2013 (5) TMI 865 - AT - Income Tax

Income from undisclosed sources - Transaction of sale and purchase of shares - off market transaction - genuine or not - Held that - even in the absence of the confirmation by those share brokers one has to examine that whether the shares have been purchased and after retaining them for a certain period those shares have actually been sold by the assessee. In the present case, facts have revealed that the shares of Sarang Chemicals were duly demated and thereupon the sales were made through banking transactions. The Demat account maintained with ICICI bank has revealed the shares numbers, etc. From the side of the assessee, it is vehemently contested that there was a reason of denial of transaction by those share-brokers because they have not intimated the transaction to the SEBI and that one of them has also made the purchase transaction in cash which was against the SEBI guidelines. Apartment from these evidences, our attention has also been drawn on a certificate issued by share transfer agent that the transfer of those shares in the name of the assessee was duly approved. The assessee has expressed to hold those shares in dematerialized form therefore the assessee was asked to fill up the dematerialization request form . This information is very vital and proves the fact that the assessee had in fact purchased the shares of Sarang Chemicals Ltd. It is also difficult to ignore an another factual position that the assessee is in the past assessment year had duly disclosed in the balance-sheet the purchase of those shares. Although, it was an off market transaction but it was properly documented and duly supported by relevant evidences - once the shares were in respect of a listed company and transaction was through Demat account which was as per the recognized Stock Exchange quoted price, then there was no reason to hold such nature of transaction as non-genuine - Decided in favour of assessee.

Issues Involved:
1. Treatment of income from capital gain on the sale of shares as income from undisclosed sources.
2. Addition for alleged low household expenses.

Issue-wise Detailed Analysis:

1. Treatment of Income from Capital Gain on Sale of Shares as Income from Undisclosed Sources:
The primary issue revolves around whether the income from capital gain on the sale of shares should be treated as income from undisclosed sources. The assessee declared an income of Rs. 15,16,700, including long-term capital gain from the sale of shares. The purchase and sale transactions were conducted through brokers, but the Assessing Officer (AO) found discrepancies. The brokers denied the transactions, and the AO concluded that the purchase and sale bills were not genuine. Consequently, the AO treated the sale consideration as income from undisclosed sources.

The CIT(A) upheld the AO's decision, stating that the assessee attempted to introduce unaccounted money by paying lesser tax on long-term capital gains. The CIT(A) also noted similar transactions by another family member, which were also not accepted.

The assessee argued that the brokers denied the transactions to protect themselves from SEBI violations. The assessee provided supporting documents, including demat account statements, broker bills, and a letter from the share transfer agent confirming the transfer of shares. Despite the brokers' denial, the demat account and banking transactions corroborated the genuineness of the transactions.

The tribunal noted that the shares were duly dematerialized and sold through banking transactions. The tribunal found the evidence provided by the assessee, including the demat account and share transfer agent's letter, credible. The tribunal also considered past balance-sheet entries reflecting the purchase of shares. Based on these findings, the tribunal reversed the decisions of the lower authorities and directed that the transaction be assessed under long-term capital gain.

2. Addition for Alleged Low Household Expenses:
The AO added Rs. 65,000 for low household expenses, considering the family size and school/college-going children. The CIT(A) confirmed this addition. The tribunal, after reviewing the circumstances, found no reason to interfere with the findings of the Revenue Authorities and affirmed the addition.

Separate Judgments:
The tribunal delivered separate judgments for two appeals (ITA No.4512/Ahd/2007 and ITA No.4513/Ahd/2007), both involving similar facts and issues. In both cases, the tribunal ruled in favor of the assessee regarding the treatment of income from capital gain but upheld the additions for low household expenses.

Conclusion:
The appeals were partly allowed. The tribunal directed the income from the sale of shares to be assessed under long-term capital gain, reversing the lower authorities' decisions. However, the tribunal upheld the additions for low household expenses in both cases.

← Previous Next →