TaxTMI 
TaxTMI 
2013 (8) TMI 739
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....alleged commission paid at 5% for arranging long term capital gain. 2. Briefly stated, assessee is an individual and proprietor of M/s. Urmi Plastics which is engaged in the business of manufacturing of PVC, pouches and tubing. Apart from business income, assessee also showed capital gain income both under the head long term and short term. The AO on the reason that assessee's share transactions are to be considered as trading transactions assessed both short term capital gain and long term capital gain offered by the assessee as business income. Out of the long term capital gain offered, the AO also noticed that the assessee earned the gain of Rs.23,58,900/- on sale of 10000 shares of Inter-link Finance Ltd. and on enquiry came to the conclusion that this transaction was bogus and gains declared are nothing but assessee's undisclosed income projected in the guise of long term capital gain so as to avoid tax. Therefore, to the above extent, the same was treated as 'income from other sources'. The AO also added 5% of the above amount as commission paid outside the books of account for arranging long term capital gain. 3. The ld. CIT(A) after considering the assessee's submissi....
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..... iii) Except in the case of Amtek auto, the assessee has not traded in any scrip more than one. iv) The assessee is engaged in the activity of selling shares held as investments over past 5-6 years. v) (a) The said gains have been taxed as capital gains in the past-refer assessment order of assessment year 2003-04.As such AO has no jurisdiction to treat the gains differently especially under the same facts and circumstances. (b) Reliance in this regard is placed on the decision of Gopal Purohit vs. Jt.CIT wherein the Bombay High Court on exactly identical facts, has held that the gains ought to be treated as capital gains and not business income. vi) The gains earned are on delivery based transactions and as such ought to be assessed as capital gains. Reliance in this regard is placed on the decision of Sarnath Infrastructure Pvt. Ltd. vs. Asst. CIT (120 TTJ 216)(Luck.). vii) If the intention of the assessee was to trade in shares, the assessee would not have valued the shares at cost as against the general practice of valuation at cost or market price, whichever is lower. If the intention was only to make a profit. the assessee would not have bought some of scri....
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....s traded in futures and options cannot lead to the conclusion that the assessee is a trader in shares as well. 6. Purchases out of borrowed funds. i) The assessee submits that the same is factually incorrect inasmuch the assessee has repaid her borrowings over the years and in the year under appeal as well. ii) The assessee has not taken any fresh loan during the year nor in preceding years. (iii) (a) During the year the assessee has received a rent deposit of Rs.32,00,000 which is not a loan. (b) The assessee has utilized the said deposit to buy shares of Private limited companies and as such the Assessing Officer has wrongly come to the conclusion that borrowed funds have been used for share trading. 7. Investment in sister concerns. (i) The assessee is unable to gather as to what the Assessing Officer is trying to conclude from the same. Merely because the assessee has purchased shares in associate concerns during the year, will not affect the intention of assessee, whether investment or trading. 5. We have considered the issues as raised by the AO and detailed submissions as stated above. There is no dispute with reference to the fact that assessee's mai....
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.... However, the long term capital gains shown in respect to the shares of Amtek Auto Ltd. due to the fact that the appellant has also shown short term capital gains on sale of said script which is transacted more than four times during the relevant assessment year, therefore, to my considered opinion the gain shown thereon can not be assessed as her long term capital gain. From the details of transactions of the said script of the appellant, I find that the purchases made of 1000 scripts on 24.12.2004 are shown sold on 20.09.2005 and 29.09.2005; whereas 600 shares of the same company purchased on 28.11/12.2004 are shown to have been sold on 03.01.2006. In between, it is further noticed that the appellant has shown purchase of 2000 shares of the same company on 11.07.2005 and further 2400 shares on 31.08.2005, which are stated to be sold on 03.01.2006 and on 01.03.2006. therefore, the claim of the appellant that these 600 shares purchased on 28.12.2004 were not sold on 20.09.2005 and on 29.09.2005 but only as on 30.01.2006 is not only unconvincing but also unsubstantiated. Moreover, as the shares are dematerialized, therefore, from the relevant demat account of the appellant it cannot....
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....tek Auto 03.01.2006 2500 8500 Out of 600 shares purchased on 28.12.2004, hence gain on 600 shares is long-term. 12 Amtek Auto Out of 2000 shares purchased on 11.07.2005, hence gain on 1900 (2500-600) shares is short-term. 13 Amtek Auto 01.03.2006 2500 6000 Out of 2000 shares purchased on 11.07.2005, hence gain on balance 100 shares is short-term. 14 Amtek Auto Out of 2400 shares purchased on 31.08.2005, hence gain on balance 2400 shares is short-term. 15 Amtek Auto 03.03.2006 500 6500 6500 16 Amtek Auto 07.03.2006 2500 9000 9000 As evident from the above, the appellant follows FIFO method of accounting for shares purchased and sold during the year and as such since the CIT(A) has allowed relief for treatment of long term capital gains on sale of scrips other than Amtek Auto, the same treatment ought to have been allowed for gain on 600 shares of Amtek Auto sold on 03.01.2006 as well. 6.2 Considering the above details....
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....s also confirmed by enhancing the amount to an extent of Rs.1,36,000/- by stating as under :- "3.3.5. Regarding the addition of Rs.23,58,900/- on account of long term capital gain on sale of shares of Interlink Finance and Investment Ltd considered as undisclosed income of the appellant assessed under the head income from other sources, the basic facts brought on record by the AO are not disputed by the AR except submitting that the evidences gathered by the AO as a result of enquiries carried out were not confronted to the appellant before completing the assessment. Therefore, according to the AR the AO has violated the principles of natural justice. In view of the specific grievance of the AR, the AO was asked to submit the case records along with the details of statements and other evidences gathered by him during the assessment proceedings. The relevant assessment records submitted by the AO on 16.12.2010 inter-alia containing a copy of the statement of Shri Narendra R. Shah dated 14.09.2007 recorded by ACIT Central Circle-11, Mumbai was shown to the AR and a copy of the statement recorded was provided to her for her reply, thereby, remedying the grievance of the AR as discu....
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....we submit that the transactions for sale and purchase of shares re duly supported by bills/contract notes which clearly mention broker's (THVSL) SEBI registration number, service tax no, order no of the trade, trade time, quantity purchased/sold etc. Further, the payments/receipts are made /received through account payee cheques/drafts in the subsequent year. The appellant has also submitted (i) certificate of holding of shares by THVSL on behalf of the appellant and (ii) transaction cum holding statement which duly reflect the receipt and delivery of shares (iii) relevant extract of demat account reflecting the delivery of shares. Based on the totality as stated above, we submit that the impugned addition made by the AO is merely on the basis of suspicion, conjectures and surmises and is not sustainable in law." 3.3.6. The AR could not rebut the findings of the AO by furnishing any contrary evidences. From the statement of Shri Narendra R. Shah recorded by the ACIT Central Circle-. 11, Mumbai as discussed in the assessment order it is evident that he is the promoter of the broker M/s.T.H. Vakil Shares & Securities Pvt. Ltd who has issued the alleged sale bills/contract notes....
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....nt as on 31.03.2005, the purchase thereof is not proved and the source thereof is not explained, therefore, I find that the appellant must have purchased these shares in cash out of her undisclosed sources of income on or before 31.03.2005 i.e. before these shares were transferred or credited to the demat account of the appellant. The AR has failed to furnish the authorization slips based on which these shares were credited to the demat account of the appellant. Therefore, the source from which account these shares were transferred and also the source of acquisition of these shares are unexplained. The AR has no explanation of whatsoever nature on this account. Accordingly, in view of these facts available on record I find that the investment made by the appellant for the purchase of these shares are made out of her unaccounted income earned out of her undisclosed sources to the extent of Rs.22,48,000/- i.e. based on the average purchase price of these shares as on 31.03.2005 quoted in the Bombay Stock Exchange. As per the BSE trade data provided by the AR, the price quoted on 31.03 .2005 of the said script is found high of Rs.228.50 and low of Rs. 221.10 per share. Therefore, the ....
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.... which fact was also accepted by the ld. CIT(A). If the shares are purchased as alleged by the CIT(A) then, the addition of the amount cannot be made in this assessment year as the said purchases are made in assessment year 2005-06. It was submitted that assessee purchased the shares on 02.04.2004 and sold them on 18.04.2005 and correctly offered the long term capital gain. The ld. DR however relied on the orders above. 7.3 We have considered the issue. It is a fact that the assessee got the shares transferred to demat account as on 31.03.2005 and sold as on 18.04.2005. Therefore, assessing the purchases cost either at Rs.1,36,000/- or at Rs.22,48,00/- as decided by the ld. CIT(A) does not arise in this year, as the transaction occurred before 31.03.05 i.e in assessment year 2005-06. Therefore, order of CIT(A) on this issue sustaining addition of so called purchase cost, cannot be upheld. Since there is no verifiable evidence to establish whether the assessee purchased shares on 02.04.04 as claimed, it can at best be stated that assessee purchased the shares and transferred them into demat account as on 31.03.05. Partially modifying the order of AO and CIT(A), we are of the opin....