Shiva Gases vs Commissioner Of Income Tax
2006 Latest Caselaw 1659 Del

JUDGMENT

Madan B. Lokur, J.

1. The assessed is aggrieved by an order dated 8th September, 2004 passed by the Income Tax Appellate Tribunal, Delhi Bench 'D' in ITA No. 1326/Del/2000 relevant for the assessment year 1996-97.

2. The sole question that has been urged by the assessed is with regard to disallowance of a loss of Rs. 45,50,000/- claimed by it on the sale of its investments being shares in M/s. Bhagwati Gases Limited. The Assessing Officer had concluded that the sales did not represent genuine transactions and that they were manipulated by the assessed with its sister concerns with a view to reduce its tax liability.

3. The Commissioner of Income Tax (Appeals) disagreed with the Assessing Officer but on an appeal filed by the Revenue, the Tribunal affirmed the view taken by the Assessing Officer and that is how the assessed is before us.

4. The broad facts of the case indicate that the assessed sold a large number of shares in M/s. Bhagwati Gases Limited to six of its sister concerns. The sister concerns had directors who were partners or relatives of the partners of the assessed. The shares were sold at a loss, though of only Re. 1 per share but they were sold on a credit basis sometime in February, 1996. However, the account of the sister concerns were debited only on 31st March, 1996 even though, according to the assessed, delivery of the shares had been given to the sister concerns much earlier. The transfer deeds in respect of the shares were lodged with M/s. Bhagwati Gases Limited only in April, 1996, that is after the end of the accounting year and by the time the Assessing Officer concluded the assessment proceedings, it was found that the sale price of the shares had not yet been received by the assessed. The Assessing Officer noted that even though the transactions were credit transactions, no entries were made in the books of the assessed. Looking to the facts of the case, the Assessing Officer did not find the transactions genuine. As mentioned above, his view was upset by the CIT (A).

5. The Tribunal has considered the facts of the case in their entirety, which is how it should be.

6. The various facts that have been indicated above go to suggest that the transaction of sale of shares was more or less a make-believe affair. It is unlikely that a prudent businessman would first of all sell shares at a loss even though it may be marginal. Assuming that there were circumstances which caused the assessed to sell the shares at a loss, on a credit basis, it is unlikely (in the normal course) that an assessed would wait for a couple of years to receive the sale price. In the present case, only a part of the sale price was received by the assessed and even after a gap of about two years, it did not receive the entire sale price from any of the purchasers. It cannot be forgotten that the purchasers were sister concerns of the assessed in as much as the relatives or others closely connected with the partners of the assessed firm were directors in the purchasing companies. It is also odd that even though the sale of shares took place in February, 1996 and physical delivery given, the entries in the books were made only on 31st March, 1996 and the share transfer forms were lodged with M/s. Bhagwati Gases Limited only in April, 1996. This is rather unusual if one takes into consideration that the shares were sold at a loss.

7. Looking to all these facts and circumstances, we cannot find any fault with the view taken by the Tribunal that the transactions were not genuine. There may be one or two facts from which the assessed may draw support, but if one looks at the overall conspectus and the circumstances of the case, it is not possible to conclude that the inferences drawn by the Assessing Officer and the Tribunal were either unreasonable or not warranted.

8. The Supreme Court has held in M. Janardhana Rao v. Joint Commissioner of Income Tax (while relying upon Sir Chunilal V. Mehta and Sons Ltd. v. Century Spinning and Manufacturing Co. Ltd. that the following tests determine whether a substantial question of law is involved:

(1) whether directly or indirectly it affects substantial rights of the parties, or

(2) the question is of general public importance, or

(3) whether it is an open question in the sense that the issue is not settled by pronouncement of this Court or the Privy Council or by the Federal Court, or

(4) the issue is not free from difficulty, and

(5) it calls for a discussion for alternative view. There is no scope for interference by the High Court with a finding recorded when such finding could be treated to be a finding of fact.

9. Applying the tests laid down by the Supreme Court, we are of the opinion that no substantial question of law arises for our determination.

10. The appeal is dismissed.