TMI Blog2004 (2) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,000, ornaments of Rs. 53,487 and share certificates of about Rs. 10 lakhs, were seized. The addition for cash and ornaments has been made in assessment year 1993-94 only and the other additions regarding the investments in shares, dividend income have been made in all the years. In the search proceedings, 10 bank accounts were found in the names of different persons but all these were operated by the assessee for purchase of shares etc. During the course of search, the assessee made a disclosure of investment in shares for Rs. 10 lakhs which was ultimately enhanced at Rs. 14,93,491. It was further considered that the market value shown above, is not to be considered for assessment purpose. The cost of acquisition of shares of Rs. 5,41,740 was considered for assessment purpose in all the four years. The assessee also mentioned that he was operating 10 benami bank accounts and the deposits in these banks and also the investments in shares through these banks, was admitted. The assessee, however, claimed that he is having a HUF by the name of M/s. Ramanlaa Revabhai, having 17.2 acres (30 bighas) of agricultural land. This HUF is being assessed by the Income-tax Officer, Ward-8(4), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income has also been shown and the withdrawal which is much higher than regular household expenses is also disclosed. The ld. CIT(A) was therefore correct in stating that the investment in shares is to be treated as explained. 2.4 We have carefully considered the rival submissions and the relevant facts of the case. The CIT(A) while dealing with the issue held as under:- "I have considered the facts and I find that there is no dispute regarding the existence of the HUF and also for the agricultural income of the HUF. It is in existence since number of years and the returns for the assessment years 1990-91, 1991-92 1992-93, were already filed before the search operation. The income was accepted and the household withdrawals and the investment, were also disclosed. The specific details of investment in shares with the names of the companies, however were not filed. I also find that there is no bank account of the HUF and, therefore, it was not possible to produce such details before the Assessing Officer. The HUF transactions in shares are in cash only. The transactions in bank account have been made in individual capacity from 10 benami bank accounts, operated by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of cash found during the search. While explaining the source of cash found and answer to question No. 14 it was stated to be out of unaccounted income from cloth business. The Assessing Officer therefore treated it as unexplained and taxed the same, though the assessee explained during the course of assessment proceedings that the amount was withdrawn from the firm M/s. Krishna Exclusive in which he is a partner. The amount was withdrawn on 15-2-1993, a day before the date of search. The copy of account was also filed showing the withdrawal by the firm and a certificate was issued by the firm confirming the same. The learned Assessing Officer will choose to tax the same as the assessee agreed for the same during search proceedings and similar explanation was not filed in 132(4) statement. The ld. CIT(A) deleted the addition on the ground that the entry in regular books of account has not been denied by the Assessing Officer and hence the cash is to be treated as explained. 4.1 Whereas the learned D.R. Shri RC. Gupta relied upon the assessment order, the learned counsel for assessee relied upon the order of ld. CIT(A). 4.2 On careful consideration of relevant facts of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jewelleries received at the time of marriage from parents and in laws within the said limits it is to be treated as explained. Though the Instruction speaks of not seizing the same, the extended meaning of the same shows the intention that the jewellery is to be treated as explained one and is not to be treated as unexplained for the purpose of Income-tax Act. Even on merits of the case, the assessee has explained the source of jewellery by filing necessary affidavit of the father-in-law giving the jewellery in gift. We, therefore, do not find any merit in this ground of appeal. Accordingly the same is dismissed. 6. The next ground of appeal is against deletion of addition of Rs. 11,16,150 as unexplained investment in shares claimed by the assessee to have been made out of the HUF sources. 6.1 The search took place on 16-2-1993. At that time the financial year has not ended. The time limit to file the return of income has not expired. Shri Rameshchandra Ramanlal Patel HUF filed its return of income on 23-2-1994 showing the investment in shares found during the course of search. The return has been accepted by the revenue authorities. The assessee has shown sizable agricultural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is a strong belief that earlier transactions are fishy and loss claimed is fictitious. The ld. CIT(A) considered the relevant proof by way of bills contract notice and payment details etc. allowed the claim and held as under:- "I have considered the facts and I find that the transactions were incurred through the brokers appointed by the Government of India. Both the brokers have confirmed the transactions and a copy of transfer memo, payment, delivery etc. have been filed. The assessee has also filed a copy of the Bank account to prove the payment for purchase of shares and the receipt in the bank account. The shares of both the companies are quoted in the stock exchange and the rate of transactions is verified from the quotations. There is no evidence with the Assessing Officer found in the search, to show that these were not genuine transactions. I, therefore, hold that the claim of the loss is genuine and the assessee is entitled for short term loss of Rs. 3,48,300 in this year." 7.3 The ld. DR strongly objected the action of ld. CIT(A). It was submitted that all the entries are subsequent to the search proceedings and are made belief transaction to avoid taxes payable o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd sale of shares. The share brokers have raised bills for the same. The assessee has made payments in full for purchase of shares. The delivery is effected. The transactions are at market price, the fact is not denied. In such a situation to hold that only because the payment is made even subsequent to the contract for sale, the transaction is a colourable device is purely on surmises and contrary to the facts. The assessee has discharged the onus of proving the genuineness of transaction. The assessee cannot be said to be controlling the records of the brokers. Only because the brokers could not produce certain materials called by the Assessing Officer or could not appear in person is not a valid ground for holding the transaction as bogus or colourable device. The assessee has actually incurred the loss. Thus it is not a fictitious loss. Both the brokers have confirmed the transaction as per bills and contract note raised by them. Thus valid transaction in sale and purchase of shares have taken place. The loss incurred on such transaction is therefore allowable. We, therefore, do not find any infirmity in the order of ld. CIT(A). This ground of appeal is accordingly dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o question No. 46, it is mentioned as invested in house and furniture, in fact there is no addition in the house as proved by the valuation report furnished before the Assessing Officer. In respect of household articles and furniture found during the course of search as per Annexure 5 it consists of items of meagre value and not a substantial as Rs. 2 lakhs. He, therefore, pleaded that addition of Rs. 2 lakhs be deleted. 9.5 The ld. DR supported the orders of authorities below. It was submitted that statement made during the course of search cannot be retracted, but for the cogent reason for the same. For this purpose, he relied upon the decision reported in V. Kunhambu Sons v. CIT [1996] 219 ITR 235 (Ker.). 9.6 In reply Shri Pipara submitted that the admission was on purely towards household articles and not renovation. This fact is proved as per the list of articles found during search. 9.7 We have carefully considered the rival submissions, the relevant facts and the orders of authorities below. The assessee has proved by furnishing valuation report in respect of house property that there IS no major renovation of the house during the relevant financial year. The value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was conducted at the residential premises of the assessee on 16-2-1993. During the course of search, cash amount of Rs. 10,000, ornament of Rs. 53,487 and share certificates of about Rs. 10 lakhs were seized. In the search proceedings, 10 bank accounts were found in the names of different persons but all these were operated by the assessee for purchase of shares etc. During the course of search, statement on oath under section 132(4) was recorded on 16-2-1993 and in reply to question Nos. 45 46, the assessee made a disclosure of Rs. 25 lakhs. Both the questions and reply of the assessee is reproduced hereunder:- "45. I am explaining you the Explanation S of section 271(1)(c) of the Income-tax Act. After understanding the provisions accordingly, whether you want to disclose voluntarily and your undisclosed income? Ans: 45: Yes. Sir, I understood the Explanations of section 271(1)(c) of the Income-tax Act as explained by you and I want to take the benefit by disclosing my undisclosed income and I want to declare the following income. I declare unaccounted income of Rs 25,00,000 earned from the business of sale and purchase of shares which is not shown in current years books and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have called for the details in respect of the so called share transactions. The sequence of these dealings are as follows: ------------------------------------------------------------------------------ Purchase and sale of 1300 IPCL Purchase Sale of ICICI shares through Adinath Investment 400 through Jagdish P. Patel Prop. ------------------------------------------------------------------------------ 1. Date of contract 02.11.1992 12.02.1993 for purchase 2. Date of delivery 01.03.1993 27.02.1993 of shares 3. Date of payment 23.03.1993/3,56,200 10.03.1993/2,00,000 17.03.1993/2,00,000 " /1,55,200 ------------- 5,55,200 ------------- 4. Dt. of contract 04.03.1993 05.03.1993 for sale 5. Dt. of delivery of 22.03.1993 06.03.1993 sold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt of payment for the sale of shares on 26-3-1993 is a strange affair. The gap is only for 3 days. The assessee is also unable to furnish the details of distinctive numbers of shares purchased and sold. Under these circumstances, the alleged loss in the purchase and sale of shares is a colourful device to siphon off the income declared by the assessee as bogus transaction. With regard to the purchase and sale of shares of ICICI through Shri Jagdish P. Patel, the assessee has not furnished the copy of contract form, delivery memo, and the distinctive numbers of shares purchased and sold. A Xerox copy of purchase memo in respect of ICICI shares have been filed. Summons under section 131 have been served on 25-1-1995, calling for the books of account, bank accounts, contract form, sauda vahi etc. on 2-2-1995 but, on the appointed date, the alleged broker did not turn up. Therefore, the assessee has been informed on 7-2-1995 that Shri Jagdish Patel, the alleged broker has not present in response to summon. He should, therefore, produce the broker on 9-2-1995 at 10AM when the assessee should also present. But on 9-2-1995, the assessee has not produced the broker not the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere purchased vide contract note dated 2-11-1992. The ld. DR submitted that it is unbelievable that assessee has sold 1300 shares of IPCL from the same broker on 4-3-1993 from whom he purchased the shares on 2-11-1992 and thereafter on 23-3-1993 he has made the payment of purchase price though he could have only paid the difference i.e., amount of loss of Rs. 2,17,100. The shares of IPCL were specified shares and in the absence of evidence of delivery, the assessee has incurred "speculative loss" which is not allowable as provided in section 73 of I.T. Act. The ld. DR further submitted that in respect of shares of ICICI also the assessee has not furnished the copy of contract form, delivery memo and distinctive number of shares purchased and sold. In this case also assessee claimed that payment to broker was made on 10-3-1993 and 17-3-1993 whereas shares were sold through same broker on 5/6th March, 1993. The payment was received on 17-3-1993, 22-3-1993. In this case also instead of making the payment of entire purchase price, the assessee could have paid the difference i.e., Rs. 1,31,200 only. The ld. DR concluded that the alleged loss on the purchase and sale of shares is a colou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eged to be purchased and claimed to be delivered after the date of search i.e., 16-2-1993. In these circumstances, in my opinion, Assessing Officer is fully justified in taking the view that the alleged loss in purchase and sale of shares is a colourful device to siphon off the income declared by the assessee during the course of search. 19. Without prejudice to above, in my opinion the loss in question is speculative business loss because assessee has not produced evidence of delivery i.e., Dist. No learned Counsel for the assessee Cert. No before departmental authorities below or even before us. Explanation 2 to section 28 clearly states that speculative transactions carried on by an assessee are of such a nature as to constitute the business, the "speculation business" which shall be deemed to be distinct and separate from any other business. Section 43(5) defines "speculative transaction". Since there is no proof of delivery and transaction is in question are not hedging transactions covered by exception to section 43(5) of the I.T. Act, I am of the firm opinion that both the transactions which resulted in loss of Rs. 3,48,300 are speculative transaction. Moreover, section 73 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45, Juhu Park House at Nawa Wadaj, Ahmedabad in Ans. to Q. No.7 of the statement of the assessee dated 16-2-1993 in which it is clearly admitted that he has made investment in the renovation, furniture and purchase of T.V. for Rs. 2 lakhs. In Q. No. 46 the assessee has made disclosure for Rs. 25 lakhs which includes investment in the renovation and furniture for Rs. 2 lakhs. The assessee has retracted from the disclosure of Rs. 2 lakhs on the grounds that the house at 45 Juhu Park Society, Nawa Wadaj, Ahmedabad belongs to Ramanlal Revabhai, HUF, which is separately assessed to tax with ITO, Ward 8(4), Ahmedabad. No investment has been made by him. The assessee has furnished 2 different reports of the same date in respect of valuation as on 1-10-1987 when the construction of this property was completed for Rs. 2,08,000 including the cost of land at Rs. 25,000 and furniture at Rs. 35,000. The second report dated 31-3-1993 is for a valuation for Rs. 3,27,500, which includes additions and alterations made for Rs. 40,000 during the assessment year 1993-94 and increased in the value of existing house by Rs. 79,494 on account of increase in cost of the existing structure. From these two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ramanbhai R. Patel, HUF. He accordingly claimed that addition which can be made is only for Rs. 12,500. 26. On the other hand, learned departmental representative appeared for the revenue supported the orders of authorities below. He relied on the judgment of Hon'ble Kerala High Court in the case of V. Kunhambu Sons and contended that in case of retraction the onus is on the ssessee that statement was recorded by the search party under threat and coercion. Two independent witness were present at the time of recording of statement. Assessee had not obtained any statement or affidavit from them. He further submitted that disclosure of Rs. 2,00,000 was made in respect of purchase of furniture, house hold goods etc. in assessee's house. Before the search party, in reply to question No. 27, that assessee has stated that his monthly expe9-diture is Rs. 4,00Q. In reply to Q. Nos. 28 29, the assessee had admitted that telephone bills are paid by HUF out of agricultural income. The ld. DR further drew attention of Bench to the assessment order for the assessment years 1990-91 to 1992-93 wherein addition of Rs. 19,580, Rs. 40,400 and Rs. 57,957 respectively made by Assessing Officer, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by my learned Brother. 29. In the result, the appeal of revenue for the assessment years 1990-91 to 1992-93 are dismissed. The appeal of the assessee for the assessment year 1993.94 is also dismissed. The appeal of revenue for the assessment year 1993-94 is partly allowed. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 As there is a difference of opinion, the matter is being referred to the Hon'ble President of ITAT with a request that the following questions may be referred to a Third Member or pass such orders as the Hon'ble President may kindly decide: ITA No. 5228/A/95-A.Y. 1993-94 "Whether on the facts and circumstances of the case, the Accountant Member is justified in upholding the order of CIT(A) allowing the short term capital loss of Rs. 3,48,300 or Judicial Member is justified in reversing the order of ld. CIT(A) on this issue for the assessment year 1993-94?" ITA No. 4646/A/95-A.Y. 1993-94 "Whether on the facts and circumstances of the case, the Accountant Member is justified in reducing the addition of Rs. 2 lakhs to Rs. 12,500 or Judicial Member is justified in upholding the order of ld. CIT(A) confirming the addition of Rs. 2,00,0007" T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isclose income and out of that shares some shares has been purchased from market directly and some shares allotted through application. I declare this amount subject to any difference in share valuation and if there is any change in share valuation, I give my consent thereto accordingly. I declare the above Rs. 25,00,000 as undisclosed income in equal shares in the names of myself Rameshbhai Ramanlal Patel, my wife Naynaben Rameshbhai Patel, my father Ramanlal Revabhai Patel and my mother Rajiben Ramanlal Patel. I will accept the whole disclosure in my name and my wife's name if it is not agreed by them and I agree to pay tax thereon." 3. The assessee, however, filed a return of income declaring total loss of Rs. 1,06,510 and on scrutiny of the aforesaid income, the Assessing Officer inter alia noticed that the assessee had claimed a loss on shares amounting to Rs. 3,48,300 and held the same to be fictitious loss to siphon off the income declared as bogus transactions. He also noticed that a sum of Rs. 2 lakhs which was stated to be the investment in house and furniture out of the undisclosed income of Rs. 25 lakhs was not disclosed in the return of income even though the said in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and sale of shares were alleged to have been routed through. His Inspector reported that the concern Adinath Investment was not found available and on enquiry it was reported that the said party had closed the business and its whereabouts were not known. The Assessing Officer, therefore, asked the assessee to produce the party for interrogation along with his books of account, bank accounts, contract form book, delivery note book, sale book relating to the sale of shares, etc. Though Shri Bhagchand Jain, the proprietor of Adinath Investment was produced and his statement was recorded but he did not produce any books of account or contract form book, delivery book, sale contracts form book and Sauda Vahi which were called for. The Assessing Officer, therefore, observed that mere admission by the broker that he has purchased the shares and sold the shares on behalf of the assessee was meaningless. He further observed that Shri Bhagchand Jain could not fell from whom the shares were purchased on behalf of the assessee and to whom the shares were sold on his behalf. The distinctive numbers were also not available on the delivery form, a copy of which was furnished by the assessee; no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee bad also filed a copy of the bank account to prove the payment for purchase of shares and the receipt in the bank account; that the shares of both the companies were quoted in the stock exchange and the rate of transactions was verified from the quotation and that there was no evidence with the Assessing Officer which was found in the search to show that these were not genuine transactions. 7. When the matter came up before the Tribunal there struck a difference of opinion between the two Members. The Accountant Member held that the loss incurred in these transactions was allowable and there was no infirmity in the order of the CIT(A) by observing that the assessee was found to be carrying on several transactions in shares as per seized material found during the search - that one of which was treated to be the contract note for purchase of shares of IPCL; that from the details of the transactions it was seen that the assessee had entered into valid contract for purchase and sale of shares; that brokers have raised bills for the same; that the assessee had made payments in full for purchase of shares; and that the delivery was effected; that the transactions were at market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided the distinctive numbers/share certificate numbers of IPCL and ICICI alleged to be purchased and claimed to have delivered after the date of search. He, therefore, formed an opinion that the Assessing Officer was fully justified in taking the view/that the alleged loss in the purchase and sale of shares was a colourable device to siphon off the income declared by the assessee during the course of the search. He gave an additional finding also stating that the assessee has not produced evidence of delivery i.e., distinctive numbers and certificate numbers before the departmental authorities or even before the Tribunal and, therefore, it was a speculation loss not allowable to be set off against his income except against profits and gains if any of any other speculation business. 8. The arguments and submissions of the parties were heard and considered. The transactions of shares were through middlemen. They were not for spot delivery. Both the transactions of purchases were stated to be before the date of search on 16-2-1993, namely 1,300 shares of IPCL by contract dated 2-11-1992 and 400 shares of ICICI by contract dated 12-7-1993. Neither of the contract note or document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gives an impression of a contract having been entered into on 12-2-1993. No copy of the said contract is filed. The identity of this person thus cannot be said to have been proved on account of his absence to appear. Documents submitted are not sufficient to prove the transaction. 11. The delivery period for settlement is normally 15 days but the transaction remained unsettled for a longer period i.e., in case of IPCL shares for almost about 4 months - contract is dated 2-11-1992, delivery of shares on 1-3-1993 for purchases and after 18 days for sale by contract dated 4-3-1993 and delivery on 22-3-1993. It could be because he was not the broker but a sub-broker and not entitled to transact business of sale and purchase of shares except for spot delivery. 12. No details of the distinctive numbers or share scrip numbers were given either for the purchase or sale of these shares of IPCL and ICICI. The contract note and the documents filed though contained a column for distinctive numbers but they were left blank. 13. The payment for the purchase in IPCL shares was made even after 22 days of the stated delivery i.e., 4 months and 22 days from the date of the contract for purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 2 lakhs which is evident from the portion extracted above. The said declaration of Rs. 25 lacs was in response to Explanation 5to section 271(1)(c) by the authorised officer to the assessee. The said question No. 46 and answer thereto are as under:- "Q. 45 I am explaining you the Explanation 5 of section 271(1)(c) of the Income-tax Act. After understanding the provisions accordingly, whether you want to disclose voluntarily any your undisclosed income? Ans. Yes, Sir, I understand the Explanation 5 of section 271(1)(c) of the Income-tax Act as explained by you and I want to take the benefit by disclosing my undisclosed income and I want to declare the following income. I declare unaccounted income of Rs. 25,00,000 earned from the business of sale and purchase of shares which is not shown in current years books and I am agree to request the whole tax on this income. And I pray that I should get relief from penalty and prosecution proceedings. This income is my current year's income and I earned it from business of sale and purchase of shares." 17. In the assessment proceedings, however, the assessee retracted from the disclosure of Rs. 2 lakhs by stating that the said h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the assessee had proved by furnishing valuation report in respect of the house property that there was no major renovation of the house during the relevant financial year; that the value of the household articles found as narrated in Annexure-V of Panchnama prepared during the course of search, values around Rs. 47,500 out of which the value of wooden cup boards and fixtures valuing Rs. 35,000 was shown in the balance sheet of the HUF which was filed prior to the date of search. According to him, therefore, the only question was whether the assessee could retract from the statement given during the course of search. According to him, the assessee had stated that disclosure was towards investment in furniture and household goods only and there was no disclosure in respect of investment in renovation of the house or house property and even no material was found which suggested that any renovation in the house was carried out during the year. Thus, according to him, the statement if interpreted in proper perspective indicated that no disclosure was made towards investment in renovation of house. He also observed that even otherwise, a statement was made under mistaken facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act." 22. It is true that an assessee has a right to retract but that has to be based on evidence brought on record to the contrary and there must be justifiable reason and material accepting retraction. The cogent and sufficient material has to be placed on record for acceptance or retraction. It is not a case of pressure or coercion having been applied against the assessee. It was a statement in the presence of two witnesses and not an extraction from the assessee. Question No. 45 and answer given thereunder as extracted above clearly demonstrate that the assessee was explained the provisions of Explanation 5to section 271(1)(c) of the Act and upon understanding the provisions he replied and made a declaration of Rs. 25 lakhs stated to have been earned by him out of business of sale and purchase of shares. The assessee has not retracted this portion of the statement namely, the earning part of the income. It is only the utilizaton which is being challenged where the assessee wants to state that it was wrong and not supported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said declaration of Rs. 2 lakhs in answer to question No. 46 which has been extracted above. 23. A dispute is raised by the assessee that the statement does not say or repair and renovation and it was wrongly stated by the Assessing Officer. According to the assessee, the declaration the disclosure was for investment in furniture and household goods. The confusion is because of the free English translation furnished by the assessee. The statement was recorded in Gujarati and answer to question No.7 incorporated is reproduced hereunder in italic alphabets:-- "7. Sonana gharena aashare Rs. 1,00,000 karta vedhare ane aashare Rs. 2,00,000 je main gharma dhurusti, furniture ane TV leva mate kharchel che. Biju kol rokan main karel nathi." It, therefore, specifically says that the expenditure of Rs. 2 lakhs was for "Dhurusti" which means repairs and renovation of the house besides furniture and TV. In my opinion, therefore, the assessee is not right in stating and the Accountant Member is right in accepting that there was no disclosure of repair and renovation included in the said sum of Rs. 2lakhs. The answer to question No. 46 also states "amount invested in house." 24. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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