HEMRAJ MAHABIR PRASAD LTD.,KOLKATA vs. ACIT, CIR-5, KOLKATA, KOLKATA

This appeal preferred by the assessee is against the order passed by the Ld. CIT(A)-VI, Kolkata dated 13.03.2014 for AY 2007-08 on the following grounds: “

1. For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the disallowance of Rs.20,85,000/- made by the AO on account of loss suffered in the share trading activity by wrongly treating the transaction as a colourable device.

2. For that on the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding that the loss of Rs.20,85,000/- suffered by the assessee will have to be treated as speculative in nature within the purview of the explanation to sec. 73 of the Act.“

2. The brief facts of the case as noted by the Ld. CIT(A) are that the assessee had during the year purchased and sold shares of Indian Standard Metal Co. Ltd. The purchase of 2400 shares of the said company was made from Kaveri Management Services (P) Ltd and sold to Jorehaut India Ltd. Similarly 500 shares are purchased from Jorehaut India Ltd and sold to Kavery Management Services (P) Ltd. By this way, the assessee incurred loss of Rs.20,85,000/- on the said transactions. The AO raised a query in respect of above transactions. In reply, it was stated by the assessee that the shares are purchased on the hope of revival of business of the company namely the Indian Standard Metal Company Ltd. However, such revival did not take place and the shares had to be sold at a loss. The AO, however, did not accept the contention of the assessee and observed that the shares were purchased and sold during the same financial year, involving transactions with the same two private limited companies, which resulted in huge loss. According to the AO, this was a colourable device and accordingly, he disallowed the claim of loss as claimed by the assessee. Aggrieved, assessee preferred an appeal before the Ld. CIT(A). Before him the assessee reiterated the same submission as made before the AO and also submitted that the purchase and sale transactions were duly supported by the documentary evidence such as bills and explained the circumstances under which the purchase and transactions were made. It was contended before the Ld. CIT(A) that merely because the transactions resulted in loss do not mean that the transactions were not genuine. After considering the submissions of the assessee, the Ld. CIT(A) upheld the order of the AO by observing as under: “5. I have considered the facts of the case. The assessing officer had treated the transactions of share to be a colourable device whereas the appellant has contended that the transactions were genuine. It is definitely unusual that shares of a company are purchased from one private limited company, sold to another private limited company in the same financial year at a loss and the same share is purchased from the second company and sold to the first company again at a loss. However, according to the appellant this does not mean that the transaction was not genuine. According to it, shares were purchased with hope of revival of the company concerned and had to be sold at a loss due to revival not taking place. The details of sale and purchase transactions were examined. It is noted that the appellant had purchased 2400 shares from Kaveri Management Services (P) Ltd. (KMSPL) in 21.11.2006 at price of Rs.1000/- per shares, which were sold to Jorehaut India Ltd. in 23.02.2007 at Rs 325/- per share. Similarly 500 shares of the Indian Standard Metal Company Ltd had been purchased from Jorehaut India Ltd. (JIL) on 10.04.2006 at RS.1255/- per share which were sold on 23.02.2007 to Kaveri Management Pvt. Ltd. at Rs. 325/- per share. It can be seen that there was substantial and sharp fall in the price. In fact, in the first case the price of share is reduced from Rs.1000/- to Rs.325/- in a period of about three months. The share being unquoted, no market quotation is available. The appellant has also not given any justification for price such as break-up' value etc. or reason for such a sharp fall in price. The pattern, where shares bought from KMSPL are sold at loss to JIL and shares of same company are bought from JIL are sold to KMSPL again at loss is also quite peculiar. KMSPL and JIL have a common address (26, Shakespeare Sarani) and between themselves, they end up holding same 3100 shares as before, but the appellant makes loss of Rs.20.85 lacs in the process. The appellant otherwise also appears to be related to the parties, as it had earlier given interest free advance of Rs. 6.19 crores to KMSPL, as stated in the assessment order. From the surrounding facts and circumstances, the transaction definitely appears to be in nature of colourable device. Under these facts and circumstances, the argument that the transactions are supported by tile documents like bills etc. has little meaning. Rather, it is expected that when an assessee carries on some non-genuine transactions, the same would be apparently supported by make-belief documentary evidence and the counter-parties would also confirm the same, as the entire arrangement would have been collusive in nature. Under such circumstances, it is facile to argue that what is apparent on paper has to be accepted as real. In its decision in the case of CIT vs. Durga Prasad More 82 ITR 540 (SC), Hon'ble Supreme Court has held that apparent must be considered as real only until it is shown that there are reasons to believe that the apparent is not real. Further, in the decision of Apex Court in the case of Sumati Dayal vs. CIT 214 ITR 801 (SC), it has been held that the matter has to be considered in the light of human probabilities and surrounding circumstances. The facts and circumstances in the appellant's case, as discussed earlier, clearly lead to inference that the transactions under consideration were not genuine share trading transactions.

6. Even otherwise, it is undisputed that the said loss had occurred on account of transactions in shares made by the .appellant company. The attention of the appellant was drawn towards explanation to section 73 of the I.T.Act, 1961 which states, that.- “where any part of business of a company (other than a company whose gross total income consist mainly of income which is chargeable under the heads 'interest on securities', 'income from house property',' capital gains' and 'income from other sources' or a company the principal business of which is the business of banking or granting of loans and advances) consists in purchase and sale of shares of other companies, such company shall, for the purpose of this section, be deemed to be carrying on a speculation business to the extent to which the business consist of the purchase and sale of such shares." The authorized representative of the appellant was asked as to why the explanation to section 73 of the Act would not be applicable in this case. Despite being given ample opportunity, no explanation has been offered. It may be noted that the appellant is not a company whose principal business is business of banking or granting of loans and advances, nor its gross total income mainly consists of income chargeable under the heads 'interest on securities', income from house property, capital gains and 'income from other sources'. Considering this, explanation to section 73 of the Act is attracted on the transaction in shares carried out by the appellant. Hence even if the share transactions are not treated as colourable device, the loss arisen from the same will have to be treated as speculative in nature which cannot be set off against non- speculative income.

7. Considering all the above facts and circumstances, I uphold the action of the assessing officer in disallowing the loss of Rs.20,85,000/- as colourable device. Without prejudice, the loss is also held to be speculative in light of explanation to section 73.”

The Appellate Tribunal is the final fact-finding authority and normally it should record its conclusion on every disputed question raised before it, setting out its reasons in support of its conclusion. But in failing to record reasons, when the Appellate Tribunal fully agrees with the view expressed by the Appellate Assistant Commissioner and has no other ground to record in support of its conclusion, it does not act illegally or irregularly, merely because it does not repeat the grounds of the Appellate Assistant Commissioner on which the decision was given against the assessee or the department.

Since we do not find any infirmity in the order of the Ld. CIT(A) and the Ld. AR could not controvert the same by producing any cogent material on record, therefore, the order of the Ld. CIT(A) is upheld. Appeal of assessee is dismissed.

Order is pronounced in the open court on 24.05.2017 Sd/- Sd/- (J. Sudhakar Reddy) (Aby. T. Varkey) Accountant Member Judicial Member Dated : 24th May, 2017 Jd.(Sr.P.S.) Copy of the order forwarded to: Appellant – Hemraj Mahabir Prasad Ltd., 28/2, Shakespeare Sarani, 8th 1. floor, Room N. 803, Kolkata-700 017. Respondent –ACIT, Circle-5, Kolkata. 2 3. The CIT(A), Kolkata 4. CIT , Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order,