9911796707
TMI Blog2010 (4) TMI 1088X X X X Extracts X X X X X X X X Extracts X X X X ..... cer had doubts that losses have simply been generated to avoid tax liability, therefore, he made detailed enquiries in respect of these capital loses. He noted that assessee company which was a cash starved company finalized an idea of investing of a sum of ₹ 48 crores in four companies in a period of 3 days from 28.3.2000 to 30.03.2000 as per the details given below: Sr. No. Name of the party Amount (including Premium of ₹ 140) No. of new Shares subscription (during the F.Y.1999-2000 31.3.92 (100% Holding 31.3.90 (100% Holding) Total holding of Killick Nixon Ltd. Capital % holding 1. Matterhorn Investments Pvt.Ltd. 12.03 cr. 800,000 149,998 2 950,000 100% 2. Montblanc Investments Pvt.Ltd. 12.03 cr. 800,000 149,998 2 950,000 100% 3. Fircrest Investments Pvt.Ltd. 12.03 cr. 800,000 149,998 2 950,000 100% 4. Galactica Investment Ltd. 12.03 cr. 800,000 149,998 2 950,000 100% 48.12 cr. 4. As noted from the above chart these investments were made in the companies which were already 100% owned by the company. The Assessing Officer further noted that as per the submission of the assessee the money came from the following entities: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KILLICK NIXON 27,500,000 27,509,900 30-MAR TRF TO KOSHA INVEST 479152' 27,500,000 9,900 31-MAR L.F. CHARGES 9,800 Page Total 120,375,200 120,385,000 9,800 The account was opened from a Cash deposit of ₹ 10,000/-. The money in this bank account came on 30th March (12.03 crores) and on the same day of deposit was transferred all to M/s Kosha Investment and the balance left as on 31.3.2000 was ₹ 9,800/-. The amount of ₹ 10,000/- also came from M/s Kosha Investment Ltd. (B) FIRCREST INVESTMENT PVT. LTD. GLOBAL TRUST BANK LIMITED YOUR ACCOUNT UPDATE NARIMAN POINT, MUMBAI DATE 03-04-2000 PAGE NUMBER 1 M/s MONTBLANC INVESTMENT LIMITED, KILLICK HOUSE, KILLICK ESTATE, BAJI PASALKAR MARG, CHANDIVALI, MUMBAI, MAHARASHTRA INDIA -400 072 ACCOUNT CATEGORY CURRENT ACCOUNT - GENERAL ACCOUNT NUMBER 2000101906 INR STATEMENT OF ACCOUNT FOR THE PERIOD 01-03-2000 TO 31-03-2000 Date Details Cheque No. Debited Credited Balance 01-MAR B/F 0 28-MAR CASH DEP 10,000 10,000 28-MAR MICR CHEQUES CHARGES 100 9,900 29-MAR TRF FM KILLICK NIXON 27,500,000 27,509,900 29-MAR TRF TO KOSHA INVEST 479051' 27,500,000 9,90 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BANK LIMITED YOUR ACCOUNT UPDATE NARIMAN POINT, MUMBAI DATE 03-04-2000 PAGE NUMBER 1 M/s MONTBLANC INVESTMENT LIMITED, KILLICK HOUSE, KILLICK ESTATE, BAJI PASALKAR MARG, CHANDIVALI, MUMBAI, MAHARASHTRA INDIA -400 072 ACCOUNT CATEGORY CURRENT ACCOUNT - GENERAL ACCOUNT NUMBER 2000101907 INR STATEMENT OF ACCOUNT FOR THE PERIOD 01-03-2000 TO 31-03-2000 Date Details Cheque No. Debited Credited Balance 01-MAR B/F 0 28- MAR CASH DEP 10,000 10,000 28- MAR MICR CHEQUES CHARGES 100 9,900 30-MAR TRF FM KILLICK NIXON 27,500,000 27,509,900 30-MAR TRF TO KOSHA INVEST 479004' 27,500,000 9,900 30-MAR TRF FM KILLICK NIXON 27,500,000 27,509,900 30-MAR TRF TO KOSHA INVEST 479003' 27,500,000 9,900 30-MAR TRF FM KILLICK NIXON 27,500,000 27,509,900 30-MAR TRF TO KOSHA INVEST 479002' 27,500,000 9,900 30-MAR TRF FM PRO KILLICK NIX 27,500,000 27,509,900 30-MAR TRF TO KOSHA INVEST 579001' 27,500,000 9,900 30-MAR TRF FM KILLICK NIXON 10,375,000 10,375,000 30-MAR TRF TO KOSHA INVEST 479005' 10,375,000 9,900 31-MAR L.F. CHARTGES 100 9,800 Page Total 120,375,200 120,385,000 9800 Page To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t holder of shares of these four investment companies (M/s.Shree Radha Financial Services Pvt. Ltd.). The director has stated the address of this party was taken from management of M/s. Killick Nixon Ltd., which implies that no representative of Shree Radha financial Services Pvt. Ltd., ever appeared inspite of holding more than 99% shares of this company. This leads to a doubt that even the share transactions, that is the sale of shares is a dubious one and is discussed in the later paragraphs." 7. While looking into second step or the next log of the investment in M/s. Kosha Investments Ltd., it was noticed that, in turn, returned the share application money to the following parties: Sr.No. Name Amount 1. Snowchem India Ltd. 110,000,000 2. Killick Nixon Ltd. 122,025,000 3. Gopal Krishna Anujkumar Rathi HUF 89,000,000 4. Subahu Investments Pvt.Ltd. 113,100,000 5. Sabara Impex Limited 46,625,000 6. Shashak Noble Metals Ltd. 6,500,000 7. Geekay Exim Pvt. Ltd. 7,500,000 8. Stallion Investments Pvt. Ltd. 7,500,000 Total 502,250,000 8. Thus four subsidiary companies, Matterhorn Invetments Ltd., Fircrest Investments Ltd., Galatica Investments Ltd. and Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SUBAHU 330752 27,500,000 551,696.69 29th March TRF TO FIRCREST INVES 27,500,000 28,051,696.69 29th March TRF TO SUBAHU 330753 27,500,000 551,696.69 29th March CASH DEP 800,000 1,351,696.69 29th March TRF TO SUBAHU 700,000 2,051,696.69 29th March CASH DEP 500,000 2,551,696.69 29th March SOURABH 330764 500,000 2,051,696.69 29th March SOURABH 330766 2,000,000 51,696.69 30th March TRF FM GALACHITA INVEST 27,500,000 27,551,696.69 30th March TRF TO GK RATHI 330772 21,000,000 6,551,696.69 30th March TRF TO SASHAK NBLE MET 330771 6,500,000 51,696.69 30th March TRF FM GALACIATA INES 27,500,000 27,551,696.69 30th March TRF TO SABARA IMPEX 330773 27,500,000 51,696.69 30th March TRF FM GALACIATA INES 27500000 (XI) 27,551,696.69 30th March TRF TO SABARA IMPEX 330774 19,125,000(XI) 8,426,696.69 30th March TRF TO GK RATHI 330775 8,375,000(XI) 51,696.69 30th March TRF FM GALACTICA 27,500,000 27,551,696.69 30th March TRF TO VIPLAV TRADING 330776 27,500,000 51,696.69 30th March TRF FM MOUNTBLANC 27,500,000(X2) 27,551,696.69 30th March TRF FM MOUNTBLANC 10,375,000(X2) 37,926,696.69 30th March TRF TO VIP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer at para 5.19 as under: " From the above it is clear that every day the money which was invested by Killick Nixon Ltd. went to the following as below: (1) On 28th March 11 crores invested by Killick Nixon Ltd. went to GK Rathi and Subahu Investments Ltd., R. 5.5 crores each through Kosha Investments Ltd., (2) On 29th March 11 crores invested by Killick Nixon Ltd., went to Subahu Investments Ltd. through Kosha Investments Ltd., (3) On 30th March 7.12 crores went to GK Rathi (HUF), 4 crores to Viplav Trading Ltd., 4.66 went to Sabara Impex, 0.65 crores to Shashank Noble Metals Pvt. Ltd. through M/s. Kosha Investments Ltd." 10. Ultimately, it was found that in fact no actual substantial cash was involved and it was merely a case of entries which were routed through receipt of cash from GK Rathi and others which was invested in four subsidiary companies i.e. Matterhorn Invetments Ltd., Fircrest Investments Ltd., Galatica Investments Ltd. and Montlblanc Investments Ltd. These four companies in turn invested the money in Kosha Investments which either directly or through other entities routed the money back to GK Rathi Group and Group companies. The flow chart has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity always got completed on the same day otherwise it would have created an imbalance in bank accounts and then it would have required some funds but as no funds were there due care was taken to square off the transaction on the same day. The activity can be described as each party involved in these circular transaction depositing a cheque of receipt and another one of payment of equivalent amount so that their account nullifies on the same day. The above clearly implies that the assessee has created an investment of ₹ 48 crores using bogus transfer and therefore, the investment in the share of four companies and subsequent transactions is treated as a sham transaction and thus the investment is not treated as eligible for any deduction or as cost for computing any capital gains." 13. The A.O. then went on to the analysis of the valuation of shares in the subsidiary companies where the investments were made and such valuation was analysed on Net Asset Value basis as well as Earning Capacity basis in para 6 of the assessment order and reached the conclusion that value of shares in these companies was less than ₹ 25 per share then why investment was at a premium o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o analysed the profits/loss history of Kosha Investment Ltd. wherein the four subsidiary companies, namely - Matterhorn Investment Ltd., Ficrest Investment Ltd., Galactica Investments Ltd., and Montblanc Investments Ltd. have made investments which reads as under: S.No. Asst.Year Book Profit (Rs.) Share capital (Rs.) 1. 1996-97 2,520,638 9,000,000 2. 1997-98 - 13,122,926 9,000,000 3. 1998-99 - 41,765,143 9,000,000 4. 1999-00 - 28,848,980 9,000,000 5. 2000-01 - 76,902,385 18,360,000 15. From the above the Assessing Officer noted that the above company was merely a front company. The above company was a NBFC and showing only nonITA investment bearing advances and interest from NBFC, activity was less than ₹ 2 lakhs which makes it clear that it was merely a front company. In any case, investment by the four subsidiary companies - . Matterhorn Investment Ltd., Ficrest Investment Ltd., Galactica Investments Ltd., and Montblanc Investments Ltd in this company was only to siphon out the money and otherwise had no justification. 16. The Assessing Officer further investigated the sale of shares in these subsidiary companies to M/s. Shree Radha Financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iced that in the assessment year 2001-02 'KHL' transferred all its activities to the assessee company. No effort was made at any point to revive this company. The Assessing Officer was of the view that since assessee was aware of the forthcoming capital gains and therefore, again artificial loss was created through just converting the loan of 'KHL' into shares at a huge premium. On enquiry it was explained as under: "(a) During the financial year ended 31.03.2000, we purchased 78,0000 Equity shares at ₹ 19.87 per share. Further 50,000 Equity shares were acquired at the rate of ₹ 800/- per share. The position of Equity Shares holding were as follows: No. of Equity Shares Before 31.03.2000 2,22,000 Acquired in the F.Y.1999-2000 @ ₹ 19.87 per share 78,000 3,00,000 After acquiring 3,00,000 equity Shares of Killick Halco Ltd., it became 100% subsidiary of M/s. Killick Nixon Ltd., Killick Halco Ltd., were specialized in the manufacturing of following goods: 1. Water well Drilling Rigs 2. Blast Hole Drilling Machines for Quarry work/open Cast Mines such as Lime Stone & Coal Mines. 3. Down the hole hammers viz. Valveless Mach-44 and Mach-66 Killick Hal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer raised a query why the value of the land and buildings at Aurangabad belonging to Pelican Paints Ltd. was not considered while selling the shares. It was pointed out that since the land was leasehold land, the same was not considered and the buildings were very old. In fact the following reply was given: "Note on Pelican Paints Ltd. The share of M/s. Pelican Paints Ltd. has been valued as per average of valuation as per Net Value and Price earning value basis. Since the company has made losses in the last two years, the value as per PECV basis is taken at NIL. The land is leasehold land from MIDC. Further the building is very old at its WDV as ₹ 5,46,761/-. Therefore the fair value of shares at NIL is proper" The Assessing Officer after considering these submissions observed as under: "The assessee company while arriving at a fair market value has not taken into account the market value of land & building (which was incidentally done for Killick Halco Ltd.). they have transferred the same at a nominal price of ₹ 10 per share. The perusal of balance sheet & P&L account of Pelican Paints Ltd. as on 31.03.2000 & 31.03.1999, 31.03.1998 shows: (Rupees in lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shing of value of Shivrajpur Syndicate on account of certain demand in a year time is also a creation of the director and without any evidence, to the same and anyway as the money went to Kosha Investment Ltd., and had nothing to do with Shivrajpur Syndicate, this is a divergent reason given by the assessee and is therefore needs to be rejected and is done accordingly. 10.5.2) Further the assessee has stated it wanted to guard its marketing agency rights of Snowcem India Ltd., is a lame excuse as the assessee has been marketing goods of Snowcem India Ltd., for a large number of years and the management of Killick Nixon Ltd., and Snowcem India Ltd., per se is the same and so no way there can be a threat to the assessee regarding its losing of marketing rights. 10.5.3) Mr. T.B. Ruia has denied the statement given by Mr. Budhiya and stated that the transaction was bonafide. There are no merits in the arguments of Mr.T.B.Ruia. If the transactions were bonafide then why would Mr.Budhiya deny the same and say the facts of the transaction. Mr. T.B. Ruia could not justify the finance given to Shree Radha Financial Services Pvt. Ltd., from Killick Nixon Ltd., and Kosha Investment Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onths. The assessee's main intention can be safely described as the booking of loss by this transaction and transferring to the company with the same management and as Mr. T.B. Ruia is the Managing director of both the companies. Thus, it can be sent hat by transferring shares to Snowcem India Ltd. The group has not lost control in the company as it was not sold to any outsider. Thus, the transfer and investment can only be seen as a vehicle for booking losses and therefore has been rejected accordingly. 10.5.8) ROTATION OF CHEQUES IN VARIOUS ACCOUNTS OF GLOBAL TRUST BANK: The director was shown the accounts and he just stated that the transaction was through bank but could not justify further, in view of that it is presumed that assessee has no bonafide reason to justify the sham investment. 10.5.9) the assessee company has not replied anything further in this regard as in the light of the bank statement and statements u/s.131 of various parties involve din the share transaction so, it is concluded that the assessee has nothing further to say in the above matter. 10.5.10) CONCLUSION ON INVESTMENT: So, to sum up: i) The investments as well as ale of share in the four ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovement leaves no doubt about the non-genuineness of the said purchase and sale of shares. The A.O. has convincingly proved that the shares of these four companies did not deserve, on sound economic reasons, to be purchased at a cost which the appellant company has allegedly paid and I am in agreement with the A.O. that the appellant had indulged into these transactions merely for the purpose of incurring short term capital loss with an intention to set it off against the capital gain on transfer of its land to Vysya Bank Ltd., The statement of Shri G.R. Vora nominated Director of these four companies as recorded by the A.O., confirms that there was no business activity in these companies which could justify the payment of ₹ 150/- per share. The same statement of Shri G.R. Vora further confirms that all the decisions regarding investment in these four companies and further investment in the other group company M/s. Kosha Investments Ltd. were taken by the management of the appellant company which included Shri T.B. Ruia and Shri B.R.Ruia. For the reasons discussed in para 5 of the impugned assessment order, it is clear that the appellant's alleged share transactions in these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a high price. I am therefore of the opinion that the A.O. has rightly adopted this price at ₹ 19.87 in place of ₹ 800/- per share. Accordingly, for the reasons discussed in para 7 of the impugned assessment order by the A.O). with whom I am in agreement, the disallowance of short term capital loss of ₹ 3,09,26,000/- on the sale of shares of kellick Halco Ltd. is upheld and for the same reasons the taxation of short term capital gain of ₹ 80,80,640/- on the sale of same shares is confirmed. As far as the disallowance of appellant's claim regarding long term capital loss of ₹ 1,68,37,861/- in respect of sale of shares of M/s. Pelican Paints Ltd., is concerned, I am in agreement with the A.O. that the appellant's sale of these shares to its group company M/s. Snowcem India Ltd., at the rate of ₹ 10/- per share can not be treated as a genuine transaction. For the reasons discussed in para 9 of the impugned assessment order, I hold that the appellant has allegedly transferred these 42,500 shares to M/s. Snowcem India Ltd., only for the purpose of booking a long term capital loss for being set off against the long term capital gain in respect of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erging from the statement of Shri T.B. Ruia and I am in total agreement with the A.O. as far as the conclusions in this regard have been drawn by him. In the written submissions made by the appellant's AR during the course of present appellate proceedings, only the routine aspects such as the execution of share-transfer deeds and payments through banking channels have been emphasized but the same are relevant only if the transactions are bonafide. In the case of the appellant company, it has been convincingly proved by the A.O. that these share transactions were made only for the purpose of booking bogus losses and with the ulterior motive of setting them off against the appellant's otherwise taxable long term capital gain on transfer of its land to Vysya Bank Ltd. Hence, no importance can be attached to the facts of such share transfer deeds and payments through banking channels as the appellant's transactions are malafide and not bonafide. The A.O. has proved this aspect by irrefutable evidence. Accordingly, I uphold the action of the A.O. in disallowing the short term capital loss of R.s46.4 crores and long term capital loss of ₹ 92,41,224/- on the alleged sale of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e determining the value of shares because generally investments are made on the basis of future growth of the companies. Investment in all the four companies is duly evidenced by all the steps required to be taken which comply with various requirements of the Companies Act. 25. With reference to the objections regarding investment in 50,000 shares of M/s. Killick Halco Ltd., @ ₹ 800/- per share, it was argued that the A.O. has no power to substitute the cost of acquisition which has to be determined in terms of section 48 read with section 55 of the Act. With reference to the sale of shares in the case of M/s. Pelican paints Ltd., which has also been doubted by the Assessing Officer it was submitted that such doubts are based on suspicion, conjectures and surmises because neither the fact of investment nor the fact of transfer of shares has been doubted. Once the shares were purchased at a premium and this fact was accepted by the A.O., then the price paid for acquisition of such shares was to be taken as cost of acquisition and jut because some of the Directors of the assessee company were common to M/s. Snowcem India Ltd., to whom the shares of M/s. Pelican Paints Ltd., we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 93,500 as race winnings in two jackpots at Bangalore and Madras and the said amount was credited in the capital account in the books. The Income-tax Officer included these amounts as income from other sources and assessed them. The Appellate Commissioner confirmed the order. The appellant referred the matter to the Settlement Commission. The Settlement Commission by a majority held that the explanation of the assessee was not genuine for the following reasons: (i) the appellant's knowledge of racing was very meager, (ii) A jackpot is a stake of five events in a single day and one can believe a regular and experienced punter clearing a jackpot occasionally but the claim of the appellant of having won a number of jackpots in three or four seasons not merely at one place but at three different centres, namely, Madras, Bangalore and Hyderabad appeared, prima facie, to be wild and contrary to statistical theories and experience of frequencies and probabilities (iii) The appellant's books did not show any drawings on race days or on the immediately preceding days for the purchase of jackpot combination tickets, which entailed sizable amounts varying generally between ₹ 2,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the loss of ₹ 105 croes to the company is giving ₹ 34 crores. (Details have been discussed while adjudicating ground No. 3 in later paras of the order). This fact is beyond comprehension of any prudent person. We fail to understand that if the assessee company could take money from him for investment in its subsidiary companies, then why the company could not recover its dues. 35. It is to be noted that investments in four subsidiary companies has been made in a span of three days at a huge premium of ₹ 140/- or ₹ 150/- per share. It is further to be noted that all these companies were already 100% subsidiaries of the assessee company and if there was any advantage lying on those companies that is to say that if any gold mine was available with these companies it already belonged to the assessee company because of 100% shareholding. Assuming that if these companies requires further money then in the absence of any real assets where was the need for paying a huge premium. The reason given before the Assessing Officer was that investment was made to strengthen the finance of those four subsidiary companies. If that is so, we fail to understand then why wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volved and it has been simply a case of entries starting from a particular place and ending at the almost the same place by employing maze of different companies. 38. Thus the submission before the Assessing Officer that investment was done to strengthen the finances of four companies is totally wrong because actually no money was ever invested at all in the sense that a cheque was obtained and circulated through various entities again and again. In any case money never remained with four subsidiary companies because the same was after the receipt was immediately handed over to Kosha Investments Ltd., which in turn went to other entities and this has been clearly demonstrated by the Assessing Officer from the bank statements of various companies reproduced in his assessment order. The Assessing Officer had also analysed the transactions regarding sales of shares of these four subsidiary companies and also recorded a statement of Shri G.R. Vora, Director in these four companies, Shri Devi Prasad Budhiya of Shree Radha Financial Services Pvt. Ltd. and concluded that execution of share transfer form was not produced before him. Even the funds for purchasing of shares by Shree Radha F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity which seems to be there for making investment at a premium of ₹ 700 each is that the assessee wanted to generate loss through sale of shares of that company. Therefore, this transaction also seems to the totally sham and we decline to interfere with the orders of the lower authorities. 40. One more loss on account of sale of shares in the case of Pelican paints Ltd., amounting to ₹ 1,68,37,861/- has been denied by the Assessing Officer. In this respect we find that the Assessing Officer clearly noticed that assessee had 42,500 shares in Pelican Paints Ltd. which was purchased in 1998-99 at ₹ 580 per share and in 1999-2000 at ₹ 370/- per share. The shares were sold to another sister concern M/s. Snowcem India Ltd., at the rate of ₹ 10 per share. 41. The Assessing Officer raised a query as to why while determining the value of shares no credit for leasehold land from MIDC was taken and further the building was also considered on its WDV because it is an old building. We further find the profit and loss position of the company which reads as under: "The perusal of balance sheet & P&L account of Pelican Paints Ltd., as on 31.03.2000 & 31.03.1999, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 11.10 crores and made it subject to rectification u/s.154 when the report of valuation Officer would be available. 44. During the appeal proceedings, the Assessing Officer forwarded the report of the DVO vide his letter dated 30.9.2004 in which the valuation report dated 20.9.2004 was also sent wherein the fair market value of the land was valued at ₹ 1,70,43,890/-. Because of this difference it became clear that capital gains computed by the Assessing Officer was required to be revised and accordingly, the CIT(A) issued notice under section 251(2) on 11.10.204 which was further replaced by another notice dated 25.10.2004 and proposed to enhance the assessee's income in respect of long term capital gains. This proposal was objected by the assessee by letter dated 18.10.2004. It was argued that since the AO has mentioned in his order that on receipt of valuation report, the order would be rectified under section 154 and, therefore, such rectification should have been made only by the AO. The learned CIT(A) rejected this argument by observing that the CIT(A)"s powers are co-terminus with that of AO and further he has been empowered to make enhancement specifically and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gain as directed above. The A.O. is also directed to initiate penalty proceedings under section 271(1)(c) of I.T.Act, 1961 against the appellant for understanding its taxable long term capital gain on transfer of Chandivali land and for filing wrong particulars thereof in the return of income filed by it." 46. The assessee had also made a claim for a sum of ₹ 1 crore on account of compensation for redemption of sub-tenancy right. This claim was disallowed by the A.O.Vide para 11.3 on the basis that bonafide of the claim were not established and the amount was not paid during the year and there was no proof that this amount is really payable. Even three years after the agreement no payments have been made. The A.O. also noted that the land was given as a guarantee on account of Geekay Rathi Group which had defaulted and the land was ultimately taken over by the Bank and no prudent businessman would facilitate the vacation of illegal slum dwellers and incur further cost once he has already been duped. 47. Before us the learned counsel for the assessee submitted that valuation report obtained from Shri R.J.Sethna was furnished to A.O. vide letter dated December 18, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases relied on by the learned counsel for the assessee it is clearly held that if the fair market value of the particular asset is supported by the valuation report prepared by the registered valuer then reference to sec.55A the Valuation Officer is not correct. It was observed in the case of Urmila Bawa v. ACIT(2007) 16 (II) Income-tax Case Law (copy filed) that normally in the case of sale of asset assessee would tend to inflate the fair market value of land as on 1.4.1981 and it would be an attempt of the A.O. to place a lower value and, therefore, for such situation, clause (a) would not be applicable and only clause (b) to section 55A would be applicable. However, in the case before us the reference was made because according to the Assessing Officer the report given by the Registered Valuer was only a self-serving document. We find that following note was given in the statement showing capital gains attached with the computation of income regarding valuation report. "This figure is subject to adjustment in the light of the valuation report which being obtained". The above note which was given with reference to the estimated fair market value of land clearly shows that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the provisions of section 287A of I.T. Act, 1961 and a hearing was fixed on 22.11.2004 in this regard. However, the appellant has so far not appointed any valuer for the purpose and there was no representation on its behalf on the appointed date of 22.11.2004. Hence I am left with no alternative but to adopt the fair market value of this land as on 1.4.1981 as fixed by the DVO." 51. The above para clearly shows that before the CIT(A) a request was made for appointment of another registered valuer and when opportunity was given no such appointment was made. If the report of Shri R.J. Sethna was correct then normally the assessee would have stood by that and produced the same person. All these factors very clearly show that assessee company had no real valuation report and therefore, the Assessing Officer was right in referring the matter to the valuation cell. We would further like to point out that in the case of Pooranmal vs. Director of Inspection (93 ITR 505), the Hon'ble Supreme Court while considering the issue regarding admissibility of evidence collected in the illegal search observed at page 528 that it was the relevancy of the evidence which was important and the tes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. 54. Coming to the last aspect of the ground regarding disallowance of deduction on account of expenses incurred for eviction of unauthorized occupants is concerned, we find that the A.O. has observed in this regard at para 11.3, which reads as under: "The assessee has not established the bonafides of payment and has also not given any proof of amounts payable, the agreement really appears to be self serving and it is been almost three years since the date of agreements and if there would have been any payments, the assessee would have given the details of the same and as the assessee was a mere guarantor of the land which was sold rather it was forcibly taken on account of default of the G.K. Rathi Group, for whom the assessee was a guarantor. The land valued more than ₹ 100 crores was taken away from the assessee and it would not be business prudent any way to facilitate the evacuation, if any, was there of illegal slum dweller or tenants and incurs a further costs in a case where one has got duped. This agreement and the provision appears to be a last minute thought to reduce taxable income as the agreement is dated 15th March, 2001 whereas, the land was transferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide agreement dated 4.4.1996. This facility was modified further on 20.12.1997 and credit guarantee was extended to Viplav Trading (P) Ltd., and Sabara Impex P. Ltd. We further find that the learned CIT(A) noted that this guarantee was given on the basis of one of the objects of the company, as per article iii(w) "To guarantee the payment of money unsecured or secured by or payable under or in respect of promissory notes, bonds, debentures, debenture-stock, contracts, mortgages, charges, obligations, bank overdrafts, instruments and securities of any company or of any authority, supreme, municipal, local or otherwise or of any persons whomsoever, and generally to guarantee or become sureties for the performance of any contracts or obligations". He has also noted that an agreement was entered with "GEIL" on 4.4.96, which, inter alia, contained the following clauses also: "M/s. Geekay Exim (India) Ltd. hereby covenants with M/s. Killick Nixon Ltd., their successors in business and assigns to indemnity and secure and keep indemnified M/s. Killick Nixon Ltd., of, from and against all actions, suits proceedings, claims and demands that may be made by Vysya Bank against M/s. Killick N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... event of termination of this agreement for any reason whatsoever in the midst of block of three years, the amount of ₹ 6,00,00,000/- will be suitably adjusted on a pro-rata basis." 58. Before admission of additional ground, the CIT(A) referred the matter back to the Assessing Officer who objected for admission of the additional ground because according to him it was merely an after thought and the amount receivable was not written off. It was also stated by the Assessing Officer that the assessee was not in the business of giving guarantees and there was nothing common with G.K. Rathi Group. According to the Assessing Officer the guarantee to other parties is normally given after due verification and in this case no verification had been done by the assessee. This reply was sent to the assessee who, in turn, gave point-wise reply and ultimately the CIT(A) after considering the reply admitted the additional ground vide para 3.8.1 which reads as under: "As the additional grounds of appeal spring from an issue which has been dealt with in the assessment proceedings and which is also a subject matter of the return of income filed by the appellant, the same are required to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to repay it loan to Vysya Bank Ltd. resulting into the latter being compelled to acquire your Chandivali land. Did the bank take any legal action against the original borrower? (vii) The same loan in respect of which you had provided guarantee to the bank, was secured by another guarantee to the extent of ₹ 127 crores given in the form of Avanti land belonging to a company of that name. Under these circumstances, please specify as to why M/s. Killick Nixon Ltd. had to part with its land to the bank." 60. Against this, the assessee gave the following detailed reply, which read as under: "3. In para 2(1), Your Honour has asked us to give a brief note on the history of business relations as also to specify the business relations between the two groups: In this connection we have to submit that since a number of years we had financial and commercial relationship with various entitles of G.K.Rathi Group. Both the Killick Nixon Group and G.K. Rathi Group are independent of each other but have certain common business interest. The relationship between the two groups was qua joint management and control of some common entities as also financial and commercial dealings. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nour has asked us to give the details of receipt of the guarantee commission. With reference tot the same we have to submit as under: The amount of guarantee commission is yet not received. 50. In para 2(v) Your Honour has asked us to give the details of the re-transfer of land from Vysya Bank. With reference to the same we have to submit as under: As per the agreement entered into with Vysya Bank, we had an option of reacquiring the land. We have not exercised the said opinion and in fact we have given a release deed to Vysya Bank. 51. In para 2(vi) Your Honour has asked us to give the reason of M/s. Geekay Exim (India) Ltd.'s failure to repay its loan to Vysya Bank and whether the bank has taken any action against the original borrower. With reference to the same, we have to submit as undr: We are not aware of the reason s of M/s. Geekay Exim (India) Ltd.'s failure to repay its loan. Similarly, we are not aware whether any action has been taken by the bank against the original borrower. 9. In para 2(vii) Your honour has asked us to specify the reasons why had to part with the land since the loan taken by G.K. Rathi Group was secured by land offered as security by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r bothered to realize even one rupee by way of commission from M/s. Geekay Exim (India) Ltd. either upto the stage of parting with its land to the bank or even thereafter. In view of this undisputed fact that no income has been earned by the appellant as a result of the alleged business activity, it is impossible to accept that the said guarantee was provided by the appellant I the normal course of conducting its business. It is not reasonable to believe that any prudent businessman would risk his land worth ₹ 105 crores in a business adventure such as the appellant had done, without first ascertaining the returns to be received. If the appellant's action of providing said guarantee is to be treated as a genuine business activity, it is not understandable as to why the appellant failed to keep a deposit of a sum upto 10% of the facilities sanctioned by Vysya Bank to M/s. Geekay Exim (India) Ltd., on the basis of the guarantee provided by the appellant, as per the second clause of the appellant's agreement with M/s. Geekay Exim (India) Ltd. Moreover, the appellant has been showing these companies of G.K. Rathi Group as its debtors and such debts had, as observed by the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He submitted that the assessee company has accepted this finding and not filed any appeal which means guarantee commission duly stand returned. 63. The assessee company had given guarantee to Vysya Bank in favour of GEIL M/s. Sabara Impex Ltd. M/s. Viplav Investments Ltd. for granting the limits by the Bank to that company. Since GEIL and other financial companies failed to honour their commitment, assessee company had to part with its land and, therefore, suffered a loss of ₹ 105 crores. He submitted that guarantee was given during the course of business and, therefore, it would amount to business loss. He also filed certain copies of the suites for recovery filed against GEIL to show that the assessee company was trying its best to recover the money lost in the guarantee. 64. He submitted that any amount lost in giving the guarantee is allowable as a trading loss and in this regard he referred to the decision of the Hon'ble Bombay High Court in the case of CT v. F.M,. Chennai and Co.Pvt. Ltd. (74 ITR 780). In the case of CIT vs. K.M. Modi (141 ITR 903) where, the assessee company was engaged in the composite business of production of films, leasing of cinema and film busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lations of the assessee company with GEIL it was merely stated that they were having some commercial relationship. Even before us to a pointed query in this regard it was submitted that assessee company had some commercial relations with CEIL and G.K. Rathi Group and that there were common directions in some of the group companies. 67. There was a clear covenant in the agreement dated 4.4.1996 which reads as under: "In order to secure its obligations hereunder, M/s. Geekay Exim (India) Ltd., shall when demanded by M/s. Killick Nixon Ltd., deposit and keep deposited with M/s. Killick Nixon Ltd. such sum upto 10% of the facilities sanctioned by the Bank to M/s. Geekay Exim (India) Ltd. On the basis of the said guarantee. The said deposit shall be an interest free deposit and the same shall be refunded by M/s. Killick Nixon Ltd. to M/s. Geekay Exim (India) Ltd. or the Bank, as M/s. Geekay Exim (India) Ltd. may direct on M/s. Geekay Exim (India) Ltd., ceasing to enjoy the Bank facilities obtained by or availed of by M/s. Geekay Exim (India) Ltd. from the bank on the basis of Guarantee." 68. The above clearly shows that assessee could have taken a sum upto 10% of the facilities men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ali land. Did the bank take any legal action against the original borrower?" Against this the following reply was given: "We are not aware of the reason s of M/s. Geekay Exim (India) Ltd.'s failure to repay its loan. Similarly, we are not aware whether any action has been taken by the bank against the original borrower". 72. The above explanation shows that assessee never bothered to find out why the other party had not paid its dues which shows total indifference on the part of the assessee company indicating that the whole transaction was a make belief story and that was why the assessee company never bothered why the other company was not able to pay. Nothing has been shown to us whether the assessee company or the bank tried to recover the dues from GEIL though the suit of recovery seems to have been filed but the same has been filed very late when the said land was taken over by the bank. We fail to understand why the assessee company would not file the suit before handing over the land to the bank and to make even the bank a party to such suit in an endeavour to save the land of the company. It is interesting to note that the assessee company had gone ahead to reach a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns to arrange the finance from GK Rathi Group then why the assessee company could not recover the other dues from GEIL belonging to GKAK Rathi Group. Further, while going through the issue regarding allowability of short term/long term capital loss, it was observed by the Assessing Officer that assessee company invested in four subsidiary companies, which in turn, invested in M/s. Kosha Investments Ltd., which is also controlled by the assessee, which in turn, gave a sum of ₹ 4.66 crores to M/s. Subara Impex Ltd., and ₹ 75 lakhs to Geekay Exim (India) Pvt. Ltd. which are the companies responsible for causing the loss on account of parting of land by the assessee company. 76. To sum up the above analysis and applying the theory of human probabilities as propounded by the Hon'ble Supreme Court in Smt. Sumati Dayal (supra), we are of the view that these guarantees given by the assessee company is only a make belief story but reality is something different and accordingly the loss incurred by the company on account of parting of the land is also of a make belief nature, which has been correctly rejected by the lower authorities. 77. Since the whole of the case law relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, was satisfied by the appellant. Accordingly, the A.O. was justified in disallowing the appellant's claim for deduction on account of secret commission. In this regard I place reliance on the decision of Hon'ble jurisdictional High Court in the case of Goodlass Nerolac Paints Ltd. v. CIT ( 137 ITR 58) wherein it has been held that the burden is on the assessee to prove that the expenditure claimed was laid out wholly and exclusively for the purposes of business. I further place reliance on the decision of Hon'ble Supreme Court in the case of French Dyes and Chemicals (I) Pvt. Ltd. v. CIT (201 ITR 253) wherein the deduction on account of secret commission was held to be disallowable on account of the assessee refusing to disclose names of the recipients of such commission. Lastly, I place reliance on the decision of Hon'ble Orissa High Coourt in the case of Tarini Tarpuline Products v. CIT (254 ITR 495) wherein the question "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in disallowing the secret commission alleged to have been paid by the assessee to persons whose names it could not disclose or evidence of any such payment was not adduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature of disallowance was similar to the assessment year in question. 85. On the other hand, the learned DR supported the orders of the lower authorities. 86. After considering the rival submissions and the orders of the Tribunal in various years particularly for the assessment year 1999-2000 in ITA No. 842/M/03, we set aside the order of the learned CIT(A) and remit the same back to the file of the AO with direction to re-examine the whole issue in the light of the directions given in the previous years. 87. Ground No. 6 is regarding levy of interest under section 234B and 234C of the Act and which is of consequential nature and the AO is, therefore, directed to levy interest u/s.234B and 234C as per the provisions of the Act. 88. In the result, the assessee's appeal is partly allowed for statistical purposes. ITA No. 883/M/05: (Revenue's appeal) 89. In this appeal the revenue has raised the following grounds: "1. On the facts and in law the Ld.CIT(A) has erred in not considering the report of the DVO in full, for determining the capital gain on the sale of the Chandhivli properties. 2. On the facts and in law, the Ld.CIT(A) has erred in ignoring the value of the Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
