The DCIT Cerl Circle-1(1), Ahmedabad V. M/S Marvel Marketing Ltd, Ahmedabad

ITA 790/AHD/1999

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63159 (ITAT-AHMEDABAD)
• Duration Of Justice: 13 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 27-09-2012
• Assessment Year: 1994-1995
• Appeal Filed On: 15-04-1999
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C PATWARI
• Assessee Lawyers: P M MEHTA ARS; S N SOPARKR
• Keywords: Business income; Bonafide mistake

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD C BENCH BEFORE: SHRI D.K. TYAGI, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT ME MBER I.T.A. NO.790/AHD/1999 A.Y. 1994-95 THE D.C.I.T., CENTRAL CIRCLE-1(1), AHMEDABAD APPELLANT VS. MARVEL MARKETING LTD. AMAL BUSINESS CENTRE, VRAJ NR. H.K. HOUSE AHMEDABAD RESPONDENT DEPARTMENT BY : SHRI D.C. PATWARI, CIT- D.R. ASSESSEE BY : SHRI S.N. SOPARKR & SHRI P.M. MEHTA, A.RS. DATE OF HEARING : 27.09.2012 DATE OF PRONOUNCEMENT : 23.11.2012 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER THIS IS REVENUES APPEAL AGAINST THE ORDER OF LD. C IT(A)-XII, AHMEDABAD DATED 10.02.1999. 2. REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEAL:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING DISALLOWANCE OF INTEREST ON OVER DUE INTEREST OF RS .27,66,306/-. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.3,69,43,975/- MADE ON ACCOUNT OF SUPPRESSION OF SALE PRICE OF DEBENTURES PART-B OF ARVIND MILLS LTD. 3. GROUND NO.1, WHICH WAS GROUND NO.2 BEFORE LD. CI T(A), HAS BEEN DEALT BY HIM AS UNDER:- 5. THE FACTS OF THE SECOND GROUND OF APPEAL ARE TH AT TOTAL FINANCE CHARGES INCURRED BY THE ASSESSEE DURING THE YEAR CO NSISTED OF INTEREST ON OVER DUE-BILL DISCOUNTING TO BANK BEING RS.27,66 ,306/-. THE I.T.A. NO.790/AHD/1999 A.Y. 1994-95 2 ASSESSEE CONTENDED THAT THIS INTEREST WAS RELATED T O LATE RETIREMENT OF BILLS WITH BCCI. IT WAS FURTHER CONTENDED THAT THE FABRIC DIVISION OF THE ASSESSEE COMPANY WAS TRADING IN FABRIC MANUFACTURED BY ARVIND MILLS LTD., AND SELLING THE SAME MAINLY TO CORNERSTONE BR AND LTD. AND ALSO DEAING IN SHARES AND SECURITIES. THE ASSESSEE COMP ANY WAS PURCHASING FABRIC FROM ARVIND MILLS LTD. ON BILL DI SCOUNTING CREDIT TERMS. IN TURN ARVIND MILLS, DREW BILLS RECEIVABLE ON THE ASSESSEE COMPANY WHICH ARE DULY SIGNED AND ACCEPTED BY THE A SSESSEE. AFTER RECEIVING THE SIGNED BILLS FROM THE ASSESSEE COMPAN Y, ARVIND MILLS LTD., USED TO DISCOUNT THOSE BILLS WITH ITS BANKERS . ON THE OTHER HAND, THE ASSESSEE COMPANY DIRECTLY PAID THE AMOUNT OF BI LLS TO THE BANKERS ON DUE DATE OF THE BILLS. IF THE BILLS WERE NOT RE TIRED BY THE ASSESSEE ON DUE DATE, IT WAS REQUIRED TO PAY LATE PAYMENT IN TEREST I.E. OVER DUE INTEREST ON SUCH LATE RETIREMENT. IT WAS FOUND THA T IN FACT, OVER DUE INTEREST PAID TOTALLY RELATED TO PURCHASES MADE BY THE ASSESSEE IN EARLIER YEARS AS FROM 1.4.1992 AND 1.4.1993. AS PE R ASSESSING OFFICER, ARVIND MILLS LTD. HAD HUGE BANK BALANCES I N THE ASSESSEES BOOKS OF ACCOUNT AND THIS DEBT HAD BEEN PAID TO MOS TLY BY RETIREMENT OF HUNDIES/BILLS OF EXCHANGE DRAWN BY ARVIND MILLS LTD. IT WAS FOUND THAT THE FACTS AND CIRCUMSTANCES OF THE CASE WERE V ERY SIMILAR TO THAT IN THE EARLIER YEAR. THEREFORE, FOLLOWING THE ARGU MENTS MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT YEAR 1992-93 AN D 93-94, THE INTEREST ON OVER DUE INTEREST OF RS.27,66,306/- WAS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 6. AT THE APPELLATE STAGE, IT IS CONTENDED THAT THIS SORT OF DISALLOWANCE WAS MADE IN A.YH. 1992-93 FOR A SUM OF RS.1,80,40,893/- AND SAME WAS DEETED BY THE THEN C. I.T. (A) IV, AHMEDABAD. FOR THE DETAILED REASONING GIVEN IN HIS ORDER DATED 15.1.1997. IT IS PLEADED THAT IN THE LIGHT OF DETA ILED REASONING GIVEN IN THE APPELLATE ORDER FOR THE A.Y. 1992-93 THERE IS N O JUSTIFICATION FOR DISALLOWANCE OF THIS SUM IN THIS YEAR. FOR READY R EFERENCE A COPY OF THE SAID ORDER IS PRODUCED IN APPEAL NO.CIT(A) DCIT /S.R.2/98/95-96. 7. AFTER GOING THROUGH THE SAID APPELLATE ORDER, I AM IN COMPLETE AGREEMENT WITH THE FINDING AS GIVEN BY THE THEN C.I .T. (A) IV, AHMEDABAD. SINCE THE ISSUE AND FINDING REMAINS THE SAME, THE PRESENT ADDITION IS DIRECTED TO BE DELETED. 4. SINCE LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSE E BY PLACING RELIANCE ON THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 1992-93, WE FEEL NO NEED TO INTERFERE WITH THE ORDER PASSED BY HIM AND THE SAME IS HEREBY UPHELD. THIS GROUND OF REVENUE IS DISMISSED. I.T.A. NO.790/AHD/1999 A.Y. 1994-95 3 5. GROUND NO.2, WHICH WAS GROUND NO.3 BEFORE LD. CI T(A), HAS BEEN DEALT BY HIM AS UNDER:- 8. THE FACTS OF THE THIRD GROUND OF APPEAL ARE THA T THE ASSESSEE DURING THE YEAR HAD SOLD 55963 DEBENTURES PART-B OF ARVIND MILLS LTD. THROUGH THEIR BROKER M/S CHIMANLAL LALBHAI. THE DE BENTURES WERE SOLD AT THE RATE OF RS.839.85 AS PER BILL DATED 14.2.94. THE CONTRACT AS PER BILL DATED 14.2.94 WAS DATED 24.11.1993 AND 25.11.1 993 RESPECTIVELY FOR 55000 DEBENTURES AND 3763 DEBENTURES. THE SAID DEBENTURES WERE TO BE CONVERTED INTO EQUITY SHARES AT A PREMIU M OF RS.85 PER EQUITY SHARES I.E. AT THE RATE OF RS.95/- PER EQUIT Y SHARE. THESE DEBENTURES WERE TO BE CONVERTED COMPULSORILY INTO E QUITY SHARES ON 1.4.1994 WITHOUT ANY FURTHER ACT OR DEED BY THE COM PANY OR THE DEBENTURE HOLDER AND WERE TO RANK PARIPASU WITH THE EXISTING EQUITY SHARE OF THE COMPANY. IN THIS WAY THE DEBENTURES W ERE TO BE CONVERTED INTO 335768 SHARES WITHIN A SHORT PERIOD FROM THE DATE OF THE BILL INTO EQUITY SHARES OF ARVIND BILLS LTD. A S PER THE ASSESSING OFFICER, THE EFFECTIVE SALE PRICE PER SHARE OF ARVI ND MILLS LTD. CAME TO RS.140/- ONLY (RS.840/6). 9. AT THE SAME TIME, THE ASSESSEE PURCHASED 311000 SHARES OF ARVIND MILLS LTD., AT THE RATE OF RS.271.75 THAT WAS PREVA LENT MARKET PRICE OF ARVIND MILLS LTD., AS PER BILL DATED 30 TH APRIL, 1994 AND CONTRACT NOTE DATED 28.2.1994. AS PER ASSESSING OFFICER, THE SAI D TRANSACTION WAS AT AN APPARENT DISADVANTAGE TO THE ASSESSEE BECAUSE TH E RULING PRICE OF ARVIND MILLS LTD. SHARES IN FEBRUARY 1994 WAS MORE THAN RS.250/-. IN SUPPORT, DETAILS OBTAINED FROM BOMBAY EXCHANGE FOR THE PERIOD WERE QUOTED IN THE ASSESSMENT ORDER. AS PER ASSESSING O FFICER, THE ASSESSEE WAS THEREFORE, SELLING DEBENTURES PART-B O F ARVIND MILLS LTD., AT THE RATE OF 840/- PER DEBENTURES APPROXIMATELY W HICH AMOUNTED TO SELLING SHARES AT THE RATE OF RS.140/- PER SHARE, A ND AT THE SAME TIME PURCHASING NEARLY THE SAME NUMBER OF SHARES AT THE RATE OF RS.271.75. TO EXAMINE THE SAID TRANSACTION, INQUIR IES WERE MADE FROM AHMEDABAD STOCK EXCHANGE, BOMBAY STOCK EXCHANGE, PI NACLE FINANE, THE REGISTRAR TO THE ISSUE OF ARVIND MILLS LTD., TH E BROKER M/S CHIMANLAL LALBHAI AND ASSESSEE ITSELF. THESE ENQUIRIES REVEA LED FOLLOWING FACTS:- (1) BOTH AHMEDABAD STOCK EXCHANGE AND BOMBAY STOCK EXCH ANGE DENIED THAT ANY TRANSACTION OF ARVIND MILLS PART-B DEBENTURES HAD TAKEN PLACE THROUGH THEIR RESPECTIVE EXCHANGES DURING THE RELEVANT PERIOD. (2) THE BROKER CHIMANLAL LALBHAI STATED THAT THE SAID T RANSACTION WAS AN INHOUSE TRANSACTION ENTERED INTO BETWEEN P ARTIES AND REGULARIZED THROUGH THEM. (3) THE CONTRACT WAS ENTERED INTO ON 24/25.11.1993 I.E. NEARLY 3 MONTHS PRIOR TO THE DATE OF BILL ON 14.2.94. A COP Y OF CONTRACT I.T.A. NO.790/AHD/1999 A.Y. 1994-95 4 NOTE OBTAINED FROM THE BROKER DATED 14.2.1994 WAS M ARKED DUPLICATE. THE ASSESSEE HAD ALSO SUBMITTED THE S AME COPY OF CONTRACT NOTE MARKED DUPLICATE. THIS LED THE ASS ESSING OFFICER TO INFER THAT THE CONTRACT WAS NOT ENTERED INTO IN MONTH OF NOVEMBER BUT ACTUALLY THE SAME HAD TAKEN PLACE IN T HE MONTH OF FEBRUARY, 1994 AND HAD BEEN ANTE DATED WHEN THE RUL ING MARKET PRICE OF SHARES OF ARVIND MILLS LTD., WAS COMPARATI VELY LOW. (4) THE BROKERS COPY OF THE CONTRACT NOTE WITH THE SUB SEQUENT PURCHASER M/S PINNACLE EXPORTS AND M/S RAJKUMAR ENG G. OF AHMEDNAGAR WERE CALLED. THE CONTRACT WITH THE SUBS EQUENT PURCHASER WAS ALSO IN NOVEMBER, 1993. THE BROKER C OULD NOT PRODUCE THE ORIGINAL COPY OF THE CONTRACT NOTE. TH E COPY OF CONTACT NOTE PRODUCED WAS ALSO MARKED DUPLICATE. (5) SHRI HEMANTBHAI RASIKHHAI MAIN PARTNER IN THE FIRM OF M/S. CHIMANLAL LALBHAI WAS SUMMONED. HE ADMITTED THAT OR IGINAL COPY OF CONTRACT NOTE WITH THE ASSESSEE COULD NOT B E PRODUCED AS THE SAME WAS NOT TRACEABLE. SIMILARLY, COPY OF ORIGINAL CONTRACT NOTE ISSUED TO SUBSEQUENT PURCHASER WAS AL SO ADMITTEDLY NOT TRACEABLE. AGAIN ORIGINAL VOUCHER BO OKS OF CONTRACT NOTES IN THE MONTH OF NOVEMBER, 1993 AND D ECEMBER, 1993 WERE ALSO NOT MADE AVAILABLE. (6) SIMILAR TRANSACTIONS HAD BEEN DONE BY ANOTHER ASSES SEE ORBIT FINMARK PVT. LTD. OF SAME GROUP ONLY AND THE SAID A SSESSES WAS ALSO UNABLE TO PRODUCE THE COPY OF ORIGINAL CONTRAC T NOTE. (7) THE SUBSEQUENT PURCHASERS WERE ALSO UNABLE TO SUPPL Y THE COPY OF ORIGINAL CONTRACT NOTE. (8) THE ASSESSING OFFICER WAS OF THE OPINION THAT IT COULD NOT BE IN ANY WAY A MATTER OF COINCIDENCE THAT SO MANY PERSON S HAD LOST COPIES OF ORIGINAL CONTRACT NOTES OF A TRANSACTION WHICH APPEARED TO BE ANTE DATED. (9) ONLY PIECE OF EVIDENCE THAT WAS PRODUCED BY THE BRO KER WAS ORIGINAL 'SAUDA BOOK WHERE THE SAID TRANSACTION H AD BEEN ENTERED INTO IN THE MONTH OF NOVEMBER,1993. EVEN T HIS SAUDA BOOK WAS NOT BELIEVED BY THE ASSESSING OFFICER FOR REASONING GIVEN IN DETAIL IN PARA-9 OF THE ASSESSMENT ORDER. (10) AS PER ASSESSING OFFICER THE DELIVERY OF THE SHARES HAD BEEN MADE IN THE MONTH OF FEBRUARY, 1994 AS THE SAME WAS CONFIRMED BY THE BROKER AND ASSESSOR ITSELF. NORMA LLY DELIVERY OF SHARES IS GIVEN WITHIN 15 DAYS OF CONTRACT BUT I N THIS CASE DELIVERY WAS THREE MONTHS AFTER THE DATE OF CONTRAC T. AS PER ASSESSING OFFICER, THIS ALSO CONFIRMED THE FACT THA T DATE OF DELIVERY I.E.14.2.94 IN THIS CASE WAS THE ACTUAL DATE OF CONTRACT. I.T.A. NO.790/AHD/1999 A.Y. 1994-95 5 10 BASED ON THE ABOVE MENTIONED FACTS IT WAS PROPO SED BY THE ASSESSING OFFICER THAT THE VALUE OF DEBENTURES SHAL L BE TAKEN AS PER PREVAILING MARKET RATE OF EQUITY SHARES OF ARVIND M ILLS LTD., AT THE RATE OF RS.250/- PER EQUITY SHARES I.E. RS.1500/- PER DE BENTURE AND CAPITAL GAINS ON THE ABOVE SHALL BE CHARGED ACCORDINGLY. 11. THE ASSESSESS CONTENTIONS BEFORE THE ASSESSIN G OFFICER ARE SUMMARISED AS UNDER:- (1) IN HOUSE TRADING WAS PERMITTED BETWEEN PARTIE S AND THROUGH BROKERS OUT SIDE THE STOCK EXCHANGE. (2) DUE TO BONAFIDE MISTAKE, THE ORIGINAL CONTRACT NOTE OF BOTH SELLER AND PURCHASER WAS LOST AND THEREFORE, D UPLICATE WAS PRODUCED. (3) DUPLICATE WAS FORWARDED TO MAHARASHTRA CO., BY THE ASSESSEE ONLY AND BILL AS SUBMITTED CONTAINS DATE O F ORIGINAL CONTRACT NOTE. (4) THE SHARE BROKER ALSO COULD NOT PRODUCE CARBON COPIES OF THE ORIGINAL AS HE WAS NOT REQUIRED BY THE STOCK EXCHANGE TO DO SO. (5) SAUDA BOOK OF STOCK BROKER IS PRIMARY RECORD WH ERE SUCH TRANSACTIONS ARE RECORDED. 12.FOR THE REASONING AS PER PARA-16 TO PARA-23, THE ASSESSING OFFICER DID NOT AGREE WITH THE ASSESSEEE. THE ASSESSING OF FICER HOLD THAT THE ASSESSEE HAD RECORDED THE SALE PRICE OF DEBENTURES OF 55963 AT THE RATE OF RS.840/- ONLY AS AGAINST PREVALENT MARKET PRICE OF THOSE DEBENTURES WHICH SHOULD BE AT LEAST RS.1500/-, CONSIDERING THE MARKET PRICE OF ARVIND MILLS LTD., SHARES ON AN AROUND IN FEBRUARY, 1994 WHICH WAS ALWAYS ABOUT RS.250/-, EVEN AFTER GIVING REASONABLE DISCOUNTING FOR THE CONVERSION WHICH WAS MERELY 45 DAYS AWAY. IN VIEW OF THE AFORESAID DISCUSSION, THE SALE PRICE OF THESE DEBENTURES WAS SUBSTITUTED AT THE RATE OF RS.1500/- WHICH CAME TO RS.8,39,44,500/- AS AGAINST RS.4,70,525/- AND BALANCE AMOUNT OF RS.3,69,43,975/ - WAS ACCORDINGLY ADDED TO THE-INCOME OF THE ASSESSEE. 13. DURING THE COURSE OF APPELLATE PROCEEDINGS, FOL LOWING FURTHER SUBMISSIONS HAVE BEEN MADE BY THE APPELLANT:- (I) THE INFERENCE DRAWN BY THE ASSESSING OFFICER FOR NOT HAVING THE ORIGINAL COPY/CARBON COPY OF THE CONTRACT NOTES WIT H ANY OF THE PARTIES NAMELY THE SELLER, PURCHASER AND SHARE BROKER IS M ERELY ON SURMISES, I.T.A. NO.790/AHD/1999 A.Y. 1994-95 6 CONJECTURES AND WITH A SUSPICIOUS MIND AGAINST THE APPELLANT COMPANY RIGHT FROM THE BEGINNING OF THE ASSESSMENT PROCEEDI NGS. (11) THE ASSESSING OFFICER HAS CONVENIENTLY IGNORE D THE STATEMENT UNDER SECTION 133(1) OF THE ACT OF SHRI HEMANTBHAI SHETH PARTNER OF M/S. GHLMANLAL LALBHAL AS WELL AS CROSS EXAMINATION AND RE-EXAMINATION STATEMENT OF SHRI HEMANT SHETH AND SHRI MUNIR SHETH CONDUCTED AT THE FAG END OF THE TIME BARRING ASSESSMENT PERIOD WHERE IN SHRI HEMANTBHAI SHETH HAD SPECIFICALLY CONFIRMED THE FACT THAT THE TRANSACTION OF PURCHASE/SALE OF DEBENTURE PART-B OF ARVIND MILLS L TD. WAS CONTRACTED BETWEEN THE TWO PARTIES IN THE MONTH OF NOVEMBER,19 93 ONLY AND THE BILL WAS PREPARED IN THE MONTH OF FEBRUARY 1994 WHE N ACTUAL DELIVERY OF DEBENTURE HAD TAKEN PLACE. THE APPELLANT EMPHASISED THAT IT SHOULD BE TAKEN NOTE OF THAT M/S. CHLMANLAL LALBHAI IS DEPART MENTAL WITNESS AND DEPARTMENTAL WITNESS HAD CONFIRMED THE FACTS OF THE CASE AS WAS SUBMITTED BY THE APPELLANT COMPANY TO THE ASSESSING OFFICER. (III) THE PURCHASING PARTIES NAMELY M/S. PINNACLE EXPORTS PVT. LTD AND M/S RAJKUMAR ENGINEERING PVT. LTD., HAD ALSO CONFIR MED THE SAID TRANS- ACTION, THE PURCHASE DATE, THE CONTRACT DATE THE BI LL DATE AND THE PAYMENT DATE. THESE TWO COMPANIES BEING INDEPENDENT ENTITIES HAVING NO CONNECTION BY ANY MEANS WITH THE APPELLANT COMPA NY, OTHER THAN THE BUSINESS CONNECTION FOR THE IMPUGNED TRANSACTIO N, THE OUTCOME OF THE ENQUIRIES WITH THESE TWO PARTIES WAS REQUIRED T OBE CONSIDERED POSITIVELY. (IV) MERELY BECAUSE THE ORIGINAL CONTRACT NOTES CO ULD NOT BE PRODUCED BY ANY CONNECTED PARTIES WITH THIS TRANSACTION, NO ADVERSE INFERENCE CAN BE DRAWN AGAINST THE APPELLANT COMPANY WHILE ALLEGI NG THAT THE SAID TRANSACTION WAS AN ANTE-DATED TRANSACTION (V) REGARDING THE DUPLICATE CONTRACT NOTE DATED 14.2.1994 IT HAD ALREADY BEEN EXPLAINED TO THE ASSESSING OFFICER THA T THE SAID DUPLICATE CONTRACT NOTE WAS ISSUED BY CHIMANLAL LALBHAI IN LI EU OF THE ORIGINAL CONTRACT NOTES WHICH WERE LOST AND MISPLACED BY THE APPELLANT COMPANY. THEREFORE NO ADVERSE INFERENCE CAN BE DRAW N MERELY BECAUSE THE DUPLICATE CONTRACT NOTES WERE DATED 14.2.1994 B ECAUSE M/S, CHIMANLAL LALBHAI HAD ALREADY EXPLAINED THAT THE CL ERK WHO HAD PREPARED THE DUPLICATE CONTRACT NOTES HAD BY MISTAK E STATED THE DATE AS 14.2.1994. THE EXPLANATION OF THIRD PARTY WHICH IS NOT CONNECTED/RELATED WITH THE APPELLANT COMPANY, CANNO T BE IGNORED UNLESS AND UNTIL IT WAS PROVED THAT BY GIVING SUCH EXPLANATION, THE THIRD PARTY WAS BEING BENEFITED. THE PRIMARY EVIDENCE I.E . SAUDA BOOK, WHICH WAS BEING WRITTEN ON DAY TO DAY BASIS WHICH WAS PRO DUCED IN ORIGINAL BEFORE THE ASSESSING OFFICER BY M/S CHIMANLAL LALBH AI HAD BEEN IGNORED BY THE ASSESSING OFFICER BY GIVING DIFFERENT REASON S. THE REASONS ADVANCED BY THE ASSESSING OFFICER ARE LEAST CONVINC ING. IN THIS CONNECTION, THE ANSWERS GIVEN BY SHRI HEMANTBHAI SH ETH IN HIS I.T.A. NO.790/AHD/1999 A.Y. 1994-95 7 STATEMENT RECORDED AS WELL AS IN HIS CROSS EXAMINAT ION STATEMENT WERE SELF EXPLANATORY AND CLEARLY IN FAVOUR OF THE APPEL LANT COMPANY. (VI) THE VERSION OF THE ASSESSING OFFICER THAT THE STATEMENT OF SHRI HEMANTBHAI SHETH AND SHRI MUNIR SHETH WERE SELF BEA RING STATEMENTS WAS ACTUALLY INCORRECT AND HIGHLY OBJECTIONABLE BEC AUSE AFTER THE CROSS EXAMINATION, THE ASSESSING OFFICER HAD RE-EXAMINED BOTH THESE PERSONS AND THEREFORE IT WOULD NOT BE SAID THAT THE STATEME NT GIVEN IN CROSS EXAMINATION BY BOTH THE PERSONS WERE IN THE NATURE OF SELF SERVING STATEMENT (VII) REGARDING THE LEGAL ASPECT OF TRANSACTION, TH E APPELLANT COMPANY HAS RELIED UPON THE DECISION OF HONBLE GUJARAT HIG H COURT IN THE CASE OF MARGHBHAI KISHABHAI PATEL & CO, VS. C.I.T. (108 ITR 54) (VIII) THE ASSESSING OFFICER WHILE MAKING THE IMPUG NED ADDITION HAS FAILED TO ESTABLISH THAT THE AMOUNT OF ALLEGED DIFF ERENCE IN SALE PRICE HAS COME BACK TO THE APPELLANT OR RECEIVED BY THE APPEL LANT IN ANY FORM AS IT IS ESSENTIAL TO ESTABLISH WHILE ALLEGING DIFFERE NCE IN SALE PRICE THAT SUCH A HUGE AMOUNT IS IN FACT BEEN REALISED AND UTI LISED IN ANY FORM BY THE APPELLANT COMPANY AND MERE PRESUMPTION CANNOT L EAD TO EARNING OF A SUCH HUGE AMOUNT BY THE APPELLANT. RELIANCE IS PL ACED ON THE JUDICIAL RATIO LAID DOWN IN THE DECISION OF THE HON'BLE GUJA RAT HIGH COURT IN THE CASE OF C.I.T. VS. M.K. BROTHERS REPORTED IN 163 IT R 249. (IX) AS PER THE SETTLED LAW NOTIONAL INCOME CANNOT BE TAXED AS INCOME HAS CERTAIN DEFINITE CONNOTATION AND MERE ALLEGATIO N DOES NOT LEAD TO OR GIVE RISE TO ANY INCOME. (X) REGARDING DELAY IN DELIVERY OF DEBENTURES IT IS CONTENDED THAT IT IS NOT THE CASE OF THE DEPARTMENT TO DECIDE A FIXED TI ME GAP FOR SETTLING THE TRANSACTION IN THE SHARE MARKET. IT LA WELL KNO WN THAT IN THE TRANS- ACTION THROUGH STOCK EXCHANGE ALSO, THE SAME ARE SE TTLED EVEN AFTER A PERIOD OF 4 TO 6 MONTHS AND SOMETIMES MORE THAN 6 MONTHS ALSO. WHEREAS IN THE PRESENT CASE, THE TRANSACTION WAS AN IN HOUSE TRANSACTION' THROUGH STOCK EXCHANGE APPROVED SHARE BROKER BETWEEN TWO SEPARATE ENTITIES AND NO ADVERSE INFERENCE COUL D BE DRAWN MERELY BECAUSE OF THE DELAY IN DELIVERY OF DEBENTURES AND THEREBY SETTLING THE TRANSACTION AFTER A PERIOD OF 3 MONTHS. (XI) AS REGARDS TO THE VARIOUS CASE LAWS RELIED UPO N BY THE ASSESSING OFFICER, IT IS CONTENDED THAT THE FACTS OF ALL THE CASES ARE TOTALLY DIFFERENT THAN THE FACTS OF THE CASE OF APPELLANT. 14. IN ADDITION TO THE ABOVE, IT IS SUBMITTED THAT UNDER ALMOST IDENTICAL CIRCUMSTANCES, INVOLVING SAME PARTIES AS BUYERS AND SAME DATES AND RATES OF SALES, THE THEN C.I.T(A)-XII, AH MEDABAD HAS DELETED THE CORRESPONDING ADDITION OF A MUCH BIGGER SUM OF RS.14,14,06,326/- IN THE CASE OFF ORBIT FINMARK P. LTD, VIDE HIS ORDE R DATED 30.10.1998 IN I.T.A. NO.790/AHD/1999 A.Y. 1994-95 8 APPEAL NO.CC.1(1)/138/97-98. IT IS SUBMITTED THAT THE ARGUMENTS GIVEN AND VIEW TAKEN IN THAT APPELLATE ORDER CONSTI TUTE ALMOST COMPLETE ANSWER TO THE ARGUMENTS AND VIEW TAKEN IN THE ASSES SMENT ORDER, MORE SO BECAUSE NOT ONLY THE DATES AND RATES IN THIS CAS E ARE IDENTICAL BUT THE BUYERS CONCERNED AND SHARE BROKERS ETC. ARE AL SO THE SAME. IT IS FURTHER SUBMITTED THAT IN THIS APPELLANTS CASE THE ONLY ADDITIONAL REASON MENTIONED BY THE ASSESSING OFFICER IS THAT THE APPE LLANT HAS BOUGHT SOME SHARES OF ARVIND MILLS LTD. AT A PARTICULAR RA TE. IN THIS REGARD IT IS SUBMITTED THAT THE SALE OF PART-B DEBENTURES OF ARV IND MILLS LTD., AND THE PURCHASE OF EQUITY SHARES OF ARVIND MILLS LTD., ARE TOTALLY INDEPENDENT AND SEPARATE TRANSACTIONS SO MUCH SO TH AT THEY ARE NOT SAME SECURITIES ALSO - SOLD ARE DEBENTURES AND BOUG HT ARE EQUITY SHARES. WITHOUT PREJUDICE, IT IS SUBMITTED THAT THI S ADDITIONAL FACTOR MENTIONED IN THE APPELLANT'S CASE DOES NOT TILT THE BALANCE IN THE DEPARTMENT'S FAVOUR IN VIEW OF THE CLINCHING EVIDEN CE AND CONVINCING REASONS NOTED AND RECORDED IN THE APPELLATE ORDER D ATED 30 TH OCTOBER, 1998 IN THE CASE OF ORBIT FINMARK P. LTD. TO FURTH ER SUPPORT ITS POINT, THE ASSESSES HAS FILED COMPREHENSIVE SUBMISSIONS ON THE SIMILAR LINES AS IN THE APPEAL OF ORBIT FINMARK P. LTD FOR CONSID ERATION IN THESE PROCEEDINGS . 15. I HAVE CAREFULLY CONSIDERED THE REASONS GIV EN BY THE ASSESSING OFFICER AND SUBMISSIONS MADE ON BEHALF OF THE APPEL LANT. I HAVE ALSO GONE THROUGH THE DECISION OF MY PREDECESSOR IN THE CASE OF ORBIT FINMARK P. LTD., AS REFERRED ABOVE. AFTER GOING TH ROUGH THIS ORDER, I AM IN COMPLETE AGREEMENT WITH THE FINDING AS GIVEN BY MY PREDECESSOR. IT IS HIGHLIGHTED THAT SIMILAR ADDITION HAS BEEN DELET ED BY MY PREDECESSOR UNDER ALMOST IDENTICAL CIRCUMSTANCES INVOLVING THE SAME PARTIES AS BUYERS AND SAME DATE AND RATES OF SALES ETC. SINCE THE FACTS REMAINS THE SAME AND ISSUE IS ALSO SIMILAR, A SIMILAR FINDI NG HAS TO FOLLOW. AGREEING WITH MY PREDECESSOR, THE IMPUGNED ADDITION IS THEREFORE, DIRECTED TO BE DELETED. 16. IN ADDITION TO REASONING FOR DELETION AS GIVEN BY MY PREDECESSOR FROM PAGE-20 TO PAGE-22 OF THE REFERRED APPELLATE O RDER, I HAVE FOLLOWING FURTHER ARGUMENTS TO ADD FOR ORDERING THE DELETION OF THIS ADDITION. (I) THIS IS A MATTER ON RECORD THAT THE ASSESSING OFFICER HAS NOT TREATED THIS TRANSACTION OF SALE AND PURCHASE DEBENTURES AS SHAM. OBVIOUSLY HE COULD NOT HAVE DONE SO BECAUSE SALE AND PURCHASE HAD DEFINITELY TAKEN PLACE. IT IS ALSO NOT THE CASE OF THE ASSESS ING OFFICER THAT THERE IS SOME UNDER HAND DEALING BETWEEN THE SELLER AND BUYE R. HE HAS ADMITTED THAT THERE IS NO OTHER CONNECTION BETWEEN SELLER AND BUYER WHICH MEANS THAT IT SHOULD BE PRESUMED TO BE A TRAN SACTION AT ARMS LENGTH. ONCE HAVING ADMITTED THIS FACTUAL POSITION, THE ASSESSING OFFICER HAD NO RIGHT TO SUBSTITUTE A VALUE THAT HE REGARDED AS MARKET PRICE. IN THIS REGARD A USEFUL REFERENCE CAN BE MADE TO HON'B LE GUJARAT HIGH COURT DECISION IN THE CASE OF MARGHABHAL KISHABHAI PATEL & CO. (108 ITR I.T.A. NO.790/AHD/1999 A.Y. 1994-95 9 54). THIS DECISION VERY CLEARLY GOES IN FAVOUR OF T HE ASSESSEE. THE RELEVANT EXTRACT IS REPRODUCED AS UNDER- 'IN ABSENCE OF EVIDENCE TO SHOW EITHER THAT THE SAL ES WERE SHAM TRANSACTION OR THAT THE MARKET PRICE WAS IN FACT PA ID BY THE PURCHASERS, THE MERE FACT THAT GOODS WERE SOLD AT A CONCESSIONA L RATE TO BENEFIT THE PURCHASER AT THE EXPENSE OF THE COMPANY WOULD NOT E NTITLE INCOME-TAX DEPARTMENT TO ASSESS THE DIFFERENCE BETWEEN MARKET PRICE AND PRICE PAID BY THE PURCHASER AS PROFIT OF THE COMPANY. TAXING AUTHORITIES HAD NO RIGHT TO SUBSTITUTE THE MARKET PRICE IN PLACE OF PRICE OR VALUE AGREED TO BETWEEN THE PARTIES TO A TRANSACTION UNLESS THE TRANSACTION HAD BEEN SHOWN TO BE A SHAM TRANSAC TION OR THE VALUE SHOWN WAS NOT THE VALUE IN THE BOOKS OF ACCOUNTS. O N THE FOOTING THAT THE TRANSACTION WAS A BUSINESS TRANSACTION THE NEXT QUESTION WOULD BE WHETHER THE REVENUE COULD SUBSTITUTE ITS OWN VALUE OF THE TWENTY EIGHT SHOPS AND ASSESS PROFITS RESULTING FROM SUCH VALUAT ION. WHERE A PERSON DISPOSES OF HIS GOODS AT A LESSER VALUE THAN MARKET PRICE, OR AT CONCESSIONAL PRICE, THERE IS NOTHING IN THE INCOME TAX LAW WHICH COMPELS HIM TO SELL AT A PRICE WHICH IS THE PRICE R EALISABLE IN THE MARKET. IF THE TAXING AUTHORITIES WERE TO SUBSTITUTE THE MA RKET VALUE THEN THAT WOULD AMOUNT TO BRINGING IN SURPLUS WHICH WAS NOT T HERE BUT A NOTIONAL AND UNREAL SURPLUS. THAT IS NOT PERMISSIBLE AND WOU LD BE CONTRARY TO THE REALITIES. IT HAS NOT BEEN THE CASE OF THE REVENUE AUTHORITIES THAT THE TRANSACTION WAS NOT A BONA FIDE TRANSACTION OR THAT THE TRANSACTION WAS A SHAM ONE OR THAT THE PRICE PAID WAS OTHER THAN ON E SET OUT IN THE DEED OF DISTRIBUTION.' (II) IN SECTION 52(2) AS IT STOOD THEN THERE WAS A SPECIFIC PROVISION FOR ADOPTING THE MARKET VALUE AS SALE PRICE IN COMPUTAT ION OF CAPITAL GAINS WHEN THE ASSESSING OFFICER THOUGHT THAT THE OSTENSI BLE PRICE WAS LOWER BEYOND PERMISSIBLE LIMIT BUT EVEN THEN THE SUPREME COURT IN ITS DECISION IN K.P. VARGHESE VS. I.T,O (131 ITR 597) H ELD THAT THE DEPARTMENT WAS NOT ENTITLED TO SUBSTITUTE THE MARKE T PRICE UNTIL AND UNLESS IT IS SHOWN THAT EXTRA MONEY HAS REALLY PASS ED. ON THE BASIS OF SUPREME COURT DECISION SECTION 52(2) BECAME VIRTUAL LY A DEAD LETTER AND WAS ULTIMATELY OMITTED. SO INSPITE OF A SPECIFI C PROVISION IN THE ACT WHEN MARKET VALUE COULD NOT HAVE BEEN SUBSTITUTED F OR CAPITAL GAINS, THE SAME COULD NOT BE SUBSTITUTED FOR COMPUTATION O F BUSINESS INCOME FOR WHICH THERE IS NO A SPECIFIC PROVISION. ON THIS ACCOUNT THIS ADDITION HAS NO BASIS TO STAND. 17. A USEFUL REFERENCE CAN BE MADE TO SPECIFIC PROVISIONS IN SECTION 40A(2) OF THE L.T. ACT WHICH AUTHORISES THE ASSESSI NG OFFICER TO SCALE DOWN DEDUCTION OF THOSE EXPENSES FOR WHICH PAYMENTS ARE MADE TO THE CLOSELY RELATED PERSONS. BUT THERE IS NO QUESTION O R AUTHORITY FOR INCREASING THE SALE PRICE ON THE BASIS OF NOTIONS A ND VIEWS OF THE ASSESSING OFFICER WHEN SALES ARE TO CLOSELY RELATED PERSONS. IN THE PRESENT CASE THE SALES ARE TO UNRELATED PERSONS, IN WHOSE CASES THE ESTIMATED VALUE OF THE SALE PRICE CAN NOT BE SUBSTI TUTED. I.T.A. NO.790/AHD/1999 A.Y. 1994-95 10 18. AS PER PROVISIONS OF INCOME TAX ACT, WHAT IS TO BE TAXED IS REAL INCOME. W HERE HOWEVER, THE INCOME CAN BE SAID NOT TO HAVE RE SULTED AT ALL, THERE IS OBVIOUSLY NEITHER ACCRUAL NOR RECE IPT OF INCOME. A USEFUL REFERENCE CAN BE MADE IN THIS REGARD TO SUPREME COU RT DECISION IN THE CASE OF C.I.T., VS. SHOORJI VALLABHDAS & CO. (46 I.T.R.144). AGAIN, A REFERENCE CAN BE MADE TO SUPREME COURT DECISION IN THE CASE OF PUNE ELECTRICITY SUPPLY CO. LTD., VS. C.I.T. (57 I.T.R, 521). THE RELEVANT EXTRACT IS AS UNDER:- THE INCOME IS A TAX ON THE REAL INCOME I.E. IN THE CASE OF A BUSINESS, THE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUB JECT TO THE PROVISIONS OF THE INCOME TAX ACT.' 19. IT IS AN ELEMENTARY PRINCIPLE OF INCOME TAX LAW THAT A MAN IS TAXED ONLY ON THE PROFITS HE ACTUALLY RECEIVES AND NOT ON THE PROFITS HE MIGHT HAVE, BUT HAS NOT RECEIVED. THE COMPANY COULD HAVE BEEN ASSESSED ON THE PROFITS ACTUALLY MADE BUT SUCH A FI NDING COULD BE ARRIVED AT ONLY IF THERE WAS EVIDENCE TO SHOW THAT THE MARKET PRICE IN FACT WAS PAID BY THE PURCHASERS. IN ABSENCE OF EVI DENCE THAT SALE WAS SHAM OR THAT THE MARKET HIGHER PRICE WAS IN FACT PA ID BY PURCHASER, MERE FACT THAT THE GOODS WERE SOLD AT CONCESSIONAL RATE TO BENEFIT THE PURCHASER AT THE EXPENSES OF THE COMPANY WOULD NOT ENTITLE THE ASSESSING OFFICER TO ASSESS THE DIFFERENCE BETWEEN THE MARKET PRICE AND PRICE PAID BY THE PURCHASER AS PROFITS OF THE COMPA NY. 20. EVEN THE ALTERNATIVE PLEA OF THE ASSESSEE HAS FULL WEIGHT. THE ALTERNATIVE CLAIM IS THAT EVEN IF THE TRANSACTIONS ARE ENTERED INTO FEBRUARY, 1994, THE AVERAGE PRICE REALISED BY IT WA S NOT LESS THAN WHAT WOULD HAVE BEEN MARKET PRICE IN FEBRUARY, 1994, THI S CLAIM IS ACCEPTABLE IN VIEW OF: (I) THE FACT THAT THERE WAS HARDLY ANY TRADING IN T HE DEBENTURES AND SALE OF SUCH NUMBER OF DEBENTURES WOULD HAVE VERY S EVERELY SUPPRESSED THE MARKET NOT ONLY FOR THE DEBENTURES B UT FOR THE SHARES. (II) THERE CAN BE HARDLY ANY CORELATION OF THE TYPE ASSUMED BY THE ASSESSING OFFICER BETWEEN THE MARKET VALUE OF THE S HARES AND THE CONVERTIBLE DEBENTURES. (III) THE MARKET VALUE OF THE DEBENTURES PART B ON 31.3.1994 AS PER THE READY RECKONER WAS RS.720 PER DEBENTURE AND IT HAS BEEN ACCEPTED IN THE CASE OF THE APPELLANT WHILE ACCEPTING THE VALUE OF CLOSING STOCK. (IV)EVEN GOING BY THE METHOD ADOPTED BY THE ASSESSI NG OFFICER AND APPLYING THE MULTIPLIER OF DEBENTURE-SHARE MARKET V ALUES ON 31.3.1994 TO THE SHARE PRICE OF 14.2.1994 ONE COMES TO THE MA RKET VALUE OF RS.862/- PER DEBENTURE PART B ON 14.2.1994 WHICH IS ABSOLUTELY CLOSE TO THE AVERAGE PRICE OF RS.860 AS REALISED BY THE APPE LLANT. I.T.A. NO.790/AHD/1999 A.Y. 1994-95 11 21. IN VIEW OF THE FOREGOING, I HOLD THAT THE ADDITION AS MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIED EITHER ON THE FA CTS OR ON LEGAL GROUNDS. THIS ADDITION IS THEREFORE, DELETED AND THIS GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 6. BEFORE US LD. D.R. RELIED ON THE ORDER OF THE A. O. WHILE LD. A.R. SUBMITTED THAT LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE BY PLACING RELIANCE IN THE CASE OF ORBIT FINMARK PVT. LTD. APPEAL AGAINST WHICH HAS AL READY BEEN HEARD BY THE I.T.A.T. AND WHATEVER DECISION IS TAKEN BY THE TRIB UNAL MAY KINDLY BE FOLLOWED IN THIS CASE ALSO. IN THAT CASE WE HAVE UPHELD THE ORDER OF LD. CIT(A) VIDE OUR ORDER DATED 13.11.2012 IN I.T.A. NO.100/AHD/1999. FOLLOWING THE SAME, WE FEEL NO NEED TO INTERFERE WITH THE ORDER PASSED BY LD. CIT(A) IN THIS CASE AND THE SAME IS HEREBY UPHELD. THIS GROUND OF REVENUE I S DISMISSED. 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 23.11.2012 SD/- SD/- (ANIL CHATURVEDI) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER TRUE COPY N.K. CHAUDHARY, SR. P.S. COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD 6. THE GUARD FILE BY ORDER AR,ITAT,AHMEDABAD