ACIT, Circle 28, Kolkata V. Nawal Kishore Kejriwal, Kolkata

ITA 1391/KOL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2668 (ITAT-KOLKATA)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2010
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 01-04-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 12-08-2009
• Court: TRIBUNAL
• Department Lawyers: B K PAUL
• Assessee Lawyers: S K LAHIRI
• Keywords: Unexplained investment; Capital asset; Share purchase agreement; Additional evidence; Cost of acquisition; Assessment record; Capital Gains

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : A BENCH: K OLKATA (BEFORE HON.SHRI B.R.MITTAL, JM & HON. SHRI B.K. HALDAR, AM) ITA NO.1391/KOL/09 ASSESSMENT YEAR: 2005-06 ASSTT. COMMISSIONER OF VS. NAWAL KSHOR E KEJRIWAL INCOME-TAX, CIRCLE-28, KOLKATA PAN:AERPK 1092H (APPELLANT) (RES PONDENT) APPELLANT BY: SRI B.K.PAUL RESPONDENT BY: SRI S.K.LAHIRI ORDER PER SHRI B.K.HALDAR, AM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A),XIV, KOLKATA DATED 14-05-2009 FOR TH E A.Y 2005- 06.. 2. THE REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEA L:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED IN LAW BY TREATING SHORT TERM CAPITAL GAIN THEREBY ALLOWING EXEMPTION U/S.10(38) OF THE I.T.ACT,`1961. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.56,81,483/-UNDER THE HEAD LONG TERM CAPITAL GAIN. 3. ANY OTHER GROUND TO BE TAKEN AT THE TIME OF HEARING. 3 . DURING THE ASSESSMENT PROCEEDINGS THE AO SCRUTINIZ ED THE EVIDENCES WITH REFERENCE TO COMPUTATION OF CAPITAL GAINS FROM PURCHASE/SALE OF SHARES CONSISTING OF CONTRACT NOTE S, COPY OF D- MAT A/C, BANK STATEMENTS ETC. THE ASSESSEE CLAIMED LONG-TERM CAPITAL GAINS AGAINST SALE OF 17,000 SHARES OF STA R LITE CRE AS UNDER:- ITA NO.1391/KOL/09 A.C.I.T,CIR-28, KOL VS. NAWAL KISHORE KEJRIWAL 2 PURCHASE DETAILS: DATE NAME OF THE BROKER NAME OF SHARES NO. OF SHARES AMOUNT(RS.) 10.02.04 BALLAV DAS DAGA STAR LITE CRE 17,000 2,40,067 SALE DETAILS: DATE NAME OF THE BROKER NAME OF SHARES NO. OF SHARES AMOUNT(RS.) 22.02.05 PURUSHOTTAM KEJRIWAL STAR LITE CRE 6,000 20,97,900 23.02.05 PURUSHOTTAM KEJRIWAL STAR LITE CRE 6,000 20,97,900 28.02.05 PURUSHOTTAM KEJRIWAL STAR LITE CRE 5,000 17,55,750 59,21,550 3.1 RESULTING LONG-TERM CAPITAL GAIN WAS CLAIMED TO BE EXEMPT FROM TAXATION AS PER SECTION 10(38) OF THE I.T.ACT 61. THE AO NOTICED FORM THE D-MAT A/C MAINTAINED BY THE ASSESS EE WITH HDFC BANK THAT 17,000 SHARES OF STAR LITE CRE WAS CREDIT ED TO D-MAT A/C NO.40395498 WITH HDFC BANK ON 22-7-04. AS THE IMPUG NED SHARES WERE SOLD ON 22-02-2005, THE AO ASKED THE ASSESSEE TO SHOW-CAUSE AS TO WHY THE IMPUGNED CAPITAL GAIN SHOULD NOT BE T REATED AS SHORT- TERM CAPITAL GAIN. THE ASSESSEE EXPLAINED THAT AS PER BOARDS CIRCULAR NO.704 DATED 28-4-1995, THE PERIOD OF HOLD ING OF SHARES SHOULD BE CALCULATED FROM THE DATE OF CONTRACT OF P URCHASE OF SHARES. AS THE DATE OF CONTRACT NOTE OF THE BROKER, SHRI BALLABH DASS DAGA FROM WHOM THE SHARES WERE STATED TO HAVE BEEN ITA NO.1391/KOL/09 A.C.I.T,CIR-28, KOL VS. NAWAL KISHORE KEJRIWAL 3 PURCHASED, WAS ON 10-2-04, IT WAS CLAIMED THAT THE IMPUGNED CAPITAL GAIN SHOULD BE CONSIDERED AS LONG-TERM CAPI TAL GAIN. THE AO NOTICED THAT THE IMPUGNED SHARES WERE TRANSFERRE D TO ASSESSEES D-MAT A/C FROM ANOTHER D-MAT A/C NO.40402854 MAINTA INED WITH HDFC BANK, WHICH WAS ALSO IN THE NAME OF THE ASSESS EE. THE AO, THEREFORE, ASKED THE ASSESSEE TO SHOW-CAUSE AS TO WHY THE SHARES TRANSFERRED THROUGH THE D-MAT A/C NO.40402854 OF HD FC BANK SHOULD NOT BE TREATED AS UNEXPLAINED INVESTMENT OF THE ASSESSEE. IT WAS CONTENDED BY THE ASSESSEE THAT THE D-MAT A/C NO .40402854 WAS MAINTAINED BY SHRI NAWAL KISHORE KEJRIWAL (HUF) . THE AO CALLED FROM THE HDFC BANK D-MAT STATEMENT OF D-MAT A/C NO.40402854. FROM THIS, IT WAS NOTED BY THE AO TH AT THE IMPUGNED SHARES WERE TRANSFERRED TO ASSESSEES D-MA T A/C NO.40402854 ON 22-05-04. IT WAS EXPLAINED BY THE AS SESSEE THAT THE BROKER INITIALLY WRONGLY TRANSFERRED THE IMPUGN ED SHARES TO THE D-MAT A/C OF SH.NAWAL KISAHORE KEJRIWAL (HUF) INSTE AD OF INDIVIDUAL D-MAT OF SH.NAWAL KISHORE KEJRIWAL. SUBS EQUENTLY, IT WAS TRANSFERRED TO THE INDIVIDUAL D-MAT A/C. 3.2 ON SCRUTINY OF EVIDENCE ON RECORD, THE AO FOUND THAT ON 22-5-04 THE IMPUGNED SHARES WERE TRANSFERRED TO D-M AT A/C NO.40402854 FROM SHIV MONGAL SECURITIES PVT. LTD IN STEAD OF FROM SHRI BALLAV DASS DAGA AS CLAIMED BY THE ASSESSEE. T HE AO OPINED THAT EVEN IF THE SUBMISSION OF THE ASSESSEE IS AC CEPTED THAT THE SHARES WERE INADVERTENTLY TRANSFERRED BY THE BROKER TO THE HUFS D-MAT A/C INSTEAD OF INDIVIDUAL D-MAT A/C, THE ASSE SSEE DID NOT HOLD THE IMPUGNED SHARES FOR MORE THAN 12 MONTHS A S THE SHARES WERE CREDITED TO D-MAT A/C OF THE HUF ON 22-5-04 AN D NOT ON 22- 02-04, ON WHICH DATE THE SHARES WERE STATED TO HAV E BEEN PURCHASED BY THE ASSESSEE FROM SHRI BALLVA DASS DAG A. ALSO AS IN THE HUF A/C THE SECURITIES WERE SHOWN TO HAVE BEEN TRANSFERRED BY ITA NO.1391/KOL/09 A.C.I.T,CIR-28, KOL VS. NAWAL KISHORE KEJRIWAL 4 SHIV MONGAL AND NOT BY SHRI BALLABH DAS DAGA FROM WHOM THE ASSESSEE CLAIMED TO HAVE PURCHASED THE IMPUGNED SEC URITIES, IT WAS EVIDENT THAT THE IMPUGNED SHARES WERE NOT PURCHASED BY THE ASSESSEE THROUGH STOCK EXCHANGE BUT FROM SHRI NAWAL KISHORE KEJRIWAL,HUF THROUGH OFF MARKET TRANSACTION. IT WA S OPINED BY THE AO THAT TO CLAIM EXEMPTION U/S.10(38) OF THE ACT, T HE ASSESSEE HAS SUBMITTED BOGUS CONTRACT NOTE FROM SHRI BALLAV DASS DAGA, WHO HAS BEEN CONDEMNED BY C.S.E. THE AO, THEREFORE, TO OK THE PERIOD OF HOLDING OF IMPUGNED SHARES FROM THE DATE 22-5-04 TO 22-2-05 AND CONSIDERED THE CAPITAL GAIN OF RS.56,81,482/- A S SHORT-TERM CAPITAL GAIN. 4. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THE LD.CIT(A). 5. THE SUBMISSION OF THE ASSESSEE BEFORE THE LD.CIT (A) WAS AS UNDER:- IT MAY KINDLY BE SEEN FROM PARA 2 OF THE BOARDS CIRCULAR NO.704 DATED 28.4.95 THAT FOR THE DETERMINATION OF THE DATE OF PURCHASE AND THE PERIOD OF HOLDING IN RESPECT OF TRANSACTION IN SECURITIES, THE DATE OF THE CONTRACT NOTE SHOULD BE TAKEN AS THE DATE OF PURCHASE PROVIDED THE CONTRACT HAD RESULTED IN PAYMENT AND DELIVERY OF SHARES. IT MAY KINDLY BE SEEN THAT IN THIS CASE FULL PAYMENTS HAD BEEN MADE ON 12.2.04 AND DELIVERY OBTAINED. THEREFORE, ACCORDING TO THE ABOVE CIRCULAR OF THE BOARD, THE DATE OF PURCHASE SHOULD BE TAKEN AS 10.2.04, THE DATE OF CONTRACT. ENTRY IN THE DEMAT A/C IS NOT MATERIAL FOR THIS PURPOSE. ALL THESE WERE PLACED BEFORE THE LD.AO, BUT HE FAILED TO FOLLOW THE BOARDS CIRCULAR NO.704 DATED 28.4.95. SINCE THE DATE OF PURCHASE WAS 10.2.04, THESE SHARES WERE LONG TERM CAPITAL ASSETS AS THESE WERE SOLD AFTER 23.2.05 . ITA NO.1391/KOL/09 A.C.I.T,CIR-28, KOL VS. NAWAL KISHORE KEJRIWAL 5 6. THE LD.CIT(A) CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE AND THE FACTS AND CIRCUMSTANCES OF THE CA SE HELD AS UNDER:- I HAVE CONSIDERED ALL THE FACTS AND CIRCUMSTANCES, ARGUMENTS AND SUBMISSIONS MADE IN THIS CASE. THE MAIN ARGUMENT OF THE ASSESSING OFFICER IS THAT SINCE THE SHARES HAVE BEEN TRANSFERRED FROM THE DEMAT A/C OF HUF OF THE ASSESSEE THEREFORE THE PURCHASE OF SHARES HAS TO BE TREATED FROM THE HUF THROUGH OFF MARKET TRANSACTION. EVEN IN CASE OF HUF THE SHARES HAVE COME FROM SHIR MANGAL SECURITIES PVT. LTD AND NOT FROM THE BROKER BALLABH DAS DAGA. THEREFORE THE PURCHASE OF SHARES DOES NOT HAVE ANY RELATION WITH BALLABH DAS DAGA AND THE CONTRACT NOTE FROM HIM AND PAYMENT TO HIM ARE ONLY AN ARRANGEMENT TO CAMOUFLAGE THE OFF MARKET PURCHASE FROM THE HUF. IN VIEW OF THIS THE DATE OF CONTRACT NOTE OF BALLABH DAS DAGA IS IRRELEVANT AND THE RELEVANT DATE IS THE DATE OF TRANSFER FROM HUF TO THE ASSESSEES INDIVIDUAL DEMAT A/C I.E.22.07.2004. ACCORDING TO THIS DATE THE PERIOD OF HOLDING OF SHARES WILL BE ABOUT 7 MONTHS WHICH IS LESS THAN 12 MONTHS. HENCE, THIS CAPITAL GAIN WILL BE SHORT TERM CAPITAL GAIN AND NOT LONG TERM AS CLAIMED BY THE ASSESSEE. 9. I AM OF THE OPINION THAT IN DRAWING THE ABOVE MENTIONED CONCLUSION THE ASSESSING OFFICER HAS IGNORED AND MISCONSTRUED CERTAIN FACTS. THE ASSESSEE HAS EXPLAINED THAT ORIGINALLY THE PURCHASED SHARES WERE TRANSFERRED TO THE DEMAT A/C OF NAWAL KISHORE KEJRIWAL (HUF) ON 22.05.07 BY MISTAKE BECAUSE THIS NAME WAS OBVIOUSLY QUITE SIMILAR TO NAWAL KISHORE KEJRIWAL (INDIVIDUAL). LATER ON WHEN THE MISTAKE WAS REALISED THE HDFC BANK(DEPOSITORY SERVICE PROVIDER) WAS REQUESTED TO TRANSFER THE SHARES IN THE NAME OF NAWAL KISHORE KEJRIWAL (INDIVIDUAL) WHICH WAS DONE ON 22.07.07. I CALLED FOR THE ASSESSMENT FILE OF ITA NO.1391/KOL/09 A.C.I.T,CIR-28, KOL VS. NAWAL KISHORE KEJRIWAL 6 THE ASSESSEE AND FOUND THAT THAT THIS FACT HAS BEEN VERIFIED BY THE ASSESSING OFFICER HIMSELF BY CALLING THE DETAILS INDEPENDENTLY FROM HDFC BANK. THUS, JUST BECAUSE SHARES WERE TRANSFERRED FROM DEMAT A/C OF HUF TO DEMAT A/C OF THE ASSESSEE, IT CANNOT BE SAID THAT THE PURCHASE WAS MADE FROM NAWAL KISHORE KEJRIWAL (HUF) IGNORING OTHER DETAILS REGARDING PURCHASE OF SHARES SUCH AS CONTRACT NOTE OF BROKER AND PAYMENT MADE TO THE BROKER. IN RESPECT OF THE FACT THAT THE SHARES IN THE DEMAT A/C OF NAWAL KISHORE KEJRIWAL (HUF) HAVE COME FROM SHIV MANGAL SECURITIES PVT.LTD THE ASSESSEE HAS EXPLAINED THAT THE BROKER BALLABH DAS DAGA DOES NOT HAVE A DEPOSITORY ACCOUNT OF HIS OWN BUT DOES HIS TRANSACTIONS THROUGH DEPOSITORY PARTICIPANT(DP) M/S. SHIV MANGAL SECURITIES PVT. LTD. THAT IS WHY THE SHARES IN THE DEMAT A/C OF THE HUF HAVE COME FROM THIS DP. THIS EXPLANATION OF THE ASSESSEE APPEARS TO BE CORRECT AS IT IS A NORMAL PRACTICE IN THE MARKET. TO SUBSTANTIATE THE PURCHASE OF SHARES, THE ASSESSEE HAS SUBMITTED THE CONTRACT NOTE OF THE BROKER BALLABH DAS DAGA DATED 10.02.2004. THE COPY OF BANK STATEMENT SHOWING PAYMENT OF RS.2,40,067/- TO THE BROKER (DEBITED IN THE BANK A/C ON 14.02.04) HAS ALSO BEEN FURNISHED. AS DISCUSSED ABOVE THE DELIVERY OF THE SHARES HAS BEEN TAKEN ON 22.05.2004(THOUGH ON THAT DAY BY MISTAKE IT WAS CREDITED TO THE A/C OF HUF OF THE ASSESSEE). AS PER CBDT CIRCULAR NO.704, DATED 28.04.95, IF THE PAYMENT FOR THE PURCHASED SHARES HAS BEEN MADE AND THE DELIVERY OF THE SHARES HAS BEEN TAKEN THEN THE DATE OF CONTRACT OF THE BROKER SHOULD BE TAKEN AS THE DATE OF PURCHASE. IN THIS CASE ALL THE CONDITIONS PROVIDED IN THE CIRCULAR ARE SATISFIED THEREFORE, THE DATE OF CONTRACT NOTE OF THE BROKER I.E. 10.02.2004 HAS TO BE TAKEN AS THE DATE OF PURCHASE OR ACQUISITION. ACCORDINGLY, THE HOLDING PERIOD FOR THE ITA NO.1391/KOL/09 A.C.I.T,CIR-28, KOL VS. NAWAL KISHORE KEJRIWAL 7 SHARES WILL BE MORE THAN 12 MONTHS AND THE CAPITAL GAIN WILL BE LONG TERM AND NOT SHORT TERM AS HELD BY THE ASSESSING OFFICER. I, THEREFORE, HOLD THAT THE CAPITAL GAIN OF RS.56,81,483/- EARNED BY THE ASSESSEE IS LONG TERM CAPITAL GAIN AND EXEMPT U/S.10(38) OF THE INCOME TAX ACT. 7. AGGRIEVED THE REVENUE HAS FILED APPEAL BEFORE TH E TRIBUNAL. 8. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTATIV E, IN ADDITION TO RELYING ON THE ORDER OF THE AO, HAS SUB MITTED THAT THE OBSERVATION OF THE LEARNED CIT(A) IN PARA 9 OF HIS ORDER THAT THE IMPUGNED SHARES WERE FIRST TRANSFERRED TO SH.NA WAL KISHORE KEJRIWAL (HUF) ACCOUNT ON 22-5-04 BY MISTAKE, WHIC H WAS SUBSEQUENTLY CORRECTED BY THE HDFC BANK BY TRANSFER RING THE SAME TO SH.NAWAL KISHORE KEJRIWAL (INDIVIDUAL) ON 22-7-04 WAS VERIFIED BY THE AO HIMSELF BY CALLING THE DETA ILS INDEPENDENTLY FROM HDFC BANK IS NOT CORRECT. HE ST ATED THAT THE ASSESSMENT RECORD OF THE ASSESSEE DID NOT BEAR OUT THE SAME. AS NO EVIDENCE WAS FURNISHED BY THE ASSESSEE IN SU PPORT OF HIS CLAIM THAT THE IMPUGNED SHARES WERE PURCHASED ON 10 -2-04, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ORDER OF THE AO BE CONFIRMED. 9. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE AS SESSEE, ON THE OTHER HAND, RELIED ON THE ORDER OF THE LEARNED CIT(A). IT WAS SUBMITTED BY HIM THAT AS COULD BE SEEN FROM THE ASS ESSEES PAPER BOOK PAGE 11, THE IMPUGNED SHARES WERE SHOWN TO HAVE BEEN TRANSFERRED FROM ACCOUNT TO ACCOUNT BY THE HDF C BANK LTD ON 22-7-04 BY THE DEPOSITORY SERVICES OF HDFC BANK. THE ASSESSEES PAPER BOOK PAGE 12 WOULD ALSO SHOW THAT THE IMPUGNED SHARES WERE TRANSFERRED BY ACCOUNT TO ACCO UNT RECEIPTS FROM SHIV MANGAL SECURITIES PVT. LTD ON 22-5-04. T HE ITA NO.1391/KOL/09 A.C.I.T,CIR-28, KOL VS. NAWAL KISHORE KEJRIWAL 8 ASSESSEES PAPER BOOK PAGE 14 ALSO SHOWS THAT ON 22 -7-04 THE IMPUGNED SHARES WERE TRANSFERRED TO ACCOUNT TO ACCO UNT BY HDFC BANK LTD. IT WAS, THEREFORE, CONTENDED BY THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE THAT THE ABOVE EVIDENCE WOULD SHOW THAT THE SHARES WERE WRONGLY TR ANSFERRED TO CLIENT ID NO. 40402854 BEING THE ACCOUNT OF SH.NAWA L KISHORE KEJRIWAL (HUF) ON 22-5-04, WHICH WAS SUBSEQUENTLY C ORRECTED BY TRANSFERRING THE IMPUGNED SHARES TO CLIENT ID N O.40395498 BEING THE ACCOUNT OF SH. NAWAL KISHORE KEJRIWAL(IND IVIDUAL) ON 22-7-04. REFERRING TO ASSESSEES PAPER BOOK PAGE N O.5, IT WAS CONTENDED BY HIM THAT THE ASSESSEE HAS SHOWN THE IM PUGNED SHARES BEING CARRIED OVER AS AN OPENING BALANCE AS ON 1-4-04. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE HAS ALSO RELIED ON PAPER BOOK PAGE NOS. 20-24, WHICH PERTAIN TO THE PROCEEDINGS BEFORE THE LEARNED CIT(A) IN SUPPORT OF HIS CLAIM THAT THE IMPUGNED SHARES WERE DELIVERED TO THE ASSE SSEE THROUGH M/S. SHIV MONGAL SECURITIES PVT. LTD ON 12-2-04. IT HAS BEEN CERTIFIED BY THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE THAT THE PAPER BOOK PAGES 20-24 WERE NOT A VAILABLE WITH THE AO. RELYING ON BOARDS CIRCULAR NO.704 DAT ED 28-4-95, WHICH IS AVAILABLE IN APB PAGE 21, IT WAS SUBMITTED BY HIM THAT IN THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE TH E DATE OF ACQUISITION OF IMPUGNED SHARES HAVE TO BE TAKEN AS ON 12-2-04, ON WHICH DATE THE AMOUNT FOR PURCHASE OF IMPUGNED S HARES WAS PAID TO SH.BALLAV DAS DAGA. IT WAS, THEREFORE, CON TENDED THAT THE IMPUGNED ORDER OF THE LEARNED COMMISSIONER OF I NCOME- TAX(A) BE CONFIRMED. 10. WE HAVE HEARD THE PARTIES AND PERUSED THE RECOR D. THE CASE OF THE ASSESSEE IS THAT EVEN THOUGH THERE IS EVIDENCE OF TRANSFER OF THE IMPUGNED SHARES TO SHRI NAWAL KISHO RE KEJRIWAL (HUF) A/C ONLY ON 22-5-04, AS THERE IS CONTRACT NOT E OF THE ITA NO.1391/KOL/09 A.C.I.T,CIR-28, KOL VS. NAWAL KISHORE KEJRIWAL 9 BROKER DATED 10-2-04 AND THE CONSIDERATION FOR THE SAME WAS PAID ON 14-2-04, THE DATE OF ACQUISITION OF THE IMP UGNED SHARES SHOULD BE TAKEN AS 14-2-04 IN VIEW OF THE BOARDS CIRCULAR NO.704 DATED 28-4-95. 10.1 THE DEPARTMENTS CASE ON THE OTHER HAND, IS T HAT THERE IS NO EVIDENCE TO SHOW THAT THE DEMATERIALIZED SHARES WERE TRANSFERRED TO ASSESSEES D-MAT A/C PRIOR TO 22-7-0 4 AND EVEN IF IT IS CONSIDERED THAT THE IMPUGNED SHARES WERE TRAN SFERRED TO SHRI NAWAL KISHORE KEJRIWAL(HUF) BY MISTAKE, THE SA ME WAS ONLY TRANSFERRED TO SAID HUF ACCOUNT ON 22-5-04. 10.2 IT IS THE CONTENTION OF THE REVENUE THAT THE S HARES AT THE MOST COULD HAVE BEEN ACQUIRED BY THE ASSESSEE ONLY ON 22-5-04. THE REVENUE CONTENDS THAT THE BOARDS CIRCULAR NO.7 04 (SUPRA) IS ONLY APPLICABLE TO PHYSICAL SHARES AND NOT DEMAT ERIALIZED SHARE SCRIPTS. 10.3 WE FIND THAT THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE OTHER THAN THE SELF-SERVING ADDITIONAL EVIDENCE AVA ILABLE ON APB PAGE NO.24 IN SUPPORT OF HIS CLAIM THAT DEMATERIALI ZED SHARES WERE DELIVERED TO HIM ON 12-2-04. IT HAS NOT BEEN SHOWN THAT THE ASSESSEE HAD A D-MAT ACCOUNT WITH M/S.SHIV MANG AL SECURITIES PVT. LTD, WHICH HAS BEEN CLAIMED TO BE ONE OF THE DEPOSITORY SERVICES. 10.4 WE ALSO FIND THAT THE CBDT HAD ISSUED SUBSEQU ENT CIRCULAR, NAMELY, CIRCULAR NO.768 DTD. 24-6-98, WHI CH READS AS UNDER:- CIRCULAR NO.768 24/06/1998 CAPITAL GAINS SECTIONS 45(2A): AT PRESENT TRADING IN SECURITIES IS DONE THROUGH T HE PHYSICAL MOVEMENT OF THE SCRIPTS. TRANSACTIONS ARE ITA NO.1391/KOL/09 A.C.I.T,CIR-28, KOL VS. NAWAL KISHORE KEJRIWAL 10 SETTLED THROUGH THE ENDORSEMENT AND DELIVERY OF THE CERTIFICATES WHICH ARE ALSO THE PROOF OF OWNERSHIP OF THE SECURITY MENTIONED THEREIN. THIS SYSTEM IS FRAUGHT WITH MANY DIFFICULTIES CAUSED DUE TO BAD DELIVERIES AND LOSS OF SHARE CERTIFICATES. IN ORDER TO REMOVE THESE DIFFICULTIES FACED BY THE INVESTORS, A SYSTEM OF H OLDING SECURITIES IN THE ELECTRONIC MODE AT THE OPTION OF AN INVESTOR HAS NOW BEEN INTRODUCED IN INDIA. THE OB JECT OF THIS SYSTEM IS TO ELIMINATE PROBLEMS WHICH ARE NORMALLY ASSOCIATED WITH SETTLEMENT THROUGH PHYSICA L CERTIFICATES, LIKE TEARING/MUTILATION OF SHARE CERT IFICATES DUE TO CARELESS HANDLING, LOSS OF CERTIFICATES BY P OSTAL AUTHORITIES OR REGISTRARS OR INVESTORS, PROBLEMS OF BAD DELIVERY, FORGERY OF CERTIFICATES ETC. THE NEW SYS TEM IS DEVISED TO ENSURE FASTER AND HASSLE FREE SETTLEMENT OF TRADE WITH SIMPLER SETTLEMENT CYCLES. 2. UNDER THE NEW SYSTEM, THE MOVEMENT OF THE SCRIPTS PHYSICALLY FROM ONE PERSON TO ANOTHER IS TOTALLY DO NE AWAY WITH BY INTRODUCING CERTAIN INTERMEDIARIES, CH IEF AMONG THEM BEING A DEPOSITORY AND A PARTICIPANT. IN ORDER TO IMPLEMENT THE SYSTEM OF HOLDING AND TRANSFERRING SECURITIES THROUGH THE ELECTRONIC MEDI A, FIRSTLY THE DEPOSITORIES ACT, 1996, HAS BEEN ENACT ED. THE OBJECT OF THIS ACT IS TO REGULATE THE WORKING OF THE DEPOSITORIES IN SECURITIES AND MATTERS INCIDENTAL THERETO. A DEPOSITORY IS AN ORGANIZATION WHERE THE SECURITIES OF A SHAREHOLDER ARE HELD IN THE ELECTR ONIC FORM ON THE REQUEST OF THE SHAREHOLDER, THROUGH THE MEDIUM OF A DEPOSITORY PARTICIPANT. THE DEPOSITORY IS COMPARABLE TO A BANK WHERE AN INVESTOR WHO DESIRES TO UTILISE ITS SERVICES CAN OPEN AN ACCOUNT WITH IT TH ROUGH A DEPOSITORY PARTICIPANT. HOWEVER, A DEPOSITORY IS NOT MERELY A CUSTODIAN BUT IS IN FACT THE REGISTERED OW NER OF THE SECURITY AND IT IS THE DEPOSITORY WHOSE NAME I S ENTERED AS SUCH IN THE REGISTER OF THE ISSUER. THE PERSON ACTUALLY ENTITLED TO THE SECURITY BECOMES THE BENEF ICIAL OWNER, WHOSE NAME IS RECORDED AS SUCH IN THE BOOKS OF THE DEPOSITORY. 3. THE SALIENT FEATURES OF THIS NEW SYSTEM IS THAT IT IS OPTIONAL AND WOULD OPERATE IN CONJUNCTION WITH THE EXISTING SYSTEM OF HOLDING SECURITIES IN PHYSICAL F ORM. WHERE AN INVESTOR OPTS TO HOLD A SECURITY WITH A DEPOSITORY I.E. NOT IN PHYSICAL POSSESSION OF A CERTIFICATE, THE DEPOSITORY SHALL BE INTIMATED OF THE DETAILS OF ALLOTMENT OF SECURITIES AND ACCORDINGLY THE DEPOSITORY SHALL ENTER IN ITS RECORDS THE NAME OF THE ITA NO.1391/KOL/09 A.C.I.T,CIR-28, KOL VS. NAWAL KISHORE KEJRIWAL 11 ALLOTTEE AS THE BENEFICIAL OWNER OF THAT SECURITY. UNDER THIS SYSTEM PHYSICAL SHARE CERTIFICATES ARE SURREND ERED TO THE ISSUING AGENCY AND THE ACCOUNT MAINTAINED WI TH THE DEPOSITORY IS THE ONLY EVIDENCE OF THE OWNERSH IP OF THE SECURITIES. THIS CONVERSION OF PHYSICAL CERTIF ICATES INTO THE ELECTRONIC HOLDINGS AT THE REQUEST OF AN I NVESTOR IS CALLED DEMATERIALISATION. WHENEVER PURCHASE/SAL E I.E ANY TRANSFER OF SUCH SECURITIES HELD IN DEMATERILIS ED FORM IS EFFECTED, DELIVERY IS GIVEN OR TAKEN BY MAK ING ADJUSTMENTS IN THE ACCOUNTS MAINTAINED WITH THE DEPOSITORY BY THE TWO PARTIES. THE SIGNIFICANT FEAT URE OF THE DEMATERIALISED SECURITIES IS THAT THEY ARE FUNG IBLE I.E. ALL THE HOLDING OF A PARTICULAR SECURITY WILL BE IDENTICAL AND INTER- CHANGEABLE AND THEY WILL HAVE NO UNIQUE CHARACTERISTIC SUCH AS DISTINCTIVE NUMBER, CERTIFICATE NUMBER, FOLIO NUMBER, ETC. AS THE HOL DINGS OF ANY SECURITIES IN DEMATERILISED FORM IS REPRESEN TED ONLY BY THE ACCOUNT WITH THE DEPOSITORY AND ALL TRANSFERS ARE EFFECTED THROUGH BOOK ENTRIES IN THE ACCOUNTS MAINTAINED BY THE DEPOSITORY, UNDER THIS SYSTEM IT IS NOT POSSIBLE TO LINK THE PURCHASE OF A SECURITY WITH ITS SALE BY MEANS OF ITS DISTINCTIVE NUMBER, ETC. IT IS FOR THIS REASON THAT SUB-SECTION (2A) HAS BEEN INSERTED IN SECTION 45 TO PROVIDE FOR THE COMPUTATI ON OF CAPITAL GAINS IN RESPECT OF SECURITIES HELD IN DEMATERIALIZED FORM. THIS SUB-SECTION PROVIDES THAT FOR THE PURPOSES OF CALCULATING THE DATE OF TRANSFER A ND PERIOD OF HOLDING IN RESPECT OF SHARES HELD IN DEMATERILISED FORM, THE FIFO METHOD WOULD APPLY. CLARIFICATIONS HAVE BEEN SOUGHT ON THE MANNER OF APPLICATION OF THE FIFO SYSTEM FOR THE DETERMINATIO N OF THE DATE OF TRANSFER AND THE PERIOD OF HOLDING. 4. THE PRIMARY ISSUE UNDER THE INCOME-TAX ACT IN THE CASE OF SECURITIES WHETHER HELD IN PHYSICAL FORM OR IN THE DEMATERIALISED FORM REMAINS THE DETERMINATION O F COST OF ACQUISITION AND THE PERIOD OF HOLDING. TH E BOARD HAD EARLIER ISSUED CIRCULAR NO. 704 DATED 28 TH APRIL, 1995, WHICH EXPLAINS THE MANNER IN WHICH THE DATE OF TRANSFER AND PERIOD OF HOLDING MAY BE DETERMINED. THIS PRIMARY POSITION AS REGARDS THE D ATE OF TRANSFER AND PERIOD OF HOLDING DOES NOT CHANG E EVEN WHEN THE SECURITIES ARE HELD IN THE DEMATERIL ISED FORM. THE ONLY PROBLEM WHEN SECURITIES ARE HELD IN DEMATERILISED FORM IS THAT THE DISTINCT TRAIL LINK ING EVERY SHARE TO A CERTIFICATE AND ITS UNIQUE DISTINC TIVE ITA NO.1391/KOL/09 A.C.I.T,CIR-28, KOL VS. NAWAL KISHORE KEJRIWAL 12 NUMBER LINKING IT WITH ITS SUBSEQUENT SALE IS NOT AVAILABLE. 5. SECTION 45(2A) STIPULATES THAT IN THE CASE OF SECURITIES HELD IN DEMATERILISED FORM, FOR DETERMIN ING DATE OF TRANSFER AND PERIOD OF HOLDING THE FIFO METHOD WOULD BE APPLICABLE. FIFO METHOD IS GENERALL Y USED TO DETERMINE THE VALUE OF ANY ITEM MOVING OUT OF A STOCK ACCOUNT AND THOSE REMAINING IN STOCK AT ANY POINT OF TIME. WHEN APPLIED TO AN ACCOUNT HOLDING DEMATERIALISED STOCK, IT IMPLIES THAT, OUT OF THE E XISTING HOLDINGS, THE ITEM THAT FIRST ENTERED INTO THE ACCO UNT IS DEEMED TO BE THE FIRST TO BE SOLD OUT. HOWEVER, ONC E A SALE IS LINKED WITH AN EARLIER PURCHASE, FOR DETERMINATION OF THEIR DATE OF TRANSFER AND PERI OD OF HOLDINGS, BOARDS CIRCULAR NO.704 WOULD BE APPLICABLE. THAT IS TO SAY THAT THE RELEVANT CONTR ACT NOTES AS EXPLAINED IN THE CIRCULAR NO.704 WILL HAVE TO BE REFERRED TO, FOR ASCERTAINING THE COST OF THE SE CURITY SOLD AND THE DATE OF TRANSFER. WHEN ACTUALLY OPERATING AN ACCOUNT OF DEMATERIALISED STOCK BY APPLYING FIFO SYSTEM, CERTA IN OTHER ISSUES CAN ARISE. FOR INSTANCE, AN INVESTOR CAN HOLD PART OF HIS HOLDINGS OF A SECURITY IN PHYSICAL FORM AND THE REMAINING IN DEMATERIALISED FORM. FURTHER , HE MAY HOLD HIS DEMATERIALISED HOLDINGS IN MORE THAN O NE ACCOUNT WITH ONE OR MORE DEPOSITORIES. IN SUCH A SITUATION THERE CAN BE DOUBTS WHETHER THE FIFO SYST EM IS TO BE APPLIED GLOBALLY ON THE ENTIRE HOLDINGS OF PHYSICAL AND DEMATERILISED HOLDINGS OR NOT. IN THIS CONNECTION, IT IS CLARIFIED THAT: A) FIFO METHOD WILL BE APPLIED ONLY IN RESPECT OF THE DEMATERIALISED HOLDINGS BECAUSE IN CASE OF SALE OF DEMATERIALISED SECURITIES, THE SECURITIES HELD IN PHYSICAL FORM CA NNOT BE CONSTRUED TO HAVE BEEN SOLD AS THEY CONTINUE TO REMAIN IN POS SESSION OF THE INVESTOR AND ARE IDENTIFIED SEPARATELY. B) IN THE DEPOSITORY SYSTEM, THE INVESTOR CAN O PEN AND HOLD MULTIPLE ACCOUNTS. IN SUCH A CASE, WHERE AN INVEST OR HAS MORE THAN ONE SECURITY ACCOUNT, FIFO METHOD WILL BE APPL IED ACCOUNTWISE. THIS IS BECAUSE IN CASE WHERE A PARTIC ULAR ACCOUNT OF AN INVESTOR IS DEBITED FOR SALE OF SECURITIES, T HE SECURITIES LYING IN HIS OTHER ACCOUNT CANNOT BE CONSTRUED TO HAVE BEEN SOLD AS THEY CONTINUE TO REMAIN IN THAT ACCOUNT. C) IF IN AN EXISTING ACCOUNT OF DEMATERIALISED STOCK, OLD PHYSICAL STOCK IS DEMATERIALISED AND ENTERED AT A L ATER DATE, UNDER THE FIFO METHOD, THE BASIS FOR DETERMINING T HE ITA NO.1391/KOL/09 A.C.I.T,CIR-28, KOL VS. NAWAL KISHORE KEJRIWAL 13 MOVEMENT OUT OF THE ACCOUNT IS THE DATE OF ENTRY INTO THE ACCOUNT. THIS IS ILLUSTRATED BY THE FOLLOWING EXA MPLES: DATE OF CREDIT PARTICULARS QUANTITY 1.6.1997 PURCHASED DIRECTLY IN DEMATERILISED . FORM ON 25 TH MAY,1997 2000 5.6.1997 DEMATERIALISED SHARE ORIGINALLY PURCHASED IN NOV., 1985 5000 10.6.1997 PURCHASED DIRECTLY IN DEMATERILISED FORM ON 10 TH JUNE, 1997 4000 15.6.1997 DEMATERILISED SHARES ORIGINALLYPURCHASED IN MAY,1962 3000 IF SAY, 2500 SHARES WERE SOLD FROM OUT OF THIS ACC OUNT, THEN THE PERIOD OF HOLDING AND THE COST OF ACQUISIT ION OF THE FIRST 2000 SHARES SHOULD BE AS FROM 25 TH MAY,1997 AND THE COST THEREOF, WHEREAS THE BALANCE 500 SHARE S WILL BE TREATED AS HAVING BEEN ACQUIRED IN NOVEMBER,1985 AT THE RELEVANT COST. THIS IS THE EFF ECT OF THE FIFO METHOD. 10.5 READING CIRCULAR NO.704 TOGETHER WITH CIRCULAR NO.7 68 WOULD SHOW THAT CIRCULAR NO.704 WILL BE APPLICABLE ONLY IN CASE OF PHYSICAL SHARE SCRIPTS AND NOT IN CASE OF D EMATERIALISED SHARE SCRIPTS. AS THE IMPUGNED SHARES HAVE BEEN TRA NSFERRED IN ASSESSEES D-MAT A/C ONLY IN JULY04 AND AS THE SAM E WERE ENTERED IN NAWAL KISHORE KEJRIWAL(HUF) D-MAT A/C IN MAY04, WE ARE OF THE CONSIDERED OPINION THAT THERE IS NO E VIDENCE ON RECORD TO SUSTAIN THE CLAIM OF THE ASSESSEE THAT T HE SAME WERE INDEED DELIVERED TO HIM PRIOR TO MAY04. THE DATE OF ACQUISITION OF THE IMPUGNED SHARES BY THE ASSESSEE SHOULD, THEREFORE, BE 22-5-04 AS HAS BEEN TAKEN BY THE AO . THUS, WE HOLD THAT BOARDS CIRCULAR NO.704 DATED 28 TH APRIL,1995 IS NOT APPLICABLE TO DEMATERIALISED SHARE SCRIPTS AND DATE OF ACQUISITION OF THE SHARES WOULD BE THE DATE ONLY WH EN DEMATERIALISED SHARES ARE ENTERED IN ASSESSEES D-M AT ACCOUNT ITA NO.1391/KOL/09 A.C.I.T,CIR-28, KOL VS. NAWAL KISHORE KEJRIWAL 14 WITH DEPOSITORY. THUS, WE REVERSE THE FINDING OF T HE LEARNED CIT(A) ON THIS ISSUE AND RESTORE THAT OF THE AO. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED. ORDER PRONOUNCED ON 23.04.2010 SD/- SD/- (B.R.MITTAL) (B.K.HALDAR ) JUDICIAL MEMBER DT. 23-4-10 ACCOUNTANT MEMBER COPY FORWARDED TO :- 1. A.C.I.T CIR-28,AAYKAR BHAVAN, DAKSHIN. 2 GARIAHAT R D(S),KOL- 68. 2. SHRI NAWAL KISHORE KEJRIWAL 90/31 D.H RD., KOL-38 3. COMMISSIONER OF INCOME-TAX(A)-XIV, KOLKATA 4. CIT(WB) 5 D.R., ITAT, KOLKATA. *PP TRUE COPY BY ORDER DE PUTY REGISTRAR, ITAT, KOLKATA ITA NO.1391/KOL/09 A.C.I.T,CIR-28, KOL VS. NAWAL KISHORE KEJRIWAL 15