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TMI Blog2022 (7) TMI 533X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Rs. 1,86,25,876/- on account of bogus sundry creditors without appreciating the fact that whole series of transaction of raising creditors in the names of the other parties was a colourable transaction and the basis of raising the creditors in itself was baseless and untrue. 3. On the facts and circumstances of the case, the Ld.CIT(A) erred in allowing the appeal of the assessee without appreciating the fact the borrowed shares cannot be treated as transfer as per provisions of sec. 47(xv) of the Act and therefore the claim of sundry creditor liabilities by the assessee are not allowable. 4. On the facts and circumstances of the case, the Ld. CIT(A) erred in holding that the genuineness of lending of shares have not been examined by the A.O. without appreciating the facts that the assessing officer has also doubted the genuineness of lending of shares after verifying the facts of the case." 2. The assessee, in the present case, is a partnership firm which is engaged in the business of dealing in shares, derivatives, land, commodity and share-broking. The return of income for the year under consideration was filed by the assessee on 30.09.2008 declaring a loss of Rs.(- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid broker have been sold by them and the sale proceeds of the same is credited to our account. The copy of relevant contract notes have already been furnished to you along with our letter dated 03.12.2010. e. We have credited the sale proceeds of shares received as a loan to the respective parties from whom we have received the same in our books of accounts as these shares do not belong to us or owned by us but the same are owned by them. The credit balance tying in the accounts of these parties shall be adjusted when we will purchase those shares from the market subsequently for the purpose of returning those shares to the respective parties and the difference between the sale proceeds and the purchase cost shall be accounted as profit or loss in our books of accounts in the year of purchase of the relevant shares. f. We have already furnished the confirmatory letters from all the parties along with our letter dated 06.08.2010 confirming the above transactions. g. The Affidavits of the parties from whom we have received the shares as a loan namely Mr. Ramesh K. Shah, Mr. Shaulesh G. Desai, Mrs. Anjana S. Desai, Mrs. Apexa Ankur Shah, Mr. Bhupesh S. Shah, Mr. Pravin S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han the income of the assessee as the transfer has not taken place as per sec. 47(xv). 9. In this case, as per the assessee on the date of sale of shares, the amount is credited and simultaneously with the same amount creditors are raised in the form of these parties who have given shares to the assessee for keeping them as margin with the stock broker. The assessee further says that the same no. of shares are to be purchased at a later date and the purchase amount would be taken into account and the difference between purchase and sale which was already recorded in books would be the profit or loss of the assessee as the case may be. 10. This situation is totally anachronistic to the principles of business and basic system of accounting. Sale of the same shares or commodities might have taken place in one year but the purchase might take place in another year as it is the case of the assessee, hence for the same no. of shares one year sale is shown the other year purchase is shown. Therefore the resulting profit & loss is totally misleading. It may be true that purchase is of an earlier year and the sale is made subsequently and the difference is treated as income on the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The resulting loss will be treated by the assessee as the loss from its business and the profit will be set-off against this loss. In the current year, the assessee a ready had loss in its portfolio; hence it didn't feel the necessity of purchasing these shares. The assessee in the relevant A.Y. needed cash and bank balance hence the shares were sold and cash or bank was debited. Moreover, the other aspect i.e. when the shares are returned to the other parties who as per the assessee is still the owner of the shares and have not transferred the shares as per section 45(xv) would treat as their long term capital asset because the holding period would be determined from the date of purchase in their hands and subsequently when these shares are sold by them, their capital gains will be exempt as per section 10(38) of the Act. Therefore, it is a win-win situation for, both the parties to this understanding this kind of activity in connivance with the other parties is carried on by the assessee for many year." 4. For the reasons given above, the Assessing Officer held that the whole transactions of raising creditors against the shares claimed to be taken on loan constituted a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on sale of shares was recorded in the books of account as amount of loan received from these parties. I do not find anything wrong in the method adopted by the appellant or the accounting entries passed by the appellant. The AO could have examined whether this is a case of genuine lending of shares out the same has not been apparently examined. Whether the transaction amounts to transfer in the hands of the parties lending the shares is another matter and which should be looked into by the AO. So far as loan transactions of shares are concerned, since the appellant has submitted evidence about the genuineness lending of shares, the source of such shares, capacity of the parties to lend such shares and nothing adverse has been found by the AO in respect of these transactions, the addition of Rs.18625876.21 made by the AO is hereby deleted." 6. Aggrieved by the order of the learned CIT(A), the Revenue has preferred this appeal before the Tribunal. 7. The learned Departmental Representative, at the outset, invited our attention to the relevant portion of the assessment order to point out the specific findings and observations recorded by the Assessing Officer to doubt the genuinen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly understood and appreciated by the learned CIT(A). He submitted that when the shares were taken as loan, there was no entry made in the books of accounts of the assessee as the same was not necessary and only when the shares were sold and the sale proceeds were received/utilized by the assessee, proper entries giving effect to the said transactions were made in the books of accounts of the assessee. He contended that the entire modus operandi involved in these transactions was explained by the assessee before the learned CIT(A) on the basis of the relevant details and documents and even the affidavit of all the concerned creditors confirming the said transactions were filed by the assessee. He submitted that such transactions are not at all prohibited by SEBI Rules as sought to be contended by the learned DR and this is a common practice followed in the trade. He contended that it was thus not a case of any bogus liability and the assessee having established on evidence the identity and capacity of the concerned creditors as well as the genuineness of the relevant transactions, the addition made by the Assessing Officer under Section 68 of the Act by treating the same as unexpla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including especially the fact that the difference on the date of purchase of shares for returning back to the concerned creditors was liable to be declared by the assessee as profit or loss as the case may be as agreed even by the assessee. 10. It is thus clear that the shares owned by the concerned creditors were given on loan by them to the assessee to discharge its liability of margin payment through demat account and on sale of the same by the main broker M/s. Khandwala Integrated Financial Services Pvt. Ltd., the liability was duly recognized by the assessee towards the concerned creditors in its books of accounts at the value of sale proceeds actually realized. All these transactions were duly supported by the documentary evidence produced by the assessee; and, the Assessing Officer, in our opinion, was not justified to doubt the genuineness of the said transactions on the basis of some frivolous objections which have been duly clarified and met by the assessee. It appears to us that the nature of transactions as well as the modus operandi involved in the same was not properly understood by the Assessing Officer while doubting the genuineness of the same while the learned C ..... 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