2003 (4) TMI 41 - HC - Income Tax

Assessee is a finance company. It is a public limited company carrying on business of leasing, financing hire purchase, dealing in shares and other financial activities - Whether, on the facts and in the circumstances of the case and in law, addition of Rs. 35.10 lakhs, being the difference between the sale price of the shares in question at the rate of Rs. 18.90 per share on 18th March, 1991, and the estimated realisable price of Rs. 54, after listing on the Calcutta Stock Exchange on June 27, 1991, as suppressed income, was justified? - the above question is answered in the affirmative, i.e., in favour of the Department and against the assessee.

Summary

Issues:
Assessment of suppressed income due to the sale of shares at a lower price than the market value.

Detailed Analysis:
The case involves an appeal by a finance company regarding the addition of Rs. 35.10 lakhs as suppressed income by the Income-tax Officer. The company had sold shares at Rs. 18.90 per share, resulting in a profit of Rs. 8,90,000 during the assessment year 1991-92. The company contended that the sale price was reasonable due to the circumstances, including the non-declaration of dividends by the company whose shares were sold. The Assessing Officer, however, considered the sale price to be lower than the actual market value and made the addition based on a rate of Rs. 54 per share. The Tribunal confirmed this decision, leading the company to appeal to the High Court.

The main argument presented by the company was that there was no evidence to suggest the transaction was a sham or a device for tax evasion. The company's counsel emphasized that the sale was at arm's length and not between interconnected parties. Referring to legal precedents, the counsel argued that the Department cannot tax on notional income without proof of sham transaction or tax evasion. The company contended that the Assessing Officer's reasoning for the addition was arbitrary and lacked factual basis.

The High Court, however, upheld the decision of the authorities below. It noted that there was a concurrent finding that the shares were obtained through the promoters' quota with a lock-in period. The Court raised questions about the sale transaction, including why the shares were sold to a broker and not disclosed who paid the consideration. The Court expressed concerns about the transaction's legitimacy, especially in light of past securities-related issues. Despite requesting details and an affidavit from the company, the Court found the lack of information troubling and declined to interfere with the lower authorities' findings.

In conclusion, the High Court answered the question in favor of the Department, dismissing the company's appeal without any costs. The judgment highlighted the importance of providing transparent and verifiable details in financial transactions to avoid suspicion and potential tax implications.