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2016 (6) TMI 786 - ITAT MUMBAI

2016 (6) TMI 786 - ITAT MUMBAI - TMI - Addition u/s 68 - 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 - LTCG income shown 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 e .....

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statement recorded from Shri Niraj Sanghvi on 31.12.2007, the day the order of assessment was passed, would have no evidentiary or corroborative value to be the basis for coming to an adverse view in the case on hand, since it was recorded behind the assessee’s back, from a person who was not involved in the purchase of the said shares and also since the assessee was not afforded opportunity for rebuttal of the same and to cross-examine the said person. - Since no adverse finding has been r .....

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he authorities below to be unsustainable and therefore direct the AO to delete the said addition and accept the LTCG income of ₹ 93,00,012/- shown as exempt under section 10(38) of the Act. - Decided in favour of assessee - ITA No. 3801/Mum/2011 - Dated:- 27-4-2016 - Shri Jason P. Boaz, Accountant Member And 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 a .....

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processed under section 143(1) of the Act and the case was subsequently taken up for scrutiny. In the course of assessment proceedings, the AO observed that the shares of Shukun Constructions Ltd. (hereinafter referred to as the said shares ) are nothing but penny stock and that the assessee has back dated the purchase 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 .....

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see on sale of the said shares of Shukun Constructions Ltd. is not a genuine transaction but a fabricated one. In that view of the matter, the AO, while concluding the assessment, treated the entire sale proceeds of the said shares amounting to ₹ 95,12,812/- as unexplained cash credit under section 68 of the 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 31.12.2007 wherein the assessee s inc .....

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e order of the CIT(A)-30, Mumbai dated 24.02.2011 for A.Y. 2005-06, the assessee has preferred this appeal before the Tribunal raising the following revised grounds of appeal: - I - Appeal Ground No.1:- That on facts and circumstances of the case and in law, the ld. C.I.T. (Appeals) has erred in confirming the addition made by the ld. Assessing Officer u/s. 68 of the I.T. Act,1961 at ₹ 95,12,812/- on the basis of amount found credited in the bank account of appellant without adjudicating t .....

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ount of assessee appellant and genuineness of the said transaction was established on assessment record with the support of related documentary evidences. 3 - Appeal Ground No.3:- a) That the ld. C.I.T (Appeals) has erred in confirming the disallowance of exemption claim made u/s. 10(38) at ₹ 93,00,012/- in 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) Tha .....

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pellant assessee almost before 3 months prior to its sale, which has been confirmed by the respective share broker as well as Stock Exchange in cross verification carried out and no irregularity or any allegation for the same has been found or made. 4- That the all the appeal grounds raised hereinabove are independent 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 ₹ 9 .....

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de by the AO only on presumptions, conjectures and surmises, totally disregarding the documentary evidences furnished in the course of assessment proceedings. It is submitted that the impugned order of the learned CIT(A) was almost a verbatim reproduction of the order of assessment and the conclusion was rendered 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 d .....

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said shares, copy of contract note of stock broker for sale of the said shares through Bombay Stock Exchange (BSE), evidencing the payment of Securities Transaction Tax (STT) thereon, price movement evidence of stock on BSE on which the said shares were listed and traded and also copy of the bank statement of the 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 w .....

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ed the aforementioned documents to the AO. It is submitted that subsequently the AO passed the order of assessment ignoring all the documentary evidence furnished by the assessee and made an addition of the entire sale proceeds of the said shares under section 68 of the Act on the presumption and suspicion that the purchases 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 reveal .....

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he AO about the modus operandi generally adopted by interested persons through tainted stock brokers for arranged back dated purchase of penny stocks/shares, late filing of return, etc. is contrary to all the facts of the case and the evidence brought on record and filed by the assessee to establish that in the case on hand, 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 due date as per the provisions of section 139 .....

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. It was also submitted by the learned A.R. for the assessee that the assessee had purchased the said shares through M/s. Falgun Finvest, an authorised sub-broker duly registered with SEBI, who had given the delivery of the said shares in physical form through off market trade with appropriate transfer forms and these physical 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 ass .....

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e due date as per section 139(1) of the Act with duly audited accounts and having been processed and accepted by the Department, it is contended that the AO s observation in the order of assessment for A.Y. 2005-06 that the purchases of the said shares are not genuine/arranged/back dated hold no water. It is submitted 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 assessme .....

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Tribunal in the case of (i) Jatin Chhadwa (ITA No. 8573/Mum/2010 dated 24.08.2012) and (ii) Harkhchand K. Gada HUF (ITA Nos. 1772, 1773, 1775, 1778 & 1779/Mum/2010 and others dated 08.08.2012. 3.2.5 The learned A.R. for the assessee contends that all the facts and evidences placed on record before the authorities below goes to establish that the orders of the AO/CIT(A) on the issue of treating the sale proceeds of ₹ 95,12,812/- on sale of the said shares as unexplained cash credits un .....

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said shares were made through M/s. Falgun Invest whose Proprietor is Smt. Charu N. Sanghvi, whereas the statement relied on by the AO in the order of assessment was of Shri Niraj Sanghvi, husband of Smt. Charu N. Sanghvi on 31.12.2007, the day the order of assessment was passed without either making the same available to the assessee for rebuttal or giving the assessee due opportunity to cross-examine Shri Niraj Sanghvi. In support of the proposition that denial of opportunity to the assessee to .....

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rned 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 72) c .....

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ereof 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 16.07.2007 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 13.11.2007 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 21.11.2007 addressed to the AO. .....

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on the day the order of assessment was concluded, i.e. 31.12.2007, was recorded behind the back of the assessee and neither copy of the same was given to the assessee for rebuttal, nor was the assessee allowed due opportunity to cross-examine Shri Niraj Sanghvi. It is seen from the record that no statement was recorded from Smt. Charu Sanghvi, Proprietor, Falgun Invest from whom the assessee purchased the said shares of M/s. Shukun Constructions Ltd. In this factual and legal matrix as discusse .....

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3.4.2 It is also seen that, as contended by the assessee, there is no evidence on record to show that any action or enquiry was carried out either by the SEBI or BSE in respect of the alleged manipulation or propping up of the price rate movement of the said shares of Shukun Constructions 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 Construction .....

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been confirmed by the said stock broker. In our considered view, in these factual circumstances, the assessee has discharged the onus required under section 68 of the Act as she has established the identity of the payer, source of funds received on sale of the same shares and the genuineness 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 Constructio .....

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n respect of the purchases of the said shares , the AO ought to have or would have proceeded to initiate proceedings for reopening the assessment for A.Y. 2004-05 while concluding the assessment for A.Y. 2005-06, the year under consideration, on 31.12.2007 or thereafter till 31.03.2011, which 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 t .....

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ifferent. In the case on hand the assessee received the full sale proceeds of the sales of the said shares from the stock broker as and when they were sold; BSE has confirmed her sale transaction on the date shown and also the fact that the said shares on sale have been transferred to the 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 no .....

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order is a serious flaw which renders the order a nullity in as much as it amounted to violation of the principles of natural justice because of which the assessee was adversely affected. In our considered view, this judgement of the Hon'ble Apex Court supports the case of the assessee in the case on hand as she was not afforded any opportunity of cross-examination of Shri Niraj Sanghvi whose statement was a basis for the AO making the addition under section 68 of the Act. This finding of ou .....

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e claim of the assessee cannot be denied on the basis of presumptions and surmises in respect of penny stock without conducting any inquiry and by disregarding the direct evidences on record by the assessee. 3.4.7 In the decision of the Coordinate Bench of this 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'b .....

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cumentary evidence placed on record of the sale/purchase transaction in shares such as brokers contract notes, confirmation of receipt of sale proceeds through regular banking channels, reflection of these transactions in the assessee s audited financial statements and relevant returns of income and it was held by the Bench that in these circumstances, the sale of shares could not be held to be non-genuine. 3.4.8 From the appreciation of the facts of the case, the material evidence placed on rec .....

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les of the said shares of M/s. Shukun Constructions Ltd., copies of the physical share certificates and her D-MAT account statement establishing the holding of the shares in her name prior to the sale thereof; confirmation of the transactions of buying and selling of the said shares by the respective stock brokers, receipt of sale proceeds through banking channels, etc. As observed earlier in this order, we are of the view that the statement recorded from Shri Niraj Sanghvi on 31.12.2007, the da .....

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