Addition u/s 68 not sustainable where whole transaction supported by adequate & reliable evidences
Citation of the Case: ITO vs. Ms. Khalil M. Bharwani (Mumbai ITAT), Income Tax Appeal No. 223 of 2011, Date of Judgment: 27/11/2015
Brief of the Case
Mumbai ITAT held In the case of ITO vs. Ms. Khalil M. Bharwani that the whole transaction of purchase and sale of shares giving rise to long term capital gain has been duly explained step by step and supported by adequate and reliable evidence. The observation of the Assessing Officer that the transaction is not genuine and is engineered with a sole intention to show long term capital gain which is liable to a lower rate or income tax has been duly rebutted and refuted by tendering sufficient evidence and therefore AO can only provoke a suspicion, much less a belief about the transaction. The suspicion of Assessing Officer cannot clinch the transaction against assessee.
Facts of the Case
The Assessee purchased 10,000 shares of M/s Emrald Commercial Ltd. for a total consideration of Rs.2,17,100/- vide Bill No.CK012/ 2005322/6 dated 06.05.2004 of the Broker M/s Badri Prasad & Sons, member, Calcutta Stock Exchange. This transaction of purchase of shares was entered into on 06.05.2004 vide Settlement No. 2005322/3 and the shares of the company were delivered to the appellant physically by way of 20 share certificates of 500 shares each. The physical shares were lodged for transfer in the name of assessee and vide letter dated 17.07.2004 of the company, shares were transferred in the name of assessee which were later on submitted to HSBC Bank dated12.08.2005 for dematerialization. The shares were duly dematerialized and in the demat statement of HSBC bearing Client ID 10561457 for the month ending 31.08.2005, they were accordingly depicted. The 10,000 shares were sold through online trading system of Calcutta Stock Exchange through the brokers.
The transaction resulting into LTCG was disbelieved by Assessing Officer on many grounds and entire sale proceeds of Rs.47,60,462/- were treated by Assessing Officer as unexplained cash credits under section 68. The main contention of the AO was that the assessee has purchased the shares in cash and he is not a registered client with the broker. Also the said physical deal is also not supported by Calcutta stock exchange records.
Contention of the Assessee
The ld counsel of the assessee supported the order of CIT (A).
Contention of Revenue
The ld counsel of the revenue submitted that CIT (A) erred in holding that long term capital gain received by assessee in the scrip Emerald Commercial Ltd. was genuine transaction. CIT (A) should have appreciated the fact that assessee could not prove the source of funds while purchasing the said shares. No return was filed during the year in which the shares were purchased and the same were purchased through cash.
Further purchase transactions are out of cash in hand which was on account of gift received by assessee from his relatives. Purchase of shares was off bolt and such purchases are not reflected in the stock exchange. In this background he requested to set aside the order of CIT (A) and to restore that of Assessing Officer.
Held by CIT (A)
The assessee contended before the CIT (A) that the transactions giving rise to LTCG on sale of shares of Rs.45,43,362/- is fully supported by all the necessary evidences, therefore AO was not justified to tax the entire sale proceeds on sale of shares as unexplained cash credit u/s 68. CIT (A) after going through the submissions on behalf of assessee accepted the contentions of assessee and granted relief as prayed.
Held by ITAT
ITAT held that it is clear that assessee has purchased the shares through off market deal and therefore such transaction for purchase of shares by the assessee ought not to have been registered with the Calcutta Stock Exchange. Secondly, the Voucher for shares sold to the assessee issued by M/s Badri Prasad & Sons, broker of the Calcutta Stock Exchange has not been found as bogus or fabricated documents.Assessee duly received physical delivery of 10,000 shares by way of 20 share certificates of 500 shares each of the company Emrald Commercial Ltd. and such shares were duly transferred in the name of the assessee by letter of the company dated 17.07.2004 which aspect is also not found incorrect or manipulated. The physical shares received by assessee duly transferred in his name were thereafter demated by delivering them to HSBC, the demat Account holder and after demating the shares have continued to remain in the Demat A/c of assessee which aspect is also independently verified from the Demat Statement of assessee with HSBC.
The 4000 demated shares were thereafter sold through the Broker Shivam Stock Broking Pvt. Ltd. of the Calcutta Stock Exchange through online trading system and the balance shares numbering 6000 were duly sold through the Broker Murarilal Goenka of Calcutta Stock Exchange through online trading system. The Sales Bills/Contract filed by assessee for sale of the shares has not been disbelieved or disputed by Assessing Officer in any manner. The sale proceeds received on sale of shares have been duly received by “A/c payee cheque’ from the Brokers which were duly deposited in the bank account of assessee. This aspect has also not been disputed by Revenue authorities. Hence in this way, the whole transaction of purchase and sale of shares giving rise to long term capital gain has been duly explained step by step and supported by adequate and reliable evidence.
The observation of the Assessing Officer that the transaction is not genuine and is engineered with a sole intention to show long term capital gain which is liable to a lower rate or income tax has been duly rebutted and refuted by tendering sufficient evidence and therefore AO can only provoke a suspicion, much less a belief about the transaction. The suspicion of Assessing Officer cannot clinch the transaction against assessee. In view of the above CIT (A) was justified in holding that long term capital gain earned by assessee of Rs. 47,60,462/- should be treated as such and not taxed as income from undisclosed sources. Accordingly the decision of the CIT (A) needs no interference from our side. We uphold the same.