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TMI Blog2011 (6) TMI 805X X X X Extracts X X X X X X X X Extracts X X X X ..... micals Industries. In its return of income, the assessee displayed ` 3,46,900 as income from business, ` 37,812 as income from other sources, ` 51,75,659 as long term capital gains and ` 12,16,267 as long term capital loss. The assessee invested an amount of ` 45,40,000 and claimed exemption under section 54F of the Act. The Assessing Officer, on verification, found that the entire long term capital gains was mainly from purchase and sale of shares of M/s. Bolton Properties Ltd. 25,000 shares of M/s. Bolton Properties Ltd. was purchased on 23rd January 2003, for an amount of ` 1,71,000. Thereafter, it was claimed that these shares were sold in two lots i.e., on 11th and 16th February 2004 for ` 26,03,150 respectively aggregating to ` 52,06,300. It was noticed that all the shares in question were purchased from Bubna Stock Brokers of Kolkata. The Assessing Officer observed that the assessee has purchased shares @ ` 6.84 per share and sold the same at ` 208.50 per share on an average holding of about 12 months and that this is an abnormal rise in price. The Assessing Officer, in his assessment order, vide Paras-8.1 and 8.2, observed as follows:- 8.1 This company had its registere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition income on account of long term capital gains in the return of income filed in response to notice under section 153A of the Act. When questioned, the assessee drew the attention of the Assessing Officer to the letter dated 3rd March 2006, filed by him before the DCIT, where he has retracted from his statement recorded under section 132(4) of the Act. He further referred to the sworn affidavit dated 22nd May 2006, wherein he retracted from the declaration made. Subsequently, the Assessing Officer recorded another statement under section 131, from Mr. Haresh Dadia, on 7th December 2007. After examination, the Assessing Officer in his assessment order at Pages-8 and 9 / Para-15, held as follows:- 15 In the back drop of the above facts, certain important points have emerged out which are as under:- a) The share price of Bolton Properties Ltd. has increased up to 30 times within 1 year; b) The assessee has purchased the share when, the prices were very low and sold the shares when the prices were high. c) During the subsequent years, the share price of Bolton Properties Ltd. has fell down ` 1 or ` 2 per share; d) At present the shares of Bolton Properties Ltd. are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n carrying out the transactions of shares over the years but from this year onward the tendency of the assessee to purchase and sale of shares has increased substantially. Prima facie, it seems that the assessee is carrying out trading of shares rather than investing in shares for long duration. 8. Thereafter, he came to a conclusion that from the statement recorded from Mr. Haresh Dadia, the purchase of shares was on the basis of analysis of market information, information from various media, analysis of future prospects and, hence, it is done with the intention of trading in shares. For various reasons given in Para-26 onwards, the Assessing Officer came to a conclusion that the transactions are adventure in nature of trade and, hence, assessable under the head Business Income and that the deduction under section 54F, cannot be granted. 9. Aggrieved, the assessee carried the matter before the first appellate authority, but without any success. Further, aggrieved, the assessee is in appeal before the Tribunal, on the following grounds of appeal:- 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the addition of ` 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 54F of the Act be allowed to the appellant in respect of long term capital gain on sale of shares. 7. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the levy of interest under section 234B, for which no specific direction was given by the Assessing Officer in the body of the assessment order. 10. Before us, learned Counsel, Mr. S.C. Tiwari, appearing on behalf of the assessee, refers to the statement recorded from the assessee as extracted in Page-4 of the assessment order and submits that the entire addition is based only on the basis of replies given to questions no.22 and 23, which appear at Pages-5 and 6 of the assessment order. He submits that the Assessing Officer made the addition on the ground that the assessee has expressed his inability to produce Mr. Prakash Nahata, for cross verification and on the basis of statement of the assessee, wherein he offered the sale proceeds of these two shares as undisclosed income for the reasons that he would not be able to produce Mr. Prakash Nahata, for verification and substantiate its claim. He refers to Page-6 of the paper book which contains a letter dated 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d sale of shares based on market information, etc., and when he thinks that it is a time to either purchase or sell shares. He relied on Para-26.1 of the assessment order and submits that the Assessing Officer has agreed that the assessee has purchased / sold shares with a basic motive to make profit. He refers to the order of the first appellate authority and submits that the Commissioner (Appeals) has held that the income should be assessed under section 68 of the Act and that the Assessing Officer is not correct in his approach to assess the income alternatively under the head Business Income . He points out that the Revenue has not come in appeal on the rejection by the Commissioner (Appeals), of the alternative findings of the Assessing Officer that the income is assessable under the head Income From Business . He submits that the only issue that is left for adjudication is, whether the purchase and sale of M/s. Bolten Properties Ltd. is genuine or not. He refers to Para-2.1.3 / Page-7 of the Commissioner (Appeals) s order, wherein the list of evidence furnished by the assessee in support of the above transaction is given. He submits that contract notes and bills issued by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e during the assessment year 2004-05 and submits that the assessee is an investor in shares. He points out that the Assessing Officer himself, while passing assessment order under section 153A, on the very same day from the assessment year 2000-01, to the assessment year 2003-04, has held that the assessee is an investor in shares and not a trader. He submits that though, normally, res judicata does not apply to taxation proceedings, the general rule is subject to a rule and condition that the findings reached in the assessment proceedings for an earlier year after due enquiry, would not be reopened. He pointed out that in the balance sheet for the year ended 31st March 2003, the shares from M/s. Bolton Properties Ltd. were reflected as investment in the balance sheet and that this was accepted by the department. Therefore, he argues that unless there is evidence to show that these shares were converted or treated as stock-in-trade, the Assessing Officer cannot change the character of income. He contends that the shares are held as investment over the number of years and the sale of the same cannot be treated as resulting in business income. He pointed out that the investments were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceeds of these two shares as undisclosed income. He submits that subsequent retraction is bad-in-law as it was not done within reasonable time. He relied on the judgment of the Hon ble Jurisdictional High Court in Meghraj S. Jain, F.E.R.A. Appeal no.39 of 2009, order dated 9th July 2009, for the proposition that in case a confession is retracted, the Court is required to examine whether it is obtained by threat, duress or promise and also whether the confession is truthful. It was held in that case that if it is found that the statement was voluntary and truthful, then it can be acted upon and even conviction can be based on the same. A retraction within a period of two days, was held to be bad-in-law. The learned Departmental Representative submits that the Assessing Officer, as well as the learned CIT(A) have rightly applied the test of human probabilities to the transactions in hand and when the abnormal nature of the transaction is considered along with the admission made during the course of search, the inevitable conclusion would be that the purchase and sale of shares is not genuine transaction. He relies basically on the order of the authorities below. 19. Rival conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement. 3) Vide letter dated 28.3.2006, we applied for a copy of the said statement. Till date the copy is not given. 4) On 3.5.2006, I was allowed to see the statements in the presence of my C.A. It was seen that at the time of conclusion (at about 3.00pm), I had stated that I will not be able to produce Mr. Prakash for verification and substantiate my claim for long term capital gain on sale of shares of Bolton Properties Ltd. and Fast Track Ltd. and hence, I offered the sale proceeds of those two companies as undisclosed income. 5) On seeing this statement, I was shocked and disturbed. Inspite of the fact that all supporting documents relating to the capital gain were found at the time of search. My statement was recorded as stated above. Under terrible pressure to produce Mr. Prakash immediately, I must have said that I cannot produce Mr. Prakash and substantiate the claim. 6) Mr. Prakash is one of the stock brokers whose ful name is Mr. Prakash Nahata. He is operating from Kolkata and has a branch in Andheri, Mumbai, and all transactions done through him are duly and properly executed. 7) My disturbed mind is evident from my statement itself. I stated that Fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... face of such retraction, in our considered opinion, the Assessing Officer was not right in relying solely on the statement for making the addition in this case. The judgment in Meghraj S. Jain (supra), relied upon by the learned Departmental Representative, does not come to the rescue of the Revenue for the reason that the High Court held that, a retracted confession can be acted upon only when there is corroborative evidence gathered by the authorities. In this case, there is no corroborative evidence. The Assessing Officer has not done any investigation or collected any evidence. On the other hand, CBDT has, in its Circular, directed their officers to base their assessments on the evidence collected during the course of search and during the course of assessment proceedings. It was specifically directed that no addition should be based solely on confession or disclosures made at the time of search. The Hon ble Gujarat High Court in Kailashben Manharlal Chokshi (supra), has held that a statement recorded at midnight need not be given any credit as the person may not be in a position to make any correct or conscious disclosure in a statement, if such statement is recorded at such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as investments (pp of paper book). iv) From the above, it can be seen that it wrong on the part of the Revenue authorities to hold that the assessee has purchased shares through Mr. Prakash Nahata. In fact, the shares were purchased from Bubna Stock Broking. The contract notes and bills issued were produced by the assessee. Evidence was produced that the amount was paid on the very same day through cross cheque by producing copies of the bank account. Similar evidence was produced that the shares came into the demat account of the assessee. The shares were reflected as investments in the balance sheet and this is accepted as such by the Assessing Officer. The factum of purchase cannot be disputed on the face of the evidences. v) Contract notes and bills issued by Mr. Prakash Nahata, for sale of shares of M/s. Bolten Properties Ltd. were produced along with evidence of having received the money through banking channels. Demat account was also produced in evidence for sale of shares. Saroj Ray Associates, Company Secretary, Kolkata, certified the holding the shares of M/s. Bolten Properties Ltd. by the assessee. On the face of these evidences, it was not proper on the part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was rightly deleted by the CIT(A) as well as the Tribunal. It is settled law that suspicion, howsoever strong cannot take the place of legal proof. Consequently, no question of law, much less a substantial question of law, arises for adjudication.-C. Vasantlal Co. vs. CIT (1962) 45 ITR 206 (SC), M.O. Thomakutty vs. CIT (1958) 34 ITR 501 (Ker) and Mukand Singh vs. Sales Tax Tribunal (1998) 107 STC 300 (Punjab) relied on; Umacharan Shaw Bros. vs. CIT (1959) 37 ITR 271 (SC) applied; Jaspal Singh vs CIT (2006) 205 CTR (P H) 624 distinguished. v) The Delhi C Bench of the Tribunal in ITO v/s Navin Gupta, held that when the Assessing Officer has not brought on record any material to show that the assessee had surreptitiously introduced his unaccounted money in the guise of sale proceeds, sale proceeds could not be added under section 68 of the Act and the assessee cannot be denied exemption under section 54F. vi) The Agra Bench of the Tribunal in Memodevi v/s ITO, 7 DTR 158, held as follows:- Held : The assessee submitted all the evidence which was within her capacity and power. The broker HBR Co. through whom the shares had been sold confirmed twice-first upon re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have no application to the assessee s case. The action of the Revenue authorities in concluding that the sale value of shares is income of the assessee from undisclosed sources cannot be accepted. In view of the above, the income declared by the assessee under the head long-term capital gain is directed to be assessed as such. vii) Nagpur Bench of Hon'ble Bombay High Court in CIT v/s Smt. Jamunadevi Agrawal Ors., (2010) 46 DTR 271 (Bom.) has, under similar circumstances, upheld the order of the Tribunal by holding that the assessee having established the genuineness of purchase and sale of shares by producing documentary evidence and declaring purchase and sale price of shares in conformity with the market rates prevailing on the respect dates, the finding of the Tribunal that the transactions were genuine, is a finding of fact based on documentary evidence on record. It also held that the fact that the assessee has purchased and sold shares of similar companies through the same broker cannot be a ground to hold that the transactions are sham and bogus especially when documentary evidence was produced to establish the genuineness of the claim. They held that reliance p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns or under the head Income From Business . 22. The undisputed facts are that, the assessee has been accepted as an Investor by the Revenue for the assessment years 2000-01, 2001-02, 2002-03 and 2003-04 respectively in the assessment order passed by the same Assessing Officer on the same day under section 153A r/w section 143(3). For the assessment year 2004-05, the findings of the first appellate authority have not been challenged and consequently the claim of the assessee that he is an investor and not trader in shares has not been disturbed. On these factual background, we are of the considered opinion that it is not correct for the Assessing Officer to take a U turn and come to a conclusion that in this particular year, the assessee has become a trader in shares. During the year, the assessee has purchased only 17 scrip and has sold about 14 scrip. From these figures, it cannot be said that there is a high volume in trading in shares. At Para-8, the Assessing Officer has given the reasons for coming to a conclusion that the assessee is a trader in shares. They are extracted for ready reference:- 8. The sequence of events involved in the purchase and sale of shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions nor huge turnover or investment by borrowing funds in this case so as to come to a conclusion that the assessee is a trader and not an investor. In view of the above discussions, we allow this ground of the assessee and hold that the assessee is an investor and not a trader. The income should be assessed under the head Income From Capital Gain . 24. Ground no.2, reads as follows:- 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the denial of exemption under section 10(38) claimed by the appellant in respect of the long term capital gain that arose on sale of shares. In view of the above, the appellant prays that exemption under section 10(38) of the Act be allowed to the appellant in respect of long term capital gain on sale of shares. 25. The aforesaid ground is consequential to the ground no.1. As we have held that income in question is assessable under the head Capital Account , exemption under section 10(38) of the Act is to be allowed. 26. Ground no.3, is on the issue of levy of interest under section 234B. This is consequential and mandatory. Accordingly, this ground is dismissed. 27. In the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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