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2017 (1) TMI 818 - ITAT AHMEDABAD

2017 (1) TMI 818 - ITAT AHMEDABAD - TMI - Addition made u/s 68 - share transactions were not recorded in the name of assessee on the floor of stock exchange and transactions were proved bogus - Held that:- AO, though confirmed the sale of 30,000 Shares of Neptune Securities P. Ltd, however for part of 20,000 sale of shares held to be non-genuine and ₹ 13,17,873 were added u/s 68 on proportionate basis. It leads to a contradiction and despite the facts that BSE has confirmed transaction of .....

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- SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER For The Revenue : Shri James Kurian, Sr DR For The Assessee : Shri G.C. Pipara, AR ORDER PER R.P. TOLANI, JUDICIAL MEMBER:- This appeal by the Revenue and the Cross-objection thereof filed by the assessee are directed against the order of the Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad dated 21.03.2012 for AY 2005- 2006. 2. Before us, at the outset, assessee s side did not press the crossobjection; accordingly .....

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of income, the assessee qua the sale of shares of Prranet Indu declared income from Short Term Capital Gain of ₹ 32,94,684/- and Long Term Capital Gain of ₹ 94,49,383/- on sales of shares of Telent Infoways Limited. In respect thereof, assessee furnished the relevant details and bills issued by M/s. Goldstar Finvest Pvt. Ltd. [GFPL for short] (for purchase) and by M/s. Mahasagar Securities Pvt. Ltd. [MSPL for short] (for sales). The bills reflected that:- (i) The broker Goldstar Finv .....

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-10777. 4.1 Ld. AO sent letters u/s 133(6) in response thereto the NSE furnished a reply dated 22.11.2011 revealing that: (i) M/s. Goldstar Finvest Pvt Ltd was registered with it as a subbroker; however, ISE replied that it was a registered trading member but expelled and a sub-broker still registered but expelled. (ii) M/s. Mahasagar Securities Pvt Ltd was found as a member from database. ISE replied that it was not registered with it. The ld. Assessing Officer again issued letters u/s 133(6) o .....

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gment are being enclosed as annexure -A. Kindly note that as per the records available with exchange, no trade were found to be executed for the combination of member and client code for the period 01 April 2003 to 31 March 2004 in the capital market segment hence not furnished." Ld. AO observed that as per BSE assessee has sold only 30,000 shares of Prraneta Industries while he is claiming that, he has sold 50,000 shares during the concerned F.Y. It was further observed that a search was c .....

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spectfully submitted that for the assessment year 2005-06 vide letter dated 20/09/2011,1 have filed the statement of details of purchases as well as details of sales relating to 2,00,000 snares of Talent Infoway Limited I have also submitted copies of purchase memo, contract note relating to purchases. Accordingly, the entire purchases are through Goldstar Fininvest (P) Ltd. I have also furnished the details relating to the sale of 2,00,000 shares to Talent Infoway Limited which has been sold th .....

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e of the business and I have nothing to do with the search carried out in the case of Mahasagar Securities Pvt. Ltd. as the reasons mentioned for reopening of the assessment that the group was found to be engaged in fraudulent billing activities. Please note that the said invoice as well as contract note includes the complete details such as quantity, rate, order number, trade number, trade time, sale rate, brokerage, net rate and amount with respect of each sale, etc. 5) Accordingly, the entire .....

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ore, I have no reasons of not being reported. Therefore, so far as the gain which has been shown by me is concerned, the same is genuine, correct, supported by documentary evidence and if something is wrong, it may be either due to incorrect inquiry or may be in the hands of Mahasagar Securities Pvt. Ltd. 6) Moreover, the entire 2,00,000 shares of Talent Infoway Limited were held by me in demat account and I am submitting herewith the transaction statement issued by Shah Investor's Home Ltd. .....

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the normal course of business. There may be something wrong in the hands of Mahasagar Securities Pvt. Ltd. but so far as 1 am concerned, these shares were held by me, the same has beensold in the open market. The transaction has taken place and therefore, the gain on the same has rightly been shown as capital gain. 8) Under the circumstances, your Honour's proposed action requires to be dropped. 4.2 The ld. Assessing Officer, however, disallowed the claim of Long Term Capital Gains qua shar .....

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ed in the name of the assessee so it can be presume that assessee took only accommodation entries to claim the speculation profit for that he has submitted the bills issued by the M/s. Goldstar Finvest Pvt. Ltd. and from M/s. Mahasagar Securities Pvt. Ltd. • Since, M/s. Mahasagar Securities Pvt. Ltd. is no more in existence so how it is possible give credit of any claim based upon the bills issued by the M/s. Mahasagar Securities Pvt. Ltd. similarly, M/s. Goldstar Finvest Pvt. Ltd. is no mo .....

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received from the respective stock exchanges has been supplied to the assessee. 5. Aggrieved, the assessee preferred first appeal where all the facts were reiterated and following explanations and written submissions dated 10.12.2011 were made :- 1) Regarding copies of purchase invoice relating to 2,00,000 shares of Talent Jnfoway Limited. The shares have been purchased for an amount of ₹ 2,60,691/- against the profit which I have gained from intra day trading of certain shares of Goldsta .....

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rding invoice of the sales and contract note, etc., same has already been submitted by me vide my submission dated 20/09/2011. Accordingly, the entire sales are through Mahasagar Securities Pvt. Ltd., the details of which has also been submitted by me alongwith my submission dated 05/12/2011. 3) I am submitting herewith the copy of the Bank statement/Bank Passbook relevant to F.Y. 2004-05 wherein the sale proceeds of Talent Infoway Limited has been credited. 4) Regarding copy of the Demat Statem .....

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three letters of BSE, Inter-connected Stock Exchange of India Ltd. and NSE which has been provided to my authorized representative on 6th December 2011 and would like to clarify that BSE clearly stated that PAN based transaction have become mandatory with effect from 01/01/2007. Further Interconnected Stock Exchange of India Ltd. has stated that no records of trade were executed and further NSE has stated that information relating to Vineet Sureshchandra Agarwal are being enclosed as Annexure A .....

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b-broker of NSE Member, therefore, I do not know in which exchange the trade has been executed as normally it is not being looked into by any investor; as I was interested to sell and the rate was intimated to me which has been confirmed by me and accordingly, shares were delivered, same were sold and payment has been received through Account Payee cheque. 7) Further, BSE has clearly reported the transaction pertaining to Prraneta Industries." The copy of letter dated 10/12/2011 along with .....

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e appellant is not sufficient to disprove the comprehensive evidences filed by the appellant. That apart, it is contended that in absence of any cross-examination of Shri Mukesh Chokshi having been granted, whose statement has been heavily relied upon for drawing adverse inference in case of the appellant, the impugned addition and the reassessment order passed is in violation of the principles of natural justice and equity. Hence, even otherwise, the impugned addition suffers from the vice of a .....

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asis of material seized from the third party and the statement of such third party not corroborated by any evidence. Prarthana Construction (P.) Ltd. vs. Dy. CIT (2001) 70 TTJ 122 (Ahd.) "It is a settled proposition, as held by various judicial authorities, that rigours of the rules of evidence contained in the Evidence Act are not applicable to income tax proceedings. However, the principals contained in the Evidence Act, incorporated from rules of natural justice forming part of the commo .....

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ith the assessee company - CBI vs. V.C. Shukla & Ors. (1998) 3 SCC 410 and Chuharmal vs. CIT (1988) 70 CTR (SC) 88: (1988) 172 JTR 250 (SC) applied. The presumption under the provisions of s. 132 (4A) would in any case not be applicable to a third party from whose possession such papers and documents have not been found by the Revenue. Statements recorded at the back of the assessee would not ipso facto include the case against the assessee particularly when the makers of the statements have .....

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ence Act are not strictly applicable to the proceedings under the Income-tax Act, but the broad principles of the law of evidence apply to such proceedings. Further an entry in the books of account maintained in the regular course of business is relevant for purposes of considering the nature and impact of a transaction, but noting on slips of paper or loose sheets of paper cannot fall in this category. Noting on loose sheets of paper are required to be supported/corroborated by other evidence w .....

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cument in question had not been found from the assessee's possession, but from the possession of A and undoubtedly no opportunity of cross examination had been allowed to 'the assessee and it had clearly emerged from the record that the testimony of A was not credible at all since in three separate statements he had indicated different figures, his secretary, G, had given yet another figure and in proceedings before the two different court at Delhi and Dhanbad, he had given a different p .....

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ver and above the figure booked in the records and accounts changed hands between the parties. No addition could therefore be made to the income of the assessee ". Kishanchand Chellaram v. CIT [1980] 125 ITR 713 (SC) "Though the proceedings before the income-tax authorities are not governed by the strict rules of evidence, before the income-tax authorities could rely upon a piece of evidence, they were bound to produce it before the assessee so that the assessee could controvert the st .....

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supplying the copies of the depositions and giving an opportunity of cross-examining those patients to the appellant. Simply because the depositions were taken before A, it could not be said that an opportunity, much less sufficient opportunity of cross-examining, was offered. Any material collected by the Assessing Officer has to be put to the assessee before an adverse inference on the basis of that material is drawn to the prejudice of the assessee. In respect of the four depositions relied .....

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proceedings had been launched and from whose possession the documents were recovered, so that the assessee could prove its case, but the request was not acceded to by the A. O. and the Tribunal found that that was in complete violation of the principles of natural justice, the Tribunal was justified in setting aside the assessment under section 158BD. " 10. On the basis of the above facts, your honour will appreciate that all the material and primary facts and evidences in respect of the i .....

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made following observations:- (i) I find that in this case, the appellant has shown identity of the person from whom sale consideration was received. The appellant has also proved the genuineness of the transaction by submitting Demat statement with Shah Investors Home Ltd., sale invoices of the broker, copy of Bank Statement through which transactions were routed. (ii) The A.O. has on page No. 2, para. No. 3.2 has observed that the broker Goldstar Finvest Pvt. Ltd. at NSE was 'at present as .....

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through stock exchange supported by documentary evidences. (iii) Coming to the observation of the AO in para No.3.3 of the Assessment order wherein AO has referred certain inquiry u/s 133(6) with respect to NSE, BSE and ISE, in response to this the appellant vide his letter dated 10.12.2011 which has been reproduced by the AO in the body of the Assessment Order itself in para No.3.6. ……. (iv) The appellant has purchased 200000 shares of Telant Infoways Limited on April 2003 and so .....

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d transactions cannot be doubted. The appellant has purchased and sold 50000 shares of Prraneta Industries Limited. The BSE has submitted evidences of sale of 30000 shares in response to notice issued by A.O. u/s 133(6) of the Act. The sale of shares as reported by BSE are matching with Demat Statement. It also proves that the said broker was registered with BSE. However for 20000 shares the same is not appearing in annexure of BSE, Nevertheless since entries for 20000 is also appearing in demat .....

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ain shown by the appellant in the return of income filed for the Assessment Year 2005-06 on 2/9/2005 which has been offered to tax @ 10%. The said Long Term Gain is pertaining to listed securities viz. Talent Infoway Ltd. wherein the appellant has sold 2,00,000 shares on 26/8/2004, 28/8/2004 and 13/9/2004 for an amount of ₹ 97,10,074/-. The said shares were acquired by the appellant on 4/4/2003, 8/4/2003 and 11/4/2003 for an amount of ₹ 2,60,690/-. Considering the cost inflation inde .....

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o trade has been executed in the name of appellant. As per careful examination of same reply which is reproduced by the A.O. in para 3.6 it is noted that copies of purchase memo, contract note relating to purchase, copies of invoice, contract note, order as per trade number, trade time, quantity, sale rate, brokerage, net rate and amount, etc. has already been submitted. It was further claimed that payment has been received through A/c. Payee cheques and as to why the transaction is not reflecte .....

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has further submitted copy of the Bank Statement indicating the sale proceeds and gone through the copies of the 3 letters of BSE, ISE and NSE and clarified that BSE has clearly stated that PAN based transaction have become mandatory with effect from 1/1/2007 and these transactions being relevant to financial year 2004- 05 have not been reported by BSE. Further, Inter connected Stock Exchange of India has stated that the transactions were not with ISE and with respect to NSE, information was su .....

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ated 5/12/2011. Therefore, A.O. has not brought on record any evidences indicating that the said gain of ₹ 94,49,384/- is not genuine. Any transaction cannot become suomoto non-genuine simply because there has been search & seizure in some cases wherein contrary documentary evidences were found during the course of search in those cases. The issue to be considered is whether any adverse evidence was relating to appellant and if so whether it was given for explanation. There being no su .....

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erted. The A.O. is directed to treat the same as Long Term Capital Gain of ₹ 94,49,384/- as shown in the return of income. This ground of appeal is accordingly allowed. With respect of ground relating to addition of ₹ 13,17,873/- being Short Term Capital Gain which has been added by the A.O. u/s. 68 of the I. T. Act, 1961,the issue is discussed by the A.O. in para No. 4 of the assessment order. The total short term capital gain of ₹ 32,94,684/- is relating to the sale of 50,000 .....

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he transaction relating to Prraneta Industries Ltd. are not through Mahasagar Securities Pvt. Ltd. Also as per the inquiry letter, there is no reference to the 'shares of Prraneta Industries Ltd. I have also looked into the details of sales and purchases of shares relating to Prraneta Jndustries Ltd. and it is seen that total shares have been sold through Neptune Securities Pvt. Ltd. and Vimla Exims Pvt. Ltd. Total 30,000 shares have been sold through Neptune Securities Pvt. Ltd. through 3 d .....

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not been properly inquired. Moreover, the invoices by Vimla Exim Pvt. Ltd. contain the order number, trade number, trade time, quantity sold, settlement number, settlement period as well as contract number, etc. Information provided in the invoice of Vimla Exim Pvt. Ltd. is similar to information provided by Neptune Securities Pvt. Ltd. and the period and rate is also almost same in both the cases. Therefore, having accepted the purchases as genuine, further sale of 30,000 shares having been acc .....

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tatement issued by NSDL, there is dear cut debit of 10,000 shares each, two times relating to transfer of shares through Vimla Exim Pvt. Ltd. rolling market lot No. 2004241 and 2004246. I note that for ASE Capital Market Pvt. Ltd. also there is some discrepancy of rolling market lot number. Therefore, I find no justification for treating capital gains relating to 20,000 shares for the purpose of addition u/s. 68 of the I. T. Act, 1961. (i) when conditions stipulated u/s. 68 are not existing, &am .....

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ansactions all evidences, which are available on record cannot be managed. The whole issue is relating to the statement u/s. 131/132 of the I.T. Act, 1961 of Shri Mukesh Choksi inspite of all cogent evidences produced and kept on record. The fact that Shri Mukesh Choksi has not been cross-examined by appellant cannot be ignored as heavy reliance is placed on his statement by the AO. It is also noted that Shri Mukesh Choksi has given contrary statements in case of few assessees through affidavit .....

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before the A.O. and the one during cross Shn Jafferali K. Rattonsey examination before the A.O. Under these circumstances one has to see the evidentiary value of a person making double speaking. We find the Hon'ble Calcutta High Court in the case of Eastern Commercial Enterprises (supra) has held that a man indulging in double speaking cannot be said by any means a truthful man at any stage and no Court can decide on which occasion he was truthful. We find the co-ordinate bench of the Tribu .....

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has given different versions at different stages of the proceedings and therefore his evidence was unreliable. 9.6 In view of the above judicial decisions the statement of Mr. Mukesh Choksi cannot be a deciding factor for rejecting the genuineness of the purchase of shares by the assessee especially when all other supporting evidences filed by the assessee were neither proved to be false or untrue. We further find merit in the submission of the Id. counsel for the assessee that the dematerializ .....

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ing their claim in respect of long term capital gain / short term capital gain and under the identical set of facts the been considered by the Tribunal has deleted addition made u/s. 68 / 69 of the I. T. Act, 1961: (a) Smt. Hamida J. Rattonsey vs. DCIT (b) ITO vs. Rasila N. Gada (c) Smt. Durgadevi Mundra vs. ITO (d) Sachin N. Morakhia vs. ITO (e) Mukesh R. Morolia vs. ACIT (f) CIT vs. Mukesh R. Marolia (Bombay HC) (g) ITO vs. Truptic Shah (h) ACIT vs. ShriRavindrakumar Toshniwal (I) ITO vs. Smt. .....

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s. 68 / 69 of the I. T. Act, 1961: (a) ITO vs. Shri Prakashchand S. Sandh (b) ACIT vs. MaheshG. Vakil (c) ACIT vs. Himani M. Vakil (d) ManojkumarSarawangi HUF vs. ACIT The proposition that, if purchase trades carried out through broker Mahasagar Securities Pvt. Ltd. are not recorded in the name of, the assessee on the floor of stock exchanges and therefore the purchase of such shares were not genuine, is concerned I am of the opinion that purchase and sale of shares outside the floor of stock ex .....

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that off-market transactions are not permissible. The assessee has stated that the transactions were made with the help of professional mediators who are experts in off-market transactions. 70.4 When the transactions were off-market transactions, there is no relevance in seeking details of share transactions from Stock Exchanges. Such attempts would be futile. Stock Exchanges cannot give details of transactions entered into between the parties outside their floor. Therefore, the reliance placed .....

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ssing authority from the respective Stock Exchanges. We are of the considered view that the materials collected by the assessing authority from the Stock Exchanges are not valid to dispel or disbelieve the contentions of the assessee." It is further seen that the Mumbai Tribunal order of Mukesh Moralia has been found to be correct and it is confirmed by the Bombay High Court in Tax Appeal No.456 of 2007. Therefore, respectfully following such orders, I hold that even if alleged shares purch .....

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nojkumar Sarwangi (supra) and the decisions referred to in the same order. 5.2 The ld. CIT(A), on the basis of these observations, the impugned addition was deleted. 6. Aggrieved by the aforesaid order of the ld. CIT(A), the Revenue is now in appeal before us. 7. The ld. Counsel for the assessee reiterated the relevant facts and contends that the additions have been deleted by ld. CIT(A) after due appreciation of facts and legal propositions. The particulars in respect of LTCG/STCG received by t .....

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reassessment u/s 143(3) rws 147. Thus in both assessments for the same year after detailed scrutiny have been accepted as assessee s Investments. These shares were purchased through Gold Star Finvest P. Ltd. besides the they were also in D-mat account. (ii) Ld. AO did not conduct any enquiry from Gold Star Finvest P. Ltd. which is found to be registered as a sub Broker of NSE Details of Sales (i) The shares are sold On 26/8/2004, 28/8/2004, 06/9/2004, 11/9/2004, 13/9/2004 through Maha Sagar Secu .....

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tions. (ii) Therefore, NSE having confirmed the transaction to ld. AO in reply to statutory inquiries u/s 133(6), ld. CIT(A) has rightly deleted the additions. B) Amount Gain Share ₹ 13,17,873/- Short Term Capital Gain - Parranet Indus. Ld. Counsel contends that: (i) Total 50,000 shares sold on 16/3/2005 which were purchased by cheque payments on 3/9/2004 and duly entered in the books of accounts. Ld. AO made no enquiry from Purchaser Company. (ii) AO has accepted 30,000 sales as genuine t .....

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quiry has been conducted from Vimla Exim P. Ltd who is a member of Ahmedabad Stock Exchange. This fact is not disputed by the department. 7.1 It is vehemently contended that all the transactions of sale of shares are genuine, purchases relevant to AY 2004-05 have been affected through banking channels, entered in books of accounts and accepted by the department in two assessments for the same years. Ld. CIT(A) duly considered the material and facts available on the record and accepted the explan .....

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ng Term Capital Gain called for the relevant information from the Company named Gwalior Tank & Vessels Ltd., the shares of which the assessee sold and earned income under the head Long Term Capital Gain as mentioned earlier. The information from the broker, Gold Star Finvest Pvt. Ltd., Indore Stock Exchange and Union Bank of India was also called for. After going through the replies received from Union Bank of India and Gwalior Tank & Vessels Ltd. and the detailed submissions made by the .....

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s, distinctive nos. of shares and the amount realized with sale rate etc. have also been made available. Madhya Pradesh Stock Exchange Ltd. however, had replied that no data was available with them and therefore, the same cannot fee provided. But, as all the other required details including the information from the bank confirming the deposits of the cheques with amount and the dates of deposit as shown by the assessee in his bank account indicate that the assessee earned income from LTCG. The a .....

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. Sr. DR relied on the order of ld. AO. 9. We have heard the rival contentions and perused the material available on record. Apropos the issue of alleged share scam of Shri Mukesh Choksi, the Mumbai Tribunal has already considered the aspects of alleged "Shares Scam", involvement of Shri Mukesh Choksi and group entities in various cases. In similar set of facts, the Tribunal has deleted addition made u/s. 68/69 of the I. T. Act, 1961 qua the claims of long term and short term capital g .....

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low by holding that Short/Long Term Capital Gain offered by assessee were accommodation entries provided by such persons and adding the amounts of such gains u/s. 68 / 69 of the I. T. Act, 1961: a) ITO vs. Shri Prakashchand S. Sandh b) ACIT vs. MaheshG. Vakil c) ACIT vs. Himani M. Vakil d) ManojkumarSarawangi HUF vs. ACIT 9.2 The proposition that, share purchases through broker Mahasagar Securities Pvt. Ltd. are not recorded in the name of, the assessee on the floor of stock exchanges outside th .....

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egal proposition arrived at by the CIT(A) that off-market transactions are not permissible. The assessee has stated that the transactions were made with the help of professional mediators who are experts in off-market transactions. 70.4 When the transactions were off-market transactions, there is no relevance in seeking details of share transactions from Stock Exchanges. Such attempts would be futile. Stock Exchanges cannot give details of transactions entered into between the parties outside th .....

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he negative replies solicited by the assessing authority from the respective Stock Exchanges. We are of the considered view that the materials collected by the assessing authority from the Stock Exchanges are not valid to dispel or disbelieve the contentions of the assessee." 9.3 The Mumbai Tribunal order in the case of Shri Mukesh Moralia has been upheld and confirmed by the Bombay High Court in Tax Appeal No.456 of 2007. Therefore, in view of foregoing, the shares purchased through off-ma .....

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