TaxTMI 
TaxTMI 
2015 (8) TMI 870
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.... Sita Gita Co. 30.3.06 44450 0 444501 28.4.01 6983500 8147417 -8102967 -do- 30.3.06 1082 0 1082 30.9.03 170000 182484 -181402 -do- 30.3.06 318251 0 318251 10.1.03 5000000 5559284 -5527459 77357 77357 12153500 13889185 138118281 The above shares have been sold by the assessee to Ms. Nirmal Mirza, who is the wife of the Managing Director of the assesseecompany. These shares have been sold at the rate of Rs. 0.064 per share. They have been purchased at their face value of Rs. 10/-. To summarize, the shares which have been purchased at the rate of Rs. 10/- have been sold at the rate of 0.064. The details of the above purchase and sale of shares given by the assessee are as under: No. of Shares Date of purchase Cost per share Date of sale Sale price per share & address of person to whom sold 500000 10.01.03 10 30.03.06 0.064 Nirmal Mirza No.15, Casurina Drive, Neelankarai, Chennai-4 PAN AACPN1941R 17000 30.09.03 10 30.03.06 0.064 Nirmal Mirza No.15, Casurina Drive, Neelankarai, Chennai-4 P....
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....ount of around 6 paise per share. This exercise has been done only to build losses in the books of the company. Since loss is arising out of transactions between related parties and in the absence of explanation on how the value of Rs. 0.064 per share was determined, the loss claimed by the assessee is disallowed by the AO. Against this, the assessee went in appeal, before the CIT(Appeals). 4. Before the CIT(Appeals), the ld. AR submitted that disallowance of long term capital loss amounting to Rs.l,38,11,8281/- arising on sale of shares of M/s. Sitagita Corn Ltd., on the ground that the sale was to related party and sale price of Rs. 0.064 per share was not explained. The grievance of the AO was that the shares were 'purchased at Rs. 10 per share from various parties in the earlier years. The AO was of the opinion that the shares were purchased at an inflated value which was subsequently sold to a related party to build losses in the books of the company. Further the ld. AR submitted before the CIT(Appeals) that the AO has failed to appreciate the following facts: a. The assessee company had stopped its leather garment export business way back in 1997-98. After that it w....
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....ght 1,700 shares from Mrs. Prabha Chakravarthy, one of founder members as she wanted to exit from the same. The other fact the learned AOfailed to note is that as per Section 79 (1) any issue of shares at a discount is a laborious task, wherein the approval from Company Law Board needs to be taken along with other conditions which needs to be fulfilled. Any company issuing the shares of a discount will find it difficult to sell as well as the number of shares will increase substantially. The learned AO has also failed to appreciate the fact that most of the investments are held for a minimum period of three years and above. c. The assessee relies upon TAINWALA CHEMICALS & PLASTICS VS ACIT 8(3) ITAT MUMBAI ITA 3338/MUM/2008/AY 2004-05. In clause 21 last para 'In the case before us also shares have been held by the assessee company from assessment years 1994- 95 to 1999-00 which means shares were already held for more than 4 to 6 years. The same have been sold for restructuring of the business so as to concentrate on the main business of the company. The shares have been already transferred to the various companies and, therefore, same cannot be construed only as paper transac....
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....before us to establish that the loss was incurred by the assessee on genuine reason and as such, the same cannot be said to be genuine loss. The sale of shares of such lowest price is shocking conscious of the Bench and all human probability shows a prudent person never to sell the shares at such a sale price, as held by the Supreme Court in the cases of Sumati Dayal v. CIT ( 214 ITR 804) and CIT v. Durga Prasad More (82 ITR 540). Accordingly, we are inclined to say that this loss cannot be considered as capital loss so as to allow the claim of the assessee in the absence of any proper explanation to sell the share such low price. Accordingly, this ground is rejected. 6. The next ground is this appeal is that the CIT(Appeals) erred in confirming the disallowance of Rs. 17,50,000/- written off. 7. The facts of this issue are that the assesse company has written off in the books of accounts an amount of Rs. 17.50 lakhs given as advance to M/s. Sita-Gita.Com Ltd. The said sum has not been added back to the taxable income in the computation statement. The assessee company had given advance to its erstwhile subsidiary company, viz., M/s. Sita-Gita.Com Ltd as loan so as to help ....
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....y lending. Only for such assessees which are engaged in the business of money-lending, loss arising out of irrecoverability of a loan can be allowed as a revenue expenditure. Accordingly, he agreed with the findings of the AO and concluded that since the assessee has not disputed the facts that it does not have any business relations with the company M/s.Sita-Gita.Com Ltd, the amount advanced by the assessee has to be treated as capital expenditure and the AO is justified in adding back the advances written off of Rs. 17 .50 lakhs to the returned income. Against this, the assessee is in appeal before us. 9. We have heard both the sides and perused the material on record. It is seen from the facts of the case that bad debt could be allowed while computing the income under the head 'income from business' and the following conditions are complied with, as is given in sec.36(1)(vii) and 36(2), which read as under: "36(1)(vii): subject to the provisions of sub-section (2), the amount of [any bad debt or part hereof which is written off as irrecoverable in the accounts of the assessee for the previous year]: 36(2)(i) : No such deduction shall be allowed unless such debt or part ....