TaxTMI 
TaxTMI 
2011 (12) TMI 600
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....ock broking Services Ltd. The shares were purchased on 11.6.01. After having purchased, the shares were transferred in favour of assessee by the company on 28.06.01. the shares were later on sold through registered broker M/s. Prakash Nahata & Co. from 24.07.02 to 23.12.02 in the Calcutta Stock Exchange. Consequently ₹ 40,28,420/- arose as long term capital gain. The appellant made an investment of ₹ 41,00,000/- in the Bonds of Rural Electrification Ltd. and claimed exemption u/s 54 EC of the I.T. Act with regard to entire sum of long term capital gain. The assessing officer made addition of both sums i.e. the amount of long term capital gain as well as the investment in the bonds of Rural Electrification Ltd. 6. While making the addition under section 68 and addition of ₹ 41 lacs under section 69 on account of unexplained investment in purchase of REC bonds, the Assessing Officer placed reliance on various case laws i.e. in case of VISP (P) Ltd., 186 CTR 718 (MP), in case of Kale Khan Mohd. Hanif, 50 ITR 1 (S. C.). Before making the above stated additions, the Assessing Officer found that there was difference between opening capital shown in the balance sheet an....
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....of shares. (b) Then. A O quoted the case of Kale Khan Mohr. Hanif v. CIT (1963) 50 ITR 1 (Hon'ble Supreme Court) at the bottom of page no. 9 and gave four line citation. If your honour peruse the said case you would not find any such ratio culled out. Even in any write up part you won't find such sentences. (c) The. A O quoted the case of State of Raj. V. Basant Nahata (2005) 8 JT 171 (S C). The case was not with reference to Income Tax Act and it related to Registration Act and Evidence Act. It was held in Dhakeswari Cotton Mill Ltd. v. CIT (1955) 27 ITR 126 (S C) that technical rules of evidence can not apply to Income tax proceeding. (d) The case of CIT v. Durga Prasad More 82 ITR 540 was quoted which held that the taxing authorities are not required to put on blinkers while looking at the documents produced before them. They are entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. Here the Assessing Officer was putting on blinkers he was going by preconceived notion that the transaction was not real. He failed to appreciate the positive and clinching evidence put forth. The counsel of assessee attended al....
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....d credited in books of accounts as a result of loan, deposit, credit purchases etc. the said section has application in the case of assessee the shares were sold and sale proceeds were received, the debit entry preceded the credit entry. The sale of shares is akin to sale of goods. Both transactions bring into existence sundry debtors. Any realization there from is consideration of assets (Share or stock) sold. The receipt of sale proceed/realization from debtors do not partake the character of cash credit. If for the sake of argument it is considered that the sec. 68 as applicable in relation to realization from debtors, then there can not be any cash sale. As a result of cash sale sum is credited to the books of accounts and the assessee will have to give satisfactory explanation and onus will be cast upon him to prove the identity, genuineness and creditworthiness. In case of cash sale or realization from debtors/brokers the provisions of sec. 68 cannot have any say. 4.3. It was also argued that thee is another justification for this point of view because when money is realized/received from debtors it does not bring into being new or additional resources, although it brings i....
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....stock exchange, it is their solemn duty to make payment of the sale proceeds. The stock exchanges have rigorous and impeccable mechanism for ensuring the timely payment and delivery. In order to carry out the bounden duty the stock exchanges have members under their aegis and control of their own as well as the watch dog namely SEBI. The valuation of the membership of recognized stock exchange run into lacs of rupees because of its coveted position owing to the affiliation with the stock exchange. Thus, the credit worthiness of transaction is also beyond doubt. 4.5. It was urged that the Assessing Officer was quite convinced about the genuineness of the transaction. Since he was aware that transactions have been routed through stock exchange. He procured the detailed account statement from stock holding corporation on his own and compared it with the material on record. It was also argued that if head not been satisfied about the completeness of information, he would have called for more, when the counsel of assessee appeared on the designated dates of hearings i.e. 16.03.06 & 20.03.06. 4.6. In support of his view the AR of appellant relied upon the cases cited at 195 CTR 226, ....
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....on 20-06-01 at Kolkatta by the assessee when he was there. The assessee has taken away a sum of ₹ 2,00,000.00 out of cash available with him while going to Kolkatta on 08.06.2001. He has purchased 50000 shares of Mantra Online on 11.06.2001 and after ward a sum of ₹ 1,11,000.00 was paid to Bubna Stock Broking Company Ltd. The said broker has issued money receipt to the assessee and photocopy of the same was produced. A copy of cashbook was also produced. In balance sheet of A.Y. 2002-03 there was no outstanding to broker. There was a money receipt from broker. 4.10. As regards taking physical delivery of shares rather than dematerialized delivery it was stated that at the time of transaction the assessee was not having any demat account in Bikaner it was submitted that there was hardly one depository for demat accounts. So the physical mode of transaction in shares was resorted to. There is no statutory requirement which call for delivery / keeping of shares in demat form only. Purchasing and keeping shares in physical form was very much permitted. The shares of Mantra Online were purchased off market. The transaction was facilitated by the stock broker M/s Bubna Stoc....
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.... raise any objection to it. Further in the latter case the price of shares quoted at stock exchange on the relevant date was held to be guiding for the otherwise off market purchase. 4.14. The AO has put forth the argument that the long term capital gain earned by assessee is rather short term capital gain. The shares were dematerialized on 23.04.02. When period is reckoned from this date, the holding period of shares would be less than 12 month and consequently the gain arising from sale shares would be short term capital gain. In this connection it was contended by appellant that it is tantamount to turning blind eye towards all the positive evidences involving the SEBI registered broker, certificate by company secretary and stock exchange member as well as the company itself besides the record of assessee himself. The date of dematerialization of shares 23-04-02 cannot be construed as the date of purchase. 4.15. It was elaborated in written submission that Dematerialization is the process by which shares in physical forms are converted into electronic form. For dematerialization original shares in physical forms have to be surrendered to the depository. The depository throug....
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....transferred to that HDFC account of the broker. 4.18. Statement of assessee was recorded u/s 131 of the I.T. Act and it was interpreted that the assessee was oblivious of the purchase and sale of shares. To this it was explained that the contention is offshoot of day dreaming and wild imagination. He has termed entire transaction of shares as adjustment, although he had examined the entire gamut of documents, books of accounts and vouchers and could not point out any discrepancy / defect therein. The hypothesis without reason and basis is a nullity. It is the assessee who himself purchased shares, made payment for shares, got it registered in his name, opened demat account, made decision regarding sale of shares, gave delivery instruction, the sale proceeds were deposited in his own bank account and later on invested the same in bonds. The view pint of AO in the face of the preponderance of positive evidence, was requested to be not tenable. 4.19. In relation to failure to make delivery directly to the CMBPID A/c maintained at the stock exchange during the course of rolling market settlement it was contended by the appellant that he was not well versed in handling of demat acco....
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....nd the sales consideration works out to ₹ 1,49,000/-, which was not confirmed. 5.21. Further the appellant established the entire sale proceeds from sale of equity shares into the bonds of Rural Electrification and was eligible for deduction U/s 54 EC of the I.T. Act. The assessee made investment of the sales proceeds into the bonds within the stipulated period of six months. Photocopy of bonds were produced and examined. The investment in Bonds was made within six months from the sale of shares. D.D. RECEIVED OUT OF THE SALE PROCEEDS OF SHARES Investment in Bonds U/s 54 EC Date Amount Date Amount 29-07-02 99,900.00 12-12-02 8,00,000.00 30-07-02 90,900.00 26-12-02 13,00,000.00 30-07-02 4,22,922.50 05-02-03 6,00,000.00 02-08-02 1,69,000.00 05-02-03 6,00,000.00 12-08-02 3,63,600.00 03-03-03 8,00,000.00 16-08-02 1,69,000.00 07-11-02 7,45,200.00 13-12-02 1,67,850.00 19-12-02 11,68,700.00 24-12-02 1,48,800.00 26-12-02 6,29,070.30 Total 41,74,942.80 Total 41,00,000.00 5.22. (a) The sale transactions were executed through stock exchange. The exchange barring the one transaction confirmed all transactions its date, rate and amount. The fi....
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.... purchased by assessee and they were settled. Further reliance was placed on the written submissions placed on record. 13. We have heard rival submissions and considered them carefully. After considering the submissions and perusing the material on record, we find that there is no infirmity in the finding of ld. CIT (A). The ld. CIT (A) has ascertained all the factual aspects of the case by making direct enquiry from the Stock Exchange by which it was found that the shares purchased by assessee were sold during the year under consideration on the amount of consideration shown by assessee. Only one transaction was not verified. Accordingly, addition of ₹ 1,49,000/- was sustained by ld. CIT (A). It is seen that the shares were purchased in assessment year 2002-03. The Assessing Officer reopened the assessment for 2002-03 and one of the reasons for reopening of the assessment was in respect to investment made in purchase of shares through M/s. Bubna Stock Broking Services Ltd. After reopening of the assessment, no addition whatsoever was made on account of investment in shares. The appeal of the department for the assessment year 2002-03 was also fixed on the same date for hear....
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....actions were genuine. The ld. CIT (A) has examined all these transactions and have already verified directly from Stock Exchange and from the parties. Therefore, in our considered view, the Assessing Officer was not justified in not accepting the claim of assessee. 14. The ld. CIT (A) has confirmed an addition of ₹ 1,49,000/- for the reason that confirmation in respect of this transaction has not been received. There may be so many reasons for not confirming this transaction but the fact remains that these shares were also sold by assessee and amount of consideration has been received through proper banking channel. Therefore, in our view, ld. CIT (A) was not justified in confirming the addition of ₹ 1,49,000/-. In view of these facts and circumstances, we hold that ld. CIT (A) was justified in deleting the addition of ₹ 38 lacs or odd and was not justified in confirming the addition of ₹ 1,49,000/-. Accordingly the same is deleted. This ground of the department fails and the only ground in the Cross Objection of the assessee is allowed. 15. Second issue in the appeal of the department is against deleting the addition of ₹ 41 lacs made under section ....