Bina Didwania, Bhubaneswar v. ACIT, Bhubaneswar

ITA 452/CTK/2011 | 2005-2006
Pronouncement Date: 18-11-2011

Appeal Details

RSA Number 45222114 RSA 2011
Assessee PAN AAJPD5727A
Bench Cuttack
Appeal Number ITA 452/CTK/2011
Duration Of Justice 14 day(s)
Appellant Bina Didwania, Bhubaneswar
Respondent ACIT, Bhubaneswar
Appeal Type Income Tax Appeal
Pronouncement Date 18-11-2011
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 18-11-2011
Assessment Year 2005-2006
Appeal Filed On 04-11-2011
Judgment Text
IN THE INC O ME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE : SHRI K.K.GUPTA AM AND SHRI K.S.S.PRASAD RAO JM ITA NO. 452/CTK/2011 (ASSESSMENT YEAR 2005 - 06) BINA DIDWANIA PLOT NO.1 LAXMI SAGAR CUTTACK ROAD BHUBANESWAR 751 006. PABN: AAJ PD 5727 A VERSUS ASST.COMMISSIONER OF INCOME - TAX CIRCLE 1(1) BHUBANESWAR. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI D.K.SETH/M.SETH ARS FOR THE RESPONDENT SHRI A.BHATTACHARJEE DR DATE OF HEARING : 16.11.2011 DATE OF PRONOUN CEMENT : 18.11.2011 ORDER SHRI K.S.S.PRASAD RAO JM : THIS APPEAL IS FILED BY THE ASSESSEE HAVING BEEN AGGRIEVED BY THE ORDER OF THE LEARNED CITA) DT. 30.9.2011 FOR THE ASSESSMENT YEAR 2005 - 06. 2. THE ONLY ISSUE RAISED AT THE TIME OF HEARING IS WITH R ESPECT OF DENYING THE ASSESSEE THE CLAIM OF LONG TERM CAPITAL GAIN CLAIMED AS EXEMPT U/S.10(38 ) OF THE I.T.ACT 1961 WHICH HAS BEEN OTHERWISE ASSESSED BY THE AO AS CONSIDERATION RECEIVED AMOUNTING TO 7 60 045 U/S.68 OF THE I.T.ACT. 3. BOTH THE PARTIES WERE HEARD REGARDING THE ISSUE RAISED BY THE ASSESSEE AND ITS LEGAL IMPLICATIONS. 4. ON CAREFUL ANALYSIS OF THE MATERIAL MADE AVAILABLE TO THE TRIBUNAL IN THE LIGHT OF THE RIVAL SUBMISSIONS OF BOTH THE P ARTIES THE UNDISPU TED FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSING OFFICER FOUND IN THE REASSESSMENT PROCEEDINGS U/S.147 THAT THE ASSESSEE HA DISCLOSED 7 01 090 AS LONG TERM CAPITAL GAIN OUT OF SALE OF SHARES AN CLAIMED THE SAME AS EXEMPT U/S.10(3 8 ) OF THE I.T.ACT. FROM THE COPIES OF CONTRACT NOTES FILED THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD PURCHASED 6500 SHARES OF M/S.SUBHASH CAPITAL MARKET AT 9.05 PER SHARE ON 20.6.2003 WHICH IT SOLD ON 17.2.2005 @ 117.05 2 PER SHARE. THE ASSESSING O FFICER OBSERVED THAT THE PRICE OF THE IMPUGNED SHARE SCRIP ROSE MORE THAN 1200% IN A SPAN OF 19 MONTHS. ON INFORMATION GATHERED FROM SEBI THE ASSESSING OFFICER OBSERVED THAT THE BROKER HAD ENTERED INTO CROSS DEAL WITH HIMSELF WITH A GAP OF FEW SECONDS. TH ERE WERE ONLY CROSS DEALS WHERE IN A MATCHING SET OF PURCHASES IS SQUARED UP IMMEDIATELY WITH A MATCHING SET OF SALES AT THE SAME PRICE RESULTING IN NO NET PAY IN AND NO PHYSICAL DEALING WITH OF SHARES. THE ASSESSING OFFICER IN HIS ORDER FURTHER OBSERVED 3.10. SEB I HAS ALSO OBSERVED SUCH TYPES OF CASES AND HIGHLIGHTED HOW THESE PENNY STOCKS WHICH ARE LISTED IN CSE THE BROKERS HAVE FOLLOWED A MODUS OPERANDI OF ARTIFICIALLY INFLATING THE PRICE AND CREATING FALSE VOLUMES THROUGH CONTINUOUS SELF - DEALS EXE CUTED ON THE SAME TERMINAL AND CROSS DEALS AMONGST THEMSELVES (IN THE PRESENT CASE DEALS WITH HIMSELF) THEREBY NOT ONLY ENRICHING THEMSELVES BUT ALSO AIDING AND ABETTING THE PROCESS OF LEGITIMIZING THE GAMES. THUS ALL SUCH CLAIMS IN THE FACE OF CONCLUSI ONS BY SEW THE HIGHEST FACT FINDING REGULATORY BODY COULD BE HELD TO BE GENUINE. EVEN CSE HAD IMPOSED PENALTY ON THE SHARE BROKER M/S. BUBNA STOCK BROKING SERVICES LTD. AFTER FINDING IT INVOLVED IN SIMILAR PRACTICES. 3.11 . FROM THE ABOVE ANALYSIS IT IS SEEN THAT THE ASSESSEE HAS DELIBERATELY TRADED IN THE SHARE OF MIS. SHUBASH CAPITAL MARKET WITH LITTLE MARKET CAPITALIZATION COMMONLY REFERRED TO AS PENNY STOCKS WHICH HAS WITNESSED A SHARP PRICE VARIATION WITHIN A VERY SHORT SPAN OF TIME TO IN FUSE H ER UNDISCLOSED INCOME UNDER THE GUISE OF CAPITAL GAINS. THE FINANCIAL RESULT OF THE COMPANY DOES NOT APPEAR TO WARRANT A SUDDEN ASTRONOMICAL RISE OF PRICES. SUCH A RISE IN SHARE PRICE OF THE COMPANY WITH POOR FUNDAMENTAL IS CLEARLY OUT OF SYNC. IT IS HIGHL Y IMPROBABLE THAT THE SHARES OF A COMPANY GO UP SO HIGH WITHIN A SHORT SPAN OF TIME. THE ASSESSING OFFICER HAS REFERRED TO THE DECISION IN THE CASES OF SMT. SUMATI DAYAL VS. CIT1 214 ITR 801 (SC) AND CIT VS. DURGA PRASAD MORE 82 ITR 540 (SC) WHILE CONCL UDING THAT IN THE GIVEN CIRCUMSTANCES THE ASTRONOMICAL RISE IN PRICE OF THE SHARES DOES NOT ACCORD WITH THE HUMAN PROBABILITIES. CLEARLY THE OBJECTIVE BEHIND THE ABOVE EXERCISE IS CREATION OF FALSE MARKET BY SOME 3 UNSCRUPULOUS BROKERS TO LURE INVESTORS AND LEGITIMIZE THE UNDISCLOSED GAINS. MERE RECEIPT OF PAYMENT AND SUBMISSION OF CONTRACT NOTES AND CLAIMING THAT TRANSACTIONS HAVE BEEN MADE THROUGH AN EXCHANGE INVOLVING A STOCK BROKER DOES NOT RENDER A MANIPULATED TRANSACTION TO A GENUINE ONE (PRECISION FINA NCE PVT. LTD. 208 ITR 465 (CAL.). IN VIEW OF THIS THE ASSESSING OFFICER TREATED THE IMPUGNED AMOUNT OF 7 60 045 AS UNEXPLAINE D CASH CREDIT U/S.68 OF THE ACT AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED THE ASSESSEE PREFERRED APP EAL BEFORE THE COMMISSIONER OF INCOME - TAX (APPEALS) BUT BEING UNSUCCESSFUL HAS COME UP IN THE PRESENT APPEAL BEFORE THE TRIBUNAL. 6. AT THE OUTSET THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE B Y THE DECISION OF THE ITAT CUTTACK BENCH IN THE CASE OF ASST.COMMISSIONER OF INCOME - TAX V. SMT.RAJBALA AGARWAL & OTHERS IN ITA NOS.106 107 104 105 AND 108/CTK/2010 WHEREIN VIDE CONSOLIDATED ORDER DT.25.1.2011 ON IDENTICAL CIRCUMSTANCES AS IN THE PRESENT CASE THE TRIBUNAL HAD CONSIDERED THAT THE ADVERSITY AGAINST THE BROKERS OF THE STOCK EXCHANGE AND FOR THAT MATTER THE STOCK EXCHANGES CANNOT BE CONSIDERED AGAINST THE ASSESSEE. THE SECURITIES EXCHANGE BOARD OF INDIA (SEBI) ARE CONTROLLING THE ISSUES GOVE RNING THE TRADING OF SHARES WITH THE BROKERS IN STOCK EXCHANGES DULY LICENSED BY THEM THEREFORE TH E AUTHORITIES BELOW COULD NOT FI ND FAULT IN HOLDING THAT THE PURCHASE OF SHARES AND SALES THEREOF AT AN EXORBITANT PRICE WAS AGAINST THE PRINCIPLES OF NATURA L JUSTICE. HE SUBMITTED THE COPIES OF THE ORDER. HE ALSO SUBMITTED THE COPY OF THE ORDER OF THE ITAT DT. 28.8.2009 IN ITA NO.230/CTK/2008 IN THE CASE OF MAHESH PRASAD AGRAWAL V. INCOME - TAX OFFICER WHICH HAS BEEN RELIED UPON BY THE ASSESSING OFFICER AND TH E LEARNED CIT(A) FOR OPINING THAT THE SHARE CAPITAL OF SHARE COMPANIES ARE SHAM TRANSACTION INSOFAR AS THE PRICE RISE 4 UNBELIEVABLE FROM 1% TO 12 TIMES AND THAT BY SELLING BROKERS ARE THE SAME SET OF PERSONS HAVING DUBIOUS NATURE. THEY ALSO OPINED THAT THE COMPANIES SHARES HAVE UNQUOTED MARKET CAPITALIZED WHICH ARE COMMONLY REFERRED TO AS PENNY STOCK COMPANIES. IN THIS VIEW OF THE MATTER HE SUBMITTED THAT THE LAW PROVIDES CLAIM OF EXEMPTION U/S.10(38) WHEN THE BROKER WHICH ARE ENTITLE D TO LICENSE TO TRADE ANY SHARES AFTER OBTAINING THE SECURITY TRANSACTION TAX WOULD ENTITLE THE CLAIM THE SALE OF ASSETS AGAINST WHICH THE TRIBUNAL IN THE CITED ORDERS HAD NOT BROUGHT ON RECORD ANY EVIDENCE AGAINST THE ASSESSEE THEREFORE THE TWO DECISIONS BECOME INAPPLICABLE T O THE EXTENT THAT THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE CLEARLY INDICATE THAT THE ASSESSEE COULD NOT BE BURDENED WITH THE DENIAL OF THE CLAIM OF DEDUCTION U/S.10(38) OF THE I.T.ACT. 7. THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BEL OW. HE POINTED OUT THAT THE AUTHORITIES HAD CLEARLY INDICATE THAT THE STOCK BROKER REQUIRED THE ASSESSEE TO HOLD THE SHARES BY WAY OF OPENING A DEMAT ACCOUNT WHICH WAS NOT BROUGHT ON RECORD THEREFORE WAS TO BE CONSIDERED IN THE LIGHT OF THE FACT THAT THE S HARE PRICE AT THE TIME OF SALE ROSE EXORBITANTLY IS WITHOUT ANY BASIS. HAVING PURCHASED THE SHARES IN JUNE 2003 AT 58 955 THE ASSESSEE SOLD THE SAME IN FEBRUARY 2005 AT 7 60 .045 WAS CONSIDERED INCOME AS UNEXPLAINED CREDITS U/S.68 OF THE I.T.ACT. 8. ON CAREFUL ANALYSIS OF THE IMPUGNED ORDER S PASSED BY THE DEPARTMENTAL AUTHORITIES AND IN THE LIGHT OF THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND CASE LAW RELIED ON IT IS FOUND THAT THE ISSUE INVOLVED IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEES DECISI ON OF ITAT CUTTACK BENCH IN THE CASE OF INCOME - TAX OFFICER V. JUHI AGARWAL & OTHERS IN ITA NOS. 113/CTK/2010 AND OTHERS VIDE CONSOLIDATED ORDER DT.18.11.2010 (COPY PLACED ON RECORD). THE FACTS AND CIRCUMSTANCES RELATED TO KOLKATA STOCK EXCHANGE WHEREIN THE 5 ADVERSITIES HAVE SOUGHT TO BE FOUND BY THE ASSESSING AUTHORITIES IN THE CASE OF PRESENT ASSESSEE WERE ALSO NOT FOUND. THE ASSESSEE HAD COMPLIED WITH THE PROVISIONS OF THE I.T.ACT IN OBTAINING THE PURCHASE NOTES AND SELLING NOTES FROM THE SHARE BROKER WHO HAS NOT BEEN SUBJECTED TO ANY ADVERSE REPORT BY THE KOLKATA STOCK EXCHANGE. THE KOLKATA STOCK EXCHANGE HAS NOT BEEN FOUND CONTRAVENING THE SEBI REGULATION WHICH HAS RIGHTLY BEEN POINTED OUT CANNOT BE HELD AGAINST THE ASSESSEE IN ANY CASE. IN THE OTHER DECI SION OF THE ITAT CUTTACK AS RELIED ON BY THE ASSESSING AUTHORITIES THE VARIOUS FACTS BROUGHT ON RECORD INDICATED THE INFORMATION OF THE BROKERS TRYING TO INFLATE THE PURCHASE PRICE INSOFAR AS THE ASSESSEE HAD NOT FOLLOWED THE REGULAR MODE OF DEALING IN SHARES AS PER THE PROVISIONS OF THE I.T.ACT OR THE SEBI GUIDE LINES. THE LEARNED CIT(A) IN THE IMPUGNED ORDER HAD OPINED HIS OWN VERSION OF ANALYZING THE ADVERSITY WHICH WAS NEVER FOUND IN THE CASE OF BROKER OR KOLKATA STOCK EXCHANGE BY ADJUDICATING THAT T HE SHARE PRICE OF THE PENNY STOCK COMPANY COULD NOT HAVE RISEN FROM 9 TO 117 WITHIN A PERIOD OF 19 MONTHS. BUT HE ALSO RELIED ON THE VERY BROKERS WHO HAD DUBIOUS RECORD WHICH IS NOT THE CASE OF THE ASSESSEE. CONCLUDING THAT THE SHARES DEALT WITH BY THE A SSESSEE ARE OF PENNY STOCK COMPANY HE OPINED THAT THE COMPANY DID NOT EXIST. HOWEVER HE COULD NOT POINT OUT ANY ADVERSITY AS BROUGHT OUT BY SEBI OR STOCK EXCHANGE THEREFORE QUALIFY THE AS SESSEE TO CLAIM DEDUCTION/S.10( 38) WHEN THE BROKERS CHARGED SECURITY TRANSACTION TAX IN ACCORDANCE WITH THE PROVISIONS OF THE SEBI GUDELINE AND I.T.ACT. IT WAS NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE HAD NEVER HELD SUCH SHARES TO DISALLOW THE CLAIM FOR THE PURPORTED CONSIDERATION RECEIVED ON THE SALE OF THE SHARES AS ASSESSEES OWN MONEY. NO CORROBORATIVE EVIDENCE HAS BEEN BROUGHT ON RECORD TO THIS EFFECT AN D THEREFORE WE ARE INCLINED TO HOLD THAT THE AUTHORITIES BELOW MISDIRECTED THEMSELVES TO DENY THE ASSESSEE THE CLAIM OF DEDUCTION 6 U/ S.10(38) OF THE I.T.ACT BY CONVERTING THE CONSIDERATION AS UNEXPLAINED INCOME UNDER THE PROVISIONS OF SECTION 68 OF THE I.T.ACT AND MAKING ADDITION TO THE TOTAL INCOME OF THE ASSESSEE. FOR THE REASONS DISCUSSED ABOVE THE IMPUGNED ADDITION MADE BY THE ASSE SSING OFFICER AND CONFIRMED BY THE LEARNED CIT(A) ON THIS SCORE IS DELETED BY ALLOWING THE APPEAL OF THE ASSESSEE. 9. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. SD/ - SD/ - (K.K.GUPTA) ACCOUNTANT MEMBER ( K.S.S.PRASA D RAO) JUDICIAL MEMBER DATE: 18 TH NOVEMBER 2011 H.K.PADHEE SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: BINA DIDWANIA PLOT NO.1 LAXMI SAGAR CUTTACK ROAD BHUBANESWAR 75 1 006. 2. THE RESPONDENT: ASST.COMMISSIONER OF INCOME - TAX CIRCLE 1(1) BHUBANESWAR. 3. THE CIT 4. THE CIT(A) 5. THE DR CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY BY ORDER SENIOR PRIVA TE SECRETARY.