TaxTMI 
TaxTMI 
2018 (2) TMI 2128
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....s" 3. "Whether in law and facts and circumstances of the case, the learned CIT (A) has erred in deleting the disallowance of Rs. 24,464/- out of interest expenses as the interest bearing funds were diverted for non business purpose" 4. "Whether in law and on facts & circumstances of the case, the CIT (A) has erred in deleting the disallowance amounting to Rs. 25,000/- out of vehicle expenses as personal use by the assessee can not be ruled out" 5. "Whether in law and on facts & circumstances of the case, the learned CIT (A) has erred in deleting the addition of Rs. 1,20,000/- made by the A.O. on account of low withdrawal for household expenses" 6. "The order of the Id. CIT (A) is erroneous both in law and fact?. 7. "Any other ground that may be adduced at the time of hearing." 3. Facts in brief relating to the ground No. 1 raised by the revenue that the A.O has stated that the assessee has shown LTCG of Rs. 33,15,612/- on sale of shares of Bolton Properties Limited; that in the details submitted on 06.09.2007 it was explained that 9000 shares of Bolton Properties Limited were purchased by the assessee from M/s....
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.... Agnihotri v. State of M.P. (1977) AIR 1977 SC 796 (SC); ii) CIT v. Daulta Ram Rawatmull 87 ITR 349 (SC); iii) CIT v. K. Mahim Udma 242 ITR 133 (KER); iv) Parimisetti Seetharamamma-v. CIT 57 ITR 532 (SC); v) Chiranji Lal Steel Rolling Mills v. CIT 84 ITR 222 (P&H); 4. Aggrieved with the assessment order, the assessee carried the matter before the CIT(A). In appeal, the CIT (A) observed that before discussing the allowability or otherwise of the claim of LTCG, it would be relevant to emphasize the information u/s 133(6) was called for from M/s Stock Home through whom the assessee had purchased the alleged 9000 shares of Bolton Properties Limited. The address of M/s Stock Home (Prop. Anil Kumar Jhunjhunwala) as per the bill submitted by the assessee was at Pushpa Vihar, Boring Road, Patna. The letter came back unserved from the address which is given in the purchase bill. The enquiry was conducted by the JCIT, Range-II, Patna, Bihar on behalf of this office. The JCIT, Range-II, Patna had deputed his Inspector to collect the necessary information from the broker and from the Magadh Stock Exchange Association Limited. It is reported that there is ....
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.... enquiry in respect of the affairs of M/s P. K. Agrawal & Co. A survey was conducted u/s 133A of the IT. Act, 1961 in his case on 28.12.2004. Shri P. K. Agrawal, in his statement, recorded u/s 133A of the I.T. Act, 1961 on 28.12.2004 had admitted that the balance sheet of the scripts traded for arrangement of LTCG did not justify the market price and that the price of such scrips were artificially jacked up. Shri P.K. Agrawal has clearly stated that the major work being done at Kolkata Stock Exchange is that of arrangement of fake LTCG. Not only this, his accomplices have also confessed about the same and after accepting the guilt, have filed disclosure petitions. The assessee has sold shares of "Bolton Properties Limited" which is one of the main scrips in which manipulation was done by the brokers to jack up the prices and bogus capital gain was earned by persons like the assessee. This is clear from the answers to question 29 of the Shri PK Agrawal. In answer to question no.29 Shri PK Agrawal stated that the book marked as PKA/9 contains complete sale purchase details of selected scripts like Bolton Properties Limited etc. for the financial year 2004-05. The assessee has not den....
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....alance sheet as on 31.03.2004. The above shares sold by the assessee through the stockbroker M/s Ashok Kumar Kayan, Kolkata and M/s P. K. Agrawal & Co., Kolkata during the year under-consideration. All details like contract note of sale and purchase of shares, bank statements, demat account etc submitted before the A.O during the course of assessment. The assessee sold the above shares through demat and received all payments through cheque, which corroborated with bank statement. All transactions were routed through recognized stock exchange. The details of sale and purchase of shares is as given below :- Name of script Date of purchase and quantity Amount of purchase Date of sale and quantity Amount of sale Bolton Properties 25.04.2003 62,460/- 14.03.2005 & 23.03.2005 9000 shares 3378072/- Total Profit 33,15,612/- 8. The copy of bill of sale and purchase of shares, bank account, share certificate and copy of demand account is enclosed herewith for your kind perusal. The A.O. issued notice u/s 133(6) to above stock broker asking to give details in connection with the above transaction. The above stockbroker submit....
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....119 CTR 394 Bombay High Court; (xi) Dhakeshwari Cotton Mills Limited vs. CIT 26 ITR 775 (SC); 9. In counter to the comments, the assessee submitted that the A.O. has submitted order dated 03.09.2007 issued by SEBI stating that the Magadh Stock Exchange Limited, cease to be a recognized stock exchange. The assessee has made all transactions through Calcutta Stock Exchange and not from Magadh Stock Exchange Limited, hence, the above notification is irrelevant for us; that SEBI vide his order dated 29.09.2005 has issued the direction that eleven stock brokers of Calcutta Stock Exchange shall not buy, sell or deal in securities till further direction in this regard. The assessee submitted that share broker of the assessee is not included in above eleven stockbroker. The assessee purchased shares on 25.04.2003 and sold the same on 14.03.2005 and 23.03.2005. All transactions have been concluded before the issue of direction by SEBI. So the above direction issued by SEBI is also irrelevant in this case. SEBI has passed the order dated 15.12.2003 that the certificate of registration of M/s Renu Poddar has been suspended; that the assessee has not deal with M/s Renu Poddar in an....
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.... of Rs. 62,460/-. These scrips were sold in March, 2005 for Rs. 33,78,072/-. There was earning of Long Term Capital Gain of Rs. 33,15,612/-. The AO rejected the claim as Long Term Capital Gain and taxed the same as income from undisclosed sources. The appellant has filed copies of bill and contract note entered into for purchase of above shares with M/s Stock Home, Patna. He has also filed copies of contract note for sale of above shares from M/s Ashok Kumar Kayan, Kolkata and M/s P. K. Agrawal & Co. The sale of scrips in the Demat account and copy of share certificate has been submitted by the appellant. The sale amount has been routed through bank, for which copies of cheques have been filed. 7. The A.O has not disputed the contents of affidavit from proprietor of M/s Stock Home through whom shares were purchased by the appellant. The affidavit of the proprietor of M/s Stock Home confirming the transaction of having purchased the shares on behalf of the appellant has not been rebutted by the A.O. It is gathered from the order of SEBI dated 31.05.2006 that the interim order dated 30.11.2005 relied upon by the A.O has been vacated. Hence, it cannot be used a....
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....quiries conducted by DDIT (Inv.) Kolkata is no way directly connected with the case of the appellant and the assessment has been made on presumption and probabilities rather than on factual facts, whereas the appellant has filed detailed explanation supported by the evidences. The enquiries conducted in one case cannot be yardstick for all transactions. There is no evidence brought on record by the AO to substantiate his conclusion that the impugned transactions were simpliciter to advise to camouflage activities to divert the revenue. There is no denial from the stockbroker namely M/s Ashok Kumar Kayan, Kolkata, M/s P. K. Agrawal & Co., and M/s Stock Home with regard to transaction with the appellant. As the transaction of sale has taken place at the floor of the Stock Exchange, the appellant is not supposed to identify the buyer. There was no material before the AO which could have led to the conclusion that the transactions of purchase & sale of shares were colorful transactions and no such presumption can be drawn by the AO merely on surmises and conjectures. 9. I find that the case of the appellant is squarely covered by the decision in COMMISSIONER OF INCOME TAX vs. ....
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....ribunal.-Asstt. CIT vs. Kamal Kumar S. Agrawal (Ind!.) & Ors. (2010) 41 DTR (Nag)(Trib) 105 : (2010) 133 TT] (Nag) 818 affirmed; Sumati Dayal vs. CIT (/995) 125 CTR (SC) 124 : (1995) 80 Taxman 89 (SC) distinguished." 10. The Hon'ble Punjab & Haryana High Court in CIT vs. Anupam Kapoor - reported in (2008) 299 ITR 179 (P&H) held that: "The Tribunal on the basis of the material on record, held that purchase contract note, contract note for sales, distinctive numbers of shares purchased and sold, copy of share certificates and the quotation of shares on the date of purchase and sale were sufficient material to show that the transaction was not bogus but a genuine transaction. The purchase of shares was made on 28th April, .1993 i.e., asst. yr. 1993-94 and that assessment was accepted by the Department and there was no challenge to the purchase of shares in that year. It was also placed before the relevant AD as well as before the Tribunal that the sale proceeds have been accounted for in the accounts of the assessee and were received through account payee cheque. The Tribunal was right in rejecting the appeal of the Revenue by holding that the assessee was simply....
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....e of the shares being made by the assessee. The shares were purchased in earlier year. The shares were transferred in the name of the assessee as has been confirmed by the company when enquired by the A O. The assessee has submitted before the A O, copies of the contract notes, copies of the sales hills, statement of account from the broker, old address of the broker, new address of the broker. The identity of the broker is proved. The demand draft for the sale consideration was issued from the account of PK i.e. brokers. The money has not been deposited in cash in this account but has come to this account by way of transfer from the account of SG Ltd. The purchase of shares is not TTJ dispute and the company has directly confirmed to the AO the purchase of the shares by the assessee in reply to the notice issued under s. 133(6). The statements of the broker could not be given any credence as he has stated differently vide different letters. Earlier he denied the transaction being entered into. Subsequently he has accepted that he has issued the draft after receiving the cash. Again he said that the cash was routed through some bogus account but he accepted that the draft has been ....
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....name of the buyer. There is nothing wrong and this is a usual practice in the business. The decisions of the lower authorities are influenced by the general observation of the Investigation Wing that created a suspicion in the minds of the authorities that everybody who has sold the shares at a high price has converted his unaccounted money through accommodation entries. This approach does not have any leg to stand. AO has failed to establish that the assessee has introduced her own unaccounted money in the shape of alleged sale proceeds of shares. While making addition as income from undisclosed sources, burden on the Department is very heavy to establish that the alleged receipt was actually income of the assessee from the undisclosed sources. Thus, in view of the aforesaid discussions, the action of the CIT (A) was not correct in confirming the assessment of Rs. 12,19,538 as the income from undisclosed sources as against the sale consideration of shares declared by the assessee. The CIT (A) was not justified in rejecting the claim of long-term capital gain of the assessee from sale of shares. Accordingly the AO is directed to assess the income declared from the sale of shar....
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....T vs. Durga Prasad More - 82 ITR 540 (SC) wherein the Hon'ble Apex Court observed the "science has not yet invented any instrument to tax the reliability of evidence placed before the Court or Tribunal, therefore, this Court and Tribunal have to judge the evidence before them by applying the text of human probabilities". In the present case, the appellant has produced the evidences such as sale transaction, contract note. contract bill, Demat account. No incriminating evidence has been brought on record to disprove the evidence filed by the appellant. The assessment cannot be made arbitrarily and for any addition there must be nexus to the material on record - (1983) 199 ITR 247. The AO has also relied upon the decision of the Hon'ble Supreme Court in CIT vs. Best & Company Private Limited - (1966) 60 ITR 11. It is observed by the Hon'ble judges that an adverse inference could be drawn against the assessee if he fails to put before the department the material which was in his exclusive possession. This is not the case here. The appellant has submitted the relevant material such as contract note etc., discussed above, therefore, the above decision is not applicable in th....
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....t a genuine transaction. The A.O is, therefore, directed to treat Rs. 27,22,370/- as LTCG on share transactions. The Ground No. 1 is allowed" 18. I have considered the observations of the AO as well the submission made by the appellant; that the facts of this case are identical to the issue decided in Appeal No. 0299/06-07 dated 05.06.2008 in the case of Arth Trust for the A.Y, 2004-05, The operative part of the findings in the said case are reproduced as below:- "2.7 I have considered the observations of the AO as well the submission made by the appellant. From the facts and circumstances of the case, the record reveals that the AO heavy reliance on the result of enquiries conducted by the DDIT, Kolkata in case of scripts and the brokers which are in no way directly connected with the case of the appellant. It is a matter of record that during the previous year relevant to the A. Y. 2003-04, the appellant made investment in shares through Registered Share & Stock Brokers. The investment in shares was reflected in the Balance Sheet filed along with the return for the A. Y. 2003-04 which was accepted by the Department and there was no dispute to the purchase ....
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....yardstick for all transactions where prices of shares have shoot up to many times. The shares are listed in CSEL and the appellant has no control over the fluctuation in share prices. The purchase and sale prices are verifiable from price quoted on that date. The shares were held for a considerable time. The AO has framed a stereo-type order in all cases listed in the assessment order ignoring the fact that the facts are different in the case of the appellant under consideration. The modus operandi of LTCG noticed in some unconcerned cases, applying the probabilities, the AO had not brought any evidence on record to conclusively prove that the apparent is not real. 2.9 The AO relied upon the decision in CIT vs. Durga Prasad More 82 ITR 540 (SC) wherein it was observed by the Hon'ble Supreme Court that science has not yet invented any instrument to test the reliability of evidence placed before a Court or Tribunal. Therefore, the Courts and Tribunals have to judge the evidence before them by applying the test of human probabilities. With utmost respects to these observations of the Hon'ble Supreme Court, it must not be ignored that the assessment u/s 143(3) is required to b....
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....t be made arbitrarily and in order that an assessment can be sustained, it must have nexus to the material on record [CIT Vs. Mahesh Chand (1983) 199 ITR 247, 249 (All.i]. It is the settled position that though the AO has very wide powers and is not fettered by technical rules of evidence and pleadings, there is one overriding restriction on his judgement and that is that he must act honestly on the material, however, inadequate before him, and not vindictively, capriciously or arbitrarily. 1.11 It may also be mentioned that the appellant was simply a shareholder of the companies. He had made the impugned investment in those companies in which he was neither a director nor was he in control of the company. The appellant had taken shares from the market. The shares were listed and the transactions took place through registered brokers of the Stock Exchange. There was no evidence brought on record by the AO to substantiate his conclusion that the impugned transactions were simpliciter a device 10 camouflage activities to defraud the Revenue. There was no material before the AO, which could have lead to a conclusion that the transaction was simpliciter a device to camouflage activitie....
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....ay not be accepted as evidence in a Court of law", but that does not absolve him from the obligation to comply with the fundamental rules of Justice which have come to be know in the jurisprudence of administrative law as principles of natural justice. It is, however, necessary to remember that the rules of absolute and rigid rules having universal application. It was pointed to by this Court in Suresh Koshy George vs. The University of Kerala & Ors. (1969) 3 SCR 317 (SC) that "the rules of natural justice are not embodied rules" and in the same case this Court approved the following observations from the judgment of Tjuker, Russel vs. Duke of Norfolk & Ors. (1869) All England Reports 188. "There are, in my view, no words which are of universal application to every kind of inquiry and every kind of domestic Tribunal. The requirements of natural justice must depend on the circumstances of the case, the nature of the inquiry, the rules under which the Tribunal is acting the subject matter that is being dealt with, and so forth. Accordingly, I do not derive much assistance from the definitions of natural justice which have been from time to time used hut. whatever standard is....
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....ers whose accounts formed the sheet-anchor of the notice issued to the assessee, he is undoubtedly entitled to cross-examine such wholesale dealers. 22. In Commissioner of Income Tax vs. Pradeep Kumar Gupta (2007) 207 CTR (Del) 115 : (2008) 303 [TR 95 (Del) it was held that "Failure of the Revenue to produce A for cross-examination by the assessees, assumes fatal consequences. It is true that the assessee's failure to produce K had the consequence of not proving that the said person was tilling the land on their behalf. This failure cannot inexorably lead to the conclusion that no agricultural income had been generated by the assessees. Such an inference can only be drawn from the statement of A to the effect that the transactions between him and the assessees were bogus. Therefore, it was mandatory for the Revenue to produce A for cross-examination by the assessees on their specific demand in this regard. There may well be instances where the reopening may pass muster in the light of some-facts, but those facts by themselves may turn out to be insufficient to preserve the assessment itself. Once ss. 147 and 148 are resorted to, the AO must first discharge the burden of sh....
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....ere was no evidence except speculation that this profit was from the sale of shares. The AO had failed 'to establish his case and to discharge the requisite burden cast on him. In this case as rightly pointed out by the AR's, there is no evidence on record as referred in assessment order, to prove that the proceeds received against sale of shares represent appellant's undisclosed income. Hon'ble Apex Court in the case of Kishan Chand Chella Ram v. CIT reported in 125 ITR 713 has held "that the burden is on the Department to prove that the money belongs to the assessee by bringing proper evidence on record and the assessee could not be excepted to call the concerned person in evidence to help the Department to discharge the burden that lay upon it". Similar view has been expressed by the Hon'ble Allahabad High Court in the case of CIT v. Daya Chand Jain Vaidya 98 ITR 280. The AR's of the appellant has also strongly emphasized on the peculiar fact that after the allotment of shares, the same were transferred to Demat A/c, remained in demat account during the period of holding and transferred to the demat account of the buyer, itself proves the genuineness of t....
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....e sale proceeds of shares as income from undisclosed sources, is deleted. The appellant gets relief of Rs. 33,15,612/-. 15. We find the Hon'ble Punjab and Haryana High Court in the case of CIT vs. Anupam Kapoor (2008) 299 ITR 179 (P&H), has held as under :- "The assessee's case was reopened on receipt of an intimation from the Deputy Director of Income-tax (Investigation) stating that the long-term capital gain declared by the assessee was false and the transaction was not genuine. In response to a notice under section 148 of the Income-tax Act, 1961, the assessee submitted his reply and furnished evidence in support of his claim of long-term capital gain. The Assessing Officer held that the assessee failed to lead evidence to support his claim of long-term capital gain and considered the amount of Rs. 1,74,552 as unexplained credit and it was added in the income of the assessee. The Commissioner (Appeals) deleted the addition holding that the Assessing Officer had not discharged his onus and there was no material or evidence with the Assessing Officer to come to the conclusion that the transaction shown by the assessee was a bogus transaction. The Co....
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....f the transaction. However, the AO has utilized the statements of the persons who were not cross-examined by the assessee. Hence, as per the settled judicial principle, such statements cannot be given any weightage. When there arises a question of appreciation of documentary evidences, then, a holistic view has to be taken and in the present case majority of the brokers have supported the claims of the assessee and surprisingly some of them have not been approached by the AO at all. Thus, on appreciation of documentary evidences submitted by the assessee, the genuineness of the transactions appears to be established. As regards the aspect of off market transactions, it is noted that neither these are illegal nor prohibited and only some of the compliances have to be made by the brokers. As regard the aspect of such compliances, it is not the case that all the off market transactions have not been reported by the concerned brokers to the stock exchange as per rules and even otherwise, any failure on the part of the brokers in doing such compliance cannot make the contract between the assessee and the broker illegal or void as the broker may face the consequences for his default unde....
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.... against order of CIT (A) treating the sale of shares for Long Term Capital Gains (LTCG) instead of assessed by AO as "Income from other Sources". For this, revenue has raised following ground no.1: "1. The Ld. CIT(A)-XX, Kol. Has erred on fact and in law for not considering the A.O's observations on the issue of LTCG for sale of shares, penny stock which are barred from Trading by SEBI and Calcutta Stock Exchange and duly reported with reasons on addition on account of Capital Gain from Penny Stock." 3. The brief facts leading to the above issue are that assessee has shown LTCG of Rs. 11,34,213/- on sale of 7000 equity shares of Multiplus Resources and 15000 shares of South Indian Bank and credited to the capital account of the assessee. The AO while going through the capital account of assessee noted this fact and observed that the assessee has not discharged the initial onus of proving the identity, creditworthiness and genuineness of transaction. According to AO, there is no proper evidence brought on record to prove the genuineness of transaction as claimed to have been made by the assessee. According to AO, Calcutta Stock Exchange Ltd. (CSE) also ne....
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....rious legal pronouncements relied upon by the appellant. The appellant has produced all documentary evidences to establish the genuineness of the transactions. The transactions of purchase and sale are supported by contract notes issued by the brokers. The purchase of shares are credited, and, similarly, the sales of shares are debited in the demat account of the appellant. The payments are received through banking channel. The various legal pronouncements, relied upon by the appellant, also support its contentions. In view of the above, it is held that the capital gain shown by the appellant on sale of shares is genuine and the AO was not justified in adding the sale proceeds as income from undisclosed sources. The addition of Rs. 11,34,213/- is deleted. Ground no. 2&3 are allowed." Aggrieved, now revenue is in appeal before us. 4. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee has filed all necessary details and documentary evidence qua purchases made from Stock brokers including copies of contract notes issued by broker. The assessee has also filed details of share credited in Demat account o....
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....uld have appreciated the fact that assessee could not prove the source of funds while purchasing the said shares. No return was filed during the year in which the shares were purchased and the same were purchased through cash. Physical delivery of shares has taken place. Calcutta Stock Exchange had denied execuging purchase. In this background the CIT (A) failed to not that shares of M/s. Badri Prasad and Sons stock broker who has been penalized by SEBI for indulging in penny stock transaction during the year 2005 which is relevant to the current year under consideration. So the CIT (A) erred in holding that the transaction was genuine without appreciating the fact that broker M/s. Badri Prasad and Sons though whom assessee has claimed to have purchased the shares has clearly denied the executing of any share transaction of M/s. Emerald Commercial Ltd. on 06.05.2004, the date on which assessee has claimed to have purchased 10,000 shares. Purchase transactions are out of cash in hand which was on account of gift received by assessee from his relatives. Purchase of shares was off bolt and such purchases are not reflected in the stock exchange. In this background the learned D.R reque....
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....s aspect has also not been disputed by Revenue authorities. Hence in this way, the whole transaction of purchase and sale of shares giving rise to long term capital gain has been duly explained step by step and supported by adequate and reliable evidence. The observations of Assessing Officer have been that since the shares were purchased in cash, the same cannot be verified. Since no return of income was filed by assessee for the A.Y. 2005-06, it was not possible to verify the cash in hand of Rs. 3,45,602/-. According to Assessing Officer the cash in hand is not substantiated. In this regard the stand of the assessee has been that assessee was given a gift of Rs. 1,01,000/- by his father Shri Mohamed All Bharwani on 26.5.2003 and by his elder brother Shri Munir M. Bharwani of Rs. 1,28,000/- on 26.5.2003 being on the occasion of assessee's birthday. Assessee has stated that in the returns of income for the A.Y. 2004-05, in the case of his father and brother, the gifts in question have been duly reflected. Copies of the relevant returns of income alongwith capital accounts have been furnished before CIT (A) at relevant point of time and in this background it was t....
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....of Blue Chip India Ltd was adjusted. This adjustment of purchasing of shares clearly indicates the modus operandi that was being followed regarding purchase of penny stocks. The assessee has claimed to have purchased the shares from Prince Securities whereas the shares were sold to Prakash Nahata & Co., stock and share brokers having their office at Kolkata. The transaction of purchase was off market, which was not reported on the recognized stock exchange i.e. Bombay Stock Exchange. The transaction was arranged in such a way that no consideration was paid by the assessee except a nominal amount and major part of the consideration was allegedly adjusted against speculation profit. The Assessing Officer has pointed out that Prince Securities have not transacted in shares of Blue Chip India Ltd. for any other client except the transaction in question. It does not have any demat account. The assessee stated to have purchased the shares in the month of April 2002 whereas the shares were demated in August 2002 and October 2003 i.e. almost one and half years after the alleged purchase. There is no explanation in this regard as to why the assessee demated the shares just before the allege....
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.... AR has further submitted that the sale consideration was received through banking channel and, therefore, it cannot be doubted. He has referred to the return of income for A.Y. 2003-04 and submitted that the shares of Blue Chip India Ltd., were shown in the balance sheet attached therein and, therefore, the assessee has duly disclosed the transaction of purchase. In support of his contention he has relied upon the following cases: i. Mukesh R Morolia Vs. ACIT - (2006) 6 SOT 247 ii. Chandrakant Babulal Shah Vs. ITO in ITA No. 6108/Mum/2009 dated 15.12.2010. iii. CIT Vs. Jamnadevi Agarwal 328 ITR 656 He has further submitted that similar issue has been decided in favour of the assessee in all these decisions. In the case of Jamnadevi Agarwal, the Hon'ble High Court has held that even the statement of stock broker's denial of transaction was proved to be wrong by producing documentary evidence to the effect that the shares sold by the assessee were in consonance with the market price. He has further submitted that the decision in the case of Som Nath Maini (supra), relied upon by the Assessing Officer is not applicable to the facts of ....
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....assessee has converted its undisclosed income as Long term capital gains. The Assessing Officer has examined the assessee as well as called for various information by issue of notice u/s. 133(6) to the stock broker though which the assessee has purchased shares as well as from the stock broker to whom the assessee has sold the shares. It is evident that both the stock brokers have confirmed the transaction of purchase as well as sale. Apart from the confirmation, the assessee has also produced relevant documentary evidence in support of the transaction of purchase and sale. There is no dispute as regards the shares were demated in the demat account of the assessee and, thereafter sold to M/s. Prakash Nahata & Co. The Assessing Officer has not given any finding that the prevailing price of the shares on the alleged date of purchase was more than what has been claimed by the assessee. Therefore, there is no finding or dispute on the point of prevailing price at the time of purchase or at the time of sale of shares. The Assessing Officer has doubted the modus operandi and alleged that by this transaction the assessee has converted his undisclosed income as Long term capital gains by a....
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....ment recorded u/s. 131 has confirmed the transaction both of purchase and sale of shares. i) The shares purchased of Bluechip have been duly shown in the balance sheet filed with the Department for the year ending 31- 03-2003 i.e. in the year in which the shares were purchased. j) The price at which the shares were purchased and later on sold are the prices of the shares prevailing at the material time of the transaction and this aspect of the matter is independently confirmed by the details obtained from the Bombay Stock Exchange. In my view when the appellant has himself categorically submitted that the transaction entered into by him were off market, there is no reason why it could not be believed especially in view of the fact that the necessary evidence required to support a transaction is duly submitted in the assessment proceedings and also before me. There is no law which prohibits off market transactions in respect of shares which are otherwise listed in the stock exchange. On the facts and in the circumstances the observation of the AO that the transaction is not genuine and is engineered with a sole intention to show LTCG which is liab....
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....d and sold shares of similar companies through the same broker cannot be a ground to hold that the transactions are sham and bogus, especially when documentary evidence was produced to establish the genuineness of the claim. From the documents produced before us, which were also in the possession of the Assessing Officer, it is seen that the shares in question were in fact purchased by the assessees on the respective dates and the company has confirmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares to the respective buyers is also established by producing documentary evidence. It is true that some of the transactions were off-market transactions. However, the purchase and sale price of the shares declared by the assessees were in conformity with the market rates prevailing on the respective dates as is seen from the documents furnished by the assessees. Therefore, the fact that some of the transactions were off-market transactions cannot be a ground to treat the transactions as sham transactions. The statement of Pradeep Kumar Daga that the transactions with the Haldiram group were bogus has been demonstrated to be wro....
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.... and non-availability of information. In the case in hand, the sale transaction has been duly executed through demat account and, therefore, there is no ambiguity or doubt about the transaction of sale." 20. The Hon'ble Bombay High Court in the case of CIT Vs. Kamal Kumar Agrawal, ITA No. 67 of 2010, vide order dated 23.09.2010, has held as under:- "11) We see no merit in the above contentions. The fact that the assessees in the group have purchased and sold shares of similar Companies through the same Broker cannot be a ground to hold that the transactions are sham and bogus, especially when documentary evidence was produced to establish the genuineness of the claim. 12) From the documents produced before us, which were also in possession of the Assessing Officer, it is seen that the shares in question were in fact purchased by the assessees on the respective dates and the Company has confirmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares to the respective buyers is also established by producing documentary evidence. It is true that some of the transactions were off-market transactions. However, the purchase....
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....Vs. Mukesh Ratilal Marolia, (2012) 80 CCH 0407 (MumHC), has held as under:- "PC, 1. Whether the ITAT was justified in deleting the amount of Rs. 1,41,08,484/- received by the Assessee on sale of the shares as unexplained investment under section 69 of the Income Tax Act, 1961 is the question raised in this Appeal. 2. The Assessment Year involved herein is A.Y.2001-2002. 3. The Assessee was carrying on business of manufacturing handkerchiefs as the proprietor of Rumal Manufacturing Company. In the Assessment Year in question the Assessee claimed that he had sold the shares of four companies, namely, M/s Alang Industrial Gases Ltd., Mobile Telecommunication Ltd., M/s Rashel Agrotech Ltd. and M/s. Sentil Agrotech Ltd, which were purchased during the year 1999-2000 and 2000-2001. The entire sale consideration amounting to Rs. 1,41,08,484/- was utilised for the purchase of a flat at Colaba, Mumbai and accordingly benefit of section 54E of the Income Tax Act, 1961 was claimed. 4. The Assessing Officer has held that neither the purchase nor sale of shares were genuine and that the amount of Rs. 1,41,08,484/- stated to have been r....
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....tor was Shri Anil Kumar Jhunjhunwala, Member of the Magadh Stock Exchange informed the AO that no such person named as Shri Anil Kumar Jhunjhunwala, proprietor of M/s Stock Home was known to them since 1991. Further the payments for purchases were made in cash. Thus, the AO doubted on the genuineness of purchase of said shares in April, 2003 for Rs. 33,15,612/-. 23. We find that the assessee has placed at page No. 19 to 20 of the paper book, copy of share certificates of M/s Bolton Properties Ltd. which shows that the said company endorsed the shares in the name of the assessee on 18.08.2003. Thus, we find that it is not in dispute that the assessee actually purchased the shares in question before 18th August 2003, which is during the previous year relevant to assessment year 2004-05. The return of income of the assessee in the assessment year 2004-05 has been accepted by the department and no action was taken by the AO in the case of assessee for the assessment year 2004-05. Therefore, the transaction of purchase have become final and it is apparent from the facts on record that the assessee purchased shares in question before 18th August, 2003 and the said shares wer....
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....e discussion, the wages outstanding as on 31.03.2005 i.e. Thursday could at best be Rs. 5 lakhs for the particular week. The combined wages for the last week and the outstanding amount of the earlier period cannot be more than Rs. 10 lakh. The assessee has shown creditor for wages at Rs. 30,76,968/-. Hence, the AO added Rs. 20,76,968/- as the unexplained labour/wage expenses to the total income of the assessee. 26. Against the order of AO, the assessee carried the matter before the CIT (A) and submitted that all books of account, bill, vouchers and wages sheets/register / muster roll etc produced before the A.O during the course of assessment. The A.O checked the all bills, vouchers, wages sheets / register / muster roll etc maintained by the assessee. He had not found any defects or mistake in books of account, bills, vouchers and wages sheets / register / muster roll maintained by the assessee. The assessee has not pointed out any specific mistake or defects in books of accounts or bill, wages sheets / register / muster roll and vouchers maintained by the assessee. The assessee maintained regular books of account. He maintained books of accounts on mercanti....
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....d fact that the appellant did have permanent labour force as against presumption of the A.O that the entire work force is temporary. The A.O has not disputed the submission of the appellant that there was change in the nature of work inasmuch as the contracts executed during the year under consideration were more. labour intensive and thus, involved more cost on wages. It is seen that, the A.O has not pointed out any discrepancy in the books of accounts, bills/vouchers, nor did the A.O opine that the books of accounts were incomplete. It is settled principle of law that no addition can be made on the ground of lower GP rate, until and unless, the books of accounts have been rejected by the A.O, by invoking the provisions of Section 145, after giving the appellant a reasonable, opportunity of being heard. Further, it is equally settled legal position that the books of accounts cannot be rejected merely on the ground of low GP rate. Rather, the A.O has to bring on record specific defect in the books of accounts of the appellant as a result of which reasonable profits cannot be deduced. I am of the considered opinion that the A.O has made ad hoc disallowances; that the A.O has not poi....
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.... organize the business affairs in the manner to the best of its business interest. As already stated, the accounts are statutorily audited and the declared version on the basis of such audited accounts was virtually accepted since there was no estimation of GP or NP. In the given facts and circumstances, there was no justification for making adhoc estimated disallowances out of expenses claimed, as held in Monarch Foods Pvt. Ltd. v. ACIT (1996) 54 TTJ (ARD.) 405 and Raj Enterprises v. ITO (1995) 51 TT J (Jaipur) 408. 33. When books were not rejected and when the income was not estimated and when the income returned was accepted as correct, without disturbing the same, it is not understood as to how in a scrutiny assessment such adhoc disallowances were permissible, particularly, when no evidence whatsoever was brought on record against the appellant to justify such adhoc disallowances. Since, the loss returned on the basis of audited books was accepted as correct, it is implied that, the correctness and genuineness of the expenses claimed in the accounts, which were subjected to Audit, stood undisputedly accepted. The Auditors who conducted Statutory Audit had not adversel....
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....ing year assessee was doing the business of Kimam whereas in the year under consideration he changed its product to scented supari also-This change has led to higher cost in making the goods marketable Expenses incurred by the assessee are fully vouched and the payments are real Thus, the impugned disallowance of Rs. 2 lakhs on ad hoc basis on the ground that the expenses claimed by the assessee are excessive as compared to the expenses incurred in the immediately preceding year is unwarranted and uncalled for. Business expenditure-Allowability-Ad hoc disallowance of personal expenses-AO made a lump sum disallowance of Rs. 1 lakh out of conveyance expenses, repairing and maintenance expenses, traveling expenses and depreciation on the ground that personal element in the expenditure cannot be ruled out - Not justified-AO himself has noted in the assessment order that the expenses have been incurred for the purpose of the assessee's business-Accounts of the assessee have been duly audited under s. 44AB and the auditors have certified that no personal expenses have been debited to the P&L a/c - AO has made the disallowance only on assumptions and presumptions without com....
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....s and observations made by the A.O. for making the impugned estimated addition, were extraneous, irrelevant and opposed to the facts obtaining from the record. The fate of the appellant could not be decided by the A.O. on mere surmises or probabilities (Northern Bengal Jute Mills Trading Co. Ltd. v. CIT (1968) 70 ITR 407 (Cal). The mere existence of reasons for suspicion would not tantamount to evidence (Cal. HC in Narayan Chandra Baidya v. CIT (1951) 20 ITR 287 (Cal.). The AO was not entitled to make pure guess and make the impugned assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the same. The rule of Law on this subject has been fairly and rightly stated bye Lahore HC in Seth Gurmukh Singh v. CIT (1944) 12 ITR 393 (Lah.) [Dhakeshwari Cotton Mills Ltd. v. CIT (1954) 26 ITR 775, 782 (SC)]. It was observed by the SC in Dy. Commissioner of Agricultural Income Tax and Sales Tax v. Travancore Rubber and Tea Co. (1967) 20 STC 520 that "in all cases of taxation the burden of proving necessary ingredient laid down by law to justify taxation is upon the authorities." Since this was not proved against the appel....
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....of hearing the DR supported the order of AO but could not bring any cogent and positive material on record to controvert the findings of CIT(A). In our considered opinion, the AO has not given any basis of his assuming that outstanding wages at the end of the year cannot be more than Rs. 10 lakhs. The DR also could not, during the course of hearing, substantiate the finding of AO of his arriving at such a conclusion. 31. In the above facts and circumstances of the case, in our considered opinion, the disallowance of labour and wages outstanding as at the end of the year under the head sundry creditors cannot be sustained in law. Hence, we confirm the order of CIT (A) and dismiss this ground of appeal of the Revenue. 32. Brief facts relating to the ground No. 3 are that the AO stated that the assessee has debited net amount of Rs. 9,50,975/- on account of interest in the profit and loss account. From the list of loans and advances to four parties namely Aarson Motors, Kedar Agrawal (HUF), Rahul Agrawal and TISCO. The assessee, in its reply dated 27.11.2007 has explained that it has received interest from Rahul Agrawal but has not received the same from others. H....
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....a ITA No. 1809/Kol/2012 dated 14.05.2013 relying upon the decision of the Hon'ble Mumbai Tribunal in the case of J.K. Investors (Bombay) Ltd. vs. ACIT in ITA No. 7858/Mum/2011 A.Y2008-09 dated 13.03.2013 wherein it was held that: "The A 0 has not brought on record anything which proves that there is any expenditure incurred towards earning of dividend income. The AO has not examined the accounts of the appellant and there is no satisfaction recorded by the AO about the correctness of the claim of the appellant and without the same he invoked Rule 8D. While rejecting the claim of the appellant with regard to expenditure or no expenditure, as the case may be, in relation to exempted income, the AO has to indicate cogent reasons for the same. The AO has not considered the claim of the appellant and straight away embarked upon computing disallowance under Rule 8D of the Rules on presuming the average value of investment at !j% of the total value. This is not permissible. " 44. I find that the case of the appellant finds support from the decision in SSPDL Ltd. vs. Deputy Commissioner of Income-tax, Circle-3(2), Hyderabad [2013] 33 taxmann.com 447 (Hyderabad -....
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....sing borrowed funds for its business. The Assessing Officer cannot sit in the armchair of a businessman and decide what the appellant has to do to maximize his profits. In view of this, the ground taken by the appellant is allowed. [Para 12]" 45. In Commissioner of Income-tax -IV vs. Suzlon Energy Ltd. [2013] 33 taxmann.com 151 (Gujarat) dated April 3,2013 it was held that: "Section 14A of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income [Dividends] - Whether where investment was made by appellant in foreign subsidiaries, disallowance of interest expenditure under section 14A was not justified since dividend income from foreign subsidiaries, is taxable in India - Held, yes - Whether where appellant had own interest free funds many times over the investment made in Indian subsidiaries and further, there was no direct nexus between interest bearing borrowed funds and such investment, no disallowance of interest expenditure could be made under section 14A - Held, yes [Para 3.1 ]" 46. In Director of Income-tax (IT)-II vs. BNP Paribas SA [2013] 32 taxmann.com 276 (Bombay) dated February 14,2013 it was held th....
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....e would be triggered only if AO returns a finding that he is not satisfied with the correctness of the claim of the appellant in respect of such expenditure. Sub-so (3) is nothing but an offshoot of sub-s. (2) of s. 14A. Sub-s. (3) applies to cases where the appellant claims that no expenditure has been incurred in relation to income which does not form part of the total income under the Act. In other words, sub-so (2) deals with cases where the appellant specifies a positive amount of expenditure in relation to income which does not form part of the total income under the Act and sub-s. (3) applies to cases where the appellant asserts that no expenditure had been incurred in relation to exempt income. In both cases, the AO, if satisfied with the correctness of the claim of the appellant in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-so (2) of S. 14A. It is only if the AO is not satisfied with the correctness of the claim of the appellant, in both cases, that the AO gets jurisdiction to determine the amount of expenditure incurred in r....
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....es the fulfilment of a condition precedent is also implicit in s. 14A(1) (as it now stands) as also in its initial Avatar as s. 14A. It is only the prescription with regard to the method of determining such expenditure which is new and which will operate prospectively. In other words, s. 14A, even prior to the introduction of sub-ss. (2) and (3) would require the A O to first reject the claim of the appellant with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is then that the question of determination of such expenditure by the AO would arise. The requirement of adopting a specific method of determining such expenditure has been introduced by virtue of sub-s. (2) of S. 14A. Prior to that, the assessing was free to adopt any reasonable and acceptable method. Thus, the fact that sub-ss. (2) and (3) of S. 14A and r. 8D would operate prospectively (and, not retrospectively) does not mean that the AO is not to satisfy himself with the correctness of the claim of the appellant with regard to such expenditure. If he is satisfied that the appellant has correctly reflected the amount of such expenditure, he has to do nothing further. On....
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....pellant for its own business but were diverted as advance to members of the HUF free of interest and, therefore, there is no justification in making part disallowance out of interest paid on borrowed funds". The Hon'ble Mumbai High Court in case of CIT Vs. Reliance Utilities & Power Ltd. 313 ITR 340 (Mum) has held that "The principal therefore would be that if there are funds available both interest free and overdraft and/ or loan taken then a presumption would arise that investments would be out of the interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investments. " Hon'ble Allahabad High Court in case of CIT Vs. Radico Khaitan Ltd 274 ITR 354 (All), Hon'ble Delhi High Court in case of CIT Vs. Tin Box Co. 260 ITR 637 (Del) and Hon'ble Madras High Court in case of CIT Vs. South India Corporation (Agencies) Ltd .290 ITR 217 (Mad) are also in favour of the appellant. Looking to the facts and circumstances of the case as also decisions cited above, the disallowance made by the AO cannot be sustained. Hence, the disallowance is deleted. The appellant gets relief of Rs. 24,464/-. 36. We have heard rival submission....
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....es have been claimed at Rs. 2,53,689/- and no log book has been maintained and personal use of the vehicles for other than business purposes are also not denied. Therefore, he made an estimated lumpsum disallowance of Rs. 25,000/-. 43. On appeal, the CIT (A) deleted the addition. 44. The DR supported the order of AO, whereas the AR of the assessee supported the order of CIT(A). 45. We find that the disallowance out of vehicle expenses was made by the AO on the ground that the assessee has not maintained log book and that personal use of vehicles cannot be denied by the assessee. We find that the AO has not given the basis of working out the disallowance of Rs. 25,000/- out of the vehicle expenses of Rs. 2,53,689/- claimed by the assessee. Adhoc disallowance of any genuine business expenditure of the assessee is not permitted in law. Therefore, we find no good reason to interfere with the order of CIT(A), which is confirmed and this ground of appeal of Revenue is dismissed. 46. Brief facts relating to ground No. 5 are that the AO has stated that the assessee has not shown any withdrawal for household expenses. The minimum expenses of the assessee....