TMI Blog2012 (5) TMI 817X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reasons as to what prompted or compelled it to take a decision to sell the shares in question at such a huge loss - a move that apparently defied any business logic or commercial expediency. The AO also called for the details of purchase and sale of the shares on which loss was incurred by the assessee. 3. The assessee provided the details called for by the AO. It claimed that it was not open to the Income Tax authorities to question the business related decisions of the assessee. The assessee cited a number of court decisions and claimed that in these decisions it has been held that every businessman knew his interest best. He is the best judge of business expediency and is free to take deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,87,500/- Total 79,72,000/- 37,69,500/- 42,02,500/- He further noticed that out of the above shares the shares at Sr. No. 1 were sold to M/s Speed Business Pvt. Ltd. and shares at Sr. No. 2,3, 4 were sold to M/s Ambaa Securities Pvt. Ltd. He examined the share holdings of these two companies and the assessee company and found that they 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o birds with one stone, i.e. it booked the required amount of loss of ₹ 42,02,500/- so that it pays a paltry amount of tax and simultaneously ensured that the shares in question remain within the same group, so that the claimed loss remains on paper only. Hence, basically this is analogous to the case of transferring a tax bearing valuable from one band to another of the same person with an ulterior motive of depriving the exchequer the legitimate tax due. Thus, on the basis of the facts and circumstances found out in this case, the AO concluded that the assesee has consciously tried to evade or avoid payment of taxes by resorting 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the transactions also show that these were a part of the arrangement to book loss in the hands of the assessee so that it could set off this loss with the interest income earned by it. In the case of sale made to M/s Speed Business Pvt. Ltd. an amount of ₹ 20,00.000/- was lying with the assessee before the date on which the sale of ₹ 4,25,000/- was shown to be made. The amount equivalent to sale proceeds was adjusted against the sale and the remaining amount was later on returned to M/s Speed Business Pvt. Ltd. In respect of sale made to M/s Ambaa Securities Pvt. Ltd it is seen that these transactions for sale of shares of three companies were also made. during the last quarter of the Financial Year which 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... half of assessee has reiterated the submissions made before the revenue authorities submitted that 5. During the appellate proceedings Ld AR of the assessee opposed the action of the AO in disallowing the share trading loss of ₹ 42,02,500/- on the ground that it was a colourable device, The submission made by Ld. AR in this regard is reproduced below: The appeal is directed against the AO disallowing loss of ₹ 42,02,500/- being loss in share dealings. The assessee during the year sold certain shares in four companies as detailed by the AO in table-I of para 4.01 of the assessment order. On the sale of said shares the assessee incurred a loss of ₹ 42,02,500/-. There is no dispute about the fact of purchase or sale of these shares. Further the payment for sale was also received by account payee cheque. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sked the asssessee to show cause as to why the loss should not be treated as speculation loss. However when the same was duly explained the AO switched over to disallow the loss by holding that the shares were sold to sister concerns. In view of what have been stated above and the genuinity of the sale of shares having not been disputed and further the concerns to whom the shares were sold have resold the same to the strangers without deriving any income or benefit there from the disallowance should not have been made simply because the sale was made to the sister concerns. In view of the above the disallowance made may be deleted. 5. When the Bench asked whether the shares purchased and sold to the sister concern are subsequently disposed of by the sister concern, the assessee submitted that the sister concern has sold the said shares at loss and filed copies of sale confirmation and copies of valuation report in respect of shares of four companies 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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