TaxTMI 
TaxTMI 
2014 (4) TMI 1085
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....sesses being in fact husband and wife, they were posted for being and, accordingly, heard together, and are being decided by a common, consolidated order for the sake of convenience. 2. The principal issue arising in the instant appeals (for AY 2004-05) is the validity of the assessee's claim for deduction/exemption u/s. 54F of the Act as well as Long Term Capital Gain (LTCG). The same has been denied by treating the gain, returned by the assessee(s) as LTCG, as unexplained cash credit u/s 68. of the Act. The same stands assessed for A.Y. 2004-05 in the case of both the assessees and for A.Y. 2005-06 in the case of ZAS. We shall for the sake of reference and completeness of the narrative, refer to the back-ground facts of the case, adopting the figurative facts and also the figures in the case of one, Shahzeen Siddique (SS). The assessees, i.e., the husband (ZAS) and wife (SS), purchased 1.43 lakh and 1.58 lakh shares (of par value of Rs. 10 each) in Eltrol Ltd. for Rs. 149,200/- and Rs. 163,100/- respectively, i.e., at average price of Rs. 1.04 and 1.03 per share respectively for the two assessees (with a low coefficient of variation, so that price varied over a small range) duri....
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.... for transfer to the company on 25.07.2002 and received back, duly transferred, on 05.08.2002 (latest by September, 2002). These shares were subsequently got dematerialized on 03.03.2003 through NSDL affiliated depository participant (DP) on the company being allowed to dematerialize its shares. The shares were subsequently sold through two Ahmedabad Brokers, of whom one, RJN confirmed shares sold through him while other broker, i.e., MSFL, did not respond to the departmental inquiry. The same, as apparent, was because of change of address, indirectly proving that he had been working prior thereto, though was untraceable in December, 2006, i.e., when the inquiry was made by Revenue. The transactions though, again, off-market, were at the price obtaining at the relevant time at the Ahmedabad Stock Exchange, so that the same is by itself to no effect. Seeking details of the persons who purchased the shares amounts to seeking information about the source of source in-as-much as the stock exchange itself becomes the counter party where the shares are bought/sold at or through the exchange. In any case, how could the assessee be penalized for the default of or by the brokers, who are in....
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....e/s or material/s being relied upon by the other. The maintainability or otherwise in law of the addition/s under reference would, thus, be on the anvil and the parameters of section 68. The case law in the matter is legion, and toward which we may, if only for the sake of completeness of our order, advert to the some of the celebrated decisions by the apex court in the matter: A. Govinda Rajulu Mudaliar v. CIT (1958) 34 ITR 807 (SC) Sreelekha Banerjee & Othrs. v. CIT (1963) 49 ITR 112 (SC) Kalekhan Mohammed Hanif v. CIT (1963) 50 ITR 1(SC) CIT v. Durga Prasad More (1971) 82 ITR 540 (SC) CIT v. Biju Patnaik (1986) 160 ITR 674 (SC) Sumati Dayal v. CIT (1995) 214 ITR 801 (SC) CIT vs. P. Mohanakala &Others, 291 ITR 278 (SC) In this regard, however, it could be argued that section 68 may not be applicable in the facts and circumstances of the case - the credit being ascribed to the profit arising on the purchase and sale of shares. We can hardly agree. In-as-much as and to the extent the scope of the provision extends to determining and, consequently, being satisfied (ofcourse on the touch-stone of reasonableness) on both the nature and source of the credit, the transaction/s y....
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....r the earlier or the year of credit (sale), the benefit to the assessee would follow on it being proved. Again, even so, the sale transaction/s being independent of purchase/s, a credit could be impugned as not genuine on the strength of the findings qua the sale/s transaction alone. This is as both the 'transfer' (of shares) and 'profit' arises only on 'sale'. Accordingly, nothing turns on the afore-stated argument/s, and the matter would stand to be decided on factual findings, with the powers of the assessing authority in the matter being plenary. 3.3 The assessee refurbishing its case with documentary evidences, the same has been sought to be subject to verification by the Revenue, arriving at the conclusion that the genuineness of the transaction/s is not proved at all. The question that, thus, arises for our consideration is whether the Revenue has been successful in repelling the genuineness of these documents or in the least casting a genuine doubt on the genuineness of the transactions under the given and demonstrated facts and circumstances of the case. We shall proceed along each of the areas for which the verification stands caused by the Revenue in its bid to dislodge....
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....de six months, and without any economic or even technical basis - none being disclosed. Except on one day (20/6/2003), the share price does not respond to the volume of trade (i.e., at a decent figure of 1 lac shares and above); it closing at Rs. 5.95 as against the opening of Rs. 8.20 on that date. Why? Then, again, if the stability of the price on the earlier dates is taken as reflective of a buying sentiment (though for no apparent reason), the decrease on 20/6/2003 would signify a selling pressure. However, unexplicably, the progression in price continues. Could this be called a market, or is it structured? 3.4 It could, in fact, be argued that the price/s, even if rigged, could be and are real; the share market witnessing organized riggings leading to phenomenal gains (for some) and correspondingly losses for others. The argument is valid in principle, so that price being manipulated may not be conclusive of it being not real, i.e., in-so-far as the traders or the participants in the market are concerned. Firstly, however, the onus to exhibit so rests with the assessee, who has benefited from the same, as well as qua s.68 being invoked. Further, on specifics, who are the purc....
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....by Dwarkesh Restaurant Pvt. Ltd., selling 1.57 lacs shares to RNJ at Rs. 0.41 per share, again incurring similar loss, the funding or the basis thereof, which, or even its admission, has not demonstrated. Continuing further, what, we wonder, then, is the price on that date or even during the relevant period; the assessee selling her shares thereat, and more specifically during January, 2004, at Rs. 10.15 to Rs. 10.57 per share (post-split). In fact, 50,000 shares were sold on 13.01.2004 itself through RNJ, the same broker, at Rs. 10.56 per share! Similarly, one lac shares were sold by the assessee through MSFL at Rs. 10.55 per share on 13/1/2004. What further proof, one may ask, does one require to figure out of the transactions being sham and managed? RNJ had, in fact, himself purchased 6.51 lac shares (of par value of Re.1 each) for Rs. 71.52 lacs, the source of payment stands not exhibited. The other broker, who has along with transacted shares at Ahmedabad Stock Exchange, i.e., MSFL, is again nowhere on the scene. Not only is the source of the credit absent, the circular trading, thus established, demolishes any credence being placed on the bogey of the 'sale' of 'shares', cons....
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....hasing and selling the shares of the same scrip on the same day at a variance of nearly 2600%! Why would, one may ask, any person sell his shares worth Rs. 100/- (as per the going market rate) at less than Rs. 4/- (say)? The shares are required to be 'purchased' back by the brokers in-as-much as it is the same shares that are required to be rotated for being, again, similarly registered in the name of any person wishing to launder his money through the modus operandi of 'purchase' and 'sale' of shares. 3.5 The assessee's purchases are, again, equally unproved, with M/s. FF, as confirmed by its principal, VSL, started the trading operations only from 15.07.2002, while we find it to have executed transactions with the assessee prior thereto. How could that be? Then, the source and quantity of shares in Eltrol Ltd. with it could not be explained - the principal broker (VSL) clarifying that no shares were sold to FF before 09.08.2002. That apart, the books of FF reveal that only 27800 shares were purchased by it, while it had, in fact, sold 1.43 lac and 1.08 lac shares to ZAS and SS respectively during July, 2002 itself. How? The source of these shares remains unexplained. In fact, th....
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....- so much for the off-market transactions. The mechanism adopted or the logistics for completing the trade is even otherwise of interest in the instant case inasmuch as the asseessee (seller) and the brokers (intermediary) and purchasers are located in different cities. How was the delivery of shares, required to be given immediately, and receipt of money, simultaneously, or almost so, taken or given, as the case may be. 3.6 We may at this stage capsule our findings. Firstly, transactions, even where purported to be by way of purchase and sale of shares need to be proved on the anvil of s. 68 inasmuch as unless so proved, the profit reflected thereby is only a credit appearing in the books of an assessee, which therefore would require being proved on the parameters of s. 68. Shares in a nondescript company are stated to be purchased, which the Revenue describes generically as 'penny stock' companies with reference to the nomenclature adopted therefor abroad, being employed for price rigging, manipulation, etc., toward various ends. Our examination reveals, on the basis of undisputed data, having in fact been furnished by the assessee itself or that available in the public domain,....
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.... be based on the fact of the transaction being recorded in the books of account; that being rather the basis for the invocation of section, so that the credit being not denied, it, unless proved to be genuine, may be considered as the assessee's income. The sellers of the shares purchased by the assessee are not known, while the purchasers, i.e., assuming so, found seriously wanting in their credentials, in our view, the genuineness of the transactions is far from proved, if not actually disproved. Why, even the identities of the creditors have not been established. The question proving the capacity does not arise under the circumstances, with no money flows having been exhibited, thoroughly discrediting the assessee's case. The Revenue's case is not, as being stated, based wholly on preponderance of human probabilities, though that by itself cannot be said to be irrelevant and could prove decisive in the facts and circumstances of a particular case, but on the complete inability to establish its case as genuine. In fact, the explanations and the materials furnished raise far more questions than they answer (also refer paras 3.2 to 3.5). 3.7 The reliance on the decisions as in the....
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....The words 'incriminating material', or an expression to that effect, finds no mention or place or even a remote reference in the relevant provision (section 153A), which provides jurisdiction to frame assessment for the year of search and for six preceding years on the basis of search itself. Further, the jurisdiction is clearly to assess the 'total income', and which is to be necessarily based on some materials. Further, what is incriminating could itself be a matter of dispute. What is incriminating for one may not be so for the other, so that the same, imbued with subjectivity, cannot decide the jurisdictional aspect. Yet, again, the same, though relevant and incriminating, may get wholly or partly explained in assessment, i.e., on the basis of the additional materials gathered or called for or produced by the assessee itself or otherwise explained by it during assessment proceedings. Will that, one may ask, operate to cancel the jurisdiction, since assumed? That is, matters subsequent cannot disturb jurisdiction. The argument is thus wholly misplaced. Reference in this context may be made along with other decisions in the case of CIT vs. Anil Kumar Bhatia [2013] 352 ITR 493 (De....
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....ch only represents him by another name, is that of a partnership firm, a separate person u/s. 2(31) of the Act. Further, section 292B of the Act ensures validity of a return, notice, etc., and proceedings under the Act by providing saving from challenge under such grounds, so that the same are not considered invalid where they are in substance and effect in conformity and in accordance with the intent and purposes of the Act. Another argument raised before us by the ld. AR was by questioning the validity of the search on the basis that the panchas are not the residents of the locality. The same again only needs to be stated to be rejected. The requirement is, firstly, procedural and, secondly, designed to ensure transparency of the search operations. Inhabitants of the same locality would be known to the assessee, an enabling factor. However, people other than the residents of the locality could also be known to the assessee, who, acting as witnesses, pre-empt it being questioned in respect of the conduct of the search as well as the materials found and seized thereat. There is nothing to show of these aspects having been not served well in the present case or even of the assessee....
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....ed income from the activity as business income, the Revenue treats it as only a manner of exploitation of the building by way of rent, albeit commercially, so that the same is assessable as income from house property, exigible to only standard deduction qua repairs at the rate of 30% of the gross receipt, i.e., as against the claim of business expenditure. Allowance, though, in working the gross receipt, is made for reimbursements on account of telephone and electricity charges, metered separately. 7. We have heard the parties and perused the material on record, giving our careful consideration to the matter. The issue, in our view, lies in a very narrow compass, i.e., whether economic activity, of any significance, apart from making available cabins space at a charge, is carried by assessee. If so, the same would qualify, along with the hiring activity, to be a business, as for example the hotel or the hospitality business, to which the assessee in fact also adverts to, trying to draw support therefrom. We say so as the statutes has carved out the separate manner for assessment of income arising from the letting (actual or even on a notional basis) of house property, bringing to ....
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....with little or no impact on the essential character of the 'services' being provided. Why, a landlord may provide services of a lift, security services, even a caretaker to take care of the needs of the tenants of different flats residing in his building. That, however, would not though make it any less an arrangement to exploit the inherent rental capacity or potential of the property. Further, what is the furniture and fixture, also let, and if it is inseparable from the letting the building and, further, not a part of the cabin itself, remains to be clarified. The assessee has referred to a hotel, implying perhaps that while the said industry falls in the hospitality sector, it operates in the business sector. The argument is flawed, and the comparison ends before it begins. We have already noted absence of any economic activity of merit, which alone would enable the assessee's business being categorized under a particular sector or even be termed as an industry. While a hotel would fall in the hospitality sector, which business segment signifies the assessee's business it fails to convey. No separate charge for the electricity consumed or the equipment used, viz. TV and other e....