TMI Blog2016 (9) TMI 592X X X X Extracts X X X X X X X X Extracts X X X X ..... dition - Decided against revenue - ITA No.1429/Kol /2012 - - - Dated:- 3-8-2016 - Shri N.V.Vasudevan, Judicial Member and Shri Waseem Ahmed, Accountant Member For The Appellant : Shri Debasish Banerjee, JCIT-SR-DR For The Respondent : Shri S.M.Surana, Advocate ORDER PER Waseem Ahmed, Accountant Member:- This appeal by the Revenue is arising out of order of Commissioner of Income Tax (Appeals)-VIII, Kolkata in appeal No.75A/CIT(A)-VIII/Kol/11-12 dated 06.07.2012. Assessment was framed by ITO Ward-9(1), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 07.09.2011 for assessment year 2009-10. Grounds raised by Revenue are as under:- 1. That on the fact and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of ₹ 1,05,36,000/- made on account of inflation of purchase price of 160000 equity shares of Gujrat Heavy Chemicals Ltd. 2. That Ld. CIT(A) has erred in not discussing the issue raised in ground No.1 by the assessee s appeal before him which runs as under: That on the facts and circumstances of the case the learned A.O erred in coming to the concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 92/- per share for total consideration of ₹ 1,47,20,000/- in off market on 29.08.2008 through a broker namely M/s Puskar Banijya (MPB for short). The assessee has valued the aforesaid shares at the end of financial year as on 31.03.2009 as closing stock (trading assets) at ₹44.80 lacs. On question by AO, assessee has submitted a copy of the purchased bills of MPB and market quotation of the shares as on 31.03.2009. The AO observed that the value of the shares of GHCL has drastically came down from ₹ 92/- per share to ₹ 27.85 per share as on 31.03.2009. During the course of assessment proceedings, AO observed that the payment for purchase of shares from MPB was made on 17.03.2009 and the shares were transferred to the Demat account of the assessee on 28.03.2009. Accordingly, AO sought clarification from assessee by issuing show cause notice stating that why the share value as on 15.03.2009 should be considered as purchase price of the share. In compliance to the notice, it was submitted by assessee that its books of account are maintained on mercantile basis and shares were originally purchased on 29.08.2008. Therefore, the price prevailing on the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCRA the assessee submitted that an exception has been provided u/s 14(2) of SCRA Act which says that nothing shall affect the right of any person other than a member of a recognized stock exchange to enforce such contract or to recover any sum under or in respect of such contract if such person had no knowledge that the transaction was in contravention of any bylaws specified under the Act. In the instant case, neither party was aware of the law as stated above. 4.1 The allegation of AO that there was a single transaction for the purchase/sale of share in the last three years and therefore it should be treated as investment is factually incorrect. The assessee has made sale purchase of the share in the AY 2008-09 purchased ₹ 63,96,075/- and sale at ₹ 25,14,958/- and AY 2010-11 purchase ₹3,71,68,025.20 and sales at ₹3,61,38,633.41. After considering the submission of assessee and other relevant records Ld. CIT(A) has deleted the addition made by AO by observing as under:- I have carefully considered the submission of the appellant including the judgment of the referred case laws and the relevant Provisions of SCRA, 1956, perused the facts of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luation of the closing stock and the situs of its arising or accrual is where the valuation is made Chairup Sampatram v. CIT [1953] 24 ITR 481 (SC). On the facts and in the circumstances of the case, the purchase having established with documentary proof and the market value as at the close of the financial year also having been corroborated with material evidence there is no reason to hold that the transaction is a sham. Therefore, it is held that the addition of ₹ 10,53,6000/- made by the Assessing Officer on account of inflation of purchase price in unjustified and unwarranted. The same is hereby deleted and this ground of appeal of the appellant is decided in favour of the appellant. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 5. Before us Ld. DR has filed written submission which is reproduced below:- The facts of the case in brief are that the appellant purchased 160000 equity shares of M/s. Gujarat heavy Chemicals Ltd. at off market from Puskar Baniya (P) Ltd. under the contract of purchase date 29.08.2008 the appellant did not sell the shares and showed them as closing stock as on 31.03.2009 and valued at cost or market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Spot delivery contract means a contract which provides for- (a) Actual delivery of securities and the payment of a price therefore either on the same day as the date of the contract or on the next day, the actual period taken for dispatch of the securities or the remittance of money therefore through the post being excluded from the computation of the period aforesaid if the parties to the contract do not reside in the same town or locality; (b) Transfer of the securities by the depository from the beneficial owner to the account of another beneficial owner when such securities are dealt with by a depository; Therefore, combined reading of section 17, definition of Spot delivery and section 18 of SCRA show that two persons can transact without involvement of share broker, who is member of recognized stock exchange, only when the delivery of share is given and payment were also made at most, within 24 hours of transaction. In the instant case, the assessee-company did not purchase through any share broker, actual delivery of shares did credit/take place after 6 month 23 days and payment of price was made after 6 Months 19 days. In view of the above fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knowledge that the transaction was in contravention of any bylaws specified in clause (a) of subsection (3) of section 9. In the present case, neither party was informed of the state of law as is obvious from the acts of the case. It is now accepted that there could be no presumption that everybody knows law vide MP Sugar Mills Ltd. 118 ITR (SC). This view has been taken because the state has now diverse controls and also participation in every walk of life as has to be in a welfare state so much so that it is not possible for everyone to keep abreast of the galore of laws the legislature churns out. The argument of the appellant is self-defeating. The illegal purchase transaction is hit by explanation 1 to section 37 (1) which is quoted as follows: For the removal of doubts it is hereby declared that any expenditure incurred by assessee for any purpose which is an offence or which is prohibited by law shall not deemed to have incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. The above provision of law is unambiguous and there is no exception on grounds of ignorance etc. as purported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR filed written submission which is placed on record. On the other hand, Ld. AR submitted paper book which is running from pages 1 to 155 pages and cited case laws. 6.1 From the foregoing discussion, we find that assessee has purchased share of the GHCL on 29.08.2008 but made the payment for the purchase of share in the month of March 09 and also shares were transferred to the demat account of assessee in the month of March 09. The value of share came down drastically on the balance-sheet date as on 31.03.2009 as a result due to decline in the value of shares a loss of ₹1,05,36,000/- was booked in its books of account. We find that AO treated this loss claimed by assessee as illegal loss and it was created with the sole purpose of avoiding the tax liability against the income from the genuine source of the assessee s business. However, Ld. CIT(A) deleted the addition made by AO. Now the question before us is as to whether the loss arising as a result of valuation of closing stock of share is genuine business loss in the aforesaid facts and circumstances. At the outset, we find that shares were purchased on 29.08.2008 from MPB and on the date of purchase stock of share wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore us by learned Counsel that after completion of the assessment of the assessee, scrutiny assessment of the seller was taken up and in such scrutiny assessment, the sale of the have been treated to be genuine. This fact was also not examined by the assessing officer from the assessment records of the seller, as the PAN was given. We are of the view that in case the transaction have been treated as genuine in the hands of the seller, the same very transaction cannot be non-genuine in the hands of the purchaser. Apart from this, learned Counsel also relied on the judgement of Hon'ble Gujarat High Court in the case of CIT v. Prudent Finance (P.) Ltd. (2014) 225 Taxman 0125 (Gu)), wherein exactly identical issue was taken up and the facts discussed by Hon'ble High Court as under: - Respondent of Tax Appeal No. 1003/2013 and other connected appeals is one Prudent Finance Pvt. Ltd. a company registered under the Companies Act. One Nitin B. Parikh and other members of his family referred to as Nttin B. Parikh group of assessee who had control over others, was subjected to search action under section 132 of the Act. It was found that large number of shares were traded betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as that of the Tribunal, in our opinion, call for no interference. In view of the above facts and identical issue taken up by Hon'ble Gujarat High Court in the case of Prudent Finance (P.) Ltd., supra, we are of the view that the transaction to unrelated parties i.e. off market transaction, there was no evidence in the present case also which suggests that the shares were artificially sold at a lower rate than the prevailing market rte. Even the assessing office could not bring anything on record, which suggests that the selling rate was lower than the market rate. Respectfully following Hon'ble Gujarat High Court, we confirm the order of Commissioner (Appeals) and the issue of revenue s appeal is dismissed. Further we also relying on the judgment of Hon'ble Gujarat High Court in the case of CIT v. Prudent Finance (P) Ltd. (2014) taxman 125 where the head note as under:- -Business loss Allowability Genuineness of loss on off market transactions Assessee-company found to be treated in off market share transactions with its related group of persons as well as with unrelated groups of persons. AO disallowed losses on impugned transactions on the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ans. Market reputation, profit and loss account and balance sheet. Q. No.4 Do anyone introduce loan creditors to you? Ans. Sometimes friends or other way loan creditors know that the company tenders loan. Q. No. Would you note the feasibility report in any register? Ans. No, no any staff records the feasibility records. I only memorized reports of the company. I don t memorize the nos. of the company to whom he loans were given for Financial Year 2008-09. Q. No. 13 How many staff are in your company at present? Ans. I do not know. Q. No. 14 What are the sources of loan tendered by your company? Ans. I am not sure about it. Q. No. 15 Do your company do other business other than tendering loans? Ans. No. Q. No. 16 Are there any fixed assets of the company? Ans. I don t know about that. From the statement of said director, AO observed that the director of assessee-company is just acting as signatory only and has no role in the dayto- day affairs of the business of assessee-company. Therefore, the expense incurred for ₹15 lakhs on account of KIP are not having any business connection and AO disallowed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer cannot sit on the chair of the businessman and dictate terms as to how the business would have been run. It was incumbent on his part to ensure that the claim is within the four corners of the provisions of the Act and the scheme. In the case of CIT vs. Rajan Nanda [2012] 205 Taxman 138/18 Taxmann.com 98 (Delhi), it is held that where the assessee company had taken Keyman insurance policies on life of its chairman and director but in subsequent year said policies were assigned to chairman and director receiving surrender value from them, and, for the remaining period of all those policies, the insurance premiums were paid by the assignee, the deduction claimed towards premium so paid (less surrender value received back) could not be disallowed by the Assessing Officer on the ground that it was a colourable device adopted by the assessee-company to claim business expenditure and that the expenditure was not wholly and exclusively for the business of the assessee-company. One of the broad principles for allowance of deduction under sec. 37(1) of the Act as laid down by the Hon'ble Supreme Court in CIT v. Chandulal Keshavlal Co. [1960] 38 ITR 601 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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