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2015 (3) TMI 921 - AT - Income TaxGenuity of transaction - contract notes, and broker s bills etc., found and seized in the course of search action and proved to be bogus by the statement of the brokers who issued these broker notes do not amount to be incriminating material as held by CIT(A) - CIT (A)holding that the income claimed as long term capital gains cannot be held as business income as adventure in nature of trade - Held that - On the basis of the above factual discussion, not much reliance should be placed on statements made by the assessee during the course of search because no corresponding seized material was found in the course of search to justify the additions in question. The verbal statement of the assessee without any connection with the other materials found during the search cannot be considered to be materials found during the search. Relevant income tax returns for the past years were filed prior to the search in the normal course suo moto disclosing the particulars of subject additions which stood accepted u/s 143(l) of the Act. Assessment as contemplated u/s 153A is not a de novo assessment and additions made therein, has to be necessarily restricted to undisclosed income unearthed during search. There is nothing on record to suggest that any corroborative evidence was found to justify the addition in question. The first appellate authority held that the issue of genuineness of the claim of LTCG and STCG of assessee group should be judged independently on the strength and merit of documentary and other third party contemporary evidences, irrespective of the admission/retraction of the assessee. This exercise was carried out by the first appellate authority in the subsequent part of the order. In the light of the above the appellant submitted that in view of the voluminous documentary evidence and material on record and there being no material in the possession of the Assessing Officer to rebut the said evidence, the transactions of purchase and sale of shares were conclusively proved by the appellant. The same should not have been washed away by the revenue by indulging in assumptions and arbitrary conclusions, and by selectively referring to some stray pieces of so-called evidence. Drawing inferences which on the face of it is not tenable. The Assessing Officer failed to provide adequate opportunity to the appellant for cross-examination of brokers whose statements were recorded behind the back of the appellant and were used to the detriment of the appellant. The Assessing Officer did not refer to the various replies filed by the assessees to Assessing Officer s queries. All these have rendered the assessment order to be bad in law and absolutely unjustified.he objectives are kept in view of the context of framing assessments under new provisions - 153A, it would indicate that the basic structure of search assessments are retained and the new provisions aim at trust based, hassle free assessment. If these are the avowed objectives, the search related assessment should base on evidence found on search. In course of search, no such evidence was found indicating that the share transactions are bogus. Hence the assessment made by the Assessing Officer on surmises and presumptions is not sustainable. The assessee is not concerned with the modus operandi of the broker s trading with its other clients. As long as he had purchased and sold the shares of the assessee through known and accepted procedure, the broker s misdealing with others should not be a criteria to suspect the appellant s genuine share transactions and capital gain thereupon. If these brokers were suspended by SEBI subsequent to the assessee s company s dealing with them, it is the matter between SEBI and the broker and the assessee company is not concerned in any way unless action is based on transactions including assessee s transactions. There is nothing on record to suggest that transactions with assessee are also basis for SEBI s action against alleged brokers. The Hon ble Kolkata High Court in the case of CIT vs. Korlay Trading Co. Ltd. (1998 (2) TMI 104 - CALCUTTA High Court) held that once the assessee has furnished the name of the company, number of shares purchased, date of sale, amount of purchase money, amount of sale money, etc., the assessee had discharged its initial burden and if the broker did not maintain any accounts, the transaction could not be doubted for no fault of the assessee. Considering the totality of the facts of the case and relying on various decisions cited supra and considering the elaborate discussion by the Ld. CIT(A) we find no infirmity in his order accepting the Long Term Capital Gains and Short Term Capital Gains declared by the assessee. Accordingly, the order of the CIT(A) is upheld and the grounds raised by the Revenue are dismissed. - Decided in favour of assessee.
Issues Involved:
1. Whether the CIT (A)-I, Nagpur was justified in holding that the contract notes and broker's bills found and seized during the search were not incriminating material. 2. Whether the CIT (A)-I, Nagpur was justified in dismissing the SEBI's actions against brokers and companies as irrelevant to the assessee's case. 3. Whether the CIT (A)-I, Nagpur was justified in accepting broker notes and rejecting broker statements. 4. Whether the CIT (A)-I, Nagpur was justified in ruling out the application of section 69A. 5. Whether the CIT (A)-I, Nagpur was justified in dismissing the principles of human probability as enunciated by the Supreme Court. 6. Whether the CIT (A)-I, Nagpur was justified in treating the income as long-term capital gains rather than business income. Issue-wise Detailed Analysis: 1. Contract Notes and Broker's Bills as Incriminating Material: The CIT (A)-I, Nagpur held that the contract notes and broker's bills found and seized during the search were not incriminating material. The appellate authority observed that these documents were genuine and acted upon, leading to the credit of shares in the DEMAT account. The Assessing Officer's reliance on statements from brokers, which were recorded behind the assessee's back and not corroborated with substantial evidence, was deemed insufficient. The appellate authority emphasized that the statements were not provided to the assessees until the concluding stage and that the opportunity for cross-examination was not effectively granted, rendering the statements unreliable. 2. SEBI's Actions Against Brokers and Companies: The CIT (A)-I, Nagpur dismissed the relevance of SEBI's actions against certain brokers and companies to the assessee's case. The appellate authority noted that the SEBI's actions were based on different contexts and did not directly relate to the transactions of the assessee. The appellate authority highlighted that the transactions in shares were well-documented and supported by contract notes, broker bills, and banking records, which were not impeached by the SEBI's findings. 3. Acceptance of Broker Notes and Rejection of Broker Statements: The CIT (A)-I, Nagpur accepted the broker notes as reliable evidence while rejecting the broker statements as unreliable. The appellate authority found that the broker statements were contradictory and not supported by documentary evidence. The appellate authority emphasized that the brokers confirmed the transactions with the Peety family and that the payments were made through cheques or settled against day trading profits. The appellate authority also noted that the Assessing Officer selectively relied on certain broker statements while ignoring others that were favorable to the assessee. 4. Application of Section 69A: The CIT (A)-I, Nagpur ruled out the application of section 69A, which pertains to unexplained money, bullion, jewelry, or other valuable articles. The appellate authority observed that the sale proceeds of shares were recorded in the books of accounts and explained by the assessee. The appellate authority emphasized that section 69A applies only to unrecorded income and wealth, and since the transactions were documented and explained, the addition under section 69A was not justified. 5. Principles of Human Probability: The CIT (A)-I, Nagpur dismissed the application of human probability principles as enunciated by the Supreme Court in the cases of Sumati Dayal and McDowell and Co. Ltd. The appellate authority found that the Assessing Officer's reliance on these principles was misplaced as the transactions were supported by documentary evidence and there was no material to suggest that the transactions were not genuine. The appellate authority emphasized that suspicion cannot replace evidence and that the transactions should be judged based on the evidence available. 6. Treatment of Income as Long-Term Capital Gains: The CIT (A)-I, Nagpur justified treating the income as long-term capital gains rather than business income. The appellate authority found that the transactions were investments and not an adventure in the nature of trade. The appellate authority noted that the shares were held as investments, the transactions were not speculative, and the holdings continued for a long time. The appellate authority also observed that the department had accepted the transactions as capital gains in the original assessments prior to the search and that there was no material found during the search to justify treating the transactions as business income. Conclusion: The appellate authority's comprehensive analysis and reliance on documentary evidence, legal principles, and judicial precedents led to the conclusion that the transactions in question were genuine and that the additions made by the Assessing Officer were not justified. The appellate authority's decision to grant relief to the assessees was based on a thorough examination of the facts and circumstances of the case.
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