ADDL CIT 13(3), MUMBAI vs. LATE SHRI HIMATLAL H DADIA (THROUGH L/J SJRO JITEN DAIDA), MUMBAI

आदेश / O R D E R

PER SHAILENDRA KUMAR YADAV, JM

1. (i) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.16,15,188/- made by the Assessing Officer u/s 68 of the IT Act. (ii) While doing so, the Ld. CIT(A) has erred in not appreciating that the transactions undertaken by the Late Shri Himatlal H. Dadia assessee are not genuine transactions of purchase and sale of shares but the book entries taken for long term capital gains. 2. The appellant prays that the order of the CIT(A) on the above ground(s) be set aside and that of the Assessing Officer be restored.” 3. Assessee is engaged in the business of dyes and chemicals. The only issue before us is the action of the Assessing Officer of making addition of `16,15,188/- invoking provisions of section 68 of the Act.

Assessing Officer has discussed the issue in pages 2 to 5 of the assessment order. The facts leading to this addition were that the total Long Term Capital Gain included an amount of `15,49,226/- earned on sale of shares of M/s. Shuti Construction. The Assessing Officer found that 150000 shares were purchased on 31.07.2003 for an amount of `65,961/-. These shares were sold on 15.12.2004 for a total consideration of `16,15,188/-. During assessment proceedings, the A.O asked appellant to furnish following details: -

“It is seen from the Audit Report and the annexures flied along with the return of income with regard to Long-term Capital Gains: a) It is seen that you have purchased 150000 shares of M/s. Shukun Construction. The total purchase price claimed to be paid was Rs. 65,961.33/-. It is therefore ascertain that all such shares were allegedly sold on 15.12.2004 [Date of purchase : 31.07.2003] for an amount of Rs. 16,15,188.30 resulted into Long-term capital gains. You have claimed the net sales consideration as Long-term capital gains, which is included in the total Long-term Capital Gains of Rs.18,36,948.01. The same amount has been claimed as exempt u/s. 10(38) of the Act.

Late Shri Himatlal H. Dadia b) In order to verify the claim of Long-term Capital Gains, you are required to furnish whether the purchases of shares were made by cash or by cheque. Provide the details of the same if payments were payment made in cheques. c) Contract notes issued by progress on account of purchase and is seen that the purchase price per share is Rs. 0.43/- and the 'e price per share comes to Rs. 10.76/- resulting in such huge appreciation in value of shares in such a short period. Please submit further - i) Whether Shukun construction is a listed company of the stock exchanges. ii) When did such shares credited in your De-mat account. iii) Demat statement for the entire period when such shares were credited in you account and debited from your account at the time of sale. iv) Whether you have received any divided from the company during the holding period. v) Balance Sheet and Profit and Loss account of the company as on 31.03.2003, 31.03.2004 and 31.03.2005, if the same was sent to you by the company."

Late Shri Himatlal H. Dadia "Regarding long term capital gain on sale of shares of M/s. Shukun Construction. a) we have purchases 15000 shares face value of Rs. 10/- and which is spilled in Re. 1/- per share and hence total shares become 1,50,000/-. b) Purchases of shares were made by cash, copy of bill and contract along with payment vouchers is enclosed. c) Contract Note and bill of purchase and sale is enclosed. d) M/s. Shukun Construction is listed with Bombay Stock Exchange and shares are credited in broker account on July, 2003 and after splited in October, 2004 and it is credited in our client Demat account in November, 2004. e) Copy of Demat account is already submitted and we have not received any dividend or balance sheet and profit and loss account of the company."

According to the Assessing Officer, assessee failed to furnish the Balance Sheet and Profit & Loss Account of M/s. Shukun Construction, shares of which were purchased and sold by the assessee. The Late Shri Himatlal H. Dadia Assessing Officer asked the assessee to substantiate the fact that shares were actually purchased in July, 2003. Assessing Officer also asked assessee to submit proof of physical shares allotted to him and to furnish the evidence that these shares were actually transferred in the name of assessee from the previous share holder. Assessing Officer mentioned in the assessment order that assessee failed to furnish the explanation/ evidence. Assessing Officer doubted as to whether these shares were bonafidely purchased through said broker in the month of July, 2003. Assessing Officer conducted various enquiries in this regard and having considering the same he added `16,15,188/- under section 68 by observing as under: -

In view of the above, it is held that the alleged purchase and sale of shares of M/s. Shukum Construction were transacted on to book bogus capital gain in the accounts of the assessee. Hence, the amount of Rs.16,15,188/- is treated as not explained to the satisfaction of the Assessing Officer and the sum so credited is considered as the income of the assessee u/s. 68 of the I.T. Act, 1961. Penalty proceedings u/s. 271(1)(c) of the Act are initiated separately for concealing the true and correct particulars of income by the assessee.

Late Shri Himatlal H. Dadia details. On the basis of details/evidences filed, the learned A.R. for the assessee prayed that the addition made by the Assessing Officer has rightly been deleted by the CIT(A), same should be upheld.

Late Shri Himatlal H. Dadia the transaction of purchase of shares by the assessee, print-out of website showing stock supplied of shares, (iv) copy of assessee's letter to the broker requesting for transferring 150000 shares (after splitting up into assessee's Demat account). Assessee requested for admission of these additional evidences. Having considered the same CIT(A) observed that firstly, the issue of purchases, non service of notice on broker from whom shares were purchased, purchase of shares in cash, holding of assessee's share by the broker from whom the shares were purchased, thereafter transfer of these shares after splitting up into the Demat account of the assessee, sale of shares by assessee through another broker and finally the receipt of sale consideration by cheque by the assessee. As discussed above, during assessment proceedings assessee filed various details and evidence in support of his claim of purchase of above shares. The Assessing Officer doubted the genuineness of purchase of shares but ultimately he made addition under section 68 of the Act in respect of sale consideration of `16,15,188/- received by the assessee through cheque from the share broker through whom the shares were sold. During assessment proceedings, the assessee filed copies of contract note for purchase of shares, copy of ledger account of assessee in the books of share broker from whom shares were purchased, .copies of receipt issued by broker to assessee for purchase of shares, computation of income, Balance Sheet as on 31.03.2004 and other annexure filed with return of income for A.Y. 2004-05, in which shares of M/s. Shukun Construction, were shown under the head 'investment in shares and debentures'.

Late Shri Himatlal H. Dadia appellate proceedings assessee also filed additional evidences. These additional evidences were relating to the purchase part of the transaction. Since, Assessing Officer did not make any addition on account of purchases i.e. investment made in purchase of share, therefore, these additional evidences were not forwarded to Assessing Officer for his comments. Assessee also filed before Assessing Officer, at relevant point of time, copy of demat statement of the assessee in which 150000 shares were credited to assessee's demat account on 22nd November, 2004. This demat account establishes the fact of ownership of the assessee of 150000 shares of M/s. Shukun Construction, as on 22nd November, 2004. No addition was made by the Assessing Officer on account of purchase consideration. The only addition made by Assessing Officer was in respect of sale consideration of `16,15,188/- under section 68 of the Act. Assessee also filed copies of contract note for sale of 150000 shares sold through the broker and copies of bank statement showing the receipt of amount of `16,15,188/- from the broker through banking channel. The Assessing Officer has made addition under section 68 of the Act. As per provisions of Section 68 of the Act assessee has to prove the nature of credit appearing in the books and also identity, creditworthiness and the genuineness of the credits appearing in his books of accounts. In the case of assessee, the credit of `16,15,188/- was received by the assessee from the broker through whom the shares were sold. Therefore, the nature of credit in the books was explained. The identity of the share broker was also established by the assessee by filing the contract note and other details of M/s. Sushil Finance Consultants Ltd., through whom the shares were sold. The creditworthiness of the share broker was not doubted by the Assessing Officer. Further, the genuineness of the Late Shri Himatlal H. Dadia transactions i.e. the credits in the books of assessee was also explained as received on account of sale of shares by the assessee. The existence of shares of 150000 in the hands of assessee was also established by filing concerned demat account. Therefore, the conditions for making addition under section 68 were missing in the case of the assessee. In view of the above the CIT(A) was justified in observing that the addition made under section 68 of the Act are not justified and the same were rightly deleted by him. This reasoned finding of the CIT(A) need no interference from our side.