The ACIT,(OSD)Circle-8, Ahmedabad V. Suraj Limited, Ahmedabad

ITA 970/AHD/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8616 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 01-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: G C PIPARA
• Keywords: Business income; Speculation loss; Sham transactions; Speculative transactions
• Section: 143(3); 14A; 43(5)

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ ././ ./ ITA NO. 853/AHD/2011 (AY: 2007-08) SURAJ LIMITED, SURAJ HOUSE, OPP. USMANPURA GARDEN, USMANPURA, AHMEDABAD PAN : AAICS 9693 L DCIT, CIRCLE-8, AHMEDABAD ./ ././ ./ ITA NO. 970/AHD/2011 (AY: 2007-08) ACIT (OSD), CIRCLE-8, AHMEDABAD SURAJ LIMITED, AHMEDABAD PAN : AAICS 9693 L ./ ././ ./ ITA NO. 2435/AHD/2011 (AY: 2008-09) SURAJ LIMITED, AHMEDABAD PAN : AAICS 9693 L ITO, CIRCLE -8, AHMEDABAD ./ ././ ./ ITA NO. 2473/AHD/2011 (AY: 2008-09) ITO, CIRCLE -8(2), AHMEDABAD SURAJ LIMITED, AHMEDABAD PAN : AAICS 9693 L / // / (APPELLANT) / // / (RESPONDENT) ASSESSEE(S) BY : SHRI G.C. PIPARA, AR REVENUE BY : SHRI SANTOSH KARNANI, SR. DR. !' # $%&/ // / DATE OF HEARING : 24/02/2015 '() # $%& / // / DATE OF PRONOUNCEMENT: 17/03/2015 *+ *+ *+ *+/ // / O R D E R PER BENCH : THESE TWO SETS OF CROSS-APPEALS PERTAINING TO THE ASSESSMENT YEARS 2007-08 AND 2008-09 BY THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE ORDERS OF THE LD. COMMISSIONER OF INCOME TAX (APPEA LS)-XIV, AHMEDABAD ITA NOS. 853, 970, 2435 & 2473 AHD 2011 SURAJ LIMITED FOR AY 2007-08 & 2008-09 2 DATED 28.01.2011 AND 14.07.2011. SINCE COMMON GROU NDS ARE INVOLVED, ALL THESE FOUR APPEALS WERE TAKEN UP TOGETHER FOR HEARI NG AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRSTLY, WE TAKE UP THE APPEALS PERTAINING TO TH E ASSESSMENT YEAR 2007-08. ITA NO.970/AHD/2011 (BY REVENUE) : ASSESSMENT YEAR : 2007-08 3. THE REVENUE HAS RAISED FOLLOWING GROUNDS IN ITS APPEAL:- 1. THE LD. CIT(A)-XIV, AHMEDABAD ERRED IN LAW AND ON F ACTS IN DIRECTING THE ASSESSING OFFICER TO TREAT THE LOSS OF RS.68,49 ,965/- AS BUSINESS LOSS INSTEAD OF TREATING THE SAME AS SPECULATION LOSS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME-TAX(A)-XIV, AHMEDABAD OUGHT TO HAVE UPHELD T HE ORDER OF THE ASSESSING OFFICER. 3. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD. C OMMISSIONER OF INCOME- TAX(A)-XIV, AHMEDABAD MAY BE SET-ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE AS SESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND ASSESSMENT U/S 143(3) OF TH E INCOME-TAX ACT (HEREINAFTER REFERRED TO AS 'THE ACT') WAS FRAMED V IDE ORDER DATED 30/12/2009, WHEREBY THE ASSESSING OFFICER DISALLOWE D THE ADJUSTMENTS OF BUSINESS LOSS AND MADE ADDITION IN RESPECT OF THE T RANSACTIONS MADE WITH THE RELATED PARTIES TREATING THEM AS SHAM TRANSACTI ONS. THE ASSESSING OFFICER ALSO MADE DISALLOWANCE U/S 14A OF THE ACT. AGAINST THE AFORESAID ORDER OF THE ASSESSING OFFICER, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A) WHO, AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE, PARTLY ALLOWED THE APPEAL VIDE ORDER DATED 28.01.2011. WH ILE PARTLY ALLOWING THE APPEAL, THE LD. CIT(A) HELD THAT THE EXPLANATION TO SECTION 73 WILL COME INTO ITA NOS. 853, 970, 2435 & 2473 AHD 2011 SURAJ LIMITED FOR AY 2007-08 & 2008-09 3 PLAY ONLY WHEN THE ADJUSTMENTS PERMITTED BY THE PRO VISIONS OF SECTIONS 70 & 71 OF THE ACT IS MADE IN THE ASSESSEES CASE. THE LD. CIT(A) ALSO GIVE A FINDING THAT THE MAJOR BUSINESS OF THE ASSESSEE IS FINANCING. THE LD. CIT(A) CONFIRMED THE ADDITION MADE ON ACCOUNT OF THE TRANS ACTIONS MADE WITH THE RELATED PARTIES. THE REVENUE IS AGGRIEVED WITH THE ORDER OF THE LD. CIT(A) IN RESPECT OF THE FINDING THAT THE EXPLANATION TO SECT ION 73 WOULD APPLY ONLY AFTER THE ADJUSTMENTS OF BUSINESS LOSS AS PERMITTED BY THE PROVISIONS OF SECTIONS 70 & 71 OF THE ACT IS MADE AND ACCORDINGLY , THE REVENUE HAS PREFERRED THE PRESENT APPEAL. 5. THE ONLY EFFECTIVE GROUND IN THIS APPEAL IS AGAI NST TREATING THE LOSS CLAIMED AS BUSINESS LOSS INSTEAD OF SPECULATION LOS S. 6. THE LD. CIT-DR SUBMITTED THAT THE ASSESSING OFFI CER HAS GIVEN A FINDING THAT THE LOSS IS SPECULATION LOSS AND THERE FORE, THE EXPLANATION TO SECTION 73 OF THE ACT WOULD NOT HELP. HE SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN OBSERVING THAT THE EXPLANATION TO SECT ION 73 WOULD COME INTO PLAY ONLY WHEN THE ADJUSTMENTS U/S 70 & 71 OF THE A CT IS MADE. HE PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSING OFFICER HAS GIVEN A FINDING THAT THE LOSS IS NOTHING BUT A SPECULATION LOSS. 7. ON THE CONTRARY, THE LD. COUNSEL FOR THE ASSESSE E SUBMITTED THAT IT IS EVIDENT FROM THE MEMORANDUM OF THE ASSOCIATION OF T HE ASSESSEE-COMPANY THAT ONE OF THE BUSINESSES OF THE ASSESSEE-COMPANY IS FINANCING. HE SUBMITTED THAT THIS FACT IS NOT DISPUTED BY THE REV ENUE. THEREFORE, IN VIEW OF THE EXCEPTION TO THE EXPLANATION TO SECTION 73, THE PROVISIONS OF SECTION 73 WOULD NOT APPLY. HE SUBMITTED THAT IT IS DEMONS TRATED BEFORE THE AUTHORITIES BELOW THAT THE DOMINANT BUSINESS OF THE ASSESSEE IS FINANCING. ITA NOS. 853, 970, 2435 & 2473 AHD 2011 SURAJ LIMITED FOR AY 2007-08 & 2008-09 4 HE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BU SINESS OF FINANCING AND HAVING DEPLOYED MORE THAN 68% OF THE CAPITAL IN THE FINANCING BUSINESS AND THE LOSS FROM BUSINESS IS TO BE TREATED AS BUSINESS LOSS AND NOT SPECULATIVE LOSS SINCE THE PROVISIONS OF SECTION 73 ARE NOT APP LICABLE IN THE INSTANT CASE. HE ALSO SUBMITTED THAT THE LD. CIT(A) HAS RIGHTLY H ELD THAT THE GROSS TOTAL INCOME IS TO BE COMPUTED FIRST APPLYING PROVISIONS OF SECTION 70 & 71 OF THE ACT AND THEN ONLY THE APPLICABILITY TO EXPLANATION TO SECTION 73 CAN BE MADE. ACCORDINGLY, LOSS IN THE BUSINESS OF TRADIN G IN SHARES AND SECURITIES IS TO BE SET-OFF AGAINST THE PROFIT OF OTHER BUSINE SS AS PER THE PROVISIONS OF SECTION 70 OF THE ACT. HE ALSO SUBMITTED THAT NO MA TERIAL OR EVIDENCE WAS BROUGHT ON RECORD BY THE ASSESSING OFFICER TO SHOW THAT THE ASSESSEE- COMPANY MADE LOSS IN SHARE TRADING ACTIVITY IN ORDE R TO REDUCE THE TAX INCIDENCE. HE SUBMITTED THAT LD. CIT(A) HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO TREAT THE INTEREST INCOME OF RS.64,98,59 0/- AS BUSINESS INCOME AND FURTHER DIRECTED THE ASSESSING OFFICER TO ALLOW SET -OFF OF LOSS OF RS.34,80,608/- IN THE BUSINESS OF SHARE TRADING ACT IVITY AGAINST SUCH INTEREST INCOME. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. WE F IND THAT THE LD. CIT(A) HAS DECIDED THIS ISSUE AS UNDER:- 2.6. I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSION OF THE APPELLANT AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ACCOR DINGLY, I AGREE WITH THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT THAT TH E AO COULD NTO INVOKE THE PROVISIONS OF SECTION 73 AND EXPLANATION THERETO WI THOUT ADJUSTING THE LOSSES AND GAINS FROM VARIOUS SOURCES UNDER THE HEA D BUSINESS, AS PERMITTED BY THE PROVISIONS OF SECTION 70 AND 71 OF THE IT ACT, 1961, AND ONLY THEN, IF THE APPELLANTS CASE FELL WITHIN THE NON-EXCLUDED CATEGORIES OF COMPANIES AS PER THE EXPLANATION TO SECTION 73, COU LD THESE PROVISIONS BE INVOKED. IN THE APPELLANTS CASE, THE INCOME IS MA INLY FROM TWO SEPARATE BUSINESS VIZ. INTEREST INCOME OF RS.64,98,590/- AND SHARE TRADING LOSS OF ITA NOS. 853, 970, 2435 & 2473 AHD 2011 SURAJ LIMITED FOR AY 2007-08 & 2008-09 5 RS.34,80,608/- AS PER SCHEDULE 8 OF THE BALANCE S HEET, THEREFORE LOSS FROM SHARE TRADING WOULD HAVE TO BE SET OFF AGAINST THE INTEREST INCOME AND THE PROVISIONS OF SECTION 73 AND THE EXPLANATION THERET O WOULD NOT APPLY IN THE APPELLANTS CASE TO THE EXTENT TO INCOME FROM INTER EST. FURTHER, THE ASSESSEES CONTENTION THAT THE PROVISI ONS OF SECTION 73 R/W EXPLANATION THERETO, ARE NOT APPLICABLE TO THE ASSE SSEE COMPANY TO THE EXTENT OF INTEREST INCOME AS WAS HELD IN ACIT VS. CONCORD COMMERCIALS (P) LTD, ITAT, MUMBAI H SPECIAL BENCH, 94 TTJ 913 APPLIES IN PRESENT CASE. THUS, THE ASSESSEE IS JUSTIFIED IN SET OFF OF LOSSE S INCURRED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES AGAINST THE INTEREST IN COME. THE DECISION OF THE CALCUTTA HIGH COURT IN EASTERN AVIATION & INDUSTRIE S LTD VS. CIT (SUPRA) AND DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. PARK VIEW PROPERTIES (P) LTD 261 ITR 473 (CAL.) CITED BY THE ASSESSING OFFICER IS NOT APPLICABLE TO ASSESSEES CASE AS THE FACTS RELA TING TO THE COMPOSITION OF THE GROSS TOTAL INCOME ARE DIFFERENT. DURING THE COURSE OF HEARING THE LD. COUNSEL FOR T HE ASSESSEE HAS DRAWN OUR ATTENTION TO THE BALANCE-SHEET TO BUTTRES S ITS CONTENTION THAT THE MAJOR CAPITAL IS APPLIED FOR THE BUSINESS OF FINANC ING. THEREFORE, THE BENEFIT OF EXCEPTION IS AVAILABLE TO THE ASSESSEE. WE FIND THAT THE REVENUE HAS NOT CONTROVERTED THIS CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT ONE OF THE OBJECTS OF THE ASSESSEE-COMPANY IS FINANCING. I T IS NOT CONTROVERTED THAT THE MAJOR CAPITAL IS DEPLOYED FOR THE PURCHASE OF A DVANCING OF LOAN ETC.. THE EXPLANATION TO SECTION 73 OF THE ACT READS AS UNDER :- WHERE ANY PART OF THE BUSINESS OF A COMPANY ([OTHE R THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES ], OR A COMP ANY [THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANKING] OR TH E GRANTING OF LOANS AND ADVANCES) CONSISTS IN THE PURCHASE AND SALE OF SHAR ES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTIO N, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH TH E BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES.] ITA NOS. 853, 970, 2435 & 2473 AHD 2011 SURAJ LIMITED FOR AY 2007-08 & 2008-09 6 9. LD. COUNSEL FOR THE ASSESSEE HAS DEMONSTRATED TH AT ONE OF THE OBJECTS OF THE ASSESSEE-COMPANY IS FINANCING AND MAJOR PORT ION OF THE CAPITAL IS DEPLOYED FOR THE PURPOSE OF ADVANCING LOAN. EVEN I N THE BALANCE-SHEET, THE INTEREST INCOME IS SHOWN AS RS.64,98,590/-. THEREF ORE, WE DO NOT FIND ANY GOOD REASON TO INTERFERE INTO THE ORDER OF THE LD. CIT(A) WHICH IS HEREBY CONFIRMED. THIS GROUND OF APPEAL OF THE REVENUE IS REJECTED. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. NOW WE TAKE UP THE ASSESSEES APPEAL FOR AY 2007-08 . ITA NO. 853/AHD/ 2011 (BY ASSESSEE) : ASSESSMENT YE AR : 2007-08 10. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN IT S APPEAL:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN LAW AND ON FACTS IN CONFIRMING THE TRANSACTION ENTERED WITH RELATED PARTIES AS SHAM TRANSACTION IN RESPECT OF LOSS INCURRED IN SHA RE & SECURITIES, THOUGH THE BENEFICIARY OF THE SHARES HAD ALREADY PAID ADEQ UATE TAX ON THE INCOME EARNED ON SUCH TRANSACTION BY THEM. 2. THE APPELLANT CRAVES LEAVE TO ADD TO ALTER, DELETE OR MODIFY THE ABOVE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF H EARING OF THIS APPEAL. 11. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ONLY EFFECTIVE GROUND IS AGAINST THE CONFIRMATION OF THE TRANSACTI ONS AMOUNTING TO RS.34,80,608/- ALLEGED TO HAVE BEEN EFFECTED WITH T HE RELATED PARTIES. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(A) HAD DISMISSED THE GROUND ON THE VERY CURT ONE LINE OBSERVATION WITHOU T PROPER CONSIDERATION AND APPRECIATION OF THE ELABORATE SUBMISSIONS AND E XPLANATION FILED DULY SUPPORTED BY EVIDENCES. HE ALSO SUBMITTED THAT THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE-COMPANY WITH VARIOUS INDIVIDUA LS FOR PURCHASE AND SALE OF SHARES ARE GENUINE TRANSACTIONS DULY SUPPOR TED BY COMPREHENSIVE EVIDENCES IN FORM OF PURCHASE/SALE INVOICE OR DEBIT /CREDIT NOTES FROM THE ITA NOS. 853, 970, 2435 & 2473 AHD 2011 SURAJ LIMITED FOR AY 2007-08 & 2008-09 7 RESPECTIVE PARTIES. THE LD. COUNSEL FOR THE ASSESS EE ALSO SUBMITTED THAT THE OFF MARKET TRANSACTIONS ARE LEGAL AND VALID TRANSA CTIONS AND NOT BARRED BY THE STOCK EXCHANGE. HE FURTHER SUBMITTED THAT THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES, THOUGH BEING OFF-MARKET TRANSAC TIONS AND NOT THROUGH STOCK EXCHANGE, WERE ENTERED INTO AT THE PREVAILING MARKET PRICE ON THE DATE OF TRANSACTION. THE LEDGER ACCOUNT OF THE PARTIES AS SUBMITTED TO THE ASSESSING OFFICER AND LD. CIT(A) REFLECTS THE ACTUA L TRANSACTIONS AND PAYMENT MADE THROUGH CHEQUES. HE ALSO SUBMITTED TH AT THE INVOICE ALSO CARRIES THE NAME AND ADDRESS OF PARTIES AND THE FAC T THAT THEY HAVE DULY PAID TAXES ON SUCH INCOME AND THEREFORE THE TRANSAC TIONS IN QUESTION CANNOT BE CONSIDERED AS SHAM TRANSACTIONS. HE FURTHER SUB MITTED THAT NO EVIDENCES HAVE BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICE R EXCEPT MERE SURMISES AND ASSUMPTIONS IN SUPPORT OF HIS OBSERVATION THAT THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES WITH VARIOUS INDIVIDUAL S ARE SHAM TRANSACTIONS. 12. ON THE CONTRARY, LD. CIT-DR SUPPORTED THE ORDER S OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE FINDINGS ON FACTS HAVE BEEN GIVEN BY THE ASSESSING OFFICER THAT EVEN BEFORE THE DATE OF PURC HASE OF SHARES, SHARES HAVE BEEN SOLD. HE SUBMITTED THAT THERE IS NO INFIR MITY IN THE ORDERS OF THE AUTHORITIES BELOW. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. WE F IND THAT THE ASSESSING OFFICER IN PARAGRAPH 4 HAS OBSERVED AS UNDER:- 4. SHAM TRANSACTION IT WAS OBSERVED FROM THE DETAILS THAT THE ASSESSEE HAD BEEN INVOLVED IN TRANSACTIONS OF SHARES. IT WAS ALSO OBSERVED THAT T HE ASSESSEE HAD CLAIMED TO HAVE TRANSACTED WITH RELATED PARTIES COVERED U/S. 4 0A(2)(B) AND INCURRED LOSSES ON SUCH TRANSACTIONS. THE DETAILS OF THESE T RANSACTIONS ARE AS UNDER: ITA NOS. 853, 970, 2435 & 2473 AHD 2011 SURAJ LIMITED FOR AY 2007-08 & 2008-09 8 SR. NO. NAME OF RELATIVE DATE OF PURCHASE PURCHASE PRICE DATE OF SALE SALE PRICE LOSS INCURRED 1. GUNVANT T. SHAH (HUF) 31 - 8 - 06 3300000 30 - 8 - 06 2800000 500000 2. CHANDRIKA K. SHAH 23 - 8 - 06 3500000 23 - 8 - 06 2730000 770000 3. ASHOK T. SHAH (HUF) 21 - 8 - 06 3150000 18 - 8 - 06 2650000 500000 4. KUNAL T. SHAH (HUF) 25 - 8 - 06 3500000 24 - 8 - 06 3000000 500000 5. NISHA A. SHAH 16 - 8 - 06 3200000 14 - 8 - 06 2700000 500000 6. ANILABEN A. SHAH 11 - 8 - 06 3100000 10 - 8 - 06 2600000 500000 7. REKHA G. SHAH 29 - 8 - 06 3370000 28 - 8 - 06 2790000 580000 TOTAL 23120000 19270000 3850000 ALL THESE TRANSACTIONS WERE EXECUTED BETWEEN SUCH P ARTIES 'OFF MARKET'. SUCH TRANSACTIONS WERE NOT EXECUTED THROUGH STOCK EXCHAN GE. MOREOVER, THE ASSESSEE COMPANY HAD SOLD SUCH SHARES TO THESE PERS ONS AT LOWER RATE AND PURCHASED THEREAFTER AT HIGHER RATE. FIRST OF ALL N O BUSINESS PROFIT OR LOSS CAN BE CLAIMED ON SUCH TRANSACTIONS IN WHICH SALES WERE MADE PRIOR TO PURCHASES OF THESE SHARES. IN THIS REGARD THE ASSESSEE VIDE ORDER SHEET ENTRY DATED 29- 10-2009 WAS SHOW CAUSED TO EXPLAIN AS TO WHY SUCH T RANSACTIONS SHOULD NOT BE TREATED AS SHAM TRANSACTIONS. THE ASSESSEE VIDE SUBMISSION DATED 2-11- 2009 REPLIED AS UNDER: '8. SHAM TRANSACTION : THE TRANSACTION OF PURCHASE AND SALE OF SHARES WITH PERSONS COVERED U/S. 40A(2)(B) IS PROPOSED TO BE CONSIDERED AS SHAM TRANSACTION WHICH IS NOT LEGAL AND TENABLE ON THE FOLLOWING GROUNDS. FIRSTLY THE TRANSACTIONS ENTERED IN TO BY THE COMPA NY WITH VARIOUS INDIVIDUALS FOR PURCHASE AND SALE OF SHARES ARE GEN UINE TRANSACTIONS, THOUGH THEY WERE NOT EXECUTED THROUGH STOCK EXCHANG E BUT IT DOES NOT IMPLY THAT SUCH TRANSACTIONS ARE NOT LEGAL, SIN CE SUCH OFF MARKET TRANSACTIONS CAN BE EXECUTED IN BETWEEN PARTIES WHI CH IS NOT LEGALLY ITA NOS. 853, 970, 2435 & 2473 AHD 2011 SURAJ LIMITED FOR AY 2007-08 & 2008-09 9 PROHIBITED BUT THE ONLY DIFFERENCE IN SUCH TRANSACT ION IS THAT THE BENEFIT OF CONFESSIONAL RATE OF TAX U/S. 111A IS NO T AVAILABLE TO SELLER. FURTHER THE TRANSACTIONS ARE ALSO SUPPORTED BY PURC HASE / SALES AND / OR DEBIT / CREDIT NOTES RECEIVED FROM THE PARTY WIT H RESPECT TO THESE TRANSACTIONS. WE ARE ENCLOSING XEROX COPY OF DEBIT / CREDIT NOTE. MOREOVER, WE ARE ALSO SUBMITTING LEDGER A/C OF SUCH PARTIES WHICH ALSO REFLECTS THE ACTUAL TRANSACTIONS AND PAYMENT M ADE THROUGH CHEQUES TO SUCH PARTIES WHICH SHOWS THE GENUINENESS OF THE TRANSACTION. FURTHER THE INVOICES ALSO CARRIES NAME & ADDRESS OF SUCH PARTIES AND THEY HAVE PAID TAX ON SUCH INCOME AND T HEREFORE THESE TRANSACTIONS CANNOT BE CONSIDERED AS BENAMI OR SHAM TRANSACTION IN THE EYES OF LAW. WE ARE ENCLOSING XEROX COPIES OF I NCOME TAX RETURN OF SUCH- INDIVIDUAL FOR YOUR PERUSAL.' FURTHER, THE ASSESSEE VIDE SUBMISSION DATED 10-11-2 009 FURNISHED A XEROX OF BANK PASS BOOK OF CONCERNED PERSONS. THE REPLY OF THE ASSESSEE HAS BEEN PERUSED AND NO F ORCE IS FOUND IN THE CONTENTION OF THE ASSESSEE. THE FOLLOWING DISCREPAN CIES HAVE BEEN NOTED AS UNDER: 1. THE ASSESSEE SOLD THE SHARES PRIOR TO PURCHASE S. THE ASSESSEE SOLD SHARES AT LOWER RATES AND WITHIN A DAY OR TWO DAYS PURCHAS ED AT HIGHER RATES AND CLAIMED LOSSES ON SUCH TRANSACTIONS. THE ASSESS EE COULD NOT OFFER EXPLANATION AS TO WHY SUCH TRANSACTIONS WERE REQUIR ED TO BE EXECUTED BETWEEN THE FAMILY MEMBERS LEADING INTO ARTIFICIAL LOSSES. 2. ALL TRANSACTIONS WERE OFF MARKET TRANSACTIONS A ND WERE NOT EXECUTED THROUGH STOCK EXCHANGE. 3. SHARES WERE NOT ACTUALLY DELIVERED BETWEEN THE ASSESSEE AND THE CONCERNED PERSONS. ALL THE TRANSACTIONS WERE ONLY PAPER TRANS ACTIONS, I.E. NO DELIVERY WAS EFFECTED FOR SALES/PURCHASES OF SHARES . 4. BANK PASS BOOK REVEALS THAT THE ASSESSEE COMPA NY HAD PAID THE DIFFERENCE (LOSS AMOUNT) ON SUCH TRANSACTIONS TO THESE PERSONS . NO AMOUNT WAS RECEIVED OR PAID BY THE ASSESSEE COMPANY ON SALES A ND PURCHASES OF SUCH SHARES. THIS CLEARLY INDICATES THAT NO PURCHASE AND SALES WERE MADE SEPARATELY BETWEEN THE ASSESSEE AND THESE PERSONS. ALL SUCH TRANSACTIONS APPEAR AS BOGUS AND PAPER ENTRIES ONLY. SUCH LOSSES ARE APPEARED TO BE ENTERED INTO CREATE ARTIFICIAL LOSSES ONLY. ITA NOS. 853, 970, 2435 & 2473 AHD 2011 SURAJ LIMITED FOR AY 2007-08 & 2008-09 10 5. THE ASSESSEE HAS ENTERED INTO SPECULATION ACTIV ITIES TO AVAIL THE ARTIFICIAL LOSS CREATED BY SUCH ALLEGED TRANSACTIONS WHICH WER E SET OFF AGAINST THE INTEREST INCOME. 6. THE GAIN ARISEN ON SUCH TRANSACTIONS HAVE BEEN SHOWN BY ALL THESE PERSONS AS INCOME FROM OTHER SOURCES IN THEIR RETUR NS OF INCOME. WHERE PURCHASE AND SALE OF SHARES WERE DONE THROUGH CHEQU ES, WHICH WERE NOT ENCASHED, SO THAT THERE WAS NO MOVEMENT OF FUNDS, T HE TRANSACTIONS BEING AS BETWEEN THESE PERSONS AND THE ASSESSEE COM PANY ITSELF WITHOUT ANY EXPLANATION AS TO THE NEED FOR THE CIRCUMSTANCE S OF TRANSACTIONS, SUCH TRANSACTIONS COULD ONLY BE CONSIDERED SUSPICIO US AND AT ANY RATE MAY BE DISREGARDED WITH REFERENCE THE DECISION OF T HE HON'BLE SUPREME COURT IN THE CASE OF MCDOWELL AND CO. LTD, V. CTO ( 1985) 154 ITR 148 (SO AS HELD BY THE HIGH COURT IN CIT V. SHEKHAWATI RAJPUTANA TRADING CO. (1999) 236 ITR 950 (GAL.). 7. HERE THE OBJECT IS TAX AVOIDANCE AND METHOD AD OPTED IS A COLOURABLE DEVICE AND THE ASSESSEE COMPANY CANNOT BE ALLOWED T O GET AWAY WITH ANY ARTIFICIAL DEVICE TO AVOID TAX. 8. FURTHER, RELIANCE IS PLACED ON THE RECENT JUDG EMENT OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT AND JCIT ASSESSMENT - SPECIAL RANGE VS. SHARATH INVESTMENTS PVT. LTD. (MANU/KA0440/2009) DA TED 18-8-2009 IN WHICH IT WAS HELD THAT LOSS INCURRED BY THE ASSESSEE IN THE SALE OF SHARES DUE TO A PERSONAL SETTLEMENT ENTERED INTO BE TWEEN THE DIRECTORS OF THE ASSESSEE COMPANY AND THE DIRECTORS OF A SISTER GROUP OF COMPANIES IS NOT ALLOWABLE. 9. FURTHER RELIANCE IS PLACED ON FOLLOWING DECISI ONS: A. CITVS. S.P.JAIN [1973] 87 ITR 370 (SC) B. CGT VS. A. ABDUL KAYAM AND M. ABDUL KHALEEL [199 9] 236 ITR 776 (MAD.) IN VIEW OF THE ABOVE FACTS AND FINDINGS AND JUDICIA L PRONOUNCEMENTS, SUCH TRANSACTIONS OF RS.38,50,000 ARE TREATED AS SH AM TRANSACTIONS. WITHOUT PREJUDICE TO ABOVE, IF AT ANY STAGE IT IS H ELD THAT THE SHAM TRANSACTIONS ARE GENUINE, THEN ALSO, THE SHARE TRAN SACTIONS ARE IN THE NATURE OF SPECULATIVE TRANSACTIONS AS PER SECTION 43(5) OF THE IT, ACT, AS NO DELIVERY WAS EFFECTED IN THIS CASE ON SUCH TRANSACTIONS. SEC . 43(5) DEFINES 'SPECULATIVE ITA NOS. 853, 970, 2435 & 2473 AHD 2011 SURAJ LIMITED FOR AY 2007-08 & 2008-09 11 TRANSACTION' WHICH MEANS A TRANSACTION IN WHICH A C ONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHAR ES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DEL IVERY OR TRANSFER OF THE COMMODITY OR SCRIPS,. EXPLANATION 2 TO S. 28 OF THE ACT PROVIDES THAT WHERE SPECULATIVE TRANSACTIONS CARRIED ON BY AN ASSESSEE ARE OF SUCH A NATURE AS TO CONSTITUTE A BUSINESS, THE BUSINESS, I.E., THE SPEC ULATION BUSINESS SHALL BE DEEMED TO BE DISTINCT AND SEPARATE FROM ANY OTHER B USINESS. IN THE INSTANT CASE (I) THE ASSESSEE HAD NOT PRODUCED ANY THIRD PA RTY EVIDENCE THAT TH DELIVERY OF SHARES HAD ACTUALLY BEEN TAKEN PLACE, ( II) THE BANK ACCOUNT ALSO INDICATES CLEARLY THAT ONLY LOSS AMOUNT, WHICH HAD BEEN CREATED BY THE ASSESSEE, WAS PAID BY THE ASSESSEE THROUGH BANK CHE QUES. HOWEVER, NO BANK TRANSACTIONS WERE MADE EITHER ON PURCHASE OR SALE O F SHARES, (III) ALL ALLEGED TRANSACTIONS WERE EXECUTED OFF MARKET, (IV) SUCH TR ANSACTIONS WERE MADE BETWEEN FAMILY MEMBERS AND RELATIVES ONLY, (V) SUCH SHARES WERE OF GROUP COMPANY (SURAJ STAINLESS LTD.) ONLY. IN VIEW OF THE ABOVE, SUCH TRANSACTIONS ARE TREATED AS SPECULATIVE TRANSACTIONS. THESE OBSERVATIONS OF THE ASSESSING OFFICER HAVE N OT BEEN CONTROVERTED BY THE ASSESSEE BY BRINGING ANY CONTRA RY MATERIAL ON RECORD. THEREFORE, WE DO NOT SEE ANY GOOD REASON TO INTERFE RE INTO THE ORDER OF THE LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THUS, TH IS GROUND OF THE ASSESSEES APPEAL IS REJECTED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMIS SED. ITA NO. 2473/AHD/2011 (BY REVENUE) : ASSESSMENT YEA R : 2008-09 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. IT TRANSPIRES THAT IDENTICAL ISSUES AND GROUNDS WERE CONSIDERED B Y THIS TRIBUNAL IN REVENUES OWN CASE FOR ASSESSMENT YEAR 2007-08 IN I TA NO.970/AHD/2011 (SUPRA). THE FACTS BEING IDENTICAL, IN ABSENCE OF ANY DISTINGUISHING FEATURES POINTED OUT BY DEPARTMENTAL REPRESENTATIVE, WE, THE REFORE, HAVE NO REASON TO TAKE A DIFFERENT VIEW THAN THE VIEW TAKEN IN ITA NO.970/AHD/2011 FOR ITA NOS. 853, 970, 2435 & 2473 AHD 2011 SURAJ LIMITED FOR AY 2007-08 & 2008-09 12 AY 2007-08; HENCE THE APPEAL OF THE REVENUE FOR TH E YEAR UNDER CONSIDERATION IS ALSO DISMISSED. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ITA NO. 2435/AHD/ 2011 (BY ASSESSEE) : ASSESSMENT Y EAR : 2008-09 15. AS THE FACTS IN THE PRESENT YEAR OF APPEAL ARE IDENTICAL TO THE FACTS IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 2007-08 IN ITA NO.853/AHD/2011 (SUPRA), WE, RESPECTFULLY FOLLOWING THE PRECEDENT, DISMISS THE APPEAL OF THE ASSESSEE FOR THE YEAR UND ER CONSIDERATION. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMIS SED. 16. IN THE COMBINED RESULT, ALL THE APPEALS FILED B Y THE REVENUE AS WELL AS ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON TUESDAY, 17 TH MARCH, 2015 AT AHMEDABAD. SD/- SD/- G.D. AGRAWAL VICE-PRESIDENT (AZ, LZ & BZ) (KUL BHARAT) JUDICIAL MEMBER AHMEDABAD; DATED 17/03/2015 BIJU T., PS *+ # $, -*,)$ *+ # $, -*,)$ *+ # $, -*,)$ *+ # $, -*,)$/ COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. $ . / CONCERNED CIT 4. . ( ) / THE CIT(A) - XIV , AHMEDABAD 5. ,!12 $ , , / DR, ITAT, AHMEDABAD 6. 234 5' / GUARD FILE . *+ *+ *+ *+ / BY ORDER, TRUE COPY 6 66 6/ // / 7 7 7 7 ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD