Advance Fluid Control Pvt.Ltd., Baroda V. The ACIT.,Circle-1(1), Baroda

ITA 861/AHD/2008

• Counselvise Citation: 86120514 RSA 2008
• Duration Of Justice: 3 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 01-02-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 07-03-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VINOD GOSWAMI
• Assessee Lawyers: S N SOKARKAR
• Keywords: Business income; Speculation loss; Avoidance of tax; Accommodation entries; Assessment record
• Section: 133(6); 43(5); 12; 28; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE SHRI BHAVNESH SAINI, JM AND SHRI A. MOHAN A LANKAMONY, AM) ITA NO.861/AHD/2008 A. Y.: 2002-03 ADVANCE FLUID CONTROL PVT. LTD., 20, SOBHANAGAR, VASNA ROAD, BARODA, PA NO. AABCA 6596 P VS THE A. C. I. T., CIRCLE -1(1), BARODA (APPELLANT) (RESPONDENT) APPELLANT BY SHRI S. N. SOKARKAR, AR RESPONDENT BY SHRI VINOD GOSWAMI, SR. DR DATE OF HEARING: 01-02-2012 DATE OF PRONOUNCEMENT: 07-02-2012 O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-VI , BARODA DATED 04 TH DECEMBER, 2007 FOR AY 2002-03, ON THE FOLLOWING GRO UNDS: 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-VI , BARODA HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE ACTION OF THE LD. A. O. IN DISALLOWING THE CLAI M OF SHORT TERM CAPITAL LOSS OF RS.58,29,228/- INCURRED IN RELATION TO INVESTMENT AND SALE OF SHARES. THE DISALLOWANCE OF APPELLANTS CLAIM BEING ERRONEOUS I N LAW AND IN FACTS IS PRAYED TO BE ALLOWED. 2. THE LD. CIT(A)-VI HAS FURTHER ERRED IN LAW AND I N FACTS IN HOLDING THAT THE LOSS OF RS.58,29,228/- INCURRED IN RELATION TO THE SALE OF SHARES WAS TO B E TREATED AS SPECULATIVE LOSS IN TERMS OF EXPLANATION ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 2 TO SEC. 73 AND AS SUCH THE SAME COULD NOT HAVE BEEN SET OFF AGAINST THE CAPITAL GAINS OF RS.1,04,51,949/-. THE ACTION OF THE LD. CIT(A) IN HOLDING SUCH LOSS AS ARISING OUT OF SPECULATIVE BUSINESS IS GROSSLY ERRONEOUS IN LAW AND IN FACTS AND THUS THE CLAIM OF THE APPELLANT IN SET OFF DESERVES ALLOWANCE. 2. IN THIS CASE, RETURN OF INCOME WAS FILED AT RS.4 0,79,650/-. THE ASSESSEE COMPANY WAS PROMOTED IN THE YEAR 1992 WITH THE OBJECT OF CARRYING ON BUSINESS OF MANUFACTURE AND INTER ALIA FLOW METERS AND ALSO INVESTMENTS IN COMPANIES CARRYING OUT SIMILAR ACTIVITIES. IN ACCORDANCE WITH THE SAID OBJECTIVE, THE ASSESSEE CO MPANY HAD AN INVESTMENT OF RS.29,40,000/- IN THE ASSESSMENT YEAR 1993-94 IN THE EQUITY SHARES OF M/S. LIQUID CONTROLS INDIA PVT. LT D. AN INDIAN COMPANY JOINTLY PROMOTED WITH LIQUID CONTROLS CORPO RATION OF USA WHEREIN THE ASSESSEE COMPANY HAD STAKE OF 49%. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS IT HAS BEEN OBSERVED BY T HE AO THAT THE ASSESSEE HAS SHOWN LONG TERM CAPITAL GAIN OF RS.1,0 4,51,949/- AND SHORT TERM CAPITAL LOSS OF RS.58,29,228/-. ON FURTH ER EXAMINATION OF RECORDS IT WAS GATHERED BY THE AO THAT THE ASSESSEE INVESTED IN THE SHARES OF LIQUID CONTROLS PVT. LTD. IN 1994 AND IT SOLD SHARE OF LIQUID CONTROLS PVT. LTD. ON 01-01-2002 WHICH RESULTED IN GAIN OF RS.1,50,00,000/-. FURTHER SHORT TERM CAPITAL LOSS O F RS.58,29,228/- ARISING OUT OF PURCHASE AND SALE OF SHARES WAS SET OFF AGAINST THIS GAIN. DURING THE COURSE OF ASSESSMENT PROCEEDINGS T HE ASSESSEE WAS REQUIRED TO GIVE THE DETAILS OF SHORT TERM CAPI TAL LOSS. IT WAS NOTICED THAT THE ASSESSEE HAD CARRIED OUT THE SALE AND PURCHASE OF SHARES THROUGH TWO BROKERS I.E. THAKAKR SHARE BROKE RS PVT. LTD., ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 3 BARODA AND LABH INVESTMENT, MUMBAI. NOTICES U/S 133 (6) OF THE IT ACT DATED 16-2-2005 AND 21-02-2005 WERE ISSUED TO T HESE TWO BROKERS REQUESTING THEM TO FURNISH VARIOUS TRANSACT ION DETAILS. IN RESPONSE THERETO, INFORMATION RECEIVED FROM M/S. TH AKKAR SHARE BROKERS PVT. LTD. WAS EXAMINED BY THE AO AND THE FO LLOWING OBSERVATIONS BY THE AO MERIT ATTENTION: (I) THE CLAIM OF THE ASSESSEE THAT TRANSACTIONS HAV E BEEN DONE THROUGH RECOGNIZED SOCK EXCHANGE IS FACTUALLY INCORRECT. THE CONTRACT NOTE ISSUED BY STOCK BROKER DOES NOT BEAR THE TRANSACTION ID NO. AND TIME STAMP WHIC H IS MANDATORILY ALLOTTED TO EVERY TRANSACTION THAT IS C ARRIED OUT THROUGH OUT THROUGH ON LINE TRADING SYSTEM OF RECOG NIZED STOCK EXCHANGE. (II) FURTHER PERUSAL OF SAUDA BAHI REVEAL THAT THE OTHER PARTY TO THE CONTRACT IS NOT THE BROKER/ SUB-BROKER OF ST OCK EXCHANGE BUT EITHER TRADING ACCOUNT OF BROKER ITSEL F OR SOME INDIVIDUAL, MEANING THEREBY THAT THESE ARE CRO SS DEALS OR IN-HOUSE DEALS OF M/S. THAKKAR SHARE BROKE RS PVT. LTD. WHICH WERE NOT EVEN REPORTED TO THE STOCK EXCHANGE. (III) MOREOVER NO DELIVERY TO OR FROM THE ASSESSEE COMPANY IS EFFECTED BY WAY OF TRANSFER OF SHARES FROM DEMAT AC COUNT OF ASSESSEE COMPANY. SINCE MOST OF THE TRANSACTIONS ARE FROM TRADING ACCOUNT OF BROKER ITSELF NO SUCH MOVEM ENT WAS THERE AND SCRIPTS WERE LYING IN DE-MAT ACCOUNT OF M/S. TSB THROUGHOUT THE RELEVANT PERIOD. ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 4 (IV) THE DEBIT BALANCE OF ASSESSEES ACCOUNT IN THE BROKERS BOOKS OF ACCOUNT HAD BEEN CONTINUALLY INCREASING TI LL RS.1 CRORE BUT NO MARGIN MONEY/SECURITY WAS FURNISHED TO BROKER WHICH IS AGAINST THE SEBI REGULATIONS. ORDIN ARILY DELIVERY OF SHARES AND PAYMENT OF CONSIDERATION IS COMPLETE WITHIN WEEK OF COMPLETION OF SETTLEMENT PE RIOD. (V) IN SUCH CIRCUMSTANCES IT APPEARS THAT SAUDA OF SALE AND PURCHASE WERE PREPARED TO CREATE ARTIFICIAL LOSS BY TAKING ACCOMMODATION ENTRIES FROM THE BROKER. ON GOING THROUGH THE DETAILS FILED BY LABH INVESTME NT, IT WAS NOTICED BY THE AO THAT THE RELEVANT PORTION OF SAUDA BAHI A S WELL AS DEMAT ACCOUNT STATEMENT HAD NOT BEEN FURNISHED BY THE PAR TY. IT WAS STATED BY THE AO THAT FROM THE DETAILS FURNISHED, IT WAS N OT KNOWN AS TO WHETHER DEALS ARE IN-HOUSE OR REPORTED TO EXCHANGE. IT WAS ALSO FOUND QUITE UNUSUAL BY THE AO THAT AN ASSESSEE OF B ARODA WAS CARRYING OUT ITS SHARE TRANSACTION THROUGH A SUB-BR OKER AT MUMBAI. THE ASSESSEE BY WAY OF SHOW CAUSE LETTER WAS REQUIR ED TO EXPLAIN AS TO WHY LOSS OF RS.58,29,228/- AS CLAIMED BY IT SHOU LD NOT BE DISALLOWED AS THE ASSESSEE COMPANY HAD RESORTED TO COLOURABLE DEVICE TO AVOID TAX INCIDENCE. THE ASSESSEE IN RESP ONSE FILED AN ELABORAT4E REPLY EMPHASIZING THAT THE SHORT TERM CA PITAL LOSS WAS GENUINE BY CONTENDING THE FOLLOWING: (I) THE TRANSACTIONS WERE DONE THROUGH A MEMBER OF THE STOCK EXCHANGE AND ASSESSEE WAS NOT REQUIRED TO FOL LOW ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 5 THE PROCEDURES WHICH WERE APPLICABLE TO MEMBERS OF EXCHANGE. (II) THAT THESE TRANSACTIONS WERE NOT PROHIBITED BY THE STOCK EXCHANGE AUTHORITIES AND THAT ALL THE TRANSACTIONS FOR PURCHASE AND SALES WERE ROUTED THROUGH THE DEMAT ACCOUNT OF THE BROKER. THE RECEIPTS OF SHARES IN TH E DEMAT ACCOUNT OF THE BROKER WHO ACTED AS AN AGENT OF THE CUSTOMER IS SUFFICIENT EVIDENCE OF RECEIPT OF SHARE S ON BEHALF OF THE ASSESSEE AND THEREFORE THE TRANSFER T O THE ASSESSEES DEMAT ACCOUNT WAS IRRELEVANT. (III) IT WAS SUBMITTED THAT THE DEBIT BALANCE INCRE ASE WAS ON THE BASIS OF JUDGMENT TAKEN BY THE BROKER BASED ON REPUTATION AND CREDITWORTHINESS OF THE ASSESSEE. TH E BROKER IS SECURED BY THE FACT THAT ALL THE SHARES P URCHASED BY THE ASSESSEE WERE LYING IN HIS ACCOUNT AND TO TH AT EXTENT THE PAYMENT FROM THE ASSESSEE WAS ASSURED. (IV) THE ASSESSEE HAS PLACED RELIANCE IN THE CASE O F CWT VS ARVIND NOROTHAM 173 ITR 479 (SC), BANYAN AND BERRY VS CIT, 222 ITR 831 (GUJ) AND AZADI BACHAO ANDOLAN, 26 3 ITR 706 (SC). THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSE E AND OPINED THAT THE FACTS AND CIRCUMSTANCES OF THE CASE CLEARL Y SUGGEST THAT TRANSACTION OF SALE/PURCHASE OF SHARES BY THE ASSES SEE COMPANY WERE NOT CARRIED OUT IN ORDINARY COURSE OF BUSINESS AND THAT WHEN THE ASSESSEE COMPANY REALIZED THAT THERE WAS A HUGE CAP ITAL GAIN DURING THE YEAR THEN IT PURCHASED SUCH LOSSES FROM THE MAR KET. THE AO IN THE ASSESSMENT STRESSED ON THE FOLLOWING POINTS: ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 6 (I) THE SUB-BROKERS WERE HAVING CERTAIN SCRIPTS IN THEIR STOCK- IN-TRADE THROUGH OUT THE YEAR IN WHICH THERE WERE MOVEMENTS OF PRICE. THE SCRIPTS WERE CONTINUALLY LY ING IN THE DE-MAT ACCOUNT OF SHARE BROKERS AND NO MOVEMENT ON ACCOUNT OF PURCHASE OR SALE WAS THERE DURING THE YEAR. (II) SINCE THE TRANSACTIONS WERE NOT CARRIED OUT AT THE TIME APPEARING IN CONTRACT, NEITHER THE PAYMENTS WERE TI MELY MADE/RECEIVED NOR WAS THE DELIVERY OF SHARES WAS EFFECTED BY WAY OF TRANSFER ENTRY OF TO OR FRO FROM DE-MAT ACCOUNT. (III) THE ASSESSEE HAD CARRIED OUT SO MANY TRANSACT IONS, BUT STRANGELY, NONE OF THE TRANSACTIONS WAS CARRIED OUT THROUGH ON LINE TRADING SYSTEM OF RECOGNIZED STOCK EXCHANGE. (IV) IF THE ASSESSEE HAD DIRECTED THAT THE TRANSACT ION HAD TO BE CARRIED OUT THROUGH ON-LINE TRADING AND COMPANY WANTED THE DELIVERY OF SHARES THEN THE SUB-BROKER W OULD DEFINITELY HAD DONE SO. (V) IN VIES OF THE ABOVE FACTS, THE MODUS-OPERANDI OF ABOVE TRANSACTIONS OF THE ASSESSEE COMPANY SUGGEST THAT T HESE WERE NOT GENUINE TRANSACTIONS CARRIED OUT IN ORDINA RY COURSE OF BUSINESS. THE AO HAS ALSO EXAMINED THE LEGAL POSITION IN THIS REGARD. THE ASSESSEE HAD CONTENDED BEFORE THE AO THAT THESE TRA NSACTION COULD NOT BE TERMED AS COLOURABLE DEVICE AND CITED FEW DE CISION WHICH ACCORDING TO HIM HAVE OVERRULED THE RATIO LAID DOWN BY THE HONBLE ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 7 APEX COURT IN THE CASE OF MCDOWELL (154 ITR). THE A O ON THE OTHER HAND HAD POINTED OUT THAT THE TAXING STATUTE MUST B E APPLIED TO THE SCHEME AND NOT TO THE CONSTITUENT TRANSACTIONS COMP RISED IN THE SCHEME. IN OTHER WORDS, AN ARTIFICIAL TAX AVOIDANCE SCHEME DOES NOT ALTER THE INCIDENCE OF TAX. THE ESSENCE OF BUSINESS MUST BE THERE. THE AO REFERRED TO FOLLOWING EXTRACT FROM MCDOWELL CASE. IN THE CONTEXT OF DETERMINING WHETHER A TRANSACTIO N IS A SHAM OR ILLUSORY TRANSACTION OR A DEVICE OR A RUSE, THE INCOME TAX AUTHORITIES ARE ENTITLED TO PENETRATE TH E VEIL COVERING IT AND ASCERTAIN THE TRUTH. THE TAXING AUT HORITIES ARE NOT REQUIRED TO PUT BLINKERS WHILE LOOKING AT T HE DOCUMENTS PRODUCED BEFORE THEM. THEY ARE ENTITLED T O LOOK INTO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY OF THE RECITALS MADE IN THE DOCUMENTS. IN E VERY CASE, WHERE INGENUITY IS EXTENDED TO AVOID TAXING A ND WELFARE LEGISLATION, IT IS DUTY TO GET BEHIND THE S MOKE SCREEN AND DISCOVER THE TRUE STATE OF AFFAIRS. HERE , AS ANYONE CAN UNDERSTAND THE ESSENCE OF SCHEME WAS TO INCLUDE A TRANSACTION DESIGNED TO PRODUCE A LOSS TO BE OFFSET AGAINST A GAIN. WITHOUT THIS LOSS ASSESSEE W OULD HAVE TO PAY A HIGHER AMOUNT OF TAX. IN VIEW OF THE ABOVE FACTS AND LEGAL POSITION THE AO TREATED THE LOSS AS COLOURABLE DEVICE TO AVOID TAX INCIDENCE AND HEN CE SHORT TERM CAPITAL LOSS OF RS.58,29,228/- AS CLAIMED BY THE AS SESSEE WAS TREATED AS NON-GENUINE AND WAS DISALLOWED. 3. THE ORDER OF THE AO WAS CHALLENGED BEFORE THE LE ARNED CIT(A) AND IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE SOLD THE SHARES OF M/S. LIQUID CONTROLS INDIA PVT. LTD. FOR A CONSIDERATION OF RS. 205.85 LACS. ON RECEIPT OF SUCH CONSIDERATION AND WITH THE AVAILABI LITY OF FUNDS, THE ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 8 COMPANY STARTED MAKING INVESTMENTS IN THE SHARES OF OTHER COMPANIES AS ALSO INVESTMENT IN GOVERNMENT BONDS. S OME OF THE INVESTMENTS MADE WERE FOR LONG TERM WHILE THE OTHER S WERE FOR SHORT TERM. IN RELATION TO SHORT TERM INVESTMENTS THE ASS ESSEE COMPANY INCURRED LOSS OF RS.58,29,228/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE FURNISHED THE DETAILS OF THE SHARES PURCHASED AND SOLD DULY EVIDENCED BY THE COPY OF BI LLS, CONTRACT NOTES ISSUED BY THE BROKERS M/S. THAKKAR SHARE BROK ERS PVT. LTD. AND ALSO M/S. LABH INVESTMENTS OF MUMBAI, ENTRIES IN TH E BOOKS OF ACCOUNTS, THE PAYMENTS MADE FOR PURCHASE AND ALSO T HE DETAILS OF THE PERSONS FROM WHOM SUCH SHARES WERE PURCHASED. THE A O ALSO OBTAINED INFORMATION FROM THE BROKERS BY ISSUING NO TICE U/S 133(6) OF THE IT ACT CALLING FOR VARIOUS INFORMATION FROM WHOM SUCH SHARES WERE PURCHASED. THE AO ALSO OBTAINED INFORMATION F ROM THE BROKERS BY ISSUE OF NOTICES U/S 133(6) CALLING FOR VARIOUS INFORMATION. THE ASSESSEE FURTHER SUBMITTED THAT THE CONCLUSION OF T HE AO HAS BASED PURELY ON CONJECTURES, SURMISES AND ON MISCONCEIVED APPRAISAL OF THE FACTS AND THE REGULATIONS RELATING TO THE CONDUCT O F TRANSACTIONS / BUSINESS. THE AO HAS DISPUTED THE TRANSACTIONS AS T HE SALE AND PURCHASE OF THE SHARES AS THE SAME WERE NOT RECORDE D ON THE ON-LINE TRADING SYSTEM OF THE STOCK EXCHANGE AND DID NOT CO NTAIN TRANSACTION ID NUMBER AND TIME STAMP. THE ASSESSEE SUBMITTED THAT SUCH MANDATORY OF ID NUMBER AS WELL AS TIME STAMP I S NECESSARY ONLY WHERE THE TRANSACTION IS DONE ON-LINE AND NOT IN RESPECT OF TRANSACTIONS WHICH ARE DONE OFF-LINE OR OFF-MARKET, AS IS GENERALLY TERMED IN THE STOCK MARKET PARLANCE. THE MODUS OF O FF-MARKET TRADING IS THAT THE PURCHASES MADE BY VARIOUS CONSTITUENTS OF BROKER MEMBER ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 9 ARE EXECUTED IN THE ACCOUNT OF THE BROKER HIMSELF A ND CONSEQUENTLY THE RECEIPT OF DELIVERIES OF SHARES ON BEHALF OF TH E CONSTITUENT CLIENTS IN THE DEMAT ACCOUNT OF THE BROKER. OUT OF SUCH BAL ANCE AVAILABLE IN THE ACCOUNT OF THE BROKER IF A CONSTITUENT IS WILLI NG TO SELL TO ANOTHER CUSTOMER / CONSTITUENT, THE TRANSACTION IS EFFECTED WITHOUT EFFECTING ANY DELIVERIES TO THE NEW PURCHASER AS THE DELIVERY OF SUCH STOCKS ALREADY AVAILABLE IN THE ACCOUNT OF THE BROKER. THE BROKER, HOWEVER, MAKES NECESSARY ENTRIES IN HIS BOOKS TO RECORD THE AVAILABILITY OF BALANCE OF STOCK IN THE DEMAT ACCOUNT AS NOW BELONG ING TO THE NEW PURCHASER INSTEAD OF THE PREVIOUS PURCHASER. IN THE FINANCIAL RECORDS OF THE BROKER THE NECESSARY DEBITS AND CREDITS ARE MADE IN THE ACCOUNTS OF RESPECTIVE PURCHASER AS WELL AS SELLER TO RECONCILE WITH THE BALANCE AVAILABLE IN THE DEMAT ACCOUNT. THE BROKER IN HIS RECORDS MAINTAINS ALL SUCH PARTICULARS WHICH WERE FURNISHED TO THE AO. SIMILARLY, IT ALSO RECORDS THE PARTICULARS OF PERSONS TO WHOM THE SALE IS MADE. THE CORRESPONDING BILLS / CONTRACTS FOR PU RCHASE AS WELL AS SALES ARE ISSUED BY THE BROKER TO THE NAMED PERSONS AND THE EFFECT OF THE INCREASE OR DECREASE H THE HOLDING OF EQUITY SH ARES BY INDIVIDUALS IS RECONCILED WITH THE STOCK THE AVAILABLE IN THE D EMAT ACCOUNT OF THE BROKER. THE IDENTITY OF ALL THE PERSONS WHOSE NAME S ARE APPEARING IN THE SAUDA BAHI IS NOT IN DOUBT AND THE BROKER NORMA LLY DOES THESE TRANSACTIONS FOR THE BENEFIT OF THE CONSTITUENTS WH ERE THE INTENTION OF THE RESPECTIVE CONSTITUENTS / CLIENTS IS TO HOLD TH E SHARES FOR TEMPORARY PERIODS AS THE TRANSFER OF THE SHARES TO THE DEMAT ACCOUNT OF INDIVIDUAL CONSTITUENTS ATTRACTS THE CHARGES / C OST. THE ASSESSEE FURTHER ADDED THAT THE CONDUCT OF OFF-MARKET TRANSA CTION IS ABSOLUTELY LEGAL AND PERMITTED BY LAW AND THERE IS NO REGULATI ON REQUIRING THE ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 10 TRANSFER OF SHARES IN TO THE DEMAT ACCOUNT OF THE I NDIVIDUAL BUYER / SELLER AS PRESUMED BY THE AO. THE ASSESSEE IN SUPPO RT OF ITS CONTENTION DREW ATTENTION TO THE EXTRACTS OF THE RE GULATION OF TRANSACTION BETWEEN CLIENTS AND BROKERS AS RELEASED BY THE BOMBAY STOCK EXCHANGE AS WELL AS THE VADODARA STOCK EXCHAN GE IN ACCORDANCE WITH THE GUIDELINES OF SEBI IN RELATION TO THE PERMITTED TRANSACTIONS OUT OF CLIENT'S ACCOUNT BY THE BROKER. THE RELEVANT REGULATION OF BOMBAY STOCK EXCHANGE AND VADODARA ST OCK EXCHANGE WERE ALSO GIVEN. IT WAS THUS ARGUED THAT T HE RELEVANT STOCK EXCHANGES OPERATING UNDER THE GUIDELINES OF SEBI PE RMIT THE RETENTION OF THE STOCKS IN THE ACCOUNT OF THE BROKE R AND THAT THE BROKER HAS LIEN IN RESPECT OF SUCH STOCKS FOR THE RECOVERY OF HIS DUES IMPLYING THUS THAT THE BROKER CAN REFUSE TO TRANSFE R THE SHARES TO THE ACCOUNT OF CLIENT IF THE DUE AMOUNTS ARE NOT RECEIV ED. THE ASSESSEE FURTHER ARGUED THAT AS PER PROVISIONS OF SECTION 10 (38) OF THE IT ACT EXEMPTS THE INCOME ARISING FROM LONG TERM CAPITAL G AINS IN EQUITY SHARES WHERE SECURITIES TRANSACTION TAX IS PAID. UN DER SECURITIES TRANSACTIONS TAX ACT, THE CHARGES ON PURCHASE OR SA LE OF EQUITY SHARES ARE TO BE PAID WHERE THE TRANSACTION OF SUCH PURCHASE OR SALE IS ENTERED INTO A RECOGNIZED STOCK EXCHANGE AND THE CONTRACT FOR PURCHASE IS SETTLED BY ACTUAL DELIVERY OR OTHERWISE . THIS IS PROVIDED IN SEC. 98 OF CHAPTER XVI OF FINANCE (NO. 2) ACT, 2004 , IT IS THUS ARGUED THAT WHERE THE TRANSACTIONS ARE NOT ENTERED INTO A STOCK EXCHANGE AND NO SECURITIES TRANSACTION TAX IS PAID, LONG TER M CAPITAL GAINS TAX IS LEVIABLE OR IN OTHER WORDS, THE PROVISION RECOGNIZE S THE CONDUCT OF OFF- MARKET TRANSACTIONS. FURTHER RELIANCE WAS PLACED ON FOLLOWING DECISIONS; ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 11 1. MUKESH R. MAROLIA VS. ADDL. CIT - 6 SOT 247(MUMB AI- ITAT) 2. ITO VS. KUSUMLATA - 105 TTJ 265 (JODHPUR ITAT) IT WAS FURTHER PLEADED THAT ALL THE TRANSACTIONS AR E EVIDENCED AND CONFIRMED BY CONTRACTS, BILLS AND ALSO TRANSACTION SUMMARY SHOWING THE PARTICULARS OF THE SELLER OR BUYER OF THE STOCK IN RESPECT OF THE STOCK LYING IN THE DEMAT ACCOUNT OF THE BROKER AND THAT THE PAYMENTS / RECEIPTS FOR SUCH PURCHASES WERE MADE BY ACCOUNT PAYEE CHEQUES FROM TIME TO TIME AND HENCE SIMPLY BECAUSE THE TRAN SACTIONS WERE NOT ROUTED THROUGH THE STOCK EXCHANGE AND THAT DELI VERIES WERE NOT TAKEN IN THE ACCOUNT OF THE RESPECTIVE PARTIES SUCH TRANSACTIONS CANNOT BE CONSIDERED AS BOGUS. AS REGARDS THE DELIV ERY OF STOCKS IN THE ACCOUNT OF BROKER'S DEMAT ACCOUNT IS CONCERNED IT WAS STATED THAT THE SAME IS ALSO A RECOGNIZED METHOD OF OBTAINING A ND GIVING DELIVERIES AS THE RELATIONSHIP BETWEEN THE CLIENT A ND THE BROKER IS THAT OF A PRINCIPAL AND AGENT. THE ASSESSEE REFERRED AND RELIED ON THE DECISION OF THE CALCUTTA TRIBUNAL IN THE CASE SMT. JAYSHREE ROYCHOWDHURY VS ACIT, 93 TTJ 714. AS REGARDS THE OB JECTION OF THE AO THAT THE BROKER HAS ALLOWED DEBIT BALANCE OR CRE DIT TO THE ASSESSEE TO AN EXTENT OF RS.1.00 CRORE WITHOUT ANY MARGIN WHICH IS AGAINST SEBI REGULATIONS, ASSESSEE SUBMITTED THAT A LL ATTEMPTS WERE MADE TO FIND OUT THE REGULATIONS PROHIBITING SUCH ALLOWANCE OF CREDIT BY THE BROKERS TO THE CLIENTS BUT NO SUCH RESTRICTI ON COULD BE FOUND AND THEREFORE THE FINDING AND OBSERVATION OF THE AO IN THIS REGARD IS WITHOUT ANY BASIS. THE ASSESSEE SUBMITTED THAT SINC E THE ENTIRE STOCKS WERE LYING IN THE DEMAT ACCOUNT OF THE BROKE R, HE HAD ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 12 SUFFICIENT SECURITY AND THE DEBIT BALANCE OF RS.1.0 0 CRORE WAS ONLY FOR A SHORT PERIOD OF A WEEK WHERE AFTER THE ASSESSEE H AD MADE THE PAYMENTS. AS REGARDS THE TRANSACTIONS WITH M/S. LAB H INVESTMENTS IT WAS SUBMITTED THAT PROMOTERS OF THE COMPANY WERE NA TIVES OF MUMBAI AND HAVE ASSOCIATIONS WITH VARIOUS PEOPLE IN THE CITY AND, THEREFORE, THE CONDUCT OF TRANSACTIONS WITH BROKER IN MUMBAI WITH MODERN COMMUNICATION SYSTEM WAS NOT A HURDLE ON ACC OUNT OF GEOGRAPHICAL DISTANCE. THE ASSESSEE ALSO REFUTED T HE ALLEGATION OF THE AO THAT THE TRANSACTIONS ARE A COLOURABLE DEVIC E ENTERED WITH AN INTENTION TO REDUCE ITS TAX LIABILITY. IT IS STRESS ED THAT IF ONE CONSIDERS THE CONCESSIONAL TAX RATE IN RESPECT OF LONG TERM C APITAL GAINS, THEN ANY SET OFF OF LOSS IS ONLY DILUTING THE BENEFIT OF CONCESSIONAL TAX. CONSIDERING THE FACT THAT THE ASSESSEE HEREAFTER AL SO CONTINUED TO MAKE INVESTMENTS IN THE SHARES OF OTHER COMPANIES A S WELL AS BONDS GOES TO ESTABLISH THAT THE ACTIVITY OF INVESTMENT W AS A REGULAR ACTIVITY OF THE ASSESSEE COMPANY. THE SUBMISSION OF THE ASSE SSEE WAS REFERRED TO AO FOR HIS COMMENTS. VIDE REMAND REPORT DATED 8.10.2007 IT WAS ESSENTIALLY STATED THAT IF SOMEONE CHOOSES T O CARRY OUT OFF MARKET TRANSACTIONS, HE HAD SOMETHING TO HIDE AND T HAT IF THE TRANSACTIONS ARE NOT ROUTED THROUGH THE STOCK EXCHA NGE. ATTENTION WAS ALSO DRAWN TO SECTION 98 OF CHAPTER XVI OF FINA NCE ACT, 2004 WHICH DISCOURAGES THE OFF MARKET TRANSACTIONS. IN R ESPONSE TO THE REMAND REPORT IT WAS SUBMITTED BY THE ASSESSEE THAT THE BROKER HAD ENTERED NECESSARY ENTRIES IN HIS BOOKS OF ACCOUNTS TO RECORD THE AVAILABILITY OF STOCK AND THAT ALL THE NECESSARY DE BITS AND CREDITS IN THE ACCOUNT OF RESPECTIVE PURCHASES WERE MADE AND DETAI LS WERE FURNISHED TO THE AO. IT WAS EMPHASIZES THAT THE IDE NTITY OF ALL THE ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 13 PERSONS IN SAUDA BAHI WAS NOT DOUBTED AND THAT THE OFF MARKET TRANSACTIONS ARE ABSOLUTELY LEGAL AND THERE WAS NO REGULATION REQUIRING TRANSFER OF SHARES IN DE-MET ACCOUNT BY I NDIVIDUAL BUYERS / SELLERS. IT WAS ALSO ADDED THAT PAYMENTS FOR PURCHA SES AND SALES WERE RECEIVED BY ACCOUNT PAYEE CHEQUES FROM TIME TO TIME. IT WAS THUS PLEADED THAT THE LOSS OF RS.58,29,228/- BE ALL OWED. 4. THE LEARNED CIT(A) CONSIDERING THE EXPLANATION O F THE ASSESSEE IN THE LIGHT OF THE FINDINGS OF THE AO CON FIRMED THE ORDER OF THE AO AND DISMISSED THE APPEAL OF THE ASSESSEE ON THIS ISSUE. HIS FINDINGS IN PARA 5.5 TO PARA 5.5.7 OF THE APPELLATE ORDER ARE REPRODUCED AS UNDER: 5.5. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS, THE REMAND REPORT AND THE ASSESSMENT RECORDS. THE FACTUAL MATRIX OF THE CASE REVEAL THAT THE ASSESSEE COMPANY WAS INCORPORATED IN 1992-93 WITH FOLLOWING MAIN OBJECTS OF BUSINESS AS CONTAINED IN MEMORANDUM OF ASSOCIATION OF THE COMPANY. I) TO CARRY ON BUSINESS OF MANUFACTURERS, TRADERS, BUYERS, SELLERS, DEALERS, CONSIGNORS, CONSIGNEES, EXPORTERS , IMPORTERS, AGENTS AND DISTRIBUTORS, WHOLESALERS AND RETAILERS OF ALL TYPES OF FLOW METERS LIKE POSITIVE DISPLACEMENT TYPE, TURBINE, MAGNETIC, ULTRASONIC, M ASS, VORTEX, SHEDDING, VENTURY, ALL TYPES OF FLOW AND MEASUREMENT CONTROL DEVICES, ALL TYPES OF ROTAMETER S, TEMPERATURE VOLUME COMPENSATOR, NUMERICAL COUNTER, TICKET PRINTER, PRESENT COUNTER, AIR ELIMINATOR, ST RAINER, PRESENT VALVE, VAPOR ELIMINATOR, BACK CHECK VALVE, DIFFERENTIAL VALVE, DIFFERENTIAL VALVE, FITTINGS, F LANGES, MICRO SWITCHES, SWIVEL, NUMERICAL COUNTER, GEAR PLATE, RE GISTER STACK ADAPTER, EXTENSIONS, HOT OIL/STEAM JACKET, MECHANICAL FLOW RATE INDICATOR, EXTERNAL DRIVE MODU LE, ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 14 PULSER, PILOT OPERATED CONTROL VALVES, MICROPROCESS OR BASED SUPERVISORY CONTROL, REMOTE CONTROL COUNTER A ND SUPERVISORY CONTROL BOX ODOMETER PULSER, COMPUTER INTERFACE, MEMORY CARDS, BATCH COUNTER, FLOW COMPUT ER, ACTUATORS, CHOKES,, FILTRATION SYSTEMS, DATA ACQUIS ITION AND LOGGING SYSTEMS TOTALIZERS HYDRAULIC AND PNEUMA TIC CONTROLS FOR LIQUIDS, GASES, STEAM AIR AND FLOWING MATERIALS. II) TO CARRY ON THE BUSINESS AS MANUFACTURERS, TRADERS, EXPORTERS, IMPORTERS, DEALERS, MANUFACTUR ERS REPRESENTATIVES, AGENTS OF ALL TYPES OF MECHANICAL, ELECTRICAL AND ELECTRONIC DEVICES, COMPONEN TS, SPARES, EQUIPMENTS, APPARATUSES MACHINES, INSTRUMEN TS, ACCESSORIES LAND PARTS THEREOF FOR MEASUREMENT AND CONTROL OF LIQUIDS, GASES, STEAM ANY OTHER FLOWING MATERIAL. 5.5.1. IT IS ALSO NOTICED THAT THE APPELLANT COMPAN Y PROMOTED AND INVESTED IN M/S. LIQUID CONTROL INDIA LTD. ENGAGED IN THE BUSINESS OF MANUFACTURING OF LIQUID FLOW CONTROL EQUIPMENTS AND INVESTED RS.40 LAKHS AS CAPITAL IN F.Y. 1994-95. INVESTMENTS WERE ALSO MADE FOR FAC TORY SHED WHICH WAS RENTED OUT TO M/S, LIQUID CONTROL IN DIA LIMITED. DURING 1.4.1997 TO 31.3.2001, THE APPELLAN T HAD RENTAL INCOME, INTEREST INCOME AND DIVIDEND INCOME. 5.5.2. IT IS CLAIMED BEFORE ASSESSING OFFICER AND IN APPELLATE PROCEEDINGS THAT THE COMPANY IS ENGAGED IN THE INVESTMENT AND FINANCING BUSINESS. HOWEVER THE CONTENTIONS OF THE APPELLANT DO NOT APP EAR TO BE CORRECT AS EXCEPT FOR SAID INVESTMENT IN M/S. LI QUID CONTROL INDIA LTD. THERE WAS NO OTHER INVESTING OR FINANCING ACTIVITIES UNDERTAKEN. THE ASSESSING OFFI CER IN THE ASSESSMENT ORDER HAS MENTIONED THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF TRADING OF SHARES. HOWEV ER, IT IS SEEN THAT TILL 31.3.2001 NOT A SINGLE SHARE WAS PURCHASED OR SOLD BY THE APPELLANT COMPANY. THE TRA DING ACTIVITY WAS ONLY INITIATED DURING THE CURRENT FINA NCIAL YEAR. IT IS ALSO INTRIGUING TO NOTE THAT OUT OF NUMEROUS SHARE PURCHASE AND SALE TRANSACTIONS SHOWN DURING THE YEA R NOT ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 15 A SINGLE TRANSACTION HAS BEEN RESULTED IN PROFIT TO THE APPELLANT. IN CASE THE APPELLANT HAD COMMERCIAL INT EREST BEHIND TRADING IN SHARES THE PRUDENCE WOULD DEMAND THAT THERE WOULD AT LEAST BE SOME TRANSACTIONS RESULTING IN PROFIT. THE SHARE TRANSACTIONS WERE RESTRICTED TO T WO BROKERS NAMELY THAKKAR SHARE BROKERS PVT. LTD., BAR ODA AND LABH INVESTMENTS, MUMBAI. THE DETAILS OF SCRIP- WISE SUMMARY REVEALED FOLLOWING INTEREST TRENDS. I) THE TRADING IN SHARES COMMENCED FROM JULY, 2001. ALL THE TRANSACTIONS BETWEEN THE APPELLANT AND THAKKAR SHARE BROKERS PVT. LTD. HAVE BEEN BETWEEN APPELLANT AND THE STOCK BROKER MEANING THEREBY THESE WERE OFF MAR KET TRANSACTIONS INVOLVING THE BROKERS OWN STOCK IN TRA DE OF THE SHARES. II) THE TRANSACTIONS BETWEEN APPELLANT AND THAKKAR SHARE BROKERS WERE IN RESPECT OF FOLLOWING SCRIPTS. 1. SOFT SOLUTION 2. SILVER LINES 3. SHYAM TELI 4. PSI DATA 5. HIMACHAL FUTURISTIC 6. GLOBAL TELE ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 16 III) OUT OF TOTAL PURCHASE OF RS.3.194 CRORES, RS.2 .69 CRORES RELATE TO THE AFORESAID SHARES. UNIFORMLY, A LL THE PURCHASE AND SALE TRANSACTIONS LED TO LOSS. THE PUR CHASE AND .SALE OF SHARES SHOW A TYPICAL PATTERN EG. NAME OF SHARE NO. OF SHARES PURCHASED PURCHASE DATE NO. OF SHARES SOLD SALE DATE SOFT SOLUTION 7939 @ 130.93 13.9.01 5027 @ 100.24 17.9.01 SOFT SOLUTION 3711 @102.52 25.9.01 3521 @91.74 26.9.01 3102 @90,73 8.10.01 THE SAME PATTERN IS IN RESPECT OF OTHER SCRIPTS BET WEEN THE APPELLANT AND THAKKAR SHARE BROKERS PVT. LTD. I S ALSO SEEN. THERE WAS REGULARITY AND CONTINUITY IN PURC HASE OF SUCH SHARES BUT THE TIME AND TYPE OF SCRIP APPEARS TO BE SO DECIDED THAT IT WOULD RESULT ONLY IN LOSS TO THE APPELLANT. IV) IT IS INTERESTING TO NOTE THAT IN RESPECT OF SH ARES OF PSI DATA THE APPELLANT PURCHASED 9979 SHARES ON 12.12.2001 @ 152.88 AND SOLD THE SAME ON 28.12.2001 AND 31.12.2001 AT RATES OF RS113.19 AND RS.125.30 RESPECTIVELY. FURTHER ON 20.2.2002 THE APPELLANT SO LD 4055 SHARES OF PSI DATA @ 110.80 WITHOUT HAVING ANY STOCK IN HAND OF SUCH SHARES. IN OTHER WORDS THE AP PELLANT ENGAGED IN SHORT SELLING TILL 8.3.2002 WHEN EQUIVAL ENT NUMBERS OF SHARES OF PSI DATA WERE SHOWN TO HAVE BE EN PURCHASED FROM THE BROKER. V) THE APPELLANT HAD INVESTED IN M/S. LIQUID CONTRO L INDIA PVT. LTD. WHOSE SHARES ARE ALSO UNLISTED. SINCE LIQ UID CONTROL INDIA PVT. LTD. WAS PROMOTED BY APPELLANT ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 17 COMPANY ITS BUSINESS SCENARIO AND PROFITABILITY ARE VERY MUCH IN THE KNOWLEDGE OF THE APPELLANT. THE APPELLA NT WAS AWARE OF THE PROPOSED FOREIGN BUYOUT OF THE STR AFES OF LIQUID CONTROL INDIA PVT. LTD. THE APPELLANT ALS O AWARE OF THE VALUATION OF SUCH SHARES OF LIQUID CONTROL INDIA PVT. LTD. AND THE POSSIBLE GAIN ACCRUING TO IT IN CASE T HE APPELLANT'S EQUITY IS TRANSFERRED TO THE FOREIGN BU YER. IN OTHER WORDS APPELLANT HAD FULL KNOWLEDGE ABOUT ITS TAX LIABILITY AND UNDER SUCH A SCENARIO IT SEEMS LIKELY THAT IT OPTED FOR TWO BROKERS WITH WHOM FROM JULY, 2001 TO MARCH, 2002 IT ENTERED INTO OFF MARKET PURCHASE AND SALE TRANSACTIONS. THE PURPOSE OF ENTERING INTO OFF MARK ET TRANSACTIONS ALSO APPEAR TO BE WELL THOUGHT OUT AS THE MANIPULATIONS IN TERMS OF PURCHASE AND SALE DATE AN D TIME IN SUCH TRANSACTIONS COULD BE WITH EXPRESS KNOWLEDGE AND AWARENESS OF THE BROKERS INVOLVED AND COULD BE RATHER EASIER. IT IS NOT INCIDENTAL THAT T HE PURCHASE AND SALE OF SHARES WERE RESORTED TO ONLY D URING THE RELEVANT ASSESSMENT YEAR. THE ENTIRE SCHEME WAS WELL PLANNED AND THOUGHT OUT TO OFFSET THE POSSIBLE GAIN FROM SALE OF EQUITY OF LIQUID CONTROL INDIA PVT. LT D. TO FOREIGN BUYER. THERE WAS NOT A SINGLE TRADE IN SHAR ES DURING THE PERIOD 1995-96 TO 2000-01. THERE WAS NO OPENING STOCK FOR SHARES. FURTHER THE ENTIRE PURCHA SE AND SALE TRANSACTIONS DURING THE YEAR WERE SQUARED UP W ITH TWO BROKERS IN THE INSTANT ASSESSMENT YEAR. IF THE APPELLANT WAS INDEED SERIOUS IN THE BUSINESS OF TRA DING IN SHARES THE INTENTION WOULD HAVE BEEN TO MAKE PROFIT AND HOLD ON TO CERTAIN SHARES OR AT LEAST TO CARRY OUT TRANSACTIONS IN A MANNER TO GENERATE SOME PROFIT IN AT LEAST SOME SCRIPTS. THE COINCIDENCE AND CONTINUOUS ERROR OF JUDGMENT IN SUCH SHARE TRANSACTIONS APPEAR TO BE TOO FAR FETCHED TO BE TRUE. ON THE OTHER HAND, FACTORS SUCH AS HUGE AMOUNT OF INTENDING CAPITAL GAINS, ENTERING IN TO OFF MARKET TRANSACTIONS WITH TWO BROKERS, ALL TRANSACTI ONS RESULTING INTO LOSS, LONG CREDIT PERIOD ALLOWED BY BROKERS, ETC. ARE POINTERS TOWARDS NON GENUINENESS OF THESE TRANSACTIONS. THESE TRANSACTIONS WERE PURPOSELY ENT ERED INTO IN ORDER TO SECURE LOSS. THUS THE ASSESSING OF FICER WAS COMPLETELY JUSTIFIED IN HOLDING THAT THESE TRAN SACTIONS ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 18 WERE NOTHING BUT COLOURABLE DEVICE TO AVOID PAYMENT OF TAX. 5.5.3. HON'BLE APEX COURT IN THE CASE OF MCDOWELL SUPPORTED THE ASSESSING OFFICER'S VIEW TO GO BEYOND WHAT IS WRITTEN ON PAPER IN ORDER TO FIND THE REAL ARRAN GEMENT. THE OBSERVATION OF JUSTICE RANGANATHAN IN MCDOWELL CASE IS STILL GOOD LAW AS APEX COURT IN AJADI BACHA VO ANDOLAN DID NOT OVERRULE THESE OBSERVATIONS. ONLY J USTICE CHINNAPA REDDY'S REMARKS WERE OVERRULED. 5.5.4. IN THE CASE OF CIT VS. ABISHEK INDUSTRIES - 2B6 ITR 1(P&H) IT IS HELD THAT; '17. WE THINK THAT THE TIME HAS COME FOR US TO DEP ART FROM THE WESTMINSTER PRINCIPLE AS EMPHATICALLY AS T HE BRITISH COURTS HAVE DONE AND TO DISSOCIATE OURSELVE S FROM THE OBSERVATIONS OF SHAH, J. AND SIMILAR OBSERVATIO NS MADE ELSEWHERE. THE EVIL CONSEQUENCES OF TAX AVOIDA NCE ARE MANIFOLD. FIRST THERE IS SUBSTANTIAL LOSS OF MU CH NEEDED PUBLIC REVENUE, PARTICULARLY IN A WELFARE ST ATE LIKE OURS. NEXT THERE IS THE SERIOUS DISTURBANCE CAUSED TO THE ECONOMY OF THE COUNTRY BY THE PILING UP OF MOUNTAIN S OF BLACK MONEY, DIRECTLY CAUSING INFLATION. THEN THERE IS 'THE LARGE HIDDEN LOSS' TO THE COMMUNITY (AS POINTED OUT BY MASTER WHEATCROFT IN 18 MODERN LAW REVIEW 209) BY SOME OF THE BEST BRAINS IN THE COUNTRY BEING INVOLV ED IN THE PERPETUAL WAR WAGED BETWEEN THE TAX-AVOIDER AND HIS EXPERT TEAM OF ADVISERS, LAWYERS AND ACCOUNTANTS ON ONE SIDE AND THE TAX-GATHERER AND HIS PERHAPS NOT SO SK ILLFUL ADVISERS ON THE OTHER SIDE. THEN AGAIN THERE IS THE 'SENSE OF INJUSTICE AND INEQUALITY WHICH TAX AVOIDANCE ARO USES IN THE BREASTS OF THOSE WHO ARE UNWILLING OR UNABLE TO PROFIT BY IT. LAST BUT NOT THE LEAST IS THE ETHICS (TO BE PRECISE, THE LACK OF IT) OF TRANSFERRING THE BURDEN OF TAX LIABI LITY TO THE SHOULDERS OF THE GUILELESS, GOOD CITIZENS FROM THOS E OF THE 'ARTFUL DODGERS'. IT MAY, INDEED, BE DIFFICULT FOR LESSER MORTALS TO ATTAIN THE STATE OF MIND OF MR. JUSTICE HOLMES, WHO SAID, 'TAXES ARE WHAT WE PAY FOR CIVILIZED SOCI ETY. I LIKE TO PAY TAXES. WITH THEM I BUY CIVILIZATION.' B UT, SURELY, ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 19 IT IS HIGH TIME FOR THE JUDICIARY IN INDIA TOO TO P ART ITS WAYS FROM THE PRINCIPLE OF WESTMINSTER AND THE ALLURING LOGIC OF TAX AVOIDANCE. WE NOW LIVE IN A WELFARE STATE WHOSE FINANCIAL NEEDS, IF BACKED BY THE LAW, HAVE TO BE RESPECTED AND MET. WE MUST RECOGNISE THAT THERE IS BEHIND TAXATION LAWS AS MUCH MORAL SANCTION AS BEHI ND ANY OTHER WELFARE LEGISLATION AND IT IS A PRETENCE TO SAY THAT AVOIDANCE OF TAXATION IS NOT UNETHICAL AND THA T IT STANDS ON NO LESS A MORAL PLANE THAN HONEST PAYMENT OF TAXATION. IN OUR VIEW, THE PROPER WAY TO CONSTRUE A TAXING STATUTE, CONSIDERING A DEVICE TO AVOID TAX, IS NOT TO ASK WHETHER THE PROVISIONS SHOULD BE CONSTRUED LITERALL Y OR LIBERALLY, NOR WHETHER THE TRANSACTION IS NOT UNREA L AND NOT PROHIBITED BY THE STATUTE, BUT WHETHER THE TRANSACT ION IS A DEVICE TO AVOID TAX, AND WHETHER THE TRANSACTION IS SUCH THAT THE JUDICIAL PROCESS MAY ACCORD ITS APPROVAL T O IT. A HINT OF THIS APPROACH IS TO BE FOUND IN THE JUDGMEN T OF DESAI, J. IN WOOD POLYMER LTD., IN RE AND BENGAL HO TELS P. LIMITED, IN RE [1977] 47 COMP CAS 597 (GUJ) WHER E THE LEARNED JUDGE REFUSED TO ACCORD SANCTION TO THE AMALGAMATION OF COMPANIES AS IT WOULD LEAD TO AVOID ANCE OF TAX. 18. IT IS NEITHER FAIR NOR DESIRABLE TO EXPECT THE LEGISLATURE TO INTERVENE AND TAKE CARE OF EVERY DEV ICE AND SCHEME TO AVOID TAXATION. IT IS UP TO THE COURT TO TAKE STOCK TO DETERMINE THE NATURE OF THE NEW AND SOPHISTICATED LEGAL DEVICES TO AVOID TAX AND CONSID ER WHETHER THE SITUATION CREATED BY THE DEVICES COULD BE RELATED TO THE EXISTING LEGISLATION WITH THE AID OF 'EMERGING' TECHNIQUES OF INTERPRETATION AS WAS DONE IN RAMSAY [1982] AC 300 (HL), BURMA OIL [1982] STC 30 (HL) AN D DAWSON [1984] 1 ALL ER 530 (HL), TO EXPOSE THE DEVI CES FOR WHAT THEY REALLY ARE AND TO REFUSE TO GIVE JUDI CIAL BENEDICTION.' 5.5.5. IT WOULD ALSO BE PERTINENT TO NOTE THAT TH E APPELLANT ENGAGED INTO SALE OF SHARES OF PSI DATA W ITHOUT HAVING A STOCK OF SUCH SHARES. FURTHER IN ALL THE TRANSACTIONS WITH SHARE BROKERS NO DELIVERY WAS TAK EN OR ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 20 EVEN INTENDED. THERE ARE NUMEROUS INSTANCES WHERE T HE APPELLANT HAD ENTERED INTO PURCHASE AND SALE OF SOM E SCRIPTS ON THE SAME DAY. AL THESE FACTORS REVEAL TH AT THERE WAS NEVER ANY INTENTION TO TAKE ACTUAL DELIVERY OF SUCH SHARES AND IN TERMS OF SECTION 43(5) THESE ARE NOTH ING BUT SPECULATIVE TRANSACTIONS. IT HAS BEEN ADMITTED THAT THERE HAS NOT BEEN A SINGLE INSTANCE OF ACTUAL DELIVERY O F SHARES TO THE APPELLANT FROM THE BROKER. EXPLANATION TO SE CTION 73 READS AS UNDER; ''EXPLANATION.-WHERE ANY PART OF THE BUSINESS OF A COMPANY OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABL E UNDER THE HEADS 'INTEREST ON SECURITIES', 'INCOME F ROM HOUSE PROPERTY', 'CAPITAL GAINS' AND 'INCOME FROM O THER SOURCES', OR A COMPANY THE PRINCIPAL BUSINESS OF WH ICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AN D ADVANCES) CONSISTS IN THE PURCHASE AND SALE OF SHAR ES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURP OSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUS INESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES,' 5.5.6 IN THE INSTANT CASE THE APPELLANT HAS INDULG ED IN TRADING OF SHARES AND UNDISPUTEDLY THE APPELLANT IS NOT IN THE BUSINESS OF BANKING OR GRANTING OF LOANS AND ADVANCES, THEREFORE, EVEN IN TERMS OF EXPLANATION T O SECTION 73 THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES WOULD BE DEEMED TO BE A SPECULATIVE BUSINESS AND THEREFORE SUCH LOSS CANNOT BE ALLOWED TO BE SET OFF AGAINST THE CAPITAL GAINS. SUPPORT IS ALSO DRAWN FROM THE FOLLOWING JUDGMENTS. A) ITO VS. SINCERE MANAGEMENT SERVICES P. LTD. 9 SOT 21 (DEL) B) SCIT VS. FRONTLINE CAPITAL SERVICES LTD. 96 TT J 201 (DELHI) C) JCIT VS. HALDIA INVESTMENT CO. LTD. 85 ITD 212 (CAL) ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 21 D) KHAJANA HOLDING PVT. LTD. VS. ACIT 17 SOT 367 (MUM) 5.5.7. IN LIGHT OF THE FOREGOING THE ASSESSING O FFICER WAS JUSTIFIED IN REJECTING THE CLAIM OF LOSS OF RS.58,2 9,228/- AND IN NOT ALLOWING THE SET OFF OF SUCH LOSSES AGA INST THE CAPITAL GAIN OF RS.1,04,51,949/-. 5. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT APART FROM CONFIRMING THE ORDER OF THE AO ON MERIT, THE LEARNED CIT(A) ALSO REFERRED TO TERMS OF SECTION 43(5) OF THE IT ACT AND EXPLANATION TO SECTION 73 OF THE IT ACT FOR THE PUR POSE OF REJECTING THE CLAIM OF THE ASSESSEE CONSIDERING IT TO BE SPECULAT IVE TRANSACTION. HE HAS SUBMITTED THAT CAPITAL GAINS/LOSS ARISING FROM THE SALE OF SHARES HELD AS INVESTMENT CANNOT BE HIT BY EXPLANATION TO SECTION 73 OF THE IT ACT AND REFERRED TO EXPLANATION THEREIN TO SECTI ON 28 OF THE IT ACT WHICH PROVIDES THAT WHETHER SPECULATIVE BUSINESS C ARRIED ON BY THE ASSESSEE ARE OF A NATURE AS TO CONSTITUTE A BUSINES S, THE BUSINESS (HEREINAFTER REFERRED TO AS SPECULATIVE BUSINESS), SHALL BE DEEMED TO BE DISTINCT AND SEPARATE FROM ANY OTHER BUSINESS. HE HAS THEREFORE, SUBMITTED THAT THE TERMS OF SPECULATIVE LOSS COULD BE CONSIDERED FOR COMPUTING BUSINESS INCOME ONLY AND THE SAME PRINCIP LE IS NOT APPLICABLE FOR CAPITAL LOSS/CAPITAL GAIN. IN SUPPOR T OF HIS CONTENTION, HE HAS RELIED UPON THE ORDER OF ITAT AHMEDABAD BENCH I N THE CASE OF KRISHNALAXMI MULTI TRADE (P) LTD. VS ACIT, 130 ITD 584 IN WHICH IT WAS HELD THAT LOSSES IN SPECULATION BUSINESS CAPITAL GAINS ARISING FROM SALE OF SHARES HELD AS INVESTMENT CANN OT BE HIT BY EXPLANATION TO SECTION 73 OF THE ACT. HE HAS ALSO RELIED UPON THE ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 22 DECISION OF ITAT IN THE CASE OF SMT. JAYASHREE ROYC HOWDHURY VS ACIT, 92 ITD 400 IN WHICH IT W AS HELD THAT WHETHER WHERE SHARES WERE SOLD BY THE ASSESSEE AND SHARES DEPOSITED IN B ROKERS D- MAT ACCOUNT, IT COULD BE SAID THAT TRANSACTIONS OF SALE AND PURCHASE OF SHARES WERE NOT SETTLED OTHERWISE THAN BY ACTUAL DELIVERY OR TRANSFER OF SHARES AND, THUS, PROVISION S OF SECTION 43(5) WERE NOT APPLICABLE. HELD YES. HE HAS ALSO RELIED UPON THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS ADITYA MILLS LTD., 209 ITR 933 WHEREIN IT WAS HELD THAT THE WORD ACTUAL DELIVERY WAS NOT RESTRICTED TO DELIVERY TO THE ASS ESSEE, IT COULD BE TO HIS AGENT ALSO. HE HAS ALSO RELIED UPON THE DECISION OF THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CI T VS LAXMINARAYANA TRADING CO., 219 ITR 90 IN WHICH IT W AS HELD THAT CONTRACT FOR PURCHASE OF GOODS GOODS DISPATCHED BY ASSESSEE AND RAILWAY RECEIPT ISSUED IN NAME OF ASSE SSEE. SALE OF GOODS BY ASSESSEE WHILE GOODS IN TRANSIT NOT A SPECULATIVE TRANSACTION. LOSS INCURRED IN TRANSACTION WAS A BUS INESS LOSS. HE HAS ALSO RELIED UPON THE ORDER OF ITAT KOLKATA B ENCH IN THE CASE OF ACCHYALAL SHAW VS ITO, 30 SOT 44 IN WHICH IT WAS HELD AS UNDER: IN ALL OFF-MARKET TRANSACTIONS ANY ENQUIRY FROM TH E STOCK EXCHANGE WOULD NOT YIELD RESULT IN FAVOUR OF THE REVENUE. THE REVENUE HAS TO SEE WHETHER THE SALE HA S BEEN EFFECTED OR NOT AS PER THE DOCUMENTS AND AS PE R THE ACCEPTANCE AND ADMISSION OF THE RESPECTIVE STOC K BROKERS. AS IT HAD BEEN ASSERTIVELY ARGUED BY THE ASSESSEE IN THE INSTANT CASE THAT BOTH THE STOCK BROKERS HAD NOT DENIED THE TRANSACTIONS AND THE CAPITAL GAIN HAD BEEN SHOWN, THE ASSESSING OFFICER SIMPLY BY CASTING DOUBT ON ALLEGED PURCHASE OF ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 23 HOUSE PROPERTY COULD NOT TREAT THE SAME AS CASH CREDIT AND COULD NOT TAKE THE SAME IN HIS CASH CRED IT. SUSPICION CANNOT REPLACE THE REAL EVIDENTIAL DOCUMENT. SIMPLY BY ARGUING IT TO BE A CASE OF MANIPULATION THE REVENUE WAS NOT SUPPOSED TO SUCCEED IN ITS CONTENTION WITHOUT PROPER EVIDENCE. HOLDING THE AFORESAID VIEW OF THE MATTER ON THE FACTUAL MATRIX THE ASSESSEES SECOND APPEAL WAS TO BE ALLOWED. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRING TO T HE ABOVE DECISIONS ALSO REFERRED TO THE DECISION OF THE ITAT MUMBAI BENCH REFERRED TO IN THIS ORDER IN THE CASE OF MUKESH R. MAROLIA VS ADDL CIT, 6 SOT 247 IN WHICH IT WAS HELD THAT OFF-MARKET TRANSACTIONS ARE NOT ILLEGAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT BOTH THE BROKERS CONFIRMED THE TRANSACTIONS TO THE AO ON INQUIRIES HELD BY THE AO DIRECTLY FROM THEM. THE BROKERS CONFIRMED TH E TRANSACTIONS WITH THE ASSESSEE; THEREFORE, OFF-MARKET TRANSACTIO NS ARE NOT INVALID OR ILLEGAL AND THAT DELIVERY TO THE AGENT OR BY THE AGENT IS DELIVERY WITH THE ASSESSEE. NO INQUIRY WAS MADE FROM THE BROKER O R CONCERN PARTIES. TRANSACTIONS CONDUCTED BY THE BROKERS HAVE NOT BEEN DISPUTED. SINCE, THE BROKERS WERE HOLDING THE SHARE S IN THEIR DEMAT ACCOUNTS SO PAYMENT WAS NOT RELEVANT AS IT WAS SECU RED BY HOLDING THE SHARES BY THEM. LATER ON, PAYMENTS WERE ALSO CL EARED TO THE BROKERS. THE LEARNED COUNSEL FOR THE ASSESSEE HOWEV ER, SUBMITTED THAT IN CASE OF BROKER M/S. LABH INVESTMENT, MUMBAI NO DEMAT ACCOUNT OR SAUDA BAHI WAS FILED BEFORE THE AO. NO C ONTRA ACCOUNT WAS FURNISHED. THEREFORE, IN HIS ALTERNATE CONTENTI ON IT WAS SUBMITTED THAT IN CASE OF M/S. LABH INVESTMENT, THE MATTER MA Y BE REMANDED TO THE AO FOR RECONSIDERATION OF THE ISSUE AFRESH. ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 24 6. ON THE OTHER HAND, THE LEARNED DR REPLIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT NO ACTUAL PAYMENTS HAVE BEEN MADE AND ONLY LUMP SUM PAYMENTS HAVE BEEN MADE . NO CONTEMPORIOUS EVIDENCES WERE FILED TO PROVE THE CAS E OF THE ASSESSEE. THE ASSESSEE WAS NOT DEALING IN SHARES IN THE PAST; THEREFORE, THE AUTHORITIES BELOW RIGHTLY DISALLOWED THE CLAIM OF THE ASSESSEE. THE LEARNED DR SUBMITTED THAT IN THE CASE OF LABH INVESTMENT THE DETAILS CALLED FOR BY THE AO WERE NO T FURNISHED AND EVEN NO SAUDA BAHI AS WELL AS DEMAT ACCOUNT WAS FUR NISHED. THEREFORE, ADDITION SHOULD BE CONFIRMED IN THAT CAS E. THE LEARNED DR RELIED UPON THE ORDER OF ITAT MUMBAI BENCH IN THE C ASE OF ITO VS DEEPCHAN G. SHAH, 128 ITD 488 IN WHICH THE MATTER W AS REMANDED TO THE FILE OF THE AO BECAUSE NECESSARY DETAILS COU LD NOT BE TRACED REGARDING CORRESPONDING PURCHASES OF SHARES FROM TH E DEMAT ACCOUNT MAINTAINED BY THE BROKER. THE LEARNED DR, T HEREFORE, IN HIS ALTERNATE CONTENTION SUBMITTED THAT THE ENTIRE MATT ER MAY BE REMANDED TO THE AO FOR VERIFICATION AS IS DIRECTED IN THE CASE OF DEEPCHAN G. SHAH (SUPRA). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIAL ON RECORD. WE TAKE THE TRANSACTIONS CARRIED OUT BY THE BROKER M/S. THAKKAR SHARE BROKERS. IN THIS CASE, ADMITTEDLY DET AILED STATEMENT OF DEMAT ACCOUNT AND SAUDA BAHI WAS FILED BY THE BRO KER DIRECTLY BEFORE THE AO. COPY OF THE BILL, COPY OF THE CONTRA CT NOTE OF THE BROKER AND ENTRIES IN THE BOOKS OF ACCOUNTS OF THE BROKER WERE ALSO FURNISHED BEFORE THE AO. PB-1 IS THE CONFIRMATION LETTER OF M /S. THAKKAR SHARE BROKER PVT. LTD. DIRECTLY SUBMITTED BEFORE THE AO I N RESPONSE TO QUERY ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 25 RAISED BY THE AO IN WHICH THE BROKER CONFIRMED THE ENTIRE TRANSACTIONS CONDUCTED ON BEHALF OF THE ASSESSEE. I N THE SAME CONFIRMATION, THE BROKER FURNISHED COPY OF THE LEDG ER ACCOUNT; COPY OF BILLS (CONTRACT NOTE) AND COPY OF DEMAT ACCOUNT STA TEMENT AND SCRIPT- WISE SUMMARY FOR THE SAID SERIES. FURTHER, DETAILS WERE ATTACHED WITH THE SAME CONFIRMATION. THESE EVIDENCES ON RECORD WOULD PROVE THAT THE BROKER CONDUCTED THE TRANSACTIONS OF SALE AND PURCH ASES OF SHARES ON BEHALF OF THE ASSESSEE. THE TRANSACTIONS CONDUCT ED BY THE BROKER ON BEHALF OF THE ASSESSEE WOULD BE DEEMED TO BE CON DUCTED AS CONDUCTED BY THE AGENT FOR THE PRINCIPAL. SINCE THE BROKER CONFIRMED THE TRANSACTIONS CONDUCTED ON BEHALF OF THE ASSESSE E AND PRODUCED ALL RELEVANT EVIDENCES AND MATERIAL ON RECORD, THER EFORE, THERE SHOULD NOT HAVE BEEN ANY DOUBT IN THE TRANSACTIONS CONDUCT ED ON BEHALF OF THE ASSESSEE. IT IS HELD IN CATENA OF AUTHORITIES T HAT OFF-MARKET TRANSACTIONS ARE NOT ILLEGAL. THE IDENTITIES OF ALL THE PERSONS WHOSE NAMES ARE APPEARING IN THE SAUDA BAHI ARE ALSO NOT IN DISPUTE. THE ENTIRE STOCKS WERE LYING IN THE DEMAT ACCOUNT OF TH E BROKER WHO HAD SUFFICIENT SECURITIES AND ACCORDING TO THE ASSESSEE THE PAYMENTS HAVE BEEN CLEARED LATER ON. THE TRANSACTIONS HAVE NOT BEEN DOUBTED AND NO FURTHER INQUIRIES HAVE BEEN MADE FROM M/S. T HAKKAR SHARE BROKERS PVT. LTD. OR THE CONCERNED PARTY WITH WHOM THE BROKER HAS CONDUCTED THE TRANSACTIONS. THEREFORE, THERE WAS NO BASIS LEFT FOR THE AO TO DISBELIEVE THE TRANSACTIONS CONDUCTED ON BEHA LF OF THE ASSESSEE. THE DECISION OF THE CALCUTTA BENCH IN THE CASE OF ACCHYALAL SHAW (SUPRA) IS DIRECTLY APPLICABLE TO TH E CASE OF THE ASSESSEE IN WHICH SEVERAL OTHER DECISIONS OF MUMBAI BENCH IN THE CASE OF MUKESH R. MORALIA (SUPRA) AND ACIT VS CLARI DGES ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 26 INVESTMENTS & FINANCES AND BOARD CIRCULARS HAVE BEE N CONSIDERED. WE MAY ALSO NOTE THAT THE LEARNED CIT(A) REJECTED T HE CLAIM OF THE ASSESSEE BY HOLDING IT TO BE SPECULATIVE TRANSACTIO NS WHICH IS MEANT FOR BUSINESS PURPOSES ONLY AND WOULD NOT BE RELEVAN T IN RESPECT OF THE TRANSACTIONS INVOLVING CAPITAL GAINS OR LOSSES. THE DECISIONS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE WOULD SUPPO RT THE FINDINGS ABOVE. THE LEARNED CIT(A) ALSO REFERRED TO THE DECI SION IN THE CASE OF ABHISHEK INDUSTRIES (SUPRA) DELIVERED BY THE HONBL E PUNJAB & HARYANA HIGH COURT WHICH IS CONNECTED WITH DISALLOW ANCE OF INTEREST AND HAS BEEN LATER ON OVERRULED BY THE HONBLE SUPR EME COURT IN THE CASE OF MUNJAL SALES CORPORATION 298 ITR 298 AS IS ARGUED BY THE LEARNED COUNSEL FOR THE ASSESSEE. THEREFORE, THE FI NDINGS OF THE LEARNED CIT(A) IN DENYING THE CLAIM OF THE ASSESSEE ON FURTHER REASONS WOULD NOT BE VALID AND JUSTIFIED. CONSIDERI NG THE ABOVE DISCUSSIONS, WE ARE OF THE VIEW THAT SUFFICIENT EVI DENCES AND MATERIAL ARE AVAILABLE ON RECORD TO PROVE THAT THE ASSESSEE GENUINELY ENTERED INTO SHARE TRANSACTIONS THROUGH M/S. THAKKAR SHARE BROKERS PVT. LTD. AND, THEREFORE, THE AUTHORITIES BELOW HAVE ACTED UP ON GROSSLY ON INADEQUATE MATERIALS AND THEIR CONCLUSIONS ARE MERE LY BASED ON SUSPICION, CONJECTURE AND SURMISES. THE TRANSACTION S CONDUCTED BY M/S. THAKKAR SHARE BROKERS PVT. LTD. ARE GENUINE TR ANSACTIONS AND SET OFF OF LOSSES INCURRED IN DEALING IN SHARES TO THAT EXTENT SHOULD HAVE BEEN ALLOWED BY THE AUTHORITIES BELOW. WE ACCO RDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AS REGARD S TRANSACTIONS CONDUCTED BE M/S. THAKKAR SHARE BROKERS PVT. LTD. O N BEHALF OF THE ASSESSEE AND DIRECT THE AO TO ALLOW THE CLAIM OF TH E ASSESSEE FOR SET ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 27 OFF OF SHORT TERM CAPITAL LOSSES AGAINST THE GAINS. THE APPEAL OF THE ASSESSEE TO THAT EXTENT IS ALLOWED. 7.2 HOWEVER, AS REGARDS THE TRANSACTIONS CONDUCTED THROUGH M/S. LABH INVESTMENTS, MUMBAI, THE BROKER, IT IS ADMITTE D FACT THAT THE ASSESSEE HAS NOT FURNISHED ANY DEMAT ACCOUNT STATEM ENT AND EVEN NO SAUDA BAHI ACCOUNT HAS BEEN FURNISHED BEFORE THE AO FOR HIS CONSIDERATION. IN THE ABSENCE OF BASIC DOCUMENTS ON RECORD IT IS DIFFICULT TO EXAMINE AND INVESTIGATE THE TRANSACTIO NS CARRIED OUT THROUGH THIS BROKER. THE LEARNED COUNSEL FOR THE AS SESSEE REFERRED TO PB- 30, 31 AND 32 WHICH IS LEDGER ACCOUNT IN THE BO OKS OF M/S. LABH INVESTMENTS AND ALLEGED DETAILS OF TH E ASSESSEE ARE STATED TO BE MENTIONED. HOWEVER, IT IS A FACT THAT NO CONF IRMATION FROM THE BROKER, NO DEMAT ACCOUNT AND NO COPY OF SAUDA BAHI ACCOUNT, BILLS OR CONTRACT NOTE HAVE BEEN FURNISHED IN THIS CASE AS W ERE FURNISHED IN THE CASE OF OTHER BROKER, M/S. THAKKAR SHARE BROKER S PVT. LTD. THEREFORE, IN THE ABSENCE OF RELEVANT AND COGENT EV IDENCE ON RECORD THE CLAIM OF THE ASSESSEE HAD BEEN RIGHTLY REJECTED BY THE AUTHORITIES BELOW. COPY OF THE LEDGER ACCOUNT FILED BY M/S. LAB H INVESTMENT WOULD NOT REVEAL THE TRUE NATURE OF THE TRANSACTION S CONDUCTED THROUGH THEM. THE ALTERNATIVE CONTENTION OF THE LEA RNED COUNSEL FOR THE ASSESSEE FOR REMANDING THE MATTER TO THE FILE O F THE AO ALSO CANNOT BE ACCEPTED. IT IS AN OLD CASE PERTAINING TO ASSESSMENT YEAR 2002-03. WHAT THE ASSESSEE COULD NOT DO DURING LAST SEVERAL YEARS, IT CANNOT BE EXPECTED TO DO NOW IN THE REMAND PROCE EDINGS BEFORE THE AO. EVEN, THERE WAS NO BASIS WHATSOEVER PROVIDED FOR REMANDING THE MATTER TO THE FILE OF THE AO BECAUSE EVEN BEFORE THE ITA NO.861/AHD/2008 ADVANCE FLUID CONTROL PVT. LTD. VS ACIT, CIR-1 (1), BARODA 28 TRIBUNAL THE BASIC DOCUMENTS MENTIONED ABOVE HAVE N OT BEEN FURNISHED. THEREFORE, WE DO NOT FIND IT PROPER EVEN TO REMAND THE MATTER TO THE FILE OF THE AO. CONSIDERING THE FACTS AND CIRCUMSTANCES NOTED ABOVE AND IN THE ABSENCE OF ANY RELIABLE AND COGENT EVIDENCE ON RECORD, WE ARE NOT INCLINED TO INTERFERE WITH TH E ORDERS OF THE AUTHORITIES BELOW IN RESPECT OF TRANSACTIONS CONDUC TED BY M/S. LABH INVESTMENTS OF MUMBAI. TO THAT EXTENT THE ORDERS OF THE AUTHORITIES BELOW ARE MAINTAINED AND PART OF THIS GROUND OF APP EAL OF THE ASSESSEE IS DISMISSED. 8. NO OTHER POINT IS ARGUED OR PRESSED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED ON BOTH THE ABOVE GROUNDS AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT 07/02/2012. (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/- -- - COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD