SAJJANRAJ S. KAWAR,MUMBAI vs. DCIT 14(1), MUMBAI

Pa g e | 1 IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, MUMBAI BEFORE SHRI RC. SHARMA, AM AND SHRI RAVISH SOOD, JM ITA No. 165/MUM/2010 Assessment Year: 2005-06 Sajjanraj S. Kawar 312, *A' Wing, Ahura Centre, 82, Mahakali Caves Road, MIDC Andheri (East); Mumbai: Vs: DCIT 14(1), Mumbai: PAN No. AADPK9316J (Appellant) (Respondent) Revenue By: Sh: A. Ramachandran Assessee By: S/sh: Vinod Kumar Bindal & Gaurav Bansal. Date of Hearing 26/10/2016 Date of pronouncement : 24/01/2017 ORD ER PER RAVISH SOOD, JUDICIAL MEMBER The present appeal has been filed by the assessee against the order of CIT(A)-25, Mumbai, dt:26/10/2009, which in itself has arisen from the assessment order passed by the A.O under section 143(3) of the Income Tax Act, 1961(in short *Act), dated 31/12/2007 . Pa g e | 2 2 The brief facts of the case are that the assessee who derived business income by way of share of profit from partnership firms, income from house property, capital gains and also income from other sources, had filed his return of income for A.Y. 2005-06 on 02.01.2006 declaring total income of Rs_ 73,63,320/-, which was processed as such u/s 143(1) of the 'Act . The case of the assessee was taken up for scrutiny assessment under Sec. 143(2). That during the course of assessment proceedings the A.O called upon the assessee to furnish details as regards the Long term capital gain' (for short LTCG) of Rs. 66,95,035/- shown by him in his return of income: The assessee in compliance to the directions of the A.O, therein furnished details as regards 1,32,000 equity shares of M/s Fast Track Entertainment Ltd: which as claimed by the assessee were purchased as on 07.04.2003, 09.04.2003, 15.04.2003 and 17.04.2003 through a registered stock broker; viz M/s Vijay Bhagwandass & Co:, and were thereafter sold in the month of April and May, 2004. That doubts were raised by the A.O as regards the date of purchase of shares, because he observed that on one hand the assessee as per the statement of the LTCG' filed alongwith the return of income had claimed that the shares were purchased during the period 07.04.2003 to 18.04.2003, while for the shares were credited in the 'demat account' of the assessee and payments for the same were made to the share broker during the period April, 2004. The assessee in his attempt to dispel the doubts raised by the A.O, therein submitted that the Pa g e | 3 shares were purchased and held by the broker, viz. M/s Vijay Bhagwandass & Co. It was submitted by the assessee that the broker had agreed to buy securities on the behalf of the assessee, and was as such authorized to retain both the securities and the credit balance lying in the account of the assessee with him, till final settlement: The assessee further on a query by the A.O as regards the reasons leading to delay involved in making the payment to the broker and the dematerialization of the shares, therein submitted that as he was unable to make the payment, therefore the shares remained lying in the Pool account' of the broker. The assessee further submitted that it had received several reminders from the broker to settle his account and take the delivery of his shares, however he being in financial difficulty made the payment in the month of April, 2004, and got the shares transferred in his 'demat account' . The assessee placed on record of the A.0 the copy of the Pool account' of the broker, wherein the quantity and date of shares, as claimed by the assessee stood reflected. The A.O however not being satisfied with the explanation of the assessee that he had purchased the shares during the period 07.04.2003 to 18.04.2003, thus concluded that the assessee had purchased the shares in the month of April, 2004, and as such had held the same for a period of less than 2 months. The A.O in the backdrop of his aforesaid observations, thus held that the shares having been held by the assessee for a period of less then 12 months, were thus a 'Short term capital asset' , and assessed the Pa g e | 4 profit of Rs. 66,95,035/- on sale of the said shares as 'Short Term Capital Gain' (for short 'STCG , and assessed the income of the assessee at Rs. 73,63,320/- 3 The assessee assailed the assessment order before the CIT(A): The assessee submitted before the CIT(A) that the shares were purchased between 07.04.2003 to 18.04.2003 for and on his behalf by the stock broker, viz M/s Vijay Bhagwandass & Co. and had remained in the Pool account' of the broker from the date when these were purchased, till the date they were transferred to the 'demat account' of the assessee The assessee substantiated his aforesaid contention before the CIT(A) by placing on record the photocopies of the "Contract notes' for purchase and sale of the said shares It was further submitted by the assessee that the fact that the shares had been purchased prior to the transfer of the same to his 'demat account , could inescapably be gathered from the very fact the same were reflected in his Balance sheet' as o 31.03.2004, which was filed along with his return of income for A.Y. 2004-05. It was submitted by the assessee that the shares remained in the Pool account' of the broker, as the assessee could not settle his account with the broker, who during the intervening period had sent repeated reminders for payment of the outstanding amount, vide letters dated:30.04.2003, 31.10.2003, 31.01.2004 and 01.04.2004. The assessee in order to drive home the fact that the aforesaid shares were purchased by him between Pa g e | 5 07.04.2003 to 18.04.2003, therein submitted before the CIT(A) a letter dated:07.02.2004 addressed to the aforesaid share broker, wherein the assessee in light of delay on his part to clear the outstanding dues had agreed to pay interest o the outstanding amount to the broker. The assessee further furnished with the CIT(A) a copy of his account in the Books of accounts' of the broker during the period 01.04.2003 to 31.03.2005, along with a copy of the Pool account' of the broker, where the said shares were credited in April, 2003. It was further averred by the assessee that he was informed by the broker that all the share transactions were reported to the stock exchange. The assessee submitted before the CIT(A) that in compliance to the directions issued to him during the course of the hearing of the appeal, he had made persistent requests to the share broker viz M/s Vijay Bhagwandass & Co for making available a copy of his balance sheet' for the F.Y. 2003-04, so that the same may be placed on record, however the broker had declined to make the same available to him: Thus in light of the aforesaid facts, it was submitted by the assessee that the A.O loosing sight of the substantial documentary evidences which irrebutably proved that the shares were purchased by the assessee between 07.04.2003 to 18.04.2003, and as such the holding period of the aforesaid shares by the assessee was in excess of 12 months, had thus gravely erred in assessing the profit o the transfer of the shares, as 'STCG' in the hands of the assessee. The assessee took support of a CBDT Circular No. 704, dated:28.04.1995 and Pa g e | 6 Circular No. 768, dated:24.06.1998, wherein it was clarified that in respect of the purchase of securities the holding period shall be reckoned from the date of the brokers note for purchase on behalf of the investors, if the securities are ultimately delivered to the purchasers: It was thus averred by the assessee that the order of the A.0 who had declined to adopt the dates borne on the brokers note' i.e 07.04.2003 to 18.04.2003, as the date of purchase of shares by the assessee, and had rather gone by the date when the shares were dematerialized and had assessed the gain on the transfer of the shares as 'STCG' in the hands of the assessee, being contrary to the mandate of the CBDT Circular, thus could not be sustained and was liable to be vacated. 4_ That during the course of the appellate proceedings the CIT(A) after deliberating on the contentions raised by the assessee before him, therein called for & Tremand report' from the A.O, with specific directions for making certain verifications. The CIT(A) thereafter deliberating o the Temand report' of the A.0, and the rejoinder filed by the assessee, therein being of the view that there were multiple discrepancies and incoherency in the explanation and the material placed on record by the assessee, thus dismissed the appeal. 5 The assessee being aggrieved with the order of the CIT(A), had carried the matter in appeal before uS. The Ld. Authorized Representative (for short 'A.R) reiterating the submissions which were made before the lower authorities and referring to the Pa g e | 7 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 07.04.2003 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: 1,70,246.57; (iii): Copy of the 'demat account' of the assessee which revealed that the 'credit' and *debit' of the aforesaid 1,32,000 shares took place during the period April,2004 to May, 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 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 for him to clear his account by April, 2004, with a request that interest may be charged on the Pa g e | 8 outstanding amount; (vi): Copy of the ledger account of the assessee appearing in the books of accounts' of the broker viz. M/s Vijay Bhagwandass & Co. during the financial year 2003-04 revealing a 'debit balance' of Rs. 1,70,246.57 (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 broker 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: AR in the backdrop of his submissions made before us and by placing heavy reliance on the aforesaid documentary evidence to which our attention was drawn during the course of 'hearing of the appeal, therein submitted that the CIT(A) had erred in sustaining the order of the A.0 that the gain and transfer of the shares was liable to be assessed in the hands of the assessee as 'STCG failing to appreciate that the A.O had erroneously adopted the date on which the shares were received by the Pa g e | 9 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. DR heavily relied on the order of the CIT(A) and therein submitted that the appeal of the assessee being devoid of any merits, was thus liable to be dismissed: 6. We have heard the Ld. Representatives 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 07.04.2003 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 had on the basis of their respective observations 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 that the assessee had came up with a concocted story, Pa g e 10 had thus characterized the entire exercise carried out by the assessee as a brain child of the latters 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 1,32,000 equity shares of M/s Fast Track Entertainment Ltd:_ were purchased by him during the period 07.04.2003 to 18.04.2003, and were thereafter held on his behalf by the share broker , viz Vijay Bhagwandas & Co. in his Pool account , till April, 2004, i.e upto the date the same were transferred in the 'demat account' of the assessee. The observations of the CIT(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 07.04.2003 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. 1,82,495/-, however the copies of the reminder letter of the broker viz Vijay Bhagwandas & Co-, dated: 30.04.2003, therein revealed that the Pa g e 11 broker had time and again called upon the assessee to pay an outstanding amount of Rs. 1,48,694.30. (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, had 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 & 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 a paper bills, and as such much support could not be drawn from the same. P a g e 12 (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 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 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 21,552/- 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 on 31.03.2005, 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 Vijay Bhagwandas & Co. on behalf of his client; i.e the assessee, for a period of more than 12 months, being against the norms of NSE, P a g e 13 thus did lead to raising of doubts as regards the claim of the assessee_ (xi). That as the assessee had filed his returns of income for A.Y(s). 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 f 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. Rather as per the information which was received from Bombay Stock Exchange, the assessee was registered as a client with trading member, viz Mehta Equities Ltd: _ formerly known as Rennaissance Securities Ltd.