JAGDISH H SHAH, MUMBAI V. ITIO 10(3)(2), MUMBAI

ITA 6557/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8983 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Assessment Year: 2005-2006
• Appeal Filed On: 29-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K SHIVARAM; RAHUL K HAKANI
• Keywords: Retraction
• Section: 131; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO. 6557/MUM/2011 ASSESSMENT YEAR 2005-06 JAGDISH H. SHAH, 14, SHARAD INDUSTRIAL ESTATE, LAKE ROAD, BHANDUP (W). MUMBAI 400 078. PAN: AAQPS 6968 P VS. ITO 10 (3)(2), ROOM NO. 259, 4 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 400 020. (APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI K. SHIVARAM, & SHRI RAHUL K. HAKANI RESPONDENT BY : SHRI MOHIT JAIN (DR) DATE OF HEARING : 29-08-2012 DATE OF PRONOUNCEMENT : 05.09.2012 ORDER PER N.K. BILLAIYA, A.M. WITH THIS APPEAL, THE ASSESSEE HAS SHOWN HIS GRIEVANCE AGAINST THE ORDER OF THE CIT(A)-22, MUMBAI DT. 16-08-2011 P ERTAINING TO THE ASSESSMENT YEAR 2005-06. 2. THE GROUNDS OF APPEAL FILED ALONG WITH FORM NO. 36 WERE CONSIZED AS THE ORIGINAL GROUNDS OF APPEAL WERE WRONGLY NUMB ERED, LENGTHY ITA NO. 6557/MUM/2011 JAGDISH H. SHAH 2 AND ARGUMENTATIVE. IN THE REVISED GROUNDS OF APPEA L, THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) ON TWO GROUN DS. 3. GROUND NO.1 RELATES TO THE GRIEVANCE THAT THE CI T(A) ERRED IN TREATING THE SALE CONSIDERATION OF RS. 10,56,343/- ON SALE OF SHARES OF M/S. ROBINSON WORLDWIDE TRADE LTD., (FORMERLY KNOWN AS ROBINSON IMPEX (INDIA) LTD) AS INCOME FROM OTHER SOURCES INSTEAD OF INCOME FROM LONG TERM CAPITAL GAINS. GROUND NO.2 RELATES TO THE TREATMENT OF PURCHASE TRANSACTION OF SHARES OF M/S. ROBINSON WORLDWIDE TRADE LTD., (FORMERLY KNOWN AS ROBINSON IMPEX (INDIA) LTD ) AS NOT GENUINE. 4. BRIEFLY STATED FACTS OF THE CASE ARE THAT FOR TH E YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SOLD 11,500 SHARES OF M/S. ROBINSON WORLDWIDE TRADE LTD., (FORMERLY KNOWN AS ROBINSON I MPEX (INDIA) LTD) FOR A TOTAL SALE CONSIDERATION OF RS. 10,56,343/-. THE SAME WAS INVESTED IN NABARD BONDS AND CLAIMED EXEMPTION U/S. 54 EC OF THE INCOME TAX ACT, 1961 (ACT). THE SAID SHARES WERE P URCHASED ON 05- 04-2003. DURING THE COURSE OF THE ASSESSMENT PROCE EDINGS, IN ORDER TO ASCERTAINING THE GENUINENESS OF THE TRANSACTIONS MADE BY THE ASSESSEE, THE ASSESSING OFFICER (AO) SEND A LETTER DT. 13-08-2007 TO THE BOMBAY STOCK EXCHANGE (BSE), BY WHICH THE AO SO UGHT CLARIFICATION IN RELATION TO THE PURCHASE TRANSACTI ON MADE BY THE ASSESSEE THROUGH M/S. DPS SHARES & SECURITIES PVT. LTD., THE SURVEILLANCE AND SUPERVISORY DEPARTMENT OF BSE VIDE ITS LETTER DT. 20- 08-2007 REPLIED THAT NO TRADES WERE FOUND TO BE EXE CUTED BY THE MEMBER, DSP SHARES & SECURITIES PVT. LTD., IN THE S CRIP M/S. ROBINSON WORLDWIDE TRADE LTD., (FORMERLY KNOWN AS R OBINSON IMPEX (INDIA) LTD). THE BSE FURTHER STATED THAT IN THE S CRIP ALFA LAVAL LTD., WITH THE TRADES BY THE MEMBER AT THE EXCHANGE, MANY DISCREPANCIES WERE OBSERVED IN THE CLIENT CODES AND THE QUANTITY OF SHARES TRADED ETC., THE BSE ATTACHED THE DISCREPANCY AS PER THE BROKERS NOTES AND THE TRADE LOG OF THE BROKER AS PER THE BSE. THE AO FURTHER ISSUED SUMMONS U/S. 131 (1) OF THE ACT TO THE PRINICIPAL O FFICER OF M/S. DPS ITA NO. 6557/MUM/2011 JAGDISH H. SHAH 3 SHARES & SECURITIES PVT. LTD., IN RESPONSE TO WHICH , SHRI RAJKUMAR MASALIA, AUTHORISED OFFICER OF M/S. DPS SHARES & SE CURITIES PVT. LTD., ATTENDED ON 05-12-2007, WHOSE STATEMENT WAS RECORDE D ON OATH. ON SPECIFIC QUERY RELATING TO THE PURCHASE OF 11,500 S HARES OF M/S. ROBINSON WORLDWIDE TRADE LTD., (FORMERLY KNOWN AS R OBINSON IMPEX (INDIA) LTD), THE DEPONENT REPLIED THAT NO TRANSACT ION WAS DONE ON THE FLOOR OF BSE ON BEHALF OF THE ASSESSEE. ON ANOTHER QUESTION RELATING TO THE PURCHASE OF THE SHARES OF M/S. ROBINSON WORL DWIDE TRADE LTD., (FORMERLY KNOWN AS ROBINSON IMPEX (INDIA) LTD) THE DEPONENT REPLIED THAT THESE BILLS WERE ISSUED AS ACCOMMODATION ENTRI ES AND NO TRANSACTION WAS CARRIED OUT ON BEHALF OF THE ASSESS EE. AFTER CONSIDERING THE STATEMENT OF SHRI RAJKUMAR MASALIA, THE AO CONCLUDED THAT THE PURCHASES MADE BY THE ASSESSEE W ERE NOT EFFECTED IN THE FIRST PLACE I.E., THE PURCHASES WERE BOGUS. THE ASSESSEE WAS CONFRONTED WITH THIS FINDING AND EXPLANATION WAS SO UGHT FROM THE ASSESSEE. THE AUTHORISED REPRESENTATIVE (AR) OF TH E ASSESSEE VIDE LETTER DT. 19-12-2007 REPLIED TO THE QUERIES RAISED BY THE AO. IN ITS REPLY, THE AR STATED THAT THE SHARES OF M/S. ROBINS ON WORLDWIDE TRADE LTD., (FORMERLY KNOWN AS ROBINSON IMPEX (INDI A) LTD) WERE PURCHASED ON 04-03-2003 FROM M/S. DPS SHARES & SECU RITIES PVT. LTD., FROM OFF-MARKET TRANSACTIONS AND RELIED UPON THE CONTRACT NOTES AND BILLS OF THE BROKERS IN RESPECT OF SHARES OF AL FA LAVAL LTD., AND M/S. ROBINSON IMPEX (INDIA) LTD (ROBINSON WORLDWIDE TRADE LTD.,). THE ASSESSEE FURTHER RELIED UPON THE LETTER FROM TH E DIRECTORS OF M/S. DPS SHARES & SECURITIES PVT. LTD., DT. 19-12-2007 B Y WHICH THE DIRECTOR OF THE BROKER COMPANY CONFIRMED THE TRANSA CTION OF PURCHASE OF 11,500 SHARES OF M/S. ROBINSON IMPEX (I NDIA) LTD (ROBINSON WORLDWIDE TRADE LTD.,) BY THE ASSESSEE AN D ALSO CONFIRMED THAT THE SHARES WERE NOT TRADED IN THE STOCK EXCHAN GE AND WERE SOLD IN PHYSICAL MODE BY OFF-MARKET. HOWEVER, THE AO DI D NOT ACCEPT THE PURCHASE TRANSACTION AS GENUINE AND TREATED THE ENT IRE PURCHASE OF 11,500 SHARES OF M/S. ROBINSON IMPEX (INDIA) LTD (R OBINSON WORLDWIDE TRADE LTD.,) AS BOGUS AND ACCORDINGLY WEN T ON TO TREAT THE ITA NO. 6557/MUM/2011 JAGDISH H. SHAH 4 ENTIRE CONSIDERATION RECEIVED ON SALE OF 11,500 SHA RES AT RS. 10,56,343/- AS INCOME FROM UN-DISCLOSED SOURCE S AND REJECTED THE CLAIM OF THE ASSESSEE UNDER THE HEAD LONG TERM CAPITAL GAINS. 5. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A ) AND REITERATED HIS CLAIM FOR LONG TERM CAPITAL GAIN ON SALE OF 11,50 0 SHARES OF M/S. ROBINSON IMPEX (INDIA) LTD (ROBINSON WORLDWIDE TRAD E LTD.,). HOWEVER, THE CIT(A) WAS NOT CONVINCED WITH THE SUBM ISSIONS OF THE ASSESSEE AND CONFIRMED THE FINDING OF THE AO TO TRE AT THE INCOME OF RS. 10,56,343/- AS INCOME FROM UN-DISCLOSED SOURCE S. 6. THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THIS FINDING OF THE CIT(A). THE LEARNED COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE ASSESSEE HAS AT THE VERY FIRST STAGE HAS MADE IT CL EAR THAT THE PURCHASES WERE NOT MADE THROUGH THE STOCK EXCHANGE BUT BY OFF- MARKET TRANSACTION. THEREFORE, THE DENIAL OF THE B SE THAT NO SUCH TRANSACTION HAS TAKEN PLACE ON THE FLOOR OF THE STO CK EXCHANGE HAS NO SUBSTANCE AS THE ASSESSEE HIMSELF IS ADMITTING THAT THE TRANSACTION TOOK PLACE OUT-SIDE THE FLOOR OF THE BSE. 7. THE COUNSEL FURTHER ARGUED THAT THE PURCHASES WE RE MADE ON 05-04-2003 AND WERE DULY REFLECTED IN THE BALANCE S HEET OF THE ASSESSEE FOR THE FINANCIAL YEAR 2003-04 RELATING TO THE ASSESSMENT YEAR 2004-05. THE COUNSEL ARGUED THAT IMMEDIATELY AFTER THE PURCHASE OF SHARES, THE SHARES WERE DEMATTED IN THE DMAT ACCOUNT WITH HDFC BANK FROM WHERE THE SALE TRANSACTIONS WER E DONE. 8. THE AO RELIED UPON THE STATEMENT OF SHRI RAJKUMA R MASALIA WITHOUT AFFORDING ANY OPPORTUNITY TO CROSS-EXAMINAT ION. THE LEARNED COUNSEL FURTHER POINTED OUT THAT THE SAID RAJKUMAR MASALIA, WHOSE STATEMENT WAS RECORDED BY THE AO HAS RETRACTED FROM HIS STATEMENT AS IS EVIDENT FROM HIS LETTER ADDRESSED TO THE ITO WHI CH IS EXHIBITED AT PG. NO. 37 OF THE PAPER BOOK. ITA NO. 6557/MUM/2011 JAGDISH H. SHAH 5 9. THE COUNSEL FURTHER POINTED OUT THAT THE LOWER A UTHORITIES HAVE GROSSLY ERRED IN IGNORING THE CONFIRMATION LETTER O F THE DIRECTOR OF THE BROKING FIRM WHEREIN THE DIRECTOR HAS CATEGORICALLY CONFIRMED THE TRANSACTION. THE LOWER AUTHORITIES FURTHER ERRED I N IGNORING THE DMAT STATEMENT, THE CONTRACT NOTES RELATING TO SALE OF S HARES, AND THE BANKS STATEMENT SUBMITTED BY THE ASSESSEE TO SUBST ANTIATE HIS CLAIM. THE COUNSEL CONCLUDED THAT THE PURCHASES WERE MADE IN THE FINANCIAL YEAR 2003-04 AND ANY DOUBT IN RELATION TO THE PURCH ASES OF SHARES CANNOT BE RAISED DURING THE YEAR UNDER CONSIDERATIO N. 10. PER CONTRA, THE DEPARTMENTAL REPRESENTATIVE (DR ) STRONGLY RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES AND SUBM ITTED THAT THE PURCHASES HAVE NOT BEEN PROVED TO BE GENUINE. THER EFORE, THE ORDER OF THE LOWER AUTHORITIES DESERVED TO BE CONFIRMED. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND ALSO THE PAPER BOOK SUBMITTED BY THE ASSESSEE. IT IS NOT IN DISPUTE THAT THE SHARES WERE PURCHASED IN PHYSICAL FORM IN OFF-MARKET TRANSACTION. IT IS ALSO NOT IN DISPUTE THAT THE SHARES WERE SUBSEQUENTLY DE-MATTED AND THE SALES HAVE TAKEN PLA CE OUT OF THE DMAT A/C. THE ONLY DISPUTE RELATES TO THE GENUINEN ESS OF THE PURCHASES AS DOUBTED BY THE LOWER AUTHORITIES. WE FIND THAT THE PURCHASES ARE SUPPORTED BY PURCHASE BILLS ISSUED BY M/S. DPS SHARES & SECURITIES PVT. LTD., EXHIBITED AT PAGES 2 8 TO 32 OF THE PAPER BOOK. WE ALSO FIND THAT THE SHARES SO PURCHASED WE RE TRANSFERRED TO DMAT A/C WITH HDFC BANK. COPY OF WHICH IS EXHIBITE D AT PAGE NO. 34 OF THE PAPER BOOK. WE HAVE ALSO CONSIDERED THE LETTER OF THE DIRECTOR OF M/S. DPS SHARES & SECURITIES PVT. LTD., ADDRESSED TO THE AO BY WHICH THE DIRECTOR HAS CONFIRMED THE OFF-MARK ET TRANSACTION IN PHYSICAL MODE OF SHARES OF THE 11,500 SHARES OF M/S . ROBINSON IMPEX (INDIA) LTD (ROBINSON WORLDWIDE TRADE LTD.,). WE H AVE ALSO CONSIDERED THE RETRACTION LETTER OF SHRI RAJKUMAR MASALIA ADDR ESSED TO THE AO BY WHICH HE ACCEPTED THAT HE WAS NOT AWARE OF THE TRAN SACTION AND HE ITA NO. 6557/MUM/2011 JAGDISH H. SHAH 6 HAS STATED WRONG FACTS DURING THE COURSE OF HIS STA TEMENT RECORDED BY THE AO. 12. WE FIND THAT DURING THE COURSE OF THE APPELLATE PROCEEDINGS, THE CIT(A) HAS CALLED FOR A REMAND REPORT FROM THE AO R ELATING TO THE PURCHASE OF 11,500 SHARES OF M/S. ROBINSON WORLDWID E TRADE LTD., (FORMERLY KNOWN AS ROBINSON IMPEX (INDIA) LTD). WE HAVE PERUSED THE REMAND REPORT OF ITO 10(3)(2) MUMBAI DT. 11-04-2011 . IN HIS REMAND REPORT, THE AO STATES THAT AN OPPORTUNITY OF CROSS- EXAMINATION OF SHRI RAJKUMAR MASALIA WAS GIVEN TO T HE ASSESSEE ON 18-02-2009, 29-04-2009 AND 09-11-2009. HOWEVER, D ESPITE OF GIVING AFORESAID OPPORTUNITIES, SHRI RAJKUMAR MASALIA DID NOT ATTEND THOUGH ASSESSEES REPRESENTATIVE ATTENDED ON ALL OF ABOVE DATES AND WHOSE ATTENDANCE WAS DULY RECORDED ON THE ATTENDANCE SHEE T. IN HIS REMAND REPORT, THE AO FURTHER STATES THAT THE SAID SHARES OF M/S. ROBINSON WORLDWIDE TRADE LTD., (FORMERLY KNOWN AS R OBINSON IMPEX (INDIA) LTD) WERE PURCHASED ON 05-04-2003 FOR A CON SIDERATION OF RS. 15191.99 FROM M/S. DPS SHARES AND SECURITIES PVT. L TD., AS PER RECORD OF THE SAID COMPANY, THE SHARES WERE ENDORSE D IN FAVOUR OF THE ASSESSEE ON 30-04-2003 IN PHYSICAL FORMAT ONLY. TH E AO FURTHER STATES THAT AS PER INVESTIGATION MADE, THESE SHARES WERE SENT FOR DE- MATERIALISATION TO HDFC BANK ON 03-05-2004 AND WERE CONVERTED INTO DE-MAT FORM ON 22-05-2004. IN HIS REMAND REPORT, T HE AO HAS FURTHER CONFIRMED THE SALE TRANSACTION MADE THROUGH BROKER, M/S. AJMEERA ASSOCIATES PVT. LTD., 13. AFTER CONSIDERING ALL THE ABOVE STATED FACTS IN TOTALITY, WE DO NOT FIND ANY REASON OR LOGIC IN TREATING THE PURCHASE O F 11,500 SHARES AS BOGUS. THE LOWER AUTHORITIES COULD HAVE DIRECTLY VE RIFIED THE TRANSACTION FROM THE COMPANY ITSELF, WHOSE SHARES W ERE QUESTIONED TO BE BOGUS BUT BOTH THE LOWER AUTHORITIES DID NOT DO THIS EXERCISE. THE REMAND REPORT OF THE AO ITSELF SHOW THAT THE TRANSA CTIONS HAVE BEEN TREATED AS GENUINE SUBSEQUENTLY BY THE AO HIMSELF W HILE SENDING THE ITA NO. 6557/MUM/2011 JAGDISH H. SHAH 7 REMAND REPORT TO THE CIT(A). WE FIND THAT THE SALE TRANSACTION OF 11,500 SHARES OF M/S. ROBINSON IMPEX (INDIA) LTD (R OBINSON WORLDWIDE TRADE LTD.,) HAS NOT BEEN DOUBTED OR QUES TIONED BY THE LOWER AUTHORITIES. A SIMPLE LOGICAL QUESTION ARISE S IF THE SHARES WERE NEVER PURCHASED, HOW CAN THEY BE SOLD SUBSEQUENTLY? 14. AFTER CONSIDERING ALL THE FACTS AND SUBMISSIONS , WE FIND THAT BOTH THE LOWER AUTHORITIES HAVE GROSSLY ERRED IN TREATIN G THE SALE CONSIDERATION AS INCOME FROM UN-DISCLOSED SOURCES . 15. WE THEREFORE REVERSE THE FINDING OF THE LOWER A UTHORITIES AND DIRECT THE AO TO ACCEPT THE LONG TERM CAPITAL GAINS AS RETURNED BY THE ASSESSEE. 16. WITH OUR FINDINGS FOR GROUND NO.1, GROUND NO.2 BECOMES OTIOSE. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5.9. 2012 SD/- SD/- (D.K. AGARWAL) (N.K. BILLAIYA) JUDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI, DATE 05.09.2012 TNMM ITA NO. 6557/MUM/2011 JAGDISH H. SHAH 8 COPY TO: 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR J BENCH, ITAT, MUMBAI 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI