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TMI Blog2011 (12) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... . The shares were purchased on 11.6.01. After having purchased, the shares were transferred in favour of assessee by the company on 28.06.01. the shares were later on sold through registered broker M/s. Prakash Nahata Co. from 24.07.02 to 23.12.02 in the Calcutta Stock Exchange. Consequently ₹ 40,28,420/- arose as long term capital gain. The appellant made an investment of ₹ 41,00,000/- in the Bonds of Rural Electrification Ltd. and claimed exemption u/s 54 EC of the I.T. Act with regard to entire sum of long term capital gain. The assessing officer made addition of both sums i.e. the amount of long term capital gain as well as the investment in the bonds of Rural Electrification Ltd. 6. While making the addition under section 68 and addition of ₹ 41 lacs under section 69 on account of unexplained investment in purchase of REC bonds, the Assessing Officer placed reliance on various case laws i.e. in case of VISP (P) Ltd., 186 CTR 718 (MP), in case of Kale Khan Mohd. Hanif, 50 ITR 1 (S. C.). Before making the above stated additions, the Assessing Officer found that there was difference between opening capital shown in the balance sheet and closing capital acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Then. A O quoted the case of Kale Khan Mohr. Hanif v. CIT (1963) 50 ITR 1 (Hon'ble Supreme Court) at the bottom of page no. 9 and gave four line citation. If your honour peruse the said case you would not find any such ratio culled out. Even in any write up part you won t find such sentences. (c) The. A O quoted the case of State of Raj. V. Basant Nahata (2005) 8 JT 171 (S C). The case was not with reference to Income Tax Act and it related to Registration Act and Evidence Act. It was held in Dhakeswari Cotton Mill Ltd. v. CIT (1955) 27 ITR 126 (S C) that technical rules of evidence can not apply to Income tax proceeding. (d) The case of CIT v. Durga Prasad More 82 ITR 540 was quoted which held that the taxing authorities are not required to put on blinkers while looking at the documents produced before them. They are entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. Here the Assessing Officer was putting on blinkers he was going by preconceived notion that the transaction was not real. He failed to appreciate the positive and clinching evidence put forth. The counsel of assessee attended all the proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in books of accounts as a result of loan, deposit, credit purchases etc. the said section has application in the case of assessee the shares were sold and sale proceeds were received, the debit entry preceded the credit entry. The sale of shares is akin to sale of goods. Both transactions bring into existence sundry debtors. Any realization there from is consideration of assets (Share or stock) sold. The receipt of sale proceed/realization from debtors do not partake the character of cash credit. If for the sake of argument it is considered that the sec. 68 as applicable in relation to realization from debtors, then there can not be any cash sale. As a result of cash sale sum is credited to the books of accounts and the assessee will have to give satisfactory explanation and onus will be cast upon him to prove the identity, genuineness and creditworthiness. In case of cash sale or realization from debtors/brokers the provisions of sec. 68 cannot have any say. 4.3. It was also argued that thee is another justification for this point of view because when money is realized/received from debtors it does not bring into being new or additional resources, although it brings in cash. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange, it is their solemn duty to make payment of the sale proceeds. The stock exchanges have rigorous and impeccable mechanism for ensuring the timely payment and delivery. In order to carry out the bounden duty the stock exchanges have members under their aegis and control of their own as well as the watch dog namely SEBI. The valuation of the membership of recognized stock exchange run into lacs of rupees because of its coveted position owing to the affiliation with the stock exchange. Thus, the credit worthiness of transaction is also beyond doubt. 4.5. It was urged that the Assessing Officer was quite convinced about the genuineness of the transaction. Since he was aware that transactions have been routed through stock exchange. He procured the detailed account statement from stock holding corporation on his own and compared it with the material on record. It was also argued that if head not been satisfied about the completeness of information, he would have called for more, when the counsel of assessee appeared on the designated dates of hearings i.e. 16.03.06 20.03.06. 4.6. In support of his view the AR of appellant relied upon the cases cited at 195 CTR 226, 180 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 20-06-01 at Kolkatta by the assessee when he was there. The assessee has taken away a sum of ₹ 2,00,000.00 out of cash available with him while going to Kolkatta on 08.06.2001. He has purchased 50000 shares of Mantra Online on 11.06.2001 and after ward a sum of ₹ 1,11,000.00 was paid to Bubna Stock Broking Company Ltd. The said broker has issued money receipt to the assessee and photocopy of the same was produced. A copy of cashbook was also produced. In balance sheet of A.Y. 2002-03 there was no outstanding to broker. There was a money receipt from broker. 4.10. As regards taking physical delivery of shares rather than dematerialized delivery it was stated that at the time of transaction the assessee was not having any demat account in Bikaner it was submitted that there was hardly one depository for demat accounts. So the physical mode of transaction in shares was resorted to. There is no statutory requirement which call for delivery / keeping of shares in demat form only. Purchasing and keeping shares in physical form was very much permitted. The shares of Mantra Online were purchased off market. The transaction was facilitated by the stock broker M/s Bubna Stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not raise any objection to it. Further in the latter case the price of shares quoted at stock exchange on the relevant date was held to be guiding for the otherwise off market purchase. 4.14. The AO has put forth the argument that the long term capital gain earned by assessee is rather short term capital gain. The shares were dematerialized on 23.04.02. When period is reckoned from this date, the holding period of shares would be less than 12 month and consequently the gain arising from sale shares would be short term capital gain. In this connection it was contended by appellant that it is tantamount to turning blind eye towards all the positive evidences involving the SEBI registered broker, certificate by company secretary and stock exchange member as well as the company itself besides the record of assessee himself. The date of dematerialization of shares 23-04-02 cannot be construed as the date of purchase. 4.15. It was elaborated in written submission that Dematerialization is the process by which shares in physical forms are converted into electronic form. For dematerialization original shares in physical forms have to be surrendered to the depository. The depository t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e were transferred to that HDFC account of the broker. 4.18. Statement of assessee was recorded u/s 131 of the I.T. Act and it was interpreted that the assessee was oblivious of the purchase and sale of shares. To this it was explained that the contention is offshoot of day dreaming and wild imagination. He has termed entire transaction of shares as adjustment, although he had examined the entire gamut of documents, books of accounts and vouchers and could not point out any discrepancy / defect therein. The hypothesis without reason and basis is a nullity. It is the assessee who himself purchased shares, made payment for shares, got it registered in his name, opened demat account, made decision regarding sale of shares, gave delivery instruction, the sale proceeds were deposited in his own bank account and later on invested the same in bonds. The view pint of AO in the face of the preponderance of positive evidence, was requested to be not tenable. 4.19. In relation to failure to make delivery directly to the CMBPID A/c maintained at the stock exchange during the course of rolling market settlement it was contended by the appellant that he was not well versed in handling of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 4000 91 2003395 YES 6 12.08.2002 7 2000 85 2003398 YES 7 01.11.2002 5 3000 92 2003451 YES 8 04.11.2002 9 5000 94 2003451 YES 9 10.12.2002 18 1500 112 2003475 YES 10 16.12.2002 17 13000 90 2003479 YES 11 19.12.2002 17 2000 74.5 2003482 YES 12 23.12.2002 5 10495 60 2003484 YES TOTAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction confirmed all transactions its date, rate and amount. The finer details such as trade no., order no., and timing squarely tallies with the one manifested on the contract notes issued by broker. In view of the result of inquiry with stock exchange I uphold the addition amounting to ₹ 1,49,000/- representing sale of 2000 shares on 19.12.02 as the same is not confirmed by the exchange as having been entered through it. (b) Whereas in the light of overall facts, circumstances, detailed deliberation and positive evidences as well as result of inquiries made from stock exchange and depository I delete the balance addition of ₹ 38,79,420/- (Rs. 40,28,420/- - 1,49,000/-). Thus the said addition stands deleted and appellate comes out successful to that extent. This ground of appeal is partly allowed. 9. The ld. CIT (A) noted that one transaction i.e. sale of 2000 shares made on 19.12.2002 remained unverifiable which was equivalent to ₹ 1,49,000/-. Accordingly, to this extent the sale of shares were not accepted and the addition was sustained and the remaining addition was deleted by ld. CIT (A) i.e. of ₹ 38,79,420/-. 10. As stated above, both ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department for the assessment year 2002-03 was also fixed on the same date for hearing here before the Tribunal and we have seen the orders of the Assessing Officer and ld. CIT (A) and found that no addition on account of investment in shares for assessment year 2002-03 was made. Therefore, it is established beyond doubt that assessee has purchased shares during the assessment year 2002-03 which were shown in the balance sheet and the Assessing Officer has examined this aspect and has not drawn any adverse inference. It is seen that in subsequent year i.e. in the year under consideration the assessee sold these shares through M/s. Prakash Nahata Co. another stock broker and the sale consideration was received through proper banking channel. The shares listed were dematized before selling of the same. Share certificates were filed showing transfer in the name of the assessee and then sold the same. Confirmation from M/s. Prakash Nahata Co. was also filed. No contrary facts were brought on record that these transactions are not genuine or assessee has possessed cash under the garb of sale transaction. Without bringing any material on record or any evidence directly, adverse infer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the department is against deleting the addition of ₹ 41 lacs made under section 69. 16. The Assessing Officer made addition by observing that there was no fund available with the assessee of his own. Therefore, this addition was made under section 69C. 17. It was argued that out of the sale consideration on account of sale of shares, the assessee has made investment in REC Bond and has claimed deduction under section 54EC as per provisions of law. The ld. CIT (A) was satisfied with the argument of the assessee that amount of sale consideration on account of sale of shares was available with the assessee and from the same amount the assessee has purchased REC Bond. Therefore, there is no question of treating the same as unexplained investment in REC Bonds. Accordingly, ld. CIT (A) deleted the addition and also directed to allow deduction under section 54EC. 18. The ld. D/R has placed reliance on the order of Assessing Officer. 19. On the other hand, the ld. Counsel of the assessee placed reliance on the order of the CIT (A). 20. After considering the orders of the Assessing Officer and ld. CIT (A), we find no infirmity in the finding of ld. CIT (A). Source of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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