Shri.Vijay Nahar(HUF), Bangalore V. Income Tax Officer, Bangalore

ITA 2169/BANG/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5495 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 09-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A R V SREENIVA SAN J
• Keywords: Search and seizure; Accommodation entries
• Section: 68; 148; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC C BENCH : BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 2169/BANG/2016 ASSESSMENT YEAR : 2007-08 SHRI VIJAY NAHAR(HUF), # 121, BULL TEMPLE ROAD, OPP: MARATHA HOSTEL, BANGALORE 560 019. PAN: AAJPN 3398K VS. THE INCOME TAX OFFICER, EARLIER: WARD-3(3), NOW: WARD -5(2)(4), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SMT. SUMAN LUNKAR, CA RESPONDENT BY : SHRI AR.V. SREENIVASAN, JCIT(DR) DATE OF HEARING : 23.02.2017 DATE OF PRONOUNCEMENT : 21.04.2017 O R D E R PER VIJAY PAL RAO, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST OR DER DATED 06.10.2016 OF CIT(A). THE ASSESSEE HAS RAISED THE FOLLOWING GROU NDS FOR THE ASSESSMENT YEAR 2007-08. ITA NO. 2169/BANG/2016 PAGE 2 OF 8 ITA NO. 2169/BANG/2016 PAGE 3 OF 8 2. GROUND NOS. 1 AND 2 ARE REGARDING VALIDITY OF REOPE NING. AT THE TIME OF HEARING THE LD. AR OF THE ASSESSEE HAS STATED AT BA R THAT THE ASSESSEE DOES NOT PRESS GROUND NOS. 1 AND 2 AND THE SAME MAY BE D ISMISSED AS NOT PRESSED. THE LD. DR HAS RAISED NO OBJECTION IF GRO UND NOS. 1 AND 2 ARE ITA NO. 2169/BANG/2016 PAGE 4 OF 8 DISMISSED AS NOT PRESSED. ACCORDINGLY, THE GROUND NOS. 1 AND 2 OF THE ASSESSEES APPEAL IS DISMISSED BEING NOT PRESSED. 3. GROUND NOS. 3 TO 8 ARE REGARDING DISALLOWANCE OF CL AIM OF LONG TERM CAPITAL GAIN ON SALE OF SHARES AND TREATING THE SAM E AS INCOME FROM OTHER SOURCES. 4. I HAVE HEARD THE LD. AR AS WELL AS LD. DR AS WELL A S RELEVANT MATERIAL ON RECORD. AN IDENTICAL ISSUE ARISING FROM IDENTICAL FACTS WAS INVOLVED IN THE CONNECTED GROUP CASES IN ITA NOS. 2193 TO 2195/BANG /2016 WHEREIN THE TRIBUNAL VIDE ORDER DATED 18.04.2017 HAS DECIDED TH IS ISSUE AS UNDER. 4. GROUND NOS. 3 TO 8 ARE REGARDING REJECTION OF CLAIM OF LONG TERM CAPITAL GAIN FROM SALE OF SHARES AND TREATING THE SAME AS INCOME FROM OTHER SOURCES. THE ASSESSEE IS AN INDI VIDUAL AND FILED THE RETURN OF INCOME DECLARING INTER ALIA THE LONG TERM CAPITAL GAIN OF RS. 7,40,586/- ON SALE OF SHARES OF M/S. TALENT INFOWAY LIMITED AND CLAIMED EXEMPT U/S. 10(38) OF T HE ACT. THERE WAS A SEARCH AND SEIZURE ACTION U/S. 132 OF T HE IT ACT IN CASE OF M/S. MAHASAGAR SECURITIES AND MUKESH CHOKSI GROUP ON 25.11.2009, WHEREIN SHRI MUKESH CHOKSI THE KEY PERS ON OF THE SAID GROUP ADMITTED IN THE STATEMENT RECORDED BY TH E INVESTIGATION WING THAT HIS GROUP COMPANIES INCLUDI NG M/S. MAHASAGAR SECURITIES, M/S. ALLIANCE INTERMEDIATIRES & NETWORKS PVT LTD. ETC WERE ENGAGED IN PROVIDING ACCOMMODATIO N ENTRIES IN ORDER TO ENABLE THE CLIENTS TO DECLARE SPECULATIVE PROFIT / LOSS, SHORT TERM CAPITAL GAIN, LONG TERM CAPITAL GAIN ON ACCOUNT OF COMMODITY TRADING, SHARE APPLICATION MONEY ETC. AC CORDINGLY, THE INVESTIGATION WING OF THE IT DEPARTMENT GAVE IN FORMATION TO THE AO THAT DURING THE FINANCIAL YEAR 2006-07, THE ASSESSEE PURCHASES M/S. TALENT INFOWAY LIMITED SHARES THROUG H THE BROKER M/S. GOLDSTAR FINVEST PVT. LTD. THE ASSESSMENT WAS REOPENED BY THE AO BY ISSUING NOTICE U/S. 148 OF IT ACT. THE A O COMPLETED THE REASSESSMENT BY MAKING AN ADDITION U/S. 68 TOWARDS THE SALE ITA NO. 2169/BANG/2016 PAGE 5 OF 8 CONSIDERATION RECEIVED ON ACCOUNT OF SALE OF M/S. T ALENT INFOWAY LIMITED. THUS THE AO MADE AN ADDITION ON ACCOUNT O F SHARE TRANSACTIONS TREATING THEM AS INCOME FROM OTHER SOU RCES ON THE GROUND THAT SHRI MUKESH CHOKSI HAS STATED IN THE ST ATEMENT THAT THE ENTRIES ARE ACCOMMODATIVE IN NATURE AND THE BRO KER WHO ISSUED THE CONTRACT NOTES WAS NOT ENTITLED TO OPERA TE IN ANY OF THE STOCK EXCHANGE. FURTHER THE ASSESSEE CLAIMED T O HAVE PURCHASED THE SHARES OF M/S. TALENT INFOWAY LIMITED BY WAY OF CASH AND DEMATERIALIZATION OF THE SHARES SUBSEQUENT LY WAS HELD BY THE AO HAS AFTER THOUGHT TO GET BENEFIT OUT OF S UCH ACCOMMODATIVE ENTRIES BY COLORABLE DEVICE. THE ASS ESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE CIT(A) B UT COULD NOT SUCCEED. 5. BEFORE THE TRIBUNAL, THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE PURCHASES THE SHARES OF M/S. TALENT INFOWAY LIMITED ON 15.04.2004 FOR A CONSIDERATION O F RS. 11,914/- WHICH WERE DEMATERIALIZED IN THE MONTH OF DECEMBER 2005 AND THEREAFTER THE SHARES WERE SOLD ON 27.02.2 007. THUS THE LD. AR HAS SUBMITTED THAT THE SALE OF SHARES WE RE NOT IN DISPUTE AS THE ASSESSEE SOLD THE SHARES FROM ITS DE MAT ACCOUNT AND THE ENTIRE TRANSACTION OF SALE WAS THROUGH BANK ING CHANNEL. THUS, THE PROFIT ON SALE OF SHARES OF M/S. TALENT I NFOWAY LIMITED IS LONG TERM CAPITAL GAIN WHICH IS EXEMPT U/S. 10(3 8) OF THE IT ACT. HE HAS FURTHER CONTENTED THAT THE ASSESSEE IN SUPPORT OF ITS CLAIM FURNISHED THE CONTRACT NOTES OF THE BROKER TH EREBY THE SHARES WERE PURCHASED BY THE ASSESSEE. FURTHER THE ASSESSEE HAS DULY SHOWN THE SHARES IN THE BALANCE SHEET AS O N 31.03.2005. THEREFORE, THE ASSESSEE HAS PRODUCED A LL RELEVANT EVIDENCE TO ESTABLISH THE GENUINENESS OF THE TRANSA CTION OF PURCHASE AND SALE OF 7,900 SHARES OF M/S. TALENT IN FOWAY LIMITED. HE HAS REFERRED TO THE DEMAT ACCOUNT DETA ILS OF THE ASSESSEE AND SUBMITTED THAT A TRANSACTION HAS BEEN REFLECTED IN THE DEMAT ACCOUNT AND THEREFORE IT CANNOT BE DOUBTE D AS HELD BY THE AO AND CONFIRMED BY THE CIT(A) TREATING IT A S A BOGUS TRANSACTION IN THE NATURE OF ACCOMMODATION ENTRIES TAKEN FROM A GROUP CONCERN OF SHRI MUKESH CHOKSI. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON DECISION DATED 23.03. 2011 OF THE COORDINATE BENCH OF THE TRIBUNAL IN CASE OF SMT. VI MALA DEVI CHHAJER AT PAGE 25 OF THE PAPER BOOK AND OTHERS IN ITA NOS. 513 TO 526/BANG/2010, 946/BANG/2010 TO 949/BANG/2010, 953/BANG/2010 TO 956/BANG/2010, 970/BANG/2010, 1000/BANG/2010 TO 1005/BANG/2010 AND 1071/BANG/2010 AND SUBMITTED THAT WHEN THE SHARES WERE REFLECTED IN TH E BALANCE SHEET OF THE ASSESSEE AS WELL AS IN THE DEMAT ACCOU NT AND SALES OF SHARES WERE SHOWN IN DEMAT ACCOUNT OF THE ASSESS EE THEN THE TRANSACTION CANNOT BE DOUBTED. THEREFORE, THE PROF IT ON SALE OF ITA NO. 2169/BANG/2016 PAGE 6 OF 8 SHARES HAS TO BE TREATED AS LONG TERM CAPITAL GAIN. THE LD. AR HAS ALSO REFERRED TO THE PROVISIONS OF SECTION 10(3 8) AND SUBMITTED THAT IF A TRANSACTION OF SALE OF SHARES I S SUBJECTED TO SECURITY TRANSACTION TAX (STT) THEN THE LONG TERM C APITAL GAIN ARISING OF SUCH TRANSACTIONS IS EXEMPT. HE HAS THE N REFERRED TO THE CONTRACT NOTE AND SUBMITTED THAT THE TRANSACTIO N OF SALE WAS DULY SUBJECTED TO STT AND THEREFORE THE BENEFIT OF SECTION 10(38) CANNOT BE DENIED. 6. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT TH E SALE IN QUESTION IS NOT THROUGH STOCK EXCHANGE AND THEREFOR E NO STT WAS PAID ON THESE TRANSACTIONS. FURTHER, THE ENTIRE TR ANSACTION IS FOR THE ACCOMMODATION ENTRIES PROVIDED BY MUKESH CHOKSI GROUP THROUGH ITS GROUP CONCERNS. THE ASSESSEE HAS NOT P ROVED THE GENUINENESS OF PURCHASE OF SHARES AS IT WAS CLAIMED THE PURCHASES AGAINST CASH. THEREFORE, THE CLAIM OF TH E ASSESSEE IN THE ABSENCE OF EVIDENCE CANNOT BE ACCEPTED. THE AO HAS EXAMINED THE CONTRACT NOTE RELIED UPON BY THE ASSES SEE AND FOUND THAT THE BROKER IN QUESTION WAS NOT AUTHORIZE D TO TRADE IN THE STOCK EXCHANGE AND IN THE SHARES. THEREFORE, T HE CONTRACT NOTE PRODUCED BY THE ASSESSEE DOES NOT PROVE THE TR ANSACTION OF PURCHASE. FURTHER, THE ASSESSEE HAS ALSO FAILED TO PROVE THE PAYMENT OF CONSIDERATION AS THE ASSESSEE HAS CLAIME D THE PAYMENT THROUGH CASH. HE HAS RELIED UPON THE ORDER S OF THE AUTHORITIES BELOW. 7. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE ASSESSEE CLAIMED TO HAVE P URCHASED 7,900 SHARES OF M/S. TALENT INFOWAY LIMITED ON 15.0 4.2004. IN SUPPORT OF ITS CLAIM THE ASSESSEE PRODUCED CONTRACT NOTE OF THE BROKER. HOWEVER, THE AO IN THE ENQUIRY FOUND THAT THE ALLEGED BROKER WAS NOT AN AUTHORIZED BROKER OF THE STOCK EX CHANGE TO DEAL IN THE SALE AND PURCHASE OF SHARES. THEREFORE THE AO REJECTED THE SAID CONTRACT NOTE. FURTHER, SINCE TH E ASSESSEE HAS CLAIMED TO HAVE PURCHASED THE SHARES AGAINST CASH T HE AO HAS REJECTED THE CLAIM. THE PURCHASE PRICE CLAIMED BY THE ASSESSEE IS ONLY RS. 11,914/- WHEREAS THE SHARES WERE SOLD FOR A CONSIDERATION OF RS. 7,51,816.31/- AND THEREBY CLAI M TO HAVE EARNED LONG TERM CAPITAL GAIN OF RS. 7,39,902.31/- AGAINST THE INVESTMENT OF RS. 11,914/-. THE NATURE OF TRANSACT ION ITSELF IS NOT FREE FROM THE DOUBT OF MANIPULATION IN THE PURCHASE S AND SALE TRANSACTION AND THEREFORE THE AO WAS REQUIRED TO CO NDUCT A PROPER ENQUIRY. THE AO HAS REJECTED THE CLAIM OF T HE ASSESSEE ON THE GROUND THAT IN THE CASE OF SEARCH AND SEIZURE A CTION U/S. 132 OF THE IT ACT SHRI MUKESH CHOKSI IN HIS STATEMENT H AS STATED THAT HE IS PROVIDING ACCOMMODATION ENTRIES IN ORDER TO E NABLE THE CLAIMS TO DECLARE SPECULATION PROVIDED CAPITAL GAIN ETC. IT IS ITA NO. 2169/BANG/2016 PAGE 7 OF 8 PERTAINING TO NOTE THAT THOUGH THE PURCHASE TRANSAC TION AS CLAIMED BY THE ASSESSEE ON 15.04.2004, MAY NOT BE A CCEPTABLE HOWEVER, WHEN THE SHARES ARE DEMATERIALIZED AND SHO WN IN THE DEMAT ACCOUNT OF THE ASSESSEE THEN ON THE SAID DATE OF DEMATERIALIZATION OF SHARES THE EXISTENCE OF THE SH ARES IN THE NAME OF THE ASSESSEE CANNOT BE DISPUTED. THEREFORE EVEN IF THE ASSESSEE HAS NOT PRODUCED A CONCLUSIVE EVIDENCE TO PROVE THE TRANSACTION OF PURCHASE ON 15.04.2004 HOWEVER THE H OLDING OF SHARES BY THE ASSESSEE AS ON THE DATE OF DEMATERIAL IZATION CANNOT BE DOUBTED. THE ASSESSEE HAS CLAIMED THAT THE SHAR ES WERE DEMATERIALIZED IN THE MONTH OF DECEMBER 2005. IN S UPPORT OF CLAIM THE ASSESSEE HAS REFERRED THE DEMATERIALIZATI ON REQUEST FORM DATED 08.12.2005, AND THE DETAILS OF DEMAT ACC OUNT WHEREIN THE TRANSACTION OF SALE OF SHARES OF M/S. T ALENT INFOWAY LIMITED HAS BEEN REFLECTED. IT IS NOT IN DISPUTE T HAT THESE SHARES WERE FINALLY DEMATERIALIZED AND SHOWN IN THE DEMAT ACCOUNT OF THE ASSESSEE HOWEVER, THE ACTUAL DATE OF DEMATERIAL IZATION ENTRY IN THE DEMAT ACCOUNT IS NOT PROVED BY THE ASSESSEE. THE REQUEST FOR DEMATERIALIZATION DATED 08.12.2005 ITSELF IS NO T A CONCLUSIVE PROOF OF CONVERTING THE SHARES INTO THE DEMAT ACCOU NT AND FURTHER THE DETAILS FILED BY THE ASSESSEE REGARDING THE DEMAT ACCOUNT ALSO DO NOT REFLECT THE ENTRY OF SHARES IN THE DEMAT ACCOUNT. ONLY THE SALE TRANSACTION AS ON 27.02.200 7 HAS BEEN REFLECTED IN THE DEMAT ACCOUNT. THEREFORE THE TRAN SACTION OF SALE IS NO DOUBT PROVED BY THE ASSESSEE. BUT, THE DATE OF PURCHASE IS STILL NOT CLEAR. THUS THE ONLY QUESTION WHICH REMA INS TO BE ASCERTAINED IS THE DATE OF DEMATERIALIZATION OF THE SE SHARES AND THEREFORE THE MARKET PRICE OF THE SHARES ON THE DAT E OF DEMATERIALIZATION WOULD BE CONSIDERED AS PURCHASE C ONSIDERATION OF THE SHARES AND CONSEQUENTLY THE SALE ON 27.02.20 07 MAY RESULT SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN A S CASE MAY BE DEPENDING UPON THE DATE OF DEMATERIALIZATION OF THE SHARES. FURTHER THE QUANTUM OF CAPITAL GAIN IS ALSO DEPENDI NG ON THE PURCHASE PRICE WHICH IS THE PREVAILING PRICE ON THE DATE OF DEMATERIALIZATION. ACCORDINGLY, THIS ISSUE OF COMP UTATION OF CAPITAL GAIN WHETHER IT IS SHORT TERM OR LONG TERM AS WELL AS THE PURCHASE PRICE ON THE DATE OF DEMATERIALIZATION IS REMANDED TO THE RECORD OF THE AO FOR PROPER VERIFICATION. THE AO IS SPECIFICALLY DIRECTED TO FIND OUT THE ACTUAL DATE OF DEMATERIALI ZATION OF SHARES AND THE PREVAILING MARKET PRICE OF THE SHARES ON TH E DATE OF DEMATERIALIZATION TO BE CONSIDERED AS PURCHASE CONS IDERATION AND THEN COMPUTE THE CAPITAL GAIN. SINCE THE FACTS ARE IDENTICAL IN ALL THE CASES THEREFORE THE ISSUE IN ALL THREE CASES IS SET ASIDE TO THE RECORD OF THE AO. ITA NO. 2169/BANG/2016 PAGE 8 OF 8 5. ACCORDINGLY, THIS ISSUE IS SET ASIDE TO THE AO ON T HE SAME TERMS. 6. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF APRIL, 2017 SD/- (VIJAY PAL RAO) JUDICIAL MEMBER BANGALORE, DATED, THE 21 ST APRIL, 2017. / MS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.