TaxTMI 
TaxTMI 
2004 (2) TMI 271
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....tnership share, interest, dividend and income from other sources. A search was conducted at the residential premises of the assessee on 16-2-1993 and a cash amount of Rs. 10,000, ornaments of Rs. 53,487 and share certificates of about Rs. 10 lakhs, were seized. The addition for cash and ornaments has been made in assessment year 1993-94 only and the other additions regarding the investments in shares, dividend income have been made in all the years. In the search proceedings, 10 bank accounts were found in the names of different persons but all these were operated by the assessee for purchase of shares etc. During the course of search, the assessee made a disclosure of investment in shares for Rs. 10 lakhs which was ultimately enhanced at Rs. 14,93,491. It was further considered that the market value shown above, is not to be considered for assessment purpose. The cost of acquisition of shares of Rs. 5,41,740 was considered for assessment purpose in all the four years. The assessee also mentioned that he was operating 10 benami bank accounts and the deposits in these banks and also the investments in shares through these banks, was admitted. The assessee, however, claimed that he i....
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.... per month and stated to be out of HUF having agricultural income. The returns of income for the years were filed much prior to the date of search wherein the agricultural income has also been shown and the withdrawal which is much higher than regular household expenses is also disclosed. The ld. CIT(A) was therefore correct in stating that the investment in shares is to be treated as explained. 2.4 We have carefully considered the rival submissions and the relevant facts of the case. The CIT(A) while dealing with the issue held as under:- "I have considered the facts and I find that there is no dispute regarding the existence of the HUF and also for the agricultural income of the HUF. It is in existence since number of years and the returns for the assessment years 1990-91, 1991-92 & 1992-93, were already filed before the search operation. The income was accepted and the household withdrawals and the investment, were also disclosed. The specific details of investment in shares with the names of the companies, however were not filed. I also find that there is no bank account of the HUF and, therefore, it was not possible to produce such details before the Assessing Offi....
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....hree years are dismissed. 4. We shall now take up the revenue's appeal for assessment year 1993-94. The first ground of appeal is against deletion of addition of Rs. 10,000 in respect of cash found during the search. While explaining the source of cash found and answer to question No. 14 it was stated to be out of unaccounted income from cloth business. The Assessing Officer therefore treated it as unexplained and taxed the same, though the assessee explained during the course of assessment proceedings that the amount was withdrawn from the firm M/s. Krishna Exclusive in which he is a partner. The amount was withdrawn on 15-2-1993, a day before the date of search. The copy of account was also filed showing the withdrawal by the firm and a certificate was issued by the firm confirming the same. The learned Assessing Officer will choose to tax the same as the assessee agreed for the same during search proceedings and similar explanation was not filed in 132(4) statement. The ld. CIT(A) deleted the addition on the ground that the entry in regular books of account has not been denied by the Assessing Officer and hence the cash is to be treated as explained. 4.1 Whereas the le....
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.... 5.3 We have carefully considered the rival submissions and the orders of authorities below. The CBDT Instruction No. 1916 dated 11-5-1994 which suggest that a family is supposed to hold certain jewelleries received at the time of marriage from parents and in laws within the said limits it is to be treated as explained. Though the Instruction speaks of not seizing the same, the extended meaning of the same shows the intention that the jewellery is to be treated as explained one and is not to be treated as unexplained for the purpose of Income-tax Act. Even on merits of the case, the assessee has explained the source of jewellery by filing necessary affidavit of the father-in-law giving the jewellery in gift. We, therefore, do not find any merit in this ground of appeal. Accordingly the same is dismissed. 6. The next ground of appeal is against deletion of addition of Rs. 11,16,150 as unexplained investment in shares claimed by the assessee to have been made out of the HUF sources. 6.1 The search took place on 16-2-1993. At that time the financial year has not ended. The time limit to file the return of income has not expired. Shri Rameshchandra Ramanlal Patel HUF filed its ....
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....act notice and payment details etc. allowed the claim and held as under:- "I have considered the facts and I find that the transactions were incurred through the brokers appointed by the Government of India. Both the brokers have confirmed the transactions and a copy of transfer memo, payment, delivery etc. have been filed. The assessee has also filed a copy of the Bank account to prove the payment for purchase of shares and the receipt in the bank account. The shares of both the companies are quoted in the stock exchange and the rate of transactions is verified from the quotations. There is no evidence with the Assessing Officer found in the search, to show that these were not genuine transactions. I, therefore, hold that the claim of the loss is genuine and the assessee is entitled for short term loss of Rs. 3,48,300 in this year." 7.3 The ld. DR strongly objected the action of ld. CIT(A). It was submitted that all the entries are subsequent to the search proceedings and are made belief transaction to avoid taxes payable on the income disclosed during search. Referring to the transaction dates and payment dates it was submitted that the assessee received the share in ....
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....s effected. The transactions are at market price, the fact is not denied. In such a situation to hold that only because the payment is made even subsequent to the contract for sale, the transaction is a colourable device is purely on surmises and contrary to the facts. The assessee has discharged the onus of proving the genuineness of transaction. The assessee cannot be said to be controlling the records of the brokers. Only because the brokers could not produce certain materials called by the Assessing Officer or could not appear in person is not a valid ground for holding the transaction as bogus or colourable device. The assessee has actually incurred the loss. Thus it is not a fictitious loss. Both the brokers have confirmed the transaction as per bills and contract note raised by them. Thus valid transaction in sale and purchase of shares have taken place. The loss incurred on such transaction is therefore allowable. We, therefore, do not find any infirmity in the order of ld. CIT(A). This ground of appeal is accordingly dismissed. 8. In the result, revenue's appeal is dismissed. 9. We shall now take up the assessee's appeal for assessment year 1993-94. The first....
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....tantial as Rs. 2 lakhs. He, therefore, pleaded that addition of Rs. 2 lakhs be deleted. 9.5 The ld. DR supported the orders of authorities below. It was submitted that statement made during the course of search cannot be retracted, but for the cogent reason for the same. For this purpose, he relied upon the decision reported in V. Kunhambu & Sons v. CIT [1996] 219 ITR 235 (Ker.). 9.6 In reply Shri Pipara submitted that the admission was on purely towards household articles and not renovation. This fact is proved as per the list of articles found during search. 9.7 We have carefully considered the rival submissions, the relevant facts and the orders of authorities below. The assessee has proved by furnishing valuation report in respect of house property that there IS no major renovation of the house during the relevant financial year. The value of household articles found as narrated in Annexure-V of panchnama prepared during the course of search, values around Rs. 47,500 only. Out of the same the wooden cupboards and fixtures valuing Rs. 35,000 is shown in the balance sheet of Shri Ramanbhai R. Patel, HUF. This amount was also disclosed in the balance sheet filed prior to ....
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....y the assessee for purchase of shares etc. During the course of search, statement on oath under section 132(4) was recorded on 16-2-1993 and in reply to question Nos. 45 & 46, the assessee made a disclosure of Rs. 25 lakhs. Both the questions and reply of the assessee is reproduced hereunder:- "45. I am explaining you the Explanation S of section 271(1)(c) of the Income-tax Act. After understanding the provisions accordingly, whether you want to disclose voluntarily and your undisclosed income? Ans: 45: Yes. Sir, I understood the Explanations of section 271(1)(c) of the Income-tax Act as explained by you and I want to take the benefit by disclosing my undisclosed income and I want to declare the following income. I declare unaccounted income of Rs 25,00,000 earned from the business of sale and purchase of shares which is not shown in current years books and I am agree to request the whole tax on this income. And I pray that I should get relief from penalty and prosecution proceedings. This income is my current year's income and I earned it from business of sale and purchase of shares. Q. 46: Give the details of assets in which you have invested undisc....
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....bsp; 17-3-1993 /2,00,000 /1,55,200 5,55,200 4. Dated of contract for sale 4-3-1993 5-3-1993 5. Dated of delivery of sold 22-3-1993 6-3-1993 6. Dated of receipt of payment 26-3-1993/1,39,100 17-3-1993 /1,24,000 (encashed on 27-3-1993) 22-3-1993 /3,00,000 4,24,000 7. Short term loss claimed 2,17,100 1,31,200 Summons under section 131 have been issued to M/s. Adinath investment on 24-1-1995 for service through the Inspector. The Inspector has reported that at the business place at 381, Khetarpal's Pole, Manekchowk, Ahmedabad, the party is not available. On inquiry, it is reported by him that the said party has closed the business, and his whereabouts are not known. Therefore, vide letter dated.30.1-1995, the assessee was asked to produce the broker on 7-2-1995 for interrogation alongwith his books of account, bank accounts, contract form book delivery notebook, sale book relating to the sale of shares etc. Shri Bagchand G. Jain, proprietor of Adinath Investment has been produ....
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....as presented himself. The assessee has filled confirmatory letter from Shri Jagdish P. Patel dated 16-1-1995 for purchase, delivery, sale and receipt and payment of purchase and sale considerations. I fail to understand when a broker can given in writing to the assessee confirming the transactions, why he cannot remained present in spite of summons issued to him, and why the assessee could not produce him. There is a strong belief that the alleged transaction of ICICI shares are fishy and the loss claimed is a fictitious one to siphon off the income declared as bogus transactions. In view of these facts, the loss claimed by the assessee is disallowed." 15. On appeal, in the impugned order ld. CIT(A) directed the Assessing Officer to allow the short term loss though the assessee has not furnished the evidence of delivery of shares as well as distinctive number of 1300 share certificates of IPCL and 400 shares of ICICI. 16. At the time of hearing before us, the learned departmental representative contended that the Assessing Officer examined the dates of purchases, date of delivery of shares, date of actual payments and date of contract. For this purpose, Assessing Officer issu....
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....ful device to siphon off the income declared by the assessee during the course of search through bogus transaction. The ld. DR further submitted that even if for the sake of argument it is presumed that assessee has actually made the payment for sale and purchase but in the absence of evidence of delivery of shares, loss in question incurred by the assessee is "loss in speculative business" within the meaning of section 73 of the I.T. Act and same can be set off only against any other speculative business and not against the income declared by the assessee under Exp. 5 of section 271(1)(c) of the Income-tax Act, 1961. 17. Before us learned counsel of the assessee relied on the order of ld. CIT(A). To a query from the Bench, ld. Authorised Representative conceded that distinctive number of share/share certificate numbers are not available. He contended that transactions are not sham or bogus. 18. It is pertinent to note that even at the time of hearing, the counsel of the assessee could not furnish the share certificate numbers/distinctive numbers. At page No. 71 the assessee has furnished delivery note dated 1-3-1993 issued by M/s. Adinath Investments. In this delivery note, ....
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....73 clearly states that any loss computed in respect of speculation business carried on by assessee shall not be set off except against profits and gains, if any, of another speculation business. I am, therefore, of the view that even if it is presumed that alleged loss on sale and purchase of shares amounting to Rs. 3,48,300 is genuine in that event also same is not allowable keeping in view the Explanation 2 to section 28, "Definition of speculative transaction" contained in section 43(5) and provisions contained regarding set off of speculative losses in section 73 of the I.T. Act, 1961. 20. For the reasons given hereinabove, I therefore hold that alleged loss of sale and purchase of shares amounting to Rs. 3,48,300 is correctly disallowed by Assessing Officer. I, therefore, reverse the order of learned CIT(A) on this issue and restored the disallowance of Rs. 3,48,300 made by the Assessing Officer. Ground No.2 of revenue appeal for the assessment year 1993-94 is allowed. 21. Ground No.2 of assessee's appeal is that ld. CIT(A) erred in confirming the addition of Rs. 2,00,000 made by Assessing Officer as investment in house property which was disclosed by the assessee in....
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....he existing structure. From these two reports the assessee wants to believe the department that he has no made any investment in this house. From this report, one thing is very clear that some addition and alterations have been made for which value has been shown at Rs. 40,000 and there has also been increase in value of existing structure to the extent of Rs. 79,494. There has been no depletion in the value of house on account of depreciation being an old structure. Thus the report of the valuer cannot be believed in its true spirit. There is an evidence that renovation has been carried out. The assessee has made disclosure for renovation, furniture etc. The report of the valuer does not reflect any investment in furniture. Therefore, the disclosure made for Rs. 2,00,000 on account of renovation of house etc., is a definite evidence which should be taken into account. The argument of the assessee that the disclosure was made under threat and pressure, carries no weight because there is evidence or renovation in the house property. Considering these aspects, I hold that the assessee has made investment in the house property as disclosed during the course of search. Therefo....
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....and Rs. 57,957 respectively made by Assessing Officer, which has been deleted by ld. CIT(A). It was pointed out by ld. DR that after making all these investments there is hardly any cash left with the assessee. It appears that alongwith the return of income of HUF no Balance Sheet was filed and the assessee has not furnished cash flow chart of HUF either before the Assessing Officer or CIT(A). In these circumstances, CIT(A) is legally and factually correct in holding that there was no amount left for any such expenditure for renovation, repairs etc. in HUF property. 27. I have carefully gone through the orders of authorities below. Rival submissions were also considered. In the statement recorded during the course of search under section 132(4), on 16-2-1993, it was stated by the assessee that he made investment for renovation, furniture, purchase of TV etc. for about Rs. 2,00,000. The statement recorded by the search party contained 46 questions and answers. From the perusal of same, I found that in respect of disclosure of Rs. 2,00,000 the assessee in reply to Q.7 has clearly given even the source of earning of undisclosed income. The statement made by the assessee is voluntar....
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....ember is justified in upholding the order of ld. CIT(A) confirming the addition of Rs. 2,00,0007" THIRD MEMBER ORDER Per Shri R.P. Garg, Vice President 1. These two appeals came up for consideration before the Division Bench and there struck a difference of opinion between the two Members on the following two points:-- ITA No. 5228/Ahd./1995 - Asst. Year 1993-94 "Whether, on the facts and circumstances of the case, the Accountant Member is justified in upholding the order of CIT(A) allowing the short term capital loss of Rs. 3,48,300 or Judicial Member is justified in reversing the order of ld. CIT(A) on this issue for the assessment year 1993-947" ITA No. 4646/Ahd./1995 - Asst. Year 1993-94 "Whether, on the facts and circumstances of the case, the Accountant Member is justified in reducing the addition of Rs. 2 lakhs to Rs. 12,500 or Judicial Member is justified in upholding the order of ld. CIT(A) confirming the addition of Rs. 2,00,000?" The President, Income-tax Appellate Tribunal referred this case for my opinion on the aforesaid two differences as a Third Member. 2. The facts are that search and seizure action was taken in th....
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....and 46 of the statement under section 132(4) of the Act. 4. As regards the loss in the share the Assessing Officer noticed that the claim pertained to the sale of 1300 IPCL shares and 400 ICICI shares. The respective loss of Rs. 2,17,100 and Rs. 1,31,200 aggregating to Rs. 3,48,300 was claimed set off against the capital gains on the share transactions deposited in the bogus bank account of Rs. 1,37,286 as also against the income from other sources. The sequence of dealings in these two shares are tabulated by the Assessing Officer on page 8 of his order as under:- Purchase and sale of 1300 IPCL shares through Adinath Investment, Prop. Shri Bhagehand G. Jain Purchase and sale of ICICI 400 shares through Jagdish P. Patel 1. Date of contract for purchase 2-11-1992 12-2-1993 2. Date of delivery of shares 1-3-1993 27-2-1993 3. Date of payment 23-3-1993/356200 10-3-1993 /2,00,000 17-3-1993 /2,00,000 1,55,200 5,55,200 4. Dated of contract for sale 4-3-1993 5-3-1993 5. Dated of delivery of sold shares 22-3-1993 6....
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....t the assessee has not furnished the copy of contract form, delivery memo and distinctive numbers of the shares purchased and sold, though a Xerox copy of the purchase memo in respect of ICICI shares was filed. Summons were issued to Shri Jagdish Patel to attend the office with books of account, bank accounts, contract form, Sauda Vahi, etc. but on the appointed day the broker did not turn up. The Assessing Officer, therefore, informed the assessee to produce the said broker and present himself on a subsequent date but on that date also neither the broker was produced nor the assessee presented himself. However, the assessee filed a confirmatory letter from Shri Jagdish Patel dated 16-1-1999 for the purchase, delivery, sale and receipt and payment of purchase and sale consideration. The Assessing Officer in these circumstances failed to understand that when the broker can confirm the transaction in writing to the assessee, why he could not remain present before him in spite of the summons issued and why the assessee could not produce him either. He, therefore, formed a strong belief that the alleged transaction of ICICI shares was fishy and the loss claimed was a fictitious one to ....
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....tions as per bills and contract notes raised by them, the transaction in sale and purchase of shares had taken place and the loss incurred on such transactions was, according to him, therefore, allowable. The Judicial Member, on the other hand; observed that the counsel of the assessee could not furnish the share certificate number, distinctive number; that in the delivery note dated 1-3-1993 the distinctive numbers and share certificate numbers have not been mentioned against the column of distinctive number and share certificate number and similarly in the correspondence with Jagdish P. Patel the assessee could not point out the distinctive number or share certificate number of ICICI shares delivered to the assessee. He also observed that the search was conducted on 16-2-1993 and there was no evidence regarding the purchase of shares of IPCL and ICICI found by the search party though from the perusal of the statement recorded and seized material it could be seen that the search party seized loose papers which were contained in file Annexure A-9 which were confronted to the assessee during the course of search vide question No. 39. He also found it unbelievable that the assessee m....
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....ich contract also is not brought on record. 9. Both the middlemen are not brokers of any stock exchange nor were they appointed by the Government of India as stated (wrongly) by CIT(A). One of them is now said to be a sub-broker and the other is only a consultant. A person who is not a broker is normally not allowed to transact business of forward transaction by virtue of section 13 of the Securities, Contract (Regulation) Act, 1956, the exception being for spot delivery transactions under section 18 of the said Act. The press note referred to by the learned counsel of the assessee regarding the working of brokers and sub-brokers does not throw any light on this aspect. 10. The shares of IPCL are stated to be through Adinath Investments whose proprietor is stated to be Shri Bhagchand Jain and who is claimed to be broker originally. The party was not found available on enquiries made by the Inspector as they had closed their business and on being told, the assessee produced said Shri Bhagchand Jain who though acknowledged the transaction but affirmed for having not maintained any books of account. He could not file any details or as to from whom he had purchased the shares and....
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.... of the assessee and not of broker or to whom or from whom the money was received or paid. At best the bank entries could vouch for the payment and the transaction as such. 15. The cumulative effect of all these, in my opinion, was that the transaction was not genuine and a show was made to create a loss to reduce the tax on the income of the assessee. The Judicial Member was, in my opinion, justified in holding the transactions to be not genuine and alternatively also, for holding that the loss was speculative loss as the transactions were settled without delivery of shares. It is true that the brokers are not under the control of the assessee but when the loss is claimed as a deduction it is for the assessee to prove that he had incurred the loss and in absence of the examination of broker, his books of account and other material, it was not proved particularly when no details of the distinctive numbers/certificate numbers of the shares purchased and sold was claimed to have been taken or given through the brokers were brought on record. 16. The second point of difference is for the addition of Rs. 2 lakhs under the head investment in the renovation of the house, 45 Juhu Pa....
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....ions have been made for which value has been put at Rs. 40,000 and that there was an increase in the value of the existing structure to the extent of Rs. 79,494; and that there was no depletion on the value of the house on account of depreciation being an old structure. He, therefore, held that the report of the valuer cannot be believed in its true spirit. The assessee had made disclosure for renovation and furniture, etc. and the report did not reflect any investment in furniture. He also rejected the contention of the assessee that the disclosure was made under threat and pressure in view of the fact that there was an evidence for renovation in the house property. He, accordingly, made an addition of Rs. 2 lakhs to the income of the assessee. 19. The CIT(A) sustained the addition by observing in paragraph 28 as under:- "28. I have considered the facts and I find that there is no house property in the name of the individual but the assessee can make the investment of for renovation and furniture in the property of HUF also. The accounts of the HUF of last four years have been discussed above while considering the household expenses and some investment in shares. There....
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....etails given in answer to question No. 46 of the statement making disclosure of Rs. 2 lakhs and the reply to question No. 7 clearly giving the source of earning of undisclosed income. It was a voluntary statement and was binding on the assessee in view of the judgment of the Kerala High Court in the case of V. Kunhambu & Sons according to him, neither before the Assessing Officer nor before the CIT(A) the assessee has furnished the cash-flow statement of the HUF and in the return of HUF for assessment year 1993-94 the assessee had disclosed agricultural income of Rs. 1,86,987 which was furnished in the month of February, 1994 even though in reply to question No.7, the assessee had stated that approximately the yearly agricultural income of the HUF was Rs. 1 lakh which, according to him, indicated that the assessee had inflated the agricultural income to cover up the undisclosed income in the absence of any cash-flow chart. The CIT(A), according to him, gave cogent reason for upholding the addition and he upheld the same. 21. The submissions of both the sides were heard and considered. The addition was made by the Assessing Officer primarily on the basis of the statement given by....
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....ssee having not invested money for the house or household goods or furniture therein. The valuer has stated that he has inspected the property on 24-12-1994 for both the valuations. Both the reports were signed on 26-12-1994. These dates are much after the dates of search. As to what were the construction earlier and what were made during the period under consideration and upto the date of inspection is not known. The furniture and household goods for which the declaration was made might not be there in existence on the date of the inspection. Therefore, not much reliance can be placed on the valuation reports vis-a-vis the declaration made by the assessee. The Panchnama only shows the household goods and furniture and not the investment in the house and therefore, this also cannot be a ground for demolishing the version of the assessee made under section 132(4) of the Act stating that he has invested Rs. 2 lakhs in the house and household goods. Not only at one place, the assessee has stated at other places that he has invested Rs. 2 lakhs in repairs / renovation, furniture and household goods. (see question No.7 and answer thereto which are extracted in the order proposed by the ....