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Late Mrs. Roshan Raja Versus Income Tax Officer 19 (3) (2) , Mumbai

Addition u/s 68 - assessee claiming the income from long term capital gain (LTCG) on sale of listed equity shares and subjected to STT as exempt under section 10(38) - Held that:- The authorities below, i.e. AO/CIT(A) have made the addition under section 68 of the Act merely on presumptions, suspicions and surmises in respect of penny stocks; disregarding the direct evidences placed on record and furnished by the assessee in the form of brokers contract notes for purchases and sales of the ‘said .....

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MI 1007 - ITAT MUMBAI ) and Harkhchand K. Gada (HUF) & others (2012 (8) TMI 968 - ITAT MUMBAI) would be applicable and support the case of the assessee since no adverse finding has been rendered in respect of the direct material evidence placed on record in respect of her transactions of purchase and sale of the ‘said shares’ of M/s. Shukun Constructions Ltd. which stand duly disclosed in her audited Balance Sheets filed with the return of income of assessment years 2004-05 and the current year .....

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nd Shri Sandeep Gosain, Judicial Member For The Assessee : Shri Rajkumar Singh For The Revenue : Capt. Pradeep Arya ORDER Per Jason P. Boaz, A.M. This appeal by the assessee is directed against the order of the CIT(A)-30, Mumbai dated 24.02.2011 for A.Y. 2005-06. 2. The facts of the case, briefly, are as under: - 2.1 The assessee, an individual, filed her return of income for A.Y. 2005- 06 on 29.10.2005 declaring income of ₹ 1,75,171/- after claiming the income from long term capital gain .....

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urchase of the said shares in transactions to generate artificial gain. He required the assessee to substantiate her claim of exemption on the capital gain arising on the sale of the said shares. After considering the details, documents and submissions filed by the assessee in support of the claim of exemption from LTCG on sale of the said shares and discussion of available data on penny stocks, modus operandi generally adopted by interested persons to avail the arranged exemption of LTCG/STCG/ .....

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he Act and brought the same to tax in the assessee s hand. The assessment was accordingly completed under section 143(3) of the Act, vide order dated 27.12.2007 wherein the assessee s income was determined at ₹ 34,70,160/-; primarily due to the addition of the sale proceeds on sale of the said shares amounting to ₹ 32,94,982/- under section 68 of the Act. 2.2 Aggrieved by the order of assessment for A.Y. 2005-06 dated 27.12.2007, the assessee preferred an appeal before the CIT(A)-30, .....

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ddition made by the ld. Assessing Officer u/s. 68 of the I.T. Act,1961 at ₹ 32,94,982/- on the basis of amount found credited in the bank account of appellant without adjudicating the legal plea raised that assessee appellant was neither required under the provisions of the tax law nor has maintained any books of accounts for the assessment year under appeal hence addition made u/s.68 is bad in law. 2 - Appeal Ground No-2:- That without prejudice to appeal ground no. 1, the ld. C.I.T. (App .....

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n respect of long-term capital gain earned on sale of listed equity shares sold through recognized stock exchange which has duly been subjected to security transaction tax(S.T.T.). b) That without prejudice to appeal grounds no. 3(a), if capital gain income earned at ₹ 31,96,507/- on sale of listed equity shares was not long-term capital gain due to back dated purchase allegation made by the Id. Assessing Officer, the ld. C.I.T. (Appeals) ought to have directed the ld. Assessing Officer to .....

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endent grounds and without prejudice to each other. 3.2.1 On a perusal of the grounds raised (supra), it is seen that all of these are interlinked and pertain to the addition of ₹ 32,94,827/- of unexplained cash credit under section 68 of the Act. At the outset, the learned A.R. for the assessee submitted that all the grounds raised challenge the addition made and upheld under section 68 of the Act and also with regard to the assessee s claim for exemption under section 10(38) of the Act i .....

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d summarily without any proper reasoning; i.e. basically it was a non-speaking order. 3.2.2 The learned A.R. for the assessee submitted that the assessee had furnished all the necessary documents as required to establish the genuineness of the purchase and sale transactions of the said shares of M/s Shukun Constructions Ltd., such as copy of brokers contract notes for purchase of shares and also confirmation thereof, copy of physical share certificates, copy of letter for split of shares, D-MAT .....

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he assessee evidencing the receipt of sale proceeds of the said shares through regular banking channels. The learned A.R. for the assessee submitted that all these documentary evidences were furnished before the AO in the course of assessment proceedings vide covering letters dated 26.03.2007 and 01.08.2007 and form part of Paper Book I (pages 1 to 42) placed before the Tribunal. 3.2.3 It is submitted that the first notice by the AO to the assessee to establish the genuineness of these transacti .....

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s of the said shares by the assessee was a back dated and arranged transaction. 3.2.4 In this regard, the learned A.R. for the assessee submitted that enquiry by the AO revealed that the sale transaction of the said shares is at the prevailing market rate as confirmed by the BSE on which it was listed and traded. It was also submitted that the transaction of sale of the said shares was confirmed by the concerned stock broker, M/s. Khambatta Securities Ltd. registered with SEBI and BSE and the sa .....

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, the assessee had filed her return of income for A.Y. 2004-05 (i.e. the year in which the said shares were purchased) within the extended date as per the provisions of section 139(1) of the Act. It is submitted that the purchases of the said shares has been shown by the assessee in her balance sheet as on 31.03.2004 which is duly audited within the statutory time limit. It is contended by the learned A.R. for the assessee that these facts being a part of the assessment record controvert all the .....

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hysical share certificates were lodged for transfer in the name of the assessee. It is submitted that copies of the said share certificates duly transferred in the name of the assessee were placed before the AO and forms part of the records of assessment. These facts, the learned A.R. for the assessee contends, are part of the corroborative documents which are placed at additional Paper Book (pages 1 to 7) which further highlights the erroneous basis adopted by the AO to hold that purchases of t .....

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ted that if the AO had real proof that the purchases of the said shares was backdated/ arranged, etc. then nothing prevented him from initiating proceedings for re-opening the assessment for A.Y. 2004-05 upto 31.03.2011 as provided under the Act; which has not been done. The learned A.R. for the assessee contends that the facts of the case as laid out above, clearly establish that the contention of the AO that the purchases of the said shares was back dated, arranged, etc. leading to the additio .....

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d D.R. submitted that the addition under section 68 of the Act made by the AO was after detailed analysis of the facts of the case and the learned CIT(A) has correctly confirmed the same. It was prayed that the impugned order of the learned CIT(A) be upheld. 3.4.1 We have heard the rival contentions of both the parties and perused and carefully considered the material on record, including the judicial pronouncements cited. From a perusal of the Paper Book (pages i to viii and pages 1 to 42) cont .....

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of and financial statements of the assessee, viz., Balance Sheet of earlier years showing that the fact of holding these shares were furnished before the AO from 27.03.2007 onwards, i.e. well before the assessment was concluded on 31.12.2007. It is also seen that the show cause notice issued by the AO to the assessee on 03.12.2007 as to why the transaction in the said shares be not treated as a bogus/arranged one was replied to by the assessee vide letter dated 11.12.2007 addressed to the AO. In .....

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Ltd., as has been assessed by the AO. We find from the details filed by the assessee on record in pursuance of the query by the AO in the course of assessment proceedings, that the shares of Shukun Constructions Ltd. is listed on BSE and that the sale transaction of the said shares by the assessee is at the rate quoted on the date of sale has been confirmed both by BSE and the concerned stock broker M/s. Khambatta Securities Ltd. It is strange that the AO has made the addition under section 68 o .....

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ss of the transaction. 3.4.3 The addition under section 68 of the Act in the case on hand, it appears, has been made only because the AO presumed that the purchases of the said shares of M/s. Shukun Constructions Ltd. were not made on the date as disclosed by the assessee, but was backdated and an arranged transaction, and not because there was any irregularity in the sale of the said shares. We find from the material on record that the purchases of the said shares were duly disclosed under the .....

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ich he has not done. 3.4.4 We also find that the decision of the ITAT, Chandigarh Bench, in the case of Somnath Mani (100 TTJ 917) relied on by the AO is factually different and not applicable to the facts of the assessee s case. In that case, the facts were that the sale proceeds of the shares sold were not reported on the transaction date at the concerned Stock Exchange. Further, the said shares continued to appear in the name of that assessee for quite a long period after the sale and also th .....

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buyer immediately is evident from her D-MAT account. In this factual matrix, we find that the decision in the case of Somnath Mani (supra) is factually different and distinguishable from the case on hand; is not applicable to reach an adverse finding in the case on hand and has been erroneously applied and relied on by the AO. 3.4.5 The assessee has placed before us a compilation of judicial pronouncements, the ratio of which has been placed reliance upon in furtherance of her case. The assessee .....

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his Tribunal in the case of Harkhchand K. Gada (HUF) & Others in ITA Nos. 1772 to 1775, 1788 & 1789/Mum/2010 dated 08.08.2012 relied on by the assessee, on similar facts, the Coordinate Bench, following the judgements of the Hon'ble Bombay High Court in the case of Mukesh R. Manolia in ITA No. 456 of 2007 dated 07.07.2011 and of the Coordinate Bench in the case of Sharda Credit Pvt. Ltd. (ITA No. 3415/Mum/2007 dated 09.02.2009) held that shares purchased/sold off market cannot be con .....

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le of shares could not be held to be non-genuine. 3.4.7 From the appreciation of the facts of the case, the material evidence placed on record by the assessee and in the light of the discussion of the factual and legal matrix of the case as discussed from para 3.1 to 3.4.6 of this order (supra), we are of the considered opinion that the authorities below, i.e. AO/CIT(A) have made the addition under section 68 of the Act merely on presumptions, suspicions and surmises in respect of penny stocks; .....

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