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Income Tax Appellate Tribunal, “ SMC ” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & MS. MADHUMITA ROY
PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeals have been filed at the instance of the three different Assessees against the separate orders of the Commissioner of Income Tax (Appeals)–2, Ahmedabad [CIT(A) in short] vide appeal(s) no.CIT(A)-2/ITO, S.K. Wd-4/Modasa/150, 147, 149/13-14 identically
ITA Nos.543,544 & 545/Ahd/2015 Ashish D.Jaiswal & 2 Others vs. ITO Asst.Year - 2007-08
- 2 - dated 05/01/2015 arising in the assessment orders passed under s.143(3) r.w.s.147 of the Income Tax Act, 1961(here-in-after referred to as "the Act") all dated 30/12/2013 relevant to Assessment Year (AY) 2007-08.
First, we take up the assessee’s appeal in ITA No.544/Ahd/2015 in the case of Pinal D. Jaiswal as lead case.
The assessee has raised the following grounds of appeal:-
The Learned Commissioner of Appeals-II has erred in facts and in law, in confirmed addition Amount of Rs.5,26,461/- as a Income from other sources, which Learned Income tax Officer has added as a unexplained credit u/s.68 of Income Tax Act. The Learned Income Tax Officer has also not granted Long Term Capital gain U/s.10(38) of I.T. Act. 2. The Assessment made U/s.143(3) r.w.s. 147 is invalid, as it was made beyond the period of limitation laid down in section 153 of the Act.
The first issue raised by the assessee is that the Ld. CIT(A) erred in treating the Long Term Capital Gain (LTCG) as income from other sources amounting to Rs. 5,26,461/- only, consequently, denying the exemptions claimed u/s 10(38) of the Act.
Briefly stated facts are that the assessee is an individual and declared his income under the head “other sources” besides the LTCG. The assessee has shown LTCG income of Rs. 5,26,461/- on the sale of shares M/s Talent Infoway Limited which was claimed as exempt u/s
ITA Nos.543,544 & 545/Ahd/2015 Ashish D.Jaiswal & 2 Others vs. ITO Asst.Year - 2007-08
- 3 - 10(38) of the Act. The transaction for the sale of shares was carried out through Mahasagar Group of companies.
5.1. However, the Assessing Officer was of the view that the impugned LTCG income was not from the genuine transaction. It is because there was a search carried out by the Department in the case of Mahasagar Group of companies which were represented by Mukesh M.Chokshi as Director including the Talent Infoway Limited. In the statement of Mukesh M.Chokshi, it was admitted that it is providing accommodating entries in the form of LTCG and share premium through various companies controlled and managed by him.
5.2. The name of the assessee in the list of the beneficiary was also appearing. Accordingly, the AO sought an explanation from the assessee.
The assessee in compliance to it submitted that shares were purchased on 15/04/2004 physically from the group of Mahasagar Companies. The assessee in support his claim filed the copy of the contract note and bills. Subsequently, these shares were transferred into DMAT account and sold through the authorized member of the Stock Exchange after making the payment of STT. The assessee in support of his claim filed the necessary documents and accordingly claimed such capital gain is eligible for deduction u/s 10(38) of the Act. 6.1. However, the Assessing Officer disagreed with the submission of the assessee by observing that had the purchase of shares been genuine;
ITA Nos.543,544 & 545/Ahd/2015 Ashish D.Jaiswal & 2 Others vs. ITO Asst.Year - 2007-08
- 4 - then the assessee would have dematerialized the same in the year 2004. Accordingly, the AO transpired that the shares were purchased in May 2006 when these were dematerialized in the month of May-2006. As per SEBI guidelines, the delivery should be within one week if the transaction is made through Stock Exchange. Accordingly, the Assessing Officer doubted the genuineness of the purchase of shares. Thus, the Assessing Officer denied the benefit claimed u/s 10(38) of the Act as claimed by the assessee. Thus the AO treated the capital gain income as income from undisclosed sources.
The aggrieved assessee preferred an appeal to the Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that there was no cross- examination opportunity provided against the statement of Mukesh M. Chokshi recorded u/s 132(4) of the Act. The assessee also claimed that his name is not appearing in the list of the beneficiary as provided by Shri Mukesh M. Chokshi.
7.1. However, the Ld. CIT(A) observed that the cross-examination opportunity would not result in the new findings. The assessee has not made any request before the Assessing Officer for cross-examination opportunity.
The contract note issued by the Stock Exchange is bogus. Therefore, the capital gain income as claimed exempt u/s 10(38) of the
ITA Nos.543,544 & 545/Ahd/2015 Ashish D.Jaiswal & 2 Others vs. ITO Asst.Year - 2007-08
- 5 - Act is not eligible for such an exemption. Accordingly, the Ld. CIT(A) confirmed the order of the Assessing Officer.
Being aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.
The Ld.AR before us submitted that in the identical facts and circumstances, the Hon’ble ITAT in the case of Ketulkumar D. Jaiswal vs. ITO in ITA No. 546/AHD/2015 vide order dated 28/09/2017 had decided the issue in favor of the assessee. Accordingly, the Ld. AR requested before us to allow his ground of appeal.
On the other hand, the Ld. DR submitted that the broker through whom the assessee transferred shares was not holding the valid certificate from the Stock Exchange. As such, the broker was debarred from the Stock Exchange. The Ld. DR vehemently supported the orders of the authorities below.
We have heard the Ld. Representatives appearing for the respective parties. We have perused the relevant materials available on record. At the outset, we note that in the identical facts and circumstances, the Hon’ble ITAT Ahmedabad in the case of Ketulkumar D.Jaiswal vs. ITO in ITA No.546/Ahd/2015 for AY 2007-08 vide order dated 28/09/2017 has decided the issue in favor of the assessee by observing as under:-
ITA Nos.543,544 & 545/Ahd/2015 Ashish D.Jaiswal & 2 Others vs. ITO Asst.Year - 2007-08
- 6 - “4. We have gone through the relevant record and impugned order. Learned AR stated that the assessee, in his reply, to the show-cause notice bearing No.ITO/SK/Wd.4/SC-F. NO.40/2013-14 dated 12/12/2013, requested for cross examination of Shri Mukesh Chokshi and same is mentioned in the Paper Book at Page No.2. Same was granted by the Ld. AO.
4.2 Ld. AR also cited a judgment of our Coordinate Bench in ITA No.810/Ahd/2015 for Asst. Year 2006-07, in the case of Shri Pratik Suryakant Shah, where Hon’ble Bench is held as under: “17. For the sake of the completeness of the adjudication, even on facts of the case, the orders of the authorities below cannot be accepted. There is no denying that consideration was paid when the shares were purchased. The shares were thereafter sent to the company for the transfer of name. The company transferred the shares in the name of the assessee. There is nothing on record which could suggest that the shares were never transferred in the name of the assessee. There is also nothing on record to suggest that the shares were never with the assessee. On the contrary, the shares were thereafter transferred to demat account. The demat account was in the name of the assessee, from where the shares were sold. In our understanding of the facts, if the shares were of some fictitious company which was not listed in the Bombay Stock Exchange/National Stock Exchange, the shares could never have been transferred to demat account. Shri Mukesh Choksi may have been providing accommodation entries to various persons but so far as the facts of the case in hand suggest that the transactions were genuine and therefore, no adverse inference should be drawn. In the light of the decisions of the Hon'ble Supreme Court in the case of Andaman Timber Industries (supra) and considering the facts in totality the claim of the assessee cannot be denied on the basis of presumption and surmises in respect of penny stock by disregarding the direct evidences on record relating to the sale/purchase transactions in shares supported by broker's contract notes, confirmation of receipt of sale proceeds through regular banking channels and the demat account. 19. As mentioned elsewhere and as agreed by the Representatives of both the sides; since the facts are common in all the impugned appeals,
ITA Nos.543,544 & 545/Ahd/2015 Ashish D.Jaiswal & 2 Others vs. ITO Asst.Year - 2007-08
- 7 - all the appeals by the assessees are allowed. The Assessing Officer is directed to treat the surplus as Long Term Capital Gains and allow the exemption a claimed by the assessees. 20. In the result, all the appeals filed by the assessees are allowed.”
4.3 Learned AR also cited an order of Mumbai Bench in ITA No.7859/M/2011 for Asst. Year 2003-04, in the matter of Shri Jatin P. Ajmera vs. ITO, relevant Para is reproduced hereunder:
“3. Before the Ld. C1T(A), it had been contended that the 14200 shares of Buniyad Chemicals Ltd were purchased in cash for Rs.8,520/- on 05/06/2001 through sub-broker M/s.Gold Star Finvest Pvt. Ltd and they were transferred in name of assessee in the companies records on 30/06/2001 and then sold through the same sub-broker M/s. Gold Star Finvest Pvt. Ltd. on 27/01/2003 for Rs.12,00,610/- i.e. after holding them for more than 1 year. The shares purchased and sold were backed by the contract notes issued by sub-broker M/s. Gold Star Linvest Pvt. Ltd. who was registered member of stock exchange and having SEBI registration number and that the sale proceeds were received through cheques only. It had also been contended that the shares were of listed companies and traded at the rates appearing in news papers and the assessee had no doubts on the genuineness as the shares were received by assessee in physical form and even the sale proceeds were received by cheques. It was therefore claimed by the assessee that the transactions are genuine transactions only. It is further contended that u/s 14(2)SCRA, if the purchaser and seller does not have knowledge about the rules and regulations of share trading transactions, his interest are protected and should not be found fault with any act of commission or omission by the member of the stock exchange through whom the said person buys or sells the shares. The reasons as to why the transactions were not reflecting in the stock exchange were best known to the broker on whom assessee believed as they were registered broker and assessee had no control on the manner of transactions which the broker entered into. The Ld. CIT(A) however was not satisfied with the contentions raised by the assessee and held that the transactions were not genuine. He therefore confirmed the additions made by the AO. The assessee is thus in appeal before us.
ITA Nos.543,544 & 545/Ahd/2015 Ashish D.Jaiswal & 2 Others vs. ITO Asst.Year - 2007-08
- 8 - 4. We have heard the rival contentions and have also gone through the record. The Ld. AR at the outset has stated that the case of the assessee is covered by a series of Tribunal decisions in various cases wherein on similar statement of Shri Mukesh Chokshi, the cases were reopened and additions were made. In all these cases, the Tribunal has decided the issue of long term capital gain in favour of the assessee as the said statement of Shri Mukesh Chokshi was a general statement and could not be corroborated by any material evidence. He relied upon the following decisions in this respect:
“1. Kataria Ketan Ishwarlal vs. ITO – ITA No.4304/M/2007 decided on 30/04/2010. 2. ACIT vs. Shri Ravindrakumar Toshniwal – ITA No.5302/M/2008 decided on 24/02/2010. 3. ITO Vs. Truptic Shah – ITA No.1442/M/2010 decided on 29/04/2011. 4. Smt. Manjulaben L. Shah Vs. ITO – ITA No.3112/M/2014 decided on 31/10/2014”
We find that the facts of the above stated cases were all most identical to that of the assessee. In the case of “Kataria Ketan Ishwarlal vs. ITO” (Supra), the transactions were carried out through the same broker i.e. M/s. Gold Star Finvest Pvt. Ltd. The Tribunal allowed the appeal of the assessee observing as under:
"6.1 We have considered the rival submissions made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. From the copy of the share certificate, Demat account, share transfer form filed in the Paper Book, we find the assessee has purchased 9500 shares of Kushal Software Ltd. from M/s. Handful Investors Pvt. Ltd. We find the Assessing Officer treated the sale of such shares by the assessee through M/s. Gold Star Finvest Pvt. Ltd. as bogus on the ground that Mr. Choksi and his broking company were engaged in giving false share transaction bills. However, from the copy of the statement of Mr. Choksi, a copy of which is filed in the Paper Book, we find Mr. Choksi has not specifically mentioned the name of the assessee for obtaining benefit on sale of such bogus shares. The learned DR also could not point out from the statement of Shri Choksi that he has taken the name of
ITA Nos.543,544 & 545/Ahd/2015 Ashish D.Jaiswal & 2 Others vs. ITO Asst.Year - 2007-08
- 9 - the assessee for obtaining any benefit on issue of such bogus bills. Considering the totality of the facts of the case and considering the fact that the assessee had purchased the shares which were duly transferred to the Demat account, and, in absence of any allegation against the assessee by Mr. Choksi it cannot be said that the sale of the shares is bogus. In this view of the matter, we hold that the sale transaction entered into by the assessee is genuine transaction. Since the Assessing Officer has not disputed regarding the purchase of house property and since the assessee fulfils the conditions for treating the profit on sale of such shares as long term capital gain and fulfilled the conditions for allowability of deduction u/s. 54F, therefore, we set aside the order of the CIT(A) and direct the Assessing Officer to allow the claim of the assessee. This ground by the assessee is accordingly allowed.
In the result, the appeal filed by the assessee is partly allowed."
Further in the case of "ACIT Vs. Shri Ravindrakumar Toshniwal" (supra), the share profit was earned from the sale of shares of "M/s Buniyad Chemicals Ltd.” i.e. the same entity as in the case of the assessee. The Tribunal has allowed the claim of the assessee observing as under:
“11. Having heard both the parties and having considered their rival contentions, we find that the AO has treated the said transactions as bogus transactions on the ground that- a) The sale transactions were not on the floor of the ASEL but were off market transactions; b) The address of the M/s Buniyad Chemical Ltd. and M/s Talent Infoway Ltd. was the same and the contact person for M/s Buniyad Chemical Ltd. on the floor of ASEL was Shri Mukesh Chokshi. c) Mr. Mukesh Chokshi had stated that the sale proceeds have been paid to the assessee through the funds provided by the assessee. 12. As regards point (a) above, we find that the issue is covered by the decision of the Tribunal in the case of Mukesh R. Marolia wherein it has been held that off market transaction is not a
ITA Nos.543,544 & 545/Ahd/2015 Ashish D.Jaiswal & 2 Others vs. ITO Asst.Year - 2007-08
- 10 - unlawful activity and there is no relevance in seeking details of share transaction from stock exchange when the sale was not on stock exchange and relying upon it for making addition.
As regards points (b) & (c) above, we find that the assessee has filed relevant documentary evidence before the AO but the AO has failed to consider the same. The CIT[A] in his order has considered the said evidence and has come to the conclusion that the share transactions are genuine. However, as held by the Tribunal in the case of Rajinidevi A. Chowdhary [cited supra], which is on similar set of facts, the AO could have verified from the Registrar of companies as to whether the shares have been transferred and the names of the shareholders in whose names shares have been transferred. The decision of the Tribunal in the case of Rajinidevi A. Chowdhary has also been upheld by the jurisdictional High Court as taken note of by this Tribunal in the case of Shri Pinakin L. Shah [cited supra], to which one of us i.e. the Judicial Member, is a party. In these facts and circumstances of the case, we do not see any reason to interfere with the order of the CIT[A] and the same is upheld.
14 In the result, revenue's appeal is dismissed."
The facts of the case in hand being identical and there being no direct or material evidence against the assessee to hold that the share transactions were not genuine, we respectfully following the above decisions of the Tribunal, hold that additions made by the AO u/s.68 are not warranted and are accordingly deleted. Since we have set-aside the findings of the lower authorities that the transactions in question were not genuine, hence the consequential additions made by the AO u/s 69 observing that the assessee might have paid commission for the bogus transactions have no legs to stand. The same are also accordingly ordered to be deleted.
In the result the appeal of the assessee is allowed.”
ITA Nos.543,544 & 545/Ahd/2015 Ashish D.Jaiswal & 2 Others vs. ITO Asst.Year - 2007-08
- 11 - 12.1. As the facts in the case on hand are identical to the facts of the case as discussed above, therefore we do not want to take any different view than taken by the Coordinate Bench in the case as discussed above.
12.2. We also note that the Ld. DR has not brought anything on record suggesting that the broker was debarred from the Stock Exchange. We also note that this issue was not agitated before the authorities below. Therefore, the argument raised by the Ld. DR for the Revenue is not tenable. We also note that the same broker was involved in the case of Ketul D Jaiswal (Supra) which has been decided in favor of the assessee by the Tribunal.
12.3. After considering the facts in totality and after having reliance in the case of Ketulkumar D.Jaiswar (supra), we hold that the assessee is eligible for deduction u/s 10(38) of the Act in the given facts and circumstances. Hence, the grounds of appeal of the assessee are allowed.
In the result, Assessee’s appeal in ITA No.544/Ahd/2015 for AY 2007-08 in the case of Pinal D.Jaiswal is allowed.
Coming to ITA Nos.543/Ahd/2015 & 545/Ahd/2015 for AY 2007-08 in the case of Ashish D.Jaiswal and Jigna D.Jaiswal respectively.
Both the sides consented that identical issues are involved in these two appeals too. Thus, for parity of reasons noted above, our view in ITA
ITA Nos.543,544 & 545/Ahd/2015 Ashish D.Jaiswal & 2 Others vs. ITO Asst.Year - 2007-08
No.544/Ahd/2015 for AY 2007-08 above shall apply mutatis mutandis to both the appeals captioned above. As a result, both the appeals of the Assessees in ITA Nos.543 & 545/Ahd/2015 for AY 2007-08 are allowed.
In the combined result, all the three appeals of the assessees are allowed. This Order pronounced in Open Court on 01 /01/2019
Sd/- Sd/- (MS.MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 01 /01/2019 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-2, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 24.12.18 (dictation pad 13- pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member 27.12.18 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S … 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….4.1.19 7. Date on which the file goes to the Bench Clerk…………………4.1.19 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order……………