TaxTMI 
TaxTMI 
2013 (7) TMI 950
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....ed therein. After analyzing the grounds taken by these assessees in all the assessment years, the following issues have emerged for our consideration:- (i) whether the learned CIT(A) erred in confirming the addition made by the AO by treating the sale proceeds received on sale of shares as unaccounted income of these assessees without appreciating that no incriminating evidence was found in the course of search relating to said addition made and Hence, as the assessment was completed under s. 153A, the said additions are not warranted. (ii) whether the learned CIT(A) erred in holding that the sale proceeds on the sale of the scrips which are mentioned in the respective assessment orders was taxable as unaccounted income as against capital gain offered by the assessee. (iii) whether the learned CIT(A) erred in holding that there was manipulation in the purchase and sale prices of the shares which are sold by the assessee and declared the capital gain. (iii) whether the learned CIT(A) erred in holding that there was manipulation in the purchase and sale prices of the shares which are sold by the assessee and declared the capital gain. (iv) whether the learned CIT(A) er....
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....0 Total 41,300 41,300 2. 2005-06 Fast Track Entertainment Ltd. 10-04-2003 40,000 1,20,000 shares purchased from Vijay Bhagwandas and Co. and balance 1,09,000 shares purchased from DPS Shares and Securities 17-6-2004 40,000 80,000 Shares sold through KNC Shares and Securities, 20,000 shares sold through DPS Shares and Securities, 20,000 shares sold through Vijay Bhagwandas and Co and Balance 1,09,000 shares sold through IL and FS Investment 16-04-2003 40.000 18-06-2004 30,000 06-05-2003 20,000 21-06-2004 10,000 22-05-2003 43,000 22-09-2004 20,000 30-05-2003 66,000 11-10-2004 20,000 03-06-2003 20,000 16-12-2004 10,000 17-12-2004 10,000 21-12-2004 10,000 22-12-2004 10,000 23-12-2004 5,000 24-12-2004 15,000 27-12-2004 15,000 28-12-2004 20,000 29-12-2004 14,000 Total 2,29,000 2,29,000 3. 2005-06 Talent Info Ltd. 24-04-2003 10,000 Mahasagar Securities 17-06-2004 7,000 Mahasagar Securities 28-04-2003 11,000 7-07-2004 1,800 16-07-2004 12,200 Total 21....
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....vestment 14-05-2003 24,800 06-07-2004 20,000 20-05-2003 50,000 13-09-2004 17,500 22-05-2003 41,000 10-12-2004 31,000 03-06-2003 29,500 14-12-2004 25,000 04-06-2003 8,000 16-12-2004 3,000 18-12-2004 15,000 21-12-2004 7,000 22-12-2004 10,000 Total 1,88,500 1,88,500 3. 2005-06 Talent Info Ltd. 24-04-2003 10,000 Mahasagar Securities 16-06-2004 22,000 Mahasagar Securities 28-04-2003 12,000 15-12-2004 18,000 5-08-2003 18,000 Total 40,000 40,000 4. 2005-06 Sangotri Construction 11-06-2003 7,000 Bubna Stock Broking 02-07-2004 20,000 Bubna Stock Broking 20-06-2003 8,000 08-07-2004 2,000 25-06-2003 7,000 Total 22,000 22,000 5. 2005-06 Niharika Ind. Ltd. 10-06-2003 10,000 Bubna Stock Broking 13-07-2004 2,000 Bubna Stock Broking 19-07-2004 6,000 20-07-2004 2,000 Total 10,000 10,000 6. 2006-07 Prranetta Ind. Ltd. 6-04-2004 3,00,000 Vijay Bhagwandas and Co. ....
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....-04-2005 1,50,000 26-04-2005 2,00,000 Total 6,00,000 6,00,000 (e) Name:- Prasad D. Patil (HUF) Sr. No. Asst. yr. Name of the scrip Date of purchase No. of shares Broker's name from whom shares are purchased Dale of sale No. of shares Broker's name from whom shares are sold 1. 2005-06 Fast Track Entertainment Ltd. 11-11-2003 12,500 DPS Shares and Securities 20-01-2005 5,500 IL and FS Investment 19-12-2003 13,000 27-01-2005 8,000 28-01-2005 10,000 01-02-2005 2,000 Total 25,500 25,500 2. 2006-07 Prranetta Ind. Ltd. 21-04-2004 3,25,000 DPS Shares and Securities 16-09-2005 25,000 1,10,000 Shares sold through IL and FS Investment and Balance 6,40,000 shares sold through Karvy Stock Broking 22-04-2004 4,25,000 19-09-2005 75,000 20-09-2005 35,000 21-09-2005 1,05,000 22-09-2005 35,000 23-09-2005 80,000 26-09-2005 45,000 14-10-2005 45,000 17-10-2005 45,000 18-10-2005 50,000 25-10-2005 50,000 03-01-2006 40,000 04-01-2006 40,000 05-01....
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.... (vii) Full-fledged enquiries were launched by the Bombay Stock Exchange (BSE) and Securities and Exchange Board of India (SEBI) into the purchase and sale of those shares and it was found by them that the prices of the shares were manipulated. The AO has noted that SEBI suspended some of the brokers including the brokers Vijay Bhagwandas and Co., DPS Shares and Securities (P) Ltd. and T.H. Vakil. It appears that assessee initially took the stand that, as noted by the AO all the shares in respect of which long-term capital gain has been declared were purchased through the stock exchange and it was denied that there was any off-market transactions. The AO made the enquiry with the stock exchanges and it was confirmed by the said Exchanges that the purchase of the shares were not done on-line. Independently, letters were also addressed by the AO to the Bombay* Stock Exchange (BSE), Ahmedabad Stock Exchange and Kolkata Stock Exchange and the said letters are made annexures to the assessment orders. The AO issued summons to the brokers, more particularly to M/s Vijay Bhagwandas and Co., DPS Shares and Securities (P) Ltd. and M/s Mahasagar Securities Ltd. Their statements were recorde....
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....s and Co., Action Financial Services and Ors. were found to be acting in concert with certain entities and promoters in off market transactions in the scrip. The AO has also noted that the clients connected to the brokers accounted for 71 per cent of the total buy orders during the period from 1st Jan., 2004 to 24th March, 2004. The AO has noted that in spite of the said dealings, no disclosures were filed by the company Fast Track Entertainment Ltd. under the SEBI Regulations. The AO has noted that it was reported that action was initiated against the said brokers for acting in concert with promoters/connected entities and entering into circular deals via market and off-market transactions. In all these transactions the charge of non-genuine transaction is based on the investigation carried out by BSE in respect of trading in shares of Fast Track Entertainment Ltd. and Pranneta Industries by M/s Vijay Bhagwandas Shah, DPS Shares and Securities Ltd. which allegedly made major role in influencing the price of those shares/scrips. Same way the AO has discussed each scrip in the assessment order to make out a case that all these companies were not having the good financial standing an....
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....the contract notes reflect genuine transactions. As these assessees failed to produce the brokers, the learned CIT(A) concluded that the brokers notes produced by these assessees are not genuine as the brokers have already denied in their statements having issued those contract notes which are available on record. 9. The learned CIT(A) further observed that one of the assessees Shri P.D. Patil is investing in "stocks market" from 1996 and accordingly, he must be fully aware of the difference between a transaction routed through Stock Exchange and off-market transaction. The learned CIT(A) further noted that when the brokers admitted the transactions which were not routed through the Stock Exchange then only these assessees took the stand that the transactions were carried on through the off-market. The learned CIT(A) also noted that the assessees have not been able to point out as to why the contract notes were issued which gave the impression that the transactions were routed through stock exchange but in reality, the transactions were off-market transactions. According to the learned CIT(A), the off-market transactions are contractual transactions between two private individua....
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....tive part of the final conclusions and findings of the learned CIT(A) in the case of Smt. Bhagyashree P. Patil (lead case) for the asst. yr. 2006-07 which have been followed in the other assessments as well as other assessees are in para Nos. 23 and 24 of his order which read as under:- "23. As discussed in the preceding paras, the shares credited to the demat account of the appellant were not acquired by her through the contract notes produced by her before the AO as these contract notes were not found genuine as a result of inquiries from various stock exchanges. Therefore, onus was on the appellant to prove genuineness of purchases of these shares by the contract notes which were produced by her before the AO. However, she did not discharge this onus. Under the circumstances, I am inclined to hold that these shares were acquired from undisclosed sources. As discussed earlier, sales of most of these shares were done on the stock exchanges and were routed through the electronic platform of these stock exchanges. However, the proceeds of the sale after deducting the alleged cost of purchases cannot be treated as capital gains because of the following important facts relating to ....
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....l No. 3 is dismissed." We would like to mention here that the learned CIT(A) has discussed the each scrip separately but there is reproduction of the assessment order as well as the replies filed by the assessees in his order which became bulky. 11. All these assessees have challenged the impugned orders of the learned CIT(A) before us. The learned counsel for the assessee submits that the lead case in this group of Smt. Bhagyashree P. Patil, ITA No. 1419/Pn/2012 for the asst. yr. 2005-06. He submits that before one decade off-market transactions were known in the capital market and it was not necessary that all the shares transactions should have been routed through the stock exchanges. In respect of the allegation of the bogus contract notes, the learned counsel submits that the assessee is not aware what the statements are given by those assessee's brokers in the investigation made either of the Department or by the SEBI. He submits that law is well settled that no material or evidence should be used against the assessee which is collected behind his back. He argues that the assessees made specific request for giving an opportunity to cross-examine those brokers which ....
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....paper book where the chart is filed and pointed out that in some of the scrips the shares were purchased from the same brokers as well as sold through the same brokers. He submits that when the sale is effected through and shares are transferred from demat account how the Department can question the genuineness of those sale transactions? It is something strange that the Revenue suspected the sales done through the demat account are also non-genuine. He submits that the AO has not appreciated that the assessees have sold the shares through stock exchanges and the sale prices tallied with the market quotations on the date of sales. He raised a question in his argument by submitting that how the sale through the stock exchange using demat account can be manipulated. The entire case of the Revenue is based on only the suspicion and it cannot be said that the same is supported by some substantial evidence. He argues that as regards the objection that the sale prices were in sharp contrast to the financial standing of the companies but the fact remains that the share market is driven by sentiments and there are so many factors and reasons for increase in the value of the shares. He poin....
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....its that the share transactions are properly reflected in the books of account and during the course of the search nothing has been found to suggest that there was any manipulation in the purchase of the shares. He submits that only after necessary endorsement, these certificates were submitted to DP for demat. He argues that that all the steps required for demating were followed by these assessees which clearly indicate that all anterior steps-starting from physical purchase of shares through brokers, endorsement in company's record regarding transfer till sale through stock exchanges were followed. The learned counsel referred to the copy of the return of income filed in the compilation and submits that all the shares transactions were duly reflected in the balance sheet. He further argues that all the transactions are recorded in the regular books of account which is otherwise not disputed by the AO. The transactions recorded in regular books of account cannot be given the treatment as unrecorded transactions for arriving at the conclusion that those are bogus or non-genuine one. He submit that the assessees have paid the purchase cost of the shares to the brokers and nowher....
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....he assessees have requested to those brokers to appear before the AO is evident that the assessee was not hiding or avoiding to prove the transactions but for the reasons best known to those brokers, they did not appear before the AO. He submits that the assessee specifically made request to the AO to issue summons to those brokers under s. 131 of the IT Act but that was also not considered. He argues that by picking up few statements of some brokers which are general in nature in respect of some scrips, the AO has made case of alleged bogus share transactions against the assessees. The learned counsel relied on the following precedents in support of the plea that the evidence collected behind the back of the assesse should not be used against them unless the same is confronted:- (i) Kishanchand Chellaram vs. CIT (1980) 19 CTR (SC) 360: (1980) 125 ITR 713 (SC); (ii) Nathu Ram Premchand vs. CIT (1963) 49 ITR 561 (All); (iii) E.M.C. (Works) (P) Ltd. vs. ITO (1963) 49 ITR 650 (All); (iv) Alok Agarwal vs. Dy. CIT (2000) 67 TTJ (Del) 109; (v) Monga Metals (P) Ltd. vs. Asstt. CIT (2000) 67 TTJ (All) 247. 14. He submits that so far as the alleged statements of those thre....
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....Wing, modus operandi of these assessees has been exposed. He submits that only after the search operation the modality adopted by these assessees for making their black money into white money came to the light. He submits that both the authorities below have considered each and every scrip in which these assessees have allegedly made the transactions i.e. the purchase and sale. He submits that though there is no evidence of purchase of the shares but all the shares transferred to the assessee's demat account and then only those shares are sold. He submits that the evidence of the three brokers is reliable as they have made categorical denial in respect of brokers notes produced by these assessees. He submits that the orders of the authorities below are self-explanatory and accordingly he placed his reliance on those orders. 17. We have heard the rival submissions of the parties and anxiously considered the facts as well as the arguments. There are two core issues to be adjudicated (i) whether the entire sale proceeds of the shares received by these assessees can be treated as an income from undisclosed sources? and (ii) whether there is any justification to hold that these a....
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.... 19. Moreover, the statements were also recorded by the Investigation wing of the Department in which it is claimed by the AO that all the brokers have denied having done transactions for these assessees. Let us deal with the charge of the AO for making out the case that the share transactions claimed by these assessees are in fact in the nature of the accommodation entries. As per the chart given hereinabove, it is seen that the assessees have purchased the shares in different lots from the different brokers. In case of some shares like Talent Info Ltd., Sangotri Constructions and Niharika Industries Ltd. the shares were purchased and sold by same brokers. The AO put his main thrust on the statement given by Vijay Bhagwandas and Co., DPS Shares and Securities (P) Ltd. and T.H. Vakil. Admittedly, in all these cases these assessees made a specific request for giving the opportunity to cross-examine the brokers who have allegedly deposed against these assessees in respect of the claim of purchase and sale of the shares. 20. The AO has also relied on the correspondence made with Bombay Stock Exchange (BSE), Ahmedabad Stock Exchange and Kolkata Stock Exchange. The AO has also mad....
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....after the shares are sold. In our opinion this aspect has already been considered by the other Co-ordinate Benches as there are plethora of decisions on identical controversy, including the decision of the jurisdictional High Court on the issue of off-market transactions which we are going to discuss at the later part of this order. In our opinion when the shares are in physical form with the assessee and it is subsequently dematerialized that itself cannot be the ground, at least on the facts of these cases, to make one of the pillars of the suspicion. In these cases, we find that most of the companies have acknowledged that they have transferred the shares on the claim of these assessees. It is also seen that in case of some of the investee companies, smaller share certificates are consolidated and jumbo share certificates are issued which are also placed by these assessees on record. For example the Fast Track Entertainment Ltd. has issued a letter to the assessee dt. 16th Feb., 2004 copy placed at page No. 585 of the compilation of paper book-2 in respect of issuing the jambo share certificate. 23. The assessees have also filed the copy of the jumbo share certificates which ....
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....e already shown the share transactions in their balance sheets and the share transactions are duly recorded in the regular books of account. The case of the Department is that even if the sales are made through the demat account, all these are arranged transactions and hence, the entire money received on the sale of these shares (even though the sale is made through the demat account and through the stock exchanges), to be treated as undisclosed income of these assessees. It is something strange that the charge made by the AO that the brokers are located at different locations like Ahmedabad and Kolkata but payments are routed from Bombay. In our opinion, nowadays it is common in the core-banking system to transfer the money from any location to another location and due to the electronic media even the trading can be done on-line on small Laptop. Hence, such statement of the AO is having no merit. The AO has made the general comments without bringing on record any concrete evidence to indicate that these assessees were in league with the brokers in the transactions of the specific scrips. The AO is referring and relying conveniently only on the three brokers whose names are noted i....
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....ny has confirmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares to the respective buyers is also established by producing documentary evidence. It is true that some of the transactions were off-market transactions. However, the purchase and sale price of the shares declared by the assesses were is conformity with the market rates prevailing on the respective dates as is seen from the documents furnished by the assessees. Therefore, the fact that some of the transactions were off-market transactions cannot be a ground to treat the transactions as sham transactions. 13. The statement of Pradeep Kumar Daga that the transactions with the Haldiram Group were bogus has been demonstrated to be wrong by producing documentary evidence to the effect that the shares sold by the assessees were in consonance with the market price. On perusal of those documentary evidence, the Tribunal has arrived at a finding of fact that the transactions were genuine. Nothing is brought to our notice that the findings recorded by the Tribunal are contrary to the documentary evidence on record. 14. The Tribunal has further recorded a finding of fact that the c....
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....al gain declared by the assessee was arranged transactions. The operative part of the Tribunal order is as under:- "9.5 From the above, it is clear that Mr. Mukesh Choksi is double 'speaking in his statements i.e. one given before the AO. and the one during cross examination before the AO. Under these circumstances one has to see the evidentiary value of a person making double speaking. We find the Hon'ble Calcutta High Court in the case of Eastern Commercial Enterprises (supra) has held that a man indulging in double speaking cannot be said by any means a truthful man at any stage and no Court can decide on which occasion he was truthful. We find the Co-ordinate bench of the Tribunal in the case of Mrs. Uttara S. Shorewala (supra) (in which one of us-the AM is a party) following the decision of Hon'ble Calcutta High Court upheld the order of the learned CIT(A) in holding that the AO cannot make any addition in the assessee's hands despite the assessee not having made any payment to the entities mentioned by Shri Choksi. whose statement is being relied upon by him. The CIT(A) also noted that Mr. Mukesh Choksi has been vacillating right through and has given diffe....
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....se of Avinash Kantilal Jain (supra), the identical issue has been examined by the Tribunal, Pune Benches, Pune (to which we are the parties). There was identical charge of the arranged transactions. The Tribunal dismissed the case of the AO and held as under:- "6. Per contra, the learned Departmental Representative supported the order of the learned CIT(A) on this particular finding. We find that in this case, the assessee has filed broker's note i.e. from M/s D.K. Khandelwal and Co. The assessee has taken consistant stand that it was off market transaction and after purchasing those shares, the assessee tried to sell off but he could not do so. We further find that the assessee has reflected those transactions in his books of account. The assessee has filed the paper book in which he has filed the balance sheet for the financial year. ending 31st March, 2005 and under the head 'Investment and deposit', the assessee has shown the shares of Prime Capital Market (page No. 36 of the paper book). We further find that the AO has made the general observation in respect of the enquiry initiated against the broker M/s D.B. Khandelwal and Co., but no details are given in the ....
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....of the stock exchange. The matter being so, there is no probative value for the negative replies solicited by the assessing authority from the respective stock exchange. We are of the considered view that (the materials collected by the assessing authority from the stock exchanges are not valid to dispel or disbelieve the contentions of the assessee). 10.5 The next set of evidences relied on by the assessing authority are the statements obtained from various parties. When certain persons like Radha Ashok and Sandeep D. Shah made negative statements against the assessee, persons like Satish Mandovara and Mangesh Choksi had given positive statements in support of the contention of the assessee. But, the assessing authority sought to pick and choose the statements given by various parties. While accepting and rejecting such statements given by the parties, the AO has made a mistake of accepting irrelevant statements and rejecting relevant statements. During the relevant period in which the assessee transacted in shares, persons like Radha Ashok and Sandeep D. Shah were not carrying on their business of brokers as in the manner they carried on the business in the past. Even their....
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....rd. In the present case, the assessee has maintained the books of account and the assessee has also reflected the purchase transaction of the shares of M/s Prime Capital Market Ltd. The AO has not made any comment in respect of the books of account maintained by the assessee. The only reservation of the AO is that the assessee converted the physical shares into the electronic form by crediting the same in the demat account after 14 months. We have already held that the assessee has purchased those shares on 14th May, 2004. On our said finding, the ground Nos. 1, 2 and 3 are to be decided against the Revenue." 29. After examining facts as well as evidence on record in the back drop of the legal principles laid down in above decisions we are of the considered opinion that the AO has failed to establish a clear case against the assessees that the share transactions, on which the long-term capital gains have been declared, are sham and camouflage. In our considered opinion the reliance placed by the AO on the evidence without affording opportunity to the assessee to cross-examine the three brokers who have allegedly denied the issuance of the contract notes also goes in favour of th....