TaxTMI 
TaxTMI 
2015 (3) TMI 921
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....eized 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 been earned by long term and short term capital gain. 5. Whether on ....
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....o 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 regular course, among other items, comprised of Long Term Capital Gains (hereinafter called 'LTCG') as indicated above. This income was claimed as exempt u/s.10(38) of the Act both in regular and in the returns filed in....
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....sing 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-examination as demanded by the assessee, could be utilized against the assessee to draw any adverse conclusion. 3. Whether on the facts and circumstances of the case, evidences gathered by the Assessing Officer in course of assessment proceedings and subsequently and those adduced ....
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....sing 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 because of search which continued beyond normal hours. iii) Assessees did not have the 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. iv) In the statement recorded u/s. 132(4) Shri Surendra Shantilal....
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....ning 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 transactions were genuine. Against this the Assessing Officer was in possession of some oral and hearsay evidence from some brokers who alleged without substantiating that the purchases and sales were by way of accommodation entries. Such unsubstantiated evidences should not be given undue weightage. ix) It is a settled principle of law that the approach of a court is first to marshall evidence against the accused excluding confession al....
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....y 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 place selected by the department to facilitate the process of enquiry. Thus, the process of taking evidence is complete and such ex parte statements cannot be utilized against the assessee. xiii) The assessee further submitted that when an ex parte statement is recorded at the back of the assessee, without affording an opportunity to cross examine the witness, the statement cannot be made use of in framing an assessment. In this regard, the assessee placed r....
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.... 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 department's evidence utilized in the context of admission and in the assessment is the oral testimony of the brokers. The appellant is still at loss to find out under what circumstances these brokers were made to give statements incriminating the appellant when facts of the case show otherwise. No attempt was made to make available these statements till the last moment keeping the appellant in dark about what the department wished to utilize in the assessment. On appellant's insistence, the Assessing....
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....efer 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. The first appellate authority analysed the factual position and also examined various case laws relied on by the Assessing Officer. On the issue of retraction, case laws relied on by the Assessing Officer were distinguished by the first appellate authority and, accordingly, held that they are not applicable to the facts of the assessee. The case laws relied by the Assessing Officer have been discussed by the first appellate authority as under: A. Ramjas Nawal Vs. CIT & Anr. 183 CTR 144 Raj. In above case, ....
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....ii) 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 search and subsequent non-disclosure of the income in the returns are well supported by evidence. It was not a case where in the absence of evidence or failure to produce such evidence, the issue of retraction needs to be judged. What eminently distinguishes the case of the assessee from the one relied on by the Assessing Officer is the ability of the assessee to adduce evidence in course of assessment proceedings and failure of the department to comply to all legal requirements in the process of evidence gathering and appreciating the same in its totality and in the correct perspective. B. Green View Restau....
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....essment 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 assessee, for the following reasons: i) in the case of the assessee there was no allegation of use of coercion and intimidation. ii) The grievance of the assessee was that the Assessing Officer should have appreciated the entire evidence available in course of search and placed before him in course of assessment to come to a correct conclusion instead of laying undue emphasis on the admission. iii) It was worthwhile to point out that in the case before appellate forum, no attempt was made by the assessee to factually dislodge the admission by placing independent evidence and this influenced the appellate forum to decide that the statement c....
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....rm 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 2005-2006 12,704,971 5,116,736 2006-2007 13,920,086 1,178,132 ------------- ------------- 35,857,929 6,294,868 Ravindra Peety 2003-2004 2,217,617 2004-2005 3,417,070 13,506,996 5,112,199 2005-2006 2006-2007 14,121,867 1,187,900 ------------- ------------- 33,263,550 6,300,099 Jitendra Peety 2003-2004 572,400 2004-2005 3,123,440 2005-2006 10,380,183 2,896,856 2006-2007 16,277,690 1,205,873 ------------- ------------- 30,353,713 4,102,729 Ravindra Peety HUF 2004-2005 1,241,154 2005-2006 10,010,858 4,366,231 ....
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....; Surendra Peety 61,110 Ravindra Peety 36,640 ----------- Total 121,900 2002-2003 Geometrick Soft Shantilal Peety 111,659 2002-2003 Bharat Electricals Surendra Peety 184,950 Jitendra Peety 102,900 ----------- Total 287,850 2002-2003 Mastek Limited Surendra Peety 51,184 Jitendra Peety 92,748 ----------- Total 143,932 2002-2003 Hinduja TMT Shantilal Peety 129,795 2002-2003 KPIT Sys. Ltd. Shantilal Peety 43,920 2002-2003 Jay Kay Dee Varsha Peety 101,193 Namrata Peety 97,153 Rachna Peety 95,278 ----------- Total 293,625 2003-2004 G-Tech Info Surendra Peety 44,114 Ravindra Peety 44,154 Jitendra Peety 33,085 Ravindra PeetyHUF 11,028 Jitendra PeetyHUF 11,028 Varsha Peety 22,057 Namrata Peety 22,057 Rachna Peety 22,057 ----------- Total ....
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....d Securities through whom transactions of purchases and sales were effected who have given adverse statements against the assessees. iii. Veracity of purchases in physical form and, payments made towards purchase consideration. iv. Verification with Bombay and Saurastra Stock exchanges regarding purchases. v. Investigation carried out by the BSE against some brokers. vi. Offer of Income by some assessees (not related to Peety group) in relation to transactions in Penny stocks. vii. Newspaper reports. viii. Background of certain companies whose shares were purchased and sold. ix. Case laws on human probability.' 9.4. The above evidences relied on in assessment order were broadly divided into two categories. The first category relates to admission by Shri Surendra Shantilal Peety, adverse statement of some brokers through whom transactions in purchase and sales were effected. The second category relates to circumstantial evidences. In course of hearing before the first appellate authority from time to time, the assessees have filed their explanations on the observations made by the Assessing Officer in the order, which are being discussed below, as appreciated by the first ....
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....rox copy of the same were filed before the first appellate authority for perusal at page No.301 to 327 of the paper book. This proves that the statements given by them against the assessees have no legal sanctity and the same cannot be used against the assessee. iii) At that stage, the assessee contended that the Assessing Officer passed the order on 28.12.2007 as would be evident from assessment order. This was changed to 31.12.2007. The inferences against the assessees for all intents and purposes were drawn on 28.12.2007 itself and ex parte evidence was made use of without following any legal procedure as mandated by law. There was no whisper in the said order as to the request of the assessee for cross-examination and results thereof which was most crucial aspect of the proceeding for fastening a liability against the assessee. This further shows that the authorities worked with a closed and predetermined mind to tax the assessee on evidences not recognized in law. Thus affording of the opportunity was a mere idle formality. iv) The Assessing Officer has totally ignored various written submissions submitted by the assessee from time to time, regarding the entire share transac....
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....S has stated that parallel books of accounts were maintained. While stating so they were well aware of the falsity of their assertion that they would not be able to establish their contention with any documentary evidence. This proves beyond doubt that the statements given by them were in the capacity of interested witness rather than as an independent witness. 9.8. The appellant stated that as to how a quasi judicial authority can utilise such statements which are evasive and contradictory and not supported by any material evidence beyond oral evidence. For all purposes these are circumstantial in nature. Such statements should not be relied on for reaching reasonable conclusions. The moot question that arises is, can such statements be available as evidence to be used against another person as such. 9.9. As against the presumptions and assumptions of the Assessing Officer, the appellant contended that he has strong evidence that share transactions are genuine which is evident from following facts: i) As mentioned earlier regular books of accounts are maintained by all the members of the Peety family right from day one. ii) The Purchases and Sales of Shares in question were ....
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.... on Stock Exchange signed by the broker was placed on record before the first appellate authority. iii) According to the assessees all the sales are supported by contract notes giving full details as to name of the scrip, quantity, price at which sold, total sale consideration, brokerage, settlement no., trade no., order no., bills of broker, 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. The above bills show that the sale was effected through the electronic trading platform of recognized Stock Exchange. iv) There was no dispute with regard to date of sales. v) The sale consideration on sale of shares was received through regular bank channel in the form of account payee cheques/drafts and the same were credited in regular bank account maintained by the appellant. There is no dispute that the sale price is actually received by the appellant from brokers and was duly supported by their bills, etc. There is no dispute with regard to date of receipt of the sale proceeds. vi) The transactions are duly recorded in the books of the share brokers. Brokers confirmation statement are submitted bef....
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....assessment should normally base on evidences found during the course of search. iii) Although a notice could be issued under section 153A calling for return on execution of a warrant, the same is an enabling provision to start the process of assessment without going through the requirements of law as contemplated in section 139/147. iv) It may be appreciated that "reason to believe" being essential stipulation in law to issue a warrant, any further satisfaction by the Assessing Officer, at the threshold stage has been dispensed with in the matter of issuance of a notice consequent to search. The same does not mean that mere issuance of a notice would give unfettered freedom to the Assessing Officer to complete the assessment when no evidence is discovered in search. v) An assessment proceeding consequent to search is not meant to unsettle the income shown in the regular return in the absence of evidence. It is not meant to make roving and fishing enquiry. This notice is meant to assess the undisclosed Income, if any discovered in course of search basing on the material found. vi) The legislature could never have intended to give unfettered freedom to unsettle the entire process....
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....ppellate authority appreciated facts of the case with regard to role of concerned brokers. The first appellate authority has also examined the matter in light of approach adopted by the Assessing Officer for bringing the entire sale proceeds on share transactions to tax at maximum rate and applicability of section 69A of the Act for all years for all assessees. The first appellate authority also appreciated the alternate stand of the Assessing Officer whether assessees were investors or engaged in adventure of trade of share business. The first appellate authority found the approach of Assessing Officer a half hearted and tentative to the issues involved. He also addressed some significant aspects of assessment order vis-a-vis the returns filed in regular course and also after search. The first appellate authority summed up the transactions as under: i) That the contract notes were genuine and were acted upon and there is nothing in the submissions of the Assessing Officer except suspicion to assail the genuineness of the contract notes and all other subsequent action. ii) That since the contract notes were acted upon culminating in credit of these shares in the DEMAT account, ....
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.... claimed Long Term Capital Gain/Short Term Capital Gain. Having analysed all facts and circumstances, the first appellate authority granted relief to assessees. Same has been opposed before us. 12. The Ld. Departmental Representative submitted that the CIT(A) was not justified in holding that the contract 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. The CIT(A) was not 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 different Income tax authorities that they had issued bogus broker notes to assessee. The CIT(A) was not justified in holding that the broker notes 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. The CIT(A) was also not justified in holding that the application of section 69A of the Act....
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.... the assessee regarding its nature and source of acquisition. Assessees have recorded the sales in their books of account and explained its nature and source of acquisition. Such addition made by treating the sale proceeds of shares as unexplained income and unrecorded in books of account and adding u/s.69A of the Act is not justified. The Assessing Officer has erred in placing undue weightage to the admission made by the assessee u/s.132(4) of the Act totally ignoring assessee's repeated submissions that the statement was given in a confused state of mind and without having benefit of referring to various documents which conclusively proved the genuineness of the transactions. The Assessing Officer was not justified in making addition by treating the same as unexplained money u/s.69A of the Act. The Assessing Officer was not justified in observing that amount in question be taxed as business income/adventure in the nature of trade if at any point of time transactions were found to be genuine. The Assessing Officer was not justified in treating certain shares of Fast Tract Entertainment and Prannet Industries as not genuine. 13.1. Referring to the following decisions the Ld. C....
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....eety Steels Pvt. Ltd. wherein mild steel ingots/billets are manufactured, Dhanlakshmi Sponge Iron, a branch of SRJ Peety Steels (P) Ltd., where sponge iron is manufactured and Sri Om Rolling Mills Pvt. Ltd., wherein mild steel bars are manufactured. 14.1. Returns of income for A.Ys. 2002-03 to 2005-06 were filed u/s.139(1) of the Act accompanied by all requisite documents and were processed u/s.143(1) for each of the years under consideration. In the returns for each year, assessee had shown an income under the head Long Term Capital Gains pertaining to sale of shares held as investment which was accepted as such by the Department. 14.2. In respect of above, stand of the assessee has been that- a) Regular books of accounts are maintained by all the members of the Peety family right from the beginning. Copies of Balance Sheet, P & L A/c and computation of income for the assessment years under consideration are attached as pages 1 to 30 of Paper Book-I. b) The purchases and sales of shares in question were duly accounted for in the regular books of accounts for the years in which the purchases/sales were made. c) The purchase and sale of the shares were evidenced by their having....
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....lls 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. The above bills reveal that the sale was effected through the electronic trading platform of recognized Stock Exchange. There is no dispute with regard to date of sales which is a matter of record. o) The sale consideration of the sale of shares is received through regular banking channels in the form of account payee cheques/drafts and the same were credited in regular bank account maintained by the assessee. p) The transactions were duly recorded in the books of the share brokers. q) Shares sold have been actually delivered and routed through Demat accounts identifying the brokers to whom the delivery of the shares were made. r) The debit entries in the Demat Account evidences the delivery of the shares. s) Copies of contract notes, Sales bills, broker account, client ledger in the books of broker, Bank statements, Demat Account and BSE Stock Price list are submitted as Pages 33- 60, 174-202, 257-262, 278-291, 334-387,419-440, 462-503 & 523-528 of the Paper Book-I. 14.3. All the above details indicate that the transactio....
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....come for the A.Ys. 2002-03 to 2005-06 had already been filed u/s.139(1) of the Act accompanied by all the requisite documents and processing u/s.143(1) of the Act stood completed. During the course of search no incriminating materials were found relating to these years which could have been added back in the proceedings u/s.153A. The details regarding the transaction in shares for each of the year under consideration were very well placed before the Department in the computation of income of each year and no query was ever raised by the Department. There was nothing in the intimation u/s.143(1) to indicate any deficiency with regard to the assessee's claim of transaction in shares, the income shown and the evidences furnished in respect thereof. 14.6. The additions made u/s. 153A were based on the statement of some brokers which were recorded behind the back of the assessee without producing them before the assessee for cross examination despite specific request. Under peculiar circumstances assessee offered this amount in his statement recorded u/s. 132(4) though as such nothing incriminating was found in the course of search relating to assessment years under consideration. ....
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....8.2007 is attached as Pages l-3 of the Paper Book-II. b) In reply to notice dated 5.09.2007, details of purchase and sale of shares held on long term basis were submitted. A copy of the statement is attached as Pages 32, 61, 173, 203, 256, 277, 263, 292, 333, 390, 461 & 509 of the Paper Book-I. c) In reply to notice dated 15.10.2007, details of Long term Capital gains and Short Term Capital Gain earned by the assessee for the various assessment years was submitted. A copy of the statement of Long term Capital gains for each of the year is attached as Pages 31, 172, 255, 332 & 460 and of Short term Capital gains is attached as Pages 417 & 521 of the Paper Book-I. d) In reply to notice dated 2.11.2007, details of purchase and sale of shares held on short term basis were submitted. A copy of the statement is attached as Pages 418, 441, 522 & 529 of the Paper Book-I. e) The Demat statements of various banks were submitted on 10.12.2007. f) In reply to the notice dated 10.12.2007, the assessee submitted its reply on 17.12.2007 explaining his share transactions. A copy of the letter dated 17.12.2007 is attached as Pages 4-11 of the Paper Book-II. 14.11. The assessment was comp....
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....im of the assessee in respect of capital gains. f) That the A.O. was not justified in charging interest under section 234A, 234B and 234C of the Income tax Act, 1961. g) That the A.O. was not justified in initiating penalty proceedings under section 271(1)(c) of the Income tax Act, 1961. 14.13. In appeal, the concerned CIT(A)-I, Nagpur, vide his Appellate Order dated 18.06.2008 allowed the appeal of the respondent for all the years under consideration, thus reversing the Assessing Officer's findings on the issue. The same has been agitated before us on behalf of the Revenue. The various issues have been argued before us. Each of the grounds taken by the Department and the respondents arguments in respect thereto are dealt as under: 14.13.1. Let us first analyse whether the provisions of section 153A of the Act has been properly applied to the facts of the present case. A search assessment u/s. 153A should be evidence based. A search is authorized to unearth undisclosed assets or transactions resulting in income 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 ....
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....tement of Sri Surendra S Peety recorded in the course of search. There is nothing on record to suggest that any incriminating document or material was discovered as a result of search. Above statement was made without having the benefit of referring to any document in certain state of mind and was made on the assertion of the department that they have evidence against the assessee by way of some statements of brokers which were not made available to the assessee. Therefore, the respondent could not be held liable on the basis of a mere statement which was made under exceptional circumstance as mentioned above. As such, the validity of such statement, which is in no manner related to any evidence or materials found in the course of search in assessee's premises, is in itself not justified. 14.13.5. Any statement made during the search in our opinion should be corroborated by documentary evidence and should not be devoid of the same. Simply the statement of Shri Surendra S. Peety without corroborating 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....
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....on 132(4) did not arise. The Explanation to section 132(4) permitting such examination came into effect only from April 1, 1989. Even if it were held that the statement of the managing director fell under the Explanation to section 132(4), the Tribunal had recorded a finding of fact to the effect that the statement of the managing director or that of other partners had no evidentiary value as they were not supported by any documentary proof. No question of law arose from the order of the Tribunal. d) Mumbai Bench in the case of Deepchand & Co. Vs. ACIT [1995] 51 TTJ 421 held that statements recorded during course of search proceeding which continued for an unduly long period could not be considered to be free, fearless and voluntary. Additions cannot be sustained on the basis of statements of partners recorded at the time of prolonged search operation which were retracted later on. e) Hon'ble Supreme Court in the case of Pullangode Rubber Produce 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) Eve....
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....nd in the course of search to justify the additions in question. The verbal statement of the assessee without any connection with the other materials found during the search cannot be considered to be materials found during the search. Relevant income tax returns for the past years were filed prior to the search in the normal course suo moto disclosing the particulars of subject additions which stood accepted u/s 143(l) of the Act. Assessment as contemplated u/s 153A is not a de novo assessment and additions made therein, has to be necessarily restricted to undisclosed income unearthed during search. There is nothing on record to suggest that any corroborative evidence was found to justify the addition in question. 15. The next issue raised by the Revenue is regarding statement recorded u/s.132(4) of the Act. The Department alleges that the CIT(A) erred in deleting the addition made by the Assessing 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, state....
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....vealing concealed income and wealth. Since interrogation is not an object of the search, it is expected that a respondent is not put to pressure into making an admission and the statement should not go beyond what is discovered in course of search from the premises of the assessee. in the case of the assessee, there is nothing on record to suggest that any incriminating evidence was found in connection with the share transactions from the residential and office premises of the Peety group. The entire declaration pertaining to the shares transactions were arrived at only on the basis of the statements recorded of the brokers and the returns of incomes filed during the regular course. The circumstances in which third party statements were shown just 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 course 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, ....
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....sessment. Even treating the surrender as an admission of the concealment of undisclosed income, the Inspecting Assistant Commissioner could not deny the assessee its right to prove that the fact of surrender was not such admission and that the so-called admission was in fact wrong and the surrender was made solely to avoid botheration as stated by the assessee. Similar view has been taken in Pullangode Rubber Produce Co. Ltd. (supra) and Deepchand & Co. (supra). We also find that ITAT Mumbai Bench in Pushpa Vihar Vs. ACIT (1994) 48 TTJ 389 (Bom), held that in surrounding circumstances, it cannot be concluded that what the assessee said originally was sacrosanct and the assessee is not at a liberty to correct the error, originally committed by giving a different version of truth. In the absence of any other material except the original admission there is nothing to support the addition. In 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 thw....
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....ce the witnesses. Thereafter an e-mail was sent to the concern Assessing Officer requesting him not to rely on these ex-parte statements while framing the order and determining the income of various members in the group. 16.1 Thus affording of opportunity for cross examination was an empty formality and only to technically comply with the respondent's request which could never materialize. However, there was no whisper in the said order as to the request of the assessee for cross examination and its results which was crucial for fastening a liability against the assessee. It reveals that the authorities worked with predetermined mind on the issue. Non providing of due opportunity of hearing was denied in this case which is in violation of principles of natural justice. 16.2. It is important that statements given by a third party should be relied vis-a-vis evidence 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....
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....as specifically made "towards any other discrepancy". There is no mention in the assessment order of any such discrepancy found as a result of survey throwing light on the undisclosed income. Even the Departmental Representative could not point out any material showing the existence of undisclosed income earned by the assessee which was unearthed during the course of survey. There is nothing on record which could correlate such additional income offered by the assessee during the course of survey with any other discrepancy. There is no basis for sustaining the addition in question." We also find that the ITAT Mumbai Bench in the case of Mukesh R. Marolia Vs. Addl. CIT, Range-15(2) (2006) 6 SOT 247 (Mum), held that an assessment has to be completed, on the basis of records and material available before the assessing authority. Personal knowledge and excitement 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, t....
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....t at prevalent market rates and supported by proper bills and documents. The assessee has discharged the onus cast upon him by furnishing before the Assessing Officer all necessary documents, being bills and contract notes, in support of the purchases and sales made by him. The Assessing Officer is supposed to negate the documentary evidence produced in favour of the transactions of purchase and sale of shares which has not been done by the Assessing Officer. The Assessing Officer is not supposed to wash away on assumptions and arbitrary conclusions. As stated above, the assessee group had purchased the alleged scrips on which LTCG has been claimed from only three brokers, namely, (1) Trimiti Investments and Financial Services, Pune, (2) DPS Shares and Securities, Mumbai, (3) M/s.VRP Financial Services Pvt. Ltd. In response to notice 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. Pu....
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....assessment order relates to transaction with Trimiti Investment from whom bulk of shares pertaining to G Tech Info, Highland Industries, Fast Track Entertainment and Database Finance were purchased. Prior to search, statement of Dhaval Shah and during the course of post search enquiries, the statement of its Director Shri Sourin Mehta were recorded by the department and its books were a subject matter of scrutiny. They have confirmed all the transactions with the Peety Family and have also confirmed that the payments for these purchases were made by DD/Cheques or settled against day Trading Profits also done through them. Shri Sourin Mehta has unequivocally stated that the transactions with the Peety family are genuine. This shows the assertion of the assessee. For ready reference relevant portion of his statement dated 28.11.2007 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 o....
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....nt order. As stated above M/s.Trimiti Investments through whom majority of transactions of purchases were effected has stated that the transactions are genuine. There is no discussion about the statement of this broker in the assessment order. Thus, the selective use of evidence by the Assessing Officer is not justified. 16.10. The assessee is not concerned with the modus operandi of the broker's trading with its other clients. As long as he had purchased and sold the shares of the assessee through known and accepted procedure, the broker's misdealing with others should not be a criteria to suspect the appellant's genuine share transactions and capital gain thereupon. If these brokers were suspended by SEBI subsequent to the assessee's company'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....
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.... Acchyalal Shaw ITA No.1977/KoI/2008, the ITAT Kolkata Bench has held as under: "In our considered opinion, suspicion cannot replace the real evidential document. Simply by arguing it to be a case of manipulation the Revenue is not supposed to succeed in their contention without proper evidence. Holding this view of the matter on the factual matrix and respectfully following the case laws cited above, we allow the assessee's second appeal." 16.12. Again in the case of ACIT Vs. Claridges Investment & Finances (P) Ltd. (2007) 18 SOT 390 (Mum), ITAT held as under: "As the matter stands we find that the assessee's transactions are supported by the movement of shares as reflected in demat account, movement of money as reflected in 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 respe....
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....d be evidence based. A search is authorized to unearth undisclosed assets or transactions resulting in income 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. In other words, items of regular assessment normally should not form a part of a search assessment u/s. I53A unless there is otherwise contrary on the record. Vide its submission dated 04.03.2008/ 24.03.2008 placed at pages 69 to 82 of the Paper book-II, the assessee gave the details of all the brokers, the shares purchased or sold through them and the Long Term Capital Gains or Short Term Capital Gains as the case may be earned 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 satisfact....
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....ing profits are declared in each year when the same accrued to the assessee. In this manner the AO blows hot and cold at the same time which cannot be accepted." Picking up the entire sale proceeds on account of share transactions separately and adding it u/s.69A would establish that the assessee was found in possession of this amount which was not disclosed in his books of account while the fact remains that the capital gains, short term as well as long term, has already been recorded by the assessee in its books of accounts. Thus the provisions of section 69A of the Act has not been judicially applied. 18.1. As stated above, the computation of income filed by the assessee in the original return as well as in the 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....
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....Revenue is not justified in taking a view that only part of the contents is correct. Entire document should be read as a whole and contents of the documents should be treated as correct or rejected as a whole. Therefore, when the department can accept transactions relating to share trading profit, there is no reason as to why it should not accept the transactions relating to capital gains. The ITAT Mumbai Bench in the case of Shri Bhagvandas Gordhandas Vs. DCIT in ITA.No.5201/Mum/96 has held that a bare statement of a deponent may not justifiably be treated as sufficient enough to fasten a liability on another person, say assessee, when that another person is denying the facts contained in that statement and is 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 u....
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....me of the assessee. On the contrary, it is the net profit rate which has to be adopted in such cases. Further Hon'ble MP High Court in CIT Vs. Balchand Ajit Kumar (2003) 263 ITR 610 (MP) has taken similar view. The Hon'ble Gujarat High Court in CIT Vs. President Industries (2002) 258 ITR 654 (Guj) held that the amount of sales could not represent the income of the assessee who had not disclosed the sales. The sales only represented the price received by the seller of the goods; only the realisation of the excess over the cost incurred could form part of the profit included in the consideration for the sales. Since there was no finding to the effect that investment by way of incurring the cost in acquiring 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 ....
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....adventure or trade in the shares transaction. k) Although the department carried out search, no evidence was found to indicate that the transactions were carried out in the capacity of a trader. 19.1. All these factors have to be cumulatively taken into consideration in order to decide whether the nature of transactions were such that it would fall under the head of adventure in the nature of trade. The Hon'ble Supreme Court in the case of Karnani Properties Ltd. (1971) 82 ITR 547 has held that activities carried on continuously in an organized manner, with a set purpose and with a view to earn profits have to be considered 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 d....
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....lly not tenable. Thereafter, he came up with a new theory of assessment so that if his proposition to tax the receipt at maximum rate u/s. 69A fails he can still retrieve the assessment at maximum rate by resorting to the alternate method of taxing the same as business income arising from adventure in the nature of trade. Looking to the huge amount of capital gains shown by the assesses of this group he was tempted to bring it to the maximum tax by treating the whole amount as not genuine. But this exercise, as demonstrated above while discussing factual 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 assess....
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....o the facts of the case and accordingly deleted the addition. The appeal filed against this order was dismissed by the Tribunal. On appeal: Held, dismissing the appeals, that the fact that the assessees in the group had purchased and sold shares of similar companies through the same broker could not be a ground to hold that the transactions were sham and bogus, especially when documentary evidence was produced to establish the genuineness of the claim. The shares were purchased by the assessees on the respective dates and the 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 evide....
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....that situation, how the revenue condemned the transaction even on the ground of steep rise in the share. ..." 19.5.2. Similarly, we find that Pune Bench of ITAT in the case of ITO Vs. Ajay Shantilal Lalwani reported in (2012) 145 TTJ 511, has held as under: "Admittedly, in the present case, the assessee has purchased the shares outside stock exchange directly from the broker in physical form though D-mat account was opened on belated date with this explanation that at the time of purchase of shares, 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....
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....gain comes to Rs. 80,03,027/-. However, since he considered the entire receipt on the sale of shares as un- accounted income and added the same to the total income of the assessee u/s 68 of the I.T. Act he did not make any separate addition under the head "unexplained investment and short term capital gain. 9.1 We find the ld. CIT(A) deleted the addition u/s 68 on the ground that the sale of shares has not been doubted by the A.O. in the assessment proceedings as well as during remand 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 ....
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....he ld. CIT(A) upheld the alternate proposition of the A.O. that total purchase price on the date of dematerialisation of shares amounting to Rs. 4,41,10,775/- becomes unexplained investment since the purchases are not recorded in the books of the assessee on that date and the difference between the sale price and the purchase price amounting to Rs. 80,03,027/- becomes short term capital gain since the holding period of the shares is less than 12 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 Rattons....
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.... the above judicial decisions the statement of Mr. Mukesh Choksi cannot be a deciding factor for rejecting the genuineness of the purchase of shares by the assessee especially when all other supporting evidences filed by the assessee were neither proved to be false or untrue. We further find merit in the submission of the ld. counsel for the assessee that the dematerialization 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 o....
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....AA has categorically held that all the necessary details about purchase and sale of shares were made available to the AO during assessment proceedings. We have perused the case laws relied upon by the AR. in the case of Mukesh R Marolia (supra) Hon'ble jurisdictional High Court has held as under: " ....On further Appeal, the ITAT by the 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 Con....
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....er the settled judicial principle, such statements cannot be given any weightage. When there arises a question of appreciation of documentary evidences, then a holistic view has to be taken and in the present case majority of the brokers have supported the claims of the assessee and surprisingly some 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 a....
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....ich is subsequently deleted, then, it cannot be taxed under any other head merely for this reason. The stand of the assessee is of long-term capital gain which has also been accepted by the Department in assessment proceedings completed before the search and in the course of search, no incriminating 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 Munda....