SOWMYASHREE L. BELUR,MUMBAI vs. ACIT RG 20(3), MUMBAI

The facts relating to the issue are stated in brief. In the return of income filed for the year under consideration, the assessee declared short term capital gains arising on sale of following shares:- (a) Ahmed Nagar Finance. (b) Aptech Ltd (c) Manugraph (d) Micro Techno Ltd (e) Taneja Aerospace. The aggregate sale value of above said shares was Rs.1,00,63,197/- and the aggregate purchase price was Rs.38,65,164/- and accordingly the difference between the two has resulted in short term capital gain of Rs.64,44,753/-. The assessing officer noticed that the assessee had claimed to have purchased the above said shares in the months of April, 2005 to November, 2005 and all of them have been sold in the months of January, 2006 to March, 2006. Before the AO, the assessee filed copies of bills and contract notes in support of the purchases and sales.

The AO noticed that the assessee had purchased the shares through a broker named M/s Alliance Intermediateries & Network Pvt Ltd. However, it was noticed that the shares have been credited in the D-mat account of the assessee only in the month of January, 2006. He further noticed that the shares have been transferred to the D-mat account of the assessee from the d-mat account of M/s Sunchan Securities Ltd and not from the d-mat account of M/s Alliance Intermediateries & Network Pvt Ltd. The assessing officer issued notices u/s 133(6) of the Act to the above said two brokers in order to ascertain the genuineness of the purchases. Though M/s Sunchan Securities Ltd initially denied any transaction with the assessee, but later on clarified that it transferred the 3 shares to the assessee on behalf of M/s Alliance Intermediateries & Network Pvt Ltd. Before the AO, M/s Alliance Intermediateries filed a letter confirming the contract notes and purchase bills already furnished by the assessee. It is to be noted here that the assessee sold all the above said shares through another broker named M/s Skyes and Rays Equity

The assessing officer noticed certain deficiencies in the contract cum bill submitted by the assessee, i.e., it did not contain the code number of clients. Further he noticed that the payments have been made by the father of the assessee. The AO also made enquiries with M/s National Stock Exchange (NSE) and M/s Bombay Stock Exchange (BSE). The NSE confirmed that M/s Sunchan Securities Ltd and M/s Skyes & Ray Equities (I) Ltd are registered trading members of NSE. It further submitted that M/s Alliance Intermediateries is a registered sub-broker affiliated to M/s ISE Securites & services Ltd, another trading member of NSE. However, the NSE said that it could not furnish the details about M/s Alliance Intermediateries, since its registration was canceled in February, 2004. The BSE attached a list of transactions entered by M/s Skyes & Ray Equities (India) Ltd on behalf of the assessee herein. However, the BSE reported that the assessing officer did not attach the bills/contract notes pertaining to M/s Alliance Intermediateries and hence it did not report about transactions carried out by M/s Alliance Intermediateries. However, it confirmed that M/s Alliance Intermediateries is not registered with it. With regard to M/s Sunchan securities Ltd, the BSE reported that it was permitted to carry on trading only with effect from 03-02-2006 and prior to that it was undertaking transactions through M/s Ajmera Associates Pvt Ltd. Based on the replies furnished by the stock exchanges, the AO came to the conclusion that the purchases of shares have not been routed

In view of the above discrepancies, the AO came to the conclusion that the short term capital gain of Rs.64,44,753/- declared by the assessee was bogus and not real. Accordingly, the assessing officer assessed the same as income of the assessee from undisclosed sources.

In the appellate proceedings, the Ld CIT(A) noticed that M/s Alliance Intermediateries is a member of M/s Interconnected Stock Exchange of India Ltd and hence asked the said stock exchange to confirm the transactions entered by M/s Alliance Intermediateries. However, the above said stock exchange confirmed that there was no trading undertaken by M/s Alliance Intermediateries. The Ld CIT(A), after considering the assessment order, came to the conclusion that the date of purchase of shares claimed by the assessee may not correct and he should have purchased the shares only on the dates on which the shares were credited into the D-mat account of the assessee. The Ld CIT(A) further assumed that the assessee should have purchased the shares at the highest price prevailing on that date. It is pertinent to note that the Ld CIT(A) has accepted the genuineness of purchase and sale of shares.

Thus, we notice that the AO and Ld CIT(A) has taken two different views in this matter. The AO has taken the view that the assessee has managed to get Short term capital gain, i.e., the purchase and sale of shares were a make belief arrangement. However, the Ld CIT(A) has taken the view that they are genuine transactions, but the purchases have been made on the date on which the shares were credited in the D-mat account of the assessee. Thus, we notice that the sale of shares have been accepted by the Ld CIT(A), since the delivery of shares has taken place from the D-mat account of the assessee. However the claim of purchase of shares on the dates mentioned by the assessee has not been accepted by Ld CIT(A), instead he has presumed that the shares should have been purchased on the date they were credited in the D-mat account. It is to be noticed that the revenue has not challenged the decision of Ld CIT(A) and hence, in effect, the purchase and sale of shares have not been doubted by the tax authorities. Thus the only dispute is about the date of purchase of shares.

It is pertinent to note that the Ld CIT(A) has only presumed that the shares should have been purchased by the assessee only on the dates on which they were credited into the D-mat account of the assessee. We

At this juncture, it is pertinent to extract below the replies furnished by the assessee before Ld CIT(A). The assessee has furnished following reply in her letter dated 22.10.2010 and the same has been extracted by Ld CIT(A) in paragraph 2.3.9 of his order:- “We are in receipt of your above said letter and we would like to bring to your notice that all the information required under the above letter were already submitted and same has been mentioned point wise below :-  "We have already submitted the confirmation statement of account from all brokers for the above said period i.e. Sunchan Securities Ltd., Alliance lntermediateries and Network Pvt. Ltd. and Sykes and Rays & Equities India Ltd. vide our letter dated 12.02.2010 along with the certificate from Sunchan Securities Ltd. and Alliance Intermediateries & Network Pvt, Ltd. stating that our shares were lying in their pool account. Copy of the letter dated 12.02.2010 is enclosed herewith for your ready reference.  We have already submitted all bills and contract notes from all the 3 brokers and the bills and contract notes were having Client Id and all the 3 brokers had already confirmed all the sale, purchase and payment transactions which are on your record under our above said letter dated 12.02.2010. It means that they have confirmed the client ID. When we ask our brokers then they said that there is no such type of practice in existence to get the confirmation from the exchange.

With regard to the proposal of Ld CIT(A) to adopt the date of credit of shares into the D-mat account as the date of purchases, the assessee has furnished following reply:-

From the foregoing, what we understand is that the assessee has furnished all the details relating to purchases as well as the sales. The brokers through whom the assessee had purchased the shares have also confirmed the transactions. The payments towards purchase of shares have gone through the banking channels except a very small amount. The shares purchased by the assessee have been credited to the D-mat account of the assessee. The deficiency noticed was the time gap between the purchase of shares and credit of the same in the D-mat account of the assessee. The delay in making payment and the delay in crediting the shares in the demat account is dependent upon various factors including the understanding between the buyer and seller. Thus, from the point of view of the assessee, she has established the details of purchases with sufficient documentary evidences and those documentary evidences were also confirmed by the share broker also. Further, it is 11 settled proposition that date of broker notes is considered as the date of purchase and in this regard, one may refer to the Circular No.704 dated 28-04-1995. In our view, the assessee cannot be punished in respect of defaults, if any, committed by the share broker, since the factum of purchase and sale of shares have been accepted by Ld CIT(A). From the point of view of the assessee, the broker has delivered the shares purchased by her. We further notice that all the shares purchased by the assessee are that of reputed companies only.

On the contrary, the Ld CIT(A), as noticed earlier, has drawn only inferences about the date of purchases and he has not brought any material on record to support the view taken by him. Hence, we are confronted with two different situations, viz., (a) the assessee has furnished materials to support the claim of purchases and both the assessee and the seller of shares have confirmed those materials and (b) the Ld CIT(A) has drawn inferences which is not supported by any materials. Under these set of facts, in our view, the case of the assessee should weigh more, since his claim is supported by certain documents.

In view of the above, we are unable to uphold the view taken by Ld CIT(A) that the shares have been purchased only on the date on which they were credited in the d-mat account. Accordingly, we set aside the order of the Ld CIT(A) on this issue and direct the assessing officer to assess the impugned income declared by the assessee as short term capital gain.

The next addition relates to the commission expenses estimated by the AO. Since the Ld CIT(A) has accepted the genuineness of purchase and sale of shares and since we have directed the AO to assess the gain

In the result, the appeal filed by the assessee is allowed.

DR, ITAT, Mumbai concerned गार्व पाईर / Guard file. 6. आदेशानुसाय/ BY ORDER,सहामक ऩिंजीकाय (Asstt.