ITTA/230/2008 of M/s.Laxmipriya Investments Pvt Ltd Vs Deputy Commissioneer of Income Tax on 5 December 2025

[ 348e ] IN THE HIGH COURTFOR THE STATE OF TELANGANA AT HYOERABAO FRIDAY, THE FIFTH DAY OF DECEMBER TWO THOUSAND AND TWENTY FIVE PRESENT THE HONOURABLE SRI JUSTICE P.SAM KOSHY AND THE HONOURABLE SRI JUSTICE SUDDALA CHALAPATHI RAO INCOME TAX TRIBUNAL APPEAL NO: 230 OF 2008 Appeal fited under section 260-A of the lncome Tax Act, 1961 against the order dated 14.09.2007 in l.T.A.No.459|HYD|2OO3 for A.Y.1999-2000 on the file of the lncome-Tax Appellate Tribunal, Hyderabad Bench 'B' at Hyderabad. Between: M/s. Laxmipriya lnvestments Ad Ltd, C/o.Shri S.Rama Rao [Advocate], Flat No.103, lndiradevi Nilayam, 3-6-51214,7th Stieet, Himayatnagar, Hyderabad. ...APPELLANT AND Deputy Commissioneer of lncome Tax, O/o.Circle-2 [4], Hyderabad. ...RESPONDENT Counsel for the Appellant : Mr. A.V.A. Siva Kartikeya representing Mr. A.V. Krishna Koundinya Counsel for the Respondent : Ms. J. Sunita Senior Standing Counsel for lncorne Tax Department The Court d,elivered the following:

IN THE HIGH COURT FOR THE STATE OF TEL \NGANA AT HYDERABAD THE HOI{'BLE SRI JUSTICE P. SA.DI KCII iHY AND THE HON'BLE SRI JUSTICE SUDDALA CHALAI ATHI RAO INCOME TAx TRIBUNAL APPEAL No.23O o I 2OOB Date :: o{.L2.2O25 Between: M/s. Laxmipriya Investments Pvt. Ltd., C/o. Shri S.Rama Rao, Advocate, Flat No. 103, Indiradevi Nilayam, 3-6-5421 4, 7th street, Himayatnagar, Hyderabad. ..,Appellart AITD Deputy Commissioner of Income Tax, Circle-2 (4). Hyderabad. Respondent JUDGMENT: (pe.r Hon bk Si.lttstice P. !)zm Koshg) The instant appeal has been liled by the appellzL rt under Section 260A of the lncome Ta-x Act, 196l (for short,'the I,' t'l assailing the order dated 14.O9.2OO7 in l-T.A.No.459 /I{YDl2OO:\ passed by the Income Ta.x Appellate Tribunal, Bench B', at Hyder'; bad (for short, 'the impugned order'f

2. Heard Mr. A.V.A. Siva Kartikeya, learned cour r el appearing on behalf of Mr. A.V. Krishna Koundinya, learned ounsel for the appellant; and Ms. J-Sunita, learned Senior Stan,1 ng Counsel for lncome Tax Department atppearing on behalf of the res condent. i\.-\\

3. The assessment year in the instant appeal is 1999-2OOO.

4. Vide the impugned order; the Tribunal had affrrmed the order passed by the Commissioner of Income Tax (AppeaJs), dated 31.12.2OO2, who in turn confirmed the order passed by the assessing oflicer, dated 3 l. 12.2OO2.

5. The appeal was admitted on tlee following substantial questions of law, viz., 'a). Whether on the fads and circumstances of the case, tLe Hon'ble Tribunal is right in <nnfirming the orders of the Commissioner of Income Tax (Appeals) utho furtler enhanced the o.ssessment bg Rs. 93,67,150/ - di.sallouing tle loss claimed by th.e assessee? b). Whether on the facts and circumstances oJ the case, the Hon'ble Tribunal is right in rejecting tle purchnse pice of Rs. 1OB pakt by lhe assessee on the ground. tltet tle parties to the transaction are group companies uithout any legal ba-sis?"

6. The dispute revolves around disallowance rnade by the assessing offtcer under Section aOA(2) of the Act. The capital loss claimed by rhe appellant was disallowed by the assessing offlcer. The stand of the respondent- Departrnent was that in order to avoid capital gain, the assessee had shown the capital loss which is nothing but a cotourable device adopted by the appellant with an intention of avoiding tax.

7. The appellant-Company filed its return on 31.12.1999 declaring a business loss of Rs.3,60,36,883/- and taxable capital gain at the { \

rate of Rs. I ,95, l4,O59 / -. The case was processe( under Section 143(1) of the Act and the return hled by the appellan I was selected for scrutiny. Thereafter, show-cause notices were issuec . Upon perusal of the records, it was found that the appellant-i1 ;sessee showed purchase of 5,26,900 shares for an amount of Rs.5,3{ ,77,9OO/-. Owt of the said purchase, subsequently 5,09,100 share s were shown to have been sold for arr amount of Rs.1,47,94,335/-, r.l heavy loss of treating of shares. Upon verifrcatiorr found that all the trading of shares have been rr company which are part of the group of comprr- Directors were common in these companies. Further, mismatch and discrepancies available so far as detail purchase and the sale of such shares. In the cours was also found that even though there is a reflection , to other sister concerns are concerned, but payments, made but only book entries were available by way : loans. The respondent-Department had also pur. Assessee on notice asking it to produce the broker r documents to prove that the transactions in fact did tr give dates and at the given rates. But the appellar failed to provide any evidence in this regard. The asses found that certain purchases of shares were made of r were already made quite some time earlier. It u,zr: ereby reflecting it was further ade within the ries where the there was lot of , of the dates of : of scrutiny, it f sale of shares ,vere not in fact 'adjustment of the appellant- .otes and other ke place on the t-Assessee had sing officer also ,hich payments found by the ,,.:

assessing officer that payments were made in advance for purchase at the given rate. Whereas, it was detected that the appellant-assessee in fact even earlier itself had entered into an agreement with another sister hrm by issuing a letter for purchase of shares, that too for an a-ltogether different price. Taking into consideration the factual matrix of the case, the assessing ofhcer reached to the conclusion that the transactions were done in the regular course of business but only with a view to reduce the tax liability. It was also found that the purchase of shares made by the appellant-assessee, the market value of which was shown @ Rs.a,6A/- whereas the appellant-assessee is said to have purchased the same @ Rs. 108/- per share. Thus, the assessing officer was of the view that such investments would not be done by any prudent person. The appellant-assessee aggrieved by the impugned order of assessment dated 28.03.2OO2 preferred an appeal before the appellate authorigr; and the appellate authority, after scrutiny of grounds of appeal and on veriffing the same from the documents and records brought before the appellate authority, founc that the findings arrived at by the assessing officer seems to be perfectly justihed particularly taking into consideration the large scale Iapses, mismatch and discrepancies and also the contradictions those were reflected during assessment of the appellant-Company. Further, the appellate authority also found that there were no resolution of the Board of Directors, and there was also no material available so far as \l Page 5 oi 9 any Board meeting being held. There also no resolutl( n to show that tJre company had decided to purchase the shares at a I igher price' In the course of scrutiny, the appellate authority also four c that even the Minutes Book was in a haphazard condition inasmuch as these books were not in a bound format; pages were loose ancl they were not serially numbered. The appetlate authority had aLsc lound that the transactions made were all in between and within the ; ster concems.

8. Considering the aforesaid factual aspects, the apl ellate authority had also conlirmed the order passed by the assessir.I 3 authority. It was these two orders which were later subjected to. ': rallenge by the appellant-Assessee before the Tribunal, wherein thr Tribunal had passed the impugned order.

9. L,earned counsel for the appellant contended tl-r erred in holding that the loss claimed by the appellzr- would not fall under Section 37(1) of the Act, and t-r erred in holding that the loss incurred is because t Thus, the disallowance of set-off of carry forward l'r erron€ous finding. The learned counsel for the a 1 contended that the Commissioner of [ncome Tax inasmuch as reducing the cost of shares for t computation and capital gains, and at the same tiro Assessing Officer to enhance the income by Rs.39,51,() rt the Tribunal rt is one which : Tribunal also f the assessee. ;s was also an pellant further Appeals) erred re purpose of :, directing the 'ol-.

10. According to the learned counsel for the appetlant, the Tribunal failed to appreciate the findings given by the Assessing Officer while declaring the transaction to be a sham transaction. However, at the same time, it had allowed the cost at the rate of Rs.41.14/- to be treated as the market price. The Tribunal while confirming the order of the Commissioner of Income Tax (Appeals) found serious doubts on the appellant conceding that the purchase of the shares by the appellant was at Rs. 108/- and sale of shares have been at a much lower price. According to the learned counsel for the appellant there was no reason to believe the finding given by the authorities, as on the one hand, the Tribunal holds Rs.1O8/- per share to be acceptable and at the same time, the Tribunal doubts the purchase of shares at Rs.1O8/- to be highly excessive.

11. Per contra, the learned Senior Standing Counsel for the Department contended that unless there is some element of fraud or mis-chief proved that the money paid for consideration of shares have come back to the appellant-assessee itself the findings arrived at by the Assessing Ofhcer and confirmed by the next higher authority i.e., the Tribunal does not warrant interference as they a-re concurrent findings of fact L2. Having heard the contentions put forth on either side and on perusal o[ records, what is primaril-v reflected from the proceedings ts that the entire sale and purchase of shares is withir the same group company having common directors, which forces thr Bench to have serious doubts insofar as the sale and purchar; : of shares is concerned and doubt the entire transaction being czr ried out with a sole intention of saving tax and in process has avoide<l showing capital gains and at the same time has shown a substantial cz oital loss.

13. It was the frnding of the Tribunal that the nor.r compulsorily registerable document relating to imnr itself renders the said document inadmissible in evii the frnding of the Tribunal also classified thar 'commercial expediency' in itself is an expression v broad meaning. Expenditure in commercia_t'expedienr.. expenditure which any normal prudent man might purpose of his business. Further, according to th< expenses incurred might not have any direct bearir business but they may still be considered permissib t commercial expediency. The Tribunat also went on to expenditure laid out excessively for the purpose of trrr allowed, however, when it was examined it clearly rcf transactions were not in the nature of acquiring ass( { objects. Therefore, the question of liability o[ exp: Section 37(1) of the Act does nor arise. egistration of a rvable propert5r lnce. Further, ,he expression hich carries a includes such incur for the Tribuna], the g on the core if justified by iecide that the ;iness shall be ected that the see's business rditure under

Page E of 9 L4. Further, what is also evident from the procedings is that the findings given by the Tribunal are based upon the judicial precedents both of the Tribunal as also of the different High Courts, some of which are Siddho Mal & Sons vs. ITO (Delhilr, Eastern Inwestments Ltd., vs. CIT2, Swadeshi Cotton Mills Co. Ltd. vs. Commissioner of Income-tax3 and other similar judicial precedents, all of which' stilt holds good and have not been reversed by superior forums.

15. The Tribunal recorded a categorical finding that for any expenditure to be allowed, it must satisfy the test of commercial expediency. The Tribunal did not hnd any strong cogent proof or material available on record, nor could the assessee demonstrate that the action of the Revenue authorities was dishonest, vindictive, nor otherwise was capricious move on the part of ttre Ri6nLre in implicating the appetlant. Further, the Tribunal upon examining the records found that there u'as neither any element of commercial expediency, nor any compelling or reasonable justifrcati'on explaining the circumstances under which the excessive purchase price was paio.

16. Thus, there being a strong concurrent hnding of fact by the authorities in the Department and finally by the Tribunal, we do not hnd any strong case made out by the appellant-assessee calling for an ' t22 ttn 8391oetht1 '{rssr) zo rrn r (sc) 'lrsoziol rrn st I \ I

interference to the impugned order passed by the Tri: rnal. The appeal therefore deserves to be and is accordingly dismissed. No costs. L7. As a sequel, miscellaneous petitions pending ir' any, shall stand closed ",ffi::":: 7-'- //TRUE COPY// To,

t. The lncome-Tax Appellate Tribunal, Hyderabal Bench ,B, at Hyderabad.

2. One CC to Mr. A.V. Krishna Koundinya, Advocate [OF t C]

3. One CC to Ms. J. Sunita Senior Standing Counsr: for lncome Tax Department IOPUC]

4. Two CD Copies DUPSL ,W,

HIGH COURT DATED:05112t2025

JUDGMENT

ITTA.No.230 of 2008 DISMISSING THE APPEAL ./.,' /:4 t\ I b ,..i llub \ t // $ b rl