RAMESHWARLAL BHUTRA, Bangalore V. DCIT, Bangalore

ITA 1092/BANG/2010

• Counselvise Citation: 109221114 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 31-10-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 20-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G V GOPALA RAO CITI
• Assessee Lawyers: H N KHINCHA
• Keywords: Unexplained cash credit; Capital asset; Share purchase agreement; Principle of natural justice; Cost of acquisition; Accommodation entries
• Section: 143(3); 54F; 153A; 68; 132

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL BANGALORE BENCH A, BANGALORE BEFORE SHRI N.K.SAINI, ACCOUNTANT MEMBER AND SMT. P MADHAVI DEVI, JUDICIAL MEMBER I.T.A. NO.1092(BANG.)/2010 (ASSESSMENT YEAR : 2003-04) SHRI RAMESHWARLAL BHUTRA, NO.9/12, BHUTRA HOUSE, I CROSS, GUPTA LAYOUT, BANNERGHATTA ROAD, BANGALORE. PAN NO.ABRPB4320N APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-I(4), BANGALORE RESPONDENT ASSESSEE BY : SHRI H.N.KHINCHA, CA REVENUE BY : SHRI G.V.GOPALA RAO, CIT- I DATE OF HEARING : 31-10-2011 DATE OF PRONOUNCEMENT : 09-11 -2011 O R D E R PER SMT P. MADHAVI DEVI, JM ; THIS APPEAL BY THE ASSESSEE RELATES TO ASSESSMENT Y EAR 2003-04. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL. ITA.NO.1092(B)/10 2 1. THE ASSESSMENT ORDER PASSED BY THE AO IS NON- EST AND IN ANY CASE BAD IN LAW AND IS LIABLE TO BE QUASHED. 2. IN ANY CASE AND WITHOUT PREJUDICE THE ORDER PASSED BEING WITHOUT JURISDICTION IS LIABLE TO BE QUASHED. 3. WITHOUT FURTHER PREJUDICE THE APPELLANT SUBMITS THAT ON THE FACTS OF THE CASE AND LAW APPLICABLE TH E APPELLANT WOULD NOT BE AMENABLE TO COMPUTATION OF INCOME UNDER THE PROVISIONS OF THE SEC.153A OF THE ACT AND ALL OTHER RELATED SECTIONS AND HENCE THE ASSESSMENT OF INCOME AS DONE BY THE AO BEING NOT CORRECT AND BEING NOT IN ACCORDANCE WITH LAW IS LIABLE TO BE QUASHED. 4. IN ANY CASE THE ORDER PASSED IN GROSS VIOLATION OF THE PRINCIPLES F NATURAL JUSTICE AND FAIR PLAY, ESPECIALLY IN THE ABSENCE OF THE CROSS EXAMINATION OF THE PERSONS WHOSE AVERMENTS ARE SOUGHT TO BE RELIED UPON BY THE AO WHILE PASSING THE ORDER, MAKE THE ORDER TOTALLY BAD IN LAW AND LIABLE TO BE QUASHED. 5. THE LD. CIT(A) HAS INSTEAD OF QUASHING THE IMPUGNED ORDER ON THE ABOVE GROUNDS, HAS JUST CONFORMED THE ORDER OF THE AO WITHOUT PROPERLY CONSIDERING THE FACT AND CIRCUMSTANCES OF THE CASE AND ARGUMENTS OF THE APPELLANT. 6. IN ANY CASE AND WITHOUT PREJUDICE THE APPELLANT SUBMITS THAT THE ACTION OF THE LOWER AUTHORITIES IN NOT ACCEPTING THE GAIN ON SALE OF ITA.NO.1092(B)/10 3 SHARES AS GAIN ON SALE OF CAPITAL ASSETS (LONG TERM ) DESPITE THE OVERWHELMING EVIDENCE AND PROOF INCLUDING STATUTORY PROOF IS AGAINST LAW AND FACTS AND IS TO BE REJECTED. THE CLAIM OF THE APPELLANT OF LONG TERM CAPITAL GAIN BEING RIGHT IN LAW AND ON FACTS IS TO BE ACCEPTED. 7. THE AO HAS IN ANY CASER, ERRED IN TREATING THE SUM OF RS.31,99,350/- AS INCOME FROM OTHER SOURCES WHICH HAS NO SUPPORT IN LAW; IS CONTRARY TO FACTS AND EVIDENCE AVAILABLE. SUCH A TREATMENT DESERVES TO BE REJECTED TOTALLY. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE SAME. 8. THE SEVERAL OBSERVATIONS MADE AND VARIOUS CONCLUSIONS DRAWN BY THE LOWER AUTHORITIES IN THE COURSE OF ORDER ARE WITHOUT BASIS AND EVIDENCE AND ARE MADE/DRAWN ON SURMISES, PROBABILITIES AND CONJECTURES. SUCH OBSERVATIONS AND CONCLUSIONS BY QUASI JUDICIAL AUTHORITIES HAVE NO SUPPORT IN LAW AND DESERVE TO BE REJECTED IN TOTO. 9. THE LOWER AUTHORITIES HAVE ALSO ERRED IN OBSERVING THAT THERE WAS ACTUALLY NO PURCHASE/SALE OF SHARES, THAT THE APPELLANT HAD GOT ACCOMMODATION ENTRIES AND THAT THE APPELLANTS OWN MONEY WAS INTRODUCED AS SALE CONSIDERATION, SUCH FINDINGS BEING TOTALLY AGAINST THE FACTS, WRON G IN LAW AND ALSO IN A WAY IMPLICATING STATUTORY GOVERNMENT AUTHORITIES ARE TO BE REJECTED IN ENTIRETY. ITA.NO.1092(B)/10 4 10. THE APPELLANT ALSO DENIES THE LIABILITY TO PAY INTEREST. INTEREST HAVING BEEN LEVIED ERRONEOUSLY IS TO BE DELETED IN ENTIRETY. 3. AT THE TIME OF HEARING, LEARNED COUNSEL FOR THE ASSESSEE SHRI KHINCHA, WHILE REITERATING THE SUBMISSIONS MAD E BEFORE THE LOWER AUTHORITIES, SUBMITTED THAT THE ISSUES RAISED IN THIS APPEAL ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISI ON OF THE B BENCH OF THE TRIBUNAL DATED 23-03-2011 IN THE CASE OF SMT VIMALA DEVI CHHAJER & OTHERS, WHEREIN THE TRIBUNAL AFTER CONSIDERING SIMILAR SET OF FACTS OF THE CASE OF THE ASSESSEE HAS ALLOWED THE APPEAL. 3.1 THE LEARNED DR, THOUGH ADMITTED THAT THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS OF THE CASE O F SMT. VIMALA DEVI CHHAJER, SUBMITTED THAT THERE IS FACTUAL ERROR N THE ORDER OF THE TRIBUNAL AND THE REVENUE IS IN THE PROCESS OF F ILING AN M.P. FOR THE CORRECTION OF THE SAME. ACCORDING TO THE LE ARNED DR, THE TRIBUNAL HAD ALLOWED THE ASSESSEES APPEALS ON THE GROUND THAT THE SALE OF SHARES WERE ON THE FLOOR OF THE STOCK E XCHANGE, WHICH IS NOT FACTUALLY CORRECT AND THEREFORE, ACCORDING T O HIM THE SAID DECISION CANNOT BE FOLLOWED. 4. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THE RIVAL CONTENTIONS, WE FIND THAT ON THE VERY SAM E SET OF FACTS ITA.NO.1092(B)/10 5 THIS TRIBUNAL HAD TAKEN A DECISION AND ONE OF US I. E. JM IS A PARTY TO THE SAID ORDER. AS THE FACTS AND CIRCUMST ANCES ARE SIMILAR AS THERE IS NO ORDER AMENDING THE SAME, WE ARE INCLINED TO TAKE THE SAME VIEW IN THIS CASE ALSO. FOR THE SA KE OF CONVENIENCE, RELEVANT PORTION OF THE ORDER IN THE C ASE OF SMT VIMALA DEVI CHHAJER & OTHERS ARE REPRODUCED HERE UN DER; 2. IN ALL THESE CASES, THE MAIN ISSUE IS THE DETERMINATION OF THE NATURE OF SURPLUS EARNED BY THE ASSESSEES ON SALE OF SHARES HELD BY THEM. ALL THE ASSESSEES HAVE SOLD THEIR SHARES IN DIFFERENT COMPANIES IN THE PREVIOUS YEARS RELEVANT TO THE ASSESSMENT YEARS UNDER APPEAL AND OFFERED THE SURPLUS AS LONG TERM CAPITAL GAINS FOR TAXATION. IN ALL THESE CASES, OTHER THAN THE CASE OF NAGORI GROUP, THE ASSESSING OFFICER TREATED THE SURPLUS AS INCOME FROM OTHER SOURCES AGAINST THE CLAIM OF LONG TERM CAPITAL GAINS MADE BY THE ASSESSEES. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE MEDIUM OF PURCHASE AND SALE OF SHARES WAS ADOPTED BY THE ASSESSEES TO CONVERT THEIR UNACCOUNTED MONEY TO ACCOUNTED MONEY UNDER THE HEAD LONG TERM CAPITAL GAINS ATTRACTING LEAST AMOUNT OF TAX AT 10%. 3. IN THE CASE OF ASSESSEES BELONGING TO NAGORI GROUP, THEY ALSO RETURNED THE SURPLUS OF SALE OF SHARES AS LONG TERM CAPITAL GAINS. BUT, THE ITA.NO.1092(B)/10 6 ASSESSING OFFICER TREATED THE LONG TERM CAPITAL GAINS AS SHORT TERM CAPITAL GAINS. WHEN THE MATTER WAS TAKEN BEFORE THE CIT(A), HE SET ASIDE THE VIEW OF THE ASSESSING OFFICER AND TREATED THE SURPLUS AS INCOME FROM OTHER SOURCES AGAINST THE CONTENTION OF THE ASSESSEES THAT IT WAS LONG TERM CAPITAL GAINS AND ALSO AGAINST THE FINDINGS OF THE ASSESSING AUTHORITY THAT IT WAS SHORT TERM CAPITAL GAINS. 4. NOW, IN ALL THESE APPEALS AT PRESENT PLACED BEFORE US, THE QUESTION IS WHETHER THE SURPLUS ARISING OUT OF THE SALE OF SHARES BY THESE ASSESSEES ARE IN THE NATURE OF LONG TERM CAPITAL GAINS OR IN THE NATURE OF INCOME FROM OTHER SOURCES. 5. IN ADDITION TO THE ABOVE QUESTION OF DETERMINING THE NATURE OF SURPLUS, ANOTHER ISSUE HAS BEEN RAISED BY VIMALA DEVI CHAJJER BELONGING TO CHAJJER GROUP. SHE HAS RETURNED AGRICULTURAL INCOME FOR THE ASSESSMENT YEARS 2001-02, 2002-03, 2003-04, 2004-05, 2005-06 AND 2006-07. THE ASSESSING OFFICER TREATED PART OF THOSE AGRICULTURAL INCOME AS INCOME FROM OTHER SOURCES, WHICH ACCORDING TO THE ASSESSEE IS NOT JUSTIFIED. 6. THESE ARE THE OUT LINES OF THE DISPUTES ARISING IN THESE APPEALS. 7. THE RELEVANT ASSESSMENT YEARS INVOLVED IN THESE APPEALS ARE 2001-02, 2002-03, 2003-04, ITA.NO.1092(B)/10 7 2004-05, 2005-06 AND 2006-07. ALL THESE APPEALS ARISE OUT OF THE ASSESSMENTS COMPLETED U/S 153A READ WITH SEC. 143(3) OF THE INCOME- TAX ACT 1961. 8. IN THE CASE OF MEHTA GROUP CONSISTING OF VEENA MEHTA, CHANDRAKANTHA MEHTA, PUSHPA DEVI MEHTA AND KALAVATHI MEHTA, THE ASSESSING AUTHORITY AS WELL AS THE CIT(A) HAVE HELD THAT THE SURPLUS GENERATED OUT OF THE SALE OF SHARES WERE IN THE NATURE OF INCOME FROM OTHER SOURCES. 9. SHRI S VIMALCHAND FOR THE ASSESSMENT YEAR 2005-06 HAS OFFERED LONG TERM CAPITAL GAINS ON SHARES HELD IN FAST TRACK ENTERTAINMENT LTD. HE SOLD 50000 SHARES ON 13.4.2004 AND 28.4.2004. THE SHARES WERE PURCHASED ON 7.4.2003 FOR RS.60,710/- AND THE SHARES WERE SOLD FOR RS.2,475,723/-. THE FOUR ASSESSES NAMELY VEENA MEHTA, CHANDRAKANTHA MEHTA, PUSHPA DEVI MEHTA AND KALAVATHI MEHTA HAVE SOLD 12000 SHARES EACH OF M/S DATA BASE FINANCE LTD., WHICH WERE PURCHASED ON 19.5.2001. IN THEIR CASES, THE PURCHASE PRICE WERE RS.15,120 PER HEAD, WHEREAS THEY SOLD THE SHARES FOR AN AMOUNT OF RS.862,800, RS.877,800, RS.848,640 AND RS.850,800/-. THEY HAVE ALSO CLAIMED RELIEF U/S 54F, AS THE SURPLUS WAS OFFERED BY THEM AS LONG TERM CAPITAL GAINS. ITA.NO.1092(B)/10 8 10. IN THE CASE OF THE ASSESSEES BELONGING TO CHAJJER GROUP NAMELY MANGILAL CHAJJER, CHETANA CHAJJER, MEENA DEVI CHAJJER, MANISH MUDITH CHAJJER AND VIMALA DEVI CHAJJER SHARES OF M/S FAST TRACK ENTERTAINMENT LTD., M/S NAGESHWAR INVESTMENT PVT. LTD. AND STENLEY CREDIT CAPITAL LTD. WERE SOLD IN THE PREVIOUS YEAR WHICH WERE PURCHASED IN THE MONTHS OF APR, MAY AND JUL OF 2002 AND IN THE MONTH OF APRIL 2003. THESE SHARES WERE SOLD FOR A CONSIDERATION RANGING FROM RS.576,950/- TO 1,246,680/-. 11. THE ASSESSEES SHUSHEELA DEVI TAINWALA, RAJESH TAINWALA AND RAVIKANT TAINWALA BEONG TO TAINWALA GROUP HAVE SOLD SHARES FOR THE ASSESSMENT YEARS 2003-04 AND 2005-06. THE SHARES BELONGED TO M/S DATA BASE FINANCE LTD AND FAST TRACK ENTERTAINMENT LTD. THE SHARES WERE PURCHASED IN THE MONTH OF MAY 2003 AND AUG 2004. IN THIS CASE ALSO SALES WERE MADE FOR A PRICE MUCH HIGHER THAN THE PURCHASE PRICE. 12. IN THE CASE OF RAJENDRA KUMAR BHUTRA AND SURESH KUMAR CHOPRA THEY SOLD SHARES IN THE ASSESSMENT YEAR 2003-04 OF M/S DATA BASE FINANCE LTD. THE SHARES WERE SOLD FOR PROFIT. 13. THE NATURE OF THE SALES OF SHARES TO DIFFERENT PARTIES AND THE NATURE OF SURPLUS ARISING OUT OF THOSE SALES WERE EXAMINED BY THE ITA.NO.1092(B)/10 9 ASSESSING AUTHORITY IN THE LIGHT OF A SEARCH CONDUCTED U/S 132 OF THE INCOME-TAX ACT 1961. IT IS BECAUSE OF THAT SEARCH ALL THESE ASSESSMENTS HAVE BEEN COMPLETED U/S 153A READ WITH SEC. 143(3) OF THE INCOME-TAX ACT 1961. 14. REITERATING THE ENQUIRIES MADE AS A CONSEQUENCE OF THE SEARCH, THE ASSESSING OFFICER HELD THAT ALL TRANSACTIONS OF SHARE SALES WERE DUBIOUS AND THE ASSESSEES WERE CONVERTING THEIR UNACCOUNTED MONEY INTO ACCOUNTED MONEY THROUGH THE COLOURABLE DEVICE OF PURCHASE AND SALE OF SHARES. THE ASSESSING OFFICER HELD THAT THE SHARES WERE PURCHASED FOR NORMAL PRICES AND THESE SHARES WERE SOLD FOR EXORBITANT PRICES AFTER ONE YEAR, WHICH DOES NOT JUSTIFY THE NORMAL BUSINESS PARAMETERS. HE HELD THAT EVEN THOUGH, THE SHARES WERE SOLD THROUGH BROKERS AND STOCK EXCHANGE, THE ASSESSEES HAVE RETURNED THE SALE PROCEEDS TO THE BROKERS SO THAT THE SURPLUS SALE VALUE PAID BY THE BROKERS HAVE GONE BACK TO THEM AND ASSESSEES CONVERTED THEIR UNACCOUNTED MONEY INTO ACCOUNTED MONEY. HE HELD THAT THIS IS A COLOURABLE DEVICE IN CONVERTING BLACK MONEY INTO WHITE MONEY THROUGH MEDIUM OF SALES OF SHARES BY ATTRACTING TAX AT A SOFT RAT E OF 10%. HE FOUND THAT THE ASSESSEES HAVE NOT EXPLAINED THE REASONS AS TO WHY THEY COULD FETCH EXORBITANT AMOUNT OF SALE PRICES. HE ALSO EXAMINED THE BUSINESS POTENTIAL OF THE ITA.NO.1092(B)/10 10 COMPANIES WHOSE SHARES WERE SOLD BY THE ASSESSEES AND FOUND THAT THOSE COMPANIES DO NOT HAVE ANY POTENTIAL FOR EARNING HIGH AMOUNT OF INCOME OR NET WORTH. THE ASSESSING OFFICER CARRIED OUT HIS INVESTIGATION AND ENQUIRIES ON THE BASIS OF THE ABOVE PREMISES AND CAME TO THE CONCLUSION THAT THE TRANSACTIONS WERE DUBIOUS AND THE ASSESSEES WERE CONVERTING THE BLACK MONEY INTO WHITE MONEY AND, THEREFORE, THE SURPLUS COULD NOT BE TREATED AS LONG TERM CAPITAL GAINS. HE ACCORDINGLY TREATED THE SURPLUS AMOUNTS OFFERED BY THE ASSESSEES AS INCOME FROM OTHER SOURCES IN THE NATURE OF UNEXPLAINED CREDITS WITHIN THE MEANING OF SEC. 68 OF THE INCOME-TAX ACT 1961. THIS POSITION HAS BEEN CONFIRMED BY THE CIT(A). 15. WE HEARD SHRI H.N KHINCHA, THE LEARNED CHARTERED ACCOUNTANT APPEARING FOR THE ASSESSEES, WHO HAS ARGUED THE FACTS AND LAW RELATING TO THESE CASES IN DETAIL. 16. THE LEARNED CHARTERED ACCOUNTANT CONTENDED THAT THE SHARES WERE PURCHASED BY THE ASSESSEES FOR THE PRICES PREVAILING AT THAT POINT OF TIME AND THE SHARES WERE THAT OF THE COMPANIES LISTED IN THE STOCK EXCHANGE. THEREFORE, THERE IS NO REASON TO SUSPECT THE GENUINE PURCHASE OF SHARES. THESE SHARES WERE SHOWN IN THE BALANCE SHEET OF THE ASSESSEES AS INVESTMENT AT COST PRICE. THESE SHARES WERE ITA.NO.1092(B)/10 11 SOLD IN THE PREVIOUS YEARS RELEVANT TO THE ASSESSMENT YEARS, AGAIN ON THE FLOOR OF THE STOCK EXCHANGE. THE ASSESSEES HAVE SOLD THE SHARES THROUGH STOCK BROKERS ON THE FLOOR OF THE STOCK EXCHANGE. THEREFORE, THERE CANNOT BE A HANKY PANKY IN THE MATTER OF SALES OF THOSE SHARES. THE SHARES ARE PROPERLY DOCUMENTED AND REFLECTED IN THE RECORDS OF THE STOCK BROKER. THE PAYMENTS HAVE BEEN MADE BY THE STOCK EXCHANGE THROUGH BANK INSTRUMENTS. THE SALES WERE MADE ON THE PRICES OFFERED IN THE STOCK EXCHANGE ON THE DAYS OF SALES. THEREFORE, IN THE LIGHT OF THE ACCOUNTS MAINTAINED BY THE ASSESSEES AND IN THE LIGHT OF THE EXTERNAL EVIDENCES AVAILABLE IN THE HANDS OF THE BROKERS AND THE STOCK EXCHANGE, THERE IS NO MERIT IN QUESTIONING THE VERACITY AND BONAFIDES OF THE SALES OF SHARES. 17. THE LEARNED CA FURTHER ARGUED THAT THE ASSESSING OFFICER HAS TRIED TO MAKE OUT A CASE AGAINST THE ASSESSEES ON THE SO CALLED ENQUIRIES MADE BY HIM IN THE LIGHT OF THE SEARCH CARRIED OUT U/S 132. HE CONTENDED THAT THE SEARCH, IN FACT HAS BROUGHT OUT POSITIVE MATERIALS TO SUPPORT THE ARGUMENTS OF THE ASSESSEES. THE ENTIRE TRANSACTIONS WERE RECORDED IN THE REGULAR BOOKS OF ACCOUNT OF THE ASSESSEES. THE SHARES WERE LATER CONVERTED INTO DE-MAT FORM. SHARES CANNOT BE CONVERTED INTO DIGITAL FORM UNLESS THE ITA.NO.1092(B)/10 12 SHARES ARE GENUINE. IT IS ONLY BECAUSE THE SHARES WERE GENUINE THAT THE NATIONAL DEPOSITORY AGENCY HAS CONVERTED THE PHYSICAL FORM OF SHARES OF THE ASSESSEES INTO DE-MAT FORM. THIS ITSELF IS AN IMPEACHABLE EVIDENCE TO SHOW THAT THE SHARES WERE ACTUALLY HELD BY THE ASSESSEES. IN THE COURSE OF SEARCH, THE INVESTIGATING ASSESSING OFFICER COULD LAY HIS HANDS ON COPIES OF CONTRACT FOR THE SALE OF SHARES, COPIES OF BILLS, DE-MAT DETAILS AND ALL OTHER PARTICULARS REGARDING THE HOLDING AND SALE OF SHARES. THEREFORE IN FACT, THE MATERIALS COLLECTED IN THE COURSE OF SEARCH REALLY SUPPORT THE CONTENTIONS OF THE ASSESSEES. THE SEARCH HAS NOT BROUGHT OUT ANY MATERIAL AGAINST THE CONTENTION OF THE ASSESSEES. NO INCRIMINATING MATERIALS WERE DETECTED IN THE COURSE OF SEARCH AGAINST THE ASSESSEES IN THE MATTER OF PURCHASE AND SALE OF SHARES. THEREFORE, THERE IS NO FORCE IN THE ARGUMENTS OF THE REVENUE THAT THE SEARCH HAS STRENGTHENED THE PROPOSITION AND FINDING MADE OUT BY THE REVENUE. 18. HE HAS RELIED ON THE FOLLOWING DECISIONS IN SUPPORT OF HIS ARGUMENTS: 1) MUKESH R MAROLIA VS. ADDL. CIT 006 SOT 0247 (MUM) 2) ACIT VS. AJAY NAWANDAR 33 DTR 452 (MUM) 3) ITO VS. SRI ROSHANLAL IN ITA NO.1120/B/07 ITA.NO.1092(B)/10 13 4) ITO VS. NAVEEN GUPTA ITA NO.696/DELHI/2002 5) MRS. KRISHNA DEVI KEJRIWAL VS. ITO 004 TAX CORP (AT) 23069 (MUM) 6) ITO VS. SMT. NEELAM CHAWLA 006 DTR 0141 (DEL) 7) ITO VS. RAJIV AGARWAL (DELHI) 89 TTJ 1095 8) ACCHYALAL SHAW VS. ITO 121 TTJ 695 (CAL) 9) CIT VS. SMT. JAMNADEVI AGARWAL 19. SHRI HARSHA PRAKASH, THE LEARNED CIT APPEARING FOR THE REVENUE, ON THE OTHER HAND, ARGUED AT LENGTH ON THE BASIS OF THE FINDINGS RECORDED BY THE ASSESSING AUTHORITY IN HIS ORDER. THE LEARNED CIT HAS ARGUED THAT ALL THE ACTIVITIES ARE PART OF A NATION WIDE RACKET ENGAGED IN MONEY LAUNDERING THROUGH VARIOUS DUBIOUS METHODS. HE HAS TAKEN US TO THE VARIOUS RELEVANT OBSERVATIONS REFLECTED IN THE ASSESSMENT ORDERS. HE ALSO EXPLAINED THE MODUS OPERANDI OF THE ASSESSEES. MANY OF THE COMPANIES INVOLVED IN THESE TRANSACTIONS ARE NOT EXISTING AND THE EXISTING COMPANIES DO NOT HAVE ANY BUSINESS ACTIVITIES WORTH THEIR NAME. THEY ARE ONLY PAPER COMPANIES. THEY ARE USED AS COLORABLE MEDIUM TO CONVERT THE UNACCOUNTED MONEY OF THE ASSESSEES. THIS IS A CASE OF MONEY LAUNDERING, EVEN THOUGH SALES WERE MADE ON THE FLOOR OF STOCK EXCHANGE. THERE WAS A TACIT AGREEMENT BETWEEN THE BROKERS AND THE ITA.NO.1092(B)/10 14 ASSESSEES WHEREBY THE EXCESS CONSIDERATION RECORDED IN THE BOOKS WERE RETURNED BY THE ASSESSEES TO THE BROKERS AND IN THAT VACUUM, THE ASSESSEES WERE MANIPULATING THEIR UNACCOUNTED MONEY. ALL THESE MANIPULATIONS WERE BROUGHT TO LIGHT AS A RESULT OF ENQUIRIES MADE BY THE SEARCH CARRIED OUT IN THE PREMISES OF THE ASSESSEES U/S 132. HE, THEREFORE, SUBMITTED THAT THE ASSESSING OFFICER HAS RIGHTLY INVOKED SEC. 68 TO TREAT THE SURPLUS INCOME AS INCOME FROM OTHER SOURCES. 20. THE LEARNED CIT(A) CONTENDED THAT IN SPITE OF THE DOCUMENTARY FRAMEWORK CONSISTENTLY CREATED BY THE ASSESSEES, THEY HAVE NOT EXPLAINED THE REASONS AS TO WHY SHARES PURCHASED FOR NOMINAL VALUE COULD FETCH HUGE AMOUNT ON SALE MADE JUST AFTER ONE YEAR PERIOD. THERE MUST BE SOME REASONABLE EXPLANATION FOR THIS. THE COMPANIES WHOSE SHARES WERE PURCHASED BY THE ASSESSEES ARE NOT COMPANIES OF REPUTATION OR SUBSTANCE OR ASSETS OR BUSINESS PROSPECTUS. IN SUCH CIRCUMSTANCES, IT IS HIGHLY IMPROBABLE TO PRESUME THAT THE ASSESSEES COULD HAVE SOLD THE SHARES OF THOSE COMPANIES FOR SUCH HUGE SUM OF MONEY. 21. THE LEARNED CIT CONCLUDED THAT THE ASSESSING OFFICER HAS EXPLAINED THE ENTIRE SCHEME OF ACTIVITIES EXECUTED BY THE ASSESSEES AND HE HAS ESTABLISHED THAT THE TRANSACTIONS ITA.NO.1092(B)/10 15 WERE DUBIOUS AND THE CIT(A) HAS RIGHTLY CONFIRMED THE ASSESSMENT ORDERS IN THIS REGARD. HE, THEREFORE, SUBMITS THAT THE GROUNDS OF THE ASSESSEES ON THIS POINT MAY BE DISMISSED. 22. WE HEARD BOTH SIDES IN DETAIL. 23. IN THIS CONTEXT, WE MAY REFER TO A DECISION OF ITAT MUMBAI BENCH IN THE CASE OF SHRI MUKESH R MAROLIA VS. ADD. CIT 006 SOT 0247. IN THIS CASE, THE ASSESSEE HAD PURCHASED SHARES FOR A LESSER AMOUNT AND THEREAFTER HE SOLD THE SHARES FOR HUGE AMOUNTS AND USING THE SALES PROCEEDS, PURCHASED A PLOT AT COLABA, BOMBAY. THE ASSESSEE HAD DISCLOSED THE SURPLUS AS LONG TERM CAPITAL GAINS AND ALSO CLAIMED DEDUCTION U/S 54F. AFTER HEARING BOTH SIDES IN DETAIL AND IN THE LIGHT OF THE MATERIALS PLACED BEFORE THE TRIBUNAL, THE TRIBUNAL CAME TO THE FOLLOWING FINDING: FOR A MOMENT, EVEN IF ALL THE ABOVE EVIDENCES ARE IGNORED, ONE CANNOT OVERLOOK THE PRESSURE OF THE EVIDENCE COMING OUT OF THE SURVEY CARRIED OUT BY THE DEPARTMENT IN THE BUSINESS PREMISES OF THE ASSESSEE. THERE WAS A SURVEY CARRIED OUT BY THE DEPARTMENT IN THE BUSINESS PREMISES OF THE ASSESSEE. IN THE COURSE OF SURVEY, CONTRACT NOTES FOR SALE OF SHARES, COPIES OF BILLS THEREOF, PHOTO COPIES OF SHARE CERTIFICATES ETC., WERE FOUND. THE PURCHASE AND SALE OF SHARES WERE ALSO RECORDED IN THE BOOKS OF ACCOUNTS. THE ITA.NO.1092(B)/10 16 DEPARTMENT HAS NO CASE THAT THE SURVEY WAS A STAGED ENACTMENT. A SURVEY IS ALWAYS UNEXPECTED. SO, IT IS NOT POSSIBLE TO PRESUME THAT THE ASSESSEE HAD COLLECTED CERTAIN FABRICATED DOCUMENTS AND KEPT AT HIS BUSINESS PREMISES SO AS TO HOODWINK THE SURVEY PARTY TO LEAD THEM TO BELIEVE THAT THE ASSESSEE HAD ENTERED INTO SHARE TRANSACTIONS. AT LEAST SUCH AN INFERENCE IS NOT POSSIBLE IN LAW. THE DEPARTMENT HAS NO DEFENCE AGAINST THE FORCIBLE ARGUMENT OF THE LEARNED COUNSEL THAT THE SURVEY CONDUCTED BY THE DEPARTMENT HAS OUT AND OUT UPHELD THE CONTENTION OF THE ASSESSEE THAT HE HAD PURCHASED AND SOLD SHARES. WE FIND THIS SOLITARY EVIDENCE COLLECTED I N THE COURSE OF SURVEY IS SUFFICIENT TO ENDORSE THE BONAFIDES OF THE SHARE TRANSACTIONS MADE BY THE ASSESSEE. 24. WE THINK THAT THE PRESENT CASES ARE ALSO IN THE SAME PLATFORM. IN THAT CASE THERE WAS A SURVEY AND IN THE PRESENT CASE IT WAS A SEARCH. THE SEARCH HAS BROUGHT OUT LOTS OF DOCUMENTARY EVIDENCES TO SUPPORT THE CONTENTION OF THE ASSESSEES THAT THEY HAVE SOLD SHARES AS RECORDED IN THE BOOKS OF ACCOUNTS. THE SEARCH PARTY COULD FIND BOOKS OF ACCOUNTS WHEREIN ALL THESE TRANSACTIONS, THE PURCHASE AND SALES, HAVE BEEN ITA.NO.1092(B)/10 17 PROPERLY ACCOUNTED. THE PARTICULARS OF PURCHASE OF SHARES WERE AVAILABLE DURING THE SEARCH, AS THE PART OF THE RECORDS MAINTAINED BY THE ASSESSEES. THE PURCHASES HAVE BEEN PROPERLY RECORDED THEREIN. LATER ON, THE SHARES WERE CONVERTED INTO DE-MAT FORM. THOSE DE-MAT PARTICULARS ARE ALSO AVAILABLE WITH THE ASSESSEES. CONTRACT NOTES FOR SALE OF SHARES WERE FOUND IN THE COURSE OF SEARCH. BROKERS NOTE, ADVICES AND DETAILS OF PAYMENTS WERE AVAILABLE IN THE COURSE OF SEARCH. THE PAYMENTS WERE MADE THROUGH BANK INSTRUMENTS. SUBJECT TO THE ALLEGATION OF THE REVENUE, IF ONE TAKES A NORMAL VIEW OF BUSINESS TRANSACTIONS, THE ABOVE DOCUMENTS ARE MORE THAN SUFFICIENT TO SUPPORT THE CONTENTION OF THE ASSESSEES THAT THEY HAVE BROUGHT AND SOLD SHARES FOR THE PRICES REFLECTED IN THEIR ACCOUNTS. THE ABOVE POSITIVE EVIDENCES COULD OVERCOME BY THE DEPARTMENT ONLY IF THE REVENUE CAN BRING MORE FORCEFUL EVIDENCES TO COUNTER THE ARGUMENTS OF THE ASSESSEES. SUCH EVIDENCES ARE NOT AVAILABLE. ITA.NO.1092(B)/10 18 25. NOW, WHAT IS THE POSITION IN THE PRESENT CASES? IN SPITE OF THE SEARCH CARRIED OUT BY THE DEPARTMENT, NO MATERIALS INCRIMINATING THE ASSESSEES IN THE MATTER OF SALES OF SHARES WERE FOUND OR SEIZED. THERE WERE NO MATERIALS AVAILABLE WITH THE ASSESSEES, WHICH CAN SHOW THAT THE TRANSACTIONS WERE NOT THE REAL. TO CUT THE LONG STORY SHORT, WE HAVE TO STATE THAT THE SEARCH COULD NOT BRING OUT ANY ADVERSE MATERIALS AGAINST THE STAND TAKEN BY THE ASSESSEES. 26. THIS IS THE CASE WITH THE SUBSEQUENT ENQUIRIES CONDUCTED BY THE ASSESSING OFFICER, AS WELL. IN THE LIGHT OF CERTAIN GENERAL IMPRESSIO N, THE ASSESSING OFFICER WAS IN FACT FRAMING OUT A CASE ON THE BASIS OF INTELLIGENT HYPOTHESIS. BEYOND THAT, WE DO NOT THINK THAT THE FINDINGS MADE BY THE ASSESSING AUTHORITY HAVE ANY PROBATIVE VALUE IN THE EYES OF LAW. 27. THE PURCHASE OF SHARES HAVE BEEN PROVED BY THE PROCESS OF DE-MATING OF SHARES. SHARES HAVE BEEN REFLECTED IN THE BALANCE SHEETS OF THE ASSESSEES. SHARES WERE SUBSEQUENTLY SOLD ON THE ITA.NO.1092(B)/10 19 FLOOR OF STOCK EXCHANGE. THE SALES WERE ARRANGED THROUGH ACCREDITED BROKERS. THE SALES PROCEEDS WERE RECEIVED FROM THE STOCK EXCHANGE THROUGH BANK INSTRUMENTS. WHEN ALL THESE THINGS PUT TOGETHER, THE ASSESSEES HAVE MADE OUT A CLEAR CASE OF PURCHASE AND SALE OF SHARES RESULTING IN SURPLUS IN THEIR RESPECTIVE HANDS. IN THE ABSENCE OF ANY EVIDENCES TO CONTRARY, THE SURPLUS HAVE TO BE TREATED AS LONGTERM CAPITAL GAINS, AS THE SHARES WERE HELD FOR A PERIOD OF MORE THAN ONE YEAR. THE REVENUE CANNOT DISBELIEVE THE DOCUMENTARY EVIDENCES AVAILABLE WITH THE ASSESSEES AND TREAT THE SURPLUS AS INCOME FROM OTHER SOURCES ONLY FOR THE REASON THAT THE SALE VALUE OF THE SHARES WERE HIGH WHEN COMPARED TO THE LOWER PURCHASE COST. WHY SUCH A HUGE MARGIN WAS THERE, IS A MATTER TO BE PROBED INTO AND MADE OUT AGAINST THE ASSESSEE BY UNIMPEACHABLE EVIDENCES. AS FAR AS THESE CASES ARE CONCERNED, THE REVENUE HAS MADE AN ATTEMPT TO EXPLAIN THE PROPOSITIONS AGAINST THE ASSESSEE ONLY ON THE BASIS OF PRESUMPTIONS AND HYPOTHESIS. ITA.NO.1092(B)/10 20 SUCH PRESUMPTIONS AND HYPOTHESIS CANNOT BE TREATED AS SUBSTITUTE TO REASONABLE EVIDENCES, HOW SO EVER INTELLIGENT AND PERSUASIVE, THEY MIGHT BE. 28. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD THAT THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN TREATING THE SURPLUS OF SALE OF SHARES IN THE HANDS OF THESE ASSESSEES AS UNEXPLAINED CASH CREDITS FALLING U/S 68 OF THE INCOME-TAX ACT 1961. THEREFORE, THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE ARE VACATED. THE ASSESSING AUTHORITY IS DIRECTED TO TREAT THE SURPLU S AS LONG TERM CAPITAL GAINS AND THEREAFTER CONSIDER THE CLAIM OF EXEMPTION MADE BY THE ASSESSEES OF MEHTA GROUP U/S 54F OF THE INCOME-TAX ACT 1961. 29. NEXT, WE WILL CONSIDER THE APPEALS OF THE ASSESSEES BELONGING TO NAGORI GROUP. THE ASSESSEES ARE SANJAY NAGORI, AJAY NAGORI, MITESH JAIN, MOHANLAL SUMARMAL, VIJAY NAGORI AND ASHOK KUMAR SUMARMAL. THESE ASSESSEES ALSO HAD SURPLUS IN THE HANDS OF SALE OF SHARES. THEY CLAIMED IT AS LONGTERM CAPITAL GAINS. THE ONLY ITA.NO.1092(B)/10 21 DIFFERENCE IS THAT INSTEAD OF INVOKING SEC. 68 AS DONE IN THE CASE OF OTHER ASSESSEES, THE ASSESSING OFFICER HAS TREATED THE SURPLUS AS SHORT TERM CAPITAL GAINS, WHICH HAS BEEN LATER ON CONVERTED BY THE CIT(A) AS INCOME FROM OTHER SOURCES FALLING U/S 68. 30. THE CASE OF THE ASSESSING OFFICER WILL NOT STAND IN THESE APPEALS, AS IT IS PROVED BEYOND DOUBT THAT THE SHARES WERE HELD FOR A PERIOD OF MORE THAN ONE YEAR. THIS IS PROVED BEYOND DOUBT BY THE DE-MAT ACCOUNT OF THE ASSESSEE. THEREFORE, THE SURPLUS CANNOT BE TREATED AS SHORT-TERM CAPITAL GAINS. 31. NOW COMING TO TREATING THE SURPLUS AS INCOME FROM OTHER SOURCES IN THE NATURE OF UNEXPLAINED CREDITS FALLING U/S 68, WE FIND THAT THE FACTS OF THESE CASES ARE EXACTLY SIMILAR TO THE FACTS OF OTHER ASSESSEES. THOSE CASES HAVE ALREADY BEEN DISCUSSED AT LENGTH IN PARAGRAPHS ABOVE. THEREFORE, WE HOLD THAT IN THE CASE OF THESE ASSESSEES ALSO THE SURPLUS HAS TO BE TREATED AS LONG TERM CAPITAL GAINS. ITA.NO.1092(B)/10 22 32. THE REMAINING LAST ISSUE IS THE QUESTION OF DISALLOWANCE OF AGRICULTURAL INCOME IN THE HANDS OF THE VIAMALA DEVI CHAJJER OF CHAJJER GROUP. VIMALA DEVI CHAJJER HAS RETURNED AGRICULTURAL INCOME FOR CONSECUTIVE ASSESSMENT YEARS 2001-02 TO 2006-07. THE ASSESSING OFFICER HAS DISALLOWED A PORTION OF THE RETURNED AGRICULTURAL INCOME AND TREATED IT AS INCOME FROM OTHER SOURCES. WE HAVE GONE THROUGH THE DETAILED REASONING GIVEN BY THE ASSESSING AUTHORITY. WE FIND THAT THE DISALLOWANCE MADE BY THE ASSESSING AUTHORITY IS JUST AND PROPER. THEREFORE, THE ORDERS OF THE LOWER AUTHORITIES ON THE QUESTION OF PARTIAL DISALLOWANCE OF AGRICULTURAL INCOME ARE UPHELD. 33. IN RESULT, THE APPEALS FILED BY ALL THESE ASSESSEES EXCEPT VIMALA DEVI CHAJJER ARE ALLOWED. IN THE CASE OF VIMALA DEVI CHAJJER, THE APPEALS ARE ALLOWED ON THE QUESTION OF SURPLUS ARISING ON SALE OF SHARES BUT DISMISSED THE GROUND AGAINST PARTIAL DISALLOWANCE OF AGRICULTURAL INCOME. THEREFORE, HER APPEALS ARE TREATED AS PARTLY ALLOWED. ITA.NO.1092(B)/10 23 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 9 TH NOVEMBER, 2011. SD/- SD/- ( N.K.SAINI) (SMT . P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICI AL MEMBER PLACE: BANGALORE DATED: 09-11-2011 AM* COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. CIT(A) 4. CIT 5. DR 6. GF(BLORE) BY ORDER AR, ITAT, BANGALORE