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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI JOGINDER SINGH, JM & SHRI SANJAY ARORA, AM
O R D E R Per Sanjay Arora, A. M.: This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-11, Mumbai (‘CIT(A)’ for short) dated 26.12.2011, partly allowing the Assessee’s appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter) for the assessment year (A.Y.) 2004-05 vide order dated 21.12.2006.
None appeared for and on behalf of the assessee-appellant when the appeal was called out for hearing, nor any adjournment application stands received. This, despite the hearing having been adjourned for today instant at the request of the assessee’s counsel, Shri Mukul J. Vora (vide his letter dated 22.7.2015/copy on record). It was (A.Y. 2004-05) Bhanuben Danji Shah vs. Asst. CIT noted that on earlier occasions as well, the appellant has sought for and been granted adjournment of hearing. The appeal, filed in 2012, is pending since long. It was under the circumstances only considered it proper that the matter to be proceeded with and the appeal decided after hearing the party before us and considering the material on record.
The principal issue, raised per Ground # 1 of the instant appeal, is whether the income by way of sale of shares in Mantra Online Ltd., stated to be purchased and sold as under, is assessable as income from other sources or as long-term capital gain (LTCG), i.e., as returned by the assessee: Particulars Date Amt (in Rs.) Purchase 28.1.2002 38,000/- Sale - 8,64,500/- While the Revenue regards the said transactions (of purchase and sale) to be sham or a make-believe, the assessee claims it to be a transaction of actual purchase and sale of the said shares.
We may proceed by recounting the background facts and circumstances of the case. The Assessing Officer (A.O.), in verification of the assessee’s claim with regard to the impugned LTCG, made enquiries from the company as well as from the relevant stock exchange and the brokers u/s. 133 of the Act. The company replied by confirming the quantity of the shares, though the folio and the distinctive numbers of the shares were not in agreement with that furnished by the assessee. Enquires with the Calcutta Stock Exchange, at which the shares were traded, revealed that the brokers had done ‘cross deals’ in the said scrip on the given dates with the code as ‘self’. This, thus, clearly indicated that the brokers had executed trades in the scrip for themselves and not for any client. As regards the enquiries with the brokers, only one, Rajendra Prasad, confirmed the issuance of the bills on the assessee (refer para 4A at pages 2-3 of the assessment order). Mantra Online Ltd. is a little known, obscure (A.Y. 2004-05) Bhanuben Danji Shah vs. Asst. CIT company, in which no prudent investor would invest, and of the business or the financial performance of which the assessee was unaware. The share price, as per the purchase and sale bills, showed a remarkable growth, albeit for no apparent reason or basis. The transactions were thus considered dubious and, in any case, not proved, the onus for which was on the assessee. The entire amount credited, ascribed to the sale proceeds of the said shares, was accordingly deemed as income u/s. 68 of the Act. That is, the sale was not regarded as a genuine transaction, which was confirmed by the first appellate authority, so that, aggrieved, the assessee is in second appeal.
We have heard the party before us, and perused the material on record. 5.1 None of the facts stated in the orders of the Revenue authorities, which are in the nature of primary facts, are disputed. There is, in fact, no material on record nor any reference to any submission by the assessee before them contradicting or controverting the same, with, on the contrary, the A.O. noting no representation from the assessee, much less production of supporting evidences, as called for, even till the date of completion of the assessment on 21.12.2006 (refer paras 5, 9.1 of the assessment order). The assessee’s De-mat account reflects shares in Mantra Online Ltd. (number not specified) in June, 2002. Another 10,000 shares therein stand credited to the assessee’s de-mat account from 16.4.2003 to 30.4.2003. The shares, upon dematerialization loose their distinctive identity, so that these have to be reckoned – for the purpose of transfer, on some reasonable basis, as ‘First-in-first-out’ (FIFO). Accordingly, the shares credited first may be regarded as sold first. Further, even if no other satisfactory evidence toward purchase and sale of shares is provided, the credit and debit of the shares in the assessee’s de-mat account can reasonably be regarded as purchase and sale of shares in the relevant scrip on the relevant dates, resulting in long-term or, as the case may be, short-term capital gain (STCG), on transfer, i.e., depending on the holding period. We say so as the shares credited during the year (i.e., from 16.4.2003 to 30.4.2003), where sold during the year, would only result in a STCG (loss). No depository statement of transfer on account of sale of (A.Y. 2004-05) Bhanuben Danji Shah vs. Asst. CIT shares has however been filed (refer para 2.5 of the impugned order). The same is a crucial piece of evidence, assuming a mandatory nature, as the reflection of the transfer of the shares in the de-mat account of the transferor is a concomitant of transfer. How could, in its absence, one may ask, the assessee be regarded as having sold her shares, only on the transfer of which could capital gain arise?
5.2 The shares are listed at the Calcutta Stock Exchange at the relevant time. Even if, therefore, no credible evidence toward the purchase and sale value of shares, i.e., on the relevant dates, is forthcoming, the market quote – taking the mean of the high and low for that date/s, could be adopted as a surrogate measure of the price/s at which the shares can be said to have been acquired and transferred. This is as what the capital gain essentially seeks to capture is the difference in the value experienced by the scrip over the holding period, as realized. The primary evidence toward sale of shares, in the form of a debit to the assessee’s de-mat account, signifying the transfer, is missing. Couple this with the fact that the information received from the company confirms the transfer of shares of a different folio and distinctive numbers, and the picture is complete. That the shares ‘sold’ by the assessee are not that ‘bought’ by him in the first place. This, then, becomes a corroborative fact, which also agrees with the information received from the stock exchange, whereby the shares transacted by the brokers are not under the client codes but as cross deals under their own codes. When the shares ‘transacted’ are not that belonging to the assessee, how could she be the transferor thereof? True, the individual shares loose their identity on dematerialization. However, it is only the shares (defined by distinctive numbers) acquired by the assessee that are subsequently dematerialized. In the records of the company, it is these shares that would stand registered in the assessee’s name.
5.3 In fact, even with regard to the value, the evidence in the form of statement by the Depository reflects their market value at Rs.2 per share as on 31.3.2003 (para 2.5 of the impugned order). The jump in the price to Rs.90/-, at which the shares are (A.Y. 2004-05) Bhanuben Danji Shah vs. Asst. CIT stated as sold, would therefore require being suitably demonstrated, as by way of, as also indicated earlier, the market quote/s of the scrip on the relevant date/s. No fact or information, much less evidence, is brought on record which could justify the quantum jump in price, i.e., as it transpires, within months, for the price to spiral, viz. industry news, operating/financial performance - or even prospects thereof, etc. In its absence, the price rise, which alone yields the impugned gain, remains totally unexplained and unsubstantiated.
5.4 Then, the shares are stated as sold ‘off market’. Even so, the same would only be at the extant rate. The said manner only signifies the shares being sold outside the regular market or market mechanism. Kerb trading, as it is referred to in the stock market circles, is the traditional feature thereof (though has become almost extinct in view of the market being highly regulated and very vast), where brokers continue trading activity outside the market hours, at prices which incorporate information that may continues to pour subsequent to the close of the market. The question, however, is why should the brokers not transact the shares giving the client codes, but using their own? Further, that such (off market) transactions do not have the protection of the market, including as to the price charged, which is well regulated by law, serving as a strong disincentive for entering into such trades, is another matter. Again, the law (Securities Contract Regulation Act) provides for such off-market transactions, stipulating them to be as spot transactions, i.e., accompanied by payment and delivery of shares, which in the case of de-mat shares, as in the instant case, is signified only by a debit or credit to the de-mat account – which is missing, much less on an immediate basis. Rather, such transactions would only be with known persons, the details of whom can in any case be gathered in-as-much as the shares are delivered to and the payment received from a person/s, so that the details of the buyers would be readily available and, rather, should have been adduced.
(A.Y. 2004-05) Bhanuben Danji Shah vs. Asst. CIT 5.5 The A.O. has relied extensively on case law to bring home the point that tax proceedings are not ‘judicial proceedings’ in the sense the phrase is ordinarily used, so that the assessing authority is not fettered or bound by the technical rules of evidence contained in the Evidence Act (CIT vs. East Coast Commercial Co. Ltd. [1967] 63 ITR 449 (SC); C. Vasantlal & Co. vs. CIT [1962] 45 ITR 206 (SC); and Dhakeswari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 775 (SC)). The Revenue is not required to prove its case with mathematical precision in-as-much as absolute certainty in the matter of human affairs cannot be predicated, and the law accepts probability as a working substitute for the purpose of assessment under the Act. The same represents trite law. The law does not require one to prove an impossible, so that all it requires is the establishment to such a degree of probability that any prudent man may on its basis believe the existence of the fact in issue. Adjudications under the Act could be based on such basis, and toward which we may refer to the decision in the case of Sumati Dayal vs CIT [1995] 214 ITR 801(SC), where the Hon’ble Court upheld the rejection of a plethora of documentary evidences on the basis of it being against the preponderance of human probabilities. Be that as it may, in our considered view the assessee has been wholly unable to substantiate her case with any credible evidence/material on record, with, rather, the Revenue bringing out several deficiencies, raising substantial doubts on the genuineness of the transaction. In fact, each of the several aspects of the transaction/s, discussed here-in-above, viz. date/s of the purchase and sale of the impugned shares; the ownership of the shares ‘sold’; the holding period of the shares ‘sold’; the price rise; the authenticity of the transaction/s; the identity of the buyers, etc., each of which is by itself sufficient to impugn the genuineness of the transaction/s, remain unproved and, thus, not explained, much less satisfactorily. That being the case, the Revenue is wholly justified in bringing the entire credit (Rs.8,64,500/-), ascribed to the sale of shares, to tax u/s. 68 of the Act. We decide accordingly.