S.H Kapadia, J.:— The assessee is a finance company. It is a public limited company carrying on business of leasing, financing hire purchase, dealing in shares and other financial activities. We are concerned with the financial year ending March 31, 1991, relevant to the assessment year 1991-92 in this appeal preferred by the assessee. The assessee has acquired 1,00,000 equity shares of Rs. 10 each at par from the promoters' quota out of total capital consisting of 10,00,000 shares of ITC Agro-Tech Limited on May 13, 1988. The said shares were sold at Rs. 18.90 per share, resulting in a profit of Rs. 8,90,000 during the assessment year 1991-92. The assessee offered the whole of the profit to tax. The decision to sell was taken by the assessee as the edible oil industry was not doing well and that ITC Agro-Tech Limited had not declared dividend since 1988. Hence, the entire bulk of shares was sold on March 18, 1991. On June 10, 1991, the shares of ITC Agro-Tech, which were earlier unquoted, were listed on the Calcutta Stock Exchange. The trading in this counter commenced on June 27, 1991, and in the very first week, the shares of ITC Agro-Tech Limited were quoted at Rs. 59.
2. Under the above circumstances, before the Income-tax Officer, the assessee contended that the break-up value of the shares of ITC Agro-Tech Ltd.
3. was Rs. 2.55 and that the assessee had sold those shares at Rs. 18.90 per share. The assessee contended that, under the circumstances, the sale price was reasonable. That, under the circumstances, the decision to sell was a proper financial decision taken by the assessee. That, under the circumstances, unquoted shares were sold on March 18, 1991, at the best obtainable price of Rs. 18.90 per share. For this purpose, the assessee relied upon the copy of the contract note issued by Vinod Baid and Co., stock and share brokers, dated March 18, 1991. However, the Assessing Officer took the view that the assessee had suppressed the income. That, there was no reason for the assessee, who was a trader, to sell the shares on March 18, 1991, when the procedure for listing was pending before the Calcutta Stock Exchange. That the shares obtained were from the promoters' quota and they were listed on the Calcutta Stock Exchange on June 10, 1991. Therefore, the Assessing Officer took the sale price at the rate of Rs. 54 per share and made an addition of Rs. 35.10 lakhs. This finding was confirmed by the Tribunal. Hence, the assessee has come by way of appeal under section 260A of the Income-tax Act.
Question to be answered by the court:
“Whether, on the facts and in the circumstances of the case and in law, addition of Rs. 35.10 lakhs, being the difference between the sale price of the shares in question at the rate of Rs. 18.90 per share on 18th March, 1991, and the estimated realisable price of Rs. 54, after listing on the Calcutta Stock Exchange on June 27, 1991, as suppressed income, was justified?”
Arguments:
4. Ms. Aarti Vissanji, learned counsel appearing on behalf of the appellant-assessee, contended that, in this case, there is no finding that the sale dated March 18, 1991, by the assessee at the rate of Rs. 18.90 per share was a sham transaction or that the assessee had received any consideration over and above Rs. 18.90 per share and nor are there any facts which suggest that the transaction was a device for tax evasion and nor is there any evidence to suggest that the transaction was a device for tax evasion. She contended that the only reason for making the above addition given by the Assessing Officer was that the assessee was a finance company; that it was in the business of buying and selling of shares; that the process of listing was pending before the Calcutta Stock Exchange and, therefore, the assessee should have waited and realised the higher price, which ultimately prevailed in the market at Rs. 54 on June 27, 1991. Ms. Vissanji vehemently urged that the reason given by the Assessing Officer was arbitrary. That, even assuming that the assessee was a trader in shares, no addition could be made on the basis of notional income unless the Department was in a position to prove that the sale was sham or that the assessee had received consideration over and above the stated sale price or if the facts or evidence suggest that the transaction was entered into as a device for tax evasion. In this connection, she relied upon the judgments of the Supreme Court and the High Court in various matters which lay down that even in cases of sale of quoted shares, the receipt of sale price cannot be ignored and that the assessee cannot be taxed on notional income unless the sale was held to be a sham transaction or a device for tax evasion. She contended that, in the present case, there is no such finding. She contended that, in the present case, the sale was a transaction at arm's length. That, there is no finding of fact recorded by the Assessing Officer in this case that the transaction was between interconnected parties. She contended that, in this case, there is no finding of the Assessing Officer that no monies had passed and that the transaction was based only on book entries. That, in the absence of any such findings of understatement of price, the assessee cannot be taxed on the basis of notional value. She also relied upon the Law and Practice of Income-tax by Kanga and Palkhivala, eighth edition, volume 1, page 1177, and submitted that even in cases of sales at gross undervalue by a company to an associated company, the Department is entitled to find that it is not a transaction made in the course of trade and, therefore, disallow the resulting loss as not being a business loss; but the vendor cannot be assessed on the notional profit which it did not make but could have made by effecting the sale at the market value.
Findings:
5. The central argument advanced on behalf of the appellant-assessee is that there is no finding recorded by the authorities below impugning sale dated March 18, 1991. That, there is no finding that the assessee has received any consideration over and above Rs. 18.90 per share. That, the only reason for making the above addition was that the assessee was a finance company. That, it was in the business of buying and selling of shares. That, the process of listing of shares of ITC Agro-Tech Ltd. commenced in June, 1991, and in the circumstances the Assessing Officer was wrong in making the addition. We do not find any merit in this appeal. Firstly, there is a concurrent finding of fact recorded by the authorities below that the shares were obtained through the promoters' quota which had a lock-in period. There is a concurrent finding of fact recorded by the authorities below that the income which belonged to the assessee had been earned by some other person. In this connection, it is important to note that the sale took place through the contract note. When we read that sentence in the finding of the Tribunal, we inquired from the assessee as to why the sale had been effected in favour of the broker, Vinod Baid and Co. It is interesting to note that no particulars have been given by the assessee with regard to this particular sale. Who paid the consideration for the shares has also not been disclosed. If the shares were not listed on the stock market, why were the shares sold to the broker. The contract note, however, indicates that the sale was through the broker and not to the broker. These queries were raised by the court as the impugned sale is dated March 18, 1991, which has correlation with the assets diverted by Harshad Mehta after being notified under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992. In this regard we may mention that one of us (Kapadia J.) has been presiding over the Special Court and the Special Court has instituted an enquiry in which the CBI has filed its report which is lying in a sealed cover with OSD attached to the Special Court. We do not wish to go into that inquiry at this stage. However, the transaction does not appear to be above board. In order to satisfy our conscience, we called upon the assessee to give us particulars of consideration received by the assessee. We also called upon the assessee to produce any record indicating delivery of shares by the assessee to the broker, Vinod Baid and Co. None of these details are forthcoming. We also called for an affidavit of the broker. However, the assessee has refused to obtain the affidavit. Under the above circumstances, we do not wish to interfere with the concurrent finding of fact.
6. In the circumstances, the above question is answered in the affirmative, i.e, in favour of the Department and against the assessee.
7. Accordingly, the appeal is dismissed with no order as to costs.