TaxTMI 
TaxTMI 
2009 (7) TMI 1251
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....for better co-ordination, narrated the facts which shall be detailed hereafter. The grounds raised in these appeals read as under : "1. On the facts and circumstances of the case, the CIT(A) erred in holding that s. 68 was not applicable to the transactions in shares under examination. 2. On the facts and circumstances of the case, the CIT(A) erred in observing that there was adequate evidence to support the assessee's case that the 'gain' resulted from sale of shares. 3. On the facts and circumstances of the case, the CIT(A) erred in holding that the case of each assessee of the Haldiram Group should be examined in isolation despite the overwhelming evidence to show that they had acted in tandem. 4. Without prejudice to the stand taken in the respective assessment orders, the CIT(A) erred on the facts and circumstance of the case in holding that she was not empowered to examine the additional grounds raised by the Revenue during the appellate proceedings. 5. On the facts and circumstances of the case, the CIT(A) erred in arriving at a conclusion, despite evidence to the contrary, that the transactions in shares, even if view....
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....(A) wherein detailed submissions were made. Some of the major contentions of the assessee are as under : "(i) .......... (ii) The above-referred shares were purchased through the share brokers duly registered with SEBI and the concerned stock exchange. (iii) 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, vouchers, etc. (iv) The purchases are made at the prevailing market rate as quoted by recognised stock exchange. Relevant quotations are on record. (v) The price for purchase of shares is proved and there in no dispute about the source of payment. (vii) Actual delivery of shares were taken by the assessee either physically or delivery in assessee's Demat account. (viii) Shares so purchased are duly transferred in the name of the assessee in the records of respective companies. (ix) The AD has not pointed out any material to doubt or dispute the purchases of shares of respective companies on respective dates. (4)(i) The shares purchased by the assessee ha....
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.... AO has suppressed the voluminous facts which are supporting the case of the assessee and is referring to a stray instance. And further the inference sought to be drawn by AO from the said stray case that the assessee must have deposited all the cash in the bank account of ultimate buyer is an outcome of surmises and conjecture. On the other hand, the assessee has filed affidavit stating on solemn affirmation that the assessees of the group have not given any cash or any amount to the ultimate buyers or brokers in lieu of cheques issued by them towards transfer of shares by the assessee to them. Said affidavit has remained unrebutted. There is no evidence or material with the Department which may be contrary to what is stated in the affidavit. In short there is nothing to doubt or dispute the sale of shares by the assessee and receipt of sale price by the assessee from the buyer or broker. (5) In view of the above referred clinching documentary evidence and material on record and there being no evidence or material to rebut the said evidence, the transactions of purchase and sale of shares are conclusively proved by the assessee. The same cannot be washed away by ....
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....surmises and conjectures only and, therefore, the said addition was liable to be deleted. The learned CIT(A) found that there were 12 brokers through whom the assessee had purchased the shares and analyzed the nature of transactions in general executed by them. The learned CIT(A) thereafter examined the details of brokers through whom these shares had been sold and other facts like statement of such brokers were also examined. The findings of the learned CIT(A) being factual, are reproduced as under : "3.7 I have carefully considered above submissions of the appellant. My observations/findings are as under : (I) Merit of the evidence During the year under reference the appellant has shown capital gain of Rs. 50,02,726. The said gain has accrued to him on account of following purchase/sale of shares. Sale : Name Date Number Amount Peacock Traders & Exporters Ltd. 21-06-2001 12000 12,46,440 Offshore Finvest Ltd. 29-08-2001 15000 10,33,950 Limtex Investment Ltd. 06-11-2001 17000 12,53,410 Shree Securities Ltd. 18-03-2002 18000 16,90,200 ....
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.... the broker was duly received by the AO in his office on 30th Aug., 2006 and bears acknowledgement seal of AO's office. But for reasons best known to the AO this letter though obtained on his records has not been mentioned in the assessment order. This in my view is suppression of necessary facts/material while making assessment which has resulted in huge additions/tax demand. Thus, appellant's purchases of shares of Peacock Traders & Exporters Ltd. is duly confirmed and accepted by me as genuine. Sale of the said shares is arranged through broker M/s PDC Securities (P) Ltd., Kolkata. The AO has mentioned that Shri Prabhudayal Chomal, director of M/s PDC Securities denied having done any transactions on behalf of the assessee of Haldiram Group. It is also seen from the assessment order that the appellant on being confronted with this denial of PDC Securities asked for a cross-examination of the said broker. The AO did not accept to his request, the AO rather thought that the reply obtained by him from the assessee in this regard amounts to giving full and proper opportunity to rebut the disputed evidence and then he closed the hearing : He treated the entire transa....
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....the so-called statement denial of few brokers in his case cannot be accepted at their face value and also that in order to thrash out correct and complete details of share transactions it was imperative that the said brokers along with their books of account and the appellant should have been brought together before the AO simultaneously for cross-examination. As mentioned above no such measures were adopted by the AO to know the complete truth in this regard. In the said letter the assessee had also referred to judicial pronouncements, especially to the cases of State of Kerala vs. K.T. Shaduli Yusuff 39 STC 478(SC), Kishinchand Chellaram vs. CIT (1980) 19 CTR (SC) 360: (1980) 125 ITR 713(SC) and Kalra Glue Factory vs. Sales-tax Tribunal (1987) 65 CTR (SC) 233: (1987) 167 ITR 498(SC). The assessee was ready for all sorts of enquiry and verifications but the AO did not feel the need to undertake any such exercise. In this scenario the finding of the AO based on out of context selective pieces of evidence is to be taken with a pinch of salt. The appellant on the other hand has produced complete and clinching documentary evidence. Wherever any dispute arose regarding any testimony th....
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.... was sent on his address in the month of October, 2006. It is likely that in the intervening period address of Shri Kejriwal might have changed. But I fail to understand as to why no enquiry by the AO was made to trace him when the assessee had furnished registration number of Shri Kejriwal with SEBI. It is also interesting to note that all the documentary evidences filed by the assessee have not been disputed by the AO which tantamounts to acceptance of the same as genuine. In fact, regarding this purchase the AO has not given any finding except for the comment that Shri Kejriwal was not available at the given address. On appreciation of all the material placed before me I have no hesitation in holding that there is no material on record which would compel one to hold this purchase as suspicious. The purchase of shares is duly backed by the delivery of the shares duly reflected in the Demat account of the assessee vide No. 14647833 which is also available on the record of the AO. In this scenario I hold this transaction as genuine. Sale of this scrip was arranged through Shri Pradeepkumar Daga, broker at Kolkata whose testimony has been used against all the assessees of the gro....
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....certain whether transactions recorded therein are bogus or genuine. But if we see this in conjunction with answer No. 6 of Shri Daga I do not find any negativity herein. Shri Daga at question No. 6 was asked as under : Q. No. 6 : Has the above mentioned group or its family member held shares for more than one year ? Ans. No. 6 : Yes. This clearly indicates that the assessee was in physical possession of shares which he kept for more than a year. Answer to question No. 7 referred to above was about such share holding by the assessee, this is also corroborated by the Demat account statement of the assessee obtained by the AO. I do not find any reason to view this statement adversely in the case of the assessee. Moreover, the sale of shares through Mr. Pradeepkumar Daga is evidenced by several documents which have not been discussed and analysed by the AO. These are contract notes, Demat accounts, receipt of sale proceeds duly reflected in the bank accounts, etc. It is not even case of the AO that the said documents are bogus or fake or forged. He has also not made out a case that cash has flown from the assessee to be deposited in the bank account of the pu....
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....ss of said transactions. 4. Mr. Daga, however, concedes that shares were held by the appellant for more than a year and transactions were done through Calcutta Stock Exchange. 5. This fact is corroborated by the Demat statement of the assessee. 6. No enquiry was made either by the Investigation Wing or the AO to prove falsity of the documents if any. In fact they have not been discussed at all. 7. It is not the case of the AO or Investigation Wing that cash has been deposited by the appellant in the bank account of the purchaser from where cheque for sale proceeds has been issued. 8. Transaction is through Demat account. The Addl. Director of IT (Inv.), Unit-III(2), Kolkata had issued a letter dt. 2nd March, 2005 to Kolkata Stock Exchange requesting them to confirm as to whether the transaction as claimed by Shri Pradeepkumar Daga, M/s Swada Securities Ltd. and KCA Stock Broking (P) Ltd. are genuine or not. Kolkata Stock Exchange in its reply dt. 26th May, 2005 addressed to Addl. Director of IT (Inv.), Unit-III(2), Kolkata, has observed that the transaction with respect to Pradeep Daga is not matching with the records o....
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....d out that since the shares had already been sold in August, 2001 there was no question of appellant's name appearing there as on 29th Sept., 2001. Thus it was an infructuous enquiry which does not lead us anywhere. In this situation nothing adverse can be held against the appellant in respect of sale of shares of aforesaid company. It is pertinent to point out that these share certificates were not found at the time of search. Limtex Investment Ltd. The shares of the above referred company are claimed to have been purchased through Basantkumar Chirimar, Kolkata. The AO has not given any finding whatsoever on the said broker. I find from the records that Shri Chirimar vide his letter dt. 23rd Aug., 2006 addressed to Shri V. Krishnamoorthy, the AO, has confirmed this purchase. He has also annexed therewith all the supporting documents such as contract note, copy of demand draft and client ledger along with copy of his bank statement. He also confirmed that shares were delivered physically to the appellant and the transaction was duly recorded in the ledger of the clients. The AO has not taken any cognizance of the same. I hold that the purchase of said....
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....he decision of the Hon'ble Supreme Court in the case of Sumati Dayal (supra) and found that the same was distinguishable on facts because in the present case the legitimate claim of long-term capital gain was well established on the basis of clinching documentary evidences which were before the AO/Investigation Wing. The learned CIT(A) also observed that application of theory of probability had wide implications and could not be utilized just for serving the purpose of the Department to tax any receipt at the maximum rate which otherwise genuinely and legitimately fell under different category of income. The learned CIT(A) also examined the applicability of the ratio of the decision of McDowell's case (supra) relied on by the AO and held that it was not a case where the issue of tax planning, legitimate or illegitimate was involved as in the present case, the AO's view that share transactions were not legitimate were (sic-not) supported by any material or evidence, was merely of the nature of allegations or appreciations. The learned CIT(A) also held that the AO approached to the issue with a predetermined decision to tax the whole amount at the maximum rate without car....
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....ument of the AO i.e., if the long-term capital gain claim of the assessee was held as genuine, his alternate proposition became operative, did not stand to reason because if the LTCG was held valid and genuine, then, why there would be a need to view it differently. The learned CIT(A) also held that the assessment framed by the AO was on an entirely different concept and there was absolutely no whisper in the impugned assessment order about this line of treatment. Hence, this contention of the AO was liable to be rejected merely for this reason. On merits also, the learned CIT(A) examined the nature of transactions on various parameters in the case of all the assessees which are at pp. 52 to 62 of the appellate order at para 13. The learned CIT(A) thereafter, examined the issue on the basis of various tests laid down in various judicial pronouncements relied on both by the AO and the assessee and rejected the contention made by the AO at the appellate stage to treat the same as adventure in the nature of trade. The relevant findings of the learned CIT(A) are as under : "19. Highlights of my observations and findings on all the issues (supra) are as under : 1. Evid....
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....s testimony behind his back cannot be used against him without affording him opportunity to cross-examine the same' Held : valid. 21. Appellant's assertions that in lieu of cross-examination the AO asked him to rebut the disputed testimony through his reply' then affidavit submitted by him reconfirming all share transactions, still remaining unrebutted, should have been accepted and no addition should have been made in such circumstances' Held : valid. 22. No incriminating material recovered as a result of search that could justify viewing share transaction with suspicion. 23. LTCG on same transactions accepted as genuine and valid in original assessments of all assessee of appellant-group. 24. The AO has not been able to make out a case against the assessee of this group that cash was flown from assessee to be deposited in the accounts of ultimate buyers of shares. 25. On some occasions evidence/testimonies of brokers are produced/quoted by the AO selectively, out of context, to suit his assertions but when seen in its entirety I hold no adverse inference on the basis of same can be drawn. 26. Whether violation ....
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....s which got confirmed by the statement of Shri Pradeep Kumar Daga. The learned CIT-Departmental Representative contended that these transactions were done off market and the brokers, in case of such transactions, failed to inform the stock exchanges as per relevant rules, hence, this fact also supported the view taken by the AO. The learned CIT-Departmental Representative contended that the contract notes submitted by the assessee during the course of assessment proceedings were sent to the Kolkata Stock Exchange for confirmation, which process revealed that there were certain discrepancies in the quantity shown in the contract notes and the information available in the records of Kolkata Stock Exchange. The learned CIT-Departmental Representative also submitted that some of the transactions were not on record of the stock exchange at all. The learned CIT-Departmental Representative, thereafter, contended that the statement of Shri Pradeep Kumar Daga, Shri Rajendra Bubna, Shri Prabhudayal Chowmal and Shri N.M. Lohia wherein they had admitted that no such transactions took place were put across to the assessee. However, the assessee failed to controvert the same and to prove the gen....
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....rips which were also filed along with the returns to substantiate its claim of capital gain. In the background of these facts, the learned counsel submitted that the AO in para 7 of the assessment order stated that there was no dispute as regards to the fact that the assessee received the amount which was claimed to be the sale proceeds of shares. However, according to the AO, the assessee failed to establish that what he received was the consideration on sale of the shares of such companies and, therefore, he added entire sale proceeds as income from undisclosed sources under s. 68 of the Act. The learned counsel submitted that in doing so, the AO relied on ex parte evidence of some of the brokers recorded behind the back of the assessee which could not be treated as evidence as the assessee was not allowed to cross-examine those persons in spite of specific demand being made by the assessee in this regard. He referred to first para of letter of the AO placed at p. 126 of the paper book, wherein the AO had mentioned that no cross-examination was possible and the assessee could rebut the statement given by such brokers by submitting reply/affidavit. The learned counsel, thereafter,....
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....submitted that no enquiry was made by the AO from him nor from the assessee. However, necessary documentary evidences were submitted. The learned counsel submitted that in the case of shares of Seagull Leafins Ltd., broker did not respond. However, the assessee submitted various documentary evidences including letter of the company showing the delivery of the shares to the assessee. Similar was the case in respect of shares of Authentic Investment & Finance Ltd. In the case of Seagull Leafins Ltd. purchased through Ladha & Co., they had confirmed the transactions and the company had also confirmed the fact of assessee being a registered shareholder. As regards the shares of M/s Minolta Finance Ltd., purchased through Bubna Stock Brokers, the learned counsel submitted that this broker had entered into transaction of purchase only for Kumari Komal Agrawal and for no other assessee of the Haldiram Group. Hence, his statement that he had not entered into any transactions on behalf of the assessee could not result into any adverse inference against the assessee. Similarly, the learned counsel submitted the details of brokers involved in sale transactions and contended that most of them ....
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....uch transactions have been taken into consideration while filing the returns for these years in the normal course and the Department has also accepted the nature of such transactions. It is very important to note that no incriminating material has been found during the course of search which could have cast doubt on the genuineness of the transactions or could have indicated that it was a case of assessee's own undisclosed money utilized in the execution of such transactions. In the assessment order as well as at the first appellate stage and also before us, the focus of the Department is on the quantum of transactions entered into by the group as a whole and, therefore, we find substantial merit in the view of the learned CIT(A) that it is this fact which has resulted into such action of the AO. We have also noted that voluminous documentary evidences have been filed by the assessee to prove its claim which support the genuineness of the transaction. However, the AO has utilized the statements of the persons who were not cross-examined by the assessee. Hence, as per the settled judicial principle, such statements cannot be given any weightage. We are further of the view that w....
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....eral public are protected by prohibiting the market intermediaries from indulging in unfair trade practices rigging of a particular in collaborated manner. The order of the SEBI relied on by the Revenue is mainly on the aspect of price rigging in such manner. Hence, in our view, the same cannot be of any assistance to the cause of the Revenue. Thus, on the basis of appreciation of facts and circumstances of the case as a whole and considering the documentary evidences on record, we are of the view that the share transactions cannot be considered as ingenuine/sham and, therefore, the sale proceeds of such share transactions cannot be taxed under s. 68 of the Act. 9. Now, coming to the plea of the Revenue regarding treatment of such transactions as of the adventure in the nature of trade taken during the course of appellate proceedings for the first time, we find that in the course of assessment proceedings, the AO has taken a definite stand of such transactions being bogus or sham. Hence, such plea has rightly been rejected by the learned CIT(A) after examining the scope of the powers of the CIT(A) as well as role of the AO in the scheme of Act. In this regard, we are further of ....
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.... the facts of the case wherein ratio of such decision is applied and in the present case we are of the view that the ratio of these decisions is not applicable. In this regard, we find that the learned CIT(A) has examined the matter in detail and we are in agreement with her findings. 11. During the course of hearing, the Revenue has pleaded for opportunity of further investigations/hearing to the Department by learned CIT(A). In this regard, we are of the view that in this present case, the AO has made detailed enquiries and the services of Investigation Wing of the Department have also been obtained and the order has been passed after consuming the suitable time. Hence, these contentions are devoid of any merits and, therefore, we reject the same. We are further of the view that lapse of time between the transaction taking place and this sort of opportunity may render such exercise as futile one because with the passage of time many things happen, such as, that party might have closed down the business, or have migrated from that place or the records may not be available as the same could have been destroyed, after the passage of time required for the maintenance of such recor....
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....rt on the order of Hon'ble Tribunal in M/s Simple Food (P) Ltd. and that the matter has not become final." Learned counsel for the assessee submitted that this issue was involved in favour of the assessee by the order of the Tribunal in assessee's own case in ITA Nos. 17 and 18/Nag/2007 which had been followed by the learned CIT(A) and the Department has filed this appeal merely for the reason that the said order of the Tribunal had not been accepted by the Department but as on date, this order was pending. The learned Departmental Representative could not rebut the said claim of the assessee. However, he preferred to rely on the order of the AO. In these circumstances, we are of the view that the issue is covered by the order of the Tribunal in assessee's own cases for earlier years. Hence, we dismiss both these grounds of the Revenue. 20. In the result, appeal filed by the Revenue is dismissed. IT(SS)A Nos. 61 & 63/Nag/2007 21. The grounds raised in IT(SS)A No. 61 read as under : "1. That, on the facts and in the circumstances of the case, the learned CIT(A) has erred in holding that the share application money claimed to have been received by the....
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....assessed to income-tax and the share application money claimed to have been given to the assessee has been reflected in the balance sheets furnished with the AO. The AO doubted the genuineness of the transaction mainly on the ground that the notice under s. 133(6) to the share applicant returned unserved by the postal authorities. We find that on the above facts, the decision of Hon'ble apex Court in the case of CIT vs. Orissa Corporation (P) Ltd. (1986) 52 CTR (SC) 138: (1986) 159 ITR 78(SC) would be squarely applicable. The facts in the case of Orissa Corporation (P) Ltd. (supra) were that the assessee was a private limited company which has claimed to have received the loan of Rs. 1,50,000 from three creditors. The assessee has produced before the AO the confirmation of the creditors and their GIR numbers. The assessee could not produce the creditors and the summons issued under s. 131 by the AO were returned with the remark of the postal authorities 'left'. Therefore the AO treated the sum of Rs. 1,50,000 as unexplained cash credit. The Tribunal deleted the addition. The order of the Tribunal was upheld by the High Court. On appeal to the Supreme Court by the Revenu....
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....e assessee company he could have taken the appropriate action in accordance with law in the case of the share applicant. But so far as the assessee-company is concerned, it has duly discharged the onus lay upon it to prove the share capital. In view of the above, we respectfully following decision of Hon'ble apex Court in the case of Orissa Corporation (P) Ltd. (supra) and Lovely Exports (P) Ltd. (supra) uphold the order of the CIT(A) in the case of both the assessees and dismiss the grounds raised by the Revenue." The facts, being identical and there being no change in law, hence, respectfully following the ratio of the impugned decision of the Tribunal, we dismiss both these grounds of the Revenue. 21.2 As regards the issue raised in ground No. 3, the learned counsel submitted that this issue was also covered by the order of the Tribunal in assessee's own case as stated hereinbefore and referred to para 3 of the order of the Tribunal. The learned Departmental Representative could not controvert the claim of the assessee. However, he preferred to rely on the order of the AO. 21.3 We find that this issue arose before the Tribunal in asst. yr. 2000-01 also wherein t....
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....has erred in holding that remuneration of Rs. 9 lakhs treated as excessive payment made to Smt. Reenadevi Agrawal was justified vis-a-vis the commercial needs of the assessee company." 23. The learned counsel submitted that this issue was also covered by the decision of the Tribunal in the case of Abhinav Food Products (P) Ltd. in IT(SS)A No. 62/Nag/2007 for asst. yr. 2005-06 order dt. 3rd March, 2009 and drew our attention to paras 7 to 9 of the order. 24. We find that in the case cited before us, the AO had disallowed 25 per cent of the remuneration paid by that company to its director under s. 40A(2)(b). The learned CIT(A) had deleted the disallowance for the reason that the lady to whom such payment was made could make her contribution in the business affairs of the assessee. Hence, the amount of remuneration so paid was commercially justified. The Tribunal confirmed these findings of the learned CIT(A). The facts, in the present case, are identical. Hence, the ratio of this decision of the Tribunal is squarely applicable. Accordingly, we hold that the remuneration so paid is in accordance with the legitimate needs of the business. Thus, this ground of the Revenue is dism....
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....applicability of any such theory. Any legal principle or theory cannot exist independent of facts of the case. As I have mentioned above share transactions of the appellant-group were not considered and examined properly by the AO. The case of Sumati Dayal is unique of its kind. The principle laid down by the apex Court in the said case has to be examined and applied in the specific context of facts of the case. It is a case where s. 68 of the Act comes into play. Certain amounts were credited in her capital account, in her books for the asst. yrs. 1971-72 and 1972-73. The explanation offered by her about the said receipts as being her winnings races was not accepted by the Department. The dispute arose as to whether the said receipts were really the winnings of the assessee from the races mentioned by her. This raises the question whether the apparent can be considered as real. As laid down by the Hon'ble Supreme Court in another case in CIT vs. Durga Prasad More 1973 CTR (SC) 500: (1971) 82 ITR 540(SC) apparent must be considered real until it is shown that there are reasons to disbelieve the apparent as not the real, authorizing the taxing authorities to look into the surrou....
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....in the light of aforesaid judgment of Hon'ble Supreme Court. No useful purpose served here by referring to the same. Thus it can be seen that, firstly, theory of probability has to be seen and applied in specific context of the facts of each case; secondly, any such situation warranting application of theory of probability has wide implications and cannot be utilized just for serving the purpose of IT Department to tax any receipt at the maximum rate which otherwise genuinely and legitimately falls under a different category attracting less tax liability. In the final analysis, I may conclude here that I do not see any scope for applying theory of probabilities in the facts and circumstances of the case." Aggrieved by this, the Revenue is in appeal before us. 29. The learned Departmental Representative narrated the facts and placed strong reliance on the order of the AO. The learned counsel for the assessee, on the other hand, placed strong reliance on the order of the CIT(A). 30. We have considered the submissions made by both the sides, perused the material on record and gone through the orders of the authorities below. It is noted that the AO has not conduc....
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....mount mentioned by Shri Tilak Singh Parmar represented undisclosed income of the assessee. He made addition of Rs. 13,47,485 in asst. yr. 2003-04 and remaining amount of Rs. 36,52,615 was taxed in asst. yr. 2004-05. Aggrieved by this, the assessee carried the matter in appeal before the learned CIT(A) wherein it was contended that the amount recorded to be received in the diary was fully recorded in the books of account of M/s Haldiram Foods International Ltd. and similarly payments were also recorded. The assessee also submitted details of payments. It was also contended that the statement of Shri Tilak Singh Parmar was not corroborated by any documentary evidence, hence, could not be used against the assessee in view of CBDT Instruction No. F-286/2/2003/ITI(Inv.), dt. 10th March, 2003. The learned CIT(A) deleted the addition after examining the contents of the diary in detail with reference to the entries in the books of account of various assessees of Haldiram Group, which, in the opinion of learned CIT(A), were not checked by the AO while making the said addition. Aggrieved by this, the Revenue is in appeal before us. 35. The learned Departmental Representative narrated the ....