ACIT, Sirsa V. Sh. Avtar Singh, Sirsa

ITA 948/CHANDI/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64057 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 27-09-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: D K GOYAL
• Keywords: Sale consideration of property below Jantri Value; Income from undisclosed sources; Share purchase agreement; Source of fund; Onus to prove; Sham transactions; Reassessment proceedings
• Section: 27; 90; 143(3); 50C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE MS.SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 948/CHD/2011 ASSESSMENT YEAR: 2008-09 ACIT, V SHRI AVTAR SINGH, SIRSA. S/O SHRI GURDIAL SINGH, 13/526, NEAR GOVT.SCHOOL, KHAIRPUR, SIRSA. PAN: ASZPS-7135B & ITA NO. 949/CHD/2011 ASSESSMENT YEAR: 2008-09 ACIT, V SMT.HARJIT KAUR, SIRSA. M/S PUNJAB PALACE & GUEST HOUSE, HISSAR ROAD, SIRSA. PAN: AKBPK-3415G & ITA NO. 950/CHD/2011 ASSESSMENT YEAR: 2008-09 ACIT, V SMT.SURINDER KAUR, SIRSA. W/O SHRI MUKHTIAR SINGH, 622, STREET NO.2, GOBIND NAGAR, HISSAR ROAD, SIRSA. PAN: AOQPK-8694G & ITA NO. 951/CHD/2011 ASSESSMENT YEAR: 2008-09 ACIT, V SMT.GURDEEP KAUR, SIRSA. W/O SHRI KAKA SINGH, 622, STREET NO. 7, GOBIND NAGAR, HISSAR ROAD, SIRSA. PAN: AUXPK-7283J (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.K.SAINI RESPONDENT BY : SHRI D.K.GOYAL DATE OF HEARING : 08.11.2012 DATE OF PRONOUNCEMENT : 29.11.2012 2 ORDER PER MEHAR SINGH, AM THESE ABOVE CAPTIONED FOUR APPEALS FILED BY THE REVENUE, WERE CONSIDERED AND ADJUDICATED BY THE CIT(APPEALS), BY WAY OF A COMMON ORDER DATED 28.07. 2011, PASSED U/S 250(6) OF THE ACT (HEREINAFTER REFERRED TO IN SHORT AS THE ACT). THE ISSUE INVOLVED IN THESE F OUR APPEALS IS IDENTICAL ONE AND PERTAINS TO THE CLAIM OF SHORT TERM CAPITAL LOSS, MADE BY THE ASSESSEE APPELLANTS, IN R ESPECT OF SHARE TRANSACTIONS, ENTERED INTO WITH A HISSAR BASED UNLISTED COMPANY, NAMELY M/S ARCEE ISPAT UDYOG LTD. 2. AS THE GROUNDS OF APPEAL, IN THESE FOUR APPEALS ARE IDENTICAL, EXCEPT A VARIATION OF QUANTUM OF SHORT T ERM CAPITAL LOSS CLAIMED BY EACH ASSESSEE APPELLANT, TH E GROUNDS OF APPEAL RAISED IN ITA NO. 948/CHD/2011 IN THE CASE OF SHRI AVTAR SINGH S/O SHRI GURDIAL SINGH, AR E REPRODUCED HEREUNDER AS AN ILLUSTRATIVE CASE : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING THE ASSESSEE' S CLAIM OF SHORT TERM CAPITAL LOSS ON SALE OF SHARES WITHOUT APPRECIATING THE FAC TS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING SHORT TERM CAPITAL LOSS ON SALE OF SHARES WITHOUT APPRECIATING THE FACT THAT THE TRANS ACTIONS OF PURCHASE AND SALE OF SHARES WAS NOTHING BUT A COLOURABLE DEV ICE TO REDUCE THE INCIDENCE OF TAX & THE CASE OF THE ASSESSEE IS FULL Y COVERED BY THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F MCDOWELL & CO. LTD. VS CTO 154 ITR 148 (SC) 3. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AND DISPOSED OFF. 3 3. IN THE COURSE OF PRESENT APPELLATE PROCEEDI NGS, LD. 'DR' MADE A COMBINED SUBMISSION, IN RESPECT OF ALL THESE APPEALS AND STATED THAT THE TRANSACTIONS OF PURCHAS E AND SALES OF SHARES ARE MERELY MAKE-BELIEVE VERSION, WI TH A VIEW TO PROCURING ARTIFICIAL AND NON-GENUINE SHORT TERM CAPITAL LOSS, FOR THE SOLE PREMEDITATED PURPOSE OF REDUCING THE TAX, ON CAPITAL GAINS, AROSE OUT OF SALE OF LAND BY THE ASSESSEE APPELLANTS. LD. 'DR' VEHEMENTLY CONTENDED THAT THE TRANSACTIONS OF PURCHASE AND SALES OF SHARES, NEEDS TO BE EXAMINED, IN THE LIGHT OF DATE AND RATE OF PURCHASE AND SALE OF SUCH SHARES. THE SHARES WERE ALLOTTED BY THE CO MPANY TO SUCH PERSONS WHO ARE BASICALLY FARMERS. THE TRANSA CTIONS WERE NOT ROUTED THROUGH STOCK EXCHANGE OR RECOGNIZE D SHARE BROKER. HE, ALSO POINTED OUT, TO THE FACTUM T HAT THE ASSESSEE APPELLANTS OFFERED TO SURRENDER, BEFOR E THE AO, SHORT TERM CAPITAL LOSS, IN RESPECT OF CLAIM MADE I N THEIR RESPECTIVE RETURN OF INCOME, WITH A VIEW TO BUY PEA CE OF MIND AND SUBJECT TO NO-PENAL ACTION AGAINST THEM . IN VIEW OF THIS, LD. 'DR' VEHEMENTLY CONTENDED THAT IT IS A CASE OF SELF-ADMISSION OF SHAM TRANSACTIONS ENTERED INTO BY THE ASSESSEE, WITHOUT THERE BEING ANY COMM ERCIAL CONTENTS THEREIN. LD. 'DR' PLACED RELIANCE ON THE TWO DIRECT DECISIONS OF THE JURISDICTIONAL HIGH COURT, IN THE CASE OF BALBIR CHAND MAINI V CIT AND ANOT HER 340 ITR 161 (P&H) AND SOMNATH MAINI V CIT 306 ITR 414 (P&H). IN THE ULTIMATE ANALYSIS, LD. 'DR' CONTENDE D THAT CIT (APPEALS) HAS COMPLETELY DISREGARDED THE ENTI RETY OF THE SURROUNDING FACTS AND CIRCUMSTANCES OF THE 4 CASE AND ALLOWED THE APPEALS OF THE APPELLANTS, WIT HOUT BRINGING COGENT AND CORROBORATIVE EVIDENCE ON RECOR D, TO SUPPORT THE GENUINENESS OF SUCH TRANSACTIONS. LD. 'DR' PLACED RELIANCE ON THE ORDER PASSED BY THE AO AND F INDINGS CONTAINED THEREIN AND PRAYED FOR RESTORATION OF THE FINDINGS OF THE AO. 4. LD. 'AR' , ON THE OTHER HAND, CONTENDED THAT AO FAILED TO MAKE REQUISITE ENQUIRIES AS HIGHLIGHTED BY THE CIT(APPEALS), IN HIS FINDINGS AND CONSEQUENTLY, FIN DINGS OF THE CIT(APPEALS) BE UPHELD. LD. 'AR', FURTHER, CON TENDED THAT THE ORDER PASSED BY THE CIT(APPEALS) DOESNT S UFFER FROM ANY INFIRMITY, HENCE, THE SAME DESERVES TO BE UPHELD. 5. WE HAVE CAREFULLY PERUSED AND CONSIDERED THE RIV AL SUBMISSIONS, FACTS OF THE CASE AND THE RELEVANT AVA ILABLE RECORDS, PAPER BOOK AND RELEVANT ORDERS PASSED BY L OWER AUTHORITIES, INCLUDING THE JUDICIAL PRECEDENTS, REL IED UPON BY THE PARTIES. THE NEAT AND UNDISPUTED FACTS OF T HE CASE ARE THAT THE ASSESSEE APPELLANTS SOLD LAND WHICH RE SULTED IN SHORT CAPITAL GAINS. SUBSEQUENTLY, THE ASSESSEE AP PELLANTS PURCHASED SHARES ON 8.11.2007, @ RS.100/-, PER SHA RE, FROM M/S ARCEE ISPAT UDYOG LTD., HISSAR, A COMPANY WHICH IS NOT LISTED, IN ANY STOCK EXCHANGE, IN INDI A. THE SAID COMPANY ALLOTTED SHARES TO THE APPELLANT. THE APPELLANTS, WITHIN A SHORT SPAN OF TIME, CHOSE TO D ISLODGE THE SHARES TO M/S TCG STOCK BROKING LTD., NEW DELHI AND CONSEQUENTLY SOLD THE SAME, ON 31.3.2008, @ RS.10/-, PER SHARE. THE SHARES WERE ALLOTTED BY THE UNLISTED CO MPANY M/S ARCEE ISPAT UDYOG LTD., ON 8.11.2007, @ RS.100 /-, PER 5 SHARE AND THE SAME WERE SOLD (TRANSFERRED) BY THE APPELLANTS, ON 31.3.2008, TO SHARE BROKER M/S TCG S TOCK BROKING LTD., RS.10/- PER SHARE. IT IS VERY INTERESTING AND ABNORMAL FEATURE OF SUCH SHARE TRANSACTIONS THAT M/ S TCT STOCK BROKING LTD. SOLD (TRANSFERRED) THESE SHA RES, ON 12.8.2008, @ RS.100/- PER SHARE, TO MRS. KRISHNA GUPTA, WIFE OF SHRI R.C.GUPTA, MD AND ALSO ONE OF T HE DIRECTORS IN HER OWN CAPACITY M/S ARCEE ISPAT UDYOG LTD. SUCH IS THE CIRCULAR ROUTE OF SHARE TRANSACTIONS, RESORTED TO BY ALL THE ASSESSEE APPELLANTS. HOWEVE R, THE BRIEF FACTS, IN TABULAR FORM, OF THE CASE OF THE AP PELLANTS AS RECORDED BY CIT(APPEALS), IN PARA 2 OF THE IMPUGNED APPELLATE ORDER, DEMONSTRATING SUCH TRANSACTIONS, A RE REPRODUCED HEREUNDER : SR. NO. PARTICULARS SMT. HARJIT KAUR SMT. SURINDER KAUR SMT. GURDEEP KAUR SHRI AVTAR SINGH I) RETURNS OF INCOME (A)DATE OF FILING 30.05.2008 31.07.2008 31.07.2008 30.05.2008 (B) INCOME DECLARED 2,39,91,210/- (PAGES 1 TO 3 OF THE PAPER BOOK) 2,27,98,710/- (PAGES 16 TO 18 OF THE PAPER BOOK) 41,00,420/-(PAGES 31 TO 32 OF THE PAPER BOOK) 59,21,770/- (PAGES 44 TO 45 OF THE PAPER BOOK) II) SOURCES OF INCOME OTHER THAN CAPITAL GAIN RUNNING GUEST HOUSE AND INTEREST INCOME SALARY, HOUSE PROPERTY AND INTEREST INCOME INTEREST INCOME INTEREST INCOME III) SHORT TERM CAPITAL GAIN I) GAIN ON LAND 3,82,78,693/- 3,82,78,693/- 1,36,84,500/- 1,36,84,500/- II) LOSS ON SHARES A) M/S ARCEE ISPAT UDYOG LTD. 22,50,000/- 18,00,000/- 45,00,000/- 22,50,000/- B) GEEFCEE FINA/ OTHER SHARES 1,25,71,248/- 1,40,22,562/- 51,58,864/- 54,89,821/- III) SUB-TOTAL 1,48,21,248/- 1,58,22,562/- 96,58,864/- 77,39,821/- IV) SHORT TERM CAPITAL GAIN 2,34,57,445/- 2,24,56,131/- 40,25,636/- 59,44,679/- 6 5(I) THE AO DISALLOWED SUCH SHORT TERM CAPITAL LO SS AS CLAIMED BY THE APPELLANTS, BY WAY OF RECORDING DETA ILED FINDINGS, IN THE RESPECTIVE ASSESSMENT ORDER, EACH DATED 22.12.2010, PASSED U/S 143(3) OF THE ACT. IT WOULD BE PERTINENT AND APPROPRIATE, TO REPRODUCE THE FINDING S OF CIT(APPEALS), WITH A VIEW TO APPRECIATING THE SAME AND ANALYZING THE GROUNDS AND MATERIAL, WHICH INSPIRED THE CIT(APPEALS), TO REVERSE THE FINDINGS OF THE AO. T HE RELEVANT FINDINGS OF THE CIT(APPEALS) ARE REPRODUCE D HEREUNDER: 5. I HAVE CAREFULLY CONSIDERED THE ISSUE AND THE SUBMISSIONS MADE BY THE AR. THE AO MADE INDEPENDENT THIRD PARTY ENQUIRI ES FROM M/S ARCEE ISPAT UDYOG LTD. REGARDING THE PURCHASE & SALE OF S HARES RESULTING IN SHORT TERM CAPITAL LOSS, THE SUBJECT MATTER OF ADJU DICATION. M/S ARCEE ISPAT UDYOG LTD. FURNISHED THE DETAILS OF ALLOTMENT ADVISE, LEDGER FOLIOS ETC. TO THE AO. THE AO HAS NOT DISPUTED THAT THE CO MPANY ALLOTTED SHARES TO THE APPELLANT AND FURTHER THE SAID SHARES HAVE BEEN SOLD TO M/S TCG STOCK BROKING LTD., AS EVIDENT FROM THE SHO W CAUSE NOTICE ISSUED BY THE AO DATED 1.12 .2010 (FURTHER, THE AP PELLANT FURNISHED THE PURCHASE & SALE BILLS, DETAILS OF PURCHASE & SALE C ONSIDERATIONS THROUGH BANK ETC. ONCE THERE IS AN INDEPENDENT CONFIRMATION , DISALLOWING THE CLAIM OF LOSS BY REJECTING THE DOCUMENTARY EVIDENCE FURNISHED BY THE APPELLANTS IS NOT JUSTIFIED. BEFORE EMBARKING UPON THE ACTION OF DISALLOWING THE CLAIM, THE AO SHOULD HAVE CONDUCTED NECESSARY ENQUIRIES AND COME TO APPROPRIATE CONCLUSION AS PER THE EVIDENCE COLLECTED AFTER GIVING DUE OPPORTUNITY TO THE APPEL LANT. THE AO FAILED TO DISCHARGE THE BURDEN ON HIM TO ESTABLISH THAT THE A PPELLANT DID NOT PURCHASE OR SELL THE SHARES. IF THE AO WAS OF THE O PINION THAT REQUISITE EVIDENCE NEEDS TO BE COLLECTED, IT IS HIS DUTY TO S UMMON THE RELEVANT PARTIES AND EXAMINE THEM AS HELD IN A NUMBER OF CAS E LAWS INCLUDING THAT CITED BY THE AR.. THE AO HOWEVER HAS NOT UNDER TAKEN THE ABOVE COURSE OF ACTION. THE AO CONCLUDED THAT THE ENTIRE SET OF TRANSACTIONS ARE SHAM AND BOGUS BASED ON THE DETAILS FURNISHED BY THE APP ELLANT AND M/S ARCEE ISPAT UDYOG LTD. AND THE OFFER LETTER OF THE APPELL ANT WITHDRAWING THE LOSS CLAIMED SUBJECT TO NO PENAL ACTION, WITHOUT CONDUCT ING NECESSARY ENQUIRIES. 5.1 THE FACT THAT THE APPELLANT ADMITTEDLY ACTED IM PRUDENTLY BY EITHER PURCHASING SHARES AT HIGHER THAN THE BOOK VA LUE OR SELLING AT 10% OF THE PURCHASE CAN NOT BE VALID GROUND TO DENY THE LOSS INCURRED ON PURCHASE 85 SALE OF SHARES. THERE IS NO PROVISION I N THE ACT FOR SUBSTITUTION OF ACTUAL SALE CONSIDERATION EXCEPT U/ S 50C, WHICH IS NOT APPLICABLE TO THE FACTS OF THE CASE. MERE FACT THAT THE RATES ARE NOT ACCEPTABLE TO THE AO AS THEY ARE EITHER LOW OR HIGH CAN NOT BE GROUND TO REJECT THE CLAIM OF THE APPELLANT AS HELD BY HON'BL E APEX COURT TO THE 7 CASE OF CIT VS KARAM CHAND THAPAR 85 BROS. (P) LTD. (SUPRA). WHILE DISMISSING THE APPEAL OF REVENUE, THEIR LORDSHIPS H ELD AS UNDER:- IT IS NECESSARY TO SET OUT A FEW FACTS FOR A N APPRECIATION OF THE CONTROVERSY IN THIS APPEAL. IN ITS ASSESSMENT FOR T HE ASSESSMENT YEAR 1959-60, THE RESPONDENT-ASSESSEE CLAIMED DEDUCTIONS , INTER ALIA, IN RESPECT OF THE LOSS ON THE SALE OF CERTAIN SHARES O F BHARAT AND CHEMICALS LTD. AND GREAVES COTTON AND CO. LTD. FOR THE RELEVA NT PREVIOUS YEAR. THE RESPONDENT-ASSESSEE HAD SOLD IN THE RELEVANT PREVIO US YEAR 25,000 SHARES OF BHARAT STARCH AND CHEMICALS LTD. TO K.C. THAPAR AND SONS LTD., A COMPANY BELONGING TO THE SAME GROUP. THESE SHARES W ERE PURCHASED ON FEBRUARY 22, 1958, AND WERE SOLD ON MARCH 31, 1959. THE LOSS CLAIMED WAS O/C 26,465. THE INCOME-TAX OFFICER CONCERNED DI SALLOWED THIS LOSS ON THE GROUND THAT THE SALE PRICE WAS SHOWN AT C 2. 50 PER SHARE WHEREAS THE MARKET QUOTATION ON MARCH 31, 1959, WAS C 8.06 PER SHARE. THE INCOME-TAX OFFICER ALSO RELIED UPON THE CIRCUMSTANC E THAT THE SHARES HAD BEEN SOLD TO A COMPANY WHICH WAS AN ALLIED CONCERN OF THE ASSESSEE, THAT IS, BELONGING TO THE THAPAR GROUP. THE INCOME-TAX O FFICER TOOK THE VIEW THAT THE SALE HAD BEEN EFFECTED ONLY TO ENABLE THE ASSESSEE TO CLAIM THE LOSS AND COULD NOT BE ALLOWED AS GENUINE. THE RESPO NDENT-ASSESSEE HAD ALSO SOLD 3,000 SHARES OF GREAVES COTTON AND CO. LT D. ON FEBRUARY 4, 1959, TO K.C. THAPAR AND SONS LTD. AND CLAIMED A LO SS O/C 47,878.55 ON THIS TRANSACTION. THE INCOME-TAX OFFICER HELD THAT THESE SHARES HAD ALSO BEEN SOLD TO A COMPANY BELONGING TO THE THAPAR GROU P AND UNDER THE CONTROL OF THAT GROUP. THE INCOME-TAX OFFICER TOOK THE VIEW THAT THE MOTIVE FOR SELLING THE AFORESAID SHARES AND SOME OTHER SHA RE WAS TO MAKE LOSSES AND SET THEM OFF AGAINST THE PROFITS AND THESE TRAN SACTIONS COULD NOT BE CONSIDERED TO BE IN THE NORMAL COURSE OF BUSINESS. HE HELD THAT THIS TYPE OF TRANSACTION COULD NOT BE REGARDED AS GENUINE AND DISALLOWED THE CLAIM. THE TRIBUNAL ALSO POINTED OUT THAT THE CIRCUMSTANCE THAT THE WERE BETWEEN COMPANIES IN WHICH THE THAPER GROUP HAD A CONTROLLI NG INTEREST AND ALSO IN RESPECT OF SHARES OF COMPANIES BELONGING TO THE SAM E GROUP BY THEMSELVES WOULD NOT SUPPORT THE CONCLUSION THAT THE TRANSACTI ONS WERE STAGE- MANAGED, ALTHOUGH IT MIGHT AROUSE SUSPICION AND CAL L FOR CLOSER SCRUTINY. IN RESPECT OF BOTH THE SAID LOTS OF SHARES, THE TRI BUNAL POINTED OUT THAT THERE WAS NOTHING TO SHOW THAT THE PURCHASE OF THES E SHARES HAD ANYTHING TO DO WITH THE CONTROL OF THE COMPANIES CONCERNED. THE TRIBUNAL RELIED UPON THE CIRCUMSTANCE THE SALES WERE AT THE MARKET RATES OR GOING RATES AND HENCE THERE WAS NO QUESTION OF MAKING BOGUS LOSS. ON THE BASIS OF THESE CONCLUSION, THE TRIBUNAL HELD THAT THE LOSSES IN RE SPECT OF THE SALES OF SHARES OF BHARAT STARCH AND CHEMICALS LTD. AS WELL AS GREA VES COTTON AND CO. LTD. WERE LIABLE TO BE ALLOWED AS BUSINESS LOSSES'. 5.2 FURTHER, HON'BLE CALCUTTA HIGH COURT IN THE CAS E OF BRITANNIA INDUSTRIES LTD. VS DCIT & ORS. 238 ITR 57 AFTER CONSIDERING THE BASIC JUDGMENT OF HON'BLE APEX COURT IN THE CAS E OF K.P. VERGHESE 131 ITR 597 (SC) HELD THAT NO CAPITAL GAIN BE TAXED U NLESS IT IS PROVED THAT THERE IS AN UNDERHAND DEALING AND CONSIDERATION HAS PASSED MORE THAN THAT SHOWN IN THE DEED. 5.3 THE AO, RELYING UPON THE CASE LAWS OF JIYAJEERAO CO TTON MILLS LTD. VS CIT 85 EFT (SUPRA) AND MCDOWELL AND CO. LTD. VS CTO (SUPRA) , HELD THAT THE APPELLANT EMPLOYED COLORFUL DEVICE TO EVAD E TAX. HE HAS HOWEVER NOT BROUGHT ANY MATERIAL ON RECORD TO COME TO THE S AID CONCLUSION. THE HON'BLE APEX COURT HAD AN OCCASION TO EXAMINE THE R ATIO OF THE ABOVE 8 MENTIONED JUDGMENTS IN THE CASE OF AZAD BACHAO ANDOLAN VS UOI (SUPRA) WHEREIN THEIR LORDSHIPS HAVE HELD AS UNDER: - IF THE COURT FINDS THAT NOTWITHSTANDING A SERIES OF LEGAL STEPS TAKEN BY AN ASSESSEE, THE INTENDED LEGAL RESULT HAS NOT BEEN AC HIEVED, THE COURT MIGHT BE JUSTIFIED IN OVERLOOKING THE INTERMEDIATE STEPS, BU T IT WOULD NOT BE PERMISSIBLE FOR THE COURT TO TREAT THE INTERVENING LEGAL STEPS AS NON-EST BASED UPON SOME HYPOTHETICAL ASSESSMENT OF THE 'REA L MOTIVE' OF THE ASSESSEE-COURT MUST DEAL WITH WHAT IS TANGIBLE IN A N OBJECTIVE MANNER AND CANNOT AFFORD TO CHASE A WILL-O'-THE-WISP-THERE IS NO CHANGE IN THE FISCAL JURISPRUDENCE IN INDIA-NOT ONLY IS THE PRINC IPLE IN DUKE OF WESTMINSTER ALIVE AND KICKING IN ENGLAND, BUT IT AL SO SEEMS TO HAVE ACQUIRED BENEDICTION OF THE CONSTITUTIONAL BENCH IN INDIA, NOTWITHSTANDING THE TEMPORARY TURBULENCE CREATED IN THE WAKE OF MCD OWELL. FROM THE ABOVE LEGAL POSITION LAID DOWN BY THE HON 'BLE APEX COURT IT IS PERTINENT THAT IT WOULD NOT BE PERMISSI BLE TO COME TO ADVERSE CONCLUSION BASED UPON SOME HYPOTHETICAL ASSESSMENT OF THE REAL MOTIVE OF THE APPELLANT. 5.4 COMING TO THE ISSUE OF OFFER OF SURRENDER BY THE AP PELLANT, IT IS SEEN THAT THIS OFFER SUBJECT TO NO PENAL ACTION, HAS BEEN DECLINED BY THE AO. EVEN OTHERWISE, AN ADMISSION CAN NOT BE F OUNDATION FOR ASSESSMENT AS HELD IN THE CASE OF ABDUL QUAYUM VS C IT (SUPRA). IT HAS BEEN HELD IN THE CASE OF PULLANGODE RUBBER PRODUCE CO. LTD. VS SWIFT OF KERALA 91 ITR 18 (SC) BY THE APEX COURT THAT IT IS OPEN TO THE ASSESSEE WHO MADE THE ADMISSION TO SHOW THAT IT IS INCORRECT . 5.5 IN THE CASE OF CIT VS B.M. KHARWAR (SUPRA) IT WAS H ELD THAT LEGAL RELATION ALONE CAN DETERMINE THE TAXABILITY OF RECE IPTS ARISING FROM THE TRANSACTIONS. IN THIS CASE THEIR LORDSHIP HELD AS U NDER:- TAXING AUTHORITIES ARE NOT ENTITLED, IN DETERMINING WHETHER A RECEIPT IS LIABLE TO BE TAXED, TO IGNORE THE LEGAL CHARACTER OF THE TRANSACTION WHICH IS THE SOURCE OF THE RECEIPT AND TO PROCEED ON WHAT THEY REGARD AS 'THE SUBSTANCE OF THE MATTER'-REVENUE AUT HORITIES ARE ENTITLED AND BOUND TO DETERMINE THE TRUE LEGAL RELATION RESU LTING FROM A TRANSACTION AND UNRAVEL ANY DEVICE TO CONCEAL SUCH RELATION. IF THE SAID PRINCIPLE IS APPLIED TO THE FACTS OF TH E APPELLANT, ALL THE ELEMENTS OF A TRANSACTION I.E. PURCHASE & SALE OF SHARES ALONG WITH REQUISITE DOCUMENTARY EVIDENCE IS AVAILABLE AN D THEREFORE THE ADDITION MADE BY THE AO WOULD BE UNSUSTAINABLE AND UNTENABLE. 5.6 ON SIMILAR FACTS, THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS ANUPAM KAPOOR 299 ITR 179 (P&H) HELD AS UNDER :- THE TRIBUNAL ON THE BASIS OF MATERIAL ON RECORD, HE LD THAT PURCHASE CONTRACT NOTE, CONTRACT NOTE FOR SALES, DISTINCTIVE NUMBER OF SHARES PURCHASED AND SOLD, COPY OF SHARE CERTIFICATES AND THE QUOTATION OF SHARES ON THE DATE OF PURCHASE AND SALE WERE SUFFICIENT MA TERIAL TO SHOW THAT THE TRANSACTION WAS NOT BOGUS BUT A GENUINE TRANSACTION . THE PURCHASE OF SHARES WAS MADE ON 28 TH APRIL, 1993 I.E., ASST. YR. 1993-94 AND THAT ASSESSMENT WAS ACCEPTED BY THE DEPARTMENT AND THERE WAS NO CHALLENGE TO THE PURCHASE OF SHARES IN THAT YEAR. T HE SHARES WERE SOLD THROUGH A BROKER, WHO WAS A REGISTERED BROKER OF TH E STOCK EXCHANGE ON 9 THE RELEVANT DATE. IT WAS ALSO PLACED BEFORE THE RE LEVANT AO AS WELL AS BEFORE THE TRIBUNAL THAT THE SALE PROCEEDS HAVE BEE N ACCOUNTED FOR IN THE ACCOUNT OF THE ASSESSEE AND WERE RECEIVED THROUGH A CCOUNT PAYEE CHEQUE. THE TRIBUNAL TOOK INTO CONSIDERATION THAT T HE AO HAD NOT DEALT WITH ALL THE DOCUMENTS PLACED BEFORE HIM AND HAD SI MPLY PRESUMED THAT TRANSACTION WAS BOGUS. THE TRIBUNAL WAS RIGHT IN REJECTING THE APPEAL OF T HE REVENUE BY HOLDING THAT THE ASSESSEE WAS SIMPLY A SHAREHOLDER OF THE COMPANY. HE HAD MADE INVESTMENT IN A COMPANY IN WHICH HE WAS NE ITHER A DIRECTOR NOR WAS HE IN CONTROL OF THE COMPANY. THE ASSESSEE HAD TAKEN SHARES FROM THE MARKET, THE SHARES WERE LISTED AND THE TRA NSACTION TOOK PLACE THROUGH A REGISTERED BROKER OF THE STOCK EXCHANGE T HERE WAS NO MATERIAL BEFORE THE AO, WHICH COULD HAVE LEAD TO A CONCISION THAT THE TRANSACTION WAS SIMPLICITIER A DEVICE TO CAMOUFLAGE ACTIVITIES, TO DEFRAUD THE REVENUE. NO SUCH PRESUMPTION COULD BE DRAWN BY THE AO, MERELY ON SURMISES AND CONJECTURES. THE TRIBUNAL RIGHTLY RELI ED ON C.VASANTLAL AND CO. VS. CIT [1962] 45 ITR 206 (SC), M.O. THOMAK UTTY VS. CIT [1958] 34 ITR 501 (KER) AND MUKAND SINGH VS. SALES TAX TRI BUNAL [1998] 107 STC 300 (PUNJAB). IT WAS FOR THE AO, WHO HAS REOPEN ED THE ASSESSMENT TO HAVE SOUGHT SOME EVIDENCE ON RECORD, TO SUBSTANT IATE HIS FORMULATION OF CONSIDERATION THAT THE ASSESSEE HAS NOT FILED A RETURN BONA ME. THE TRIBUNAL ALSO TOOK INTO CONSIDERATION THAT IT WAS O NLY ON THE BASIS OF A PRESUMPTION THAT THE AO CONCLUDED THAT THE ASSESSEE HAD PAID CASH AND PURCHASED THE CHEQUE. IN THE ABSENCE OF ANY COGENT MATERIAL IN THIS REGARD, HAVING BEEN PLACED ON RECORD, THE AO COULD NOT HAVE REOPENED THE ASSESSMENT. THE ASSESSEE HAD MADE AN INVESTMENT IN A COMPANY, EVIDENCE WHEREOF WAS WITH THE AO. THEREFORE, THE AO COULD NOT HAVE ADDED INCOME, WHICH WAS RIGHTLY DELETED BY THE CIT (A) AS WELL AS THE TRIBUNAL. IT IS SETTLED LAW THAT SUSPICION, HOWE VER STRONG CANNOT TAKE THE PLACE OF LEGAL PROOF, AS HAS BEEN HELD BY HONB LE SUPREME COURT IN THE CASE OF UMACHARAN SHAW AND BROS. CIT 11959] 37 FTR 271 (S.C). 5.7 IN VIEW OF THE ABOVE, THE DISALLOWANCE MADE BY THE AO OF THE CLAIM OF SHORT TERM CAPITAL LOSS IS DELETED AND THE GROUND OF APPEAL IS ALLOWED. 5(II) SIMILARLY, IT IS ESSENTIAL TO REPRODUCE THE FINDINGS OF THE AO, IN THE MATTER, FOR THE PURPOSE OF PROPERLY APPRECIATING THE SAME : THE REPLY FILED BY THE ASSESSEE HAS DULY BEEN CONSI DERED AND IS FOUND TO BE DEVOID OF ANY MERITS. THE ASSESSEE HAS ADMITTEDLY NEVER BEFORE ENTERED INTO ANY TRANSACTION IN SHARES BEFORE HE EA RNED HUGE AMOUNTS OF SHORT-TERM CAPITAL GAINS ON THE SALE OF SOME LANDS ATTRACTING SUBSTANTIAL LIABILITY OF TAX PAYMENTS. THE CONTENTION OF THE AS SESSEE THAT IN A FRENZY TO SWIFTLY MULTIPLY ITS CAPITAL HE WAS MISGUIDED BY BR OKERS / FIXERS TO INVEST IN THE SHARES OF M/S. ARCEE ISPAT UDYOG LTD., HISAR; I S A SUBJECTIVE STATEMENT WHICH IS NOT AMENABLE TO ANY VERIFICATION. THERE IS NO REASON THAT FRIENDS ETC. SHOULD ILL-ADVISE THE ASSESSEE FOR NO GAIN OF THEIRS. THUS, IN THE ABSENCE OF ANY PIECE OF MATERIAL EVIDENCE; THE SIMP LE STATEMENT OF THE 10 ASSESSEE THAT HE INCURRED LOSS IN THE SHARES OF M/S . ARCEE ISPAT UDYOG LTD., HISAR DUE TO MISGUIDANCE IS NOTHING BUT A ROUTINE C ONTENTION WHICH IS UNWORTHY OF ANY CREDENCE. BESIDES, THE PLEA OF THE ASSESSEE THAT LOSS WAS INCURRED DUE TO SUDDEN GLOBAL ECONOMY MELT DOWN WHI CH CRASHED THE SHARE MARKET IS ALSO DEVOID ANY MERITS IN SO FAR AS THE C OMPANY UNDER REFERENCE IS A VERY SMALL COMPANY WHOSE SHARES ARE NOT LISTED WITH STOCK EXCHANGE TO HAVE ANY IMPACT OF THE SO CALLED MELT DOWN MORE SO THERE WAS NO SUCH TREND IN THE SHARE MARKET AS CLAIMED; WHEN THE ASSE SSEE ALLEGEDLY ENTERED INTO THE SHARE TRANSACTIONS OF THE COMPANY; AS EARL Y AS IN NOV, 2007. ALTHOUGH INVESTMENT IN PURCHASE OF SHARES AND SALE PROCEEDS OF SHARES WERE MADE/ RECEIVED BY CHEQUES BUT THE CLAIM OF THE ASSESSEE THAT THE SECURITY TRANSACTIONS WERE AS PER SEBI RULES IS NOT ACCEPTABLE AS I NEITHER THE COMPANY WAS LISTED WITH ANY STOCK-EXCHANGE NOR THE TRANSACTIONS HAVE BEEN CARRIED OUT THROUGH 'D-MAT' A/C. THE ARGUMENT OF TH E ASSESSEE THAT THE PROPOSED DISALLOWANCE OF LOSS FROM THE SAID COMPANY IS IN VAGARY AND THIS OUTLAWRY IS NOT MAINTAINABLE. THE TAXING AUTHO RITY IS NOT ONLY ENTITLED BUT BOUND TO DETERMINE THE GENUINENESS OF THE TRANS ACTIONS IF THE PARTIES HAVE CHOSEN TO CONCEAL BY A DEVICE; THE TRUE CHARAC TER OF THE TRANSACTION AND THEREBY REDUCED THE INCIDENCE OF TAX. THE ASSES SEE HAD EARNED HUGE AMOUNTS OF SHORT TERM CAPITAL GAINS WHICH OBVIOUSLY ATTRACTED HEAVY AMOUNTS OF TAX LIABILITY. IT IS NOT DISPUTED THAT T HE ASSESSEE IS NOT ENTITLED TO SO ARRANGE HIS / HER AFFAIRS AS TO AVOID THE BURNT OF TAXATION BUT THE ARRANGEMENT MUST BE REAL AND GENUINE. THE HON'BLE APEX COURT OF INDIA IN JIYA JEERAO COTT ON MILLS LTD. VS. CIT & EPT 1958] 34 ITR 888 HAS OBSERVED. 'EVERY PERSON IS ENTITLED TO SO ARRANGE HIS AFFAIRS AS TO AVOID TAXATION BUT THE ARRANGEMENT MUST BE REAL AND GENUINE AND NO T A SHAM OR MAKE BELIEVE ' FURTHER; THE ARGUMENT OF THE ASSESSEE THAT ALLOTTED SHARES OF M/S. ARCEE ISPAT UDYOG LTD., HISAR WERE SOLD BY HIM TO M/S.TCG STOCK BROKING LTD., NEW DELHI AND IF THE IMPUGNED SHARES WERE FURTHER S OLD BY THE LATTER PARTY TO THE FORMER IS NOT THE ASSESSEE'S CONCERN AND HAS GO T NO BEARING ON HIS TAXING MATTERS; IS NOT ACCEPTABLE. IT IS A FACT THA T THE SHARES OF FACE VALUE OF RS.10/- EACH WHICH WERE ALLOTTED TO THE ASSESSEE @ RS. 1007- PER SHARE WERE ULTIMATELY AND AFTER THE LAPSE OF A SMALL PERI OD OF TIME; PURCHASED BY THE COMPANY (ITS DIRECTOR) @ RS.10/- PER SHARE THRO UGH A BROKER TO GIVE COLOUR OF GENUINENESS TO THE TRANSACTIONS. THE ASSE SSEE HAS NOT BEEN ABLE TO GIVE ANY CONVINCING REPLY AS TO WHY HE OPTED FOR MAKING SUCH A HUGE AMOUNT OF INVESTMENT IN THE PURCHASE OF SHARES OF A COMPANY WHICH ADMITTEDLY DID NOT HAVE ANY POPULAR BRAND NAME AND WHOSE SHARES ARE NOT QUOTED AND THEN SOLD AT SUCH A LOW PRICE WITHOUT TH ERE BEING ANY BUSINESS EXPEDIENCY. THE GENUINENESS OF THE RATE OF ALLOTMENT (PURCHASE) THUS REMAINS TO BE PROVED W.R.T. ANY MARKET RATE CO MPARISON OR ANY OTHER BASIS TO JUSTIFY THE SAME. IN FACT, IT IS NOTHING B UT AN ATTEMPT MADE BY THE ASSESSEE TO PURCHASE SHORT-TERM CAPITAL LOSS BY WAY OF THE ABOVE SAID TRANSACTIONS AND THEREBY TO REDUCE THE INCIDENCE OF TAX. 11 HOWEVER, IT IS ALSO PERTINENT TO MENTION THAT DESPI TE ARGUING THE CASE ON DIFFERENT ASPECTS OF THE ISSUE REGARDING CLAIM OF L OSS ON THE SALE OF IMPUGNED SHARES; THE ASSESSEE HAS DEEMED IT DESIRAB LE UNDER THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE; TO WITHD RAW HIS CLAIM OF LOSS ON THESE SHARES THOUGH IN THE NAME OF ROUTINE EXCUS E OF 'BUYING PEACE 1 AND TO COME OUT OF THE TRAUMA OF LITIGATION. ACTUAL LY, IT IS AS A RESULT OF THE EXPOSURE OF THE COLOURABLE DEVICE ADOPTED BY TH E ASSESSEE TO DODGE THE REVENUE AND ALSO TO CONTROL THE DAMAGE INVOLVED IN THE CONSEQUENTIAL PENAL ACTION LIKELY TO BE TAKEN AGAINST HIM THAT TH E ASSESSEE IS CONSTRAINED TO RESORT TO MAKE SUCH OFFER. THE ASSESSEE'S OFFER TO WITHDRAW HIS CLAIM OF IMPUG NED LOSS SUBJECT TO NO PENAL ACTION; CANNOT THEREFORE BE ACCEPTED AS IT IS A CLEAR CUT CASE WHERE THE ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF IMPUGNED TRANSACTIONS OF SHARES SHOWN TO BE RESULTING IN LOSS. IN FACT, T HE COLOURABLE DEVICE ADOPTED BY THE ASSESSEE TO REDUCE THE INCIDENCE OF TAX HAS BEEN UNVEILED AND FINDING NO WAY OUT; THE ASSESSEE HAS OPTED TO S AVE WHATEVER COULD BE POSSIBLE UNDER THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE. RELIANCE IN THIS REGARD IS PLACED ON THE JUDGEMENT OF THE HON'B LE APEX COURT OF INDIA IN THE CASE OF MCDOWELL AND CO. LIMITED VS. COMMERC IAL TAX OFFICE 154 ITR 148 (S.C.) WHEREIN IT HAS BEEN OBSERVED BY THE HON'BLE COURT THAT :- 'TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITH IN THE FRAMEWORK OF LAW. COLOURABLE DEVICES CANNOT BE PART OF TAX PLANN ING AND IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONOUR ABLE TO AVOID THE PAYMENT OF TAX BY RESORTING TO DUBIOUS METHODS. IT IS THE OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES HONESTLY WITHOUT RES ORTING TO SUBTERFUGES. HAVING REGARD TO THE ABOVE, IT IS HELD THAT THE GEN UINENESS OF THE TRANSACTION OF SHARES OF M/S. ARCEE ISPAT UDYOG LTD ., HISAR IS NOT PROVED AND THUS THE LOSS CLAIMED BY THE ASSESSEE THEREIN C ANNOT BE ALLOWED. ACCORDINGLY, SHORT TERM CAPITAL LOSS OF RS.22,50,00 0/- AS CLAIMED BY THE ASSESSEE IN THE SALE OF SHARES OF MS. ARCEE ISPAT U DYOG LTD., HISAR IS HEREBY DISALLOWED AND ADDED BACK TOWARDS THE TAXABL E GAINS / INCOME OF THE ASSESSEE. PENALTY PROCEEDINGS U/S 271(L)(C) OF THE ACT FOR FURNISHING INACCURATE PARTICULARS OF INCOME ARE ALSO INITIATED , SEPARATELY. 6. A BARE READING OF THE FINDINGS RECORDED IN THE IMPUGNED ASSESSMENT ORDER REVEALED THAT THE LD. AO PLACED RELIANCE, TO SUPPORT HIS CONTENTION, IN THE MATTER, ON THE DECISION OF THE HON'BLE SUPREME COURT, IN THE CASE OF JIYAJEERAO COTTON MILLS LTD. V CIT & EPT (1958) 34 ITR 888 (S.C), WHEREIN HON'BLE SUPREME COURT AT PAGE 897 OB SERVED AS, EVERY PERSON IS ENTITLED TO SO ARRANGE HIS AFFAIRS 12 AS TO AVOID TAXATION BUT THE ARRANGEMENT MUST BE RE AL AND GENUINE AND NOT A SHAM OR MAKE BELIEVE. 6(I) LD. AO, FURTHER, PLACED RELIANCE ON THE DECISI ON OF THE HON'BLE SUPREME COURT IN THE CASE OF MCDOWELL & CO. LTD.(1985) 154 ITR 148 (S.C), WHEREIN THE HON'BLE S UPREME COURT DENOUNCED TAX AVOIDANCE, IF NOT BONAFIDE. TH E RELEVANT PART OF THE OBSERVATION OF THE HON'BLE SUP REME COURT IS REPRODUCED HEREUNDER : TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITH IN THE FRAMEWORK OF LAW. COLOURABLE DEVICES CANNOT BE PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONOURABLE TO AVOID THE PAYMENT OF TAX B Y RESORTING TO DUBIOUS METHODS. IT IS THE OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES HONESTLY WITHOUT RESORTING TO SUBTERFUGES. 7. A BARE PERUSAL OF THE RELEVANT RECORDS, FINDINGS OF THE LOWER AUTHORITIES, AS CONTAINED IN THEIR RESPECTIVE ORDERS CLEARLY REVEALS THAT THE ASSESSEE APPELLANTS SOLD L AND WHICH RESULTED IN SHORT CAPITAL GAIN, AS IS EVIDENT FROM THE CHART REPRODUCED ABOVE. THE ASSESSEE APPELLANTS NAMELY S MT.HARJIT KAUR, SMT.SURINDER KAUR, SMT.GURDEEP KAUR & SHRI AV TAR SINGH CLAIMED SHORT TERM CAPITAL LOSS AT RS.22.50 L ACS, RS.18.00 LACS, RS. 45.00 LACS & RS.22.50 LACS RESPE CTIVELY EMANATING FROM SALE OF SHARES, ALLOTTED BY THE SAID UNLISTED HISSAR BASED COMPANY NAMELY M/S ARCEE ISPAT UDYOG L TD. THE AO DISALLOWED THE IMPUGNED LOSS, IN RESPECT OF EACH APPELLANT ASSESSEE AND ACCORDINGLY RECOMPUTED THE T AXABLE INCOME. LD. CIT(APPEALS) REVERSED THE FINDINGS OF THE AO. IT IS IMPERATIVE TO HIGHLIGHT THE FACTUAL DETAILS AND THE SEQUENCE OF EVENTS/STEPS, WHICH LED TO CREATION OF THE SO CA LLED SHORT 13 TERM CAPITAL LOSS AND CONSEQUENT CLAIM MADE BY THE APPELLANTS : I) SHORT TERM CAPITAL GAINS EMANATING AS A RESULT OF SALE OF LAND BY THE ASSESSEE APPELLANTS. II) THE ASSESSEE APPELLANTS PURCHASED SHARES FROM UNLISTED COMPANY M/S ARCEE ISPAT UDYOG LTD. HISSAR. EACH OF THE ASSESSEE APPELLANT PURCHASED SHARES, AS MENTIONED IN THE CHART ABOVE, ON THE SAME DATE I.E. 08.11.2007 @ RS.100/- PER SHARE. III) ALL THE ASSESSEE APPELLANTS SOLD SHARES TO SAME DELHI BASED BROKER NAMELY TCG STOCK BROKERS LTD., ON THE SAME DATE I.E. 31.3.2008 @ RS.10/- PER SHARE. IV) AS PER THE RELEVANT RECORD, THE BOOK VALUE OF SUCH SHARE, AS ON 31.3.2008, STOOD AT RS.56/- AND THE APPELLANT SOLD SUCH SHARES @ RS.10/- PER SHARE, ON THE SAME DATE I.E. 31.3.2008. V) THE SHARE BROKER SOLD BACK THE SAME SHARES, ON 12.08.2008, @ RS.100/- PER SHARE, TO SMT.KRISHNA GUPTA, DIRECTOR IN THE SAID COMPANY AND WIFE OF SHRI R.C.GUPTA, WHO IS MANAGING DIRECTOR IN THE SAME COMPANY, THUS SHOWING CIRCULAR TRANSACTIONS, IN THE MATTER. VI) THE SHARES WERE ALLOTTED DIRECTLY BY THE UNLISTED COMPANY TO THE APPELLANTS AND THE TRANSACTIONS WERE NOT ROUTED THROUGH ANY STOCK EXCHANGE. 8. THE LD. CIT(APPEALS) COMPLETELY DISREGARDED THE ABOVE- INDICATED SERIES OF TRANSACTIONS, ELOQUENTLY DEMONS TRATING THE TRUE NATURE OF SUCH TRANSACTIONS. THE CIT(APPE ALS), MERELY DISSECTED SUCH INTEGRATED TRANSACTIONS AND F OCUSED ON INDIVIDUAL STEP OF SUCH TRANSACTIONS INDEPENDENT LY AND 14 CONSEQUENTLY, OBSERVED THAT PURCHASE AND SALES OF S UCH SHARES HAS NOT BEEN DENIED BY THE AO. THE CIT(APPE ALS) MAINLY CONCENTRATED AND FOCUSED ON THE VOUCHERS OF PURCHASE AND SALE OF SUCH SHARES, PROCURED BY THE A SSESSEE APPELLANTS WITH THE PRECONCEIVED UNDERSTANDING OF T HE SAID UNLISTED COMPANY AND THE SAID BROKER. FURTHER, THE CIT(APPEALS), IGNORED THE SURROUNDING FACTS AND CIRCUMSTANCES OF THE CASE AND FAILED TO PROPERLY AP PRECIATE THE SERIES OF STEPS TAKEN BY THE ASSESSEE APPELLANT S, AS A WHOLE AND IN AN INTEGRATED MANNER, FOR THE OBJECT O F CREATING ARTIFICIAL LOSS. SUCH TRANSACTIONS INVOLV E THE SERIES OF PRECONCEIVED STEPS, THE PERFORMANCE OF EACH OF W HICH IS DEPENDING ON THE OTHERS BEING CARRIED OUT, IN ACCOR DANCE WITH THE COMMON INTENTION OF THE ASSESSEE APPELLANT S AND THE SAID COMPANY WHO ALLOTTED THE SHARES TO THE APP ELLANTS, THE NATURE AND EFFECT OF THE WHOLE SCHEME HAS TO BE TAKEN INTO CONSIDERATION, IN DETERMINING THE TRUE INTENT AND NATURE OF SUCH SHARE TRANSACTIONS. HOWEVER, LD. CIT(APPEALS) DISREGARDED SUCH INTEGRITY OF THE SAID TRANSACTIONS. THE LD. CIT(APPEALS), COMPLETELY IGN ORED THE FACTUM THAT THE TRUE-NATURE OF SUCH SHARE TRANSACTI ONS LACKED COMMERCIAL CONTENTS, BEING STRUCTURED TRANSA CTIONS, ENTERED INTO WITH THE SOLE INTENT, TO REDUCE THE TA X LIABILITY. THE FACTS AND CIRCUMSTANCES OF THE CASE, AS RECORDE D ABOVE, CLEARLY SUGGEST THAT THE REVENUE CANNOT TAKE OR ACC EPT SUCH MAKE-BELIEVE TRANSACTIONS, AS PRESENTED BY THE APPE LLANTS. TRUTH OR GENUINENESS OF SUCH TRANSACTIONS MUST PREV AIL OVER THE SMOKE SCREEN, CREATED BY WAY OF PRE-MEDITATED S ERIES OF 15 STEPS TAKEN BY THE APPELLANTS, WITH A VIEW TO IMPAR TING A COLOUR OF GENUINENESS AND CHARACTER OF COMMERCIAL N ATURE, TO SUCH SHARE TRANSACTIONS. NEEDLESS TO SAY THAT O NE HAS TO LOOK AT THE WHOLE TRANSACTIONS AND A SERIES OF STEP S TAKEN, TO ACCOMPLISH SUCH SHARE TRANSACTIONS, IN AN INTEGR ATED MANNER, WITH A VIEW TO ASCERTAINING THE TRUE NATURE AND CHARACTER OF SUCH PURCHASE AND SALE OF SHARES. THE SHARES WERE PURCHASED AND SOLD IN THESE CASES, CAN NOT BE TREATED AS REGULAR BUSINESS TRANSACTIONS AS THE ASS ESSEE APPELLANTS PURCHASED SHARES, ON 8.11.2007, @ RS.100 /- PER SHARE AND SOLD THE SAME, ON 31.3.2008 @ RS.10/- PER SHARE, IN THE FACE OF BOOK VALUE OF SUCH SHARES SOL D AT RS.56/- AS ON 31.3.2008. SUCH APPROACH OF THE APPELLANTS, RUNS CONTRARY TO THE VERY NATURE OF HUM AN CONDUCT. THE HON'BLE SUPREME COURT, IN THE CASE OF CIT V DURGA PRASAD MORE (1971) 82 ITR 540 (S.C) HAS CATEGORICALLY HELD THAT THE REVENUE IS ENTITLED TO LOOK INTO THE SURROUNDING CIRCUMSTANCES, TO FIND OUT THE REAL ITY OF THE RECITALS MADE IN THE DOCUMENTS. THE RELEVANT OBSERVATIONS AND FINDINGS OF HON'BLE SUPREME COURT, IN THE MATTER OF DISCHARGE OF ONUS OF PROOF AND THE RELE VANCE OF SURROUNDING CIRCUMSTANCES OF THE CASE ARE; THAT THOUGH AN APPELLANTS STATEMENT MUST BE CONSIDERED REAL UN TIL IT WAS SHOWN THAT THERE WERE REASONS TO BELIEVE THAT T HE APPELLANT WAS NOT THE REAL, IN A CASE WHERE THE PAR TY RELIED ON SELF-SERVING RECITALS IN THE DOCUMENTS, I T WAS FOR THE PARTY TO ESTABLISH THE TRANSFER OF THOSE RE CITALS, THE TAXING AUTHORITIES WERE ENTITLED TO LOOK INTO T HE 16 SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY O F SUCH RECITALS. SCIENCE HAS NOT YET INVENTED ANY INSTRUMENT TO TEST THE RELIABILITY OF THE EVIDENCE PLACED BEFORE A COURT OR TRIBUNAL. THEREFORE, THE COURTS AND THE TRIBUNALS HAVE TO JUDGE THE EVIDENCE BEFORE THE M BY APPLYING THE TEST OF HUMAN PROBABILITY. HUMAN MIND S MAY DIFFER AS TO THE RELIABILITY OF PIECE OF EVIDEN CE, BUT, IN THE SPHERE, THE DECISION OF THE FINAL FACT FINDI NG AUTHORITY IS MADE CONCLUSIVE BY LAW. 8(I) THE ABOVE RATIO LAID DOWN BY THE HON'BLE SUP REME COURT HAS BEEN REITERATED AND APPLIED BY THE HON'BL E APEX COURT IN THE CASE OF SUMATI DAYAL V CIT 214 ITR 801 (S.C). INCIDENTALLY, IT IS MENTIONED THAT ALL THE APPELLAN TS ARE AGRICULTURISTS, AS MENTIONED IN THE RELEVANT AVAILA BLE RECORDS. THE DATE AND RATE OF PURCHASE OF SUCH SHA RES, FROM THE UNLISTED COMPANY, DIRECTLY, AND NOT THROUG H ANY STOCK EXCHANGE AND, SUBSEQUENTLY, THE DATE AND RATE OF SALE OF SUCH SHARES SPEAKS VOLUME OF TRUE NATURE OF SUCH TRANSACTIONS, AS THE SAME HAD NOT BEEN ENTERED INTO , IN THE NATURAL AND REGULAR COURSE OF TRADING ACTIVITIES. HAVING REGARD TO THE ABOVE NARRATED FACTS, IT IS EVIDENT T HAT SUCH TRANSACTIONS WERE ENTERED INTO, WITH A VIEW TO PROC URING ARTIFICIAL SHORT TERM CAPITAL LOSS, FOR THE PURPOSE OF SUBSEQUENTLY SETTING OFF THE SAME AGAINST SHORT TER M CAPITAL GAINS. THIS FACTUM IS EVIDENT FROM THE OFFER OF SURRENDER MADE BY THE APPELLANTS BEFORE THE AO, FOR SURRENDER OF SHORT TERM CAPITAL LOSS, SUBJECT TO THE CONDITION O F NO PENAL ACTION AGAINST THEM. UNDER SUCH PECULIAR FACTS AND 17 CIRCUMSTANCES OF THE CASE, WHICH ARE CRYSTAL CLEAR, THE TAXING AUTHORITIES ARE NOT REQUIRED TO PUT ON BLINK ER, WHILE LOOKING AT THE DOCUMENTS OF PURCHASE (ALLOTMENT OF SHARES BY THE UNLISTED COMPANY) SALE OF SUCH SHARES, WITHI N A SHORT SPAN OF TIME, PARTICULARLY BY THE END OF FINA NCIAL YEAR AS ON 31.3.2008. THE ENTIRETY OF THE SEQUENCE OF E VENTS OF SUCH SALE AND PURCHASE OF SUCH SHARES HAS TO BE DIS CERNED IN AN INTEGRATED MANNER. HOWEVER, CIT(APPEALS) OPT ED TO DISINTEGRATE THE ENTIRE GAMUT OF TRANSACTIONS AND L OOKED AT EACH STEP, AS AN INDEPENDENT EVIDENCE, IN FAVOUR OF THE ASSESSEE. IN THE PRESENT CASE, THE APPELLANTS CREA TED ARTIFICIAL SHORT TERM CAPITAL LOSS, AND HAVING REGA RD TO THE MATERIAL AND RELEVANT FACTS OF THE CASE, SUCH MAKE- BELIEVE TRANSACTIONS, CANNOT BE TAKEN AS GENUINE TRADING, I N THE SALE AND PURCHASE OF SHARES. SUCH TRANSACTIONS AS ARE PURELY PRECONCEIVED EXERCISE, TO EVADE TAX. IT IS I NTERESTING TO TRACE AND TRACK DOWN THE CHAIN OF EVENTS, IN SUC H SHARE TRANSACTIONS, WHICH LEAD TO INESCAPABLE CONCLUSION THAT THE APPELLANTS WERE INVOLVED IN CIRCULAR TRANSACTIONS. ORIGINALLY, THE SHARES WERE ALLOTTED TO THE APPELLA NTS BY THE SAID COMPANY, WHO IN TURN, SOLD THE SAME, TO THE BR OKER AND THE SAID COMPANY PURCHASED THE SAME SHARES, FROM TH E SAID BROKERS. IN VIEW OF THIS, IT IS EVIDENT THAT THE F ACTS OF THE CASE AND THE CONDUCT OF THE PARTIES TO SUCH TRANSAC TIONS SPEAK FOR THEMSELVES. IN TAX MATTERS, IT IS IMPERA TIVE THAT REALITY OF THE TRANSACTIONS ARE REQUIRED TO BE GONE INTO, WITH 18 VIEW TO FINDING OUT THE TRUE NATURE OF SUCH TRANSAC TIONS. ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE PRESENT CASE CLEARLY DEMONSTRATES, IN A TERSE AND TELLING M ANNER THAT THE WHOLE TRANSACTIONS ARE NOT TRUE COMMERCIAL SHARE TRANSACTIONS BUT FABRICATED TRANSACTIONS. SUCH TRANSACTIONS WERE MUTUALLY SELF-SERVING. THE P URCHASE AND SALE VOUCHERS OF SUCH TRANSACTION OF SHARES ARE NOT UNIMPEACHABLE DOCUMENTS. HOWEVER, LD. CIT(APPEALS), WHOLLY PLACED RELIANCE ON SUCH IMPEAC HABLE DOCUMENTS AND MAKE-BELIEVE VERSION OF TRANSACTIONS. THE CIT(APPEALS), TREATED SUCH UNREAL TRANSACTIONS, INVOLVING COLOURABLE DEVICE, AS GENUINE TRANSACTION S, BY IGNORING THE REALITY OF SUCH TRANSACTIONS. ONE CANNOT BE SO GULLIBLE AS TO ACCEPT THE GENUINENESS OF SUCH SMOKE SCREEN TRANSACTIONS. NOW CAN WE REFUSE TO LOO K INTO THE REAL NATURE OF SUCH TRANSACTIONS. IN FACT, PER SUADING US NOT TO UNDERTAKE SUCH EXERCISE AND TO ACCEPT SUCH TRANSACTIONS ON FACE VALUE, WOULD RESULT IN MISCARR IAGE OF JUSTICE. 9. A PERUSAL OF THE PAPER BOOK REVEALS THAT THE LD. 'AR' HAS LISTED CERTAIN CASE-LAWS, TO SUPPORT HIS CONTEN TIONS, WHICH ARE LISTED AS UNDER : I) SMT. ALKA JAIN V ACIT (ITA NO. 2637/D/2000 A.Y. 1996-97 (ITAT DELHI BENCH). II) INDER KUMAR BACHANI (HUF) V ITO 101 TTJ (450) (LUCK) 19 III) BAIJNATH AGARWAL V ACIT 43 DTR 149 (AGRA) 9(I) WE HAVE PERUSED AND CONSIDERED THE FACT-S ITUATION OF SUCH DECISIONS AND RATIO LAID DOWN THEREIN AND F OUND THAT THE SAME ARE NOT APPLICABLE TO THE FACT-SITUAT ION OF THE PRESENT CASE, BEING FACTUALLY DIFFERENT AND DISTING UISHABLE. THE DECISIONS OF THE HON'BLE SUPREME COURT AND THE JURISDICTIONAL HIGH COURT, AS DISCUSSED IN THIS ORD ER, ARE RELEVANT IN THE MATTER. 10. LD. CIT(APPEALS), IS OF THE OPINION THAT THE AO HAS NOT CONDUCTED REQUISITE ENQUIRIES AND THE MATERIAL AVAI LABLE ON RECORD, IS NOT SUFFICIENT TO ARRIVE AT SUCH CONCLUS IONS. HE, FURTHER, STATED THAT AO FAILED TO DISCHARGE THE BUR DEN CAST ON HIM, TO ESTABLISH THAT THE APPELLANTS DID NOT PU RCHASE OR SELL THE SHARES. IN THIS SPECIFIC CONTEXT, IT IS I MPERATIVE TO STATE THAT IT IS A WELL SETTLED LEGAL PROPOSITION T HAT BURDEN OF PROOF IS ON THE APPELLANTS AS THE CLAIM OF SHO RT TERM CAPITAL LOSS HAD BEEN MADE BY THEM. THE ASSESSEE APPELLANTS, EXCEPT GIVING DETAILS OF SUCH PURCHASE AND SALE OF SHARES, FAILED TO PROVE AND ESTABLISH THE GENUIN ENESS OF SUCH SHARE TRANSACTIONS, WITH AN UNLISTED COMPANY, WHICH ULTIMATELY PURCHASED SUCH SHARES, AT THE RATES AS CONVENIENT TO THEM, HAVING NO REGARD TO THE REAL MA RKET FACTORS. IN SUCH A FACT-SITUATION, THE ONUS OF PR OOF REMAINS UNDISCHARGED, ON THE PART OF THE ASSESSEE APPELLANTS. IN VIEW OF THIS, THE OBSERVATION OF TH E CIT(APPEALS), THAT ONUS OF PROOF IS ON THE AO, IS C ONTRARY TO THE LEGALLY SETTLED PROPOSITION, IN THE MATTER. TH E GENERAL 20 RULE IS THAT ONUS OF PROOF IS ALWAYS ON THE PARTY WHO ASSERTS A PROPOSITION OR FACT WHICH IS NOT SELF-EVI DENT. IN THE PRESENT CASE, ASSESSEE APPELLANTS ARE ASSERTING THE GENUINENESS OF THE CLAIM OF SHORT TERM CAPITAL LOSS BY MAKING SUCH CLAIM IN THEIR RESPECTIVE RETURN OF INC OME, AND, HENCE, THE BURDEN OF PROOF SQUARELY LIES ON THEM. THE ASSESSEE APPELLANT HAS FURNISHED MERELY THE DET AIL OF SUCH MAKE-BELIEF TRANSACTIONS AND, HENCE, GENUINENE SS OF THE TRANSACTIONS REMAINS TO BE ESTABLISHED. IN VIE W OF SUCH A FACT-SITUATION OF THE CASE, CIT(APPEALS), IS NOT JUSTIFIED, IN MAKING THE OBSERVATION THAT ONUS OF PROOF LIES ON THE AO, IGNORING THE FACTUM THAT THE ASSESSEE APPELLANTS HA VE FAILED TO DISCHARGE THE PRIMARY ONUS CAST ON THEM. 10(I) IT IS INTERESTING TO NOTE THAT CIT(APPEALS) , OBSERVED THAT THE AO HAS FAILED TO DISCHARGE THE BURDEN, CAS T ON HIM TO ESTABLISH THAT THE APPELLANT DID NOT PURCHASE OR SELL THE SHARES. THUS, THE CIT(APPEALS) HAS SOUGHT TO SHIFT THE BURDEN OF PROOF ON THE AO, WHICH IS NOT LEGALLY T ENABLE. THE ASSESSEE IS STATUTORILY OBLIGED, TO SUPPORT THE CONTENTS AND CONTENTIONS MADE IN HIS RETURN OF INCOME, AS CONTEMPLATED U/S 143(3) SUB- SECTION (II) OF THE AC T. IT IS, FURTHER, ADDED THAT CIT(APPEALS), HAS PLENARY STATU TORY POWERS, THOUGH NOT UNBRIDLED POWERS, IN DISPOSING O F AN APPEAL, BEFORE HIM. SCOPE OF HIS POWER IS CO-TERMI NUS WITH THAT OF THE AO. HE CAN DO WHAT ITO CAN DO AND ALSO DIRECT HIM TO DO WHAT HE HAS FAILED TO DO. THE CIT(APPEAL S), IS COMPETENT TO MAKE, FURTHER ENQUIRIES WHILE DISPOSIN G APPEAL, WITHIN THE MEANING OF SECTION 250(4) OF THE ACT. IN 21 THE PRESENT CASE, AO HAS MADE NECESSARY ENQUIRIES, AND CONFRONTED THE RESULT OF SAID ENQUIRIES TO THE ASSE SSEE APPELLANTS. CONSEQUENTLY, ON THE BASIS OF PROPER APPRECIATION OF THE ENTIRETY OF THE FACTS AND SURRO UNDING CIRCUMSTANCES OF THE CASE AND FOLLOWING THE DECISIO N OF THE HON'BLE SUPREME COURT, IN THE CASE OF JIYA JEERAO C OTTON MILLS LTD. V CIT AND EPT (1958) 34 ITR 888 (S.C) AN D DECISION OF THE CONSTITUTION BENCH OF HON'BLE SUPRE ME COURT, IN THE CASE OF MCDOWELL CO. LTD. V COMMERCIA L TAX OFFICER 154 ITR 140 (S.C), THE AO, VALIDLY DISALLOW ED THE IMPUGNED CLAIM OF SHORT TERM CAPITAL LOSS MADE BY T HE APPELLANTS. 10(II) LD. CIT(APPEALS), HAS PLACED RELIANCE, O N THE DECISION OF THE HON'BLE SUPREME COURT, IN CIT V KAR AM CHAND THAPAR & BROS., 176 ITR 535 (S.C). WE HAVE CONSIDERED THE FACT-SITUATION OF THE CASE RELIED UP ON BY THE CIT(APPEALS) AND FOUND THAT THE SAME IS NOT APPLICA BLE TO THE FACTS OF THE PRESENT CASE, BEING FACTUALLY DIFF ERENT AND DISTINGUISHABLE. THE HON'BLE SUPREME COURT, IN THA T CASE HELD THAT TRIBUNAL IS THE FINAL FACT FINDING BODY. THE QUESTION, WHETHER A PARTICULAR LOSS IS A TRADING OR A CAPITAL LOSS AND WHETHER THE LOSS IS GENUINE OR BOGUS ARE P RIMARY QUESTIONS TO BE DETERMINED, ON APPRECIATION OF THE FACTS. THE HON'BLE SUPREME COURT HAS ADJUDICATED THE ISSUE IN QUESTION, ON THE BASIS OF FACTUAL FINDING, ARRIVED AT BY THE TRIBUNAL IN THAT CASE. THEREFORE, THE JUDICIAL PRE CEDENT IS APPLICABLE WHERE THE FACT SITUATIONS ARE SIMILAR IN NATURE. IN THE PRESENT CASE, FACT-SITUATIONS AS HIGHLIGHTED ABOVE, 22 ARE PATENTLY DIFFERENT AND DISTINGUISHABLE VIS--VI S THE FACT- SITUATION OF THE CASE RELIED UPON BY THE CIT(APPEAL S). NEEDLESS TO SAY THAT THE JUDICIAL PRECEDENT IS APPL ICABLE ONLY IN THE CONTEXT OF SIMILARITY OF FACTUAL-MATRIX OF THE CASE. IN THE PRESENT CASE, THE FACT-SITUATION DOE S NOT BEAR EVEN THE SEMBLANCE OR RESEMBLANCE, TO THE FACT-SITU ATION OF THE CASE RELIED UPON BY THE CIT(APPEALS). 10(III) LD. CIT(APPEALS), FURTHER, PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT, IN THE CASE OF K.P.VERGHESE 131 ITR 597 (S.C). LD. CIT(APPEALS) H AS MISREAD AND MISAPPLIED THE RATIO LAID DOWN BY THE H ON'BLE SUPREME COURT, IN THE CASE OF K.P.VERGHESE (SUPRA). IN THE PRESENT CASE, DETAILS OF TRANSACTIONS ARE PLAIN AND CLEAR AND, HENCE, THERE IS NO NEED, TO PROVE SUCH TRANSAC TIONS, WITHIN THE CONTEMPLATION OF THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT, IN THE CONTEXT OF FACTS OF T HE DECISION IN THE CASE OF K.P.VERGHESE (SUPRA). IN T HE PRESENT CASE, INTEGRITY OF THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES AND SURROUNDING CIRCUMSTANCES OF THE CASE, A S RELIED UPON BY THE AO, CLEARLY PROVES THAT SUCH TRANSACTIO NS WERE MAKE BELIEF TRANSACTIONS AND, HENCE, RESULTANT SHOR T TERM CAPITAL LOSS WAS RIGHTLY DISALLOWED BY THE AO. 10(IV) LD. CIT(APPEALS) PLACED RELIANCE ON THE DE CISION OF THE HON'BLE SUPREME COURT IN THE CASE OF UNION OF I NDIA V AZADI BACHAO ANDOLAN 263 ITR 706 (S.C). LD. CIT(AP PEALS), AND CONSEQUENTLY, EXTRACTED OBSERVATIONS FROM THE D ECISION OF THE HON'BLE SUPREME COURT AND SOUGHT TO APPLY TH E 23 SAME, TO THE FACT-SITUATION OF THE PRESENT CASE. T HE DECISION OF THE HON'BLE SUPREME COURT, IN THE CASE OF UOI VAZADI BACHAO ANDOLAN (SUPRA) PERTAINS TO INTERPRET ATION OF DOUBLE TAXATION AVOIDATION TREATY AND CBDT CIRCULAR , IN THE LIGHT OF SECTION 90 OF THE ACT. IN VIEW OF THI S, THE OBSERVATIONS OF THE HON'BLE SUPREME COURT, IN THE S AID DECISION, CANNOT BE QUOTED AND RELIED UPON OUT OF C ONTEXT, AS HELD BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V SUN ENGINEERING WORKS P.LTD. 198 ITR 297 ( S.C), IT IS NEITHER DESIRABLE NOR PERMISSIBLE TO PICK OU T A WORD OR SENTENCE FROM THE JUDGEMENT OF THE HON'BLE SUPREME COURT DIVERSED FROM THE CONTEXT OF THE QUESTION UNDER CON SIDERATION AND TREAT IT TO BE THE COMPLETE LAW DECLARED BY THE COURT. THE JUDGEMENT MUST BE READ AS A WHOLE AND THE OBSER VATION FROM THE JUDGEMENT HAVE TO BE CONSIDERED IN THE LIG HT OF THE QUESTIONS WHICH WERE BEFORE THE COURT. THE DECISIO N OF THE SUPREME COURT TAKES ITS COLOUR FROM THE QUESTION IN VOLVED IN THE CASE IN WHICH IT IS RENDERED AND, WHILE APPLYIN G THE DECISION TO A LATER CASE, COURTS MUST CAREFULLY TRY TO ASCERTAIN THE TRUE PRINCIPLE LAID DOWN BY THE DECIS ION. IN THE PRESENT CASE, DETAIL OF SERIES OF STEPS TAKEN B Y THE ASSESSEE APPELLANTS, TO GIVE EFFECT TO A MAKE-BELIE VE TRANSACTIONS OF PURCHASE AND SALE OF SHARES, AS HIG HLIGHTED ABOVE, CLEARLY INVOLVES NO INTERPRETATION OF TREATY OR STATUTORY PROVISIONS OR C.B.D.T. CIRCULAR. THE ISS UE IN THE PRESENT CASE IS TO BE CONSIDERED HAVING REGARD TO T HE ENTIRETY OF THE FACTS AND SURROUNDING CIRCUMSTANCES OF THE CASE AND CONDUCT OF HUMAN PROBABILITY. THE HON'BLE 24 SUPREME COURT, IN THAT CASE HELD THAT INDISCRIMINAT E APPLICATION OF THE RATIO DECIDENDI OF THE DECISION, IN THE CASE OF MC DOWELL & COMPANY V COMMERCIAL TAX OFFICE R (SUPRA), WITHOUT HAVING ANY REGARD TO THE FACTS OF EACH CASE, IS NOT PERMISSIBLE. THEREFORE, THE DECISION OF THE HON'BLE SUPREME COURT, RELIED UPON BY THE CIT(APPEALS), IS NOT APPLICABLE TO THE FACT-SITUATION OF THE PRESENT CAS E. 10(V) LD. CIT(APPEALS) ALSO REFERRED TO THE DECI SION OF HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA V AZADI BACHAO ANDOLAN (2003) 263 ITR 706 (S.C). THE CORE RATIO DECIDENDI LAID DOWN, IN THE JUDGEMENT OF THE CONSTITUTION BENCH OF HON'BLE SUPREME COURT, COMPRI SING OF FIVE JUDGES, IN MCDOWELL & CO. LTD. V COMMERCIAL TAX OFFICER (1985) 154 ITR 148 (S.C), STILL HOLDS THE F IELD, HAVING REGARD TO THE FACT-SITUATION OF A PARTICULAR CASE, AS IT HAS NOT BEEN REVERSED OR OVERRULED BY THE DECISION OF T HE DIVISIONAL BENCH OF THE HON'BLE SUPREME COURT, IN T HE CASE OF NEEDLESS TO STATE HERE THAT THE RATIO OF ANY DEC ISION HAS TO BE UNDERSTOOD IN THE CONTEXT, IT HAS BEEN RENDER ED. IT IS SETTLED PROPOSITION THAT JUDICIAL PRECEDENTS CANNOT BE APPLIED IN A PERFUNCTORY MANNER, AS HAS BEEN DONE BY THE LD. CIT(APPEALS), IN THE PRESENT CASE. THE FACT-SI TUATION OF THE PRESENT CASE, AS DISCUSSED ABOVE, WITH CIRCUIT SHARE TRANSACTION, HAVING NO REGARD TO THE MARKET FACTORS , DETERMINING RATE OF PURCHASE & SALE OF SUCH SHARES, CLEARLY POINT TO A CASE OF NON-GENUINE NATURE OF SUCH TRANS ACTIONS. THUS, THE FINDINGS OF THE AO, VIVIDLY UNMASKING THE TRUE NATURE OF SUCH TRANSACTIONS, REMAINS UN-REBUTTED, A T THE 25 LEVEL OF CIT(APPEALS), BY WAY OF FINDINGS BASED UPO N CREDIBLE AND COGENT EVIDENCES, BROUGHT ON RECORD. 10(VI) LD. CIT(APPEALS), FURTHER, PLACED RELIANCE ON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT, IN THE CASE OF CIT V ANUPAM KAPOOR 299 ITR 179 (P&H). WE H AVE PERUSED AND CONSIDERED THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT AND FOUND THAT THE SAME I S FACTUALLY DIFFERENT AND DISTINGUISHABLE AND, HENCE, SAME IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. I N THE DECISION RELIED UPON BY THE CIT(APPEALS), THE TRIBU NAL FOUND THAT PURCHASE CONTRACT NOTE, CONTRACT NOTE FO R SALES, DISTINCTIVE NUMBER OF SHARES, PURCHASED AND SOLD, C OPY OF SHARE CERTIFICATES AND THE QUOTATION OF SHARES ON T HE DATE OF PURCHASE AND SALES AND SUCH EVIDENCES WERE ACCEPTED BY THE DEPARTMENT IN THE ASSESSMENT YEAR 1993-94 AND N O CHALLENGE WAS MADE TO THE PURCHASE OF SUCH SHARES I N THAT YEAR. SHARES WERE SOLD THROUGH BROKER, WHO WAS A REGISTERED BROKER OF THE STOCK EXCHANGE ON THE RELE VANT DATE. THE SALE PROFITS WERE RECEIVED THROUGH ACCOUN T PAYEE CHEQUE. THE ASSESSEE HAD TAKEN SHARES FROM THE MAR KET. SHARES WERE ALLOTTED AND TRANSACTIONS TOOK PLACE TH ROUGH REGISTERED BROKER OF STOCK EXCHANGE. IN VIEW OF SU CH EVIDENCES, IT WAS HELD THAT AO HAD NO MATERIAL TO A RRIVE AT A CONCLUSION THAT SUCH TRANSACTIONS WERE SIMPLICITIER A DEVICE TO DEFRAUD THE REVENUE. THE HON'BLE JURISDICTIONAL HIGH COURT ALSO REFERRED TO SEVERAL OTHER DECISIONS WHIL E ADJUDICATING THE ISSUE. SUCH DECISIONS HAVE BEEN RE LIED UPON BY THE ASSESSEE. THUS, THE ISSUE WAS DECIDED B Y 26 HON'BLE JURISDICTIONAL HIGH COURT, IN THE LIGHT OF FACT- SITUATION OF THAT CASE. IN THE PRESENT CASE, FACTS ARE ENTIRELY DIFFERENT. THE SHARES WERE ALLOTTED BY AN UNLISTED COMPANY. SUCH SHARE TRANSACTIONS WERE NOT ACCEPTED AS GENUINE BY THE REVENUE, IN ANY OF THE ASSESSMENT YE AR. NO SHARE QUOTATIONS WERE FILED BY THE ASSESSEE APPELLA NT. IT HAS NOT BEEN BROUGHT ON RECORD THAT SUCH SHARE TRANSACTIONS WERE ROUTED THROUGH REGISTERED STOCK B ROKER. SIMILARLY, THE ORIGIN OF THE SALE OF SUCH SHARES, U LTIMATELY RESULTED INTO PURCHASE OF SUCH SHARES BY THE SELLER COMPANY I.E. M/S ARCEE ISPAT UDYOG LTD. THEREFORE, IN THE L IGHT OF SUCH FACTUAL BACKGROUND, CASE LAW RELIED UPON BY TH E CIT(A) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 10(VII) LD. CIT(APPEALS) PLACED RELIANCE, ON THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V B.M.KHARWAR. THIS DECISION HAS BEEN FOUNDED ON THE OBSERVATION OF THE DUKE OF WESTMINSTER V COMMISSIONER OF INLAND REVENUE (19 35) 19TC 490 HL. THE DECISION WAS RENDERED, ON 13.8.19 68, AND SINCE THEN, THERE ARE PLETHORA OF DECISIONS REN DERED BY THE HON'BLE SUPREME COURT, WHEREBY SUBSTANCE OF THE MATTER HAS BEEN RECOGNIZED AS A VALID MATERIAL, TO FIND OUT THE TRUTH AND TRUE NATURE OF ANY TRANSACTION. THE DECISIONS OF THE HON'BLE SUPREME COURT RELIED UPON BY THE AO, AS DISCUSSED EARLIER, SUPPORTS THIS VIEW. THEREFORE, HAVING REGARD TO THE FACT-SITUATION OF THE PRESENT CASE AN D THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE CASE , INCLUDING THE NATURE OF EVIDENCES FILED BY THE ASSE SSEE APPELLANTS, IN THE MATTER OF SUCH SHARE TRANSACTION S, IT 27 CANNOT BE SAID THAT FACTS OF THE CASE, RELIED UPON BY THE CIT(APPEALS), ARE SIMILAR TO THE FACTS OF THE PRESE NT CASE. THEREFORE, DECISION RELIED UPON BY THE CIT(APPEALS) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 11. LD. CIT(APPEALS) REFERRED TO THE DECISION OF TH E HON'BLE SUPREME COURT, IN PULLANGODE RUBBER PRODUCE CO.LTD. V STATE OF KERALA 91 ITR 18 (S.C). LD. CIT(APPEALS), IN PARA 5.4 OF THE IMPUGNED ORDER, AND ALSO REFERRED TO THE DECISION IN QUAYUM V CIT 184 ITR 404 (ALL), TO HIGHLIGHT THE POINT THAT ADMISSION CANNOT BE THE FOUNDATION OF ASSESSME NT. 11(I) WE HAVE PERUSED AND CONSIDERED THE DECISIO NS RELIED UPON BY THE CIT(APPEALS). IN THE PRESENT CASE, TH E ASSESSEE APPELLANTS IN THE COURSE OF ASSESSMENT PROCEEDINGS, VOLUNTARILY MADE AN OFFER BEFORE THE AO, TO SURREND ER THE IMPUGNED SHORT TERM CAPITAL LOSS, SUBJECT TO NO PEN AL ACTION. SUCH OFFER OF THE ASSESSEE APPELLANTS, WAS NOT ACCEPTED BY THE AO AND HE DISALLOWED THE IMPUGNED C LAIM OF SHORT TERM CAPITAL LOSS, BY RECORDING A DETAILED FINDINGS IN THE IMPUGNED ASSESSMENT ORDER. 11(II) THUS, HAVING REGARD TO THE FINDINGS OF THE AO AND FACT-SITUATION OF THE PRESENT CASE, IT IS EVIDENT T HAT THE ASSESSMENT HAS NOT BEEN FRAMED ON THE BASIS OF VOLU NTARY ADMISSION MADE BY THE ASSESSEE APPELLANTS. THEREFO RE, RELIANCE PLACED BY THE CIT(APPEALS), ON SUCH CASE L AWS IS MISPLACED. IT IS, FURTHER, ADDED THAT HON'BLE SUPR EME COURT IN PHULLANGODE RUBBER PRODUCE CO. (SUPRA) HEL D THAT CONFESSION IS A SIGNIFICANT EVIDENCE BUT NOT A CONC LUSIVE 28 ONE. IN VIEW OF THIS, SELF-ADMISSION AND CONSEQUEN T OFFER OF SURRENDER MADE BY ASSESSEE APPELLANTS, IN RESPECT O F IMPUGNED SHORT TERM CAPITAL LOSS, FURTHER, SUPPORTS THE FINDINGS RECORDED BY THE AO, IN THE MATTER. 12. LD. CIT(APPEALS) HAS REFERRED TO THE PROVISIONS OF SECTION 50C OF THE ACT. WE DO NOT FIND ANY RELEVANC E AND SUBSTANCE, IN MAKING SUCH A REFERENCE TO THE PROVIS IONS OF SECTION 50C OF THE ACT, AS NEITHER THE AO INVOKED S UCH PROVISIONS NOR THE SAME ARE APPLICABLE, TO THE FACT S OF THE PRESENT CASE. 13. IT IS THE DUTY OF THE COURT IN EVERY CASE, WHE RE INGENUINITY IS EXPENDED, TO AVOID TAXING AND WELFAR E LEGISLATION, TO GET BEHIND THE SMOKE SCREEN AND DIS COVER THE TRUE STATE OF AFFAIRS. THE COURT IS NOT TO BE SATI SFIED WITH FORM AND LEAVE ALONE THE SUBSTANCE OF THE TRANSACTI ON. THIS VIEW HAS BEEN UPHELD BY THE HON'BLE SUPREME COURT, IN WORKMAN OF ASSOCIATED RUBBER INDUSTRIES LTD. (1986) 157 ITR 77 (S.C) AND IN ESS ESS KAY ENGG. CO.(P) LT D. V CIT (1985) 15 ITR 636 (P&H). THE HON'BLE KERALA HIGH COURT IN ONAM AGARBATI CO. V DY.CIT (2009) 310 ITR 56 (KER) HAS HELD THAT THOUGH A TAX PAYER MAY RESORT T O A DEVICE TO DIVERT THE INCOME BEFORE IT ACCRUES TO HI M, THE EFFECTIVENESS OF ADVICE DEPENDS UPON ITS GENUINENES S. THE SUBSTANCE OF THE TRANSACTION HAS TO BE ASSESSED BY APPLYING THE TAXING STATUTE SO AS TO ASCERTAIN WHET HER IT IS A SHAM OR MAKE-BELIEVE TRANSACTION OR ONE WHICH IS GENUINE. 29 14. LD. 'DR' PLACED RELIANCE ON THE DECISION OF T HE JURISDICTIONAL HIGH COURT IN THE CASE OF SOMNATH MA INI V CIT (2008) 306 ITR 414 (P&H) AND BALBIR CHAND MAIN I V CIT & ANOTHER (2012) 340 ITR 161 (P&H) AND CONTENDE D THAT THE ISSUE IN QUESTION IS COVERED BY THESE DECISIONS . WE HAVE CAREFULLY PERUSED AND CONSIDERED THE FACTS AND THE RATIO OF THE DECISIONS OF THE JURISDICTIONAL HIGH COURT, IN THE CASE OF BALBIR CHAND MAINI (SUPRA) AND SOMNATH MAINI V CIT (SUPRA) AND FOUND THAT THE FACTS OF THE PRESENT CAS E ARE SQUARELY COVERED BY THIS DECISION. THE RELEVANT AN D OPERATIVE PART OF THE DECISION IN THE CASE OF BALBI R CHAND MAINI (SUPRA) IS REPRODUCED HEREUNDER : THE RETURN FOR THE ASSESSMENT YEAR 1998-99, FILED BY THE ASSESSEE AT AN INCOME OF RS. 7,93,140 WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME-TAX ACT, 1961. SUBSEQUENTLY, IN RESPONSE TO A NOTICE UNDER SECTION 148, THE ASSE S-SEE AGAIN FILED A RETURN DECLARING THE SAME INCOME AS SHOWN IN THE RETURN FILED EARLIER. D URING THE REASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD P URCHASED 30000 SHARES OF A AT THE RATE BETWEEN RS. 2.50 AND RS 3.40 PER SHARE, IN THE MON TH OF APRIL, 1997, AND OUT OF THOSE SHARES, HE SOLD 24000 SHARES THROUGH A BROKER. THE ASSESSING OFFICER CAME TO THE OPINION THAT THE VALUE OF THE SHARES COULD NOT BE A S HIGH AS RS. 55 PER SHARE AND ACCORDINGLY MADE AN ADDITION OF RS.12,47,500 TO THE INCOME OF THE ASSESSEE AS INCOME FROM UNDISCLOSED SOURCES. HOWEVER, HE DETERM INED A SUM OF RS. 2,85,620 AS LONG-TERM CAPITAL LOSS, WHILE COMPUTING THE INCOME. THE COMMISSIONER (APPEALS) DELETED THE ADDITIONS WHEREAS THE TRIBUNAL REVERSED THE ORDER OF THE COMMISSIONER (APPEALS) AND UPHELD THE ADDITIONS MADE BY THE ASSE SSING OFFICER. ON APPEAL : HELD, DISMISSING THE APPEAL, (I) THAT THE TRIBUNAL RECORD ED A FINDING OF FACT THAT THE TRANSACTION OF SALE AND PURCHASE OF SHARES OF A WAS NOT A GENUINE TRANSACTION. THE ASSESSING OFFICER HAD FOUND THAT THE SALE OF SHARES HAD NOT TAKEN PLACE THROUGH ANY- STOCK EXCHANGE. ON SCRUTINY OF THE BOOKS OF ACCOUNT IF THE BROKER THE ASSESSING OFFICER FOUND THAT THERE WERE CASH DEPOSITS IN ITS BANK ACC OUNT PRECEDING THE ISSUE OF CHEQUES IN THE NAME OF THE ASSESSEE FOR PURCHASE OF SHARES CLAIMED TO BE THE SALE PROCEEDS OF THE SAME SHARES RECEIVED IN ADVANCE. THE BROKER COULD NOT GI VE THE DETAILS OF THE PURCHASER OF THE SHARES. THE AO FOUND THAT IT WAS A CLOSE CIRCUIT T RANSACTION AND CLEARLY A STRUCTURED ONE. THE AO HAD ALSO DETERMINED THE VALUE OF SHARES OF A ON THE BASIS OF THE FINANCIAL DATA COLLECTED BY HIM AND WORKED OUT THE VALUE OF SHARES TO BE NOT MORE THAN RS.9.37 PER SHARE BY ADOPTING TWO METHODS FOR CALCULATION OF NE T ASSET VALUE. THERE WAS NO PERVERSITY OR ERROR OF LAW IN THE ORDER OF THE TRIBUNAL. 15. IT IS ESSENTIAL ON THE PART OF THE REVENUE AUTH ORITY, TO LOOK INTO THE REAL NATURE OF TRANSACTION AND WHAT H APPENS IN THE REAL WORD AND CONTEXTUALIZE THE SAME TO SUCH 30 TRANSACTIONS IN THE REAL MARKET SITUATION. IT IS P ERTINENT TO STATE HERE, THE JUDICIAL WISDOM OF HON'BLE SUPREME COURT IN CIT V ARVINDA RAJU (TN) (1979) 120 ITR 46 (S.C) WHE REIN IT WAS HELD THAT ONE DAY, IN OUR WELFARE STATE GEARED TO SOCIAL JUSTICE, THIS CLEVER CONCEPT OF AVOIDANCE AS AGAINST EVASION MAY HAVE TO BE EXPOSED. IN THE PRESENT CASE, THERE IS AN OBVIOUS AND PLAIN TRANSAC TION OF TAX EVASION WHICH HAS BEEN CLOTHED WITH THE SMOKE-S CREEN OF SUBTERFUGES, BY THE ASSESSEE APPELLANTS. THE FA CTS OF THE PRESENT CASE CLEARLY REVEALS THAT SUCH TRADING TRAN SACTIONS OF PURCHASE AND SALE OF SHARES, HAD NOT BEEN EFFECT ED, FOR COMMERCIAL PURPOSE BUT TO CREATE ARTIFICIAL LOSS, W ITH A VIEW TO REDUCING TAX LIABILITY. THE APPELLANT RESORTED T O READYMADE SCHEME FOR PURCHASE AND SALE OF SHARES WH ICH ULTIMATELY FOUND THEIR LAST DESTINATION, TO THE ORI GINAL SELLER I.E. THE SAID UNLISTED COMPANY. SUCH TRANSACTIONS ARE NOT GENUINE AND NATURAL TRANSACTIONS BUT PRECONCEIVED TRANSACTIONS, DEMONSTRATING CREATION OF SUCH SHORT TERM CAPITAL LOSS. SUCH TRANSACTIONS ARE MUTUALLY SELF- SERVING. IT IS MENTIONED THAT EARNING PROFIT IS A NATURAL INSTI NCT INGRAINED IN HUMAN BEINGS, PARTICULARLY IN THE BUSINESSMAN, UNLESS, OF COURSE, EARNING OF LOSS IS ALSO A PROFITABLE PROPOSITION, AS IS DISCERNIBLE FROM THE FACT- SITUATION OF THE PRESENT APPEALS. THE APPELLANTS R ESTORED TO A PRECONCEIVED SCHEME, TO PROCURE SHORT TERM CAPITA L LOSS, FOR THE PURPOSE OF NEUTRALIZING THE SHORT TERM CAPI TAL GAINS, BY WAY OF PRICE-DIFFERENTIAL, IN THE SAID SHARE TRA NSACTIONS, NOT SUPPORTED BY MARKET FACTORS. CUMULATIVE EVENTS IN 31 SUCH TRANSACTIONS OF SHARES REVEALS THAT THE SAME A RE DEVOID OF ANY COMMERCIAL NATURE AND FALL IN THE RE ALM OF NOT BEING BONAFIDE, IN CONTENTS. IN VIEW OF THE A BOVE LEGAL AND FACTUAL DISCUSSIONS AND JUDICIAL PRECEDENTS DIS CUSSED ABOVE, WE ARE OF THE OPINION THAT THE FINDINGS OF T HE CIT(APPEALS) ARE NOT BASED ON RELEVANT, COGENT AND CREDIBLE MATERIAL OR EVIDENCE. SUCH SHARE TRANSACTIONS WERE NOT QUOTED AND CONSEQUENTLY, WERE NOT TRADED THROUGH ST OCK EXCHANGE. WHEN ALL THE FACTS AND CIRCUMSTANCES OF THE CASE ARE VIEWED, IN TOTALITY, IT IS EVIDENT THAT THE ASS ESSEE APPELLANTS FAILED TO DISCHARGE THE ONUS, TO PROVE T HE GENUINENESS OF THE TRANSACTIONS OF PURCHASE AND SAL ES OF SUCH SHARES. THE IMPUGNED TRANSACTIONS OF SHARES AR E PRE- ORDAINED ONE, NOT FOR LEGITIMATE COMMERCIAL PURPOSE IN VIEW BUT FOR THE PURPOSE OF CREATING NON-GENUINE AND ART IFICIAL SHORT TERM CAPITAL LOSS, WITH A VIEW TO REDUCING VA LID TAX- LIABILITY. THESE TRANSACTIONS OF SHARES WERE NOT GO VERNED BY MARKET FACTORS PREVALENT AT THAT RELEVANT TIME, IN SUCH TRADE, BUT THE SAME ARE PRODUCT OF THE DESIGN AND M UTUAL UNDERSTANDING ON THE PART OF THE APPELLANTS AND THE SAID HISSAR BASED UNLISTED COMPANY. LD. CIT(APPEALS) HAS FAILED TO BRING ANY COGENT AND CREDIBLE EVIDENCE, TO DISLO DGE SUCH FINDING. HAVING REGARD TO THE PECULIAR FACT-SITUAT ION OF THE PRESENT CASE, IT IS EVIDENT THAT SUCH SHARE TRANSAC TIONS WERE CLOSE CIRCUIT TRANSACTIONS AND CLEARLY STRUCTU RED ONE. THEREFORE, IN THE LIGHT OF JUDICIAL PRECEDENTS OF JURISDICTIONAL HIGH COURT AND HON'BLE SUPREME COURT , AS 32 DISCUSSED ABOVE, WE DO NOT FIND ANY MERIT IN THE FI NDINGS OF THE CIT(APPEALS). 16. HAVING REGARD TO THE ABOVE LEGAL AND FACTUAL DISCUSSIONS, INCLUDING JUDICIAL PRECEDENTS DISCUSSE D ABOVE, OF THE HON'BLE SUPREME COURT AND JURISDICTIONAL HIG H COURT, THE FINDINGS OF THE CIT(APPEALS) CANNOT BE S USTAINED AND, HENCE, THE SAME ARE REVERSED. FURTHER, AN OFF ER TO SURRENDER THE IMPUGNED LOSS, SUBJECT TO NO PENAL AC TION, MADE BY THE APPELLANTS BEFORE THE AO, IN THE COURSE OF ASSESSMENT PROCEEDINGS, IS AN IMPORTANT PIECE OF EV IDENCE, HENCE, CANNOT BE IGNORED LIGHTLY. CONSEQUENTLY, TH E FINDINGS OF THE AO, AS RECORDED IN THE IMPUGNED ASS ESSMENT ORDER, ARE RESTORED. 17. IN THE RESULT, ALL THE APPEALS OF THE REVENUE A RE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH NOV.,2012. SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29 TH NOV.,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH