Db Income Tax Appeal v. Income Tax Officer & Anr

1 FIN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR **** JUDGMENT DB Income Tax Appeal No.15/2013Subhash Beniwal Vs.Income Tax Officer & anr. Date of Order ::: 27/10/2014 PRESENTHON'BLE MR. JUSTICE AJAY RASTOGI.HON'BLE MR. JUSTICE J.K. RANKA. Mr. Anant Kasliwal, for the appellant. BY THE COURT (Per Hon'ble Ranka, J.): 1.This Income Tax Appeal filed by the appellant-assesseeu/s 260A of the Income Tax Act (for short, “IT Act”) is directedagainst the order passed by the Income Tax AppellateTribunal, Jaipur (for short, “ITAT”) by which the ITAT, whileapproving the order passed by the Commissioner of IncomeTax (Appeal) (for short, “CIT(A)”), has dismissed the appealfiled by the assessee. It relates to Assessment Year 2008-09. 2.The brief facts, which can be noticed on perusal of theorder and arguments of Counsel for the appellant, are that theappellant-assessee submitted return declaring total income atRs.1,60,580/-; which inter-alia, consisted of income from salaryand income from house property but it was noticed by theAssessing Officer (for short, 'AO') at the time of scrutiny of the 2 assessment proceedings that the assessee had sold a plot ofland at Rs.50 lacs and had shown capital gain atRs.43,90,008/- after deducting indexed cost of Rs.6,09,992/-.However, the assessee also claimed short term capital loss atRs.45 lacs in the computation of income which was set offagainst the long term capital gain arising out of sale of plot ofland. 3.It was noticed by the AO that the purchase and sale ofshares of a private limited company namely; M/s City StarHospitality Pvt. Ltd which were purchased at heavy premiumand sold at a loss within short span of period, created doubtand therefore, the assessee was enquired about the lossincurred on account of purchase/sale of shares relating to theaforesaid company. It was claimed by the assessee that hepurchased 50000 shares of M/s City Star Hospitality Pvt. Ltd.at a premium of Rs.90/- per share during the previous yearrelevant to the year under appeal. On further query by the AO,it was claimed by the assessee that 50000 shares were sold toone Shri Davendra Kr. Meel at the rate of Rs.10/- per sharewithin the same financial year on 31[st] March, 2008 resultinginto loss of Rs.45 lacs. The AO, not satisfied with the versionof the assessee required the assessee to prove about thesource of investment and other particulars of the company andthe assessee submitted that the company had purchased huge 3 3 plots of land at Alwar in a tripartite agreement amongst oneMr. Raghu Nandan Goyal and others on one hand and M/sCity Star Hospitality Pvt. Ltd. (through one Mr. Het Ram MeelS/o Dula Ram Meel, Director of the Company) and U.Co.Bank, Johri Bazar Branch, Jaipur on the other hand. It wasclaimed that this tripartite agreement was entered into on04/02/2008 and subsequently disputes were raised by certainparties and the matter became sub-judice and having noalternative, the assessee had no option except to sell theshares at the rate of Rs.10/- per share to avoid furtherdecrease of share value and to get out of whatever littleamount he could realize and justified that on the one hand hepurchased the shares at a premium of Rs.90/- per share whenthe assessee was under the hope that in future the propertyvalue would be appreciated and the assessee would gainsubstantially. However, the AO was not satisfied with theexplanation so offered, particularly in view of the fact that theprivate limited company namely'; M/s City Star Hospitality Pvt.Ltd was a new company and it was noticed by the AO that ithad current assets of only Rs.69,332/- and the book value ofthese shares was only Rs.6.93 per share and the companycould not have been in a position to issue shares at thepremium of Rs.90/- per share. It was observed by the AO thatthe shares were allotted by the company admittedly on25/08/2007 and were sold within a period of eight months at a 4loss of Rs.45 lacs and thus disallowed the loss claimed by theassessee by holding that transaction was colourable. 4.The matter was carried in appeal by the assessee beforethe CIT(A) who also came to the conclusion as reached by theAO and also held that the assessee was not able to prove andjustify even the payment made towards purchase of the sharesi.e. at Rs. 50/- lacs to the private limited company namely; M/sCity Star Hospitality Pvt. Ltd. and thus upheld the finding of theAO. 5.In further appeal before the ITAT, the claim wasreiterated by the assessee, however, the ITAT also, afterdetailed factual analysis, rejected the contention of theassessee and dismissed the appeal. Hence this appeal. 6.Ld. counsel for the appellant-assessee contended thatthe order of the ITAT is perverse as it has not considered thematter appropriately. He contended that the purchases, somade by the assessee, have been found to be genuine andnot doubted, thereafter, when the matter with regard to theland, purchased by the private limited company namely; M/sCity Star Hospitality Pvt. Ltd. was sub-judice before the Court,finding no alternative the assessee had no option except tocome out by selling of the shares at whatever price he could 5.In further appeal before the ITAT, the claim wasreiterated by the assessee, however, the ITAT also, afterdetailed factual analysis, rejected the contention of theassessee and dismissed the appeal. Hence this appeal. 6.Ld. counsel for the appellant-assessee contended thatthe order of the ITAT is perverse as it has not considered thematter appropriately. He contended that the purchases, somade by the assessee, have been found to be genuine andnot doubted, thereafter, when the matter with regard to theland, purchased by the private limited company namely; M/sCity Star Hospitality Pvt. Ltd. was sub-judice before the Court,finding no alternative the assessee had no option except tocome out by selling of the shares at whatever price he could 5get and to avoid further decrease of the value of his shares;and thus contended that in such circumstances, the losscaused to the assessee could not have been doubted ordisallowed. He further contended that entire material wasplaced before all the three authorities below and no doubtcould have been raised to the premium of shares of privatelimited company as due return under the Companies Act hadbeen filed by the private limited company namely; M/s City StarHospitality Pvt. Ltd., in allotment of the shares after makingdue payment to the Registrar of Companies and the shareswere allotted by a resolution of the Board and thus theassessee proved beyond doubt that the transaction was fair,just and proper and could not have been said to be shamtransaction, as held by the lower authorities as also the ITAT.He further contended that doubt was raised by the authoritiesas to the payment of the initial purchase of shares and hecontended that the assessee had his deposits with M/s. K.L.Meel & Party and M/s. Ashok Kumar Devendra Kumar Meel &Party and the assessee had to recover the said amount andthe assessee instructed the said parties to make payment onassessee's behalf to M/s City Star Hospitality Pvt. Ltd. Hecontended that there is no harm and it is an acceptedproposition that instead of the assessee realizing the amountfrom the said parties, directly instructed them to handover themoney of Rs.50 lacs to M/s City Star Hospitality Pvt. Ltd. and 6contended that the loss being genuine, just and properdeserves to have been allowed and substantial question of lawarise out of the order of the ITAT. He also relied on thejudgment of Delhi High Court in the case of South AsiaIndustries (P) Ltd. Vs. CIT, reported in (1985) 155 ITR 392 andjudgment of Gujrat High Court, in the case of CIT Vs. SpecialPrints Ltd., reported in (2013) 93 DTR Judgment 351. 7.We have considered the arguments advanced by ld.counsel for the appellant-assessee and have perused theimpugned order. In our view, the order of the ITAT is just andproper is based on appreciation of evidence and on factualfindings this Court cannot interfere u/s 260A of the IT Act. 8.Admittedly, the assessee had shown a long termcapital gain of Rs.43,90,008/- on a sale of plot of land andsimultaneously the assessee also claimed short term capitalloss, as aforesaid, of Rs.45 lacs on account of purchase ofshares on 25/08/2007 at a premium of Rs.90/- per share andsale thereof within a short period on 31[st] March, 2008 at a lossof Rs.45 lac. Though the ITAT with reference to incorporationof the company has observed that “ the company M/s City StarHospitality Pvt. Ltd was incorporated in the assessment yearunder consideration and the same was also confirmed by theLd. A/R at the time of hearing of the appeal” but the Ld AO has 7 8.Admittedly, the assessee had shown a long termcapital gain of Rs.43,90,008/- on a sale of plot of land andsimultaneously the assessee also claimed short term capitalloss, as aforesaid, of Rs.45 lacs on account of purchase ofshares on 25/08/2007 at a premium of Rs.90/- per share andsale thereof within a short period on 31[st] March, 2008 at a lossof Rs.45 lac. Though the ITAT with reference to incorporationof the company has observed that “ the company M/s City StarHospitality Pvt. Ltd was incorporated in the assessment yearunder consideration and the same was also confirmed by theLd. A/R at the time of hearing of the appeal” but the Ld AO has 7 observed that as on 31/3/2007 the company had assets of Rs.69332/- and the book value of the shares as on 31/3/2007 wasjust Rs 6.93/- per share. Be that as it may, the fact remainsthat the company was formed within a short span of time withhardly any assets. It may be that the company, had purchaseda premium land at Alwar in the hope that the value of the land ,as they are appreciating, would appreciate sharply but insteadof the property appreciating rather on account of litigation orthe matter being sub-judice, the assessee thought it to get outof it by way of selling the same, but the mute question is thaton the one hand, the assesse claims that the company allottedshares, to the assessee on 25/08/2007 but then theagreement, which has been placed on record by counsel forthe assessee, shows that the tripartite agreement itself wasentered into between one Mr. Raghu Nandan Goyal, on onehand and the private limited company namely M/s City StarHospitality Pvt. Ltd. and U.Co. Bank on the other hand on04/02/2008 and at least on 25/08/2007, the agreement was notat all in existence. It is also pertinent to observe that thetripartite agreement stated the name of the company as “StarCity Hospitality Pvt. Ltd” whereas the assessee purchasedshares from “City Star Hospitality Pvt. Ltd.” This though isrelevant but for disposal of this appeal may not be relevant asall these are findings of fact. It is also an admitted fact that theso-called tripartite agreement itself is unregistered document. 8 On perusal of the copy of Civil Suit filed by one Raman KumarDeora and Ramesh Chand Agarwal against Raghu NandanGoyal including M/s City Star Hospitality Pvt. Ltd., and U.Co.Bank and others, it is noticed that the civil suit itself was filedafter 31[st] March, 2008. Although the date is not mentioned asto on which date, the civil suit was filed, however, there is anaverment in Para 16 of the said civil suit that on 31/03/2008when Raman Kumar Deora and Ramesh Chand Agarwal werecrossing from the said property, they saw a board of M/s CityStar Hospitality Pvt. Ltd. and thus at least on or before 31[st]March, 2008, the matter was not even sub-judice as claimedby the assessee. The assessee contended before the CIT(A)that he was made aware of a dispute with regard to purchaseof land by the company on 10/02/2008 when a notice appearsto have been published. However, it is an admitted fact thatthe company issued 65000 shares at the premium of Rs.90/-per share, more than 45 days thereafter on 24/03/2008 i.e. justa week before sale of the shares by the company on31/03/2008 [though the CIT(A) observed that sale of shares bythe assessee as per assessee's own version took place on13/02/2008 but at one point of time assessee claims that itwas sold on 31/03/2008) Be that as it may, such factum showsthat the company despite of this, sold shares at premium ofRs.90/- on 24/03/2008. Thus, there was no occasion with theassessee to have sold the shares at a huge loss on 9 13/02/2008 or/and 31/03/2008 in such eventuality or in hastewhen the company itself issued shares at a premium on24/03/2008. 9 13/02/2008 or/and 31/03/2008 in such eventuality or in hastewhen the company itself issued shares at a premium on24/03/2008. 9. It is also an admitted fact that the ITAT has come to theconclusion that the amount rotated from M/s. K.L. Meel & Partyand M/s. Ashok Kumar Devendra Kumar Meel & Party ofRs.50 lacs and the assessee has also sold shares to the samegroup as it is claimed by the assessee that the assessee wasthe only person in M/s City Star Hospitality Pvt. Ltd. as anoutsider as against five persons of Meel Family who were themajority shareholders/directors of M/s City Star HospitalityPvt. Ltd. 10. It would also be appropriate to quote the followingfinding of fact recorded by the Tribunal in its order which reads ad-infra:- “During the course of hearing, the ld. AR was askedto explain as to whether the said payment was madeby the above named AOPs by way of book entry orby way of cheque payment to M/s. City StarHospitality (P) Ltd. The ld. AR stated that the saidpayment was made by way of cheques but could notfurnish any evidence to substantiate his abovesubmissions. We observe that the said company hadnot started any business. The ld. AR has notdisputed the fact that as on 31-03-2007, its netcurrent asset was of Rs.69,332/- and accordingly thebook value per share was of Rs.6.93. The ld. ARsubmitted that he purchased the said shares at a 10 premium of Rs.90/- only in the hope that the saidcompany was getting a piece of land which wassituated in Alwar City but due to dispute in respect oftitle of the said property, the land transaction did notmaterialize and ultimately the assessee decided tosell the shares to avoid further loss. Save andexcept the above submissions, the ld. AR could notcontrovert the findings as given by the authoritiesbelow that it was not a genuine transaction. We alsoobserve that the said company also issued 65,000shares on 24-03-2008 at a premium of Rs.90/- andaccordingly the ld. CIT(A) was justified to hold thatthere was no reason to sell the shares by theassessee to one of the relatives of the promoters ofthe said company at a loss of Rs.90/- per share on31-03-2008. The only plea taken by the assesseebefore us is that he is not a family member of thepromoters and was only having business relation.We also observe that the assessee when sold thesaid shares to Shri Devendra Kumar Meel at Rs.10/-per share, the assessee did not receive the amountof Rs.5.00 lacs by way of cheque. Shri DevendraKumar Meel is being reflected as a debtor in thebalance sheet of the assessee as on 31-03-2008filed by the ld. AR on 19-05-2011 as observed by theld. CIT(A). At the time of hearing, the ld. AR couldnot controvert the said observations of the ld. CIT(A)with any documentary evidence. Therefore, it isevident that the assessee did not receive the saleconsideration also by way of cheque. Considering the above facts in totality, we holdthat the said share transactions are not genuinetransaction and the only motive of the assessee was 11 to set off the long term capital gain earned by himagainst so called short term capital loss on purchaseand sale of the shares of the company namely M/s.City Star Hospitality (P) Ltd.” 11.In the light of what we have observed herein above,In our view, all the three authorities below i.e. the ITAT, CIT(A)and the AO have come to a definite finding of fact based onappreciation of evidence provided by the assessee that theassessee was unable to justify that the transaction wasgenuine and is nothing but a sham and colourable transaction,in our view, no substantial question of law can be said toemerge out of the order of the ITAT when it is based onappreciation of evidence and a finding of fact and we do notfind any perversity or infirmity in the order impugned passed bythe ITAT so as to call for interference of this Court. 11.In the light of what we have observed herein above,In our view, all the three authorities below i.e. the ITAT, CIT(A)and the AO have come to a definite finding of fact based onappreciation of evidence provided by the assessee that theassessee was unable to justify that the transaction wasgenuine and is nothing but a sham and colourable transaction,in our view, no substantial question of law can be said toemerge out of the order of the ITAT when it is based onappreciation of evidence and a finding of fact and we do notfind any perversity or infirmity in the order impugned passed bythe ITAT so as to call for interference of this Court. 12.As regards the judgments relied upon by counsel for theassessee in the case of CIT Vs. Special Prints Ltd. (supra), itis on different footing as in the said case, there was a valuationreport by a registered valuer to support the contention of thevalue having gone down and no legal infirmity was noticed bythe revenue in that case about the valuation report of theregistered valuer, however, in the present case, even the verybasis of huge premium of Rs.90/- per share, which has beenclaimed by the assessee to have been paid on purchase ofshare, is not apparent and particularly, when the companyitself came to be incorporated recently, the value of the share 12 as on 31[st] March, 2007 being only Rs.6.93 per share and evenon the date of allotment of shares, the very so-called tripartiteagreement was not at all in existence. 13.So far as the judgment relied upon by counsel for theassessee in the case of South Asia Industries (P) Ltd. Vs. CIT(supra), is also distinguishable on facts because in that casethe company M/s. Asia Udyog (P.) Ltd. was practically adefunct company for quite some time whereas in the presentcase, even the very basis of premium of Rs.90/- per share hasbeen doubted by all the three authorities so also sale of shareswithin a period of about eight months at a loss of Rs.45 lacswhen even the Civil Suit, as referred to above, was filed lateron and therefore, at least on 31[st] March, 2008, no such actionarose for the assessee to have sold the shares suffering a lossof Rs. 45 lacs. 14.Consequently, the appeal being devoid of merits standsdismissed in limine. [J.K. RANKA],J. ,J. Raghu/p.12/ All corrections made in the judgment/order have been incorporated in the judgment/orderbeing e-mailed.Raghu, Sr. PA.