2005 (12) TMI 457 - AT - Income Tax

Unexplained investment/income u/s 69 - sale proceeds of shares of different companies - purchase of the flat - deduction u/s 54E - HELD THAT - he assessee has purchased the shares of four companies viz. Allan Industrial Gases Ltd. Mobile Telecom Rashee Agrotech and Centil Agrotech during the previous years relevant to the assessment years 1999-2000 and 2000-01. The books of account maintained by the assessee for both the years clearly reflected the purchase of those shares. The shares are reflected in the balance sheets filed by the assessee along with the returns of income for the assessment years 1999-2000 and 2000-01. Therefore it is seen that as a prima facie evidence the purchases of shares have been contemporaneously entered into the books of account of the assessee. From records It is very clear that the investment made by the assessee in shares during the previous periods relevant to the assessment years 1999-2000 and 2000-01 was supported by cash generated out of agricultural income. The above agricultural income have been considered in the respective assessments. Therefore the contention of the assessing authority that the assessee had no sufficient resourcefulness to make investments in the shares is unfounded. 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 by the assessing authority on the communications received from the Stock Exchanges that the particulars of share transactions entered into by the assessee were not available in their records is out of place. There is no evidential value for such reliance placed by the assessing authority. The assessee had made it very clear that the transactions were not concluded on the floor of the Stock Exchange. The matter being so there is no probative value for the 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. We find that the explanations of the assessee seems to have been rejected by the assessing authority more on the ground of presumption than on factual ground. The presumption is so compelling that comparatively a small amount of investment made by the assessee during the previous year period relevant to the assessment years 1999- 2000 and 2000-01 have grown into a very sizable amount ultimately yielding a fabulous sum which was used by the assessee for the purchase of the flat at Colaba. The sequence of the events and ultimate realization of money is quite amazing. That itself is a provocation for the Assessing Officer to jump into a conclusion that the transactions were bogus. But whatever it may be an assessment has to be completed on the basis of records and materials available before the assessing authority. Personal knowledge and excitement on events should not lead the Assessing Officer to a state of affairs where salient evidences are over-looked. In the present case howsoever unbelievable it might be every transaction of the assessee has been accounted documented and supported. Even the evidences collected from the concerned parties have been ultimately turned in favour of the assessee. Therefore it is very difficult to brush aside the contentions of the assessee that he had purchased shares and he had sold shares and ultimately he had purchased a flat utilizing the sale proceeds of those shares. The department has no case that the survey was a staged enactment. A survey is always unexpected. So it is not possible to presume that the assessee had collected certain fabricated documents and kept at his business premises so as to hoodwink the survey party to lead them to believe that the assessee had entered into share transactions. Atleast such an inference is not possible in law. The department has no defence against the forcible argument of the learned counsel that the survey conducted by the department has out and out upheld the contention of the assessee that he had purchased and sold shares. We find that this solitary evidence collected in the course of survey is sufficient to endorse the bona fides of the share transactions made by the assessee. Therefore in short on the basis of the internal evidences available with the assessee and the fact that the sale proceeds were collected through bank accounts and coupled with the external evidence of survey and statement of parties we have to hold that the sale proceeds has been explained. Therefore the said addition is deleted. As we have held that the sum has been explained by the assessee the assessee is entitled for the benefit of section 54E against the purchase of flat at Colaba in accordance with law. The assessing authority is therefore directed to grant the benefit of section 54E to the assessee. Realization of loan outstanding - The assessee has explained the availability of cash necessary for making bank deposits with the help of his accounts and account of copies of the other party along with his confirmation. In these circumstances we find that the addition is not justified. Therefore it is deleted. In result the appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Addition of Rs. 1,41,08,484 as unexplained investment under section 69.
2. Disallowance of deduction under section 54E.
3. Addition of Rs. 6,61,063 as unexplained investment under section 69.
4. Addition of Rs. 2,00,000 as unexplained cash credit under section 68.

Issue-wise Detailed Analysis:

1. Addition of Rs. 1,41,08,484 as unexplained investment under section 69:
The assessee claimed to have purchased shares of certain companies and sold them, resulting in proceeds of Rs. 1,41,08,484, which were used to purchase a flat. The Assessing Officer (AO) disbelieved the transactions, citing reasons such as statements from brokers denying transactions, forged bills, and lack of records in stock exchanges. The CIT(A) upheld the AO's decision, emphasizing the off-market nature of transactions and the greater responsibility on the assessee to prove their genuineness.

The Tribunal, however, found that the assessee had contemporaneously recorded the purchase of shares in his books of account and returns for the relevant years. The investments were supported by agricultural income. The Tribunal noted that off-market transactions are not illegal and that the AO's reliance on stock exchange records was misplaced. Positive statements from brokers like Satish Mandovara and Mangesh Chokshi supported the assessee's case. The Tribunal concluded that the AO's rejection of the assessee's explanations was based more on presumption than on factual grounds and that the survey conducted by the department upheld the genuineness of the transactions. Thus, the addition of Rs. 1,41,08,484 was deleted.

2. Disallowance of deduction under section 54E:
Since the Tribunal held that the sale proceeds of Rs. 1,41,08,484 were explained, the assessee was entitled to the benefit of section 54E for the purchase of the flat. The AO was directed to grant this benefit in accordance with the law.

3. Addition of Rs. 6,61,063 as unexplained investment under section 69:
The AO added Rs. 6,61,063 as unexplained investment based on credits in the bank account of the assessee's minor son. The assessee explained that this amount was a loan repayment from M/s. Rainbow Industries, supported by ledger copies and confirmations from the proprietor of M/s. Rainbow Industries. The Tribunal found that the AO did not make further inquiries or collect evidence to dispute this explanation. Therefore, the addition of Rs. 6,61,063 was deleted.

4. Addition of Rs. 2,00,000 as unexplained cash credit under section 68:
The AO added Rs. 2,00,000, reflecting in the account of the assessee's minor daughter, as unexplained cash credit. The assessee claimed it was a gift from his co-brother, supported by banking documents. The Tribunal found no reason to disbelieve the assessee's explanation, as the remittance was supported by banking documents. Thus, the addition of Rs. 2,00,000 was deleted.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, deleting the additions of Rs. 1,41,08,484, Rs. 6,61,063, and Rs. 2,00,000, and directed the AO to grant the benefit of section 54E for the purchase of the flat.