1998 (4) TMI 106 - HC - Income Tax

Summary

Issues Involved:

1. Whether the Tribunal's finding regarding the transactions of sales of shares with the chairman of the assessee-company was based on no evidence or partly relevant or partly irrelevant evidence and is otherwise perverse and arbitrary.
2. Whether the Tribunal's finding that the Revenue failed to establish its case of false sale transaction of shares to the chairman of the assessee-company was based on no evidence or partly relevant or partly irrelevant evidence and is otherwise perverse and arbitrary.
3. Whether the Tribunal was correct in law in directing the AO to allow the share of loss to the assessee-company.

Summary:

Issue 1: Tribunal's Finding on Transactions of Sales of Shares
The Tribunal concluded that the transactions involving the sale of shares of The General Fibre Dealers Ltd., Bhagatpur Tea Co., and Jokai India Ltd. to the chairman of the assessee-company were genuine and done as an act of prudence. However, the High Court found that the Tribunal failed to consider the material facts and based its decision on no evidence. The Tribunal did not properly address the fact that the transactions were between the company and its chairman, lacked commercial prudence, and were intended to benefit the chairman by acquiring control over the companies. The High Court held that the Tribunal's decision was perverse and arbitrary, thus answering in favor of the Revenue.

Issue 2: Revenue's Failure to Establish False Sale Transaction
The Tribunal held that the Revenue failed to establish its case of false sale transactions of shares to the chairman of the assessee-company and rejected the share loss on surmise and conjectures. The High Court disagreed, noting that the Tribunal ignored significant aspects such as the lack of actual movement of funds, simultaneous issuance of cheques without sufficient funds, and the absence of other buyers for the shares. The High Court concluded that the Tribunal's finding was based on no evidence and was perverse, answering this issue in favor of the Revenue.

Issue 3: Tribunal's Direction to Allow Share Loss
The Tribunal directed the AO to allow the share loss claimed by the assessee-company, stating that the transactions were supported by vouchers and reflected in the bank accounts. The High Court found this direction incorrect, as the Tribunal failed to consider that the transactions were sham and intended for tax avoidance. The High Court emphasized that the onus was on the assessee to prove the genuineness of the transactions, which was not discharged. Consequently, the High Court answered this issue in the negative, against the assessee-company and in favor of the Revenue.

Conclusion:
The High Court found the Tribunal's order perverse and ruled in favor of the Revenue on all three issues, highlighting the lack of evidence and the failure to consider significant facts by the Tribunal.