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2012 (11) TMI 1218 - ITAT CHANDIGARH

2012 (11) TMI 1218 - ITAT CHANDIGARH - TMI - 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 .....

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raised in ITA No. 948/Chd/2011 in the case of Shri Avtar Singh S/o Shri Gurdial Singh, are reproduced hereunder as an illustrative case : 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the assessee' s claim of short term capital loss on sale of shares without appreciating the facts of the case. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing short term capital loss on sale of shares without appreciating t .....

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respect of all these appeals and stated that the transactions of purchase and sales of shares are merely make-believe version, with a view to procuring artificial and non-genuine short term capital loss, for the sole premeditated purpose of reducing the tax, on capital gains, arose out of sale of land by the assessee appellants. Ld. 'DR' vehemently contended that the transactions of purchase and sales of shares, needs to be examined, in the light of date and rate of purchase and sale of .....

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ed that it is a case of self-admission of sham transactions entered into 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 .....

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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 the relevant available records, Paper Book and relevant orders passed by lower authorities, including the judicial precedents, relied upon by the parties. The neat and undisputed facts of the case are that the assessee appella .....

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ares were allotted by the unlisted company M/s Arcee Ispat Udyog Ltd., On 8.11.2007, @ ₹ 100/-, per share and the same were sold (transferred) by the appellants, on 31.3.2008, to share broker M/s TCG Stock Broking Ltd., ₹ 10/- per share. It is very interesting and abnormal feature of such share transactions that M/s TCT Stock Broking Ltd. sold (transferred) these shares, on 12.8.2008, @ ₹ 100/- per share, to Mrs. Krishna Gupta, wife of Shri R.C.Gupta, MD and also one of the Dir .....

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.2008 31.07.2008 30.05.2008 (b) Income declared 2,39,91,210/(pages 1 to 3 of the Paper Book) 2,27,98,710/(pages 16 to 18 of the Paper Book) 41,00,420/-(pages 31 to 32 of the Paper Book) 59,21,770/- (pages 44 to 45 of the Paper Book) ii) 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) L .....

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passed u/s 143(3) of the Act. It would be pertinent and appropriate, to reproduce the findings of CIT(Appeals), with a view to appreciating the same and analyzing the grounds and material, which inspired the CIT(Appeals), to reverse the findings of the AO. The relevant findings of the CIT(Appeals) are reproduced hereunder: 5. I have carefully considered the issue and the submissions made by the AR. The AO made independent third party enquiries from M/s Arcee Ispat Udyog Ltd. regarding the purcha .....

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se & sale considerations through bank etc. Once there is an independent confirmation, disallowing the claim of loss by rejecting the documentary evidence furnished by the appellants is not justified. Before embarking upon the action of disallowing the claim, the AO should have conducted necessary enquiries and come to appropriate conclusion as per the evidence collected after giving due opportunity to the appellant. The AO failed to discharge the burden on him to establish that the appellant .....

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awing the loss claimed subject to no penal 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 n .....

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he 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 Chemicals Ltd. to K.C. Thapar and Sons Ltd., a company belonging to the same group. These shares were purchased on February 22, 1958, and were sold on March 31, 1959. The loss claimed was o/C 26,465. The Income-tax Officer concerned disallowed this loss on the ground tha .....

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ares of Greaves Cotton and Co. Ltd. on February 4, 1959, to K.C. Thapar and Sons Ltd. and claimed a loss o/C 47,878.55 on this transaction. The Income-tax Officer held that these shares had also been sold to a company belonging to the Thapar group and under the control of that group. The Income-tax Officer took the view that the motive for selling the aforesaid shares and some other share was to make losses and set them off against the profits and these transactions could not be considered to be .....

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ect of both the said lots of shares, the Tribunal pointed out that there was nothing to show that the purchase of these shares had anything to do with the control of the companies concerned. The Tribunal relied upon the circumstance the sales were at the market rates or going rates and hence there was no question of making bogus loss. On the basis of these conclusion, the Tribunal held that the losses in respect of the sales of shares of Bharat Starch and Chemicals Ltd. as well as Greaves Cotton .....

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ton 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 assesse .....

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of Westminster alive and kicking in England, but it also seems to have acquired benediction of the Constitutional Bench in India, notwithstanding the temporary turbulence created in the wake of McDowell. From the above legal position laid down by the Hon'ble Apex Court it is pertinent that it would not be permissible to come to adverse conclusion based upon some hypothetical assessment of the real motive of the appellant. 5.4 Coming to the issue of offer of surrender by the appellant, it is .....

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he taxability of receipts arising from the transactions. In this case their lordship held as under:- Taxing authorities are not entitled, in determining whether a receipt is liable to be taxed, to ignore the legal character of the transaction which is the source of the receipt and to proceed on what they regard as "the substance of the matter"-Revenue authorities are entitled and bound to determine the true legal relation resulting from a transaction and unravel any device to conceal s .....

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note for sales, distinctive number of shares purchased and sold, copy of share certificates and the quotation of shares on the date of purchase and sale were sufficient material to show that the transaction 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 register .....

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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 was simplicitier a device to camouflage activities, to defraud the Revenue. No such presumption could be .....

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ly on the basis of a presumption that the AO concluded that the assessee had paid cash and purchased the cheque. In the absence of any cogent material in this regard, having been placed on record, the AO could not have reopened the assessment. The assessee had made an investment in a company, evidence whereof was with the AO. Therefore, the AO could not have added income, which was rightly deleted by the CIT (A) as well as the Tribunal. It is settled law that suspicion, however strong cannot tak .....

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void of any merits. The assessee has admittedly never before entered into any transaction in shares before he earned huge amounts of short-term capital gains on the sale of some lands attracting substantial liability of tax payments. The contention of the assessee that in a frenzy to swiftly multiply its capital he was misguided by brokers/fixers to invest in the shares of M/s. Arcee Ispat Udyog Ltd., Hisar; is a subjective statement which is not amenable to any verification. There is no reason .....

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ompany 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 no .....

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incidence of tax. The assessee had earned huge amounts of short term capital gains which obviously attracted heavy amounts of tax liability. It is not disputed that the assessee is not entitled to so arrange his/her affairs as to avoid the burnt of taxation but the arrangement must be real and genuine. The Hon'ble Apex Court of India in Jiya Jeerao Cotton Mills Ltd. Vs. CIT & EPT 1958] 34 ITR 888 has observed. "Every person is entitled to so arrange his affairs as to avoid taxation .....

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to the assessee @ ₹ 1007- per share were ultimately and after the lapse of a small period of time; purchased by the company (its director) @ ₹ 10/- per share through a broker to give colour of genuineness to the transactions. The assessee has not been able to give any convincing reply as to why he opted for making such a huge amount of investment in the purchase of shares of a company which admittedly did not have any popular brand name and whose shares are not quoted and then sold .....

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egarding claim of loss on the sale of impugned shares; the assessee has deemed it desirable under the given facts and circumstances of the case; to withdraw his claim of loss on these shares though in the name of routine excuse of 'buying peace1 and to come out of the trauma of litigation. Actually, it is as a result of the exposure of the colourable device adopted by the assessee to dodge the revenue and also to control the damage involved in the consequential penal action likely to be take .....

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ave 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 be .....

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ares of Ms. Arcee Ispat Udyog Ltd., Hisar is hereby disallowed and added back towards the taxable gains/income of the assessee. Penalty proceedings u/s 271(l)(c) of the Act for furnishing inaccurate particulars of income are also initiated, separately. 6. A bare reading of the findings recorded in the impugned assessment order revealed that the Ld. AO placed reliance, to support his contention, in the matter, on the decision of the Hon'ble Supreme Court, in the case of Jiyajeerao Cotton Mill .....

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part of the observation of the Hon'ble Supreme Court is reproduced hereunder : 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 to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. 7. A bare perusal of the relevant records, findings of the .....

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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 assesse .....

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ood at ₹ 56/- and the appellant sold such shares @ ₹ 10/- per share, on the same date i.e. 31.3.2008. v) The share broker sold back the same shares, on 12.08.2008, @ ₹ 100/- per share, to Smt.Krishna Gupta, Director in the said company and wife of Shri R.C.Gupta, who is Managing Director in the same company, thus showing circular transactions, in the matter. vi) The shares were allotted directly by the unlisted company to the appellants and the transactions were not routed thro .....

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ares, procured by the assessee appellants with the preconceived understanding of the said unlisted company and the said broker. Further, the CIT(Appeals), ignored the surrounding facts and circumstances of the case and failed to properly appreciate the series of steps taken by the assessee appellants, as a whole and in an integrated manner, for the object of creating artificial loss. Such transactions involve the series of preconceived steps, the performance of each of which is depending on the .....

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l contents, being structured transactions, entered into with the sole intent, to reduce the tax liability. The facts and circumstances of the case, as recorded above, clearly suggest that the revenue cannot take or accept such make-believe transactions, as presented by the appellants. Truth or genuineness of such transactions must prevail over the smoke screen, created by way of pre-meditated series of steps taken by the appellants, with a view to imparting a colour of genuineness and character .....

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e 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 finding .....

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circumstances to find out the reality of such recitals. Science has not yet invented any instrument to test the reliability of the evidence placed before a Court or Tribunal. Therefore, the Courts and the Tribunals have to judge the evidence before them by applying the test of human probability. Human minds may differ as to the reliability of piece of evidence, but, in the sphere, the decision of the final fact finding authority is made conclusive by law. 8(i) The above ratio laid down by the Ho .....

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e had not been entered into, in the natural and regular course of trading activities. Having regard to the above narrated facts, it is evident that such transactions were entered into, with a view to procuring artificial short term capital loss, for the purpose of subsequently setting off the same against short term capital gains. This factum is evident from the offer of surrender made by the appellants before the AO, for surrender of short term capital loss, subject to the condition of no penal .....

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ppeals) opted to disintegrate the entire gamut of transactions and looked at each step, as an independent evidence, in favour 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 d .....

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ive 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 fabricated transactions. Such transactions were mutually self-serving. The purchase and sale vouchers of such transaction of shares are not unimpeachable documents. However, ld. CIT(Appea .....

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face value, would result in miscarriage of justice. 9. A perusal of the Paper Book reveals that the ld. 'AR' has listed certain case-laws, to support his contentions, which are listed as under : i) Smt. Alka Jain V ACIT (ITA No. 2637/D/2000 A.Y. 1996-97 (ITAT Delhi Bench). ii) Inder Kumar Bachani (HUF) V ITO 101 TTJ (450) (Luck) iii) Baijnath Agarwal V ACIT 43 DTR 149 (Agra) 9(i) We have perused and considered the fact-situation of such decisions and ratio laid down therein and found tha .....

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n him, to establish that the appellants did not purchase or sell the shares. In this specific context, it is imperative to state that it is a well settled legal proposition that burden of proof is on the appellants as the claim of short term capital loss had been made by them. The assessee appellants, except giving details of such purchase and sale of shares, failed to prove and establish the genuineness of such share transactions, with an unlisted company, which ultimately purchased such shares .....

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ts 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 fa .....

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lated u/s 143(3) sub- section (ii) of the Act. It is, further, added that CIT(Appeals), has plenary statutory powers, though not unbridled powers, in disposing of an appeal, before him. Scope of his power is co-terminus with that of the AO. He can do what ITO can do and also direct him to do what he has failed to do. The CIT(Appeals), is competent to make, further enquiries while disposing appeal, within the meaning of section 250(4) of the Act. In the present case, AO has made necessary enquiri .....

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ly disallowed the impugned claim of short term capital loss made by the appellants. 10(ii) Ld. CIT(Appeals), has placed reliance, on the decision of the Hon'ble Supreme Court, in CIT V Karam Chand Thapar & Bros., 176 ITR 535 (S.C). We have considered the fact-situation of the case relied upon by the CIT(Appeals) and found that the same is not applicable to the facts of the present case, being factually different and distinguishable. The Hon'ble Supreme Court, in that case held that T .....

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s highlighted above, are patently different and distinguishable vis-à-vis the factsituation of the case relied upon by the CIT(Appeals). Needless to say that the judicial precedent is applicable only in the context of similarity of factual-matrix of the case. In the present case, the fact-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' .....

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ase, 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 observatio .....

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on'ble jurisdictional High Court in the case of CIT V Sun Engineering Works P.Ltd. 198 ITR 297 (S.C), It is neither desirable nor permissible to pick out a word or sentence from the judgement of the Hon'ble Supreme Court diversed from the context of the question under consideration and treat it to be the complete law declared by the Court. The judgement must be read as a whole and the observation from the judgement have to be considered in the light of the questions which were before the .....

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isions or C.B.D.T. circular. The issue in the present case is to be considered having regard to the entirety of the facts and surrounding circumstances of the case and conduct of human probability. The Hon'ble Supreme Court, in that case held that indiscriminate application of the ratio decidendi of the decision, in the case of Mc Dowell & Company V Commercial Tax Officer (supra), without having any regard to the facts of each case, is not permissible. Therefore, the decision of the Hon& .....

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lds 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 p .....

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he decision of the Hon'ble jurisdictional High Court, in the case of CIT V Anupam Kapoor 299 ITR 179 (P&H). We have perused and considered the decision of the Hon'ble jurisdictional High Court and found that the same is factually different and distinguishable and, hence, same is not applicable to the facts of the present case. In the decision relied upon by the CIT(Appeals), the Tribunal found that purchase contract note, contract note for sales, distinctive number of shares, purchas .....

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tions took place through registered broker of stock exchange. In view of such evidences, it was held that AO had no material to arrive at a conclusion that such transactions were simplicitier a device to defraud the revenue. The Hon'ble jurisdictional High Court also referred to several other decisions while adjudicating the issue. Such decisions have been relied upon by the assessee. Thus, the issue was decided by Hon'ble jurisdictional High Court, in the light of factsituation of that .....

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s Arcee Ispat Udyog Ltd. Therefore, in the light of such factual background, case law relied upon by the CIT(A) is not applicable to the facts of the present case. 10(vii) Ld. CIT(Appeals) placed reliance, on the decision of the Supreme Court in the case of CIT V B.M.Kharwar. This decision has been founded on the observation of the Duke of Westminster V Commissioner of Inland Revenue (1935) 19TC 490 HL. The decision was rendered, on 13.8.1968, and since then, there are plethora of decisions rend .....

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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 .....

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erm capital loss, by recording a detailed findings in the impugned assessment order. 11(ii) Thus, having regard to the findings of the AO and fact-situation of the present case, it is evident that the assessment has not been framed on the basis of voluntary admission made by the assessee appellants. Therefore, reliance placed by the CIT(Appeals), on such case laws is misplaced. It is, further, added that Hon'ble Supreme Court in Phullangode Rubber Produce Co. (supra) held that confession is .....

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he same are applicable, to the facts of the present case. 13. It is the duty of the Court in every case, where ingenuinity is expended, to avoid taxing and welfare legislation, to get behind the smoke screen and discover the true state of affairs. The Court is not to be satisfied with form and leave alone the substance of the transaction. This view has been upheld by the Hon'ble Supreme Court, in Workman of Associated Rubber Industries Ltd. (1986) 157 ITR 77 (S.C) and in Ess Ess Kay Engg. Co .....

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liance on the decision of the jurisdictional High Court in the case of Somnath Maini 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 a .....

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ceedings, 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 the value of the shares could not be as high as ₹ 55 per share and accordingly made an addition of ₹ 12,47,500 to the income of the assessee as income from undisclosed sources. However, he determined .....

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aken place through anystock exchange. On scrutiny of the books of account if the broker the Assessing Officer found that there were cash deposits in its bank account preceding the issue of cheques in the name of the assessee for purchase of shares claimed to be the sale proceeds of the same shares received in advance. The broker could not give the details of the purchaser of the shares. The AO found that it was a close circuit transaction and clearly a structured one. The AO had also determined .....

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t is pertinent to state here, the judicial wisdom of Hon'ble Supreme Court in CIT V Arvinda Raju (TN) (1979) 120 ITR 46 (S.C) wherein it was held that one day, in our welfare state geared to social justice, this clever concept of avoidance as against evasion may have to be exposed. In the present case, there is an obvious and plain transaction of tax evasion which has been clothed with the smoke-screen of subterfuges, by the assessee appellants. The facts of the present case clearly reveals .....

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. 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 trans .....

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