ITO 19(3)(2), MUMBAI V. KHALIL M BHARWANI, MUMBAI

ITA 223/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2224 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 15-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 10-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: B V JHAVERI
• Keywords: Unexplained cash credit; Gift; Share purchase agreement; Source of fund; Avoidance of tax
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI , , BEFORE SHRI SHAILENDRA KUMAR YADAV, JM AND SHRI RAJESH KUMAR, AM ./ ITA NO. 223/MUM/2011 ( !'#! / ASSESSMENT YEAR: 2006-07) INCOME TAX OFFICER - 19(3)(2) $%& /APPELLANT ROOM NO. 306, 3RD FLOOR PIRAMAL CHAMBES, PAREL LALBAUG, MUMBAI 400012 / VS. MS. KHALIL M. BHARWANI '(%& / RESPONDENT FLAT NO. 9, NOOR - E - REHMAT 59-B.J. ROAD, BANDRA (W) MUMBAI 400050 % ./ PAN - AJJPB7570L $%&)* / APPELLANT BY: SHRI SATYA PAL KUMAR '(%&) / RESPONDENT BY: SHRI B.V. JHAVERI )+ / // / DATE OF HEARING : 04.11.2015 ,-#')+ /DATE OF PRONOUNCEMENT : 27.11.2015 / O R D E R PER SHAILENDRA KUMAR YADAV, JM THIS APPEAL HAS BEEN FILED BY REVENUE AGAINST THE ORDER OF CIT(A) ON FOLLOWING GROUNDS: - 2 ITA NO. 223/MUM/2011 MS. KHALIL M. BHARWANI 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE LONG TERM CAPITAL GAIN RECEIVED BY THE ASSESSEE IN THE SCRIP EMERALD COMMERCIAL LTD WAS GENUINE TRANSACTION WITHOUT APPRECIATING THE FACT THAT;- A. THE ASSESSEE COULD NOT PROVE THE SOURCE OF FUNDS WHILE PURCHASING THE SAID SHARES B. NO RETURN WAS FILED DURING THE YEAR IN WHICH THE SHARE WERE PURCHASED AND THE SAME WERE PURCHASED THROUGH CASH C. PHYSICAL DELIVERY OF SHARES HAS TAKEN PLACE. D. CALCUTTA STOCK EXCHANGE HAS DENIED EXECUTING PURCHASE TRANSACTION AND SHARES WERE DEMATTED AFTER MORE THAN ONE YEAR OF THE DATE OF PURCHASE 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT THE ASSESSEE MADE SHARES TRANSACTION FROM M/S BADRI PRASAD AND SONS STOCK BROKER WHO HAS BEEN PENALIZED BY THE SEBI FOR INDULGING IN PENNY STOCK TRANSACTION DURING THE YEAR 2005 WHICH IS RELEVANT TO THE CURRENT YEAR UNDER CONSIDERATION 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN HOLDING THAT THE TRANSACTION WAS GENUINE WITHOUT APPRECIATING THE FACT THAT;- A. THE BROKER M/S BADRI PRASAD & SONS THROUGH WHOM THE ASSESSEE HAS CLAIMED TO HAVE PURCHASED THE SHARES, HAS CLEARLY DENIED THE EXECUTION OF ANY SHARE TRANSACTION OF M/S EMERALD COMMERCIAL LTD. ON 06.05.2004, THE DATE ON WHICH THE ASSESSEE HAS CLAIMED TO HAVE PURCHASED 10000 SHARES. 3 ITA NO. 223/MUM/2011 MS. KHALIL M. BHARWANI B. THE PURCHASE TRANSACTIONS ARE OUT OF CASH IN HAND WHICH WAS ON ACCOUNT OF GIFT RECEIVED BY THE ASSESSEE FROM HIS RELATIVES. THE PURCHASES OF SHARES ARE OFF BOLT AND SUCH PURCHASES ARE NOT REFLECTED IN THE STOCK EXCHANGE. 2. ASSESSEE PURCHASED 10,000 SHARES OF M/S EMRALD COMMERCIAL LTD. FOR A TOTAL CONSIDERATION OF ` 2,17,100/- VIDE BILL NO.CK012/ 2005322/6 DATED 06.05.2004 OF T HE BROKER M/S BADRI PRASAD & SONS, MEMBER, CALCUTTA ST OCK EXCHANGE. THIS TRANSACTION OF PURCHASE OF SHARES WA S ENTERED INTO ON 06.05.2004 VIDE SETTLEMENT NO. 2005 322/3 AND THE SHARES OF THE COMPANY WERE DELIVERED TO THE APPELLANT PHYSICALLY BY WAY OF 20 SHARE CERTIFICATE S OF 500 SHARES EACH. THE PHYSICAL SHARES WERE LODGED FOR TR ANSFER IN THE NAME OF ASSESSEE AND VIDE LETTER DATED 17.07 .2004 OF THE COMPANY, SHARES WERE TRANSFERRED IN THE NAME OF ASSESSEE WHICH WERE LATER ON SUBMITTED TO HSBC BANK VIDE ITS ACKNOWLEDGEMENT NO.SL BOM 354400 DATED12.08.200 5 FOR DEMATERIALISATION. THE SHARES WERE DULY DEMATER IALISED AND IN THE DEMAT STATEMENT OF HSBC BEARING CLIENT I D 10561457 FOR THE MONTH ENDING 31.08.2005, THEY WERE 4 ITA NO. 223/MUM/2011 MS. KHALIL M. BHARWANI ACCORDINGLY DEPICTED. THE 10,000 SHARES WERE SOLD T HROUGH ONLINE TRADING SYSTEM OF CALCUTTA STOCK EXCHANGE TH ROUGH THE BROKER MURARILAL GOENKA AND SHIVAM STOCK BROKIN G PVT. LTD., AS PER DETAILS ENUMERATED AS UNDER:- NAME OF THE BROKER THROUGH WHOM SOLD NO. OF SHARES SOLD ORDER NO. TRADE NO. DATE OF SALE TIME OF SALE TOTAL SALE PROCEEDS (IN RS.) SHIVAM STOCK BROKING PVT. LTD. 4000 61613384 929 20.09.2005 15:43:43 19,57,240 MURARLILAL GOENKA 3000 32042 1177 25.11.2005 14:02:13 14,07,180 MURALILAL GOENKA 2000 32042 1187 28.11.2005 14:16:43 9,36,120 MURALILAL GOENKA 1000 32042 1208 29.11.2005 15:02:46 4,64,470 TOTAL 3. THE TRANSACTION RESULTING INTO LTCG WAS DISBELIEVED BY ASSESSING OFFICER AND SALE PROCEEDS OF ` 47,60,462/- WERE TREATED BY ASSESSING OFFICER AS UNEXPLAINED CASH CR EDITS UNDER SECTION 68 OF THE ACT DUE TO VARIOUS REASONS ENUMERATED AS UNDER:- A) THE APPELLANT HAD MADE PAYMENT FOR PURCHASE OF 10,000 SHARES @OF RS.21.7 AGGREGATING TO RS.2,17,100/- IN CASH TO THE BROKER M/S BADRI 5 ITA NO. 223/MUM/2011 MS. KHALIL M. BHARWANI PRASAD & SONS. B) THE APPELLANT WAS NOT REGISTERED AS THE 'CLIENT ' WITH THE BROKER' WHICH IS ONE OF THE CONDITION, AS PER SEBI RULES AND THE TRANSACTION HAS TO BE UNDERTAKEN BY THE CLIENT REGISTERED WITH BROKER. C) THE TRANSACTION WAS CARRIED OUT OFF THE BOLT I.E OFF MARKET DEAL AND EVEN AS PER THE DETAILS FURNISHED BY CALCUTTA STOCK EXCHANGE IN THE PHYSICAL SEGMENT OF THE SHARES, THIS TRANSACTION DID NOT APPEAR IN SUCH LIST. D) THIS IS THE FIRST RETURN OF THE APPELLANT BECAUS E THE APPELLANT HAD BECOME MAJOR ONLY ON 26.05.2005 AND THERE WAS NO PREVIOUS RECORDS OF RETURN FILED OR BALANCE SHEET AVAILABLE ACCORDING TO WHICH THE APPELLANT WAS HOLDING 10,000 SHARES OF EMRALD COMMERCIAL LTD AS ON 31.03.2005. THE CASH ON HAND SHOWN BY THE APPELLANT AS ON 01.05.2004 AT RS.3,45,602/- DID NOT HAD ANY ANTECEDENT AS TO HOW THE APPELLANT IS IN POSSESSION OF SUCH A HUGE CASH BECAUSE THE APPELLANT WAS MINOR PRIOR TO 26.05.2005 AND THE CASH HAS BEEN SHOWN IN THE HANDS OF THE APPELLANT PRIOR TO HIS BECOMING MAJOR. THUS THE SOURCE OF SUCH HUGE CASH REMAINS UNEXPLAINED. E) THE VALUE OF THE SHARES WHICH WAS PURCHASED AT RS.21.7 PER SHARE SUDDENLY JUMPED IN ABOUT A YEAR TO RS.465 TO RS.489 ON THE STOCK EXCHANGE AND THE COMPANY DID NOT HAD SUCH FUNDAMENTAL FOR THIS SHARE TO JUSTIFY THE PRICE. F) THE APPELLANT IS NOT INVESTING IN SHARES AND KNO W NOTHING ABOUT THE SHARES AND THEREFORE IT IS DIFFICULT TO BELIEVE THAT HE OUGHT TO HAVE PURCHASE D SUCH A LARGE QUANTITY OF SHARES UNLESS THERE ARE DIFFERENT MOTIVES FOR SUCH PURCHASE. G) WHEN THE ABOVE DETAILS OF TRANSACTIONS OF PURCHASE ON CALCUTTA STOCK EXCHANGE WAS VERIFIED 6 ITA NO. 223/MUM/2011 MS. KHALIL M. BHARWANI BY THE AO, THE CALCUTTA STOCK EXCHANGE REFUTED THAT ANY TRANSACTIONS CLAIMED BY THE APPELLANT HAS TAKEN PLACE ON THE DATE MENTIONED BY THE APPELLANT AND WHEN THE APPELLANT WAS CONFRONTED WITH THIS FACT, THE APPELLANT FAILED TO REPLY CONVINCINGLY. 4) THE AO RELIED UPON THE SUPREME COURT JUDGMENT IN THE CASE OF MCDOWELL AND CO. LTD REPORTED IN 154 LTR 148 WHEREIN IT HAS BEEN HELD THAT THE PLAIN AVOIDANCE OF TAX WHEN BREAKING THE LAW IS NO LONGER APPROVAL AND LEGAL AVOIDANCE OF TAX DONE, IN THIS WAY IS REQUIRED TO BE CURED ESPECIALLY IN VIEW OF THE FACT THAT INDIA HAS ATTAINED INDEPENDENCE AND IS NOW STRIVING TOWARDS BUILDING A WELFARE SOCIETY AND COULD NOT JUST SIMPLY RELY ON AGE-OLD OBSERVATION IN THE CASES DECIDED IN ENGLAND. 5) THE AO ALSO ARGUED THAT THE DECISION OF THE SUPREME COURT IN THE CASE OF AZADI BACHAO ANDOLAN REPORTED IN 263 ITR 706 DOE NOT PREVAIL UPON HIS OWN JUDGMENT IN MCDOWELL. THE AO ALSO RELIED ON THE MUMBAI ITAT DECISION IN THE CASE O HOUSING DEVELOPMENT AND FINANCE CORP. LTD GIVEN IN (ITA NO.2913/MUM/1995 DT.12.09.2005 WHEREIN THE MUMBAI (ITAT HAS HELD THAT THE FINDINGS OF MCDOWELL'S CASE IS STILL APPLICABLE AND HAS TO BE RESPECTED. THE AO HAS ALSO FURTHER RELIED UPON THE APEX COURT JUDGMENT IN THE CASE OF SUMATI DAYAL REPORTED IN 214 ITR 801 & DURGAPRASAD MORE IN 82 ITR 540 WHERE THE APEX COURT HAS HELD THAT CERTAIN MATTERS HAVE TO BE CONSIDERED BY APPLYING THE TEST OF HUMAN PROBABILITIES. 4. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY WHEREIN ASSESSEE STATED AS UNDER FOR ITS CLAIM 7 ITA NO. 223/MUM/2011 MS. KHALIL M. BHARWANI THAT THE TRANSACTION IS GENUINE AND THE GAINS SHOUL D BE ASSESSED AS LONG TERM CAPITAL GAIN: - I) DURING THE ASSESSMENT PROCEEDINGS, THE APPELLAN T HAD CLAIMED THAT THE PURCHASE OF SHARES IN OFF MARKET DEAL AND THEREFORE THE TRANSACTION FOR PURCHASE OF SHARES OUGHT NOT TO BE RECORDED ON THE CALCUTTA STOCK EXCHANGE AND THEREFORE IF THE TRANSACTION IS NOT FOUND RECORDED ON CALCUTTA STOCK EXCHANGE, THEN THE AO SHOULD NOT TAKE UMBRAGE AND THERE IS NO PROVISION IN LAW THAT THE PURCHASE TRANSACTION SHOULD BE BY WAY OF PURCHASE FROM THE ONLINE TRADING SYSTEM OF THE STOCK EXCHANGE FOR THE GAINS TO BE EXEMPT U/S.10(38) OF THE ACT. II) THE APPELLANT HAD FILED WITH THE AO, THE COPY O F THE PURCHASE, BILL OF THE BROKER OF M/S BADRI PRASAD & SONS FOR PURCHASE OF 10,000 SHARES OF EMRALD COMMERCIAL LTD. AND AS PER INFORMATION GATHERED BY THE APPELLANT, THE BROKER BADRI PRASAD & SONS WAS EXAMINED BY THE AO AND EVERYTHING WAS EXPLAINED BY THE BROKER ALONGWITH EVIDENCE. III) THE APPELLANT HAD FURTHER FILED DURING THE ASSESSMENT PROCEEDINGS, THE LETTER DT.17.07.200/1 ISSUED BY THE COMPANY M/S EMRALD COMMERCIAL LTD TRANSFERRING 10,000 SHARES IN THE NAME OF THE APPELLANT ALONGWITH PHYSICAL SHARE CERTIFICATES FOR SHARES TRANSFERRED IN HIS NAME WHICH ASPECT INDEPENDENTLY CONFIRMED THAT THE APPELLANT WAS IN POSSESSION OF SHARE CERTIFICATES DULY TRANSFERRED I N HIS NAME PROVING HIM TO BE LEGAL OWNER OF SHARES. IV) THE APPELLANT FURTHER FILED DETAILS OF DEMAT ACCOUNT WITH HSBC AND THE BROKER'S NOTE FOR THE SALE OF SHARES WHICH IT MADE THROUGH THE BROKER MURARILAL GOENKA AND SHIVAM STOCK BROKING 8 ITA NO. 223/MUM/2011 MS. KHALIL M. BHARWANI PVT.LTD BOTH BROKERS' OF CALCUTTA STOCK EXCHANGE THROUGH ONLINE TRADING SYSTEM ON CALCUTTA STOCK EXCHANGE. V) THE AR FURTHER STATED THAT IT HAS FILED DURING T HE ASSESSMENT PROCEEDINGS, COPY OF BANK STATEMENT IN WHICH THE SALE PROCEEDS OF THE SHARES WERE DEPOSITED AND THERE WAS NO EQUIVALENT OR ANY TRANSACTIONS OF WITHDRAWAL OF CASH AGAINST SUCH DEPOSIT OF SALE PROCEEDS IN THE BANKS. VI) THE AR FURTHER SUBMITTED THAT CALCUTTA STOCK EXCHANGE IN ITS REPLY TO THE AO HAS INFORMED THAT 100 SHARES OF EMRALD COMMERCIAL LTD WAS TRANSACTED ON 06.05.2005 AT RS.21.70 AND THE APPELLANT HAD PURCHASED 10,000 SHARES IN OFF MARKET DEAL AT THE SAME PRICE OF RS.21.70, THUS ESTABLISHING THAT THE TRANSACTIONS OF PURCHASE BY THE APPELLANT IS AT A MARKET PRICE AND THEREFORE THE TRANSACTION IS NOT ABNORMAL OR UNNATURAL. VII) THE AR FURTHER ARGUED THAT IT HAS PAID SECURIT Y TRANSACTION TAX (STT) ON THE SALE OF 10,000 SHARES AMOUNTING TO RS.47,60,462/- AND AS PER PROVISION OF SEC.10(38) WHEN THE GAINS MADE BY THE APPELLANT IS LONG TERM AND ON THE SALE OF THE SHARES STT IS PAID, THEN THE GAIN ON SALE OF SAID SHARE IS 'EXEMPT' U/S. 10(38) OF INCOME TAX ACT, 1961. VIII) REGARDING ADDITION U/S.68 OF INCOME TAX ACT, 1961 AS UNEXPLAINED CASH CREDIT OF RS.47,60,462/- , THE AR ARGUED THAT THE CREDITS IN THE BANK ACCOUNT ARE ABSOLUTELY IDENTIFIED WITH THE SALE PROCEEDS ON SALE OF 10,000 SHARES OF EMRALD COMMERCIAL LTD AND THEREFORE THE CREDITS ARE DULY EXPLAINED AND HENCE THERE IS NO REASON FOR THE AO TO TAKE ADVERSE VIEW THAT THE IMPUGNED SALE PROCEEDS ARE UNEXPLAINED CASH CREDITS U/S.68 OF THE ACT. J