NEEMA THAPPA,MUMBAI vs. ITO -26 (2)(4), MUMBAI

The facts relating to the case are stated in brief. The assessee is an Individual. In the return of income, she declared long term capital gain arising on sale of shares of Talent Infoway Ltd at Rs.23.62 lakhs and claimed deduction u/s 54F of the Act. The assessee had purchased the shares of above said company on 07-10-2003 for a sum of Rs.37,852/- and sold them on 12.01.2005 for a sum of Rs.24.01 lakhs. The return of income was initially processed u/s 143(1) of the Act. Subsequently, the revenue carried out search and seizure

Before the AO, the assessee submitted the evidences in the form of broker notes, ledger account copies, receipts etc. issued by M/s Mahasagar Securities P Ltd to prove the purchase of shares on 7.10.2003. The assessing officer noticed that the shares were purchased on 7.10.2003 and the payment was made by way of cash in two instalments, viz., Rs.20,000/- on 09.10.2003 and Rs.17,852/- on 10.10.2003. Since the assessee failed to produce bank statement for that period, the AO disbelieved the claim of purchase of shares. The assessee had sold the shares through M/s Mahasagar Securities p Ltd for a sum of Rs.24.01 lakhs and received the sale consideration in instaments from 19.01.2005 to 18.02.2005. The AO noticed that the shares of M/s Talent Infoway Ltd had been originally allotted to Shri Mukesh Choksi, the director of M/s Mahasagar Securities P Ltd and it was transferred to the assessee by making endorsement in the back side of the share certificate. The AO, by placing reliance on the statement given by Mr. Mukesh Choksi and the report given by the DDI, Investigation wing came to the conclusion that the assessee had obtained entries for bogus capital gains and accordingly assessed the sale consideration of shares of Rs.24.01 lakhs as income of the assessee. Since the claim of Long term capital gain was rejected, the claim for deduciton u/s 54F (wrongly stated

We heard the parties and perused the record. The Ld A.R submitted that the assessee has furnished evidences towards purchase and sale of shares. He submitted that the assessee has withdrawn funds from her bank account for purchasing the shares and received the sale consideration by way of cheques. Accordingly he submitted that the assessee has discharged the onus of proving purchase and sale of shares. He submitted that the documents furnished by the assessee were not proved to be bogus by the tax authorities. He submitted that the assessing officer has simply relied upon general statement given by Shri Mukesh Choksi and the report given by DDI (Inv) for rejecting the long term capital gains disclosed by the assessee. He submitted that the AO did not make any independent enquiries nor did he take any step to bring any material on record to disprove the documents furnished by the assessee. He submitted that the assessee had purchased the shares in the off market transactions and sold the shares through her de-mat account. The purchase of shares through off- market transactions are not illegal. He submitted that the co-ordinate bench of Tribunal has considered an identical issue in the case of Mukesh R Marolia Vs. ADDL CIT (2006)(6 SOT 247)(Mum) and has decided the issue in favour of the assessee. He submitted that the decision of Tribunal rendered in the above cited case has since been upheld by the Bombay High Court in the decision rendered in of 2007 dated 7th Sep. 2011 and the SLP preferred by the revenue before Hon’ble Supreme Court has been dismissed.

The Ld D.R, on the contrary, submitted that the assessee has not properly explained the sources of purchases. Referring to the cash book prepared and submitted by the assessee, the Ld D.R submitted that the cash book of the assessee shows negative cash balance on the dates on which the payments

In the rejoinder, the Ld A.R submitted that the assessee has explained the sources for purchase of shares by showing the withdrawals made from her bank account. He further submitted that the assessee has used valid share transfer forms only for effecting transfer of shares to her name. He further submitted that the negative cash balance was not the case of the AO and further the cause of action, if any, relating to negative cash balance would arise for AY 2004-05 and not to the year under consideration.

We have heard rival contentions and perused the record. We notice from the paper book filed by the assessee that the assessee has furnished copies of broker notes, ledger account copies and receipts issued by the broker as evidences in support of purchase of shares. The assessee has also furnished copies of share certificates along with copies of share transfer forms. A perusal of the share certificates show that they have been transferred to the name of the assessee on 29.11.2003 by making necessary endorsement on the back side of the share certificates. Thereafter, the assessee has transferred the shares to her de-mat acccount and has sold the shares on 12-01-2005.

We further notice that the assessee has filed her return of income for assessment year 2004-05 on 26.10.2004, wherein the purchase of shares of M/s

Thus, we notice that the assessee has furnished evidences for purchase as well as sale of shares. We notice that the tax authorities have rejected the claim of purchase and sale of shares by placing reliance on the report given by the DDIT (Inv.), who gave the report by placing reliance on the general statement given by Shri Mukesh Chokshi. We notice that the assessing officer has not shown that the transactions of purchase and sale of shares of the assessee have been pointed out to Shri Mukesh Choksi and he has claimed to be the same as bogus. We also notice that the assessing officer did not make any independent enquiry in respect of the transactions carried on by the assessee, in consequence to the general statement given by Shri Mukesh Choksi. Thus, we notice that the tax authorities have drawn adverse inference against the assessee on the basis of the report given by DDIT (Inv), which was prepared on the basis of statement given by Shri Mukesh Choksi.

The Ld A.R placed reliance on host of case laws to support his contention, more particularly, in the case of Mukesh Marolia (supra). The various case laws relied upon by the assessee state that the addition cannot be made merely on 6 Ms. Neema Thapa presumptions by totally disregarding the evidences furnished by the assessee. In the instant case also, the evidences furnished by the assessee in support of purchase and sale of shares have been disregarded by the tax authorities without proving them to be non-genuine. Hence, we are of the view that the Ld CIT(A) was not justified in affirming the decision taken by the AO to assess the sale proceeds of shares of M/s Talent Infoway Ltd as unexplained cash credit. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to accept the claim of Long term Capital gain.

Since we have held that the long term capital gain declared by the assessee should be accepted, the claim for deduction claimed by the assessee u/s 54F of the Act is required to be allowed. Accordingly we direct the AO to allow the claim for deduction u/s 54F of the Act.

In the result, the appeal filed by the assessee is allowed. Order has been pronounced in the Open Court on 16.6.2016.