ITO, Ward - 2, Nizamabad V. Shri Rohit Kumar Goyal, Adilabad

ITA 169/HYD/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69898 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 03-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Penny stocks
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.165/HYD/2011 ASSESSMENT YEAR 2006 - 2007 THE INCOME TAX OFFICER, WARD 2, NIZAMABAD VS. SMT. AARTI MITTAL ADILABAD PAN AAZPM0414B (APPELLANT) (RESPONDENT) ITA.NO.166/HYD/2011 ASSESSMENT YEAR 2006 - 2007 THE INCOME TAX OFFICER, WARD 2, NIZAMABAD VS. SHRI RAJEEV KUMAR MITTAL ADILABAD PAN ADKPM6980C (APPELLANT) (RESPONDENT) ITA. NO.167/HYD/2011 ASSESSMENT YEAR 2006 - 2007 THE INCOME TAX OFFICER, WARD 2, NIZAMABAD VS. SHRI RAGHUNATH MITTAL ADILABAD PAN ADKPM6981D (APPELLANT) (RESPONDENT) ITA.NO.168/HYD/2011 ASSESSMENT YEAR 2006 - 2007 THE INCOME TAX OFFICER, WARD 2, NIZAMABA D VS. SHRI SANTOSH KUMAR GOYAL ADILABAD PAN AJWPG2048K (APPELLANT) (RESPONDENT) ITA.NO.169/HYD/2011 ASSESSMENT YEAR 2006 - 2007 THE INCOME TAX OFFICER, WARD 2, NIZAMABAD VS. SHRI ROHIT KUMAR GOYAL ADILABAD PAN AFQPG9682R (APPELLANT) (RESPONDENT) ITA.NO.877/HYD/2011 ASSESSMENT YEAR 2006 - 2007 THE INCOME TAX OFFICER, WARD 2, NIZAMABAD VS. DR. A. CHAKRADHARI NIRMAL PAN AGRPA2047G (APPELLANT) (RESPONDENT) ITA.NO.878/HYD/2011 ASSESSMENT YEAR 2006 - 2007 THE INCOME TAX OFFICER, WARD 2, NIZAMABA D VS. SHRI MUKESH KUMAR MALPANI ADILABAD PAN AAZPM0406B (APPELLANT) (RESPONDENT) 2 ITA.NO.879/HYD/2011 ASSESSMENT YEAR 2006 - 2007 THE INCOME TAX OFFICER, WARD 2, NIZAMABAD VS. SHRI MURALI MANOHAR MALPANI ADILABAD PAN AAFHM0535H (APPELLANT) (RESPONDEN T) ITA.NO.880/HYD/2011 ASSESSMENT YEAR 2006 - 2007 THE INCOME TAX OFFICER, WARD 2, NIZAMABAD VS. SMT. SUBHASHREE ADILABAD PAN AJUMP1767D (APPELLANT) (RESPONDENT) ITA.NO.881/HYD/2011 ASSESSMENT YEAR 2006 - 2007 THE INCOME TAX OFFICER, WARD 2, NIZA MABAD VS. SHRI SANTOSH KUMAR GUPTA NIRMAL PAN ACIPM0989N (APPELLANT) (RESPONDENT) ITA.NO.882/HYD/2011 ASSESSMENT YEAR 2006 - 2007 THE INCOME TAX OFFICER, WARD 2, NIZAMABAD VS. SMT. SUJATA PATEL ADILABAD PAN ABLPP0640H (APPELLANT) (RESPONDENT) I TA.NO.883/HYD/2011 ASSESSMENT YEAR 2006 - 2007 THE INCOME TAX OFFICER, WARD 2, NIZAMABAD VS. SHRI DILIP KUMAR PATEL ADILABAD PAN ABLPP0645C (APPELLANT) (RESPONDENT) ITA.NO.884/HYD/2011 ASSESSMENT YEAR 2006 - 2007 THE INCOME TAX OFFICER, WARD 2, NIZA MABAD VS. SHRI DEVAN KUMAR PATEL ADILABAD PAN AGQPP4028F (APPELLANT) (RESPONDENT) ITA.NO.885/HYD/2011 ASSESSMENT YEAR 2006 - 2007 THE INCOME TAX OFFICER, WARD 2, NIZAMABAD VS. SMT. REKHA PATEL ADILABAD PAN ABLPP0646B (APPELLANT) (RESPONDENT) F OR REVENUE : SHRI S. RAMU (D.R.) FOR ASSESSEE : SHRI A.V. RAGHURAM (A.R.) 3 DATE OF HEARING : 08.08.2013 DATE OF PRONOUNCEMENT : 06 .11.2013 ORDER PER SMT. ASHA VIJAYARAGHAVAN, J.M. THESE APPEALS ARE FILED BY THE DEPARTMENT AGAI NST THE ORDER OF THE CIT(A) - VI, HYDERABAD FOR THE ASSESSMENT YEAR 2006 - 2007. SINCE, COMMON ISSUES ARE INVOLVED IN THESE APPEALS, THESE APPEALS WERE CLUBBED AND HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS SINGLE CONSOLIDATED ORDER. 2. BRIEF FACTS OF THE CASE ARE THAT AS PER THE ASSESSMENT ORDER THE AD NOTICED THAT THE ASSESSEE ALONG WITH OTHERS HAD CLAIMED LONG TERM CAPITAL GAINS ON SHARES TRADED IN CALCUTTA STOCK EXCHANGE AND THAT SUCH TRANSACTIONS WERE TRADED THROUGH THREE CALCUTTA SHARE BROKERS VIZ., N.M. LODHA & CO., BASANTH PERIWAL & CO., AND RAJENDRA PRASAD SHAH. THE SCRIPS IN WHICH THEY TRADED ARE 1. NAVKETAN MERCHANTS LTD., 2. SANGOTRI CONSTRUCTIONS LTD., 3. PSL FINANCE LTD. 4. SHREE TULSI ONLINE. COM LTD. 5. OFFSHORE FINVEST LTD. AND 6. SCI NTILLA COMMERCIAL & CREDIT LTD. THE ENTIRE SALE PROCEEDS REALIZED ON SALE OF SHARES WAS TREATED AS LONG TERM CAPITAL GAIN. SINCE THE SALE TRANSACTIONS TOOK PLACE THROUGH AUTHORIZED STOCK EXCHANGE AND SECURITIES TRANSACTION TAX WAS PAID, THE A SSESSEE CLAIME D THE ENTIRE SALE PROCEEDS ARISING OUT OF THE TRANSACTION AS LONG TERM CAPITAL GAIN EXEMPT FROM TAX U/S. 10(38) OF THE IT ACT. THE AO DID NOT BELIEVE THE TRANSACTION AS GENUINE ON THE BASIS OF CERTAIN OBSERVATIONS AND TREATED THE ENTIRE SALE PROCEEDS AS I NCOME FROM O THER S OURCES' AND AD DED IT TO THE TOTAL INCOME. 3. THE BASIS OF DISBELIEVING THE TRANSACTIONS OF PURCHASE AND SALE AS NON - GENUINE, AS IT APPEARS FROM THE ASSESSMENT ORDER ARE AS FOLLOWS: 4 I ) T HE AO OBSERVED THAT THE PURCHASE AND THE SALE IN TH E SHARES OF ABOVE LISTED COMPANIES ARE BOGUS. II ) THE AO CONDUCTED ENQUIRY THROUGH CALCUTTA STOCK EXCHANGE(CSE) REGARDING THE PURCHASES OF THE IMPUGNED SALES AND ON THE BASIS OF THE REPORT OF THE CSE THE AO CAME TO A CONCLUSION THAT NO PURCHASE TOOK PLACE TH ROUGH THE FLOORS OF CSE. HAVING RECEIVED A CONFIRMATION FROM CSE THE AO CAME TO A CONCLUSION THAT THE PURCHASES ARE NON - GENUINE. III ) S INCE ON THE BASIS OF THE REPORT OF CSE THE PURCHASES WERE TREATED AS NON GENUINE THE AO CAME A TO A CONCLUSION THAT THE SALES ARE ALSO NON GENUINE. IV ) THE AO ALSO REFERRED THE MATTER TO SEBI . ON THE BASIS OF THE REPLY RECEIVED FROM SEBI THAT ACTIONS WE, INITIATED IN THE NAMES OF THE BROKERS THROUGH WHOM THE PURCHASE TRANSACTIONS TOOK PLACE, THE AO SUSPECTED THE ENTIRE TRANSACTION OF PURCHASE AND SALES AS NON GENUINE. V ) THE AO OBSERVED THAT THE PURCHASE AND SALE OF SHARES RELATE TO PENNY STOCKS. THE PRICES OF THESE STOCKS WERE VERY NOMINAL WHEREAS THE SALE PRICES WERE QUIET HIGH. VI ) T HE AO ALSO OBSERVED THAT THE ASSESSEE FAILED TO TAKE INTO ACCOUNT THE FINANCIAL STANDING OF THE COMPANIES WHOSE SHARES WERE PURCHASED AND SOLD. VII ) IT WAS OBSERVED IN THE ORDER THAT THE ASSESSEE ONLY TRANSACTED IN PENNY STOCKS AND NEVER HAD AN EXPERIENCE IN SHARE TRANSACTION EARLIER. VIII ) IT WAS OBSERVED THAT BOTH D - MAT ACCOUNT AND TR AD ING ACCOUNTS WERE OPENED FOR SPECIFIC PURPOSE OF TR AD ING IN THESE STOCKS. IX ) THE AO HAD HAD REFERRED TO THE FINDINGS OF ENQUIRY DONE CARRIED OUT THROUGH THE DC IT CALCUTTA. IN THE ENQUIRY REPORT THE D C LT HAD MENTIONED THAT THE SUMMONS C OULD NOT BE SERVED ON THE BROKERS AS WELL AS ON THE COMPANIES WHOSE SHARES WERE TRADED . ON THE BASIS OF THIS THE AO SUSPECTED THAT THE TRANSACTIONS ARE NOT GENUINE. 4. THE ASSESSEE SUBMITTED BEFORE CIT(A) AS FOLLOWS : THE ASSESSEE HAS FILED AL L THE RELEVANT DOCUMENTS FOR THE ENTIRE TRANSACTION STARTING FROM PURCHASE OF SHARES, SUBSEQUENT D - MAT OF THE SHARES AND THE FINAL SALE OF THE SHARES. THE ASSESSEE HAS ALSO FILED COPIES OF THE RELEVANT ACCOUNT COPY IN THE BOOKS OF THE PURCHASING BROKER AS WELL AS SALE BROKER. THUS, THE ASSESSEE HAS CLEARLY FILED THE EVIDENCE IN SUPPORT OF ITS CLAIM. 5 4.1. THE ASSESSEE HAS ALSO FILED DETAILED EXPLANATION TO THE SHOW CAUSE NOTICE DATED 01.12.2008 ISSUED BY THE AO , VIDE REPLY DT. 22.12.2008. HOWEVER, THE AO FAILED TO TAKE INTO ACCOUNT THIS EXPLANATIONS FILED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IN THE ASST. ORDER, THE AO HAS LISTED VARIOUS TRANSACTION DETAILS CARRIED OUT BY THE BROKER, IN CSE AND OBSERVED THAT THE ASSESSEE'S TRANSACTIO N OF PURCHASE OF SHARES ARE NOT FOUND IN SUCH LIST. IT IS SUBMITTED, FURTHER, THAT THE DETAILS OF SOME OF SUCH LIST AND THE COPIES OF EVIDENCE THEREOF HAS NOT BEEN FURNISHED TO THE ASSESSEE. HENCE, THE ASSESSEE IS UNABLE TO MAKE ANY SUBMISSION THEREON. FUR THER, THE SAID IS A LIST OF ONLINE TRANSACTION WHEREAS THE PURCHASE MADE BY THE PURCHASER IS A PHYSICAL TRANSACTION OR OFF MARKET PURCHASE'. THOUGH NO AD VERSE CONDITION AGAINST THE ASSESSEE CAN BE DRAWN, WHEN ALL OTHER CONTEMPARANEOUS EVIDENCE IS AVAILABLE AND FILED BY THE ASSESSEE. 4.2. THE ASSESSEE HAS ALSO SUBMITTED THAT THE BROKER THROUGH WHOM THE SHARES PURCHASES WERE CARRIED OUT WAS NEITHER SUSPENDED NOR DEBARRED AS ON THE DATE OF THE ABOVE SAID PURCHASE. IN FACT, THE ONLINE TR ADING TRANSACTION DET AILS FURNISHED BY THE CSE AND RELIED UPON BY THE AO ITSELF SHOWS THAT SRI. N.M. LOHIA, THE BROKER HAD CARRIED OUT TRANSACTION IN JULY AND AUGUST, 2003. 4.3. THE ASSESSEE HAS INFORMED AND HAS ALSO FURNISHED EVIDENCE THAT THE SAID SHARES HAVE BEEN PHYSICA LLY PRESENTED TO MIS. KARVY & CO. FOR THE PURPOSE OF D - MAT AND THAT THE SAID AGENCY WHICH IS A REPUTED AND INDEPENDENT AGENCY HAS ISSUED D - MAT CERTIFICATES TO THE ASSESSEE. IT CLEARLY SHOWS THAT THE ASSESSEE WAS THE OWNER OF THE SHARES IN THE YEAR 2004 ITS ELF BY WHICH TIME THE D - MAT PROCESS WAS COMPLETED. IT IS SUBMITTED THAT A FACT WHICH IS APPARENT FROM THIRD PARTY RECORDS, ABOUT THE OWNERSHIP OF THE SHARES OF THE ASSESSEE IS DEEMED TO BE CORRECT UNLESS THE CONTRARY IS PROVED. THE AO HAS NO MATERIAL ON RE CORD TO DISBELIEVE THE ABOVE 6 CERTIFICATE OF OWNERSHIP OF THE SHARES IN FAVOUR OF THE ASSESSEE ISSUED BY AN INDEPENDENT THIRD PARTY AGENCY. 4.4. IT IS PRAYED THAT THE IMPUGNED ADDITION OF LONG TERM CAPITAL GAINS TREATED AS 'INCOME FROM OTHER SOURCES' B E RECLASSIFIED AND ASSESSED AS 'CAPITAL GAIN' AND THE EXEMPTION U / S.10(38) OF THE IT ACT, BE GRANTED TO THE ASSESSEE AS THE REQUIREMENTS OF THE SAID SECTION INCLUDING PAYMENT OF SIT ARE FULFILLED . 5. IT WAS FURTHER PLEADED BEFORE THE CIT(A) THAT THE A SSESSEE HAD BEEN ENGAGED IN CARRYING OUT TRANSACTIONS DURING THE EARLIER YEARS ALSO AND DURING THE YEAR 2003 - 04 THE SHARES OF OFFSHORE FINVEST LTD WERE PURCHASED WITH A GENUINE INTENTION THAT THE SAME WOULD YIELD GOOD RESULTS. WITH REGARD TO THE PROPOSAL T O HOLD THE SHARE TRANSACTIONS AS PRE ARRANGED IT WAS SUBMITTED THAT THE SAME WAS NOT, BASED ON PROPER APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE 'CASE AND EVIDENCE AVAILABLE ON RECORD. IT WAS PLEADED THAT ON THE CONTRARY THE EVIDENCE CLEARLY PROVES THE GENUINENESS OF THE TRANSACTIONS AND THAT THERE IS NO BASIS FOR PRE CONCLUSIONS. IT WAS FURTHER AVERRED THAT THE TRANSACTIONS WERE AT ARMS LENGTH AND THEY WERE WITH THE UNRELATED PARTIES IN THE NORMAL COURSE AND THE INVESTMENT IN SHARES WERE MADE THROU GH STOCK EXCHANGES. THE APPELLANT SUBMITTED THAT THE OBSERVATION THAT THE TRANSACTIONS WERE ENTERED TO LEGITIMIZE UNDISCLOSED INCOME EARNED NORMAL COURSE OF BUSINESS IS DENIED. IT WAS PLEADED THAT THE CLAIM OF LONG TENN CAPITAL GAINS WAS CORRECT AND IS BAS ED ON FACTS AND CIRCUMSTANCES OF THE CASE AND THAT THE SAME SHALL BE ALLOWED. IN THIS CONNECTION, THE ASSESSEE ALSO DREW ATTENTION TO THE OBSERVATION OF ITAT BOMBAY IN THE CASE OF MUKESH KUMAR MAROLIA VS. ACIT (2006) (6 SOT 247). THE APPELLANT ALSO RELIED ON THE DECISION OF HON'BLE ITAT NAGPUR BENCH IN ACIT VS. KAMAL KUMAR S. AGARWAL & OTHERS (2010) 41 DTR(NAGPUR)105). IT WAS SUBMITTED THAT IN THE SAID CASE, ON EXACTLY 7 SIMILAR FACTS THE ITAT UPHELD THE GENUINENESS OF THE TRANSACTION OF PURCHASE AND SALE OF SHARES AND THE CLAIM OF CAPITAL GAINS BY THE ASSESSEE, AFTER AN ELABORATE DISCUSSION. 6. THE AO HAS NOT PROPERLY APPRECIATED THE MODUS OPERANDI FOLLOWED IN COURSE OF SHARE TRANSACTION IN CASE OF OFF MARKET TRANSACTION. AS REGARDS PURCHASES, IT IS SUBM ITTED THAT THESE SHARES WERE PURCHASED OFF MARKET AND DELIVERY WAS AFFECTED BY HAND PHYSICALLY. THEREAFTER, THE APPELLANT FOLLOWED, DUE PROCEDURE STEP BY STEP TILL THE SHARES WERE DEMATED. AFTER PURCHASE OF SHARES PHYSICALLY, THESE SHARES WERE LODGED WITH THE RESPECTIVE COMPANIES FOR MAKING NECESSARY CHANGES IN THE NAMES OF THE PURCHASERS. AFTER THE COMPANY AFFECTED NECESSARY CHANGES IN THE PURCHASERS NAME, THE SHARES WERE DELIVERED BACK TO THE APPELLANTS AND THEN SENT TO DEPOSITORY PARTICIPANT (DP ) FOR DE MAT WITH A REQUEST FORM. THE D P, THEN V ERIFIED THE PURCHASES WITH THE COMPANY WHOSE SHARES WERE PURCHASED. IT WAS ONLY AFTER SUCH VERIFICATIONS WERE COMPLETED WITH RESPECTIVE COMPANIES AND THE D P WAS SATISFIED ABOUT THE ACCURACY WITH REGARD TO THE HOLDER T HAT THE DP CREDITED THE AMOUNTS TO THE DEMAT ACCOUNT. SHARES WERE THEN RE AD Y FOR TR AD ING IN ELECTRONIC PLATFORM OF STOCK EXCHANGES. THUS, THE MOMENT THESE SHARES WERE DEMATED AFTER FOLLOWING THE DUE PROCEDURE, ALL THE PREVIOUS STEPS STARTING FROM PURCHASE CULMINATING IN DEMAT, FORM STOOD VALIDATED AS OTHERWISE DEMAT COULD NOT HAVE BEEN POSSIBLE. 7. AS REGARDS SALE OF DEMATED SHARES, THE SALES WERE MADE IN ELECTRONIC PLAT FORMS OF RECOGNIZED STOCK EXCHANGES THROUGH REPUTED BROKERS WITH WHOM VARIOUS ASSES SEE; OF THE GROUP WERE MAINTAINING TR AD ING ACCOUNT. THE APPELLANT MAINTAINED ACCOUNT WITH KARVY STOK BROKING LTD HYDERABAB. STT WAS PAID IN ALL THE TRANSACTI.ONS. THE MOMENT SALES WERE EFFECTED, THE DE M AT ACCOUNTS WERE DEBITED. IT IS SUBMITTED FOR KIND CON SIDERATION THAT C: SALE 8 THROUGH A RECOGNIZED STOCK EXCHANGE WHICH WERE ELECTRONICALLY MADE CANNOT BE MANIPULATED. SO ALSO DEBIT AND CREDIT ENTRIES IN THE DEMAT ACCOUNT WHICH WERE MAINTAINED BY REPUTED DPS. THE PROCESS INVOLVED IS AUTOMATIC TRANSMISSION OF THE INFORMATION THROUGH ELECTRONIC DEVICE REGARDING SALE OF SHARES. THE SALE PROCEEDS WERE THEN RECEIVED BY ACCOUNT PAYEE CHEQUES/DRAFTS FROM THE BROKERS WHERE THE APPELLANTS MAINTAINED TR AD ING ACCOUNT. THESE WERE CREDI TE D IN THE BANK ACCOUNTS AND RECORDED IN REGULAR BOOKS OF THE APPELLANT IN REGULAR COURSE. THE BANK ACCOUNTS OF THE ASSESSEES EVIDENCE RECEIPT OF SALE CONSIDERATION BY ACCOUNT PAYEE CHEQUE/DRAFT. THE RESULTANT GAINS WERE REFLECTED IN THE BOOKS OF ACCOUNTS AND SHOWN IN THE RETURNS FILED IN THE REGULAR COURSE. HENCE THERE IS NO SCOPE FOR DISBELIEVING MY SALE TRANSACTIONS. AO HAS NOT APPRECIATED THAT THERE CANNOT BE A SALE WITHOUT A PURCHASE. THE PURCHASES HAVING DONE PHYSICALLY AND THE SAME HAVING BEEN DEMATED AS EXPLAINED ABOVE BY FOLLOWING PRE SCRIBED STEPS ,THERE WAS NO SCOPE FOR SUSPECTING THESE TRANSACTIONS. 8. ANOTHER ALLEGATION OF THE ASSESSING OFFICER IS THAT THE APPELLANT PURCHASED PENNY STOCKS AT A NOMINAL PRICE AND SOLD THE SAME AT A PRICE MAKING PROFIT. IN THIS REGARD, THE FOLLOWIN G FACTS WERE BROUGHT BY THE LEARNED A.R. BEFORE THE CIT(A) FOR CONSIDERATION : A) IT MAY FURTHER BE MENTIONED HERE THAT ALL THE SALE TRANSACTIONS WERE DONE THROUGH EXCHANGES, STT WAS PAID, SALE PROCEEDS WERE REALIZED BY ACCOUNT PAYEE DRAFT/CHEQUE. THERE FORE, MERELY BECAUSE THE STOCKS WERE OF LOW VALUE, PER SE , WOULD NOT LE AD TO A CONCLUSION THAT THE TRANSACTIONS WERE NOT GENUINE. IT IS SUBMITTED THAT SUSPICION, HOWEVER, STRONG CANNOT TAKE THE PLACE OF PROOF AS HELD BY THE APEX COURT IN MANY CASES. B) T HE A.O. HAS NOT BROUGHT OUT ANY CLEAR CUT MATERIAL TO SHOW THAT THE ASSESSEE WAS INVOLVED IN PRICE MANIPULATION EXCEPT RELYING ON 9 PRESUMPTION. C) FURTHER IN RESPECT OF ALL THESE TRANSACTIONS SECURITY TRANSACTION TAX (STT) WAS PAID WHEREVER APPLICABLE AFT ER 01.10.2004. THIS IS IN THE NATURE OF CONTEMPORARY EVIDENCE. D ) NOTHING COGENT AND CONCRETE HAVE BEEN MENTIONED IN THE ASSESSMENT ORDER TO INDICATE AS TO HOW THE APPELLANT WAS IN LEAGUE WITH THE BROKERS IN THE TRANSACTION OF SPECIFIC SCRIPS. EVEN IN C OURSE OF RECORDING THE STATEMENTS OF THESE BROKERS, NO QUESTION WAS PUT TO ELICIT ANY ANSWER. E ) EVEN OTHERWISE THE FINDINGS OF AUTHORITIES, UNDER ANY OTHER STATUTE, HAVE GOT NO BEARING TO THE INCOME TAX PROCEEDINGS. INCOME TAX OFFICER HAS TO CONDUCT HIS OWN ENQUIRIES WHILE COMPLETING THE ASSESSMENT AND REACH HIS OWN FINDING. THIS IS WHAT LAW ENJOINS UPON HIM AS A QUASI JUDICIAL AUTHORITY UNDER A STATUTE. 9. FURTHER, THE LEARNED A.R. SUBMITTED BEFORE THE CIT(A) THAT ACTION INITIATED/TAKEN BY ANY ANOTHE R AUTHORITY AD MINISTERING A STATUTE CANNOT BE USED AGAINST THE A SSESSEE TO WHICH HE WAS NOT PARTY. THE SO CALLED ORDER OF SEBI, WHICH WAS NOT MADE AVAILABLE TO THE A SSESSEES , MAY HAVE IMPACT ON THE PERSONS WHO ARE PARTIES TO THE PROCEEDING BUT CERTAINLY N OT ON THE A SSESSEES . IT IS AN ESTABLISHED POSITION OF LAW, AS STATED BY THE HON'BLE SUPREME COURT IN CHHATRASINHJI KESARISINHJI THAKORE V. COMMISSIONER OF INCOME - TAX [1966] 59 ITR 562,567 - 68 (SC), THAT THE INCOME - TAX OFFICER IS, WITHIN THE LIMITS ASSIGNED TO HIM UNDER THE ACT, A TRIBUNAL OF EXCLUSIVE JURISDICTION FOR PURPOSES OF ASSESSMENT AND HE HAS, UNDER THE ACT, TO DECIDE WHETHER A PARTICULAR RECEIPT IS INCOME AND IT IS NOT, NECESSARY THAT HE MUST MAKE SOME PERSON OR BODY OTHER THAN THE ASSESSEE, A PA RTY TO THE PROCEEDINGS BEFORE HE DECIDES THE QUESTION; AND AS BETWEEN THE STATE AND THE ASSESSEE, IT IS HIS FUNCTION ALONE TO DETERMINE WHETHER THE RECEIPT IS INCOME AND IS TAXABLE. IT IS EQUALLY 10 BEYOND DOUBT THAT A STATUTORY AUTHORITY IS BOUND TO HOLD STA TUTORY INQUIRY AND PERFORM STATUTORY DUTIES TO DETERMINE LIABILITY UNDER THE STATUTE THEY ACT AND THE SAME CANNOT BE ABDICATED IN ANY MANNER BASING ON THE DECISION OF ANOTHER AU T HORITY. THE A SSESSEES , THEREFORE PRAY ED BEFORE THE CIT(A) THAT T HE Y SHOULD NO T BE PENALIZED FOR THE ACTS OF OMISSIONS AND COMMISSIONS OF THE BROKERS IN A PROCEEDING BEFORE ANOTHER AUTHORITY TO WHICH ASSESSEES WERE NOT A PARTY AND IN THE ABSENCE OF ANY ENQUIRY BY THE ASSESSING OFFICER. 10. IT WAS FURTHER SUBMITTED BY THE LEARNED A.R. BEFORE THE CIT(A) THAT THE ROLE OF SEBI IS DIFFERENT AND THE ORDER PASSED BY THEM HAVE DIFFERENT OBJECTIVES SUCH AS ORDERLY CONDUCT OF SHARE MARKET AND INVESTOR'S PROTECTION. THEREFORE, SUCH ORDERS CANNOT BE CONCLUSIVE AS REGARDS GENUINENESS OF THE TRANSACTION DONE BY THE A SSESSEES . MOREOVER, IN THE CASE OF THE ASSESSEES SEBI HAS NOT STARTED ANY ENQUIRY AGAINST THE ASSESSEES. EVIDENCE SHOWING PAYMENT AND RECEIPT OF CONSIDERATION FOR PURCHASE AND SALE OF SHARES. BOOKS OF ACCOUNT OF THE APPELLANT. ALL THE ABOVE EVIDENCES ARE IN THE REALM OF DOCUMENTARY EVIDENCES. THUS PRIMARY ONUS WAS DISCHARGED AND THIS COMPLETELY ABSOLVED THE A SSESSEES FROM AD DUCING ANY FURTHER PROOF DOES NOT ARISE AS THE A SSESSEES HAD DISCHARGED THE PRIMARY ONUS. ON THE OTHE R HAND THERE IS NOTHING IN THE ASSESSMENT ORDER EXCEPT SUSPICION TO SHOW THAT THE DEPARTMENT HAS FOUND ANYTHING FURTHER. 11. IT IS SETTLED LAW THAT IN THE MATTER OF AN ASSESSMENT, PRESUMPTION HOWEVER STRONG CANNOT TAKE THE PLACE OF PROOF. IN THE CASE OF THE A SSESSEES , THE ASSESSING OFFICER HAS NOT BROUGHT OUT ANY COGENT AND CONCRETE EVIDENCE AGAINST THE A SSESSEES TO COME TO A CONCLUSION THAT THE TRANSACTIONS IN SHARES ARE BOGUS. HIS ENTIRE EVIDENCE IS BASED ON SURMISES AND SUSPICION. SUCH AN ASSESSMENT CANNOT BE SUSTAINED IN THE EYE OF LAW. IN THIS REGARD THE ASSESSEES 11 PLACE D RELIANCE ON THE FOLLOWING JUDGMENTS OF THE APEX COURT. IT IS A SETTLED PRINCIPLE THAT MERE CONJECTURE, SURMISE OR ASSUMPTION OF FACTS AS DISTINCT FROM INFERENCE FROM PROVED CIRCUM STANCES DO NOT AM OUNT TO EVIDENCE WITHIN THE MEANING OF SECTION 143(3) FOR THE PURPOSES OF BEING UTILIZED IN THE ASSESSMENT. THIS IS A CASE IN WHICH THERE IS NO EVIDENCE AGAINST THE A SSESSEES EXCEPT SOME VAGUE, CONFUSING ENQUIRIES THE ASSESSING OFFICER HA S SOUGHT TO DRAW CONCLUSION AGAINST THE A SSESSEES . IT WAS HELD BY APEX COURT THAT 'THE INCOME TAX OFFICER IS NOT ENTITLED TO MAKE A PURE GUESS AND MAKE AN ASSESSMENT WITHOUT REFERENCE TO ANY EVIDENCE AND MATERIAL AT ALL. THERE MUST BE SOMETHING MORE THAN SUSPICION TO SUPPORT THE ASSESSMENT. (DHAKESWARI COTTON MILLS LTD V CIT, 1954, 26 ITR 775 SC). THE SAME PRINCIPLE IS ALSO REITERATED IN THE CASE OF UMACHARAN SHAW & BROS. V CIT WEST BENGAL 37 ITR 271 SC). IT WAS HELD THAT A SUSPICION HOWEVER, STRONG MAY NO T TAKE THE PLACE OF PROOF. THE CONCLUSIONS WHICH ARE BASED ON SURMISES AND CONJECTURES, CANNOT TAKE THE PLACE OF PROOF. THEREFORE THE ASSESSMENT MADE BY THE AO WHICH IS PREDOMINANTLY INFLUENCED BY SUSPICION IS LIABLE TO SET ASIDE.' 11.1. IT IS SUBMITTED THAT ENTRIES IN BOOKS OF ACCOUNTS REGULARLY KEPT ARE PRESUMED TO BE CORRECT UNLESS PROVED OTHERWISE. IN THE CASE OF THE A SSESEES , ALL THE TRANSACTIONS IN SHARES WERE RECORDED IN THE BOOKS OF ACCOUNT. THIS WAS FURTHER EVIDENCED BY FILING OF RETURNS. SALE OF SHARES BASING ON THESE BOOKS. THESE RETURNS WERE ACCEPTED UNDER SECTION 143(1). NO SERIOUS CHALLENGE WAS EVER MADE ABOUT THEIR GENUINENESS OR THAT THEY WERE KEPT REGULARLY IN THE COURSE OF BUSINESS. THAT BEING THE CASE, THE ACCOUNTS ARE RELEVANT AND AFF ORD PRIMA FACIE PROOF OF THE ENTRIES AND THE CORRECTNESS THEREOF UNDER SECTION 34 OF THE EVIDENCE ACT. THE PRESUMPTION THAT BOOKS OF ACCOUNTS REGULARLY KEPT ARE PRESUMED TO BE CORRECT I S SUPPORTED BY THE FOLLOWING DECISIONS. 11.2. THE AO HAS APPLIED TH E RATIO OF THE DECISION OF 12 HON'BLE APEX COURT IN THE CASE OF CIT V DURGA PRAS AD MORE 82 ITR 540 AND SOUGHT TO TAKE HELP OF THE SURROUNDING CIRCUMSTANCES. THE FACTS OF THE CASE BEFORE THE HON'BLE COURT WERE DIFFERENT. THE FACTS OF SUMATI DAYAL'S CASE STOOD ON ITS OWN FOOTING. THERE WERE A NUMBER OF SPECIFIC FACTUAL INACCURACIES IN THAT CASE WHICH COUPLED WITH OTHER FACTORS LED THE COURT TO APPLY THE TEST OF HUMAN P ROBABILITY. AS OBSERVED BY THE COURT, THE CLAIM WAS FOUND TO BE FANTASTIC. THE ABOVE FACTS WHI CH WERE PECULIAR TO THE CASE OF SUMATI D AYAL ARE ABSENT IN THE CASE OF THE APPELLANT. THE APPELLANTS WERE REGULAR INVESTORS IN SHARES. THE TRANSACTIONS WERE ENTERED IN THE BOOKS. 11.3. THE ASSESSING OFFICER HAS AD DED THE ENTIRE SALE PROCEEDS AS NON GENU INE AND AD DED TO THE TOTAL INCOME. IT IS SUBMITTED THAT THE APPELLANT HAVING PROVED THE FACTUM OF PURCHASE AND SALE AND IDENTITY OF THE B ROKERS FROM/THROUGH WHOM THESE TRANSACTIONS TOOK PLACE AND SALE PROCEEDS HAVING BEEN RECEIVED BY ACCOUNT PAYEE DRAFTS, THERE WAS NO OCCASION TO TREAT THE SALE PROCEEDS AS UNEXPLAINED INCOME. HENCE THERE IS NO BASIS OF THE ADDITION . THE ASSESSING OFFICER HAS NOT SPELT OUT THE SECTION UNDER WHICH THE ADDITION S WERE MADE . 11.4. THE ASSESSEES HAVE RELIE D ON THE FOLLOWING DEC ISIONS KORLAY TR AD ING CO LTD CIT 1998,232 ITR 820 CAL CIT V DIWAN INVESTMENT AND TRADING COMPANY LTD 238 ITR 486 (CAL.) MUKESH MAROLIA V ADDL. CLT ITA NO.1201/MUM/200 5 ITO V SMT NEELANM CHAWALA 2008,22 (II) ITCL 482 DELHI TRIBUNAL SHRIPA L SINGH V ITO (2008)9 DTR (AGRA), 5 64 ACIT V KAMAL KUMAR KUMAR S AGRAWAL (LND) AND OTHERS ( 2010 ) 41DTR (NAG),LO 5 13 12 . THE CIT(A), ON CAREFUL CONSIDERATION OF VARIOUS CONTENTIONS OF THE ASSESSEES BEFORE HIM, O N AN OVERALL APPRECIATION OF FA CTS AND CIRCUMSTANCES OF THESE CASES, THE CIT(A) WAS OF THE CONSIDERED VIEW THAT WHEN THERE IS NO DISPUTE WITH REGARD TO OFF MARKET TRANSACTIONS, IN VIEW OF THE OBSERVATIONS OF THE TRIBUNAL IN VARIOUS DECISIONS, RELIANCE PLACED BY THE AO ON THE REPLIES REC EIVED FROM CSE ARE OF NO PROBATIVE VALUE TO DRAW AN AD VERSE CONCLUSION AGAINST THE ASSESSEE S . THE CIT(A) CONCLUDED THAT I N ALL THE SE CASES INVOLVING SIMILAR FACTS , IN THE ABSENCE OF ANY POSITIVE EVIDENCE , AND MERELY ON THE BASIS OF MERE SUSPICION THE TRAN SACTIONS CANNOT BE HELD TO BE NOT GENUINE. 13. AGGRIEVED, DEPARTMENT IS IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS BEFORE THE CIT(A). 14. THE LEARNED D.R. BESIDES RELYING UPON THE ORDER OF THE A.O. SUBMITTED BE FORE THE TRIBUNAL AS FOLLOWS : (A) IT HAS BEEN VERIFIED FROM THE WEBSITE OF SEBI ( WWW.SEBI.GOV.IN ) THAT CERTAIN BROKERS OF CALCUTTA STOCK EXCHANGE INCLUDING THE BROKERS WITH WHOM THE ASSESSEE HAS PURPORTEDLY DEALT OR HAS MADE PURPORTED TRANSACTIONS WERE INDICTED BY SEBI FOR UNETHICAL PRACTICES OF CREATING A ARTIFICIAL MARKED JACKING UP PRICES OF SHARES. IT IS ALSO WORTHWHILE TO NOTE THAT SEBIS VARIOUS AD JUDICATION ORDERS HAD CLEARLY ESTABLISHED THAT THE SAID BROKER S HAD A ACTIVE ROLE IN MANIPULATING THE PRICES OF SHARES FOR WHICH THEY ARE PENALIZED AS PER THE SEBI RULES AND SOME OF THEM ALSO WERE SUSPENDED FOR A PARTICULAR PERIOD DURING THE INVESTIGATION. (B) THE ASSESSEES OF THE GROUP HAVE PURPORTEDLY TO HAVE DEALT BASICALLY WITH : ( A ) NM LOHIA & CO . 14 ( B ) BASANTH PERIMAL & CO. ( C ) RAJENDRAPRAS AD SHAH & CO. THE ASSESSEES HAVE SHOWN PURPORTED PURCHASE / SALE OF SHARES OF THE FOLLOWING COMPANIES : 1 ) PSL FINANCIAL SERVICES LTD. 2 ) SANGOTHRI CONSTRUCTIONS LTD. 3 ) NAVKETAN ME RCHANTS LTD. 4 ) SCINTILLA COMMERCIAL AND CREDIT LTD. 5 ) SRI TULASI ONLINE.COM.LTD. 6 ) OFFSHORE FINVEST LTD. (C) IT MAY BE BROUGHT ON RECORD OF THE HON'BLE BENCH OF THE 3 BROKERS WITH WHOM THE ASSESSES PURPORTEDLY TO HAVE DULY DEALT WITH WERE INDICTED BY SEBI FOR DEALING IN ONE OR THE OTHER SHARES OF THE ABOVE AND FOR MANIPULATING THE SHARE PRICES OF SOME OF THE SHARES LISTED ABOVE. SOME OF THE AD JUDICATING ORDERS DOWN LO AD ED FROM THE WEBSITE OF SEBI ARE PLACED BEFORE THE HONBLE BENCH IN SUPPORT OF THE CONTENT ION THAT TRANSACTIONS OF THE PRICE SHOWN BY THE ASSESSEES WERE NOT THE REAL PRICE BUT THE ARTIFICIAL PRICE CREATED BY THE SHARE BROKERS FOR THEIR OWN BENEFIT AS ALSO FOR BENEFIT OF THE SAME TO THE CLIENTS. (C) SRI NETHMAL LOH IA IS THE PROPRIETOR OF M / S. N. M.LOH IA & CO., MEMBER OF CALCUTTA STOCK EXCHANGE. HE HAS BEEN PENALIZED ON SEVERAL OCCASIONS F OR VIOLATION OF PREVENTION OF FRAUDULENT AND UNFAIR TR AD E PRACTICES REGULATIONS, 2003 AND CODE OF CONDUCT FOR BROKERS AS SPECIFIED IN SCHEDULE - II UNDER REG ULATION 7 OF SEBI REGULATIONS, 1992. THE AD JUDICATION OFFICER OF SEBI IN HIS ORDER DATED 21/2/2010 AS SEVERELY INDICTED SRI NETHMAL LOHIA FOR VARIOUS FRAUDULENT AND UNFAIR TR AD E PRACTICES INDULGED BY HIM AND LEVIED A PENALTY OF RS.1,00,000/ - FOR FRAUDULENT LY DEALING IN THE SHARE OF M/S.PSL FI NANCIAL SERVICES LTD. SIMILARLY, HE WAS PENALIZED FOR RS.2,00,000/ - FOR UNFAIR TR AD E PRACTICES LIKE INDULGING IN FRAUDULENT AND UNFAIR TR AD E PRACTICES BY THE AD JUDICATING OFFICER 15 OF SEBI IN ITS ORDER DATED 22 - 0 2 - 2010 IN THE CASE OF M/S. SANGOTRI CONSTRUCTIONS LTD. (IN SHORT SCL). SIMILARLY, M/S. N.M. LOHIA, STOCK BROKER WAS PENALIZED ON 4 OTHER OCCASIONS AS PER THE LIST ENCLOSED BY JACKING UP THE PRICES OF SCRIPS TRADED BY HIM INCLUDING PSL FINANCIAL SERVICES LTD., SAN GOTRI CONSTRUCTIONS LTD., RICHFIELD FINANCIAL SERVICES LTD., STENLY CREDIT CAPITAL LTD., EXCELLON AGENCIES LTD. THE AD JUDICATION ORDER OF THE SEBI ARE ENCLOSED FOR KIND PERUSAL OF THE HONBLE TRIBUNAL. (D) IN THIS CONNECTION, IT IS HUMBLY SUBMITTED THAT THE SHARE TRANSACTIONS OF M/S. N.M. LOHIA AND CO - REPRESENTED BY ITS PROPRIETOR SRI NETHMAL LOHIA HAS BEEN INDICATED SEVERELY BY THE AD JUDICATING O FFICER BY LEVYING PENALTIES. (E) SIMILARLY, THE OTHER BROKER, WHICH THE PRESENT GROUP HAS PURPORTEDLY DEALT WITH IS SRI RAJENDRA PRAS AD SHAH, THROUGH WHOM SHARES OF M/S. SANGOTRI CONSTRUCTIONS LTD. M/S. SCINTILLA COMMERCIAL AND CREDIT LTD. AND M/S. OFFSHORE FINVEST LTD. WERE PURPORTED TO HAVE BEEN ACQUIRED BY THE ASSESSEES. CERTIFICATE OF REGISTRATION OF SRI RA JENDRA PRAS AD SHAH, MEMBER, CALCUTTA STOCK EXCHANGE WAS SUSPENDED FOR 2 MONTHS AND ALSO FINED ON SEVERAL OCCASIONS AS PER LIST ENCLOSED FOR INDULGING IN FRAUDULENT AND UNFAIR TR AD E PRACTICES CARRIED OUT DURING THE INVESTIGATION PERIOD WHEN THE SHARES WER E SHOWN TO HAVE BEEN ACQUIRED BY THE ASSESSEES OF THIS GROUP. (F) SRI RAJENDRA PRAS AD SHAH WAS ALSO PENALIZED BY RS. 9.5 LAKHS AND 3 LAKHS FOR FRAUDULENT AND UNFAIR TR AD E PRACTICES IN THE CASE OF SANGOTRI CONSTRUCTIONS LTD. AND SCINDIA COMMERCIAL AND CR EDIT LTD. RESPECTIVELY AND HIS CERTIFICATE OF REGISTRATION AS A MEMBER OF CALCUTTA STOCK EXCHANGE WAS SUSPENDED FOR 2 MONTHS BY AN ORDER DATED APRIL, 2010 FOR THE FRAUD COMMITTED BY HIM WHILE DEALING WITH M/S. OFFSHORE FINVEST LTD. THIS ORDER IS 16 PLACED B EFORE US AT PAGE NO.138 TO 140 OF THE PAPER BOOK. SRI RAJENDRA PRAS AD SHAH INDULGED IN FRAUDULENT AND UNFAIR PRACTICES WHILE RIGGING THE PRICES OF SCRIPS OF MINOLTA FINANCE LTD, STENLY CREDIT CAPITAL LTD AND M/S. KAY VEE AAR LTD AND PENALIZED FOR RS.4 LAKH S, RS. 3 LAKHS AND RS. 3 LAKHS RESPECTIVELY. THE AD JUDICATION ORDERS ARE ENCLOSED AS ANNEXURE - II AT PAGES 100 TO 195 OF THE PAPER BOOK. (G) IN THE CASE OF 3 RD BROKER, M/S.BASANTH PERIMAL & CO HAS ALSO BEEN PENALIZED FOR FRAUDULENT AND UNFAIR TR AD E PRACTIC ES BY THE AD JUDICATION OFFICER OF SEBI ON TWO OCCASIONS AND THE COPIES OF THE AD JUDICATION ORDERS ARE ENCLOSED AS ANNEXURE - III AT PAGES 196A TO 230 OF THE PAPER BOOK. (H) THUS, IT IS NOT A COINCIDENCE BUT, A WELL DESIGNED PLAN FOR CONVERSATION OF UNACCOUN TED MONEY THROUGH PURPORTED SHARE TRANSACTIONS. INCIDENTALLY, THE CONTRACT NOTE SHOWS TR AD E NOS WHICH DO NOT MATCH WITH THE TR AD E NUMBERS AS CONFIRMED BY CALCUTTA STOCK EXCHANGE IN RESPONSE TO THE LETTER OF ASSESSING OFFICER. IN SUPPORT OF THE ABOVE CONTEN TIONS, THE LEARNED D.R. CITED SOME OF THE EXAMPLES AS UNDER : (I) THE ASSESSEE SMT. AARTI DEVI MITTAL IS STATED TO HAVE PURCHASED 17,000 SHARES OF M/S. NAVKETAN MERCHANTS LTD FROM M/S. N.M. LOHIA & CO. DURING THE FINANCIAL YEAR 2003 - 04. 1. 10,000 SHARES ON 04/08/2003 - RS.27,200/ - ( PAGE NO. 21 OF PAPER BOOK) 2. 7,000 SHARES ON 05/08/2003 - RS.21,140/ - ( PAGE NO.22 OF PAPER BOOK) (J) THE CONTENTION OF THE ASSESSEE BEFORE THE ASSESSING OFFICER AND C IT(A) (AT PAGE 8, PARA 3) WAS THAT THE SAID SHARES WERE PURCHASED ON OFF MARKET BASIS. HOWEVER, AS PER THE PAPER BOOKS SUBMITTED BEFORE THE HONBLE ITAT, IT IS FOUND THAT THE ASSESSEE HAS SUBMITTED CONTRACT NOTES ISSUED BY M/S.NM LOHIA &, CO, WHICH 17 BEARS TR AD E NO. AND TR AD E TIME OF CALCUTTA STOCK EXCHANGE (PAG E NO. 21 AND 22 OF ASSESSEES PAPER BOOK). (K) WHEN THE SHARE IS TRANSACTED THROUGH OFF MA RKET, THERE CANNOT BE ANY TR AD E NO. OF THE CALCUTTA STOCK EXCHANGE SINCE THE PURCHASE IS NOT ROUTED THROUGH THE STOCK EXCHANGE. THUS, IT IS PROVED THAT THE ASSESSEE S CONTENTION OF OFF MARKET PURCHASE IS AGAINST THE EVIDENCE AVAILABLE ON RECORD. FURTHER, THE SAID TRANSACTIONS IN THE F.Y.2003 - 04 DO NOT A PPEAR IN THE TRANSACTION LIST QUOTED IN THE ASSESSMENT ORDER (PAGE NO.L5 OF THE PAPER BOOK). THIS SHOWS THAT THE ASSE SSEE HAS SIMPLY SHOWN BOGUS PURCHASES DEPICTING WITH A IMAGINARY TR AD E NO. SIMILARLY, ALL OTHER PURCHASES OF THE INDIVIDUALS OF THE GROUP WHERE THE ASSESSEE CLAIMED IT TO BE OFF MARKET PURCHASE BUT THE BROKER NOTE DEPICTS THE TR AD E NO. OF CALCUTTA STOCK EX CHANGE. (L) THE ASSESSES OF THIS GROUP HAVE ALLEGEDLY PURCHASED THE SHARES OF M/S. NAVKETAN MERCHANTS LTD. THIS COMPANY IS A STOCK BROKING FIRM IN OTCEI (OVER THE COUNTER EXCHANGE OF INDIA) . DUE TO UNETHICAL PRACTICES, M/S. NAVKETAN MERCHANTS LTD WAS EX PELLED W.E.F. 22.12.2003 AND CEASED TO BE MEMBER OF THE OTCEI, AS A CONSEQUENCE, SEBI ALSO CANCELLED CERTIFICATE OF REGISTRATION GRANTED TO M/S. NAVKETAN MERCHANTS LTD. W.E.F. 22.06.2004. THE ORDER OF THE SEBI IN THE CASE OF M/S. NAVKETAN MERCHANTS LTD. IS PLACED ON RECORD AS ANNEXURE - IV FOR PERUSAL OF THE HONBLE TRIBUNAL. (M) IT IS SURPRISING TO NOTE THAT M/S. NAVKETAN MERCHANTS LTD., WHICH HAS BEEN BLACKLISTED IS QUOTING MUCH HIGHER RATE WHEN IT WAS NOT OPERATING THAN WHEN IT WAS OPERATING AS A STOCK B ROKER. IN OTHER WORDS, M/S.NAVKETAN MERCHANTS LTD. PRICE OF THE SHARE WAS RS.2.84 AS ON 5.8.2003 WHEN IT WAS OPERATIONAL. M/S. NAVKETAN MERCHANTS LTD., CEASED TO BE MEMBER OF OTCEL W.E.F. 22.12.2003. 18 SUBSEQUENTLY , WHEN SHARES OF THIS COMPANY WERE SOLD IN THE MARKET ON 16 - 5 - 2005, THE SHARE PRICE WAS RS.199.50. IT IS PERTINENT TO NOTE THAT SEBI HAS ALSO CANCELLED REGISTRATION OF M/S.NAVKETAN MERCHANTS LTD. BY ITS ORDER DATED 22 - 6 - 2004 (PLACED BEFORE THE TRIBUNAL AS ANNEXURE - IV). SO IT IS INTRIGUING AS TO HOW THE COMPANY WHICH IS NOT ON THE OTCEI AND SEBI C OULD COMMAND A PRICE OF RS.199 WHEN ITS OWN SHARES WERE SOLD AT RS.2.84 WHEN THE SAME COMPANY WAS FUNCTIONAL. THIS SHOWS THAT SHARE PRICES OF M/S. NAVKETAN MERCHANTS LTD WERE MANIPULATED. 15 . THE LEARNED D.R. FURTHER EMPHASIZED THAT THE BROKERS WHO HA VE DEALT IN THE SHARES HA VE ALRE AD Y EARNED A B AD NAME AND WERE INDICTED BY SEBI FOR MANIPULATING MARKET SHARES OF MANY OTHER COMPANIES AND THE AD JUDICATING OR DERS OF THE SEBI ARE FILED BEFORE THE TRIBUNAL. IT IS SUBMITTED IN THIS BEHALF AS FOLLOWS - (A) THERE WAS FRAUDULENT AND UNFAIR TR AD E PRACTICES LIKE PURCHASING AND SELLING OF M/S. SCINTILLA COMMERCIAL AND CREDIT LTD., M/S. OFFSHORE FINVEST LTD., M/S.PSL FINANCIAL SERVICES LTD BY OTHER BROKERS ALSO WHO WER E PENALIZED BY VIRTUE OF THE AD JUDICATING ORDERS WHICH HAS BEEN FILED BEFORE THE TRIBUNAL AT PAGE NO.231 TO 288 OF THE PAPER BOOK AS ANNEXURE - V. (B) THIS SHOWS THAT ALL THE SCRIPS PURPORTED TO HAVE BEEN TRADED BY THE ABOVE 3 BROKERS ARE FICTITIOUS AND NOT REAL. THE AD JUDICATION ORDERS, OF SEBI SUPPORT THE SAME. (C) THEREFORE, THE LEARNED D.R. PLEADED BEFORE THE TRIBUNAL THAT THE AD JUDICATION ORDERS OF THE SEBI, WHICH HAVE COME INTO EXISTENCE AFTER THE PASSING OF THE ASSESSMENT ORDER BY THE ASSESSING OFFIC ER MAY PLEASE BE AD MITTED AND TAKEN ON RECORD SINCE THEY RELATE TO COMMISSION OF OFFENCE AND FRAUD COMMITTED BY THE 3 BROKERS DURING THE RELEVANT PERIOD OF TIME WHEN THE ALLEGED PURCHASE AND SALE OF SHARE TOOK PLACE. THE OTHER ORDERS WERE REFERRED TO BY TH E ASSESSING 19 OFFICER IN THE ASSESSMENT ORDER REFERRING TO THE WEBSITE OF WW.SEBI.GOV.IN WH ICH WAS CONTAINING SUCH AD JUDICATING ORDERS. 16. THE LEARNED COUNSEL FOR THE ASSESSEES, ON TH E OTH E R HAND, STRONGLY OPPOSING THE ABOVE COTENNTIOSN OF TEH LEARNED DE PARTMENTAL REPRESENTATIVE, SUPPORTED TH E ORDER S OF TH E CIT(A), AND SUBMITTED TH A T THE ASSESSING OFFICER, WITHOUT BRING ING ANY POSITIVE EVIDENCE ON RECORD, COULD NOT HAVE CONCLUDED THAT THE TRANSACTIONS IN QUESTION ARE NOT GENUINE. HE SUBMITTED THAT SINCE PRESCRIBED PROCEDURE HAS BEEN FOLLOWED FROM THE STAGE OF PURCHASE TILL THE ULTIMATE STAGE OF SHARES BEING D - MATTED , THERE IS HARDLY ANY ROOM TO DOUBT OR SUSPECT THAT THE TRANSACTIONS IN PURCHASE ARE NOT GENUINE. IN ORDER TO HOLD SO, IT IS SUBMITTED BY THE LEARNED COUNSEL, THAT THE ASSESSING OFFICER IS REQUIRED TO BRING IN COGENT EVIDENCE TO PROVE THAT THE PURCHASES WERE NOT GENUINE. NO SUCH COGENT EVIDENCE HAS BEEN BROUGHT ON RECORD EXCEPT MERE SURMISE AND SUSPICION THAT THE PURCHASE TRANSACTIONS ARE BOGUS. REFERRING TO THE SECOND OBJECTION OF THE ASSESSING OFFICER T HAT THE ENQUIRY WITH CSE REVEALED THAT NO PURCHASE HAS TAKEN PLACE THROUGH CSE , IT IS EXPLAINED BY THE LEARNED COUNSEL FOR THE ASSESSEES THAT SINCE THE TRANSACTIONS WERE IN PHYSICAL FORM AND DO NE THROUGH OFF MARKET, THE QUESTION OF THE SAME BEING ROUTED THROUGH THE FLOOR OF A RECOGNIZED STOCK EXCHANGE DOES NOT ARISE. 1 7 AS REGARDS THE NEXT OBSERVATION OF THE AO WHICH RELATES TO THE SALE OF SHARES , THE LEARNED COUNSEL SUBMITTED THAT WHEN T HE A O WAS OF THE VIEW THAT PURCHASES ARE NO T GENUINE, THE SALES ARE ALSO NOT GENUINE , SINCE THERE CANNOT BE A SALE WITHOUT A PURCHASE. THEREFORE, IT IS SUBMITTED THAT THE FACT THAT THE PURCHASES ULTIMATELY RESULTED IN CONVERSION OF SHARES INTO ELECTRONIC FORM AND CREDIT OF THE SAME IN THE D - MAT ACCOUNT CANNOT BE DOUBTED. ONCE IT IS CREDITED TO THE D - MAT ACCOUNT , THE SALES ARE EFFECTED THROUGH THE FLOOR OF THE STOCK EXCHANGE. HE SUBMITTED THAT AS OBSERVED BY THE CIT(A) IN THE 20 IMPUGNED ORDER, T HE AO HAS NOT BROUG HT OUT ANYTHING TO EVEN REMOTELY SUGGEST THAT THE SALE TRANSACTIONS WERE ARRANGED BY THE ASSESSEE S . THERE IS NO MENTION ANYWHERE IN THE ASSESSMENT ORDERS IN THESE MATTERS ABOUT THE IDENTITY OF THE PARTY WHO HAS PURCHASED THE SAME THROUGH ELECTRONIC STOCK E XCHANGE, MUCH LESS ANY WHISPER ABOUT THE NEXUS BETWEEN THE A SSESSEES AND THE SAID PARTY COULD NOT BE ESTABLISHED. THE MOST CRUCIAL ASPECT WHICH COULD BE CONSIDERED AS INCRIMINATING IN SUCH TRANSACTIONS MAY RELATE TO A CASE WHERE COMPENSATORY PAYMENTS ARE M ADE BY THE SELLER TO THE BUYER. NO EVIDENCE HAS BEEN BROUGHT ON RECORD TO PIN POINT THAT THE ASSESSEES OF THIS GROUP HAVE MADE ANY SUCH COMPENSATORY PAYMENT TO THE BUYER OF THE STOCKS. IN THE ABSENCE OF ANY SUCH OBSERVATION, IT IS SUBMITTED THAT THE SALE T RANSACTIONS CANNOT BE DOUBTED ON SUSPICION. MOREOVER, THESE ARE THE CASES IN WHICH THE TRANSACTIONS HAVE TAKEN PLACE THROUGH THE FLOOR OF THE STOCK EXCHANGE AND SECURITIES TRANSACTIONS TAX HAVE BEEN PAID. IN VIEW OF THESE EVIDENCES WHICH HAVE NOT BEEN REBU TTED BY THE A . O . IT IS DIFFICULT TO HOLD THAT THE SALE TRANSACTIONS ARE NON - GENUINE AND THE PROCEEDS THEREOF ARE LIABLE TO BE TAXED UNDER THE HE AD OTHER SOURCES. 1 8 . AS REGARDS THE OBSERVATION S OF THE ASSESSING OFFICER WITH REGARD TO CERTAIN ENQUIRIES M ADE BY THE SEBI WHICH REVEALED THAT SOME OF THE BROKERS NAMED ABOVE HAVE BEEN SUSPENDED FOR SOME ACT OF COMMISSION OR OMISSION, AND HIS CONSEQUENT CONCLUSION THAT THE TRANSACTIONS ENTERED THROUGH THESE BROKERS ARE NOT GENUINE , LEARNED COUNSEL SUBMITTED TH AT THE T RANSACTIONS OF THE ASSESSEES IN DISPUTE CANNOT BE TREATED AS SHAM MERELY FOR SOME DISCREPANCIES OR AD VERSE REPORT BY THE SEBI. LEARNED COUNSEL FURTHER SUBMITTED THAT THE AO HAS NOT BROUGHT OUT ANY MATERIAL TO ESTABLISH THE FINAL OUTCOME OF THE EN QUIRY INITIATED BY SEBI AND SPECIFIC SHARES PURCHASED BY THE ASSESSEE S IN THE COURSE OF COURSE OF MAKING INVESTMENT. THEREFORE, IT IS NOT POSSIBLE TO TAKE ANY AD VERSE VIEW ON THE BASIS OF MERE 21 SUSPICION THAT SEBI HAD INITIATED SOME ACTION AND FOUND THE BRO KERS VIOLATING THE RULES OF SEBI. 1 9 . AS REGARDS THE NEXT ALLEGATION THAT PURCHASES AND SALES OF SHARES WERE MADE WITH REFERENCE TO PENNY STOCKS WHICH WERE PURCHASED AT A NOMINAL PRICE AND SOLD AT A VERY HIGH PRICE , IT IS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT ALL THE SALE TRANSACTIONS WERE MADE THROUGH STOCK EXCHANGES , AND AS SUCH THERE IS HARDLY ANY SCOPES FOR PRICE MANIPULATION. MORE OVER , IT IS SUBMITTED THAT THESE ARE THE TRANSACTIONS ON WHICH STT WAS PAID. AS A COMMON KNOWLEDGE NO PR UDENT SHARE HOLDER WOULD STAND STATIC WHEN THE MARKET IS IN UPSWING. TAKING ALL THESE FACTORS INTO ACCOUNT AND AS THE AO HAS FAILED TO PROVE ANY NEXUS BETWEEN THE ASSESSEES AND THE PURCHASER S WITH ANY COGENT EVIDENCE, THE M ERE FACT THAT SALES WERE MADE IN PENNY STOCKS WOULD NOT RESULT IN ANY ADVERSE INFERENCE THAT THESE TRANSACTIONS AS NON GENUINE. 20 . REFERRING TO THE OBSERVATION OF THE AO THAT BEFORE PURCHASING THE SHARES THE A SSESSEES DID NOT TAKE INTO ACCOUNT THE FINANCIAL STANDING OF THE COMPANIES , I T IS SUBMITTED THAT T HE SHARE MARKET IS GENERALLY SENTIMENT DRIVEN. THEREFORE, THE OBSERVATION OF THE AO THAT BEFORE MAKING PURCHASES THE A SSESSEES HAS NOT MADE ANY ANALYSIS ABOUT THE FINANCIAL STATUS OF THE COMPANY DOES NOT HOLD MUCH WATER TO DOUBT THE GE NUINENESS OF THE TRANSACTION IN SHARES. WITH REGARD TO THE OBSERVATION OF THE AO THAT THE ASSESSEE HAD NEVER HAD ANY EXPERIENCE IN TRANSACTION OF THE SHARES EXCEPT DEALING IN THESE PENNY STOCKS, IT IS SUBMITTED THAT THIS BY ITSELF CANNOT BE A REASON EITHER TO CONCLUDE OR DRAW ANY AD VERSE INFERENCE AGAINST THE ASSESSEES TO THE EFFECT THAT THE TRANSACTIONS ARE NON GENUINE. THE LEARNED COUNSEL ALSO SUBMITTED THAT OPENING OF THE D - MAT ACCOUNTS AT A DISTANT PLACE LIKE CALCUTTA, CANNOT BE A REASON TO DRAW ANY ADV ERSE INFERENCE AGAINST THE ASSESSEE. IT IS ALSO SUBMITTED AT THIS JUNCTURE THAT FAILURE TO 22 TRACE THE BROKERS AND THE COMPANY IS IN THE COURSE OF ENQUIRIES GOT CONDUCTED BY THE ASSESSING OFFICER THROUGH DCIT CALCUTTA ALSO CANNOT BE HELD TO BE FATAL TO THE TRANSACTIONS BEING GENUINE. PLACING RELIANCE ON A NUMBER OF DECISIONS, SOME OF WHICH HAVE ALSO BEEN CITED BEFORE THE CIT(A), AND EVEN REFERRED TO BY THE CIT(A) IN THE IMPUGNED ORDERS, IT WAS CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US THA T SINCE THE PROOF OF INVESTMENT IN SHARES AND SALE OF THE SAME WAS PROVED BEYOND DOUBT, THE A SSESSEES HAD DISCHARGED THE ONUS ON THEM TO PROVE THE GENUINENESS OF THE TRANSACTIONS , AND THE ASSESSING OFFICER HAS NOT BROUGHT ANYTHING ON RECORD TO DISPROVE THE CONTENTIONS OF THE ASSESSEE WITH REGARD TO THE GENUINENESS OF THE TRANSACTIONS, AND IN THE CIRCUMSTANCES, THE CIT(A), ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE WAS JUSTIFIED IN DELETING THE ADDITIONS MADE BY THE ASSESSING OFFICER, BY HOLDING THE SHARE TRANSACTIONS OF THE ASSESSEES AS NOT GENUINE. 2 1. THE LEARNED COUNSEL FOR THE ASSESSEES SUBMITTED THAT MERE SUSPICION AND SURMISE CANNOT TAKE THE PLACE OF TRUTH. IT WAS POINTED OUT THAT IN THE WHOLE CASE THE AO HAS RAISED SUSPICIONS WITHOUT ANY CONCRETE PROOF. FOR THIS PURPOSE THE LEARNED COUNSEL RELIED ON THE DECISION OF DHAKESWARI COTTON MILLS (26 ITR 775) . BASED ON THE PRINCIPLES ENUNCIATED BY THE APEX COURT IN THE CASE OF DHAKESWARI COTTON MILLS LTD. VS. CIT (SUPRA) AND UMACHARAN SHAH & BRO S VS. CIT WEST BENGAL (37 ITR 271) , IT IS SUBMITTED THAT A SUSPICION HOWEVER STRONG MAY NOT TAKE THE PLACE OF PROOF. THE CONCLUSIONS WHICH ARE BASED ON SURMISES AND CONJECTURES CANNOT TAKE THE PLACE OF PROOF THEREFORE THE ASSESSMENT MADE BY THE AO WHICH IS PREDOMINATELY INFLUENCED BY SUSPICION IS LIABLE TO BE SET ASIDE. THESE PRINCIPLES ENUNCIATED BY THE APEX COURT HAVE BEEN FOLLOWED BY VARIOUS T RIBUNALS. IN THIS REGARD THE NOTABLE CASES ARE DN KAMANI HUF VS. DCIT (70 ITD 77 PATNA), POOJA BHAT VS. ACIT (79 ITD 205) AND MRS. AISHARYA K. RAI VS. DCIT (107 ITD 166) (MUM.). 23 22. IN SUPPORT OF H IS C ONTENTIONS, THE LEARNED COUNSEL FOR THE ASSESSEES ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS - I . SMT. MEMO DEVI 7 DTR 158 ITAT AGRA BENCH II . SMT. NEELAM CHAWLA 6 DTR 141 ITAT DELHI F BENCH III . SHRIPAL SINGH GULATI 9 DTR 564 ITAT AGRA SMC BENCH IV . KAMAL KUMAR S. AGRAWAL (INDL.) & ORS. 41 DTR 105 ITAT NAGPUR V . MEENA DEVI N. GUPTA V/S. ACIT, SURAT (ITAT D BENCH, AHMEDABAD ORDER DATED 10.5.2013 IN ITA NO.4512 & 13/AHD/2007) VI . M ANOJKUMAR SARAWAGI (HUF) (ITAT A BENCH, AHMEDABAD ORDER DATED 16.3.2012 IN ITA NO.3233 & 3156/AHD/2010) VII . JAGDISH PRASAD GOEL (ITAT C BENCH, KOLKATA, ORDER DATED 13.4.2011 IN ITA NO.541/KOL/2010) VIII . LATA SONI, (ITAT, JODHPUR BENCH ORDER DATED 19.1.2012 IN I TA NO.77/JU/2010) IX . RAJESH GUPTA, L/H OF LATE SHRI MOHAN V/S. DEPT. OF INCOME TAX (ITAT AGRA BENCH ORDER DATED 24.5.2013 IN ITA NO.10/AGRA/2011) X . JATIN CHHADWA V/S. ACIT (ITAT, I BENCH, MUMBAI ORDER DATED 24.8.2012 IN ITA NO.8573/MUM/2010) XI . SHRI SANJAY JA IN, LUDHIANA (ITAT B BENCH, CHANDIGARH ORDER DATED 17.5.2012 IN ITA NO.992/CHD/2009) XII . KORLAY TRADING CO. LTD. ( 232 ITR 820 ) C AL . HC XIII . SMT. JAMN A DEVI AGARWAL & ORS. ( 328 ITR 656 ) BOM . HC XIV . ARUN KUMAR AGARWAL (HUF) & OTHERS (ORDER4 DATED 13.7.2012 IN TAX APPEA L NO.4 OF 2011 OF HIGH COURT OF JHARKHAND ) 2 3 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE WRITTEN SUBMISSIONS FILED BY THE PARTIES AND PLETHORA OF DECISIONS RELIED UPON BY THEM IN THE 24 CO URSE OF HEARING BEFORE US. THE QUESTION BEFORE US RELATES TO GENUINENESS OF THE SHARE TRANSACTIONS ENTERED INTO BY THE ASSESSEES, AND THE JUSTIFICATION FOR THE ASSESSING OFFICER TO MAKING THE IMPUGNED ADDITIONS, TREATING SUCH TRANSACTIONS AS NOT GENUINE. THE CIT(A) HAS PASSED ELABORATE ORDERS AND THE CIT(A), AS NOTED ABOVE, CONSIDERING THE ABSENCE OF ANY POSITIVE CORROBORATIVE EVIDENCE BROUGHT ON RECORD BY THE ASSESSING OFFICER TO SUBSTANTIATE HIS ALLEGATION OF THE ASSESSING OFFICER AS TO THE NON - GENUINE NATURE OF THE TRANSACTIONS, CONCLUDED THAT THE CONCLUSIONS OF THE ASSESSING OFFICER ARE BASED ON MERE SUSPICION, SURMISES AND CONJECTURES AND CONSEQUENTLY, HIS ORDERS CANNOT BE SUSTAINED. WE ARE IN AGREEMENT WITH THE DETAILED REASONS DISCUSSED BY THE CIT (A) IN THE IMPUGNED ORDER IN SUPPORT OF HIS CONCLUSIONS. T HE PRESCRIBED PROCEDURE , HAVING BEEN FOLLOWED BY THE ASSESSEES FROM THE STAGE OF PURCHASE TILL THE SHARES ARE D - MATTED THERE IS HARDLY ANY ROOM TO DOUBT OR SUSPECT THAT THE TRANSACTIONS IN PURCHASE ARE NOT GENUINE. IN ORDER TO HOLD SO, AS OBSERVED BY THE CIT(A), THE A .O. IS REQUIRED TO BRING IN COGENT EVIDENCE TO PROVE THAT THE PURCHASES WERE NOT GENUINE. NO SUCH COGENT EVIDENCE HAS BEEN BROUGHT ON RECORD , BUT MERELY PROCEEDED TO ARRIVE AT HIS CON CLUSIONS BASING ON MERE SURMISE AND SUSPICION THAT THE PURCHASE TRANSACTIONS ARE BOGUS. EVEN THOUGH ENQUIRY WITH CSE REVEALED THAT NO PURCHASE HAS TAKEN PLACE THROUGH CSE , SINCE THE TRANSACTIONS WERE IN PHYSICAL FORM AND DONE THROUGH OFF MARKET, THE QUESTI ON OF THE SAME BEING ROUTED THROUGH THE FLOOR OF A RECOGNIZED STOCK EXCHANGE DOES NOT ARISE. FURTHER, O N AN OVERALL APPRECIATION OF FACTS AND WHEN THERE IS NO DISPUTE WITH REGARD TO OFF MARKET TRANSACTIONS, THE CIT(A) WAS CORRECT IN OBSERVING THAT RELIANC E PLACED BY THE AO ON THE REPLIES RECEIVED FROM CSE ARE OF NO PROBATIVE VALUE TO DRAW AN AD VERSE CONCLUSION AGAINST THE ASSESSEE. IN CONSONANCE WITH THE FUNDAMENTAL PRINCIPLE THAT THERE CANNOT BE A SALE WITHOUT A PURCHASE , IF T H E PURCHASE OF SHARES BY TH E ASSESSEES IS DISBELIEVED, THERE CANNOT BE CONSEQUENT SALE OF 25 THE SAID SHARES BY THE ASSESSEE . THEREFORE, THE FACT OF THE PURCHASES CANNOT BE DOUBTED, SINCE THE SAME ULTIMATE LY RESULTED IN CONVERSION OF SHARES INTO ELECTRONIC FORM AND CREDIT OF THE SAME I N THE D - MAT ACCOUNT. ONCE IT IS CREDITED TO THE D - MAT ACCOUNT THE SALES ARE EFFECTED THROUGH THE FLOOR OF THE STOCK EXCHANGE. THE AO HAS NOT BROUGHT OUT ANYTHING TO EVEN REMOTELY SUGGEST THAT THE SALE TRANSACTIONS WERE ARRANGED BY THE ASSESSEE. THERE IS NO MENTION IN THE ENTIRE ORDER ABOUT THE IDENTITY OF THE PARTY WHO HAS PURCHASED THE SAME THROUGH ELECTRONIC STOCK EXCHANGE, THE NEXUS BETWEEN THE A SSESSEES AND THE SAID PARTY COULD NOT BE ESTABLISHED. THE MOST CRUCIAL ASPECT WHICH COULD BE CONSIDERED AS INC RIMINATING IN SUCH TRANSACTIONS MAY RELATE TO A CASE WHERE COMPENSATORY PAYMENTS ARE MADE BY THE SELLER TO THE BUYER. NO EVIDENCE HAS BEEN BROUGHT ON RECORD THAT THE ASSESSEE S OF THIS GROUP HAVE MADE ANY SUCH COMPENSATORY PAYMENT TO THE BUYER OF THE STOCK S. IN THE ABSENCE OF ANY SUCH OBSERVATION, AS SUBMITTED BY THE A SSESSEES , THE CIT(A) WAS CORRECT IN HOLDING THE VIEW THAT THE SALE TRANSACTIONS CANNOT BE DOUBTED ON SUSPICION. MOREOVER, THESE ARE THE CASES IN WHICH THE TRANSACTIONS HAVE TAKEN PLACE THROU GH THE FLOOR OF THE STOCK EXCHANGE AND SECURITIES TRANSACTIONS TAX HAVE BEEN PAID. IN VIEW OF THESE EVIDENCES WHICH HAVE NOT BEEN REBUTTED BY THE A . O . , IT IS DIFFICULT TO HOLD THAT THE SALE TRANSACTIONS ARE NON - GENUINE AND THE PROCEEDS THEREOF ARE LIABLE T O BE TAXED UNDER THE HEAD OTHER SOURCES. ON THE BASIS OF THE REPORT RECEIVED FROM SEBI , UPON ENQUIRIES GOT CONDUCTED THAT SOME OF THE BROKERS NAMED ABOVE HAVE BEEN SUSPENDED FOR SOME ACT OF OMISSION AND COMMISSION, THE AO HELD THAT THE TRANSACTIONS ENTE RED THROUGH THESE BROKERS ARE NOT GENUINE. BUT MERELY BASED ON SUCH A REPORT, SUCH TRANSACTIONS CANNOT BE TREATED AS SHAM MERELY FOR SOME DISCREPANCIES OR AD VERSE REPORT BY THE SEBI. IT IS FOUND THAT THE AO HAS NOT BROUGHT OUT ANY MATERIAL TO ESTABLISH THE FINAL OUTCOME OF THE ENQUIRY INITIATED BY SEBI AND SPECIFIC SHARES PURCHASED BY THE ASSESSEE IN COURSE OF 26 MAKING INVESTMENT. THEREFORE, IT IS NOT POSSIBLE TO TAKE ANY AD VERSE VIEW ON THE BASIS OF MERE SUSPICION THAT SEBI HAD INITIATED SOME ACTION AND FOUN D THE BROKERS VIOLATING THE RULES OF SEBI. T HE CIT(A) IS FURTHER CORRECT IN H O LD ING THAT NOTWITHSTANDING THE OBSERVATIONS OF THE AO THAT THE PURCHASES AND SALES OF SHARES WERE MADE WITH REFERENCE TO PENNY STOCKS WHICH WERE PURCHASED AT A NOMINAL PRICE AND SOLD AT A VERY HIGH PRICE , SINCE A LL THE SALE TRANSACTIONS WERE MADE THROUGH STOCK EXCHANGES THERE IS HARDLY ANY SCOPES FOR PRICE MANIPULATION. IT IS ALL THE MORE SO, SINCE THE ASSESSEE HAS PAID STT. EVEN WITH REGARD TO THE OBSERVATION OF THE ASSESSING O FFICER THAT THE ASSESSEE BEFORE PURCHASING THE SHARES THE A SSESSEES DID NOT TAKE INTO ACCOUNT THE FINANCIAL STANDING OF THE COMPANIES , THE CIT(A) WAS CORRECT IS OBSERVING THAT T HE SHARE MARKET IS GENERALLY SENTIMENT DRIVEN AND THE ASSESSEES CANNOT REMAIN S TATIC. EVEN THE ABSENCE OF EXPERIENCE OF THE ASSESSEES IN TRANSACTION OF THE SHARES EXCEPT DEALING IN THESE PENNY STOCKS, DOES NOT CLINCH THE ISSUE AGAINST THE ASSESSEE. THIS MAY AT THE MOST LEAD TO A SUSPICION BUT THE SAME CANNOT BE TREATED AS CONCLUSIV E TO DRAW ANY AD VERSE INFERENCE AGAINST THE ASSESSEES TO THE EFFECT THAT THE TRANSACTIONS ARE NO T GENUINE. SIMILARLY, EVEN THE OPENING OF D - MAT ACCOUNTS AT CALCUTTA, A REMOTE PLACE MAY GIVE RISE TO A SUSPICION, BUT THE SAME CANNOT LEAD TO ANY ADVERSE INFE RENCE AGAINST THE ASSESSEE. IN COURSE OF HEARING, THE A SSESSEES HAD PRODUCED ITS BOOKS, THERE IS NO FINDING IN THE ASS ESSMEN T ORDER THAT PAYMENTS WERE NOT MADE TO THE BROKERS SIMILARLY THERE IS NO OBSERVATION IN THE ORDER THAT THE SALES WERE ARRANGED BETW EEN THE A SSESSEES AND THE BUYER. IN THE ABSENCE OF ANY COGENT FINDING BY THE AO THE OBSERVATION MERELY RAISES SOME SUSPICION BUT THIS SUSPICION CANNOT TAKE THE PLACE OF PROOF. EVEN WITH REGARD TO THE ENQUIRY GOT CONDUCTED BY THE ASSESSING OFFICER THROUG H THE D C LT CALCUTTA , WHICH REVEALED THAT MOST OF THE BROKERS AND THE COMPANIES WERE NOT TRACEABLE , THE CIT(A) IS CORRECT IN CONCLUDING THAT MERE F AILURE TO TRACE THE BROKERS AND 27 COMPANIES CANNOT BE HELD AS FATAL TO THE TRANSACTION OF BOTH PURCHASE AND SAL E , WHEN THE DETAILS OF WHICH HAVE BEEN DULY EXPLAINED BY THE ASSESSEES . THE ASSESSEE, IN OUR CONSIDERED OPINION, HAS DULY DISCHARGED THE ONUS THAT LIES ON IT, IN ESTABLISHING THE GENUINENESS OF THE TRANSACTIONS, AND THAT BEING SO, IT IS FOR THE REVENUE T O DISPROVE THE CLAIM OF THE ASSESSEE, BY BRINGING ON RECORD THE EVIDENCE TO THE CONTRARY, AS HELD BY THE HONBLE M AD RAS HIGH COURT IN THE CASE OF CIT VS GOBI TEXTILES LTD (294 ITR 663) . 2 4 . WE FIND THAT THE CASE - LAW RELIED UPON BY THE LEARNED COUNSEL FO R THE ASSESSEE GENERALLY SUPPORTS THE CASE OF THE ASSESSEE, AND IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY VARIOUS HIGH COURTS AND TRIBUNALS IN THE CASES RELIED UPON BY THE ASSESSEE, AS NOTED ABOVE. IT IS WORTHWHILE, TO REFER, AT THIS JUNCTURE, TO THE DECISION OF HONBLE HIGH COURT OF JHARKHAND IN THE CASE OF ARUN KUMAR AGARWAL (HUF) & OTHERS (SUPRA), WHEREIN IT HAS BEEN HELD AS UNDER : 10. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE PARTIES AND WE ARE OF THE CO NSIDERED OPINION THAT THE LEARNED ASSESSING OFFICER WAS MUCH INFLUENCED BY THE ENQU I RY REPORT WHICH MAY HAS BEEN BROUGHT ON RECORD BY THE EFFORTS OF THE ASSESSING OFFICER AND THAT ENQUIRY REPORT WAS PREPARED BY THE SEBI AND FROM THE OBSERVATIONS MADE BY TH E TAX APPEAL NO.4 OF 2011 WITH ANALOGOUS CASE ASSESSING OFFICER HIMSELF, IT IS CLEAR THAT AFTER GETTING THAT ENQUIRY REPORT, THE SEBI PRIMA FACIE FOUND INVOLVEMENT OF SOME OF THE SHARE BROKERS IN UNFAIR TR ADE PRACTICES. EVEN IN A CASE WHERE THE SHARE BROKE R WAS FOUND INVOLVED IN UNFAIR TR AD E PRACTICE AND WAS INVOLVED IN LOWERING AND RISING OF THE SHARE PRICE, AND ANY PERSON, WHO HIMSELF IS NOT INVOLVED IN THAT TYPE OF TRANSACTION, IF PURCHASED THE SHARE FROM THAT BROKER INNOCENTLY AND BONAFIDELY AND IF HE S HOW HIS BONAFIDE IN TRANSACTION BY SHOWING RELEVANT MATERIAL, FACTS AND CIRCUMSTANCES AND DOCUMENTS, THEN MERELY ON THE BASIS OF THE REASON THAT SHARE BROKER WAS INVOLVED IN DEALING IN THE SHARE OF A 28 PARTICULAR COMPANY IN COLLUSION WITH OTHERS OR IN THE MA NNER OF UNFAIR TR AD E PRACTICES AGAINST THE NORMS OF S.E.B.I AND STOCK EXCHANGE, THEN MERELY BECAUSE OF THAT FACT A PERSON WHO BONAFIDELY ENTERED INTO SHARE TRANSACTION OF THAT COMPANY THROUGH SUCH BROKER THEN ONLY BY MERE ASSUMPTION SUCH TRANSACTIONS CANNO T BE HELD TO BE A SHAME TRANSACTION. FACT OF TINTED BROKER MAY BE RELEVANT FOR SUSPICION BUT IT ALONE NECESSARILY DOES LE AD TO CONCLUSION OF ALL TRANSACTION OF THAT BROKER AS TINTED. IN SUCH CIRCUMSTANCES, FURTHER ENQUIRY IS NEEDED AND THAT IS FOR INDIVIDU AL CASE. SUCH FURTHER ENQUIRY WAS NOT CONDUCTED IN THAT CASE. 11. AT THIS JUNCTURE, IT WOULD BE RELEVANT TO MENTION HERE THAT IT IS NOT DISPUTED BY THE REVENUE BEFORE US THAT THE SHARES OF THESE ASSESSEES WERE ALRE AD Y SHOWN IN THE EARLIER BALANCE SHEET SU BMITTED BY THE ASSESSEES, AND THEREFORE, IN THAT SITUATION, HOW THE REVENUE CONDEMNED THE TRANSACTION EVEN ON THE GROUND OF STEEP RISE IN THE SHARES. IF WITHIN A PERIOD OF ONE YEAR, THE SHARE PRICE HAS RISEN FROM RS.5 TO 55 AND FROM 9 TO 160 AND ONE PERSON WAS HOLDING THE SHARES MUCH PRIOR TO THAT START OF RISE OF THE SHARE, THEN HOW IT CAN BE INFERRED THAT SUCH PERSON ENTERED INTO SHAM TRANSACTION FEW YEARS AGO AND PREPARED FOR GETTING THE BENEFIT TAX APPEAL NO.4 OF 2011 WITH ANALOGOUS CASE AFTER FEW YEARS WHEN THE SHARE WILL START RISING STEEPLY. IN PRESENT CASE EVEN THERE WAS NO REASON FOR SUCH SUSPICION WHEN THE SHARES WERE PURCHASED YEARS BEFORE THE UNUSUAL FLUCTUATION IN THE SHARE PRICE. HERE IN THIS CASE, WE HAVE GIVEN EXAMPLE OF ONE OF THE TAX APPEAL WHEREIN THE SHARES WERE PURCHASED IN THE YEAR 2004 AND WERE SOLD IN THE YEAR 2006, WHICH IS SAID TO BE ONE OF THE CASE WHEREIN THE GAP IN THE PURCHASE AND SALE OF THE SHARES WAS NARROWEST. IN OTHER CASES AS WE HAVE NOTICED FROM THE VARIOUS ORDERS OF THE C .I.T(APPEALS) THAT, THE SHARES OF SOME OF THE COMPANIES WERE PURCHASED BY THE ASSESSEES EVEN FIVE YEARS AGO FROM THE TIME OF SALE AND THOSE PURCHASERS WERE ALRE AD Y DISCLOSED IN THE BALANCE SHEET OF THE ASSESSEE, THEN FROM ANY ANGLE, IT IS PROVED THAT THE A SSESSEES HAD HELD THE SHARES MUCH PRIOR TO 12 MONTHS OF THE SALE OF THE SHARES. 12. HENCE, THESE APPEALS ARE DISMISSED. 29 2 5 . FURTHER, COORDINATE BENCH OF THE DELHI TRIBUNAL IN THE CASE OF SMT. NEELAM CHAWLA (2008) 6 DTR (DEL) (TRIB) 141, HA S BEEN HELD AS FOLLOWS : . . . . . AFTER T HE ASSESSEE FURNISHED PROOF FOR PURCHASE, SALE, REGISTRATION OF SHARES IN HER NAME DULY SUPPORTED BY MARKET QUOTATIONS ETC. AND AO IGNORED THE SAME ON THE BASIS OF THE STATEMENT OF THE SHARE BROKER THROUGH WHOM THE ASSESSEE HAS SOLD THE SHARES, THE PURCHASE OF SHARES MADE IN EARLIER YEARS CANNOT BE DOUBTED. WE FIND THAT THE CIT(A) HAS CONSIDERED THE FACTUAL MATRIX OF THE CASE I N DETAIL AND THE PROPOSITIONS OF THE ASSESSEE ARE SUPPORTED BY THE LEGAL PRECEDENTS CIT ED SUPRA. IN VIEW OF THE SAME, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) AND THE REVENUES APPEAL IS DISMISSED . 2 6 . SIMILARLY, T HE COORDINATE BENCH OF THE AHMEDABAD T RIBUNAL IN THE CASE OF MEENA DEVI N. GUPTA (SUPRA) HELD AS U NDER : 5. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW IN THE LIGHT OF THE COMPILATION FILED AND CASE LAWS CITED. ACCORDING TO US, THERE ARE CERTAIN COGENT EVIDENCES WHICH OTHERWISE CORROBO RATE THE CLAIM OF THE ASSESSEE. ACCORDING TO US, EVEN IN THE ABSENCE OF THE CONFIRMATION BY THOSE SHARE BROKERS ONE HAS TO EXAMINE THAT WHETHER THE SHARES HAVE BEEN PURCHASED AND AFTER RETAINING THEM FOR A CERTAIN PERIOD THOSE SHARES HAVE ACTUALLY BEEN SOL D BY THE ASSESSEE. IN THE PRESENT CASE, FACTS HAVE REVEALED THAT THE SHARES OF SARANG CHEMICALS WERE DULY DEMATED AND THEREUPON THE SALES WERE MADE THROUGH BANKING TRANSACTIONS. THE DEMAT ACCOUNT MAINTAINED WITH ICICI BANK HAS REVEALED THE SHARES NUMBERS, ETC. FROM THE SIDE OF THE ASSESSEE, IT IS VEHEMENTLY CONTESTED THAT THERE WAS A REASON OF DENIAL OF TRANSACTION BY THOSE SHARE - BROKERS BECAUSE THEY HAVE NOT INTIMATED THE TRANSACTION TO THE SEBI AND THAT ONE OF THEM HAS ALSO MADE THE PURCHASE TRANSACTION I N CASH WHICH WAS AGAINST THE SEBI GUIDELINES. APARTMENT FROM THESE EVIDENCES, OUR ATTENTION HAS ALSO BEEN DRAWN ON A CERTIFICATE ISSUED BY 'SHARE TRANSFER AGENT' THAT THE TRANSFER OF THOSE SHARES IN THE NAME OF THE ASSESSEE WAS DULY APPROVED. THE ASSESSEE HAS EXPRESSED TO HOLD THOSE SHARES IN 'DEMATERIALIZED FORM' THEREFORE THE ASSESSEE WAS ASKED TO FILL UP THE 'DEMATERIALIZATION REQUEST FORM'. THIS INFORMATION IS VERY VITAL AND PROVES THE FACT THAT THE ASSESSEE HAD IN FACT PURCHASED THE SHARES OF SARANG CH EMICALS LTD. IT IS ALSO DIFFICULT TO IGNORE AN ANOTHER FACTUAL POSITION THAT THE ASSESSEE IS IN THE PAST ASSESSMENT YEAR HAD DULY DISCLOSED IN THE BALANCE - SHEET THE PURCHASE OF THOSE SHARES. ALTHOUGH, IT WAS AN OFF MARKET TRANSACTION BUT IT WAS PROPERLY 30 DO CUMENTED AND DULY SUPPORTED BY RELEVANT EVIDENCES. WE HAVE EXAMINED FEW CASE - LAWS, WHEREIN THE RESPECTED CO - ORDINATE BENCHES HAVE ALSO TAKEN A VIEW THAT ONCE THE PURCHASE OF SHARES HAVE DULY BEEN RECORDED IN THE BALANCE - SHEET IN ONE FINANCIAL YEAR AND LATE R ON, THOSE VERY SHARES HAVE BEEN SOLD IN ANOTHER FINANCIAL YEAR, THEN THE PURCHASE OF SHARES SHOULD NOT HAVE BEEN DOUBTED, IF DULY RECOGNIZED BY THE SAID COMPANY AND LATER ON TRANSACTED THROUGH BANKING CHANNEL. TO KEEP BREVITY IN MIND, WE ARE NOT DISCUSSI NG ALL THOSE CASE - LAWS OR CITED DECISION OF THE TRIBUNAL, WHEREIN ALMOST ON IDENTICAL FACTS WHEN THE PURCHASES WERE DOUBTED BY THE REVENUE DEPARTMENT, BUT CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE A CONSCIOUS VIEW HAVE BEEN TAKEN THAT ONCE THE SHARES WERE IN RESPECT OF A LISTED COMPANY AND TRANSACTION WAS THROUGH DEMAT ACCOUNT WHICH WAS AS PER THE RECOGNIZED STOCK EXCHANGE QUOTED PRICE, THEN THERE WAS NO REASON TO HOLD SUCH NATURE OF TRANSACTION AS NON - GENUINE. RESPECTFULLY FOLLOWI NG THESE DECISIONS AND OTHER CASE LAWS, WE HEREBY REVERSE THE FACTUAL AS ALSO LEGAL FINDINGS OF THE AUTHORITIES BELOW AND DIRECT TO ASSESS THE IMPUGNED TRANSACTION UNDER THE HE AD LONG TERM CAPITAL GAIN . 2 7 . THE FACTS WHICH WERE PECULIAR TO THE CASE OF SUMATI D AYAL (SUPRA), RELIED UPON BY THE ASSESSING OFFICER AS WELL AS THE LEARNED DEPARTMENTAL REPRESENTATIVE, ARE ABSENT IN THE CASE S OF THE SE A SSESSEES . THE A SSESSEE S WERE REGULAR INVESTORS IN SHARES. IN THE FACTS OF THE PRESENT CASES, T HE TRANSACTIONS W ERE ENTERED IN THE BOOKS ; AND I NVESTMENT IN SHARES DOES NOT REQUIRE THE EXPERTISE AS IN CASE OF HORSE RACES AND THE SAME ARE DONE THROUGH BROKERS DULY EVIDENCED BY DOCUMENT . IN THE CIRCUMSTANCES T HEREFORE , T HE CASE OF SUMATI D AYAL , WHICH IS BASED ON THE T HEORY OF HUMAN PROBABILITY , HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE . THE RATIO LAID DOWN IN THE CASE OF D URGA PRAS AD MORE (SUPRA) , ALSO RELIED UPON BY THE LEARNED ASSESSING OFFICER AND THE LEARNED DEPARTMENTAL REPRESENTATIVE BEFORE US, HAS NO APPLICATION TO THE FACTS OF THE CASE , AS BROUGHT OUT BY THE LEARNED COUNSEL FOR THE A SSESSEES . 2 8 . IN THE LIGHT OF THE FOREGOING DISCUSSION, R ESPECTFULLY FOLLOWING THE DECISION OF THE JHARKHAND HIGH COURT IN THE CASE OF ARUN KUMAR AGARWAL(HUF) (SUPRA), BESIDES OTHER DECISIONS OF THE TRIBUNAL REFERRED TO ABOVE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDERS OF THE CIT(A). THE 31 SAME ARE ACCORDINGLY CONFIRMED AND THE GROUNDS OF THE REVENUE IN THESE APPEALS ARE REJECTED. 2 9 . IN THE RESULT, APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT, ON 06.11.2013 SD/ - SD/ - (CHANDRA POOJARI) (S MT. ASHA VIJAYARAGHAVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER HYDERAB AD , DATED 6 TH N OVEMBER, 2013. VBP/ - COPY TO 1. ITO, WARD 2, NIZAMABAD. 3. SHRI RAJEEV KUMAR MITTAL, RAGHUNATH MITTAL, SANTOSH KUMAR GOYAL, ROHIT KUMAR GOYAL, MUKESH KUMAR MALPANI, MURALI MANOHAR MALPANI, DILIP KUMAR PATEL, DE VAN KUMAR PATEL, SMT. REKHA PATEL SMT. SUJATA PATEL, DR. A. CHAKRADHARI, SMT. M. SUBHASHREE, SRI SANTOSH KUMAR GUPTA, C/O. A.V. RAGHURAM, ADVOCATE, HYDERABAD. 3. CIT(A) - VI, HYDERABAD. 4. CIT - V, HYDERABAD. 5. D.R. I.T.A.T. A BENCH, HY DERABAD