TaxTMI 
TaxTMI 
2012 (3) TMI 175
X X X X Extracts X X X X
X X X X Extracts X X X X
....he circumstances of the case and in law, the Tribunal was correct in approving the disallowance of short term loss Rs.3,09,26,000/- in connection with the sale of shares of Killick Halco Limited? iv) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in affirming the conversion of the above mentioned short term loss Rs. 3,09,26,000/- projected in question no (iii) into a short gain Rs.80,80,540/-? v) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in ratifying the disallowance of the long term capital loss Rs. 1,68,37,861/- emanating from the sale of shares of Pelican Paints Ltd? vi) Whether on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in sanctioning the rejection of the business loss Rs.105 crores emerging from the Appellant's business of providing guarantees? and vii) Whether on the facts and in the circumstances of the case and in law, the Tribunal's order dated 06.04.2010 is perverse, contrary to weight of evidence adduced by the Appellant and founded on irrelevant considerations and therefore, all its conclusions, findings and holdings....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Appellant to Vysya Bank Ltd. The capital gain on the sale of land was set off by a long term capital loss and short term capital loss of Rs.1.45 crores and of Rs.49.73 crores respectively on account of sale of shares. The Assessing Officer doubted the genuineness of the capital loss/gain on account of shares and therefore, inter alia called upon the appellant to explain, why the losses on account of shares should not be disallowed, as they appeared to be sham. The Assessing Officer has on investigation of facts, found that during a period of three days from 28 March 2000 to 30 March 2000 the Appellant company which was otherwise a cash starved company, decided to invest a sum of Rs.48 crores in four companies i. e. Matterhorn Investments (P) Ltd., Mountblance Investments (P) ltd., Fircast Investments (P) ltd and Galactia Investments (P) Ltd which were its 100 per cent subsidiaries by subscribing to its shares at a premium. The share held prior to 28 March 2000 and the further purchase of shares at a premium during the period 28 March 200 to 30 March 2000 are as under : Sr No. Name of the party Amount (including premium of Rs.140) No. of shares subscripti on (during t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n transferred back to G.K.Rathi Group, as investment, by the four subsidiary companies of the Appellant before 31 March 2000. The four subsidiary companies into which the Appellant had invested at a premium of Rs.140/- per share were valued at less than Rs.23/- per share on price earning capacity and in fact negative when valued on Net Value Basis. The Assessing Officer has recorded in his order that the average price of shares in the four subsidiary companies was less than Rs.25/- per share. Therefore, the investment at a premium of Rs. 140/- per share was found to be inexplicable. When enquired of the reason, why the Appellant invested at such a high premium in the four subsidiary companies, the Appellant informed the Assessing Officer that it was hopeful of the prospects of its four subsidiary companies and therefore invested the amount in those four companies at a premium of Rs.140/- per share. The investment of the four subsidiary companies into Kosha Investment, which was consistently suffering losses from 1997 onwards was only to transfer the funds back to G.K Rathi group. Therefore, the amounts which were received by the Appellant from the G.K.Rathi Group during the period ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....who is the Chairman of the Appellant company and received a consideration of Rs.62,500/- for providing entries. Consequently, the Assessing Officer concluded that not only the purchase of shares of the aforesaid four subsidiary companies was a sham but also the sale of the same to Radha Financial Services Pvt. Ltd. and M/s. Diplomat Trading Private Ltd. which were financed by the Appellant company was also sham and there was no real transaction, so as to create any short term and/or long term Capital loss in respect of the shares of the four subsidiary companies in the hands of the Appellant. c) The Appellant has also claimed loss on account of sale of shares of Killick Halco Ltd. for the financial year ending 31 March 2001 i. e. the present assessment year 2001-02. The Appellant had on 31 March 2000 converted its loan of Rs.4/- crores to Killick Halco Ltd. into equity shares at the price of Rs.800 per share (including premium of Rs.700/-). This again was exorbitant taking into account the fact that from the assessment year 1996-97 onwards Killick Halco Ltd. was consistently suffering losses. Further, Killick Halco Ltd. had in fact scaled down its operation inasmuch, as it has g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....share were sham and not bonafide and therefore disallowed the short term loss on the above account. However the Assessing Officer treated the investment of 78,000 shares at Rs.19. 97 per share as genuine and allowed the short term capital loss with regard thereto. d) The Appellant has also claimed long term capital loss of Rs. 1.68 crores on sale of its shares in Pelican Paints Ltd. to Snowcem India Ltd. (company belonging to the same group). The Appellant had purchased the shares in financial years 1998-99 and 1999-2000 at Rs.518/- and Rs. 365/- respectively in Pelican Paints Ltd. These shares were sold to Snowcem India Ltd. at a nominal price of Rs.10/- per share during the present year. However, while arriving at the true and fair value of Pelican Paints ltd. the Appellant company failed to take in to account the land and buildings of Pelican Paints ltd. Further it was found that the whole amount was settled by current account adjustment between Snowcem India Ltd. and the Appellant. Consequently, the Assessing Officer concluded that the sale was a sham and was self serving so as to create long term capital losses. (e) The aforesaid findings of fact have been arrived at by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Appellant contended before the CIT (Appeal) that the guarantee was extended by them during the regular course of business and consequently, there was loss of Rs.105/- crores. 6 The CIT (Appeal) concluded that the Appellant did not carry out the activity of providing guarantee to Vysya Bank Ltd. in the normal course of its business. Further, it was held that the Appellant company which is following mercantile system of accounting had never accounted for the commission income in its return of income filed after entering into contract with Geekay Exim India Ltd. till the present assessment year when it has shown an income of Rs.6/- crores in respect of the guarantee business as pertaining to prior years in its account. The CIT (Appeal) concluded that the business was not genuine, as if it had been genuine then Appellant company would have provided guarantee commission income in the course of its regular course of business. The CIT (Appeal) also held that the Appellant was entitled to receive 2% of the gross export realization of Geekay Exim India Ltd. but till date the Appellant never received a rupee on that account and neither did it pursue the recovery of the same. It was conc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e evidence before it in respect of all issues, chosen to rely upon the position in law laid down by the Supreme Court in the matter of Sumati Dayal (supra) to the effect that the evidence produced must be analyzed by applying the theory of surrounding circumstances and human probabilities. However it is the grievance of the Advocate for the Appellant that before placing reliance upon it, the Tribunal ought to have given notice of the same to the parties as that would enable the parties to make submissions on the same and demonstrate as to how it is inapplicable or distinguishable from the present facts. Counsel for the Respondent stated that the test of applying surrounding circumstances and human probabilities is a well known and accepted manner of weighing evidence in all civil matters to decide whether the claim is genuine or not and submitted that assuming without admitting that the same was not cited and/or referred to during the course of the hearing no prejudice has been caused to the Appellant. 11 To our mind, the test laid down by the Supreme Court in the decision in Sumati Dayal is well a settled test which is applied in all civil proceedings particularly, with regard ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... fact that the decision of the coordinate Bench of the Tribunal was not placed before the Tribunal either by the assessee or by the Revenue and the Tribunal decided to follow it on its own. It was in the aforesaid facts that this Court allowed the Misc. Application and restored the appeal before the Tribunal for reconsideration. However, while doing so, the Court clarified that "It cannot be laid down as un-flexible proposition of law that an Order of remand on a miscellaneous application under Section 254(2) would be warranted merely because the Tribunal relied upon a judgment which was not cited by either party before it.". In the present facts, the decision of the Supreme Court in Sumati Dayal (supra) was cited only for the purpose of reiterating the well settled/established position of law. Surrounding circumstances and human probabilities are to be taken into account while considering the evidence produced before the Tribunal to examine the genuineness of the case. Counsel for the Appellant also relied upon a decision of this court in CIT Vs. Jamnadevi Agarwal reported in 328 ITR 656 to contend that this Court has not applied the decision of the Supreme Court in the matter of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd all documents were on record to establish to purchase and sale of shares. Consequently, there is no reason to deny the benefit of loss on account of capital gain on account of sale of shares. So far as Question No. (vi) is concerned, Counsel for the Appellant urged that the tribunal was incorrect in holding that there could be no loss on guarantee business as the Appellant had not done a single transaction prior to the present transaction. It was submitted that even a single transaction could constitute business for the purposes of the Income Tax Act. Counsel for the Appellant further submitted that on facts the Tribunal had for the earlier year i.e. Assessment year 2000-01 assessed Rs. 6/- crore as business income and therefore the loss in the current year should have been allowed. Counsel further contends that the Tribunal erred in holding that there is nothing on record to show that the Appellant had tried to recover the money ignoring the fact that the Order itself notes that a copy of the suit was produced during the course of the hearing. Counsel for the Respondent contended that there are concurrent findings of fact of three authorities and the Appeal should not be entert....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions regarding the need to depart from the "Westminster" and tax avoidance- these are clearly only in the context of artificial and colourable devices. Reading McDowell, in the manner indicated hereinabove, in cases of treaty shopping and/or tax avoidance, there is no conflict between McDowell and Azadi Bachao or between Mcdowell and Mathuram Agarwal." 15 The aforesaid observations of the Supreme Court makes it very clear that a colourable device cannot be a part of tax planning. Therefore where a transaction is sham and not genuine as in the present case then it cannot be considered to be a part of tax planning or legitimate avoidance of tax liability. The Supreme Court in fact concluded that there is no conflict between its decisions in the matter of McDowell (supra), Azadi Bachao (supra) and Mathuram Agarwal (supra). In the present case the purchase and sale of shares, so as to take long term and short term capital loss was found as a matter of fact by all the three authorities to be a sham. Therefore authorities came to a finding that the same was not genuine. So far as the question Nos.(ii), (iii) (iv) and (v) are concerned, we hold that these are pure questions of facts an....