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TMI Blog2010 (2) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... ) That the learned CIT(A) has grossly erred both on facts and in law in confirming the assessment of Rs. 12,19,538 as income from undisclosed sources as against sale consideration of shares declared by the assessee and consequently, in not accepting the long-term capital gain of Rs. 11,40,826 as declared by the appellant from the said sale of shares. (2) That in view of the submissions, evidence and material placed on record the learned CIT(A) as well as the Assessing Officer was not justified in rejecting the claim of long-term capital gain of Rs. 11,40,826 from sale of shares. (3) That the order and findings of the authorities below are based purely on conjectures, surmises, suspicion and hypothesis and are liable to be set aside. 3. The grounds of appeal raised by the Revenue are as under : (1) That the learned GIT(A)-II, Agra has erred in law and on facts in directing the Assessing Officer to tax out of the total amount of unexplained income of the assessee of Rs. 12,19,538, the amount of Rs. 5,98,000 received through draft dated 20-1-2001 only in the assessment year 2001-02 and to bring to tax the remaining amount in the assessment year 2002-03 ignoring the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quiry regarding existence of the said company through his own men posted at Bulandshahar and it was found that no such company exists at the given address at present. On further enquiries it was found by learned Assessing Officer that the premises of the said company were taken over by the UPFC on 5-8-1999. Learned Assessing Officer also got enquiries conducted regarding existence of the share broker M/s. P.K. Jain Co. from the IT Department at Jaipur and it was found that no such broker existed at the given address. On enquiries from the Jaipur Stock Exchange, it was reported that no trading on the floor of stock exchange, since March, 2000, of M/s. Sudev Industries Ltd. was being done. From these verifications, the learned Assessing Officer inferred that the case of the assessee regarding genuineness of the share transaction was not established. The evidences so collected by him were confronted to the assessee and she was also required to produce the share broker and the representative of the company along with its books of account. The learned Assessing Officer also directed the assessee to be personally present for further investigation. Thereafter, various query letters were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfers. After considering the entire above-mentioned facts the learned Assessing Officer has narrated the following as facts, which according to him, emerged from enquiries made in this case : (1) The assessee purchased the shares of M/s. Sudev Industries Ltd. on 15th July, 1999 at the rate of Rs. 4.50 from share broker M/s. Om Goverdhan Financial Services (P.) Ltd., New Delhi. (2) The assessee received bank drafts of Rs. 12,19,538. (3) The assessee claimed this amount of Rs. 12,19,538 as proceeds of shares and is received from M/s. P.K. Jain Co., as share broker registered at Jaipur Stock Exchange. (4) The amount of Rs. 12,19,538 is received not from Jaipur but from Delhi. (5) At the given address of company and of M/s. P.K. Jain Co., it is noticed no P.K. Jain existing at Jaipur. However it is noticed that Shri P.K. Jain was registered share broker in Jaipur Stock Exchange. 6) From Jaipur Stock Exchange it is inquired that there is no trading of shares of M/s. Sudev Industries Ltd. during the period under consideration. (7) The assessee on being informed filed the rate of shares quoted in Madhya Pradesh Stock Exchange which means that the shares alleged to hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares by the assessee and receipt of money on sale of shares is not proved. He has set forth 4 aspects which require consideration with regard to the sale of shares as under : The other points which also merit consideration in this regard are : ( i ) that the respective companies are not categorically confirming the transactions of shares by the assessee. ( ii ) that in some other cases involving sale/purchase of shares of stock brokers of the same nature as in this case, the concerned brokers namely, M/s. J.R.D. Stock Brokers, New Delhi and M/s. Yadav Co., New Delhi have categorically denied share transactions and had stated that no actual transactions had taken place and statement or accounts showing transactions of sales were given by them for commission so as to provide entries to the assessees. They have categorically stated that they first received cash amounts from persons who used to seek entries from them and against the cash receipts they had given them cheques/drafts. ( iii ) that the increase of value of shares is highly abnormal and unrealistic. In just 15 to 16 months time the prices of these shares have allegedly increased by more than 16 times. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res v. CIT [2002] 253 ITR 341, inter alia, learned Assessing Officer has come to the conclusion that since the assessee could not prove the sale of shares and genuineness of receipts of money from sale of shares, so the entire amount of cheque/drafts of Rs. 12,19,538 allegedly received or receivable from the sale of shares will be treated as her income from undisclosed and unexplained sources and will be added to the income of the assessee. As a result, an amount of Rs. 12,19,538 was added to the income of the assessee of this year as her unexplained and undisclosed income. 7. Against the above addition the assessee preferred appeal before the learned CIT(A) who, in turn, confirmed the addition but has bifurcated the receipt of drafts as per their dates of receipts by observing that after accepting the sale proceeds of Rs. 12,19,438 as undisclosed income of the assessee, in principle, only a sum of Rs. 5,98,000 has to be added in the year under consideration as this amount was received vide draft dated 20-1-2001 and the balance amount has to be considered in assessment year 2002-03 because an amount of Rs. 5,98,000 was received through draft dated 8-8-2001. 8. Now, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and report, the Assessing Officer has examined the correspondence made between the assessee and P.K. Jain Associates. From this report it is evident that P.K. Jain Co. have confirmed that they did not enter into transactions of purchase and sale of shares of M/s. Sudev Industries Ltd. with this assessee. M/s. P.K. Jain Associates also informed that they were not broker of any stock exchange at present i.e. in the year 2004. They also informed to ITO that cash amount was received from Smt. Bibi Rani Bansal routed through some bogus account and the balance came to their current account No. 6351026 and draft was issued by SBI and on behalf of ABN Amro Bank. In this letter it is also stated that it was only accommodation entry regarding capital gains etc. Learned Authorised Representative has invited attention to p. 24 of paper book which was a letter written by Addl. CIT, Khand-2, Jaipur by Income-tax Inspector Shri Manohar Vijay which was directly obtained by the H.O., Firozabad by G.P. Gargh, ITO while making enquiry in relation to Shri P.K. Jain. It was informed that P.K. Jain Associates owner Shri Jain was residing in C-9, Bapunagar which house has 3 portions, one of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without recording the name of the purchaser to the broker because the name of the transferee is to be filled as per the choice of the broker. Because the actual transferee may be a different person from purchaser, whose name is recorded in the records of the company. We agree with the learned Authorised Representative that when the assessee has taken possession of all the documents from the broker which was essential to complete the transfer of sale of shares and the mode of payment being through bank draft at the prevailing market rate as per the concerned Madhya Pradesh Stock Exchange and when the assessee has handed over the possession of the original share scrips along with the blank transfer deeds to the broker from whom she had received payment, the transaction as far as the assessee is concerned of sale of shares is complete. In common parlance, nothing more is expected from a man in such sale transaction of shares. The main ground for suspecting the sale of these shares by the learned Assessing Officer is the exorbitantly high sale price of shares and that a scam of large scale fictitious share transactions were detected by the Department. The scam which was noticed in some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed because it is a well-accepted practice in the share market that the sale and purchase of shares is done on blank transfer deeds and this chain goes on till the time the purchaser in due course thinks to retain the same or get them transferred in his name in the company s records to claim dividend/bonus etc. The revelation of malpractice done in the garb of share dealings may be a relevant factor but it cannot be treated as an evidence to defeat a valid claim of the assessee in a particular case. In such circumstances when explanation insisting on the production of a conclusive evidence, the case must be dealt with on reasonable probabilities and legal inferences arising out of proven or admitted facts. It is nobody s case that burden of proof is not static and keeps on shifting. The learned Assessing Officer has relied on the finding of Hon ble Supreme Court in the case of Sumati Dayal v. CIT [1995] 214 ITR 801 3 that apparent must be treated till it is shown that the apparent is not real. It is true that the apparent must be treated as real until there are reasons to believe that the apparent is not real. The Department cannot act unreasonably while considering the explan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as concerned with this fact-finding whether it was taken for earning capital gain or for any other purpose. From these letters and other correspondences between the parties, one can smell some rat. The averments of these letters are not free from doubts which can arise in the mind of a prudent man. The denial of the broker would not carry much weight unless it is enquired into deeply. The introduction of cash as has been alleged by the sale broker is also not proved because he has not told as to who brought the cash and when the payment received from the share broker Shri P.K. Jain vide D.D. dated 20-1-2001 amounting to Rs. 5,98,500 and D.D. dated 8-8-2001 amounting to Rs. 6,17,993 out of his bank account No. 6351026 were enquired by the learned Assessing Officer and conducted several enquires regarding the source of cash introduction. But the Assessing Officer could not find out as to by whom cash was deposited. It is not proved from records that the amount of Rs. 14 lakhs belonged to the assessee as stated by the share broker. The assessee received Rs. 12,16,493 through D.D. whereas the amount shown as belonging to her as paid to the broker for payment of DDs. comes to Rs. 14 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ); (3) ITO v. Sunita Gupta [IT Appeal No. 881 (Delhi) of 2004, dated 28-5-2004]; (4) Dilip Garg v. ITO [IT Appeal No. 470 (Agra) of 2004, dated 29-12-2006]; (5) Gopal Prasad Agarwal v. Asstt. CIT [IT Appeal No. 128 (Agra) of 2004, dated 3-4-2006]; (6) ITO v. Smt. Kusumlata [2006] 105 TTJ (Jodh.) 265; (7) CIT v. Anupam Kapoor [2008] 166 Taxman 178 (P H); (8) Tribunal, Agra Bench in the case of Smt. Memo Devi v. Asstt. CIT [IT Appeal No. 396 (Agra) of 2004, dated 14-3-2008] [reported at (2008) 7 DTR (Agra)(Trib.) 158 Ed.]; (9) Tribunal, Agra Bench in the case of Ashok Kumar Lavania [IT Appeal No. 112 (Agra) of 2004, dated 30-5-2008]. 12. In the result, appeal of the assessee is allowed and that of the Revenue is dismissed. Sanjay Arora, Accountant Member. - I have carefully perused the order proposed by my learned Brother, and also discussed the same with him. However, being unable to bring myself in agreement therewith, I proceed to write my separate order, as under. 2. The only issue arising in the assessee s appeal in the present case is the non-acceptance of its claim in respect of long-term capital gain on the sale of shares, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g grounds arising due to the difference in opinion between the learned JM and the learned AM as referred to by them vide letter dt.7th Feb., 2009 : Grounds raised in ITA No. 92/Agra/2005 by the assessee : "(1) That the learned CIT(A) has grossly erred both on facts and in law, in confirming the assessment of Rs. 12,19,538 as income from undisclosed sources as against 'sale consideration of shares' declared by the assessee and, consequently, in not accepting the long-term capital gain' of Rs. 11,40,826 as declared by the appellant from the said sale of shares. (2) That in view of the submissions, evidence and material placed on record, the learned CIT(A) as well as the AO was not justified in rejecting the claim of long-term capital gain of Rs. 11,40,826 from sale of shares. That the orders and findings of the authorities below are based purely on conjectures, surmises, suspicion and hypothesis and are liable to be set aside." Grounds raised in ITA No. 101/Agra/2005 by Revenue : "(1) That the learned CIT(A)-II, Agra has erred in law and on facts in directing the AO to tax out of the total amount of unexplained income of the assessee of Rs. 12,19,538, the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he name of the assessee, no doubt persisted regarding the acquisition of said shares. But as regards sale of shares the AO discarded all these evidences and submissions observing that the essential ingredients of sale were not fulfilled, assessee could not prove the identity of the buyer of the shares and also could not prove that the consideration actually passed from the buyer and, therefore, it cannot be said that transfer of right over the shares from the seller to the buyer has taken place. The AO has given his observations from page Nos. 6 to 10 of the assessment order and held that since the assessee could not prove the sale of shares and genuineness of receipts of money from sale of shares, so the entire amount of cheque/draft will be treated as income from undisclosed and unexplained sources. Accordingly, the AO treated the entire amount of Rs. 12,19,538 received against the sale proceed of shares as income from undisclosed and unexplained sources. 3. When the matter went before the CIT(A), the CIT(A) partly allowed the appeal of the assessee by observing as under : "5.12 Considering the above facts and the legal position it is held that the AO was justified in holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er have been highly reluctant to participate and co-operate in the proceedings. 6. The learned Authorised Representative contended before me that the assessee submitted all the evidences that were within his possession, power and capacity. Even after the assessment, he made all efforts to get information and even went to Delhi along with the AO for adequate enquiries. Purchase of shares stands fully proved. Sale price at the relevant time also stands proved. Moreover, shares were purchased in the earlier year and stand accepted by the Department. Abnormal increase in share prices is not an abnormal phenomena. The issue has been considered by Agra Bench in the case of Smt. Memo Devi v. Asstt. CIT [2008] 7 DTR (Agra)(Trib) 158 assessee was neither a director in the company nor related to them. He also had no control over the stock exchange. As such, he was not in capacity to manipulate or rig the share prices. Reliance on the letters of the broker M/s P.K. Jain Associates, who admits of his dubious dealings, without testing them is a fatal mistake by the Department. The averments of the letters were disputed and did not inspire credence, yet the Department simply relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Ashok Kumar Lavania's case ( supra ) purchase of shares was not in dispute and, therefore, all that the assessee had done was to realize his confirmed asset at the extant rate. In the assessee's case also the purchase of shares stands proved through the direct confirmation by the company in response to the notice of the AO under section 133(6). Therefore, the assessee's case is not different from the case of Ashok Kumar Lavania ( supra ) to which the Hon'ble AM was a party. 7. Referring to the information provided by share broker M/s P.K. Jain Associates, it was pointed out that this information is not credible. In the first letter dt. 27th July, 2004 he denied any transaction being entered into with the assessee and also mentions that bill dt. 15th Dec, 2000 in the name of the assessee seems to be fictitious one and appears to be only an accommodation entry. In the second letter dt. 4th Aug., 2004 he states that he had issued draft to the assessee and he received the cash from the assessee. In this letter he also mentions that cash received by him was routed through some bogus account and the balance came to his current account No. 6351026 from which the draft was issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction of sale was not genuine one. On query from the Bench, whether any cross-examination was provided to the assessee in respect of the broker, the learned Departmental Representative expressed his inability. Learned Departmental Representative relied on the order of learned AM. 10. I have carefully considered the rival submissions along with the orders of the tax authorities below as well as the order of my learned colleague members. I noted that while passing the dissent order the learned AM has mainly relied on its, separate order passed in the case of Baijnath Agarwal ITA No. 133/Agra/2005. I have gone through the order of Baijnath Agarwal and noted that in his dissent order in that case the learned AM has relied on the decision of Ashok Kumar Lavania 112/Agra/2004. I have gone through the decision of Ashok Kumar Lavania in ITA No. 112/Agra/2004 which was decided by the Bench constituting of same learned JM and learned AM vis-a-vis the facts of the case of the assessee. In that case also the transaction of sales has not been accepted by the AO as he doubted the sale prices and also relied on the statement of Shri Ashok Gupta, director of M/s JRD Stock Brokers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e no adverse comments in the assessment order against the assessee. The AO has not said anything about the transactions entered through this broker. Whereas the assessee has produced : ( i ) copies of sales and purchase bills; ( ii ) share certificates and transfer letters; ( iii ) contract notes; ( iv ) duly transferred share certificates received from the companies; and ( v ) affidavit. (11) There is no doubt, in such cases, the brokers become the witnesses of the Department. The Department has got statements of these brokers which are used against the assessee. Irrespective of the fact that the statements were recorded at the back of the assessee and that the assessee was or was not afforded opportunity for cross-examination, when overwhelming documentary evidences are produced by the assessee, the burden shifts on the Revenue to explain away them. Every time the statements cannot help the Department. How the above-mentioned evidences could be ignored? The Revenue has to give reasons for rejecting them. These are important documents, some of them arise under the provisions of the Companies Act. The brokers were never confronted with the evidences produced by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to that effect. The assessee made payment for the purchase from her own sources through banking channel. The shares were transferred in the name of the assessee and were held by her for more than one year. There is no relationship between the party from whom the assessee purchased the shares and the party to whom these were sold. The shares were delivered after its sale and the assessee did not remain in possession of those shares. From the above facts, it is established that the assessee acquired the shares to earn profit. There is no evidence except speculation that this profit is not from the sale of shares. The AO has failed to establish his case and to discharge the requisite burden cast on him. The Authorised Representative has filed the requisite quotation of18th July, 1996along with the requisite proof of transactions of 9,000 shares along with transfer of share certificate. Therefore, in the given facts and circumstances of the case, the CIT(A) has correctly come to the conclusion that the assessee has dealt in these shares and these transactions cannot be held bogus. The deletion of addition of Rs. 4,99,062 is confirmed.' (13) The above decision clearly helps the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kers. The money has not been deposited in cash in this account but has come to this account by way of transfer from the account of M/s S.G. Fincap Ltd. The learned AM has distinguished the decision of Ashok Kumar Lavania ( supra ). On the basis of that, in Ashok Kumar Lavania s case ( supra ) purchase of the shares was not in dispute. While in fact in assessee's case the purchase of shares is also not in dispute but rather the company has directly confirmed to the AO the purchase of the shares by the assessee in reply to the notice issued under section 133(6). The learned AM was also the party to that decision. I noted that in this case the AO has doubted the sale consideration because the share price has increased tremendously. I noted that in the case of Ashok Kumar Lavania ( supra ) also the assessee has purchased the shares @ Rs. 4 per share and sold @ Rs. 65 to Rs. 84 per share. In that case also the broker has not accepted the transaction but on the basis of the evidence the Tribunal has accepted the transaction to be genuine one as there was no corroborative evidence to support the statement of the broker. In this case, I noted that the statements of the broker couldn' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt can decide on which occasion he was truthful." 12. Further, as noted, the statement was recorded by the DDI, (Investigation Wing, Agra and not by the AO himself. Thus, the truthfulness of the statement remained untested by the AO. Tribunal, Delhi in the case of ITO v. Rajiv Aggarwal [2004] 89 TTJ (Delhi) 1095 : 139 Taxman 170 (Del.)(Mag) has observed as under : The mere reliance on the statement of third parties who were never examined by the AO himself cannot be held to be sufficient to come to the finding that the transaction was not genuine and more so when there are other material and evidences to support the transaction." 13. Hon ble Delhi High Court in the case of CIT v. SMC Share Brokers Ltd. ( supra ) also observed as under : "There is no doubt that the statement of Manoj Agarwal had evidentiary value but weight could not be given to it in proceedings against the assessee without it being tested under cross-examination. In the absence of statement being tested, it cannot be said that it should be believed completely to the prejudice of assessee." 14. Under these facts, I am of the opinion that the case of the assessee is duly covered by the Divisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25 times too cannot be the basis to assume that the transaction was bogus. Abnormal fluctuation in share prices is a normal phenomena the learned counsel for the assessee filed a chart showing low and high prices of some quoted shares during the 52 weeks as per Economic Times, dt. 27th Feb., 2007, from which it can be seen that some shares increased even by more than 100 times. 17. In almost similar circumstances the Hon'ble Punjab Haryana High Court in the case of CIT v. Anupam Kapoor [2007] 212 CTR (P H) 491 [2008] 299 ITR 179 (P H) has also observed as under : "The Tribunal was right in rejecting the appeal of the Revenue by holding that the assessee was simply a shareholder of the company. He had made the investment in a company in which he was neither a director nor was he in control of the company. The assessee had taken shares from the market, the shares were listed and the transaction took place through a registered broker of the stock exchange. There was no material before the AO, which could have lead to a conclusion that the transaction was simpliciter a device to camouflage activities to defraud the Revenue. No such presumption could be drawn by the AO, me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the Tribunal, Delhi C Bench in the case of ITO v. Naveen Gupta ( supra ), copy of which is placed by learned Authorised Representative, has observed as under : "Nevertheless, it is also noteworthy that the AO has failed to establish that in lieu of the aforesaid sale proceeds, the assessee has surreptitiously introduced his unaccounted money in the bank account. After having perused the entire material that is available on record, there is no averment, much less any evidence, with the Revenue in this regard. While there may be enough grounds with the AO to carry out the impugned verification exercise to test the efficacy of the transactions resulting in long-term material gains in the hand of the assessee but there is no cogent material or evidence to indicate that the impugned sale proceeds reflected unaccounted income of the assessee." 20. 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 eith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of a character which would either directly prove the fact of bogusness or establish circumstances unerringly and reasonably raising an inference to that effect." 2l. I have also gone through various other decisions on similar issue under the similar facts and I noted that this Tribunal had consistently accepted the genuineness of the share transaction. Those cases are as under : ( i ) ITO v. Sunita Gupta ITA No. 881/Del/2004 (Delhi Bench SMC ); ( ii ) Dilip Gargh v. ITO ITA No. 470/Agra/2004; ( iii ) Gopal Prasad Agarwal v. Asstt. CIT ITA No. 128/Agra/2004 22. I also noted that the case of the assessee is duly covered by the decision of the Third Member in the case of Smt. Sunita Oberoi v. ITO ITA No. 273/Agra/2004; asst. yr. 1995-96, dt. 7th Aug., 2009, [2009] 126 TTJ (Agra) (TM) 745, in which on difference of opinion on the question under the similar circumstances whether the assessee can be said to have discharged her burden to prove the genuineness of the transaction in shares of M/s Prasidh Exports Ltd. and M/s K.L.P. Finance Ltd. or that the burden had shifted on the Revenue that can be held to have not discharged by them, the decision to u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort payment and disputed the remaining amount. The Department has thus proceeded entirely on suspicion and surmises if seen in the light of the orders of the Tribunal. The claim of the assessee in regard to the first issue is to be allowed." 23. Thus, in view of the aforesaid discussions, the decisions of the Third Member, the decisions of the Co-ordinate Benches, totality of the facts and circumstances and evidence on record, I am of the considered view that the action of the CIT(A) was not, correct in confirming the assessment of Rs. 12,19,538 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. Thus, the ground Nos. 1 and 2 of assessee's appeal should be allowed. Ground No. 3 of assessee's appeal is consequential in nature, does not require any adjudication. So far the ground No. 1 of Revenue's appeal is concerned, the same should stand dismissed as infructuous in view of my ..... 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