SUMANT P. VAKHARIA, MUMBAI V. ITO 25(3)(4), MUMBAI

ITA 4215/MUM/2012

• Counselvise Citation: 421519914 RSA 2012
• Duration Of Justice: 2 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 15-07-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 18-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRAKASH L PATHADE
• Keywords: Deduction for capital gain; Additional evidence
• Section: 143(3)

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE S/SHRI H.L. KARWA, HONBLE PRESIDENT AND P.M . JAGTAP, AM .. , .. , ./ I.T.A. NO.4215 /MUM/2012 ( / ASSESSMENT YEAR : 2006-2007 MR. SUMANT P. VAKHARIA, C-2, N- 39, MAHAVIR NAGAR, SHANKAR LANE, KANDIVILI, MUMBAI 400 067. / VS. INCOME TAX OFFICER 25(3)(4), 307, 3 RD FLOOR, PRATYAKSHAKAR BHAVAN, BANDRA-KURLA COMPLEX, MUMBAI. ./ PAN : AAAPV 7484 P ( ! / APPELLANT ) .. ( '#! / RESPONDENT ) A PPELLANT BY SHRI J.P. BAIRAGRA R E SPONDENT BY : SHRI PRAKASH L. PATHADE ' ( / DATE OF HEARING : 15-07-2014 ' ( / DATE OF PRONOUNCEMENT : 31-7-2014 [ / O R D E R PER P.M. JAGTAP, A.M . : .. , THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LD. CIT(A) 35, MUMBAI DATED 27-4-2012. 2. THE RELEVANT FACTS OF THE CASE GIVING RISE TO TH IS APPEAL ARE AS FOLLOWS. THE ASSESSEE IS AN INDIVIDUAL WHO IS ENGAGED IN THE BUSINESS OF DEALING IN CLOTHES AND GENERAL MERCHANTS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY HIM ON 17-10-2006 DECLAR ING TOTAL INCOME OF RS. 3,84,783/-. IN THE SAID RETURN, LONG TERM CAPITAL G AIN OF RS. 16,07,834/- ARISING ON SALE OF 9000 SHARES OF RAMKRISHNA FINCAP LTD. WAS DECLARED BY THE ASSESSEE AND THE SAME WAS CLAIMED TO BE EXEMPT U/S 10(38) OF THE INCOME ITA 4215/M/12 2 TAX ACT, 1961. THE SAID SHARES WERE CLAIMED TO HAVE BEEN PURCHASED BY THE ASSESSEE ON 27-01-2004 THROUGH M/S BESANT PERIWAL & CO., SHARE BROKERS AND CONTRACT NOTE FOR THE SAME WAS DULY FURNISHED B Y THE ASSESSEE. IN ORDER TO CROSS VERIFY THE TRANSACTIONS OF PURCHASE AND SA LE OF SHARES BY THE ASSESSEE, ENQUIRY WAS DIRECTLY MADE BY THE A.O. FRO M M/S BESANT PERIWAL & CO. THE SAID PARTY, HOWEVER, DID NOT SUBMIT THE DE TAILS REQUIRED BY THE A.O. THE A.O., THEREFORE, MADE AN ENQUIRY FROM CALCUTTA STOCK EXCHANGE ASSOCIATION LTD. AND ALTHOUGH THE SAID ENQUIRY REVE ALED THAT M/S BESANT PERIWAL & CO. WAS A REGISTERED MEMBER OF STOCK EXCH ANGE AND HAD ALSO MADE TRANSACTION IN THE SHARES OF RAMKRISHNA FINCAP. LTD . ON 27-1-2004, THE A.O. FOUND THAT THE CLIENT CODE OF THE ASSESSEE GIVEN IN THE CONTRACT NOTE WAS DIFFERENT THAN THE CLIENT CODE INDICATED BY CALCUTT A STOCK EXCHANGE ASSOCIATION LTD. IN THE TRANSACTION MADE ON 27-1-20 04. HE ALSO FOUND THAT THERE WAS SOME DIFFERENCE IN THE QUANTITY OF THE SH ARES MENTIONED BY THE CALCUTTA STOCK EXCHANGE ASSOCIATION LTD. SINCE THE ASSESSEE COULD NOT OFFER ANY SATISFACTORY EXPLANATION IN THIS REGARD, THE A. O. HELD THAT THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES CLAIMED TO BE MADE BY THE ASSESSEE GIVING RISE OF LONG TERM CAPITAL GAIN WERE BOGUS AND ACCORDINGLY THE AMOUNT OF RS. 16,07,834/- SHOWN BY THE ASSESSEE AS LONG TERM CAPITAL GAIN WAS TREATED BY HIM AS INCOME OF THE ASSESSEE FROM U NDISCLOSED SOURCES. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. ALSO OBTAINED THE COPIES OF ACCOUNT OF THE ASSESSEE AS APPEARING IN THE BOOKS OF ACCOUNT OF SOME PARTIES HAVING DEALING OF PURCHASE AND SALE WI TH THE ASSESSEE. AS NOTICED BY THE A.O., THERE WAS A TOTAL DIFFERENCE O F RS. 3,39,435/- IN THE BALANCE AS SHOWN BY THE ASSESSEE IN HIS BOOKS OF AC COUNT IN RESPECT OF FIVE PARTIES AS AGAINST BALANCE SHOWN AS PER THE BOOKS O F ACCOUNT OF THE SAID PARTIES. SINCE THE ASSESSEE COULD NOT OFFER ANY SAT ISFACTORY EXPLANATION IN RESPECT OF THIS DIFFERENCE, THE AMOUNT OF RS. 3,39, 435/- WAS ALSO TREATED BY THE A.O. AS THE INCOME OF THE ASSESSEE FROM UNDISCL OSED SOURCES. ITA 4215/M/12 3 ACCORDINGLY, TWO ADDITIONS OF RS. 16,07,834/- AND R S. 3,39,435/- WERE MADE BY THE A.O. TO THE TOTAL INCOME OF THE ASSESSEE IN THE ASSESSMENT COMPLETED U/S 143(3) OF THE ACT VIDE AN ORDER DATED 10-12-200 8. 4. AGAINST THE ORDER PASSED BY THE A.O. U/S 143(3) OF THE ACT, APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) CHA LLENGING BOTH THE ADDITIONS MADE BY THE A.O. DURING THE COURSE OF APPELLATE PRO CEEDINGS BEFORE THE LD. CIT(A), IT WAS POINTED OUT BY THE ASSESSEE THAT A L ETTER DATED 17-12-2008 WAS SENT BY M/S BESANT PERIWAL & CO. CONFIRMING THE TRA NSACTIONS IN SHARES OF M/S RAMKRISHNA FINCAP. LTD. A COPY OF THE SAID LET TER WAS ALSO FILED BY THE ASSESSEE BEFORE THE LD. CIT(A) POINTING OUT THAT TH E SAID LETTER RECEIVED AFTER THE COMPLETION OF ASSESSMENT COULD NOT BE CONSIDERE D BY THE A.O. SIMILARLY, A STATEMENT RECONCILING THE DIFFERENCE IN THE BALANCE S OF FIVE PARTIES WAS ALSO PREPARED AND FURNISHED BY THE ASSESSEE. IT WAS SUB MITTED ON BEHALF OF THE ASSESSEE BEFORE THE LD. CIT(A) THAT SUFFICIENT TIME WAS NOT GIVEN BY THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS TO FILE THE SAID RECONCILIATION STATEMENT. KEEPING IN VIEW THE NEW DOCUMENTARY EVI DENCE FILED BY THE ASSESSEE BEFORE HIM FOR THE FIRST TIME, THE LD. CIT (A) SOUGHT REMAND REPORT FROM THE A.O. IN HIS REMAND REPORT, THE A.O. ACCEP TED THE EXPLANATION OFFERED BY THE ASSESSEE IN RESPECT OF DIFFERENCE IN BALANCE S OF FIVE PARTIES AFTER VERIFICATION OF THE RECONCILIATION STATEMENT FILED BY THE ASSESSEE EXCEPT TO THE EXTENT OF A MARGINAL DIFFERENCE OF RS. 3140/-. AS REGARDS THE SHARE TRANSACTIONS, HE STATED THAT ADDITIONAL EVIDENCE FI LED BY THE ASSESSEE IN THE FORM OF LETTER DATED 17-12-2008 ISSUED BY M/S BESAN T PERIWAL & CO. CONFIRMING THE RELEVANT TRANSACTION WAS NOT SUFFICI ENT TO ESTABLISH THE GENUINENESS OF THE RELEVANT SHARE TRANSACTIONS IN V IEW OF THE DISCREPANCIES NOTED FROM THE REPLY RECEIVED FROM CALCUTTA STOCK E XCHANGE ASSOCIATION LTD. 5. AFTER CONSIDERING THE SUBMISSION MADE BY THE ASS ESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD INCLUDING THE REMAND R EPORT SUBMITTED BY THE ITA 4215/M/12 4 A.O., THE LD. CIT(A) FOUND NO MERIT IN THE APPEAL O F THE ASSESSEE AND CONFIRMING BOTH THE ADDITIONS MADE BY THE A.O., HE DISMISSED THE SAME FOR THE FOLLOWING REASONS GIVEN IN PARA 7 OF HIS IMPUGN ED ORDER:- 7. I HAVE CONSIDERED THE APPELLANTS SUBMISSION AS WELL AS THE ASSESSMENT ORDER AND THE REMAND REPORT OF THE A.O. THE MAIN CONTENTION OF THE APPELLANT IS THAT APPELLANT MADE PAYMENT FOR THE SAME BY CHEQUE NO. 257747 OF STATE BANK. OF INDIA A ND THE SHARES WERE TRANSFERRED IN THE DEMAT ACCOUNT. AFOREMENTION ED SHARES WERE LYING IN APPELLANTS DEMAT ACCOUNT FOR MORE THAN 12 MONTHS. HOWEVER, DURING THE COURSE OF APPELLATE PROCEEDING THE APPEL LANT HAS FAILED TO PROVE REGARDING FINDING OF A.O. THAT THESE SHARES W ERE NOT REFLECTED IN THE TRANSACTION DETAILS OF THE SHARE BROKER WHO IS BASED IN CALCUTTA AND A MEMBER OF CALCUTTA EXCHANGE. THE SHARE SCRIPT CAL LEDED M/S RAMKRISHANA FINCAP LTD. DOES NOT APPEAR IN THE LIST OF QUOTED SHARES AND IT IS HIGHLY UNUSUAL THAT THE APPELLANT WHO IS BASED IN C-2, N-39, MAHAVIR NAGAR, SHANKAR LANE, KANDIVALI, MUMBAI -400 067 COULD NOT FIND ANY SHARE BROKER IN MUMBAI AND ALL THE WAY HE HAD TO PURCHASE FROM CALCUTTA STOCK BROKER NAMELY M/S BASANT PERIWA L & CO. THE APPELLANT HAD ALL THE OPPORTUNITY TO REBUT THE A.O S FINDING THAT THE ABOVE SHARE SCRIPT WAS GENUINELY PURCHASED ON A PAR TICULAR DATE AND WAS AVAILABLE WITH HIM AS A DELIVERY BASE SHARES FO R MORE THAN 12 MONTHS AND WAS ELIGIBLE FOR EXEMPTION UNDER CAPITAL GAIN SCHEME. IN FACT, KEEPING IN VIEW THE FINDINGS BROUGHT IN BY TH E A.O. IN ASSESSMENT ORDER AS WELL AS FACTS MARSHELLED IN THE REMAND REP ORT, IT IS DIFFICULT TO ACCEPT APPELLANTS CLAIM. 6. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE AS SESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS :- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING THE ADDITION OF ALLEGED INCOME FROM UNDI SCLOSED SOURCES OF 16,07,834/- WHICH IS EARNED BY THE APPELLANT AS LON G TERM CAPITAL GAINS ON SALE OF SHARES, WHICH IS EXEMPTED U/S. 10(38) OF THE INCOME TAX ACT. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) FURTHER ERRED IN CONFIRMING THE ADDITION OF 3,39,435/- BEING DIFF ERENCE IN THE PURCHASE AND SALES OF CLOTH AS SHOWN BY THE APPELLA NT IN THE BOOKS OF HIS PROPRIETARY CONCERN M/S. MANPASAND FABRICS AND AS SHOWN BY THE RESPECTIVE PARTIES IN THEIR BOOKS OF ACCOUNTS. 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS REGARDS T HE ISSUE INVOLVED IN GROUND ITA 4215/M/12 5 NO. 1 RELATING TO THE ASSESSEES CLAIM FOR LONG TER M CAPITAL GAIN ARISING FROM THE SALE OF SHARES OF M/S RAMKRISHNA FINCAP. LTD., IT IS OBSERVED THAT THE CLAIM OF THE ASSESSEE OF HAVING PURCHASED 15,000 OF SUCH SHARES ON 27-1-2004 AND HAVING SOLD 9000 OF SUCH SHARES DURIN G THE YEAR UNDER CONSIDERATION WAS DULY SUPPORTED BY CONTRACT NOTES AND RECEIPTS ISSUED BY THE CONCERNED BROKER M/S BESANT PERIWAL & CO. IN RE PLY TO THE ENQUIRY MADE BY THE A.O., THE CALCUTTA STOCK EXCHANGE ASSOCIATIO N LTD. ACCEPTED THAT M/S BESANT PERIWAL & CO. WAS A REGISTERED BROKER. IT W AS ALSO ACCEPTED THAT THE TRANSACTION INVOLVING PURCHASE OF 10,000 SHARES OF M/S RAMKRISHNA FINCAP. LTD. WAS MADE BY M/S BESANT PERIWAL & CO. FOR THEIR CLIENT ON 27-01-2004 AND TWO MORE TRANSACTIONS INVOLVING SALE OF SAME SC RIP OF 5500 AND 3500 SHARES WERE MADE ON 4-4-2005 AND 6-4-2005. THE CLIE NT CODE GIVEN BY THE CALCUTTA STOCK EXCHANGE ASSOCIATION LTD. IN RESPECT OF ALL THESE TRANSACTIONS, HOWEVER, WAS DIFFERENT THAN THE CLIENT CODE OF THE ASSESSEE GIVEN IN THE CONTRACT NOTES ISSUED BY M/S BESANT PERIWAL & CO. A ND KEEPING IN VIEW THE SAME AS WELL AS SOME DIFFERENCE IN THE QUANTITY OF SHARES PURCHASED ON 27-1-2004, THE A.O. TREATED THE ENTIRE TRANSACTIONS OF PURCHASE AND SALE OF SHARES BY THE ASSESSEE AS BOGUS. 8. AS REGARDS THE DIFFERENCE IN QUANTITY OF SHARES PURCHASED ON 27-1- 2004, IT IS RELEVANT TO MENTION THAT TOTAL 15000 SH ARES WERE PURCHASED BY M/S BESANT PERIWAL & CO. FOR THE ASSESSEE AND THERE WERE TWO CONTRACT NOTES ISSUED FOR THESE TRANSACTIONS, ONE FOR 10,000 SHARE S AND ANOTHER FOR 5000 SHARES. THERE WAS THUS NO DIFFERENCE IN THE QUANTI TY OF SHARES AS ASSUMED BY THE A.O. MOREOVER, A LETTER ISSUED BY THE BROKER O N 17-12-2008 CONFIRMING ALL THE TRANSACTIONS OF SHARES MADE ON BEHALF OF THE AS SESSEE WAS FILED BY THE ASSESSEE BEFORE THE LD. CIT(A) AS ADDITIONAL EVIDEN CE AND WHEN THE SAME WAS CONFRONTED BY THE LD. CIT(A) TO THE A.O., THE LATER DID NOT OFFER ANY ADVERSE COMMENTS EXCEPT RELYING ON THE INFORMATION RECEIVED FROM CALCUTTA STOCK EXCHANGE ASSOCIATION LTD. AS SUBMITTED BY THE LD. C OUNSEL FOR THE ASSESSEE, ITA 4215/M/12 6 OUT OF 15000 SHARES PURCHASED BY THE ASSESSEE ON 27 -1-2004, 6000 SHARES WERE SOLD BY THE ASSESSEE IN A.Y. 2005-06 AND THE C APITAL GAIN ARISING FROM THE SAID SALE IN A.Y. 2005-06 HAS ALREADY BEEN ACCE PTED BY THE A.O. IN THE ASSESSMENT COMPLETED U/S 143(3) OF THE ACT. IT THE REFORE FOLLOWS THAT THE GENUINENESS OF THE TRANSACTIONS OF PURCHASE OF SHAR ES ON 27-1-2004 HAS BEEN ACCEPTED BY THE A.O. IN A.Y. 2005-06 IN THE SCRUTIN Y ASSESSMENT COMPLETED U/S 143(3) OF THE ACT AND THE SAID ASSESSMENT HAS N OT BEEN REOPENED BY THE A.O. AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESS EE. IN OUR OPINION, THE GENUINENESS OF THE SAME TRANSACTION OF PURCHASE OF SHARES WHICH WAS ACCEPTED BY THE DEPARTMENT IN THE PAST THEREFORE CA NNOT BE DOUBTED IN THE YEAR UNDER CONSIDERATION AND KEEPING IN VIEW THIS F ACT AS WELL AS THE FACT THAT THE CLAIM OF THE ASSESSEE OF PURCHASE AND SALE OF S HARES IS DULY SUPPORTED BY RELEVANT DOCUMENTARY EVIDENCE, WE ARE OF THE VIEW T HAT THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN TREATING THE SAME AS BOGUS. I N THAT VIEW OF THE MATTER, WE SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(A) ON T HIS ISSUE AND DIRECT THE A.O. TO ACCEPT THE CLAIM OF THE ASSESSEE FOR LONG T ERM CAPITAL GAIN. 9. AS REGARDS THE ISSUE INVOLVED IN GROUND NO. 2 RE LATING TO THE ADDITION OF RS. 3,39,435/- MADE ON ACCOUNT OF DIFFERENCE IN THE BALANCES OF THE CONCERNED FIVE PARTIES, IT IS OBSERVED THAT A STATE MENT RECONCILING THIS DIFFERENCE FURNISHED BY THE ASSESSEE BEFORE HIM WAS FORWARDED BY THE LD. CIT(A) TO THE A.O. FOR THE LATERS VERIFICATION AND COMMENT. ON VERIFICATION OF THE SAID STATEMENT, THE A.O. FOUND THAT THE DIFFERE NCE WAS SUBSTANTIALLY RECONCILED BY THE ASSESSEE LEAVING A DIFFERENCE OF RS. 3140/- ONLY. DESPITE THIS FINDING GIVEN BY THE A.O. IN THE REMAND REPORT , THE LD. CIT(A) IN HIS IMPUGNED ORDER HAS NOT GIVEN ANY OBSERVATION ON THI S ISSUE. RATHER, HE HAS NOT GIVEN ANY SEPARATE FINDING ON THIS ISSUE IN HIS IMPUGNED ORDER AND DISMISSED THE APPEAL OF THE ASSESSEE THEREBY IMPLIE DLY CONFIRMING THE ADDITION OF RS. 3,39,435/- MADE BY THE A.O. KEEPIN G IN VIEW THE REMAND REPORT SUBMITTED BY THE A.O. BEFORE THE LD. CIT(A) WHEREIN HE ACCEPTED ITA 4215/M/12 7 SUBSTANTIALLY THE DIFFERENCE AS DULY RECONCILED BY THE ASSESSEE LEAVING THE UN- RECONCILED DIFFERENCE OF RS. 3140/-, WE ARE OF THE VIEW THAT THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE BY TH E A.O. ON THIS ISSUE AND IT WILL BE FAIR AND PROPER TO SUSTAIN THE SAME ONLY TO THE EXTENT OF RS. 3140/-. WE THEREFORE MODIFY THE IMPUGNED ORDER OF THE LD. C IT(A) ON THIS ISSUE AND RESTRICT THE ADDITION MADE BY THE A.O. ON THIS ISSU E TO RS. 3140/-. GROUND NO. 2 OF THE ASSESSEES APPEAL IS THUS PARTLY ALLOW ED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31ST JULY, 2014. ' . / 0 31-7-2014 ' SD/- SD/- (H.L. KARWA) (P.M. JAGTAP ) /PRESIDENT ACCOUNTANT MEMBER MUMBAI ; 0 DATED 31=7=2014 [ .B../ RK , SR. PS ' #%& '& / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT. 3. C () / THE DIT(E), MUMBAI 4. C / DDIT (E)-1(2), MUMBAI 5. F 'BBH , ( H , / DR, ITAT, MUMBAI E BENCH 6. / GUARD FILE. / BY ORDER, #F 'B //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI