TaxTMI 
TaxTMI 
2015 (3) TMI 921
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....ct notes, and broker's bills etc., found and seized in the course of search action and proved to be bogus by the statement of the brokers who issued these broker notes do not amount to be incriminating material. 2. Whether on the facts and circumstances of the case the CIT (A)-I, Nagpur was justified in holding that the SEBI's action against the broker and certain companies cannot be given any weightage as this does not relate to the case of the assessee even though same brokers have admitted before the different Income tax authorities that they have issued bogus broker notes to assessee. 3. Whether on the facts and circumstances of the case the CIT (A)-I, Nagpur was justified in holding that the broker note issued by the brokers and the companies which are tainted as reliable evidence for holding the transaction as genuine while at the same time not accepting the statements given by the brokers as correct. 4. Whether on the facts and circumstances of the CIT(A)-I, Nagpur was justified in holding that the application .of sec.69A of the I.T. Act was not warranted even though it was proved that the assessee was in possession of money claimed to have....
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.... Do Do Do 4. The assessees were regularly filing returns of income under the jurisdiction of ACIT, Circle-1, Aurangabad. Consequent to search, case was centralised with ACIT, Central Circle-1, Aurangabad. Assessment particulars of the assessee Shri Surendra Peety are mentioned below: Asst Year Returned income (original) Income returned u/s.153A Income assessed u/s.153A/143(3) 2000-01 793,527 851,027 851,027 2001-02 17,51,567 17,77,367 17,77,367 2002-03 10,31,820 LTCG - 15,07,332 10,62,520 LTCG - 15,07,332 36,25,725 2003-04 125,854 LTCG - 4234,900 125,854 LTCG - 4234,900 46,58,190 2004-05 481,877 LTCG - 3490,640 496,524 LTCG - 3490,640 40,76,330 2005-06-- 27,891 STCG -5116,735 LTCG - 1927,680 Exempt LTCG - 107,77,291 27,891 STCG - 5116,735 LTCG- 1927,680 Exempt LTCG - 107,77,291 196,24,860 2006-07 338,251 STCG - 11,78,132 Exempt LTCG - 139,20,086 538,251 STCG - 11,78,132 Exempt LTCG 139,20,086 164,00,910 5. The income shown in regular returns were accepted u/s.143(1) for various assessment years as indicated above. Income returned by the assessee in regula....
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....he first appellate authority wherein stand of the assessees has been evident from statement of facts, grounds of appeal, submissions on various dates, reply to the Remand Reports of Assessing Officer, note on adventure in the nature of trade, rebutting Assessing Officer's contention in assessment order dated 07.05.2008, reply to the report of Assessing Officer dated 09.06.2008, reply to the remand report of the Assessing Officer received on 10.06.2008. 7. The first appellate authority has addressed and adjudicated the major issues being subject matter of adjudication as under: 1. Whether on the sole basis of admission made in the statement recorded u/s.132(4) by Shri Surendra Shantilal Peety in course of search offering the income shown under the head LTCG for taxation, the Assessing Officer can fasten a liability against the assessee? In other words whether an admission de-hors corroborative evidence could form the basis of assessment in a search case. 2. Whether the statements of brokers recorded prior to search, and in some cases after search which forms the sheet anchor of evidence against the assessee, and who could not be produced for cross-examinatio....
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.... (vii) Mahesh B Saha Vs. ACIT 238 ITR 130 Ker. In view of above, the Assessing Officer observed that there was no valid reason for retraction. 8.1. On the issue of admission u/s.132(4), the assessee submitted his detailed reply vide his submission dated 04.03.2008, 07.05.2008 and 04.06.2008. In submission dated 04.03.2008, the assessee submitted that the Assessing Officer has laid down undue emphasis on admission made by Shri Surendra Shantilal Peety during course of search action u/s.132(4) of the Act pertaining to the matter of genuineness of the share transactions. He failed to appreciate the circumstances in which statement was obtained as has been explained by the assessee in course of assessment proceedings vide letter dated 24.08.2007. The assessee raised following objections in this regard: i) In course of search, the assessee was shown some statements of brokers (without providing copies thereof) and it was impressed upon that the brokers have denied the transactions. The assessees never had any occasion to know under what circumstances the brokers have given the statements and in what manner. ii) Assessee was in a state of shock and confusion ....
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....ch third party statements were just shown on the date of search without making available copy of the same coupled with the mental condition of various members of assessee's family in the course of prolonged search beyond normal hours would indicate that the admission so made were not voluntary and have no evidentiary value. viii) Even the Government had reason to believe that there is widespread practice of obtaining confession. In the Budget speech for 2003-04, the Finance Minister informed the Parliament that no confessional statement shall be obtained during search and seizure operation. In pursuance to same Board's letter was issued numbered as from F.No 286/2/2003/IT(Inv) dt. 11.03.2003. It shows that not an iota of evidence was found in course of search from the office and residential premises of Peety group to indicate that the transactions in shares are not genuine. There was no evidence showing flow of cash from the assessee to the brokers for indulging in such activities. There was evidence available in the premises of the assessee in the form of records of the department by way of returns and other supporting evidence to suggest that the transac....
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....rally utilized against the assessee without the witness being put to cross examination. In this regard, the assessee placed reliance on the decision in the case of Jaikishan R Agarwal Vs. ACIT (2000) 66 TTJ 704, wherein it was held that in a case where no document was seized in course of a search showing payment of extra consideration for purchase of a property, no additions can be made on the basis of statement recorded from third parties. It was held that any statement recorded at the back of the assessee has no evidentiary value and in the absence of any evidence found in the course of search indicating payment of extra consideration over and above what is mentioned in the document, the addition cannot be sustained. The facts of the case of the assessee are akin to the facts of the decided case cited supra and therefore the principle evolved in the said case is equally applicable to the case of the assessee where the department has relied on the statement of third parties which were recorded behind the back of the assessee and who were not made available for cross-examination despite specific request and despite the fact that the assessee was available for such examination at a ....
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....cting the correct statement of affair of assessee as explained in course of hearing and in this explanation. This is not permissible. Further pitted against documentary evidence, the oral evidence looses its significance for all purposes which is a sound rule of evidence. ii)The return of income filed by the appellant in response to notice under section 153A without altering the position vis-a- vis the original return has been loosely termed as a retraction by the Assessing Officer. This is not so. Any return of income should faithfully reflect the actual transaction based on evidence. This is what the assessee has done on careful appreciation of facts of the case. Law cannot compel a person to be assessed on income which he has not earned merely on the basis of a statement ignoring the actual state of affairs. iii) It is submitted that in course of search, the assessee was shown certain statements of brokers recorded at the back of the appellant. There was hardly any time to refer to original documents and therefore under the circumstances which generally follows a search, there was a statement of a general nature made by the appellant. The sheet anchor of depart....
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....letter indicate that the assessee confirmed the disclosure in the said letter. In this regard, the categorical observations of the Assessing Officer in the assessment order are misleading. 8.4. The assessee also filed legal explanation wherein distinguishing the judgments cited by the Assessing Officer in his order. The stand of the assessee has been that there was no allegation of coercion. On the other hand, it was argued that in course of recording the statement the assessee was not in a position to refer to the documents, returns of income and was unduly influenced by the statements of certain brokers shown to him (without providing copies of the same) which were recorded prior to search behind the back of the assessee. It was explained in course of appeal proceedings that coupled with all these extraneous factors and under stress which prevailed during the search operation in the premises of the assessee for long hours and out of confusion, the assessee made statement admitting the transactions as not genuine for buying peace and put an end to protracted search proceedings. This statement was contrary to factual evidence obtaining from the records of the assessee. 8.5. T....
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....ithout corroborative evidence. The first appellate authority observed that all the above elements are absent in assessee's case for following reasons: i) Documentary evidence was found in course of search by way of contract notes, bills of brokers, etc., showing that various members of assessee's family were investing in shares. ii) The transactions in shares were well documented by way of various communication of brokers, passing of transactions through Demat accounts, payments through banking channels, etc., as explained in detail above. iii) All the supporting documents were produced before the Assessing Officer in course of assessment proceedings. iv) The Assessing Officer solely relied on the unsubstantiated statements of some brokers in framing the assessment and at the same time failed to produce the brokers for cross examination. Therefore, the Assessing Officer failed to discharge the burden which lay on him. v) The assessments are for most part based on surmises, suspicion and presumption. In this background, the first appellate authority held that the admissions made by the assessee in course of searc....
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....ourse of assessment proceedings, the Assessing Officer should have applied his mind to the issues pending before him in the correct perspective and done the assessment as required under law instead of basing the assessment on surmises and conjectures. C. The Assessing Officer has relied on decision in the case of V.Kunhambu & Sons Vs. CIT (1996) 219 ITR 235 Ker. In this case the assessee declared undisclosed income on account of suppression of stock to the tune of Rs. 3,00,000/- in the statement recorded u/s.132(4) of the Act. Subsequently, it raised the plea of coercion and intimidation and retracted from the admission. The assessment was completed adding the above amount as the assessee failed to substantiate his allegations. Same was upheld in appeal before the ITAT for similar reasons. Before the High Court similar plea was raised in addition to plea of competence of the Authorised Officer to record the statement. The Hon'ble concerned High Court did not upheld the arguments of the assessee for similar reasons as held by the ITAT. The first appellate authority in present case found the facts of the case are distinguishable so as not applicable to facts of ....
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....ied out by the first appellate authority in the subsequent part of the order. 9. Second issue addressed by first appellate authority is with regard to Long Term Capital Gains and genuineness thereof. 9.1. The assessees of this group have declared LTCG in their respective returns filed in regular course and also in the returns filed in response to notice u/s.153A of the Act. As stated above, the income arising from the LTCG was claimed as exempt u/s.10(38) of the Act wherever the same was in conformity with the said provisions by assessee. The details of the capital gains shown in the returns are given below: Name of the Assessee Assessment Year Long Term Capital Gains Short Term Capital Gains Shantilal Peety 2002-2003 2,022,084 2003-2004 3,414,411 2004-2005 1,516,204 2005-2006 9,779,172 2,556,494 2006-2007 7,927,974 ------------- ------------- 24,659,845 2,556,494 Surendra Peety 2002-2003 1,507,332 2003-2004 4,234,900 2004-2005 3,490,640 ....
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....ety 212,198 ----------- 397,148 2001-2002 Corporation Bank Shantilal Peety 169,989 2001-2002 Hindustan Zinc Shantilal Peety 60,275 2001-2002 Hi Tech Drill Shantilal Peety 118,845 Surendra Peety 117,531 ----------- Total 236,376 2001-2002 Karur Vysya Shantilal Peety 245,647 Surendra Peety 245,345 ----------- Total 490,992 2001-2002 National Alu Shantilal Peety 190,054 Surendra Peety 186,391 ----------- Total 376,444 2001-2002 Saw Pipes Shantilal Peety 120,349 Surendra Peety 96,688 ----------- Total 217,036 2001-2002 Tata Power Shantilal Peety 119,463 Surendra Peety 120,316 ----------- Total 239,779 2001-2002 V....
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....eetyHUF 170,558 Jitendra PeetyHUF 169,680 Varsha Peety 216,717 Namrata Peety 215,447 Rachna Peety 212,412 ----------- Total 1,949,166 2005-2006 Prannet Industries Shantilal Peety 146,280 Surendra Peety 304,509 Ravindra Peety 307,510 Jitendra Peety 304,960 Ravindra PeetyHUF 137,524 Varsha Peety 306,610 Namrata Peety 297,259 Rachna Peety 149,845 ----------- Total 1,954,497 9.2. The shares purchased were claimed to be received in physical form in all the scrips except for few transactions of scrip, i.e., Fast Track Ent, received in electronic mode. All scrips purchased in AY 2001-2002 and scrips purchased in 2002-03 except for Database Finance were sold in physical form. For the other scrips the physical shares purchased were got demated and sales were effected....
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....nd the back of the assessee which were not provided to the assessee till concluding stage of the proceedings, although for all Intents and purposes the Assessing Officer sought to utilize the same in the assessment. The assessee was quite apprehensive about the legality of the action on department's silence on the vital issue involving share transaction. This prompted the assessee to ask for the copies of the statements vide letter dated 19.12.2007 after paying the necessary copying charges. These statements were made available to the assessee on 25.12.2007. The opportunity for cross-examination was afforded to the assessee on 26-12-2007. The assessee was directed to be present at the office of Director of Investigation situated at Scindia House at Ballard Estate, Mumbai for cross- examination of Department's witnesses. The assessee along with his authorized representatives was present in Mumbai. However, the department failed to produce their witnesses for cross examination. Another opportunity was given on 31-12- 2007 at the same premises but again there was failure on the part of the department to produce the witnesses. As the cross- examination could not be done because....
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....r while framing the order selectively relied on some uncorroborated statements of some of the brokers which were obtained behind the back of the assessee. He failed to evaluate the transaction in shares in its entirety. The Assessing Officer relied only on ,some unsubstantiated allegations of some of the brokers. Some of the statements favourable to the assessee were ignored by him in toto. 9.6. The appellant further stated before the first appellate authority that it may be seen that all the statements referred to by the Assessing Officer in the assessment order are selective and therefore self-serving, to say the least, and, therefore, not admissible as evidence, inter alia, for the following reasons: i) All the deponents have affirmed that they were involved in share broking business. ii) All of them have admitted that they had transactions with the members of the Peety family. iii) They have not disputed the payment of purchase and sale consideration either through running settlement or by cheques/demand drafts. iv) At the same time, some of them namely Pratik Shah of DPS Shares and Securities have stated that they used to issue bogus purc....
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.... stock exchange. b) All the purchases are supported by contract notes giving full details as to the name of the scrip, quantity, price at which purchased, total purchase consideration, brokerage, bills of brokers, etc. All the contract notes were found at the time of action u/s 132 and some of the contract notes were also seized by the raiding party. c) The transactions are duly recorded in the books of the share brokers. Confirmations of the share brokers were also found at the time of action. d) Actual delivery of shares were taken physically. e) Shares so purchased are duly transferred in the name of the appellant in the records of respective companies. Company's intimation of transfer of shares is on record. f) The Company has also duly transferred the shares in the name of the appellant from the previous owner and such transferred shares were received by the appellant. g) Such shares duly transferred in the name of the appellant were dematerialised before the sale of the same. Here it should be noted that the date of dematerialisation cannot be considered as the date of acquisition of the said shares. There is no disput....
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....me could not have been possible without a purchase. 9.11. In the light of the above the appellant submitted that in view of the voluminous documentary evidence and material on record and there being no material in the possession of the Assessing Officer to rebut the said evidence, the transactions of purchase and sale of shares were conclusively proved by the appellant. The same should not have been washed away by the revenue by indulging in assumptions and arbitrary conclusions, and by selectively referring to some stray pieces of so-called evidence. Drawing inferences which on the face of it is not tenable. The Assessing Officer failed to provide adequate opportunity to the appellant for cross-examination of brokers whose statements were recorded behind the back of the appellant and were used to the detriment of the appellant. The Assessing Officer did not refer to the various replies filed by the assessees to Assessing Officer's queries. All these have rendered the assessment order to be bad in law and absolutely unjustified. 9.12. The assessees also filed para-wise comments on order of the Assessing Officer. The assessee submitted that there is no evidence on record w....
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....s should normally be read harmoniously in the context of the purpose for which a search is authorized. The Assessing Officer is expected to frame the assessment under the new provisions basing the material found in course of search. vii) It was submitted that the requirements of section 147 for assessing the escaped/undisclosed income is equally applicable to a proceeding under section 153A, although for limited purpose, some of the procedural requirements of section 147 (issue of notice without recording reasons, sanction for issue of notice) have been dispensed with because of the non obstante clause in section 153A. This does not mean that all the settled principles with regard to reassessment of income have been given a go-bye under the new procedure. Where no incriminating material is found in course of search, the same cannot even justify assumption of normal jurisdiction under section 147. Therefore, the provisions of section 153A may be read down to justify an assessment where incriminating material is found to justify liability. As otherwise, the new process of assessment would militate against certain basic principles of law enunciated by the legislature particularly t....
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.... by delivery of shares and period of holding should be reckoned from the date of contract note to work out long term capital gain or short term capital gain as applicable. This accords with the Board's Instruction on the subject (cited supra). iv) That the appellants had correctly declared the capital gain in the returns filed in regular course which were accepted by the department over a period of years. Therefore, the same should have been accepted as no incriminating material was found to prove to the contrary either during the course of search, post search investigation or during the course of assessment proceedings. The very fact that there was no whisper in the assessment order framed after search about the genuineness of the transaction in shares goes to prove that the AO has accepted the same after due verification and application of his mind as to the genuineness of the transactions. The present attempt to find fault with the same on some flimsy and technical grounds unsupported by any sustainable evidence shows change of mind on the part of the AO, which is not permissible under law for taking any adverse view on the same issues. The present submissions are g....
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....pplication of the issue of human probability as enunciated by Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT 214 ITR 801 (1995) and Mcdowell and Co. Ltd. Vs. CTO 154 ITR 148 (SC) is not applicable in the present case even though it is proved that this is a fit case for application of principles enunciated by the supreme court in above two cases. The Ld. Departmental Representative also relied on the decision of ITAT Pune Bench in the case of Surekha Bhagvatiprasad Mundada Vs ITO and Ors., in ITA.No.1332/PN/2009 dated 16.02.2010, and in this background Ld. Departmental Representative also placed reliance on the decisions relied on by the Assessing Officer and submitted that the CIT(A) was not justified in holding that income as Long Term Capital Gains cannot be held as business income as adventure in the nature of trade. Accordingly, he vehemently submitted that the order of the Assessing Officer be restored and that of the CIT(A) be set aside. 13. On the other hand, Ld. Authorised Representative heavily relied on the order of the CIT(A). The assessee has also filed detailed paper book having compilations of facts as well as case laws. He submitted that main issue ....
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....l pronouncements, should be upheld. i) CIT Vs. Smt.Jamnadevi Agrawal (2010) 328 ITR 656 (Bom.) ii) CIT Vs. Arun Kumar Agarwal & Ors., 2012-TIOL-603-HC-JHARKHAND-IT iii) ITO Vs. Ajay Shantilal Lalwani (2012) 145 TTJ 511 iv) Shri Jafferali K Rattonsey Vs. DCIT 2012-TIOL-236-ITAT-MUM v) ITO Vs. Mrs.Rasila N Gada & Ors. (ITAT, Mumbai.) vi) ACIT Vs. Kamal Kumar S.Agrawal & Ors., 133 TTJ 818 (ITAT, Nagpur). vii) Tushar Tanna Vs. CIT (2006) 284 ITR 453 (Bom) viii) Smt.Sushiladevi S. Agarwal [1994] 50 ITD 524 (Ahmedabad) ix) Maheshwari Industries 81 TTJ 914 (ITAT, Jodhpur, SMC Bench) x) CIT Vs. Shri Ramdas Motor Transport [1999] 238 ITR 177 (AP) xi) Deepchand & Co. Vs. ACIT [1995] 51 TTJ 421 (ITAT, Mumbai) xii) Pullangode Rubber Produce Co. Ltd. Vs. State of Kerala 91 ITR 18 (SC) xiii) CIT Vs. Kishanlal Shivchand Rai 88 ITR 293 (P&H) xiv) R.P.Monga Vs. DCIT (2004) 269 ITR(AT) 1 (Delhi) xv) DCIT Vs. Premsons 130 TTJ 159 xvi) CIT Vs. Omprakash Jain 24 DTR 157 (Bom.) xvii) Mukesh R. Marolia Vs. Addl. CIT, Range-15(2) (2006) 6 SOT 247 (Mum) xviii) P.S.Abdul Majeed (1994) 209 ITR 821 (Ker) xix) CIT Vs. Shri Sandeep Shorewala(HUF) in ITA N....
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....are listed on recognised stock exchanges. e) All purchases are supported by contract notes giving full details as to the name of the scrip, quantity, price at which purchased, total purchase consideration, brokerage, bills of brokers etc. All the contract notes were found at the time of the action u/s.132 and some of the contract notes were also seized by the raiding party. f) The transactions are duly recorded in the books of the share brokers. Confirmations of the share brokers were also found at the time of search action. g) Actual delivery of the shares were claimed to be taken physically. h) Shares so purchased are duly transferred in the name of the respondent in the records of respective companies. Company's intimation of transfer of shares has been placed on the record. i) Such transferred shares were received by the respondent and were demated before the sale of the same. j) The payment consideration for the purchase of the shares was either through regular banking channels or through running account maintained with the concerned broker. Copies of contract notes, purchase bills, broker ledger account, client ledger in the books of broker, day trading ....
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....anks and the assessee had recorded the sale proceeds of the shares in its books of accounts and had very well explained its nature and source of acquisition. The Long term capital gains on the sale of shares was claimed as exempt u/s. 10(38) of the Act in the returns for A.Ys. 2005-06 and 2006-07 as per the amendment brought about by the Finance Act, 2004 w.e.f. 1.10.2004 and paid the tax on STCG earned in these two years. Further, assessee paid tax as per applicable rate on LTCG earned from A.Y. 2002-03 to 2004-05. 14.4. A search action u/s. 132 was carried out in the residential and business premises of the Peety Group on 17.03.2006. Assessee claimed that during the course of search, no incriminating evidences was found to draw any adverse conclusion in respect of the transactions in shares and the computation of income in respect thereof. Notices u/s. 153A were issued for all the years under consideration to all the assessees of the group and the returns of income were filed on 29.08.2006 for each year. The table below indicates the details of the amount of income returned u/s.139, income shown in the return filed in compliance to the notice u/s.153A and the income assessed u....
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.... all the facts were placed before the department during the course of regular assessments which stood completed on the date of initiation of action u/s. 132. 14.7. The details of Long Term Capital Gain, Short Term Capital Gain and Share Dealing Profits earned by the assessee for the various assessment years, are as under: A.Y Sale Amount (added by the A.O.) Purchase Amount LTCG STCG Share Dealing profit 2002-03 25,63,206 10,55,874 15,07,332 15,13,568 2003-04 45,32,143 2,97,244 42,34,899 4,51,762 2004-05 35,78,717 88,079 34,90,638 8,61,384 2005-06 1,29,94,997 66,57,755 290,027 15,41,021 1,27,04,970 51,16,734 2006-07 1,42,51,320 17,61,336 3,31,234 5,83,204 1,39,20,086 11,78,132 14.8. Assessment made u/s. 153A in the present case show that the computation of income filed by the assessee in the original return as well as in the returns filed u/s. 153A showing the inclusion of the day trading profit in the total taxable income for the relevant year which has been accepted by the Assessing Officer. This establishes the source of in....
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....is attached as Pages 4-11 of the Paper Book-II. 14.11. The assessment was completed on 31.12.2007 after treating the share transactions disclosed in the regular return of income as bogus and as undisclosed income of the respondent u/s 69A of the Act. While completing the assessment, the Assessing Officer has totally ignored the documentary evidences placed on record and those produced by assessee without assigning any reason for same. While arriving at the above conclusion, the Assessing Officer mainly relied on the following evidences: a) The statement recorded u/s. 132(4) of Sri Surendra Peety on the date of the search offering the income shown in the regular return under the head LTCG as undisclosed income in various hands which was subsequently retracted at the time of filing the return. b) The statements recorded by the Department from certain brokers namely Vishal Bhagwandas of Vijay Bhagwandas & Co., Pratik Shah of DPS Shares and Securities after the date of search in which they had alleged that the transactions of purchases and sales of shares by various members of the Peety family do not represent the correct position. c) The alternative cours....
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....which are not recorded in the books of account of a person. Therefore, a search puts in motion the process of assessment of the undisclosed income of a tax payer which is not disclosed to the department. This is the reason why separate and special provisions have been made to complete search related assessments. An assessment u/s. 153A is not meant to unsettle the income shown in the regular return in the absence of evidence found as a result of search. It is not meant to make a roving and fishing enquiry. This notice is meant to assess the undisclosed income, if any, discovered in course of search based on the materials found. 14.13.2. When nothing incriminating is found in the course of search relating to any assessment years, the assessments for such years should not be disturbed as such. Items of regular assessment should not be added back in the proceedings u/s. 153A when no incriminating documents were found in respect of the disallowed amounts in the search proceedings. Assessments or reassessments made pursuant to notice u/s. l53A are not de novo assessments and therefore no new claim of deduction or allowance can be made by assessee where admittedly the regular as....
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....roborating by any evidence or material found during the course of search cannot be the sole basis for making the addition in question. 14.13.6. It has been held in the following cases that a statement made on the date of the search under difficult circumstances, does not have much evidentiary value and mere confessional statement without there being any documentary proof shall not be used as evidence against the person who made the statement: a) ITAT Ahmedabad Bench in the case of Smt.Sushiladevi S. Agarwal [1994] 50 ITD 524 (Ahmedabad) - it was held that all that is stated by any deponent on the search day should not be taken as truth, the whole truth and nothing but truth. Such statements undoubtedly have evidentiary value and credibility in law, but the same should be viewed with great caution, particularly when, the same is denied, varied or retracted or established by the defendant to have been obtained or given under mental stress, coercion, undue influence, or due to any other abnormal condition and circumstances when such statement was given. b) Hon'ble ITAT Jodpur SMC Bench, in Maheshwari Industries 81 TTJ 914 (ITAT, Jodhpur, SMC Bench), held....
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.... Co. Ltd. Vs. State of Kerala 91 ITR 18 (SC) held that an admission made by a person is relevant but not conclusive. It is always open to a person, who admitted a fact, to explain or clarify that what was stated was untrue. f) Even the Government had reason to believe that there is wide spread practice of obtaining confession from the search party in the course of search. In the Budget speech for 2003-04, the Finance Minister informed the Parliament that no confessional statement shall be obtained during search and seizure operation. (P 29 of 260 ITR AT 29). In this regard, the attention was drawn to Departmental Instruction issued by the CBDT to its officers in manner of acting on basis of so called confessionary statements of assessees made during the course of the search. The Board's letter issued from F.No.286/2/2003/IT(Inv) dated l1.03.2003 is extracted below: "Instances have come to the notice of the Board where the assesses have claimed that they have been forced to confess the undisclosed income during course of search and seizure and survey. Such confession, if not based on credible evidence, are altered/retracted by the concerned assesses while filin....
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....ssing Officer by holding that the voluntary admission of the bogus Long Term Capital Gain by the assessee u/s. 132(4) of the Act, could not fasten any liability on the assessee as there was no incriminating material found during the course of search. During the course of search action, statement of Shri Surendra S. Peety was recorded u/s. 132(4) of the Act on 24.03.2006. He was confronted with the statement of certain brokers namely, Dhawal R. Shah. Director of Trimiti Investment and Financial Services Ltd., Pune, Milan R. Parikh, MD of Action Financial Services Pvt. Ltd. and Shri Vijay Bhagwandas of Vijay Bhagwandas & Co. In this regard it is pertinent to appreciate that while recording statement assessee did not have benefit of referring to the evidences available in their offices which were in the nature of documentary evidence like the contract notes, bills of the brokers for the purchase and sale of the alleged shares, bank statements etc., nor was he provided with the copies of the above statements. 15.1. The Assessing Officer laid undue emphasis on the admission made by Sri Surendra S. Peety during the course of the action u/s.132(4) pertaining to the genuineness of the s....
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....rse of prolonged search beyond normal hours would suggest that the admission so made was not voluntary and has no evidentiary value. 15.2. It is well settled principle that an admission is not irrefutable evidence as to the truth of the matters stated therein. It is only a piece of evidence, the relevancy of which is required to be judged based on the material evidence and circumstances in which it is made. Although an admission may be a good evidence, but at the same time, it is not at all a conclusive evidence and the person making the admission can always retract the same if he can establish that the admission was made in abnormal circumstances or that the contents of the admission are not borne out by facts and materials available. In the instant case, it is evident from the facts as discussed above that the so-called disclosure of Shri Surendra Peety was extracted under exceptional circumstances based on helpless situation in which he was put at the time of making the disclosure and furthermore, it has not even been substantiated by linking it up with any proper materials found during the search. This unsubstantiated disclosure should not be acted upon for making addition i....
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....n the present case also the alleged statement was retracted by Shri Surendra S Peety. As regards retraction, the principle is that it should be retracted before the concerned authority decides the matter. In other words, the respondent should not place the authorities in such a position so as to thwart the process of investigation. in the case of the assessee, the retraction was well evident from the returns filed in response to notice u/s. 153A and respondent's letters addressed to the department. This gave the authorities sufficient time to collect corroborative evidence which they have failed to do as explained above. 15.4. The retraction can be made before filing the return is accepted in principle in the case of R.P.Monga Vs DCIT (2004) 269 ITR(AT) 1 (Delhi). According to us the first appellate authority in its order dated 18.06.2008 has rightly accepted the retraction of the assessee and has stated as follows on page 15 in para 5.3 as under: "I have carefully studied and analyzed factual position as stated above which cannot be disputed and is a matter of record; I have also examined various case laws, relied on by the AO, on the issue of admission / retractio....
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....idence available on record. A person may make any statement but there should be evidence available to establish the same. Assessee is in no way concerned with what a person has stated as long as his books and records are in order and since the person making the statement did not come forward to confront him, he is not in a position to decide in what context the statements have been made. 16.3. The Assessing Officer has acted solely on the statement of a third party without conducting any valid inquiry of its own to counter the statements made. The Assessing Officer has not brought on record any evidence to falsify the claim of the assessee or that the share transactions were bogus. The Assessing Officer has acted wholly on the alleged statement of a third person behind the back of the assessee without bringing on record any evidence in support of such suspicion and without affording any opportunity to cross-examine him. Such statement cannot be held as reliable evidence for making additions/disallowances. Hon'ble Bombay High Court in case of CIT Vs. Omprakash Jain reported in 24 DTR 157 observed that the test of evidentiary value of the oral evidence has to be borne in mind ....
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....itement on events should not lead the Assessing Officer to a state of affairs where salient evidences are overlooked. In case the testimony of a witness, the assessee is required to be afforded an opportunity to cross examine him failing which the testimony cannot be utilized against the assessee. If this procedure is not followed, then there would be a case of denial of natural justice to the assessee as held by Hon'ble Delhi High Court in CIT Vs. SMC Share Brokers Ltd. (2007) 288 ITR 345 (Del.). Similar view has been taken in Bangodaya Cotton Mills Ltd. Vs. CIT (2009) 21 DTR 200 (Cal.) and Eastern Commercial Enterprise (1994) 210 ITR 103 (Cal). 16.4. We find that Hon'ble Kerala High Court in case of P.S.Abdul Majeed (1994) 209 ITR 821 (Ker) observed as under: "He had also prayed for an opportunity to cross-examine the auctioneers. When such a request was made it was incumbent on the officer to afford opportunity to the assessee to cross examine the authors of those books. The petitioner had been denied the reasonable opportunity which was due in law, in relation to the assessment, and that was sufficient to vitiate the order. The order of reassessment was not ....
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.... dated 05.09.2007, details of purchase and sale of shares held on long term basis were submitted. Same is attached at pages 32, 61, 173, 203, 256, 277, 263, 292, 333, 390, 461 & 509 of the Paper Book-I which is evident from the fact that majority of the purchases of the members of the Peety family were from Trimiti Investments and Financial Services. Purchase of scrips of Prannet Industries and part purchases of Fast Track Entertainment are from DPS Shares and Securities. 16.7. The Assessing Officer failed to evaluate the transaction in shares in its entirety and the evidences available in respect thereof and has relied primarily on some unsubstantiated allegations of some brokers while most of the statements favourable to the assessee were ignored by the Assessing Officer which is not justified. All the deponents have affirmed that they were involved in share broking business and that they either did not maintain any books of accounts or their books of accounts and relevant records were lost or misplaced or did not record in their books of account any record of the accommodation bills for the purchase of the shares of a particular company issued by them to parties seeking such ....
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....7 is reproduced below: Q. No.5: Please mention whether you have traded the shares of Fast Track Entertainment, High land Industries, data base Fin and G Tech Info Trading in last 6 years. A. I have purchased shares from different brokers of Mumbai for my clients and sold to them. Q.10. Have you traded the shares mentioned in Q.No.5 with Peety family of Jalna in last 6 years. A. Yes I had sold shares in physical format to them. The payment was received from them through cheques as well as speculative profit earned by them. Q.No.11: During the enquiry of the broker like Vijay Bhagwandas, DPS, T.H.Vakil etc., they stated before officials of IT Dept. that the transaction in these share actually did not happen. They had issued bogus purchase bills to the needy people without any real transaction & these bills were back dated you have stated that you have purchased these shares from the above mentioned brokers. Considering this why it shall not be assumed that you had also issued bogus purchase bill to Peety family of Jalna for these shares. A. I had purchased the share from broker at Mumbai & sold to Peety family. Q.12. Do y....
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....any's dealing with them, it is the matter between SEBI and the broker and the assessee company is not concerned in any way unless action is based on transactions including assessee's transactions. There is nothing on record to suggest that transactions with assessee are also basis for SEBI's action against alleged brokers. The Hon'ble Kolkata High Court in the case of CIT Vs. Korlay Trading Co. Ltd. (1998) 232 ITR 820 (Kol) held that once the assessee has furnished the name of the company, number of shares purchased, date of sale, amount of purchase money, amount of sale money, etc., the assessee had discharged its initial burden and if the broker did not maintain any accounts, the transaction could not be doubted for no fault of the assessee. 16.10.1. The Kolkata Bench of the ITAT in the case of Anup Kumar Jayaswal in ITA Nos.1678/Kol/2004 & 1679/Kol/2004 for A.Y. 2001-02, has decided the case wherein the assessee had acquired shares of M/s. Coronet Industries Ltd., through a broker M/s. Jajodia & Co. Subsequently the said shares were sold and exemption u/s. 54F was sought from long term capital gain earned on the transaction. The purchase and sale of shares wer....
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....n the bank account, entries in the books of accounts of the assessee, prevalent market quotations of the CSE, contract notes and delivery bills issued by the Kolkata brokers and their statements in response to the inquiries made by the AO. Last but not the least the assessee has shown net profit of Rs. 16.16 crores. As against theses the case of Revenue is that certain material information was not given in the contract note and columns in that respect were left blank. Copy of Form B was in filed in CSE. For these reasons it is not verifiable as to whether the trades in question were done through the trading system of the exchange or not. The answer of the assessee to these deficiencies and irregularities is that he could not be held responsible for the same. It was not the assessee but the three Kolkata brokers who were members of the CSE .... The AO does not have support from the Special auditors, CSE or any other quarter to that effect whereas the assessee has relied upon cogent evidence and material. We hold that the AO has acted upon grossly inadequate materials and his conclusions are in the realm of suspicion, conjectures and surmises ..." 17. In view of the above legal de....
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....ned in respect thereof. The sale proceeds of shares have been recorded in the books of accounts maintained by the assessee and capital gain arising on the same has been shown for all the years in their respective Income Tax Returns on which appropriate taxes were also paid. The charging section 69A provides for addition of unrecorded income and wealth when either no explanation is given by the assessee or the explanation given is not up to the satisfaction of the Assessing Officer. In the present case, the assessee has explained its nature and source of acquisition and has sold the shares through known registered brokers, received money from them through appropriate banking channels and received confirmations from them as well. Thus, the addition made by treating the sale proceeds of shares as unexplained income u/s.69A of the Act is not justified. Agreeing with the contention of the assessee, the CIT(A) vide its appellate order dated 18.06.2008, has rightly stated in para 18.1 and 18.2 as under (page 74 & 75 of the order): "18.1. Thus there is an inherent contradiction in the impugned assessments as far as the applicability of Section 69A is concerned. A plain and simple ....
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.... returns filed u/s.l53A reveals that the day trading profit has been included in the total taxable income for the assessment years under consideration. This day trading profit has been accepted by the Assessing Officer year after year and no reservation has ever been made by the Assessing Officer regarding this profit. This day trading profit clearly establishes the source of purchases of investments of each of the relevant year as claimed by the assessee. In discussions on the issue of capital gain the Assessing Officer has expressed his reservation about the same and has doubted these very transactions which are financed through day trading profit only. In this manner the Assessing Officer takes stand which is contrary to the material on record. All the documents supporting the purchase and sales of shares as claimed by the assessee in its return of income whether pertaining to capital gains or to income from other sources, share dealing profit, were submitted before the Department which should have been read and accepted as a whole. The assessee has filed voluminous evidences before the Assessing Officer such as Broker Contract Notes, letters received from the companies intimati....
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....alleging the same to be incorrect and that a satisfactory/convincing corroboration of the said statement, by a reliable evidence, is essentially needed to justifiably base the addition thereon. This testimony of a witness cannot be relied upon independent of any another corroborative evidence, which is not justified. Unless statements are countered or they have been put to cross examination and their statements have been substantiated with documentary evidence, it would be unreasonable to place reliance on such statements. The Assessing Officer has placed undue reliance on the statements of the brokers which were recorded behind the back of the assessee without allowing them to cross examine them. 18.4. In view of the above, the CIT(A) has rightly concluded that the Assessing Officer has arbitrarily adopted a pick and choose policy in respect of both the statements recorded of the brokers as well as in treating the share trading profit as genuine while not accepting the capital gains earned by the assessee in respect of the investment made in shares. 18.5. The Assessing Officer has added the entire sale proceeds of shares as undisclosed income of the assessee. When the Long T....
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....quiring the goods which were sold had been made by the assessee and that that investment was also not disclosed, only the excess over the cost incurred could be treated as profit. In view of the above discussion and the case laws relied upon, it can be inferred that the approach adopted by the Assessing Officer in adding the entire sale proceeds of shares as undisclosed income of the assessee is not justified. 19. An alternative attempt has been made by the Assessing Officer to tax the profit arising out of sale of shares as an adventure in the nature of trade which is based on wrong assumption of facts and contrary to the principles laid down on the issue. Initially the department was fully satisfied with the treatment of these alleged transactions as capital gain in the original assessments prior to search. Further, search per se in the premises of the assessee group did not reveal anything to justify viewing of these transactions with suspicion. The Assessing Officer's entire endeavour was directed towards the issue of capital gain although he subjected the same to tax u/s.69A by treating the share transactions as bogus relying on the statements made by the brokers whi....
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....idered as business activities. Therefore the four elements which must be present in order to classify an activity as a business activity are (a) it must be continuous (b) It must be carried out in an organized manner (c) with a set purpose and (d) to earn profits. 19.2. The Hon'ble Bombay High Court in the case of Tushar Tanna Vs. CIT (2006) 284 ITR 453 (Bom) has laid down certain principles to find out whether or not the transaction in question is an adventure in the nature of trade. These principles are as follows: (i) no principle can be laid down in deciding whether a person is indulging in business in the nature of trade, (ii) whether the transaction is an isolated one or forms part of a series of transactions showing the transaction to be in the nature of adventure in trade, (iii) the fact that the property was sold within a short time by itself does not indicate that the transaction was in the nature of trade, (iv) whether property was purchased with the intention of investment and not an adventure in the nature of trade, and (v) it is not a case merely on the facts and circumstances of t....
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....tual aspects of the same, is based on incomplete and incorrect appreciation of facts and documentary evidence and fails miserably. AO's attempts to examine the matter afresh at appellate stage from an entirely new angle is beyond permissible limits under the Act. The AO making original addition u/s 69A made a technical and legal mistake. His alternative proposition for taxing the same as business income. This shows that the AO is not confident of either of his moves making them self-effacing and mutually destructive. I may also add, though at the cost of repetition, that initially the Department was fully satisfied with the assessees' treatment of these transactions as capital gain as it had accepted its very claim with regard to same in the original assessments prior to search in appellant-group. The original assessments were framed u/s 143(1) of the Act. Even if no scrutiny was made in these cases there was no bar on the Department to scrutinise the same if it was not found in order. This shows that the very claim of the entire group with regard to huge LTCG had the approval of the IT Department and it was never frowned upon. Moreover, search per se in appellant-....
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.... company had confirmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares to the respective buyers was also established by producing documentary evidence. It was true that some of the transactions were off- market transactions. However, the purchase and sale price of the shares declared by the assessees were in conformity with the market rates prevailing on the respective dates as was seen from the documents furnished by the assessees. Therefore, the fact that some of the transactions were off-market transactions could not be aground to treat the transactions as sham transactions. On a perusal of the documentary evidence, the Tribunal had arrived at a finding of fact that the transactions were genuine. The Tribunal had further recorded a finding of fact that the cash credits in the bank accounts of some of the buyers of shares could not be linked to the assessees. There was no substantial question of law." 19.5.1. We find the Hon'ble Jharkhand High Court in the case of CIT Vs. Arun Kumar Agarwal & Ors., reported in 2012-TIOL-603- HC-JHARKHAND-IT, has held as under: "10. We have considered the submissions of the learned couns....
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....he was not having D-mat account and on opening of D- mat account, the shares were transferred to the same. Before the AO copies of the share certificates held by assessee in physical form were provided which contained complete relevant details such as address of registered office of the company, signatures of the authorized signatory along with two directors' signatures, value of shares with paid-up amount of shares purchased in each company, date of issue of certificate, certificate number, registered folio, number of shares with their distinctive numbers, date of transfer of shares in the name of assessee and also copies of contract notes along with bills issued by share broker. The assessee also furnished returns of income along with balance sheet for the asst. yrs. 2004-05 and 2005-06 during which period, assessee claimed to have purchased those shares in question, copy of contract notes issued by the broker and confirmations given by S.Ltd. and by broker. Merely because there was substantial delay in transferring the shares into D-mat account from the date of purchase and the transactions not routed through Calcutta stock exchange, the AO was not justified in doubting the ....
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....proceedings and the assessee has proved the genuineness of the sale of shares, therefore, no addition can be made u/s 68 of the Act. The Revenue is not in appeal before us against the said observation of the ld. CIT(A). However, the ld. CIT(A) upheld the alternate proposition of the A.O. that the purchase price on the date of dematerialisation of shares become unexplained investment in the hands of the assessee and the difference between in sale and purchase of shares has to be treated as short term capital gain since the assessee could not substantiate the purchases. Therefore, the question that has to be answered in the grounds raised by the assessee is as to whether the purchase of shares by the assessee are genuine or not and whether the holding period is more than 12 months or not. 9.2 We find the assessee before the A.O. has filed the copies of contract notes and purchase bills of all the shares purchased from MSPL (copies of which are placed at paper book page 18 to 43). Similarly the bank statement maintained with HDFC bank shows evidence of payment to MSPL. The Xerox copy of the account payee cheque issued to MSPL dtd. 1.12.05 for Rs. 12,40.565/- is placed at pape....
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....months. 9.4 However, we find during the course of cross examination by the assessee before the A.O. on 29.12.2008 Mr. Mukesh Choksi confirmed to have received the cheques from the assessee. The relevant question No. 2 and answer thereof is as under:- Q.2. Question put up by Shri Digant Bhatt -- We have issued a Cheque from Jafferalli K. Rattonsey, Hamida Rattonsey for Rs. 12,40,565/- and Rs. 11,91,378/- respectively, which you have received, kindly confirm. Ans. I confirm the above cheques have been received by me. Similarly, reply given by Shri Mukesh Choksi to Question No. 3 to 5 are as under:- Q.3 Question put up by Shri Digant Bhatt - We have received the shares in Demat Account of Shri Jafferalli K. Rattonsey and Hamida Rattonsey from Sunchan Securities Ltd. on your behalf, kindly confirm. Ans. I have not given any instructions. Q.4 Question put up by Dr. Mahesh Akhade * In the statement recorded u/s.131 of the IT. Act on 24.12.2008, you have denied in the answer to Question No.8, 9, 12 & 13 that Mahasagar Securities Pvt. Ltd. and Alliance Intermediaries Network Pvt. Ltd. has no relationship to the assessees J.K. Rattonsey,....
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....zation of shares from physical holding is a lengthy process and takes considerable time. Therefore, when there is no dispute to the dematerialization of shares before the date of sale, therefore, the shares were purchased much prior to the date of sale. 9.7 The CBDT Circular No. 704 dtd. 28.4.1995 states that it is the date of broker's note that should be treated as the date of transfer in cases of sale transactions of securities provided such transactions are followed up by delivery of shares and also the transfer deeds. Similarly, in respect of the purchasers of the securities, the holding period shall be reckoned from the date of the broker's note for purchase on behalf of the investors. The CBDT Circular No. 768 dtd. 24.6.1998 was issued to clarify the determination of date of transfer and the period of holding of securities held in demat form. It has been stated there in that earlier Circular No. 704 issued by the CBDT relating to the "date of transfer" and "period of holding" does not change even when securities are held in the dematerialized form. Therefore in view of the above two circulars of CBDT it is clear that in case of securities the "date of purchas....
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....e impugned order allowed the claim of the Assessee by recording that the purchase of shares during the year 1999-2000 and 2000- 2001 were duly recorded in the books maintained by the Assessee. The ITAT has recorded a finding that the source of funds for acquisition of the shares was the agricultural income which was duly offered and assessed to tax in those Assessment Years. The Assessee has produced certificates from the aforesaid four companies to the effect that the shares were in-fact transferred to the name of the Assessee. In these circumstances, the decision of the ITAT in holding that the Assessee had purchased shares out of the funds duly disclosed by the Assessee cannot be faulted. Similarly, the sale of the said shares for Rs. 1,41,08,484/- through two Brokers namely, M/s Richmond Securities Pvt. Ltd. and M/s. Scorpio Management Consultants Pvt. Ltd. cannot be disputed, because the fact that the Assessee has received the said amount is not in dispute. It is neither the case of the Revenue that the shares in question are still lying with the Assessee nor it is the case of the Revenue that the amounts received by the Assessee on sale of the shares is more than wha....
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....me of them have not been approached by the AO at all. Thus, on appreciation of documentary evidences submitted by the assessee, the genuineness of the transactions appears to be established. As regards the aspect of off market transactions, it is noted that neither these are illegal nor prohibited and only some of the compliances have to be made by the brokers. As regards the aspect of such compliances, it is not the case that all the off market transactions have not been reported by the concerned brokers to the stock exchange as per rules and even otherwise, any failure on the part of the brokers in doing such compliance cannot make the contract between the assessee and the broker illegal or void as the broker may face the consequences for his default under relevant statute. It is also noted that all the transactions are not off market transactions, hence, the AO's approach to pick and choose only such instances which are favourable to him cannot justify such addition. The Departmental Representative has also argued that there were differences in the information as per contract notes and as per information received from the stock exchange which fact is also not material becaus....
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....minating material has been found to cast a shadow on the nature of such transactions and the AO in s. 153A proceedings has taken a different stand and, therefore, if such stand of the AO has not been accepted, then, the AO cannot take an alternate stand for taxing it under a different head in the course of appellate proceedings. Certain judicial decisions regarding the scope of powers of CIT(A) also support the claim of the assessee that no new source of income can be found in the course of appellate proceedings. However, the CIT(A) has examined the factual details of these transactions on the basis of various parameters like frequency, volume, line of trade in which the assessee is mainly engaged and the decision of the CIT(A) is correct in law on that count also." 19.5.6. So far as the decision of the Pune Bench of ITAT relied on by the Revenue in the case of Smt. Surekha Bhagvatiprasad Mundada V. ITO & Ors. in ITA No. 1332/PN/2009, we find the same is not applicable to the facts of the present case. In this case, the Hon. Tribunal has deleted the addition u/ s. 68 on account of long term capital gains declared by the appellant, but accepted the gain as short term capital gain....