TaxTMI 
TaxTMI 
2013 (9) TMI 1325
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.... the year along with documentary evidences in the shape of paper book given to him and the same has not been considered. 4. That the enquiries made at the back of assessee from brokers, banks, stock exchange, registrar of companies or from the company country credit capital Ltd. were never confronted to the assessee during the assessment proceedings hence violates the principles of natural justice and this point has not been considered by the CIT(A)-II, hence proceedings should be quashed on this ground. 5. The assessment has been completed on the basis of M/s Surya Scripts (P) Ltd. and M/s Sunrise Stock services (P) Ltd. and assessee was never confronted on this issue, hence the assessment based in violation to the principles of natural justice should be quashed and this point has not been considered by the CIT(A)-II, Ldh. 6. The A.O has no powers to ask source of source and this point has not been considered by the CIT(A)-II Ludhiana hence the assessment should be quashed on this ground. 7. The CIT(A)-II has not considered this aspect that A.O has not powers to change the head of Income declared in the Return of Income filed by the assessee and....
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..... Accordingly these ground are dismissed. 6. Grounds No. 3 to 10 - Brief facts of the case are that the assessee had filed return of income declaring income of Rs. 58,47,952/- consisting of business income and other income. Income from shares was also included in the return. It was particularly noticed that a sum of Rs. 51,37,580/- was shown on account of long term capital gains on which tax was levied @ 10%. To verify the genuineness of these transactions of the assessee was asked to furnish the details of purchase and sale of shares. On perusal of the details filed by the assessee in this regard, it was further noticed that the main items of the profit generated was on account of sale of shares of Country Credit Capital Ltd. The details of transaction in respect of share of this company have been extracted by the Assessing Officer at page 2 of the assessment order which is as under: S. No. Script Name D.O.P No. of Shares Amount D.O.S No. of Shares Amount Vaule per share in Rs. Profit 1. Country Credit Capital Ltd. 05.04.0 2 3000 11400 11.11. 03 5000 52785 0 105/- 2. Country Credit Capital Ltd. ....
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....has been no trading on floor of the Exchange since 23- 01-2002. Hence the trading for the period in question is nil. 3 Ahmedabad Stock Exchange Ltd., Ambawadi Ahmedabad As per reply dated 22-11-2006 it was informed that the above mentioned company is not listed at Ahmedabad Stock Exchange and no transactions have been routed through this Exchange. 4 Delhi Stock Exchange As per reply dated 20-11-2006 it was intimated that no trading of these shares occurred on the floor of the Exchange during the relevant period. 5 Mumbai Stock Exchange, Dalal Street, Mumbai. As per the reply dated 24-11- 2006 received on fax dated 18- 12-2006 the Stock Exchange has informed that the Company is not listed with it hence no trading has ever occurred. 6. Kolkata Stock Exchange Association Ltd. 7 Lyons Range Kolkata. As on date no reply has been received form the Stock Exchange but the contentions put forth in the above para are also applicable here. The AO in Range V called for similar information for the same company and vide reply dated 03-03-2006 it was intimated that the shares of M/s Country Credit Capital Ltd. are not listed with the Stock Exchange. As the shar....
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....f M/s Sunrise Stocks Services Pvt Ltd. were recorded. Shri Narain Dutt had stated that sale bills of Country Credit Capital Ltd. were issued without any sale of shares and purchases were shown at Rs. 3-4 per share and sale rate shown at Rs. 100-102 per share. It was also confirmed by him that though the purchase and sale bills were issued on the same date but the date in purchase bills was shown as more than 12 months old. Further it was stated that cheques were issued after receipt of equivalent amount of cash. The Assessing Officer himself stated in the assessment order that though the statement is that of an Accountant but it shows the motive of the assessee. 9. Since the assessee has failed to furnish any supporting evidence regarding market rate of the shares, date of purchase and sale of shares, therefore, the Assessing Officer made inquiries from Registrar of Companies, Jalandhar and sought copy of the balance sheet and profit and loss account. The Registrar vide letter No. 4708 dated 12.12.2006 supplied the copy of balance sheets. Balance sheets have been extracted as under: Particulars Year Ending 31.3.2003 31.3.2004 Share capital (Equity ....
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....e vide letter dated 18.12.2006 submitted that the shares were traded in Ahmedabad Stock Exchange and documents related to the same were submitted. The Assessing Officer noted that these documents did not bear any official stamp and were unverifiable. The Assessing Officer noted that Ahmedabad Stock Exchange in response to enquiry u/s 133(6) had clarified that the shares were not listed in that stock exchange and no trading in the shares of Country Credit Capital Ltd. has taken place. Therefore, the submissions made by the assessee were false and the assessee was trying to hide bogus transactions of share of Country Credit Capital Ltd. . On the basis of above enquiries the Assessing Officer concluded as under: "a) The assessee has done all the share transactions through M/s Modi Share Shoppe whose proprietor is Smt. Bindia Gupta and Shri Rajit Gupta, C.A husband of the above said lady did the transaction on his behalf as told by the assessee in his statement. The assessee knows Shri Rajiv Gupta since many years, still neither he nor his wife who is proprietor of Modi Share Shoppe has complied with the summons issued twice. b) The assessee has failed to produce the ....
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....ond doubt that the share transactions entered into by the assessee are sham transactions and own money has been introduced to get share profits. Hence the amount of Rs. 51,29,625/-equivalent to the alleged sale value of shares of the company i.e. M/s Citigold Credit Capital Ltd. is treated as the income of the assessee from undisclosed sources u/s 68 of the IT Act." 13. On appeal it seems some additional grounds were also raised before the ld. CIT(A) . Perusal of the record shows that the additional grounds are raised mainly on the point that the Assessing Officer has made certain enquiries from share brokers, Stock exchanges, Country Credit Capital Ltd. and Registrar of Companies and the same were not confronted to the assessee. It was also stated in the additional grounds that the statements of Surya Scrips Pvt Ltd. and M/s Sunrise Stocks Services Pvt Ltd. were recorded and the assessee was not confronted with the same. Additional grounds were forwarded by the ld. CIT(A) to the Assessing Officer f or hisreport/comments. The Assessing Officer objected to the admission of additional grounds and also pointed out that in Assessment year 2005-06 also the issue of bogus long t....
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....hat some of the cheques issued by the broker were against the cheque deposits received by the broker and in any case the assessee is not concerned with the bank account of the broker and how the payments have been made. Similarly no reliance can be placed on the survey proceedings in case of Surya Scrips Pvt Ltd and Sunrise Stock Services Pvt Ltd. even the statement of Shri Narain Datt, Accountant of the above concern has been wrongly relied. The Assessing Officer has simply misplaced himself once the company is listed in the stock exchange the shares are sold and credited through the broker of stock exchange and company has nothing to do with the same. 16. The ld. CIT(A) considered these submissions in detail and after considering the remand report received by him, did not find force in the submissions and decided the issue against the assessee. 17. Before us, the ld. counsel of the assessee submitted that it is wrong on the part of the Assessing Officer to say that the shares were not listed in MP Stock Exchange and Ahmedabad Stock Exchange. The Assessing Officer has not confronted the assessee with the letters written by the Stock exchanges and therefore, could....
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....sh Kumar Gupta. The ld. counsel of the assessee submitted that the assessee was knowing and dependent on the advice of Shri Rajiv Gupta who was a C.A. and share brokerage of Modi Share Shoppee being done by his wife initially and later on by his father Shri Suresh Kumar Gupta. He referred to various questions and answers in case of Smt. Bindiya Gupta and submitted that she was not aware about the knitty gritty of share broking. Similarly statement of Shri Suresh Kumar Gupta cannot be relied on because he did not know many details of the business like demat account of Modi Share Shoppee and the status in which the firm was running. In any case further cross-examination was not allowed on the next day which was requested on behalf of the assessee. He fairly admitted that the Assessing Officer had given time to Shri Suresh Kumar Gupta but he did not turn on the next day. Further the statement of Smt. Bindiya Gupta and Shri Suresh Kumar were recorded for Assessment year 2005-06 and the same could not be relied for Assessment year 2004-05. 18. He referred to the decision in case of Baijnath Aggarwal Vs. ACIT, 43 DTR 149 (copy filed in the paper book) and Mohal Lal Jinder Vs. IT....
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....nge because Ahmedabad Stock Exchange has categorically informed the Assessing Officer that no trading has taken place in the shares of Country Credit Capital Ltd. He referred to the decision of Mohan Lal Jindal Vs. ITO (supra) and submitted that in that case the Tribunal has observed that the action of the Assessing Officer was merely based on the statement of Shri S.K. Jain and no opportunity to cross examine Shri S.K. Jain was given to the assessee whereas in the present case the assessee was allowed to cross examine the broker and the Assessing Officer has conducted the detailed enquiries in this case. He also relied on the following case laws: Som Nath Maini Vs. CIT, 306 ITR 414 (PH) Sumati Dayal Vs. CIT, 214 ITR 801 (S.C) Balbir Chand Maini Vs. CIT & other, 340 ITR 161 (PH) 21. In the rejoinder the ld. counsel of the assessee submitted that the decisions cited by the Department are distinguishable. 22. We have heard the rival submissions carefully and find that the ld. CIT(A) has decided the issue against the assessee by observing that the evidence discussed by the Assessing Officer as well as categorical statement of the broker tha....
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....d no other evidence was filed. The assessee showed its inability to produce the broker and despite the summons the broker did not attend the proceedings. Therefore, in this background the Assessing Officer was left with no option but to conduct the enquiries at his own. The main enquiry was conducted from stock exchanges to ascertain whether the shares were listed in all the stock exchanges and whether any trading took place in the shares. Various stock exchanges confirmed that either the shares were not listed in stock exchanges or in any case no trading has taken the place. The replies of the various stock exchanges have been summarised in Table 2 which we have extracted above. This fact was brought to the knowledge of the assessee when his statement was recorded on 15.12.2006 and which have been extracted by the Assessing Officer in the assessment order. Relevant question and answer is as under: "Question - As per the information received from many Stock exchanges it is seen that this Company (Country Credit Capital Ltd) is not listed with Bombay Stock Exchange and was last traded on DSE on 26.11.1996 and there was no transaction after that period and even in Ludhiana S....
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....tal gains. In such cases share of "shell companies" or "non active companies" which are not traded in any stock exchange, are quoted in a particular Daily in respect of a particular stock exchange and then same is used to give as evidence that the share price was so much. Such single quotation itself prove that the shares are not actively traded in the particular stock exchange. Sometimes actual transaction of very small quantity of shares is done say for 10 or 100 shares to create proof that shares are regularly traded but such quotation has to be viewed in the light of over all facts and enquiries made in a particular case. In case before us, over whelming evidence show that bogus capital gains has been generated by the assessee and therefore, these quotations in a Gujarati Daily will not help the assessee. We also find that there is no merit in the contention that the Assessing Officer has not considered Annexure A&B given by Delhi Stock Exchange in its letter dated Nov 20,2006 (copy of which has been referred by the ld. counsel of the assessee at page 236 of the paper book). In fact the ld. DR for the revenue has filed the copy of the Annexure A&B clearly states that "no tradin....
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....ings, therefore, the ld. CIT(A) has full right to rely on the statement. In this regard we would also like to recall the famous statement of Lord Macmillan, Smart v. Lincolnshire Sugar Co. Ltd. 20 TC 643, 671 (HL) where he observed that - "It may be a question whether it is legitimate to have regard to the fact that it is now known that the payments are irrevocable and that the contingency of repayment can now never arise ....... A Court ought not to shut its eyes to the true facts if it subsequently knows them although these facts could not have been known when the question originally arose, and ought not to resort to guessing when certainty is available." 28. Third contention was that the statement of Smt. Bindiya Gupta and Shri Suresh Kumar Gupta are not reliable because they were even not aware of the basic facts of the case and Smt. Bindya Gupta has clearly admitted that she was not aware of the knitty gritty of the business. In this regard he referred to the questions and answers during cross objection during which Shri Suresh Kumar Gupta has replied that he does not remember the status of the proprietary concern for all the years. It was further contended t....
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....eeding the entries relating to cheques issued to Shri Chandan Gupta. Kindly explain? Answer - In response to this query I would resubmit that I may not be able to explain the nature of entries but one important thing which I would like to mention which I am well aware of is that the cheques issued to Shri Chandan Gupta are in lieu of the cash which has been received from his behalf. Question - Do you mean to suggest that although cheques totaling to approximately Rs. 50 lakhs have been issued after receiving Rs. 50 lakhs in cash on behalf of Shri Chandan Gupta. Do you mean to suggest that the entries of long term capital gains taken by Shri Chandan Gupta through M/s Modi Share Shoppee are bogus and all entries have been routed by giving equivalent amount of cash. Answer - I would submit that I am not so clear about the nature of entries has been mentioned before but I am fully aware of the fact that all cheques issued to Shri Chandan Gupta are in lieu of cash accepted on his behalf. I would further submit that if complete details regarding the modus operandi of Shri Chandan Gupta regarding these entries in required that can be clarified from my father-in-....
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....al gains after giving equivalent amount of cash. There is no doubt that these entries are bogus long term capital gains entries. Cash has been received on behalf of Shri Chandan Gupta on numerous occasions at different times usually at Room No. 236. LSE Building or in Bank where the cash was finally deposited into the account of M/s Modi Share Shoppee. It is important to mention that all the cash handed over on behalf of Shri Chandan Gupta has not been directly deposited in the Bank as the same was used in business for making payments and cheques were issued to Shri Chandan Gupta against both regular payment and part cash deposited. But it needs to be reemphasized that all the cheques which have been issued to Shri Chandan Gupta is lieu of equivalent amount of cash received on his behalf. This is true for Assessment year 2005-06 as well Assessment year 2004-05. Question - So if it is said that Shri Chandan Gupta has taken bogus long term capital gains by giving you cash is equivalent as seems by you statement above will it be true. Answer - Yes, the long term capital gains entries are undoubtedly bogus." 32. Relevant portion of cross examination allowed i....
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....e meaning of the dematerialization of the share. In fact, during the year the ld. counsel of the assessee clarified that he had given blank share delivery slips to the broker. This clearly show that capital gain was not genuine. When the assessee was confronted with the issue that these shares are not traded in any share stock exchange then the assessee simply replied that he will file the evidence later on but no evidence was ever filed. 34. We do not find any force in the submissions that the statement of Smt. Bindiya Gupta cannot be relied because she did not know the knitty gritties of the share business. Smt. Bindiya Gupta had clearly stated that in response to the question relating to the nature of the business transaction that though she was not aware of the knitty gritties of share business but Smt. Bindiya Gupta had very categorically stated that the cheques were issued to Shri Chandan Gupta in return of cash which were in the nature of entries. Similarly Shri Suresh Kumar Gupta has categorically stated that the cheques were issued by receiving equivalent amount of cash. When the cross examination was given to the assessee, the assessee could not prove otherwise s....
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....cies and probabilities. (iii) The appellant's books did not show any drawings on race days or on the immediately -preceding days for the purchase of jackpot combination, tickets, which entailed sizable amounts varying generally between Rs. 2,000 and Rs. 3,000. The drawings recorded in the books could not be co- related to the various racing events at which the appellant made the alleged winnings. (iv) While the appellant's capital account was credited with the gross amount of race winnings, there were no debits either for expenses and purchases of tickets or for losses, (v) In view of the exceptional luck enjoyed by the appellant, her loss of interest in races from 1972 assumed claimed to have been significance. The Settlement Commission took the view that winnings in racing became liable to income-tax from April 1, 1972, but one would not give up an activity yielding or likely to yield a large income merely because the income would suffer tax and that the position would be different, however, if the claim, of winnings in races was false and what were passed off as such winnings really represented the appellant's taxable income from some undisclosed sources on these fac....
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....d mere fact that few cheques have been issued by the broker out of the proceeds received through clearing, will not alter the result of other evidences gathered by the revenue. The ld. counsel of the assessee had relied on the decision of Chandigarh Bench of the Tribunal in Mohan Lal Jindal, ITA No. 303/Chd/2004. No doubt in that case the facts are almost identical but the Tribunal allowed the appeal of the assessee because the Revenue had not conducted the proper enquiries. In fact it is clearly observed in the order of the Tribunal at the end of para 11 "that in the instant case also the addition had been made only on the basis of statement of Shri S.K. Jain and the opportunity to cross examine him has not been provided to the assessee. Therefore, the findings given in the aforesaid referred to cases are applicable to the facts of the present case". Further in para 13 it was observed that the Revenue has not conducted any enquiries. Relevant portion reads as under: "However, the Assessing Officer did not make any inquiry either from the company whose shares were purchased and sold by the assessee or from the share broker through whom the transaction took place. Therefore....
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....68 is an item which have been credited in the books and which has not been explained by the assessee. There is no other requirement under this section. Once the transaction of purchase and sale is found to be bogus then sale proceeds has to be added as income of the assessee u/s 68 because money received on the basis of bogus transaction has been credited by the assessee in the books of account. The same position was upheld by Hon'ble Supreme Court in case of CIT Vs. P. Mohanakala, 291 ITR 278 (S.C). In this case the Hon'ble Supreme Court was concerned whether the gifts which were proved to be bogus can be added u/s 68 of the Act. The Hon'ble Supreme Court made various observations and the relevant portion at para 24 reads as under: "24 We are required to notice that section 68 of the Act itself provides, where any sum is found credited in the books of the assessee for any previous year the same may be charged to income-tax as the income of the assessee if the previous year if the explanation offered by the assessee about the nature and source of such sums found credited in the books of the assessee is in the opinion of the Assessing Officer not satisfactory. S....