9911796707
TMI Blog2018 (2) TMI 2128X X X X Extracts X X X X X X X X Extracts X X X X ..... he case, the learned CIT (A) has erred in deleting the disallowance of Rs. 24,464/- out of interest expenses as the interest bearing funds were diverted for non business purpose" 4. "Whether in law and on facts & circumstances of the case, the CIT (A) has erred in deleting the disallowance amounting to Rs. 25,000/- out of vehicle expenses as personal use by the assessee can not be ruled out" 5. "Whether in law and on facts & circumstances of the case, the learned CIT (A) has erred in deleting the addition of Rs. 1,20,000/- made by the A.O. on account of low withdrawal for household expenses" 6. "The order of the Id. CIT (A) is erroneous both in law and fact?. 7. "Any other ground that may be adduced at the time of hearing." 3. Facts in brief relating to the ground No. 1 raised by the revenue that the A.O has stated that the assessee has shown LTCG of Rs. 33,15,612/- on sale of shares of Bolton Properties Limited; that in the details submitted on 06.09.2007 it was explained that 9000 shares of Bolton Properties Limited were purchased by the assessee from M/s Stock Home (Prop. Anil Kumar Jhunjhunwala, member of the Magadh Stock Exchange Association ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (KER); iv) Parimisetti Seetharamamma-v. CIT 57 ITR 532 (SC); v) Chiranji Lal Steel Rolling Mills v. CIT 84 ITR 222 (P&H); 4. Aggrieved with the assessment order, the assessee carried the matter before the CIT(A). In appeal, the CIT (A) observed that before discussing the allowability or otherwise of the claim of LTCG, it would be relevant to emphasize the information u/s 133(6) was called for from M/s Stock Home through whom the assessee had purchased the alleged 9000 shares of Bolton Properties Limited. The address of M/s Stock Home (Prop. Anil Kumar Jhunjhunwala) as per the bill submitted by the assessee was at Pushpa Vihar, Boring Road, Patna. The letter came back unserved from the address which is given in the purchase bill. The enquiry was conducted by the JCIT, Range-II, Patna, Bihar on behalf of this office. The JCIT, Range-II, Patna had deputed his Inspector to collect the necessary information from the broker and from the Magadh Stock Exchange Association Limited. It is reported that there is no Pusha Vihar Apartment at Boring Road, Patna. The Stock Exchange was contacted to know the whereabouts of Shri Anil Kumar Jhunjhunwala. The Compliance Officer of the Stock Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded u/s 133A of the I.T. Act, 1961 on 28.12.2004 had admitted that the balance sheet of the scripts traded for arrangement of LTCG did not justify the market price and that the price of such scrips were artificially jacked up. Shri P.K. Agrawal has clearly stated that the major work being done at Kolkata Stock Exchange is that of arrangement of fake LTCG. Not only this, his accomplices have also confessed about the same and after accepting the guilt, have filed disclosure petitions. The assessee has sold shares of "Bolton Properties Limited" which is one of the main scrips in which manipulation was done by the brokers to jack up the prices and bogus capital gain was earned by persons like the assessee. This is clear from the answers to question 29 of the Shri PK Agrawal. In answer to question no.29 Shri PK Agrawal stated that the book marked as PKA/9 contains complete sale purchase details of selected scripts like Bolton Properties Limited etc. for the financial year 2004-05. The assessee has not denied being a client of Shri PK Agrawal and this was the only transaction done by him through Shri PK Agrawal. 6. The CIT (A) received the remand report dated 24.11.2008, wherein t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like contract note of sale and purchase of shares, bank statements, demat account etc submitted before the A.O during the course of assessment. The assessee sold the above shares through demat and received all payments through cheque, which corroborated with bank statement. All transactions were routed through recognized stock exchange. The details of sale and purchase of shares is as given below :- Name of script Date of purchase and quantity Amount of purchase Date of sale and quantity Amount of sale Bolton Properties 25.04.2003 62,460/- 14.03.2005 & 23.03.2005 9000 shares 3378072/- Total Profit 33,15,612/- 8. The copy of bill of sale and purchase of shares, bank account, share certificate and copy of demand account is enclosed herewith for your kind perusal. The A.O. issued notice u/s 133(6) to above stock broker asking to give details in connection with the above transaction. The above stockbroker submitted his reply with full details as required by the A.O and confirmed the above transactions- made by the assessee. He confirmed the sale of shares of the assessee and payment given to the assessee by cheque. The A.O was neither informed to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has made all transactions through Calcutta Stock Exchange and not from Magadh Stock Exchange Limited, hence, the above notification is irrelevant for us; that SEBI vide his order dated 29.09.2005 has issued the direction that eleven stock brokers of Calcutta Stock Exchange shall not buy, sell or deal in securities till further direction in this regard. The assessee submitted that share broker of the assessee is not included in above eleven stockbroker. The assessee purchased shares on 25.04.2003 and sold the same on 14.03.2005 and 23.03.2005. All transactions have been concluded before the issue of direction by SEBI. So the above direction issued by SEBI is also irrelevant in this case. SEBI has passed the order dated 15.12.2003 that the certificate of registration of M/s Renu Poddar has been suspended; that the assessee has not deal with M/s Renu Poddar in any terms. So the suspension of Renu Poddar is not relevant with our case. SEBI vide Exchange shall not buy, sell or deal in securities till further direction in this regard. The assessee purchased shares on 25.04.2003 and sold the same on 14.03.2005 and 23.03.2005 that all transactions have been concluded before the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s with M/s Stock Home, Patna. He has also filed copies of contract note for sale of above shares from M/s Ashok Kumar Kayan, Kolkata and M/s P. K. Agrawal & Co. The sale of scrips in the Demat account and copy of share certificate has been submitted by the appellant. The sale amount has been routed through bank, for which copies of cheques have been filed. 7. The A.O has not disputed the contents of affidavit from proprietor of M/s Stock Home through whom shares were purchased by the appellant. The affidavit of the proprietor of M/s Stock Home confirming the transaction of having purchased the shares on behalf of the appellant has not been rebutted by the A.O. It is gathered from the order of SEBI dated 31.05.2006 that the interim order dated 30.11.2005 relied upon by the A.O has been vacated. Hence, it cannot be used as evidence against the appellant. It is also seen that the gain was from the shares of BoIten Properties Limited, however, the name of said company does not figure out in the list of companies referred in the order of SEBI. 8. From the above, it is understood that, prima facie, on the basis of above evidence, the transactions are genuine. However, in this case, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce brought on record by the AO to substantiate his conclusion that the impugned transactions were simpliciter to advise to camouflage activities to divert the revenue. There is no denial from the stockbroker namely M/s Ashok Kumar Kayan, Kolkata, M/s P. K. Agrawal & Co., and M/s Stock Home with regard to transaction with the appellant. As the transaction of sale has taken place at the floor of the Stock Exchange, the appellant is not supposed to identify the buyer. There was no material before the AO which could have led to the conclusion that the transactions of purchase & sale of shares were colorful transactions and no such presumption can be drawn by the AO merely on surmises and conjectures. 9. I find that the case of the appellant is squarely covered by the decision in COMMISSIONER OF INCOME TAX vs. SMT. JAMNADEVI AGRAWAL & ORS. HIGH COURT OF BOMBAY: NAGPUR BENCH dated 23rd September, 2010 reported in (2010) 236 CTR (Born) 32: (2010) 328 ITR 656: (2010) 46 DTR 271 wherein it was held that: "The fact that the assessees in the group have purchased and sold shares of similar companies through the same broker cannot be a ground to hold that the transactions are sham and bogu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record, held that purchase contract note, contract note for sales, distinctive numbers of shares purchased and sold, copy of share certificates and the quotation of shares on the date of purchase and sale were sufficient material to show that the transaction was not bogus but a genuine transaction. The purchase of shares was made on 28th April, .1993 i.e., asst. yr. 1993-94 and that assessment was accepted by the Department and there was no challenge to the purchase of shares in that year. It was also placed before the relevant AD as well as before the Tribunal that the sale proceeds have been accounted for in the accounts of the assessee and were received through account payee cheque. The Tribunal was right in rejecting the appeal of the Revenue by holding that the assessee was simply a shareholder of the company. He had made investment in a company in which he was neither a director nor was he in control of the company. The assessee had taken shares from the market, the shares were listed and the transaction took place through a registered broker of the stock exchange. There was no material before the AO, which could have lead to a conclusion that the .transaction was simplic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oker is proved. The demand draft for the sale consideration was issued from the account of PK i.e. brokers. The money has not been deposited in cash in this account but has come to this account by way of transfer from the account of SG Ltd. The purchase of shares is not TTJ dispute and the company has directly confirmed to the AO the purchase of the shares by the assessee in reply to the notice issued under s. 133(6). The statements of the broker could not be given any credence as he has stated differently vide different letters. Earlier he denied the transaction being entered into. Subsequently he has accepted that he has issued the draft after receiving the cash. Again he said that the cash was routed through some bogus account but he accepted that the draft has been made from his account. Subsequently, 'again he pointed out that he received cash of Rs. 9,00,000 and Rs. 5,00,000 wile he has issued drafts of Rs. 5,99,500 and Rs. 6,19,508 respectively. What happened to the balance amount? Nothing has been brought on record or stated by the broker. The assessee was not provided cross-examination. The statement has been recorded at the back of the assessee. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to establish that the assessee has introduced her own unaccounted money in the shape of alleged sale proceeds of shares. While making addition as income from undisclosed sources, burden on the Department is very heavy to establish that the alleged receipt was actually income of the assessee from the undisclosed sources. Thus, in view of the aforesaid discussions, the action of the CIT (A) was not correct in confirming the assessment of Rs. 12,19,538 as the income from undisclosed sources as against the sale consideration of shares declared by the assessee. The CIT (A) was not justified in rejecting the claim of long-term capital gain of the assessee from sale of shares. Accordingly the AO is directed to assess the income declared from the sale of shares under the head income from long-term capital gains.-Smt. Sunita Oberoi vs. ITO (2009) 126 TTJ (Agra)(TM) 745 : (2009) 30 DTR (Agra)(TM)(Trib) 474 and Baijnath Agarwal vs. Asstt. CIT (2010) 133 TTJ (Agra)(TM) 129 : (2010) 43 DTR (Agra)(TM)(Trib) 149 followed; ITO vs. Naveen Gupta (2006) 5 SOT 94 (Del), ITO vs. Smt. Kusumlata (2006) 105 TTJ (Jd) 265 and Ashok Kumar Lavania (ITA No. 112/Agra/2004, dt. 30th May, 2(08) approve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count. No incriminating evidence has been brought on record to disprove the evidence filed by the appellant. The assessment cannot be made arbitrarily and for any addition there must be nexus to the material on record - (1983) 199 ITR 247. The AO has also relied upon the decision of the Hon'ble Supreme Court in CIT vs. Best & Company Private Limited - (1966) 60 ITR 11. It is observed by the Hon'ble judges that an adverse inference could be drawn against the assessee if he fails to put before the department the material which was in his exclusive possession. This is not the case here. The appellant has submitted the relevant material such as contract note etc., discussed above, therefore, the above decision is not applicable in the present case. The judgement of Juggilal Kamlapat vs. CIT - reported in 73 ITR 702 (SC) quoted by the AO does not help the AO as there is no dispute that the AO can pierce the veil of corporate entity which was done in the present case. 16. The AO relied upon the judgement of the Hon'ble Supreme Court in case of Sumati Dayal vs. CIT - reported in 214 ITR 801 this case also does not help the AO to support his case. The Hon'ble judges have obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow:- "2.7 I have considered the observations of the AO as well the submission made by the appellant. From the facts and circumstances of the case, the record reveals that the AO heavy reliance on the result of enquiries conducted by the DDIT, Kolkata in case of scripts and the brokers which are in no way directly connected with the case of the appellant. It is a matter of record that during the previous year relevant to the A. Y. 2003-04, the appellant made investment in shares through Registered Share & Stock Brokers. The investment in shares was reflected in the Balance Sheet filed along with the return for the A. Y. 2003-04 which was accepted by the Department and there was no dispute to the purchase of shares in that year. In the previous year relevant to the assessment year under consideration, the appellant sold the shares through Registered Share & Stock Brokers at the then prevailing market rate and paid tax statutorily payable @ 10%. The purchase and sales of shares are supported by documentary evidence like bills for purchase and sale, Form-A contract notes, copy of bank statement and DMAT Account. In the statement of LTCG, filed during the course of assessment proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andi of LTCG noticed in some unconcerned cases, applying the probabilities, the AO had not brought any evidence on record to conclusively prove that the apparent is not real. 2.9 The AO relied upon the decision in CIT vs. Durga Prasad More 82 ITR 540 (SC) wherein it was observed by the Hon'ble Supreme Court that science has not yet invented any instrument to test the reliability of evidence placed before a Court or Tribunal. Therefore, the Courts and Tribunals have to judge the evidence before them by applying the test of human probabilities. With utmost respects to these observations of the Hon'ble Supreme Court, it must not be ignored that the assessment u/s 143(3) is required to be completed on the basis of evidences produced by the appellant and after taking into account all relevant material which the AO has gathered. In the present case, the evidences produced by the appellant before the AO had not been roved as false. Mere assertion of a third person that major work of LTCG in Kolkata Stock Exchange is managed affair does not absolve the AO to investigate the relevant transactions and to reasonably establish that the appellant is also a party to such managed affairs. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be mentioned that the appellant was simply a shareholder of the companies. He had made the impugned investment in those companies in which he was neither a director nor was he in control of the company. The appellant had taken shares from the market. The shares were listed and the transactions took place through registered brokers of the Stock Exchange. There was no evidence brought on record by the AO to substantiate his conclusion that the impugned transactions were simpliciter a device 10 camouflage activities to defraud the Revenue. There was no material before the AO, which could have lead to a conclusion that the transaction was simpliciter a device to camouflage activities, to defraud the Revenue. No such presumption could be drawn by the AO merely on surmises and conjectures. Mere suspicion that sizable LTCG are result of managed affair cannot be made basis to accuses each and every such transaction unless contrary is proved with documentary evidences. Theory of probabilities cannot always constitute a blanket powers to condemn all transaction of shares where prices have shoot up many fold without there being any documentary or circumstantial evidence to hold that the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed rules" and in the same case this Court approved the following observations from the judgment of Tjuker, Russel vs. Duke of Norfolk & Ors. (1869) All England Reports 188. "There are, in my view, no words which are of universal application to every kind of inquiry and every kind of domestic Tribunal. The requirements of natural justice must depend on the circumstances of the case, the nature of the inquiry, the rules under which the Tribunal is acting the subject matter that is being dealt with, and so forth. Accordingly, I do not derive much assistance from the definitions of natural justice which have been from time to time used hut. whatever standard is adopted, one essential is that the person concerned should have a reasonable opportunity of presenting his case. " 20. In State of Kerala vs. K.T. Suaduli Grocery Dealer etc. (1977) 1977 CTR (SC) 260 the Hon'ble Supreme Court of India had held that the tax proceedings are no doubt quasi judicial proceedings and the ST authorities are not bound strictly by the rules of evidence, nevertheless the authorities must base their order on materials which are known to the assessee and after he is given a chance to rebut the same. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xorably lead to the conclusion that no agricultural income had been generated by the assessees. Such an inference can only be drawn from the statement of A to the effect that the transactions between him and the assessees were bogus. Therefore, it was mandatory for the Revenue to produce A for cross-examination by the assessees on their specific demand in this regard. There may well be instances where the reopening may pass muster in the light of some-facts, but those facts by themselves may turn out to be insufficient to preserve the assessment itself. Once ss. 147 and 148 are resorted to, the AO must first discharge the burden of showing that income has escaped assessment. It is only thereafter that I he assessee has to provide all the answers. There is no reason why the initial burden of proof should not rest on the AO even where the assessment has gone through under s. 143(1). The Tribunal has, there/ore, arrived at the correct conclusion. " 23. The case of the appellant certainly finds support from the very recent decision of the Hon'ble High Court of Allahabad in Commissioner of Income-tax vs. Udit Narain Agrawal, IT Appeal No. 560 of 2009 dated December 12,2012 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee by bringing proper evidence on record and the assessee could not be excepted to call the concerned person in evidence to help the Department to discharge the burden that lay upon it". Similar view has been expressed by the Hon'ble Allahabad High Court in the case of CIT v. Daya Chand Jain Vaidya 98 ITR 280. The AR's of the appellant has also strongly emphasized on the peculiar fact that after the allotment of shares, the same were transferred to Demat A/c, remained in demat account during the period of holding and transferred to the demat account of the buyer, itself proves the genuineness of the purchase/sale transaction of shares having regard to the relevant provisions contained in the Depository Act. The transaction made through demat account is in itself an evidence to prove the genuineness of share transaction. Merely because the sale of shares fetched a handsome price, which price is supported by official quotation issued by Recognised Stock Exchange, therefore, there can not be any reason to doubt the genuineness of the sale transaction of the shares. It is settled position of law by the decisions reported in 26 ITR 776 (SC), 37 ITR 288(SC), 63 ITR 449 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted his reply and furnished evidence in support of his claim of long-term capital gain. The Assessing Officer held that the assessee failed to lead evidence to support his claim of long-term capital gain and considered the amount of Rs. 1,74,552 as unexplained credit and it was added in the income of the assessee. The Commissioner (Appeals) deleted the addition holding that the Assessing Officer had not discharged his onus and there was no material or evidence with the Assessing Officer to come to the conclusion that the transaction shown by the assessee was a bogus transaction. The Commissioner (Appeals) took the view that if a company was not available at the given address, it could not conclusively prove that the company was non-existent. The Tribunal took into consideration that the Assessing Officer had not dealt with all the documents placed before him and had simply presumed that the transaction was bogus and held that the purchase contract note, contract note for sales, distinctive numbers of shares purchased and sold, copy of the share certificates and the quotation of shares on the date of purchase and sale were sufficient material to show that the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... established. As regards the aspect of off market transactions, it is noted that neither these are illegal nor prohibited and only some of the compliances have to be made by the brokers. As regard the aspect of such compliances, it is not the case that all the off market transactions have not been reported by the concerned brokers to the stock exchange as per rules and even otherwise, any failure on the part of the brokers in doing such compliance cannot make the contract between the assessee and the broker illegal or void as the broker may face the consequences for his default under relevant statute. It is also noted that all the transactions are not off market transactions, hence, the AO's approach to pick and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on sale of 7000 equity shares of Multiplus Resources and 15000 shares of South Indian Bank and credited to the capital account of the assessee. The AO while going through the capital account of assessee noted this fact and observed that the assessee has not discharged the initial onus of proving the identity, creditworthiness and genuineness of transaction. According to AO, there is no proper evidence brought on record to prove the genuineness of transaction as claimed to have been made by the assessee. According to AO, Calcutta Stock Exchange Ltd. (CSE) also negated transactions. The AO also referred the issue that the trading of shares in the above stated company was barred/suspended by CSE and SEBI after SEBI detected malpractices in the said shares. According to AO, the assessee has made purchases through S. B. Bhutra & Co. in the scrip through Shri Narayan Rajkumar Mercantiles Ltd. But according to CSE vide letter dated 18.12.2007 the following transactions were reported: Name of the scrip Name of member/broker Date of transaction Multiplus Resources Ltd. KCA Stock Broking Private Ltd. 01.12.2004 Multiplus Resources Ltd. KCA Stock Broking Private Ltd. 29.11.2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urces. The addition of Rs. 11,34,213/- is deleted. Ground no. 2&3 are allowed." Aggrieved, now revenue is in appeal before us. 4. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee has filed all necessary details and documentary evidence qua purchases made from Stock brokers including copies of contract notes issued by broker. The assessee has also filed details of share credited in Demat account of assessee. This fact has not denied by Ld. Sr. DR during the course of hearing before us. No doubt the payments are made by cash as noted by AO in his assessment order qua the purchase of these shares but sale is supported by bank statement. We find that the payments are received through banking channels and assessee's claim of LTCG cannot be disturbed by the fact that some of the companies were indulged in malpractices at CSE and SEBI. When a query was raised to Ld. Sr. DR whether this particular scrip is put to scanner or not, Ld. DR could not reply and could not confirm that these transactions were under SEBI scanner. In such circumstances, we have no alternative except to uphold the order of CIT (A) and this a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to have purchased the shares has clearly denied the executing of any share transaction of M/s. Emerald Commercial Ltd. on 06.05.2004, the date on which assessee has claimed to have purchased 10,000 shares. Purchase transactions are out of cash in hand which was on account of gift received by assessee from his relatives. Purchase of shares was off bolt and such purchases are not reflected in the stock exchange. In this background the learned D.R requested to set aside the order CIT (A) and to restore that of Assessing Officer. On the other hand the learned A.R. for the assessee supported the order of the CIT(A). 7. After going through the rival submissions and material on record we find that Assessing Officer rejected the claim of long term capital gain on shares and brought the same to tax as unexplained cash credit under section 68 of the Act The stand of the assessee has been that the impugned receipt is on account of sale of shares which shares were duly purchased more than one year ago and were held thereafter continuously by assessee and therefore the gain on sale of such shares is to be held as long term capital gain exempt under section 10(38) of the Act. We find that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brother Shri Munir M. Bharwani of Rs. 1,28,000/- on 26.5.2003 being on the occasion of assessee's birthday. Assessee has stated that in the returns of income for the A.Y. 2004-05, in the case of his father and brother, the gifts in question have been duly reflected. Copies of the relevant returns of income alongwith capital accounts have been furnished before CIT (A) at relevant point of time and in this background it was the stand of the assessee that because of these gifts from the aforesaid two persons that there was so much cash in hand with the assessee. This fact has not been looked into by the Assessing Officer at relevant point of time. 10. The observation of the Assessing Officer that the transaction is not genuine and is engineered with a sole intention to show long term capital gain which is liable to a lower rate or income tax is because of (i) off market transaction, (ii) the payment for transaction is through cash (iii) physical delivery of shares has been given (iv) Kolkata Stock Exchange has denied having executed any transaction in the script i.e. Emerald Commercial Ltd. (v) shares were dematted in the month of August 2005 i.e. after more than one year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip India Ltd. for any other client except the transaction in question. It does not have any demat account. The assessee stated to have purchased the shares in the month of April 2002 whereas the shares were demated in August 2002 and October 2003 i.e. almost one and half years after the alleged purchase. There is no explanation in this regard as to why the assessee demated the shares just before the alleged sale of the shares. The transaction of sale of shares in Kolkata Stock Exchange without any explanation is not a normal human behaviour, when the assessee is having account with sub-broker in Mumbai. The Assessing Officer received the information from Bombay Stock Exchange that the shares of Blue Chip India Ltd., was not traded on the Stock Exchange on the dates given by the assessee. Thus, the learned DR has submitted that the facts and circumstances of the case clearly shows that the assessee has manipulated the accommodation entries of Long term capital gains against his own undisclosed income. He has relied upon the decision of the Chandigarh Bench of this Tribunal in the case of CIT v. Som Nath Maini 100 TTJ 917 (Chd.) 4. On the other hand, the learned AR of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held that even the statement of stock broker's denial of transaction was proved to be wrong by producing documentary evidence to the effect that the shares sold by the assessee were in consonance with the market price. He has further submitted that the decision in the case of Som Nath Maini (supra), relied upon by the Assessing Officer is not applicable to the facts of the case in hand because in the said case the Tribunal has found that the records of the broker was not available and shares remained in the name of the assessee even long time after the sale of shares therefore, the transaction does not stand the test of probability, whereas in the case of the assessee there is no such lack of availability of record or defect in the transaction of sale. He has supported the order of the CIT(A). 5. We have considered the rival submissions as well as the relevant material on record. The assessee claimed to have purchased 70,000 shares of Blue Chip India Ltd., in the month of April 2002 as under: Purchased on 10.04.02 37,000 shares for Rs. 20,350 Purchased on 12.04.02 37,000 shares for Rs. 18,150 The assessee purchased total 70,000 shares of Blue Chip I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time of purchase or at the time of sale of shares. The Assessing Officer has doubted the modus operandi and alleged that by this transaction the assessee has converted his undisclosed income as Long term capital gains by accommodation entries. It is pertinent to note that the transaction of holding of shares has been duly shown in the balance sheet attached with the return of income for the A.Y. 2003-04 as the same is placed at page 178 of the paper-book. The CIT (A) after considering all the relevant facts and material has given his findings in para 11 of the order, which is as under: "11. I have carefully gone through the assessment order, the submissions made by the A.R and the facts of the case and various case laws relied upon. It is evident from the submissions made and the evidence for purchase and sale of shares of M/s. BlueChip India Ltd., produced before me that a) The appellant has purchased 7000 shares of M/s. BlueChip India Ltd. from M/s. Prince Securities Ltd. and the bills/confirmations in respect of such purchases have been duly filed before me b) The source for the purchase is profit earned in the transaction of Hinduja Finance & Geometric Software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the circumstances the observation of the AO that the transaction is not genuine and is engineered with a sole intention to show LTCG which is liable to lower rate of income tax is because of (i) off market transaction, (ii) the payment for transaction is partly though cash (iii) physical delivery of shares has been given, (iv) Prince securities from whom the shares were purchased has not dealt with in this shares except for the appellant., (v) Prince Securities did not have any demat a/c, (vi) shares of Bluechip Ltd were demated after long time of 16 months. (vii) shares were brought in Mumbai and sold in Calcutta, (viii) shares of Bluechip were not traded on BSE on the dates on which the appellant has done the transactions, (ix) sale consideration was received after a week from the date of sale, (x) the replies of the appellant in the statement recorded u/s. 131 were evasive (xi) the appellant has not shown the purchase of shares in the balance sheet as on 31.3.2003 has been duly refuted by tendering sufficient evidence and, therefore, in my view the disbelief of the AO can only provoke a suspicion, much less a belief about the transaction and in my view, the suspicion of the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of Pradeep Kumar Daga that the transactions with the Haldiram group were bogus has been demonstrated to be wrong by producing documentary evidence to the effect that the shares sold by the assessees were in consonance with the market price. On a perusal of those documentary evidence, the Tribunal has arrived at a finding of fact that the transactions were genuine. Nothing is brought to our notice that the findings recorded by the Tribunal are contrary to the documentary evidence on record. The Tribunal has further recorded a finding of fact that the cash credits in the bank accounts of some of the buyers of shares cannot be linked to the assessees. Moreover, in the light of the documentary evidence adduced to show that the shares purchased and sold by the assessees were in conformity with the market price, the Tribunal recorded a finding of fact that the cash credits in the buyers' bank accounts cannot be attributed to the assessees. No fault can be found with the above finding recorded by the Tribunal. Reliance placed by the counsel for the Revenue on the decision of the apex court in the case of Sumati Dayal [1995] 214 ITR 801 is wholly misplaced. In that case, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some of the transactions were off-market transactions. However, the purchase and sale price of the shares declared by the assessees were in conformity with the market rates prevailing on the respective dates as is seen from the documents furnished by the assessees. Therefore, the fact that some of the transactions were off market transactions cannot be a ground to treat the transactions as sham transactions. 13) The statement of Pradeep Kumar Daga that the transactions with the Haldiram Group were bogus has been demonstrated to be wrong by producing documentary evidence to the effect that the shares sold by the assesses were in consonance with the market price. On perusal of those documentary evidence, the Tribunal has arrived at a finding of fact that the transactions were genuine. Nothing is brought to our notice that the findings recorded by the Tribunal are contrary to the documentary evidence on record. 14) The Tribunal has further recorded a finding of fact that the cash credits in the Bank Accounts of some of the buyers of shares cannot be linked to the assessees. Moreover, in the light of the documentary evidence adduced to show that the shares purchased and sold by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated to have been received by the Assessee on sale of shares was undisclosed income and accordingly made addition under section 69 of the Income Tax Act, 1961. The Appeal filed by the Assessee was dismissed by CIT(A). 5. On further Appeal, the ITAT by the impugned order allowed the claim of the Assessee by recording that the purchase of shares during the year 1999-2000 and 2000-2001 were duly recorded in the books maintained by the Assessee. The ITAT has recorded a finding that the source of funds for acquisition of the shares was the agricultural income which was duly offered and assessed to tax in those Assessment Years. The Assessee has produced certificates from the aforesaid four companies to the effect that the shares were in-fact transferred to the name of the Assessee. In these circumstances, the decision of the ITAT in holding that the Assessee had purchased shares out of the funds duly disclosed by the Assessee cannot be faulted. 6. Similarly, the sale of the said shares for Rs. 1,41,08,484/- through two Brokers namely, M/s Richmond Securities Pvt. Ltd. and M/s Scorpio Management Consultants Pvt. Ltd. cannot be disputed because the fact that the Assessee has rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erm capital asset in March, 2005 when the assessee sold those shares. No other specific defect in the order of the CIT (A) could be pointed out by the DR. 24. It is a settled position of law that suspicion alone cannot be the basis for making an addition in an assessment. Suspicion cannot take place of proof. In the instant case, we find no material could be brought on record by the Revenue to impeach the related transactions. In view of the facts of the instant case and the decisions discussed hereinabove, we do not find any infirmity in the order of CIT(A). Hence, this ground of appeal of Revenue is dismissed. 25. Brief facts relating to ground No. 2 are that the A.O has stated that during the year the assessee has shown gross profit of 7.67% against 12.14% and 11.46% in the preceding two years. The assessee explained that the rate of profit came down from the last year due to increase in the rate of diesel, petrol and labour and the profit of the assessee has decreased substantially to 7.67% during the year from 12.14% in the immediately preceding year. The AO found that the labour payment was Rs. 1,74,51,183/- as compared to Rs. 93,87,328/- and in terms of perc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same method regularly followed by the assessee from earlier years; that the books of account maintained by the assessee got audited by the Chartered Accountant. He has also not pointed out any defects in books of account maintained by the assessee. The assessee explained the reason for low gross profit before the A.O. The rate of diesel, petrol and labour increased from last year. The maintenance of trucks loader and other machineries also increased from last year due to the above machineries were old. The receipt also increased from last year and last year the receipt was Rs. 488.37 lacs and during the year under consideration it was Rs. 702.11 lacs. In the above chart the percentage of labour expenses increased but percentage of other expenses reduced from last year also. The contract note along with all books of account, bill, vouchers and wages sheets / register / muster roll etc. produced before the A.O. The assessee had made the 72.90% labour payment on monthly Basis. The major receipts received during the year under consideration in last three months. The A.O had calculated the outstanding labour payment on presumptive basis. The assessee had deducted and paid P.F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unverified for want of bill or voucher. 31. I find that no evidence whatsoever has been brought on record by the A.O to conclusively prove that the appellant, in fact, earned more than that returned by the appellant. The A.O had also not brought any evidence on record to substantiate the impugned additions made on wild estimations and suspicions. In the event of any doubt or disagreement with the stated facts, before any adversity was held against the appellant to assess the appellant on such unsubstantiated estimations, it was incumbent upon the A.O to have brought the needed evidence to support such estimation. In the instant case, no such evidence has been brought on record against the appellant to substantiate the impugned estimated addition. 32. I am of the considered opinion that the adhoc disallowances made on estimations and presumptions is unsustainable on facts and in law because the declared results were on the basis of audited books of accounts and no suppression in sales or inflation in purchases was detected - much less was any serious discrepancy pointed out in the method of accounting consistently being employed by the appellant. There was no finding of fact to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in view of the decision of the Hon'ble ITAT, Nagpur Bench (Camp at Raipur) in its order in ITA No. 240/NAG/05 dated 19.01.2006 in Sashi Singhania, Raipur vs. ITO 1(1), Raipur wherein while dealing with the adhoc disallowance out of material purchased and out of earth transporting charges, held that, since the expenses under these heads were incurred for the purposes of business, respectfully following the decision of the SC in Dhakeshwari Cotton Mills Ltd. vs. CIT 26 ITR 775 (SC) it was held that, such adhoc disallowances made on the basis of guess work were not sustainable. 34. I also find that the case of appellant finds support from the decision of the Hon'ble Supreme Court in Dhakeshwari Cotton Mills Ltd. Vs. CIT 26 ITR 775 as also the decisions cited below: Assistant Commissioner of Income Tax vs. Govindram Kakwani (2004) 90 TTJ (Jab) 981. Income-Addition-Non-rejection of accounts-AO made lump sum addition of Rs. 20,000/- to trading results-Non justified-Trading addition could be made only-If the books of account were rejected on cogent reasons and the proviso to s. 145 had been applied-Same not done-AO has accepted the purchases and sales-Also, book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pleted on the basis of records and material available before the AO and personal knowledge and excitement on events and extraneous facts should not lead the AO to a State of affairs where the salient/primary/direct evidences are overlooked and should not influence the AO for resorting to adhoc additions/disallowances. In a case where the transactions of the appellant have been accounted, documented and supported by the material evidences for deriving logical conclusions, without proving falsity of the same, adhoc should not be made by the AO in a routine manner merely on presumption, probabilities, suspicion and surmises since the same action of the AO degenerates the spirit for which the quality assessments were emphasized by the Board. (Mukesh R Marolia v. Addl. CIT [2006] 6 SOT 247 Mumbai). 36. If general/casual/routine observations of the AO are to be considered as material evidence for the purpose of framing an assessment, the AO shall have blanket and arbitrary powers to dispose of the scrutiny assessments according to his whims and fancies which is not the spirit of the circulars issued by the Board on scrutiny assessment. An assessment cannot be made arbitrarily and in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make the disallowance on a presumption that payment to all the labours is made on weekly basis. The A.O has not rebutted any of the submissions of the appellant in the Remand Report. Looking to the facts and circumstances of the case, as also decisions cited above, the adhoc disallowance made by the A.O cannot be sustained. Hence, the disallowance is deleted. The appellant gets relief of Rs. 20,76,968/-. 28. We have heard rival submissions and perused the orders of lower authorities and materials available on record. In the instant case, the AO observed that the assessee has shown profit @7.67% during the year as against 12.14% in the immediately preceding year. The assessee explained the same as major increase in expenses was due to wage and labour payments. It was submitted that this year the assessee has done more labour oriented work during the year as compared earlier year. The AO observed that the assessee has shown sundry creditors for wage and labour payment of Rs. 30,76,968/-. According to the AO wage payment per week can at best be Rs. 5 lakhs and that combined wages for the last week of the year and the outstanding amount of the earlier period cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Period Interest @12%(Rs.) Kedar Agrawal (HUF) 3,55,000/- 22.12.2004 to 31.05.2004 11,438/- 3,60,000/- 22.01.2005 to 31.03.2005 7,930/- Arson Motors 5,00,000/- 28.02.2005 to 31.03.2005 5,096/- Total 24,464/- 33. The A.O has further stated that it is clear that the advance made to the above three parties were not for any business purposes. The AO disallowed the interest chargeable on these accounts, calculated on daily produce basis as per the table given above, amounting to Rs. 26,464/- out of the interest paid and added to the total income of the assessee. 34. The assessee, being aggrieved with the order of AO, carried the matter before the CIT (A) and submitted that the assessee has given advances to his sister concern at the end of year. The assessee has received some interest free loan from his family members also. Out of above the assessee has given advances to his sister concern. There is no direct nexus between loans received from the outsider and loan given to his sister concern. 35. The CIT (A) after considering the submissions of assessee, deleted the addition made by the Assessing Officer by observing as under :- 43. I hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong back in the earlier assessment years. [Para 11] * The revenue submitted that the appellant, instead of making investment in sister concerns, could have very well cleared the existing loans and could have saved the interest amount. More so, no income was coming from the sister concerns. There was no necessity for using the borrowed funds for investment in sister concerns. However, there is no finding that any investments in sister concerns were made in current assessment year out of borrowed funds on which interest is payable by the appellant. Neither the Assessing Officer nor the Commissioner (Appeals) gave any finding that actually borrowed funds had been diverted to the sister concerns free of interest. Rule 8D(2)(ii) deals with the case where the appellant has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular of income or receipt, so that the lower authorities were expected to examine whether the interest paid if the assessment year is or is not directly attributable to any particular of income or receipt. Unless there is a finding that interest is directly related to the diverted funds to the sister conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment in shares was made from its own funds - Assessing Officer did not accept plea of appellant and estimating interest expenses incurred by appellant in relation to exempt dividend income on pro-rata basis made a certain disallowance by invoking provisions of section 14A - Commissioner (Appeals) deleted impugned disallowance made by Assessing Officer - He recorded a finding of fact that dividend earned on shares by appellant was from its investments in shares out of its own funds and consequently question of invoking section 14A to disallow expenditure would not arise - Tribunal upheld order of Commissioner (Appeals) - Whether since revenue did not challenge finding of fact recorded by Commissioner (Appeals) before Tribunal, no question of law arose for consideration before High Court - Held, yes [Para 3]" 47. In Maxopp Investment Ltd. & ors. vs. Commissioner of Income Tax dated 18th November, 2011 (20 12) 247 CTR (Del) 162 it was held that: "The expression "expenditure incurred" refers to actual expenditure and not to some imagined expenditure but the 'actual' expenditure that is in contemplation under s. 14A (1) is the 'actual' expenditure in relation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to exempt income, the AO would have to indicate cogent reasons for the same. (Para 29) Rule 8D also makes it clear that where the AD, having regard to the accounts of the appellant of a previous year, is not satisfied with (a) the correctness of the claim of expenditure made by the appellant; or (b) the claim made by the appellant that no expenditure has been incurred in relation to income which does not form part of the total income under the Act for such previous year, the AO shall determine the amount of the expenditure in relation to such income in accordance with the provisions of sub-r.(2) of r. 8D. Rule 8D(l) places the provisions of s. 14A(2) and (3) in the correct perspective. It is, therefore, clear that determination of the amount of expenditure in relation to exempt income under r. 8D would only come into play when the AO rejects the claim of the appellant in this regard. If one examines sub-r. (2) of r. 8D, it is found that the method for determining the expenditure in relation to exempt income has three components in terms of the said rule, the amount of expenditure in relation to exempt income has two aspects-raj direct and (b) indirect. The direct expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, whenever the issue of S. 14A arises before an AO, he has, first of all, to ascertain the correctness of the claim of the appellant in respect of the expenditure incurred in relation to income which does not form part of the total income under the Act. Even where the appellant claims that no expenditure has been incurred in relation to income which does not form part of total income, the AO will have to verify the correctness of such claim. in case, the AO is satisfied with the claim of the appellant with regard to the expenditure or no expenditure, as the case may be, the AO is to accept the claim of the appellant insofar as the quantum of disallowance under S. 14A is concerned. In such an eventuality, the AO cannot embark upon a determination of the amount of expenditure for the purposes of s. 14A(l). In case, the AO is not, on the basis of objective criteria and after giving the appellant a reasonable opportunity, satisfied with the correctness of the claim of the appellant, he shall have to reject the claim and state the reasons for doing so. Having done so, the AO will have to determine the amount of expenditure incurred in relation to income which does not form part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, therefore, he disallowed interest of Rs. 24,464/- by estimating the same @12% per annum. 37. On appeal, the CIT (A) deleted the addition on the ground that the AO failed to establish any nexus between the interest bearing funds and advances given by the assessee. The CIT (A) has given a finding that the interest free funds of the assessee are more than the amount advanced by the assessee to the four persons. 38. The DR during the course of hearing supported the order of AO but could not controvert the above finding of CIT (A) by brining any cogent and positive material on record. Hence, we do not find any good and justifiable reason to interfere with the order of CIT(A), which is confirmed and this ground of appeal of Revenue is dismissed. 39. Brief facts relating to the ground No. 4 are that the A.O has stated that during the year vehicle expenses have been claimed at Rs. 2,53,689/-and no log book has been maintained and personal use of vehicles for other than business purposes are also not denied, therefore, the AO disallowed a lump sum of Rs. 25,000/-. 40. The assessee, being aggrieved with the order of AO, preferred an appeal before the CIT (A) and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses during the year under consideration. The assessee living with his own house and the living standard of the assessee is medium. The assessee was withdrawing Rs. 5,210/per month which is quite reasonable and justified for household expenses in looking to size of family and living standard. 48. After considering the submissions of assessee, the CIT (A) deleted the addition made by the AO by observing as under :- 56. I have carefully gone through the assessment order and submissions of the appellant. It is seen that the A.O has proceeded to make the addition on presumption that the appellant did not withdraw any amount on account of house hold expenses, whereas, the appellant has claimed that sum of Rs. 62,500/- was spent on house hold expenses. I am convinced that the addition has been made on incorrect interpretation of fact, therefore, the addition is deleted. The appellant gets relief of Rs. 1,20,000/-. 49. We have heard rival submissions and perused the orders of lower authorities and materials available on record. In the instant case the AO observed that the assessee has not shown withdrawal for household expenses. The minimum expenses of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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