TaxTMI 
TaxTMI 
2013 (11) TMI 968
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....were traded through three Calcutta Share Brokers viz., N.M. Lodha & Co., Basanth Periwal & Co., and Rajendra Prasad Shah. The scrips in which they traded are 1. Navketan Merchants Ltd., 2. Sangotri Constructions Ltd., 3. PSL Finance Ltd. 4. Shree Tulsi Online. Com Ltd. 5. Offshore Finvest Ltd. And 6. Scintilla Commercial & Credit Ltd. The entire sale proceeds realized on sale of shares was treated as Long Term Capital Gain. Since the sale transactions took place through authorized stock exchange and securities transaction tax was paid, the assessee claimed the entire sale proceeds arising out of the transaction as long term capital gain exempt from tax u/s. 10(38) of the IT act. The AO did not believe the transaction as genuine on the basis of certain observations and treated the entire sale proceeds as 'Income from Other Sources' and Added it to the total income. 3. The basis of disbelieving the transactions of purchase and sale as non-genuine, as it appears from the assessment order are as follows: i) The AO observed that the purchase and the sale in the shares of above listed companies are bogus. ii) The AO conducted enquiry through Calcutta Stock Ex....
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....dings. In the asst. order, the AO has listed various transaction details carried out by the broker, in CSE and observed that the assessee's transaction of purchase of shares are not found in such list. It is submitted, further, that the details of some of such list and the copies of evidence thereof has not been furnished to the assessee. Hence, the assessee is unable to make any submission thereon. Further, the said is a list of online transaction whereas the purchase made by the purchaser is a physical transaction or off market purchase'. Though no adverse condition against the assessee can be drawn, when all other contemparaneous evidence is available and filed by the assessee. 4.2. The assessee has also submitted that the broker through whom the shares purchases were carried out was neither suspended nor debarred as on the date of the above said purchase. In fact, the online trading transaction details furnished by the CSE and relied upon by the AO itself shows that Sri. N.M. Lohia, the broker had carried out transaction in July and August, 2003. 4.3. The assessee has informed and has also furnished evidence that the said shares have been physically presented to M....
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....10) 41 DTR(Nagpur)105). It was submitted that in the said case, on exactly similar facts the ITAT upheld the genuineness of the transaction of purchase and sale of shares and the claim of capital gains by the assessee, after an elaborate discussion. 6. The AO has not properly appreciated the modus operandi followed in course of share transaction in case of off market transaction. As regards purchases, it is submitted that these shares were purchased off market and delivery was affected by hand physically. Thereafter, the appellant followed, due procedure step by step till the shares were demated. After purchase of shares physically, these shares were lodged with the respective Companies for making necessary changes in the names of the purchasers. After the company affected necessary changes in the purchaser's name, the shares were delivered back to the appellants and then sent to Depository Participant (DP) for demat with a request form. The DP, then verified the purchases with the company whose shares were purchased. It was only after such verifications were completed with respective companies and the DP was satisfied about the accuracy with regard to the holder that the DP....
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....nsactions were not genuine. It is submitted that suspicion, however, strong cannot take the place of proof as held by the Apex Court in many cases. b) The A.O. has not brought out any clear cut material to show that the assessee was involved in price manipulation except relying on presumption. c) Further in respect of all these transactions security transaction tax (STT) was paid wherever applicable after 01.10.2004. This is in the nature of contemporary evidence. d) Nothing cogent and concrete have been mentioned in the assessment order to indicate as to how the appellant was in league with the brokers in the transaction of specific scrips. Even in course of recording the statements of these brokers, no question was put to elicit any answer. e) Even otherwise the findings of authorities, under any other statute, have got no bearing to the Income tax proceedings. Income Tax officer has to conduct his own enquiries while completing the assessment and reach his own finding. This is what law enjoins upon him as a quasi judicial authority under a statute. 9. Further, the learned A.R. submitted before the CIT(A) that action initiated/taken by any a....
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....spicion to show that the department has found anything further. 11. It is settled law that in the matter of an assessment, presumption however strong cannot take the place of proof. In the case of the assessee's, the assessing officer has not brought out any cogent and concrete evidence against the assessee's to come to a conclusion that the transactions in shares are bogus. His entire evidence is based on surmises and suspicion. Such an assessment cannot be sustained in the eye of law. In this regard the assessee's placed reliance on the following judgments of the Apex Court. It is a settled principle that mere conjecture, surmise or assumption of facts as distinct from inference from proved circumstances do not amount to evidence within the meaning of Section 143(3) for the purposes of being utilized in the assessment. This is a case in which there is no evidence against the assessee's except some vague, confusing enquiries the Assessing officer has sought to draw conclusion against the assessee's. It was held by Apex Court that "the Income tax officer is not entitled to make a pure guess and make an assessment without reference to any evidence and material....
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.... proceeds as unexplained income. Hence there is no basis of the Addition. The Assessing officer has not spelt out the section under which the Additions were made. 11.4. The assessees have relied on the following decisions * Korlay Trading Co Ltd CIT 1998,232 ITR 820 Cal * CIT V Diwan Investment and TrADing Company Ltd 238 ITR 486 (Cal.) * Mukesh Marolia v ADdl. ClT ITA No.1201/Mum/2005 * ITO V Smt Neelanm Chawala 2008,22 (ii) ITCL 482 Delhi Tribunal * Shripal Singh v ITO (2008)9 DTR (Agra),564 * ACIT V Kamal Kumar Kumar S Agrawal (lnd) and Others (2010) 41 DTR (Nag) 105 12. The CIT(A), on careful consideration of various contentions of the assessees before him, on an overall appreciation of facts and circumstances of these cases, the CIT(A) was of the considered view that when there is no dispute with regard to off market transactions, in view of the observations of the Tribunal in various decisions, reliance placed by the AO on the replies received from CSE are of no probative value to draw an adverse conclusion against the assessees. The CIT(A) concluded that in all these cases involving similar facts, in the absence of any positive evidence, and merely on....
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....de of conduct for brokers as specified in Schedule-II under Regulation 7 of SEBI Regulations, 1992. The adjudication officer of SEBI in his order dated 21/2/2010 as severely indicted Sri Nethmal Lohia for various fraudulent and unfair trade practices indulged by him and levied a penalty of Rs. 1,00,000/- for fraudulently dealing in the share of M/s.PSL Financial Services Ltd. Similarly, he was penalized for Rs. 2,00,000/- for unfair trade practices like indulging in fraudulent and unfair trade practices by the adjudicating Officer of SEBI in its order dated 22-02-2010 in the case of M/s. Sangotri Constructions Ltd. (in short "SCL"). Similarly, M/s. N.M. Lohia, stock broker was penalized on 4 other occasions as per the list enclosed by jacking up the prices of scrips traded by him including PSL Financial Services Ltd., Sangotri Constructions Ltd., Richfield Financial Services Ltd., Stenly Credit Capital Ltd., Excellon Agencies Ltd. The adjudication order of the SEBI are enclosed for kind perusal of the Hon'ble Tribunal. (d) In this connection, it is humbly submitted that the share transactions of M/s. N.M. Lohia and Co-represented by its proprietor Sri Nethmal Lohia has....
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....00 shares of M/s. Navketan Merchants Ltd from M/s. N.M. Lohia & Co. During the financial year 2003-04. 1. 10,000 Shares on 04/08/2003 - Rs. 27,200/- ( Page No. 21 of paper book) 2. 7,000 Shares on 05/08/2003 - Rs. 21,140/- ( Page No.22 of paper book) (j) The contention of the assessee before the Assessing Officer and CIT(A) (at page 8, para 3) was that the said shares were purchased on off market basis. However, as per the paper books submitted before the Hon'ble ITAT, it is found that the assessee has submitted contract notes issued by M/s.NM Lohia &, Co, which bears Trade No. and Trade Time of Calcutta Stock Exchange (page No. 21 and 22 of assessee's paper book). (k) When the share is transacted through off market, there cannot be any Trade No. of the Calcutta Stock Exchange since the purchase is not routed through the stock exchange. Thus, it is proved that the assessee's contention of off market purchase is against the evidence available on record. Further, the said transactions in the F.Y.2003-04 do not appear in the transaction list quoted in the assessment order (Page No.l5 of the paper book). This shows that the assessee has s....
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....he Tribunal at Page No.231 to 288 of the paper book as annexure-V. (b) This shows that all the scrips purported to have been traded by the above 3 brokers are fictitious and not real. The adjudication orders, of SEBI support the same. (c) Therefore, the learned D.R. pleaded before the Tribunal that the adjudication orders of the SEBI, which have come into existence after the passing of the assessment Order by the Assessing Officer may please be admitted and taken on record since they relate to commission of offence and fraud committed by the 3 brokers during the relevant period of time when the alleged purchase and sale of share took place. The other orders were referred to by the Assessing Officer in the assessment order referring to the website of ww.sebi.gov.in which was containing such adjudicating orders. 16. The learned counsel for the assessees, on the other hand, strongly opposing the above cotenntiosn of teh Learned Departmental Representative, supported the orders of the CIT(A), and submitted that the assessing officer, without bringing any positive evidence on record, could not have concluded that the transactions in question are not genuine. He subm....
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....h the transactions have taken place through the floor of the stock exchange and Securities Transactions Tax have been paid. In view of these evidences which have not been rebutted by the A.O. it is difficult to hold that the sale transactions are non-genuine and the proceeds thereof are liable to be taxed under the head other sources. 18. As regards the observations of the assessing officer with regard to certain enquiries made by the SEBI which revealed that some of the brokers named above have been suspended for some act of commission or omission, and his consequent conclusion that the transactions entered through these brokers are not genuine, learned counsel submitted that the transactions of the assessees in dispute cannot be treated as sham merely for some discrepancies or adverse report by the SEBI. Learned counsel further submitted that the AO has not brought out any material to establish the final outcome of the enquiry initiated by SEBI and specific shares purchased by the assessees in the course of course of making investment. Therefore, it is not possible to take any adverse view on the basis of mere suspicion that SEBI had initiated some action and found the brokers....
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.... had discharged the onus on them to prove the genuineness of the transactions, and the assessing officer has not brought anything on record to disprove the contentions of the assessee with regard to the genuineness of the transactions, and in the circumstances, the CIT(A), according to the learned counsel for the assessee was justified in deleting the additions made by the assessing officer, by holding the share transactions of the assessees as not genuine. 21. The learned counsel for the assessees submitted that mere suspicion and surmise cannot take the place of truth. It was pointed out that in the whole case the AO has raised suspicions without any concrete proof. For this purpose the learned counsel relied on the decision of Dhakeswari Cotton Mills(26 ITR 775). Based on the principles enunciated by the Apex Court in the case of Dhakeswari Cotton Mills Ltd. vs. CIT (supra) and Umacharan Shah & Bros vs. CIT West Bengal (37 ITR 271), it is submitted that a suspicion however strong may not take the place of proof. The conclusions which are based on surmises and conjectures cannot take the place of proof therefore the assessment made by the AO which is predominately influenced b....
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....icer as to the non-genuine nature of the transactions, concluded that the conclusions of the assessing officer are based on mere suspicion, surmises and conjectures and consequently, his orders cannot be sustained. We are in agreement with the detailed reasons discussed by the CIT(A) in the impugned order in support of his conclusions. The prescribed procedure, having been followed by the assessees from the stage of purchase till the shares are D-MATTED there is hardly any room to doubt or suspect that the transactions in purchase are not genuine. In order to hold so, as observed by the CIT(A), the A.O. is required to bring in cogent evidence to prove that the purchases were not genuine. No such cogent evidence has been brought on record, but merely proceeded to arrive at his conclusions basing on mere surmise and suspicion that the purchase transactions are bogus. Even though enquiry with CSE revealed that no purchase has taken place through CSE, since the transactions were in physical form and done through off market, the question of the same being routed through the floor of a recognized stock exchange does not arise. Further, on an overall appreciation of facts and when there i....
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....lish the final outcome of the enquiry initiated by SEBI and specific shares purchased by the assessee in course of making investment. Therefore, it is not possible to take any adverse view on the basis of mere suspicion that SEBI had initiated some action and found the brokers violating the rules of SEBI. The CIT(A) is further correct in holding that notwithstanding the observations of the AO that the purchases and sales of shares were made with reference to penny stocks which were purchased at a nominal price and sold at a very high price, since all the sale transactions were made through stock exchanges there is hardly any scopes for price manipulation. It is all the more so, since the assessee has paid STT. Even with regard to the observation of the assessing officer that the assessee before purchasing the shares the assessees did not take into account the financial standing of the companies, the CIT(A) was correct is observing that the share market is generally sentiment driven and the assessees cannot remain static. Even the absence of experience of the assessees in transaction of the shares except dealing in these penny stocks, does not clinch the issue against the assessee. ....
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.... the Tax Appeal No.4 of 2011 with analogous case Assessing Officer himself, it is clear that after getting that enquiry report, the SEBI prima facie found involvement of some of the share brokers in unfair trade practices. Even in a case where the share broker was found involved in unfair trade practice and was involved in lowering and rising of the share price, and any person, who himself is not involved in that type of transaction, if purchased the share from that broker innocently and bonafidely and if he show his bonafide in transaction by showing relevant material, facts and circumstances and documents, then merely on the basis of the reason that share broker was involved in dealing in the share of a particular company in collusion with others or in the manner of unfair trade practices against the norms of S.E.B.I and Stock Exchange, then merely because of that fact a person who bonafidely entered into share transaction of that company through such broker then only by mere assumption such transactions cannot be held to be a shame transaction. Fact of tinted broker may be relevant for suspicion but it alone necessarily does lead to conclusion of all transaction of that broker a....
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....ed supra. In view of the same, we do not see any reason to interfere with the order of the CIT(A) and the Revenue's appeal is dismissed". 26. Similarly, the Coordinate Bench of the Ahmedabad Tribunal in the case of Meena Devi N. Gupta (supra) held as under : "5. We have heard both the sides at some length. We have carefully perused the orders of the authorities below in the light of the compilation filed and case laws cited. According to us, there are certain cogent evidences which otherwise corroborate the claim of the assessee. According to us, even in the absence of the confirmation by those share brokers one has to examine that whether the shares have been purchased and after retaining them for a certain period those shares have actually been sold by the assessee. In the present case, facts have revealed that the shares of Sarang Chemicals were duly demated and thereupon the sales were made through banking transactions. The Demat account maintained with ICICI bank has revealed the shares numbers, etc. From the side of the assessee, it is vehemently contested that there was a reason of denial of transaction by those share-brokers because they have not intimated t....