TMI Blog2012 (11) TMI 1218X X X X Extracts X X X X X X X X Extracts X X X X ..... cuit transactions and clearly structured one. No merit in the findings of the CIT(Appeals). Having regard all the findings of the CIT(Appeals) cannot be sustained and, hence, the same are reversed. Further, an offer to surrender the impugned loss, subject to no penal action, made by the appellants before the AO, in the course of assessment proceedings, is an important piece of evidence, hence, cannot be ignored lightly. Consequently, the findings of the AO, as recorded in the impugned assessment order, are restored. - ITA No. 948/Chd/2011, ITA No. 949/Chd/2011, ITA No. 950/Chd/2011, ITA No. 951/Chd/2011 - - - Dated:- 29-11-2012 - Sushma Chowla (Judicial Member) And Mehar Singh (Accountant Member) For the Appellant : N. K. Saini For the Respondent : D. K. Goyal ORDER Mehar Singh (Accountant Member) These above captioned four appeals filed by the Revenue, were considered and adjudicated by the CIT(Appeals), by way of a common order dated 28.07.2011, passed u/s 250(6) of the Act (hereinafter referred to in short as the Act ). The issue involved in these four appeals is identical one and pertains to the claim of short term capital loss, made by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o by the assessee, without there being any commercial contents therein. Ld. 'DR' placed reliance on the two direct decisions of the jurisdictional High Court, in the case of Balbir Chand Maini V CIT and another 340 ITR 161 (P H) and Somnath Maini V CIT 306 ITR 414 (P H). In the ultimate analysis, ld. 'DR' contended that CIT (Appeals) has completely disregarded the entirety of the surrounding facts and circumstances of the case and allowed the appeals of the appellants, without bringing cogent and corroborative evidence on record, to support the genuineness of such transactions. Ld. 'DR' placed reliance on the order passed by the AO and findings contained therein and prayed for restoration of the findings of the AO. 4. Ld. 'AR' , on the other hand, contended that AO failed to make requisite enquiries as highlighted by the CIT(Appeals), in his findings and consequently, findings of the CIT(Appeals) be upheld. Ld. 'AR', further, contended that the order passed by the CIT(Appeals) doesn t suffer from any infirmity, hence, the same deserves to be upheld. 5. We have carefully perused and considered the rival submissions, facts of the case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sources of Income other than capital gain Running Guest House and interest income Salary, House Property and interest income Interest income Interest income iii) Short Term Capital Gain i) Gain on Land 3,82,78,693/- 3,82,78,693/- 1,36,84,500/- 1,36,84,500/- ii) Loss on Shares a) M/s Arcee Ispat Udyog Ltd. 22,50,000/- 18,00,000/- 45,00,000/- 22,50,000/- b) GEEFCEE FINA/other shares 1,25,71,248/- 1,40,22,562/- 51,58,864/- 54,89,821/- iii) Sub-total 1,48,21,248/- 1,58,22,562/- 96,58,864/- 77,39,821/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal action, without conducting necessary enquiries. 5.1 The fact that the appellant admittedly acted imprudently by either purchasing shares at higher than the book value or selling at 10% of the purchase can not be valid ground to deny the loss incurred on purchase 85 sale of shares. There is no provision in the Act for substitution of actual sale consideration except u/s 50C, which is not applicable to the facts of the case. Mere fact that the rates are not acceptable to the AO as they are either low or high can not be ground to reject the claim of the appellant as held by Hon'ble Apex Court to the case of CIT Vs Karam Chand Thapar 85 Bros. (P) Ltd. (supra). While dismissing the appeal of revenue, their lordships held as under:- It is necessary to set out a few facts for an appreciation of the controversy in this appeal. In its assessment for the assessment year 1959-60, the respondent-assessee claimed deductions, inter alia, in respect of the loss on the sale of certain shares of Bharat and Chemicals Ltd. and Greaves Cotton and Co. Ltd. for the relevant previous year. The respondent-assessee had sold in the relevant previous year 25,000 shares of Bharat Starch and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Britannia Industries Ltd. Vs DCIT Ors. 238 ITR 57 after considering the basic judgment of Hon'ble Apex Court in the case of K.P. Verghese 131 ITR 597 (SC) held that no capital gain be taxed unless it is proved that there is an underhand dealing and consideration has passed more than that shown in the deed. 5.3 The AO, relying upon the case laws of JiyaJeerao Cotton Mills Ltd. Vs CIT 85 EFT (supra) and McDowell and Co. Ltd. Vs CTO (supra) , held that the appellant employed colorful device to evade tax. He has however not brought any material on record to come to the said conclusion. The Hon'ble Apex Court had an occasion to examine the ratio of the above mentioned judgments in the case of Azad Bachao Andolan Vs UOI (supra) wherein their lordships have held as under:- If the Court finds that notwithstanding a series of legal steps taken by an assessee, the intended legal result has not been achieved, the Court might be justified in overlooking the intermediate steps, but it would not be permissible for the Court to treat the intervening legal steps as non-est based upon some hypothetical assessment of the 'real motive' of the assessee-Court must deal wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action was not bogus but a genuine transaction. The purchase of shares was made on 28th April, 1993 i.e., asst. yr. 1993-94 and that assessment was accepted by the Department and there was no challenge to the purchase of shares in that year. The shares were sold through a broker, who was a registered broker of the stock exchange on the relevant date. It was also placed before the relevant AO as well as before the Tribunal that the sale proceeds have been accounted for in the account of the assessee and were received through account payee cheque. The Tribunal took into consideration that the AO had not dealt with all the documents placed before him and had simply presumed that transaction was bogus. The Tribunal was right in rejecting the appeal of the Revenue by holding that the assessee was simply a shareholder of the company. He had made investment in a company in which he was neither a director nor was he in control of the company. The assessee had taken shares from the market, the shares were listed and the transaction took place through a registered broker of the stock exchange There was no material before the AO, which could have lead to a concision that the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne contention which is unworthy of any credence. Besides, the plea of the assessee that loss was incurred due to sudden global economy melt down which crashed the share market is also devoid any merits in so far as the company under reference is a very small company whose shares are not listed with stock exchange to have any impact of the so called melt down more so there was no such trend in the share market as claimed; when the assessee allegedly entered into the share transactions of the company; as early as in Nov, 2007. Although investment in purchase of shares and sale proceeds of shares were made/received by cheques but the claim of the assessee that the security transactions were as per SEBI rules is not acceptable as I neither the company was listed with any stock-exchange nor the transactions have been carried out through 'D-Mat' A/c. The argument of the assessee that the proposed disallowance of loss from the said company is in vagary and this outlawry is not maintainable. The taxing authority is not only entitled but bound to determine the genuineness of the transactions if the parties have chosen to conceal by a device; the true character of the transaction and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to dodge the revenue and also to control the damage involved in the consequential penal action likely to be taken against him that the assessee is constrained to resort to make such offer. The assessee's offer to withdraw his claim of impugned loss subject to no penal action; cannot therefore be accepted as it is a clear cut case where the assessee has failed to prove the genuineness of impugned transactions of shares shown to be resulting in loss. In fact, the colourable device adopted by the assessee to reduce the incidence of tax has been unveiled and finding no way out; the assessee has opted to save whatever could be possible under the given facts and circumstances of the case. Reliance in this regard is placed on the judgement of the Hon'ble Apex Court of India in the case of McDowell and Co. Limited Vs. Commercial Tax office 154 ITR 148 (S.C.) wherein it has been observed by the Hon'ble Court that :- Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shares, allotted by the said unlisted Hissar based company namely M/s Arcee Ispat Udyog Ltd. The AO disallowed the impugned loss, in respect of each appellant assessee and accordingly recomputed the taxable income. Ld. CIT(Appeals) reversed the findings of the AO. It is imperative to highlight the factual details and the sequence of events/steps, which led to creation of the so called short term capital loss and consequent claim made by the appellants : i) Short term capital gains emanating as a result of sale of land by the assessee appellants. ii) The assessee appellants purchased shares from unlisted company M/s Arcee Ispat Udyog Ltd. Hissar. Each of the assessee appellant purchased shares, as mentioned in the chart above, on the same date i.e. 08.11.2007 @ ₹ 100/- per share. iii) All the assessee appellants sold shares to same Delhi based broker namely TCG Stock Brokers Ltd., on the same date i.e. 31.3.2008 @ ₹ 10/- per share. iv) As per the relevant record, the book value of such share, as on 31.3.2008, stood at ₹ 56/- and the appellant sold such shares @ ₹ 10/- per share, on the same date i.e. 31.3.2008. v) The share broker so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are transactions. Needless to say that one has to look at the whole transactions and a series of steps taken, to accomplish such share transactions, in an integrated manner, with a view to ascertaining the true nature and character of such purchase and sale of shares. The shares were purchased and sold in these cases, can not be treated as regular business transactions as the assessee appellants purchased shares, on 8.11.2007, @ ₹ 100/- per share and sold the same, on 31.3.2008 @ ₹ 10/- per share, in the face of book value of such shares sold at ₹ 56/- as on 31.3.2008. Such approach of the appellants, runs contrary to the very nature of human conduct. The Hon'ble Supreme Court, in the case of CIT V Durga Prasad More (1971) 82 ITR 540 (S.C) has categorically held that the revenue is entitled to look into the surrounding circumstances, to find out the reality of the recitals made in the documents. The relevant observations and findings of Hon'ble Supreme Court, in the matter of discharge of onus of proof and the relevance of surrounding circumstances of the case are; that though an appellant s statement must be considered real until it was shown that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. In the present case, the appellants created artificial short term capital loss, and having regard to the material and relevant facts of the case, such make-believe transactions, cannot be taken as genuine trading, in the sale and purchase of shares. Such transactions as are purely preconceived exercise, to evade tax. It is interesting to trace and track down the chain of events, in such share transactions, which lead to inescapable conclusion that the appellants were involved in circular transactions. Originally, the shares were allotted to the appellants by the said company, who in turn, sold the same, to the Broker and the said company purchased the same shares, from the said Brokers. In view of this, it is evident that the facts of the case and the conduct of the parties to such transactions speak for themselves. In tax matters, it is imperative that reality of the transactions are required to be gone into, with view to finding out the true nature of such transactions. Entirety of facts and circumstances of the present case clearly demonstrates, in a terse and telling manner that the whole transactions are not true commercial share transactions but fabricate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this, the observation of the CIT(Appeals), that onus of proof is on the AO, is contrary to the legally settled proposition, in the matter. The general rule is that onus of proof is always on the party who asserts a proposition or fact which is not self-evident. In the present case, assessee appellants are asserting the genuineness of the claim of short term capital loss by making such claim in their respective return of income, and, hence, the burden of proof squarely lies on them. The assessee appellant has furnished merely the detail of such make-belief transactions and, hence, genuineness of the transactions remains to be established. In view of such a fact-situation of the case, CIT(Appeals), is not justified, in making the observation that onus of proof lies on the AO, ignoring the factum that the assessee appellants have failed to discharge the primary onus cast on them. 10(i) It is interesting to note that CIT(Appeals), observed that the AO has failed to discharge the burden, cast on him to establish that the appellant did not purchase or sell the shares. Thus, the CIT(Appeals) has sought to shift the burden of proof on the AO, which is not legally tenable. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situation does not bear even the semblance or resemblance, to the fact-situation of the case relied upon by the CIT(Appeals). 10(iii) Ld. CIT(Appeals), further, placed reliance on the decision of Hon'ble Supreme Court, in the case of K.P.Verghese 131 ITR 597 (S.C). Ld. CIT(Appeals) has misread and misapplied the ratio laid down by the Hon'ble Supreme Court, in the case of K.P.Verghese (supra). In the present case, details of transactions are plain and clear and, hence, there is no need, to prove such transactions, within the contemplation of the ratio laid down by the Hon'ble Supreme Court, in the context of facts of the decision in the case of K.P.Verghese (supra). In the present case, integrity of the transactions of purchase and sale of shares and surrounding circumstances of the case, as relied upon by the AO, clearly proves that such transactions were make belief transactions and, hence, resultant short term capital loss was rightly disallowed by the AO. 10(iv) Ld. CIT(Appeals) placed reliance on the decision of the Hon'ble Supreme Court in the case of Union of India V Azadi Bachao Andolan 263 ITR 706 (S.C). Ld. CIT(Appeals), and consequently, extracted o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prising of five judges, in McDowell Co. Ltd. V Commercial Tax Officer (1985) 154 ITR 148 (S.C), still holds the field, having regard to the fact-situation of a particular case, as it has not been reversed or overruled by the decision of the Divisional Bench of the Hon'ble Supreme Court, in the case of Needless to state here that the ratio of any decision has to be understood in the context, it has been rendered. It is settled proposition that judicial precedents cannot be applied in a perfunctory manner, as has been done by the ld. CIT(Appeals), in the present case. The fact-situation of the present case, as discussed above, with circuit share transaction, having no regard to the market factors, determining rate of purchase sale of such shares, clearly point to a case of non-genuine nature of such transactions. Thus, the findings of the AO, vividly unmasking the true nature of such transactions, remains un-rebutted, at the level of CIT(Appeals), by way of findings based upon credible and cogent evidences, brought on record. 10(vi) Ld. CIT(Appeals), further, placed reliance on the decision of the Hon'ble jurisdictional High Court, in the case of CIT V Anupam Kapoor 29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered by the Hon'ble Supreme Court, whereby substance of the matter has been recognized as a valid material, to find out the truth and true nature of any transaction. The decisions of the Hon'ble Supreme Court relied upon by the AO, as discussed earlier, supports this view. Therefore, having regard to the fact-situation of the present case and the entirety of the facts and circumstances of the case, including the nature of evidences filed by the assessee appellants, in the matter of such share transactions, it cannot be said that facts of the case, relied upon by the CIT(Appeals), are similar to the facts of the present case. Therefore, decision relied upon by the CIT(Appeals) is not applicable to the facts of the present case. 11. Ld. CIT(Appeals) referred to the decision of the Hon'ble Supreme Court, in Pullangode Rubber Produce Co.Ltd. V State of Kerala 91 ITR 18 (S.C). Ld. CIT(Appeals), in para 5.4 of the impugned order, and also referred to the decision in Quayum V CIT 184 ITR 404 (All), to highlight the point that admission cannot be the foundation of assessment. 11(i) We have perused and considered the decisions relied upon by the CIT(Appeals). In the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ni V CIT (2008) 306 ITR 414 (P H) and Balbir Chand Maini V CIT another (2012) 340 ITR 161 (P H) and contended that the issue in question is covered by these decisions. We have carefully perused and considered the facts and the ratio of the decisions of the jurisdictional High Court, in the case of Balbir Chand Maini (supra) and Somnath Maini V CIT (supra) and found that the facts of the present case are squarely covered by this decision. The relevant and operative part of the decision in the case of Balbir Chand Maini (supra) is reproduced hereunder : The return for the assessment year 1998-99, filed by the assessee at an income of ₹ 7,93,140 was processed under section 143(1) of the Income-tax Act, 1961. Subsequently, in response to a notice under section 148, the asses-see again filed a return declaring the same income as shown in the return filed earlier. During the reassessment proceedings, the Assessing Officer found that the assessee had purchased 30000 shares of A at the rate between ₹ 2.50 and ₹ 3.40 per share, in the month of April, 1997, and out of those shares, he sold 24000 shares through a broker. The Assessing Officer came to the opinion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity. The appellant resorted to readymade scheme for purchase and sale of shares which ultimately found their last destination, to the original seller i.e. the said unlisted company. Such transactions are not genuine and natural transactions but preconceived transactions, demonstrating creation of such short term capital loss. Such transactions are mutually self-serving. It is mentioned that earning profit is a natural instinct ingrained in human beings, particularly in the businessman, unless, of course, earning of loss is also a profitable proposition, as is discernible from the factsituation of the present appeals. The appellants restored to a preconceived scheme, to procure short term capital loss, for the purpose of neutralizing the short term capital gains, by way of price-differential, in the said share transactions, not supported by market factors. Cumulative events in such transactions of shares reveals that the same are devoid of any commercial nature and fall in the realm of not being bonafide, in contents. In view of the above legal and factual discussions and judicial precedents discussed above, we are of the opinion that the findings of the CIT(Appeals) are not based ..... X X X X Extracts X X X X X X X X Extracts X X X X
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