Commissioner of Income-tax v. Naman Associates
[Citation -2020-LL-0724-25]

Citation 2020-LL-0724-25
Appellant Name Commissioner of Income-tax
Respondent Name Naman Associates
Court HIGH COURT OF GUJARAT AT AHMEDABAD
Relevant Act Income-tax
Date of Order 24/07/2020
Assessment Year 1996-97, 1997-98, 1998-99, 1999-00, 2000-01, 2001-02
Judgment View Judgment
Keyword Tags transfer of shares and debentures • transaction of sale of shares • undisclosed interest income • substantial question of law • proportionate interest • corroborative evidence • documentary evidence • partial disallowance • genuine transaction • proportionate basis • undisclosed income • delivery of share • physical delivery • cash transaction • contrived losses • actual transfer • revenue receipt • seized material • notional basis • cogent reason • tax planning • family trust • capital gain • brokerage • transfer of share
Bot Summary: The appeal is admitted in terms of the following questions: Whether the Appellate Tribunal was right in law and on facts in deleting the addition of undisclosed interest income of the assessee in the proportion of investment in shares of Ashima Synthetics Ltd. Whether the Appellate Tribunal was right in law and on facts in holding that disallowance of losses treating them to be contrived losses cannot be disallowed in block assessment proceedings Issue notice to the other side. The order of the Tribunal is absolutely silent as regards the affidavit and there is no indication whatsoever in the order as to whether the Tribunal was even aware about the existence of the affidavit which was on record. On perusal of the impugned order passed by the Tribunal, more particularly para 42 thereof, does not reflect as to what were the facts and evidence before the CIT(A) by the assessee nor the submissions made by the revenue including the cases relied before the Tribunal are at all considered or discussed by the Tribunal. Learned senior advocate further submitted that the Tribunal has given the findings of fact and there is no question of law raised by Page 35 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT the revenue with regard to the perverse findings given by the Tribunal. Having considered the submissions made by the learned advocates for the respective parties and having perused the impugned orders passed by the Assessing Officer, CIT(A) and the Tribunal, we are of the opinion that the Tribunal has arrived at finding of fact after considering the material evidence on record so as to hold that the assessee is entitled to the claim of the contrived losses suffered by it. We are in agreement with the ratio of the decisions cited at bar by the learned advocate for the revenue, but in view of the findings of fact recorded by the Tribunal in the present case, we are of the opinion that there is no need to restore the matter back to the Tribunal to give any further reasons in support of findings of fact arrived at on the basis of material on the record by the Tribunal. Even if the matter is remanded back to the Tribunal, the ultimate result arrived at by the Tribunal in the impugned order relying upon the facts emerging from the records the same would not be different in any view of the matter.


C/TAXAP/1180/2006 CAV JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1180 of 2006 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA 1 Whether Reporters of Local Papers may be allowed to see judgment ? 2 To be referred to Reporter or not ? 3 Whether their Lordships wish to see fair copy of judgment ? 4 Whether this case involves substantial question of law as to interpretation of Constitution of India or any order made thereunder ? COMMISSIONER OF INCOME TAX Versus NAMAN ASSOCIATES Appearance: MR MR BHATT, SENIOR COUNSEL with MRS MAUNA M BHATT(174) for Appellant(s) No. 1 MR SN SOPARKAR, SENIOR COUNSEL with MR BS SOPARKAR with MRS SWATI SOPARKAR(870) for Opponent(s) No. 1 CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 24/07/2020 CAV JUDGMENT Page 1 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1. following questions of law are admitted as substantial question of law for consideration of this Court by order dated 17 th April 2007, which reads thus : Heard learned counsel for appellant. appeal is admitted in terms of following questions: (A) Whether Appellate Tribunal was right in law and on facts in deleting addition of undisclosed interest income of assessee in proportion of investment in shares of Ashima Synthetics Ltd.? (B) Whether Appellate Tribunal was right in law and on facts in holding that disallowance of losses treating them to be contrived losses cannot be disallowed in block assessment proceedings? Issue notice to other side. Paper book be filed within 3 months. List appeal for final hearing after 3 months. 2. short facts of case are as under: Page 2 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT 2.1 By this appeal under section 260A of Income Tax Act,1961, (for short Act,1961 ) revenue has challenged order dated 28th February 2006 passed by Income Tax Appellate Tribunal, Ahmedabad Bench B in appeal being IT (SS) A. No.22/Ahd/2005 against block assessment order for period from 1st April 1995 to 27th September 2001 passed under section 158BD r.w.s. 158BC of Act,1961. 2.2 search was carried out in year 2001 on 27th September 2001 at office premises of company Nirma Limited and office premises of associate companies of Nirma Management Services Pvt. Ltd of Nirma Group. respondent assessee is one of associate entities of Nirma Group of cases. 2.3 Notice under Section 158BD read with Section 158BC of Income Tax Act, 1961 (for short Act, 1961 ) was issued on 30th September 2002 for block period showing undisclosed income of Rs. Nil as under : 2. return of income for block period was filed on 28 10 2002. Showing undisclosed income of Rs. Nil as under: Sr. Assessment Year Total income including Returned/ Assessed No. undisclosed income as on date of u/s. 158BB search/requisition 1. 1996 97 3819390 3819390 2. 1997 98 2661250 2661250 3. 1998 99 Nil Nil 4. 1999 00 Nil Nil 5. 200 01 1485850 1485850 6. 1 4 01 to 27 9 01 Nil Nil Total undisclosed income for block period Rs. Nil. Page 3 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT 2.4 Assessing Officer, considering common control of Shri K.K. Patel, Managing Director of M/s Nirma Limited over transactions of its associate entities noted that during course of search in Nirma Group of cases, in page 1 of worksheet of file Ashima xls in floppy disk 2 2A seized from residence of Shri Rahul Devi, erstwhile DGM Finance of Nirma Ltd, wherein details of purchases of shares of Ashima Syntex Limited were noted. total investment made in shares of Ashima Syntex Limited was Rs.3.29 Crore. It was noted by Assessing Officer that on perusal of worksheet that on very specific dates on which investment in shares of Ashima Syntex Ltd. were made, equivalent investment in shares of Nirma Ltd. were also made. Therefore, total purchases made of shares of Nirma Ltd. were also of Rs.3.29 Crore. 2.5 During course of assessment proceedings of Nirma Ltd., on 15th October 2003, it was noted that 5 entities of Nirma Group of cases, which are Nirchem Associates, Navin Associates, Neo Associates, Naman Associates and Nirman Associates have made investment of Rs.3.29 Crore in shares of Ashima Syntex as noted in worksheet in seized floppy disk. According to Assessing Officer investment of Rs.3.29 Crore in shares of Nirma Ltd. as noted in seized floppy were all material transactions in these investments made by Company Ashima Syntex Ltd. 2.6 It was further found from page nos.1 and 2 of worksheet 1 of file named NIR Ashima in Floppy disk 2 2A, that interest was calculated showing that transactions were not in nature of pure investments decisions but on these counter investments sharafi interest was calculated and same was settled across entities. Page 4 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT 2.7 Assessing Officer further found that letter dated 24th January 2003 written to Ashima Syntex Ltd. under signatures of Shri Rahul Devi for settlement of interest for mutual co related investment made by different entities, demand for payment of Rs.3.11 lacs from company Ashima Syntex Ltd. was made. Assessing Officer therefore, issued notice to respondent assessee and after considering submissions of assessee, he calculated interest income of Rs.30,11,500/ as per seized paper, which was due to five entities including respondent assessee and thereafter apportioned it on proportionate basis and as per such apportionment, interest income attributable to assessee amounting to Rs.6,07,214/ was considered as not disclosed in any of returns filed by respondent assessee during block period and addition was made for such income in total income of assessee. 2.8 Assessing Officer during course of assessment and scrutiny of loose papers, files and floppies, books of accounts, shares and other documents found during course of search from residence of Rahul Devi erstwhile DGM Finance of Nirma Ltd., found that there was booking of contrived losses due to transactions between associate entities within Nirma Group which were done as per direction and control of Shri Rahul Devi by buying and selling entities. 2.9 It was found by Assessing Officer that these losses were booked and claimed in returns of income filed for block period; however, no delivery of physical shares was effected after more than year of booking of losses till date of search i.e. 27 th September 2001. Assessing Officer after referring to Annexure A, seized from premises of Nirma Managmenet Service Pvt. Ltd., pertaining to seizure of shares and debentures as documentary evidence establishing Page 5 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT that without actual transfer of shares and debentures individual and associate entities of Nirma Group of cases have claimed capital losses and it was further found that after lapse of two years from date of booking of these losses no entries were made in memorandum of transfer of shares. 2.10 Assessing Officer after elaborately analyzing evidence with regard to contrived nature of losses, issued show cause notice to respondent assessee and considering reply, losses claimed in return of income pertaining to shares of 12 companies amounting to Rs.2,97,27,995/ was disallowed. 2.11 assessee being aggrieved and dissatisfied with assessment order, preferred appeal before CIT(A). CIT(A) confirmed order of Assessing Officer by observing as under : And para 2.7.5 on page 74 to 2.7.6 page 76. 2.6.5 I have carefully considered facts and submissions made and do not find arguments given to be acceptable for following reasons: (i) This letter cannot be treated to be mere draft only because it is addressed to company for kind attention of Mr. Rajiv Shah who was their advisor. A. O. has reported in appeal proceedings vide letter dtd. 18 11 04 that "In matter of confidential letter written by Shri Rahul Dev to Rajiv Shah of Ashima Syntex Page 6 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT Ltd. based on which Rs. 30,11,703/ has been added as undisclosed income on proportionate basis in hand of five persons, submission of assessee that this was only draft letter which have been found in this folder, which was prepared by Shri Rahul Devi in his computer were final formats of letters. This is proved from fact that many letters, in physical form, which have been found and died during search were exactly tailying from letter prepared in computerized folder RVD 1, RVD 11, dmat^1, NASIM^1, etc" (ii) Although there is no mention of subject in letter, but contents are clear and mere absence of subject will not wash away these contents. (iii) reference of Rs. 30,52,400/ of payment made on 6 10 1995 is perhaps not reflected in other pages because obviously amount refers to communication of Ashima Syntex Ltd. to Nirma Group and not Shri Rahul Devi who in fact says that interest should computer at Rs.34,68,499/ instead. (iv) It was for appellant to explain contents of documents found in CD obtained from office of group i.e. DGM Page 7 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT Finance residence and pertaining to its transactions, instead of A. O. having to establish same. (v) There is no doubt that on verification from Ashima Syntex Ltd., cross investment of Rs. 3.29,51,999) by Nirma Group is admitted for which payment of Rs.30.11,500/ has been made austensibly under head brokerage which fact stands revealed now that it was hot brokerage. This is proved by Ashima Syntex Ltd, not having raised any ground of appeal against disallowance of alleged brokerage payment to "Neo Soaps & Detergent P. Ltd. and Niman Associates totalling to Rs. 30,11,500/ . They have admitted as much in their letter dtd. 29 10 2003 to A. O. 2.6.6 appellant had made investment of Rs. 66.47 lacs in shares of Ashima Syntex Ltd. and accordingly proportionate interest of sum of Rs. 30,11,500/ paid by Ashima Syntex Ltd. was towards such investment which receivable amount has not been shown in I. T. Return by appellant. Therefore, addition made by A. O. is found to be justified and same is upheld and ground of appeal No.6 is rejected. 2.7.5 I have carefully considered facts of case and submissions made and I do not find Page 8 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT substance in arguments advanced for following reasons : (i) I find that there is no contemporary evidence that there was any genuine transaction of sale of shares in as much as none of brokers through whom shares were allegedly sold, received delivery of shares from seller to hand over same to purchaser. No evidence has been given of such transaction by appellant. (ii) Therefore, allegation that purchaser was required to get change of names made at its own level does not carry weight because genuine transaction of delivery to broker has not taken place. (iii) appellant has also not been able to deny facts given by A.O. regarding Shri Rahul Devi's having clear hand planning these financial transactions without any written directions from members of appellant. Therefore, sequence of events at related by A. O. clearly shows that losses claimed do not pertain to any genuine transactions but were only contrived. (iv) It is at same time clear that Page 9 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT evidences submitted by appellant of postal return of letters sent to different companies for change of registration, or actual registration of shares in purchaser's name are only subsequent to search. (v) Also letter issued by Jethiben K. Patel Discretionary Family Trust to Naman Associates, directly certifying to physical receipt of shares, is not procedure which is normally followed by any broker of shares, as physical delivery is given by seller of shares to broker of shares, as physical delivery is given by seller of shares to broker who then delivers it to purchaser. Here it is apparent that planning has been done in manner that entities of this group have purchased and sold shares from each other without following normal channels of physical delivery of shares. vi) There is also no contemporary evidences of directions by members of AOP for making such sales which are obviously being done by Rahul Devi who was holdng post of DGM Finance in "Nirma Limited". detailed explanation given does not change fact that there is absence of contemporary evidences to witness any directions given for sale Page 10 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT of shares. disallowance made by AO. is therefore, found to be justified and is accordingly sustained. 2.7.6. This ground of appeal is thus rejected. 2.12 assessee therefore, being aggrieved by order passed by CIT(A) filed Second Appeal before Tribunal along with other associated concerns. Tribunal by common order dated 28 th February 2006 passed in IT (SS) Nos.21 to 30/Ahd/2005 and IT(SS) Nos.64 to 67/Ahd/2005 disposed of all appeals filed by assessee. 2.13 With regard to issue of addition in respect of treating interest amount in respect of Ashim Syntex Ltd., as undisclosed income, Tribunal has held as under : 31. Next Ground raised against upholding following additions in respective appeals as undisclosed income on assumption, presumption and without any corroborative evidence in respect of Ashima Syntex Ltd. transaction as under : 22/Ahd/2005 : Rs.6,07,214/ 23/Ahd/2005 : Rs.5,91,594/ 27/Ahd/2005 : Rs.6,03,013/ 28/Ahd/2005 : Rs.5,95,430/ 32. Brief facts are during course of search at residence of Shri Rahul Devi, from seized floppy letter dated 24/01/98 alleged to Page 11 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT have been written by him to Ashima Syntex Ltd. for attention of their CA. Rajiv Shah and some interest calculation sheets were found. Copy placed at Page No 29 to 32 of PB in case of Nirchem Associates ITA No.28/Ahd/2005, AO, held that from perusal of papers it is obvious that cross investments were made by Nirma Group & Ashima Group in shares and NCDs and sharafi interest was calculated by Shri Rahul V. Devi as receivable at Rs.30,11,703/ by Nirma Group. A., made inquiry requiring information from Ashima Syntex Ltd., u/s. 133(6) of Income Tax Act, wherein they informed that Shri Rajiv Shah (to whom letter is alleged to have been written) has left Company since last three years and details are not available. It further stated as under. Moreover, they were able to lay our hands on entries for two debit notes issued by Nirma Group of Companies. said debit notes are around same period. papers which was communicated speaks about settlement of net amount of Rs 30.11,703/ . But debit notes referable to that papers are for Rs.30,11,500/ , said debit notes are debited in our books of accounts under Brokerage Account. Also, it may kindly be noted that sum of Rs.61.75 lacs are disallowed and addes back in computation of our total come out of brokerage expenses and Page 12 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT said sum of Rs.61.75 lacs includes amount of debit notes issued for brokerage for Rs 30.11.500/ Copy of account was enclosed. They have not undertaken any cash transaction with Nirma Group of companies at any point of time. All transactions have been carried out through account payee cheques transactions, details of which are given in debit notes are only mansactions with aforesaid companies. copy of account from hooks of Ashima Syntex Ltd. reflected that brokerage for atanging NCDS for them, totaling to Rs.30,11,500 / as per following details have been paid. 13/07/98 Neo Soaps & Detergents Pvt. Ltd. 5,11,500/ 13/07/98 Nirman Soaps & Detergents Pvt. Ltd 25,00,000/ A.O. considered amount of Rs 30,11,7038 as undisclosed interest income of assessee in proportion of investment in shares of Ashima Syntex Ltd by five entities and same was confirmed by CIT(A). 33. Learned counsel for assessee contends as under: (i) note dated 24/01/98, which is alleged to be letter written by Shri Rahul V. Devi to Ashima Syntex Ltd is draft and content of Page 13 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT note self proves same. draft does not suggest entity from whom and where letter is written. It does not state normal salutation like Dear Sir/Madam etc. nor does it states reference or subject which is common for such correspondence. Even on appellant's inquiry with officials of Ashima Syntex Ltd., it was stated that as per their record, they do not seem to have received any such communication. (ii) para wise comments on draft letter, as submitted to CITA) in appellate proceedings is as under: Para 1 speaks about amount of payment made on 06.10.95 at Rs.30,52,400/ (this is not reflected as payment in any of other papers referred to). Para 2 refers to correct amount at Rs.34,68,499 balancing figure to tally total investment. said figure of Rs.34,68,499 in any way does not tally or reflect in total investment of Rs.3,29,51,999/ , details of Ashima shares purchased (as referred to in Annexure B1 & B2/1, page 29 & 30 of paper book). Para 3 refers to interest differential of Rs.16,81,753/ which is nowhere reflected in Page 14 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT other pages. Annexure B 2/1 refers to net interest to be received Rs.1,84,425/ . Para 4 refers to interest at Rs.14,15,593/ logically appears to be difference between amounts in para 3 and para 4, where it is stated that net amount as on 18.12.97 has been worked at Rs 30,11,703/ . Neither date 18.12.97 nor amount in any way tallies with other pages. After para 4, in bold letters it is stated that set amount receivable on 27/01/98 is Rs.30,90,915/ after adding interest on Rs.30,11,703/ from 19/12/97. A.O. has totally relied on words amount receivable Rs.30,11,703/ and has co related same with receipt of Rs.30,11,500/ by Neon Soaps & Detergents Pvt. Ltd., and Nirman Soaps & Detergents Pvt Ltd., which has been accounted on 25/03/98 by respective assesses. Going by same logic amount which was at Rs.30,11,703/ on 18/12/97 and Rs.30,90,915/ on 27/01/98 would be about Rs.32,06,650/ on 25/03/98. But amount accounted by Neo Soaps & Detergents Pvt Lid. and Nirman Soaps & Detergents Pvt. Lid. amounted to Rs.30,11,500/ on 25/03/98, Page 15 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT which clearly establishes that letter dated 24/01/98 to Ashima Symex Ltd. alleged to have been written By Shri Rahul V. Devi was draft only. Without prejudice, in alternate it is submitted that when Acts of line opinion that Rs 30,11,703/ written in (draft) letter and receipt of Rs.30,11,500/ by Neo Soaps & Detergents Pvt. Ltd. and Nirman Soaps & Detergents Pvt. Ltd., are same, said income has been offered by respective assesses in their assessments and tax has been paid there and if they are different amount then there is no case of income. So in any case, there is no ease of undisclosed income. Examining other seized papers, viz. Annexure B1, B2/1, B2/2, where investment and interest calculations are reflected, it evident that Annexure B1 refers to specific dates on which investment in shares of Ashima Syntex Ltd., were made and dates on which investment in shares of Nina were made. Number of days to 22/02/96 has been calculated and products (Amount of investment X number of days up to 22/02/96) has been calculated. Annexure B2/1 is interest calculation on product and Ashima's investment where net interest to be received Rs.1,84,425/ has been calculated. A.O. Page 16 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT has considered interest of Rs.30,11,703/ as undisclosed income, whereas interest calculation sheet relied upon by A.O. only refers to net interest of Rs.1,84,425/ and therefore, there is no question of considering Rs.30,11,703/ as undisclosed income. (iii) Presumption u/s. 132(4A) is not available to Ld. A. O. as print outs taken from floppy seized from residence of Shri Rahul V. Devi and annexed to assessment order are not part of satisfaction recorded. papers referred have neither been found nor seized from possession or control of your assessee. floppy seized is too general evidence and specifically same have not been referred to in satisfaction recorded. Assuming such interest on notional basis on assumption conjecture and surmises definitely traveling much beyond scope of Income Tax Act and addition made by Ld. A.O. and confirmed by CIT(A) needs to be deleted. 34. Learned DR, on other hand, supported order of lower authorities and contends that transaction in shares of Ashima Syntex Ltd., have been admitted and some of letters contained in seized floppy were also found in physical Page 17 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT form and therefore letter dated 24/01/98 to Ashima Syntex Ltd. in which it is stated that net interest receivable is Rs.30,11,703/ is not draft letter. calculations related to Annexure B1 Page 29 of Assessee's Paper Book which is Page 55 of Department Paper Book and in Annexure B2/1 Page 30 of Assessec's Paper Book and Page 57 of Department Paper Book are representing different transactions. 35. Learned counsel for assessee in reply contended as under: (i) Ld. DR has made general mark that some of letters contained in seized floppy were also found n physical form to justify that draft note dated 24.01.98 was in fact letter issued to Ashima Syntex Ltd., without specifically mentioning which letters contained in floppy were fined in physical form. Neither AO nor CIT(A) has held letter to be not draft letter on basis of argument propounded by Ld. DR which has been raised for last time before Hon'ble Tribunal and has no merits therein. appellant, in their submissions to AO and CIT(A), which have been summarized hereinabove, clearly furnished reasons on Page 18 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT basis of which, it has concluded that note dated 24/01/98 was only draft and not letter actually written to Ashima Syntex Ltd. (ii) As regards to alternative contention, of appellant that without prejudice only net interest of Rs.1,84,425/ only could have been considered as undisclosed income, Ld. DR's contended that calculations referred to in Annexure B1 and in Annexure B2/1 represents different transactions, which is absolutely incorrect. In fact, amount paid as referred to in column 2 of Annexure B1 (Page 29 of Paper Book) is same as column 2 & 3 titled Nirma's investment and Ashima's investment referred in Annexure 321 (Page 30 of PB) and therefore it is incorrect to state that calculations as referred to in said two popes represents different transactions. 36. We have heard rival submissions and perused material available on record. It emerges from record that assessees group concern and Ashima Syntex Group concern had interse relationship in terms of financial dealings in shares, NCD, Sharafi interest etc. Floppy in question, in our opinion, gives gross calculation about amount to be received and paid group as whole and not of individual concern, more so, when AO himself has given observation Page 19 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT that transaction in respect of Neo Soaps & Detergents Pvt. Ltd, and Nirman Soaps & Detergents Pvt. Ltd., have been offered by respective assesses in their assessment. In view thereof, we hold that alleged floppy contains cross calculation of units assessee group i.e. assessees mentioned above and Ashima Syntex Group. In view thereof, we hold that net different on items product has to be held as undisclosed, therefore, we find merit in alternative submission of assess that net difference being Rs.1,84,425/ , which is mentioned in paper itself being net interest to be received on product basis taking group as whole, shall be held as undisclosed income. In view thereof, we hold that total addition to be sustained in this behalf is Rs.1,84,425/ , which shall be bifurcated in hands of above assessee in proportion of investment of shares of Ashima Syntex Ltd. by these assesses, in view thereof, this ground is partly allowed in respect of these assesses. 2.14 Tribunal with regard to addition made on account of contrived losses booked through inter entity transactions has held as under : 42. We have heard rival submissions and perused material on record. It emerges from record that copy of sale bills were received from Page 20 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT brokers. Payment has been received by account payee cheques, delivery of shares were given to buyer. In view of these facts, right in property stands transferred. There is difference between transfer of shares within meaning of Companies Act and I.T. Act. Assessee having received full consideration of shares, there was extinguishment of assessee s right in shares. We find merit in arguments of learned counsel for assessee that there may be various reasons for not transferring shares immediately, which are mentioned above and transactions were duly incorporated in books, besides, assessee has furnished evidences in respect of confirmations of purchases, group of shares subsequently transferred and in case of non transfer lodging of complaints with SEBI, instances of shares sold by purchases through stock exchanges, offering of capital gains by assessee in their return of incomes. In consideration of all these facts, we are of view that assessee having duly incorporated all these share transactions in capital accounts and offered capital gain thereof, this cannot be held to be undisclosed transactions and resulting losses as contrived losses that too in block assessment proceedings, only due to certain assumed irregularities on part of revenue. Consequently, we hold that these losses cannot be Page 21 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT disallowed in block assessment proceedings, holding them to be contrived losses, therefore, claim of losses made in this ground are allowed in all these cases. 3. Mr. M. R. Bhatt, learned senior advocate appearing for appellant revenue submitted that Assessing Officer and CIT(A) have given cogent reasons, which were not considered by Tribunal. According to Mr. Bhatt, Tribunal has passed impugned order in very perfunctory manner without discussing in detail submissions made on behalf of revenue by accepting what is submitted on behalf of respondent assessee in holding that assessee having duly incorporated all transactions in shares in capital account and offered capital gain thereof it cannot be held to be undisclosed transactions and resulting losses as contrived losses that too in block assessment proceedings. 4. Learned senior advocate for revenue submitted that Assessing Officer in assessment order has given detailed analysis of evidence found during course of search and thereafter has arrived at findings, which are rightly considered by CIT(A) in order by confirming assessment order. However, Tribunal without giving any cogent reason to reverse findings of Assessing Officer as well as CIT(A) deleted disallowance of contrived losses claimed by assessee. 5. It was further submitted that for losses claimed in returns of income for A.Ys. 2000 01 and 2001 02 there was no contemporary verifiable evidence of having effected delivery of shares pertaining to share transactions done with other group Page 22 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT entities till date of search i.e. 27th September 2001. In such circumstances, Assessing Officer and CIT(A) have rightly disallowed contrived losses claimed by assessee in return of income. 6. Learned senior advocate for appellant further submitted that Tribunal has recorded following submissions made on behalf of revenue. 40. Learned DR, on other hand contends as under: (i) All shares and debentures were found at one place i.e. at Office of Nirma Management Services Pvt. Ltd. at Kashmira Chambers, Ashram Road, Ahmedabad. (ii) All shares found during course of search and inventorised (Department Paper Book Page No.29 to 47) were not transferred in name of transferee. (iii) department has not made addition in cases where shares were not found transferred in name of buyer, if sold recently. It is only where longtime had elapsed to date of transaction and still if shares were not transferred in name of buyer, addition is made. Page 23 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT (iv) Ms.Ulka S. Mehta, broker has made statement in course of survey proceedings that no physical delivery of shares were routed through her. (v) Buyer and seller have not contacted broker, but carried out transaction directly. transaction is not routed thourgh stock exchange. (vi) No proof of physical delivery of shares was found during course of search. Decision in case of Unique Invin Ltd. Vs. ACIT 74 ITD 43 (Cal.) was relied upon in which issue of allowability of loss incurred on dealing in shares to/from sister concerns under same management and carrying on their business from same place has been discussed. Decision in case of CIT Vs. Shekhawati Rajputana Trading Co. Pvt. Ltd., 236 ITR 950 (Cal.) is also relied upon wherein loss on sale of shares by Assessee Company to its Chairman was held to be not genuine. Reliance is also placed on decision in case of Madras Industrial Investment Corporation Vs. CIT 225 ITR 802 (SC) where it is stated that loss incurred is expenditure and therefore, Page 24 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT losses from share transactions would be covered under amended definition of undisclosed income u/s.158B(b). Ld. D.R. also stated that in alternate, if transaction is held to be genuine, then same may be set aside to A.O. for verification of rate at which transaction has taken place as aspect of valuation has not been considered by A.O. during assessment proceedings. 7. above submissions made on behalf of revenue are brushed aside by Tribunal in para 42 of impugned order. It was therefore, submitted that impugned order of Tribunal is perverse and liable to be quashed and set aside. 8. learned senior advocate relied upon following decisions in support of his submissions. (1) Commissioner of Income Tax Vs. Deepak Nitrite Limited reported in (2001) 247 ITR 362 (GUJ), it was contended that this Court while considering ambit and scope of powers under Section 256 of Act, 1961 after considering various decision of Supreme Court has held as under : 31. From decisions referred to above, in our opinion, legal position seems to be fairly well settled. But pure finding of fact based on evidence cannot be made subject matter of reference to High Court. Likewise, Page 25 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT inference of fact, drawn from findings of fact also remains question of fact and cannot be challenged before High Court. But pure question of law, unrelated to facts, can always be challenged and High Court can examine such question in exercise of its jurisdiction u/s.256. On mixed question of fact and law, whereas finding of Tribunal on facts found has to be treated as final, legal effect of such finding is question of law and can be reviewed by High Court. Likewise, finding on question of fact is open to challenge if there is no evidence to support such finding or finding is perverse or is such as could not have been arrived at by reasonable man on facts and in circumstances of case. (2) Glass Lines Equipments Co. Ltd. Vs. Commissioner of Income Tax, reported in (2001) 253 ITR 454. 7. It is true, as contended on behalf of revenue, that findings recorded by C.I.T. (Appeals) and Tribunal are based on facts and evidence on record, but on close reading of order of First Appellate Authority we find that he has misdirected himself in law while taking into consideration affidavit filed by Director of Company. C.I.T.(Appeals) for purpose of upholding partial disallowance has relied upon one portion of affidavit viz. Page 26 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT Where assessee company has through its Director offered Rs.38,349/ for disallowance. As regards balance portion affidavit is categorical in terms and as can be seen from extract reproduced hereinbefore, assessee company has made positive averment to effect that all other items of expenditure are allowable, I.e. all other items of expenditure are relatable to setting up plant and bringing fixed assets into existence and putting them into working condition. In none of appellate orders, viz., those of C.I.T.(Appeals) and Tribunal we find any discussion in relation to this part of affidavit. In fact, order of Tribunal is absolutely silent as regards affidavit and there is no indication whatsoever in order as to whether Tribunal was even aware about existence of affidavit which was on record. 8. As laid down by Supreme Court in case of Mehta, Parikh & Co. (Supra) none of authorities considered it necessary to cross examine deponent with reference to statement made in affidavit, and hence, under these circumstances it was not open to revenue to challenge correctness of statement made by deponent in affidavit. In other words, consequently, assessee was entitled to assume that authorities were Page 27 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT satisfied with affidavit as sufficient proof on this point. In present case, we find that C.I.T. (Appeals) while dealing with affidavit has conveniently chosen to accept only one part of statement which was in favour of revenue and against assessee while ignoring rest of portion wherein specific averments were made in relation to balance items of expenditure. 9. In view of settled legal position, it was not open to either C.I.T. (Appeals) or Tribunal to ignore part of contents of affidavit. We are conscious of fact that findings recorded by C.I.T.(Appeals) and Tribunal are concurrent as regards facts and evidence on record and but for averments made in affidavit which have been ignored, we would not have interfered with said findings. It is well settled cannon of interpretation that document has to be read as whole : it is not permissible to accept part and ignore rest of document. 10. Out of total expenditure incurred by assessee company there is one item of depreciation amounting to Rs.53,957/ which would stand on different footing as against remaining items. In relation to this, Tribunal has held that depreciation cannot be allowed to be capitalised as it does not represent Page 28 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT expenditure incurred towards installation of assets whether directly or indirectly. It is further held that depreciation being notional allowance towards wear and tear of capital assets it is treated as deductible item on revenue account to be set off against revenue receipts for purpose of ascertaining real income chargeable to tax. According to Tribunal, it would not be open to assessee to claim deduction in relation to depreciation for purpose of setting off against its revenue receipt and at same time seek capitalisation of same by treating said item as relatable to period prior to commencement. 11. There cannot be any dispute as regards principle laid down by Tribunal that assessee cannot claim benefit twice in relation to item of depreciation , once on revenue account and again by seeking capitalisation of same. However, from facts available on record it is not possible to state with certainty that assessee has in fact claimed double benefit as apprehended by Tribunal. In fact, learned Counsel appearing for both sides are not in position to inform or state as to whether in fact assessee had claimed deduction against its revenue receipt on one hand and again capitalised said item for purpose of claiming depreciation and development rebate. In Page 29 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT view of these circumstances, in so far as item as regards depreciation is concerned, we direct Tribunal to adjust its decision after ascertaining factual position. In event of assessee having not claimed amount of depreciation relatable to assets of office on revenue account assessee may be permitted to capitalise same. 12. We, therefore, hold that in circumstances of case Tribunal was not justified in law in holding that expenditure, except as regards item of depreciation was not part of actual cost of plant. In result, question referred to us is answered in negative, subject to our direction in relation to item of depreciation I.e. in favour of assessee and against revenue with no order as to costs. (3) Nirman Textiles Pvt. Ltd., Vs. Assistant Commissioner of Income Tax, reported in (2006) 284 ITR 325 (GUJ). 11. legal position is well established and bears no repetition. It was necessary for Tribunal to bear in mind that assessment order had merged with order of C.I.T. (Appeals) and in case Tribunal was inclined to reverse order of C.I.T. (Appeals) it was necessary for Tribunal to record, howsoever briefly, reasons for same. impugned Page 30 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT order of Tribunal nowhere reflects as to what were facts and evidence placed before C.I.T. (Appeals) by assessee and on basis of which C.I.T. (Appeals) accepted explanation of assessee. In view that Court is inclined to take it is not necessary to enter into discussion on merits of issue involved nor veracity or weightage to be assigned to evidence available on record. Suffice it to state that as against statement regarding admission at time of survey, assessee had placed on record its letter of retraction and evidences in support of such retraction. least that was expected of Tribunal was to discuss that evidence with reasons as to why said retraction coupled with evidence was not acceptable, especially when same had been accepted by C.I.T. (Appeals). Tribunal states that explanation was not furnished before Assessing Officer and was placed on record before C.I.T. (Appeals) for first time overlooking fact that C.I.T. (Appeals) in Paragraph No.2.1 of his order has categorically recorded that said evidence in form of paper books was forwarded to Assessing Officer and Assessing Officer had after perusing same offered his comments vide letter dated 06 10 1995. This is just instance of modality, i.e. Page 31 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT cursoriness with which Tribunal has dealt with issue. 12. In 1959 Apex Court had observed that if Tribunal arrives at its own conclusion of fact after due consideration of evidence before it Court will not interfere, but for this purpose it was necessary that every fact for and against assessee must have been considered with due care and Tribunal must have given its finding in manner which would clearly indicate what were points for determination before it, and what was evidence pro and contra in regard to each of issues and what were findings reached on evidence on record before it. (Omar Salay Mohamed Sait Vs. Commissioner of Income Tax, Madras, [1959] 37 ITR 151). This position has been reiterated once again in 2002 by this Court after referring to aforesaid judgment in two decisions rendered in case of Mercury Metals (P.) Ltd. Vs. Assistant Commissioner of Income Tax, [2002] 257 ITR 297 and Rameshchandra M. Luthra Vs. Assistant Commissioner of Income Tax, [2002] 257 ITR 460. Tribunal has passed order on 29 08 2003 and yet seems to be blissfully unaware of legal position. Page 32 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT In light of aforesaid fact situation, impugned order of Tribunal is quashed and set aside to extent of addition of Rs.11,66,465/ and matter is restored to file of Tribunal for purposes of adjudication afresh in light of well established legal principles enunciated by Apex Court and this Court. 13. Accordingly, appeal is allowed to aforesaid extent. question is answered in light of what is stated hereinbefore. Reference stands disposed of accordingly. There shall be no order as to costs. 9. Relying upon aforesaid decision, it was submitted that when Tribunal has reversed order of CIT(A), it was necessary for Tribunal to record reasons for same. On perusal of impugned order passed by Tribunal, more particularly para 42 thereof, does not reflect as to what were facts and evidence before CIT(A) by assessee nor submissions made by revenue including cases relied before Tribunal are at all considered or discussed by Tribunal. In such circumstances, it was prayed that impugned order of Tribunal is required to be quashed and set aside and to restore matter to file of Tribunal for purpose of adjudication afresh in light of well established legal principles enunciated by Apex Court and this Court. 10. On other hand, Mr. S. N. Soparkar, learned senior Page 33 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT advocate assisted by Mr. B. S. Soparkar, learned advocate for respondent assessee submitted that Tribunal has passed impugned order after considering all facts and after perusal of documentary evidence and record produced before it. It was further submitted that Tribunal is final fact finding authority and on perusal of impugned order passed by Tribunal it is clear that Tribunal has considered submissions made on behalf of assessee as well as revenue and thereafter has arrived at findings of fact. It was pointed out that Tribunal has sustained addition of Rs.1,84,425/ with regard to interest income as it was found as matter of fact that interest calculated by assessing officer was gross calculation about amount to be received and paid by group as whole. Tribunal, therefore, has rightly added sustained addition of net difference on item products holding same to be undisclosed income by directing Assessing Officer to add proportionate amount of net difference in interest of Rs.1,84,425/ in proportion to interest of shares of Ashima Syntex Ltd. by respondent assessee. 11. With regard to deletion of disallowance of contrived loss, learned senior advocate submitted that Nirma Management Service Pvt. Ltd., is admittedly entity, which is rendering services to both buyers and seller in respect of accounting investment, taxations and other related services and shares were kept in custody of said service company and only because shares which were lying unregistered in name of buyer were duly delivered upon sale and transaction being completed. It was therefore submitted that when it is not in dispute that delivery of share given by seller to buyer, transaction was completed and there was transfer of shares as per definition of transfer under Section 2(47) of Act, 1961. Page 34 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT 12. It was further submitted that consideration for transaction of shares was paid through cheque and same was accounted in books of accounts of respective buyer and seller and therefore, no proof of delivery of shares was found during course of search is no ground to disallow loss. It was further submitted that quantum of loss is not disputed by Assessing Officer or CIT(A). only ground for disallowing such loss was that there was no proof of delivery of shares prior to date of search. 13. Learned senior advocate further submitted that it was also contended before Tribunal that when transaction is viewed as tax planning, though it is not, assessee was entitled to plan his transaction so that his taxes are minimized. Moreover, respondent assessee has disclosed loss in return of income supported by evidence of payment is considered by Tribunal is finding of fact. Copies of sale bill received from brokers and payments made through cheque and delivery of shares were given to buyers are not in dispute. It was therefore, submitted that there is extinguishment of right of assessee in shares resulting in transfer and therefore, Tribunal has rightly held that transactions which are duly incorporated in books of assessee in addition to evidences furnished before assessing officer including confirmation of purchasing of shares by seller and buyer and subsequently transferring such shares and in case of non transfer lodging complaint and offering capital gains as well as losses in returns of income, Tribunal has rightly deleted disallowance of contrived losses. 14. Learned senior advocate further submitted that Tribunal has given findings of fact and there is no question of law raised by Page 35 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT revenue with regard to perverse findings given by Tribunal. IT was therefore, submitted that revenue cannot be permitted to contend that impugned order passed by Tribunal is perverse. 15. It was also submitted that when Tribunal after analyzing material on record and after recording submissions made by both, appellant as well as revenue, has arrived at finding of fact giving reasons which goes to root of case, then in such circumstances, it cannot be said that Tribunal has not given any cogent reason in support of findings recorded by it. 16. It was therefore, prayed that impugned orders are not require to be interfered as both questions of law are in fact questions of fact and same should not be considered as substantial questions of law arising from impugned order of Tribunal. 17. Having considered submissions made by learned advocates for respective parties and having perused impugned orders passed by Assessing Officer, CIT(A) and Tribunal, we are of opinion that Tribunal has arrived at finding of fact after considering material evidence on record so as to hold that assessee is entitled to claim of contrived losses suffered by it. Tribunal has also rightly considered fact that in assessment under block period only undisclosed income, which is found from seized material can only be considered for addition as in total income of assessee. In facts of case, assessee has already disclosed losses by making necessary entries in books of accounts and therefore, assessing officer and CIT(A) were not justified in disallowing contrived losses claimed by assessee. Tribunal has also taken into consideration factual aspect of matter that sale bills were issued by brokers, payments were made by cheque Page 36 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 C/TAXAP/1180/2006 CAV JUDGMENT by respective buyer of shares and such transactions are duly reflected in books of accounts. In such circumstances, it cannot be said that Tribunal has committed any error in holding that assessee is entitled to claim contrived losses in total income for respective year by respective assessee. 18. We are in agreement with ratio of decisions cited at bar by learned advocate for revenue, but in view of findings of fact recorded by Tribunal in present case, we are of opinion that there is no need to restore matter back to Tribunal to give any further reasons in support of findings of fact arrived at on basis of material on record by Tribunal. 19. In view of above, it cannot be stated that impugned order of Tribunal is without any reason whatsoever so as to remand matter back to Tribunal. Even if matter is remanded back to Tribunal, ultimate result arrived at by Tribunal in impugned order relying upon facts emerging from records same would not be different in any view of matter. In such circumstances, we do not find any merit in appeal. questions of law are answered in favour of assessee and against revenue. appeal stands dismissed accordingly. (J. B. PARDIWALA, J.) (BHARGAV D. KARIA, J.) AMAR RATHOD... Page 37 of 37 Downloaded on : Sat Aug 01 11:14:32 IST 2020 Commissioner of Income-tax v. Naman Associate
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