COMMISSIONER OF INCOME TAX-III vs. ROSELABS FINANCE LIMITED

ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI)

Revenue   is   in   appeal   against   the   judgment   of   ITAT. Following   question   was   framed   at   the   time   of   admission   of appeal : “Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by CIT(A) deletion of addition made u/s. 69 of the Income Tax Act, 1961 of Rs.82,11,558/­?”

Respondent assessee is a company. While assessing the return for the assessment year 2004­2005, the Assessing Officer noticed a mismatch in the assessee's Demat account and the assessee's   books   of   accounts   concerning   certain   shares   of Gujarat Arth Ltd. He noticed that Demat account showed a total of 7,26,695 shares to the credit of assessee which figure did not C/TAXAP/1115/2008 ORDER match with the assessee's accounts. Since opening balance in the account showed only 2,57,665 shares of the company, he confronted the assessee with such discrepancy. The assessee gave a detailed reply, principally, contending that the assessee had opening balance of 25,66,695 shares of the said company. During   the   year   the   assessee   had   received   further   4,70,000 shares by way of a loan. Out of the total holding, the assessee had   given   2,56,695   to   one   M/s.   Cavalier   Securities   Ltd.   on 22.10.2003. The   assessee   produced   supporting   material   and confirmation   from  the said M/s.  Cavalier  Securities Ltd.  The assessee further contended that despite repeated requests, M/s. Cavalier Securities Ltd. had not returned the shares. Later on, value of shares in cash as per the face value was received by the assessee from M/s. Cavalier Securities Ltd. only on 1.10.2006. Regarding 4,70,000 shares borrowed by the assessee from Tripex Overseas Ltd, it was contended that these shares still continued in the balance sheet of Tripex Overseas. The assessee had not purchased these shares. The assessee had therefore, not shown such shares in the balance sheet. The Assessing Officer had not accepted the explanations and added entire face value of total of 7,26,695 shares as assessee's undisclosed investment in terms of section 69 of the Income Tax Act. Assessee carried the matter in   appeal.   CIT   (Appeals)   allowed   the   appeal   accepting   the assessee's explanations. In a detailed order, he principally held as under.

One, that the shares lent to M/s. Cavalier Securities Ltd. on 22.10.2003 were not returned despite repeated requests. The money was returned only on 1.10.2006 meaning such event fell outside   the   year   under   consideration   and   secondly,   that   the assessee had received 4,70,000 shares by way of borrowing and C/TAXAP/1115/2008 ORDER such   shares   continued   to   be   shown   in   the   balance   sheet   of lender company i.e Tripex Overseas. He also noticed that the Assessing Officer had ignored the closing balance of 2,57,665 shares of Gujarat Arth Ltd.   Relevant portion of order of CIT (Appeals) reads as under : “4.1. 2. It is seen that the appellant is stated to have lent shares of Gujarat Arth Ltd. numbering 2,56,695 to M/s. Cavalier   Securities   Ltd   on   22­10­2003   which   were   not returned   to   appellant   even   after   repeated   requests   and insisting. However, the appellant, had argued to receive the value of the shares in cash as per the face value and the same is stated to have been received by the appellant on   1­10­2006,   therefore,   there   is   no  investment   aspect involved   for   the   assessment   year   under   consideration since   the   assesses   owned   these   shares   even   during previous year. Therefore, I am of the view that no addition is called for on this count. Since the appellant received the value   of   the   shares   only   on   1­10­2006,   obviously   this transaction will not be reflected for this year.

Tribunal by a brief order confirmed these findings making the following observations : C/TAXAP/1115/2008 ORDER “7. Being aggrieved, the Revenue is in appeal before us. We   have   heard   the   parties   and   considered   the   rival submissions. The fact that the assessee has lent shares of Guajrat   Arth   Ltd.   to   M/s.   Cavaliar   Securities   Ltd.   on 20.10.2003, is not in dispute. it is also not in dispute that they were to return to the assessee even after request and insisting. The equivalent amount in cash was received by the assessee only on 1.10.2006 and, therefore, the CIT (A) was right in holding that there was no investment involved for   the   year   under   consideration   and   addition   on   this account can not be made in this year. As regards assessee borrowing shares of Rs.4,70,000/­, the fact is evident from the balance sheet of Tripex Overseas Ltd., who have lent these   shares   to   the   assessee.   Here   also,   the   assessee cannot   be   said   to   have   purchased   shares   and   made investments. M/s. Tripex Overseas Ltd., is showing these shares   as   an   asset   in   their   Balance   sheet.   In   these circumstances, in our opinion, the ClT(A) was justified in holding the addition. No interference in his order is called for.”

From the above it can be seen that CIT(Appeals) and Tribunal concurrently held that the assessee had duly explained the so­called discrepancy   in  its   books   of   accounts  vis­a­vis   the   Demat  account concerning   the   assessee's   holding   of   shares   of   Gujarat   Arth   Ltd. Assessing Officer had in fact, ignored even the closing balance of such shares in the books of accounts of assessee. We do not find that the Tribunal   committed   any   error.   Question   is   answered   against   the Revenue. Tax Appeal is dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) raghu