TaxTMI 
TaxTMI 
2016 (9) TMI 592
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....on the facts and circumstances of the case the learned A.O erred in coming to the conclusion that the purchase of shares was not on the contract date being 29.08.2008.' 3. That Ld. CIT(A) has erred in not discussing the material facts brought on record by the A.O and discussed in his assessment order in coming to the conclusion that the purchase of shares was not on impugned contract date being 29.08.2008 as claimed by the assessee. 4. That Ld. CIT(A) has erred in observing that the discussion made by the AO in the assessment order was 'academic' and thereby not discussing as to how the material facts recorded by the AO in coming to the conclusion that the purchase of shares was not on the contract date being 29.08.2008 was not relevant to the issue and as such his order is bad in law and perverse. 5. That Ld. CIT(A) has erred in acting on irrelevant facts not material to the issue in the operative part of his order before coming to his conclusion; and as such his order is bad in law and perverse. 6. That, on the facts and in the circumstances of the case, Ld. CIT(A) is not justified in deleting the disallowance of Rs. 15,00,000/- on account of payment made for Keyman's Insu....
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....ice prevailing on the date of purchase should be taken for the purchase value. However, AO has disregarded the plea of assessee on account of following reasons:- a) Assessee's main income is only from source of tendering loan to earn interest for the last three Assessment Years and did not participate in the sale-purchase of share. The assessee during the year under consideration has only done a single transaction which was treated as business transactions. From the above, AO noted that it cannot be treated as business transactions and should be treated as investment of assessee-company; b) The sale-purchase of share is regulated under the Securities Contract (Regulations) Act, 1956 (SCRA for short) and this is not governed by the Sale of Goods Act, 1930. As per the SCRA Act, a person cannot transact in share without the involvement of the broker, however, general exception in Sec. 18(1) of SCRA which states that a transaction without the involvement of broker can be made on the basis of spot delivery which means that the transaction should be closed for the delivery of shares and payment within 24 hrs. In the instant case, the delivery of share was made to the Demat account of a....
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.... material placed on record and the finding of the Assessing Officer in the matter. On going through the assessment order, it would appear that the Assessing Officer has made an academic discussion regarding the probability of the appellant having entered into transactions in collusion with Pushkar Banijya Ltd., with a view to manipulate the accounts by claiming loss in share trading and thereby reducing the taxable income and consequent tax liability. From the records, it is, however, seen that the Assessing Officer has made enquiries with the aforesaid company to ascertain the genuineness of the transactions, but no material evidence is brought on record to show that the transactions between the appellant and Pushkar Banijya Ltd., was sham. The cost of purchase of each share at Rs. 92/- is evidenced by the demat accounts. In fact, there is no evidence brought on record to show that purchase price has been inflated. The Assessing Officer has not doubted the price of the share of Gujarat Heavy Chemicals Ltd. at Rs. 27.85 as on 31.3.2009. it is an inherent part of section 143(3) that where the Assessing Officer is not inclined to accept the return submitted by the assessee and if he ....
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....ket quotation was lower on 1.03.2009 the value of the same was shown at the rate of Rs. 27.85 per share whereas the purchase was at Rs. 92/- per share. The appellant was carrying on the business of purchase and sale of shares in earlier year also and claimed the same as business loss. The appellant company is a NBFC under the Reserve Bank of India directions and purchase and sale of shares have been the trading activity of the company. The Assessing Officer after detailed discussion in the order has added back to the income of appellant of Rs. 10,53,6000/- as inflation of purchase price. The Assessing Officer in the Assessment Order as discussed in detail while the solitary transaction should be treated as investment and not a share trading transaction. However, for the sake of argument, if it is conceded that the transaction is one of-trading as held by the Ld. ClT(A), the impugned expenditure is not allowable. A reference is made to Page No. 4 of the Assessment Order which has recorded as under: "The Government of India introduced special Act, namely Securities contract (Regulations) Act 1956 (SCRA) for the purpose to regulate the shore trading. On introduction of the Securities....
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....y of share or in payment of price consideration, they cannot be termed as spot delivery contract. This transaction was, therefore, not exempted under section 18 of the Act from being governed by Section 13 of the SCRA and thus was illegal contract by virtue of the provision of the SCRA. Such illegal loss cannot be adjusted with the legal income. In this regard, reliance may be placed on Apex Court's decision in Maddi Venkataraman and Company Pvt. Ltd. vs. CIT (1998) 229 ITR 534(SC) wherein it was held that infraction of law is not a normal incidence of business." That the transaction is illegal, has been conceded by the appellant in the submission before the Ld. CIT(A). Vide Page 3 of the Appellate Order, the relevant portion of the appellant's submission is quoted as follows: "The AO has raised a number of other norms for foundation of his case for disallowing the loss which will be dealt with presently. But it is felt necessary right at this stage to dislodge his legal contention that the transfer is in violation of the provisions of the Securities contract (Regulation Act 1956). His point is that the purchase not effected through a stock broker is against the provisio....
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....basis, it is unlikely that it would be ignorant of the relevant legal provision of SEBI and its tax implication. It is to be remembered that accounts of the company are subject to financial audit as well as tax audit and the company is supported by legal experts to advice on taxation and financial matters. To conclude, even conceding the genuineness of the transaction, the same is not allowable u/s 37(1) of the Income Tax Act. The appellant also has mentioned about a contract with MPB in respect of the purchase transaction, but no such contract has been presented before the Assessing Officer. From another angle, since the transaction is off market, there has been no contract note. Therefore, the date of payment/delivery should be taken into account for determination of the purchase price of shares of GHCL. On the other hand, Ld. AR filed paper book which is comprising pages from 1 to 155 and submitted that shares were purchased for a value of Rs.1,47,20,000/- on 29.08.2008. These shares were valued at the end of financial year (08-09) at Rs.44.56 lakh and therefore there arose a difference of Rs. 1026400.00 and this difference was of loss due to the valuation of share which was d....
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....ook. We also find that a notice was issued to MPB u/s 133(6) of the Act for confirming the aforesaid transactions in its books of account. We find that MPB has duly reflected the transactions with the assessee in its books of account and in support of its claim, the balance-sheet along with other documents and bank a/c are placed on pages 42 to 64 of the paper book. We further find that aforesaid shares were sold subsequently in the financial year 2009-10 and the details of the same is placed on pages 68 to 81 of the paper book. We also find that in the similar facts, co-ordinate Bench decided the same issue in favour of assessee in ITA No. 1595/Kol/2012 dated 30-01-2015 in the case of ITO v. Kiran Consortium Trade (P) Ltd. The relevant extract is reproduced below:- "5. We have heard rival contentions and gone through facts and circumstances of the case. We find from the facts that the assessee purchased these shares from Beejay Investments and Financial Consultants P. Ltd (in short BIFC) and consequently, the said party issued the sale bill to assessee, copy of which was filed before the assessing officer and the same is not disputed. The assessing officer has raised the issue th....
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.... unrelated assesses 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 assessee who in turn transferring the profits in the hands of other assessees. This was done to ensure that the assessees who had sizable profits from sale of shares could claim such losses as set off. The assessing officer questioned the assessee company in detail. The assessing officer in the order of assessment formed a belief that full details were not made available with respect to such transactions. The sales were not at market price. The amounts were not paid, but only account entries were made. The shares were also not transferred in the name of the purchasers. On such basis, the assessing officer concluded that the transactions were not genuine and applying the ratio of the judgment of the Supreme Court in the case of McDowell Co. Ltd v. Commercial Tax. Officer (1985) 154 ITR 148/22 Taxman 11, held that such loss cannot be allowed. The assessing officer observed that whenever sales were made to other e....
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....one to avoid tax. Moreover neither any amount was paid nor any shares were transferred in the name of purchasers, only account entries were made. Held: Necessary entries were made in the account books of both sides, i.e. purchaser and seller and delivery receipts were also passed demonstrating contemporaneous sale and purchase of the shares. It was not even the case of the Revenue that such off market transactions were not permissible. When off market transactions were permitted in law, and there was no evidence to suggest that artificially they were sold at rates lower than the prevailing market rates and AO could not bring on record any material to show that the transactions were not genuine, the findings of CIT(A) as well as Tribunal that impugned transactions were genuine, called for no interference." From the above judgments, we find that the transactions of sale-purchase was duly recorded in the books of account of the respective parties, the allegation by the Assessing Officer that the off market transactions cannot be accepted under SCRA is factual incorrect relating in the aforesaid appellate order. We also find that the exception has been provided in the SCRA Act under ....
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....s that the premium paid by company on taking key-man insurance policy as a deductible business expenditure for the company. Further, the term 'income' as defined under the Act specifically includes within its ambit any sum received under a keyman insurance policy including any sum allocated as bonus. The amount received by the company paying the Keyman insurance premium on claim or maturity of policy including the sum allocated by way of bonus on such policy is not exempt under Section 10(10D) of the Act which exempts from, tax any sum received under a life insurance policy other than, among other things, a keyman insurance policy. It may also be noted here that the company also has an option to assign/endorse the insurance policy in favour of the key employee (keyman) who has been insured under the keyman insurance policy. If such an assignment happens when the keyman is an employee of the company or at the time of retirement the surrender value of the policy at the time of assignment is taxable in the hands of the keyman as profit in lieu of salary and taxable at the applicable rate. The maximum marginal rate of tax in the hands of the individuals is 33.99%. It is also to be note....
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....he assessee's legitimate commercial undertaking in order to facilitate the carrying on its business; and it is immaterial that a third party also benefits there." In the light of the above observation and discussion and on the facts and in the circumstances of the case and emerging legal position, I am of the considered view that the appellant company is entitled for deduction in respect of the payment of the premiums made for Keyman Insurance cover for its directors-employees at Rs. 7,50,000/- each aggregating to Rs. 15,00,000/-.Thus, the addition of Rs. 15,00,000/- made by the AO by way of the disallowances is hereby deleted and this ground of appeal is allowed." Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 10. Before us Ld. DR submitted that as per the provision of the Act, premium under KIP is paid for those persons who are playing an active role for the growth and survival of the assessee's business. But in the instant case, the director of assessee-company, is playing no role in the day-to-day affairs business of assessee-company and are merely acting as signatory. Therefore they are not entitled for the KIP. He vehemently relied on the ord....