Income Tax Appellate Tribunal - Jodhpur
Shri Pankaj Raj Shah, Pali vs Department Of Income Tax on 21 May, 2013
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IN THE INCOME TAX APPELLATE TRIBUNAL
JODHPUR BENCH, JODHPUR
BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER
AND SHRI N.K. SAINI, ACCOUNTANT MEMBER
ITA No. 330/Jodh/2011
Assessment year : 2007-08
PAN: AKQPS 1510 H
The ACIT vs. Shri Pankaj Raj Shah
Circle M/s Pipaliya Engineering Works Pvt. Ltd.
Pali Pali
(Appellant) (Respondent)
Department by : Dr. Deepak Sehghal
Appellant by : Shri G.S. Mehta
Date of hearing : 21-05-2013
Date of pronouncement : 28-06-2013
ORDER
PER N.K. SAINI, A.M.
The appeal by the Department is directed against the order dated 15-07-2011 of the ld. CIT(A), Jodhpur. Following grounds have been raised in this appeal.
''On the facts and in the circumstances of the case Ld. C.I.T. (A), Jodhpur has erred in -
(1) deleting the addition of Rs. 14,59,240 made by the AO on the finding that the share transactions were not genuine and had also ignored the below mentioned facts :-
(a) that the Securities and Exchange Board of India is stated to have found manipulation in trading in the script of M/s Shree Nidhi Trading Co.
Ltd. during the period 1.1.2004 to 23.2.2005.
(b) that the assessee is stated to have purchased the shares of Shree Nidhi Trading Co. Ltd. on 26.6.2004.
(c ) that the investigation stated to have been made by the Addl. Director of Income-tax (Investigation), Jaipur revealed that the share broker Shri Ashok Kumar Kayan through whom the assessee is said to have purchased the shares was running a racket of providing accommodation entries respecting Long Term Capital Gain on shares.
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(d) that the assessee failed to produce the Contract Note in Form A, the vital evidence in the case of the assessee, showing the particulars of purchase of shares either before the AO during the course of assessment proceedings or before the CIT(A) during the course of appellate proceeding.
(e) that the assessee failed to explain the source for the purported purchase of shares.
(f) that though the assessee is stated to have purchased the shares on 26.6.2004, the same, as may be seen from assessee's letter dated 30.4.2010 addressed to the AO and copy of demat account enclosed therewith, which were formed part of AO's remand report, were first reflected only in the demat account as on 17.6.2005.
That the appellant craves leave to add, amend or alter any or all the grounds of appeal on or before the date the appeal is finally heard for disposal.'' 2.1 From the above grounds, it is gathered that the only grievance of the Department relates to deletion of addition of Rs. 14,59,240/- made by the Assessing Officer by considering the share transactions as non-genuine.
2.2 The facts of the case in brief are that the assessee E-filed the return of income on 07-02-2008 declaring total income of Rs. 13,44,970/-. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had shown Long Term Capital Gain of Rs. 14,59,240/- which was claimed as exempt u/s 10(38) of the Income Tax Act, 1961 (hereinafter referred to as ' the Act' in short). The Assessing Officer asked the assessee to furnish complete details of Long Term Capital Gain i.e. details of purchases of shares, contract note, share-sales details, contract- cum-bills and Demat statement etc. On verification of the detail filed by the assessee, the Assessing Officer noticed that during the year under consideration the assessee had shown sales of shares numbering 9500 of M/s Shree Nidhi Trading Co. Ltd. which were purchased on 26-06-2004 through broker @ Rs. 5.20 per share plus 0.02% brokerage for an overall consideration of Rs. 49,540/- but the copy of contract note in Form-A showing particulars of purchases so made was not furnished. The Assessing Officer also observed 3 that the assessee had claimed to have sold the above said shares through broker M/s Sikaria Shares & Stock Broking Services (P) Ltd. between the period 24-08-2006 to 21-09-2006 for an aggregate consideration of Rs. 15,11,870/- less brokerage of Rs. 5,534/- and the sale price per share varied from Rs. 159/- to Rs. 159.40 per share. The Assessing Officer pointed out that an investigation was conducted by SEBI in the trading in scrip of M/s Shree Nidhi Trading Co. Ltd. for the period 01-01-2004 to 23-02-2005 and it was found that shares of the said company went down from Rs. 51.15 on January 1, 2004 to Rs. 4.10 on July 28,2004 and then again went up to Rs. 56.50 on February 23, 2005 at the Calcutta Stock Exchange and it was alleged that M/s Shree Nidhi Trading Co. Ltd. had indulged in manipulative trading and violated Regulations 3, 4(1), 4(2), (a), (b), (e) and (g) of Prohibition of Fraudulent and Unfair Trade Practices relating to securities. The Assessing Officer pointed out that shares were purchased by the assessee on 26-06-2004 which fell within the investigation period (01-01-2004 to 23-02-2005) mentioned by SEBI. The Assessing Officer was of the view that transactions were not genuine and were fraudulently done with a view to showing Long Term Capital Gain which was exempt u/s 10(38) of the Act. He, therefore, asked the assessee to show cause as to why an amount of Rs. 14,59,240/- shown as Long Term Capital Gain on the sale of shares of M/s Shree Nidhi Trading Co. Ltd. may not be treated as assesee's income from the undisclosed sources. In response, the assessee vide letter dated 16-12-2009 stated as under:-
(i) The assessee has shown Long Term Capital Gain of Rs. 14,59,240/-
on account of sale of shares numbering 9500 of M/s Shree Nidhi Trading Co. Ltd. The said shares were purchased on 26-06-2004. Your goodself has already been known that the contract note of purchase of shares has been attached with the determination slip while opening and putting these shares in Demat account. The copy of Demat account has already been filed wherein these shares appears.
(ii) The fact shown in para 3 of your letter seems to be correct. 4
(iii) Kindly make available the relevant documents where from your goodself found the allegation that M/s Shree Nidhi Trading Company Limited had indulged in manipulative trading and violated Regulations 3,4(l),4(2),(a),(b),(c) and (g) of the prohibition of fraudulent and unfair Trade practices relating to securities markets and kindly also indicate and let us know the name of broker who was involved in the scam.
(iv) The facts given by you does not established that the transactions made of the shares of the said M/s Shree Nidhi Trading Co. Ltd. on which the assessee has shown Long Term Capital Gain at Rs.14,59,240/- are not genuine. The transactions are genuine because:- (A) Because purchases were made from market on the value as it was on the date on stock market. (B) Shares were put in Demat account (C) Sales were made after expiry of one year from the date of Demat of Shares (D) Sale of Shares was subject to STT and were sold through Stock Exchange (E) A person purchasing shares from market through broker how can foresee that said Company or Broker is involved in scam and how a layman can come to know about this fact which you have alleged. (F) As alleged then why SEBI allowed M/s Shree Nidhi Trading Co. Ltd. to transit on stock exchange. If it was not allowed to be transited then we would not have purchased the shares.
(v) Kindly treat the transactions made & LTCG earned as genuine u/s 10(38) of the Act because as narrated above, the transactions made are genuine and within the purview of law.'' 2.3 The Assessing Officer did not accept the contentions of the assessee for the reasons stated in para 5.6 of the assessment order dated 23-12-2009 which read as under:-
''5.6 The submissions of the assessee is given due consideration. However, the same cannot be accepted for the following reasons:-
(i) The assessee's contention that the above facts does not establish that the transactions made in the shares of the said M/s Shree Nidhi Trading Co.
Ltd. are not genuine and that since the purchase were made from market at the price prevailing at that time and that the shares were put into Demat Account, is not sufficient ground to accept the said transactions as genuine in view of the facts of the case of the Company in respect of which the aforesaid transactions in purchase and sales were made.
(ii) With regards assessee's contention that sales were made after expiry of one year from the date of Demat of Shares and that sales of shares were subject to STT and were sold through Stock Exchange, it is seen that the reply is general in nature and any transactions in Listed Security through any recognized Stock Exchange are subject to STT and are required to be sold through recognized Stock Exchange. This fact does not give any sanctity to a particular transaction. 5
(iii) With regards the contention that any person buying shares from market through broker cannot foresee whether the said broker is involved in any scam and manipulative activities, it is seen that the case of the assessee in showing the Long Term Capital Gain which in turn is exempt u/s 10(38) of I.T. Act is not a solitary case. Apart from the assessee, some of his relatives and associates namely (i) M/s Pipalia Engg. Co. Pvt. Ltd. and (2) Sh. Abhay Raj Shah have also shown the Long Term Capital Gain of Rs.33,75,242/- and of Rs.26,94,325/-respectively during the same period. Besides, it is seen that in the past also, certain associates of the assessee have shown Long Term Capital Gain of substantial amount on the sales of shares of M/s Shree Nidhi Trading Co. Ltd. It is also worthwhile to mention here that in the case of one of associate concerns of the assessee company M/s Miracle Carriers & Trading Co., during the F.Y. 2003-2004 relevant to the A.Y. 2004-05, the said firm had shown substantial amount of Long Term Capital Gain on the sales of shares of M/s Shree Nidhi Trading Co. Ltd. and while finalizing the assessment u/s 143(3), the A.O. after enquiring into the facts of the case had made additions of Rs.27,68,537/- disallowing the claim of Long Term Capital'Gain claimed as exempt u/s 10(38) of the I.T. Act and the matter is now pending before the appellate authorities.
(iv) It is also worthwhile to mention here that in the case of M/s Pipalia Engineering Works Pvt. Ltd. in which the assessee is a Director, the said Company has shown a sum of Rs. 33,75,242/- as Long Term Capital on the sales of shares of the very same Co. i.e. M/s Shree Nidhi Trading Co. Ltd. It is also seen that the period of purchase and sales are almost identical. However, the said M/s Pipalia Engg. Works Pvt. Ltd. has not claimed the said Long Term Capital Gain of Rs. 33,75,242/- as exempt u/s 10(38) of the I.T. Act.
(v) In this context, it is pertinent to mention here that a search u/s 132 was conducted on 12.04.2005 in the case of M/s B.C. Purohit & Co. and its associates. Subsequently, the Addl. Director of Income-tax (Inv.) Jaipur forwarded the contents of the search which reveals that M/s B.C. Purohit & Co. & its associates were running a racket of providing accommodation entries respecting Long Term Capital Gain on Shares. It is mentioned by the ADIT (Inv.) that some Share-brokers are providing the bogus entries by taking cash from the beneficiaries & depositing the same in the bogus Account as per direction of the following Brokers of Kolkata :-
1. M/s Prakash Nahata & Co.
2. Sh. Ashok Kumar Kayan
3. Sh. S.N. Rathi
4. Sh. D.K. Khandelwal
5. Sh. P.K. Agarwal 6 It is further stated by the ADIT (Inv.) that during last few years the long term capital gain from shares is taxed either at concessional rate or is completely exempt from tax. In this racket they were helped by some share-brokers of Calcutta Stock Exchange (CSE). The owners and employees of M/s B.C. Purohit & Co. actively manipulated the prices of certain shares in such a way that on CSE the prices of some shares rose many times in one year. Shri Ashok Kayan who happens to be the broker of the assessee in the impugned transactions was one of the accused brokers in the said scam.
Following the enquiries made in this regard many assessees of the Jodhpur Region have voluntarily surrendered the income which they had shown under the head Long Term Capital Gain.
(vi) The above facts and circumstances of the case shows that the assessee and its associates have history of showing Long Term Capital Gain on the sale of the said M/s Shree Nidhi Trading Co. Ltd. which in turn they have been claiming as exempt u/s 10(38). The overall facts of the case lead to the finding that the transactions in the shares of M/s Shree Nidhi Trading Co. Ltd. on which the assessee has shown Long Term Capital Gain of Rs.14,59,240/- are not genuine transactions but are managed transactions done with a view to showing and claiming Long Term Capital Gain as exempt u/s 10(38) of the I.T. Act and that the assessee has brought into books of account its unaccounted money in the guise of Long Term Capital Gain which in turn is exempt u/s 10(38) of the I.T. Act.'' 2.4 In view of the above, the Assessing Officer did not accept the claim of the assessee for the amount of Rs. 14,59,240/- as exempt u/s 10(38) of the Act. 2.5 Being aggrieved, the assessee carried the matter to the ld. CIT(A) and submitted that the assessee maintained the demat account with DP-ID N300513, A 206, Phoneix House, Phoneix Mills compound, Senapati Bapat Marg, Lower Patel, Mumbai which showed the balance of 9500 shares of M/s Shree Nidhi Trading Co. Ltd.. Those shares were acquired before 17-6-2005 (date of purchase 26-06-2004) through stock exchange and put into DEMAT account . It was further submitted that as per norms of SEBI, the purchase and sales of shares of listed companies has to be made through proper legal system of SEBI and stock exchange. It was stated that the Assessing Officer had not brought out any adverse evidence on record to show that purchases were bogus or transactions were not as per the norms of SEBI or stock exchange and that those shares were part of the balance 7 sheet of the assessee (at the financial year ending on 31-03-05 and 31-03-2006) and the Department had accepted this fact in the preceding years. It was submitted that shares in the DEMAT account were concluding evidence about the existence of shares in the hands of the assessee and that the Assessing Officer had not disputed the purchase of shares and the DEMAT account. It was further stated that the assessee had sold shares between period 25- 08-06 to 21-09-06 and various expense like brokerage Rs. 3030/- , Service Tax Rs. 369/-, Stamp Rs. 72/- and Securities Transfer Tax Rs. 1891/- were incurred and that holding of the shares was for more than one year. Therefore, the investigation of the third party could not be applicable to the assessee until and unless there was any direct finding against the assessee. It was stated that the Assessing Officer had not pointed out any substantive material to establish the non-genuineness of transaction or managed transaction and had not brought out any material to prove that those DEMAT account with M/s SKK Investor Services Pvt. Ltd. was fraud or non-genuine. It was also stated that in identical facts, the ld. CIT(A) allowed the appeal in the case of M/s. Miracle Carriers and Trading Co. 2.6 The ld. CIT(A) after considering the submissions of the assessee observed that the Assessing Officer treated the transactions in the shares of M/s Shree Nidhi Trading Co. Ltd. as non-genuine but subsequently, the Assessing Officer in his remand report dated 05-05- 2010 stated that in the copy of the DEMAT account as on 17-06-2005 holding of 9500 shares of M/s Shree Nidhi Trading Co. Ltd. was reflected and 9500 shares were shown as sold. The ld. CIT(A) also pointed out that the Assessing Officer stated that the assessee was not having contract note of purchase of shares. However, the assessee had furnished the copy of contract note regarding sale of shares. The ld. CIT(A) categorically stated that the Assessing Officer with letter dated 21-05-2010 furnished the letter received from Stock Exchange where the names and addresses of the directors of M/s Shree Nidhi Trading Co. Ltd. were submitted which revealed that for purchase of shares, the assessee had submitted 8 the DEMAT account. The ld. CIT(A) also pointed out that Assessing Officer had not given any adverse findings about the DEMAT account. The ld. CIT(A) observed that the assessee had furnished sale contract note and sales were reflected in the DEMAT account and that the Assessing Officer called for the names and addresses of the directors of M/s Shree Nidhi Trading Co. Ltd. which proved that the company was genuine. The ld. CIT(A) also pointed out that the Assessing Officer in the assessment order mentioned that in the case of M/s Miracle Carriers and Trading Co., the shares of M/s Shree Nidhi Trading Co. Ltd. were sold and deduction u/s 10(38) of the Act had been disallowed but the assessee furnished the copy of the order of the ld. CIT(A) wherein the issue was allowed in favour of the assessee. The ld. CIT(A) therefore, held that transactions were genuine and not managed. Accordingly , the addition made by the Assessing Officer was deleted. 2.7 Now the Department is in appeal.
2.8 The Ld. D.R. for the Revenue strongly supported the order of the Assessing Officer and further submitted that transaction in question was not genuine. Therefore, the addition was rightly made by the Assessing Officer and the ld. CIT(A) was not justified in deleting the same.
2.9 In his rival submissions, the ld. counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee during the course of assessment proceedings furnished the DEMAT account wherein 9500 shares of M/s Shree Nidhi Trading Co. Ltd. were reflected, which were acquired before 17-06-2005 through stock exchange and those were part of the balance sheet of the assessee for the financial year ended on 31-03-2005 and 31-03-2006, the said fact was accepted by the Department. It was further stated that the purchase of shares in DEMAT account was the concluding evidence about the existence of shares in the hands of the assessee and that the contract note of purchase and sales of the shares were always attached with determination 9 slip which is the basic document to put shares or take out shares from DEMAT account. It was contended that the Assessing Officer had not disputed the purchase of shares in the DEMAT account. It was stated that the assessee submitted the Bank receipt note, Statement of Security, Transaction Note, Form A of Broker to the Assessing Officer for verification and there was no legal infirmity in the transaction. It was further submitted that the holding period of shares was more than one year and Securities Transaction Tax was paid. Therefore, the Long Term Capital Gain amounting to Rs. 14,59,240/- declared by the assessee on sale of shares was rightly claimed as exempt u/s 10(38) of the Act and the Assessing Officer had not brought out any adverse or contravention of the provision of the Income Tax Act regarding the claim of exemption of the Long Term Capital Gain . It was stated that the transaction was genuine for the following reasons.
(a) Because purchases were made from market on the value as it was on the date of stock market.
(b) Shares were put in DEMAT account.
( c) Sales were made after expiry of one year from the date of purchase or even from the date of DEMAT of shares.
(d) Sale of shares were subject to STT and were sold through Stock Exchange.
(e) A person purchasing shares from the market through broker how can foresee that said company or broker is involved in scam and how a layman can come to know about this fact which A.O. has alleged.
(f) As alleged then why SEBI allowed M/s Shree Nidhi Trading Co. Ltd. to transit on Stock Exchange. If it was not allowed to be transited then we would not have purchased the shares.
It was accordingly submitted that the ld. CIT(A) was justified in deleting the addition made by the Assessing Officer 2.10 We have considered the submissions of both the parties and carefully gone through the material available on record . In the present case, it appears that the assessee purchased 10 the shares of M/s Shree Nidhi Trading Co. Ltd. from market at the price prevailing at that time and those shares were put into DEMAT account. The assessee purchased the shares on 26-06-2004 and acquired those shares before 17-06-2005 through Stock Exchange. Those shares were reflected in the balance sheet of the assessee for the year ended on 31-03-2005 and 31-03-2006. The holding of the shares was more than one year as shares were sold between the period 25-08-2006 to 21-09-2006 at Rs. 15,11,870/-. The assessee also incurred the expenses in the form of Brokerage, Securities Transfer Tax, Service Tax, Stamps etc., those expenses were not doubted by the Assessing Officer. The assessee also furnished the Bank receipt note, Statement of Security Transaction Note, Contract Note etc. Therefore, the transaction was genuine and the Long Term Capital Gain on the sales of shares of M/s Shree Nidhi Trading Co. Ltd., amounting to Rs. 14,59,240/- was rightly claimed as exempt u/s 10(38) of the Act because the assessee fulfilled both the conditions for claiming exemption u/s 10(38) of the Act. The first condition was that transaction of those shares was to be entered into on or after the date on which Chapter VII of the Finance (No.2) Act, 2004 came into force i.e. 01-10-2004 and the transaction was chargeable to Securities Transaction Tax under this Chapter. In the present case, shares were acquired by the assessee on 17-06-2005 through Stock Exchange and put into DEMAT account. When those shares were sold, the assessee incurred the expenses of Rs. 1891/- on account of Securities Transaction Tax and those share were held for more than one year. Therefore, the profit earned on the sale of the shares was Long Term Capital Gain which was exempt u/s 10(38) of the Act. We therefore, considering the totality of the facts of the case as discussed hereinabove are of the view that the ld. CIT(A) rightly deleted the addition made by the Assessing Officer. In that view of the matter, we do not see any merit in this appeal of the Department.
113.0 In the result, the appeal filed by the Revenue is dismissed.
(Order Pronounced in the Open Court on this 28-06-2013.) Sd/- Sd/-
(HARI OM MARATHA) (N.K. SAINI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 28th June, 2013
Mishra
Copy to:-
1.The Appellant
2. The Respondent
3. The ld. CIT
4. The ld. CIT(A)
5. The DR
6. The Guard File
Assistant Registrar
ITAT, Jodhpur
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