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TMI Blog2013 (4) TMI 873X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue that the income so claimed as exempt u/s.10(38) is not long term capital gain and has to be treated as income from other sources since the shares so sold are penny stocks and the assessee, neither in the past nor in subsequent years, has traded in such shares and earned such huge income. Further, Arun Agrawal family, who originally had claimed such long term capital gain as exempt had subsequently offered such income as business income in the returns filed and earning of such huge income is against all human probabilities. Identical facts and circumstances we are of the considered opinion that the assessee is entitled to claim exemption u/s.10(38) of long term capital gain on account of sale of shares of Fast Tract Entertainment Ltd. decided by him. Accordingly, the order passed by the Ld. CIT(A) is set-aside and the AO is directed to allow the claim of the assessee. Application of section 056(v) of income tax on the facts of the case, admittedly the provision was introduced by the Finance Act, 2004 and is applicable to any sum of money exceeding 25,000/- received from any person other than the persons specified in the said provision on or after 01-09-2004. In the instant ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re sold. After selling the shares the profit has been claimed as exempt u/s.10(38) of the Act. From the various details furnished by the assessee he noted that the shares which the assessee sold was a "penny stock". 3. The Assessing Officer noted that the assessee is an associate of Kalika group of Jalna which consists of 4 families, i.e. Arun Agrawal family, Ghansyam Goyal family, Anil Goyal family & Naresh Jindal family. He noted that several members of this group were indulged in such type of purchase and sale of shares of the same stock, i.e. Fast Track Entertainment Ltd. He noted that in the year 2006 Income Tax Department tracked down the racket of manipulation in the above-mentioned stock. It was grossly manipulated by market operators for helping individuals bring unaccounted funds to the main stream financial system. The modus operandi was buying these stocks at a back date and then claiming capital gains or losses to net off the taxes. The individuals had bought bills showing purchases of penny stocks a year back from the market operators. Then these share certificates were dematerialised and sold in the open market at a higher price. The entire operation is a mere book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and the holding period of such shares is more than 12 months. The details of contract notes of the purchase and sale of shares were furnished and accordingly it was claimed that the income being long term capital gain of the Act is exempt u/s.10(38). 5. However, the Assessing Officer was not convinced with the explanation given by the assessee. He noted that the Arun Agrawal family has offered such income to tax way back in 2007 by filing revised returns. Most of the persons of the group have never purchased or sold any stock either previously or afterwards including any penny stock. Therefore, a person earning abnormal profit in trading of stock for the first time would certainly go for trading in some more stocks. In absence of such trading, earning of such huge income from such penny stock is against the human tendency. He referred to the decision of Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT reported in 214 ITR 801 and concluded that the assessee has never earned any income from long term capital gain or short term capital gain but it was the income of the assessee from undisclosed sources introduced in the guise of capital gain. 6. In appeal the Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Referring to Page 33 of the paper book he submitted taht the shares were sold on 06-05-2005 for a consideration of ₹ 21,15,154.40. Referring to page 44 of the Paper Book he drew the attention of the Bench to the request by the assessee for dematerialisation of the shares on 09-02-2005. Referring to page 45 of the Paper Book he drew the attention of the Bench to the demat certificate issued by IDBI Bank Ltd. according to which the shares got dematerialised on 07-03-2005. He submitted that all the 23500 shares got sub-divided into 23500 shares on 19-03-2005. Referring to Page 36 to 41 of the Paper Book he drew the attention of the Bench to the copy of the bill and contract notes for sale of shares. He submitted that since the shares were held by the assessee for more than 12 months, therefore, the assessee is entitled to claim exemption u/s.10(38) of the Act. Referring to the decision of the Pune Bench of the Tribunal in the case of Shri Surendra Shantilal Peety and other family members order dated 28-09-2012 he submitted that the Tribunal has already allowed the long term and short term capital gain claimed by the assessee and other family members and the appeal filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Paper Book 23 to 24 respectively) has shown such shares under the head "investment". There is also no dispute to the fact that the shares are sold after dematerialisation on 06-05-2005. According to the assessee since shares were held for a period of more than 12 months, therefore, the income from sale of such shares is long term capital gain and the same is exempt u/s.10(38) of the Income Tax Act. It is the case of the revenue that the income so claimed as exempt u/s.10(38) of the Act is not long term capital gain and has to be treated as "income from other sources" since the shares so sold are penny stocks and the assessee, neither in the past nor in subsequent years, has traded in such shares and earned such huge income. Further, Arun Agrawal family, who originally had claimed such long term capital gain as exempt had subsequently offered such income as business income in the returns filed and earning of such huge income is against all human probabilities in view of the decision of Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT(Supra). 10.1 We find identical issue had come up before the Tribunal in the case of Surendra Shantilal Peety and other family members where t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld as investment are listed on recognised stock exchanges. e) All purchases are supported by contract notes giving full details as to the name of the scrip, quantity, price at which purchased, total purchase consideration, brokerage, bills of brokers etc. All the contract notes were found at the time of the action u/s.132 and some of the contract notes were also seized by the raiding party. f) The transactions are duly recorded in the books of the share brokers. Confirmations of the share brokers were also found at the time of search action. g) Actual delivery of the shares were claimed to be taken physically. h) Shares so purchased are duly transferred in the name of the respondent in the records of respective companies. Company's intimation of transfer of shares has been placed on the record. i) Such transferred shares were received by the respondent and were demated before the sale of the same. j) The payment consideration for the purchase of the shares was either through regular banking channels or through running account maintained with the concerned broker. Copies of contract notes, purchase bills, broker ledger account, client ledger in the books of broker, day t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks and the assessee had recorded the sale proceeds of the shares in its books of accounts and had very well explained its nature and source of acquisition. The Long term capital gains on the sale of shares was claimed as exempt u/s. 10(38) of the Act in the returns for A.Ys. 2005-06 and 2006-07 as per the amendment brought about by the Finance Act, 2004 w.e.f. 1.10.2004 and paid the tax on STCG earned in these two years. Further, assessee paid tax as per applicable rate on LTCG earned from A.Y. 2002-03 to 2004-05. 14.4. A search action u/s. 132 was carried out in the residential and business premises of the Peety Group on 17.03.2006. Assessee claimed that during the course of search, no incriminating evidences was found to draw any adverse conclusion in respect of the transactions in shares and the computation of income in respect thereof. Notices u/s. 153A were issued for all the years under consideration to all the assessees of the group and the returns of income were filed on 29.08.2006 for each year. The table below indicates the details of the amount of income returned u/s.139, income shown in the return filed in compliance to the notice u/s.153A and the income assessed u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessments which stood completed on the date of initiation of action u/s. 132. 14.7. The details of Long Term Capital Gain, Short Term Capital Gain and Share Dealing Profits earned by the assessee for the various assessment years, are as under: A.Y. Sale Amount (added by the A.O.) Purchase Amount LTCG STCG Share Dealing profit 2002-03 25,63,206 10,55,874 15,07,332 15,13,568 2003-04 45,32,143 2,97,244 42,34,899 4,51,762 2004-05 35,78,717 88,079 34,90,638 8,61,384 2005-06 1,29,94,997 66,57,755 290,027 15,41,021 1,27,04,970 51,16,734 2006-07 1,42,51,320 17,61,336 3,31,234 5,83,204 1,39,20,086 11,78,132 14.8. Assessment made u/s. 153A in the present case show that the computation of income filed by the assessee in the original return as well as in the returns filed u/s. 153A showing the inclusion of the day trading profit in the total taxable income for the relevant year which has been accepted by the Assessing Officer. This establishes the source of investment in purchases of the relevant year whereas in the discussions on the issue of capital gain the Assessing Officer has expressed his reservation and has doubted these very transactions withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. While completing the assessment, the Assessing Officer has totally ignored the documentary evidences placed on record and those produced by assessee without assigning any reason for same. While arriving at the above conclusion, the Assessing Officer mainly relied on the following evidences: a) The statement recorded u/s. 132(4) of Sri Surendra Peety on the date of the search offering the income shown in the regular return under the head LTCG as undisclosed income in various hands which was subsequently retracted at the time of filing the return. b) The statements recorded by the Department from certain brokers namely Vishal Bhagwandas of Vijay Bhagwandas & Co., Pratik Shah of DPS Shares and Securities after the date of search in which they had alleged that the transactions of purchases and sales of shares by various members of the Peety family do not represent the correct position. c) The alternative course adopted by the A.O. in treating the transactions as adventure in the nature of trade. 14.12. Aggrieved by the said order of the Assessing Officer, the assessee filed an appeal before the concerned CIT(A) on the following lines: a) That the AO. erred in pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessments. An assessment u/s. 153A is not meant to unsettle the income shown in the regular return in the absence of evidence found as a result of search. It is not meant to make a roving and fishing enquiry. This notice is meant to assess the undisclosed income, if any, discovered in course of search based on the materials found. 14.13.2. When nothing incriminating is found in the course of search relating to any assessment years, the assessments for such years should not be disturbed as such. Items of regular assessment should not be added back in the proceedings u/s. 153A when no incriminating documents were found in respect of the disallowed amounts in the search proceedings. Assessments or reassessments made pursuant to notice u/s. l53A are not de novo assessments and therefore no new claim of deduction or allowance can be made by assessee where admittedly the regular assessments are shown as completed assessments on the date of initiation of action u/s. 132. 14.13.3. In the present case, the search was initiated on 17.03.2006 in the residential and business premises of SRJ Peety Group, Jalna covering all the individuals and HUFs of the group as well. Prior to the searc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue and mere confessional statement without there being any documentary proof shall not be used as evidence against the person who made the statement: a) ITAT Ahmedabad Bench in the case of Smt.Sushiladevi S. Agarwal [1994] 50 ITD 524 (Ahmedabad) - it was held that all that is stated by any deponent on the search day should not be taken as truth, the whole truth and nothing but truth. Such statements undoubtedly have evidentiary value and credibility in law, but the same should be viewed with great caution, particularly when, the same is denied, varied or retracted or established by the defendant to have been obtained or given under mental stress, coercion, undue influence, or due to any other abnormal condition and circumstances when such statement was given. b) Hon'ble ITAT Jodpur SMC Bench, in Maheshwari Industries 81 TTJ 914 (ITAT, Jodhpur, SMC Bench), held that it was open to the assessee at the stage of assessment to establish that the surrender made by him at the time of search was under compulsion and not with free mind or that the addition is not warranted on the basis of available material..... Addition should be considered on merits rather on the basis of fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earch party in the course of search. In the Budget speech for 2003-04, the Finance Minister informed the Parliament that no confessional statement shall be obtained during search and seizure operation. (P 29 of 260 ITR AT 29). In this regard, the attention was drawn to Departmental Instruction issued by the CBDT to its officers in manner of acting on basis of so called confessionary statements of assessees made during the course of the search. The Board's letter issued from F.No.286/2/2003/IT(Inv) dated l1.03.2003 is extracted below: "Instances have come to the notice of the Board where the assesses have claimed that they have been forced to confess the undisclosed income during course of search and seizure and survey. Such confession, if not based on credible evidence, are altered/retracted by the concerned assesses while filing returns of income. In such circumstances, confessions in the course of search and seizure and survey operations do not serve any useful purpose. It is therefore advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted with the statement of certain brokers namely, Dhawal R. Shah. Director of Trimiti Investment and Financial Services Ltd., Pune, Milan R. Parikh, MD of Action Financial Services Pvt. Ltd. and Shri Vijay Bhagwandas of Vijay Bhagwandas & Co. In this regard it is pertinent to appreciate that while recording statement assessee did not have benefit of referring to the evidences available in their offices which were in the nature of documentary evidence like the contract notes, bills of the brokers for the purchase and sale of the alleged shares, bank statements etc., nor was he provided with the copies of the above statements. 15.1. The Assessing Officer laid undue emphasis on the admission made by Sri Surendra S. Peety during the course of the action u/s.132(4) pertaining to the genuineness of the share transaction. The Assessing Officer failed to appreciate the circumstances in which statements were obtained and totally ignored the respondents repeated submissions that the statements was made peculiar circumstances in a particular state of mind and without having the benefit of referring to the various documents which conclusively proved the genuineness of the transactions. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which it is made. Although an admission may be a good evidence, but at the same time, it is not at all a conclusive evidence and the person making the admission can always retract the same if he can establish that the admission was made in abnormal circumstances or that the contents of the admission are not borne out by facts and materials available. In the instant case, it is evident from the facts as discussed above that the so-called disclosure of Shri Surendra Peety was extracted under exceptional circumstances based on helpless situation in which he was put at the time of making the disclosure and furthermore, it has not even been substantiated by linking it up with any proper materials found during the search. This unsubstantiated disclosure should not be acted upon for making addition in question. 15.3. In the statement recorded u/s. 132(4), the assessee Shri Surendra S Peety had stated that all the members of the family would come out with the correct position of the income from the shares investment/business after evaluating the evidences. They, however, after evaluating the evidence available with them and after obtaining the missing papers from the brokers, filed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the returns filed in response to notice u/s. 153A and respondent's letters addressed to the department. This gave the authorities sufficient time to collect corroborative evidence which they have failed to do as explained above. 15.4. The retraction can be made before filing the return is accepted in principle in the case of R.P.Monga vs DCIT (2004) 269 ITR(AT) 1 (Delhi). According to us the first appellate authority in its order dated 18.06.2008 has rightly accepted the retraction of the assessee and has stated as follows on page 15 in para 5.3 as under: "I have carefully studied and analyzed factual position as stated above which cannot be disputed and is a matter of record; I have also examined various case laws, relied on by the AO, on the issue of admission / retraction. On the issue of retraction, the AO relied on the following case laws all of which are distinguishable on facts and therefore, not applicable to the case of the respondent ... Therefore, it is held that the issue of genuineness of claim of LTCG & STCG of the respondent group shall be judged independently on the strength and merit of documentary and other third party contemporary evidences, ir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer has acted solely on the statement of a third party without conducting any valid inquiry of its own to counter the statements made. The Assessing Officer has not brought on record any evidence to falsify the claim of the assessee or that the share transactions were bogus. The Assessing Officer has acted wholly on the alleged statement of a third person behind the back of the assessee without bringing on record any evidence in support of such suspicion and without affording any opportunity to crossexamine him. Such statement cannot be held as reliable evidence for making additions/disallowances. Hon'ble Bombay High Court in case of CIT vs. Omprakash Jain reported in 24 DTR 157 observed that the test of evidentiary value of the oral evidence has to be borne in mind and documentary evidence if genuine must prevail over the oral statement. In the case of the assessee, the Department has disbelieved the transaction only on the basis of the oral statement of the broker without testing its correctness. Further the Assessing Officer has not placed any material on record to question the genuineness of the documentary evidences furnished on behalf of the assessee. The ITAT, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee as held by Hon'ble Delhi High Court in CIT vs. SMC Share Brokers Ltd. (2007) 288 ITR 345 (Del.). Similar view has been taken in Bangodaya Cotton Mills Ltd. vs. CIT (2009) 21 DTR 200 (Cal.) and Eastern Commercial Enterprise (1994) 210 ITR 103 (Cal). 16.4. We find that Hon'ble Kerala High Court in case of P.S.Abdul Majeed (1994) 209 ITR 821 (Ker) observed as under: "He had also prayed for an opportunity to cross-examine the auctioneers. When such a request was made it was incumbent on the officer to afford opportunity to the assessee to cross examine the authors of those books. The petitioner had been denied the reasonable opportunity which was due in law, in relation to the assessment, and that was sufficient to vitiate the order. The order of reassessment was not valid and was liable to be quashed." 16.5. We find Hon'ble Bombay High Court in the case of C.I.T. vs. Shri Sandeep Shorewala(HUF) in ITA No. 2010 of 2009, dismissed the appeal of the Revenue vide its order dated 18.09.2009 and upheld the order of the Tribunal by holding as under: "Ld. CIT(A) has relied on the decision of this Tribunal in the case of Shri Mukesh R Marolia. The concerne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t purchases of Fast Track Entertainment are from DPS Shares and Securities. 16.7. The Assessing Officer failed to evaluate the transaction in shares in its entirety and the evidences available in respect thereof and has relied primarily on some unsubstantiated allegations of some brokers while most of the statements favourable to the assessee were ignored by the Assessing Officer which is not justified. All the deponents have affirmed that they were involved in share broking business and that they either did not maintain any books of accounts or their books of accounts and relevant records were lost or misplaced or did not record in their books of account any record of the accommodation bills for the purchase of the shares of a particular company issued by them to parties seeking such accommodation. They also confirmed of having had transactions with the members of the Peety family. They have also not disputed the payment of purchase and sale consideration either through running settlement or by cheques/demand drafts. 16.8. Further Action Financial Services has confirmed that the members of the Peety family are his registered clients and that he has done genuine sales on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares in physical format to them. The payment was received from them through cheques as well as speculative profit earned by them. Q.No.11: During the enquiry of the broker like Vijay Bhagwandas, DPS, T.H.Vakil etc., they stated before officials of IT Dept. that the transaction in these share actually did not happen. They had issued bogus purchase bills to the needy people without any real transaction & these bills were back dated you have stated that you have purchased these shares from the above mentioned brokers. Considering this why it shall not be assumed that you had also issued bogus purchase bill to Peety family of Jalna for these shares. A. I had purchased the share from broker at Mumbai & sold to Peety family. Q.12. Do you mean to say that you had purchased these shares as per the bills issued to you & also sale was made on the date to Peety family as per your bills. The copy of bills regarding shares of the said company to Peety family by your company I am showing you, please examine & confirm whether these bills were issued on the same date? A. Yes, I purchased these share from broker & sold to Peety family. Further Statement dated 30.11.07 Q.7. As mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he name of the company, number of shares purchased, date of sale, amount of purchase money, amount of sale money, etc., the assessee had discharged its initial burden and if the broker did not maintain any accounts, the transaction could not be doubted for no fault of the assessee. 16.10.1. The Kolkata Bench of the ITAT in the case of Anup Kumar Jayaswal in ITA Nos.1678/Kol/2004 & 1679/Kol/2004 for A.Y. 2001-02, has decided the case wherein the assessee had acquired shares of M/s. Coronet Industries Ltd., through a broker M/s. Jajodia & Co. Subsequently the said shares were sold and exemption u/s. 54F was sought from long term capital gain earned on the transaction. The purchase and sale of shares were duly supported by bills and contract notes. Further, the share broker accepted having undertaken the sale and purchase transaction on behalf of the assessee. The share issuing company i.e., Coronet Industries Ltd., however stated that as per their records, no shares were transferred in the name of the assessee and further stated that the folio No. written on the share scrip did not exist. The Hon'ble Kolkata Bench of the ITAT held that the fact remains that at no point of time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B was in filed in CSE. For these reasons it is not verifiable as to whether the trades in question were done through the trading system of the exchange or not. The answer of the assessee to these deficiencies and irregularities is that he could not be held responsible for the same. It was not the assessee but the three Kolkata brokers who were members of the CSE .... The AO does not have support from the Special auditors, CSE or any other quarter to that effect whereas the assessee has relied upon cogent evidence and material. We hold that the AO has acted upon grossly inadequate materials and his conclusions are in the realm of suspicion, conjectures and surmises ..." 17. In view of the above legal decisions, it can be inferred that the transactions of sale and purchase undertaken by the assessee should not be rejected simply on the basis of some uncorroborated statements of a few of the brokers without producing any evidence to prove the same. No addition should be made in an assessment u/s.153A without any material being found during search but simply on presumptions. This is a case in which there is no evidence against the respondent except some vague, confusing, contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer. In the present case, the assessee has explained its nature and source of acquisition and has sold the shares through known registered brokers, received money from them through appropriate banking channels and received confirmations from them as well. Thus, the addition made by treating the sale proceeds of shares as unexplained income u/s.69A of the Act is not justified. Agreeing with the contention of the assessee, the CIT(A) vide its appellate order dated 18.06.2008, has rightly stated in para 18.1 and 18.2 as under (page 74 & 75 of the order): "18.1. Thus there is an inherent contradiction in the impugned assessments as far as the applicability of Section 69A is concerned. A plain and simple reading of Section 69A makes it abundantly clear that the provisions of this section cannot be applied in a case where the money, bullion or jewellery or any other receipt has already been recorded by the assessee in his/her books of accounts. The fact of capital gain - whether long or short is already recorded by the assessee and the same does not fall in the category of items described in Section 69A. Picking up the entire sale proceeds on account of share transactions separate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f capital gain the Assessing Officer has expressed his reservation about the same and has doubted these very transactions which are financed through day trading profit only. In this manner the Assessing Officer takes stand which is contrary to the material on record. All the documents supporting the purchase and sales of shares as claimed by the assessee in its return of income whether pertaining to capital gains or to income from other sources, share dealing profit, were submitted before the Department which should have been read and accepted as a whole. The assessee has filed voluminous evidences before the Assessing Officer such as Broker Contract Notes, letters received from the companies intimating the transfer of share certificates, Bank Accounts evidencing the payments to the broker, day trading profit bills evidencing the payments settled against the day trading profits, Demat Accounts. Copies of the Bills of Day Trading Profit shown as Income from other sources for various years were attached at pages 80 to 171, 225 to 254 and 307 to 331 of the Paper Book-I. 18.2. Few of the brokers employed for the day trading of shares were the same as the ones who bought and sold the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o place reliance on such statements. The Assessing Officer has placed undue reliance on the statements of the brokers which were recorded behind the back of the assessee without allowing them to cross examine them. 18.4. In view of the above, the CIT(A) has rightly concluded that the Assessing Officer has arbitrarily adopted a pick and choose policy in respect of both the statements recorded of the brokers as well as in treating the share trading profit as genuine while not accepting the capital gains earned by the assessee in respect of the investment made in shares. 18.5. The Assessing Officer has added the entire sale proceeds of shares as undisclosed income of the assessee. When the Long Term Capital Gains emanating from the said sale proceeds have been offered for taxation, how can the entire sale proceeds be added again to the returned income. This would result in double taxation of the amount of tax on the Long Term Capital Gains. Thus, what can be treated as undisclosed income of an assessee is not the entire sale proceeds but only to the extent of the estimated profits embedded in the sales. The sale proceeds of shares has been recorded in the books of accounts maintai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit arising out of sale of shares as an adventure in the nature of trade which is based on wrong assumption of facts and contrary to the principles laid down on the issue. Initially the department was fully satisfied with the treatment of these alleged transactions as capital gain in the original assessments prior to search. Further, search per se in the premises of the assessee group did not reveal anything to justify viewing of these transactions with suspicion. The Assessing Officer's entire endeavour was directed towards the issue of capital gain although he subjected the same to tax u/s.69A by treating the share transactions as bogus relying on the statements made by the brokers which have been discussed earlier. All this exercise of verification of share transactions was undertaken with an approach to bring the capital gain under a particular head that is liable to be taxed at the maximum rate. The alternate proposition made by the Assessing Officer to now treat the same as adventure in the nature of trade shows absolute lack of conviction on his part. The assessee vide his submission dated 07.05.2008, attached as pages 86 to 97 of the Paperbook-II, explained the concept of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing whether a person is indulging in business in the nature of trade, (ii) whether the transaction is an isolated one or forms part of a series of transactions showing the transaction to be in the nature of adventure in trade, (iii) the fact that the property was sold within a short time by itself does not indicate that the transaction was in the nature of trade, (iv) whether property was purchased with the intention of investment and not an adventure in the nature of trade, and (v) it is not a case merely on the facts and circumstances of the case but to consider their distinctive character in each case. 19.3. In view of the above principles it can be said that in the present case the shares acquired by the assessee were shown as investment and he was treated as an investor in the past. The transactions involved in shares were isolated ones, did not show any continuity and did not form part of a series of transactions. None of the share transactions formed a part of the line of business pursued by the assessee. The intention was purely of investment and the fact that the shares were sold within a short time did not indicate that the transaction was in the nature of trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; treatment of these transactions as capital gain as it had accepted its very claim with regard to same in the original assessments prior to search in appellant-group. The original assessments were framed u/s 143(1) of the Act. Even if no scrutiny was made in these cases there was no bar on the Department to scrutinise the same if it was not found in order. This shows that the very claim of the entire group with regard to huge LTCG had the approval of the IT Department and it was never frowned upon. Moreover, search per se in appellant-group did not reveal anything to justify viewing of these transactions with suspicion. All this exercise of verification of share transactions was undertaken with a different approach, i.e. to bring the whopping amount of capital gain under a particular head that is liable to be taxed at the maximum rate. In the facts of the case as brought out above and in view of legal position sufficiently discussed by me this approach of the AO cannot be accepted." 19.5. We find the various issues raised by the Revenue have also been decided in favour of the assessee in the following decisions relied on by the Ld. Authorised Representative. We find the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tary evidence, the Tribunal had arrived at a finding of fact that the transactions were genuine. The Tribunal had further recorded a finding of fact that the cash credits in the bank accounts of some of the buyers of shares could not be linked to the assessees. There was no substantial question of law." 19.5.1. We find the Hon'ble Jharkhand High Court in the case of CIT vs. Arun Kumar Agarwal & Ors., reported in 2012-TIOL-603-HC-JHARKHAND-IT, has held as under: "10. We have considered the submissions of the learned counsel for the parties and we are of the considered opinion that the learned Assessing Officer was much influenced by the enquiry report which may has been brought on record by the efforts of the Assessing Officer and that enquiry report was prepared by the SEBI and from the observations made by the Tax Appeal No.4 of 2011 with analogous case 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ker. The assessee also furnished returns of income along with balance sheet for the asst. yrs. 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 S.Ltd. and by broker. Merely because there was substantial delay in transferring the shares into D-mat account from the date of purchase and the transactions not routed through Calcutta stock exchange, the AO was not justified in doubting the declared date of purchase of the shares ignoring the above evidences. In off market transaction in shares, any enquiry from the stock exchange will not yield result in favour of Revenue. Revenue has to see whether the sale has been effected or not as per the acceptance and admission of the respective stock broker. Under these circumstances, the first appellate order is set aside to this extent that shares in question were not purchased on the declared dates and the AO is directed to allow the claimed exemption under s.10(38) on the long-term capital gain shown by the assessee on those shares. Likewise no infirmity is found in the first appellate order whereby the CIT(A) has rightl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares by the assessee are genuine or not and whether the holding period is more than 12 months or not. 9.2 We find the assessee before the A.O. has filed the copies of contract notes and purchase bills of all the shares purchased from MSPL (copies of which are placed at paper book page 18 to 43). Similarly the bank statement maintained with HDFC bank shows evidence of payment to MSPL. The Xerox copy of the account payee cheque issued to MSPL dtd. 1.12.05 for ₹ 12,40.565/- is placed at paper book page 45 and was also filed before the A.O. and CIT(A). The copy of ledger A/c of MSPL in the books of the assessee and the copy of the ledger account of the assessee in books of MSPL were also filed before the A.O. Similarly the copies of contract notes and sale bills of all the shares transferred to Techno Shares & Stocks Ltd. with copy of D-Mat account and copy of confirmation letter dtd. 28.10.2005 from Sunchem Securities P. Ltd. were also filed before the A.O. Nothing was brought by the A.O. to prove that any of these evidences filed by the assessee is false or untrue. The Revenue has basically gone on the statement of Mr. Mukesh Choksi who denied to have known the assessee an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... li K. Rattonsey and Hamida Rattonsey from Sunchan Securities Ltd. on your behalf, kindly confirm. Ans. I have not given any instructions. Q.4 Question put up by Dr. Mahesh Akhade * In the statement recorded u/s.131 of the IT. Act on 24.12.2008, you have denied in the answer to Question No.8, 9, 12 & 13 that Mahasagar Securities Pvt. Ltd. and Alliance Intermediaries Network Pvt. Ltd. has no relationship to the assessees J.K. Rattonsey, Hamida Rattonsey, Sunay Mehta and Samit Mehta. You have also denied you have any share transactions with these persons. Kindly confirm the same. Ans. I am preparing accounts on receipt basis and the cheques received by me are accounted as a general receipts and on which the commission earned by me has been accounted fully. Here the shares have been delivered by Sunchan Securities, I have not given any instructions to Sunchan Securities. Q.No.5 Question put up by Dr. Mahesh Akhade - Kindly furnish the statement of bank accounts of Mahasagar Securities Pvt. Ltd. in which the above mentioned two cheques amounting to ₹ 12,40,565/- and ₹ 11,91,378/- have been deposited. Ans. At present they are not available with me, I will furnish th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer and the period of holding of securities held in demat form. It has been stated there in that earlier Circular No. 704 issued by the CBDT relating to the "date of transfer" and "period of holding" does not change even when securities are held in the dematerialized form. Therefore in view of the above two circulars of CBDT it is clear that in case of securities the "date of purchase" has to be taken from the broker's note/contract note and the period of holding is also to be reckoned from the "date of purchase" and not from the "date of dematerialization". Since the holding period of the shares as per the broker's note and its subsequent sale after dematerialization is more than 12 months, therefore, the shares become long term capital asset and the assessee's claim of long term capital gain is correct. In this view of the matter we set aside the order of the ld. CIT(A) and direct the A.O. to accept the long term capital gain declared by the assessee. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed. 10. In the result, appeal filed by the assessee is allowed." 19.5.4. We find the Mumbai Bench of the Tribunal in the case of ITO vs. Mrs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Consultants Pvt. Ltd. cannot be disputed, because the fact that the Assessee has received the said amount is not in dispute. It is neither the case of the Revenue that the shares in question are still lying with the Assessee nor it is the case of the Revenue that the amounts received by the Assessee on sale of the shares is more than what is declared by the Assessee. Though there is some discrepancy in the statement of the Director of M/s. Richmand Securities Pvt. Ltd. regarding the sale transaction, the Tribunal relying on the statement of the employee of M/s. Richmand Securities Pvt. Ltd. held that the sale transaction was genuine. In these circumstances, the decision of the ITAT in holding that the purchase and sale of shares are genuine and therefore, the Assessing Officer was not justified in holding that the amount of ₹ 1,41,08,484/- represented unexplained investment under Section 69 of the Income Tax Act, 1961 cannot be faulted." We are of the opinion that the facts of the case of Mukesh R Marolia are similar to the facts of the cases under consideration. Respectfully following the orders of the Hon'ble High Court and the coordinating benches of the Tribunal w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd choose only such instances which are favourable to him cannot justify such addition. The Departmental Representative has also argued that there were differences in the information as per contract notes and as per information received from the stock exchange which fact is also not material because when some off market transactions have not been reported to the stock exchange, how such contract notes can be matched with the records of stock exchange. Economic consequences as a result of off market transactions or otherwise have taken place and, therefore, such transactions cannot be treated as sham merely for some discrepancies or for the view of the AO in regard to genuineness of these transactions. The Revenue has also relied on the decisions of SEBI involving some scrips. The role of SEBI is different and the orders passed by them have different objectives such as orderly conduct of share markets and investor protection and, therefore, such order cannot be conclusive as regards the genuineness of the transactions. In this regard, it would not be out of place to mention that stock market operations are subject to different regulations and the interest of general public is protec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ada v. ITO & Ors. in ITA No. 1332/PN/2009, we find the same is not applicable to the facts of the present case. In this case, the Hon. Tribunal has deleted the addition u/ s. 68 on account of long term capital gains declared by the appellant, but accepted the gain as short term capital gain because of the following reasons - (i) In this case, assessee purchased shares on line and not off market. (ii) Settlement No. did not tally with the pool account of the broker. (iii) Shares are transferred to the demat account after completion of 18 months from the date of the contract notes. (iv) Share broker transferred shares to the assessee from the beneficiary account and not from the pool account. (v) Original contract notes were never produced by the assessee. (vi) There was no delivery to the assessee in the normal period prescribed in the SEBI Rules. (vii) The assessee made payment to the broker after a period of 18 months from the date of broker's note. (viii) Enquiry by SEBI was going on against broker R. P. Shah for price rigging of shares, who was suspended by SEBI. (ix) Broker's husband is a relative of the family. (x) Absence of relevant entries" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption of long term capital gain u/s.10(38) has been accepted for the reasons given therein. Following the same ratio, the claim of exemption of long term capital gain on account of sale of shares of Fast Track Entertainment Ltd. in the above appeals are allowed. ITA No.1254/PN/2012 (Sunil Nandkishor Goyal) (A.Y. 2005-06) : 13. Facts of the case, in brief, are that the AO during the course of assessment proceedings noted that the assessee has credited an amount of ₹ 15 lakhs on 31-03- 2005 as gift received. From the various details furnished by the assessee during the course of assessment proceedings he noted that the assessee has shown to have received ₹ 15 lakhs from one Mr. Jadhumani Pradhan, R/o. Abhimanyu, Balia, Jajpur, Orissa, on 24-05-2004 by way of gift. The person was stated to be a non-resident Indian and the gift was received vide DD No.260327 dated 24-05-2004 issued by Thomos Cook Al- Rostamani Exchange Company, Dubai payable on Central Bank of India, Aurangabad Branch. He noted that another family member of the assessee namely Mr.Arun Goyal had received a gift of ₹ 15 lakhs during the assessment year under consideration. However, the amount so rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dness gesture. However, the assessee has never done so. In view of the above, the AO rejected the claim of gift received by the assessee and treated the same as assessee's income from undisclosed source introduced in the guise of a gift. The Assessing Officer accordingly made addition of ₹ 15,00,000/- to the total income of the assessee. 15. In appeal the Ld. CIT(A) upheld the action of the AO by holding as under : "6.2 I have carefully considered the facts of the case and the rival contentions. On perusal of the same it has been noticed that it is undisputable fact that the appellant is not relative or business associate of Shri Jadhumani Pradhan from whom he has claimed receipt of gift of ₹ 15 Lakhs. It is also undisputed fact that Shri Anil Goyal, i.e., brother of the appellant who has also claimed to have received gift from Shri Jadhumani Pradhan, has surrendered the said gift as his own income and offered the same to tax. The appellant has not given any gift to any person including Shri Jadhumani Pradhan. In view of the above facts, I am of the considered view that the A.O. is justified in treating the said gift as non-genuine and making addition of ₹ 15,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mani Pradhan and has surrendered the said gift as his own income and offered the same to tax he referred to the copy of the assessment order of Anil Goyal at Page 9 of the Paper Book and submitted that Shri Anil Goyal had received gift from one Mr. Naresh Singhvi and not from Jadhumani Pradhan as observed by the Ld.CIT(A). He submitted that the gift deed is signed by the assessee and copy of signed gift deed is given to the AO. However, earlier, the accountant of the assessee has given the copy of gift deed not signed by the assessee to the AO as the copy was available when it was received from the donor from Dubai. He submitted that the gift deed is signed by 2 witnesses on behalf of donor at Dubai wherein they have forgotten to mention the names of the witnesses. He submitted that the irregularities as alleged by the Assessing Officer were explained to CIT(A) and he has accepted the same as he has not commented on the aspect of irregularities in the gift deed. He submitted that the AO and CIT(A) have wrongly invoked the provisions of section 56(v) which was introduced by The Finance Act 2004 and is applicable to any sum of money exceeding 25000 received from any person on or afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey exceeding ₹ 25,000/- received from any person on or after 01-09-2004. However, in the instant case the assessee has received the gift on 24-05-2004 which is much before 01-09-2004, therefore, the provisions of section 56(v) are not applicable. 20. From the copy of the assessment order passed u/s.153C r.w.s. 143(3) of the I.T. Act for the A.Y. 2005-06 ( a copy of which is placed at PB 9 to 11) we find Sri Anil Goyal had received gift of ₹ 15 lakhs from Sri Naresh Singhvi and offered the same to tax since he was not in a position to substantiate his claim. He has not received any gift from Shri Jadhumani Pradhan. Therefore, the Ld. CIT(A) was not correct in stating that Sri Anil Goyal who had received gift from Sri Jadhumani Pradhan had surrendered the gift as his income. 21. So far as the application of section 56(v) to the facts of the case, admittedly the provision was introduced by the Finance Act, 2004 and is applicable to any sum of money exceeding ₹ 25,000/- received from any person other than the persons specified in the said provision on or after 01-09-2004. In the instant case the assessee has received the gift on 24-05-2004 which was credited in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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