AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (3) TMI 511
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.... Brief facts of the case are, the assessee filed its return of income on 11th July 2002, declaring loss of Rs. 36,46,004. The return of income was processed under section 143(1) of the Income Tax Act, 1961 (for short "the Act") and the same was selected for scrutiny and the statutory notices under section 143(2) and 142(1) of the Act were issued and served on the assessee. In response, the learned Authorised Representative of the assessee attended and filed the relevant information as called for by the Assessing Officer. During the assessment proceedings, the Assessing Officer observed that the assessee has declared gross total income (loss) at Rs. 36,46,004. 4. The Assessing Officer sought explanation on the applicability of the Explanation to section 73 of the Act to the loss from shares and securities incurred by the assessee. In response, the assessee filed the following submissions:- "At the outset, it would be worth the while to refer to the composition of income of our abovenamed clients. Business income-Loss in share trading Rs. Rs. (3,07,40,000) Other Business 2,67,48,996 (39,91,004) Capital Gains 3,45,000 Gross total income::....
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....he assessee by observing as under:- "2.3: The income side of the P&L A/c of the assessee company shows income from shares and securities at Rs. 3,07,40,000. However, this income is negative income. It is by now well-settled that the words "income" or "profits and gains" should be understood as including losses also so that in one sense "profits and gains" represent "positive income" whereas "losses" represent "negative income". In other words, "loss" is "negative profit". Both positive and negative profits are of revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. Reference in this context, may be made to the decision of the Supreme Court in CIT v. Harprasad and Co. P. Ltd. [1975] 99 ITR 118. The Supreme Court in the case of CIT v. J.H. Gotla [1985] 156 ITR 323, in construing the word "income" in section 16(3) of the Indian Income-tax Act, 1922, held that the word "income would include loss. The explanation to section 73 is produced below: "Explanation:- Where any part of the business of a company (other than a company whose gross total income consists mainly of income which is charge....
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.... to you that you have not given any reasons for treating the impugned transactions as bogus. In any view of the matter, we submit that the transactions of purchase and sale of shares of Landmark are not bogus as they have been executed by our above named clients in the course of business and all ingredients required for a valid contract are present in the said transaction. There is a purchase (debit note of classic credit ltd.) delivery of shares received (distinctive numbers with delivery letter filed) and payment for the purchase. Similarly, there is a sale (debit note of Panther Industrial Products Ltd.,) delivery of the same shares given and payment receive. We have filed letter dated 17.12.2003 giving all the relevant supporting of the transactions. The market quotation of Landmark on the date of purchase and sale are Rs. 152.40 and Rs. 48.10 respectively, which are the rates at which transactions have been executed, and hence are on the basis of real time rates. Only because the seller company and buyer company are associate companies of our above named clients, a doubt on the genuinity of the transactions cannot be raised. In view of the above, we would like to impress u....
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....are retained by the company whose shares are under transfer namely, Landmark Leisure. As such our clients would not be in a position to furnish the transfer deed for verification and / or records. Further, in connection with the sale of shares by our above named clients to Panther Fincap & Management Services LtcL(PFMS), you have observed that the consideration has been received by our clients in advance. We confirm that the amounts have been received in advance and are in proximity to the date of sale, these are payments in advance by the buyer, that is PFMS; Further, as required by you, please find enclosed the following:- (i) Ledger account of PFMS and CCL in the books of our clients and our clients' account in their respective books of account. (ii) Evidence of market price of shares of Landmark Leisure on the date of purchase and sale have been enclosed in our letter dated 15.3.2O04." 7. After considering the submissions of the assessee, the learned Commissioner (Appeals) observed that the issue before him is whether the loss of Rs. 3,12,90,000, incurred on trading in 3,00,000 shares of Landmark Leisure Ltd. were genuine or not, is so, the same should be classifie....
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....in assessee's books. On the same day the account was debited with equivalent amount of Rs,4,57,20,000/- with the narration PFMS Pd to CCL for PIPL. On 28.12.2000 the Assessee company is stated to have sold these shares to another group company M/s PFMS at a price of Rs. 1,44,30,000/- i.e. Rs. 48.10 per share vide debit note No. PIPL/2812/2000-01 dated 28.12.2000. Thus, in the process the Assessee company is stated to have suffered a loss of Rs. 3,12,90,000/-. As regards the payment by M/s PFMS to the assessee it was stated that M/s PFMS paid to the assessee on 4.12.2000 (Rs. 75 Lacs) and 21.12.2000 (Rs. 100 lacs) (interestingly, both these dates are prior to alleged sale of shares by the assessee to M/s PFMS. Also, though the sale consideration was Rs. 1,44,30,000/-, the assessee company claims to have received 175,00,000)." 8. The learned Commissioner (Appeals) observed in his order that the crux of the matter is whether the assessee has really purchased 3,00,000 shares of Landmark Leisure Ltd. for Rs. 4,57,20,000 on 26th June 2000 took delivery of the shares and shares were transferred in the name of the assessee and any real payment by movement of actual fund by way of cheq....
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....2,90,000/- is a bogus loss and not allowable as per facts of the case and in law", it is reiterated here that "the loss of Rs. 3,12,90,000/- were held to be genuine and allowable, it will still be "speculation loss" within the meaning of explanation to sub section 73(4) of the IT Act 1961, and hence it will not be allowable as set off against "business income" and/or any other source of income except "speculation gain" within the meaning of IT Act 1961. It is therefore held that "notwithstanding the decision to treat the loss of Rs. 3,12,90,000/- as "bogus loss" and its rejection of it in earlier paragraphs", it is held that the AO was fully justified in treating the loss of Rs. 3,12,90,000/- as "speculation loss" within the meaning of explanation to sub section 73(4) of the IT Act 1961. In nutshell, assessee's appeal is rejected in facts of the case and in law." The assessee being aggrieved by the aforesaid order of the learned Commissioner (Appeals), is in further appeal before the Tribunal. 11. Before us, the leaned Counsel for the assessee submitted with regard to ground no 1 that the CIT(A) in the first innings by order dated 25.03.2004 has held that the loss of Rs. 3,12,90,....
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.... and Rs. 48.10 (page no 43 of the paper book), respectively, which are the rates at which transactions have been executed, and hence, are on the basis of real time rates. Only because the seller-company and buyer-company are associates of the Assessee-company, a doubt on the genuineness of the transactions cannot be raised. 11.5 Ld AR submitted that the Honourable Tribunal in the case of Panther Fincap for the year under reference by order dated 17.4.2013 has held that the transactions of sale and purchase carried out by Panther Fincap are genuine and not bogus, he brought to our notice copy of the decision and relevant para 93 of the order. He submitted that as such, it is clear the sale of shares by the Assessee-company to Panther Fincap has been held to be genuine. 11.6 Finally he submitted that the aforesaid transactions are genuine and have been carried out in the normal course of business of the Assessee-company at prevailing market rates. 12. With regard to ground no 2, treating the aforesaid transactions as speculative under section 43(5) of the Act, he submitted that the aforesaid transactions cannot be said to be speculative under section 43(5) inasmuch as the Assesse....
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....sioner (Appeals) and submitted that all these transactions were carried out within the group concern and this group concern belongs to M/s Ketan Parekh Group and he submitted that no doubt the transactions carried on by the group concern are on the rates as per market driven rates as on 27th July 2000, 26th June 2000 and 28th December 2000. He submitted that all these transactions shows that the assessee dealt on behalf of its sister concern i.e., Panther Fincap and Management Services. In this regard, he submitted that the payment for the shares purchased by the assessee was actually paid by PFMS Ltd., and the same shares were sold to PFMS, as it is only loss was booked in the books of the assessee. Therefore, it is not a genuine transaction. For that purpose, he brought to our notice Page-11 of the learned Commissioner (Appeals)'s order. The assessee has not submitted any new material before the learned Commissioner (Appeals). 15. In the rejoinder, the learned Authorised Representative submitted that the assessee has borrowed funds from sister concern to settle the payment to CCL merely because the assessee has sold the shares to PFMS. The learned Commissioner (Appeals) doubts t....
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....thin the sister concern, he formed an opinion that the whole transaction was bogus. The ledger copy on which the learned Commissioner (Appeals) formed an opinion for the sake of clarity it is reproduced below:- Sl.no. Document no. Transaction date Narration Debit Amount Credit Amount Balance Amount Account : PANTHER IND. PROD. LIMITED PIPL/2606 26/06/2000 PFMS PD TO CCL FOR PIPL 45720000.00 -45720000.00 PIPL/26/06 26/06/2000 BILL AMOUNT 45720000 PIPL/2710 27/10/2000 PFMS PD TO CCL FOR PIFL 20163250.00 -20163250.00 PIPL/03/00 27/10/2000 BILL AMOUNT 6767750 -13395500.00 PIPL/04/00 27/10/2000 BILL AMOUNT 13395500 000003 540912 04/11/2000 ON A/C. 5000000 5000000 000003 540916 09/11/2000 ON A/C. 2500000 7500000.00 000003 1408 13/11/2000 ON A/C CMO NC.062071 - 100000000.00 -925000000.00 CCL/03/01 30/03/2000 BILL AMOUNT 63800000 -28700000.00 PIPL/3103 31/03/2001 SAME A/C 28700000 T O T A L S : 162683250.00 165883230.....
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....of the legal ways of completing the contract. With regard to sale of shares to PFMS, the assessee has submitted clearly proper payment challan to support that the assessee has actually received Rs. 1.75 crore from PFMS before handing over of the physical shares to them at the market price prevailing on the date of sale i.e., Rs. 48.10 per share. Since there is a loss incurred by the assessee in these transactions, the learned Commissioner (Appeals) doubts the whole transaction merely because there is a loss. Otherwise in case the transaction was carried out with any third party, the doubt would not have arisen. In our considered view, merely because the assessee has taken advances from its sister concern to settle purchase consideration, it does not make the transaction a bogus transaction. 19. Coming to the next argument whether these transactions will fall under speculative transaction or not. We notice from the record that the assessee has taken delivery of shares on the date of purchase and similarly the assessee has made the physical delivery of shares to PFMS. Therefore, as per the definition of speculation transaction which means a transaction in which a contract for the p....