TaxTMI 
TaxTMI 
2013 (7) TMI 950
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.... 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) erred in confirming the addition on account of alleged pa....
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....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 21,000 21,000 4. 2005-06 Sangotri Construction 13-06-2003 22,000 Bubna Stock Broking 18-06-2004 10,000 Bubna Stock Broking 23-06-2004 12,000 5. 2005-06 Niharika Ind. Ltd. 09-06-2003 12,000 Bubna Stock Broking 15-07-2004 2,000....
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.... 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. 12-05-2005 5,80,000 Vraj Finance 8-04-2004 2,50,000 23-05-2005 2,30,000 13-04-2004 3,00,000 27-05-2005 40,000 Total 8,50,000 8,50,000 (d) Name:- Somnath Prasad Patil Sr. No. Asst. yr. Name of the scrip Date of purchase No. of shares Broker's name from whom shares are purchased Date of sale No. of shares Broker's name from whom shares are sold 1. 2004-05 G Tech Info Ltd. 5-4-2002 10,800 T.H. Vakil 1-4-2003 21,500 Ruchiraj Investments 22-5-2002 10,700 Total 21,500 21,500 2. 2005-06 Fast Track Entertainment Ltd. 16-04-2003 25,000 97,500 shares purchased from Vijay Bhagwandas and Co. and balance 94,000 shares purchased From DPS Shares and Securities 07-06-2004 ....
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....06 30,000 12-01-2006 30,000 Total 7,50,000 7,50,000 (f)Name: Yashraj Prasad Patil Sr. No. Asst. yr. Name of the scrip Date of purchase No. of shares Broker's name from whom shares are purchased Date of sale No. of shares Broker's name from whom shares are sold 1. 2006-07 Prranetta Ind. Ltd. 07-04-2004 6,30,000 DPS Shares and Securities 08-08-2005 2,50,000 6,30,000 Shares sold through Vraj Finance. 95,000 shares sold through IL and FS Investment and Balance 6,54,101 shares sold through Karvy Stock Broking 21-04-2004 2,70,000 10-08-2005 3,00,000 22-04-2004 4,79,101 11-08-2005 80,000 04-10-2005 50,000 05-10-2005 50,000 06-10-2005 30,000 07-10-2005 40,000 10-10-2005 1,00,000 11-10-2005 30,000 13-10-2005 45,000 14-10-2005 45,000 17-10-2005 50,000 18-10-2005 35,000 20-10-2005 25,000 25-10-2005 25,000 03-01-2006 25,000 04-01-2006 30,000 05-01-2006 40,000 09-01-2006 30,000 12-01-2006 30,000 13-01-2006 69,101 Total 13,79,101 13,79,101 6. On the basis of the evidences found and enquiries made, as noted by the AO, the following facts were revealed:- (i) The peculiar pattern has em....
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....tand that the brokers have given statement against the assessees to save their own skin and all these assessees requested for opportunity to cross-examine those brokers. The AO denied the request of the assessees to cross-examine the broker by expressing his opinion that "there is nothing relevant in the above as all the stock exchanges i.e. Kolkata, Ahmedabad and Mumbai, have confirmed that none of the shares have been purchased in on-line trading". 6.1 The AO also raised a question on the contract notes issued by the brokers and in his opinion when the transactions are not done through the stock exchanges then how those contract notes were issued by the brokers. In the opinion of the AO as these assessees have declared the capital gains to the extent of Rs. 11,65,61,434, the onus is on these assessees to prove that the purchase and sale transaction of the shares are genuine. Thereafter, the AO proceeded to examine the scrip-wise transactions in all the cases of the assessees. The AO placed his reliance particularly on the denial made by the brokers for dealing with the shares on behalf of these assessees more particularly M/s Vijay Bhagwandas and Co., DPS Shares and Securities (....
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....s, facts reported by Magadh Stock Exchange, Bombay Stock Exchange and National Stock Exchange concluded that these assessees booked bogus long-term capital gains (LTCG) and introduced unaccounted income into the books/bank accounts in the guise of long-term capital gains and made the addition on the charge of fictitious purchases/sales of the shares, inclusive of brokerage @ 6 per cent. The working of the brokerage @ 6 per cent has not been separately discussed. The AO made the additions of the entire sale proceeds on shares shown by the assessees treating the same as undisclosed income. All these assessees carried the issues before the learned CIT(A). 8. The learned CIT(A) discussed each and every scrip in his detailed orders. The learned CIT(A) discussed the contradiction in the contract notes issued by the brokers. The learned CIT(A) has observed that the alleged contract notes issued by the brokers give the impression that the shares transactions are routed through the stock exchange when in reality no transactions were carried out from the stock exchanges. The learned CIT(A) also referred to the letter given by one of the assessees to SEBI dt. 6th Oct., 2005 in which it was c....
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....iny by the stock exchanges and also SEBI. He, therefore, expressed his opinion that in such situation why the brokers are to take risk of penal consequences in respect of those transactions by showing them as done on stock exchanges. The learned CIT(A) finally held that the contract notes issued by the brokers are not genuine and the transactions represented by those contact notes are also bogus and sham. In para 15 of his order, the learned CIT(A) has noted that the shares credited in the demat account of these assessees are not the same shares which are claimed to have been shown in pursuance of the contract notes issued by the brokers. 10. He has further observed that the shares are sold at exorbitantly high price and therefore, the transactions cannot be believed as a genuine one. The learned CIT(A) held that the transactions of the purchase of shares are not genuine and accordingly confirmed the view of the AO that the purchase are only the accommodation entries but not the actual purchase of the shares. The assessee also took a ground that as no incriminating material was found during the course of the search and principles of natural justice were not followed while framing ....
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....was from undisclosed sources. (ii) the shares were sold at exorbitantly high prices which resulted in substantial gain to the appellant. Had the real nature of the transactions not unearthed by the Department, the appellant would have benefited by these exorbitant sale prices by paying either nil tax or tax at a very nominal rate. Therefore, the ultimate aim of the appellant was to acquire the exorbitant sale proceeds at nil or very nominal tax rate. Under the circumstances, I am inclined to agree with the contention of the AO that there was manipulation into the purchase and sale prices of these shares and the appellant was also part of this manipulation as she was one of the beneficiaries of this manipulation. The aim of the appellant by these manipulated sales and purchases was to get her undisclosed income converted into capital gain with nil or very nominal tax. Therefore, acquisition of these shares cannot be for investment. Thus, income arising out of sale of these shares cannot be taxed as capital gain whether long-term capital gain or short term capital gain. The income has to be treated as income from undisclosed sources. The appellant's reliance on various case law....
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....ly stated that they have not done any transactions of these companies or the assessees. He argues that the statements of those brokers appear to be of the general nature and there is no categorical statement any where in the orders of both the parties which were the questions specifically put to those share brokers relating to these assessees. He submits that merely on the basis of certain statements recorded which are not even put to the assessees nor any opportunity of cross-examination is provided how those statements can be admissible evidence against these assessees. 11.1 He further submits that the main thrust of the Department is on the rise in the sale prices of those scrips. He submits that in the commercial terms it is well-known that the prices of the scrip are flown with the winds and the sentiments. He referred to the assessment order as well as the order of the learned CIT(A) and submits that it is admitted fact that the purchase prices of those scrips are as stated in the assessment orders and also the sale prices, but the question which the Revenue has to answer what is the basis for arriving at the conclusion that there is an inflation of the sale prices by these ....
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....on of the AO that the demat accounts were opened just before the date of sale of shares he submits that the demat accounts were opened much prior to the date of the sale of the shares and hence, there is no merit in the contention of the AO that in respect of the charge that the assessee was not able to demonstrate that they have received the physical delivery of the shares. He submits that in the course of the assessment proceedings, it was clarified to the AO that the shares were delivered to the assessee by the brokers. It was also explained that the physical share certificates were sent to the investee companies and claim of the assessees was endorsed as the owners on the physical shares certificate. The learned counsel referred to page Nos. 580 to 663 of the paper book 2 where the details of physical share certificates issued by various companies and the correspondence between these assessees and the companies are placed. He submits that the assessees have also filed the copies of the demat accounts of all these assessees. He referred to page No. 584 of the paper book 2 which is a letter from Fast Track to the assessee for transfer of shares. He argues that the said letter is ....
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....abad while the payments of the alleged sale were received by means of DDs from Bombay. The learned counsel referred to page No. 371 of paper book and submits that only some brokers are not from Bombay through whom the shares were sold but otherwise most of the brokers are from Bombay only. He submits that the AO has not appreciated the fact that in case of Core Banking Systems, it is possible to take DD from any place in the country where facilities are available. He vehemently assailed the observation of the AO that SEBI and stock exchanges had carried out enquiries in respect of the transactions carried out by the brokers and therefore, the transactions are not genuine. He submits that the observations of the AO are general in nature without bringing any concrete evidence to indicate that these assessees were in league with the brokers in the transactions of specific scrips. He argues that the AO is referring only three brokers while the assessee had purchased shares of Talent Info, Sangotri Constructions and Niharika Industries from other brokers also. He argues that even if the AO has mentioned in the assessment order that there were enquiries by SEBI or BSE but the fact remain....
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....CIT(A) have not appreciated the contract notes relating to the sale of shares which are issued by said brokers. He submits that Shri T.H. Vakil nowhere stated that the transactions carried out with the assessee are bogus and hence, there was no reason to doubt genuineness of the purchase of shares of G-Tech which are purchased through the said brokers. The learned counsel referred to the statement of Shri Vijay Bhagwandas (copy placed at page Nos: 361 to 363 of paper book-2) and submits that the said statement is not signed by any authorized officer and hence, the authenticity of the said statement is doubtful. He submits that the documentary evidence should be given preference over the oral evidence. 15. The assessee has filed sufficient documentary evidence in the form of contract notes issued by brokers, physical share certificates, correspondence with the investee companies, demat account, etc. to justify the share transactions and hence, the AO was not justified in questioning the genuineness of the share transactions. The learned counsel placed his reliance on the following decisions:- (i) CIT vs. Smt. Jamnadevi Agarwal (2010) 236 CTR (Bom) 32: (2010) 46 DTR (Bom) 271: (201....
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....ting the fictitious documents. The AO has stated in the assessment order that during the course of search operation incriminating documents were found. These assessees have filed their regular return of income. There is a charge of showing the bogus purchase and sales of the following scrips by the Revenue, (a) Fast Track Entertainment Ltd., (b) G-Tech Info Ltd., (c) Talent Info Ltd., (d) Sangotri Constructions, (e) Niharika Industries and (f) Prranetta Industries Ltd. It is a claim of the assessees that all these shares are purchased from the different brokers in the off-market transactions. The brokers have done the dealings as claimed by the assessee which details are already given hereinabove: M/s Vijay Bhagwandas and Co., DPS Shares and Securities (P) Ltd., T.H. Vakil, Bubna Stock Broking, Vraj Finance, Ruchiraj Investments and M/s Mahasagar Securities Ltd. etc. On the perusal of the assessment orders in these cases, we find that there is no mention by the AO in respect of the alleged seized documents. We find the Investigation Wing collected the brokers notes and certain other documents in respect of the share transactions which have been already declared by these assessees i....
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....en opportunity to confront those parties. In fact the communication between the AO with the Stock Exchanges is certainly an evidence which is gathered behind the back of the assessee. Law is well-settled that no evidence should be used which are collected behind the back of the assessee unless the assessee is given opportunity to confront the evidence used against him or her. In case of some assessees i.e. P.D. Patil, we find that the AO has noted the statements of the brokers who have deposed against these assessees in their claim of purchase of the shares were put to the assessees and assessee's statements were recorded. We also find that the assessees have categorically denied the depositions of those brokers. As. per the statements given by those brokers, it is stated by them that they have not maintained any books of account and contract notes are issued by somebody else. It is seen that though some brokers have also sold the shares for these assessees more particularly the scrip of Fast Track Entertainment Ltd., then how the brokers have denied have not done any transactions for the assessees. 21. The AO has gone on the logic that the shares have been purchased at a very....
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....o not find that the Revenue authorities have made any enquiry with the investee companies to which the shares belong but only on the version of the three brokers the AO has arrived at an erroneous conclusion. We find force in the argument of the assessee that after only getting the jumbo share certificates the shares were sent for the dematerialization (the factum of dematerialization to the demat account is not disputed by the authorities below). We also find that the assessees have given the details to show that the shares were transferred on the claim but the entire evidence filed by the assessees has been ignored. We have perused the statements given by Shri P.D. Patil, one of the assessees under s. 131 of the Act to whom the statement of the broker was confronted and certain questions were put to him. The assessees have nowhere admitted that the deposition or statements of the brokers are correct. When the broker was not made available for cross-examination to the assessees then how the reliance can be placed by the AO for making out the case against these assessees. There is no dispute about the fact that there is a time gap between the date of purchase of the shares as claim....
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....nce of the statement of any party against the assessee, the law is well explained by the Hon'ble Supreme Court in the case of Kishanchand Chellaram (supra). As the assessees have not been given any opportunity to cross-examine the brokers the reliance placed on the statement of the said three brokers by the AO for drawing adverse inference against these assessees is not permissible in law. 26. In the case of Smt. Jamnadevi Agarwal (supra) there was a search and seizure action under s. 153A (sic-132). In said case the assessments were completed wherein the AO computed the total income by disallowing the long-term capital gain and added the entire sale proceeds received on sale of the shares treating the same as income from undisclosed sources. In those cases also the following charges were made by the Department (i) most of the sales of the shares effected by the group are of the same companies through the same brokers located at Kolkata, (ii) the principal broker has confirmed that the share transactions were sham and also explained the modus operandi adopted by those assessees, (iii) the sale transactions were off-market transactions and the Kolkata Stock Exchange by its lett....
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....g of fact that the cash credits in the buyers' bank accounts cannot be attributed to the assessees. No fault can be found with the above finding recorded by the Tribunal. 15. Reliance placed by the counsel for the Revenue on the decision of the apex Court in the case of Sumati Dayal (supra) is wholly misplaced. In that case, the assessee therein had claimed income from horse races and the finding of fact recorded was that the assessee therein had not participated in races, but purchased winning tickets after the race with the unaccounted money. In the present case, the documentary evidence clearly shows that the transactions were at the rate prevailing in the stock market and there was no question of introducing unaccounted money by the assessees. Thus, the decision relied upon by the counsel for the Revenue is wholly distinguishable on facts." 27. In the case of Jqfferali K. Rattonsey (supra), the identical issue has been considered by the Tribunal, Mumbai. In the said case also the assesse declared the long-term capital gain to the extent of Rs. 4,94,51,910 in respect of the sale of the shares of six companies (one of the companies is Pranneta Industries Ltd.). The broker i....
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....ther supporting evidences filed by the assessee were neither proved to be false or untrue. We further find merit in the submission of the learned 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, dt. 28th April, 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 dt. 24th June, 1998 was issued to clarify the determination of date of transfer and the period of holding of securities held in demat form. It has been stated therein that earlier Circular No. 704 issued by the CBDT relating to the "date of transfer" and "period of ho....
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....y held shares for 14 months by the assessee cannot be the conclusive proof to show that the purchase date of the said shares shown as 17th May 2004 was not genuine. Neither the AO nor the CIT(A) has denied that the broker never denied the transaction of the assessee. 7. The assessee's case is squarely supported by the decision of Tribunal, Mumbai Bench in the case of Mukesh R. Marolia (supra), which facts are identical to the case of assessee. In the said case also, it was claimed that the said assessee has purchased 2,19,600 shares of the different companies. The shares were sold through the listed brokers. In fact, the brokers who claimed to have shown the said shares refused the transactions in the statement recorded under s. 131 of the Act in spite of the fact that even the stock exchange also informed that no such transaction was entered into by the assessee, the Tribunal has held as under:- "10.3 Purchase and sale of shares outside the floor of stock exchange is not an unlawful activity. Off-market transactions are not illegal. It is always possible for the parties to enter into transactions even without the help of brokers. Therefore, it is not possible to hold that th....
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....ee in respect of the share transactions. They have confirmed the transactions stated by the assessee that he had with them. These positive statements made before the assessing authority supported the case of the assessee. There is no force in the action of the assessing authority in relying on the negative statements of the other parties whose role during the relevant period was either irrelevant or insignificant. Therefore, in the facts and circumstances of the case, it is, our considered view that certain statements relied on by the assessing authority do not dilute the probative value of the statements given by other persons in favour of the assessee confirming the share transactions entered into by the assessee. 10.6 The above circumstances have made out a clear case in support of the book entries reflecting the purchase and sale of shares and ultimately supporting the money received on sale of shares and finally investing the same in the purchase of flat. The chain of transactions entered into by the assessee have been properly accounted, documented and supported by evidences.' 8. We, therefore, hold that the learned CIT(A) was not justified in holding that the assessee ....
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....documentary evidence is filed by the assessee pointing out some minor discrepancies and without affording opportunity to cross-examine the said brokers has no weightage as evidence in the judicial proceedings. The charge of sharp rise in the share prices without proper financial footing of the investee companies is general charge and is not established by the AO. We also hold that merely because there is a delay in converting the physical shares into electronic form i.e. the demat account, that cannot be the criteria to hold that the shares transactions are arranged and camouflaged as in all the cases the assessees have recorded their share transactions in the regular books of account prior to the date of search. There was heavy burden on the AO to destroy the claim of the assessee but except going on the general philosophy, nothing has been made out by the AO to show that the claim of the assessee in respect of the sale of shares is not correct. We, therefore, hold that both the authorities below are not justified in holding that the entire sale proceeds shown by the assessees are out of sham and bogus arranged share transactions. We also hold that all contract notes are genuine. ....