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TMI Blog2017 (8) TMI 1744X X X X Extracts X X X X X X X X Extracts X X X X ..... AO, the assessee and the Trend Pharma Pvt. Ltd. are controlled by the same persons. Transaction is required to be seen in the light of the law laid down in Durga Prasad More[1971 (8) TMI 17 - SUPREME COURT] and Sumati Dayal . [1995 (3) TMI 3 - SUPREME COURT] where in it has been held that test of human probabilities should be applied to verify the genuineness of any transaction. We agree with the findings of the Ld. CIT(A) that the transaction of sale and purchase of the shares in question is a colourable device adopted by the assessee in order to avoid tax on the short term capital gain by purchasing the shares at unrealistic price and selling at substantially low prices within a period of one month. Hence, in our considered opinion, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rends Pharma Pvt. Ltd. It was further noticed that the short term capital loss on shares had taken place just within one month of the sale of business premises. The assessee had sold 80000 shares to Pragna D. Bharwada @ 12.20 per share against the purchase cost of Rs. 100/- per share resulting in short term capital loss of Rs. 70,24,000/-. Accordingly, the assessee had set off the said loss against the capital gain. AO asked the assessee to explain the transaction and also furnish details of book value of the shares at the time of purchase. The assessee was further asked to explain as to why the capital loss claimed should not be disallowed being a sham transaction. The assessee filed written reply and also tried to prove the transaction as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakh, out of which the assessee subscribed for Rs. 80 lakh. The shares were sold by the assessee @ 12.20 per share and at that time the book value of the share was @ Rs. 7.01 per share and thus the assessee had sold the shares at a value higher than the book value. On the point of capital loss claimed due to sale of shares, the Ld. counsel argued that in Income Tax proceedings the bona fides of a transaction should be looked into and not the intention and that arms length rules are not applicable to domestic transactions and the assessee is free to deal with his money in the manner he likes so long as it is not prohibited by law. Therefore, the AO cannot sit on the judgment of the assessee over a commercial transaction. Hence, the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a discount as per law, and that the share capital issued by it at face value is not taxable in hands of said company even though the fair market value may be lower. However, I am not impressed by these arguments of the appellant, as these are not relevant to decide the case of the appellant i.e. M/s Trends Pharma, a partnership firm, which is separate legal entity distinct from M/s Trend Pharma Pvt. Ltd, even though the said company might be managed by the partners of the appellant company. I understand that though it is not uncommon to give financial assistance to sister concerns in case of need, however, the same could have been very well given by way of a loan. The appellant has claimed that it had used own funds for subscription to sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax by restoring to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. Courts are now concerning themselves not merely with the genuineness of a transaction, but with the intended effect of it for fiscal purposes. No one can now get away with a tax avoidance project with the mere statement that there is nothing illegal about it". In the present case, the appellant has framed a colorable device to avoid the payment of tax on other short term capital gains by dubious methods i.e. by arranging the acquisition of shares at unrealistic prices and sale thereof at substantially low prices within a short span of time. Therefore, the appellant's case is directly covered by the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly, I confirm the disallowance of Short Term Capital Loss of Rs. 70,24,000/-, claimed by the appellant. Therefore, the ground no. 1 is dismissed." 8. We notice that the assessee has claimed to have acquired shares of Trend Pharma Pvt. Ltd. @ Rs. 100 per share and sold the same within in one month @ 12.2 per share and has claimed loss of Rs. 70,24,000/-. The assessee has set off the said loss against the capital gain of Rs. 69,59,165/-. As observed by the AO, the assessee and the Trend Pharma Pvt. Ltd. are controlled by the same persons. Under these circumstances, the transaction is required to be seen in the light of the law laid down by the Hon'ble Supreme Court in Durga Prasad More 82 ITR 540 and Sumati Dayal 214 ITR 801, where in it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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