COMMISSIONER OF INCOME TAX vs. SMTI JASVINDER KAUR

The appeal has been admitted, for hearing, on the following substantial question of law: Whether on the facts and in the circumstances of the case, the Income Tax Appel late Tribunal was justified in law in setting aside the orders passed by the Ass essing Officer as well as by the Commissioner of Income Tax (Appeals) and direct ing the Assessing Officer to accept Rs. 18,73,210/- as a long term gain of the a ssessee from the sale of shares of M/s Ocean Entrade Limited and M/s United Impe x Limited. 

The assessee-respondent, who is an individual, filed annual return, for the assessment year 2003-04, showing her income derived from salary, capital gai ns and also income from other sources. In the course of time, when the assessee- respondent’s case was selected for scrutiny, notices were accordingly issued und er Sections 143(2) and 142(1) of the Act.

The Assessing Officer found that the assessee, during the relevant asses sment year, had shown long term capital gain of Rs. 18,73,210/- by selling share s of two companies, namely, Ocean Entrade Limited and United Impex Limited. The purchases and sales of the shares, in question, as reflected in the return of in come, may be summarised as follows: Sl Name of the Company Sale Particulars Purchase Particulars Share Date S. Price Date Price 1 Ocean Entrade Ltd. 2200 04.07.02 261,360 26.03.01 4.510 2 Ocean Entrade Ltd. 3200 02.08.02 379,840 26.03.01 6,560 3 Ocean Entrade Ltd. 3600 08.08.02 430,560 26.03.01 7,380 4 United Impex Ltd. 1200 29.05.02 144,000 26.03.01 2,520 5 United Impex Ltd. 1800 08.08.02 214,200 26.03.01 3,780

In order to verify the genuineness of the transactions, as regard purcha ses and sales of shares, the Assessing Officer asked for certain information and materials to be furnished by the assessee including Demat account, bank stateme nt, etc.

According to the relevant assessment order, the Assessing Officer took t he view that the assessee could not produce any documentary evidence of purchase s of shares except showing the purchases of the shares, in question, in her bala nce sheet, along with the income tax return, showing purchase of shares from S. K. Jain & Company, which is a share broker. Having arrived at the conclusion tha t the assessee had not been able to produce sufficient materials to justify the long term gain, which the assessee had claimed, the Assessing Officer treated th e income, derived from sales of shares by the assessee, as her income from undis closed sources and taxed the same accordingly.

Aggrieved by the assessment order, so made, the assessee preferred an ap peal, under Section 143(3) of the Act. The Appellate Authority was of the view t hat though the Assessing Officer had concluded that since the shares had been pu rchased in cash and had not been routed through any Stock Exchange, the demand o f Demat account or bank statement, etc., was untenable. However, the appellate a uthority noted, in its appellate order, dated 21.01.2008, that the profits, show n in the case of both the companies, whose shares had been purchased and sold by the assessee, were either negligible or ended in loss, and, therefore, it was i llogical to take the view that the value of the shares of the companies concerne d would jump to more than 57 times in a brief span of 16 months. The Appellate A uthority also noted, in its order, dated 21.01.2008, that the said companies wer e not financially sound and, hence, their performance did not justify such an ex tra-ordinary jump, in the prices of their shares, as had been reflected by the v alue/prices at which the shares had been sold by the assessee. For the reasons, so assigned, the learned Appellate Authority concurred with the ultimate finding of the Assessment Officer and upheld the assessment order. Dissatisfied by the appellate order, dated 21.01.2008, aforementioned, the assessee carried the matt er, in appeal, to the learned Tribunal.

The learned Tribunal, having noted, in its order, dated 14.03.2008, whic h stands impugned in this appeal, that the learned Appellate Authority had not g iven relief to the assessee on the ground that since the prices of shares of the companies concerned could not have risen as high as had been claimed to have ri sen, the assessee’s claim for profits were liable to be rejected. The observatio ns, so made, by the learned appellate authority, are not, according to the learn ed Tribunal, based on any material and can be regarded as assumption and surmise s inasmuch as nothing had been brought on record to show that what the assessee had claimed, as regards the value of the shares, was factually incorrect and, he nce, in these circumstances, the learned Appellate Authority ought not to have c onfirmed the assessment order of Assessing Officer.

On the basis of the conclusion, so reached, the learned Tribunal has all owed the appeal and aggrieved by the order, so made by the learned Tribunal, the Revenue is, in appeal, before us.

We have heard Mr. S. Sarma, learned Standing counsel, Income Tax, appear ing for the appellant, and Mr. O. P. Bhati, learned counsel, appearing for the a ssessee-respondent.

While considering the present appeal, what needs to be noted is that whe n a query had been made by the Assessing Officer directing the assessee-responde nt to furnish necessary materials to show that the return of income, which the a ssessee-respondent had filed, was correct, justified and tenable in law, the onu s rested on the assessee-respondent to produce necessary materials and convincin gly show that the value of the shares, as had been reflected in her annual retur n of income, had gone as high as the assessee-respondent had claimed. The onus, which so rested on the assessee-respondent, was never discharged by the assessee - respondent. This aspect appears to have escaped the notice of the learned Trib

By the order under appeal, the learned Tribunal appears to have placed t he burden of proving the correctness of the return of income, which the assessee -respondent had filed, on the Revenue; whereas it was for the assessee to show, by placing all materials including the profits of the two companies aforemention ed, that, if not arithmetically, there was, at least, reasonable possibility of the value of shares having risen as high as had been shown by the assessee-respo ndent in her annual return of income.

Situated thus, we are clearly of the view that the impugned order suffer s from non-application of mind and, therefore, the same needs to be set aside an d the appeal, which had been filed before the learned Tribunal, needs to be rema nded for being decided in accordance with law.

In the result and for the reason discussed above, this appeal partly suc ceeds. The impugned order, dated 14.03.2008, passed by the learned Tribunal is h ereby set aside and the proceeding is remanded to the learned Tribunal for its d ecision in accordance with law.

Before parting with this appeal, we, however, make it clear that the obs ervations, which we have made, while disposing of this appeal, are our views on the basis of the materials, on record, placed before us and, hence, it would rem ain open to the learned Tribunal to complete the proceeding depending upon the m aterial or materials, which may be placed before the learned Tribunal at the tim e of re-hearing of the appeal.

With the above observations and directions, this appeal shall stand disp osed of.