TaxTMI 
TaxTMI 
2017 (11) TMI 904
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.... issue is that the assessee filed his return of 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:- S....
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....id not reply with respect to the profit earned by the brokers from the transaction in these shares. The ld AO also found that several 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....
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....on, "convert good proof into no proof". It was also submitted that rejection of an explanation of the assessee by ignoring to consider important 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 transac....
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....lly stated and insisted that they have donated the shares to the assessee and the same were held by them for a seizable period of time. Instead of relying upon such declarations 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 pag....
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....he has not done so himself. It appears that since he was prejudiced about the transaction, he did not want to make full efforts which are required to analyze this transaction objectively. The 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.....
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.... broker". We fail to comprehend that why an innocent assessee should be penalized for non-compliance by any other party. It is to be noted that the Learned Assessing Officer has not initiated any action against 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 inv....
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....nment of India and payment of levies to the Central Government on each transaction of sale which makes the transaction genuine. 4.3. The assessee further placed reliance on the following decisions in support of his contentions :- I. T. O. Wd 45(2), Kolkata 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 al....
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....ere would be no record relating to these transactions with stock exchange. This submission of the learned counsel has not been controverted before us. (i) In this connection we may refer to the decision of the Hon'ble Calcutta High Court in the case of CIT vs. Carbo 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 ....
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....(v) On the above facts and in view of the decisions cited above, we are of the considered opinion that the evidences produced by the assessee and the share broker were sufficient to endorse the bonafides of the share transactions made by the assessee. We, therefore, hold that the sale proceeds of shares of Rs. 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....
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....30.03.2003. On perusal of the demat statement of the appellant with IDBI Bank Ltd I find that the credit on the shares took place on 08.09.2009 & 24.09.2009 respectively. The appellant then sold these shares through a SEBI registered , Member Broker of the Calcutta Stock Exchange MS Toshit Securities P Ltd & P Didwania & Co between 13.01.2010 to 02.03.2010. On perusal of the contract notes issued by the 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 tr....
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....sessment proceedings were false or fabricated, he failed to establish his case and to discharge the requisite burden cast on him. In effect, the Assessing officer has based his conclusion on unfounded assumptions and surmises. It is relevant to rely on the decision of the Calcutta High Court in the case of CIT vs Alpine Investment dated 26.08,2008 , in this case the shares were transacted through recognized 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 sto....
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....re made through registered broker on a recognized stock exchange and that the sale of shares have suffered security transaction tax thus I direct the AO to treat Rs. 1,27,27,984/- as long term capital gain in the hands of the assessee which is exempt pursuant to Section 10(38) of the Act. 6. In the result, the appeal of the appellant is treated as allowed." 6. Aggrieved, the revenue is in appeal before us on the following 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 ....
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....re was no addition made in the hands of the Donors of the Shares since the date of the purchase of the shares by the Department and the purchase and the gift of the shares in the hands of the donors were accepted by the department. The ld AR submitted that the evidences and documents furnished by the assessee were neither found to be false nor fabricated. The ld AR submitted that the ld AO doubted the genuineness of the sale transactions only the basis of presumption and summarizes The AO has not brought 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 Com....
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....Stock Exchange, Reserve Bank of India etc. The ld AR therefore stated that the Company being monitored by various agencies and the assessee not being a part of the management of the Company had no ability to influence any decisions including price movements on the stock exchanges. The ld AR also drew our attention to page 75 of the said information memorandum wherein it has been certified by the Company that there are no pending litigations, prosecutions; investigations initiated other than under normal course 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 the....
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....he sale transaction being cross deal hence being illegal was not correct. The ld AR submitted that the ld AO failed to bring on record any provisions of the Stock Exchange Rules or SEBI Rules which prohibit such transaction. This allegation of the ld AO was merely a creation of his imagination which was not backed by any basis or law or rules framed. As per the ld AR, there was nothing preventing a broker for acting on behalf of the seller and buyer. The Seller 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 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 ....
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....vs. Jamna Devi Agrawal - [2012] 20 taxmann.com 529 (Bom HC) 8.10 The ld AR submitted that all the observations, conclusions and findings of the ld AO are based on suspicion, surmises and hearsay. It is a trite law that the suspicion howsoever strong cannot partake the character of legal evidence. Reference was made to the judgement of Hon'ble Supreme Court in the case of Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 (SC) and Umacharan Shaw 37 ITR 271 and Omar Salay Mohamed Sait 37 ITR 151. The ld AR submitted that the entire case of the revenue hinges upon the 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 ....
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....ctions so as to reduce the quantum of income liable for tax might have been the view expressed by the ld AO but he miserably failed to substantiate that. The High Court held that the transactions were at the prevailing price and therefore the suspicion of the ld AO was misplaced and not substantiated. (ii) CIT V. Lakshmangarh Estate & Trading Co. Limited [2013] 40 taxmann.com 439 (Cal) - In this case the Hon'ble Calcutta High Court held that on the basis of a suspicion howsoever strong it is not possible to record any finding of fact. As a matter of fact suspicion can never take the 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 tr....
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....doing or the fact that the share prices moved very fast. The ld AR also stated that no authority has even alleged that the assessee is involved in any price rigging activities. The share price in a stock market may move for various factors and there is no relevance to the correlation between the price and the earnings or the return on sensex and individual stock. These are merely comparative tools but there is no rule/ law or theory that the stock price will move based on these factors. The ld AR submitted that there are thousands of stocks which do not follow such pattern or basis. Thus the ld 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) ....
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....ng an adverse view against the assessee on the ground of abnormal price rise of the shares and allege that there was price rigging. It was submitted that there is no allegation in any orders passed by any authority such as the SEBI and/or the Stock Exchange to the effect that the assessee and/or his broker was a party to the price rigging or manipulation of price in CSE. The ld AR referred to the following judgements in support of this contention wherein under similar facts of the case it was held that the ld AO was not justified in refusing to allow the benefit under section 10(38) of the Act and to assess the sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act :- (i) ITO vs. Ashok Kumar 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 rece....
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....ed for the sake of brevity. We find that the shares were donated to the assessee by two Donors. Mr Manish Kumar Agarwal gifted 50,000 shares and Mrs Pushpa Singh gifted 15,000 shares. We find that Sri Manish Kumar Agarwal was assessed to tax under PAN AAHM9530L and had filed his return of income for the AY 2010-2011 (which is available in page 31 of paper book) the said Donor had vide his Gift Deed which was duly affirmed before the Notary Public declared (which are available in pages 27-28 of paper book) that the shares were gifted by him to the Donor and also that the shares were held by him since 26-03-2003 and these shares were held in his demat account no. 10079366 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 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....
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....e moved sharply, the assessee was to be blamed for bogus transactions. It is also to be seen that in this case, the shares were held by the Donors from 2003 and sold in 2010 thus there was a holding period of 7 years as per Section 49 of the Act and it cannot be said that the assessee and the Donors were making such plans for the last 7 years to rig the stock price to generate bogus capital gains that too without any evidences whatsoever. 9.2 It is also pertinent to note that the assessee and / or the stock broker M/s P Didwania & Co and Toshith Securities P Ltd., both registered share and stock brokers with Calcutta Stock Exchange had confirmed the transaction and have issued legally valid contract notes under the Law and such contract notes are available in pages 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....
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....e clearly support the claim of the assessee that the transactions of the assessee were bonafide and genuine and therefore the ld AO was not justified in rejecting the assessee's claim of exemption under section 10(38) of the Act. We also find that the ld CITA rightly relied on the decision of the Hon'ble High Court at Calcutta in the case of ALPINE INVESTMENTS in ITA No. 620 of 2008 dated 26th August 2008 wherein the Hon'ble Court held as follows: "It appears that the share loss and the whole transactions were supported by contract notes, bills and were carried out through recognized stockbroker of the Calcutta Stock Exchange and all the payments made to the stockbroker and all the payments received from stockbroker 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 on suspicion and surmises. However, it was held that the trans....