TaxTMI 
TaxTMI 
2015 (3) TMI 563
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....valuation of 8000 shares of M/s Quintegra Solution Ltd. and 145000 shares of Pal Credit Capital Ltd as a part of the closing stock at market rate, the assessee's method of valuation of stock being 'cost price or market price whichever is less and the market rate on the closing date being less than the purchase rate. 2. Ld. CIT(A) has erred in allowing the claim of loss of Rs. 81,84,000/- arising out of valuation of 8000 shares of M/s Quintegra Solution Ltd. and 145000 shares of Pal Credit Capital Ltd as a part of the closing stock at market rate disregarding the fact that the said shares were not lying with the assessee in its closing stock on the closing date of the previous year, the same being received only after the close of the financial year and also the title thereto, being not passed during the previous year. 3. Ld. CIT(A) has erred in allowing the claim of loss of Rs. 81,84,000/- arising out of valuation of 8000 shares of M/s Quintegra Solution Ltd. and 145000 shares of Pal Credit Capital Ltd as a part of the closing stock at market rate disregarding the fact whereas the said shares were not lying with the assessee in its closing stock and tile to the shares were....
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....lose of the year and the payment was also made after the close of the year. The AO, therefore, was of the view that the bills were after thought and the same were prepared in connivance of Beejay Investments and Financial Consultants Pvt. Ltd. The AO further noted that on the date of sale seller had only 789 shares in their stock as against the sale of 80000 shares in Quintegra Solutions Ltd and had only 56216 shares in Pal Credit Capital Ltd. The AO was of the view that no shares could be sold under the SEBI Act without the involvement of the Broker except in the case of Spot delivery. Therefore the AO treated the said purchase of the shares as bogus transaction and disallowed the loss. 4. Aggrieved, assessee preferred appeal before CIT(A), who deleted the disallowance of loss by observing as under:- "I find that the AO raised certain issues in the assessment order that the seller had no required number of shares for that the appellant did not file any explanation but in the written submissions the appellant disputed the same. In the remand report the AO has not adversely commented on the said two issues. I also find that there was no dispute about the purchase of shares which a....
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....nsultants Pvt. Ltd. 20,00,000.00 RTGS 30.3.2009 Beejay Investment & Financial Consultants Pvt. Ltd. 40,00,000.00 623998 30.3.2009 Beejay Investment& Financial Consultants Pvt. Ltd. 20,00,000.00 624000 30.3.2009 Beejay Investment& Financial Consultants Pvt. Ltd. 8,15,000.00 88,15,000.00 (-)37,73,726.78 Therefore, it is seen that the AO has made a factual error that the shares were not shown in the closing stock or liability in balance sheet. This leaves only one aspect of the matter as to whether the transaction was illegal under the Securities Contract Regulation Act. For this purpose it will be worthwhile to quote the relevant provisions of Section 13 to Section 18 of SCRA Act for the sake of clarity: "Contracts in notified areas illegal in certain circumstances. 13. If the Central Government is satisfied, having regard to the nature or the volume of transactions in securities in any State or States or area that it is necessary so to do, it may, by notification in the Official Gazette, declared this section to apply to such State or States or area and thereupon every contract in such State or States or area which is entered in....
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....other than a member of a recognized stock exchange, unless he has secured the consent or authority of such person and discloses in the note, memorandum or agreement of sale or purchase that he is acting as a principal: Provided that where the member has .secured the consent or authority of such person otherwise than in writing he shall secure written confirmation by such person or such consent or authority within three days from the date of the contract: Provided further that no such written consent or authority of such person shall be necessary for closing out any outstanding contract entered into by such person in accordance with the bye-laws, if the member discloses in the note, memorandum or agreement of sale or purchase in respect of such closing out that he is acting as a principal. Power to prohibit contracts in certain cases. 16. (1) If the Central Government is of opinion that it is necessary to prevent undesirable speculation in specified securities in any State or area, it may, by notification in the Official Gazette, declare that no person in the State or area specified in the notification shall, save with the permission of the Central Government, enter into any con....
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....all so apply." It appears from the reading of the above provisions of SCRA that the provisions mainly apply to the members of the stock exchange. In so far as the transaction between non members are concerned section 14 (2) makes it clear that the non members without know ledge of the provisions of the Act can enforce any such contract and recover the sum under the contract which means between non members without knowledge the law is valid. It is not the case of the AO that the appellant company had knowledge of the provisions. It may also be kept in mind that the transaction was entered into in the presence of a member of the Stock Exchange who also did not inform the appellant of any such provisions. Rather such broker was instrumental in persuading the transaction to be carried out. I find that the appellant has filed a letter before the AO on 29.11.2011 along with the copy of the member broker's letter by Speed Post. The broker's letter shows that the transaction was completed before the said Broker. It also appears from the said broker did not even charge the commission because of some disputes but the transaction was out on the persuasion of the said broker. Therefor....
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....transaction cannot be non-genuine in the hands of the purchaser. Apart from this, Ld. Counsel also relied on the judgement of Hon.ble Gujarat High Court in the case of CIT V Prudent Finance (P.) Ltd.(2014) 225 Taxman 0125(Guj), wherein exactly identical issue was taken up and the facts discussed by Hon'ble High Court as under:- "Respondent of Tax Appeal No. 1003/2013 and other connected appeals is one Prudent Finance Pvt. Ltd, a company registered under the Companies Act. One Nitin B. Parikh and other members of his family referred to as Nitin B. Parikh group of assessee who had control over others, was subjected to search action under section 132 of the Act. It was found that large number of shares were traded between the Company and the said group of persons at off-market transactions. Such off market transactions were entered by the company with other unrelated asses sees also. The assessing officer carried a belief that such transactions were not genuine, in the sense that the same would have taken place with anterior dates. In the opinion of the assessing officer, this was done to contrive loss in the hands of some of the assessees who in turn transferring the profits in ....