Income Tax Appellate Tribunal - Mumbai
Dy. Cit Central Circle 31 vs Pallavi Holdings (P.) Ltd. on 1 August, 2005
Equivalent citations: [2006]5SOT190(MUM)
ORDER
Dr. O.K. Narayanan, AM This is a bunch of three appeals. The common assessment year is 1992-93. The appeal in ITA No. 1912/Mum/2000 is filed by the revenue. The said appeal is directed against the order of the Commissioner (Appeals), Cent. VIII at Mumbai dated 4-2-2000. The appeal in ITA No. 2607/Mum/2001 is filed by the assessee against the order of the Commissioner (Appeals), Cent. VIII at Mumbai passed under section 154 of the income Tax Act, 1961 on 2-3-2001. The appeal in ITA No. 1473/Mum/ 2002 is again filed by the assessee against the order of the Commissioner (Appeals), Cent. VIII at Mumbai passed on 28-1-2002. All the three appeals arise out of the assessment completed under section 143(3) read with section 147 of the income Tax Act, 1961 on 30-3-1998.
2. The assessee in this case is a Private Limited Company engaged in the business of dealing in shares, debentures, bonds, securities, etc. The assessee-company had filed a return declaring loss of Rs. 44,174 on 25-7-1994. As the return was a belated return filed beyond the time-limit prescribed under section 139, a notice under section 148 was issued to regularize the same, in response to which the assessee stated that the return already filed could be treated as the one filed in response to the said notice. The assessment was completed by fixing a total income of Rs. 11,41,75,830 as against a loss of Rs. 44,174 returned by the assessee-company. The assessment was completed after making an addition of Rs.11,44,20,000 on the ground of profit on alleged sale of ACC shares held by the assessee-company.
3. The assessment was taken in appeal before the Commissioner (Appeals), Central-VIII at Mumbai. The Commissioner (Appeals) held that no material was brought on record to show that the seized documents imputed in the hands of the assessee-company had any nexus with the reason to believe that any income has escaped assessment for the impugned assessment year. Therefore, on the basis of the decision of the Supreme Court in the case of ITO v. Madnani Engg. Works Ltd. (1979) 118 ITR 1 the Commissioner (Appeals) held that the assessment was bad in law. The assessment order was accordingly cancelled. It is against this cancellation order that the revenue has come in appeal in ITA No. 1912/ Mum/2000.
4. Meanwhile, the Commissioner (Appeals) initiated rectification proceedings under section 154 and passed an order on 2-3-2001 recalling his earlier order dated 4-2-2000 on the ground that there was a mistake in the said order insofar as not appreciating the possible nexus between the material available against the assessee and the reason of the assessing authority to believe that income was escaped assessment for the impugned assessment year. The appeal filed by the assessee in ITA No. 2607/Mum/2001 is against the said rectification order passed by the Commissioner (Appeals).
5. Consequent to the rectification of the earlier appellate order and recalling of the same the Commissioner (Appeals) adjudicated the appeal of the assessee on merits through his order dated 26-1-2002. In the said order, the Commissioner (Appeals) has upheld the validity of the assessment as well as the finding of the assessing officer that income has to be added in the hands of the assessee on the ground of alleged sale of ACC shares. However, he modified the sale rate adopted by the assessing authority at Rs. 10,000 to Rs. 5,725 per share. Subject to the said modification, the profit on sale of shares has been determined by the Commissioner (Appeals) at Rs. 7,95,19,650. It is against this that the assessee-company has come in quantum appeal in ITA No.1473/Mum/ 2002.
6. We heard Shri Anant Pai, the learned Chartered Accountant appearing for the assessee and Dr. P. Daniel, the senior standing counsel appearing for the revenue.
7. At the first instance we will take the appeal filed by the assessee in ITA No.1473/Mum/2002 against the appellate order dated 28-1-2002 dealing with the addition made on account of the alleged sale of shares and decided on merit by the Commissioner (Appeals).
8. In the course of assessment proceedings, the assessing officer found that the assessee-company had purchased 67,000 shares of ACC Ltd. for an amount of Rs. 22.78 crores. Thereupon, the assessing officer directed the assessee-company to establish the whereabouts of the shares purchased by the assessee-company. In response to the query raised by the assessing officer, the assessee stated that the shares were seemed to be seized by the income-tax department in the course of search carried on at the office of the assessee-company, among various other papers seized by the department. Therefore, the assessee-company requested for an opportunity to inspect the seized materials to verify whether the seized materials included these ACC shares purchased to the assessee. It was also stated by the assessee-company that alternatively the shares might be in the possession of the custodian appointed by the special court in whose custody so many documents and papers were entrusted. The assessee-company further requested the assessing authority to arrange an inspection of documents in the office of the custodian to verify the position.
9. In short, the assessee- company submitted that the shares were not in the possession of the assessee-company and the shares might have been included in the seized materials and kept either in the office of the income-tax department or in the office of the custodian appointed by the special Court. The assessee submitted that in either case, the inspection and discovery of the shares were beyond the powers of the assessee and, therefore, requested the help of the assessing officer to conduct necessary enquiries, inspections and to locate the shares.
10. But the assessing officer did not accept any of the above contentions submitted by the assessee-company. The assessing officer felt that no prudent business man would risk to loose shares worth crores of rupees and the explanation of the assessee that the shares were not in its possession was unbelievable. The assessing officer also felt that if the shares were lost or misplaced otherwise, the assessee-company should have registered FIR with the Police which was not done. In spite of a lapse of two and half years, the assessee-company has not taken any action to retrieve the so-called lost shares. The assessing officer further noticed that the group companies to which the assessee-company belonged had off-loaded large quantities of stock holdings in the market and, therefore, there is every reason to believe that 67,000 shares of ACC Ltd. purchased by the assessee-company also might have been sold in the market. The assessing officer also noted that in the light of the distinctive numbers of the shares furnished by the assessee-company, it was seen that the shares delivered to the assessee were not transferred to name of the assessee-company. In the circumstances, the assessing officer came to a finding that out of the 67,000 shares reflected in the balance-sheet of the assessee-company, 34,202 shares belonged to the assessee itself and the balance shares 32,798 were held by the assessee in the name of benamidars. The assessing officer thus concluded that as the assessee-company was not in a position to produce the shares for verification, it was necessary to hold that the shares were sold by the assessee-company in the open market for a higher price. The cost price of 67,000 shares of Rs. 22.78 crores as shown by the assessee was deducted from the amount of sale price of Rs. 34,20,20,000 being the sale price at the rate of Rs. 10,000 each for 34,202 shares adopted by the assessing officer and a profit of Rs. 11,42,20,000 has been worked out and added to the income of the assessee-company.
11. In first appeal, the Commissioner (Appeals) also agreed with the finding of the assessing authority that the shares should be treated as sold by the assessee-company in the open market. But the Commissioner (Appeals) found that the sale price of Rs. 10,000 per share adopted by the assessing officer was on the higher side. The Commissioner (Appeals) adopted Rs. 5,725 per share as the average rate on the basis of the prevailing highest and the lowest rates of ACC shares and directed the assessing authority to apply the said rate to 34,202 shares said to be sold by the assessee. As a result of this, the addition of Rs. 11,42,20,000 has been modified to Rs.7,95,19,650. It is against the above that the assessee has come in second appeal before us.
12. The grounds of appeal raised by the assessee-company read as below:
'1. The learned Commissioner (Appeals) has erred in law and in facts in upholding the assessment order passed by the assessing officer under section 143(3)/147 of the Act.
2. The learned Commissioner (Appeals) has erred in law and in facts in upholding the addition made by the assessing officer on account of profit earned on alleged sale of 34,202 shares of M/s. ACC Ltd.
(a) The learned Commissioner (Appeals) has erred in law and in facts in determining the profit on alleged sale of 34,202 shares of M/s. ACC Ltd. at Rs. 7,95,19,650.
(b) The learned Commissioner (Appeals) has erred in law and in facts in holding that the observations of the assessing officer made in assessment order for assessment year 1994-95 were out of the context so far as appeal for assessment year 1991-92 is concerned.
(c) The learned Commissioner (Appeals) has erred in law and in facts in following the appellate order passed in the case of one of the sister concerns viz., M/s. Topaz Holdings (P) Ltd.
(d) The learned Commissioner (Appeals) has erred in law and in facts in upholding the rejection of books of account of the assessee.
(e) The learned Commissioner (Appeals) has erred in law and in facts in treating the impugned shares as trading assets.
(f) The learned Commissioner (Appeals) has erred in law and in facts in treating the alternative submissions of the assessee as covert admission that the impugned shares were sold by the assessee.
(g) The learned Commissioner (Appeals) has erred in law and in facts in holding that the conclusion reached by the assessing officer that shares were sold in the same financial year cannot be assailed on good grounds.
3. The learned Commissioner (Appeals) has erred in law and in facts in not holding that the notice issued by the assessing officer under section 148 of the Act was bad in law.
4. The learned Commissioner (Appeals) has erred in law and in facts in upholding the levy of interest under sections 234A, 234B and 234C of the Act.
5. The learned Commissioner (Appeals) has erred in law and in facts in passing the appellate order ex parte in violation of principles of natural justice. The learned Commissioner (Appeals) has erred in law and in facts in not directing the assessing officer to cause full enquiries by issuing summons under section 131 of the Act since the assessing officer had failed to cause such enquiries during the assessment proceedings.
6. The order passed by the Commissioner (Appeals) is illegal, bad in law and without jurisdiction."
13. What is coming out of the orders of the lower authorities and the detailed submissions made by the assessee-company is that there was no dispute against the facturn of purchase of ACC shares by the assessee-company as reflected in its balance-sheet. When the assessing officer asked to prove the possession of the shares, the assessee-company expressed its helplessness stating that the shares were not traceable in its custody and further explained that the shares might have been seized either by the income-tax department or by the Custodian appointed by the special court in the course of their respective search and seizure operations. The assessee-company further requested the help of the assessing officer to make necessary enquiries and locate the shares either in the office of the department or in the office of the Custodian of the special Court, as the assessee would not be in a position to initiate any such enquiry and discover the shares. The assessee being a notified entity and connected to Harshad Mehta group of concerns, there were a number of searches and inspections in the business premises of the impugned and connected cases. It is also a fact that the department had seized a number of documents and papers from the business premises of the assessee and associate concerns. It is again true that the Custodian appointed by the special court also keeps under his control a number of documents and papers relating to the business carried on by the assessee-company and its associate concerns. It is in the above circumstances that the assessee has stated that the shares were not available in its custody and might have been seized or misplaced elsewhere. The assessing officer has not directly addressed this crucial contention advanced by the assessee-company. The assessing officer, on the other hand, observed that in spite of the loss of shares for more than a period of 2 years, the assessee-company had not filed any First Information Report with the Police authorities. The assessee could have filed FIR had the company believed that the shares were stolen or misappropriated by somebody. When the assessee-company was under the bona fide impression that the materials seized by the income-tax department as well as the Custodian of the special court also included the shares, how was it feasible for the assessee-company to file FIR against the suspected loss of shares. Such a chance seems to be very remote and such a proposal itself is very incredible. Therefore, non-filing of FIR by the assessee-company cannot be made a ground by the assessing officer to disprove the contention advanced by the assessee-company before him.
14. The assessing officer has presumed that those shares were sold by the assessee-company in the open market. He has also stated that the assessee- company along with its group companies had off-loaded substantial portion of their shareholdings in the open market for a higher price. Even though the assessing officer has made such a general observation in the assessment order, necessary particulars have not been given or dismissed. The assessing officer has not explained the nature of materials relied on by him to arrive at a conclusion. In spite of the enquiries said to be made by the assessing authority, no other materials could be collected by him against the assessee-company to hold that the ACC shares were sold by the company in the open market. The whole case of sale of shares has been made out by the assessing authority on the ground of human probability that no assessee would be complacent in losing that much shares worth crores of rupees and, therefore, those shares would have been sold in open market. But when the whole business of the assessee-company was in shambles during the relevant time and so many documents and papers were scattered here and there including in various Government offices, it was not possible to expect a normal pattern of conduct either from the assessee or from its associate concerns,
15. The assessee- company while stating that the shares were not in its custody has in fact made a statement of a negative fact. The negative fact is that the shares were not in its custody. When the assessee-company is asserting a negative fact, how could the assessee be called upon to prove the same. That is against the basic rule of evidence. No person could be called upon to prove the negative. The only way to assert such a negative fact is to assert and affirm such statements in instruments such as affidavits and to state the supporting circumstances in which the negative fact pointed out by the person stand the test of reasonable probability. In the present case, the assessee has done all the above endeavours from its side to assert its stand that the shares were not in its custody when asked for by the assessing authority.
16. Now if the assessing officer wanted to proceed further and make out a positive case, that those shares were sold by the assessee-company, the rule of Prudence calls for some piece of evidence either direct or indirect in the hands of the assessing officer to allege that the shares were in fact sold by the assessee-company in the open market for a higher price. Either the buyers of the shares should have been identified or the time of the sale should have been reasonably ascertained or the pattern of sales should have been known or any matter relating to the case of alleged sale should have been known to the assessing officer. When we go through the orders passed by the lower authorities in detail, we are constrained to see that no piece of direct or indirect evidence is available on record to come to even a distant conclusion that those ACC shares were sold by the assessee-company in the open market for a higher price. In fact, as per the records of the case, the fate of those shares is still unknown.
17. When the fate of the shares is still unknown there could be a number of presumptions regarding the consequences; assessee might have sold the shares or the shares must have been misplaced or the shares must have been irretrievably lost or the shares must have been held by others authorisedly or unauthorisedly. There are so many possibilities. How could it be justified to pick and choose only one possibility out of so many others available that the shares were sold by the assessee-company in the open market? That pick and choose is only arbitrary.
18. Therefore, we find that all the grounds stated by the assessing authority to allege a case of unaccounted sale of shares are based on subjective propositions and pre-conceived notions. They do not have the support of any direct or indirect evidence or even a plausible explanation. Therefore, as a matter of fact, it is very hard to hold that those shares have been sold by the assessee-company in the open market outside the books of account.
19. We find that the assessing officer himself was under the pressure of some confusion in coming to his conclusion regarding the final fate of the ACC shares held by the assessee-company. This is evident from the computation on page 15 of the assessment order. The assessing officer has observed that out of the total purchase of 67,000 ACC shares 34,202 shares belonged to the assessee itself and the balance 32,798 shares were held by benamidars. That finding of benamidars' holding is again on the basis of some general and casual observation and not on the basis of any cohesive evidence. Leave it apart; while working out the profit on sale of shares, the assessing officer has adopted the sale price of 34,202 ACC shares whereas deduction has been given to the entire cost price of 67,000 ACC shares. If 32,798 shares were to be held by the assessee-company as benami holdings, the corresponding cost should also be excluded out of its hand. Therefore, we find that there is a marked disparity between the conclusion of the assessing authority and the computation made out by him.
20. The Commissioner (Appeals) also has not considered these matters not in a judicious manner and he was carried away by the logical arguments advanced by the assessing authority. As the logical advances have landed the Commissioner (Appeals) in so many inferences, which were based only on subjective presumptions and assumptions. There seems to be a great temptation on the part of the lower authorities to presume a case of unaccounted sales because of the particular status of the assessee-company as notified entity involved in the securities scam. But we have to examine a case of assessment dispassionately.
21. In the facts and circumstances of the case we are of the considered view that the addition of Rs. 11,42,20,000 made by the assessing authority on the ground of alleged sale of ACC shares is unsustainable both in facts as well as in law. Therefore, even the modified addition sustained by the Commissioner (Appeals) is deleted.
22. As the substantial issue raised in this appeal is decided on facts and merits of the issue we find that there is no need of advent upon other legal grounds including the additional ground raised by the assessee-company in this appeal. Therefore, all of them are capped as academic.
23. As the issue on the alleged sale of shares of ACC Ltd. has been decided in favour of the assessee by allowing its appeal in ITA No. 1473/Mum/ 2002, the remaining two appeals, one filed by the revenue in ITA No. 1912/ Mum/2000 and the other filed by the assessee, in ITA No. 2607/Mum/ 2001 have become infructuous. Therefore, they are liable to be dismissed.
24. In result, the addition made on the ground of sale of shares is deleted and the appeal of the assessee is allowed in ITA No. 1473 /Mum/2002. The appeal filed by the revenue in ITA No.1912/Mum/2000 and the appeal filed by the assessee in ITA No. 2607/Mum/2001 are dismissed as infructuous.