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TMI Blog2011 (2) TMI 1455X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 2004-05 in ITA No: 485/Mum/2009. A search took place in the assessee s premises on 24.03.2006 under section 132 and consequent thereto a notice under section 153A was issued to the assessee requiring him to file the return of income. The assessee filed the return on 06.12.2006 declaring total income of ₹ 5,14,860/-. The income consisted of salary, profits from Arihant Enterprises, speculation profit, income by way of capital gains on sale of shares and interest from banks, etc. No additional income on account of the search proceedings was shown in the return. The assessee had however claimed deduction of ₹ 54,20,000/- under section 54EC against the long term capital gains of ₹ 44,57,301/-. This long term capital gains is the net figure after adjusting the long term capital loss against the long term capital gain on sale of shares. In effect the investment claimed under section 54EC set off the long term capital gains (net). 4. While examining the return and the details filed in support thereof, the Assessing Officer noticed that the long term capital gains had arisen mostly on account of the sale of shares of a company by name Bolton Properties Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had purchased the shares of the aforesaid companies through a broker by name Prakash in Kolkata and that a friend had introduced him to the stock broker. When asked to give the complete details and address of Shri Prakash who had also sold the shares in the Kolkata Stock Exchange, Shri Haresh Dadia was unable to give those details and also expressed his inability to produce Shri Prakash for verification. In answer to Question No.23, Shri Haresh Dadia further stated that since he would not be able to produce the broker Shri Prakash before the Assessing Officer and substantiate the claim for long term capital gains on sale of the shares of Bolton Properties Limited and Fast Tack Limited, he would offer the sale proceeds of these two shares as undisclosed income and also undertook to furnish a detailed working of the undisclosed income by 31.03.2006. He further stated that he had also consulted his brother, Shri Upendra Dadia, the assessee herein, who was sitting beside him. 6. Though Shri Haresh Dadia has stated that he would offer additional income on account of sale of shares of Bolton Properties Limited and Fast Track Limited, after consulting the assessee, the assessee did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purchased the shares on the basis of news reports in the media. Thus there was no satisfactory explanation for the purchase of the shares. 8. After referring to these facts the Assessing Officer also referred to the circumstances which led to the search on Dadia group. A search under section 132 had been conducted in the case of M/s Scan Steel Ltd. group, a leading manufacturer of sponge iron in Orissa on 05.04.2004 by the Investigation Wing of Bhubaneshwar. During the post search investigation, certain dubious bank accounts were traced which led to the role of Kolkata based share broker Shri Prakash Nahata. Subsequent enquiries revealed the role of two Income Tax Practitioners, namely Shri Sushil Purohit and Shri Jagdish Purohit who, in collusion with Shri Prakash Nahata, were giving accommodation entries to various beneficiaries on account of long term capital gains. All these three persons operated from Kolkata. The Assessing Officer in the present case had obtained these facts from the Investigation Wing, which conducted the search on Dadia group. He noticed that there was similarity between the two cases inasmuch as Shri Prakash Nahata, the Kolkata share broker, was comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot traded at Kolkata Stock Exchange. (e) The financial prospects of Bolton Properties Limited do not justify the rise in the share price. (f) The company Bolton Properties Limited was not carrying out any substantial business activity. (g) The assessee has sold all these shares through Shri Prakash Nahata. (h) It has already been provided that Shri Prakash Nahata was indulged in the activities of floating paper companies and giving accommodation entries on account of long term capital gains. (i) The family members of Patel group have accepted that the transaction related to the Bolton Properties Limited and Fast Track Limited are not genuine. 11. The Assessing Officer also referred to the fact that no genuine person will buy the shares at a price of ₹ 175.70 per share since the price is not backed by the financial position of Bolton Properties Limited. He therefore probed the fact as to who purchased the shares from the assessee and found that they were purchased by the sister concerns of the company which were also not doing any business activities. The Assessing Officer found that this was opposed to the human probabilities. 12. The assessee would appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 4 has challenged the view taken by the departmental authorities that the sale proceeds shown by the assessee as sale proceeds of the shares of Bolton Properties Limited should be assessed under section 68 of the Act. In Ground No.6 the assessee has also challenged the denial of the exemption under section 54EC of the Act. In support of Ground Nos. 1 to 4, the learned representative for the assessee submitted that the entire purchase and sale of shares of Bolton Properties Limited is supported by documentary evidence, that the purchase and sale were effected through cheques, that there was no evidence to show that the assessee manipulated the prices of the shares in the Stock Exchange, that there was no material to contradict or controvert the documentary evidence, that the Assessing Officer has merely relied on circumstantial evidence and has indulged in speculation which are not permissible, that no material was found during the search to impeach the documentary evidence and therefore in these circumstances the departmental authorities were not justified in law or on facts in assessing the sale proceeds of Bolton Properties Limited shares under section 68 of the Act, refusing to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartmental representative that the shares of Bolton Properties Limited were apparently being used as a means of facilitating assessees having unaccounted income to bring the same into their books of account by showing purchase and sale of those shares, the purchase being at a very low price and the sale within a short span of time being at abnormally high prices, thus helping the persons with unaccounted income to bring them into their books of account in the guise of capital gains on the sale of the shares. Such persons claim exemption under section 54EC of the Act, by investing the capital gains in notified bonds. According to the learned CIT departmental representative, there was thus a device adopted by persons having unaccounted income to bring the same into their books without paying any taxes, a practice which should be discouraged. 18. The learned CIT departmental representative further submitted that in the course of the search proceedings the assessee s brother Shri Haresh Dadia, after consulting the assessee, admitted that he would offer the sale proceeds of the shares of Bolton Properties Limited and Fast Track Limited as undisclosed income and also undertook to fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary evidence to show that the assessee purchased and sold the shares through cheques and that these cheques have also been debited or credited to his bank account. There is also evidence to show demating of the shares of Bolton Properties Limited. But it has to be remembered that the assessee himself did not rely on the documentary evidence during the search. The assessee s brother Shri Haresh Dadia, after consulting the assessee who was sitting beside him, admitted the sale proceeds of the shares of Bolton Properties Limited and Fast Track Limited as undisclosed income and also undertook to furnish the detailed working of such income by 31.03.2006, in answer to Question No.23 of the statement recorded during the search. Relevant portions of this statement are extracted in paragraph 10 of the assessment order. It could possibly be argued that it was only because of the inability of the assessee to produce Shri Prakash Nahata for verification that the offer was made. That however would be a flimsy argument, especially when the assessee is placing such a strong reliance on the documentary evidence even before us. If the documentary evidence was really genuine or was of such nature th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperties Limited also. It may be that the purchase transaction was not put through by Shri Prakash Nahata but by another broker firm by name Bubna Stock Broking Services Limited, but that does not make any dent in the case of the department. The departmental authorities have also rightly relied on the link thrown up by the search in the Patel group of cases wherein also the shares of Bolton Properties Limited were involved. We have already referred to the statement of Shri Pratap Chandra B Patel in some detail earlier. Taking the circumstantial evidence and the surrounding circumstances into account it appears to us that not much reliance can be placed on the documentary evidence adduced by the assessee. The circumstance that the shares of Bolton Properties Limited figure in another case, namely, Patel group, as a medium through which unaccounted money was being turned into accounted monies; the circumstance that Shri Prakash Nahata was involved in the search of M/s Scan Steel Ltd. as a person who colluded with two Income Tax Practitioners, namely, Shri Sushil Purohit and Shri Jagdish Purohit for giving accommodation entries to beneficiaries on account of long term capital gains; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer as well as the learned CIT departmental representative before us. 20. The assessee has placed strong reliance on the judgment of the Nagpur Bench of the Hon ble Bombay High Court in CIT vs. Smt Jamnadevi Agrawal Ors (supra). We have carefully gone through the judgment. In paragraph 3 of the judgment the Hon ble High Court has recorded the concession of the learned counsel for the Revenue in the following words: - The learned counsel for the Revenue while conceding that he is not in a position to find fault with the reasoning given by the Tribunal in deleting the additions made by the assessees (sic AO), submitted that these appeals be decided on merits in the light of the findings recorded by the AO and decision of the apex Court in Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124 . The case thus proceeded on a concession given on behalf of the Revenue. Secondly, though the assessee group in that case offered additional income of ₹ 2.00 crores consequent to the search, it is not discernible from the judgment as to whether there was any statement given by the assessees while making the offer, and if so, what were the contents thereof. It is pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the case before the Nagpur Bench of the Hon ble Bombay High Court, though there was an almost 30 fold increase in the share price over a period of 13 to 15 months, there are no facts to indicate whether such an abnormal increase was or was not backed by a corresponding increase in the financial position of the company. The Assessing Officer has brought on record in the present case facts, which we have already referred to, to show that neither the profits nor the financial prospects or business activity of Bolton Properties Limited were sound enough to justify such a phenomenal in its market price over a period of 13 to 14 months. 21. The judgments of the Supreme Court in the case of Durga Prasad More and Sumati Dayal, which have been cited in the assessment order itself (paragraph 20) support the department s case. In these judgments the Supreme Court has held that though the apparent must be taken to be the real generally, the income tax authorities are not required to put on blinkers while appreciating the documentary evidence and it is expected of them, if there is any suspicious feature, to probe the matter further and they are at liberty to refuse to accept the docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as investment in the Balance Sheet as on 31.03.2003. For the year under appeal in the computation of income, the assessee has also appended two tables, the first showing long term capital gains on sale of shares taxable at the rate of 10% and the second showing long term capital gains on sale of shares taxable at 20%. 24. The contention of the assessee is that his main business is in chemicals and he is not in the business of buying and selling shares, that he did not borrow any monies for acquiring the shares and that in any case there are not many transactions either numberwise or volume-wise to justify the conclusion of the income tax authorities that the assessee was carrying on a business in shares. As against this, the learned CIT departmental representative has pointed out from pages 6 to 9 of the paper book that in all there are 133 transactions put through during the relevant previous year in about 50 scrips out of which 64 transactions reveal that the shares were bought and sold on the same day. The details also show, according to the learned CIT departmental representative, that in 80% of the transactions the period of holding the shares is less than three months. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o: 3991 3992/Mum/2008 dated 13.01.2010 (2) ACIT vs. Mr V Nagesh ITA No: 5410/Mum/2008 and CO No: 151/Mum/2009 dated 24.09.2009 (3) Smt Sadhana Nabera vs. ACIT ITA No: 2586/Mum/2009 dated 26.03.2010 (4) Sarnath Infrastructure (P) Ltd. vs. ACIT (2009) 120 TTJ (Lucknow) 216 26. On a careful consideration of the facts we are satisfied that the departmental authorities are right in treating the assessee as a trader in shares and accordingly in bringing the surplus to tax as business income, rejecting the assessee s plea that the surplus should be assessed under the head Capital gains . Even if we take into account the contention of the assessee that transactions on the same day in the same scrips should not be counted as separate transactions, still from the details we find that the activity in buying and selling shares is quite frequent, justifying the inference that the assessee is trading in them. Transactions of purchase of the same shares on the same day but in different lots are also seen to be few in number. The list of short term capital gains is placed at pages 6 to 9 of the paper book filed by the assessee. At page 6, we find that only the shares of IDBI have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ton Properties Limited . Parties are agreed that the facts relating to the purchase and sale of shares of Fast Tracks Limited are the same as in the case of the shares of Bolton Properties Limited and that the decision given by us in the appeal for the assessment year 2004-05 in ITA No: 485/Mum/2009 should govern the point for this year also. Accordingly, following our decision in respect of Ground Nos.1 to 4 in the appeal for the assessment year 2004-05, we hold that the income authorities were right in bringing the amount of ₹ 12,70,100/- to tax under section 68 of the Act. The grounds are dismissed. 31. Ground No.5 is to the effect that the surplus on the sale of shares, other than the shares in Fast Track Limited, should be assessed as capital gains and that the Assessing Officer was not justified in assessing the same as business income, overlooking that the assessee was an investor and not a trader in the shares. Here also parties are agreed that our ruling in respect of Ground No.5 in the appeal for the assessment year 2004-05 should govern the present ground since the basic facts are the same. For the sake of completeness of record we may notice that the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee s claim that it should be assessed as capital gains and the denial of the exemption under section 10(38) in respect of the said income, respectively. Parties are agreed that the facts relating to Ground No.1 are the same for the year under appeal. For the sake of completeness of record we may notice that during the year the assessee purchased 60 scrips and sold 61 scrips. The Assessing Officer has also referred to the assessee s statement, which is the same that is referred to in the assessment orders for the assessment years 2004-05 and 2005-06. Since all the facts are the same as in those years, following our ruling in respect of those years, we endorse the decision of the income tax authorities in respect of Ground No.1 and dismiss the same. 36. As regards Ground No.2 relating to section 10(38), it is consequential to our decision in respect of Ground No.1, as in the assessment year 2005-06. That ground is also dismissed. 37. Ground Nos. 3 and 4 which are directed against the addition of ₹ 78,940/- made on account of unexplained investment in jewellery are dismissed as not pressed. 38. Ground No.5 is directed against the levy of interest under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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