Income Tax Appellate Tribunal - Ahmedabad
Pragnesh Ramanlal Patel,, Ahmedabad vs The Ito, Ward-5, Kadi,, Mehsana on 12 July, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "C" BENCH
(BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER
& SHRI AMARJIT SINGH, ACCOUNTANT MEMBER)
ITA. Nos: 2807 & 2808/AHD/2017
(Assessment Years: 2013-14 & 2014-15)
Pragnesh Ramanlal Patel V/S Income Tax Officer Ward 5
B/1 203, Shridharshan Kadi, Mehsana
Society, Opp.
Vishwakarma Mandir,
Ghatlodiya, Ahmedabad
(Appellant) (Respondent)
PAN: APUPP1439F
Appellant by : Shri S. N. Soparkar, AR
Respondent by : Smt. Aparna Agarwal, CIT/ D.R.
(आदे श)/ORDER
Date of hearing : 09 -05-2018
Date of Pronouncement : 12 -07-2018
PER Mahavir Prasad, Judicial Member
1. These two appeals by the Assessee are directed against the order of the Ld. CIT(A)-, Gandhinagar, Ahmedabad dated 22.09.2017 pertaining to A.Y. 2013-14 & 2014-15 because issues are common in both the years only 2 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 amount and assessment year are different. Therefore, for the sake of convenience, we would like to dispose of these two appeals by a common order. The ITA No.2807 for A.Y.2013-14 is taken as a lead case and its findings will be applicable to ITA 2808 for A.Y.2014-15. For Assessment Year 2013-14, appellant has taken following grounds have been taken:
1. The Learned CIT(A) has erred in uphold the disallowance of loss of trading in bonds of Rs. 4,57,29,090. Holding the said transaction is non genuine on basis of surmises only.
2. The Learned A.O. has interalia held the transaction to be non-
genuine on the ground that transaction are done with M/s Vitale Bioscience Ltd. He has relied upon the statement of Mr. Pratik which was not given to assessee and no cross examination was allowed. The learned A.O. and CIT (A) ought to have followed the proper procedure to adhere to the rules of natural justice. He may be directed to do so now.
3. The Learned CIT (A) ought to have held that the order of A.O. is perverse as the A.O. has interalia relied upon statement of Pratik Shah without giving copy of statement and cross examination.
4. The Learned CIT (A) has erred in upholding the charging of interest u/s 234A /234B/234C.
2. The brief facts of the case are that the assessee has shown income from Purchase & Sale of Land and Securities, brokerage & consultation, commodity trading, bank interest & dividend.
3. The assessee owned a land admeasuring 6880 sq Mts at Survey No 262( 692) at village -Bhadaj, Taluka - Ghatlodia (the erstwhile Daskaroi), Ahmadabad which he had bought on 21/10/2011 vide registration no 19001/2011 of Sub Registrar, Ahmedabad-2,Adalaj . Cost of the land in the Profit & Loss account shown by the assessee was Rs.1,58,85,350/- which during the year had been sold at Rs.6,19,20,000/- . The sale was made on 24/01/2013 through Development Agreement registered by Sub Registrar, Ahmedabad -
3 ITA Nos. 2807 & 2808/Ahd/2017. A.Ys. 2013-14 & 2014-15 8, Sola vide registration no 485/2013, as such, the assessee had earned business profit of Rs.4,60,34,650/- ( 6,19,20,000-15885350) on this transaction. The assessee has debiting P&L Account by showing Purchase of Securities for Rs-1,04,42,33,8937- and credited the P&L against sale of the securities for Rs 99,85,04,803/- only. Thus has shown loss of Rs 4,57,29,090/- (1044233893-998504803) from security trading .
4. The A.O. has stated that the assessee has booked loss of Rs 4,67,50,000/- in the 9.0% BOM securities purchased s for Rs 50,02,23,288/- and shown sold for Rs 45,35,73,288/-. During the course of assessment proceedings, the assessee was asked to furnish copies of documents in support of the purchase and sale of the securities as claimed by the assessee. In response the assessee has submitted copies of purchase and sale of securities and stated that all the transactions have been routed through the DEMAT Account and all the payments have been made through banking channel. The assessee has also submitted the copies of the deal confirmations for purchase and sale of securities.
5. The A.O has stated that the transaction related to 9% BOM Lower Tier Bond 2022 (INE457A09199) have not been made through National Stock Exchange and Bombay Stock Exchange. He has also stated that the assessee has used its HDFC Bank Account and the transactions have been structured in such a manner that the net flow of money in/out of the Banks is just a fraction of the value of bonds/purchased or sold. He has further stated that the entire transaction with regard to purchase of bonds for Rs 50 crores and sale thereof for Rs 45.34 Crores was done within two hours on 01/01/2013.
4 ITA Nos. 2807 & 2808/Ahd/2017. A.Ys. 2013-14 & 2014-15 The A.O. observed that the intent of the assessee had never been to do investment in Bond as the assessee had been settling off the net intraday accounts only between the buyer and seller.
6. The A.O. has also stated that the Bond has been listed both in the National Stock Exchange arid the Bombay Stock Exchange. He has also observed that the trade had taken place in the National Stock Exchange on 01.01.2013 with both the Average Price of the Bond and Last Traded Price of the Bond being Close to Rs 100.He has further stated that the price of the Bond as on 01/01/2013 was Rs 100/- whereas the assessee has shown sale of the bond at Rs 90.67 only. The A.O. has also stated that summons u/s 131 was issued to the assessee but nobody has attended in response to the said summons. The A.O. has observed that the Bonds have been transferred between three parties on the same day just after the date of issuance of bond. The entire transaction has taken on 1.1.2013 and the receipt and sale of 500 bonds have taken place within a very short duration. He has also observed that all these transactions have been done only at prices which have no co- oreiation with the prices mentioned in the Exchange. He has also stated that the assessee had failed to attend the summon.
7. Thereafter the A.O. vide letter dated 2.3.2016 and subsequently vide letter dated 14.3.2016 has issued a show cause as under:-
" Your submission on various dates reveal that on 1.1.2013 you have purchased the 500 units (Lot size Rs 1 Lac Each unit) of 9% BOM LOWER TIER H BONDS (INE457A09199) OFF-market from Fortune Gilts Pvt Ltd at the rate of Rs.100.02/- and you have immediately sold 500 units of the said bond OFF-market to Vitale Bio sciences Ltd at the rate of Rs 90.67 on the same day .You have thus incurred loss on Off-market trading of 500 units of 9% BOM LOWER TIER -H BONDS 5 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 (ME457A09199)-to Vitale Bio Sciences Ltd. 3. From the exchange data it is clear that the price of the Bond has never been traded at a rate less than Rs 100 /- on that date. Under these circumstances, you are requested to justify the sale price of the bond with all supporting documentary evidences or show cause as to why the loss incurred on the sale of the said bonds should not be treated as in genuine loss and thereby disallowed. The hearing for this purpose is fixed on 21.3.2016 at 10.30AM."
8.. The assessee vide letter dated 17.3.2016 has given a reply in this regard and the relevant extract is as under:-
" From the exchange data it is clear that from the price of the bond has never been made at a rate less than Rs 100 on that date, Kindly furnish us the relevant material to enable us to verify the same to meet out the same. Further the entire business is open market trade .It is not fixed by any exchange. It is depend upon the purchaser and seller agreed upon. It is just like share market if you have any material to establish that the transaction is not genuine, kindly furnish us the basis of assumption and presumption as you are aware of the position that the revenue authority cannot decide at what price businessman has to do his business- It is market trend and need of the seller and purchaser to decide their price . So it is none of the job of the revenue authority at what price one has to do his business . You have to verify that there is actual sale and purchase as per price accounted for. If you have any material to disprove our transaction, please furnish us the details of the same. Entire transaction is through demat account and you have not furnished any material to prove that the trade is not-genuine"
9. The A.O. has not accepted the explanations of the assessee in view of the following reasons :
(i)"It is agreeable that the objective of the revenue is not to determine the purchase and sale price of any stock/commodity and this is to be determined by market forces. But the revenue is duty bound to look into the fact that the these prices declared by the assessee is in consonance with the prevailing market rates. Only then the revenue can ensure that there is no suppression of sale value or exaggerated purchase value and 6 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 there is no consequent leakage of revenue. The assessee is not selling any goods/house hold assets, the price of which can be decided privately by two parties but it is selling an asset which have to be reported to one of the Stock Exchanges of the Country authorized by SEBL."
ii To maintain transparency on the Corporate Bonds , the Regulatory Body SEBI vide Circular No. SEBI/CFD/D1L/BOND/1/2006/12/12 dated December 12, 2006 authorized Bombay Stock Exchange Limited (BSE) to set up and maintain a corporate bond reporting platform to capture all information related to trading in corporate bonds as accurately and as close to execution as possible. Subsequently vide circular No. SEBI/CBM/BOND/1/2007/01/03 dated 01.03.2007 has authorized NSE for the similar purpose.
It has been ascertained that the transaction has not been reported to the Exchange and the assessee has not fulfilled the statutory obligation as laid down by SEBI, which clearly shows that the intention of the assessee was mala fide from the very beginning of the transaction. The assessee has adopted the intra-day trade coupled with transfer of the units between various demat account within a single day to give it a color of genuineness which is not acceptable. The department has to take into consideration the price reflected in the exchange to determine suppression of sale or exaggerated purchase. It is pertinent to mention here that the National Stock Exchange of India Limited vide its letter dated 23/03/2016 mentioned that the BOM Bonds 2022 (INE457A09199) pertain to OTC (over the counter) trades reported by participants on the Exchange Corporate Bond reporting platform.
(iii) Assessee failed to prove the necessity to sale and also sale at a much lower price than purchase, i.e. fails to prove the genuineness of the sale price. The assessee had tried to divert the focus of the undersigned by proving that the transfer was made through the Demat account. However, in the show cause the assessee was asked to prove the genuineness of the sale price in the given circumstances . which the assessee failed to establish.The onus is on the assessee to justify his sale price. Since assessee failed to prove how the selling price has been determined as against the prices of said bonds displayed in the open market as reflected in the Chart given above vide para No. 2.9, The 7 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 assessee has just performed a Touch and Go transaction. The Assessee had sold the 9% Bond of Bank of Maharashtra 2022 which has been purchased at a full value and sold it hi off market at a price much lower than the purchase price within an hour without proving any reasonable cause or circumstances which forced him to do that. Since the price of sale is not in consonance with the price of NSE on that day and Assessee failed to prove business expediency in respect of immediate sales of bonds as well as sale price of bonds the loss claimed by the assessee therein cannot be allowed.
iv. The onus is on the assessee to justify his sale price , Only after producing the details of how the value has been arrived, can the revenue determine the genuineness or non-genuineness of the sale price. But in the submission, the assessee instead of producing the details of how it has arrived at the value of the bond in the backdrop that the bond had traded at Rs 100/- has only stated that the prices have nothing to do with the exchanges and both purchaser and seller can determine the prices . v. The stand that the price is at Rs 100/- on NSE ever since 1.1.2013 has not been taken on a arbitrary basis but in a complete transparent manner and anybody can go through the website of the stock exchange where in the Weighted Average price has been seen at Rs 100/- and there has been no trades in this bond till date . The assessee has sold the bonds on 1,1.2013. The primary onus is on the assessee to specifically justify the valuation of Sale price of Bonds with supporting documentary evidences especially in circumstances where the valuation is lesser than the last traded price shown by the NSE, Specifically when the Bank entries reveal that the assessee had entered into these transactions in almost the same time zone. However as the assessee has not brought any concrete material i.e Valuation report or any evidence which could justify its sale price, the department is not duty bound to justify the ingenuineness of material not produced.
vi. Further, upon verification of details called for during the course of assessment proceedings it has been observed that the payment of this loss had been made from the 'Unsecured Loans' taken from 'El-Dorado Biotech Pvt Ltd (PAN AABCE1885F) amounting to Rs 48350000/-. It has also been observed that 'Shri Ajay Surendrabhai Pate! is of the director of (EL-Dorado Biotech Ltd' as well as the director of Fortune Gilts Pvt Ltd. It is pertinent to' mention here that it has been ascertained from Dy. Director of Income tax (Investigation), Unit-l(l) .Ahmedabad wherein they 8 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 concluded that the transaction of El Dorando Pvt. Ltd with M/s Vitale Bio science Pvt Ltd are not genuine.
vii. Further it has also been observed that Pratik R Shah, the director of the purchaser of the Bond- Vitale Bio Science Ltd. had admitted that he 'is engaged in" providing accommodation entries to a number of persons/entities in the form of LTCG unsecured loans, bogus purchases etc. vide his statement on oath given by them before the DDIT (lnv.) Unit - 1(3), Ahmedabad - Relevant Que. No. 11 and 14 are as under;-.
" Q..11 in reply to Ques.No.9 & 10, you have stated that the investment shown to have been made by the Amrapali Group by your company M/s. Sarang Chemicals Ltd, is not genuine and your company has merely acted as a conduit to layer the transaction. In this context please explain the motive behind the entry of the said transaction. Ans. Sir, as I have already stated above that me and my group concerns were in bad financial position during this period, thus, when I received the proposal for layering the said transaction for a commission of 1.0%. I agreed and provided the accommodation entry to AFCSL. Q.14 1 am showing you the statement of Shri Rakesh B. Patel recorded under section 131 of the Income -tax Act, 1961 recorded on 23.11.2012. Please peruse the statement and state as to whether you agree with the averments made by him in his statement with regard to layering of share capital transaction of M/s. Amrapali Fincap Pvt. Limited (earlier known as Akshar Entertainment Pvt.Ltd.).
Ansl4. Yes sir, I have thoroughly perused the statement of Shri Rakesh B. Pate! recorded on 23.11.2011 and I entirely agree with him. Further I also agree that the cash deposited in the accounts of Sarang Chemicals Ltd., SJ. Securities Pvt. Ltd., Sheetal Bio Agro Tech Pvt. Ltd., Platinum Corporation Ltd., Vitale Biosciences Pvt. Ltd. which was finally routed through the concerns managed by Rakesh Patel into AFPL does not belong to me or my group concerns and the same was provided by some person of Amrapali Group to Shri Rakesh Patel which was finally routed , into AFPL either the same day or within two or three days. I will provide the complete details in this regard within five days."
In the statement, the director of Vitale Biotech Ltd, Shri Pratik Shah has admitted that through his concerns that he is engaged in the business of giving accommodation entries on commission basis. Although the said transaction has been admitted in respect of Amrapali Group, it pertinent to note here that Vitale Biotech Ltd has also been held as one of the 9 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 accommodation entry provider and the case has been centralized subsequent to search proceedings viii. The Transaction was done with the money borrowed of Rs 15 Crore from Vitale Bioscience Ltd. and within an hour book the loss of Rs.4,67,50,000/-. The chain of transaction was reflected above and ultimately account had been settled with cross sale of different bonds.to them.
ix. Further in the case of CIT vs Durga Prasad More (82 ITR 540), it was held by Hon'ble Apex Court that " it is-true that apparent must be considered real unless it is shown that there are reasons to believe that apparent is not real. If all that an assessee -who -wants to evade tax is to have some recital made in documents either executed by him or executed in his favour, then the door will be left -wide open to evade tax. The taxing authorities were not required to put on blinkers while looking at documents produced before them. They were entitled to look into the surrounding circumstances to find realty of recitals made in those documents. The above ratio laid down by the Hon'ble Supreme Court has been reiterated and applied by the Hon'ble Apex Court in the case of Sumati Dayal Vs CIT[214 ITR 801] (S.C.)"
The facts of the present case clearly reveals that such trading transactions of purchase and sale of shares, had not been effected, for commercial purpose but to create artificial loss, with a view to reducing tax liability. The assessee resorted to readymade scheme for purchase and sale of Bonds. Such transactions are not genuine and natural transactions but preconceived transactions, demonstrating creation of such short terra capital loss. Such transactions are mutually self-serving. It is mentioned that earning profit is a natural instinct ingrained in human beings, particularly in the businessman, unless, of course, earning of loss is also a profitable proposition. The assessee restored to a preconceived scheme, to procure short term capital loss by way of price-differential, in the said bond transactions, not supported by market factors. Cumulative events in such transactions of shares reveals that the same are devoid of any commercial nature and fall in the realm of not being bonafide, in contents.
The intention of the assessee is not investment in Bonds but to create fictitious loss. Reliance in this regard is placed on the judgement of the Hon'ble Apex Court of India in the case of McDowell and Co. Limited Vs. day. Thus the assessee through intraday off market deals has only 10 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 credited the balance amount to one party and claimed the loss. The intent of the assessee has never been to make investment in Bonds, but to create fictitious loss. Such approach of the assessee, runs contrary to the very nature of human conduct.
xiii. The entirety of the sequence of events of such sale and purchase of such bonds has to be discerned in an integrated manner. In the present case, the assessee created artificial short term capital loss, and having regard to the material and relevant facts of the case, such make-believe transactions, cannot be taken as genuine trading, in the sale and purchase of shares. Such transactions as are purely preconceived exercise, to evade tax. In tax matters, it is imperative that realities of the transactions are required to be gone into, with view to finding out the true nature of such transactions. Entirety of facts and circumstances of the present case clearly demonstrates, in a terse and telling manner that the whole transactions are not true commercial share transactions but fabricated transactions. Such transactions were mutually self-serving. xiv. In this specific context, it is imperative to state that it is a well settled legal proposition that 'burden of proof is on the assessee as the claim of short term capital loss had been made by them. The assessee, except giving details of such purchase and sale of bonds, failed to prove and establish the genuineness of such bond transactions at the rates as convenient to them having no regard to the real market factors, xv. In the present case, there is an obvious and plain transaction of tax evasion which has been clothed with the smoke-screen of subterfuges, by the assessee. The facts of the instant case clearly reveals that such trading transactions of purchase and sale Of bonds had not been effected, for commercial purpose but to create artificial loss, with a view to reducing tax liability. Such transactions are not genuine and natural transactions but preconceived transactions, demonstrating creation of such short term capital loss. Such transactions are mutually self-serving. It is mentioned that earning profit is a natural instinct /ingrained in human beings, unless of course, earning of loss is also a profitable proposition as is discernible from the fact-situation of the present case. The assessee restored to a preconceived scheme, to procure short term capital loss by way of price-differential, in the said bond transactions, not supported by market factors. Cumulative events in such transactions of shares reveal that the same are devoid of any commercial nature and fall in the realm of not being bonafide, in contents. In view of the above legal and factual 11 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 discussions and judicial precedents discussed above and when all the facts and circumstances of the case are viewed, in totality, it is evident that the assessee failed to discharge the onus, to prove the genuineness of the transactions of purchase and sales of such bonds. The impugned transactions of bonds are pre-ordained one, not for legitimate commercial purpose of creating non-genuine and artificial short term capital loss, with a view to reducing valid tax-liability. Therefore, in view of the given factual circumstances and placing reliance on the above mentioned case laws, the loss of Rs.4,65,00,000/- is disallowed and added to the income of the assessee of the year.
10. Against the said disallowance, appellant preferred first statutory appeal before the ld. CIT(A) who partly allowed the appeal with following observation:
"4.3 I have considered the facts of the case, Assessment Order and submission filed by the appellant. The brief facts of disallowance of the case are that appellant is engaged in land dealing business and during the year under consideration, he has earned profit of Rs.4,60,34,650 in one deal of Rs.6,19,20,000. The appellant has shown loss of Rs.4,57,29,090 in security trading and same was adjusted against above gain. The AO has made disallowance of loss arising from security transactions for Rs,4,65,00,000 treating it as non genuine and artificial loss. The appellant has argued that such transactions are genuine transactions and also stated that out of 4 transactions entered during the year, there was loss in one transactions and profit in three transactions and AO has accepted profit transactions which are of similar nature hence there is no justification for not accepting loss transactions. The arguments of appellant and observations of AO are considered but appellant' plea cannot be accepted mainly for following reasons.12 ITA Nos. 2807 & 2808/Ahd/2017
. A.Ys. 2013-14 & 2014-15
(i) The AO at para 3.2 has made summary of transactions of bond carried out by appellant. In all the cases, transactions are settled on same day. It is observed that appellant has earned profit on trading of bond of 10.45% GSPC bond and 9.90% IFCI Bond which are purchased from Vital Bioscience Limited and sold to Fortune Gilts Limited whereas appellant has earned loss of Rs 4,67,50,000 in transaction of 9% BOM Lower Tier Bond 2022 which is purchased from Fortune Gils Pvt. Limited and sold to Vitale Bio-Science Limited meaning there by here purchaser party in first two case became seller in loss / transactions.
(ii) The AO has observed that Fortune Gilts Pvt Limited has shown Nil Income during the year and Vitale Bio Science Limited has shown loss of Rs 18,987 in Profit & loss account meaning thereby when appellant has been incurring huge losses, it is gain to other party and still they are showing Nil income or meager income which also support the contention of AO that transactions have been made to claim losses and avoid taxes. (iii) The AO has also scanned confirmation of purchase and sale transactions in assessment order in which appellant has incurred losses. The AO has also made inquiry from Depositories, bank and NSE form which it reveal that The above transactions are not routed through exchange. The appellant has also summarized bank transactions along with timing at page 8 of assessment order. It is observed that even though appellant has been making purchase transactions in one bond forRs 50 crore, it has not made any single payment to seller or received amount towards sale consideration at one instance. The appellant has carried out entire transactions of purchase and sale along with payment within 2 hours and incurred huge losses. It is also observed that .appellant has received Rs 15 crore from Vitale Bioscience Limited at 14,42 and immediately transferring such amount to fortune Gilts Pvt 13 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 Limited at 14.43 and then in second minute i.e 14.44 appellant is receiving back same amount from fortune Gilts Pvt Limited and in 14.45, amount is transferred back to Vitale Bioscience Limited so entire circle of transfer of fund of 15 crore is done in 4 minutes from 14.42 to 14.45.
Similar transactions of 15 crore and its circle has been repeated by appellant and other two parties for total 3 times during the year. It is also observed that appellant is making payment towards loss for Rs 4.97 crore to Vitale Bio Science Limited at 16.07 out of funds received from El Dorando Biotech and after setting off of Rs 34.73 lacs received from to Vitale Bio Science Limited at 15.51, appellant has claimed loss of Rs 4.63 crore. It is thus observed that within a fraction of minute funds are moved from one account to another account which suggest that transactions are not of purchase and sale but claimed to have been made to obtain losses. When entire funds are moved from one party to other party and its cycle is done in 4 minutes gap, why appellant has incurred losses in such transactions by creating manual purchase and sale contracts is not answered by appellant in its written submission.
It is pertinent to note that funds of Rs 4.97 crore was received from EI Dorando Biotech wherein Shri Ajay S Patel is director who is also director in fortune Gilts Pvt. Limited from whom appellant has claimed to have purchased bonds which also prove that even loss incurred by appellant is funded by company in which director is also director in company from which appellant has acquired bonds which also prove that transactions are with close persons and they are inter connected.
(iv) The AO has also referred to historical date from website of NSE which show that transactions in above bond has taken place on 14 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 01/01/2013 being date on which appellant has incurred losses wherein trade price was Rs 100 whereas appellant has sold such bond at Rs 90.67 only. The appellant has not given any reason why appellant has incurred losses in such transactions. It is pertinent to note /that when appellant is acquiring bond for Rs 100 per bond and in few minutes, funds are transferred how market value has been reduced to Rs 90.67 per bond. The appellant has not given any justifiable reason which can support its contention that transactions were genuine more particularly what was the reason for selling bond at such huge losses. There was no other circumstantial event which has triggered appellant to sale bond at losses. When same amount of bond is received from one party and transferred to other party and entire circle is completed in four minutes, there is no reason why appellant would sell such bonds at losses in four minutes. The appellant has only raised technical arguments in appellate proceedings which have no substance and this argument of AO has not at all dealt with.
(vi) The AO has also issued summons to appellant to appear before him on 23/02/2016 for explaining locus standi on this issue and appellant has failed to attend the summons to explain his stand and later is asking from cross examination of third party when he himself has failed to appear, before AO in response to summons.
(vii) The appellant has also argued that objective of AO is not to determine purchase and sale value of bond but when appellant has failed to given justifiable reason for incurring losses as stated herein above and trading has not been carried out at prevailing market rate, 15 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 AO is bound to disallow such loss more particularly when it is artificial losses.
(viii) The AO has also referred to SEBI circular dated 12/12/2006 and contended that transactions have not been reported to exchange. Even NSE vide letter dated 23/03/2016 has stated that BOM Bonds 2022 pertains to OTC traders reported by participants on the exchange corporate bond reporting platform. The AO is correct in observing that appellant has just performed Touch and GO transactions without any commercial expediency as stated supra.
(ix) The appellant has claimed that when appellant is earning profit, AO is accepting such transactions whereas when there is loss, AO is not accepting such transactions, it is observed that profit is very minimal and in any case, in subsequent paras, I have held that only net loss arising from such transactions need to be taxed.
(x) The appellant has relied upon the decision of Hon'ble Ahmedabad ITAT in the case of ACIT Vs Hina Nitin Parikh 35 taxman.com 416 and argued that AO was not justified in making disallowance of loss in off market transactions ignoring the profit in similar transactions. The decision has been pursed. The Hon'ble ITAT has given categorical finding that off market transactions were found to be at the market rate whereas in appellant's case, this vital aspect is missing. It is also observed that in present case, entire transaction is squared up in a day rather in four minutes whereas in the case before Hon'ble Ahrnedabad ITAT, the transactions were not squared up in a single day. Thus, said decision is not applicable in present case. So far as choose and pick approach as observed by appellant, it is observed that I have already held that only net loss arising from such off market transactions would 16 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 be disallowed hence this argument now does not survive. Even in the case of Hon'ble Delhi High court in the case of CIT Vs H.B. Stock Holding Limited 184 Taxman.com 352 relied upon by Appellant, transactions were at market rate and even through stock brokers registered in stock market whereas this is not the case of appellant hence even this decision cannot be made applicable in present case. The decision of Punjab & Haryana High court relied upon by appellant is on consistency principle and ratio of said decision is not applicable in present case. Even decision of Hon'ble Kolkatta ITAT cannot be made applicable in present case as in said case genuineness of transactions was not doubted whereas in present case, AO has doubted such genuineness and even appellant has not rebutted the observations of AO as stated supra hence said decision is not applicable in present case.
(xi) Reliance is placed on decision of Hon'ble Delhi High court in the case of CIT Vs Abhinandan Investments Limited (Tax Appeal No 130/2001) dated 19/11/2015 wherein it is held as under:
"38. It is now well established that although tax planning is permissible but a colorable device to avoid payment of tax would be impermissible. Justice Chinnappa Reddy in his concurring opinion in Mcdowell (supra) had held that "in our view the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it".
Justice Reddy was of the opinion that it is up to the Court to take stock to determine the nature of new and sophisticated legal 17 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 devices to avoid tax and expose the same for what they really are and refuse to give "judicial benediction". Justice Ranganath Misra speaking for the majority held that "tax planning may be legitimate provided it is within the framework of law. Colorable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid the payment of tax by resorting to dubious method. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges".
39. The decision of the Constitution Bench of the Supreme Court in Mcdowell (supra) has been explained by the Supreme Court in its later decisions. In one of the more recent decisions, Vodafone International Holdings B.V. v. Union of India and Anr.: (2012) 341 ITR 1 (SC), the Supreme Court held that the opinion of Justice Chinnappa Reddy must be read in conjunction with the observation of Justice RanganathMisra (i.e. the majority opinion). In Union of India v AzadiBachaoAndoian: (2003) 263 ITR 706 (SC), the Supreme Court held that the / above view of Justice Chinnappa Reddy was a far cry from the majority opinion and further concluded that the decision in Mcdowell (supra) cannot be read as laying down that every attempt at tax planning was illegitimate and must be ignored.
40. The Supreme Court in AzadiBachaoAndoian (supra) approved the following passage from the decision of the Gujarat High Court in Banyan and Berry v. Commissioner Of Income Tax:
(1996) 222 ITR 831 (Guj):
"The court nowhere said that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in future, is to be viewed with suspicion and 18 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 be treated as a device for avoidance of tax irrespective of legitimacy or genuineness of the act an inference which unfortunately, in our opinion, the Tribunal apparently appears to have drawn from the enunciation made in McDowell's case [19S8] 154 ITR148 (SC). The ratio of any decision has to be understood in the context it has been made. The facts and circumstances which lead to McDowell's decision leave us in no doubt that the principle enunciated in the above case has not affected the freedom of the citizen to act in a manner according to his requirements, his wishes in the manner of doing any trade, activity or planning his affairs with circumspection, within the framework of law, unless the same fall in the category of colorable device which may properly be called a device or a dubious method or a subterfuge clothed with apparent dignity."
41. Indisputably, the Assessee Is at liberty to arrange its affairs in a manner so as to mitigate its tax liability. Every action of the Assessee aimed at reduction of tax liability cannot be viewed with suspicion by the Revenue. The decision in the case of Mcdowell (supra) insofar as it relates to the issue of tax avoidance has now been explained to apply only to limited situations where an Assessee creates a colourable device or enters into a sham transaction to evade the tax, which is otherwise payable by him.
42. In Commissioner of Income Tax v. SakarlalBalabhai: (1968) 69 ITR 186 (Guj), the Gujarat Court explained the meaning of tax avoidance and observed that "Tax avoidance postulates that the assessee is in receipt of amount which is really and in truth his income liable to tax but on which he avoids payment of tax by some artifice or device.....". The Court further explained that such 19 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 artifice or device may assume diverse forms but "there must be some artifice or device enabling the Assessee to avoid payment of tax on what is really and in truth his income".
43. Thus, whilst it is settled that the legitimacy of real transactions cannot be questioned merely for the reason that the same result in mitigating the Assessee!s tax liability, the Courts have also heldthat the colourable devices or subterfuges to evade tax would be impermissible.
44. The Supreme Court in Vodafone International Holdings B.V. (supra), inter alia, considered the issue whether transaction pertaining to sale of shares of a non-resident holding company which resulted in transferring the controlling interest in downstream Indian subsidiary, was a device to evade tax. In that context, the Supreme Court observed that "whether a transaction is used principally as a colorable device for the distribution of earnings, profits and gains, is determined by a review of all the facts and circumstances surrounding the transaction". The Court held that if an actual controlling Non- Resident Enterprise (NRE) makes an indirect transfer through abuse of organization form/legal form and without reasonable business purpose, which results in tax avoidance then the Revenue may disregard the form of the arrangement and recharacterize the equity transfer according to its economic substance. The Court accepted the principle that transaction done without reasonable purpose but only for avoidance of legitimate tax by using a corporate form can be ignored. However, in the facts of that case, the Court came to the conclusion that the corporate structure was not created for avoidance of tax but for other genuine business purposes.
20 ITA Nos. 2807 & 2808/Ahd/2017. A.Ys. 2013-14 & 2014-15
45. It follows from the aforesaid decision that in order to examine whether a transaction is a device or a subterfuge the answer to the question whether the transaction has any reasonable business purpose would be a vital consideration. Clearly, the use of corporate form to evade tax would be impermissible and it is, thus, necessary in the facts of the present case to look at the transactions entered into by the Assessee and other companies of the Jindal Group. It is at once clear that shares of listed corporate entities of the Group were sold and funds were raised. The sale of these shares had resulted in substantial capital gains in the hands of the investment companies of the Jindal Group including the Assessee and the investment companies were liable to pay tax on the gains so made, in order to avoid paying the tax, the investment companies Including the Assessee entered into transactions for renunciation of rights with related companies of the same group. These incestuous transactions were for no other business purpose but to contrive a loss in the hands of the companies such as the Assessee who had incurred a tax liability on account of the gains made. It is claimed that the transactions of sale of rights entitlement had resulted in a tax loss, although no real loss had been incurred by these companies inasmuch as the consideration received for sale of rights exceeded the original cost of their principal investment. The funds received from sale of shares which had resulted in capital gains - in the case of the Assessee the sale of shares of JSL - were transferred to other related companies including for the purposes of subscription of the rights renounced by the investment companies. In the case of the Assessee, the sale proceeds of the shares of JSL were loaned to 21 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 JSL, thus, enabling JSL to subscribe to the rights that were sold by the Assessee at a fraction of its market value. Viewed from the perspective that all companies were related and a part of the Jindal Group, the rights to subscribe to PCDs were not alienated and remained within the Group. The corporate structure of the entities within the group was used for contriving the transactions which would conjure a tax loss in the hands of the companies - including the Assessee - which had incurred a tax liability.
46. In AzadiBachaoAndolan (supra), the Supreme Court had cautioned that the word 'sham' and 'device' are not intended to be used "as magic mantras or catchall phrases to defeat or nullify the effect of a legal situation." In Snook vs. London and West Riding Investments Ltd.: (1967) 1 All ER 518 (CA), the Court had held "that for acts or documents to be a "sham", with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating." Clearly, the colorable device or a sham transaction would include a transaction and device which purport to show a situation which is much different from the substance of the transaction. In the present case, the transaction of sale of rights entitlement purports to indicate an alienation of a right while in fact at a group level, there has been no alienation of any rights. The transactions have been so executed to ensure that the rights remained within the Jindal Group. The registered office of the company is at office of JSL; the Board of Directors consists of Sajjan Kumar Jindal s/o Shri O.P. Jindal and AnandPrakashGarg (who was an employee of JSL). Such transactions which are for 22 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 the sole purpose of contriving a loss cannot in our view be described other than a colorable device.
47. in our view, the AO had rightly found the transaction of sale of rights as a transaction for purchasing taxable losses for the purposes of evading tax. It has been argued that the Assessee had in fact relinquished its rights to subscribe to PCDs and the transaction had been implemented by JSL subscribing to the PCDs and in the circumstances, it could not be disputed that the transaction was genuine. It was contended that such transaction were permissible in law and, therefore, the tax effect of such transactions would necessarily follow. It was further contended on behalf of the Assessee that it is permissible for an Assessee to part with its asset with a view to book a loss. In our view, it cannot be disputed that in a case where an Assessee transfers its income producing asset, there could be no objection by the Revenue on the ground that the same had resulted in reducing the tax liability of an Assessee. However, this would not hold good if it is found that the Assesse along with its inter-related parties that implemented transactions for no commercial purpose but to create a tax loss while at the same time ensuring that the benefits of the assets remain within the group. This would be an abuse of the corporate form and such transactions, even though implemented, cannot be considered to be other than a colorable device for avoidance of tax.
48. As explained by the Supreme Court in Vodafone International Holdings B.V. (supra) the question whether a scheme is a colorable or an artificial device would have to be considered in the context of the surrounding facts. In the present case, the facts clearly indicative the transaction to be a part of a scheme, 23 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 the sole purpose of which is to evade tax payable on the gains made on sale of certain shares of JSL. Several companies within the group have adopted a similar stratagem to avoid tax on the gains made by them. In our view, this stratagem cannot be considered as legitimate and the ITAT erred in not holding so.
49. it is argued that it was also incumbent upon the AO to reduce the sale consideration reflected by the Assessee in its profit and loss account if the AO held the transaction of sale of rights entitlement to be a sham or a colorable device. We are also unable to accept this argument as no such contention was advanced even before the CIT(A) or the ITAT. The Assessee had simply declared profits as per its profit and loss account for charge of tax no claim for rendering the profits had been made and there is no reason for the AO to reduce the same. No alternative arguments had been advanced before the AO. The Assessee had claimed a notional capital loss which the AO found to be contrived. And, as indicated above, the AO rightly rejected the loss claimed by the Assessee.
50. In view of our decision, the loss claimed by the Assessee was a contrived loss and the transaction of renunciation of rights in question was a colorable device to claim such loss, it is not necessary for us to decide the issue whether such loss could be set off against Assessee's business income. However, as the Counsel have addressed arguments on the said issue, we deem it appropriate to consider the same".
Further reliance is placed on decision of Hon'ble Punjab & Haryana High court in the case of Smt. HarjitKaur Vs ACIT 45 taxman.com 186 wherein it is held as under 24 ITA Nos. 2807 & 2808/Ahd/2017
. A.Ys. 2013-14 & 2014-15 "Section 4 of the Income-tax Act, 1961 - Income - Chargeable as (Tax planning) -Assessment year 2008-09 - Assessee sold land which resulted in short-term capital gain - In same year assessee claimed short-term capital loss on sale of shares of an unlisted company which were purchased in same year - Assessing Officer disallowed said claim of short-term capital loss by treating it as bogus and not genuine - Facts revealed that such trading transactions of purchase and sale of shares had not been effected, for commercial purpose but to create artificial loss, with a view to reduce tax liability - Transactions of shares were not governed by market factors prevalent at relevant time in such trade, but same were product of design and mutual understanding on part of assessee -Further, shares were related to unlisted company - Whether Assessing Officer was right in holding that assessee resorted to a preconceived scheme to procure short-term capital loss for purpose of neutralizing short- term capital gains by way of price difference in share transactions not supported by market factors - Held, yes - Whether cumulative events in such transactions of shares revealed that same were devoid of any commercial nature and fell in realm of not being bona fide and, hence, impugned loss was not allowable - Held, yes [Para 8] [In favour of revenue]"
The Hon'ble Kolkata ITAT in the case of Edward Keventer (P.) Ltd.Vs DCIT 89 ITD 347 has held as under:
"Section 45, read with section 48, of the Income-tax Act, 1961 - Capital gains -Chargeable as - Assessment year 1993-94 - Whether under Act income-tax authorities are empowered to go behind transaction to find out real and if a transaction, on basis 25 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 of evidence and surrounding circumstances of case, appears to be non-genuine or bogus or make-believe or sham with a view to avoid tax liability or if it appears that series of transactions effected by assessee to achieve desired result is sham or collusive or non-genuine, tax authorities can ignore transaction - Held, yes
- Whether such powers of tax authorities are legally recognized and are not taken away by provisions of section 45 or section 48
- Held, yes - Whether, therefore, contention of assessee that for purpose of section 45 alleged motive is irrelevant inasmuch as section 45 comes into application at moment an assessee sales a capital asset and, therefore, Assessing Officer is duty-bound to compute profits/losses in accordance with provisions of section 45 read with section 48, has to be rejected - Held, yes -Assessee- company had promoted another company, K, as its 100 per cent subsidiary to carry out business of K - Assessee held 12,32,000 equity shares of face value of Rs. 10 each of K - In July 1992, assessee sold those shares to its five sister companies over whom assessee had influence and control at rate of Rs. 2.50 per share and transferred those shares to buyers immediately on 10-7- 1992 without receiving sale consideration - Subsequently, assessee had bought back 12,80,000 shares of K at rate of Rs. 2.50 per share on 25-2-1993 and 4-3-1993 -Assessee suffered capital loss on account of sale of shares and it claimed allowance of same under section 45 read with section 48 - Assessing authority disallowed assessee's claim holding that sale and purchase of shares by assessee had been with a view to claim huge loss so as to get benefit of setting it off in future and entire loss was nothing but an arranged book loss - I Commissioner (Appeals) upheld impugned order holding that assessee failed to 26 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 establish its bona fides in respect of said transactions - Whether decision of assessee-company to sell its total holding to five group companies was against all human probabilities and commercial consideration which otherwise any prudent businessman would not have taken in normal course of business - Held, yes - Whether transactions effected by assessee-company were not bona fide commercial transactions but were sham, bogus, unreal, make-believe, collusive and artificial with a mala fide intention to acquire benefit for tax I purposes - Held, yes - Whether, therefore, action of Assessing Officer, which had been confirmed by Commissioner (Appeals), in disallowing loss claimed by assessee-company, was justified and in order- Held, yes.
(xii) The AO also observed that it is ascertained from DCIT, Investigation, Unit 1(1) wherein they have concluded that the transactions with El Dorando Pvt. Limited with Vitale Bio Science Pvt. Limited are not genuine. Even director of Vitale Bio Science Limited, Pratik R Shah has also admitted that he is engaged in providing accommodation entries to a number of entitles. On the other hand appellant has argued that cross .examination is not given of such party. It is observed that when AO issued summons to director of appellant to remain present in assessment proceedings, he has failed to appear before authority and now claiming deduction of artificial loss on technical ground. Even appellant has not submitted any confirmations of all the parties confirming that transactions with appellant are genuine. It is also observed that AO has not disallowed entire loss merely on statement of Mr Pratik Shah but has produced cogent evidences in assessment order 27 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 as discussed herein above which prove beyond doubt that appellant has entered into transactions to reduce taxable income and artificial loss has been created which cannot be allowed to be set off against land dealing income.
Considering the legal decisions referred supra and on facts of present case, claim of appellant for set off of loss of trading in bond against income from land dealing is denied. It is observed that AO has made disallowance of Rs. 4,67,50,000 being loss arising from such transactions whereas actual net loss incurred by appellant from four transactions as noted by AO at Page 3 of assessment order is Rs 4,57,29,090 hence disallowance made by AO is restricted to Rs 4,57,29,090. This ground of appeal is partly allowed.
6. In the result, appeal is partly allowed."
11. Now is appeal before us.
12. During the course of appellate proceedings before us the Ld. Counsel has contended that the A.O. has incorrectly presumed that assessee has booked loss at para 3.2 of the assessment order as the loss in land securities transaction was occurred much before the earning of profit from the land transactions. He has further contended that the A.O. has failed to demonstrate how the statement of Shri P. R. Shah connected with the case of the assessee. He has also stated that A.O. has not provided any kind of material connected with the case of the assessee and not provided any opportunities to cross examine Shri P. R. Shah. He contended that loss was incurred on 01.01.2013 whereas the profit from the land transactions was 28 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 made on 24.01.2013, therefore, the contention of the A.O. that the loss in the bonds transaction was shown to set off the profit from the land transactions is not correct. He has further stated that on the same date the assessee has made 4 transactions in the bonds but the A.O. has accepted the profit of 3 transactions however has rejected the loss in one transaction. He has contended that there is no prohibition in law for off market transactions. He has also made reference of various pages of paper book. He has stated that as per page no. 36 of paper book in the summon issued to the assessee the A.O. has called mainly details of documents which were submitted by the assessee vide letter dated 22.02.2016 as per page n. 37 of the paper book. He has also referred the page no. 43 of the paper book stating the AO has not made any reference of the statement of Mr. Pratik R. Shah. He has further submitted that as per page no. 50 of the paper book in the show cause notice dated 14/03/2016 the AO has not raised any issue pertaining to the summon issued and thereafter completed the assessment. He contended that from these facts it is clear that the summons were issued to obtain documents and not for the purpose of any third party cross examination. All the required documents were placed in the record. He contended that the name of the assessee is no where referred in the statement as stated by the A.O in the assessment order and the sales/purchase transactions of the assessee were genuine transactions. He has also stated that the A.O. has not made any addition u/s. 68 by disproving that the borrowing were not guanine. He has further stated that the SEBI circular is related to stock exchange. He has contended that the sale on the floor of stock exchange may takes its own time and price given in the stock exchange screen shot was not the price as the opening price. He has also contended that in A.Y. 29 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 2008-09 & 2009-10 there were similar transactions taken place where the A.O. has granted the loss.
13. On the other hand, the ld. D.R. has referred para 3.2 of the assessment order. She has contended that transactions in lands were carried out to set off the profit earned from land transactions by giving a colour of genuineness to the transactions. She has contended that the assessee has failed to comply with the summon issued by the A.O and the assessee has not reported the transactions to the stock exchange.
14. The A.R. has also submitted following notes in support of his contention.
"A. Preliminary:
(i) The appellant is an individual engaged in the business in trading of securities, commodity trading and real estate. The appellant maintains regular books of account on mercantile basis which are got audited through Charted Accountants as required u/s. 44AB of the Act. The returns of income are being submitted on the basis of such audited accounts along with supporting Annexures/Schedules.
(ii) For the A.Y. 2013-14 the appellant submitted his e-return of income on 20/09/2013, declaring total income of Rs. 2,30,530/-. Similarly, for A.Y. 2014-15 ROI was filed on 29/11/2014 showing loss of Rs. 30,68,003/-. The A.O. has made regular assessments u/s. 143(3) of the Act on a total income of Rs. 4,67,30,530/- & Rs.3,32,26,997/- respectively. While doing so the A.O. disallowed assessee's claim of loss of Rs. 4,65,00,000/- & Rs. 3,62,95,000/- respectively, on account of trading in securities.
(iii) Being aggrieved and dissatisfied the appellant preferred an appeal before the Ld. CIT(A), who has restricted the disallowance to Rs. 4,57,29,090/- & Rs. 3,62,95,000/- respectively being loss after 30 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 netting of against profit earned in similar nature of transaction in securities.
(iv) Being aggrieved with the impugned appellate order, the appellant has preferred the present appeal before the Hon'ble Tribunal for getting due justice while deciding the appeal of the appellant.
1. Regarding disallowance of loss of trading in bonds of Rs.4,57,29,090/- for A.Y. 2013-14 & Rs. 3,62,95,000/-for A.Y. 2014- 15(Ground no. 1).
1.1 During the course of assessment proceedings for the year under consideration, the A.O. noticed that the appellant has earned profit on sale of plot of land amounting to Rs. 4,60,34,650/- & Rs. 3,30,80,000/- respectively. He also noticed that in the purchase and sales of securities account, the appellant has shown net loss of Rs. 4,57,29,090/- in A.Y. 2013-14. As appended in Table-A at para 3.2 of the assessment order, out of four transactions of trading in securities, the appellant has earned profit of Rs. 10,20,910/- in three transactions and he incurred gross loss of Rs. 4,67,50,000/- in the rest transaction. Similarly, in A.Y. 2014-15 the assessee has shown loss of Rs. 3,62,95,000/- in the security trading.
1.2 The A.O. has disallowed the appellant's claim of business loss in trading in securities holding the same as non-genuine, rejecting the contentions of the appellant for the reasons stated in para 8/9 of the impugned assessment orders respectively. The appellant's submission vis-a-vis so called reasons assigned by the Ld. A.O. may be briefly stated as follows:
(i) Reasoning of the A.O. 31 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 That the appellant is selling an assets which have to be reported to one of the stock exchanges of the country authorized by SEBI.
Submission of the appellant in rebuttal:
(a) As submitted under letter dated 04/08/2017 (PBP 70) & 09/12/2016 (PBP 25), the appellant having done off market transactions, there was no requirement of reporting the same to the relevant exchange. The appellant also has submitted copy of circular of SEBI which reveals that it is in the nature of guidance to the managers/administrators of all stock exchanges to set up the platform for reporting the corporate bond transaction as further elaborated at paragraph 1.2(ii) below.
(b) Without prejudice to the above it is stated that in the case of the appellant the transactions are done off market the requirement of reporting the same at relevant time was not compulsory. In other words there is no compulsion made by the SEBI. Therefore, the reason given by the A.O. is contrary to the relied guideline.
(ii) Reasoning of the A.O. That the assessee has not fulfilled the statutory obligation as laid down by SEBI, relying upon circular dated 01/03/2007(reproduced on page 13-15 of the assessment order) Submission of the appellant in rebuttal:
At the outset it is respectfully submitted that the said circular was issued in context of setting up of a reporting platform by NSE. As such it was meant for only the Managing Director/Administrator of all stock exchanges. In this context , it is submitted that as per item iv at (PBP No.53 of A.Y. 2013-14).32 ITA Nos. 2807 & 2808/Ahd/2017
. A.Ys. 2013-14 & 2014-15 Thus, it could be made applicable only to the transactions carried out through the window of stock exchange by any of the persons whether registered intermediaries or otherwise.
The circular is thus regarding setting up of platform for members of BSE or NSE. There is no requirement for using referred platform and or reporting by other persons who have not traded through the window of any of the stock exchanges. Thus, the observations of the A.O. by deriving the support from the said circular is unfounded and has no legs to stand on its own.
Without prejudice to the above and in the alternate it could be subject matter of SEBI regulations but certainly will have no impact on the income or loss disclosed in audited accounts for the purpose of Income tax Act as the assessment has to be framed as per the provisions of the Act and not otherwise. Further, the CIT(A) has in fact, considered such income as allowable set of against the loss in A.Y. 2013-14 as noted at the end of para 5 of the appellate order; besides accepted as such by the A.O. in earlier assessment years in the assessment order passed u/s. 143(3) of the Act for A.Ys. 2008-09 & 2009-10.
(iii) Reasoning of the A.O. That the assessee failed to prove business expediency.
Submission of the appellant in rebuttal:
The observation of the A.O. is a casual in nature for the reason that as is settled in law by catena of judicial pronouncement that for the business expediency, it is the assessee who is the best judge to take a prudent decision at a particular point of time and it is not left to the A.O. to decide the same by sitting in the arm chair of the assessee. during the course of assessment proceedings the appellant has submitted all the material details of transactions entered into by the 33 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 appellant and the A.O. has not pin-pointedly detected nor brought any material on record to prove that the transactions is bogus. Only by viewing the sale at a lower rate than the purchase rate does not mean that the transaction is bogus.
(iv) Reasoning of the A.O. That the assessee has not brought any concrete material i.e. valuation report or any evidence which could justify its sale price.
Submission of the appellant in rebuttal:
As submitted in the foregoing, the reporting of the off market transactions are not compulsory and hence there may be no transactions reported of the same bonds on the exchange. To quote isolate transaction does not establish that it is market price for every transaction for the day. Further, there is details of purchase and seller in respect of said transactions maintained and produced before the A.O. Hence, the same cannot be presumed to be non-genuine on the basis of referring said transactions at all. It is need of the business, one may enter into transaction at agreed price that of purchaser and seller except it is established that particular transaction is non- genuine. In security market, every moment the price is fluctuating which cannot be fixed by any authority established under the law. The assessee has conversely squared up the deal which otherwise would have resulted in locking up of huge fund for a longer time and particularly in view of the fact that such long term fund was not available at the disposal and by non-honoring he would have been declared insolvent. Thus, in such a situation a prudent business decision was taken immediately to raise short term fund to book a minimum loss and save his reputation in the market to survive and earn in future. So far as A.Y. 2013-14 is concerned, it is pertinent to state here that since the assessee has incurred the loss of Rs.34 ITA Nos. 2807 & 2808/Ahd/2017
. A.Ys. 2013-14 & 2014-15 4,65,00,000/- on 01/01/2013 on sale of securities and eventually to recoup this loss, transacted his land and shown an income of Rs. 4,60,34,650/- on 24/01/2013 by entering into an agreement for the land owned by him (kindly refer to para 3.1 of assessment order). Having regards to this aspects of the matter the assessee has in fact shown a positive income even after adjusting the said loss on sale of securities of Rs. 4,65,00,000/-
(v) Reasoning of the A.O. That payment of loss had been made from unsecured loans taken from El-Dorado Biotech (P) Ltd., the transaction of El-Dorado Biotech (P) Ltd. with M/s. Vitale Bioscience (P) Ltd. are not genuine as ascertained from DDI(Inv.).
Submission of the appellant in rebuttal:
It is submitted that the appellant has purchased Bonds/Securities from Fortune Gilts Pvt. Ltd. and sold to M/s. Vitale Bioscience (P) Ltd. Both are independent entities separately assessed to tax bearing valid PAN as noted by A.O. at para 3.3 of the assessment order of A.Y. 2013-14. Similarly, PAN of all the connected persons are also noted in the said paragraph. They are in no way related parties to the appellant or the appellant has no interest in any of the companies mentioned above. None of the parties have been examined by the A.O. for enquiring genuineness of transactions before jumping into conclusion that the transactions of El-Dorado Biotech (P) Ltd. with M/s. Vitale Bioscience (P) Ltd. are not genuine, simply drawing so called support from DDI(Inv.).
(vi) Reasoning of the A.O. That Vitale Biotech Ltd. has been held as one of the accommodation entry provider, as emerging from statement of one Shri Pratik R. Shah Director of Vitale Bioscience Ltd.35 ITA Nos. 2807 & 2808/Ahd/2017
. A.Ys. 2013-14 & 2014-15 Submission of the appellant in rebuttal:
First and foremost, the A.O. has nowhere mentioned the date of statement, in whose case it was recorded and/or section of IT Act under which the so-called statement was recorded as stated.
Secondly, the so-called statement has neither been provided by the A.O. to the appellant during the course of assessment proceedings nor the appellant has been afforded an opportunity of cross examination of the said person, whose statement is being used against the appellant. From the alleged statement, the A.O. has come to the conclusion that Pratik R. Shah has provided bogus entry thorough Vitale Bioscience Ltd. In fact in the said question/answers 11&14, there is no reference to the appellant to show that the bogus entry were provided in favour of the appellant. In fact, vide answer no. 14 it has been categorically stated by him that the entries were provided to M/s. Amrapali Fincap Pvt. Ltd. (in sort AFPL). It is undisputed fact on record that at the end of item vii (on page 19 of the , assessment order), the A.O. himself has observed that "although the said transactions has been admitted in respect of/Amrapali Group, it pertinent to note here that Vitale Biotech Ltd. has been held as one of the accommodation entry provider." And without bringing any material on record the A.O. has unreasonably dragged the appellant into so called controversial statement of said Shri Pratik Shah, without providing copy of the referred statement and without granting cross examination, before using the same against the appellant or even without issuing a show cause notice of having his intention to use the same against the assessee. The action of the A.O. is against the principles of natural justice and wholly unfair, in view of decisions in the following cases:
Kishanchand Chellaram Vs. ITO 125 ITR 713 (SC) 36 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 CIT Vs. Pradipkumar Gupta 303 ITR 95 (Delhi) Andaman Timber Industries Vs. CCE 62 Taxman.com 3(SC) CIT Vs. Ramanbhai B. Patel in ITA No. 210 of 2008 (Guj.) Vaishal S. shah & others in ITA No. 1499/2016 (ITAT Ahd) Pratik S. Shah in ITA No. 810 to 815/2015 (ITAT Ahd) Pri. CIT Vs. Chartered Speed Ltd. IT 126 of 2015 (Guj.)
(vii) Reasoning of the A.O. That the transactions carried on by the appellant are not genuine and natural transactions, but the appellant resorted to a pre conceived scheme to procure short term capital loss by way of price differential in the said bond transactions, with a view to reducing valid tax liability relying upon judgment of Hon'ble Apex court in the case of Mcdowell and Co. Ltd. Vs. Commercial Tax Officer [154 ITR 148 (SC)] Submission of the appellant in rebuttal:
(a) It is submitted that the remark of the A.O. is misconceived in coming to the conclusion that any transaction in which loss is incurred all that transactions are not genuine relying upon decision in the case of Mcdowell and co. Ltd. The A.O. has ignored/overlooked the material facts placed on record that all the transactions have been routed through Demat Account and all the payments have been made throughbanking channels and accepted by A.O.
(b) It is an uncontroverted, undisputed & accepted fact by the A.O. that Copies of deal confirmations for purchase and sales of securities are filed before the A.O. vide appellant's submission dated 11/01/2016 & letter dated 02/12/2016 respectively for both the A.Ys.
Further, transactions are settled through Demat Account and accounts are settled by on-line transfer of funds through net banking.
(c) Vide para-8(ix & x) of the impugned order, the A.O. has cited few case laws in his support. It is stated that the cases cited by the A.O. 37 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 are old ones and distinguishable with the facts of the case of the assessee. The mentioned cases were rendered on totally different facts and cannot be applied to the fats of the assessee. Therefore, considering overall legal effect by placing reliance upon the said judgments is wholly irrelevant and inapplicable on the facts of the assessee's case.
(d) Further, the A.O. has grossly erred in considering the transaction of purchase and sales of securities by the assessee as tax avoidance and has wrongly interpreted referring to the decision in the case of McDowell & Co. Ltd. Vs. CTO 154 ITR 148 (SC), in concluding that the same is applicable in the assessee's case.
(e) In this context, it is stated that the A.O. has relied upon an old case law of McDowell, while drawing undue inference against the assessee. The un-reasonable McDowell rule has been over-ruled to make way for more practical and legal correct principal relating to tax avoidance and tax evasion. These principles have been now reiterated in judgment of CIT Vs. Walfort Shares & Stock Brokers (P) Ltd. 326 ITR 1 (SC). While construing the provisions of section 14A and 94(7) of the Act the CJI observed as follows:
"Even assuming that the transaction was pre-planned, there is nothing to impeach the genuineness of the transaction, with regard to ruling in McDowell & Co. Ltd., it may be stated that in the latter decision of this court in Union of India Vs. Azadi Bachao Andolan, it has been held : that a citizen is free to carry on its business within the four corners of the law. That, mere tax planning without any motive to evade taxes through colorable devices is not frowned upon even by the judgment of this court in McDowell's case."38 ITA Nos. 2807 & 2808/Ahd/2017
. A.Ys. 2013-14 & 2014-15
(f) Furthermore, the effect of Supreme Court decision in Vodafone International Holdings Vs. Union of India 341 ITR 1 (SC) has been under consideration the earlier decision in McDowell case. Besides, recently in the case of CIT Vs. Shivraj Gupta (2015) 372 ITR 337 (Delhi), the Hon'ble Court has observed as under:
"In Vodafone International Holdings B.V. Vs. Union of India 341 ITR 1 (SC), earlier decisions in McDowell and Azadi Bachao Andolan stands explained and illucidated. The precise test enunciated and prescribed as a tenet, negates and disqualifies colorable device, deceit and sham as a legitimate and acceptable tax event. These terms have somewhat ethical and casuistical connections and are the elective text for differentiating tax planning from abusing tax avoidance. To appreciate the concept of abusive tax avoidance, it would be appropriate to first delineate with precision the expressions 'tax mitigation' and 'tax evasion' as their boundaries and confines would enable us to draw lines amongst the four corners. The term "tax mitigation" is simple, intelligible and unequivocal. It is positive term and refers to the assessee taking benefit or advantage of a provision which the tax code intends and wants to confirm. Deduction under Chapter VI-A, exemptions under Section 10A, 10AA, 10B etc. of the Act are all provisions relating to tax mitigation. If an assessee takes benefit or advantage by complying with the stipulated conditions therein to reduced his tax liability, it would be a case of tax mitigation.
The test, if ardently applied, would contradict and would be irreconcilable with tax payers' right to arrange his affairs within the confines of law, which is prohibited or barred.39 ITA Nos. 2807 & 2808/Ahd/2017
. A.Ys. 2013-14 & 2014-15 Naturally, the dividing line between acceptable and abusive tax avoidance cannot be deduced or inferred from lowering of elimination of tax liability. The latter is the consequence of the tax effect. The assessee is well within his right to choose any one event between the two or more events and select an event to minimize or reduced his tax liability. The IT Act, per se, unless a provision so stipulates, does not restrict or curtail the right of choice. Tax is determined and gets crystallized on the tax event adopted by the assessee. As long as the choice is within the framework of law, the Assessing Officer cannot disturb the effect or liability, which the consequence of the event. The choice of the assessee is not abrogated or invalidated."
(g) If, the facts of the case are tested in the lines of ratio of judgments of Hon'ble courts, the same are squarely applicable in the case on hand. In the instant case the transactions are genuine, the payments for purchase and sales have been settled through Demat Account and the accounts are settled by on-line transfer of funds through net banking. In fact there is no intention or motive to avoid the tax at all, hence the transactions entered into by the appellant cannot be regarded as colorable device. The A.O. has not shown any funds of loss i.e. difference in the price has thrown back to the appellant in some clandestine way. Therefore, the transactions carried on by the appellant are genuine and such genuine commercial transactions can never be regarded as non-genuine and/or artificial, as alleged by the A.O. 1.3 Without prejudice to the above it is submitted that at para 4 the A.O. has noted that in the course of assessment proceedings for A.Y. 2013-14, a summons u/s. 131 dated 11/02/2016 was issued to the 40 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 assessee requiring his presence on 23/02/2016 which remained to be complied with, as alleged. In this connection it is stated that as may be perused from the referred summons (PBP 36) the A.O. had called for the following through the referred summons:
Books of account/documents to be produced
1. Copies of all bank accounts statements.
2. Copies of all Demat A/c along with copies of slips issued to depository allowing to transfer the bonds from your account to the buyers a/cs.
In response to the above, the assessee has already filed a compliance letter dated 22/02/2016 (PBP 37) whereby the appellant has submitted requisite details. Therefore, the observation of the A.O. that there was non-compliance of the referred summons is wholly incorrect. Without prejudice to this it is stated that the terms of reference has been altogether different one and even for alleged non- compliance of the summons, the A.O. has neither issued any show cause notice nor imposed penalty u/s. 272A(l)(c) of the Act. With regard to A.O/s observation at para 6 of A.Y. 2014-15, a summons u/s. 131 was issued on 11/11/2016 to remain present in his office on 18/11/2016, it is stated that as may be verified from the copy of order sheet (PBP 57), there is no such reference of issuance of so-called summons on referred date. Without prejudice to the above in response to RTI application filed by the appellant the A.O. has provided a photo stat copy of alleged summons dated 11/11/2016.(PBP 71). However, the date of service and mode of service is not proved. Further, in the said so-called summons, the details with regard to sale/purchase of Bond were only called for. In fact the relevant details were already submitted under appellant's 41 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 letter dated 02/12/2016 (PBP 23-24). In any case, there is no such default on the part of the appellant for complying with the requirement of the A.O. 1.4 Without prejudice further it is submitted that the appellant has been carrying on the business in purchase and sale of securities since inception and maintaining regular books of accounts and all the related records. In the assessee's own case the assessments for A.Y. 2008-09 and A.Y. 2009-10 have been finalized u/s. 143(3) of the Act on 26/10/2010 & 28/11/2011 respectively. As may be verified from the records, during the course of such assessment proceedings the A.O. had issued show cause notices/order sheet entry and on the basis of appellant's written submissions filed under letters dated 26/10/2010 & 24/11/2011 respectively, the book results for the referred assessment years have been accepted without drawing any adverse inference. Needless to state that business loss of Rs. 50,54,456/- in A.Y. 2008-09 has been accepted by the A.O. after detailed scrutiny and on the basis of material produced before the A.O., while passing assessment order u/s. 143(3). Similarly, while passing the assessment order for A.Y. 2009-10, the book result has been accepted in toto. Photo stat copies of referred notice, its reply along with enclosures and final assessment orders passed accepting the same are enclosed herewith as Exhibit-1.
1.4.1 In this context, it is submitted that consistency is a hall mark of the law & justice and in absence of new facts and circumstances, assessment/different treatment could not be made by the A.O. The appellant, for the same proposition, also relies on the Hon'ble Supreme Court's decision in the case of Radhasoami Satsang Vs. CIT 193 ITR 321. This decision of Apex Court together with other judgments of SC have been referred to by Hon'ble Gujarat High Court 42 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 in the case of Taraben Ramanbhai Patel Vs. ITO 215 ITR 323 (Guj.). The observation of Hon'ble Gujarat High Court may be reproduced from page 330 of the report:
"It is no doubt true that the strict rule of doctrine of res Judicata does not apply to proceedings under the Income tax Act. At the same time, it is equally true that unless there is a change of circumstances, the authorities will not depart from previous decision at their sweet will in the absence of material circumstances of reasons for such departure."
1.4.2 Looked into from whatever angle, the action of the A.O. in disallowing the business loss in transactions of purchase and sale of securities, without rejecting books of accounts of the appellant by invoking provisions of section u/s. 145(3) of the Act, as a rule of thumb and wholly ignoring/overlooking written as well as oral submissions of the appellant in this regard.
1.5 Finding of the Id. CIT(A) being perverse having been recorded, without appellant's submissions being vetted in proper perspective:
During the course of appellant proceedings the appellant has submitted a fairly detailed written submissions dated 04/08/2017,(PBP 63) & (PBP 88) respectively duly indexed paper book. The submission of the appellant having been reproduced at para 4.2 of the appellate order, for the sake of brevity the same is not repeated here. However, it is submitted that the Ld. CIT(A) has sustained the disallowance made by the A.O., merely agreeing with the views of the A.O.,' without appellant's submissions being vetted in proper perspective, giving reasons, briefly stated as follows (without repeating the applicable text narrated above):
(i) Reason recorded by Ld. CIT(A):43 ITA Nos. 2807 & 2808/Ahd/2017
. A.Ys. 2013-14 & 2014-15 That in all the cases transactions are settled on same day and the purchase party in first two cases became seller in loss transactions.
Submission of the appellant in rebuttal:
It is submitted that the appellant has been dealing in securities that of Government Securities and Corporate Bonds etc. since couple of years. As stated in the foregoing, in the scrutiny assessments made in the recent past, business transactions of security trading have been found genuine and the same have been accepted in completed scrutiny assessments. All the securities purchase and sales are routed through Demat Account and payments are settled through on-line transfer of funds though net banking. Bank statements and copies of deal confirmations of all the transactions were filed before the A.O. (PBP 27 to 26) & (PBP 23-24) respectively. And as may be verified the transactions are entered into by assessee whereby sale and purchase are effected on the same day and delivery and payments are settled on the same day. The A.O. has accepted the result of profit in case of other three securities traded during the year but he has drawn adverse inference with regard to transactions of 9% BOM lower tire bonds 2022. As all the security transactions are happened in the same manner, that does not mean that the transaction of loss is not genuine. The Ld. CIT(A) ought to have seen all the transactions in totality without selecting the transaction on pick and choose method. The Ld.CIT(A) has not given his own independent finding nor he has detected any infirmity with regard to 4th security transaction done with said parties and in the same nature. Such inconsistency is not permissible in the law. Needless to state that in the concluding para on page no. 27 of the appellate order the Ld. CIT(A) has accepted the three transactions which resulted into profit and has granted relief out of gross disallowance made by the A.O. and the disallowance is 44 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 restricted to that extent. Therefore, the reasoning of the Ld. CIT(A) is devoid of any merit.
(ii) Reason recorded by Ld. CIT(A):
That as observed, Fortune Guilts (P) Ltd. and Vitale Bioscience Ltd. have shown loss in their account meaning thereby when appellant has been incurring huge losses, it must be gain to other party. Submission of the appellant in rebuttal:
The observation of the Ld. CIT(A) is devoid of any merit since it is based on presumption and assumption only. It is submitted that both the entities are separate entities and assessed to tax bearing 'PAN AAACF7284Q and AACCV2768D respectively. They are neither related to the appellant nor the appellant is supposed to know as to their income earning activities.
(iii) Reason recorded by Ld. CIT(A):
That within a friction of minutes funds are moved from one account to another account which suggest that the transaction are not of purchase and sale but claimed to have been made to obtain losses. Submission of the appellant in rebuttal:
As contended by the appellant before the A.O. as well as CIT(A) that in similar nature of transactions, appellant has earned profit also and even if the A.O. is making disallowance of loss in "off market transactions", then he ought to have disregarded the profit also in similar transactions. The Ld. CIT(A) has held that the profit earned by the assessee in such transactions should be given set off against loss incurred in one transaction. This goes to show that the Department has accepted off market transactions as genuine and valid where appellant has earned profit. There is no allegation that the delivery and payment in regard to transactions are not genuine. Hence, the observation of the Ld. CIT(A) is contrary to his own finding.45 ITA Nos. 2807 & 2808/Ahd/2017
. A.Ys. 2013-14 & 2014-15
(iv) Reason recorded by Ld. CIT(A):
There was no circumstantial event which has triggered appellant to sale bond at losses. The appellant has raised only technical arguments in appellate proceedings which have no substance and this argument of A.O. has not at all dealt with.
Submission of the appellant in rebuttal:
(a) The observation is a casual in nature for the reason that as is settled in law by catena of judicial pronouncement that for the business expediency, it is the assessee who is the best judge to take a prudent decision at a particular point of time and it is not left to the A.O. to decide the same by sitting in the arm chair of the assessee.
during the course of assessment proceedings the appellant has submitted all the material details of transactions entered into by the appellant and the A.O. has not pin pointedly detected nor brought any material on record to prove that the transactions is bogus. Only by viewing the sale at a lower rate than the purchase rate does not mean that the transaction is bogus.
(b) The Ld. CIT(A)'s observation that this argument of A.O. has not at all dealt with is factually incorrect since during the course of assessment proceedings, the appellant vide his letter dated 08/03/2016 (PBP 46) & (PBP 23-24) respectively has duly complied with the query of the A.O. stating that all the transactions are routed through Demat account and the transfer of funds have been made or received through on-line banking, which proves that the transactions having taken place in sort span are genuine.
(c) And further as per paragraph 1.2 (iv) above on recoupment of loss for A.Y. 2013-14. Further, the agreement which has resulted into an income of Rs. 4,60,34,650/- in A.Y. 2013-14 was terminated and the same piece of land was sold at a higher consideration in A.Y. 2014-15 46 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 and shown additional profit of Rs. 3,30,80,000/- as recorded in para 5.1 of the assessment order
(v) Reason recorded by Ld. CIT(A):
That in compliance to summons issued to the appellant to appear before him on 23/02/2016, the appellant failed to attend and later is asking from cross examination of third party when he himself failed appear before A.O. in response to summons.
Submission of the appellant in rebuttal:
(a) It is submitted that at para 4 of the assessment order for A.Y. 2013-14, the A.O. has noted that a summons u/s. 131 dated 11/02/2016 was issued to the assessee requiring his presence on 23/02/2016 which remained to be complied with, as alleged. In this connection it is stated that as may be perused from the referred summons (PBP 36) the A.O. had called for the following through the referred summons:
Books of account/documents to be produced .
1. Copies of all bank accounts statements.
2. Copies of all Demat A/c along with copies of slips issued to depository allowing to transfer the bonds from your account to the buyers a/cs.
(b) In response to the above, the assessee has already filed a compliance letter dated 22/02/2016 (PBP 37) whereby the appellant has submitted requisite details. Therefore, the observation of the A.O. that there was non-compliance of the referred summons is wholly incorrect. Without prejudice to this it is stated that the terms of reference has been altogether different one and even for alleged non- compliance of the summons, the A.O. has neither issued any show cause notice nor imposed penalty u/s. 272A(l)(c) of the Act.
47 ITA Nos. 2807 & 2808/Ahd/2017. A.Ys. 2013-14 & 2014-15
(c) As stated in para-8(vii) of the impugned Assessment Order, the proceedings in the case of the assessee have bearing upon the intimation received from the D.I.(Inv.), Ahmedabad having a reference of a statement of one Mr. Pratik R. Shah recorded by the D.I. (Inv.), Ahmedabad. However, neither a copy of the so-called statement is supplied nor any opportunity to the assessee is afforded of cross-examination of the said person who allegedly deposed against the assessee. It is settled position in law that without providing cross-examination of the person whose statement is being used against the assessee, no cognizance should be taken, as decided in the case of Kishanchand Chellaram Vs. CIT 125 ITR 713 (SC). Furthermore, neither the assessee has been provided copy of alleged intimation from the Investigation Wing nor any copy of authentic document provided to the assessee.
(d) Without prejudice to the above, it is stated that the so-called information passed on by the referred agency, could not be said to be a pointer indicating involvement of the assessee for implicating him in the litigations. In this context, the assessee relies upon the decision in the case of Signature Hotels (P) Ltd. Vs. ITO 338 ITR 51 (Delhi). In the said case, proceedings were initiated on the basis of report from the D.I. (Inv.) that credit entry in the account of the assessee was accommodation entry only, and the A.O. made addition without examining the evidence and without causing independent inquiries. On appeal, the HC. Held ;
"That the re-assessment proceedings were initiated on the basis of information received from D.I. that the assessee had introduced money as stated in the Annexure. The Annexure was not a pointer and did not indicate escapement of income. Further, the A.O. did not apply his own mind to information 48 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 and examined the basis and material of the information. There was no dispute that the assessee company had substantial paid up capital and allotted PAN. Thus, it could not be a fictious person. The re-assessment proceedings were not valid and liable to be quashed."
(e) In the case of the assessee, it is un-disputed fact that the assessment proceedings are by and large on the basis of so-called information from D.I. (Inv.) Ahmedabd, allegedly stating that said Shri Pratik R. Shah was the entry operator providing accommodation entries to others, including the assessee. The A.O. did not apply his own mind for alleged information being vetted and examined the basis and material of the information. In nutshell, the Ld. CIT(A)'s observation on depriving the appellant of his right of cross examination, is baseless.
(vi) Reason recorded by Ld. CIT(A):
That the appellant has failed to give justifiable reason for incurring looses and trading has not been carried out at prevailing market rate, the A.O. is bound to disallow such loss when it is artificial losses. Submission of the appellant in rebuttal:
It is submitted that when in the same nature of transactions in rest of 3 transactions, the Ld.CIT(A) has accepted them being genuine which showed profit earned by the appellant, the Ld.CIT(A) is not justified in drawing an adverse inference in regard to transaction of incurring loss. Such inconsistency is impermissible for the reason that the revenue department cannot apply pick and choose method to consider particular transaction as genuine or non-genuine, when they are happened and effected in the same manner.
(vii) Reason recorded by Ld. CIT(A):
49 ITA Nos. 2807 & 2808/Ahd/2017. A.Ys. 2013-14 & 2014-15 That A.O. is correct in observing that appellant has just performed touch and go transactions without any commercial expediency, referring to SEBI circular.
Submission of the appellant in rebuttal:
As submitted in the foregoing, it is need of the business one may enter into transaction at agreed price that of purchaser and seller. In market every movement the price is fluctuating which cannot be fixed and the circular dated 23/03/2016 which is subsequently issued does not apply in the appellant's case. Thus, the observation of Ld.CIT(A) is without any substance.
(viii) Reason recorded by Ld. CIT(A):
That the case laws relied upon by the appellant are not applicable in the case of the appellant and on the other hand the Ld. CIT(A) has placed reliance on decision in following cases:
(a) CIT Vs. Abhinandan Investments Ltd. (Delhi)
(b) Smt. Harjit Kaur Vs. ACIT (P&H) (C) Edward Keventer (p) Ltd. Vs. DCIT (ITAT Kol.) Submission of the appellant in rebuttal:
(a) In fact the decision in Abhinandan's case supports the case of the appellant which is rendered in the context that decision in Mcdowell case cannot be read as laying down that every attempt at tax planning was illegitimate and must be ignored, referring to decisions of Hon'ble Apex court in Azadi Bachao Andolan, Vodafone International holdings and decision of Hon'ble Gujarat High Court in Banyan and Berry.
(b) The decision in the case of Smt. Harjit Kaur is also not applicable to the case of the appellant since in that case shares sold were related to unlisted company, which resulted in short term capital loss on sale of shares. Whereas, in the appellant's case the appellant has 50 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 carried on transactions of purchase and sale of securities namely Bonds and the appellant is a trader showing profit/loss in such trading, and not claiming short term capital loss.
(c) The decision in the case of Edward Keventer is also not applicable to the case of the appellant since the facts of the referred case are quite distinguishable.
(d) Without prejudice to the above, it is settled position in law that the ratio of any decision has to be understood in the context it has been made.
(ix) Reason recorded by Ld. CIT(A):
That Pratik R. Shah has admitted that he is providing accommodation entries to a number of entities. On the other hand appellant has argued that cross examination is not given of such party, that when A.O. issue summons to Director of appellant to remain present he failed to appear that appellant has not submitted any confirmation of the party's concern and that the appellant has entered into transaction to reduce taxable income.
Submission of the appellant in rebuttal:
As submitted in foregoing, the A.O. has not made any report of D.I. (Inv.) as part of record nor a copy is provided to the appellant. Similarly, neither a copy of statement of Shri Pratik R. Shah is provided to the appellant nor any cross examination is afforded by the A.O./Ld.CIT(A). Further, following vital facts emerge from para- S(vii) of impugned assessment order, referable to statement of Shri Pratik R. Shah:
(a) The date of so-called statement is nowhere mentioned.51 ITA Nos. 2807 & 2808/Ahd/2017
. A.Ys. 2013-14 & 2014-15
(b) There is nothing stated as to in whose case and in the course of which proceedings and under which section of the IT Act, alleged statement was recorded.
(c) In reply to question no. 11, said Shri Pratik R. Shah has confessed that he agreed and provided the accommodation entry to AFCSL. The appellant is no way connected with AFCSL group of companies.
(d) In replying to question no. 14 referring to statement of one Shri Rakesh B. Patel, Shri Pratik Shah has agreed with him with reference to Shri Rakesh Patel's statement dated 23/11/2011. The so called information through statement dated 23/11/2011 relates to prior period i.e. A.Y. 2012-13.
(e) In the referred para of assessment order, the A/b. has reproduced selective portion of alleged statement of Shri Pratik R. Shah. The name of the appellant nowhere appears having even a remotely beneficiary of alleged accommodation entry said to have been provided by Shri Pratik R. Shah.
(f)Therefore, reliance placed on the statement of Shri Pratik R. Shah improper, not only because procedure niceties were not followed but factually also the same is not relevant.
(g) With regard to Ld. CIT(A)'s observation that summons to director of appellant remained un complied with is factually incorrect. The appellant is an individual not a director of company. As already submitted in foregoing paras, a summons u/s. 131 was issued on 11/02/2016 (PBP 36) for A.Y.2013-14. In response to which the appellant has already submitted a fairly detailed compliance under letter dated 22/02/2016.(PBP 37) Further, in the last para thereof, the assessee has intimated his new postal address with a request 52 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 to make further communication at the said address. However, the A.O. used to address subsequent correspondence at his old address. (PBP 43) The term of reference in the referred summons was altogether different.
(h) Lastly, With regard to observation of the Ld. CIT(A)as to non-filing of confirmation of all the parties, it is submitted that the remark of the Ld. CIT(A) is factually incorrect the appellant has already submitted confirmations of all the parties.
(PBP 18-30) & (PBP 23-24) for A.Y. 2013-14 & 2014- 15respectively.
1.6 In view of the above stated peculiar facts of the appellant's case there is no justification in rejecting the claim of the appellant for set off loss trading in bond against income from land dealing. The orders of the authorities below are liable to be quashed and set aside and the Hon'ble Tribunal may be pleased to hold so.
15. On the other hand, ld. D.R., Ms. Aparna Agarwal contended that trading transaction of purchase and sale of bonds had not been effected for commercial purpose but to create artificial loss with a view to reducing tax liability and such transactions are not genuine and natural transactions but preconceived transactions, demonstrated creation of such short term capital loss and transaction of bonds are preordinated are, not for legitimate commercial purpose.
16. We have gone through the relevant record and considered the rival contentions. The assessee is an individual engaged in the business in trading 53 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 of securities, commodity trading and real estate. The assessee maintains regular books of account on mercantile basis which are got audited through Charted Accountants as required u/s. 44AB of the Act. During the course of assessment proceedings, the A.O. has noticed that assessee had sold a land for Rs.6, 19,20,000/- which was purchased at Rs. 15,88,5,350/-. The A.O. noticed that the assessee has earned profit on sale of plot of land amounting to Rs. 4,60,34,650/- & he also noticed that in the purchase and sales of bonds the assessee has shown net loss of Rs. 4,57,29,090/- . He has observed that the assessee had sold the 9% bond of Bank of Maharashtra 2022 which has been purchased at a full value and sold it in off market at a price lower than the price not constant with the price prevailing at the NSE and the assessee has failed to prove business expediency in respect of immediate sale of bonds as well as sale price of bonds. Thus the claim of the loss of the assessee was not allowed . The A.O. was of the view that trading transactions in securities has not been effected for commercial purpose but to create loss with a view to reduce tax liability. The A.O. has disallowed the claim of business loss in trading in securities treating the same as non- genuine.
17. We observe from the material on record that the assessee is in the business of dealing in government securities and lands etc and during the year, the assessee has incurred loss on sale and purchase of certain securities. The assessee has incurred loss in trading of 9% BOM Tier II Bond which were purchased from Fortune Gilts Private Ltd. and sold to Vitale BioScience Ltd. The transactions were done through demat account and the accounts were settled by online transfer of fund through net banking. Out of four transactions of trading in bonds the assessee has earned profit of Rs.
54 ITA Nos. 2807 & 2808/Ahd/2017. A.Ys. 2013-14 & 2014-15 10,20,910/- in three transactions and he incurred gross loss of Rs. 4,67,50,000/- in the rest transaction. All the securities purchase and sales are routed through Demat Account and payments are settled through on-line transfer of funds though net banking. Bank statements and copies of deal confirmations of all the transactions were filed before the A.O. The A.O. has accepted the result of profit in case of other three securities traded during the year but he has drawn adverse inference with regard to transactions of 9% BOM lower tire bonds 2022. It is observed the A.O. has neither fully investigated nor brought any material on record to prove that the transactions are bogus. It is also explained that the assessee has squared up the deal which otherwise would have resulted in locking up of huge fund for a longer time and particularly in view of the fact that such long term fund was not available at the disposal and by non-honoring he would have been declared insolvent.
18. We have noticed that the assessee have provided all the details related to the trading in securities during the course of assessment proceedings to the Assessing Officer. We have further noticed that the assessing officer has not examined/investigated the transactions in order to prove that the transactions were bogus and not genuine. The A.O. has not contradicted the claim of the assessee that there was no prohibition on carrying out off market transactions . The A.O. has referred the statement of Shri Prakik R. Shah that Vitale Biotech Ltd. has provided entries in respect of Amarpali Group but the A.O. has not provided any copy of any material or statement which can demonstrate that accommodating entries were also provided in the case of the assessee as the referred statement pointed out providing of entries in respect of Amarpali Group. The A.O. has not provided any such 55 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 copy of statement or cross-examination to prove that the transactions carried out in the case of the assessee were not genuine. In the case of the assessee, the A.O. has not proved that documents were not genuine.
19. None of the parties has been examined with respect to genuineness of transactions. It was also submitted by the ld. counsel that trade in such bonds take place with reference to period of bonds credit rating of the issues etc and one may entered in to transactions at agreed price that of purchase and sale. It was also submitted that in the referred statement of Shri Pratik R. Shah, there was no any reference to the assessee to show that the bogus entries were provided to the assessee. It was also submitted by the ld. counsel that in compliance to summon u/s. 131 dated 11/02/2016, the assessee has already submitted all the requisite details vide letter dated 22/02/2016. Thereafter, there was no further reference to personal examination of assessee in the show cause notice was made by the A.O. Regarding issuing of summons u/s. 131 dated 11/02/2016 the A.O. had called for the following through the referred summons:
Books of account/documents to be produced
1. Copies of all bank accounts statements.
2. Copies of all Demat A/c along with copies of slips issued to depository allowing to transfer the bonds from your account to the buyers a/cs.
20. It is pertinent to mention here that the assessee's own case the assessments for A.Y. 2008-09 and A.Y. 2009-10 have been finalized u/s. 143(3) of the Act on 26/10/2010 & 28/11/2011 respectively. As may be verified from the records, during the course of such assessment proceedings the A.O. had 56 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 issued show cause notices/order sheet entry and on the basis of appellant's written submissions filed under letters dated 26/10/2010 & 24/11/2011 respectively, the book results for the referred assessment years have been accepted without drawing any adverse inference. Needless to state that business loss of Rs. 50,54,456/- in A.Y. 2008-09 has been accepted by the A.O. after detailed scrutiny and on the basis of material produced before the A.O., while passing assessment order u/s. 143(3). Similarly, while passing the assessment order for A.Y. 2009-10, the book result has been accepted in toto.
21. The the Hon'ble Supreme Court's decision in the case of Radhasoami Satsang Vs. CIT 193 ITR 321. This decision of Apex Court together with other judgments of SC have been referred to by Hon'ble Gujarat High Court in the case of Taraben Ramanbhai Patel Vs. ITO 215 ITR 323 (Guj.). The observation of Hon'ble Gujarat High Court may be reproduced from page 330 of the report:
"It is no doubt true that the strict rule of doctrine of res Judicata does not apply to proceedings under the Income tax Act. At the same time, it is equally true that unless there is a change of circumstances, the authorities will not depart from previous decision at their sweet will in the absence of material circumstances of reasons for such departure."
22. The assessee has already filed a compliance letter dated 22/02/2016 (PBP
37)by the submitting the requisite details. For alleged non-compliance of the summons, the A.O. has neither issued any show cause notice nor imposed penalty u/s. 272A(l)(c) of the Act. The assessee has also provided his new address where he was presently staying for communication to the A.O. He has also requested for reasonable and adequate time for making compliance. We observe from the material placed on record that the A.O. 57 ITA Nos. 2807 & 2808/Ahd/2017 . A.Ys. 2013-14 & 2014-15 has not further indicated the need for any personal examination of the assessee. It was also noticed that the loss on the trading of the lands was occurred before the earning of profit on the sale of land by the assessee. We find that as per material on record the loss in trading of lands was occurred on 01/01/2013 whereas the profit on the sale of land was occurred on sale of land 24/01/2013. . We have also considered the contention of the ld. counsel that it is open market trade and the price is as agreed upon by the purchaser and sellers as per their requirement based on different factors like need of liquidity of funds etc. After considering the above facts, we observe that the A.O. has raised a number of doubt about the genuineness of above cited transactions but has not proved with supporting materials that the transactions were bogus In the light of the above facts and material after considering the detailed submission of both the sides we are of the view that the A.O. has failed to establish with relevant material that the impugned transactions in the sale/purchase of shares were not genuine. In view of above , we do not find justification in the decision of Ld.CIT(A) to disallow the loss on transactions on lands merely on doubt assumption basis, therefore the appeal of the assessee is allowed
23. In the result both the appeals in ITA No.2807 & 2808/AHD/2017 of the assessee are allowed.
Order pronounced in Open Court on 12 - 07- 2018
Sd/- Sd/-
(AMARJIT SINGH) (MAHAVIR PRASAD)
ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER
Ahmedabad: Dated 12 /07/2018
Rajesh
58 ITA Nos. 2807 & 2808/Ahd/2017
. A.Ys. 2013-14 & 2014-15
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad