TMI Blog2003 (12) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... les of investments. In response to this, it was stated on behalf of the assessee vide letter dt.20th Dec., 1996explaining that the shares were sold to S.W. Consultants (P) Ltd., wholly owned subsidiary company of the assessee-company and, as such, the assessee was covered by exemption under s. 47(iv) of the Act. The AO observed from the details submitted by the assessee that S.W. Consultants (P) Ltd. had been claimed as a wholly owned subsidiary company of the assessee as on 21st March, 1995 and on the very next day the shares amounting to Rs. 22,14,000 of M/s Samtel Electronics Devices Ltd. were sold to M/s S.W. Consultants (P) Ltd. Exemption under s. 47(iv) of the Act was claimed on the profit from the sale of these shares of Rs. 21,67,406. The explanation of the assessee was not accepted and a show-cause notice was issued. On the next date, the assessee sought an adjournment. In the circumstances, the AO being of the view that undue delay was being caused by the assessee in producing the books of accounts and documentary evidence as asked for, therefore, issued an authorisation under s. 133A on15th Jan., 1997to the assessee to identify the books of accounts. Despite the same, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it revealed that the purchase of investments of 7040 plus 21 shares of M/s S.W. Consultants (P) Ltd. have been shown as investment purchased. He was of the view that the overwriting of the date in the cash book at p. 13 further proved that the writing of books has been started by putting the date 24th March, 1995 by crediting/debiting the cheques Nos. 341, 343, 344 and 345 of Oriental Bank of Commerce, who are the assessee s bankers, and after 24th March, 1995 it has been again started by putting the date 22nd March, 1995 by sale of investment of Rs. 22,14,000 which is the sale price of the shares sold to M/s S.W. Consultants (P) Ltd., against which the exemption under s. 47(iv) has been claimed. Further, on 23rd March, 1995, he observed the assessee has shown by passing the entry of Rs. 22,14,000 in the name of M/s S.W. Consultants (P) Ltd. the purchase of 22140 shares of Rs. 100 each and thereafter only on 26th March, 1995, a cheque No. 342 has been issued for Rs. 15 lakhs on account of purchase of shares of M/s Samtel India Ltd. from M/s Frontline Securities Ltd. Thus, he was of the view that the cheque No. 347 which has been claimed to be paid to M/s LCPL has been issued o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pport of its claim, the assessee enclosed photocopies of share transfer forms, share certificates to show the application of shares to transfer in the name of the assessee-company signed on21st March, 1995and accordingly, it was this date which is the date of recognition mentioned on the back side of share certificates. 9. Perusing the same, the AO observed that the assessee has tried to explain as under: "Thus the assessee has tried to explain that the transactions of the shares were completed on21st March, 1995. The contention of the assessee that application to transfer the shares in the name of the assessee-company from shareholders was made on 21st March, 1995 and was also transferred in the name of the company on the same date is not reliable because it is very strange to believe that a person who is not maintaining its accounts regularly, how can be put the application on the same day to transfer the shares. It will not be out of place to mention here that the managing director of the assessee-company is also the director of the company transferring the shares to assessee-company, i.e., Mrs. Dolly Sethi who has signed both the documents, i.e., share transfer forms as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of capital gains by following such tactics. My this view has been fully supported by the decision of the Hon ble Supreme Court in the case of McDowell Co. (P) Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC) wherein it has been held that tax planning may be legitimate provided it is within the framework of the 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 dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. The proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or liberally nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax and whether the transactions are such that the judicial process may accord its approval to. 10. The aforesaid discussion clearly establishes that the assessee has not maintained its account books in a methodical manner and also not in accordance with the accounting principles. The assessee also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has tried to claim the capital gain exemption under s. 47(iv) of the IT Act, 1961. Since the assessee has not maintained the books of accounts on day-to-day basis and transactions have been made after-thought, the books of accounts need to be rejected as per the provisions of s. 145(2) of the IT Act, 1961. Therefore, the assessee is provided an opportunity to explain as to why the books of accounts maintained for the asst. yr. 1995-96 should not be rejected and the exemption claimed under s. 47(iv) should not be disallowed." 12. Before the CIT(A), it was contended on behalf of the assessee that none of the reasons given by the AO justified the denial of claim under s. 47(iv) of the Act. Similarly, the AO s action in invoking the provisions of s. 145(2) was also assailed. It was further contended that there may be certain irregularities in posting certain transaction in the books of account and the observation that the AO has failed to point out any single transaction which has either been omitted or suppressed or inflated and the objection of the AO did not have any ramification on the assessee s claim of exemption under s. 47(iv). The argument was put forth that the cash boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of examination of various accounts relating to purchase of shares of M/s S.W. Consultant (P) Ltd. the AO observed that these books of accounts cannot be relied due to various defects noticed which has been mentioned in detail in his assessment order. The assessee in the course of assessment proceedings tried to explain the discrepency noticed by the AO but the facts remain that there have been lot of erasing, cuttings, interpolating of dates of transactions relating to purchase of shares of M/s S.W. Consultant (P) Ltd. Therefore, the AO has come to the correct conclusion that the books cannot be relied upon. What the AO intended to say is that the assessee cannot justify its claim that shares of M/s S.W. Consultant (P) Ltd. were purchased on21st March, 1995with the help of various entries in the books of accounts and this is correct decision of the AO. In view of the various defects pointed out by the AO in his assessment order. The learned counsel has argued that books of accounts are not very much relevant so far as computation of income from capital gain is concerned but at the same time, he tried to justify the claim that M/s S.W. Consultant (P) Ltd. was 100 per cent wholly ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en transferred. It was also contended that simply because as per the bank pass book the cheques have been cleared on 31st March it does not militate against the claim of the assessee. Referring to pages on which the assessee had placed reliance in the paper book and the observations of the tax authorities, it was put by the Bench to the learned authorised representative that most of the entries are overwritten. Referring to p. 69, it was contended that the cheque of Rs. 2,40,000 was cleared on 23rd March. Relying upon CIT vs. Moon Mills Ltd. (1966) 59 ITR 574 (SC), it was contended that s. 145(2) has no application for computation of capital gain. It was contended that s. 13 of the old Act corresponding to s. 145 pp. 77 to 89 was highlighted by the assessee before the AO. Attention was also invited to p. 49 which is the board of directors resolution. Page 18 showing the share transfer for a valid agreement was also highlighted. The date mentioned therein i.e. 21st March was emphasised. The paying slips copy of which is appended at pp. 71 to 74 so as to highlight the dates on which the cheques were deposited. It was stated that the crucial question of transfer is the issue and when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resentative, on the other hand, placed reliance on the orders of the tax authorities. It was contended by him that the shares of M/s Samtel Electron Devices have been sold to M/s S.W. Consultants and subsequently, the assessee has attempted to create devices so as to get the benefit of s. 47(iv) on the sale of these shares on which capital gains is attracted. Thus, the issue which boils down is whether on 22nd March, 1995 the date on which the shares stood transferred was the company a wholly owned company or not for the purposes of s. 47(iv). Referring to the orders of the tax authorities, it was contended that the Department s case is very clear and despite the assessee s hesitancy in producing its books of accounts initially when subsequently they were caused to be produced, the AO has made an attempt to point out and give cogent reasons that the assessee has resorted to a strategy and attempted to stage-manage the dates to show that the sale was made subsequently to M/s S.W. Consultants when it became a 100 per cent subsidiary. Referring to the speaking observations of the tax authorities, it was pointed out that the assessee has tried to variously contend that s. 145(2) is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubt and will not help the assessee in establishing that the transfer took place subsequent to the company becoming a 100 per cent subsidiary company. It was contended that the specific case of the Revenue has not been met by the assessee even today, i.e., the transfer took place prior to becoming a 100 per cent subsidiary. The fact that subsequently it became a 100 per cent subsidiary is not in doubt. The case of the Revenue, it was argued, is that on the date of transfer it was not a 100 per cent subsidiary company. However, it was reiterated, the Revenue s case is borne out by the evidence on record which is that the transfer is subsequent to the date from which the assessee presents to the Department and on the date the shares were sold, the alleged company is not a 100 per cent subsidiary company. The fact that it became 100 per cent subsidiary company ultimately is not in dispute or not an issue in the present proceedings. 16. It was further contended that the persons concerned were related. It was further stated that M/s S.W. Consultants was held by seven entities all related to the assessee. The directors and holders of the assessee-company and M/s S.W. Consultants were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not in dispute. The point is that on the date the payments were made, the transactions prior to that are not covered by the umbrella of 100 per cent subsidiary company. Here again, even in the cheque book, the assessee s version fails by the defect of chronological events. The consistent refrain of the assessee that chronology is not a necessary requirement by itself is not a sufficient argument because the fact remains that the transactions as advanced by the assessee did not inspire confidence. Accordingly, it was argued that the assessee has not been able to establish its case. It was further contended that the remand report of the AO has also been considered which has been confronted to the assessee. With regard to the reply of the assessee that the bank did not honour the cheque in view of the fact that the assessee did not have funds referring to pages in the paper book, it was contended that the assessee had made a FDR of Rs. 1 crore on 23rd March which is the reason that the assessee did not have funds. It was contended that this FDR was made by the assessee on 23rd March which cannot be lost sight of and the cheques were issued subsequently although the assessee has tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the position of law, we are of the view that in the peculiar facts and circumstances of the case, there is no reason or basis to interfere with the orders of the tax authorities. After a careful analysis of the arguments advanced on behalf of either side vis-a-vis the evidences in support of the assessee s claim, we find ourselves unconvinced and unable to accept the version of the assessee. We have taken note of the fact that the assessee despite being put to specific notice by the AO to the view taken by him of the deduction claimed, the assessee has been reluctant to show its books of accounts and when ultimately it has been made to produce the same, generalistic arguments have been advanced so as to argue that the chronology of events is not a requisite criteria on the basis of which, the assessee s claim can be disregarded. Even for a moment the assessee s version is accepted and one goes along with the arguments advanced that merely because certain entries are not recorded in a chronological manner, even then, the frequent cuttings not initialed, the entries in the cheque books as well as entries as per the bank documents takes away the credibility of the assessee s version ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f it put together speaks volumes against the assessee s version. Resorting to the Ramaiaya s Commentary to which our attention has been invited, it is seen also is of no help because the principle of the judgment relied upon therein is entirely in a different context. In fact, on the touchstones of the principles as laid down by the apex Court in the oft cited judgment of the Supreme Court in the case of CIT vs. Durga Prasad More and the principles enunciated in the case of Sumati Dayal vs. CIT again of the Supreme Court supports the case of the Revenue. 19. We have also taken into consideration the decision of the Madras High Court in the case of CIT vs. M. Ramaswamy and the apex Court in the case of CIT vs. McMillan Co. relied upon by the assessee. Whereas the former is rendered in a different context, the latter in fact operates against the assessee and is on the aspect whether the first appellate authority can review the view taken by the ITO with regard to the method of accounting. 20. Thus, after a careful analysis and consideration of the entire material available on record as well as the judgments relied upon, we are of the view that in the facts and circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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