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ACIT Cen Cir. 24 & 26, Mumbai Versus Shri Ziauddin A Siddique

2016 (9) TMI 596 - ITAT MUMBAI

Unexplained cash credit u/s. 68 - search proceedings -share transactions - Held that:- The transactions of purchase and sale of RFL shares is done through the stock exchange involving registered brokers in stock. The payments are made through banking channels. We find that the transaction of purchase and sale of shares are executed without violating any procedures prescribed by any law. So far as the assessee is concerned, the documentation involving the said purchase and sale of shares is witho .....

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no adverse criticism on the relevant documentation involving these share transactions. There is no allegation against the assessee individually as involved in price rigging. Unlike in the shares of Eltrol Ltd., there are no adverse witnesses or statements given by third parties questioning the genuineness of the transactions. In this case, the transactions are done very much through the exchange and the payments are made involving banking channels. No evidence is gathered by the search team duri .....

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of RFL. In such circumstances when there is no evidence against the assessee on the transactions involved, we are of the opinion that why not the assessee should be one genuine investor and, therefore, there is no case for invoking the provisions of section 68 for making the additions on account of transactions involving the shares of RFL. - Decided in favour of assessee - ITA Nos. 5182 & 5183/Mum/2011 - Dated:- 9-9-2016 - Shri D Karunakara Rao, Accountant Member And Shri Ram Lal Negi, Judicial .....

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investigation on account of unexplained cash credit u/s. 68 of the I.T.Act amounting to ₹ 1,03,33,955/- instead of Long Term Capital Gain as adopted by the assessee in his return of income. 3. Briefly stated relevant facts are that the assessee filed return of income for the A.Y. 2005-06 originally u/s. 139(1) of the Act declaring the income of ₹ 18,96,007/-. Subsequently, there was search action u/s. 132 of the Act on 08.05.2007 at the residential and business premises of Bindra Roh .....

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e AO determined the assessed income at ₹ 1,44,63,135/- after making additions on account of capital gains. The details of the transactions and conclusions of the AO are given in para 5 of the assessment order. In the re-assessment u/s. 153A of the Act, the AO made the addition of ₹ 28,58,138/- in the regular assessment qua the transactions revolving around the purchase and sale of penny stock of shares of Eltrol Ltd. Further the AO made addition of ₹ 1,03,33,925/- involving the .....

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nal also gave a finding mistakenly in connection with the share trading activity involving RFL too, inadvertently ignoring the fact that the same was not the subject matter of appeal. In the Miscellaneous Application proceedings of the assessee, the Tribunal expunged the said adverse conclusions on the trading transaction involving shares of RFL vide its order in Miscellaneous Application dated 10.12.2014. In effect, the Tribunal appreciated and distinguished the facts relating to the transactio .....

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of the Act. Referring to the said transactions of purchase and sale of shares of RFL held by the assessee, learned counsel narrated the facts that the assessee purchased these shares at par in February 2004 and demated the same immediately in March 2004. Payments were made involving banking channels and there was no splitting of shares unlike the shares of Eltrol Ltd., referred above. All these transactions of purchase and sale were done through stock market. There are no negative statements ag .....

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d after one year between August 2003 and March 2004. Purchase and sale of these shares happened in the off market and not through exchange. Payments were not done through banking channels. Eventually, the AO noticed that the said shares of RFL were sold by the assessee at a rate as high as ₹ 185/- in the Kolkata Stock Exchange. The AO gathered various details in the assessment proceedings and proceeded to made addition of ₹ 1,03,33,925/- u/s. 68 of the Act. The AO held the financials .....

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gh SEBI registered brokers and STT was paid on sale of said share transactions. The payments were made through banking channels and transfer of shares took place through demat account. The assessee relied on the contract notes issued by these brokers and transactions were confirmed by the share brokers and the related parties. There were no adverse witnesses or statements gathered by the revenue during the search action involving these transactions. He argued that since the sale of shares was do .....

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acts of the above mentioned Jamnadevi Agarwal s case. The Hon ble Bombay High Court decision is squarely applicable in this case. Respectfully following the Hon ble Bombay High Court judgment, I hold that the claim of long term capital gains is genuine in this case and I delete the addition of ₹ 1,03,33,955/- made u/s. 68 of the Act. Aggrieved with the said relief granted by the CIT(A), the revenue is in appeal before us. 6. To start with, the DR for the Revenue relied heavily on the order .....

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ed that the market value of the shares is not in any way nearer to the net asset value of the company. She also mentioned that M/s. Basant Periwal & Co., is a broker through whom the assessee purchased shares and the said broker was found guilty of certain discrepancy by the SEBI. Referring to the discrepancy on the client code, the CIT-DR submitted that there was an error in this regard in the books maintained by the said broker. Although, the same was explained as a mistake of the staff of .....

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] was heavily relied for granting relief to the assessee. In this regard, the CIT-DR is of the opinion that the said judgment only mentioned about the absence of any question of law and there is no finding of fact by the Hon ble High Court that helps this assessee. Further referring to the penalty order imposed by the SEBI on Basant Periwal & Co., the CIT-DR submitted that penalty of ₹ 3,00,000/- was levied on the broker in connection with the allegation against the broker on price rig .....

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at there is no such decision in existence from Kolkata Bench involving RFL. In this regard, learned counsel brought attention to the assessee s clarification vide his letter dated 16.06.2016. Thus, the AR for the assessee categorically submitted that this issue involving transactions of sale of purchase of RFL has to be independently decided/adjudicated not influenced by the decision of the Tribunal on the transactions involving purchase and sale of shares of Eltrol Ltd. The adverse comments if .....

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The gains are exempt from tax. The AO has not brought out any incriminating evidence or material to demonstrate that the transactions are sham or bogus or entered with any mala fide intentions of converting unaccounted money into accounted gains. Referring to the other judgments of the Tribunal involving similar transactions of purchase and sale of shares of same RFL, the learned counsel filed a copy of the order of the Tribunal in the case of Ms/. Indravardhan Jain & Shri Indravadan Jain (H .....

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the off market transactions and there were no cheque payments but only ledger entries. He also referred to another decision of the Tribunal in the case of Ranjeet Bindra [ITA No. 5534/Mum/2011 for AY 2004-05], which was also decided in favour of the assessee, of course, the script involved in the case is Bluechip India Ltd. The counsel also relied heavily on the jurisdictional High Court judgment in the case of Jamnadevi Agrawal (supra). The Hon ble High Court is of the opinion that when the doc .....

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ication of client code is not a ground for denying benefits to the assessee as the same constitute flimsy evidence and confirmed the applicability of the Jamnadevi Agrawal judgment while granting relief to the assessee. With reference to the financials of RFL the learned counsel for the assessee submitted that what matters to the assessee, who is a buyer and seller of shares in exchange, is the market rates of the listed shares of RFL and he is not to be bothered by the financials of the company .....

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e opinion that the order of the CIT(A) , which was decided based on the jurisdiction High Court judgment is fair and reasonable and the same should be confirmed. 8. We have heard both the parties and perused the relevant material available before us. We find that there is no dispute on the facts relating to the number of shares, rates/price etc. The transactions of purchase and sale of RFL shares is done through the stock exchange involving registered brokers in stock. The payments are made thro .....

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worthiness of the assessee. It appears that the AO is predominantly influenced by the penny stock related issues on the shares of RFL and treated the said transactions as sham. In our view, the decision of the AO is not valid and appropriate as there is no adverse criticism on the relevant documentation involving these share transactions. There is no allegation against the assessee individually as involved in price rigging. Unlike in the shares of Eltrol Ltd., there are no adverse witnesses or s .....

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rought about by the search team that the assessee is personally involved in price raising of shares from ₹ 2.5/- to ₹ 185/- per share. There is no adverse inference about the bona fides of the assessee in buying and selling of the said shares of RFL. In such circumstances when there is no evidence against the assessee on the transactions involved, we are of the opinion that why not the assessee should be one genuine investor and, therefore, there is no case for invoking the provision .....

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e case of Ms/. Indravardhan Jain & Shri Indravadan Jain (HUF), where similar transactions involving RFL shares on one side and the broker M/s. Basant Periwal & Co. on the other, Bombay Bench of the Tribunal gave a finding that the transactions involved are genuine and the additions were deleted. The contents at para 8 of the said order of the Tribunal are relevant and we proceed to extract the same here as under: 8. We have considered rival contentions and carefully gone through the orde .....

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inding has been recorded by CIT(A) to the effect that assessee has made investment in shares which was purchased on the floor of stock exchange and not from M/s Basant Periwal and Co. Against purchases payment has been made by account payee cheque, delivery of shares were taken, contract of sale was also complete as per the Contract Act, therefore, the assessee is not concerned with any way of the broker. Nowhere the AO has alleged that the transaction by the assessee with these particular broke .....

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relying on the various decision of the coordinate bench, wherein on similar facts and circumstances, issue was decided in favour of the assessee, came to the conclusion that transaction entered by the assessee was genuine. Detailed finding recorded by CIT(A) at para 3 to 5 has not been controverted by the department by brining any positive material on record. Accordingly, we do not find any reason to interfere in the findings of CIT(A). Moreover, issue is also covered by the decision of jurisdic .....

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that the Tribunal granted relief to the assessee on merits and find the contents of para 5 for the proposition that there is no case for making additions on account of transactions involving shares of RFL. 4. On a perusal of the order passed by Ld CIT(A),we notice that the assessee has proved the sources for the purchase of shares of M/s Ramakrishna Fincap Ltd and also furnished broker bill and Contract note in support of the same. The brokers have also confirmed the fact of purchase. Since it w .....

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ns have also been accounted for in the books. The assessee has pointed out that the share price of the above said company has gone up further after its sale by the assessee. Under these set of facts, the Ld CIT(A) held that the assessing officer has merely disbelieved the evidences furnished by the assessee only on surmises and suspicion. Accordingly he allowed the appeal of the assessee in respect of this ground. 5. During the course of hearing before us, the Ld D.R could not produce any materi .....

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