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TMI Blog2015 (4) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... iness prospects (with of course proven management record, so as to be able to translate that into reality), while even as much as the company’s business or industry or future program (all of which would be in public domain), is conspicuous by its absence, i.e., even years after the transaction/s. The company is, by all counts, a paper company, and its share transactions, managed. We, accordingly, reversing the findings of the first appellate authority, confirm the assessment of the impugned sum u/s.68 of the Act. - Decided against assessee. - I.T.A. No.4906/Mum/2011 - - - Dated:- 27-3-2015 - Shri Joginder Singh And Shri Sanjay Arora JJ. For the Appellant : Shri Neil Philip For the Respondent : Shri Keshav B. Bhujle ORDER Per Sanjay Arora, A. M.: This is an Appeal by the Revenue directed against the Order by the Commissioner of Income Tax (Appeals)-30, Mumbai ( CIT(A) for short) dated 18.04.2011, allowing the Assessee s appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ( the Act hereinafter) for the assessment year (A.Y.) 2006-07 vide order dated 29.12.2008. 2. The sole issue arising in the instant appeal is the maintainability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that the shares were transacted on the stock exchange on 06.05.2005 at ₹ 21.70 per share, i.e., the same rate at which the assessee had purchased them in May, 2004. The sale proceeds were received per account payee cheque/s, duly deposited in the assessee s bank account, and not withdrawn in cash. Security transaction tax (STT) was paid on the impugned sale transaction/s, proved with documentary evidences and, accordingly, all the conditions of section 10(38), conferring exemption to the gains arising on the sale or transfer of shares, were fulfilled. The assessee s claim being allowed thus, the Revenue is in appeal before us. 4. We have heard the parties, and perused the material on record. 4.1 As shall be evident from the foregoing narration of events, the primary facts (and figures) of the case are not in dispute, which (dispute) arises principally on account of the different inferences drawn from the same set of primary facts by the two Revenue authorities. The issue is, thus, essentially factual, revolving or centering around as to which of the two inferential findings are maintainable in law, i.e., in view of the surrounding facts and circumstances of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Biju Patnaik [1986] 160 ITR 674 (SC); Sumati Dayal v. CIT [1995] 214 ITR 801 (SC); and CIT vs. P. Mohanakala Others [2007] 291 ITR 278 (SC) We may further clarify that in proceeding with the matter, we have circumscribed the entire material on record. 4.2 The assessee, to begin with, has nowhere explained as why the shares were purchased in cash, the source of which is ascribed to cash-in-hand, and not to any contemporaneous evidence, as cash withdrawn from bank on that or nearby dates. How was the cash, one may ask, transmitted from Mumbai, where the assessee is resident, to Kolkata, where the purchase stands made, and the broker, to whom it is paid, located? 4.3 Then, again, why was the transaction not carried through a recognized stock exchange (SE), mandatory in law, even as it was done through its registered member. This becomes relevant and significant for more than one reason. Firstly, it proves the time of the transaction, which is of essence inasmuch as it determines the holding period of the shares/asset, with reference to which, where over 12 months, exemption from tax to gains arising on transfer is granted by law per s.10(38) read with other re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by him, so that its truth, in the context of paper companies, the selling of gains and losses in which the brokers, as operators, play a significant role, cannot therefore be decided with reference thereto or the statement by the broker, a related party. This, however, would be so only where there are strong factors or circumstances which cause serious doubt about the transaction. For example, how one may ask, were the shares transmitted to the assessee, located at Mumbai, who would have signed the transfer form? The broker or the assessee nowhere states the reason for carrying out the transaction in the manner done, i.e., off the market, which is not ordinarily permissible, and is subject to some legal constraints under Securities Contracts (Regulation) Act, 1956. Rather, how could he deal with the assessee, who is not his client! Then, again, why was it paid for in cash, for which there is no evidence, and neither has the broker been shown to accept cash in the ordinary course of his business. Why, for the persons trading therein, this would be an impediment to claim the cost of shares traded in, in view of the non obstante clause of s. 40A(3). The brokers are in fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 21-22 would even otherwise hardly raise any eyebrow or doubt. The purchase gets doubted examined only for the reason that it represents a part of the overall transaction, which is considered by the Revenue as an artifice. In other words, proving the purchase would by itself not prove the transaction of gain, which stands impugned and, further, being at a minor sum has little bearing in the matter. In fact, the A.O. states precisely this (refer para 4.9(a) of his order), that even assuming the purchase as genuine, the sales, given the high rates for such penny stocks, with no real buyers, are bogus. Coming to the assessee s contention on merits, the letter dated 17.05.2004 supra inspires little confidence. It does not specify the name of the authorized signatory, the sign being otherwise not visible. It bears no serial number, even as it represents a communication, which a company or its secretarial department is required to make in the regular course of its business. It further does not bear any indication of the manner in which it is conveyed to the assessee, i.e., by hand, per post - ordinary or registered; per courier, etc., which is, again, a norm, besides establishing its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prices; no information qua which stands furnished at any stage, even as it is they who have apparently brought the shares, supplying the credit to the assessee, which is being questioned and examined as to its genuineness u/s. 68 of the Act. All this definitely casts serious doubts on the genuineness of the sale price and, thus, the ensuing gain. This, in fact, is a classical feature of a penny stock, the price zooming for no apparent, economic or even technical, reasons. One could understand where the same is in sympathy with the market sentiment or some industry-wise favourable development, even as the share ostensibly trades, i.e., going by the market quote, at over 22 times its price obtaining two months earlier, implying, by correspondence, a jump in the market index to the same or similar extent, i.e., 2200%, over the same period, which is both unheard of - work as it does to, a growth rate of 13200% p.a., and, of course, not shown. There is again no whisper and, consequently, no information on record of the particular industry/s in which, if any, the said company operates, or its financials, much less future prospects, the information on all of which gets factored into and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks - the price, de-hors any fundamentals or other factors, of paper companies being raked up on the Exchange, so as to yield gain , and then again, equally without basis, grounded to yield loss , both of which, i.e., gain and loss , find ready customers or takers . The purpose is to evade tax or to yield some tax benefit. True, this has not been established in the present case, but the features are strikingly same, with the impugned transaction bearing the same incidents, so that odds are loaded heavily against the genuineness of the transaction. The onus to establish the same, it is to be borne in mind, is on the assessee. The ld. CIT(A) has dismissed the same as merely suspicions. We are, however, unable to, for the reasons afore-stated, persuade ourselves to agree with him, each of the several incidents and, therefore, the questions arising, that impugn the genuineness in the present case, are based on admitted and undisputed facts. The issue, as clarified at the beginning of the discussion, being the validity of the inferential findings - there being a difference between the two Revenue authorities. We find the observations by the AO as valid and relevant, to no satisfa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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