ITO, Cuttack v. Manju Jajodia, Cuttack

IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK ( ) BEFORE . . HONBLE SHRI K.K.GUPTA ACCOUNTANT MEMBER. /AND . . . S HRI K.S.S.PRASAD RAO JUDICIAL MEMBER / I.T.A.NO. 115/CTK/2010 / ASSESSMENT YEAR 2006 - 07 INCOME - TAX OFFICER WARD 2(3) CUTTACK. - - - VERSUS - MANJU JAJODIA W/O. PAWAN KUMAR JAJODIA BAKHRABAD CUTTACK PAN :ABTPJ 6104 B ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI P.K.HARICHANDAN DR / FOR THE RESPONDENT: / SHRI S.K.DASH AR / ORDER . . . SHRI K.S.S.PRASAD RAO JUDICIAL MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE AGAINST ORDER DT.30.10.2009 OF THE COMMISSIONER OF INCOME - TAX (APPEALS) RAISING THE SOLITARY ISSUE CHALLENGING THE DELETION OF THE ADDITION OF 23 93 112 MADE BY THE ASSESSING OFFICER ON ACCO UNT OF UNDISCLOSED INCOME FROM OTHER SOURCES. 2. THE RELEVANT FACTS ARE THAT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE SHOWN LONG TERM CAPITAL GAIN OF 22 95 237 ON SALE OF SHARES OF EMERALD COMMERCIAL LTD. KOLKATA AT 23 93 112. THE ASSESSEE CLAIMED TO HAVE PURCHASED 4500 SHARES AT 97 875 @ 21.75 PER SHARE FROM M/S. GLOBE STOCKS & SECURITIES LTD. 8 GANESH CHANDRA AVENUE 1ST FLOOR KOLKATA ON 6.5.2004. THE ASSESSING OFFICER OBSERVED THAT THE CONTRACT NOTE PRODUCED BY THE ASSESSEE DID NOT HAVE ORDER NUMBER TRADE NUMBER AND TRADE TIME. THEREFORE IN ORDER TO VERIFY THE GENUINENESS OF THE TRANSACTIONS THE ASSESSING OFFICER SOUGHT INFORMATION U/S.133(6) FROM THE BROKER AND ALSO FROM KOLKATA STOCK EXCHANGE. THE BROKER IN RESPONSE ST ATED I.T.A.NO. 115/CTK/2010 2 THAT THE TRANSACTION WAS OFF MARKET TRANSACTION. KOLKATA STOCK EXCHANGE VIDE ITS LETTER 10.9.2008 REPORTED THAT M/S. GLOBE STOCKS AND SECURITIES LTD. IS NOT A MEMBER OF THE EXCHANGE. FROM THE INFORMATION GATHERED AND ALSO CONSIDERING THE SUBMISSION S OF THE ASSESSEE THE ASSESSING OFFICER CAME TO CONCLUDE THAT M/S. GLOBE STOCKS & SECURITIES LTD. FROM WHOM THE ASSESSEE HAD PURCHASED THE SHARES IS NOT A MEMBER OF THE KOLKATA STOCK EXCHANGE; THAT PAYMENT FOR PURCHASE OF SHARES HAS BEEN MADE IN CASH; TH AT THE ASSESSEE HAS NEVER TRADED IN SHARES EARLIER; THAT THE ASSESSEE HAS SOLD 4900 SHARES WHEREAS ONLY 4500 SHARES WERE SHOWN TO HAVE BEEN PURCHASED; THAT THE OPENING CASH CREDIT OF 22 77 159 IS NOT GENUINE; THAT M/S. EMERALD COMMERCIAL LTD. IS BEING A PENNY STOCK COMPANY THE SALE AND PURCHASE OF SHARES OF THIS COMPANY ARE NOT AT MARKET PRICES BUT AT PRICES WHICH ARE MANIPULATED BY BROKERS. THEREFORE RELYING ON THE DECISION IN TH E CASE OF CIT V. PRECISION FINANCE LTD (208 ITR 465)(KOL) FOR THE PROPOSITION THAT MERE RECEIPT OF PAYMENT FROM THE BROKERS CLAIMING TRANSACTIONS FROM STOCK EXCHANGE DOES NOT MAKE THE NON - GENUINE TRANSACTION GENUINE UNDER THE I.T.ACT AND RELYING ON THE DECISIONS IN THE CASE OF SMT.SUMATI DAYAL V. CIT (214 ITR 801)(SC) CIT V. DURGA PRASAD MORE (82 ITR 540)(SC) FOR THE PROPOSITION THAT IT IS BEYOND HUMAN PROBABILITY THAT THE ASSESSEE HAS EARNED SUCH LARGE INCOMES FROM LONG TERM CAPITAL GAINS WHEN SHE HAS NEVER TRANSACTED IN SHARES BEFORE THE LEARNED ASSESSING OFFICER MADE THE ADDITION OF 23 93 112 U/S.68 OF THE INCOME - TAX ACT 1961. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 3. BEFORE THE LEARNED CIT(A) IT WAS CONTENDED B Y THE ASSESSEE THAT THE SHARES O F M/S.EMERALD COMMERCIAL LTD. WERE PURCHASED THROUGH BROKER M/S.GOLBE STOCKS & SECURITIES LTD A REGISTERED BROKER OUT OF THE CASH BALANCE AS ON 31.3.2004 OF 1 31 945.14. THE INVESTMENT SO MADE WAS ALSO SHOWN IN I.T.A.NO. 115/CTK/2010 3 THE BALANC E SHEET OF THE ASSESSEE AS ON31.3.2005. IT WAS ALSO SUBMITTED THAT BY REFERRING TO KOLKATA STOCK EXCHANGE THE OBSERVATION OF THE ASSESSING OFFICER THAT M/S.GLOBE STOCKS AND SECURITIES LTD. WAS NOT A MEMBER OF THE EXCHANGE IS NOT CORRECT. THE SAID BROKER IS A MEMBER OF THE UP STOCK EXCHANGE ASSOCIATION LTD. LUDHIANA STOCK EXCHANGE ASSOCIATION LTD. AND BHUBANESWAR STOCK EXCHANGE ASSOCIATION LTD. THOUGH THERE IS NO TRADE NUMBER ETC. THE ASSESSING OFFICER FAILED TO CONSIDER THE EVIDENCES IN THE FORM OF CO NTRACT NOTES BILLS DEMAT A/C AND PAYMENT RECEIVED BY CHEQUE. IT WAS SUBMITTED THAT THE TRANSACTIONS WERE OFF - MARKET AND THEREFORE THERE WOULD NOT BE POSSIBILITY OF ANY RECORD WITH THE STOCK EXCHANGE. IN SUPPORT OF THE ABOVE SUBMISSIONS THE ASSESSEE FUR NISHED ALL THE EVIDENCES BEFORE THE LEARNED CIT(A) AS WELL AND IT WAS SUBMITTED THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANYTHING POSITIVE ON THE RECORD TO PROVE THAT THE TRANSACTIONS WERE BOGUS OR FICTITIOUS. THEREFORE THE ADDITION AS MADE IS ARBITRA RY AND UNJUSTIFIED. IN SUPPORT OF THESE CONTENTIONS RELIANCE WAS PLACED ON DECISIONS OF ITAT IN THE CASE OF ITO V. RAJ KUMAR AGARWAL (ITA NO.1330/KOL/2007) DCIT V. SHRI BHAGWATI PRASAD AGARWAL (ITA NO.1230/KOL/2007) SHRI JAYAWANT HIMANI V. ITO (ITA NO.34 0/KOL/2007) SRI ACCHYALAL SHAW V. ITO (ITA NO.1977/KOL?2008 DT.16.1.2009) AND ITO V. KANTA KANCHAN RANI (ITA NO.238/KOL/2007). IN ALL THESE CASES THE ASSESSEES HAD CLAIMED LONG TERM CAPITAL GAINS FROM SHARES WHICH WAS EXEMPT U/S.10(38) OF THE ACT. IN SOME CASES THE PURCHASES WERE THROUGH OFF - MARKET TRANSACTIONS AND IN SOME CASES THE ASSESSING OFFICER MADE THE ALLEGATION ABOUT THE SHARES BEING PENNY STOCK SHARES. HOWEVER IN ALL CASES THE ITAT HAS HELD THAT THE ASSESSEE WAS ENTITLED TO BENEFIT U/S.10(38) OF THE ACT AND DELETED THE ADDITION MADE U/S.68 OF THE ACT. CONSIDERING THE EVIDENCE PRODUCED AND THE SUBMISSIONS MADE BEFORE HIM THE LEARNED CIT(A) FOUND THAT THE SHARES HAVE BEEN PURCHASED THROUGH I.T.A.NO. 115/CTK/2010 4 OFF - MARKET TRANSACTION AS CLAIMED BY THE ASSESSEE. THE LEA RNED CIT(A) EXAMINED THE EVIDENCES AND CAME TO CONCLUDE THAT ON THE BODY OF THE BILL OF M/S.GLOBE STOCKS & SECURITIES LTD. IT HAS BEEN MENTIONED THAT THE BROKER WAS A MEMBER OF STOCK EXCHANGE ASSOCIATIONS LTD. OF UP LUDHIANA AND BHUBANESWAR. HE WAS OF T HE VIEW THAT AT THE RELEVANT POINT OF TIME IT WAS NOT ILLEGAL TO ENTER INTO OFF MARKET TRANSACTION AND AS SUCH THERE IS NO QUESTION OF MENTIONING THE TRADE NUMBER AND TIME OF TRADE AS PER STOCK EXCHANGE TIME. THE LEARNED CIT(A) OBSERVED THAT SHARES WERE T RANSFERRED ON 27.8.2005 WHICH IS CLEARLY EVIDENT FROM THE DEMAT A/C. HE FURTHER OBSERVED THAT THE AO HAS NOT BEEN ABLE TO BRING OUT ANY MATERIAL ON RECORD TO SHOW THAT THE SHARES OF M/S.EMRALD COMMERIAL LTD. WERE DECLARED TO BE PENNY STOCK DUE TO ANY IN VESTIGATION BY ANY AGENCY INCLUDING SEBI. IN VIEW OF THE ABOVE AND RELYING ON THE DECISIONS OF ITAT KOLKATA REFERRED TO ABOVE AS ANALYZED IN HIS ORDER ON PAGES 12 TO 20 THE LEARNED CIT(A) FOUND THE FACTS OF ASSESSEES CASE SIMILAR AND THEREFORE DELETED THE ADDITION OF 23 93 112 MADE BY THE ASSESSING OFFICER U/S.68 OF THE ACT. 4. THE LEARNED DR SUPPORTED THE IMPUGNED ORDERS OF THE ASSESSING OFFICER AND CONTENDED THAT THE LEARNED CIT(A) IS NOT JUSTIFIED TO GIVE RELIEF TO THE ASSESSEE WHEN THE FACTS OF TH E CASE POINT TO COLOURABLE DEVICES ADOPTED BY THE ASSESSEE IN ARRANGING LONG TERM CAPITAL GAINS THROUGH PURCHASE OF SHARES OF NON SCRIPT COMPANIES AT A THROW AWAY PRICE AND SELLING THE SAME AT ABNORMALLY HIGH VALUE NOT CONSISTENT WITH THE ECONOMIC STANDING OF THE SAID COMPANY THROUGH STOCK EXCHANGE IN CONNIVANCE WITH THE DUBIOUS STOCK BROKERS EMPLOYING MULTIPLE PURCHASE AND SALES OF THE SHARES PERIODICALLY THROUGH PERSONS LACKING CREDIT WORTHINESS TO ARTIFICIALLY JACK UP THE PRIC E OF SHARES. THE LEARNED AR OF THE ASSESSEE ON THE OTHER HAND SUPPORTED THE IMPUGNED ORDERS OF THE LEARNED CIT(A). HE FURTHER RELIED ON THE DECISION OF I.T.A.NO. 115/CTK/2010 5 ITAT CUTTACK BENCH IN THE GROUP CASES I.E. ITOV.JUHI AGARWAL AND OTHERS IN ITA NOS.113 & OTHERS/CTK/ 2010 DT.18.11.2010 WHEREIN THE TRIBUNAL HAS ALSO CONFIRMED THE ORDER OF THE CIT(A) DELETING SIMILAR ADDITION MADE U/S.68 ON IDENTICAL FACTS AS IN THE PRESENT CASE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND AL SO WE HAVE CAREFULLY GONE THROUGH THE DECISIONS OF THE ITAT KOLKATA BENCHES AND ALSO THE DECISION OF ITAT CUTTACK BENCH AS RELIED ON BY THE LEARNED CIT(A). VERIFICATION OF CREDENTIALS OF THIS BROKER M/S. GLOBE STOCKS & SECURITIES LTD LTD. AS TO ITS ME MBERSHIP IN STOCK EXCHANGE ASSOCIATIONS OF UP LUDIANA AND BHUBANESWAR. THERE IS NO MENTION OF HOW AT THE RELEVANT PERIOD IT WAS ENTITLED TO ENTER INTO OFF MARKET TRANSACTIONS BY THE LEARNED CIT(A) . HENCE WE ARE OF THE CONSIDERED VIEW THAT THE IMPUGNED ORDER I S NOT SUSTAINABLE FOR LEGAL SCRUTINY. UNDER THESE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE CONSIDERED VIEW THAT THE MATTER IS TO BE DE NOVO EXAMINED BY THE AO OF COURSE STRICTLY FOLLOWING THE PRINCIPLES OF NATURAL JUSTICE AND PASS NECESSARY CONSE QUENTIAL ORDER AS PER LAW. WITH THIS DIRECTION THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR DE NOVO ASSESSMENT AS STATED HEREIN ABOVE. 6. IN THE RESULT THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 25 TH FEBRUARY 2011 SD/ - SD/ - ( . . ) (K.K.GUPTA) ACCOUNTANT MEMBER. ( . . . ) (K.S.S.PRASAD RAO) JUDICIAL MEMBER. ( ) DAT E: 25 TH FEBRUARY 2011 ( ) ( H.K.PADHEE ) SENIOR.PRIVATE SECRETARY. I.T.A.NO. 115/CTK/2010 6 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : INCOME - TAX OFFICER WARD 2(3) CUTTACK. 2 / THE RESPONDENT: MANJU JAJODIA W/O. PAWAN KUMAR JAJODIA BAKHRABAD CUTTACK 3 . / THE CIT 4 . ( )/ THE CIT(A) 5 . / DR CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY / BY ORDER [ ] SENIOR PRIVATE SECRETARY