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TMI Blog2015 (8) TMI 870X X X X Extracts X X X X X X X X Extracts X X X X ..... t) and CIT v. Durga Prasad More (1971 (8) TMI 17 - SUPREME Court). Accordingly, we are inclined to say that this loss cannot be considered as capital loss so as to allow the claim of the assessee in the absence of any proper explanation to sell the share such low price. - Decided against assessee. Disallowance of advances written off - Held that:- In the present case, the assessee was not able to establish that the loan was advanced during the normal course of business carried on by it. There is no evidence to show that the assessee was carrying on money lending business and merely because, the assessee advanced the money to its sister concern, it cannot be said that the assessee is carrying on money lending business. Therefore, non-recovery of that loan cannot be treated as business loss. This is not an advance given to M/s. Sita-Gita.Com Ltd. in ordinary course of business of the assessee. In other words, though it was treated as an advance, it was not gone into the computation of income while computing the income of the assessee. At best, it could be advanced in the capital field. Being so, the loss of capital cannot be allowed as an expenditure, when it became bad and therea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 318251 10.1.03 5000000 5559284 -5527459 77357 77357 12153500 13889185 138118281 The above shares have been sold by the assessee to Ms. Nirmal Mirza, who is the wife of the Managing Director of the assesseecompany. These shares have been sold at the rate of ₹ 0.064 per share. They have been purchased at their face value of ₹ 10/-. To summarize, the shares which have been purchased at the rate of ₹ 10/- have been sold at the rate of 0.064. The details of the above purchase and sale of shares given by the assessee are as under: No. of Shares Date of purchase Cost per share Date of sale Sale price per share address of person to whom sold 500000 10.01.03 10 30.03.06 0.064 Nirmal Mirza No.15, Casurina Drive, Neelankarai, Chennai-4 PAN AACPN1941R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. for the last 3 financial years. A perusal of the same showed that even on the date that the shares were purchased by the assessee company at the rate of ₹ 10/- per share from outsiders and from company directly, the net worth of such company was negative. The assessee company had decided to purchase the shares at the rate of ₹ 10/- at a time when its book value was negative. Such shares purchased at an inflated value have been subsequently sold related party viz, the wife of the Managing Director of the assessee company for a meagre amount of around 6 paise per share. This exercise has been done only to build losses in the books of the company. Since loss is arising out of transactions between related parties and in the absence of explanation on how the value of ₹ 0.064 per share was determined, the loss claimed by the assessee is disallowed by the AO. Against this, the assessee went in appeal, before the CIT(Appeals). 4. Before the CIT(Appeals), the ld. AR submitted that disallowance of long term capital loss amounting to Rs.l,38,11,8281/- arising on sale of shares of M/s. Sitagita Corn Ltd., on the ground that the sale was to related party and sale pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned AO failed to appreciate the fact that all these technology companies initially incur losses. It takes time to turn around the company. This is proved by the fact that one of the associate companies Apcom Computers P Ltd., wherein assessee has substantial interest and incurring losses for the FY 2001-02 to the extent of Rs. 3.84 crores, in FY 2002-03 Rs. 85.47 lakhs but profit of Rs. 126.83 lakhs in FY 2003-04. Hence, based on the fact that the company Sitagita.Com. Ltd can be turned around, the assessee had further invested in FY 2002-03 another Rs. 50 lakhs. Further it bought 1,700 shares from Mrs. Prabha Chakravarthy, one of founder members as she wanted to exit from the same. The other fact the learned AOfailed to note is that as per Section 79 (1) any issue of shares at a discount is a laborious task, wherein the approval from Company Law Board needs to be taken along with other conditions which needs to be fulfilled. Any company issuing the shares of a discount will find it difficult to sell as well as the number of shares will increase substantially. The learned AO has also failed to appreciate the fact that most of the investments are held for a minimum period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the AO is justified in disallowing the loss claimed by the assessee and this ground is dismissed. Aggrieved by this, the assessee is in appeal before us. 5. We have heard both the sides and perused the material on record. As noted by the CIT(Appeals), the assessee has purchased shares at the rate of ₹ 10 per share from outside and also from company directly, when the net worth of the company was in negative. Later the same was sold to the wife of the Managing Director of the assessee company for a meagre amount of 6 paise per share. The assessee has not brought on record any evidence, even before us to establish that the loss was incurred by the assessee on genuine reason and as such, the same cannot be said to be genuine loss. The sale of shares of such lowest price is shocking conscious of the Bench and all human probability shows a prudent person never to sell the shares at such a sale price, as held by the Supreme Court in the cases of Sumati Dayal v. CIT ( 214 ITR 804) and CIT v. Durga Prasad More (82 ITR 540). Accordingly, we are inclined to say that this loss cannot be considered as capital loss so as to allow the claim of the assessee in the absence of any pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce has become irrecoverable, the assessee decided to write it off. According to him, the assessee company does not have any business relations with the company M/s.SitaGita.Com Ltd. According to the CIT(Appeals), the money given to M/s. Sita-Gita.Com Ltd. in the above circumstances should !therefore be regarded as a loan and the write off of an amount representing loan given by the company should be regarded as a capital expenditure. The CIT(Appeals) also observed that this sum only represents a loss of capital which does not happen in the normal course of business. The assessee company is not in the business of money lending. Only for such assessees which are engaged in the business of money-lending, loss arising out of irrecoverability of a loan can be allowed as a revenue expenditure. Accordingly, he agreed with the findings of the AO and concluded that since the assessee has not disputed the facts that it does not have any business relations with the company M/s.Sita-Gita.Com Ltd, the amount advanced by the assessee has to be treated as capital expenditure and the AO is justified in adding back the advances written off of ₹ 17 .50 lakhs to the returned income. Against t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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