Shri Avinash Kantilal Jain, Jalgaon V. ACIT, Jalgaon

ITA 980/PUN/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9857 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 02-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Keywords: Business income; Cost of acquisition; Sham transactions
• Section: 234B; 131

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 980/PN/10 (ASSTT. YEAR : 200 6-07) SHRI. AVINASH KANTILAL JAIN , APPELLANT 43/B/2, NEAR GIRNA BRIDGE, N.H. NO. 6, JAIN FOOD COMPOUD, SAVKHEDA (BK) BAMBHORI JALGAON 425001 PAN : ACWPJ9538Q V. ADDL. CIT, RANGE -1, JALGAON RESPONDENT ITA NO. 1049/PN/10 (ASSTT. YEAR : 20 06-07) ADDL. CIT, RANGE -1, JALGAON APPELLANT V. SHRI. AVINASH KANTILAL JAIN RESPONDENT 43/B/2, NEAR GIRNA BRIDGE, N.H. NO. 6, JAIN FOOD COMPOUD, SAVKHEDA (BK) BAMBHORI JALGAON 425001 PAN : ACWPJ9538Q ASSESSEE BY : SHRI. S UNIL GANOO DEPARTMENT BY : MS. ANN K APTHUAMA DATE OF HEARING : 17/10/12 DATE OF PRONOUNCEMENT : 31 -10-12 O R D E R PER R.S. PADVEKAR, JM THESE TWO CROSS APPEALS, ONE BY THE ASSESSEE AND A NOTHER BY THE REVENUE ARE FILED CHALLENGING THE IMPUGNED ORDER OF THE LD CIT(A)-II, NASIKH DATED 23.4.2010 FOR THE A.Y. 2006-07. WE F IRST TAKE THE ASSESSEES APPEAL BEING ITA NO. 980/PN/10. THE ASS ESSEE HAS TAKEN THE FOLLOWING EFFECTIVE GROUNDS IN THE APPEAL : 1) IN THE FACTS, CIRCUMSTANCES AND POSITION OF LAW HON. COMMISSIONER OF INCOME TAX, APPEALS-II, NASHIK ERRED IN NOT ALLO WING THE GAIN RECEIVED ON TRANSFER OF SHARES AS LONG TERM CAPITAL GAIN AND THEREBY IN NOT ALLOWING EXEMPTION UNDER SECTION 10(38) OF I.T. ACT, 1961. 2 ITA NOS. 980 &1049/PN/10 SHRI AVINASH KANTILAL JAIN A.Y.2006-07 2) IN THE FACTS, CIRCUMSTANCES AND POSITION OF LAW HON. COMMISSIONER OF INCOME TAX, APPEALS-II, NASHIK ERRED IN NOT CONS IDERING THE DATE OF PURCHASE AS THE DATE OF ACQUISITION OF THE SHARES. 3. IN THE FACTS, CIRCUMSTANCES AND POSITION OF LAW HON. COMMISSIONER OF INCOME TAX, APPEALS-II, NASHIK ERRED IN NOT DELE TING THE INTEREST UNDER SECTION 234B AT RS.2,34,663/-. 2. THE FACTS WHICH EMERGE FROM THE RECORD ARE AS UN DER. THE ASSESSEE IS IN THE MANUFACTURE AND SALE OF WOODEN PALLETES AND CHEMICALS. IT WAS NOTICED BY THE A.O THAT THE ASSE SSEE HAS SHOWN THE SALE OF PENNY STOCK AND HAS ALSO CLAIMED THE LONG T ERM CAPITAL GAIN ON SUCH TRANSACTIONS. AS PER THE DETAILS FURNISHED BY THE ASSESSEE, HE HAD PURCHASED 12000 SHARES OF PRIME CAPITAL MARKET LTD. ON 13 MAY 2004 THROUGH A BROKER M/S. D.K. KHANDELWAL AND CO. THE A.O HAS OBSERVED THAT AS PER THE BILL AND CONTRACT NOTE FURNISHED BY THE BROKER, THE TRANSACTION WAS ROUTED THROUGH THE CALCUTTA STOCK EXCHANGE BEING SETTLEMENT NO. D-331/04-05 DATED 13-05-2004. THE S ETTLEMENT ENDING DATE WAS ALSO THE SAME. THE PURCHASE PRICE AS PER T HE CONTRACT NOTE WAS RS. 5.15/-PER SHARE. THE SHARES OF PRIME CAPITAL M ARKET LTD. WERE CREDITED TO THE ASSESSEES DEMAT A/C. ON 12 TH JULY 2005. SUBSEQUENTLY, THOSE SHARES WERE SOLD IN THE 3 LOTS THROUGH THE BR OKER NAMELY M/S. D.B. & CO. ON 29.8.2005. THE DETAILS ARE AS UNDER : DATE QUANTITY (SHARES) RATE(RS) VALUE (RS.) 29-08-2005 2500 275.72 688538.60 08-09-2005 2500 279.72 698526.60 19-09-2005 2500 279.72 698528.60 3. THE PURCHASE PRICE OF THE SHARES WAS ALSO CLAIME D TO BE PAID IN CASH. THE A.O HAD RESERVATION THAT THOSE SHARES WE RE CREDITED TO THE DEMAT A/C. AFTER ALMOST 14 MONTHS AND HENCE, IN HIS OPINION, IT WAS A SHAM TRANSACTION SHOWN BY THE ASSESSEE FOR THE PURP OSE OF OBTAINING ACCOMMODATION ENTRY FOR LONG TERM CAPITAL GAINS. T HE A.O HAS OBSERVED THAT THE PURCHASE PRICE WAS NOT PAID BY CH EQUE AND HENCE, THERE WAS STRONG GROUND TO BELIEVE THAT THE SAID TR ANSACTION OF PURCHASE OF SHARES OF M/S. PRIME CAPITAL MARKET LTD. HAD BE EN ANTE DATED SO AS TO CLAIM THE LONG TERM CAPITAL GAIN. AS OBSERVED BY T HE A.O, M/S. PRIME CAPITAL MARKET LTD. WAS A LISTED COMPANY IN THE CAL CUTTA STOCK EXCHANGE, BUT THE SAID COMPANY WAS UNDER OBSERVATION AND INVE STIGATION BY THE SEBI. THE A.O HAS ALSO OBSERVED THAT M/S. D.K. KHA NDELWAL & CO. THROUGH WHOM THE ASSESSEE HAS PURCHASED THOSE SHAR ES WAS ONE OF THE 3 ITA NOS. 980 &1049/PN/10 SHRI AVINASH KANTILAL JAIN A.Y.2006-07 BROKERS AGAINST WHOM INVESTIGATION WAS GOING ON BY THE SEBI ON THE CHARGE OF MANIPULATION OF THE SHARE PRICE OF M/S. P RIME CAPITAL MARKET LTD. THE A.O HAS ALSO NOTED THAT THE REGISTRATION OF THE SAID BROKER ON THE CHARGE OF MANIPULATING THE SHARE PRICE OF M/S. PRIME CAPITAL MARKET LTD. WAS SUSPENDED BY THE SEBI. THE A.O. ISSUED TH E LETTER TO THE CALCUTTA STOCK EXCHANGE SEEKING THE DETAILS OF TRAD ING VOLUMES IN RESPECT OF THE PRIME CAPITAL MARKET LTD. SHARES IN THE SETT LEMENT NO. 331/04-05. THE A.O HAS ALSO NOTED THAT THE INFORMATION WAS CAL LED FOR IN RESPECT OF EACH TRADING DATE IN THE AFORESAID SETTLEMENT AND I N RESPECT OF EACH BROKER, WHO WAS INVOLVED IN THE TRADING OF THE SAID SHARES. THE CALCUTTA STOCK EXCHANGE HAS SENT THE NAMES OF THE 4 BROKERS WHO WERE INVOLVED IN THE TRADING OF THOSE SHARES. AS PER THE INFORMA TION GIVEN BY THE CALCUTTA STOCK EXCHANGE, M/S. D.K. KHANDELWAL & CO . WAS NOT INVOLVED IN THE TRADING OF SHARES OF M/S. PRIME CAPITAL MARK ET LTD. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSEE CAME FORWARD AND FILED THE LETTER DATED 28.11.2008 IN WHICH HE OFFER ED THE LONG TERM CAPITAL GAINS OF RS. 20,48,900/- AS HIS ADDITIONAL BUSINESS INCOME AND AGREED TO PAY THE TAX ON THE SAME. THE A.O DID NOT ACCEPT THE OFFER MADE BY THE ASSESSEE AND HELD THAT SUM OF RS.20,4 8,900/- SHOULD NOT BE TREATED AS ADDITIONAL BUSINESS INCOME AND BROUGH T TO TAX RS. 20,85,595/- (GROSS SALE CONSIDERATION) AS AN INCO ME FROM THE OTHER SOURCES. THE A.O DID NOT GIVE THE BENEFIT OF DEDU CTION OF THE COST OF PURCHASES AS IN HIS OPINION, THE SAME WAS PAID IN C ASH AND NOT PROVED BY THE ASSESSEE. THE ASSESSEE CHALLENGED THE ACTION OF THE A.O BEFORE THE LD CIT(A). 4. THE LD CIT(A) HAS GIVEN THE FACTS IN RESPECT O F THE SHARE TRANSACTION OF PRIME CAPITAL MARKET LTD. IN PARA NO . 3 OF HIS ORDER. THE LD CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE T HAT THE SHARES OF M/S. PRIME CAPITAL MARKET LTD. WAS OFF MARKET TRANSACTIO N AND HENCE, NO DETAILS COULD BE FOUND IN THE CALCUTTA STOCK EXCHAN GE. IN RESPECT OF THE ALLEGATION ON THE SHARE BROKER REGARDING THE MANIPU LATION OF THE PRICES OF THE SHARES OF THE PRIME CAPITAL MARKET LTD., THE L D CIT(A) HELD THAT THE A.O HAS NOT GIVEN ANY SPECIFIC FINDINGS ON THE TRAN SACTIONS SHOWN BY THE ASSESSEE. FINALLY, THE LD CIT(A) HELD THAT THE TRA NSACTION WAS GENUINE BUT THE DATE OF THE PURCHASE/ACQUISITION OF THE SHA RES SHOULD BE THE DATE ON WHICH THE SHARES WERE CREDITED TO THE DEMAT A/C. HE FURTHER HELD THAT THE COST OF ACQUISITION SHOULD BE TAKEN AS SHOWN I N THE BOOKS OF ACCOUNT OF THE ASSESSEE I.E. AT RS. 5.15 PAISE . HE ALSO HE LD THAT DATE OF 4 ITA NOS. 980 &1049/PN/10 SHRI AVINASH KANTILAL JAIN A.Y.2006-07 ACQUISITION SHOULD BE DATE ON WHICH SHARES ARE CRED ITED TO DEMAT A/C.. THE ASSESSEE IS IN APPEAL RAISING THE GRIEVANCE THA T THE LD CIT(A) HAS NOT TREATED THE GAIN ON THE SAID SHARE TRANSACTION AS T HE LONG TERM CAPITAL GAIN BY NOT ACCEPTING THE DATE OF ACQUISITION SHOWN BY THE ASSESSEE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE RECORD. THE LD COUNSEL SUBMITS THAT THE LD CIT(A) HAS ACCEPTED THE TRANSACTION AS THE GENUINE ONE AND ALSO ACCEPTED T HE PURCHASE PRICE AS RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, T HEN, WHY THE DATE OF PURCHASE SHOULD NOT BE ACCEPTED ? HE FURTHER SUBMI TS THAT IT WAS OFF MARKET TRANSACTION AND HENCE, IT WAS NOT POSSIBLE TO GET THE DETAILS FROM THE CALCUTTA STOCK EXCHANGE. HE SUBMITS THAT THE A .O HAS NOT DISCHARGED THE BURDEN PUT ON HIM TO PROVE THAT IN F ACT THE PURCHASE TRANSACTION ENTERED INTO BY THE ASSESSEE IN RESPECT OF THE SHARES OF PRIME CAPITAL MARKET LTD. WAS NOT GENUINE. HE FURT HER REFERRED TO THE DECISION OF THIS TRIBUNAL IN THE CASE OF SMT. SUREK HA BHAGVATIPRASAD MUNDADA & OTHERS VS. I.T.O. WARD 1(1), JALGAON, ITA NOS. 1332, 1384 & 1397, 1334, 1349, 1335, 1351, 1333, 1396, 1328, 135 0 AND 1331/PN/2008 DATED 6 TH JUNE 2010. HE SUBMITS THAT IN THE SAID DECISION, THE PLEA OF THE OFF MARKET TRANSACTION WAS TAKEN AT THE TRIBUNAL LEVEL AND MOREOVER, THERE WAS NOT EVEN EVIDENCE TO SUPPORT TH E CASE OF THE ASSESSEE THAT IN FACT, ASSESSEE HAD PURCHASED THE S HARES ON THE DATE CLAIMED. UNDER THAT CIRCUMSTANCES, THE TRIBUNAL HE LD THAT THE LONG TERM CAPITAL GAIN CLAIMED EXEMPT BY THOSE ASSESSEES U/S. 10(38) OF THE ACT WAS OUT OF THE SHAM TRANSACTIONS. THE LD COUNSEL R ELIED ON THE FOLLOWING DECISIONS IN SUPPORT OF HIS PLEA : 1. CIT VS. KORLAY TRADING CO. LTD., 232 ITR 820(CA L) 2. MUKESH R. MAROLIA VS. ADDITIONAL CIT, 6 SOT 247 (MUM) 3. ACCHYALAL SHAW VS. INCOME TAX OFFICER, 121 TTJ (KOL) 695 6. PER CONTRA, THE LD. D.R. SUPPORTED THE ORDER OF THE LD CIT(A) ON THIS PARTICULAR FINDING. WE FIND THAT IN THIS CASE , THE ASSESSEE HAS FILED BROKERS NOTE I.E. FROM M/S. D.K. KHANDELWAL & CO. THE ASSESSEE HAS TAKEN CONSISTANT STAND THAT IT WAS OFF MARKET TRANS ACTION AND AFTER PURCHASING THOSE SHARES, THE ASSESSEE TRIED TO SELL OFF BUT HE COULD NOT DO SO. WE FURTHER FIND THAT THE ASSESSEE HAS REFLECTE D THOSE TRANSACTIONS IN HIS BOOKS OF ACCOUNT. THE ASSESSEE HAS FILED THE P APER BOOK IN WHICH HE HAS FILED THE BALANCE SHEET FOR THE F.Y. ENDING 31. 3.2005 AND UNDER THE HEAD INVESTMENT AND DEPOSIT, THE ASSESSEE HAS SHO WN THE SHARES OF 5 ITA NOS. 980 &1049/PN/10 SHRI AVINASH KANTILAL JAIN A.Y.2006-07 PRIME CAPITAL MARKET (PAGE NO. 36 OF THE PAPER BOOK ). WE FURTHER FIND THAT THE A.O HAS MADE THE GENERAL OBSERVATION IN RE SPECT OF THE ENQUIRY INITIATED AGAINST THE BROKER M/S. D.B. KHANDELWAL & CO., BUT NO DETAILS ARE GIVEN IN THE ASSESSMENT ORDER WHETHER THE SAID ALLE GED ENQUIRY HAD ANY BEARING ON THE SHARE TRANSACTIONS OF THE ASSESSEE. THE ONLY RESERVATION OF THE A.O IS THAT THE ASSESSEE CONVERTED THE PHYSI CAL SHARES IN THE ELECTRONIC FORM BY CREDITING TO THE DEMAT ACCOUNT A FTER THE GAP OF 14 MONTHS. IN OUR OPINION, THE PHYSICALLY HELD SHARES FOR 14 MONTHS BY THE ASSESSEE CANNOT BE THE CONCLUSIVE PROOF TO SHOW TH AT THE PURCHASE DATE OF THE SAID SHARES SHOWN AS 17 TH MAY 2004 WAS NOT GENUINE. NEITHER THE A.O NOR THE CIT(A) HAS DENIED THAT THE BROKER NEV ER DENIED THE TRANSACTION OF THE ASSESSEE. 7. THE ASSESSEES CASE IS SQUARELY SUPPORTED BY THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF MUKESH R. MAROLIA (SU PRA), WHICH FACTS ARE IDENTICAL TO THE CASE OF ASSESSEE. IN THE SAID CAS E ALSO, IT WAS CLAIMED THAT THE SAID ASSESSEE HAS PURCHASED 2,19,600 SHAR ES OF THE DIFFERENT COMPANIES. THE SHARES WERE SOLD THROUGH THE LISTED BROKERS. IN FACT, THE BROKERS WHO CLAIMED TO HAVE SHOWN THE SAID SHARES R EFUSED THE TRANSACTIONS IN THE STATEMENT RECORDED U/S. 131 OF THE ACT IN SPITE OF THE FACT THAT EVEN THE STOCK EXCHANGE ALSO INFORMED TH AT NO SUCH TRANSACTION WAS ENTERED INTO BY THE ASSESSEE, THE TRIBUNAL HAS HELD AS UNDER : 10.3 PURCHASE AND SALE OF SHARES OUTSIDE THE FLOOR OF STOCK EXCHANGE IS NOT AN UNLAWFUL ACTIVITY. OFF-MARKET TRANSACTIONS ARE NOT ILLEGAL. IT IS ALWAYS POSSIBLE FOR THE PARTIES TO ENTER INTO TRANS ACTIONS EVEN WITHOUT THE HELP OF BROKERS. THEREFORE, IT IS NOT POSSIBLE TO HOLD THAT THE TRANSACTIONS REPORTED BY THE ASSESSEE WERE QUITE SHAM ON THE LEG AL PROPOSITION ARRIVED AT BY THE CIT(A) THAT OFF-MARKET TRANSACTIONS ARE N OT PERMISSIBLE. THE ASSESSEE HAS STATED THAT THE TRANSACTIONS WERE MADE WITH THE HELP OF PROFESSIONAL MEDIATORS WHO ARE EXPERTS IN OFF-MARKE T TRANSACTIONS. 10.4 (WHEN THE TRANSACTIONS WERE OFF-MARKET TRANSAC TIONS, THERE IS NO RELEVANCE IN SEEKING DETAILS OF SHARE TRANSACTIONS FROM STOCK EXCHANGES. SUCH ATTEMPTS WOULD BE FUTILE. STOCK EXCHANGES CAN NOT GIVE DETAILS OF TRANSACTIONS ENTERED INTO BETWEEN THE PARTIES OUTSI DE THEIR FLOOR. THEREFORE, THE RELIANCE PLACED BY THE ASSESSING AUT HORITY ON THE COMMUNICATIONS RECEIVED FROM THE STOCK EXCHANGES TH AT THE PARTICULARS OF SHARE TRANSACTIONS ENTERED INTO BY THE ASSESSEE WER E NOT AVAILABLE IN THEIR RECORDS. THE ASSESSEE HAD MADE IT VERY CLEAR THAT THE TRANSACTIONS WERE NOT CONCLUDED ON THE FLOOR OF THE STOCK EXCHANGE. THE MATTER BEING SO, THERE IS NO PROBATIVE VALUE FOR THE NEGATIVE REPLIE S SOLICITED BY THE ASSESSING AUTHORITY FROM THE RESPECTIVE STOCK EXCHA NGE. WE ARE OF THE CONSIDERED VIEW THAT (THE MATERIALS C OLLECTED BY THE ASSESSING AUTHORITY FROM THE STOCK EXCHANGES ARE NO T VALID TO DISPEL OR DISBELIEVE THE CONTENTIONS OF THE ASSESSEE.) 10.5 THE NEXT SET OF EVIDENCES RELIED ON BY THE ASS ESSING AUTHORITY ARE THE STATEMENTS OBTAINED FROM VARIOUS PARTIES. WHEN CERTAIN PERSONS LIKE RADHA ASHOK AND SANDEEP D. SHAH MADE NEGATIVE STATE MENTS AGAINST THE 6 ITA NOS. 980 &1049/PN/10 SHRI AVINASH KANTILAL JAIN A.Y.2006-07 ASSESSEE, PERSONS LIKE SATISH MANDOVARA AND MANGESH CHOKSI HAD GIVEN POSITIVE STATEMENTS IN SUPPORT OF THE CONTENTION OF THE ASSESSEE. BUT, THE ASSESSING AUTHORITY SOUGHT TO PICK AND CHOOSE THE S TATEMENTS GIVEN BY VARIOUS PARTIES. WHILE ACCEPTING AND REJECTING SU CH STATEMENTS GIVEN BY THE PARTIES, THE AO HAS MADE A MISTAKE OF ACCEPTING IRRELEVANT STATEMENTS AND REJECTING RELEVANT STATEMENTS. DURI NG THE RELEVANT PERIOD IN WHICH THE ASSESSEE TRANSACTED IN SHARES, PERSON S LIKE RADHA ASHOK AND SANDEEP D. SHAH WERE NOT CARRYING ON THEIR BUSI NESS OF BROKERS AS IN THE MANNER THEY CARRIED ON THE BUSINESS IN THE PAST . EVEN THEIR STOCK EXCHANGE MEMBERSHIPS WERE CANCELLED. IT WAS SHRI SATISH MANDOVARA WHO WAS CARRYING ON THE BUSINESS MAINLY FOR AND ON BEHALF OF SHRI MANGESH CHOKSHI DIRECTOR OF M/S. RICHMOND SECURITIE S (P) LTD THOSE TWO PERSONS HAVE CATEGORICALLY ADMITTED BEFORE THE ASSE SSING AUTHORITY THAT THEY HAD DEALINGS WITH THE ASSESSEE IN RESPECT OF T HE SHARE TRANSACTIONS. THEY HAVE CONFIRMED THE TRANSACTIONS STATED BY THE ASSESSEE THAT HE HAD WITH THEM. THESE POSITIVE STATEMENTS MADE BEFORE THE ASSESSING AUTHORITY SUPPORTED THE CASE OF THE ASSESSEE. THER E IS NO FORCE IN THE ACTION OF THE ASSESSING AUTHORITY IN RELYING ON THE NEGATIVE STATEMENTS OF THE OTHER PARTIES WHOSE ROLE DURING THE RELEVANT PE RIOD WAS EITHER IRRELEVANT OR INSIGNIFICANT. THEREFORE, IN THE FAC TS AND CIRCUMSTANCES OF THE CASE, IT IS, OUR CONSIDERED VIEW THAT CERTAIN S TATEMENTS RELIED ON BY THE ASSESSING AUTHORITY DO NOT DILUTE THE PROBATIVE VALUE OF THE STATEMENTS GIVEN BY OTHER PERSONS IN FAVOUR OF THE ASSESSEE CONFIRMING THE SHARE TRANSACTIONS ENTERED INTO BY THE ASSESSEE . 10.6 THE ABOVE CIRCUMSTANCES HAVE MADE OUT A CLEAR CASE IN SUPPORT OF THE BOOK ENTRIES REFLECTING THE PURCHASE AND SALE O F SHARES AND ULTIMATELY SUPPORTING THE MONEY RECEIVED ON SALE OF SHARES AND FINALLY INVESTING THE SAME IN THE PURCHASE OF FLAT. THE CHAIN OF TRANSAC TIONS ENTERED INTO BY THE ASSESSEE HAVE BEEN PROPERLY ACCOUNTED, DOCUMENT ED AND SUPPORTED BY EVIDENCES. 8. WE, THEREFORE, HOLD THAT THE LD CIT(A) WAS NOT JUSTIFIED IN HOLDIN G THAT THE ASSESSEE HAS NOT PURCHASED THE SHARES ON 1 7.5.2004. WE, ACCORDINGLY, ALLOW THE GROUND NOS. 1 & 2 AND DIRECT THE A.O. TO GIVE THE BENEFIT OF THE EXEMPTION U/S. 10(38) OF THE ACT. 9. SO FAR AS GROUND NO.3 IS CONCERNED, THIS IS CONS EQUENTIAL AS THE LEVY OF INTEREST IS MANDATORY. 10. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. 11. NOW WE TAKE UP THE REVENUES APPEAL BEING ITA N O. 1049/PN/10. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS IN APPE AL : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) ERRED IN TREATING THE INCOME RECEIVED BY THE ASSESSEE FRO M THE UNDISCLOSED SOURCES AS CAPITAL GAINS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED BY ACCEPTING THE COST OF PURCHASE/ACQUISITION OF TH E SHARES AS STATED BY ASSESSEE, CONTRADICTING HIS OWN FINDINGS IN THE APP ELLATE ORDER THAT THE PURCHASE CONTRACT NOTES ARE NOT GENUINE AND THAT TH E SHARES WERE NOT PURCHASED BY ASSESSEE IN THE FY 2004-05. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) IGNORED THE FACT THAT ONCE THE DOCUMENTS/EVIDENCES PRODUCED BY THE 7 ITA NOS. 980 &1049/PN/10 SHRI AVINASH KANTILAL JAIN A.Y.2006-07 ASSESSEE HAVE BEEN PROVED TO BE FABRICATED, THE ONL Y LOGICAL CONCLUSION THAT CAN BE DRAWN IS THAT THE WHOLE TRANSACTION IS A SHAM TRANSACTION AND ASSESSEE HAS TRIED TO INTRODUCE HIS UNDISCLOSED INC OME IN THE GUISE OF LONG-TERM CAPITAL GAIN. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED BY APPLYING THE DECISION OF HONBLE H.C. OF PUNJAB AND HARYANA DELIVERED IN THE CASE OF ANUPAM KAPOOR (299 ITR 179), WHEN TH E FACTS OF THE CASES ARE DISTINGUISHABLE. 12. THE REVENUE HAS OBJECTED TO THE FINDING OF THE LD CIT(A) THAT THE GAINS ON THE SALE OF THE SHARES WHICH WERE PURCHASE D IN THE OFF MARKET IS TO BE ASSESSED AS A CAPITAL GAIN ONLY. THE LD CIT( A) ACCEPTED THE CONTENTIONS OF THE ASSESSEE THAT THE SHARES OF THE M/S. PRIME CAPITAL MARKET LTD. WERE PURCHASED THROUGH THE BROKER M/S. D.K. KHANDELWAL & CO. THE LD CIT(A) ALSO NOTED THAT EVEN IF THE A.O HAS GIVEN THE REFERENCE IN RESPECT OF THE SEBI ENQUIRY AS WELL AS SUSPENSION OF THE LICENSE OF M/S. D.K. KHANDELWAL & CO., BUT, AT THE SAME TIME, IN RESPECT OF THE SHARES PURCHASED BY THE ASSESSEE AND SUBSEQU ENTLY SOLD THROUGH DEMAT ACCOUNT, NOTHING HAS BEEN BROUGHT ON RECORD. IN THE PRESENT CASE, THE ASSESSEE HAS MAINTAINED THE BOOKS OF ACCO UNT AND THE ASSESSEE HAS ALSO REFLECTED THE PURCHASE TRANSACTION OF THE SHARES OF M/S. PRIME CAPITAL MARKET LTD. THE A.O. HAS NOT MADE ANY COMM ENT IN RESPECT OF THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. T HE ONLY RESERVATION OF THE A.O IS THAT THE ASSESSEE CONVERTED THE PHYSI CAL SHARES INTO THE ELECTRONIC FORM BY CREDITING THE SAME IN THE DEMAT ACCOUNT AFTER 14 MONTHS. WE HAVE ALREADY HELD THAT THE ASSESSEE HAS PURCHASED THOSE SHARES ON 14 TH MAY 2004. ON OUR SAID FINDING, THE GROUND NOS. 1, 2 & 3 ARE TO BE DECIDED AGAINST THE REVENUE. 13. SO FAR AS, GROUND NO.4 IS CONCERNED, THE REVEN UE HAS EXPRESSED THE RESERVATION ON RELYING ON THE DECISION IN THE C ASE OF ANUPAM KAPOOR, 299 ITR 179 (PUNJAB & HARYANA). IN OUR OPINION, THE LD CIT(A) HAS RIGHTLY APPLIED THE PRINCIPLES LAID DOWN BY THEIR L ORDSHIPS IN THE SAID DECISION. THE ISSUE BEFORE THEIR LORDSHIPS WAS WHE THER THE LONG TERM CAPITAL GAIN DECLARED IN THE SAID CASE BY THE ASSES SEE FROM THE TRANSACTIONS OF THE SHARES WAS FALSE AND NOT GENUIN E ? THE ALLEGATION WAS THAT A CHEQUE HAD BEEN TAKEN BY THE BENEFICIARY I.E . BY PAYING CASH EQUIVALENT TO THE CHEQUE AMOUNT AND PREMIUM THERE ON. THE TRIBUNAL HELD THAT THE ASSESSEE HAD TAKEN THE SHARES FROM TH E MARKET, THE SHARES WERE LISTED AND THE TRANSACTION TOOK PLACE THROUGH A REGISTERED BROKER OF THE STOCK EXCHANGE. IT WAS FURTHER HELD THAT THERE WAS NO MATERIAL 8 ITA NOS. 980 &1049/PN/10 SHRI AVINASH KANTILAL JAIN A.Y.2006-07 BEFORE THE A.O. WHICH COULD HAVE LED TO THE CONCLUS ION THAT THE TRANSACTION WAS SIMPLE DEVICE TO CAMOUFLAGE THE ACT IVITY TO DEFRAUD THE REVENUE. THE TRIBUNAL CONFIRMED THE ORDER OF THE C IT(A) DELETING THE ADDITION. THEIR LORDSHIPS CONFIRMED THE ORDER OF T HE TRIBUNAL. THEY OBSERVED THEREIN THAT IT IS SETTLED LAW THAT SUSPIC ION, HOWSOEVER STRONG, CANNOT TAKE THE PLACE OF LEGAL PROOF AS HAS BEEN HE LD BY THE HONBLE SUPREME COURT IN THE CASE OF UMACHARAN SHAW PROCESS ES VS. CIT, 337 ITR 271(SC). FOR THE REASONS GIVEN ABOVE, WE DISM ISS ALL THE GROUNDS TAKEN BY THE REVENUE. 14. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED AND REVENUES APPEAL IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 31ST OCTOBER 2012. SD/- SD/- (G.S. PANNU) ACCOUNTANT MEMBER (R.S.PADVEKAR ) JUDICIAL MEMBER PUNE, DATED THE 31 ST OCTOBER, 2012 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-II, NASHIK 4. THE CIT(A)- II, NASHIK 5. THE D.R. A BENCH, PUNE 6. GUARD FILE /- TRUE COPY-/ BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE