2020 (7) TMI 722 - HC - Income Tax

Addition of undisclosed interest income - proportion of investment in shares of Ashima Synthetics Ltd - HELD THAT - Tribunal is final fact finding authority and on perusal of the impugned order passed by the Tribunal it is clear that the Tribunal has considered the submissions made on behalf of the assessee as well as revenue and thereafter has arrived at findings of fact. Tribunal has sustained the addition with regard to the interest income as it was found as a matter of fact that the interest calculated by the assessing officer was a gross calculation about amount to be received and paid by the group as a whole. The Tribunal, therefore, has rightly added sustained the addition of net difference on the item products holding the same to be undisclosed income by directing the Assessing Officer to add proportionate amount of net difference in the interest in proportion to the interest of shares of Ashima Syntex Ltd. by the respondent assessee. Disallowance of contrived loss - only ground for disallowing such loss was that there was no proof of delivery of shares prior to the date of search - Disallowance in block assessment proceedings - HELD THAT - Tribunal has arrived at finding of fact after considering the material evidence on record so as to hold that the assessee is entitled to the claim of the contrived losses suffered by it. The Tribunal has also rightly considered the fact that in the assessment under the block period only the undisclosed income, which is found from the seized material can only be considered for the addition as in the total income of the assessee. In the facts of the case, the assessee has already disclosed the losses by making necessary entries in the books of accounts and therefore, the assessing officer and CIT(A) were not justified in disallowing the contrived losses claimed by the assessee. The Tribunal has also taken into consideration the factual aspect of the matter that the sale bills were issued by the brokers, the payments were made by cheque by the respective buyer of the shares and such transactions are duly reflected in the books of accounts. In such circumstances, it cannot be said that the Tribunal has committed any error in holding that the assessee is entitled to claim the contrived losses in the total income for the respective year by the respective assessee. It cannot be stated that the impugned order of the Tribunal is without any reason whatsoever so as to remand the matter back to the Tribunal. Even if the matter is remanded back to the Tribunal, the ultimate result arrived at by the Tribunal in the impugned order relying upon the facts emerging from the records the same would not be different in any view of the matter. In such circumstances, we do not find any merit in the appeal - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition of undisclosed interest income.
2. Disallowance of losses treating them as contrived losses in block assessment proceedings.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of Undisclosed Interest Income:

The case revolves around a block assessment order for the period from 1st April 1995 to 27th September 2001, issued under section 158BD read with section 158BC of the Income Tax Act, 1961. During a search at the premises of Nirma Limited and its associate companies, a worksheet file named "Ashima xls" was found, indicating investments in shares of Ashima Syntex Limited and Nirma Limited. The Assessing Officer (AO) noted that the investments in shares of Ashima Syntex Limited were matched by equivalent investments in shares of Nirma Limited, amounting to ?3.29 Crore each. The AO found that interest was calculated on these transactions, suggesting they were not pure investment decisions but involved sharafi interest, which was settled across entities.

The AO issued a notice to the assessee and apportioned the interest income of ?30,11,500/- among five entities, attributing ?6,07,214/- to the assessee as undisclosed income. The CIT(A) confirmed the AO's findings, stating that the letter found during the search was not a mere draft and that the appellant failed to explain the contents of the documents found in the seized CD.

The Tribunal, however, held that the letter dated 24/01/98 was a draft and not an actual letter issued to Ashima Syntex Ltd. The Tribunal noted that the calculations of interest referred to in the seized documents were gross calculations for the group as a whole, not individual entities. Hence, it sustained an addition of ?1,84,425/- as the net interest to be received, to be bifurcated among the assessee in proportion to their investment in Ashima Syntex Ltd.

2. Disallowance of Losses Treating Them as Contrived Losses:

The AO found that the assessee booked contrived losses through transactions between associate entities within the Nirma Group, directed by Shri Rahul Devi. These losses were claimed in the returns of income filed for the block period, but no physical delivery of shares was effected. The AO disallowed losses amounting to ?2,97,27,995/-, citing the absence of genuine transactions and contemporary evidence of sale of shares.

The CIT(A) upheld the AO's decision, emphasizing the lack of evidence for genuine transactions of sale of shares and the involvement of Shri Rahul Devi in planning these financial transactions without written directions from the members of the appellant.

The Tribunal, however, found that the assessee had received full consideration for the shares through account payee cheques, and the right in the property was transferred. It noted that the transactions were incorporated in the books of accounts, and the assessee furnished evidence of confirmations of purchases, subsequent transfer of shares, and lodging of complaints with SEBI in case of non-transfer. The Tribunal concluded that these transactions could not be held as undisclosed transactions or contrived losses in block assessment proceedings.

Final Judgment:

The High Court upheld the Tribunal's findings, stating that the Tribunal had considered all the facts and evidence on record. The Court noted that the Tribunal's decision was based on a detailed analysis of the material evidence, and there was no need to remand the matter back to the Tribunal. The questions of law were answered in favor of the assessee, and the appeal was dismissed accordingly.