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TMI Blog2014 (2) TMI 1205X X X X Extracts X X X X X X X X Extracts X X X X ..... wn in the return of income for the assessment year 2006-07, consisted of the income from Salary, Long Term Capital Gain ['LTCG'], Interest and Other Income. In the computation, assessee had shown LTCG to the tune of Rs. 37,77,847/- from the sale of shares; and it was also shown that commission was paid to the broker to the tune of Rs. 1,88,890/-. LTCG was claimed as exempt under Section 10(38) of the Act. The AO, however, observed that the companies, whose shares were allegedly dealt with, were not very well known and it was entirely unlikely that there was a huge rise in the prices of their shares in a very short span of time. The AO, ultimately, treated this huge rise in the price as being of manipulation by the stock broker and, while treating the transaction as sham, proceeded to make the additions in the income of the assessee. Aggrieved by the assessment order so passed on 31.12.2008, the respondent-assessee preferred an appeal that was considered and allowed by the CIT(A) by the impugned order dated 02.06.2009. The CIT(A), inter alia, noted that the same issue had been decided in favour of the appellant for the assessment year 2004-05 by the Appellate Order dated 21.02.2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a SEBI registered broker. These shares were acquired in physical form and the appellant received certificates bearing share certificate Nos. and distinctive Nos of shares mentioned above. Prior to their sale, these shares were dematerialized with Stock Holding Corporation of India Ltd. The dematerialized shares were held in appellant's de-mat account with ICICI Bank, Udaipur. The payment of purchase consideration were made in cash out of available cash balance with the appellant which is evident from the cash flow statement furnished before me as well as furnished before the AO also. These shares were sold by the appellant for a consideration of Rs. 37,77,847/- through stock brokers M/s M. Bhiwantiwala & Co. and Ahilya Commercial P. Ltd Kolkatta and the appellant earned long term capital gain of Rs. 36,60,435/-. 11. The appellant furnished al evidences i.e. broker note, contract note, relevant extract of cash book, balance sheet as on 31-3-2005 and 31-3-2006, copy of share certificate etc. which were in his possession to establish genuineness of purchase and sale of shares. The AO failed to bring any evidence to show either back dating of purchases or collusion between the bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces produced by the appellant. Thus, this presumption of the AO was without any basis. 13. From the above discussion, it is quite evident that the AO failed to show that the transaction for purchase and sale of shares was bogus and the appellant paid cash to the broker for availing accommodation entry in the form of sale proceeds of shares. Suspicion, strange coincidences and grave doubts, how so ever strong it may be, cannot take place of legal proof. Therefore, the AO erred in treating the entire transaction of long term capital gains as a sham transaction and bring it to tax as unexplained cash credit u/s 68 of the Income tax Act, 1961. 14. As regards various judgments relied upon by the AO, the ratio of these decisions would have been applied, had the AO been able to establish that the transaction for purchase and sale of shares was fabricated, false and fictitious. However, the AO did not bring any evidence on record to establish non-genuineness of the impugned transaction. Moreover, the Ld. A/R of the appellant elaborately distinguished these judgments. In view of the above I hold that the purchase of equity shares was not bogus and genuine and the profit from sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere were certain discrepancies in the name of sellers as broker and as per endorsement in the share certificate. Clarification in respect of these deficiencies were filed before the Assessing Officer which were filed before ld. CIT(A) also. They were not appreciated by the Assessing Officer but were appreciated by ld. CIT(A) and then only the ld. CIT(A) found that all the transactions of purchase and sale of shares are genuine. It was also not the case of the department that assessee repaid the sale consideration in hand. There is no such evidence on record. Therefore, inference drawn by the Assessing Officer, in our considered view was not correct by holding that the share transaction are bogus. The ld. CIT(A) was justified in holding that share transactions were genuine. Accordingly we confirm the finding of ld. CIT(A) as they are finding of fact and remained uncontroverted. 14. Deletion of addition of Rs. 1,88,890/- is also confirmed as the Assessing Officer made this addition on the basis that the transaction of sale of shares are only accommodation entry and assessee must have paid some commission to the broker. We have already held that transaction of purchase and sale of sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter, the finding as recorded by the appellate authorities after a thorough consideration of the material on record that the transaction of purchase and sale of shares could not be treated as non-genuine, remains a justified finding on facts; and we are unable to find any substantial question of law worth consideration in this case. There cannot be any doubt about the basic principles in McDowell's case (supra) that the tax planning could be legitimate only when it is within the frame work of law; and that colourable devices cannot be the part of tax planning; and further that avoidance of payment of tax by dubious methods is never countenanced. However, the decision in McDowell's case (supra) operates on an entirely different fact situation; and has no application to the present case. Therein, the liability of sales tax was sought to be avoided with reference to the invoicing by the manufacture of liquor to the buyers, who themselves made the payment of excise duty, though the same was payable by the manufacturer. The Hon'ble Supreme Court affirmed the order of the High Court wherein it was held that excise duty, which was payable by the appellant but had been paid by the b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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