Income Tax Appellate Tribunal - Indore
Poonam Chhabra, Indore vs Department Of Income Tax on 11 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI
R.C.SHARMA, A.M.
PAN NO. : ABMPC4895N
I.T.A.No. 520/Ind/2010
A.Y. : 2005-06
Smt. Poonam Chhabra, ITO,
70, Palsikar Colony, vs Ward 3(1),
Indore. Indore.
Appellant Respondent
I.T.A.No. 523/Ind/2010
A.Y. : 2005-06
ITO, Smt. Poonam Chhabra,
Ward 3(1), vs 70, Palsikar Colony,
Indore. Indore.
Appellant Respondent
Assessee by : Shri Subhash Jain, CA
Department by : Shri Keshav Saxena, CIT DR
Date of Hearing : 11 .01.2012
Date of : 13.02.2012
pronouncement
ORDER
PER R. C. SHARMA, A.M.
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These are appeals filed by the assessee and Revenue against the order of CIT(A) dated 6.5.2010 for the assessment year 2005-06.
Ground taken by the assessee reads as under :-
1. On the basis of fact & records, learned CIT (Appeal) has erred in confirming the action of AO regarding making addition Rs.41,33,825/- of income exempted under section 10(38) of the income Tax Act being long term capital gain from sale of Indian company listed shares.
2. That on the facts and in the circumstances of the case the learned CIT (A) has erred in confirming to the action of AO regarding allegation bogus share transaction without placing creditable cogent and legal evidence while all such transaction are Calcutta stock exchange screen base genuine share transaction.
3. That on the facts and in the circumstances of the case the learned CIT (A) has further erred in confirming to the action of AO regarding non- confronting to the assessee on the precise material on which he treated share transaction as bogus.
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4. That on the fact and in the circumstances of the case the learned CIT (A) has erred in over looking and in summarily rejecting the details statement of facts submitted alongwith\memorandum of appeal, various documents, share sales & purchase invoice and evidence placed in paper book filed, etc.
5. That on the facts and in the circumstances of the case the learned CIT (A) has erred in confirming to the tax calculations on short term capital gain Rs.53,901/- by normal rate instead of special rate @ 10% prescribed under section 111(A) of the Act.
6. That on the facts and in the circumstances of the case the learned CIT (A) has erred in confirming the action of AO regarding addition of Rs.2,OO,OOO/- of genuine advance against agreement on sale of own agriculture land.
2. Following ground was taken by the Revenue :-
"On the facts and in the circumstances of the case the ld. CIT(A) has erred in deleting the addition of Rs.1,06,20,000/- made on account of undisclosed 3
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income of the sale value of 15,000 shares for a consideration of Rs. 44,25,000/- and unexplained investment towards acquiring 21,000 shares for Rs. 61,95,000/-."
3. Facts in brief are that the assessee has shown exempt income of Rs. 42,91,051/- U/S 10(38) from sale of 14,000 shares of Niharika India under the head Long term capital gain. In the belief that the assessee had purchased "accommodation entries" of profit and to convert cash from undisclosed sources in exempt income from shares the Assessing Officer asked the assessee to furnish the documents in respect of so exempted income u/s 10(38). In response to query, the assessee submitted bills of purchase and sale of shares. Assessing Officer noticed from the purchase bills that 14,000/- shares of transacted company Niharika India were purchased through broker firm Prem Lal Roy, Kolkata on 09.06.2003 in cash Rs. 38,780/-. Copy of the bill has been submitted and placed on record. As the assessee has furnished inadequate documents to substantiate the exempted 4
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income u/s 10(38), the Assessing Officer issued a summon u/s 131 of the Income-tax Act, 1961, to assess to attend office personally with the sale bill of TVS and Niharika India of Rs. 14,72,894/- and purchase bills of Equity of Bank of Punjab, HDFC Bank, Kothari Products, Cadila Healthcare and TVS. A letter has also been issued on 26.12.2007 to furnish the copy of share holding statement as on 31.3.2005.
4. The Assessing Officer found that the share of Niharika India were credited in Demat A/c on 1.3.2005 by the Dayco Securities Pvt.Ltd., as per Demat A/c statement whereas on purchase bill, Broker name Prem Lal Roy was mentioned. As the assessee could not substantiate purchase of shares in 2002 and 2003, the Assessing Officer did not allow the exemption claimed u/s 10(38).
5. In view of the above observation, the Assessing Officer concluded that transaction was managed in a planned manner through colourful device. Accordingly, assessee's contention of exempt income was not accepted.
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6. By the impugned order, the CIT(A) confirmed the Assessing Officer's action, against which assessee is in further appeal before us.
7. We have considered the rival submissions and have gone through the orders of the authorities below. We found that the assessee has purchased shares from a Kolkata based broker, whose antecedent was found by lower authorities to be in default and not amenable to verification.
8. From the record, we found that the assessee has purchased 30,000 shares of Niharika India, out of which 14,000 shares were sold during the year on which exemption was claimed u/s 10(38) on the plea that shares were held for more than 12 months and assessee was entitled for exemption u/s 10(38) on the profit arising out of sale of long term capital assets being shares. The Assessing Officer did not believe the purchase bills and observed that the assessee has got the shares transferred from M/s. Dyco Securities to the State Bank of India on 1.3.2005. Thus, as per Assessing 6
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Officer, the shares of Niharika India was credited in the Demat account on 1.3.2005 by Dyco Securities Limited as per Demat Account. As the assessee could not substantiate the purchase in the assessment year 2002-03 and 2004-05, the Assessing Officer held that shares were actually purchased by the assessee on 1.3.2005 i.e. during the financial year 2004-05 itself. The Assessing Officer held that transaction of purchase was not genuine and assessee also did not hold the shares for more than 12 months.
9. From the record, we found that to substantiate the claim of purchase, the assessee has not only furnished copy of bills of purchase but also copy of the Demat Account, wherein shares were transferred by Dyco Securities Limited. We found that the assessee had got the shares demated with Dyco Securities Private Limited and got transferred to the State Bank of Indore, as per the Demat account placed in the paper books and also 7
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reproduced by the Assessing Officer at page 13 of its order, the assessee had got the shares transferred from Dyco Securities to the State Bank of Indore on 1.3.2005. We found that Demat account is a conclusive evidence and since the assessee could not substantiate the bill of purchase, we uphold the action of the Assessing Officer for coming to the conclusion that shares were purchased on 1.3.2005 only when these were transferred in the Demat account. As per the documents placed on record, the genuineness of purchase of 30,000 shares of Niharika India is not in doubt but only dispute is with regard to the actual date of purchase so as to justify assessee's action for claiming of exemption u/s 10(38) by treating the shares as held for more than 12 months. We found that when some of the shares of M/s. Niharika India were sold in the subsequent assessment year i.e. assessment year 2006-07, the Assessing Officer himself has treated the date of 8
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purchase as the date of Demat but did not question the genuineness of the purchases. The same Assessing Officer has framed the assessment u/s 143(3) in the assessment year 2006-07 and he treated the purchase of shares of Niharika India as genuine and also treated the date of purchase as the date of Demat, which is a matter of dispute, none the less he has not questioned the genuineness of purchases so made and treated the profit arising out of sale of such shares during the assessment year 2006-07 as short term capital gain and taxed accordingly.
10. In view of the above discussions, the transactions of purchase of 30,000 shares of Niharika India during the year was genuine but the date of purchase shown by the assessee is not acceptable and we hold that shares were purchased only on 1st March, 2005, when it was credited in the Demat account of the assessee. Accordingly, we confirm the action of the Assessing Officer with 9
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regard to denial of claim of exemption u/s 10(38), but at the same time, we hold that transaction of purchase of shares during the year was genuine. The genuineness of purchases is duly established as per the documents placed on record. Accordingly, we direct the Assessing Officer to treat profit on sale of 14,000 shares of Niharika India, as short term capital gains and to tax accordingly.
11. In the result, ground no.1 of the assessee's appeal stands dismissed, whereas ground no.2 is allowed.
12. An addition of Rs. 2 lakhs was made by the Assessing Officer on account of advance shown by the assessee as received against the sale of agricultural land.
13. The assessee was asked to furnish the evidence regarding the genuineness of transaction and creditworthiness of the person from whom the advance has been received. In response to query, the assessee has submitted a letter from Shri Prabhulal from whom the advance has been received in cash and copy of driving license of that person. To prove the genuineness of transaction and creditworthiness of Shri 10
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Prabhulal, a summons u/s 131 of the Income-tax Act, 1961, was issued on dated 24.12.2007 to attend office personally with the copy of agreement, income tax returns of assessment year 2004-05, 2005-06, 2006-07 and pass book of all banks. The said summons return unserved as the person was not residing on given address. Vide query letter dated 26.12.2007, the assessee was asked to furnish the details in regard to Shri Prabhulal alongwith the present address and telephone no. In response to query, the assessee submitted a written reply on 28.12.2007 that the advance has been returned to Shri Prabhulal through cheque on 22.12.2007 and expressed inability to furnish copy of agreement and present address of Shri Prabhulal.
14. By the impugned order, the CIT(A) confirmed addition by observing that the amount, which was returned just five days before the assessee did not know the address and telephone number of that person.
15. We have considered the rival submissions and found from record that the assessee could not establish the genuineness of transaction and creditworthiness of loan 11
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creditors. A detailed finding has been recorded by the lower authorities to the effect that identity, genuineness and creditworthiness of persons could not be established by the assessee inspite of giving opportunity. We do not find any reason to interfere in the findings recorded by the lower authorities. Accordingly, action of the Assessing Officer is confirmed.
16. The assessee is also aggrieved for taxing the short term capital gains of Rs. 53,901/- by normal rate instead of special rate of 10 % prescribed u/s 111(A) of the Income-tax Act, 1961.
17. From the record, we found that the assessee was allotted shares of NTPC through IPO and the sale of same was not shown by the assessee in the return of income. The assessee had shown profit of Rs. 53,901/- as income from short term capital gain. The ld. CIT(A) confirmed the action of the Assessing Officer for levying normal rate of tax on such income after having the following observations :-
" The assessee has shown short term capital gains of Rs.50,863/- in the return 12
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for taxing at a special rate of 10% u/s 111A. In fact, this income should have been shown for being taxed at normal rate.
From the records, it is seen that the
assessee sold 1676 shares of NTPC for a
profit Rs.53,901/- (26000+27901), which has not been offered by her for taxation. The AO has confirmed these sales from the appellant's demat a/c. The appellant has not justified the levy of tax @ 10% on capital gains of Rs. 50,863/- by giving necessary details of shares etc. sold. The AO's action, is, therefore, approved in charging the same at normal rate of tax. At the same, addition of Rs 53,901/-
(26,000+27,901) made by the AO (which has not been offered by appellant for taxation is also confirmed."
18. We have considered the rival submissions. The assessee has not been able to furnish details of shares so sold 13
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nor offer the capital gains earned thereon in the return of income. The lower authorities were justified in taxing the same as normal rate of tax, in view of findings recorded b y them which could not be controverted.
19. In the result the appeal of the assessee is partly allowed.
20. In the Revenue's appeal, the action of CIT(A) for deleting the addition of Rs. 1,06,20,000/-made on account of undisclosed income of the sale value of 15,000 shares for consideration of Rs. 44,25,000/- and unexplained investment, acquiring 21,000 shares for Rs. 61,95,000/- was challenged.
21. From the record, we found that in the assessment order the Assessing Officer, observed that the assessee has purchased total 50,000 shares of Niharika, out of which she sold 29,000 ( 14,000 + 15,000 shares) for which assessee could not explain the source of investment for the remaining 21,000 shares. It was explained before the Assessing Officer that there was a wrong credit of 20,000 shares in her Demat account, which was returned by her. As per the documents placed on record, we found that 20,000 shares were actually 14
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returned by the assessee, which has been wrongly taken by the Assessing Officer as sales. Thus, after return of 20,000 shares, the assessee was in her possession 30,000 shares out of which she sold 14,000 shares leaving closing balance of 16,000 shares. However, the Assessing Officer has wrongly taken sale price at Rs. 44,25,000/- of 15,000 shares and cost price of Rs. 61,95,000/- of 21,000 shares and added the same on imaginary basis. Nothing was brought on record by Assessing Officer to allege how the assessee has actually sold remaining 16,000 shares of Niharika. Without any reason, the Assessing Officer has not accepted the apparent mistake of excess credit of shares in the demat account of the assessee. The detailed finding has been recorded by the ld.CIT(A) with regard to the credit entry to sell shares at Rs. 41,33,825/- , which was claimed as exempt u/s 10(38), but the Assessing Officer did not accept the same and which addition has been affirmed by the ld.CIT(A) as discussed above while deciding assessee's appeal. Under these circumstances, the CIT(A) has correctly observed that it shall be totally unwarranted to consider taxation of amount invested in penny stock shares at 15
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an imaginary figure, which has not been accepted as real price of such shares. The CIT(A) has further verified his action by observing that if at any further point of time, any credit on account of alleged sale consideration of the so far unsold shares shall remain liable to be assessed u/s 68/69A, whenever so credited, in accordance with law. As per our considered view, when the assessee has not made any purchase of alleged 20,000 shares nor any sale out of these shares have been effected, investing in the penny stock and then selling thereof at any addition on account of any investment in these shares is not called for. As a corollary any addition on account of hypothetical sale of these shares which were not purchased at all, is unjustified on the facts of the case.
22. While deleting these additions, a detailed finding has been recorded by the ld.CIT(A) as under :-
"On going through the facts of the case, it is seen that the AO has not appreciated the facts of the case properly while making the impugned addition. The AO has taken a 16
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view that the appellant purchased total 50,000 shares of Niharika and out of them, sold 29,000 (14,000+15,000) shares and the appellant could not explain the source of investment in remaining 21,000 shares. As per appellant's explanation, there was a wrong credit of 20,000 shares in her demat account which were returned by her. The AO considered this return also as a sale. After return of these 20,000 shares, there remained only 30,000 effective shares in her account. Out of these, she sold 14,000 shares in fact, leaving a closing stock of 16,000 shares. Thus, the sale price of Rs. 44,25,000/- of 15,000' shares and cost price of Rs. 61,95,000/- of 21,000 shares has wrongly been added by the AO on imaginary basis. It is not the appellant's case that she has sold the remaining 16,000 shares of Niharika. The AO also 17
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does not have any evidence to show that the appellant has sold the remaining 16,000 shares of Niharika. The AO has not accepted the mistake of excess credit of shares to the appellant and then reduction of excess.
4.3.1 Now, since the appellant's explanation of the credit entry for sale of shares at Rs. 41,33,825/-has not been accepted by the AO and his non-
acceptance affirmed above in para 4.2, it shall be totally unwarranted to consider taxation of the amount invested in the penny stock shares that too at manipulated higher price, which has not been accepted as real price of such shares. However, at any future point of time, any credit on account of alleged sale consideration of the so far unsold shares shall remain liable to be assessed u/s 68/69A whenever so credited and of course, in accordance with the law.
Likewise, when the appellant's explanation of first investing in the penny stock and 18
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then selling thereof at exorbitant sale price has not been accepted as discussed in para 4.2,supra, any investment for unexplained investment in unsold shares is totally uncalled for. Such an addition made by AO, clearly contradicts his own stand, whereby he has treated the investment/ acquisition of such shares as bogus and ingenuine and further the sale price as manipulated price and not genuine sale price. There are no evidences or details of share sold as inferred by AO. Had that been AO the appellant would have bought much proceeds also on record on Exempt Income. Further still there is no apparent reason to reject appellant's explanation about wrong credit of 20000 shares and Securities' included in compilation at page 48 and 49. Since the addition has been made without bringing the relevant facts properly on record, the same is not found justified both in facts and is law directed to be deleted.Appeal on this ground i.e. ground No. 5
succeeds and is allowed accordingly." 19
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23. In view of the reasoning given by us hereinabove in para 21, we do not find any infirmity in the order of CIT(A) in deleting addition of Rs. 1,06,20,000/-.
24. In the result, the appeal of the assessee is allowed in part whereas appeal of the Revenue are dismissed.
This order has been pronounced in the open court on 13th February, 2012.
(JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 15th February , 2012. CPU* 7813 20