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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, JM & SHRI MANOJ KUMAR AGGARWAL, AM
O R D E R Manoj Kumar Aggarwal (Accountant Member):- 1. Aforesaid appeal by revenue for Assessment Year [in short referred to as ‘AY’] 2008-09 contest the order of Ld. Commissioner of Income-Tax (Appeals)-16, Mumbai, [in short referred to as ‘CIT(A)’], Appeal No.CIT(A)- 16/ITO 8(2)(4)/IT 313/2010-11 dated 08/05/2015 on following grounds of appeal: - i) "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding the purchase of property as genuine notwithstanding that the assessee had not executed the requisite deed necessary for the transfer of the said property, the property was encumbered as it had been hypothecated by its owner to the Bank and therefore, could not have been transferred and finally that the claim that the assessee took possession of the property on the date of the purported agreement i.e. 31-03-2008 is not corroborated by any independent and credible evidence. ii) "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that the loss arising from the transaction in shares was a capital loss and therefore, the provisions of section 73 of the Act was inapplicable, without considering that the transaction was an adventure in the nature of trade and without considering the decision of the Hon'ble MP High Court in the case of Bhikamchand Janakilal (131 ITR 554)". The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the ITO 9(1)(3) be restored.”
None has appeared for the assessee and no valid adjournment application is on record. The perusal of the order-sheet entries reveals that the assessee has remained negligent in appearing on several earlier occasions. The Ld. DR has placed on record report of notice served to the assessee on 24/04/2018, 12/09/2018 & 25/03/2019 which is stated to be served upon the assessee on 15/06/2018, 03/10/2018 & 16/04/2019. Left with no option, we proceed to dispose-off the revenue’s appeal on the basis of material on record and after hearing Ld. DR, who drew attention to the observation made by Ld. AO in the quantum assessment order framed in the case of the assessee u/s143(3) on 21/12/2010. As evident from grounds of appeal, two issues arise under the appeal viz. genuineness of purchase of property and nature of loss arising from transactions in shares. 2.1 The first issue stem from the fact that the assessee sold certain Land and factory building during the year under consideration for a sum of Rs.240 Lacs and earned net profit of Rs.178.65 Lacs on sale of above assets. In the concerned block of assets from which the above asset was deducted, the assessee added another property for Rs.126.70 Lacs. After considering the additions and deletions, the assessee worked out short- term capital gains of Rs.29.29 Lacs, against which set-off has been claimed for short-term capital loss of Rs.37 Lacs suffered by the assessee on sale of certain shares. The dispute is with regard to genuineness of the purchase of property and nature of short-term capital loss suffered by the assessee in terms of Section 73 of the Act. 2.2 In support of purchase of new asset, the assessee filed Agreement to Sale, the perusal of which revealed that the agreement was entered on last date i.e. 31/03/2008 on stamp paper of Rs.50/- and the seller i.e. M/s Jayraj Packaging Pvt. Ltd. happens to be the assessee’s supplier for traded foods. Till the date of framing of assessment, the sale transaction was not registered by execution of Sale Deed. The perusal of audited accounts filed by the seller with ROC revealed that the said entity did not have any fixed asset in its audited accounts. Upon conformation, the assessee submitted that the seller was very much in possession of the property and the property was hypothecated to Allahabad bank against secured loan. However, the assessee failed to adduce satisfactory explanation as to how the hypothecated property could be sold. The complete details from Allahabad Bank also could not be received and the assessee also failed to produce the Managing Director of Seller for confirmation of transactions. 2.3 In the above background, noticing many discrepancies / inconsistencies in the factual matrix, as enumerated in para 4.4 of the quantum assessment order, Ld. AO disregarded the transaction of purchase of new asset for all the purposes. The action of Ld. AO would result into enhancement of short-term capital gains arising from the sale of assets. 2.4 The second issue is related with set-off of short-term capital loss of Rs.37 Lacs on sale of shares of an entity namely M/s Varsha Corporation Ltd. The Ld. AO, invoking the provisions of Explanation to Section 73, treated the loss as speculative loss and therefore, held that the same could not be allowed to be set off from the short-term capital gains earned by the assessee. 3.1 Before learned first appellate authority, certain new facts came into light viz. the property was originally owned by the assessee and sold to M/s Jayraj Packaging Pvt. Ltd. on 19/03/2003 for a sum of Rs.126 Lacs. The assessee’s assessment for AY 2004-05 was concluded after considering the sale of this property. The purchaser i.e. M/s Jayraj Packaging Pvt. Ltd. obtained secured loan from Allahabad Bank by hypothecating the said property. In the event of default in payment of installment, the Bank proposed to sell the property to recover its loan. Accordingly, the assessee paid a sum of Rs.126 Lacs to an entity namely M/s Shiv Shakti Mercantile Pvt. Ltd. through banking channels on 01/04/2007 & 04/07/2007. The said payment was stated to be made as per the directions of M/s Jayraj Packaging Pvt. Ltd. since its account was under NPA and non-operating. It was explained that to facilitate one-time settlement of bank dues, the funds were placed with sister concern. The final settlement was stated to be reached on or about 29/06/2010 upon payment of settlement amount. In the above background, it was submitted that payment was made by the assessee much before the date of agreement i.e. 31/03/2008 and the possession of the property was also obtained much before the date of agreement. 3.2 Although Ld. first appellate authority called for a remand report against the new facts submitted by the assessee, however, Ld.AO failed to consider the same and repeated the stand taken in the quantum assessment order. The learned first appellate authority, after considering the material on record, concluded that since the purchase consideration was paid on 01/04/2007 and 04/07/2007, the property was transferred to the assessee who had obtained the possession thereof. Proceeding further, the learned first appellate authority held that Ld. AO could declare the purchase of property as non-est only as per the provisions of Section 281 of the Income Tax Act, 1961 and therefore, the said transaction of purchase of property could not be held to be non-genuine. 3.3 Regarding set-off of short-term capital loss of Rs.37 Lacs, it was concluded that the provisions of Section 73 was not applicable since the dealing in shares was not assessee’s business and therefore, the decision of Hon’ble Delhi High Court in rendered CIT V/s Orient Insurance Pvt. Ltd. was applicable to the facts of the case. Aggrieved, the revenue is in further appeal before us. The Ld. DR advanced arguments in support of the conclusion reached upon by learned AO.
4. Upon careful consideration, we find that the observations made by Ld. AO at para 4.4 of the quantum assessment order remained unaddressed by Ld. CIT(A) in the impugned order. The assessee brought to light new facts which were never under consideration of Ld. AO in the original assessment proceedings. It is also observed that the transactions of purchase of property ash not been held to be non-est by Ld. AO as wrongly observed by Ld. CIT(A) rather the transaction has only been held to be non-genuine. Similarly, new arguments were advanced with respect to loss on shares which were never put forth before Ld. AO. Therefore considering the facts and circumstances of the case, we set aside the impugned order on these two issues and remit the matter back to the file of Ld. AO for consideration of the matter de-novo after affording reasonable opportunity of being heard to the assessee, who, in turn, is directed to substantiate his stand.
The appeal stands allowed for statistical purpose. Order pronounced in the open court on 26th August, 2019.