TaxTMI 
TaxTMI 
2017 (11) TMI 904
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.... income for the Asst Year 2010-11 on 30.7.2010 declaring total income of Rs. 4,86,180/-. The assessee claimed exemption for long term capital gains in the said return of income to the tune of Rs. 1,27,27,984/-. This long term capital gains was reported out of sale of shares of Shiv Om Investments & Consultancy Ltd by the assessee. The assessee obtained 65000 shares of Shiv Om Investments & Consultancy Ltd (SOICL in short) as gifts from two individuals as follows:- Sl. No. Name of the Donor Date of Gift No. of shares gifted Date of acquisition of the shares by the Donee 1 Ms. Pushpa Singh Bano Manzil Road, Ranchi, Jharkhand PAN: AGJPS 5134 L 24.09.2009 15,000 30.03.2003 2 M/s. Manish Kumar Agarwal (HUF) Karta Manish Kumar Agarwal, Jokhiram Market, Upper Bazar, Ranchi-834001, Jharkhand 08.09.2009 50,000 26.03.2003 3.1. These shares are listed in Calcutta Stock Exchange. The assessee sold the 65000 shares of SOICL between 13.1.2010 and 2.3.2010 at Rs. 197.35 per share for Rs. 1,27,92,983.48. The assessee computed long term capital gains as under:- Sale Consideration for 65000 shares 1,27,92,984 Less: Cost 65,000 Long Term Capital Gain -Exempt ....
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....veral other share holders of SOCIL were having the same address as the Donors. The ld AO also examined the Demat Account of the assessee and he found that the assessee would deliver the shares to broker on the day of sale or a day or two before the date of sale. Thus the ld AO concluded that this way the broker could control the transaction. The ld AO also issued notices to the Calcutta Stock Exchange and they confirmed the transaction however the ld AO found that the broker P Didwania & Co was the broker representing the seller i.e. the assessee and also the buyer, thus, as per the ld AO, the broker violated the SEBI norms. The ld AO found that on the day on which the assessee sold the shares of SOCIL, on the same days the broker also sold shares for several other parties. The ld AO also issued a notice u/s 131 of the IT Act 1961 to the assessee to appear on 20/03/2013 and to produce the donors but the assessee expressed inability to produce them on that day due to their pre- occupation. Thus the ld AO concluded that capital gains on the sale of shares of SOCIL could not be explained properly and therefore the ld AO treated the capital gains of Rs. 1,27,92,984 as cash credit u/s 6....
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....nt pieces of evidence is an error of law. Relaince in this regard was placed on the following decisions :- a) D Yasodamma, Gudur vs CIT reported in 70 ITR 515 (AP) at 517 b) Bhagwati Prasad Misra vs CIT reported in 35 ITR 97 (Orissa) 4.2. The assessee rebutted the observations of the ld AO in his order by drawing the attention to some of the abstracts of the assessment to prove to that the ld AO had passed the order without proper application of mind and with prejudice more out of figment of his mind that on facts, as under:- a) On page one in the paragraph- Back ground of the case- he has stated that he finds it difficult to comprehend the phenomenal rise in the price of the shares in question and has tried to compare the growth vis-à-vis the Sensex. Any investment banker will refute the simplistic and novice calculation of the Learned Assessing officer since the Sensex is an average of a bouquet of shares and not all move in tandem with the Sensex. The Learned Assessing Officer has questioned the validity of transactions occurring through The Calcutta Stock Exchange, perhaps, not realizing that the said exchange is one of the oldest authorized stock exchanges in the c....
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....arations given by the Donors, he has tried to make a subjective and misdirected analysis of their financial status and other factors which have got no relevance with the transactions in hand. As a matter of fact, some of the words used by him are perhaps not heard during the course of an income tax assessment and perhaps needs some introspection. For example on page 3 line 16 he has used the word "unnerving". In the 5th line from the bottom of page 3 he has held that "gift was stage managed" without having any material on record to suggest so. He has also suggested that gifts which are given intra city or intra state are not genuine and has thus questioned the gift on the basis that the Donor was located in Ranchi whereas the Donee was living in Kolkata. He has forgotten that India is a Union of States and free passage of goods, gifts and services has been guaranteed by the Constitution of India without any hindrance. On this count also it can be said that the assessment order is unconstitutional. d) On page four 11th line from the bottom the Learned Assessing Officer has held that the ''prices of the shares are rigged" and having stated so, being a quasi- judicial author....
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....e donor is not at the beck and call of the assessee. And the basis of the Learned Assessing Officer goes against the age old saying lex non cogit ad impossibia:- a law cannot compel a person to perform an act which he could not possibly perform. g) On page 7 the Learned Assessing Officer has again raised an objection about the delivery of shares by the assessee to his broker. It really shows the ignorance on the part of the Learned Assessing officer in comprehending the stock market transactions. Your goodself will kind relate that all stock market transactions entail a mark to market margin which differs from scrip to scrip. In the case of some shares, the said margin is quoted high and is applicable to both the purchase and sale transactions. Further, as a measure of safety in some cases, the brokers insist on prior delivery of shares and more so in the case where the shares are thinly treated so that they can fully execute the sale order as issued by the clients as and when possible. Therefore, as required by the situation and the margin prescription issued by the stock exchange, the shares are delivered either on the day of transaction or a little prior to post the transactio....
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....gainst such non compliance whereas he has made substantial additions in the hands of the assessee. It clearly shows that he was vehement in his approach and full of vengeance against the assessee thus resulting in a prejudiced assessment order. i) The Learned Assessing Officer has made the addition as an unexplained cash credit. Your goodself will appreciate that section 68 can be invoked when all the three undernoted conditions are fulfilled:- 1. The assessee is required to maintain books of account 2. There is a credit entry in the books of account of that year and 3. Though no explanation is provided by an assessee or as explained is considered to be unsatisfactory by the Assessing Officer about the nature and source of such credit. Your goodself will appreciate that in the instant case, pursuant to section 44AA or otherwise of the Income-tax Act 1961, the assessee is not required to maintain books of account and hence question of invoking section 68 does not arise. The above premise on which the addition has been made is itself erroneous. Further, the Learned Assessing Officer has questioned the credit worthiness of the Donors. In Additional CIT V. Hanuman Agarwal (19....
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....olkata vs. Raj Kumar Agarwal, ITA No. 11301Ko/12007 - in this case the Hon'ble ITAT "E"-Bench, Kolkata has held as under, and we quote:- "6. We have carefully considered the rival submissions of the parties and perused the material placed before us. we find that the assessee purchased 8,500 quoted shares of Mls. Nageshwar Investments Ltd., on 10.7.2002 from the registered share broker M/s. Bubna Stock Broking Services Ltd. for a consideration of Rs. 17, 1701-. The payment was by Account Payee cheque to the said broker and the assessee received delivery of the shares in Demat form in his Demat Account with Oriental Bank of Commerce (now Global Trust Bank after merger). subsequently, the assessee sold these 8,500 shares through the said broker in two lots, one for 4,000 shares on 17.9.2003 @ Rs. 86.06 per share and other on 19.9.2003 for the balance 4,500 shares @ 85.36 per share and delivered the possession of all these shares from his Demat Account to broker's account. In the process, the assessee had received two Account Payee cheques for Rs. 3,48,240 and Rs. 3,84,120 respectively and these are duly reflected in the assessee's bank account. In support of all these tr....
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....rbo Industrial Holdings Ltd. [244 I. T.R. 422], which was followed in subsequent decision in the case of CIT vs. Emerald Commercial Ltd. [250 ITR 539J, wherein it has been held at page 524 as under:- " .... Payment by account payee cheque has not been disputed. Payment on purchase and sale and payment received by account payee cheque was on two different dates. If the share broker, even after issue of summons, does not appear for that reason, the claim of the assessee should not be denied, specially in cases when the existence of the broker is not in dispute not the payment is in dispute. Merely because some broker failed to appear, the assessee should not be punished for the default of a broker and we are in full agreement with the Tribunal that on mere suspicion the claim of the assessee should not be denied. " (ii) Identical matter has been dealt with by the I. T.A. T , Mumbai Bench in the case of Mukesh R. Marolia vs. ACIT, which is relied upon by the assessee and reported in [2006]6 SOT 247 (Mum). In that case the A. O. observing that purchase and sale of shares were not reflected in records of Bombay Stock Exchange held that claim of the assessee regarding purchase of sha....
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.... 7,32,360/- has been explained and the CIT(A) was justified in deleting the said addition. We direct accordingly. 4.3.1. The assessee also placed reliance on the following decisions in support of his contentions:- a) ACIT, Circle -28 , Kolkata vs Swapan Kumar Biswas in ITA No. 121/Kol/2008 dated 25.7.2008. b) Jaywant Himani vs ITO , Ward 35(2), Kolkata in ITA No. 340/Kol/2007 c) Anup Kumar Jayaswal in ITA No.s 1678 & 1679/Kol/2004 d) CIT vs Kundan Investments Ltd reported in 263 ITR 626 (Cal) 5. The ld CITA deleted the addition by observing as under:- 5. All the grounds of appeal are relating to the addition made u/s 68 of the Act treating the long term capital gains as unexplained cash credit hence all four grounds are disposed together. I have carefully perused the assessment order and the written submissions and explanation given by the learned authorized representative during the course of appellate proceedings. In my opinion, the appellant deserves to succeed. The AO carried out extensive investigation during the course of assessment proceedings but the main point which have not been properly considered by the him or have been totally ignored are as under:- a) Gi....
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.... said brokers I find that the order no, trade no, trade time, quantity and amount for which the 65000 shares were sold are in order with the claim of the appellant. On perusal of the demat statement of the appellant I find that the shares re transferred from his account to the brokers clearing member account. Thus the receipt and delivery of shares are full documented and verifiable from the demat account of the appellant with IDBI Bank Ltd. OP ID No IN300450 Client ID No. 10146157. The sale proceeds of the shares were received by the appellant by account payee cheques which were deposited in his saving bank account maintained with IDBI Bank Ltd account no 0131062148900. The appellant had also filed his ledger account maintained in the books of account of the Stock Brokers and the transactions as claimed by the appellant are duly recorded therein. On page 5 of the assessment order I find that the AO has himself recorded the fact that the persons who donated the shares to the appellant were shares holders in the year 2008 & 2009. Thus the share holding of the donors were also verified by the AO from the list of share holders obtained by the AO. Further, during the course of assessme....
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....ized stock brokers and through regular bank channel and supported by contract notes and bills. The stock broker also appeared and accepted the transactions to be genuine. The AO however relied solely on the statement of Shri Roopani at the time of search without taking cognizance of cross examination and documents produced and disallowed the loss treating it to be bogus. The CIT(A) upheld the disallowance which was deleted by the tribunal. While dismissing the revenue's appeal u/s 260A the Calcutta High Court observed as "It appears that the share loss and the whole transactions were supported by contract notes, bills and were carried through recognized stock broker of the Calcutta Stock Exchange and all the payments made to the stock broker and all the payments received from stock broker through account payee instruments, which were also filed in accordance with the assessment. It appears from the facts and materials placed before the Tribunal and after examining the same the Tribunal came to the conclusion and allowed the appeal filed by the assessee. In doing so, the tribunal held that the transaction fully supported by the documentary evidences could not be brushed aside ....
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....llowing grounds:- 1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing relief to the assessee by holding that AO's action is not well founded in position of law. 2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in understanding the whole gamut of the case where the veil of purported gifts lifted by the AO was completely overlooked on the pretext of existence of gift deed only. 3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing the Assessing Officer to assess the entire receipt of Rs. 1,27,27,984/- as long term capital gain. 4. That the appellant craves leave to submit additional grounds of appeal, if any, at or before the time of hearing and/or alter, modify reframe any grounds of appeal at or before the time of hearing. 7. The ld DR argued that the ld CITA erred in deleting the addition made by the ld AO on the basis of the aforesaid findings and various observations made in the impugned appellate order. The ld DR submitted that the findings made in the assessment order of the ld AO demonstrated that transaction of the gift of shares were hig....
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....ht on record any adverse finding against the assessee, the donors, and the stock brokers by the Investigation Department of the Income Tax Department and or SEBI. It was submitted that the ld AO disallowed the assessee's claim of LTCG on sale of shares of SOICL on suspicion and presumptions alone. It was submitted that the lower authorities have not brought any material or evidence on record to falsify the claim of the assessee or to hold that the share transactions were bogus. 8.2. The ld AR in course of hearing stated that the ld AO relied on irrelevant material for creating a background of suspicion for making the addition on the assessee. The ld AR stated before us that the Company was incorporated in 1990 and in the website of the Calcutta Stock Exchange wrongly mentioned the date of listing to be 1969, this cannot be a reason to hold the sale of shares by the assessee to be bogus. He submitted that the Company was originally incorporated as G. Raj Financial Consultancy Private Limited on 21st May, 1990 under the Companies Act, 1956 as a Private Limited Company in the State of West Bengal. On 28th July, 1992 the Company was converted into a Public Company as G. Raj Financial ....
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....se of business by / under the Companies Act, 1956 and 2013, wherever applicable, Foreign Exchange Management, 1999 or under the provisions of any other act for the time being in force, SEBI, ROC, Stock Exchange, RBI, Income Tax Department or any other Statutory Agencies as on date against the Company. 8.4 The ld AR also brought to our notice that the Donors duly responded to the notice of the ld AO and all the relevant information regarding the transaction between the Donors and the Assessee were duly provided by the Donors. The ld AO wanted other information relating to the Donors personal affairs or other issues which did not relate to the transaction being verified and therefore such irrelevant queries of the ld AO was not replied to by the Donors and such action cannot make the gift to be bogus. 8.5 The ld AR also brought to our notice that the Stock Brokers through whom the shares were sold in the Calcutta Stock Exchange and on such sale, Security Transaction Tax (STT) was duly paid had duly responded to the notice of the ld AO and all the relevant information regarding the transaction between the Brokers and the Assessee were duly provided to the ld AO. 8.6 The ld AR also ....
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....ter platform of the exchange, wherein, the number of shares and the price is fed into the system. Once this is done, it is open for anyone who is on the online platform to purchase the shares which are on offer. On the other hand, when the shares are being offered to be purchased, the Buyer instructs the broker to feed the deal in the online computer platform of the exchange, wherein the number of shares and the price is fed into the system. Once this is done, it is open for anyone who is on the online platform to sell the shares which are on offered price. It is the computer system of the Stock Exchange which will match the transaction and complete the same. Thus the entire transactions are independently fed into the system and the same can be verified by the stock exchange and the transactions are done transparently. Thus as per the ld AR, the allegation of the ld AO that such transactions were illegal hence the sale be treated as bogus is also not tenable. 8.9. The ld AR submitted that there is no allegation by any person whatsoever, that the assessee approached them for such arranging any bogus LTCG. As per the ld AR, in the online system of trading, the assessee did not know ....
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.... presumption that the assessee has ploughed back his own unaccounted money in the form of bogus LTCG. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that the assessee had brought back his unaccounted income in the form of LTCG. The ld AR referred to the judgement of Special Bench of Mumbai Tribunal in the case of GTC Industries Ltd. vs. ACIT [2017] 164 ITD 1 (Mumbai- Trib.)(SB). The Tribunal observed as under: 46. ......... Ultimately the entire case of Revenue hinges upon the presumption that assessee is bound to have some large share in so called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of 'preponderance of probability' is applied to weigh the evidences of either side and draw a conclusion in favour of a party whic....
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....he place of proof. It was further held that in absence of any evidence on record, it is difficult if not impossible, to hold that the transactions of buying or selling of shares were colourable transactions or were resorted to with ulterior motive. (iii) CIT V. Shreyashi Ganguli [ITA No. 196 of 2012] (Cal HC) - In this case the Hon'ble Calcutta High Court held that the Assessing Officer doubted the transactions since the selling broker was subjected to SEBI's action. However the transactions were as per norms and suffered STT, brokerage, service tax, and cess. There is no iota of evidence over the transactions as it were reflected in demat account. The appeal filed by the revenue was dismissed. (iv) CIT V. Rungta Properties Private Limited [ITA No. 105 of 2016] (Cal HC) - In this case the Hon'ble Calcutta High Court affirmed the decision of this tribunal , wherein, the tribunal allowed the appeal of the assessee where the ld AO did not accept the explanation of the assessee in respect of his transactions in alleged penny stocks. The Tribunal found that the ld AO disallowed the loss on trading of penny stock on the basis of some information received by him. However, it was also fo....
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....d AO wrongly relied on such basis to come to such conclusions. In support of the aforesaid submissions, the ld AR, in addition to the aforesaid judgements, has referred to and relied on the following cases:- (i) Baijnath Agarwal vs. ACIT - [2010] 40 SOT 475 (Agra (TM) (ii) ITO vs. Bibi Rani Bansal - [2011] 44 SOT 500 (Agra) (TM) (iii) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agra/2009 (Agra ITAT) (iv) ACIT vs. Amita Agarwal & Others - ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (v) Rita Devi & Others vs. DCIT - IT(SS))A Nos. 22-26/Kol/2p11 (Kol ITAT) (vi) Surya Prakash Toshniwal vs. ITO - ITA No. 1213/Kol/2016 (Kol ITAT) (vii) Sunita Jain vs. ITO - ITA No. 201 & 502/Ahd/2016 (Ahmedabad ITAT) (viii) Ms. Farrah Marker vs. ITO - ITA No. 3801/Mum/2011 (Mumbai ITAT) (ix) Anil Nandkishore Goyal vs. ACIT - ITA Nos. 1256/PN/2012 (Pune ITAT) (x) CIT vs. Sudeep Goenka - [2013] 29 taxmann.com 402 (Allahabad HC) (xi) CIT vs. Udit Narain Agarwal - [2013] 29 taxmann.com 76 (Allahabad HC) (xii) CIT vs. Jamnadevi Agarwal [2012] 20 taxmann.com 529 (Bombay HC) (xiii) CIT vs. Himani M. Vakil - [2014] 41 taxmann.com 425 (Gujarat HC) (xiv) CIT vs. Maheshchandra G. Vakil - [2013] ....
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.... Bansal - ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs. Amita Agarwal & Others - ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (iii) Lalit Mohan Jalan (HUF) vs. ACIT - ITA No. 693/Kol/2009 (Kol ITAT) (iv) Mukesh R. Marolia vs. Addl. CIT - [2006] 6 SOT 247 (Mum) 8.16. The ld AR also submitted that the ld AO was not justified in invoking the provisions of section 68 of the Act to hold that the sale proceeds of shares of SOICL received by the assessee from M/s P Didwania & Co and Toshith Securities P Ltd was not satisfactorily explained by the assessee. There is no evidence on record to disbelieve that the assessee sold shares of SOICL through M/s P Didwania & Co and Toshith Securities P Ltd., a registered share and stock broker with CSE. The assessee produced all evidences to explain the source of the amounts received by the assessee from M/s M/s P Didwania & Co and Toshith Securities P Ltd and these brokers and the Stock Exchange also verified the transactions entered by the assessee. The ld AO was not justified in assessing the sale proceeds of shares of SOICL as unexplained cash credit under section 68 of the Act. 8.17. The ld AR submitted that on the facts and circumstances of ....
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....) of the IT Act 1961 on 18-03-2013 to the ld AO ( which is available in page 33 of paper book), the Donor confirmed the fact of making the gift and delivering the shares by transfer to the Demat Account of the assessee. The copy of the demat account of the Donor is also available in Page 34 of the Paper Book which shows that the Donor was holding 100,000 shares of SOCIL as on 31-03-2006. We similarly find that the other Donor Mrs Pushpa Singh who had gifted 15,000 shares was assessed to tax under PAN AGJPS5134L and had filed her return of income for the AY 2010-2011 (which is available in page 32 of paper book) , the said Donor had vide her Gift Deed which was duly affirmed before the Notary Public declared (which are available in pages 29-30 of paper book) that the shares were gifted by her to the Donor and also that the shares were held by her since 30-03-2003 and these shares were held in his demat account no. 10046924 DP ID No. IN 301740. We also find that the said donor replied to the notice issued u/s 133(6) of the IT Act 1961 on 09-03-2013 to the ld AO ( which is available in page 35 of paper book), the Donor confirmed the fact of making the gift and delivering the shares by....
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....ges 41-52 of the Paper Book. We find that the Hon'ble Calcutta High Court in the case of Pr CIT Vs Rungta Properties Private Limited ITAT No 105 of 2016 dated 8th May 2017 in a similar issue dismissed the appeal of the Department by making the following observations: (11) On the last point, the Tribunal held that the Assessing Officer had not brought on records any material to show that the transactions in shares of the company involved were false or fictitious. It is finding of the assessing officer that the scrips of this company was executed by a broker through cross deals and the broker was suspended for some time. It is assessee's contention on the other that even though there are allegations against the broker, but for that reason alone the assessee cannot be held liable. On this point the Tribunal held - "As a matter of fact the AO doubted the integrity of the broker or the manner in which the broker operation as per the statement of one of the directors of the broker firm and also AO observed that assessee had not furnished any explanation in respect of the intention of showing trading of shares only in three penny stocks. AO relied the loss of Rs. 25,30,396/- only on t....