TMI Blog2013 (7) TMI 942X X X X Extracts X X X X X X X X Extracts X X X X ..... p the appeal preferred by the assessee (Shri Bharat Keshavlal Shah) vide ITA No. 516/PN/2012, which is directed against the order of the Commissioner of Income Tax (Appeals)-I, Pune dated 15.09.2011 which, in turn, has arisen from an assessment order dated 31.12.2009 passed by the Assessing Officer, under Section 143(3) read with Section 153A of the Income Tax Act, 1961 (in short the Act ), pertaining to the assessment year 2002-03. 3. The solitary dispute in this appeal relates to an addition of ₹ 1,53,057/- made on account of unexplained/unaccounted expenditure in construction of residential premises. In brief, the relevant facts are that assessee is an individual being a proprietor of M/s B.K. Shah construction division engaged in the business of real estate. The assessee is also a partner in various firms engaged in the business of promoters and builders. Consequent to search action under Section 132 of the Act conducted on 08.08.2007, the Assessing Officer issued notice under Section 153A of the Act dated 25.10.2007 calling for a return of income and in response, assessee filed a return of income for assessment year 2002-03 on 28.11.2007 disclosing total income of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee by pointing out that incriminating material was seized during the course of search which showed expenses incurred on construction of the bungalow which were not found recorded in the books of account, and therefore, the Assessing Officer was justified in referring the matter to the DVO for estimating the cost of construction. The aforesaid point has been reiterated on behalf of the Revenue before us. 6. Having considered the rival stands on this aspect, in our view, the proposition canvassed by the assessee on the basis of the judgement of the Hon ble Supreme Court in the case of Sargam Cinema (supra) is untenable having regard to the facts and circumstances of the present case. No doubt, the Hon ble Supreme Court has laid down that an assessing authority could not refer the matter to the DVO without rejecting the books of account. However, in the present case, discussion in para 4.7 of the assessment order shows that certain documents were seized at the time of search which showed incurrence of expenditure of ₹ 3,74,133/- on construction of the impugned bungalow which was not recorded in the books of account maintained. On this basis, the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is to be examined in the light of the facts and circumstances of the present case as to whether the report of the DVO formed a good basis for the Assessing Officer to make the impugned addition. 10. In the case of Abhinav Kumar Mittal (supra), the Hon ble Delhi High Court considered an addition made by the Assessing Officer under Section 69 of the Act on account of unexplained investment towards purchase of immoveable properties. The addition was based on the difference in the value of purchases as declared by the assessee and as estimated by the DVO, which was deleted by the Tribunal. The Hon ble High Court upheld the deletion by noticing that no material was found in the course of search and seizure operation, which would justify the Assessing Officer s action in referring the matter to the DVO for his opinion on the valuation of the said property. In the said case, the Tribunal had observed that before referring the matter to the DVO for valuation, there must be some material to show that any investment was made by the assessee, which was outside the books of account. Therefore, in the absence of material to show that any investment was made by the assessee outside t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, in the present case, we have already noted earlier that as per discussion in para 4.7 of the assessment order, the Assessing Officer has pointed out that incriminating material was found and seized in the course of search, which showed instances of expenses incurred on the construction of bungalow which were not found recorded in the books of account. Further, the CIT(A) in para 4.3 of his order has also observed that such finding of the Assessing Officer has remained uncontroverted before him. Before us, the learned counsel has sought to point out that the documents seized in the course of search, copies of which have been placed in the Paper Book at pages 60 62, are dumb documents and do not reflect any expenditure incurred by the assessee on construction of the bungalow in question. We have considered the aforesaid plea and find no substance in the same. Ostensibly, such a plea was not raised by the assessee before the lower authorities. Further, a perusal of the documents do not suggest that they are dumb . In-fact, the documents contain recordings of expenses relating to construction and moreover, the onus is on the assessee to explain the nature and import of the not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. It was a common point between the rival counsels that the issue raised in the appeals of the assessee (i.e. Bharat Keshavlal Shah) for assessment years 2003-04 to 2005-06 vide ITA Nos. 517 to 519/PN/2012 stands on similar footing as considered by us in ITA No.516/PN/2012 for assessment year 2002-03. Accordingly, our decision in ITA No. 516/PN/2012 shall apply mutatis-mutandis in the above three appeal also. Accordingly, appeals of the assessee in ITA No. 517 to 519/PN/2012 for assessment years 2003-04 to 2005-06 are partly allowed. 17. Now, we may take-up appeal preferred by the assessee (Shri Nilesh Bharat Shah) vide ITA No.522/PN/2012, which is directed against the order of the Commissioner of Income Tax (Appeals)-I, Pune dated 15.09.2011 which, in turn, has arisen from an assessment order dated 31.12.2009 passed by the Assessing Officer, under Section 143(3) read with Section 153A of the Act pertaining to the assessment year 2004-05. 18. The solitary dispute in this appeal relates to an addition of ₹ 7,41,644/- made by the income-tax authorities on account of unexplained investment in construction of a residential bungalow. In brief, the facts are that assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h has been considered by us in earlier paragraphs. The learned Departmental Representative has supported the orders of the authorities below by pointing out the relevant discussion in the assessment order wherein the Assessing Officer has noted that investment in the residential bungalow to the extent of ₹ 16.47 lacs was not recorded in the books of account maintained and therefore it has been treated as undisclosed investment spread over the relevant assessment years. 21. We have carefully considered the rival submissions. The controversy before us is with regard to the investment in the construction of impugned bungalow, which has been considered by the Assessing Officer to be higher than the amount of cost of construction recorded in the account books maintained by the assessee and such difference has been assessed as undisclosed income. The relevant principles in order to test the efficacy of such an addition has been discussed by us in the earlier paragraphs while dealing with the appeal in ITA No.516/PN/2012 (supra). Considered in the aforesaid light, what is required to be examined here is as to whether facts and circumstances of the present case justify the asserti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to uphold the impugned addition. Accordingly, the order of the CIT(A) is set-aside and the Assessing Officer is directed to delete the addition of ₹ 7,41,644/-. The assessee, accordingly succeeds. 24. In the result, the appeal of the assessee in ITA No.522/PN/2012 for the assessment year 2004-05 is allowed. 25. It was a common point between the parties that the facts and circumstances in appeals of Shri Nilesh Bharat Shah vide ITA No.524 525/PN/2012 for assessment year 2006-07 2007-08 respectively dealing with additions of ₹ 1,03,596/- and ₹ 5,91,767/- respectively on account of unexplained investment in construction of bungalow Diya at 23, Sujay Garden, 12 Mukundnagar, Pune are identical to that considered by us in assessee s own case for assessment year 2004-05 in ITA No.522/PN/2012 (supra). Therefore, our decision in ITA No.522/PN/2012 shall apply mutatismutandis in these two appeals also and accordingly they stand allowed. 26. In the result, the appeals of the assessee (Shri Nilesh Bharat Shah) in ITA No. 524 525/PN/2012 for assessment year 2006-07 2007-08 are allowed. 27. Now, we may take-up appeal preferred by the assessee namely, Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision on similar issue in the case of Shri Bharat Keshavlal Shah (which has since been considered by us in ITA No.516/PN/2012), upheld the stand of the Assessing Officer. Against the aforesaid decision, assessee is in further appeal before us. 31. It was a common point between the parties that the facts and circumstances of the case are pari-materia to those considered by us in the earlier paragraphs in the case of Shri Nilesh Bharat Shah vide ITA No.522/PN/2012 for assessment year 2004-05. Therefore, our decision in the appeal in ITA No.522/PN/2012 would apply mutatis-mutandis in this appeal and accordingly the appeal stands allowed. 32. In the result, appeal of the assessee in ITA No.527/PN/2012 for the assessment year 2006-07 is allowed. 33. Similarly, the appeal in the case of Shri Kalpesh Bharat Shah vide ITA No.529/PN/2012 for assessment year 2008-09 also contains similar issue as in ITA No.527/PN/2012 for assessment year 2006-07. Following the decision in ITA No. 527/PN/2012, the said appeal is also allowed. 34. In the result, appeal of the assessee (Shri Kalpesh Bharat Shah) in ITA No. 529/PN/2012 for assessment year 2008-09 is allowed. 35. Now, we may take-u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e aforesaid additions were carried in appeal before the CIT(A). The CIT(A) concurred with the finding of the Assessing Officer that the assessee s claim of having purchased 1,50,000 shares of FTEL on 07.04.2003 through broker, T.H. Vakil Shares Securities Pvt. Ltd. was unacceptable. However, the CIT(A) accepted the plea of the assessee that the sale proceeds of ₹ 1,20,05,996/- credited in the bank account of the assessee was as a result of the sale of the shares of FTEL primarily for the reason that the transaction of sale was appearing in the Demat A/c of the assessee maintained with Bank of Rajasthan in respect of FTEL shares. Accordingly, the CIT(A) upheld the plea of the assessee that the impugned surplus resulting on account of receipt of sale proceeds of ₹ 1,20,05,996/- was liable to be assessed under the head capital gains . However, the CIT(A) did not accept the plea of the assessee that the sale of FTEL shares resulted in a long term capital gain inasmuch as according to the CIT(A) the evidence on record showed that the assessee can be said to have been in possession of the shares only from 01.11.2004 and not from the claimed date of purchase i.e. 07.04.2003. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,571/- and as the period of holding of shares was claimed to be in excess of 12 months, the gain was claimed as a long term capital gain exempt under Section 10(38) of the Act. The aforesaid position has not been accepted by the Assessing Officer. 44. The Assessing Officer noticed that a peculiar pattern was emerging which showed that the shares were purchased at a nominal price but sold at a very high price within a short period of time; that rise in the price of the shares was phenomenal, and was, particularly in contrast to the market financial standing of the investee company; that the shares were transferred to the Demat account of the assessee shortly before their sale and that in the intervening period i.e. between the claimed dates of purchase and dematerialization, there was no evidence that the shares were ever physically transferred in the name of assessee; that there was no valid and substantial proof of delivery; that certain enquiries were conducted by the Bombay Stock Exchange (BSE) and the Securities Exchange Board of India (SEBI) into the purchase and sale of such like shares, referred as penny stocks and it was found that the prices of shares were manipul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inted out that there was no bar in holding the shares in physical form and that dematting of shares was done when it was realized that in order to sell shares on the Stock Exchange, dematting was required. In this context, assessee submitted that the distinctive number of shares dematted in the account maintained with Bank of Rajasthan were the same as were delivered to the assessee at the time of purchase on 07.04.2003. With regard to the statement of an Accounts Officer of the broker, M/s T.H. Vakil Shares Securities Pvt. Ltd., assessee requested the Assessing Officer to issue summons to cross-examine the broker. In the course of assessment proceedings, assessee also furnished a copy of the return of income filed for the assessment year 2004-05 on 01.11.2004 containing the audited balance-sheet as on 31.02.2005, which duly reflected the investments in the shares of FTEL for a purchase cost of ₹ 1,27,502/-. Similarly, a copy of the return of income filed for assessment year 2005-06 was also filed wherein the annexed Balance-sheet as on 31.02.2005 evidenced investment in shares of FTEL at a purchase cost of ₹ 1,27,502/-. The aforesaid was furnished to demonstrate that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 003, as claimed by the assessee. The CIT(A) proceeded on the basis that assessee could be said to be in possession of shares from 01.11.2004 onwards, the date when assessee filed his return of income for assessment year 2004-05 reflecting the share investment in the annexed Balance Sheet as on 31.03.2004. In the final analysis, CIT(A) concluded the following : - (i) that the sale proceeds of ₹ 1,20,05,996/- credited in the bank account of the assessee was on account of sale of shares of FTEL; (ii) that the proceeds were to be assessed as capital gains; (iii) that purchase of shares claimed on 07.04.2003 was not proved but assessee was held to be in possession of shares from 01.11.2004 onwards; and, (iv) that the gain was to be assessed as short term capital gain since the period of holding prior to sales was less than 12 months reckoned from 01.11.2004. 48. In the above background, the rival counsels have made their submissions. The learned Departmental Representative has primarily reiterated the points raised by the Assessing Officer in the assessment order in support of the case of the Revenue, which have been noted by us in paras 44 46 above and are not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer. The learned counsel also submitted that the CIT(A) made not mistake in accepting the position that the income resulting from sale of FTEL shares was assessable as capital gain but submitted that the CIT(A) ought to have held that the same was liable to be assessed as long term capital gain . In the course of the hearing, learned counsel also referred to the Paper Book wherein is placed copies of correspondence and the material relied upon by the assessee before the lower authorities in support of the case of the assessee. 50. We have carefully considered the rival submissions. In this case, assessee purchased 1,50,000 shares of FTEL on 07.04.2003 and claimed to have sold them during the period June to September, 2005. The assessee offered long term capital gain on sale of shares during the assessment year 2006-07, which has not been accepted by the Assessing Officer. As per the Assessing Officer, the entire transaction was sham and the sale proceeds of ₹ 1,20,05,996/- was to be assessed as income from the undisclosed sources. The CIT(A) has accepted the nature of sale proceeds as capital gains , albeit short term capital gain and not long term capital ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee. The CIT(A), however, has accepted the position that assessee indeed acquired the shares of FTEL because the factum of sale of such shares by the assesses has been accepted by him. In our view, once it is accepted that assessee had indeed sold 1,50,000 shares of FTEL, it is a natural corollary to infer that assessee possessed such shares before its sale. The period of such holding of shares prior to its sale becomes important to judge whether the sale of shares is to be assessed as long term capital gain or short term capital gain. 53. In this background, the CIT(A) found that there was independent evidence to establish the date from which assessee can be said to have been holding the shares inasmuch as the date of purchase canvassed by the assessee was not found acceptable by him. The CIT(A) noticed that assessee had declared the holding of shares in his returns filed for assessment years 2004-05 2005-06 on 01.11.2004 30.10.2005 respectively. According to the CIT(A), the aforesaid demonstrated that investment in shares of FTEL was disclosed by the assessee and on that basis he inferred that on the date of filing of the return for assessment year 2004-05 i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following extract of the order of the CIT(A) in para 7.3.1, wherein he has tabulated the various evidences and material submitted by the assessee before the lower authorities in support of the impugned transactions :- (i) Letter dated 08.06.2006 of T.H. Vakil in the name of appellant for confirmation of purchase of 150000 shares of FTEL vide bill No. B/008/0095 dated 07.04.2003 and physical delivery of shares in response to appellant s letter dated 12.05.2006 (The shares at the time of purchase were of the face value of ₹ 10/-). (ii) Copy of bill of purchase of T.H. Vakil Shares and Securities Pvt. Ltd. No. B/008/0095 dated 07.04.2003 for purchase of 150000 shares of FTEL for ₹ 127502.55 (iii) Ledger of appellant in the books of T.H. Vakil for the F.Y. 2003-04, showing credit entry of ₹ 124875.07 for bill No. B/005/0022 and cash receipt of ₹ 2627.48 and debit entry of ₹ 127502.55 for bill No. B/008/0095, with opening and closing balance being nil. (iv) Letter dated 11.02.2004 of FTEL to appellant with detail of certificate numbers, distinctive numbers and number of shares saying these 1.5 lakh shares have been transferred in y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has been merely disbelieved by the authorities. On the basis of the aforesaid communication of the investee company, it can be inferred that assessee was holding the shares of the investee company i.e. FTEL from a date prior to 11.02.2004. Be that as it may, even if one is to calculate the period of holding from the date of this communication i.e. 11.02.2004, and upto the period of sale of shares in June September, 2005, it exceeds 12 months. Therefore, the capital gain is liable to be treated as a long term capital gain and not short term capital gain as deduced by the CIT(A). In-fact, communication dated 11.02.2004 of the investee company evidencing transfer of shares in the name of the assessee supports the Balance-sheet as on 31.03.2004 annexed by the assessee with his return of income filed for assessment year 2004-05 wherein the investment in the shares of FTEL has been depicted. Thus, the evidence in the shape of the letter of investee company, FTEL dated 11.02.2004 is an evidence which has been disregarded by the Revenue without any basis, the same ought to have been considered by the CIT(A) for determination of period of FTEL shares by the assessee prior to its sale. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain of ₹ 22,22,692/- declared by the assessee and claimed exempt under Section 10(38) of the Act. 64. It was a common point between the parties, that the facts and circumstances and the respective disputes in these appeals are identical to those considered in ITA No.520/PN/2012 and ITA No. 553/PN/2012 in the case of Bharat Keshavlal Shah. Accordingly, our decision in ITA No. 520/PN/2012 and ITA No. 553/PN/2012 applies mutatis-mutandis in those appeals also. 65. The Ground of Appeal No. 2 in the appeal of the assessee is with regard to an addition of ₹ 1,29,783/- made by the income-tax authorities on account of alleged expenditure in construction of residential bungalow, which is identical to that considered for assessment year 2004-05 in the assessee s own case vide ITA No.522/PN/2012 in the earlier paragraphs. Therefore, following the aforesaid precedent, Ground of Appeal No.1 is also allowed. 66. In the result, whereas the appeal of the assessee in ITA No. 523/PN/2012 is allowed that of the Revenue in ITA No. 548/PN/2012 is dismissed. 67. Now, we may take-up the cross-appeals in ITA No. 526 551/PN/2012 in the case of Shri Kalpesh Bharat Shah pertaining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Bharat Keshavlal Shah. Accordingly, our decision in ITA No. 520/PN/2012 and ITA No. 553/PN/2012 applies mutatis-mutandis in those appeals also. 75. In the result, whereas the appeal of the assessee in ITA No. 530/PN/2012 is allowed that of the Revenue in ITA No. 550/PN/2012 is dismissed. 76. Now, we may take-up the cross-appeals in ITA No. 531 549/PN/2012 in the case of Smt. Monika Nitin Shah pertaining to the assessment year 2006-07 which are directed against the order of the Commissioner of Income Tax (Appeals)-I, Pune dated 15.09.2011 which, in turn, have arisen from an assessment order dated 31.12.2009 passed by the Assessing Officer, under Section 143(3) read with Section 153A of the Act. 77. In the aforesaid cross-appeals preferred by the assessee and the Revenue respectively, issue involved is common relating to the long term capital gain of ₹ 20,29,684/- declared by the assessee and claimed exempt under Section 10(38) of the Act. 78. It was a common point between the parties, that the facts and circumstances and the respective disputes in these appeals are identical to those considered in ITA No.520/PN/2012 and ITA No. 553/PN/2012 in the case of Bha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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