Himson Industrial Ceramics Pvt.Ltd., Surat V. The Dy.CIT., Circle-1, Surat

ITA 153/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6446 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 06-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 15-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: R N VEPARI
• Keywords: Share purchase agreement; Capital Gains
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI A.N. PAHUJA, ACCOUNTANT MEMBER DATE OF HEARING : 06/06/2011 DRAFTED ON: 0 8/06/2011 ITA NO.153/AHD/2009 ASSESSMENT YEAR : 2005-06 M/S.HIMSON INDUSTRIAL CERAMICS PVT.LTD. HIRALAL COLONY A.K. ROAD SURAT VS. THE DCIT CIRCLE-1 SURAT PAN/GIR NO. : AAACH 5829 F ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI R.N. VEPARI, A.R. RESPONDENT BY: SHRI B.L. YADAV, D.R. O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE W HICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-I, SURAT DAT ED 15/12/2008 AND THE SUBSTANTIVE GROUND WHICH IS ARGUED BEFORE US IS GROUND NO.1; REPRODUCED BELOW:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN TREATING LONG TERM CAPITAL GAIN AS INCOME FROM OTHE R SOURCES. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S. 143 (3) OF THE I.T. ACT, 1961 DATED 1 7/12/2007 WERE THAT ITA NO .153/AHD/2009 M/S.HIMSON INDUSTRIAL CERAMICS P.LTD. ASST.YEAR 2005-06 - 2 - THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS O F MANUFACTURING AND SALE OF CERAMIC TILES. IT WAS NOTICED BY THE ASSES SING OFFICER THAT THE ASSESSEE HAD SHOWN LONG-TERM CAPITAL GAIN OF RS.19, 07,688/- ON SALE OF SHARES. THE DETAILS WERE AS UNDER:- NAME OF THE COMPANY NAME OF THE BROKER THROUGH WHOM SHARE WERE SOLD NAME OF THE EXCHANGE IN WHICH BROKER IS A MEMBER DATE OF TRANSACTION FAST TRACK ENTERTAINMENT LTD. KISAN RATILAL CHOKSEY SHARES & SECURITIES PVT.LTD. BOMBAY STOCK EXCHANGE 25.06.2004 -DO- -DO- -DO- 30.06.2004 -DO- -DO- -DO- 05.07.2004 2. DURING THE COURSE OF PROCEEDINGS, ASSESSEE WAS A SKED TO FURNISH THE NECESSARY EVIDENCE IN SUPPORT OF THE SAID LONG- TERM CAPITAL GAIN. IN RESPONSE, THE ASSESSEE HAS FURNISHED COPIES OF CONT RACT NOTES, BILLS, ETC. TO DEMONSTRATE THE SHARE TRANSACTION. THE ASSESSING O FFICERS APPREHENSION WAS THAT ON PERUSAL A PRIMA-FACIE IMPRESSION WAS G IVEN THAT THE TRANSACTION WAS MADE ONLINE. IT HAS ALSO BEEN NO TED BY THE ASSESSING OFFICER THAT, QUOTE THE TRANSACTIONS ALLEGEDLY SHO WING TRADE TIME WITH SECOND PRECISION IMPLIED THAT THE SAME WAS DONE THR OUGH THE STOCK EXCHANGE. UNQUOTE. THE ASSESSING OFFICER HAS AL SO MADE ENQUIRIES FROM BOMBAY STOCK EXCHANGE. THE ASSESSING OFFICER HAS REPRODUCED THE LETTER RECEIVED FROM THE BOMBAY STOCK EXCHANGE AND ON THAT BASIS HE HAS HELD THAT THE TRANSACTION WAS NOT GENUINE. HOWE VER IN SUPPORT THE ITA NO .153/AHD/2009 M/S.HIMSON INDUSTRIAL CERAMICS P.LTD. ASST.YEAR 2005-06 - 3 - ASSESSEE HAS FURNISHED THE CONTRACT NOTE WITH BROKE R KISHAN RATILAL CHOKSEY SHARES & SECURITIES PVT.LTD. BUT ON ACCOUN T OF THE LETTER RECEIVED FROM THE BOMBAY STOCK EXCHANGE (BSE) THE A LLEGATION OF THE ASSESSING OFFICER WAS THAT THE SAID BROKER HAD NOT EXECUTED THE TRANSACTION THROUGH THE EXCHANGE. IN HIS OPINION, MERELY FILING OF A CONTRACT NOTE FROM BROKER SHOULD NOT BE ACCEPTED AS AN EVIDENCE. BY REFERRING THE SAID LETTER OF THE BSE, HE HAS CONCLU DED THAT SINCE THE STOCK EXCHANGE HAD DISCLAIMED ANY SUCH TRANSACTION, THERE FORE, THE TRANSACTION WAS BOGUS. ACCORDINGLY, THE SAID AMOUNT BEING FOU ND CREDITED IN THE BOOKS WAS THUS HELD AS UNEXPLAINED AMOUNT WITHIN TH E MEANING OF SECTION 68 AND TAXED ACCORDINGLY. THE MATTER WAS C ARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 3. THE LEARNED CIT(APPEALS) HAS DISMISSED THE GROUN DS AS PER THE FOLLOWING OBSERVATION:- I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPEL LANT AND THE OBSERVATION OF THE A.O. AS PER THE CONTRACT N OTE IT IS SEEN THAT THESE SHARES WERE PURCHASED IN APRIL 2003 FOR RS.97,584/- TOTALLING TO 30000 SHARES OF FAST TRACT . THE PURCHASE RATE OF THESE SHARES VARIES BETWEEN RS.2.7 3 PER SHARE TO RS.2.83 PER SHARE. WITHIN ONE YEAR THE SH ARE PRICE HAS JUMPED AS HIGH AS RS.56/- TO RS.59 PER SHARE. THE BOMBAY STOCK EXCHANGE HAS CLEARLY STATED THAT THESE TRANSACTIONS HAVE NOT BEEN DONE THROUGH THE STOCK E XCHANGE. THE BROKER, SHRI K.R. CHOKSEY HAS ALSO NOT REBUTTED THE LETTER OF THE BOMBAY STOCK EXCHANGE. THEY ARE SIMPLY SAYI NG THAT THE TRANSACTIONS WERE DONE AND AT THAT TIME THE CLI ENT COULD BE REGISTERED WITH THE SUB-BROKER AND NOT NECESSARY WI TH THE BROKER. EVEN IF THIS CONTENTION IS ACCEPTED THAT T HE CLIENT NEED NOT BE REGISTERED WITH BOMBAY STOCK EXCHANGE THROUG H THE BROKER STILL IT IS NOT UNDERSTOOD THAT IF THE SHARE WAS QUOTED ITA NO .153/AHD/2009 M/S.HIMSON INDUSTRIAL CERAMICS P.LTD. ASST.YEAR 2005-06 - 4 - FOR THE SAME HAS NOT BEEN ROUTED THROUGH THE BOMBAY STOCK EXCHANGE. IT IS VERY CLEAR THAT THESE TRANSACTIONS HAVE TAKEN PLACE WHEREBY LONG TERM CAPITAL GAIN HAS BEEN PURCH ASED. IN VIEW OF THE CLEAR STATEMENT OF THE BOMBAY STOCK EXC HANGE, THE TRANSACTION DEFINITELY IS NOT DONE AND THE ADDITION MADE BY THE A.O. IS CONFIRMED. HENCE, THIS GROUND OF APPEAL IS DISMISSED. 4. FROM THE SIDE OF THE ASSESSEE, LD.AR MR. R.N. VE PARI APPEARED AND AT THE OUTSET INFORMED THAT THE TRANSA CTION HAS BEEN MADE THROUGH A/C. PAYEE CHEQUE AND THERE WAS NO IOTA OF DOUBT THAT TRANSACTION WAS NOT GENUINE. HE HAS EXPLAINED THAT THE LETTER RECEIVED FROM THE STOCK EXCHANGE WAS IN THE CONTEXT OF DIFFERENT ENTITY. IN SUPPORT HE HAS PLACED FEW EVIDENCES ON R ECORD, STATED TO BE VERY MUCH PART OF THE REVENUE RECORD AND EXPLAINED THAT THE SHARES WERE IN DEMAT ACCOUNT OF NSDL AND THE SAID INSTITUT ION IS HANDLING ONLINE TRANSACTION. HENCE THE SHARES SOLD WERE RED UCED FROM THE DEMAT ACCOUNT. HE HAS FURTHER EXPLAINED THAT THE TR ANSACTION WAS FIRST MADE BETWEEN THE ASSESSEE AND A SUB-BROKER M/ S BABUBHAI HIRALAL & CO., WHO IN TURN CONTACTED A BROKER SHRI KISHANBHAI CHOKSI A REGISTERED BROKER. ACCORDINGLY THE TIME AN D THE DATE WAS AS PER THE TRANSACTION BETWEEN THE SAID BROKER AND THE SUB-BROKER. LD A.R. HAS FURTHER CLARIFIED THAT THE SAID BROKER SHR I KISHAN BHAI CHOKSI ISSUED CONTRACT NOTE IN FAVOUR OF THE SUB-BR OKER M/S BABUBHAI HIRALAL & CO. AND IN TURN THE SUB-BROKER I SSUED THE CONTRACT NOTE IN FAVOUR OF THE ASSESSEE. LD.AR PLACED RELIANCE ON THE FOLLOWING DECISIONS:- ITA NO .153/AHD/2009 M/S.HIMSON INDUSTRIAL CERAMICS P.LTD. ASST.YEAR 2005-06 - 5 - 1. ACCHYALAL SHAW [30 SOT 44] (KOLKATA) [URO] 2. SUNITA OBEROI [126-TTJ-745](AGRA)[THIRD MEMBER] 3. BAIJNATH AGARWAL [43-TTJ-149](AGRA)[THIRD MEMBER] 4. J.R. SOLVENT INDUSTRIES (24-DTR-387)[CHANDIGARH] 5. NISRAJ REAL ESTATE & EXPORT (P.) LTD. (31-DTR-456)[JAIPUR] 5. FROM THE SIDE OF THE REVENUE MR. B.L. YADAV HAS APPEARED AND PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIE S BELOW. HE HAS SPECIFICALLY MENTIONED THE LETTER WHICH WAS REPRODU CED IN THE ASSESSMENT ORDER RECEIVED FROM THE BSE. HE HAS CON CLUDED THAT THE TRANSACTION WAS RIGHTLY HELD AS NOT GENUINE BECAUSE IT WAS NOT EXECUTED THROUGH STOCK EXCHANGE. 6. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. W E HAVE ALSO PERUSED THE ORDERS OF THE AUTHORITIES BELOW IN THE LIGHT OF THE COMPILATION FILED. THE COMPILATION CONTAINED THE CONTRACT NOTE IN RESPECT OF PURCHASE OF SHARES. THE COMPILATION ALS O CONTAINS THE SHARE CERTIFICATES AS ALSO THE DEMAT ACCOUNT. THER E WAS CONTRACT NOTE OF THE SUB-BROKER M/S.BABUBHAI HIRALAL & CO. THERE IS ALSO A CONFIRMATION LETTER FORM THE BROKER KISHANBHAI R.CH OKSHI. ON THE BASIS OF THOSE EVIDENCES THE VEHEMENT CONTENTION BE FORE US ARE THAT ONCE THE TRANSACTION WAS THROUGH PROPER CHANNEL, TH EN THE SAME SHOULD HAVE BEEN ACCEPTED AS A GENUINE TRANSACTION. THE ONLY REASON ON THE BASIS OF WHICH THE AO HAS DOUBTED THE TRANSACTION WAS ITA NO .153/AHD/2009 M/S.HIMSON INDUSTRIAL CERAMICS P.LTD. ASST.YEAR 2005-06 - 6 - A LETTER FROM THE BSE. THE PRELIMINARY OBJECTION O F THE LD.AR WAS THAT IF THE INFORMATION CALLED FOR FORM THE STOCK E XCHANGE ITSELF WAS WRONG, THEN IN CONSEQUENCE THEREOF THE BSE HAD WRIT TEN ABOUT THAT INFORMATION WHICH WAS AVAILABLE WITH THEM. THE CO RRECT FACTUAL POSITION WAS THAT THE BROKER KISHANBHAI R.CHOKSHI I S A REGISTERED BROKER AND THAT FACT WAS DULY NARRATED IN THE SAID LETTER BY BSE. HOWEVER, THE TRANSACTION WAS AS PER CONTRACT NOTE THROUGH A SUB- BROKER M/S.BABUBHAI HIRALAL & CO., WHO IN TURN HAD THE CONTRACT NOTE WITH THE MAIN BROKER, I.E. KISHANBHAI R.CHOKSH I. IN ADDITION TO THE ABOVE, OUR ATTENTION HAS ALSO BEEN DRAWN ON A CONFIRMATION ISSUED BY THE BROKER, I.E. KISHANBHAI R.CHOKSHI, WH EREIN HE HAS AFFIRMED THAT THE DEAL WAS THROUGH THEM AND THEY HA VE ISSUED THE CONTRACT IN FAVOUR OF THE SUB-BROKER AND THAT SUB-B ROKER HAD IN TURN FORWARDED THE SAME CONTRACT IN FAVOUR OF HIMSON IND USTRIAL CERAMICS PVT.LTD., I.E. THE ASSESSEE. OUR ATTENTIO N HAS ALSO BEEN DRAWN ON THE EXTRACT OF DEMAT ACCOUNT AND THE TRANS ACTIONS AS RECORDED IN THE BOOKS OF ACCOUNT. WITH THIS FACTUA L BACKGROUND, WE HAVE EXAMINED THE CASE LAWS CITED BEFORE US. FOR EXAMPLE, IN THE CASE OF SMT. SUNITA OBROI 126 TTJ 745 (AGRA)[THIRD MEMBER] THE ISSUE WAS IDENTICAL THAT WHETHER THE TRANSACTION WA S IN THE NATURE OF CAPITAL GAIN VIS--VIS IN COME FROM OTHER SOURCES. IN SHORT, THE CONCLUSION WAS THAT ASSESSEE HAVING SOLD SHARES WHI CH WERE EVIDENCED BY CONTRACT NOTES AND THE PAYMENTS BEING RECEIVED THROUGH BROKER FROM BANK ACCOUNT, THEN THE TRANSACT ION COULD NOT BE TREATED AS NON-GENUINE. IT WAS HELD THAT THE PROF IT ON SALE OF SHARES ITA NO .153/AHD/2009 M/S.HIMSON INDUSTRIAL CERAMICS P.LTD. ASST.YEAR 2005-06 - 7 - WAS ASSESSABLE AS CAPITAL GAINS AND NOT AS INCOME F ROM OTHER SOURCES. LIKEWISE, A DECISION OF HONBLE DELHI H IGH COURT IN THE CASE OF CIT VS. H.B.STOCK HOLDINGS LTD. REPORTED A T 325 ITR 316(DEL) THE OVERALL CONCLUSION WAS THAT ONCE THE D OCUMENTS WHICH WERE RELIED UPON BY THE ASSESSEE, SHOWED THAT THE T RANSACTIONS WERE ENTERED INTO AT THE MARKET VALUE AND THE TRANSACTIO NS THROUGH SHARE BROKER, THEN THE ALLEGATION ABOUT THE GENUINENESS W AS NOT JUSTIFIABLE. KEEPING BREVITY IN MIND, WITHOUT DISCUSSING THE OTH ER CITED PRECEDENTS, WE HEREBY GIVE OUR FINDING ON FACTS TH AT THE IMPUGNED TRANSACTION APPEARED TO BE A GENUINE TRANSACTION, T HEREFORE, THE SAME DESERVES TO BE ACCEPTED AS DECLARED BY THE ASSESSEE . GROUND RAISED BY THE ASSESSEE IS ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 10/ 06 /2011. SD/- SD/- ( A.N. PAHUJA ) ( MU KUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBE R AHMEDABAD; DATED / /2011 T.C. NAIR, SR. PS ITA NO .153/AHD/2009 M/S.HIMSON INDUSTRIAL CERAMICS P.LTD. ASST.YEAR 2005-06 - 8 - COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-I, SURAT 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD 1. DATE OF DICTATION.. 07/06/2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 08/06/2011 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 D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S10/06/2011 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 10/06/2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER