TMI Blog2013 (11) TMI 968X X X X Extracts X X X X X X X X Extracts X X X X ..... years before the unusual fluctuation in the share price - The shares of some of the companies were purchased by the assessees even five years ago from the time of sale and those purchasers were already disclosed in the Balance Sheet of the assessee - The assessees had held the shares much prior to 12 months of the sale of the shares Decided against Revenue. - ITA.No.165/Hyd/2011, ITA.No.166/Hyd/2011, ITA.No.167/Hyd/2011, ITA.No.168/Hyd/2011, ITA.No.169/Hyd/2011, ITA.No.877/Hyd/2011, ITA.No.878/Hyd/2011, ITA.No.879/Hyd/2011, ITA.No.880/Hyd/2011, ITA.No.881/Hyd/2011, ITA.No.882/Hyd/2011, ITA.No.883/Hyd/201 - - - Dated:- 6-11-2013 - Shri Chandra Poojari And Smt. Asha Vijayaraghavan, JJ. For the Petitioner : Shri S. Ramu (D.R.) For the Respondent : Shri A. V. Raghuram (A.R.) ORDER Per Smt. Asha Vijayaraghavan, J. M. These appeals are filed by the Department against the order of the CIT(A)-VI, Hyderabad for the assessment year 2006-2007. Since, common issues are involved in these appeals, these appeals were clubbed and heard together and are being disposed of by this single consolidated order. 2. Brief facts of the case are that as per th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purchased and sold. vii) It was observed in the order that the assessee only transacted in penny stocks and never had an experience in share transaction earlier. viii) It was observed that both D-MAT account and trading accounts were opened for specific purpose of trading in these stocks. ix) The AO had had referred to the findings of enquiry done carried out through the DCIT Calcutta. In the enquiry report the DClT had mentioned that the summons could not be served on the brokers as well as on the companies whose shares were traded. On the basis of this the AO suspected that the transactions are not genuine. 4. The assessee submitted before CIT(A) as follows : The assessee has filed all the relevant documents for the entire transaction starting from purchase of shares, subsequent D- MAT of the shares and the final sale of the shares. The assessee has also filed copies of the relevant account copy in the books of the purchasing broker as well as sale broker. Thus, the assessee has clearly filed the evidence in support of its claim. 4.1. The assessee has also filed detailed explanation to the show cause notice dated 01.12.2008 issued by the AO, vide r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrying out transactions during the earlier years also and during the year 2003-04 the shares of Offshore Finvest Ltd were purchased with a genuine intention that the same would yield good results. With regard to the proposal to hold the share transactions as pre arranged it was submitted that the same was not, based on proper appreciation of the facts and circumstances of the 'case and evidence available on record. It was pleaded that on the contrary the evidence clearly proves the genuineness of the transactions and that there is no basis for pre conclusions. It was further averred that the transactions were at arms length and they were with the unrelated parties in the normal course and the investment in shares were made through stock exchanges. The appellant submitted that the observation that the transactions were entered to legitimize undisclosed income earned normal course of business is denied. It was pleaded that the claim of Long Tenn Capital Gains was correct and is based on facts and circumstances of the case and that the same shall be allowed. In this connection, the assessee also drew attention to the observation of ITAT Bombay in the case of Mukesh Kumar Marolia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic device regarding sale of shares. The sale proceeds were then received by account payee cheques/drafts from the brokers where the appellants maintained trading account. These were credited in the bank accounts and recorded in regular books of the appellant in regular course. The bank accounts of the assessees evidence receipt of sale consideration by account payee cheque/draft. The resultant gains were reflected in the books of accounts and shown in the returns filed in the regular course. Hence there is no scope for disbelieving my sale transactions. AO has not appreciated that there cannot be a sale without a purchase. The purchases having done physically and the same having been demated as explained above by following prescribed steps ,there was no scope for suspecting these transactions. 8. Another allegation of the Assessing officer is that the appellant purchased penny stocks at a nominal price and sold the same at a price making profit. In this regard, the following facts were brought by the learned A.R. before the CIT(A) for consideration : a) It may further be mentioned here that all the sale transactions were done through exchanges, STT was paid, sale proceeds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm statutory duties to determine liability under the statute they act and the same cannot be abdicated in any manner basing on the decision of another authority. The assessee's, therefore prayed before the CIT(A) that they should not be penalized for the acts of omissions and commissions of the brokers in a proceeding before another authority to which assessee's were not a party and in the absence of any enquiry by the Assessing Officer. 10. It was further submitted by the learned A.R. before the CIT(A) that the role of SEBI is different and the order passed by them have different objectives such as orderly conduct of share market and investor's protection. Therefore, such orders cannot be conclusive as regards genuineness of the transaction done by the assessees. Moreover, in the case of the assessee's SEBI has not started any enquiry against the assessees. Evidence showing payment and receipt of consideration for purchase and sale of shares. Books of account of the appellant. All the above evidences are in the realm of documentary evidences. Thus primary onus was discharged and this completely absolved the assessee's from adducing any furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are relevant and afford prima facie proof of the entries and the correctness thereof under section 34 of the Evidence Act. The presumption that books of accounts regularly kept are presumed to be correct is supported by the following decisions. 11.2. The AO has applied the ratio of the decision of Hon'ble Apex Court in the case of CIT v Durga Prasad More 82 ITR 540 and sought to take help of the surrounding circumstances. The facts of the case before the Hon'ble Court were different. The facts of Sumati Dayal's case stood on its own footing. There were a number of specific factual inaccuracies in that case which coupled with other factors led the Court to apply the test of human probability. As observed by the Court, the claim was found to be fantastic. The above facts which were peculiar to the case of Sumati Dayal are absent in the case of the appellant. The appellants were regular investors in shares. The transactions were entered in the books. 11.3. The Assessing officer has added the entire sale proceeds as non genuine and added to the total income. It is submitted that the appellant having proved the factum of purchase and sale and identity of the brok ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to have dealt basically with : (a) NM Lohia Co. (b) Basanth Perimal Co. (c) RajendraprasAD Shah Co. The assessee's have shown purported purchase / sale of shares of the following companies : 1) PSL Financial Services Ltd. 2) Sangothri Constructions Ltd. 3) Navketan Merchants Ltd. 4) Scintilla Commercial and Credit Ltd. 5) Sri Tulasi Online.Com.Ltd. 6) Offshore Finvest Ltd. (c) It may be brought on record of the Hon'ble Bench of the 3 brokers with whom the assesse's purportedly to have duly dealt with were indicted by SEBI for dealing in one or the other shares of the above and for manipulating the share prices of some of the shares listed above. Some of the adjudicating orders down loaded from the website of SEBI are placed before the Hon'ble Bench in support of the contention that transactions of the price shown by the assessee's were not the real price but the artificial price created by the share brokers for their own benefit as also for benefit of the same to the clients. (c) Sri Nethmal Lohia is the proprietor of M / s. N. M. Lohia Co., member of Calcutta Stock Exchange. He has been penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der dated April, 2010 for the fraud committed by him while dealing with M/s. Offshore Finvest Ltd. This order is placed before us at Page No.138 to 140 of the paper book. Sri Rajendra Prasad Shah indulged in fraudulent and unfair practices while rigging the prices of scrips of Minolta Finance Ltd, Stenly Credit Capital Ltd and M/s. Kay Vee Aar Ltd and penalized for ₹ 4 Lakhs, ₹ 3 lakhs and ₹ 3 lakhs respectively. The adjudication orders are enclosed as annexure-II at pages 100 to 195 of the paper book. (g) In the case of 3rd broker, M/s.Basanth Perimal Co has also been penalized for fraudulent and unfair trade practices by the adjudication officer of SEBI on two occasions and the copies of the adjudication orders are enclosed as annexure-III at pages 196A to 230 of the paper book. (h) Thus, it is not a coincidence but, a well designed plan for conversation of unaccounted money through purported share transactions. Incidentally, the contract note shows Trade Nos which do not match with the Trade Numbers as confirmed by Calcutta Stock Exchange in response to the letter of Assessing Officer. In support of the above contentions, the learned D.R. cited some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 2.84 as on 5.8.2003 when it was operational. M/s. Navketan Merchants Ltd., ceased to be member of OTCEL w.e.f. 22.12.2003. Subsequently , when shares of this company were sold in the market on 16-5-2005, the share price was ₹ 199.50. It is pertinent to note that SEBI has also cancelled registration of M/s.Navketan Merchants Ltd. by its order dated 22-6-2004 (placed before the Tribunal as Annexure-IV). So it is intriguing as to how the company which is not on the OTCEI and SEBI could command a price of ₹ 199 when its own shares were sold at ₹ 2.84 when the same company was functional. This shows that share prices of M/s. Navketan Merchants Ltd were manipulated. 15. The learned D.R. further emphasized that the brokers who have dealt in the shares have already earned a bad name and were indicted by SEBI for manipulating market shares of many other companies and the adjudicating orders of the SEBI are filed before the Tribunal. It is submitted in this behalf as follows- (a) There was fraudulent and unfair trade practices like purchasing and selling of M/s. Scintilla Commercial and Credit Ltd., M/s. Offshore Finvest Ltd., M/s.PSL Financial Services Ltd by o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also not genuine, since there cannot be a sale without a purchase. Therefore, it is submitted that the fact that the purchases ultimately resulted in conversion of shares into electronic form and credit of the same in the D-MAT account cannot be doubted. Once it is credited to the D-MAT account, the sales are effected through the floor of the stock exchange. He submitted that as observed by the CIT(A) in the impugned order, the AO has not brought out anything to even remotely suggest that the sale transactions were arranged by the assessees. There is no mention anywhere in the assessment orders in these matters about the identity of the party who has purchased the same through electronic stock exchange, much less any whisper about the nexus between the assessees and the said party could not be established. The most crucial aspect which could be considered as incriminating in such transactions may relate to a case where compensatory payments are made by the seller to the buyer. No evidence has been brought on record to pin point that the assessees of this group have made any such compensatory payment to the buyer of the stocks. In the absence of any such observation, it is submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, the observation of the AO that before making purchases the assessees has not made any analysis about the financial status of the company does not hold much water to doubt the genuineness of the transaction in shares. With regard to the observation of the AO that the assessee had never had any experience in transaction of the shares except dealing in these penny stocks, it is submitted that this by itself cannot be a reason either to conclude or draw any adverse inference against the assessees to the effect that the transactions are non genuine. The learned counsel also submitted that opening of the D-MAT accounts at a distant place like Calcutta, cannot be a reason to draw any adverse inference against the assessee. It is also submitted at this juncture that failure to trace the brokers and the company is in the course of enquiries got conducted by the assessing officer through DCIT Calcutta also cannot be held to be fatal to the transactions being genuine. Placing reliance on a number of decisions, some of which have also been cited before the CIT(A), and even referred to by the CIT(A) in the impugned orders, it was contended by the learned counsel for the assessee before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 19.1.2012 in ITA No.77/Ju/2010) ix. Rajesh Gupta, L/h of Late Shri Mohan V/s. Dept. of Income Tax (ITAT Agra Bench order dated 24.5.2013 in ITA No.10/Agra/2011) x. Jatin Chhadwa V/s. ACIT (ITAT, 'I' Bench, Mumbai order dated 24.8.2012 in ITA No.8573/Mum/2010) xi. Shri Sanjay Jain, Ludhiana (ITAT 'B' Bench, Chandigarh order dated 17.5.2012 in ITA No.992/Chd/2009) xii. Korlay Trading Co. Ltd. (232 ITR 820) Cal. HC xiii. Smt. Jamna Devi Agarwal Ors. (328 ITR 656) Bom. HC xiv. Arun Kumar Agarwal (HUF) Others(order4 dated 13.7.2012 in Tax Appeal No.4 of 2011 of High Court of Jharkhand) 23. We have heard both the parties and perused the material available on record. We have also gone through the written submissions filed by the parties and plethora of decisions relied upon by them in the course of hearing before us. The question before us relates to genuineness of the share transactions entered into by the assessees, and the justification for the assessing officer to making the impugned additions, treating such transactions as not genuine. The CIT(A) has passed elaborate orders and the CIT(A), as noted above, considering the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed. The most crucial aspect which could be considered as incriminating in such transactions may relate to a case where compensatory payments are made by the seller to the buyer. No evidence has been brought on record that the assessee's of this group have made any such compensatory payment to the buyer of the stocks. In the absence of any such observation, as submitted by the assessee's, the CIT(A) was correct in holding the view that the sale transactions cannot be doubted on suspicion. Moreover, these are the cases in which the transactions have taken place through the floor of the stock exchange and Securities Transactions Tax have been paid. In view of these evidences which have not been rebutted by the A.O., it is difficult to hold that the sale transactions are non- genuine and the proceeds thereof are liable to be taxed under the head other sources. On the basis of the report received from SEBI, upon enquiries got conducted that some of the brokers named above have been suspended for some act of omission and commission, the AO held that the transactions entered through these brokers are not genuine. But merely based on such a report, such transactions cannot be tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s fatal to the transaction of both purchase and sale, when the details of which have been duly explained by the assessees. The assessee, in our considered opinion, has duly discharged the onus that lies on it, in establishing the genuineness of the transactions, and that being so, it is for the revenue to disprove the claim of the assessee, by bringing on record the evidence to the contrary, as held by the Hon'ble Madras High Court in the case of CIT vs Gobi Textiles Ltd (294 ITR 663). 24. We find that the case-law relied upon by the learned counsel for the assessee generally supports the case of the assessee, and identical issue has been decided in favour of the assessee by various High Courts and Tribunals in the cases relied upon by the assessee, as noted above. It is worthwhile, to refer, at this juncture, to the decision of Hon'ble High Court of Jharkhand in the case of Arun Kumar Agarwal (HUF) others (supra), wherein it has been held as under : 10. We have considered the submissions of the learned counsel for the parties and we are of the considered opinion that the learned Assessing Officer was much influenced by the enquiry report which may has been br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his case, we have given example of one of the Tax Appeal wherein the shares were purchased in the year 2004 and were sold in the year 2006, which is said to be one of the case wherein the gap in the purchase and sale of the shares was narrowest. In other cases as we have noticed from the various orders of the C.I.T(Appeals) that, the shares of some of the companies were purchased by the assessees even five years ago from the time of sale and those purchasers were already disclosed in the Balance Sheet of the assessee, then from any angle, it is proved that the assessees had held the shares much prior to 12 months of the sale of the shares. 12. Hence, these Appeals are dismissed. 25. Further, Coordinate Bench of the Delhi Tribunal in the case of Smt. Neelam Chawla (2008) 6 DTR (Del) (Trib) 141, has been held as follows : . . . . . after the assessee furnished proof for purchase, sale, registration of shares in her name duly supported by market quotations etc. and AO ignored the same on the basis of the statement of the share broker through whom the assessee has sold the shares, the purchase of shares made in earlier years cannot be doubted. We find that the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the balance-sheet in one financial year and later on, those very shares have been sold in another financial year, then the purchase of shares should not have been doubted, if duly recognized by the said company and later on transacted through banking channel. To keep brevity in mind, we are not discussing all those case-laws or cited decision of the tribunal, wherein almost on identical facts when the purchases were doubted by the Revenue Department, but considering the totality of the facts and circumstances of the case a conscious view have been taken that once the shares were in respect of a listed company and transaction was through Demat account which was as per the recognized Stock Exchange quoted price, then there was no reason to hold such nature of transaction as non-genuine. Respectfully following these decisions and other case laws, we hereby reverse the factual as also legal findings of the Authorities below and direct to assess the impugned transaction under the head long term capital gain . 27. The facts which were peculiar to the case of Sumati Dayal (supra), relied upon by the assessing officer as well as the Learned Departmental Representative, are absent i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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