Sheth Heena Akshay, Surat V. The Dy.CIT., Circle-3, Surat

ITA 118/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6104 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 18-05-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 04-01-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H P MEENA; ASHOK BAL
• Assessee Lawyers: RASESH SHAH
• Keywords: Unexplained cash credit; Gift; Principle of natural justice; Question of law; Capital Gains
• Section: 133(6); 205; 80P; 131; 68; 69

Judgement Text

ITA.NO.118/A/08 A.Y.2004-05 SHETH HEENA AKSHAY. 1 IN THE INCOME_TAX APPELLATE TRIBUNAL D BENCH, A HMEDABAD BEFORE SHRI T.K. SHARMA AND SHRI D.C. AGRAWAL . (SURAT CAMP) ITA. NO. 118 /AHD/2008 (ASSESSMENT YEAR:2004-05) SHETH HEENA AKSHAY, 24, TRINIDHI APARTMENT, GHOD DOD ROAD, SURAT VS DY.COMMISSIONER OF INCOME-TAX CIRCLE-3, AAYAKAR BHAVAN, MAJURA GATE, SURAT. (APPELLANT) (RESPONDENT) PAN: AFSPS 2981 K APPELLANT BY : SHRI RASESH SHAH RESPONDENT BY : SHRI H.P.MEENA SR.D.R. AND SHRI ASHOK BAL, D.R . ( (( ( )/ )/)/ )/ ORDER PER SHRI D.C. AGRAWAL. THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FOLLOWING GROUNDS: 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE A S WELL AS LAW ON THE SUBJECT, THE LD. C.I.T.(A) HAS ERRED IN CONFIRMING THE ACTION OF THE A.O. IN MAKING THE ADDITION OF RS.21,06,225/- FOR A LLEGED UNEXPLAINED CASH CREDIT U/S. 68 OF THE I.T. ACT. 2. IT IS THEREFORE, PRAYED THAT THE ABOVE ADDITION MADE BY A.O. AND CONFIRMED BY CIT (A) MAY PLEASE BE DELETED. 2. THE FACTS OF THE CASE ARE THAT ASSESSEE IS A PRO PRIETOR OF M/S. SHETH TEXTILES AND DERIVES INCOME FROM HOUSE PROPERTY, CA PITAL GAIN AND ALSO INCOME FROM OTHER SOURCE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS A.O. NOPTICED THAT A PROFIT OF RS.17,03,542/- ON SALE OF SHARES W AS DECLARED IN RESPECT OF WHICH A SUM OF RS.21,06,225/- WAS CREDITED AS SALE PROCEE DS OF THE SHARES. WHEN REQUIRED TO PRODUCE THE DETAILS, THE ASSESSEE PRODU CED GENERAL VOUCHER, ZEROX ITA.NO.118/A/08 A.Y.2004-05 SHETH HEENA AKSHAY. 2 COPIES OF BROKERS CONTRACT NOTE AND THE DETAILS WHI CH WERE SUMMARIZED BY THE A.O. AS UNDER:- SL. NO. NAME OF THE BROKER. NAME OF THE CO. & NO. OF SHARES DATE & TIME AMOUNT (RS.) SETTLEMENT NO. 1 PRAKASH NAHATA & CO.,14/2,OLD CHINA BAZAR, 3 RD FLOOR, ROOM NO.302, KOLKATTA-700 001 CODE NO. 03/274 (D) BOL TONP 10,000 SHARES PURCHASED @ RS.5.20. (D) BOL TONP 5000 SHARES PURCHASED @ RS.5.30 15/04/2002 TIME 14:04:51 15/04/2002 TIME. 13:27:02 52,200 26,600 SETTLEMENT NO. D-2003314 DT.15.04.2002 SETTLEMENT NO. D-2003314 DT.15-04-2002 2 PRAKASH NAHATA CO.,14/2, OLD CHINA BAZAR STREET 3 RD FLOOR, ROOM NO.302, KOLKATTA 700 001. CODE NO. 03/274 (D) BOL TONP 1500 SHARES SOLD @ RS.146.45 (D) BOL TONP 3500 SHARES SOLD @ RS.147.80 D) BOL TONP 5000 SHARES SOLD @ RS.138.25 D) BOL TONP 5000 SHARES SOLD @ RS.135.75. 03/09/2003 TIME 13:34:41. 03/09/2003 TIME 13:36:21 02/09/2003 TIME 14:55:11 02/09/2003 TIME 14:44:02 2,19,450 5,16,775 ------------ 6,91,250 6,78,750 SETTLEMENT NO D-2004410 SETTLEMENT NO. D-20044410 SETTLEMENT NO D-2004409/ -DO- 2.1. THE A.O. CARRIED OUT INQUIRIES BY ISSUING SUMM ONS U/S. 131 TO KOLKATTA STOCK EXCHANGE AND SEBI. THE A.O. ALSO ACQUIRED OFF ICIAL ORDERS U/S. 11B AND 11(4) OF SECURITY AND EXCHANGE BOARD OF INDIA. FROM THESE ORDERS HE NOTED THAT CERTAIN SHARE BROKERS WERE DEBARRED FROM CARRYING O UT TRADING IN SHARES AS SHARES OF CERTAIN SMALL COMPANIES IN WHICH THEY WER E DEALING HAD FLUCTUATED SHARPLY. ONE OF THOSE BROKERS WAS MR.PRAKASH NAHATA WITH WHOM ASSESSEE HAS ALSO DEALT WITH. THE A.O. HAS SUMMARIZED THE FINDIN G ON THE BASIS OF INFORMATION RECEIVED FROM KOLKATTA STOCK EXCHANGE AS UNDER :- ITA.NO.118/A/08 A.Y.2004-05 SHETH HEENA AKSHAY. 3 IT IS SEEN FROM THE REPLY RECEIVED FROM THE CALCUT TA STOCK EXCHANGE THAT NO CONFIRMATION OF PURCHASE OF SHARES IS GIVEN AND THAT NO ANNEXURE AS STATED IS RECEIVED FROM CALCUTTA STOCK EXCHANGE. (1) THE CALCUTTA STOCK EXCHANGE HAVE VIDE LETTER DT .08-12-2006 INFORMED THAT M/S. PRAKASH NAHATA & CO., HAD EXECUT ED TWO CROSS DEALS IN THE SCRIPT BOLTON PROPERTIES LTD., ON 0309-2003 VIDE TRADE NUMBER 2763 & 2764 FOR THE CODE SELF THESE WERE THE CROSS DEA LS I.E. ONE FOR BUY AND THE OTHER ONE FOR SALE OR VICE-VERSA WHEREAS TH E ASSESSEE HAS SHOWN TO 1500 + 3500 SHARES. AS SUCH THOUGH TRADE NUMBERS ARE MATCHING, THE GENUINE TRANSACTION AT CALCUTTA STOCK EXCHANGE IS N OT PROVED. (2) IT MEANS ON THAT DAY NO OUTRIGHT SALE TRANSACTI ON OF 5000 SHARES (1500 + 3500) HAD TAKEN PLACE ON 03-09-2003 IN THE AFORESAID BROKERS ACCOUNT AT CALCUTTA STOCK EXCHANGE. (3) THE CALCUTTA STOCK EXCHANGE HAVE NOT CONFIRMED THE SALE TRANSACTION OF 10000 SHARES ON 02-09-2003. IT IS ST ATED THAT M/S. PRAKASH NAHATA & CO., HAD NOT EXECUTED ANY TRANSACTION IN T HE SCRIP BOLTON PROPERTIES LTD., ON 02-09-2003 EITHER IN PHYSICAL O R IN D-MAT FORM IN THE ON LINE TRADING SYSTEM OF THE EXCHANGE. (4) AS SUCH THOUGH ASSESSEE HAS CLAIMED TO HAVE SOL D 15000 SHARES THROUGH DEMAT ACCOUNT, NO GENUINE SALE TRANSACTION TOOK PLACE ON CALCUTTA STOCK EXCHANGE IN THE ASSESSEES CLIENT CO DE AS CLAIMED BY THE ASSESSEE AND AS BEING CONFIRMED BY THE ASSESSEES B ROKER. (5) THOUGH, THE SALE HAVE BEEN SHOWN AS HAVING TAKE N PLACE FROM DEMAT ACCOUNT, THE SAME WAS NOT TRADED ON STOCK EXC HANGE. (6) IT IS SEEN THAT SHARES SHOWN TO HAVE BEEN PURCH ASED @ RS.5.22 AND RS.5.32 HAD JUMPED TO THE MARKET PRICE OF RS. 138.40 & 135.90 ON 02-09-2003 & RS.146.45 & RS.147.80 ON 03-09-2003 AS PER THE CONTRACT NOTE OF M/S. PRAKLASH NAHATA & CO., GIVEN BY THE AS SESSEE AND AS CONFIRMED BY THE BROKER WITHIN A PERIOD OF ONE YEAR AND FIVE MONTHS. THIS FICTITIOUS ACTIVITIES WERE NOTED BY SEBI. IT IS ALS O INFORMED BY SEBI MUMBAI VIDE THEIR LETTER DATED 22/11/06 THAT FOR SU CH FICTITIOUS ACTIVITIES SOME OF THE SHARE BROKERS WERE DISQUALIFIED ON ACCO UNT OF THEIR INVOLVEMENT IN FICTITIOUS TRANSACTIONS OF CERTAIN S MALL CAPITAL COMPANIES THE MARKET PRICE OF WHICH WERE INFLATED. THE DEALING IN CERTAIN SCRIPTS WERE PROHIBITED FOR QUITE SOME TIME. ITA.NO.118/A/08 A.Y.2004-05 SHETH HEENA AKSHAY. 4 ON THE BASIS OF ABOVE FINDING A.O. INFERRED THAT PU RCHASE AND SALE OF SHARES THROUGH CALCUTTA STOCK EXCHANGE WERE NOT GENUINE AN D THEREFORE, CREDIT OF RS.21,06,225/- IS UNEXPLAINED CREDIT. HE ACCORDINGL Y MADE THE ADDITION. 2.2. THE LD. C.I.T.(A) CONFIRMED THE ADDITION BY OB SERVING AS UNDER :- 5. I HAVE CAREFULLY CONSIDERED THE FINDINGS AND CO NCLUSION OF THE AO, AS ALSO THE WRITTEN SUBMISSIONS OF THE AR. THIS IS A CASE IN WHICH THE BROKER WHO HAD PURCHASED THE SHARES ON BEHALF OF TH E ASSESSEE, ALSO APPEARED TO HAVE PURCHASED THE SAME FROM THE ASSESS EE. IT HAS BEEN CLAIMED BY THE AR THAT THE ASSESSEE DID NOT CARRY O UT ANY DIRECT TRANSACTION WITH THE STOCK EXCHANGE AND THAT, IT ON LY TRANSACTED THROUGH THE BROKER. CONSEQUENTLY, IT WAS NOT THE RESPONSIBI LITY OF ASSESSEE AS TO HOW AND WHEN THE SHARES PURCHASED OR SOLD, OR WHETH ER IT WAS TRANSACTED OFF-LINE OR ON-LINE. EVEN THOUGH THE ASSESSEE MAY N OT HAVE BEEN CONCERNED THE WAY THE SHARES WERE TRANSACTED YET, I T WILL DEFINITELY THE CONCERN OF THE I.T. DEPARTMENT, AND HENCE THE A.O., TO EXAMINE SUCH TRANSACTIONS IN ORDER TO ASCERTAIN THEIR GENUINENES S. ACCORDING TO THE INFORMATION FURNISHED BY THE ASSESSEE, 1500+3500 SH ARES WERE SOLD ON 3.9.2003 WHILE 5000 + 5000 SHARES WERE SOLD ON 2.9. 2003. AS PER THE INFORMATION FURNISHED BY THE CSE, THE ALLEGED BROKE R HAD EXECUTED TWO CROSS DEALS ON3.9.2003 INVOLVING THE SCRIP OF BOLTO N PROPERTIES LTD., FOR 1500 + 4000 SHARES. THIS DID NOT MATCH WITH THE INF ORMATION FURNISHED BY THE ASSESSEE AND HIS BROKER. ACCORDING TO HIM 1500+ 3500 SHARES WERE SOLD ON THE SAID DATE. THUS WHILE THE ASSESSEE CLAI MED TO HAVE SOLD 5000 SHARES ON 3.9.2003 ACCORDING TO THE CSE 5500 SHARES WERE TRANSACTED IN TWO CROSS DEALS BY THE ALLEGED BROKER. FURTHER ON 2 .9.03 THE ASSESSEE CLAIMED TO HAVE SOLD A TOTAL OF 10000 SHARES IN LOT S OF 5000 EACH. THE CSE INFORMED THAT THE ALLEGED BROKER HAD NOT EXECUT ED ANY TRANSACTION INVOLVING THE SHARES OF THE SAID COMPANY ON 2.9.03 EITHER IN PHYSICAL OR DEMAT FORM, IN THE ONLINE TRADING SYSTEM OF THE EXC HANGE. THIS ONCE AGAIN CONTRADICTED THE CLAIM OF THE ASSESSEE AND HIS BROK ER, WHO CLEARLY STATED IN THE CERTIFICATE FURNISHED BY THEM, THAT ALL THE TRANSACTIONS WERE DONE THROUGH THE STOCK EXCHANGE. IF THAT BE SO, THEN SUC H TRANSACTIONS WOULD HAVE BEEN DONE ONLINE. THE FACT THAT THE SHARES WER E TRANSACTED ON LINE WAS EVIDENCED BY THE DETAILS FURNISHED BY THE ASSES SEE SHOWING EXACT TIME UPTO THE SECOND AT WHICH THE SHARES WERE SOLD. THERE WAS THUS NO SCOPE FOR THE ASSESSEE TO CLAIM THAT THE SHARES WER E TRANSACTED OFF LINE AND OUTSIDE THE EXCHANGE. IN OTHER WORDS, THE CLAIM OF THE ASSESSEE REGARDING THE SALE OF 10,000 SHARES WAS NOT SUBSTAN TIATED BY THE CSE. 5.1. THE AR HAS FURNISHED EVIDENCE OF THE SHARES OF BOLTEN PROPERTIES LTD. BEING LISTED ON THE CSE AND HAS MADE A CLAIM O F CONCESSIONAL RATE OF TAXATION UNDER SECTION 112(1)(D) OF THE I.T. ACT. B UT THE POINT IS, WHEN THE ITA.NO.118/A/08 A.Y.2004-05 SHETH HEENA AKSHAY. 5 VERY TRANSACTION IS NOT PROVED TO BE GENUINE, THE C LAIM OF CONCESSIONAL RATE OF TAX BECOMES IRRELEVANT. THE AR HAS FILED A COPY OF THE DEMAT ACCOUNT WITH THE ICICI BANK. FIRSTLY THE SAID ACCOUNT DOES NOT SHOW THE NAME OF THE ASSESSEE, SO THAT IT CANNOT BE ESTABLISHED THAT THE SHARES WHICH WERE TRANSACTED THROUGH THIS ACCOUNT ACTUALLY BELONGED TO THE ASSESSEE. THI S IS VERY IMPORTANT. SECONDLY, THE ACCOUNT SHOWS THAT 15000 SHARES OF BO LTON PROPERTIES WERE BOUGHT OFF-MARKET ON 26.5.2003. THE DETAILS FILED B Y THE ASSESSEE SHOW THAT THE SHARES WERE PURCHASED ON 15.4.2002. FURTHE R, THE DEMAT ACCOUNT SHOWS THAT 10000 SHARES WERE SOLD THROUGH THE EXCHA NGE ON 4.9.2003 AND 5000 SHARES OF THE SAME COMPANY WERE SOLD THROU GH THE EXCHANGE ON 5.9.03. ONCE AGAIN, THE DATES DO NOT TALLY. WHAT IS HOWEVER CONFIRMED IS THAT THE 15000 SHARES AS REFLECTED IN THE DEMAT ACCOUNT WERE SOLD THROUGH THE EXCHANGE. AS FAR AS THE ASSESSEE WAS CO NCERNED IT WAS CLAIMED THAT 10,000 SHARES, WERE SOLD ON 2.9.03 AND 5000 SHARES ON 3.9.03. THE DATES WERE DIFFERENT FROM WHAT IS SHOWN IN THE DEMAT ACCOUNT, AND SECONDLY, THE CSE HAD COMPLETELY DENIED THAT AN YTTRANSACTION HAD TAKEN PLACE THROUGH THE EXCHANGE EITHER IN PHYSICAL FORM OR DEMAT FORM ON 2.9.03. 5.2. IT THEREFORE APPEARS THAT ALL THE TRANSACTIONS WHICH ALLEGEDLY FORMED THE BASIS FOR THE ASSESSEE TO CLAIM, LTCG OF RS.21, 06,225/- AND CONCESSIONAL RATE OF TAX OF 10% WERE STRUCTURED TO LOOK OR APPEAR OF GENUINE. UNFORTUNATELY, THE DIFFERENT PARTS OF THE PUZZLE DO NOT FALL IN TO PEACE TO GIVE A COMPLETE PICTURE. THE DETAILS FURNI SHED BY THE ASSESSEE AND HIS BROKER DO NOT TALLY WITH THE DETAILS FURNIS HED BY THE CSE. THE DETAILS FURNISHED BY THE ASSESSEE ALSO DO NOT TALLY WITH THE DETAILS OF TRANSACTION CONTAINED IN THE DEMAT ACCOUNT, WHICH A PPARENTLY IS NOT THE ASSESSEES. THE ONLY CONCLUSION THAT CAN BE DRAWN F ROM SUCH FACTS IS THAT, THE TRANSACTIONS WERE BOGUS. CONSEQUENTLY, THE A.O. WAS FULLY JUSTIFIED IN TREATING THE SUM OF RS.21,06,225/- AS UNEXPLAINED C ASH CREDIT UNDER THE PROVISIONS OF SEC. 68 OF THE I.T. ACT. THE ADDITION IS CONFIRMED. 2.3 THE GIST OF THE DECISION OF LD. C.I.T.(A) IS 1) CROSS DEALS IN THE SCRIPT OF BOLTON PROPERTIES LTD., DID NOT MATCH WITH THE INFORMATION FURNISHED BY THE ASSESSEE. 2) CSE INFORMED THAT THERE IS NO DEALING IN 1000 SH ARES OR LOT OF 5000 SHARES. 3) THERE IS NO ON-LINE DEALING, THERE IS NO EXACT D EMAT ACCOUNTING OF DEALING IN SHARES. ITA.NO.118/A/08 A.Y.2004-05 SHETH HEENA AKSHAY. 6 4) THE DEMAT ACCOUNT FURNISHED BY THE ASSESSEE D ID NOT SHOW THE NAME OF THE ASSESSEE. 5) SHARES OF BOLTON PROPERTIES LTD., WERE BOUG HT OFF MARKET ON 26-5- 2003. 6) CSE HAS ALSO DENIED CERTAIN TRANSACTIONS. AGAINST THIS THE LD. A.R. FOR THE ASSESSEE SUBMITTE D THAT ON SIMILAR SET OF FACTS TRIBUNAL HAS CONFIRMED THE DELETING OF ADDITION MAD E BY THE LD. C.I.T.(A) IN THE CASE OF DY.C.I.T. V/S. SANJAYKUMAR AGRAWAL IN ITA N O.3142/AHD/07 DECIDED ON 12-2-2010 AND IN THE CASE OF A.C.I.T. V/S. SMT. KAN TA GOYAL IN I.T.A.NO.1858/AHD/2008 PRONOUNCED ON 23-09-2009. HE SUBMITTED THAT UNDER SIMILAR SET OF FACTS IN RESPECT OF TRANSACTIONS CAR RIED OUT FROM CALCUTTA STOCK EXCHANGE THE TRIBUNAL HAS DELETED THE ADDITION. IN THE CASE OF SHRI PRAKASH CHAND S. SANDH V/S. ACIT IN ITA. NO.3270/AHD/2008 F OR A.Y. 2005-06 DECIDED ON 24-02-2009. THESE TRANSACTIONS WERE CARRIED OUT THROUGH THOSE BROKERS WHO WERE SUBSEQUENTLY BLACK-LISTED. SO FAR AS THOSE ASS ESSES WERE CONCERNED, IT WAS HELD THAT TRANSACTIONS WERE GENUINE AND THERE IS NO MATERIAL TO HOLD THAT THERE IS NO SALE AND PURCHASE OF SHARES. THE TRANSACTIONS HA VE BEEN CONFIRMED BY THE BROKERS THROUGH SEPARATE LETTERS ISSUED BY THEM. T HE DEPOSITORIES HAVE ALSO CONFIRMED THE SAID TRANSACTIONS. IN THE CASE OF SHR I VISHAL SUSHILKUMAR,(ITA NO.439/A/09 DECIDED ON 26.06.09) THE AHMEDABAD BENC H OF TRIBUNAL HELD THAT ASSESSEE HAS DISCHARGED THE ONUS AND THEREFORE, SAL E PRICE OF THE SHARES COULD NOT BE TREATED AS UNDISCLOSED INCOME. IN THIS REGAR D WE REPRODUCE PARAGRAPH 6 THERE-FROM AS UNDER :- 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO GONE THROUGH T HE ORDER OF THE TAX AUTHORITIES BELOW. THE ISSUE BEFORE US RELATES TO T HE ADDITION MADE U/S. 68 OF THE ACT. IN ORDER TO APPRECIATE THE CONTENTIONS BEFORE US, IT WOULD BE APPROPRIATE TO REPRODUCE THE PROVISIONS OF SECTION 68 OF THE ACT :- WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANAT ION OFFERED BY HIM IS ITA.NO.118/A/08 A.Y.2004-05 SHETH HEENA AKSHAY. 7 NOT, IN THE OPINION OF THE A.O. SATISFACTORY, THE S UM SO CREDITED MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. FROM THE READING OF THE AFORESAID SECTION, IT IS AP PARENTLY CLEAR THAT THIS SECTION LAYS DOWN RULE OF EVIDENCE THAT WHEN ANY SU M IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOU S YEAR, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE OF SUCH CREDIT FOUND IN THE BOOKS OF THE ASSESSEE, OR THE EXPLANAT ION OFFERED BY THE ASSESSEE, IN THE OPINION OF THE AO IS NOT SATISFACT ORY, THE SUM SO CREDITED MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE A SSESSEE OF THAT PREVIOUS YEAR. BEFORE CHARGING THE CREDIT AS THE INCOME OF THE ASS ESSEE, THE AO HAS TO FORM AN OPINION. THIS OPINION IS SUBJECTIVE, BUT IT HAS TO BE JUDICIOUS AND BASED ON MATERIAL ON RECORD. AN OPINION IS AN INFER ENCE OF FACTS FROM OBSERVED FACTS. IT IS NOT AN IMPRESSION. IT IS A CO NVICTION BASED ON APPRAISAL OF EVIDENCE ON RECORD. IN V.L.S. FINANCE LTD. V. CIT (2000) 246 ITR-707, THE HONBLE DELHI HIGH COURT OBSERVED AS U NDER : OPINION MEANS SOMETHING MORE THAN MORE RETAILIN G OF GOSSIP OR HEARSAY; IT MEANS JUDGMENT OR BELIEF, THAT IS, A BE LIEF OR A CONVICTION RESULTING FROM WHAT ONE THINKS ON A PARTICULAR QUES TION. IT MEANS: JUDGEMENT OR BELIEF BASED ON GROUNDS SHORT OF PROOF . IF A MAN IS TO FORM AN OPINION AND HIS OPINION IS TO GOVERN, HE MUST FORM IT HIMSELF ON SUCH REASONS AND GROUNDS AS SEEM GOOD TO HIM. THUS, BEFORE THE A.O. FORMS AN OPINION, HE MUST CON SIDER THE MATERIAL BEFORE HIM. HE HAS BEFORE HIM THE MATERIAL SUBMITTE D BY THE ASSESSEE WHILE GIVING AN EXPLANATION, THEN HE MUST COLLECT H IS OWN MATERIAL AS AN ENQUIRY OFFICER, WEIGHT THE TWO MATERIALS AND AS A QUASI-JUDICIAL AUTHORITY FORM AN OPINION AS TO WHETHER EXPLANATION FURNISHED BY THE ASSESSEE IS SATISFACTORY OR NOT. IF THE A.O. DOES NOT APPLY HIS MIND IN EXAMINING THE DOCUMENTS FURNISHED BY THE ASSESSEE AND DOES NOT FI ND ANY IN SUBSTANTIVE ERROR IN THEM NOR HE COLLECTS ANY MATER IAL BY EXERCISING POWERS UNDER INCOME-TAX ACT, THEN THE CLAIM OF THE ASSESSEE CAN NOT BE STRAIGHTWAY REJECTED. IF HE DOES, IT WOULD BE A VIO LATION OF PRINCIPLES OF NATURAL JUSTICE AND PROVISIONS OF SECTION 68. THE EXPRESSION THE ASSESSEE OFFERS NO EXPLANATION MEANS WHERE THE ASSESSEE OFFERS NO PROPER, REASONABLE AND ACCEPTABL E EXPLANATION AS REGARDS THE SUM FOUND CREDITED IN THE BOOKS OF ACCO UNT MAINTAINED BY THE ASSESSEE. THE OPINION OF THE AO FOR NOT ACCEPTING T HE EXPLANATION OFFERED BY THE ASSESSEE AS NOT SATISFACTORY MUST BE BASED O N PROPER APPRECIATION OF THE MATERIAL AND OTHER SURROUNDING CIRCUMSTANCES AVAILABLE ON RECORD. ITA.NO.118/A/08 A.Y.2004-05 SHETH HEENA AKSHAY. 8 THE OPINION OF THE AO IS TO BE BASED ON APPRECIATIO N OF THE MATERIAL ON RECORD. THE WORD MAY USED IN SECTION 68 PROVIDES DISCRETI ON TO THE AO. IN GENERAL THE WORD MAY IS AN AUXILIARY VERB CLARIFY ING THE MEANING OF ANOTHER VERB OF EXPRESSING AN ABILITY, CONTINGENCY, POSSIBILITY OR PROBABILITY. WHEN USED IN A STATUTE IN ITS ORDINARY SENSE THE WORD IS PERMISSIVE AND NOT MANDATORY. BUT WHERE CERTAIN CON DITIONS ARE PROVIDED IN THE STATUTE AND ON THE FULFILLMENT THEREOF A DUT Y IS CAST ON THE AUTHORITY CONCERNED TO TAKE AN ACTION, THEN ON FULFILLMENT OF THOSE CONDITIONS THE WORD MAY TAKE THE CHARACTER OF SHALL AND THEN I T BECOMES MANDATORY. IN SECTION 68, WE FIND THAT THERE ARE NO SUCH CONDI TIONS ON THE FULFILLMENT OF WHICH THE A.O. IS DUTY BOUND TO MAKE THE ADDITION. THE WORD MAY DENOTES THE DISCRETION OF THE AO THAT HE CAN MAKE A N ADDITION OR CAN NOT MAKE AN ADDITION. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SMT. P. K. NOORJAHAN 237 ITR-570 (SC) WHILE DEALING WITH THE WORD MAY IN SECTION 69 OBSERVED, AS UNDER :- IN THE CORRESPONDING CLAUSE OF THE BILL WHICH WAS INTRODUCED IN PARLIAMENT, WHILE INSERTING SECTION 69 IN THE INCOM E-TAX ACT, 1961, THE WORD SHALL HAD BEEN USED BUT DURING THE COURSE OF CONSIDERATION OF THE BILL AND ON THE RECOMMENDATION OF THE SELECT COMMIT TEE, THE SAID WORD WAS SUBSTITUTED BY THE WORD MAY .THIS CLEARLY IND ICATES THAT THE INTENTION OF PARLIAMENT IN ENACTING SECTION 69 WAS TO CONFER A DISCRETION ON THE INCOME TAX OFFICER IN THE MATTER OF TREATING THE SO URCE OF INVESTMENT WHICH HAS NOT BEEN SATISFACTORILY EXPLAINED BY THE ASSESSEE AS THE INCOME OF THE ASSESSEE AND THE INCOME-TAX OFFICER IS NOT O BLIGED TO TREAT SUCH SOURCE OF INVESTMENT AS INCOME IN EVERY CASE WHERE THE EXPLANATION OFFERED BY THE ASSESSEE IS FOUND TO BE NOT SATISFAC TORY. THE QUESTION WHETHER THE SOURCE OF THE INVESTMENT SHOULD BE TREA TED AS INCOME OR NOT UNDER SECTION 69 HAS TO BE CONSIDERED IN THE LIGHT OF THE FACTS OF EACH CASE. IN OTHER WORDS, A DISCRETION HAS BEEN CONFERR ED ON THE INCOME-TAX OFFICER UNDER SECTION 69 OF THE ACT TO TREAT THE SO URCE OF INVESTMENT AS THE INCOME OF THE ASSESSEE IF THE EXPLANATION OFFERED B Y THE ASSESSEE IS NOT FOUND SATISFACTORY AND THE SAID DISCRETION HAS TO B E EXERCISED KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE PARTICULAR CASE. IN THE CASE BEFORE US WE NOTED THAT THE ASSESSEE HA S SHOWN THE LONG TERM CAPITAL GAINS FROM THE SALE OF SHARES OF M/S. LIMTEX INVESTMENT LTD., M/S. KONARK COMMERCE LTD., AND M/S. OFFSHORE INVEST MENT LTD. THE A.O. DID NOT ACCEPT THE PURCHASE AND SALE OF SHARES BUT TREATED THE AMOUNT RECEIVED BY THE ASSESSEE TO BE THE CASH CREDITS. TH E SALE CONSIDERATION HAS BEEN RECEIVED BY THE ASSESSEE THROUGH THE BANKI NG CHANNEL WHICH IS NOT DENIED. THE ASSESSEE HAS GIVEN THE NAMES AND AD DRESSES OF THE ITA.NO.118/A/08 A.Y.2004-05 SHETH HEENA AKSHAY. 9 PARTIES THROUGH WHOM THE SHARES WERE SOLD. THE CONF IRMATIONS WERE ALSO FILED. THE AO ALSO NOTED THAT THE SHARES WERE THERE IN THE DEMAT ACCOUNT OF THE ASSESSEE FOR ABOUT THREE MONTHS OR SO AND HA VE BEEN TRANSFERRED FROM THE DEMAT ACCOUNT OF THE ASSESSEE. THE ASSESSE E HAS DULY EXPLAINED THE REASONS WHY THE SHARES WERE NOT BROUG HT INTO DEMAT ACCOUNT EARLIER. THE ASSESSEE KEPT THE SHARES IN PH YSICAL FORM AND LATER ON CONVERTED INTO DEMAT. THE CONVERSION OF THESE SH ARES IN THE DEMAT ACCOUNT OF THE ASSESSEE IS NOT DENIED. THE ASSESSEE HAS DULY SHOWN THESE SHARES IN THE BALANCE-SHEET IN THE EARLIER YE AR. NO ADDITION HAS BEEN MADE IN THE EARLIER YEAR FOR THE UNEXPLAINED I NVESTMENT IN THE CASE OF THE ASSESSEE. THE SUMMONS ISSUED BY THE AO U/S. 133(6) WERE DULY SERVED ON THE PARTIES THROUGH WHOM THE ASSESSEE HAS MADE THE SALES OF THE SHARES. THE IDENTITY OF THESE PARTIES CANNOT B E DOUBTED. THE AO ONLY DOUBTED THE GENUINENESS OF THE TRANSACTIONS. ONCE T HE SHARES HAVE COME TO THE DEMAT ACCOUNT AND THE TRANSFER FROM THE DEMA T ACCOUNT OF THE SHARES IS APPARENT, THE RECEIPT OF THE MONEY BY THE ASSESSEE FROM THESE RESPECTIVE SHARES CANNOT BE DENIED. THE AO MAY NOT HAVE ACCEPTED THE HOLDING PERIOD OF THE SHARES BUT THAT DOES NOT MAKE THE TRANSACTIONS RELATING TO THE SHARES OR CONVERSION INTO THE CASH CREDITS CHARGEABLE TO TAX U/S. 299. WE HAVE GONE THROUGH THE CIRCULAR NO.704, DATED 28-04-1995 IN WHICH THE BOARD HAS CLEARLY ACCEPTED THAT THE HOLDI NG PERIOD SHALL BE RECKONED FROM THE DATE OF BROKERS NOTES FOR THE PUR CHASE ON BEHALF OF THE INVESTORS. THEREFORE, EVEN IF THE DELIVERY HAS BEEN RECEIVED .SUBSEQUENTLY, IT WILL NOT BE RELEVANT. THE RELEVANT PARA OF THE C IRCULAR IS REPRODUCED AS UNDER :- 2 WHEN THE SECURITIES ARE TRANSACTED THROUGH STOCK EXCHANGES, IT IS THE ESTABLISHED PROCEDURE THAT THE BROKERS FIRST ENTER INTO CONTRACTS FOR PURCHASE/SALE OF SECURITIE S AND THEREAFTER, FOLLOW IT UP WITH DELIVERY OF SHARES, ACCOMPANIED B Y TRANSFER DEEDS DULY SIGNED BY THE REGISTERED HOLDERS. THE SELLER I S ENTITLED TO RECEIVE THE CONSIDERATION AGREED TO AS ON THE DATE OF CONTRACT. THE BOARD ARE OF THE OPINION THAT IT IS THE DATE OF BRO KERS NOTE THAT SHOULD BE TREATED AS THE DATE OF TRANSFER IN CASES OF SALE TRANSACTIONS OF SECURITIES PROVIDED SUCH TRANSACTIO NS ARE FOLLOWED UP BY DELIVERY OF SHARES AND ALSO THE TRANSFER DEED S. SIMILARLY, IN RESPECT OF THE PURCHASES OF THE SECURITIES, THE HOL DING PERIOD SHALL BE RECKONED FROM THE DATE OF THE BROKERS NOTE FOR PURCHASE ON BEHALF OF THE INVESTORS. IN CASE THE TRANSACTIONS T AKE PLACE DIRECTLY BETWEEN THE PARTIES NOT THROUGH STOCK EXCHANGES THE DATE OF CONTRACT OF SALE AS DECLARED BY THE PARTIES SHALL B E TREATED AS THE DATE OF TRANSFER PROVIDED IT IS FOLLOWED UP BY ACTU AL DELIVERY OF SHARES AND THE TRANSFER DEEDS. ITA.NO.118/A/08 A.Y.2004-05 SHETH HEENA AKSHAY. 10 WE HAVE ALSO GONE THROUGH THE JUDGEMENT OF THE HON BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. ANUPAM KA POOR (2008) 299 ITR-179 (P&H). IN THIS CASE, WE NOTED THAT, IT WAS HELD :- THE TRIBUNAL ON THE BASIS OF THE MATERIAL ON RECOR D, HELD THAT PURCHASE CONTRACT NOTE, CONTRACT NOTE FOR SALES, DI STINCTIVE NUMBERS OF SHARES PURCHASED AND SOLD, COPY OF SHARE CERTIFI CATES AND THE QUOTATION OF SHARES ON THE DATE OF PURCHASE AND SAL E WERE SUFFICIENT MATERIAL TO SHOW THAT THE TRANSACTION WA S NOT BOGUS BUT A GENUINE TRANSACTION. THE PURCHASE OF SHARES WAS MAD E ON 28 TH APRIL,1993 I.E. ASST. YEAR 1993-94 AND THAT ASSESSM ENT WAS ACCEPTED BY THE DEPARTMENT AND THERE WAS NO CHALLEN GE TO THE PURCHASE OF SHARES IN THAT YEAR. IT WAS ALSO PLACED BEFORE THE RELEVANT AO AS WELL AS BEFORE THE TRIBUNAL THAT THE SALE PROCEEDS HAVE BEEN ACCOUNTED FOR IN THE ACCOUNTS OF THE ASSE SSEE 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 THE COMPANY. HE HAD MAD E INVESTMENT IN A COMPANY IN WHICH HE WAS NEITHER A D IRECTOR NOR WAS HE IN CONTROL OF THE COMPANY. THE ASSESSEE HAD TAKE N SHARES FROM THE MARKET, THE SHARES WERE LISTED AND THE TRANSACT ION 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 CAMOUF LAGE ACTIVITIES, TO DEFRAUD THE REVENUE. NO SUCH PRESUMPTION COULD BE D RAWN BY THE AO MERELY ON SURMISES AND CONJECTURES. IN THE ABSEN CE OF ANY COGENT MATERIAL IN THIS REGARD, HAVING BEEN PLACED ON RECORD, THE AO COULD NOT HAVE REOPENED THE ASSESSMENT. THE ASSE SSEE HAD MADE AN INVESTMENT IN A COMPANY, EVIDENCE WHEREOF W AS WITH THE AO. THEREFORE, THE AO COULD NOT HAVE ADDED INCOME, WHICH WAS RIGHTLY DELETED BY THE CIT(A) AS WELL AS THE TRIBUN AL. IT IS SETTLED LAW THAT SUSPICION, HOWSOEVER STRONG CANNOT TAKE THE PL ACE OF LEGAL PROOF. CONSEQUENTLY, NO QUESTION OF LAW, MUCH LESS A SUBSTANTIAL QUESTION OF LAW, ARISES FOR ADJUDICATION. VASANTL AL & CO. V. CIT (1962) 45 ITR-206 (SC), M.O. TOMAKUTTY V. CIT (1958 ) 34 ITR 501 (KER) AND MUKUND SINGH V SALES TAX TRIBUNAL (1998) 107 STC 300 (PUNJAB) RELIED ON; UMAACHAND SHAW & BROS. V. CIT ( 1959) 37 ITR- 271 (SC) APPLIED; JASPAL SINGH V CIT (2006) 205 CTR (P&H) 624 DISTINGUISHED. THE CREDIT IN THE ASSESSEES BANK ACCOUNT REPRESENT ED THE SALE PROCEEDS OF THE SHARES SOLD BY HIM. THE NECESSARY DETAILS AS CALLED FOR BY THE AO WERE FILED BY THE ASSESSEE. NOTHING HAS BEEN BROUGH T ON RECORD THAT THE CONSIDERATION WHICH HAS COME THROUGH THE BANKING CH ANNEL HAS NOT COME OUT OF THE PROCEEDS OF THE SHARES. MERELY THAT PART OF THE SHARES COULD NOT BE TRANSFERRED OUT OF THE SALES OF SHARES DURING TH E YEAR THAT WILL NOT MAKE ITA.NO.118/A/08 A.Y.2004-05 SHETH HEENA AKSHAY. 11 THE GENUINE TRANSACTION TO BE NON-GENUINE. THE AO SIMPLY PRESUMED THAT THE TRANSACTION RELATING TO THE SALE OF SHARES IS N OT GENUINE. APPARENT IS NOT REAL. IN OUR OPINION, IF THE AO WAS OF THE VIEW THAT THE CONSIDERATION DOES NOT RELATE TO THE SHARES, HE COULD HAVE BROUGH T THE MATERIAL ON RECORD TO PROVE THAT THE ASSESSEE HAS NOT RECEIVED THE CONSIDERATION FROM THESE PARTIES. THE CASH CREDIT HAS BEEN ADDED IN RE SPECT OF WHOLE OF THE SALE CONSIDERATION RECEIVED BY THE ASSESSEE THROUGH THE BANKING CHANNEL DURING THE YEAR UNDER CONSIDERATION. THE AO ONLY DOUBTED THE GENUINENESS OF THE TRANSACT IONS. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DCIT V. ROHINI BU ILDERS 256 ITR 360 (GUJ.) HAS HELD THAT MERE IDENTIFICATION OF THE SOU RCE OF CREDITS EVEN WITHOUT EVIDENCE AS TO THE NATURE OF THE INCOME COU LD JUSTIFY THE CREDIT WHETHER THE ASSESSEE HAS GIVEN THE GIR / PAN NOS. O F THE CREDITORS AND ALSO SHOWS THAT THE AMOUNTS WERE RECEIVED BY ACCOUN T PAYEE CHEQUES. THE HIGH COURT IN THIS CASE ENDORSED THE FINDING OF THE TRIBUNAL THAT IT IS NOT NECESSARY THAT THERE SHOULD BE AN EXPLANATION A S TO THE SOURCE OF MONEY ON THE PART OF THE CREDITORS IN EVERY CASE. T HE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IS BINDING ON US. WE HAVE ALSO GONE THROUGH THE DECISION AS RELIED ON BY THE LD. AR IN THE CASE OF CIT V. PRAGATI CO-OPERATIVE BANK LTD. (2005) 278 ITR-170 ( GUJ.), IN WHICH IT WAS HELD AS UNDER :- HELD, THAT IT WAS APPARENT THAT THE ASSESSEE HAD F URNISHED THE DETAILS WHICH WOULD DISCHARGE THE ONUS WHICH LAY ON THE ASSESSEE CONSIDERING THE FACT THAT THE DEPOSITS WERE MADE BY THIRD PARTIES, VIZ., CUSTOMERS OF THE BANK. IT WAS NOBODYS CASE T HAT THE DEPOSITS WERE MADE EITHER BY THE DIRECTORS OF THE ASSESSEE-B ANK OR ANY OF THE RELATIVES OF THE DIRECTORS. THE ACTIVITIES OF T HE ASSESSEE-BANK WERE REGULATED BY THE PROVISIONS OF THE BANKING REG ULATION ACT, 1949, AND THE GUIDELINES ISSUED BYTHE RESERVE BANK OF INDIA. THIS WAS APART FROM THE FACT THAT UNDER THE PROVISIONS O F SECTION 80P OF THE ACT THE ENTIRE INCOME FROM BANKING ACTIVITIES W AS EXEMPT IN THE HANDS OF THE ASSESSEE, A CO-OPERATIVE BANK. THUS TH ERE COULD EXIST NO REASON FOR THE ASSESSEE-BANK TO INDULGE IN ANY A CTIVITY WHICH WOULD YIELD UNDISCLOSED INCOME. THE TRIBUNAL WAS RI GHT IN DELETING THE ADDITION OF RS.1,80,95,811 IN RESPECT OF FIXED DEPOSITS AND RS.21,71,500 IN RESPECT OF INTEREST. IN THE CASE OF MURLIDHAR LAHORIMAL V. CIT (2006) 28 0 ITR 512 (GUJ.), THE HONBLE HIGH COURT WHILE EXPLAINING THE SCOPE OF SE CTION 68, HAS HELD AS UNDER :- HELD, THAT THE TRIBUNAL FAILED TO NOTE THE FACT TH AT THE IDENTITY OF THE DONOR WAS ESTABLISHED, THE DONOR HAVING APPEARED IN PERSON BEFORE THE AO, THE GENUINENESS OF THE TRANSACTION WAS ESTA BLISHED, NOT ITA.NO.118/A/08 A.Y.2004-05 SHETH HEENA AKSHAY. 12 ONLY BY THE RECEIPT OF THE BANK DRAFT, BUT ALSO BY THE FACT OF THE TRANSACTION HAVING BORNE GIFT TAX ONCE THE ASSESSME NT WAS FRAMED. THE PRIMARY ONUS WHICH RESTED WITHIN THE ASSESSEE, THUS, STOOD DISCHARGED. THEREFORE, IF THE REVENUE WAS NOT SATIS FIED WITH THE SOURCE OF THE FUNDS IN THE HANDS OF THE DONOR, IT W AS UP TO THE REVENUE TO TAKE APPROPRIATE ACTION. THE TRIBUNAL CO NSIDERED THE MOTIVATION FOR MAKING THE GIFT WHICH WAS NOT RELEVA NT. THE ADDITION OF RS.50,000 WAS NOT JUSTIOFIED. IN VIEW OF THE EVIDENCES ON RECORD, WE ARE OF THE V IEW THAT THE ASSESSEE HAS DULY DISCHARGED HIS ONUS SO FAR AS THE AMOUNT R ECEIVED FROM THE SHARE BROKER IS CONCERNED ON THE SALE OF SHARES. TH E ONUS GOT SHIFTED ON THE REVENUE TO PROVE THAT THE ASSESSEE HAS NOT RECE IVED THE CONSIDERATION AGAINST THE SHARES FROM THESE BROKERS . WE, THEREFORE, DELETE THE ADDITION MADE AMOUNTING TO RS.7,97,200/-, RS.19 ,34,830/- AND RS.37,42,887/- U/S. 68 OF THE ACT. THE LD. D.R. ON THE OTHER HAND SUBMITTED THAT EVID ENCE IS NOT PRODUCED TO SHOW THAT TRANSACTIONS ARE GENUINE. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD. SINCE THE ISSUE RELATING TO GENUINENESS OF THE SHARE TRANSACTION WITH CALCUTTA STOCK EXCHANGE HAS BEEN DECIDED BY THE TRI BUNAL IN SEVERAL JUDGEMENTS AND WE FIND THAT ASSESSEE HAS DISCHARGE D THE ONUS AND THERE IS NO MATERIAL TO SHOW THAT MONEY RECEIVED FROM THE BROKE RS IS NOT SATISFACTORILY EXPOLAINED. RESPECTFULLY FOLLOWING ABOVE JUSDGEMENT S AND PARTICULARLY IN THE CASE OF VISHAL SUSHILKUMAR (SUPRA) WE UPHOLD THE AD DITION MADE BY THE A.O. AND CONFIRMED BY THE LD. C.I.T.(A) AND DIRECT TO TAX TH E CAPITAL GAIN AS DECLARED BY THE ASSESSEE. AS A RESULT, THE APPEAL FILED BY THE AS SESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 04 / 06 /2010. SD/- SD/- (T.K. SHARMA) ( D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER. AHMEDABAD. DATED:04/06/2010. ITA.NO.118/A/08 A.Y.2004-05 SHETH HEENA AKSHAY. 13 S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNED. 5. THE DR.,ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD.