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2016 (2) TMI 1210 - AT - Income TaxCorrect head of income - bogus LTCG - income from sale of shares - income from other sources OR long term capital gains - Held that - In the case of the assessee as well as in the case of Jagdish H. Shah(2012 (9) TMI 1154 - ITAT MUMBAI) the shares were purchased from the same broker namely DPS Shares and Securities Pvt. Ltd. AO carried out a verification exercise which involved recording of statement of one Shri Raj Kumar Masalia Principal Officer of DPS Shares similar action was taken in the case of Jagdish H. Shah (supra) also. It is quite clear that the stand of the Revenue as well as the assessee in the present case is on similar footing to their respective stands in the case of Jagdish H. Shah (supra). Having regard to the aforesaid similarities which are not controverted by the Revenue we deem it fit and proper to rely upon the reasoning taken by the Co-ordinate Bench in the case of Jagdish H. Shah(supra) and hold that the income tax authorities have erred in treating the sale consideration on the sale of shares of Robinson Worldwide Trade Ltd. as an income from undisclosed sources - decided in favour of assessee.
Issues Involved:
1. Treatment of sale consideration of shares as income from other sources instead of long-term capital gains. 2. Genuineness of the purchase transaction of shares. 3. Discrepancies in the trade logs and client codes. 4. Compliance with BSE and SEBI reporting mechanisms. 5. Credibility of statements made by the broker's representative. Detailed Analysis: 1. Treatment of Sale Consideration of Shares as Income from Other Sources Instead of Long-Term Capital Gains: The assessee contested the CIT(A)'s decision to treat the sale consideration of Rs. 9,19,015 from the sale of shares of Robinson Worldwide Trade Ltd. as income from other sources instead of long-term capital gains. The CIT(A) held that the purchase transaction of said shares was not genuine, despite the shares being sold through a registered broker and confirmed by the BSE. The Tribunal, however, found that the income tax authorities erred in treating the sale consideration as income from undisclosed sources and directed the AO to accept the long-term capital gain as returned by the assessee. 2. Genuineness of the Purchase Transaction of Shares: The AO doubted the genuineness of the purchase transaction, noting discrepancies between the contract notes issued by the broker and the trade log of the BSE. The broker's representative initially stated that the transactions were accommodation entries and not actual transactions. However, a subsequent letter from the Director of DPS Shares And Securities Pvt. Ltd. retracted this statement, affirming that the transactions were genuine. The Tribunal considered similar cases where the purchase of shares was treated as genuine and directed the AO to accept the long-term capital gain as returned by the assessee. 3. Discrepancies in the Trade Logs and Client Codes: The AO observed discrepancies in the client codes and the quantity of shares traded as per the brokers' notes and the BSE trade log. The assessee argued that these discrepancies were due to mistakes by the broker, for which the assessee should not be penalized. The Tribunal noted that similar discrepancies were present in other cases where the transactions were ultimately accepted as genuine. 4. Compliance with BSE and SEBI Reporting Mechanisms: The AO noted that the procedure for carrying out off-market transactions as prescribed by the BSE and SEBI was not complied with. The CIT(A) upheld this view, stating that the non-compliance indicated that the transactions were not genuine. However, the Tribunal found that in similar cases, the transactions were accepted as genuine despite non-compliance with reporting mechanisms, and directed the AO to accept the long-term capital gain as returned by the assessee. 5. Credibility of Statements Made by the Broker's Representative: The AO relied on the initial statement of the broker's representative, who claimed that the transactions were accommodation entries. The assessee requested cross-examination of the representative, who did not appear on multiple occasions. The CIT(A) held that the initial statement had evidentiary value, while the subsequent retraction was an afterthought. The Tribunal, however, considered the retraction and similar precedents where the transactions were accepted as genuine, and directed the AO to accept the long-term capital gain as returned by the assessee. Conclusion: The Tribunal allowed the appeal of the assessee, directing the AO to treat the income from the sale of shares as long-term capital gain, following precedents in similar cases. The Tribunal emphasized the need to consider the totality of facts and the consistency of the assessee's disclosures in their returns.
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