Income Tax Appellate Tribunal - Mumbai
Upendra P. Dadia, Mumbai vs Assessee on 6 June, 2006
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES, 'F', MUMBAI
BEFORE SHRI R V EASWAR, PRESIDENT AND
SHRI P M JAGTAP, ACCOUNTANT MEMBER
I T A No: 485/Mum/2009 Assessment Year: 2004-05
I T A No:1068/Mum/2009 Assessment Year: 2005-06
I T A No:1193/Mum/2009 Assessment Year: 2006-07
Shri Upendra P Dadia, Mumbai ... Appellant
(PAN: AABPD9559Q)
Vs
Assistant Commissioner of Income Tax ... Respondent
Central Circle 3, Mumbai
Appellant by: Shri V G Ginde
Respondent by: Shri A P Singh
ORDER
R V EASWAR, PRESIDENT:
These are three appeals, all by the assessee. They relate to the assessment years 2004-05 to 2006-07. Since they involve some common issues and were also heard together, they are disposed of by a single order for the sake of convenience.
2. The assessee is an individual carrying on business in the name and style of 'M/s Arihant Enterprises'. These appeals arise out of assessment orders passed on the same day, namely, 28.12.2007. In respect of the assessment years 2004-05 and 2005- 06, the assessments have been made under section 153A read with section 143(3) of the Income Tax Act, 1961; whereas for the assessment year 2006-07, the assessment order has been passed under section 143(3) of the Act.
2 ITA No: 485/Mum/2009ITA No:1068/Mum/2009 ITA No:1193/Mum/2009
3. We may first take up the appeal of the assessee for the assessment year 2004-05 in ITA No: 485/Mum/2009. A search took place in the assessee's premises on 24.03.2006 under section 132 and consequent thereto a notice under section 153A was issued to the assessee requiring him to file the return of income. The assessee filed the return on 06.12.2006 declaring total income of `5,14,860/-. The income consisted of salary, profits from Arihant Enterprises, speculation profit, income by way of capital gains on sale of shares and interest from banks, etc. No additional income on account of the search proceedings was shown in the return. The assessee had however claimed deduction of `54,20,000/- under section 54EC against the long term capital gains of `44,57,301/-. This long term capital gains is the net figure after adjusting the long term capital loss against the long term capital gain on sale of shares. In effect the investment claimed under section 54EC set off the long term capital gains (net).
4. While examining the return and the details filed in support thereof, the Assessing Officer noticed that the long term capital gains had arisen mostly on account of the sale of shares of a company by name 'Bolton Properties Limited'. These shares were shown to have been purchased on 28.01.2003 for `8.27 per share. They were all sold on various dates in March 2004 at the average rate of `175.70 per share. The Assessing Officer on these facts was of the view that there was an abnormal rise in the price of the shares within one year from `8.27 per share to `175.70 per share 3 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 and wanted to probe the same further. According to him there were no circumstances indicating the possibility of such drastic rise in the market price of the shares of the company. He therefore suspected that the abnormal price increase might be due to artificial manipulation of the price of the shares. In an attempt to probe the matter further he found that Bolton Properties Limited had its registered office at Room No.5, 2nd Floor, Commerce House, No.2 Ganesh Chandra Avenue, Kolkata. It had two Directors, namely, Shri J P Purohit and Shri Pushpal Chandra. Very little business activity was seen to have been carried on by the company during the financial years 2002-03 and 2003-04. In the Profit and Loss Account for the year ended 31.03.2003, the company had shown `2,10,200/- as share trading profit and in the Profit and Loss Account for the year ended 31.03.2004, the company had shown interest income of `2,59,123/-. The Assessing Officer on these facts came to the conclusion that the abnormal price rise of the shares during the financial year 2003-04 was not backed by the financial strength of the company. He also noted that the shares of the company were not being traded in the Kolkata Stock Exchange when he had started enquiry about the company.
5. In the above background, the Assessing Officer proceeded to examine the facts relating to the purchase and sale of shares by the assessee. He referred to the assessee's statement recorded during the search as also during the assessment proceedings in which the assessee had stated that the decision to purchase the 4 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 shares of Bolton Properties Limited was taken by his brother, Shri Haresh Dadia, who will be able to explain the relevant details. Shri Haresh Dadia in the statement recorded from him during the search had stated that he did deal in the shares of Bolton Properties Limited as well as Fast Track Limited, that he purchased the shares in the year 2002-03, that the shares were listed in the Kolkata Stock Exchange, that he had purchased the shares of the aforesaid companies through a broker by name 'Prakash' in Kolkata and that a friend had introduced him to the stock broker. When asked to give the complete details and address of Shri Prakash who had also sold the shares in the Kolkata Stock Exchange, Shri Haresh Dadia was unable to give those details and also expressed his inability to produce Shri Prakash for verification. In answer to Question No.23, Shri Haresh Dadia further stated that since he would not be able to produce the broker Shri Prakash before the Assessing Officer and substantiate the claim for long term capital gains on sale of the shares of Bolton Properties Limited and Fast Tack Limited, he would offer the sale proceeds of these two shares as undisclosed income and also undertook to furnish a detailed working of the undisclosed income by 31.03.2006. He further stated that he had also consulted his brother, Shri Upendra Dadia, the assessee herein, who was sitting beside him.
6. Though Shri Haresh Dadia has stated that he would offer additional income on account of sale of shares of Bolton Properties Limited and Fast Track Limited, after consulting the assessee, the 5 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 assessee did not declare any additional income in the return filed in response to the notice issued under section 153A. The Assessing Officer therefore called upon the assessee to explain why the capital gains (long term) should not be treated as additional income of the assessee. In response thereto the assessee filed a reply along with an affidavit dated 06.06.2006 in which he stated that Shri Haresh Dadia had retracted from his statement recorded during the search. Thereupon the Assessing Officer recorded a statement from Shri Haresh Dadia under section 131 of the Act on 07.12.2007. In this statement Shri Haresh Dadia stated that he had read some news item regarding the construction activities planned by Bolton Properties Limited and thought that he should invest in the shares of the said company. Regarding the shares of Fast Track Limited also he said that he read in media reports which he could not recollect, on the basis of which he invested in the shares of that company. He also mentioned that since the share value of Bolton Properties Limited was less than the face value, the company was planning some construction activity and on this basis he had invested in the said shares. To a specific question as to how he analyzed that share value was very low as compared to the face value, he stated that as per his common sense, generally a company will have business investment to the extent of its capital, but stated that he did not analyze the Balance Sheets of the two companies before taking the decision to invest in the shares. Again to a specific question as to the basis of his decision to sell the 6 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 shares of the above two companies, he answered that he sold the shares "by reading price in newspaper and internal feeling that return on investment was good and therefore I sold".
7. According to the Assessing Officer, Shri Haresh Dadia had given contradictory answers in the statements regarding the transactions of Bolton Properties Limited and Fast Track Limited which threw light on the real nature of the transaction. The contradiction according to the Assessing Officer was that in the statement recorded during the search Shri Haresh Dadia had stated that his friend introduced Shri Prakash Nahata, a broker, who had suggested that he purchase the shares of Bolton Properties Limited and Fast Track Limited, whereas in the statement under section 131 he has stated that he purchased the shares on the basis of news reports in the media. Thus there was no satisfactory explanation for the purchase of the shares.
8. After referring to these facts the Assessing Officer also referred to the circumstances which led to the search on Dadia group. A search under section 132 had been conducted in the case of M/s Scan Steel Ltd. group, a leading manufacturer of sponge iron in Orissa on 05.04.2004 by the Investigation Wing of Bhubaneshwar. During the post search investigation, certain dubious bank accounts were traced which led to the role of Kolkata based share broker Shri Prakash Nahata. Subsequent enquiries revealed the role of two Income Tax Practitioners, namely Shri Sushil Purohit and Shri Jagdish Purohit who, in collusion with Shri 7 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 Prakash Nahata, were giving accommodation entries to various beneficiaries on account of long term capital gains. All these three persons operated from Kolkata. The Assessing Officer in the present case had obtained these facts from the Investigation Wing, which conducted the search on Dadia group. He noticed that there was similarity between the two cases inasmuch as Shri Prakash Nahata, the Kolkata share broker, was common in both the cases. He further noticed that Shri Jagdish Purohit, who had colluded with Shri Prakash Nahata in giving accommodation entries to M/s Scan Steel Ltd. group, was also a Director of Bolton Properties Limited. From these facts the Assessing Officer drew the inference that the rise in the share price of Bolton Properties Limited is on account of manipulations by Shri Prakash Nahata and the Directors of the company.
9. The family members of a group called 'Patel group' had been simultaneously searched by the Investigation Wing and they had accepted that their transactions in the shares of Bolton Properties Limited and Fast Track Limited were bogus. This fact was noticed by the Assessing Officer in para 15 of the assessment order. He also referred to the statement of Shri Pratap Chandra B Patel (of the Patel group) recorded during the search. The relevant question and answer are reproduced in the assessment order. Shri Pratap Chandra B Patel had stated that the share transactions in Bolton Properties Limited resulting in capital gains of `3.98 crores in the case of his family member and the Chief Accountant, Shri 8 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 Manubhai S Shah are not genuine transactions and that they were arranged by his Chartered Accountant so that tax benefits attached to the long term capital gains can be availed of by him and the other family members. He had further stated that for arranging these transactions he had paid equal amount of cash for the profits generated from these transactions against the cheques / DD received towards sale of the shares of Bolton Properties Limited. He further admitted that he paid normal brokerage of 0.25% in cash for arrangement of the transactions.
10. After thus referring to the statements of Shri Haresh Dadia and the assessee, the searches conducted in M/s Scan Steel Ltd., Orissa and in Patel group cases and the statement of Shri Pratap Chandra B Patel, the Assessing Officer referred to the following circumstances arising in the present case: -
(a) The share price of Bolton Properties Limited has increased up to 21 times within 1 year.
(b) The assessee has purchased the share when
the prices were very low and sold the shares
when the prices increased.
(c) During the subsequent years the share price of
Bolton Properties Limited have not increased
further.
(d) At present the shares of Bolton Properties
Limited are not traded at Kolkata Stock
Exchange.
(e) The financial prospects of Bolton Properties
Limited do not justify the rise in the share price.
(f) The company Bolton Properties Limited was
not carrying out any substantial business
activity.
9 ITA No: 485/Mum/2009
ITA No:1068/Mum/2009
ITA No:1193/Mum/2009
(g) The assessee has sold all these shares
through Shri Prakash Nahata.
(h) It has already been provided that Shri Prakash
Nahata was indulged in the activities of floating paper companies and giving accommodation entries on account of long term capital gains.
(i) The family members of Patel group have accepted that the transaction related to the Bolton Properties Limited and Fast Track Limited are not genuine.
11. The Assessing Officer also referred to the fact that no genuine person will buy the shares at a price of `175.70 per share since the price is not backed by the financial position of Bolton Properties Limited. He therefore probed the fact as to who purchased the shares from the assessee and found that they were purchased by the sister concerns of the company which were also not doing any business activities. The Assessing Officer found that this was opposed to the human probabilities.
12. The assessee would appear to have contended that the purchase and sale of the shares were put through by cheques and all the shares were reflected in the Demat account after the purchase and sale. The Assessing Officer refused to attach much importance to this fact, arguing that the circumstantial evidence led to the conclusion that the transactions were not genuine and paper work has been got up merely to give a colour of authenticity to the transaction. He referred to the judgment of the Supreme Court in CIT vs. Durga Prasad More (1971) 82 ITR 540 (SC) and Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC).10 ITA No: 485/Mum/2009
ITA No:1068/Mum/2009 ITA No:1193/Mum/2009
13. On the basis of the above, the Assessing Officer came to the conclusion that the transactions relating to the purchase and sale of shares of Bolton Properties Limited are not genuine and, therefore, the income credited by the assessee in his books of account as capital gains from the sale of shares of Bolton Properties Limited is treated as unexplained cash credit under section 68 of the Act.
Accordingly he added back the amount of `41,85,500/- under section 68 of the Act, being the amount of profit shown by the assessee on the sale of shares of Bolton Properties Limited. Correspondingly the exemption claimed by the assessee under section 54EC was also withdrawn.
14. The assessee filed an appeal to the CIT(A), who endorsed the decision taken by the Assessing Officer and held that the capital gains shown on sale of shares of Bolton Properties Limited are not genuine and they were rightly assessed under section 68 of the Act.
15. The Assessing Officer had, without prejudice to his stand that the sale proceeds of the shares of Bolton Properties Limited should be assessed under section 68, taken the alternative position that the profits on the sale of the shares, even if they are considered to be genuine, cannot be assessed as long term capital gains but should be assessed as business income. This stand taken by the Assessing Officer was however not approved by the CIT(A), who directed the Assessing Officer to recompute the income after taking into account the long term capital gains as shown by the assessee on sale of shares of Bolton Properties 11 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 Limited as undisclosed income under section 68 of the Act. The CIT(A) also upheld the denial of the exemption under section 54EC of the Act.
16. The assessee is in further appeal before the Tribunal and in Ground Nos. 1 to 4 has challenged the view taken by the departmental authorities that the sale proceeds shown by the assessee as sale proceeds of the shares of Bolton Properties Limited should be assessed under section 68 of the Act. In Ground No.6 the assessee has also challenged the denial of the exemption under section 54EC of the Act. In support of Ground Nos. 1 to 4, the learned representative for the assessee submitted that the entire purchase and sale of shares of Bolton Properties Limited is supported by documentary evidence, that the purchase and sale were effected through cheques, that there was no evidence to show that the assessee manipulated the prices of the shares in the Stock Exchange, that there was no material to contradict or controvert the documentary evidence, that the Assessing Officer has merely relied on circumstantial evidence and has indulged in speculation which are not permissible, that no material was found during the search to impeach the documentary evidence and therefore in these circumstances the departmental authorities were not justified in law or on facts in assessing the sale proceeds of Bolton Properties Limited shares under section 68 of the Act, refusing to accept the assessee's claim that the sale gave rise to long term capital gains. Our attention was drawn to the relevant pages of the paper book for 12 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 the purchase and sale of shares through the share broker, the bank statements where the cheques for the purchase of the shares were debited and those for the sale were credited. It was contended that the departmental authorities were not justified in rejecting the retraction made by Shri Haresh Dadia supported by his affidavit. In addition to the above, strong reliance was placed on the following authorities: -
(1) CIT vs. Smt Jamnadevi Agrawal & Ors
(2010) 46 DTR (Bom - Nagpur Bench) 271
(2) Smt Memo Devi vs. ACIT
(2008) 7 DTR (Agra) (Trib) 158
(3) CIT vs. K Bhuvanedran & Ors.
(2008) 303 ITR 234 (Mad)
(4) Kailashben Manharlal Chokshi vs. CIT
(2008) 220 CTR (Guj) 138
Our attention was also drawn to some of the other orders of the various Benches of the Tribunal compiled in the case law paper book.
17. On the other hand, the learned CIT departmental representative pointed out to the genesis of the search in the assessee's case and drew our attention to the relevant portions of the assessment order where the Assessing Officer had traced the genesis to the searches in the case of M/s Scan Steel Ltd. group in Orissa and in the case of Patel group and the statements recorded during those searches from the concerned assessees who had also dealt with the shares of Bolton Properties Limited. He also pointed out that there was a link between those two cases and the 13 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 assessee's case in the sense that - (a) Shri Jagdish Purohit who had colluded with Shri Prakash Nahata the broker in giving accommodation entries to various beneficiaries for long term capital gains, was a Director of Bolton Properties Limited; (b) Shri Pratap Chandra B Patel of the Patel group had admitted that the transactions in the shares of Bolton Properties Limited entered into by his family members and Chief Accountant were not genuine, were arranged by his Chartered Accountant for obtaining tax benefits attached to long term capital gains and that he had paid an equal amount of cash for the profits generated from the transactions against cheques - DD; and (c) Shri Prakash Nahata was the share broker who was involved in the search in M/s Scan Steel Ltd. group as well as in the assessee's case. It was thus submitted by the learned CIT departmental representative that the shares of Bolton Properties Limited were apparently being used as a means of facilitating assessees' having unaccounted income to bring the same into their books of account by showing purchase and sale of those shares, the purchase being at a very low price and the sale within a short span of time being at abnormally high prices, thus helping the persons with unaccounted income to bring them into their books of account in the guise of capital gains on the sale of the shares. Such persons claim exemption under section 54EC of the Act, by investing the capital gains in notified bonds. According to the learned CIT departmental representative, there was thus a device adopted by persons having unaccounted income to bring the 14 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 same into their books without paying any taxes, a practice which should be discouraged.
18. The learned CIT departmental representative further submitted that in the course of the search proceedings the assessee's brother Shri Haresh Dadia, after consulting the assessee, admitted that he would offer the sale proceeds of the shares of Bolton Properties Limited and Fast Track Limited as undisclosed income and also undertook to furnish a detailed working of such income by 31.03.2006. In this statement Shri Haresh Dadia affirmed that in making the admission / offer he had consulted his brother, who is the assessee herein. Having thus admitted that the income by way of capital gains on which exemption under section 54EC was claimed was really the taxable income of the assessee and having thus stopped the income tax authorities from probing the matter further, it is not open to the assessee to turn around at a later stage and say that no investigation was carried out by the income tax department to discredit or impeach the documentary evidence. He strongly relied on the findings of the departmental authorities as well as on the following orders / judgments: -
(1) Hiralal Maganlal & Co. vs. DCIT
(2005) 96 ITD 113 (Mum)
(2) CIT vs. Omprakash K Jain & Ors.
(2010) 322 ITR 362 (Bom)
(3) ACIT vs. Hukum Chand Jain
(2010) 191 Taxman 319 (Chhattisgarh)
15 ITA No: 485/Mum/2009
ITA No:1068/Mum/2009
ITA No:1193/Mum/2009
(4) Ravindra D Trivedi vs. CIT
(2008) 215 CTR (Raj) 313
As regards the judgment of the Hon'ble Bombay High Court in CIT vs. Smt Jamnadevi Agrawal (supra), relied on by the learned representative for the assessee, the learned CIT departmental representative submitted that the facts of the aforesaid case were distinguishable from the facts of the present case inasmuch as that there was no offer or surrender of income in the cited case whereas in the present case the assessee had offered the capital gains to tax in the course of the search and further in the present case a clear link had been established and valid material had been brought on record to show that the shares of Bolton Properties Limited were being used as a medium to generate huge capital gains which could be sold to persons who are having unaccounted income so that they can convert their unaccounted income into accounted income, at the same time without paying any tax. In this connection the learned CIT departmental representative drew our attention to the search in M/s Scan Steel Ltd case and the Patel group case where also the shares of Bolton Properties Limited were involved. He thus contended that the addition under section 68 was rightly made.
19. We have carefully considered the facts and the rival contentions. In our view, the departmental authorities have taken the correct decision in making the addition under section 68 of the Act. There is no doubt documentary evidence to show that the assessee purchased and sold the shares through cheques and that these cheques have also been debited or credited to his bank 16 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 account. There is also evidence to show demating of the shares of Bolton Properties Limited. But it has to be remembered that the assessee himself did not rely on the documentary evidence during the search. The assessee's brother Shri Haresh Dadia, after consulting the assessee who was sitting beside him, admitted the sale proceeds of the shares of Bolton Properties Limited and Fast Track Limited as undisclosed income and also undertook to furnish the detailed working of such income by 31.03.2006, in answer to Question No.23 of the statement recorded during the search. Relevant portions of this statement are extracted in paragraph 10 of the assessment order. It could possibly be argued that it was only because of the inability of the assessee to produce Shri Prakash Nahata for verification that the offer was made. That however would be a flimsy argument, especially when the assessee is placing such a strong reliance on the documentary evidence even before us. If the documentary evidence was really genuine or was of such nature that it could not be impeached at all, there was no good reason why the assessee or his brother themselves did not stick to the evidence, but chose to offer the capital gains as undisclosed income. The statement was given by Shri Haresh Dadia on the date of search which was 24th - 25th March 2006 and thereafter it was on 06.06.2006 that Shri Haresh Dadia filed an affidavit before the Assessing Officer (page 13 of the paper book) affirming his retraction made a few days earlier on 22.05.2006 (page 10 of the paper book). In the affidavit, which is also 17 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 confirmed, inter alia, by the assessee herein, it has been stated that he was under terrible pressure to produce Shri Prakash Nahata immediately and therefore it was that the offer of income was made. It is further explained that the shares of Bolton Properties Limited were not purchased through Shri Prakash Nahata but were only sold through him. All these facts could not be recollected by Shri Haresh Dadia at the time of the search and therefore it was that he gave incorrect details during the search. Thereafter he went to Kolkata and took printouts of the accounts from the books of Shri Prakash Nahata. In the affidavit Shri Haresh Dadia further explained that he was suffering from a peculiar disease known as 'Guillian Barry Syndrome' under which a person momentarily loses his memory and control over the body and this was the reason for his incorrect answers during the search. We are however not inclined to accept the retraction. There is strong circumstantial evidence and surrounding circumstances to doubt the veracity of the documentary evidence. The learned CIT departmental representative as well as the Assessing Officer have rightly pointed out and relied upon the genesis of the search in the assessee's case. They have rightly referred to the search in M/s Scan Steel Ltd. group in Orissa, during the course of which the role of Shri Prakash Nahata, the Kolkata based share broker came to light. It also came to light that Shri Sushil Purohit and Shri Jagdish Purohit, who were stated to be Income Tax Practitioners, in collusion with Shri Prakash Nahata were giving accommodation 18 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 entries to various beneficiaries on account of long term capital gains. It came to light that all these three persons operated from Kolkata. Shri Prakash Nahata is the person who had put through the assessee's sale transactions in Bolton Properties Limited also. It may be that the purchase transaction was not put through by Shri Prakash Nahata but by another broker firm by name Bubna Stock Broking Services Limited, but that does not make any dent in the case of the department. The departmental authorities have also rightly relied on the link thrown up by the search in the Patel group of cases wherein also the shares of Bolton Properties Limited were involved. We have already referred to the statement of Shri Pratap Chandra B Patel in some detail earlier. Taking the circumstantial evidence and the surrounding circumstances into account it appears to us that not much reliance can be placed on the documentary evidence adduced by the assessee. The circumstance that the shares of Bolton Properties Limited figure in another case, namely, Patel group, as a medium through which unaccounted money was being turned into accounted monies; the circumstance that Shri Prakash Nahata was involved in the search of M/s Scan Steel Ltd. as a person who colluded with two Income Tax Practitioners, namely, Shri Sushil Purohit and Shri Jagdish Purohit for giving accommodation entries to beneficiaries on account of long term capital gains; the circumstance that all of them were operating from Kolkata; the circumstance that the shares of Bolton Properties Limited were being traded in the Kolkata Stock 19 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 Exchange; the further circumstance that Shri Jagdish Purohit was a Director of Bolton Properties Limited, are all cumulatively strong enough to discredit the documentary evidence. The further circumstance that the financial position exhibited by the Profit and Loss Account and Balance Sheet of Bolton Properties Limited did not justify the 21 times increase in the price of the shares is also so strong that it cannot be ignored. It is common knowledge that unless a company's financial position, as seen from its accounts, is so strong, the worth of its shares cannot increase 21 times within a span of just 12 months. This aspect was put to Shri Haresh Dadia during the search. In Question No.18, he was asked whether he had enquired about the financial position of the company before buying the shares. The assessee had stated that he had put in the money without studying their financial standing, working merely on the market tips given by the broker. One is asked to believe that a businessman invested `2,06,750/- in the shares of Bolton Properties Limited at `8.27 per share without any enquiry about the company's financial standing and sold those very shares for `175.70 per share within about 13 months time, there being no change in the financial position of the company. Apparently the assessee had lot of foresight or a strong gut feeling that the prices would rise so phenomenally! The assessee or his brother were not able to justify their decision to buy and sell the shares in Bolton Properties Limited on the basis of any financial prudence. They have not stated that they were privy to any important decision taken 20 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 by the company which would bolster the value of the shares in the near future. It is also another circumstance worth noting that the assessee and his brother are in chemical business and share business in Mumbai, which is supposed to be the financial capital of the country, but they chose Bolton Properties Limited whose shares were being traded only in the Kolkata Stock Exchange for investment. All these are circumstances which cumulatively considered; throw considerable doubt on the veracity of the documentary evidence. These circumstances have also been pointed out by the Assessing Officer as well as the learned CIT departmental representative before us.
20. The assessee has placed strong reliance on the judgment of the Nagpur Bench of the Hon'ble Bombay High Court in CIT vs. Smt Jamnadevi Agrawal & Ors (supra). We have carefully gone through the judgment. In paragraph 3 of the judgment the Hon'ble High Court has recorded the concession of the learned counsel for the Revenue in the following words: -
"The learned counsel for the Revenue while conceding that he is not in a position to find fault with the reasoning given by the Tribunal in deleting the additions made by the assessees (sic - AO), submitted that these appeals be decided on merits in the light of the findings recorded by the AO and decision of the apex Court in Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124."
The case thus proceeded on a concession given on behalf of the Revenue. Secondly, though the assessee group in that case offered additional income of `2.00 crores consequent to the search, it is not discernible from the judgment as to whether there was any 21 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 statement given by the assessees while making the offer, and if so, what were the contents thereof. It is pertinent to note in this connection that in the present case the assessee's brother Shri Haresh Dadia, after consulting the assessee, had given a statement during the search in which he discarded the documentary evidence and offered additional income, though that offer was not given effect to in the return. Thirdly, the shares dealt with in the present case are those of Bolton Properties Limited, which were the shares involved in the case of M/s Scan Steel Ltd. of Orissa and Patel group of cases, in whose cases also there were searches and consequent disclosures. Further in the case of M/s Scan Steel Ltd. also the broker involved was Shri Prakash Nahata who is the broker involved in the case of the assessee before us also. In the Patel group of cases, we have already referred to the statement of Shri Pratap Chandra B Patel who has confessed that the share transactions in the shares of Bolton Properties Limited were accommodation transactions entered into in order to obtain tax benefits only. He has also stated that for arranging these transactions he had paid brokerage of 0.25%. Thus not only in the assessee's case but also in the case of Patel group, the company whose shares were involved was Bolton Properties Limited. In the case of M/s Scan Steel Ltd., it was found by the income tax authorities that Shri Prakash Nahata had colluded with two Income Tax Practitioners, namely, Shri Sushil Purohit and Shri Jagdish Purohit for giving accommodation entries. Shri Jagdish Purohit has 22 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 been found to be a Director of Bolton Properties Limited. Thus there is perceptible link in all the three cases, the common factors being Bolton Properties Limited, Shri Prakash Nahata and Shri Jagdish Purohit. All these links do not appear to have been present in the case before the Nagpur Bench of the Hon'ble Bombay High Court. There apart from the concession given on behalf of the Revenue, the other evidence was the statement of Shri Pradeep Kumar Daga, the broker, who explained the modus operandi of the accommodation transactions. The statement of the broker was demonstrated to be wrong by producing documentary evidence. One more significant aspect in the present case is the lack of any justification for the abnormal increase in the market price of the shares of Bolton Properties Limited from a mere `8.27 per share in January 2003 to `175.70 per share in March 2004. In the case before the Nagpur Bench of the Hon'ble Bombay High Court, though there was an almost 30 fold increase in the share price over a period of 13 to 15 months, there are no facts to indicate whether such an abnormal increase was or was not backed by a corresponding increase in the financial position of the company. The Assessing Officer has brought on record in the present case facts, which we have already referred to, to show that neither the profits nor the financial prospects or business activity of Bolton Properties Limited were sound enough to justify such a phenomenal in its market price over a period of 13 to 14 months. 23 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009
21. The judgments of the Supreme Court in the case of Durga Prasad More and Sumati Dayal, which have been cited in the assessment order itself (paragraph 20) support the department's case. In these judgments the Supreme Court has held that though the apparent must be taken to be the real generally, the income tax authorities are not required to put on blinkers while appreciating the documentary evidence and it is expected of them, if there is any suspicious feature, to probe the matter further and they are at liberty to refuse to accept the documentary evidence if there are surrounding circumstances to indicate that such evidence is unreliable. In our opinion, the Assessing Officer has rightly applied the tests of human probabilities and the normal course of human conduct to the facts of the present case and the evidence adduced by the assessee. He has taken into account the surrounding circumstances and has rightly not put on blinkers while examining the documentary evidence. We are unable to find fault with his approach. The CIT(A), in our view, has rightly endorsed the decision of the Assessing Officer. We accordingly confirm the view taken by the departmental authorities and uphold their action in assessing the amount of `41,85,500/- under section 68 of the Act. Ground Nos. 1 to 4 are dismissed.
22. Ground No.6 is with regard to the denial of the exemption under section 54EC of the Act. This is consequential to the decision regarding Ground Nos.1 to 4. Since there are no capital gains on account of the sale of shares of Bolton Properties Limited, 24 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 there is no question of claiming any exemption under section 54EC against them. The ground is accordingly dismissed.
23. Ground No.5 is in relation to the treatment to be given to the profit on the sale of shares, other than the shares of Bolton Properties Limited. According to the assessee, such profits are to be assessed as capital gains, whereas according to the department, they are to be assessed as business income. The assessee sold a number of scrips during the relevant previous year, the details of which are given at pages 6 to 9 of the paper book. It is seen therefrom that a total of 46 scrips have been sold. Similar sales of shares upto and including the assessment year 2003-04 were accepted by the Assessing Officer and assessed as capital gains. These orders are placed at pages 39 (assessment year 2001-02), page 41 (assessment year 2002-03) and page 43 (assessment year 2003-04). These are assessment orders passed under section 143(3) for all the years and the relevant computations are also attached in the paper book. It needs to be mentioned that in the assessment year 2007-08 the Assessing Officer accepted short term capital gains of `92,161/- vide assessment order dated 30.11.2009 passed under section 143(3) of the Act. The assessee has also filed details at pages 34 - 35 of the paper book to show that the shares were shown as investment in the Balance Sheet as on 31.03.2003. For the year under appeal in the computation of income, the assessee has also appended two tables, the first showing long term capital gains on sale of shares taxable at the 25 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 rate of 10% and the second showing long term capital gains on sale of shares taxable at 20%.
24. The contention of the assessee is that his main business is in chemicals and he is not in the business of buying and selling shares, that he did not borrow any monies for acquiring the shares and that in any case there are not many transactions either number- wise or volume-wise to justify the conclusion of the income tax authorities that the assessee was carrying on a business in shares. As against this, the learned CIT departmental representative has pointed out from pages 6 to 9 of the paper book that in all there are 133 transactions put through during the relevant previous year in about 50 scrips out of which 64 transactions reveal that the shares were bought and sold on the same day. The details also show, according to the learned CIT departmental representative, that in 80% of the transactions the period of holding the shares is less than three months. He contended that these facts unmistakably show a business motive, to make quick profits by selling the shares and does not indicate a desire on the part of the assessee to hold the shares as investment. It was also contended by him that the rule of consistency laid down by the Supreme Court in the case of Radhasoami Satsang vs. CIT (1992) 193 ITR 321 (SC) cannot be applied to the present case as contended by the assessee because the facts in the earlier assessment years were different. According to him, in the assessment year 2000-01 (page 47 of the paper book), there was only one transaction, namely, Arihant shares. In 26 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 the assessment year 2001-02 (page 52) and the assessment year 2002-03 (page 57) there were seven transactions in two scrips and seven transactions in five scrips respectively. In the assessment year 2003-04 (page 61) the assessee had eleven transactions in five scrips. The learned CIT departmental representative thus contended that the facts in the earlier assessment years were different from the facts available in respect of the year under appeal, in which the assessee dealt with 46 scrips and there were 133 transactions in them. He thus contended that on these facts the Assessing Officer and the CIT(A) were justified in holding that the assessee carried on a business in shares and the sale of shares did not give rise to capital gains.
25. The learned CIT departmental representative also drew our attention to the judgments of the Supreme Court in the case of Raja Bahadur Visheshwara Singh vs. CIT (1961) 41 ITR 685 (SC) and in the case of New Jehangir Vakil Mills Co. Ltd. vs. CIT (1963) 49 ITR 137 (SC) and submitted that in these cases it has been held that there is nothing as res judicata in income-tax matters and that each year has to be decided on the basis of the facts available for that year and that if the facts justify a different view than the one taken in the earlier years on the basis of different facts, then it was open to the income tax authorities to take a different view. He pointed out that both the cases involved the question whether the assessee was a dealer or investor in shares and in both the cases the Assessing Officer had departed from the decision taken in the 27 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 earlier years. Reliance was also placed on the orders of the Mumbai Benches of the Tribunal in the following cases: -
(1) Shailesh L Shah HUF vs. DCIT
ITA No: 3991 & 3992/Mum/2008
dated 13.01.2010
(2) ACIT vs. Mr V Nagesh
ITA No: 5410/Mum/2008 and
CO No: 151/Mum/2009
dated 24.09.2009
(3) Smt Sadhana Nabera vs. ACIT
ITA No: 2586/Mum/2009
dated 26.03.2010
(4) Sarnath Infrastructure (P) Ltd. vs. ACIT
(2009) 120 TTJ (Lucknow) 216
26. On a careful consideration of the facts we are satisfied that the departmental authorities are right in treating the assessee as a trader in shares and accordingly in bringing the surplus to tax as business income, rejecting the assessee's plea that the surplus should be assessed under the head "Capital gains". Even if we take into account the contention of the assessee that transactions on the same day in the same scrips should not be counted as separate transactions, still from the details we find that the activity in buying and selling shares is quite frequent, justifying the inference that the assessee is trading in them. Transactions of purchase of the same shares on the same day but in different lots are also seen to be few in number. The list of short term 28 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 capital gains is placed at pages 6 to 9 of the paper book filed by the assessee. At page 6, we find that only the shares of IDBI have been purchased on the same day in more than one transaction, i.e. on 26.05.2003. At page 7, the shares of Bank of India have been purchased on 10.06.2003 in three different lots. The shares of NOCIL were also purchased on 10.06.2003 in two lots, one of 2000 shares and another of 4000 shares. When we turn to page 8, we find that the shares of Neyveli Lignite Corporation Ltd. were purchased on 30.12.2003 in two separate lots of 5000 shares each. The shares of GNFC were similarly purchased on 13.10.2003, in two lots of 500 shares each. Page 9 does not show any shares being purchased more than once on the same day. Thus the transactions in the same scrips on the same day are not significant, compared to the total number of transactions and, therefore, even if they are eliminated from consideration or treated as a single purchase transaction, the inference drawn by the income tax authorities cannot be different.
27. As rightly pointed out on behalf of the department, the facts were different in the earlier assessment years in which the assessee was treated as an investor in shares and the surplus was brought to assessment under the head "Capital gains". We have already noted the submission of the department that in the assessment years 2000-01 to 2003-04 the transactions were very few and therefore the assessee was treated as an investor in shares. Those facts are not present in the year under 29 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 consideration. Therefore, the rule of consistency cannot be applied to the year under appeal, as rightly pointed out by the department. We accordingly confirm the assessment of the surplus in the sale of shares as business income and dismiss Ground No.5.
28. Ground No.7 is directed against the levy of interest under section 234B of the Act. In case the assessee is found to be eligible for any consequential relief, he shall get it.
29. The appeal of the assessee for the assessment year 2004-05 is dismissed subject to our remark in respect of Ground No.7.
30. We now take up the appeal of the assessee for the assessment year 2005-06 in ITA No: 1068/Mum/2009. Ground Nos. 1 to 4 are similar to Ground Nos. 1 to 4 in the appeal for the assessment year 2004-05, the only difference being that in this year the assessee has shown capital gains on the sale of shares in a company by name "Fast Track Limited" whereas in the assessment year 2004-05 the company concerned was "Bolton Properties Limited". Parties are agreed that the facts relating to the purchase and sale of shares of Fast Tracks Limited are the same as in the case of the shares of Bolton Properties Limited and that the decision given by us in the appeal for the assessment year 2004-05 in ITA No: 485/Mum/2009 should govern the point for this year also. Accordingly, following our decision in respect of Ground Nos.1 to 4 in the appeal for the assessment year 2004-05, we hold that the income authorities were right in bringing the amount of 30 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 `12,70,100/- to tax under section 68 of the Act. The grounds are dismissed.
31. Ground No.5 is to the effect that the surplus on the sale of shares, other than the shares in Fast Track Limited, should be assessed as capital gains and that the Assessing Officer was not justified in assessing the same as business income, overlooking that the assessee was an investor and not a trader in the shares. Here also parties are agreed that our ruling in respect of Ground No.5 in the appeal for the assessment year 2004-05 should govern the present ground since the basic facts are the same. For the sake of completeness of record we may notice that the assessee in this year has purchased 53 scrips and sold 37 scrips. A statement was recorded from the assessee, in the course of which it was put to him that considering the frequency of the transactions in shares, the surplus cannot be taxed as capital gains but should be assessed only as business income. The assessee denied the suggestion and submitted that he was basically an investor in shares and not a trader. But the Assessing Officer rejected the submission on the basis of the frequency of the transactions. This statement is also seen referred to in the assessment order for the assessment year 2004-05. Since the parties are agreed that the facts of the case are the same, following our decision in respect of Ground No.5 for the assessment year 2004-05, we uphold the decision of the income tax authorities and dismiss the ground. 31 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009
32. Ground No.6 is to the effect that the CIT(A) erred in confirming the denial of exemption under section 10(38) of the Act claimed by the assessee in respect of the long term capital gains that arose on sale of shares including those of Fast Track Limited. It is contended that the exemption should be allowed. This point is peculiar for this year. The CIT(A) has held that since the assessee has been held to be a trader in shares, the exemption is not available. It appears that this question is consequential to our decision in respect of Ground No.5. Section 10(38) grants exemption in respect of income arising from the transfer of a long term capital asset, being an equity share in a company where the share is sold after the date on which Chapter VII of the Finance (No.2) Act, 2004 comes into force and such transaction is chargeable to securities transaction tax under that Chapter. The section applies only to capital gains (long term) but where the surplus is assessed as business income, the exemption does not apply. We therefore endorse the decision of the income tax authorities and dismiss the ground.
33. Ground No.7 is directed against the levy of interest under section 234B, which is consequential.
34. In the result, the appeal for the assessment year 2005-06 is dismissed subject to our remark in respect of Ground No.7.
35. We now take up the appeal for the assessment year 2006-07 in ITA No: 1193/Mum/2009. Ground Nos.1 and 2 are directed against the assessment of the surplus on the sale of shares as 32 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009 business income rejecting the assessee's claim that it should be assessed as capital gains and the denial of the exemption under section 10(38) in respect of the said income, respectively. Parties are agreed that the facts relating to Ground No.1 are the same for the year under appeal. For the sake of completeness of record we may notice that during the year the assessee purchased 60 scrips and sold 61 scrips. The Assessing Officer has also referred to the assessee's statement, which is the same that is referred to in the assessment orders for the assessment years 2004-05 and 2005-06. Since all the facts are the same as in those years, following our ruling in respect of those years, we endorse the decision of the income tax authorities in respect of Ground No.1 and dismiss the same.
36. As regards Ground No.2 relating to section 10(38), it is consequential to our decision in respect of Ground No.1, as in the assessment year 2005-06. That ground is also dismissed.
37. Ground Nos. 3 and 4 which are directed against the addition of `78,940/- made on account of unexplained investment in jewellery are dismissed as not pressed.
38. Ground No.5 is directed against the levy of interest under section 234B. The assessee is eligible only to consequential relief, if any.
39. In the result, the appeal for the assessment year 2006-07 is dismissed subject to our remark in respect of Ground No.5. 33 ITA No: 485/Mum/2009 ITA No:1068/Mum/2009 ITA No:1193/Mum/2009
40. To sum up, all the three appeals are dismissed. No costs.
Order pronounced in the Open Court on 18th February 2011.
Sd/- Sd/-
(P M Jagtap) (R V Easwar)
Accountant Member President
Mumbai, Dated 18th February 2011
saldanha
copy to:
1. Shri Upendra P Dadia
402, Smeet Apartments, Khokhani Lane
Ghatkopar (East), Mumbai 400 077
2. ACIT, Central Circle 3, Mumbai
3. CIT-Central 1, Mumbai
4. CIT(A)-Central 1, Mumbai
5. DR "F" Bench
TRUE COPY BY ORDER
ASSTT. REGISTRAR, ITAT, MUMBAI