Jagdish finance & Investments, Pune v. Jt. CIT, SR-5,, Pune

ITA 1150/PUN/2011 | 1996-1997
Pronouncement Date: 31-07-2015 | Result: Partly Allowed

Appeal Details

RSA Number 115024514 RSA 2011
Assessee PAN AAAFJ9203E
Bench Pune
Appeal Number ITA 1150/PUN/2011
Duration Of Justice 3 year(s) 10 month(s) 18 day(s)
Appellant Jagdish finance & Investments, Pune
Respondent Jt. CIT, SR-5,, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2015
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 31-07-2015
Date Of Final Hearing 09-12-2013
Next Hearing Date 09-12-2013
Assessment Year 1996-1997
Appeal Filed On 12-09-2011
Judgment Text
] ]] ] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE ! ' # $ BEFORE SHRI R.K. PANDA AM AND SHRI VIKAS AWASTHY JM ITA NO.1150/PN/2011 ASSESSMENT YEAR : 1996-97 JAGDISH FINANCE AND INVESTMENTS 14 BELMONT PARK ICS COLONY OFF GANESH KHIND ROAD PUNE 411 007. PAN: AAAFJ9203E .. APPELLANT VS. JT. COMMISSIONER OF INCOME TAX SPECIAL RANGE-5 PUNE. ... RESPONDENT / APPELLANT BY : SHRI KISHORE B. PHADKE / DEPARTMENT BY : SHRI HITENDRA NIRAWE / DATE OF HEARING : 28.07.2015 / DATE OF PRONOUNCEMENT: 31.07.2015 % / ORDER PER R.K. PANDA AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 28.01.2011 OF CIT(A)-I PUNE RELATING TO ASSESSMENT YEAR 1996-97. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER :- 1. THE LEARNED CIT(A)-I PUNE ERRED IN LAW AND ON FACT S IN DISREGARDING THE GENUINENESS OF TRANSACTION OF THE SALE OF SHARES MADE TO THE PARTNERS. 2. THE LEARNED CIT(A)-I PUNE ERRED IN LAW AND ON FA CTS IN SUSTAINING THE ADDITION MADE BY LEARNED A.O. AMOUNTING RS.48 0 9 752/- BY HOLDING THAT TRANSACTION OF SALE OF SHARES TO THE 'PARTNERS ' OF THE APPELLANT IS A COLORABLE DEVICE & HENCE COVERED BY RATIO OF MC DOWELL VS CTO CASE 154 ITR 148 PROVIDING UNJUSTIFIABLE REASONS. 2 ITA NO.1150/PN/2011 3. THE CIT(A)-I FURTHER ERRED IN LAW AND ON FACTS IN SUSTAINING THE LEVY OF INTEREST BY LEARNED AO U/S 244A. 4. THE APPELLANT CRAVES LEAVE TO ADD / MODIFY / DELET E ALL OR ANY OF THE GROUNDS OF APPEAL. 3. THE FACTS IN SHORT CONCERNING THE GROUNDS RAIS ED BY THE ASSESSEE ARE NARRATED AS FOLLOWS. THE ASSESSEE FIRM DERIVES INC OME FROM INTEREST DIVIDEND AND SALE OF SHARES OF PUBLIC LIMITED COMPANIES. THE MA JOR INCOME OF THE ASSESSEE FIRM IS INCOME FROM INTEREST ON LOANS BANK INTERES T AND DIVIDEND ETC. DURING THE YEAR UNDER APPEAL THE ASSESSEE IS FOUND TO HAVE CO NVERTED ITS INVESTMENT OF RS.68 78 425/- INTO STOCK-IN-TRADE I.E. TRADING S TOCK ON FIRST DAY OF THE ASSESSMENT YEAR I.E. 01.04.1995. DURING THE YEAR UNDER CONSID ERATION THE ASSESSEE ENTERED INTO SALE OF SHARES WHICH WERE CONVERTED INTO STOCK -IN-TRADE WITH TWO CATEGORIES OF PERSONS. ONE CATEGORY IS SALE TO STOCK BROKER SHR I YOGESH J. SHAH AND OTHER CATEGORY IS BEING SALE TO PARTNERS OF THE ASSESSEE FIRM ITSELF. IT WAS OBSERVED BY THE ASSESSING OFFICER THAT WHATEVER SALE HAS BEEN M ADE TO THE BROKER HAS RESULTED IN PROFITS ONLY WHEREAS SECOND CATEGORY OF SO CALLE D SALE MADE TO PARTNERS OF THE FIRM HAS RESULTED IN LOSSES EXCEPT IN ONE TRANSACTI ON WHICH HAS RESULTED IN A UNASSUMING PROFIT OF RS.400/-. THE SALES MADE THRO UGH BROKER SHRI YOGESH J. SHAH HAS YIELDED PROFIT OF RS.11 85 327/- IN AGGREG ATE WHEREAS SALES WHICH HAVE TAKEN PLACE WITH PARTNER HAS RESULTED IN LOSS ONLY AGGREGATING TO RS.48 09 752/-. IT IS THE CASE OF THE ASSESSING OFFICER THAT ALL THE T RANSACTIONS WHICH HAVE TAKEN PLACE WITH THE PARTNERS HAD SURPRISINGLY RESULTED IN HUGE LOSSES ALONE. THE SALES WERE STATED TO HAVE BEEN MADE ON 30.01.1996 TO THE PARTN ERS AND THE SALE PROCEEDS FOR THE SAME WERE RECEIVED THROUGH CHEQUES ON 02.02.199 6. NO SHARES WERE SENT FOR TRANSFER FROM THE ASSESSEE FIRM TO THE PARTNER. TH E SHARES WERE NEITHER SOLD THROUGH SEBI AUTHORIZED BROKER NOR THROUGH STOCK EX CHANGE. THE SALES HAVE BEEN MADE TO THE PARTNERS ON A SPECIFIC DATE WHEN THE RA TES OF SUCH SHARES WERE FOUND TO BE LOWEST. IN THE LIGHT OF THESE BAFFLING AND U NUSUAL EVENTS THE ASSESSING 3 ITA NO.1150/PN/2011 OFFICER CONCLUDED THAT SALES HAVE BEEN RECORDED ON PAPER WITH A SOLE MOTIVE TO AVOID LEGITIMATE TAX LIABILITY ARISING ON PROFITS F ROM OTHER SHARES SOLD THROUGH BROKER. HE FINALLY HELD THAT THE SALE TO THE PARTNERS ARE F ICTITIOUS AND NON-EST AND DISALLOWED THE LOSS OF RS.48 09 752/- WHILE COMPUTING THE ASSE SSED INCOME. 4. THE LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESS ING OFFICER BY RE-STATING THE FACTS. THE LD. CIT(A) REITERATED THAT IT IS VERY S TRANGE THAT WHILE ALL THE SHARES SOLD TO BROKER HAS RESULTED IN PROFITS THE PURPORTED SA LES MADE TO THE PARTNERS HAVE INVARIABLY RESULTED IN LOSSES. THE SALE OF SHARES MADE TO THE PARTNERS WERE HELD TO BE IN-GENUINE AND A MOONSHINE DECLARED WITH THE OB JECT TO REDUCE TAX LIABILITY AND APPLIED THE DECISION OF THE HONBLE SUPREME COURT I N THE CASE OF MC DOWELL & CO. LTD. VS. COMMERCIAL TAX OFFICER REPORTED IN 154 ITR 148 (SC) TO REMOVE THE FALSE VEIL CREATED BY THE ASSESSEE FIRM. HE FURTHER HARP ED ON THE FACTS THAT SCRIPS WERE NOT LEGALLY TRANSFERRED IN THE HANDS OF THE PARTNER S WHO WERE SHOWN TO BE PURCHASERS. HE FINALLY DISMISSED THE APPEAL ON THE SE BROAD FACTS. 5. BEFORE US THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE CONTENDED THAT THE SHARES HELD AS INVESTMENT IN THE EARLIER Y EAR WERE CONVERTED INTO STOCK-IN- TRADE AT THE BEGINNING OF RELEVANT ASSESSMENT YEAR. THIS IS PERFECTLY PERMISSIBLE UNDER SECTION 45(2) OF THE ACT. THIS ACTION HAS NO T BEEN QUESTIONED BY THE ASSESSING OFFICER AT ALL THOUGH HE RAISED THE SAM E IN THE BEGINNING OF THE ASSESSMENT PROCEEDINGS AS PER PARA 5 OF THE ASSESSM ENT ORDER. HE NEXT CONTENDED THAT THE SHARES HAVE BEEN SOLD TO THE PAR TNERS AT MARKET PRICE AND THEREFORE TRANSACTIONS ARE ARM'S LENGTH. THEREAFTE R HE ARGUED THAT THE ASSESSEE BEING A PARTNERSHIP FIRM THE SHARES ARE ALWAYS HEL D BY THE PARTNERS IN THE FIDUCIARY CAPACITY ON BEHALF OF THE FIRM AS THE FIRM IS NOT R ECOGNIZED AS A LEGAL ENTITY UNDER THE RELEVANT LAWS VIZ: COMPANIES ACT GOVERNING THE HOLDING OF SHARES BY SPECIFIED 4 ITA NO.1150/PN/2011 PERSONS. ON SALE OF SHARES TO THE PARTNERS THE PA RTNERS STARTED HOLDING THE SHARES IN THEIR SUBSTANTIVE CAPACITY. THUS THERE WAS NO OCCASION FOR ANY TRANSFER OF SHARES PER SE AS THE PARTNERS HAD ALREADY HELD THE SHARES IN THE IR OWN NAME ALBEIT UNDER DIFFERENT CAPACITY I.E. AS A TRUSTEE. HE TH EREAFTER VEHEMENTLY CONTENDED IN ALTERNATIVE THAT EVEN IF THE SALE TO THE PARTNERS A RE TAKEN AS NON-EST DECLINE IN THE VALUE OF SHARES HELD AS STOCK WILL HAVE TO BE RECOG NIZED IN THE BOOKS AND THIS WILL GIVE RISE TO ALMOST SAME AMOUNT OF LOSSES. THEREFO RE NO COLOURABLE DEVICE CAN BE INFERRED AS ALLEGED. HE THEREFORE VEHEMENTLY PLE ADED FOR REVERSAL OF THE ORDERS OF THE AUTHORITIES BELOW. 6. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE LD. CIT(A). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE MATERIA LS AND FACTS PLACED BEFORE US. THE ONLY CASE OF THE REVENUE IS THAT THE SALE TO TH E PARTNER ON SPECIFIED DATE RESULTING IN LOSSES IS NOT BONAFIDE IN THE FACTS OF THE CASE NARRATED ABOVE. THE CONVERSION OF INVESTMENT HELD IN PREVIOUS YEAR IN TO TRADING STOCK IS NOT THE SUBJECT MATTER OF DISPUTE. ON CLOSE READING OF FACTS WE D O FIND IT PERPLEXING ON THE NEED TO SALE THE SHARES TO THE PARTNERS AND NOT THROUGH OPE N MARKET (STOCK EXCHANGE) WHERE THE LOSSES HAVE BEEN INCURRED IN ALL THE TRAN SACTIONS INVARIABLY. IT IS STRANGE INDEED THAT ALL THE TRANSACTIONS MADE IN THE OPEN M ARKET HAVE YIELDED PROFITS WHEREAS THE NOTIONAL TRANSACTIONS WITH THE PARTNERS HAVE RESULTED IN LOSSES ALONE. ENTIRE ACTION OF THE ASSESSEE CLEARLY APPEARS TO BE AFTERTHOUGHT TO BOOK ARTIFICIAL LOSSES BY PURPORTED SALE TO THE PARTNERS BY PASSING ENTRIES IN THE BOOKS. ON A SPECIFIC QUERY FROM THE BENCH AS TO WHAT HAPPENED T O THESE SHARES IN THE HANDS OF THE PARTNERS THEREAFTER THE LD. AR DREW BLANK. WE DO NOT SEE ANY PERCEPTIBLE 5 ITA NO.1150/PN/2011 REASON TO SELL THE SHARES TO THE PARTNERS GIVING RI SE TO THE ALLEGED LOSSES ESPECIALLY WHEN THESE SHARES WERE HELD BY THE FIRM IN THE NAME OF THE PARTNERS ONLY. MERELY BECAUSE THE PAYMENTS HAVE COME BY CHEQUE FROM THE PARTNERS WILL NOT CHANGE THE SITUATION AS TO THE NECESSITY OF SUCH AN ACT. THE ONUS IS ON ASSESSEE TO EXPLAIN THIS ABNORMAL PATTERN WHICH STANDS UN-DISCHARGED. THE CONCLUSION IS INESCAPABLE THAT THE PURPORTED TRANSACTIONS OF SALE TO THE PART NERS ARE MERELY CLOAK TO AVOID LEGITIMATE TAX LIABILITY. NOW WE TURN OUR ATTENTI ON TO THE ALTERNATIVE PLEA. ONCE IT IS HELD THAT THE TRANSACTIONS WITH THE PARTNERS ARE SH AM THE LOSSES DUE TO DECLINE IN THE VALUE OF THE SHARES IF ANY WHICH WILL LEND UP AS A STOCK-IN-TRADE IN THE HANDS OF THE ASSESSEE WILL HAVE TO BE RECOGNIZED IN ACCORDAN CE WITH LAW. IN THE ABSENCE OF SALE THE DECLINE IN THE VALUE OF THE STOCK-IN-TRAD E WILL GO TO REDUCE THE TAXABLE PROFIT OWING TO WELL RECOGNIZED PRINCIPLES OF VALUATION OF INVENTORIES VIZ: AT COST OR MARKET PRICE WHICHEVER IS LOWER. IN OUR VIEW THE ASSES SEE IS ENTITLED TO CLAIM THE DEDUCTION FOR DECREASE IN THE VALUE OF SECURITIES H ELD BY THE ASSESSEE IN THE CURRENT ASSESSMENT YEAR. THE QUANTIFICATION OF LOSS IF AN Y DUE TO DECREASE IN THE VALUE OF SHARES TREATED AS INVENTORY AS AGAINST SALE SHOWN T O ITS PARTNERS IS NOT ASCERTAINABLE FROM THE RECORDS PLACED BEFORE US. T HE ASSESSEE IS AT LIBERTY TO DEMONSTRATE THE LOSSES ON ACCOUNT OF DECREASE IN TH E VALUE OF THE SHARES TO THE ASSESSING OFFICER. THE ASSESSING OFFICER IS DIRECT ED TO GRANT APPROPRIATE RELIEF TO THE ASSESSEE ON ACCOUNT OF DECREASE IN THE VALUE OF CLOSING STOCK ARISING DUE TO NON-ACCEPTANCE OF SALE TO THE PARTNERS. FOR THIS P URPOSE THE ASSESSING OFFICER SHALL GIVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECIDE THE ISSUE AS PER LAW. TO THIS EXTENT THE MATTER IS RE MANDED BACK TO THE FILE OF THE ASSESSING OFFICER. WE DIRECT ACCORDINGLY. 8. THE GROUND OF APPEAL NO.2 IS CONSEQUENTIAL IN NA TURE. THE ASSESSING OFFICER IS DIRECTED TO RE-COMPUTE THE CHARGEABILITY OF INTE REST UNDER SECTION 244A OF THE ACT IN ACCORDANCE WITH LAW ON ASSESSED INCOME IN THE LI GHT OF OUR DIRECTIONS ABOVE. 6 ITA NO.1150/PN/2011 9. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 31 ST DAY OF JULY 2015. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) # / JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE ; DATED : 31 ST JULY 2015. %&'#()!*!+( / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-I PUNE; 4) THE CIT-I PUNE; 5) THE DR A BENCH I.T.A.T. PUNE; 6) GUARD FILE. % / BY ORDER ' # //TRUE COPY// $ %& # '( / SR. PRIVATE SECRETARY ) '* / ITAT PUNE