DCIT 14(1), MUMBAI V. ASHOK BHATT (HUF), MUMBAI

ITA 6909/MUM/2008

• Counselvise Citation: 690919914 RSA 2008
• Duration Of Justice: 2 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 31-12-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 03-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALEXANDER CHANDY
• Assessee Lawyers: D BHASKARA RAO
• Keywords: Share purchase agreement; Assessment record

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 6909/MUM/2008 (ASSESSMENT YEAR: 2004-05) D C I T - 14(1) SHRI ASHOK BHATT (HUF) ROOM NO. 202, 2ND FLOOR 202, ROYAL GARDEN, 2ND FLOO R EARNEST HOUSE, NARIMAN POINT VS. DR. A.B. ROAD, WORLI MUMBAI 400021 MUMBAI 400018 PAN - AAGHA 7121 N APPELLANT RESPONDENT APPELLANT BY: SHRI ALEXANDER CHANDY RESPONDENT BY: SHRI D. BHASKARA RAO DATE OF HEARING: 19.10.2011 DATE OF PRONOUNCEMENT: 31.10.2011 O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) XIV, MUMBAI DATED 29.09.2008. 2. THE ISSUE IN THIS APPEAL IS WITH REFERENCE TO THE T REATMENT OF LONG TERM CAPITAL GAIN OFFERED BY THE ASSESSEE AS INCOME FROM OTHER SOURCES HOLDING THAT THE ENTIRE TRANSACTION OF SALE OF SHARES WAS A COLOURABLE DEVICE TO EVADE ACTUAL PAYMENT OF TAX. REVENUE HAS RAISED THE FOLLO WING GROUNDS: 1. THE ORDER OF CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2.A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN TREATING THE PROFIT OF RS.29,00 ,317/- ON SALE OF SHARES AS LONG TERM CAPITAL GAIN WHEREAS THE A.O. H AD TREATED THE SAME AS INCOME FROM OTHER SOURCES HOLDING THAT THE ENTIRE TRANSACTION OF SALE OF SHARES OF TWENTY FIRST CENTU RY FINANCE LTD., WAS A COLOURABLE DEVICE TO EVADE ACTUAL PAYME NT OF TAX BY CLAIMING LONG TERM CAPITAL GAIN. B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN TREATING THE CAPITAL GAIN OF RS .27,58,778/- ON SALE OF SHARES AS LTCG WHEREAS THE A.O. HAD TREATED THE SAME AS STCG ON PROTECTIVE BASIS FOR WANT OF MATERIAL EV IDENCE IN THE ITA NO. 6909/MUM/2008 SHRI ASHOK BHATT (HUF) 2 TRANSACTION OF SALE AND PURCHASE OF THESE SHARES ES PECIALLY THE DURATION FOR WHICH THE SHARES WERE HELD BY THE ASSE SSEE. 3. FOR THESE AND OTHER REASONS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS REQUESTED THAT THE ORDER OF THE CIT( A) BE QUASHED AND THAT OF THE A.O. RESTORED. 3. BEFORE ADVERTING TO THE MERITS OF THE CASE IT IS PL ACED ON RECORD THAT WHEN THE CASE WAS TAKEN UP FOR HEARING ON 12.04.201 1 THE CASE WAS ADJOURNED AT THE REQUEST OF THE LEARNED D.R., WHO W ANTED TO FILE CERTAIN DOCUMENTS. SUBSEQUENTLY THE CASE WAS ADJOURNED ON B EHALF OF THE ASSESSEE AND THE LEARNED D.R. IN THE MONTHS OF JUNE, AUGUST AND FINALLY TO OCTOBER 2011. WHEN THIS WAS TAKEN UP ON 12.10.2011 THE LEAR NED D.R. SHRI. P.K.B. MENON HAS INFORMED THAT THE FACTS IN THE CASE ARE S IMILAR TO THE FACTS IN THE CASE OF A SUNDER RAJ, HUF IN ITA NO. 413/MUM/2010 A ND PLACED ON RECORD THE ORDERS OF SEBI IN RESPECT OF VARIOUS BROKERS WH O DEALT WITH THE SHARES OF TWENTY FIRST CENTURY (INDIA) LTD. LEVYING CERTAIN P ENALTIES. THE LEARNED COUNSEL ALSO WAS INFORMED OF ONE SUCH ORDER IN APRI L 2011 ITSELF IN THE CASE OF SHRI DINESH KUMAR MODI BUT, THE LEARNED D.R. WAN TED TO EXAMINE WHETHER THE BROKERS INVOLVED IN ASSESSEES CASE WER E ALSO PENALISED BY THE SEBI FOR DEALING IN THE SHARES OF TWENTY FIRST CENT URY (INDIA) LTD. 4. THE LEARNED COUNSEL, HOWEVER, OBJECTED TO STATING T HAT ASSESSEE HAS PURCHASED THE SHARES GENUINELY AND THERE WAS NO ACT ION AGAINST ANY BROKERS WITH WHOM ASSESSEE HAD TRANSACTED. HOWEVER, IN ORDER TO GIVE AN OPPORTUNITY TO PLACE NECESSARY DETAILS ON RECORD TH E CASE WAS ADJOURNED FROM 12.10.2011 TO 19.10.2011. NOW WHEN THE CASE WA S TAKEN UP, THERE IS A CHANGE IN THE D.R. SHRI ALEXANDER CHANDY, WHO DID N OT PLACE ANY INFORMATION ON RECORD WITH REFERENCE TO THE ISSUES RAISED BY THE PREDECESSOR D.R. WHEN ENQUIRED HE CATEGORICALLY STATED THAT THE RE WAS NOTHING ON RECORD ABOUT WHAT TRANSPIRED ON 12.10.2011 AND HE WAS READ Y TO ARGUE THE CASE ON MERITS. ACCORDINGLY, THE CASE WAS TAKEN UP FOR HEAR ING. 5. BRIEFLY STATED, ASSESSEE IS DERIVING INCOME FROM CA PITAL GAINS BY WAY OF LONG TERM AND SHORT TERM CAPITAL GAINS AND OTHER SO URCES AS WELL. ASSESSEE HAD FILED ITS RETURN OF INCOME ON 08.12.2004 DECLAR ING A TOTAL INCOME OF ` 28,79,118/-. THE RETURN WAS PROCESSED UNDER SECTION 143(1) AND WAS ITA NO. 6909/MUM/2008 SHRI ASHOK BHATT (HUF) 3 SELECTED FOR SCRUTINY BY ISSUE OF NOTICE UNDER SECT ION 143(2). THE ASSESSMENT WAS FINALLY COMPLETED ON 29.12.2006 BY DETERMINING THE TOTAL INCOME AT ` 30,20,660/-. WHILE DETERMINING THIS INCOME, THE A.O . TREATED THE PROFIT OF ` 29,00,317/- ON SALE OF SHARES AS INCOME FROM OTHER SOURCES AND ALSO TREATED LTCG OF ` 27,58,778/- AS SHORT TERM CAPITAL GAINS ON PROTECTI VE BASIS. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A) DETAILED STATEMENTS WERE MADE, WHICH THE CIT (A) EXTRACTED FROM PARA 5 IN PAGE 2 TO PAGE 8. THE CIT(A) ALSO GAVE AN OPPO RTUNITY TO THE A.O. VIDE HIS OFFICE LETTER DATED 12.09.2008 AND THE A.O. WAS ASKED TO PRESENT WITH THE CASE RECORDS ON 29.09.2008 AND ACCORDINGLY THE DCIT 14(1) WAS HEARD, WHO APPEARED ALONG ASSESSMENT RECORDS. THESE FACTS WERE NOTED BY THE CIT(A) IN PARA 5.1. AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE THE CIT(A) PASSED A DETAILED ORDER VIDE PARA 6, WHICH I S AS UNDER: - 6. I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS AND SUBMISSIONS AND HAVE ALSO GONE THROUGH THE MATERIAL ON RECORD A ND THE ASSESSMENT RECORDS AND ALSO THE ORDER OF THE AO. I FIND THAT THE AO HAS GIVEN HIS FINDING AND OBSERVATIONS IN PARAS 9 T O 16 OF HIS ORDER. THE CLAIM OF THE APPELLANT OF HAVING PURCHASED 42,0 00 SHARES OF TWENTY FIRST CENTURY (INDIA ) LTD. IN PHYSICAL FORM FROM INTRA DAY SPECULATION PROFIT OF RS.1,41,525/- ON SHARES OF AC C LTD AND RS.15/- HAVING BEEN PAID IN CASH AS PER VOUCHER OF M/S. P. K. AGARWAL & CO. AND THREAFTER THE SHARES HAVING BEEN DEMATERIALIZED ON 15.4.2003 AS PER DEMAT ACCOUNT SUBMITTED BY THE ASSESSEE AND SOL D AS PER BILLS REFERRED TO HEREINABOVE ARE RECORDED BY THE AO IN H IS ORDER. THE AO HAS FURTHER MADE CERTAIN OBSERVATIONS IN PARA 10 AN D 11. WHEREAS IN PARA 10, HE HAS DEPICTED CERTAIN ANOMALIES SUCH AS THE DATE OF PURCHASE AS PER ASSESSEES SUBMISSION AND DATE OF P URCHASE AS PER BROKERS NOTE, DATE OF SALE AND QUANTITY OF SHARES AS PER ASSESSEES SUBMISSION AND DATE AS PER BILL AND OF SHARES, BILL S NOT SUBMITTED FOR SALE OF 12,000 SHARES, DEMAT BALANCE AS ON 31.3.200 4 AT 15,000. WHEREAS THE ASSESSEE HAS CLAIMED TO HAVE SOLD ALL T HE SHARES AND THE ASSESSEE HAVING NOT SHOWN SPECULATION PROFIT IN THE RETURN OF INCOME FILED FOR A.Y. 2003-04. AFTER POINTING OUT T HESE ANOMALIES, THE AO HAS FURTHER OBSERVED THAT THE SHARE TRANSACTIONS HAS BEEN DONE OFF MARKET IN PHYSICAL FORM BY ADJUSTMENT OF SPECUL ATION PROFIT AND PAYING CASH FOR PURCHASE, THE PURCHASE PAYMENTS MAD E WERE NOT THROUGH NORMAL BANKING CHARNELS, THE BROKER HAS AVO IDED TO PRODUCE DETAILS ASKED FOR BY NOT COMPLYING WITH THE LETTER SENT BY THIS OFFICE AND ALSO ASSESSEE HAS NOT PRODUCED THE PARTY. THE N ATURE OF TRANSACTION LOOKS SUSPICIOUS FROM THE MANNER IT HAS BEEN CONDUCTED I.E. ABNORMAL APPRECIATION IN VALUE OF SHARES. THE ASSESSEE HAS RECEIVED SALES PROCEEDS THROUGH CHEQUE OR DD WHEREA S PURCHASES ITA NO. 6909/MUM/2008 SHRI ASHOK BHATT (HUF) 4 WERE CONSCIOUSLY MADE AGAINST ADJUSTMENT OF SPECULA TION PROFIT AND CASH. THE ASSESSEE HAS PURCHASED OFFICE PREMISES AN D ON PERUSAL OF BANK STATEMENT, IT IS NOTICED THAT THE AMOUNT REALI ZED THROUGH THE IMPUGNED SHARE TRANSACTION HAVE BEEN USED FOR PURCH ASE OF PROPERTY AS MENTIONED ABOVE. THIS APPEARS TO BE PLANNED OPER ATION OF THE ASSESSEE TO CREATE SO CALLED GENUINE SOURCE OF INCO ME FOR PURCHASE OF THAT PROPERTY. WITH THESE OBSERVATIONS, THE AO TREA TED THE LTCG AS NON GENUINE AND THE ENTIRE RECEIPT FROM SALE OF SHA RES OF RS.29,00,317/- WAS TREATED AS INCOME FROM OTHER SO URCES U/S. 56. IN SUPPORT OF HIS CONCLUSION HE HAS PLACED RELIANCE PM THE DECISION OF THE HONBLE APEX COURTS JUDGEMENT IN THE CASE OF M CDOWELL & CO. VS. CTO (1985) 154 ITR 148. 6.1 THE AO HAS FURTHER MADE OBSERVATION WITHOUT PRE JUDICE TO THE ABOVE FINDING, ALTERNATIVELY, IN THE EVENT THE TRAN SACTION OF SALE AND PURCHASES OF THESE SHARES ARE ACCEPTED TO BE PROPER , YET IN THE ABSENCE OF ANY AUTHENTIC DOCUMENT BROUGHT ON RECORD IN SUPPORT OF DATES OF PURCHASE OF THESE IMPUGNED SHARES, THE REQ UIREMENT OF HOLDING THE SHARES FOR MORE THAN 12 MONTHS PERIOD H AS NOT BEEN ESTABLISHED. THEREFORE, THE ASSESSEES CLAIM OF LTC G CANNOT BE ACCEPTED. ACCORDINGLY, THE AMOUNT OF RS.27,58,778/- CLAIMED A LTCG CAN BE TREATED AS SHORT TERM CAPITAL GAIN ON PROTEC TIVE BASIS. 6.2 IN THE ABOVE SUBMISSIONS AND DURING THE APPELL ATE HEARING, THE AR OF THE APPELLANT VEHEMENTLY CONTENDED THAT T HE OBSERVATIONS OF THE AO ARE NOT AT FACTUALLY CORRECT AND SUBMITTE D THAT SO FAR AS THE AOS POINTING OUT OF THE ANOMALY REGARDING THE DATE OF PURCHASE AS PER APPELLANTS CLAIM AND AS PER BROKERS NOTE AND SIMILARLY, THE DATE OF SALE ETC., THIS IS BECAUSE OF THE APPELLANT HAVI NG NOT MAINTAINED REGULAR BOOKS OF ACCOUNTS. THE DATE ON WHICH THE AP PELLANT HAS CLAIMED HAVING PURCHASED AND SOLD IN THE SUBMISSION COULD BE THE DATES ON WHICH THE CONVERSATIONS REGARDING THE TRAN SACTIONS WITH BROKER TOOK PLACE. MOREOVER, THERE IS NO SUBSTANTIA L DIFFERENCE IN THE DATES AS WELL WHICH AFFECTS EITHER THE GENUINENESS OF THE TRANSACTIONS OR THE PERIOD OF THE TRANSACTION AS SUCH. REGARDING THE OBSERVATION OF THE AO THAT BILLS NOT SUBMITTED OF 12O0 SHARES IT W AS ALSO CONTENDED THAT THIS IS ALSO FACTUAL1Y INCORRECT. THE APPELLAN T HAD SUBMITTED THE ENTIRE BILLS OF SALES DURING THE ASSESSMENT PROCEED ING. FURTHER, IN RESPECT OF THE AOS OBSERVATION THAT ASSESSEE HAS N OT SHOWN SPECULATION PROFIT IN THE RETURN OF INCOME FILED FO R A.Y. 2003-04 IT HAS ALSO BEEN CONTENDED THAT THE AOS OBSERVATION IS FA CTUALLY INCORRECT AND WRONG, THE APPELLANT HAD SUBMITTED THE COPY OF ACKNOWLEDGEMENT OF RETURN OF INCOME BEFORE THE AO. SIMILARLY, FOR THE DEMAT BALANCE AS ON 31.3.2004, IT WAS CONTENDED THA T THE REASONS FOR THIS WAS ALSO EXPLAINED BEFORE THE AO DURING TH E ASSESSMENT PROCEEDINGS. 6.3 AS ALREADY DISCUSSED ABOVE IN PARA 5.1, THAT TH E AO WAS REQUESTED TO BE PRESENT ALONGWITH ASSESSMENT RECORD ON THE DATE OF HEARING, IN COMPLIANCE THE PRESENT AO, SHRI V. A. S HINDE, ATTENDED ALONGWITH ASSESSMENT RECORDS. ON VERIFICATION AND E XAMINATION OF THE ITA NO. 6909/MUM/2008 SHRI ASHOK BHATT (HUF) 5 ASSESSMENT RECORDS, THE ABOVE CONTENTION OF THE APP ELLANT ARE FOUND TO BE CORRECT AND TRUE. THE AO HAS ALSO ADMITTED TH AT BILLS FOR SALE OF 12,000 SHARES ARE AVAILABLE ON RECORD, THE REASONS EXPLAINED FOR THE DEMAT BALANCE AS ON 31.3.2004 WAS ALSO ON RECORD AN D THE COPY OF ACKNOWLEDGEMENT OF RETURN OF INCOME FOR A.Y. 2003-0 4 ARE ALSO ON RECORD AND, IN THE COLUMN FOR DOCUMENTS ATTACHED W ITH THE RETURN, STATEMENT OF CAPITAL GAINS IS ALSO STATED TO HAVE B EEN ATTACHED. IN VIEW OF THESE FACTS, THE ANOMALIES POINTED OUT BY T HE AO IN PARA 10 OR THE ORDER ARE THUS PROVED TO BE INCORRECT AND HAS N O BEARING ON THE GENUINENESS OF THE TRANSACTION OF PURCHASE AND SALE OF SHARES. 6.4 REGARDING THE OBSERVATION OF THE AO THAT THE PU RCHASE OF TRANSACTION OF SHARES HAS BEEN DONE OFF MARKET IN P HYSICAL FORM BY ADJUSTING SPECULATION PROFIT AND PAYING CASH AND NO T MADE THROUGH NORMAL BANKING CHANNEL, IT HAS BEEN CONTENDED THAT AS FUNDS WERE LYING WITH THE BROKER ON ACCOUNT OF THE SHORT TERM CAPITAL GAINS FORM SALE OF SHARES OF ACC LTD., THERE WAS NO NEED FOR M AKING PAYMENT THROUGH BANKING CHANNELS. MOREOVER, SINCE THE APPEL LANT HAS ALREADY DECLARED THE SHORT TERM CAPITAL GAINS IN THE RETURN OF INCOME FOR A.Y. 2003-04, THE AUTHENTICITY OF THE PAYMENT BY WAY OF ADJUSTMENT ALSO STANDS ESTABLISHED. FURTHER, THE OBSERVATION OF THE AO THAT THE BROKER HAS AVOIDED TO PRODUCE DETAILS ASKED FOR BY NOT COM PLYING WITH THE LETTER AND ALSO THE ASSESSEE HAS NOT PRODUCED THE P ARTY IS ASSAILED BY THE APPELLANT BY STATING THAT THE APPELLANT WAS NEITHER INFORMED NOR WAS ASKED BY THE AO TO PRODUCE THE BROKER DURIN G THE ASSESSMENT PROCEEDINGS THEREFORE, THIS OBSERVATION ALSO HAS NO RELEVANCE FOR ARRIVING AT CERTAIN CONCLUSION AS HAS BEEN MADE BY THE AO. THEREFORE, I FIND CONSIDERABLE FORCE AND MERIT IN THE CONTENTION OF THE APPELLANT. MOREOVER, FORM THE ASSESSMENT RECORDS, I FIND THAT NO SUCH LETTER HAVING BEEN ISSUED TO THE BROKE R IS AVAILABLE. IN VIEW OF THESE FACTS, I FIND THAT MOST OF THE OBSERVATIONS OF THE AO ARE FACTUALLY INCORRECT. MOREOVER, THE AO HIMSELF HAS STATED THAT NATURE OF TRANSACTION LOOKS SUSPICIOUS, BUT MERELY ON SUSPICION AND SURMISES NO DISALLOWANCE OR ADDITIONS CAN BE SUSTAINED. THEREFORE, THE PURCHASES HAVING MADE THROUGH BROKER M/S. P. K. AGARWAL & CO. WHO ISSUED BROKER NOTE AND PAYMENT OF PURCHASE ALSO HAVING BEEN ADJUSTED AGAINST THE SHOR T TERM GAIN OF THE SHARES OF ACC LTD. SOLD THROUGH THIS BROKER ONL Y, THE PURCHASE OF SHARES OF TWENTY FIRST CENTURY (INDIA) LTD. DURING THE YEAR IN PHYSICAL FORM BY THE APPELLANT CANNOT BE DISCARDED MERELY SUSPICION AND NEITHER THE TRANSACTION CAN BE TREATED AS CARRI ED OUT BY RESORTING TO COLOURABLE DEVICES OR DUBIOUS METHODS. THEREFORE , THE RELIANCE PLACED BY THE AO IN THE CASE OF MCDOWELLS & CO. LTD . IS NOT APPLICABLE TO THE FACTS OF THE APPELLANTS CASE. CONVERSELY, T HE APPELLANTS CASE IS COVERED BY THE DECISION OF HONBLE P&H HIGH COUR T IN THE OF CIT VS. ANUPAM KAPOOR, 299 ITR 179, WHEREIN ON ALMOST SIMIL AR FACTS, OBSERVED THAT THE TRIBUNAL TOOK INTO CONSIDERATION THAT THE AO HAD NOT DEALT WITH ALL THE DOCUMENTS PLACED BEFORE HIM AND HAD SIMPLY PRESUMED THAT THE TRANSACTION WAS BOGUS AND HELD TH AT THE PURCHASE CONTRACT NOTE, CONTRACT NOTE FOR SALES, DISTINCTIVE NUMBERS OF SHARES ITA NO. 6909/MUM/2008 SHRI ASHOK BHATT (HUF) 6 PURCHASED AND SOLD, COPY OF THE SHARE CERTIFICATES AND THE QUOTATION OF SHARES ON THE DATE OF PURCHASE AND SALE WERE SUF FICIENT MATERIAL TO SHOW THAT TRANSACTION WAS NOT BOGUS, BUT A GENUINE TRANSACTION. ON APPEAL: HELD, DISMISSING THE APPEAL THAT THERE WAS NO MATERIAL BEFORE THE AO, WHICH WOULD HAVE LED TO A CONCLUSION THAT TRANSACTION WAS A DEVICE TO CAMOUFLAGE ACTIVITIES TO DEFRAUD RE VENUE. NO SUCH PRESUMPTION COULD BE DRAWN BY THE AO MERELY ON SURM ISES AND CONJECTURES. THE TRIBUNAL TOOK INTO CONSIDERATION T HAT IT WAS ONLY ON THE BASIS OF A PRESUMPTION THAT THE AO CONCLUDE THA T THE ASSESSEE HAD PAID CASH AND PURCHASED THE CHEQUE. IN THE ABSE NCE OF ANY COGENT MATERIAL IN THIS REGARD, HAVING BEEN PLACED ON RECORD, THE AO COULD NOT HAVE REOPENED THE ASSESSMENT. THE ASSESSE E MADE AN INVESTMENT IN A COMPANY, EVIDENCE THEREOF WAS WITH THE AO. THEREFORE, THE AO COULD NOT HAVE ADDED THE INCOME, WHICH RIGHTLY DELETED BY THE CIT(A) AS WELL AS TRIBUNAL. 6.5 IN VIEW OF THE ABOVE DISCUSSED FACTS AND JUDIC IAL RULING, I FIND THAT THE AO WAS NOT JUSTIFIED IN TREATING THE LONG TERM CAPITAL GAINS OF RS.27,58,778/- AS INCOME FROM OTHER SOURCE BY TREAT ING THE SHARE TRANSACTIONS AS NON GENUINE WITHOUT BRINGING ANY MA TERIAL ON RECORD. THEREFORE, THE AO WAS NOT JUSTIFIED IN TREATING THE LTCG OF RS.27,58,778/- AS AS INCOME FROM OTHER SOURCES. A CCORDINGLY, THE SUBSTANTIVE ADDITION MADE BY THE AO IS DELETED. SIM ILARLY, SINCE THE SHARES ARE FOUND HAVING BEEN HELD BY THE APPELLANT FOR MORE THAN 12 MONTHS, THE WITHOUT PREJUDICE AND ALTERNATIVE TREAT MENT OF THE LTCG AS SHORT TERM CAPITAL GAIN ON PROTECTIVE BASIS BY T HE AO IS ALSO NOT JUSTIFIED. THEREFORE, THE SAME IS ALSO ALLOWED IN F AVOUR OF THE APPELLANT. 6. THE LEARNED D.R. REFERRING TO THE ASSESSMENT ORDER REITERATED THE CONTENTIONS OF THE A.O. THAT ASSESSEE DID NOT EVIDE NCE THE PURCHASE OF SHARES AND, THEREFORE, THE WHOLE TRANSACTION IS MAK E BELIEVE TRANSACTION TO INVEST IN THE OFFICE PROPERTY PURCHASED BY ASSESSEE AND ACCORDINGLY THE A.O. WAS CORRECT IN TREATING THE TRANSACTION AS BOGUS AN D BRINGING TO TAX THE ENTIRE SALE PROCEEDS RECEIVED BY THE A.O. CONSEQUEN T TO THE SALE OF SHARES. HE FURTHER SUBMITTED THAT SINCE THE SHARES WERE NOT PURCHASED ON THE DATES SUPPOSED TO HAVE BEEN PURCHASED BY THE ASSESSEE, TH E ALTERNATE CONTENTION OF THE A.O. RAISED IN GROUND 2(B) THAT THE GAINS SH OULD BE CONSIDERED AS SHORT TERM CAPITAL GAINS SHOULD BE CONSIDERED. HE R EAD OUT THE MODUS OPERANDI IDENTIFIED BY THE DEPARTMENT FROM AN INTER NAL BOOKLET SUPPLIED TO THE OFFICERS. 7. PER CONTRA,THE LEARNED COUNSEL REFERRED TO PAGE NO. 9 OF THE PAPER BOOK TO SUBMIT THAT ASSESSEE HAS PURCHASED SHARES I N THE STOCK MARKET OF ITA NO. 6909/MUM/2008 SHRI ASHOK BHATT (HUF) 7 ACC OF 23300 SHARES WHICH WERE SOLD ON THE SAME DAY AND THEREBY EARNED PROFIT OF ` 1,41,525/- AND THIS AMOUNT WAS UTILISED FOR PURCHAS E OF SHARES FOR WHICH THE BILLS OF M/S. P.K. AGARWAL & CO. DATED 05 .04.2002 WAS SUBMITTED TO THE A.O. HE REFERRED TO THE STATEMENT NO. 70 IN A-2003309 DATED 05.04.2002 IN THE STOCK EXCHANGE, CALCUTTA FROM PAG E 153 TO 157 BY WHICH ASSESSEE HAS PURCHASED 42000 SHARES OF TWENTY FIRST CENTURY (INDIA) LTD. SINCE THE PROFIT EARNED BY ASSESSEE ON 02.04.2002 W AS WITH THE BROKER THERE IS NO FURTHER PAYMENT TOWARDS THIS PURCHASE. IT WAS FURTHER SUBMITTED THAT THE SHARES WERE TAKEN DELIVERY AND WERE SENT TO THE COMPANY FOR TRANSFER OF THE NAME, WHICH WAS ACKNOWLEDGED BY THE SAID COMPAN Y ON 29.04.2002 PLACED IN THE PAPER BOOK AT PAGE 13. THE SHARES WER E TRANSFERRED VIDE FOLIO NO. 479 AND CERTIFICATE NOS. BEING 3949- 64 AND 39 30 - 42 AND 29 SHARE CERTIFICATES HAVING 42000 SHARES WERE DELIVERED TO THE ASSESSEE. SUBSEQUENTLY ASSESSEE OPENED A DEMAT ACCOUNT IN HDF C BANK IN FEBRUARY 2003 AND THESE SHARES WERE TRANSFERRED TO THE DEMAT ACCOUNT OF ASSESSEE ON 26 TH MARCH, 2003 AND REFERRED TO BANK STATEMENT AT PAGE 15 OF THE PAPER BOOK. THEREFORE, IT IS ASSESSEES CONTENTION THAT A SSESSEE NOT ONLY EVIDENCED THE PURCHASE OF SHARES AS ON 05.04.2002 BUT ALSO FU RNISHED THE PROOF FOR TRANSFER OF SHARES IN PHYSICAL FORM ON 29.04.2002 A ND IN DEMAT FORM ON 27.03.2003 AND FURTHER THESE SHARES WERE SOLD THROU GH M/S. AHILYA COMMERCIAL P. LTD. ON THE STOCK EXCHANGE AND RELEV ANT DETAILS WERE PLACED FROM PAGE 23 TO 28. IT WAS FURTHER SUBMITTED THAT T HE A.O. NEVER DISBELIEVED THE SALES BUT CONSIDERED THE WHOLE TRANSACTION AS B OGUS ON PRESUMPTIONS AND SURMISES. IT WAS HIS SUBMISSION THAT THE CIT(A) EXAMINED THESE ISSUES AND FURTHER SUBMITTED THAT THE RECORD WAS ALSO EXAM INED BY THE CIT(A) WHO GAVE FACTUAL FINDINGS THAT THE ALLEGATIONS OF THE A .O. WERE UNFOUNDED. IT WAS FURTHER SUBMITTED THAT EVEN THOUGH CERTAIN BROKERS WERE PENALISED BY THE SEBI FOR TRANSACTING IN THE SHARES OF TWENTY FIRST CENTURY (INDIA) LTD. ASSESSEES BROKERS WERE NOT INVOLVED AND THERE WERE NO ORDERS FROM THE SEBI TO HIS KNOWLEDGE. THEREFORE, IT WAS SUBMITTED THAT ASSESSEES TRANSACTIONS ARE GENUINE AND THE CAPITAL GAINS OFFERED WAS CORRE CTLY ACCEPTED BY THE CIT(A). ITA NO. 6909/MUM/2008 SHRI ASHOK BHATT (HUF) 8 8. WE HAVE EXAMINED THE ISSUE AND CONSIDERED THE RIVAL CONTENTIONS. AS FAR AS THE FACTUAL VERIFICATION OF THE ISSUES ARE C ONCERNED ASSESSEE HAS INDEED FILED THE NECESSARY DOCUMENTS EVIDENCING THE PURCHASE OF SHARES AS WELL AS GETTING THEM TRANSFERRED IN HIS OWN NAME AN D LATER ON DE- MATERIALISED THROUGH HDFC BANK AND SUBSEQUENT SALE THEREOF. IT IS ALSO ON RECORD THAT THE A.O. DID NOT DOUBT SALE OF SHARES THROUGH STOCK EXCHANGE. IT IS HIS CONTENTION THAT THE TRANSACTION OF PURCHA SE IS A MAKE BELIEVE TRANSACTION AS THE ASSESSEE HAS NOT PAID ANY CONSID ERATION THROUGH BANK FOR PURCHASE OF SHARES. THIS CONTENTION WAS CORRECTLY R EJECTED BY THE CIT(A) AS IS EVIDENCED BY THE RETURN FOR A.Y. 2003-04 IN WHIC H THE SPECULATION PROFIT OF SALE OF ACC SHARES WERE ALSO OFFERED ALONG WITH LOS SES AND GAINS IN OTHER SHARES WHICH WERE NOT QUESTIONED BY THE A.O. AT ALL . THEREFORE, AS THE BROKER HAD CREDIT OF AMOUNTS IN HIS ACCOUNT IT CANNOT BE D OUBTED ON THE REASON THAT ASSESSEE HAS NOT PAID THE AMOUNT THROUGH BANKI NG CHANNELS. THERE IS NO REQUIREMENT TO DO SO. THE PRESENT D.R. TRIED TO READ OUT FROM THE BOOKLET OF THE DEPARTMENT OF HOW THE BOGUS TRANSACTIONS ARE ARRANGED AND PARTICULARLY HOW CERTAIN BROKERS ARE INVOLVED IN AR RANGING CAPITAL GAINS PROFITS. WHILE ADMITTING THAT THIS EXERCISE UNDERTA KEN BY THE DEPARTMENT MAY BE TRUE IN FEW CASES, THE MODUS OPERANDI POINTE D OUT BY THE LEARNED D.R. WAS NOT ESTABLISHED IN ASSESSEES CASE. THERE IS NO ENQUIRY WITH REFERENCE TO THE SHARE TRANSACTIONS UNDERTAKEN IN A .Y. 2002-03 WITH REFERENCE TO THE CAPITAL GAINS/SPECULATION PROFIT E ARNED IN THE FIRST INSTANCE, THERE IS NO DISPUTE OF OFFERING INCOMES IN THAT YEA R I.E. A.Y. 2003-04 WITH REFERENCE TO THE PROFIT ON PURCHASE OF SHARES, THER E IS ALSO NO ENQUIRY WITH REFERENCE TO THE SALE PRICE RECEIVED BY THE ASSESSE E. IF THE MODUS OPERANDI AS EXPLAINED BY THE LEARNED D.R. REGARDING PURCHASE O F CAPITAL GAINS IS TO BE BELIEVED THE A.O. SHOULD HAVE VERIFIED HOW THE SALE PRICE WAS RECEIVED IN ASSESSEES BANK ACCOUNT. WHETHER THERE WAS ANY CORR ESPONDING PAYMENT IN CASH EITHER THROUGH THE BANK OR TO THE SUBSIDIARIES OF BROKERS AS WAS MADE OUT BY THE DEPARTMENT ON ENQUIRY IN SOME CASES. IN FACT THERE ARE NO ENQUIRIES MADE BY THE A.O. WHILE COMPLETING THE ASS ESSMENT. INVOKING THE MCDOWELL & CO. CASE AND ARRIVING AT THE CONCLUSION THAT THE TRANSACTIONS ARE MAKE BELIEVE ARE ONLY ON PRESUMPTIONS AND SURMISES DEVOID OF ANY ENQUIRY. ITA NO. 6909/MUM/2008 SHRI ASHOK BHATT (HUF) 9 THE LEARNED CIT(A) IN FACT EXAMINED THE RECORD AND WAS CATEGORICALLY GAVE A FINDING THAT THE OBSERVATIONS MADE BY THE A.O. IN T HE ASSESSMENT ORDER ARE FACTUALLY INCORRECT. THESE FINDINGS ARE MADE IN PAR A 6.4 (EXTRACTED ABOVE), AFTER EXAMINATION OF THE ASSESSMENT RECORDS. IN THE ABSENCE OF ANY EVIDENCE ON RECORD TO STATE THAT THE BROKERS WITH WHOM ASSES SEE HAS TRANSACTED WERE ALSO ENQUIRED BY SEBI AND PENALTIES WERE LEVIED, TH E ORDERS PASSED IN SOME OF THE BROKERS CASES CANNOT BE TAKEN INTO CONSIDERA TION AS THERE IS NO RELEVANCE/ CORRELATION TO THE ISSUE UNDER CONSIDERA TION. THE ORDERS OF THE SEBI ARE IN RESPECT OF SMT. RENU PODDAR, SHRI DEEPA K JHUNJHUNWALA AND SHRI DINESH KUMAR MODI WITH WHOM ASSESSEE HAS NO TR ANSACTIONS. THEREFORE, EVEN THOUGH SIBI ORDERS WERE PLACED ON R ECORD REGARDING FRAUDULENT AND UNFAIR TRADE PRACTICES UNDERTAKEN IN THE CASE TWENTY FIRST CENTURY (INDIA) LTD. TRANSACTED IN CALCUTTA STOCK E XCHANGE THEY HAVE NO RELEVANCE TO THE PRESENT ISSUE. MOREOVER, AS SEEN F ROM THESE ORDERS THE PERIOD OF ENQUIRY UNDERTAKEN BY SEBI WAS FROM NOVEM BER 2001 WHEN THE PRICE OF TWENTY FIRST CENTURY (INDIA) LTD. SCRIPS W ERE ` 2.50 TO JANUARY 2002 WHEN THE PRICE WAS INCREASED AS HIGH AS ` 53/-, AN INCREASE OF 2000%. THE SEBI ENQUIRY PERIOD REFERRED IN THE ORDER AS THE PERIOD OF INVESTIGATION WAS PERTAINING TO NOVEMBER 2001 TO APRIL 2002. ASSESSEE HAS PURCHASED THE SHARES ON 5 TH APRIL 2002 AND THE PRICE PAID AT THAT POINT OF TIM E WAS ` 3.35. THEREFORE, THERE IS CERTAINLY EVIDENCE FROM THE SEB I ORDER ITSELF THAT THE PRICE PAID IN APRIL 2002 WAS ABOUT ` 3.50. ASSESSEES TRANSACTIONS WERE UNDERTAKEN SUBSEQUENTLY, MAY BE THE SHARES WERE MAN IPULATED BY SOME BROKERS SO AS TO INCREASE THE PRICE IN THE MARKET A GAIN BUT THERE IS NOTHING ON RECORD TO ESTABLISH THAT ASSESSEES TRANSACTION IS ALSO ONE SUCH AS CONTENDED BY THE REVENUE. IN THE ABSENCE OF ANY EVI DENCE ON RECORD THE CONTENTIONS OF THE LEARNED D.R. RELYING ON THE ORDE RS OF THE A.O. AND MODUS OPERANDI IDENTIFIED IN SOME CASES CANNOT BE ACCEPTE D. 9. AS SEEN FROM THE GROUNDS OF APPEAL, THERE IS NO BAS IS FOR CONTENDING THAT THE AMOUNTS RECEIVED ON SALE OF SHARES SHOULD BE CONSIDERED AS INCOME FROM OTHER SOURCE. THE A.O. HAS NOT DOUBTED THE SAL E OF SHARES BY ASSESSEE AND RECEIPT OF MONEY THROUGH THE BROKER. THEREFORE, GROUND NO. 2(A) DOES NOT ARISE AT ALL ON THE FACTS OF THE CASE. ON WHAT BASIS REVENUE HAS ITA NO. 6909/MUM/2008 SHRI ASHOK BHATT (HUF) 10 CONTENDED THIS ISSUE EVEN AFTER CLEAR FINDINGS BY T HE CIT(A) CANNOT BE EXPLAINED. WITH REFERENCE TO GROUND NO. 2(B) ABOUT THE ALTERNATE CONTENTION OF SHORT TERM CAPITAL GAINS, HERE ALSO THERE IS NOT HING ON RECORD TO ESTABLISH THAT ASSESSEE HAS NOT PURCHASED THE SHARES ON THE D ATES CLAIMED AND THERE IS NO BASIS FOR THE ASSESSING OFFICERS OBSERVATION THAT CAPITAL GAIN SHOULD BE CONSIDERED AS SHORT TERM CAPITAL GAIN, IN FACT THE CIT(A) HAS HIMSELF EXAMINED THE RECORD AND GAVE CLEAR FINDING THAT THE OBSERVATIONS OF THE A.O. HAS NO BASIS. WITHOUT BRINGING ANYTHING ON RECORD, IT IS SURPRISING THAT THE REVENUE HAS COME UP IN APPEAL UNNECESSARILY. NOT ON LY THAT THE LEARNED D.R. SOUGHT TIME TO EXAMINE THE ISSUE WHETHER THE B ROKERS THROUGH WHOM ASSESSEE PURCHASED AND SOLD WERE ALSO INVOLVED IN T HE ENQUIRY BY SEBI, THE LINE OF ARGUMENT RAISED ON 12.10.2011. AS SUBMITTED THERE WERE NEITHER ANY INSTRUCTION LEFT IN THE FILE OF THE DR NOR ANY ATTE MPT WAS MADE TO MAKE NECESSARY ENQUIRIES TO SUPPORT REVENUES CONTENTION S. AS STATED ABOVE, THE PERIOD OF INVESTIGATION BY SEBI WAS ALSO PRIOR TO THE ASSESSEES TRANSACTI ONS. THE PRESENT D.R., HOWEVER, RELIED ON THE ORDER OF T HE A.O. TO DEFEND REVENUES CASE. IN THESE CIRCUMSTANCES, WE ARE OF T HE OPINION THAT THERE SHOULD BE COST AWARDED TO THE REVENUE FOR MAKING AN UNNECESSARY APPEAL AND WASTING THE TIME OF THE COURT AND IN SEEKING AD JOURNMENTS FOR FILING CERTAIN INFORMATION WHICH HAS NO RELEVANCE. WE LEVY TOKEN AMOUNT OF ` 100/- AS COST TO BE PAID AS PER RULES. COST WAS LEVIED ON THE REVENUE, ACCORDINGLY. 10. COPY OF THIS ORDER IS MARKED TO THE CCIT (CCA), MUM BAI AND MEMBER, CBDT FOR FAVOUR OF INFORMATION. 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER 2011. SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 31 ST OCTOBER 2011 ITA NO. 6909/MUM/2008 SHRI ASHOK BHATT (HUF) 11 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XIV, MUMBAI 4. THE CIT XIV, MUMBAI CITY 5. THE DR, A BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.