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2015 (3) TMI 925

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..... sses.All transactions were off market transactions and were not executed through stock exchange.Shares were not actually delivered between the assessee and the concerned persons. All the transactions were only paper transactions, i.e. no delivery was effected for sales/purchases of shares.Bank pass book reveals that the assessee company had paid the difference (loss amount) on such transactions to these persons. No amount was received or paid by the assessee company on sales and purchases of such shares. The assessee has entered into speculation activities to avail the artificial loss created by such alleged transactions which were set off against the interest income. The gain arisen on such transactions have been shown by all these persons as income from other sources in their returns of income. Where purchase and sale of shares were done through cheques, which were not encashed, so that there was no movement of funds, the transactions being as between these persons and the assessee company itself without any explanation as to the need for the circumstances of transactions, such transactions could only be considered suspicious and are to be treated as sham transactions.Without pre .....

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..... e Assessing Officer, the assessee filed an appeal before the ld. CIT(A) who, after considering the submissions of the assessee, partly allowed the appeal vide order dated 28.01.2011. While partly allowing the appeal, the ld. CIT(A) held that the Explanation to Section 73 will come into play only when the adjustments permitted by the provisions of Sections 70 71 of the Act is made in the assessee s case. The ld. CIT(A) also give a finding that the major business of the assessee is financing. The ld. CIT(A) confirmed the addition made on account of the transactions made with the related parties. The Revenue is aggrieved with the order of the ld. CIT(A) in respect of the finding that the Explanation to Section 73 would apply only after the adjustments of business loss as permitted by the provisions of Sections 70 71 of the Act is made and accordingly, the Revenue has preferred the present appeal. 5. The only effective ground in this appeal is against treating the loss claimed as business loss instead of speculation loss. 6. The ld. CIT-DR submitted that the Assessing Officer has given a finding that the loss is speculation loss and therefore, the explanation to Section 73 of .....

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..... ord. Accordingly, I agree with the submissions made on behalf of the appellant that the AO could nto invoke the provisions of Section 73 and Explanation thereto without adjusting the losses and gains from various sources under the head Business , as permitted by the provisions of Section 70 and 71 of the IT Act, 1961, and only then, if the appellant s case fell within the non-excluded categories of companies as per the Explanation to Section 73, could these provisions be invoked. In the appellant s case, the income is mainly from two separate business viz. interest income of ₹ 64,98,590/- and Share Trading Loss of ₹ 34,80,608/- as per Schedule - 8 of the Balance Sheet, therefore loss from Share trading would have to be set off against the interest income and the provisions of Section 73 and the Explanation thereto would not apply in the appellant s case to the extent to income from interest. Further, the assessee s contention that the provisions of section 73 r/w Explanation thereto, are not applicable to the assessee company to the extent of interest income as was held in ACIT vs. Concord Commercials (P) Ltd, ITAT, Mumbai H Special Bench, 94 TTJ 913 applies in pr .....

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..... s in its appeal:- 1. The Learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the transaction entered with related parties as sham transaction in respect of loss incurred in share securities, though the beneficiary of the shares had already paid adequate tax on the income earned on such transaction by them. 2. The appellant craves leave to add to alter, delete or modify the above grounds of appeal either before or at the time of hearing of this appeal. 11. The ld. Counsel for the assessee submitted that the only effective ground is against the confirmation of the transactions amounting to ₹ 34,80,608/- alleged to have been effected with the related parties. The ld. Counsel for the assessee submitted that the CIT(A) had dismissed the ground on the very curt one line observation without proper consideration and appreciation of the elaborate submissions and explanation filed duly supported by evidences. He also submitted that the transactions entered into by the assessee-company with various individuals for purchase and sale of shares are genuine transactions duly supported by comprehensive evidences in form of purchase/sale invoice .....

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..... 4. Kunal T. Shah (HUF) 25-8-06 3500000 24-8-06 3000000 500000 5. Nisha A. Shah 16-8-06 3200000 14-8-06 2700000 500000 6. Anilaben A. Shah 11-8-06 3100000 10-8-06 2600000 500000 7. Rekha G. Shah 29-8-06 3370000 28-8-06 2790000 580000 Total 23120000 19270000 3850000 All these transactions were executed between such parties off market . Such transactions were not executed through stock exchange. Moreover, the assessee company had sold such shares to these persons at lower rate and purchased thereafter at higher rate. First of all no business profit or loss can be claimed on such transactions in which sales were made prior to purchases of these shares. In this regard the assessee vide order sheet entry dated 29- 10-2009 was show caused to explain as to why such transactions should not be treated as sham transactions. The assessee vide submission dated 2-11- 2009 replied as under: 8. Sham Transaction : The transaction of purchase and sale of shares with person .....

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..... id by the assessee company on sales and purchases of such shares. This clearly indicates that no purchase and sales were made separately between the assessee and these persons. All such transactions appear as bogus and paper entries only. Such losses are appeared to be entered into create artificial losses only. 5. The assessee has entered into speculation activities to avail the artificial loss created by such alleged transactions which were set off against the interest income. 6. The gain arisen on such transactions have been shown by all these persons as income from other sources in their returns of income. Where purchase and sale of shares were done through cheques, which were not encashed, so that there was no movement of funds, the transactions being as between these persons and the assessee company itself without any explanation as to the need for the circumstances of transactions, such transactions could only be considered suspicious and at any rate may be disregarded with reference the decision of the Hon'ble Supreme Court in the case of Mcdowell and Co. Ltd, v. CTO (1985) 154 ITR 148 (SO as held by the High Court in CiT V. Shekhawati Rajputana Trading Co. (1999) .....

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..... sactions are treated as speculative transactions. These observations of the Assessing Officer have not been controverted by the assessee by bringing any contrary material on record. Therefore, we do not see any good reason to interfere into the order of the ld. CIT(A) and the same is hereby upheld. Thus, this ground of the assessee s appeal is rejected. In the result, the appeal of the assessee is dismissed. ITA No. 2473/Ahd/2011 (By Revenue) : Assessment Year : 2008-09 14. We have heard both the parties and perused the records. It transpires that identical issues and grounds were considered by this Tribunal in Revenue s own case for Assessment Year 2007-08 in ITA No.970/Ahd/2011 (supra). The facts being identical, in absence of any distinguishing features pointed out by Departmental Representative, we, therefore, have no reason to take a different view than the view taken in ITA No.970/Ahd/2011 for AY 2007-08; hence the appeal of the Revenue for the year under consideration is also dismissed. In the result, the appeal of the Revenue is dismissed. ITA No. 2435/Ahd/ 2011 (By Assessee) : Assessment Year : 2008-09 15. As the facts in the present year of appeal ar .....

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