1 gftx2443-09 sas IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION GIFT TAX APPEAL NO.2443 OF 2009 The Commissioner of Gift Tax-9, Mumbai ..Appellant. V/s. Shri Navinchandra N. Majitha ..Respondent. Mr. N.A. Kazi for the appellant. Mr. Vipul Joshi with Sameer G. Dalal for the respondent. CORAM : J.P. DEVADHAR AND K.K. TATED, JJ. DATED : 4TH OCTOBER, 2011 P.C. :- 1. Whether the ITAT was justified in deleting the addition made by the assessing officer on account of deemed gift amounting to Rs. 1,49,13,490/- being the difference between the sale price and the market price of the shares of the listed companies, is the question raised in this appeal. 2. The assessment year involved herein is AY 1996-97. 2 gftx2443-09 3. In the assessment year in question, in the income tax proceedings, the assessee inter alia claimed short term capital loss amounting to Rs.71,40,712/- on account of sale of shares of the listed companies. The assessing officer allowed the short term capital loss only to the extent of Rs.7,17,912/- and disallowed the balance amount of Rs.64,22,800/- on the ground that the claim was bogus and there were no sale transactions actually taking place and the amounts paid were merely on account of speculative transactions. The disallowed transactions were :- (a) Sale of 6,00,000 shares of Lawa Coated Papers Ltd. to Clique Exports Pvt. Ltd. on 9/10/1995; (b) Sale of 5,88,000 shares of Lawa Coated Papers Ltd. to Clique Exports Pvt. Ltd. on 12/2/1996; (c) Sale of 3,88,000 shares of Lawa Coated Papers Ltd. to Tejas Shah (M.D. of Lawa Coated) on 31/1/1996; (d) Sale of 3,00,000 shares of Lawa Coated Papers Ltd. to Tejas Shah (M.D. of Lawa Coated) on 30/1/1996; (e) Sale of 1,10,700 shares of Pal Peugeot Ltd. to Manish N. Majithia on 23/3/1996; (f) Sale of 2,50,000 shares of Janak Intermediates Ltd. to Manish N. 3 gftx2443-09 Majithia on 23/3/1996; 4. Thus, the assessing officer held that the sale transactions to the extent of Rs.64,22,800/- were bogus, because, there was no delivery of shares, there were no transfer of shares and the shares continued to remain with the assessee even after the alleged sale transactions. The above decision of the assessing officer were upheld by the CIT(A) and also by the ITAT and the same has been accepted by the assessee. 5. In the meantime, gift tax proceedings were initiated by the Gift Tax Officer to impose gift tax on the amount of Rs.1,49,13,490/- being the difference between sale price and the market price of the shares claimed to have been sold by the assessee under the six transactions referred to hereinabove. Though the ITO in the income tax proceedings held that the above sale transactions did not actually take place and the said transactions were merely speculative transactions, the gift tax officer treated the above transactions to be genuine sale transaction and imposed gift tax on the deemed gift being the difference between the sale price and market price of the shares allegedly sold by the assessee. The decision of the assessing officer was upheld by by CIT(A). 6. On further appeal, the ITAT deleted the additions made by the Gift Tax Officer by holding that once the assessing officer under the 4 gftx2443-09 income tax proceedings has come to the conclusion that there were no sale transactions and the transactions were only speculative transactions, then, there was no question of treating the said transactions as genuine transactions and bring to tax the differential amount between the sale price and market price as deemed gift. In our opinion, once it is established under the income tax proceedings that the sale of shares did not take place and loss was only a speculative loss, then, it cannot be presumed for the gift tax purposes the transactions have actually taken place. In the present case, it is not in dispute that even after the alleged sale, the shares have continued to remain with the assessee and, therefore, the decision of the ITAT in holding that there were no sale of shares and consequently there was no question of taxing the deemed gift cannot be faulted. 7. In the result, we see no merit in the appeal and the same is hereby dismissed with no order as to costs. (K.K. TATED, J.) (J.P. DEVADHAR, J.)