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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Smt. Saroj Damani Asst. Commissioner of Income Tax, Circle 11 50A, Amita 7 Gen J.B. Marg, Mumbai Nariman Point Vs. Mumbai-400 021 PAN No. ADJPD2826R Appellant .. Respondent .. Mr. Sashi Tulsiyan, AR Assessee by Revenue by .. Mrs. Savita Bundas, CIT DR .. Date of hearing 04-05-2017 Date of pronouncement .. 17-05-2017 O R D E R PER MAHAVIR SINGH, JM:
These three appeals by the assessee are arising out of the different orders of CIT(A)-37, Mumbai, in appeal No. CIT(A)-37/IT 241, 242 & 243/ACCC- 11/09-10 dated 04-08-2010. The Assessment were framed by ACIT Central Circle -11 Mumbai for the A.Y. 2004-05, 2005-06 & 2006-07 vide order dated 29-12-2008 u/s 153A read with section 143(3), 1961 (hereinafter ‘the Act’).
2. The only common issue in these three appeals of assessee is against the orders of CIT(A) confirming the action of the AO in making additions of the amounts of sale proceeds of shares declared as long term capital gain, treated by the AO as unexplained cash credit under section 68 of the Act and also further addition of unexplained money used for payment of commission for obtaining the said long term capital gain. For this common issue, the assessee has raised , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 identical worded grounds in all the three years, except the quantum, and hence we will take up the grounds raised
in AY 2006-07 reads as under: -
1. On the facts and circumstances of the case as well as in law the Learned AO has erred in passing order U/s.153A read with section 143(3) and thereby making the addition of Rs.57,71,395/- being sale proceeds of long term capital gain on sale of shares declared in regular books of accounts and further addition of Rs.2,88,570/- being unexplained money used for payment of commission for obtaining the said long term capital gain. Appellants contained that the order so passed is illegal and unjustified and therefore liable to be quashed.
2. On the facts and circumstances of the case as well as in law the Hon'ble CIT (A) has erred in treating the entire sale proceeds of shares amounting to Rs.57,71,395/- which resulted in to long term capital gain to the appellant, as unexplained cash credit U/s.68 of the 1.T Act. Reasons assigned by him for doing the same are wrong and insufficient.
3. On the facts and circumstances of the case as well as in law the Hon'ble CIT (A) has erred in upholding the addition of Rs.2,88,570/- being unexplained money used for payment of commission / fees for obtaining alleged long term capital gain on sale of shares. Reasons assigned by him for doing the same are wrong and insufficient.”
Briefly stated facts are that the assessee is deriving income from commission, speculation income, long term and short term capital gain, house property income and income from other sources. A search under section 132 of the Act was conducted on the residential premises of the assessee on 18-01-2007 for the reason that the assessee obtained artificial capital gain by manipulating share transactions. It was claimed before us by the learned Counsel for the Page 2 of 31 , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 assessee that no incriminating documents, papers, evidence etc were found or seized by the department during the course of search and seizure operations which proves that the assessee obtained artificial capital gain by manipulating share transactions. In response to the notice under section 153 of the Act, the assessee filed its return of income for these three AYs. 2004-05, 2005-06 and 2006-07 and AO passed a consolidated assessment order for all the three years under section 143(3) read with section 153A of the Act on 29-12-2008. The assessee before us now, filed a complete details regarding purchase of shares for these three years and sale of shares and documents filed before AO which reads as under: - “10. The facts in brief, constituting the background of the matter are that the appellant had purchased the following Documentary Evidences submitted by the assessee for AY 2004-05, 05- 06 and 06-07 11. A) The assessee has submitted the following documentary evidences for purchase/sales of shares of M/s Jaykay Dee Industries Ltd. for AY 2004-05. , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 B) The assessee has submitted the following documentary evidences for purchase/ sales of shares of M/s Robinson Worldwide Ltd. for A.Y. 2005-06: , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 C) The assessee has submitted the following documentary evidences for purchase/sales of shares of M/s Robinson Worldwide Ltd. for A.Y. 2006-07:
4. The AO after considering the above details treated the long term capital gain declared by assessee from sale of shares as artificial capital gain and added the same as income from undisclosed sources for AY 2004-05 at Rs. 16,77,000/- for AY 2005-06 at Rs. 1,22,40,247/- and for AY 2006-07 at Rs. 57,71,395/-. For this, the AO reasoned that the assessee was not able to produce the parties from whom she had made purchases of shares and failed to prove the genuineness of transaction particularly purchase party DPS Shares and Securities Pvt. Ltd. He also noted that even the assessee could not prove from whom it has purchased the shares of Robinson Worldwide and Jaykay Dee Industries Ltd. and also not been able to prove the receipt of physical delivery of shares. He referred to the Page 5 of 31 , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 statement of DPS Shares and Securities Pvt. Ltd. for the same. The AO also noted that even actual date of receipt of physical delivery of shares is not known whereas demat delivery of shares have been received near the date of sale of shares in the case of Robinson Worldwide. As regards to Jaykay Dee Industries shares were not taken in demat account. The AO noted that in the case of Jaykay Dee Industries Ltd. enquiries were conducted u/s 133(6) of the Act with the purchase brokers and one purchase broker Abhijeet Investment conceded before the AO that it has issued only accommodation bills and another purchase broker Shailee Securities totally denied the transaction. Another purchase broker Drishti Securities notice u/s 133(6) could not be served and no enquiry was made in the case of another sale broker AKD Securities Pvt. Ltd. According to AO, the assessee has not provided any evidence for payment of purchase of these shares. In regard to the AY 2005-06 and 2006-07, the addition was made in respect to purchase of shares of Robinson Worldwide Trade Ltd. for the reason that assessee did not produce DPS Shares and Securities from whom it was claimed that the shares were purchases and also sale transaction was made. AO noted that the statement of Shri Sujal Shah of DPS Shares and Securities Pvt. Ltd. wherein he admitted to have issued accommodation bill and assessee was given an opportunity to the assessee to cross examine the party. The AO also noted that notice u/s 133(6) of the Act was issued to DPS Shares and Securities Pvt. Ltd. who vide letter dated 27-10-2008 stated to have issued accommodation bill for sale and purchase of shares of Robinson Worldwide Trade Ltd. but no actual transaction was done. The AO also noted that statement of Shri Pratik Shah Director of DPS Shares and Securities Pvt. Ltd. was recorded on 18-11-2008 u/s 131 of the Act and copy of the same was given to the assessee. Assessee was allowed opportunity for cross examination of the party. Consequently, the AO also made addition of commission @ 5% paid to these parties by the assessee for obtaining artificial capital gains. Accordingly, the AO in view of these facts made addition of unexplained income on account of unexplained purchase and sale of shares and also further addition of commission @ 5% for obtaining artificial capital gain. Aggrieved assessee file in appeal before CIT(A). , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07
5. The CIT(A) confirmed the action of the AO by observing in Para 2.3.2 to 2.3.6 and 2.3.12 to 2.3.13 as under: - “2.3.2. In view of such information received by the Ld. Assessing Officer, tin assessment proceeding conducted u/s.153A of the Act and during the course of assessment proceedings it was proved that the purchase of the said penny stock shares of Robinson through M/s DPS Shares &Securities Pvt. Ltd. was not made properly and the payments were not made through broking channels. Whereas, the purchase of penny stocks of M/s. DPS Shares & Securities Pvt. Ltd. were shown on 6/4/2004 through the speculation income. It is further noticed that neither brokerage nor service charges were charged neither on speculation transactions nor on purchase of penny stock shares of M/s. Robinson. The relevant copy of Bill No, Group C/009/0012 dated. 9/4/2004 reveals that Robinson shares were allegedly purchased on 8/4/2004 on credit from DPS Shares & Securities (P) Ltd. The impugned bill dated 9/4/2004 does not bear the appellant. Moreover, the source of purchase of impugned 50000 shares of Robinson have not been satisfactorily explained. The purchase transactions were not routed through BSE nor NSE. This is abnormal Summons u/s.131 of the Act were issued to M/s. DPS Shares & Securities Pvt. Ltd, the reported brokers of the penny stocks in the appellant's case and they were asked to appear and produce their bills, contract notes, bank statements and other relevant details for A.Y.2004-05 2005-06 and 2006-07: The responsible director of M/s. DPS Shares & Securities P. Ltd. Shri Pratik Shah in his sworn statement u/s 131 of the Act revealed that the impugned bills relating to the relevant transactions of shares of Robinson were not genuine. They were , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 accommodation bills. The relevant part of his sworn statement may be extracted as under: - "Q.3. Do you mean to say that you purchased and sale shares etc., only to BSE?
Ans: Yes. We, i.e. out company and three of our Directors, deal through BSE only. However, about 4 or 5 years back approximately, we had issued certain bills relating to purchase of shares of M/s. Robinson Worldwide Trade Ltd. (earlier known as Robinson Impex Ltd.), M/s. Fast Tract Entertainment Ltd. and M/s.CL Tech Info Trading Ltd. Bills relating to all these entities were issued without any actual purchases having been made by us from anywhere or from anybody. These were basically accommodation bills. We meaning the company and the three of our Director; or any employee, never received any amount for these supposed purchases made by us for third parties. For these supposed purchases made by us for third parties, we issue speculation bills, where we showed speculation gains earned by these intending third parties, there were no transaction at all where from these speculation gains could have arisen. These speculation gains did not form part of our books. We only issue bills showing purchase and sales by the third parties, and showed them having earned speculation: profits. These speculations gain bills issued to third parties were bogus without any basis or without any transaction. Similarly, the purchases which we supposedly made for third parties, in the shares of Robinson Worldwide Trade Ltd. (earlier known as Robinson Impex Ltd.), M/s. Fast track Entertainment Ltd. and M/s. G. Tech Info Trading Page 8 of 31 , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 Ltd., were bogus. No purchases were actually made by us ever, in these three scripts, either from the stock market or from anybody else. These speculation gains showed transaction in scripts other than the above three. Actually no transaction ever took place resulting in such speculation gains.
Q.4 what was your gain in showing such bogus; purchases, and showing receipt of consideration for these purchases, by means of speculation gains earned by such bogus purchasers?
Ans: We issued these bogus purchase bills. (and speculation gain bills), at the instructions of Shri Naresh Saboo (in the scrip of Ms. Robinson Worldwide Trade Ltd.), and Shri Shirish C. Shah (in the scrips of M/s. Fast Tract Entertainment Ltd. and M/s. G. Tech Info Ltd.). Shri Naresh Saboo, is a CA and lives at Walch and Terrace, B- 34, 2nd floor, Opp. A.C. Market, Tardeo, Mumbai- 34. Shri Shirish C shah lives at Meghdoot Apts, Marine Drive. We used to receive one paise per share for the bogus purchases shown by us, from these persons, for transactions carried out at their behest. For speculation gains we did not receive any remuneration.
5. Your statement leads to an inference that all bills issued - by you relating to purchase of aforesaid three scrips (and speculation gain bills), are bogus. What do you say?
Ans: Yes, I hereby state that all bills issued by you relating to supposed purchases made by M/s. DPS shares & Securities Put. Ltd., in the lost about 5 to 6 years, relating to scripts M/s. Fast Track Page 9 of 31 , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 Entertainment Ltd., M/s. G Tech Info Ltd, and M/s. Robinson Worldwide Trade Ltd are bogus. No purchases were ever made by us relating to these 3 steps. If any third party produces the bills of M/s.DPS Shares & securities P. ltd. where in purchases of these 3 scrips is shown to have been made through us, then the purchases shown in these bills are bogus. Similarly, the speculation gains supposedly earned by third parties, by dealing through us are also bogus. I am. willing to state, upon being shown or upon being required, whether transactions of purchases shown in our bill are genuine or not. For the bogus purchases made as shown in these bills, we have shown certain brokerage upon which we have shown having charged. Service Tax. No service tax was ever received by us. Therefore, no Service Tax was ever paid to Government.
Do you wish to state anything?
Ans: We have used term bills/contract notes" interchangeably. 'Enquiries, were made from BSE and NSE and they have reportedly informed that the impugned shares were not purchased through BSE or through NSE.
2.3.3 The appellant was properly confronted on the issue of bogus purchase of Robinson Shares, the penny stock and he was asked to explain the status of bogus purchase of Robinson shares from the said M/s DPS Shares and Securities Pvt. Ltd. (hereinafter referred to as DPS) in the light of the statement given by the responsible director Mr. Pratik C Shah of the said broker M/s DPS. The details of statement of Shri Sujal C Shah, director of the said M/s DPS Shares & Securities Pvt. , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 Ltd. recorded under section 131 of the Act have been reproduced by the AO on pag3 22,23,24 and the same re- confirms that the appellant had not purchased Robinsons shares on 08/04/2004. The said transactions are not genuine purchase transactions.
2.3.4 The case laws relied upon by the Ld. AR are not applicable to the facts of the present case. Because, in this case detailed enquiry and investigation have been made and the broker himself has confirmed reaffirmed and demonstrated that he has only issued accommodation bill to appellant and no real sale of Robinson shares were made to the appellant. Ona similar issue Hon’ble ITAT, Delhi Bench in the case of ITO vs. south East Impex (P)Ltd. (2010) 41 DTR (Del) (Trib) 1 has decided the issue in favour of the Department.
2.3.5. Not only this, the appellant was specifically confronted at each stage i.e. at the search and seizure stage, at the investigation stage and at the assessment stage. With specific show cause notice he was further allowed to cross examine his broker M/s.DPS. The appellant and his Ld.AR availed the facility of cross examination and the said broker M/s. DPS conceded that all the bills and contract notes including the shares of Robinson issued by them to the appellant and is group were only for accommodation purpose. For the sake of ready reference Question No. 10 to 17 and answers of cross examination dated 1/12/2008 are reproduced here under:
Q. 10 The shares of Robinson delivered by your office to our office have been sent by us for transfer in the name of different family members of Shri Brijesh Shah, Pratikasha Sha, sh Shreevallabh Damani and Smt. Damani, which , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 have been duly transferred by the company for e.g. the copy of letter of Shri Bnjesh Shah issued by the company. Can you tell us how the company can transfer We shores without physical delivery? Please explain.
Ans: No. We have not given any physical delivery or Demat delivery to the Shri Brijesh shah and others of the said Scrip Robinson Worldwide Trade bid., we have not given physical delivery or Demat delivery of the above scrip as these transactions were not done through done through Stock Exchange so we did not receive any physical delivery from the stock exchange. If we give any delivery of any shares to any of our clients we give it thorn on our company's letter pad, which is called delivery memo. So do you have the delivery memo of our company? I do not know how the delivery memo of your company? I do not know how the company M/s Robinson Worldwide Trade Ltd. has transferred the shares in your client’s favour.
Q.11 I am Showing you DRF (Dematerilisation Request Form) of my client Shri Brijesh Shah sent to their DP is possible for DP to give credit in Dental account without physical delivery of shares.
Ans: It is not connected with our company.
Q.12 Please confirm that in your statement dated 21/11/2008. you have issued these bills by instruction of Mr. Naresh Saboo.
Ans: yes. I have issued the said bills on instruction of Mr. Naresh Saboo. Page 12 of 31 , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 13.1n your statement you have stated that you have issued accommodation bills relating to purchase of Robinson Shares whether as per ESE/SEBI Bylaws, are you allowed to issue non genuine bills to clients.
Ans: No. As per BSE/SEBI. Bylaws, we are not allowed to issue on genuine and accommodation Lulls to clients.
Q.14. It means you have violated BSE/SEBI Rule.; and regulations/ Bylaws.
Ans: Yes.
Q. 15 Your stated dated 18/11/08 you have said that you do all transactions as per BSE Bylaws.
Ans. Yes. We do all our transactions as per BSE Rules & Regulations if the client is registered with us as per BSE Rules & Regulations.
Q.16 This means in your statement dated 21-11-08 you have said in answer 2 is incorrect. Do you agree.
Ans. As per my statement dated 21-11-2008 my answer to the question No.2 is correct. I do business as per Bylaws if the client is register with us and as these transactions are for accommodation and not genuine this does not mean that my answer to question No.2 is incorrect.
Q.17 You have said in your statement dated 21- 11-2008 that you have charge service tax but not paid to government. Is it true? , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 Ans. Yes. I have collected service tax from the client on his contract note and not paid to the government as these transactions were not done on the floor and were off market and not genuine so we did not pay the service tax to the government. In the bill of Shri Rajesh Doshi we have not collected the service tax.
Cross examination is over. Mr. R.B. Golecha, do you want to ask anything further to Mr. Pratik Shah? Ans. No. Mr. Pratik Shah do you want to say anything?
Ans. To the all over questions asked by Mr. R.B. Golecha, I would like to state that all the bills and contract notes issued by our company were given to the said above group for accommodation purposes.”
2.3.5.1 Enquiries were made from BSE and 'Trade file' of appellant's broker was examined vis-à-vis the assertion of the appellant made before the Assessing Officer. As is evident from para 12.2 to 15, pages 24 to 27of the impugned assessment order penny stocks, were not actually purchased, as observed by the Ld. Assessing Officer. The appellant was confronted regarding the discrepancies with regard to discrepancies in in Demat A/c. It is established that there is no correlation, between the purchase of shares and credit of Demat shares.
2.3.6. I have also considered various arguments of the Ld. AR. The assessment u/s.153A has not been challenged by the appellant. It is not disputed that assessment under section 153A is legal and regular. The only grievance of the appellant is regarding the rejection of capital gains Page 14 of 31 , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 and addition of commission @5% of the gross receipt of sale of penny stock shares and levy of interest u/s. 2348 of the Act. I have a so considered various arguments taken by the Ld.AR. In the present case, the Ld. Assessing Officer has challenged the purchase of the said penny stock which were used for fabricating capital gains which is contested by the Ld. AR as discussed in the preceding paragraphs."
-------------------------------------------------------------------- 2.3.12 Having regard to the facts and circumstances of the case, and in law, it is held that the Appellant has not been able to conclusively prove the purchases of penny stock shares of Robinson and the enquiry made by the Investigation Wing as well as by the Ld. Assessing Officer have established that the appellant had arranged purchases of Long Term Capital Gain and purchases of artificial speculation gain or obtaining bogus purchases and sales bills showing share transactions. As beneficiary, the appellant was given physical shares along with back dated bogus purchase bill reflecting purchases of penny stock shares at a very low price almost one year back for facilitating booking of artificial Long Term Capital Gain.
2.3.13. Having regard to the aforesaid facts and in the circumstances of the case and in law, it is held that Section 68 is squarely, applicable in this case and since the appellant neither satisfactorily explained the purchases of penny stock nor the sales thereof, the nature and sources of the income credited to the books of account remain not proper" explained. Therefore, the sale proceeds on account of alleged capital gain of Rs.57,71,395/- is chargeable to tax u/s.68 of the Act. Whereas the Ld. Assessing Officer has charged such sum , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 of Rs.57,71,395/- as unexplained money in possession of the appellant, the same is confirmed as unexplained cash credit under section 68 of the act. The addition made by the Ld. Assessing Officer is accordingly confirmed. Ground No.1 is therefore dismissed.”
Aggrieved, assessee came in second appeal before Tribunal.
6. Before us, assessee contended that the AO as well as CIT(A) in their orders elaborately discussed the modus operandi employed by operators with regard to penny stocks generally. It was stated that no addition can be made in the hands of the assessee, merely on the basis of general report of the investigation wing unless it is proved that the relevant transaction are part of this scam. The learned Counsel for the assessee argued that no confrontation of the purchase broker or no opportunity to cross examine the same was allowed to the assessee. The purchase enquiries in the case of Jaykay Dee Industries Ltd. were conducted by issuing notices u/s 131 and 133(6) of the Act with the purchase broker. In the case of M/s Abhijeet Investment who conceded before the AO that only accommodation bills were issued. In the case of M/s Shailee Securities, the broker denied the transactions and in the case of Drishti Securities, the AO noted that notice u/s 133(6) returned unserved. It was argued that no opportunity has been provided by the AO to the assessee to cross examine the share broker i.e. M/s Abhijeet Investment and Shailee Securities during assessment proceedings. As regards to another purchase broker M/s Drishti Securities, the AO held the purchased in question as bogus even though there was no service of summons u/s 131 of the Act. The learned Counsel for the assessee stated that complete details of purchases i.e. evidence of share purchase of M/s Jaykay Dee Industries in the shape of copy of purchase bill for purchase of 16,000 shares, copy of physical share certificate of 16,000 shares, copy of bill showing speculation gain and statement of Demat A/c reflecting transfer of shares, copy of ledger account of VRP Finance Pvt. Ltd. for shares for AY 2004-05, copy of sale bill of VRP Finance Ltd. for sale of shares in AY 2004-05 were enclosed. He argued that even the source of purchase consideration in the shape of copy of bank statement of HDFC bank was submitted. He argued that 16,000 scripts of shares were Page 16 of 31 , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 purchased of Jaykay Dee Industries Ltd. in 2001-02 and declared in the return of income, which was eventually sold in AY 2004-05 through VRP Finance Pvt. Ltd.
7. Similarly, the learned Counsel for the assessee argued that the evidences of purchase and sale of shares of Robinson Worldwide Ltd. for the AY 2005-06 was produced in the shape of copy of purchase bill and contract note for purchase of 82,500 number of shares of Robinson Worldwide, ledger copy evidencing purchase of shares, copy of letter dated 14-06-2003 received from Robinson Worldwide issuing jumbo shares certificate for sale of shares for AY 2005-06. The assessee also filed sample copy of share certificate of Robinson Worldwide Trade Ltd. and copy of bill showing speculation gain. The assessee also filed copy of Dmat statement reflecting transfer of shares, copy of broker register received from BSE reflecting sale proceed of shares and copy of bank statement of SBI evidencing receipt of sale consideration. Similarly, for AY 2006-07 assessee submitted same set of documents and argued that so much documentary evidences were submitted but nothing has been proved otherwise. Learned Counsel for the assessee relied on the decision of the Bombay High court in the case of CIT vs. Om Prakash Jain (2010) 322 ITR 362 (Bom). He argued that the genuineness of transaction is to be accepted on account of supporting document/ evidences furnished by the assessee before the authorities below and accordingly purchased of shares of Jaykay Dee Industries and Robinson Worldwide cannot be treated as bogus.
The learned Counsel for the assessee further explained that the shares of Robinson Worldwide was not genuine on account of statement of the director of DPS Shares and Securities Pvt. Ltd. and in this regard he argued that the statement made by broker is bereft of any evidence on record. The learned counsel for the assessee referred to the letter dated 27-10-2008 submitted by DPS Shares and Securities Pvt. Ltd. in response to notice u/s 133(6) of the Act and the contents of the letter reads as under: - “sub:- Information u/s 133(6 of the I.T. Act. , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 With reference to above we herewith state as under:-
The said bills are issued by us to Smt. Pratiksha Shah.
Bills are issued only to accommodate the said parties for LTG purpose.
3. None of the said transactions are done on BOLT TWS of BSE or OFF MARKET.
We had not delivered them any physical shares of any scrip.
We have not done any transaction with their family members also till date.
Kindly acknowledge our reply and do needful.”
In view of the above letter, the learned Counsel for the assessee argued that this letter is not in connection with the assessee and it relates to Smt. Pratiksha Shah which has wrongly been utilized by the AO against assessee for making addition. The AO also referred to statement of Shri Sujal C Shah recorded under section 131 of the Act on 18-01-2007 during the course of survey proceedings and it was never provided with an opportunity to cross examine and hence it cannot be used against the assessee. He also stated that the statement of Shri Pratik C Shah recorded under section 131 of the Act dated 18-11-2008 shows that the director of DPS Shares and Securities have made a general statement and nothing was against the assessee. In term of the above arguments the learned Counsel for the assessee argued that the addition was made without any basis and the evidences produced by the assessee were never considered by the AO nor otherwise proved wrong.
On the other hand, the learned CIT DR relied on the orders of the lower authorities. She argued that the AO as well as CIT(A) in their orders have elaborately discussed the modus operandi employed by the operators with Page 18 of 31 , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 regards to penny stock shares which was busted by the Investigation Wing. She also stated that the assessee was part of operators for obtaining fabricated share transactions resulting in artificial/ bogus capital gains. She fully relied on the order of the AO and that of the CIT(A).
We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that the assessee has furnished documentary evidences for claim of capital gains i.e. the purchase documents and sale documents of shares which are as under: - “i. Copy of Purchase bill. ii. Copy of Ledger Account of DPS Shares & Securities Ltd. iii. Copy of assessment order for AY 2004-05 and 2005-06 dated 30-11-2006 in assessee’s own case. iv. Copy of sale bill showing sale of shares of M/s. Robinson Worldwide Trade Ltd. v. Details of Physical share certificate of M/s Robinson Worldwide Trade Ltd. and a sample copy of physical certificate. vi. Copy of the letter dated 14.06.2003 and 20.04.2004 received from Robinson Worldwide Trade Ltd. regarding transfer of shares in the name of the appellant and issue of jumbo certificate. vii. Copy of transaction cum holding statement reflecting confirmation of demat of shares and sale of shares of M/s. Robinson Worldwide trade Ltd. For AY 2005-06 and 2006-07. viii. Copy of sale bill of shares of M/s Robinson Worldwide Trade Ltd. for AY 2005-06 and 2006-07. , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 ix. Copy of bank statement of HDFC Bank evidencing the receipt of sale proceeds from sale of M/s Robinson Worldwide Trade Pvt. Ltd.”
We find from the facts of the case that Shri Pratik C. Shah director of DPS Shares & Securities has stated that the accommodation entries have been given by them on the instructions of third persons namely Shri Naresh Saboo and Shri Shirish C. Shah. But we find that none of these statements has reference assessee. Only evidence brought by the AO against the assessee is the statement of Shri Prank C. Shah. We also noted from the statement that he has himself stated that he is an accommodation entry provider and therefore he is a tainted party. Accordingly, the credibility and reliability of the statement of such party is questionable and not reliable. He himself stated that the transactions entered by him with the assessee have not been reflected in his regular books of accounts and therefore, it is in the interest of Mr. Shah to say that these transactions are bogus. In case these transactions are held to be genuine, Mr. Shah stands to be fastened with tax liabilities for having not included these transactions in his books and therefore, Mr. Shah being an interested party the creditability of the statement given by him is under serious doubt especially in the absence of any document /material to substantiate his statement. We also find from the facts that the assessee has filed voluminous document to substantiate its claim and the AO has not found any fault in the same. The case law of coordinate bench of this Mumbai Tribunal in the case of Sri Sri Bhagvandas Gordhandas Vs. DCIT in is in similar circumstances and facts. In the said case, the assessee Sri Bhagwandas Gordhandas of M/s. Bhagwandas Gordhandas was engaged in the business of share broking, share Jobbing and trading in shares. A search was conducted in the case of a broker T.H. Vakil (MTHV) in August 1992. During that search, Sri Rajen C. Vakil of MTHV admitted about transferring of' hawala losses to a number of share brokers, including the assessee-appellant. Relying on the admission/ statement of RCV, the AO treated nine transactions of the assessee with MTHV to be non-genuine and meant simply for transferring fictitious speculation losses aggregating to Rs. , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 59,41,500/- to the assessee. Given the aforesaid facts, the Hon’ble Tribunal at para 27 of the order ruled as under: - “……..the deponent or declarant is himself tainted in as much as he himself is involved in the transactions and his above statement partakes the nature of a self-explanatory statement.......... In the circumstances an important characteristic, so essential for reliability of statement of the deponent, of being uninterested or ii non-interested, which, lends credence, based on impartiality, to the deposition gets lost. As a result merely a bare statement and is alleging the same to be incorrect..
29……Left with such a feeble evidence in the form of Mr. Vakil’s statement, a satisfactory / convincing corroboration of the said statement by a reliable evidence essentially needed to justifiably base the addition thereon.”
12. In the present case before us, we find that the assessee had purchased the shares of Robinson Worldwide Trade Limited for which it has submitted the purchase bills & ledger account of the purchase broker which clearly reveals that the assessee had earned speculation profit which was used for the purchase of shares of Robinson Worldwide Trade Limited. The said speculation profit and even the purchases have been accepted by the Department while passing the order u/s. 153A r.w.s. 143(3) of the Act for A. Y. 2004-05 and A. Y. 2005-06. Originally, the shares were issued in physical format which got transferred in assessee's name on 14.06.2003 and 20.04.2004. The said fact can be ascertained from the letter received by the assessee from Robinson Worldwide Trade Limited. The shares of the assessee were consolidated and Jumbo share certificate was issued. Thereafter, the said shares were dematerialized to de-mat account of the assessee held with HDFC Bank. Such demated shares were sold through AKD Securities Pvt. Ltd. as can be seen from the sale bills and the payments for the sale of said shares have been received through account payee cheques. Even for assessment years 2004-05, the assessee has submitted various Page 21 of 31 , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 documentary evidences, which have not been considered by the AO. As regards to the reliance placed by the AO on the cross-examination conducted in the case of the assessee, we find that the assessee and the director of the broker DPS Shares & Securities Pvt. Ltd. have nowhere specifically stated in their respective statements that they have issued accommodation entries to the assessee. There is no link between the statement and the assessee. They have simply stated that they issued accommodation entries on instructions of certain third parties. Further, no statements of such third parties have been confronted and in such a case, no question of cross-examination of the broker arises when there is no specific statement with regards to the assessee.
Even otherwise, the alleged cross-examination as held was not conducted in context of the assessee and during the course of cross-examination proceedings, the purchase documents which have been stated that the accommodation bills pertain to Shri Brijesh D. Shah and which do not belong to the assessee. The relevant extract of said statement is given hereunder:
"Q. 5 1 am showing you the contract note and bill for purchase of shares of Robinson Impex issued by your company to Shri Beijesh Shah and Smt. Pratiksha Shah, Late Shri Shreevallabh Damani and Suit. Saroj Devi Damani. For e.g. bills as under:
Bill date Name of the Quantity Amount Bought/ Sold party 04/04/03 Brijesh D. 79500 120840 Bought Shah This contract note /bill in the name of Shri Brijesh Shah, issued by your company M/s DPS shares & Securities P. Ltd. Please confirm whether you have issued this and who has signed the said contract note / bill. Whether he is authorized to sign.
Ans. This bill and conract note are given by our company to Brijesth Shah and others which are off market and not registered with the BSE. The Contract is not signed by any of the Directors. , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 Q.7 I am showing you the leger copy of Sh Brijesh Shah issued by DPS Shares and Securities Pvt. Ltd. for FY 2003-04.
Ans. Yes. This is our ledger copy.
Q,17 You have said in your statement dated 21/11/08 that you charge service tax but not paid to government. Is it true?
Ans. Yes. I have collected service tax from the client on his contract note and not paid to the government as these transactions were not done on the floor and were off market and not genuine so we did not pay the service tax to the government. In the bill of Shri Brijesh Shah we have not collected the service tax.
In this regard reliance was placed by assessee on the judgment of Hon’ble Bombay High Court in the case of CIT vs. Shyam R. Pawar (2015) 229 Taxman 256 (Bom) wherein it is held as under: - “6. It is in that regard that we find that Mr.Gopal's contentions are well founded. The Tribunal concluded that there was something more which was required, which would connect the present Assessee to the transactions and which are attributed to the Promoters/Directors of the two companies. The Tribunal referred to the entire material and found that the investigation stopped at a particular point and was not carried forward by the Revenue. There are 1,30,000 shares of Bolton Properties Ltd. purchased by the Assessee during the month of January 2003 and he continued to hold them till 31 March 2003. The present case related to 20,000 shares of Mantra Online Ltd for the total consideration of Rs.25,93,150/-. These shares were sold and how they were sold, on what dates and for what consideration and the sums received by cheques have been referred extensively by the Tribunal in para 10. A copy of the DMAT account, placed at pages 36 & 37 of the Appeal Paper Book before the Tribunal showed Page 23 of 31 , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 the credit of share transaction. The contract notes in Form-A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange regarding client Code has been referred to. But the Tribunal concluded that itself, is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal's order are not vitiated by any error of law apparent on the face of the record either.”
15. Similarly, the co-ordinate Bench of this Tribunal exactly the same script of shares i.e. Robinson Impex (India) Ltd. and same share broker DPS Shares and Securities Pvt. Ltd. were under question, the Tribunal in the case of Late Smt. Kanchanben J. Shah vs. ITO in dated 18.02.2016 after considering the facts treated the income under the head capital gains by observing as under: - “6. We have considered the rival contentions and perused the material on record. it is evident that similar controversy has been considered by our Co-ordinate Bench in the case of Jagdish H. Shah (Mumbai Tribunal ITA nos.6557/Mum/2011 for the assessment year 2005-06 vide orders dated 05-09-2012) and Nikunj J Shah , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 (Mumbai Tribunal - vide orders dated 31-07-2015).The Ld. Representative of the assessee has also placed on record copies of the assessment order as well as the order of CIT(A) in the case of Jagdish H.Shah (supra) which reveal that the discussion contained therein is almost similar to the discussion in the impugned orders before us. The enquiries made by the AO in case of Jadish H. Shah (supra) are on similar lines to those made in the case before us. In the case of the assessee as well as in the case of Jagdish H. Shah(supra) the shares were purchased from the same broker namely DPS Shares and Securities Pvt. Ltd. It is also emerging that the AO carried out a verification exercise which involved recording of statement of one Shri Raj Kumar Masalia, Principal Officer of DPS Shares & Securities Ltd.; similar action was taken in the case of Jagdish H. Shah (supra) also. Be that as it may, it is quite clear that the stand of the Revenue as well as the assessee in the present case is on similar footing to their respective stands in the case of Jagdish H. Shah (supra). Having regard to the aforesaid similarities, which are not controverted by the Revenue, we deem it fit and proper to rely upon the reasoning taken by the Co-ordinate Bench in the case of Jagdish H. Shah(supra) and hold that the income tax authorities have erred in treating the sale consideration on the sale of shares of Robinson Worldwide Trade Ltd. as an income from undisclosed sources. Identical decision was also rendered in the case of Mr Nikunj J. Shah(supra) by Mumbai Tribunal in ITA No. 6545/Mum/2011 for assessment year 2005-06 vide orders dated 31-07-2015 , relevant extracts are reproduced below:
“6. Having perused the orders of the authorities below as well as the submissions put forth before , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 us, it is evident that similar controversy has been considered by our Co-ordinate Bench in the case of Jagdish H. Shah (supra).The Ld. Representative of the assessee has also placed on record copies of the assessment order as well as order of CIT(A) in the case of Jagdish H. Shah(supra) which reveal that the discussion contained therein is almost similar to the discussion in the impugned orders before us. The enquiries made by the AO in case of Jadish H. Shah (supra) are on similar lines to those made in the case before us. In the case of the assessee as well as in the case of Jagdish H. Shah(supra) the shares were purchased from the same broker namely DPS Shares and Securities Pvt. Ltd. It is also emerging that the AO carried out a verification exercise which involved recording of statement of one Shri Raj Kumar Masalia, Principal Officer of DPS Shares & Securities Ltd.; similar action was taken in the case of Jagdish H. Shah (supra) also. Be that as it may, it is quite clear that the stand of the Revenue as well as the assessee in the present case is on similar footing to their respective stands in the case of Jagdish H. Shah (supra). Having regard to the aforesaid similarities, which are not controverted by the Revenue, we deem it fit and proper to rely upon the reasoning taken by the Co-ordinate Bench in the case of Jagdish H. Shah(supra) and hold that the income tax authorities have erred in treating the sale consideration on the sale of shares of Robinson Worldwide Trade Ltd. as an income from undisclosed sources. Nevertheless in order to impart completeness to this order, we deem it fit and proper to reproduce hereafter the Page 26 of 31 , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 relevant portion of the order of the Tribunal in the case of Jagdish H. Shah(supra), which is as under:
“11. We have heard the rival contentions and perused the orders of the Authorities and also the Paper Book submitted by the assessee. It is not in dispute that the shares were purchased in physical form in off market transaction. It is also not in dispute that the shares were subsequently dematted and the sales have taken place out of the DMAT A/c. The only dispute relates to the genuineness of the purchases' as doubted by the Lower Authorities. We find that the purchases. are supported by purchase bills issued by M/ s. DPS Shares and Securities Pvt. Ltd., exhibited at Pages 28 to 32 of the Paper Book. We also find that the shares so purchased were transferred to DMAT A/c with HDFC Bank. Copy of which is exhibited at Page No. 34 of the Paper Book. We have also considered the letter of the Director of M/s. DPS Shares & Securities Pvt. Ltd., addressed to the AO by which the. Director has confianed 'the offmarket transaction in physical mode of shares of the 11,500 shares of M/s.Robinson Impex (India) Ltd (Robinson Worldwide Trade Ltd.,). We have also considered the retraction letter of Shri Rajkumar Masalia addressed to the AO by which he accepted that he. was not aware of the transaction and he has stated wrong , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07 facts during the course of his statement recorded by the A.O.
We find that during the course of the appellate proceedings, the CIT(A) has called for a Remand Report from the AO relating to the purchase of 11500 shares of M/s. Robinson Worldwide Trade Ltd., (formerly known as robinson Impex (India) Ltd.]. We have perused the Remand Report of ITO 10(3)(2) Mumbai dt. 11.4.2011. In his Remand Report, the AO states that an opportunity of cross examination of Shri Rajkumar Masalia was given to the assessee on 18-02-2009, 29-04-2009 and 09-11-2009. However, despite of giving aforesaid opportunities, Shri Rajkumar Masalia did not attend though assessee’s representative attended on all of above dates and whose attendance was duly recorded on the attendance Sheet. In his Remand Report, the AO further states that the said shares of M/s. Robinson Worldwise Trade Ltd. (formerly known as Robinson Impex (India) Ltd.] were purchased on 05-04- 2003 for a consideration of Rs.15191.99 from M/s. DPS Shares and Securities Pvt. Ltd. As per record of the said company, the shares were endorsed in favour of the assessee on 30-04- 2003 in physical format only. The AO further states that as per investigation made, these shares were sent for dematerialization to HDFC Bank on 03-05-2004 and were converted into , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07
De-mat form on 22-05-2004. In his Remand Report, the AO has further confirmed the sale transaction made through broker, M/s. Ajmeera Associates Pvt. Ltd.
13. After considering all the above stated facts in totality, we do not find any reason or logic in treating the purchase of 11,500 shares as bogus. The Lower Authorities could have directly verified the transaction from the company itself, whose shares were questioned to be bogus but both the Lower Authorities did not do this exercise. The Remand Report of the AO itself show that the transactions have been treated as genuine subsequently by the AO himself while sending the Remand Report to the CIT(A). We find that the sale transaction of 11,500 shares of M/s.Robinson Impex (India) Ltd. (Robinson Worldwide Trade Ltd.) has been doubted or question by the Lower authorities. A simple logical question arises if the shares were never purchased, how can they be sold subsequently?
14. After considering all the facts and submissions, we find that both the Lower Authorities have grossly erred in treating the sale consideration as ‘Income from undisclosed sources.’
We, therefore, reverse ht finding of Lower Authorities and direct the AO to , 7287 & 7288/Mum/2010 Smt. Saroj Damani AYs:04-05,05-06 & 06-07
accept the Long Term Capital Gains as returned by the assessee.”
6.1 Following the aforesaid precedent we hereby allow the appeal of the assessee, and direct the AO to accept the long term capital gain as returned by the assessee.
In the result, the appeal filed by the assessee is allowed.”
7. Following the aforesaid precedent we hereby allow the appeal of the assessee, and direct the AO to accept the long term capital gain as returned by the assessee.”
In view of the given facts and circumstances and the case law of coordinate Bench of Mumbai Tribunal in the case of Late Smt. Kanchanben J. Shah (supra), which is identical on the facts of the present case, respectfully following the same, we allow all these three appeals of the assessee.
In the result, these three appeals of the assessee are allowed. Order pronounced in the open court on 17-05-2017.