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TMI Blog2012 (7) TMI 577X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee is directed against the order dated 19.06.2009 of the Ld. CIT(Appeals)- Central II, Mumbai relating to Assessment Year 2006-07. 2. The grounds of appeals raised by the assessee are as under : 1. The learned CIT(Appeals), erred in confirming the finding of the Assessing Officer in not considering the gains on the sale of shares of ₹ 4,94,51,910/- as long term capital gains and thereby also confirming the consequent denial of exemption u/s. 10(38) of the Income-tax Act, 1961. 2. The learned CIT(A), erred in confirming the finding of the Assessing Officer that the purchase of the shares can be considered only on the date of dematerialization and therefore the holding period becoming less than 12 months hence, the capital gains of ₹ 80,03,027/- (5,29,22,774 - 4,41,10,775) be taxed as short term capital gains. 3. The learned CIT(A) further erred in holding that the purchase value of the shares sold be taken at the average of high and low price of the shares traded on the NSE and BSE on the date of dematerialization viz. ₹ 4,41,10,775/- and treating the same as unexplained investment in the shares. 4. Without prejudice to above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ledger account of Mahasagar Securities Pvt. Ltd. in the books of assessee. ( iii ) Statement of demat account held with Techno Shares and Stocks Ltd. 4.2 To verify the assessee's claim of purchase of the above shares, the AO issued summon to the principal Director of Mahasagar Securities Pvt. Ltd. on 16.01.2008 requiring him to furnish the brokers note regarding the purchase of the above mentioned shares by the assessee and the copy of ledger account of assessee in the books of Mahasagar Securities Pvt. Ltd. He was directed to furnish the above information on or before 04.02.2008. Since no reply was received, the AO issued another summon to Mahasagar Securities Pvt. Ltd. on 05.05.2008 for furnishing the above details on or before 09.05.2008. However, since no reply was received, the AO issued another summon on 21.07.2008. In the mean time, the AO asked the assessee to produce the director of Mahasagar Securities Pvt. Ltd. vide order sheet entries dated 10.06.2008 and 03.10.2008. However, the assessee also did not produce him for the verification of his transactions of purchase of shares. 4.3 The AO subsequently issued notice u/s.133(6) to National Stock Exchange (NSE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt and transfer the same before the sale. The assessee is in the habit of relying on portfolio management advisors who act on his behalf and the management of such funds and shares is entirely left to them to ensure that the procedural aspect of the transaction are completed by the advisors. The assessee was not intending to conduct any transaction in any illegal manner but abide by the law absolutely. This lapse if any is due to the over sight and not intentional. The assessee believes that ones she purchased the shares the brokers note and the bill are sufficient evidence that the transaction is completed. In view of the magnitude transaction and looking at the spirit of the law it is humbly submitted that the capital gains may be considered as long term capital gain u/s.10(36) on which the STT ties paid and not short term capital gains. 4.7 Subsequently, Shri Mukesh Chokshi, Director of Mahasagar Securities Pvt. Ltd. attended the office of the AO on 24.12.2008 in response to the summons issued u/s.131 of the LT. Act and his statement was recorded u/s.131 of the I.T. Act. In the said statement Shri Mukesh Chokshi in his reply to question No.7 to 10 specifically denied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss was not holding the above mentioned shares before the date of Dematerialisation in the Demat account held with Tecno Shares and stocks Ltd. In the back drop of above mentioned facts gathered from the investigations carried out and the statement of Shri. Mukesh Choksey the AO came to the following conclusions regarding the purchase and sale of shares. (I) Assesses had no transaction with Mahasagar Securities. (II) The ledger account showing the transactions with Mahasagar securities is not genuine as Shri. Mukesh Choksey, Director of Mahasagar securities has categorically denied of having the transaction with the assessees. (III) The Contract Notes/Brokers notes furnished by the assessee are not genuine, as Shri. Mukesh Choksey, Director of Mahasagar securities has categorically denied to have Issued any contract notes to the assessees. (IV) The replies received from the B.S.E. and N.S.E also proves that, the transactions as appearing on the brokers notes for purchase of the disputed shares have not been done through the Stock Exchanges. These shares were not traded through the stock exchanges. (V) The shares were not dematerialized after the purchase. (VI) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Capital Gains of ₹ 4,95,28,208/- and since he held the purchases to be not genuine, the AO did not allow the deduction of ₹ 14,01,123/-. 4.12 Without prejudice to the above, the AO held that even if it is assumed (though not accepted) that, since the assessee has shown receipts from the sale, therefore, there may be purchase of shares on or before the date of sale, then also the receipts from the sale of shares would become the Short Term Capital Gain and not Long Term Capital Gain, as the holding period becomes less than 12 months. The date of purchase, if at all is to be considered, can be considered only as date of dematerialization in the Demat Account with Techno Shares and Stocks Ltd. If this view is considered, the price of the shares on the date of dematerialization would then become the purchase price of the assessee. As the purchase on this date was not accounted for in the books of account, therefore, it has to be treated as unaccounted purchase and the entire purchase amount becomes the unexplained investment in shares. The AO analysed the total purchase price on the date of dematerialization of shares which comes to ₹ 4,41,10,775/-. According to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, when he wanted to sell the said shares, he found that the said shares have not yet been transferred in his name and when his portfolio management advisor, who was in charge of handling the administration and the procedural part, showed ignorance about the same, the assessee opened a new demat account in Techno Shares and Stocks Ltd. and transferred the said shares in the demat account with Techno Shares and Stocks Ltd. before the sale thereof. The assessee having received the said shares in his Demat account with Techno Shares and Stocks Ltd. presumed that the same would be transferred by Mahasagar Securities Pvt. Ltd. and did not further verify the source of the shares. 5.2 It was argued that the AO has relied on the falsified statement of Director of Mahasagar Securities P. Ltd and has only considered his denial. The assessee submitted confirmation letter from Sunchan Securities stating that shares were transferred to the assessee's Demat account on instructions from Mahasagar Securities Pvt. Ltd. It was submitted that some of the said shares were received as Bonus Shares on the original shares purchased by the assessee earlier and some of the said shares included s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-tax. Circle 4(2), Mumbai and his PAN No. has been furnished before the AO as AAACT 4464G. The said broker M/s. Techno Shares Stocks Ltd. was in touch with the AO and he has furnished the requisite information before the AO regarding the sale of impugned shares. The said broker has a website known as www.technoworld.in. The said broker M/s. Techno Shares Stocks Ltd. has unambiguously stated that it had carried out the transactions of sale of impugned shares on behalf of the assessee and that necessary charges were paid in respect of the same to the Stock Exchange and the Securities Transaction Tax (STT) in respect of the relevant sales of impugned shares were also paid as per provisions of law. The assessee had also produced the relevant contract notes for the sale of impugned shares from the said brokers i.e. M/s. Techno Shares and Stocks Ltd, copy of brokers account in his books of accounts and copy of his bank statement evidencing the details of receipt of the sale consideration through the aforesaid M/s. Techno Shares Stocks Ltd. The sale consideration was received by account payee cheques through banking channels and from a reputed BSE/NSE broker wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said M/s. Mahasagar Securities P. Ltd. on the specified dates and the evidences collected by AO are sufficient to hold that the impugned listed shares were not dematerialized on or immediately after the alleged dates of purchases. The impugned shares got dematerialized perhaps on or about the date of sale of the impugned listed shares. The assessee has not furnished sufficient evidences to establish that the impugned shares were genuinely purchased on the specified date from the said M/s. MSSP. He accordingly upheld the alternate action of the AO in taxing the short term capital gain of ₹ 80,03,027/- and unexplained investment of ₹ 4,41,10,775/-. 6. Aggrieved with such order of the Ld. CIT(A) the assessee is in appeal before us. 7. The ld. counsel for the assessee referring to pages 18 to 43 of the paper book drew the attention of the Bench to the copies of contract notes and purchase bills of the shares purchased from Mahasagar Securities Private Limited (MSPL). Referring to paper book page 44 of the paper book he drew the attention of the Bench to the copy of the bank statement of HDFC Bank evidencing the payment for purchase of shares. Referring to paper boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31 of the Act by the assessee in the presence of the A.O. (copy of which is placed at paper book pages 24 to 26, the ld. Counsel for the assessee drew the attention of the bench to the reply given by Mr. Mukesh Choksi in response to Question No. 2 wherein he has confirmed to have received the cheques. Referring to the reply given by Mr. Mukesh Choksi during the course of cross examination, he submitted that vide Question No. 4 he had stated that he prepares the account on receipt basis and cheques received by him are accounted as a general receipt and on which the commission earned by him have been accounted fully. He submitted that from the above it can be noted that MSPL has not denied receipt of money but only have denied the transaction itself. He submitted that it is a case where the receipts were recorded as general receipt and it is the case of the assessee that the accounts of the brokers were not properly maintained. Maintenance of accounts not properly by the broker cannot be a reason to treat the evidences of the assessee as in-sufficient and the entire transaction cannot be treated as bogus. He submitted that since the shares were dematerialised before the date of sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod of holding of securities held in dematerialised form. He submitted that in view of the above two circulars issued by CBDT it is crystal clear that in case of securities the date of purchase is conclusively to be taken from the broker's note/contract note and the period of holding is also to be reckoned from the date of purchase and not from the date of dematerialisation as alleged by the A.O. and the ld. CIT(A). He submitted that demating of the shares is a lengthy process which takes about 6 to 8 months or even more than that. Therefore, in view of the various documents furnished by the assessee the purchase of shares are genuine, the holding period of each share is more than 12 months and therefore the same cannot be rejected merely on the basis of statement of Shri Mukesh Choksi who indulges in double speaking. He also relied on the following decisions:- 01 CIT v. Korlay Trading Co. Ltd. [1998] 232 ITR 820 (Cal.) 02 Asstt. CIT v. Claridges Investments Finances (P.) Ltd. [2007] 18 SOT 390 (Mum.) 03 Abhishek Mohata v. ITO (I.T.A Nos. 122 to 124/Kol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en doubted by the A.O. in the assessment proceedings as well as during remand proceedings and the assessee has proved the genuineness of the sale of shares, therefore, no addition can be made u/s 68 of the Act. The Revenue is not in appeal before us against the said observation of the ld. CIT(A). However, the ld. CIT(A) upheld the alternate proposition of the A.O. that the purchase price on the date of dematerialisation of shares become unexplained investment in the hands of the assessee and the difference between in sale and purchase of shares has to be treated as short term capital gain since the assessee could not substantiate the purchases. Therefore, the question that has to be answered in the grounds raised by the assessee is as to whether the purchase of shares by the assessee are genuine or not and whether the holding period is more than 12 months or not. 9.2 We find the assessee before the A.O. has filed the copies of contract notes and purchase bills of all the shares purchased from MSPL (copies of which are placed at paper book page 18 to 43). Similarly the bank statement maintained with HDFC bank shows evidence of payment to MSPL. The Xerox copy of the account payee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the holding period of the shares is less than 12 months. 9.4 However, we find during the course of cross examination by the assessee before the A.O. on 29.12.2008 Mr. Mukesh Choksi confirmed to have received the cheques from the assessee. The relevant question No. 2 and answer thereof is as under:- Q.2. Question put up by Shri Digant Bhatt - We have issued a Cheque from Jafferalli K. Rattonsey, Hamida Rattonsey for ₹ 12,40,565/- and ₹ 11,91,378/- respectively, which you have received, kindly confirm. Ans. I confirm the above cheques have been received by me. Similarly, reply given by Shri Mukesh Choksi to Question No. 3 to 5 are as under:- Q.3 Question put up by Shri Digant Bhatt - We have received the shares in Demat Account of Shri Jafferalli K. Rattonsey and Hamida Rattonsey from Sunchan Securities Ltd. on your behalf, kindly confirm. Ans. I have not given any instructions. Q.4 Question put up by Dr. Mahesh Akhade * In the statement recorded u/s.131 of the IT. Act on 24.12.2008, you have denied in the answer to Question No.8, 9, 12 13 that Mahasagar Securities Pvt. Ltd. and Alliance Intermediaries Network Pvt. Ltd. has no relationship to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dematerialization of shares from physical holding is a lengthy process and takes considerable time. Therefore, when there is no dispute to the dematerialization of shares before the date of sale, therefore, the shares were purchased much prior to the date of sale. 9.7 The CBDT Circular No. 704 dtd. 28.4.1995 states that it is the date of broker's note that should be treated as the date of transfer in cases of sale transactions of securities provided such transactions are followed up by delivery of shares and also the transfer deeds. Similarly, in respect of the purchasers of the securities, the holding period shall be reckoned from the date of the broker's note for purchase on behalf of the investors. The CBDT Circular No. 768 dtd. 24.6.1998 was issued to clarify the determination of date of transfer and the period of holding of securities held in demat form. It has been stated there in that earlier Circular No. 704 issued by the CBDT relating to the date of transfer and period of holding does not change even when securities are held in the dematerialized form. Therefore in view of the above two circulars of CBDT it is clear that in case of securities the date of pu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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