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2017 (5) TMI 1777

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....ment of commission for obtaining the said long term capital gain. For this common issue, the assessee has raised identical worded grounds in all the three years, except the quantum, and hence we will take up the grounds raised in AY 2006-07 reads as under:- "1. On the facts and circumstances of the case as well as in law the Learned AO has erred in passing order U/s.153A read with section 143(3) and thereby making the addition of Rs. 57,71,395/- being sale proceeds of long term capital gain on sale of shares declared in regular books of accounts and further addition of Rs. 2,88,570/- being unexplained money used for payment of commission for obtaining the said long term capital gain. Appellants contained that the order so passed is illegal and unjustified and therefore liable to be quashed. 2. On the facts and circumstances of the case as well as in law the Hon'ble CIT (A) has erred in treating the entire sale proceeds of shares amounting to Rs. 57,71,395/- which resulted in to long term capital gain to the appellant, as unexplained cash credit U/s.68 of the IT Act. Reasons assigned by him for doing the same are wrong and insufficient. 3. On the facts and circumstances of....

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..../- and for AY 2006-07 at Rs. 57,71,395/-. For this, the AO reasoned that the assessee was not able to produce the parties from whom she had made purchases of shares and failed to prove the genuineness of transaction particularly purchase party DPS Shares and Securities Pvt. Ltd. He also noted that even the assessee could not prove from whom it has purchased the shares of Robinson Worldwide and Jaykay Dee Industries Ltd. and also not been able to prove the receipt of physical delivery of shares. He referred to the statement of DPS Shares and Securities Pvt. Ltd. for the same. The AO also noted that even actual date of receipt of physical delivery of shares is not known whereas demat delivery of shares have been received near the date of sale of shares in the case of Robinson Worldwide. As regards to Jaykay Dee Industries shares were not taken in demat account. The AO noted that in the case of Jaykay Dee Industries Ltd. enquiries were conducted u/s 133(6) of the Act with the purchase brokers and one purchase broker Abhijeet Investment conceded before the AO that it has issued only accommodation bills and another purchase broker Shailee Securities totally denied the transaction. Anoth....

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....rvice charges were charged neither on speculation transactions nor on purchase of penny stock shares of M/s. Robinson. The relevant copy of Bill No, Group C/009/0012 dated. 9/4/2004 reveals that Robinson shares were allegedly purchased on 8/4/2004 on credit from DPS Shares & Securities (P) Ltd. The impugned bill dated 9/4/2004 does not bear the appellant. Moreover, the source of purchase of impugned 50000 shares of Robinson have not been satisfactorily explained. The purchase transactions were not routed through BSE nor NSE. This is abnormal Summons u/s.131 of the Act were issued to M/s. DPS Shares & Securities Pvt. Ltd, the reported brokers of the penny stocks in the appellant's case and they were asked to appear and produce their bills, contract notes, bank statements and other relevant details for A.Y.2004-05 2005-06 and 2006-07: The responsible director of M/s.DPS Shares & Securities P. Ltd. Shri Pratik Shah in his sworn statement u/s 131 of the Act revealed that the impugned bills relating to the relevant transactions of shares of Robinson were not genuine. They were accommodation bills. The relevant part of his sworn statement may be extracted as under: - "Q.3. Do you m....

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...., Marine Drive. We used to receive one paise per share for the bogus purchases shown by us, from these persons, for transactions carried out at their behest. For speculation gains we did not receive any remuneration. 5. Your statement leads to an inference that all bills issued - by you relating to purchase of aforesaid three scrips (and speculation gain bills), are bogus. What do you say? Ans: Yes, I hereby state that all bills issued by you relating to supposed purchases made by M/s. DPS shares & Securities Put. Ltd., in the lost about 5 to 6 years, relating to scripts M/s. Fast Track Entertainment Ltd., M/s. G Tech Info Ltd, and M/s. Robinson Worldwide Trade Ltd are bogus. No purchases were ever made by us relating to these 3 steps. If any third party produces the bills of M/s.DPS Shares & securities P. ltd. where in purchases of these 3 scrips is shown to have been made through us, then the purchases shown in these bills are bogus. Similarly, the speculation gains supposedly earned by third parties, by dealing through us are also bogus. I am. willing to state, upon being shown or upon being required, whether transactions of purchases shown in our bill are genuine or not. Fo....

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....under: Q. 10 The shares of Robinson delivered by your office to our office have been sent by us for transfer in the name of different family members of Shri Brijesh Shah, Pratikasha Sha, sh Shreevallabh Damani and Smt. Damani, which have been duly transferred by the company for e.g. the copy of letter of Shri Bnjesh Shah issued by the company. Can you tell us how the company can transfer We shores without physical delivery? Please explain. Ans: No. We have not given any physical delivery or Demat delivery to the Shri Brijesh shah and others of the said Scrip Robinson Worldwide Trade bid., we have not given physical delivery or Demat delivery of the above scrip as these transactions were not done through done through Stock Exchange so we did not receive any physical delivery from the stock exchange. If we give any delivery of any shares to any of our clients we give it thorn on our company's letter pad, which is called delivery memo. So do you have the delivery memo of our company? I do not know how the delivery memo of your company? I do not know how the company M/s Robinson Worldwide Trade Ltd. has transferred the shares in your client's favour. Q.11 I am Showing y....

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....f the appellant made before the Assessing Officer. As is evident from para 12.2 to 15, pages 24 to 27of the impugned assessment order penny stocks, were not actually purchased, as observed by the Ld. Assessing Officer. The appellant was confronted regarding the discrepancies with regard to discrepancies in in Demat A/c. It is established that there is no correlation, between the purchase of shares and credit of Demat shares. 2.3.6. I have also considered various arguments of the Ld. AR. The assessment u/s.153A has not been challenged by the appellant. It is not disputed that assessment under section 153A is legal and regular. The only grievance of the appellant is regarding the rejection of capital gains and addition of commission @5% of the gross receipt of sale of penny stock shares and levy of interest u/s. 2348 of the Act. I have a so considered various arguments taken by the Ld.AR. In the present case, the Ld. Assessing Officer has challenged the purchase of the said penny stock which were used for fabricating capital gains which is contested by the Ld. AR as discussed in the preceding paragraphs." -------------------------------------------------------------------- 2.3.....

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....re issued. In the case of M/s Shailee Securities, the broker denied the transactions and in the case of Drishti Securities, the AO noted that notice u/s 133(6) returned unserved. It was argued that no opportunity has been provided by the AO to the assessee to cross examine the share broker i.e. M/s Abhijeet Investment and Shailee Securities during assessment proceedings. As regards to another purchase broker M/s Drishti Securities, the AO held the purchased in question as bogus even though there was no service of summons u/s 131 of the Act. The learned Counsel for the assessee stated that complete details of purchases i.e. evidence of share purchase of M/s Jaykay Dee Industries in the shape of copy of purchase bill for purchase of 16,000 shares, copy of physical share certificate of 16,000 shares, copy of bill showing speculation gain and statement of Demat A/c reflecting transfer of shares, copy of ledger account of VRP Finance Pvt. Ltd. for shares for AY 2004-05, copy of sale bill of VRP Finance Ltd. for sale of shares in AY 2004-05 were enclosed. He argued that even the source of purchase consideration in the shape of copy of bank statement of HDFC bank was submitted. He argued ....

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.... are done on BOLT TWS of BSE or OFF MARKET. 4. We had not delivered them any physical shares of any scrip. 5. We have not done any transaction with their family members also till date. Kindly acknowledge our reply and do needful." In view of the above letter, the learned Counsel for the assessee argued that this letter is not in connection with the assessee and it relates to Smt. Pratiksha Shah which has wrongly been utilized by the AO against assessee for making addition. The AO also referred to statement of Shri Sujal C Shah recorded under section 131 of the Act on 18-01-2007 during the course of survey proceedings and it was never provided with an opportunity to cross examine and hence it cannot be used against the assessee. He also stated that the statement of Shri Pratik C Shah recorded under section 131 of the Act dated 18-11-2008 shows that the director of DPS Shares and Securities have made a general statement and nothing was against the assessee. In term of the above arguments the learned Counsel for the assessee argued that the addition was made without any basis and the evidences produced by the assessee were never considered by the AO nor otherwise proved wrong. ....

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....eliability of the statement of such party is questionable and not reliable. He himself stated that the transactions entered by him with the assessee have not been reflected in his regular books of accounts and therefore, it is in the interest of Mr. Shah to say that these transactions are bogus. In case these transactions are held to be genuine, Mr. Shah stands to be fastened with tax liabilities for having not included these transactions in his books and therefore, Mr. Shah being an interested party the creditability of the statement given by him is under serious doubt especially in the absence of any document /material to substantiate his statement. We also find from the facts that the assessee has filed voluminous document to substantiate its claim and the AO has not found any fault in the same. The case law of coordinate bench of this Mumbai Tribunal in the case of Sri Sri Bhagvandas Gordhandas Vs. DCIT in ITA No. 5021/Mum/96 is in similar circumstances and facts. In the said case, the assessee Sri Bhagwandas Gordhandas of M/s. Bhagwandas Gordhandas was engaged in the business of share broking, share Jobbing and trading in shares. A search was conducted in the case of a broker ....

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....ugh account payee cheques. Even for assessment years 2004-05, the assessee has submitted various documentary evidences, which have not been considered by the AO. As regards to the reliance placed by the AO on the cross-examination conducted in the case of the assessee, we find that the assessee and the director of the broker DPS Shares & Securities Pvt. Ltd. have nowhere specifically stated in their respective statements that they have issued accommodation entries to the assessee. There is no link between the statement and the assessee. They have simply stated that they issued accommodation entries on instructions of certain third parties. Further, no statements of such third parties have been confronted and in such a case, no question of cross-examination of the broker arises when there is no specific statement with regards to the assessee. 13. Even otherwise, the alleged cross-examination as held was not conducted in context of the assessee and during the course of cross-examination proceedings, the purchase documents which have been stated that the accommodation bills pertain to Shri Brijesh D. Shah and which do not belong to the assessee. The relevant extract of said statement....

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....hese shares were sold and how they were sold, on what dates and for what consideration and the sums received by cheques have been referred extensively by the Tribunal in para 10. A copy of the DMAT account, placed at pages 36 & 37 of the Appeal Paper Book before the Tribunal showed the credit of share transaction. The contract notes in Form-A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange regarding client Code has been referred to. But the Tribunal concluded that itself, is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conc....

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....undisclosed sources. Identical decision was also rendered in the case of Mr Nikunj J. Shah(supra) by Mumbai Tribunal in ITA No. 6545/Mum/2011 for assessment year 2005-06 vide orders dated 31-07-2015 , relevant extracts are reproduced below: "6. Having perused the orders of the authorities below as well as the submissions put forth before us, it is evident that similar controversy has been considered by our Co-ordinate Bench in the case of Jagdish H. Shah (supra).The Ld. Representative of the assessee has also placed on record copies of the assessment order as well as order of CIT(A) in the case of Jagdish H. Shah(supra) which reveal that the discussion contained therein is almost similar to the discussion in the impugned orders before us. The enquiries made by the AO in case of Jadish H. Shah (supra) are on similar lines to those made in the case before us. In the case of the assessee as well as in the case of Jagdish H. Shah(supra) the shares were purchased from the same broker namely DPS Shares and Securities Pvt. Ltd. It is also emerging that the AO carried out a verification exercise which involved recording of statement of one Shri Raj Kumar Masalia, Principal Officer of DPS....

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.... Ltd., (formerly known as robinson Impex (India) Ltd.]. We have perused the Remand Report of ITO 10(3)(2) Mumbai dt. 11.4.2011. In his Remand Report, the AO states that an opportunity of cross examination of Shri Rajkumar Masalia was given to the assessee on 18-02-2009, 29-04-2009 and 09-11-2009. However, despite of giving aforesaid opportunities, Shri Rajkumar Masalia did not attend though assessee's representative attended on all of above dates and whose attendance was duly recorded on the attendance Sheet. In his Remand Report, the AO further states that the said shares of M/s. Robinson Worldwise Trade Ltd. (formerly known as Robinson Impex (India) Ltd.] were purchased on 05-04-2003 for a consideration of Rs. 15191.99 from M/s. DPS Shares and Securities Pvt. Ltd. As per record of the said company, the shares were endorsed in favour of the assessee on 30-04- 2003 in physical format only. The AO further states that as per investigation made, these shares were sent for dematerialization to HDFC Bank on 03-05-2004 and were converted into De-mat form on 22-05-2004. In his Remand Report, the AO has further confirmed the sale transaction made through broker, M/s. Ajmeera Associates....