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2012 (5) TMI 817

Per Shri C.D.Rao, AM The above appeal is filed by assessee against order dated 11.02.2011 of the ld. CIT-(A)-VI, Kolkata pertaining to A.Yr. 2007-08. 2. The only issue raised by assessee in this appeal is relating to confirmation of addition of ₹ 42,02,500/- when there was no dispute about the genuinity of sale of the shares and provisions of sec.40A(2) were not applicable. 3. The brief facts of this issue as appearing from the impugned order are as under :- 2. The only issue involved in this appeal is related to the share trading loss of ₹ 42,02,500/- disallowed by the AO. The facts of this case are that during the previous year relevant to assessment year 2007- 08, the assessee was engaged in the business of share trading and granting of loans and advances. From the business of granting of loans and advances, it earned interest income amounting to ₹ 43,89,942/- and in the business of share trading the assessee claimed to have incurred a loss of Rs, 42,02,500!- . Since, during the year under consideration, the assessee had substantial positive income in the form of interest on loans amounting to ₹ 43,89,942/-, the AO requested the assessee to furnish reason .....

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were sister concerns and belonged to the same management. From the details submitted by the assessee, in respect of the shares of Dafodil Projects Pvt. Ltd. the AO found that the assessee received a payment of ₹ 20,00,000/- from M/s Speed Business Pvt. Ltd. on 19.5.2006 vide Cheque No.541453 drawn on Indus Ind Bank. He further noted that the date of sale of the aforementioned shares was 20.5.2006. The assessee received the payment in advance, i.e. on 19.5.2006 and thereafter, the balance amount of ₹ 15,75,000!- was refunded to the said party by issuing different cheques, drawn on the same bank, i.e. Induslnd Bank, on different dates over a period starting from 17.01.2007. In respect of the other three shares the AO observed that they were sold during the last quarter of the F.Yr. In view of the above facts the AO felt that the sale of shares to the sister concerns at a loss was not a real business transaction but merely an arrangement to not pay tax on the interest income by the assessee. From the Table-I made above the AO observed that most of the transactions leading to losses were carried out in the last quarter of the relevant financial year. He observed that the tr .....

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to colourable devices in the form of make -believe and sham transactions, which are seemingly legitimate but are not real. Regarding the assessee s objection that the Revenue authorities should not interfere with the way business is carried on by a businessman, the AO pointed out that raising a query on a specific issue during the course of assessment proceedings does not amount to giving advise, making prescriptions or suggesting ways and manner in which a particular business is to be carried on by the assessee. He has stated that in the case of CIT vs. Durga Prasad More [1971] 82 ITR 540 (SC), the Hon ble Supreme Court has observed that it is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real; If all that an assessee who wants to evade tax is to have recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those .....

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hich indicates a motive to manipulate the taxable income. During the appellate proceeding Ld AIR of the assessee claimed that the genuineness of these sales are proved by the fact that the sister concerns of the assessee who purchased these shares in turn sold many of these shares to outside parties. In this respect I believe that for the purpose of the assessment in the case of the assessee the further treatment of the shares by the sister concerns was not relevant . Here we are examining the effect of these sales to sister concerns in the hands of the assessee and the sale at a loss to sister concerns has resulted in lowering of taxable income. As discussed above such transactions do not appear to be genuine business transactions but a colorable device to reduce tax liability. During the appellate proceeding Ld A/R was asked to explain the method of valuing the price of these unquoted shares for selling them to sister concern. Ld. A/R furnished certificates dtd. 12.01.2011 for valuation of the shares of the above mentioned 4 companies. It is seen that in these certificates the valuation is claimed to have been done by yield method, One company Baaji Metal & Sponge Pvt. Ltd. i .....

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e. The AO has disallowed the loss only on the ground that the shares were sold to the group concern of the assesee. The details of sales including copy of bills and details of payment received were filed before the AO. The AO did not proceed to issue any summon to the parties to whom these shares wee sold. The AO has relied on Mcdowel & co. reported in 154 ITR 148 as well as Durga Prasad More reported in 82 ITR 540 and number of other judgments for applying the principle that this was a colourable device just to reduce the profit. It may here be submitted that if the AO could have issued notice u/s 131 to enquire from the companies to whom the shares were sold then his misunderstanding would have been over. In fact all the parties to whom the shares were sold viz, to Ambaa securities to whom 100000 shares of Balaji Metal were sold for ₹ 200000/-, 18200 share of Baljit Securities were sold for ₹ 10/- per share, 98750 shares of Bharat Seeds were sold for 30/- per share and 17,000 shares of Daffodil Projects were sold to Speed Business Pvt. Ltd for ₹ 4,25,000/- The said Ambaa Securities resold the shares thereafter within few months. In the case of Baljjt Securit .....

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ompanies by Chartered Accountant which are placed at pages 6 to 14 and 15 to 18 of the paper book respectively. Keeping in view of the above, he submitted that the revenue is not justified in disbelieving the submissions of assessee and treat the sales as bogus. Therefore he requested to set aside the orders of the revenue authorities and delete the addition made by them. 6. On the other hand, the ld. DR appearing on behalf of revenue relied on the orders of the revenue authorities. 7. After hearing a rival submissions and on careful perusal of materials available on record, keeping in view of the fact that the sister concern to whom the assessee has sold the shares has subsequently disposed of the same at a loss and since the companies involved are private limited copy of the valuation report and shares of the four companies by Chartered Accountant has been placed on record. We find no justification in disbelieving the transactions made by assessee to the sister concern. Therefore we set aside the orders of the revenue authorities and direct AO to delete the addition made on account of sales. 8. In the result the appeal of assessee is allowed. Order pronounced in the court on 23.0 .....

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