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TMI Blog2017 (1) TMI 818X X X X Extracts X X X X X X X X Extracts X X X X ..... nue : Shri James Kurian, Sr DR For The Assessee : Shri G.C. Pipara, AR ORDER PER R.P. TOLANI, JUDICIAL MEMBER:- This appeal by the Revenue and the Cross-objection thereof filed by the assessee are directed against the order of the Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad dated 21.03.2012 for AY 2005- 2006. 2. Before us, at the outset, assessee's side did not press the crossobjection; accordingly the cross-objection filed by the assessee is dismissed as not pressed. 3. The solitary ground raised by the Revenue reads as under:- The ld. CIT(A) has erred in law and on facts in deleting the addition made u/s 68 of the Act by the AO on account of credits of ₹ 94,49,384/- as LTCG and ₹ 19,76,810/- as STCG, even though the share transactions were not recorded in the name of assessee on the floor of stock exchange and transactions were proved bogus 4. Brief facts are - in the return of income, the assessee qua the sale of shares of Prranet Indu declared income from Short Term Capital Gain of ₹ 32,94,684/- and Long Term Capital Gain of ₹ 94,49,383/- on sales of shares of Telent Infoways Limited. In respect thereof, assessee furnished the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tries and the assessee was found to be one of the beneficiaries. The assessee was asked to clarify as to why the sale proceedings of the shares should not be treated as unexplained cash credit u/s 68 of the Act. The relevant reply of the assessee dated 05.12.2011 reads as under:- "4) Coming to the exact transaction, it is respectfully submitted that for the assessment year 2005-06 vide letter dated 20/09/2011,1 have filed the statement of details of purchases as well as details of sales relating to 2,00,000 snares of Talent Infoway Limited I have also submitted copies of purchase memo, contract note relating to purchases. Accordingly, the entire purchases are through Goldstar Fininvest (P) Ltd. I have also furnished the details relating to the sale of 2,00,000 shares to Talent Infoway Limited which has been sold through Mahasagar Securities Pvt. Ltd. vide bills dated 20/8/2004, 24/08/2004, 01/09/2004, 08/09/2004 and 09/09/2004. The copies of invoices, contract note, etc. has already been submitted and these copies and contract note includes complete details showing order number, trade number, trade time, quantity, sale rate, brokerage, net rate and amount. The entire amount has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the same has rightly been shown as capital gain. 8) Under the circumstances, your Honour's proposed action requires to be dropped." 4.2 The ld. Assessing Officer, however, disallowed the claim of Long Term Capital Gains qua share transactions and the impugned addition u/s 68 of the Act was made as income from other sources by following observations:- "After carefully perusal upon the reply of the assessee it is not tenable because the assessee has submitted the copy of bills from M/s. Goldstar Finvest Pvt. Ltd. and from M/s. Mahasagar Securities Pvt. Ltd. : • It is confirmed by the NSE / ISE that no trades have been executed in the name of the assessee during the concern financial year. Since, no trades were executed in the name of the assessee so it can be presume that assessee took only accommodation entries to claim the speculation profit for that he has submitted the bills issued by the M/s. Goldstar Finvest Pvt. Ltd. and from M/s. Mahasagar Securities Pvt. Ltd. • Since, M/s. Mahasagar Securities Pvt. Ltd. is no more in existence so how it is possible give credit of any claim based upon the bills issued by the M/s. Mahasagar Securities Pvt. Ltd. similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentary evidence thereof has already been submitted. However, copy is once again enclosed herewith. 5) I have also now carefully gone through the copies of the three letters of BSE, Inter-connected Stock Exchange of India Ltd. and NSE which has been provided to my authorized representative on 6th December 2011 and would like to clarify that BSE clearly stated that PAN based transaction have become mandatory with effect from 01/01/2007. Further Interconnected Stock Exchange of India Ltd. has stated that no records of trade were executed and further NSE has stated that information relating to Vineet Sureshchandra Agarwal are being enclosed as Annexure A. 6) Further, from the perusal of the copies of the bills already-submitted, your Honour will find that the shares were in demat form and have been sold through the broker. The bill clearly mention of the delivery, trade number, trade order, trade time, quantity, etc. are clearly mentioned. Further, bill states that he is dealer of Inter-connected Stock Exchange of India Ltd. as well as sub-broker of NSE Member along with SEBI registration number. The contract note also mention that he is the sub-broker of NSE Member, therefore, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence Act, incorporated from rules of natural justice forming part of the common law would naturally be applicable to income tax proceedings. It is amply clear that the loose papers and documents cannot possibly be construed as books of accounts regularly kept in the course of business. Such evidence would, therefore, be outside the purview of s.34 of the Evidence Act, 1872. Therefore, the Revenue would not be justified in resting its case on the loose papers and documents found from the residence of a third party even if such documents contain narrations of transactions with the assessee company - CBI vs. V.C. Shukla & Ors. (1998) 3 SCC 410 and Chuharmal vs. CIT (1988) 70 CTR (SC) 88: (1988) 172 JTR 250 (SC) applied. The presumption under the provisions of s. 132 (4A) would in any case not be applicable to a third party from whose possession such papers and documents have not been found by the Revenue. Statements recorded at the back of the assessee would not ipso facto include the case against the assessee particularly when the makers of the statements have not been allowed be interrogated by the assessee company. On factual merits also statements of R and S recorded at the bac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igure booked in the records and accounts changed hands between the parties. No addition could therefore be made to the income of the assessee ". Kishanchand Chellaram v. CIT [1980] 125 ITR 713 (SC) "Though the proceedings before the income-tax authorities are not governed by the strict rules of evidence, before the income-tax authorities could rely upon a piece of evidence, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity for crossexamination of the person with reference to the statements made by him. " Smt Rajrani Giwta vs. Dv. CIT (2000) 72ITD155 (Mum.) "Even for the assessment years 1994-95 to 1996-97, the estimate had to be based only on the patient's forms. This was because the depositions taken from the four patients were never put to the appellant. Allowing the appellant to take photocopies of the seized materials was not the same thing as supplying the copies of the depositions and giving an opportunity of cross-examining those patients to the appellant. Simply because the depositions were taken before A, it could not be said that an opportunity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'M/s. Goldstar Finvest Pvt. Ltd. at present membership as a trading member - Trading member expelled and as a sub-broker still registered but expelled'. I am of the view that the said broker was authorized broker with NSE and ISE at the time of transactions of these shares, though was expelled from ISE at the time of enquiries conducted by the A.O., nevertheless the transactions were routed through stock exchange supported by documentary evidences. (iii) Coming to the observation of the AO in para No.3.3 of the Assessment order wherein AO has referred certain inquiry u/s 133(6) with respect to NSE, BSE and ISE, in response to this the appellant vide his letter dated 10.12.2011 which has been reproduced by the AO in the body of the Assessment Order itself in para No.3.6. ……. (iv) The appellant has purchased 200000 shares of Telant Infoways Limited on April 2003 and sold the same on Aug/Sep 2004. The appellant -has submitted Xerox copies of purchase as well as sale invoices. The appellant has also submitted Xerox copies of Demat Statements. The appellant has also submitted Xerox copies of bank statement through which transactions were routed. Consideri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct note relating to purchase, copies of invoice, contract note, order as per trade number, trade time, quantity, sale rate, brokerage, net rate and amount, etc. has already been submitted. It was further claimed that payment has been received through A/c. Payee cheques and as to why the transaction is not reflected in Inter connected Stock Exchange of India, BSE and NSE cannot be commented by the appellant but it is submitted that as per the contract note, the transaction has taken in bolt. Copy of Demat Account for Shah Investor's Home Ltd. has also been filed in brief that the shares were held in demat account. Further, in para 3.8 of the assessment order, A.O. has - -referred to reply dated 10/10/11 appended as Annexure - A of the submission. The perusal of the said letter reveals that the appellant has further submitted copy of the Bank Statement indicating the sale proceeds and gone through the copies of the 3 letters of BSE, ISE and NSE and clarified that BSE has clearly stated that PAN based transaction have become mandatory with effect from 1/1/2007 and these transactions being relevant to financial year 2004- 05 have not been reported by BSE. Further, Inter connected S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant has been confirmed, A.O. has considered short term capital gain relating to the said shares as only genuine and STCG on account of remaining shares is added u/s. 68. From the perusal of para 4, it is seen that the transaction relating to Prraneta Industries Ltd. are not through Mahasagar Securities Pvt. Ltd. Also as per the inquiry letter, there is no reference to the 'shares of Prraneta Industries Ltd. I have also looked into the details of sales and purchases of shares relating to Prraneta Jndustries Ltd. and it is seen that total shares have been sold through Neptune Securities Pvt. Ltd. and Vimla Exims Pvt. Ltd. Total 30,000 shares have been sold through Neptune Securities Pvt. Ltd. through 3 difference invoices and 20,000 shares have been sold through Vimla Exim Pvt. Ltd. through 2 different invoices. A.O. has referred that as per the information furnished by BSE only 30,000 shares have been reported. Therefore, it seems that 30,000 shares sold through Neptune Securities Pvt. Ltd. who is the member of Ahmedabad Stock Exchange as well as BSE sub-broker have been confirmed and remaining 20,000 shares sold through Vimla Exim Pvt. Ltd. who is a sub-broker of ASE Capital M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO. It is also noted that Shri Mukesh Choksi has given contrary statements in case of few assessees through affidavit that their transactions were genuine and the very issue has been examined by courts. I feel that the entire issue is covered by Hon'ble the Mumbai Tribunal in the case of Shri Jafferali K. Rattonsey vs. DCIT reported in 53 SOT 220 (Mum.)(URO). It is appropriate to reproduce the relevant extract of the finding portion of the Mumbai Tribunal1 order in the case of Jafferali as under: "9.5 From the above, it is clear that Mr. Mukesh Choksi is double speaking in his statements i.e. one given before the A.O. and the one during cross Shn Jafferali K. Rattonsey examination before the A.O. Under these circumstances one has to see the evidentiary value of a person making double speaking. We find the Hon'ble Calcutta High Court in the case of Eastern Commercial Enterprises (supra) has held that a man indulging in double speaking cannot be said by any means a truthful man at any stage and no Court can decide on which occasion he was truthful. We find the co-ordinate bench of the Tribunal in the case of Mrs. Uttara S. Shorewala (supra) (in which one of us - the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious evidences has held that addition cannot be made u/s. 68 / 69 of the I. T. Act, 1961: (a) ITO vs. Shri Prakashchand S. Sandh (b) ACIT vs. MaheshG. Vakil (c) ACIT vs. Himani M. Vakil (d) ManojkumarSarawangi HUF vs. ACIT The proposition that, if purchase trades carried out through broker Mahasagar Securities Pvt. Ltd. are not recorded in the name of, the assessee on the floor of stock exchanges and therefore the purchase of such shares were not genuine, is concerned I am of the opinion that purchase and sale of shares outside the floor of stock exchange is not an unlawful activity as held by Mumbai ITAT in the case of Mukesh Moralia (supra) as under: "10.3 Purchase and sale of shares outside the floor of Stock Exchange is not an unlawful activity. Off-market transactions are not illegal. It is always possible for the parties to enter into transactions even without the help of brokers. Therefore, it is not possible to hold that the transactions reported by the assessee were quite sham on the legal proposition arrived at by the CIT(A) that off-market transactions are not permissible. The assessee has stated that the transactions were made with the help of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of sale of shares of Talent Infoway Ltd and Parranet Indus. Ltd are as under:- A) Amount Gain Share ₹ 94,49,383/- Long Term Capital Gain Talent Infoway Ltd Details of Purchases: Purchased on: 4/4/2003 50,000 8/4/2003 50,000 11/4/2003 1,00,000 2,00,000 (i) As on 31/3/2004 (AY 2004-05) assessee has duly shown these as investment in the books of accounts. Same are duly enclosed with return of income and accepted by I T Department in AY 2004-05 not only in original but also in reassessment u/s 143(3) rws 147. Thus in both assessments for the same year after detailed scrutiny have been accepted as assessee's Investments. These shares were purchased through Gold Star Finvest P. Ltd. besides the they were also in D-mat account. (ii) Ld. AO did not conduct any enquiry from Gold Star Finvest P. Ltd. which is found to be registered as a sub Broker of NSE Details of Sales (i) The shares are sold On 26/8/2004, 28/8/2004, 06/9/2004, 11/9/2004, 13/9/2004 through Maha Sagar Securities P. Ltd. which is a dealer of Inter Continental Stock Exchange and Sub Broker of NSE which has duly supplied the information received in pursuance to inquiries u/s. 133(6). Vide reply to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... named Gwalior Tank & Vessels Ltd., the shares of which the assessee sold and earned income under the head Long Term Capital Gain as mentioned earlier. The information from the broker, Gold Star Finvest Pvt. Ltd., Indore Stock Exchange and Union Bank of India was also called for. After going through the replies received from Union Bank of India and Gwalior Tank & Vessels Ltd. and the detailed submissions made by the assessee mentioned above, the transaction of shares on which the assessee has gained appears to be genuine. The letter issued to broker was returned as the broker Gold Star Finvest Pvt. Ltd. has shifted its office from Juhu, Mumbai to Shantakruz, Mumbai. The assessee however has filed confirming letters from the broker dated 6/11/2003 and 2/12/2003 wherein it is stated that 99,400 shares were received by them in physical form. The copies of contract note, sale deed confirming the sales of shares, distinctive nos. of shares and the amount realized with sale rate etc. have also been made available. Madhya Pradesh Stock Exchange Ltd. however, had replied that no data was available with them and therefore, the same cannot fee provided. But, as all the other required details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase and sale of shares outside the floor of Stock Exchange is not an unlawful activity. Off-market transactions are not illegal. It is always possible for the parties to enter into transactions even without the help of brokers. Therefore, it is not possible to hold that the transactions reported by the assessee were quite sham on the legal proposition arrived at by the CIT(A) that off-market transactions are not permissible. The assessee has stated that the transactions were made with the help of professional mediators who are experts in off-market transactions. 70.4 When the transactions were off-market transactions, there is no relevance in seeking details of share transactions from Stock Exchanges. Such attempts would be futile. Stock Exchanges cannot give details of transactions entered into between the parties outside their floor. Therefore, the reliance placed by the assessing authority on the communications received from the Stock Exchanges that the particulars of share transactions entered into by the assessee were not available in their records, is out of place. There is no evidential value for such reliance placed by the assessing authority. The assessee had made it ..... 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