2015 (11) TMI 1297 - AT - Income Tax

Short term capital gain - AO held to be as bogus and not real accordingly assessed the same as income of the assessee from undisclosed sources - Held that - The assessee has furnished all the details relating to purchases as well as the sales. The brokers through whom the assessee had purchased the shares have also confirmed the transactions. The payments towards purchase of shares have gone through the banking channels except a very small amount. The shares purchased by the assessee have been credited to the D-mat account of the assessee. The deficiency noticed was the time gap between the purchase of shares and credit of the same in the D-mat account of the assessee. The delay in making payment and the delay in crediting the shares in the demat account is dependent upon various factors including the understanding between the buyer and seller. Thus, from the point of view of the assessee, she has established the details of purchases with sufficient documentary evidences and those documentary evidences were also confirmed by the share broker also. Further, it is settled proposition that date of broker notes is considered as the date of purchase and in this regard, one may refer to the Circular No.704 dated 28-04-1995. In our view, the assessee cannot be punished in respect of defaults, if any, committed by the share broker, since the factum of purchase and sale of shares have been accepted by Ld CIT(A). From the point of view of the assessee, the broker has delivered the shares purchased by her. We further notice that all the shares purchased by the assessee are that of reputed companies only. On the contrary, the Ld CIT(A), as noticed earlier, has drawn only inferences about the date of purchases and he has not brought any material on record to support the view taken by him. Hence, we are confronted with two different situations, viz., (a) the assessee has furnished materials to support the claim of purchases and both the assessee and the seller of shares have confirmed those materials and (b) the Ld CIT(A) has drawn inferences which is not supported by any materials. Under these set of facts, in our view, the case of the assessee should weigh more, since his claim is supported by certain documents. We are unable to uphold the view taken by Ld CIT(A) that the shares have been purchased only on the date on which they were credited in the d-mat account. Accordingly, we set aside the order of the Ld CIT(A) on this issue and direct the assessing officer to assess the impugned income declared by the assessee as short term capital gain. - Decided in favour of assessee. Commission expenses estimated by the AO. Since the Ld CIT(A) has accepted the genuineness of purchase and sale of shares and since we have directed the AO to assess the gain arising on sale of shares as short term capital gain, the impugned addition made on estimated basis is liable to be dismissed. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete this addition.- Decided in favour of assessee.

Summary

Issues Involved:
1. Assessment of short-term capital gains as income from undisclosed sources.
2. Enhancement of assessed income by the CIT(A).
3. Addition on account of alleged payment of commission for obtaining short-term capital gains.

Issue-wise Detailed Analysis:

1. Assessment of Short-term Capital Gains as Income from Undisclosed Sources:
The assessee declared short-term capital gains of Rs. 64,44,753/- from the sale of shares. The Assessing Officer (AO) observed discrepancies in the purchase and sale transactions, such as shares being credited to the Demat account of the assessee from a different broker than the one from whom they were purchased. The AO concluded that the short-term capital gains were bogus and assessed them as income from undisclosed sources.

2. Enhancement of Assessed Income by the CIT(A):
The CIT(A) accepted the genuineness of the purchase and sale of shares but presumed that the shares were purchased on the dates they were credited into the Demat account. The CIT(A) computed the aggregate purchase cost of the shares at Rs. 1,06,56,850/-, leading to an enhancement of the assessed income by Rs. 3,46,933/-. The CIT(A) also presumed that the difference between the disclosed purchase cost and the computed cost represented payment from undisclosed sources.

3. Addition on Account of Alleged Payment of Commission:
The AO added Rs. 3,22,238/- as alleged commission payments for obtaining short-term capital gains. The CIT(A) confirmed this addition.

Judgment Analysis:

Assessment of Short-term Capital Gains:
The Tribunal noted that the AO and CIT(A) had differing views. The AO considered the transactions as a make-believe arrangement, while the CIT(A) accepted the transactions as genuine but disputed the purchase dates. The Tribunal found that the CIT(A) had only presumed the purchase dates without any supporting material. It was highlighted that delays in crediting shares to the Demat account can occur due to various reasons and are not uncommon. The Tribunal emphasized that the assessee had provided all necessary documents and confirmations from brokers to substantiate the transactions. The Tribunal referred to Circular No. 704 dated 28-04-1995, which considers the date of broker notes as the date of purchase. Consequently, the Tribunal set aside the CIT(A)'s order and directed the AO to assess the income as short-term capital gains.

Enhancement of Assessed Income:
The Tribunal found that the CIT(A) had drawn inferences about the purchase dates without any supporting evidence. The assessee had provided sufficient documentary evidence to support the claim of purchases, which were confirmed by the brokers. The Tribunal concluded that the CIT(A)'s inferences were not supported by any material and, therefore, could not be upheld. The Tribunal set aside the CIT(A)'s order on this issue.

Addition on Account of Alleged Payment of Commission:
Since the CIT(A) had accepted the genuineness of the transactions and the Tribunal directed the AO to assess the gains as short-term capital gains, the addition for alleged commission payments was found to be baseless. The Tribunal set aside the CIT(A)'s order on this issue and directed the AO to delete the addition.

Conclusion:
The appeal filed by the assessee was allowed, with the Tribunal setting aside the orders of the CIT(A) and directing the AO to assess the declared income as short-term capital gains and delete the addition for alleged commission payments. The judgment was pronounced on 9th October 2015.