ANIL KUMAR S. KAWAR,MUMBAI vs. DCIT 14(1), MUMBAI

That during the course of the CIT(A) after appellate proceeding the deliberating on the contentions assessee before raised him, by the therein called for A.O. a with remand specific report' from the directions tomake CIT(A) certain verifications thereafter deliberating The on the and the rejoinder remand report' of the A.0, of the assessee to the the view that there same, therein being of were multiple in the discrepancies and incoherency explanation and the material placed assessee, thus on record by the dismissed the appeal.

The assessee being had aggrieved with the order of the carried the matter in CIT(A), appeal before Representative (for short 'A.R) us. The Ld. Authorized reiterating the submissions which Pa g e |7 were made before the lower authorities and referring to the documentary evidences forming part of his paper book filed before us (for short 'APB), had therein tried to drive home his contention that the aforesaid shares of M/s Fast Track Entertainment Ltd., were purchased by the assessee during the period 06.04.2003 to 18.04.2003,and as such no infirmity could be related with the claim of the assessee that the gain on the transfer of the said shares was liable to be assessed as LTCG' . The Ld. AR had drawn our attention to the (i): Copies of the 'Contract notes' pertaining to purchase and sale of shares of M/s Fast Track Entertainment Ltd:; (ii) . Copies of the Balance sheet' and the 'Capital account' of the assessee for the financial year ended 31.03.2004, which therein revealed that the aforesaid share broker; viz M/s Vijay Bhagwandass & Co. stood reflected under the head 'Current liability' in the balance sheet' of the assessee for an amount of Rs: 1,54,885-89; (iii). Copy of the 'demat account' of the assessee which revealed that the "credit' and 'debit' of the aforesaid 1,29,000 shares took place during the period 10.04.2004 to 26.05.2004; (iv). Copy of the reminders dated: 30.04.2003, 31.10.2003, 31.01.2004 and 01.04.2004, wherein the broker viz M/s Vijay Bhagwandass & Co , had vide his aforesaid letters called upon the assessee to pay the outstanding amount of Rs 1,35,471-31 and settle his account with him; (v). Copy of the letter dated:07.02.2004 of the assessee addressed to the broker viz. M/s Vijay Bhagwandass & Co., therein informing him that it would be possible on his part to Pa g e | 8 clear his account by April, 2004, with a request that interest may be charged on the outstanding amount; (vi). Copy of the ledger account of the assessee appearing in the books of the broker, viz; M/s Vijay Bhagwandass & Co. during the financial year 2003-04 revealing a 'debit balance' of Rs. 1,54,885-89 (dr) in the account of the assessee; (vii): Copy of the CBDT Circular No_ 704, dt:28.04.1995 and Circular No. 768, dt:24.06.1998, therein providing that for the purpose of determining the period of holding of the securities, the same on satisfaction of certain conditions shall be reckoned from the date of the Bbroker note' for purchase on behalf of the investor; (viii). Copy of the written submissions which were filed by the assessee before the CIT(A); and (viii). Copy of a letter dated: 30.03.2009, wherein the assessee had relied on the order of the ITAT, Amritsar in the case of: Max Telecom Ventures Ltd. Vs. ACIT; dated:23.03.2007 , reported in 2007-TIOL-464 (Asr:), in support of his contention that the date of contract of sale is to be taken as the date of transfer of shares, provided the same is followed by actual delivery of the shares certificates and transfer deeds. Thus the Ld. A.R in the backdrop of his submissions made before uS and by placing reliance on the aforesaid documentary evidence which to our attention was drawn during the course of hearing of the appeal, therein submitted that the CIT(A) had erried in sustaining the order of the AO that the gain and transfer of the shares was liable to be assessed in the hands of the 'STCG' , assessee as failing to appreciate that the A.O had erroneously Pa g e | 9 adopted the date on which the shares were received by the assessee in his 'demat account , as the date of purchase of shares by the assessee. It was thus averred by the Ld A.R that the order of the CIT(A) may therein be vacated That on the other hand the Ld. D.R heavily relied on the order of the CIT(A) and therein submitted that the appeal of the assessee being devoid of any merit, was thus liable to be dismissed: 6. We have heard the Ld. Representative of both the parties, perused the orders of: the lower authorities as well as the material placed on record before uS. We are of the considered view, that though the aforesaid documentary evidence at the first blush would lead one to form a prima facie view that the assessee had purchased the shares during the period 06.04.2003 to 18.04.2003, as claimed by him in his return of income, irrespective of the fact that the same had been dematerialized in the month of April, 2004. However , interestingly we find that the revenue is neither questioning the validity of the process of dematerialization of shares, nor the CBDT Circulars which provides that on satisfaction of certain conditions, the date borne on the 'Contract note' is to be taken as the date of purchase of share, but as a matter of fact, the lower authorities on the basis of their respective observations had seriously doubted the very genuineness of the documents on the basis of which such claim had been raised by the assessee. We find that the lower authorities, holding a strong conviction Pa g e 10 that the assessee had came up with a concocted story, had thus characterized the entire exercise carried out by the assessee as a brain child of his afterthought; which was far away from the underlying truth: We now advert to the observations of the CIT(A), on the basis of which the said first appellate authority had drawn adverse inferences and had rejected the claim of the assessee that 1,29,000 equity shares of M/s Fast Track Entertainment Ltd. were purchased during the period 06.04.2003 to 18.04.2003. The observations of the CrT(A) on the basis of which adverse inferences as regards the aforesaid claim of the assessee had been drawn, are briefly culled out as under:- (i)_ That though the shares are claimed by the assessee to have been purchased by the broker, viz Vijay Bhagwandas & Co , for and on behalf of the assessee during the period 06.04.2003 to 18.04.2003, however the payment had been made by the assessee to the broker only on 10.04.2004. (ii) . That though the shares of M/s Fast Track Entertainment Ltd: were purchased for a consideration of Rs. 1,64,746/-, however the copies of the reminder letters of the` broker viz Vijay Bhagwandas & Co., dated: 30.04.2003, 31.10.2003, 31.01.2004 and 01.04.2004, revealed that the broker had time and again called upon the assessee to pay an outstanding amount of Rs. 1,35,471-31. P a g e 11 (iii) . The assessee despite being directed by the CIT(A) to place on record the Balance sheet' of the broker ,viz Vijay Bhagwandas Co. for the financial year ended 31.03.2004, however failed to effect compliance with the said directions. (iv). The authorization letter dated. 01.04.2003 issued by the assessee to the broker viz Vijay Bhagwandas 8 Co., therein made a mention as regards retention of the 'Credit balance' or the adjustment of the same; as would s0 arise in the account of the assessee from time to time. However, in the absence of any such credit/debit balance in the account of the assessee, at the time when such authorization letter was issued, serious doubts as regards the authenticity of the claim of the assessee therein emerged. (v): The 'demat account' of the broker viz Vijay Bhagwandas & Co._ therein revealed that the shares of M/s Fast Track Entertainment Ltd , were not purchased in the name of the assessee_ (vi): The 'Contract notes' on which heavy reliance was placed by the assessee, were just paper bills, and as such much support could not drawn from the same. (vii). That the left side of the 'Contract notes' of the broker; viz Vijay Bhagwandas & Co. as relied upon by the assessee, therein revealed mention of "03/2004 Hitech Print Systems Ltd , Mumbai (022) 28340698" from where it could be safely Pa g e 12 gathered that the bills were printed by M/s Hitech Print Systems Ltd , Mumbai; in the month of March, 2004, which thus proved that the said bills issued by the broker viz Vijay Bhagwandas & Co-, were antedated. (viii) The assessee had not paid any advance to the broker; viz Vijay Bhagwandas & Co. for purchase of the shares of M/s Fast Track Entertainment Ltd,, nor was there any 'credit balance' lying in the account of the assessee with the said broker , therefore the claim of the assessee that the shares had been purchased by the broker for the assessee did not inspire any confidence. (ix). That though the broker; Viz Vijay Bhagwandas & Co. had charged interest of Rs: 19,414/-on 31.03.2004, however, despite the fact that the sale proceeds of the shares had already been received by the assessee from the said broker, but the aforesaid amount of interest was still outstanding, which thus did not inspire any confidence as regards the genuineness of the claim of the assessee. (x): The holding of the shares by the broker, viz Bhagwandas & Vijay Co., on behalf of his client; i.e the period of assessee, for a more than 12 months, being thus against the norms of NSE, did lead to raising of serious doubts as regards the claim of the assessee. P a g e 13 (xi): That as the assessee had filed his returns of income for A.Ys): 2004-05 and 2005-06 as on 19.01.2005 and 02.01.2006, respectively, therefore he had sufficient time with him for making paper arrangements and manipulations, and as such showing the broker , viz Vijay Bhagwandas & Co-, as an outstanding liability in his respective Balance sheets' as on 31.03.2004 and 31.03.2005 filed with the returns of income (xii). The assessee was not registered as a client with the Trading member, i.e the broker, viz Vijay Bhagwandas & Co., and no trades were executed by the said broker on behalf of the assessee during the period 06.04.2003 to 18.04.2003. 8. We have given a thoughtful consideration to the facts of the case and though find ourselves to be in agreement with the observation of the CIT(A) that the aforesaid facts viz (i) substantial delay in the making of the payment by the assessee to the broker viz Vijay Bhagwandas & Co;(ii). the fact that though the purchase consideration of the 1,29,000 shares claimed by the assessee to have been purchased by the broker on his behalf was Rs. 1,64,746/-, however the latter had called upon the assessee vide his reminder letters to pay only Rs. 1,35,471-31; (iii). the assessee despite being directed by the A.O to place on record the Balance sheet' of the broker, viz Vijay Bhagwandas & Co. for the financial year ended 31.03.2004, had however failed to do the needful; (iv) the authorization given by the assessee to the broker to retain the 'Credit balance' till the P a g e 14 settlement of his account; despite absence of any credit/debit balance in the account on the date of making of the commitment;, raised doubts as regards the claim of the assessee; (v) the 'demat a/c' of the broker did not reveal that the shares were purchased by the broker in the name of the assessee; (vi). the 'Contract notes' on which heavy reliance was placed by the assessee was just a paper note; (vii). the mention of the term "03/2004 Hitech Print Systems Ltd , Mumbai (022) 5 28340698" on the 'Contract notes' of the broker revealed that the same were antedated; (viii). that neither any advance, nor balance' any 'Credit was lying in the account of the assessee with the broker; but still the latter using his own funds had purchased shares on behalf of the assessee; (ix): the broker is stated to have charged interest of Rs 19,414/- on 31.03.2004 for the making delay in of payment by the assessee, however despite sale of the shares and clearing of the account of the assessee, the said amount of interest was still outstanding broker; by the assessee to the (x): that holding of shares by a broker client on behalf of his for a period of 12 months, as had SO happened in the present case, was against the norms of the NSE; (xi).the filing delay in of the returns of income by the assessee, i.e 05 for on A.Y. 2004- 19.01.2005 and AY. 2005-06 on 02.01.2006, therefore provided ample opportunity to the assessee records to manipulate the and thus put his claim well in order; and (xii): the assessee was not registered as a client with the ie the Trading broker member , viz Vijay Bhagwandas & Co., and no trades were P a g e 15 executed by the broker on behalf of the assessee during the period 06.04.2003 to 18.04.2003 , though are issues which raise serious doubts as regards the genuineness of the claim of the assessee as projected before the revenue authorities, and rather does not inspire much of confidence as regards the authenticity of the claim of the assessee that he had purchased the shares during the period 06.04.2003 to 18.04.2003, but then we cannot be oblivious of the settled position of law that a suspicion or doubt cannot be allowed to take the place of evidence. We find that except for the doubts so raised on the basis of the delay in filing of the returns of income by the assessee for AY(s).2004-05 and 2005-06, all the remaining adverse inferences drawn in the hands of the assessee involves and hinges around the conduct and business affairs of the broker, Viz Vijay Bhagwandas & Co We however find that despite the fact that the very foundation of the doubts raised by the lower authorities, on the basis of which the claim of the assessee had been dislodged and thus rejected, revolves around the conduct and the business affairs of the broker , viz Vijay Bhagwandas & Co.= however, there is not a whisper of any effort having been put by the revenue to make enquiries from the said broker in order to dispel the doubts as had SO emerged: We are of the considered view that the A.O instead of hushing through the matter and summarily rejecting the claim of the assessee on the basis of doubts and suspicions, should have carried out thorough verifications, and by acting on concrete evidence brought on record as a result thereof, should P a g e 16 have acted on the same and brought the matter to a logical end: Though we are aware that the CIT(A) had directed the assessee to place on record the Balance sheet' of the broker for the F.Y. 31.03.2004, however it is a matter of fact borne from the record that the assessee had intimated to the CIT(A) that the broker was non-cooperative and had declined to provide a copy of the Balance sheet' to the assessee. We are of the considered view that now when it can safely be concluded that the issues leading to drawing of adverse inferences by the lower authorities in the hands of the assessee, primarily pertain to the conduct and business affairs of the broker, viz Vijay Bhagwandas & Co., and as such can only be explained and clarified by him, we therefore in all fairness restore the matter to the file of the A.0, with a direction to examine both the broker viz Vijay Bhagwandas & Co-, as well as the assessee, under 'Oath', as well as summon the records of the respective parties as would be required in the course of such examination: The A.O in order to facilitate summoning and examination of the aforesaid herein directed parties is to exercise the powers as stands vested with him under Sec 131 of the Income-tax Act, 1961 I.w Code of Civil Procedure,1908 (5 of 1908). The A.O is directed aforesaid to examine the persons, viz. Vijay Bhagwandas & Co.,(i.e the concerned person) and the assessee under oath, as regards the issues on the basis of which adverse inferences have been drawn in the hands of the assessee. The A.O shall after examining the Pa g e 17 broker , viz Vijay Bhagwandas & Co and the assessee, shall therein readjudicate the issue in light of the facts as emerges from their respective statements and perusal of the records of the broker viz Vijay Bhagwandas & Co. and the assessee. Needless to say, that during the course of the set aside proceedings the A.O shall afford reasonable opportunity of being heard to the assessee. The matter is thus restored to the file of the A.O to readjudicate the issue in light of our aforesaid observations 6_ That the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 24/01/2017 . - / - (R.C SHARMA) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 24/01/2017 P a g e 18 Copy of_the_Order _forwerded to sdu@u@ft eicopy of_the_Order forwarded to 1 . adeff The Appellant 2 Yryeff The Respondent 3. 3143r argari(erdid) / The CIT(A) 4_ H1dr 319471 CIT concerned 5. @4fy ,fAft &14077 aritq &fla?u, tjat , | DR, ITAT;, Mumbai 6. TS tTa / Guard File JTaRTTR/ BY ORDER, 34R614@ tuila R (Dy.| Asstt: Registrar) B4FR eilaty &feaprul; Tas / ITAT, Mumbai