Income Tax Appellate Tribunal - Chandigarh
Assistant Commissioner Of Income Tax vs Som Nath Maini on 11 August, 2005
Equivalent citations: (2006)100TTJ(CHD)917
ORDER
S.K. Pransukhka, A.M.
1. This is an appeal filed by the Revenue against the order dt. 9th Sept., 2002 of the CIT(A)-II, Ludhiana, for asst. yr. 1998-99.
2. The only effective issue raised in this appeal by the assessee (sic-Revenue), is as under :
That the learned CIT(A)-I, Ludhiana, erred both in law as well as on facts of the case while ordering the deletion of addition of Rs. 20,36,700 as rightly made by the AO on account of bogus gain on sale and purchase of shares by the assessee.
3. The relevant facts briefly stated are that during the course of assessment proceedings, the AO observed that assessee had incurred a long-term capital loss on account of sale of gold jewellery declared under the VDIS, 1997, amounting to Rs. 19,87,705 and also there was a short-term capital gain near to this amount of long-term capital loss amounting to Rs. 20,36,700 resulting into net capital gain of Rs. 48,995. The AO on perusal of record further observed that in the case of a family member of the same assessee Shri D.C. Maini, in the same assessment year, similar exercise has been done by the assessee wherein a long-term capital loss of Rs. 11,59,066 had been incurred on account of sale of gold jewellery declared under the VDIS and short-term capital gain of Rs. 11,75,100 resulting into a net gain of Rs. 16,034. On going through the nature of transactions, the AO doubted the genuineness of the short-term capital gain in the case of the assessee and he made further inquiry that during the year assessee had purchased 45,000 shares of M/s Ankur International Ltd. at varying rates from Rs. 2.06 to Rs. 3.1 per share and sold them within a short span of six-seven months at the rate varying from Rs. 47.75 to Rs. 55. These shares were purchased through a broker Munish Arora & Co. and sold through another broker M/s S.K. Sharma & Co. The AO took by surprise the astronomical rise in share price of a company from Rs. 3 to Rs. 55 and started further inquiry. The AO issued notice under Section 131 to both the brokers from whom shares were purchased and sold and statements were recorded. The AO also analyzed the balance sheet of- M/s Ankur International Ltd. to justify as to how the share price of a company can go up from a mere Rs. 3 to Rs. 55 in a short span of six to seven months' time. The AO made detailed and extraneous exercise of finding the fundamental of the share of the company by different methods and concluded that these shares were not genuine and transactions were so arranged so as to cover up the loss incurred on account of sale of jewellery only. The AO also recorded the finding that transactions were done at Ludhiana where also the share price of the company is quoted but maximum value of the share quoted was Rs. 17 but that was only in July, 1997, i.e. long before the shares were sold by the assessee to M/s S.K. Sharma & Co. in the months of February and March, 1998. The AO also recorded the finding that although the shares were transferred in the name of the assessee, they were still lying in the name of assessee much after the sale to M/s S.K. Sharma & Co. The learned CIT(A) deleted the addition on the ground that both the brokers from whom the shares have been purchased and sold were called under Section 131 by the AO. Both have confirmed the sale and purchase of said shares. Other aspect of the facts and circumstances raised by the AO was not discussed by the CIT(A) in his order.
4. In appeal before us, the learned Departmental Representative contended that it is highly improbable that shares of a company go up so high in few months' time. The learned Departmental Representative took us through various pages of the assessment order and the paper book wherein sale bill of the shares with the said M/s S.K. Sharma &' Co. were also filed. The learned Departmental Representative pointed out that shares have been sold at Ludhiana when actually stock exchange was not functional - a fact which is also recorded by the AO. The learned Departmental Representative also pointed out that shares have been sold to M/s S.K. Sharma & Co. on 9th Feb., 1998 and 23rd March, 1998, whereas from the statement of account of M/s S.K. Sharma & Co., payments have been received by the assessee from 31st March, 1998 to 27th July, 1998, meaning thereby that had the transactions been genuine, payment could have been received in one go by S.K. Sharma & Co. The learned Departmental Representative pointed out that any such type of transactions relating to these types of company operating on stock exchanges payments are received in piecemeal whereas in normal market share transactions, contract notes are issued by the broker and payments are received in one go. The learned Departmental Representative also argued that as per the statement of S.K. Sharma & Co. recorded at the time of inquiry, he did not produce any books of account and identity of persons to whom the shares have been sold. Ordinarily, when brokers are enquired about share transactions, they keep proper books of account from whom shares have been purchased and sold. However, in this case, S.K. Sharma & Co. failed to provide the names of purchasers of the shares and identity of the purchasers.
5. On the other hand, the learned Authorised Representative contended that in the share market, share price does not move according to the fundamentals of a company. They go up and down as per sentiments prevailing at that time. To controvert, the argument of the learned Departmental Representative, he argued that share prices are quoted at Jaipur Stock Exchange and were quoted on the relevant date of sale at the same price on which shares were sold to M/s S.K. Sharma & Co. However, the learned Departmental Representative controverted his argument by saying that volume of transactions on the relevant dates is only 600 shares on 9th Feb., 1998 and 1000 shares on 23rd March, 1998 whereas number of shares involved in the transactions with S.K, Sharma & Co. are 45000 shares.
6. After hearing the rival submissions, going through the orders of authorities below and paper book, we find that M/s Ankur International Ltd., although it is a quoted company, its shares were not being transacted at Ludhiana Stock Exchange at, the relevant time. Shares have been purchased and sold through the brokers and payments have been received in cheque on different dates as per the statement of account of M/s S.K. Sharma & Co, Factual matrix of the case from start of the purchase of shares at the rate of Rs. 3 to the sale of shares at Rs. 55 in a short span of time and shares being not, quoted at Ludhiana Stock Exchange and the way in which different, instalment payments have been received from the brokers and non-availability of the records of the brokers and the shares remaining in the name of assessee even long after the sale of the shares does not stand the test of probabilities. As rightly pointed out by the learned Departmental Representative, these types of companies function in the capital market whose sale price is manipulated to astronomical height only to create the artificial transaction in the form of capital gam. Surrounding circumstances differ from the normal share market transactions in which they are ordinarily carried out. Taking all the steps together, final conclusion does not accord with the human probabilities. The Hon'ble Supreme Court in the case of CIT v. Durga Prasad More held as under :
It is a story that does not accord with human probabilities. It is strange that High Court found fault with the Tribunal for not swallowing that story. If that story is found to be unbelievable as the Tribunal has found and in our opinion, rightly that the decisions remains that the consideration for the sale proceeded from the assessee and therefore, it must be assumed to be his money.
It is surprising that the High Court has found fault with the ITO for not examining the wife and the father-in-law of the assessee for proving the Department's case. All that we can say is that the High Court has ignored the facts of life. It is unfortunate that, the High Court has taken a superficial view of the onus that lay on the Department.
7. The learned CIT(A) only got swayed by the issuance of notice by the AO under Section 131 to both the brokers from whom shares were purchased and sold and came to the conclusion that share transactions were genuine overlooking the material gathered by the AO from the statements recorded of broker M/s S.K. Sharma & Co. and the other facts and circumstances that volume of transactions of Jaipur Stock Exchange is only 600 shares and 1000 shares. Payments have been received from the brokers only in instalments over a period of 6-7 months. It is true that when transactions are through cheques, it looks like real transaction but authorities are permitted to look behind the transactions and find out the motive behind transactions. Generally, it is expected that apparent is real but it is not sacrosanct. If facts and circumstances so warrant that it does not accord with the test of human probabilities, transactions have been held to be non-genuine, it is highly improbable that share price of a worthless company can go from Rs. 3 to Rs. 55 in a short span of time. Mere payment by cheque and receipt by cheque does not. render a transaction genuine. Capital gain tax was created to operate in a real world and not that of make belief. Facts of the case only lead to the inference that these transactions are not genuine and make believe only to off set the loss incurred on the sale of jewellery declared under VDIS. In the totality of facts and circumstances of this case and material on record, we are of the considered view that the CIT(A) was not justified in deleting the impugned addition. We, accordingly set aside the order of the CIT(A) and restore that of the AO.
8. In the result, the appeal of the Revenue is allowed.