TaxTMI 
TaxTMI 
TaxTMI 
2016 (11) TMI 1242
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....tails furnished by the assessee the AO noted that the same includes a sum of Rs. 82,00,000/- received on sale of shares of Western Medical Solutions Pvt. Ltd. Further, the AO noted that a sum of Rs. 4,10,00,000/- has been debited to the profit and loss account with the narration "purchase of shares". He, therefore, asked the assessee to furnish details of said purchase and sale of shares during the year relevant to the assessment year 2010-11. In response to the said query it was replied by the assessee as under which has been reproduced by the AO in the body of the assessment order : "6.1 During F.Y. 2008-09 relevant to A.Y. 2009-10 the assessee company had invested Rs. 4.10 crores in equity shares of Western Medical Solutions Pvt. Ltd., Mumbai with the objective to realize better price in due course and gain reasonable amount as profit on funds invested. 6.2 After making the investment, the assessee company found that the company where the money was invested, i.e. Western Medical Solutions Pvt. Ltd., Mumbai is not performing well and the projections and proposal given in 2007 could not be achieved to a large extent. The assessee company found that the investment has become dead....
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....hat the purchase price of the 41,00,000 share for Rs. 4,10,00,000/- has been debited to the profit and loss account of the previous year 2009-10 whereas the shares had been acquired on 20-11-2008 which falls in the previous year 2008-09. According to the AO the purchase price of the shares should have been debited to the profit and loss account of the earlier year whereas the purchase price of Rs. 4,10,00,000/- has been shown in the balance sheet of the earlier assessment year, i.e. 2009-10 as advance towards purchase of shares. 7. Referring to the decision of the Mumbai Bench of the Tribunal in the case of Bombay Oil Industries Ltd. Vs. DCIT reported in 82 ITD 626 where it has been held that tax planning can be tolerated, however, tax evasion by dubious modes cannot be countenanced, the AO disallowed amount of Rs. 3,28,00,000/- claimed by the assessee on account of sale of shares of Western Medical Solutions Ltd. during the year by holding that the same is not a genuine business loss. He held that both the purchase and sale of transaction of shares of Western Medical Solutions Ltd. have been given in the profit and loss account for the A.Y. 2010-11 to reduce the taxable income of....
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....ares and lands as stock in trade and profit/loss from sale has been treated as business income/loss. The AO had applied different principles to two transactions having same nature. The sale of shares of Western Medical Solutions Pvt. Ltd has been treated as investment and loss has been computed as long term capital loss. Sale of land has been treated as business transaction and profit has been treated as business income. It was further submitted that if at all the treatment of stock in trade is not possible then same treatment be given to both assets. Considering the facts of the case and provisions of law, it was requested to allow business loss of Rs. 3,38,00,000/- on sale of shares. 10. However, the CIT(A) was also not satisfied with the arguments advanced by the assessee and upheld the action of the AO by observing as under : "6.3 I have carefully considered the facts of the case and rival contentions. On perusal of the same, it has been noticed that the appellant company has purchased 41 Lakh shares of M/s. Western Medical Solutions Pvt. Ltd., on 20/11/2008 for consideration of Rs. 4,10,00,000/- out of total shares issued and subscribed Rs. 4,12,00,000/-. Therefore, about al....
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....isallowing the said loss of Rs. 3,28,00,000/- as business loss. The addition of Rs. 3,28,00,000/- made by the AD. is confirmed. Ground No.2 is dismissed." 11. Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 12. The Ld. Counsel for the assessee strongly opposed the order of the CIT(A). He submitted that whenever a profit is shown on the purchase and sale of shares the department normally treats the same as business income while the assessees contend that it is a capital gain. Referring to the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Gopal Purohit reported in 336 ITR 287 he submitted that the Hon'ble High Court in the said decision has held that assessee can do both trading in shares as well as investment in the shares. The difference between both is depending on the intention of the assessee at the time of purchase of the shares and entries passed in the books of account. He submitted that the SLP filed by the department has been rejected by the Hon'ble Supreme Court as reported in 333 ITR (statute) 308. Referring to the Circular No.4/2007 dated 15-06-2007 issued by the CBDT he submitted that the CBDT in the said circular has gi....
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.... Medical Solutions Pvt. Ltd which inturn was holding shares of Jupiter Lifeline Hospitals which could be disposed off in a short span and earn profit. He submitted that the assessee company found the proposal to be worthwhile and therefore it passed a resolution during the board meeting held on 26-07-2007, a copy of which is placed at page 51 of the paper book. In the said resolution it was resolved to invest in upcoming hospital project of Jupiter group through purchase of shares of Western Medical Solutions Pvt. Ltd. He submitted that the proposal of the assessee company was accepted and Western Medical Solutions Pvt. Ltd. passed a resolution in the board meeting held on 20-11-2008 for issue of 41,00,000 shares of Rs. 10/- each at par to the assessee. He submitted that in the impugned assessment year the assessee was in need of funds for its own construction projects and also received information that Jupiter Hospital is not able to build more hospitals and hotels as planned due to non-availability of the funds and hence the assessee decided to dispose off these shares at loss. He submitted that the shareholders and directors of the assessee company are not relatives of either We....
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.... Jupiter Lifeline Hospital was not able to build more hospitals and hotels as planned due to non-availability of funds the assessee decided to dispose of the shares. Therefore, the company first requested Western Medical Solutions Pvt. Ltd. for buyback of shares allotted. Since Western Medical Solutions Pvt. Ltd. expressed its inability to buyback of shares the assessee resolved to sell the share capital of Western Medical Solutions Pvt. Ltd. to a prospective buyer. In the board meeting held on 05-01-2010 it was decided to sell the shares at a value of Rs. 82,00,000/- to the willing buyer being Dev Construction Pvt. Ltd. The minutes of the meeting is placed at page 53 of the paper book. He submitted that the projects proposed in 2007 by Western Medical Solutions Pvt. Ltd. taken up by Jupiter Lifeline were still not taken up and there was huge gestation period for that company to make profits. Only assets held by Western Medical Solutions Pvt. Ltd. were shares in Jupiter Lifeline Hospitals and advances given. Profits of the company were negligible. Moreover the hotel project of the investee, i.e., Jupiter Lifeline Hospital did not take off. In such circumstances it was difficult for....
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....ion are squarely applicable to the facts of the present case since in the instant case also the AO has not proved that the details submitted by the assessee are false or bogus. 20. So far as the decision relied on by the AO and the CIT(A) in the case of Bombay Oil Industries (Supra) is concerned he submitted that the said decision is not applicable to the facts of the present case and is distinguishable. In that case the assessee had resorted to device of manipulated transaction by preparing certain documents and agreement so that it can book substantial capital loss in order to set off capital gains that arose from liquidation of one of its fully owned subsidiary company. Further, the sale was made to the related party, who was under the control and influence of the assessee company because of the business connection and was the main distributor of the products of M company in which the directors of the assessee had majority stake. Further, the AO had also pointed out irregularities in the documentation and flow of funds between the parties. However, in the instant case, no such facts were noted. The assessee, the investee and the purchase company are unrelated and hence, there w....
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....ee on the ground that the same is not a genuine business loss and both the purchase and sale transactions of shares of Western Medical Solutions Pvt. Ltd. have been given in the profit and loss account to reduce the taxable income of the assessee company and to evade payment of tax. For the above proposition, the AO relied on the decision of the Mumbai Bench of the Tribunal in the case of Bombay Oil Industries Ltd. (Supra). Further, without prejudice to the above the AO held that the loss of Rs. 3,28,00,000/- will have to be assessed as long term capital loss as the shares of Western Medical Solutions Pvt. Ltd. have been held for a period of more than 12 months and the long term capital loss can only be carried forward and set off against the long term capital gain in the subsequent assessment years as per provisions of section 74. We find the Ld.CIT(A) upheld the action of the AO by holding that the claim of loss of Rs. 3,28,00,000/- made by the assessee on sale of shares is a non-genuine loss and the transaction is sham transaction. The relevant observation of the CIT(A) has already been reproduced in the preceding paragraphs. 25. It is the submission of the Ld. Counsel for the ....
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....ss by the assessee has to be allowed as a genuine business loss or the loss to be disallowed as none-genuine and sham transaction. 27. From the details furnished by the assessee in the paper book we find the shares of Western Medical Solutions Pvt. Ltd. were shown in the books under the head "loans and advances" as on 31-03-2009 which is evident from pages 63 and 66 to 74 of the paper book. On being questioned by the Bench as to why the shares are shown under the head "current assets loans and advances" the Ld. Counsel for the assessee submitted that shares were allotted to the assessee on 12-12-2009 with distinct numbers 2000 to 41,20,000 vide Registered Folio No.5 Certificate No.22. We find clause 19 of the Memorandum of Association of the company authorizes the assessee to acquire, take up and hold shares, stocks, debenture stock bonds, obligations and securities issued or guaranteed by any company constituted or carrying on business in India etc. etc. We find during the impugned assessment year the assessee has shown the purchase of share and sale of shares in the profit and loss account. As mentioned earlier, in the preceding year the shares were shown under the head "loans a....
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....Accordingly, the claim of loss made by the assessee was allowed. On further appeal by the Revenue the Hon'ble High Court has held as under : "21. We have given our anxious consideration to the reasons given and findings arrived at by the appellate authority and the Tribunal. We find from the order of the appellate authority that with the material available on record he had proceeded to adjudicate the claim of the assessee. The appellate authority on scrutiny of the material available on record found that the assessee had produced all the required primary evidence such as copies of bills, contract notes, receipts for sale consideration, share particulars, etc., relating to the sale of shares. The appellate authority also found that the assessing authority did not prove these documents or evidence to be false or bogus. On appreciation of the factual aspects of the matter, the appellate authority held that the assessing authority was not justified in holding the sale of shares as bogus and the claim was made with a motive to avoid payment of tax. The appellate authority was found to be satisfied with the materials available on record that the loss suffered by the assessee in sale of ....
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....oss on account of sale of shares is not genuine but a colourable device. We, therefore, answer the substantial question of law No.4 raised by the Revenue against them and in favour of the assessee." 30. Since in the instant case the assessee has submitted all the details and the revenue authorities have not proved these documents as false or untrue, therefore, we do not find any reason as to why the loss of shares should not be allowed as business loss. 31. We find the Hon'ble Supreme Court in the case of Sutlej Cotton Mills Supply Agency Ltd. (Supra) has held that a single transaction of purchase and sale outside the assessee's line of business may constitute an adventure in the nature of trade. It is not necessary to constitute trade that there should be a series of transactions of purchase and sale. Similar view has been taken by the Hon'ble Supreme Court in the case of G. Venkataswami Naidu and Company (Supra). It has further been held that question as to whether a transaction is adventure in nature of trade is a question of mixed law and fact. Even an isolated single transaction may be adventure in nature of trade if some of essential future or trade are present in such a tr....
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....r loss also. Therefore, merely because the assessee has incurred loss on account of purchase and sale of shares the same cannot be treated as non-genuine and sham especially when the various other documents furnished by the assessee have not been proved to be false of bogus. 34. So far as the decision of the Mumbai Bench of the Tribunal in the case of Bombay Oil Industries Ltd. (Supra) which has been relied on by the AO and CIT(A) is concerned we find the said decision is not applicable to the facts of the present case and is distinguishable. The Tribunal has given a finding that in that case the assessee had resorted to device of manipulated transaction by preparing certain documents and agreement so that it can book substantial capital loss in order to set off capital gain that arose from liquidation of one of its own company. Further, the sale was made to a related party who was under the control and influence of the assessee company because of the business connection and was the main distributor of the products of the company in which the Directors of the assessee had a majority stake. The irregularities in the documentation and flow of funds between the parties was also point....
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....f future projects. However, on a later date it was found that the title of the said land is not clear and various litigations were pending in respect of the said lands. Considering these facts, the land has been valued at token amount of Rs. 1,000/-. 38. However, the AO was not satisfied with the explanation given by the assessee and disallowed the claim of loss of Rs. 90,62,325/- by observing as under : "I am unable to accept the fact that the assessee who has been in the Reality business would have made an investment of Rs. 90,63,325/- in the land at Hyderabad without ascertaining whether it was getting a clear title. No documentary evidence has been filed by the assessee to establish that it does not have a clear title to the land purchased in Hyderabad and the recourse it had taken to recover its money or obtain a clear title to the land. As in the case of purchase and sale of share of Western Medical Solutions Pvt. Ltd, the downward revision of the value of the land at Hyderabad to a token value of Rs. 1,000/- appears to have been done primarily to reduce the taxable income of the assessee and evade payment of tax." In support of the above decision, of holding the claim of ....
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....s further claimed that in the year under appeal, it has been noticed that the said land is not having clear title and is under litigation and hence the value of the said land has been claimed by the appellant as closing stock at Rs. 1,000/- as token amount. The above contentions of the appellant are not supported by any evidence as no evidence in support of the above claims has been filed either before the A.O. or before the undersigned. It is settled position of law that the claims of expenditure, business loss, deductions are to be supported by evidence and the assessee is duty bound to prove the said claims with evidence. Therefore, in the absence of any evidence in support of the above mentioned revaluation of closing stock of land which has resulted into business loss of Rs. 90,62,325/-, the claim of the appellant is rejected. The addition of Rs. 90,62,325/- is accordingly confirmed. Ground No.3 is dismissed." 42. The Ld. Counsel for the assessee submitted that the assessee is in the business of construction and development of lands. Accordingly, the assessee holds lands at various places which were purchased from time to time for the purpose of development, the assessee had ....
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....n. 44. The Authority further observed in page 7 of the order (Page 327 of the paper book) that it is alleged in all the documents in Annexure II represented Vendees who were recently arrested in Vikarabad town, by Police for creating false and fake documents of original land owners and others vide list in Annexure II. The parties therefore requested the authorities to cancel all the documents registered without titles illegally. Thereafter the Authority has examined the case in detail including the documents obtained from Sub registrar. 45. From the records it was noticed that the 38E certificate holder ownership has not been updated in Revenue Records in MRO Shamirpet (Page 334 of the Paper book). Further the Authority has also observed that certain parties were misled by Broker Guru Swami who took them to the registration office and obtained their signatures and told them that they have title and that they have received consideration. (Page 336 of the Paper book) 46. It is further noted that few purchasers as per deposition No (8) purchased properties without verifying title and made their decision to purchase properties purely on the strength and reputation of the individual.....