TMI Blog2009 (5) TMI 928X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. However, there is every possibility that purchases have been made from some other parties and there is every possibility of leakage of revenue. Therefore, we find no infirmity in the order of CIT(A) who has rightly invoked the provisions of s. 145(3). Estimation of income, ld AR has submitted that the assessee has declared GP rate of 48.2 per cent in the following year and CIT(A) has observed that the GP rate is abnormally higher than the general trend - In such circumstances and facts of the case and to cover up the leakage of revenue, an addition will meet both the ends of justice. Therefore, the AO is directed to act accordingly. Thus ground Nos. 2.1 and 2.2 of the assessee are partly allowed and ground Nos. 1 and 2 of the Revenue are dismissed. Addition on account of unexplained investment in shares - shares representing off market transactions have been credited in demat account - HELD THAT:- There is no dispute that the assessee has made payment to the broker through account payee cheque. The copies of the bills of the broker are on record. The reason for delay in demat account and other allegations have been explained by the assessee hereinbefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 145(3). Estimation of income , ld CIT(A) has observed that GP rate of 30 per cent is reasonable whereas the assessee has declared GP rate of 48.72 per cent and no malice on declaring of higher GP rate is proved and no material is there on record in this regard. Therefore, in such circumstances and facts of the case, though the application of s. 145(3) is upheld yet no addition is called for. Therefore, the AO is directed to delete the addition sustained by CIT(A) and allow the claim u/s. 80HHC as claimed by the assessee. Thus ground Nos. 1 and 2 of the Revenue are dismissed and ground Nos. 2.1, 2.2 and 3 of the cross-objection of the assessee are partly allowed. - I. C. Sudhir J.M. And B. P. Jain A.M. For the Assessee : Mahendra Gargieya For the Revenue : Sanjay Goyal ORDER B.P. JAIN, A.M. : The cross-appeals have been filed against the order of the learned CIT(A), dt. 26th March, 2008 for the asst. yr. 2003-04. The Revenue has also filed an appeal against the order of the learned CIT(A), dt. 11th May, 2007 for the asst. yr. 2004-05 and the assessee has filed the cross-objection against the same. First of all, we take up the cross-appeals for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .07 per cent, thus sustaining the trading addition of Rs. 1,66,708. 5. We have heard the rival contentions and perused the facts of the case. We concur with the views of the learned CIT(A) as regards the deletion of addition under ss. 69 and 69C of the Act which appears to be reasoned one. As regards the application of s. 145(3), there is no dispute that the assessee has submitted the documents to prove the purchases but the same could not be verified in spite of the opportunity given to the assessee. None of the purchases in dispute was verified, though the sales have been made and therefore, definitely purchases have been made by the assessee. However, there is every possibility that purchases have been made from some other parties and there is every possibility of leakage of revenue. Therefore, we find no infirmity in the order of the learned CIT(A) who has rightly invoked the provisions of s. 145(3) of the Act. As regards the estimation of income, the learned Authorised Representative has submitted that the assessee has declared GP rate of 48.2 per cent in the following year and the learned CIT(A) has observed that the GP rate is abnormally higher than the general trend. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 69 cannot be applied in appellant's case. The reason for delayed credit in demat account is that at the time of purchase demat account was not opened and the shares were lying in client beneficiary account of broker till the same were credited in appellant's demat account. The fact that shares representing off market transactions have been credited in demat account do not invalidate an otherwise valid and proper purchase transaction. The AO observed (on p. 13 of his order) that the purchase of shares shown in these transaction is clearly a case of ante-dating i.e. purchase was actually made in April, 2002 whereas it has been shown to have been made on 19th March, 2001 to claim long-term capital gains . The said observations are contrary to facts on record that the payments of such purchases have been made in March, 2001 itself and the relevant contract note was also issued in March, 2001. The AO observes on p. 15 of his order that the purchase of the share has not been done through the stock exchange . The said observations of the AO are factually incorrect inasmuch as a valid contract note covering the purchase transaction from M/s S.S. Bhutra Co., member of Calcutta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the orders of the authorities below. 10. We have heard the rival contentions and perused the facts of the case. There is no dispute that the assessee has made payment to the broker through account payee cheque on 1st March itself. The copies of the bills of the broker are on record. The reason for delay in demat account and other allegations have been explained by the assessee hereinbefore and also before the authorities below. Therefore, the AO is not justified in treating the said investment in shares as unexplained and no addition on this account can be made. The addition so made is directed to be deleted. Thus ground No. 3 of the assessee is allowed. Ground No. 4 of the assessee : The learned CIT(A) has erred in confirming the addition of Rs. 45,24,258 on account of claim on capital gain on shares. 11. The brief facts of the case are that the assessee has shown long-term capital gain of Rs. 45,24,258 on the sale of shares of one company namely Shardaraj Trade Fin. Ltd. Thereafter, he has given a chart as per details corrected from assessee in assessment proceedings that how the said shares were shown purchased and sold. He had further stated that the scrips of M/s Shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own by the assessee and accordingly he has treated it as unexplained income under the head income from other sources. 12. The learned CIT(A) confirmed the action of the AO. 13. The learned counsel for the assessee Shri Mahendra Gargieya, advocate submitted that it was submitted before the learned CIT(A) that the shares were genuinely sold on 22nd, 23rd and 24th April, 2002 through Basant Kumar Chirimar and another 20,000 shares were sold on 6th May, 2002 through M/s Bubna Stock Broking Services Ltd. All the payment was received by account payee cheque. The development of suspension was reported only in March, 2006 whereas the purchases were made in 2001 and the sale was made in 2002. Further, an investor was not supposed to go into depth of EPS and both the brokers have confirmed the said transaction as genuine. Vide letter dt. 7th May, 2007 the appellant had furnished certain additional evidences in the form of share transactions being confirmation by the brokers, copy of appellant's bank account, copy of party ledger account, copy of party bank account, copy of demat application and copy of allotment of demat which were even sent by the CIT(A) to the AO vide this office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned CIT(A) has rightly admitted and considered the same. There being no challenge by the Revenue, before the Hon'ble Tribunal, no plea can be raised or entertained now on this aspect. The AO repeatedly alleged that whereas the appellant has shown the purchases to have been made on 19th March, 2001, however the actual purchases were made on 20th April, 2002 and 22nd April, 2002 only, as evident from the demat account. He therefore, drew an adverse inference that the purchases having been made in April, 2002 and the sales having also been made in April and May, 2002, it was not a case of a long-term capital gain. The learned CIT(A) has also supported the order of the AO summarily. However, the relevant facts are that the concept of opening demat account and routing the transaction through demat account was introduced for the first time sometime in the financial year 2001-02, which was the introductory year. Further, the reason behind the delay of one year between the date of the actual purchases and the date of crediting in the demat account, as alleged by the AO, was for the reason that after the purchases, the appellant made an application to the concerned authorities i.e., the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (Inv.), Kolkata, it is clear from a letter of Kolkata Stock Exchange Ltd. dt. 13th March, 2006 that in the contract note of BSBS, there were three cross-deals done in the scrip of STFL in the self-code on 6th May, 2002 trading system of the exchange and therefore, he drew adverse inference that the market prices were managed on the given day. Firstly, the AO though supplied a copy of the letter but allowed only one day's time to reply back and hence it was a mere formality. Therefore, no adverse inference should be drawn or permitted (see AO p. 13). Secondly, this is nothing but a pure misconception on the part of the authorities below inasmuch as a cross-deal implies that the buyer and the seller are transacting through the same broker/sub-broker. In other words, the buyer and the seller are not transacting through different broker/sub-broker. This however, does not mean that the buyer or seller or the assessee for that reason, is in a position to influence the prevailing market prices. There is no allegation at all by the authorities below that either the buyer or seller was related or in any way connected with each other or with the broker or with the assessee company, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 0.0176, whereas the shares were sold at Rs. 64 to Rs. 75 per share, hence it was a case of artificial rise in the prices and with a view to book bogus capital gain. It is submitted that it is matter of common knowledge in the share market that the EPS has got absolutely nothing to do with the prevailing market prices and transactions taking place between the parties. Many examples can be given to support this contention. Latest examples can be taken from the authorized website of Bombay Stock Exchange Ltd. (BSE), wherein the share prices of those companies are many times more in which no transactions are taking place, whereas, in the cases there is either no ECS in positive or no turnover as well and no profit availability yet the transactions have been done at an exorbitantly high prices. Otherwise also the share prices and the share market are said to be very sensitive to the political and economical development taking place in the country or in the world, apart from so many other factors. An example can be taken of Satyam Infotech, the market price of the share of which, a few days earlier, was around Rs. 250-300 per share whereas it has come down to Rs. 114 per share as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities below. 15. We have heard the rival contentions and perused the facts of the case. The assessee has received the payment through account payee cheque and the assessee has submitted the copies of the sale bills which are on record. Confirmation of broker, assessee's bank account, party's ledger account, party's bank account, copy of demat application and allotment of demat account were submitted before the learned CIT(A) who has sent the same for verification to the AO vide his letter dt. 24th Sept., 2007. The assessee has also submitted that the assessee has applied for opening the demat account which was wrongly filed in the non-corporate status and it was later on rectified. All the allegations made have been explained. In such circumstances and facts of the case, we find no reason with the AO to make any addition on this account and he is directed to treat the same as long-term capital gain and allow the claim of the assessee . Thus ground No. 4 of the assessee is allowed. 16. The ground No. 5 of the assessee pertaining to charging of interest under s. 234B of the Act is mandatory and consequential in nature. 17. The ground No. 6 of the assessee is ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se parties did not attend before the AO. This fact was brought to the notice of the assessee and the assessee was show caused as to why the purchases claimed by it from those two parties should not be treated as bogus/non-genuine and provisions of s. 69C may not be applied in its case. The assessee replied vide letter dt. 11th Dec., 2006 stating that the summons had been received by both the parties at Surat, but the time was short to attend the hearing. In addition, it was argued that the parties were identifiable, and all the payments were made through cheques, therefore, the parties and purchases made from them were genuine. It was pleaded that, therefore, provisions of s. 69C were not applicable in assessee's case. In view of the submissions of the assessee, the AO adjourned the hearing to 21st Dec., 2006 with a view to provide more time so that both the parties could attend and furnish the required details for verification of the purchases shown by the assessee. However, on 21st Dec., 2006 neither anybody attended nor any reply was filed. Therefore, in those circumstances, the AO held the purchases of Rs. 13,84,057 claimed from the above-mentioned two parties as bogus/non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debited in assessee's books of account then to make purchases of goods, for exporting them, assessee had to incur an expenditure of Rs. 13,84,057. The source of such expenditure on purchases corresponding to export does not appear in assessee's books of account therefore, an amount of Rs. 13,84,057 is treated as unaccounted expenditure and deemed as income of assessee under s. 69C of IT Act. Further, the AO made addition of Rs. 13,84,057 by applying the proviso to s. 69C stating that any unexplained expenditure which has been deemed to be the income of an assessee was non-deductible expenditure under any head of income. Therefore, in computation of income under the head 'Income from business and profession' the expenditure to the extent of Rs. 13,84,057 will not be allowed. The AO did not allow the benefit of deduction under s. 80HHC with reference to the above-mentioned additions made to the income of the assessee under s. 69C and under the proviso to s. 69C, as per the following reasoning : However, while computing the income, when the unaccounted expenditure on purchases of Rs. 13,84,057 is being treated as unexplained expenditure under s. 69C of IT Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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