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2012 (5) TMI 817

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..... 2/- 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 decision as to how and in what manner the business activities should be carried on. The revenue authorities should not make any comments or give advice in the matter in which the business should have .....

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..... t 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 transaction in the shares of Bharat Speeds Ltd. was carried on at the end of the financial year, i.e. on 27.3.2007 (payment received on 31.3.2007). According to the AO this gave an impression as if the assessee was impatient and eager to sale the shares fully well that it would give rise to a loss of ₹ 9,87,500/- and the assessee s apparent financial position did not call for loss making transactions. In para 6.02 of his order the AO has examined all the court cases referred by the assesse and has opined that the facts of these case could be said to be similar to the facts of the assessee. The AO relied on the decision of Hon. Supreme Court in the case of Mcdowell & CO. Ltd. vs. CTO [1985] 154 ITR 148 (SC) and cited the following observation of Hon ble Court: Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part qf .....

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..... 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 documents. In view of the above discussed detailed reasoning the AO held that the loss of Rs, 42,02,500/- incurred in the share trading was not a real loss but a loss arrived at by resorting to dubious methods of colourable transactions with the sale purpose of evading payment of taxes which were legitimately due on total income. Consequently, the aforesaid loss of ₹ 42,02,500/- was treated to be a bogus loss and hence disallowed to be set off against interest income of the assessee. 3.1. On appeal the ld. CIT(A) after taking into consideration of various submissions has confirmed the action of AO by observing as under :- 6. I have considered all the facts and circumstances of this case and the submission made by Ld. A/R. Here it can be seen that all the shares which have been sold by the assessee at a loss are unquoted shares. Therefore, the fair market value of these s .....

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..... 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. is shown to have incurred loss in last three years and the value of its shares has been arbitrarily taken as Rs,2 per share. For other three companies the net worth has been determined by multiplying the average profits of last 3 years by some capitalization factor . In case of 2 companies the capitalization factor has been taken as 20 and for the third company it has been taken as 30. There is no basis for taking these factors. These have been adopted in such a way that the valuation comes close to the price at which sale is shown by the assessee. Thus, I am of the opinion that there is no basis for the price at which the shares were sold to the sister concerns. This strengthens the view that the sale of shares to the sister concerns was not a real sale but a colourable device. Further 1 agree with the observation of the AO that the Tax authorities cannot be fully barred from l .....

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..... 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 Securities Pvt, Ltd the sale for ₹ 18,200/-, in the case of Baljit Metals and Sponge Pvt. Ltd the sale was for Rs, 200000. Similarly M/s Speed Business Pvt. Ltd sold the shares of Daffodil for ₹ 1,70,000/- only. This sale was not made to any relative or sister concern of the assessee but to the strangers who had no relationship with the assessee. The copies of the bills raised by the purchasers of the assessee on the parties to whom such shares were ultimately sold are enclosed herewith. Not only that the transfer of the shares were duly recorded in the books of the respective companies and therefore the sale of the shares cannot be disputed. Moreover the sum of ₹ 20 lakhs were received on 19.5.2006 and the share were sold on 20.5.2006 cannot make the transaction doubtful. Further the AO viewed that the transaction was colourable because it generated loss also cannot .....

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