HARJIT KAUR vs. ASSISTANT COMMISSIONER OF INCOME TAX SIRSA

ITA No.280 of 2013 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.280 of 2013 (O&M) Date of decision:11.11.2013 Smt. Harjit Kaur, M/s Punjab Palace & Guest House, Hissar Road, Sirsa …Appellant Vs. Assistant Commissioner of Income Tax, Sirsa …Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MR. JUSTICE MEHINDER SINGH SULLAR Present: Mr. Ashim Aggarwal and Mr. Prakash Kumar, Advocates for the appellant. Ajay Kumar Mittal,J. 1. The delay in refiling the appeal is condoned. 2. This order shall dispose of ITA Nos.220 and 280 to 282 of 2013, as according to the learned counsel for the appellants, the factual and legal issues involved therein are identical. However, the facts are being extracted from ITA No.280 of 2013. 3. ITA No.280 of 2013 has been preferred by the assessee under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 29.11.2012, Annexure A.6, passed by the Income Tax Appellate Tribunal, Chandigarh Bench ‘A’, Chandigarh in ITA No.949/CHD/2011 for the assessment year 2008-09, claiming following substantial questions of law:- “A. Whether the Income Tax Appellate Tribunal was justified in law in restoring the action of the Assessing Officer in making disallowance of short term capital loss of `22,50,000/- on sale of shares of M/s Arcee Ispat Udyog Limited? Singh Gurbax 2013.12.20 10:10 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.280 of 2013 (O&M) 2 B. Whether the findings of the Tribunal that the transactions of purchase and sale of shares of M/s Arcee Ispat Udyog Limited were not genuine, not bonafide and were for creating artificial short term capital loss, are not perverse? C. Whether the findings of the Income Tax appellate Tribunal that the assessee has failed to discharge the onus to prove the genuineness of transactions of purchase and sale of shares, are not perverse? D. Whether the Income Tax Appellate Tribunal has failed to appreciate that an offer of surrender by the assessee does not mean admission to taxability? E. Whether upon examination of the true nature of transactions the tribunal was justified in holding that the transactions were not genuine and bonafide? F. Whether the onus of proof has shifted on the Assessing Officer to prove that the transactions of purchase and sale of shares were not genuine, in view of the fact that the assessee had placed all relevant documents/evidence before the Assessing Officer and the Assessing Officer had also conducted third party inquiries regarding the same? G. Whether, the Income Tax Appellate Tribunal was justified in law, in reversing the action of the Commissioner of Income Tax (Appeals) in deleting the disallowance made by the Assessing Officer of the claim of short term capital loss, without giving due considerations to the reasoning/findings given by the Commissioner of Income Tax (Appeals) and the submission of the assessee?” 4. The relevant facts necessary for adjudication of controversy involved herein as available on record may be noticed. The appellant is an agriculturist. She sold her land shares in the financial year 2007-08 relevant to the instant assessment year 2008-09 and filed her return of income accordingly. During the course of assessment proceedings, notice dated 1.12.2010 was issued to the assessee alleging that the loss so incurred on the shares was bogus and therefore not allowable. The assesse submitted reply to the notice. After examining the matter, vide order dated 22.12.2010, Annexure A.1, the Assessing Officer held that genuineness of the Singh Gurbax 2013.12.20 10:10 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.280 of 2013 (O&M) 3 transactions of shares of M/s Arcee Ispat Udyog Limited Hisar was not proved and thus the loss of ` 22,50,000/- claimed by the assessee could not be allowed and the same was added back towards her taxable income. Aggrieved by the order, the assesses filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 28.7.2011, Annexure A.4, the CIT(A) accepted the appeal and deleted the disallowance made by the Assessing Officer. Not satisfied with the order, the revenue filed appeal before the Tribunal. Vide order dated 29.11.2012, Annexure A.6, the Tribunal allowed the appeal, reversed the findings of the CIT (A) and restored that of the Assessing Officer. Hence the present appeals by the assessees. 5. Learned counsel for the assessee submitted that there was short term capital loss as the assessee had purchased 25000 shares of fixed value of ` 10/- per share on 8.11.2007 @ Rs.100/- per share for ` 25,00,000/- and sold the same on 1.2.2008 at the rate of ` 10/- per share for ` 2,50,000/- and in this process had incurred short term capital loss of ` 22,50,000/- which was permissible under the Act. According to the learned counsel, the CIT(A) had rightly allowed the claim of the assessee. Relying upon judgment of this court in Porrits and Spencer (Asia) Limited v. CIT, (2010) 329 ITR 222, it was submitted that in the absence of any concrete evidence against the assessee, the Assessing Officer and Tribunal were not justified to decide the issue against the assessee. 6. After hearing learned counsel for the appellants, we do not find in merit in these appeals. 7. The primary issue that arises for determination in these appeals is whether the revenue was justified in disallowing loss suffered by the assessee on the sale and purchase of shares of M/s Arcee Ispat Udyog Limited. The assessee had purchased 25000 shares of M/S Arcee Ispat Udyog Limited on 8.11.2007 which was not quoted on the stock exchange at the rate of ` 100/- per share of Singh Gurbax 2013.12.20 10:10 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.280 of 2013 (O&M) 4 which face value was ` 10/- per share. The assessee sold these shares on 1.2.2008 at the face value of ` 10/- per share and incurred short term capital loss of ` 22,50,000/-. Learned counsel for the appellant was unable to explain as to why these unquoted shares at the stock exchange were purchased by the assessee at such a high value and was also unable to justify that the book value of these shares was ` 100/- per share in November 2007 which had declined to face value of ` 10/- per share in February 2008 when these shares were sold. The transactions of purchase and sale of shares of M/s Arcee Ispat Udyog Limited in the present case cannot be held to be genuine. The Hon’ble Apex Court in McDowell and Co. Limited v. CTO (1985) 154 ITR 148 deprecated the method where the assessee attempts to evade payment of income tax. 8. Examining the findings recorded by the Tribunal on appeal, it is noticed that the Tribunal while setting aside the order of the CIT(A) had observed as under:- “7. A bare perusal of the relevant records, findings of the lower authorities, as contained in their respective orders clearly reveals that the assessee appellants sold land which resulted in short capital gain, as is evident from the chart reproduced above. The assessee appellants namely Smt.Harjit Kaur, Smt.Surinder Kaur, Smt.Gurdeep Kaur and Shri Avtar Singh claimed short term capital loss at `22.50 lacs, `18.00 lacs, ` 45.00 lacs and ` 22.50 lacs respectively emanating from sale of shares, allotted by the said unlisted Hissar based company namely M/s Arcee Ispat Udyog Limited. The AO disallowed the impugned loss, in respect of each appellant assessee and accordingly recomputed the taxable income. Learned CIT (Appeals) reversed the findings of the AO. It is imperative to highlight the factual details and the sequence of events/steps, which led to creation of the so called short term capital loss and consequent claim made by the appellants: i) Short term capital gains emanating as a result of sale of land by the assessee appellants. Singh Gurbax 2013.12.20 10:10 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.280 of 2013 (O&M) 5 ii) The assessee appellants purchased shares from unlisted company M/s Arcee Ispat Udyog Limited, Hissar. Each of the assessee appellant purchased shares, as mentioned in the chart above, on the same date i.e. 8.11.2007 @ `100/- per share. iii)All the assessee appellants sold shares to same Delhi based broker namely TCG Stock Brokers Limited, on the same date i.e. 31.3.2008 @ ` 10/- per share. iv)As per the relevant record, the book value of such share, as on 31.3.2008, stood at ` 56/- and the appellant sold such shares @ ` 10/- per share, on the same date i.e. 31.3.2008. v) The share broker sold back the same shares, on 12.8.2008, @ ` 100/- per share, to Smt.Krishna Gupta, Director in the said company and wife of Shri R.C.Gupta, who is Managing Director in the same company, thus showing circular transactions, in the matter. vi)The shares were allotted directly by the unlisted company to the appellants and the transactions were not routed through any stock exchange. 8. The learned CIT(Appeals) completely disregarded the above indicated series of transactions, eloquently demonstrating the true nature of such transactions. The CIT(Appeals), merely dissected such integrated transactions and focused on individual step of such transactions independently and consequently, observed that purchase and sale of such shares has not been denied by the AO. The CIT(Appeals) mainly concentrated and focused on the vouchers of purchase and sale of such shares, procured by the assessee appellants with the preconceived understanding of the said unlisted company and the said broker. Further, the CIT(Appeals), ignored the surrounding facts and circumstances of the case and failed to properly appreciate the series of steps taken by the assessee appellants, as a whole and in an integrated manner, for the object of creating artificial loss. Such transactions involve the series of preconceived steps, the performance of each of which Singh Gurbax 2013.12.20 10:10 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.280 of 2013 (O&M) 6 is depending on the others being carried out, in accordance with the common intention of the assessee appellants and the said company who allotted the shares to the appellants, the nature and effect of the whole scheme has to be taken into consideration, in determining the true intent and nature of such share transactions. However, learned CIT(Appeals) disregarded such integrity of the said transactions. The learned CIT(Appeals) completely ignored the factum that the true nature of such share transactions lacked commercial contents, being structured transactions, entered into with the sole intent, to reduce the tax liability. The facts and circumstances of the case, as recorded above, clearly suggest that the revenue cannot take or accept such make-believe transactions, as presented by the appellants. Truth or genuineness of such transactions must prevail over the smoke screen, created by way of pre-meditated series of steps taken by the appellants, with a view to imparting a colour of genuineness and character of commercial nature, to such share transactions. Needless to say that one has to look at the whole transactions and a series of steps taken to accomplish such share transactions, in an integrated manner, with a view to ascertaining the true nature and character of such purchase and sale of shares. The shares were purchased and sold in these cases, cannot be treated as regular business transactions as the assessee appellants purchased shares, on 8.11.2007, @ ` 100/- per share and sold the same on 31.3.2008 @ ` 10/- per share, in the face of book value of such shares sold at ` 56/- as on 31.3.2008. Such approach of the appellants, runs contrary to the very nature of human conduct. The Hon'ble Supreme Court, in the case of CIT v. Durga Prasad More (1971) 82 ITR 540 (SC) has categorically held that the revenue is entitled to look into the surrounding circumstances, to find out the reality of the recitals made in the documents. The relevant observations and findings of Hon'ble Supreme Court, in the matter of discharge of 'onus of proof' and the relevance of surrounding circumstances of the case are “that though an appellant's statement must be Singh Gurbax 2013.12.20 10:10 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.280 of 2013 (O&M) 7 considered real until it was shown that there were reasons to believe that the appellant was not the real, in a case where the party relied on self serving recitals in the documents, it was for the party to establish the transfer of those recitals, the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals. Science has not yet invented any instrument to test the reliability of the evidence placed before a Court or Tribunal. Therefore, the Courts and the Tribunals have to judge the evidence before them by applying the test of human probability. Human minds may differ as to the reliability of place of evidence, but, in the sphere, the decision of the final fact finding authority is made conclusive by law. xx xx xx xx xx xx xx xx xx 11(i) We have perused and considered the decisions relied upon by the CIT(Appeals). In the present case, the assessee appellants in the course of assessment proceedings, voluntarily made an offer before the Assessing Officer, to surrender the impugned short term capital loss, subject to no penal action. Such offer of the assessee appellants, was not accepted by the Assessing Officer and he disallowed the impugned claim of short term capital loss, by recording detailed findings in the