TMI Blog2013 (7) TMI 950X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO is totally baseless. Once the documentary evidence is filed by the assessee pointing out some minor discrepancies and without affording opportunity to cross-examine the said brokers has no weightage as evidence in the judicial proceedings. The charge of sharp rise in the share prices without proper financial footing of the investee companies is general charge and is not established by the AO. We also hold that merely because there is a delay in converting the physical shares into electronic form i.e. the demat account, that cannot be the criteria to hold that the shares transactions are arranged and camouflaged as in all the cases the assessees have recorded their share transactions in the regular books of account prior to the date of search. There was heavy burden on the AO to destroy the claim of the assessee but except going on the general philosophy, nothing has been made out by the AO to show that the claim of the assessee in respect of the sale of shares is not correct. We, therefore, hold that both the authorities below are not justified in holding that the entire sale proceeds shown by the assessee are out of sham and bogus arranged share transactions. - Decided in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shares. 3. Out of these fifteen cases the case of Smt. Bhagyashree P. Patil is a lead case as submitted by both the parties and hence, we are narrating the facts from the assessment framed in the case of the said assessee. 4. The facts which are revealed from the record are as under. A search and seizure operation under s. 153 (sic-132) of the IT Act was carried out on 17th March, 2006 against these assessees. All these assessees were issued notices under s. 153A on 1st March, 2007. The AO has noted that in the course of the search operation certain incriminating evidences were seized/impounded from which it was suggested that the long-term capital gains declared by the assessee on the sale of the shares are not genuine and the share transactions are based on the fictitious documents which were created by these assessees. As noted by the AO evidences were collected from the stock exchanges and brokers. It appears that the AO asked the assessees for producing the brokers who are said to have transacted the shares for the assessees. The AO issued the notices from time to time and the assessees have furnished the explanations. It is stated in the assessment order that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20,000 30-05-2003 66,000 11-10-2004 20,000 03-06-2003 20,000 16-12-2004 10,000 17-12-2004 10,000 21-12-2004 10,000 22-12-2004 10,000 23-12-2004 5,000 24-12-2004 15,000 27-12-2004 15,000 28-12-2004 20,000 29-12-2004 14,000 Total 2,29,000 2,29,000 3. 2005-06 Talent Info Ltd. 24-04-2003 10,000 Mahasagar Securities 17-06-2004 7,000 Mahasagar Securities 28-04-2003 11,000 7-07-2004 1,800 16-07-2004 12,200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,00,000 DPS Shares and Securities 16-06-2005 3,00,000 Vraj Finance 13-04-2004 6,10,000 17-06-2005 3,00,000 15-04-2004 6,30,000 20-06-2005 2,50,000 21-06-2005 1,50,000 07-07-2005 2,00,000 08-07-2005 3,00,000 11-07-2005 2,40,000 Total 17,40,000 17,40,000 (c) Name:- Ms. Smita Patil Sr. No. Asst. yr. Name of the scrip Date of purchase No. of shares Broker's name from whom shares are purchased Date of sale No. of sales Broker's name from whom shares are sold 1. 2004-05 G Tech Info Ltd. 5-4-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 08-07-2004 2,000 25-06-2003 7,000 Total 22,000 22,000 5. 2005-06 Niharika Ind. Ltd. 10-06-2003 10,000 Bubna Stock Broking 13-07-2004 2,000 Bubna Stock Broking 19-07-2004 6,000 20-07-2004 2,000 Total 10,000 10,000 6. 2006-07 Prranetta Ind. Ltd. 6-04-2004 3,00,000 Vijay Bhagwandas and Co. 12-05-2005 5,80,000 Vraj Finance 8-04-2004 2,50,000 23-05-2005 2,30,000 13-04-2004 3,00,000 27-05-2005 40,000 Total 8,50,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,91,500 1,91,500 3. 2005-06 Talent Info Ltd. 24-04-2003 10,000 Mahasagar Securities 16-06-2004 21,500 Mahasagar Securities 28-04-2003 11,500 15-12-2004 18,000 05-08-2003 18,000 Total 39,500 39,500 4. 2005-06 Sangotri Construction 23-04-2003 2,000 Bubna Stock Broking 22-06-2004 20,000 Bubna Stock Broking 11-06-2003 20,000 8-07-2004 2,000 Total 22,000 22,000 5. 2005-06 Niharika Ind. Ltd. 11-06-2003 9,500 Bubna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22-09-2005 35,000 23-09-2005 80,000 26-09-2005 45,000 14-10-2005 45,000 17-10-2005 45,000 18-10-2005 50,000 25-10-2005 50,000 03-01-2006 40,000 04-01-2006 40,000 05-01-2006 30,000 09-01-2006 30,000 12-01-2006 30,000 Total 7,50,000 7,50,000 (f)Name: Yashraj Prasad Patil Sr. No. Asst. yr. Name of the scrip Date of purchase No. of shares Broker's name from whom shares are purchased Date of sale No. of shares Broker's name from whom shares are sold 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f purchase of the above shares and the date of dematerialization nothing is shown. (iv) There is no proof of delivery of the shares allegedly purchased by these assessees. (v) There is no evidence that in the intervening period the shares were ever physically transferred in the name of the assessee before dematerialization. (vi) Even though the brokers were situated at Kolkata and Ahmedabad the payments of the alleged sale thereof were received by means of DDs from Bombay. (vii) Full-fledged enquiries were launched by the Bombay Stock Exchange (BSE) and Securities and Exchange Board of India (SEBI) into the purchase and sale of those shares and it was found by them that the prices of the shares were manipulated. The AO has noted that SEBI suspended some of the brokers including the brokers Vijay Bhagwandas and Co., DPS Shares and Securities (P) Ltd. and T.H. Vakil. It appears that assessee initially took the stand that, as noted by the AO all the shares in respect of which long-term capital gain has been declared were purchased through the stock exchange and it was denied that there was any off-market transactions. The AO made the enquiry with the stock exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Fast Track Entertainment Ltd. it was revealed by the BSE that said company has declared very low income of ₹ 2.1 lacs and marginal net profit of ₹ 1.1 lacs during the financial year 2003-04. However, the price of the said scrip increased from ₹ 13.16 to ₹ 33.30 (153 per cent) and the price continued to increase and reach ₹ 60 during the relevant period i.e. 25th March, 2004 to 30th June, 2004. It is asserted by the AO that DPS Shares and Securities Ltd., Vijay Bhagwandas and Co., Action Financial Services and Ors. were found to be acting in concert with certain entities and promoters in off market transactions in the scrip. The AO has also noted that the clients connected to the brokers accounted for 71 per cent of the total buy orders during the period from 1st Jan., 2004 to 24th March, 2004. The AO has noted that in spite of the said dealings, no disclosures were filed by the company Fast Track Entertainment Ltd. under the SEBI Regulations. The AO has noted that it was reported that action was initiated against the said brokers for acting in concert with promoters/connected entities and entering into circular deals via market and off- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... give colour of genuineness to the bogus transactions. In the opinion of the CIT(A) the documents produced by the assessees are not genuine and therefore it was imperative on the part of these assessees to produce the brokers to justify claim of genuineness of their transactions. According to the learned CIT(A), these assessees were duty bound to produce the brokers as the assessees have relied on the contract notes issued by the brokers and hence, burden was on these assessees to discharge by showing that in fact the contract notes reflect genuine transactions. As these assessees failed to produce the brokers, the learned CIT(A) concluded that the brokers notes produced by these assessees are not genuine as the brokers have already denied in their statements having issued those contract notes which are available on record. 9. The learned CIT(A) further observed that one of the assessees Shri P.D. Patil is investing in stocks market from 1996 and accordingly, he must be fully aware of the difference between a transaction routed through Stock Exchange and off-market transaction. The learned CIT(A) further noted that when the brokers admitted the transactions which were not rout ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rving that the AO has in detail, elaborated the various facts and incriminating evidences found as a result of search and post-search inquiries. The learned CIT(A) also distinguished the case laws and decision relied on by the assessees in support of the ground that in the case of the search assessment the same should be based on some material which should be found in consequence of the search and seizure operation. In sum and substance the learned CIT(A) put his stamp of approval on the action of the AO. The operative part of the final conclusions and findings of the learned CIT(A) in the case of Smt. Bhagyashree P. Patil (lead case) for the asst. yr. 2006-07 which have been followed in the other assessments as well as other assessees are in para Nos. 23 and 24 of his order which read as under:- 23. As discussed in the preceding paras, the shares credited to the demat account of the appellant were not acquired by her through the contract notes produced by her before the AO as these contract notes were not found genuine as a result of inquiries from various stock exchanges. Therefore, onus was on the appellant to prove genuineness of purchases of these shares by the contract n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us members of the appellant group. Under the circumstances, I agree with the contention of the AO that the accommodation entries and bogus documents come with a price. The AO went by the prevailing market rates and treated 6 per cent of the sale proceeds as cost towards these transactions and added the same to the income of the appellant from undisclosed sources. In view of the facts and circumstances of the case, I uphold the addition made by the AO on account of cost of accommodation entries. Therefore, ground of appeal No. 3 is dismissed. We would like to mention here that the learned CIT(A) has discussed the each scrip separately but there is reproduction of the assessment order as well as the replies filed by the assessees in his order which became bulky. 11. All these assessees have challenged the impugned orders of the learned CIT(A) before us. The learned counsel for the assessee submits that the lead case in this group of Smt. Bhagyashree P. Patil, ITA No. 1419/Pn/2012 for the asst. yr. 2005-06. He submits that before one decade off-market transactions were known in the capital market and it was not necessary that all the shares transactions should have been routed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions but subsequently, for those shares jumbo share certificates were issued by the respective investee companies and the same were filed before the AO. He argues that the investee companies have confirmed that they have transferred the shares which are alleged to be the bogus transactions on the name of these assessees. 11.2 He further submits that the entire case is based on the alleged denial by two to three share brokers through whom the assessees purchased as well as sold the transactions. He referred to the paper book where the chart is filed and pointed out that in some of the scrips the shares were purchased from the same brokers as well as sold through the same brokers. He submits that when the sale is effected through and shares are transferred from demat account how the Department can question the genuineness of those sale transactions? It is something strange that the Revenue suspected the sales done through the demat account are also non-genuine. He submits that the AO has not appreciated that the assessees have sold the shares through stock exchanges and the sale prices tallied with the market quotations on the date of sales. He raised a question in his argumen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, the assessees have purchased the shares/scrips as shown in the books of account. He argues that after receipt of the jumbo share certificate, these assessees sent those shares for dematerialization. The learned counsel referred to page No. 580 of the compilation where the copy of the demat account is filed and submitted that demat account is a clear evidence to support the case of the assessees that the shares have been subsequently created (sic) and hence, those are not bogus shares. 12.1 The learned counsel submits that the share transactions are properly reflected in the books of account and during the course of the search nothing has been found to suggest that there was any manipulation in the purchase of the shares. He submits that only after necessary endorsement, these certificates were submitted to DP for demat. He argues that that all the steps required for demating were followed by these assessees which clearly indicate that all anterior steps-starting from physical purchase of shares through brokers, endorsement in company's record regarding transfer till sale through stock exchanges were followed. The learned counsel referred to the copy of the return of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of other three shares namely, Niharika, Sangotri and G-Tech Securities, there is no evidence in the form of statements of the brokers that no such transactions have taken place. He submits that during the course of the assessment proceedings the assessee requested the AO for an opportunity to cross-examine the brokers who have allegedly given statements against these assessees but same was denied. He refers to the copy of the letters written to the various brokers, page Nos. 200-214 of the paper book-1 and submits that the assessees have requested to those brokers to appear before the AO is evident that the assessee was not hiding or avoiding to prove the transactions but for the reasons best known to those brokers, they did not appear before the AO. He submits that the assessee specifically made request to the AO to issue summons to those brokers under s. 131 of the IT Act but that was also not considered. He argues that by picking up few statements of some brokers which are general in nature in respect of some scrips, the AO has made case of alleged bogus share transactions against the assessees. The learned counsel relied on the following precedents in support of the plea that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2; (vi) Asstt. CIT vs. Smt. Lata Shah, ITA No. 77/Jd/2000 order dt. 19th Jan., 2012; (vii) Jqfferali K. Rattonsey vs. Dy. CIT, ITA No. 5068/Mum/2009 order dt. 25th Jan., 2012. He ends his argument by submitting that the decision of both the authorities is totally erroneous without appreciating the facts and the evidence. He pleaded for allowing the appeals. 16. Per contra, the learned CIT, Departmental Representative supported the orders of the authorities below and submits that from the evidence collected by the Investigation Wing, modus operandi of these assessees has been exposed. He submits that only after the search operation the modality adopted by these assessees for making their black money into white money came to the light. He submits that both the authorities below have considered each and every scrip in which these assessees have allegedly made the transactions i.e. the purchase and sale. He submits that though there is no evidence of purchase of the shares but all the shares transferred to the assessee's demat account and then only those shares are sold. He submits that the evidence of the three brokers is reliable as they have made categorical den ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a short time, (ii) There is no proof of delivery of the shares, (iii) There is no evidence to show that the shares were physically transferred in the name before dematerialization, (iv) The demat account were opened just before the sale of shares. The locations of the brokers were at Kolkata and Ahmedabad but the payments were made from Bombay. Bombay Stock Exchange (BSE) and Securities and Exchange Board of India (SEBI) have made the enquiries against the brokers, Vijay Bhagwandas and Co., DPS Shares and Securities (P) Ltd. and T.H. Vakil. 19. Moreover, the statements were also recorded by the Investigation wing of the Department in which it is claimed by the AO that all the brokers have denied having done transactions for these assessees. Let us deal with the charge of the AO for making out the case that the share transactions claimed by these assessees are in fact in the nature of the accommodation entries. As per the chart given hereinabove, it is seen that the assessees have purchased the shares in different lots from the different brokers. In case of some shares like Talent Info Ltd., Sangotri Constructions and Niharika Industries Ltd. the shares were purchased and sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a market and financial standing of the investee companies. Admittedly, these assessees have sold the shares through the stock exchanges and sale price is at par with the market price on the date of sale. If the sale is made through the stock exchanges then how the transaction can be said to be manipulated. If the charge of manipulation is made then the burden is on the AO to establish the said charge. 22. In respect of the charge of the AO that the shares were dematerialized to the demat account few days before the date of sale and thereafter the shares are sold. In our opinion this aspect has already been considered by the other Co-ordinate Benches as there are plethora of decisions on identical controversy, including the decision of the jurisdictional High Court on the issue of off-market transactions which we are going to discuss at the later part of this order. In our opinion when the shares are in physical form with the assessee and it is subsequently dematerialized that itself cannot be the ground, at least on the facts of these cases, to make one of the pillars of the suspicion. In these cases, we find that most of the companies have acknowledged that they have transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave done any transaction on behalf of the assessee and stated that the brokers notes were the form of accommodation entries. Before relying on the statements of those brokers who have stated notes as bogus transactions, the assessee must have been given an opportunity to cross-examine those brokers and without cross-examination the documentary evidence filed by the assessee cannot be totally discarded. 24. We find that in all these cases, no incriminating material has been seized except the broker notes. We also find that these assessees have already shown the share transactions in their balance sheets and the share transactions are duly recorded in the regular books of account. The case of the Department is that even if the sales are made through the demat account, all these are arranged transactions and hence, the entire money received on the sale of these shares (even though the sale is made through the demat account and through the stock exchanges), to be treated as undisclosed income of these assessees. It is something strange that the charge made by the AO that the brokers are located at different locations like Ahmedabad and Kolkata but payments are routed from Bombay. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d held as under:- 11. We see no merit in the above contentions. The fact that the assessees in the group have purchased and sold shares of similar companies through the same broker cannot be a ground to hold that the transactions are sham and bogus, especially when documentary evidence was produced to establish the genuineness of the claim. 12. From the documents produced before us, which were also in possession of the AO, it is seen that the shares in question were in fact purchased by the assessees on the respective dates and the company has confirmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares to the respective buyers is also established by producing documentary evidence. It is true that some of the transactions were off-market transactions. However, the purchase and sale price of the shares declared by the assesses were is conformity with the market rates prevailing on the respective dates as is seen from the documents furnished by the assessees. Therefore, the fact that some of the transactions were off-market transactions cannot be a ground to treat the transactions as sham transactions. 13. The statement of Prad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k Exchanges. It was also informed that the shares of Pranneta Industries Ltd. were not listed on the Exchange. In the said case statement of Shri Mukesh Choksi, Director of Mahasagar Securities was recorded by issuing the summons under s. 131 in which Shri Mukesh Choksi specifically denied having purchased any shares for the said assessee. In the said case also the charge of the Department against the assessee was identical as in the case of these present assessees. After considering the entire evidence the Tribunal rejected the case of the AO that the capital gain declared by the assessee was arranged transactions. The operative part of the Tribunal order is as under:- 9.5 From the above, it is clear that Mr. Mukesh Choksi is double 'speaking in his statements i.e. one given before the AO. and the one during cross examination before the AO. Under these circumstances one has to see the evidentiary value of a person making double speaking. We find the Hon'ble Calcutta High Court in the case of Eastern Commercial Enterprises (supra) has held that a man indulging in double speaking cannot be said by any means a truthful man at any stage and no Court can decide on which oc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not from the date of dernaterialization . Since the holding period of the shares as per the broker's note and its subsequent sale after dematerialization is more than 12 months, therefore, the shares become long term capital asset and the assessee's claim of long term capital gain is correct. In this view of the matter we set aside the order of the learned CIT(A) and direct the AO to accept the long term capital gain declared by the assessee. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed. 28. In the case of Avinash Kantilal Jain (supra), the identical issue has been examined by the Tribunal, Pune Benches, Pune (to which we are the parties). There was identical charge of the arranged transactions. The Tribunal dismissed the case of the AO and held as under:- 6. Per contra, the learned Departmental Representative supported the order of the learned CIT(A) on this particular finding. We find that in this case, the assessee has filed broker's note i.e. from M/s D.K. Khandelwal and Co. The assessee has taken consistant stand that it was off market transaction and after purchasing those shares, the assessee tried to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions were off-market transactions, there is no relevance in seeking details of share transactions from stock exchanges. Such attempts would be futile. Stock exchanges cannot give details of transactions entered into between the parties outside their floor. Therefore, the reliance placed by the assessing authority on the communications received from the stock exchanges that the particulars of share transactions entered into by the assessee were not available in their records. The assessee had made it very clear that the transactions were not concluded on the floor of the stock exchange. The matter being so, there is no probative value for the negative replies solicited by the assessing authority from the respective stock exchange. We are of the considered view that (the materials collected by the assessing authority from the stock exchanges are not valid to dispel or disbelieve the contentions of the assessee). 10.5 The next set of evidences relied on by the assessing authority are the statements obtained from various parties. When certain persons like Radha Ashok and Sandeep D. Shah made negative statements against the assessee, persons like Satish Mandovara and Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares which were purchased in the off market is to be assessed as a capital gain only. The learned CIT(A) accepted the contentions of the assessee that the shares of the M/s Prime Capital Market Ltd. were purchased through the broker M/s D.K. Khandelwal and Co. The learned CIT(A) also noted that even if the AO has given the reference in respect of the SEBI enquiry as well as suspension of the license of M/s D.K. Khandelwal and Co., but, at the same time, in respect of the shares purchased by the assessee and subsequently sold through demat account, nothing has been brought on record. In the present case, the assessee has maintained the books of account and the assessee has also reflected the purchase transaction of the shares of M/s Prime Capital Market Ltd. The AO has not made any comment in respect of the books of account maintained by the assessee. The only reservation of the AO is that the assessee converted the physical shares into the electronic form by crediting the same in the demat account after 14 months. We have already held that the assessee has purchased those shares on 14th May, 2004. On our said finding, the ground Nos. 1, 2 and 3 are to be decided against the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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