TaxTMI 
TaxTMI 
2014 (5) TMI 432
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssing Officer in making an addition of a sum of Rs. 2,23,345 being 5% of the short term capital gain of Rs. 44,66,911 as unexplained expenditure under section 69C." 2. Facts in brief:- The assessee is an individual who had shown short term capital gain on sale of shares, besides "income from house property", "income from other sources", and "income from agriculture". During the course of the scrutiny proceedings, the Assessing Officer required the assessee to furnish the evidence in support of transactions relating to short term capital gain and a detail questionnaire was issued on 1st December 2008, the contents of which have been reproduced at Page-2 of the assessment order. Further, the another questionnaire was issued vide show cause notice dated 12th December 2008, which too have been incorporated in the assessment order at Page-3 and 4. In the show cause notices, the Assessing Officer required the assessee to submit the details of sales contract note for the entire transaction, copy of demat account, copy of capital account, balance sheet for the assessment year 2006-07, copy of account with share broker, nature and sources of the credit appearing in the bank acc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch was passed in the case of Karuna Cable vide final order dated 25th July 2006, which was procured by the Assessing Officer through website. The content of the entire SEBI order has been reproduced from Pages-10 to 19 of the assessment order. The main observation given in the order of the SEBI is that Karuna Cable is a company listed in the BSE and NSE. The value of the shares increased from Rs. 22.40 per share on 10th February 2005 to Rs. 159.50 per share on 16th September 2005, leading to rise of 636% in 153 trading days. Besides this, the order also prohibited many of its client including Mr. Vijay Bhagwandas Shah, not to deal in such securities till further directions and pending investigation. The said order also mentions about the persons who have applied for public issue share of Karuna Cables and most of them appeard to be "benami". From the order of the SEBI, the Assessing Officer concluded that the trade in Karuna Cables has been treated as fraudulent and not genuine by the SEBI and Vijay Bhagwandas & Co. has been restrained by the SEBI to trade and deal in this share. 3. Based on these observations and findings of the SEBI, vide final order dated 25th July ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ime in the mentioned period. Apparently the price of the scrip which does not have any intrinsic worth has been jacked up by the operators. The back dated contract at a minimal price has been entered to account for the purchases. The transactions are not genuine and the Assessing Officer has rightly added the undisclosed income of Rs. 44,66,911 as income from unexplained sources. The addition is upheld." 5. One very significant fact which can be noted from the aforesaid findings of the learned Commissioner (Appeals) is that, on the one hand, he is holding that there is no evidence of any purchase consideration paid on purchase of these shares and on the other hand, he has confirmed the addition on account of net income from sale of shares as undisclosed income i.e., sales (-) purchases. 6. Before us, the learned counsel, Mr. Neelkanth Khandelwal, submitted that, first of all, the shares of Karuna Cable Ltd. were listed in BSE / NSE and were also found to be traded during the period of its listing in the stock exchange when the assessee has purchased and sold the shares. Further, in support of purchase and sale of such shares, the assessee has submitted contract notes; the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lation of which has been filed before us. 7. On the other hand, the learned Departmental Representative, Mr. R.K. Sahu, submitted that, first of all, in this case, the entire transaction, prima-facie, appears to be "make belief arrangement" and against the human probabilities because even though the purchases were made in the month of April 2005, however, the same were debited in the demat account only on 31st August 2005 and within the span of few days, these shares have been sold at a staggering figure of 52,77,500, as against the purchase of Rs. 8,10,589. The Assessing Officer has conclusively brought on record that the Karuna Cable was a bogus entity which has inflated its share value without any basis. All these are done only for giving accommodation entries to the various persons. He referred to the observations and the findings of the SEBI, which has been incorporated in the assessment order and submitted that the SEBI has come to a definite conclusion that not only this company was fraud but also they have inflated the value of shares in the stock market without any substance and material of the company. He also filed a copy of the SEBI orders in the case of M/s. Vij....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the assessee has sold these shares between 8th September 2005 to 14th September 2005 for sums aggregating to Rs. 55,72,500. The sale of shares is also reflected in demat account on these dates. One very important issue which has not been rebutted before us is that these shares have been purchased and sold through online on the floor of the Stock Exchange. Another very important fact which is to be noted that insofar as the purchase of 40,000 shares of Karuna Cables for sums aggregating to Rs. 8,10,589 is concerned, the same has not been disputed at all because, neither the Assessing Officer nor the learned Commissioner (Appeals) has added this sum as the addition which has been made is by treating the net short term capital gain as "income from other sources", i.e., the net amount of sale of shares for sums aggregating to Rs. 44,66,911 which is sales (-) purchases. Once the purchase of shares has not been disputed then, either the shares are with the assessee or the same must have been sold in the market. There cannot be a situation where purchases are to be accepted and at the same time the sale of the same shares is to be treated as bogus or fictitious. 9. An....