEN THE HON'BLE SUPREME COURT AFTER DETAILED DISCUSSION HELD THIS T RANSACTION AND ARRANGEMENT TO BE GENUINE BY OBSERVING THAT MERE TA X PLANNING WITHOUT ANY MOTIVE TO EVADE TAXES THROUGH COLOURABL E DEVICE IS NOT FROWNED UPON EVEN BY THE DECISION OF MCDOWELL & CO. HE SUBMITTED THAT THROUGH DETAILED DISCUSSION THE HON'BLE APEX C OURT POINTED OUT THAT ONCE A TRANSACTION WAS DONE AS PER THE LEGAL N ORMS, THEN SAME CANNOT BE TERMED AS SHAM. HE ALSO REFERRED TO THE D ECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. MR S. SARITA P. SHIRKE AND ANOTHER [281 ITR 373] WHEREIN IT WAS OBSERVED T HAT IF A PERSON IS ENTITLED TO AN EXEMPTION AND ACCORDINGLY MAKES A PL AN TO AVOID TAX LIABILITY WHICH SHE/HE IS OTHERWISE LEGALLY ENTITLE D TO, IT WOULD NOT ITA NO.5046 OF 2003 18 AMOUNT TO TAX EVASION. SINCE THE TRANSACTION REGARD ING PURCHASE AND SALE OF SHARES IN THE CASE BEFORE US HAS BEEN CARRI ED OUT AS PER THE REQUIREMENTS OF LAW, THEREFORE, SAME CANNOT BE CONS TRUED AS SHAM AND LOSS FROM THIS TRANSACTION HAS TO BE ALLOWED IN TERMS OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F WALFORT SHARE AND STOCK BROKERS P. LTD. [SUPRA], EVEN IF SAME IS ASSUMED TO BE DONE AS TAX PLANNING. 14. WHILE CONCLUDING HIS ARGUMENTS, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE DECISION IN THE CASE OF DURGA PR ASAD MORE [SUPRA] IS DISTINGUISHABLE BECAUSE IN THAT CASE THE ISSUE WAS ON INTERPRETATION OF THE DOCUMENTS AND NOT OF SHAM TRANSACTION, WHEREAS THE DECISION IN THE CASE OF WALFORT SHARE BROKERS P. LTD. [SUPRA] I S DIRECTLY ON THE ISSUE RAISED BEFORE US. IN ANY CASE, LD. CIT(A) HAS ALREADY REDUCED THE LOSS CLAIMED BY THE ASSESSEE FROM RS.2,15,00,000/- IN RESPECT OF SHARES OF PLUS CHANNEL TO RS.1,15,00,000/- BY REDUC ING THE COST OF SHARES AND THE ASSESSEE HAS NOT FILED ANY APPEAL ON THIS ASPECT AND HAS ACCEPTED THE REDUCED LOSS. THEREFORE, THE WHOLE TRANSACTION HAS TO BE VIEWED WITH THIS PERSPECTIVE ALSO. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY IN THE LIGHT OF THE MATERIAL ON RECORD AS WELL AS THE JUDGMENTS CITED BY BOTH THE PARTIES. WE FIND FORCE IN THE SUBMISSIONS OF THE LD . COUNSEL OF THE ASSESSEE. THE ASSESSEE HAD CLAIMED TOTAL CAPITAL LO SS OF ITA NO.5046 OF 2003 19 RS.3,30,15,982/- CONSISTING OF LOSS ON ACCOUNT OF S ALE OF SHARES OF PLUS CHANNEL AMOUNTING TO RS.2,15,00,000/- AND LOSS ON A CCOUNT OF SALE OF SHARES OF ANDROMEDA HOLDINGS PVT. LTD AMOUNTING TO RS.1,15,15,982/-. AS FAR AS THE SHARES OF ANDROMEDA HOLDINGS PVT. LTD ARE CONCERNED ASSESSEE HAS PURCHASED 60,000 SHARES DURING A.Y 96- 97 FOR RS.1,00,20,000/-. THE SHARES WERE ISSUED TO THE ASS ESSEE VIDE CERTIFICATE NO.13 BEARING DISTINCTIVE NOS.940001 TO 1000000. THIS CERTIFICATE WAS SPLIT INTO TWO CERTIFICATES CONTAIN ING 30,000 SHARES EACH BY CERTIFICATE NOS.15 & 16 ON 17-7-98. THE FACT REG ARDING SPLITTING UP OF SHARES IS NOTED ON TOP OF THE SHARE CERTIFICATE ITSELF. THEREFORE THERE IS NO FORCE IN THE SUBMISSIONS OF LD. DR THAT SHARE S OF ANDROMEDA HOLDINGS PVT. LTD WERE ACQUIRED ON 17-7-98. ONCE TH E SHARES OF ANDROMEDA HOLDINGS PVT. LTD WERE PURCHASED IN A.Y 9 6-97, NATURALLY THE PURCHASE WAS ACCEPTED BY THE DEPARTMENT AS NO A DVERSE INFERENCE WAS TAKEN IN THE EARLIER YEAR. DURING THE YEAR IF A SSESSEE HAS SOLD THE SHARES OF ANDROMEDA HOLDINGS PVT. LTD BECAUSE ITS V ALUE HAS GONE DOWN BECAUSE OF THE LOSS IN THE SUBSIDIARY COMPANY DUE TO DISPUTE WITH PBCI, THEN NO FAULT CAN BE FOUND IN SUCH A SAL E TRANSACTION. MERELY BECAUSE 30,000 SHARES HAVE BEEN SOLD TO MS. DHYUTI CHOKSI, DAUGHTER OF THE DIRECTOR OF THE ASSESSEE COMPANY, I T CANNOT LEAD TO A CONCLUSION THAT THIS IS A SHAM TRANSACTION. AS FAR AS THE LOSS ON ACCOUNT OF PLUS CHANNEL IS CONCERNED, WE AGAIN FIND THAT TH E TRANSACTION CANNOT ITA NO.5046 OF 2003 20 BE CALLED SHAM. THE ASSESSEE WAS ALREADY THE PROMOT ER OF ANDROMEDA HOLDINGS PVT. LTD ALONG WITH THE RENOWNED PERSONALI TIES, NAMELY, MR. MAHESH BHATT, MR. AMIT KHANNA, MR. DILIP PIRAMAL GR OUP, AND MR. AJIT GULABCHAND OF HINDUSTAN CONSTRUCTIONS GROUP. PLUS C HANNEL LTD. WAS INVOLVED IN MAKING OF TV SERIALS, PICTURES AND MUSI C ALBUMS ETC. DURING THE YEAR ENDING 31-3-98 THE REVENUE FROM SALES AND SERVICES AND COMMISSION ETC. WAS ABOUT RS.41 CRORES APPROXIMATEL Y, WHICH SHOWS THAT THE COMPANY WAS DEFINITELY DOING BUSINESS. THE REFORE, IF BEING THE PROMOTER ASSESSEE PURCHASES FURTHER SHARES, NO FAUL T CAN BE FOUND. THE SHARES WERE STATED TO HAVE BEEN PURCHASED AT RS .100 PER SHARE AS PER THE VALUATION. HOWEVER, THE VALUATION REPORT AS ON 31-3-98 SHOWS THAT PLUS CHANNEL LTD. HAD ALREADY INCURRED A LOSS OF RS.17.87 CRORES AGAINST THE EQUITY SHARES OF RS.16 CRORES WHICH MEA NS WHOLE OF THE EQUITY HAS ALREADY BEEN ERODED. THE NET WORTH OF TH E COMPANY WAS COMPUTED AT RS.5,37,37,158/- AGAINST THE OUTSTANDIN G PREFERENCE SHARES OF 92800000. THUS, THE VALUE OF EACH SHARE W OULD WORK OUT TO RS.58 PER PREFERENCE SHARE. THE LD. CIT(A) HAS ALRE ADY REDUCED THE COST OF THESE SHARES TO RS.58 PER SHARE AND REDUCED THE CONSEQUENTIAL LOSS INCURRED ON SALE OF SUCH SHARES AGAINST WHICH ASSESSEE HAS NOT FILED ANY APPEAL. WHEN BECAUSE OF THE DISPUTE WITH PBCI THE COMPANY WENT INTO LIQUIDATION NATURALLY THERE WOULD BE AN A PPREHENSION OF FURTHER LOSS AND IF AT THAT STAGE SHARES WERE SOLD AT A LOSS, IT CANNOT BE ITA NO.5046 OF 2003 21 SAID THAT THE TRANSACTION IS SHAM. AGAIN, MERELY BE CAUSE SHARES HAVE BEEN SOLD TO MS. VIPULA CHOKSI THE WIFE OF THE DIRE CTOR OF THE ASSESSEE COMPANY, WOULD NOT MAKE THE TRANSACTION SHAM. ANOTH ER FACT WHICH HAS BEEN CONSIDERED BY THE AO IS THAT ASSESSEE COUL D NOT PRODUCE COPIES OF THE SHARE CERTIFICATES. IT WAS STATED DUR ING THE COURSE OF THE HEARING THAT BECAUSE OF THE LIQUIDATION PROCEEDINGS ALL PAPERS AND FILES WERE TAKEN OVER BY THE LIQUIDATOR. THOUGH WE DO NOT SUBSCRIBE MUCH SIGNIFICANCE TO THIS FACT BECAUSE AFTER THE TRANSAC TION SHARES MUST HAVE BEEN GIVEN BY THE COMPANY TO MS. DHYUTI CHOKSI, MR. PANKAJ PANDYA AND MS. VIPULA CHOKSI IN MARCH, 1999, I.E. THE DATE OF TRANSFER WHEREAS LIQUIDATION PROCEEDINGS HAVE COMMENCED SOMEWHERE IN 2000. HOWEVER, AT THE SAME TIME IT IS NOT DISPUTED THAT M ONEY HAS ALREADY BEEN RECEIVED BY THE ASSESSEE COMPANY THROUGH CHEQU ES IN THE MONTH OF MARCH, 99 ITSELF. MOREOVER, THE BOARDS RESOLUTI ON SHOWING THE TRANSFER OF SHARES WAS ALSO PRODUCED BEFORE THE AO AS WELL AS THE LD. CIT(A). EVEN IF IT IS ASSUMED FOR THE ARGUMENTS SAKE THAT THE ABOVE ONLY SHOWS THAT ASSESSEE WAS TRYING TO GENERATE LOS S IN THE ABOVE TRANSACTION, THERE IS NOTHING WRONG WITH THE SAME B ECAUSE IT CAN BE CALLED AS AN INSTRUMENT OF TAX PLANNING. AS POINTED OUT BY THE LD. COUNSEL OF THE ASSESSEE THAT IN THE CASE OF WALFORT SHARE BROKERS P. LTD. [SUPRA] WHEREIN THE HON'BLE SUPREME COURT WAS SEIZED WITH THE QUESTION WHETHER THE TRANSACTIONS OF PURCHASE AND S ALE OF MUTUAL ITA NO.5046 OF 2003 22 FUNDS WERE GENUINE WHEREIN AN ADVERTISEMENT WAS ISS UED BY THE MUTUAL FUND THAT ONE COULD GET TAX ADVANTAGE BY GET TING TAX FREE DIVIDEND AND ADVANTAGE OF CAPITAL LOSS, EVEN THEN S UCH TRANSACTION WAS HELD TO BE GENUINE BY THE HON'BLE APEX COURT. THERE FORE, IN OUR OPINION, THESE TRANSACTIONS CANNOT BE CALLED SHAM T RANSACTIONS AND ACCORDINGLY WE CONFIRM THE ORDER OF THE LD. CIT(A). 16. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 3/2/2012. SD/- SD/- (D.MANMOHAN) (T.R.SOOD) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI: 3 RD FEB., `2012. P/-*