VINOD J. SHARMA,THANE vs. ACIT (CC)-11, MUMBAI

आदेश / O R D E R Per Ashwani Taneja (Accountant Member):

3 Vinod J. Sharma statements made with respect to the transaction in question and gave vague replies. Hence, the addition of Rs.54,44,645/- made relying on the statements of the witnesses is not at all justified and the same may be deleted. B. Addition on account of alleged payment of commission Rs.2,72,232/- 4. The Ld. CIT(A) erred in confirming the addition of Rs.2,72,232/- made by the Assessing Officer on the basis of conjecture and surmises that the Appellant has paid alleged commission at the rate of 5% to earn the capital gains. The addition of Rs.2,72,232/- has been made without any basis hence the same may be deleted.

4 Vinod J. Sharma

2.1. During the course of assessment proceedings, it was noted by the AO that during the year the assessee has disclosed Long Term Capital Gain of Rs.36,34,635/- from sale of share of script “Fast Track”, as per following details:

Broker Date of Bill Quantity Rate Amount M/s. T.H. Vakil 05.04.2004 112500 3.65 Rs.4,10,625/- Securities P. Ltd. (purchase)

Vijay Bhagwandas 05.04.2004 112500 Average Rate Rs.54,44,645/- & Co (Sale) Rs.48 It is noted from the perusal of the assessment order that during the course of assessment proceedings, summons were issue to M/s. T.H. Vakil Shares & Securities P. Ltd. & M/s. Vishal Bhagwandas & Co. Statements on oath were recorded in this connection. The parties denied having issued the bills produced by the assessee. It is mentioned in the assessment order that the assessee was given a copy of the above statements vide order sheet entry dated 25.09.2007 and was 5 Vinod J. Sharma asked to justify his claim of long term capital gain in light of the investigations carried out by the AO and facts brought on records. In reply, the assessee is submitted that allegations made in the statements recorded by the AO are false and needs to be ignored. It was further submitted by the assessee to the AO that the impugned shares were purchased way back in the F.Y. 2002-03 and these were disclosed by the assessee in balance sheet for A.Y.2002-03. It was further submitted by the assessee that sales bills of the broker M/s. Vijay Bhagwandas and CO. were submitted wherein commission, service tax and STT have been charged. It was further observed by the AO in the assessment order that the impugned shares claimed to have been sold by the assessee belonged to the company namely M/s. Fast Track Ltd., and that Sh. Narendra Shah appeared on behalf of one of the brokers through whom shares were purchased and stated that impugned transactions were bogus. Similarly, Sh. Vishal Shah also attended before the AO on behalf of the other brokers namely M/s. Vijay Bhagwandas & Co. through whom shares were sold, and statement of Shri Vishal Shah was recorded, wherein he also stated that no genuine business transactions have been made by the said broker with the assessee. Keeping in view, all these facts and circumstances of the case, the AO finally held that in fact purchase as well as sale transactions of the script Fast Track Entertainment was bogus. Thus, the AO treated the amount of long term capital gain, as shown by the assessee in the return of income on account of sale of shares of Fast Tract Entertainment Ltd., as undisclosed

6 Vinod J. Sharma income of the assessee , amounting to Rs.54,44,645/- The AO also made addition on account of commission paid out of the books of account on these transactions amounting to Rs.2,72,232/-.

2.2. Being aggrieved the assessee carried the matter in appeal before the Ld. CIT(A), wherein it was contended that AO has not properly examined the details and evidences and has not given opportunity of cross examination of the persons whose statements were recorded by the AO at the back of the assessee. The Ld. CIT(A) directed the AO to grant opportunity of cross examination of the aforesaid persons in the remand proceedings. As per remand report of the AO, he had granted opportunity of cross examination to the assessee in the remand proceedings. The Ld. CIT(A) after considering the assessment order, remand report of AO, reply of the assessee to remand report and further submissions of the assessee, decided the appeal. In the appeal order, it was held by the Ld. CIT(A) that the case of the assessee is one of the cases of penny stock shares which were used for bogus capital gain. It was further held by him that Fast Track Entertainment is one of the companies who are using penny stocks. Thereafter the Ld. CIT(A) went on describing modus operandi used by the companies who are generating bogus capital gain using penny stocks, and then finally, taking into account all the facts and circumstances of the case, he concluded that purchase and sale of impugned shares was bogus. Resultantly, long term capital gain disclosed by the assessee was also bogus, and 7 Vinod J. Sharma therefore additions made by the AO on account of bogus capital gain and commission thereon were confirmed.

2.3 We have gone through the arguments made by both the sides and the orders of the lower authorities. During the course of hearing, our attention was drawn on various evidences filed by the assessee, before the AO and before the Ld. CIT(A), establishing that purchase of shares of Fast Track Entertainment Ltd. was done by the assessee in F.Y. 2002-03 and sale of the shares have been done in impugned F.Y. i.e. F.Y. 2004-05. Our attention has also been drawn on the copies of shares certificates of Fast Track Entertainment Ltd. duly transferred in the name of the Assessee. Further, our attention was drawn on the copies of transfer letter issued by this company namely Fast Track Entertainment Ltd. Our attention was also drawn upon the contract notes issued at the time of purchases of sales and shares. It was vehemently argued that the purchases of impugned shares were done in the earlier years, and the same was reflected in the balance sheet filed along with return of income filed by the assessee and same has been accepted by the Revenue. It has been further argued that entire sales consideration of these share has been received by way of cheques and this fact can be very well verified through respective banks, even as on date. The Ld. Counsel appearing on behalf of the assessee submitted that the AO has disregarded all the documentary evidences, relying upon oral statements of the two persons. It has been contended by the Ld. Counsel that the Mr. Narendra Shah was 8 Vinod J. Sharma not authorized for making statements on behalf of M/s. T.H. Vakil Shares & Securities Pvt. Ltd. and therefore, his statement could not be taken into consideration. The AO should be directed to verify the facts with duly authorized person of M/s. T.H. Vakil Shares & Securities Pvt. Ltd. Similarly, with regard to the statement of other person namely Mr. Vishal Shah, it has been contended by the Ld. Counsel that statement of Mr. Vishal Shah is vague and self- contradictory and cannot be relied upon. On the other hand, Ld. DR fairly accepted that though the assessee had submitted requisite documentary evidences in support of its claim and AO could not bring on record contrary evidences to contradict the evidences filed by the assessee, but there statements of few persons against the assessee. However, when bench put across factual queries to the parties, both the parties i.e., Ld. Counsel as well as Ld. DR fairly agreed that there were some gaps and contradictions. It has been stated by the AO in the assessment order, that there is no Demat account. On the other hand, Ld counsel has contended that shares were converted in the Demat account on the sale of shares. Ld. AO has field to verify the demat account. Further the company namely Fast Track Entertainment Ltd., is existing on the records of ROC as well as on the records of income tax department. The AO failed to make inquiries of the said company with these agencies, and further, AO should make inquiries with the authorized persons of the brokers only. Therefore, on the basis of request made from both the sides, and in view of facts and circumstances of this case, we

9 Vinod J. Sharma find it appropriate to send this matter back to the file of the AO with the direction to make proper inquiries and to examine all the documentary evidences as have been submitted by the assessee in support of its claim and for this purpose the AO shall afford opportunity of hearing to the assessee. The AO shall exercise its powers, as has been conferred upon him under the law, to make inquiries from the persons/agencies concerned. The assessee shall extend all requisite cooperation as may be directed by the AO by filing complete address and any particulars of the persons concerned. The AO shall grant opportunity of cross examination to the assessee, in case he would be relying upon statement of any of the persons against the assessee. We, therefore, send this matter back to the file of the AO with our directions as stated above.

Order pronounced in the open court on 28th October 2015.