TaxTMI 
TaxTMI 
2021 (3) TMI 511
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....m insomuch so that the same is non-genuine. 3. 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 ....
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.... the case of our above named clients." 5. After considering the submissions of the assessee, the Assessing Officer rejected the contention of the 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 t....
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....(Appeals) the assessee filed further submissions dated 15th March 2004. For the sake of clarity, it is reproduced below:- "Submissions dated 15.3.2003:- (a) In this connection, at the outset, we would like to point out 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 th....
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.... in possession. CCL in turn pledged the shares with Vidyut Investments Ltd. and the shares, after demat are, as of today, still lying in their demat account. As such the transfer deeds would have been used by the transferee, Vidyut in this case, to get the shares transferred in their name and after transfer being effected the deeds 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 ....
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....ny on 26.6.2000 vide debit note no. CCL/2606/200001 dated 26.6.2000 at a cost of Rs. 4,57,20,000/- i.e. Rs. 152.40 per share, This transaction was done outside the stock exchange. No payment was made by the assessee company to M/s CCL for purchases of shares. It was stated that the assessee was having a running account with M/s CCL and the amount of Rs. 4,57,20,000/- towards purchase of shares was credited to .CL's account 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,....
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....and came to the following conclusion:- "Prima facie it would appear that none of the two limbs of explanation to sub section 73(4) of the IT Act, 1961 which exclude the applicability of the explanation to companies, do not apply to the facts of the case4 and hence prima facie, provisions of explanation to sub section 73(4) of the IT Act 1961 are applicable to the assessee's case. Even though it has been held that "the loss of Rs. 3,12,90,000/- 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 explanat....
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....d transaction. There is a purchase contract (debit note of Classic Credit Ltd), delivery of shares received of the shares purchased (distinctive numbers with delivery letter filed) and payment for the purchase of shares. Similarly, there is a sale contract (debit note of the Assessee-company), delivery of the same shares given and payment received. Further, the market quotation of Landmark Leisure on the date of purchase and sale are Rs. 152.40 (page no 42 of the paper book) 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 ....
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....pal business of the Assessee company is of granting of loans and advances and submitted that an exception carved out in Explanation to section 73. As such, it is submitted that the provisions of Explanation to section 73 cannot be pressed into service in the case of the Assessee-company. In view of the above, the counsel of the assessee submitted that the set-off of Rs. 3,07,40,000 ought to be allowed. 14. On the other hand, the learned Departmental Representative relied heavily on the findings of the learned Commissioner (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 w....
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....yment of Rs. 2,01,63,250, towards payment by PFMS to CCL and two cheques of Rs. 50 lakh and Rs. 25 lakh from CCL to the assessee and there is a payment of Rs. 1 crore by the assessee to CCL and observed that there were certain other transactions between the assessee and CCL. With the above observation, the learned Commissioner (Appeals) came to the conclusion that there was no actual movement of funds from the assessee or its associate PFMS to CCL either on 26th June 2000 or subsequently. Since these transactions were carried out within 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 ....
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.... involvement of any agent in order to complete the transaction, the physical delivery of shares were carried out and the proof of which is properly submitted in the paper book. It is normal in case of closely held companies like this to borrow funds from the sister concern in order to complete the transaction or internal settlements. It is important to note that all the settlement of shares were carried out only thru banking channel. We do not understand the findings of learned commissioner (Appeals) that it is only book entries, how they can create book entries when the settlements were carried out by bank transfers. There is no improper way of settlement and it is one 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. Othe....