2015 (3) TMI 1128 - AT - Income Tax

Addition u/s 68 - ingenue purchase of shares - Held that - We found that during the year assessee has purchased 67.200 shares of Karuna Cables Ltd. from Alliance at market rate for ₹ 10,15,405/-. Copies of contract notes and bills issued by Alliance towards purchase of shares were placed on page 12-17 of compilation. Copy of ledger account for the broker M/s. Alliance Intermediaries & Network Ltd. in the books of the appellant for the period from 01.04.2004 to 31.03.2005 and 01.04.2005 to 31.03.2006 alongwith its confirmation of accounts was also placed at pages 18-20 of compilation. Bank statement of the assessee whereby the payments made to the broker have duly been reflected, were also enclosed in the paper book. We also found that the above share were credited in the demat Account of the assessee held with ICICI Bank, copy of demat statement was placed on page 21-22 of compilation. A reference to the same would show that the shares of Karuna Cables were received in the demat Account of the assessee on purchase and then transferred to the DP account of the assessee maintained with the broker Rajidas Nagarmal Consultants Pvt. Ltd. through whom sales have been effected on the stock exchange platform. We also found that in the instant case, only purchase has been effected from Alliance, whereas sale has been effected through another broker i.e. M/s. Ramjidas Nagarmal Consultants Pvt. Ltd. who has no connection with Mr. Mukesh Chokshi and there is nothing on record which suggests that M/s. Ramjidas Nagarmal Consultants Pvt. Ltd. has issued bogus bills to the assessee or above sale transaction is not genuine. With regard to the statement of Mr. Mukesh Chokshi recorded, it was contended by Ld. AR that in the statement of Mr. Mukesh Chokshi, the assessee was not named. Further, during the course of assessment proceedings, the assessee had requested the ld. AO to allow an opportunity to cross examine Mr. Mukesh Chokshi. However the Ld. AO could not make available Mr. Mukesh Chokshi for cross examination. Thus purchase and sale of shares by the assessee was a genuine transaction, and hence, addition made by the AO cannot be endorsed. - Decided in favour of assessee.

Summary

Issues:
1. Assessment of short term capital gain under section 68 of the Income Tax Act based on unexplained cash credit.
2. Appeal against the order of the Learned CIT(A) regarding the treatment of sale proceeds of shares as income from other sources from bogus shares transaction.

Analysis:
1. The appeal was filed against the order of the Learned CIT(A) regarding the assessment of short term capital gain under section 68 of the Income Tax Act for the assessment year 2005-06. The case involved a search and seizure action under section 132 of the Income Tax Act conducted by the income tax department, revealing bogus billing activities and speculative profit/loss transactions by certain companies. The Assessing Officer (AO) observed transactions by the assessee with one of these companies, M/s. Alliance Intermediaries and Network Pvt. Ltd., resulting in short term capital gain. The AO made an addition of the gain under section 68 of the IT Act. The CIT(A) upheld the addition, treating the sale proceeds of shares as unexplained cash credit and directed the AO to assess it as income from other sources.

2. The appellant contended that the share transactions were genuine, supported by documentary evidence such as purchase bills, contract notes, ledger accounts, and bank statements. The appellant purchased shares from M/s. Alliance Intermediaries & Network Ltd. and sold them through a different broker, M/s. Ramjidas Nagarmal Consultants Pvt. Ltd. The appellant claimed the profit as Short Term Capital Gain taxable at 10% under section 11A of the Income Tax Act. The appellant argued that there was no evidence to suggest the transactions were not genuine, and the AO's presumption lacked a basis. The appellant highlighted the lack of cross-examination of a key witness, Mr. Mukesh Chokshi, and cited a tribunal decision supporting the genuineness of share transactions.

3. Upon careful consideration of the contentions and evidence, the tribunal found that the appellant had purchased shares from M/s. Alliance Intermediaries & Network Ltd., supported by purchase documents and bank statements. The shares were credited in the appellant's demat account and later sold through another broker. The tribunal noted that the sale transaction was genuine and that there was no indication of any illegitimacy. Referring to a similar tribunal decision, the tribunal held that the purchase and sale of shares were genuine transactions, dismissing the AO's addition under section 68 of the IT Act. The tribunal ordered the deletion of the impugned additions, allowing the appeal of the Assessee.

In conclusion, the tribunal ruled in favor of the Assessee, holding that the share transactions were genuine based on the evidence presented, and ordered the deletion of the additions made by the AO.