TMI Blog2015 (3) TMI 141X X X X Extracts X X X X X X X X Extracts X X X X ..... ught any other material on record to disprove the claims put forth by the assessees. However, the AO has taken adverse inferences against the assessees without causing further examination of the materials furnished by the assessees. Further, we are aware that there is no compulsion under any law that the shares should be held only in Demat account form only. As per the trade practice, in our knowledge, the broker is liable to deliver the shares which were purchased on behalf of the clients and in this connection only the broker contract notes are issued. We further notice that the submissions of the assessees that the shares were in the possession of the broker were also rejected without making further examination. There was no credible material with the department to disprove the claim of Long term Capital gains made by these assessees in their respective returns of income. Accordingly we set aside the orders of Ld CIT(A) passed in the respective hands of the assessees herein on this issue and direct the assessing officer to delete the assessment of gross sale receipts as income from other sources in all the years under consideration and accordingly direct the AO to accept the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he head Capital Gains . 4. The AO noticed that the Investigation wing of the department have found that a person named Shri Narendra R Shah was using the names of two entities viz., M/s G.R Pandya Share Broking Ltd and M/s T.H. Vakil Shares Securities Pvt Ltd, to issue bogus purchase bills relating to the shares of companies named M/s Interlink Financial services Ltd and M/s Data Finance Ltd . The investigation wing also recorded a statement of Shri Narendra R Shah on 09-10-2006, wherein he confirmed the above said fact. He also stated that he had issued bogus purchase bills on the instructions of Shri Paras Chplot and Shri Shirish Shah, both were called Operators . 5. The AO noticed that the assessees herein have also purchased shares of M/s Interlink financial services Ltd. They had received the shares in their respective Demat accounts from other Demat accounts, most of the times by transfer from Demat accounts belonging to M/s T.H. Vakil Shares Securities Pvt Ltd and M/s Amizara Securities Finance P. Ltd. All these assessees had claimed to have purchased the shares in physical form from M/s Amizara Securities Finance P Ltd (a sub-broker). It was claimed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld any shares in the company M/s Suryadeep Salt Refinery Chemicals Works Ltd. The persons from M/s Amizara Securities Finance P Ltd were never produced. Thus, the purchases of aforesaid shares being bogus were confirmed. When purchases themselves are bogus, the logical inference is that the whole transaction involving supposed earning of long term capital gains/ short term capital gains was bogus and engineered. It is also logical to infer that the assessee would have paid certain remuneration or fee or commission or any such amount for obtaining these bogus gains. As per information in possession of the Department, a sum of 5% of the total proceeds would have been paid. 10. The AO also noticed that the shares of the above said two companies and also that of other companies were found credited to the Demat account of the assessees only few days prior to their respective sales. However, they had claimed to have purchased shares much earlier and thus claimed Long term Capital gains on their sales. These assessees produced all the relevant documents to prove the claim of purchases before the assessing officer. However, the AO disbelieved all those documents. These assessees al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire sale proceeds claimed to have been received on sale of shares of IFSL shall be taxed as income from other sources in the hands of assessees of Birawat Group in the respective assessment years. Accordingly, the AO assessed the entire amount of sale proceeds of shares as income of the assessees under the head Income from other sources. It is pertinent to note that these assessees have also purchased and sold shares of other reputed companies like Aravind Mills, Mahindra Mahindra, Oriental Bank, Telco etc. However, the AO assessed the sale proceeds relating to them also as income from other sources, since he held that the sub-broker AFSL had issued bogus bills. Further, the AO recognized the date of purchase of shares as the date on which they were credited in the Demat accounts and accordingly expressed the view that these assessees have not held or possessed shares for a period exceeding one year in order to claim the gains as Long term Capital gains. 12 The AO further held that these assessees would have spent 5% of the gross amount for obtaining accommodation bills for purchase and sale of shares. Accordingly he assessed 5% of the gross sale receipts as unex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees have purchased shares of Interlink Financial Services Ltd only from M/s AFSL and not from Shri Narendra R Shah or his group of companies. Hence his statement could not be relied upon to take adverse inference against the assessees. (f) Shri Narendra R Shah had stated that he has given bogus bills on the instructions of two operators named Shri Paras Chalot and Shri Shirish Shah. However, the AO did not make any type of enquiry with the above said two operators to find out the veracity of Shri Narendra R Shah, i.e., the AO has accepted the same on the face of it. (g) Shri Narendra R Shah did not state anything about the collusion between him/group with M/s AFSL, through whom the assessee had purchased the shares. The assessee had purchased the shares through M/s AFSL only and further there was no relationship between the assessee and Shri Narendra R Shah/his group. This is further vindicated by the fact that Shri Narendra R Shah has himself stated that he has not purchased shares on behalf of M/s AFSL or Birawat Group. (h) Hence, the AO is trying to link the assessees with the statement of Shri Narendra R Shah only on surmises and conjectures. (i) Another allegation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a concern belonging to Shri Narendra R Shah. He submitted that the investors are concerned with receipt of shares only in their demat account and they are not concerned about the demat account from where they were received. Accordingly he submitted that these assessees were not aware about the fact that some of the shares were received from M/s T.H. Vakil Shares Securities P Ltd. (n) With regard to the observations made by the AO about the holding period, the Ld A.R submitted that the AO was not correct in law in stating that the period of holding should be taken from the date of Demat credit. The Ld A.R submitted that the period of holding should be considered from the date of broker contract note as explained by Instruction No.704 dated 26.4.1995 issued by the CBDT and also by the Tribunal in the case of Max Telecom Ventures Ltd (114 ITD 46)(Asr). (o) These assessees have sold shares through M/s Yogesh Securities, who does not have any type of relationship either with Shri Narehdra R Shah or M/s AFSL. The Ld A.R submitted that there will be complete relationship between the parties in the cases of tainted transactions, as they are normally entered with collusion between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of purchase of shares through M/s AFSL was also proved to be bogus. (g) The claim of these assessees that they have held the shares for more than 12 months was proved to be incorrect. The claim that the brokers held the shares on behalf of these assessees was also materially incorrect. (h) The assessees have admitted that the sale proceeds can be taken as their income from other sources. (i) The sale proceeds of shares declared by the assessee could be assessed as income u/s 68 of the Act as per the following decisions. Aravind Karia (ITA No. 7024/M/2010 dated 30.1.2013) Major Metals ltd Vs. Union of India (359 ITR 450)(Bom) Luminant Investment Pvt ltd (42 Taxmann 14) (m) The assessees did not have Demat accounts on the date of purchase. (n) The company, M/s Interlink Financial Services Ltd has split the shares on 8.7.2005 and also declared dividend on 24.9.2005. The assessees have not explained whether and when the shares were sent the shares for splitting up. They have also not declared dividends. (o) At the time of dematerialization, the assessees have to produce Purchase bills, payment details, service tax details and broker notes. However these details w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t requires examination is whether the evidences / materials available in the case of these assessees were sufficient enough to entertain the view so taken by the tax authorities, i.e., whether these assessees can be considered to have taken the accommodation bills with the intention of generating bogus Long term Capital gains. 19. We have already noticed that the assessing officer has fully placed reliance on the Statement given by Shri Narendra R Shah. Admittedly this statement was taken by the Investigation wing on 09-10-2006, i.e., much prior to the date of search conducted on 10-01-2007 in the hands of these assessees. Though Shri Narendra R Shah has admitted to have given bogus bills in respect of shares of M/s Interlink Financial Services Ltd, yet he has categorically stated that he has not purchased or sold shares of the above said companies prior to 22.12.2004 (date of opening of demat account) on behalf of M/s ASFL (sub-broker) or the Birawat Group. He has further stated that he has not purchased or sold shares of M/s Interlink Financial Services Ltd prior to 22.12.2004. However, the claim of the assessees is that they have purchased the shares of M/s Interlink Financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to the date of sale. Accordingly, the AO has expressed the view that the period of holding should be computed from the date on which the shares have come to the credit of Demat accounts. However, the submissions of the assessees in this regard are that they had purchased the shares in physical form and the said shares were held by the sub-broker on their behalf. After the assessees have opened the Demat accounts, the shares were transferred to their account by the sub-broker. The Assessees have cited the CBDT circular to submit that the period of holding of shares should be computed on the basis of broker s note for purchase of shares. Another observation made by the AO was that the shares have come to the Demat account of the assessees from M/s T.H. Vakil Shares securities P Ltd., a concern belonging to Shri Narendra R Shah. In this regard, the assessees have submitted that they, as investors, are not concerned about the Demat accounts from which the shares have been received. Similarly in the case of shares of M/s Suryadeep Salt Refinery and Chemicals Ltd also, these assessees have received shares through Demat account. Hence the procedure for name transfer of physical shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessees herein. We have already noticed that the assessing officer has not taken any steps or brought any material on record to show that the claim of purchase of shares in physical form from M/s ASFL was wrong. In the absence of such an exercise, in our view, it may not be proper on their part to suspect the receipt of shares in Demat account. 25. Another point, which is pertinent to note is that all these shares have been sold through another broker through BSE. Hence, there is merit in the contentions of the Ld A.R that, in the absence of purchase of shares, it would not be possible to sell the shares. The Ld A.R also submitted that, if it were bogus transactions, then both purchases and sales would have been routed through the same broker. Further, we notice that the AO has assessed the sale proceeds realized on sale of shares of reputed companies also as income from other sources. The said action of the assessing officer would only show that he has proceeded to assess the gross receipts realized on sale of shares as income from other sources only on presumptions, surmises and conjectures without bringing any credible evidence on record to refute the claim of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same as our income for the respective asst. years in the hands of respective assessees. Since I have voluntarily agreed to declare this income, if I fail to submit the details, I request the Department to grant immunity from penalty u/s 271(1)(c) of the I.T Act. A careful perusal of the above said questions and answers would show that the view expressed by ld D.R does not appear to be correct. 27. In view of the foregoing discussions, we are of the considered view that there was no credible material with the department to disprove the claim of Long term Capital gains made by these assessees in their respective returns of income. Accordingly we set aside the orders of Ld CIT(A) passed in the respective hands of the assessees herein on this issue and direct the assessing officer to delete the assessment of gross sale receipts as income from other sources in all the years under consideration and accordingly direct the AO to accept the LTCG declared by these assessees in all the years under consideration. 28. Since we have upheld the disclosure of LTCG, the question of assessing 5% of the Gross sale receipts as unaccounted income of assessees does not arise. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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