HARESH P. DADIA, MUMBAI V. ACIT CEN CIR-3, MUMBAI

ITA 1067/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49138 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 24-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 17-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIVAS RAO
• Assessee Lawyers: S C TIWARI
• Keywords: Unexplained cash credit; Capital asset; Business income; Opportunity of cross examination; Question of law; Accommodation entries; Retraction
• Section: 54F; 153A; 234B; 131; 68; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI, J. SUDHAKAR REDDY, ACCOUNTANT MEMBER A ND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 484, 1067 AND 1194/MUM./2009 (A.YS : 2004-05, 2005-06 AND 2006-07 ) DATE OF HEARING: 24.5.2011 DATE OF DICTATION : 2-3.6.2011 SHRI HARESH P. DADIA 401, SMEET APARTMENTS KHOKHANI LANE, GHATKOPAR (E) MUMBAI 400 077 PAN ADUPD5894J .. APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-3, MUMBAI .... RESPONDENT ASSESSEE BY : MR. S.C. TIWARI REVENUE BY : MR. GOLI SRINIVAS RAO O R D E R PER J. SUDHAKAR REDDY, A.M. ALL THESE APPEALS ARE FILED BY THE ASSESSEE AND ARE DIRECTED AGAINST SEPARATE ORDERS PASSED BY THE COMMISSIONER (APPEALS )-I, MUMBAI. AS THE ASSESSEE IS THE SAME AND THE ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, THEY ARE HEARD TOGETHER AND DISPOSED O FF BY WAY OF THIS CONSOLIDATED ORDER. ITA NO.484/MUM./2009, FOR ASSESSMENT YEAR 2004-05 . 2. BRIEF FACTS OF THE CASE ARE THAT, THE RESIDENTIAL P REMISES OF THE ASSESSEE WAS SEARCHED UNDER SECTION 132 OF THE INCO ME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) ON 24 TH MARCH 2006. THE SEARCH CONCLUDED ON 26 TH APRIL SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 2 2006. NOTICE UNDER SECTION 153A OF THE ACT WAS ISSU ED ON 7 TH AUGUST 2006 AND IN RESPONSE THERETO, THE ASSESSEE FILED RETURN OF INCOME ON 30 TH SEPTEMBER 2006, DECLARING TOTAL INCOME OF ` 3,71,210. 3. THE ASSESSEE IS A PROPRIETOR OF M/S. DADIA CHEMICAL S INDUSTRIES. IN ITS RETURN OF INCOME, THE ASSESSEE DISPLAYED ` 3,46,900 AS INCOME FROM BUSINESS, ` 37,812 AS INCOME FROM OTHER SOURCES, ` 51,75,659 AS LONG TERM CAPITAL GAINS AND ` 12,16,267 AS LONG TERM CAPITAL LOSS. THE ASSESSEE INVESTED AN AMOUNT OF ` 45,40,000 AND CLAIMED EXEMPTION UNDER SECTION 54F OF THE ACT. THE ASSESSING OFFICER, ON VERIFICAT ION, FOUND THAT THE ENTIRE LONG TERM CAPITAL GAINS WAS MAINLY FROM PURCHASE AN D SALE OF SHARES OF M/S. BOLTON PROPERTIES LTD. 25,000 SHARES OF M/S. BOLTON PROPERTIES LTD. WAS PURCHASED ON 23 RD JANUARY 2003, FOR AN AMOUNT OF ` 1,71,000. THEREAFTER, IT WAS CLAIMED THAT THESE SHARES WERE SOLD IN TWO LOTS I.E., ON 11 TH AND 16 TH FEBRUARY 2004 FOR ` 26,03,150 RESPECTIVELY AGGREGATING TO ` 52,06,300. IT WAS NOTICED THAT ALL THE SHARES IN QUESTION WERE PU RCHASED FROM BUBNA STOCK BROKERS OF KOLKATA. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS PURCHASED SHARES @ ` 6.84 PER SHARE AND SOLD THE SAME AT ` 208.50 PER SHARE ON AN AVERAGE HOLDING OF ABOUT 12 MONTHS AND THAT THIS IS AN ABNORMAL RISE IN PRICE. THE ASSESSING OFFICER, IN H IS ASSESSMENT ORDER, VIDE PARAS-8.1 AND 8.2, OBSERVED AS FOLLOWS:- 8.1 THIS COMPANY HAD ITS REGISTERED OFFICE AT ROOM NO.5, 2 ND FLOOR, COMMERCE HOUSE, 2 GANESH CHANDRA AVENUE, KOLKATA. T HE COMPANY HAD TWO DIRECTORS, NAMELY SHRI J.P. PUROHIT AND SHR I PUSHPAL CHANDRA. IN THIS COMPANY, VERY LITTLE BUSINESS ACTIVITY WAS CARRIED OUT DURING THE F.Y. 2002-03 AND F.Y. 2003-04. AS PER THE PROFI T & LOSS ACCOUNT FOR THE YEAR ENDING 31.3.2003, THE COMPANY HAS SHOW N SHARE TRADING PROFIT OF ` 2,10,200. SIMILARLY, FOR THE PERIOD ENDING 31.3.20 04, THE COMPANY HAS SHOWN INTEREST INCOME OF ` 2,59,123. THEREFORE, IT IS QUITE EVIDENT THAT, THE PRICE RISE IS OF SHARE DURI NG THE F.Y 2003-04 IS NOT BACKED BY THE SOUND FINANCIAL CONDITION OF THE COMPANY. EFFORTS WERE MADE DURING THE ASSESSMENT PROCEEDINGS IN ORDER TO FIND OUT THE PRESENT FINANCIAL PROSPECTS OF THE COMPANY. IT IS NOTICED THAT THE COMPANY IS NOT DOING ANY SIGNIFICANT BUSIN ESS ACTIVITY. IT IS ALSO NOT TRADED AT KOLKATA STOCK EXCHANGE AT PRESEN T. SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 3 8.2 THE ABOVE MENTIONED FACTS CLEARLY SHOWS THAT T HE PRICES HAVE BEEN MANIPULATED. 4. THEREAFTER, HE EXTRACTED RELEVANT PORTION OF THE ST ATEMENT OF MR. HARESH DADIA, WHICH WAS RECORDED DURING THE COURSE OF SEARCH AND ALSO DURING THE ASSESSMENT PROCEEDINGS. IN THE STATEMENT , MR. HARESH DADIA, SUBMITTED THAT HE HAD PURCHASED SHARES OF ONLY M/S. BOLTON PROPERTIES LTD. AND THAT THE SAME WAS LISTED IN CALCUTTA STOCK EXCH ANGE AND THAT HE PURCHASED THE SAME AT THE ADVICE OF MR. PRAKASH NAH ATA, A BROKER IN KOLKATA. IN ANSWER TO QUESTION NO.23, HE STATED AS FOLLOWS:- Q.23 SINCE YOU HAVE CLAIMED LONG TERM CAPITAL GAI N ON SALE OF SHARES OF BOLTON PROPERTIES LTD., AND FAST TRACK LT D., IT IS YOUR OBLIGATION TO PROVE GENUINENESS OF THE TRANSACTION BY PROVIDING THE DETAILS OF MR. PRAKASH NAHATA AND PRODUCING HIM FOR CROSS-VERIFICATION. PLEASE STATE WHEN YOU WOULD BE ABLE TO PRODUCE MR. PRAKASH NAHATA TO PROVE THE GENUINENESS OF THE TRANSACTION OF BOLTON PROPERTIES LTD., AND FAST TRACK LTD. ANS. AS I WOULD NOT BE ABLE TO PRODUCE MR. PRAKASH NAHATA FOR VERIFICATION AND SUBSTANTIATE MY CLAIM FOR LONG TER M CAPITAL GAIN ON SALE OF SHARES OF BOLTON PROPERTIES LTD., AND FAST TRACK LTD., I OFFER THE SALE PROCEEDS OF THESE TWO SHARES AS UNDISCLOSED IN COME. I UNDERTAKE TO FURNISH DETAILED WORKING OF UNDISCLOSED INCOME B Y 31 ST MARCH 2006. I HAVE ALSO CONSULTED MY BROTHER MR.UPENDRA DADIA W HO IS SITTING BESIDE ME. 5. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD N OT DECLARED AN ADDITION INCOME ON ACCOUNT OF LONG TERM CAPITAL GAI NS IN THE RETURN OF INCOME FILED IN RESPONSE TO NOTICE UNDER SECTION 153A OF T HE ACT. WHEN QUESTIONED, THE ASSESSEE DREW THE ATTENTION OF THE ASSESSING OF FICER TO THE LETTER DATED 3 RD MARCH 2006, FILED BY HIM BEFORE THE DCIT, WHERE HE HAS RETRACTED FROM HIS STATEMENT RECORDED UNDER SECTION 132(4) OF THE ACT. HE FURTHER REFERRED TO THE SWORN AFFIDAVIT DATED 22 ND MAY 2006, WHEREIN HE RETRACTED FROM THE DECLARATION MADE. SUBSEQUENTLY, THE ASSESSING OFFIC ER RECORDED ANOTHER STATEMENT UNDER SECTION 131, FROM MR. HARESH DADIA, ON 7 TH DECEMBER 2007. AFTER EXAMINATION, THE ASSESSING OFFICER IN HIS ASS ESSMENT ORDER AT PAGES-8 AND 9 / PARA-15, HELD AS FOLLOWS:- SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 4 15 IN THE BACK DROP OF THE ABOVE FACTS, CERTAIN IMP ORTANT POINTS HAVE EMERGED OUT WHICH ARE AS UNDER:- A) THE SHARE PRICE OF BOLTON PROPERTIES LTD. HAS INCRE ASED UP TO 30 TIMES WITHIN 1 YEAR; B) THE ASSESSEE HAS PURCHASED THE SHARE WHEN, THE PRIC ES WERE VERY LOW AND SOLD THE SHARES WHEN THE PRICES WERE H IGH. C) DURING THE SUBSEQUENT YEARS, THE SHARE PRICE OF BOL TON PROPERTIES LTD. HAS FELL DOWN ` 1 OR ` 2 PER SHARE; D) AT PRESENT THE SHARES OF BOLTON PROPERTIES LTD. ARE NOT TRADED AT KOLKATA STOCK EXCHANGE; E) THE FINANCIAL PROSPECT OF M/S. BOLTON PROPERTIES LT D. DO NOT JUSTIFY THE RISE IN THE SHARE PRICE. F) THE COMPANY BOLTON PROPERTIES LTD WAS NOT CARRYING OUT ANY SUBSTANTIAL BUSINESS ACTIVITY. G) THE ASSESSEE HAS SOLD ALL THESE SHARES THROUGH SHRI PARAKASH NAHATA; H) IT HAS ALREADY BEEN PROVED THAT SHRI PRAKASH NAHATA NAHATA WAS INDULGED IN THE ACTIVITIES OF FLOATING PAPER CO MPANIES AND GIVING ACCOMMODATION ENTRIES ON ACCOUNT OF LONG TER M CAPITAL GAIN; I) THE FAMILY MEMBERS OF PATEL GROUP HAVE ACCEPTED THA T THE TRANSACTION RELATED TO THE BOLTON PROPERTIES LTD. A ND FAST TRACK LTD., ARE NOT GENUINE. 6. THEREAFTER, THE CONTENTIONS OF THE ASSESSEE HAVE BE EN BROUGHT OUT AT PARA-18, WHICH ARE EXTRACTED FOR READY REFERENCE:- 18. THE ASSESSEE HAS MAINLY CONTENDED THAT HE HAS P URCHASED THE SHARES BY GIVING CHEQUE AND THE AMOUNT OF SALE RECE IVED THROUGH CHEQUE AND ALL THE SHARES HAVE BEEN REFLECTED IN TH E DEMAT A/C AFTER THE PURCHASE AND SALE. HOWEVER, JUST BECAUSE THE TR ANSACTIONS CARRIED OUT THROUGH CHEQUE DOES NOT PROVE THAT, THE TRANSAC TIONS ARE GENUINE. THE CIRCUMSTANTIAL FACTS RELATED TO THE TRANSACTION CANNOT BE IGNORED TO ARRIVE AT ANY CONCLUSION AND THIS CIRCUMSTANTIAL FA CTS LEADS TO THE CONCLUSION THAT THE TRANSACTIONS ARE NOT GENUINE BU T, THE PAPER WORK HAS BEEN CREATED FOR GIVING THE COLOUR OF AUTHENTIC ITY TO THIS TRANSACTIONS. SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 5 7. THE ASSESSING OFFICER RELIED UPON THE JUDGMENTS OF HON'BLE SUPREME COURT IN DURGA PRASAD MORE V/S CIT, (1971) 82 ITR 5 40 (SC) AND SUMATI DAYAL V/S CIT, (1995) 214 ITR 801 (SC) AND HELD THA T THE INCOME CREDITED IN THE BOOKS OF ACCOUNT BY THE ASSESSEE AS CAPITAL GAI N FROM THE SALE OF SHARES OF M/S. BOLTON PROPERTIES LTD., IS TREATED AS UNEXP LAINED CASH CREDIT UNDER SECTION 68 OF THE ACT. CONSEQUENTLY, THE CLAIM UNDE R SECTION 54F, WAS REJECTED. ALTERNATIVELY AND WITHOUT PREJUDICE TO HI S FINDING, HE HELD THAT THE INCOME IN QUESTION IS ASSESSABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION . VIDE PARA-23, HE OBSERVED AS FOLLOWS:- 23. THE ASSESSEE HAS CARRIED OUT PURCHASE AND SALE OF SHARES FREQUENTLY DURING THE RELEVANT ASSESSMENT YEAR. THE ASSESSEE HAS PURCHASED ABOUT 14 SCRIPS AND SOLD ABOUT 11 SCRIPS DURING THE YEAR. THE DETAILED ANALYSIS OF PURCHASE AND SALE OF SHARE S IS SEPARATELY ANNEXED AS ANNEXURE A TO THIS ORDER. THE ASSESSEE HAS BEEN CARRYING OUT THE TRANSACTIONS OF SHARES OVER THE YE ARS BUT FROM THIS YEAR ONWARD THE TENDENCY OF THE ASSESSEE TO PURCHAS E AND SALE OF SHARES HAS INCREASED SUBSTANTIALLY. PRIMA FACIE, IT SEEMS THAT THE ASSESSEE IS CARRYING OUT TRADING OF SHARES RATHER T HAN INVESTING IN SHARES FOR LONG DURATION. 8. THEREAFTER, HE CAME TO A CONCLUSION THAT FROM THE S TATEMENT RECORDED FROM MR. HARESH DADIA, THE PURCHASE OF SHARES WAS O N THE BASIS OF ANALYSIS OF MARKET INFORMATION, INFORMATION FROM VARIOUS MED IA, ANALYSIS OF FUTURE PROSPECTS AND, HENCE, IT IS DONE WITH THE INTENTION OF TRADING IN SHARES. FOR VARIOUS REASONS GIVEN IN PARA-26 ONWARDS, THE ASSES SING OFFICER CAME TO A CONCLUSION THAT THE TRANSACTIONS ARE ADVENTURE IN N ATURE OF TRADE AND, HENCE, ASSESSABLE UNDER THE HEAD BUSINESS INCOME AND THAT THE DEDUCTION UNDER SECTION 54F, CANNOT BE GRANTED. 9. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE T HE FIRST APPELLATE AUTHORITY, BUT WITHOUT ANY SUCCESS. FURTHER, AGGRIE VED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL, ON THE FOLLOWING GROUND S OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF ` 50,42,775 MADE UNDER SECTION 68 OF THE ACT BY THE ASSESSING O FFICER ON ACCOUNT OF SALE PROCEEDS RECEIVED BY THE APPELLANT ON SALE OF SHARES IN BOLTON SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 6 PROPERTIES LTD. HOLDING THE SAME TO BE UNEXPLAINED CASH CREDIT INSTEAD OF LONG TERM CAPITAL GAIN DECLARED BY THE APPELLANT . 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THE TRANSACTION OF SALE OF SHARES IN BOLTON AS STAGE-MANAGED AND MANIPULATED, WHICH FIND ING IS CONTRARY TO THE DOCUMENTARY EVIDENCE ON RECORD, AND IS BASED ON MERE SUSPICION, SURMISES AND CONJECTURES, WITHOUT ANY SU PPORTING EVIDENCE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN RELYING ON THE ADMISSIO N OF ANOTHER ASSESSEE TO THE EFFECT THAT HIS TRANSACTION IN SHAR ES IN BOLTON WAS NOT GENUINE, WITHOUT APPRECIATING THAT THE ASSESSING OF FICER DID NOT PROVIDE TO THE APPELLANT ANY OPPORTUNITY TO EXAMINE THE MATERIAL IN THAT CASE, NOR ANY OPPORTUNITY TO CROSS EXAMINE THE SAID ASSESSEE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN RELYING ON THE APPELLAN TS STATEMENT RECORDED AT THE TIME OF SEARCH MAKING AN OFFER TO D ECLARE UNDISCLOSED INCOME IN RESPECT OF THE ABOVE TRANSACTION, WITHOUT APPRECIATING THAT THE SAME WAS DULY RETRACTED BY THE APPELLANT BY SUB MITTING A SWORN AFFIDAVIT, EXPLAINING THE FACTS AND CIRCUMSTANCES F OR SUCH RETRACTION. IN VIEW OF THE ABOVE, THE APPELLANT PRAYS THAT THE ADD ITION OF ` 50,42,775 MADE UNDER SECTION 68 OF THE ACT BE DELETED, AND TH E PROFIT OF THE ABOVE TRANSACTION BE CONSIDERED AS LONG TERM CAPITA L GAIN. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ASSESSME NT OF PROFIT ON SALE OF SHARES (OTHER THAN SHARES IN BOLTON) AS BUSINESS INCOME, WITHOUT APPRECIATING THAT THE APPELLANT IS ONLY AN INVESTOR AND NOT A TRADER IN SHARES. IN VIEW OF THE ABOVE, THE APPELLANT PRAYS THAT EXE MPTION UNDER SECTION 54F OF THE ACT BE ALLOWED TO THE APPELLANT IN RESPECT OF LONG TERM CAPITAL GAIN ON SALE OF SHARES. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE DENIAL O F EXEMPTION UNDER SECTION 54F OF THE ACT CLAIMED BY THE APPELLANT IN RESPECT OF THE LONG TERM CAPITAL GAIN THAT AROSE ON SALE OF SHARES. IN VIEW OF THE ABOVE, THE APPELLANT PRAYS THAT EXE MPTION UNDER SECTION 54F OF THE ACT BE ALLOWED TO THE APPELLANT IN RESPECT OF LONG TERM CAPITAL GAIN ON SALE OF SHARES. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE LEVY OF INTEREST UNDER SECTION 234B, FOR WHICH NO SPECIFIC DIRECTION WAS G IVEN BY THE ASSESSING OFFICER IN THE BODY OF THE ASSESSMENT ORD ER. 10. BEFORE US, LEARNED COUNSEL, MR. S.C. TIWARI, APPEAR ING ON BEHALF OF THE ASSESSEE, REFERS TO THE STATEMENT RECORDED FROM THE ASSESSEE AS EXTRACTED IN SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 7 PAGE-4 OF THE ASSESSMENT ORDER AND SUBMITS THAT THE ENTIRE ADDITION IS BASED ONLY ON THE BASIS OF REPLIES GIVEN TO QUESTIONS NO. 22 AND 23, WHICH APPEAR AT PAGES-5 AND 6 OF THE ASSESSMENT ORDER. HE SUBMITS T HAT THE ASSESSING OFFICER MADE THE ADDITION ON THE GROUND THAT THE AS SESSEE HAS EXPRESSED HIS INABILITY TO PRODUCE MR. PRAKASH NAHATA, FOR CROSS VERIFICATION AND ON THE BASIS OF STATEMENT OF THE ASSESSEE, WHEREIN HE OFFE RED THE SALE PROCEEDS OF THESE TWO SHARES AS UNDISCLOSED INCOME FOR THE REAS ONS THAT HE WOULD NOT BE ABLE TO PRODUCE MR. PRAKASH NAHATA, FOR VERIFICATIO N AND SUBSTANTIATE ITS CLAIM. HE REFERS TO PAGE-6 OF THE PAPER BOOK WHICH CONTAINS A LETTER DATED 3 RD JUNE 2006, ADDRESSED BY THE ASSESSEE TO THE DDIT, U NIT-8(1), MUMBAI, AND COPY OF A SWORN AFFIDAVIT DATED 22 ND APRIL 2006, WHICH IS AT PAGES-9 TO 11 OF THE ASSESSEES PAPER BOOK AND SUBMITS THAT THE STAT EMENT IN QUESTION WAS RECORDED VERY LATE IN THE MID-NIGHT OF 25 TH MARCH 2006 AND THAT THE ASSESSEE WAS IN A DISTURBED STATE OF MIND AND THAT THE STATE MENT WAS GIVEN UNDER PRESSURE AND THAT THE FACT IS, THERE IS NO UNDISCLO SED INCOME ON SALE OF SHARES. HE SUBMITS THAT THE RETRACTION WAS WITHIN R EASONABLE TIME BEFORE THE INVESTIGATING TEAM, BOTH BY WAY OF FILING LETTERS A S WELL AS AFFIDAVIT. 11. LEARNED COUNSEL FURTHER POINTS OUT THAT THE ASSESSI NG OFFICER ALSO BASED HIS ASSESSMENT ON THE PURPORTED VARIATIONS IN THE STATEMENT RECORDED FROM THE ASSESSEE DURING THE COURSE OF SEARCH. HE R EFERS TO PARAS-11, 12 AND 13 OF THE ASSESSMENT ORDER AND SUBMIT THAT THERE AR E NO VARIATIONS AT ALL. HE REFERS TO PARA-12 OF THE ORDER AND SUBMITS THAT THE ASSESSING OFFICER CAME TO A CONCLUSION FORM THE FACTS OBTAINED FROM THE INVES TIGATION UNIT THAT MR. PRAKASH NAHATA, FLOATED MANY PAPER COMPANIES AND AL SO INDULGED IN GIVING ACCOMMODATION ENTRIES, BY WAY OF LONG TERM CAPITAL GAINS. HE SUBMITS THAT NONE OF THE FACTS OR EVIDENCE COLLECTED BY THE INVE STIGATION WING HAVE BEEN PUT TO THE ASSESSEE AND THE STATEMENT THAT IT IS AL READY PROVED, IS A BASELESS STATEMENT AND WITHOUT EVIDENCE. LEARNED COUNSEL VEH EMENTLY CONTENDS THAT THERE IS NO EVIDENCE IN THE POSSESSION OF THE REVEN UE TO MAKE THE ABOVE ADDITION. HE SUBMITS THAT THE ASSESSING OFFICER DID NOT STATE AS TO HOW THE ASSESSEE WOULD BE RESPONSIBLE IN THE STEEP INCREASE IN SHARES PRICE AND ALSO SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 8 WHAT ROLE THE ASSESSEE HAD PLAYED IN JACKING UP THE PRICES. HE POINTS OUT THAT THE ASSESSEE HAS NO ROLE TO PLAY IN INCREASE I N PRICES AND THAT AS A PRUDENT INVESTOR, THE ASSESSEE PURCHASED THE SHARES , ISSUED CROSS CHEQUES, WHICH WERE IMMEDIATELY ENCASHED AND THE SHARES WERE TRANSFERRED TO DEMAT ACCOUNT EVIDENCING PURCHASE FOR CONSIDERATION. HE F URTHER SUBMITS THAT ON SALE, THE ASSESSEE RECEIVED THE SALE CONSIDERATION IN CROSS ACCOUNT PAYEE CHEQUES, WHICH WERE ENCASHED IMMEDIATELY ON SALE AN D THAT THE TRANSACTION OF SALE OF SHARES WAS ROOTED THROUGH THE DEMAT ACCO UNT. REFERRING TO PARA- 25.2 OF THE ASSESSMENT ORDER AT PAGE-13, LEARNED CO UNSEL SUBMITS THAT THE ASSESSING OFFICER ADMITS THAT MR. HARESH DADIA, TAK ES DECISIONS ON PURCHASE AND SALE OF SHARES BASED ON MARKET INFORMATION, ETC ., AND WHEN HE THINKS THAT IT IS A TIME TO EITHER PURCHASE OR SELL SHARES . HE RELIED ON PARA-26.1 OF THE ASSESSMENT ORDER AND SUBMITS THAT THE ASSESSING OFFICER HAS AGREED THAT THE ASSESSEE HAS PURCHASED / SOLD SHARES WITH A BAS IC MOTIVE TO MAKE PROFIT. HE REFERS TO THE ORDER OF THE FIRST APPELLATE AUTHO RITY AND SUBMITS THAT THE COMMISSIONER (APPEALS) HAS HELD THAT THE INCOME SHO ULD BE ASSESSED UNDER SECTION 68 OF THE ACT AND THAT THE ASSESSING OFFICE R IS NOT CORRECT IN HIS APPROACH TO ASSESS THE INCOME ALTERNATIVELY UNDER T HE HEAD BUSINESS INCOME . HE POINTS OUT THAT THE REVENUE HAS NOT COME IN AP PEAL ON THE REJECTION BY THE COMMISSIONER (APPEALS), OF THE ALT ERNATIVE FINDINGS OF THE ASSESSING OFFICER THAT THE INCOME IS ASSESSABLE UND ER THE HEAD INCOME FROM BUSINESS . HE SUBMITS THAT THE ONLY ISSUE THAT IS LEFT FOR A DJUDICATION IS, WHETHER THE PURCHASE AND SALE OF M/S. BOLTEN PROPER TIES LTD. IS GENUINE OR NOT. HE REFERS TO PARA-2.1.3 / PAGE-7 OF THE COMMIS SIONER (APPEALS)S ORDER, WHEREIN THE LIST OF EVIDENCE FURNISHED BY THE ASSES SEE IN SUPPORT OF THE ABOVE TRANSACTION IS GIVEN. HE SUBMITS THAT CONTRAC T NOTES AND BILLS ISSUED BY THE BUBNA STOCK BROKING SERVICES LTD. AT THE TIME O F PURCHASE OF SHARES AS WELL AS THE CONTRACT NOTES AND BILLS ISSUED BY MR. PRAKASH NAHATA, AT THE TIME OF SALE OF SHARES ALONG WITH THE DEMAT ACCOUNT IN I CICI BANK EVIDENCING PURCHASE AND SALE OF SHARES WERE FILED. HE FURTHER REFERS TO THE COPIES OF THE BANK STATEMENT EVIDENCING CONTEMPORANEOUS PAYMENTS MADE AND SALE PROCEEDS BEING RECEIVED. ON THE FACE OF THIS DOCUME NTARY EVIDENCE, THE SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 9 LEARNED COUNSEL SUBMITS THAT THE ADDITION WAS MADE MERELY ON THE BASIS OF SUSPICION, SURMISES AND CONJECTURE. HE RELIED ON TH E JUDGMENT OF THE HON'BLE SUPREME COURT IN DHAKESHWARI COTTON MILLS LTD. V/S CIT, (1954) 26 ITR 775 (SC), FOR THE PROPOSITION THAT NO ASSESSMENT CAN BE MADE BASED ON PURE GUESS WORK AND WITHOUT REFERENCE TO THE MATERIAL ON HAND. HE REFERS TO PARA- 8 OF THE JUDGMENT WHERE IT IS HELD THAT THERE MUST BE SOMETHING MORE THAN MERE SUSPICION TO SUPPORT THE ASSESSMENT UNDER SECT ION 23(3) OF THE ACT. HE FURTHER RELIED ON THE JUDGMENT OF THE HON'BLE SUPRE ME COURT IN KISHINCHAND CHELLARAM V/S CIT, (1980) 125 ITR 713 (SC), FOR THE PROPOSITION THAT THE INCOME TAX AUTHORITIES COULD RELY ON CERTAIN STATEM ENT ONLY AFTER AFFORDING OPPORTUNITY OF CROSS EXAMINATION. HE FURTHER RELIED ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN ACIT V/S AJAY NAWAN DAR, (2010) 33 DTR (TRIB.) 452 (MUM.) AND THE DECISION OF NAGPUR BENCH OF THE TRIBUNAL IN CIT V/S SMT. JAMNADEVI AGRAWAL & ORS, (2010) 46 DTR (TR IB.) 271 (NAG.). HE FURTHER RELIED ON THE JUDGMENT OF HONBLE GUJARAT H IGH COURT IN KAILASHBEN MANHARLAL CHOKSHI V/S CIT, (2008) 220 CTR (GUJ.) 13 8, FOR THE PROPOSITION THAT THE STATEMENT RECORDED AT MIDNIGHT CANNOT BE G IVEN ANY CREDIT AS THE PERSON MAY NOT BE IN A POSITION TO MAKE ANY CORRECT OR CONSCIOUS DISCLOSURE. HE ALSO FURNISHED A LIST OF SHARES WHICH, ACCORDING TO HIM, HAD HIGH AND ABNORMAL GROWTH DURING THE PERIOD OF ONE YEAR. 12. LEARNED COUNSEL ALSO FILED A PAPER BOOK CONSISTING OF 11 CASE LAWS AND SUBMITS THAT ON SIMILAR FACTS, THE COURTS AND TRIBU NALS HAVE HELD IN FAVOUR OF THE ASSESSEE. ITA NO.1067/MUM./2009, FOR ASSESSMENT YEAR 2005-06 13. COMING TO THE ASSESSMENT YEAR 2005-06, IN ITA NO.10 67/MUM./2009, LEARNED COUNSEL SUBMITS THAT THE ONLY ISSUE IS, WHE THER THE INCOME OF THE ASSESSEE COULD BE ASSESSED UNDER THE HEAD CAPITAL GAINS OR UNDER THE HEAD BUSINESS INCOME . HE RELIED ON THE SUBMISSIONS MADE DURING THE ASSESSMENT YEAR 2004-05 AND SUBMITS THAT THE ASSESS EE IS AN INVESTOR IN SHARES. HE POINTS OUT THAT THE ASSESSING OFFICER HI MSELF, WHILE PASSING SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 10 ASSESSMENT ORDER UNDER SECTION 153A, ON THE VERY SA ME DAY FROM THE ASSESSMENT YEAR 2000-01, TO THE ASSESSMENT YEAR 200 3-04, HAS HELD THAT THE ASSESSEE IS AN INVESTOR IN SHARES AND NOT A TRA DER. HE SUBMITS THAT THOUGH, NORMALLY, RES JUDICATA DOES NOT APPLY TO TA XATION PROCEEDINGS, THE GENERAL RULE IS SUBJECT TO A RULE AND CONDITION THA T THE FINDINGS REACHED IN THE ASSESSMENT PROCEEDINGS FOR AN EARLIER YEAR AFTER DU E ENQUIRY, WOULD NOT BE REOPENED. HE POINTED OUT THAT IN THE BALANCE SHEET FOR THE YEAR ENDED 31 ST MARCH 2003, THE SHARES FROM M/S. BOLTON PROPERTIES LTD. WERE REFLECTED AS INVESTMENT IN THE BALANCE SHEET AND THAT THIS WAS A CCEPTED BY THE DEPARTMENT. THEREFORE, HE ARGUES THAT UNLESS THERE IS EVIDENCE TO SHOW THAT THESE SHARES WERE CONVERTED OR TREATED AS STOCK-IN- TRADE, THE ASSESSING OFFICER CANNOT CHANGE THE CHARACTER OF INCOME. HE C ONTENDS THAT THE SHARES ARE HELD AS INVESTMENT OVER THE NUMBER OF YEARS AND THE SALE OF THE SAME CANNOT BE TREATED AS RESULTING IN BUSINESS INCOME. HE POINTED OUT THAT THE INVESTMENTS WERE MADE OUT OF OWN CAPITAL. HE DREW T HE ATTENTION OF THE BENCH TO THE STATEMENT OF CAPITAL ACCOUNT TO POINT OUT THAT THE PERIOD OF HOLDING IS FAIRLY LONG AND IT CANNOT BE SAID THAT T HERE IS A TRADE IN SHARES. 14. ON LEVY OF INTEREST UNDER SECTION 234B OF THE ACT, THE LEARNED COUNSEL SUBMITS THAT IT IS CONSEQUENTIAL IN NATURE. 15. NOW, COMING TO THE APPEAL FOR ASSESSMENT YEAR 2006- 07 IN ITA NO.1194/MUM./2009, FOR ASSESSMENT YEAR 2006-07, LEA RNED COUNSEL SUBMITS THAT THE FIRST TWO GROUNDS PERTAINED TO THE FINDING OF THE ASSESSING OFFICER THAT THE ASSESSEE IS IN THE BUSINESS OF TRADING IN SHARES AND THAT HE IS NOT AN INVESTOR. HE SUBMITS THAT THE ARGUMENTS OF THE EARL IER YEAR ARE THE SAME FOR THE CURRENT YEAR. HE FURTHER SUBMITS THAT THERE ARE TWO FURTHER ADDITIONS AND THE FIRST PERTAINING TO AN AMOUNT OF ` 6,00,000 ADDED UNDER SECTION 69A OF THE ACT AND THE SECOND BEING ADDITION OF ` 1,76,470, ON THE GROUND THAT IT IS UNEXPLAINED JEWELLERY. 16. REFERRING TO THE FIRST ADDITION, HE POINTS OUT THAT THE ASSESSING OFFICER HAD DEALT WITH IT AT PAGES-8 TO 10 OF HIS ORDER AT PARA-13. HE SUBMITS THAT SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 11 DURING THE COURSE OF SEARCH, CASH AMOUNTING TO ` 9,28,000, WAS FOUND. HE SUBMITS THAT THE ASSESSEE HAS FURNISHED EVIDENCE TH AT THE AMOUNT OF ` 6,00,000 WAS RECEIVED BY THE ASSESSEE ON THAT DAY F ROM ONE M/S. KOI BENZ INTERNATIONAL, SITUATED IN KOLKATA. HE SUBMITS THAT THE AMOUNT WAS DUE TO THE ASSESSEE AND AFTER CONSIDERABLE FOLLOW UP, ON T HE EVENING OF 23 RD MARCH 2006, THE AMOUNT WAS REALIZED FROM M/S. KOI BENZ IN TERNATIONAL. HE SUBMITS THAT AN AFFIDAVIT WAS FURNISHED TO THIS EFFECT FROM M/S. KOI BENZ INTERNATIONAL. THE ASSESSING OFFICER INSTEAD OF EXA MINING M/S. KOI BENZ INTERNATIONAL, OR COLLECTING ANY FURTHER EVIDENCE, HAD REJECTED THE EXPLANATION BASED ON SURMISES AND CONJECTURE. 17. ON THE ISSUE OF JEWELLERY, LEARNED COUNSEL RELIES O N THE SUBMISSIONS MADE BY HIM BEFORE COMMISSIONER (APPEALS). 18. LEARNED DEPARTMENTAL REPRESENTATIVE, GOLI SRINIVAS RAO, ON THE OTHER HAND, STRONGLY OPPOSED THE SUBMISSIONS MADE BY THE ASSESSEE. HE POINTS OUT THAT THESE ARE THE CASES OF PENNY STOCK AND THE PRICE OF CERTAIN SHARES HAVE ABNORMALLY BEEN BOOSTED UP BY CERTAIN PARTIES WITH A VIEW TO EVADE TAX. HE SUBMITS THAT THE ASSESSEE, DURING THE COURS E OF SEARCH, IN HIS STATEMENT UNDER SECTION 132(4), IN REPLY TO QUESTIO N NO.23, AFTER CONSULTING HIS BROTHER, OFFERED THE SALE PROCEEDS OF THESE TWO SHARES AS UNDISCLOSED INCOME. HE SUBMITS THAT SUBSEQUENT RETRACTION IS BA D-IN-LAW AS IT WAS NOT DONE WITHIN REASONABLE TIME. HE RELIED ON THE JUDGM ENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN MEGHRAJ S. JAIN, F.E.R .A. APPEAL NO.39 OF 2009, ORDER DATED 9 TH JULY 2009, FOR THE PROPOSITION THAT IN CASE A CONF ESSION IS RETRACTED, THE COURT IS REQUIRED TO EXAMINE WHETHER IT IS OBTAINED BY THREAT, DURESS OR PROMISE AND ALSO WHETHER THE CONFESSION I S TRUTHFUL. IT WAS HELD IN THAT CASE THAT IF IT IS FOUND THAT THE STATEMENT WA S VOLUNTARY AND TRUTHFUL, THEN IT CAN BE ACTED UPON AND EVEN CONVICTION CAN B E BASED ON THE SAME. A RETRACTION WITHIN A PERIOD OF TWO DAYS, WAS HELD TO BE BAD-IN-LAW. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITS THAT TH E ASSESSING OFFICER, AS SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 12 WELL AS THE LEARNED CIT(A) HAVE RIGHTLY APPLIED THE TEST OF HUMAN PROBABILITIES TO THE TRANSACTIONS IN HAND AND WHEN THE ABNORMAL NATURE OF THE TRANSACTION IS CONSIDERED ALONG WITH THE ADMISS ION MADE DURING THE COURSE OF SEARCH, THE INEVITABLE CONCLUSION WOULD B E THAT THE PURCHASE AND SALE OF SHARES IS NOT GENUINE TRANSACTION. HE RELIE S BASICALLY ON THE ORDER OF THE AUTHORITIES BELOW. 19. RIVAL CONTENTIONS WERE HEARD. ON A CAREFUL CONSIDER ATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAPERS ON RECORD, AS WELL AS THE CASE LAWS CITED BEFORE US, WE HOLD AS F OLLOWS:- (I) THE FIRST ISSUE (IN ASSESSMENT YEAR 2004-05 GROUN DS NO.1 TO 4) THAT COMES UP FOR OUR ADJUDICATION IS, WHETHER THE ASSES SING OFFICER WAS CORRECT IN RELYING ON THE RETRACTED STATEMENT MADE BY THE A SSESSEE. ON THE DATE OF SEARCH, THE ASSESSEE, IN REPLY TO QUESTION NO.23, S TATES AS FOLLOWS:- Q.23 SINCE YOU HAVE CLAIMED LONG TERM CAPITAL GA IN ON SALE OF SHARES OF BOLTON PROPERTIES LTD., AND FAST TRACK LTD., IT IS YOUR OBLIGATION TO PROVE GENUINENESS OF THE TRANSACTION BY PROVIDING THE DET AILS OF MR. PRAKASH NAHATA AND PRODUCING HIM FOR CROSS-VERIFICATION. PL EASE STATE WHEN YOU WOULD BE ABLE TO PRODUCE MR. PRAKASH NAHATA TO PROV E THE GENUINENESS OF THE TRANSACTION OF BOLTON PROPERTIES LTD., AND FAST TRACK LTD. ANS. AS I WOULD NOT BE ABLE TO PRODUCE MR. PRAKASH NAHATA FOR VERIFICATION AND SUBSTANTIATE MY CLAIM FOR LONG TER M CAPITAL GAIN ON SALE OF SHARES OF BOLTON PROPERTIES LTD., AND FAST TRACK LT D., I OFFER THE SALE PROCEEDS OF THESE TWO SHARES AS UNDISCLOSED INCOME. I UNDERTAKE TO FURNISH DETAILED WORKING OF UNDISCLOSED INCOME BY 31 ST MARCH 2006. I HAVE ALSO CONSULTED MY BROTHER MR. UPENDRA DADIA WHO IS SITTI NG BESIDE ME. (II) A PLAIN READING OF THE ABOVE SHOWS THAT THE DISCLOS URE WAS MADE NOT BECAUSE THE ASSESSEE AGREED THAT THIS IS A NON-GENU INE TRANSACTION BUT BECAUSE HE HAD DIFFICULTY IN PRODUCING MR. PRAKASH NAHATA. THE PURCHASE OF SHARES, IN THIS CASE, WAS NOT THROUGH MR. PRAKASH N AHATA, BUT WAS THROUGH M/S. BUBNA STOCK BROKER SERVICES LTD. ONLY SALE WAS THROUGH MR. PRAKASH NAHATA. THERE ARE NO TRANSACTION THIS YEAR IN PURCH ASE AND SALE OF SHARES OF FAST TRACK LTD. BUT A DISCLOSURE IS MADE ON THE SAM E. IN OUR VIEW, THERE IS SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 13 NO ADMISSION OF UNDISCLOSED INCOME. IN AN AFFIDAVIT SWORN ON 27 TH APRIL 2006, THE ASSESSEE STATES AS FOLLOWS:- 2) THE SEARCH STARTED AT 8.30AM ON 24 TH MARCH 2006, IN THE MORNING AND CONTINUED UPTO 7.30PM OF 25 TH MARCH 2006. THE STATEMENT UNDER SECTION 132(4) WAS RECORDED VERY LATE IN THE NIGHT. TO THE BEST OF OUR MEMORY, THE FINAL REPLY WAS RECORDED AT ABOUT EARLY MORNING 3.00 AM OF THE 25.3.2006. DUE TO SUCH ODD TIMING OF RECORDING OF THE STATEMENT WE WERE TOTALLY EXHAUSTED. I DID NOT REMEMBER AS TO WH AT WAS RECORDED IN THE STATEMENT. 3) VIDE LETTER DATED 28.3.2006, WE APPLIED FOR A CO PY OF THE SAID STATEMENT. TILL DATE THE COPY IS NOT GIVEN. 4) ON 3.5.2006, I WAS ALLOWED TO SEE THE STATEMENTS IN THE PRESENCE OF MY C.A. IT WAS SEEN THAT AT THE TIME OF CONCLUSI ON (AT ABOUT 3.00PM), I HAD STATED THAT I WILL NOT BE ABLE TO PRODUCE MR. P RAKASH FOR VERIFICATION AND SUBSTANTIATE MY CLAIM FOR LONG TERM CAPITAL GAI N ON SALE OF SHARES OF BOLTON PROPERTIES LTD. AND FAST TRACK LTD. AND HENC E, I OFFERED THE SALE PROCEEDS OF THOSE TWO COMPANIES AS UNDISCLOSED INCO ME. 5) ON SEEING THIS STATEMENT, I WAS SHOCKED AND DIST URBED. INSPITE OF THE FACT THAT ALL SUPPORTING DOCUMENTS RELATING TO THE CAPITAL GAIN WERE FOUND AT THE TIME OF SEARCH. MY STATEMENT WAS RECOR DED AS STATED ABOVE. UNDER TERRIBLE PRESSURE TO PRODUCE MR. PRAKASH IMME DIATELY, I MUST HAVE SAID THAT I CANNOT PRODUCE MR. PRAKASH AND SUBSTANT IATE THE CLAIM. 6) MR. PRAKASH IS ONE OF THE STOCK BROKERS WHOSE FU L NAME IS MR. PRAKASH NAHATA. HE IS OPERATING FROM KOLKATA AND HA S A BRANCH IN ANDHERI, MUMBAI, AND ALL TRANSACTIONS DONE THROUGH HIM ARE DULY AND PROPERLY EXECUTED. 7) MY DISTURBED MIND IS EVIDENT FROM MY STATEMENT I TSELF. I STATED THAT FAST TRACK LTD. IS LISTED AT KOLKATTA. IN FACT , THIS IS LISTED AT BOMBAY STOCK EXCHANGE. BUT I MIXED UP THIS WITH THE LISTIN G OF SHARES OF BOLTON STOCK EXCHANGE AT KOLKATA. FURTHER, SHARES OF FAST TRACK LTD. WERE NOT DEALT WITH THROUGH SHRI PRAKASH NAHATA. SIMILARLY, SHARES OF BOLTON PROPERTIES LTD. WERE NOT PURCHASED THROUGH SHRI PRA KASH NAHATA BUT WERE ONLY SOLD THROUGH HIM AND ALSO THROUGH OTHER BROKER S. ALL THESE SHOW AND PROVE ABOUT MY MENTAL TENSION AND ABSENCE OF BALANC E OF MIND AND PRESSURE THAT I HAD UNDERGONE. 8) IMMEDIATELY AFTER 3 RD MAY 2006 I.E., AFTER READING MY STATEMENT RECORDED UNDER SECTION 132(4), I WENT TO KOLKATA AN D I HAVE TAKEN CONFIRMATORY PRINTOUTS OF ACCOUNT FROM BOOKS OF ACC OUNT OF MR. PRAKASH NAHATA AND ALSO CERTIFICATE OF OUR HOLDING FROM COM PANY SECRETARY OF BOLTON PROPERTIES LTD. 9)SINCE THE STATEMENT WAS MADE UNDER PRESSURE AND T HE FACTS ARE CRYSTAL CLEAR, MY AND MY BROTHERS FAMILY MEMBERS RETURNS ARE CORRECTLY FILED. THERE IS NO UNDISCLOSED INCOME ON SALE OF THE SHARE S. SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 14 10) I HAVE SUFFERED FROM THE DISEASE KNOWN AS GUIL LIAN BARRY SYNDROME. THIS IS A PECULIAR DISEASE WHEREIN A PER SON MOMENTARILY LOOSES HIS MEMORY AND CONTROL OVER THE BODY. I SUFFERED FR OM THIS ATTACK IN 203. I WAS HOSPITALIZED AT BOMBAY HOSPITAL. AFTER THAT ATT ACK, I HAVE MIRACULOUSLY RECOVERED. BUT THE NIGHTMARE OF THAT ATTACK IS NOT FORGOTTEN. EVEN TODAY, I SUFFER FROM BLOOD PRESSURE AND WHENEVER I GET TENSI ON, MY HANDS AND LEGS START SHIVERING AND AT TIME MEMORY IS ALSO LOST MOM ENTARILY. IN ORDER TO AVOID ANY REPEAT ATTACK, I AND ALL MY FAMILY MEMBER S TRY TO TAKE CARE TO AVOID ANY SUCH APATHY. DUE TO THIS, I HAVE BECOME F ORGETFUL AND ALWAYS TRY TO AVOID A SITUATION WHICH CAN CREATE MENTAL DISTUR BANCE OR INCREASE MY BLOOD PRESSURE. MY STATEMENT TAKEN LATE IN THE NIGH T NEEDS TO BE VIEWED AND APPRECIATED IN LIGHT OF THIS BACKGROUND AND THE SUPPORTING DOCUMENTS NEED TO BE BELIEVED AND ACCEPTED. III) ON 3 RD JUNE 2006, THE AFFIDAVIT IS FILED WITH DDIT, UNIT- 8 (INVESTIGATION), STATING THAT THE TRANSACTIONS IN Q UESTION ARE GENUINE AND THAT HE WOULD PRODUCE NECESSARY CONFIRMATIONS. REAS ONS WERE GIVEN AS TO WHY HE HAD TO WAIT UPTO 3 RD JUNE 2006, TO FILE THE AFFIDAVIT. HE ALSO MENTIONS THAT THE STATEMENT WAS RECORDED AT MIDNIGHT. IN OUR VIEW, EVEN IF IT IS TAKEN THAT THERE IS AN ADMISSION MADE AT THE TIME OF SEAR CH, THIS IS A VALID RETRACTION. ON THE FACE OF SUCH RETRACTION, IN OUR CONSIDERED OPINION, THE ASSESSING OFFICER WAS NOT RIGHT IN RELYING SOLELY O N THE STATEMENT FOR MAKING THE ADDITION IN THIS CASE. THE JUDGMENT IN MEGHRAJ S. JAIN (SUPRA), RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, DO ES NOT COME TO THE RESCUE OF THE REVENUE FOR THE REASON THAT THE HIGH COURT HELD THAT, A RETRACTED CONFESSION CAN BE ACTED UPON ONLY WHEN TH ERE IS CORROBORATIVE EVIDENCE GATHERED BY THE AUTHORITIES. IN THIS CASE, THERE IS NO CORROBORATIVE EVIDENCE. THE ASSESSING OFFICER HAS NOT DONE ANY IN VESTIGATION OR COLLECTED ANY EVIDENCE. ON THE OTHER HAND, CBDT HAS, IN ITS C IRCULAR, DIRECTED THEIR OFFICERS TO BASE THEIR ASSESSMENTS ON THE EVIDENCE COLLECTED DURING THE COURSE OF SEARCH AND DURING THE COURSE OF ASSESSMEN T PROCEEDINGS. IT WAS SPECIFICALLY DIRECTED THAT NO ADDITION SHOULD BE BA SED SOLELY ON CONFESSION OR DISCLOSURES MADE AT THE TIME OF SEARCH. THE HONBLE GUJARAT HIGH COURT IN KAILASHBEN MANHARLAL CHOKSHI (SUPRA), HAS HELD THAT A STATEMENT RECORDED AT MIDNIGHT NEED NOT BE GIVEN ANY CREDIT AS THE PERSON MAY NOT BE IN A POSITION TO MAKE ANY CORRECT OR CONSCIOUS DISCLOSURE IN A ST ATEMENT, IF SUCH SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 15 STATEMENT IS RECORDED AT SUCH ODD HOURS. IN VIEW OF THE ABOVE AND ALSO IN VIEW OF THE FACT THAT THE ASSESSEE HAS NEVER, AT AN Y GIVEN POINT OF TIME, STATED OR AGREED THAT THE PURCHASE AND SALE OF SHAR ES WERE NOT GENUINE, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER WAS W RONG IN BASING HIS ENTIRE ASSESSMENT ORDER ON THIS ONE ANSWER GIVEN BY THE AS SESSEE AT THE TIME OF SEARCH, THAT TOO, WITHOUT INVESTIGATION, SUBSEQUENT TO A RETRACTION. COMING TO THE VARIATION IN STATEMENT RECORDED UNDER SECTIO N 131 OF THE ACT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WE DO NOT FIN D ANY MERIT IN THE CONCLUSIONS DRAWN BY THE ASSESSING OFFICER WHICH AR E PRESUMABLY, BASED ON THE PURPORTED VARIATIONS IN THE REPLIES TO QUESTION S, ESPECIALLY WHEN THE ASSESSEE HAS FURNISHED EVIDENCE TO SHOW THAT HE HAD , IN FACT, PURCHASED AND SOLD SHARES OF M/S. BOLTEN PROPERTIES LTD. THE EVID ENCE PRODUCED ARE LISTED OUT BY THE LEARNED CIT(A) AT PARA-2.1.3 / PAGE-7, W HICH IS EXTRACTED FOR READY REFERENCE. 2.1.3 DURING THE COURSE OF POST-SEARCH INVESTIGAT IONS AS ALSO DURING THE ASSESSMENT PROCEEDINGS, THE APPELLANT FURNISHED THE FOLLOWING DOCUMENTARY EVIDENCE IN SUPPORT OF THE ABOVE TRANSA CTIONS, WHICH REMAINS UNCONTROVERTED. COPIES OF THE CONTRACT NOTES AND BILLS ISSUED BY BU BNA STOCK BROKING SERVICES LTD. FOR PURCHASE OF THE SHARES IN BOLTON (PP OF PAPER BOOK); COPIES OF THE CONTRACT NOTES AND BILLS ISSUED BY M/ S. PRAKASH NAHATA & CO., FOR SALE OF THE SHARES IN BOLTON (PP OF PAPER BOOK); COPY OF DEMAT ACCOUNT FOR THE PERIOD JAN 2003 OF IC ICI BANK EVIDENCING THE PURCHASE OF THE SHARES IN BOLTON (PP OF PAPER BOOK); COPY OF DEMAT ACCOUNT FOR THE PERIOD 1.4.2003 TO 31 .3.2004 OF ICICI BANK EVIDENCING THE SALE OF THE SHARES IN BOL TON (PP OF PAPER BOOK); COPY OF THE BANK STATEMENT EVIDENCING THE RECEIPT O F SALE CONSIDERATION OF 25,000 SHARES IN BOLTON BY A/C PAY EE CHEQUE (PP OF PAPER BOOK); COPY OF THE APPELLANTS A/C WITH BUBNA STOCK BROKIN G SERVICES LTD. CONFIRMING THE PURCHASE OF SHARES IN BOLTON (P P OF PAPER BOOK); SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 16 COPY OF THE APPELLANTS A/C WITH M/S PRAKASH NAHATA & CO. CONFIRMING THE SALE OF SHARES IN BOLTON (PP OF PAPE R BOOK); COPY OF THE CERTIFICATE ISSUED BY SAROJ RAY & ASSOC IATES, COMPANY SECRETARY, KOLKATA, CERTIFYING THE HOLDING OF 25,000 SHARES IN BOLTON BY THE APPELLANT (PP OF PAPER BOOK ). COPY OF THE APPELLANTS BALANCE SHEET AS AT 31.3.20 03, SHOWING THE SHARES IN BOLTON HELD AS INVESTMENTS (PP OF PAP ER BOOK). IV) FROM THE ABOVE, IT CAN BE SEEN THAT IT WRONG ON THE PART OF THE REVENUE AUTHORITIES TO HOLD THAT THE ASSESSEE HAS P URCHASED SHARES THROUGH MR. PRAKASH NAHATA. IN FACT, THE SHARES WERE PURCHA SED FROM BUBNA STOCK BROKING. THE CONTRACT NOTES AND BILLS ISSUED WERE P RODUCED BY THE ASSESSEE. EVIDENCE WAS PRODUCED THAT THE AMOUNT WAS PAID ON T HE VERY SAME DAY THROUGH CROSS CHEQUE BY PRODUCING COPIES OF THE BAN K ACCOUNT. SIMILAR EVIDENCE WAS PRODUCED THAT THE SHARES CAME INTO THE DEMAT ACCOUNT OF THE ASSESSEE. THE SHARES WERE REFLECTED AS INVESTMENTS IN THE BALANCE SHEET AND THIS IS ACCEPTED AS SUCH BY THE ASSESSING OFFICER. THE FACTUM OF PURCHASE CANNOT BE DISPUTED ON THE FACE OF THE EVIDENCES. V) CONTRACT NOTES AND BILLS ISSUED BY MR. PRAKASH NAHA TA, FOR SALE OF SHARES OF M/S. BOLTEN PROPERTIES LTD. WERE PRODUCED ALONG WITH EVIDENCE OF HAVING RECEIVED THE MONEY THROUGH BANKING CHANNELS. DEMAT ACCOUNT WAS ALSO PRODUCED IN EVIDENCE FOR SALE OF SHARES. SAROJ RAY & ASSOCIATES, COMPANY SECRETARY, KOLKATA, CERTIFIED THE HOLDING T HE SHARES OF M/S. BOLTEN PROPERTIES LTD. BY THE ASSESSEE. ON THE FACE OF THE SE EVIDENCES, IT WAS NOT PROPER ON THE PART OF THE ASSESSING OFFICER TO SIMP LY REJECT THESE EVIDENCES AND FASTEN LIABILITY ON ASSESSEE BY RELYING ON MIDN IGHT STATEMENT TAKEN FROM THE ASSESSEE. ONCE THE ASSESSEE RETRACTED FROM THE STATEMENT, THE ASSESSING OFFICER SHOULD HAVE INVESTIGATED AND GATH ERED EVIDENCE TO PROVE HIS ARGUMENT THAT THE TRANSACTION IS NOT A GENUINE ONE. THE ADDITION IS MADE BY THE ASSESSING OFFICER BASED ON SURMISES AND CONJ ECTURES AND WITHOUT AN IOTA OF EVIDENCE. APPARENT HAS TO BE HELD AS TRUE U NLESS THE CONTRARY IS PROVED. CONCLUSION SHOULD BE BASED ON EVIDENCE. SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 17 VI) SIMILAR ISSUE HAS COME UP BEFORE DIFFERENT BENCHES OF THE TRIBUNAL AND THE COURTS. HONBLE PUNJAB & HARYANA HIGH COURT IN CIT V/S ANUPAM KAPOOR, (2008) 299 CTR 179 (P&H), HELD AS FOLLOWS:- HELD : THE TRIBUNAL ON THE BASIS OF THE MATERIAL O N RECORD, HELD THAT PURCHASE CONTRACT NOTE, CONTRACT NOTE FOR SALES, DI STINCTIVE NUMBERS OF SHARES PURCHASED AND SOLD, COPY OF SHARE CERTIFICAT ES AND THE QUOTATION OF SHARES ON THE DATE OF PURCHASE AND SALE WERE SUF FICIENT MATERIAL TO SHOW THAT THE TRANSACTION WAS NOT BOGUS BUT A GENUI NE 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 AO AS WELL AS BEFORE THE TRIBUN AL THAT THE SALE PROCEEDS HAVE BEEN ACCOUNTED FOR IN THE ACCOUNTS OF THE ASSESSEE AND WERE RECEIVED THROUGH ACCOUNT PAYEE CHEQUE. THE TRI BUNAL WAS RIGHT IN REJECTING THE APPEAL OF THE REVENUE BY HOLDING THAT THE ASSESSEE WAS SIMPLY A SHAREHOLDER OF THE COMPANY. HE HAD MADE IN VESTMENT IN A COMPANY IN WHICH HE WAS NEITHER A DIRECTOR NOR WAS HE IN CONTROL OF THE COMPANY. THE ASSESSEE HAD TAKEN SHARES FROM THE MAR KET, THE SHARES WERE LISTED AND THE TRANSACTION TOOK PLACE THROUGH A REGISTERED BROKER OF THE STOCK EXCHANGE. THERE WAS NO MATERIAL BEFORE THE AO, WHICH COULD HAVE LEAD TO A CONCLUSION THAT THE TRANSACTIO N WAS SIMPLICITIER A DEVICE TO CAMOUFLAGE ACTIVITIES, TO DEFRAUD THE REV ENUE. NO SUCH PRESUMPTION COULD BE DRAWN BY THE AO MERELY ON SURM ISES AND CONJECTURES. IN THE ABSENCE OF ANY COGENT MATERIAL IN THIS REGARD, HAVING BEEN PLACED ON RECORD, THE AO COULD NOT HAVE REOPENED THE ASSESSMENT. THE ASSESSEE HAD MADE AN INVESTMENT IN A COMPANY, EVIDENCE WHEREOF WAS WITH THE AO. THEREFORE, THE AO COULD NOT HAVE ADDED INCOME, WHICH WAS RIGHTLY DELETED BY THE CIT( A) AS WELL AS THE TRIBUNAL. IT IS SETTLED LAW THAT SUSPICION, HOWSOEV ER STRONG CANNOT TAKE THE PLACE OF LEGAL PROOF. CONSEQUENTLY, NO QUESTION OF LAW, MUCH LESS A SUBSTANTIAL QUESTION OF LAW, ARISES FOR ADJUDICATIO N.C. VASANTLAL & CO. VS. CIT (1962) 45 ITR 206 (SC), M.O. THOMAKUTTY VS. CIT (1958) 34 ITR 501 (KER) AND MUKAND SINGH VS. SALES TAX TRIBUN AL (1998) 107 STC 300 (PUNJAB) RELIED ON; UMACHARAN SHAW & BROS. VS. CIT (1959) 37 ITR 271 (SC) APPLIED; JASPAL SINGH VS CIT (2006) 205 CT R (P&H) 624 DISTINGUISHED. V) THE DELHI C BENCH OF THE TRIBUNAL IN ITO V/S NAVI N GUPTA, HELD THAT WHEN THE ASSESSING OFFICER HAS NOT BROUGHT ON RECOR D ANY MATERIAL TO SHOW THAT THE ASSESSEE HAD SURREPTITIOUSLY INTRODUCED HI S UNACCOUNTED MONEY IN THE GUISE OF SALE PROCEEDS, SALE PROCEEDS COULD NOT BE ADDED UNDER SECTION 68 OF THE ACT AND THE ASSESSEE CANNOT BE DENIED EXE MPTION UNDER SECTION 54F. SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 18 VI) THE AGRA BENCH OF THE TRIBUNAL IN MEMODEVI V/S ITO, 7 DTR 158, HELD AS FOLLOWS:- HELD : THE ASSESSEE SUBMITTED ALL THE EVIDENCE WHIC H WAS WITHIN HER CAPACITY AND POWER. THE BROKER HBR & CO. THROUGH WH OM THE SHARES HAD BEEN SOLD CONFIRMED TWICEFIRST UPON REQUEST OF THE APPELLANT AND AGAIN IN RESPONSE TO THE SUMMON OF THE AOSALE OF S HARES WITH DISTINCTIVE NUMBERS AND HAVING PAID THE SALE PROCEE DS TO THE APPELLANT. DURING APPELLATE PROCEEDINGS ASSESSEE AL SO SUBMITTED DOCUMENTS TO SHOW THAT THE COMPANY WAS A GENUINE CO MPANY WITH SUBSTANTIAL CAPITAL BASE AND WAS NOT A SMALL COMPAN Y. THIS ALSO SHOWS THAT THE ASSESSEE WAS ALL THROUGH KEEN TO CO- OPERA TE AND DISCHARGE HER ONUS TO THE MAXIMUM AS COULD BE POSSIBLE WITHIN HER CAPACITY AND POWER. THE ASSESSEE HAS NO RELATION WITH THE DIRECT ORS OF THE COMPANY AND WAS IN NO WAY IN THE CAPACITY TO AFFECT THE MAR KET PRICE OF THE SHARES. THE INCREASE IN SHARE PRICES BY MORE THAN 2 5 TIMES TOO CANNOT BE THE BASIS TO ASSUME THAT THE TRANSACTION WAS BOG US. ABNORMAL FLUCTUATION IN SHARE PRICES IS A NORMAL PHENOMENA. THE DEPARTMENTAL ENQUIRIES IN THE CASE OF SOME OTHER PERSONS AND STA TEMENTS OF JRD OR Y & CO IN THAT ENQUIRY TOO HAVE NO BEARING ON THE A SSESSEE S CASE. THE ASSESSEE HAS NOT DEALT WITH ANY OF THEM. THE EV IDENCES SUBMITTED BY THE ASSESSEE ARE NOT PROVED TO BE BOGUS, FALSE O R INCORRECT. ASSESSEE HAS NO OTHER SOURCE OF INCOME EXCEPT RENTA L INCOME AND SHARE FROM PARTNERSHIP FIRM. THE REVENUE TOO HAS NO T BROUGHT ON RECORD ANY SOURCE FROM WHICH THE ASSESSEE COULD HAV E EARNED THIS ALLEGED UNDISCLOSED INCOME AND THERE IS NO MATERIAL ON RECORD TO ESTABLISH OR EVEN SUGGEST THAT CASH ACTUALLY FLOWED FROM THE ASSESSEE TO PURCHASE THE DEMAND DRAFTS AS ALLEGED BY THE REV ENUE. ON THE OTHER HAND THE BROKER HAS CATEGORICALLY CONFIRMED T HAT HE MADE THE PAYMENT OF SALE PROCEEDS. THERE CANNOT BE ANY DISPU TE THAT THE DEPARTMENT IS FULLY EMPOWERED TO LIFT THE VEIL TO E STABLISH THE CORRECT NATURE OF TRANSACTION, BUT THERE WAS NOTHING HIDDEN WHICH REQUIRED PENETRATION. FURTHER, AFTER LIFTING THE VEIL DEPART MENT S ENQUIRY SHOULD HAVE GONE TO ESTABLISH LOGICALLY, FROM THE R ECORDS, THAT SALE CONSIDERATION WAS ACTUALLY THE MONEY OF THE ASSESSE E CONVERTED UNDER THE GUISE OF SHARE TRANSACTION. SIMILARLY, HERE THE RE WAS NO TAX PLANNING FOR WHICH ANY COLOURABLE DEVICE OR COLLUSI ON COULD HAVE BEEN USED. IT WAS A SIMPLE TRANSACTION OF SALE OF SHARES AT THE MOST OPPORTUNE TIME WHICH PERFECTLY IS IN TUNE WITH THE HUMAN NATURE. AS A MATTER OF FACT THE ENTIRE APPROACH AND FINDINGS OF THE LOWER AUTHORITIES ARE BASED ON SUSPICION, SURMISES AND CONJECTURES AN D BADLY AFFECTED BY VARIOUS OTHER CASES, WHICH HAVE NO APPLICATION T O THE ASSESSEE S CASE. THE ACTION OF THE REVENUE AUTHORITIES IN CONC LUDING THAT THE SALE VALUE OF SHARES IS INCOME OF THE ASSESSEE FROM UNDI SCLOSED SOURCES CANNOT BE ACCEPTED. IN VIEW OF THE ABOVE, THE INCOM E DECLARED BY THE ASSESSEE UNDER THE HEAD LONG-TERM CAPITAL GAIN IS D IRECTED TO BE ASSESSED AS SUCH. SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 19 VII) NAGPUR BENCH OF HON'BLE BOMBAY HIGH COURT IN CIT V/ S SMT. JAMUNADEVI AGRAWAL & ORS., (2010) 46 DTR 271 (BOM.) HAS, UNDER SIMILAR CIRCUMSTANCES, UPHELD THE ORDER OF THE TRIBUNAL BY HOLDING THAT THE ASSESSEE HAVING ESTABLISHED THE GENUINENESS OF PURCHASE AND SALE OF SHARES BY PRODUCING DOCUMENTARY EVIDENCE AND DECLARING PURCHA SE AND SALE PRICE OF SHARES IN CONFORMITY WITH THE MARKET RATES PREVAILI NG ON THE RESPECT DATES, THE FINDING OF THE TRIBUNAL THAT THE TRANSACTIONS W ERE GENUINE, IS A FINDING OF FACT BASED ON DOCUMENTARY EVIDENCE ON RECORD. IT AL SO HELD THAT THE FACT THAT THE ASSESSEE HAS PURCHASED AND SOLD SHARES OF SIMIL AR 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. THEY HELD THAT RELIAN CE PLACED BY THE REVENUE IN THE CASE OF SUMATI DAYAL (SUPRA) IS WHOLLY MISPL ACED AS THERE WAS DOCUMENTARY EVIDENCE IN THE CASE ON HAND. VIII) APPLYING THE PROPOSITION LAID DOWN IN THESE CASE LA WS BY THE HONBLE COURTS AND TRIBUNAL, TO THE FACTS OF THE CASE AND I N VIEW OF THE UNCONTROVERTED DOCUMENTARY EVIDENCES FILED BY THE A SSESSEE, WE HOLD THAT THE ASSESSEE HAS PROVED THE GENUINENESS OF THE PURC HASE AND SALE OF SHARES AND THE ADDITION MADE UNDER SECTION 68 OF THE ACT I S HEREBY DELETED. THUS, THE ASSESSEE SUCCEEDS ON THIS GROUND. IX) NOW, COMING TO THE NEXT ISSUE (GROUND NO.5) AS TO W HETHER THE ASSESSEE IS AN INVESTOR OR TRADER IN SHARES, WE FIN D THAT IN THE YEAR UNDER ASSESSMENT, THE FIRST APPELLATE AUTHORITY HAD DECID ED THE ISSUE IN FAVOUR OF THE ASSESSEE AND THE REVENUE HAS NOT PREFERRED ANY APPEAL AGAINST THE SAME. AT PARA-8/PAGE-23, THE FIRST APPELLATE AUTHOR ITY HELD AS FOLLOWS:- HOWEVER, THE A.O IS NOT CORRECT IN ITS APPROACH TO ASSESS INCOME ALTERNATIVELY UNDER THE HEAD BUSINESS INCOME AND TA KE THE SAME BECAUSE WHILE COMPUTING THE ENTIRE INCOME OF THE SA ME ACCORDINGLY. THIS APPROACH OF THE A.O. IS TOTALLY UNWARRANTED. T HE A.O. IS DIRECTED TO RECOMPUTE THE INCOME OF THE APPELLANT AFTER TAKI NG INTO ACCOUNT THE LONG TERM CAPITAL GAIN AS SHOWN BY THE APPELLANT IN RESPECT OF TRANSACTIONS RELATING TO SALE OF SHARES OF M/S. BOL TON PROPERTIES LTD. AS UNDISCLOSED INCOME U/S 68. SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 20 CONSEQUENTLY, WE HOLD THAT GROUND NO.5, IS MISCONCE IVED. X) COMING TO GROUND NO.6, THIS IS AGAINST THE DENIAL O F EXEMPTION UNDER SECTION 54F OF THE ACT. XI) THIS IS CONSEQUENTIAL IN NATURE. THE BENEFIT WAS DE NIED BECAUSE THE REVENUE AUTHORITIES HAVE HELD THAT THE INCOME IN QU ESTION IS FROM UNDISCLOSED SOURCES. AS WE HAVE HELD THAT INCOME IN QUESTION IS FROM LONG TERM CAPITAL GAINS ON SALE OF SHARES, CONSEQUENTIAL RELIEF UNDER SECTION 54F HAS TO BE GIVEN TO THE ASSESSEE. THUS, THIS GROUND IS ALLOWED. XII) GROUND NO.7 IS ON THE ISSUE OF LEVY OF INTEREST UND ER SECTION 234B OF THE ACT. LEVY OF INTEREST IS MANDATORY AND CONSEQUE NTIAL IN NATURE. ACCORDINGLY, THIS GROUND IS DISMISSED. 20. IN THE RESULT, ASSESSEES APPEAL FOR ASSESSMENT YEA R 2004-05 IS ALLOWED IN PART. ITA NO.1067/MUM./2009, FOR ASSESSMENT YEAR 2005-06 21. THE ISSUE IN GROUND NO.1 IS THAT, WHETHER THE INCOM E OF THE ASSESSEE ON SALE AND PURCHASE IS TO BE ASSESSED UNDER THE HE AD LONG TERM CAPITAL GAINS OR UNDER THE HEAD INCOME FROM BUSINESS . 22. THE UNDISPUTED FACTS ARE THAT, THE ASSESSEE HAS BEE N ACCEPTED AS AN INVESTOR BY THE REVENUE FOR THE ASSESSMENT YEARS 2000-01, 2 001-02, 2002-03 AND 2003-04 RESPECTIVELY IN THE ASSESSMENT ORDER PASSED BY THE SAME ASSESSING OFFICER ON THE SAME DAY UNDER SECTIO N 153A R/W SECTION 143(3). FOR THE ASSESSMENT YEAR 2004-05, THE FINDIN GS OF THE FIRST APPELLATE AUTHORITY HAVE NOT BEEN CHALLENGED AND CONSEQUENTLY THE CLAIM OF THE ASSESSEE THAT HE IS AN INVESTOR AND NOT TRADER IN S HARES HAS NOT BEEN DISTURBED. ON THESE FACTUAL BACKGROUND, WE ARE OF T HE CONSIDERED OPINION THAT IT IS NOT CORRECT FOR THE ASSESSING OFFICER TO TAKE A U TURN AND COME TO SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 21 A CONCLUSION THAT IN THIS PARTICULAR YEAR, THE ASSE SSEE HAS BECOME A TRADER IN SHARES. DURING THE YEAR, THE ASSESSEE HAS PURCHASED ONLY 17 SCRIP AND HAS SOLD ABOUT 14 SCRIP. FROM THESE FIGURES, IT CANNOT BE SAID THAT THERE IS A HIGH VOLUME IN TRADING IN SHARES. AT PARA-8, THE ASSESSI NG OFFICER HAS GIVEN THE REASONS FOR COMING TO A CONCLUSION THAT THE ASSESSE E IS A TRADER IN SHARES. THEY ARE EXTRACTED FOR READY REFERENCE:- 8. THE SEQUENCE OF EVENTS INVOLVED IN THE PURCHASE AND SALE OF SHARES IS ENUMERATED IN CHRONOLOGICAL ORDER TO FURT HER UNDERSTAND THE REAL MOTIVE OF THE ASSESSEE BEHIND THE TRANSACTION. A) THE ASSESSEE CARRIES OUT A DISCUSSION WITH VARIOUS PEOPLE WHO DEAL IN THE SHARE MARKET E.G. SHARE BROKERS; B) HE ALSO ANALYSES THE UPS AND DOWNS OF THE SHARE MAR KET, CONSIDERS MEDIA ANALYSIS OF A PARTICULAR SCRIP AND ANALYSIS OF FUTURE PROSPECTS OF THE COMPANY; C) AFTER THE DISCUSSION WITH THE VARIOUS PEOPLE AND DE TAILED ANALYSIS OF SHARE MARKET, THE ASSESSEE IDENTIFIES T HE POTENTIAL SCRIPT WHICH CAN EARN PROFIT IN SHORT PERIOD; D) AFTER THE IDENTIFICATION OF A PARTICULAR SCRIP THE ASSESSEE PURCHASES THESE PARTICULAR SHARES; E) AFTER THE PURCHASE HE, KEEPS TRACK ON THE STOCK MAR KET AND ANALYSES THE SHARE PRICE, WHICH HE HAS PURCHASED; F) WHENEVER THE SHARE PRICE OF A PARTICULAR SCRIP GOES UP, AT THIS STAGE HE TAKES DECISION TO SELL THAT PARTICULAR SCR IP; G) ASSESSEE TAKES DECISION TO SELL WHEN HE THINKS THAT , HE CANNOT AFFORD TO WAIT FURTHER AS HE CAN SUFFER LOSS IF THE PRICE OF THAT PARTICULAR SHARE GOES DOWN; H) THE ASSESSEE FURTHER PURCHASES THE SHARES AND THE C YCLE GOES ON. 23. THE FIRST APPELLATE AUTHORITY HAS NOT GIVEN ANY ADD ITIONAL REASONS FOR UPHOLDING THE FINDINGS OF THE ASSESSING OFFICER. IN OUR OPINION, THE REASONS CITED BY THE ASSESSING OFFICER DO NOT LEAD US TO A CONCLUSION THAT THE ASSESSEE IS A TRADER IN SHARES. THE ASSESSING OFFIC ER DID NOT RELY ON ANY OF THE PARAMETERS LAID DOWN BY THE CBDT IN ITS CIRCULA R FOR DETERMINING WHETHER A PERSON CAN BE CONSIDERED AS A TRADER OR AN INVEST OR IN SHARES. HAVING SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 22 INTENTION TO EARN INCOME OR PROFIT, BY ITSELF DOES NOT MAKE AN INVESTOR A TRADER. IN FACT, SECTION 45, WHICH REFERS TO CAPITA L GAINS, STARTS WITH THE FOLLOWING WORDINGS ANY PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET EFFECTED IN THE PREVIOUS YEAR SHALL, SAVE AS OTHERWISE PROVIDED IN SECTIONS 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G AND 54H, BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD CAPITAL GA INS, AND SHALL BE DEEMED TO BE THE INCOME OF THE PREVIOUS YEAR IN WHI CH THE TRANSFER TOOK PLACE. EVERY INVESTOR LOOKS FOR MAKING PROFITS. ALL THE REASONS GIVEN BY THE ASSESSING OFFICER ARE QUALITIES OF A GOOD INVESTOR. STUDY OF MARKETS MONITORING, SELLS AT OPPORTUNE TIME, ETC., IS THE H ALL MARK OF A GOOD INVESTOR. NEITHER THERE ARE ANY INTRA DAY SALES OR SPECULATIO N OF INCOME FROM FUTURE OPTIONS NOR HUGE TURNOVER OR INVESTMENT BY BORROWIN G FUNDS IN THIS CASE SO AS TO COME TO A CONCLUSION THAT THE ASSESSEE IS A T RADER AND NOT AN INVESTOR. IN VIEW OF THE ABOVE DISCUSSIONS, WE ALLOW THIS GRO UND OF THE ASSESSEE AND HOLD THAT THE ASSESSEE IS AN INVESTOR AND NOT A TRA DER. THE INCOME SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM CAPITAL GAIN . 24. GROUND NO.2, READS AS FOLLOWS:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE DENIAL O F EXEMPTION UNDER SECTION 10(38) CLAIMED BY THE APPELLANT IN RESPECT OF THE LONG TERM CAPITAL GAIN THAT AROSE ON SALE OF SHARES. IN VIEW OF THE ABOVE, THE APPELLANT PRAYS THAT EXEM PTION UNDER SECTION 10(38) OF THE ACT BE ALLOWED TO THE APPELLANT IN RE SPECT OF LONG TERM CAPITAL GAIN ON SALE OF SHARES. 25. THE AFORESAID GROUND IS CONSEQUENTIAL TO THE GROUND NO.1. AS WE HAVE HELD THAT INCOME IN QUESTION IS ASSESSABLE UNDER TH E HEAD CAPITAL ACCOUNT , EXEMPTION UNDER SECTION 10(38) OF THE ACT IS TO BE ALLOWED. 26. GROUND NO.3, IS ON THE ISSUE OF LEVY OF INTEREST UN DER SECTION 234B. THIS IS CONSEQUENTIAL AND MANDATORY. ACCORDINGLY, T HIS GROUND IS DISMISSED. 27. IN THE RESULT, ASSESSEES APPEAL FOR ASSESSMENT YEA R 2005-06 IS ALLOWED IN PART. SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 23 ITA NO.1194/MUM./2009, ASSESSMENT YEAR 2006-07 . 28. GROUNDS NO.1 AND 2, ARE THE SAME AS GROUNDS NO.1 AN D 2 IN ITA NO.1067/MUM./2009, FOR ASSESSMENT YEAR 2005-06. CON SISTENT WITH THE VIEW TAKEN THEREIN, WE HOLD THAT THE ASSESSEE IS AN INVE STOR AND NOT A TRADER IN SHARES AND THE PROFIT FROM SALE OF SHARES IS ASSESS ABLE ONLY UNDER THE HEAD CAPITAL GAIN . CONSEQUENTLY, THE ASSESSEE IS ENTITLED FOR RELIEF UNDER SECTION 10(38) OF THE ACT. THESE GROUNDS ARE, THUS, ALLOWED . 29. GROUND NO.3, IS IN RESPECT OF ADDITION OF ` 6,00,000 MADE UNDER SECTION 69A OF THE ACT. 30. FACTS ARE BROUGHT OUT FROM PAGES-8 TO 10 OF THE ASS ESSMENT ORDER. IN BRIEF, DURING THE COURSE OF SEARCH, AN AMOUNT OF ` 9,28,900 WAS FOUND AT THE RESIDENTIAL PREMISES OF MR. HARESH DADIA. IN A STAT EMENT RECORDED, MR. HARESH DADIA, STATED THAT CASH BELONGS TO M/S. DADI A CHEMICALS INDUSTRIES AND OTHER COMPANIES AND THAT IT IS ACCOUNTED FOR IN THE BOOKS OF ACCOUNT. ` 6,00,000 WAS SEIZED. ON BEING GIVEN A SHOW CAUSE NO TICE, THE ASSESSEE STATED THAT THE AMOUNT OF ` 6,00,000 PERTAINS TO COLLECTIONS AGAINST SALES MADE DURING THE FINANCIAL YEARS 2001-02 AND 2002-03 , TO M/S. KOI BENZ INTERNATIONAL IN KOLKATA. IT WAS STATED THAT THE CO LLECTION WAS RECEIVED AFTER CONTINUOUS FOLLOW-UP FOR MORE THAN THREE YEARS. THE ASSESSEE FURNISHED LEDGER ACCOUNT SHOWING CASH BALANCE OF M/S. DADIA C HEMICALS INDUSTRIES M/S. KOI BENZ INTERNATIONAL ON 23 RD MARCH 2006. AN AFFIDAVIT OF M/S. KOI BENCH INTERNATIONAL CONFIRMING THAT ` 6,00,000 WAS PAID ON 23 RD MARCH 2006, WAS ALSO FILED. THE ASSESSING OFFICER REJECTE D THE EXPLANATION ON THE GROUND THAT THE ASSESSEE HAS NOT STATED SO ON THE D AY OF SEIZER OF CASH AND THAT THIS IS AN AFTER-THOUGHT. THE FIRST APPELLATE AUTHORITY AGREED WITH THE FINDINGS OF THE ASSESSING OFFICER. 31. AFTER HEARING RIVAL CONTENTIONS, WE FIND THAT THE A SSESSEE, IN HIS STATEMENT, ON THE DATE OF SEARCH, HAS SAID THAT THE CASH BELONGS TO M/S. SHRI HARESH P. DADIA A.YS 04-05, 05-06 & 06-07 24 DADIA CHEMICALS INDUSTRIES. THEREAFTER, HE EXPLAINE D THAT M/S. DADIA CHEMICALS INDUSTRIES, HAD RECEIVED THE MONEY FROM M /S. KOI BENZ INTERNATIONAL. M/S. KOI BENZ INTERNATIONAL HAS GIVE N AN AFFIDAVIT AND ALSO FURNISHED ITS COPY OF LEDGER ACCOUNT. THE ASSESSING OFFICER CHOSE NOT TO EXAMINE M/S. KOI BENZ INTERNATIONAL. LEARNED COUNSE L HAS RIGHTLY PUT IT THAT HOW THE MONEY WAS BROUGHT FROM KOLKATA TO MUMBAI BY M/S. KOI BENZ INTERNATIONAL, IS NOT FOR HIM TO EXPLAIN, IS CORREC T. ON THE FACE OF THESE CONFIRMATIONS AND EVIDENCE, THE CONCLUSION DRAWN BY THE REVENUE IS BASED ON ONLY CONJECTURE AND SURMISES. THUS, WE AGREE WIT H THE CONTENTIONS OF THE LEARNED COUNSEL AND, CONSEQUENTLY, DELETE THE ADDIT ION OF ` 6,00,000. THUS, THE ASSESSEE SUCCEEDS ON THIS GROUND. 32. GROUND NO.4 IS ADDITION ON ACCOUNT OF ALLEGED UNEXP LAINED INVESTMENT IN JEWELLERY. 33. THE ASSESSING OFFICER HAS HELD THAT AN AMOUNT OF ` 1,76,470, AS UNDISCLOSED JEWELLERY DURING THE COURSE OF SEARCH. 34. BEFORE US, THE LEARNED COUNSEL HAS NOT SERIOUSLY CO NTESTED THIS ADDITION. KEEPING THIS IN VIEW, WE CONFIRM THIS ADD ITION AND DISMISS GROUND NO.4. 35. GROUND NO.5 IS REGARDING LEVY OF INTEREST UNDER SEC TION 234B. LEVY OF INTEREST IS MANDATORY AND CONSEQUENTIAL IN NATURE. ACCORDINGLY, THIS GROUND IS DISMISSED. 36. IN THE RESULT, ASSESSEES APPEAL FOR A.Y. 2006-07 I S ALLOWED IN PART. 37. TO SUM UP, ALL THE APPEALS ARE ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 15.6.2011. SD/- VIJAY PAL RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 15 TH JUNE 2011