M/s. Pluto Finance Pvt. Ltd., Kolkata V. ITO, Ward - 5(2), Kolkata, Kolkata

ITA 596/KOL/2011

• Counselvise Citation: 59623514 RSA 2011
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2012
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 18-04-2011
• Court: TRIBUNAL
• Department Lawyers: B K DAS
• Assessee Lawyers: S M SURANA
• Keywords: Fair market value; Speculation loss; Valuation report; Commercial expediency; Sham transactions
• Section: 131

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BEN CH A, KOLKATA () BEFORE , ,, , , SHRI MAHAVIR SINGH, JUDICIAL MEMBER. /AND . .. . ! ! ! !. .. . , '# SHRI C.D.RAO, ACCOUNTANT MEMBER $ $ $ $ / ITA NO . 596/KOL/2011 %& '(/ ASSESSMENT YEAR : 2007-08 (*+ / APPELLANT ) M/S.PLUTO FINANCE PVT. LTD., KOLKATA (PAN: AABCP 5337 P) (,-*+/ RESPONDENT ) I.T.O., WARD-5(2), KOLKATA. *+ . / '/ FOR THE APPELLANT: SHRI S.M.SURANA ,-*+ . / '/ FOR THE RESPONDENT: SHRI B.K.DAS 0%1 . !# /DATE OF HEARING : 10.05.2012. 2' . !# /DATE OF PRONOUNCEMENT : 23.05.2012. '3 / ORDER . .. . ! ! ! !. .. . , '# PER SHRI C.D.RAO, AM THE ABOVE APPEAL IS FILED BY ASSESSEE AGAINST ORDER DATED 11.02.2011 OF THE LD. CIT-(A)-VI, KOLKATA PERTAINING TO A.YR. 2007-08. 2. THE ONLY ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS RELATING TO CONFIRMATION OF ADDITION OF RS.42,02,500/- WHEN THERE WAS NO DISPUT E ABOUT THE GENUINITY OF SALE OF THE SHARES AND PROVISIONS OF SEC.40A(2) WERE NOT AP PLICABLE. 3. THE BRIEF FACTS OF THIS ISSUE AS APPEARING FROM THE IMPUGNED ORDER ARE AS UNDER :- 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS RELATE D TO THE SHARE TRADING LOSS OF RS. 42,02,500/- DISALLOWED BY THE AO. 2 THE FACTS OF THIS CASE ARE THAT DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2007- 08, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF SHA RE TRADING AND GRANTING OF LOANS AND ADVANCES. FROM THE BUSINESS OF GRANTING OF LOANS AN D ADVANCES, IT EARNED INTEREST INCOME AMOUNTING TO RS.43,89,942/- AND IN THE BUSIN ESS OF SHARE TRADING THE ASSESSEE CLAIMED TO HAVE INCURRED A LOSS OF RS, 42,02,500!- . SINCE, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SUBSTANTIAL POSITIV E INCOME IN THE FORM OF INTEREST ON LOANS AMOUNTING TO RS. 43,89,942/-, THE AO REQUESTE D THE ASSESSEE TO FURNISH REASONS AS TO WHAT PROMPTED OR COMPELLED IT TO TAKE A DECISION TO SELL THE SHARES IN QUESTION AT SUCH A HUGE LOSS - A MOVE THAT APPARENTLY DEFIED ANY BUS INESS LOGIC OR COMMERCIAL EXPEDIENCY. THE AO ALSO CALLED FOR THE DETAILS OF P URCHASE AND SALE OF THE SHARES ON WHICH LOSS WAS INCURRED BY THE ASSESSEE. 3. THE ASSESSEE PROVIDED THE DETAILS CALLED FOR BY THE AO. IT CLAIMED THAT IT WAS NOT OPEN TO THE INCOME TAX AUTHORITIES TO QUESTION THE BUSIN ESS RELATED DECISIONS OF THE ASSESSEE. THE ASSESSEE CITED A NUMBER OF COURT DECISIONS AND CLAIMED THAT IN THESE DECISIONS IT HAS BEEN HELD THAT EVERY BUSINESSMAN KNEW HIS INTEREST BEST. HE IS THE BEST JUDGE OF BUSINESS EXPEDIENCY AND IS FREE TO TAKE DECISION AS TO HOW A ND IN WHAT MANNER THE BUSINESS ACTIVITIES SHOULD BE CARRIED ON. THE REVENUE AUTHOR ITIES SHOULD NOT MAKE ANY COMMENTS OR GIVE ADVICE IN THE MATTER IN WHICH THE BUSINESS SHOULD HAVE BEEN CARRIED ON. IT IS ALSO NOT OPEN TO THE REVENUE TO PRESCRIBE WHAT EXPENDITU RE AN ASSESSEE SHOULD INCUR AND IN WHAT CIRCUMSTANCES HE SHOULD INCUR SUCH EXPENDITURE . THE ASSESSEE FURTHER SUBMITTED THAT ASSUMING BUT NOT ADMITTING THAT THE COMPANY H AD DEFIED BUSINESS LOGIC OR COMMERCIAL EXPEDIENCY, IT DID NOT NECESSARILY MEAN THAT SUCH LOSS HAS TO BE IGNORED ALTOGETHER. IT WAS CLAIMED THAT ACCORDING TO JUDICI AL INTERPRETATION THE PROVISION OF INCOME TAX ACT, 1961 WERE ATTRACTED TO ILLEGAL BUSI NESS ACTIVITY AND EXPENSES INCURRED EARNING SUCH ILLEGAL INCOME ARE ALLOWABLE IN COMPUT ING TOTAL INCOME. 4. THE AO WAS NOT SATISFIED WITH THE ABOVE SUBMISS IONS OF THE ASSESSEE. HE OBSERVED THAT THE SHARE TRADING LOSS WAS INCURRED B Y THE ASSESSEE ON THE FOLLOWING SHARES. SL.NO. NAME OF SHARE SOLD QUALITY COST PRICE SALE PRICE DATE OF SALE AMOUNT OF LOSS 1. DAFODIL PROJECTS PVT. LTD. 17000 10,20,000/- 4,25,000/- 20.5.2006 5,95,000/- 2. BALAJI METAL & SPONGE P.LTD. 100000 10,00,000/- 2,00,000/- 15.12.2006 8,00,000/- 3. BALAJI SECURITIES P.LTD. 18200 20,02,000/- 1,82,000/- 15.12.2006 18,20,000/- 4. BHARAT SPEEDS LTD. 98750 39,50,000/- 29,62,500/- 27.03.2007 9,87,500/- TOTAL 79,72,000/- 37,69,500/- 42,02,500/- HE FURTHER NOTICED THAT OUT OF THE ABOVE SHARES THE SHARES AT SR. NO. 1 WERE SOLD TO M/S SPEED BUSINESS PVT. LTD. AND SHARES AT SR. NO. 2,3, & 4 WERE SOLD TO M/S AMBAA SECURITIES PVT. LTD. HE EXAMINED THE SHARE HOLDINGS OF THESE TWO COMPANIES AND THE ASSESSEE COMPANY AND FOUND THAT THEY WERE SISTER CO NCERNS AND BELONGED TO THE SAME MANAGEMENT. FROM THE DETAILS SUBMITTED BY THE ASSESSEE, IN RESP ECT OF THE SHARES OF DAFODIL PROJECTS PVT. LTD. THE AO FOUND THAT THE ASSESSEE R ECEIVED A PAYMENT OF RS. 20,00,000/- 3 FROM M/S SPEED BUSINESS PVT. LTD. ON 19.5.2006 VIDE CHEQUE NO.541453 DRAWN ON INDUS IND BANK. HE FURTHER NOTED THAT THE DATE OF S ALE OF THE AFOREMENTIONED SHARES WAS 20.5.2006. THE ASSESSEE RECEIVED THE PAYMENT IN ADV ANCE, I.E. ON 19.5.2006 AND THEREAFTER, THE BALANCE AMOUNT OF RS. 15,75,000!- W AS REFUNDED TO THE SAID PARTY BY ISSUING DIFFERENT CHEQUES, DRAWN ON THE SAME BANK, I.E. INDUSLND BANK, ON DIFFERENT DATES OVER A PERIOD STARTING FROM 17.01.2007. IN RESPECT OF THE OTHER THREE SHARES THE AO OBSERVE D THAT THEY WERE SOLD DURING THE LAST QUARTER OF THE F.YR. IN VIEW OF THE ABOVE FACTS THE AO FELT THAT THE SAL E OF SHARES TO THE SISTER CONCERNS AT A LOSS WAS NOT A REAL BUSINESS TRANSACT ION BUT MERELY AN ARRANGEMENT TO NOT PAY TAX ON THE INTEREST INCOME BY THE ASSESSEE. FRO M THE TABLE-I MADE ABOVE THE AO OBSERVED THAT MOST OF THE TRANSACTIONS LEADING TO L OSSES WERE CARRIED OUT IN THE LAST QUARTER OF THE RELEVANT FINANCIAL YEAR. HE OBSERVED THAT THE TRANSACTION IN THE SHARES OF BHARAT SPEEDS LTD. WAS CARRIED ON AT THE END OF THE FINANCIAL YEAR, I.E. ON 27.3.2007 (PAYMENT RECEIVED ON 31.3.2007). ACCORDING TO THE A O THIS GAVE AN IMPRESSION AS IF THE ASSESSEE WAS IMPATIENT AND EAGER TO SALE THE SHARES FULLY WELL THAT IT WOULD GIVE RISE TO A LOSS OF RS. 9,87,500/- AND THE ASSESSEES APPARENT FINANCIAL POSITION DID NOT CALL FOR LOSS MAKING TRANSACTIONS. IN PARA 6.02 OF HIS ORDER THE AO HAS EXAMINED ALL THE COURT CASES REFERRED BY THE ASSESSE AND HAS OPINED THAT THE FAC TS OF THESE CASE COULD BE SAID TO BE SIMILAR TO THE FACTS OF THE ASSESSEE. THE AO RELIED ON THE DECISION OF HON. SUPREME COURT IN THE CASE OF MCDOWELL & CO. LTD. VS. CTO [1 985] 154 ITR 148 (SC) AND CITED THE FOLLOWING OBSERVATION OF HONBLE COURT: TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITH IN THE FRAMEWORK OF LAW. COLOURABLE DEVICES CANNOT BE PART QF TAX PLANNING AND IT IS WR ONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONOURABLE TO AVOID THE PAYMENT O F TAX BY RESORTING TO DUBIOUS METHODS. IT IS THE OBLIGATION OF EVERY CITIZEN, TO PAY THE T AXES HONESTLY WITHOUT RESORTING TO SUBTERFUGES, THE AO FELT THAT THIS DECISION OF HONBLE SUPREME C OURT WAS APPLICABLE IN THE CASE OF THE ASSESSEE. HE POINTED OUT THAT THE TOTAL INTERES T EARNED WAS RS. 43,91,542/- AND THE ASESSEE WAS LIABLE TO PAY TAXES THEREON, OF COURSE AFTER DEDUCTING THE ADMISSIBLE EXPENSES. TO AVOID PAYMENT OF HUGE TAXES, WHICH WOU LD HAVE BEEN OTHERWISE PAYABLE, THE ASSESSEE MADE A TACIT ARRANGEMENT OF SELLING CE RTAIN SHARES MOSTLY OF PRIVATE LIMITED COMPANIES TO TWO OF ITS SISTER CONCERNS OPERATING UNDER THE SAME MANAGEMENT, AT FAR LOWER PRICES THAN THE COST OF THE SHARES. IN THE SE EMINGLY LEGITIMATE PROCESS, THE ASSESSEE HIT TWO BIRDS WITH ONE STONE, I.E. IT BOOKED THE RE QUIRED AMOUNT OF LOSS OF RS. 42,02,500/- SO THAT IT PAYS A PALTRY AMOUNT OF TAX AND SIMULTANEOUSLY ENSURED THAT THE SHARES IN QUESTION REMAIN WITHIN THE SAME GROUP, SO THAT THE CLAIMED LOSS REMAINS ON PAPER ONLY. HENCE, BASICALLY THIS IS ANALOGOUS TO T HE CASE OF TRANSFERRING A TAX BEARING VALUABLE FROM ONE BAND TO ANOTHER OF THE SAME PERSO N WITH AN ULTERIOR MOTIVE OF DEPRIVING THE EXCHEQUER THE LEGITIMATE TAX DUE. THU S, ON THE BASIS OF THE FACTS AND CIRCUMSTANCES FOUND OUT IN THIS CASE, THE AO CONCLU DED THAT THE ASSESEE HAS CONSCIOUSLY TRIED TO EVADE OR AVOID PAYMENT OF TAXES BY RESORTI NG TO COLOURABLE DEVICES IN THE FORM OF MAKE BELIEVE AND SHAM TRANSACTIONS, WHICH ARE S EEMINGLY LEGITIMATE BUT ARE NOT REAL. REGARDING THE ASSESSEES OBJECTION THAT THE REVENUE AUTHORITIES SHOULD NOT INTERFERE WITH THE WAY BUSINESS IS CARRIED ON BY A BUSINESSMAN, THE AO POINTED OUT THAT RAISING A QUERY ON A SPECIFIC ISSUE DURING THE COUR SE OF ASSESSMENT PROCEEDINGS DOES NOT AMOUNT TO GIVING ADVISE, MAKING PRESCRIPTIONS OR SU GGESTING WAYS AND MANNER IN WHICH A PARTICULAR BUSINESS IS TO BE CARRIED ON BY THE AS SESSEE. HE HAS STATED THAT IN THE CASE OF CIT VS. DURGA PRASAD MORE [1971] 82 ITR 540 (SC), T HE HONBLE SUPREME COURT HAS 4 OBSERVED THAT IT IS TRUE THAT AN APPARENT MUST BE C ONSIDERED REAL UNTIL IT IS SHOWN THAT THERE ARE REASONS TO BELIEVE THAT THE APPARENT IS N OT THE REAL; IF ALL THAT AN ASSESSEE WHO WANTS TO EVADE TAX IS TO HAVE RECITALS MADE IN A DO CUMENT EITHER EXECUTED BY HIM OR EXECUTED IN HIS FAVOUR THEN THE DOOR WILL BE LEFT W IDE OPEN TO EVADE TAX. THE TAXING AUTHORITIES WERE NOT REQUIRED TO PUT ON BLINKERS WH ILE LOOKING AT THE DOCUMENTS PRODUCED BEFORE THEM. THEY WERE ENTITLED TO LOOK IN TO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY OF THE RECITALS MADE IN THOSE DOCUMENTS. IN VIEW OF THE ABOVE DISCUSSED DETAILED REASONING T HE AO HELD THAT THE LOSS OF RS, 42,02,500/- INCURRED IN THE SHARE TRADING WAS N OT A REAL LOSS BUT A LOSS ARRIVED AT BY RESORTING TO DUBIOUS METHODS OF COLOURABLE TRANSACT IONS WITH THE SALE PURPOSE OF EVADING PAYMENT OF TAXES WHICH WERE LEGITIMATELY DUE ON TOT AL INCOME. CONSEQUENTLY, THE AFORESAID LOSS OF RS. 42,02,500/- WAS TREATED TO BE A BOGUS LOSS AND HENCE DISALLOWED TO BE SET OFF AGAINST INTEREST INCOME OF THE ASSESSEE. 3.1. ON APPEAL THE LD. CIT(A) AFTER TAKING INTO CO NSIDERATION OF VARIOUS SUBMISSIONS HAS CONFIRMED THE ACTION OF AO BY OBSERVING AS UNDE R :- 6. I HAVE CONSIDERED ALL THE FACTS AND CIRCUMSTANC ES OF THIS CASE AND THE SUBMISSION MADE BY LD. A/R. HERE IT CAN BE SEEN THAT ALL THE S HARES WHICH HAVE BEEN SOLD BY THE ASSESSEE AT A LOSS ARE UNQUOTED SHARES. THEREFORE, THE FAIR MARKET VALUE OF THESE SHARES IS NOT AVAILABLE TO US. THE ASSESSEE HAS FAILED TO SHO W WHY DID IT SELL THESE SHARES AT ALL AND WHY WERE THESE SOLD AT THE RATE AT WHICH THE SALE W AS SHOWN TO BE MADE. THE ASSESSEE HAS TRIED TO MAKE THESE SALE LOOK GENUINE BY ARRANG ING THE SALE BILLS AND BY RECEIVING THE PAYMENT FOR THE SALE PROCEEDS THROUGH CHEQUES. HOWE VER, I AGREE WITH THE AO THAT THESE SALES CANNOT BE TERMED AS A GENUINE SALE AND IT WAS ONLY A COLORABLE DEVICE TO BOOK LOSS IN THE HANDS OF THE ASSESSEE. IT CAN BE SEEN THAT T HE SALE OF SHARES HAS BEEN MADE TO THE SISTER CONCERNS OF THE ASSESSEE WHICH ARE CONTROLLE D BY THE SAME MANAGEMENT. IT WAS EASY FOR THE ASSESSEE TO ARRANGE FOR A SALE AT PRIC E MUCH LOWER THAN THE PURCHASE PRICE AS THE SALE WAS TO BE ARRANGED WITH SISTER CONCERN ONL Y. THE TIMINGS OF THE TRANSACTIONS ALSO SHOW THAT THESE WERE A PART OF THE ARRANGEMENT TO B OOK LOSS IN THE HANDS OF THE ASSESSEE SO THAT IT COULD SET OFF THIS LOSS WITH THE INTERES T INCOME EARNED BY IT. IN THE CASE OF SALE MADE TO M/S SPEED BUSINESS PVT. LTD. AN AMOUNT OF R S. 20,00.000/- WAS LYING WITH THE ASSESSEE BEFORE THE DATE ON WHICH THE SALE OF RS. 4 ,25,000/- WAS SHOWN TO BE MADE. THE AMOUNT EQUIVALENT TO SALE PROCEEDS WAS ADJUSTED AGA INST THE SALE AND THE REMAINING AMOUNT WAS LATER ON RETURNED TO M/S SPEED BUSINESS PVT. LTD. IN RESPECT OF SALE MADE TO M/S AMBAA SECURITIES PVT. LTD IT IS SEEN THAT THESE TRANSACTIONS FOR SALE OF SHARES OF THREE COMPANIES WERE ALSO MADE. DURING THE LAST QUA RTER OF THE FINANCIAL YEAR WHICH INDICATES A MOTIVE TO MANIPULATE THE TAXABLE INCOME . DURING THE APPELLATE PROCEEDING LD AIR OF THE ASSES SEE CLAIMED THAT THE GENUINENESS OF THESE SALES ARE PROVED BY THE FACT T HAT THE SISTER CONCERNS OF THE ASSESSEE WHO PURCHASED THESE SHARES IN TURN SOLD MANY OF THE SE SHARES TO OUTSIDE PARTIES. IN THIS RESPECT I BELIEVE THAT FOR THE PURPOSE OF THE ASSES SMENT IN THE CASE OF THE ASSESSEE THE FURTHER TREATMENT OF THE SHARES BY THE SISTER CONCE RNS WAS NOT RELEVANT . HERE WE ARE EXAMINING THE EFFECT OF THESE SALES TO SISTER CONCE RNS IN THE HANDS OF THE ASSESSEE AND THE SALE AT A LOSS TO SISTER CONCERNS HAS RESULTED IN LOWERING OF TAXABLE INCOME. AS DISCUSSED ABOVE SUCH TRANSACTIONS DO NOT APPEAR TO BE GENUINE BUSINESS TRANSACTIONS BUT A COLORABLE DEVICE TO REDUCE TAX LIABILITY. DURING THE APPELLATE PROCEEDING LD A/R WAS ASKED TO EXPLAIN THE METHOD OF VALUING THE PRICE OF THESE UNQUOTED SHARES FOR SELL ING THEM TO SISTER CONCERN. LD. A/R 5 FURNISHED CERTIFICATES DTD. 12.01.2011 FOR VALUATIO N OF THE SHARES OF THE ABOVE MENTIONED 4 COMPANIES. IT IS SEEN THAT IN THESE CERTIFICATES THE VALUATION IS CLAIMED TO HAVE BEEN DONE BY YIELD METHOD, ONE COMPANY BAAJI METAL & SPO NGE PVT. LTD. IS SHOWN TO HAVE INCURRED LOSS IN LAST THREE YEARS AND THE VALUE OF ITS SHARES HAS BEEN ARBITRARILY TAKEN AS RS,2 PER SHARE. FOR OTHER THREE COMPANIES THE NET W ORTH HAS BEEN DETERMINED BY MULTIPLYING THE AVERAGE PROFITS OF LAST 3 YEARS BY SOME CAPITALIZATION FACTOR. IN CASE OF 2 COMPANIES THE CAPITALIZATION FACTOR HAS BEEN TAKE N AS 20 AND FOR THE THIRD COMPANY IT HAS BEEN TAKEN AS 30. THERE IS NO BASIS FOR TAKING THESE FACTORS. THESE HAVE BEEN ADOPTED IN SUCH A WAY THAT THE VALUATION COMES CLOSE TO THE PRICE AT WHICH SALE IS SHOWN BY THE ASSESSEE. THUS, I AM OF THE OPINION THAT THERE IS N O BASIS FOR THE PRICE AT WHICH THE SHARES WERE SOLD TO THE SISTER CONCERNS. THIS STRENGTHENS THE VIEW THAT THE SALE OF SHARES TO THE SISTER CONCERNS WAS NOT A REAL SALE BUT A COLOURABL E DEVICE. FURTHER 1 AGREE WITH THE OBSERVATION OF THE AO THAT THE TAX AUTHORITIES CANNOT BE FULLY BARRED FROM LOOKING THROUGH THE BUSINESS TRAN SACTIONS OF THE ASSESSEE. THE AO HAS RIGHTLY CITED AND DISCUSSED THE DECISIONS OF THE HO NBLE SUPREME COURT IN THE CASES OF MC DOWELL & CO. LTD. AND DURGA PRASAD MORE TO POINT OUT THAT THE REVENUE AUTHORITIES ARE EMPOWERED TO UNEARTH THE REAL BEHIND AN APPAREN T TRANSACTION. IN THIS CASE THE AO HAS UNEARTHED THE REAL PURPOSE BEHIND THE SELLING O F SHARES TO SISTER CONCERNS AT A LOSS. IN VIEW OF THE ABOVE DISCUSSION I UPHOLD THE ACTION OF THE AO IN DISALLOWING LOSS AN SHARE TRADING AMOUNTING TO RS. 42,02,500/-. 3.2. AGGRIEVED BY THIS, NOW ASSESSEE IS IN APPEAL BEFORE US. 4. AT THE TIME OF HEARING BEFORE US, THE LD. COUNS EL APPEARING ON BEHALF OF ASSESSEE HAS REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES SUBMITTED THAT 5. DURING THE APPELLATE PROCEEDINGS LD AR OF THE A SSESSEE OPPOSED THE ACTION OF THE AO IN DISALLOWING THE SHARE TRADING LOSS OF RS. 42, 02,500/- ON THE GROUND THAT IT WAS A COLOURABLE DEVICE, THE SUBMISSION MADE BY LD. AR IN THIS REGARD IS REPRODUCED BELOW: THE APPEAL IS DIRECTED AGAINST THE AO DISALLOWING L OSS OF RS. 42,02,500/- BEING LOSS IN SHARE DEALINGS. THE ASSESSEE DURING THE YEAR SOLD CERTAIN SHARES IN FOUR COMPANIES AS DETAILED BY THE AO IN TABLE-I OF PARA 4.01 OF THE ASSESSMENT OR DER. ON THE SALE OF SAID SHARES THE ASSESSEE INCURRED A LOSS OF RS. 42,02,500/-. THERE IS NO DISPUTE ABOUT THE FACT OF PURCHASE OR SALE OF THESE SHARES. FURTHER THE PAYME NT FOR SALE WAS ALSO RECEIVED BY ACCOUNT PAYEE CHEQUE. THE AO HAS DISALLOWED THE LOS S ONLY ON THE GROUND THAT THE SHARES WERE SOLD TO THE GROUP CONCERN OF THE ASSESE E. THE DETAILS OF SALES INCLUDING COPY OF BILLS AND DETAILS OF PAYMENT RECEIVED WERE FILED BEFORE THE AO. THE AO DID NOT PROCEED TO ISSUE ANY SUMMON TO THE PARTIES TO WHOM THESE SHARES WEE SOLD. THE AO HAS RELIED ON MCDOWEL & CO. REPORTED IN 154 ITR 148 AS WELL AS DURGA PRASAD MORE REPORTED IN 82 ITR 540 AND NUMBER OF OTHER JUDGMENT S FOR APPLYING THE PRINCIPLE THAT THIS WAS A COLOURABLE DEVICE JUST TO REDUCE THE PRO FIT. IT MAY HERE BE SUBMITTED THAT IF THE AO COULD HAVE ISSUED NOTICE U/S 131 TO ENQUIRE FROM THE COMPANIES TO WHOM THE SHARES WERE SOLD THEN HIS MISUNDERSTANDING WOULD HAVE BEEN OVER. IN FACT ALL THE PARTIES TO WH OM THE SHARES WERE SOLD VIZ, TO AMBAA SECURITIES TO WHOM 100000 SHARES OF BALAJI METAL WE RE SOLD FOR RS. 200000/-, 18200 6 SHARE OF BALJIT SECURITIES WERE SOLD FOR RS. 10/- P ER SHARE, 98750 SHARES OF BHARAT SEEDS WERE SOLD FOR 30/- PER SHARE AND 17,000 SHARES OF D AFFODIL PROJECTS WERE SOLD TO SPEED BUSINESS PVT. LTD FOR RS. 4,25,000/- THE SAID AMBAA SECURITIES RESOLD THE SHARES THEREAF TER WITHIN FEW MONTHS. IN THE CASE OF BALJJT SECURITIES PVT, LTD THE SALE FOR RS. 18,200/-, IN THE CASE OF BALJIT METALS AND SPONGE PVT. LTD THE SALE WAS FOR RS, 200000. SI MILARLY M/S SPEED BUSINESS PVT. LTD SOLD THE SHARES OF DAFFODIL FOR RS.1,70,000/- ONLY . THIS SALE WAS NOT MADE TO ANY RELATIVE OR SISTER CONCERN OF THE ASSESSEE BUT TO T HE STRANGERS WHO HAD NO RELATIONSHIP WITH THE ASSESSEE. THE COPIES OF THE BILLS RAISED B Y THE PURCHASERS OF THE ASSESSEE ON THE PARTIES TO WHOM SUCH SHARES WERE ULTIMATELY SOLD AR E ENCLOSED HEREWITH. NOT ONLY THAT THE TRANSFER OF THE SHARES WERE DULY RECORDED IN TH E BOOKS OF THE RESPECTIVE COMPANIES AND THEREFORE THE SALE OF THE SHARES CANNOT BE DISP UTED. MOREOVER THE SUM OF RS. 20 LAKHS WERE RECEIVED ON 19.5.2006 AND THE SHARE WERE SOLD ON 20.5.2006 CANNOT MAKE THE TRANSACTION DOUBTFUL. FURTHER THE AO VIEWED THA T THE TRANSACTION WAS COLOURABLE BECAUSE IT GENERATED LOSS ALSO CANNOT BE TAKEN AGAI NST THE ASSESSEE SINCE THERE IS NO DISPUTE ABOUT THE SALE AND FURTHER THE SALE WAS DU LY RECORDED BY TRANSFER IN THE SHARE REGISTER OF THE COMPANIES AS ALSO THE PURCHASER COM PANIES SOLD THESE SHARES TO STRANGERS AND THAT TOO NOT AT PROFITS. THEREFORE TH E TRANSACTION CANNOT BE BRANDED AS COLOURABLE. SIMPLY BECAUSE THE SHARES HAVE BEEN SOLD BY THE ASS ESEE TO ITS SISTER CONCERN THE SAME CANNOT BE A GROUND FOR DISALLOWING THE LOSS. IN FACT INITIALLY THE A O WANTED TO APPLY THE PROVI SIONS OF SEC. 73 TREATING THE LOSS A SPECULATION LOSS AND ASKED THE ASSSESSEE TO SHOW CAUSE AS TO WHY THE LOSS SHOULD NOT BE TREATED AS SPECULATION LOSS. HOWEVER WHEN TH E SAME WAS DULY EXPLAINED THE AO SWITCHED OVER TO DISALLOW THE LOSS BY HOLDING THAT THE SHARES WERE SOLD TO SISTER CONCERNS. IN VIEW OF WHAT HAVE BEEN STATED ABOVE AND THE GENU INITY OF THE SALE OF SHARES HAVING NOT BEEN DISPUTED AND FURTHER THE CONCERNS T O WHOM THE SHARES WERE SOLD HAVE RESOLD THE SAME TO THE STRANGERS WITHOUT DERIVING A NY INCOME OR BENEFIT THERE FROM THE DISALLOWANCE SHOULD NOT HAVE BEEN MADE SIMPLY BECAU SE THE SALE WAS MADE TO THE SISTER CONCERNS. IN VIEW OF THE ABOVE THE DISALLOWANCE MADE MAY BE D ELETED. 5. WHEN THE BENCH ASKED WHETHER THE SHARES PURCHAS ED AND SOLD TO THE SISTER CONCERN ARE SUBSEQUENTLY DISPOSED OF BY THE SISTER CONCERN, THE ASSESSEE SUBMITTED THAT THE SISTER CONCERN HAS SOLD THE SAID SHARES AT LOSS AND FILED COPIES OF SALE CONFIRMATION AND COPIES OF VALUATION REPORT IN RESPECT OF SHARES OF FOUR COMPANIES BY CHARTERED ACCOUNTANT WHICH ARE PLACED AT PAGES 6 TO 14 AND 15 TO 18 OF THE PAPER BOOK RESPECTIVELY. KEEPING IN VIEW OF THE ABOVE, HE SUBM ITTED THAT THE REVENUE IS NOT JUSTIFIED IN DISBELIEVING THE SUBMISSIONS OF ASSESS EE AND TREAT THE SALES AS BOGUS. THEREFORE HE REQUESTED TO SET ASIDE THE ORDERS OF T HE REVENUE AUTHORITIES AND DELETE THE ADDITION MADE BY THEM. 7 6. ON THE OTHER HAND, THE LD. DR APPEARING ON BEHAL F OF REVENUE RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 7. AFTER HEARING A RIVAL SUBMISSIONS AND ON CAREFUL PERUSAL OF MATERIALS AVAILABLE ON RECORD, KEEPING IN VIEW OF THE FACT THAT THE SIS TER CONCERN TO WHOM THE ASSESSEE HAS SOLD THE SHARES HAS SUBSEQUENTLY DISPOSED OF THE SA ME AT A LOSS AND SINCE THE COMPANIES INVOLVED ARE PRIVATE LIMITED COPY OF THE VALUATION REPORT AND SHARES OF THE FOUR COMPANIES BY CHARTERED ACCOUNTANT HAS BEEN PLA CED ON RECORD. WE FIND NO JUSTIFICATION IN DISBELIEVING THE TRANSACTIONS MADE BY ASSESSEE TO THE SISTER CONCERN. THEREFORE WE SET ASIDE THE ORDERS OF THE REVENUE AU THORITIES AND DIRECT AO TO DELETE THE ADDITION MADE ON ACCOUNT OF SALES. 8. IN THE RESULT THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 23.05.2012. SD/- SD/- , ,, , MAHAVIR SINGH, JUDICIAL MEMBER . .. . ! ! ! !. .. . , , , , '# '# '# '# , C.D.RAO, ACCOUNTANT MEMBER. ( (( (!# !# !# !#) )) ) DATE: 23.05.2012. R.G.(P.S.) '3 . ,4 5'4'6- COPY OF THE ORDER FORWARDED TO: 1. M/S.PLUTO FINANCE PVT. LTD., 4, SYNAGOGUE STREET, 9 TH FLOOR, R.NO.922, KOLKATA-1. 2 I.T.O., WARD-5(2), KOLKATA. 3. THE C.I.T. 4. CIT(A)-VI, KOLKATA. 5. THE CIT(DR), KOLKATA BENCHES, KOLKATA -4 ,/ TRUE COPY, '3%0/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES 8