TMI Blog2016 (5) TMI 1325X X X X Extracts X X X X X X X X Extracts X X X X ..... uiries to conclude that the gifts received by the assessee are bogus gifts. Before us, Revenue has not placed any material on record to demonstrate that the gifts deeds and copies of return of income of the donors found at the time of search were different documents from those that were considered by the Assessee while claiming the amounts to be the gifts. As decided in the case of CIT vs. Ashok Dua [2008 (8) TMI 897 - DELHI HIGH COURT] all that was found were the gift deeds and the affidavits and there was no incriminating material found in the course of search to suggest that the gifts were bogus. - Decided in favour of the assessee. Treatment of capital gains as business income - Held that:- The intention of the assessee at the time of the purchase of shares is paramount. If the assessee has clear intention of being an investor and showing the shares as investment, we do not find any reason to disturb the intention of the assessee. The assessee's under consideration are investors and, therefore, any gain arising out the transfer of shares should be treated as capital gains be it short term or long term. Thus we direct the A.O to treat the gains arising out of the sale of sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt years mentioned hereinabove. Out of these appeals in IT(SS)A Nos. 396/Ahd/12, 397/Ahd/12, 398/Ahd/12 399/Ahd/12 are appeals by the assessee against the levy of penalty u/s. 271(1)(c) of the Act. All other appeals are in respect of the assessments made in the hands of the respective assessees. 2. These captioned appeals are in respect of three different assessees namely Dipak J. Panchal, Devangi Dipak Panchal Dipak Panchal (HUF). 3. The ld. counsel furnished a comprehensive chart in respect of each assessee and stated that the underline facts in the issues contained are identical in respect of all the assessees to which ld. D.R. fairly conceded. On this agreement/concession, we heard the submissions made by the representatives of both side at length and dispose of all these appeals by this common order for the sake of convenience and brevity. The impugned disputes arose because of a search operation conducted on 10.02.2006 at the residential/business premises of the assessees. Notices u/s. 153A(a) of the Act were issued and served upon the assessee in lieu of which returns were filed and the assessments were made u/s. 153A r.w.s. 143(3) of the Act. 4. The impugned di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessed under section Last date of issuing Notices u/s. 143(2) Dipak J. Panchal 371/Ahd/2011 2000-01 31/10/2000 143(1) 31/10/2001 372/Ahd/2011 2001-02 31.10.2001 143(3) - 373/Ahd/2011 2002-03 30/10/2002 143(1) 31/10/2003 352/Ahd/2011 C.O. No.125/Ahd/11 2004-05 31/10/2004 143(1) 31/10/2005 353/Ahd/2011 C.O. No. 126/Ahd/2011 2005-06 490 491/Ahd/2010 2006-07 Devangi Alias Rupa Dipak Panchal 138/Ahd/2011 2001-02 30/07/2001 143(1) 31/07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble High Court had an occasion to consider the following questions of law: 1. Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is correct in narrowing down the scope of assessment u/s. 153A in respect of completed assessments by holding that only undisclosed income and undisclosed assets detected during search could be brought to tax? 2. Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is correct in law in holding that the scope of Sec. 153A is limited to assessing only search related income, thereby denying Revenue the opportunity of taxing other escaped income, that comes to the notice of the AO.? 3. Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in limiting the scope of Sec. 153A only to undisclosed income when as per the section the AO has to assess the total income of the six assessment years? - and the Hon ble High Court of Bombay finally held as under:- We, therefore, dismiss the Revenue s appeal and answer the substantial question of law against the Revenue and in favour of assessee. 9. Now, the other issue which has to be decided is whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment or reassessment and not assessment orders . The assessment may not be pending even though there is no formal order u/s I43(1)(a). The moment return is filed and acknowledgement or intimation issued, the proceedings initiated by filing the return are closed, unless they are again triggered by issuing notice u/s 143(2) of the IT Act. In the case under consideration, the period for issuing the notice u/s 143(2) elapsed. The process has attained the finality which can only be assailed u/s 148 or 263 of the IT Act. Such proceedings can never be initiated u/s 143(2) when the time period for issuing notice u/s 143(2) has expired. Hon'ble ITAT, Mumbai C Bench in the case of ACIT Vs. Pratibha Industrialist Ltd. reported in 23 ITR Tribunal 766 Mumbai has also held as under :- Although by proceedings initiated under section 153A all six years shall become subject matter of assessment under section 153A the Assessing Officer shall have a free-hand, through abatement, only on the proceedings that are pending, to frame the assessments afresh. But in a case where the proceedings have reached finality, assessment under section 153A read with section 143(3) and certain in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. 11. The aforementioned ratio laid down by the Hon ble High Court of Delhi has been followed by the Hon ble High Court of Delhi in the case of Lata Jain in Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned information/documents have been construed as incriminating material for the impugned assessments under consideration. As is evident, that the IPO transactions relate to 2005 and, therefore, cannot be considered as incriminating material in the assessments prior to that date because in our considered opinion, the incriminating material should be for each assessment year in the block of six assessment years. Since the impugned/alleged incriminating material did not pertain to conclude assessment years namely A.Y. 2000-01 to 2004-05. Our view is also fortified by the decision of the Hon ble High Court of Delhi in the case of Lata Jain in Tax Appeal No. 274 276 of 2016. The relevant portion read as under:- 5. The short point involved is whether the ITAT was correct in concluding that there had to be incriminating material recovered during the search qua the Assessee in each of the years for the purposes of framing an assessment under Section 153 A of the Act? 6. It is not in dispute that in respect of the Respondent Assessee for the AYs in question the initial assessment proceedings took place under Section 143(3) of the Act. Thereafter they were sought to be reopened ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue was decided in favour of the Assessee by Tribunal. In the appeal of Revenue against the order of Tribunal, the order of tribunal was upheld by the Hon'ble High court by holding as under: 6. As regards the gifts, the Tribunal Iclt that it was not necessary to go into the question as in whether the alleged gifts were genuine or represented the assessee's own money sought to be laundered by way of NRI gifts. The Tribunal noted that the fact of the matter was that no incriminating material was found during the course of search to indicate that the assessee's claim of gifts was not genuine. During the course of search, only affidavits and gift deeds were found. The Tribunal observed that the very documents on which the assessee relied to base his claim on the said gifts were found during the course of search and that it was not the case of the Department that but for the search, the claim of the gifts would not have been raised by the assessee. The Tribunal concluded that it could not be said that the gifts have been unearthed as a result of a search under section 132 of the Income-tax Act, 1961, only. The documents found during the course of search were the records ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number of transactions by the same persons. (c) Utilization of borrowed funds for purchase of shares. 19. In so far as the length of the period of ownership is concerned, the law itself provides that shares held for less than 12 months will give rise to short term capital gain/loss and shares held for more than 12 months will give rise to long term capital gain/loss. The following charts will explain the percentage of scripts transacted during the year qua the number of days in stock exchange which total number of working days of stock exchange.- (1) (ii) Charts showing percentage of scripts traded during year. DIPAK J PANCHAL % OF SCRIPS TRADED DURING YEAR TO TOTAL SCRIPS A.Y. No. of Scrips at opening of year No. of new Scrips purchased Total No. of Scrips No. of Scrips transacted during the year No. of Scrips not transacted during the year 2000-01 122 12 134 13 121 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 3 5 500 1.00 2003-04 1 14 15 500 3.00 2004-05 0 9 9 500 1.80 DIPAK J PANCHAL Calculation of % of No. of Days Transacted in Stock Exchange to Total No. of Working Days A.Y. No. of Days of Market Purchase No. of Days of Market sale Total No. of Transacted Days Minimum Working Days on BSE NSE % of Transacted Days to Working Days 2005-06 0 12 12 500 2.40 2006-07 0 10 10 500 2.00 (2) (iv) Charts showing percentage of scripts traded during year. DEVANGI D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Days Transacted in Stock Exchange to Total No. of Working Days A.Y. No. of Days of Market Purchase No. of Days of Market sale Total No. of Transacted Days Minimum Working Days on BSE NSE % of Transacted Days to Working Days 2000-01 1 8 9 500 1.80 2001-02 1 2 3 500 0.60 2002-03 5 8 13 500 2.60 2003-04 2 8 10 500 2.00 2004-05 5 24 29 500 5.80 DEVANGI D PANCHAL Calculation of % of No. of Days Transacted in Stock Exchange to Total No. of Worki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Scrips not transacted during the year 2205-06 93 5 98 29 69 2006-07 77 4 81 28 53 2007-08 47 0 47 1 46 Total 217 9 226 58 168 (iv) Chart showing percentage of No. of days transacted in stock exchange with total no. of working days of stock exchange. DIPAK J PANCHAL HUF Calculation of % of No. of Days Transacted in Stock Exchange to Total No. of Working Days A.Y. No. of Days of Market Purchase No. of Days of Market sale Total No. of Transacted Days Minimum Working Days on BSE NSE % of Transacted Days to Working Days ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso been considered by the CBDT in its Circular No. 4/2007 dt. 15.6.2007, has observed that: Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is -within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment 21. The CBDT has further thrown light on this controversial issue in its Circular No. 6/2016 dated 29.02.2016 and the same reads as under:- Sub: Issue of taxability of surplus on sale of shares and securities Capital Gains or Business Income - Instructions in order to reduce litigation - reg.- Sub-section (14) of Section 2 of the income-tax Act, 1961 ('Act') defines the term capital asset to include property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade or personal assets subject to certain exceptions. As regards shares and other securities, the same can be held eithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is regard in subsequent years; c) In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT. 4. It is, however, clarified that the above shall not apply in respect of such transactions in shares/securities where the genuineness of the transaction itself is questionable, such as bogus claims of Long Term Capital Gain/Short Term Capital Loss or any other sham transactions. 5. It is reiterated that the above principles have been formulated with the sole objective of reducing litigation and maintaining consistency in approach on the issue of treatment of income derived from transfer of shares and securities. All the relevant provisions of the Act shall continue to apply on the transactions involving transfer of shares and securities. 22. Considering the facts in hand, in the light of the aforementioned circular of the Board and the charts exhibited hereinabove, in our considered opinion, the intention of the assessee at the time of the purchase of shares is paramount. If the assessee has clear intention of being an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence with the Revenue to establish the nexus. The moment a cartel is being formed by number of persons to carry out an activity in an organized manner with profit motive and the activity is akin to business or trade as defined in section 2(13) of the Income Tax Act, then the arguments raised by the Id. counsel for the assessee would not stand. But the AO has neither recorded statement of the assessee nor collected any material which can demonstrate that the assessee has colluded with Smt.Rupal Naresh Panchai and Sugandh Estate and Investment Pvt. Ltd. in a manner that would indicate that shares were acquired for the purpose of trade. Such nexus has not been established. The observation of the CIT(A) is only inferential without any concrete material in the possession of the AO. Therefore, in our opinion, the activity of the assessee by virtue of mode of acquisition of shares cannot be segregated into two parts. The Id. CIT(A) has erred in creating an artificial distinction only on the basis of mode of acquisition. We allow the appeal of the assessee and direct the AO to tax the surplus on sale of shares under the head short/term capital/long term capital instead of business in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oves her to be only a prudent investor instead of a trader. There is no evidence in this case file demonstrating the assessee to be engaged in any organized activity of share trading. No evidence of any repetition of her share transactions in the impugned assessment year or reinvestment of the capital gain is forthcoming. She has also been maintaining stock portfolio qua some of her share investments (supra). These profits from sale of shares have arisen from the shares not forming part of her stock. All the assessee had done is to sell the shares in a period of less than three months. Rather one scrip has been sold within three days in the former assessment year. And in a similar span of holding period in the latter assessment year wherein she purchased IDFC, IL FS shares on 8.8,2005 and 20.7.2005 and sold them on 18.8.2005 for profits of ₹ 11,23,961/-. The case file reveals that the assessee in Vaihhav Shah ease had entered into 64 sale transaction in 27 scrips and 17 sale transactions in 11 scrips in two consecutive assessment years which had been held to have resulted in capital gains instead of business income. A co-ordinate bench in identical case of Hitesh Doshi 46 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2431980.00 17-052004 1250340.00 -1181640.00 GA1L 88372 24-03-2004 16370913.00 17-052004 8969758.00 -7401155.00 GAIL 45352 24-03-2004 8424134.00 17-05-2004 4603228.00 -3820906.00 ONGC 11560 29-03-2004 8242280.00 17-052004 5907160.00 -2335120.00 -14738821.00 28. The A.O has denied the set off of loss for the following reasons:- 2.17.1 On going through the statement of demat account No. 11933458, it is noted that 13740 shares of TV Today have been credited on 13.04.2004 as against the purchase on 20.01.2004 and debited on 06.12.2004 as against the sale on 17.05.2004. Thus, the delivery of the shares have n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and hence have no evidentiary value in the absence of any other corroborative evidence. Reliance is placed on the ratio laid down in the case of Durga Prasad More 82 ITR 540 (SC). On the facts and circumstances of the case, it is clearly established that the assessee has conveniently prepared the purchase bills on the dates when the price of share was high and sale bills when the price was low with predetermined motives to generate loss. (vii) The transactions, in fact is collusive deal in which the assessee without actually paying any amount through the bank has claimed loss by simple book entries. This loss is a contrived loss. Thus, the loss booked by the assessee is categorically a paper entry which cannot be allowed because the same is a sham and fake. With regard to the bills issued by the proprietory concern of the assessee's husband for purchase and sale of shares on which the assessee relies, the onus lies on the assessee to establish the correctness of those bills. This can be proved either by furnishing the evidence indicating that the transactions have been routed through the stock exchange and/or the exchange of shares/monies have taken place on the dates of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment are allowed and those of the Revenue are dismissed. 33. Now coming to the appeals of the assessee filed in respect of the penalty levied u/s. 271(1)(c) of the Act in IT(SS)A Nos. 396 to 399/Ahd/2012 referred to elsewhere. Since, we have directed the A.O to treat the surplus on sale of shares under the head capital gains and since, we have directed the A.O to allow the set off of losses against the gains, there remains nothing for the levy of penalty u/s. 271(1)(c) of the Act. Sublato Fundamento Credit Opus -meaning in the case the foundation is removed, the superstructure falls. 34. In the result, the A.O is directed to delete the Penalty levied u/s. 271(1)(c) of the Act. 35. For the sake of completeness, if the head of income is changed the penalty cannot be levied as held by the Hon ble High Court of Delhi in the case of Amit Jain 33 Taxmann.com 178. The decision of the Hon ble Court read as under:- 1. The question of law sought to be urged by the Revenue in this appeal against the order dated February 16, 2012, of the Income-tax Appellate Tribunal in I.T.A. No. 5596/Del./2011 is whether the Tribunal fell into error in directing the deletion of the penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X
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