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2016 (7) TMI 16 - ITAT MUMBAI

2016 (7) TMI 16 - ITAT MUMBAI - TMI - Reopening of assessment - long term capital gains treated by AO as unexplained cash credit u/s.68 - AO has treated the share transaction as bogus on the plea that SEBI has initiated investigation in respect of Ramkrishna Fincap Pvt. Ltd. and investigation revealed that transaction through M/s Basant Periwal and Co. on the floor of stock exchange was more than 83% - Held that:- As far as initiation of investigation of broker is concerned, the assessee is no w .....

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hat the transaction by the assessee with these particular broker or share was bogus, merely because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine transaction, insofar as assessee is not concerned with the activity of the broker and have no control over the same. We found that M/s Basant Periwal and Co. never stated any of the authority that transaction in M/s Ramkrishna Fincap Pvt. Ltd. on the floor of the stock exchange .....

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M And Shri Mahavir Singh, JM For the Revenue : Shri Vishwas Jadhav For the Assessee : Shri Pramod Kumar Parida Ms. Sajukta Chowdhury & Miss Priya Bhalawal ORDER Per R. C. Sharma ( A. M ) These are the appeals filed by the revenue against the order of CIT(A)-34, Mumbai, for the assessment year 2005-2006, in the matter of order passed u/s.143(3) r.w.s.147 of the I.T.Act. 2. In both these appeals the revenue is aggrieved for deleting the addition by CIT(A) in respect of long term capital gains .....

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nd having regard to the investigation so done, these scrips were found to be penny stock and the capital gain declared was held to be only accommodation entries. Further, the broker M/s.Basamt Periwal and Co. through whom the transactions were effected had appeared as "DRI probing evasion by firms via jama kharchi" who was indulged in price manipulation through synchronized and cross deal in scrip of Ramkrishna Fincap P.ltd. Furthermore, it was also communicated that SEBI has passed an .....

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CIT(A) deleted the addition after having following observation :- 2.3 I have carefully considered the submissions of the appellant in the paper book filed. The original return of income for A.Y. 2005-06 was filed on 28.3.2007. The notice u/s 148 was issued on 30.3.2012. Though the notice was issued beyond four years time from the end of the assessment year but case was reopened before 6 years the question of change of opinion does not arise in this case. 2.4. As per provisions of section 149, i .....

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material on record was satisfied and then approved the reopening. Hence, it cannot be said that the Assessing Officer did not independently applied the mind before arriving at the belief that there was an income escaped assessment. This is not a case of either change of opinion or reappraisal of existing material on record. 2.5 Various courts have held that to assume the jurisdiction u/s 147, there should be some concrete material available before the Assessing Officer and the existence of such .....

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hould not be mere pretence. As mentioned above the material before the AO was not only the report of DDlT (inv) ,but also the annexures containing various other details. Thus the AO after appraising these materials fully had applied his mind, got satisfied, before forming a belief and then recorded the reason and it is not according to the whims and fancies of the AO. Hence the AO had complied with all the legal requirement of law before reopening the case. 2.6 I would like to rely on the recent .....

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nformation proper-Income-tax Act, 1961, s. 148. At the stage when reasons are recorded for reopening the assessment, the Assessing Officer is not required to build a fool proof case for making addition to the assessee's income; all that he is required to do at that stage is to form a prima facie opinion or belief that income has escaped assessment. The relevancy of the material before the Assessing Officer is to be judged only from that perspective and not from the perspective as to whether .....

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sment. The assessee replied stating that the return filed originally by the assessee-company may be treated as return filed in response to the notice and raising detailed objections to the reopening of the assessment, including one that there was no escapement of income to justify the reopening of the assessment, that the amount of ₹ 3 lakhs received from the company 8 was in the nature of share application money received through banking channels and that the share applicant company had su .....

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formation contained in the material handed over to the assessee was not relevant for the purpose of forming the belief that income chargeable to tax had escaped assessment in the case of the assessee because the name of the assessee did not find a place in the statement of the director of 8 or in any other material : Held, dismissing the petition, that in the reasons recorded the Assessing Officer had referred to the investigation made by the Director of Income-tax (Investigation), who was in ch .....

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d taken accommodation entry from 8 in the amount of ₹ 3 lakhs. 8 (J) had been described as an entry provider and the instrument number, date, name of the bank and the branch as well as account number were given. This information constituted reason to believe, prima facie, that income chargeable to tax had escaped assessment in the hands of the assessee. The material before the Assessing Officer was relevant and afforded a live link or nexus to the formation of the prima facie belief that i .....

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n the above mentioned case the Assessing Officer had received information from Investigation Wing and accordingly reopened the assessment based on the information provided. Identical are the facts in appellant's case also. In view of the above discussion, I hold that the reopening is proper and valid in the eyes of law. This ground of appeal of the appellant is dismissed. 3 Ground No.2 is directed against addition of ₹ 60,19,691/- by treating the genuine long term capital gain as unexp .....

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ited has no networth or such price hike and the profits offered was evident of the same. As far as the contention of the appellant that he has genuinely purchased and sod the scrip "Ramkrishna Fincap Limited" was concerned, it was noticed that the appellant has done transaction with M/s.Besant Periwal & Co. in only one transaction, i.e. 'Ramkrishna Fincap Limiited' that too in the particular period of which the SEBI has given a specific finding. The Assessing Officer has fo .....

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,19,691/- was treated as unexplained cash credit u/s.68 of the Income tax Act. 3.3 The submissions made by the appellant is as under:- "Before coming to the conclusion that the claim of exemption of LTCG is ingenuine the Ld AO issued show cause notice dated 26/02/2013 asking the appellant to substantiate the transaction of purchase and sale of shares in respect of Ramkrishna Fincap Ltd through stock broker M/s. Basant Periwal & Co Kolkata. In addition to the detailed submission made we .....

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nclosed). 1.4. The stock exchange then after transferred the said shares of M/s.Ramkrishna Fincap Ltd in the Demat alc of the appellant held with depository HDFC Bank Ltd on 31/03/2004 (Copy enclosed). 1.5. Before selling the shares the appellant held these shares in his demat a/c for more than 1 year. 1.6. The impugned shares then were sold through M/s. Basat Periwal & Co on the floor of Kolkata Stock Exchange on various dates. Here it is pertinent to bring to your honour's notice that .....

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PeriwaI & Co who received the payment from Kolkata Stock Exchange issued the cheque in favour of appellant. The said cheque was then deposited in appellants bank a/c. Necessary evidence of having deposited and credited the cheque in appellants bank a/c enclosed hereto as per Ex '0' for your honour's perusal and consideration. 2. From the series of events your honour will appreciate that the transactions of purchase and sales are genuine beyond doubt because of the following furt .....

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ould be listed and sold on recognized stock exchange and thirdly on the said sale necessary security transaction tax (STT) has been paid. In support of fulfillment of all ingredients please find copy of bills and ledger copy as per Ex 'E' for your honour's perusal and consideration. c) A perusal of the bills of purchase and sale your honour will appreciate that the shares have been held for more than 1 year, the same has been sold on recognized stock exchange and necessary STT has be .....

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₹ 3.10 to ₹ 171 between the period 01/04/2004 to 28/05/2005. As far as Ld AO's observation that there is sharp increase in the shares prices during the period of one year cannot be the reason for treating genuine LTCG as accommodation because this is a free market where the investor does not have any control over price. Moreover there is no privy of contract between the buyer and seller As far as initiation of investigation on broker is concerned the appellant is no way concerne .....

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56. Hence the appellant is no way concerned with the enquiry of Basant Periwal & Co by SEBI. It is pertinent to mention here that about purchase and sale of shares on the floor of Kolkata stock exchange the department is in possession of necessary evidence which were called by them. Still the Ld AO has not discussed by the order that assessee has purchased these shares on the exchange and not from Basant Periwal & Co. Basant Periwal & Co has acted as a broker only. In spite of all th .....

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ortant here that M/s. Basant Periwal & Co never stated before any of the authority that the transaction in M/s. Ram Krishna Fincap Ltd on the floor of Kolkata Stock Exchange are ingenuine or mere accommodation entries. Without prejudice even if they have admitted the same cannot be applied to appellant as the appellant has genuinely bought and sold these shares on the floor of Kolkata Stock exchange. On which the appellant has no control. 2.SEBI initiated investigation in respect of sell and .....

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& Co for violation of Bye laws of SEBI. 6. Based on the above the Ld AO held that the transactions are mere accommodation entries and unexplained credit. For treating the same he has discussed the reason in para 8 of the assessment order. From the above facts and circumstances your honour will admit that merely because investigation has been done on M/s. Basant Periwal & Co by SEBI and SEBI has levied fine on him the genuine transactions done on the floor of Stock Exchange cannot be trea .....

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he following decisions. Mahesh Mundra Mumbai vs ITO 21(1)ITA No. 1176/Mum/2012 ITO ward 20(1) vs Naveen Gupta in ITA No 696 (Delhi) SOT 2006 94 Delhi Mayur M Shah HUF Mumbai vs ITO 25(3) ITA No. 2390/Mum/2013 ITO v Smt Kusumlata in ITA No. 387 105 TT J (2006) 265 Jodhpur Chandrakant Babulal Shah vs ITO 16(2)(4) ITA No. 6108/Mum/2009 Dalpat Singh Choudhary vs ACIT (2012) 143 TT J 500 (Jodhpur Trib) ACIT v Shri Ravlndra Kumar ToshnivallTA No. 5302/Mum/2008 Jafferali K Rallonse v DCIT Central 5 in .....

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that the transaction cannot be treated as ingenuine the below mentioned reasons. Whereas in appellants case Mls Sasant Periwal & Co has never stated or there is any adverse findings that these transactions are not done on the floor of Kolkata stock exchange. 1. That no opportunity to cross examination has been given. 2. Shares have been purchased, demated and sold for which necessary bills have been issued. 3. Shares have been sold through demat a/c and against the sale payment has been rec .....

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hased these shares on floor of stock exchange, the payment against these shares have been made by a/c payee cheques the said shares have been credited in appellants demat a/c, the appellant has sold these shares after holding them for more than 1 year, on the said transaction of purchase and sales necessary STT has been paid, the broker M/s. Basant Periwal & Co has never stated that these transactions are mere accommodation entries. Merely because he has voilated the bye laws of the SEBI can .....

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broker has violated the bye laws of SEBI and has been fined cannot be the reason for treating genuine transactions as bogus and the consequent benefit thereon. In view of the aforesaid submission it is requested to direct the Ld AO to treat the L TCG as genuine, give the exemption available as per law u/s. 10(38) of the Act and delete the unwarranted addition made to the returned income u/s. 68 of the Act and oblige." 3.4 I have carefully gone through the above submissions of the appellant .....

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incap Ltd. on the floor of Kolkata Stock Exchange through a registered share broker M/s.Basant Periwal & Co. In pursuance of purchase of shares the bill was raised by the broker to the appellant. The appellant has paid the purchase consideration by cheque and debited in their Bank Alc. After paying the purchase consideration shares have been transferred in appellant's demat account which remained in demat account for more than one year. The impugned shares were sold through M/s.Basant Pe .....

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ares from demat a/c of the broker M/s,.Basant Periwal & CO. who received the payment from Kolkata Stock Exchange issued the in favour of the appellant. The said cheque was then deposited in appellant's bank alc. Necessary evidence of having deposited and credited the cheque in appellant's bank a/c. are also enclosed. The broker has deducted security transaction tax from sale consideration and same has been deposited with Government by the recognized stock exchange. 3.6. I have also p .....

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cer had not carried out any investigation also in this regard. Purely relying on the report forwarded by the ADIT(lnv), the Assessing Officer came to a conclusion that the entire transaction of sale of shares as bogus. 3.7 Identical issue has been adjudicated by the jurisdictional ITAT in number of cases involving similar facts and circumstances. On the similar facts the transactions have been treated as genuine and L TCG thereon has been allowed by the Hon'be ITAT in the following decisions .....

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TA No. 68/Mum/2009 9. Mukesh R Marolia v Addl CIT 6 SOT 247 10. Mrs Rajini devi A. Chowdhary v ITO ITA No. 6455/M/07 Dated 30/04/2008 11. DCIT v Shri Pinakir L Shok in ITA No. 3030 & 3453/M/08 Dated 14/0712009 In the aforesaid decisions, the broker through whom the shares were purchased and sold have deposed before the investigation wing and have given statement that these are mere accommodation entry or in some cases the whereabouts of the broker is not known even though the Hon.ITAT has he .....

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Taxman 205 wherein they have held that transaction with even tainted share broker who has been fined cannot lead to genuine transaction as bogus. Since the facts are identical, the issue is squarely covered by the above decisions of the Jurisdictional ITAT and Jharkhand High Court decision in the case of CIT vs. Arun Kumar Agarwal HUF cited supra, and in the absence of any corroborative evidence gathered by the AO to prove the alleged sale of shares are bogus, the addition made by the Assessing .....

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py of bank pass book, broker's bills for' purchase' and sale of shares, contract note, demat account statement of securities transaction tax for ·equity etc. The above documents were furnished before me which is available in the paper book. 3.5 From the perusal of records, the facts emerged are as under:- The appellant bought 3000 share of Ramkrishna Fincap Ltd. on the floor of Kolkata Stock Exchange through a registered share broker M/s.Basant Periwal & Cc. In pursuance o .....

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tock Exchange. Pursuant to sell of shares the broker issued a contract note cum bill for sale of shares vide various bills which are furnished during the course of appellate proceedings. On sale of shares the appellant effected the delivery of the said shares by way of demat instruction slip drawn in favour of broker who then transferred. .to Kolkata 'Stock Exchange/ After transfer' of shares from appellant demat a/c of the broker M/s. Basant Periwal & CO. who received the payment fr .....

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of the transactions and the source of the proceeds along with copy of the bank pass book with Vijaya Bank maintained by the appellant for the period 8.9.2004 to.16:3.2006. The above clearly shows that the sale transaction carried out by the appellant was duly disclosed to the department. The Assessing Officer did not have any material on record to show that the sale of shares were bogus. The Assessing Officer had not carried out any investigation also in this regard. Purely relying on the report .....

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f3 Naveen 'Gupta in ITA No 6'96 (Delhi) SOT 2006 94 Delhi. 3. Mayur M Shah HUF Mumbai vs ITa 25(3).ITA No.2390/Mum/2013 4. ITO v Smt Kusurnlata in ITA No. 387. 105 TTJ (2.006) 265 Jodhpur. 5. Chandrakant Babulal Shah vs ITO 16(2)(4) ITA No.6108/Mum/2009. 6. Dalpat Singh Choudhary vs ACIT (2012) 143 TTJ 500 (Jodhpur Trib). 7. ACIT v Shri Ravindra Kumar Toshnival lTA No. 5302/Mum/2008 8. Jafferall K Rallonse v DCIT Central 5 in ITA No. 68/Mum/2009 9. Mukesh R Marolia v Addl CIT 6 SOT 247 1 .....

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ted as ingenuine. Whereas in the appellant's case M/s,Basant Periwal & Co: has never stated ,or there is any adverse findings that these transactions' are not done on the floor of Kolkata Stock exchange. Merely because he has violated the bye Iaws of the SEBI cannot be the reason for- treating the genuine transaction 'as bogus. The appellant has also relied on the Hon'ble Jharkhand High Court decision in the case of CIT vs.Arun Kumar Agarwal HUF 2010 Taxman 205 wherein they h .....

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he profit on sale of shares as undisclosed income is hereby deleted. 6. Against the above order of CIT(A), the revenue is in appeals before us. 7. Ld. DR relied on the order of AO, whereas ld. AR relied on the order of CIT(A) and the decision of jurisdictional High Court in the case of Shyam R. Pawar, 54 Taxman.com 108. 8. We have considered rival contentions and carefully gone through the orders of authorities below and found from the record that the AO has treated the share transaction as bogu .....

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