SUNAY S. MEHTA, MUMBAI V. DCIT CEN CIR 5, MUMBAI

ITA 5099/MUM/2009

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3068 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 09-07-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 07-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJUNATHA SWAMY
• Assessee Lawyers: CHETAN KARIA
• Keywords: Unexplained investment; Capital asset; Income from undisclosed sources
• Section: 143(3); 153A; 131; 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E B ENCH, MUMBAI BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, JUDICIAL MEMBER / I .TA NO. 5099/MUM/2009 ( / ASSESSMENT YEAR: 2006-07 SHRI SUNAY S. MEHTA, C/O DIMEXON DIAMONDS LTD., 804, RAHEJA CHAMBERS, 213, NARIMAN POINT, MUMBAI-400 021 / VS. THE DCIT, CENT. CIR.5, AAYAKAR BHAVAN, MUMBAI-400 020 ./ ./ PAN/GIR NO. AIZPM 8292P / I .TA NO. 5100/MUM/2009 ( / ASSESSMENT YEAR: 2006-07 SHRI SAMIT S. MEHTA, C/O DIMEXON DIAMONDS LTD., 804, RAHEJA CHAMBERS, 213, NARIMAN POINT, MUMBAI-400 021 / VS. THE DCIT, CENT. CIR.5, AAYAKAR BHAVAN, MUMBAI-400 020 ./ ./ PAN/GIR NO. AIZPM 8293N ( / APPELLANT ) .. ( / RESPONDENT ) / ASSESSEE BY: SHRI CHETAN KARIA / REVENUE BY: SHRI MANJUNATHA SWAMY / DATE OF HEARING :05.07.2016 ! / DATE OF PRONOUNCEMENT :21.09.2016 / O R D E R PER C.N. PRASAD, JM: THESE TWO APPEALS ARE FILED BY THE ASSESSEES AGAIN ST THE ORDER OF THE LD. CIT(A)-CENTRAL II, MUMBAI DATED 19.06.20 09 PERTAINING TO ITA NOS. 5099 & 5100/M/09 2 ASSESSMENT YEAR 2006-07 ARISING OUT OF THE ORDER PA SSED U/S. 143(3) R.W. SECTION 153A OF THE ACT BY THE ASSESSING OFFIC ER. 2. EXCEPT FOR THE FIGURES, COMMON GROUNDS WERE RAIS ED BY THE ASSESSEES IN THESE APPEALS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW: 1. THE LEARNED CIT (APPEALS), ERRED IN CONFIRMING T HE FINDING OF THE ASSESSING OFFICER IN NOT CONSIDERING THE GAINS ON THE SALE OF SHARES OF RS. 9,654,563 AS LONG TERM CAPITAL GAINS AND THEREBY ALSO CONFIRMING THE CONSEQUENT DE NIAL OF EXEMPTION U/S 10(38) OF THE INCOME- TAX ACT, 1961. 2. THE LEARNED CIT (A) ERRED IN CONFIRMING THE FIND ING OF THE ASSESSING OFFICER THAT THE PURCHASE OF THE SHARES C AN BE CONSIDERED ONLY ON THE DATE OF DEMATERIALIZATION AN D THEREFORE THE HOLDING PERIOD BECOMING LESS THAN 12 MONTHS HENCE, THE CAPITAL LOSS OF RS. 187,083 (10,176,159 - 10,363,242) BE TREATED AS SHORT TERM CAPITAL LOSS. 3. THE LEARNED CIT (A) FURTHER ERRED IN HOLDING THA T THE PURCHASE VALUE OF THE SHARES SOLD BE TAKEN AT THE A VERAGE OF HIGH AND LOW PRICE OF THE SHARES TRADED ON THE NSE AND BSE ON THE DATE OF DEMATERIALIZATION VIZ. RS.10,363,242 AND TREATING THE SAME AS UNEXPLAINED INVESTMENT IN THE SHARES. 4. WITHOUT PREJUDICE TO ABOVE, THE APPELLANT HAS MA DE INVESTMENT IN SHARES IN EARLIER YEAR WHICH WERE DUL Y REFLECTED IN THE BOOKS OF ACCOUNT OF THE APPELLANT, HENCE THE ADDITION OF RS. 10,363,242 UNEXPLAINED INVESTMENT F OR THE YEAR UNDER CONSIDERATION MAY BE DELETED. 3. BRIEF FACTS ARE THAT RETURN OF INCOME WAS FILED DECLARING LONG TERM CAPITAL GAIN OF RS. 96,54,563/- AND RS. 69,91, 699/- BY SHRI SUNAY S. MEHTA AND SHRI SAMIT S. MEHTA RESPECTIVELY FOR THE ASSESSMENT YEAR 2006-07 AND CLAIMED EXEMPTION FROM CAPITAL GAINS U/S. 10(38) OF THE ACT. IN THE COURSE OF THE ASSES SMENT PROCEEDINGS, ITA NOS. 5099 & 5100/M/09 3 THE ASSESSEES WERE REQUIRED BY ASSESSING OFFICER TO PRODUCE DETAILS REGARDING THE TRANSACTIONS OF SHARES NAMELY: 1. COPY OF DEMAT ACCOUNT REFLECTING PURCHASE AND SALE OF SHARES. 2. BROKERS NOTE SHOWING THE PURCHASE OF THESE SHA RES 3. BROKERS NOTE SHOWING THE SALES OF THESE SHARES 4. STATEMENT OF BANK ACCOUNTS WHICH SHOWS THE PAYM ENT MADE TO THE BROKER TOWARDS THE PURCHASES OF SHARES AND RECEIPTS FROM THE SALE OF SHARES. 3.1. THE ASSESSEES FURNISHED THE FOLLOWING DOCUMENT S BEFORE THE ASSESSING OFFICER. 1. COPIES OF CONTRACT NOTES ISSUED BY THE BROKER ALLI ANCE INTERMEDIARIES AND NETWORK PVT. FOR THE PURCHASE OF ABOVE MENTIONED SHARES. 2. COPIES OF CONTRACT NOTES ISSUED BY THE BROKER AJMER A ASSOCIATES PVT. LTD. FOR THE SALE OF ABOVE MENTIONE D SHARES. 3. COPY OF LEDGER ACCOUNT OF ALLIANCE INTERMEDIARIES A ND NETWORK PVT. LTD. IN THE BOOKS OF ASSESSEE 4. STATEMENT OF DEMAT ACCOUNT HELD WITH AJMERA ASSOCIA TES PVT. LTD. 3.2. FURTHER INFORMATION WAS REQUIRED BY THE ASSESS ING OFFICER TO VERIFY THE ASSESSEES CLAIM OF PURCHASE OF SHARES A ND ISSUED SUMMONS TO THE DIRECTOR OF ALLIANCE INTERMEDIARIES & NETWO RK PVT. LTD. (AINPL). HOWEVER, THE DIRECTOR FAILED TO FURNISH A NY REPLY. THE ASSESSEE WAS ASKED TO PRODUCE THE DIRECTOR AND THE ASSESSEE ALSO FAILED TO PRODUCE THE DIRECTOR BEFORE ASSESSING OF FICER. THE ITA NOS. 5099 & 5100/M/09 4 ASSESSING OFFICER MADE ENQUIRIES WITH NATIONAL STOC K EXCHANGE AND MUMBAI STOCK EXCHANGE WITH REGARD TO SALE OF THE S AID SHARES AND NOTICED FROM THE DEMAT ACCOUNT WITH THE ASSESSEES W ITH AJMERA ASSOCIATES PVT. LTD.,(AAPL) THAT THE SAID SHARES WE RE NOT DEMATERIALIZED AFTER THE PURCHASE BUT WERE DEMATERI ALIZED IMMEDIATELY BEFORE THE DATE OF THEIR SALE. THEREF ORE, SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEES STATING THAT THE SHARES WERE NOT DEMATERIALIZED AT THE TIME OF PURCHASE BUT WERE DEM ATERIALIZED EITHER ON THE SAME DAY OF SALE OR TWO OR THREE DAYS IMMEDIATELY BEFORE THE SALE. THEREFORE, THE SAID SHARES ARE TO BE TREATED AS SHORT TERM CAPITAL ASSETS AND THE CAPITAL GAINS DERIVED F ROM THE SALE OF SHARES ARE TO BE TREATED AS SHORT TERM CAPITAL GAIN . 3.3. THE ASSESSEE FURNISHED REPLY OBJECTING TO THE ASSESSING OFFICERS PROPOSAL AND GAVE A DETAILED EXPLANATION STATING THAT THE SHARES PURCHASED WERE HELD FOR MORE THAN 12 MONTHS BEFORE THEIR SALE, THE CAPITAL GAINS BE TREATED AS LONG TERM CAP ITAL GAIN AND EXEMPT U/S. 10(38) AS THE STT WAS PAID ON THE SHARE S SOLD. SUBSEQUENTLY, THE ASSESSING OFFICER RECORDED A STAT EMENT U/S. 131 OF THE ACT FROM ONE MR. MUKESH CHOKSHI , DIRECTOR OF A INPL WHEREIN HE HAS DENIED BUSINESS TRANSACTIONS WITH THESE PERSONS THEREFORE THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEES HAD NO TRANSACTIONS WITH AINPL. HE WAS OF THE VIEW THAT THE LEDGER ACC OUNT SHOWING THE TRANSACTIONS WITH AINPL IS NOT GENUINE, THE CONTRAC T/BROKERS NOTE PRODUCED BY THE ASSESSEE WAS ALSO NOT GENUINE. TH E SHARES WERE NOT DEMATERIALIZED AFTER THE PURCHASE AND THEY WERE DEM ATERIALIZED ONLY ON THE DAY OF SALE OR 2 TO 3 DAYS BEFORE THE SALE, THEREFORE, THE ASSESSING OFFICER TREATED THE TRANSACTION AS SHAM. ACCORDING TO HIM ITA NOS. 5099 & 5100/M/09 5 ENTIRE AMOUNT BROUGHT INTO THE BOOKS OF THE ASSESSE E UNDER CAPITAL GAIN WAS UNACCOUNTED INCOME AND IS LIABLE TO TAX U/ S. 68 OF THE ACT. THUS, THE ENTIRE SALE PROCEEDS BROUGHT INTO THE BOO KS AS RECEIPTS ON ACCOUNT OF SALE OF SHARES WERE TREATED AS UNACCOUNT ED INCOME BY THE ASSESSING OFFICER U/S. 68 OF THE ACT. 3.4. ALTERNATIVELY, THE ASSESSING OFFICER WAS OF TH E OPINION THAT SINCE ASSESSEE HAS SHOWN RECEIPTS FROM THE SALE, TH ERE MAY BE PURCHASE OF SHARES ON OR BEFORE THE SALE, THEREFORE , GAIN WOULD BECOME SHORT TERM CAPITAL GAIN. HE WAS OF THE VIEW THAT THE PURCHASE IF AT ALL IT CAN BE CONSIDERED ONLY ON THE DATE OF DEMATERIALIZATION IN THE DEMAT ACCOUNT AND THE PRICE OF THE SHARES ON TH E DATE OF DEMATERIALIZATION IS THE PURCHASE PRICE. THE ASSESS ING OFFICER WAS OF THE VIEW THAT PURCHASES MADE BY THE ASSESSEE ON THO SE DATES WERE NOT ACCOUNTED IN THE BOOKS OF ACCOUNTS, IT HAS TO B E TREATED AS UNACCOUNTED PURCHASES THEREFORE SHOULD BE TREATED A S UNEXPLAINED INVESTMENT IN SHARES. 4. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) AND THE CIT(A) AFTER CONSIDERING THE EVIDENCES FURNISHED BY THE ASSESSEES CONCLUDED THAT THE TRANSACTIONS OF ALL THESE SHARES SOLD BY THE ASSESSEES THROUGH THE REGISTERED BROKER AJMERA ASSO CIATES ARE GENUINE, THE TRANSACTIONS WERE ROUTED THROUGH STOCK EXCHANGE AND THE SECURITIES TRANSACTION TAX IN RESPECT OF ALL TH ESE SHARES SOLD WERE ALSO PAID AS PER THE PROVISIONS OF LAW. THE LD. CI T(A) HELD THAT THE CONTRACT NOTE FOR THE SALE OF IMPUGNED SHARES FROM AAPL ARE GENUINE, THE PAYMENTS WERE ROUTED THROUGH BANKING CHANNELS F ROM THE REPUTED BROKER I.E. AINPL WHO IS ALSO REGULARLY ASS ESSED TO TAX. HE ITA NOS. 5099 & 5100/M/09 6 ALSO OBSERVED THAT NEITHER ANY SEIZED MATERIALS WER E FOUND IN THE COURSE OF SEARCH U/S. 132(1) NOR ANY STATEMENT ON O ATH U/S. 132(4) WAS RECORDED ON THIS ISSUE OR ANY DISCLOSURE WAS M ADE. FURTHER, THE CORRESPONDING BROKERAGE INCOME EARNED ON THE SALE O F THESE LISTED SHARES HAVE BEEN ACCEPTED BY THE DEPARTMENT AND CHA RGED TO TAX AND THEREFORE THE LD. CIT(A) HELD THAT THE SALE PROCEED S CANNOT BE DISBELIEVED. THUS, HE DELETED THE ADDITION MADE U/ S. 68 OF THE ACT HOLDING THAT IT IS NOT SUSTAINABLE IN THE FACTS AND CIRCUMSTANCES AND IN THE LIGHT OF VARIOUS DECISIONS. HOWEVER, HE SUSTAI NED THE ALTERNATIVE CONTENTION OF THE ASSESSING OFFICER THAT THE ADDITI ON SHOULD BE MADE UNDER SHORT TERM CAPITAL GAIN/UNEXPLAINED INVESTMEN T OBSERVING THAT THE EVIDENCES COLLECTED BY THE ASSESSING OFFIC ER ARE SUFFICIENT TO HOLD THAT THE IMPUGNED LISTED SHARES WERE NOT DEMAT ERIALIZED ON OR AFTER THE ALLEGED DATE OF PURCHASES AND ASSESSEES H AVE NOT FURNISHED SUFFICIENT EVIDENCES TO ESTABLISH THAT THE IMPUGNED SHARES WERE GENUINELY PURCHASED ON THE SPECIFIED DATE FROM AINP L. 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT AS SESSEES HAVE PURCHASED SHARES FROM AINPL AND THE SAID SHARES WER E SOLD THROUGH AJMERA ASSOCIATES (AAPL) AND DECLARED LONG TERM CAP ITAL GAIN AND THIS WAS CLAIMED EXEMPT U/S. 10(38) OF THE ACT. TH E LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ADDITION WAS SOLELY M ADE BASED ON THE STATEMENT OF SHRI MUKESH CHOKSHI WHO DENIED THE TRA NSACTION OF PURCHASE OF SHARES WITH AINPL IN WHICH IS ONE OF TH E DIRECTORS. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT W HEN THE ASSESSEES HAVE PRODUCED THE COPIES OF CONTRACT NOTES ISSUED B Y THE BROKER AINPL FOR PURCHASE OF ABOVE MENTIONED SHARES, COPIE S OF THE LEDGER ACCOUNT OF AINPL, THE BOOKS OF THE ASSESSEES, THE S TATEMENT GIVEN BY ITA NOS. 5099 & 5100/M/09 7 SHRI MUKESH CHOKSHI THAT THERE WERE NO BUSINESS TRA NSACTIONS WITH THE ASSESSEES SHOULD NOT BE BELIEVED. REFERRING TO QUESTION NO. 9 WHICH WAS THE QUESTION POSED BY THE ASSESSEES TO SH RI MUKESH CHOKSHI WHILE CROSS EXAMINATION, THE LD. COUNSEL FO R THE ASSESSEE SUBMITS THAT WHEN IT WAS QUESTIONED THAT THERE WAS BALANCE RECEIVABLE FROM AINPL IN RESPECT OF TRANSACTION OF SHARES OF ASSESSEE AND THIS WAS SETTLED AND NO CHEQUES WERE PAID AND A SSESSEES RECEIVED THE CREDIT FOR THE SHARES, HE SIMPLY ANSWE RED THAT SINCE HIS ACCOUNTS ARE ON THE RECEIPT BASIS, NO ENTRIES HAVE BEEN PASSED IN HIS BOOKS OF ACCOUNT. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ANSWER GIVEN BY SHRI MUKESH CHOKSHI IS AN EVASIVE A NSWER AND HE HAS NOT DENIED THAT THE AMOUNT RECEIVABLE FROM AINP L WAS ADJUSTED AGAINST PURCHASE OF SHARES. 6. THE LD. COUNSEL FOR THE ASSESSEE FURTHER REFERRI NG TO PAGE-16 OF THE PAPER BOOK SUBMITS THAT THIS IS THE LEDGER ACCO UNT WITH AINPL SHOWING THE PROFIT EARNED FROM SPECULATION OF SHARE S AND THE ASSESSING OFFICER INFACT ASSESSED THIS SPECULATION PROFITS IN THE ASSESSMENT YEAR 2005-06 THEREBY ACCEPTING THE TRANS ACTIONS WITH AINPL AS GENUINE. HE FURTHER SUBMITS THAT THE PROF IT ON SPECULATIVE TRANSACTIONS EARNED DURING THE ASSESSMENT YEAR 2005 -06 WAS UTILIZED FOR INVESTMENT IN SHARES PURCHASED DURING ASSESSMENT YEAR 2006-07 AND THEREFORE THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN HOLDING THAT THE PURCHASE OF SHARE TRANSACTIONS FRO M AINPL ARE NOT GENUINE AND NOT JUSTIFIED IN TREATING THEM AS UNEXP LAINED INVESTMENT. 7. THE LD. COUNSEL FOR THE ASSESSEE FURTHER INVITED OUR ATTENTION TO THE DECISION OF THE CO-ORDINATE BENCH IN THE CAS E OF SHRI JAFFERALI K.