TMI Blog2016 (11) TMI 1242X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, we find merit in the argument of the Ld. Counsel for the assessee that the loss incurred by the assessee on sale of shares cannot be treated as non-genuine loss. It has been held in various decisions that AO cannot enter into the shoes of the assessee and it is the businessman who knows better how to conduct its business. The Hon’ble Bombay High Court in the case of CIT Vs. Salitho Ores Ltd. (2010 (9) TMI 849 - Bombay High Court ) has held that an expenditure incurred for purpose of business cannot be refused on the ground that the expenditure was imprudent. The Hon’ble High Court held that when it was not the case of the revenue that the expenditure was not bonafide or that it was incurred by way of diversion of profits to a related person or a sister concern of the assessee the revenue could not have gone into the question of expediency of expenditure incurred and/or expediency of hiring of 4 dozers that was a matter of commercial expediency and the assessee was the best judge of it. It was accordingly held that the expenditure was an allowable expenditure. So far as the argument of the AO without prejudice that the loss can be allowed as a long term capital loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the AO noted that a sum of ₹ 4,10,00,000/- has been debited to the profit and loss account with the narration purchase of shares . He, therefore, asked the assessee to furnish details of said purchase and sale of shares during the year relevant to the assessment year 2010-11. In response to the said query it was replied by the assessee as under which has been reproduced by the AO in the body of the assessment order : 6.1 During F.Y. 2008-09 relevant to A.Y. 2009-10 the assessee company had invested ₹ 4.10 crores in equity shares of Western Medical Solutions Pvt. Ltd., Mumbai with the objective to realize better price in due course and gain reasonable amount as profit on funds invested. 6.2 After making the investment, the assessee company found that the company where the money was invested, i.e. Western Medical Solutions Pvt. Ltd., Mumbai is not performing well and the projections and proposal given in 2007 could not be achieved to a large extent. The assessee company found that the investment has become dead. Considering these negative developments the Board of Directors of the assessee company has decided to sale these shares and accordingly passed a resol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd loss account of the previous year 2009-10 whereas the shares had been acquired on 20-11-2008 which falls in the previous year 2008-09. According to the AO the purchase price of the shares should have been debited to the profit and loss account of the earlier year whereas the purchase price of ₹ 4,10,00,000/- has been shown in the balance sheet of the earlier assessment year, i.e. 2009-10 as advance towards purchase of shares. 7. Referring to the decision of the Mumbai Bench of the Tribunal in the case of Bombay Oil Industries Ltd. Vs. DCIT reported in 82 ITD 626 where it has been held that tax planning can be tolerated, however, tax evasion by dubious modes cannot be countenanced, the AO disallowed amount of ₹ 3,28,00,000/- claimed by the assessee on account of sale of shares of Western Medical Solutions Ltd. during the year by holding that the same is not a genuine business loss. He held that both the purchase and sale of transaction of shares of Western Medical Solutions Ltd. have been given in the profit and loss account for the A.Y. 2010-11 to reduce the taxable income of the assessee company and to evade payment of tax. Without prejudice to the above, the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business income/loss. The AO had applied different principles to two transactions having same nature. The sale of shares of Western Medical Solutions Pvt. Ltd has been treated as investment and loss has been computed as long term capital loss. Sale of land has been treated as business transaction and profit has been treated as business income. It was further submitted that if at all the treatment of stock in trade is not possible then same treatment be given to both assets. Considering the facts of the case and provisions of law, it was requested to allow business loss of ₹ 3,38,00,000/- on sale of shares. 10. However, the CIT(A) was also not satisfied with the arguments advanced by the assessee and upheld the action of the AO by observing as under : 6.3 I have carefully considered the facts of the case and rival contentions. On perusal of the same, it has been noticed that the appellant company has purchased 41 Lakh shares of M/s. Western Medical Solutions Pvt. Ltd., on 20/11/2008 for consideration of ₹ 4,10,00,000/- out of total shares issued and subscribed ₹ 4,12,00,000/-. Therefore, about all the shares i.e. 99.51% shares were held by the appellant com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6/01/2010 to M/s Dev Construction Pvt. Ltd. In view of the above facts and discussion, I am of the considered view that the loss of ₹ 3,28,00,000/- claimed by the appellant on sale of shares is non-genuine loss and the transaction is sham transaction. The A.O. is justified in disallowing the said loss of ₹ 3,28,00,000/- as business loss. The addition of ₹ 3,28,00,000/- made by the AD. is confirmed. Ground No.2 is dismissed. 11. Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 12. The Ld. Counsel for the assessee strongly opposed the order of the CIT(A). He submitted that whenever a profit is shown on the purchase and sale of shares the department normally treats the same as business income while the assessees contend that it is a capital gain. Referring to the decision of the Hon ble Bombay High Court in the case of CIT Vs. Gopal Purohit reported in 336 ITR 287 he submitted that the Hon ble High Court in the said decision has held that assessee can do both trading in shares as well as investment in the shares. The difference between both is depending on the intention of the assessee at the time of purchase of the shares and en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry care hospital along with 55 studio apartment hotel at Thane. He submitted that as per the said letter Jupiter Lifeline Hospital proposed to extend its activities by building more and more hospitals together with hotels and therefore the assessee saw a good opportunity of buying the shares of Western Medical Solutions Pvt. Ltd which inturn was holding shares of Jupiter Lifeline Hospitals which could be disposed off in a short span and earn profit. He submitted that the assessee company found the proposal to be worthwhile and therefore it passed a resolution during the board meeting held on 26-07-2007, a copy of which is placed at page 51 of the paper book. In the said resolution it was resolved to invest in upcoming hospital project of Jupiter group through purchase of shares of Western Medical Solutions Pvt. Ltd. He submitted that the proposal of the assessee company was accepted and Western Medical Solutions Pvt. Ltd. passed a resolution in the board meeting held on 20-11-2008 for issue of 41,00,000 shares of ₹ 10/- each at par to the assessee. He submitted that in the impugned assessment year the assessee was in need of funds for its own construction projects and also re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I.T. Act. For the above proposition he referred to the profit and loss account enclosed as page 63, computation of income at pages 60 to 62 and the assessment order for A.Y. 2009-10 at pages 77 and 78. He submitted that during A.Y. 2010-11 the assessee was in need of funds for its own construction projects. Since Jupiter Lifeline Hospital was not able to build more hospitals and hotels as planned due to non-availability of funds the assessee decided to dispose of the shares. Therefore, the company first requested Western Medical Solutions Pvt. Ltd. for buyback of shares allotted. Since Western Medical Solutions Pvt. Ltd. expressed its inability to buyback of shares the assessee resolved to sell the share capital of Western Medical Solutions Pvt. Ltd. to a prospective buyer. In the board meeting held on 05-01-2010 it was decided to sell the shares at a value of ₹ 82,00,000/- to the willing buyer being Dev Construction Pvt. Ltd. The minutes of the meeting is placed at page 53 of the paper book. He submitted that the projects proposed in 2007 by Western Medical Solutions Pvt. Ltd. taken up by Jupiter Lifeline were still not taken up and there was huge gestation period for that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch as copies of bills, contract notes, receipts for sale consideration, share particulars etc. The appellate authority also found that the AO did not prove these documents or evidences to be false or bogus. Accordingly, the claim of loss made by the assessee was allowed. He submitted that the principles laid down in the above decision are squarely applicable to the facts of the present case since in the instant case also the AO has not proved that the details submitted by the assessee are false or bogus. 20. So far as the decision relied on by the AO and the CIT(A) in the case of Bombay Oil Industries (Supra) is concerned he submitted that the said decision is not applicable to the facts of the present case and is distinguishable. In that case the assessee had resorted to device of manipulated transaction by preparing certain documents and agreement so that it can book substantial capital loss in order to set off capital gains that arose from liquidation of one of its fully owned subsidiary company. Further, the sale was made to the related party, who was under the control and influence of the assessee company because of the business connection and was the main distributor of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has shown loss of ₹ 3,28,00,000/- on account of sale of shares of Western Medical Solutions Pvt. Ltd. which were purchased for ₹ 4,10,00,000/- on 20-11-2008 and sold on 06-01-2010 at ₹ 82,00,000/-. The AO disallowed the claim of the assessee on the ground that the same is not a genuine business loss and both the purchase and sale transactions of shares of Western Medical Solutions Pvt. Ltd. have been given in the profit and loss account to reduce the taxable income of the assessee company and to evade payment of tax. For the above proposition, the AO relied on the decision of the Mumbai Bench of the Tribunal in the case of Bombay Oil Industries Ltd. (Supra). Further, without prejudice to the above the AO held that the loss of ₹ 3,28,00,000/- will have to be assessed as long term capital loss as the shares of Western Medical Solutions Pvt. Ltd. have been held for a period of more than 12 months and the long term capital loss can only be carried forward and set off against the long term capital gain in the subsequent assessment years as per provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to build more hospitals and hotels as planned and since the assessee was in need of funds it decided to dispose of the shares at loss. Since Western Medical Solutions Pvt. Ltd. expressed its inability to buyback the shares the assessee sold the shares to the prospective buyer M/s. Dev Constructions Pvt. Ltd. Under these circumstances, we have to see as to whether the claim of loss by the assessee has to be allowed as a genuine business loss or the loss to be disallowed as none-genuine and sham transaction. 27. From the details furnished by the assessee in the paper book we find the shares of Western Medical Solutions Pvt. Ltd. were shown in the books under the head loans and advances as on 31-03-2009 which is evident from pages 63 and 66 to 74 of the paper book. On being questioned by the Bench as to why the shares are shown under the head current assets loans and advances the Ld. Counsel for the assessee submitted that shares were allotted to the assessee on 12-12-2009 with distinct numbers 2000 to 41,20,000 vide Registered Folio No.5 Certificate No.22. We find clause 19 of the Memorandum of Association of the company authorizes the assessee to acquire, take up and ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of the group companies treating it as a manipulated or bogus loss. The Tribunal found that the assessee had produced all the required primary evidence such as copies of bills, contract notes, receipts for sale consideration, share price etc. relating to the sale of shares. The appellate authorities also found that the AO did not prove these documents or evidence to be false or bogus. Accordingly, the claim of loss made by the assessee was allowed. On further appeal by the Revenue the Hon ble High Court has held as under : 21. We have given our anxious consideration to the reasons given and findings arrived at by the appellate authority and the Tribunal. We find from the order of the appellate authority that with the material available on record he had proceeded to adjudicate the claim of the assessee. The appellate authority on scrutiny of the material available on record found that the assessee had produced all the required primary evidence such as copies of bills, contract notes, receipts for sale consideration, share particulars, etc., relating to the sale of shares. The appellate authority also found that the assessing authority did not prove these documents or evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction is such that the judicial process may accord its approval to it. The Tribunal has analysed the materials on record to come to a conclusion that the loss on account of sale of shares was a genuine and that the said loss has occurred in the course of business and cannot be added to the income of the assessee in any manner. Furthermore, the Revenue has failed to demonstrate as to how the loss on account of sale of shares is not genuine but a colourable device. We, therefore, answer the substantial question of law No.4 raised by the Revenue against them and in favour of the assessee. 30. Since in the instant case the assessee has submitted all the details and the revenue authorities have not proved these documents as false or untrue, therefore, we do not find any reason as to why the loss of shares should not be allowed as business loss. 31. We find the Hon ble Supreme Court in the case of Sutlej Cotton Mills Supply Agency Ltd. (Supra) has held that a single transaction of purchase and sale outside the assessee s line of business may constitute an adventure in the nature of trade. It is not necessary to constitute trade that there should be a series of transactions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is a question of law.. It was accordingly held that the loss of ₹ 5,44,580/- suffered by the assessee on the sale of Jupiter shares and East and West shares is a trading or revenue loss which is allowable in computing its business income (page 488 and 489) 33. It has been held in various decisions that every business decision by an assessee may not result into profit. Sometimes the assessee may have to incur loss also. Therefore, merely because the assessee has incurred loss on account of purchase and sale of shares the same cannot be treated as non-genuine and sham especially when the various other documents furnished by the assessee have not been proved to be false of bogus. 34. So far as the decision of the Mumbai Bench of the Tribunal in the case of Bombay Oil Industries Ltd. (Supra) which has been relied on by the AO and CIT(A) is concerned we find the said decision is not applicable to the facts of the present case and is distinguishable. The Tribunal has given a finding that in that case the assessee had resorted to device of manipulated transaction by preparing certain documents and agreement so that it can book substantial capital loss in order to set off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at ₹ 90,63,325/- whereas the closing stock of the said land as on 31-03-2010 has been shown at ₹ 1,000/- only. The AO, therefore, asked the assessee to justify the above claim which has resulted into claim of business loss of ₹ 90,62,325/-. The assessee contended that it has purchased land from various agriculturists at Hyderabad after obtaining opinion from retired High Court Judge with the object to develop the said lands by way of future projects. However, on a later date it was found that the title of the said land is not clear and various litigations were pending in respect of the said lands. Considering these facts, the land has been valued at token amount of ₹ 1,000/-. 38. However, the AO was not satisfied with the explanation given by the assessee and disallowed the claim of loss of ₹ 90,62,325/- by observing as under : I am unable to accept the fact that the assessee who has been in the Reality business would have made an investment of ₹ 90,63,325/- in the land at Hyderabad without ascertaining whether it was getting a clear title. No documentary evidence has been filed by the assessee to establish that it does not have a clear t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advanced by the assessee and upheld the order of the AO by observing as under : 7.3 I have carefully considered the facts of the case and rival contentions. On perusal of the same, it has been noticed that the appellant has claimed to have purchased land at Hyderabad for consideration of ₹ 90,63,325/-. The appellant has claimed that the said land which is under litigation and title of which is not clear has been purchased on the basis of opinion of retired High Court Judge. The appellant has further claimed that in the year under appeal, it has been noticed that the said land is not having clear title and is under litigation and hence the value of the said land has been claimed by the appellant as closing stock at ₹ 1,000/- as token amount. The above contentions of the appellant are not supported by any evidence as no evidence in support of the above claims has been filed either before the A.O. or before the undersigned. It is settled position of law that the claims of expenditure, business loss, deductions are to be supported by evidence and the assessee is duty bound to prove the said claims with evidence. Therefore, in the absence of any evidence in support of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty) and that the concerned registering authority without strictly following the mandatory provisions of the Registration Act 1908 and instruction of the governments from time to time to be followed for registration of documents and much less without following the mandatory provisions under section 6D of the A.P. Rights in Pattedari Pass Books Act 1971 proceeded with registration of such documents even without verifying the title documents and link documents of the executants in the document in Annexure II in question. 44. The Authority further observed in page 7 of the order (Page 327 of the paper book) that it is alleged in all the documents in Annexure II represented Vendees who were recently arrested in Vikarabad town, by Police for creating false and fake documents of original land owners and others vide list in Annexure II. The parties therefore requested the authorities to cancel all the documents registered without titles illegally. Thereafter the Authority has examined the case in detail including the documents obtained from Sub registrar. 45. From the records it was noticed that the 38E certificate holder ownership has not been updated in Revenue Records in MRO Shami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is in appeal before us. 50. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has shown the opening stock of land at Hyderabad as on 01-04-2009 at ₹ 90,63,325/- whereas the closing stock of the said land as on 31-03-2010 was shown at ₹ 1000/-thereby claiming business loss of ₹ 90,63,325/-. We find the AO disallowed the claim of the assessee treating the loss as non-genuine on the ground that assessee could not produce any documentary evidence to establish that it does not have a clear title of the land purchased in Hyderabad and the recourse which it had taken to recover its money or obtain a clear title of the land. We find the Ld.CIT(A) upheld the action of the AO on the ground that the assessee could not substantiate with any documentary evidence to support its claim that the said land is not having clear title and is in litigation for which the value of the said land was shown at ₹ 1000/- as against ₹ 90,63,325/- shown as the ope ..... X X X X Extracts X X X X X X X X Extracts X X X X
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