KINNER PRAFULCHANDRA SAPANI ,CHENNAI vs. DCIT NON CORPORATE CIRCLE 5(1) , CHENNAI

Shri D. Anand, the Ld.counsel for the assessees, submitted that the assessees purchased 32,000 shares and 28,500 shares respectively of Sawaca Business Machine Ltd. through ASE Capital Markets Ltd., who are registered brokers of Stock Exchange Board of India. In fact, the shares were purchased in May, 2012. According to the Ld. counsel, both the assessees purchased the shares at the rate of ₹78/- per share. In September, 2012, the shares were sold by the assessees at the rate of ₹222.03 per share. Both the assessees declared the profit on purchase and sale of shares under the head “short term capital gain” and paid the taxes also. However, according to the Ld. counsel, the Assessing Officer found that one Shri Chandrakanth Shah provided accommodation entry to some persons, therefore, the purchase of shares by both taxed under the head “income from other sources”.

Referring to the assessment order in the case of both the assessees, more particularly pages 2 and 3, the Ld.counsel for the assessees submitted that the purchase of shares was evidenced by Contract Note dated 21.05.2012. The shares were credited in the D MAT account on 24.05.2012 in the case of former and on 23.05.2012 in the case of latter. According to the Ld. counsel, the payment of shares were made through electronic mode to ASE Capital Markets Ltd. The payment was also confirmed by ASE Capital Markets Ltd. and transactions were reflected in respective bank accounts. Similarly, according to the Ld. counsel, the sale of shares was also evidenced by Contract Note issued by ASE Capital Markets Ltd. and the transactions were duly reflected in the bank accounts and the payment was made by ASE Capital Markets Ltd. through banking channel, therefore, there is no role for Shri Chandrakanth Shah to play in the purchase and sale of shares by the assessees. The assessees have also filed copies of the Contract Note issued by ASE Capital Markets Ltd. for purchase and sale of shares and also the evidence to indicate the payment of assessees at the time of purchase of shares which is reflected in sale consideration. The assessees have also filed evidence for payment of security transaction tax. According to the Ld. counsel, all these documents were examined by the Assessing Officer as well as the CIT(Appeals), however, the same were rejected only on the ground that the assessees purchased the shares off market.

According to the Ld. counsel, the fact is that both the assessees purchased through a broker recognised by the Security Exchange Board of India, therefore, it is obvious that the shares were purchased at the market rate through recognised security exchange. Moreover, the purchases were made at the market rate and it was sold at the market rate. Therefore, according to the Ld. counsel, the CIT(Appeals) is not justified in holding that the selling rate of the shares were artificially hiked.

On the contrary, Shri AR.V. Sreenivasan, the Ld. Departmental Representative, submitted that the copies of Contract Note evidenced for payment of security transaction tax and copies of bank statements before the Tribunal were not available before the Assessing Officer. Therefore, the Ld. D.R. submitted that the matter may be remitted back to the file of the Assessing Officer to consider the Contract Note, statements of bank accounts and the assessees. When the attention of the Ld. D.R. was drawn to the assessment order where the Assessing Officer has clearly extracted the documents filed by the assessees to indicate the purchase of shares and sale of shares, the Ld. D.R. submitted that the matter may be decided on merit.

We have considered the rival submissions on either side and perused the relevant material available on record. The purchase of shares of Swaca Business Machines Ltd. by both the assessees was evidenced by way of Contract Note issued by the recognised stock broker ASE Capital Markets Ltd. It is not in dispute that ASE Capital Markets Ltd. is one of the recognised stock brokers by Security Exchange Board of India. The shares were also sold through ASE Capital Markets Ltd. The Contract Notes for purchase and sale of shares were filed by both the assessees before the Assessing Officer at the time of assessment proceeding. The assessment proceedings were completed on the ground that one Shri Chandrakant Shah provided accommodation entry to various persons. The question arises for consideration is whether the assessees’ transaction in respect of purchase of shares and sale of shares through ASE Capital Markets Ltd. is a bogus transaction?

In the case of both the assessees, the CIT(Appeals) proceeded as if the assessees purchased the shares through off market. The material available on record clearly indicates that the shares were purchased and sold at the market rate through recognised broker of Security Exchange Board of India. When the assessees established the fact that the shares were purchased on the market rate through recognised broker, it cannot be said that the price of the shares were artificially hiked for earning higher income.

In the result, both the appeals filed by the assessees are allowed.