AI Drafter 
TaxTMI 
TaxTMI 
2020 (7) TMI 722
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and on facts in holding that disallowance of losses treating them to be contrived losses cannot be disallowed in block assessment proceedings?" Issue notice to the other side. Paper book be filed within 3 months. List the appeal for final hearing after 3 months." 2. The short facts of the case are as under:­ 2.1 By this appeal under section 260A of the Income Tax Act,1961, (for short "the Act,1961") the revenue has challenged the order dated 28th February 2006 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench B in appeal being IT (SS) A. No.22/Ahd/2005 against block assessment order for the period from 1st April 1995 to 27th September 2001 passed under section 158BD r.w.s. 158BC of the Act,1961. 2.2 A search was carried out in the year 2001 on 27^th September 2001 at office premises of the company Nirma Limited and office premises of associate companies of Nirma Management Services Pvt. Ltd of Nirma Group. The respondent assessee is one of the associate entities of the Nirma Group of cases. 2.3 Notice under Section 158BD read with Section 158BC of the Income Tax Act, 1961 (for short "the Act, 1961") was issued on 30^th September 2002 fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ents sharafi interest was calculated and the same was settled across entities. 2.7 The Assessing Officer further found that letter dated 24^th January 2003 written to Ashima Syntex Ltd. under the signatures of Shri Rahul Devi for settlement of interest for mutual co­related investment made by the different entities, a demand for payment of Rs. 3.11 lacs from the company Ashima Syntex Ltd. was made. The Assessing Officer therefore, issued notice to the respondent assessee and after considering the submissions of the assessee, he calculated interest income of Rs. 30,11,500/­ as per the seized paper, which was due to five entities including the respondent assessee and thereafter apportioned it on proportionate basis and as per such apportionment, the interest income attributable to the assessee amounting to Rs. 6,07,214/­ was considered as not disclosed in any of the returns filed by the respondent assessee during the block period and addition was made for such income in the total income of the assessee. 2.8 The Assessing Officer during the course of the assessment and scrutiny of the loose papers, files and floppies, books of accounts, shares and other documents fou....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... which have been found in this folder, which was prepared by Shri Rahul Devi in his computer were final formats of the letters. This is proved from the fact that many letters, in the physical form, which have been found and died during the search were exactly tailying from the letter prepared in the computerized folder RVD­1, RVD11, dmat^1, NASIM^1, etc" (ii) Although there is no mention of the subject in the letter, but the contents are clear and mere absence of a subject will not wash away these contents. (iii) The reference of Rs. 30,52,400/­ of payment made on 6­10­1995 is perhaps not reflected in the other pages because obviously the amount refers to communication of Ashima Syntex Ltd. to Nirma Group and not Shri Rahul Devi who in fact says that interest should computer at Rs. 34,68,499/­ instead. (iv) It was for the appellant to explain the contents of the documents found in the CD obtained from an office of the group i.e. DGM Finance residence and pertaining to its transactions, instead of the A. O. having to establish the same. (v) There is no doubt that on verification from Ashima Syntex Ltd., the cross investment of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iben K. Patel Discretionary Family Trust to Naman Associates, directly certifying to the physical receipt of shares, is not the procedure which is normally followed by any broker of shares, as physical delivery is given by the seller of the shares to the broker of shares, as physical delivery is given by the seller of the shares to the broker who then delivers it to the purchaser. Here it is apparent that the planning has been done in a manner that entities of this group have purchased and sold shares from each other without following the normal channels of physical delivery of shares. vi) There is also no contemporary evidences of directions by members of the AOP for making such sales which are obviously being done by Rahul Devi who was holdng the post of DGM Finance in "Nirma Limited". The detailed explanation given does not change the fact that there is absence of contemporary evidences to witness any directions given for sale of shares. The disallowance made by the AO. is therefore, found to be justified and is accordingly sustained. 2.7.6. This ground of appeal is thus rejected." 2.12 The assessee therefore, being aggrieved by the order passed by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lacs includes the amount of debit notes issued for brokerage for Rs. 30.11.500/­ Copy of account was enclosed. They have not undertaken any cash transaction with Nirma Group of companies at any point of time. All the transactions have been carried out through account payee cheques the transactions, the details of which are given in the debit notes are the only mansactions with the aforesaid companies. The copy of the account from the hooks of Ashima Syntex Ltd. reflected that the brokerage for atanging NCDS for them, totaling to Rs. 30,11,500 /­ as per the following details have been paid. 13/07/98 ­ Neo Soaps & Detergents Pvt. Ltd. ­ 5,11,500/- 13/07/98 ­ Nirman Soaps & Detergents Pvt. Ltd ­ 25,00,000/­ A.O. considered the amount of Rs. 30,11,7038­as undisclosed interest income of the assessee in the proportion of investment in shares of Ashima Syntex Ltd by the five entities and the same was confirmed by CIT(A). 33. Learned counsel for the assessee contends as under: (i) The note dated 24/01/98, which is alleged to be a letter written by Shri Rahul V. Devi to Ashima Syntex Ltd is a draft and the co....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... dated 24/01/98 to Ashima Symex Ltd. alleged to have been written By Shri Rahul V. Devi was a draft only. Without prejudice, in alternate it is submitted that when the Acts of the line opinion that Rs. 30,11,703/­ written in (draft) letter and receipt of Rs. 30,11,500/­ by Neo Soaps & Detergents Pvt. Ltd. and Nirman Soaps & Detergents Pvt. Ltd., are same, the said income has been offered by respective assesses in their assessments and the tax has been paid there and if they are different amount then there is no case of income. So in any case, there is no ease of undisclosed income. Examining other seized papers, viz. Annexure­B1, B2/1, B2/2, where investment and interest calculations are reflected, it evident that Annexure­B1 refers to the specific dates on which investment in shares of Ashima Syntex Ltd., were made and the dates on which investment in shares of Nina were made. Number of days to 22/02/96 has been calculated and the products (Amount of investment X number of days up to 22/02/96) has been calculated. Annexure­B2/1 is an interest calculation on product and Ashima's investment where the net interest to be received Rs. 1,84,425/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....learly furnished the reasons on the basis of which, it has concluded that the note dated 24/01/98 was only a draft and not a letter actually written to Ashima Syntex Ltd. (ii) As regards to the alternative contention, of the appellant that without prejudice only net interest of Rs. 1,84,425/­ only could have been considered as undisclosed income, Ld. DR's contended that the calculations referred to in Annexure­B1 and in Annexure­B2/1 represents different transactions, which is absolutely incorrect. In fact, the amount paid as referred to in column­2 of Annexure­B1 (Page­29 of the Paper Book) is the same as column­2 & 3 titled Nirma's investment and Ashima's investment referred in Annexure­321 (Page 30 of the PB) and therefore it is incorrect to state that the calculations as referred to in the said two popes represents the different transactions. 36. We have heard rival submissions and perused material available on record. It emerges from record that the assessees' group concern and Ashima Syntex Group concern had interse relationship in terms of financial dealings in shares, NCD, Sharafi interest etc. Floppy in question....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r return of incomes. In consideration of all these facts, we are of the view that assessee having duly incorporated all these share transactions in the capital accounts and offered capital gain thereof, this cannot be held to be undisclosed transactions and resulting losses as contrived losses that too in block assessment proceedings, only due to certain assumed irregularities on the part of revenue. Consequently, we hold that these losses cannot be disallowed in block assessment proceedings, holding them to be contrived losses, therefore, claim of losses made in this ground are allowed in all these cases." 3. Mr. M. R. Bhatt, learned senior advocate appearing for the appellant - revenue submitted that the Assessing Officer and the CIT(A) have given cogent reasons, which were not considered by the Tribunal. According to Mr. Bhatt, the Tribunal has passed the impugned order in a very perfunctory manner without discussing in detail the submissions made on behalf of the revenue by accepting what is submitted on behalf of the respondent assessee in holding that the assessee having duly incorporated all the transactions in the shares in the capital account and offered capital gain th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....search. Decision in case of Unique Invin Ltd. Vs. ACIT 74 ITD 43 (Cal.) was relied upon in which the issue of allowability of loss incurred on dealing in shares to/from sister concerns under the same management and carrying on their business from the same place has been discussed. Decision in case of CIT Vs. Shekhawati Rajputana Trading Co. Pvt. Ltd., 236 ITR 950 (Cal.) is also relied upon wherein the loss on sale of shares by the Assessee Company to its Chairman was held to be not genuine. Reliance is also placed on the decision in case of Madras Industrial Investment Corporation Vs. CIT 225 ITR 802 (SC) where it is stated that the loss incurred is an expenditure and therefore, the losses from the share transactions would be covered under the amended definition of undisclosed income u/s.158B(b). Ld. D.R. also stated that in alternate, if the transaction is held to be genuine, then the same may be set­aside to A.O. for verification of the rate at which the transaction has taken place as the aspect of valuation has not been considered by A.O. during the assessment proceedings." 7. The above submissions made on behalf of the revenue are brus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t reproduced hereinbefore, the assessee company has made a positive averment to the effect that all other items of expenditure are allowable, I.e. all other items of expenditure are relatable to setting up the plant and bringing fixed assets into existence and putting them into working condition. In none of the appellate orders, viz., those of the C.I.T.(Appeals) and the Tribunal we find any discussion in relation to this part of the affidavit. In fact, the order of the Tribunal is absolutely silent as regards the affidavit and there is no indication whatsoever in the order as to whether the Tribunal was even aware about the existence of the affidavit which was on record. 8. As laid down by the Supreme Court in the case of Mehta, Parikh & Co. (Supra) none of the authorities considered it necessary to cross examine the deponent with reference to the statement made in the affidavit, and hence, under these circumstances it was not open to the revenue to challenge the correctness of the statement made by the deponent in the affidavit. In other words, consequently, the assessee was entitled to assume that the authorities were satisfied with the affidavit as sufficient proof on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e sides are not in a position to inform or state as to whether in fact the assessee had claimed deduction against its revenue receipt on the one hand and again capitalised the said item for the purpose of claiming depreciation and development rebate. In view of these circumstances, in so far as the item as regards depreciation is concerned, we direct the Tribunal to adjust its decision after ascertaining factual position. In the event of the assessee having not claimed amount of depreciation relatable to assets of the office on revenue account the assessee may be permitted to capitalise the same. 12. We, therefore, hold that in the circumstances of the case the Tribunal was not justified in law in holding that expenditure, except as regards the item of depreciation was not part of actual cost of the plant. In the result, the question referred to us is answered in the negative, subject to our direction in relation to item of depreciation I.e. in favour of the assessee and against the revenue with no order as to costs." (3) Nirman Textiles Pvt. Ltd., Vs. Assistant Commissioner of Income Tax, reported in (2006) 284 ITR 325 (GUJ). 11. The legal position is well­....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssioner of Income­Tax, Madras, [1959] 37 ITR 151). This position has been reiterated once again in 2002 by this Court after referring to the aforesaid judgment in the two decisions rendered in case of Mercury Metals (P.) Ltd. Vs. Assistant Commissioner of Income­Tax, [2002] 257 ITR 297 and Rameshchandra M. Luthra Vs. Assistant Commissioner of Income­Tax, [2002] 257 ITR 460. The Tribunal has passed the order on 2908­2003 and yet seems to be blissfully unaware of the legal position. In light of the aforesaid fact situation, the impugned order of the Tribunal is quashed and set aside to the extent of addition of Rs. 11,66,465/­ and the matter is restored to the file of the Tribunal for the purposes of adjudication afresh in light of the well-established legal principles enunciated by the Apex Court and this Court. 13. Accordingly, the appeal is allowed to the aforesaid extent. The question is answered in light of what is stated hereinbefore. The Reference stands disposed of accordingly. There shall be no order as to costs." 9. Relying upon the aforesaid decision, it was submitted that when the Tribunal has reversed the order of CIT(A), it was n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....name of buyer were duly delivered upon the sale and transaction being completed. It was therefore submitted that when it is not in dispute that the delivery of share given by the seller to the buyer, the transaction was completed and there was transfer of shares as per the definition of transfer under Section 2(47) of the Act, 1961. 12. It was further submitted that the consideration for the transaction of the shares was paid through cheque and the same was accounted in the books of accounts of the respective buyer and seller and therefore, no proof of delivery of shares was found during the course of search is no ground to disallow the loss. It was further submitted that the quantum of loss is not disputed by the Assessing Officer or CIT(A). The only ground for disallowing such loss was that there was no proof of delivery of shares prior to the date of search. 13. Learned senior advocate further submitted that it was also contended before the Tribunal that when the transaction is viewed as tax planning, though it is not, assessee was entitled to plan his transaction so that his taxes are minimized. Moreover, the respondent assessee has disclosed the loss in the return of inc....