DCIT, New Delhi v. M/s. Jain Exports Pvt. Ltd, New Delhi

ITA 3548/DEL/2009 | 2006-2007
Pronouncement Date: 09-07-2010 | Result: Allowed

Appeal Details

RSA Number 354820114 RSA 2009
Assessee PAN AAACJ1215B
Bench Delhi
Appeal Number ITA 3548/DEL/2009
Duration Of Justice 10 month(s) 27 day(s)
Appellant DCIT, New Delhi
Respondent M/s. Jain Exports Pvt. Ltd, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 09-07-2010
Appeal Filed By Department
Order Result Allowed
Bench Allotted D
Tribunal Order Date 09-07-2010
Date Of Final Hearing 05-05-2010
Next Hearing Date 05-05-2010
Assessment Year 2006-2007
Appeal Filed On 12-08-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH D DELHI ] BEFORE SHRI C. L. SETHI JM AND SHRI K. D. RANJAN AM I. T. APPEAL NO. 3548 (DEL) OF 2009. ASSESSMENT YEAR : 2006-07. DY. COMMISSIONER OF INCOME-TAX M/S. JAIN EXPORTS PVT. LTD. CIRCLE : 4 (1) VS. D 20 CONNAUG HT PLACE N E W D E L H I. N E W D E L H I. PAN / GIR NO. AAA CJ 1215 B. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI UMESH GUPTA C. A.; DEPARTMENT BY : SHRI DEVENDRA SINGH SR. D.R. ; O R D E R. PER K. D. RANJAN AM : THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 2006 -07 ARISES OUT OF THE ORDER OF THE LD. CIT (APPEALS)-VII NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE AR E REPRODUCED AS UNDER :- 1. THE ORDER OF THE LD. CIT (APPEALS) IS ERRONEOU S AND CONTRARY TO FACTS AND LAW; 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.44 20 250/- MADE BY THE AO ON ACCOUNT OF CAPITAL LOSS ON PURCHASE / SALE OF SHARES OF COMPANY UNDER LIQUIDATION. 3.1 THE ONLY ISSUE FOR CONSIDERATION RELATES TO TH E DELETION OF ADDITION OF RS.44 20 250/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CAPITAL LOSS ON PURCHASE / SALE OF SHARES OF COMPANY UNDER LIQUIDATION. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT DURING THE COURSE OF ASSESSMENT 2 I. T. APPEAL NO. 3548 (DEL) OF 2009. PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE AS SESSEE HAD DECLARED INCOME BY WAY OF CAPITAL GAINS AT RS.94 04 086/-. HE FURTHER NOTED THAT THE ASSESSEE HAD SHOWN LOSS OF RS.44 20 250/- ON SALE OF SHARES OF PASHUPATI HARYANA WOOLEN MILLS LT D. THE ASSESSEE WHILE WORKING OUT THE LOSS OF RS.44 20 250/- DEDUCTED INDEX COST OF ACQUISITIO N OF SHARES AT RS.44 26 250/- FROM THE SALE CONSIDERATION OF RS.6 000/-. ACCORDINGLY THE ASSESS ING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN THE LOSS SUFFERED BY THE ASSESSEE. IT WAS SUBMITTE D BY THE ASSESSEE VIDE THEIR LETTER DATED 18/11/2008 THAT THE ASSESSEE HAD PURCHASED SHARES O F PASHUPATI HARYANA & WOOLEN MILLS LTD. IN ASSESSMENT YEARS 1989-90 TO 2004-05 DETAILED AS BEL OW :- YEAR OF PURCHASE NO. OF S HARES COST OF ACQUISITION. 1989-90 85 000 RS.8 50 000/- 1990-91 1 20 000 RS.12 00 000/- 2004-05 4 20 000 RS.23 76 250/- TOTAL : 6 25 000 RS.44 26 25 0/- ======= =========== 3.2 IT WAS ALSO SUBMITTED THAT THE ASSESSEE COMPANY MADE INVESTMENT OF RS.44 26 250/- IN PASHUPATI HARYANA & WOOLEN MILLS LTD. WHOSE NET WO RTH WAS COMPLETELY ERODED. THE COMPANY WAS REGISTERED WITH BIFR AND THEREFORE TH E MARKET VALUE OF THE INVESTMENT MADE BY THE ASSESSEE WAS NIL. THOUGH THERE WAS A SUBSTANTI AL FALL IN THE VALUE OF THIS INVESTMENT WHICH WAS NOT OF TEMPORARY NATURE YET NO PROVISION FOR T HIS DIMINUTION IN THE VALUE OF INVESTMENT WAS MADE IN THE ACCOUNTS OF THE COMPANY. THE SAID INVE STMENT WAS SOLD IN FINANCIAL YEAR 2005-06 RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION FOR A SUM OF RS.6 000/-. THIS EXPLANATION OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER ON T HE GROUND THAT M/S. PASHUPATI HARYANA & WOOLEN LTD. WAS REGISTERED WITH BIFR SINCE 1995 AND THERE WAS NO FRESH DEVELOPMENT IN THE STATUS OF THE COMPANY. THE ASSESSING OFFICER ALSO NOTED THAT THE ASSESSEE IN FINANCIAL YEAR 2004- 05 PURCHASED 4 20 000 SHARES AT THE RATE OF RS.5.66 PER SHARE. THE SALE OF ENTIRE INVESTMENT OF 6 25 000 SHARES WAS MADE AT RS.6 000/- WHICH WAS LE SS THAN 1 PAISA PER SHARE. SINCE NO PROPER EXPLANATION WAS GIVEN BY THE ASSESSEE THE ASSESSIN G OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE FOR LOSS OF RS.44 20 250/-. 3 I. T. APPEAL NO. 3548 (DEL) OF 2009. 4. BEFORE THE LD. CIT (APPEALS) IT WAS SUBMITTED TH AT PASHUPATI HARYANA WOOLENS LTD. BECAME A SICK COMPANY IN JULY 1995 AND ORDER FOR W INDING OF THIS COMPANY WAS PASSED ON 15 TH DECEMBER 1998. AN APPEAL AGAINST THE WINDING OF T HE COMPANY WAS FILED WHICH WAS DISMISSED BY THE COURT ON 29 TH JULY 1999. THE COURT APPOINTED A LIQUIDATOR VIDE ITS ORDER DATED 13 TH AUGUST 2004. IT WAS ALSO SUBMITTED THAT THE ASSESSEE COMP ANY WAS TRYING ITS BEST TO FIND OUT THE STATUS OF HARYANA WOOLENS CASE OF ITS WINDING PROCEEDINGS. T HE ASSESSEE COMPANY APPROACHED THE OLD MANAGEMENT OF PASHUPATI HARYANA WOOLENS LTD. AND WA S INFORMED BY THEM VIDE THEIR LETTER DATED 21 ST FEBRUARY 2005 THAT THEY WERE TRYING TO ARRANGE FU NDS SO THAT THEY COULD HAVE A ONE- TIME SETTLEMENT WITH THE CREDITORS OF PASHUPATI HAR YANA WOOLENS LTD. ON THE BASIS OF THIS INFORMATION THE ASSESSEE COMPANY ACQUIRED 4 20 000 EQUITY SHARES OF FACE VALUE OF RS.10/- EACH AT A DISCOUNTED VALUE FOR RS.23 76 250/- ON 25/02/2 005. IT WAS ALSO INFORMED THAT THE ASSESSEE BY PURCHASE OF 4 20 000 SHARES HAD ACQUIRED CONTROL LING SHARES OF PASHUPATI HARYANA WOOLENS LTD. IT WAS FURTHER SUBMITTED THAT THE OLD MANAGEM ENT OF PASHUPATI HARYANA WOOLENS LTD. COULD NOT ARRANGE THE NECESSARY FUNDS FOR THE PURPOSES HA VING ONE-TIME SETTLEMENT WITH THE CREDITORS OF PASHUPATI HARYANA WOOLENS LTD. THE ASSESSEE COMPAN Y TOOK A DECISION TO SALVAGE TO ANY EXTENT THE RECOVERY OF ITS INVESTMENT IN PASHUPATI HARYANA WOOLENS LTD. OUT OF SHEER DESPERATION THE ASSESSEE COMPANY MANAGED TO SALVAGE RS.6 000/- AND SOLD OFF THE ENTIRE SHARE HOLDINGS FOR RS.6 000/- ON 31 ST MARCH 2006. IT WAS ALSO INFORMED THAT THE ASSETS OF M/S. PASHUPATI HARYANA WOOLENS LTD. WERE AUCTIONED BY TH E DEBT RECOVERY TRIBUNAL ON 26 TH AND 27 TH SEPTEMBER 2006 FOR RS.7 27 47 000/-. ON THE BASIS OF THE ABOVE IT WAS SUBMITTED THAT THE ASSESSEE HAD SUFFERED A GENUINE LOSS AND THE SAME S HOULD BE ALLOWED. THE LD. CIT (APPEALS) ON CONSIDERATION OF THE ABOVE FACTS OBSERVED THAT THE SALE PROCEEDS RECEIVED ON AUCTION OF ASSETS OF M/S. PASHUPATI HARYANA WOOLENS LTD. WERE MERELY SUF FICIENT TO RECOVER ITS PRINCIPAL LOAN OF RS.5 CRORES ALONG WITH PENAL INTEREST. THEREFORE THERE WAS NO QUESTION OF ANY PAYMENT OF EVEN A SINGLE PAISA TO ANY SHARE HOLDER OR CREDITOR. IN T OTALITY OF ALL THESE FACTS AND IN THE CIRCUMSTANCES THE LD. CIT (APPEALS) CAME TO THE CONCLUSION THAT T HERE WAS NO REASON TO SUSPECT THE GENUINENESS OF THE TRANSACTIONS ENTERED BY THE ASSESSEE IN RESP ECT OF SALE OF ITS SHARE HOLDINGS. HE ALSO OBSERVED THAT THE FINDINGS OF THE ASSESSING OFFICER WERE TOTALLY BASED ON SURMISES AND CONJECTURES WITHOUT BRINGING ANY EVIDENCE ON RECORD. THE LD. C IT (APPEALS) ACCORDINGLY ALLOWED THE CLAIM OF THE ASSESSEE. 4 I. T. APPEAL NO. 3548 (DEL) OF 2009. 5. BEFORE US THE LD. SR. DR SUBMITTED THAT THE COMP ANY WAS WOUND UP IN 1998 AND AFTER WINDING UP THE SHARES ARE NOT TRADED IN THE MARKET . THEREFORE THE ASSESSEE COULD NOT HAVE PURCHASED THE SHARES. HENCE CLAIM OF LOSS BY THE A SSESSEE IS NOT GENUINE. ON THE OTHER HAND THE LD. AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE L D. CIT (APPEALS). 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. FROM THE FACTS STATED ABOVE IT IS APPARENT THAT M/S. PA SHUPATI HARYANA WOOLENS LTD. BECAME A SICK COMPANY IN JULY 1995. BIFR DISMISSED THE APPLICAT ION OF THE ASSESSEE FOR REVIVAL OF THE COMPANY AS THERE WAS NO RESPONSE FROM THE PROMOTERS OF THE COMPANY. THE ORDER FOR WINDING OF THIS COMPANY WAS PASSED ON 15 TH DECEMBER 1998. AN APPEAL AGAINST THE WINDING OF THE COMPANY WAS FILED WHICH WAS DISMISSED BY THE COURT ON 29 TH JULY 1999. HONBLE PUNJAB & HARYANA HIGH COURT VIDE THEIR ORDER DATED 13 TH AUGUST 2004 APPOINTED A LIQUIDATOR FOR THE PURPOSE OF LIQUIDATION OF THE COMPANY AND PAYMENT O F THE SALE PROCEEDS TO THE ELIGIBLE PERSONS. THUS AFTER ORDER OF HONBLE PUNJAB & HARYANA HIGH COURT APPOINTING THE LIQUIDATOR ALL THE ASSETS OF THE COMPANY WERE PUT INTO THE HANDS OF TH E OFFICIAL LIQUIDATOR. THE ASSETS OF THE COMPANY WERE SOLD BY THE DEBT RECOVERY TRIBUNAL FOR A SUM OF RS.7 27 47 000/- WHICH WERE ADJUSTED AGAINST THE BANK LOAN AND INTEREST THEREON . AFTER THE ORDER HAS BEEN PASSED BY HONBLE PUNJAB & HARYANA HIGH COURT APPOINTING THE LIQUIDAT OR PURCHASE OF SHARES BY THE ASSESSEE COMPANY ON 25 TH FEBRUARY 2005 FOR A SUM OF RS.23 76 250/- BECOMES NOT ONLY A DOUBTFUL TRANSACTION BUT A COLOURABLE DEVICE ON THE PART OF THE ASSESSEE TO CLAIM AN ARTIFICIAL LOSS TO BE ADJUSTED AGAINST THE PROFITS. THE EARLIER SHARE-HO LDING OF THE ASSESSEE PRIOR TO BECOMING OF THE COMPANY AS SICK INDUSTRY COULD NOT BE SOLD AFTER WI NDING UP PROCEEDINGS OF THE COMPANY WERE INITIATED AND APPOINTMENT OF THE OFFICIAL LIQUIDAT OR AS NO PERSON CAN PURCHASE/SALE THE SHARES OF THE COMPANY UNDER LIQUIDATION. THE ASSESSEE HAD NOT FURNISHED THE DETAILS OF PURCHASE OF 4 20 000 SHARES ON 25.02.2005 FOR A SUM OF RS 23 76 250/- AND ALSO THE SALE OF 6 25 000/- SHARES BY THE ASSESSEE FOR RS.6 000/-. THE LETTE R 21 ST FEBRUARY 2005 WRITTEN BY SHRI RAKESH KUMAR JAIN EX-DIRECTOR M/S. PASHUPATI HARYANA WOO LENS LTD. TO THE ASSESSEE IS NOTHING BUT EVIDENCE CREATED SO AS TO GIVE THE COLOUR OF GENUIN ENESS OF PURCHASE OF SHARES ON 22 ND FEBRUARY 2005. MOREOVER AFTER APPOINTMENT OF THE LIQUIDAT OR ALL FUNCTIONS OF THE COMPANY ARE VESTED IN 5 I. T. APPEAL NO. 3548 (DEL) OF 2009. THE LIQUIDATOR AND NONE OF THE DIRECTORS OF THE COM PANY COULD HAVE WRITTEN SUCH LETTER TO A PERSON THAT THEY WERE ARRANGING THE FUNDS TO ENTER INTO ON E TIME SETTLEMENT WITH THE CREDITORS. THEREFORE THE LD. CIT (APPEALS) WAS NOT JUSTIFIED IN PLACING CREDENCE ON LETTER DATED 21 ST FEBRUARY 2005. AFTER THE COMPANY HAS BEEN ORDERED TO BE LIQUIDATED SHARES ARE NOT TRADED IN THE MARKET AND THEREFORE THE PURCHASE SHOWN BY TH E ASSESSEE ON 25 TH FEBRUARY 2005 OF 4 20 000 SHARES FOR A SUM OF RS.23 76 250/- @ RS.5.66 PER SH ARE IS NOT A GENUINE TRANSACTION. SINCE THE COMPANY HAS BEEN ORDERED TO BE WOUND UP AND THE OFF ICIAL LIQUIDATOR HAS BEEN APPOINTED BY HONBLE PUNJAB & HARYANA HIGH COURT NONE OF THE SH ARES COULD BE SOLD BY THE SHARE HOLDERS. THEY HAVE TO WAIT FOR THE REALIZATION OF THE SALE P ROCEEDS OF ASSETS OF THE COMPANY BY THE OFFICIAL LIQUIDATOR AND THE DISTRIBUTION OF SURPLUS AMOUNT A MONGST SHARE HOLDERS AFTER MEETING THE REQUIREMENTS OF THE CREDITORS OUT OF SALE PROCEEDS. THE ASSESSEE HAD NOT SUBMITTED ANY EVIDENCE IN SUPPORT OF THE CONTENTION THAT ANY SUCH SALE OF THE SHARE WAS MADE THROUGH THE STOCK EXCHANGE OR OFF THE STOCK EXCHANGE. AS A MATTER OF FACT THER E CANNOT BE ANY SUCH EVIDENCE AFTER APPOINTMENT OF THE OFFICIAL LIQUIDATOR AS ALL ASSET S ARE TRANSFERRED INTO HIS HANDS. THE SHARES CANNOT BE TRADED IN THE OPEN MARKET. HENCE THE TRA NSACTIONS FOR PURCHASE AND SALE OF SHARES ARE NOT A GENUINE TRANSACTIONS. ACCORDINGLY WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT (APPEALS) WAS NOT JUSTIFIED IN TREATING THE TRANSAC TION AS GENUINE. WE THEREFORE SET ASIDE THE ORDER OF THE LD. CIT (APPEALS) AND RESTORE THE ORDE R OF THE ASSESSING OFFICER DISALLOWING THE CAPITAL LOSS OF RS.44 20 250/-. 7. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 09 TH JULY 2010. SD/- SD/- [ C. L. SETHI ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 09 TH JULY 2010. *MEHTA * 6 I. T. APPEAL NO. 3548 (DEL) OF 2009. COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT (APPEALS) 5. DR ITAT NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR ITAT. 7 I. T. APPEAL NO. 3548 (DEL) OF 2009. 8 I. T. APPEAL NO. 3548 (DEL) OF 2009.