9911796707
TMI Blog1998 (4) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... ,34,290 and Rs. 2,30,950 for the asst. yrs. 1993-94, 1994-95 and 1995-96 respectively. 4. The brief facts of the case are that the assessee is an individual deriving income from business of dealing in securities, shares and units and also from the sources as reflected in the computation of income. The assessee filed its returns of income for the three assessment years which were accepted under intimation by an order under s. 143(1)(a) at the said declared amounts. Thereafter a notice under s. 148 was issued on12th Dec., 1995, whereby the learned Asstt. CIT proceeded to reopen the assessments by means of notice under s. 148 of the IT Act. In the notice dt.8th Jan., 1996, the Asstt. CIT intimated the following reasons for reopening the said assessments: "While inspecting the books of accounts during the course of assessment proceedings for the asst. yr. 1994-95, it was observed that you had purchased 30,000 units from Unit Trust of India @ Rs. 14.90 on 15th July, 1992 and you had sold 4 lakhs units @ Rs. 13.90 on 16th July, 1992 to your HUF, M/s Shankar Lal Ved Prakash. As you know the sale and repurchase prices of US 64 of UTI remain the same during the month hence sale to HUF was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the head 'Income from other sources' as per s. 56(2) of the IT Act, as against the claim of the assessee treating the same to be business income. The learned AO alleged that the assessee did not sell the UTI's units to the HUF. Except making book entries no real transaction has taken place. The HUF neither came in possession of the units because they were pledged to the bank and sold by the assessee, as and when he wished, nor any payment was made by the HUF to the assessee. The units were never transferred by the assessee to the HUF as it is clear from the fact that these units were pledged to the bank by the assessee. The certificates though remained in the bank custody till10th Dec., 1995. When the certificates were in bank's custody, he could not transfer or mortgage the same in anyway. There is no record in the bank to show that he has sold these units to HUF, M/s Shanker Lal Ved Prakash. There was no attempt by M/s Shanker Lal Ved Prakash, i.e., units were never sent to UTI for transfer. The dividend has always been coming in the name of the assessee and credited in his bank account even after the alleged sale. In this way, he concluded that there was no profit motive for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the assessee from the above units was taxed as income from other sources as per s. 56(2) of the IT Act for the detailed reasons given in paras 4 to 9 of the assessment order, which were also incorporated in the order of the CIT(A). 5. However, the first appellate authority concurred with the finding given by the AO, basically on the similar reasoning. The CIT(A) also justified the reopening of assessments under s. 148. 6. Aggrieved by that order, the assessee filed appeals before the Tribunal. 7. The learned assessee's counsel challenged the reopening of the proceedings under s. 148 of the IT Act, on the basis that the reasons given by the AO for reopening the assessment is not justified. It is pointed out that in the reasons recorded the AO stated that the assessee had purchased 30,000 units at the rate of Rs. 14.90 per unit on15th July, 1992and sold 4 lakhs units at the rate of Rs. 13.90 per unit on16th July, 1992to his HUF, M/s Shanker Lal Ved Prakash. According to the AO, sale and purchase price of unitsUS64 of the UTI remained the same during the month and sale to HUF was a sham transaction in order to create fictitious loss. Against this, the learned assessee's coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,00,000 13.90 55,60,000 Loss...... 7,40,000 However, dividend aggregating to Rs. 10,00,000 @ 2.50 earned on30th June, 1992. Effect :--There is a net gain of 2,60,000. If the transaction of sale is disputed, then the purchaser will not be liable of assessment of dividend from units which on 30th June, 1993, aggregates to 10,40,000 and further, when purchased by M/s Shanker Lal Ved Prakash @ 13.90 were sold @ 17.95 and hence the difference of Rs. 405 aggregating in all to 16,20,000 is not taxable in the hands of M/s Shanker Lal Ved Prakash. Asst. yr. 1994-95 (year ending 31st March, 1994). Date Units Rate Amount 30th Jan., 1993 Purchased 60,000 16.40 9,84,000 30th July, 1993 Sold 60,000 15.10 9,06,000 Loss...... 78,000 However, dividend aggregating to Rs. 1,56,000 @ 2.60 earned on30th June, 1993. Effect :--There is a net gain of 78,000. If the transaction of sale is disputed, then the purchaser will not be liable of assessment of dividend from units which on 30th June, 1994, aggregates to 1,56,000 and further, when purchased by M/s Shanker Lal Ved Prakash @ 15.10 will be sold in future and hence, the difference of sale price and purchase price of 15.10 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e prices, as stated above, are increased by Unit Trust of India every month starting from July onwards. The very basis on which the UTI determines such monthly increases is primarily interest-oriented and the very object is to provide the unit-holder a regular income, as is the prime object of the scheme so that the unit-holder can earn in the form of dividend and by selling the units at any time of the year even if the unit-holder decides not to wait until usual July month for the receipt of annual interest/dividend. Thus, the buyer of units pays a base price plus interest or dividend, in case of his purchase in a month subsequent to the month of July and similarly the seller of units receives a higher rate that is basic price of July plus interest or dividend accrued for until the month of his sale. In order to illustrate the learned assessee's counsel invited our attention to the Annexure "A", "B" and "C" to this order of Tribunal. 8. It is pointed out that the dividend received by the HUF in respect of these units were shown by the HUF as their income, which has been duly assessed as income of the HUF, where the income of the HUF exceeds more than Rs. 10 lakhs. It is pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng decisions: (1) Jhaveribhai Behari Lal & Co. vs. CIT (1984) 43 CTR (Pat) 125 : (1985) 154 ITR 591 (Pat); (2) State ofUttar Pradesh& Anr. vs. Raza Buland Sugar Co. Ltd. (1978) 118 ITR 50 (SC); (3) CIT vs. Calcutta Discount Co. Ltd. 1973 CTR (SC) 425 : (1973) 91 ITR 8 (SC); (4) Ramalinga Chhodambikai Mills Ltd. vs. CIT (1955) 28 ITR 952 (Mad); (5) India Finance Construction Co. (P) Ltd. vs. B.N. Panda, Dy. CIT (1993) 109 CTR (Bom) 140 : (1993) 200 ITR 710 (Bom); and (6) Imperial Chemical Industries Ltd. vs. CIT (1979) 119 ITR 46 (Cal). 9. As against this, the learned Departmental Representative relied on the order of the CIT(A) and the AO. He brought to our notice the basic features of the orders by reading out the paras of the orders. 10. We have considered the rival submissions of the parties. The AO while proposing to reopen the assessments observed that the assessee had purchased 30,000 units from UTI at Rs. 14.90 per unit on15th July, 1992, whereas the assessee sold 4 lakh units at Rs. 13.90 per unit on16th July, 1992to the assessee's HUF, M/s Shanker Lal Ved Prakash. He further observed that the sale and repurchase prices of unit US 64 Scheme remained the same during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of ITO vs. Lakhmani Mewal Das 1976 CTR (SC) 220 : (1976) 103 ITR 437 (SC) at p. 448, the Hon'ble Supreme Court has observed as under: "The reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go to the sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, however, vague and indefinite or distinct, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words 'definite information' which were there in s. 34 of the Act, 1922, at one time before it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on sheet given by the assessee, which is not challenged by the Departmental Representative, it will reveal that in fact there is no loss at all in the said transaction. Had the assessee not entered into this transaction, his income would have been less by the net profit shown in the calculation sheet for these assessment years respectively. The learned AO was of the view that motive to make the sale was not for any business purpose and there was no profit motive, which is not correct. These units were purchased by the assessee cum-dividend and the assessee earned a dividend of Rs. 10,50,500 at the rate of Rs. 2.50 per unit on the purchase made by it which was just prior to the closing of books by UTI, i.e., 1st June and declaration of dividend and therefore, the effective cost of the unit to the assessee came to Rs. 13.25 per unit. In this way, he has made a profit of 65 per unit. The next objection of the AO was that the assessee did not receive the sale price. The assessee in his reply at pp. 84 and 85 of the paper-book demonstrated that the total amount debited to M/s Shanker Lal Ved Prakash was as under: Asst. yr. Sale Interest Rs. Rs. 1993-94 55,60,000 -- 1994-95 9,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the normal course of event, as the units were not registered in records of UTI, it was the assessee, who has executed the documents of loan. It will be pertinent to mention here that a person has two capacities, one of his individual and another as a member of HUF. He binds the HUF with all his acts. Therefore, execution of document for loan by the assessee will not amount that this was a personal loan to the individual and not to the HUF. 11. In this case, M/s Shanker Lal Ved Prakash HUF had filed return of income showing the units purchased from the assessee as well as income earned from the units so purchased. The purchaser (HUF) at no stage was called upon by the AO to explain whether such purchases were made by the HUF or not. It could have been done by calling the Karta of HUF, Shri V.P. Goyal, but no efforts were made to record his statement. This would clearly establish that there had been no denial and rather it is explicit acceptance on the part of the HUF, M/s Shanker Lal Ved Prakash that they had acquired these units from the assessee. The relevant evidence placed on record indicates that the units were actually sold, the payments had been received and delivery/poss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f for a moment it is believed that the seller and the purchaser are the same, then in what way the Department stands aggrieved. The assessee buys units for Rs. 15.75 per unit, receives dividend at Rs. 2.50 per unit and sells for Rs. 13.90 per unit, thereby making a profit of Rs. 0.65 per unit. At the same time the HUF's cost price is reduced to Rs. 13.90 per unit and when he actually sells the units purchased at Rs. 13.90 per unit for Rs. 17.90 per unit to the UTI, it is clear from p. 24, he makes a profit of Rs. 4.05 per unit. After this transaction the seller gets gain of Rs. 0.65 per unit while the HUF earns Rs. 4.05 per unit on which tax has been paid. The AO had adopted the view that the assessee could have sold the units in the open market at an average price. In the trade of securities there is any term known as average price/rate, is not established on record, as no material whatsoever has been brought on record, but it is a fact that these units were not listed with any stock exchange at that time. The sale or purchase price were determined by the UTI and, therefore, can it be proved that sale price of the assessee was lower than the sale price determined by the UTI ? Whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its legitimate tax planning within the framework of law and not a colourable device. In the case of CIT vs. Calcutta Discount Co. Ltd. the Hon'ble Supreme Court has observed as under: "Whether a trader transfers his goods to another trader at a price less than the market price, and the transaction is a bona fide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched, to ascertain the profit from the transaction. "An assessee can so arrange his affairs as to minimise his tax burden." In the case of CIT vs. A. Raman & Co. (1968) 67 ITR 11 (SC) the Hon'ble Supreme Court has observed as under: "Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the IT Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violative, but it may lawfully be circumvented." Taking into consideration the totality of the facts and circumstances discussed above, we a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
