M/s. Jayant Security & Finance Ltd., Baroda V. The Income tax Officer,Ward-1(4), Baroda

ITA 753/AHD/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1184 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-08-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 03-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D V SINGH
• Keywords: Depreciation; Speculation loss; Corroborative evidences

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD , BEFORE SHRI PRAMOD KUMAR , ACCOUNTANT MEMBER , AND SHRI KUL BHARAT , JUDICIAL MEMBER . ITA. NO. 753 /AHD/201 2 (ASSESSM ENT YEAR:200 7 - 0 8 ) M/S. JAYANT SECURITY & FINANCE LTD. 503, ANAND APARTMENT, NEAR RAJESHREE TALKIES, SAYAJIGUNJ, BARODA APPELLANT VS. I.T.O. WARD 1(4), BARODA . .. RESPONDENT [ PAN: AA ACJ4848G ] / BY ASSESSEE : MS . URVASHI SODHAN , A.R. / BY REVENUE :SHRI D . V . SINGH , SR . D.R. / DATE OF HEARING : 1 2 .0 8 .2015 / DATE OF PRONOUNCEMENT : 21 .08.2015 O R D E R PER PRAMOD KUMAR , A . M.: THIS AP PEAL IS DIRECTED AGAINST CIT(A)S ORDER DATED 13 TH FEBRUARY, 2012, FOR THE ASSESSMENT YEAR 2007 - 08. 2. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICATE IN THIS APPEAL IS WHETHER OR NOT LEARNED CIT(A) WAS JUSTIFIED IN UPHOLDING THE ACTION OF THE ITA NO. 7 53 /AHD/20 1 2 ( M/S. JAYANT SECURITY & FINANCE LTD. VS.ITO) A.Y. 200 7 - 0 8 - 2 - ASSESSIN G OFFICER IN TREATING THE LOSS OF RS.9,96,875/ - ON SALE OF SHARES, AS NOT GENUINE. 3. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD SOLD SHARES, I N SWASTIKA COAL CORPORATION, AT RS.5/ - WHEREAS THESE SHARES WERE PURCHASED AT RS.8.89/ - . SIMILARLY, THE ASSESSEE HAD SOLD SHARES IN SUBALA TRADING CO., AT RS.10/ - , WHEREAS THESE SHARES WERE PURCHASED AT RS.100/ - . THE ASSESSING OFFICER REQUIRED THE ASSESS EE TO JUSTIFY THE ABOVE TRANSACTIONS, WITH SUPPORTING EVIDENCES. THE EXPLANATION GIVEN BY THE ASSESSEE DID NOT SATISFY THE ASSESSING OFFICER, AS THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAS FAILED TO JUSTIFY THAT WHICH TYPE OF FINANCIAL CRISES HAD COMPELLED IT TO SELL THE SHARES AT TOO LOW A RATE AND THAT MERELY ON THE GROUND OF FINANCIAL CRISES, ONE CANNOT SELL UNQUOTED SHARES WITHOUT CONSIDERING ITS BOOK VALUE (BV) OR PRESENT DAY MARKET VALUE (PDMV) OR INCOME GENERATING CAPACITY (IGC ). HE FURTHER NOTED THAT THE SALES PRICE OF SHARES WAS FIXED BY MUTUAL UNDERSTANDING AND WAS NOT FIXED AS PER MARKET VALUE. HE THEN WENT ON THE OBSERVE, INTER ALIA, AS FOLLOWS: 0N VERIFICATION OF BALANCE SHEET & INCOME & EXPENDITURE ACCOUNT, IT WAS V ERY CLEAR THAT THE COMPANY WAS FINANCIALLY VERY SOUND & THERE WERE N O FINANCIAL CRISES. FURTHER IT I S NATURAL PRINCIPLE THAT NO PRUDENT MEN, SALE ITS SHARE OF RS. 100/ - IN RS. 10/ - BY INCURRED LOSS OF RS. 90/ - PER SHARE OR SHARES VALUE OF RS. 8.89/ - SOLD I N RS. 5/ - AND INCURRED LOSS OF RS. 3.89/ - PER SHARE. IN THIS CASE THE SHARES OF SWASTIKA COAL CORPORATION WERE PURCHASED AT RS . 8.89/ - AND THE SAID SHARE SOLD AT RS. 5/ - PER SHARE AND INCURRED THE LOSS OF RS. 3.89/ - PER SHARE. SIMILARLY, THE SHARES OF SUBA LA TRADING COMPANY WAS PURCHASED AT RS. 100/ - PER SHARE AND THE SAID SHARES WERE SOLD AT RS. 10/ - PER SHARE AND INCURRED LOSS OF RS. 90 PER SHARE. ASSESSEE FAILED TO JUSTIFY HOW IT HAS BOOKED LOSSES IN T HE SALE TRANSACTIONS OF SHARES OF SWASTIKA COAL CORPOR ATION & SUBALA TRADING COMPANY. CONSIDERING THE ABOVE STATED FACTS, IT IS VERY CLEAR THAT THE ASSESSEE HAS MANIPULATED THE SALE PRICE OF THE SHARES OF BOTH COMPANIES & BOOKED LOSS IN THE SAID TRANSACTION FO R THE REASONS BEST KNOWN TO IT. THE ASSESSEE HAS A LSO TRIED TO REDUCE ITS TAX LIABILITY BY SHOWING THIS TRANSACTIO N . DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAS EARNED INCOME OF R S . 38,89,410/ - FROM INTEREST WHEREAS LOSS WAS SHOWN ON SHARE TRANSACTIONS. AFTER DEDUCTING EXPENSES LIKE SALARY, INTERE ST PAYMENT & DEPRECIATION FROM INTEREST INCOME, SUBSTANTIAL INCOME WAS LIKELY ON WHICH INCOME - TAX WAS REQUIRED TO BE PAID BY THE ASSESSEE. ITA NO. 7 53 /AHD/20 1 2 ( M/S. JAYANT SECURITY & FINANCE LTD. VS.ITO) A.Y. 200 7 - 0 8 - 3 - DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.R. OF THE ASSESSEE COMPANY WAS ALSO TO SUBMIT THE BOO K VALUE OF S HARES OF THESE COMPANIES. HOWEVER, HE FAILED TO SUBMIT TILL DATE. THE BOOK VALUE AT THE TIME OF PURCHASE OF SHARES AND THE TIME SHALL OF SHARES OF THERE COMPANIES ARE NOT SUBMITTED TILL DATE. BY DOING MANIPULATION IN SALE PRICE OF SHARES IT HAS BOOKED LO SS WHICH HAS BEEN ADJUSTED FROM INTEREST INCOME. THUS, IT HAS APPARENTLY REDUCED ITS REAL INCOME & AVOIDED PAYMENT OF TAX . LOOKING TO THE ABOVE FACTS, IT WILL BE REASONABLE TO OPT THE SALE RATE OF SHARES OF SWASTIKA COAL CORPORATION AT RS.8.89/ - & SALE R ATE OF SUBALA TRADING COMPANY RS. 100/ - PER SHARE. THEREFORE, THE SALE VALUE OF SHARES OF SWASTIKA COAL CORPORATION IS TAKEN AT RS.8.89/ - PER SHARE & CLAIM OF LOSS OF RS.5,46,875/ - LAKHS ON THIS TRANSACTION IS REJECTED. SIMILARLY THE SALE VALUE OF SHARES OF SUBALA TRADING COMPANY IS TAKEN AT RS.100/ - PER SHARES AND CLAIMED OF LOSS OF RS.4,50,000/ - . 4. THE ASSESSING OFFICER ALSO HELD THAT THE ABOVE LOSS IS SPECULATIVE LOSS IN NATURE, AS EXPLANATION TO SECTION 73 IS INVOKED ON THE FACTS OF THIS CASE. HOW EVER, WE NEED NOT REALLY DEAL WITH THAT ASPECT OF THE MATTER AS LEARNED CIT(A) HAS DELETED THAT ISSUE IN FAVOUR OF THE ASSESSEE, AND THE ASSESSING OFFICER IS NOT IN APPEAL AGAINST THAT DECISION. WE LEAVE IT THAT. 5. AGGRIEVED BY THE DISALLOWANCE OF LOSS ON SALE OF SHARES, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. WHILE REJECTING THE GRIEVANCE OF THE ASSESSEE, LEARNED CIT(A) OBSERVED AS FOLLOWS: SECOND GROUND OF APPEAL IS NOW TAKEN UP. APPELLANT'S GROUND OF APPEAL T HAT AO MADE ADDITION OF RS.9,96,875/ - BY ALLEGING IT TO BE SPECULATION PROFIT IS MISCONCEIVED SINCE THE ADDITION WAS MADE BY AO MAINLY ON THE GROUND THAT APPELLANT COULD NOT JUSTIFY SALE OF UNQUOTED SHARES AT A PRICE MUCH BELOW PURCHASE PRICE AND APPELLANT DID NOT FURNISH BOOK VALUE OF THE SHARES SOLD EVEN ON SPECIFICALLY ASKING FOR THE SAME. AO HAD FURTHER OBSERVED THAT APPELLANT COULD NOT SUBSTANTIATE ITS CLAIM OF FINANCIAL CRISIS AND NO PRUDENT PERSON WOULD SELL SHARES AT SUCH HUGE LOSS WITHOUT REFERENCE TO INTRINSIC VALUE OF SHARES. EXPLANATION BELOW SECTION 73 WAS INVOKED BY THE AO ONLY AS AN ALTERNATE REASON TO MAKE THE ADDITION/DISALLOWANCE. APPELLANT HAS THUS, NOT REALLY CHALLENGED THE SUBSTANTIVE ADDITION MADE BY THE AO. APPELLANT HAS ALSO NOT M ADE ANY ATTEMPT, WHATSOEVER, EITHER BEFORE THE AO OR DURING APPELLATE PROCEEDINGS TO SUBSTANTIATE ITS CLAIM OF FINANCIAL CRISIS OR DEMONSTRATE THE SALE PRICE TO BE THE BREAK UP VALUE/BOOK VALUE ETC OF SHARES, I.E. IN OTHER WORDS, MARKET VALUE ON THE DAT E OF SALE. APPELLANT HAS ALSO NOT PROVIDED ANY EVIDENCE TO SUBSTANTIATE ITS CLAIM THAT THERE WAS INTENTION TO TAKE OVER THE SAID COMPANIES. IN A SITUATION LIKE THIS, EVEN IF PAYMENT FOR TRANSACTIONS WAS THROUGH ACCOUNT PAYEE CHEQUE OR EVEN IF TRANSACTI ONS WERE BETWEEN UN - ITA NO. 7 53 /AHD/20 1 2 ( M/S. JAYANT SECURITY & FINANCE LTD. VS.ITO) A.Y. 200 7 - 0 8 - 4 - RELATED PARTIES, LOSS INCURRED CANNOT BE ACCEPTED TO BE GENUINE. DISALLOWANCE OF LOSS OF RS.9,96,875/ - IS CONFIRMED. 6. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 7 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUS ED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 8 . WE HAVE NOTED THAT AS HELD BY HONBLE KARNATAKA HIGH COURT IN THE CASE OF A KHADAR BASHA VS. ACIT [(2015) 58 TAXMANN.332 (KAR)], MERELY BECA USE AN ASSESSEE SELLS SOMETHING AT A PRICE LESS THAN ITS PURCHASE PRICE, GENUINENESS OF LOSS ON SALE CANNOT BE REJECTED. OF COURSE, IN THE CASE OF TRANSACTIONS BETWEEN RELATED PARTIES, THE PROVISIONS OF SECTION 40A(2), AS NOTED BY THEIR LORDSHIPS IN THIS CASE AS WELL, WILL BE ATTRACTED BUT THAT IS NOT THE SITUATION THAT WE ARE DEALING WITH. WE HAVE ALSO NOTED THAT THE SHARES SOLD BY THE ASSESSEE ARE UNQUOTED SHARES AND, THEREFORE, THERE CANNOT BE ANY STANDARD SALE PRICES IN RESPECT OF THE SAME. THE PRIC ES AT WHICH SUCH SHARES ARE SOLD AND PURCHASED ARE DEPENDENT ON THE NEGOTIATIONS BETWEEN BUYER AND SELLER. THERE IS NO DISPUTE THAT THE BUYER AND SELLER IN THE PRESENT CASE ARE UNRELATED PERSONS, HAVING NO INFLUENCE ON EACH OTHER. THERE IS NOTHING MORE THAN THE FACT OF LOSS WHICH IS PUT AGAINST THE BONAFIDES OF TRANSACTIONS. IN OUR CONSIDERED VIEW, ON THE FACTS OF THIS CASE AND WITHOUT ANY CORROBORATIVE FACTOR POINTING TOWARDS LACK OF BONAFIDES, THE LOSS INCURRED BY THE ASSESSEE CANNOT BE HELD TO BE NOT GENUINE. THERE HAS TO BE SOMETHING MORE THAN SUSPICION TO COME TO THIS CONCLUSION. WHILE EXAMINING A CLAIM OF THE ASSESSEE, IT IS NOT FOR US TO PONDER OVER WHAT MUST HAPPEN IN AN IDEAL SITUATION, BUT WE HAVE TO EXAMINE WHETHER THE EXPLANATION OF THE ASS ESSEE HAS ANY INFIRMITIES OR INCONSISTENCIES, AND, IF NOT, WE HAVE TO ACCEPT THE SAME. 9. VIEWED THUS, WE SEE NO REASONS TO REJECT THE LOSS ON SALE OF SHARES BY THE ASSESSEE. THE PRICES AT WHICH SHARES ARE SOLD CANNOT BE SUBJECTED ITA NO. 7 53 /AHD/20 1 2 ( M/S. JAYANT SECURITY & FINANCE LTD. VS.ITO) A.Y. 200 7 - 0 8 - 5 - TO OUR SCRUTINY AND DET ERMINATION, BUT THEN REJECTING THE LOSS IN ENTIRETY ENDS UP HOLDING THAT THE ASSESSEE OUGHT TO HAVE SOLD THE SHARES AT THE PRICES AT WHICH THE SAME WERE PURCHASED. THAT IS BEYOND THE PLAE OF TAX AUTHORITIES TO DECIDE, AND IT IS FOR THE BUSINESSMAN AS TO H OW HE CONDUCTS HIS BUSINESS THOUGH WITHIN THE FRAMEWORK OF LAW AND WITHOUT ANY SUBTER FUGES. 10. IN VIEW OF THE ABOVE DISCUSSIONS, AND BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE. ACCORDINGLY, THE ASSESSING OFFICER IS D IRECTED TO DELETE THE DISALLOWANCE OF R S.9,96,875/ - ON ACCOUNT OF SALE OF SHARES. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 11. IN THE RESULT, THE APPEAL IS ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS THE 21 ST DAY OF A UGUST, 2015. SD/ - SD/ - ( KUL BHARAT ) ( PRAMOD KUMAR ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 21 /08/2015 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO: - 1 . / REVENUE 2. / ASSESSEE 3. / CONCERNED CIT 4. - / CIT (A) 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. BY ORDER/ , / ,