TaxTMI 
TaxTMI 
2012 (11) TMI 1218
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.... No. 948/Chd/2011 in the case of Shri Avtar Singh S/o Shri Gurdial Singh, are reproduced hereunder as an illustrative case : "1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the assessee' s claim of short term capital loss on sale of shares without appreciating the facts of the case. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing short term capital loss on sale of shares without appreciating the fact that the transactions of purchase and sale of shares was nothing but a colourable device to reduce the incidence of tax & the case of the assessee is fully covered by the judgment of the Hon'ble Supreme Court in the case of Mcdowell & Co. Ltd. Vs CTO 154 ITR 148 (SC) 3. The Appellant craves leave to add or amend the grounds of appeal before the appeal is heard and disposed off." 3. In the course of present appellate proceedings, ld. 'DR' made a combined submission, in respect of all these appeals and stated that the transactions of purchase and sales of shares are merely make-believe version, with a view to procuring artificial and non-genuine short term ....
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....urchased shares on 8.11.2007, @ Rs. 100/-, per share, from M/s Arcee Ispat Udyog Ltd., Hissar, a company which is not listed, in any Stock Exchange, in India. The said company allotted shares to the appellant. The appellants, within a short span of time, chose to dislodge the shares to M/s TCG Stock Broking Ltd., New Delhi and consequently sold the same, on 31.3.2008, @ Rs. 10/-, per share. The shares were allotted by the unlisted company M/s Arcee Ispat Udyog Ltd., On 8.11.2007, @ Rs. 100/-, per share and the same were sold (transferred) by the appellants, on 31.3.2008, to share broker M/s TCG Stock Broking Ltd., Rs. 10/- per share. It is very interesting and abnormal feature of such share transactions that M/s TCT Stock Broking Ltd. sold (transferred) these shares, on 12.8.2008, @ Rs. 100/- per share, to Mrs. Krishna Gupta, wife of Shri R.C.Gupta, MD and also one of the Directors in her own capacity M/s Arcee Ispat Udyog Ltd. Such is the circular route of share transactions, resorted to by all the assessee appellants. However, the brief facts, in tabular form, of the case of the appellants as recorded by CIT(Appeals), in para 2 of the impugned appellate order, demonstrating such ....
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....nt from the show cause notice issued by the AO dated 1.12 .2010 (Further, the appellant furnished the purchase & sale bills, details of purchase & sale considerations through bank etc. Once there is an independent confirmation, disallowing the claim of loss by rejecting the documentary evidence furnished by the appellants is not justified. Before embarking upon the action of disallowing the claim, the AO should have conducted necessary enquiries and come to appropriate conclusion as per the evidence collected after giving due opportunity to the appellant. The AO failed to discharge the burden on him to establish that the appellant did not purchase or sell the shares. If the AO was of the opinion that requisite evidence needs to be collected, it is his duty to summon the relevant parties and examine them as held in a number of case laws including that cited by the AR.. The AO however has not undertaken the above course of action. The AO concluded that the entire set of transactions are sham and bogus based on the details furnished by the appellant and M/s Arcee Ispat Udyog Ltd. and the offer letter of the appellant withdrawing the loss claimed subject to no penal action, without con....
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....its and these transactions could not be considered to be in the normal course of business. He held that this type of transaction could not be regarded as genuine and disallowed the claim. The Tribunal also pointed out that the circumstance that the were between companies in which the Thaper group had a controlling interest and also in respect of shares of companies belonging to the same group by themselves would not support the conclusion that the transactions were stagemanaged, although it might arouse suspicion and call for closer scrutiny. In respect of both the said lots of shares, the Tribunal pointed out that there was nothing to show that the purchase of these shares had anything to do with the control of the companies concerned. The Tribunal relied upon the circumstance the sales were at the market rates or going rates and hence there was no question of making bogus loss. On the basis of these conclusion, the Tribunal held that the losses in respect of the sales of shares of Bharat Starch and Chemicals Ltd. as well as Greaves Cotton and Co. Ltd. were liable to be allowed as business losses". 5.2 Further, Hon'ble Calcutta High Court in the case of Brita....
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....etermine the taxability of receipts arising from the transactions. In this case their lordship held as under:- Taxing authorities are not entitled, in determining whether a receipt is liable to be taxed, to ignore the legal character of the transaction which is the source of the receipt and to proceed on what they regard as "the substance of the matter"-Revenue authorities are entitled and bound to determine the true legal relation resulting from a transaction and unravel any device to conceal such relation. If the said principle is applied to the facts of the appellant, all the elements of a transaction i.e. purchase & sale of shares along with requisite documentary evidence is available and therefore the addition made by the AO would be unsustainable and untenable. 5.6 On similar facts, the jurisdictional High Court in the case of CIT Vs Anupam Kapoor 299 ITR 179 (P&H) held as under :- The Tribunal on the basis of material on record, held that purchase contract note, contract note for sales, distinctive number of shares purchased and sold, copy of share certificates and the quotation of shares on the date of purchase and sale were sufficient ma....
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.... Court in the case of Umacharan Shaw and Bros. CIT [1959] 37 FTR 271 (S.C)." 5.7 In view of the above, the disallowance made by the AO of the claim of Short Term Capital Loss is deleted and the ground of appeal is allowed." 5(ii) Similarly, it is essential to reproduce the findings of the AO, in the matter, for the purpose of properly appreciating the same : "The reply filed by the assessee has duly been considered and is found to be devoid of any merits. The assessee has admittedly never before entered into any transaction in shares before he earned huge amounts of short-term capital gains on the sale of some lands attracting substantial liability of tax payments. The contention of the assessee that in a frenzy to swiftly multiply its capital he was misguided by brokers/fixers to invest in the shares of M/s. Arcee Ispat Udyog Ltd., Hisar; is a subjective statement which is not amenable to any verification. There is no reason that friends etc. should ill-advise the assessee for no gain of theirs. Thus, in the absence of any piece of material evidence; the simple statement of the assessee that he incurred loss in the shares of M/s. Arcee Ispat Udyog Ltd., Hisar ....
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....s director) @ Rs. 10/- per share through a broker to give colour of genuineness to the transactions. The assessee has not been able to give any convincing reply as to why he opted for making such a huge amount of investment in the purchase of shares of a company which admittedly did not have any popular brand name and whose shares are not quoted and then sold at such a low price without there being any business expediency. The genuineness of the rate of allotment (purchase) thus remains to be proved w.r.t. any market rate comparison or any other basis to justify the same. In fact, it is nothing but an attempt made by the assessee to purchase short-term capital loss by way of the above said transactions and thereby to reduce the incidence of tax. However, it is also pertinent to mention that despite arguing the case on different aspects of the issue regarding claim of loss on the sale of impugned shares; the assessee has deemed it desirable under the given facts and circumstances of the case; to withdraw his claim of loss on these shares though in the name of routine excuse of 'buying peace1 and to come out of the trauma of litigation. Actually, it is as a result of the....
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....l and genuine and not a sham or make believe." 6(i) Ld. AO, further, placed reliance on the decision of the Hon'ble Supreme Court in the case of McDowell & Co. Ltd.(1985) 154 ITR 148 (S.C), wherein the Hon'ble Supreme Court denounced tax avoidance, if not bonafide. The relevant part of the observation of the Hon'ble Supreme Court is reproduced hereunder : "Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges." 7. A bare perusal of the relevant records, findings of the lower authorities, as contained in their respective orders clearly reveals that the assessee appellants sold land which resulted in short capital gain, as is evident from the chart reproduced above. The assessee appellants namely Smt.Harjit Kaur, Smt.Surinder Kaur, Smt.Gurdeep Kaur & Shri Avtar Singh claimed short term capital loss at Rs. 22.50 lacs, Rs. 18.00 lacs, Rs. 45.00 lacs & Rs. 22.50....
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....ppellants, as a whole and in an integrated manner, for the object of creating artificial loss. Such transactions involve the series of preconceived steps, the performance of each of which is depending on the others being carried out, in accordance with the common intention of the assessee appellants and the said company who allotted the shares to the appellants, the nature and effect of the whole scheme has to be taken into consideration, in determining the true intent and nature of such share transactions. However, ld. CIT(Appeals) disregarded such integrity of the said transactions. The ld. CIT(Appeals), completely ignored the factum that the true-nature of such share transactions lacked commercial contents, being structured transactions, entered into with the sole intent, to reduce the tax liability. The facts and circumstances of the case, as recorded above, clearly suggest that the revenue cannot take or accept such make-believe transactions, as presented by the appellants. Truth or genuineness of such transactions must prevail over the smoke screen, created by way of pre-meditated series of steps taken by the appellants, with a view to imparting a colour of genuineness and ch....
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.... the date and rate of sale of such shares speaks volume of true nature of such transactions, as the same had not been entered into, in the natural and regular course of trading activities. Having regard to the above narrated facts, it is evident that such transactions were entered into, with a view to procuring artificial short term capital loss, for the purpose of subsequently setting off the same against short term capital gains. This factum is evident from the offer of surrender made by the appellants before the AO, for surrender of short term capital loss, subject to the condition of no penal action against them. Under such peculiar facts and circumstances of the case, which are crystal clear, the taxing authorities are not required to put on blinker, while looking at the documents of purchase (allotment of shares by the unlisted company) sale of such shares, within a short span of time, particularly by the end of financial year as on 31.3.2008. The entirety of the sequence of events of such sale and purchase of such shares has to be discerned in an integrated manner. However, CIT(Appeals) opted to disintegrate the entire gamut of transactions and looked at each step, as an ind....
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....d ratio laid down therein and found that the same are not applicable to the fact-situation of the present case, being factually different and distinguishable. The decisions of the Hon'ble Supreme Court and the jurisdictional High Court, as discussed in this order, are relevant in the matter. 10. Ld. CIT(Appeals), is of the opinion that the AO has not conducted requisite enquiries and the material available on record, is not sufficient to arrive at such conclusions. He, further, stated that AO failed to discharge the burden cast on him, to establish that the appellants did not purchase or sell the shares. In this specific context, it is imperative to state that it is a well settled legal proposition that 'burden of proof' is on the appellants as the claim of short term capital loss had been made by them. The assessee appellants, except giving details of such purchase and sale of shares, failed to prove and establish the genuineness of such share transactions, with an unlisted company, which ultimately purchased such shares, at the rates as convenient to them, having no regard to the real market factors. In such a fact-situation, the 'onus of proof' remains undischarged, on th....
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....erm capital loss made by the appellants. 10(ii) Ld. CIT(Appeals), has placed reliance, on the decision of the Hon'ble Supreme Court, in CIT V Karam Chand Thapar & Bros., 176 ITR 535 (S.C). We have considered the fact-situation of the case relied upon by the CIT(Appeals) and found that the same is not applicable to the facts of the present case, being factually different and distinguishable. The Hon'ble Supreme Court, in that case held that Tribunal is the final fact finding Body. The question, whether a particular loss is a trading or a capital loss and whether the loss is genuine or bogus are primary questions to be determined, on appreciation of the facts. The Hon'ble Supreme Court has adjudicated the issue in question, on the basis of factual finding, arrived at by the Tribunal in that case. Therefore, the judicial precedent is applicable where the fact situations are similar in nature. In the present case, fact-situations as highlighted above, are patently different and distinguishable vis-à-vis the factsituation of the case relied upon by the CIT(Appeals). Needless to say that the judicial precedent is applicable only in the context of similarity of factu....
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....ying the decision to a later case, Courts must carefully try to ascertain the true principle laid down by the decision." In the present case, detail of series of steps taken by the assessee appellants, to give effect to a make-believe transactions of purchase and sale of shares, as highlighted above, clearly involves no interpretation of treaty or statutory provisions or C.B.D.T. circular. The issue in the present case is to be considered having regard to the entirety of the facts and surrounding circumstances of the case and conduct of human probability. The Hon'ble Supreme Court, in that case held that indiscriminate application of the ratio decidendi of the decision, in the case of Mc Dowell & Company V Commercial Tax Officer (supra), without having any regard to the facts of each case, is not permissible. Therefore, the decision of the Hon'ble Supreme Court, relied upon by the CIT(Appeals), is not applicable to the fact-situation of the present case. 10(v) Ld. CIT(Appeals) also referred to the decision of Hon'ble Supreme Court in the case of Union of India V Azadi Bachao Andolan (2003) 263 ITR 706 (S.C). The core ratio decidendi laid down, in the judgement of the....
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....dictional High Court also referred to several other decisions while adjudicating the issue. Such decisions have been relied upon by the assessee. Thus, the issue was decided by Hon'ble jurisdictional High Court, in the light of factsituation of that case. In the present case, facts are entirely different. The shares were allotted by an unlisted company. Such share transactions were not accepted as genuine by the revenue, in any of the assessment year. No share quotations were filed by the assessee appellant. It has not been brought on record that such share transactions were routed through registered stock broker. Similarly, the origin of the sale of such shares, ultimately resulted into purchase of such shares by the seller company i.e. M/s Arcee Ispat Udyog Ltd. Therefore, in the light of such factual background, case law relied upon by the CIT(A) is not applicable to the facts of the present case. 10(vii) Ld. CIT(Appeals) placed reliance, on the decision of the Supreme Court in the case of CIT V B.M.Kharwar. This decision has been founded on the observation of the Duke of Westminster V Commissioner of Inland Revenue (1935) 19TC 490 HL. The decision was rendered, on 13.8.1....
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.... Act. We do not find any relevance and substance, in making such a reference to the provisions of section 50C of the Act, as neither the AO invoked such provisions nor the same are applicable, to the facts of the present case. 13. It is the duty of the Court in every case, where ingenuinity is expended, to avoid taxing and welfare legislation, to get behind the smoke screen and discover the true state of affairs. The Court is not to be satisfied with form and leave alone the substance of the transaction. This view has been upheld by the Hon'ble Supreme Court, in Workman of Associated Rubber Industries Ltd. (1986) 157 ITR 77 (S.C) and in Ess Ess Kay Engg. Co.(P) Ltd. V CIT (1985) 15 ITR 636 (P&H). The Hon'ble Kerala High Court in Onam Agarbati Co. V Dy.CIT (2009) 310 ITR 56 (Ker) has held that though a tax payer may resort to a device to divert the income before it accrues to him, the effectiveness of advice depends upon its genuineness. The substance of the transaction has to be assessed by applying the taxing Statute so as to ascertain whether it is a sham or make-believe transaction or one which is genuine. 14. Ld. 'DR' placed reliance on the decision of the....
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.... clearly a structured one. The AO had also determined the value of shares of A on the basis of the financial data collected by him and worked out the value of shares to be not more than Rs. 9.37 per share by adopting two methods for calculation of net asset value. There was no perversity or error of law in the order of the Tribunal." 15. It is essential on the part of the revenue authority, to look into the real nature of transaction and what happens in the real word and contextualize the same to such transactions in the real market situation. It is pertinent to state here, the judicial wisdom of Hon'ble Supreme Court in CIT V Arvinda Raju (TN) (1979) 120 ITR 46 (S.C) wherein it was held that "one day, in our welfare state geared to social justice, this clever concept of 'avoidance' as against 'evasion' may have to be exposed." In the present case, there is an obvious and plain transaction of tax evasion which has been clothed with the smoke-screen of subterfuges, by the assessee appellants. The facts of the present case clearly reveals that such trading transactions of purchase and sale of shares, had not been effected, for commercial purpose but to create artificial loss, ....