ITO 19(3)(4), MUMBAI V. SHAMIM M BHARWANI, MUMBAI

ITA 4906/MUM/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9244 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 12-01-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 20-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: KESHAV B BHUJLE
• Keywords: Unexplained cash credit; Onus to prove; Penny stocks
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , BEFORE SHRI JOGINDER SINGH , JM AND SHRI SANJAY ARORA , AM ./ I. T.A. NO. 4906/MUM/2011 ( / ASSESSMENT YEAR: 2006 - 07 ) ITO - 19(3)(4), ROOM NO. 304, 3 RD FLOOR, PIRAMAL CHAMBER, LAL BAUG, MUMBAI / VS. SHAMIM M. BHARWANI NOOR - E - REHMANT, 5 TH FLOOR, B. J. ROAD, BANDRA, MUMBAI(W) - 400 050 ./ ./ PAN/GIR NO. AACPG 8674 N ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI NEIL PHILIP / RESPONDENT BY : SHRI KESHAV B. BHUJLE / DATE OF HEARING : 12.0 1.2015 / DATE OF PRONOUNCEMENT : 27 .0 3 .2015 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN A PPEAL BY THE REVENU E DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 30 , MUMBAI (CIT(A) FOR SHORT) DATED 18.04.201 1 , ALLOWING THE A SSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2006 - 07 VIDE ORDER DATED 29.12.2008. 2. THE SOLE ISSUE ARISING IN THE INSTAN T APPEAL IS THE MAINTAI NABILITY OR OTHERWISE IN LAW O F THE ADDITION BY WAY OF UNEXPLAINED CASH CREDIT U/S.68 OF THE ACT IN THE SUM OF RS.12 , 1 4,932 / - , REJECTING THE ASSESSEES EXPLANATION OF THE SAME AS REPRESENTING THE SALE 2 ITA NO. 4906/MUM/2011 (A.Y. 2006 - 07) ITO VS. SHAMIM M. BHA RWANI PROCEEDS OF EQUITY SHARES , SINCE DELETED BY THE LD. CIT (A) , SO THAT THE REVENUE IS IN APPEAL. 3. THE BASIS OF THE DISALLOWANCE OF THE ASSESSEES CLAIM BY THE ASSESSING OFFICER (AO) WAS THE FACTS AND CIRCUMSTANCES OF THE CASE . THE ASSESSEE , NOT A REGISTERED CLIENT OF THE B ROKER, SURESH KUMAR SOMANI , FR OM WHOM THE SHARES (2500 IN NUMBER) IN A COMPANY, EMRALD COMMERCIAL LTD . ( E CL), W ERE STATED TO HAVE BEEN PURCHASED ON 06.05.2004 . THE PURCHASE WAS IN CASH , SO THAT IT WAS NO T VERIFIABLE , AT LEAST IN - SO - FAR AS TO ITS TIME, WHICH IS OF ESSENCE . F URTHER , THE SAID TRA NSACTION WAS NOT THROUGH THE STOCK EXCHANGE , S O THAT THE SAME WAS NOT REGISTERED WITH IT. IN FACT, THE FIRST TRADE IN THE SAID SHARES ON THE CALCUTTA STOCK EXCHANGE , WITH WHICH THE ASSESSEE S BROKER , S.K. SOMANI, WAS REGISTERED , WAS ONLY ON 03.03.2005, I.E ., 10 MONTHS AFTER THE DATE OF THE ASSESSEES PURCHASE. THE SHARE S W ERE IN A NONDESCRIPT COMPANY, WITH NO FINANCIAL AND/OR PHYSICAL ASSETS OF VALUE OR REPORTED EARNINGS . THE SHARES , PURCHASE D A T AN AVERAGE RATE OF RS.21.7 0 PER SHARE I N MAY 2004, WENT UP TO AS MUCH AS FROM RS.465 TO RS.489 IN JULY, 2005, I.E., JUST OVER YEARS TIME . EACH OF TH E S E INCIDENTS MATCHED WITH THAT WHICH COULD BE EXPEC TED IN A CASE OF A TR ANSACTION IN A PENNY STOCK , THE MODUS O P E R A NDI OF THE TRANSACTIONS IN WHICH WAS ALSO LISTED BY THE AO . ACCORDINGLY, R EL YING ON THE DECISION S BY THE A PEX C OURT IN THE CASE OF SUMATI DAYAL VS. CIT [ 1995] 214 ITR 801 (SC) ; DURGA PRASAD MORE REPORTED IN 82 ITR 540 (SC) AND MC. DOWELL & CO. LTD . 1 54 ITR 148 (SC) , BESIDES BY THE T RIBUNAL IN THE CASE OF A SST. CIT VS. SOM N ATH MANI [2006] 100 TTJ 917 (CHD) , HE ASSE SSED THE IMPUGNED CREDIT OF RS. 12.15 LACS AS UNEXPLAINED INCOME U/S. 68 OF THE ACT . IN APPEAL, THE ASSESSEE HOWEVER FOUND FAVOUR WITH THE LD. CIT(A). THE PURCHASE OF SHARES W AS THROUGH A CONTRACT NOTE ISSUED BY A REGISTERED BROKER, DULY ACCOUNTED FOR IN HIS BOOKS OF ACCOUNT , AND COULD NOT BE DOUBTED MERELY BECAUSE IT WAS NOT THROUGH THE ONLINE TRADING SYSTEM OF THE STOCK EXCHANGE. THE BROKER WAS IN FACT CALLED FOR AN D EXAMIN ED BY THE AO. THE SHARES WERE DEMATERIALIZE D IN DUE COURSE OF TIME. THE PURCHASE PRICE STOOD PROVED BY THE FACT THAT THE SHARES WERE TRANSACTED ON THE STOCK EXCHANGE ON 06.05.2005 AT RS.21.70 PER SHARE, I.E., THE SAME RATE AT WHICH THE ASSESSEE HAD PURCHASE D THEM IN MAY, 3 ITA NO. 4906/MUM/2011 (A.Y. 2006 - 07) ITO VS. SHAMIM M. BHA RWANI 2004. TH E SALE PROCEED S WERE RECEIVED PER ACCOUNT PAY EE CHEQUE / S, DULY DEPOSITED IN THE ASSESSEES BANK ACCOUNT , AND NOT WITHDRAWN IN CASH. S ECURITY TRANSACTION TAX (STT) WAS PAID ON THE IMPUGNED SALE TRANSACTION /S, PROVED WITH DOCUMENTARY EVIDENCES AND, ACCORDING LY, ALL THE CONDITIONS OF SECTION 10(38) , CO NFERR ING EXEMPTION TO THE GAINS ARISING ON THE SALE OR TRANSFER OF SHARE S, W ERE FULFILLED. THE ASSESSEE S CLAIM BEING ALLOWED THUS , THE R EVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE PARTIES, AND PERUSED T HE MATERIAL ON RECORD. 4.1 AS SHALL BE EVIDENT FROM THE FOREGOING NARRATION OF EVENTS , THE PRIMARY FACTS (AND FIGURES) OF THE CASE ARE NOT I N DISPUTE , WHICH (DISPUTE) ARISES PRINCIPALLY ON ACCOUNT OF THE DIFFERENT INFERENCE S DRAWN FROM THE SAME SET OF PRI MARY FACTS BY THE TWO R EVENUE AUTHORITIES. THE ISSUE IS , THUS, ESSENTIALLY FACTUAL , RE VOLVING OR CENTERING A ROUND AS TO WHICH OF THE T W O INFERENTIAL F INDINGS A R E MAINTAINABLE IN LAW , I.E. , IN VIEW OF TH E S UR ROUNDING FACTS AND CIRCUMSTANCES OF THE CASE . T HE REVENUES PRINCIP A L AND THE ONLY CHAR GE IS QUA THE GENUINENESS OF THE TRANSACTION /S , AND WHICH HAS BEEN ACCEDED TO BY THE FIRST APPELLATE AUTHORITY IN VIEW OF THE DOCUMENTARY EVIDENCES FURNISHED BY THE ASSESSEE IN SUPPORT OF HIS CLAIMS. THAT GENUINENESS C OULD VALIDLY BE TESTED ON THE GROUND O R PRINCIPLE OF PREPONDERANCE OF HUMAN PROBABILITIES , WHICH COULD THUS FO R M A VA LI D GROUND OR PARAMETER FOR DETERMIN ING THE GENUI NE NESS , STANDS SINCE SETTLED BY THE APEX COURT IN SUMATI DAYAL (SUPRA), RELIED UPON BY THE R EVENUE, WHEREIN THE APEX COURT, IN DECLARING THE TRANSACTION AS NON - GENUINE , DISCARDED A HOST OF DOCUMENTARY EVIDENCES FI L ED OR RELIED UPON BY THE ASSESSEE - APPELLANT . THAT DOCUMENTARY EVIDENCES ARE NOT BY THEMSELVES CONCLUSIVE , AND THE TRUTH OF THE MATTE R OR THE DOCUMENTS COULD BE DETERMINED ON THE BASIS OF OR O N THE AN VIL OF THE S URROUNDING FACTS AND CIRCUMSTANCES OF THE CASE IS WELL SETTLED , AND FOR WHICH THE R EVENUE RELI ES ON THE DECISION IN THE CASE OF DURGA PRASAD MORE (SUPRA). WHAT IS RELEVANT , MORE SO WHER E THE GENUINENESS OF THE TRANSACTION I S IN ISSUE , IS THE TRU TH OF THE DOCUMENT / S FURNISHED IN SUBS TANTIATION , AS WELL AS THE SUBS TANCE OF THE TRANSACTION AND NOT IT S FORM , AND WHICH IS TO BE DETERMINED ON THE BASIS OF AND ON THE CONSPECTUS OF THE E NTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 4 ITA NO. 4906/MUM/2011 (A.Y. 2006 - 07) ITO VS. SHAMIM M. BHA RWANI THE ISSUE BEFORE US IS WHETHER THE DOCUMENT S FURNISHED BY THE ASSESSEE, INCLUDING AVERMENTS MADE BY HIM , OR EVEN HIS BROKER, SATISFY THE TEST OF PREPONDERANCE OF H UMAN PROBABILIT IES . IN OUR VIEW IF THE A SSESSEE HAS REASONABL Y EXPLAINED THE INTRIGUING FACTS AND CIRCUMSTANCES AS POINTED BY THE AO, AND ON THE STRENGTH OF WHICH THE GENUINENESS IS ASSAILED BY HIM , AND WHICH FURTHER AGREE WITH THAT OBSERVE D IN THE CASE OF A P ENNY S TOCK COMPANY , NO CASE FOR TR E A T ING THE TRANSACTION AS NOT GENUINE SHALL ARISE. THE ONUS U/S.68 THOUGH IS ON THE ASSESSEE, SO THAT HIS EXPLANATION WOULD , HOWEVER, REQUIRE BEING SUBSTANTIATED OR PROVED. THE CASE LAW IN THE MATTER IS LEGION, AND TOWARD WHICH WE MAY, IF ONLY FOR THE SAKE OF COMPLETENESS OF OUR ORDER, ADVERT TO THE SOME OF THE CELEBRATED DECISIONS BY THE APEX COURT IN THE MATTER: A. GOVINDA RAJULU MUDALIAR V. CIT [ 1958 ] 34 ITR 807 (SC) ; SREELEKHA BANERJEE & OTHRS. V. CIT [ 1963 ] 49 ITR 112 (SC) ; KALEKHAN MOHAMMED HANIF V. C IT [ 1963 ] 50 ITR 1(SC) ; CIT V. DURGA PRASAD MORE [ 1971 ] 82 ITR 540 (SC) ; CIT V. BIJU PATNAIK [ 1986 ] 160 ITR 674 (SC) ; S UMATI DAYAL V. CIT [ 1995 ] 214 ITR 801 (SC) ; AND CIT VS. P. MOHANAKALA &OTHERS [2007] 291 ITR 278 (SC) WE MAY FURTHER CLARIFY THAT IN PR OCEEDING WITH THE MATTER, WE HAVE CIRCUM SCRIBED THE ENTIRE MATERIAL ON RECORD. 4.2 THE ASSESSEE, TO BEG I N WITH , HAS NOWHERE EXPLAIN ED AS WHY THE SHARES WERE PURCHASE D IN CASH , THE SOURCE OF WHICH IS ASCRIBED TO CASH - IN - HAND , AND NOT TO ANY CONTEMPOR ANE OU S EVIDENCE , AS CASH WITHDRAWN FROM BANK ON THAT OR NEARBY DATES . HOW WAS THE CASH, ONE MAY ASK, TRANSMITTED FROM MUMBAI, WHERE THE ASSESSEE IS RESIDENT, TO KOLKATA, WHERE THE PURCHASE STANDS MADE, AND THE BROKER, TO WHOM IT IS PAID , LOCATED ? 4.3 THEN, A GAIN, WHY WAS THE TRANSACTION NOT CARRIED THROUGH A RECOGNIZE D STOCK EXCHANGE (SE) , MANDATORY IN LAW, EVEN AS IT WAS DONE THROUGH ITS REGISTERED MEMBER. TH I S BECOME S RELEVANT AND SIGNIFICANT FOR MORE THAN ONE REASON. FIRSTLY , IT PROVES THE TIME OF THE TRAN SACTION, WHICH IS OF ESSENCE INASMUCH AS IT DETERMINES THE HOLDING PERIOD OF THE SHARES/ASSET, WITH REFERENCE TO WHICH, W HERE OVER 12 MONTHS, EXEMPTION FROM TAX TO GAINS ARISING O N TRANSFER IS GRANTED BY LAW PER S .10(38) READ WITH OTHER RELEVANT DEFINING 5 ITA NO. 4906/MUM/2011 (A.Y. 2006 - 07) ITO VS. SHAMIM M. BHA RWANI P ROVISIONS OF THE ACT. THE FIRST APPELLATE AUTHORITY H AS IN THIS REGARD MENTIONED THE SETTLEMENT NUMBER OF THE TRANSACTION AS D - 2005326. THE SAME, EVEN AS STATED BY THE A.O. (REFER PARA 4.8 OF THE ASSESSMENT ORDER) , I S THE NUMBER OF THE CONTRACT NOTE ISSUED BY THE BROKER. THE SETTLEMENT , WHERE THE TRANSACTION IS CARRIED THROUGH THE SE, WHICH IS ADMITTEDLY NOT THE CASE , IS BETWEEN THE BROKERS OR THE MEMBERS OF THE SE AND, ACCORDINGLY, ONLY A NET AMOUNT IS PAYABLE OR RECEIVABLE BY A PARTICULAR BROKER FOR A PAR TICULAR PERIOD, CALLED THE SETTLEMENT PERIOD , WHICH EXTENDS TO GENERALLY ONE WEEK OR A FO RT NIGHT , AND WHICH IS TO OR FROM THE SE , WHICH AGGREGATES THE FINANCIAL IMPACT , I.E., THE NET RESULT OF ALL THE TRANSACTIONS AMONGST ALL THE BROKERS FOR THE SET TLEMENT PERIOD , ACTING AS A COLLECTING/ DISBURSING AGENCY. A SINGLE A MOUNT IS THUS EITHER PAYABLE OR RECEIVABLE BY EACH BROKER TO OR FROM THE SE FOR A PARTICULAR PERIOD, WHICH IS AGAIN NUMBER ED ( I.E., AS SETTLEMENT N UMBER ) , AND SERVE S TO SETTLE THE FINANCIAL OBLIG ATION S TO OR CLAIMS ON ALL THE OTHER MEMBERS OF THE EXCHANGE , I.E., OF EACH BROKER, FOR THAT PERIOD. THIS IS OF COURSE ACCOMPANIED BY GIVING AND TAKING DELIVERY OF THE SHARES, EITHER IN PHYSICAL FORM OR BY ISSUING OR ACCEPTING DELIVERY, WHICH I N EITHER CAS E IS REMITTED BY THE MEMBER TO HIS CLIENTS , FOR ON BEHALF OF THE WHOM HE ACTS , CHARGING A FEE CALLE D BROKERAGE/ COMMISSION , FOR H IS SERVICES. THE WHOLE PURPORT OF THE FORGOING N O T E ON THE TRADING PROCESS I S TO CLARIFY THAT THE SETTLEMENT ONLY SIGNIFI ES A SE TTLEMENT BETWEEN THE BROKERS , CARRIED OUT THROUGH THE EXCHANGE ACTING AS A N ODAL AGENCY , SO THAT THE PURCHASE TRANSACTION/S UNDER REFERENCE MAY NOT BE SO CONST RU ED INASMUCH THE SAME IS ADMITTEDLY OF F THE MARKET (EXCHANGE) , WHICH STANDS ESTABLISHE D BY THE R EVENUE THROUGH THE COMMUNICATION PER ITS LETTER TO THE AO IN RESPONSE TO A NOTICE U/S.133(6) BY THE CALCUTTA STOCK EXCHANGE. THIS ASPECT IS IN FACT NOT DISPUTED BY THE ASSESSEE. THE SAME MAY NOT NECESSARILY I MPL Y THAT THE TRANSACTION IS N OT GENUINE OR NOT UNDERTAKEN AT THE RELEVANT TIME , BUT THEN THE SAME WOULD HA VE TO BE SHOWN WITH REFERENCE TO SOME CORROBORAT IVE, EXTERNAL EVIDENCE. THE CONTRACT NOTE/ BILL BY THE BROKER IS ONLY AN INTERNAL VOUCHER , I.E., BY PERSON WHO IS A PARTY TO THE TRANSACTION AND , TH US , ACTING IN COHESION, IF NO T IN COLLUS ION. IT IS AFTER ALL A DOCUMENT GENERATED BY HIM , SO THAT ITS TRUTH , IN THE CONTEXT OF PAPER COMPANIES, THE SELLING OF GAINS AND LOSSES I N WHICH THE BROKERS, AS OPERATORS , PLAY A SIGNIFICANT ROLE, 6 ITA NO. 4906/MUM/2011 (A.Y. 2006 - 07) ITO VS. SHAMIM M. BHA RWANI CANNOT THEREF ORE BE DECIDED WITH REFERENCE THERETO OR THE STATEMENT BY THE BROKER , A RELATED PARTY. THIS, HOWEVER, WOULD BE SO ONLY WHERE THERE ARE STRONG FACTORS OR CIRCUMSTANCES WHICH CAUSE SERI OUS DOUBT ABOUT THE TRANSACTION. FOR EXAMPLE, HOW ONE MAY ASK, WERE THE S HARES TRANSMITTED TO THE ASSESSEE, LOCATED AT MUMBAI, WHO WOULD HAVE SIGNED THE TRANSFER FORM ? THE B ROKER O R THE ASSESSEE NOWHERE STA TE S THE REASON FOR CARRYING OUT THE TRANSACTION IN THE MANNER DONE, I.E . , OF F THE MARKET , WHICH IS NOT ORDINARILY PERMISSIB LE, AND IS SUBJECT TO SOME LEGAL CONSTRAINTS UNDER SECURITIES C ONTRACTS (REGULATION) ACT, 1956 . RATHER, HOW COULD HE DEAL WITH THE ASSESSEE, WHO IS NOT HIS CLIENT ! THEN, AGAIN , WHY WAS I T PAID FOR IN CASH , FOR WHICH THERE IS NO EVIDENCE, AND NEITHER HAS TH E BROKER BEEN SHOWN TO ACCEPT CASH IN THE ORDINARY COURSE OF HIS BUSINESS . WHY, FOR THE PERSONS TRADING THEREIN, THIS WOULD BE AN IMPEDIMENT TO CLAIM THE COST OF SHARES TRADED IN, IN VIEW OF THE NON OBSTANTE CLAUSE OF S. 40A(3). T HE BROKERS ARE IN FACT REQ UIRED TO MAINTAIN SEPARATE BANK ACCOUNT FOR THE FUNDS RECEIVED FROM OR ON BEHALF OF THE CLIENTS, SO THAT THE SAME DO NOT MERGE WITH THAT OF THE BROKER HIMSELF. W HAT IS EQUALLY IMPORTANT IS THE DATE ON WHICH THE SHARES WERE DEMATERIALIZE D . THIS IS AS NO TRA NSACTION COULD BE CARRIED OUT IN LISTED SHARES , I.E., IN THE PHYSICAL FORM , WHE RE THE SHARE S ST AND DEMATERIALIZE D BY THE COMPANY. WHY WERE THE SHARES SENT FOR DEMATERIALIZATION ONLY I N MAY 2005, I.E . , AFTER A DELAY OF OVER A YEAR, HAVING BEEN DEMATERIALIZE D ONLY ON 12.07.2005 (PB PG.10), I.E ., DAYS PRIOR TO THEIR SALE ON 22.07.2005 . TH AT IS , ASSUMING THAT THE SHARES WERE ACTUALLY PURCHASE D AND DELIVERED TO THE ASSESSEE IN MAY , 2004 . R ATHER , AS IT WOULD APPEAR TO US, THE DEMATERIALIZATION OF THE SHARES COINC IDES WITH THE SPIRA L ING PRICE OF THE S CRIP , SO THAT AN O R CHEST RA TION OF THE EVENTS IS APPARENT. THE SHARES, EVEN ASSUMING A VALID PURCHASE, THUS, WOULD BE CLOSE TO THE DATE/S OF DEMATERIALIZATION. THE ASSESSEE STATES OF HAVING REPORTED ITS PURCHASE (OF S HARES) ON 06.05.2004, PER HIS BALANCE - SHEET AS AT 31.03.2005, ENCLOSING IT ALONG WITH HIS RETURN OF INCOME FOR A.Y.2005 - 06 (PB PGS. 15, 16). THE RETURN OF INCOME, HOWEVER, IS FILED ONLY ON 28.10.2005, WHICH IS EVEN SUBSEQUENT TO THE SALE OF SHARES ON 12.07 .2005, SO THAT THE SAID REPORTING OF THE TRANSACTION, WHICH OF COURSE DOES NOT BEAR THE DATE OF PURCHASE, IS TO NO MOMENT. THE ASSESSEE RELIES ON A COMMUNICATION 7 ITA NO. 4906/MUM/2011 (A.Y. 2006 - 07) ITO VS. SHAMIM M. BHA RWANI FROM THE COMPANY DATED 17.05.2004 (PB PG. 2) TO SHOW THAT THE SHARES WERE LODGED FOR TRANSFER WITH THE COMPANY IMMEDIATELY UPON PURCHASE ON 06.05.2004, EVIDENCING, THUS, THE VALIDITY OF THE PURCHASE DATE. IN THIS REGARD, WE MAY FIRSTLY CLARIFY THAT PROVING PURCHASE AS GENUINE; THE REVENUE DOUBTING TH E PRICE RISE AND, THUS THE GAIN , WOULD THEREFORE ONLY MAKE OUT A CASE FOR THE EXCLUSION OF A PART (RS. 54,250/ - ) OF THE IMPUGNED SUM OF RS.12.15 LACS, WHICH REPRESENTS THE ENTIRE SALE PROCEEDS OF THE SHARES. IT NEEDS TO BE APPRECIATED THAT WHAT IS ESSENTIALLY UNDER CLOUD, AND BEING SERIOUSLY DOUBTED AS T O THE GENUINENESS, IS THE GAIN STATED TO ARISE ON THE TRANSACTION. IT IS THE GAIN WHICH IS ABNORMAL, I.E., BOTH QUA THE SCRIP; ITS TRADING AND, THUS, ITS QUANTUM, AND UNEXPLAINED, BESIDES BEING TAX EXEMPT, AND WHICH IS INDEPENDENT OF ITS PURCHASE. THE PUR CHASE OF SHARES OF A LITTLE KNOWN COMPANY OF THE FACE VALUE OF RS.10/ - EACH AT RS.21 - 22 WOULD EVEN OTHERWISE HARDLY RAISE ANY EYEBROW OR DOUBT. THE PURCHASE GETS DOUBTED EXAMINED ONLY FOR THE REASON THAT IT REPRESENTS A PART OF THE OVERALL TRANSACTION, WHI CH IS CONSIDERED BY THE REVENUE AS AN ARTIFICE. IN OTHER WORDS, PROVING THE PURCHASE WOULD BY ITSELF NOT PROVE THE TRANSACTION OF GAIN, WHICH STANDS IMPUGNED AND, FURTHER, BEING AT A MINOR SUM HAS LITTLE BEARING IN THE MATTER. IN FACT, THE A.O. STATES PREC ISELY THIS (REFER PARA 4.9(A) OF HIS ORDER) , THAT EVEN ASSUMING THE PURCHASE AS GENUINE, THE SALES, GIVEN THE HIGH RATES FOR SUCH PENNY STOCKS, WITH NO REAL BUYERS, ARE BOGUS. COMING TO THE ASSESSEES CONTENTION ON MERITS, THE LETTER DATED 17.05.2004 SUPRA INSPIRES LITTLE CONFIDENCE. IT DOES NOT SPECIFY THE NAME OF THE AUTHORIZED SIGNATORY, THE SIGN BEING OTHERWISE NOT VISIBLE. IT BEARS NO SERIAL NUMBER, EVEN AS IT REPRESENTS A COMMUNICATION, WHICH A COMPANY OR ITS SECRETARIAL DEPARTMENT IS REQUIRED TO MAKE IN THE REGULAR COURSE OF ITS BUSINESS. IT FURTHER DOES NOT BEAR ANY INDICATION OF THE MANNER IN WHICH IT IS CONVEYED TO THE ASSESSEE, I.E., BY HAND, PER POST - ORDINARY OR REGISTERED; PER COURIER, ETC., WHICH IS, AGAIN, A NORM, BESIDES ESTABLISHING ITS DA TE. SUCH REMITTANCES ARE GENERALLY THROUGH REGISTERED POST, SO THAT IT WOULD CONSTITUTE EVIDENCE WITH THE COMPANY FOR HAVING DELIVERED THE SHARES, WHICH ARE EVEN OTHERWISE VALUABLE DOCUMENTS. THE INCIDENTAL QUESTION THAT ARISES IS THE DATE WHEN THE SHARES WERE DEMATERIALIZED BY THE COMPANY. THIS IS AS IT CLEARLY SHOWS THAT THE SHARES, ISSUED ONLY ON 31.03.2004, BEING REMITTED TO THE TRANSFEREE IN THE PHYSICAL FORM ON 17.05.2004, WERE NOT 8 ITA NO. 4906/MUM/2011 (A.Y. 2006 - 07) ITO VS. SHAMIM M. BHA RWANI CONVERTED INTO THE D - MAT FORM TILL THEN. THIS IS RELEVANT AS THE TRADI NG ON THE EXCHANGE, WHICH ONLY WOULD MAKE THE SHARE A LISTED SHARE, GAIN ON WHICH IS EXEMPT U/S.10(38), COULD AS PER THE GUIDELINES ONLY BE IN THE D - MAT FORM. NO WONDER, THE TRADING ON THE EXCHANGE IN THE SAID SCRIP COMMENCES ONLY ON 03.03.2005. HOW COULD , IN THAT CASE, IT BE SAID THAT THE ASSESSEE HAS TRANSFERRED/SOLD A LISTED SHARE AFTER HOLDING IT FOR A PERIOD OF A YEAR ( OR MORE ) ? THE ASSESSEE SPEAKS OF HAVING DEPOSITED STT, BUT , THEN, THE QUESTION IS WHETHER THE SAID PAYMENT WOULD MAKE A NON - GENUINE T RANSACTION, GENUINE. 4.4 FURTHER ON, WHY , AND ON WHAT BASIS, THE ASSESSEE, A TEACHER BY PROFESSION AS WELL AS A PARTNER IN A PARTNERSHIP , WITH NO DOCUMENT ED OR REPORTED EXPERIENCE IN TRADING IN SHARES OR INVESTMENT THEREIN - H IS BALANCE SHEET AS ON 31.03. 2005 REFLECTING NO INVESTMENT IN SHARES EXCEPT THE 2500 SHARES IN E CL (BESIDES ANOTHER FOR A MEAGER AMOUNT OF RS.2100) , PICK THE SAID SHARES, I.E., SELECTED THE SAID SCRIP FOR INVESTMENT , AND WHICH IN FACT STOOD ISSUED ONLY DAYS EARLIER ON 31.03.2004. THE COMPANY REPORTEDLY HAS NO STANDING EITHER IN THE INDUSTRY OR IN THE MARKET (I.E. , FOR THE GOODS OR SERVICE S IT PRE SUMAB LY DEALS IN) , OR EVEN IN THE TRADING CIRCLES, I.E. , FOR SHARES. THAT APART, NO MATERIAL TO ESTABLISH ITS BUSINESS ACTIVITY, VIZ. IT S ANN UAL REPORTS , OR OF THE COMPANIES UNDER THE SAME MANAGEMENT/INDUSTRY , ETC., TO EXHIBIT ITS CREDENTIAL S IN ANY MANNER , STANDS ADD UCED BY THE ASSESSEE AT ANY STAGE OF THE PROCEEDINGS. CONTINUING FURTHER , HOW AND ON WHAT BASIS, A SHARE TRADING IN THE RANGE OF RS.21 / - TO RS. 22 / - IN MAY 2005 , WITNESS A RISE TO RS.465 TO R S.490 IN SID E A COUPLE OF MONTHS - THE ASSESSEES SALE, AT RS.487/ - APIECE , BEING ON 22.07.2005 . T HIS IS AMAZING BY ANY STANDARD , AND WH ICH HAS NOT BEEN EXPLAINED IN ANY MANNER , I.E., ASSUMING IT TO BE NOT A CASE OF PRICE MANIPULATION , WHICH IS THE MODUS O P ERA NDI ADOPTED FOR REFLECTING PRICES ON THE SE. W HO, ONE MAY ASK, ARE THE PURCHASERS OF SUCH SHARES, I.E., IN A NONDESCRIPT COMPANY AT SUCH HIGH PRICES ; NO INFORMATION QUA WHICH STANDS FURNIS HED AT ANY STAGE, EVEN AS I T IS THEY WHO HAVE APPARENTLY B OUGHT THE SHARES, SUPPLYING THE CREDIT TO THE ASSESSEE , WHICH IS BEING QUESTIONED AND EXAMINED AS TO ITS GENUINENESS U/S. 68 OF THE ACT . ALL T HIS DEFINITELY CASTS SERIOUS DOUBTS ON THE GENUINENESS O F THE SALE PRICE AND, THUS , THE ENSUING GAIN. THIS, IN FACT , IS A CLASSICAL 9 ITA NO. 4906/MUM/2011 (A.Y. 2006 - 07) ITO VS. SHAMIM M. BHA RWANI FEATURE OF A PENNY STOCK , THE PRICE ZOOMING FOR NO APPARENT, ECONOMIC OR EVEN TECHNICAL, REASONS. ONE COULD UNDERSTAND WHERE THE SAME IS IN SYMPATHY WITH THE M ARKET SENTIMENT OR SO ME INDUSTRY - WISE FAVOURABLE DEVELOPMENT , EVEN AS THE SHARE OSTENSIBLY TRADES, I.E., GOING BY THE MARKET QUOTE, AT OVER 22 TIMES ITS PRICE OBTAINING TWO MONTHS EARLIER, IMPLYING, BY CORRESPONDENCE, A JUMP IN THE MARKET INDEX TO THE SAME OR SIMILAR EXTENT, I .E., 2200 %, OVER THE SAME PERIOD, WHICH IS BOTH UNHEARD OF - WORK AS IT DOES TO, A GROWTH RATE OF 13200% P.A., AND, OF COURSE, NOT SHOWN . THERE IS AGAIN NO WHISPER AND, CONSEQUENTLY, NO INFORMATION ON RECORD OF THE PARTICULAR INDUSTRY/S IN WHICH, IF ANY , T HE SAID COMPANY OPERATES , OR ITS FINANC IALS, MUCH LESS FUTURE PROSPECTS, THE INFORMATION ON ALL OF WHICH GETS FACT ORED INTO AND C APTURED IN WHAT IS CALLED PRICE , REPRESENTING AN EQUILIBRIUM OF THE SUPPLY AND DEMAND FORCES . IN FACT , EACH OF THE OTHER INCI DENCES, I.E., FOR A PENNY STOCK COMPANY, ARE EXHIBITED IN THE PRESENT CASE, AS POINTED OUT BY THE AO PER PARAS 4.8 AND 4.9 OF HIS ORDER , AS UNDER: A) . T HE SCRIP IS A P ENNY S TOCK, PURCHASE D AT A LOW PRICE, W HICH I S OVER A PERIOD OF TIME RAMPED UP BY OPERAT ORS ACTING IN BENAMI NAMES OR NAME LENDERS. THE PURCHASES ARE OF F MARKET PURCHASES, A ND NOT REPORTED ON THE EXCHANGE; B). T HE PURCHASE /S IS BACK DATED , I.E. , PER A BACK DATED CONTRACT NOTE, PAID FOR IN CASH, SO THAT T HERE IS NO TRAIL; C) . T HE PURCHASES A RE IN THE PHYSICAL FORM , AND DEMATERIALIZE D ONLY SUBSEQUENTLY ; GENERALLY LONG AFTER THE PURCHASE DATE, BEING BACK DATE D AND, FURTHER, CLOSE TO THE DATE OF SALE; AND D). THE INVESTEE IS A PENNY STOCK COMPANY, WITH NO CREDENTIALS, AND THE SALE RATES ARTIFI CIALLY HIKED, WITH NO REAL BUYERS , SO THAT THE INFERENCE OF THE SALES BEING BOGUS , IS UNMISTAKABLE . 4.5 THE ASSESSEE WAS S H O W CAUSE D O N ALL THESE PARAMETERS, SEVEN IN NUMBER , LIST ED AT PAR A 4.11 (PAGE 7 ) OF THE ASSESSMENT ORDER, TO NO SATISFACTORY REPLY BY THE ASSESSEE AND, IN FACT, AT ANY STAGE. THERE IS IN FACT NO REPLY TO THE AO (REFER PARA 4.14 (I) OF THE ASSESSMENT ORDER) , WHOSE SATISFACTION THE LAW MANDATES, SO THAT THE PURVIEW OF THE APPELLATE AUTHORITY IS AS TO WHETHER THE AO IN BEING NOT SATISFI ED HAD ACTED REASONABLY, I.E., GIVEN THE ASSESSEES EXPLANATION, INCLUDING THE MATERIALS/EVIDENCES FURNISHED IN SUPPORT , OR NOT . 10 ITA NO. 4906/MUM/2011 (A.Y. 2006 - 07) ITO VS. SHAMIM M. BHA RWANI THE AO, ACCORDINGLY , TREATED THE IMPUGNED TRANSACTION AS NOT SATISFACTORILY EXPLAIN ED, AND ADDED THE SAME U/S.68 OF THE ACT . R E LIANCE WAS PLACED BY HIM ON THE DECISIONS BY THE T RIBUNAL IN THE CASE OF SOMNATH MANI (SUPRA), ALSO REPR ODUCING THERE - FROM, AS WELL AS IN THE CASE OF H OUSING D EVELOPMENT AND F INANCE C ORPORATION L TD . ( ITA NO .2913/MUM/1995 DATED 12.09.2005) , RENDERED APPLYIN G THE FIRST PRINCIPLES AND THE LEGAL PROPOSITIONS ENU NCIATED BY THE APEX COURT PER THE DECISIONS CITED BY THE AO (SUPRA). THE T RIBUNAL IN THE CASE OF ZIAUDDIN A. SIDDIQUE (IN ITA NOS. 4699 AND 4700/MUM/2011 AND OTHERS DATED 25.04.2014 ) ISSUED A FINDING OF FACT, OF COURSE ON THE BASIS OF THE MATERIAL ON RECORD, AS TO CIRCULAR TR AD ING , IN CASE OF A PENNY STOCK COMPANY, ELTROL LTD. , EXPOS ING OR VALID A T ING THE MOD U S OPERANDI AS STATED TO BE ADOPTED IN THE CASE OF SUCH STOCKS THE PRICE, DE - HORS ANY FUNDAMENTA LS OR OTHER FACTORS , OF P AP ER COMPANIES BEING RA KED U P ON THE E X CHANGE, SO AS TO YIELD GAIN , AND THEN A GAIN, EQUALLY WITHOUT BASIS, GR OUNDED TO YIELD LOSS, BOTH OF WHICH, I.E., GAIN AND LOSS, FIND READY CUSTOMERS OR TAKERS . THE PURPOSE IS TO E VADE TAX OR TO YIELD S O M E TAX BENEFIT . TR UE, THIS HAS NOT BEEN ESTABLISHED IN THE PRESENT CASE, BUT THE FEATURES ARE STRIKINGLY SAME , WITH THE IMPUGNED TRANSACTION BEARING THE SAME INCIDENTS , SO THAT O D DS ARE LOA D ED HEAVILY AGAINST THE GENUINENESS OF THE T RANSACTION. THE ONUS TO ESTABLISH THE SAME, IT IS TO BE BORNE IN MIND, IS ON THE ASSESSEE. THE LD. CIT(A) HAS DISMISSED THE SAME AS MERELY SUSPICIONS . WE ARE, HOWEVER , UNABLE TO , FOR THE REASONS A FORE - S T AT ED , PERSUADE OURSELVES TO AGREE WITH HIM, EACH OF T HE SEVERAL INCIDENTS AND , THEREFORE, THE QUESTIONS ARISING, TH AT IMPUGN THE GENUINENESS IN THE PRESENT CASE , ARE BASED ON ADMITTED AND UNDISPUTED FACTS . T HE ISSUE, AS CLARIFIED A T THE BEGINNING OF THE DISCUSSION , BEING THE VALIDITY OF THE INFE RE NTIAL FINDI NGS - TH ERE B EING A DIFFERENCE B ETWEEN THE TWO R EVENUE AUTHORIT IES . WE FIND THE OBS ERVATIONS BY THE AO AS VALID AND RELEVANT , TO NO SATISFACTORY ANSWER OR E XPLANATION BY THE ASSESSEE, I.E., TO THE QUESTIONS , IN CIDENTS O R THE PHENOMEN ON OBSERVED . D ISMISSING THE SAME AS M ERE SUSPICIO N S , AS DOES THE LD. CIT(A) , IS, TO OUR MIND, GLOS SING OVER THE MANY ATTENDANT FACTS AND INCIDENTS, THE MOST VITAL, AND ON WHICH WE OBSERVE COMPLETE SILENCE OR ABSENCE OF ANY EXPLANATION, IS THE ABSENCE OF ANY CREDENTIALS OF THE INV ESTEE - COMPANY . THE LD. CIT(A) PICKS UP ONE INCIDENT OR ASPECT OF THE TRANSACTION AT A TIME TO NOTE OF IT BEING 11 ITA NO. 4906/MUM/2011 (A.Y. 2006 - 07) ITO VS. SHAMIM M. BHA RWANI BACKED BY DOCUMENTARY EVIDENCE/S AND, THEREFORE, GENUINE. THE APPROACH IS FALLACIOUS. FIRSTLY, DOCUMENTARY EVIDENCES, IN THE FACE OF UNUSUAL EVEN TS, AS PREVAILING IN THE INSTANT CASE, AND WITHOUT ANY CORROBORATIVE OR CIRCUMSTANTIAL EVIDENCE/S, CANNOT BE REGARDED AS CONCLUSIVE. TWO, THE PREPONDERANCE OF PROBABILITIES ONLY DENOTES THE SIMULTANEOUS EXISTENCE OF SEVERAL FACTS, EACH PROBABLE IN ITSELF , ALBEIT LOW, SO AS TO CAST A SERIOUS DOUBT ON THE TRUTH OF THE REPORTED FACTS, WHICH TOGETHER MAKE UP FOR A BIZARRE STATEMENT, LEADING TO THE INFERENCE OF COLLUSIVENESS OR A DEVICE SET UP TO CONCEAL THE TRUTH, I.E., IN THE ABSENCE OF CREDIBLE AND INDEPE NDENT EVIDENCES. FOR A SCRIP TO TRADE AT NEARLY 50 TIMES ITS FACE VALUE, ONLY A FEW MONTHS AFTER ITS ISSUE, ONLY IMPLIES, IF NOT PRICE MANIPULATION, TRAIL BLAZING PERFORMANCE AND/OR GREAT BUSINESS PROSPECTS (WITH OF COURSE PROVEN MANAGEMENT RECORD , SO AS TO BE ABLE TO TRANSLATE THAT INTO REALITY) , WHILE EVEN AS MUCH AS THE COMPANYS BUSINESS OR INDUSTRY OR FUTURE PROGRAM (ALL OF WHICH WOULD BE IN PUBLIC DOMAIN) , IS CONSPICUOUS BY ITS ABSENCE, I.E., EVEN YEARS AFTER THE TRANSACTION/S. THE COMPANY IS, BY ALL COUNTS, A PAPER COMPANY , AND ITS SHARE TRANSACTIONS, MANAGED . W E, ACCORDINGLY, REVERSING THE FINDINGS OF THE FIRST APPELLATE AUTHORITY , CONFIR M THE ASSESSMENT OF THE IMPUGNED SUM U/S.68 OF THE ACT. WE DECIDE ACCORDINGLY. 4.6 THE ASSESSEE HAS RELIED ON S EVERAL CASE LAWS . AS WOULD BE APPARENT FROM THE FORGOING , ABUNDANT CASE LAW HAS BEEN RELIED UPON BY THE BOTH SIDES . T HE ISSUE IS NOT O F THE APPLICATION OF ANY PARTICULAR CASE LAW. THE LEGAL PROPOSITION S BEING WELL SETTLED, EACH CASE RE STS ON ITS OWN FACTS. OUR DECISION , LIKEWISE , AND A S WOULD ALSO BE APPARENT, IS GUIDE D SOLELY BY THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, INCLUDING THE ASSESSEES EXPLANATION IN RESPECT THEREOF. THE RELIANCE ON CASE LAW, THE FACTS OF NONE OF WHICH WERE GON E THROUGH AT THE TIME OF HEARING, EVEN AS THE ISSUE IS PRINCIPALLY FACTUAL, WOULD THUS B E OF NO ASSISTANCE TO THE ASSESSEES CASE. WE MAY THOUGH CLARIFY THAT THE R EVENUE HAVING INVOKED THE PROVISION OF S. 68, THE BURDEN TO PROVE THE CREDIT TRANSACTION / S AND , THUS , ITS GENUINENESS , IS ON THE ASSESSEE. IT IS THEREFORE NOT NECESSARY OR INCUMBENT ON THE R EVENUE TO, I.E., FOR THE PURPOSE OF APPLICATION OF SEC. 68, TO EITHER D I SP ROVE OR EXHIBIT THE TRANSACTION AS SHAM OR BOGUS, AND ITS OBLIGATION ONLY EXTENDS TO SHOW THAT THE 12 ITA NO. 4906/MUM/2011 (A.Y. 2006 - 07) ITO VS. SHAMIM M. BHA RWANI GENUINENESS OF T HE IMPUGNED CREDIT TRANSACTION IS DOUBTFUL OR HAS NOT BEEN SATISFACTORILY PROVED BY THE ASSESSEE. 5. IN THE RESULT, THE R EVENUE S APPEAL IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 27 , 201 5 SD/ - SD/ - ( JOGINDER SINGH ) (S ANJAY ARORA) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 27 . 0 3 .201 5 . ./ PATEL , PS / COPY OF THE ORDER FORWARDED TO : 1. / THE AP PELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI