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TMI Blog2015 (3) TMI 141X X X X Extracts X X X X X X X X Extracts X X X X ..... onfirming the assessment of Sale proceeds of shares declared by each of them as Income from Other Sources by rejecting the claim of Long term Capital gains. 3. The facts relating to the cases are stated in brief. All these assessees belong to "Birawat" group and all of them are family members. The revenue carried out search and seizure operations are the residential premises of Birawat group u/s 132 of the Act. Consequent thereto, the present assessments were completed by the AO u/s 153A of the Act in the hands of the assessees cited above except in the cases of "Shweta K Birawat" and "Akshata Birawat", in whose hands the assessments were completed u/s 153C of the Act. It is pertinent to note that the department did not unearth any incriminating material during the course of search. All these assessees filed returns of income, wherein they, inter alia, declared income arising on sale of shares under the head "Capital Gains". 4. The AO noticed that the Investigation wing of the department have found that a person named Shri Narendra R Shah was using the names of two entities viz., M/s G.R Pandya Share Broking Ltd and M/s T.H. Vakil Shares & Securities Pvt Ltd, to issue bogus purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for transfer of shares to their names. The shares of "M/s Suryadeep Salt Refinery & Chemicals Works Ltd" were also seen purchased through the sub-broker, i.e., M/s Amizara Securities & Finance P Ltd. 8. Hence, the AO asked these assessees to produce anybody from M/s Amizara Securities & Finance P Ltd. But, according to the AO, these assessees did not produce the sub-broker. 9. With the facts mentioned above, the AO came to the following conclusions:- "11. The picture that emerges is that M/s T.H. Vakil Shares & Securities Pvt ltd have confirmed that they never actually bought any shares on behalf of the assessees of this group and the so called purchase bills attributable to them are bogus, as these bills were mere accommodation bills, not backed by any real transactions. M/s Suryadeep Salt Refinery & Chemicals Works Ltd have confirmed that none of the assessee's in this group ever held any shares in the company M/s Suryadeep Salt Refinery & Chemicals Works Ltd. The persons from M/s Amizara Securities & Finance P Ltd were never produced. Thus, the purchases of aforesaid shares being bogus were confirmed. When purchases themselves are bogus, the logical inference is that the who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where these shares were transferred into demat account of the assessees of Birawat group were opened on 06.03.2004 and 22.12.2004 as confirmed by the Central Depository Services India Ltd, vide their letter dated 26.11.2008. The assessees of Birawat Group has claimed that broker M/s AFSL or M/s T.H. Vakil has purchased shares for them and kept the same in their own demat account upon purchase. This has been proved incorrect. IV. Regarding purchase of shares of Interlink financial Services Ltd in physical form as claimed by assessees of Birawat Group nothing could be produced to substantiate their claim that these were purchased and kept by them for more than twelve months. Nothing has been brought on record to prove the genuineness of share transactions of this company (Interlink financial services Ltd). Further they also failed to produce any person from M/s AFSL. Therefore the entire sale proceeds claimed to have been received on sale of shares of IFSL shall be taxed as income from other sources in the hands of assessees of Birawat Group in the respective assessment years." Accordingly, the AO assessed the entire amount of sale proceeds of shares as income of the assessees und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese assessees by the assessing officer and hence he is not entitled to rely upon the statement given by Shri Narendra R Shah. (d) These assessees, in fact, did not indulge in any type of transaction with Shri Narendra R Shah. These assessees have purchased shares from the sub-broker named M/s AFSL and they have sold the shares through other brokers named M/s Yogesh /M/s Niche. Both the brokers are not connected to each other. Further M/s AFSL was not connected to Shri Narendra R Shah. (e) Even in the statement taken from Narendra R shah, he has only stated that he did not carry any transaction with Birawat group. He has only stated that he had given bogus bills for trading in shares of Interlink financial services Ltd and Database Finance Ltd. Further, he has stated that the bills were issued through M/s G.R. Pandia and M/s T.H. Vakil. However, these assessees have purchased shares of Interlink Financial Services Ltd only from M/s AFSL and not from Shri Narendra R Shah or his group of companies. Hence his statement could not be relied upon to take adverse inference against the assessees. (f) Shri Narendra R Shah had stated that he has given bogus bills on the instructions of two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd merely on the basis of a letter given by a Director of the said company, when other materials furnished by the assessee clearly show the genuineness of the transactions. In any case, the AO has not given an opportunity to cross examine the director of M/s Suryadeep Salt Refinery & Chemicals Works Ltd. (k) The Ld A.R submitted that in the following cases, it has been held that the purchases are to be considered to be genuine, if sales are found to be genuine. Balaji Textile Industries P Ltd 49 ITD 177 (Mum) Nangalia fabrics P Ltd 220 Taxmann 17 (Guj) Surana Traders 92 ITD 212 (Mum) (l) The assessing officer has not proved that the purchases made from M/s AFSL and the shares received from M/s AFSL were bogus. (m) The assessees have received part of shares from the Demat account of M/s T.H. Vakil Shares & Securities P Ltd, a concern belonging to Shri Narendra R Shah. He submitted that the investors are concerned with receipt of shares only in their demat account and they are not concerned about the demat account from where they were received. Accordingly he submitted that these assessees were not aware about the fact that some of the shares were received from M/s T.H. Vakil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued bogus purchase bills of shares two companies (Interlink Financial Services ltd and Database Finance Ltd), by using the name of two entities, viz., M/s T.H. Vakil Shares & Securities and M/s G.R Pandya Share Broking Ltd. (c) The admission of Shri Narendra R Shah proves that the assessees have not, in reality, purchased the shares of M/s Interlink Financial Services Ltd. He has further admitted that he has not purchased shares on behalf of Birawat Group. (d) The assessees have admitted in the reply to Q No.5 that they have not entered the details of purchases in the books. (e) The enquiries made with M/s Suryadev Salt Refinery & Chemicals works Ltd clearly show that the assessees have also, in reality, not purchased those shares also. (f) M/s AFSL was not produced before the AO and hence the claim of purchase of shares through M/s AFSL was also proved to be bogus. (g) The claim of these assessees that they have held the shares for more than 12 months was proved to be incorrect. The claim that the brokers held the shares on behalf of these assessees was also materially incorrect. (h) The assessees have admitted that the sale proceeds can be taken as their income from othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing officer as well as Ld CIT(A) have taken the view the assessees have also purchased accommodation bills and accordingly declared bogus Long term Capital gains. Accordingly, the tax authorities have taken the view that the assessees have introduced their unaccounted money in the form of Long Term Capital gains. Accordingly they have rejected the claim of Long term Capital gains and assessed the gross receipts as Income from other sources. It is pertinent to note that the tax authorities have also assessed the sale proceeds arising on sale of other companies also as Income from other sources, even though the shares of M/s Interlink Financial Services Ltd alone was found to fall in the category of Penny stocks, whose prices were alleged to have been rigged. 18. Now the issue that requires examination is whether the evidences / materials available in the case of these assessees were sufficient enough to entertain the view so taken by the tax authorities, i.e., whether these assessees can be considered to have taken the accommodation bills with the intention of generating bogus Long term Capital gains. 19. We have already noticed that the assessing officer has fully placed rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected the claim of purchases, only for the reason that the assessees have failed to produce anybody from M/s ASFL. However, we notice that the assessees have tried to locate the above said broker, but could not find it, since the broker had vacated its office. This fact, we notice, was brought to the notice of the assessing officer. However, we notice that the AO did not take any further steps to trace M/s ASFL. Under these set of facts, in our view, the AO should not have drawn adverse inference against the assessees, when they have expressed their inability for the reasons stated above. 22. The AO has taken the view that the assessees have opened the Demat account only subsequently and the shares have come to their Demat account from other Demat accounts only few days prior to the date of sale. Accordingly, the AO has expressed the view that the period of holding should be computed from the date on which the shares have come to the credit of Demat accounts. However, the submissions of the assessees in this regard are that they had purchased the shares in physical form and the said shares were held by the sub-broker on their behalf. After the assessees have opened the Demat acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on behalf of the clients and in this connection only the broker contract notes are issued. We further notice that the submissions of the assessees that the shares were in the possession of the broker were also rejected without making further examination. 24. The Ld D.R, in his written submissions, has stated that the assessees have to produce purchase bills, payment details, service tax payment details, broker books of account at the time of dematerialization. The said submissions do not appear to be correct as per the prevailing practice. For dematerialization, to our knowledge, only the share certificates have to be furnished. However, in the instant case, the subbroker has got the shares dematerialized the share certificates and then transferred them to the account of the assessees herein. We have already noticed that the assessing officer has not taken any steps or brought any material on record to show that the claim of purchase of shares in physical form from M/s ASFL was wrong. In the absence of such an exercise, in our view, it may not be proper on their part to suspect the receipt of shares in Demat account. 25. Another point, which is pertinent to note is that all these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re able to trace out the same. ....... Q 11 On similar lines narrated in Question No. 10, the total LTCG claimed by you and your family members on account of transactions shown of "A" or "B" group stocks of BSE works out to Rs. 3.08 crores, approx. As per facts mentioned above, the period of holding shown by you is bogus and accordingly the purchases shown by you are also not genuine. Hence the said LTCG is artificial and bogus. Please explain. Ans.: As stated in my statements dtd 25-1-07, 31-1-07 and 05-04- 07, I am trying to trace out the details of capital gains of Rs. 10,22,64,376/- (which includes the above Rs. 3.08 cr.) and shall submit the same. In case, I am unable to trace out and furnish the required details, I hereby undertake to declare the same as our income for the respective asst. years in the hands of respective assessees. Since I have voluntarily agreed to declare this income, if I fail to submit the details, I request the Department to grant immunity from penalty u/s 271(1)(c) of the I.T Act. A careful perusal of the above said questions and answers would show that the view expressed by ld D.R does not appear to be correct. 27. In view of the foregoing discus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .990/M/2010 31.10.2005
(b) Kiranraj U Birawat ITA No.987/M/2010 31.10.2005
(c) Ankit Birawat ITA No.978/M/2010 01.12.2005
(d) Chanchalaben Birawat- ITA No.972/M/2010 01.12.2005
(e) Kalaben Birawat - ITA No.974/M/2010 01.12.2005
(f) Avani Birawat - ITA No.968/M/2010 08.12.2005
(g) Veenaben Birawat - ITA No.980/M/2010 01.12.2005
(h) Uttamchand A Birawat(HUF)-ITA.No.7399/M/2010 08.12.2005
(i) Kiranraj A Birawat(HUF)- ITA No.6946/M/2010 31.10.2005
(j) Vasantraj A Birawat(HUF) -ITA No.7400/M/2010 08.12.2005
(k) Shweta K Birawat - ITA No.976/M/2010 14.12.2005
(III) In the case of Shweta K Birawat (ITA 976/M/10 relating to AY 2005 06) and Akshata Birawat (ITA No.977/M/10 relating to AY 2006-07), the assessments were completed u/s 153C of the Act. However, the assessing officer of searched person did not record satisfaction as required under the provisions of sec. 153C.
30. We do not find it necessary to adjudicate the above said legal grounds, since we have decided the issue relating to the additions in favour of the assessee.
31. In the result, all the appeals filed by all the assessees are allowed.
The above order was pronounced in the open court on 20th Feb , 2015. X X X X Extracts X X X X X X X X Extracts X X X X
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