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2015 (12) TMI 1119 - ITAT KOLKATA

2015 (12) TMI 1119 - ITAT KOLKATA - TMI - Bogus long term capital gains in shares - whether long term capital gains could be treated as unexplained cash credit u/s 68 - Held that:- The action u/s 68 of the Act has been taken merely on the basis of the statement of the third party. We find that the assessees have duly proved the identity, creditworthiness and genuineness of the broker from whom the sale proceeds of shares were received by the assesses and hence the resultant long term capital gai .....

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which do not form part of the total income is brought in the statute book by the Finance Act 2001 with retrospective effect from 1.4.1962, the computation of disallowance is provided in Rule 8D of the IT Rules. Rule 8D of the Rules came into effect from 24.3.2008. We find that the Hon’ble Bombay High Court in the case of Godrej & Boyce Manufacturing case reported in (2010 (8) TMI 77 - BOMBAY HIGH COURT ) had held that provisions of Rule 8D could be made applicable only from Asst Year 2008-09. T .....

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M These appeals of the assessee arise out of independent orders of the Learned CIT(A), II, Kolkata in Appeal No. 192/CC-XXVII/CIT(A)C-II/08-09 dated 4.1.2013 for AY 2005-06 in the case of Chandralekha Baid and Appeal No. 190/CCXXVII/ CIT(A)C-II/08-09 dated 4.1.2013 for AY 2005-06 in the case of Premlata Baid. 2. The first issue to be decided in these appeals is that whether the assessee had paid cash to Shri. Narendra Shyamsukha to arrange for bogus long term capital gains in shares of various c .....

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Management Limited and M/s Swastik Securities & Finance Ltd. There was a search and seizure operation u/s 132 of the Act conducted in the premises of one Shri Narendra Kumar Shyamsukha on 24.10.2006 wherein inter alia various incriminating materials were found and seized. One such seized document vide page numbers 7 to 10 of the loose paper bunch marked as NKS /3 seized from his premises revealed certain notings regarding certain persons including the assessee. In the course of search, the .....

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, earned a commission of 1% of the said amount. The calculation of commission income was also recorded on the seized documents. The seized paper No. 7 & 8 of NKS / 3 contained details in tabular form having date, name, broker name, number of shares, cheque and cash paid. The pages No. 9 & 10 of NKS /3 contained details like the party name, script name, quantity purchased and amount, sale amount and profit on sale. The names of the assessee and his family members appeared on these seized .....

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sessment proceedings, the Learned AO asked the assessee to explain as to why the transactions of long term capital gain shown in the return of income should not be treated as bogus and the addition is made u/s 68 of the Act. It was pleaded before the Learned AO that the assessee had disclosed long term capital gain on sale of shares of Continental Fiscal Management Limited and Swastik Securities and Finance Limited. These shares were bought by the assessee during the Financial Year 2002-03 and w .....

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ot be termed as bogus. In the course of re-assessment proceedings, the assessee has filed all the documentary evidences which were not disputed by him. The Learned AO disbelieved the version of the assessee and made the addition u/s 68 of the Act in respect of sale consideration received by the respective assesses by making the following observations:- The documents on which the assesee have relied upon only speaks about the process of transacting in listed shares and does not prove the genuinen .....

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of the IT Act, 1961. 2.2. On first appeal, the Learned CITA dismissed the ground raised by the assessee and confirmed the addition made by the Learned AO. Aggrieved, the assessee is in appeal before us . The grounds raised in the case of Chandralekha Baid alone are reproduced herein below as the same grounds are raised for other assesses also except with change in figures :- 2(a) On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that the appellant had paid c .....

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ns in the shares concerned. 2(b) In arriving at his conclusion that the appellant had purchased bogus capital gains by paying cash money to Shri Narendra Shyamsukha in the year corresponding to AY 2005-0-6 the learned CIT(A) completely neglected to take into account the fact that the relevant shares had been purchased by the appellant two years back i.e in the FY 2002-03 and shown in its Balance Sheet for successive years, and about which purchases, no papers/documents had been found during the .....

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cash money to Shri Narendra Shyamsukha, the learned CIT(A) gloss over the facts that although Shri Narendra Shyamsukha had mentioned the name of another intermediary, viz. Sureskh Kumar . However, neither the seized papers showed that name nor even the AO had conducted any enquiry from the said intermediary Suresh Kumar. 2(e) In arriving at his consluion that the appellant had purchased bogus capital gains by paying cash money to Shri Narendra Shyamsukha, the learned CIT(A) glossed over the fact .....

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in respect of recordings in documents seized from the premises of a third party viz. Shri Narendra Shyamsukha, in the unrelated case of the appellant. 2(g) On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the addition of rs.14,02,678/- made u/s. 68 of the Act, on the basis of nil/insufficient materials and evidences. 2.3. The Learned AR argued that the Learned CIT(A) erred in holding that the assessee had paid cash money to one Shri Narendra Kumar Shyams .....

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d. The assessees also submitted in support of their transactions with the aforementioned companies viz Continental Fiscal Management Limited and Swastik Securitiies & Finance Limited which were done through a registered share broker of the Kolkata Stock Exchange, the following documents were submitted by the assessee:- a) Copies of purchase bill, contract note and delivery challan issued by the broker. b) Copy of the demat account. c) The entire transactions in respect of the aforesaid were .....

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ng the valid documents already placed on record without assigning any reason, whatsoever. The Learned AO/ Learned CITA have not brought any evidence on record to falsify the claim of the assessee or that the share transactions were bogus. He argued that the contents of the seized documents vide reference NKS / 3 were not in the handwriting of the assesses herein. He further argued that in the relevant seized documents, the broker s name is mentioned as Ashika whereas the assesses have done their .....

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come by a third party. He further argued that since the seized documents were not found in the premises of the assesses, there is no onus on them to disprove the claim of Shri Narendra Kumar Shyamsukha that the transactions of long term capital gains listed in the seized documents are bogus. He further argued that according to the statement of Shri Narendra Kumar Shyamsukha, he was an intermediary between the broker, Ahilya Commercial Pvt Ltd and another person named as Suresh Kumar and that Sur .....

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t the assesses had paid any cash to him or any other person. 2.4. In response to this, the Learned DR vehemently supported the orders of the lower authorities. 2.5. We have heard the rival submissions and perused the materials available on record. We find lot of force in the arguments of the Learned AR that just because Sri Narendra Kumar Shyamsukha had disclosed the commission income on the transactions of shares in his returns, the assesses are in no manner concerned with such disclosure and n .....

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bsolutely no direct evidence that is brought on record that the assesses indeed had paid any cash to Shri Narendra Kumar Shyamsukha or to any other person with an intention to launder their cash for converting into cheque in the guise of long term capital gains. We find that even during the course of cross examination proceedings, Shri Narendra Kumar Shyamsukha could not prove that the assesses had paid any cash to him or any other person. 2.5.2. We also find that the Learned CITA had confirmed .....

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tc. the practice of taking accommodation entries of long term capital gain was rampant in Kolkata. Thus, the documents seized from the possession of Shri Narendra Shyamsukha cannot be ignored or cannot be treated as waste pieces of paper. We hold that the above observations only goes to prove that the entire addition has been confirmed by the Learned CITA out of mere suspicion, surmise and conjecture ignoring the legal provisions of the Act and the principles of onus of proof. This is a case whe .....

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d in the seized documents are bogus. 2.5.3. We find that the presumption u/s 292C of the Act would have to be applied only in the hands of Shri Narendra Kumar Shyamsukha in the facts and circumstances of this case . Strangely we find that no addition has been made in the hands of Shri Narendra Kumar Shyamsukha with regard to the subject mentioned capital gains as unexplained cash credit and the assessments have been completed in his hands by just accepting the commission income offered by him on .....

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ed in any way like the assessee himself writing the books etc. therefore, there would be no onus on the part of the assessee to disprove the genuineness of recitals in the aforesaid seized books. Burden of proving lies fully with the department to show beyond doubt that the receipts of the two amounts under consideration were actually made by the assessee. 2.5.4. We also find that according to the statement of Shri Narendra Kumar Shyamsukha, he was an intermediary between the broker, Ahilya Comm .....

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vt Ltd (stock broker) in his deposition u/s 131 of the Act also denied to have known Shri Narendra Kumar Shyamsukha. The seized documents reflect that the share transactions were carried out through the broker Ashika but enquiry from stock exchange revealed that M/s Ahilya Commercial Pvt Ltd was the broker for the said transaction. This itself goes to prove that the assesses herein have nothing to do with the seized papers found from the premises of Shri Narendra Kumar Shyamsukha. 2.5.6. With re .....

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should not be a criterion to suspect the assessees genuine share transactions and capital gains thereon. Similarly we hold that the assesses have no control over Shri Narendra Kumar Shyamsukha nor is it a matter of their concern in what manner he had maintained his documents and what he records in these documents. 2.5.7. We find that the purchase of shares of M/s Continental Fiscal Management Limited and M/s Swastik Securities and Finance Ltd were duly disclosed in the balance sheets of the asse .....

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ents comprising of purchase bills, contract notes, delivery challans and demat account were found to be false or fabricated. We hold that the transactions cannot be treated as bogus merely on the basis of the statement of Shri Narendra Kumar Shyamsukha, unless some independent enquiry has been conducted and a finding has been drawn by the Stock Exchange that these transactions are bogus. We find that this is a case wherein the assesses had carried out all their transactions through a recognized .....

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by the assesses. Thus the allegation that the assesses had laundered their cash for conversion into cheque by raising bogus long term capital gains does not hold water in the facts and circumstances of the case. No evidence is brought on record that the entire transactions had been carried out with some kind of connivance with the registered stock brokers for the introduction of unaccounted money and hence we hold that no addition could be made in these circumstances. Reliance in this regard is .....

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is not the case of the Revenue that the assessee has not maintained the books. The case of the Revenue is that as the broker did not maintain the books and has failed to produce the books, the transaction is not genuine. Once the assessee has discharged its initial burden, no proper steps have been taken by the ITO to bring on record, the materials to controvert the claim of the assessee. The claim of the assessee cannot be denied only on the ground that the broker through whom the transaction w .....

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of shares was allowable. 2.5.8. We find that the action u/s 68 of the Act has been taken merely on the basis of the statement of the third party. We find that the assessees have duly proved the identity, creditworthiness and genuineness of the broker from whom the sale proceeds of shares were received by the assesses and hence the resultant long term capital gains thereon cannot be doubted with. Hence there is no scope for making any addition u/s 68 of the Act in the facts and circumstances of .....

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nancial year 2002-03 and were shown in the balance sheet as on 31-03-2003 and 31-03-2004. The shares were sold only during the impugned assessment year. The shares were purchased by making the payment through account payee cheque. Similarly, the shares were sold by receiving of the account payee cheque through the broker Ahilya Commercial Pvt. Ltd. It is not the case that the shares were brought or sold through cash. The statement of Broker CMFL was also recorded but he denied that he knows Shri .....

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n on the basis of the statement of the third party. During the course of search at the premises of Shri Narendra Kumar Shyamsukha no iota of evidence was found which could prove/lead to any inference that assessee had paid cash to Shyamsukha or the cheque has been received or paid to the broker in lieu of cash except a statement which is not in the handwriting of the assessee and which contains numerous details. No action has been taken by the Revenue in treating the purchase to be the bogus. Un .....

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ectfully following the aforesaid judicial precedents relied upon, we have no hesitation in directing the Learned AO to delete the addition made u/s 68 of the Act. Accordingly, the grounds raised by all the assesses in this regard are allowed. 3. The next ground to be decided in these appeals is as to whether the disallowance u/s 14A of the Act read with Rule 8D of the Rules could be made in the facts and circumstances of the case for the Asst Year 2005-06. 3.1. We have heard the rival submission .....

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