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2015 (3) TMI 925 - ITAT AHMEDABAD

2015 (3) TMI 925 - ITAT AHMEDABAD - TMI - Treatment to loss - business loss v/s speculation loss - Held that:- Ld. Counsel for the assessee has demonstrated that one of the objects of the assessee-company is financing and major portion of the capital is deployed for the purpose of advancing loan. Even in the balance-sheet, the interest income is shown as ₹ 64,98,590/-. Therefore, we do not find any good reason to interfere into the order of the ld. CIT(A) directing the Assessing Officer to .....

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assessee could not offer explanation as to why such transactions were required to be executed between the family members leading into artificial losses.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 d .....

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hrough 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 prejudice to above, if at any stage it is held that the sham transactions are genuine, then also, the share transactions are in the nature of speculative tr .....

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sh Karnani, Sr. DR. ORDER Per Bench : These two sets of cross-appeals pertaining to the Assessment Years 2007-08 and 2008-09 by the assessee and Revenue are directed against the orders of the ld. Commissioner of Income Tax (Appeals)-XIV, Ahmedabad dated 28.01.2011 and 14.07.2011. Since common grounds are involved, all these four appeals were taken up together for hearing and are being disposed of by this consolidated order for the sake of convenience. 2. Firstly, we take up the appeals pertainin .....

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e Assessing Officer. 3. It is therefore, prayed that the order of the ld. Commissioner of Incometax( A)-XIV, Ahmedabad may be set-aside and that of the Assessing Officer be restored. 4. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and assessment u/s 143(3) of the Income-tax Act (hereinafter referred to as "the Act") was framed vide order dated 30/12/2009, whereby the Assessing Officer disallowed the adjustments of business loss and made a .....

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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 .....

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xplanation to Section 73 would come into play only when the adjustments u/s 70 & 71 of the Act is made. He placed reliance on the order of the Assessing Officer and submitted that the Assessing Officer has given a finding that the loss is nothing but a speculation loss. 7. On the contrary, the ld. Counsel for the assessee submitted that it is evident from the memorandum of the association of the assessee-company that one of the businesses of the assessee-company is financing. He submitted th .....

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peculative loss since the provisions of section 73 are not applicable in the instant case. He also submitted that the ld. CIT(A) has rightly held that the gross total income is to be computed first applying provisions of section 70 & 71 of the Act and then only the applicability to Explanation to Section 73 can be made. Accordingly, loss in the business of trading in shares and securities is to be set-off against the profit of other business as per the provisions of Section 70 of the Act. He .....

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ome. 8. We have heard the rival submissions, perused the orders of the lower authorities and material available on record. We find that the ld. CIT(A) has decided this issue as under:- 2.6. I have considered the facts of the case and submission of the appellant and perused the material available on record. 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 gai .....

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re 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 prese .....

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e different. During the course of hearing the ld. Counsel for the assessee has drawn our attention to the balance-sheet to buttress its contention that the major capital is applied for the business of financing. Therefore, the benefit of exception is available to the assessee. We find that the Revenue has not controverted this contention of the ld. Counsel for the assessee that one of the objects of the assessee-company is financing. It is not controverted that the major capital is deployed for .....

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of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares.] 9. Ld. Counsel for the assessee has demonstrated that one of the objects of the assessee-company is financing and major portion of the capital is deployed for the purpose of advancing loan. Even in the balance-sheet, the interest income is shown as ₹ 64,98,590/-. Therefor .....

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on 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 am .....

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upported by comprehensive evidences in form of purchase/sale invoice or debit/credit notes from the respective parties. The ld. Counsel for the assessee also submitted that the off market transactions are legal and valid transactions and not barred by the Stock Exchange. He further submitted that the transactions of purchase and sale of shares, though being off-market transactions and not through Stock Exchange, were entered into at the prevailing market price on the date of transaction. The led .....

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in support of his observation that the transactions of purchase and sale of shares with various individuals are sham transactions. 12. On the contrary, ld. CIT-DR supported the orders of the authorities below and submitted that the findings on facts have been given by the Assessing Officer that even before the date of purchase of shares, shares have been sold. He submitted that there is no infirmity in the orders of the authorities below. 13. We have heard the rival submissions, perused the ord .....

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urchase price Date of Sale Sale price Loss incurred 1. Gunvant T. Shah (HUF) 31-8-06 3300000 30-8-06 2800000 500000 2. Chandrika K. Shah 23-8-06 3500000 23-8-06 2730000 770000 3. Ashok T. Shah (HUF) 21-8-06 3150000 18-8-06 2650000 500000 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 38500 .....

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n 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 persons covered u/s. 40A(2)(b) is proposed to be considered as sham transaction which is not legal and tenable on the following grounds. Firstly the transactions entered in to by the Company with various individuals for purchase and sale of shares are genuine transactions, though t .....

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closing Xerox copy of debit / credit note. Moreover, we are also submitting Ledger A/c of such parties which also reflects the actual transactions and payment made through cheques to such parties which shows the genuineness of the transaction. Further the invoices also carries name & address of such parties and they have paid tax on such income and therefore these transactions cannot be considered as benami or sham transaction in the eyes of law. We are enclosing Xerox copies of Income Tax r .....

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ons. The assessee could not offer explanation as to why such transactions were required to be executed between the family members leading into artificial losses. 2. All transactions were off market transactions and were not executed through stock exchange. 3. 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. 4. Bank pass book reveals that the assessee c .....

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icial 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 .....

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8. Further, reliance is placed on the recent judgement of Hon'ble Karnataka High Court in the case of CIT and JCIT Assessment - Special Range Vs. Sharath Investments Pvt. Ltd. (Manu/KA0440/2009) dated 18-8-2009 in which it was held that loss incurred by the assessee in the sale of shares due to a personal settlement entered into between the directors of the assessee company and the directors of a sister group of companies is not allowable. 9. Further reliance is placed on following decision .....

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in this case on such transactions. Sec. 43(5) defines "speculative transaction" which means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips,. Explanation 2 to s. 28 of the Act provides that where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business, i.e., .....

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