TMI Blog2005 (9) TMI 511X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has also declared gain of Rs. 6,66,39,865 on sale of shares of other companies. The assessee has filed the details of sale and purchase of shares. The assessee has shown the purchase of 41,250 shares of Satyam Computers Ltd. @ Rs. 4,700 per share totalling to Rs. 19,38,75,000 on 31-3-2000 from M/s. Sedum Investment Finance Ltd. and it is claimed that advance money was paid to the tune of Rs. 14.60 crores on 1-3-2000 and Rs. 4.30 crores on 29-3-2000 respectively for the purchase of the said shares. The said shares were sold through a broker named Dinesh Kumar Singhania in Calcutta on 26-4-2000 for Rs. 12,78,75,000 and the sale receipt was received from 8th September, 2000 onward. The said transaction has resulted in loss of Rs. 6.60 crores. 4. During the course of hearing, the assessee has submitted the brief synopsis of facts, inferences of authorities below and contentions of the assessee as under : 1.The appellant is engaged mainly in the business of dealing in shares both delivery based and non-delivery based for the past several years. 2.During the immediate preceding year the appellant purchased inter alia 41,250 shares of Satyam Computers @ Rs. 4,700 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt could be made in advance. ( d )Why the shares were purchased at a higher rate of Rs. 4,700 per share as the maximum rate as on the day of transaction was Rs. 4,570 on BSE. ( e )The assessee has not submitted copy of account as appearing in the books of Sedum Investment Finance (P.) Ltd. ( f )The shares were not reflected in the demat A/c. of the assessee. ( g )The assessee has not submitted copy of closing stock of shares as on 31-3-2000. ( h )The distinctive Nos. of above shares were not provided. ( i )Proof of actual delivery of shares by the assessee consequent on sale of shares through D.K. Singhania Co. was not provided. ( j )M/s. Sedum Investment Finance (P.) Ltd. has not provided the copies of sauda slips, vouchers and contract note, etc. 8.At the time of hearing before the CIT(A) written submissions were made who called remand report from the ITO and in response to said remand report the appellant filed rejoinder and further rejoinder. C. Appellant s contentions Briefly appellants submission before the ITO and CIT(A) were as under : ( i )CBDT vide its Circular No. 704, dated 28-4-1995 recognises the share transaction taking place directl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idence in shape of purchase bill and sale bill which clearly indicates that they are delivery shares. ( x )The ITO has asked certain details from Sedum Investments Finance Ltd. as it was a broker. The ITO vide his remand report para 3.4 states that M/s. Sedum Investments and Finance (P.) Ltd. has confirmed that the transaction with the appellant were on principal to principal basis. Therefore, the details asked for from Sedum Investments Finance (P.) Ltd. were misplaced and uncalled for. 5. The Assessing Officer had held that transaction to be sham transaction and disallowed the loss claimed and CIT(A) had confirmed the same. The question for decision is whether the loss on sale of shares of Satyam Computers is genuine or not. The Ld. Authorised Representative of the assessee vehemently argued that the authorities below without appreciating the facts had disallowed the claim of capital loss amounting to Rs. 6.60 crores. Despite the fact that the assessee had filed proof of sale and purchase of shares, the shares were bought during the preceding year and sold during the current year, the share being part of closing stock of assessee s company as on close of preceding yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. AR of the assessee contended that the share transaction was genuine. Reliance was placed on various documents to prove the authenticity of transaction. It was also pointed out by the Ld. Authorised Representative of the assessee that the share transaction resulting in loss was prior to share transaction on non-delivery based shares resulting in profit during the year and it is not the case of the assessee that after gains have been made, the assessee resorted to any transaction resulting in loss, thus setting off the income. 7. The Ld. Departmental Representative placing strong reliance on the orders of authorities below contended that the assessee has failed to discharge its onus that the so-called delivery based shares of M/s. Satyam Computers were never actually delivered to the assessee. Referring to the sale and purchase of documents of M/s. Satyam Computers Ltd., he drew our attention to the fact that for the purchase of the shares money was paid in advance which is against the normal practice; with regard to the sale amount the same was received after five months of the transaction. He further pointed out that the shares of Satyam Computers Ltd. were sold by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee to prove the authenticity and genuineness of transaction dealt in by the assessee and the said onus has not been discharged by the assessee. It is not the case of a person who is dealing in shares for the first time. As admitted by the assessee itself, the assessee is engaged mainly in the business of dealing in shares both delivery based and non-delivery based for the past several years. 11. The facts above show that money is paid in advance without any agreement/understanding, shares are allegedly purchased on 31-3-2000 and the said shares totalling to 41,250 are in physical form and not demat form; despite the queries, raised by authorities below regarding the distinctive numbers of the said shares delivered to the assessee no details have been filed to prove the delivery of the said shares to the assessee. The matter was re-agitated before the CIT(A) also. The assessee in his rejoinder to the remand report has stated : "As the shares were purchased in the immediate preceding year and sold during the year under appeal out of the opening stock as above, no records have been maintained with regard to the distinctive number of shares. It is not understood also what is m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , dated 26-4-1995, and relevant portion states as under : "When the securities are transacted through stock exchanges, it is the established procedure that the brokers first enter into contracts for purchase/sale of securities and thereafter, follow it up with delivery of shares, accompanied by transfer deeds duly signed by the registered holders. The seller is entitled to receive the consideration agreed to as on the date of contract. The Board are of the opinion that it is the date of broker s note that should be treated as the date of transfer in cases of sale transactions of securities provided such transactions are followed up by delivery of shares and also the transfer deeds. Similarly, in respect of the purchasers of the securities, the holding period shall be reckoned from the date of the broker s note for purchase on behalf of the investors. In case the transactions take place directly between the parties and not through stock exchanges, the date of contract of sale as declared by the parties shall be treated as the date of transfer provided it is followed up by actual delivery of shares and the transfer deeds." 16. The Circular No. 204 referred to by the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 626 have taken note of the legal principles laid down by the Hon ble Supreme Court. Their Lordships have held as under : "In the case of McDowell Co. Ltd. v. CTO [1985] 154 ITR 148 (SC), O. Chinnappa Reddy, J., while dismissing the observation of J.C. Shah, J., in CIT v. A. Raman Co. [1968] 67 ITR 11 (SC) based on, Westminster [1936] AC 1 (HL) and Fisher s Executors [1926] AC 395 (HL) said that : We think that the time has come for us to depart from the Westminster principle as emphatically as the British courts have done and to dissociate ourselves from the observations of Shah, J., and similar observations made elsewhere. Chinnappa Reddy, J., further stated that : In our view, the proper way to construe to taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed liberally or literally, 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 transaction is such that the judicial process may accord its approval to it. The decision rendered by the Chinnappa Reddy, J., in McDowell Co. Ltd. [1985] 154 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra ) as a whole, we find non-denunciation whatsoever of the judgment of majority in the case of McDowell Co. Ltd. ( supra ) that colourable devices in the name of tax planning and avoidance of the payment of tax by resorting to dubious methods cannot be encouraged or entertained. At the same time, Hon ble Supreme Court have found that IRC v. Duke of Westminster [1936] AC 1 (HL) has been always a good law in England and so also in India despite the hiccups of McDowell Co. Ltd. s case ( supra ). In fact in the present case, the non-availability of distinctive numbers of shares dealt in by the assessee or any other evidence to prove the physical delivery of shares proves that the said transaction is a sham transaction, carried out with the intention to defraud the revenue. It is of paramount importance that the evidence for physical delivery of shares is required to be examined. The sale considerations of these shares are also received belatedly with effect from September 2000, whereas in the cases of share transactions money is paid or received immediately on completion of the transaction by the broker. In the instant case, money is paid in advance without any settl ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
