The ACIT, Circle-3, Surat V. Shri Mahesh G.Vakil, Surat

ITA 3104/AHD/2009

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6431 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 20-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAI RAJ KUMAR
• Keywords: Unexplained cash credit; Corroborative evidences
• Section: 143(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : AH MEDABAD ( BEFORE HONBLE SHRI T.K.SHARMA, J.M. & HONBLE SHRI A.N.PAHUJA, A.M.) I.T.A.NO. 3104/AHD./2009 : ASSESSMENT YEAR 200 6-07 A.C.I.T., CIRCLE-3, SURAT -V S- SHRI MAHESH G. VAKIL, SURAT (PAN : ABCPV 1687R) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JAI RAJ KUMAR, SR. D.R. RESPONDENT BY: SHRI HARDIK VORA, A.R. O R D E R PER SHRI T.K.SHARMA, JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF LD. CIT(A)-II, SURAT DATED 25.08.2009 DIRECTING THE AO TO ACCEPT THE CLA IM OF THE ASSESSEE OF RS.36,71,882/- AS CAPITAL GAIN TREATING THE SAME BY THE AO AS UNEXPLAINED CREDIT UNDER THE PROVISIONS OF SECTION 68 OF THE I.T. ACT, 1961 FOR THE ASSESSMENT YEAR 2006-2007. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S AN INDIVIDUAL. FOR THE ASSESSMENT YEAR UNDER APPEAL, HE FILED THE RETURN OF INCOME ON 30.12.2006 DECLARING TOTAL INCOME AT RS.12,02,147/- INCLUDING CAPITAL GAIN OF RS.4,92 ,580/- AND EXCLUDING AGRICULTURAL INCOME OF RS.38,574/-. THE AO FRAMED THE ASSESSMENT UNDER SECTION 143(3) ON 28.11.2008 COMPUTING TOTAL INCOME OF THE ASSESSEE A T RS.48,74,030/-. IN THIS ASSESSMENT ORDER, THE AO TREATED THE SUM OF RS.36,7 1,882/- AS UNEXPLAINED CREDIT UNDER SECTION 68 AS AGAINST CAPITAL GAIN ON SALE OF SHARE DECLARED BY THE ASSESSEE. 3. ON APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT(A) DIRECTED THE AO TO ACCEPT THE CLAIM OF THE ASSESSEE OF RS.36,71,882/- AS CAPITAL GAIN ON THE FOLLOWING GROUNDS: (A) THE SUSPENSION OF THE BROKER COULD NOT BE TAKE N AS A GROUND FOR TREATING THE TRANSACTION OF PURCHASE AND SALE OF SHARES AS B OGUS, AS THE BROKER THROUGH WHOM THE SHARES WERE PURCHASED WAS SUSPENDED BY SEB I ON 30.9.2005, WHEREAS THE SHARES WERE PURCHASED BY THE ASSESSEE B EFORE 30.9.2005. 2 ITA NO.3104/AHD./2009 (B) THE CODE 'SELF WAS USED BY THE BROKER, AS PRIO R TO 1.4.2005, IT WAS NOT MANDATORY UNDER THE GUIDELINES OF SEBI TO USE SEPAR ATE CODE FOR EACH CLIENT. (C) THE CALCUTTA STOCK EXCHANGE HAD DULY CONFIRMED THE FACT THAT BOTH THE PURCHASE AND SALE TRANSACTION WERE DONE THROUGH 'ON -LINE TRADING SYSTEM' OF CALCUTTA STOCK EXCHANGE. (D) THE TRANSACTION OF PURCHASE AND SALES OF SHARE S WERE NOT DONE 'OFFLINE'. (E) AS PER GUIDELINES OF THE SEBI, IT IS NOT MANDAT E FOR ANY AGREEMENT TO BE ENTERED INTO. (F) SIMPLY BECAUSE PRICE OF PARTICULARS SCRIPT HAD INCREASED SUBSTANTIALLY IN A SHORT PERIOD OF TIME, IT COULD NOT BE USED A GROUND OF TREATING THE PURCHASE/ SALES TRANSACTION OF SHARES AS BOGUS ESPECIALLY WHE N THE GENUINENESS OF THE TRANSACTION HAD BEEN PROVED BEYOND DOUBT THROUGH DO CUMENTARY EVIDENCES PROCURED BY THE AO AS ALSO SUBMITTED BY THE ASSESSE E ALONG WITH THE CONFIRMATION FURNISHED BY THE BROKERS SUPPORTED BY BANK STATEMENTS. (G) THERE WAS NO BASIS FOR THE AO TO TREAT THE SUM OF RS.36,72,631 AS UNEXPLAINED CASH CREDIT. 4. AGGRIEVED WITH THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING, SHRI JAI RAJ KUMAR, SR.D .R. APPEARED ON BEHALF OF THE REVENUE AND CONTENDED THAT THE AFORESAID DIRECTION OF THE LD. CIT(A) TO ACCEPT THE CLAIM OF THE ASSESSEE AS CAPITAL GAIN IS NOT ACCEPT ABLE FOR THE FOLLOWING REASONS: I (I) THE LD.CIT(A) HAS NOT APPRECIATED THAT IN P URSUANCE OF NOTICE U/S.133(6) OF THE ACT, THE BROKER HAS STATED THAT THE PURCHASE S OF SHARES WERE MADE AS PER ORDER OF THE ASSESSEE, HOWEVER, FURTHER INQUIRIES M ADE DIRECTLY WITH THE CALCUTTA STOCK EXCHANGE, CSE HAS VIDE THEIR LETTER DTD. 13.10.2008 STATED THAT THE PURCHASES OF SO-CALLED SHARES WERE NOT MADE BY THE ASSESSEE, BUT BY BHANSAL PERIWAL & CO. UNDER THE CODE 'SELF. (II) THE LD.CIT(A) HAS NOT APPRECIATED THAT NO CLIE NT CODE WITH THE NAME OF THE ASSESSEE HAS BEEN SHOWN IN THE 'CONTRACT NOTE' AND IT WAS NOT SUBJECT TO 'SERVICE TAX' OR 'STAMP CHARGES' AND THEREBY THE SO CALLED P URCHASE/SALE TRANSACTION OF SHARE IS VERY MUCH DOUBTFUL AND PURELY 'ACCOMMODATI VE'. (III) THE BROKER WAS SUSPENDED FROM THE TRADING OF CALCUTTA STOCK EXCHANGE BY SEBI ON 30.9.2005 AND TILL DATE THE SAID BROKER IS NOT ACTIVE IN THE CALCUTTA STOCK EXCHANGE. THE LD. CIT(A) HAS HELD THAT SUSPEN SION OF THE BROKER CANNOT BE A GROUND FOR TREATING THE TRANSACTION OF PURCHAS E AND SALE OF SHARES AS BOGUS AS THE BROKER WAS SUSPENDED ON 30.9.2005 BY S EBI FROM CALCUTTA STOCK 3 ITA NO.3104/AHD./2009 EXCHANGE, WHEREAS THE TRANSACTIONS FOR PURCHASE AND SALE OF SHARES OF THE ASSESSEE WERE MADE BY THE SAID BROKER PRIOR TO 30.9 .2005, BUT THE LD.CIT(A) HAS NOT APPRECIATED THAT THE BROKER WAS SUSPENDED O N 30.9.2005 NOT ONLY ON HIS ANY ILLEGAL ACTIVITY ON 30.9.2005, BUT WAS SUSP ENDED ON ACCOUNT OF HIS INDULGENCE IN FOLLOWING MALPRACTICE AND ILLEGAL PRA CTICE /ACTIVITIES SINCE LONG PRIOR TO 30.9.2005 AND THAT FACT ITSELF SUGGEST THA T THE SAID BROKER HAS ON ACCOUNT OF HIS SUCH PRACTICES /ACTIVITIES ACCOMMODA TE TO THE ASSESSEE TO BOOK HIS PROFIT UNDER THE LONG TERM CAPITAL GAIN BY MAKI NG BOGUS TRANSACTIONS IN HIS NAMES FOR PURCHASE AND SALE OF SHARES OF NIDHI TRAD ING CO. (IV) THE LD.CIT(A) HAS NOT APPRECIATED THAT THE VALUE OF SHARES PURCHASED AND SOLD BY THE ASSESSEE HAD INCREASED MANIFOLD IN A VERY SHORT PERIOD OF ONE YEAR AND SUCH TYPE OF INCREASE ARE NOT MADE DURING THE SAID PERIOD EVEN IN THE COMPANIES OF INTERNATIONAL STANDARD CORPORATE COMPA NIES. (V) IN VIEW OF THE RATIOS LAID DOWN BY THE SUPREM E COURT IN THE CASE OF SUMATI DAYAL V. CIT(1995) 80 TAXMAN 89/214 ITR 801 (SC) IN VIEW OF SECTION 68 WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF THE ASSESSEE FOR ANY PREVIOUS YEAR, THE SAME MAY BE CHARGED TO INCOME TAX AS THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IF THE EXPLANATION OFFERED BY THE ASSESSEE ABOUT THE NATURE AND SOURCE THEREOF IS IN THE OPINION OF THE AO NOT SATISFACTORY, IN SUCH CASE THERE IS PRIMA-FACIE EVIDENCE AGAINST THE ASSESSEE I.E. THE RECEIPT OF MONEY AND IF HE FAILS TO REBUT THE SAME THE SAID EVIDENCE BEI NG UNREBUTTED CAN BE USED AGAINST HIM BY HOLDING THAT IT IS A RECEIPT OF AN I NCOME NATURE 6. ON THE OTHER HAND, SHRI HARDIK VORA, APPEARING O N BEHALF OF THE ASSESSEE, VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A). T HE LD. COUNSEL OF THE ASSESSEE ALSO FILED A PAPER BOOK CONTAINING 36 PAGES, WHICH, INTE R ALIA, INCLUDE THE DEMAT ACCOUNT STATEMENT SHOWING PURCHASE OF SHARES THROUGH M BHIW ANIWALA & CO. AND SALE OF SALES THROUGH ASHOKKUMAR KAYAN, BROKER NOTE FOR THE SALE OF THE SHARES OF SHREE NIDHI TRADING LTD., WORKING OF LONG TERM CAPITAL GAIN (EX EMPT UNDER SECTION 10(38) AND FORM 10DB AS PROOF OF POAYMENT OF SECURITY TRANSACT ION TAX. THE COUNSEL OF THE ASSESSEE SUBMITTED THAT ON DOUBTS AND SUSPICION, AO TREATED THE CAPITAL GAIN OF RS.36,71,882/- DECLARED ON SALE OF SHARE AS UNEXPLA INED CREDIT UNDER SECTION 68 AND THE LD. CIT(A) RIGHTLY DIRECTED THE AO TO TREAT THE SAME AS CAPITAL GAIN. THEREFORE, THE VIEW TAKEN BY THE LD. CIT(A) BE UPHELD. 7. AFTER HEARING BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT BE FORE THE AO, ON BEHALF OF THE ASSESSEE, IT WAS EXPLAINED THAT THE PURCHASE TRANSACTIONS WER E MADE ON THE ON LINE TRADING SYSTEM AND THESE TRANSACTIONS WERE GENUINE. EARLIE R IT WAS NOT COMPULSORY FOR A CLIENT 4 ITA NO.3104/AHD./2009 TO HAVE HIS OWN TRANSACTIONS RECORD UNDER SEBI GUID ELINES. WITH EFFECT FROM 01.04.2005, IT HAS BEEN MADE COMPULSORY. THEREFORE, THE PURCHASES EARLIER MADE WERE USUALLY DURING THE BROKERS CODE. IT WAS, FOR THIS REASON, THE SELF CODE WAS USED. SINCE, THE SHARES WERE SOLD AFTER 01.04.2005, THE T RANSACTIONS WERE NOT UNDER THE BROKERS CODE. THE COPY OF THE SEBI GUIDELINES HAS BEEN PLACED ON RECORD. WITH REGARD TO THE SERVICE-TAX AND STAMP CHARGES IT HAS BEEN SUBMITTED BY THE LD. COUNSEL THAT THE CONTRACT NOTE OF M/S. M BHIWANIWALA & CO. CLEARLY MENTIONED THAT THE BROKERAGE WAS INCLUSIVE OF SERVICE TAX ETC. IN THE CASE OF THE SELLING BROKER, SHRI ASHOK KUMAR KAYAN, THE SERVICE TAX SECURITIES TRANS ACTION TAX AND EDUCATION CESS WERE SEPARATELY MENTIONED. THIS CLEARLY SHOWED THAT THE AO HAD NOT STUDIED THE CONTRACT NOTES IN DETAIL. 7.1 WITH REGARD TO THE POINT RAISED BY THE AO ABOUT THE ABSENCE OF BROKER-CLIENT AGREEMENT, IT HAS BEEN SUBMITTED THAT THE GENUINENE SS OF THE TRANSACTIONS WAS ALREADY PROVED BY THE CONTRACT NOTES FOR SALE AND PURCHASE, THE BANK STATEMENT OF THE BROKER, THE DEMAT ACCOUNT SHOWING TRANSFER IN AND OUT OF SH ARES, AS ALSO THE ABSTRACT OF TRANSACTIONS FURNISHED BY THE CSE. THE BROKERS HAD SEPARATELY CONFIRMED THE TRANSACTIONS DIRECTLY TO THE AO. 7.2 FINALLY, WITH REGARD TO THE OBJECTION OF AO REG ARDING SHARP INCREASE IN THE VALUE OF SCRIP, BEFORE THE AUTHORITIES BELOW, IT WA S EXPLAINED THAT INCREASE IN THE PRICE OF THE SCRIP COULD NOT BE A REASON TO DOUBT THE GEN UINENESS OF THE TRANSACTIONS AND CONSIDER IT AS SCANDALOUS. THE AO COULD NOT ASSES S THE INCOME WITHOUT SUPPORTING EVIDENCES AND SIMPLY COULD NOT ASSUME THE TRANSACTI ONS TO BE BOGUS. IN SUPPORT OF HIS CONTENTION, THE LD. COUNSEL ALSO PLACED RELIANCE ON THE FOLLOWING CASE LAWS: (I) RAJNIDEVI A CHOWDHARY V/S ITO - ITA NO. 6455/M/ 07 (II) ACIT V/S CLARIDGES INVESTMENTS AND FINANCES P. LTD. 2007 18 S0T 390 (III) MUKESH R MAROLIA V/S ADO I. CIT 200665 SOT 24 7 (IV) CIT V/S DAULATRAM RAWATMUTI 1973 87 ITR 349 (SC) (V) ACCHYALAL SHAW V/S ITO 2009 121 TTJ (CALCUTTA) 695 (VI) PRAKASH CHAND S SANDH V/S ACIT 2009 ITA NO.327 0/AHD/2008 (VII) HITESHKUMAR B SANGHVI V/S ITO WD 2(2), SUR AT. 7.3 AFTER CONSIDERING THE AFORESAID SUBMISSIONS, IN THE IMPUGNED ORDER, THE LD. CIT(A), FOR THE DETAILED REASON GIVEN IN PARA 5, HE LD THAT SUM OF RS.36,71,882 IS 5 ITA NO.3104/AHD./2009 NOTHING BUT CAPITAL GAIN AND HE DIRECTED THE AO TO ACCEPT THE SAME ACCORDINGLY. IT IS PERTINENT TO NOTE THAT BEFORE THE AO, THE ASSESSEE HAS FURNISHED COMPLETE DETAILS. THESE WERE NOT FOUND FALSE OR BOGUS BY THE AO. ONLY ON DOUBTS AND SUSPICION THE AO TREATED THE CAPITAL GAIN DECLARED BY THE ASSESSEE A S UNEXPLAINED CREDIT UNDER SECTION 68 OF THE I.T.ACT, 1961. LOOKING TO THE TOTALITY OF TH E FACTS, WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS GIVEN COGENT REASON FOR DIRECTING THE AO TO ACCEPT THE CAPITAL GAIN OF RS.34,65,922/- AS DISCLOSED BY THE ASSESSEE. WE, TH EREFORE, INCLINE TO UPHOLD THE ORDER OF THE LD. CIT(A). RESULTANTLY, THE APPEAL OF THE R EVENUE IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 31.05.2011 SD/- SD/- (A.N.PAHUJA) (T.K.SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 31/05/2011 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE 2) THE DEPARTMENT 3) CIT(A) CONCERNED 4) CIT CONCERNED 5) D.R., ITAT, AHMEDABAD TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD TALUKDAR/SR.P.S.