Shri Ajit Jhawar, Indore V. The ACIT 4(1), Indore

ITA 329/IND/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1948 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 28-09-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 21-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: S S DESHPANDE; P D NAGAR
• Keywords: Income from undisclosed sources; Earning of tax free income
• Section: 14A; 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER AND SHRI B.C. MEENA, HONBLE ACCOUNTANT MEMBER ITA NOS. 328 & 329/IND/2013 A.YS.2007-08 & 2008-09 AJIT JHAVAR INDORE ::: APPELLANT VS ASSTT.COMMR. OF INCOME TAX 4(1) INDORE ::: RESPONDENT APPELLANT BY SHRI P.D. NAGAR AND SHRI S.S. DESHPANDE RESPONDENT BY SHRI R.A. VERMA DATE OF HEARING 28.9.2015 DATE OF PRONOUNCEMENT 3 0 .11.2015 O R D E R PER SHRI B.C. MEENA, AM BOTH THESE APPEALS FILED BY THE ASSESSEE EMANATE FROM THE ORDER OF THE LEARNED CIT(A)-II, INDORE, DATE D 26.3.2013. 2 2. THE ASSESSEE IS AN INDIVIDUAL FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, ENGAGED IN THE BUSINESS OF INVESTMENT IN SHARES AND HAVING INTEREST IN THE PARTNERSHIP FIRM. GROUND NOS. 1 TO 6 IN BOTH THESE AP PEALS ARE COMMON EXCEPT DIFFERENCE IN THE QUANTUM OF ADDITION . THE GROUND NOS. 1 TO 6 IN ITA NO. 328/IND/2013 ARE AS UNDER :- 1. THE ORDER PASSED BY THE LD. CIT(A) IS ILLEGAL AND BAD IN LAW AND HENCE BE CANCELLED. 2. THE LD. CIT(A) HAAS ERRED IN MAINTAINING THE ADDITION OF RS.1,52,63,260/- AS THE INCOME OF THE ASSESSEE AS AN UNPROVED TRANSACTION. 3. IT WAS PROVED BEFORE THE LD. CIT(A) AND ALSO BEFORE THE LD. A.O. THAT THE ASSESSEE HAD PURCHASED THE SHARES WHICH WERE SUBSEQUENTLY TRANSFERRED IN THE DMAT ACCOUNT AND THE 3 TRANSACTION WAS GENUINE AND AS SUCH THE INCOME CANNOT BE TAXED. 4. COMPLETE DETAILS WERE FILED ABOUT THE SHARE TRANSACTIONS ALONG WITH BROKERS CONFIRMATION AND THE CONFIRMATION FROM THE COMPANY ABOUT THE TRANSFER OF SUCH SHARES. THE LD. CIT(A) HAS GROSSLY ERRED IN OBSERVING THAT THE ENTIRE DEAL IS MANIPULATED ONE AND THE SALE AND PURCHAASE ARE UNDER SERIOUS DOUBT. 5. THE LD. CIT(A) HAS ERRED IN APPLYING THE CASE LAWS WHICH ARE NOT AT ALL APPLICABLE TO THE ASSESSEE 6. THE ADDITIONS MAINTAINED BY THE LD. CIT(A) MAY PLEASE BE DELETED. 7. THE LD. CIT(A) HAS ERRED IN DISALLOWING THE EXPENSES OF RS.93,412/- U/S 14A 4 3. THE A.O. FOUND THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 10(38) OF THE ACT WITH REGARD TO SHARES OF M/S LINK HOUSE INDUSTRIES LIMITED. HE DISALLOWED THE CLAIM OF THE ASSESSEE IN BOTH THE YEARS AND TREATED THE INCOME AS INCOME FROM UNDISCLOSED SOURCES INSTEAD OF LONG TERM CAPITAL GAINS. THE LEARNED CIT(A) HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER. NOW THE ASSESSEE IS IN APPEAL ON THIS ISSUE. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE RETURNS OF INCOME FOR THE ASSESSME NT YEARS 2007-08 AND 2008-09 WERE FILED DECLARING INCOME AT RS.26,37,893/- AND RS.36,62,211/- RESPECTIVELY. THE ASSESSEE CLAIMED DEDUCTION U/S 10(38) OF THE ACT WHIC H WAS NOT ALLOWED BY THE ASSESSING OFFICER AND ADDED TO T HE INCOME OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 68 OF THE ACT. 5 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE ACQUIRED 50,000 EQUITY SHARES OF M/S LINK HOUSE INDUSTRIES LIMITED IN 2004 IN OFF MARKET. THE INVESTMENT IN SHARES WAS REFLECTED IN THE PERSONAL BALAN CE SHEET OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2005-06 TO 2007-08. THESE SHARES WERE TRANSFERRED IN THE ASSESSE ES NAME IN THE COMPANYS RECORD I.E. M/S LINK HOUSE INDUSTRIES LIMITED. 40,000 SHARES WERE PURCHASED FROM MAYURI FINFEST PVT. LTD. AT THE COST OF RS.80,000/- WHICH WERE TRANSFERRED IN THE COMPANYS RECORD ON 19.6.200 4 AND THE SAME WERE ALSO TRANSFERRED IN THE DMAT ACCOUNT OF TH E ASSESSEE ON 21.1.2005. 10,000 SHARES PURCHASED FROM M/S MANODNYAMALA INVESTMENT & FINANCE PVT. LTD. (NOW KNOWN AS RIVERA IMPEX PVT. LTD.) WERE PURCHASED AT THE COST OF RS.20,000/-. THESE SHARES WERE ALSO TRANSFERRE D IN THE COMPANYS RECORD IN THE NAME OF THE ASSESSEE ON 19.6.2004. THE EVIDENCE IS PLACED AT PAGES 32 TO 35 AN D 6 40 OF THE PAPER BOOK. THESE SHARES WERE ALSO TRANSFERRE D IN THE DMAT ACCOUNT OF THE ASSESSEE ON 21.5.2005. THE RELEVANT EVIDENCE IS PLACED AT PAGE 76 OF THE PAPER BOO K NO. 1. THE SELLERS OF THE SHARES ISSUED PROPER INVOICES AND ALSO CONFIRMED THE SALE OF SHARES BY FILING AFFIDAVITS. T HE RELEVANT PAGE IS 31 AND 36 TO 39 OF THE PAPER BOOK. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SH ARE WAS SPLIT ON 18.8.2005 AND DIVIDED INTO SHARE OF RE.1/ - EACH. THUS, BY THE SPLIT OF THE SHARE, THE ASSESSEE BE CAME OWNER OF 5 LACS SHARES AND DEMATED ON 12.11.2005. THEREAFTER THE COMPANY M/S LINKE HOUSE PVT. LTD. ISSU ED BONUS SHARES IN THE RATIO OF 1:1 ON 23.11.2005. THUS , THE ASSESSEES HOLDING OF SHARES INCREASED TO 10 LACS. THES E ACTS OF SPLIT OF SHARES AND THE BONUS SHARES WERE DULY APPROVED BY THE ANNUAL GENERAL MEETING OF LINK HOUSE INDUSTRIES LTD. THE RELEVANT EVIDENCE IS AT PAGES 45 AN D 46 OF PAPER BOOK NO. 2. THE MARKET VALUE OF SHARES STARTED 7 UPWARD TREND EVEN PRIOR TO THE SPLIT OF SHARES AND ISS UE OF BONUS SHARES IN THE MONTH OF NOVEMBER AND DECEMBER, 2005. THE ASSESSEE SOLD THESE SHARES DURING THE PERI OD JUNE, 2006 TO NOVEMBER, 2007 AND EARNED LONG TERM CAPITAL GAINS. DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08, 5,85,000 SHARES WERE SOLD AND THE SALE VALUE REALISED WAS RS.1,53,21,760/-. THE PRICE WAS RANGING FROM RS. 22.46 TO RS.36.93. SIMILARLY IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2008-09 TH E TOTAL NUMBER OF SHARES SOLD WAS 4,15,000. THE SALE VALUE REALISATION WAS RS.88,93,562/- AND THE SALE PRICE WAS IN THE RANGE OF RS.15.40 TO RS.32.33 PER SHARE. ALL THES E TRANSACTIONS WERE THROUGH THE BROKER PRABHUDAS LILADHAR, BOMBAY, HAVING A BRANCH AT INDORE. HE ASSESSEE SUBMITTED THE BROKERS NOTE IN SUPPORT OF SALES BEFORE THE AUTH ORITIES BELOW PLACED AT PAGES 81 TO 102 OF THE PAPER BOOK NO. 1 . THE INVESTIGATION THROUGH ADI, NAGPUR, WAS MADE FROM 8 LINK HOUSE IND. LTD. WHICH CONFIRMED THE TRANSACTION WITH REGARD TO TRANSFER OF SHARES IN THE NAME OF THE ASSESSEE . THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED T HAT DETAILS OF PRICE MOVEMENT OF SHARES IN WHICH THE ASSES SEE HAS DEALT WITH AT THE BOMBAY STOCK EXCHANGE IN THREE YEARS FROM SEPTEMBER, 2005 TO 31 ST MARCH, 2007 WHICH ARE PLACED AT PAGES 138 TO 153 OF THE PAPER BOOK NO. 1. THE SHARES WERE TRANSFERRED FROM D-MAT ACCOUNT OF THE ASSESSEE AND THE PAYMENTS WERE RECEIVED BY CHEQUES. TH E ALLEGATION OF THE REVENUE THAT M/S LINK HOUSE LTD. IS A PENY STOCK COMPANY IS FACTUALLY INCORRECT. THIS COMPANY IS ENGAGED IN THE FIELD OF CONSTRUCTION OF MALLS AND MULT I- STOREYED COMPLEXES. THE VARIOUS STATISTISTICS FOR THE PERIOD 2005 TO 2008 FOR THE PERIOD RELEVANT TO THE ASSESSMEN T YEARS 2005-06 TO 2008-09 ARE AS UNDER :- 9 PARTICULARS AS ON 31.03.2005 AS ON 31.03.2006 AS ON 31.03.2007 AS ON 31.03.2008 SHARE CAPITAL 4,96,00,000 9,92,00,000 9,92,00,000 9,92,00,000 FREE RESERVE 7,00,01,490 2,63,38,455 3,31,71,803 5,07,16,860 SALES TURNOVER 7.76,94,924 9.30,12,680 9,49,73,174 11,28,49,159 OTHER INCOME 1.06,87,871 11,93,026 13,50,900 1,39,66,038 NET PROFIT BEFORE TAX 59,91,016 1,58,21,049 1,60,65,422 1,61,96,947 TAX PROVISION 7,52,810 28,31,000 22,68,532 18,60,914 DIVIDEND DECLARED 24,80,000 67,86,768 69,63,542 = PAGE NOS OF PAPER BOOK-II 62 - 63 115 - 116 90 - 91 137 - 138 HE SUBMITTED THAT THE ASSESSING OFFICERS OBSERVATION THAT THE LETTERS RETURNED BACK FROM M/S MAYURI FINVEST PV T. LTD. IS NOT CORRECT. BOTH THESE COMPANIES HAVE FILED THE C HANGED ADDRESS ON 26.11.2010. THE OTHER ALLEGATION OF THE 10 ASSESSING OFFICER THAT THERE WAS HUGE APPRECIATION OF P RICE IN SHARES IS ALSO AN APPREHENSION AND NOT BASED ON ANY EVIDENCE. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMI TTED THE DETAILS FROM THE STOCK EXCHANGE WITH REGARD TO PRI CE OF SHARES WERE FILED BEFORE THE ASSESSING OFFICER. HE SUBMITTED THAT THE ASSESSEE HAS PURCHASED THE SHARES WHICH ARE DULY REFLECTED IN THE BALANCE SHEET FOR THE F.Y. 2004-05. THE ASSESSEE ALSO SUBMITTED FORM NO. 32 AND 23 DOWNLOADED FROM THE REGISTRAR OF COMPANIES RECORD WHEREIN FULL ADDRESS OF THE REGISTERED OFFICE OF THE COMPANIES FROM WHOM THE ASSESSEE PURCHASED WERE AVAILABLE. THE NECESSARY EVIDENCE WAS ALSO SUBMITTED TO THE ASSESSING OFFICER WHICH IS PLACED AT PAGES 43 AND 4 4 OF THE PAPER BOOK NO. 1. THE ASSESSEE SUBMITTED AFFIDAVIT S FROM THE DIRECTORS OF THESE COMPANIES. BOTH THESE COMPANIES FROM WHOM THE ASSESSEE PURCHASED THE SHARES WERE HAVING COMMON MANAGEMENT. THE ASSESSEE HAS 11 PURCHASED THESE SHARES AND THE SAME HAVE BEEN SOLD THROUGH RENOWNED BROKER M/S PRABHUDAS LILADHAR HAVING REGISTRATION WITH STOCK EXCHANGE, MUMBAI, NATIONAL STOC K EXCHANGE. THIS BROKER IS ALSO WORKING AS PORT FOLIO MANAGER FOR SECURITY STOCK EXCHANGE BOARD OF INDIA. IT H AS AN OFFICE IN INDORE AT THE RELEVANT TIME. THE LEARNED AR ALSO RELIED UPON THE VARIOUS CASE LAWS AS UNDER :- I) SMT. ARJOO ANAND VS. JCIT (2010) 14 ITJ 604 (INDORE) [CONFIRMED BY THE HONBLE M.P. HIGH COURT IN APPEAL NO. 22/2010]. (PAGE 150 TO 155 OF P.B.) II) ACIT VS. CHANDRESH KUMAR MAHESHWARI (2009) 120 TTJ 132 (JODHPUR) III) CIT VS. SMT. SUMITRA DEVI (2014) 102 DTR 342 (RAJ) IV) CIT VS. ANIRUDH NARAYAN AGRAWAL (2013) 84 CCH 028(ALLH.) V) CIT VS. SMT. JAMNADEVI AGRAWAL (2010) 328 ITR 656 (MUM) VI) I.T.O. VS. BIBIRANI BANSAL (2011) 17 ITJ 306 (AGRA) VII) CIT VS. ANUPAM KAPOOR (2008) 299 ITR 179 (P&H) 12 VIII) ACCHYALAL SHAW VS. ITO (2009) 121 TTJ 695 (KOLKATA) IX) SMT. MEMO DEVI VS. ACIT (2008) 7 DTR 158 (AGRA) X) ITO VS. NAVEEN GUPTA (2006) 5 SOT 94 (DELHI) 6. ON THE OTHER HAND, THE LD. DR RELIED UPON THE ORD ERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE NOTICE U/S 136 OF THE ACT TO MAYURI FINVEST PVT. LTD. AND MANODNYAMALA INVESTMENT & FINANCE PVT. LTD. WAS RETURNED UNSERVED AND THE OPERATING INCOME OF THESE COMPANIES WAS VERY FEW AND THESE WERE KHOKHA COMPANIES. HE SUBMITTED THAT THE ISSUE OF BOGUS SHARE S AND SPLIT OF SHARES BY THE COMPANY IS NOT SUBSTANTIATED BY THE PROFIT EARNING CAPACITY OF THE COMPANY. HE SUBMIT TED THAT THE REPLY OF THE TWO SELLER COMPANIES IS IN THE SAME HAND-WRITING. HE FINALLY SUBMITTED THAT THE ASSESSEE HAS NOT ESTABLISHED THE GENUINENESS AND CREDIT WORTHINESS OF THE BUYERS OF THE SHARES. 13 7. WE HAVE HEARD BOTH THE SIDES. WE HAVE ALSO CONSIDERED THE VARIOUS CASE LAWS RELIED UPON BY BOTH THE SIDES. THE ASSESSEE HAS SHOWN PURCHASE OF 50,000 SHARES FOR RS. 1 LAKH. THESE SHARES WERE DULY TRANSFERRED IN THE COMPANYS RECORD IN THE ASSESSEES NAME. THESE SHARES WERE ALSO TRANSFERRED IN THE ASSESSEES DMAT ACCOUNT ON 21.9.2005. THESE SHARES WERE DULY TRANSFERRED IN THE ASSESSEES NAME IN THE COMPANYS RECORD AND ALSO IN THE DMAT ACCOUNT. THIS FACT IS DULY SUPPORTED BY THE EVIDE NCE PLACED AT PAGES 32 TO 35, 40 AND 46 OF THE PAPER BOOK N O. 1. THE LINK HOUSE LTD. WHOSE SHARES THE ASSESSEE HAS PURCHASED WAS HAVING TURNOVER OF RS.7.76 CRORES IN THE F.Y. 2004-05, RS. 9.30 CRORES IN THE F.Y. 2005-06, RS.9.49 CRORES IN THE F.Y. 2006-07 AND RS. 11.28 CRORES IN THE F.Y. 2007-08. THE NET PROFIT IN THESE YEARS WAS RS.59.91 LACS, RS. 158.21 LACS, RS.160.16 LAKHS AND RS. 161.96 LAKHS, RESPECTIVELY. THIS COMPANY HAS ALSO DECLARED DIVIDEND FOR 14 THE F.Y. 2004-05 OF RS. 24.80 LAKHS , FOR THE F.Y. 2 005-06 RS. 67.86 LAKHS AND FOR F.Y. 2006-07 RS.69.63 LAKHS. THUS, THE LINK HOUSE IND. LTD. CANNOT BE TERMED AS PE NY STOCK COMPANY. THE SPLIT OF SHARES AND ISSUING OF BONU S SHARES WITH THE APPROVAL OF THE AGM CANNOT BE HELD AS NON-GENUINE. THE BROKER THROUGH WHICH THE SALES WERE EFFECTED IS ALSO A RENOWNED BROKER REGISTERED WITH BO MBAY STOCK EXCHANGE, NSE AND ALSO WORKING AS PORT-FOLIO MANAGER FOR SEBI. SINCE THE TRANSACTION WAS THROUGH THE RENOWNED BROKER THEN THE ASSESSEE WAS NOT UNDER LEGAL OBLIGATION TO PROVE THE IDENTITY OF THE BUYER AND ALSO THE CREDIT WORTHINESS OF SUCH BUYER. IN THE TRANSACTION THROUGH STOCK EXCHANGE, THE BUYERS DID NOT COME IN THE KNOW LEDGE AND CONTACT OF THE SELLER BECAUSE THE TRANSACTIONS ARE CARRIED OUT THROUGH THE BROKER AT STOCK EXCHANGE. CONSIDERING ALL THESE ASPECTS, WE FIND THAT THE REVENU E IS NOT JUSTIFIED IN DOUBTING THE LONG TERM CAPITAL GAINS EARNED 15 BY THE ASSESSEE ON THE SALE OF SHARES OF LINK HOUSE LT D., THEREFORE, THE CLAIM OF THE ASSESSEE IS ALLOWED. 7. GROUND NO. 7 IN ITA NO. 328/IND/2013 IS REGARDING DISALLOWANCE OF RS.93,412/-. THE LEARNED CIT(A) HAS DE ALT WITH THE ISSUE AS UNDER :- NEXT GROUND OF APPEAL IS AGAINST DISALLOWANCE U/S 1 4A OF AY 2007-08. THERE IS NO DENIAL OF THE FACTTHAT APPELLANT RECEIVED DIVIDEND INCOME AND ALSO CLAIMED RS.6,90,475/- INCOME FROM SALE OF MUTUAL FUNDS AS EXEMPT. SINCE THERE IS EXEMPT INCOME EARNED THIS YE AR, THE EXPENSES OF RS,.93412/- IS CORRECTLY DISALLOWED BY A.O. U/S 14A OF THE IT ACT AND APPELLANT COULD NOT PROVIDE ANY VALID ARGUMENT AGAINST SUCH ADDITION OF RS.93412/- TO THE INCOME OF APPELLANT. THEREFORE, T HIS ADDITION IS HEREBY CONFIRMED. THIS GROUND OF APPEAL IS ALSO DISMISSED. 16 8. FROM THE ORDER OF THE LEARNED ASSESSING OFFICER W E FIND THAT THE ASSESSING OFFICER HAS APPLIED PROVISIONS OF R ULE 8D FOR WORKING OUT THE DISALLOWANCE. IT IS A SETTLED POS ITION OF LAW THAT FOR THE ASSESSMENT YEAR 2007-08 THE PROVISION S OF RULE 8D ARE NOT APPLICABLE. THEREFORE, WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DECID E DE NOVO WITHOUT INVOKING THE PROVISIONS OF RULE 8D BUT AS PE R THE RELEVANT LAW APPLICABLE FOR THE ASSESSMENT YEAR 2007-0 8. 9. IN THE RESULT, ITA NO. 328/IND/2013 IS PARTY ALLOW ED AND ITA NO. 329/IND/2013 IS ALLOWED. PRONOUNCED IN OPEN COURT ON 30 TH NOVEMBER, 2015 SD/- SD/- (D.T. GARASIA) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER 30 TH NOVEMBER, 2015 DN/- 17