Akil Kureshi, J. - Leave to amend questions of law framed in Tax Appeal Nos.1105 and 1126 of 2013.
2. This group of Tax Appeals involve similar questions. They have, therefore, been heard together.
3. There are two main issues before us. First issue pertains to additions made by the Assessing Officer which came to be deleted by the CIT (Appeals) and confirmed by the Tribunal, which additions were made on account of the loss booked by the assessee in sale of shares which were off market transactions. The second issue pertains to disallowance made by the Assessing Officer under section 14A of the Income Tax Act, 1961 ('the Act' for short) which also came to be deleted by the CIT (Appeals) and confirmed by the Tribunal. So far as the first issue is concerned, facts in brief are as under:
4. Respondent of Tax Appeal No.1003 of 2013 and other connected appeals is one Prudent Finance Pvt. Ltd, a company registered under the Companies Act. One Nitin B. Parikh and other members of his family referred to as Nitin B. Parikh group of assessee who had control over others, was subjected to search action under section 132 of the Act. It was found that large number of shares were traded between the Company and the said group of persons at off-market transactions. Such off market transactions were entered by the company with other unrelated assessees also. The Assessing Officer carried a belief that such transactions were not genuine, in the sense that the same would have taken place with anterior dates. In the opinion of the Assessing Officer, this was done to contrive loss in the hands of some of the assessees who in turn transferring the profits in the hands of other assessees. This was done to ensure that the assessees who had sizable profits from sale of shares could claim such losses as set off. The Assessing Officer questioned the assessee company in detail. The Assessing Officer in the order of assessment formed a belief that full details were not made available with respect to such transactions. The sales were not at market price. The amounts were not paid, but only account entries were made. The shares were also not transferred in the name of the purchasers. On such basis, the Assessing Officer concluded that the transactions were not genuine and applying the ratio of the judgment of the Supreme Court in the case ofMcDowell Co. Ltd. v. Commercial Tax Officer [1985] 154 ITR 148/22 Taxman 11, held that such loss cannot be allowed. The Assessing Officer observed that whenever sales were made to other entities, they were not followed by cheque receipts. Similarly when purchases were made from other entities, they were also not followed by cheque payments. He concluded that the assessee carried off market transactions by simple purchase bills or sales bills ignoring market rates. This was done to avoid tax.
5. The assessee carried the matter in appeal. Before the CIT (Appeal), the assessee gave detailed written explanation to the various issued raised by the Assessing Officer in the order of assessment. On behalf of the assessee, it was contended that the transactions were genuine. Even the Assessing Officer had not questioned the factum of the transactions. Accounts entries were made recognizing the payments. Details were produced to show that the sales and purchases were made at market rate. The CIT (Appeals), after taking note of the detailed submissions of the assessee and the material on record held as under:
"19. Considering the arguments of the appellant's representatives on the observations of the Assessing Officer for making this disallowance, I am inclined to agree, with the appellant that the disallowance has been made without any justifiable basis. After conceding that securities dealing through "off market transactions" was a legitimate made of dealing in securities, the Assessing Officer has failed to adduce any evidence to establish her conclusion that the off market transactions of the appellant conducted by them on principal to principal basis were not genuine. From the material on record it is evident that the parties to the transactions were genuine, the funds for the transactions were available with the appellant and such funds had genuinely come from the parties concerned, the prices of transactions are at market rate(s), the transactions had been confirmed by the respective parties through letters of confirmation filed before the Assessing Officer, the money for the transactions, whenever moved, moved through the banking channel and finally the delivery of the shares were given as and when asked for by the parties, all these clearly establish that the transactions of the appellant with the parties listed by the Assessing Officer in her order were legitimate and genuine off market transactions and I also agree with the appellant's contention that the Assessing Officer in contravention of section 132(4), selectively chose the losses for disallowance treating them as non-genuine whereas in the same set of transactions the profits were treated as genuine. In view of these, therefore, the disallowance of losses made by the Assessing Officer is uncalled for and is deleted."
6. Revenue carried the matter in appeal before the Tribunal. The Tribunal by the impugned judgment, upheld the decision of the CIT (Appeals). The Tribunal rejected the Revenue's objection that the transactions were not carried out at the market rate observing that there was not a single instance brought on record by the Assessing Officer saying that the purchase and sale were effected not at market rates. The Tribunal scanned through the materials on record to compare the sale/purchase prices and market rates prevailing on the date of the transactions to come to the conclusion that there was no basis for such allegation. The Tribunal noted that the AO had raised three principal issues, viz. that the transactions breached section 19(1) of the Securities Contract (Regulation) Act, 1956, that the delivery and payments were not made for such transactions and that the transactions were not carried out at the market rate. The Tribunal in addition to specifically rejecting the Revenue's contention that the transactions were not at market rate also dealt with other two objections. In fact, before us, it was not even seriously argued that the transactions breached any of the statutory provisions and in particular section 19(1) of the Securities Contract (Regulation) Act. Regarding the delivery and payments, the Tribunal accepted the assessee's ground that necessary entries were made and delivery slips were also passed.
7. Having heard the learned counsel for the parties and having perused the documents on record, we notice that the additions made were in the hands of the company on substantive basis and in the hands of individuals on protective basis. In essence, the question was about the genuineness of the transactions. The fact that the transactions did take is not in dispute. Revenue seems to be contending that the transactions were deliberately attempted to create loss/profit in order to transfer such corresponding loss/profit to the related parties to avoid legitimate tax liabilities. However, the CIT (Appeals) as well as the Tribunal have both concurrently held that there was no material before the Assessing Officer to come to such a conclusion. In particular, the order of the Tribunal is elaborate and exhaustive. The Tribunal has taken note of the three principal concerns of the Assessing Officer. We find that the allegation that the transactions were not at market rate has been dispelled by the Tribunal referring to the materials on record. The Tribunal noted that such material was produced before the Assessing Officer also. The Tribunal compared the sale considerations with market rates prevailing on the date of sale in many cases and came to the following conclusion:
'5.6 The most important objection of the AO is that this "off market transactions" were not carried out by the assessee at market price. In this regard, the AO has made a general comment on page 22 of the assessment order for AY 2004-05 in which he has stated that the assessee has failed to prove that "off market transactions" were carried out at market rate of a particular script on the date of transaction. Thereafter, he says that these "off market transactions" are carried out by the assessee simply by issuing purchase bill or sale bill by ignoring market rate. We are very surprised to note that not a ;single instance has been given by the AO highlighting that any purchase or sale was effected by the assessee in respect of these "off market transactions" which is not a market rate. As per written submissions filed by the ld. AR of the assessee before us, he vehemently contended that evidence regarding the prevailing market rate on the date of transactions of each script was provided by the assessee before the AO. He also submitted that before us that even if, for the sake of argument, it is accepted that no such evidence was provided by the assessee regarding market rate on the date of transaction then also, market rate of a particular share on a particular date is easily verifiable independently from the website of Bombay Stock Exchange (BSE). The assessee has furnished the print out of stock prices from such site of BSE before us in respect of various transactions and from the same, it is seen that the transactions carried out by the assessee in respect of these 'off market transactions" is very much at market rate. For example, in respect of AY 2004-05, the assessee purchased 9400 shares of HCL Tech on 25/03/2004 @ Rs.265.90 per share having total purchase value of Rs. 24,99,460/-. The market rate of the shares of HCL Tech on 25.3.2004 were opening Rs. 239.40, high Rs. 267.00, low Rs. 237.25 and close Rs. 255.80 and it is seen that the purchase price is below the high rate of this script on that date. Similarly, the assessee has also submitted a chart of sale of various scripts on 26.3.2004 for a total amount of Rs. 8,24,37,192/-. This includes sale of 1611 shares of ACC Ltd. @ Rs. 256.88 per share with total value of Rs. 4,13,837/-. The market rate of the shares of ACC Ltd. on 26/3/2004 was open Rs. 247.90, high Rs. 257.00, low Rs. 246.80 and close Rs. 255.35. The transaction price being sale price adopted by the assessee of Rs. 256.88 is just close to the high price of this share on this date. Similarly, for remaining sale of ten various scripts also, the assessee had also submitted prices of the concerned share on 26/3/2004 and it is seen that almost in all the cases, the sale price adopted by the assessee is near to the high price of the concerned script on this date. When the sale price adopted by the assessee is close to the high price of the concerned share on the relevant date, it cannot be said that the transactions effected by the assessee is not at market rate, particularly, (when the AC) has not given even a single instance where the assessee has effected the transaction of purchase at a price higher than the high price of the concerned share on the relevant date or effected the sale of a share at a price below the low price of the concerned share on the relevant date. This allegation of the AO that "off market transactions" are not at market rate is baseless and is to be rejected.'
8. Additionally, we also note that necessary entries were made in the account books of both sides, i.e. purchaser and seller and delivery receipts were also passed demonstrating contemporaneous sale and purchase of the shares. It is not even the case of the Revenue that such off market transactions were not permissible. When we find that off market transactions were permitted in law, that there was no evidence to suggest that artificially they were sold at rates lower than the prevailing market rates and we further find that the Assessing Officer could not bring on record any material to show that the transactions were shown to be deliberately back-dated, the findings of the CIT (Appeals) as well as that of the Tribunal, in our opinion, call for no interference.
9. There are two significant aspects which need to be mentioned at this stage. Firstly, of all the transactions pointed out by the Assessing Officer, though there were as many as four or five related persons, i.e. belonging to Nitin Parikh Group, there were as many as six individual assessees who had no connection either with the company or with the said group. Secondly, the Assessing Officer while rejecting the losses suffered in sale transactions of such off market sales, did not disturb the sale transactions in which the company of the assessee concerned earned profits. If the entire mechanism was seen as a tax avoidance device, the Assessing Officer could not have selectively chosen one set of transactions for ignoring and the other set for accepting as it is.
10. We do not find any question of law, therefore, arises. Such question in these appeals are, therefore, not entertained.
11. Counsel for the Revenue, however, pointed out that in Tax Appeal Nos.1003, 1005, 1006, 1105 and 1126 of 2013 a question of law raised is being considered in other appeals involving same group of assessees.
12. In the result, Tax Appeals Nos.1003, 1005, 1006, 1105 and 1126 of 2013 are admitted for consideration of following substantial question of law:
"Whether the Income Tax Appellate Tribunal is right in law and on facts in confirming the order of the CIT(A) deleting the disallowance made by the Assessing Officer under section 14A of the Act?"
Rest of the appeals are dismissed.