TaxTMI 
TaxTMI 
TaxTMI 
2010 (1) TMI 805
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....ts and in the circumstances of the case, the ld. CIT(A) has erred on facts and in law in restricting disallowance of Rs.90,295/-i.e. 1/5th of telephone expenses claimed at Rs.4,51,473/- to 1/8th of such expenses and allowing relief of Rs.33,861/- even when the ld. CIT(A) has himself accepted the element of personal use of telephone for non business purposes." 2. Brief facts are assessee is in the business of manufacturing of sheet metal components. In the year in question, assessee claimed long term capital gains of Rs.80,31,540/- on sale of 50,000 shares of M/s Quality Synthetic Industries Ltd. (for short 'QSIL') for Rs.81,72,340/-. AO was curious that the shares originally purchased in Financial Year 2003-04 for Rs.1,40,800/- were sold in the month of March, 2005 for a price of Rs.81,72,340/-. In order to ascertain the correct transaction AO issued commission u/s 131(1)(d) to concerned ADIT, Kolkata, who reported as under: "Subject: Enquiry in the case of Sh. Pawan Kumar Malhotra for the AY 2005-06 issuance of commission u/s 131(1)(d) of the I.T. Act. Please refer to the above. I had received your communication vide which you have requested to make enquiry....
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....td. has made no compliance. Bank statement of these four concerns was obtained through 131. Bank statements show cash deposits/transfer in all thee four concerns. No further enquiry regarding source of the cash deposit/transfers could be made due to non-existence/non-compliance. Purchase of shares (sale of Mr. Malhotra) at the exorbitant price of Rs.144/- to Rs.177/- per share by non-existent concerns suggest that this transaction is nothing else but a sham transaction. I am enclosing entire documents, in original gathered at this end for you necessary action at your end. Reply from Calcutta Stock Exchange and banks regarding copy of account opening from and statement have not been received till date as they have asked for some more time. The same will be sent to you as and when they are received at this end. This goes with prior discussion with my Addl. DIT. Thanking you, Yours faithfully Sd/- (Raman Kumar Verma) ITO/INV/UNIT-1(I)/Kolkata" On receiving this report AO forwarded copy of letter to assessee to comment on the same explanation thereon. Assessee replied that these transactions were effect thr....
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....colorable device used by the assessee to garb his income from undisclose sources. Hon'ble Supreme Court decision in the case of McDowell and Co. vs CTO (1985) 154 ITR 148 is squarely applicable in the case. Accordingly, an addition of Rs.81,72,340/- is made to the returned income u/s 68 of the I.T. act as assessee's income earned from undisclosed sources as against claimed by the assessee as exempt long term capital gain. Therefore, I have reason to infer that the assessee has deliberately-concealed the particulars of income and as such furnished inaccurate particulars of income for which penalty proceedings u/s 271(1)(c) of the Act are being initiated separately. 3(1)(e) It is an open secret that while entering into such sham transactions and amount of 5% is normally spent by the persons who paid for such transactions to bring it to the level of colour device. Since as held above in para 3(i)(d) that the assessee has used colorable device for laundering his money amounting to Rs.81,72,340/-. I further make an addition of Rs.4,08,615/- (5% of Rs.81,72,340/-) u/s 69C on account of unexplained expenditure incurred by the assessee for making sham transactions. Therefore, I hav....
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....f letter from Calcutta Stock Exchange regarding highest and lowest rates during the period 1.4.2004 to 31.3.2005 and photocopies of cheque received along with bank statements where these cheques were credited enclosed. It is not understandable how the shares under demat a/c be transferred to the non-existent concern even the ITO, Investigation is saying that the bank account of the concern to whom the shares were sold by the broker were obtained u/s 131 of the Income-tax Act, 1961. Further more, the assessee had drawn -these amounts in cash of Rs.84,600/- on 12.11.2003 and Rs.56,200/- on 14.11.2003-for purchase of shares from Raja Ram and Dal Bahadur and the same has been shown in his drawing account. The total amount drawn is Rs.8,04,299/- which has been reflected in the balance sheet for the year 31.3.2004. The assessee is -filing his income tax return for more than 15 years regularly and there is no question of withholding any" information. Thus, all the observations of the AO in this regard are based on estimates, surmises and conjectures etc. The addition of Rs.4,08,615/- is purely based in estimates, surmises, conjunctions and with no facts and the AO has assu....
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.... Similarly, the AO's admission in para 3(1)(e) that it is an open secret that while entering into such sham transactions, an amount of 5% is normally spent by the persons who paid for such transactions to bring it to the level of colourable device, shows that he has proceeded on mere suspicion or conjecture without bringing any material or evidence against the appellant on record for his such opinion. Therefore, his attempt to effect the addition of Rs.4,08,615/- (5% of Rs.81,72,340/-) u/s 69C without any documentary evidence for its justification and especially when the addition of Rs.81,72,340/- as sham transaction has been deleted as above, is without merits and hence the addition of Rs.4,08,615/- stands deleted also." Reasons for deleting addition on account of vehicle running and telephone expenses are given as under: "I have considered the issue and I find that the expenses incurred at Rs.41,478/- and interest on car loan at Rs.72,120/- and also depreciation on car at Rs.4,71,220/- do not in any case warrant any disallowance as such, because these expenses have to be incurred in any case, irrespective of the fact whether they are used for business or non busin....
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....icion and in the realm of preponderance of probabilities as expounded by Hon'ble Supreme Court in the case of Sumiti Dayal, 214 ITR 801. AO, thereafter, conducted the enquiries and found from return for Asstt. Year 2004-05 that no such purchases were appearing in the assessment record filed with the Department. Assessee then furnished a computerized capital account purporting to be for Financial Year 2003-04 in which contained some cash entries about purchase of shares from the above two persons i.e. Dal Bahadur and Raja Ram. AO, thereafter, issued a commission u/s 131(1)(d) to ITO concerned in Kolkata, who also investigated the matter at his end and sent registered notices u/s 131 to following four concerns, who are alleged purchasers from assessee: (i) Matangi Commadities P. Ltd.; (ii) Titanic Network Marketing P. Ltd. (iii) Spandan Vinimay P. Ltd. (iv.) Soumaya Commodities P. Ltd. None of the concerns responded to the notices inasmuch as three notices came back with remarks "Not found/not known" and in the case of M/s Titanic network Marketing P. Ltd. though notice did not come-back, no compliance was made. AO inferred that these entities ....
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.... was a listed company at Kolkata Exchange, the broker through whom the sale transactions were carried out confirmed the same and produced the proof of payment of STT tax. In share trading, assessee does not know the identity and whereabouts of the purchaser; he is interested in realization of proceeds. In this case, the share trading transaction having taken through Shri Jhunjhunwala, a Calcutta Stock Broker, who confirmed the sale and gave the name of the parties, The payment being through cheques, assessee does not have to give further explanation. Assessee though did not file his capital account in return for Asstt. Year 2004-05, there is no such statutory requirement and in any case, the capital and cash withdrawal for purchase of QSIL share has been reconciled by filing the necessary capital account. The purchase of shares was in physical form, which was dematised by assessee and sale is through demat account. CIT(A) rightly held that the shares have been rightly sold and AO made the additions on the basis of surmises and conjectures. 6. Apropos other disallowances, it was contended that AO disallowed the expenses on estimate basis which was rightly reduced by CIT(A) b....
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....hat the winning tickets were purchased by the appellant after the event. We are, therefore, unable to agree with the view of the Chairman in his dissenting opinion. In our opinion, the majority opinion after considering surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winning from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably and that the finding that the said amounts are income of the appellant from other sources is not based on evidence. In view of these observations, it is necessary to go into surrounding circumstances, human probabilities and decide the issue on the basis of totality of facts, circumstances and record. Assessee filed his return of income for Asstt. year 2004-05 in which no details about cash purchases of shares were furnished by the assessee. The purchase of shares is from iwo ordinary persons, one of which did not appear and One Shri Raja Ram though appeared but could not give satisfactory reply. In both these cases, they also did not file any particulars ....