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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Mahendra J Salva Income Tax Officer, 126 Jai Gopal Ind. Estate, Ward-18(2)2 1st Floor, Piramal Chabers, Bhawani Shankar X RD, Dadar Vs. West Lalbaug, Parel Mumbai-400 058 Mumbai-12 .. Appellant Respondent PAN No. AAHPS4100J .. Shri Sashi Tulsiyan, AR Assessee by Revenue by .. Shri M.C.Omi Ningshen, DR .. Date of hearing 22-03-2017 Date of pronouncement .. 07-04-2017 O R D E R PER MAHAVIR SINGH, JM:
These appeals by the assessee are arising out of different orders of CIT(A)-33 & CIT(A)-29, Mumbai, in appeal No. CIT(A)-33/RG-21147/14-15 & CIT(A)-29/RG-18/114/07-08 dated 02-02-2016 & 17-10-12. The Assessment was framed by ITO ward 18(2)(2), Mumbai for the A.Y. 2005-06 vide order dated 20-12-2007 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’). The Penalty was levied by ITO ward 18(2)(2), Mumbai under section 271(1)(c) of the Act vide order dated 26-03-2014.
The only issue in assessee’s appeal in CIT(A) confirming the action of the AO in making addition of Rs. 29,3160/- under section 68 of the Act being unexplained cash credit, whereas the assessee has declared the gain arising out of the sale and purchase of shares as short term capital gain of Rs. 29,03,160/- out of sale and purchase of shares. The AO, during the course of assessment proceedings, asked the assessee as to why the short term capital gain declared on account of sale and purchase of shares be assessed as business income. The assessee replied before the AO but AO finally Mahendra J Salva AY:05-06 treated the profit arising out of the sale and purchase of shares as cash credit under section 68 of the Act by observing as under: - “12. Without prejudiced to the above, in this case the assessee has not obtain the delivery of the share therefore it will be speculation gain and or business profit. Without investment it cannot be said that assessee is having S.T.C.G. and is assessable u/s 111 of the Act.
I considered the above fact very carefully and it is concluded that the S.T.C.G of Rs. 2903160/-shown by assessee is in fact his income from undisclosed sources, which has been routed through obtaining the cheques from the broker. Since assessee failed to establish the genuineness of the transaction, the credit entry is held as unexplained income and added back under section 68 of the Act. Penalty proceedings under section 271(1)(c) are initiated separately for furnishing inaccurate particulars of income.”
Aggrieved, assessee preferred the appeal before CIT(A), who also confirmed the action of the AO by recording the reason that the assessee could not have earned huge short term capital gain of Rs.29,03,160/- only in three-month time as he is not indulging in regular purchase and sale of shares. According to CIT(A), the assessee has not taken delivery of 131 transactions entry with the broker M/s Sangoi Investments. He also doubted the bills issued by M/s Sangoi Investments as they are running in serial Nos. According to AO, the assessee has not made any payment to the share broker M/s Sangoi Investments, hence, he confirmed the action of the AO by holding that the assessee is unable to prove genuineness of transaction with M/s Sangoi Investments. He confirmed by observing as under: - Mahendra J Salva AY:05-06 In view of above facts, it is clear that appellant has not been able to provide sufficient evidences for proving genuineness of transactions with M/s. Sangoi Investments. On the other hand, the A.O. has noted many irregularities and discrepancies in the transactions with M/s. Sangoi Investment. Accordingly, the appellant has not been able to explain the source of credits of Rs.29,03,160/- in his books. Accordingly, the addition made by the A.O. is justified and confirmed.”
Aggrieved, now assessee is in second appeal before Tribunal.
Before us, the learned Counsel for the assessee first of all argued that the AO doubted whether the transaction is in the nature of short term capital gains or business income. According to him, this was replied by the assessee vide letter dated 16-05-2007 which reads as under: - “The shares are consistently shown (i) Under the head “Investment in shares” in Balance Sheet.
(ii) The Profits & Gains realized from transfer of shares are consistently offered as income under the head Capital Gains. Had the intentional to treat the same as business income, the same would have been beneficial to the assessee, as he would have been able to claim expenses against such income by treating the same as business income.
(iii) The assessee has invested in shares out of own/ surplus funds. Mahendra J Salva AY:05-06 (iv) The assessee has neither claimed any infrastructure expenses relating to activity in shares nor incurred the same which shows total absence of element of business in above transactions.
(v) Investment is always made in shares of quoted, reputed companies based on sound research.
(vi) The delivery of shares are always taken and held as investment into Demat A/c before it was sold when the objective of such investment is realized or earlier depending on market volatility.
(vii) Dividend is not the sole objective for making an investment. In assessee’s case, shares are sold cum-dividend which makes the entire amount taxable, which otherwise would have been tax free if the same would have been Declared as dividend.”
The AO accepted the contentions of the assessee but going through the sample bills and dates he noted that bills are in serial no. issued by M/s Sagoi investment. The AO reproduced the chart which reads as under: - Sr. Bill Date Sr. Bill Date No. No.
RB/133/001 01-10-2004 6. RB/138/003 08-10-2004 2. RB/134/002 04-10-2004 7. RB/140/001 11-10-2004 3. RB/135/001 05-10-2004 8. RB/142/001 14-10-2004 4. RB/136/001 06-10-2004 9. RB/146/001 20-10-2004 5. RB/137/002 07-10-2004 10. RB/149/00 26-10-2004 Mahendra J Salva AY:05-06
He noted the fact that the assessee traded in various scripts i.e. JK Pharma, Stroptical, Tube Investment, Ubeng, Savitachem. He noted that there is a difference in some scripts for one year and in some scripts less than 15 days. The assessee before us has produced copy of ledger account of the assessee Mahendra Jethalal Salva in the books of M/s Sangoi Investments, wherein the assessee has made payment for purchase of shares and settled accounts regularly which is evident from the copy of ledger account and this was replied by the assessee before CIT(A) on a specific query. The assessee has filed a complete contract notes before us and vouchers for purchase and sale of shares. It is admitted fact that these shares were purchase by making payment out of own funds. Even otherwise this transaction is a regular transaction of purchase and sale of shares which can never be added by invoking the provisions of Section 68 of the Act as has been done by AO and confirmed by CIT(A). This regular transaction of sale and purchase of shares are recorded in the books of accounts and carried out through bank channels. In such circumstances, we are of the view that no addition on this kind can be made. Hence, we delete the addition and allow the appeal of the assessee.
As regards as the is concerned, which relates to levy of penalty under section 271(1)(c) of the Act by the AO and confirmed by CIT(A) on the transaction of sale and purchase of shares treating the same as cash credit under section 68 of the Act. Since, we have already deleted the quantum addition, the penalty will not survive. Hence, we delete the penalty and allow the appeal of the assessee. 6. In the result, both the appeals of assessee are allowed. Order pronounced in the open court on 07-04-2017.