9911796707
TMI Blog2014 (4) TMI 1085X X X X Extracts X X X X X X X X Extracts X X X X ..... , toward which we find no contention, much less material. All it has done, as it would appear, is make available peon for serving tea or even snacks, as bought-outs, as would be the case in any office setting. In fact, tea could be prepared in-house, or even through a vending machine, with little or no impact on the essential character of the ‘services’ being provided. Why, a landlord may provide services of a lift, security services, even a caretaker to take care of the needs of the tenants of different flats residing in his building. That, however, would not though make it any less an arrangement to exploit the inherent rental capacity or potential of the property. Further, what is the furniture and fixture, also let, and if it is inseparable from the letting the building and, further, not a part of the cabin itself, remains to be clarified. The assessee has referred to a hotel, implying perhaps that while the said industry falls in the hospitality sector, it operates in the business sector. The argument is flawed, and the comparison ends before it begins. We have already noted absence of any economic activity of merit, which alone would enable the assessee’s business being categ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecided by the CIT(A) vide his order dated 30/1/2008. The balance appeals are in respect of appeals by ZAS contesting his assessments, since upheld, for assessment years 2002- 03 to 2008-09. The issues arising in all these appeals being the same, the assesses being in fact husband and wife, they were posted for being and, accordingly, heard together, and are being decided by a common, consolidated order for the sake of convenience. 2. The principal issue arising in the instant appeals (for AY 2004-05) is the validity of the assessee's claim for deduction/exemption u/s. 54F of the Act as well as Long Term Capital Gain (LTCG). The same has been denied by treating the gain, returned by the assessee(s) as LTCG, as unexplained cash credit u/s 68. of the Act. The same stands assessed for A.Y. 2004-05 in the case of both the assessees and for A.Y. 2005-06 in the case of ZAS. We shall for the sake of reference and completeness of the narrative, refer to the back-ground facts of the case, adopting the figurative facts and also the figures in the case of one, Shahzeen Siddique (SS). The assessees, i.e., the husband (ZAS) and wife (SS), purchased 1.43 lakh and 1.58 lakh shares (of par value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective cases We proceed by delineating the respective cases of both the sides. The assessee's case The purchases of shares in July, 2002 is at the prevailing/ going market rate (at ₹ 1.25 per share). The shares to the extent purchased in July, 2002 (1.08 lac) were sent for transfer to the company on 25.07.2002 and received back, duly transferred, on 05.08.2002 (latest by September, 2002). These shares were subsequently got dematerialized on 03.03.2003 through NSDL affiliated depository participant (DP) on the company being allowed to dematerialize its shares. The shares were subsequently sold through two Ahmedabad Brokers, of whom one, RJN confirmed shares sold through him while other broker, i.e., MSFL, did not respond to the departmental inquiry. The same, as apparent, was because of change of address, indirectly proving that he had been working prior thereto, though was untraceable in December, 2006, i.e., when the inquiry was made by Revenue. The transactions though, again, off-market, were at the price obtaining at the relevant time at the Ahmedabad Stock Exchange, so that the same is by itself to no effect. Seeking details of the persons who purchased the shares am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capacity, and the genuineness (of the credit transaction/s) is on the assessee. It is only where the assessee discharges, at least prima facie, the said onus that the same shifts to the Revenue, beginning a cycle of shifting onus upon discharge, through credible rebuttal or otherwise meeting the evidence/s or material/s being relied upon by the other. The maintainability or otherwise in law of the addition/s under reference would, thus, be on the anvil and the parameters of section 68. The case law in the matter is legion, and toward which we may, if only for the sake of completeness of our order, advert to the some of the celebrated decisions by the apex court in the matter: A. Govinda Rajulu Mudaliar v. CIT (1958) 34 ITR 807 (SC) Sreelekha Banerjee & Othrs. v. CIT (1963) 49 ITR 112 (SC) Kalekhan Mohammed Hanif v. CIT (1963) 50 ITR 1(SC) CIT v. Durga Prasad More (1971) 82 ITR 540 (SC) CIT v. Biju Patnaik (1986) 160 ITR 674 (SC) Sumati Dayal v. CIT (1995) 214 ITR 801 (SC) CIT vs. P. Mohanakala &Others, 291 ITR 278 (SC) In this regard, however, it could be argued that section 68 may not be applicable in the facts and circumstances of the case - the credit being ascribed to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the transaction, considered as a whole. On the contrary, in-as-much as the purchase amount stands excluded, not forming part of the credit under reference, the assessee is prevented for that reason from claiming any benefit thereof. In-so-far as the same (purchase), though stands examined, whether for the earlier or the year of credit (sale), the benefit to the assessee would follow on it being proved. Again, even so, the sale transaction/s being independent of purchase/s, a credit could be impugned as not genuine on the strength of the findings qua the sale/s transaction alone. This is as both the 'transfer' (of shares) and 'profit' arises only on 'sale'. Accordingly, nothing turns on the afore-stated argument/s, and the matter would stand to be decided on factual findings, with the powers of the assessing authority in the matter being plenary. 3.3 The assessee refurbishing its case with documentary evidences, the same has been sought to be subject to verification by the Revenue, arriving at the conclusion that the genuineness of the transaction/s is not proved at all. The question that, thus, arises for our consideration is whether the Revenue has been successful in repelling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price shows a linear progression - the opening share price on any date on which the trade takes place, being at an increase - of course unexplained, over the previous close price. As a result, the share price increases from ₹ 2.55 per share in May, 2003 to ₹ 11 in September, 2003 - an increase of 432% inside six months, and without any economic or even technical basis - none being disclosed. Except on one day (20/6/2003), the share price does not respond to the volume of trade (i.e., at a decent figure of 1 lac shares and above); it closing at ₹ 5.95 as against the opening of ₹ 8.20 on that date. Why? Then, again, if the stability of the price on the earlier dates is taken as reflective of a buying sentiment (though for no apparent reason), the decrease on 20/6/2003 would signify a selling pressure. However, unexplicably, the progression in price continues. Could this be called a market, or is it structured? 3.4 It could, in fact, be argued that the price/s, even if rigged, could be and are real; the share market witnessing organized riggings leading to phenomenal gains (for some) and correspondingly losses for others. The argument is valid in principle, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ti sold 3 lacs shares in Eltrol Ltd. (post split), purchased at ₹ 11.01 per share, on 13.01.2004, to Shri Gautam N. Jhaveri (or RNJ), i.e., the same broker through which the shares were purchased, at Re.0.41 per share, incurring loss of ₹ 32.10 lacs (@ ₹ 10.70 per share). His accounts do not reflect the said loss. Likewise, by Dwarkesh Restaurant Pvt. Ltd., selling 1.57 lacs shares to RNJ at ₹ 0.41 per share, again incurring similar loss, the funding or the basis thereof, which, or even its admission, has not demonstrated. Continuing further, what, we wonder, then, is the price on that date or even during the relevant period; the assessee selling her shares thereat, and more specifically during January, 2004, at ₹ 10.15 to ₹ 10.57 per share (post-split). In fact, 50,000 shares were sold on 13.01.2004 itself through RNJ, the same broker, at ₹ 10.56 per share! Similarly, one lac shares were sold by the assessee through MSFL at ₹ 10.55 per share on 13/1/2004. What further proof, one may ask, does one require to figure out of the transactions being sham and managed? RNJ had, in fact, himself purchased 6.51 lac shares (of par value of Re.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, which they would otherwise easily and readily furnish, to have acted in concert. No case of actual rigging of the market, as seems to be suggested, is made out. Further, while a difference of a few percentage points would generate market movement by way of arbitrary/jobbing across different exchanges, i.e., in an actual setting, here we find the same brokers purchasing and selling the shares of the same scrip on the same day at a variance of nearly 2600%! Why would, one may ask, any person sell his shares worth ₹ 100/- (as per the going market rate) at less than ₹ 4/- (say)? The shares are required to be 'purchased' back by the brokers in-as-much as it is the same shares that are required to be rotated for being, again, similarly registered in the name of any person wishing to launder his money through the modus operandi of 'purchase' and 'sale' of shares. 3.5 The assessee's purchases are, again, equally unproved, with M/s. FF, as confirmed by its principal, VSL, started the trading operations only from 15.07.2002, while we find it to have executed transactions with the assessee prior thereto. How could that be? Then, the source and quantity of shares in Eltrol Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of default. In fact, the law clearly provides for the settlement of such trades on spot basis, so that the delivery as well as the payment is to be completed within a span of one to two days of the trade. We have already noted complete absence of the money trail. Further, nearly 1/3 of the shares purchased and paid for by the assessee have apparently not been delivered to her - so much for the off-market transactions. The mechanism adopted or the logistics for completing the trade is even otherwise of interest in the instant case inasmuch as the asseessee (seller) and the brokers (intermediary) and purchasers are located in different cities. How was the delivery of shares, required to be given immediately, and receipt of money, simultaneously, or almost so, taken or given, as the case may be. 3.6 We may at this stage capsule our findings. Firstly, transactions, even where purported to be by way of purchase and sale of shares need to be proved on the anvil of s. 68 inasmuch as unless so proved, the profit reflected thereby is only a credit appearing in the books of an assessee, which therefore would require being proved on the parameters of s. 68. Shares in a nondescript company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is not of the assessee's case being documented or not but of the truth of those documents or of they representing genuine transactions, which we have found them as not. In the instant case, we have observed serious discrepancies and infirmities in the books of account, where produced, as well. Why, section 68 itself would become a non-starter if the A.O.'s satisfaction is to be based on the fact of the transaction being recorded in the books of account; that being rather the basis for the invocation of section, so that the credit being not denied, it, unless proved to be genuine, may be considered as the assessee's income. The sellers of the shares purchased by the assessee are not known, while the purchasers, i.e., assuming so, found seriously wanting in their credentials, in our view, the genuineness of the transactions is far from proved, if not actually disproved. Why, even the identities of the creditors have not been established. The question proving the capacity does not arise under the circumstances, with no money flows having been exhibited, thoroughly discrediting the assessee's case. The Revenue's case is not, as being stated, based wholly on preponderance of human pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much as the share warrant is in joint names; (b) no incriminating materials have been found during search proceedings; and (c) the warrant of authorization is in the name of the assessee's proprietary concern. 5. We have heard the parties, perused the material on record, and given our anxious consideration to the matter. We find the assessee's case to be without merit. The words 'incriminating material', or an expression to that effect, finds no mention or place or even a remote reference in the relevant provision (section 153A), which provides jurisdiction to frame assessment for the year of search and for six preceding years on the basis of search itself. Further, the jurisdiction is clearly to assess the 'total income', and which is to be necessarily based on some materials. Further, what is incriminating could itself be a matter of dispute. What is incriminating for one may not be so for the other, so that the same, imbued with subjectivity, cannot decide the jurisdictional aspect. Yet, again, the same, though relevant and incriminating, may get wholly or partly explained in assessment, i.e., on the basis of the additional materials gathered or called for or produced by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it then signify, if not the assessee's; it being undisputed that it is the name of a proprietary business concern? The concern name in such a case is only a trade name, and the only person it represents or who is represented by that name is the assessee. We can understand a controversy if the said name, instead of the assessee-individual, or of its proprietary concern, which only represents him by another name, is that of a partnership firm, a separate person u/s. 2(31) of the Act. Further, section 292B of the Act ensures validity of a return, notice, etc., and proceedings under the Act by providing saving from challenge under such grounds, so that the same are not considered invalid where they are in substance and effect in conformity and in accordance with the intent and purposes of the Act. Another argument raised before us by the ld. AR was by questioning the validity of the search on the basis that the panchas are not the residents of the locality. The same again only needs to be stated to be rejected. The requirement is, firstly, procedural and, secondly, designed to ensure transparency of the search operations. Inhabitants of the same locality would be known to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee makes available cabins for use of clients, along with provision of services, viz. telephone, fax, internet, security services. As it is difficult to quantify composite services rendered, a charge based on the area (of the cabin), is raised on a monthly basis, while certain utilities like electricity, telephone, etc. are recovered on actuals. While the assessee has disclosed income from the activity as business income, the Revenue treats it as only a manner of exploitation of the building by way of rent, albeit commercially, so that the same is assessable as income from house property, exigible to only standard deduction qua repairs at the rate of 30% of the gross receipt, i.e., as against the claim of business expenditure. Allowance, though, in working the gross receipt, is made for reimbursements on account of telephone and electricity charges, metered separately. 7. We have heard the parties and perused the material on record, giving our careful consideration to the matter. The issue, in our view, lies in a very narrow compass, i.e., whether economic activity, of any significance, apart from making available cabins space at a charge, is carried by assessee. If so, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harge. Whether, however, the assesse has employed staff, incurring expenditure on their preparation, toward which we find no contention, much less material. All it has done, as it would appear, is make available peon for serving tea or even snacks, as bought-outs, as would be the case in any office setting. In fact, tea could be prepared in-house, or even through a vending machine, with little or no impact on the essential character of the 'services' being provided. Why, a landlord may provide services of a lift, security services, even a caretaker to take care of the needs of the tenants of different flats residing in his building. That, however, would not though make it any less an arrangement to exploit the inherent rental capacity or potential of the property. Further, what is the furniture and fixture, also let, and if it is inseparable from the letting the building and, further, not a part of the cabin itself, remains to be clarified. The assessee has referred to a hotel, implying perhaps that while the said industry falls in the hospitality sector, it operates in the business sector. The argument is flawed, and the comparison ends before it begins. We have already noted abse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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