9911796707
TMI Blog2012 (10) TMI 1034X X X X Extracts X X X X X X X X Extracts X X X X ..... mon order for the sake of convenience. ITA No.659/PN/2011 (Moti Udharam Panjabi) (A.Y. 2002-03) : 2. Facts of the case, in brief, are that a search and seizure operation was conducted in the assessee's group of cases on 17-03-2006. The name of the assessee was in the warrant of authorisation u/s.132 dated 14-03-2006. After the centralisation of the case, notice u/s.153A was issued and served on the assessee. In response to the same it was stated by the assessee that the returns filed earlier may be treated as returns filed in response to notice u/s.153A. The AO issued statutory notice u/s.143(2)/147 to the assessee and the assessee filed the details from time to time. After examining the evidences contained in the seized materials and on the basis of submissions filed from time to time the AO observed that the assessee group claimed long term capital gains on account of purchases and sale of shares of Silicon Valley Technologies Ltd., Database Finance Ltd. Media Matrix Ltd, Baffin Engineering Project Ltd., and Havemore Finance Ltd. The AO noted that Sri Moti Udharam Panjabi is the key person who takes all investment related and financial decisions in respect of himself and all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge as required for claiming exemption u/s.10(38). The AO noted that shares are claimed to have been sold @ Rs. 330/- per share whereas shares of the company were trading at an average rate of Rs. 87/- per share on BSE/NSE. Moreover, trading in the share was very thin, indicating low demand for the share (only 110 shares traded on the date when the assessee claims to have made the sale). When confronted with these facts, the assessee changed his stand and came out with the story that the sale was 'off-market'. The AO noted that M/s. Silicon Valley Technology Ltd. fits the profile of a typical 'penny stock'. The company had no standing in the market. 5. Similarly in the case of Database Finance Ltd. he observed that the shares were purchased @ 10.10 to 12.10 per share from Dhyan stock broking Pvt. Ltd./Mohit securities. He observed that the shares have been purchased in cash and shares were transferred on 06-05-2002, 10-05-2002, 03-07-2002 and 05-07- 2002 to D-MAT Account just dew days before the sale. He noted that M/s. Dhyan Stock broking Pvt. Ltd. through their letter dated 17th March, 2006 confirmed that neither they nor their sub broker M/s. Mohit Securities have traded in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He observed that the shares were sold through Dhyan stock broking Pvt. Ltd. and Mohit securities who have categorically stated that they have not done any purchase and sale vide their letter dated 17-03-2006. 8. Similarly he noted that the assessee group has purchased shares of Baffin Engineering Pvt. Ltd. through Subha Financial Service Pvt. Ltd. @ Rs. 14.05 to Rs. 15.05 per share. This transaction was entered on National Stock Exchange through broker Subha Financial Service Pvt. Ltd and this was confirmed by the assessee in response to the Query No.105 and 106. However, the assessee was unable to tell the names of the family members who were registered with the broker. The shares were steadily purchased online as stated in response to Question No.103. The AO observed that the assessee at first claimed that the shares were sold through the stock exchange. However, NSE vide letter dated 07- 11-2007 squarely denied that M/s. Subha Financial Pvt. Ltd. was affiliated to them. Letter from NSE also mentioned that no scrip in the name of M/s. Bafin Engineering Projects Ltd. was listed on that Stock Exchange. The assessee thereafter changed his stand and claimed that the shares were sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the accommodation entries provided for the purpose of benefitting the assessee by booking long term capital gains. This according to the AO obviously comes at a price to the assessee and no broker in the market would do such a thing by also risking the licence free of cost. According to the AO, the market rate for the accommodation is 6% of the sale proceeds received towards the cost of accommodation entries/bogus documents. He observed that for the impugned assessment year the assessee had shown the long term capital gain of Rs. 40,08,011/- whereas the sale proceeds credited in the books/bank accounts amount to Rs. 43,24,036/-. He therefore made addition of Rs. 43,24,036/- as undisclosed income and made further addition of Rs. 2,59,442/- being commission @6%. Accordingly, the AO made addition of Rs. 45,83,478/- on account of fictitious sale of shares and fictitious capital gain including brokerage and commission @6% thereon. 11. In appeal the assessee strongly challenged the order of the CIT(A). It was submitted that the AO relied on irrelevant informations while finalising the issue of capital gains. It was submitted that the assessee had received physical delivery of shares, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et value of the shares should have been very nominal at the time of sale. 15. In response to the above submission of the AO before the CIT(A) as per his letter dated 08-02-2011 it was submitted by the assessee that from the data furnished by the AO it is obvious that the companies in which the assessee has invested exists and these companies are traded in the stock exchange. It was submitted that the AO has not brought on record a single fact to show that the transactions with the brokers, purchase of shares, holding the same in D-MAT account, selling of shares, receipt of money etc. are bogus. The decision of the Pune Bench of the Tribunal in the case of JayaPrakash P. Surana was relied upon and it was submitted that the income has to be treated as income from "capital gain" and not under the head "income from other sources". 16. However, the learned CIT(A) was not fully satisfied with the explanation given by the assessee. As far as the allegation of the assessee that he was not given a copy of the evidence gathered by the department on which reliance has been placed and therefore it is against the rules of natural justice, the learned CIT(A) noted that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law, it be held that, addition of Rs. 45,83,478/- made and assessing the same under the head Income from other sources on account of alleged fictitious sales of shares and fictitious capital gain inclusive of brokerage and commission at 6% is unwarranted, unjustified and contrary to the facts prevailing in the case and provisions of law. It further be held that addition made by the AO in violation of rules of natural justice is not tenable in law. The addition made by the AO in this respect be deleted. It further be held that the income is not assessable under the Head Income from Other sources as is held by the AO, the income is assessable under the Head Capital gain as is declared by the appellant. The appellant be granted just and proper relief in this respect. 2. Without prejudice to ground No. 1 and in the alternative on facts and circumstances prevailing in the cause and as per provisions of law, it be held that, commission at 6% considered by the AO and confirmed by the Ist appellate authority is improper, imaginary and erroneous and is based on no evidence. The amount of so called commission considered by the AO & confirmed by the Ist appellate authority for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtificates. Referring to page No. 4 of the Paper Book he drew the attention of the Bench to the letter issued by Database Finance Ltd. to Sri Govind Udharam Panjabi requesting him to open a D-MAT account for dematerialisation of the shares. Referring to reverse of Page No.15 of the Paper Book he drew the attention of the Bench to the letter from Database Finance Ltd. approving splitting of shares and transfer to D-MAT account. Referring to Page No.15 of the Paper Book he drew the attention of the Bench to the acknowledgement issued by Cosmos Cooperative Bank Ltd. Pune dated 28-06- 2002 acknowledging the receipt of 7000 shares of Database Finance Ltd. for dematerialisation by Govind Udharam Panjabi. Referring to reverse of Page No.18 he drew the attention of the Bench to the transaction statement of Cosmos Cooperative Bank Ltd. showing dematerialisation of shares and its subsequent sale from there on 03-07-2002. Referring to Page No.22 to 36 of the Paper Book the learned counsel for the assessee drew the attention of the Bench to the Income Tax Acknowledgement receipt for Asst. Year 2002-03, computation statement, computation of capital gain, profit and loss account and balance shee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered as the date for counting the period of holding of the shares. It has further been held that when the assessee received sale consideration and the same has entered the bank account of the assessee and the same is received incidental to the investment in shares which are capital assets, therefore, income, if any, generated out of the same has to be treated as capital gains, may be long term or short term and certainly not income from other sources. 23. Referring to the decision of the Pune Bench of the Tribunal in the case of Smt. Sunanda Jayprakash Surana vide ITA No. 1310/PN/2008 order dated 20-08- 2010 he submitted that the Tribunal following the decision in the case of Mundada group has held that income earned out of such penny stock has to be taxed under the head "income from capital gains" in view of the fact that impugned penny stock/shares are finally found credited in the D-MAT account of the assessee. 23.1 Referring to the decision of ITAT Agra Bench (Third Member) in the case of ITO Vs. Smt. Bibi Rani Bansal reported in 133 TTJ 394 (Agra) (Third Member) he submitted that the Tribunal in the said decision has held that assessee having submitted copies of contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peration that the transactions in shares of Database Finance Ltd. are not genuine for which he had declared an amount of Rs. 1,57,31,579/- as additional income but while filing the return the assessee did not honour such declaration, the learned counsel for the assessee submitted that the declaration was made in a survey proceeding and not during a search proceeding. The assessee had retracted by not disclosing such income in the returns filed. He submitted that at the time of search/survey all papers relating to the purchase and sale of shares were found and the assessee did not produce a single piece of additional evidence during the course of assessment proceedings. He submitted that it is not a case where the assessee created any new evidence. He submitted that the revenue authorities went blindly on the basis of the declaration made by the assessee during the course of survey. 27. Referring to the decision of the Hon'ble Kerala High Court in the case of Paul Mathews and Sons Vs. CIT reported in 263 ITR 101 he submitted that statement elicited during the survey operation has no evidentiary value. Referring to the decision of the Madras High Court in the case of CIT Vs. S. Kha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso, the Assessing Officers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders". 28. Referring to the decision of Hon'ble Ahmedabad Bench of the Tribunal in the case of DCIT Vs. Bhogilal Mulchand reported in 96 ITD 344 he submitted that even statement given u/s.132(4) is not conclusive and a person giving statement can retract the same under certain circumstances. Referring to the decision of Hon'ble Calcutta High Court in the case of Mayank Poddar (HUF) Vs. Wealth Tax Officer reported in 262 ITR 633 he submitted that the Hon'ble High Court in the said decision has held as under : "thus, unless the definition of 'net wealth' r/w the definition of 'asset' as provided in s. 2(m) and s. 2(ea), respectively, includes a building let out to a tenant used for commercial purposes, the same cannot be subjected to wealth-tax. Even if the assessee had included the same in his return, that would not preclude the assessee from c1aiminq the benefit of law. There cannot be any estoppel aqainst statute. A property, which is not otherwise taxable, cannot become taxable because o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal in the case of ITO Vs. Ajay Shantilal Lalwani & Neelesh Shantilal Lalwani reported in 145 TTJ 511 he submitted that the Tribunal in the said decision has held that merely because there is substantial delay in transferring the shares from the date of purchase to the D-MAT account and the transactions not being routed through stock exchange, the AO was not justified in doubting the declared date of purchase of the shares ignoring the evidences available with the assessee in his favour. The exemption u/s.10(38) was accordingly allowed. 32. He also relied on the decision of the Nagpur Bench of the Tribunal in the case of ACIT Vs. Kamal Kumar S. Agrawal (Indl.) & Others reported in 133 TTJ 818, the decision of the Mumbai Bench of the Tribunal in the case of ITO Vs. Mrs. Rasila N. Gada vide ITA No. 1773/M/2010 order dated 08-08-2012 for Asst. year 2006-07 and other connected appeals, the decision of the Hon'ble Jharkhand High Court in the case of CIT Vs. Arun Kumar Agrawal(HUF) in Tax Appeal No. 04/2011 and other connected appeals and the decision of the Amritsar SMC Bench in the case of ACIT Vs. Anoop kumar reported in 94 TTJ 299. 33. The learned DR on the other hand strongly su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived by cheque. The revenue is not doubting the sale of the shares. The dispute is only regarding the purchase of shares which are suspicious and doubtful. He submitted that some of the brokers have denied to have made any transaction for the assessee and the shares do not bear the distinctive numbers. Under these circumstances and in view of the detailed discussion by the AO and CIT(A) the order of the CIT(A) has to be upheld. 35. The learned DR filed the following chart giving scrip-wise details which are as under: SUMMARY OF FINDINGS REGARDING PENNY STOCK TRANSACTIONS OF SHRI MOTI U. PANJABI Sl. No. Name of Company Stated to have been purchased from Remarks 1. Database Finance Ltd. Dhyan Stockbroking Pvt. Ltd./Mohit Securities Claimed to have been purchased in cash. M/s. Dhyan Stockbroking Pvt. Ltd. through their letter dated 17th March, 2006 confirmed that neither they, nor their sub broker, M/s. Mohit Securities, traded in the shares of M/s. Database Finance Ltd. during FY 2001-02 & 2002-03. Assessee was unable to furnish distinctive numbers of shares claimed to have been purchased.. There was no proof of date of delivery. The assessee fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Enquiries revealed that no trading took place at the Magadh Stock Exchange Patna (through which sale of shares is claimed to have been made) after 7-02-2004 as it was suspended by SEBI vide a notification issued on that day. As such it was not even a recognised stock exchange as required for claiming exemption u/s.10(38). Shares are claimed to have been sold @ Rs. 230/- per share whereas shares of the company were trading at an average rate of Rs. 87/- per share on BSE/NSE. Moreover, trading in the share was very thin, indicating low demand for the share (only 110 shares trading on the date when the assessee claims to have made the sale). When confirmed with these facts, the appellant changed his stand and came out with the story that the sale was not 'off-market'. M/s. Silicon Valley Technology Ltd. fits the profile of a typical 'penny stock'. The company had no standing in the market. 3. Havemore Finance Ltd. Vijay Bhagwandas & Co. Floppies and CDs seized during search on the Panjabi group provided clear evidence of fabrication of records to give the colour of genuineness to the transaction in respect of these charges. The CDs show that the assessee themselves created the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... every transaction had been accounted, documented and supported. Even evidences collected from the third parties concerned were in the assessee's favour. In the present case, many of the transactions are in cash, in many cases third parties including stock exchanges and stock brokers have made statements which go against the assessee as brought out clearly by the AO and the CIT(A). 2. Acchyalal Shaw Vs. ITO, ITAT Kolkata 'B' Bench order dated 16-01-2009, (2009) 121 TTJ (Kol) 695; (2009) 19 DTR 177 In this case, it is the sale and not purchase which was off-market. The issue before the Tribunal was whether sale transaction was genuine. The stock brokers had confirmed the sale by the assessee. 3. ACIT Vs. J.R. Solvent Industries (P) Ltd., ITAT Chandigarh 'B' Bench ,Order dated 31-10- 2008 (2009) 24 DTR (Chd) 387 This case too is distinguishable. The purchase transactions as per contract notes were duly supported by bank pass books which reflected payments made for purchase of shares. They were also found duly reflected in investment account of the assessee. 4. Nisraj Real Estate & Export (P) Ptd. Vs. ACIT.ITAT Jaipur 'A' Bench ,Order dated 15-05- 2009 (2009) 32 DTR (Jp) 45 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant only on the point of concealment. Notably, the A.Y. in question was A.Y. 2003-04 and the ITAT found that shares in question were duly shown in Balance sheet as on 01-04-2002. 11. ITO Vs. Smt. Bibi Rani Bansal, ITAT Agra (Third Member), order dated 13-04-2010 (2010) 133 TTJ (Agra(TM) 394 : (2011) 44 SOT 500 : (2010) 43 DTR 279 Wholly distinguishable. Purchase of shares was not in dispute as the company had directly confirmed the same. 12. CIT Vs. Arun Kumar Agrawal (HUF) vide Tax appeal No.04/2011 order dt. 13-07-2012 - High Court of Jharkhand at Ranchi. The case is wholly distinguishable on facts. In that case there was a clear finding by the CIT(A) that the purchase of shares were shown by the assessees in their balance sheet for the last five years and the genuineness of the books of account had never been questioned. Moreover, the payment for purchase had been made through bank, which was also verified from the bank statement. 13. ACIT Vs. Anoop Kumar 94 TTJ 299 (ITAT Amritsar SMC Bench) order dated 28-12-2004 The case is entirely distinguishable. The issue before the Amritsar Bench in that case was the effect of retraction of a statement made under 132(4). No incrimin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT statement itself. He submitted that in view of the various decisions cited and facts narrated, the long term capital gain/short term capital gain declared by the assessee has to be allowed. 37. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO disallowed the long term capital gain disclosed by the assessee on the ground that the evidences seized/impounded during the course of search/survey show that the long term capital gains booked by various members of the group for different Asst. Years are not genuine and the same are based on fictitious documents created. According to the AO the assessee group was booking bogus long term capital gains and introduced unaccounted income into the books/bank account in the guise of long term capital gains which is also as per the evidences gathered from the seized material, statement of brokers denying transactions, reply received from various stock exchanges etc. It is also the case of the AO that the assessee group had admitted additional income at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isfaction of the authorities below that the said shares were actually purchased on various dates during the F.Y. 2004-05. The assessee has tried to meet out objections raised by the A.O in this regard. The A.O noted that the shares were credited in D-MAT A/c. on 12.4.2005, after lapse of more than 20 to 24 months from the date of purchase contract note i.e. 4.4.2003 and 25.11.2005. The submission of the assessee in this regard remained that the assessee had purchased the shares outside Stock Exchange directly from the broker in physical form. The assessee was having no D-MAT A/c. when the shares were purchased. D-MAT A/c. was opened on 30th November 2004 in the F.Y. 2004-05. The date of purchase of shares is 25.11.2003 and not 25.11.2005. The said date falls in the A.Y. 2006-07. It was explained that shares were kept in the physical form till the shares were held by the assessee. When the assessee had decided to sell the shares, he had sent the shares to D.P. (Stock Holding Corporation of India Ltd.) for dematerialization. Assessee had submitted a copy of D-MAT A/c. statement received from the D.P in his first submission dated 19.6.2008. The D-MAT A/c. statements revealed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission of the assessee remained that the words used "online trading system of the Exchange" are very important as the assessee has also stated the same clearly to the A.O in his statement that the transaction is not done by him in the online system of the Exchange, but the shares were purchased outside the market through the broker. It was submitted that the A.O had asked the company to confirm the share transactions. In case of Shiv Om Investments and Consultancy Ltd, the company vide its letter dated 29.11.2008 addressed to the company had confirmed in black and white that the said shares have been transferred on the given date. It was submitted that it is for the assessee to hold the shares in physical form or dematerialized form. The assessee could not be penalized either for not opening D-MAT A/c. when he had purchased shares in the physical form. It was further submitted by the assessee that during the inspection of records allowed by A.O. (after completion of assessment and for the purpose of preparation of first appeal), it was noticed that the broker M/s. S.B. Buthra & Co. in their letter dt. 10.11.2008 had informed the A.O that they had transactions with Shri Ajay Lalwani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive numbers, date of transfer of shares in the name of assessee and also copies of contract notes along with bills issued by share broker S.B. Buthra & Company. The assessee also furnished returns of income along with Balance Sheet for the A.Ys. 2004-05 and 2005-06 during which period, assessee claimed to have purchased those shares in question, copy of contract notes issued by the broker and confirmations given by Shiv Om Investments and Consultancy Ltd. and by broker. We are thus of the view that merely because there was substantial delay in transferring the shares into D-MAT A/c. from the date of purchase and the transactions not routed through Calcutta Stock Exchange , the A.O was not justified in doubting the declared date of purchase of the shares ignoring the above evidences. In the case of CIT Vs. Smt. Jamnadevi Agrawal & Ors., ITA No. 40 of 2010 (Bombay High Court - Nagpur Bench), copy supplied, the property broker had stated the share transactions as sham and bogus. However, the purchase and sale price of the shares declared by the assessee were in conformity with the market sales prevailing on the respective dates, the related company had confirmed to have handed over th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e observations made by the Assessing Officer himself, it is clear that after getting that enquiry report, the SEBI prima facie found involvement of some of the share brokers in unfair trade practices. Even in a case where the share broker was found involved in unfair trade practice and was involved in lowering and rising of the share price, and any person, who himself is not involved in that type of transaction, if purchased the share from that broker innocently and bonafidely and if he show his bonafide in transaction by showing relevant material, facts and circumstances and documents, then merely on the basis of the reason that share broker was involved in dealing in the share of a particular company in collusion with others or in the manner of unfair trade practices against the norms of S.E.B.I and Stock Exchange, then merely because of that fact a person who bonafidely entered into share transaction of that company through such broker then only by mere assumption such transactions cannot be held to be a shame transaction. Fact of tinted broker may be relevant for suspicion but it alone necessarily does lead to conclusion of all transaction of that broker as tinted. In such circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... X approaches me with two names, i.e. the buyer (A) and the seller (B). Mr. A buys the share of the company held by the seller B at Rs. 3 through my terminal. After 365 days or one year when the share of the company has reached high of Rs. 100, Mr. X approaches me through Mr. A with the name of a fresh purchaser Mr. C, who is willing to buy the share of Mr. A at Rs. 100. Mr. A (who was previously the purchaser and wants to avail LTCG now) becomes the seller and sells his shares at Rs. 100 to Mr. C through my terminal. Mr. C gives me a cheque of Rs. 100 for the shares bought from Mr. A and subsequently I pay the sale proceeds in cheque/DD to Mr. A after deducting my brokerage. Subsequently, Mr. A on receipt of the sale proceeds by cheques/DD pays Mr. X, the same proceeds by cheques/DD pays Mr. X the same amount by cash (No. 2 account), i.e. Rs. 100 and Mr. X pays the same to Mr. C. In this way, Mr. A converts the black money into white and avails long-term capital gain." (c) The sale transactions were off-market transactions and the Calcutta Stock Exchange by its letter dt. 26th May, 2005 has confirmed that quite a few of the transactions carried out by Shri Pradeep Kumar Daga were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above finding recorded by the Tribunal. 15. Reliance placed by the counsel for the Revenue on the decision of the apex Court in the case of Sumati Dayal (supra) is wholly misplaced. In that case, the assessee therein had claimed income from horse races and the finding of fact recorded was that the assessee therein had not participated in races, but purchased winning tickets after the race with the unaccounted money. In the present case, the documentary evidence clearly shows that the transactions were at the rate prevailing in the stock market and there was no question of introducing unaccounted money by the assessees. Thus, the decision relied upon by the counsel for the Revenue is wholly distinguishable on facts. 16. For all the aforesaid reasons, we hold that the decision of the Tribunal is based on finding of facts. No substantial question of law arises from the order of the Tribunal. Accordingly, all these appeals are dismissed. No order as to costs." 43. We find in the instant case sale of shares from the D-MAT account has not been proved to be false. The dispute is only regarding the purchase of the shares. Since the assessee was not able to satisfy the revenue author ..... X X X X Extracts X X X X X X X X Extracts X X X X
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