TaxTMI 
TaxTMI 
2017 (3) TMI 200
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....s of Rs. 9,18,134/- and rent expenses of Rs. 9,00,000/- for Mumbai Office. Accordingly income was assessed at Rs. 2,97,13,750/-. 3. Aggrieved, assessee went in appeal before ld. CIT(A) but could not succeed. 4. Now assessee is in appeal before the Tribunal raising following grounds :- 1) The order of the learned Commissioner of Income Tax (Appeals) is erroneous and bad in law and on the facts of the case. 2) The learned Commissioner of Income Tax (Appeals) has wrongly disallowed Short term capital loss of Rs. 1,75,50,000/- considering the same as Sharn Transactigns. 3) The learned Commissioner of Income Tax (Appeals) has not allowed interest expense of Rs. 9,18,134/- as against interest free advance to group company. 4) The learned Commissioner of Income Tax (Appeals) has not considered Rent Exp of Mumbai Office as a Business expense. 5) The Appellant graves to add, alter or modify the aforesaid grounds. 5. Ground no.1 is general in nature which needs no adjudication. 6. As regards ground no.2 ld. AR submitted that during the course of assessment proceedings ld. Assessing Officer enquired about the short-term capital loss of ....
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.... disallowed. He has alternatively treated the transaction as speculative in nature. The appellant has submitted that the payments have been made through cheque and also received through cheque at the time of purchase and sale. All the transactions are accounted tor in the books of account and, therefore, the transaction should not be treated as sham and claim should be allowed. An examination of the facts show thp4 the appellant has purchased the shares at a premium of Rs. 30 for a face value of Rs. 10/- per share. The shares were purchased on 22/02/2008 and were sold at face value of Rs. 10 on 23/12/2008. The companies whose shares have been purchased and sold are group companies involved in similar line of business. It is observed from the balance sheets of the three group companies as on 31/03/2009 whose shares have been purchased and sold that the income of these companies are from interest. The details of income shown by these companies for Financial Year 2007-08 & 7008- 09 are .as under; S. No. Name of company whose shares were sold Income F.Y, 2008-09 Income F.Y. 2007-08 1. Suraj Commodity Pvt. Ltd 31045 6782 2, Suraj Retail Pvt. ltd ....
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....t be accepted. It is noted from the ) website of the BSE that the company is a listed company since 2001 and accordingly it is a public limited company. The { appellant has not been able Jo produce any evidence to show \ that the procedure prescribed by SEBI or other regulating agencies have been followed at the time of purchase and sale of shares. These facts also clearly prove the motive of the appellant. In view of the above facts, I am in complete agreement with the findings of the A, O. which has been given by him on page 9 & 10 of his order. The transactions are treated as sham transactions and the short term capital loss is held to be disallowable. Before concluding this issue, the recent judgment of Hon'ble Bombay High Court in Income Tax Appeal No. 5538 of 2010 in the case of Killick Nixon Limited Vs. DCIT is worth mentioning. The Hon'ble Court has dealt with the similar facts ana* has held that the transactions were sham. The Hon'ble Judges have considered all the leading judgments of the Hon'bi(c) Supreme Court on issue and have analyzed the principle. It would be appropriate to quote from the judgment given by Hon'ble Judges which is releva....
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....tions regarding the need to depart from the "Westrninsfer" and tax avoidance- these are clearly only In the context of artificial and calourabie devices. Reading Mc Dowell, in the monger indicated hereinabove, in cases of treaty shopping and/or tax avoidance, there is no conflict between McDowefl and AzadiBachao or between Mc Doweft and Mafhura Agarwaf." 15 The aforesaid observations of the Supreme Court makes it very clear that a colourable device cannot be a parf of tax planning, Therefore where a transaction is sham and not genuine as in the present case then it cannot be considered to be a parf of tax planning or legitimate avoidance of tax liability. The Supreme Court in fact concluded that there is no conflict between its decisions in the matter of Mc Dowell (supra), Azadi Bachao (supra) and Mathuram Agarwal (supra), in the present case the purchase and sale of shares, so as to take long term and short term capital loss was found as a matter of fact by all the three authorities to be a sham. Therefore authorities came to a finding that the same was not genuine. So far as the question Nos.(ii), (iii) fiv} and (v) ore concerned, we hold that these- are pure questions o....
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....ision of the Co-ordinate Bench in the case of Hasmukhbhai M. Patel vs. ACIT 46 SOT 419 wherein it is clarified that "since the shares are duly transacted and recorded in the books of accounts and further the assessee also explained circumstances in which he sold the shares, there was no justification for disallowing capital loss from sale of shares". Also it is baseless to call the transaction as "sham" transactions as both the parties were in existence i.e. buyer and seller, shares in question were already transferred to buyer, consideration is also fully received by the seller and duly accounted for. 8. Further ld. Assessing Officer has not considered the transactions of profit nature as sham transaction, which were also entered "off market" and executed between related parties as mentioned in the computation of income and has, therefore, acted with bias mind for the treatment of sale of investment on two different footings as per his own will. Ld. AR also objected to the observation of ld. Assessing Officer that in the event if the transaction is treated as genuine, the loss should be considered as speculation as no evidence of delivery of shares is given. Ld. AR firmly argue....
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....ot been able to show that the procedure prescribed by SEBI or other regulating agencies have been followed at the time of purchase and sale of shares which clearly proves the malafide intention of the appellant is grossly incorrect. Ld. AR submitted that it may be noted that the assessee company was not a listed company in the year of transfer of shares i.e. A. Y.2009-10 and had in fact got amalgamated with the listed company "SURAJ STAINLESS LTD." during A. Y.2010-11 whose name was subsequently changed to "SURAJ LIMITED1. The purpose of sale/transfer of all shares of private limited companies held as Investment in the appellant company were with an intention that on amalgamation with the listed company the majority stake of such companies would not get transferred to listed company apart from the purpose of family arrangement. The shares in question of the private limited companies were transferred in the name of Directors at face value as part of family arrangement as stated hereinabove and the delivery of shares were given while incorporating their names in the share certificate, copy of which were submitted to the AO. Further, the sale consideration of such shares has been actu....
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.... 2. Kameshwari Finance & Leasing (P) Ltd. vs. Dy. CIT (2007) 109 ITR 173 (Del. ITAT) 3. CIT vs. Oberoi Hotels Pvt. Ltd. (2011)334 ITR 293 (Cal.H.C.) 4. Hasmukhbhai M. Patel vs. ACIT Cir.1(1), Baroda (2011) 12 taxmann.com 300 (Ahd) 5. ACIT vs. Biraj Investment Pvt. Ltd. Tax appeal No.260 of 2000 (Guj.H.C.) 13. On the other hand, ld. DR vehemently argued and supported the orders of lower authorities and also submitted that colourable device has been used by the assessee in order to evade tax for setting off of short term capital loss as against long term capital gain by way of making sale of shares to the related parties at a very low price as compared to the purchase price. Ld. DR further submitted that purchase and sale of shares giving rise to the capital loss are rather sham transactions with a view to evade tax. 14. We have heard the rival contentions and perused the material placed before us and also gone through the decisions relied on. Through this ground assessee is aggrieved with the order of ld. CIT(A) confirming the action of ld. Assessing Officer treating short term capital loss of Rs. 1,75,50,000/- as sham transaction as well as specul....
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....f physically transferring the shares through share transfer deed to identified buyers by way of receiving sale consideration by account payee cheque. Further as mentioned by ld. AR there was a family arrangement and shares have been sold so that majority stake of the private limited company did not transfer in the listed company. There was also a transaction of long term capital gain of the group company through which assessee earned Rs. 2,97,13,752/- as long term capital gain and the genuineness and authenticity of the long term capital gain transaction has not been disputed by the ld. Assessing Officer. We further observe that the view taken by ld. Assessing Officer about the impugned transaction of short term capital loss of Rs. 1,75,50,000/- as speculative in nature cannot stand for in the given circumstances where there is physical delivery of shares by the company at the time of purchase on 22.2.2008, physical delivery of shares at the time of sale on 23.12.2008, full value of consideration for purchase and sale has been entered through account payee cheque. Copies of share transfer deeds are available on Paper Book from pages 39 to 56. Details of shares transfer are duly rec....
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....es of 'A' to 'P'. During the accounting year relevant to the assessment year under consideration, the shares were duly transferred and also recorded in the books of the company. The shares were sold at the rate of Rs. 5 per share. Chartered Accountant have valued the shares at Rs. 4.73 per share. The assessee valued the shares by adopting the market value of the asset. No infirmity in the working of the auditor was pointed out. The assessee had sold the shares at a value slightly higher than the market value determined by the auditor. The assessee had also explained the circumstances in which he sold the shares. Considering the totality of the facts and circumstances there was no justification for disallowing the capital loss from the sale of the shares. [Para ll] 20. We further observe that Hon. Jurisdictional High Court in the case of ACIT vs. Biraj Investment Pvt. Ltd. in Tax Appeal No.260 of 2000 has dealt with similar issue wherein assessee sold certain shares of Rustom Spinners Ltd. and had shown a long term capital gain of Rs. 1,46,792/- and short term capital gain of Rs. 7,41,563/- on sale of such shares. The assessee had also sold 80200 equity shares of ....
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....ferred to in section 53 A of the Transfer of Property Act, 1982 (4 of 1882); or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co- operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation - for the purpose of sub-clauses (v) and (vi) "immovable property" shall have the same meaning as in clause (d) of section 269UA." It may be that by virtue of pledging of shares with IDBI, having handed over the original share certificates to such financial institution along with the duly signed transfer forms, in so far as the assessee's relation with IDBI is concerned, there would be a serious question of validity of such transaction. We are, however, in the present proceedings, not concerned with such internal possible dispute between the assessee and the said financial institution. It may also be that if the purchaser Company desired to have such shares transferred in its name, such attempt would run into serious road block. Primarily, wit....
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....ase of colourable device or that there is a case of tax avoidance. Further, there is no restriction that such sale or transaction cannot be effected with a group company. As long as the Revenue could not doubt the sale price of the shares, it would not be open for the Revenue to contend that the assessee had shown loss which it did not really suffer. In the present case, it is not even the case of the Revenue that shares were sold at a price lower than the market rate. If that be so, the question of inflating the loss by transferring the shares to group company would not arise. Under ordinary circumstances, it is always open to the assessee in his own wisdom to either hold on to certain bunch of shares or to sell the same to avoid further loss, if he finds that market value of the shares is fast diminishing. It is equally open for the assessee to effect such sale during the same year when he also chooses to dispose of certain profit making shares. In the present case, of course, there is a further angle of the shares in question being pledged to IDBI and therefore it would not be possible for the assessee to deliver the original share certificates to its purchaser along with the du....
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....lgamation of the group companies which has given rise to long term capital gain and short term capital loss. (b) No anomaly has been found by Revenue in the transaction giving rise to long term capital gain. (c) There is no provision in the Act which prevents the assessee from selling shares at a loss. (d) There has been physical delivery of purchase and sale of shares through share transfer deed finding its proper place in the statutory records prepared by the company and duly submitted to the Registrar of Companies in the annual return. (e) Identity of the buyers is not in dispute. (f) The transactions of purchase made by the assessee purchasing shares at Rs. 1,80,00,000/- in F.Y.2007-08 is not in dispute. (g )Transactions of purchase and sale have been entered through proper banking channel. (h) Revenue has not doubted the purchase price of the shares in the earlier year. (i) Revenue has also not brought any material on record to prove that the price at which the shares have been sold during the year are less than the fair market price. (j) Insertion of section 56(2)(viia) has been made by Finance Act, 2010 w.e.f. 1.6.2010 for the calculation of deemed....
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....airs of the company and, therefore, there is no availability of interest free funds with the appellant. The claim of the appellant that benefit of doubt of utilizing the own funds from the common pool account should be given to the appellant is also acceptable as the balance sheet of the appellant clearly show that the funds are invested elsewhere and there is no benefit of doubt. As mentioned above, the appellant has taken a loan from Punjab National Bank for running day to day affairs in the form of current account, and therefore, the receipts out of sale proceeds also cannot be considered as interest free. The appellant has not been able to clearly prove the nexus between the interest free funds and the borrowings and accordingly, the disallowance made by the A. O. is upheld and the ground of appeal is dismissed. 25. Aggrieved, assessee is now in appeal before the Tribunal. 26. Ld. AR submitted that as regards non charging of Interest on Advances of Rs. 20.86 crore to M/s. Suraj Stainless Limited, referred to the financial statement of the company to clarify that the company has interest free fund of Rs. 19,31 Crore at the time of advances and the company was going to be m....
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....with interest free advances. On the contrary assessee has submitted sufficient details during the course of assessment proceedings to support its claim that the funds advanced to Suraj Stainless Ltd. have taken place on various dates during the year from funds from various sources other than the interest bearing funds. This fact is also not disputed that assessee was having sufficient interest free funds at its disposal in the form of reserve and surplus of Rs. 19.84 crores as well as interest free funds of Rs. 2.84 crores aggregating to Rs. 22.12 crores. Further referring to the decision of the Co-ordinate Bench in the case of Torrent Financiers Ltd. vs. ACIT (supra) wherein the Co-ordinate Bench has observed as under :- Held: Entire interest-free funds available with the assessee is to be considered. The entire interest-free funds include owner's own capital, accumulated profits and other interest-free creditors and loans, if total interest-free advances including debit balances of partners do not exceed the total interest-free funds available with the assessee, no interest is disallowable on account of utilisation of fund for non-business purposes and if it exc....
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....requently visit Mumbai for office purpose and they use the flat for meeting etc. and, therefore, rent should be allowed. I am not in agreement with the appellant's submission, No new fact has been brought on record to show that the appellant has In fact used the same for the purpose of business. The A. O. has given a finding that the appellant had been dealing in shares for last so many years and the business was being done on line and, therefore, there was no justifiable purpose. The appellant has also not given any evidence that the guest house or the flat has In fact been used for the purpose of business. In absence of any such justification, I am constrained to uphold the disallowance made by the A. O. The ground of appeal is accordingly dismissed. 33. Aggrieved, assessee is now in appeal before the Tribunal. 34. Ld. AR submitted that assessee is a limited company and is regularly engaged in the business. The directors of the company used to visit Mumbai frequently for office purpose and in order to reduce the hotel expenses it was decided in the interest of the company to hire a Guest House at Mumbai so that as and when the directors visit Mumbai they can stay therei....