BHANUBEN DANJI SHAH, MUMBAI V. ACIT CIR 23(2), MUMBAI

ITA 1735/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3808 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-07-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 13-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRAKASH L PATHADE
• Keywords: Unexplained cash credit; Corroborative evidences
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , , BEFORE SHRI JOGINDER SINGH , JM AND SHRI SANJAY ARORA , AM ./ I. T.A. NO. 1735/MUM/2012 ( / ASSESSMENT YEAR: 2004 - 05 ) BHANUBEN DANJI SHAH E/31, KONARK INDRAPRASTH, 11 TH FLOOR, JAIN MANDIR ROAD, MULUND (W), MUMBAI 400 080 / VS. ASST. CIT - 23(2), MUMBAI ./ ./ PAN/GIR NO. AM RPS 1215 L ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : NONE / RESPONDENT BY : SHRI PRAKASH L. PATHADE / DATE OF HEARING : 16.02.2016 / DATE OF PRONO UNCEMENT : 24 .02.2016 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN A PPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 11 , MUMBAI (CIT(A) FOR SHORT) DATED 26.12.2011 , PARTLY ALLOWING THE A SSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2004 - 05 VIDE ORDER DATED 21.12.2006. 2. NONE APPEARED FOR AND ON BEHALF OF THE ASSESSEE - APPELLANT WHEN THE APPEAL WAS CALLED OUT FOR HEARING, NOR ANY ADJOURNMENT APPLICATION STANDS RECEIVED. THIS, DESPITE THE HEARING HAVING BEEN ADJOURNED FOR TODAY INSTANT AT THE REQUEST OF THE ASSESSEES COUNSEL, SHRI MUKUL J. VORA (VIDE HIS LETTER DATED 22.7.2015/COPY ON RECORD). IT WAS 2 ITA NO. 1735/MUM/2012 (A.Y. 2004 - 05) BHANUBEN DANJI SHAH VS. ASST. CIT NOTED THA T ON EARLIER OCCASIONS AS WELL, THE APPELLANT HAS SOUGHT FOR AND BEEN GRANTED ADJOURNMENT OF HEARING. THE APPEAL, FILED IN 2012, IS PENDING SINCE LONG. IT WAS UNDER THE CIRCUMSTANCES ONLY CONSIDERED IT PROPER THAT THE MATTER TO BE PROCEEDED WITH AND THE AP PEAL DECIDED AFTER HEARING THE PARTY BEFORE US AND CONSIDERING THE MATERIAL ON RECORD. 3. THE PRINCIPAL ISSUE , RAISED PER G ROUND # 1 OF THE INSTANT APPEAL , IS WHE THE R THE INCOME BY WAY OF SALE OF SHARES IN MANTRA ONLINE LTD. , STATED TO BE PURCHASE D AND S OLD AS UNDER, I S ASSESSABLE AS INCOME FROM OTHER SOURCES OR AS LONG - TERM CAPITAL GAIN (LTCG), I.E., AS RETURNED BY THE ASSESSEE: PARTICULARS DATE AMT (IN RS.) PURCHASE 28.1.2002 38,000/ - SALE - 8,64,500/ - WHILE THE REVENUE REGARDS THE SAID TRANSACTI ON S (OF PURCHASE AND SALE) TO BE SHAM OR A MAKE - BELIE VE , THE ASSESSEE CLAIMS IT TO BE A TRANSACTION OF ACTUAL PURCHASE AND SALE OF THE SAID SHARES. 4. WE MAY PROCEED BY REC OUNT ING THE BACKGROUND FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSING OFFICER (A.O.) , IN VERIFICATION OF THE ASSESSEES CLAIM WITH REGARD TO THE IMPUGNED LTCG, MADE ENQUIRIES FROM THE COMPANY AS WELL AS FROM THE RELEVANT STOCK EXCHANGE AND THE BROKERS U /S. 133 OF THE ACT. THE COMPANY REPLIED BY CONFIRMING THE QUANTITY OF THE SHARES , THOUGH THE FOLIO AND THE DISTINCTIVE NUMBERS OF THE SHARES WERE NOT IN AGREEMENT WITH THAT FURNISHED BY THE ASSESSEE. ENQUIRES WITH THE CALCUTTA STOCK EXCHANGE , AT WHICH THE SHARES WERE TRADED , REVEAL ED THAT THE BROKERS HAD DONE CROSS DEALS IN THE SAID SCRIP ON THE GIVEN DATE S WITH THE CODE AS SELF. THIS, THUS, CLEARLY INDICATE D THAT THE BROKERS HAD EXECUTED TRADE S IN THE SCRIP FOR THEMSELVES AND NOT FOR ANY CLIENT. AS REGARDS THE ENQUIRIES WITH THE BROKERS, ONLY ONE, RAJENDRA PRASAD , CONFIRMED THE ISS UANCE OF THE BILLS ON THE ASSESSEE (REFER PARA 4A AT PAGES 2 - 3 OF THE ASSESSMENT ORDER). MANTRA ONLINE LTD. I S A LITTLE KNOWN, OBSCURE 3 ITA NO. 1735/MUM/2012 (A.Y. 2004 - 05) BHANUBEN DANJI SHAH VS. ASST. CIT COMPANY, IN WHICH NO PRUDENT INVESTOR WOULD INVEST, AND OF THE BUSINESS OR THE FINANCIAL PERFORMANCE OF WHICH THE ASSESSE E WAS UNAWARE. THE SHARE PRICE, AS PER THE PURCHASE AND SALE BILLS , SHOWED A REMARKABLE GROWTH , ALBEIT FOR NO APPARENT REASON OR BASIS. THE TRANSACTIONS WERE THUS CONSIDERED DUBIOUS AND, IN ANY CASE , NOT PROVED, THE ONUS FOR WHICH WAS ON THE ASSESSEE. THE ENTIRE AMOUNT CREDITED, AS CRIBED TO THE SALE PROCEEDS OF THE SAID SHARES, WAS ACCORDINGLY DEEMED AS INCOME U/S. 68 OF THE ACT. THAT IS, THE SALE WAS NOT REGARDED AS A GENUINE TRANSACTION, WHICH WAS CONFIRMED BY THE FIRST APPELLATE AUTHORITY, SO THAT , AGGRI EVED, THE ASSESSEE IS IN SECOND APPEAL. 5. WE HAVE HEARD THE PART Y BEFORE US, AND PERUSED THE MATERIAL ON RECORD. 5.1 NONE OF THE FACTS STATED IN THE ORDERS OF THE REVENUE AUTHORITIES, WHICH ARE IN THE NATURE OF PRIM ARY FACTS, ARE DISPUTED. THERE IS, IN FACT, NO MATERIAL ON RECORD NOR ANY REFERENCE TO ANY SUBMISSION BY THE ASSESSEE BEFORE THEM CONTRADICTING OR CONTROVERTING THE SAME, WITH , ON THE CONTRARY, THE A.O. NOTING NO REPRESENTATION FROM THE ASSESSEE, MUCH LESS PRODUCTION OF SUPPORTING EVIDENCES , A S CALLED FOR, EVEN TILL THE DATE OF COMPLETION O F THE ASSESSMENT ON 21.12.2006 (REFER PARAS 5, 9.1 OF THE ASSESSMENT ORDER). THE ASSESSEES D E - MAT ACCOUNT REFLECTS SHARES IN MANTRA ONLINE LTD. (NUMBER NOT SPECIFIED) IN JUNE, 2002. ANOTHER 10,000 SHARES THE REIN STAND CREDITED TO THE ASSESSEES DE - MAT ACCOUN T FROM 16.4.2003 TO 30.4.2003. T HE SHARES, UPON DEMATERIALIZATION LOOSE THE IR DISTINCTIVE IDENTITY, SO THAT THESE HAVE TO BE RECKONED FOR THE PURPOSE OF TRANSFER, ON SOME REASONABLE BASIS, AS F IRST - IN - F IRST - OUT ( FIFO ). ACCORDINGLY, THE SHARES CREDIT ED FIRST MAY BE REGARDED AS SOLD FIRST. FURTHER, E VEN IF NO OTHER SATISFACTORY EVIDENCE TOWARD PURCHASE AND SALE OF SHARES IS PROVIDED, THE CREDIT AND DEBIT OF THE SHARES IN THE ASSESSEES DE - MAT ACCOUNT CAN REASONABLY BE REGARDED AS PURCHASE AND SALE OF SHARES IN THE RELEVANT SCRIP ON THE RELEVANT DATES, RESULTING IN LONG - TERM OR, AS THE CASE MAY BE , SHORT - TERM CAPITAL GAIN ( STCG ), ON TRANSFER, I.E., DEPENDING ON THE HOLDING PERIOD. WE SAY SO AS THE SHARES CR EDITED DURING THE YEAR (I.E., FROM 16.4.2003 TO 30.4.2003), WHERE SOLD DURING THE YE AR, WOULD ONLY RESULT IN A STCG ( LOSS ) . NO DEPOSITORY STATEMENT OF TRANSFER O N ACCOUNT OF SALE OF 4 ITA NO. 1735/MUM/2012 (A.Y. 2004 - 05) BHANUBEN DANJI SHAH VS. ASST. CIT SHARES HAS HOWEVER BEEN FILED (REFER PARA 2.5 OF THE IMPUGNED ORDER). THE SAME IS A CRUCIAL PIECE OF EVIDENCE, ASSUMING A MANDATORY NATURE , AS THE REFLECTION OF THE TRANSFER OF THE SHARES IN TH E DE - MAT ACCOUNT OF THE TRANSFEROR IS A CONCOMITANT OF TRANSFER. HOW COULD, IN ITS ABSENCE, ONE MAY ASK, THE ASSESSEE BE REGARDED AS HAVI NG SOLD HER SHARES, ONLY ON THE TRANSFER OF WHICH COULD CAPITAL GAIN ARISE ? 5.2 THE SHARES ARE LISTED AT THE CALCUTTA STOCK EXCHANGE AT THE RELEVANT TIME. EVEN IF, THEREFORE, NO CREDIBLE EVIDENCE TOWARD THE PURCHASE AND SALE VALUE OF SHARES, I.E., ON THE RELEVANT DATES, IS FORTHCOMING, THE MARKET QUOTE TAKING THE M E AN OF THE HIGH AND LOW FOR THAT DATE /S , COULD BE ADOPTED AS A SURROGATE MEASURE OF THE PRICE/S AT WHICH THE SHARES CAN BE SAID TO HAVE BEEN ACQUIRED AND TRANSFERRED. THIS IS AS WHAT THE CAPIT AL GAIN ESSENTIALLY SEEKS TO CAPTURE IS THE DIFFERENCE IN THE VALUE EXP ERIENCED BY THE S CRIP OVER THE HOLDING PERIOD, AS REALIZ ED. THE PRIMARY EVIDENCE TOWARD SALE OF SHARES , IN THE FORM OF A DEBIT TO THE ASSESSEE S DE - MA T ACCOUNT , SIGNIFYING THE TRANSFER, I S MISSING. COUPLE THIS WITH THE FACT THAT THE INFORMATION RECEIVED FROM THE COMPANY CONFIRMS THE TRANSFER OF SHARES OF A DIFFERENT FOLIO AND DISTINCTIVE NUMBER S, AND THE PICTURE IS COMPLETE. T HAT THE SHARES SOLD BY THE ASSESSEE ARE NOT THAT B OUGHT BY HIM IN THE FIRST PLACE. THIS , THEN , BECOMES A CORROBORATIVE FACT , WHICH ALSO AGREES WITH THE INFORMATION RECEIVED FROM THE STOCK EXCHANGE , WHEREBY THE SHARES TRANSACTED BY THE BROKERS ARE NOT UNDER THE CLIENT CODE S BUT AS CROSS DEALS UNDER THE IR OWN CODES . WHEN THE SHARES TRANSACTED ARE NOT THAT BELONGING TO THE ASSESSEE, HOW COULD SHE BE THE TRANSFEROR THEREOF ? TRUE, THE INDIVIDUAL SHARES LOOSE TH EIR IDENTITY ON DEMATERIALIZATION. HOWEVER, IT IS ONLY THE SHARES (DEFINED BY DISTINCTIVE NUMBER S ) ACQUIRED BY THE ASSESSEE THAT ARE SUBSEQUENTLY DEMATERIALIZED. IN THE RECORDS OF THE COMPANY , IT IS THESE SHARES THAT W OULD STAND REGISTERED IN THE ASSESSEES NAME. 5.3 IN FACT, EVEN WITH REGARD TO THE VALUE, THE EVIDENCE IN THE FORM OF STATEMENT BY THE D EPOSITOR Y REFLECTS THE I R MARKET VALUE AT RS.2 PER SHARE AS ON 31.3.2003 (PARA 2.5 OF THE IMPUGNED ORDER) . THE JUMP IN THE PRICE TO RS.90/ - , AT WHICH THE SHARES ARE 5 ITA NO. 1735/MUM/2012 (A.Y. 2004 - 05) BHANUBEN DANJI SHAH VS. ASST. CIT STATED AS SOLD, WOULD THEREFORE REQUIRE BEING SUITABLY DEMONSTRATED , AS BY WAY OF , AS A LSO INDICATED EARLIER, THE MARKET QUOTE /S OF THE SCRIP ON THE RELEVANT DATE/S . N O FACT OR INFORMATION, MUCH LESS EVIDENCE, IS BROUGHT ON RECORD WHICH COULD JUSTIFY THE QUANTUM JUMP IN PRICE, I.E., AS IT TRANSPIRE S , WITHIN MONTHS , FOR THE PRICE TO SPIRAL, VIZ. INDUSTRY N EWS , OPERATING/FINANCIAL PERFORMANCE - OR EVEN PROSPECTS THEREOF, ETC. I N ITS ABSENCE , THE PRICE RISE , WHICH ALON E YIELDS THE IMPUGNED GAIN , REMAINS TOTALLY UNEXPLAINED AND UNSUBSTANTIATED. 5.4 THEN, THE SHARES ARE STATED AS SOLD OF F MARKET. EVEN SO, T HE SAME WOULD ONLY BE A T THE EXTANT RATE. THE SAID MANNER ONLY SIGNIF IES T HE SHARES BEING SOLD OUTSIDE THE REGULAR MARKET OR MARKET MECHANISM. KERB TRADING, AS IT IS REFER RED TO IN THE STOCK MARKET CIRCLES , IS THE TRADITIONAL FEATURE THEREOF (THOUGH HAS BE COME ALMOST EXTINCT IN VIEW OF THE MARKET BEING HIGHLY REGULATED AND VERY VAST) , WHERE BROKERS CONTINUE TRADING ACTIVITY OUTSIDE THE MARK ET HOURS, AT PRICES WHICH INCORPORAT E INFORMATION THAT MAY CONTINUES TO POUR SUBSEQUENT TO THE CLOSE OF THE MARKET. THE QUESTION, HOWEVER, IS WHY SHOULD THE BROKERS NOT TRANSACT THE SHARES GIVING THE CLIENT CODE S , BUT USING THEIR OWN ? FURTHER, T HAT SUCH (OFF MARKET) TRANSACTION S DO NOT HAVE THE PROTECTION OF THE MARKET, INCLUDING AS TO THE PRICE CHARGED, WHICH IS WELL REGU LATED BY L A W, SERVING AS A STRONG DISINCENTIVE FOR E NTER ING INTO SUCH TRADE S , IS ANOTHER MATTER. AGAIN, TH E LAW (S ECURITIES C ONTRACT REGULATION ACT) PROVIDES FOR SUCH OFF - MARKET TRANSACTION S , STIPULATING THEM TO BE A S SPOT TRANSACTIONS, I.E., ACCOMPANIED B Y PAYMENT AND DELIVERY OF SHARES, WHICH IN THE CASE OF DE - MAT SHARES, AS IN THE INSTANT CASE, IS SIGNIFIED ONLY BY A DEBIT OR CREDIT TO THE DE - MAT ACCOUNT WHICH IS MISSING , MUCH LESS ON AN IMMEDIATE BASIS . RATHER, SUCH TRANSACTIONS WOULD ONLY BE WITH KNO WN PERSONS, THE DETAILS OF WHOM CAN IN ANY CASE BE GATHERED IN - AS - MUCH AS THE SHARES ARE DELIVERED TO AND THE PAYMENT RECEIVED FROM A PERSON/S, SO THAT THE DETAILS OF THE BUYERS WOULD BE READILY AVAILABLE AND , RATHER , SH OULD HAVE BEEN ADDUCED. 6 ITA NO. 1735/MUM/2012 (A.Y. 2004 - 05) BHANUBEN DANJI SHAH VS. ASST. CIT 5.5 THE A .O. HAS RELIED EXTENSIVELY ON CASE LAW TO BRING HOME THE POINT THAT TAX PROCEEDINGS ARE NOT JU D ICIAL PROCEEDINGS IN THE SENSE THE PHRASE IS ORDINARILY USED , SO THAT THE ASSESSING AUTHORITY IS NOT F ETTERED OR BOUND BY THE TECHNICAL RULES OF EVIDENCE CONTA INED IN THE EVIDENCE ACT ( CIT VS. EAST COAST COMMERCIAL CO. LTD. [1967] 63 ITR 449 (SC) ; C. VASANTLAL & CO. V S . CIT [1962] 45 ITR 206 (SC) ; AND DHAKESWARI COTTON MILLS LTD. V S . CIT (1954) 26 ITR 775 (SC) ). THE REVENUE IS NOT REQUIRED TO PROVE ITS CASE WITH MATHEMATICAL PR ECISION IN - AS - MUCH AS ABSOLUTE CERTAINTY IN THE MATTER OF HUMAN AFFAIRS CANNOT BE P REDICATED, AND THE LAW ACCE PT S PROBABILITY AS A WORKING SUBSTITUTE FOR THE PURPOSE OF ASSESSMENT UNDER THE ACT. THE SAME REPRESENTS TRITE LAW. THE LAW DOES N OT REQUIRE ONE TO PROVE AN IMPOSSIBLE, SO THAT ALL IT REQUIRES IS THE ESTABLISHMENT TO SUCH A DEGREE O F PROBABILITY THAT ANY PRUDENT MAN MAY ON ITS BASIS BELIEVE THE EXISTENCE OF THE FACT IN ISSUE. ADJUDICATIONS UNDER THE A CT COULD BE BASED ON SUCH BASIS , AND TOWARD WHI CH WE MAY REFER TO THE DECISION IN THE CASE OF SUMATI DAYAL VS CIT [1995] 214 ITR 801 (SC) , WHERE THE HONBLE COURT UPH E LD THE REJECTION OF A PLETHORA OF DOCUMENTARY EVIDENCE S ON THE BASIS OF IT BEING AGAINST THE PREPONDERANCE OF HUMAN PROBABI LIT IES . BE THAT AS IT MAY, IN OUR CONSIDERED VIEW THE ASSESSEE HAS BEEN WHOLLY UNABLE TO SUBSTANTIATE HER CASE WITH ANY CREDIBLE EVIDENCE/MATERIAL ON RECORD , W ITH , RATHER , THE REVENUE BRING ING OUT SEVERAL DEFICIENCIES , RAISING SUBSTANTIAL DOUBTS ON THE GE NUINENESS OF THE TRANSACTION . IN FACT, EACH OF THE SEVERAL ASPECTS OF THE TRANSACTION/S, DISCUSSED HERE - IN - ABOVE , VIZ. DATE/S OF THE PURCHASE AND SALE OF THE IMPUGNED SHARES; THE OWNERSHIP OF THE SHARES SOLD; THE HOLDING PERIOD OF THE SHARES SOLD; THE P RICE RISE; THE AUTHENTICITY OF THE TRANSACTION/S; THE IDENTITY OF THE BUYERS, ETC., EACH OF WHICH IS BY ITSELF SUFFICIENT TO IMPUGN THE GENUINENESS OF THE TRANSACTION/S, REMAIN UNPROVED AND, THUS, NOT EXPLAINED, MUCH LESS SATISFACTORILY. THAT BEING THE CAS E, THE REVENUE IS WHOLLY JUSTIFIED IN BRINGING THE ENTIRE CREDIT (RS.8,64,500/ - ), ASCRIBED TO THE SALE OF SHARES , TO TAX U/S. 68 OF THE ACT. WE DECIDE ACCORDINGLY. 7 ITA NO. 1735/MUM/2012 (A.Y. 2004 - 05) BHANUBEN DANJI SHAH VS. ASST. CIT 6. THE ASSESSEES SECOND GROUND , CHALLENGING SEPARATELY THE ADDITION FOR RS.38,000/ - , I.E. , THE ALLEGED COST OF INVESTMENT IN SHARES, AS UNEXPLAINED CREDIT U/S. 68, IS WITHOUT SUBSTANCE. FOR ALL WE KNOW, THE ASSESSEE MAY WELL CONTINUE TO BE THE OWNER OF THE SHARES , BEING NOT SHOWN TO BE SOLD. ALL THAT THE REVENUE HAS DONE IS TO DEEM THE CREDI T OF RS.8.65 LACS AS INCOME ON ACCOUNT OF IT BEING NOT PROVED, U/S. 68 OF THE ACT. NO FURTHER AMOUNT HAS BEEN ASSESSED AS INCOME. THE COST INCURRED ON THE PURCHASE OF SHARES, STATED TO BE IN AN EARLIER YEAR, CANNOT EVEN OTHERWISE BE BROUGHT TO TAX FOR TH E CURRENT YEAR. THE GROUND IS MISCONCEIVED AND , ACCORDINGLY , DISMISSED . WE DECIDE ACCORDINGLY. 7. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUAR Y 24 , 201 6 SD/ - SD/ - ( JOGINDER SINGH ) (S ANJAY ARORA) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 24 . 02 .201 6 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI