TMI Blog2004 (9) TMI 592X X X X Extracts X X X X X X X X Extracts X X X X ..... It is submitted that the sale consideration was not received by the assessee also. The shares were lodged for transfer after close of the financial year. Further there is no evidence to show that the alleged transfer took place before the close of financial year apart from the book entry made. 4.The Ld. CIT(A) erred in allowing the relief of loss of shares sold at much below their par value and that too without actual receipt of any consideration. It is submitted that the above book entry was a colourful device adopted by the assessee to reduce the tax liability." 2. The effective ground raised by the revenue is thus regarding the genuineness of loss of Rs. 45,50,000 claimed by the assessee during the year on sale of investments being shares in M/s. Bhagwati Gases Limited. 3. Briefly stated the facts are that for assessment year 1996-97, the assessee-company filed return of income on 31-10-1996 declaring an income of Rs. 45,770. During assessment proceedings, the Assessing Officer noticed that in the profit and loss account annexed with the return, the assessee has shown dividend income of Rs. 24,28,255. Against this income, the assessee had debited the P L account wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors Sh. R.S. Bhardwaj Sh. Himanshu Sharma) one lakh shares have shown to be sold on 26-2-1996 @ Rs. 11.50 per share and the account of the company has been debited for Rs. 11,50,000 on 31-3-1996. A sum of Rs. 9,75,000 is still outstanding as on 31-3-1998. M/s. Ramrup Credit Leasing Pvt. Ltd. (Directors Sh. R.S. Bhardwaj Sh. Vivek Sharma) one lakh shares have shown to be sold on 28-2-1996 @ Rs. 11.50 per share and the account of the company has been debited for Rs. 11,50,000 on 31-3-1996. A sum of Rs. 10,25,000 is still outstanding as on 31-3-1998. M/s. Bhagwati Steels Pvt. Ltd. (Directors Sh. Ram Rup Sharma Sh. S.K. Sharma) two lakh shares have shown to be sold on 10-2-1996 @ Rs. 11.50 per share. As per balance sheet for assessment year 1995-96 the assessee has given a loan of Rs. 5,00,000 and this year accounts of the company has been further debited for Rs. 23,00,000 on 31-3-1996. At the end of the financial year a sum of Rs. 28,00,000 is outstanding and a sum of Rs. 27,20,000 is still outstanding as on 31-3-1998. M/s. S.K. Steels Pvt. Ltd. (Directors Sh. B.K. Ratnakaran and Sh. L.C. Sharma) seven lakh shares have shown to be sold on 21-2-1996 @ Rs. 11.50 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bill which is not instrument of sale prescribed for shares. The bills issued by the assessee are pen numbered and are not numbered with a machine or printed numbers. The bills of sale used for shares are the bills used for sale of gases because type of gases, total number of cylinders, quantity in Cu/Mts. rate in Cu/Mts. per cylinder are mentioned on the bills. The bills have been amended by the assessee so as to include distinctive number of shares and other details such as rate, number of shares etc. The partnership deed filed by the assessee showing the object of partnership as to invest and deal in shares was entered into on 26-3-1992 and the shares have been shown to be sold in February 1996 and till this date i.e. after a lapse of about four years, the assessee has not got printed the prescribed bills for sale of shares which itself shows the intention of the assessee. ( j )The assessee firm has not given any evidence till date to establish actual delivery of shares were made before the end of the financial year. ( k )Shares transfer deeds have been stated to be lodged in the name of the purchasers in the month of April 1996 i.e. after the closing of the financial ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es belong to a sister concern and were shown sold to another sister concern the manipulation were not difficult for the assessee to do. The assessee has moulded the things in his favour as all the group companies are involved in this whole episode. Though the assessee has filed a certificate from M/s. Bhagwati Gases Ltd. (another sister concern) that the shares were lodged for transfer in the month of April 1996 but the fact remains that no amounts have been realized in respect of the sale of shares. All the transactions in respect of the sale of shares have been made through book entries only. The shares were sold to the sister concerns in the month of February 1996 whereas the accounts of the sister concern were debited on 31-3-1996 which further strengthen our findings that the whole thing is a manipulated one and afterthought. Generally a person sells things on loss when he/she is in need of funds but here the amounts are still outstanding so the basic element i.e. need of funds is missing in the instant case. Actually, it is a concocted story to reduce the tax liability which cannot be accepted. I, therefore, add a sum of Rs. 15,50,000 to the income of the assessee based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our attention to the fact that the entire group comprising the assessee firm as well as the six companies to whom shares have been sold and M/s. Bhagwati Gases Limited whose shares have been sold are closely related and controlled by the common group of individuals. She further submitted that no evidence whatsoever has been furnished by the assessee firm as to when the shares were handed over to the vendee companies. She stated that it is an admitted fact that transfer deeds have been lodged with Bhagwati Gases Limited in the month of April, 1996 i.e. after the end of the accounting year under reference. There are no share brokers and transactions have been allegedly arranged amongst the family members without payment of any cash whatsoever. Ld. DR pointed out that even though the sale transactions are claimed to have been entered in the month of February, 1996 yet no entries whatsoever have been passed in the books of the assessee firm as well as the vendee companies in February, 1996 regarding the so-called sale transactions. It was on 31st March, 1996 that entries have been manipulated in the books of account in support of so-called sale transactions. 8. Ld. Counsel, on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax authorities are entitled to look into surrounding circumstances to find out the reality of the matter. It has been held by Hon ble Supreme Court in CIT v. Durga Prasad More [1971] 82 ITR 540 at page 545 as under : "Now we shall proceed to examine the validity of those grounds that appealed to the learned judges. It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability. The most telling feature which eloquently bring out the manipulation is the fact that even though the transactions in question are claimed to be credit transactions and mere book entries have been made in the books of the assessee firm as well as the transferee companies yet all these entries are dated 31st March, 1996, i.e., much after the alleged date of sale transaction in February 1996. We are unable to understand as to how after entering into transaction is the sale of shares in the month of February 1996, particularly when the transaction is a credit transaction, no entries are passed in the books even after share transfer forms along with shares have allegedly been handed over to the transferee companies. The whole story appears to us to be unreal and unusual. We cannot find fault with the revenue for refusing to swallow such a fanciful story. It appears to us that Assessing Officer has adduced cogent ground to disbelieve the story of sales which obviously is a story that does not accord with human probabilities. No evidence whatsoever has been adduced in support of the alleged sales transactions having taken place in February 1996. As pointed out by the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d than in the U.K. The motto, which was laid down by Sanborn J. and cited since then as the law, is that when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. The same can be seen in various European jurisdictions". [1990] 53 Modern Law Review 358. Indeed, as far back as 1912, another American Professor, L. Maurice Wormser, examined the American decisions on the subject in a brilliantly written article Piercing the Veil of Corporate Entity [published in [1912] XII Columbia Law Review 496] and summarized their central holding in the following words : When the conception of corporate entity is employed to defraud creditors, to evade an existing obligation, to circumvent a statute, to achieve or perpetuate monopoly, or to protect knavery or crime, the courts will draw aside the web of entity, will regard the corporate company as an association of live, up-and-doing, men and women shareholders, and will do justice between real persons." At this stage, it would be useful to refer to the observations of the Hon ble Supreme Court in CIT v. Shri Meenakshi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity to income-tax on a capital gain, it will be open for his benefit without liability to income-tax on a capital gain, it will be open to the income-tax authorities to go behind the transaction and examine whether the transaction of creating the partnership is a genuine or a sham transaction and, even where the partnership is genuine, the transaction of transferring the personal asset to the partnership firm represents a real attempt to contribute to the share capital of the partnership firm for the purpose of carrying on the partnership business or is nothing but a device or ruse to convert the personal asset into money substantially for the benefit of the assessee while evading tax on a capital gain. The Income-tax Officer will be entitled to consider all the relevant indicia in this regard, whether the partnership is formed between the assessee and his wife and children or substantially limited to them, whether the personal asset is sold by the partnership firm soon after it is transferred by the assessee to it, whether the partnership firm has no substantial or real business or the record shows that thee was no real need for the partnership firm for such capital contribution ..... X X X X Extracts X X X X X X X X Extracts X X X X
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