TaxTMI 
TaxTMI 
2010 (4) TMI 1088
X X X X Extracts X X X X
X X X X Extracts X X X X
....6,000/-. The Assessing Officer had doubts that losses have simply been generated to avoid tax liability, therefore, he made detailed enquiries in respect of these capital loses. He noted that assessee company which was a cash starved company finalized an idea of investing of a sum of Rs. 48 crores in four companies in a period of 3 days from 28.3.2000 to 30.03.2000 as per the details given below: Sr. No. Name of the party Amount (including Premium of Rs. 140) No. of new Shares subscription (during the F.Y.1999-2000 31.3.92 (100% Holding 31.3.90 (100% Holding) Total holding of Killick Nixon Ltd. Capital % holding 1. Matterhorn Investments Pvt.Ltd. 12.03 cr. 800,000 149,998 2 950,000 100% 2. Montblanc Investments Pvt.Ltd. 12.03 cr. 800,000 149,998 2 950,000 100% 3. Fircrest Investments Pvt.Ltd. 12.03 cr. 800,000 149,998 2 950,000 100% 4. Galactica Investment Ltd. 12.03 cr. 800,000 149,998 2 950,000 100% 48.12 cr. 4. As noted from the above chart these ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....NIXON 27,500,000 27,509,900 30-MAR TRF FM KILLICK NIXON 10,375,000 37,884,900 30-MAR TRF TO KOSHA INVEST 479154' 27,500,000 10,384,900 30-MAR TRF TO KOSHA INVEST 479155' 10,375,000 9,900 30-MAR TRF FM KILLICK NIXON 27,500,000 27,509,900 30-MAR TRF TO KOSHA INVEST 479153' 27,500,000 9,900 30-MAR TRF FM KILLICK NIXON 27,500,000 27,509,900 30-MAR TRF TO KOSHA INVEST 479151' 27,500,000 9,900 30-MAR TRF FM KILLICK NIXON 27,500,000 27,509,900 30-MAR TRF TO KOSHA INVEST 479152' 27,500,000 9,900 31-MAR L.F. CHARGES 9,800 Page Total 120,375,200 120,385,000 9,800 The account was opened from a Cash deposit of Rs. 10,000/-. The money in this bank account came on 30th Mar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....VALI, MUMBAI, MAHARASHTRA INDIA -400 072 ACCOUNT CATEGORY CURRENT ACCOUNT - GENERAL ACCOUNT NUMBER 2000101905 INR STATEMENT OF ACCOUNT FOR THE PERIOD 01-03-2000 TO 31-03-2000 Date Details Cheque No. Debited Credited Balance 01-MAR B/F 0 28-MAR CASH DEP 10,000 10,000 28-MAR TRF FM KILLICK NIXON 27,500,000 27,500,000 28-MAR MICR CHEQUE CHARGES 100 27,509,900 28-MAR TRF TO KOSHA INVEST 479101' 27,500,000 9,900 28-MAR TRF FM KILLICK NIXON 27,500,000 27,509,900 28-MAR TRF TO KOSHA INVEST 479104' 27,500,000 9,900 28-MAR TRF FM KILLICK NIXON 27,500,000 27,509,900 28-MAR TRF TO KOSHA INVEST 479103' 27,500,000 9,900 28-MAR TRF FM PRO KILLICK NIX 27,500,000 27,509,900 28-MAR TRF TO KOSHA INVEST 479102' 27,500,000 9,900 30-MAR TRF FM KILLICK NIXON 10,375,000 10,3....
X X X X Extracts X X X X
X X X X Extracts X X X X
....03 crore) on the same day of deposit was transferred all to M/s Kosha Investment and the balance left was Rs. 9,800/-. From the above it will be seen that all the four companies are having the same address as the assessee has. Their address is stated as Killick House. The money received from the assessee was transferred to M/s Kosha Investment (a practical sister concern of the assessee)." 6. According to the Assessing Officer this sudden idea of the investment was clearly floated just to set off the capital gains on sale of land by making investment in these four non-active companies at a premium of Rs. 140/- per share. He further noted that in turn, these companies subscribed into shares of Kosha Investment Ltd. which was a loss making company. It was also noted that the money which had gone to the accounts of four companies vanished within two days. To ascertain further details a statement of one Shri G.R. Vora, who was the director in all the four companies was recorded under section 131 of the Act. The conclusion reached by the Assessing Officer on the basis of this statement have been extracted at para 5.10 which reads as under: "From this statement it is....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ltd., and Kosha Investments Ltd., returned the money to various persons namely, (1) assessee i.e. Killick Nixon Ltd., (2) Sabara Impex Ltd., (3) Geekay Exim Pvt. Ltd., (4)Subahu Investments (5) Snowcem India Ltd., (6) Shashak Noble Metals Ltd., (7) Stallion Investments Pvt. Ltd., (8) Gopal Krishna Anujkumar Rathi HUF. The Assessing Officer wondered how the sum of Rs. 4.66 crores could be given to Sabara Impex Ltd., and another sum of Rs. 0.75 crores to M/s. Geekay Exim Pvt. Ltd., who were mainly responsible for depriving the assessee of its huge land through guarantee issued in their favour, Vyasya Bank Ltd., which was ultimately settled through selling of land. Then, it was noted that M/s. Kosha Investments Ltd., who became flush with money but nothing fruitful happened and the money vanished from its account also. For this, the Assessing Officer had extracted the copy of the bank account of Kosa Investment Ltd. with Global Trust Bank Ltd., which reads as under: GLOBAL TRUST BANK LIMITED YOUR ACCOUNT UPDATE NARIMAN POINT, MUMBAI DATE 03-04-2000 PAGE NUMBER 1 M/s. KOSHA INVESTMENTS LIMITED BLOCK NO. 19, ST FLOOR, DHANRAJ MILLS COMPOUND, SITARAM JADHV ROAD, MUMBAI....
X X X X Extracts X X X X
X X X X Extracts X X X X
....th March TRF FM GALACIATA INES 27,500,000 27,551,696.69 30th March TRF TO SABARA IMPEX 330773 27,500,000 51,696.69 30th March TRF FM GALACIATA INES 27500000 (XI) 27,551,696.69 30th March TRF TO SABARA IMPEX 330774 19,125,000(XI) 8,426,696.69 30th March TRF TO GK RATHI 330775 8,375,000(XI) 51,696.69 30th March TRF FM GALACTICA 27,500,000 27,551,696.69 30th March TRF TO VIPLAV TRADING 330776 27,500,000 51,696.69 30th March TRF FM MOUNTBLANC 27,500,000(X2) 27,551,696.69 30th March TRF FM MOUNTBLANC 10,375,000(X2) 37,926,696.69 30th March TRF TO VIPLAV TRADING 330777 12,500,000(X2) 25,426,696.69 30th March TRF TO GK RATHI 330778 25,375,000(x2) 51,696.69 30th March TRF FM MATTERHORN 10,375,000 10,426,696.69 30th March TRF TO MOUNTBLANC 27,500,000 37,926,696.69 30th March TRF ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....K RATHI 20,000,000 27,551,696.69 30th March TRF TO KILLICK NIXON 330797 20,000,000 7,551,696.69 30th March KOPSHA 330783 2,500,000 5,051,696.69 30th March 0220357/BILL NO. 10032 68 5,051,628.69 30th March DD REALISED 100,000, 5,151,626.69 31st March KILLICK 330798 5,00,000 151,628.69 31st March LF CHARGES 400 151,628.69 9. On the basis of the above bank account it was concluded by the Assessing Officer at para 5.19 as under: " From the above it is clear that every day the money which was invested by Killick Nixon Ltd. went to the following as below: (1) On 28th March 11 crores invested by Killick Nixon Ltd. went to GK Rathi and Subahu Investments Ltd., R. 5.5 crores each through Kosha Investments Ltd., (2) On 29th March 11 crores invested by Killick Nixon Ltd., went to Subahu Investments Ltd. through Kosha Investments Ltd., (3) On 30th March 7.12 crores went to GK Rathi (HUF), 4 crores to Viplav Trading Ltd., 4.66 went to Sabara Impex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r both the previous two years i.e. 1997-98 & 1998-99 of more than Rs. 1 crore. Thus, it can be said that these were journal entries passed to show a heavy balance sheet by creating asset with equal liabilities in the balance sheet, with no movement of funds. Thus, the loan/advance to GKAK Rathi HUF as on 01.04.1999 was a sham advance given by the assessee without any fund involvement and the receipts from this party is therefore treated to be of the same nature. Thus the assessee created an investment of Rs. 48 crores without investing a single penny and by merely rotating cheques in more than 10 different accounts. The activity always got completed on the same day otherwise it would have created an imbalance in bank accounts and then it would have required some funds but as no funds were there due care was taken to square off the transaction on the same day. The activity can be described as each party involved in these circular transaction depositing a cheque of receipt and another one of payment of equivalent amount so that their account nullifies on the same day. The above clearly implies that the assessee has created an investment of Rs. 48 crores using bogus transfer and there....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 1. Matterhorn Investment Ltd. 2. Ficrest Investment Ltd. 3. Galactica Investments Ltd. 4. Montblanc Investments Ltd. During the year ended 31.03.2000, the company had further invested in the above companies at a premium of Rs. 150/- per share. The Board of Directors decided and restructured the above four companies to strengthen the finances of companies. The company were hopeful to revive the company's prospects in the business. Therefore, company has invested at a premium, as all of them were 100% subsidiaries of Killick Nixon Limited." 14. The Assessing Officer after analyzing the above reply was of the view that it is only a self-serving reply and no justification was there in the investment. AO also analysed the profits/loss history of Kosha Investment Ltd. wherein the four subsidiary companies, namely - Matterhorn Investment Ltd., Ficrest Investment Ltd., Galactica Investments Ltd., and Montblanc Investments Ltd. have made investments which reads as under: S.No. Asst.Year Book Profit (Rs.) Share capital (Rs.) 1. 1996-97 2,520,638 9,000,000 2. 1997-98 - 13,122,926 9,000,000....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was a loss making company as per the table below: KILICK HALCO LTD: Asst.Year Turnover Book profit Profit as per Incometax (accrued) Debit Balance in P&L account 1996-97 8,900,219 953,472 NIL NIL 1997-98 255,478,636 -2,144,590 - 2,115,984 542,641 1998-99 30,158,210 -3,135,222 -2,342,205 3,619,332 1999-00 11,105,058 -9,625,462 -28,681,050 13,225,794 2000-01 9,583,639 -9,304,145 -4,632,900 22,539,939 19. It was further found that 'KHL' gave VRS to 86 employees on 16th July, 1998 by paying them a sum of Rs. 2.26 crores which showed that 'KHL' was trying to close its operations. It was also noted that the assessee-company had earlier purchased shares of 'KHL' at a price of Rs. 19.87 and therefore there was no logic for purchase of further 50,000 shares at a premium of Rs. 700/-. It was also noticed that in the assessment year 2001-02 'KHL' transferred all its activities to the assessee company. No effort was made at any point to revive this company. The Assessing Officer was of the view that since assessee was aware of the forthcoming capit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....share. This is also done keeping in mind that the shares have been transferred to Snowcem India Ltd., a group company under the same management who have also squared upon their loans as sale consideration of these shares. The Short Term Capital Gain is recomputed as under: 1,28,000 shares sold at Rs. 83 per share Rs.1,06,24,000 Less: Cost of acquisition 1,28,000 at Rs. 19.87 per share Rs. 25,43,360 Rs. 80,80,640 The same is considered as Short Term Capital Gain for the relevant year." 21. Assessee had also claimed long term capital loss amounting to Rs. 1,68,37,861/- on sale of shares of Pelican Paints Ltd. During the assessment proceedings the Assessing Officer noticed that assessee had sold 42,500 shares of Pelican Paints Ltd. at Rs. 10 per share. The same were acquired at the following price. F.Y. Price/share (Rs.) No. of shares Price (Rs.) 1998-1999 580 2250 1,305,000 1999-2000 375 40,250 15,093,750 The Assessing officer raised a query why the value of the land and buildings at Aurangabad belonging to Pelican Paints Ltd. was not considered while selling the shares. It was point....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Paint is disallowed to be set off against any gain for the relevant year." 22. The Assessing Officer further recorded the statement of Shri T.B. Ruia who is the Director of the assessee-company. On the basis of the above investigations and enquiries the following conclusions were reached by the AO: "10.5.1 Mr. T.B. Ruia has agreed completely with the statement of Mr. G.R. Vora barring the name of the transferee of shares which clearly implies the investment companies were used as a vehicle for investment in Kosha Investment Ltd., and the investment in shares was the planning of the assessee to be used for further benefits. Mr. Ruia gave the theory of valuation of shares at premium giving self serving hypothetical increase in value of Shivrajpur syndicate but could not justify the fact of investment at premium in these four investment companies, as the assessee even prior and after investment they were holding 1005 shares of the company. So the investment in share at premium in a 1005 subsidiary on account of the above is an absurd reason. Though of no relevance to this case but the diminishing of value of Shivrajpur Syndicate on account of certain demand in a year time....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rner and Kosha Investment Ltd., was holding major shares of the company. The assessee company and Snowcem India Ltd., has same management for at least more than a decade and indirectly holds a large number of shares in Kosha Investment Ltd. So the assessee's justification given is false and incorrect and also Mr. Ruia has not given any documentary evidence that the threat of losing marketing rights was there from any quarter. 10.5.6) The assessee company surrendering rights of Snowcem India Ltd., in the later year was more because of the liabilities arising in the assessee company because of its involvement with Securities Scam and special Court Proceedings, whereas snowcem India Ltd., is devoid of any legal problem. So surrendering of marketing rights in the later years was the concentration of revenue in a legally problem free company which was decided by the same management. 10.5.7) Investment in Killick Halco Ltd. The assessee could not give any reasonable/sound basis for its investment at premium in Killick Halco Ltd., and the price differential of investment at Rs. 19.87 & Rs. 800 in a short gap of four months. The assessee's main intention can be safely des....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... example shares were purchased after being approved by the Board of Directors. Shares were allotted to the assessee company, Return under the Companies Act were filed with the Registrar of Companies as per Company Law, all the transactions regarding payment and receipts were made through bank account, and therefore, such loss could not have been disallowed. The learned CIT(A) adjudicated this issue vide para 4.10, 4.10.1 to 4.10.4 which are as under: "I have carefully considered the facts of the case both as per the impugned assessment order and the submissions made by the appellant's AR. As far s the short term capital loss on sale of shares of the four companies namely, Matterhorn Investments Ltd., Fircrest Investments Ltd., Galatica Investments Ltd., and Montblanc Investments Ltd., is concerned, I am in total agreement with the A.O. that there were no real transactions of purchase and sale of shares resulting into any capital loss to the appellant company. The manner of buying these shares at a premium of Rs. 140/- per share within a short period of three days and the manner in which new accounts were opened in global Trust Bank Ltd., for routing the cheques movement le....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rores and long term capital loss of Rs. 92,41,224/- allegedly suffered by the appellant in respect of the purchase and sale of shares of these four companies is not a genuine loss and the A.O. was justified in treating it as sham. The action of the A.O. in rejecting such losses and not allowing the same to be set off against the long term capital gain on transfer of appellant's land to Vysya Bank Ltd., is upheld. Similarly, the appellant's investment in 50,000 shares of its group company M/s. Killick Halco Ltd. @Rs.800/- per share by converting its loan of Rs. 4 crore into share investment is also to be treated as a sham transaction for the reasons discussed in para 7 of the impugned assessment order. The said loan was practically irrecoverable as Killick Halco Ltd. did not have any liquidity to repay the loan. The appellant bought the share of this company at a premium of Rs. 700/- which appears to be a pre-arranged price as the shares of the same company had been bought at the rate of Rs. 19.87 per share only four months before and no significant business activity took place in that company during intervening period to justify such a high price. I am therefore of the opi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....riginated from and return back to the appellant company regarding the share transactions made with Shri Radha Financial Services Ltd. The statement of Smt. Pratibha J. Dangi recorded u/s.131 by the A./O. on 16.3.2004 further confirms this conclusion as drawn by the A.O. Moreover, the facts stated by Shri T.B Ruia, Managing Director of the appellant company, in this statement recorded by the A.O. u/s.131 of the I/T.Act, 1961, finally makes it clear that the appellant's alleged share transactions resulting into short/long term capital loss were sham transactions and merely stage managed by its management. Shri T.B. Ruia is the Chairman cum Managing Director of the appellant company and the main person in the appellant's group of concerns. While recording his statement u/s. 131 of I.T.Act 1961, the A.O. offered an opportunity to him for cross examining Shri Deviprasad Budhiya and Smt. Pratibha J. Dangi but he evaded the same by saying that Shri Budhiya is telling lies and "there is no point in cross examining a person who is telling a lie". In para 10.5 of the impugned assessment order, the A.O. has analysed the facts as emerging from the statement of Shri T.B. Ruia and I am in total ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection 45 to 55 of the Act have to be looked into. Further, it has not been denied that the assessee was the owner of the capital asset under section 2(14) of the Act, the same was transferred which comply with the definition of the transfer under section 2(47) of the Act. It has also not been denied that the assessee had received full consideration of the shares through banking channels. He also pointed out that shares in the four companies were acquired as per the Board resolution authorizing the Directors to subscribe shares at a premium, such shares were allotted by different companies, which is duly reflected in the annual accounts as well as the returns filed with the Registrar of Companies. He submitted that the transaction was held to be sham in four companies mainly because funds were borrowed but there is no ban or requirement under the law that investment in shares has to be made out of assess's own funds. According to him, the test of ownership of shares cannot be further subjected to the test of sources of investment. It was further argued that the A.O. has not reached the right conclusions while determining the value of shares because generally investments are made on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h was conducted mainly to reduce the capital gains earned by the assessee. He strongly relied on the orders of the lower authorities. 29. We have considered the rival submissions carefully and have also perused the relevant material on record. As far as the short-term and long term capital loss on sale of four companies namely, Matterhorn Investments Ltd., Fircrest Investments Ltd., Galatica Investments Ltd. and Montlblanc Investments Ltd., are concerned, we agree with the reasoning given by the learned CIT(A) for disallowing the loss. 30. We would like to recall the decision of the Hon'ble Supreme Court in the case of Sumati Dayal v. CIT (1995) 214 ITR 801. In that case the appellant carried on business as a dealer in art pieces, antiques and curios in Bangalore. During the assessment year 19710-72, she claimed that she received a total amount of Rs. 3,11,831/- by way of race winnings in jackpots and treble events in races at turf club in Bangalore, Madras and Hyderabad. The said amount was shown by the appellant in the capital account in the books. For the assessment year 1972-73, she claimed receipts of Rs. 93,500 as race winnings in two jackpots at Bangalore and Madras an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....babilities was accepted by the Hon'ble Supreme Court. Documentary evidence was ignored and human probability test was applied. On this touchstone we analyze the findings of the lower authorities and replies given by the assessee. 33. Assessee had no funds to start with for making investments in four subsidiary companies and the money was borrowed from the following persons : 1 GKAK Rathi HUF 34.87 crores (28/3 to 30/3) 2 Subahu Investment Ltd. 5.50 crores (28/3) 3. Viplav Trading Ltd. 1.30 crores (30/3) 4. Kosha Investments (balances) 6.325 crores (29/3/00) 48.00 crores Now let us look at what is the material before the A.O. and how he dealt with the same. 34. It is very surprising that major chunk of money has come from GKAK Rathi HUF, who is the main person behind Geekay Exim (India) Ltd., on whose behalf the assessee company had given guarantee to Vysya Bank and ultimately lost a sum of Rs. 105 crores. The dispute with Geekay Exim (India) Ltd., started in the year 1998-99 and ultimately the land was agreed to be transferred on 29th September, 1999 and still the same person who is causing the loss of Rs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ose to make investments at huge premium (nominal value of shares is Rs. 22,50,000/- and premium is 11,91,25,000/- in each of the four companies) and no justification was given before the lower authorities or even before us. 37. The Assessing Officer has also again analysed date-wise transaction in various banks and ultimately found that no money at all in fact was involved and it was only circular transaction and for this he has drawn the following chart.: The above flow chart clearly shows that assessee company i.e. M/s. Killick Nixon Ltd., mainly generated funds from GKAK Rathi (HUF), M/s. Subahu Investments Ltd. and M/s. Kosha investments Ltd. over a period of 3 days, on the same dates when this money was generated it was sent to four subsidiary companies, i.e. Matterhorn Investments Ltd., Fircrest Investments Ltd., Galatica Investments Ltd. and Montblanc Investments Ltd. by way of investment in their shares from where on the same 3 days the money went to M/s. Kosha Investments Ltd. again as investment in shares from where the money again went back to GKAK Rathi Group, M/s.Subahu Investments Ltd. and M/s. Sabara Impex Ltd., and the last two companies belonged to GKAK Rati ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee had also amount of loan recoverable from this company amounting to Rs. 4 crores which was converted into share at the rate of Rs. 800/-per share including premium of Rs. 700/-. The assessing Officer noticed that Profit & Loss position of Killick Halco Ltd. reads as under: Asst.Year Turnover Book profit Profit as per Incometax (accrued) Debit Balance in P&L account 1996-97 8,900,219 953,472 NIL NIL 1997-98 255,478,636 -2,144,590 - 2,115,984 542,641 1998-99 30,158,210 -3,135,222 -2,342,205 3,619,332 1999-00 11,105,058 -9,625,462 -28,681,050 13,225,794 2000-01 9,583,639 -9,304,145 -4,632,900 22,539,939 Moreover, in July, 1998 assessee gave VRS to 86 employees which shows that Killick Halco Ltd., was on the verge of closure. No reply was given before us why shares were purchased at a price of Rs. Rs. 800/- per share in March 2000 when assessee itself has purchased another 78,000 shares at Rs. 19.87 per share on 25.11.1999. No substantial change in the intervening period is visible from records and the position of profit and loss clearly....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of the issue raised in ground No.1. 42. As far as ground No. 2 is concerned, after hearing both the parties, we find that during the assessment proceedings the Assessing Officer noticed that assessee had claimed the fair market value of land as on 01.4.81 which was sold during the year at Rs. 11.10 crores. Later on it was stated vide letter dated 25.11.2003 that fair market value of the land should be taken at Rs. 19,76,00,000/- as on 01.04.81 as per the Valuation report of one shri R.J. Sethna, A.O. noted that the said report was dated 18.3.92 surprisingly it had valued a part of land which was ultimately taken over by Vysya Bank and which was treated as sale by the assessee. The A.O. observed that the assessee had given the guarantee in the year 1997 then how that specified piece could be known in the year 1992 to the valuer and therefore the report was treated only a self-serving document. 43. He also wondered that if this report was available with the assessee at the time of filing of this return then why the same was not filed along with the return. In this background, A.O. referred the matter to the valuation Officer u/s.55A and since some particulars were not filed b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r making submissions with regard to the valuation of the impugned land. For this purpose the appellant was given an opportunity, vide my letter No. CIT(A)-C- 1/Misc/2004-05 dated 10.11.2004 to represent the matter through their registered valuer in terms of the provisions of section 287A of I.T. Act, 1961 and a hearing was fixed on 22.11.2004 in this regard. However, the appellant has so far not appointed any valuer for the purpose and there was no representation on its behalf on the appointed date of 22.11.2004. Hence I am left with no alternative but to adopt the fair market value of this land as on 1.4.1981 as fixed by the DVO. 3.9.6. The Assessing Officer is, therefore, directed to recompute the long term capital gain accrued to the appellant as a result of the transfer of impugned Chandivali land to Vysya Bank by adopted the cost of acquisition of the said land as on 1.4.1981 at Rs. 1,70,43,890/- as foxed by the DVO. Hence, the additional ground of appeal in this regard stands dismissed and the appellant's income in respect of long term capital gain on transfer of its land is directed to be enhanced. The Assessing Officer is further directed to issue a notice of deman....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... with by the learned CIT(A). In this regard, he referred to pages 66 to 68 and page 79 of the paper book. 48. Lastly, while arguing on this ground he referred to page 36 of the assessment order and pointed out that the Assessing Officer has wrongly denied the claim of compensation for redemption of sub-tenancy right. He pointed out that certain people had occupied the land belonging to the assessee and since assessee was duty bound to give to the Bank the land free from all encumbrances and therefore, the assessee was required to throw out the people occupying the land for which provisions of Rs. 1 crore was made. 49. On the other hand, the learned Departmental Representative pointed out that the report from the Registered Valuer could not have been in existence on 18.3.1992 because the Registered Valuer had valued the land which was given ultimately to the bank separately. Such guarantee was given in the year 1997 and the Registered Valuer could not have separated the unoccupied land in the year 1992 itself. He has also referred to various paras of assessment order and appellate order and strongly relied on them and concluded by saying that the valuation report has already b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt does not mention any purpose of valuation but very conveniently segregate the land which was ultimately given to Vysya Bank and valued the same at Rs. 19.76 crores. When there was no particular purpose of valuation the property should have been valued at one consolidated figure. All these factors very clearly indicate that this is only a make believe story and no valuation report was available on the date of filing of return. Further para 3.9.5 of the first appellate authority which we have reproduced earlier above, reads as under: "3.9.5 In the same letter, the appellant requested for adoption of the valuation report prepared by Shri R.J. Sethna, another government approved registered valuer, for the purpose of valuing appellant's land in question. However, the appellant has not submitted any copy of the valuation report of Shri R.J. Sethna for my consideration and hence I am unable to take cognizance of appellant's submission in this regard. In the same letter dated 18.10.2004, the appellant requested for being permitted to appoint another registered valuer under the provisions of section 287A of the I.T.Act, 1961 for making submissions with regard to the valuation of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, learned CIT(A) very rightly observed that he had co-terminus powers and could consider the valuation report sent by the A.O. This aspect would meet the objection of the learned Counsel for the assessee with respect to the proposition that if the report was not received during the pendency of assessment proceedings, the same would become invalid (by reference to the case of Reliance Jute Mills). Since the CIT(A) has same plenary powers as that of A.O. which means the proceeding before the CIT(A) are in fact in the nature of continuation of assessment proceedings. 53. However, we find force in the last submission of the learned counsel for the assessee in this respect that the learned CIT(A) was bound to consider the objections raised before him in respect of the valuation report of the DVO. Page 66 of the paper book clearly shows that through letter dated October 12, 2004 some objections were raised regarding valuation prepared by the DVO., particularly the objection regarding that the assessee does not fall in K(e) area but fell under 'L' area as per Notification paced at pages 79/85 of the paper book. Therefore, in the interest of justice, we set aside the order of the learn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fore, we agree with the observation of the lower authorities and confirm the disallowance of sum of Rs. 1 crore claimed towards the expenses for eviction of unauthorized occupants form the land. 56. As regards ground No.3 is concerned, after hearing both parties, we find that this claim was made for the first time by way of raising additional ground before the CIT(A). This additional ground has been referred by the CIT(A) in para 3, which reads as under: "The learned Deputy Commissioner of Income-tax erred in assessing long term capital gain on acquisition of mortgaged land by Vysya Bank in pursuance to the agreement dated 4.4.19996. The learned Deputy Commissioner of Income-tax ought to have allowed the entire amount of consideration determined on acquisition of land by Vysya Bank as business loss incurred by the appellant in the course of carrying on of business of providing guarantees. 57. The assessee company was the owner of a piece of land called "Chandivali" land admeasuring about 80,827 sq. mtrs. located in Powai Estate, Andheri (E), Mumbai. The assessee company had given a guarantee to the extent of Rs. 100 crores in favour of Vysya Bank, Overseas B....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rom the bank on the basis of Guarantee. It is further agreed that M/s. Geekay Exim (India) Ltd., will pay to M/s. Killick Nixon Ltd. 2% of the gross realization of the export proceeds as commission on the business which is facilitated by the Bank facilities repayment of which has been guaranteed by M/s. Killick Nixon Ltd., as hereinabove stated. The commission shall accrue to M/s. Killick Nixon Ltd., on completion of the audit of the annual accounts of M/s. Geekay Exim (India) Ltd., for the period expiring on 31st of March immediately preceding and shall be paid within 30 days of completion of such audit. M/s. Geekay Exim (India) Ltd. shall furnish to M/s. Killick Nixon Ltd. long with payment, a certificate of their auditors as to the gross realization of the export proceeds. Provided, however, that if at the time of completion of the audit of the accounts of M/s. Geekay Exim (India) Ltd., for the year ended 31.3.1999, it is ascertained that the aggregate amount of the commission paid or payable for the three years ending 31.3.1999 falls short of sum of Rs. 6,00,00,000/- (Rupees six crores only), the amount of short fall shall be added to the commission payable for the yea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) Please state the reasons s to why the issue relating to the alleged trading loss suffered as a result of providing guarantee to Vysya Bank Ltd. was not raised before the Assessing Officer during the course of assessment proceedings and why the same has been raised for the first time during the present appellate proceedings by way of an addition ground of appeal. (iii) You have shown an income of Rs. 6 crore in the profit and loss account (schedule-I) for the year ending on 31.3.2001 explaining the same as "Guarantee Commission for prior years". Please give the details of this income and specify the relevant assessment years to which it pertains. Also explain the reasons as to why this income was not disclosed in the relevant previous years. (iv) Please specify the date/dates on which the said amount of Rs. 6 crores was received by you. Please furnish a copy of your bank statement indicating the receipt of the amount from M/s. Geekay Exim (India) Ltd. (v) On page 172 of the Paper book (annexure J), you have filed a copy of the extract of the minutes drawn at the meeting of Board of Directors held on 28.04.2000. as per the extract, Vysya Bank Ltd. was to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g to be separately claimed during the course of assessment proceedings for AY 2001-02. Similarly, while presenting the memorandum of appeal before Your Honour, the ground relating to the claim of trading loss arising during the course of carrying on of guarantee business, inadvertently remained to be raised. When the appeal was fixed for hearing, we have raised the additional ground immediately. The lapse in not raising the ground, in the grounds of appeal filed, was inadvertent and due to oversight. 48. In para 2(iii) Your Honour has asked us to give the details of guarantee commission income of Rs. 6 crores as also for not disclosing the same in earlier years. With reference to the same we have to submit as under: The guarantee commission has been earned on account of the guarantee extended to M/s.Geekay Exim (India) Ltd. The said guarantee commission is due to us as per clause 3 of the agreement dated 4.4.1996. As per the said clause, we were to receive commission @ of 2% of the gross realization of exports proceeds as commission subject to a minimum guaranteed commission of Rs. 6 crores. The amount of commission was to be paid within 30 days of the completion ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....andum and Articles of Association authorizes the business activity of providing guarantees but the appellant company has admittedly not carried out this business activity at any time in its long history except in the solitary instance of providing guarantee to M/s. Geekay Exim (India) Ltd. The appellant company, as per its Certificate of Incorporation, was incorporated on 14.11.1947 and it has never indulged in a business activity of providing guarantees except once as discussed above. Therefore, I am unable to accept the argument of the learned AR that the said guarantee to Vysya Bank was provided by the appellant in the normal course of its business. The appellant company is following mercantile system of accounting but it has never accounted for the commission income in its returns of income filed after entering into the contract with M/s. Geekay Exim (India) Ltd. till the impugned assessment year when it has shown an income of Rs. 6 crores in respect of the alleged guarantee business and the same has been shown as pertaining to 'prior years'. If such a business was genuine, the guarantee commission income would have been shown by the appellant company on a regular basis from th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....herefore, the resultant loss allegedly suffered by the appellant cannot be allowed as a trading loss or a business loss from the appellant's income as requested in the additional ground of appeal. The amount appropriated by Vysya Bank can not be considered even for the purposes of section 48(2) while computing the taxable long term capital gain in respect of the impugned transfer of land. For this purpose, I place reliance on the decision of Hon'ble Supreme Court in the case of CIT vs. Attili N. Rao (252 ITR 880). The additional ground of appeal in this regard, therefore, stands dismissed." 62. Before us the learned counsel for the assessee mainly submitted that the object clause in the Memorandum of Association clearly provided that assessee company was also authorized to engage in the business of providing guarantees and this has not been denied by the Department. Further, a sum of Rs. 6 crores was accounted for in the annual account for the assessment year 2000-01 but the same was not returned as taxable because the guarantee commission was not received by the assessee company. However, the Assessing Officer held that this amount to be taxable. An additional ground in this re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m was not written off and therefore, the same is not allowable because it has been held by the Punjab & Haryana High Court in the case of Laxmi ginning and Oil Mills Pvt. Ltd.(82 ITR 958) that pendency of litigation of the loss suffered cannot militate against the fact that loss was suffered by the assessee during the accounting year in question and the amount of that loss cannot be postponed in view of the pendency of litigation. 65. On the other hand, the learned Departmental Representative while strongly supporting the order of the lower authorities submitted that in the relevant years the debt was treated good. He also argued that if all the factors are considered together, it would clearly show that guarantee was not given in the normal course of business and it was only a make belief story. 66. We have considered the rival submissions of the parties in the light of material on record as well as the decisions cited by the parties. We are unable to agree with the submissions of the learned counsel for the assessee because the act of giving guarantee seems to have been done not in the normal curse of business. No doubt there is a clause as considered by the learned CIT(A) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onged to the company which was stated to be listed at the relevant point of time, which means the directors were holding position of fiduciary trustees on behalf of shareholders and should not have allowed the property to be alienated without taking any care and if the purpose was to earn guarantee commission then why no guarantee commission was taken almost for three years is not clear. Even the amount which was accounted in the assessment year 2000-01 was never received by the assessee company and there is nothing on record to show that assessee tired to recover this money. 70. The learned CIT(A) raised the following query: "On page 172 of the Paper book (annexure J), you have filed a copy of the extract of the minutes drawn at the meeting of Board of Directors held on 28.04.2000. as per the extract, Vysya Bank Ltd. was to re-transfer the company's Chandivali land admeasuring 49,911 sq.mtrs. against the payments to be made subsequently. Kindly explain the position of this re-transfer as on date." In response to the above, it has been stated as under : "We are not aware of the reason s of M/s. Geekay Exim (India) Ltd.'s failure to repay its loan. Similarly,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mount of Rs. 105 crores. The basis of determination of the aforesaid liability against us and the other company, has been co-related with the realization of the sale proceeds of properties which were mortgaged to the bank." 74. When the loan in respect of which the assessee company had provided guarantee was also secured by another guarantee given by another company then why the liability was not shared by another company is not clear and nothing has been said in this regard before us. 75. We have observed certain other very interesting facts. On the one hand it was urged before the lower authorities and even before us that the assessee company had given the guarantee in the normal course of business and since the GEIL group failed in its commitment the assessee company had to part with its land. It is to be noted here that the assessee company agreed to transfer its land to Vysya Bank vide agreement dated 29th September, 1999, later on when the assessee company was trying to organize funds for making investments in the subsidiary companies a sum of Rs. 34.87 crores was raised from GKAK Rathi Group, Rs. 5.50 crores from Subhau Investment Ltd. and Rs. 1.3 crores from Viplav Tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s who were loyal to the company for many years. It was also claimed that because of this commission, the turnover of the assessee company had increased. The AO after considering the explanation observed that since the names and addresses of the persons to whom such commission was paid and the nature of services provided by such dealers was not furnished, such expenditure could not be allowed and therefore, he disallowed the secret commission. 79. Before the CIT(A) it was mainly submitted that commission was paid on the basis of authorization given by the Board of Directors and was paid in the interest of business. The learned CIT(A) decided this issue vide para 6.3 which reads as under: "I have carefully considered the facts of the case. As per the provisions of section 37 of the I.T.Act 1961 any expenditure which is not capital or personal nature, can be claimed as a deduction provided the same has been incurred wholly and exclusively for the purposes of assessee's business or profession. In the case of the appellant, an expenditure of Rs. 1,15,25,000/- has been claimed on account of commission payment but the appellant has not disclosed the names of the persons to who....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the other hand, the learned D.R. strongly supported the order of the lower authorities. 82. We have considered the rival submissions carefully. We had asked the learned counsel for the assessee that what happened to the set aside proceedings of the earlier years and he fairly admitted that since the assessee could not furnish the name, addresses of the parties to whom such secret commission was paid and therefore, the addition has been repeated. We further asked the learned counsel for the assessee whether it is possible for the assessee company to furnish the names before us he showed his inability. Since the assessee is not in a position to furnish the names and addresses of the persons to whom the secret commission has been paid and therefore, following the decision of the Hon'ble Supreme Court in the case of French Dyes & Chemicals (I)_ Ltd. v. CIT (201 ITR 253) relied on by the CIT(A), this issue is decided against the assessee. 83. As far as Ground No.5 is concerned, after hearing both the parties, we find that certain interest were disallowed because according to him, some interest bearing funds were diverted for other purposes. On appeal the addition has been confirme....