TaxTMI 
TaxTMI 
2016 (2) TMI 499
X X X X Extracts X X X X
X X X X Extracts X X X X
....eriod and there was no prohibition by SEBI on sale of shares by the allottee. The learned CIT(A) has neither specified nor confronted the appellant with the relevant provision of the SEBI Act which barred the sale of shares allotted on preferential basis. 3. That on the facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the disallowance of Rs. 8,48,019/- made by the Assessing Officer u/s 14A of the Income-tax Act without appreciating the explanation of the assessee and without there being any claim of exempt income in the return. 4. That the entire expenditure claimed in the Profit & Loss Account at Rs. 8,48,019/- (including financial charges of Rs. 7,37,694/-) have been disallowed u/s 14A without there being any direct or indirect nexus of such expenses with the earning of exempt income." 2. Briefly stated the facts giving rise to this appeal are that the assessing officer selected the case for the scrutiny and completed the assessment at taxable income of Rs. 6,48,399/- as against declared negative income (loss) of Rs. 5,46,32,189/- as per Profit & Loss of the assessee. The assessing officer made disallowance on account....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Rs. 83.70 per share. The ld. Counsel contended that as per this agreement, both the parties were in a win-win situation under this arrangement because HPC would save its 10% amounts from forfeiture whereas the assessee company would acquire the shares at a price of 83.79 per share when the weighted average market price of the share at the stock exchange ranged between Rs. 106 to Rs. 133 per share. The ld. Counsel further elaborated that this was a out of share market transaction carried out between the parties as there was a locking period of 3 years which was expired on 31.02.39 and these shares were not transferable immediately in the name of assessee purchaser but by virtue of purchase from HPC, the assessee company acquired full beneficial interest in the share as an owner. 5. The ld. Counsel further submitted that in financial year 2008-09 relevant to assessment year 2009-10 under consideration the assessee was faced with huge tax demands for which it had to liquidate its investment in these shares but since these shares were neither tradable in the stock exchange nor transferable before 31.03.2009, the appellant negotiated with M/s. HPC to purchase back these shares fro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n adjusted. 7. The Ld. DR strenuously opposing the above noted contention of the assessee and strongly supporting the action of the AO as well as impugned order submitted that there was lock-in period for transfer of preferential shares allotted to HPC which was to be expired on 30.03.2009 and the assessee effected purchase of the shares on 29.07.2007 from a group company HPC and same were sold back to the same HPC company on 30.09.2008 and therefore the assessing officer was quite correct and justified in construing that the assessee booked loss under grab of sham transaction. The ld. DR further drawn our attention towards relevant para 5.3 of the first appellate order and submitted that under tripartite agreement entered by the assessee company with its group companies namely Harprasad & Co. and M/s. Big Apple Clothing Pvt. Ltd. cannot override the statutory conditions of the preferential allotment and since the assessee company could have neither purchased these shares nor could take them for hypothecation or pledged from HPC the claim of the assessee that these shares were purchased @ Rs. 83.79 per share cannot be accepted as that would amount to violation of legal condition....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....79 per share on 27.09.2007 under a tripartite agreement and these share were sold back to HPC on 30.09.2008 @ 53.96 per share during the AY under considerable and the assessee claimed the impugned long term capital loss on this transaction of sale of share during the relevant financial peried. From the assessment order, we note that the assessing officer decline to accept claim of the as sessee with following observations and conclusion :- "1 have gone through the replies of the assessee but do not find merit in it due to the following reasons:- The assessee has claimed short term capital loss amounting Rs. 4,84,73,750/- on account of alleged sale of 16,25,000 shares ol M/s Escorts Ltd on| 30/09/2008. Vide letter dt. 14/11/2011, the assessee has submitted a copy of the share certificate M/s Escorts Ltd vide share certificate No. 01428581 in the name of M/s Harprashad & Co. Private Limited which it claimed to be its share certificate. The assessee has stated that these shares were acquired during the AY 2008-09 from Har Parshad & Co Pvt. Ltd, but the said shares were never transferred in company's name. M/s Harprashad & Co. continued to hold these shares in its na....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the shares belonged to M/S Har Parshad & Co. Pvt. Ltd at the given date, the assessee cannot be allowed to take the benefit of this by claiming the short term capital loss. The assessee has also contended that as per its agreement with M/s Harprashad & Co Private Ltd, it acquired the right to capital asset which it has transferred back. However, it may be noted that all the concerns including the Listed concern whose share were claimed to be transferred back and forth belong to one single group and that is Escorts group. The transactions between the concerns were manipulated to give artificial and fictitious loss in the hands of the assessee. The courts have repeatedly held that in such kind of transactions, the AO has the power to go behind the real intention of transactions and lift the corporate veil. The Hon'ble Supreme Court in the case of Mcdowell And Co. Ltd. vs Commercial Tax Officer has held as under:- "Tax planning may be legitimate provided it is within the framework of law. Colorable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid the payment of tax by resorting to dubious method....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gs u/s 271(1) (c) of the Income- tax Act, 1961 have been initiated on this issue. 10. The assessee carried out matter before Ld CIT(A) and the CIT(A) confirm the disallowance with following findings and conclusion :- "5.2 Before me, the Id. AR for the appellant submitted that the shares in question were purchased from M/s Harprasad & Co. Pvt. Ltd. in the AY 2008-09 and were sold back to them in AY 2009-10. These shares were allotted by Escorts Ltd. to M/s Harprasad & Co. on conversion of share warrants and were to remain in lock-in period upto 30th March, 2009. These shares were purchased from HPC under the tripartite agreement and were sold back to them to raise funds. It was submitted that both the transaction of purchase and sale were validly executed but resulted in a loss. For the sake of the convenience, the relevant submissions of heId. AR are reproduced as under: a) In Assessment Year 2008-09, the appellant purchased 16,25,225 equity snares of Escorts Ltd. from M/s Harparshad & Company Pvt. Ltd. (HPC) at a price of Rs. 83.79 per equity share. The equity shares of Escorts Ltd. are listed at the stock exchanges in India. However, this was an off market tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....et transaction. The weighted market price of these shares at the Bombay stock exchange on the date of transaction was Rs. 58.80 per share. The price settled by the appellant company was fair price considering the illiquidity of these shares for open market purchase/sale. e) The appellant suffered a loss of Rs. 4,84,73,7507- on sale of these shares which was claimed as short term capital loss. f) The learned Assessing Officer disallowed the entire claim on the ground that the transaction is completely sham transaction to book artificial loss. He held so because the transaction of purchase/sale of these shares was between two group companies. g) During the assessment proceedings, the appellant provided complete evidence to prove the genuineness of the transaction both for the purchase as well as for the sale of these shares. Merely because the transaction has been entered into by two group companies does not automatically mean that it is sham. Once the assessee proved genuineness of the transaction, the onus shifted to the Assessing Officer to prove that it is sham, which he has failed to do so. None of these transactions of purchase and sale of shares has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or disposed them off in any manner till 30.3.2009, Therefore, there is no question of appellant buying these shares @ Rs. 83.79 and then selling them back to the very same party at the lower rate of Rs. 53.96 per share before the expiry of the lock-in period. The tripartite agreement which is claimed to be the basis for entire transaction is not a enforceable agreement because the same was in violation of the SEBI law When an act is prohibited by the statute, the same becomes an illegal act and cannot be made legal by way of a private tripartite agreement. It is an undisputed fact that the shares in question were prohibited to be disposed off in any manner whatsoever by Harprasad & Co. Pvt. Ltd. till 30.03.2009. Therefore, the claim of the appellant that the transaction was genuine and made as per the tripartite agreement between the group companies is rejected. Considering the facts and circumstances of the case, I agree with the views of the AO that entire transaction was a sham transaction and arranged with a view to book the artificial loss for tax evasion and the same was not a genuine loss. Therefore, the disallowance made by the AO is confirmed. This ground of appeal is reje....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... if the transaction of sale is not entered in share registers of the company then also the assessee is entitled to claim adjustment of "Capital Loss" on such transfer. In the present case, it is not the case of the lower revenue authorities that since the name of the assessee was not entered into the share holders register or share roll register of the company, therefore, the assessee is not entitle to claim loss on such transfer of share but the main allegation of the assessing officer and the first appellate authority is that the assessee purchased from HPC and sold back the same shares preferential convertible shares to HPC during the lock-in period and the transaction was affected between group companies about the shares of a group company resulting into huge losses in other words transactions entered into by the assessee with its related parties in respect of shares of the same group concern resulting in substantial to the assessee cannot be taken on accepted as genuine by any stretch of imagination. . Therefore, the transaction was a sham transaction and since the transaction was not permissible and legally prohibited during the lock-in period, the purchase and sale of shares....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee explained the AO about the share price of Escorts Ltd. on Bombay Stock Exchange and National Stock Exchange during the month of October, 2007 and September, 2008. Therefore, the assessee has submitted misleading facts and explanation before the authorities below and this conduct of the assessee cannot be held as a conduct of sincere and innocent tax payes. Ld. DR also pointed out that the assessee had submitted challans of tax payment pertaining to AY 2006-07 dated 29.01.2010, 30.12.2009, 28.3.2009 and 05.03.2009 which are not relevant and acceptable as a good cause for selling the impugned shares during the lock-in period in the month of September, 2008 against which huge impugned capital loss of Rs. 4,84,73,750/- has been claimed by the assessee. 16. On carefully and vigilant perusal of the assessee's paper book available at 48 pages submissions of the assessee before AO dated 03.11.2011 copies of the 4 challans submitted during the hearing before us at the very outset, we note that as per sample copy of the share certificate available at page 38 of the assessee's paper book the preferential share allot to HPC could not be sold/ hypothecated / pledged/ transferred ti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gency and necessity shown by the assessee in September 2008 or nearby time cannot be held as tenable, acceptable or sustainable in the view of contradictory incorrect and baseless facts narrated by the assessee in its submissions and explanation before the authorities below as well as before this Tribunal. Thus, we decline to accept contention of the assessee that for AY 2009-10 the assessee faced huge tax demand and due to this reason assessee sold the shares. In this regard, we place our serious concern on record about the conduct of the assessee in narrating incorrect contradictory, misleading and irrelevant facts before the authorities below as well as before this Tribunal. 18. At this stage, it would be appropriate and necessary to consider dicta laid down by Hon'ble High Court of Delhi in the case of Friends Overseas Pvt. Ltd. u/s CIT (2004) 136 Taxman 94(Del.) wherein (at pages 98&99) their Lordship speaking for the Jurisdictional High Court and upholding and confirming the order of Tribunal has held as follows, which is being respectfully reproduced below :- "11. In the present case, while rejecting the argument that the provisions of section 158BC of the Act we....
X X X X Extracts X X X X
X X X X Extracts X X X X
....CIT (1994) 207 ITR 376 (Kol.) wherein their Lordship (at page 390) held as follows :- Here, we are to go by the dictum "falsus in uno falsus in omnibus". Though applicable in criminal law, it is a sound principle to apply in taxation when the matter is one of finding of fact on the basis of statements of a witness and their judicial evaluation. It is seen that in 1975, the assessee gave a false statement by stating that he had no connection with the bank deposits. Later he makes a volte face and says that the deposits are from the money supposedly declared in 1971. Therefore, the later statements of the assessee cannot be credited as the source of the deposits. 20. Keeping in view our conclusion in the earlier paras of this order in the light of dicta laid down by Hon'ble High Court of Delhi in the case of Friends Overseas (Supra) and Hon'ble Kolkata High Court in the case of Amal Kumar (supra), we reject the explanations of the assessee that the assessee sold back the shares to HPC due to huge tax demand in AY 2009-10 and this was the compelling situation and circumstances wherein the assessee was compelled to sale these shares back to HPC ( from whom the assessee purc....