Income Tax Appellate Tribunal - Mumbai
Arvind M. Kariya, Mumbai vs Assessee on 16 January, 2013
आयकर अपीलीय अिधकरण,
अिधकरण मुंबई Ûयायपीठ ''ए ' मुंबई ।
IN THE INCOME TAX APPELLATE TRIBUNAL " A " BENCH, MUMBAI
सव[ौी डȣ.मनमेहन उपाÚय¢ एवं नरे Ûि कुमार ǒबãलैáया, लेखा सदःय के सम¢
BEFORE SHRI D. MANMOHAN, VP AND SHRI N.K. BILLAIYA, AM
आयकर अपील सं./I.T.A. No. 7024/Mum/2010
िनधा[रण वष[ / Assessment Year : 2004-05
(िनधा[
Shri Arvind M. Kariya, The ACIT, Cent. Cir 12,
A-402Jay Apartment, बनाम/
बनाम Old CGO Bldg.,
Nehru Road, Vs. Mumbai-400 020
Santacruz(E),
Mumbai-400 055
ःथायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AAEPK -0468L
(अपीलाथȸ /Appellant) .. (ू×यथȸ / Respondent)
अपीलाथȸ ओर से/ Appellant by: Shri B.V. Jhaveri
ू×यथȸ कȧ ओर से/Respondent by Shri Surinder Jit Singh
सुनवाई कȧ तारȣख / Date of Hearing : 16.01.2013
घोषणा कȧ तारȣख /Date of Pronouncement :30.1.2013
आदे श / O R D E R
PER N.K. BILLAIYA, AM:
With this appeal the assessee has challenged the correctness of the order of the Ld. CIT(A)-37, Mumbai dt.8.7.2010 pertaining to A.Y. 2004-
05.
2. The assessee has shown his grievance by raising following two grounds of appeal:
"1. On facts and in circumstances of the case and in law, the Ld. CIT(A) erred in confirming sale consideration 2 ITA No.7024/M/2010 of Rs. 55,54,250/- claimed as giving rise to long term capital gains, as unexplained cash credit u/s. 68.
2. On facts and in circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 2,77,713/- being 5% of the sale consideration of Rs. 55,54,250/- as unexplained expenditure u/s. 69C on account of commission/service charges payable to the broker."
3. The dispute in this case revolves around the share transactions in companies alleged to be penny stock companies where fradulent transaction have taken place in connivance with some brokers . It is the say of the Revenue authorities that such transactions are nothing but colourable device used by a certain section of the society to introduce their black money in their books by taking shelter behind long term capital gains.
4. Facts of the present case show that the premises of the assessee and the Kariya group were searched u/s. 132 of the Act on 18.1.2007 and therefore present assessment has been framed u/s. 153A r.w.s. 143(3) of the Act. The assessee filed his return on 29.2.2008 declaring total income at Rs. 25,18,609/-. While scrutinizing the return of income filed by the assessee, the Assessing Officer observed that the assessee has shown long term capital gains from two scrips namely M/s. Shalimar Agro Products & M/s. G.Tech Info Training Ltd. to the tune of Rs. 55,54,250/-. The assessee was asked to justify the bonafide of these transactions. The assessee explained that he has purchased 1,06,500 shares of Shalimar Agro Products on 24.4.2002 at a cost of Rs. 1,09,500/- as per contract note exhibited at page-11 of the Paper Book. The said transaction was done through broker M/s. Shreenidhi Stock & Broking Pvt. Ltd., with whom assessee had a credit balance from which the purchase cost of 3 ITA No.7024/M/2010 shares was adjusted as per copy of ledger account exhibited at page-12 of the Paper book.
4.1. It was further explained that the assessee purchased 40,000 shares of M/s. G.Tech Info. on 13.5.2002. The transaction was done through Sanjay R. Shah as the assessee had earned speculation profit by transacting through the same broker Shri Sanjay R. Shah. The purchase cost of 40,000 shares was adjusted against the amount due from Shri Sanjay R. Shah. Both these transactions were done off line i.e. not on the floor of BSE/NSE and in both these transactions, physical delivery of shares were taken. The shares of M/s. Shalimar Agro Product were sent to Action Financial Services (I) Ltd. , which is registered with NSDL , for dematerialization of 5.5.2003. Similarly, shares of M/s. G.Tec. Info were sent for dematerialization with the same depository on 19.7.2003. Shares of M/s. Shalimar were demated on 28.5.2003 and shares of M/s. G.Tec were demated on 28.7.2003. It was further explained that the assessee sold shares of M/s. Shalimar Agro on different dates as per the contract notes through M/s. Shreenidhi Stock Broking and M/s. Vidyut Devendrakumar who is the main broker registered with BSE. The assessee also filed details of sale bill. Similarly, shares of M/s. G.Tec. Info. was sold through the same broker in October, 2003 and November, 2003. Both these transactions were done through BOLT.
5. The AO after perusing the submissions of the assessee issued summons u/s. 131 of the Act on 20.11.2008 to Sanjay R. Shah asking him to produce the details of transaction relating to the sale of share of M/s. G.Tec. Info to the assessee. The said Shri Sanjay R. Shah vide his letter dt. 27.11.2008 and 2.12.2008 denied to have made any transaction with the assessee or his family member and group concern. Both the letters of Shri Sanjay R. Shah are exhibited at page 3 & 4 of the 4 ITA No.7024/M/2010 assessment order. Shri Sanjay R Shah also categorically denied that there was any speculation gains arising to the assessee or his family members and inevitably stated that he has not done any transaction with the assessee or his family members from financial year 2000-01 till 2006-
07. The AO verified the transaction with M/s. Shreenidhi Stock & Broking Pvt. Ltd. , called for details u/s. 133(6) of the Act. In response to which the broker vide letter dt. 27.11.2008 filed the copies of the ledger account and copies of the computerized purchase bills of M/s. Shalimar Agro Products Ltd. The said broker explained that the purchase consideration of 1,06,500 shares was adjusted against the old credit balance lying to the credit of the assessee's account as on 31.3.2002. The said broker showed his inability to give further evidence/documents stating that the transaction pertains to the period prior to 31.3.2002 for which period the broking firm has destroyed all the physical record. The AO observed that the said broker could not furnish the name of the persons from whom he has purchased shares for the assessee. It would be pertinent to note that the assessee himself is a partner in M/s. Shreenidhi Stock & Broking having 50% of share holding.
6. After considering all these details brought on record in the light of the manner in which the transactions have been done, the AO gave an opportunity to the assessee to explain as to why should the aforesaid long term capital gain not be treated as bogus and the entire sales realization be treated as unexplained money. The assessee was further told that prima facie, the purchase remains unsubstantiated and the LTCG i.e. Long term capital gain appears to be bogus , therefore, the assessee must have paid certain fees for obtaining these bogus long term capital gain. The AO asked the assessee to explain as to why a sum of 5% of the total sale consideration not be added to his income as unexplained expenditure.
5 ITA No.7024/M/2010The assessee filed a detailed reply reiterating the nature of transaction which is exhibited at para 6.7 of the assessment order.
7. After considering the submissions of the assessee, the AO was of the firm opinion that the assessee has backdated the supposed purchases which have been shown to having been paid for either in cash or through speculative capital gains. The AO further observed that on the supposed date of purchases, the market price of these shares have been shown to be very nominal. The AO finally concluded that the transaction entered into by the assessee for obtaining LTCG by dealing in scrips of M/s. G. Tec Training Ltd. and M/s. Shalimar Agro Products were bogus as no actual purchases were ever made and only backdating of purchases were done so that the unaccounted cash is brought into the accounts in the form of sale proceeds of shares which, in a bogus manner, were engineered to have been purchased a long time back. The AO specifically mentioned that on the date when the assessee claimed to have made purchases of these shares from the BSE, no transactions have been conducted for these shares. Similarly, the speculation profits shown by the assessee never actually arose out of transactions on the BSE. The AO highlighted that the purchase of scrips of G. Tech Training was proved to be bogus by the broker himself. The AO thus added a sum of Rs. 55,54,250/- u/s. 68 of the Act as income from bogus LTCG. The AO further added 5% as expenses incurred for arranging bogus capital gain at Rs. 2,77,712/-.
8. The assessee carried this matter before the Ld. CIT(A) but without any success.
9. Before the Ld. CIT(A), the assessee reiterated his submission that the purchases and sales of the shares are duly supported by contract notes, Demat statements. After considering the facts, submissions and the 6 ITA No.7024/M/2010 documents brought on record, the Ld. CIT(A) observed that the assessee in his statement on oath u/s. 132(4) of the Act offered the alleged capital gain as his income for the said year. Thereafter, during the course of the assessment proceedings, he has retracted his statement conveniently. The Ld. CIT(A) further observed that the assessee has lodged no complaints with the CCIT or to the Director General of Income Tax or to the CBDT regarding any kind of coercion, pressure, threat or undue influence , if any, used by the authorized officers during the search & seizure operations on 18.1.2007. The assessee on the basis of the statement given by the brokers had realized his mistake and admitted that the shares were not purchased by the assessee from the said broker. Therefore, during the course of search in his statement u/s 132[4] offered the capital gains as his income and the authorized officer believed him and left his premises concluding the search and seizure operation. The Ld. CIT(A) categorically stated that the assessee cannot be allowed to deny the truth of his statement at this stage of assessment. The Ld. CIT(A) drew support from Section 115 of the Evidence Act. Thereafter, the Ld. CIT(A) relied upon the various judicial pronouncements and finally held as under:
"Having regard to the facts and circumstances of the case and in law, it is held that the appellant has not been able to conclusively prove the purchases of penny stock shares of M/s. Shalimar Agro Ltd and M/s. G. Tech Info Training ltd. and the enquiry made by the Investigation Wing as well as by the Ld. AO have established that the appellant had arranged purchases of artificial Long Term Capital Gain and purchases of artificial speculation gain by obtaining bogus purchases and sales bills showing share transactions. As a beneficiary, the appellant was given physical shares alongwith backdated bogus purchase bills reflecting purchases of penny stock shares at a very low price almost one year back for facilitating booking of artificial Long term capital gain.7 ITA No.7024/M/2010
Having regard to the aforesaid facts and in the circumstances of the case and in law, it is held that Sec. 68 is squarely applicable in this case and since the appellant neither satisfactorily explained the purchases of penny stock nor the sales thereof, the nature and sources of the income credited to the books of account remain not properly explained. Therefore, the sale proceeds of Rs. 55,54,250/- is chargeable to tax u/s. 68 of the Act. Whereas the Ld. AO has charged such sum of Rs. 55,54,250/- as unexplained money in possession of the appellant, the same is confirmed as unexplained cash credit u/s. 68 of the Act. The addition made by the Ld. AO is accordingly confirmed. Ground No. 1 is therefore dismissed."
10. Aggrieved by this finding of Ld. CIT(A), assessee is before us.
11. The Ld. Counsel for the assessee reiterated what has been stated before the lower authorities. Drawing our attention to the Paper book filed, the Ld. Counsel submitted that the purchase of shares of M/s. Shalimar Agro Ltd and M/s. G. Tech Info Training ltd. are fully supported by contract notes. The sales transactions have been routed through demat account of the assessee. Therefore, the presumption of the lower authorities that the entire transaction of purchase of shares is bogus is without any basis. The Ld. Counsel argued that just because the purchase transactions have been done "off market" and the delivery of shares have been taken in physical form cannot justify the allegation that the purchases are bogus or have been backdated. The Ld. Counsel further argued that the AO never confronted the assessee with the denial of the broker Shri Sanjay R. Shah who stated that he has not entered into any transaction with the assessee or his family members. The Ld. Counsel further pointed out that the entire sale transaction of shares of these two companies have been done through BSE, therefore, there should not be any doubt in relation to the sale consideration resulted from the sale of shares of these two companies. The Ld. Counsel concluded that as the entire purchase and sale of shares are fully supported by necessary 8 ITA No.7024/M/2010 documents/evidences, the action of the revenue authorities is not according to the facts of the case and therefore the orders of the lower authorities deserve to be vacated.
12. Per contra, the Ld. Departmental Representative strongly supported the findings of the lower authorities.
13. We have considered the rival submissions, perused the orders of the lower authorities and have also the benefit of going through the various details/documents filed by the assessee in the form of paper book containing 284 pages.
14. It is a settled law that in all cases in which a receipt is sought to be taxed as income, the burden lies on the department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within the exemption provided by the Act lies upon the assessee. But in view of section 68 of the I.T. Act 1961, where any sum is found credited in the books of an assessee for any previous year, it may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the AO, not satisfactory. In such a case, there is prima facie evidence against the assessee, vis-à-vis the receipt of money and if he fails to rebut the said evidence, it can be used against him by holding that it was a receipt of income nature. While considering the explanation of the assessee, the department cannot, however, act unreasonably.
15. All that we have to examine is whether the explanation given by the assessee is a reasonable explanation on the facts of the case and in the eyes of the law. It is not in dispute that the shares were purchased in physical form as is evidenced from the share certificate exhibited in the 9 ITA No.7024/M/2010 paper Book filed by the assessee. As per assessee's own version, the shares of M/s. Shalimar Agro Products purchased on 26.4.2002, these shares were transferred physically in the name of the assessee on 30.4.2002 as per the letter of the company exhibited on pages 13 & 14 of the Paper Book. Any person who has even a little bit knowledge of share transfer will agree that no company can send the share transferred in the name of the purchaser within 4 days from the date of purchase unless and until that company is hand in glove with the purchaser. Further, it is not understandable how a listed company is directly corresponding with the shareholders as every listed company has its own transfer agent/registrar who looks after the share transfers and matters relating to the shareholder. Surprisingly, in this case, the company has not only responded to the share transfer of the assessee but at the same time completed the share transfer within 4 days , when the registered office of the company is in New Delhi whereas the letters acknowledging the share transfer exhibited at pages 13 & 14 are from the administrative office located in Mumbai. Further, the shares of M/s. Shalimar Agro Products were purchased on 26.4.2002 but were sent for dematerialization on 5.5.2003, i.e., after more than one year from the date of purchase, which was demated on 28.5.2003 which means that the depository took 23 days to get the shares demated of a company which transferred the shares within 4 days of purchase. Similarly, in the scrips of M/s. G.Tech Info Training, the assessee has claimed to have paid purchase consideration out of speculation profit from a transaction done through the broker Shri Sanjay R. Shah, when the assessee has never done speculation in the stock market prior to or after this transaction. However, the same broker has categorically denied to have entered into any such transaction with the assessee or his family members.
10 ITA No.7024/M/201016. It is the say of the assessee that the denial of Shri Sanjay R. Shah was never confronted to the assessee. However, on Page 5 of the assessment order while issuing a showcase letter for completion of assessment of giving an opportunity to explain the transaction, the AO issued a letter dt. 18.11.2008 in which he has mentioned as under:
"In case of share of M/s. G-Tech Info, Shri Sanjay R. Shah through whom you have purchased the share of M/s. G.Tech have filed his reply stating that he has not made any share transaction either with you or any of your family member. Copy of his reply is enclosed herewith for your perusal."
17. This clearly contradicts the statement of the assessee that he was never given any opportunity so far as denial of broker Shri Sanjay R. Shah is concerned. It appears that the assessee has backdated the purchase of shares so that it can be given a colour of Long Term Capital gains by showing the holding period by more than 12 months. Therefore, when caught on the wrong foot at the time of search and seizure proceedings u/s. 132, the assessee admitted the wrong doing and offered capital gain as his income which has never been denied at any stage by the assessee. However, while filing the return of income, the assessee has offered Long term capital gains clearly retracting from his stand taken at the time of the statement u/s. 132(4) of the Act. It appears that the assessee offered income to get rid of the search party who believed in his statement and withdrew without making any further investigation. This is clearly against the rule of estoppel as provided under the evidence Act because believing on the truth of the statement made by the assessee, the department changed its position to its detriment. Therefore the assessee is estopped from denying from the truth of his statement earlier made. The Ld. CIT(A) has rightly invoked the provisions of Sec. 115 of the Evidence Act .
11 ITA No.7024/M/201018. The assessee has placed strong reliance on the sale transaction which has been routed through Demat account and has been executed through BSE. There is no dispute that the sale consideration was received by the assessee from the sale of shares. What is disputed is that whether they were actually purchased on the purported date as claimed by the assessee. This raises the question whether the apparent can be considered as the real. As laid down by the Hon'ble Supreme Court in the case of CIT Vs Durga Prasad More 82 ITR 540, the apparent must be considered as real only it is shown that there are reasons to believe that the apparent is not the real and that too taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probability. For this preposition we draw support from the decision of the Hon'ble Supreme Court in the case of Sumati Dayal v/s CIT 214 ITR 0801wheren in the Hon'ble Supreme Court has thus held:
"dismissing the appeal, that the Settlement Commission after considering the surrounding circumstances and applying the test of human probabilities had rightly concluded that the appellant's claim about the amount being her winnings from races was not genuine."
Therefore, the present case has to be considered in the light of human probability. The transaction about purchases of shares in physical form of such companies whose share prices have been rigged by some fraudulent operators cannot have any direct evidences. An inference about such a purchase connived with such companies have to be drawn on the basis of the circumstances available on the record. As pointed out, the shares have been transferred within 4 days of the date of purchases raises ample doubt about the credibility of the company. As pointed out in all probabilities, the company must have been involved in such fraudulent transactions. Post year 2000, it is improbable that any person 12 ITA No.7024/M/2010 would transact in shares by taking physical delivery of the shares. When many instances have been surfaced relating to bad delivery or bogus scrips, the regulatory authorities have made it compulsory to transact through Demat account.
19. Having regard to the circumstances and the conduct of the assessee as disclosed in his statement u/s. 132(4) of the Act as well as other material on record , inference could be reasonably drawn that the shares purchased by the assessee have been backdated to give it a colour of Long term capital gain by showing the period of holding for more than 12 months.
20. Needless to say that income tax proceedings are civil proceedings and the degree of proof required is by preponderance of probabilities, therefore applying the test of preponderance of probabilities and considering the entire sequence of events, the revenue authorities have rightly concluded that the assessee's claim about the long term capital gains from the sale of shares is not genuine.
21. Therefore, it cannot be said that the explanation offered by the assessee in respect of the sale consideration has been rejected unreasonably and that the findings that the said amounts are income of the assessee from other sources is not based on evidence. Accordingly, findings of the Ld. CIT(A) are confirmed. Ground No. 1 is dismissed.
22 Before parting, the counsel for the assesee relied upon the decision of the Tribunal in ITA No.787/M/2010 . However, facts are clearly distinguishable in as much as in that case the Tribunal has not considered the statement of the assessee u/s132[4] of the Act .The counsel further relied upon the decision of Mukesh R Marolia 6 SOT 247 [Mum ] , however , in this case the Tribunal has not considered the test of 13 ITA No.7024/M/2010 probabilities as laid down by the Hon'ble Supreme Court in the case of Sumati Dayal [ Supra ] . The Ld. Counsel also placed reliance on the decision of the Tribunal in ITA 2669 , 2670 / M / 2006 , where also the Tribunal has not considered the test of probabilities as mentioned herein above nor in these cases the assessee has offered income on sworn statement u/s132[4] of the Act.
23. Ground No. 2 relates to the estimation of expenditure at the rate of 5% of the sale consideration as unexplained expenditure u/s. 69C of the Act.
24. As we have decided ground No. 1 on preponderance of probabilities then taking leaf out of our findings, there is no doubt that such transactions involve certain money paid to the operators/arrangers of such fraudulent capital gains. The Revenue authorities have reasonably calculated 5% of the sale consideration. Therefore, no interference is called for. Ground No. 2 is accordingly dismissed.
25. In the result, the appeal filed by the assessee is dismissed.
पǐरणामतः िनधा[ǐरती कȧ अपीलɅ खाǐरज कȧ जाती है ।
Order pronounced in the open court on 30th January, 2013 आदे श कȧ धोषणा खुले Ûयायालय मɅ Ǒदनांकः 30.1.2013 को कȧ गई ।
Sd/- Sd/
(D.MANMOHAN) (N.K. BILLAIYA)
उपाÚय¢ VICE PRESIDENT लेखा सदःय / ACCOUNTANT MEMBER
मुंबई Mumbai; Ǒदनांक Dated 30.1.2013
व.िन.स./ RJ , Sr. PS
14 ITA No.7024/M/2010
आदे श कȧ ूितिलǒप अमेǒषत/Copy of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2. ू×यथȸ / The Respondent.
3. आयकर आयुƠ(अपील) / The CIT(A)-
4. आयकर आयुƠ / CIT
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai
6. गाड[ फाईल / Guard file.
आदे शानुसार/ BY ORDER, स×याǒपत ूित //True Copy// उप/सहायक पंजीकार Dy./Asstt. Registrar) यकर अपीलीय अिधकरण, मुंबई / ITAT, Mumbai