Itxa/931/2017 Of Pr.commissioner Of Income Tax-12,Mumbai v. M/S Kingpin Finance And Investment P.ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 931 OF 2017 Pr. Commissioner of Income Tax-12 v/s. Kingpin Investment & Finance P. Ltd. .. Appellant .. Respondent Mr. Sham Walve for the appellant None for the respondent CORAM : M.S. SANKLECHA & NITIN JAMDAR, J.J. DATED : 14[th] OCTOBER, 2019 P.C. 1.This appeal under Section 260A of the Income Tax Act, 1961(Act) challenges the order dated 20[th] July, 2016 passed by the IncomeTax Appellate Tribunal (Tribunal). This appeal relates to AssessmentYear 2002-03. 2.The Revenue urges only the following question of law for ourconsideration :- Whether in the facts and circumstances of the case and in law,the Tribunal was justified in holding that Long Term CapitalLoss arising from the transfer of preference shares was not asham transaction ? 3.In its return of income for the subject assessment year, therespondent had claimed long term capital loss of Rs. 3.61 crores onsale of preference shares. These shares had been allotted by WelspunMercantile Pvt. Ltd. (245360 shares) and Welspun Trading Pvt. Ltd.(134240 shares) to the respondent for appropriate consideration.During the assessment proceedings, the respondent also filed sharecertificates along with allotment letter issued by both the companies.Out of the above preference shares, the respondent had sold in theprevious year relevant to the subject assessment year 215000 sharesof Mercantile Welspun Pvt. Ltd. to Global Home-tex Ltd. and 30630shares of M/s. Welspun Trading Pvt. Ltd. to M/s. Sheetal FinancialServices Pvt. Ltd. The Assessing Officer noted that the transferee ofthe shares had suppressed the consideration to avoid payment of thestamp duty. Besides, funds for the purchase of the preference shareshad been received from a group company namely M/s. Wellson IndiaLtd. and M/s. Glofame Cotton Yarn Ltd. Thus, the Assessing Officercame to the conclusion that as these companies belong to the samegroup, the entire transaction is a sham transaction. Further, it heldthat as no dividend had been received from the two companies M/s. Welspun Mercantile Ltd. and Welspun Trading Pvt. Ltd. thetransaction was not genuine. Therefore, the loss ought to be ignoredas it is a sham transaction. 4.In appeal, the Commissioner of Income Tax (Appeal) [CIT(A)]dismissed the respondent’s appeal. 5.On further appeal, the Tribunal on facts found that purchase ofthe preference shares was shown in the balace-sheet as on 31[st]March, 2001 filed along with return of income for the AssessmentYear 2001-02. The above purchase was accepted in scrutinyassessment for Assessment Year 2001-02. The impugned orderfurther records a finding of fact that the purchase of preferenceshares was genuine in as much as allotment letter, share certificate,consideration paid etc. was duly supported by the documentaryevidence and return filed with the Registrar of companies. It alsoheld that non-deduction of dividend by the company in which sharesare held is not a factor to hold that the transaction is not genuine.In terms of Section 205 of the Companies Act, dividend shall be paidonly out of profits. Mere suspicion that the transaction is shamtransaction would not by itself justify disregarding the documents already on record, which establish genuineness of the transaction.Moreover, on facts the Tribunal found that the loss which has arisenon the sale of the shares was due to indexed cost of acquisition andhas been claimed as a set off against any profits. Thus, there couldbe no motive for a sham and / or bogus transaction as held by theAssessing Officer. On the aforesaid facts, the impugned order heldthat the transaction is genuine. already on record, which establish genuineness of the transaction.Moreover, on facts the Tribunal found that the loss which has arisenon the sale of the shares was due to indexed cost of acquisition andhas been claimed as a set off against any profits. Thus, there couldbe no motive for a sham and / or bogus transaction as held by theAssessing Officer. On the aforesaid facts, the impugned order heldthat the transaction is genuine. 6.We note that the impugned order of the Tribunal on finding offact has come to the conclusion that the transaction for claimingshort term loss was genuine. Nothing has been shown to us whichwould indicate the above finding of fact by the Tribunal is perverse.Therefore, the question as proposed being one of finding of fact, doesnot give rise to any substantial question of law. Thus, notentertained. 7.Accordingly, the appeal is dismissed. (NITIN JAMDAR, J.) (M.S. SANKLECHA, J.)