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TMI Blog2022 (7) TMI 533X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee to discharge its liability of margin payment through demat account and on sale of the same by the main broker M/s. Khandwala Integrated Financial Services Pvt. Ltd., the liability was duly recognized by the assessee towards the concerned creditors in its books of accounts at the value of sale proceeds actually realized. All these transactions were duly supported by the documentary evidence produced by the assessee; and, the AO in our opinion, was not justified to doubt the genuineness of the said transactions on the basis of some frivolous objections which have been duly clarified and met by the assessee. It appears to us that the nature of transactions as well as the modus operandi involved in the same was not properly understood by the AO while doubting the genuineness of the same while CIT(A) not only understood the same properly but also appreciated the exact nature of transactions to hold that the said transactions were genuine which were entered into by the assessee in the normal course of its business as a dealer in shares. Moreover, the identity and capacity of the concerned creditors as well as genuineness of the relevant transactions involving shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares, derivatives, land, commodity and share-broking. The return of income for the year under consideration was filed by the assessee on 30.09.2008 declaring a loss of Rs.(-) 55,33,149/-. The said return was selected for scrutiny and a notice under Section 143(2) of the Act was issued by the Assessing Officer to the assessee on 19.08.2009. In the balance-sheet filed along with its return of income, sundry creditors of Rs.5,27,79,287/- were shown by the assessee as on 31.03.2008. During the course of assessment proceedings, the assessee was required by the Assessing Officer to furnish the relevant details in respect of the said creditors. On verification of the said details submitted by the assessee as well as further details collected by him independently, the genuineness of the transactions wherein some of the parties were shown as creditors against the shares borrowed from them was found to be doubtful by the Assessing Officer. He, therefore, issued a notice requiring the assessee to show-cause as to why such creditors amounting to Rs.1,86,25,876/- should not be considered as bogus. In reply, following explanation inter alia was offered by the assessee in writing:- a. We h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the parties from whom we have received the shares as a loan namely Mr. Ramesh K. Shah, Mr. Shaulesh G. Desai, Mrs. Anjana S. Desai, Mrs. Apexa Ankur Shah, Mr. Bhupesh S. Shah, Mr. Pravin S. Talati and Mr. Mehul P. Talati confirming the above transactions are enclosed here with. We could not furnish the Affidavit from the remaining two parties namely Mr. Rahul K. Nayak and Mrs. Jigisha R. Nayak as they are not of country at present. In view of the above facts, it becomes clear beyond doubt that the sundry creditors worth Rs. 1,86,25,876.21 are genuine and by no stretch of imagination, it can be considered as bogus. Therefore we object to show cause as to why the same should not be considered as bogus in view of the facts and circumstances narrated herein above. 3. The Assessing Officer did not find the explanation offered by the assessee as above to be acceptable for the following reasons given in his order:- the assessee has taken shares which it claims to the taken as a loan. However, no agreement or understanding has been entered into with the other parties who have advanced these shares to the assessee. Thus neither the value is determined, nor the mode of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is shown. Therefore the resulting profit loss is totally misleading. It may be true that purchase is of an earlier year and the sale is made subsequently and the difference is treated as income on the basis of date of sale, But in the case of the assessee sale is done prior to the date of purchase which is only possible in the case of speculation' which is also a mark to mark transaction and profit loss is determined on day to day basis unlike these transaction. 11. Therefore the whole transaction is incongruent with prudential principles of business and is based on the whims and fancies of the assessee. The assessee does not commit the amount, and date of returning these shares. The purpose of taking these shares are to give them to the share broker as margin but are subsequently sold. The effect of the shares taken as loan for the relevant A.Y.., as well as last A.Y. is not given in the books neither as stock nor investment. Hence, they were kept out of the books till they were sold. Even if they were sold and were brought to the books it can have effect on sale and asset side of balance sheet, there should not be any chance on the liability side of balance sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on by the assessee for many year. 4. For the reasons given above, the Assessing Officer held that the whole transactions of raising creditors against the shares claimed to be taken on loan constituted a colourable devise and by relying inter alia on the decisions of Hon ble Supreme Court in the case of Mc Dowell Vs. Commercial Tax Officer and Union of India Vs. Azadi Bachao Andolan, he treated sundry creditors of Rs.1,86,25,876/- as a bogus liability and made addition to that extent to the total income of the assessee under Section 68 of the Act in the assessment completed under Section 143(3) of the Act vide an order dated 30.12.2010. 5. Against the order passed by the Assessing Officer under Section 143(3) of the Act, an appeal was preferred by the assessee before the learned CIT(A) and while challenging the addition of Rs.1,86,25,876/- made by the Assessing Officer under Section 68 of the Act by treating the sundry creditors as bogus liability, the submissions made before the Assessing Officer during the course of assessment proceedings were reiterated on behalf of the assessee before the learned CIT(A). It was further submitted on behalf of the assessee before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Departmental Representative, at the outset, invited our attention to the relevant portion of the assessment order to point out the specific findings and observations recorded by the Assessing Officer to doubt the genuineness of the concerned creditors representing liability shown by the assessee against shares claimed to be taken on loan from them. He contended that entries for the shares taken on loan from the concerned creditors, however, did not appear in the demat account of the assessee nor the same were reflected in the books of accounts regularly maintained by the assessee. He contended that such transactions are prohibited under SEBI Rules and the fact that there were no entries made by the assessee in the books of accounts for the said transactions clearly shows that these were not genuine transactions. He submitted that there was no agreement between the assessee and the concerned sundry creditors who had given shares on loan to the assessee and even no fix period was stipulated for returning the said shares by the assessee to the concerned creditors. He contended that even the valuation of the shares was not properly reflected and in the absence of any fixed value as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on evidence the identity and capacity of the concerned creditors as well as the genuineness of the relevant transactions, the addition made by the Assessing Officer under Section 68 of the Act by treating the same as unexplained cash credit was rightly deleted by the learned CIT(A). He, therefore, strongly relied on the impugned order of the learned CIT(A) on the issue under consideration and urged that the same deserves to be upheld. 9. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the assessee in the present case is a partnership firm which is in the business of dealing in shares and acts as a share broker. It had entered into certain transactions of derivatives through its main broker and had to pay margin to its broker in respect of the said transactions. In order to discharge the said liability, the assessee borrowed shares from certain persons and the list of such persons along with their address and PAN as filed before the authorities below is placed on record before us. The shares borrowed by the assessee were duly reflected in the demat account of the concerned creditors and the same were duly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee. It appears to us that the nature of transactions as well as the modus operandi involved in the same was not properly understood by the Assessing Officer while doubting the genuineness of the same while the learned CIT(A) not only understood the same properly but also appreciated the exact nature of transactions to hold that the said transactions were genuine which were entered into by the assessee in the normal course of its business as a dealer in shares. Moreover, the identity and capacity of the concerned creditors as well as genuineness of the relevant transactions involving shares taken by the assessee on loan was duly established by the assessee on evidence and the learned CIT(A), in our opinion, was fully justified in deleting the addition made by the Assessing Officer by treating the said transactions as unexplained cash credit under Section 68 of the Act. As such, considering all the facts and circumstances of the case, we do not find any infirmity in the order of the learned CIT(A) giving relief to the assessee on this issue and upholding the same, we dismiss the appeal filed by the Revenue. 11. In the result, appeal of the Revenue is dismissed. Orde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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