TaxTMI 
TaxTMI 
2016 (6) TMI 487
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....he order of CIT(A) whereby the CIT(A) deleted four additions made by the AO. The revenue has raised one single ground of appeal in which it has questioned the correctness of the decision of the CIT(A) deleted four different additions made by the AO. The revenue was given opportunity to file revised grounds setting out the challenge to each one of the four additions deleted by the CIT(A) independently. The revenue has however failed to comply with the directions despite adequate opportunities. We therefore proceed to decide the appeal considering individually each one of the additions made by the AO that was deleted by the CIT(A). 4. We shall first consider the addition of Rs. 3,19,76,907/- made by the AO which was deleted by the CIT(A). The Assessee is a partnership firm dealing in property and shares. The Assessee claimed that it had incurred a loss of Rs. 3,19,76,907/- while trading in derivatives. The assessee has claimed loss on derivatives of Rs. 31976907/- arising from future option loss on transactions entered on NSE as appeared for from 10DB. In terms of Rule 20AB of the Income Tax Rules, 1962 (Rules), every Assessee who has entered purchased and sold securities in a rec....
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....he AO was of the view that from the above facts it was apparent that loss on Derivatives was an arranged affair, the transaction defy normal human behavior and human probability. This is because the assessee continues to enter loss in each and every transaction and still continued to transaction F&O and increased its loss. Such transactions stopped immediately after the end of Ass. Year 2007-08 because assess thereafter was not in need of any further Loss even prior to or post AY 2007-08. In the circumstances, the AO was of the view that the loss was a make belief affair arranged in manner to manufacture loss and thus the same being a sham transaction which lead to a bogus loss. 8. In coming to the above conclusion the AO referred to the Legal position vis-a-vis powers of income-tax authorities in relation to sham transactions, as emerging from various judicial authorities and summed upon the legal position as follows: (a) The taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction. Motive alone cannot make unlawful what the law allows but at the same time if there is presence of bad faith or fraud or lack of bo....
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....r of tax evasion and tax avoidance as laid down by the Supreme Court in landmark judgment in the case of McDowell & co. Ltd. V. CTO (1985) 154 ITR 148/22 Taxman 11 (SC) can have its application only where colourable or artificial devices are adopted and not to the transactions which are otherwise legitimate and are undertaken bona fide in the ordinary course of business. In other words, McDowell & Co. Ltd's case (supa) can have its application where the devices though seemingly legal are adopted in collusion or where devices adopted are not genuine or bona fide but are sham, make- believe or camouflaged to escape the liability for tax or to obtain certain benefit for tax purpose. The tax authorities are empowered to go behind the transaction to find out the real and if a transaction, on the basis of evidence and the surrounding circumstances of the case, appears to be non-genuine or bogus or a make believe or sham, with a view to avoid the tax liability or if it appears that the series of transactions effected by the assessee to achieve the desired result is sham or collusive or non-genuine, the tax authorities can ignore the transaction. Such power of tax authorities ....
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....nore transactions which are intended to avoid payment of taxes. 11. The CIT(A) found that the decisions relied upon by the AO were not applicable to the facts of the Asssessee's case. He held that decision rendered by the Hon'ble Supreme Court in the case of Mcdowell & Co. Ltd. (supra) was a case in which the issue was whether the liability to pay excise duty was that of the assessee. Even if the liability to pay excise duty was of the Assessee, whether the amount of excise duty, directly paid by the buyer, was includible in the turnover of the assessee for payment of sales tax? Referring to several earlier precedents wherein the concept of excise duty had been elaborated, the Constitution Bench held that the incidence of excise duty was directly relatable to manufacture and its payment is the primary and exclusive obligation of the manufacturer... but (only) its collection can be deferred to a later stage as a measure of convenience or expediency. As to the other issue relating to turnover also, the Supreme Court held that excise duty is a part of the consideration which a buyer pays to purchase liquor and is includible in the turnover of the assessee (manufacturer) although th....
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....the shares of a company were sold to another company by a individual, and when the purchasing company is floated and majority owned by the same individual, that aspect cannot be overlooked by the tax authorities. Further there was no change in control of the target company, hence there was no real change and the transfer claimed was a sham transfer. The aforesaid decision was therefore not applicable to the facts of the case of the Assessee. The CIT(A) held that the decision of the Hon'ble Bombay High Court in the case of Smt. Nayantara O. Agarwal vs. CIT 207 ITR 639 (Bom) and decision of the Hon'ble Calcutta High Court in the case of CIT Vs. Shekhawati Rajputana Trading Co (P) Ltd. 236 ITR 950 (Cal), were not applicable to the case of the Assessee, as the transactions in those cases were collusive in nature and not a real transaction with unrelated parties, as in the case of the Assessee. Similarly, the CIT(A) held that the decision of ITAT Mumbai in the case of Bombay Oil Industries Ltd. Vs. Dy. CIT [2002] 82 ITD 626 (Mum) was also a case of tax avoidance with collusion of a related party. 13. The final conclusion of the CIT(A) were as follows: "4.4.3. In view of the ....
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....e real intention was tax evasion then the arrangement need not be given effect to. In cases where transactions or arrangement are evidenced by written agreement/arrangement it is not possible to rewrite the agreement/arrangement. The right of the parties to enter into transactions according to their free will and choice has always been protected, the only rider being that both the professed intention and the real intention should be the same. Any transaction in which the professed intention and the intention gathered from the documentation are the same must be considered to be genuine. In the present case the AO disallowed the set off of loss in question not on the basis of any incriminating documents or bringing any adverse evidence on record, but with the observation that the transactions failed to satisfy the test of human probability and the objectives of the transactions was tax evasion. The AO did not doubt the genuineness of the transactions carried out by the Assessee which resulted in the loss. Even in the remand report filed before CIT(A), the AO accepted the veracity of the documents filed by the Assessee in support of the loss but has ignored the loss only on the ground....
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....f the Ld. AR of the appellant has been considered. The appellant claimed Rs. 37,9.5,659/- as business loss from share transactions. However, the AO upon verification of the transactions treated the said loss as speculative loss as the transactions (both purchases and sales) were intra-day and no delivery of the shares was taken. The AR has admitted the said findings of the AO that the loss was speculative in nature .. In view of such, loss from share transactions at Rs. 37,95,659/- is taken as speculative loss." 18. Aggrieved by the order of the CIT(A), the Assessee has raised the aforesaid ground of appeal before the Tribunal. The learned DR relied on the order of the AO and the learned counsel for the Assessee relied on the order of the CIT(a). 19. We have considered the rival submissions. The transactions of purchase and sale of shares carried out by the Assesssee were genuine and real. The loss suffered by the Assessee in such trading was also genuine. The transactions were however speculative in nature in accordance with Sec.43(5) of the Act and the loss in question was speculative in nature requiring special treatment in view of Explanation to sec.73 of the Act. Since t....
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....sessee had not discharged his onus to prove the services rendered for which commission was paid. He held that merely making payments or deduction of tax is not evidence enough to prove that the expense is deductible u/s. 37(1) of the Income Tax Act. He held that the law was well settled that the onus to prove the allowability of expenses is on the assessee. The AO also observed that: 1). There was no need of this expenditure as the assessee failed to explain the necessity of such expense. 2).The Commission agents do not hold any technical qualification or knowledge which can justify there capability of rendering such service. 3). On the perusal of the bank statement the payment to both the ladies were made on 23.05.2006, whereas their husband were inducted as partner on 08/05/2006. The two new partners had brought in capital on 21.05.2006 and the payment were made from the capital contributed by these partners. Hence the money was taken back by the partners through their respective wife. 4) There was no agreement or documents except and save Bill and TDS Certificates to justify the nature and claim of such huge expenditure of Rs. 66,00,000/- ....
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....g such payments. it appears that the AO treated the commission/brokerage payments to Mrs. Rupali Shah and Mrs. Priya Shah as sham, at par with the loss on derivatives, as discussed supra. 6.4.1. The AR has contended that the necessity of any expenditure is based on the nature of transactions, need thereof and the circumstances in which it is incurred for the purpose of business as think proper by the businessman. The income tax authorities cannot take over the mettle of businessman to judge his prudence, his decision makings and requirement of paying any outgo. No businessman would incur any cost till it is necessary for his business The AR further submitted that the appellant was offered a piece of land and property by these brokers. The appellant has no permanent establishment in the city of Mumbai and also not a regular dealer of properties in that city and there were no offer in public domain, such as newspapers, trade bulletins and or magazines. The offer seemed lucrative for the appellant to go ahead and procured the property through brokers. This deal could not have taken place unless there was intermediary in between . the appellant and the vendor. 6.4.2. ....
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....ove the ingredients necessary for claiming commission paid as allowable expense has to be established by the Assessee. The AO will afford opportunity of being heard to the Assessee before deciding the issue. 23. The next issue that arises for consideration is the co-ordination charges paid to M/S.Onkar Management Pvt.Ltd., which was disallowed by the AO for want of proof of rendering of services by the receipient of the co-ordination charges. The Assessee had claimed as deduction in computing its total income Co-ordination. charges of Rs. 51,00,000/- paid. to M/s Onkar Management Private Limited. It was explained that this Onkar Management Private Limited, a Company having its Registered office at Kolkata (no documentary evidence were filled to prove its establishment in Mumbai) has been paid this sum for Co-ordinating the sale of property. The AO noticed the following facts in respect of the said payment and disallowed the claim of the Assessee for deduction:- 1) As per assessee's ledger the payment was for sale of property as apparent from Debit made on 05/01/2007 in the assessee's book. 2) The bill issued by Onkar Management Private Limited dated 14/....
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....or, the AR filed a letter dated 10.09.2010 written by the appellant in which the complete postal address of Onkar management (p) Ltd was given. Then, another letter was issued to the said company to confirm the documents. In reply, the said company confirmed the payment of coordination charges. A letter dated 17,08.2010 was also send with inspector to the Sri P. K. Duta, Notary for confirmation of agreement. Inspector in his report confirm the entry in the register. However, I am also with the opinion of AO that these charges claimed by me appellant are bogus. This matter is thoroughly discussed by the AO in its assessment order that the assessee has failed to prove rendering of services by the this company. OA also discussed the payment to the Omkar management (p) Ltd by the assessee is not allowable u/s 40(a)(ia) of the I.T.Act." 25. Before CIT(A), the Assessee claimed that Onkar Management Private Limited, coordinated activities in making the property acquired as marketable. The CIT(A) allowed the claim of the Assessee, observing as follows: "7.4.1. Having examined the documents submitted by the AR, I am inclined to accept AR's version that the ....