IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER AND SHRI H.S. SIDHU, JUDICIAL MEMBER ITA No.260/Agr/2009 Asst. Year: 2001-02 Income Tax Officer - 4(2), Vs. Smt. Kalpana Garg, Agra. C-25, Kamla Nagar, Agra. (PAN : ACHPG 7837 H). C.O. No.33/Agr/2009 (In ITA No.260/Agr/2009) Asst. Year: 2001-02 Smt. Kalpana Garg, Vs. Income Tax Officer - 4(2), C-25, Kamla Nagar, Agra. Agra. (PAN : ACHPG 7837 H). ITA No.278/Agr/2009 Asst. Year: 2001-02 Income Tax Officer - 4(2), Vs. Shri Mukesh Kumar Garg, Agra. C-25, Kamla Nagar, Agra. (PAN : ACHPG 7838 D). C.O. No.43/Agr/2009 (In ITA No.278/Agr/2009) Asst. Year: 2001-02 Shri Mukesh Kumar Garg, Vs. Income Tax Officer - 4(2), C-25, Kamla Nagar, Agra. Agra. (PAN : ACHPG 7838 D). (Appellants) (Respondents) Revenue by : Shri A.K. Sharma, Jr. D.R. Assessee by : Shri Mahesh Agarwal, C.A. ORDER
PER P.K. BANSAL, A.M.:2
These appeals by the Revenue and the Cross Objections by the assessees have been filed against the separate orders of the CIT(A) dated 25.03.2009. Since both the appeals filed by the Revenue and Cross Objections field by the assessees have the common issues, therefore, both the Appeals and the Cross Objections are decided by this common order.
2. First we take up ITA No.260/Agr/2009 and C.O. No.33/Agr/2009. The only issue involved in this appeal filed by the Revenue, and the Cross Objection did not press by the assessee, relates to the deletion of addition of ` 14,49,080/- made by the Assessing Officer on account of unexplained/undisclosed Long Term Capital Gain (LTCG), by the CIT(A).
3. The brief facts of the case are that the assessee received a sum of ` 14,49,080/- through Demand Drafts credited in its Bank account at Canara Bank, Belanganj, Agra shown by the assessee as sale proceeds on sale of shares in respect of M/s. B.T. Technet Limited and M/s. Goyal Achal Sampatti Vikas Niyojan Nigam Limited received from M/s. CMS Securities Limited ` 8,50,160/- and from M/s. North India Securities Limited ` 5,98,920/-. The assessee was required by the Assessing Officer to prove the genuineness of the purchase and sale of share transactions by producing the share broker. The Assessing Officer, in order to ascertain genuineness of sale of shares, issued summon under section 131 of the Income-tax Act, 1961 ('the Act' hereinafter) and notice, calling for information under section 133(6) of the Act dated 13.10.2006 on the given address of the broker M/s. CMS Securities Limited. The Assessing Officer observed that in compliance therewith, Shri Mukesh Gupta, Director of M/s. CMS Securities Limited vide written reply dated 28.10.2006 has submitted that "all these transactions were accommodation entries. In all of these cases we had received cash on behalf of these above 3 mentioned persons and in exchange demand drafts and bills were given to them." The Assessing Officer also collected copy of assessee's Bank account with Canara Bank under section 133(6) of the Act. A perusal of the Bank account shows that alleged sale proceeds of shares of ` 14,49,080/- have been deposited in the Bank account two times vide four demand drafts totaling to ` 8,50,160/- credited on 18.01.2001 and another draft of ` 5,98,920/- credited in the assessee's Bank account on 29.03.2001. The Assessing Officer also noted that the value of the shares has increased abnormally and unrealistically in just 14 to 15 month's time. Even the assessee confirmed that the amount of ` 8,50,160/- was received from M/s. CMS Securities Limited against the sale of shares of M/s. B.T. Technet Limited while the amount of ` 5,98,920/- was received from M/s. North India Securities Limited against sale of shares of M/s. Goyal Achal Sampatti Vikas Niyojan Nigam Limited. The Assessing Officer has, therefore, made the addition of ` 14,49,080/- to the income of the assessee treating the income from undisclosed sources as the assessee had failed to discharge the onus to prove the genuineness of the share transactions. The assessee went in appeal before the CIT(A). The CIT(A) deleted the addition by observing as under :-
"3.8 I have perused the records, considered the assessment order, remand report of the Assessing Officer and the arguments of the appellant. The appellant has submitted all the copies of the application made in preferential issue, allotment letter, copy of share certificate, contract note and sale bills of the broker, copies of the brief profile of the company BT Technet, Copies of the DD's made for the acquisition of the shares, Audited Financial Statement and Annual Return of the Broker CMS Securities Ltd., Copy of the ITR of the Broker, Copies of the transaction/Rates in the shares in Delhi stock Exchange between November 1999 till June 2000, Copy of the newspaper cutting of the Indore Stock Exchange rates depicting the trade rate of the share of BT Technet etc. The assessee received the sale proceeds through account payee DDs from the brokers and deposited the same in his bank account.
3.9 With regard to the share allotted to the assessee in the preferential issue of the company BT Technet, the appellant has furnished the photo copies of the 4 share certificates of BT Technet. These shares were allotted by the company directly to the assessee in their preferential issue of shares which were later sold through the broker. The appellant has also filed copy of share quotations of sales of shares certifying the rates on which they were sold and the purchase of these shares duly find place in the Balance Sheet of the assessee as at 31.3.2000. 3.10 The Assessing Officer has placed no material on record against the assessee from which it can be inferred that the transaction of purchase and sales of shares entered into by the assessee were either bogus or accommodation entry. As regards the observations of the Assessing Officer that he sent summons to the share broker, against which the share broker has not confirmed the transactions of sale of shares of the aforesaid company. In my opinion production of share broker can not be insisted upon. When the shares of a listed company are sold through the broker in any stock exchange it is not necessary that purchaser is known to the parties. Assessee can only give the details of the share broker. 3.11 Since all the circumstances and human probabilities are in favour of the assessee in that the AO has not pointed out any defect in the documents I evidence submitted by the appellant in relation to the sales/purchase transactions. In these circumstances of the case when the assessee is in possession of 9000 equity shares of the company then these shares have to be sold to some person and the assessee had done the same by selling the share through a broker of recognized stock exchange.
3.12 The appellant had discharged his onus by providing the documents/ evidence in relation to identity of the broker and the genuineness of the transaction. The AO has not brought evidence to show that such capital gain were a sham transaction and has not proved any linkage with the transaction of the assessee, which could further prove that the assessee's transactions were bogus or merely an entry.
3.13 The Agra Bench of Hon'ble IT AT in the case of Ashok Kumar Agarwal in ITA No.129/Ag/2004 dated 3.4.2006 and also in the case of Gopal Prasad Agarwal of even date, in the similar circumstances have cancelled the addition of long term capital gains on the similar facts. Recently in March, 2008 also two more decisions have been given by the Hon'ble ITAT, Agra in the case of Vineet Khera and Memo Devi on 14.3.2008 and other cases accepting such long term capital gains. Further there are various other decisions on the similar issue in which the long term capital gains, under similar circumstances, have been accepted e.g. Mukesh R Morolia Vs. ACIT - (2006) 6 SOT 247 (Bombay) ITO Vs. Naveen Gupta - (2006) 5 SOT Page 94 5 Recently the Punjab & Haryana High Court in the case of CIT Vs. Anupam Gupta reported in 66 Taxman Page 178 have accepted such long term capital gains and there is no High Court decision against the assessee.
3.14 I also find that the appellant has submitted the full contract note of brokers, sale bill of the brokers who have confirmed holding shares by the assessee. All the papers relating to acquisition and sale of shares of the said company are on record of the Assessing Officer and are duly registered with the Registrar of Companies and the Assessing Officer has not rebutted the same to prove that either they are false or untrue.
3.15 I have also gone through the judgement of Punjab & Haryana High Court in the case of CIT Vs. Anupam Gupta reported in 166 Taxman 178, which reads as under:-
"The assessee had made investment in a company in which he was neither a director nor was he in control of the company. The assessee had taken shares from the market, the shares were listed and the transaction took place through a registered broker of the stock exchange. There was no material before the Assessing Officer, which could have led to a conclusion that the transaction was simplicities device to camouflage activities to defraud the revenue. No such presumption could be drawn by the Assessing Officer merely on surmise and conjectures. It was for the Assessing Officer, who had reopened the assessment to have sought some evidence on record, to substantiate his formulation of consideration that the assessee has not filed a return bonafide. In the absence of any cogent material in this regard, having been placed on record, the Assessing Officer could not have reopened the assessment. The assessee had made an investment in the company, evidence whereof was with the Assessing Officer. Therefore, the Assessing Officer could not have added income which was rightly deleted by the Commissioner (Appeals) as well as the Tribunal.
Consequently, no question of law, much less a substantial question of law arose for adjudication."
3.16 Similarly sale of the said shares too can not be doubted. The appellant has claimed to have sold these shares through M/s CMS Securities Ltd., Delhi vide their Contract Note dated 24.7.2000. It is also claimed that the shares had been sold in off market dealings through the said broker. It is common knowledge that in share transactions the broker, having purchased the shares from the seller, sell them to some other investor and the selling or purchasing parties do not come face to face directly. In the appellant's case also the broker took the shares as per contract note and sold them to some other investor. The rate at which the sale of 6 shares is claimed by the appellant too is in close proximity of the rates recorded in the Stock Exchange Daily Directory of Indore Stock Exchange. Simply for the reason that the appellant could not produce the broker (through whom shares had been sold) does not make the sale bogus or in-genuine. AR further argued that during assessment proceedings certified copies of the Statement of affairs and Profit & Loss account and Annual Return for the relevant assessment year of the broker CMS Securities Ltd., was obtained from the Office of the Registrar of Companies Delhi, wherein it can be seen that the Broker company has seven Directors and their account were duly Audited by a Chartered Accountant. In such the circumstances it's highly unbelievable that the statement of the one of the Director of such company has any bearing on the case. In my opinion, without co- relating the information directly to the appellant it can not be used against him. Secondly, the AO has not confronted the appellant with the said findings. It is established law that any finding and information at the back of the assessee cannot be used against him as held by the Hon'ble Allahabad High Court in the case of Add. CIT Vs Rawalpindi Flour Mills Pvt. Limited reported in 125 ITR
243. 3.17 In this case there is no evidence on record to prove that the proceeds from the sale of share received by the appellant actually flowed from him and were appellant's undisclosed income. Hon'ble Apex Court in the case of Kishan Chand Chella Ram (125 ITR 713) has held that "the burden is on the department to prove that the money belongs to the assessee by bringing proper evidence on record and the assessee could not be expected to call the concerned persons in evidence to help the department to discharge the burden that lay upon it." On the contrary in this case it is seen that the appellant brought on record all the evidence that was within his power and capacity and as is expected in such type of transactions; however, the AO has not brought on record any material to disprove the evidences as adduced by the appellant. Hon'ble Supreme Court in the case of Sreelekha Banerjee and Others (49 ITR 112) has held "Before the department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence which it has in its possession. The department cannot, by merely rejecting unreasonably a good explanation, convert good proof into no proof. "
In my considered opinion the AO has based his conclusion on unfounded presumption and surmises. This cannot be approved in view of the Hon'ble Supreme Court's decision in the case of Uma Charan Shaw (Supra).
3.18 Thus in view of the above facts and circumstances of the case the appellant has fully discharged the burden cast upon him and has established the genuineness of the transaction of purchase and sale of shares. AO's action in treating the entire sale proceeds of alleged shares as undisclosed income of the appellant is not well founded particularly when the transactions stand supported by the cogent evidence furnished by the appellant. Therefore, in view of this 7 position of facts and the law, I hold that on merit the addition of ` 14,49,080/- is wholly unjustified and is hereby deleted and accordingly the gain earned on sale of shares is directed to be assessed as long term capital gains."
4. The ld. A.R. before us relied on the order of the CIT(A) and vehemently contended that Shri Mukesh Gupta, Director, M/s. CMS Securities Limited did not say that all these transactions were accommodation entries and they had received the cash on behalf of these above mentioned persons. In this regard, he filed before us, copy of the letter dated 28.10.2006. He only referred to the earlier reply submitted to the DDI, Agra. The ld. A.R. has also relied on various case laws as relied before the CIT(A). The ld D.R., on the other hand, vehemently contended that the Assessing Officer has given finding that the assessee has received the Bank draft of ` 8,50,160/- from M/s. CMS Securities Limited for the sale of shares of M/s. B.T. Technet Limited while the other sum of ` 5,98,920/- was received by her from M/s. North India Securities Limited, Delhi against the sale of shares of M/s. Goyal Achal Sampatti Vikas Niyojan Nigam Limited. The CIT(A) has only dealt with the sale of shares made through M/s. CMS Securities Limited and has not dealt with the sale of shares through M/s. North India Securities Limited, neither the assessee has come in appeal against the sustenance of the sale of shares of M/s. Goyal Achal Sampatti Vikas Niyojan Nigam Limited amounting to ` 5,98,920/-. Referring to the letter dated 28.10.2006, it was pointed out that in that letter Shri Mukesh Gupta has clearly mentioned that all these transactions were accommodation entries and in all these cases they had received cash and in exchange Demand Drafts and bills were given to them.
5. We have carefully considered the rival submissions and perused the material on record along with the orders of the Tax Authorities below. We noted from the Assessment Order and the facts on record submitted to the Assessing Officer by the assessee vide letter dated 28th 8 September, 2006 that M/s B.T. Technet Limited and M/s. Goyal Achal Sampatti Vikas Niyojan Nigam Limited have directly allotted shares to the assessee in the public issue dated 04.10.2009 and 12.10.2009 respectively. These consist of 7500 shares of B.T. Technet Limited and 10000 shares of M/s. Goyal Achal Sampatti Vikas Niyojan Nigam Limited. The payment towards the shares of M/s. B.T. Technet Limited for ` 75,000/- was made through Demand Drafts dated 05.10.2000 and 17.09.1999 while the payment of M/s. Goyal Achal Sampatti Vikas Niyojan Nigam Limited was made through Demand Draft dated 02.12.1999 for ` 1,00,000/-. The shares of M/s. B.T. Technet Limited were sold on 16.11.2000 through M/s. CMS Securities Limited while the shares of M/s. Goyal Achal Sampatti Vikas Niyojan Nigam Limited were sold through M/s. North India Securities Limited. The shares of B.T. Technet Limited were sold for `8,50,160/- while the shares of M/s. Goyal Achal Sampatti Vikas Niyojan Nigam Limited were sold for Rs.5,98,920/-. The LTCG in the case of M/s. Goyal Achal Sampatti Vikas Niyojan Nigam Limited relates to 4000 shares. The Assessing Officer has added the sale proceeds of shares amounting to ` 14,49,080/- shown by the assessee as consideration while computing the LTCG. This sum consists of a sum of ` 8,50,160/- received by the assessee on sale of shares of M/s. B.T. Technet Limited from M/s. CMS Securities Limited while a sum of ` 5,98,920/- was received by the assessee from M/s. North India Securities Limited against the sale of shares of M/s. Goyal Achal Sampatti Vikas Niyojan Nigam Limited. The assessee was allotted 7500 shares by M/s. B.T. Technet Limited. But when the mater went before the CIT(A), as is apparent from the aforesaid finding of the CIT(A), the CIT(A) has presumed as if the assessee has sold 7500 shares of M/s. B.T. Technet Limited for ` 14,49,080/- and the LTCG has been worked out by the assessee on the sale of these very shares. While, the facts on record does not speak so. The assessee has also argued before us as well as before the CIT(A) as if the Assessing 9 Officer has made the addition of ` 14,49,080/- for the sale of 9000 shares of M/s. B.T. Technet Limited shown by the assessee as LTCG. We have also gone through the letter of Shri Mukesh Gupta dated 28.10.2006 on which the Assessing Officer has relied while confirming the addition in respect of the sale consideration received by the assessee on the sale of shares of M/s. B.T. Technet Limited. This letter reds as under :-
"28.10.2006 Shri A.R. Khan, Income Tax Officer - 4(2), AGRA.
Dear Sir, Sub: Your notices regarding Shri Mukesh Garg & Smt. Kalpana Garg We kindly acknowledge your above notices asking certain informations about our dealing with above-mentioned parties.
Sir, in this regard, we kindly inform you that we had made our submissions about two years ago before Hon'ble Shri Radhey Shyam J., - then Deputy Director of Income Tax at Agra that all these transactions were accommodation entries. In all of these cases we had received cash on behalf of these above-mentioned persons and in exchange demand drafts and bills were given to them. Hon'ble DDI Shri Radhey Shyam J. had assured us that in future if you receive any notice from any Income Tax Authority, you may refer them about your submissions made to him and request them to verify these facts from him.
Therefore a, we request you to take action in these cases accordingly.
With regards, Yours faithfully, For CMS Securities Limited Sd/-
(Mukesh Gupta) Director"10
6. From this letter, it is apparent that Shri Mukesh Gupta, Director of M/s. CMS Securities Limited, in reply to the notice of the Assessing Officer, did not accept that the transactions entered into by him with the assessee were genuine transactions. Even he did not accept in clear terms that these transactions were accommodation entries and he had received cash from the assessee. In his letter dated 28.10.2006, he has simply referred to the submissions made two years back before the DDIT in which it was stated that "all these transactions were accommodation entries and he had received cash on behalf of these above mentioned persons and in exchange Demand Drafts and bills were given to them. From this letter, it is not clear whether "these above mentioned persons" includes the name of the assessee or not. The CIT(A) has not examined these aspects even though on factual aspect he has assumed the facts incorrectly and deleted the additions. We have also gone through the various case laws as relied on by the ld. A.R. The case laws are applicable on the facts and context of each case. In the case before us, we noted that the facts noted and argued by the ld. A.R. are different from the facts as are available on record as well as in the letter of the assessee dated 28th September, 2006 filed before the Assessing Officer as available in the Paper Book page nos.1 to 5. The CIT(A) has deleted the addition of Rs.14,49,080/- assuming to be the sale consideration of 9000 shares of M/s. B.T. Technet Limited sold by the assessee through M/s. CMS Securities Limited while no deletion has been made in respect of the addition made by the Assessing Officer of ` 5,98,920/- in respect of sale of shares of M/s. Goyal Achal Sampatti Vikas Niyojan Nigam Limited sold through M/s. North India Securities Limited. Since the facts assumed by the CIT(A) and as brought out during the course of hearing are not correct, we therefore, in the interest of justice and fair play to both the parties set aside the order of the CIT(A) and restore this issue to the file of CIT(A) with the direction that the CIT(A) will ascertain the facts correctly and give the 11 finding after appreciating the letter of M/s. CMS Securities Limited dated 28.10.2006. We may mention that the CIT(A) will also ascertain whether the name of the assessee is included in the word "these above mentioned persons" as referred to by the Director of M/s. CMS Securities Limited, Shri Mukesh Gupta. The CIT(A) should also give a clear cut finding in respect of the addition for the sale consideration amounting to ` 5,98,920/- included in the sum of `14,49,080/- added by the Assessing Officer received by the assessee from M/s. North India Securities Limited on the sale of shares of M/s. Goyal Achal Sampatti Vikas Niyojan Nigam Limited.
7. Since the Cross Objection was not pressed by the ld. A.R., the same is dismissed as not pressed.
8. In the result, ITA No.260/Agr/2009 filed by the Revenue stands allowed for statistical purposes and the Cross Objection No.33/Agr/2009 filed by the assessee stands dismissed.
9. Now we take up ITA No.278/Agr/2009 and Cross Objection No.43/Agr/2009. In this appeal field by the Revenue, the ld. A.R. and the ld. D.R. both agreed that the facts involved in this case is also same as in the case of Smt. Kalpana Garg in ITA No.260/Agr/2009 which was heard on 01.02.2011. Since we have already decided the issue in ITA No.260/Agr/2009 by setting aside the order of the CIT(A) and restoring the issue again to the file of CIT(A), respectfully following the same, we set aside the order of the CIT(A) and restore this issue also to the file of CIT(A) with the same directions as are given in the said decision. 12
10. Since the Cross Objection was not pressed by the ld. A.R., the same is dismissed as not pressed.
11. In the result, ITA No.278/Agr/2009 filed by the Revenue stands allowed for statistical purposes and the Cross Objection No.43/Agr/2009 filed by the assessee stands dismissed.
(Order pronounced in the open Court on 25.02.2011).
Sd/- Sd/- (H.S. SIDHU) (P.K. BANSAL) Judicial Member Accountant Member Place: Agra Date: 25th February, 2011 PBN/* Copy of the order forwarded to: 1. Appellant 2. Respondent By Order 3. CIT concerned 4. CIT (Appeals) concerned 5. DR, ITAT, Agra Bench, Agra 6. Guard File Assistant Registrar Income-tax Appellate Tribunal, Agra True Copy