2009 (7) TMI 1251 - AT - Income Tax

Sale and purchase of shares - Long-term capital gain - assessees claimed/offered long-term capital gains on sale of shares of various listed companies - Assessment proceedings u/s 153A - genuineness of transactions - Addition made by the AO u/s 68 - HELD THAT - We find substantial merit in the view of the learned CIT(A) that it is this fact which has resulted into such action of the AO. We have also noted that voluminous documentary evidences have been filed by the assessee to prove its claim which support the genuineness of the transaction. However the AO has utilized the statements of the persons who were not cross-examined by the assessee. Hence as per the settled judicial principle such statements cannot be given any weightage. On appreciation of documentary evidences submitted by the assessee the genuineness of the transactions appears to be established. As regards the aspect of off market transactions it is noted that neither these are illegal nor prohibited and only some of the compliances have to be made by the brokers. As regard the aspect of such compliances we find that it is not the case that all the off market transactions have not been reported by the concerned brokers to the stock exchange as per rules and even otherwise any failure on the part of the brokers in doing such compliance cannot make the contract between the assessee and the broker illegal or void as the broker may face the consequences for his default under relevant statute. It is also noted that all the transactions are not off market transactions hence the AO s approach to pick and choose the only such instances which are favourable to him cannot justify such addition. We are further of the view that economic consequences as a result of off market transactions or otherwise have taken place and therefore such transactions cannot be treated as sham merely for some discrepancies or for the view of the AO in regard to genuineness of these transactions. Thus we are of the view that the share transactions cannot be considered as ingenuine/sham and therefore the sale proceeds of such share transactions cannot be taxed u/s 68 of the Act. Treatment of transactions - We find that the learned CIT(A) has examined the factual details of these transactions on the basis of various parameters like frequency volume line of trade in which the assessee is mainly engaged and we are of the view that the decision of the learned CIT(A) is correct in law on that count also. Before parting from this aspect we may add that this plea of the AO during the course of appellate stage itself contradicts and weakens the stand of the AO regarding his action of making addition under s. 68 because such plea results into an inference that the genuineness of the transaction cannot be doubted in absolute terms. Thus we hold that there is no merit in any ground of this appeal of the Revenue. Hence we dismiss all the grounds raised by the Revenue. In the result the appeal filed by the Revenue stands dismissed. Addition u/s 68 - Statement recorded on oath during the search operations - HELD THAT - It is noted that the sole basis for making this addition is the statement of Shri Tilak Singh Parmar which has been retracted by him subsequently also. It is also noted that the said person is working in the capacity of peon/office boy. Hence how his statement only can be a proper basis for making such addition. We further find that the entries recorded in such diary have been reconciled by the assessee from the books of account of various group concerns/assessees. Hence in our opinion the order of the learned CIT(A) in deleting the addition is correct in law. Thus ground No. 3 of the Revenue s appeal is also dismissed. In the result Revenue s appeal is dismissed.

Issues Involved:
1. Applicability of Section 68 to transactions in shares.
2. Adequacy of evidence supporting the assessee's claim of gain from the sale of shares.
3. Examination of each assessee's case in isolation despite evidence of acting in tandem.
4. Empowerment of CIT(A) to examine additional grounds raised by the Revenue.
5. Nature of transactions in shares as adventures in the nature of trade.
6. Other grounds raised during the course of the hearing.

Issue-wise Detailed Analysis:

1. Applicability of Section 68 to Transactions in Shares:
The Revenue's appeals questioned the applicability of Section 68 to the share transactions, alleging that the transactions were not genuine and should be taxed as income from undisclosed sources. The AO's investigation revealed that the companies and brokers involved were common across the group and some brokers were untraceable. The AO relied on statements and the fact that transactions were conducted off-market to form an opinion that the transactions were not genuine. However, the CIT(A) found that the assessee provided adequate documentary evidence, including contract notes, broker confirmations, and bank statements, to substantiate the genuineness of the transactions. The CIT(A) concluded that the AO's reliance on selective pieces of evidence without allowing cross-examination was not justified. The Tribunal upheld the CIT(A)'s decision, noting that the documentary evidence overwhelmingly supported the assessee's claim and that the AO's approach was based on assumptions and conjectures.

2. Adequacy of Evidence Supporting the Assessee's Claim of Gain from Sale of Shares:
The assessee argued that all transactions were supported by documentary evidence such as contract notes, broker bills, and bank statements. The CIT(A) meticulously examined the evidence and found that the transactions were genuine. The CIT(A) noted that the AO did not dispute the documentary evidence and that the evidence included government records, broker confirmations, and Demat account statements. The Tribunal agreed with the CIT(A)'s findings, emphasizing that the evidence provided by the assessee was conclusive and that the AO's rejection of the transactions was based on unfounded assumptions.

3. Examination of Each Assessee's Case in Isolation Despite Evidence of Acting in Tandem:
The AO argued that the cases of the Haldiram Group should be examined collectively due to evidence suggesting coordinated actions. However, the CIT(A) and the Tribunal found that each assessee's transactions were supported by individual documentary evidence, and there was no legal basis to treat them collectively. The Tribunal noted that family members acting similarly in financial matters was not uncommon and did not automatically imply non-genuineness of transactions.

4. Empowerment of CIT(A) to Examine Additional Grounds Raised by the Revenue:
The Revenue contended that the CIT(A) erred in not examining additional grounds raised during the appellate proceedings. The CIT(A) held that it was not empowered to entertain new propositions that were not part of the original assessment. The Tribunal upheld this view, stating that the CIT(A) could not introduce new sources of income for assessment that were not originally considered by the AO.

5. Nature of Transactions in Shares as Adventures in the Nature of Trade:
The AO suggested that the share transactions should be treated as business income, arguing that the group's activities amounted to an adventure in the nature of trade. The CIT(A) rejected this proposition, noting that the assessment was framed on the basis of the transactions being bogus, not as business income. The Tribunal agreed, stating that the AO's alternate plea contradicted the original assessment and that the transactions, supported by documentary evidence, were rightly treated as capital gains.

6. Other Grounds Raised During the Course of Hearing:
The Tribunal addressed various other grounds, including the genuineness of gifts received by the assessee's minor daughter and the treatment of sales tax incentives as capital receipts. The Tribunal found that the AO did not conduct necessary inquiries and that the CIT(A)'s detailed examination and findings were correct. The Tribunal dismissed all the additional grounds raised by the Revenue, upholding the CIT(A)'s decisions.

Conclusion:
The Tribunal dismissed all the appeals filed by the Revenue, affirming the CIT(A)'s comprehensive and detailed analysis of the issues. The Tribunal emphasized the importance of documentary evidence and the need for the AO to conduct thorough and fair inquiries, allowing cross-examination and considering all relevant facts before making additions based on assumptions.

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