Delhi High CourtNabha Investment (P) Ltd. vs Assistant Commissioner Of Income Tax. on 28 September, 1992Equivalent citations: (1993)45TTJ(DEL)158ORDERM. A. BAKHSHI, J. M. :Appellant is a private limited company being investment company dealing in shares, stocks and securities. For asst. yr. 1987-88, for which the previous year ended on 30th Sept., 1986, assessed filed a return on 12th Nov., 1987 declaring income of Rs. 10,60,460. Assessing Officer completed the assessment underS. 143(3)of the IT Act, 1961 vide order dt. 9th June, 1989 at an income of Rs. 72,78,705. assessed appealed to the CIT(A)-VI, New Delhi, who vide order dt. 22nd March, 1991 allowed the appeal partly. assessed is in appeal before us. The dispute, inter alia, relates to the profit of Rs. 70,52,361 on the sale of shares of HMM Ltd. During the year appeal assessed sold shares of various companies and the profit was disclosed as income from business (but for the sale of shares of HMM Ltd.). The profit on account of sale of shares of HMM Ltd. was disclosed as capital gains and not as profits of business. The total consideration received on sale of shares of HMM Ltd. is Rs. 73,23,073 out of which the profit of Rs. 70,52,361 has been derived by the assessed. There is no dispute about the quantum of profit. The dispute is about the head under which it is assessable. Whereas assessed claims the profit to be assessable as capital gains. Revenue is of the view that it is assessable as profit and gains of business. The difference in assessment of this profit under different heads is that if it is assessed as capital gains, deduction underS. 80Twould be permissible to the assessed whereas if it is assessed as profits and gains of business, entire profits would be assessable to tax. That is the reason for the assessed to pursue the matter with the claim that the income on the sale of shares of HMM Ltd. in fact is assessable as capital gains and not as profits of business. The claim of the assessed has not been accepted by the Revenue mainly considering the fact that assessed is a dealer in shares and the shares including the shares of HMM Ltd. had been reflected as stock-in-trade. assessed had sold some of the shares of M/s. HMM Ltd. in the preceding year, the profit whereof had been disclosed by the assessed as income from business. The claim of the assessed that the shares of M/s. HMM Ltd. were wrongly reflected as stock-in-trade in the past has not been accepted for want of evidence. The CIT(A) has confirmed the assessment of the profit on the sale of shares of HMM Ltd. as income form business.2. The learned counsel for the assessed Shri G. C. Sharma contended that though assessed was a dealer in shares, there was no bar for it to hold the shares as an investment. Shri Sharma contended that shares of M/s. HMM Ltd. were allotted to Maharaja Pratap Singh in the year 1959 in lieu of belonging to Maharaja given to M/s. HMM Ltd. Maharaja Pratap Singh by a family arrangement had transferred these shares to his family members. In accounting year 1974-75 (asst. yr. 1976-77) the family members of Maharaja Pratap Singh had sold the shares of HMM Ltd. to the appellant company. According to the learned counsel the shares acquired by the company were 32,898 at the cost of Rs. 7,89,600. In the accounting year 1977-78, appellant company was allotted 32,898 bonus shares. In accounting year 1978-79 the family members of Maharaja Pratap Singh sold 58,000 Shares at Rs. 3,06,900 to the appellant company. A gift of 65,500 shares was also made to the company by Maharaja Pratap Singh. In the accounting year 1982-83 the assessed-company had received bonus shares of 94,468 and in accounting year 1984-85 bonus shares received by the company were 87,916. According to the learned counsel, the manner of acquisition of shares by the assessed-company is an important factor for determining the status of the shares. The learned counsel contended that assessed never intended to deal in these shares as a business proposition. The shares were acquired for holding as investment and substantial income by way of dividend was also derived there from. According to the learned counsel, assessed committed a mistake in reflecting these shares as stock-in-trade and for asst. yrs. 1983-84 and 1984-85 the mistake continued and the profit derived from the sale of shares was also reflected as profits and gains of business. Learned counsel contended that for asst. yr. 1985-86, 9,000 shares had been sold, the profit wherefrom was reflected as capital gains and assessed as such. It was accordingly pleaded that the mere fact that assessed had committed a mistake in the past in reflecting theses share as stock-in-trade should not be capitalised by the Revenue for the purposes of assessment. According to the learned counsel though the assessed acquired the shares in 1976-77, no sale had taken place up to asst. yr. 1982-83. According to the learned counsel, the sale of shares was effected under compulsion of circumstances. Learned counsel referred to the bank certificates, paper book on pages 115, 8, 116, in support of the contention that the Bank of India had sold the shares of HMM Ltd. in order to liquidate the debt of subsidiary companies of the assessed. There was no intention of the assessed to deal in these shares as stock-in-trade and, therefore, the profit from sale of these shares could not be assessed as income from business. The learned counsel further contended that the mere fact that assessed was getting an advantage by showing the income as capital gains would not be a bar for allowance of the claim of the assessed.In this connection, reliance was placed on the decision of the Supreme Court in the case ofRam Narain Sons P. Ltd. vs. CIT(1961) 41 ITR 534 (SC). The learned counsel contended that the transaction must be approached in the light of the intention of the assessed at the time of purchase of shares. In this case, according to the learned counsel, the intention of the assessed was to hold the shares as investments and as such the sale of shares was out of the said investment and the profit and gains, thereof assessable as capital gains.3. The learned counsel further contended that assessed has acquired the bonus shares of HMM Ltd. and as help by their Lordships the Supreme Court in the case ofCIT vs. Madan Gopal Radhey Lal(1969) 73 ITR 652 at p. 655 (SC) even where bonus shares are acquired in respect of stock-in-trade such accretion is on capital account. The bonus shares allotted in respect of shares held as stock-in-trade do not automatically become stock-in-trade of the assessed. Certain shares had been received by the assessed by way of gift. These shares also could not be treated as stock-in-trade. It was accordingly pleaded that the income from the sale of shares of HMM Ltd. may be held to be assessable under the head Capital gains and not as profits and gains of business.4. The learned Departmental Representative on the other hand, contended at the profit on the sale of shares of HMM Ltd. was clearly assessable as profits and gains of business. The intention of assessed to deal in these shares is clear from the balance sheets of earlier years. The learned Departmental Representative invited our attention to para 27 of the assessment order wherein the Assessing Officer has recorded a finding that assessed is an investment company dealing in purchase and sale of shares. The learned Departmental Representative contended that the resolution passed by the Board of Directors of the appellant-company is a self serving document and is of no consequence in view of the entire record pointing towards the other direction. The mere claim of the assessed that the shares were wrongly classified as stock-in-trade would not be enough for treating the sale on investment account. Reliance was placed on the decision on the Supreme Court in the case ofCIT vs. Associate Industrial Development Co. P. Ltd.(1969) 73 ITR 50 (SC) in support of the contention that assessed did not place any material to support the contention that the shares were held as capital investment. According to the learned Departmental Representative the mere fact that there was no sale of these shares in the past with any amount of frequency was not sufficient to establish that these shares wee held as an investment. He pointed out that the sale of shares had taken place in preceding years and income assessed as profits and gains of business. Reliance was placed on the decision of the Supreme Court in the case of New Era Agencies P. Ltd. vs. (1968) 68 ITR 585 (SC) in support of the contention that frequency of transaction is not a decisive factor for determining the nature of income. It was contended that the mere fact that assessed had held these shares for a long time and had derived income from dividend is also not enough to hold that these shares were held as investment and not as stock-in-trade. According to the learned Departmental Representative the fact remains that assessed bought these shares with the clear intention of trading and, therefore, the income was assessable as income from business.5. We have given our careful consideration to the rival contentions. The question for our consideration is as to whether the assessed held the shares of HMM Ltd. as investment or as to whether these shares were held as stock-in-trade. The fact that assessed is a dealer in shares is not disputed. It is also disputed that assessed had reflected these shares as stock-in-trade in the preceding years. It was on 15th April, 1986 that a resolution has been passed by the Board of Directors that the shares of HMM Ltd. held by the company be shown under the head Investment instead of stock-in-trade. A copy of this resolution has been made available to us. Para 4 of the resolution reads as under :"The Chairman stated that company is holding shares as investment for a quite long. The company is not engaged in any business activity of these shares. However, company has sold some of the shares when there is need of money. For the last few years shares of HMM are wrongly being classified under head Stock-in-trade - The mistake has probably crept in due to oversight. After discussions it was resolved that the shares of HMM Ltd. held by the company be shown under the head Investment instead of stock-in-trade. The Chairman stated that company is being pressed hard for repayment of these loans. Company had also given guarantee of loans advanced to Durable Steel (P) Ltd. and Hanuman Steels (P) Ltd. Position of both these companies is financially very very weak because of heavy losses. Our company who has already made substantial investment in these companies is required to make further investments is these two companies as if these two sick companies need to be nourished, money already invested will be used. Hence, there is no alternate but sell the shares of HMM Ltd. to pay back loan of the company and those of Durable Steel (P) Ltd. and Hanuman Steel (P) Ltd. After discussions it was resolved that shares of HMM Ltd. be sold for a sum not exceeding Rs. 100 (L) and Hanumant Singh, a director of the company, he is hereby authorised to take any steps in this regard."It is clear from this resolution that the shares of HMM Ltd. were earlier classified and reflected before 15th April, 1986 as stock-in-trade by the assessed. For asst. yr. 1983-84 assessed has sold 8,000 shares of HMM Ltd. in consideration of Rs. 2,74,390 and the profit from these shares has been declared as income from business. Similarly, for asst. yr. 1984-85 assessed has sold 32,500 shares for a consideration of Rs. 27,46,950 and the profit has been declared and assessed as income from business. For asst. yr. 1985-86 assessed had sold 9,000 shares in consideration of Rs. 4,46,000. As per details at paper book page No. 110 the cost of these shares has been shown at Rs. 45,873. There was thus a gain of Rs. 4,00,127 in respect of sale of HMM Ltd. shares. We do not have details of any expenditure having been incurred by the assessed in connection with the sale. A perusal of the assessment order reveals that assessed had disclosed a gain of Rs. 3,12,127 on sale of investments. This amount has been assessed as disclosed. The assessment order dose not contain any details about the nature of investments nor do we find any deduction underS. 80Thaving been allowed to the assessed. In view of these facts, we cannot give much weight to the assessment of profits on sale shares of HMM Ltd. as profit on sale of investment, during asst. yr. 1985-86.6. assessed had acquired the shares of HMM Ltd. for the first time in asst. yr. 1976-77. up to asst. yr. 1981-82 sale of these shares had not been effected. However, for asst. yr. 1982-83 onwards assessed has been selling these shares. The claim of the assessed that the sale of shares was under compulsion of circumstance and in fact it was the Bank of India that sold the shares to recover the loans advanced to assesseds subsidiary companies need to be examined. We do not have separate details of shares sold in asst. yrs. 1983-84, 1984-85 and 1985-86. However, we have the details of shares sold during the year under appeal at page 124 of the paper book. A perusal of the list clearly reveals that assessed had sold the shares by piecemeal even before the sale of shares took place through Bank of India. We may point out that the Board of Directors passed the resolution, which we have mentioned in para 5 of this order on 15th April, 1986. up to 14th April, 1986 the sale of shares is as under :Date 
  
 
 

No. of shares sold 

  
 

11.10.1985160014.10.1985600015.10.198511753.12.1985 
 
 

13000 

  
 

12.12.198535012.12.198525012.12.198510012.12.198530020.12.1985 
 
 

Fractional shares 

  
 

26.12.198510008.01.19861008.01.19861008.01.198610013.01.198610013.01.198615013.01.198610021.01.198625022.02.198640011.03.198660012.03.1986100014.04.1986605014.04.19866500Between April to July, 1986 assessed had sold 47,550 shares out of which 20,000 shares had been sold through Bank of India. The fact that assessed has sold shares in different lots and even in small numbers as 100, 150, 250, 300 also gives credence to the view that assessed had sold the shares as part of trade. We may have also to consider the contention the contention raised on behalf of the assessed that bulk of shares were sold by Bank of India as these were held as collateral security for the loans advanced to subsidiaries of assessed-company. We have three letters on record in regard to the sale of shares by Bank of India. One letter is dt. 22nd May, 1986 which informs the assessed about the sale of share of HMM Ltd. This letter dose not indicate the circumstances under which the sale of shares took place. Is it that assessed had asked the bank to sell the shares or was it that bank after exhausting all the remedies for recovery of loans had decided to sell the shares to recover the dues. This letter does not give any idea about the circumstances under which the sale took place. Another letter is dt. 11th June, 1986. This also informs the assessed about the sale of 10,000 shares and appropriation thereof. This letter also does not give any indication as to the circumstances under which the sale of share took place. Was it under the instructions of the assessed that the Bank of India sold the shares or otherwise is not clear from these letters. There is a letter dt. 18th Aug., 1986 on page 117 of the paper book written by Shri Hanumant Singh, Director of the company to the Manager (Security Section), Bank of India asking the Bank of India to deliver 15,000 equity shares of M/s. HMM Ltd. to J. S. Sahni & Co., 25 Stock Exchange Building, Asaf Ali Road, New Delhi against which a payment of Rs. 15 lakhs in three Installments of Rs. 5 lakhs each was promised to be made. The bank was also asked to return the balance of equity shares of HMM Ltd. on the satisfaction of loan of M/s. Steels. Whereas these letters do not conclusively establish that the sale of shares took place at the instance of the assessed, these equally do not establish that the sale took place against the wishes of the appellant. In any case, as has been observed from the list of sale transactions during the year under appeal in respect of shares of HMM Ltd. assessed had sold the shares in different lots prior to the sale effected by the bank during this year. The sale of shares of HMM Ltd. has also taken place even in three preceding years. The contention that assessed did not want to trade in the shares of HMM Ltd. and that sale of shares took place under compulsion through Bank of India does not, therefore, hold water. There being evidence on record to show that assessed treated the shares of HMM Ltd. as stock-in-trade, it cannot be held that these were held as investment by the assessed-company. The shares of HMM Ltd. having been held as stock-in-trade and offered as security to the bank, the sale of such shares would also be on account of business as the sale would nevertheless be of stock-in-trade. In this case the evidence on record suggests that assessed had held the shares of HMM Ltd. as stock-in-trade. Apart from the fact that a resolution had been passed by the Board of Directors claiming that the shares were wrongly reflected as stock-in-trade, no satisfactory evidence has been made available by the assessed to establish that the shares were held as part of its capital investment. These shares were not treated in the book of assessed differently from other shares held as stock-in-trade.The sale of shares also having taken place in asst. yrs. 1983-84 and 1984-85 and reflected as the sale stock-in-trade, a strong burden would lie upon the assessed to establish that its conduct in the past was due to a sheer mistake. We may usefully refer to the decision of the Supreme Court in the case ofCIT vs. Associate Industrial Development Co. P. Ltd.(supra). In this case, their Lordships held that whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessed who holds the shares and he should, in normal circumstances, be in a position to produce evidence from his records as to whether he has maintained any distinction between theses shares which are his stock-in-trade and those which are held by way of investment. In this very case it was further held that the mere fact that the share had not been sold with any amount of frequency could not be regarded as sufficient to establish that these shares had been held by way of investment. It has further been that the mere fact that the shares were purchased and held for a long period without sale and that the shares were sold in big blocks to reduce the assesseds liability on its account was not sufficient to establish that the shares were held by the assessed as part of investment.In the case ofSaroj Kumar Majumdar vs. CIT(1959) 37 ITR 242 (SC) their Lordships of the Supreme Court have held that where a transaction was not in the line of business of the assessed but was an isolated transaction the onus was on the Department to prove that the transaction was an adventure in the nature of trade. However, in this case assessed is in business in the purchase and sale of shares and sale of shares of HMM Ltd. was not the isolated transaction and, therefore, it was for the assessed to establish that such transactions were not business transactions.In the case ofRam Narain Sons P. Ltd. vs. CIT(supra) their lordships of the Supreme Court have held that the initial intention of the assessed is an important factor in considering about the nature of transactions. In this case, we do not find any material on record to support the assesseds claim that the intention of the assessed was not to acquire theses shares as stock-in-trade. As already observed the mere fact that up to asst. yr. 1981-82 no sale of shares took place out of shares of M/s. HMM Ltd. is also not a decisive factor for considering the nature of the investment. Whether a transaction was an investment or was in the nature of business is essentially a question of fact and when the history of the case supports the view that the shares were held as stock-in-trade it was for the assessed to establish that what was described in the books of accounts was by sheer mistake and that the resolution of the Board was not merely to take a revenue advantage. In our view, how Maharaja Pratap Singh acquired the shares of HMM Ltd. is not important in this case as fact remains that the shares were sold to this company by the Maharaja and family which have been treated by the assessed as stock-in-trade. Considering the facts and circumstances of this case, we are of the view that assessed has failed to establish that the purchased shares of HMM Ltd. were held by the assessed as investment and not as stock-in-trade. The proposition that the sale of shares held as stock-in-trade is assessable as income from business is not in dispute. Revenue was thus justified is treating the profit on sale of shares (out of purchased lot of HMM Ltd.) as profits and gains of business.7. We would now deal with profit on sale of bonus shares and shares received by way of gifts. This plea has been raised by the assessed for the first time before us. In the case ofMadan Gopal Radhey Lal(supra), their Lordships of the Supreme Court have that the bonus shares received by the assessed in respect of stock-in-trade do not automatically become part of the stock-in-trade. Similar would be the position with regard to shares received by way of gift. However, bonus shares and the shares received by way of gifts could be converted by the assessed into stock-in-trade or retained as capital asset. We do not have the details about the nature of shares sold by the assessed. Whether assessed has sold bonus shares or shares received by way of gift during this year cannot be ascertained without further scrutiny.Considering the fact that Revenue had no occasion to consider the issue raised before us for the first time in the light of the decision of the Supreme Court in the case ofMadan Gopal Radhey Lal(supra) and keeping in view the interest of justice, we remit this issue to the file of the Assessing Officer for consideration in accordance with law. The Assessing Officer shall first ascertain if any sale of bonus shares or/and shares received by way of gift, has taken place in the year under appeal. In case it is found that no sale of bonus shares or the shares received by way of gift have been made during the year under appeal, no further probe would be necessary as the entire profit on the sale of shares out of the purchased lots would be assessable as profit and gains of business. However, if if is found that assessed has sold some bonus shares or/and shares received by way of gift of HMM Ltd. The Assessing Officer shall have to consider as to whether these shares had been converted by the assess as stock-in-trade and held as such before effecting the sale.We may clarify that presumption in respect of bonus shares and the shares received by way of gift is that these are initially received on capital assets as held by their Lordships of the Supreme Court in the case ofMadan Gopal Radhey Lal(supra). It would, however, be permissible for the Revenue to show that these shares had been converted by the assessed as stock-in-trade before its sale. However, the burden squarely rests upon the Revenue in this regard. The issue shall be decided accordingly afresh in accordance with law and our directions after giving reasonable opportunity of being heard to the assessed.8. We now proceed to consider another issue hotly contested in this case. The issue is relating to the claim of loss of Rs. 49,48,000 on account of sale of shares of M/s. Durable Steels P. Ltd. and M/s. Hanuman Steels P. Ltd. both subsidiaries of appellant company. The facts giving rise to his issue are that assessed got 45,000 shares of M/s. Durable Steels P. Ltd. allotted to it on 7th Aug., 1986 at the face value of Rs. 100 per share. In respect of this transaction a sum of Rs. 30 lakhs was credited by the assessed in the books of M/s. Ranjit Steels on 7th Aug., 1986 described as "by purchase of shares 30,000 at Rs. 100 each". Similarly a sum of Rs. 15 lakhs was credited to Rana Steels on 7th Aug., 1986 in the books of the assessed as by amount purchase of shares. assessed also got 18,000 shares allotted of another subsidiary company, namely, M/s. Hanuman Steels P. Ltd. at a face value of Rs. 100 each. The 45,000 shares of Durable Steels P. Ltd. and 18,000 shares of M/s. Hanuman Steels P. Ltd. were sold to Bhavani Trading Corporation, a partnership concern, in consideration of Rs. 3,60,000 and Rs. 1,62,000 respectively. assessed reflected a loss of Rs. 37,20,000 in respect of 45,000 shares of Durable Steels P. Ltd. and the loss of Rs. 16,38,000 on account of sale of shares of M/s. Hanuman Steel P. Ltd. The total loss thus claimed was Rs. 49,48,000. Assessing Officer required the assessed to establish the genuineness of the transactions and to establish that it was not a devise adopted for avoidance of payment of tax by off setting the loans against the profits earned on sale of shares of M/s. HMM Ltd. assessed sought to explain that the two companies were subsidiary companies of the appellant and were almost owned by it. assessed company had been advancing moneys to these companies to meet their requirement of funds from time to time. It was also claimed that the loans were advanced to the company with the understanding that the shares of equal amount would be allotted to the assessed-company in lieu of such assistance. It was further explained that assessed-company had pledged part of their holdings of HMM Ltd. as security for loans provided by bank to subsidiary companies. Since these companies were suffering huge losses for number of years the bank had decided to sell the shares kept as security with the bank. According to the assessed they found that there was no hope of recovery of any amount from these two companies against the loans provided to them by the assessed-company. It was sought to be explained that the liability of the company even after clearing the bank liabilities to wards other creditors excluding the assessed-company were to the tune of Rs. 95.57 lakhs and Rs. 25.41 lakhs respectively. It was accordingly claimed that assessed decided to get the shares allotted to the extent possible from the two companies against the loans and advances gives by the assessed-company. According to the assessed this was done because the assessed-company was of the view that with the share there was some possibility of transferring the same and recovering part of it whereas otherwise in the case of unsecured loans there was no question of any recovery. The assessed accordingly claimed to have suffered a genuine loss and allowable as a deduction in computing its income.9. The Assessing Officer, considering the fact that the allotment of shares was by the two subsidiary companies of the appellant and the fact that the sale of shares effected to Bhavani Trading Corporation, a partnership concern in which assessed was having substantial interest, held the transactions as a bogus transaction entered only with a view to claim the loss. Assessing Officer observed that assessed had advanced a sum of Rs. 50 lakhs voluntarily to the two companies with a view to convent it into share and selling them at a huge loss so that a deduction could be claimed. According to the Assessing Officer, there was no other purpose for getting the shares of subsidiary companies allotted and then selling the same to a firm in which assessed has substantial interest.10. The CIT(A) has also confirmed the finding of the Assessing Officer that the loss claimed by the assessed was not a genuine loss and accordingly not allowable as a deduction.11. The learned counsel for the assessed contended that the finding of the Revenue that the transactions entered by the assessed was sham transaction was unwarranted. According to Shri Sharma, motive in this case was irrelevant, and it is not to be taken into account in view of the fact that the transfer of shares has in fact taken place. According to the learned counsel, a sham transaction would be a transaction which is not a real transaction. In this case, according to Shri Sharma, shares have been allotted in the name of the assess at the face value of Rs. 100 each. assessed has sold the shares during the year under appeal as a result of which loss has been suffered. The learned counsel referred to the decision of the Madras High Court in the case ofM. V. Valliappan vs. ITO(1988) 170 ITR 283 (Mad) at page 286 in support of the contention that every attempt by a tax-payer to reduce his tax burden cannot be rejected as impermissible on the ground that it is intended to avoid tax. Learned counsel contended that a subject is entitled to arrange his affairs so as to reduce his liability to tax. The motive for a transaction is to avoid tax, according to the learned counsel, dose not invalidate it unless an enactment so provided. Learned counsel contended that the legal effect of the transaction should be taken into account and the finding of the Revenue that the transaction was a sham transaction in this case is unsustainable in law. Sham transaction, according to the learned counsel, would mean that while professing to be one thing it is in fact something different. It was pleaded that shares have been allotted to the assessed and these have been sold. These transactions, according to Shri Sharma, are real transactions and not sham transactions.Reliance was also placed on the decision of the Supreme Court in the case of Union of India & Ors. vs. Play world Electronics P. Ltd. (1990) 184 ITR 308 (SC) and another decision in the case of Ensign Tankers (Leasing) Ltd. vs. Stokes (Inspector of Taxes) (1991) 191 ITR 419 (CA) at page 435 to support the contention that avoidance of tax by legal means was permissible. It was accordingly pleaded that the loss incurred by the assessed in the sale of shares may be allowed as a deduction.12. The Departmental Representative, on the other hand, contended that the value of shares of M/s. Durable Steels P. Ltd. and Hanuman Steels P. Ltd. was determined at Rs. 6 per share as against which assessed has got the shares allotted at Rs. 100 per share. The companies of which the shares were allotted are subsidiaries of the assessed-company and the sale of share has also been made to a firm in which the appellant company has got substantial interest. According to the learned Department Representative when the market value of the shares has been determined at Rs. 6 per share, no prudent businessman would purchase the shares at the face value of Rs. 100. The purpose according to learned Departmental Representative was obviously to reflect the loss against huge profits on account of sale of M/s. HMM Ltd. shares. The learned Departmental Representative contended that it was permissible for the Revenue to look behind the smoke screen and consider the genuineness of the transactions. In this case, according to the learned Departmental Representative the transactions apparently appear not to be genuine transactions and accordingly the loss could not be allowed to the assessed.13. We have given our careful consideration to the rival contentions. As is clear from the facts stated above three parties are involved in the allotment and sale of shares. One is the appellant, other is Durable Steels P. Ltd., Hanuman Steels P. Ltd. and the third party is M/s. Bhavani Trading Co. The Durable Steels P. Ltd. had issued total shares of 15,240 at the face value of Rs. 100 each as on 1st Oct., 1985. Out of that 15,000 shares were held by the assessed-company. Similarly Hanuman Steels P. Ltd. had issued total shares of 3,160 of the face value of Rs. 100 each as on 1st Oct., 1985 out of which 3,000 shares were held by the appellant-company. (Refer para 3 of letter dt. 19th Jan., 1990 addressed to the CIT(A) placed on page 1 and 2 of the paper book). It is evident that the subsidiary companies were almost wholly owned by the appellant company. The third party in theses transactions of allotment and sale of share is M/s. Bhavani Trading Co. Partnership deed of this concern is available on pages 92 to 97 of the paper book. There are three partners of this firm. One is Shri Hemant Singhji, second is his wife Smt. Deergh Kaur and the third is Shri Ashok Bapna son of late Shri Kesri Singh Bapna. The partners are having equal shares in the partnership concern. As per clause 10 of the partnership deed the banking accounts of this firm could be operated either by first party or second party individually or by the third party jointly with any other partner. On page 55 of the paper book is a copy of minute book of a meeting held by the Board of Directors of the appellant-company on 15th June, 1985. In this meeting a resolution was passed as under :"Resolved that Bhavani Trading Company, 7, Jantar Mantar Road, New Delhi, is hereby allowed to use the premises at 7, Jantar Mantar Road free of rent for carrying on their activities."It was further resolved in this meeting that the appellant-company shall have no objection if the address is used by the firm for getting registration with Government authorities.14. Shri Hemant Singhji is one of the directors of the appellant-company. His wife Smt. Deergh Kaur is also one of the directors of the appellant-company. These two directors are having 66% (2/3rd) share in the partnership firm of Bhavani Trading Corporation. Bhavani Trading Corporation has been allowed to use appellants premises free of rent for its business activities. The Assessing Officer has also pointed out in the assessment order that the third partner in Bhavani Trading Co. is the son of one of the directors of the company. From the facts stated above, it is abundantly clear that the parties to the transactions of allotment of shares and sale of shares are closely connected. It is in the light of theses facts, we have to consider the genuineness of the transactions of allotment of shares and sale thereof. There are two separate transactions involved in respect of this issue. One transaction is allotment of shares by the subsidiary companies of the appellant-company and the second transaction is that of sale of shares. Let us consider the first transaction. As on 1st Oct., 1985 there was a debit balance of Rs. 10,36,226 in the name of Ranjit Steels. assessed has paid various amounts to this concern during this year from time to time. The amount on account of sale of shares of HMM Ltd. by bank is also debited to this account. Similarly, in the case of Rana Steels, the opening debit balance as on 1st Oct., 1985 was Rs. 81,051 only. Apart from the amounts paid to the Bank of India some payments have been made to this concern during the previous year relevant to the assessment year under appeal. assessed has credited Rs. 30 lakhs to Ranjit Steels on account of 30,000 shares on 7th Aug., 1986. A sum of Rs. 15 lakhs in the case of Rana Steels has also been credited on 7th Aug., 1986 on account purchase of shares. A perusal of the account in the case of Ranjit Steels reveals that even after 7th Aug., 1986 (date of purchase of shares) assessed has made payment to this concern of Rs. 1,33,000 and odd. We do not have any statement of account in the case of Hanuman Steels P. Ltd. The claim of the assessed is that the only purpose behind these transactions was to recoup the debit from these two companies. As against adjustment of Rs. 63 lakhs on allotment of share (45 lakhs + 18 lakhs) assessed has been able to recover a sum of Rs. 5,22,000 only from sale of shares. In order to ascertain as to whether the transactions were genuine transactions, we will have to consider as to whether businessman would have ordinarily taken such a decision as taken by assessed-company. assessed could argue that business expediency should be left to the wisdom of a businessman and not to the authorities.In this connection, we may usefully refer to the decision of the Supreme Court in the case ofCIT vs. Panipat Woollen Mills(1976) 103 ITR 66 (SC) at page 77. In this case, it was held that the test of commercial expediency means that the Court will place itself in the place of a businessman and find out whether the expenditure incurred could be said to be laid down for the purposes of business or the transaction was merely subterfuge. We have to place ourselves in the place of the assessed and find out whether a reasonable businessman would have taken the decision of acquiring the shares, the market value of which Rs. 6 per share at the face value of Rs. 100 per share in order to recoup the debt as claimed. Firstly, the contention of the assessed that his debt was not secured and, therefore, he had no chance of recovery does not hold water. We have pointed out elsewhere in this order that assessed was almost holding the entire shares in the subsidiary companies and was in command of taking decisions in respect of payment of debts. The contention of the assessed that the decision to get the shares allotted was in the interests of the assessed with a view to ensure recovery of the debt to the extent possible, lacks credibility. Moreover, the very fact that the shares have been sold to a firm in which two of the directors are having 66% (2/3rd) shares and 1/3rd by son of another director also supports the view of the Revenue that the transaction entered into by the assessed for the acquisition of shares and the sale thereof was a sham transaction.In this connection, we may refer to the decision of the Supreme Court in the case of Play worldElectronics P. Ltd.(supra) where their Lordships have held that even though a corporation might be a legal personality distinct from its members the Court is entitled to lift the mask of corporate entity, if the concept is used for the tax evasion or to circumvent tax obligation or to perpetrate fraud. Their Lordships have further held that planning may be legitimate provided it is within the framework of law. Colourable devise cannot be part of a tax planning as has been held by their Lordships.Madras High Court in the case ofM. V. Valliappan Ltd. vs. ITO(supra) have also held that it is for the fact finding Commissioner to find whether a document or transaction is genuine or a sham. In this context to say that a document or a transaction is sham, according to their Lordships means that while professing to be one thing, it is in fact something different. In the case before us the claim of the assessed that the shares were got allotted in order to recoup the possible loss of entire amount does not stand the test of common sense. M/s. Durable Steels P. Ltd. are almost owned by the assessed. To company say that assessed has got the shares allotted merely to safeguard his interest of recouping to the loss to the extent possible does not hold the test of legal scrutiny. The entire control of these two companies being with the assessed, the reasons given for getting the shares allotted at face value of Rs. 100 per share against the market value of Rs. 6 per share are not convincing. Considering the totality and the circumstances of this case, we are of the view that the finding of the Revenue that allotment of shares at face value of Rs. 100 per share as against the market value of Rs. 6 per share of Durable Steels P. Ltd. and Hanuman Steels P. Ltd. and the sale of these shares to a partnership concern in which the directors of the appellant-company are having substantial interest was with a view to claim the loss against the sale of shares of HMM Ltd. is justified. In the case of claim of loss the burden is on the assessed to establish its genuineness. The facts and circumstances of this case do not support the claim of the assessed. As such the loss claimed by the assessed on the sale of these shares, has rightly been disallowed by the Revenue, as not being a genuine loss.15. The next ground of appeal is relating to value of shares of M/s. Krishna Fabrics P. Ltd. 3,900 shares of M/s. Krishna Fabrics P. Ltd. were valued at Rs. 39 lakhs on 30th Sept., 1985. However, for the year under appeal, the value of these shares had been disclosed by the assessed at Rs. 1,95,000, i.e., exactly at 50% of the value declared in the opening stock. assessed claimed that the company M/s. Krishna Fabrics P. Ltd. have suffered heavy losses and accordingly it was justified in reducing the value of these shares by 50%. The claim of the assessed has been rejected for want of evidence. The position has not improved before us. In fact, learned counsel for the assessed did not seem to be serious about pressing this ground of appeal. Considering the facts and circumstances of the case we have no reason to interfere in the finding of the CIT(A).16. Next ground of appeal is relating to the loss of Rs. 6,95,125. The loss claimed by the assessed has been disallowed by the Assessing Officer as fictitious. assessed had claimed a loss of Rs. 6,95,125 on transactions conducted through M/s. L. R. Munjal, a share broker. Loss was disallowed by the Assessing Officer on the ground that purchase and sale of shares through the aforementioned broker was a colourable devise adopted by the assessed company in collusion with the share broker to reduce its tax liability. It was observed by the Assessing Officer that all the transactions relating to the sale and purchase of shares in respect of which loss was claimed by the assessed had taken place between 7th July and 18th July, 1986. assessed had claimed to have made an advance of Rs. 15,000 to the share broker on 1st July, 1986, in respect of these transactions but the details filed before the Assessing Officer and the enquiries made by him revealed that although the cheques were stated to be issued on 1st July, 1986 this was not deposited by the broker in the bank till 14th Aug., 1986 when the sale and purchase of shares in question was claimed to have taken place between 7th July and 18th July much before the cheque was deposited by the broker. Assessing Officer questioned the transaction of purchase and subsequent sale of shares of the value of Rs. 82,85,000 conducted by the broker on the basis of a mere advance of Rs. 15,000 which too had not been deposited in the bank till 14th Aug., 1986. assessed claimed its creditworthiness to be the sole reason for the broker to have conducted the transaction of more than Rs. 82 lakhs on credit. The Assessing Officer, however, doubted the transaction. The day book of the broker had been examined and according to the Assessing Officer the entries made in the day book were recorded at the end of the particular day and the ink also differed in respect of the entries made. According to the Assessing Officer, the share broker had admitted that the delivery of shares had not been given to the assessed company because full payment for the same had not been received. Even badla charges or interest charges had not been charged from the company. Sale and purchase of shares has been claimed having taken place without any payment by the assessed barring a sum of Rs. 15,000 deposited by the broker in the bank account after the entire transactions. The Assessing Officer further observed that the loss of Rs. 6,95,000 had not been paid to the broker till the end of the accounting year. The transaction book of the broker relating to the purchase of shares and their subsequent sale had also not been produced before the Assessing Officer. The broker had admitted in his statement that this book was not available with him. The bills through which the purchase and sales were made or the bills raised by him of the various brokers regarding previous purchases and subsequent sale of these shares on behalf of the assessed company was also not produced by the broker. Another discrepancy noticed by the Assessing Officer was that whereas the ledger account with M/s. L. R. Munjal filed by the assessed company showed the purchase price having been credited on 7th, 11th and 12th July, 1986 but the day book of the broker showed that the shares in question were purchased on behalf of the assessed company on 7th, 11th, 12th and 18th Aug., 1986. The Assessing Officer accordingly came to the conclusion that the loss claimed by the assessed was not a genuine loss and he accordingly disallowed the same. The Assessing Officer further observed that the broker had accommodated the assessed as it had large dealings with him in the past.17. The learned counsel for the assessed contended that the transaction of purchase and sale had been substantiated by the assessed by supporting evidence. The authorities below were not justified in declining the claim of the assessed. In this connection, reliance was placed on the statement of the broker. Learned counsel contended that there is no presumption that a witness will come forward to accommodate the assessed. The learned Departmental Representative, on the other hand, contended that the loss claimed by the assessed was not established to have been genuinely incurred by the assessed and as such Revenue was justified in disallowing the same.18. In the alternative it was contended that the broker having admitted that there was no actual delivery of shares, the loss claimed by the assessed was a speculative transaction and, therefore, the same could not be allowed as a business loss.19. We have given our careful consideration to the rival contentions. The only evidence relied upon by the assessed in support of the claim of the loss is the statement of Shri L. R. Munjal, the share broker. There are, however, various factors strongly weighing against the assessed in the allowance of the claim as a genuine loss. assessed has claimed to have purchased the shares through Shri L. R. Munjal for a substantial amount of Rs. 82.5 lakhs. It may not be unusual for a broker to conduct business on behalf of his reputed clients without making advance payments. However, it is certainly unusual for a broker not to charge any commission or badla charges on account of such transactions. It is common knowledge that the share brokers charge commission/badla charges on account of purchase of shares as well as on account of sale of shares. In this case, the broker claims not to have charged any amount either for purchase of shares or sale of shares. No satisfactory reasons have been advanced for not making such charges. It is not unlawful for the broker not to charge commission from its clients. But in the absence of satisfactory explanation as to why it was not charged, Revenue is justified in taking adverse inference. In any case, the fact of commission and badla charges not having been paid to the broker does not advance the claim of the assessed that genuine transactions had been entered for the purchase and sale of shares. The cheque for a sum of Rs. 15,000 purported to have been advanced for making the purchases also does not support the claim of the assessed. On the other hand, it repudiates the claim of the assessed. For huge transaction of Rs. 82.5 lakhs, an advance of Rs. 15,000 is negligible. The advance was stated to have been made in July, 1986. No reasons have been put forth by the broker as to why the cheque was not deposited in the bank before 14th Aug., 1986. The relevant books of accounts and share broker register were not produced before the Assessing Officer. There was discrepancy in the accounts also in so far as ledger account reflected the share purchases in the month of July, 1986 whereas as per the day book of the broker the transaction had taken place in August, 1986. For a loss to be allowed as a deduction the burden is on the assessed which in this case has not been satisfactorily discharged. In the case of a genuine transaction, it would not have been difficult for the assessed to establish that the purchase and sale of shares had actually taken place. The names of purchasers and sellers of shares have not been disclosed to the Revenue. We, therefore, confirm the disallowance of loss of sale of shares for want of satisfactory evidence.20. Last ground is relating to disallowance of directors remuneration of Rs. 6,000. The salary of directors has been increased by a sum of Rs. 6,000 during the year under appeal, which has been disallowed by the Assessing Officer. In our view, there is no justification for the disallowance of Rs. 6,000 for the increase in the directors remuneration. The increase in directors remuneration being reasonable, we hereby delete the addition.21. In the result, appeal is partly allowed.