TaxTMI 
TaxTMI 
2001 (1) TMI 221
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....re us taking 24 grounds of appeal. Out of these, 20 grounds deal with the disallowance of claim of capital loss amounting to Rs. 1,66,59,280 which relates to asst. yr. 1995-96 and another ground for the addition of Rs. 65,609 made by invoking the provisions of s. 69B of the IT Act for the asst. yr. 1996-97. The last ground taken by the assessee is against charging of surcharge @ 15 per cent of the tax as worked out under s. 113 of the IT Act. 2. At the very beginning, the learned Departmental Representative submitted that since the assessee has raised additional ground of appeal an interlocutory order is required to be passed as per the decision of the jurisdictional High Court in the case of Maruti Udyog Ltd. vs. ITAT & Ors. (2000) 161 CTR (Del) 81 : (2000) 244 ITR 303 (Del). In this connection, he also relied upon the decision cited at Dr. A.K. Bansal vs. Asstt. CIT (2000) 67 TTJ (All) (TM) 721 : (2000) 73 ITD 49 (All) (TM). The learned authorised representative however, submitted that no additional ground of appeal has been taken by the appellant and hence there is no question of passing any interlocutory order and hence the reliance placed by the learned Departmental Represe....
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....o the tune of Rs. 7,00,00,000 on account of certain bogus transactions. The details of the purchases of 29,61,500 shares of Hindustan Development Corporation by the group companies are as under: S. No. Name of Com. No. of share Rate (in Rs.) Total Value (In Rs.) Date of purchase Date of Contract 1. Paramount Ent. Ltd. 5,10,800 97.42 4,97,62,136 15-7-1994 10-8-1994 2. Laxmangarh Estate & Trdg. Co. Ltd. 13,04,700 97.42 12,71,03,874 15-7-1994 - 3. Orient Bonds & Stock Ltd. 10,11, 300 97.42 9,85,20,846 15-7-1994 10-8-1994&13-8-1994 4. Jai Commercial Co. Ltd. 134,700 97.42 1,31,22,474 15-7-1994 10-8-1994 5. The contract for purchase of shares was made on15th July, 1994, and the bill was raised on10th Aug., 1994. These shares were sold to M/s Kejriwal & Co. on8th Aug., 1994. According to the AO, financial transactions like payments to M/s CRB Securities and receipts of the payments by the assessee were entered after the accommodation transactions were tied up. The sale of these 29,61,500 shares of the Hindustan Development Corporation were made as under: S. No. Name of Seller....
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....ned by it on sale of shares of M/s Ingersoll Rand India Ltd. and ABD Ltd. The losses are held to be bogus as these have origined from the scam and collusive transactions with a solitary motive to reduce its tax instances. He according disallowed this claim. 7. The other addition of Rs. 65,609 for asst. yr. 1996-97 was made by the AO which is under dispute as unexplained investment is on account of unexplained investment in renovation of residence of chairman of the Modi group Shri R.P. Modi, 6-Amrita Sher Gill Marg,New Delhi. This property belongs to the 8 joint owners which happens to be sister concerns. According to the appellant, total cost of renovation expenses was Rs. 23,70,405. The Valuation Officer, however, estimated the cost of investment at Rs. 29,82,600. This difference of Rs. 5,24,874 was divided between the co-owners and an addition of Rs. 65,609 was made under s. 69B of the IT Act. Against these accounts of the AO, assessee has come in appeal before us. 8. The learned authorised representative started his arguments by submitting that the appellant-company is a widely-held public limited company. The appellant is an investment company and derives income by way o....
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....T in the order that Shri Sisir Kejriwal who is son of the proprietor of M/s Kejriwal & Co. had admitted that the profits had been arranged for the group companies against which cash was returned by them is factually incorrect. It was specifically brought to our notice that the statement which is heavily being relied upon by the Revenue and extracted as under to establish that the observations made in the order that profit had been arranged for the group companies is factually incorrect and is based on misreading of the statement of Shri Sisir Kejriwal: Q. 5 : For how long you have been associated with Hindustan Dev. Corpn.- and its associated ground companies? Q. 2 : You have made dealings with M/s Ambika Corpn. & Industries (P) Ltd. and Mody Building Ltd. with respect to 7,25,000 shares of HDC who are the contract people in these two concerns? A. 2 : For Ambika Corpn. & (P) Ltd. Mr. Sandeep and from Mody Buidling Ltd. Sh. A.M. Lodha A. 5 : As far as I remember perhaps 10 to 12 years. Q. 6 : Please examine p. 58 of the seized bunch of documents notified "HDC-14". This paper is regarding delivery profit required to be earned by Calcutta Cos. from your concern Kejriwal....
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.... that search took place on21st Nov., 1996. The returns of income due till the asst. yr. 1995-96 were all filed well within the time. Particular reference was made that the return of income for the asst. yr. 1995-96 was filed on 22nd Nov., 1995, along with annual audited account supported by computation of income and details of transactions of sale and purchase of shares are inter alia, disclosed net capital gain of Rs. 8,75,52,395 on the sale of shares after set off of the loss suffered on the sale of shares of M/s HDC Ltd. It was, therefore, argued that none of the conditions warranted an action under s. 132(1) of the Act since existed in the instant case, no proceedings under s. 158BC could be initiated against it. In this connection, learned authorised representative heavily relied upon observations made by the Hon'ble Delhi High Court in the case of Ajit Jain vs. Union of India (2000) 159 CTR (Del) 204 : (2000) 242 ITR 302 (Del). On the question whether or not the proceedings of search were validly initiated. 12. The learned authorised representative also argued that during the course of search, no incriminating material whatsoever had been found as a result of search and th....
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....bring in of speculation profit and not showing any loss i.e., of taking out profit. 16. It was further elaborated that the aforesaid transactions are duly recorded in the books of account and the details are duly recorded in the books of account and the details thereof had been filed along with return of income on22nd Nov., 1995, which was much before the date of search i.e.,21st Nov., 1996. 17. Learned counsel for the assessee then relied upon the order of the Tribunal in the case of Kirloskar Investment & Finance Ltd. vs. Asstt. CIT (1998) 67 ITD 504 (Bang) that in such circumstances and within the meaning of s. 158B of the IT Act the aforesaid sum of loss cannot be regarded as undisclosed income and as such while computing the undisclosed income the losses suffered claimed and allowed in assessment is not an undisclosed income. 18. Learned counsel further submitted that even otherwise it will be apparent that the amount of Rs. 1,66,59,280 held as undisclosed income representing loss suffered on the sale of shares cannot be the subject-matter of assessment under Chapter XIV-B of the Act as it is not an undisclosed income within the meaning of s. 158B(b) as is apparent fr....
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....shares of M/s HDC Ltd. which it has acquired to be sold later and that too at a loss to arrest further losses. It was thus argued that why would the appellant purchase shares of M/s HDC Ltd. unless the assessee-company had rigged up the prices of the shares on the date of purchase of the shares if the purpose was to set off the loss from profit because the shares were purchased from the various shareholders scattered over all over the country and not from its so-called group companies. 21. Elaborating the submissions, it was argued that the entire purpose of purchase of shares of M/s HDC Ltd. was to make a profit because the aforesaid company was going for GFR issues and as such it was accepted that with the announcement of the issue, the market value of the aforesaid shares would go up. However, subsequently, the aforesaid issue fizzled out the assessee-company since had purchased the shares and it had to make payment for the purchases, had to offload its existing shareholding of M/s Ingersoll Rand and M/s ABB Ltd. which resulted into gain. It was, therefore, submitted that there can be no justification in the circumstances to hold that where it had to sell its existing shares ....
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....t in the absence of any such finding or even an allegations, the conclusion of the AO that the loss suffered was alleged cannot stand the test of judicial scrutiny. 22. Assessee's learned counsel also relied on several circumstances which has duly been examined by the Tribunal Calcutta Bench in the order in the case of M/s Laxmangarh Estate and the Trading Company wherein having regard to the cumulative effect of all the circumstances, it held that as there has been no dispute about the genuineness of purchase of the shares and the sale of shares sold through broker which had been purchased by the associated company at the market rate, the loss suffered was a genuine loss and was allowable as such while computing its total income and the transactions of purchase and sale of shares cannot be regarded as a colourable device. 23. Assessee's counsel further pointed out that it is not as if all the shares purchased by it were sold and on the contrary the appellant-company out of 5,10,800 shares purchased had retained 26,800 shares and, therefore, it is not a case of mere book entry but it is a case of loss which cannot be described as arranged shares loss genuinely suffered on the....
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....vidend on such shares has not been assessed as income of the appellant-company but has been assessed as income of M/s Jai Commercial Co. Ltd. and secondly interest has been allowed as a deduction in the case of M/s Jai Commercial Co. Ltd. and income from interest has been assessed as the income of the appellant-company. These factors alone establishes that the stand of the Revenue that it is a colourable device is contrary to its own finding. It was explained that the dividend from the said shares if the shares transaction was sham would not have been assessed as dividend income in the hands of M/s Jai Commercial Co. Ltd. The fact that the dividend has been treated to be the income of M/s Jai Commercial Co. Ltd. is according to him a sufficient proof which establishes that the sale of shares were made and it is not a case of arranged shares transactions. 27. As against this, learned senior Departmental Representative vehemently supported the orders of the Dy. CIT. The learned Senior Departmental Representative contended that the proceedings of search and seizure conducted under s. 132(1) of the IT Act are not justiciable. It was submitted that the Department cannot require to pr....
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....rom the assessment order and since this ground was not raised by the assessee before the AO, this should be treated as an additional ground of appeal and should not be admitted. He heavily relied upon the order of the Tribunal in the case of Virender Bhatia & Ors. vs. Dy. CIT in ITA No. 5724/Del/96, dt.18th Sept., 2000. The learned Departmental Representative thus contended that exercise of the powers of search and validity been exercised in the instant case and that the Tribunal is not competent to examine the validity of the search nor it could examine the satisfaction note to examine whether or not the preconditions envisaged under s. 132(1) was fulfilled as contended by the appellant-company. It was further contended that the appellant has filed no evidence or material to substantiate that there was no valid search and the mere fact that search has been conducted on the assessee under s. 132(1) is sufficient to clothe jurisdiction with the Dy. CIT to frame the assessment under Chapter XIV-B. 30. On the merits of the addition made by way of undisclosed income under Chapter XIV-B of the Act, it was contended that the appellant's submissions that no incriminating material has b....
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....e submitted that the Department's paper book go independently to show that manipulation was being done by the group companies of the assessee. He thus strongly supported the conclusion of the Dy. CIT that no other conclusion can be drawn on the fact that the loss suffered by the assessee and claim has to be regarded as the undisclosed income within the meaning of Chapter XIV-B of the Act. As the assessee has claimed the loss without disclosing the income. He, therefore, strongly supported the conclusion drawn by the Dy. CIT and assessed under Chapter XIV-B of the IT Act. 32. Coming to the merits of the additions resulting from the disallowances of the loss suffered by the assessee and treating the same as undisclosed income, the learned Departmental Representative submitted that the order of the Tribunal in the case of Laxmangarh Estate & Trading Co. Ltd. is perverse order as it relied in arriving at its conclusion on the order of the CIT(A) in the case of M/s Orient Bonds & Stocks Ltd. which was still the subject-matter of appeal before the Tribunal and did not independently record its finding and conclusions have thus not been validly arrived. It was finally contended by him t....
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....of the IT Act for the asst. yrs. 1996-97 and 1997-98. 36. So far as the amount relating to the claim of loss in respect of the shares, sold by the assessee on which it has suffered a loss of Rs. 1,66,59,280, we find that for the asst. yr. 1995-96 assessee-company had filed a return of income on 22nd Nov., 1995, along with the annual audited account and computation of total income and the return of income. Assessee had filed a statement giving full and complete details of capital gain/loss on sale of investment including the losses suffered on the sale of shares of M/s HDC Ltd. 37. From the aforesaid statement, we have observed that the assessee had declared a long-term capital gain on the sale of shares of M/s Ingersoll Rand aggregating to Rs. 8,47,90,134 and short-term capital gain of Rs. 1,94,21,541 in respect of sale of shares of M/s ABB Ltd. and a short-term capital loss of Rs. 1,66,59,280 on the sale of M/s HDC Ltd. The aforesaid copy of the statement furnished is as below/enclosed:- DETAILS OF CAPITAL GAIN/LOSS ON SALE OF INVESTMENT Name of scrip No. of Shares Purchases Index Cost Date Amount Rs. ....
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....perations. Now the next question connected with the aforesaid issue arises is, whether any incriminating evidence was found as a result of search which established that the loss suffered on the sale of shares was either non-genuine, sham or arranged shares loss, we are afraid to accept the contention of the Revenue that the documents referred to by it in its paper book at pp 6 and 8 in any manner directly or even remotely establishes so. Coming to statement of Shri Sisir Kejriwal, here again, we do not find any such adverse material or statement to conclude that the loss suffered could be regarded as non-genuine or as a result of arranged shares loss even if for the sake of arguments, the appellant's contention that it was not allowed to cross-examine Shri Sisir Kejriwal is to be rejected. In short, our considered opinion is that the aforesaid loss cannot be regarded to be undisclosed income and is thus outside the pale of Chapter XIV-B of the IT Act. 39. So far as documents referred to by the learned Departmental Representative are concerned, we have gone through very carefully each and every documents and in our considered opinion, the documents found from the premises of M/s ....
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.... dividend income in the hands of M/s Jai Commercial Co. Ltd. The aforesaid facts clearly bring out that there is no dispute that the shares sold by the assessee were purchased by M/s Jai Commercial Co. Ltd. and were registered in its name. 42. In these circumstances, in our opinion, merely because the assessee had advanced the funds to M/s Jai Commercial Co. Ltd. on interest at market rates which was allegedly utilised by it as a part consideration for the purchase of shares cannot be said to be part of a colourable device. This fact coupled with the fact that Revenue has treated this interest income as the income of the assessee, in our opinion, would only result into allowing the Revenue to blow hot and cold simultaneously and law was to take a contradictory stand that the transaction was arranged shares loss. 43. Further, in our opinion, even the allegations against the group company was that it was introducing in the books of account in the garb of speculation profit, unaccounted income of M/s HDC Ltd. and not that it was bogus losses. In spite of the aforesaid facts, in our opinion, the transaction of purchase and sale of shares cannot be regarded as sham or bogus as the....
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.... like to observe that the learned senior Departmental Representative was factually incorrect in contending that the Hon'ble Calcutta Bench of the Tribunal in the case of Laxmangarh Estate & Trdg. Ltd., has merely followed the order of the CIT(A) in the case of M/s Orient Bonds & Stocks Ltd. and as such the order of the Tribunal is perverse. The perusal of the aforesaid order, in our opinion shows that it had examined all the aspects of the case and came to its own conclusion that the loss was a genuine loss and was not a result of any colourable device. It was only after recording its finding, it noted that a similar view has also been expressed by the CIT(A) in the aforesaid noted case. In any case, we are of the considered opinion that the learned senior Departmental Representative exceeded in his comments to contend that the order of the Tribunal was perverse at least before us. In our opinion, he could have merely distinguished the said order on the facts of the case or should have otherwise respectfully followed it. This opinion of ours is based on the judgment of Hon'ble Supreme Court in the case of Union of India vs. Kamalakshi Finance Corporation Ltd. 55 ELT 433 cited by th....