TMI Blog2010 (1) TMI 805X X X X Extracts X X X X X X X X Extracts X X X X ..... oses - petrol, repair etc in which the use of the personal nature cannot be ruled out. Therefore, the AO's "action in disallowing 1/5th out of these expenses is upheld. Disallowance of telephone expenses - personal use of telephone for non business purposes - disallowance to the extent of one fifth out of the total telephone expenses – Held that:- expenses have been incurred on the office. Yet the personal element cannot be ruled out of such expenses. Keeping in view the turnover and the business results of the appellant, the disallowance is restricted to 1/8th of such expenses - ITA No. 3684/Del/2008, - - - Dated:- 8-1-2010 - G.E. Veerabhadrappa, R.P. Tolani, JJ. H.K. Lal for the Appellant S.C. Jain and S.K. Jain for the Respondent ORDER R.P. Tolani, Judicial Member 1. This is revenue appeal. Following grounds are raised: "1- On the facts and in the circumstances of the case, the ld. CIT(A) has erred on facts and in law in deleting the addition of Rs.81,72,340/- and Rs.4,08,615/- made by the AG on account of income from undisclosed sources and commission paid thereon even though the assessee failed to justify the transactions of sale and pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same in the account of Shri Malhotra. Distinctive numbers of the shares to be submitted, it these were in the physical form prior to the said deal. 5. Complete copy of account of Shri Malhotra for the financial year 2003-04 and 2004-05 in your books. 6. Photocopies of contract notes in respect of the said deals of 50,000 shares of M/s Quality Synthetic Industrial Ltd. during the month of March, 2005. Shri Jhunjhunwala appeared and filed ledger copy of the parties - 1. Matangi Commodities P. Ltd.; 2. Titanic Network Marketing P. Ltd.; 3. Spandan Vinimay Pvt. Ltd. and 4. Soumaya Commodities P. Ltd., who had purchased the shares of M/s Quality Synthetic industrial Ltd. (sale of Mr. Malhotra). He stated that 50,000 shares out of 50,000 shares of M/s QSIL were sold through C-Star (terminal of Calcutta Stock Exchange) and he is unable to give name and address of the purchasers of these 50,000 shares of M/s Quality Synthetic Industrial Ltd. Summons were sent to these four parties to comply in this way: 1. The bank statement for the FY 2003-04 and 2004-05. 2. Mode of payment and source thereof for the purchase of shares of M/s Quality Synthetics @ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to garb his income earned from undisclosed sources. No such details of the purchase of share has been shown by the assessee in his return for the AY 2004-05 as per the drawing account filed by the assessee with his submission dated 19.10.2007 for the period 1.4.2003 to 31.3.2004. He has shown that these amounts were "withdrawn cash from her capital account i.e. Rs.84,600/- on 12.11.2003 and Rs.56,200/- on 14.11.2003. This drawing account of the assessee cannot be held as genuine one as it was not filed with the income tax return for the AY 2004-05 filed by the assessee. The assessee appears to have prepared this drawing account statement by changing the figures in his computer to give color of genuine transaction to the fake transactions. Therefore, it is held that assessee had indeed tried to color his non-genuine transaction to a genuine one. The sale of shares as stated by him that these have been sold through a De-mat account and through a share broker at Kolkata, the STT on these transactions stated to have been paid can't make a sham transaction into a genuine one. The assessee's reply submitted on 10.12.2007, which has been incorporated above, failed to justify the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (10-Nos. enclosed). All these details were given at the time of filing the I.T. return, which was filed on 27.10.2006. Thus, the observation of the AO in the last line of para 3(1)(a) is malicious and wrong that it was after though of assessment proceedings/investigation. We are enclosing the photocopies of the share certificates, which clearly indicate that the shares were transferred in the name of Pawan Kumar Malhotra on 27.11.2003 by M/s Quality Synthetic Industries Ltd. which were purchased from Raja Ram and Dal Bahadur. In addition, we are enclosing herewith the photocopy of letter of M/s Quality Synthetic Industries Ltd., which was received by AO under 133(6) of the I.T. Act, 1961. The AO noted in his order that the shares were purchased by Raja Ram in cash is wrong as is clear from the bank statement of Raja Ram and from his statement recorded by AO. It is also wrong to say that cash was handed over to the share broker for purchase of shares whereas the cheque was given to Prakash Nahta, Broker. The para 3(1)(b) dealt by the AO is departmental enquiry between one Income-tax Department to another Income-tax Department as report has been distorted by AO in his order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn was countered on the observation that since there was no taxable capital gain arising to them, the information declaration was not obligatory for them. Shri Raja Ram was produced, his statement was recorded, who again confirmed the sale of these shares and explained source of his purchases. These shares being locked shares they were sold to the assessee with delivery thereof. CIT(A) held that from the statement of Shri Raja Ram, the transactions were quite verifiable. Though Shri Dal Bahadur could not be produced but the case is similar to that of Shri Raja Ram and though both of them were labour providers in the premises of same factory i.e. Maurya Udyog, the findings of AO were merely based on suspicion inasmuch as the assessee had explained all the relevant aspects of the transactions and produced one of the persons, who sold shares to assessee. CIT(A), considering all the relevant evidence, held that the transaction in question cannot be held to be sham or colourable since they were transacted through Kolkata, Stock Exchange and further held the assessee to be eligible to capital gains and the addition on account of commission was deleted by following observations: "Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O's order. Ld. AR has claimed that all the expenses have been incurred on the office. Yet the personal element cannot be ruled out of such expenses. Keeping in view the turnover and the business results of the appellant, the disallowance is restricted to 1/8th of such expenses which would amount to Rs.56,434. The relief under the head will work out at Rs.33,861/-(Rs.90,295/- Rs.56,434/-)." Aggrieved revenue is before us. 4. Learned DR contends that the case in question has so many unproved facts. Assessee for Asstt. Year 2004-05 did not file any account showing purchase of 50,000 shares of QSIL for Rs.1,40,800/- which works out to a cost of around Rs.2.82 per share, the assessee claims to have purchased these shares in cash from one Shri Raja Ram and Shri Dal Bahadur both working in unimportant capacities in Maurya Udyog Ltd., Sector 25, Faridabad. There is no indication of these purchases in assessee's return for Asstt. Year 2004-05. In the impugned order i.e. 2005-06 assessee sold these shares for an exorbitant amount of Rs.81,72,340/-. The said company QSIL is not a renowned company and how could its shares of Rs.1,40,800/- command the share price of Rs-.80,31,540/- with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tails in satisfactory manner/Shri Raja Ram was working in an insignificant capacity, purchased in cash the shares of QSIL, whose name he did not remember. He said mat the shares were never transferred in his name and he sold the shares by receiving cash of Rs.84,600/- from assessee and had no demat account. He further accepted that this purchase and sale of shares were never shown in his income-tax-return. With all this information on record, AO came to the conclusion that assessee was giving a fabricated version of purchase and sale of shares and all the transactions were, either in cash or not supported by reliable documents Dal Bahadur could never appear and Raja Ram statement was not creditworthy as it lacked in many relevant details. Except some general assertions, he could not establish anything substantial and worthwhile. AO after meticulous enquiries established that this was a case of sham transaction and modus operandi fitted into the scheme of dubious transaction in such type of accommodation share trading. CIT(A) has erroneously held that AO made the additions on the basis of surmises and conjectures without considering the enquiries of AO, suspicious surrounding circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et which was surrendered to the Race Club and in return a crossed cheque was obtained. It is, in our view, a neutral circumstance, because if the appellant had purchased the winning ticket after the event she would be having the winning ticket with her which she could surrender to the Race Club. The observation by the Chairman of the Settlement Commission that "fraudulent sale of winning ticket is not an usual practice but is very much of an unusual practice" ignores the prevalent malpractice that was noticed by the District Taxes Enquiry Committee and the recommendations made by the said Committee which led to the amendment of the Act by the Finance Act, 1972 whereby the exemption from tax that was available in respect of winnings from lotteries, crossword puzzles, races, etc., was withdrawn. Similarly the observation by the Chairman that if it is alleged that these tickets were obtained through fraudulent means, it is upon the alleger to prove that it is so, ignores the reality. The transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available. An inference about such a purchase has to be drawn on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignifies that what is apparent must be examined on the touchstone of surrounding circumstances and human probabilities. Merely because a paper trail is created will not by itself make the transaction genuine. In this case, companies to whom QSIL shares wee sold could not be traced ultimately. Learned counsel contends that their bank accounts suggest that the entities existed, in our view, opening of a bank account by itself does not prove functional and factual existence of entities. The saga of paper or briefcase companies is well known to the corporate circles. The AO as an investigating officer has an obligation to enquire all the relevant aspects of the matter before him. Despite diligent enquires by AO, the purchaser of these shares could not be traced, and sale price is exorbitant and logically absurd merely payment of STT will also not make the transaction genuine inasmuch as it is a voluntary payment by the broker. In view of the facts and circumstances, we are unable to accept CIT(A)'s finding that the AO has acted on the basis of surmises and conjectures. In our view, AO has carried out meticulous enquiries, non availability of relevant supporting material clearly questio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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