Nirmalaben Rajeshkumar Chopra, Ahmedabad V. The CIT-I, Ahmedabad

ITA 1233/AHD/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6457 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 20-04-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ALOK JOHRI
• Keywords: Capital asset; Principle of natural justice; Cost of acquisition; Speculative transactions
• Section: 143(3); 142(1); 263; 2

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M NIRMALABEN RAJESHKUMAR CHOPRA, C-301, ARIHANT NAGAR, B/H GANDHI VIDYALAYA, SHAHIBAUG, AHMEDABAD. VS. CIT-I, AHMEDABAD. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI S. N. SOPARKAR, SR.ADVOCATE WITH SHRI JAIMIN GANDHI. RESPONDENT BY:- SHRI ALOK JOHRI, CIT, DR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS:- 1 LD. CIT HAS ERRED IN LAW AND ON FACTS IN P ASSING ORDER U/S 263 OF THE ACT HOLDING THE ASSESSMENT ORDER PASSED IN SCRU TINY PROCEEDINGS U/S 143(3) OF THE ACT AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE TO THE EXTENT OF ACCEPTANCE OF CLAIM OF LON G TERM CAPITAL GAIN ON SALE OF SHARES BEING EXEMPT U/S 10(38) OF T HE ACT. THE LEARNED CIT FAILED TO APPRECIATE THE FACT THAT THE ASSESSMENT ORDER SOUGHT TO BE REVISED WAS PASSED AFTER PROPER INQUIR Y AND VERIFICATION BY AO OF THE CLAIM MADE BY THE APPELLA NT AND HENCE THIS ORDER OF CIT, WHICH IS TOTALLY ERRONEOUS, PREJ UDICIAL, AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE DESERVES TO BE QUASHED. 2. LD. CIT HAS ERRONEOUSLY DIRECTED AO TO RE ADJUDI CATE THE ISSUE OF LONG TERM CAPITAL GAIN ARISING OUT OF SALE OF SHARE S AND CLAIM OF ITA NO.1233/AHD/2010 ASST. YEAR 2006-07 ITA NO.1233/AHD/2010 ASST. YEAR 2006-07 2 EXEMPTION U/S 10(38) OF THE ACT AFRESH WITHOUT TAKI NG INTO CONSIDERATION THE SUBMISSIONS, DOCUMENTARY EVIDENCE AND FACTUAL MATRIX PLACED ON RECORD BY THE APPELLANT IN REVISIO NAL PROCEEDINGS, THAT WAS CONSIDERED BY AO WHILE PASSING SCRUTINY OR DER. THIS ACTION OF ID. CIT IS HARSH, UNCALLED FOR AND COMPLE TELY AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 2. THROUGH THE ABOVE GROUND THE ASSESSEE HAS CHALLE NGED THE REVISION OF ASSESSMENT U/S 263. THE FACTS RELATING TO THE CO NTROVERSY ARE THAT ASSESSMENT U/S 143(3) WAS COMPLETED BY THE AO ON 29 .02.2008. THE ASSESSEE HAD DECLARED AN INCOME OF RS.3,95,640/- IN THE RETURN FILED ON 28.08.2006. WHILE COMPLETING THE ASSESSMENT THE AO PASSED THE ORDER AS UNDER :- 2. THE CASE WAS SELECTED FOR SCRUTINY AS PER CASS AND NOTICE U/S 143(2) OF THE ACT WAS ISSUED ON 17/07/2007 AND SAME WAS SERVED UPON THE ASSESSEE BY REGISTERED POST. THEREAFTER NOTICE U/S 142(1) DATED 31.01.2008 ALONG WITH DETAILED QUESTIONNAIRE LETTER WAS ISSUED AND SERVED UPON THE ASSESSEE. 3. IN RESPONSE TO NOTICES ISSUED U/S 143(2) AND 142 (1) OF THE ACT, SHRI K.I. JAIN, C.A. DULY AUTHORISED ATTENDED FROM TIME TO TIME AND FURNISHED THE REQUISITE DETAILS. THE ASSESSEE IS HAVING INCOM E FROM INTEREST ON DEPOSITS, CAPITAL GAINS ETC. AS PER INFORMATION FROM ITS DETAILS FROM CASS, IT WAS FOUND THAT THE ASSESSEE HAD INVESTED IN VARIOUS MUTUAL FUNDS R S.26,00,000/-, WHICH HAD TO BE VERIFIED. THIS HAS BEEN VERIFIED FROM THE DETAILS FURNISHED BY THE ASSESSEE IN THE RETURN OF INCOME AND THE DETAILS PR OVIDED DURING THE COURSE OF HEARING AND ACCORDINGLY THIS HAS BEEN COM PLETELY VERIFIED. AFTER THE VERIFYING THE DETAILS ON RECORD AND THOSE PROVIDED DURING THE COURSE OF HEARING WITH THE RECORDS MAINTAINED BY TH E ASSESSEE, THE INCOME RETURNED IS ACCEPTED. TOTAL INCOME AS PER RETURN RS.3,95,640/- ITA NO.1233/AHD/2010 ASST. YEAR 2006-07 3 THE LD. CIT EXAMINED THE RECORD OF ASSESSEE AND FOU ND THAT ASSESSEE HAD DECLARED LONG TERM CAPITAL GAIN ON SALE OF CERTAIN SHARES BUT IN FACT DETAILS REGARDING PURCHASE OF THE SHARES WERE NOT ENQUIRED INTO. THE LD. CIT GAVE FOLLOWING NOTICE TO THE ASSESSEE:- THE RECORDS RELATING TO ASSESSMENT PROCEEDINGS FOR THE A.Y.2006 -07 IN YOUR CASE WERE CALLED FOR AND EXAMINED IN THIS OFFICE. IT WAS NOTICED THAT YOU HAD FILED YOUR RETURN ON 21/07/2006 DECLARING INCOME OF RS.3,95,64 0/-. IN THIS RETURN, YOU HOD SHOWN INTEREST INCOME OF RS.4,28,590/- FROM M/S. CH OPRA TEXTILES, SHORT TERM CAPITAL GAINS OF RS.91,842/- IN RESPECT OF PURCHASE & SALE OF SHARES / MUTUAL FUND UNITS, APART FROM LONG TERM CAPITAL GAINS OF RS.3 },87,440 /- WH/CH WAS CLAIMED AS EXEMPT. ASSESSMENT WAS COMPLETED ON 29/02/2008 AT HE RETURN ED INCOME I.E. RS.3,95,640/-. ON A PERUSAL OF DETAILS OF LONG TERM CAPITAL, IT IS SEEN THAT YOU HAD >ED TO HAVE EARNED LONG TERM CAPITAL GAINS OF RS.30,90,050/- ON 65000 SHARES OF INDO GREEN PROJECTS LTD. PURCHASED ON 12/04/2004, 13/04/2004 A ND 1/04/2004 FOR A TOTAL CONSIDERATION OF RS.92,835/~. THESE SHARES HAVE BE EN S O/D ON 3/6/05, 23/6/05 AND 26/6/05, FOR A TOTAL SALE CONSIDERATION OF RS.31 ,82,750/-. IT, HOWEVER, APPEARS THAT REGARDING THE SUBSTANTIAL LONG TERM CAPITAL GAINS OF RS.30,89,915/- PROPER INQUIRIES HAVE NOT BEEN MADE BY THE ASSESSING OFFICER, BEFORE COMPLETING THE ASSESSMENT, IN VIEW OF THE FOLLOWING FACTS:- A) THOUGH IT WAS CLAIMED 65000 SHORES OF M/S. INDO GREEN PROJ ECTS LTD. HAVE BEEN PURCHASED ON 12/04/2004 (25000), ON 13/04/2004 '20000J AND ON 15/04/2004 (20000J FOR A TOTAL COST OF RS.92,836, HOWEVER, NO DETAILS REGARD ING MODES OF PAYMENT OF SUCH PURCHASES AT RS.92,836/-WERE OBTAIN ED BY THE ASSESSING OFFICER. B) THE ABOVE 65000 SHARES OF INDO GREEN PROJE CTS LTD. WERE CREDITED IN YOUR DEMAT ACCOUNT WITH THE PRAWN RATILAL SHARES & STOCK BROKERS LTD. ONLY ON 20.05,2005 AND THEREAFTER, THE SAME HAVE BEEN SOLD ON 23.05.2005, 27.05.2005 AND 02.06.2005. C) DURING THE COURSE OF ASSESSMENT PROCEEDING S A COPY OF YOUR BANK ACCOUNT WITH PROGRESSIVE MERCANTILE CO. OP. BANK LTD. FOR THE PERIOD 20.03.2003 TO 28.04.2007 HAD BEEN FURNISHED. THOUGH THE SALE PROC EEDS OF THE ABOVE SHARES HAVE BEEN CREDITED IN THIS BANK ACCOUNT ON 27.05.05, 01. 06.2005 AND 09.06.2005 THERE IS NO DEBIT REFLECTING PAYMENTS FOR PURCHASE OF SHARES IN THE MONTH OF APRIL 2004. D) THE COMPANY M/S. INDO GREEN PROJECTS LTD. HAS SCRIP CODE OF 531968 AND SCRIP ID OF INDOGR AND IS TRADING AT BOMBAY STOCK E XCHANGE. THE HISTORICAL SHARE PRICE DATA OF THIS COMPANY ON THE BSE WEBSITE DOES NOT SHOW ANY TRANSACTION WHATSOEVER ON 12.4.04, 13.4.04 AND 15.4.04. IN THE ABOVE BACKGROUND OF THE FACTS, IT APPEARS TO THE UNDERSIGNED THAT PROPER INQUIRIES REGARDING LONG TERM CAPITAL GAINS SHOWN B Y YOU AT RS.30,90,050/- HAVE NOT BEEN MADE BY THE A.O. BEFORE COMPLETING ASSESSMENT ON 29.2.08 AND ACCEPTING LONG TERM CAPITAL GAINS OF RS.30,90,050. BEFORE AN APPROPRIATE ORDER IS PASSED U/S 263, YOU ARE HEREBY GIVEN AN OPPORTUNITY OF BEING H EARD AND FURNISH SUCH EVIDENCE AS YOU MAY WISH IN SUPPORT OF CLAIM MADE IN THE RET URN, AS ABOVE. ITA NO.1233/AHD/2010 ASST. YEAR 2006-07 4 IN RESPONSE TO ABOVE, THE ASSESSEE FURNISHED FOLLOW ING REPLY ON 12.8.2008:- 'IT APPEARS FROM THE NOTICE BEARING NO.CIT-L.ABD/26 3/NRC/2008-09 DATED 30/07/2008 THAT THE PRESENT PROCEEDINGS HAVE BEEN I NITIATED FOR THE FOLLOWING ITEM ONLY CONSIDERED, ERRONEOUS AND PREJUDICIAL TO THE I NTEREST OF SHE REVENUE. 'REGARDING LONG TERM CAPITAL GAINS OF RS.3089915/- PROPER INQUIRIES HAVE NOT BEEN MADE BY THE ASSESSING OFFICER BEFORE COMPL ETING THE ASSESSMENT, IN VIEW OBSERVED FACTS MENTIONED BY YOURSELVES'. WE MAY BE PERMITTED TO SUBMIT THAT ON THE FACTS AND LE GAL POSITION OF THE AFORESAID ITEM DOES NOT WARRANT ANY ACTION U/S.263 OF THE ACT . IT THAT THE FULL FACTS HAVE NOT BEEN PLACED BEFORE YOUR GOODSELF. KINDLY PERMIT US TO ELABORATE THE FACTS RAISED BY Y OUR GOODSELF. .YOURSELVES HAVE RAISED THE FIRST POINT THAT THE ASSESSEE HAD PURCHA SED 65000 SHARES OF INDO GREEN PROJECTS LTD. ON 12.04.2004, ON 13.04.2004 & ON 15. 04.2004 FOR A TOTAL COST OF RS.92836.00 BUT NO DETAILS REGARDING MODE OF PAYMEN TS OF SUCH PURCHASES ARE OBTAINED BY THE ASSESSING OFFICER. WE HAVE TO SUBMIT THAT THE ASSESSEE HAD PRODUCED DETAILS OF PURCHASES OF SHARES ALONG-WITH COPIES OF PURCHASE BILLS VIDE OUR LETTER DATED 19/02/2008 DURING THE COURSE OF ASSESSMENT PROCEEDINGS. AS YOUR GOODSETF WOULD N OTE THAT PURCHASE OF THESE SHARES FALL IN P.Y. 2004-05, I.E., A.Y. 2005-06 AND THEREFORE, THE ASSESSEE HAD ALREADY SHOWN THE DETAILS OF PURCHASE OF THESE SHAR ES IN THE RETURN FILED FOR THAT ASSTT. YEAR. IN THAT YEAR THE ASSESSEE HAD ENTERED INTO SH ARE TRANSACTIONS AND EARNED PROFIT OF RS. 92638 FROM THE SHARE BROKER AND AS THE SHARE S OF INDO GREEN WERE PURCHASED FROM SAME SHARE BROKER, THE REALIZATION O F THIS PROFIT WAS ADJUSTED AGAINST PAYMENT OF PURCHASE OF SHARES. ACCOUNT CONFIRMATION OF SHARE BROKER SHOWING THESE TRANSACTIONS ARE ENCLOSED HEREWITH. KINDLY NOTE THAT THE ASSESSEE MAINTAINS BOOKS OF AC COUNTS AND ALL THESE ENTRIES ARE REFLECTED IN HER BOOKS OF ACCOUNTS FOR P.Y. 2004-05 (A.Y. 2005-06). THE COST OF SHARES OF RS.92836 OF INDO GREEN WERE SHOWN AS INVE STMENT IN THE BALANCE SHEET AND THE SHARE PROFIT MENTIONED ABOVE WAS REFLECTED IN P & L A/C & STATEMENT OF INCOME. WE ARE HEREWITH ENCLOSING COPIES OF FOLLOWI NG FOR YOUR READY REFERENCE, I) COPY OF INDO GREEN LTD. SHARE A/C. II) COPY OF BROKER SHAHRUKH N. TARA III) COPY OF BALANCE SHEET & PROFIT & LOSS ACCOUNT FOR THE F. V. 2004-05 IV) COPY OF STATEMENT OF TOTAL INCOME FOR THE A.Y. 2005-06 V) COP/ OF ACKNOWLEDGEMENT FOR A.Y 200 5-06 KINDLY NOTE THAT ALL THESE DETAILS WERE A/READY THERE FN THE FILE OF THE ASSESSEE WITH THE DEPORTMENT. B) YOUR GOODSELVES HAVE RAISED THE 2 ND I SSUE THAT THE ABOVE 65000 SHARES OF INDO GREEN PROJECT LTD. WERE CREDITED IN DEMOTE ACCOUNT WITH THE PRAVIN RATILAL SHARE & BROKERS LTD. ONLY ON 20/05/2005. ITA NO.1233/AHD/2010 ASST. YEAR 2006-07 5 WE MAY BE PERMITTED TO STATE THAT THESE SHORES WERE HELD BY THE A SSESSEE COMMON DEMOTE ACCOUNT OF BROKER AT THE TIME OF PURCHASES A ND TRANSFERRED TO HER DEMAT ACCOUNT BEFORE SELLING OF THESE SHORES. COPY OF DECLARA TION OF BROKER SHOWING THIS FACT IS ENCLOSED HEREWITH FOR YOUR READY REFERENCE. C) YOUR GOODSELVES HAVE RAISED THE THIRD ISSUE THAT NO DEBIT REFLECTING FOR PURCHASER OF SHARES FN THE MONTH OF APRIL 2004 /N ASSESSEE'S SAVINGS ACCOUNT. IT IS EXPLAINED BY US WHILE EXPLAINING THE POINT A ABOVE AND HENCE PAYMENT IS NOT REFLECTED IN BANK PASS BOOK, OTHERWISE THE PAYMENT IS ALREADY REFLECTED IN OUR BOOKS OF ACCOUNTS. D) YOUR GOODSELVES HAVE RAISED THE FOURTH ISSUE THA T THE HISTORICAL SHARE PRICE DATA OF THIS COMPANY ON THE BSE WEBSITE DOES NOT SH OW ANY TRANSACTION 12.04.2004, 13.04.2004 & 15.04.2004. WE ARE HEREWITH ENCLOSING A COPY OF WEBSITE OF BSE SHOWING SHARE PRICES ON 17.04.2004 OF RS.1.40 PER SHARE OF THIS COMPANY. WE MAY BE PERMITTED TO STATE THAT THE ASSESSEE HAS PURCHASED THESE SHARES @ RS.1.37, RS.1.42, RS.1.47 DURING THAT PERIOD. SO TH E PURCHASE RATE IS SIMILAR TO THAT RATE PREVAILING ON STOCK EXCHANGE. WE MAY BE PERMIT TED TO STATE THAT DUE TO SO MANY TECHNICAL REASONS, THE WEBSITE MIGHT NOT SHOW EXACT SHARES, BROKERS ACCOUNT, CONFIRMATION OF SHARE BROKERS, ENTRIES IN THE BOOKS OF ACCOUNTS AND ALSO THE RATE OF PURCHASE IS SIMILAR TO THAT PREVAILING ON THE STOCK EXCHANGE IN NEAR ABOUT DAYS. APART FROM THE EXPLANATION TO THE POINTS RAISED BY YOURSELVES WE WOULD ALSO LIKE TO EXPLAIN ABOUT LEGAL ASPECTS OF THIS ISSUE. THE ASSESSEE HAS CLAIMED LONG TERM CAPITAL GAIN EXE MPT U/S 10(38) OF THE IT ACT. PROVISIONS OF SECTION 10(38) STATE AS UNDER : 3. THE LD. CIT DID NOT ACCEPT THE ABOVE EXPLANATION OF THE ASSESSEE BY HOLDING THAT - (1) THE ASSESSEE DID NOT SUBMIT ANY DETAIL AT THE T IME OF ASSESSMENT PROCEEDINGS AS TO HOW THE SHARES IN RESPECT OF WHIC H LONG TERM CAPITAL GAINS WERE CLAIMED WERE TRANSFERRED FROM A COMMON D EMAT ACCOUNT OF THE BROKER AT THE TIME OF PURCHASE, TO THE ASSESSEE S DEMAND ACCOUNT BEFORE SELLING. THE AO ALSO DID NOT ANALYSE AND ENQ UIRE INTO THIS ASPECT BEFORE FINALIZING THE ASSESSMENT. ITA NO.1233/AHD/2010 ASST. YEAR 2006-07 6 (2) THE COMPANY M/S INDO GREEN PROJECTS LTD. WHOSE SHARES ASSESSEE HAD CLAIMED TO HAVE PURCHASED, DID NOT FIGURE AT TH E BOMBAY STOCK EXCHANGE ON THE DATES OF PURCHASE, NAMELY 12.4.2004 , 13.4.2004 IS CONCERNED. (3) SINCE THE SHARES WERE ACTUALLY TRANSFERRED TO T HE DEMAT ACCOUNT OF THE ASSESSEE IN 2005 IT WOULD GIVE RISE TO SHORT-TE RM CAPITAL GAINS ONLY. BY SHOWING LONG TERM CAPITAL GAINS ASSESSEE HAS SOU GHT EXEMPTION U/S 10(38). THUS ON THE ISSUE OF LONG TERM CAPITAL GAIN S ON SALE OF 65,000 SHARES OF M/S INDO GREEN PROJECTS LTD., THE AO DID NOT CARRY OUT PROPER ENQUIRY/VERIFICATION. HE HELD THE ORDER OF THE AO E RRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE LD. CIT REFERRED TO FOLLOWING JUDGMENTS IN SUPPORT OF HIS DECISION :- TARAJAN TEA CO. (P) LTD. VS. CIT 205 ITR 45 (GAU) CIT VS. SESHASAYEE PAPER & BOARDS LTD. 242 ITR 490 (MAD) CIT VS. SOUTH INDIA SHIPPING CORPN. LTD. 233 ITR 54 6 (MAD) CIT VS. EMERY STONE MFG. CO. 213 ITR 843 (RAJ) MANNULAL MATADEEN VS. CIT 277 ITR 346 (ALL) 4. AGAINST ABOVE, THE LD. AR FOR THE ASSESSEE SUBMI TTED THAT THE AO HAD IN FACT CARRIED OUT ENQUIRIES. HE REFERRED TO T HE NOTICE OF THE AO DATED 31.1.2008 ENCLOSING THEREWITH AN ANNEXURE SHOWING C ALLING FOR DETAILS IN RESPECT OF FOLLOWING ITEMS:- ITA NO.1233/AHD/2010 ASST. YEAR 2006-07 7 1. DETAILS OF BANK ACCOUNTS INCLUDING ACCOUNT NOS. AND BRANCH WITH RECONCILIATION STATEMENT.(COPY OF STATEMENTS T O BE FURNISHED). 2. COPIES OF BILLS FOR CAPITAL GAINS. 3. DETAILS OF FAMILY, HOUSEHOLD EXPENSES AND CONTRIBUT ION FROM OTHER MEMBERS IF ANY. 4. COPY OF DEMAT ACCOUNT. 5. COPY OF ACCOUNT OF M/S CHOPRA TEXTILES. 6. BOOKS OF ACCOUNT MAINTAINED TO BE PRODUCED. 5. IN RESPONSE TO THIS ASSESSEE HAD SUBMITTED A REP LY ON 19.2.2008 AS UNDER :- UNDER INSTRUCTIONS FROM OUR ABOVE MENTIONED CLIENT & WITH REFERENCE TO DETAILS REQUIRED BY YOU AT THE TIME OF LAST HEARING, WE HEREBY SUBMIT AS UNDER; 1) COPIES OF ALL BANKS STATEMENTS OF ALL BANK ACCOUNTS FOR WHOLE YEAR ARE ENCLOSED. 2) DETAILS OF LONG TERM CAPITAL GAIN ALONG WITH COPIES OF SALE BILL & PURCHASE BILLS IS ENCLOSED. 3) DETAILS OF SHORT TERM CAPITAL GAIN ALONG WITH SALE BILLS/ALLOTMENT ADVICE IN IPO IS ENCLOSED. 4) COPIES OF DEMAT STATEMENTS ARE ENCLOSED. 5) ACCOUNT CONFIRMATION OF NIRMALABEN VINODKUMAR & CHO PRA TEXTILES ARE ENCLOSED. 6) REGARDING HOUSEHOLD EXPENSES WE HAVE TO STATE THAT THE WITHDRAWALS ARE DONE BY HER HUSBAND RAJESHKUMAR G. CHOPRA WHO IS ASSESSED AT PAN AATPC 223A & WITHDRAWALS DUR ING THE YEAR WERE OF RS.82,000/-. THE FAMILY OF ASSESSEE CO NSISTS OF HERSELF, HUSBAND & TWO CHILDREN. 6. THE LD. AR THEN SUBMITTED THAT SHARES OF INDO GR EE PROJECT LTD. WERE ACQUIRED LAST YEAR WHOSE DETAILS WERE ENCLOSED WITH THE RETURN FILED ITA NO.1233/AHD/2010 ASST. YEAR 2006-07 8 LAST YEAR. THEY ARE SHOWN AS INVESTMENT IN THE RETU RN FILED. THE MONEY WAS ACTUALLY NOT PAID AS PAYMENT WAS ADJUSTED AGAIN ST RECEIPT TO BE OBTAINED BY THE ASSESSEE FROM THE BROKER IN RESPECT OF SALE OF OTHER SHARES. A COPY OF THE ACCOUNT OF THE BROKER M/S SHAHRUKH N. TARA IN THE BOOKS OF THE ASSESSEE WAS FILED WHICH IS PLACED AT PAGE 7 OF THE PAPER BOOK. IT SHOWED A DEBIT IN THE ACCOUNT OF THE BROKER ON 10 TH AND 12 TH APRIL, 2004 AGAINST SALE OF 2000 AND 1000 SHARES OF GEOMETRIC S OFTWARE AND SHARES OF BIOCON LTD. RESPECTIVELY. ACCORDING TO THE LD. AR, BOTH PURCHASE AND SALE OF THESE TWO SHARES WAS SPECULATIVE WHICH WAS CREDI TED TO THE ACCOUNT OF THE ASSESSEE. THIS SUM RECEIVABLE FROM THE BROKER W AS ADJUSTED AGAINST PURCHASE PRICE TO BE PAID BY THE ASSESSEE IN RESPEC T OF SHARES OF INDO GREEN PROJECTS. HENCE THERE WAS NO NEED TO MAKE ANY SEPARATE PAYMENT FOR PURCHASE OF THE SHARES OF INDO GREEN PROJECTS L TD. THE BROKER HAS CONFIRMED THE TRANSACTIONS AND SUCH CONFIRMATION IS PLACED ON RECORD. 7. IN REPLY THE LD. DR SUBMITTED THAT THERE IS NO V ERIFIABLE EVIDENCE THAT THE TRANSACTIONS IN PURCHASE OF SHARES OF INDO GREEN PROJECT LTD. HAD TAKEN IN APRIL, 2004 AS CLAIMED. SHARES WERE LYING IN THE DEMAT ACCOUNT OF THE BROKER. THEY WERE NEVER TRANSFERRED TO THE I NDIVIDUAL ACCOUNT OF THE ASSESSEE TILL MAY, 2005. THE CLAIM THAT PAYMENT WAS ADJUSTED AGAINST SALE OF SHARES OF GEOMETRIC SOFTWARE AND BIOCON LTD . WOULD INDICATE THAT THEY WERE SPECULATIVE TRANSACTIONS. MERELY BILLS HA VE BEEN RAISED AND ITA NO.1233/AHD/2010 ASST. YEAR 2006-07 9 ASSESSEE HAS BEEN CREDITED. THERE IS NO EVIDENCE OF ACTUAL TRANSACTION IN RESPECT OF WHICH SUMS OF RS.45,825/- AND RS.46,811/ - HAVE BEEN CREDITED TO THE ACCOUNT OF THE ASSESSEE. SHARES OF INDO GREE N PROJECT LTD. WERE LYING IN THE ACCOUNT OF BROKER OF SHAHRUKH N. TARA WHICH IS CALLED A COMMON DEMAT ACCOUNT. IT IS NOT KNOWN AS TO WHAT IS THE LIEN OF THE ASSESSEE ON THAT COMMON DEMAT ACCOUNT. WHETHER IT C ONTAINS SHARES OF ASSESSEE ONLY OR IT CONTAINS SHARES OF SEVERAL OTHE R PERSONS. IT IS NOT KNOWN WHO IS ACTUAL OWNER OF SUCH ALLEGED DEMAT ACC OUNT. WHETHER NAME OF THE ASSESSEE EVER FIGURED IN SUCH COMMON DE MAT ACCOUNT IN WHICH THE SHARES OF INDO GREEN PROJECT LTD. WERE LY ING, WHICH WERE ACTUALLY TRANSFERRED TO DEMAT ACCOUNT OF THE ASSESS EE ONLY IN MAY, 2005. THE LD. DR SUBMITTED THAT IN FACT AO HAD TAKEN UP T HIS CASE FOR SCRUTINY UNDER CASS I.E. COMPUTER ASSISTED SELECTION CASES O F SCRUTINY. WHEN SOME SPECIFIC INFORMATION IS PASSED ON TO THE AO H E SELECTS THE CASE FOR SCRUTINY. AS PER INITIAL INSTRUCTIONS THE AO FOCUSE D ONLY ON THE ISSUE RELATING TO THE ITEMS MENTIONED IN THE INFORMATION RECEIVED FROM THE CENTRAL BRANCH UNDER CASS. IN THIS CASE INFORMATION WAS PROVIDED UNDER CASS TO THE AO ABOUT THIS ASSESSEE, IN RESPECT OF T RANSACTION CARRIED OUT BY IT IN MUTUAL FUNDS. THE AO HAD VERIFIED TRANSACT IONS RELATING TO MUTUAL FUNDS WHILE CARRYING OUT SCRUTINY AND WAS SA TISFIED AND HAD ACCEPTED THE RETURNED INCOME. HE IN FACT DID NOT EN QUIRE INTO THE ISSUE OF LONG TERM CAPITAL GAINS IN RESPECT OF SALE OF SHARE S IN INDO GREEN PROJECT ITA NO.1233/AHD/2010 ASST. YEAR 2006-07 10 LTD. PARTICULARLY AS TO WHEN THEY WERE ACTUALLY ACQ UIRED AND WHEN THE PAYMENT FOR THEM WAS MADE. SINCE HIS FOCUS WAS ONLY ON THE MATERIAL PROVIDED TO HIM IN CASS HE SIMPLY ISSUED A GENERAL LETTER, THE ASSESSEE ALSO FILED A CRYPTIC REPLY WHICH WERE PLACED ON REC ORD. THE AO HAD IN FACT NOT APPLIED HIS MIND ABOUT THE ISSUE WHETHER T HERE WAS LONG TERM CAPITAL GAINS OR SHORT-TERM CAPITAL GAINS ON THE SA LE OF SHARES OF INDO GREEN PROJECT LTD. THE AO HAD IN FACT DID NOT CALL FOR ANY INFORMATION ABOUT THESE SHARES OF INDO GREEN PROJECT LTD. AS TO WHEN THESE SHARES WERE ACQUIRED, WHETHER THEY WERE KEPT FOR MORE THAN 12 MONTHS AND WHAT WAS THE ACTUAL PRICE OF PURCHASE AND SALE. MERELY F URNISHING OF INFORMATION TO THE AO ON WHICH AO HAD NOT APPLIED H IS MIND WOULD NOT AMOUNT TO ANY ENQUIRY AND, THEREFORE, LACK OF NECES SARY ENQUIRY ON THE ISSUE WOULD MAKE THE ORDER OF THE AO ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE LD. DR REFERRED TO THE FOL LOWING JUDGMENTS :- ASHOK LEYLAND LTD. VS. CIT (2003) 260 ITR 599 (MAD) CIT VS. M.M. KHAMBHATWALA (1992)198 ITR 144 (GUJ) GEE VEE ENTERPRISES VS. ADDL.CIT (1975) 99 ITR 375 (DEL) CIT VS. EMERY STONE MFG. CO. 213 ITR 843 (RAJ) CIT VS. NEYVELI LIGNITE CORPORATION LTD. (2001) 248 ITR 611 (MAD) 8. IN REJOINDER LD. AR SUBMITTED THAT LD. DR COULD NOT MAKE OUT A NEW CASE FOR THE LD. CIT. THE LD. CIT HAS NOT CONSIDERE D WHETHER ASSESSMENT WAS A LIMITED SCRUTINY UNDER THE CASS. THE STATUTOR Y PROVISIONS RELATING TO LIMITED SCRUTINY WERE WITHDRAWN LONG BACK. THE R EFERENCE OF LD. DR TO ITA NO.1233/AHD/2010 ASST. YEAR 2006-07 11 THE ASST. YEAR 2004-05 IS NOT RELEVANT. THE AO HAS CARRIED OUT ENQUIRIES AS HE THOUGHT FIT. ON THE OTHER HAND NOTICE HAS BEE N ISSUED BY THE CIT FOR NOT CARRYING OUT PROPER ENQUIRIES. THE ASSESSMENT C OULD NOT BE SET ASIDE FOR NOT CARRYING OUT SOME MORE ENQUIRIES AS THE COM MISSIONER THINKS FIT. THE ASSESSMENT ALSO CANNOT BE SET ASIDE FOR INADEQU ATE ENQUIRIES. IT IS NOT A CASE OF NO ENQUIRY AT ALL. ALL THE RELEVANT DATA WAS FURNISHED BEFORE THE AO. HE WAS SATISFIED AND ACCEPTED THE LONG TERM CAP ITAL GAINS. THE LD. AR REFERRED TO THE FOLLOWING JUDGEMENTS :- RAYON SILK MILLS VS. CIT (1996) 221 ITR 155 (GUJ) CIT VS. NIRMA CHEMICALS WORKS (P) LTD. (2009) 309 I TR 67 (GUJ) 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. THE UNDISPUTED FACTS RELATING TO THE CON TROVERSY ARE THAT THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS. IT IS NO T CLARIFIED WHETHER THE AO WAS REQUIRED TO CONFINE HIMSELF ONLY ON THE ITEM S REFERRED TO HIM BY THE CENTRAL INFORMATION SYSTEM THROUGH COMPUTER WHI CH IN THE CASE RELATED TO TRANSACTION IN MUTUAL FUNDS AND ON WHICH THE AO WAS APPARENTLY SATISFIED IN THE SCRUTINY ASSESSMENT. IT IS ALSO NOT CLARIFIED WHETHER SELECTION UNDER CASS WAS ONLY A MODE OF SEL ECTION FOR SCRUTINY AND AO WAS THEREFORE, FREE TO CARRY OUT ANY ENQUIRY AND MAKE ANY ADDITION AS HE DEEMED FIT. THEREFORE, REFERENCE TO CASS BY THE LD. DR DOES NOT BRING ANY RELEVANCE TO THE ISSUE UNLESS IT WOULD HAVE BEEN ITA NO.1233/AHD/2010 ASST. YEAR 2006-07 12 CLARIFIED THAT AS PER INSTRUCTIONS OF THE BOARD (CB DT) THE AO WAS CONFINED TO CARRYING ENQUIRIES ONLY ON THE ISSUES G IVEN TO HIM BY THE CENTRAL INFORMATION SYSTEM THROUGH COMPUTER. NOTWIT HSTANDING THE ISSUE BEFORE LD. CIT WAS WHETHER THE AO HAD CARRIED OUT E NQUIRIES IN RESPECT OF COMPUTATION OF CAPITAL GAINS WHETHER SHORT TERM OR LONG TERM. THE ASSESSEE HAD SHOWN SALES OF 65,000 SHARES OF INDO G REEN PROJECTS LTD. AND DECLARED LONG TERM CAPITAL GAINS THEREON. THE A O CALLED FOR THE COPIES OF THE BILLS FOR CAPITAL GAINS AS PER HIS LE TTER DATED 31.1.2008 AND ALSO COPY OF DEMAT ACCOUNT. VIDE HIS LETTER DATED 1 9.2.2008 ADDRESSED TO THE AO, THE ASSESSEE FURNISHED DETAILS OF SALE OF T HESE SHARES AND COPIES OF SALE BILLS FROM PRAVIN RATILAL SHARE AND STOCK B ROKERS LTD. THROUGH WHOM SALES HAD TAKEN PLACE. THERE WERE ALSO THE PUR CHASE BILLS FROM M/S SHAHRUKH N. TARA EARLIER SHARE BROKER THROUGH WHOM THE SHARES OF INDO GREEN PROJECT LTD. WERE CLAIMED TO HAVE BEEN PURCHA SED. THEY SHOWED THE DATE OF PURCHASE AS 12 TH APRIL, 2004, 13 TH APRIL, 2004 AND 15 TH APRIL, 2004. THERE IS ALSO DEBIT OF MONEY AGAINST THE ASSE SSEE BY M/S SHAHRUKH N. TARA. THEY ARE PLACED ON RECORD. THERE IS APPARE NTLY NO SCRUTINY OF THESE DOCUMENTS. THE CRUCIAL ASPECT WAS AS TO WHEN THE SHARES WERE TRANSFERRED TO THE DEMAT ACCOUNT OF THE ASSESSEE. W HAT IS CERTAIN IS THAT THEY WERE TRANSFERRED IN THE DEMAT ACCOUNT OF THE A SSESSEE ONLY ON 20 TH MAY, 2005. THIS DEMAT ACCOUNT WAS MAINTAINED BY M/S PRAVIN RATILAL SHARE AND STOCK BROKERS LTD. THIS INFORMATION WAS O RIGINALLY AVAILABLE ITA NO.1233/AHD/2010 ASST. YEAR 2006-07 13 WITH THE AO IN THE STATEMENT OF TRANSACTION-CUM-HOL DING GIVEN BY PRAVIN RATILAL SHARE AND STOCK BROKERS LTD. ACCORDING TO W HICH SHARES WERE RECEIVED BY HIM BY WAY OF TRANSFER FROM ACCOUNT NO. 1202650000006568. THIS INFORMATION WAS PLACED BY THE ASSESSEE ON RECO RD. ON THIS BASIS THE AO ACCEPTED THAT THERE IS A LONG TERM CAPITAL GAINS . THE LD. CIT IN THE SHOW CAUSE NOTICE POINTED OUT THAT - (1) THERE IS NO ENQUIRY ABOUT HOW PAYMENT FOR PURCHASE OF SHARES OF INDO GREEN PROJECT LTD. WAS MADE. (2) WHERE THE SHARES, IF PURCHASED IN APRIL, 2004, WERE KEPT; (3) WHETHER IN ANY DEMAT ACCOUNT OF THE ASSESSEE, OR IN THE DEMAT ACCOUNT OF THE SHARE BROKER HIMSELF. THE LD. CIT THUS POINTED OUT THAT AO HAD NOT CARRIE D OUT ENQUIRIES ABOUT THE MODE OF PAYMENT FOR PURCHASE OF THE SHARES AND ABOUT ITS HOLDING PERIOD. 10. IN OUR CONSIDERED VIEW FOR COMPUTING CAPITAL GA INS, THE NECESSARY ENQUIRIES TO BE CARRIED OUT BY THE AO ARE (1) WHEN THE CAPITAL ASSET IS SOLD AND WHAT ARE THE SALE PROCEEDS. (2) WHEN THE CAPITAL ASSET IS PURCHASED AND WHAT IS THE COST OF ACQUISITION; (3) WHAT IS THE FURTHER EXPENDITURE IN CONNECTION W ITH THE ACQUISITION OF THE ASSET OR IN CONNECTION WITH ITS SALE. ITA NO.1233/AHD/2010 ASST. YEAR 2006-07 14 (4) WHAT IS THE LONG TERM CAPITAL GAIN OR SHORT TER M CAPITAL GAINS. IF LD. AO ACCEPTS WHAT IS SUGGESTED TO HIM BY THE A SSESSEE THAT IT IS LONG TERM CAPITAL GAIN, THEN IT CANNOT BE SAID THAT HE H AS CARRIED OUT THE DUTIES ENTRUSTED ON HIM. WE NOTICE THAT THE AO HAD ASKED V ERY CRYPTIC AND SIMPLE QUESTION IN HIS LETTER DATED 31.1.2008. HE H AD ASKED FOR COPIES OF BILLS FOR CAPITAL GAINS. THERE IS NO QUERY AS TO WH EN THE SHARES WERE PURCHASED, WHAT IS THE AMOUNT PAID AND WHEN THEY WE RE PAID. THERE IS ALSO NO QUERY AS TO WHEN THE SHARES WERE SOLD AND F OR WHAT AMOUNT. IN REPLY THE ASSESSEE PLAINLY SUBMITTED THAT IT HAS EA RNED LONG TERM CAPITAL GAINS. IT DOES NOT PROVIDE VARIOUS INGREDIENTS FOR CALCULATION OF CAPITAL GAINS AND EVIDENCE IN SUPPORT THEREOF. THE QUERIES WERE CRYPTIC AND REPLY IS ALSO CRYPTIC AS IF A FORMALITY TO THE ISSUE IS B EING COMPLETED. WHEN THE AO IS ENTRUSTED A DUTY BY LAW TO COMPUTE CAPITAL GA INS THEN HE HAS TO SATISFY AND CARRY OUT ENQUIRES ABOUT ALL THE ASPECT S OF COMPUTATION OF CAPITAL GAINS INCLUDING DETERMINATION WHETHER IT IS LONG TERM CAPITAL GAIN/SHORT TERM CAPITAL. WE AGREE WITH THE LD. CIT THAT TWO IMPORTANT INGREDIENTS ARE OVER-LOOKED BY THE AO AND ARE NOT E NQUIRED. THEY ARE WHETHER ASSESSEE HAD ACTUALLY ACQUIRED THE SHARES P RIOR TO 12 MONTHS OF ITS SALE AS MATERIAL AVAILABLE ON RECORD DID NOT IN DICATE THAT THESE SHARES WERE HELD BY ASSESSEE IN HER DEMAT ACCOUNT. WHAT IS STATED TO BE A COMMON DEMAT ACCOUNT IS APPARENTLY MISNOMER TO CONF USE THE ISSUE AS IT ITA NO.1233/AHD/2010 ASST. YEAR 2006-07 15 IS NOT INFORMED WHO WERE THE OWNERS OF SUCH COMMON DEMAT ACCOUNT AND WHETHER IT CONTAINED ONLY THE SHARES OF ASSESSEE OR OTHER PERSONS AND HOW THE ASSESSEE GET LIEN OVER THOSE SHARES. IF THE DEM AT ACCOUNT (NO.1202650000006568) MAINTAINED BY MR. SHAHRUKH N. TARA WAS NOT HER PERSONAL DEMAT ACCOUNT THEN HOW IT COULD BE SAI D THAT SHE HAS ACTUALLY PURCHASED THE SHARES IN 2004 AND ACQUIRED LIEN OVER THEM AS CLAIMED. THE ISSUE AS TO WHEN THE PAYMENTS WERE MADE FOR ALLEGED PURCHASES OF SHARES OF INDO GREEN PROJECT LTD IS ALSO SHROWDED WITH MYS TERY. THERE IS NO ENQUIRY AS TO HOW AND WHEN SHARES OF GEOMETRIC SOFT WARE AND BIOCON LTD. WERE PURCHASED BY THE ASSESSEE AND SOLD THROUG H BROKER SHAHRUKH N. TARA. WHERE A LEGAL DUTY IS CAST ON THE AO TO ENQUI RE INTO ALL THE NECESSARY INGREDIENTS TO COMPUTE CAPITAL GAINS AND IF HE FAILS TO CARRY OUT SUCH DUTY, IN RESPECT OF EVEN ONE INGREDIENT THEN O RDER OF THE AO WOULD BE NECESSARILY ERRONEOUS AND PREJUDICIAL TO THE INT EREST OF REVENUE. THE LD. AR HAS REFERRED TO THE DECISION OF THIS BENCH I N ITA NO.1617/AHD/2010 FOR ASST. YEAR 2005-06 IN THE CASE OF ANKUSH HOLDINGS LTD. VS. CIT-1, AHMEDABAD PRONOUNCED ON 25 .3.2011. THE ISSUE INVOLVED IN THAT CASE WAS THAT CIT CONSIDERED THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE COMPANY ON PURCHASE OF RAW MATERIAL WAS NOT CONSIDERED AS TO WHETHER INCURRED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY. THE LD. CIT HA D SET ASIDE THE ASSESSMENT FOR NOT CARRYING OUT THE ENQUIRIES HE CO NSIDERED IT FIT. THE ITA NO.1233/AHD/2010 ASST. YEAR 2006-07 16 TRIBUNAL HAD HELD THAT THE INADEQUACY OF ENQUIRY AS TO WHETHER ENTIRE EXPENDITURE WAS INCURRED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF BUSINESS WILL NOT BE SUFFICIENT REASON TO HOLD THE ORDER ERRONEOUS. THUS A DISCRETION OF THE AO WAS INVOLVED IN THAT CASE AND AFTER CARRYING OUT ENQUIRIES, WHATEVER HE CONSIDERED FIT, HE ACCEPTED THAT THEY WERE WHOLLY INCURRED FOR BUSINESS PURPOSES. THIS CANNOT BE EQUA TED WITH NOT CARRYING OUT ENQUIRIES ON AN IMPORTANT ASPECT OF COMPUTATION OF CAPITAL GAINS. THUS IN THE PRESENT CASE THE ISSUE IS ABOUT NOT CAR RYING OUT ENQUIRY ON ACQUISITION OF SHARES BY THE ASSESSEE WHICH WAS NOT DONE AS IS CLEAR FROM MATERIAL SUBMITTED BY THE ASSESSEE. ONCE SHARES AR E NOT KEPT IN HER PERSONAL DEMAT ACCOUNT, IT COULD NOT BE SAID TO HAV E BEEN ACQUIRED BY HER IN 2004 AND THEREFORE, SHE COULD APPARENTLY BECOME OWNER OF THE SHARES ONLY WHEN SHARES WERE TRANSFERRED IN HER OWN DEMAT ACCOUNT ON 20 TH MAY 2005 AND THEREFORE, COULD HAVE ONLY EARNED THE SHOR T TERM CAPITAL GAIN, ON THEIR SALE ON 23.5.2005, 27.5.2005 & 2.6.2005. THE FAILURE OF THE AO TO TAKE NOTE OF AND TO CARRY OUT ENQUIRIES, ON THIS A SPECT WOULD CLEARLY MAKE HIS ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THIS IS APART FROM THE OTHER ISSUES THAT PAYMENT FOR PURCHASE OF SHARES WAS NOT ENQUIRED BY THE AO AND ESTABLISHED BY THE ASSESSEE. WE ACCORDINGLY UPHOLD THE ORDER OF LD. CIT AND DISMISS THE APPEAL. ITA NO.1233/AHD/2010 ASST. YEAR 2006-07 17 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 31/5/11. SD/- SD/- (BHAVNESH SAINI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEM BER AHMEDABAD, DATED : 31/5/11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 5/5/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 23/5/2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT .. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..