2010 (4) TMI 1092 - AT - Income Tax

Third member appointment - difference between the ld JM and the ld AM - sale of shares and genuineness of receipts of money - Addition in Income from undisclosed and unexplained sources - JM decided the case in favour of the assessee that sale transaction of the assessee has to be treated as genuine and the claim of the assessee has to be accepted. while the learned AM decided the case against the assessee. HELD THAT - The assessee purchase of the shares has duly been proved and there is no dispute on the purchase of the shares being made by the assessee. The shares were purchased in earlier year. From the entire appreciation of the evidence I noted that the assessee had acquired the shares the purchase made on 15th July 1999 was duly declared by the assessee in earlier years which stand accepted by the Revenue. The shares were sold through stock brokers who were registered with the stock exchange. Shares were sold at the prices quoted at the stock exchange at the relevant time. The payment of sale consideration has also flown from the bank account of the broker where the fund came through clearing not in cash. The decisions of the lower authorities are influenced by the general observation of the Investigation Wing that arose a suspicion turned into conclusive proof in the minds of the authorities that everybody who has sold the shares at a high price has converted his unaccounted money through accommodation entries. This approach does not have any leg to stand. Hon ble Supreme Court in the case of Umacharan Shaw Bros. vs. CIT 1959 (5) TMI 11 - SUPREME COURT has clearly laid down that suspicion howsoever strong cannot take place of proof. From the entire appreciation of evidence I noted that AO has failed to establish that the assessee has introduced her own unaccounted money in the shape of alleged sale proceeds of shares. Hon ble Supreme Court in the case of Kishinchand Chellaram vs. CIT 1980 (9) TMI 3 - SUPREME COURT has observed that the amount cannot be assessed as undisclosed income of assessee in the absence of positive material brought by the Revenue to prove that the amount in fact belonged to assessee as the burden lay on the Revenue . It was the duty of the AO to bring on record sufficient evidences and materials to prove that the documents filed by the assessee were bogus false or fabricated and the long-term capital gain shown by him was actually his income from undisclosed sources. The only material to support such conclusion of the lower authorities is either the findings of the DDI in general investigations or the twisting statements of M/s P.K. Jain Associates which remain untested by the AO himself. None of the judicial precedents supports the case of the Revenue. While making addition as income from undisclosed sources burden on the Department is very heavy to establish that the alleged receipt was actually income of the assessee from the undisclosed sources. the action of the CIT(A) was not correct in confirming the assessment as the income from undisclosed sources as against the sale consideration of shares declared by the assessee. The CIT(A) was not justified in rejecting the claim of long-term capital gain of the assessee from sale of shares. I accordingly direct the AO to assess the income declared from the sale of shares under the head income from long-term capital gain. In the result appeal of the assessee is treated as allowed and that of the Revenue is treated as dismissed.

Issues Involved:
1. Assessment of Rs. 12,19,538 as income from undisclosed sources.
2. Rejection of long-term capital gain claim of Rs. 11,40,826 from the sale of shares.
3. Bifurcation of the receipt of drafts as per their dates of receipts.

Issue-wise Detailed Analysis:

1. Assessment of Rs. 12,19,538 as Income from Undisclosed Sources:
The assessee filed a return showing a total income of Rs. 2,08,100, including long-term capital gains of Rs. 11,40,826 from the sale of shares, and claimed exemption under section 54F. The AO scrutinized the return and doubted the genuineness of the share transactions. The AO found that the share brokers and the company involved in the transactions did not exist at the given addresses, and the share transactions were not recorded in the stock exchanges as claimed. Despite the assessee providing new addresses and other documents, the AO concluded that the sale of shares was not genuine and treated the entire amount of Rs. 12,19,538 as income from undisclosed sources. The CIT(A) confirmed the addition but bifurcated the receipt of drafts, adding Rs. 5,98,000 in the year under consideration and the balance in the next assessment year.

2. Rejection of Long-term Capital Gain Claim of Rs. 11,40,826 from Sale of Shares:
The AO and CIT(A) rejected the assessee's claim of long-term capital gains from the sale of shares, suspecting the transactions to be fictitious and aimed at converting black money into white. The AO cited various reasons, including the abnormal increase in share prices and the non-existence of the brokers and companies at the given addresses. The assessee argued that the transactions were genuine, supported by documents, and the sale prices were as per the stock exchange quotations. The assessee also contended that the transfer of shares is complete upon handing over duly executed transfer deeds, even if the shares are not immediately transferred in the company's records.

3. Bifurcation of the Receipt of Drafts as Per Their Dates of Receipts:
The CIT(A) bifurcated the receipt of drafts, adding Rs. 5,98,000 in the year under consideration and the remaining amount in the next assessment year. The Revenue contested this bifurcation, arguing that the entire amount should be taxed in the year under consideration as the assessee followed a mercantile system of accounting and claimed deduction under section 54F on the total amount of alleged capital gain in the same year.

Separate Judgments:
One of the judges dissented, citing similarities with another case (Baijnath Agarwal) where the appeal was dismissed, arguing that the facts and circumstances were similar and the Revenue's case was legally sustainable.

Final Judgment:
The Third Member agreed with the view of the Judicial Member (JM), concluding that the sale transactions were genuine. The assessee provided sufficient evidence, including contract notes, bills, and statements of account from the broker. The Third Member emphasized that the AO failed to provide conclusive evidence to prove the transactions were fictitious. The Third Member also noted that the AO did not provide the assessee with an opportunity to cross-examine the broker, whose statements were inconsistent and unreliable. The Third Member directed the AO to assess the income declared from the sale of shares under the head of long-term capital gain, allowing the assessee's appeal and dismissing the Revenue's appeal.

Conclusion:
The majority decision favored the assessee, recognizing the sale transactions as genuine and directing the AO to assess the income under long-term capital gains. The Revenue's appeal was dismissed, and the assessee's appeal was allowed.

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