AI Drafter 
TaxTMI 
TaxTMI 
2023 (2) TMI 959
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....ed, the question of escapement of income in the hands of the assessee does not arise. Therefore, the Notice issued u/s 148 is bad in law. 3. That the Ld. CIT (Appeals) - 10, Kolkata erred in law as well as on facts of the case by confirming the addition made by the Ld. A.O. of Rs. 5.05 crores as income of the appellant u/s 69 of the Act 4. That the appellant craves to leave, add, or amend any of the grounds during the course of appellant proceedings." 3. Brief facts of the case as culled out from the records are that the assessee is an individual and is a registered broker of the Calcutta Stock Exchange. Ld. AO has reason to believe to reopen the case of the assessee for AY 2010-11 on the ground that the assessee has not disclosed the amount of Rs. 3.30 Cr fully and truly in in its accounts and the same has escaped assessment within the meaning of Section 147 of the Act. Necessary approval received from ld. Pr. CIT on 21.03.2017. Notice u/s 148 of the Act dated 23.03.2017 served upon the assessee and in compliance thereto the assessee filed return of income on 25.04.2017 declaring income of Rs. 6,12,130/-. During the course of assessment proceedings, ld. AO ref....
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....ting the assessee from share broking made an addition u/s 68 of the Act alleging that the assessee failed to explain the receipt of the said sum of Rs. 5.05 Cr from the above stated three entities observing as follows: "Natural law of probability which is time and again considered by tire highest court of law as guiding principal for testing the genuineness of situation/circumstances in any transaction. Any deviation from such law being it unnatural and unbelievable in normal sense and liable to be considered as doubtful and bogus. Every situation revolves around us following this theory of probability. On consideration of the circumstantial evidences, natural human conduct and preponderance of probabilities, that what is apparent in this case is not real, and that these financial transactions were no real but sham ones and that this entire edifice was only a colorable device used to evade tax. The assessee clearly received these amounts totalling Rs. 5.05 cores by way of bogus transactions and accommodation entries with various entities through arranged nexus with shell companies whereby assessee is the final beneficiary of the sum of Rs. 5.05. Crores. The inform....
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.... 26 of the paper book). The money from this account goes to or received in the settlement account maintained for Stock Exchange in respect of the balance payment to be made or received for all the clients for the days trading at the portal of stock exchange. The balance money is paid to the clients whose shares are sold. (ii) The second bank account is settlement account which is exclusively maintained for the stock exchange. The days balance amount payable or receivable from stock exchange is done through this bank account. The balance in this account will be zero since the amount transferred to client account is immediately transferred to stock exchange. The settlement account is at page 149 to 184. (iii) The assessee during the whole day purchases the shares on behalf of the clients so also sales the shares on behalf of clients. The stock exchange portal maintains full details of the purchase and sale of shares. An automatic statement is generated giving net position on account of total intraday trading by the broker and the net balance is either paid to the exchange or is received form the exchange. This payment is received or paid automatically through a sepa....
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....er has to disburse the amount to its sellers only from the client account. 4. The assessee received the sum of Rs. 2,00,00,000/- (Two crores) only from Sutanati Distributors P Ltd. (explained in letter dated 26lh December 2017(Paper book page 294-295 and summary attached herewith) and in letter dated 27th December 2017 (paper book 296-297). Further this amount was received in bank account maintained for client account vide page 56-66 of paper book (date wise description attached) for purchase of shares of Vindus Holdings (vide paper book page 55). These shares were purchased at the portal of stock exchange (vide details attached herewith) and amount was paid from client account in accordance with SEBI rules hereinbefore stated. The details are attached vide annexure A. No amount was transferred to assessee's own bank account. The assessee received payment of on the dates immediately before the purchase (vide details attached). The assessee also made net payment (after adjustment of intraday trade for all the clients) to Stock exchange by balancing intraday trade of purchase and sale of the assessee as broker at the stock exchange portal. The details of such receipts an....
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....not brought on record any evidence to show such receipt. Full details of business with this party are attached in the paper book pages 55-197 5. Similarly, the assessee received the sum of Rs. 1,25,00,000/- (One crore twenty-five lakhs) only from Rajlasmi Ornaments & Stones (explained in letter dated 26th December 2017 (Paper book page 292.) and in letter dated 19th December 2017. Furtherthis amount was received in bank account maintained as client account on the dates stated in the attached sheet for purchase of shares of Oasiscin. These shares were purchased at the portal of stock exchange and amount was paid from client account in accordance with SEBI rules hereinbefore stated. The details are attached vide annexure A. No amount was transferred to assessee's own bank account. The shares were transferred by the exchange to assessee's demat account vide paper book pages stated in the attached sheet and these shares were transferred to the demat account of the purchaser vide paper book pages stated in the attached sheet. The brokerage was also credited as appears from contract notes. The relevant pages of the contract nots and the brokerage receipts are show in in ....
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....hich it was held that "Both the lower authorities failed to appreciate the case of the assessee that these were the trade advances and not cash credits and against such advance, the assessee has supplied the material in due time as per details available on record. Finally reference is also made to the decision of ITAT Kolkata in the case of Sanjay Agarwal ITA No. I.T.A. No. 2463/KOI7201 8 dated 7.6.2019 where in the ITAT has relied on the judgement of jurisdictional High Court in Crystal Networks (P) Limited -vs.- CIT (ITA No. 158 of 2002 dated 29.07.2010) 9. Hence the addition is not maintainable." 6. On the other hand, ld. D/R supported the order of ld. AO and also submitted that the companies who have given the alleged sum to the assessee are established Jama-Kharchi/Paper/shell companies and they are all engaged in the racket of purchase and sale of penny stocks and the assessee is also engaged in this type of business and therefore, the alleged sum has rightly been added as unexplained cash credit. 7. We have heard rival contentions and perused the records placed before us. 8. As regards ground nos. 1 & 2 challenging the assumption of jurisdiction u/s 147/148....
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....ained for stock exchange. Second bank account is settlement account which is exclusively maintained for the stock exchange and the day's balance amounts payable or receivable from stock exchange is done through this bank account. The balance in this account becomes 'zero' since the amount transferred to client account is immediately transferred to stock exchange. The third account is maintained by the assessee for his own affairs and all other transactions are maintained which do not relate to the receipt and payment to and from clients on account of purchase and sale of shares. Sufficient documentary evidences have been placed to show that all the alleged three cash creditors have opened the client account with the assessee and all necessary documents required for opening a client account were furnished to the assessee and they have subsequently been sent to the stock exchange as required mandatorily by the share brokers. 11. So far as the alleged amount is concerned it has been claimed by the assessee that from M/s. Sutanuti Distributors Pvt. Ltd. the assessee has only received Rs. 2 Cr and there is no entry of Rs. 1.30 Cr in his bank account. Even before us, ld. D/R failed to....
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....e fact that the cash creditors are accommodation entry providers or not or that the scrips purchased by the assessee are penny stock companies or not but we only confine our adjudication with respect to the assessee in question before us and that whether the alleged sum received by the assessee broker can be taxed in its hand as unexplained cash credit. 14. In our considered view firstly, the alleged sum is not unsecured loan taken by the assessee nor is the money taken for on credit for its own business purpose by the assessee it is purely a transaction between a share broker and its clients. The client is duly registered under the SEBI Rules. The assessee is dealing with many other clients and the alleged three parties are only one of them. The assessee broker after opening the client's account has been approached by the above referred three clients for purchase of shares. For making the said purchase amounts have been transferred to the client's bank account which is specifically used for purchasing the shares and the disbursement from such account has to go either to the stock exchange or is returned back to the client. There is no authority with the broker to utilize such a....