TaxTMI 
TaxTMI 
2005 (12) TMI 457
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....had purchased a residential flat at Colaba, Mumbai during the relevant previous year. The flat was jointly purchased with his wife. Assessee's share in the flat is 70 per cent and the share of wife is 30 per cent. The long-term capital gains declared by the assessee on sale of shares and office premises were accordingly claimed as deduction under section 54E as against the purchase of the said flat. According to the assessee, the investment in the flat was made out of the sale proceeds of shares and office premises thereby utilizing the sale consideration for the purchase of eligible asset for claiming deduction under section 54E. 4. In the course of assessment proceedings, the Assessing Officer held on the basis of enquiries made by him that the claim of the assessee regarding purchase of shares was bogus and no such shares were purchased by the assessee and consequently the sale of shares also was bogus. Therefore, the Assessing Officer came to the conclusion that the funds deposited by the assessee in his bank account as the sale proceeds of the shares and utilized for the purchase of flat at Colaba, remained unexplained. The sale proceeds of shares accounted by the assessee ....
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....e two additions also have been confirmed. The first appeal was accordingly dismissed by the CIT(A). The assessee is aggrieved and therefore, the second appeal before us. 6. The grounds raised by the assessee in this appeal read as under : "1. That on the facts and in the circumstances of the case, the Ld. CIT (A) erred in having confirmed the high-pitched assessment on an alleged unexplained investment/income of Rs. 1,54,53,250 as against returned by the assessee at Rs. 4,78,290 without considering the fact that the purchases and sales of shares and subsequent investment in house property were made through accounted and disclosed money/source only. 2. That on the facts and in the circumstances of the case, the Assessing Officer and the Ld. CIT(A) acted arbitrarily in having treated the deposits totalling to Rs. 1,41,08,484 as unexplained investment under section 69 of the Act disbelieving the actual state of affairs that the said sum was deposited to the Bank out of sale proceeds of shares of different companies through account payee cheques, the details of which were made available to the revenue authorities with evidence and also reflected in the return of income. 3. ....
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.... CIT(A) is arbitrary, unwarranted, without any merit and bad in law, the same should be quashed and the assessee be given such relief(s) as prayed for." 7. Before proceeding further, it is necessary to discuss in brief, the facts relating to the three additions disputed in the present appeal. As far as the addition of Rs. 1,41,08,484 is concerned, the facts related to certain transactions of purchase and sale of shares accounted by the assessee. The funds necessary for purchasing the flat at Colaba were raised by the assessee by selling the shares. The sale proceeds of shares were brought into the bank account of the assessee. According to the assessee, he had purchased 1,41,400 shares of M/s. Allan Industrial Gases Limited; 11,500 shares of Mobile Tele-communications Limited; 34,000 shares of Rashel Agro Tech Ltd., and 27,700 shares of Centil Agro Tech Ltd. The total number of shares thus purchased by the assessee was 2,19,600. The purchases were made through M/s. Rushab Investments, Radha Ashok and Anil Securities. The purchases were made during the period from February to August 1999 i.e., during the previous year periods relevant to the assessment years 1999-2000 and 2000-01....
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....50 were received from M/s. Richmond Securities Pvt. Ltd. The assessee had also received monies from Rushab Investments and Tripathi Sales Corporation, but the latter two receipts were not disclosed by him. The genuineness of the transactions were not established for the failure of the assessee to identify the real persons behind the brokers through whom purchase and sale were said to be made. (XIII)That the assessee could not prove the creditworthiness of the parties involved in the transactions and also their identity and therefore, has failed in proving the genuineness of the transactions as such. This failure is in spite of number of opportunities given by the assessing authority by issuing notice under section 142(1). 7.1 On adjudicating the issue of addition of Rs. 1,41,08,484, the learned Commissioner of Income-tax arrived at the following conclusion : "But the most important point is the veracity of the transactions conducted by the appellant. The off-market transactions are not recognized transactions, particularly when all the shares transacted are quoted shares. When the share transaction is not through Stock Exchange, greater responsibility is there with the app....
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....below. 8.2 The foremost argument of the learned counsel is that the case of the assessee regarding purchase and sale of shares was fully supported by the details collected in the course of survey conducted by the department in the business premises of the assessee. There was a survey carried out by the department in the business premises of the assessee. Copies of contract notes for sale of shares, copies of bills thereof, photocopies of share certificates etc., were found in the course of survey. It is the case of the learned counsel that these details collected by the department by itself is the best testimony for the case of the assessee that he had purchased and sold shares resulting in capital gains which was utilized by him for the purchase of flat at Colaba. 8.3 The learned counsel submitted that as far as the share transactions are concerned, not only the department collected positive evidences in the course of survey, in support of the accounts of the assessee regarding purchase and sale of shares, but also to be noted that no incriminating document or evidence indicating any doubtfulness in the bona fides of the share transactions were found in the course of survey.....
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....ng such details. The break up of purchase and sale of shares are furnished. The learned counsel submitted that most of the purchase and sale of shares were carried out through Shri Satish Mandovara, Mediator, who is a specialist in off-market trading of shares. Shri Satish Mandovara was the Assistant of Shri Mangesh Chokshi, Director of M/s. Richmond Securities Pvt. Ltd. Both Shri Satish Mandovara and Shri Mangesh Chokshi in the respective statements recorded under section 31 of the Income-tax Act have confirmed that the transactions are entered into by them with the assessee were genuine. Regarding the source of investments, the assessee has explained before the Assessing Officer that he had agricultural income which reflected in the returns filed for the assessment years 1990-91 to 2001-02. The learned counsel invited our attention to the cash on hand available with the assessee for various year endings detailed in the paper book. 8.7 The learned counsel submitted that the Assessing Officer has erred in appreciating the statements given by Shri Satish Mandovara. Shri Satish Mandovara is the proprietor of M/s. Rushab Investments which is different from the other Rushab Investme....
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....re is no basis for sustaining an addition of Rs. 1,41,08,484. 9. Shri R.K. Singh, the learned Commissioner of Income-tax who appeared for the Revenue placed the case of the Revenue in detail before the Bench. He stated that the Assessing Officer has made conclusive enquiries in a very extensive manner to prove that the purchase and sale of shares claimed by the assessee were only paper transactions for creating accountable money for purchasing the flat in Colaba. The learned Commissioner submitted that it is quite magical to believe that a small amount of money invested by the assessee in shares of certain companies multiplied astronomically within a very short span of time and the shares sold for a high amount asmuch as Rs. 1,41,08,484, which conveniently supported assessee's investment in the purchase of flat at Colaba. 9.1 The learned Commissioner submitted that the above transactions were very incredible and that incredibility is further compounded by the fact that the entire transactions were made outside Stock Exchange. They were all off-market transactions. When all the above facts are read together, it is, to be clearly seen that the assessee has made up a story regar....
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....n the purchase of the flat was @ 70 per cent for which the investment amounted to Rs. 1,44,71,033. The source of investment was, among other things, the sale proceeds of shares of Rs. 1,41,08,484. This amount has been questioned by the revenue authorities. 10.1 The assessee has purchased the shares of four companies viz., Allan Industrial Gases Ltd., Mobile Telecom, Rashee Agrotech and Centil Agrotech, during the previous years relevant to the assessment years 1999-2000 and 2000-01. The books of account maintained by the assessee for both the years clearly reflected the purchase of those shares. The shares are reflected in the balance sheets filed by the assessee along with the returns of income for the assessment years 1999-2000 and 2000-01. Therefore, it is seen that as a prima facie evidence, the purchases of shares have been contemporaneously entered into the books of account of the assessee. 10.2 The assessee has been declaring agricultural income in his returns of income for the assessment years from 1990-91 to 2001-02. The total agricultural income returned by the assessee up to the assessment year 1999-2000 was at Rs. 7,57,883. The amount invested in the purchase of s....
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....lue for the negative replies solicited by the assessing authority from the respective Stock Exchanges. We are of the considered view that the materials collected by the assessing authority from the Stock Exchanges are not valid to dispel or disbelieve the contentions of the assessee. 10.5 The next set of evidences relied on by the assessing authority are the statements obtained from various parties. When certain persons like Radha Ashok and Sandeep D. Shah made negative statements against the assessee, persons like Satish Mandovara and Mangesh Chokshi had given positive statements in support of the contention of the assessee. But, the assessing authority sought to pick and choose the statements given by various parties. While accepting and rejecting such statements given by the parties, the Assessing Officer has made a mistake of accepting irrelevant statements and rejecting relevant statements. During the relevant period in which the assessee transacted in shares, persons like Radha Ashok and Sandeep D. Shah were not carrying on their business of brokers as in the manner they carried on the business in the past. Even their Stock Exchange Memberships were cancelled. It was Shri ....
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....ever unbelievable it might be, every transaction of the assessee has been accounted, documented and supported. Even the evidences collected from the concerned parties have been ultimately turned in favour of the assessee. Therefore, it is, very difficult to brush aside the contentions of the assessee that he had purchased shares and he had sold shares and ultimately he had purchased a flat utilizing the sale proceeds of those shares. 10.8 For a moment, even if all the above evidences are ignored, one cannot overlook the pressure of the evidence coming out of the survey carried out by the department in the business premises of the assessee. There was a survey carried out by the department in the business premises of the assessee. In the course of survey, contract notes for sale of shares, copies of bills thereof, photocopies of share certificates etc., were found. The purchase and sale of shares were also found recorded in the books of account. The department has no case that the survey was a staged enactment. A survey is always unexpected. So, it is not possible to presume that the assessee had collected certain fabricated documents and kept at his business premises so as to hoo....