TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 1547
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....ons have been heard and record perused. Facts in brief are that Assessment for the year under consideration i.e. 2001-02 was completed u/s. 143(3) of the Act. Later in course of assessment proceedings for the A.Y.2002-03 the AO disallowed the interest paid to forty parties from whom the assessee had claimed to have received loans, on the ground that these loans were not genuine. Consequence to findings during the course of assessment proceedings for A.Y.2002-03, the AO reopened the case of the assessee u/s.147 for the year under consideration. As per AO the loans were not genuine and hence the amount of such loans was chargeable to tax. Considering the said facts, according to the AO, income in case of the assessee had escaped the assessment for the year under consideration and as such he issued the notice u/s.148 of the Act and completed the assessment u/s.143(3) r.w.s. 147 of the Act where in the AO made additions u/s 68 to the declared income. By the impugned order CIT(A) confirmed the reopening of assessment. However addition made u/s 68 was deleted by CIT(A) after having following observation : "3.9 I have gone through the contention of the appellant as well as that of the A....
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....nd the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to incometax as the income of the assessee of that previous year. " Plain reading of section suggest that when any sum is found credited in the books of the assessee, the assessee is required to offer explanation regarding nature and source of such credits. Thus what is expected from the assessee is to offer explanation about nature and source of such credits. In the instant case it is not in dispute that nature of credit is nothing but loan and that the source though credited in the names of different creditors it stem from Bank and therefore when the assessee has explained the nature of transaction as also its source the AO is not justified in making such addition. It is also pertinent to note that against the loans given by the bank, though in different names, securities in respect of all those parties or for that matter, for entire amount of loan received by the appellant company was provided by the appellant company or its associates and therefore what emerges out of these....
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....ot given any findings on such alternative explanation so provided and therefore when the alternative explanation is found to be correct no addition should have been made particularly when it is established that the amount in question was not an income in any form of the appellant.. Thus looking to the fact that the amount in question was received as loan which stem from bank and that against such loans securities were also provided by the appellant, it would be inapt to treat such credit as income of the appellant and thus taking cue from various judgements referred to herein I am in agreement with the appellant that addition u/s 68 should not have been made. It is also pertinent to note that in the original assessment proceedings the appellant's explanation was accepted by the then officer considering the source as explained and therefore also I am inclined to accept the argument of the appellant that the amount in question should not have been added as income. It is also pertinent to note that departmental inquiry was also conducted in this regard where the AO had issued summons to the Bank to provide the necessary evidence relating to such transactions. In response to which ....
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.... parties as accounted in books of accounts along with the bank statement of assessee as well as of those parties evidencing all those transactions. Since all the cheques from the loan creditors were issued by the bank directly in favour of Assessee Company, irrespective of the fact that such loans were debited in different names by the bank, receipt of such cheques were duly explained by the bank advancing loan. We also found that in respect of these loans from the bank, the assessee had provided security to the bank, therefore considering the facts that such funds stems from the bank remains unaltered, and that an inextricable link is being established beyond doubt between the assessee company and the bank loans so received also proves the nature of such credits and the source thereof. We had also verified the confirmation of bank and the bank statement which clearly proves that these loans were directly received from the bank. Even the AO during the assessment proceedings issue summons to the bank asking for details of such loans and statements, in response the bank has produced all the evidence like bank statements of all the forty parties, their account opening forms, as also b....
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....nor the funds were given at lower rate of interest than the rate of interest paid on the funds received by the appellant. It is seen that the appellant vide letter dated 19-8-005 submitted relevant cash flow statement. On perusal of the same I found that the appellant received loan of Rs. 1,65,00,000/ - on 3-8-2000 from Bank of India, Pune and the appellant had given loan of Rs. 75,00,0001- to "Rainbow" on 3-8-2000 out of the same. Hence, prima-facie in my opinion no part of loan was given at a lower rate of interest. As regard observation of the AO that after issuing cheque to "Rainbow" the appellant had a debit balance of Rs. 72,59,396/ - it is brought to my notice by the ld. AR that the transactions of giving loan to "Rainbow" and receiving loan from Bank of India, Pune have been entered on the same day i.e . 3-8-2000. The argument of the ld. AR that as per computer program the payments are recorded first and the receipts are recorded thereafter and therefore apparently in between the day there appeared a debit balance but considering the transactions for the entire day there was no such debit balance appears to be correct. The nexus between loan given to "Rainbow" and loan take....
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....15-9- 2000. The A0 has not disputed these facts of the case. It is also brought to my notice that the negative balance in the bank was as per books of account since the cheque issued for share application money had reached to the bank of the appellant on 20-9-2000 for realisation and considering the fact that sufficient money has been deposited in the bank out of sale proceeds on 13-9-2000 to 15-9-2000 before the cheque reached to the bank the money utilised for share application has been funded with sale of stock in trade. As regard source of investment in shares of Rs. 37.99 crores, it is submitted by the Id. AR that the said investment was made in the earlier years which is evident from the fact that the value of investment as at 31-3-2001 as well as at 31-3-2000 was same as may be seen from the Balance sheet as at 31-3- 2001. It is submitted by the appellant that it had submitted the cash flow statement alongwith letter dated 19-9-2005 and also produced the cash book before the AO. I have considered these facts of the case and find that AO has not looked into the fact that cheque issued by the appellant company had reached the banker for encashment only after the funds from liq....
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....ction 73 in respect of share trading loss which was treated by the AO as speculation loss under explanation to section 73. 17. We have considered rival contentions and found from record that assessee was engaged in purchase and sale of shares. Business profits/loss has been declared in respect of this transaction. Even during the course of assessment AO has accepted assessee's business as dealing in shares. However AO invoked explanation to section 73 and did not allow set of f loss incurred on purchases and sale of shares. By the impugned order CIT(A) confirmed the action of AO. 18. We have considered rival contentions and found from record that assessee had suffered loss in share business but the principal business of assessee was purchase and sale of shares. Income in any business is a positive income and loss is negative income which can be set off against positive income of the subsequent year. When the assessee is engaged in purchase and sale of shares whether explanation to section 73 is attracted with reference to the amendment w.e.f. 1.4.15, has been dealt with by the coordinate bench in case of Fiduciary Shares & Stock (P.) Ltd. vs. ACIT 70 taxmann.com 23 (Mumbai-Trib.)....
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.... was to curb the methods/devices sometimes resorted to by business house controlling groups of companies to manipulate and reduce the taxable income 'of companies under their control by showing loss on purchase and sale of shares of group companies. * It appears that the intention of the Legislature, from a perusal of the Wanchoo Committee Report and CBDT Circular o. 204 dated 24-07-1976, was not to treat purchase and sale of shares by companies whose main business is trading in shares as speculative business and therefore the Explanation to section 73 of the Act should be read only to the extent of the purpose for which it was inserted. The subsequent amendment made by Finance (No.2) Act, 2014 in the Explanation to section 73 of the Act appears to be made in order to clarify the real intention behind the insertion thereof, by removing the obvious hardship caused to various assessees whose main business is trading in shares. * The amendment has removed the anomaly and brought the ambit of the Explanation to section 73 of the Act in line with the intention of the Legislature by placing the companies whose principal business is trading in shares as part of the exception to Ex....
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....pectively from 01.04.1977 from which date the explanation to section 73 was placed on the statute. Accordingly the companies whose principal business is trading of shares, loss incurred by the said company in share trading will not be treated as speculation loss but normal business loss and, hence the same loss can be adjusted against other business income or income from any other sources of the year under consideration. Respectfully following the proposition of law laid down by the coordinate bench we delete the addition made by AO invoking explanation to section 73. We direct accordingly. AY 2002-03 20. In ITA No. 1717/Mum/07 in AY 2002-03, assessee is aggrieved for disallowance of long term capital loss treating the sale of shares as sham transaction. 21. We have considered rival contentions and found that from record that the assessee has claimed Long Term Capital Loss of Rs.(-) Rs. 3,61,31,594/- on sale of preference shares. In the return of income it has shown the purchase of 245360 shares of Welspun Mercantile P. Ltd. and 134240 shares of Welsupun trading P. Ltd. for Rs. 245630000 and Rs. 134240000/- respectively. These shares were allotted on 3.1.2000 by both the compan....
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....5 crores. The assessee has raised two debit notes of Rs. 13,42,40,000/- and Rs. 3,06,30,000/- for sale of 134240 shares of Welspun Trading P. Ltd and 30360 shares of Welspun Mercantile P. Ltd. whereas transferee has shown Rs.l,3424,0001- and Rs. 30,63,000/-. In view of the above observation the AO was of the view that the transferee has intentionally suppressed the consideration to avoid the payment of stamp duty as applicable. The AO has also asked the assessee to explain the source of funds used to finance these investments to which the assessee vide its letter dated 28.3.2005 submitted the details of share application money paid with source of funds (page no.13 of the assessment order). The AO also found that in the A.Y. 2001-02 in the case of M/s. Welspun India Ltd. a special audit was done. On perusal of the audit report the AO came to this conclusion that the assessee company has not received full consideration from the transferee company which is also related to the Welspun Group. In view of these observation AO held that it is nothing but sham transaction. 23. By the impugned order CIT(A) confirmed the action of AO against which assessee is in further appeal before us. 2....
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....d along with the return of income for the A. Y.2001-02 and the same was accepted by the Department while completing the assessment for the A. Y.2001- 02 un scrutiny. The word "bogus" according to Oxford Dictionary means "sham", "fictitious", "spurious". In this case there was no such thing. In the context of determining whether a transaction is a bogus or illusory transaction or a devise, the AO must bring concrete materials on record in support therewith. It is only if and when there are solid materials to hold taint of collusion or shamness or ungenuineness than the Assessing Officer can disregard the terms of document and decide the matter on the basis of concrete materials. The Id. AO could not bring on record any material to show the impugned transactions to be sham transaction except to express guess work and suspicion which have no role to play in assessment proceedings howsoever it may be grave. Considering the relevant facts together it is illogical to presume that the assessee was engaged in sham transaction. Normally the sham transactions are entered into to avoid payment of tax however in the case of assessee the impugned transactions had resulted into no actual profit ....
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....Nevertheless the assessee incurred no actual loss on sale of these shares. However, the loss has resulted due to indexed cost of acquisition in accordance with the provisions of section 48 which were substituted for statutory deduction allowed earlier under the said section. In common parlance, a gain or loss on transfer of any assets would be represented by the difference between its sale price and purchase cost and the same is NIL in this case. However, in view of section 48 the assessee was eligible for benefit of indexation and as such there was long term capital loss as per methodology provided in the statute and merely because as per this methodlogy there was loss, such loss can not be disallowed alleging the same as sham. 29. In view of the above discussion we do not find any merit in the action of AO for disregarding long term capital loss incurred by the assessee. 30. As per material placed on record the assessee has discharged onus casted upon him in respect of Long term capital loss shown in the return of income. It was the Department, who asserted the genuine transactions to be sham transaction and therefore the initial burden is on the Department to prove such transa....
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....any reason the AO has made addition on account of conversion of stock in trade into investments. The CIT(A) has deleted the same after observing as under: "2.1. In the assessment order, the AO has noted that the assessment was reopened u/s 148 as he had reason to believe that certain income has escaped assessment in the sense that assessee has not shown closing stock of Rs. 8,59,89,584/-. As per the note on accounts (schedule 12) of the Financial Accounts, the company had discontinued trading in shares and taking long term view, the stock in hand as on 31.3.2002 is converted into investment at the closing market rates. Hence, the assessment was reopened and completed u/s.147 r.w.s. 143(3) of the Act. 2.2. Shri. Mitesh Shah, C.A. and Authorized representative of the assessee company appeared and submitted that the A.O. is not justified in reopening the assessment as there is no new material which has come to the notice of the A.O. for re-opening the assessment. According to him, there must be a nexus between the material and the belief of the A.O. for reopening the assessment u/s.147. He relied on the following decisions:- (1) Anant Kumar Saharia Vs. CIT (232 ITR 533, 539) (Ga....
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....hese shares were sold during the previous year. In .other words the closing stock of shares has been shown as investment in shares where both are assets of the Appellant. The profit or loss would arise in subsequent year on sale of these shares. Hence, the addition is made by the Id. AO without any basis and reason and as such the same is III founded and liable to be annulled. An assessment based on mere conjecture, surmise or suspicion or irrelevant and inadmissible material is invalid and unsustainable in law. (b) It is submitted that in working out profit from the business of trading in shares one has to reduce the cost of shares sold from the sale value of the shares and the Appellant has followed the same procedure as may be seen from the Profit and Loss account and profit/loss shown In the Profit and loss account was true and fair without claiming any deduction from investment as erroneously thought by the Id. AO. (c) It may be seen that the Id. A.O. has rejected the explanation of your Appellant simply saying "I am not convinced ........." without giving any reason. It is now settled law that where an authority makes an order in exercise of a quasi-judicial function, it ....
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....e. 3.3. I have duly consider d the submission of the A.R. and I find that there is nothing wrong in converting stock in trade to investment and there is no revenue loss if the assessee company has shown stock-in- trade as investment in the balance sheet of the assessee company. Since, there is no revenue loss, no addition can be made. The A.O. is directed to delete this addition. Appeal on these grounds are allowed." 37. We have considered rival contentions, in view of the detailed finding given by CIT(A) there is no reason to interfere in the order of CIT(A) in so far as without giving any reason the AO has made addition on account of conversion of shares held as stock in trade into investments account as at the end of the year. AY: 2003-04: 38. In the Assessment Year 2003-04 assessee is aggrieved for disallowance of long term capital loss of Rs. 1,44,82,907/-, treating short term capital loss of Rs. 7,44,17,697/- the same as not pertaining to AY 2003-04. By the impugned order of CIT(A) confirmed the action of AO against which assessee is in further appeal before us. We have considered rival contentions and found that assessee has claimed short term and long term capital los....
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....er the transactions were entered into at prevailing market rate and the Id. AO has not raised any doubt on this aspect. In the course of assessment proceedings the assessee had submitted quotation of the stock prices in support thereof. In view of these facts of the case the conclusion of the Id. AO is base on unsubstantiated information. 42. With regard to the allegation of the AO that no consideration has changed the hands and the shares were transferred through Journal entries, in most of the transactions, consideration was received by cheque before the end of the previous year as is clear from the copy of account of the buyer parties and statement showing details of shares sold. Further there is no requirement under any law relating to sale of goods or even of immovable property that the purchase consideration has necessarily got to be paid immediately in cash. On the other hand, if the vendor is treated as a creditor of the purchaser and corresponding debit and credit entries are made in their respective book that would sufficiently serve the purpose of payment of consideration money for the same. According to section 43(2), "paid" includes amounts incurred according to the m....