TMI Blog2011 (9) TMI 1047X X X X Extracts X X X X X X X X Extracts X X X X ..... essees are directed against different orders of the learned CIT(A)- II, Surat dated 29th December, 2008, for assessment year 2005-06. 2. In ITA No. 763/Ahd/2009 and 764/Ahd/2009, the learned Counsel for the assessee did not press ground No.2 challenging the addition on account of household expenses. These grounds in both the appeals are dismissed being not pressed. 3. In all the appeals the only ground of appeal left for consideration is regarding addition made on account of unexplained cash credit u/s 68 of the IT Act as against long term capital gains shown by the assessees on sale of shares. Since identical questions are involved in all the appeals, therefore, all the appeals were heard together and are being disposed of through this common consolidated order. The learned representatives of both the parties argued at length in the case of Smt. Vimlarani Biharilal Batra in ITA No.762/Ahd/2009 and submitted that the issue is same in the other appeals and the order in this case may be followed in the other appeals. For the purpose of disposal of all the appeals through ITA No.762/Ahd/2009 is disposed of as under. ITA No.762/Ahd/2009 (Smt. Vimlarani Biharilai Batra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he shares of M/s. Silicon Valley Infotech Ltd, and M/s. Herald Commercial Ltd. were sold in the rolling market through M/s N. M. Lohia . Co. and the shares were given for de-loading through M/s. Sodhani Securities Ltd. and they were duly de-loaded from the assessee's demat account on 20-04-2004, In such a situation, the intimation of the CSE that the transactions were not executed on 21-04-2004 had become irrelevant. Subsequently, the broker had effected the transactions through the contract notes. All such transactions were duly recorded in the assessee's books of account. The AO rejected the assessee's explanations and submissions, the reasons for which have been noted in Para 4 to 6 of the assessment order. Her first observation was that, even though the assessee had claimed to have purchased the shares of M/s. Silicon Valley Infotech Ltd. and Herald Commercial Ltd. through M/s. Renu Poddar, the broker, and that payments had been made by demand drafts, the assessee had failed to furnish any confirmation from the said broker. Notice u/s 133(6) issued to M/s. Renu Poddar was returned unserved. Secondly, while the date of purchase of the shares of M/s. Silicon Valle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h observations, the AO came to the conclusion that the claim of long term capital gain was not genuine, and that, such claim had been made for the purpose of reducing the tax liability. Consequently, the sum of ₹ 9,92,264/- credited in the assessee's books of account, and claimed as the sale proceeds of such shares, was treated by the AO as unexplained cash credit which she added to the assessee's total income under the provisions of section 68 of the IT Act. 6. The addition was challenged before the learned CIT(A) and it was submitted that shares of M/s. Herald Commercial Ltd. and M/s. Silicon Valley Infotech Ltd. were sold through M/s. N. M. Lohia Co, whereas, the shares of M/s. Globe Stock Securities Ltd. were sold through ASB, and both of them were the members of the CSE. According to the learned Counsel for the assessee, there was simply no discrepancy in the documents furnished by the assessee, or in the transactions. All requisite documentary evidences had been furnished before the AO. Even in the show-cause notice dated 21-12-2007, the AO did not propose to make any addition pertaining to the transactions shown in the shares of M/s. Globe Stock Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payment had been made through the bank and the shares had been deposited in the demat account. With regard to the credit of the shares in the demat account from the accounts of M/s, Trans Scan Securities Pvt, Ltd. and M/s Mathran Securities Pvt, Ltd, it has been Itted that the assessee could-not be expected to explain how the shares, which has been purchased by the assessee, had come into the demat account from the accounts of the said companies. Such information could have been obtained from the depository participant - M/s Sodhani Securities Ltd. or from the brokers. The assessee could not be burdened to establish any co-relation between the shares purchased through the brokers and their credit in the demat account, with the accounts of the said companies. There was no doubt of the fact that the shares which were credited in the demat account had been sold, resulting in the long term capital gain. With regard to the information furnished by the CSE, it has been contended by the learned Counsel for the assessee that the CSE had not denied the transactions involving the sale of shares. The shares could have been sold off market by the broker since the trade time and number was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l scrutiny proceedings. Not only was the Assessee not able to furnish any confirmation from the broker who is said to have purchased the shares on behalf of the Assessee, but inquiries made by the AO through the issuance of notice u/s 133(6) of the Act was not responded to, nor could the notice be served. This was important especially in relation to the shares of Silicon Valley was concerned since, as mentioned by the CSE, these shares were not traded through the said Exchange. This clearly showed that not only were the contract notes issued by the said broker in respect of the purchases of shares of M/s. Silicon Valley and M/s. Hercomm absolutely bogus, the purchases themselves were consequently established as being not genuine. 5.1 Secondly, the AR has attempted to ignore the delay in the payment of purchase consideration by 5 months, by arguing that the genuineness of the purchases was established by the fact that the shares were credited to the demat account and that, the Assessee had made payments through banking channels, and the purchases had appeared in the balance sheet of the Assessee as on 31-03-2003. Even while using the demat account as an evidence in support of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was returned unserved. The purchases claimed by the Assessee are therefore unsubstantiated and hence, bogus. As a result, the purchase value or consideration claimed to have been paid by the Assessee cannot be accepted, and consequently, the LTCG was rightly rejected by the AO. 5.4 While deciding such an issue, it is essential to have an idea about the transactions that have taken place during the relevant years in the Calcutta Stock Exchange (CSE) in respect of what is called 'penny scripts'. Bogus companies were floated or created and then listed on the CSE with share prices at negligible values. A caucus or syndicate of share brokers then manipulated the shares prices of these scripts to exorbitant highs. Various interested parties purchased the sale consideration of such shares at high values. However, to el-aim capital gain, purchases had to be shown, and that too backdated. It is while regularizing the purchases that most of these parties have faltered which has completely exposed the scam. In fact, several stock brokers had been suspended by the CSE for manipulating the prices of these penny scripts . 5.5 In the case of the Assessee, it was submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount Proft/loss Silicon vail 21/03/03 25/07/03 2500 50075 21/08/03 21/04/04 2500 561500 511425 Globe Stock 27/12/02 10/07/03 3200 24050 26/03/03 30/06/04 3200 425376 401326 Hercom 22/03/03 28/04/03 600 31230 26/03/03 15/04/04 600 5388 -25842 He has submitted that the addition has been made u/s 68 of the IT Act mainly on the reasons that it was conducted off market and that the security should be listed at stock exchange. He has submitted that purchases of the shares have been made in the financial year 2002-03 and reflected in the balance sheet of the assessee which has not been doubted by the revenue authorities. He has submitted that all the shares were listed at Calcutta Stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hd/2007 and 2828/Ahd/2008 dated 07-01-2011 in which on identical facts addition has been deleted. He has submitted that the same CIT(A) in the case of the assessee has allowed relief to the assessee in the case of Hiteshkumar Babulal Sanghvi dated 31-10-2007. Copy of the same is filed on record. He has, therefore, submitted that addition u/s 68 of the IT Act is not justified and claim of the assessee for long term capital gain may be allowed. 9. On the other hand, the learned DR relied upon the orders of the authorities below and submitted that the AO issued letters u/s 133 (6) of the IT Act which have not been responded. The assessee did not file any evidence to get the purchases of shares verified. Therefore, no long term capital gain should be allowed to the assessee. He has submitted that the assessee has failed to make out a case; therefore, addition may be confirmed. 10. We have considered the rival submissions and material on record. During the year under consideration, the assessee claimed to have sold shares of 3 companies namely M/s, Globe Stock Securities Ltd., M/s. Herald Commerce Ltd. and M/s. Silicon Valley Infotech Ltd. As per the details noted in the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the shares should be sold through recognized stock exchange. It is not in dispute that all the shares remained in demat account of the parties and genuineness of the same was not doubted. The identity of the brokers has not been doubted. Even if, the sale transactions were off market transactions, they were properly documented and supported by evidences. The purchase of shares in the earlier year have not been doubted which according to the assessee have been reflected in the balance sheet in the financial year 2002-03. Thus, the above evidences and explanations of the assessee support the explanation of the assessee that the assessee entered into genuine transactions. The details would show that the assessee proved the sources of the sale of the shares. Therefore, no addition was required to be made u/s 68 of the IT Act. Under the provisions of section 68 of the IT Act, the assessee is required to prove the source of the sum which was credited in the books of account maintained by the assessee. ITAT Ahmedabad Bench in the case of Shri Prakash Chand S. Sandh (supra) held that profit on shares and sale of shares/securities can never be cash credit entered as envisaged in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The above evidences produced before the authorities below clearly prove that the assessee entered into genuine transactions of shares. All the shares remained in the demat account of the parties and genuineness of which is not doubted. The sales of shares are supported by the details issued by the brokers. Payments were issued by account payee cheques. The identity of the brokers have not been doubted. Even if the sale transactions were off market transactions, they were properly documented and supported by the above evidences. The above facts and evidences on record clearly support the case of the assessee that the assessee entered into the genuine transactions. The details of the sources of the sale of shares have been proved. Therefore, no addition u/s 68 of the IT Act could be made as is made by the AO. The learned Counsel for the assessee submitted that the same CIT(A) who passed the impugned order has considered identical issue in the case of Shri Sanjaykumar Agarwal (supra) and deleted the similar addition vide order dated 29-05-2007 copy of which is filed at page 23 of the paper book. The order of the learned CIT(A) in the case of Shri Sanjaykumar Agarwal has been confir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ources of the sale of shares are explained through evidence and material on record. Considering the facts and circumstances of the case in the light of the above decisions and evidences on record, we are of the view that the authorities below have wrongly made the addition u/s 68 of the IT Act. The orders of the authorities below are accordingly set aside and the addition is accordingly deleted. In the result, ground No.2 of the appeal of the assessee is accordingly allowed. The issue is, therefore, covered by the above orders of the Tribunal. The facts and circumstances noted above clearly prove that the assessee explained genuine transactions on sales and purchases of the shares. The sources of sale of shares are explained through evidences and materials on record. Considering the facts and circumstances of the case in the light of the above decisions and evidences on record, we are of the view that the authorities below have wrongly made the addition u/s 68 of the IT Act. The transactions declared by the assessee shall have to be accepted by the revenue authorities for capital gains. Orders of the authorities below are accordingly set aside and the addition is deleted. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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