ITO, WARD- 1(3), RAIPUR (CG) V. SHRI KEDAR AGARWAL, RAIPUR (CG)

ITA 117/BIL/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8927 (ITAT-RAIPUR)
• Duration Of Justice: 4 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 15-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS SHITAL VERMA
• Assessee Lawyers: R B DOSHI
• Keywords: Gross profit estimation; Unexplained cash credit; Unexplained investment; Gift; Depreciation; Business expenditure; Income from undisclosed sources; Share purchase agreement; Principle of natural justice; Earning of tax free income; Source of fund; Question of law; Cost of acquisition; Wrong claim; Accommodation entries; Notional interest; Onus to prove; Sham transactions; Penny stocks
• Section: 143(3); 133A; 153A; 14A; 133(6); 131; 68; 69; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH , RAIPUR BEFORE : SHRI N.S.SAINI, A M & SHRI PAV AN KUMAR GADALE, J M ITA NO. 117 / RPR /20 1 4 ( ASSESSMENT YEAR : 20 0 5 - 2006 ) ITO, WARD - 1(3), RAIPUR V S SHRI KEDAR AGARWAL, PARASWANI, HIRMI, RAIPUR(CG) P AN NO. : A CIP A 4396 H (APPELLANT ) .. T N E D N O P S E R REVENUE BY : MRS. SHITAL VERMA , DR ASSESSEE BY : SHRI R.B.DOSHI , AR DATE OF HEARING : 1 5 / 01 /201 8 DATE OF PRONOUNCEMENT 02/02 /201 8 / O R D E R PER SHRI N.S.SAINI , A M : TH ESE ARE THE APPEALS FILED BY THE REVENUE AGAINST THE COMMON ORDER OF THE CIT(A ), RAIPUR , DATED 15.03.2014 FOR THE ASSESSMENT YEAR 2005 - 2006 . 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS : - 1. 'WHETHER IN LAW AND ON FACTS THE CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 33,15,612/ - ON ACCOUNT OF BOGUS LTCG IN CASE OF ASSESSEE WHEREAS ON IDENTICAL FACTS, HE HAS CONFIRMED SUCH ADDITION IN ANOTHER APPEAL IN CASE OF SHRI GANESH PRASAD KHETAN VID E ORDER DATED, 27.11.2013 IN APPEAL NO. 528/07 - 08 FOR A.Y. 2005 - 06' 'WHETHER IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN D ELETING THE DISALLOWANCE OF RS. 20,76,968/ - OUT OF WAGES EXPENSES AS THE EXPENSES WERE FOUND S UPPORTED ONLY BY SELF MADE VOUCHERS' 3. 'WHETHER IN LAW AND FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN D ELETING THE DISALLOWANCE OF RS. 24,464/ - OUT OF INTEREST EXPENSES AS THE INTEREST BEARING FUNDS WERE DIVERTED FOR NON BUSINE SS PURPOSE' 4. 'WHETHER IN LAW AND ON FACTS & CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE AMOUNTING TO RS.25,000/ - OUT OF VEHICLE EXPENSES AS PERSONAL USE BY THE ASSESSEE CAN NOT BE RULED OUT' ITA NO.117/RPR/2014 2 5. 'WHETHER IN LAW AND O N FACTS & CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN DELE TING THE ADDITION OF RS. 1,20,000/ - MADE BY THE A.O. ON ACCOUNT OF LOW WITHDRAWAL FOR HOUSEHOLD EXPENSES' 6. 'THE ORDER OF THE ID. CIT(A) IS ERRONEOUS BOTH IN LAW AND FACT?. 7. ' ANY OTHER GROUND THAT MAY BE ADDUCED AT THE TIME OF HEARING.' 3 . FACTS IN BRIEF RELATING TO THE GROUND NO.1 RAISED BY THE REVENUE THAT THE A.O HAS STATED THAT THE ASSESSEE HAS SHOWN LTCG OF RS.33,15,612/ - ON SALE OF SHARES OF BOLTON PROPERTIES LIMITED; TH AT IN THE DETAILS SUBMITTED ON 06.09.2007 IT WAS EXPLAINED THAT 9000 SHARES OF BOLTON PROPERTIES LIMITED WERE PURCHASED BY THE ASSESSEE FROM M/ S STOCK HOME (PROP. ANIL KUMAR J HUNJHUNWALA, MEMBER OF THE MAGADH STOCK EXCHANGE ASSOCIATION LIMITED . T HE SHARES WERE PURCHASED ON 25.04.2003 @ RS.6.94 PER SHARE AMOUNTING TO RS.62 ,460/ - ONLY . A LL PAYMENTS WERE MADE IN CASH I.E. RS.17,000 / - , RS,18,000 / - , RS.15,000 / - AND RS.12,460 / - ON 06.05.2003, 09.05.2003, 13.05.2003 AND 16.05.2003 RESPECTIVELY . T HE SHARES WERE SOL D IN TWO INSTALLMENTS ON 14.03.2005 AND 23.03.2006, 6000 SHARES WERE SOLD ON 14.03.2005 @ RS.390 / - PER SHARE AND THE REMAINING 3000 SHARES WERE SOLD ON 23.03.2005 @ RS.348/ - PER SHARE . T HE PAYMENTS WERE RECEIVED VIDE CHEQUE NO.890 111 AND 289270 FOR RS.23,3 5,666/ - AND RS.10,42,167 / - ON 17.03.2 005 AND 29.03.2005 RESPECTIVELY. T HE SHARES WERE PURCHASED @ RS.6.94 PER SHARE AND WERE SOLD @ RS.390 / - AND RS.348/ - PER SHARE. T HE DETAILED ENQUIRY HAD BEEN CONDUCTED BY THE INVESTIGATION WING OF THE DEPARTMENT AT KOLK ATA REGARDING THE PHENOMENAL INCREASE IN THE PRICES OF SUCH NON - DESCRIPT SHARES ON WHICH LTCG WERE SHOWN BY MANY ASSESSEES WITHOUT PAYING ITA NO.117/RPR/2014 3 ANY TAX . T HE RESULT OF THE ENQUIRY HAS BEEN USED WHILE PASSING THE ASSESSMENT ORDERS OF MANY ASSESSEES FOR ASSESSMENT YEAR 2004 - 05 AT RAIPUR . IN REPLY THERETO THE ASSESSEE IN ITS SUBMISSION DATED 27.11.2007 HAS EXPLAINED AS UNDER: - I) THAT THE ASSESSEE PURCHASED 9000 SHARES OF BOLTON PROPERTIES THROUGH STOCK BROKER M/S STOCK HOME, KOLKATA WHICH IS SHOWN IN THE BALANCE S HEET AS AT 31.03.2004; II) THAT THE SHARES WERE SOLD THROUGH M/S ASHOK KUMAR KAYAN AND MLS PRAKASH NAHTA & CO. DURING THE YEAR UNDER CONSIDERATION; THAT THE CONTRACT NOTES HAVE ALREADY BEEN SUBMITTED; III) THAT THE STOCK BROKERS HAVE CONFIRMED THE TR ANSACTION UNDER SECTION 133(6) OF THE I.T. ACT; IV) THAT THE DEPARTMENT HAS PROVIDED THE APPELLANT WITH THE RESULTS OF THE ENQUIRY MADE BY THE DEPART MENT IN CASE OF SHARE BROKERS M/ S P.K. AGRAWAL & CO. V) THAT THE DEPARTMENT HAS NOT FOUND ANY MATERIA L AGAINST THE ASSESSEE AS WELL AS THE BROKER; VI) THAT MERELY BASED ON SUSPICION, NO ADVERSE VIEW CAN BE TAKEN; THAT THE SHARES WERE SOLD THROUGH DEMAT ACCOUNT AND ALL PAYMENTS WERE RELIED THROUGH BANK CHEQUES; THAT THE BROKERS HAVE ALSO CONFIRMED THE T RANSACTION WITH THE ASSESSEE . 'THE APPELLANT HAS PLACED RELIANCE ON THE FOLLOWING DECISIONS: - I) KRISHNANAND AGNIHOTRI V. STATE OF M.P. (1977) AIR 1977 SC 796 (SC); II) CIT V. DAULTA RAM RAWATMULL 87 ITR 349 (SC); III) CIT V. K. MAHIM UDMA 242 ITR 13 3 (KER); IV) PARIMISETTI SEETHARAMAMMA - V. CIT 57 ITR 532 (SC); V) CHIRANJI LAL STEEL ROLLING MILLS V. CIT 84 ITR 222 (P&H); 4. AGGRIEVED WITH THE ASSESSMENT ORDER, THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A). IN APPEAL, THE CIT(A) OBSERVED THAT B EFORE DISCUSSING THE ALLOWABILITY OR OTHERWISE OF THE CLAIM OF LTCG, IT WOULD BE RELEVANT TO EMPHASIZE THE INFORMATION U / S 133(6) WAS CALLED FOR FROM M / S STOCK HOME THROUGH WHOM THE ASSESSEE HAD PURCHASED THE ALLEGED 9000 ITA NO.117/RPR/2014 4 SHARES OF BOLTON PROPERTIES LIMITE D . THE ADDRESS OF M/ S STOCK HOME (PROP. ANIL KUMAR JHUNJHUNWALA) AS PER THE BILL SUBMITTED BY THE ASSESSEE WAS AT PUSHPA VIHAR, BORING ROAD, PATNA . T HE LETTER CAME BACK UNSERVED FROM THE ADDRESS WHICH IS GIVEN IN THE PURCHASE BILL . T HE ENQUIRY WAS CONDUCTE D BY THE JCIT, RANGE - II, PATNA, BIHAR ON BEHALF OF THIS OFFICE . T HE JCIT, RANGE - II, PATNA HAD DEPUTED HIS INSPECTOR TO COLLECT THE NECESSARY INFORMATION FROM THE BROKER AND FROM THE MAGADH STOCK EXCHANGE ASSOCIATION LIMITED . I T IS REPORTED THAT THERE IS NO PUSHA VIHAR APARTMENT AT BORING ROAD, PATNA . T HE STOCK EXCHANGE WAS CONTACTED TO KNOW THE WHEREABOUTS OF SHRI ANIL KUMAR JHUNJHUNWALA . T HE COMPLIANCE OFFICER OF THE STOCK EXCHANGE STATED THAT THE ABOVE NAMED PERSON IS NEITHER RESIDING AT PATNA NOR DOING S HA RE BROKING BUSINESS SINCE 1991. T HE FORMAT IN ANNEXURE - C FOR REPORTING THE TURNOVER FIGURES OF THE MEMBERS OF THE EXCHANGE WAS SUPPLIED BY THE COMPLIANCE OFFICER IN SUPPORT O F PROOF OF BUSINESS ACTIVITIES. I T IS CLEAR FROM THE ABOVE REPORT THAT NO TRANSA CTION WAS CARRIED OUT BY THE BROKER AT MAGADH STOCK EXCHANGE ASSOCIATION LIMITED DURING THE RELEVANT PERIOD . T HIS MAKES IT CLEAR THAT THE ASSESSEE HAS NOT PURCHASED ANY SHARE OF BOLTON PROPERTIES LIMITED DURING THE YEAR 2003 - 04 . T HIS VIEW IS FURTHER SUPPOR TED BY THE PAYMENT DETAILS SUBMITTED BY THE ASSESSEE WHICH SHOWS THAT THE ENTIRE PAYMENT OF RS.62,460 / - WAS MADE IN CASH IN MAY 2004. I N THE ABSENCE OF CONFIRMATION FROM THE SELLING BROKER AND PAYMENT BEING MADE OTHERWISE THAN THROUGH BANKING CHANNEL, THE GENUINENESS OF THE PURCHASE TRANSACTION CANNOT BE ACCEPTED . O NCE THE PURCHASE IS FOUND TO BE BOGUS, ITA NO.117/RPR/2014 5 THE QUESTION OF ALLOWING LTCG DOES NOT ARISE . E VEN OTHERWISE THE CLAIM IS NOT ALLOWABLE IN VIEW OF THE DISCUSSION MADE BELOW. 5. THAT THE SHARES ON WHICH C APITAL GAIN HAS BEEN SHOWN BY THE ASSESSEE ARE NOT VERY WELL KNOWN SHARES . T HEY ARE NOT TREATED REGULARLY AND FREQUENTLY IN THE STOCK EXCHANGES . T HE VOLUME OF TRANSACTIONS WAS ALSO VERY THIN . T HE PRICE HAS INCREASED PHENOMENALLY FROM RS,6.94 PER SHARE TO RS.390 / RS.348 PER SHARE IN A SHORT PERIOD OF LESS THAN TWO YEARS, WHICH DOES NOT STAND TO REASON . A DETAILED ENQUIRY WAS CONDUCTED BY THE DCIT 1(1), RAIPUR IN RESPECT OF LONG TERM CAPITAL GAIN (L TCG) ON SALE OF THESE LITTLE KNOWN SHARES SHOWN BY THE MANY A SSES SEES OF RAIPUR . T HE ASSESSMENT ORDERS FOR 2004 - 05 HAVE BEEN PASSED BY HIM WHEREIN HE HAS DISALLOWED THE CLAIM OF LTCG AND TREATED THE INCOME AS INCOME FROM UNDISCLOSED SOURCES . T HE DETAILS OF SUCH ASSESSEE WHO CLAIMED LTCG AND WHOSE CLAIMS WERE DISALL OWED IS ENCLOSED IN THIS ASSESSMENT ORDER AS ANNEXURE - A' THAT IT COULD BE SEEN FROM THE ANNEXURE THAT THE SHARES OF BOLTON PROPERTIES LIMITED AND BROKERS MLS P. K. AGRAWAL & CO AND M/ S PRAKASH NAHTA & CO. PROMINENTLY FIGURE IN THE ENTIRE SCHEME OF BOGUS AR RANGEMENT OF LTCG . T HE INVESTIGATION WING AT KOLKATA HAD CONDUCTED A DETAILED ENQUIRY IN RESPECT OF THE AFFAIRS OF M/ S P. K. AGRAWAL & CO. A SURVEY WAS CONDUCTED U/ S 133A OF THE I T. ACT, 1961 IN HIS CASE ON 28.12.2004 . SHRI P. K. AGRAWA L, IN HIS STATEMENT, RECORDED U/ S 133A OF THE I.T. ACT, 1961 ON 28.12.2004 HAD ADMITTED THAT THE BALANCE SHEET OF THE SCRIPTS TRADED FOR ARRANGEMENT OF LTCG DID NOT JUSTIFY THE MARKET PRICE AND THAT THE PRICE OF SUCH SCRIPS WERE ARTIFICIALLY JACKED UP . SHRI P.K. ITA NO.117/RPR/2014 6 AGRAWAL HAS C LEARLY STATED THAT THE MAJOR WORK BEING DONE AT KOLKATA STOCK EXCHANGE IS THAT OF ARRANGEMENT OF FAKE LTCG . N OT ONLY THIS, HIS ACCOMPLICES HAVE ALSO CONFESSED ABOUT THE SAME AND AFTER ACCEPTING THE GUILT, HAVE FILED DISCLOSURE PETITIONS . T HE ASSESSEE HAS S OLD SHARES OF 'BOLTON PROPERTIES LIMITED' WHICH IS ONE OF THE MAIN SCRIPS IN WHICH MANIPULATION WAS DONE BY THE BROKERS TO JACK UP THE PRICES AND BOGUS CAPITAL GAIN WAS EARNED BY PERSONS LIKE THE ASSESSEE. T HIS IS CLEAR FROM THE ANSWER S TO QUESTION 29 OF T HE SHRI PK AGRAWAL. I N ANSWER TO QUESTION NO.29 SHRI PK AGRAWAL STATED THAT THE BOOK MARKED AS PKA/9 CONTAINS COMPLETE SALE PURCHASE DETAILS OF SELECTED SCRIPTS LIKE BOLTON PROPERTIES LIMITED ETC. FOR THE FINANCIAL YEAR 2004 - 05 . T HE ASSESSEE HAS NOT DENIED BEING A CLIENT OF SHRI PK A GRAWAL AND THIS WAS THE ONLY TRANSACTION DONE BY HIM THROUGH SHRI PK A GRAWAL . 6. THE CIT(A) RECEIVED THE REMAND REPORT DATED 24.11.2008, WHEREIN THE AO MENTIONED AS UNDER : - REMAND REPORT DATED 24.11.2008 : IN THE LETTER UNDER REFERENCE, IT HAS BEEN DIRECTED TO ENQUIRE SPECIFICALLY FROM THE BROKERS NAMELY (I) ASHOK KUMAR KAYAN, KOLKATA AND (II) P. K. AGRAWAL & CO., KOLKATA REGARDING THE GENUINENESS OF THE TRANSACTION DONE IN THE SCRIPT OF BOLTON PROPERTIES LIMITED; THAT IT MAY BE SUBMITTED THAT THE ADDL, C IT, RANGE - I, RAIPUR HAD ALREADY MADE THE ENQUIRIES FROM BOTH OF THE BROKERS THROUGH WHOM THE SHARES WE RE SOLD, COPY OF LETTERS OF ADDL . CIT AND THE REPLIES RECEIVED F ROM THE BROKERS IS ENCLOSED; THAT IT MAY BE MENTIONED THAT TH E ADD L . CIT ALSO CALLED FOR, INFORMATION U/S 133(6) FROM M/S STOCK HOME (PROP. SHRI ANIL KUMAR JHUNJHUNWALA) THROUGH WHOM THE ASSESSEE ITA NO.117/RPR/2014 7 CLAIMED TO HAVE PURCHASED 9000 SHARES OF BOLTON PROPERTIES LIMITED; THAT COPY OF JT. CIT, RANGE - 2, PATNA'S LETTER F.NO.4S 92 DATED 26.11.2007 IS ENCLOSED. REMAND REPORT DATED 25 . 11 .2008 : THAT THE GAZETTE OF INDIA EXTRAORDINARY PART - III SECTION - 4 PUBLISHED BY AUTHORITY SECURITIES AND EXCHANGE BOARD OF INDIA - NOTIFICATION - MUMBAI, THE 3RD DAY OF SEPTEMBER 2007, BY THIS ORD ER MAGADH STOCK EXCHANGE LIMITED CEASE TO BE A RECOGNIZED STOCK EXCHANGE; SECURITIES AND EXCHANGE BOARD OF INDIA ORDER U/S 11 B AND 11(4) OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 DATED 29.09.200S DIRECTING THAT THE ELEVEN STOCK BROKERS OF CSE MEN TIONED THEREIN SHALL NOT BUY, SELL OR DEAL IN SECURITIES, IN ANY MANNER, EITHER DIRECTLY OR INDIRECTLY, TILL FURTHER DIRECTIONS; THAT SECURITIES AND EXCHANGE BOARD OF INDIA MO/32/ISDI / 2/03 DATED 15 .12.2003 WHEREBY THE C ERTIFICATE OF REGISTRATION OF M/ S REN U PODDAR HAS BEEN SUSPENDED; THAT THE ORDER PR - 153 /0 5 DATED 30.1 1.2005 BY WHICH IT HAS BEEN DIRECTED THAT THE TWELVE STOCK BROKERS OF CALCUTTA LISTED THEREIN SHALL NOT BUY, SELL OR DEAL IN SECURITIES, IN ANY MANNER, EITHER DIRECTLY OR INDIRECTLY, TILL FURT HER DIRECTIONS; THAT LIST OF TWELVE STOCK BROKERS INTER- ALIA INCLUDES THE NAME OF P. K. AGRAWAL & CO. 7. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT DURING THE FINANCIAL YEAR 2003 - 04 THE ASSESSEE HAD PURCHASED 9000 SHARES OF BOLTON PROPER TIES THROUGH THE STOCK BROKER M/ S STOCK HOME, PATNA WHICH SHOWN IN BALANCE SHEET AS ON 31.03.2004 . T HE ABOVE SHARES SOLD BY THE ASSESSEE THROUGH THE STOCKBROKER M/S ASHOK KUMAR KAYAN, KOLKATA AND M/S P. K. AGRAWAL & CO., KOLKATA DURING THE YEAR UNDER - CONSIDERATION . A L L DETAILS LIKE CONTRACT NOTE OF SALE AND PURCHASE OF SHARES, BANK ITA NO.117/RPR/2014 8 STATEMENTS, DEMANT ACCOUNT ETC SUBMITTED BEFORE THE A.O DURING THE COURSE OF ASSESSMENT . T HE ASSESSEE SOLD THE ABOVE SHARES THROUGH DEMANT AND RECEIVED ALL PAYMENTS THROUGH CHEQUE, WHICH COR ROBORATED WITH BANK STATEMENT . A LL TRANSACTIONS WERE ROUTED THROUGH RECOGNIZED STOCK EXCHANGE . T HE DETAILS OF SALE AND PURCHASE OF SHARES IS AS GIVEN BELOW : - NAME OF SCRIPT DATE OF PURCHASE AND QUANTITY AMOUNT OF PURCHASE DATE OF SALE AND QUANTITY AMOUNT OF SALE BOLTON PROPERTIES 25.04.2003 62,460/ - 14.03.2005 & 23.03.2005 9000 SHARES 3378072/ - TOTAL PROFIT 33,15,612/ - 8. T HE COPY OF BILL OF SALE AND PURCHASE OF SHARES, BANK ACCOUNT, SHARE CERTIFICATE AND COPY OF DEMAND ACCOUNT IS ENCLOSED HEREWITH FO R YOUR KIND PERUSAL. T HE A.O. ISSUED NOTICE U/ S 133(6) TO ABOVE STOCK BROKER ASKING TO GIVE DETAILS IN CONNECTION WITH THE ABOVE TRANSACTION . T HE ABOVE STOCKBROKER SUBMITTED HIS REPLY WITH FULL DETAILS AS REQUIRED BY THE A.O AND CONFIRMED THE ABOVE TRANSAC TIONS - MADE BY THE ASSESSEE . H E CONFIRMED THE SALE OF SHARES OF THE ASSESSEE AND PAYMENT GIVEN TO THE ASSESSEE BY CHEQUE . T HE A.O WAS NEITHER INFORMED TO THE ASSESSEE DURING THE COURSE OF ASSESSMENT THAT THE LETTER CAME BACK UNSERVED FROM THE ADDRESS OF M/ S STOCK HOME AND THAT THE ABOVE SHARE BROKER NOT DOING ANY BUSINESS FROM MAGADH STOCK EXCHANGE ASSOCIATION LIMITED AS WELL AS NO TRANSACTION WAS CARRIED OUT BY THE ABOVE BROKER DURING THE YEAR UNDER CONSIDERATION NOR ANY OPPORTUNITY GIVEN BY HIM TO THE ASS ESSEE TO EXPLAIN IT . T HE OFFI CE ADDRESS OF THE STOCKBROKER M/ S STOCK HOME CHANGED FROM PUSHPA VIHAR, BORING ROAD, PATNA 800001 TO 401, KUMAR TOWER, ITA NO.117/RPR/2014 9 BORING CANNAL ROAD, PATNA 800001 DURING THE YEAR 2006 . D UE TO ABOVE THE LETTER CAME BACK UNSERVED FROM THE A BOVE ADDRESS . T HE ABOVE BROKER PURCHASED 9000 SHARES OF BOLTON PROPERTIES FROM KOLOKATA STOCK EXCHANGE NOT FROM THE MAGADH STOCK EXCHANGE ASSOCIATION LIMITED FOR THE ASSESSEE. T HE A.O HAD NOT GIVEN ANY OPPORTUNITY TO THE ASSESSEE DURING THE COURSE OF ASSES SMENT SO WE ARE ENCLOSING HEREWITH A COPY OF AFFIDAVIT ISSUED BY ANIL KUMAR JHUNJHUNWALA PROP RIETOR OF M/ S STOCK HOME TO CONFIRM THE ABOVE TRANSACTION . I N ASSESSMENT ORDER, THE A.O HAS GIVEN THE RESULTS OF THE ENQUIRIES MADE BY DEPART MENT IN CASE OF SHARE BROKERS M/ S AHILYA COMMERCIAL PVT. LTD. AND M/ S P. K. A GRAWAL & COMPANY ON 28.12.2004 . THE ASSESSEE HAS SOLD THE SHARES THROUGH M/S ASHOK KUMAR KAYAN AND M/ S P. K. AGRAWAL &CO. ON 14.03.2005 AND T HE ASSESSEE PLACE D HIS RELIANCE ON FOLLOWING JUDICIAL PRONOU NCEMENTS:- (I) HO N 'BLE SUPREME COURT IN CASE OF C. VASANTLAL & CO. VS. CIT 24 ITR 206; (II) HON'BLE MADRAS HIGH COURT IN CASE OF V. DATCHINAMURTY & ANOTHERS VS. CIT 149 ITR 341; (III) HON'BLE SUPREME COURT IN CASE OFCIT VS. DAULAT RAM RAWATMULL 87 ITR 349; (IV) KRISHNANAND AGNIHOTRI V. STATE OF M. P. (1977) AIR 1977 SC 796 THE HON'BLE SUPREME COURT; (V) HON'BLE SUPREME COURT IN CASE OF PARIMISETTI SEETHARAMAMMA VS. CIT 57 ITR 532; (VI) KISHINCHAND CHELLARAM VS. CIT 125 ITR 713; (VII) CIT VS. K. MAHIM UDMA 242 ITR 133; (VIII) CIT VS. N. SWAMY 241 ITR 363; (IX) CIT VS. SHREE GOPAL & CO. 204 ITR 285, 117 CTR 357; ITA NO.117/RPR/2014 10 (X) SMT. PANNA DEVI CHOUDHARY VS. CIT 208 ITR 849, 119 CTR 394 BOMBAY HIGH COURT; (XI) DHAKESHWARI COTTON MILLS LIMITED VS. CIT 26 ITR 775 (SC); 9. IN COUNTER TO THE COMMENTS, THE ASSESSEE SUBMITTED THAT THE A.O. HAS SUBMITTED ORDER DATED 03.09.2007 ISSUED BY SEBI STATING THAT THE MAGADH STOCK EXCHANGE LIMITED, CEASE TO BE A RECOGNIZED STOCK EXCHANGE . T HE ASSESSEE HAS MADE ALL T RANSACTIONS THROUGH CALCUTTA STOCK EXCHANGE AND NOT FROM MAGADH STOCK EXCHANGE LIMITED, HENCE, THE ABOVE NOTIFICATION IS IRRELEVANT FOR US; THAT SEBI VIDE HIS ORDER DATED 29.09.2005 HAS ISSUED THE DIRECTION THAT ELEVEN STOCK BROKERS OF CALCUTTA STOCK EXCHA NGE SHALL NOT BUY, SELL OR DEAL IN SECURITIES TILL FURTHER DIRECTION IN THIS REGARD . THE ASSESSEE SUBMITTED THAT SHARE BROKER OF THE ASSESSEE IS NOT INCLUDED IN ABOVE ELEVEN STOCKBROKER . T HE ASSESSEE PURCHASED SHARES ON 25.04.2003 AND SOLD THE SAME ON 14.0 3.2005 AND 23.03.2005 . A LL TRANSACTIONS HAVE BEEN CONCLUDED BEFORE THE ISSUE OF DIRECTION BY SEBI . S O THE ABOVE DIRECTION ISSUED BY SEBI IS ALSO IRRELEVANT IN THIS CASE . SEBI HAS PASSED THE ORDER DATED 15.12.2003 THAT THE CERTIFICATE OF REGISTRATION OF M/ S RENU PODDAR HAS BEEN SUSPENDED; THAT TH E ASSESSEE HAS NOT DEAL WITH M/ S RENU PODDAR IN ANY TERMS . SO THE SUSPENSION OF RENU PODDAR IS NOT RELEVANT WITH OUR CASE . SEBI VIDE EXCHANGE SHALL NOT BUY, SELL OR DEAL IN SECURITIES TILL FURTHER DIRECTION IN THIS R EGARD . T HE ASSESSEE PURCHASED SHARES ON 25.04.2003 AND SOLD THE SAME ON 14.03.2005 AND 23.03.2005 THAT ALL TRANSACTIONS HAVE BEEN CONCLUDED ITA NO.117/RPR/2014 11 BEFORE THE ISSUE OF DIRECTION BY SEBI . S O THE ABOVE DIRECTION ISSUED BY SEBI IS ALSO IRRELEVANT IN THIS CASE. 10. A FTER CONSIDERING THE SUBMISSIONS OF ASSESSEE AND REMAND REPORT RECEIVED FROM THE AO, THE CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER . 11. LD. DR HAS RELIED ON THE ORDER OF ASSESSING OFFICER. 1 2 . ON THE OTHER HAND, LD. AR SUPPORTED THE ORDER O F CIT(A) AND RELIED ON THE FOLLOWING DECISIONS : - I) ITO VS. RAVINDRA SANGHAI (HUF), ITA NO.698//KOL/2010, VIDE ORDER DATED 22.05.2012; II) ITO VS. KHALIL M. BHARWANI (2015) 45 CCH 0275 (MUMBAITRIB) III) ACIT VS. SHRI RANJITSINGH D. BINDRA, ITA NO.5534/MU M/2010, ORDER DATED 13.03.2013; AND IV) CIT VS. KAMAL KUMAR AGRAWAL, ITA NO.67 OF 2010, ORDER DATED 23.09.2010. 1 3 . WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE AS SESSEE HAS SHOWN LONG TERM CAPITAL GAIN OF RS.33,15,612/ - AND CLAIMED EXEMPTION U/S.10(38) OF THE ACT ON THE SHARES OF M/S BOLT O N PROPERTIES LTD. PURCHASED FOR RS. 62,460/ - , WHICH WAS SOLD FOR RS. 33,77,833/ - . THE AO OBSERVED THAT THE ASSESSEE HAS SHOWN LONG TERM CAPITAL GAIN ON SALE OF PENNY STOCKS LIKE SEVERAL OTHER ASSESSEES OF RAIPUR AND ON ENQUIRY IN CASE OF SHRI P.K.AGRAWAL AND COMPANY BROKER IT WAS FOUND THAT THE TRANSACTION HAS BEEN OF DUBIOUS NATURE. THE SHARES WERE NOT OF REPUTED COMPANIES AND THERE CANNOT BE APPRECIATION OF 50 TIMES IN THE PRICE OF SUCH SCRIPS. HE OPINED THAT THE ASSESSEE HAS CONTROVERTED HIS ITA NO.117/RPR/2014 12 UNACCOUNTED INCOME INTO WHITE INCOME THROUGH LONG TERM CAPITAL GAIN AND IN THIS PROCESS HAS PAID THE TAX AT 10% AGAINST THE NORMAL RATE OF TAX. 14 . ON APPEAL, THE CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER : - 6. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER, WRITTEN SUBMISSION OF THE APPELLANT, REMAND REPORT OF THE A.O AND COUNTER COMMENTS OF THE APPELLANT ON THE REMAND REPORT . THE APPELLANT HAS PURCHASED SCRIPS OF BOLTEN PROPERTIES LTD., NUMBERING 9000 IN APRIL, 2003 AT THE COST OF RS.62,460/ - . THESE SCRIPS WERE SOLD IN MARCH, 2005 FOR RS.33,78,072/ - . THERE WAS EARNING OF LO NG TERM CAPITAL GAIN OF RS.33,1 5,612/ - . THE AO REJECT ED THE CLAIM AS LONG TERM CAPITAL GAIN AND TAXED THE SAME AS INCOME FROM UNDISCLOSED SOURCES. THE APPELLANT HAS FILED COPIES OF BILL AND CONTRACT NOTE ENTERED INTO FOR PURCHASE OF ABOVE SHARES WITH M/S STOCK HOME, PATNA. HE HAS ALSO FILED COPIES OF CONTRAC T NOTE FOR SALE OF ABOVE SHARES FROM M/S ASHOK KUMAR KAYAN, KOLKATA AND M/S P. K. AGRAWAL & CO. THE SALE OF SCRIPS IN THE DEMAT ACCOUNT AND COPY OF SHARE CERTIFICATE HAS BEEN SUBMITTED BY THE APPELLANT. THE SALE AMOUNT HAS BEEN ROUTED THROUGH BANK, FOR WHI CH COPIES OF CHEQUES HAVE BEEN FILED. 7. THE A.O HAS NOT DISPUTED THE CONTENTS OF AFFIDAVIT FROM PROPRIETOR OF M/S STOCK HOME THROUGH WHOM SHARES WERE PURCHASED BY THE APPELLANT. THE AFFIDAVIT OF THE PROPRIETOR OF M/S STOCK HOME CONFIRMING THE TRANSACTIO N OF HAVING PURCHASED THE SHARES ON BEHALF OF THE APPELLANT HAS NOT BEEN REBUTTED BY THE A.O. IT IS GATHERED FROM THE ORDER OF SEBI DATED 31.05.2006 THAT THE INTERIM ORDER DATED 30.11.2005 RELIED UPON BY THE A.O HAS BEEN VACATED. HENCE, IT CANNOT BE USED A S EVIDENCE AGAINST THE APPELLANT. IT IS ALSO SEEN THAT THE GAIN WAS FROM THE SHARES OF BOITEN PROPERTIES LIMITED, HOWEVER, THE NAME OF SAID COMPANY DOES NOT FIGURE OUT IN THE LIST OF COMPANIES REFERRED IN THE ORDER OF SEBI. ITA NO.117/RPR/2014 13 8. FROM THE ABOVE, IT IS UNDER STOOD THAT, PRIMA FACIE, ON THE BASIS OF ABOVE EVIDENCE, THE TRANSACTIONS ARE GENUINE. HOWEVER, IN THIS CASE, THE AO HAS DOUBTED THE GENUINENESS OF THE TRANSACTION. LIABILITY IS UPON A PERSON WHO CLAIMS THAT WHAT IS APPARENT IS NOT REAL. THEREFORE, IT WAS THE AO WHO IS TO PROVE THAT THE TRANSACTIONS ARE SHAM AND NOT GENUINE. THE AO DID NOT MAKE ANY ENQUIRY NOR ISSUED NOTICE U/S 133(6) TO THE STOCK BROKER AND KOLKATA STOCK EXCHANGE, KOLKATA. THE APPELLANT HAS CLAIMED THAT THE STOCK BROKER REPLIED AND CONFIRM ED THE TRANSACTIONS IN RESPONSE TO THE NOTICE ISSUED BY THE AO. THE A.O SIMPLY RELIED UPON THE REPORT OF DDIT (INV), KOLKATA REGARDING SURVEY U/S L33A CONDUCTED AT M/S AHILYA COMMERCIAL COMPANY PRIVATE LIMITED AND M/S P.K.AGRAWAL & CO. ON 28.12.2004 AND 20 .03.2005. THUS, NO ENQUIRY WAS CONDUCTED BY THE AO WITH REGARD TO TRANSACTIONS OF SALE OF SHARE MADE BY THE APPELLANT IN F. Y. 2004 - 05. THUS, THE ENQUIRY OF THE SALE OF SCRIP MENTIONED ABOVE BY THE APPELLANT WAS NOT SPECIFICALLY CONDUCTED BY THE DDIT(INV). HOWEVER, THE AO RELIED ON SUCH MATERIAL IN PASSING THE ASSESSMENT ORDER ON THE ABOVE REPORT MADE BY DDIT(INV.), KOLKATA ON 20.04.2004 AND 20.03.2005. THE AO REPRODUCED VERY ROUTINELY THE REPORT OF DDIT(INV.), KOLKATA IN THE ASSESSMENT ORDER, WHICH CONTAIN S STATEMENT OF SHRI P.K. AGRAWAL. THOUGH THE APPELLANT HAS DEALT WITH M/S P. K. AGRAWAL & CO., BUT, THAT IPSO FACT DOES NOT LEAD TO IRREBUTABLE PRESUMPTION OF BOGUS LONG TERM CAPITAL GAIN GIVEN THE FACT THAT THE SHARES WERE SOLD BY THE APPELLANT ALSO THROU GH M/S ASHOK KUMAR KAYAN, KOLKATA APART FROM M/S P. K. AGRAWAL & CO., AND THAT THE SHARES SOLD THROUGH M/S ASHOK KUMAR KAYAN, KOLKATA ALSO FETCHED ALMOST THE SAME PRICE AS THE SHARES SOLD THROUGH M/S P. K. AGRAWAL & CO., THEREFORE, THE REPORT OF DDIT (INV. ) OF AFORESAID SURVEY OF 20.12.2004 AND 20.03.2005 IS ALSO NOT RELEVANT AS THAT WAS NOT SPECIFIC TO THE CASE OF THE APPELLANT. THEREFORE, I FIND FORCE IN THE APPELLANT'S SUBMISSIONS THAT THE REPORT OF DDLT (INV.), KOLKATA IS NOT RELEVANT AS IT DOES NOT PER TAIN TO TRANSACTION OF SALE ENTERED INTO BY THE APPELLANT AND THAT THE AFORESAID ENQUIRIES CONDUCTED BY DDIT (INV.) KOLKATA IS NO WAY DIRECTLY CONNECTED WITH THE CASE OF THE APPELLANT AND THE ITA NO.117/RPR/2014 14 ASSESSMENT HAS BEEN MADE ON PRESUMPTION AND PROBABILITIES RATHER THAN ON FACTUAL FACTS, WHEREAS THE APPELLANT HAS FILED DETAILED EXPLANATION SUPPORTED BY THE EVIDENCES. THE ENQUIRIES CONDUCTED IN ONE CASE CANNOT BE YARDSTICK FOR ALL TRANSACTIONS. THERE IS NO EVIDENCE BROUGHT ON RECORD BY THE AO TO SUBSTANTIATE HIS CONC LUSION THAT THE IMPUGNED TRANSACTIONS WERE SIMPLICITER TO ADVISE TO CAMOUFLAGE ACTIVITIES TO DIVERT THE REVENUE. THERE IS NO DENIAL FROM THE STOCKBROKER NAMELY M/S ASHOK KUMAR KAYAN, KOLKATA, M/S P. K. AGRAWAL & CO., AND MLS STOCK HOME WITH REGARD TO TRANS ACTION WITH THE APPELLANT. AS THE TRANSACTION OF SALE HAS TAKEN PLACE AT THE FLOOR OF THE STOCK EXCHANGE, THE APPELLANT IS NOT SUPPOSED TO IDENTIFY THE BUYER. THERE WAS NO MATERIAL BEFORE THE AO WHICH COULD HAVE LED TO THE CONCLUSION THAT THE TRANSACTIONS OF PURCHASE & SALE OF SHARES WERE COLORFUL TRANSACTIONS AND NO SUCH PRESUMPTION CAN BE DRAWN BY THE AO MERELY ON SURMISES AND CONJECTURES. 9. I FIND THAT THE CASE OF THE APPELLANT IS SQUARELY COVERED BY THE DECISION IN COMMISSIONER OF INCOME TAX VS. SMT. JAMNADEVI AGRAWAL & ORS. HIGH COURT OF BOMBAY: NAGPUR BENCH DATED 23RD SEPTEMBER, 2010 REPORTED IN (2010) 236 CTR (BORN) 32: (2010) 328 ITR 656: (2010) 46 DTR 271WHEREIN IT WAS HELD THAT: 'THE FACT THAT THE ASSESSEES IN THE GROUP HAVE PURCHASED AND SOLD S HARES OF SIMILAR COMPANIES THROUGH THE SAME BROKER CANNOT BE A GROUND TO HOLD THAT THE TRANSACTIONS ARE SHAM AND BOGUS, ESPECIALLY WHEN DOCUMENTARY EVIDENCE WAS PRODUCED TO ESTABLISH THE GENUINENESS OF THE CLAIM. FROM THE DOCUMENTS PRODUCED, IT IS SEEN THA T THE SHARES IN QUESTION WERE IN FACT PURCHASED BY THE ASSESSEES ON THE RESPECTIVE DATES AND THE COMPANY HAS CONFIRMED TO HAVE HANDED OVER THE SHARES PURCHASED BY THE ASSESSEES. SIMILARLY, THE SALE OF THE SHARES TO THE RESPECTIVE BUYERS IS ALSO ESTABLISHED BY PRODUCING DOCUMENTARY EVIDENCE. IT IS TRUE THAT SOME OF THE TRANSACTIONS WERE OFF - MARKET TRANSACTIONS. HOWEVER, THE PURCHASE AND SALE PRICE OF THE SHARES DECLARED BY THE ASSESSEES WERE IN CONFORMITY WITH THE MARKET RATES PREVAILING ON THE RESPECTIVE DA TES ITA NO.117/RPR/2014 15 AS IS SEEN FROM THE DOCUMENTS FURNISHED BY THE ASSESSEES. THEREFORE, THE FACT THAT SOME OF THE TRANSACTIONS WERE OFF - MARKET TRANSACTIONS CANNOT BE A GROUND TO TREAT THE TRANSACTIONS AS SHAM TRANSACTIONS. THE STATEMENT OF THE BROKER P THAT THE TRANSACTI ONS WITH THE H GROUP WERE BOGUS HAS BEEN DEMONSTRATED TO BE WRONG BY PRODUCING DOCUMENTARY EVIDENCE TO THE EFFECT THAT THE SHARES SOLD BY THE ASSESSEES WERE IN CONSONANCE WITH THE MARKET PRICE. ON PERUSAL OF THOSE DOCUMENTARY EVIDENCE, THE TRIBUNAL HAS ARR IVED AT A FINDING OF FACT THAT THE TRANSACTIONS WERE GENUINE. NOTHING IS BROUGHT ON RECORD TO SHOW THAT THE FINDINGS RECORDED BY THE TRIBUNAL ARE CONTRARY TO THE DOCUMENTARY EVIDENCE ON RECORD. THE TRIBUNAL HAS FURTHER RECORDED A FINDING OF FACT THAT THE C ASH CREDITS IN THE BANK ACCOUNTS OF SOME OF THE BUYERS OF SHARES CANNOT BE LINKED TO THE ASSESSEES. MOREOVER, IN THE LIGHT OF THE DOCUMENTARY EVIDENCE ADDUCED TO SHOW THAT THE SHARES PURCHASED AND SOLD BY THE ASSESSEES WERE IN CONFORMITY WITH THE MARKET PR ICE, THE TRIBUNAL RECORDED AFINDING OF FACT THAT THE CASH CREDITS IN THE BUYERS' BANK ACCOUNTS CANNOT BE ATTRIBUTED T THE ASSESSEES. NO FAULT CAN BE FOUND WITH THE ABOVE FINDING RECORDED BY THE TRIBUNAL. THEREFORE, THE DECISION OF THE TRIBUNAL IS BASED ON FINDING OF FACTS. NO SUBSTANTIAL QUESTION OF LAW ARISES FROM THE ORDER OF THE TRIBUNAL. - ASSTT. CIT VS. KAMAL KUMAR S. AGRAWAL (IND!.) & ORS. (2010) 41 DTR (NAG)(TRIB) 105 : (2010) 133 TT] (NAG) 818 AFFIRMED; SUMATI DAYAL VS. CIT (/995) 125 CTR (SC) 124 : ( 1995) 80 TAXMAN 89 (SC) DISTINGUISHED.' 10. THE HON 'BLE PUNJAB & HARYAN HIGH COURT IN CIT VS. ANUPAM KAPOOR - REPORTED IN (2008) 299 ITR 179 (P&H) HELD THAT: 'THE TRIBUNAL ON THE BASIS OF THE MATERIAL ON RECORD, HELD THAT PURCHASE CONTRACT NOTE, CONTR ACT NOTE FOR SALES, DISTINCTIVE NUMBERS OF SHARES PURCHASED AND SOLD, COPY OF SHARE CERTIFICATES AND THE QUOTATION OF SHARES ON THE DATE OF PURCHASE AND SALE WERE SUFFICIENT MATERIAL TO SHOW THAT THE TRANSACTION WAS NOT BOGUS BUT A GENUINE TRANSACTION. THE PURCHASE OF SHARES WAS MADE ON 28TH APRIL, .1993 ITA NO.117/RPR/2014 16 I.E., ASST. YR. 1993 - 94 AND THAT ASSESSMENT WAS ACCEPTED BY THE DEPARTMENT AND THERE WAS NO CHALLENGE TO THE PURCHASE OF SHARES IN THAT YEAR. IT WAS ALSO PLACED BEFORE THE RELEVANT AD AS WELL AS BEFORE THE TRIBUNAL THAT THE SALE PROCEEDS HAVE BEEN ACCOUNTED FOR IN THE ACCOUNTS OF THE ASSESSEE AND WERE RECEIVED THROUGH ACCOUNT PAYEE CHEQUE. THE TRIBUNAL WAS RIGHT IN REJECTING THE APPEAL OF THE REVENUE BY HOLDING THAT THE ASSESSEE WAS SIMPLY A SHAREHOLDER OF T HE COMPANY. HE HAD MADE INVESTMENT 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 MARKET, 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 .TRANSACTION WAS SIMPLICITIER A DEVICE TO CAMOUFLAGE ACTIVITIES, TO DEFRAUD THE REVENUE. NO SUCH PRESUMPTION COULD BE DRAWN BY THE AO MERELY ON SURMISES AN D 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, HOWSOEVER STRONG CANNOT TAKE THE PLACE OF LEGAL PROOF CONSEQUENTLY, NO QUESTION OF LAW, MUCH LESS A SUBSTANTIAL QUESTION OF LAW, ARISES F OR ADJUDICATION. - C. VASANTLAL & CO. VS. CFT (/962) 45 ITR 206 (SC), MO THOMAKUTTY VS. CIT (1958) 34 ITR 501 (KER) AND MUKAND SINGH VS. SALES TAX TRIBUNAL (1998) 107 STC 300 (PUNJAB) RELIED ON; UMACHARAN SHAW & BROS. VS. CIT (1959) 37 1TR 271 (SE) APPLIED, JASPAL SINGH VS. CIT (2006) 205 CTR (P&H) 624 DISTINGUISHED.' 11. IN BAINATH AGRAWAL VS. ACIT, ITAT AGRA BENCH TM REPORTED IN (2010) 133 TTJ UNDER THE SIMILAR SET OF FACTS, THE ADDITION ON ACCOUNT OF LONG TERM CAPITAL GAIN AS INCOME FROM UNDISCLOSED SOU RCES WAS DELETED BY THE HON'BLE MEMBERS. IN ITA VS. SMT. KUSUM LATA IN THE ORDER OF ITA T, JODHPUR BENCH REPORTED IN (2006) 105 TTJ (JD) 265, UNDER THE SIMILAR SET OF FACTS, IT WAS HELD ITA NO.117/RPR/2014 17 BY THE HON 'BLE MEMBERS THAT THE TRANSACTIONS IN SHARES CANNOT BE HELD TO BE BOGUS AND THE CIT (APPEALS) WAS JUSTIFIED IN DELETING THE ADDITION. UNDER THE SIMILAR SET OF FACTS OF THE CASE, THE HON'BLE JODHPUR BENCH OF ITAT DIRECTED THE AO TO ACCEPT THE CAPITAL GAIN SHOWN ON ACCOUNT OF SALE OF SHARES REPORTED IN DALPAT SINGH CHOUDHARY VS. ACIT - REPORTED IN (2012) 65 DTR (JD.) (TRIB.) 148. 12. THE HON'BLE ITAT, AGRA BENCH (TM) IN ITA VS. BIBI RANI BANSAL REPORTED IN (2011) 44 SOT 500 WHEREIN THE HON'BLE MEMBERS OBSERVED THAT: 'PURCHASE OF THE SHARES HAS DULY BEEN PROVED AN D THERE IS NO DISPUTE ON THE PURCHASE OF THE SHARES BEING MADE BY THE ASSESSEE. THE SHARES WERE PURCHASED IN EARLIER YEAR. THE SHARES WERE TRANSFERRED IN THE NAME OF THE ASSESSEE AS HAS BEEN CONFIRMED BY THE COMPANY WHEN ENQUIRED BY THE A O. THE ASSESSEE H AS SUBMITTED BEFORE THE A O, COPIES OF THE CONTRACT NOTES, COPIES OF THE SALES HILLS, STATEMENT OF ACCOUNT FROM THE BROKER, OLD ADDRESS OF THE BROKER, NEW ADDRESS OF THE BROKER. THE IDENTITY OF THE BROKER IS PROVED. THE DEMAND DRAFT FOR THE SALE CONSIDERAT ION WAS ISSUED FROM THE ACCOUNT OF PK I.E. BROKERS. THE MONEY HAS NOT BEEN DEPOSITED IN CASH IN THIS ACCOUNT BUT HAS COME TO THIS ACCOUNT BY WAY OF TRANSFER FROM THE ACCOUNT OF SG LTD. THE PURCHASE OF SHARES IS NOT TTJ DISPUTE AND THE COMPANY HAS DIRECTLY CONFIRMED TO THE AO THE PURCHASE OF THE SHARES BY THE ASSESSEE IN REPLY TO THE NOTICE ISSUED UNDER S. 133(6). THE STATEMENTS OF THE BROKER COULD NOT BE GIVEN ANY CREDENCE AS HE HAS STATED DIFFERENTLY VIDE DIFFERENT LETTERS. EARLIER HE DENIED THE TRANSACTIO N BEING ENTERED INTO. SUBSEQUENTLY HE HAS ACCEPTED THAT HE HAS ISSUED THE DRAFT AFTER RECEIVING THE CASH. AGAIN HE SAID THAT THE CASH WAS ROUTED THROUGH SOME BOGUS ACCOUNT BUT HE ACCEPTED THAT THE DRAFT HAS BEEN MADE FROM HIS ACCOUNT. SUBSEQUENTLY, 'AGAIN HE POINTED OUT THAT HE RECEIVED CASH OF RS. 9,00,000 AND RS. 5,00,000 WILE HE HAS ISSUED DRAFTS OF RS. 5,99,500 AND RS. 6,19,508 RESPECTIVELY. WHAT HAPPENED TO THE BALANCE AMOUNT? NOTHING HAS BEEN BROUGHT ON ITA NO.117/RPR/2014 18 RECORD OR STATED BY THE BROKER. THE ASSESSEE WAS NOT PROVIDED CROSS - EXAMINATION. THE STATEMENT HAS BEEN RECORDED AT THE BACK OF THE ASSESSEE. NO ADDITION CAN BE SUSTAINED ON THE BASIS OF THE STATEMENT RECORDED AT THE BACK OF THE ASSESSEE AND WITHOUT GIVING OPPORTUNITY TO THE ASSESSEE TO CROSS EXAMINE TH E PERSON WHO HAS GIVEN THE STATEMENT AT THE BACK OF THE ASSESSEE. FURTHER, THE STATEMENT WAS RECORDED BY THE DY. DIRECTOR OF IT, INVESTIGATION WING, AND NOT BY THE AO HIMSELF. THUS, THE TRUTHFULNESS OF THE STATEMENT REMAINED UNTESTED BY THE AO. - CIT VS. SMC SHARE BROKERS LTD. (2007) 210 CTR (DEL) 353 .' (2007) 288 ITR 345 (DEL), KISHINCHAND CHELLARAM VS. CIT (1980) 19 CTR (SC) 360 .' (1980) 125ITR 713 (SC) , UMACHARAN SHAW & BROS. VS. CIT (1959) 37 ITR 271 (SC) AND CIT VS. EASTERN COMMERCIAL ENTERPRISES (199 5) 123 CTR (CAL) 217 .' (1994) 210 ITR 103 (CAL) APPLIED. (PARAS 11 & 12) THE SHARE MARKET IS QUITE VOLATILE AND PRICES DO FLUCTUATE ABNORMALLY. IT IS SEEN THAT THE SHARES DEALT BY THE ASSESSEE WERE QUOTED AT MADHYA PRADESH STOCK EXCHANGE AT ALMOST SIMI LAR RATES AT WHICH THEY WERE SOLD. THE ASSESSEE IS ONLY A SMALL SHAREHOLDER OF THE COMPANY. HE IS NOT THE DIRECTOR OF THE COMPANY OR OF THE STOCK EXCHANGE. UNDER THESE CIRCUMSTANCES HOW HE CAN MANIPULATE THE PRICES IS BEYOND ONE'S COMPREHENSION. - CIT VS. AN UPAM KAPOOR (2007) 212 CTR (P&H) 491 RELIED ON; SMT. MEMO DEVI VS. ASSTT. CIT (2008) 7 DTR (AGRA)(TRIB) 158 APPROVED. (PARA 16) IN THE STOCK EXCHANGE WHEN THE TRANSACTION IS ENTERED INTO, THE ASSESSEE IS NOT AWARE OF THE BUYER OF THE SHARES. HE ENTERS I NTO TRANSACTION ONLY THROUGH A SHARE BROKER. THEREFORE, THE OBSERVATION OF THE AO THAT THE ASSESSEE COULD NOT IDENTIFY THE BUYER CANNOT BE THE BASIS OF REGARDING THE TRANSACTION TO BE NON - GENUINE ONE. THE AO HAS BEEN INFLUENCED WITH THE FACT THAT THE ASSES SEE HAS DELIVERED THE BLANK TRANSFER SHARE CERTIFICATES TO THE BROKER WHEN THE DELIVERY OF THE SHARES WAS GIVEN. SINCE THE DEAL HAS TO TAKE ITA NO.117/RPR/2014 19 PLACE BETWEEN THE BROKERS, THE ASSESSEE HAS TO GIVE ONLY BLANK TRANSFER SHARE CERTIFICATE TO THE BROKER WITHOUT MENT IONING THE NAME OF THE BUYER. THERE IS NOTHING WRONG AND THIS IS A USUAL PRACTICE IN THE BUSINESS. THE DECISIONS OF THE LOWER AUTHORITIES ARE INFLUENCED BY THE GENERAL OBSERVATION OF THE INVESTIGATION WING THAT CREATED A SUSPICION IN THE MINDS OF THE AUTHO RITIES THAT EVERYBODY WHO HAS SOLD THE SHARES AT A HIGH PRICE HAS CONVERTED HIS' UNACCOUNTED MONEY THROUGH ACCOMMODATION ENTRIES. THIS APPROACH DOES NOT HAVE ANY LEG TO STAND. AO HAS FAILED TO ESTABLISH THAT THE ASSESSEE HAS INTRODUCED HER OWN UNACCOUNTED MONEY IN THE SHAPE OF ALLEGED SALE PROCEEDS OF SHARES. WHILE MAKING ADDITION AS INCOME FROM UNDISCLOSED SOURCES, BURDEN ON THE DEPARTMENT IS VERY HEAVY TO ESTABLISH THAT THE ALLEGED RECEIPT WAS ACTUALLY INCOME OF THE ASSESSEE FROM THE UNDISCLOSED SOURCES. THUS, IN VIEW OF THE AFORESAID DISCUSSIONS, THE ACTION OF THE CIT(A) WAS NOT CORRECT IN CONFIRMING THE ASSESSMENT OF RS. 12,19,538 AS THE INCOME FROM UNDISCLOSED SOURCES AS AGAINST THE SALE CONSIDERATION OF SHARES DECLARED BY THE ASSESSEE. THE CIT(A) WAS N OT JUSTIFIED IN REJECTING THE CLAIM OF LONG - TERM CAPITAL GAIN OF THE ASSESSEE FROM SALE OF SHARES. ACCORDINGLY THE AO IS DIRECTED TO ASSESS THE INCOME DECLARED FROM THE SALE OF SHARES UNDER THE HEAD INCOME FROM LONG - TERM CAPITAL GAINS. - SMT. SUN ITA OBEROI VS. ITO (2009) 126 TTJ (AGRA)(TM) 745 : (2009) 30 DTR (AGRA)(TM)(TRIB) 474 AND BAIJNATH AGARWAL VS. ASSTT. CIT (2010) 133 TTJ (AGRA)(TM) 129 : (2010) 43 DTR (AGRA)(TM)(TRIB) 149 FOLLOWED; ITO VS. NAVEEN GUPTA (2006) 5 SOT 94 (DEL), ITO VS. SMT. KUSUMLATA ( 2006) 105 TTJ (JD) 265 AND ASHOK KUMAR LAVANIA (ITA NO. 112/AGRA/2004, DT. 30TH MAY, 2(08) APPROVED.' 13. THE HON'BLE HIGH COURT OF RAJASTHAN IN CIT VS. SMT. PUSHPA MALPANI - REPORTED IN (2011) 242 CTR (RAJ.) 559; (20 11) 49 DTR 312 DISMISSED THE APPEAL OF DEPARTMENT OBSERVING 'WHETHER OR NOT THERE WAS SALE OF SHARES AND RECEIPT OF CONSIDERATION THEREOF ON APPRECIATED VALUE IS ESSENTIALLY A' QUESTION OF FACT. CIT(A) AND TRIBUNAL HAVE BOTH GIVEN REASONS IN SUPPORT OF THEIR FINDINGS AND ITA NO.117/RPR/2014 20 HAVE FOUND THAT AT T HE TIME OF TRANSACTIONS, THE BROKER IN QUESTION WAS NOT BANNED BY SEBI AND THAT ASSESSEE HAD PRODUCED COPIES OF PURCHASE BILLS, CONTRACT NUMBER SHARE CERTIFICATE, APPLICATION FOR TRANSFER OF SHARE CERTIFICATE TO DEMAT ACCOUNT ALONG WITH COPIES OF HOLDING S TATEMENT IN DEMAT ACCOUNT, BALANCE SHEET AS ON 31ST MARCH, 2003, SALE BILL, BANK ACCOUNT, DEMAT ACCOUNT AND OFFICIAL REPORT AND QUOTATIONS OF CALCUTTA STOCK EXCHANGE ASSOCIATION LTD. ON 23RD JULY, 2003. THEREFORE, THE PRESENT APPEAL DOES NOT RAISE ANY QUES TION OF LAW, MUCH LESS ANY SUBSTANTIAL QUESTION OF LAW. ' 14. THE HON'BLE MEMBERS OF ITAT, BILASPUR BENCH, WHICH IS THE JURISDICTIONAL BENCH OF INCOME TAX APPELLATE TRIBUNAL, IN ITO - 3, BHILAI VS. SHRI VISHNU KUMAR AGRAWAL, BHILAI IN APPEAL NO.ITA NO.427/ NAG/2008 FOR A.Y. 2005 - 06 IN ORDER DATED 25.06.2009 REJECTED THE APPEAL OF DEPARTMENT REPLYING ON THE ORDER OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF ANUPAM KUMAR REPORTED IN (201,2) CTR 419. IN ANOTHER ORDER OF THE THEN JURISDICTIONAL BENCH OF INC OME TAX APPELLATE TRIBUNAL, I.E., NAGPUR BENCH, DELETED THE ADDITION IN ITA NO.267INAG/2006 IN ORDER DATED 13.10.2006. THE HON'BLE ITAT INDORE BENCH IN POONAM CHHABRA VS. ITO REPORTED IN (2012) 20 ITJ 446 UNDER A SIMILAR SET OF FACTS DELETED THE ADDITION O F RS.1,06,20,000/ - OBSERVING THAT THE ASSESSEE GOT THE SHARES DEMAT & THE DEMAT ACCOUNT IS A CONCLUSIVE EVIDENCE OF PURCHASE OF SHARES WHICH CANNOT BE DOUBTED. 15. THE AO HAS RELIED UPON THE DECISION IN CIT VS. DURGA PRASAD MORE - 82 ITR 540 (SC) WHEREIN THE HON'BLE APEX COURT OBSERVED THE 'SCIENCE HAS NOT YET INVENTED ANY INSTRUMENT TO TAX THE RELIABILITY OF EVIDENCE PLACED BEFORE THE COURT OR TRIBUNAL, THEREFORE, THIS COURT AND TRIBUNAL HAVE TO JUDGE THE EVIDENCE BEFORE THEM BY APPLYING THE TEXT OF HUMAN PROBABILITIES'. IN THE PRESENT CASE, THE APPELLANT HAS PRODUCED THE EVIDENCES SUCH AS SALE TRANSACTION, CONTRACT NOTE. CONTRACT BILL, DEMAT ACCOUNT. NO INCRIMINATING EVIDENCE HAS BEEN BROUGHT ON RECORD TO DISPROVE THE EVIDENCE FILED BY THE APPELLANT. THE ASSESSMENT CANNOT BE MADE ARBITRARILY AND ITA NO.117/RPR/2014 21 FOR ANY ADDITION THERE MUST BE NEXUS TO THE MATERIAL ON RECORD - (1983) 199 ITR 247. THE AO HAS ALSO RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN CIT VS. BEST & COMPANY PRIVATE LIMITED - (1966) 60 ITR 1 1. IT IS OBSERVED BY THE HON 'BLE JUDGES THAT AN ADVERSE INFERENCE COULD BE DRAWN AGAINST THE ASSESSEE IF HE FAILS TO PUT BEFORE THE DEPARTMENT THE MATERIAL WHICH WAS IN HIS EXCLUSIVE POSSESSION. THIS IS NOT THE CASE HERE. THE APPELLANT HAS SUBMITTED THE R ELEVANT MATERIAL SUCH AS CONTRACT NOTE ETC., DISCUSSED ABOVE, THEREFORE, THE ABOVE DECISION IS NOT APPLICABLE IN THE PRESENT CASE. THE JUDGEMENT OF JUGGILAL KAMLAPAT VS. CIT - REPORTED IN 73 ITR 702 (SC) QUOTED BY THE AO DOES NOT HELP THE AO AS THERE IS NO DISPUTE THAT THE AO CAN PIERCE THE VEIL OF CORPORATE ENTITY WHICH WAS DONE IN THE PRESENT CASE. 16. THE AO RELIED UPON THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN CASE OF SUMATI DAYAL VS. CIT - REPORTED IN 214 ITR 801 THIS CASE ALSO DOES NOT HELP THE AO TO SUPPORT HIS CASE. THE HON 'BLE JUDGES HAVE OBSERVED THAT, WHILE CONSIDERING THE EXPLANATION OF THE ASSESSEE, THE DEPARTMENT CANNOT, HOWEVER, ACT UNREASONABLY. IN THIS CASE, THE AO HAS REJECTED THE EXPLANATION OF THE APPELLANT WITHOUT BRINGING ON RECO RD ANY ADVERSE COGENT EVIDENCE. 17. IN THE CASE OF SHRI VISHNU KUMAR AGRAWAL, BHILAI (SUPRA), THE HON'BLE JURISDICTIONAL TRIBUNAL HAS OBSERVED AS UNDER: - 'AFTER HEARING THE RIVAL SUBMISSIONS AND CAREFULLY PERUSING THE MATERIAL AVAILABLE ON RECORD AND K EEPING IN VIEW OF THE FACTS THAT WITHOUT BRINGING OUT ANY MATERIAL ON RECORD TO PROVE THE SHARE TRANSACTION OF THE ASSESSEE BOGUS, THE CLAIM OF THE ASSESSEE IN RESPECT OF LTCG CANNOT BE TERMED AS BOGUS, WHICH THE AO HAS DONE IN THIS CASE. WE ALSO FIND THAT IN THIS CASE THE ASSESSEE HAS PRODUCED BEFORE THE AO THE COPY OF LEDGER WITH PURCHASE DETAILS, COPY OF BILL ISSUED BY BROKER, COPY OF SHARE CERTIFICATES, LETTER OF STANELY SECURITIES LTD. REGARDING TRANSFER OF SHARES, COPY OF REQUEST SLIP FOR DEMATERIALIZ ATION OF SHARES INTO ASSESSEE'S DEMAT ACCOUNT WITH LDBL BANK, COPIES OF CONTRACT NOTES, COPY OF DELIVERY SLIP AND ITA NO.117/RPR/2014 22 COPY OF BANK ACCOUNT REFLECTING CREDIT OF SALE PROCEEDS. WE ALSO FIND THAT THE LD. CLT(A) HAS PASSED A VERY SPEAKING AND JUSTIFIED ORDER DIREC TING THE AO TO TREAT RS.27,22,370/ - AS LTCG ON SHARE TRANSACTIONS. FOR SAKE OF CONVENIENCE, WE REPRODUCE THE RELEVANT PORTION OF HIS ORDER AS UNDER. '3.12 THE HON 'BLE PUNJAB AND HARYANA HIGH COURT HAS SUSTAINED THE ORDER OF TRIBUNAL WHEREIN IT HAS BEEN HELD THAT PURCHASE CONTRACT NOTE, CONTRACT NOTE FOR SALES, DISTINCTIVE NUMBER A/SHARE PURCHASE AND SOLD COPY OF SHARE CERTIFICATE AND THE QUOTATION OF SHARES ON THE DATE OF PURCHASE AND SALES WERE SUFFICIENT MATERIAL TO SHOW THAT THE TRANSACTION WAS NOT BO GUS BUT A GENUINE TRANSACTION. FOLLOWING THE JUDGEMENT OF CLT VS. ANUPAM KAPOOR 212 CTR 491 (P&H), 1 AM OF THE CONSIDERED OPINION THE LTCG TRANSACTION WAS NOT BOGUS BUT A GENUINE TRANSACTION. THE A.O IS, THEREFORE, DIRECTED TO TREAT RS.27,22,370/ - AS LTCG ON SHARE TRANSACTIONS. THE GROUND NO. 1 IS ALLOWED' 18. I HAVE CONSIDERED THE OBSERVATIONS OF THE AO AS WELL THE SUBMISSION MADE BY THE APPELLANT; THAT THE FACTS OF THIS CASE ARE IDENTICAL TO THE ISSUE DECIDED IN APPEAL NO.0299/06 - 07 DATED 05.06.2008 IN THE CASE OF ARTH TRUST FOR THE A.Y, 2004 - 05, THE OPERATIVE PART OF THE FINDINGS IN THE SAID CASE ARE REPRODUCED AS BELOW: - '2.7 I HAVE CONSIDERED THE OBSERVATIONS OF THE AO AS WELL THE SUBMISSION MADE BY THE APPELLANT. FROM THE FACTS AND CIRCUMSTANCES OF THE CASE, THE RECORD REVEALS THAT THE AO HEAVY RELIANCE ON THE RESULT OF ENQUIRIES CONDUCTED BY THE DDLT, KOLKATA IN C ASE OF SCRIPTS AND THE BROKERS WHICH ARE IN NO WAY DIRECTLY CONNECTED WITH THE CASE OF THE APPELLANT. I T IS A MATTER OF RECORD THAT DURIN G THE PREVIOUS YEAR RELEVANT TO THE A. Y. 2003 - 04, THE APPELLANT MADE INVESTMENT IN SHARES THROUGH REGISTERED SHARE & STOCK BROKERS. THE INVESTMENT IN SHARES WAS REFLECTED IN THE BALANCE SHEET FILED ALONG WITH THE RETURN FOR THE A. Y. 2003 - 04 WHICH WAS ACC EPTED BY THE DEPARTMENT AND THERE WAS NO DISPUTE TO THE ITA NO.117/RPR/2014 23 PURCHASE OF SHARES IN THAT YEAR. IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE APPELLANT SOLD THE SHARES THROUGH REGISTERED SHARE & STOCK BROKERS AT THE THEN PREVAILING MARKET RATE AND PAID TAX STATUTORILY PAYABLE @ 10%. THE PURCHASE AND SALES OF SHARES ARE SUPPORTED BY DOCUMENTARY EVIDENCE LIKE BILLS FOR PURCHASE AND SALE, FORM - A CONTRACT NOTES, COPY OF BANK STATEMENT AND DMAT ACCOUNT. IN THE STATEMENT OF LTCG, FILED DU RING THE COURSE OF ASSESSMENT PROCEEDINGS BEFORE THE A 0, THE DETAILS OF ALL TRANSACTIONS RESULTING IN LTCG WERE GIVEN TOGETHER WITH NAMES & ADDRESSES OF SHARE BROKERS, DATE AND CONTRACT NOTE NOS., DETAILS OF PAYMENTS FOR PURCHASE AND SALE OF SHARES, DETAI LS OF DELIVERY OF SHARES IN AND OUT FROM THE APPELLANT'S DEMAT ACCOUNT. THE SALE CONSIDERATION WAS RECEIVED BY ACCOUNT PAYEE CHEQUES/DRAFTS. 2.8 THERE WAS NO MATERIAL BEFORE THE A 0 WHICH COULD HAVE LEAD TO A CONCLUSION THAT THE TRANSACTION WAS SIMPLICIT ER A DEVICE TO CAMOUFLAGE ACTIVITIES TO DEFRAUD THE REVENUE. IN THE CASE, UNDER CONSIDERATION, DETAILED EXPLANATION OF THE APPELLANT SUPPORTED BY EVIDENCE WAS REJECTED BY THE AO MORE ON PRESUMPTIONS AND PROBABILITIES RATHER THAN ON FACTUAL GROUNDS. THE PRE SUMPTION IS SO COMPELLING THAT COMPARATIVELY A SMALL AMOUNT OF INVESTMENT MADE BY THE APPELLANT DURING THE PREVIOUS YEAR RELEVANT TO THE A. Y. 2003 - 04 HAVE GROWN INTO A VERY SIZABLE AMOUNT ULTIMATELY YIELDING A FABULOUS SUM IN THE ASSESSMENT YEAR UNDER CON SIDERATION. IT APPEARS THAT THIS ITSELF IS A PROVOCATION FOR THE AO TO JUMP INTO A CONCLUSION THAT THE TRANSACTIONS WERE BOGUS. BUT, IN MY CONSIDERATION VIEW, ON ASSESSMENT HAS TO BE COMPLETED ON THE BASIS OF RECORDS AND MATERIAL EVIDENCE AVAILABLE BEFORE THE A 0 AND PERSONAL KNOWLEDGE AND EXCITEMENT ON EVENTS SHOULD NOT LEAD THE AO TO A STATE OF AFFAIRS WHERE SALIENT EVIDENCES ARE OVERLOOKED. IN THE PRESENT CASE EVER TRANSACTION OF THE APPELLANT HAS BEEN ACCOUNTED, DOCUMENTED AND SUPPORTED. HE .E, THE ASSE SSMENT OF THE IMPUGNED SUM AS INCOME OF THE APPELLANT FROM UNDISCLOSED SOURCES, MERELY ON PRESUMPTIONS AND PROBABILITIES, IS UNSUSTAINABLE ITA NO.117/RPR/2014 24 ON FACTS AND IN LAW IN VIEW OF THE DECISION IN THE CASE OF MUKESH R. MAROLIA VS. ADDL. CIT (2006) 6 SOT 247 (MUMBAI) WHEREIN ADDITION MADE ON EXACTLY SIMILAR GROUNDS WAS DELETED. IT MAY BE MENTIONED THAT THE ENQUIRIES CONDUCTED IN ONE CASE CANNOT BE A YARDSTICK FOR ALL TRANSACTIONS WHERE PRICES OF SHARES HAVE SHOOT UP TO MANY TIMES. THE SHARES ARE LISTED IN CSEL AND TH E APPELLANT HAS NO CONTROL OVER THE FLUCTUATION IN SHARE PRICES. THE PURCHASE AND SALE PRICES ARE VERIFIABLE FROM PRICE QUOTED ON THAT DATE. THE SHARES WERE HELD FOR A CONSIDERABLE TIME. THE AO HAS FRAMED A STEREO - TYPE ORDER IN ALL CASES LISTED IN THE ASSE SSMENT ORDER IGNORING THE FACT THAT THE FACTS ARE DIFFERENT IN THE CASE OF THE APPELLANT UNDER CONSIDERATION. THE MODUS OPERANDI OF LTCG NOTICED IN SOME UNCONCERNED CASES, APPLYING THE PROBABILITIES, THE AO HAD NOT BROUGHT ANY EVIDENCE ON RECORD TO CONCLUS IVELY PROVE THAT THE APPARENT IS NOT REAL. 2.9 THE AO RELIED UPON THE DECISION IN CIT VS. DURGA PRASAD MORE 82 ITR 540 (SC) WHEREIN IT WAS OBSERVED BY THE HON 'BLE SUPREME COURT THAT SCIENCE HAS NOT YET INVENTED ANY INSTRUMENT TO TEST THE RELIABILITY OF EVIDENCE PLACED BEFORE A COURT OR TRIBUNAL. THEREFORE, THE COURTS AND TRIBUNALS HAVE TO JUDGE THE EVIDENCE BEFORE THEM BY APPLYING THE TEST OF HUMAN PROBABILITIES. WITH UTMOST RESPECTS TO THESE OBSERVATIONS OF THE HON 'BLE SUPREME COURT, IT MUST NOT BE IGN ORED THAT THE ASSESSMENT U/S 143(3) IS REQUIRED TO BE COMPLETED ON THE BASIS OF EVIDENCES PRODUCED BY THE APPELLANT AND AFTER TAKING INTO ACCOUNT ALL RELEVANT MATERIAL WHICH THE AO HAS GATHERED. IN THE PRESENT CASE, THE EVIDENCES PRODUCED BY THE APPELLANT BEFORE THE AO HAD NOT BEEN ROVED AS FALSE. MERE ASSERTION OF A THIRD PERSON THAT MAJOR WORK OF LTCG IN KOLKATA STOCK EXCHANGE IS MANAGED AFFAIR DOES NOT ABSOLVE THE AO TO INVESTIGATE THE RELEVANT TRANSACTIONS AND TO REASONABLY ESTABLISH THAT THE APPELLANT IS ALSO A PARTY TO SUCH MANAGED AFFAIRS. SINCE NOTHING INCRIMINATING EVIDENCE WAS BROUGHT ON RECORD TO DISPROVE THE EVIDENCES FILED BY THE APPELLANT AND TO PROVE THAT THE IMPUGNED CLAIM OF LTCG WAS ITA NO.117/RPR/2014 25 FAKE/BOGUS, THE AO WAS N OT EN TITLED TO DISREGARD AND IGNOR E THE EVIDENCES PRODUCED BY THE APPELLANT AND TO ALLEGE THAT THE APPARENT IS NOT REAL. IN THE GIVEN FACTS AND CIRCUMSTANCES, SUCH PROBABILITY COULD NOT BE CONSTRUED AS MATERIAL GATHERED BY THE AO FOR SUBSTANTIATING HIS SUSPICIOUS CONCLUSIONS IN THE IMPUGNE D ASSESSMENT . 2.10 IN THE CASE UNDER CONSIDERATION, THAT A RACKET OF BOOKING FAKE AND BOGUS LTCG HAS BEEN BUSTED BY THE INVESTIGATION WING OF KOLKATA WHEREIN SIMILAR TRANSACTIONS THROUGH SIMILAR BROKERS THROUGH SIMILAR DEMAT ACCOUNTS THROUGH SIMILAR BANK ACCOUNTS AND THROUGH THE SIMILAR STOCK EXCHANGE WERE UNEARTHED EXPOSING THE CONNIVANCE OF STOCK BROKERS, SUNDRY PERSONS HOLDING MANY BANK ACCOUNTS AND OTHERS IN BOOKING FAKE LTCG PENNY STOCKS AND THEREBY DEPRIVING THE STATE OF ITS LEGITIMATE DUES I FIND T HAT THE AO MADE VARIOUS OBSERVATIONS FOR DRAWING ADVERSE INFERENCE AGAINST THE APPELLANT. IN MY CONSIDERED VIEW, THESE OBSERVATIONS 'OF THE AO ARE GENERAL IN NATURE UNSUBSTANTIATED ON THE STRENGTH OF ANY EVIDENCE BROUGHT ON RECORD AGAINST THE APPELLANT. SU CH GENERAL OBSERVATIONS RELATING TO DUBIOUS TRANSACTIONS CARRIED ON IN SHARE MARKET ARE OF NO AVAIL TO HOLD ANY ADVERSITY AGAINST THE APPELLANT SINCE NO EVIDENCE WHATSOEVER WAS BROUGHT ON RECORD TO PROVE THAT THE APPELLANT HAS ALSO ADOPTED THE SAME DUBIOUS METHOD TO EARN LTCG. IF THE GENERAL OBSERVATIONS ALONE AS MENTIONED BY THE AO ARE TO BE CONSIDERED AS MATERIAL EVIDENCE FOR THE PURPOSE OF ASSESSMENT, THE AO SHALL HAVE BLANKET ARBITRARY POWERS TO CONDEMN ALL TRANSACTIONS OF SHARES WHERE PRICES HAVE SHOOT UP MANIFOLD WITHOUT THERE BEING ANY DOCUMENTARY EVIDENCE TO HOLD THAT THE APPELLANT HAS INDULGED IN SUCH PRACTICE. THE ASSESSMENT CANNOT BE MADE ARBITRARILY AND IN ORDER THAT AN ASSESSMENT CAN BE SUSTAINED, IT MUST HAVE NEXUS TO THE MATERIAL ON RECORD [CI T VS. MAHESH CHAND (1983) 199 ITR 247, 249 (ALL.I]. IT IS THE SETTLED POSITION THAT THOUGH THE AO HAS VERY WIDE POWERS AND IS NOT FETTERED BY TECHNICAL RULES OF EVIDENCE AND PLEADINGS, THERE IS ONE OVERRIDING RESTRICTION ON HIS JUDGEMENT AND THAT IS THAT H E MUST ACT ITA NO.117/RPR/2014 26 HONESTLY ON THE MATERIAL, HOWEVER, INADEQUATE BEFORE HIM, AND NOT VINDICTIVELY, CAPRICIOUSLY OR ARBITRARILY. 1.11 IT MAY ALSO BE MENTIONED THAT THE APPELLANT WAS SIMPLY A SHAREHOLDER OF THE COMPANIES. HE HAD MADE THE IMPUGNED INVESTMENT IN THO SE COMPANIES IN WHICH HE WAS NEITHER A DIRECTOR NOR WAS HE IN CONTROL OF THE COMPANY. THE APPELLANT HAD TAKEN SHARES FROM THE MARKET. THE SHARES WERE LISTED AND THE TRANSACTIONS TOOK PLACE THROUGH REGISTERED BROKERS OF THE STOCK EXCHANGE. THERE WAS NO EVID ENCE BROUGHT ON RECORD BY THE AO TO SUBSTANTIATE HIS CONCLUSION THAT THE IMPUGNED TRANSACTIONS WERE SIMPLICITER A DEVICE 10 CAMOUFLAGE ACTIVITIES TO DEFRAUD THE REVENUE. THERE WAS NO MATERIAL BEFORE THE AO, WHICH COULD HAVE LEAD TO A CONCLUSION THAT THE TR ANSACTION WAS SIMPLICITER A DEVICE TO CAMOUFLAGE ACTIVITIES, TO DEFRAUD THE REVENUE. NO SUCH PRESUMPTION COULD BE DRAWN BY THE AO MERELY ON SURMISES AND CONJECTURES. MERE SUSPICION THAT SIZABLE LTCG ARE RESULT OF MANAGED AFFAIR CANNOT BE MADE BASIS TO ACCU SES EACH AND EVERY SUCH TRANSACTION UNLESS CONTRARY IS PROVED WITH DOCUMENTARY EVIDENCES. THEORY OF PROBABILITIES CANNOT ALWAYS CONSTITUTE A BLANKET POWERS TO CONDEMN ALL TRANSACTION OF SHARES WHERE PRICES HAVE SHOOT UP MANY FOLD WITHOUT THERE BEING ANY DO CUMENTARY OR CIRCUMSTANTIAL EVIDENCE TO HOLD THAT THE APPELLANT HAS ALSO INDULGED IN SUCH PRACTICE. THE ASSESSMENT CANNOT BE MADE ARBITRARILY AND IN ORDER THAT AN ASSESSMENT CAN BE SUSTAINED, IT MUST HAVE NEXUS TO THE MATERIAL ON RECORD. MY AFOREMENTIONED CONCLUSIONS ARE SUBSTANTIATED ON THE STRENGTH OF THE FINDINGS ARRIVED AT BY THE HON 'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OFCIT VS. ANUPAM KAPOOR (2007) 212 CTR (P&H) 491 WHEREIN ON EXACTLY ALIKE SITUATION CAME UP FOR CONSIDERATION BEFORE THE HON 'B LE PUNJAB & HARYANA HIGH COURT. 1.12 THE HON 'BLE PUNJAB & HARYANA HIGH COURT HAS SUSTAINED THE ORDER OF TRIBUNAL WHEREIN IT HAS BEEN HELD THAT PURCHASE CONTACT NOTE, CONTRACT NOTE FOR SALES, DISTINCTIVE NUMBER OF SHARE PURCHASED ITA NO.117/RPR/2014 27 AND SOLD, COPY OF SHARE CERTIFICATE AND THE QUOTATION OF SHARES ON THE DATE OF PURCHASE AND SALES WERE SUFFICIENT MATERIAL TO SHOW THAT THE TRANSACTION WAS NOT BOGUS BUT A GENUINE TRANSACTION. FOLLOWING THE JUDGEMENT OF HON 'BLE PUNJAB & SARYANA HIGH COURT IN THE CASE OF C I T VS. ANUPAM KAPOOR 212 CTR 491 AND OTHER CASE LAWS AND FACTS AND EVIDENCE MENTIONED IN AFORESAID PARAS, I AM OF THE CONSIDERED OPINION THAT THE LTCG TRANSACTION WAS NOT BOGUS BUT A GENUINE TRANSACTION '. 19. IT IS SEEN THAT THE A.O DID NOT AFFORD ANY OPPORTUN ITY OF CROSS EXAMINATION TO THE APPELLANT TO REBUT THE CONCLUSIONS DRAWN BY THE A.O ON THE BASIS OF STATEMENTS RECORDED AND ENQUIRIES CONDUCTED BY WAY OF COMMISSION ISSUED U/S 131(1)(D). NOW, THE LAW IS WELL SETTLED THAT TAX AUTHORITIES ENTRUSTED WITH THE POWER TO MAKE ASSESSMENT OF TAX DISCHARGE QUASI - JUDICIAL FUNCTIONS AND THEY ARE BOUND TO OBSERVE PRINCIPLES OF NATURAL JUSTICE IN REACHING THEIR CONCLUSION. IT IS TRUE, AS POINTED OUT BY THIS COURT IN DHAKESWARI COTTON MILLS LTD. VS. CIT (1965) 1 SCR 941 ( SC) THAT A TAXING OFFICER IS NOT FETTERED BY TECHNICAL RULES OF EVIDENCE AND PLEADINGS, AND THAT THE A.O IS ENTITLED TO ACT ON MATERIAL WHICH MAY NOT BE ACCEPTED AS EVIDENCE IN A COURT OF LAW', BUT THAT DOES NOT ABSOLVE HIM FROM THE OBLIGATION TO COMPLY WI TH THE FUNDAMENTAL RULES OF JUSTICE WHICH HAVE COME TO BE KNOW IN THE JURISPRUDENCE OF ADMINISTRATIVE LAW AS PRINCIPLES OF NATURAL JUSTICE. IT IS, HOWEVER, NECESSARY TO REMEMBER THAT THE RULES OF ABSOLUTE AND RIGID RULES HAVING UNIVERSAL APPLICATION. IT WA S POINTED TO BY THIS COURT IN SURESH KOSHY GEORGE VS. THE UNIVERSITY OF KERALA & ORS. (1969) 3 SCR 317 (SC) THAT 'THE RULES OF NATURAL JUSTICE ARE NOT EMBODIED RULES' AND IN THE SAME CASE THIS COURT APPROVED THE FOLLOWING OBSERVATIONS FROM THE JUDGMENT OF TJUKER, RUSSEL VS. DUKE OF NORFOLK & ORS. (1869) ALL ENGLAND REPORTS 188. 'THERE ARE, IN MY VIEW, NO WORDS WHICH ARE OF UNIVERSAL APPLICATION TO EVERY KIND OF INQUIRY AND EVERY KIND OF DOMESTIC TRIBUNAL. THE REQUIREMENTS OF NATURAL JUSTICE MUST DEPEND ON THE CIRCUMSTANCES ITA NO.117/RPR/2014 28 OF THE CASE, THE NATURE OF THE INQUIRY, THE RULES UNDER WHICH THE TRIBUNAL IS ACTING THE SUBJECT MATTER THAT IS BEING DEALT WITH, AND SO FORTH. ACCORDINGLY, I DO NOT DERIVE MUCH ASSISTANCE FROM THE DEFINITIONS OF NATURAL JUSTICE WHICH HA VE BEEN FROM TIME TO TIME USED HUT. WHATEVER STANDARD IS ADOPTED, ONE ESSENTIAL IS THAT THE PERSON CONCERNED SHOULD HAVE A REASONABLE OPPORTUNITY OF PRESENTING HIS CASE. ' 20. IN STATE OF KERALA VS. K.T. SUADULI GROCERY DEALER ETC. (1977) 1977 CTR (SC) 2 60 THE HON 'BLE SUPREME COURT OF INDIA HAD HELD THAT THE TAX PROCEEDINGS ARE NO DOUBT QUASI JUDICIAL PROCEEDINGS AND THE ST AUTHORITIES ARE NOT BOUND STRICTLY BY THE RULES OF EVIDENCE, NEVERTHELESS THE AUTHORITIES MUST BASE THEIR ORDER ON MATERIALS WHICH A RE KNOWN TO THE ASSESSEE AND AFTER HE IS GIVEN A CHANCE TO REBUT THE SAME. THE PRINCIPLE OF NATURAL JUSTICE HAS BEEN CLEARLY INCORPORATED IN S. 17(3) OF THE ACT. THE STATUTE DOES NOT STOP HERE, BUT THE SECOND PART OF THE PROVISO CONFERS EXPRESS BENEFIT ON THE ASSESSEE FOR GIVING HIM AN OPPORTUNITY NOT ONLY OF BEING HEARD BUT ALSO OF PROVING THE CORRECTNESS OR COMPLETENESS OF SUCH RETURN. IN VIEW OF THIS PROVISION, IT CAN HARDLY BE ARGUED WITH ANY SHOW OF FORCE THAT IF THE ASSESSEE DESIRES THE WHOLESALE DEAL ERS, WHOSE ACCOUNTS ARE USED AGAINST HIM, TO BE CROSS - EXAMINED IN ORDER TO PROVE THAT HIS RETURN IS NOT INCORRECT OR INCOMPLETE, HE SHOULD NOT BE CONCEDED THIS OPPORTUNITY. APART ANYTHING ELSE, THE SECOND PART OF THE PROVISO ITSELF CONFERS THIS SPECIFIC RI GHT ON THE ASSESSEE. LT IS DIFFICULT TO CONCEIVE AS TO HOW THE ASSESSEE WOULD BE ABLE TO DISPROVE THE CORRECTNESS OF THE ACCOUNTS OF HAJI P.K. USMANKUTTY OR THE OTHER WHOLESALE DEALER, UNLESS HE IS GIVEN A CHANCE TO CROSS - EXAMINE THEM WITH RESPECT TO THE C REDIBILITY OF THE ACCOUNTS MAINTAINED BY THEM. IN VIEW OF THE EXPRESS PROVISION OF THE SECOND PART OF THE PROVISO, THE RESPONDENTS HAD THE UNDOUBTED RIGHT TO CROSS - EXAMINE THE WHOLESALE DEALERS ON THE BASIS OF WHOSE ACCOUNTS THE RETURNS OF THE ASSES SEES WERE HELD TO BE INCORRECT AND INCOMPLETE. - MURIIMOHAN ITA NO.117/RPR/2014 29 PRABHUDAYAL VS. STATE OF ORISSA 26 STC 22 (ORI) RELIED ON. APPUKUTY VS. STATE OF KERALA, 14 STC 489 (KER) AND JAYANTILAL THAKORADA'S CASE 23 STC 11 (GUJ) DISTINGUISHED. 21. THUS ON A TRUE INTERPRETATI ON OF S. 17(3), THE PROVISO THERETO AND R. 15, THE INESCAPABLE CONCLUSION WOULD BE THAT THE ASSESSEE HAS BEEN GIVEN A STATUTORY RIGHT TO PROVE THE CORRECTNESS OF HIS RETURN BY SHOWING THAT THE MATERIALS ON THE BASIS OF WHICH HIS RETURN IS FOUND TO BE INCOR RECT OR INCOMPLETE ARE WRONG AND IF FOR THIS PURPOSE THE ASSESSEE MAKES AN EXPRESS PRAYER FOR CROSS - EXAMINING THE WHOLESALE DEALERS WHOSE ACCOUNTS FORMED THE SHEET - ANCHOR OF THE NOTICE ISSUED TO THE ASSESSEE, HE IS UNDOUBTEDLY ENTITLED TO CROSS - EXAMINE SUC H WHOLESALE DEALERS. 22. IN COMMISSIONER OF INCOME TAX VS. PRADEEP KUMAR GUPTA (2007) 207 CTR (DEL) 115 : (2008) 303 [TR 95 (DEL) IT WAS HELD THAT 'FAILURE OF THE REVENUE TO PRODUCE A FOR CROSS- EXAMINATION BY THE ASSESSEES, ASSUMES FATAL CONSEQUENCES. I T IS TRUE THAT THE ASSESSEES' FAILURE TO PRODUCE K HAD THE CONSEQUENCE OF NOT PROVING THAT THE SAID PERSON WAS TILLING THE LAND ON THEIR BEHALF. THIS FAILURE CANNOT INEXORABLY LEAD TO THE CONCLUSION THAT NO AGRICULTURAL INCOME HAD BEEN GENERATED BY THE ASS ESSEES. SUCH AN INFERENCE CAN ONLY BE DRAWN FROM THE STATEMENT OF A TO THE EFFECT THAT THE TRANSACTIONS BETWEEN HIM AND THE ASSESSEES WERE BOGUS. THEREFORE, IT WAS MANDATORY FOR THE REVENUE TO PRODUCE A FOR CROSS - EXAMINATION BY THE ASSESSEES ON THEIR SPECI FIC DEMAND IN THIS REGARD. THERE MAY WELL BE INSTANCES WHERE THE REOPENING MAY PASS MUSTER IN THE LIGHT OF SOME - FACTS, BUT THOSE FACTS BY THEMSELVES MAY TURN OUT TO BE INSUFFICIENT TO PRESERVE THE ASSESSMENT ITSELF. ONCE SS. 147 AND 148 ARE RESORTED TO, TH E AO MUST FIRST DISCHARGE THE BURDEN OF SHOWING THAT INCOME HAS ESCAPED ASSESSMENT. IT IS ONLY THEREAFTER THAT I HE ASSESSEE HAS TO PROVIDE ALL THE ANSWERS. THERE IS NO REASON WHY THE INITIAL BURDEN OF PROOF SHOULD NOT REST ON THE AO EVEN WHERE THE ASSESSM ENT HAS GONE THROUGH UNDER S. 143(1). THE TRIBUNAL HAS, THERE/ORE, ARRIVED AT THE CORRECT CONCLUSION. ' ITA NO.117/RPR/2014 30 23. THE CASE OF THE APPELLANT CERTAINLY FINDS SUPPORT FROM THE VERY RECENT DECISION OF THE HON'BLE HIGH COURT OF ALLAHABAD IN COMMISSIONER OF INCOME - TA X VS. UDIT NARAIN AGRAWAL, IT APPEAL NO. 560 OF2009 DATED DECEMBER 12,2012 WHEREIN THE CLAIM OF LONG TERM CAPITAL GAIN FROM SALE OF SHARES WAS UPHELD BY THE HON 'BLE HIGH COURT UNDER IDENTICAL FACTS. 24. ADMITTEDLY, THE A.O HAS NOT POINTED OUT ANY INFIRM ITY IN THE PURCHASE OR SALE OF SHARES, PAYMENT AGAINST PURCHASE OF SHARES, TRANSFER OF SHARES TO DEMAT ALC WITH STOCK HOLDING CORPORATION OF INDIA LTD., THE SHARES OF THE COMPANY BEING LISTED WITH CALCUTTA STOCK EXCHANGE, THE DETAILS OF SALE THAT ARE ON RE CORD, THE DETAILS OF NUMBER OF SHARES AND THEIR SALE RATE THAT ARE ON RECORD, THE SHARES OF THE COMPANY WERE SOLD THROUGH DELIVERY INSTRUCTION OF THE DEPOSITORY ACCOUNT WITH STOCK HOLDING CORPORATION OF INDIA LTD., THE SALE CONSIDERATION OF THE SHARES WHIC H WAS RECEIVED THROUGH BANKING CHANNEL. 25. THE AO HAS WRONGLY COMPARED THAT ONUS OF THE APPELLANT IS THE SAME AS REQUIRED IN RESPECT OF CASH CREDIT ENTRIES. THE HON'BLE JODHPUR TRIBUNAL HAD THE OCCASION TO CONSIDER A CASE IN RESPECT OF SIMILAR TYPE OF S HARE TRANSACTION. THE DECISION REPORTED IN (2006) 105 TTJ (JD) 265 IN THE CASE OF ITO V. SMT. KUSUM LATA WHEREIN THE HON'BLE BENCH HELD THAT THE SHARE TRANSACTION WAS NOT BOGUS. THE HON'BLE BENCH CONFIRMED THE ORDER OF CIT(A) WHO HELD THAT ASSESSEE HAS FIL ED THE REQUISITE 'EVIDENCE TO ESTABLISH THE GENUINENESS OF SHARE TRANSACTION AND MERELY BECAUSE SHARE BROKER COULD NOT REPORT THE TRANSACTION TO STOCK EXCHANGE, IT COULD NOT BE SAID THAT THE SHARE TRANSACTION WAS BOGUS. THE HON'BLE BENCH FURTHER HELD THAT THE BURDEN OF PROVING A TRANSACTION IS ALWAYS ON THE PERSON ASSERTING IT TO BE BOGUS AND THIS BURDEN HAS TO BE STRICTLY DISCHARGED BY ADDUCING LEGAL EVIDENCES OF A CHARACTER WHICH WOULD EITHER DIRECTLY PROVE THE FACT OF BOGUSNESS OR ESTABLISH CIRCUMSTANCE S UNERRINGLY AND REASONABLY RAISING AN INFERENCE TO THAT EFFECT. THE BENCH HELD THAT THERE WAS NO EVIDENCE EXCEPT ITA NO.117/RPR/2014 31 SPECULATION THAT THIS PROFIT WAS FROM THE SALE OF SHARES. THE AO HAD FAILED 'TO ESTABLISH HIS CASE AND TO DISCHARGE THE REQUISITE BURDEN CAST ON HIM. IN THIS CASE AS RIGHTLY POINTED OUT BY THE AR'S, THERE IS NO EVIDENCE ON RECORD AS REFERRED IN ASSESSMENT ORDER, TO PROVE THAT THE PROCEEDS RECEIVED AGAINST SALE OF SHARES REPRESENT APPELLANT'S UNDISCLOSED INCOME. HON'BLE APEX COURT IN THE CASE OF KISHAN CHAND CHELLA RAM V. CIT REPORTED IN 125 ITR 713 HAS HELD 'THAT THE BURDEN IS ON THE DEPARTMENT TO PROVE THAT THE MONEY BELONGS TO THE ASSESSEE BY BRINGING PROPER EVIDENCE ON RECORD AND THE ASSESSEE COULD NOT BE EXCEPTED TO CALL THE CONCERNED PERSON IN EVIDENCE TO HELP THE DEPARTMENT TO DISCHARGE THE BURDEN THAT LAY UPON IT'. SIMILAR VIEW HAS BEEN EXPRESSED BY THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V. DAYA CHAND JAIN VAIDYA 98 ITR 280. THE AR'S OF THE APPELLANT HAS ALSO STRONGLY EMPHASIZE D ON THE PECULIAR FACT THAT AFTER THE ALLOTMENT OF SHARES, THE SAME WERE TRANSFERRED TO DEMAT A/C, REMAINED IN DEMAT ACCOUNT DURING THE PERIOD OF HOLDING AND TRANSFERRED TO THE DEMAT ACCOUNT OF THE BUYER, ITSELF PROVES THE GENUINENESS OF THE PURCHASE/SALE TRANSACTION OF SHARES HAVING REGARD TO THE RELEVANT PROVISIONS CONTAINED IN THE DEPOSITORY ACT. THE TRANSACTION MADE THROUGH DEMAT ACCOUNT IS IN ITSELF AN EVIDENCE TO PROVE THE GENUINENESS OF SHARE TRANSACTION. MERELY BECAUSE THE SALE OF SHARES FETCHED A H ANDSOME PRICE, WHICH PRICE IS SUPPORTED BY OFFICIAL QUOTATION ISSUED BY RECOGNISED STOCK EXCHANGE, THEREFORE, THERE CAN NOT BE ANY REASON TO DOUBT THE GENUINENESS OF THE SALE TRANSACTION OF THE SHARES. IT IS SETTLED POSITION OF LAW BY THE DECISIONS REPORTE D IN 26 ITR 776 (SC), 37 ITR 288(SC), 63 ITR 449 (SC) AND 1 SOT 90 (MUM.) (SUPRA) THAT SUSPICION HOW SO EVER STRONG CAN NOT TAKE PLACE OF THE CHARACTER OF EVIDENCE. IN THIS CASE IT IS SEEN THAT APPELLANT BROUGHT ON RECORD ALL PLAUSIBLE EVIDENCES AS IS EXPE CTED IN THESE TRANSACTION, HOWEVER, THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO DISPROVE THE EVIDENCES AS ADDUCED BY THE APPELLANT. THE HON'BLE SUPREME COURT IN THE CASE OF SREELEKHA BANERJEE AND OTHERS V. CIT49 ITR 112 HAS HELD 'BEFORE THE DEPARTMENT REJECTS SUCH EVIDENCE, IT MUST EITHER SHOW AN INHERENT WEAKNESS IN THE EXPLANATION OR REBUT IT BY ITA NO.117/RPR/2014 32 PUTTING TO THE ASSESSEE SOME INFORMATION OR EVIDENCE WHICH IT HAS IN ITS POSSESSION. THE DEPARTMENT CAN NOT BE MERELY REJECTING UNREASONABLY A GOOD EXPLANATI ON, CONVERT GOOD PROOF INTO NO PROOF. THE AO HAS BASED HIS CONCLUSION ON UNFOUNDED PRESUMPTION AND SURMISES. THIS ALSO CAN NOT BE APPROVED. RELIANCE IS PLACED TO THE HON'BLE SUPREME COURT DECISION IN THE CASE OF UMACHARAN SHAW & BROS. V. CIT 37 ITR 271. 26. THUS, IN VIEW OF ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AS ALSO DECISIONS CITED ABOVE, IT IS WELL ESTABLISHED BY THE APPELLANT REGARDING GENUINENESS OF SHARE TRANSACTION AND THE APPELLANT HAS SUFFICIENTLY DISCHARGED THE ONUS CAST UPON THE APPELLANT. AO'S ACTION IS NOT WELL FOUNDED IN POSITION OF LAW IN ADDING ENTIRE AMOUNT OF SALE OF SHARES AS INCOME FROM UNDISCLOSED AND UNEXPLAINED SOURCES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE AS ALSO DECISIONS CITED ABOVE, I HOLD THAT THE APPELLANT HA S EARNED INCOME FROM LONG TERM CAPITAL GAIN FROM THE SCRIPS DEALT - IN, AS REFERRED HEREIN, THE AO IS DIRECTED TO TAX THE INCOME FROM TRANSACTION IN SHARES AS LONG TERM CAPITAL GAIN AT RS.33,15,612/ - AFTER DEDUCTING COST OF PURCHASE. ACCORDINGLY, THE ADDITIO N OF RS. 33,15,612/ - , MADE BY THE AO TREATING THE SALE PROCEEDS OF SHARES AS INCOME FROM UNDISCLOSED SOURCES, IS DELETED. THE APPELLANT GETS RELIEF OF RS.33,15,612/ - . 1 5 . WE FIND THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS . ANUPAM KA POOR (2008) 299 ITR 179 ( P&H ) , HAS HELD AS UNDER : - THE ASSESSEES CASE WAS REOPENED ON RECEIPT OF AN INTIMATION FROM THE DEPUTY DIRECTOR OF INCOME - TAX (INVESTIGATION) STATING THAT THE LONG - TERM CAPITAL GAIN DECLARED BY THE ASSESSEE WAS FALSE AND THE TRAN SACTION WAS NOT GENUINE. IN RESPONSE TO A NOTICE UNDER SECTION 148 OF THE INCOME - TAX ACT, 1961, THE ASSESSEE SUBMITTED HIS REPLY AND FURNISHED EVIDENCE IN SUPPORT OF HIS CLAIM OF LONG - TERM CAPITAL GAIN. THE ASSESSING OFFICER HELD THAT THE ASSESSEE FAILED T O LEAD EVIDENCE TO SUPPORT HIS CLAIM OF LONG - TERM CAPITAL GAIN AND ITA NO.117/RPR/2014 33 CONSIDERED THE AMOUNT OF RS.1,74,552 AS UNEXPLAINED CREDIT AND IT WAS ADDED IN THE INCOME OF THE ASSESSEE. THE COMMISSIONER (APPEALS) DELETED THE ADDITION HOLDING THAT THE ASSESSING OFFICER HAD NOT DISCHARGED HIS ONUS AND THERE WAS NO MATERIAL OR EVIDENCE WITH THE ASSESSING OFFICER TO COME TO THE CONCLUSION THAT THE TRANSACTION SHOWN BY THE ASSESSEE WAS A BOGUS TRANSACTION. THE COMMISSIONER (APPEALS) TOOK THE VIEW THAT IF A COMPANY WAS NOT A VAILABLE AT THE GIVEN ADDRESS, IT COULD NOT CONCLUSIVELY PROVE THAT THE COMPANY WAS NON - EXISTENT. THE TRIBUNAL TOOK INTO CONSIDERATION THAT THE ASSESSING OFFICER HAD NOT DEALT WITH ALL THE DOCUMENTS PLACED BEFORE HIM AND HAD SIMPLY PRESUMED THAT THE TRANSA CTION WAS BOGUS AND HELD THAT THE PURCHASE CONTRACT NOTE, CONTRACT NOTE FOR SALES, DISTINCTIVE NUMBERS OF SHARES PURCHASED AND SOLD, COPY OF THE SHARE CERTIFICATES AND THE QUOTATION OF SHARES ON THE DATE OF PURCHASE AND SALE WERE SUFFICIENT MATERIAL TO SHO W THAT THE TRANSACTION WAS NOT BOGUS BUT A GENUINE TRANSACTION. ON APPEAL : HELD , DISMISSING THE APPEAL, THAT THERE WAS NO MATERIAL BEFORE THE ASSESSING OFFICER, WHICH COULD HAVE LED TO A CONCLUSION THAT THE TRANSACTION WAS A DEVICE TO CAMOUFLAGE ACTIVITI ES TO DEFRAUD THE REVENUE. NO SUCH PRESUMPTION COULD BE DRAWN BY THE ASSESSING OFFICER MERELY ON SURMISES AND CONJECTURES. THE TRIBUNAL TOOK INTO CONSIDERATION THAT IT WAS ONLY ON THE BASIS OF A PRESUMPTION THAT THE ASSESSING OFFICER CONCLUDED THAT THE ASS ESSEE HAD PAID CASH AND PURCHASED THE CHEQUE. IN THE ABSENCE OF ANY COGENT MATERIAL IN THIS REGARD, HAVING BEEN PLACED ON RECORD, THE ASSESSING OFFICER COULD NOT HAVE REOPENED THE ASSESSMENT. THE ASSESSEE HAD MADE AN INVESTMENT IN A COMPANY, EVIDENCE WHERE OF WAS WITH THE ASSESSING OFFICER. THEREFORE, THE ASSESSING OFFICER COULD NOT HAVE ADDED THE INCOME, WHICH WAS RIGHTLY DELETED BY THE COMMISSIONER (APPEALS) AS WELL AS THE TRIBUNAL. 1 6 . THE NAGPUR BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS . KAMAL KUMAR S. AGRAWAL (INDL.) AND ORS. (2 010) 133 TTJ (NAG) 818, HAS HELD AS UNDER : - ITA NO.117/RPR/2014 34 THE ASSESSEE EARNED CAPITAL GAINS DURING THE PERIOD COVERED BY S. 153A PROCEEDINGS. IT IS ALSO NOTED THAT ALL SUCH TRANSACTIONS HAVE BEEN TAKEN INTO CONSIDERATION WHILE FILING THE RETURNS FOR THESE YEARS IN THE NORMAL COURSE AND THE DEPARTMENT HAS ALSO ACCEPTED THE NATURE OF SUCH TRANSACTIONS. IT IS VERY IMPORTANT TO NOTE THAT NO INCRIMINATING MATERIAL HAS BEEN FOUND DURING THE COURSE OF SEARCH WHICH COULD HAVE CAST DOUBT ON THE GEN UINENESS OF THE TRANSACTIONS OR COULD HAVE INDICATED THAT IT WAS A CASE OF ASSESSEES OWN UNDISCLOSED MONEY UTILIZED IN THE EXECUTION OF SUCH TRANSACTIONS. VOLUMINOUS DOCUMENTARY EVIDENCES HAVE BEEN FILED BY THE ASSESSEE TO PROVE ITS CLAIM WHICH SUPPORT TH E GENUINENESS OF THE TRANSACTION. HOWEVER, THE AO HAS UTILIZED THE STATEMENTS OF THE PERSONS WHO WERE NOT CROSS - EXAMINED BY THE ASSESSEE. HENCE, AS PER THE SETTLED JUDICIAL PRINCIPLE, SUCH STATEMENTS CANNOT BE GIVEN ANY WEIGHTAGE. WHEN THERE ARISES A QUEST ION OF APPRECIATION OF DOCUMENTARY EVIDENCES, THEN, A HOLISTIC VIEW HAS TO BE TAKEN AND IN THE PRESENT CASE MAJORITY OF THE BROKERS HAVE SUPPORTED THE CLAIMS OF THE ASSESSEE AND SURPRISINGLY SOME OF THEM HAVE NOT BEEN APPROACHED BY THE AO AT ALL. THUS, ON APPRECIATION OF DOCUMENTARY EVIDENCES SUBMITTED BY THE ASSESSEE, THE GENUINENESS OF THE TRANSACTIONS APPEARS TO BE ESTABLISHED. AS REGARDS THE ASPECT OF OFF MARKET TRANSACTIONS, IT IS NOTED THAT NEITHER THESE ARE ILLEGAL NOR PROHIBITED AND ONLY SOME OF THE COMPLIANCES HAVE TO BE MADE BY THE BROKERS. AS REGARD THE ASPECT OF SUCH COMPLIANCES, IT IS NOT THE CASE THAT ALL THE OFF MARKET TRANSACTIONS HAVE NOT BEEN REPORTED BY THE CONCERNED BROKERS TO THE STOCK EXCHANGE AS PER RULES AND EVEN OTHERWISE, ANY FAILUR E ON THE PART OF THE BROKERS IN DOING SUCH COMPLIANCE CANNOT MAKE THE CONTRACT BETWEEN THE ASSESSEE AND THE BROKER ILLEGAL OR VOID AS THE BROKER MAY FACE THE CONSEQUENCES FOR HIS DEFAULT UNDER RELEVANT STATUTE. IT IS ALSO NOTED THAT ALL THE TRANSACTIONS AR E NOT OFF MARKET TRANSACTIONS, HENCE, THE AOS APPROACH TO PICK AND CHOOSE ONLY SUCH INSTANCES WHICH ARE FAVOURABLE TO HIM CANNOT JUSTIFY SUCH ADDITION. THE DEPARTMENTAL REPRESENTATIVE HAS ALSO ARGUED THAT THERE WERE DIFFERENCES IN THE INFORMATION AS PER C ONTRACT NOTES AND ITA NO.117/RPR/2014 35 AS PER INFORMATION RECEIVED FROM THE STOCK EXCHANGE WHICH FACT IS ALSO NOT MATERIAL BECAUSE WHEN SOME OFF MARKET TRANSACTIONS HAVE NOT BEEN REPORTED TO THE STOCK EXCHANGE, HOW SUCH CONTRACT NOTES CAN BE MATCHED WITH THE RECORDS OF STOCK E XCHANGE. ECONOMIC CONSEQUENCES AS A RESULT OF OFF MARKET TRANSACTIONS OR OTHERWISE HAVE TAKEN PLACE AND, THEREFORE, SUCH TRANSACTIONS CANNOT BE TREATED AS SHAM MERELY FOR SOME DISCREPANCIES OR FOR THE VIEW OF THE AO IN REGARD TO GENUINENESS OF THESE TRANSA CTIONS. THE REVENUE HAS ALSO RELIED ON THE DECISIONS OF SEBI INVOLVING SOME SCRIPS. THE ROLE OF SEBI IS DIFFERENT AND THE ORDERS PASSED BY THEM HAVE DIFFERENT OBJECTIVES SUCH AS ORDERLY CONDUCT OF SHARE MARKETS AND INVESTOR PROTECTION AND, THEREFORE, SUCH ORDER CANNOT BE CONCLUSIVE AS REGARDS THE GENUINENESS OF THE TRANSACTIONS. IN THIS REGARD, IT WOULD NOT BE OUT OF PLACE TO MENTION THAT STOCK MARKET OPERATIONS ARE SUBJECT TO DIFFERENT REGULATIONS AND THE INTEREST OF GENERAL PUBLIC IS PROTECTED BY PROHIBIT ING THE MARKET INTERMEDIARIES FROM INDULGING IN UNFAIR TRADE PRACTICES. THE ORDER OF THE SEBI RELIED ON BY THE REVENUE IS MAINLY ON THE ASPECT OF PRICE RIGGING IN SUCH MANNER. HENCE, THE SAME CANNOT BE OF ANY ASSISTANCE TO THE CAUSE OF THE REVENUE. THUS, O N THE BASIS OF APPRECIATION OF FACTS AND CIRCUMSTANCES OF THE CASE AS A WHOLE AND CONSIDERING THE DOCUMENTARY EVIDENCES ON RECORD, THE SHARE TRANSACTIONS CANNOT BE CONSIDERED AS INGENUINE/SHAM AND, THEREFORE, THE SALE PROCEEDS OF SUCH SHARE TRANSACTIONS CA NNOT BE TAXED UNDER S. 68. SUMATI DAYAL VS. CIT (1995) 125 CTR (SC) 124 : (1995) 214 ITR 801 (SC) AND MCDOWELL & CO. LTD. VS. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC) DISTINGUISHED. 1 7 . THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS . RAVINDRA SANGHAI (HUF), ITA NO.698//KOL/2010, VIDE ORDER DATED 22.05.2012,WHEREIN THE SHARES OF MULTIPLUS RESOURCES LTD. IN QUESTION FOR EARNING OF LONG TERM CAPITAL GAIN AND SHARES HELD AS UNDER: - ITA NO.117/RPR/2014 36 2. THE ONLY ISSUE IN RESPECT OF ITA NO. 698/K/2010 OF R EVENUE IS AGAINST ORDER OF CIT(A) TREATING THE SALE OF SHARES FOR LONG TERM CAPITAL GAINS (LTCG) INSTEAD OF ASSESSED BY AO AS 'INCOME FROM OTHER SOURCES'. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.1: '1.THE LD. CIT(A) - XX, KOL. HAS ERRED ON FACT AND IN LAW FOR NOT CONSIDERING THE A.O'S OBSERVATIONS ON THE ISSUE OF LTCG FOR SALE OF SHARES, PENNY STOCK WHICH ARE BARRED FROM TRADING BY SEBI AND CALCUTTA STOCK EXCHANGE AND DULY REPORTED WITH REASONS ON ADDITION ON ACCOUNT OF CAPITAL GAIN FROM PENNY STOCK. ' 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT ASSESSEE HAS SHOWN LTCG OF RS.11,34,213/ - ON SALE OF 7000 EQUITY SHARES OF MULTIPLUS RESOURCES AND 15000 SHARES OF SOUTH INDIAN BANK AND CREDITED TO THE CAPITAL ACCOUNT OF THE ASSESSEE. THE AO WHILE GOING THROUGH THE CAPITAL ACCOUNT OF ASSESSEE NOTED THIS FACT AND OBSERVED THAT THE ASSESSEE HAS NOT DISCHARGED THE INITIAL ONUS OF PROVING THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF TRANSACTION. ACCORDING TO AO, THERE IS NO PROPER EVIDENCE BROUGHT ON RECORD TO PROVE THE GENUINENESS OF TRANSACTION AS CLAIMED TO HAVE BEEN MADE BY THE ASSESSEE. ACCORDING TO AO, CALCUTTA STOCK EXCHANGE LTD. (CSE) ALSO NEGATED TRANSACTIONS. THE AO ALSO REFERRED THE ISSUE THAT THE TRADING OF SHARES IN THE ABOVE STATED COM PANY WAS BARRED/SUSPENDED BY CSE AND SEBI AFTER SEBI DETECTED MALPRACTICES IN THE SAID SHARES. ACCORDING TO AO, THE ASSESSEE HAS MADE PURCHASES THROUGH S. B. BHUTRA & CO. IN THE SCRIP THROUGH SHRI NARAYAN RAJKUMAR MERCANTILES LTD. BUT ACCORDING TO CSE VIDE LETTER DATED 18.12.2007 THE FOLLOWING TRANSACTIONS WERE REPORTED: NAME OF THE SCRIP NAME OF MEMBER/BROKER DATE OF TRANSACTION MULTIPLUS RESOURCES LTD. KCA STOCK BROKING PRIVATE LTD. 01.12.2004 MULTIPLUS RESOURCES LTD. KCA STOCK BROKING PRIVATE LTD. 29.1 1.2004 THE BROKER VIDE LETTER DATED 10.11.2007 CONFIRMED THE FOLLOWING FACTS: '1. THE SAID CLIENT, SRI RABINDRA SANGHAI (HUF) PURCHASED THROUGH US 10000 SHARES OF SHREE NARAYAN RAJ KUMAR MERCANTILES LTD. ON 03.08.2004 @ 3.52 I.E. FOR RS.35,200/ - . THE PA YMENT OF THE SAID AMOUNT WAS MADE IN CASH ON 05.08.2004. 2. OUR ID NO. IS 0516. 3. NATURE AND QUANTITY OF THE TRANSACTION IS STATED IN PARA 3. THE TRADE WAS MADE THROUGH DELIVERY AND NOT SPECULATIVE IN NATURE. THE DELIVERY WAS MADE THROUGH DP. 4. PHOTOCOPY OF CONTRACT NOTE ENCLOSED HEREWITH. THE DEMAT ACCOUNT NO. IS 10466543 WITH 11 & F S LTD. ITA NO.117/RPR/2014 37 5. AS THERE IS NO BANK TRANSACTION, COPY OF BANK ACCOUNT IS NOT APPLICABLE. 6. NO MARGIN MONEY. NO INTEREST APPLICABLE ON MARGIN MONEY. 7. THE SAID TRANSACTION WAS OF F - MARKET AND NO INTIMATION WAS GIVEN TO CSEA.' BUT THE AO WAS OF THE VIEW THAT THE PENNY STOCKS ARE BARRED FROM TRADING BY SEBI AND CSE. ACCORDING TO AO, THE ASSESSEE HAS NOT INFORMED THE PURCHASE OF SHARES AND ACCORDING TO HIM IT IS MANDATORY TO INFORM, IN CASE THE TRANSACTION IS OFF - MARKET AND IN CASH. THE AO HAS NOT DOUBTED THE GENUINENESS OF SALE ON WHICH ASSESSEE HAS EARNED CAPITAL GAINS. HOWEVER, THE AO TREATED THE ENTIRE SALE PROCEEDS AS INCOME FROM UNDISCLOSED SOURCES AND ASSESSED THE SAME. AGGRIEV ED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ASSESSMENT ORDER AND VARIOUS CASE LAWS DELETED THE DISALLOWANCE BY GIVING FOLLOWING FINDING IN PARA 4.3 AS UNDER: '4.3. I HAVE PERUSED THE ASSESSMENT ORD ER AND CONSIDERED THE SUBMISSION OF THE APPELLANT. I HAVE ALSO CONSIDERED THE MATERIAL AND EVIDENCE ON RECORD AND THE VARIOUS LEGAL PRONOUNCEMENTS RELIED UPON BY THE APPELLANT. THE APPELLANT HAS PRODUCED ALL DOCUMENTARY EVIDENCES TO ESTABLISH THE GENUINENE SS OF THE TRANSACTIONS. THE TRANSACTIONS OF PURCHASE AND SALE ARE SUPPORTED BY CONTRACT NOTES ISSUED BY THE BROKERS. THE PURCHASE OF SHARES ARE CREDITED, AND, SIMILARLY, THE SALES OF SHARES ARE DEBITED IN THE DEMAT ACCOUNT OF THE APPELLANT. THE PAYMENTS AR E RECEIVED THROUGH BANKING CHANNEL. THE VARIOUS LEGAL PRONOUNCEMENTS, RELIED UPON BY THE APPELLANT, ALSO SUPPORT ITS CONTENTIONS. IN VIEW OF THE ABOVE, IT IS HELD THAT THE CAPITAL GAIN SHOWN BY THE APPELLANT ON SALE OF SHARES IS GENUINE AND THE AO WAS NOT JUSTIFIED IN ADDING THE SALE PROCEEDS AS INCOME FROM UNDISCLOSED SOURCES. THE ADDITION OF RS.11,34,213/ - IS DELETED. GROUND NO. 2&3 ARE ALLOWED.' AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND C IRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE HAS FILED ALL NECESSARY DETAILS AND DOCUMENTARY EVIDENCE QUA PURCHASES MADE FROM STOCK BROKERS INCLUDING COPIES OF CONTRACT NOTES ISSUED BY BROKER. THE ASSESSEE HAS ALSO FILED DETAILS OF SHARE CREDITED IN DEMAT ACCOUNT OF ASSESSEE. THIS FACT HAS NOT DENIED BY LD. SR. DR DURING THE COURSE OF HEARING BEFORE US. NO DOUBT THE PAYMENTS ARE MADE BY CASH AS NOTED BY AO IN HIS ASSESSMENT ORDER QUA THE PURCHASE OF THESE SHARES BUT SALE IS SUPPORTED BY BANK STATEMEN T. WE FIND THAT THE PAYMENTS ARE RECEIVED THROUGH BANKING CHANNELS AND ASSESSEE'S CLAIM OF LTCG CANNOT BE DISTURBED BY THE FACT THAT SOME OF THE COMPANIES WERE INDULGED IN MALPRACTICES AT CSE AND SEBI. WHEN A QUERY WAS RAISED TO LD. SR. DR WHETHER THIS ITA NO.117/RPR/2014 38 PAR TICULAR SCRIP IS PUT TO SCANNER OR NOT, LD. DR COULD NOT REPLY AND COULD NOT CONFIRM THAT THESE TRANSACTIONS WERE UNDER SEBI SCANNER. IN SUCH CIRCUMSTANCES, WE HAVE NO ALTERNATIVE EXCEPT TO UPHOLD THE ORDER OF CIT(A) AND THIS APPEAL OF REVENUE IS DISMISSED . 1 8 . THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. KHALIL M. BHARWANI, (2015) 45 CCH 0275 (MUMBAI TRIB), WHEREIN IT WAS HELD AS UNDER : - 5. IN SUM AND SUBSTANCE THE CLAIM OF ASSESSEE HAS BEEN THAT IT HAD PURCHASED 10,000 SHARES OF EMRALD COMME RCIAL LTD. THROUGH THE BROKER BADRI PRASAD & SONS VIDE BILL NO. CK012/20053226 DATED 06.05.2004 WHICH SHARES WERE PURCHASED IN PHYSICAL FORM WHICH WERE SUBMITTED TO THE COMPANY FOR TRANSFERRING IN ITS NAME, WHICH THE COMPANY TRANSFERRED BY ITS LETTER DATED 17.07.2004, WHICH WERE LATER ON SUBMITTED ON 12.08.2005 FOR DEMAT IN THE DEMAT ACCOUNT OF THE ASSESSEE WITH HSBC BANK AND LATER ON THE SHARES WERE SOLD THROUGH THE ONLINE TRADING SYSTEM OF THE CALCUTTA STOCK EXCHANGE THROUGH THE BROKER MURARILAL GOENKA AN D M/S. SHIVAM STOCK BROKING PVT. LTD. AND EACH AND EVERY DETAILS OF SALE OF SHARES WERE DULY FURNISHED IN ASSESSMENT PROCEEDINGS. HENCE, IN THE VIEW OF THE ASSESSEE, THE TRANSACTIONS GIVING RISE TO LTCG ON SALE OF SHARES OF `45,43,362/ - IS FULLY SUPPORTED BY ALL THE NECESSARY EVIDENCES MENTIONED ABOVE AND THEREFORE ASSESSING OFFICER WAS NOT JUSTIFIED TO TAX THE ENTIRE SALE PROCEEDS ON SALE OF SHARES AS UNEXPLAINED CASH CREDIT UNDER SECTION 68 OF THE ACT. 6. THE CIT(A), AFTER GOING THROUGH THE SUBMISSIONS ON BEHALF OF ASSESSEE ACCEPTED THE CONTENTIONS OF ASSESSEE AND GRANTED RELIEF AS PRAYED. SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF REVENUE. THE LEARNED D.R., INTER ALIA, SUBMITTED THAT CIT(A) ERRED IN H OLDING THAT LONG TERM CAPITAL GAIN RECEIVED BY ASSESSEE IN THE SCRIP EMERALD COMMERCIAL LTD. WAS GENUINE TRANSACTION. CIT(A) SHOULD HAVE APPRECIATED THE FACT THAT ASSESSEE COULD NOT PROVE THE SOURCE OF FUNDS WHILE PURCHASING THE SAID SHARES. NO RETURN WAS FILED DURING THE YEAR IN WHICH THE SHARES WERE PURCHASED AND THE ITA NO.117/RPR/2014 39 SAME WERE PURCHASED THROUGH CASH. PHYSICAL DELIVERY OF SHARES HAS TAKEN PLACE. CALCUTTA STOCK EXCHANGE HAD DENIED EXECUGING PURCHASE. IN THIS BACKGROUND THE CIT(A) FAILED TO NOT THAT SHARES OF M/S.BADRI PRASAD AND SONS STOCK BROKER WHO HAS BEEN PENALIZED BY SEBI FOR INDULGING IN PENNY STOCK TRANSACTION DURING THE YEAR 2005 WHICH IS RELEVANT TO THE CURRENT YEAR UNDER CONSIDERATION. SO THE CIT(A) ERRED IN HOLDING THAT THE TRANSACTION WAS GENUIN E WITHOUT APPRECIATING THE FACT THAT BROKER M/S. BADRI PRASAD AND SONS THOUGH WHOM ASSESSEE HAS CLAIMED TO HAVE PURCHASED THE SHARES HAS CLEARLY DENIED THE EXECUTING OF ANY SHARE TRANSACTION OF M/S. EMERALD COMMERCIAL LTD. ON 06.05.2004, THE DATE ON WHICH ASSESSEE HAS CLAIMED TO HAVE PURCHASED 10,000 SHARES. PURCHASE TRANSACTIONS ARE OUT OF CASH IN HAND WHICH WAS ON ACCOUNT OF GIFT RECEIVED BY ASSESSEE FROM HIS RELATIVES. PURCHASE OF SHARES WAS OFF BOLT AND SUCH PURCHASES ARE NOT REFLECTED IN THE STOCK EXCH ANGE. IN THIS BACKGROUND THE LEARNED D.R REQUESTED TO SET ASIDE THE ORDER CIT(A) AND TO RESTORE THAT OF ASSESSING OFFICER. ON THE OTHER HAND THE LEARNED A.R. FOR THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). 7. AFTER GOING THROUGH THE RIVAL SUBMISSIONS A ND MATERIAL ON RECORD WE FIND THAT ASSESSING OFFICER REJECTED THE CLAIM OF LONG TERM CAPITAL GAIN ON SHARES AND BROUGHT THE SAME TO TAX AS UNEXPLAINED CASH CREDIT UNDER SECTION 68 OF THE ACT THE STAND OF THE ASSESSEE HAS BEEN THAT THE IMPUGNED RECEIPT IS ON ACCOUNT OF SALE OF SHARES WHICH SHARES WERE DULY PURCHASED MORE THAN ONE YEAR AGO AND WERE HELD THEREAFTER CONTINUOUSLY BY ASSESSEE AND THEREFORE THE GAIN ON SALE OF SUCH SHARES IS TO BE HELD AS LONG T ERM CAPITAL GAIN EXEMPT UNDER SECTION 10(38) OF THE ACT. WE FIND THAT ASSESSEE HAS PURCHASED THE SHARES THROUGH OFF MARKET DEAL AND THEREFORE SUCH TRANSACTION FOR PURCHASE OF SHARES BY THE ASSESSEE OUGH T NOT TO HAVE BEEN REGISTERED WITH THE CALCUTTA STOCK EXCHANGE. SECONDLY, THE VOUCHER FOR SHARES SOLD TO THE ASSESSEE ISSUED BY M/S BADRI PRASAD & SONS, BROKER OF THE CALCUTTA STOCK EXCHANGE HAS NOT BEEN FOUND AS BOGUS OR FABRICATED DOCUMENTS. ITA NO.117/RPR/2014 40 8. ASSESSEE DULY RECEIVED PHYSICAL DELIVERY OF 10,000 SHARES BY WAY OF 20 SHARE CERTIFICATES OF 500 SHARES EACH OF THE COMPANY EMRALD COMMERCIAL LTD. AND SUCH SHARES WERE DULY TRANSFERRED IN THE NAME OF THE ASSESSEE BY LETTER OF THE COMPANY DATED 17.07.2004 WHICH ASPE CT IS ALSO NOT FOUND INCORRECT OR MANIPULATED. THE PHYSICAL SHARES RECEIVED BY ASSESSEE DULY TRANSFERRED IN HIS NAME WERE THEREAFTER DEMATED BY DELIVERING THEM TO HSBC, THE DEMAT ACCOUNT HOLDER AND AFTER DEMATING THE SHARES HAVE CONTINUED TO REMAIN IN THE DEMAT A/C OF ASSESSEE WHICH ASPECT IS ALSO INDEPENDENTLY VERIFIED FROM THE DEMAT STATEMENT OF ASSESSEE WITH HSBC. 9. THE 4000 DEMATED SHARES WERE THEREAFTER SOLD THROUGH THE BROKER SHIVAM STOCK BROKING PVT. LTD. OF THE CALCUTTA STOCK EXCHANGE THROUGH ONLIN E TRADING SYSTEM AND THE BALANCE SHARES NUMBERING 6000 WERE DULY SOLD THROUGH THE BROKER MURARILAL GOENKA OF CALCUTTA STOCK EXCHANGE THROUGH ONLINE TRADING SYSTEM. THE SALES BILLS/CONTRACT FILED BY ASSESSEE FOR SALE OF THE SHARES HAS NOT BEEN DISBELIEVED O R DISPUTED BY ASSESSING OFFICER IN ANY MANNER. THE SALE PROCEEDS RECEIVED ON SALE OF SHARES HAVE BEEN DULY RECEIVED BY 'A/C PAYEE CHEQUE' FROM THE BROKERS WHICH WERE DULY DEPOSITED IN THE BANK ACCOUNT OF ASSESSEE. THIS ASPECT HAS ALSO NOT BEEN DISPUTED BY REVENUE AUTHORITIES. HENCE IN THIS WAY, THE WHOLE TRANSACTION OF PURCHASE AND SALE OF SHARES GIVING RISE TO LONG TERM CAPITAL GAIN HAS BEEN DULY EXPLAINED STEP BY STEP AND SUPPORTED BY ADEQUATE AND RELIABLE EVIDENCE. THE OBSERVATIONS OF ASSESSING OFFICER H AVE BEEN THAT SINCE THE SHARES WERE PURCHASED IN CASH, THE SAME CANNOT BE VERIFIED. SINCE NO RETURN OF INCOME WAS FILED BY ASSESSEE FOR THE A.Y.2005 - 06, IT WAS NOT POSSIBLE TO VERIFY THE CASH IN HAND OF RS.3,45,602/ - . ACCORDING TO ASSESSING OFFICER THE C ASH IN HAND IS NOT SUBSTANTIATED. IN THIS REGARD THE STAND OF THE ASSESSEE HAS BEEN THAT ASSESSEE WAS GIVEN A GIFT OF RS.1,01,000/ - BY HIS FATHER SHRI MOHAMED ALL BHARWANI ON 26.5.2003 AND BY HIS ELDER BROTHER SHRI MUNIR M. BHARWANI OF RS.1,28,000/ - ON 26. 5.2003 BEING ON THE OCCASION OF ASSESSEE'S ITA NO.117/RPR/2014 41 BIRTHDAY. ASSESSEE HAS STATED THAT IN THE RETURNS OF INCOME FOR THE A.Y.2004 - 05, IN THE CASE OF HIS FATHER AND BROTHER, THE GIFTS IN QUESTION HAVE BEEN DULY REFLECTED. COPIES OF THE RELEVANT RETURNS OF INCOME ALON GWITH CAPITAL ACCOUNTS HAVE BEEN FURNISHED BEFORE CIT(A) AT RELEVANT POINT OF TIME AND IN THIS BACKGROUND IT WAS THE STAND OF THE ASSESSEE THAT BECAUSE OF THESE GIFTS FROM THE AFORESAID TWO PERSONS THAT THERE WAS SO MUCH CASH IN HAND WITH THE ASSESSEE. THI S FACT HAS NOT BEEN LOOKED INTO BY THE ASSESSING OFFICER AT RELEVANT POINT OF TIME. 10. THE OBSERVATION OF THE ASSESSING OFFICER THAT THE TRANSACTION IS NOT GENUINE AND IS ENGINEERED WITH A SOLE INTENTION TO SHOW LONG TERM CAPITAL GAIN WHICH IS LIABLE TO A LOWER RATE OR INCOME TAX IS BECAUSE OF (I) OFF MARKET TRANSACTION, (II) THE PAYMENT FOR TRANSACTION IS THROUGH CASH (III) PHYSICAL DELIVERY OF SHARES HAS BEEN GIVEN (IV) KOLKATA STOCK EXCHANGE HAS DENIED HAVING EXECUTED ANY TRANSACTION IN THE SCRIPT I.E. EMERALD COMMERCIAL LTD. (V) SHARES WERE DEMATTED IN THE MONTH OF AUGUST 2005 I.E. AFTER MORE THAN ONE YEAR OF DATE OF PURCHASE (VI) SHARES WERE BOUGHT AND SOLD IN KOLKATA HAS BEEN DULY REBUTTED AND REFUTED BY TENDERING SUFFICIENT EVIDENCE AND THEREFORE ASS ESSING OFFICER ASSESSING OFFICER CAN ONLY PROVOKE A SUSPICION, MUCH LESS A BELIEF ABOUT THE TRANSACTION. THE SUSPICION OF ASSESSING OFFICER CANNOT CLINCH THE TRANSACTION AGAINST ASSESSEE. IN VIEW OF THE ABOVE CIT(A) WAS JUSTIFIED IN HOLDING THAT LONG TERM CAPITAL GAIN EARNED BY ASSESSEE OF `47,60,462/ - SHOULD BE TREATED AS SUCH AND NOT TAXED AS INCOME FROM UNDISCLOSED SOURCES. ACCORDINGLY THE DECISION OF THE CIT(A) NEED NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 1 9 . THE MUMBAI BENCH OF THE TRIBUNA L IN THE CASE OF ACIT VS. SHRI RANJITSINGH D BINDRA, ITA NO.5534/MUM/2010, VIDE ORDER DATED 13.03.2013, HAS HELD AS UNDER : - ITA NO.117/RPR/2014 42 3. THE SOLITARY COMMON ISSUE RAISED BY THE REVENUE IN BOTH THE APPEALS IS REGARDING THE LONG TERM CAPITAL GAINS TREATED BY THE ASS ESSING OFFICER AS UNDISCLOSED CASH CREDIT AND DELETED BY THE CIT(A). THE COMMON GROUND RAISED BY THE REVENUE IS AS UNDER: 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE IN COME AS LONG TERM CAPITAL GAINS AMOUNTING TO RS.29,09,675/ - INSTEAD OF INCOME FROM UNDISCLOSED SOURCES AS CONSIDERED BY THE AO WITHOUT APPRECIATING THE FACTS AND DETAILED INVESTIGATION OF THE CASE.' BEFORE US THE LEARNED DR HAS SUBMITTED THAT THE ASSESSING OFFICER HAS MADE AN INVESTIGATION AND FOUND THAT THE ASSESSEE WAS FIRST GIVEN SPECULATION PROFIT AND AGAINST THIS PROFIT THE PURCHASE COST OF THE SHARES OF BLUE CHIP INDIA LTD WAS ADJUSTED. THIS ADJUSTMENT OF PURCHASING OF SHARES CLEARLY INDICATES THE MOD US OPERANDI THAT WAS BEING FOLLOWED REGARDING PURCHASE OF PENNY STOCKS. THE ASSESSEE HAS CLAIMED TO HAVE PURCHASED THE SHARES FROM PRINCE SECURITIES WHEREAS THE SHARES WERE SOLD TO PRAKASH NAHATA & CO., STOCK AND SHARE BROKERS HAVING THEIR OFFICE AT KOLKAT A. THE TRANSACTION OF PURCHASE WAS OFF MARKET, WHICH WAS NOT REPORTED ON THE RECOGNIZED STOCK EXCHANGE I.E. BOMBAY STOCK EXCHANGE. THE TRANSACTION WAS ARRANGED IN SUCH A WAY THAT NO CONSIDERATION WAS PAID BY THE ASSESSEE EXCEPT A NOMINAL AMOUNT AND MAJOR P ART OF THE CONSIDERATION WAS ALLEGEDLY ADJUSTED AGAINST SPECULATION PROFIT. THE ASSESSING OFFICER HAS POINTED OUT THAT PRINCE SECURITIES HAVE NOT TRANSACTED IN SHARES OF BLUE CHIP INDIA LTD. FOR ANY OTHER CLIENT EXCEPT THE TRANSACTION IN QUESTION. IT DOES NOT HAVE ANY DEMAT ACCOUNT. THE ASSESSEE STATED TO HAVE PURCHASED THE SHARES IN THE MONTH OF APRIL 2002 WHEREAS THE SHARES WERE DEMATED IN AUGUST 2002 AND OCTOBER 2003 I.E. ALMOST ONE AND HALF YEARS AFTER THE ALLEGED PURCHASE. THERE IS NO EXPLANATION IN TH IS REGARD AS TO WHY THE ASSESSEE DEMATED THE SHARES JUST BEFORE THE ALLEGED SALE OF THE SHARES. THE TRANSACTION OF SALE OF SHARES IN KOLKATA STOCK ITA NO.117/RPR/2014 43 EXCHANGE WITHOUT ANY EXPLANATION IS NOT A NORMAL HUMAN BEHAVIOUR, WHEN THE ASSESSEE IS HAVING ACCOUNT WITH SU B - BROKER IN MUMBAI. THE ASSESSING OFFICER RECEIVED THE INFORMATION FROM BOMBAY STOCK EXCHANGE THAT THE SHARES OF BLUE CHIP INDIA LTD., WAS NOT TRADED ON THE STOCK EXCHANGE ON THE DATES GIVEN BY THE ASSESSEE. THUS, THE LEARNED DR HAS SUBMITTED THAT THE FACT S AND CIRCUMSTANCES OF THE CASE CLEARLY SHOWS THAT THE ASSESSEE HAS MANIPULATED THE ACCOMMODATION ENTRIES OF LONG TERM CAPITAL GAINS AGAINST HIS OWN UNDISCLOSED INCOME. HE HAS RELIED UPON THE DECISION OF THE CHANDIGARH BENCH OF THIS TRIBUNAL IN THE CASE O F CIT V. SOM NATH MAINI 100 TTJ 917 (CHD.) 4. ON THE OTHER HAND, THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE TRANSACTION OF PURCHASE IS DULY SUPPORTED BY THE DOCUMENTARY EVIDENCE. HE HAS REFERRED TH E BILLS ISSUED BY PRINCE SECURITIES IN RESPECT OF THE PURCHASE OF SHARES OF BLUE CHIP INDIA LTD., AT PAGES 72 TO 77 OF THE PAPER - BOOK. THE PAYMENT WAS PARTLY MADE THROUGH CASH VIDE RECEIPT DATED 10.04.2002 PLACED AT PAGE 76 OF THE PAPER - BOOK. HE HAS ALSO REFERRED TO THE LEDGER ACCOUNT OF PRINCE SECURITIES SHOWING THE TRANSACTION OF PURCHASE OF SHARES. THE LEARNED AR HAS FURTHER SUBMITTED THAT PRINCE SECURITIES HAS ALSO GIVEN THE CONFIRMATION MEMO IN RESPECT OF THE SPECULATION PROFIT ARISING FROM THE TRANSA CTION IN THE SHARES OF GEOMETRIC SOLUTIONS AND HINDUJA FINANCE LTD. THE ASSESSEE APPLIED FOR TRANSFER OF THE SHARES TO BLUE CHIP INDIA LTD., AND RECEIVED THE COMMUNICATION DATED 17.08.2002 AND 31.08.2002 WHEREBY THE SHARES WERE TRANSFERRED WITH DISTINCTIVE NUMBERS AND CERTIFICATE MEMOS IN THE NAME OF THE ASSESSEE. SUBSEQUENTLY, THE SHARES WERE DEMATED IN THE DEMAT ACCOUNT OF THE ASSESSEE, WHICH SHOWS THAT THE ASSESSEE WAS HOLDING THE SHARES AND, THEREFORE, THE TRANSACTION CANNOT BE SAID TO BE BOGUS. THE LEA RNED AR HAS FURTHER SUBMITTED THAT THE SHARES WERE SOLD THROUGH PRAKASH NAHATA & CO., WHO IS A BROKER OF KOLKATA STOCK EXCHANGE. SALES BILL IN RESPECT OF THE SALE TRANSACTIONS WERE PRODUCED BEFORE THE AUTHORITIES BELOW, AS PLACED AT PAGES 88 TO 110 OF THE PAPER - BOOK. M/S. PRAKASH ITA NO.117/RPR/2014 44 NAHATA & CO. HAS ALSO CONFIRMED THE TRANSACTION OF SALE VIDE LETTER DATED 24.11.2006 IN RESPONSE TO THE NOTICE ISSUED BY THE ASSESSING OFFICER U/S. 133(6) OF THE INCOME TAX ACT . THE LEARNED AR HAS FURTHER SUBMITTED THAT THE SALE CONSIDERATION WAS RECEIVED THROUGH BANKING CHANNEL AND, THEREFORE, IT CANNOT BE DOUBTED. HE HAS REFERRED TO THE RETURN OF INCOME FOR A.Y. 2003 - 04 AND SUBMITTED THAT THE SHARES OF BLUE CHIP INDIA LTD., WERE SHOWN IN THE BALANCE SHEET ATTACHED THEREIN AND, THEREFORE, THE ASSESSEE HAS DULY DISCLOSED THE TRANSACTION OF PURCHASE. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE FOLLOWING CASES: I. MUKESH R MOROLIA VS. ACIT - (2006) 6 SOT 247 II. CHANDRAKANT BABULAL SHAH VS. ITO IN ITA NO. 6108/MUM/2009 DATED 15.12.2010. III. CIT VS. JAMNADEVI AGARWAL 328 ITR 656 HE HAS FURTHER SUBMITTED THAT SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN ALL THESE DECISIONS. IN THE CASE OF JAMNADEVI AGARWAL, THE HON'BLE HIGH COURT HAS HELD THAT EVEN THE STATEMENT OF STOCK BROKER'S DENIAL OF TRANSACTION WAS PROVED TO BE WRONG BY PRODUCING DOCUMENTARY EVIDENCE TO THE EFFECT THAT THE SHARES SOLD BY THE ASSESSEE WERE IN CONSONANCE WITH THE MARKET PRICE. HE HAS FURTHE R SUBMITTED THAT THE DECISION IN THE CASE OF SOM NATH MAINI (SUPRA), RELIED UPON BY THE ASSESSING OFFICER IS NOT APPLICABLE TO THE FACTS OF THE CASE IN HAND BECAUSE IN THE SAID CASE THE TRIBUNAL HAS FOUND THAT THE RECORDS OF THE BROKER WAS NOT AVAILABLE AN D SHARES REMAINED IN THE NAME OF THE ASSESSEE EVEN LONG TIME AFTER THE SALE OF SHARES THEREFORE, THE TRANSACTION DOES NOT STAND THE TEST OF PROBABILITY, WHEREAS IN THE CASE OF THE ASSESSEE THERE IS NO SUCH LACK OF AVAILABILITY OF RECORD OR DEFECT IN THE TR ANSACTION OF SALE. HE HAS SUPPORTED THE ORDER OF THE CIT(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE CLAIMED TO HAVE PURCHASED 70,000 SHARES OF BLUE CHIP INDIA LTD., IN THE MONTH OF APRIL 2002 AS UNDER: ITA NO.117/RPR/2014 45 PURCHASED ON 10.04.02 37,000 SHARES FOR RS.20,350 PURCHASED ON 12.04.02 37,000 SHARES FOR RS.18,150 THE ASSESSEE PURCHASED TOTAL 70,000 SHARES OF BLUE CHIP INDIA LTD. FOR A TOTAL CONSIDERATION OF RS.38,500 AT AVERAGE COST OF 55 PAISE PER SHARE. THESE SHARES WERE CLAIMED TO HAVE BEEN SOLD ON VARIOUS DATES FROM SEPTEMBER 2003 NOVEMBER 2003. THE DETAILS OF SALE ARE GIVEN BY THE ASSESSING OFFICER IN PARA 5.4.3 AS UNDER: DATE OF SALE QUANTITY OF SHARES AMOUNT OF SALE PROCEEDS DATE ON DELIVE RY WAS GIVEN BY THE ASSESSEE DATE OF PAYMENT TO ASSESSEE AMOUNT 10.09.03 7,000 376950 11.09.03 7000 17.09.03 76950 20.10.03 1,500 61725 20.10.03 1500 03.11.03 366475 21.10.03 2,500 101000 22.10.03 2500 10.11.03 284200 22.10.03 2,500 101000 23.10.03 25 00 10.11.03 295875 23.10.03 2,500 1027 5 0 27.10.03 2500 12.11.03 376175 28.10.03 7,500 29 5 875 29.10.03 12000 18.11.03 310000 29.10.03 7,000 284200 31.10.03 9500 18.11.03 500000 30.10.03 9,500 386175 01.11.03 15000 03.12.03 428500 05.11.03 10,000 395500 11.11.03 17500 - - 07.11.03 10,000 414500 - - - 13.11.03 10,000 428500 - - - THE ASSESSING OFFICER DOUBTED THE TRANSACTION MAINLY ON THE GROUND THAT THE SHARES WERE PURCHASED AS PENNY STOCKS AT LOW PRICE OF 55 PAISE PER SHARE AND THE SAME WERE CLAIMED TO HAVE BEEN SOLD AT RS.40 PER SHARE AND THEREBY THE ASSESSEE HAS SHOWN LONG TERM CAPITAL GAINS OF RS.29,09,675. ACCORDING TO HIM IT IS NOT A GENUINE TRANSACTION BECAUSE THE ASSESSEE HAS CONVERTED ITS UNDISCLOSED INCOME AS LONG TERM CAPITAL GAINS. THE ASSE SSING OFFICER HAS EXAMINED THE ASSESSEE AS WELL AS CALLED FOR VARIOUS INFORMATION BY ISSUE OF NOTICE U/S. 133(6) TO THE STOCK BROKER THOUGH WHICH THE ASSESSEE HAS PURCHASED SHARES AS WELL AS FROM THE STOCK BROKER TO WHOM THE ASSESSEE HAS SOLD THE SHARES. I T IS EVIDENT THAT BOTH THE ITA NO.117/RPR/2014 46 STOCK BROKERS HAVE CONFIRMED THE TRANSACTION OF PURCHASE AS WELL AS SALE. APART FROM THE CONFIRMATION, THE ASSESSEE HAS ALSO PRODUCED RELEVANT DOCUMENTARY EVIDENCE IN SUPPORT OF THE TRANSACTION OF PURCHASE AND SALE. THERE IS NO D ISPUTE AS REGARDS THE SHARES WERE DEMATED IN THE DEMAT ACCOUNT OF THE ASSESSEE AND, THEREAFTER SOLD TO M/S. PRAKASH NAHATA & CO. THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDING THAT THE PREVAILING PRICE OF THE SHARES ON THE ALLEGED DATE OF PURCHASE WAS MOR E THAN WHAT HAS BEEN CLAIMED BY THE ASSESSEE. THEREFORE, THERE IS NO FINDING OR DISPUTE ON THE POINT OF PREVAILING PRICE AT THE TIME OF PURCHASE OR AT THE TIME OF SALE OF SHARES. THE ASSESSING OFFICER HAS DOUBTED THE MODUS OPERANDI AND ALLEGED THAT BY THIS TRANSACTION THE ASSESSEE HAS CONVERTED HIS UNDISCLOSED INCOME AS LONG TERM CAPITAL GAINS BY ACCOMMODATION ENTRIES. IT IS PERTINENT TO NOTE THAT THE TRANSACTION OF HOLDING OF SHARES HAS BEEN DULY SHOWN IN THE BALANCE SHEET ATTACHED WITH THE RETURN OF INCOM E FOR THE A.Y. 2003 - 04 AS THE SAME IS PLACED AT PAGE 178 OF THE PAPER - BOOK. THE CIT(A) AFTER CONSIDERING ALL THE RELEVANT FACTS AND MATERIAL HAS GIVEN HIS FINDINGS IN PARA 11 OF THE ORDER, WHICH IS AS UNDER: '11. I HAVE CAREFULLY GONE THROUGH THE ASSESSMEN T ORDER, THE SUBMISSIONS MADE BY THE A.R AND THE FACTS OF THE CASE AND VARIOUS CASE LAWS RELIED UPON. IT IS EVIDENT FROM THE SUBMISSIONS MADE AND THE EVIDENCE FOR PURCHASE AND SALE OF SHARES OF M/S. BLUECHIP INDIA LTD., PRODUCED BEFORE ME THAT A) THE APPE LLANT HAS PURCHASED 7000 SHARES OF M/S. BLUECHIP INDIA LTD. FROM M/S. PRINCE SECURITIES LTD. AND THE BILLS/CONFIRMATIONS IN RESPECT OF SUCH PURCHASES HAVE BEEN DULY FILED BEFORE ME B) THE SOURCE FOR THE PURCHASE IS PROFIT EARNED IN THE TRANSACTION OF HINDU JA FINANCE & GEOMETRIC SOFTWARE AND THE BALANCE AMOUNT HAS BEEN PAID BY CASH C) THE SHARES WERE RECEIVED BY THE APPELLANT IN PHYSICAL FORM AND THE SHARES WERE DULY TRANSFERRED IN THE NAME OF THE APPELLANT BY ITA NO.117/RPR/2014 47 LETTER OF THE COMPANY DTD. 17.8.2002 & 31.8.20 02. SHARE TRANSFER LETTER FROM BLUECHIP INDIA LTD WITH DISTINCTIVE NUMBERS, CERTIFICATE NUMBERS AND FOLIO NOS WERE ALSO SUBMITTED EVIDENCING THE TRANSFER OF SHARES IN THE NAME OF THE APPELLANT. D) THE SHARES WHICH WERE TRANSFERRED IN THE NAME OF THE APPELL ANT WERE LATER ON DEMATED ON 15.7.03, 24.7.03 & 24.7.03. COPIES OF DEMAT CONVERSION SLIPS IN THIS RESPECT WERE FILED BEFORE ME. E) IN THE DEMAT A/C FILED WITH ME, NAMELY FOR THE MONTH OF JULY, 2003 THE ABOVE 70,000 SHARES WERE DULY FOUND IN THE LIST OF DEM AT SHARES ALONG WITH OTHER SHARES F) THE ABOVE SHARES WERE SOLD THROUGH THE CALCUTTA STOCK EXCHANGE BROKER NAMELY PRAKASH NAHATA & CO. AND THE VARIOUS CONTRACTS NOTES/BILLS IN RESPECT OF SALES MADE HAVE BEEN FILED WITH ME. G) AFTER THE SALES WERE MADE, THE SHARES WERE DULY GIVEN DELIVERY BY DEMAT SLIP NO.246061 DT.11.11.03, NO.21550 DT 1.11.03, NO.215539 DT. 31.10.03, NO.215538 DT.29.10.03, NO.215537 DT.29.10.03, NO.215536 DT.27.10.03, NO.215535 DT. 22.10.03, NO.215534 DT. 22.10.03, NO.215533 DT. 20.10.03, NO.215531 DT. 10.9.03 H) THE APPELLANT IN HIS STATEMENT RECORDED U/S. 131 HAS CONFIRMED THE TRANSACTION BOTH OF PURCHASE AND SALE OF SHARES. I) THE SHARES PURCHASED OF BLUECHIP HAVE BEEN DULY SHOWN IN THE BALANCE SHEET FILED WITH THE DEPART MENT FOR THE YEA R ENDING 31 - 03 - 2003 I.E. IN THE YEAR IN WHICH THE SHARES WERE PURCHASED. J) THE PRICE AT WHICH THE SHARES WERE PURCHASED AND LATER ON SOLD ARE THE PRICES OF THE SHARES PREVAILING AT THE MATERIAL TIME OF THE TRANSACTION AND THIS ASPECT OF THE MATTER IS IND EPENDENTLY CONFIRMED BY THE DETAILS OBTAINED FROM THE BOMBAY STOCK EXCHANGE. IN MY VIEW WHEN THE APPELLANT HAS HIMSELF CATEGORICALLY SUBMITTED THAT THE TRANSACTION ENTERED INTO BY HIM WERE OFF MARKET, THERE IS NO ITA NO.117/RPR/2014 48 REASON WHY IT COULD NOT BE BELIEVED ESPECIA LLY IN VIEW OF THE FACT THAT THE NECESSARY EVIDENCE REQUIRED TO SUPPORT A TRANSACTION IS DULY SUBMITTED IN THE ASSESSMENT PROCEEDINGS AND ALSO BEFORE ME. THERE IS NO LAW WHICH PROHIBITS OFF MARKET TRANSACTIONS IN RESPECT OF SHARES WHICH ARE OTHERWISE LISTE D IN THE STOCK EXCHANGE. ON THE FACTS AND IN THE CIRCUMSTANCES THE OBSERVATION OF THE AO THAT THE TRANSACTION IS NOT GENUINE AND IS ENGINEERED WITH A SOLE INTENTION TO SHOW LTCG WHICH IS LIABLE TO LOWER RATE OF INCOME TAX IS BECAUSE OF (I) OFF MARKET TRANS ACTION, (II) THE PAYMENT FOR TRANSACTION IS PARTLY THOUGH CASH (III) PHYSICAL DELIVERY OF SHARES HAS BEEN GIVEN, (IV) PRINCE SECURITIES FROM WHOM THE SHARES WERE PURCHASED HAS NOT DEALT WITH IN THIS SHARES EXCEPT FOR THE APPELLANT., (V) PRINCE SECURITIES D ID NOT HAVE ANY DEMAT A/C, (VI) SHARES OF BLUECHIP LTD WERE DEMATED AFTER LONG TIME OF 16 MONTHS. (VII) SHARES WERE BROUGHT IN MUMBAI AND SOLD IN CALCUTTA, (VIII) SHARES OF BLUECHIP WERE NOT TRADED ON BSE ON THE DATES ON WHICH THE APPELLANT HAS DONE THE TR ANSACTIONS, (IX) SALE CONSIDERATION WAS RECEIVED AFTER A WEEK FROM THE DATE OF SALE, (X) THE REPLIES OF THE APPELLANT IN THE STATEMENT RECORDED U/S. 131 WERE EVASIVE (XI) THE APPELLANT HAS NOT SHOWN THE PURCHASE OF SHARES IN THE BALANCE SHEET AS ON 31.3.20 03 HAS BEEN DULY REFUTED BY TENDERING SUFFICIENT EVIDENCE AND, THEREFORE, IN MY VIEW THE DISBELIEF OF THE AO CAN ONLY PROVOKE A SUSPICION, MUCH LESS A BELIEF ABOUT THE TRANSACTION AND IN MY VIEW, THE SUSPICION OF THE AO CANNOT CLINCH THE TRANSACTION AGAINS T THE APPELLANT. THE VARIOUS CASE LAWS RELIED UPON BY THE AO VIZ. OF THE ITAT, CHANDIGARH A BENCH IN THE CASE OF SOMNATH MANI REPORTED 100 TTJ 917, THE SUPREME COURT DECISION IN MCDOWELL & CO. LTD. 154 ITR 148 & SUPREME COURT DECISION IN THE CASE OF AZAD B ACHAO ANDOLAN REPORTED IN 263 ITR 706 HAS BEEN DULY EMPHASIZED BY THE AO WHILE BRINGING TO TAX LTCG AS UNEXPLAINED INCOME. THEREFORE, IN MY CONSIDERED VIEW, THE LONG TERM CAPITAL GAINS EARNED BY THE APPELLANT ITA NO.117/RPR/2014 49 OF RS.29,09,675 SHOULD BE TAXED AS SUCH AND NOT AS INCOME FROM UNDISCLOSED SOURCES. THE GROUNDS OF APPEAL ARE ALLOWED.' IT IS CLEAR FROM THE FINDING OF THE CIT(A) THAT THE SHARES OF BLUE CHIP INDIA LTD. WERE DULY SHOWN IN THE BALANCE SHEET FILED WITH THE RETURN OF INCOME FOR THE A.Y. 2003 - 04 AND, THERE FORE, THE ASSESSEE HAS DISCHARGED HIS ONUS TO PROVE THE HOLDING OF THE SHARES AND IN THE ABSENCE OF ANY CONTRARY EVIDENCE BROUGHT BY THE ASSESSING OFFICER ON RECORD, IT CANNOT BE SAID THAT THE TRANSACTION OF PURCHASE SHOWN BY THE ASSESSEE IS NOT GENUINE. I N THE CASE OF CIT VS. JAMNADEVI AGARWAL (SUPRA), THE HON'BLE JURISDICTIONAL HIGH COURT WHILE DEALING WITH SIMILAR ISSUE HAS OBSERVED AND HELD AS UNDER: 'WE SEE NO MERIT IN THE ABOVE CONTENTIONS. THE FACT THAT THE ASSESSEES IN THE GROUP HAVE PURCHASED AND S OLD SHARES OF SIMILAR COMPANIES THROUGH THE SAME BROKER CANNOT BE A GROUND TO HOLD THAT THE TRANSACTIONS ARE SHAM AND BOGUS, ESPECIALLY WHEN DOCUMENTARY EVIDENCE WAS PRODUCED TO ESTABLISH THE GENUINENESS OF THE CLAIM. FROM THE DOCUMENTS PRODUCED BEFORE US, WHICH WERE ALSO IN THE POSSESSION OF THE ASSESSING OFFICER, IT IS SEEN THAT THE SHARES IN QUESTION WERE IN FACT PURCHASED BY THE ASSESSEES ON THE RESPECTIVE DATES AND THE COMPANY HAS CONFIRMED TO HAVE HANDED OVER THE SHARES PURCHASED BY THE ASSESSEES. SIM ILARLY, THE SALE OF THE SHARES TO THE RESPECTIVE BUYERS IS ALSO ESTABLISHED BY PRODUCING DOCUMENTARY EVIDENCE. IT IS TRUE THAT SOME OF THE TRANSACTIONS WERE OFF - MARKET TRANSACTIONS. HOWEVER, THE PURCHASE AND SALE PRICE OF THE SHARES DECLARED BY THE ASSESSE ES WERE IN CONFORMITY WITH THE MARKET RATES PREVAILING ON THE RESPECTIVE DATES AS IS SEEN FROM THE DOCUMENTS FURNISHED BY THE ASSESSEES. THEREFORE, THE FACT THAT SOME OF THE TRANSACTIONS WERE OFF - MARKET TRANSACTIONS CANNOT BE A GROUND TO TREAT THE TRANSACT IONS AS SHAM TRANSACTIONS. THE STATEMENT OF PRADEEP KUMAR DAGA THAT THE TRANSACTIONS WITH THE HALDIRAM GROUP WERE BOGUS HAS BEEN DEMONSTRATED TO BE WRONG BY PRODUCING DOCUMENTARY EVIDENCE TO THE EFFECT THAT THE SHARES ITA NO.117/RPR/2014 50 SOLD BY THE ASSESSEES WERE IN CONSONAN CE WITH THE MARKET PRICE. ON A PERUSAL OF THOSE DOCUMENTARY EVIDENCE, THE TRIBUNAL HAS ARRIVED AT A FINDING OF FACT THAT THE TRANSACTIONS WERE GENUINE. NOTHING IS BROUGHT TO OUR NOTICE THAT THE FINDINGS RECORDED BY THE TRIBUNAL ARE CONTRARY TO THE DOCUMENT ARY EVIDENCE ON RECORD. THE TRIBUNAL HAS FURTHER RECORDED A FINDING OF FACT THAT THE CASH CREDITS IN THE BANK ACCOUNTS OF SOME OF THE BUYERS OF SHARES CANNOT BE LINKED TO THE ASSESSEES. MOREOVER, IN THE LIGHT OF THE DOCUMENTARY EVIDENCE ADDUCED TO SHOW THA T THE SHARES PURCHASED AND SOLD BY THE ASSESSEES WERE IN CONFORMITY WITH THE MARKET PRICE, THE TRIBUNAL RECORDED A FINDING OF FACT THAT THE CASH CREDITS IN THE BUYERS' BANK ACCOUNTS CANNOT BE ATTRIBUTED TO THE ASSESSEES. NO FAULT CAN BE FOUND WITH THE ABOV E FINDING RECORDED BY THE TRIBUNAL. RELIANCE PLACED BY THE COUNSEL FOR THE REVENUE ON THE DECISION OF THE APEX COURT IN THE CASE OF SUMATI DAYAL [1995] 214 ITR 801 IS WHOLLY MISPLACED. IN THAT CASE, THE ASSESSEE THEREIN HAD CLAIMED INCOME FROM HORSE RACES AND THE FINDING OF FACT RECORDED WAS THAT THE ASSESSEE THEREIN HAD NOT PARTICIPATED IN RACES, BUT PURCHASED WINNING TICKETS AFTER THE RACE WITH THE UNACCOUNTED MONEY. IN THE PRESENT CASE, THE DOCUMENTARY EVIDENCE CLEARLY SHOWS THAT THE TRANSACTIONS WERE A T THE RATE PREVAILING IN THE STOCK MARKET AND THERE WAS NO QUESTION OF INTRODUCING UNACCOUNTED MONEY BY THE ASSESSEES. THUS, THE DECISION RELIED UPON BY THE COUNSEL FOR THE REVENUE IS WHOLLY DISTINGUISHABLE ON THE FACTS. FOR ALL THE AFORESAID REASONS, WE H OLD THAT THE DECISION OF THE TRIBUNAL IS BASED ON FINDINGS OF FACT. NO SUBSTANTIAL QUESTION OF LAW ARISES FROM THE ORDER OF THE TRIBUNAL. ACCORDINGLY, ALL THESE APPEALS ARE DISMISSED. NO ORDER AS TO COSTS.' THUS, IT IS CLEAR THAT WHEN THE ASSESSEE HAS PROD UCED ALL THE RELEVANT EVIDENCE IN SUPPORT OF THE CLAIM WHICH HAS NOT BEEN PROVED TO BE FALSE, THEN THE CLAIM OF THE ASSESSEE CANNOT BE DENIED. AS FAR AS THE DECISION OF THE CHANDIGARH BENCH OF THIS TRIBUNAL IS ITA NO.117/RPR/2014 51 CONCERNED THE SAME IS NOT APPLICABLE IN THE FA CTS OF PRESENT CASE WHEN THERE IS NO SUCH GLARING CONTRADICTION AS POINTED OUT BY THE TRIBUNAL IN THE SAID CASE REGARDING THE SHARES REMAINED IN THE NAME OF THE ASSESSEE EVEN LONG AFTER THE SALE OF THE SHARES AND NON - AVAILABILITY OF INFORMATION. IN THE CAS E IN HAND, THE SALE TRANSACTION HAS BEEN DULY EXECUTED THROUGH DEMAT ACCOUNT AND, THEREFORE, THERE IS NO AMBIGUITY OR DOUBT ABOUT THE TRANSACTION OF SALE. 20 . THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KAMAL KUMAR AGRAWAL, ITA NO.67 OF 2010, VID E ORDER DATED 23.09.2010, HAS HELD AS UNDER: - 11) WE SEE NO MERIT IN THE ABOVE CONTENTIONS. THE FACT THAT THE ASSESSEES IN THE GROUP HAVE PURCHASED AND SOLD SHARES OF SIMILAR COMPANIES THROUGH THE SAME BROKER CANNOT BE A GROUND TO HOLD THAT THE TRANSACTIO NS ARE SHAM AND BOGUS, ESPECIALLY WHEN DOCUMENTARY EVIDENCE WAS PRODUCED TO ESTABLISH THE GENUINENESS OF THE CLAIM . 12) FROM THE DOCUMENTS PRODUCED BEFORE US, WHICH WERE ALSO IN POSSESSION OF THE ASSESSING OFFICER, IT IS SEEN THAT THE SHARES IN QUESTION W ERE IN FACT PURCHASED BY THE ASSESSEES ON THE RESPECTIVE DATES AND THE COMPANY HAS CONFIRMED TO HAVE HANDED OVER THE SHARES PURCHASED BY THE ASSESSEES. SIMILARLY, THE SALE OF THE SHARES TO THE RESPECTIVE BUYERS IS ALSO ESTABLISHED BY PRODUCING DOCUMENTARY EVIDENCE. IT IS TRUE THAT SOME OF THE TRANSACTIONS WERE OFF - MARKET TRANSACTIONS. HOWEVER, THE PURCHASE AND SALE PRICE OF THE SHARES DECLARED BY THE ASSESSEES WERE IN CONFORMITY WITH THE MARKET RATES PREVAILING ON THE RESPECTIVE DATES AS IS SEEN FROM THE DO CUMENTS FURNISHED BY THE ASSESSEES. THEREFORE, THE FACT THAT SOME OF THE TRANSACTIONS WERE OFF MARKET TRANSACTIONS CANNOT BE A GROUND TO TREAT THE TRANSACTIONS AS SHAM TRANSACTIONS . ITA NO.117/RPR/2014 52 13) THE STATEMENT OF PRADEEP KUMAR DAGA THAT THE TRANSACTIONS WITH THE HA LDIRAM GROUP WERE BOGUS HAS BEEN DEMONSTRATED TO BE WRONG BY PRODUCING DOCUMENTARY EVIDENCE TO THE EFFECT THAT THE SHARES SOLD BY THE ASSESSES WERE IN CONSONANCE WITH THE MARKET PRICE. ON PERUSAL OF THOSE DOCUMENTARY EVIDENCE, THE TRIBUNAL HAS ARRIVED AT A FINDING OF FACT THAT THE TRANSACTIONS WERE GENUINE. NOTHING IS BROUGHT TO OUR NOTICE THAT THE FINDINGS RECORDED BY THE TRIBUNAL ARE CONTRARY TO THE DOCUMENTARY EVIDENCE ON RECORD. 14) THE TRIBUNAL HAS FURTHER RECORDED A FINDING OF FACT THAT THE CASH CRED ITS IN THE BANK ACCOUNTS OF SOME OF THE BUYERS OF SHARES CANNOT BE LINKED TO THE ASSESSEES. MOREOVER, IN THE LIGHT OF THE DOCUMENTARY EVIDENCE ADDUCED TO SHOW THAT THE SHARES PURCHASED AND SOLD BY THE ASSESSEES WERE IN CONFORMITY WITH THE MARKET PRICE, THE TRIBUNAL RECORDED A FINDING OF FACT THAT THE CASH CREDITS IN THE BUYERS' BANK ACCOUNTS CANNOT BE ATTRIBUTED TO THE ASSESSEES. NO FAULT CAN BE FOUND WITH THE ABOVE FINDING RECORDED BY THE TRIBUNAL . 15) RELIANCE PLACED BY THE COUNSEL FOR THE REVENUE ON THE DECISION OF THE APEX COURT IN THE CASE OF SUMATI DAYAL (SUPRA) IS WHOLLY MISPLACED. IN THAT CASE, THE ASSESSEE THEREIN HAD CLAIMED INCOME FROM HORSE RACES AND THE FINDING OF FACT RECORDED WAS THAT THE ASSESSEE THEREIN HAD NOT PARTICIPATED IN RACES, BUT PU RCHASED WINNING TICKETS AFTER THE RACE WITH THE UNACCOUNTED MONEY. IN THE PRESENT CASE, THE DOCUMENTARY EVIDENCE CLEARLY SHOWS THAT THE TRANSACTIONS WERE AT THE RATE PREVAILING IN THE STOCK MARKET AND THERE WAS NO QUESTION OF INTRODUCING UNACCOUNTED MONEY BY THE ASSESSEES. THUS, THE DECISION RELIED UPON BY THE COUNSEL FOR THE REVENUE IS WHOLLY DISTINGUISHABLE ON FACTS . 16) FOR ALL THE AFORESAID REASONS, WE HOLD THAT THE DECISION OF THE TRIBUNAL IS BASED ON FINDING OF FACTS. NO SUBSTANTIAL QUESTION OF LAW A RISES FROM THE ORDER OF THE TRIBUNAL. ACCORDINGLY, ALL THESE APPEALS ARE DISMISSED. NO ORDER AS TO COSTS ITA NO.117/RPR/2014 53 21 . THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. MUKESH RATILAL MAROLIA, (2012) 80 CCH 0407 (MUMHC), HAS HELD AS UNDER: - PC, 1. WHETHER TH E ITAT WAS JUSTIFIED IN DELETING THE AMOUNT OF RS.1,41,08,484/ - RECEIVED BY THE ASSESSEE ON SALE OF THE SHARES AS UNEXPLAINED INVESTMENT UNDER SECTION 69 OF THE INCOME TAX ACT, 1961 IS THE QUESTION RAISED IN THIS APPEAL. 2. THE ASSESSMENT YEAR INVOLVED H EREIN IS A.Y.2001 - 2002. 3. THE ASSESSEE WAS CARRYING ON BUSINESS OF MANUFACTURING HANDKERCHIEFS AS THE PROPRIETOR OF RUMAL MANUFACTURING COMPANY. IN THE ASSESSMENT YEAR IN QUESTION THE ASSESSEE CLAIMED THAT HE HAD SOLD THE SHARES OF FOUR COMPANIES, NAMELY , M/S ALANG INDUSTRIAL GASES LTD., MOBILE TELECOMMUNICATION LTD., M/S RASHEL AGROTECH LTD. AND M/S. SENTIL AGROTECH LTD, WHICH WERE PURCHASED DURING THE YEAR 1999 - 2000 AND 2000 - 2001. THE ENTIRE SALE CONSIDERATION AMOUNTING TO RS. 1,41,08,484/ - WAS UTILISED FOR THE PURCHASE OF A FLAT AT COLABA, MUMBAI AND ACCORDINGLY BENEFIT OF SECTION 54E OF THE INCOME TAX ACT, 1961 WAS CLAIMED. 4. THE ASSESSING OFFICER HAS HELD THAT NEITHER THE PURCHASE NOR SALE OF SHARES WERE GENUINE AND THAT THE AMOUNT OF RS.1,41,08,48 4/ - STATED TO HAVE BEEN RECEIVED BY THE ASSESSEE ON SALE OF SHARES WAS UNDISCLOSED INCOME AND ACCORDINGLY MADE ADDITION UNDER SECTION 69 OF THE INCOME TAX ACT, 1961. THE APPEAL FILED BY THE ASSESSEE WAS DISMISSED BY CIT(A). 5. ON FURTHER APPEAL, THE ITAT BY THE IMPUGNED ORDER ALLOWED THE CLAIM OF THE ASSESSEE BY RECORDING THAT THE PURCHASE OF SHARES DURING THE YEAR 1999 - 2000 AND 2000 - 2001 WERE DULY RECORDED IN THE BOOKS MAINTAINED BY THE ASSESSEE. THE ITAT HAS RECORDED A FINDING THAT THE SOURCE OF FUNDS F OR ACQUISITION OF THE SHARES WAS THE AGRICULTURAL INCOME WHICH WAS DULY OFFERED AND ASSESSED TO TAX IN THOSE ASSESSMENT YEARS. THE ASSESSEE HAS PRODUCED CERTIFICATES FROM THE AFORESAID FOUR COMPANIES TO THE EFFECT THAT THE SHARES WERE IN - FACT TRANSFERRED T O THE NAME OF THE ASSESSEE. IN THESE ITA NO.117/RPR/2014 54 CIRCUMSTANCES, THE DECISION OF THE ITAT IN HOLDING THAT THE ASSESSEE HAD PURCHASED SHARES OUT OF THE FUNDS DULY DISCLOSED BY THE ASSESSEE CANNOT BE FAULTED. 6 . SIMILARLY, THE SALE OF THE SAID SHARES FOR RS.1,41,08,484 / - THROUGH TWO BROKERS NAMELY, M/S RICHMOND SECURITIES PVT. LTD. AND M/S SCORPIO MANAGEMENT CONSULTANTS PVT. LTD. CANNOT BE DISPUTED BECAUSE THE FACT THAT THE ASSESSEE HAS RECEIVED THE SAID AMOUNT IS NOT IN DISPUTE. IT IS NEITHER THE CASE OF THE REVENUE T HAT THE SHARES IN QUESTION ARE STILL LYING WITH THE ASSESSEE NOR IT IS THE CASE OF THE REVENUE THAT THE AMOUNTS RECEIVED BY THE ASSESSEE ON SALE OF THE SHARES IS MORE THAN WHAT IS DECLARED BY THE ASSESSEE. THOUGH THERE IS SOME DISCREPANCY IN THE STATEMENT OF THE DIRECTOR OF M/S. RICHMAND SECURITIES PVT. LTD. REGARDING THE SALE TRANSACTION, THE TRIBUNAL RELYING ON THE STATEMENT OF THE EMPLOYEE OF M/S. RICHMAND SECURITIES PVT. LTD. HELD THAT THE SALE TRANSACTION WAS GENUINE. 7. IN THESE CIRCUMSTANCES, THE D ECISION OF THE ITAT IN HOLDING THAT THE PURCHASE AND SALE OF SHARES ARE GENUINE AND THEREFORE THE ASSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING THAT THE AMOUNT OF RS.1,41,08,484/ - REPRESENTED UNEXPLAINED INVESTMENT UNDER SECTION 69 OF THE INCOME TAX ACT, 1961 CANNOT BE FAULTED. 8. IN THE RESULT, WE SEE NO MERIT IN THIS APPEAL AND THE SAME IS DISMISSED WITH NO ORDER AS TO COSTS. 22 . THE MAIN CONTENTION OF THE REVENUE IN THE INSTANT CASE IS THAT THE PURCHASE OF 9000 SHARES OF M/S BOLT O N PROPERTIES LTD. WE RE CLAIMED TO HAVE BEEN MADE BY THE ASSESSEE FROM M/S STOCK HOME, WHOSE PROPRIETOR WAS SHRI ANIL KUMAR JHUNJHUNWALA, MEMBER OF THE MAGADH STOCK EXCHANGE INFORMED THE AO THAT NO SUCH PERSON NAMED AS SHRI ANIL KUMAR JHUNJHUNWALA, PROPRIETOR OF M/S STOCK HOME WAS KNOWN TO THEM SINCE 1991. FURTHER THE PAYMENTS FOR PURCHASES WERE MADE IN CASH. ITA NO.117/RPR/2014 55 THUS, THE AO DOUBTED ON THE GENUINENESS OF PURCHASE OF SAID SHARES IN APRIL, 2003 FOR RS. 33,15,612/ - . 23 . WE FIND THAT THE ASSESSEE HAS PLACED AT PAGE NO.19 TO 20 OF THE P APER BOOK, COPY OF SHARE CERTIFICATES OF M/S BOLTON PROPERTIES LTD. WHICH SHOWS THAT THE SAID COMPANY ENDORSED THE SHARES IN THE NAME OF THE ASSESSEE ON 18.08.2003. THUS, WE FIND THAT IT IS NOT IN DISPUTE THAT THE ASSESSEE ACTUALLY PURCHASED THE SHARES IN QUESTION BEFORE 18 TH AUGUST 2003, WHICH IS DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2004 - 05. THE RETURN OF INCOME OF THE ASSESSEE IN THE ASSESSMENT YEAR 2004 - 05 HAS BEEN ACCEPTED BY THE DEPARTMENT AND NO ACTION WAS TAKEN BY THE AO IN THE CASE O F ASSESSEE FOR THE ASSESSMENT YEAR 2004 - 05. THEREFORE, THE TRANSACTION OF PURCHASE HAVE BECOME FINAL AND IT IS APPARENT FROM THE FACTS ON RECORD THAT THE ASSESSEE PURCHASED SHARES IN QUESTION BEFORE 18 TH AUGUST, 2003 AND THE SAID SHARES WERE A LONG TERM CA PITAL ASSET IN MARCH, 2005 WHEN THE ASSESSEE SOLD THOSE SHARES. NO OTHER SPECIFIC DEFECT IN THE ORDER OF THE CIT(A) COULD BE POINTED OUT BY THE DR. 24 . IT IS A SETTLED POSITION OF LAW THAT SUSPICION ALONE CANNOT BE THE BASIS FOR MAKING AN ADDITION IN AN AS SESSMENT. SUSPICION CANNOT TAKE PLACE OF PROOF. IN THE INSTANT CASE, WE FIND NO MATERIAL COULD BE BROUGHT ON RECORD BY THE REVENUE TO IMPEACH THE RELATED TRANSACTIONS. IN VIEW OF THE FACTS OF THE INSTANT CASE AND THE DECISIONS DISCUSSED HEREINABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). HENCE, THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. ITA NO.117/RPR/2014 56 25 . BRIEF FACTS RELATING TO GROUND NO. 2 ARE THAT T HE A. O HAS STATED THAT DURING THE YEAR THE ASSESSEE HAS SHOWN GROSS PROFIT OF 7.67% AGAINST 12.14% AND 1 1. 46% IN THE PRECEDING TWO YEARS . THE ASSESSEE EXPLAINED THAT THE RATE OF PROFIT CAME DOWN FROM THE LAST YEAR DUE TO INCREASE IN THE RATE OF DIESEL, PETROL AND LABOUR AND THE PROFIT OF THE ASSESSEE HAS DECREASED SUBSTANTIALLY TO 7.67% DURING THE YEAR FROM 12.14% IN THE IMMEDIATELY PRECEDING YEAR . THE AO FOUND THAT THE LABOUR PAYMENT WAS RS. 1 ,74,51,183/ - AS COMPARED TO RS.93,87,328/ - AND IN TERMS OF PERCENT AGE IT WAS 33.38% AGAINST 25.01 %, THUS, THE INCREASE IS MORE THAN 8.35% ON THIS ACCOUNT . T HE EXPLANATIO N CANNOT BE ACCEPTED IN TOTO BECAUSE THE CONTRACT NOTE ARE PETTY AMOUNTS AND WOULD CONSTITUTE A VERY SMALL PORTION OF THE TOTAL CONTRACT RECEIPTS . D URING THE ASSESSMENT PROCEEDINGS THE WAGE PAYMENT REGISTER WAS SEEN . I T WAS NOTICE THAT THE ASSESSEE HAS BEE N MAKING PAYMENT OF WAGES TO THE LABOURERS ON WEEKLY BASIS ON EVERY SATURDAY. T HE LAST SATURDAY OF THE YEAR WAS ON 26TH MARCH 2005 . S INCE THE LABOURERS NORMALLY TAKE LEAVE ON SUNDAY, ONLY FOUR WORKING DAYS OF THE YEAR WOULD BE LEFT FOR PAYMENT OF THE LABO UR CHARGES . H OWEVER, IN THE BALANCE SHEET THE AMOUNT OF SUNDRY CREDITORS FOR WAGE AND LABOUR PAYMENT WAS RS.30,76,968/ - . T HE AVERAGE WAGE PAYMENT PER WEEK COMES TO RS.3.35 LAKH APPROXIMATELY . I T WAS ALSO SEEN FROM THE WAGE REGISTER THAT THE AMOUNT OF PAYME NT PER WEEK IN THE LAST COUPLE OF MONTHS WAS AROUND RS.6 TO RS.7 LAKH PER MONTH . C ONSIDERING THAT ONLY FOUR WORKING DAYS WERE LEFT AFTER THE LAST WAGE PAYMENT WAS MADE THE OUTSTANDING AMOUNT OF RS.30,76,968/ - APPEARS TO BE UNREASONABLE, ITA NO.117/RPR/2014 57 EXCESSIVE AND WITHO UT ANY BASIS . I N VIEW OF THE DISCUSSION, THE WAGES OUTSTANDING AS ON 31.03.2005 I.E. THURSDAY COULD AT BEST BE RS.5 LAKHS FOR THE PARTICULAR WEEK . T HE COMBINED WAGES FOR THE LAST WEEK AND THE OUTSTANDING AMOUNT OF THE EARLIER PERIOD CANNOT BE MORE THAN RS. 10 LAKH . THE ASSESSEE HAS SHOWN CREDITOR FOR WAGES AT RS.30,76,968/ - . H ENCE, THE AO ADDED RS.20,76,968/ - AS THE UNEXPLAINED LABOUR/WAGE EXPENSES TO THE TOTAL INCOME OF THE ASSESSEE. 26 . AGAINST THE ORDER OF AO, THE ASSESSEE CARRIED THE MATTER BEFORE THE C IT(A) AND SUBMITTED THAT ALL BOOKS OF ACCOUNT, BI LL, VOUCHERS AND WAGES SHEETS/ REGISTER / MUSTER ROLL ETC PRODUCED BEFORE THE A.O DURING THE COURSE OF ASSESSMENT . T HE A.O CHECKED THE ALL BILLS, VOUCHERS, WAGES SHEETS / REGISTER / MUSTER ROLL ETC MAINTAINED BY THE ASSESSEE. H E HAD NOT FOUND ANY DEFECTS OR MISTAKE IN BOOKS OF ACCOUNT, BILLS, VOUCHERS AND WAGES SHEETS / REGISTER / MUSTER ROLL MAINTAINED BY THE ASSESSEE. T HE ASSESSEE HAS NOT POINTED OUT ANY SPECIFIC MISTAKE OR DEFECTS IN BOOKS OF ACCOUNTS OR BI LL, WAGES SHEETS / REGISTER / MUSTER ROLL AND VOUCHERS MAINTAINED BY THE ASSESSEE. THE ASSESSEE MAINTAINED REGULAR BOOKS OF ACCOUNT . H E MAINTAINED BOOKS OF ACCOUNTS ON MERCANTILE BASIS AND THE SAME METHOD REGULARLY FOLLOWED BY THE ASSESSEE FROM EARLIER YEA RS; THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE GOT AUDITED BY THE CHARTERED ACCOUNTANT . H E HAS ALSO NOT POINTED OUT ANY DEFECTS IN BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. THE ASSESSEE EXPLAINED THE REASON FOR LOW GROSS PROFIT BEFORE THE A.O . T HE RATE OF DIESEL, PETROL AND LABOUR INCREASED FROM LAST YEAR . THE MAINTENANCE OF TRUCKS LOADER AND ITA NO.117/RPR/2014 58 OTHER MACHINERIES ALSO INCREASED FROM LAST YEAR DUE TO THE ABOVE MACHINERIES WERE OLD . T HE RECEIPT ALSO INCREASED FROM LAST YEAR AND LAST YEAR THE RECEIPT WAS RS.488.37 LACS AND DURING THE YEAR UNDER CONSIDERATION IT WAS RS.702.11 LACS . IN THE ABOVE CHART THE PERCENTAGE OF LABOUR EXPENSES INCREASED BUT PERCENTAGE OF OTHER EXPENSES REDUCED FROM LAST YEAR ALSO . T HE CONTRACT NOTE ALONG WITH ALL BOOKS OF ACCOUN T, BILL , VOUCHERS AND WAGES SHEETS / REGISTER / MUSTER ROLL ETC . PRODUCED BEFORE THE A.O . T HE ASSESSEE HAD MADE THE 72.90% LABOUR PAYMENT ON MONTHLY B ASIS . T HE MAJOR RECEIPTS RECEIVED DURING THE YEAR UNDER CON SIDERATION IN LAST THREE MONTHS. T HE A.O HAD C ALCULATED THE OUTSTANDING LABOUR PAYMENT ON PRESUMPTIVE BASIS . T HE ASSESSEE HAD DEDUCTED AND PAID P.F. RS.2,84,882/ - DURING THE YEAR UNDER CONSIDERATION . T HE LIABILITY OF PAYMENT OF P.F. IS ARISES ON PERMANENT LABOUR ONLY. THE ASSESSEE PLACE D HIS RELIANCE ON FOLLOWING JUDICIAL PRONOUNCEMENTS: - (I) MD. UMER VS. CIT 101 ITR 525 THE HON'BLE PATNA HIGH COURT; (II) PAPER AGENTS VS. ITO 12 TT J 108 THE HON 'BLE CALCUTTA TRIBUNAL; (III) ITO VS. ARUN KUMAR GUPTA 103 TT J 134 THE HON'BLE TRIBUNAL; (IV) DCIT VS. GA JANAN TRADERS 104 TT J 1030 THE HON'BLE TRIBUNAL; (V) HON'BLE SUPREME COURT IN CASE OF BRIJ BHUSHAN PARDUMAN KUMAR VS. CIT 115 ITR 524; (VI) KUMAR ACROSOLES (P) LTD. VS. ACIT 55 TT J 385 THE HON'BLE DELHI TRIBUNAL; (VII) MISRI PRASAD JAIRAM VS. ITO 10 TT J 382 THE HON'BLE ALLAHABAD TRIBUNAL; 27 . THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE DELETED THE ADDITIONS BY OBSERVING AS UNDER : - 30. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT. THE BOOKS OF ACCOU NTS ARE AUDITED U/S 44AB. THE BOOKS OF ACCOUNTS, BILLS AND VOUCHERS, WAGES SHEETS / REGISTER / MUSTER ROLL ET C WERE PRODUCED AND TEST CHECKED. IT ITA NO.117/RPR/2014 59 REMAINS AN UNDISPUTED FACT THAT THE APPELLANT DID HAVE PERMANENT LABOUR FORCE AS AGAINST PRESUMPTION OF THE A. O THAT THE ENTIRE WORK FORCE IS TEMPORARY. THE A.O HAS NOT DISPUTED THE SUBMISSION OF THE APPELLANT THAT THERE WAS CHANGE IN THE NATURE OF WORK INASMUCH AS THE CONTRACTS EXECUTED DURING THE YEAR UNDER CONSIDERATION WERE MORE. LABOUR INTENSIVE AND THUS, INV OLVED MORE COST ON WAGES. IT IS SEEN THAT, THE A.O HAS NOT POINTED OUT ANY DISCREPANCY IN THE BOOKS OF ACCOUNTS, BILLS/VOUCHERS, NOR DID THE A.O OPINE THAT THE BOOKS OF ACCOUNTS WERE INCOMPLETE. IT IS SETTLED PRINCIPLE OF LAW THAT NO ADDITION CAN BE MADE O N THE GROUND OF LOWER GP RATE, UNTIL AND UNLESS, THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED BY THE A.O, BY INVOKING THE PROVISIONS OF SECTION 145, AFTER GIVING THE APPELLANT A REASONABLE , O PPORTUNITY OF BEING HEARD. FURTHER, IT IS EQUALLY SETTLED LEGAL POSIT ION THAT THE BOOKS OF ACCOUNTS CANNOT BE REJECTED MERELY ON THE GROUND OF LOW GP RATE. RATHER, THE A.O HAS TO BRI NG ON RECORD SPEC I FI C DEFECT IN THE BOOKS OF ACCOUNTS OF THE APPELLANT AS A RESULT OF WHICH REASONABLE PROFITS CANNOT BE DEDUCED. I AM OF THE C ONSIDERED OPINION THAT THE A. O HAS MADE AD HOC DISALLOWANCES; THAT THE A. O HAS NOT POINTED OUT ANY INSTANCE OF BOGUS CLAIM OR EXPENDITURE CLAIMED THAT REMAINED UNVERIFIED FOR WANT OF BILL OR VOUCHER. 31. I FIND THAT NO EVIDENCE WHATSOEVER HAS B EEN BROUGH T ON RECORD BY THE A.O TO CONCLUSIVELY PROVE THAT THE APPELLANT, IN FACT, EARNED MORE THAN THAT RETURNED BY THE APPELLANT. THE A. O HAD ALSO NOT BROUGHT ANY EVIDENCE ON RECORD TO SUBSTANTIATE THE IMPUGNED ADDITIONS MADE ON WILD ESTIMATIONS AND SUSPICIONS. I N THE EVENT OF ANY DOUBT OR DISAGREEMENT WITH THE STATED FACTS, BEFORE ANY ADVERSITY WAS HELD AGAINST THE APPELLANT TO ASSESS THE APPELLANT ON SUCH UNSUBSTANTIATED ESTIMATIONS, IT WAS INCUMBENT UPON THE A. O TO HAVE BROUGHT THE NEEDED EVIDENCE TO SUPPORT SU CH ESTIMATION. IN THE INSTANT CASE, NO SUCH EVIDENCE HAS BEEN BROUGHT ON RECORD AGAINST THE APPELLANT TO SUBSTANTIATE THE IMPUGNED ESTIMATED ADDITION. ITA NO.117/RPR/2014 60 32. I AM OF THE CONSIDERED OPINION THAT THE ADHOC DISALLOWANCES MADE ON ESTIMATIONS AND PRESUMPTIONS IS UNSUSTAINABLE ON FACTS AND IN LAW BECAUSE THE DECLARED RESULTS WERE ON THE BASIS OF AUDITED BOOKS OF ACCOUNTS AND NO SUPPRESSION IN SALES OR INFLATION IN PURCHASES WAS DETECTED - MUCH LESS WAS ANY SERIOUS DISCREPANCY POINTED OUT IN THE METHOD OF ACCOUNTIN G CONSISTENTLY BEING EMPLOYED BY THE APPELLANT. THERE WAS NO FINDING OF FACT TO THE EFFECT THAT, THE METHOD EMPLOYED WAS SUCH THAT, CORRECT PROFITS COULD NOT BE DEDUCED THERE FROM. NO EVIDENCE WHATSOEVER WAS BROUGHT ON RECORD TO PROVE THAT THE APPELLANT, D URING THE RELEVANT PREVIOUS YEAR, HAD EARNED MORE THAN THAT RETURNED AS PER AUDITED BOOKS OF ACCOUNTS. UNLESS THESE ARE CONCLUSIVELY PROVED AGAINST THE APPELLANT, ANY ESTIMATED ENHANCEMENT TO THE INCOME DECLARED ON THE BASIS OF AUDITED BOOKS, WAS UNSUSTAIN ABLE ON FACTS AND IN LAW. THE QUANTUM OF EXPENSES CLAIMED UNDER THE VARIOUS HEADS WERE REASONABLE AND IN CONSONANCE WITH REFERENCE TO THE TURNOVER. THE A O HAD NOT SPECIFIED THE QUANTUM OF EXPENSES WHICH, ACCORDING TO HIM, WERE EITHER UNVERIFIABLE OR DISALL OWABLE. IN ORDER TO KEEP A COMPLETE TRACK AND CONTROL OVER THE INCOMINGS AND OUTGOINGS, IT WAS ALL THE MORE NECESSARY FOR THE APPELLANT - IN THE GIVEN FACTS AND CIRCUMSTANCES - TO MAKE PAYMENTS AND GET THEM ACKNOWLEDGED ON THE INTERNAL VOUCHERS PREPARED. T HERE IS NO FACTUAL OR LEGAL PROHIBITION FOR SUCH PRACTICE ADOPTED BY THE APPELLANT, PARTICULARLY, WHEN IT WAS FOR THE APPELLANT - CONSIDERING THE BUSINESS INTEREST - TO ORGANIZE THE BUSINESS AFFAIRS IN THE MANNER TO THE BEST OF ITS BUSINESS INTEREST. AS AL READY STATED, THE ACCOUNTS ARE STATUTORILY AUDITED AND THE DECLARED VERSION ON THE BASIS OF SUCH AUDITED ACCOUNTS WAS VIRTUALLY ACCEPTED SINCE THERE WAS NO ESTIMATION OF GP OR NP. IN THE GIVEN FACTS AND CIRCUMSTANCES, THERE WAS NO JUSTIFICATION FOR MAKING ADHOC ESTIMATED DISALLOWANCES OUT OF EXPENSES CLAIMED, AS HELD IN MONARCH FOODS PVT. LTD. V. ACIT (1996) 54 TTJ (ARD.) 405 AND RAJ ENTERPRISES V. ITO (1995) 51 TT J (JAIPUR) 408. ITA NO.117/RPR/2014 61 33. WHEN BOOKS WERE NOT REJECTED AND WHEN THE INCOME WAS NOT ESTIMATED AND WHEN THE INCOME RETURNED WAS ACCEPTED AS CORRECT, WITHOUT DISTURBING THE SAME, IT IS NOT UNDERSTOOD AS TO HOW IN A SCRUTINY ASSESSMENT SUCH ADHOC DISALLOWANCES WERE PERMISSIBLE, PARTICULARLY, WHEN NO EVIDENCE WHATSOEVER WAS BROUGHT ON RECORD AGAINST THE AP PELLANT TO JUSTIFY SUCH ADHOC DISALLOWANCES. SINCE, THE LOSS RETURNED ON THE BASIS OF AUDITED BOOKS WAS ACCEPTED AS CORRECT, IT IS IMPLIED THAT, THE CORRECTNESS AND GENUINENESS OF THE EXPENSES CLAIMED IN THE ACCOUNTS, WHICH WERE SUBJECTED TO AUDIT, STOOD U NDISPUTEDLY ACCEPTED. THE AUDITORS WHO CONDUCTED STATUTORY AUDIT HAD NOT ADVERSELY COMMENTED REGARDING THE INCOMINGS 1 OUTGOINGS. SUCH ADHOC DISALLOWANCES ARE ALSO UNSUSTAINABLE IN VIEW OF THE DECISION OF THE HON'BLE ITAT, NAGPUR BENCH (CAMP AT RAIPUR) IN ITS ORDER IN ITA NO.2401NAG/05 DATED 19.01.2006 IN SASHI SINGHANIA, RAIPUR VS. ITO 1(1), RAIPUR WHEREIN WHILE DEALING WITH THE ADHOC DISALLOWANCE OUT OF MATERIAL PURCHASED AND OUT OF EARTH TRANSPORTING CHARGES, HELD THAT, SINCE THE EXPENSES UNDER THESE HEA DS WERE INCURRED FOR THE PURPOSES OF BUSINESS, RESPECTFULLY FOLLOWING THE DECISION OF THE SC IN DHAKESHWARI COTTON MILLS LTD. VS. CIT 26 ITR 775 (SC) IT WAS HELD THAT, SUCH ADHOC DISALLOWANCES MADE ON THE BASIS OF GUESS WORK WERE NOT SUSTAINABLE. 34. I A LSO FIND THAT THE CASE OF APPELLANT FINDS SUPPORT FROM THE DECISION OF THE HON'BLE SUPREME COURT IN DHAKESHWARI COTTON MILLS LTD. VS. CIT 26 ITR 775 AS ALSO THE DECISIONS CITED BELOW: ASSISTANT COMMISSIONER OF INCOME TAX VS. GOVINDRAM KAKWANI (2004) 90 T TJ (JAB) 981. INCOME - ADDITION - NON - REJECTION OF ACCOUNTS - AO MADE LUMP SUM ADDITION OF RS.20,000 / - TO TRADING RESULTS - NON JUSTIFIED - TRADING ADDITION COULD BE MADE ONLY - IF THE BOOKS OF ACCOUNT WERE REJECTED ON COGENT REASONS AND THE PROVISO TO S. 145 HAD BEEN APPLIED - SAME NOT DONE - AO HAS ACCEPTED THE PURCHASES AND SALES - ALSO, BOOK RESULTS DECLARED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION IS MUCH BETTER AS COMPARED TO EARLIER ITA NO.117/RPR/2014 62 THREE YEARS - THUS, NO TRADING ADDITION WAS WARRANTED. BUSINESS EXPENDITURE - ALL OWABILITY - AD HOC DISALLOWANCE - ADDITION BY DISALLOWING PART OF DEDUCTION CLAIMED ON AD HOC BASIS WITHOUT PINPOINTING PARTICULAR ITEM OF DISALLOWANCE WAS BASED ON VAGUE OBSERVATIONS - SAME RIGHTLY DELETED BY CIT(A). B) DEPUTY COMMISSIONER OF INCOME TAX VS. SURFACE FINISHING EQUIPMENT (2003) 81 TTJ (JD) 448 : (2004) 2 SOT 233 (JD). BUSINESS EXPENDITURE - ALLOWABILITY- AD HOC DISALLOWANCE - AO DISALLOWED RS.3,000/ - OUT OF GENERAL EXPENSES ON THE GROUND THAT IT WAS NOT POSSIBLE TO VERIFY SUCH EXPENSES - NOT J USTIFIED - AO HAS NOT POINTED OUT ANY SPECIFIC ITEM WHICH WAS OF DISALLO WABLE NATURE - CL T(A) ALSO HAS NOT GONE INTO THE MERITS OF THE CASE - DISALLOWANCE OF RS.2,000/ - SUSTAINED BY CIT(A) IS DELETED. C) OM PRAKASH JOSHI VS. INCOME TAX OFFICER (2009) 123 TTJ (JD) 246 : (2009) 23 DTR 426. BUSINESS EXPENDITURE - ALLOWABILITY - AD HOC DISALLOWANCE FROM JOB WORK CHARGES - IN THE PRECEDING YEAR ASSESSEE WAS DOING THE BUSINESS OF KIMAM WHEREAS IN THE YEAR UNDER CONSIDERATION HE CHANGED ITS PRODUCT TO SCENTED SUPARI ALSO - THIS CHANGE HAS LED TO HIGHER COST IN MAKING THE GOODS MARKETABLE- EXPENSES INCURRED BY THE ASSESSEE ARE FULLY VOUCHED AND THE PAYMENTS ARE REAL- THUS, THE IMPUGNED DISALLOWANCE OF RS.2 LAKHS ON AD HOC BASIS ON THE GROUND THAT THE EXPENSES CLAIMED BY THE A SSESSEE ARE EXCESSIVE AS COMPARED TO THE EXPENSES INCURRED IN THE IMMEDIATELY PRECEDING YEAR IS UNWARRANTED AND UNCALLED FOR. BUSINESS EXPENDITURE - ALLOWABILITY - AD HOC DISALLOWANCE OF PERSONAL EXPENSES - AO MADE A LUMP SUM DISALLOWANCE OF RS. 1 LAKH OUT OF CO NVEYANCE EXPENSES, REPAIRING AND MAINTENANCE EXPENSES, TRAVELING EXPENSES AND DEPRECIATION ON THE GROUND THAT PERSONAL ELEMENT IN THE EXPENDITURE CANNOT BE RULED OUT - NOT JUSTIFIED - AO HIMSELF HAS NOTED IN THE ASSESSMENT ORDER THAT THE EXPENSES HAVE BEEN I NCURRED FOR THE PURPOSE OF THE ASSESSEE'S BUSINESS - ACCOUNTS OF THE ASSESSEE HAVE BEEN DULY AUDITED UNDER S. 44AB AND THE AUDITORS HAVE CERTIFIED THAT NO PERSONAL EXPENSES HAVE BEEN ITA NO.117/RPR/2014 63 DEBITED TO THE P&L ALC - AO HAS MADE THE DISALLOWANCE ONLY ON ASSUMPTIONS A ND PRESUMPTIONS WITHOUT COMING ACROSS ANY UNVOUCHED EXPENSES - DISALLOWANCE WAS UNWARRANTED AND UNREASONABLE. 35. AS ASSESSMENT HAS TO 'BE COMPLETED ON THE BASIS OF RECORDS AND MATERIAL AVAILABLE BEFORE THE AO AND PERSONAL KNOWLEDGE AND EXCITEMENT ON EVENT S AND EXTRANEOUS FACTS SHOULD NOT LEAD THE AO TO A STATE OF AFFAIRS WHERE THE SALIENT/PRIMARY/DIRECT EVIDENCES ARE OVERLOOKED AND SHOULD NOT INFLUENCE THE AO FOR RESORTING TO ADHOC ADDITIONS/DISALLOWANCES. IN A CASE WHERE THE TRANSACTIONS OF THE APPELLANT HAVE BEEN ACCOUNTED, DOCUMENTED AND SUPPORTED BY THE MATERIAL EVIDENCES FOR DERIVING LOGICAL CONCLUSIONS, WITHOUT PROVING FALSITY OF THE SAME, ADHOC SHOULD NOT BE MADE BY THE AO IN A ROUTINE MANNER MERELY ON PRESUMPTION, PROBABILITIES, SUSPICION AND SURMIS ES SINCE THE SAME ACTION OF THE AO DEGENERATES THE SPIRIT FOR WHICH THE QUALITY ASSESSMENTS WERE EMPHASIZED BY THE BOARD. (MUKESH R MAROLIA V. ADD!. CIT [2006] 6 SOT 247 MUMBAI). 36. IF GENERAL/CASUAL/ROUTINE OBSERVATIONS OF THE AO ARE TO BE CONSIDERED A S MATERIAL EVIDENCE FOR THE PURPOSE OF FRAMING AN ASSESSMENT, THE AO SHALL HAVE BLANKET AND ARBITRARY POWERS TO DISPOSE OF THE SCRUTINY ASSESSMENTS ACCORDING TO HIS WHIMS AND FANCIES WHICH IS NOT THE SPIRIT OF THE CIRCULARS ISSUED BY THE BOARD ON SCRUTINY ASSESSMENT. AN ASSESSMENT CANNOT BE MADE ARBITRARI LY AND IN ORDER THAT AN ASSESSMENT CAN BE SUSTAINED, IT MUST HAVE NEXUS TO THE MATERIAL ON RECORD. (C[T V. MAHESH CH AND [1983] 199 ITR 247, 249 (AIL .). 37. IT IS THE SETTLED POSITION THAT, THOUGH THE AO H AS VERY WIDE POWERS AND IS NOT FETTERED BY TECHNICAL RULES OF EVIDENCE AND PLEADINGS, THERE IS ONE OVER - RIDING RESTRICTION ON HIS JUDGEMENT AND THAT IS, THAT, HE MUST ACT HONESTLY AND DILIGENTLY ON THE MATERIAL, HOWSOEVER, INADEQUATE IT WAS, AND NOT VINDIC TIVELY, CAPRICIOUSLY OR ARBITRARILY. 'PROBABILITY CANNOT BE CONSTRUED AS MATERIAL EVIDENCE TO ITA NO.117/RPR/2014 64 FORM AN OPINION BY THE AO TO CONCLUDE AN ASSESSMENT AND FOR DRAWING ADVERSE INFERENCE AGAINST THE APPELLANT UNLESS THERE IS EVIDENCE TO SUBSTANTIATE SUCH PROBABLE INFERENCE.' 38. ASSESSMENT HAS TO BE MADE BASED ON THE REAL INCOME THEORY, I.E., INCOME TO BE DETERMINED FOR TAXATION MUST INVARIABLY BE PROVED TO HAVE BEEN THE CORRECT QUANTUM OF INCOME EARNED BY THE APPELLANT DURING THE RELEVANT PREVIOUS YEAR AND THE ONE PRESUMED TO HAVE BEEN EARNED. 39. THE PRESUMPTIONS AND HYPOTHETICAL ESTIMATIONS AND OBSERVATIONS MADE BY THE A.O. FOR MAKING THE IMPUGNED ESTIMATED ADDITION, WERE EXTRANEOUS, IRRELEVANT AND OPPOSED TO THE FACTS OBTAINING FROM THE RECORD. THE FATE OF THE APPELLANT COULD NOT BE DECIDED BY THE A.O. ON MERE SURMISES OR PROBABILITIES (NORTHERN BENGAL JUTE MILLS TRADING CO. LTD. V. CIT (1968) 70 ITR 407 (CAL). THE MERE EXISTENCE OF REASONS FOR SUSPICION WOULD NOT TANTAMOUNT TO EVIDENCE (CAL . HC IN NARAYAN C HANDRA BAID YA V. CIT (1951) 20 ITR 287 (CAL .). THE AO WAS NOT ENTITLED TO MAKE PURE GUESS AND MAKE THE IMPUGNED ASSESSMEN T WITHOUT REFERENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL. THERE MUST BE SOMETHING MORE THAN BARE SUSPICION TO SUPPORT THE SAME. THE R ULE OF LAW ON THIS SUBJECT HAS BEEN FAIRLY AND RIGHTLY STATED BYE LAHORE HC IN SETH GURMUKH SINGH V. CIT (1944) 12 ITR 393 (LAH.) [DHAKESHWARI COTTON MILLS LTD. V. CIT (1954) 26 ITR 775, 782 (SC)]. IT WAS OBSERVED BY THE SC IN DY. COMMISSIONER OF AGRICULTU RAL INCOME TAX AND SALES TAX V. TRAVANCORE RUBBER AND TEA CO. (1967) 20 STC 520 THAT 'IN ALL CASES OF TAXATION THE BURDEN OF PROVING NECESSARY INGREDIENT LAID DOWN BY LAW TO JUSTIFY TAXATION IS UPON THE AUTHORITIES.' SINCE THIS WAS NOT PROVED AGAINST THE A PPELLANT ON THE STRENGTH OF EVIDENCE, THE AO'S ACTION IN THIS REGARD IS OPPOSED TO THE LEGAL STANDARDS ENUMERATED ABOVE. 39. THE A.O HAS PROCEEDED TO MAKE THE DISALLOWANCE ON A PRESUMPTION THAT PAYMENT TO ALL THE LABOURS IS MADE ON WEEKLY ITA NO.117/RPR/2014 65 BASIS. THE A.O HAS NOT REBUTTED ANY OF THE SUBMISSIONS OF THE APPELLANT IN THE REMAND REPORT. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, AS ALSO DECISIONS CITED ABOVE, THE ADHOC DISALLOWANCE MADE BY THE A.O CANNOT BE SUSTAINED. HENCE, THE DISALLOWANCE IS DELETED . THE APPELLANT GETS RELIEF OF RS.20,76,968/ - . 28. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE AO OBSERVED THAT THE ASSESSEE HAS SHOWN PROFIT @7.67% DURING THE YEAR AS AGAINST 12.14% IN THE IMMEDIATELY PRECEDING YEAR. THE ASSESSEE EXPLAINED THE SAME AS MAJOR INCREASE IN EXPENSES WAS DUE TO WAGE AND LABOUR PAYMENTS. IT WAS SUBMITTED THAT THIS YEAR THE ASSESSEE HAS DONE MORE LABOUR ORIENTED WORK DURING THE YEAR AS COMPARED EARLIER YEAR. THE AO OBSERVED THAT THE ASSESSEE HAS SHOWN SUNDRY CREDITORS FOR WAGE AND LABOUR PAYMENT OF RS. 30,76,968/ - . ACCORDING TO THE AO WAGE PAYMENT PER WEEK CAN AT BEST BE RS.5 LAKHS AND THAT COMBINED WAGES FOR THE LAST WEEK OF THE YEAR A ND THE OUTSTANDING AMOUNT OF THE EARLIER PERIOD CANNOT BE MORE THAN RS.10 LAKHS. THEREFORE, HE HELD THAT RS.20,76,968/ - IS UNEXPLAINED LABOUR/WAGES AND DISALLOWED THE SAME. 29. ON APPEAL, THE CIT(A) DELETED THE ADDITION ON THE GROUND THAT BOOKS OF ACCOUNT S WERE AUDITED U/S.44AB OF THE ACT AND BILLS AND VOUCHERS, WAGES SHEETS/REGISTER/MUSTER ROLL ETC. WERE PRODUCED AND TEST CHECKED BY THE AO. FURTHER THE AO HAS NOT DISPUTED THE SUBMISSION OF THE ASSESSEE THAT THERE WAS CHANGE IN THE NATURE OF WORK AS CONTRA CTS EXECUTED DURING THE YEAR UNDER CONSIDERATION WERE MORE LABOUR INTENSIVE ITA NO.117/RPR/2014 66 AND, THUS, INVOLVED MORE COST ON WAGES. THE CIT(A) FURTHER OBSERVED THAT NO ADDITION CAN BE MADE ON THE GROUND OF LOWER GP RATE, UNTIL AND UNLESS, THE BOOKS OF ACCOUNTS HAVE BEEN R EJECTED. FOR REJECTING THE BOOKS OF ACCOUNTS, THE AO HAS TO POINT OUT SPECIFIC DEFECTS AS THE RESULT OF WHICH REASONABLE PROFITS CANNOT BE D EDUCED. THE AO HAS MADE ADHOC DISALLOWANCE WITHOUT POINTING OUT ANY INSTANCE OF BOGUS EXPENDITURE CLAIMED OR THAT THE SAME WERE UNVERIFIED. 30. DURING THE COURSE OF HEARING THE DR SUPPORTED THE ORDER OF AO BUT COULD NOT BRING ANY COGENT AND POSITIVE MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF CIT(A). IN OUR CONSIDERED OPINION, THE AO HAS NOT GIVEN ANY BAS IS OF HIS ASSUMING THAT OUTSTANDING WAGES AT THE END OF THE YEAR CANNOT BE MORE THAN RS.10 LAKHS. THE DR ALSO COULD NOT, DURING THE COURSE OF HEARING, SUBSTANTIATE THE FINDING OF AO OF HIS ARRIVING AT SUCH A CONCLUSION. 31. IN THE ABOVE FACTS AND CIRCUMST ANCES OF THE CASE, IN OUR CONSIDERED OPINION, THE DISALLOWANCE OF LABOUR AND WAGES OUTSTANDING AS AT THE END OF THE YEAR UNDER THE HEAD SUNDRY CREDITORS CANNOT BE SUSTAINED IN LAW. HENCE, WE CONFIRM THE ORDER OF CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 32. BRIEF FACTS RELATING TO THE GROUND NO. 3 ARE THAT THE AO STATED THAT THE ASSESSEE HAS DEBITED NET AMOUNT OF RS.9,50,975/ - ON ACCOUNT OF INTEREST IN THE PROFIT AND LOSS ACCOUNT . F ROM THE LIST OF LOANS AND ADVANCES TO FOUR PARTIES NAMELY AARS ON MOTORS, KEDAR AGRAWAL (HUF), RAHUL AGRAWAL AND TISCO . T HE ASSESSEE , IN ITS REPLY DATED 27.11.2007 HAS ITA NO.117/RPR/2014 67 EXPLAINED THAT IT HAS RECEIVED INTEREST FROM RAHUL AGRAWAL BUT HAS NOT RECEIVED THE SAME FROM OTHERS . H E EXPLAINED THAT HE HAS RECEIVED INTEREST FREE L OAN FROM SOME FAMILY MEMBERS AND HENCE DID NOT CHARGE INTEREST FROM THE FOLLOWING PARTIES : - NAME OF THE LONEE AMOUNT (RS.) PERIOD INTEREST @12%(RS.) KEDAR AGRAWAL (HUF) 3,55,000/ - 22.12.2004 TO 31.05.2004 11,438/ - 3,60,000/ - 22.01.2005 TO 31.03.2005 7 ,930/ - ARSON MOTORS 5,00,000/ - 28.02.2005 TO 31.03.2005 5,096/ - TOTAL 24,464/ - 33 . THE A.O HAS FURTHER STATED THAT IT IS CLEAR THAT THE ADVANCE MADE TO THE ABOVE THREE PARTIES WERE NOT FOR ANY BUSINESS PURPOSES . THE AO DISALLOWED T HE INTEREST CHARGEA BLE ON THESE ACCOUNTS, CALCULATED ON DAILY PRODUCE BASIS AS PER THE TABLE GIVEN ABOVE, AMOUNTING TO RS.26,464/ - OUT OF THE INTEREST PAID AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE . 34 . THE ASSESSEE, BEING AGGRIEVED WITH THE ORDER OF AO, CARRIED THE MAT TER BEFORE THE CIT(A) AND SUBMITTED THAT THE ASSESSEE HAS GIVEN ADVANCES TO HIS SISTER CONCERN AT THE END OF YEAR . T HE ASSESSEE HAS RECEIVED SOME INTEREST FREE LOAN FROM HIS FAMILY MEMBERS ALSO . O UT OF ABOVE THE ASSESSEE HAS GIVEN ADVANCES TO HIS SISTER CO NCERN . T HERE IS NO DIRECT NEXUS BETWEEN LOANS RECEIVED FROM THE OUTSIDER AND LOAN GIVEN TO HIS SISTER CONCERN. 35 . THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE, DELETED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER : - 43. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER, AND SUBMISSIONS OF THE APPELLANT. THE CONTENTION OF THE APPELLANT IS FOUND TO BE CONVINCING THAT THE A.O. HAS NOT ESTABLISHED ANY NEXUS ITA NO.117/RPR/2014 68 BETWEEN THE INTEREST BEARING BORROWINGS AND INTEREST FREE ADVANCES GIV EN. IT IS SETTLED POSITION OF LAW THAT UNLESS NEXUS BETWEEN INTEREST BEARING BORROWING AND INTEREST FREE LENDING IS PROVED INTEREST CANNOT BE DISALLOWED FOR NON BUSINESS PURPOSES. VARIOUS JUDICIAL AUTHORITIES HAVE ALSO CONSISTENTLY HELD THAT IF INTEREST FR EE FUNDS ARE ADEQUATE TO COVER INTEREST FREE LENDING, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE APPELLANT. IT IS SEEN THAT THE DISALLOWANCE HAS BEEN MADE WITHOUT ESTABLISHING ANY NEXUS BETWEEN THE INTEREST BEARING FUNDS AND NON INTEREST BEARING ADVANCES. THE CASE OF THE APPELLANT IS SQUARELY COVERED BY THE DECISION OF THE HON'BLE IT AT KOLKATA BENCH IN DCL T VS. ASHISLI JHUNJHUNWALA ITA NO. 1809 / KOL / 2012 DATED 14.05.2013 RELYING UP ON THE DECISION OF THE HONBLE MUMBAI TRIBUNAL IN THE CASE OF J.K.INVESTORS (BOMBAY) LTD. VS. ACIT IN ITA NO.7858/MUM / 2011 A.Y2008 - 09 DATED 13.03.2013 WHEREIN IT WAS HELD THAT: THE A 0 HAS NOT BROUGHT ON RECORD ANYTHING WHICH PROVES THAT THERE IS ANY EX PENDITURE INCURRED TOWARDS EARNING OF DIVIDEND INCOME. THE AO HAS NOT EXAMINED THE ACCOUNTS OF THE APPELLANT AND THERE IS NO SATISFACTION RECORDED BY THE AO ABOUT THE CORRECTNESS OF THE CLAIM OF THE APPELLANT AND WITHOUT THE SAME HE INVOKED RULE 8D. WHILE REJECTING THE CLAIM OF THE APPELLANT WITH REGARD TO EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPTED INCOME, THE AO HAS TO INDICATE COGENT REASONS FOR THE SAME. THE AO HAS NOT CONSIDERED THE CLAIM OF THE APPELLANT AND STRAIGHT AWA Y EMBARKED UPON COMPUTING DISALLOWANCE UNDER RULE 8D OF THE RULES ON PRESUMING THE AVERAGE VALUE OF INVESTMENT AT !J% OF THE TOTAL VALUE. THIS IS NOT PERMISSIBLE. ' 44. I FIND THAT THE CASE OF THE APPELLANT FINDS SUPPORT FROM THE DECISION IN SSPDL LTD. V S. DEPUTY COMMISSIONER OF INCOME - TAX, CIRCIE - 3(2), HYDERABAD [2013] 33 TAXMANN.COM 447 (HYDERABAD - TRIB.) DATED APRIL 5,2013 WHEREIN IT WAS HELD THAT ITA NO.117/RPR/2014 69 .. IT WAS BROUGHT TO NOTICE THAT OUT OF THE ABOVE INVESTMENTS, INVESTMENT IN SHARES OTHER THAN OF SUBSI DIARY COMPANIES WAS NOT IN THE ASSESSMENT YEAR UNDER CONSIDERATION. IT WAS MADE LONG BACK IN THE EARLIER ASSESSMENT YEARS. [PARA 11] THE REVENUE SUBMITTED THAT THE APPELLANT, INSTEAD OF MAKING INVESTMENT IN SISTER CONCERNS, COULD HAVE VERY WELL CLEARED THE EXISTING LOANS AND COULD HAVE SAVED THE INTEREST AMOUNT. MORE SO, NO INCOME WAS COMING FROM THE SISTER CONCERNS. THERE WAS NO NECESSITY FOR USING THE BORROWED FUNDS FOR INVESTMENT IN SISTER CONCERNS. HOWEVER, THERE IS NO FINDING THAT ANY INVESTMENTS I N SISTER CONCERNS WERE MADE IN CURRENT ASSESSMENT YEAR OUT OF BORROWED FUNDS ON WHICH INTEREST IS PAYABLE BY THE APPELLANT. NEITHER THE ASSESSING OFFICER NOR THE COMMISSIONER (APPEALS) GAVE ANY FINDING THAT ACTUALLY BORROWED FUNDS HAD BEEN DIVERTED TO THE SISTER CONCERNS FREE OF INTEREST. RULE 8D(2)(II) DEALS WITH THE CASE WHERE THE APPELLANT HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR OF INCOME OR RECEIPT , SO THAT THE LOWER AUTHO RITIES WERE EXPECTED TO EXAMINE WHETHER THE INTEREST PAID IF THE ASSESSMENT YEAR IS OR IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR OF INCOME OR RECEIPT. UNLESS THERE IS A FINDING THAT INTEREST IS DIRECTLY RELATED TO THE DIVERTED FUNDS TO THE SISTER CONC ERNS, IT CANNOT BE HELD THAT INTEREST INCURRED BY THE APPELLANT IS FOR NON- BUSINESS PURPOSES. THEREFORE, THE PROVISIONS CONTAINED IN RULE 8D(2)(II) CANNOT BE MADE APPLICABLE. BEFORE DISALLOWANCE OF NOTIONAL INTEREST INCURRED FOR EARNING EXEMPTED INCOME, I T IS INCUMBENT UPON THE LOWER AUTHORITIES TO ESTABLISH THE NEXUS BETWEEN INTEREST PAID AS IT IS RELATED TO AMOUNT DIVERTED. IN THE ABSENCE OF ESTABLISHING CLEAR - CUT NEXUS BETWEEN THE AMOUNT DIVERTED AND INTEREST INCURRED, THE DISALLOWANCE OF NOTIONAL INTER EST IS NOT POSSIBLE. THE TRIBUNAL AGAIN AND AGAIN HOLDING THAT IF THE APPELLANT DIVERTED ANY INTEREST BEARING FUNDS TO THE SISTER CONCERN THEN IT IS BUSINESS TAKEN BY THE APPELLANT TO MAKE SUCH AN INVESTMENT AND EVEN IF IT IS RESULTED NO INCOME TO THE INTE REST, NOTIONAL INTEREST CANNOT BE DISALLOWED ON THE REASON ITA NO.117/RPR/2014 70 THAT THE APPELLANT SHOULD HAVE USED ITS NON - INTEREST BEARING FUNDS FOR THE PURPOSE OF ITS OWN BUSINESS PURPOSES INSTEAD OF USING BORROWED FUNDS FOR ITS BUSINESS. THE ASSESSING OFFICER CANNOT SIT IN THE ARMCHAIR OF A BUSINESSMAN AND DECIDE WHAT THE APPELLANT HAS TO DO TO MAXIMIZE HIS PROFITS. IN VIEW OF THIS, THE GROUND TAKEN BY THE APPELLANT IS ALLOWED. [PARA I2] ' 45. IN COMMISSIONER OF INCOME - TAX - IV VS. SUZLON ENERGY LTD. [2013] 33 TAXMANN.COM 1 51 (GUJARAT) DATED APRIL 3,2013 IT WAS HELD THAT: 'SECTION 14A OF THE INCOME - TAX ACT, 1961 - EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME [DIVIDENDS] - WHETHER WHERE INVESTMENT WAS MADE BY APPELLANT IN FOREIGN SUBSIDIARIES, D ISALLOWANCE OF INTEREST EXPENDITURE UNDER SECTION I4A WAS NOT JUSTIFIED SINCE DIVIDEND INCOME FROM FOREIGN SUBSIDIARIES, IS TAXABLE IN INDIA - HELD, YES - WHETHER WHERE APPELLANT HAD OWN INTEREST FREE FUNDS MANY TIMES OVER THE INVESTMENT MADE IN INDIAN SUB SIDIARIES AND FURTHER, THERE WAS NO DIRECT NEXUS BETWEEN INTEREST BEARING BORROWED FUNDS AND SUCH INVESTMENT, NO DISALLOWANCE OF INTEREST EXPENDITURE COULD BE MADE UNDER SECT ION I4A - HELD, YES [PARA 3. I ] ' 46. IN DIRECTOR OF INCOME - TAX (IT) - II VS. BNP PARIBAS SA [2013] 32 TAXMANN.COM 276 (BOMBAY) DATED FEBRUARY 14,2013 IT WAS HELD THAT: 'SECTION 14A OF THE INCOME - TAX ACT, 1961 - EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME [DIVIDEND] - ASSESSMENT YEAR 2002 - 03 - DURING PREVIOUS YEAR APPELLANT EARN ED DIVIDEND INCOME ON SHARES AND CLAIMED SAME TO BE EXEMPT UNDER SECTION 10 (33) ON PLEA THAT INVESTMENT IN SHARES WAS MADE FROM ITS OWN FUNDS - ASSESSING OFFICER DID NOT ACCEPT PLEA OF APPELLANT AND ESTIMATING INTEREST EXPENSES INCURRED BY APPELLANT IN REL ATION TO EXEMPT DIVIDEND INCOME ON PRO - RATA BASIS MADE A CERTAIN DISALLOWANCE BY INVOKING ITA NO.117/RPR/2014 71 PROVISIONS OF SECTION 14A - COMMISSIONER (APPEALS) DELETED IMPUGNED DISALLOWANCE MADE BY ASSESSING OFFICER - HE RECORDED A FINDING OF FACT THAT DIVIDEND EARNED ON SHA RES BY APPELLANT WAS FROM ITS INVESTMENTS IN SHARES OUT OF ITS OWN FUNDS AND CONSEQUENTLY QUESTION OF INVOKING SECTION 14A TO DISALLOW EXPENDITURE WOULD NOT ARISE - TRIBUNAL UPHELD ORDER OF COMMISSIONER (APPEALS) - WHETHER SINCE REVENUE DID NOT CHALLENGE FINDING OF FACT RECORDED BY COMMISSIONER (APPEALS) BEFORE TRIBUNAL, NO QUESTION OF LAW AROSE FOR CONSIDERATION BEFORE HIGH COURT - HELD, YES [PARA 3]' 4 7. IN MAXOPP INVESTMENT LTD. & ORS. VS. COMMISSIONER OF INCOME TAX DATED 18TH NOVEMBER, 2011 (20 12) 247 CTR (DEL) 162 IT WAS HELD THAT: 'THE EXPRESSION 'EXPENDITURE INCURRED' REFERS TO ACTUAL EXPENDITURE AND NOT TO SOME IMAGINED EXPENDITURE BUT THE 'ACTUAL' EXPENDITURE THAT IS IN CONTEMPLATION UNDER S. 14A ( 1 ) IS THE 'ACTUAL' EXPENDITURE IN RELATION TO OR IN CONNECTION WITH OR PERTAINING TO EXEMPT INCOME. THE COROLLARY TO THIS IS THAT IF NO EXPENDITURE IS INCURRED IN RELATION TO THE EXEMPT INCOME, NO DISALLOWANCE CAN BE MADE UNDER S. 14A. (PARA 28) SUB - S . (2) OF S. 14A PROVIDES THE MANNER IN WHICH THE AT) IS TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. HOWEVER, I F ONE EXAMINES THE PROVISION CAREFULLY, ONE WOULD FIND THAT THE A O IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ONLY IF THE AO , HAVING REGARD TO THE ACCOUNTS OF THE APPELLANT, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IN OTHER W ORDS, THE REQUIREMENT OF THE A O EMBARKING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOM E WOULD BE TRIGGERED ONLY IF AO RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CO RRECTNESS OF THE ITA NO.117/RPR/2014 72 CLAIM OF THE APPELLANT IN RESPECT OF SUCH EXPENDITURE. SUB - SO (3) IS NOTHING BUT AN OFFSHOOT OF SUB - S . (2) OF S. 14A. SUB - S . (3) APPLIES TO CASES WHERE THE APPELLANT CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UND ER THE ACT. IN OTHER WORDS, SUB - SO (2) DEALS WITH CASES WHERE THE APPELLANT SPECIFIES A POSITIVE AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AND SUB - S . (3) APPLIES TO CASES WHERE THE APPELLANT ASSE RTS THAT NO EXPENDITURE HAD BEEN INCURRED IN RELATION TO EXEMPT INCOME. IN BOTH CASES, THE A O , IF SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT IN RESPECT OF SUCH EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, CANNOT EMBARK UPON A DETERM INATION OF THE AMOUNT OF EXPENDITURE IN ACCORDANCE WITH ANY PRESCRIBED METHOD, AS MENTIONED IN SUB - SO (2) OF S. I4A. IT IS ONLY IF THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE APPELL ANT, IN BOTH CASES, THAT THE AO GETS JURISDICTION TO D ETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN ACCORDANCE WITH THE PRESCRIBED METHOD, THE PRESCRIBED METHOD BEING THE METHOD STIPULATED IN R. 8D. WHILE REJECTING THE CLAI M OF THE APPELLANT WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN R ELATION TO EXEMPT INCOME, THE AO WOULD HAVE TO INDICATE COGENT REASONS FOR THE SAME. (PARA 29) RULE 8D ALSO MAKES IT CLEAR THAT WHERE THE AD, HAVING REGARD TO T HE ACCOUNTS OF THE APPELLANT OF A PREVIOUS YEAR, IS NOT SATISFIED WITH (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE APPELLANT; OR (B) THE CLAIM MADE BY THE APPELLANT THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, THE A O SHALL DETERMINE THE AMOUNT OF THE EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB - R. (2) OF R. 8D. RULE 8D(L) PLACES THE PROVISIONS OF S. 1 4A(2) AN D (3) IN THE CORRECT PERSPECTIVE. IT IS, THEREFORE, CLEAR THAT DETERMINATION OF ITA NO.117/RPR/2014 73 THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER R. 8D WOULD ONLY COME INTO PLAY WHEN THE AO REJECTS THE CLAIM OF THE APPELLANT IN THIS REGARD. IF ONE EXAMINES SUB - R. (2) OF R. 8D, IT IS FOUND THAT THE METHOD FOR DETERMINING THE EXPENDITURE IN RELATION TO EXEMPT INCOME HAS THREE COMPONENTS IN TERMS OF THE SAID RULE, THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME HAS TWO ASPECTS - RAJ DIRECT AND (B) INDIRECT. TH E DIRECT EXPENDITURE IS WAY TAKEN INTO ACCOUNT BY VIRTUE OF CL. (I) OF SUB - R. (2) OF R. 8D. THE INDIRECT E XPE NDITURE, WHERE IT IS BY WAY OF INTEREST, IS COMPUTED THROUGH THE PRINCIPLE OF APPORTIONMENT. AND, IN CASES WHERE THE INDIRECT EXPENDITURE IS NOT BY WAY OF INTEREST, A RULE OF THUMB FIGURE OF ONE - HALF PER CENT OF THE AVERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, IS TAKEN. (PARAS 30 & 3 1 ) SUB - S. (2) OF S. 1 4A STIPULATES THAT THE A 0 SHALL DET ERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME 'IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED'. OF COURSE, THIS DETERMINATION CAN ONLY B E UNDERTAKEN IF THE AO IS NOT SATISFIED WITH THE COR RECTNESS OF THE CLAIM OF THE APPELLANT IN RESPECT OF SUCH EXPENDITURE. THIS PART OF S. 14A(2) WHICH EXPLICITLY REQUIRES THE FULFILMENT OF A CONDITION PRECED ENT IS ALSO IMPLICIT IN S. 14A(1 ) (AS IT NOW STANDS) AS ALSO IN ITS INITIAL AVATAR AS S. 14A. IT IS ONLY THE PRESCRIPTION WITH REGARD TO THE METHOD OF DETERMINING SUCH EXPENDITURE WHICH IS NEW AND WHICH WILL OPERATE PROSPECTIVELY. IN OTHER WORDS, S. 14A, EVEN PRIOR TO THE INTRODUCTION OF SUB - SS. (2) AND (3) WOULD REQUIRE THE A O TO FIRST REJECT THE CLAIM OF THE APPELLANT WITH REGARD TO THE EXTENT OF SUCH EXPENDITURE AND SUCH REJECTION MUST BE FOR DISCLOSED COGENT REASONS. IT IS THEN THAT THE QUESTION OF DETERMINATION OF SUCH EXPENDITURE BY THE AO WOULD ARISE. THE REQUIREMENT OF ADOPTING A SPECIFIC METHOD OF DETERMINING SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF SUB - S. (2) OF S. 14A. PRIOR TO THAT, THE ASSESSING WAS FREE TO ADOPT ANY REASONABLE AND ACCEPTABLE ITA NO.117/RPR/2014 74 METHOD. THUS, THE FACT THAT SUB - SS. (2) AND (3) OF S. 14A AND R. 8D WOULD OPERATE PROSPECTIV ELY (AND, NOT RETROSPECTIVELY) DOES NOT MEAN THAT THE AO IS NOT TO SATISFY HIMSELF WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT WITH REGARD TO SUCH EXPENDITURE. IF HE IS SATISFIED THAT THE APPELLANT HAS CORRECTLY REFLECTED THE AMOUNT OF SUCH EXPENDIT URE, HE HAS TO DO NOTHING FURTHER. ON THE OTHER HAND, IF HE IS SATISFIED ON AN OBJECTIVE ANALYSIS AND FOR COGENT REASONS THAT THE AMOUNT OF SUCH EXPENDITURE AS CLAIMED BY THE APPELLANT IS NOT CORRECT, HE IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDIT URE ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. SO, EVEN/EN' THE PRE - R. 8 D PERIOD, WHENEVER THE ISSUE OF S. 14A ARISES BEFORE AN AO, HE HAS, FIRS T OF ALL, TO ASCERTAIN THE CORRECTNESS OF THE CLAIM OF THE APPELLANT IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. EVEN WHERE THE APPELLANT CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN REL ATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THE AO WILL HAVE T O VERIFY THE CORRECTNESS OF SUCH CLAIM. IN CASE, THE AO IS SATISFIED WITH THE CLAIM OF THE APPELLANT WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, THE AO IS TO ACCEPT THE CLAIM OF THE APPELLANT INSOFAR AS THE QUANTUM OF DISALLOWANCE UNDER S. 14A IS CONCERNED. IN SUCH AN EVENTUALITY, THE AO CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE FOR THE PURPOSES OF S. 14A(L). IN CASE, THE AO IS NOT, ON THE BASIS OF OBJECTIVE CRITERIA AND AFTER GIVING THE APPELLANT A REASONABLE OPPORTUNITY, SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS FOR DOING SO. HAVING DONE SO, THE AO WILL HAVE TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH D OES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HE IS REQUIRED TO DO SO ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. - CIT VS. WALFORT SHARE & STOCK BROKERS (P) LTD. (2010) 233 CTR (SC) 42 : (2010) 41 DTR (SC) 233 : (2010) 326ITR I (SC) RELIED ON.' ITA NO.117/RPR/2014 75 48. THE JURISDICTIONAL HIGH COURT OF CHHATTISGARH, IN CASE OF JCIT VS. BEEKAY ENGINEERING CORPORATION (20 1 0) 325 ITR 384 (CG) HAS HELD THAT 'APPELLANT FIRM HAD GIVEN INTEREST - FREE ADVANCES TO TWO MEMBERS OF HUF PARTNER - IT IS EVIDENT F ROM THE BALANCE SHEET OF THE APPELLANT FIRM THAT THERE WAS SUFFICIENT FUND IN THE ACCOUNT OF THE HUF AS FOUND BY THE TRIBUNAL - BESIDES, PROFIT OF RS. 46.81. 943 ACCRUED TO THE FIRM IN THE RELEVANT FINANCIAL YEAR - IN THESE CIRCUMSTANCES. THE FINDINGS RECORDED BY THE TRIBUNAL THAT NO EVIDENCE IS AVAILABLE ON RECORD TO SHOW THAT THE BORROWED FUNDS WERE NOT UTILIZED BY THE APPELLANT FOR ITS OWN BUSINESS BUT WERE DIVERTED AS ADVANCE TO MEMBERS OF THE HUF FREE OF INTEREST AND, THEREFORE, THERE IS NO JUSTIFICATION I N MAKING PART DISALLOWANCE OUT OF INTEREST PAID ON BORROWED FUNDS'. THE HON,BLE MUMBAI HIGH COURT IN CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 340 (MUM) HAS HELD THAT 'THE PRINCIPAL THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH IN TEREST FREE AND OVERDRAFT AND/ OR LOAN TAKEN THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. ' HON,BLE ALLA HABAD HIGH COURT IN CASE OF CIT VS. RADICO KHAITAN LTD 274 ITR 354 (ALL), HON,BLE DELHI HIGH COURT IN CASE OF CIT VS. TIN BOX CO. 260 ITR 637 (DEL) AND HON,BLE MADRAS HIGH COURT IN CASE OF CIT VS. SOUTH INDIA CORPORATION (AGENCIES) LTD .290 ITR 217 (MAD) A RE ALSO IN FAVOUR OF THE APPELLANT. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE AS ALSO DECISIONS CITED ABOVE, THE DISALLOWANCE MADE BY THE AO CA NNOT BE SUSTAINED. HENCE, THE DISALLOWANCE IS DELETED. THE APPELLANT GETS RELIEF OF RS.24,464/ - . 36. W E HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE AO OBSERVED THAT THE ASSESSEE HAS DEBITED RS.9,50,975/ - ON ACCOUNT OF INTEREST IN ITS PROFIT AND LOSS ACCOUNT. THE ASSES SEE HAS GIVEN LOANS AND ITA NO.117/RPR/2014 76 ADVANCES TO FOUR PARTIES WHICH ARE NOT FOR THE BUSINESS PURPOSE OF THE ASSESSEE AND, THEREFORE, HE DISALLOWED INTEREST OF RS.24,464/ - BY ESTIMATING THE SAME @12% PER ANNUM. 37. ON APPEAL, THE CIT(A) DELETED THE ADDITION ON THE GROUND TH AT THE AO FAILED TO ESTABLISH ANY NEXUS BETWEEN THE INTEREST BEARING FUNDS AND ADVANCES GIVEN BY THE ASSESSEE. THE CIT(A) HAS GIVEN A FINDING THAT THE INTEREST FREE FUNDS OF THE ASSESSEE ARE MORE THAN THE AMOUNT ADVANCED BY THE ASSESSEE TO THE FOUR PERSONS . 38. THE DR DURING THE COURSE OF HEARING SUPPORTED THE ORDER OF AO BUT COULD NOT CONTROVERT THE ABOVE FINDING OF CIT(A) BY BRINING ANY COGENT AND POSITIVE MATERIAL ON RECORD. HENCE, WE DO NOT FIND ANY GOOD AND JUSTIFIABLE REASON TO INTERFERE WITH THE ORDE R OF CIT(A), WHICH IS CONFIRMED AND THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 39 . BRIEF FACTS RELATING TO THE GROUND NO.4 ARE THAT THE A. O HAS STATED THAT DURING THE YEAR VEHICLE EXPENSES HAVE BEEN CLAIMED AT RS.2,53,689/ - AND N O LOG BOOK HAS BEEN MAIN TAINED AND PERSONAL USE OF VEHICLES FOR OTHER THAN BUSINESS PURPOSES ARE ALSO NOT DENIED , THEREFORE, THE AO DISALLOWED A LUMP SUM OF RS.25,000 / - . 40 . THE ASSESSEE, BEING AGGRIEVED WITH THE ORDER OF AO, PREFERRED AN APPEAL BEFORE THE CIT(A) AND SUBMITTED T HAT ALL EXPENSES INCURRED BY THE ASSESSEE DURING THE COURSE OF BUSINESS AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. 41 . AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE, THE CIT(A) DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER : - ITA NO.117/RPR/2014 77 52. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT. THE A. O HAS MADE LUMP SUM DISALLOWANCE OF VEHICLE EXPENSES ON ACCOUNT OF PERSONAL USE. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE AS ALSO DECISIONS CITED ABOVE IN PARA 3 4(C) ABOVE, THE DISALLOWANCE MADE BY THE A O IS HEREBY DELETED. THE APPELLANT GETS RELIEF OF RS.25,000 / - . 42. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON R ECORD. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVED THAT DURING THE YEAR VEHICLE EXPENSES HAVE BEEN CLAIMED AT RS.2,53,689/ - AND NO LOG BOOK HAS BEEN MAINTAINED AND PERSONAL USE OF THE VEHICLES FOR OTHER THAN BUSINESS PURPOSES ARE ALSO NOT DENIED. THEREFORE, HE MADE AN ESTIMATED LUMPSUM DIS ALLOWANCE OF RS.25,000/ - . 43. ON APPEAL, THE CIT(A) DELETED THE ADDITION. 44. THE DR SUPPORTED THE ORDER OF AO, WHEREAS THE AR OF THE ASSESSEE SUPPORTED THE ORDER OF CIT(A). 45. WE FIND THAT THE DISALLOWANCE OUT OF VEHICLE EXPENSES WAS MADE BY THE AO ON T HE GROUND THAT THE ASSESSEE HAS NOT MAINTAINED LOG BOOK AND THAT PERSONAL USE OF VEHICLES CANNOT BE DENIED BY THE ASSESSEE. WE FIND THAT THE AO HAS NOT GIVEN THE BASIS OF WORKING OUT THE DISALLOWANCE OF RS.25,000/ - OUT OF THE VEHICLE EXPENSES OF RS.2,53,68 9/ - CLAIMED BY THE ASSESSEE. ADHOC DISALLOWANCE OF ANY GENUINE BUSINESS EXPENDITURE OF THE ASSESSEE IS NOT PERMITTED IN LAW. THEREFORE, WE FIND NO GOOD REASON TO INTERFERE WITH THE ORDER OF CIT(A), WHICH IS CONFIRMED AND THIS GROUND OF APPEAL OF REVENUE IS DISMISSE D. ITA NO.117/RPR/2014 78 46 . BRIEF FACTS RELATING TO GROUND NO. 5 ARE THAT THE AO HAS STATED THAT THE ASSESSEE HAS NOT SHOWN ANY WITHDRAWAL FOR HOUSEHOLD EXPENSES . T HE MINIMUM EXPENSES OF THE ASSESSEE PER MONTH CANNOT BE LESS THAN RS.1 ,2 0,000/ - . THEREFORE, THE AO ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF LOW WITHDRAWAL. 47 . THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) AND SUBMITTED THAT THE FAMILY OF THE ASSESSEE CONSISTS OF FIVE MEMBERS AND NO SCHOOL GOING CHILDREN . T HE ASSESSEE WAS WITHDRAWING RS.6 2,500 / - FOR HOUSEHOLD EXPENSES DURING THE YEAR UNDER CONSIDERATION . THE ASSESSEE LIVING WITH HIS OWN HOUSE AND THE LIVING STANDARD OF THE ASSESSEE IS MEDIUM . THE ASSESSEE WAS WITHDRAWING RS.5,21 0 /- PER MONTH WHICH IS QUITE REASONABLE AND JUSTIFIED FOR HOUS EHOLD EXPENSES IN LOOKING TO SIZE OF FAMILY AND LIVING STANDARD. 48 . AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE, THE CIT(A) DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER : - 56. I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSI ONS OF THE APPELLANT. IT IS SEEN THAT THE A.O HAS PROCEEDED TO MAKE THE ADDITION ON PRESUMPTION THAT THE APPELLANT DID NOT WITHDRAW ANY AMOUNT ON ACCOUNT OF HOUSE HOLD EXPENSES, WHEREAS, THE APPELLANT HAS CLAIMED THAT SUM OF RS.62,500 / - WAS SPENT ON HOUSE HOLD EXPENSES. I AM CONVINCED THAT THE ADDITION HAS BEEN MADE O N INCORRECT INTERPRETATION OF FACT, THEREFORE, THE ADDITION IS DELETED. THE APPELLANT GETS RELIEF OF RS. 1 ,20, 000 / - . ITA NO.117/RPR/2014 79 49. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORI TIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE AO OBSERVED THAT THE ASSESSEE HAS NOT SHOWN WITHDRAWAL FOR HOUSEHOLD EXPENSES. THE MINIMUM EXPENSES OF THE ASSESSEE PER MONTH CANNOT BE LESS THAN RS.10,000/ - AND, THEREFORE, HE ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 50 . ON APPEAL, BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT HIS FAMILY CONSISTS OF FIVE MEMBERS AND NO SCHOOL GOING CHILDREN . T HE ASSESSEE WAS WITHDRAWING RS.62,500 / - FOR HOUSEHOLD EXPENSES DURING THE YEAR UNDER CONSIDERATIO N . THE ASSESSEE LIVING WITH HIS OWN HOUSE AND THE LIVING STANDARD OF THE ASSESSEE IS MEDIUM . THE ASSESSEE WAS WITHDRAWING RS.5,21 0 /- PER MONTH WHICH IS QUITE REASONABLE AND JUSTIFIED FOR HOUSEHOLD EXPENSES LOOKING TO SIZE OF FAMILY AND LIVING STANDARD. THE CIT(A) DELETED THE ADDITION ON THE GROUND THAT THE AO PROCEEDED TO MAKE THE ADDITION ON PRESUMPTION THAT THE ASSESSEE DID NOT WITHDRAW ANY AMOUNT ON ACCOUNT OF HOUSE HOLD EXPENSES, WHEREAS, THE ASSESSEE HAS CLAIMED TO HAVE WITHDRAWN A SUM OF RS.62,500/ - F OR HOUSE HOLD EXPENSES. THUS, THE ADDITION WAS MADE ON INCORRECT INTER PRETATION OF FACT. 51 . THE DR RELIED ON THE ORDER OF AO, WHEREAS THE AR OF THE ASSESSEE SUPPORTED THE ORDER OF CIT(A). 52 . WE FIND THAT THE ADDITION WAS MADE BY THE AO ON THE GROUND THAT NO DRAWINGS FOR HOUSEHOLD EXPENSES WAS SHOWN BY THE ASSESSEE. ON THE OTHER HAND, THE CIT(A) HAS FOUND THAT THE ASSESSEE HAD SHOWN DRAWINGS FOR HOUSEHOLD EXPENSES AT RS.62,500/ - . THEREFORE, HE DELETED THE ITA NO.117/RPR/2014 80 ADDITION. THE DR DURING THE COURSE OF HEARING COUL D NOT BRING ANY MATERIAL ON RECORD TO CONTROVERT THE FINDING OF CIT ( A) OR THAT THE ACTUAL EXPENSES INCURRED BY THE ASSESSEE WAS HIGHER THAN RS.62,500/ - . HENCE, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF CIT(A), WHICH IS CONFIRMED AND THI S GROUND OF APPEAL OF REVENUE IS DISMISSED. 53. IN THE RESULT, APPEAL FILED BY REVENUE IS DISMISSED. ORDER PRONOUNCED IN PURSUANCE WITH RULE 34/4 OF ITAT RULES, BY PUTTING THE COPY OF THE SAME ON NOTICE BOARD ON FRIDAY THE 2 ND DAY OF FEBRUARY, 2018 AT RAIPUR . SD/ - ( PAVAN KUMAR GADALE ) SD/ - (N. S. SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER RAIPUR ; DATED 02/02 /2018 . . / PKM , SENIOR PRIVATE SECRETARY / COPY OF THE ORDE R FORWARDED TO : / BY ORDER, ( SENIOR PRIVATE SECRETARY ) INCOME TAX APPELLATE TRIBUNAL, RAIPUR 1. / THE APPELLANT - 2. / THE RESPONDENT - 3. ( ) / THE CIT(A), 4. / CIT 5. , , RAIPUR / DR, ITAT, RAIPUR 6. / GUARD FILE. //TRUE COPY//