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M/s. Ganeshmull Bijay Singh Baid (HUF) And Mr. Basant Kumar Baid Versus DCIT, Central Circle-XXVII, Kolkata

2015 (12) TMI 1711 - ITAT KOLKATA

Bogus long term capital gains - unexplained cash credit u/s 68 - Held that:- The action u/s 68 of the Act has been taken merely on the basis of the statement of the third party. We find that the assessee's have duly proved the identity, creditworthiness and genuineness of the broker from whom the sale proceeds of shares were received by the assesses and hence the resultant long term capital gains thereon cannot be doubted with. Hence there is no scope for making any addition u/s 68 of the Act in .....

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nder appeal for all the assesses before us is Asst Year 2005-06 and hence the Learned AO erred in invoking Rule 8D of the Rules for making disallowance u/s 14A of the Act. In the absence of these factual findings, AO cannot straight away resort to make disallowance u/s 14A of the Act and hence the addition made on this account for all the assesses are deleted. Accordingly, the grounds raised by all the assesses in this regard are allowed. - ITA No. 544/Kol/2013, ITA Nos. 546/Kol/2013 ITA No. 547 .....

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CCXXVII/ CIT(A)C-II/08-09 dated 4.1.2013 for AY 2005-06 in the case of Basant Kumar Baid ; Appeal No. 193/CC-XXVII/CIT(A)C-II/08-09 dated 4.1.2013 for AY 2005-06 in the case of Bijoy Singh Baid (since deceased) rep. by Legal Heir Basant Kumar Baid and Appeal No. 194/CC-XXVII/CIT(A)C-II/08-09 dated 4.1.2013 for AY 2005- 06 in the case of Ganeshmull Bijoy Singh Baid (HUF). 2. The first issue to be decided in these appeals is that whether the assessee had paid cash money to Shri. Narendra Shyamsukh .....

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g term capital gains from transactions in shares of M/s Continental Fiscal Management Limited and M/s Swastik Securities & Finance Ltd. There was a search and seizure operation u/s 132 of the Act conducted in the premises of one Shri Narendra Kumar Shyamsukha on 24.10.2006 wherein inter alia various incriminating materials were found and seized. One such seized document vide page numbers 7 to 10 of the loose paper bunch marked as NKS /3 seized from his premises revealed certain notings regar .....

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of the intermediary to facilitate the bogus transactions and had, in turn, earned a commission of 1% of the said amount. The calculation of commission income was also recorded on the seized documents. The seized paper No. 7 & 8 of NKS / 3 contained details in tabular form having date, name, broker name, number of shares, cheque and cash paid. The pages No. 9 & 10 of NKS /3 contained details like the party name, script name, quantity purchased and amount, sale amount and profit on sale. .....

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return of income including the assessee. Therefore, in the course of re-assessment proceedings, the Learned AO asked the assessee to explain as to why the transactions of long term capital gain shown in the return of income should not be treated as bogus and the addition is made u/s 68 of the Act. It was pleaded before the Learned AO that the assessee had disclosed long term capital gain on sale of shares of Continental Fiscal Management Limited and Swastik Securities and Finance Limited. These .....

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eaded that merely on the basis of his statement, the transactions should not be termed as bogus. In the course of re-assessment proceedings, the assessee has filed all the documentary evidences which were not disputed by him. The Learned AO disbelieved the version of the assessee and made the addition u/s 68 of the Act in respect of sale consideration received by the respective assesses by making the following observations:- The documents on which the assesee have relied upon only speaks about t .....

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erefore, add the entire alleged L.T.C.G. as unexplained cash credit u/s 68 of the IT Act, 1961. 2.2. On first appeal, the Learned CITA dismissed the ground raised by the assessee and confirmed the addition made by the Learned AO. Aggrieved, the assessee is in appeal before us . The grounds raised in the case of Ganeshmull Bijoy Singh Baid (HUF) alone are reproduced herein below as the same grounds are raised for other assesses also except with change in figures :- 1. The orders passed by the low .....

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spite of the complete denial by the appellant and also the concerned broker in this regard and also presence of all the relevant papers and documents establishing the genuineness of the transqactions in the shares concerned. 2(b) In arriving at his conclusion that the appellant had purchased bogus capital gains by paying cash money to Shri Narendra Shyamsukha in the year corresponding to AY 2005-0-6 the learned CIT(A) completely neglected to take into account the fact that the relevant shares h .....

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a whereas the sale transactions were actually through a different broker viz. Ahila Commercial P.Ltd. 2(d) In arriving at his conclusion that the appellant had purchased bogus capital gains by paying cash money to Shri Narendra Shyamsukha, the learned CIT(A) gloss over the facts that although Shri Narendra Shyamsukha had mentioned the name of another intermediary, viz. Sureskh Kumar . However, neither the seized papers showed that name nor even the AO had conducted any enquiry from the said inte .....

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f receipt of cash money. 2(f) On the facts and in the circumstances of the case, the learned CIT(A) erred in invoking the provisions of Section 292C of the Income-tax Act, 1961, in raising presumption in respect of recordings in documents seized from the premises of a third party viz. Shri Narendra Shyamsukha, in the unrelated case of the appellant. 2(g) On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the addition of rs.14,02,678/- made u/s. 68 of the Ac .....

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denial by the assessee and also the concerned stock broker in this regard and also presence of all the relevant papers and documents establishing the genuineness of the transaction in shares concerned. The assessees also submitted in support of their transactions with the aforementioned companies viz Continental Fiscal Management Limited and Swastik Securities & Finance Limited which were done through a registered share broker of the Kolkata Stock Exchange, the following documents were subm .....

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that the assessees have converted their cash into cheque by way of trading in shares and raising bogus LTCG on the basis of documents found from the possession of a third person, is, in fact, avoiding the valid documents already placed on record without assigning any reason, whatsoever. The Learned AO/ Learned CIT(A) have not brought any evidence on record to falsify the claim of the assessee or that the share transactions were bogus. He argued that the contents of the seized documents vide ref .....

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the transactions of shares in his returns, the assesses are in no manner concerned with such disclosure and no adverse inference could be drawn against the assesses for such disclosure of commission income by a third party. He further argued that since the seized documents were not found in the premises of the assesses, there is no onus on them to disprove the claim of Shri Narendra Kumar Shyamsukha that the transactions of long term capital gains listed in the seized documents are bogus. He fur .....

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be attached to the statement given by Shri Narendra Kumar Shyamsukha. He further argued that even during the course of cross examination proceedings, Shri Narendra Kumar Shyamsukha could not prove that the assesses had paid any cash to him or any other person. 2.4. In response to this, the Learned DR vehemently supported the orders of the lower authorities. 2.5. We have heard the rival submissions and perused the materials available on record. We find lot of force in the arguments of the Learne .....

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ker, through whom the transactions of sale of shares that gave led to long term capital gains, was also examined by the revenue and he also had denied knowing Shri Narendra Kumar Shyamsukha. There is absolutely no direct evidence that is brought on record that the assesses indeed had paid any cash to Shri Narendra Kumar Shyamsukha or to any other person with an intention to launder their cash for converting into cheque in the guise of long term capital gains. We find that even during the course .....

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e documentary and circumstantial evidences that the appellant had paid cash to obtain entry of long term capital gain. It is an open secret that during the Financial Years 2002-03 , 2003-04 and 2004-05 etc. the practice of taking accommodation entries of long term capital gain was rampant in Kolkata. Thus, the documents seized from the possession of Shri Narendra Shyamsukha cannot be ignored or cannot be treated as waste pieces of paper. We hold that the above observations only goes to prove tha .....

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the seized documents were not found in the premises of the assesses, there is no onus on them to disprove the claim of Shri Narendra Kumar Shyamsukha that the transactions of long term capital gains listed in the seized documents are bogus. 2.5.3. We find that the presumption u/s 292C of the Act would have to be applied only in the hands of Shri Narendra Kumar Shyamsukha in the facts and circumstances of this case . Strangely we find that no addition has been made in the hands of Shri Narendra .....

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ein it was held that : the books and documents on which the department relied upon solely were not found from the premises of the assessee. No involvement of the assessee with such books has been established in any way like the assessee himself writing the books etc. therefore, there would be no onus on the part of the assessee to disprove the genuineness of recitals in the aforesaid seized books. Burden of proving lies fully with the department to show beyond doubt that the receipts of the two .....

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de the address of Suresh Kumar and hence there is no credibility that could be attached to the statement given by Shri Narendra Kumar Shyamsukha. 2.5.5. We find that the director of M/s Ahilya Commercial Pvt Ltd (stock broker) in his deposition u/s 131 of the Act also denied to have known Shri Narendra Kumar Shyamsukha. The seized documents reflect that the share transactions were carried out through the broker Ashika but enquiry from stock exchange revealed that M/s Ahilya Commercial Pvt Ltd wa .....

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us operandi of that broker s trading with his other clients. We hold that as long as the assesses had purchased and sold the shaers through known and accepted procedure, the brokers misdealing with others should not be a criterion to suspect the assessees genuine share transactions and capital gains thereon. Similarly we hold that the assesses have no control over Shri Narendra Kumar Shyamsukha nor is it a matter of their concern in what manner he had maintained his documents and what he records .....

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contract notes evidencing the sale of shares and made payment of sale proceeds to the assesses by account payee cheques. We also find that the revenue had not brought any evidence on record that the documents comprising of purchase bills, contract notes, delivery challans and demat account were found to be false or fabricated. We hold that the transactions cannot be treated as bogus merely on the basis of the statement of Shri Narendra Kumar Shyamsukha, unless some independent enquiry has been .....

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d a hike in the price of these shares, they sold them to make a gain and transaction was again done through their Demat account. We don t find any abnormality or improbability in such a procedure adopted by the assesses. Thus the allegation that the assesses had laundered their cash for conversion into cheque by raising bogus long term capital gains does not hold water in the facts and circumstances of the case. No evidence is brought on record that the entire transactions had been carried out w .....

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amount the same was purchased, when it was sold, for how much amount it was sold and through whom it was sold. Even the broker appeared before the ITO and prayed for time to produce his proper books. It is not the case of the Revenue that the assessee has not maintained the books. The case of the Revenue is that as the broker did not maintain the books and has failed to produce the books, the transaction is not genuine. Once the assessee has discharged its initial burden, no proper steps have b .....

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ion. In view of the above, it cannot be said that the findings of the Tribunal is perverse. When the finding is not perverse, no interference is called for. Hence for the assessee s claim for loss on sale of shares was allowable. 2.5.8. We find that the action u/s 68 of the Act has been taken merely on the basis of the statement of the third party. We find that the assessees have duly proved the identity, creditworthiness and genuineness of the broker from whom the sale proceeds of shares were r .....

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heard the rival contentions and carefully gone through orders of the Tax Authorities Below. I noted the fact in each of the cases, the shares which has been sold by the assessee were brought during the financial year 2002-03 and were shown in the balance sheet as on 31-03-2003 and 31-03-2004. The shares were sold only during the impugned assessment year. The shares were purchased by making the payment through account payee cheque. Similarly, the shares were sold by receiving of the account payee .....

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t account. The assessee filed all the documents and these purchases were made by the assessee through account payee cheque have not been doubted by the Revenue. The action u/s. 68 of the Act has been taken on the basis of the statement of the third party. During the course of search at the premises of Shri Narendra Kumar Shyamsukha no iota of evidence was found which could prove/lead to any inference that assessee had paid cash to Shyamsukha or the cheque has been received or paid to the broker .....

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m the broker. I accordingly set aside the order of CIT(A). 7. In the result, all the appeals filed by the respective assessee are allowed. 2.5.10. In view of the aforesaid facts and circumstances and respectfully following the aforesaid judicial precedents relied upon, we have no hesitation in directing the Learned AO to delete the addition made u/s 68 of the Act. Accordingly, the grounds raised by all the assesses in this regard are allowed. 3. The next ground to be decided in these appeals is .....

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