TMI Blog1992 (3) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Rs. 2,47,000 on the construction of a building thereon. Further expenditure was incurred on conveyance, architect's fee, etc. for setting up of a project for manufacturing plastic auto ancillary items. The total expenditure came to Rs. 4,90,517. It was claimed that before the said project could be completed, it was sold for a lump sum of Rs. 2,50,000 on 15-3-1987. The assessee, therefore, claimed that it had suffered a short-term capital loss of Rs. 2,40,517. It was claimed by the assessee before the Income-tax Officer that the assessee had placed an order for import of machinery from a supplier in United States. Certain disputes arose in respect of the price of the said machinery. The assessee, therefore, cancelled the LC and there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itation jewellery in the said building, a business which was also carried on by the assessee. After taking note of these facts and circumstances, the learned Commissioner (Appeals) confirmed the disallowance. 3. Before us the findings of the two revenue authorities were challenged both on facts and on law. It was submitted by the learned counsel for the assessee that merely because the incomplete project was sold to a firm in which the director of the assessee-company was a partner, it cannot legitimately be concluded that the consideration received for the sale was less than the market value or was understated. Because of the litigation and the business prospectus, the assessee had lost interest in the project and it was, therefore, obli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The only other partner of the firm was a son of the managing director of the assessee-company. It was thus clearly a closely knit concern. It is an admitted position that this firm was constituted a few days before the transfer of the incomplete project to the firm. It is also an admitted position that the purchaser firm carried on the business of imitation jewellery, business in which the assessee was already engaged. No man of business would sell a project of the nature as the present one for a price equal to about 50 per cent of the cost in preference to carrying on the line of business activity in which he was already engaged. Moreover, in the case in hand, the assessee's managing director has virtually sold the project to himself in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion making authority in both the concerns was virtually the same natural person, i.e., the head of the family. It would, therefore, be difficult to believe that the assessee-company sold the incomplete project with a view to avert possible losses or that because it felt that carrying on of business on the premises may not prove to be profitable. It is the same decision making authority, who started the business of manufacture of imitation jewellery on the premises. This clearly indicates that the transaction of sale of the property was not a bonafide transaction, but a sham one. The owners of the assessee-company have virtually sold the property to themselves, but under the name of a different legal/tax entity. The surrounding circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far from being bona fide. It was essentially a sham and colourable transaction having been entered into noting business interest and, therefore, any loss resulting therefrom cannot be otherwise than fictitious one. This is a fit case where the corporate veil will have to be pierced. As a result of the alleged transfer the asset in question has, in fact, remained within the family and not left its precincts. The family, without parting with the asset, under the garb of alleged transfer, is trying to claim capital loss, which is obviously not there. Moreover, such loss, if any, is clearly is a self inflicted and self suffered one and, therefore, cannot be allowed in a tax assessment. The two revenue authorities were, therefore, fully justifi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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