The ACIT, Circle-3, Surat V. Smt. Kshama A.Mahajan, Surat

ITA 638/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5565 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 20-05-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 18-02-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTI LAXMI
• Assessee Lawyers: DENNIS CHOKSHI
• Keywords: Unexplained cash credit; Rejection of books of accounts; Unexplained investment; Business income; Depreciation; Share purchase agreement; Principle of natural justice
• Section: 44AD; 40A(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABA D CAMP AT SURAT (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HON'BLE SH RI D.C. AGRAWAL , A.M.) I.T.A. NO. 638/AHD./2008 ASSESSMENT YEAR : 2004-2005 ASSISTANT COMMISSIONER OF INCOME TAX, -VS.- SMT. KSHMA A. MAHAJAN, SURAT CIRCLE-3, SURAT (PAN : AEHPM 49 54 Q) (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. JYOTI LAXMI, SR. D.R. RESPONDENT BY : SHRI DENNIS CHOKSHI O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 27.11.2007 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II, SURAT FOR T HE ASSESSMENT YEAR 2004-05. 2. GROUND NO. 1 OF THIS APPEAL READS AS UNDER :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT(A.) ERRED IN DELETING THE ADDITION MAY BY WAY OF ESTIMATION O F INCOME OF RS.5,00,000/- FROM CONTRACT BUSINESS AS AGAINST OF RS.7,069/- SHOWN BY THE ASSESSEE. 3. THE FACTS RELATING TO CONTROVERSY INVOLVED IN TH E AFORESAID GROUND OF APPEAL IS THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS O F PROVIDING WORKERS FOR BEING ENGAGED IN VARIOUS INDUSTRIAL OPERATIONS TO M/S. M.V. ASSOCIAT ES, PROP. SHRI AJAY D. MAHAJAN- HUSBAND OF THE ASSESSEE. THIS IS THE FIRST YEAR OF BUSINESS. D URING THE YEAR UNDER CONSIDERATION, THE ASSESSEE SHOWN A GROSS PROFIT OF RS.2,40,029/- @ 6.36% ON TH E TOTAL RECEIPTS OF RS.37,73,770/- AND A NET PROFIT OF RS.7,069/-. THE ASSESSING OFFICER REJECTE D THE BOOKS OF ACCOUNTS ON THE GROUND THAT THE ASSESSEE HAS TWO ACCOUNTS WITH SISTER CONCERN VIZ. M/S. M.V. ASSOCIATES, I.E. ONE FOR CONTRACT RECEIPT INCOME, WHICH HAS BEEN FULLY RECEIVED IN CA SH AND OTHER FOR LOAN ACCOUNT (SHARAFI), WHEREIN THE TRANSACTIONS ARE THROUGH CHEQUE AND FUR THER, THE PAYMENT TO ALL THE THREE SUB- CONTRACTORS HAVE BEEN MADE IN CASH ON DIFFERENT DAT ES BELOW RS.20,000/-. THE ASSESSING OFFICER 2 ITA NO. 638/AHD/2008 ALSO OBSERVED THAT THE ASSESSEE HAS EARNED A NET PR OFIT OF RS.3,13,705/- @ 12.81% ON THE CONTRACT RECEIPTS OF RS.24,49,446/- IN THE SUBSEQUENT YEAR, I.E. ASSESSMENT YEAR 2005-06 AND ACCORDINGLY HE HAS ADOPTED A NET PROFIT OF RS.5,00,000/- @ 13.2 5% IN THE CASE OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. ON APPEAL IN THE IMPUGNED ORDE R, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE SAID ADDITION FOR THE DETA ILED REASONS GIVEN IN PARA 6 ON PAGES 3 TO 5 OF THE IMPUGNED ORDER. THE SAID PARA IS RE-PRODUCED HE REUNDER:- 'I HAVE CARE FULLY CONSIDERED BOTH THE POSITIONS. FIRS TLY, I FIND THAT THERE WAS ABSOLUTELY NO BASIS FOR THE AO TO REJECT THE ASSESS EE'S BOOK RESULTS. THE GROUND ON WHICH THE AO CAME TO THE CONCLUSION THAT THE BOOKS RESULT S WERE NOT RELIABLE WAS THE FACT THAT THE ASSESSEE'S RECEIPTS AS ALSO THE PAYMENTS WERE A FT MADE IN CASH AND EACH PAYMENT WAS BELOW RS 20,000/-. SUCH TRANSACTIONS COULD NOT MAKE THE BOOKS UNRELIABLE ESPECIALLY WHEN THE AO FAILED CO CONSIDER THE NATURE OF THE ASSSSSEE'S BUSINESS OF S UPPLYING LABOUR, AND THE FACT THAT LABOURERS NECESSARILY HAVE TO BE PAID IN CASH ON A DAILY BASIS. IT HAS BEEN EXPLAINED BY THE AR THAT SINCE THE PAYMENTS HA D TO BE MADE DAILY IN CASH, THE ASSESSEE HAD INSISTED TO BE PAID IN CASH AS WELL BY M/S. M.V. ASSOCIATES IN CASH AS WELL. WITHOUT INVOKING THE PROVISIONS OF SECTION 40A(3) N O ACTION COULD BE TAKEN BY THE AO IN THIS REGARD. ANOTHER ASSOCIATED GROUND WAS THAT WHILE THE SAFARI TRANSACTIONS WITH M/S. M. V. ASSOCIATES WERE CONDUCTED BY CHEQUES YET, THE CONTRACT RECEIPTS WER E RECEIVED IN CASH. I DO NOT UNDERSTAND WHAT WAS THE RELEVANCE OF LINKING THE TWO, ESPECIATTY WHEN THEY WERE COMPLETELY TWO DIFFERENT TYPES OF TRANSACTIONS FOR DIFFERENT PURPOSES. IT WAS ALSO IMMATERIAL THAT THE THREE SUB CONTRACTO RS HAD DISCLOSED PROFITS WHICH WERE HIGHER THAN THAT OF THE ASSESSEE. IF THE AO WA NTED TO UTILIZE THIS INFORMATION FACT TO SHOW THAT THE ASSESSEE HAD UNDERSTATED HER PROFIT, HE OUGHT TO HAVE CONDUCTED FURTHER INQUIRIES TO SHOW THAT THE ASSESSEE HAD EITHER UNDE RSTATED THE RECEIPT OR OVERSTATED THE EXPENSES, TO ARTIFICIALLY REDUCE THE PROFIT FRONT S UCH BUSINESS. WITHOUT MAKING SUCH INQUIRIES AND WITHOUT BRINGING ANY EVIDENCE ON RECO RD IN HIS FAVOUR, THE AO WAS SIMPLY NOT JUSTIFIED IN REJECTING THE BOOKS. IMPORTANTLY, EVEN THOUGH IN THE SHOW CAUSE NOTICE H E PROPOSED TO ASSESS THE ASSESSEE'S PROFIT @3% OF THE CONTRACT RECEIPTS YET, FOR SOME REASON HE DID NOT PUT-SUE THIS LINE OF ACTION. IN ANY CASE, THE AO COULD ONLY DO SO UNDER THE PROVISIONS OF SEC TION 44AD OF THE I.T. ACT, AND ONLY IF THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION O R THE SUPPLY OF LABOUR FOR CIVIL CONSTRUCTION. EVEN THOUG H THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF SUPPLY OF LABOUR, IT WAS FOR VARIOUS IN DUSTRIAL OPERATIONS, AS NOTED BY THE AO HIMSELF IN THE FIRST LINE OF PARA-3 OF THE ASSESSME NT ORDER. QUITE OBVIOUSLY THEN, THE PROVISIONS OF SECTION 44AD WERE NOT APPLICABLE IN T HE ASSESSEE'S CASE. - ANOTHER GROUND TAKEN BY THE AO WAS THAT THE PROFIT SHOWN BY THE ASSESSEE IN THE SUBSEQUENT YEAR WAS HIGHER, @ 12.81% OF THE TOTAL CONTRACT RECEIPTS. HOWEVER, AS POINTED OUT BY THE AR, THE ACTUAL PROFIT FROM SUCH RECEIPTS WAS R S. 1,23, 785/- AND NOT RS L 3,13 / 705/- AS OBSERVED BY THE AO. ALLEGEDLY, THE SAID SU M ALSO INCLUDES CAPITAL GAIN 3 ITA NO. 638/AHD/2008 ON SATE OF SHARES, AGRICULTURAL INCOME, BANK INTERE ST AND DIVIDEND INCOME. THE AO THUS HAD TOSSED HIMSELF ON ERRONEOUS FACTS. 6.1 THE ABOVE DISCUSSION MAKES IT QUITE OBVIO US THAT THERE WAS ABSOLUTELY NO GROUND FOR THE AO TO REJECT THE ASSESSE E 'S BOOKS OF ACCOUNT. THERE WAS ALSO NO BASIS FOR HIM TO ASSESS THE ASSESSEE'S NET PROFIT FROM THE BUSINESS OF SUPPLY OF LABOUR, AT RS,5,00,000/-. NO REASON WAS FORWARDED BY HIM AS TO WHY HE WAS ADOPTING THE SAID FIGURE. IT HAS NO RELATION TO THE INCOME EARNED BY THE ASSESSEE EITHER IN THE PRECEDING YEAR OR IN THE SUCCEEDING Y EAR. THE ADDITION OF THE SUM OF RS,5,00,000/- WILL THEREFORE, STAND DELETED.' (EMPHASIS SUPPLIED) IN VIEW OF THE AFORESAID FACTS OF THE CASE AND THE DIRECT FINDINGS OF THE LEARNED CIT(A), IT IS MOST HUMBLY SUBMITTED THAT THE SUBJEC T GROUND NO. 1 OF THE DEPARTMENT MAY KINDLY BE DISMISSED IN THE INTEREST OF NATURAL JUST ICE AND EQUITY. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER OF I NCOME TAX(APPEALS), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF R EVENUE SMT. JYOTI LAXMI, SR. D.R. APPEARED AND CONTENDED THAT IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE ADDITION TO THE EXTENT OF RS.4,92,931/-. THE ASSESSEE HAS SHOWN BUSINESS INCOME OF RS.7,069/- ON CONTRACT RECEIPTS OF RS.37,73,776/-. THE LD. D.R. POINTED OUT THAT ALL THE SHARAFI TRANSACTIONS WERE MADE BY CHEQ UE, WHEREAS CONTRACT RECEIPTS WERE IN CASH, EACH BELOW RS.20,000/-. AT THE SAME TIME, THE ASSES SEE HAS MADE PAYMENT TO THE SUB-CONTRACTORS IN CASH AND EACH PAYMENT WAS BELOW RS.20,000/-. FRO M THE PERUSAL OF INFORMATION FURNISHED BY THESE SUB-CONTRACTORS OF THE ASSESSEE, IT IS NOTICE D THAT NET PROFIT SHOWN BY THEM WAS IN EXCESS WHAT HAS BEEN SHOWN BY THE ASSESSEE. MOREOVER, THE ASSESSEE HAD SHOWN THE NET PROFIT OF RS.3,13,705/- @ 12.81% IN THE ASSESSMENT YEAR 2005- 06. THEREFORE, THE ASSESSING OFFICER RIGHTLY REJECTED THE BOOKS OF ACCOUNTS AND ASSESSED THE PROFIT AT RS.5,00,000/-. THE DECISION OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CANNOT BE ACCEPTED AS THERE ARE ENOUGH GROUND TO REJECT THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 5. ON THE OTHER HAND, SHRI DENNIS CHOKSHI, LD. COUN SEL APPEARING ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX(APPEALS). THE LD. COUNSEL OF THE ASSESSEE POINTED OUT THAT FOLLOWING POINTS MAY BE NOTED :- 4 ITA NO. 638/AHD/2008 (I) THE LEARNED_A.O. HAS NOT POINTED OUT ANY DEF ECTS IN THE REGULAR BOOKS OF ACCOUNTS; (II) THE ENTIRE EXPENSES AS INCURRED BY THE ASSES SEE STANDS CROSSED VERIFIED U/S. 133(6) BY THE LEARNED_AO; (III) THE ALLEGATION OF CASH TRANSACTIONS IS ALSO I RRELEVANT SINCE, IN THE ASSESSEE'S HUSBAND'S CASE, I.E. M/S. M.V. ASSOCIATES; WHICH HA S ALSO BEEN SCRUTINIZED BY THE LEARNED AO HIMSELF FOR THE SAME YEAR, NO. DISALLOWANCE HAS BEEN MADE BV THIS LEARNED._AO EITHER_ U/S._ 40A(3) OR U/.S. 40A(2)(B) IN RESPECT OF PAYMENTS MADE TO THE ASSESSEE, FURTHER, NO DISALLOWANCE HAS EVEN BEEN MADE BY THE LEARNED AO U/S. 40A(3) AS REGARDS THE PAYMENTS MADE TO THE SUB-CONTRACTORS BY THE ASS ESSES. (IV) THE MAINTAINING OF TWO.SEPARATE ACCOUNTS, I.E. ONE FOR CONTRACT INCOME AND THE OTHER FOR LOAN CANNOT BE SAID TO BE A DEFECT IN THE BOOKS , BUT ON THE CONTRARY CAN_BE SAID TO BE.A PROPER SYSTEM OF ACCOUNTING; (V) THE INCOME OF RS. 3,13,705/- AS EARNED BY THE ASSESSEE IN THE SUBSEQUENT YEAR I.E. A.Y. 2005-06 IS NOT FULLY IN RESPECT OF THE CONTRAC T .BUSINESS BUT .CONSISTS OF CAPITAL GAIN ON SALE OF SHARES, AGRICULTURAL INCOME, BANK INTERE ST AND DIVIDEND INCOME, THE COMPLETE BREAK-UP OF WHICH IS AS FOLLOWS:- PARTICULARS AMOUNT CAPITAL GAIN ON SALE OF SHARES 17,484 AGRICULTURAL INCOMES (NET) 82,360 BANK INTEREST 81,285 DIVIDEND INCOME 3,848 DEPRECIATION 4,943 OTHER INCOME 1,89,920 CONTRACT INCOME @ 5.05% ON RS. 24,49,446/- 1,2 3,785 TOTAL 3,13,705 A COPY OF COMPUTATION OF INCOME AND ACKNOWLEDGMENT OF RETURN FILED FOR THE SUBSEQUENT YEAR I.E. A.Y. 2005-06 IS ENCLOSED HEREWITH IN ANNE XURE-L (PG- NO. 15 TO 16). (VI) THE RESULT OF THE SUBSEQUENT YEAR EVEN OTHERW ISE CANNOT BE APPLIED TO THE CURRENT YEAR SINCE, THIS IS THE_LST YEAR OF BUSINESS, (VII)THE ESTIMATED PROFIT OF 8% AS PROVIDED U/S. 44 AD ALSO CANNOT BE APPLIED IN THE CASE OF THE ASSESSEE SINCE, THE ASSESSEE'S BUSINESS IS N OT THAT OF SUPPLYING THE LABOUR FOR CIVIL CONSTRUCTION, BUT IS OF SUPPLYING LABOUR FOR INDUST RIAL USE AS IS ACCEPTED BY THE LEARNED AO HIMSELF IN THE FIRST LINE OF PARA 3 PAGE 2 OF TH E ASSESSMENT ORDER, TO WHICH SECTION 44AD IS NOT APPLICABLE. 6. AFTER HEARING BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. RIVAL SUBMISSIONS WERE ALSO CONSIDERED. IN T HE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS CLEARLY MEN TIONED THAT THERE WAS ABSOLUTELY NO GROUND FOR ASSESSING OFFICER TO REJECT THE ASSESSEE S BOOKS OF ACCOUNTS. FROM THE REASONING GIVEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS), WE ARE ALSO CONVINCED THAT THE 5 ITA NO. 638/AHD/2008 BOOKS OF ACCOUNTS OF THE ASSESSEE WERE REJECTED ON DOUBTS AND SUSPICION. FURTHER IN CASE OF SUPPLY OF LABOUR, THE PROVISIONS OF SECTION 44AD AR E NOT APPLICABLE. IN THESE CIRCUMSTANCES, WE ARE CONVINCED THAT THE LEARNED COMMISSIONER OF INCO ME TAX(APPEALS) HAS GIVEN COGENT REASON FOR DELETING THE AD HOC ADDITION OF RS.5,00,000/- M ADE BY THE ASSESSING OFFICER BY REJECTING THE BOOKS OF ACCOUNTS. WE, THEREFORE, DECLINE TO INTERF ERE WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). RESULTANTLY, THIS GROUND OF AP PEAL IS REJECTED. 7. GROUND NO. 2 OF THIS APPEAL READS AS UNDER :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT(A.) ERRED IN DELETING THE ADDITION OF RS.50,000/- OUT OF TOTAL ADDITION O F RS.1,00,000/- MADE ON ACCOUNT OF LOW HOUSEHOLD WITHDRAWALS. 8. WE HAVE HEARD BOTH THE SIDES. THE FAMILY OF THE ASSESSEE CONSISTS OF HER HUSBAND AND TWO MINOR SONS AND TOTAL HOUSEHOLD WITHDRAWAL FOR THE Y EAR UNDER CONSIDERATION OF RS.4,58,593/-. THE ASSESSING OFFICER IN PARA 7 AT PAGE 3 OF THE AS SESSMENT ORDER, MISTAKENLY OBSERVED THAT THE TOTAL WITHDRAWALS OF THE ASSESSEE INCLUDING THAT OF HER HUSBAND IS RS.93,227/-. AFTER CONSIDERING THE VARIOUS SUBMISSIONS OF THE ASSESSEE, IN THE IMP UGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) RESTRICTED THE ADDITION OF RS.1 ,00,000/- TO RS.50,000/- FOR THE DETAILED REASONS GIVEN IN PARA 10 AT PAGES 5 & 6 AS UNDER :- '10. I FIND THAT THE AO MADE THE ADDITION WITHOUT GIVING ANY SPECIFIC FINDING AS TO HOW THE WITHDRAWALS OF RS.93,227/- SHOWN BY THE ASS ESSEE OF RS.93,227/- WERE NOT ADEQUATE TO MEET THE HOUSEHOLD EXPENSE OF THE ASSES SEE AND HER FAMILY. HE NOT ONLY FAILED TO TAKE INTO ACCOUNT THE WITHDRAWALS OF RS.3 ,65,366 SHOWN BY THE ASSESSEE'S HUSBAND, WHICH WQS VERY RELEVANT, BUT HE TOOK INTO CONSIDERATION IRREL EVANT FACTORS SUCH AS THE INVESTMENTS MADE BY THE ASSESSEE IN VARIOUS BONDS, LIP AND IMMOVABLE PROPERTIES. WHITE DECIDING THE APPEAL OF THE ASSESSEE'S HUSBAND , IT WAS FOUND THAT THE AO MADE ART ADDITION OF RS.50,000 IN HIS HANDS ALSO, ON ACCOUNT OF TOW HOUSEHOLD WITHDRAWALS. THE ADDITION HAS BEEN DELETED BY ME. THE TOTAL WITHDRAWALS SHOWN BY THE ASSESSEE AND HER HUSBAND WAS RS.3,65,366 + RS.93,227= 4,58,593/-. FROM THE CAPITAL ACCOUNT OF SHRI AJAY MAHAJAN FIFED BY THE AR, IT WAS SEEN THAT HE MET EXPENSES TOWARDS SCHOOL FEES, LIP , TUITION FEES, MUNICIPAL TAX ETC. THIS MEANS THAT THE OTHER EXPENSES TOWARDS RUNNING OF THE HOUSEHOLD, ON TRANSPORT, MEDICINES AND SOCIAL AND RELIGIOUS OCCASIONS ETC. W ERE BY THE REMAINING WITHDRAWALS OF THE HUSBAND, AS ALSO THE WITHDRAWALS OF THE ASSESSE E. 10.1 TAKING ALL SUCH FACTS INTO CONSIDERATION, I AM OF THE OPINION THAT IT WOULD BE FAIR AND EQUITABLE IF THE ADDITION MADE BY THE AO IS RESTRIC TED TO THE SUM OF RS.50,000/-, WHICH MEANS THE ASSESSEE ADDITION WOULD GET A RELIEF OF A N EQUIVALENT AMOUNT OF RS.50,000/-. ' 6 ITA NO. 638/AHD/2008 9. BEFORE US, THE LD. D.R. POINTED OUT THAT AT THE TIME OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COULD NOT FURNISH THE COMPLETE DETAILS OF HOUSEHOLD EXPENSES, THEREFORE, THE ASSESSING OFFICER RIGHTLY MADE THE ADDITION OF RS.1,00,000/-. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED COMMISSIONE R OF INCOME TAX(APPEALS). 10. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT AFTER EXAMINE T HE RELEVANT DETAILS, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) RESTRICTED THE ADDITION TO RS.5 0,000/-. WE, THEREFORE, INCLINE TO UPHOLD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS ). THIS GROUND OF APPEAL IS REJECTED. 11. GROUND NO. 3 OF THIS APPEAL READS AS UNDER :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT(A.) ERRED IN DELETING THE ADDITION OF RS.33,343/- OUT OF TOTAL A DDITION OF RS.64,255/- MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSE S. 12. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS GIVEN INTEREST FREE LOANS AND ADVANCES OF RS.14,90,000/- TO SISTER CONCERN VIZ. M/S. M.V. ASSOCIATES AND RS.50,000/- TO HUSBANDS HUF. FOR THIS REASON, THE ASSESSING OFFICER DISALLOWED THE ENTIRE INTEREST OF RS.64,255/- PAID TO BANK. ON APPEAL IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE ADD ITION ON THE GROUND THAT THE ASSESSING OFFICER HAD DISALLOWED THE ENTIRE INTEREST WITHOUT ESTABLISHING ANY DIRECT NEXUS BETWEEN THE INTEREST BEARING FUNDS AND THE INTEREST-FREE FUNDS GIVEN BY THE ASSESSEE. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALSO OBSERVED T HAT DURING THE YEAR, AN AMOUNT OF RS.5,85,000/- WAS GIVEN AS INTEREST FREE ADVANCE TO SISTER CONCERN M/S. M.V. ASSOCIATES BY AVAILING BANK LOAN AGAINST FDR AND THE BALANCE AMOU NT WAS THE CUMULATIVE BALANCE CARRIED FORWARD FROM EARLIER YEARS AND AS DIRECT NEXUS OF I NTEREST BEARING FUNDS OF RS.5,85,000/- BEING DIVERTED TOWARDS INTEREST FREE LOANS BEING ESTABLIS HED, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) RESTRICTED THE DISALLOWANCE TO THE EXT ENT OF RS.30,912/- AND ALLOWED THE OTHER INTEREST COMPONENT OF RS.33,343/- FOR WHICH NO NEXU S COULD BE ESTABLISHED. THE FINDINGS OF THE 7 ITA NO. 638/AHD/2008 LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THIS REGARD ARE CONTAINED IN PARA 18 AT PAGTES 10 TO 11 OF THE IMPUGNED ORDER, WHICH READS AS UNDE R :- '18. I HAVE CAREFULLY CONSIDERED BOTH [HE POSITIONS . TO BEGIN WITH, THE AO DID NOT CLEARLY ESTABLISH ANY DIRECT NEXUS BETWEEN THE INTEREST BEA RING FUNDS AND THE INTEREST FREE LOANS AND ADVANCES GIVEN BY THE ASSESSES, OR EVEN THE TAX FREE INVESTMENTS. THE AO OBSERVED THAT THE ASSESSEE HAD GIVEN LOANS A ND ADVANCES OF RS.L4,90,000/- TO HER HUSBAND'S PROPRIETARY CONCERN M/S. M. V ASSOCIATES AND ANOTHER LOAN OF RS. 50,000 TO HER HUSBAND HUF. THE POINT TO NOTE HERE IS THAT, WHITE THE ONLY INTE REST BEARING LOAN TAKEN DURING THE YEAR OF RS.6,00,000/- WAS AGAINST THE FIXED DEPOSITS WHI CH WAS THE MATTER DEALT WITH IN GROUND NO.3, THE LOANS AND ADVANCES MENTIONED BY THE AO WA S THE CUMULATIVE BALANCE CARRIED OVER FROM EARLIER YEARS. DURING THE YEAR, THE AMOUNT WHICH WAS GIVEN AS LOAN AND ADVANCE TO M/S, M.V ASSOCIATES WAS RS.5,85,000/-. THEREFORE, THE ONLY N EXUS THAT COULD BE DRAWN BETWEEN THE BANK LOAN AND INTEREST-FREE ADVANCE WAS THE SUM OF RS.5,85,000/-. SINCE, ALMOST THE ENTIRE BANK LOAN WAS UTILIZED TO GIVE THE INTEREST-FREE ADVANCE TO MV ASSOCIATES, A DIRECT NEXUS COULD BE ESTABLISHED BET WEEN SUCH LOANS AND SUCH ADVANCE AND THEREFORE, ONLY THE INTEREST PAID ON SUCH LOANS, I. E. RS.30,912/-, COULD BE DISALLOWED. THE OTHER INTEREST COMPONENT WAS THE SUM OF RS.33,3 43/- WHICH WAS PAID AGAINST BANK OVERDRAFT, NO NEXUS COULD BE ESTABLISHED BETWEEN TH IS PARTICULAR COMPONENT OF THE INTEREST EXPENDITURE WITH ANY INTEREST FREE LOAN/AD VANCE. THEREFORE, I AM OF THE VIEW THAT THE DISALLOWANCE MADE BY THE AO SHOULD BE RESTRICTE D TO RS.30,912/- AS CLAIMED BY THE AR. THE ASSESSEE WOULD GET A RELIEF OF RS. 33,343/- . THE AO IS DIRECTED TO TAKE ACTION ACCORDINGLY.' AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER OF I NCOME TAX(APPEALS), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 13. BEFORE US, THE LD. D.R. DREW OUR ATTENTION TO P ARA 13 OF THE ASSESSMENT ORDER, WHEREIN THE ASSESSING OFFICER HAS INVESTED IN TAX FREE INTEREST AND DIVIDEND EARNING ASSETS MADE BY THE ASSESSEE. THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAS GIVEN INTEREST FREE LOANS AND ONUS IS ON THE ASSESSEE THAT THE SAID INTEREST FREE LOANS/ INVESTM ENTS WERE NOT MADE OUT OF LOAN TAKEN FROM BANK. IT IS WELL SETTLED LAW THAT ONUS IS ON THE PE RSON, WHO IS CLAIMING DEDUCTION/ EXEMPTION OF INCOME. HE FURTHER SUBMITTED THAT WHATEVER EXPLANAT ION WAS FURNISHED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS NOT FURNISH ED BEFORE THE ASSESSING OFFICER. 8 ITA NO. 638/AHD/2008 14. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). THE LD . COUNSEL OF THE ASSESSEE POINTED OUT THAT THE ASSESSING OFFICER MADE THE DISALLOWANCE WITHOUT AFFORDING AN OPPORTUNITY TO THE ASSESSEE AND IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER APPRECIATING THE CORRECT FACTS RESTRICTED THE DISAL LOWANCE TO RS.30,912/-, THEREFORE, THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BE UPHELD. 15. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AU THORITIES BELOW. IT IS PERTINENT TO NOTE THAT EXPLANATION WHICH WAS FURNISHED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS NOT FURNISHED BEFORE THE ASSESSING OFFICER. IT IS W ELL SETTLED LAW THAT IN ORDER TO CLAIM DEDUCTION/ EXEMPTION, THE ONUS IS ON THE ASSESSEE AND NOT ON T HE DEPARTMENT. IN THIS CASE, THE ASSESSEE HAS PAID INTEREST EXPENSE, THEREFORE, ONUS WAS ON THE A SSESSEE TO PROVE THAT ENTIRE LOAN TAKEN FROM THE BANK WAS UTILIZED FOR THE PURPOSE OF BUSINESS. IT A PPEARS THAT NO SUCH UTILIZATION/ DETAILS WERE FURNISHED BEFORE THE ASSESSING OFFICER. WE, THEREFO RE, RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER WITH THE DIRECTION THAT THE ASSESSEE SHOULD FURNISH THE DETAILS OF UTILIZATION OF LOAN TAKEN FROM THE BANK. THE ASSESSING OFFICER WILL EXAMINE T HE SAME AND RE-ADJUDICATE THE DISALLOWANCE OF INTEREST TO THE EXTENT OF RS.33,343/-, WHICH IS DELETED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNED ORDER. RESULTANTLY, TH IS GROUND OF APPEAL IS PARTLY ALLOWED. 16. GROUND NO. 4 OF THIS APPEAL READS AS UNDER :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT(A.) ERRED IN DELETING THE ADDITION OF RS.6,00,000/- MADE ON ACCO UNT OF UNEXPLAINED CASH AND INVESTMENT IN FDR IN BENAMI NAMES U/S. 69A AND 69 OF THE I.T. ACT. 17. THE FACTS RELATING TO CONTROVERSY INVOLVED IN T HIS GROUND OF APPEAL ARE THAT THE ASSESSEE HAD AVAILED A BANK LOAN AGAINST THE SECURITY OF FIX ED DEPOSIT RECEIPTS (FDR) OF RS.50,000/- EACH TOTALING TO RS.6,00,000/-, AS BELONGING TO HER FAMI LY MEMBERS, I.E. FATHER, SON, BROTHER, MOTHER- IN-LAW, BROTHER-IN-LAW, UNCLE AND SISTER. THESE FDR S WERE PLACED BY THE FAMILY MEMBERS WITH THE BANK IN THE EARLIER YEAR, I.E. ASSESSMENT YEAR 2003-04. IN THIS REGARD, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED THE CONFIRMATION OF THE FAMILY MEMBERS, ALONGWITH THE PROOF OF INCOME SUCH AS SALARY CERTIF ICATE AND 7/12 COPIES. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER MADE THE ADDITION UNDER SECTI ON 69A AND 69 OF THE INCOME TAX ACT ON THE 9 ITA NO. 638/AHD/2008 GROUND THAT CREDITWORTHINESS OF THE ALLEGED OWNER O F THE FDRS WAS NOT PROVED AS THE ASSESSEE FAILED TO FURNISH THE EVIDENCE REGARDING THE SAME. ON APPEAL IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE ADD ITION FOR THE DETAILED REASONS GIVEN IN PARA 14 AND 14.1 AT PAGES 8 & 9 OF THE IMPUGNED OR DER. THESE PARAS ARE RE-PRODUCED HEREUNDER :- 14. I HAVE CAREFULLY CONSIDERED THE ACTION TAKEN B Y THE A.O. ON ONE HAND, AND THE WRITTEN SUBMISSIONS OF THE AR, ON THE OTHER. FIRST OF ALL, I FIND THAT THE AO FAILED CO TAKE INTO CONSIDERATION THE DATE(S) ON WHICH THE FIXED DEPOSITS WERE MADE. AS PER THE INFORMATION FURNISHE D BY THE AR, THE DEPOSITS TOTALING RS.6,00,000/- WERE MADE WITH THE BANK ON 31-03-2003 , WHICH MEANS THAT THEY PERTAINED TO AN EARLIER YEAR, ARID CONSEQUENTLY, IF AT ALL ANY ADDI TION WAS TO BE MADE IT OUGHT TO HAVE BEEN MADE IN THE A.Y. 2003-04, AND NOT IN THE YEAR UNDER CONS IDERATION, FURTHER, IF THE ASSESSEE WAS TO INTRODUCE HER OWN U NACCOUNTED MONEY, A S CLAIMED BY THE AC, SHE COULD HAVE EASILY TAKEN LOANS FROM THE SAME RELATIV ES DIRECTLY, AND SHE MAY NOT HAVE HAD TO PAY ANY INTEREST ON SUCH LOANS, SINCE THEY WERE CLOSELY RELATED. BY TAKING THE LOAN FROM THE BANK THE ASSESSEE NOT ONLY INCURRED EXPENSES TOWARDS INTERES T, BUT ALSO ENSURED THAT HER RELATIVES WHO MADE THE DEPOSITS AS SECURITIES AGAINST THE LOAN, E ARNED INTEREST THEMSELVES. THIS ACCORDING TO ME WAS A VERY PRUDENT AND LOGICAL BEHAVIOUR ON THE PAR T OF THE ASSESSEE. THE AO ON HIS PART CHOSE TO SEE MANIPULATION WHERE THERE WAS NONE. 14.1. IT IS ALSO SEEN THAT EVEN THOUGH IN THE SHOW -CAUSE NOTICE THE AO PROPOSED TO ADD THE SUM OF RS.6,00,000/- U/S.68 OF THE IT ACT YET, HE FINALLY MADE THE ADDITION BOTH U/S. 69A & 69. I AM OF THE OPINION THAT NONE OF THESE TWO SECTIONS COULD BE APPLIED. SECTION 69 COULD NOT BE APPLIED SINCE THE ASSESSEE WAS NOT FOUND TO BE THE OWNER OF THE SUM OF RS.6,00,000/-. NO EVIDENCE WAS EITHER FOUND OR BROUGHT ON RECORD TO LEAD TO SU CH A CONCLUSION. SECTION 69 COULD NOT ALSO BE APPLIED SINCE THERE WAS NO EVIDENCE TO SHOW THAT TH E INVESTMENTS MADE IN THE FORM OF THAT BANK DEPOSITS WERE THAT OF THE ASSESSEE. SEC.60 WAS NOT APPLICABLE EITHER, SINCE THE SUM OF RS.6,00 ,000/- DID NOT REPRESENT ANY UNEXPLAINED CREDIT IN THE BOOKS OF THE ASSESSEE. WH EN NONE OF THESE SECTIONS WERE APPLICABLE, IT ONLY SHOWS THAT NO ADDITION OF THE SAID SUM COULD BE MADE BY THE AO. THE FACT OF THE MATTER WAS THAT THE DEPOSITS TOTALI NG RS.6,00,000/- WERE MADE BY 12 DIFFERENT PERSONS WITH THE BANK, WHICH WAS IN THE NATURE OF A SECURITY AGAINST THE LOAN WHICH THE ASSESSEE HAD TAKEN FROM THE SAME BANK. THEREFORE, IN SUCH A SITUATION AS FAR AS THE ASSE SSES CONCERNED, THERE COULD RIOT BE ANY QUESTION REGARDING THE TRANSACTION WITH THE BANK. IF AT ALL ANY ACTION WAS TO BE TAKEN, IT SHOULD HAV E BEEN IN THE CASE OF THE SAID 12 PERSONS WHO MADE THE DEPOSITS, TO ASCERTAIN THE SOURCE OF SUCH DEPOSITS. AND, THE ADDITION UN ACCOUNT OF UNEXPLAINED INVESTMENT COULD ONLY BE MADE IN THEIR HANDS NOT IN THE HANDS OF THE ASSESSES. THERE WAS THUS ABSOLUTELY NO MERIT IN THE TINE OF A CTION ADOPTED BY THE AO, HE IS THEREFORE DIRECTED TO DELETE THE ADDITION OF THE SUM OF RS. 6 ,00,000/-. 10 ITA NO. 638/AHD/2008 AGGRIEVED WITH THE ABOVE, THE REVENUE IN APPEAL BEF ORE US. 18. AT THE TIME OF HEARING BEFORE US, THE LD. D.R. RELYING ON THE REASONING GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER CONTENDED THAT SINCE NO EVIDENCE OF CREDITWORTHINESS WAS PRODUCED EITHER BEFORE THE ASSESSING OFFICER OR LEARNED COMMISSIONER OF INCOME TAX(APPEALS), THEREFORE, THE LEARNED COMMISSIONER O F INCOME TAX(APPEALS) CLEARLY ERRED IN ACCEPTING THE GENUINENESS OF THE DEPOSITS MADE IN T HE NAMES OF DIFFERENT PERSONS ON WHICH LOANS WERE OBTAINED. 19. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSE SSEE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). THE LD . COUNSEL POINTED OUT THAT THE FDRS IN QUESTION WERE PURCHASED IN EARLIER YEAR, I.E. ASSES SMENT YEAR 2003-04 AND THUS UNDER NO CIRCUMSTANCES THE SAME COULD HAVE BEEN ADDED IN THE CURRENT YEAR, I.E. ASSESSMENT YEAR 2004-05. 20. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FOUND CONSIDERABLE FORCE IN THE SUBMISSIO NS MADE BY THE LD. COUNSEL OF THE ASSESSEE. EVEN IF, FOR THE SAKE OF ARGUMENT, IT IS PRESUMED T HAT INVESTMENTS IN FDRS OF RS.6,00,000/- ARE NOT PROVED, IN THAT EVENT, ADDITION CANNOT BE MADE IN THE ASSESSMENT YEAR UNDER APPEAL. FOR THIS REASON ALONE, WE INCLINE TO UPHOLD THE ORDER OF LEA RNED COMMISSIONER OF INCOME TAX(APPEALS) ON THIS ISSUE. THIS GROUND OF APPEAL IS REJECTED. 21. GROUND NO. 5 OF THIS APPEAL READS AS UNDER :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT(A.) ERRED IN DELETING THE ADDITION OF RS.17,27,242/- MADE ON ACC OUNT OF UNEXPLAINED CASH CREDIT IN THE GUISE OF LONG TERM CAPITAL GAIN ON SA LE OF SHARES FROM KOLKATA BASED SHARE BROKERS U/S. 68 OF THE I.T. ACT. 22. THE FACTS RELATING TO CONTROVERSY INVOLVED IN T HE AFORESAID GROUND OF APPEAL ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS EARNED LONG-TERM CAPITAL GAIN OF RS.17,27,242/- ON SALE OF LISTED EQUITY SHARES ON W HICH INCOME TAX @ 10% WAS ALSO DULY PAID. IN SUPPORT OF THE SAID TRANSACTION, THE FOLLOWING EVID ENCES WERE PRODUCED :- (I) COPY OF CONTRACT NOTE DATED 12-12-2002 FOR PURCHASE OF SHARES AS ISSUED BY THE BROKER- M/S. V,K. SIN GHANIA & CO.; 11 ITA NO. 638/AHD/2008 (II) COPY OF SHARE CERTIFICATE IN PHYSICAL F ARM FOR PURCHASE OF SHARES; (III) COPY OF CONTRACT NOTE DATED 6-1-2004 FO R SALE OF SHARES AS ISSUED BY THE BROKER M/S. M. BHIWANIWALA & CO.; (IV) COPY OF DEMAT ACCOUNT STATEMENT AS ISSUE D BY ICICI BANK LTD. EVIDENCING THE PURCHASE AS WELL AS SALE OF SHARES; (V) CONFIRMATION OF THE BROKER, M/S. M. BHIW ANIWALA & CO., DATED 9-9-2006, AS ADDRESSED TO THE LEARNED AO, ALONG WITH COPY OF STATEMENT FROM T HEIR BOOKS AND DETAILS OF PAYMENT MADE THROUGH BANK CHEQUE AND DD, SUBMITTED BY THE BROKER IN RESPONSE TO THE SUMMONS U/S. 131 OF THE ACT; (VI) LETTER DATED 8-12-2O06 AS FURNISHED BY T HE CALCUTTA STOCK EXCHANGE (CSE) TO THE LEARNED AO CONFIRMING THE TRANSACTION TO HAVE BEEN UNDERTAK EN ON THE ON-LINE TRADING SYSTEM OF THE STOCK EXCHANGE; (VII) THE PAYMENT FOR SHARES SOLD HAS BEEN REC EIVED BY ACCOUNT PAYEE CHEQUE AND BANK DD FROM THE BROKER. 23. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER TREATED THE LONG-TERM CAPITAL GAIN ON SALE OF LISTED EQUITY SHARES AS UNEXPLAINED CASH CREDIT. ON APPEAL, IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE SAI D DISALLOWANCE FOR THE DETAILED REASONS GIVEN IN PARA 22 & 22.1 AT PAGES 13 TO 15, WHICH AR E RE-PRODUCED HEREUNDER :- 22. I HAVE CAREFULLY CONSIDERED THE VIEW TAKEN BY THE A.O. AND ALSO THE WRITTEN SUBMISSIONS OF THE AR. THE MAIN GROUND ON WHICH THE A.O. REJECTED THE ASSE SSEES CLAIM, DISREGARDING ALL THE EVIDENCES FILED BEFORE HIM, WAS THAT, AS PER THE IN FORMATION FURNISHED VIDE THE CSE THE BROKER HAD ON 06.01.2004 FIRST SOLD TWO LOTS OF THE SHARES VIDE TRADE NOS. 1117 AND 1118 AND THEN SQUARED UP SUCH SALES BY TWO CROSS DEALS B Y TRADE NO. 1128 AND 1129. SUCH TRANSACTIONS CONTRADICTED THE CLAIM OF THE ASS ESSEE THAT THE 10,000 SHARES WERE SOLD IN FOUR LOTS ON THE SAME DAY. IT APPEARS THAT THE AO MISUNDERSTOOD THE MEANING OF 'CROSS DEAL'. IT MEANT THAT THE BROKER HAD FIRST PURCHASED SUCH SHARES IN HIS OWN N AME UNDER THE 'SELF CODE AND HAD SUBSEQUENTLY SOLD THE SHARES TO SOME OTHER BUYER. T HIS IS AN USUAL PRACTICE: IN THE STOCK EXCHANGE. THIS IS ALSO CONFIRMED BY THE CONFIRMATION FURNISHE D BY THE SELLING BROKER, M/S. BHIWANIWATA & CO. IN FACT WHAT THE AO FAILED TO TAK E NOTE OF IS THAT, THE INFORMATION FURNISHED BY THE CSE CLEARLY STATED THAT 'AND ALSO EXECUTED TWO CROSS DEALS VIDE TRADE NOS. 1128 AND 1129 ON 06-01-2004 FOR THE SAME QUANT ITY AND RATE AS MENTIONED IN THE 12 ITA NO. 638/AHD/2008 CONTRACT NOTE FORWARDED TO US FOR THE 'SELF' CODE I N THE ONLINE TRADING SYSTEM OF THE EXCHANGE'. THUS THE CSE HAD DEARLY CONFIRMED AND CORROBORATED YJHAT HAD BE$N SHOWN IN THE CONTRACT NOTE ISSUED BY M/S. M. BHIWANIWALA & CO, AND A COPY OF WHICH HAD BEEN DULY FURNISHED BEFORE THE AO. THERE WAS NOTHING NEW OR CONTRADICTORY WHICH THE CS E HAD INTIMATED, AS COMPARED TO WHAT THE ASSESSEE HAD CLAIMED. THE AO OBSERVED THAT THE CSE HAD NOT CONFIRMED THE PURCHASE OF THE SHARES, THE POINT TO NOTE HERE IS THAT, THE CSE WOULD HAVE CONFIRMED SO ONLY IF THE AO HAD SOUGHT A CONFIRMATION OF THE PURCHASES. ON THE OTHER HAND, T HE ASSESSEE HAD NOT ONLY FURNISHED THE CONTRACT NOTE EVIDENCING THE PURCHASE ISSUED BY V.K . SINGHANIA ST CO. BUT HAD ALSO FURNISHED A COPY OF THE DEMAT ACCOUNT HELD WITH THE ICIC1 BANK, THE ASSESSEE HAD ALSO PROVIDED PHOTOCOPIES OF THE SHARE CERTIFICATES IN I TS PHYSICAL FORM WHICH CLEARLY EVIDENCED THE PURCHASE OF THE SAID SHARES. THERE WA S NO REASON FOR THE AO TO IGNORE SUCH SOLID EVIDENCE. THERE COULD NOT BE ANY SITUATION WH ERE THE ENTRIES IN THE DEMAT ACCOUNT WOULD NOT TALLY WITH EITHER THE CONTRACT NOTE ISSUE D BY THE CONCERNED BROKER OR THE INFORMATION FURNISHED BY THE STOCK EXCHANGE. THE AO ALSO TOOK OBJECTION WITH REGARD TO THE RECEIPT OF T HE SALE PROCEEDS OF THE SHARES BY THE ASSESSEE AFTER A PERIOD OF MORE THAN TWO AND HA LF MONTHS. AS NOTED BY THE AO HIMSELF IN PARA 16 OF THE ORDER, THE SALE PROCEEDS OF THE S HARES WERE PAID BY THE BROKER IN FIVE INSTALMENTS SPREAD OVER 26-02-2004 TO 31-03-2004. T HERE WAS THEREFORE, NO JUSTIFICATION ON HIS PART TO CLAIM THAT THE SALE PROCEEDS WERE RE CEIVED AFTER A PERIOD OF TWO AND HALF MONTHS. IN ANY CASE, AS MENTIONED BY THE AR , THE COULD HAVE CHOSEN TO KEEP HER FUNDS WITH THE BROKER FOR FUTURE TRANSACTI ONS AND, DELAYED RECEIPT OF SALE PROCEEDS COULD NOT BE A GROUND FOR REJECTING THE GENUINENESS OF SUCH TRANSACTIONS. 22.1 THUS, FROM THE EVIDENCES FURNISHED BY THE ASSE SSES, AS ALSO THE INFORMATION FROM THE CSE, IT IS CLEARLY SEEN THAT THE AO SIMPLY HAD NO GROUND TO EITHER QUESTION THE GENUINENESS OF THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE, OR TO REJECT THE CLAIM OF CAPITAL GAIN OF THE SUM OF RS,17,03,542/~. HE THUS ERRED IN TREATING THE GROSS SALE PROCEEDS OF RS.17,27,542/- AS UNEXPLAINED CASH CRED IT, WHICH WILL STAND DELETED. SINCE THE SHARES WERE LISTED ON THE EXCHANGE, THE -ASSESSES WOULD BE ENTITLED TO BE TAXED AT THE CONCESSIONAL RATE OF 10% IN TERMS OF SEC. 112(1)(D) OF THE IT ACT. THE AO DIRECTED TO TAKE ACTION ACCORDINGLY'. (EMPHASIS SUPPLIED) BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE TH E TRIBUNAL. 24. AT THE TIME OF HEARING, THE LD. D.R. POINTED OU T THAT THE BROKERS THROUGH WHICH THE TRANSACTIONS OF SALES AND PURCHASES OF THE SHARES W ERE MADE, WERE SUSPENDED BY THE CONTROLLING AUTHORITIES, I.E. SEBI. ON PERUSAL OF REPLY RECEIVE D FROM THE KOLKATA STOCK EXCHANGE, IT WAS NOTICED THAT THE TRANSACTIONS WERE CROSS DEALS AND WERE EXECUTED IN THE CODE SELF. IT WAS ALSO 13 ITA NO. 638/AHD/2008 NOTICED THAT THE PAYMENTS WERE MADE AFTER A PERIOD OF TWO AND HALF MONTHS. DESPITE OF THESE, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE ABOVE ADDITION ON THE GORUND THAT NO ENQUIRY REGARDING PURCHASES OF SHARES WERE MADE BY THE ASSESSING OFFICER AS WELL AS THE ASSESSEE COULD HAVE CHOSEN TO KEEP HER FUNDS WITH T HE BROKERS, AS DELAYED RECEIPT OF SALE PROCEEDS COULD NOT BE A GROUND FOR REJECTING GENUIN ENESS OF THE TRANSACTIONS. THE LD. D.R. POINTED OUT THAT THE DECISION OF THE LEARNED COMMIS SIONER OF INCOME TAX(APPEALS) IS NOT ACCEPTABLE BECAUSE THE ASSESSEE HAS FAILED TO FURNI SH THE REASONS FOR THE CROSS DEALS EXECUTED, I.E. CALCUTTA STOCK EXCHANGE HAS INFORMED THAT M/S. BHIW ANIWALA & CO. HAD EXECUTED TWO CROSS DEALS VIDE TRADE NO. 1128 & 1129 IN THE SAME QUANTI TY AND RATES AS MENTIONED IN THE CONTRACT NOTE FOR THE SELF CODE IN THE ONLINE TRADING SYSTEM OF THE EXCHANGE. M/S. M. BHIWANIWALA & CO. HAD TWO SALE TRANSACTIONS AND HAD EXECUTED TWO CROSS DE ALS VIDE TRADE NOS. REFERRED TO ABOVE. IT MEANS THE SHARES PURCHASES IN FIRST TWO TRADE NUMBERS WER E CROSSED DEALT IN SUBSEQUENT TO TRADE NUMBERS AND THE TRANSACTION WAS SQUARED UP AT THE E ND OF THE DAY. THIS DEALING WAS IN SELF. HERE IN THE CASE OF THE ASSESSEE THERE HAS BEEN SHO WN FOUR DEALS OF SALES OF SHARES IN THE QUANTITY OF 2900, 2900, 1000 & 3200 SHARES. AS SUCH THOUGH ALL THE FOUR TRADE NUMBERS ARE APPEARING IN BROKERS CONTRACT NOTE DATED 06.01.2004, THESE TRANS ACTIONS DO NOT MATCH WITH THE INFORMATION GIVEN BY THE STOCK EXCHANGE. AS PER THE STOCK EXC HANGE THERE WERE TWO PURCHASE AND TWO SALE TRANSACTIONS ON THAT DAY AND NOT ALL THE FOUR SALE TRANSACTIONS AS CONFIRMED BY THE BROKER AND AS MENTIONED IN THE CONTRACT BILL- MOREOVER, THE ASSE SSES FAILED TO FURNISH CONFIRMATION OF THE PURCHASES OF 10000 SHARES BY KOLKATA EXCHANGE FOR W HICH TRANSACTION WAS DONE THROUGH M/S, V.K. SINGHANIA. HE ACCORDINGLY CONTENDED THAT THIS ADDITION BE RESTORED. 25. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). APART FROM THIS, HE POINTED OUT THAT THE SUBJECT ISSUE IS DIRECTLY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION DATED 23.09.2009 OF THIS VERY BENCH OF THE TRIBUNAL IN THE CASE OF ACIT, CIRCLE-6 , SURAT VS.- KANTA GOYAL IN ITA NO. 1858/AHD/2005 FOR THE ASSESSMENT YEAR 2002-03, WHER EIN IT HAS BEEN HELD AS FOLLOWS :- ' ....,.., ADMITTEDLY, THE ASSESSES HAS SOLD THE SHARES IN QUE STION AFTER HOLDING THE SAME FOR MORE THAN 12 MONTHS. THE ASSESSEE EARNED L ONG TERM CAPITAL GAIN WHICH IS TAXABLE @ 10%. THE AO TREATED THE SAME AS INCOME FROM UNACCOUNTED SOURCES ON DOUBT AND SUSPICION. LOOKING TO THE VARIOUS EVID ENCE SUBMITTED BEFORE BOTH THE DEPARTMENT AUTHORITIES BELOW, WE ARE OF THE VIEW TH AT LEARNED CIT(A) HAS GIVEN 14 ITA NO. 638/AHD/2008 COGENT REASON FOR DIRECTING THE AO TO TREAT THE AMO UNT OF RS. 14,00,000/- AS LONG TERM CAPITAL GAIN, WE, THEREFORE, DECLINE TO INTERF ERE.............'' THE LD. COUNSEL OF THE ASSESSEE POINTED OUT THAT TH E SUBJECT GROUND NO. 5 OF THE DEPARTMENT BE DISMISSED IN THE INTEREST OF NATURAL JUSTICE AND EQ UITY. 26. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THE ASSESSMENT ORDER, THE ASSESSING OFFIC ER TREATED THE ENTIRE CASH CREDIT OF RS.17,27,242/- AS UNEXPLAINED CASH CREDIT. DESPITE THE FACT THAT THE ASSESSEE HAS PRODUCED THE FOLLOWING DOCUMENTS :- (I) COPY OF CONTRACT NOTE DATED 12.12.2002 FOR PURC HASE OF SHARES AS ISSUED BY THE BROKER M/S. V.K. SINGHANIA & CO.; (II) COPY OF SHARE CERTIFICATE IN PHYSICAL FORM FOR PURCHASE OF SHARES; (III) COPY OF CONTRACT NOTE DATED 6.1.2004 FOR SALE OF SHARES AS ISSUED BY THE BROKER M/S. M. BHIWANIWALA & CO.; (IV) COPY OF DEMAT A/C. STATEMENT AS ISSUED BY ICIC I BANK LTD. EVIDENCING THE PURCHASE AS WELL AS SALE OF SHARES. 27. PRIMA FACIE, IT APPEARS THAT THE ASSESSING OFFI CER MISUNDERSTOOD THE MEANING OF CROSS DEAL. CROSS DEAL MEANS THAT THE BROKER HAD FIRST P URCHASED SUCH SHARES IN HIS OWN NAME UNDER THE SELF CODE AND HAD SUBSEQUENTLY SOLD THE SHARE S TO SOME OTHER BUYERS, WHICH IS AN USUAL PRACTICE IN THE STOCK EXCHANGE AND THERE IS NO VIOL ATION OF SEBI RULES. THE INFORMATION GIVEN BY THE CALCUTTA STOCK EXCHANGE IS RE-PRODUCED BY THE A SSESSING OFFICER ON PAGE 8 OF THE ASSESSMENT ORDER, WHEREIN THE NAME OF THE BROKER, C ONTRACT NOTE NUMBER, THE TRADE DATE AS ALSO TRADE NUMBER FULLY TALLIES. THE ALLEGATION OF ASSES SING OFFICER THAT INFORMATION IS NOT MATCHING IS WITHOUT ANY BASIS. PURCHASES AND SALES OF SHARES WE RE AT THE MARKET PRICE PREVALENT AT THE RELEVANT TIME. THE MERE FACT THAT THE ASSESSEE HAS KEPT THE SALE PROCEEDINGS WITH THE BROKER IS NO GROUND TO DISBELIEVE THE TRANSACTIONS. THE ASSESSEE HAS FURNISHED CONTRACT NOTES FOR PURCHASES, COPY OF DEMAT A/C. HELD WITH ICICI BANK LTD., COPY OF SHARE CERTIFICATES WITH PHYSICAL FORMS, WHICH CANNOT BE IGNORED. LOOKING TO THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT IN THE IMPUGNED ORDER, THE LEARNED COMMIS SIONER OF INCOME TAX(APPEALS) AFTER APPRECIATING THE TRUE NATURE OF THE TRANSACTIONS DI RECTED THE ASSESSING OFFICER TO TAX THE LONG- 15 ITA NO. 638/AHD/2008 TERM CAPITAL GAIN ON SALE OF SHARES. WE, THEREFORE, INCLINE TO UPHOLD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). THIS GROUND OF APPEAL IS ACCORDINGLY REJECTED. 28. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED AS INDICATED ABOVE. THE ORDER WAS PRONOUNCED IN THE COURT ON 23.07.201 0 SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 23/ 07 / 2010 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 REGI STRAR, ITAT, AHMEDABAD LAHA/SR.P.S.