The ACIT, Cent Cir-,, Vijayawada v. M/s Anil Harnathka,, Guntur

ITA 460/VIZ/2007 | 2002-2003
Pronouncement Date: 18-08-2010 | Result: Dismissed

Appeal Details

RSA Number 46025314 RSA 2007
Assessee PAN AAJPH6547A
Bench Visakhapatnam
Appeal Number ITA 460/VIZ/2007
Duration Of Justice 2 year(s) 9 month(s) 5 day(s)
Appellant The ACIT, Cent Cir-,, Vijayawada
Respondent M/s Anil Harnathka,, Guntur
Appeal Type Income Tax Appeal
Pronouncement Date 18-08-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 18-08-2010
Assessment Year 2002-2003
Appeal Filed On 13-11-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO.454 TO 456/VIZAG/2007 ASSESSMENT YEARS : 2002-03 TO 2004-05 RESPECTIVELY ACIT CENTRAL CIRCLE VIJAYAWADA SRI ALOK HARNATHKA GUNTUR (APPELLANT) VS. (RESPONDENT) PAN NO.AAJPH 6547A ITA NO.457 TO 459/VIZAG/2007 ASSESSMENT YEARS : 2002-03 TO 2004-05 RESPECTIVELY ACIT CENTRAL CIRCLE VIJAYAWADA SRI NIRANJANLAL HARNATHKA REP. BY SRI ALOK HARNATHKA GUNTUR (APPELLANT) VS. (RESPONDENT) PAN NO.AAZPN 4318H ITA NO.460 TO 462/VIZAG/2007 ASSESSMENT YEARS : 2002-03 TO 2004-05 RESPECTIVELY ACIT CENTRAL CIRCLE VIJAYAWADA SRI ANIL HARNATHKA GUNTUR (APPELLANT) VS. (RESPONDENT) PAN NO.AAJPH 6548R ITA NO.463 TO 465/VIZAG/2007 ASSESSMENT YEARS : 2002-03 TO 2004-05 RESPECTIVELY ACIT CENTRAL CIRCLE VIJAYAWADA SRI ANUP GUPTA GUNTUR (APPELLANT) VS. (RESPONDENT) PAN NO.ACJPG 0407G APPELLANT BY: SHRI SUBRATA SARKAR DR RESPONDENT BY: SHRI G.V.N. HARI CA ORDER PER BENCH:- THESE APPEALS ARE PREFERRED BY THE REVENUE AGAINS T THE ORDER OF THE CIT(A) IN THE CASE OF DIFFERENT ASSESSEES ON COMMON GROUNDS THAT THE CIT(A) HAS ERRED IN NOT SUPPORTING THE CONCLUSION OF THE A SSESSING OFFICER THAT THE 2 ASSESSEE HAS CONVERTED HIS UNDISCLOSED INCOME INTO A LONG TERM CAPITAL GAIN AND THEREAFTER ALLOWING THE CLAIM OF THE ASSESSEES U/S 54F OF THE I.T. ACT. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEALS THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER. 2. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT A SEARCH AND SEIZURE OPERATION U/S 132 WAS CONDUCTED IN THE CASE OF ASSESSEES AND THE GROUP CONCERNS OTHERWISE CALLED AS NICO GROUP GUNT UR ON 2.9.2004. MAIN PERSON OF THIS GROUP ARE SHRI NIRANJANLAL HARNATHKA FATHER OF THE OTHER ASSESSEES NAMELY ANIL HARNATHKA ALOK HARNATHKA AND ANUP GUPTA. DURING THE COURSE OF ASSESSMENT PROCEEDINGS DETAILS REGAR DING TRANSACTION AND CONSTRUCTION OF RESIDENTIAL HOUSE WERE CALLED FOR A ND THE NECESSARY DETAILS AS REQUIRED BY THE A.O. WERE FILED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSING OFFICER HAS NOTED THAT THE A SSESSEES HAVE EARNED LONG TERM CAPITAL GAINS FROM SHARES DURING THE IMPUGNED ASSESSMENT YEARS. THE A.O. NOTICED SEVERAL ANOMALIES IN THE SHARE TRANSAC TIONS WHICH IS DISCUSSED IN DETAIL IN HIS ASSESSMENT ORDERS. AS PER THE A.O. THE COMPANIES THE SCRIPS OF WHICH WERE TRADED BY THE ASSESSEES GROUP WERE UNKN OWN AND NOT CURRENTLY TRADED IN THE CALCUTTA STOCK EXCHANGE THROUGH WHICH THE ASSESSEES HAVE DONE TRANSACTIONS TO EARN THE CAPITAL GAINS. THE A .O. HAS ALSO OBSERVED THAT IT IS ABNORMAL THAT ALL THE BROTHERS AND THEIR FATH ER TRADED IN SHARES THROUGH CALCUTTA STOCK EXCHANGE. THOUGH THEY ALSO TRADED I N REPUTED COMPANY SHARES THE WIND FALL GAINS WERE ONLY MADE IN THE S HARES OF UNKNOWN COMPANIES LISTED IN CALCUTTA STOCK EXCHANGE. THE A .O. SUSPECTED THE TRANSACTIONS ON THE GROUND THAT THE ASSESSEE GROUP WERE DEALING THROUGH CALCUTTA STOCK EXCHANGE BEING LOCATED IN FAR AWAY P LACE FROM GUNTUR AND THEY HAVE TAKEN SERVICE OF DIFFERENT BROKERS RATHER THAN A SINGLE BROKER AS USUALLY IS THE NORM. HEAVILY RELYING UPON THE JUDG EMENT OF THE APEX COURT IN THE CASE OF CIT VS. DURGA PRASAD MORE 82 ITR 540 T HE A.O. OBSERVED THAT THE EARNINGS OF THE CAPITAL GAIN BY THE ASSESSEES A ND HIS FAMILY MEMBERS IS AGAINST THE HUMAN PROBABILITIES. THE A.O. HAS ALSO PLACED A RELIANCE UPON THE STATEMENT OF SHRI PRAVEEN KUMAR AGARWAL PROPRI ETOR OF M/S. P.K. AGARWAL AND COMPANY WHO SUGGESTED THAT IT COULD BE A CASE OF ARRANGEMENT OF LONG TERM CAPITAL GAIN AND OBSERVED THAT EVEN THOUGH THE TRANSACTIONS APPEARED 3 TO BE LEGALLY CORRECT THE TRANSACTIONS ARE NOT GEN UINE IN THE SENSE THAT IT IS SUBTERFUSE OR A COLOURFUL DEVICE OR A DUBIOUS METHO D OF TAX EVASION. THE TRANSACTIONS ARE FRAUDULENTLY DONE SO AS TO ROOT TH E UNDISCLOSED CASH LYING TO THE BOOKS OF ACCOUNTS AND GIVE IT A COLOUR OF GENUI NE SHARE TRANSACTIONS. ACCORDINGLY THE A.O. HELD THAT LONG TERM CAPITAL G AIN SHOWN IS NOTHING BUT ASSESSEES UNDISCLOSED INCOME AND ACCORDINGLY ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3. BEING AGGRIEVED THE ASSESSEE PREFERRED AN APPEA L BEFORE THE CIT(A) AND FILED ITS WRITTEN SUBMISSIONS. THE WRITTEN SUB MISSIONS FILED BY THE ASSESSEES WERE EXTRACTED IN THE ORDER OF THE CIT(A) THROUGH WHICH IT WAS STRONGLY CONTENDED THAT DURING THE COURSE OF SEARCH NO INCRIMINATING MATERIAL WAS FOUND AT THE PREMISES OF ANY OF THE ASSESSEE. IN RESPONSE TO NOTICE U/S 153A THE ASSESSEES FILED THEIR RETURNS OF INCOME C LAIMING EXEMPTION U/S 54F OF THE LONG TERM CAPITAL GAINS EARNED ON SALE OF SH ARES ALONG WITH OTHER INCOME. DETAILS OF PURCHASE AND SALE OF SHARES AND PROFITS THEREON WERE DISCLOSED BY THE ASSESSEES. THE ASSESSEES HAVE ALS O COMMENTED ON ALL THE POINTS ON WHICH THE ASSESSING OFFICER HAS DOUBTED T HE TRANSACTIONS AND TREATED THE LONG TERM CAPITAL GAIN AS AN UNDISCLOSE D INCOME OF THE ASSESSEES. THE COMMENTS OF THE ASSESSEES ON CERTAIN POINTS IN THE CASE ALOK HARNATHKA ARE EXTRACTED HEREUNDER IN ORDER TO UNDERSTAND ON W HAT BASIS THE TRANSACTIONS WERE DOUBTED AND LONG TERM CAPITAL GAI N WAS CONSIDERED TO BE THE UNEXPLAINED INCOME OF THE ASSESSEES AND THE COM MENTS OF THE ASSESSEES THERETO: 4.2.1 THE ALLEGED PECULIARITIES AND SIMILARITIES A RE MENTIONED BY THE LEARNED ASSESSING OFFICER IN PARA 9 10 AND 11 OF THE ASSE SSMENT ORDER. 4.2.2 IN PARA 12 OF THE ASSESSMENT ORDER UNDER THE HEADING ANAMOLY IN THE INVESTMENT PATTERN THE LEARNED ASSESSING OFFICER CONCLUDED THAT THE SHARE TRANSACTIONS THAT RESULTED IN LONG TERM CAPITAL GAINS PURPORTED TO HAVE TAKEN PLACE PRIMA FACIE DOES NOT CONFIRM TH E PRINCIPLES OF HUMAN PROBABILITY ENUNCIATED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. DURGA PRASAD MORE (82 ITR 540). 4.2.3 IN PARA 13 UNDER THE HEADING EVIDENCE UNEARTHED DURING POST SEARCH INVESTIGATION THE LEARNED ASSESSING OFFICER RELIED ON A GENERAL STATEMENT OF ONE OF THE SHARE BROKERS OF CALCUTTA RECORDED ON 28.12.2004 4 DURING A SURVEY IN HIS BUSINESS PREMISES. IN THIS STATEMENT SRI P.K. AGARWAL MADE A GENERAL AND UNEVIDENCED ALLEGATION OF A MOD US OPERANDI BEING FOLLOWED BY THE ENTRY OPERATORS BROKERS ETC. FOR ARRANGEMENT OF LONG TERM CAPITAL GAINS. 5.1 IN ESSENCE THE LEARNED ASSESSING OFFICER FELT T HAT THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES MADE BY THE APPELLANT A ND OTHER MEMBERS OF HIS GROUP ARE FALSE/FRAUDULENT SIMPLY BASING ON SIMILA RITIES THE ALLEGED PRINCIPLES OF HUMAN PROBABILITY AND UN-EVIDENCED ORAL STATEMEN T OF AN UNCONNECTED BROKER. WHILE DOING SO THE BASIC FACTS EVIDENCED BY PRIMARY AND CONTEMPORANEOUS RECORD LIKE DEMAT ACCOUNT BANK TR ANSACTIONS ETC. WERE IGNORED TO BE TAKEN INTO ACCOUNT AT ALL EVENTHOUGH THEY ARE VERY MUCH ON RECORD. THUS LEAVING THE FACTS ASIDE THE LEARNED ASSESSIN G OFFICER MADE THE ASSESSMENT ON MERE CONJECTURES ASSUMPTION S AND PRESUMPTIONS. 5.2 THE PECULIARITIES AND SIMILARITIES MENTIONED B Y THE LEARNED ASSESSING OFFICER (REFERRED TO AT PARA 4.2.1 ABOVE) AND OUR SUBMISSION ON EACH ONE OF THEM ARE AS UNDER: AS PER THE DETAILS AVAILABLE IN THE RETURNS FILED ALL THE FOUR MEMBERS OF THE APPELLANT-GROUP ARE IN THE HABIT OF INVESTING IN SHARES. IT IS A FACT THAT THE APPELLANT AND OTHER THREE MEMBERS BELONG TO ONE FAMILY. THEY ARE FATHER AND SONS. THEY ARE DOING BUSINESS TOGETHER AND ARE INCOME TAX ASSESSEES. THEY ARE IN THE HABIT OF INVESTING IN SHARES AND THE TRANSACTIONS ARE BEING ADMITTED IN THEIR RETURN OF INCOME BEING FILED YEAR AFTER YEAR. THEY NORMALLY DO ANYTHING TOGETHER. THIS IS NOT A PECULIAR SIMILARITY TO DRAW AN ADVERSE INFERENCE. THE APPELLANT-GROUP DID NOT RECEIVE ANY WINDFALL CAPITAL GAINS IN RESPECT OF SHARES DEALT WITH THROUGH BOMBAY STOCK EXCHANGE OR NATIONAL STOCK EXCHANGE WINDFALL CAPITAL GAINS IN SHARES ARE NOT A SYSTEMATIC ONE DO NOT HAVE ANY PATTERN; AND IS DEPENDENT ON INDIVIDUAL SCRIPS AND PARTICULAR PREVAILING CIRCUMSTANCES. THERE CANNOT BE ANY ADVERSE INFERENCE IN THIS REGARD. THE APPELLANT-GROUP RECEIVED WINDFALL CAPITAL GAINS FROM TRADING OF SHARES OF UNKNOWN COMPANIES LISTED IN CALCUTTA STOCK EXCHANGE DURING THREE YEARS 2001-02 2002-03 AND 2003-04. IT IS A GAIN ON TAKING A RISK IN INVESTING IN LOW PRICED SHARES. EXCEPT DURING THESE THREE PREVIOUS YEARS THE APPELLANT-GROUP DID NOT INVEST IN CALCUTTA STOCK EXCHANGE EITHER IN THE YEARS EARLIER TO THESE TRANSACTIONS OR LATER. IT IS A FACT THAT THE APPELLANT GAINED BY INVESTING IN SHARE THROUGH CALCUTTA EXCHANGE DURING THESE THREE YEARS. HOWEVER THE APPELLANT GROUP HAS BEEN REGULARLY INVESTING IN SHARES IN THE YEARS BEFORE AND AFTER THE YEARS IN DISPUTE. ALL THE RELEVANT BROKERS WERE IN CALCUTTA AND THE APPELLANT WAS NOT AWARE OF ANY PERSON OF SUCH SHARE BROKERAGE FIRM. IN THE PRESENT-ERA OF ELECTRONIC TRADE AND DE-MAT ACCOUNTS THERE IS NO NECESSITY OF KNOWING DIRECTLY ANY BROKER IN PERSON. ALL THE TRANSACTIONS ARE CARRIED THROUGH 5 BANKING CHANNELS AND SHARES ARE HELD IN DEMAT ACCOUNT. THE APPELLANT-GROUP HAD TAKEN THE SERVICES OF SEVEN DIFFERENT BROKERS REGISTERED IN CALCUTTA STOCK EXCHANGE AND NOT A SINGLE BROKER. THERE IS NO BAR OR PROHIBITION OF UTILIZING THE SERVICES OF DIFFERENT BROKERS SIMULTANEOUSLY. IF MORE BROKERS ARE INVOLVED MORE WOULD BE MARKET INFORMATION THAT FLOWS IN FOR MAKING INVESTMENT. ALL THE COMPANIES WHOSE SCRIPS WERE TRADED BY THE ASSESSEE-GROUP WERE UNKNOWN AND NONE OF THESE COMPANIES ARE REGULARLY TRADED. ALL THE LISTED SHARES IN INDIA ARE NOT TRADED REGULARLY. AS MENTIONED BY THE LEARNED ASSESSING OFFICER THE COMPANIES UNDER CONSIDERATION ARE NOT IN EITHER GROUP `A OR `B. ALL CATEGORIES OF SHARES OTHER THAN A AND B ARE TRADED IN ALL THE STOCK EXCHANGES IN INDIA. THERE MAY NOT BE TRANSACTIONS OF THESE SHARES EVERY DAY. IT IS A FACT THEY ARE BEING TRADED. IX ALL THE MEMBERS OF THE APPELLANT-GROUP INVESTED IN FOUR LOW PROFILE COMPANIES LISTED IN CALCUTTA STOCK EXCHANGE; THE COST OF THE SHARES RANGES FROM RS.2 TO RS.8; CONTINUOUSLY IN THREE CONSECUTIVE YEARS ALL THE PERSONS OF THE APPELLANT- GROUP GOT WIND FALL CAPITAL GAINS; ALL THE MEMBERS ARE FATHER AND SONS ONLY. THERE IS A CLOSE-KNIT FAMILY. AS STATED EARLIER THEY DO THINGS TOGETHER. THEY HAVE BEEN DOING BUSINESS TOGETHER. THERE IS NOTHING UNNATURAL IF THEY HAD TOGETHER TAKEN CALCULATED RISK BY INVESTING IN LOW PROFILE COMPANIES LISTED IN CALCUTTA STOCK EXCHANGE SINCE THEY WERE GIVEN TO UNDERSTAND THAT THE VALUE OF THE SHARES OF THESE COMPANIES MIGHT JUMP UP. THIS IS A VERY NATURAL AND COMMON. 5.3.1 THE LEARNED ASSESSING OFFICER HELD THAT ..T HE SHARE TRANSACTIONS THAT RESULTED IN LONG TERM CAPITAL GAINS PURPORTED TO HA VE TAKEN PLACE PRIMA FACIE DOES NOT CONFIRM THE PRINCIPLES OF HUMAN PROBABILIT Y ENUNCIATED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. DURGA PRASAD MORE (82 ITR 540) REFERRED TO IN THESE SUBMISSIONS AT PARA 4.2 .2 ABOVE. 5.3.2 THE MEMBERS OF THIS APPELLANT GROUP ARE FATHE R AND HIS THREE SONS. THEY HAVE BEEN DOING BUSINESS TOGETHER. THEY ARE A LMOST LIVING TOGETHER. THEIRS IS A CLOSE-KNIT FAMILY. THEY WERE INVESTIN G IN SHARES TOGETHER. THEY PURCHASED A HOUSE SITE TOGETHER IN JOINT NAMES. TH EY CONSTRUCTED TOGETHER RESIDENTIAL ACCOMMODATION FOR ALL THE FOUR MEMBERS. THERE IS NOTHING TO SHOW THAT ALL THESE ACTIVITIES ARE AGAINST THE PRIN CIPLES OF HUMAN PROBABILITY. IN FACT; ALL THESE ACTIVITIES ARE NATURAL AND COMMO N IN MANY OF THE FAMILIES IN INDIA AND REPRESENT INDIAN CULTURE; AND THEY VERY MUCH CONFIRM TO THE PRINCIPLES OF HUMAN PROBABILITY. 5.3.3 THE DECISION OF THE SUPREME COURT IN THE CASE OF DURGA PRASAD MORE VS. CIT (82 ITR 540) IS NOT AT ALL APPLICABLE THE A PPELLANTS CASE. THE FACTS REFERRED TO IN THE DECISION OF THE SUPREME COURT A RE AS UNDER: (REPRODUCED FROM THE HEAD NOTE) 6 PURPORTING TO ACT AS TRUSTEE OF A TRUST CREATED BY HIS WIFE THE ASSESSEE PURCHASED ON SEPTEMBER 30 1940 CERTAIN HOUSE PROP ERTY FOR RS.1 85 000. DURING THE ASSESSMENT FOR THE ASSESSMENT YEAR 1942- 43 THE ASSESSEE CLAIMED THAT THE INCOME FROM THE PROPERTY SHOULD NO T BE BROUGHT TO TAX IN HIS HANDS AND IN SUPPORT THEREOF PRODUCED THE DEED OF C ONVEYANCE IN HIS FAVOUR AND THE DEED OF TRUST EXECUTED BY HIS WIFE NEARLY A YEAR THEREAFTER ON SEPTEMBER 10 1941. APART FROM SAYING THAT IT WAS HER STRIDHAN PROPERTY AND THAT A SUM OF RS.2 LAKHS WERE ALL ALONG LYING IN T HE HANDS OF HIS FATHER-IN- LAW THE ASSESSEE DID NOT PRODUCE ANY MATERIAL TO S HOW THAT HIS WIFE HAD ANY INDEPENDENT SOURCE OF INCOME. THE TRIBUNAL REJECTE D HIS CLAIM LEAVING IT OPEN TO THE ASSESSEE TO ESTABLISH HIS CASE IN SUBSE QUENT ASSESSMENT PROCEEDINGS. DURING THE ASSESSMENT YEARS 1942-43 T O 1957-58 THE INCOME OF THOSE PREMISES WAS ASSESSED IN HIS HANDS. FOR T HE ASSESSMENT YEARS 1958-59 AND 1959-60 THE ASSESSEE REVIVED HIS PLEA A ND THE TRIBUNAL AGAIN REJECTED IT HOLDING THAT THE RECITALS IN THE TWO D EEDS WERE MAKE-BELIEVE STATEMENTS. THE FOLLOWING FACTS AND CIRCUMSTANCES WERE RELIED ON: (I) THE ASSESSEES WIFE WAS NOT SHOWN TO HAVE ANY SOURCE OF INCOME; (II) THE ASSESSEE WAS UNABLE TO EXPLAIN THE SOURCE; (III) TH E SALE DEED IN FAVOUR OF THE ASSESSEE WAS EXECUTED EVEN BEFORE THE TRUST DEED; ( IV) EVEN AFTER THE TRIBUNAL OBSERVED IN THE YEAR 1942-43 THAT HE COULD TAKE UP THAT QUESTION AGAIN IN SEVERAL YEARS WITHOUT ANY OBJECTION. ON A REFERENCE THE HIGH COURT HELD THAT THE TRIBUNAL WAS NOT RIGHT IN HOLDING THA T THE PROPERTY WAS NOT TRUST PROPERTY. ON APPEAL TO THE SUPREME COURT: _HELD _REVERSING THE DECISION OF THE HIGH COURT (I ) THAT IT COULD NOT BE SAID THAT THE FINDING OF THE TRIBUNAL AS TO THE UNREALIT Y OF THE TRUST PUT FORWARD WAS NOT BASED ON EVIDENCE OR WAS OTHERWISE VITIATED ; (II) THAT THE TRIBUNAL DID NOT INTERPRET THE TWO DE EDS BUT MERELY FOUND ITSELF UNABLE TO ACCEPT THE CORRECTNESS OF THE RECITALS IN THOSE DOCUMENTS: TO ACCEPT THOSE RECITALS OR NOT WAS WITHIN THE PROVINCE OF TH E TRIBUNAL AND THE HIGH COURT COULD NOT INTERFERE WITH ITS CONCLUSION UNLES S IT WAS PERVERSE OR NOT SUPPORTED BY EVIDENCE OR WAS BASED ON IRRELEVANT EV IDENCE; (III) THAT THOUGH AN APPARENT STATEMENT MUST BE CON SIDERED REAL UNTIL IT WAS SHOWN THAT THERE WERE REASONS TO BELIEVE THAT THE A PPARENT WAS NOT THE REAL IN A CASE WHERE A PARTY RELIED ON SELF-SERVING RECI TALS IN DOCUMENTS IT WAS FOR THAT PARTY TO ESTABLISH THE TRUTH OF THOSE RECITALS : THE TAXING AUTHORITIES WERE ENTITLED TO LOOK INTO THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY OF SUCH RECITALS; (IV) THOUGH IT WAS TRUE THAT NEITHER THE PRINCIPLE OF RES JUDICATA NOR THE RULE OF ESTOPPEL WAS APPLICABLE TO ASSESSMENT PROCEEDINGS THE FACT THAT THE ASSESSEE INCLUDED THE INCOME OF THE PREMISES IN HIS RETURNS FOR SEVERAL YEARS AFTER OBJECTING TO ITS INCLUSION IN THE YEAR 1942-4 3 WAS A CIRCUMSTANCE WHICH THE TAXING AUTHORITIES WERE ENTITLED TO TAKE INTO C ONSIDERATION IN THE ABSENCE OF ANY SATISFACTORY EXPLANATION; (V) THAT NO QUESTION OF LAW AROSE OUT OF THE ORDER OF THE TRIBUNAL AND THAT THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE HOUSE PROPER TY WAS NOT TRUST PROPERTY. 7 5.3.4 FROM THE ABOVE IT CAN BE SEEN THAT THE FACTS OF THIS CASE ARE NEITHER COMPARABLE NOR APPLICABLE TO THE CASE OF THE APPELL ANT. THERE ARE NO SELF- SERVING RECITALS IN THE DOCUMENTS RELIED ON BY THE APPELLANT. ALL THE TRANSACTIONS IN THE CASE OF THE APPELLANT ARE SUPPO RTED BY PUBLIC RECORD AS SUBMITTED EARLIER. THE LEARNED ASSESSING OFFICER S IMPLY RELIED ON A STATEMENT BASED ON GUESS OR SUSPICION TO HOLD THAT THESE TRAN SACTIONS ARE NOT REAL. 5.3.5 THE OBSERVATION OF THE ASSESSING OFFICER THAT THE SHARE TRANSACTIONS THAT RESULTED IN LONG TERM CAPITAL GAINS PURPORTED TO HAVE TAKEN PLACE PRIMA FACIE DOES NOT CONFIRM TO THE PRINCIPLES OF HUMAN P ROBABILITY AS ENUNCIATED BY THE SUPREME COURT IN THE ABOVE CASE IS THEREFOR E NOT CORRECT AND NOT BASED ON THE FACTS OF THE APPELLANTS CASE. EVEN A T THE RISK OF REPETITION WE SUBMIT THAT THE APPELLANTS GROUP PURCHASED SHARES THROUGH REGISTERED STOCK BROKERS AND THE TRANSACTIONS WERE RECORDED IN THE C ALCUTTA STOCK EXCHANGE. THE PAYMENTS WERE MADE THROUGH REGULAR BANKING CHAN NELS. THE MAJORITY OF THE SHARES PURCHASED WERE IN DEMAT ACCOUNT. THEY W ERE SOLD AFTER A GAP OF MORE THAN A YEAR AGAIN THROUGH SHARE BROKERS AND T HE CONSIDERATION WAS RECEIVED THROUGH BANKING CHANNELS. THE TRANSACTION S WERE RECORDED AT VARIOUS UNDISPUTABLE PUBLIC DOCUMENTS. AND IN FACT THE LEARNED ASSESSING OFFICER DID NOT DISPUTE ANY OF THESE FACT S. 5.3.6 WE THEREFORE SUBMIT THAT THERE IS NO IMPROB ABILITY IN THE TRANSACTIONS OF THE APPELLANT. AND THE RELIANCE OF THE LEARNED ASSESSING OFFICER ON THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS . DURGA PRASAD MORE (82 ITR 540) IS TOTALLY OUT OF CONTEXT AND IS NOT CORR ECT. 5.4 IN THIS CONNECTION THE ATTENTION OF THE HONBLE COMMISSIONER OF INCOMETAX (APPEALS) IS INVITED TO THE OBSERVATIONS OF THE SUPREME COURT IN THE CASE OF DHAKESWARI COTTON MILLS LTD. VS. COMMIS SIONER OF INCOME-TAX 26 ITR 775 (SC). AN EXTRACT FROM THE HEAD LINES IS REPRODUCED BELOW: IN MAKING AN ASSESSMENT UNDER SECTION 23(3) OF THE IN DIAN INCOME-TAX ACT THE INCOME-TAX OFFICER IS NOT FETTERED BY TECHNICAL RULES OF EVIDENCE AND PLEADINGS AND HE IS ENTITLED TO ACT ON MATERIAL WH ICH MAY NOT BE ACCEPTED AS EVIDENCE IN A COURT OF LAW BUT THE INCOME-TAX OFFICER IS NOT ENTITLED TO MAKE A PURE GUESS AND MAKE AN ASSESSMENT WITHOUT RE FERENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL. THERE MUST BE SOMETHING MORE THAN BARE SUSPICION TO SUPPORT THE ASSESSMENT UNDER SECTION 23(3). THE RULE OF LAW ON THIS SUBJECT HAS BEEN FAIRLY AND RIGHTLY STATED BY THE LAHORE HIGH COURT IN THE CASE OF SETH GURMUKH SINGH VS. COMMISSIONER OF INCOME-TAX PUNJAB [1944] (12 ITR 393). [HELD ON THE FACTS OF THE CASE THAT BOTH THE INCOME -TAX OFFICER AND THE APPELLATE TRIBUNAL IN ESTIMATING THE GROSS PROFIT R ATE ON SALES OF THE ASSESSEE DID NOT ACT ON ANY MATERIAL BUT ACTED ON PURE GUESS AND SUSPICION AND THEREFORE IT WAS A FIT CASE FOR THE EXERCISE OF THE POWER OF THE SUPREME COURT UNDER ARTICLE 136 OF THE CONSTITUTION. 5.4.2 IT IS CLEAR FROM THE OBSERVATIONS OF THE SUPRE ME COURT THAT ANY DECISION IN A SCRUTINY ASSESSMENT SHOULD NOT BE BAS ED ON GUESS OR SUSPICION. 8 5.5.1 THE SO CALLED EVIDENCE UNEARTHED DURING POS T-SEARCH INVESTIGATION MENTIONED BY THE LEARNED ASSESSING OFFICER (REFERRE D TO AT PARA 4.2.3 OF THESE SUBMISSIONS ABOVE) WAS AS UNDER: (I) A STATEMENT RECORDED FROM ONE OF THE SHARE BROKERS I.E. SRI P.K. AGARWAL THROUGH WHOM THE APPELLANT MADE SOME PURCH ASES OF SHARES. (II) WRITTEN SUBMISSIONS BY M/S. BHIWANIWALA & CO. ANOTH ER SHARE BROKER FROM CALCUTTA THROUGH WHOM THE APPELLANTS GROUP HAD TRANSACTIONS OF SHARES. 5.5.2 WE REPRODUCE BELOW QUESTION NO.31 AND THE ANS WER THEREON OF SRI P.K. AGARWAL EXTRACTED FROM HIS SWORN DEPOSITION R ECORDED U/S 133A IN A POST SEARCH INQUIRY. Q.NO.31 PLEASE GIVE DETAILS REGARDING THE PURCHASE OF SHARE S MADE ON ACCOUNT OF YOUR CLIENTS NAMELY SRI ANUP GUPTA ANIL HARNATHKA SRI ALOK HARNATHKA AND SRI NIRANJANLAL HARNATHKA OF GUN TUR. ANSWER I AM FURNISHING BEFORE YOU THE SAUDA BOOK CONTAINING TRANSACTIONS MADE ON 23.4.2003 WHICH GIVES DETAILS OF SHARE PURCHASES OF M/S. NAGESWAR INVESTMENT AND TRADING LTD. BY THE ABOVE NAMED FOUR CLIENTS @ RS.2/-. ALL THE SHARES ARE SOLD BY M/S. ANUSREE TRADELINK ( P) LTD. WE SUBMIT THAT THE APPELLANT HAD EXACTLY RECORDED T HE PURCHASE OF SHARES IN M/S. NAGESWAR INVESTMENTS AND TRADING LIMITED AT THE PURCHASED COST. WHEN SHARES ARE PURCHASED THROUGH THE RECOGT NISED SHARE BROKERS AND STOCK EXCHANGE THE APPELLANT IS NOT CONCERNED WITH THE DETAILS OF SELLERS OF THESE SHARES. IT IS PERTINENT TO NOTE HERE THAT THERE IS NOTHING AGAINST THE APPELLANT IN THE ANSWER GIVEN. 5.5.3 EVEN IN THE FOLLOWING Q.NO.32 AND THE RELEVANT ANSWER GIVEN BY SRI P.K. AGARWAL THERE IS NOTHING AGAINST THE APPELLAN T. THE Q.NO.32 AND ITS ANSWER IS REPRODUCED WHICH HAVE NOTHING AGAINST THE APPELLANT. Q.NO.32 PLEASE FURNISH THE CLIENT ID FORMS OF THE ABOVE NAME D FOUR PARTIES AND EXPLAIN WHETHER IT IS A CASE OF ARRANGEMENT OF LONG TERM CAPITAL GAIN. ANSWER I DONT HAVE CLIENT ID FORM OF FOUR PARTIES OF GUNTUR . IT IS A CASE OF ARRANGEMENT OF LONG TERM CAPITAL GAINS MODUS OPERAN DI OF WHICH HAS BEEN EXPLAINED BY ME IN MY ANSWER NO.9 M/S. ANUSREE TRAD ELINK (P) LTD. IS MANAGED BY SRI ANIL KHEMKA WHO HAS ARRANGED LONG TE RM CAPITAL GAINS OF THE ABOVE FOUR PARTIES. 9 5.5.4 REGARDING THE FIRST PART OF THE QUESTION WE SUBMIT THAT THE APPELLANT AND THE MEMBERS OF HIS GROUP DID FURNISH THEIR I.D. FORMS TO THE BROKER AND ANY LAPSE ON HIS PART IN PRESERVING THE REQUIRED RE CORD SHALL NOT BE A CAUSE FOR AN ADVERSE DECISION IN THE CASE OF THE APPELLAN T. FURTHER IT IS TO BE NOTED THAT THE SHARES ARE TRANSFERRED TO THE APPELLANTS DEMAT ACCOUNT WHICH ITSELF GIVES THE IDENTITY OF THE APPELLANT AND THEREFORE IT IS NOT FAIR TO DRAW AN ADVERSE INFERENCE AGAINST THE APPELLANT. 5.5.5 WE SUBMIT THAT THE SECOND PART OF THE QUESTIO N IS A MISLEADING ONE. WHAT IS THE LOCUS STANDI OF THE BROKER SRI P.K. AGA RWAL TO SAY ABOUT THE SO CALLED ARRANGEMENT OF LONG TERM CAPITAL GAINS? HE IS ONLY A BROKER FOR PURCHASE OF A FEW SHARES IN THE OPEN MARKET AND THE SAID SHARES WERE IN THE DEMAT FORM. THE PAYMENTS WERE MADE THROUGH NORMAL BANKING CHANNELS. HE DID NOT SELL ANY OF THE RELEVANT SHARES TO SAY T HAT THE SHARES WERE SOLD AT AN ARRANGED PRICE INSTEAD OF MARKET PRICE. HE HAS NEITHER KNOWLEDGE NOR CONNECTION TO THE SALES EITHER AS A BROKER OR SELL ER; HE IS NOT A CONNECTED PERSON OF THE RELEVANT COMPANY WHOSE SHARES WERE U NDER CONSIDERATION. 5.5.6 THUS THE ANSWER TO THE SECOND PART OF THE QU ESTION IS ONLY A CONJECTURE OF THE DEPONENT IF NOT AN ALLEGATION MA DE WITHOUT ANY BASIS OR BASED ON GOSSIP. THE MATERIAL WHICH HE HAS GATHER ED MENTIONED IN SECTION 143(3) BY THE LEARNED ASSESSING OFFICER WAS THE AB OVE STATEMENT OF THE BROKER SRI P.K. AGARWAL. THUS THE SO CALLED EVIDE NCE WAS ONLY A CONJECTURE OR SURMISE BASED ON WILD GOSSIP OR BASELESS RUMOUR S. IT IS A WELL SETTLED LAW THAT HUGE ADDITIONS CANNOT BE MADE ON SUCH WILD GOS SIP OR BASELESS RUMOURS IN AN ASSESSMENT U/S 143(3) OF THE INCOMETAX ACT. THIS IS ESPECIALLY SO IN THE APPELLANTS CASE SINCE NO MATERIAL WAS FOUND E ITHER DURING THE COURSE OF SEARCH OR SUBSEQUENT POST-SEARCH ENQUIRIE S TO SHOW THAT (I) THE APPELLANTS GROUP HAD UNDISCLOSED PROFITS/I NCOME OR (II) UNACCOUNTED MONEYS WERE PASSED ON BY THE APPELLANT S GROUP TO BE RETRANSMITTED BACK TO THEM IN THE SHAPE OF SALE CON SIDERATION OF SHARES. THIS IS ALSO FORTIFIED BY THE FACT THAT TH E LEARNED ASSESSING OFFICER DID NOT FIND ANY MATERIAL TO MAKE EVEN SMAL L ADDITIONS IN RELATION TO SUPPRESSION OF INCOME BY THE APPELLANT TO BE UTILIZED FOR CONVERTING SUCH CONCEALED INCOME INTO LONG TERM CAP ITAL GAINS. 4. THE CIT(A) HAS EXAMINED THE ISSUE OF A LONG TER M CAPITAL GAIN MINUTELY IN THE LIGHT OF ASSESSEES CONTENTION AND FINALLY HE WAS CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEES AND HE TREAT ED IT TO BE A LONG TERM CAPITAL GAIN EARNED BY THE ASSESSEES ON GENUINE TRA NSACTIONS. WHILE ACCEPTING THE CLAIM OF THE ASSESSEE THE CIT(A) HAS OBSERVED THAT PURCHASE AND SALES OF SHARES HAVE TAKEN PLACE AFTER A GAP O F MORE THAN 13 MONTHS AND THE SAME HAVE BEEN DONE FROM DEMAT ACCOUNT THR OUGH RECOGNIZED STOCK 10 BROKERS THROUGH THE STOCK EXCHANGE AND BACKED BY A LL THE RELEVANT DOCUMENTATION AND THE NORMAL PROCEDURE OF SETTLEMEN T THROUGH STOCK EXCHANGE HAVE TAKEN PLACE. HE FURTHER OBSERVED THA T THE ASSESSEE HAVE EARNED HUGE CAPITAL GAIN BY DEALING WITH UNKNOWN OR PENNY STOCK WHICH MAY BE IMPROBABLE AND DO NOT HAPPEN EVERY TIME BUT THE SAME COULD NOT BE SAID TO BE IMPOSSIBLE. TO EARN HUGE CAPITAL GAIN BY DEA LING IN PENNY STOCK MAY BE UNUSUAL AND MAY LEAD TO SUSPICION WHICH COULD BE A GROUND FOR THE ASSESSING OFFICER TO CONDUCT FURTHER INVESTIGATION TO SUBSTAN TIATE HIS SUSPICIONS BUT THE SAME MAY NOT BE A GROUND TO CONCLUDE THAT CAPITAL G AINS HAS NOT BEEN EARNED. ONLY BECAUSE SOME FUNDS MAY BE RARE IMPROB ABLE OR UNPALATABLE IT CANNOT BE SAID THAT SUCH FUNDS WOULD NOT OCCUR AND WOULD NOT ENTITLE FOR DRAWING ADVERSE CONCLUSION WITHOUT CORROBORATING TH E EVIDENCE. IN THE CASE OF ASSESSEES ON EARNING OF CAPITAL GAINS WHICH IS M ANY TIMES THAT THE INVESTMENT MADE WITH A RARE OCCURRENCE BUT THE ASSE SSING OFFICER IS NOT ENTITLED TO DRAW ADVERSE CONCLUSION ONLY ON THE BAS IS OF SUSPICION BELIEFS AND PREJUDICES WITHOUT BRINGING ON RECORD ANY CIRCUMSTA NTIAL EVIDENCE AND DOCUMENTS. WITH REGARD TO THE STATEMENT OF ONE SHR I P.K. AGARWAL A SHARE BROKER THROUGH WHOM THE ASSESSEE HAS PURCHASED SOME SHARES THE CIT(A) HAS OBSERVED THAT SHRI P.K. AGARWAL WAS NOT INVOLVE D IN THE SALE OF SHARES MADE BY THE ASSESSEE AND CAPITAL GAINS HAVE BEEN EA RNED ONLY WHEN SHARES WERE SOLD. IF THE ASSESSEE HAS CONVERTED HIS UNACCO UNTED MONEY THROUGH SALE OF SHARES IT WAS FOR THE DEPARTMENT TO ESTABL ISH THE FACT BY MAKING ENQUIRIES WITH THE BROKERS THROUGH WHOM SHARES HAVE BEEN SOLD OR THE BUYER OF THE SHARES. BUT NO INCRIMINATING EVIDENCE WAS F OUND DURING THE COURSE OF SEARCH IN THIS REGARD. EVEN THE POST SEARCH ENQUIR IES HAVE ALSO NOT BROUGHT OUT ANY DETAILS OR MATERIALS TO SUPPORT THE CONCLUS ION OF THE ASSESSING OFFICER. 11 5. AGGRIEVED WITH THE ORDER OF THE CIT(A) THE REVE NUE HAS PREFERRED AN APPEAL BEFORE US. BESIDES PLACING A RELIANCE UPON THE ORDER OF THE A.O. THE LD. D.R. STRONGLY CONTENDED THAT TRANSACTIONS IN WH ICH THE ASSESSEE HAS CLAIMED TO HAVE BEEN EARNED THE LONG TERM CAPITAL G AIN ARE AGAINST THE HUMAN PROBABILITIES AND THERE CANNOT BE A WINDFALL IN SHARE TRANSACTIONS OF PARTICULAR SCRIPS. HE PLACED A HEAVY RELIANCE UPON THE STATEMENT OF PRAVEEN AGARWAL PROPRIETOR OF M/S. P.K. AGARWAL AND COMPAN Y WITH THE SUBMISSION THAT MR. PRAVEEN AGARWAL HAS ADMITTED IN HIS STATEM ENT THAT THE MAJOR WORK/TRANSACTIONS BEING DONE IN CALCUTTA STOCK EXCH ANGE IS ARRANGEMENT OF LONG TERM CAPITAL GAINS IN VARIOUS FILES. THE LD. D.R. FURTHER PLACED A HEAVY RELIANCE UPON THE JUDGEMENT OF THE APEX COURT IN TH E CASE OF DURGA PRASAD MORE (SUPRA) IN SUPPORT OF THE CONTENTION THAT WHER E THE TRANSACTIONS ARE AGAINST THE HUMAN PROBABILITIES IT SHOULD BE EXAMI NED MINUTELY TO DIG OUT THE CORRECT FACTS AND TRUTH. THE ASSESSING OFFICER HAS MADE THE NECESSARY VERIFICATION BEFORE CONCLUDING THAT THE UNACCOUNTED MONEY OF THE ASSESSEES WERE BROUGHT INTO THE BOOKS UNDER THE GARB OF LONG TERM CAPITAL GAIN BY CIRCUITOUS MEANS. THEREFORE THE A.O. HAS RIGHTLY TREATED THE ALLEGED LONG TERM CAPITAL GAIN AS THE UNDISCLOSED INCOME OF THE ASSESSEES. 5.1. THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED A HEAVY RELIANCE UPON THE ORDER OF CIT(A). IT WAS CONTENDED THAT TRANSACTION IN SHARES WAS UNDERTAKEN AS PER RULES AND REGULATIONS NOTIFIED BY THE CALCUT TA STOCK EXCHANGE AND ALSO AS PER RATES QUOTED ON THE STOCK EXCHANGE. A.O. HA S TREATED THESE TRANSACTIONS TO BE BOGUS ON THE BASIS OF SUSPICION CONJECTURE AND SURMISES. 12 7. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CA REFUL PERUSAL OF RECORD WE FIND IN ALL THESE CASES ASSESSEES HAVE S HOWN A SUBSTANTIAL AMOUNT OF LONG TERM CAPITAL GAIN ON SALE OF SCRIPS OF PART ICULAR COMPANIES WHICH CREATES A DOUBT IN THE MINDS OF THE REVENUE AUTHORI TIES. IN THE CASE OF CIT VS. DURGA PRASAD MORE (SUPRA) THE APEX COURT HAS U LED THAT TRANSACTIONS WHICH ARE AGAINST THE HUMAN PROBABILITIES CAN BE DO UBTED AND BE EXAMINED AND INVESTIGATED PROPERLY. THE A.O. HAS EXAMINED M R. PRAVEEN KUMAR AGARWAL PROPRIETOR OF M/S. P.K. AGARWAL AND COMPAN Y FROM WHOM THE ASSESSEE PURCHASED SOME SHARES. IN HIS EXAMINATION MR. PRAVEEN KUMAR HAVE NOT DENIED THE SALE OF SHARES TO THE ASSESSEES . HE HAS SIMPLY STATED THAT THE MAJOR WORK OR TRANSACTIONS BEING DONE IN C ALCUTTA STOCK EXCHANGE IS ARRANGEMENT OF LONG TERM CAPITAL GAINS IN VARIOUS F ILES. THEREFORE TRADING IS DONE IN SUCH SCRIPS WHICH CAN BE MANIPULATED. HE H AS NOT DEPOSED THAT HE HAS MADE THE ARRANGEMENT OF LONG TERM CAPITAL GAIN FOR THE ASSESSEE. HE HAS SIMPLY EXPRESSED HIS VIEW AND ALSO CONFIRMED TH E SALE OF THE SHARES TO THE ASSESSEES. THE ASSESSING OFFICER HAS NOT EXAMI NED THE BROKER THROUGH WHOM THE SHARES WERE SOLD. IN ORDER TO DETERMINE TH E NATURE OF TRANSACTIONS AND TO VERIFY THE GENUINENESS OF WINDFALL IN CAPITA L GAINS THE ASSESSING OFFICER SHOULD HAVE EXAMINED THE BROKER THROUGH WHOM SHARES WERE SOLD AND ASSESSEE EARNED A SUBSTANTIAL AMOUNT OF THE CAPITAL GAIN. DURING THE COURSE OF HEARING OF THE APPEAL ASSESSEE WAS SPECIFICALLY ASKED TO EXPLAIN WHETHER THE COMPANIES OF WHICH SHARES WERE PURCHASED BY THE ASSESSEES WERE QUOTED ON THE STOCK EXCHANGE AND WHAT ARE THE RATES QUOTED ON A PARTICULAR DATE WHEN THE SHARES WERE PURCHASED AND SOLD BY THE ASSESSEES? IN RESPONSE THERETO THE ASSESSEE HAS EXPLAINED THAT T HE COMPANIES OF WHICH SHARES WERE PURCHASED AND SOLD WERE QUOTED IN THE S TOCK EXCHANGE AND A 13 COPY OF THE RATE LIST WAS ALSO SUBMITTED DURING THE COURSE OF HEARING IN ORDER TO PROVE THAT SHARES WERE TRANSACTED ON A PRICE QUO TED ON THE STOCK EXCHANGE. IN ORDER TO PROVE HIS GENUINENESS OF TRAN SACTIONS THE ASSESSEE HAS ALSO FILED THE COPIES OF THE CONTRACT NOTE AND THE RATES QUOTED ON THE STOCK EXCHANGE. THESE DOCUMENTS WERE CONFRONTED TO THE LD. CIT (DR) AND HE CANDIDLY ADMITTED THAT THE SHARES WERE TRANSACTE D THROUGH BANKING CHANNELS AND IN ACCORDANCE WITH LAW THROUGH STOCK E XCHANGE. HE HOWEVER REITERATED HIS ARGUMENT THAT THE CAPITAL GAIN EARNE D BY THE ASSESSEES IS AGAINST THE HUMAN PROBABILITIES. THEREFORE THE TR ANSACTIONS SHOULD BE DOUBTED AND THE ADDITION SHOULD BE CONFIRMED. IN TH IS REGARD WE WOULD LIKE TO MENTION HERE THAT THE ISSUES ARE TO BE ADJUDICAT ED ON THE BASIS OF THE DOCUMENTARY EVIDENCE AND IN THE LIGHT OF THE RELEVA NT PROVISIONS OF LAW. THE HUMAN PROBABILITIES MAY CREATE A DOUBT OR SUSPICION IN THE MIND OF INVESTIGATING OFFICER AND IT IS FOR HIM TO INVESTIG ATE AND TO DIG OUT THE CORRECT FACTS. BUT ON THE BASIS OF HUMAN PROBABILITIES TH E DOCUMENTARY EVIDENCE CANNOT BE DISCARDED. IN THE INSTANT CASE THE ASSES SEE HAS TRANSACTED IN SHARES IN ACCORDANCE WITH LAW AT THE RATES QUOTED O N THE STOCK EXCHANGE. THEREFORE THE SAID TRANSACTIONS SHOULD NOT BE DOUBT ED ON THE BASIS OF HUMAN PROBABILITIES. IN THE LIGHT OF THESE FACTS WE FIN D FORCE IN THE OBSERVATION OF THE CIT(A) THAT TO EARN A HUGE CAPITAL GAIN BY DEAL ING IN PENNY STOCKS MAY BE UNUSUAL AND MAY LEAD TO SUSPICION WHICH COULD BE A GROUND FOR ASSESSING OFFICER TO CONDUCT FURTHER INVESTIGATION TO SUBSTAN TIATE HIS SUSPICION BUT SAME MAY NOT BE A GROUND TO CONCLUDE THAT CAPITAL GAINS HAS NOT BEEN EARNED. THEREFORE WE AGREE WITH THE FINDINGS OF THE CIT(A) THAT IN THE CASE OF AN ASSESSEE EARNING OF CAPITAL GAINS WHICH IS MANY TIM ES THAT THE INVESTMENT MADE IS A RARE OCCURRENCE BUT THE ASSESSING OFFICER IS NOT ENTITLED TO DRAW 14 ADVERSE CONCLUSION ONLY ON THE BASIS OF SUSPICIONS BELIEF AND PREJUDICE WITHOUT BRINGING ON RECORD CIRCUMSTANTIAL EVIDENCE AND DOCUMENTS. WE ACCORDINGLY CONFIRM THE FINDING OF THE CIT(A) THAT THE ASSESSEES HAVE EARNED THE IMPUGNED LONG TERM CAPITAL GAIN THROUGH LEGITIM ATE MEANS. 8. SO FAR AS EXEMPTION U/S 54F IS CONCERNED WE FIN D THAT THE ASSESSEES HAVE CLAIMED THE EXEMPTION OF THIS LONG TERM CAPITA L GAIN U/S 54F OF THE ACT FOR THE IMPUGNED ASSESSMENT YEAR. THE EXEMPTION WA S DENIED BY THE A.O. ON THE GROUND THAT THE ASSESSEES HAVE CONSTRUCTED A SECOND RESIDENTIAL HOUSE WITHIN 3 YEARS FROM THE CONSTRUCTION OF THE F IRST RESIDENTIAL HOUSE. IT WAS OBSERVED BY THE A.O. THAT THE AMOUNT INVESTED O UT OF CAPITAL GAINS IN THE SECOND RESIDENTIAL HOUSE IS NOT EXEMPTED AND THE AM OUNT INVESTED IN THE FIRST RESIDENTIAL HOUSE IS NOT ALSO EXEMPTED SINCE SECOND RESIDENTIAL HOUSE HAS BEEN CONSTRUCTED WITHIN 3 YEARS OF THE FIRST RESIDE NTIAL HOUSE. WHILE DISALLOWING THE CLAIM OF THE ASSESSEE THE A.O. HAS OBSERVED THAT ASSESSEE HAS APPLIED TO THE MUNICIPAL CORPORATION OF GUNTUR FOR APPROVAL OF CONSTRUCTION OF HOUSE VIDE TWO PLANS AND THE APPROV ALS WERE OBTAINED VIDE TWO ORDERS DATED 16.2.2000. HE FURTHER OBSERVED TH AT THE MUNICIPAL TAXES HAVE BEEN LEVIED IN RESPECT OF TWO BUILDINGS SEPARA TELY AS PER WHICH DATE OF COMPLETION OF FIRST BUILDING IS 1.4.2001 AND SECOND BUILDING IS 1.10.2003 I.E. WITHIN 3 YEARS. 9. THE ASSESSEES HAVE PREFERRED THEIR APPEALS BEFO RE THE CIT(A) AND FILED THE WRITTEN SUBMISSIONS WHICH WERE EXTRACTED BY THE CIT(A) IN HIS ORDER. THROUGH ITS WRITTEN SUBMISSION THE ASSESSEES HAVE ALSO COMMENTED ON THE POINTS/OBJECTIONS OF THE A.O. ON WHICH THE CLAIMS U /S 54F WAS DENIED. IT WAS 15 EXPLAINED TO THE CIT(A) THROUGH WRITTEN SUBMISSIONS THAT ALL THE ASSESSEES I.E. FATHER AND THE SONS PURCHASED IN THE JOINT NAM ES OF ALL 4 MEMBERS A PIECE OF LAND MEASURING 3086 SQ.YDS. AND GOT IT REG ISTERED IN TWO SEPARATE BITS BY TWO DIFFERENT SALE DEEDS DURING THE FINANC IAL YEAR 1998-99. THE COST OF THIS LAND AMOUNTING TO RS.9 20 000/- WAS ALMOST SHARED EQUALLY BY ALL THE 4 MEMBERS AND THIS WAS CLEARLY REFLECTED IN THE BAL ANCE SHEET SUBMITTED TO THE DEPARTMENT FOR THE A.Y. 1999-2000 AND THEREAFTE R. THE ASSESSEES DID NOT HAVE ANY RESIDENTIAL PROPERTY EARLIER EVEN THOU GH THEY WERE INCOME TAX ASSESSEES FOR SEVERAL DECADES. THE FATHER IN THE G ROUPS DESIRED THAT THEY SHOULD POSSESS VERY GOOD RESIDENTIAL UNITS FOR ALL OF THEM DURING HIS LIFE TIME ACCORDINGLY THEY PLANNED TO CONSTRUCT TWO BLOCKS IN THE LAND PURCHASED BY THEM. ONE BLOCK IS MEANT FOR FATHER AND THE ELDEST SON I.E. GROUND FLOOR FOR FATHER AND FIRST AND SECOND FLOOR TO FIRST SON AND OTHER BLOCK IS MEANT FOR SECOND AND THIRD SON I.E. GROUND FLOOR TO SECOND SO N AND FIRST FLOOR TO THIRD SON. EACH UNIT HAS INDEPENDENT ENTRANCE KITCHEN ETC. AN APPLICATION FOR APPROVAL TO THE MUNICIPALITY WAS SUBMITTED WITH THE PLAN AND RELEVANT APPROVAL WAS GRANTED ON 16.2.2000 FOR THESE TWO BLO CKS. THOUGH THE CONSTRUCTION WAS COMMENCED IN BOTH THE BLOCKS SIMUL TANEOUSLY BUT THE PROGRESS WAS NOT EVEN AND THE CONSTRUCTION WAS COMP LETED IN THE MONTH OF JULY 2003. 10. THE ASSESSEES HAVE ALSO COMMENTED ON THE OBSERV ATIONS OF THE ASSESSING OFFICER WITH REGARD TO THE APPROVAL GIVEN BY THE MUNICIPAL CORPORATION VIDE ORDER DATED 16.2.2000. IT WAS EXP LAINED THAT THERE WAS A SINGLE PLAN AND SINGLE APPROVAL FOR BOTH THE BLOCKS WERE GIVEN. THE A.O. HAS MENTIONED IN HIS ASSESSMENT ORDER THAT AS PER THE M UNICIPAL RECORDS THE 16 CONSTRUCTION OF TWO BUILDINGS WERE COMPLETED ON 1.4 .2001 AND 1.10.2003 RESPECTIVELY WHEREAS IN THE LETTER OF THE MUNICIPA LITY REFERRED BY THE ASSESSING OFFICER THE DATE OF COMPLETION OF MUNICI PAL TAX WAS GIVEN WHICH HAS NO RELEVANCE TO THE DATE OF COMPLETION OF CONST RUCTION. THEREFORE THE OBSERVATIONS OF THE A.O. THAT THESE TWO BUILDINGS W ERE COMPLETED AT DIFFERENT POINT OF TIME WAS NOT CORRECT. THE ASSESSEES HAVE ALSO COMMENTED ON THE OBSERVATION OF THE A.O. WITH REGARD TO THE SANCTION OF LOAN AT DIFFERENT POINT OF TIME AND IT WAS CONTENDED THAT INITIALLY THE LO AN WAS SANCTIONED BY THE LIC HOUSE FINANCE LIMITED BUT THAT LOAN WAS NOT SUFFICI ENT TO COMPLETE THE PLANNED CONSTRUCTION AND IT WAS LATER ON TAKEN OVER BY THE UCO BANK IN MARCH 2003 AND WITH ADDITIONAL LOAN THE CONSTRUCTI ON OF THESE BLOCKS WERE COMPLETED. THEREFORE THE CONSTRUCTION WAS NOT COM PLETED ATLEAST BEFORE THE SANCTION OF LOANS FROM THE UCO BANK I.E. MARCH 200 3. BEFORE THE CIT(A) COMPLETE DETAILS OF LOANS AND THE INVESTMENT MADE B Y THE ASSESSEES WERE FURNISHED. IT WAS ALSO CONTENDED THAT EVEN ASSUMING FOR A MOMENT THAT TOTAL AMOUNT AVAILABLE WAS INVESTED ONLY IN THE FIRST BLO CK ITSELF THE AMOUNT SPENT UPTO 31.3.2002 WAS ONLY RS.93 LAKHS AS AGAINST THE TOTAL COST OF THE BLOCK OF RS.180 LAKHS. THE OBVIOUS INFERENCE IS THAT ASSESS EE COULD NOT HAVE COMPLETED THE CONSTRUCTION OF FIRST BLOCK EVEN BY 1 .4.2002. THE STATEMENTS OF THE MUNICIPALITY AND LIC ARE MEANT FOR THEIR LIMI TED PURPOSE AND SHOULD NOT BE READ TO MEAN AGAINST THE ASSESSEE. THEREFOR E THE A.OS OBSERVATION THAT FIRST BUILDING WAS COMPLETED IN APRIL 2001 WA S NOT BASED IN REASONABLE EVIDENCE OR THE FACTS OF THE CASE. 11. THE CIT(A) RE-EXAMINED THE ASSESSMENT ORDER IN THE LIGHT OF DETAILED EXPLANATIONS FURNISHED BY THE ASSESSEES AND HAS OBS ERVED THAT THE FIRST BUILDING OF THE BLOCK COULD NOT HAVE BEEN COMPLETED BY 1.4.2002 AS HELD BY 17 THE A.O. AS THERE WAS NO EVIDENCE TO DISPROVE THE C ONTENTION OF THE ASSESSEE THAT CONSTRUCTION OF TWO SEPARATE BUILDINGS/BLOCK W AS SIMULTANEOUS THOUGH COMPLETED AT DIFFERENT POINTS OF TIME. IN THE LIGH T OF THESE FACTS CIT(A) HAS CONCLUDED THAT THE DATE OF COMPLETION OF CONSTRUCTI ON OF RESIDENTIAL HOUSES IN TWO BLOCKS AND DENIAL OF EXEMPTION ON THE GROUND TH AT THE SECOND HOUSE WAS CONSTRUCTED WITHIN 3 YEARS OF THE FIRST HOUSE IS NO T RELEVANT SINCE THE ASSESSEE HAS CONSTRUCTED ONLY ONE RESIDENTIAL HOUSE FOR HIS RESIDENCE AND NOT TWO HOUSES. THE RELEVANT OBSERVATION OF THE CIT(A) ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND VARIOUS MATERIAL FACTS ON RECORD. IN THE CIRCUMSTA NCES EXPLAINED BY THE APPELLANT IT IS CLEAR THAT THE FIRST BUILDING/BLOC K COULD NOT HAVE BEEN COMPLETED BY 1.4.2002 AS HELD BY THE ASSESSING OFF ICER. THERE IS NO EVIDENCE TO DISPROVE THE CONTENTION OF THE APPELLAN T THAT THE CONSTRUCTION OF TWO SEPARATE BUILDINGS/BLOCKS WAS SIMULTANEOUS THO UGH COMPLETED AT TWO DIFFERENT POINTS OF TIME. HOWEVER THE DATE OF COM PLETION OF CONSTRUCTION OF RESIDENTIAL HOUSE(S) IN TWO BLOCKS AND DENIAL OF EX EMPTION ON THE GROUND THAT SECOND HOUSE WAS CONSTRUCTED WITHIN THREE YEARS OF THE FIRST HOUSE IS NOT RELEVANT SINCE THE APPELLANT HAD CONSTRUCTED ONLY O NE RESIDENTIAL HOUSE FOR HIS RESIDENCE AND NOT TWO HOUSES. IT IS AN UNDISPUTED FACT THAT THE LAND HAS BEEN PURCHASED JOINTLY BY THE FATHER SRI NIRANJAN H ARNATHKA AND HIS THREE SONS SRI ALOK HARNATHKA SRI ANUP GUPTA AND SRI ANI L HARNATHKA. IT IS ALSO A MATTER OF RECORD AS DISCOVERED DURING THE COURSE O F SEARCH & SEIZURE OPERATION THAT SRI NIRANJAN HARNATHKA AND SRI ALOK HARNATHKA WERE STAYING IN THE FIRST BLOCK AND THE OTHER TWO SONS WERE STAYING IN THE SECOND RESIDENTIAL BLOCK. I HAVE GONE THROUGH THE PLAN WHICH WAS SUBMI TTED FOR APPROVAL AND THE SAID PLAN CONTAINED PLAN FOR THE SECOND BLOCK I N THE NAME OF GUEST HOUSE AND THIS COMBINED PLAN HAS BEEN APPROVED BY THE MUN ICIPAL CORPORATION OF GUNTUR. HOWEVER A BIGGER PLAN OF THE GUEST HOUSE WAS ALSO SUBMITTED SEPARATELY WHICH WAS IN THE NATURE OF A DETAILED PL AN OF THE PORTION OF THE ORIGINAL PLAN. ACCORDINGLY IT CANNOT BE SAID THAT TWO SEPARATE PLANS WERE SUBMITTED FOR TWO SEPARATE RESIDENTIAL BLOCKS. THE MATTER IS FURTHER CLARIFIED FROM THE FACT THAT THE ORIGINAL PLAN FOR THE FIRST BLOCK AS WELL AS THE GUEST HOUSE WHICH IS ACTUALLY THE SECOND BLOCK AND ALSO T HE ELABORATE PLAN OF THE GUEST HOUSE SUBMITTED SEPARATELY LIKE AN ANNEXURE H AVE BEEN APPROVED BY THE MUNICIPAL CORPORATION OF GUNTUR IN THE SAME FIL E NUMBER AND DATE WHICH IS 1385/99/G1 DT. 16.2.2000. FROM THE CONDUCT OF THE PARTIES I.E. FATHER AND THREE SONS IT IS AMPLY CLEAR THAT THEY HAVE TAKEN STEPS TO CONSTRUCT A RESIDENTIAL HOUSE SO THAT THEY ALL LIVE TOGETHER BU T IN SEPARATE AND IDENTIFIED BLOCKS EVEN THOUGH THERE IS COMMON OWNERSHIP OF THE LAND. EVEN THOUGH THERE ARE TWO BLOCKS OF RESIDENCES IT IS A FACT TH AT ALL THE FOUR PERSONS LIVE IN SEPARATE BLOCKS THROUGH COMMON OWNERSHIP AND IT CAN NOT BE SAID THAT EACH 18 OF THE PERSONS OWN TWO RESIDENTIAL HOUSES. SRI NIR ANJAN HARNATHKA AND HIS THREE SONS HAVE JOINTLY CONSTRUCTED THE BUILDING UN DER JOINT OWNERSHIP THOUGH EACH INDIVIDUAL INVOLVED HAS CONTRIBUTED TO CONSTRU CTION SEPARATELY AND THIS IS LIKE MULTI STOREYED RESIDENTIAL APARTMENTS WHERE EA CH MEMBER IS A COMMON OWNER OF THE LAND BUT OCCUPIED A SPECIFIC FLAT AS R ESIDENCE. IN THE INSTANT CASE THE APPELLANT FULLY OCCUPIED A SPECIFIC FLAT AS RESIDENCE. IN THE INSTANT CASE THE APPELLANT FULLY OCCUPIED ONE IDENTIFIED P ORTION OF THE TWO BLOCKS AND IT CANNOT BE SAID THAT THE APPELLANT HAS A RIGHT TO STAY IN BOTH THE BLOCKS OF THE RESIDENTIAL COMPLEX AT THE SAME TIME. THE FACT IS THAT THE APPELLANT OCCUPIED A PREDETERMINED AND IDENTIFIED PORTION IN THE TWO BLOCKS OF THE RESIDENTIAL COMPLEX UNDER JOINT OWNERSHIP CONSTRUCT ION OF WHICH HAS BEEN FINANCED OUT OF LONG TERM CAPITAL GAINS AND LOANS F ROM THE BANKS AND THE CONSTRUCTION HAS BEEN COMPLETED AS STIPULATED U/S 5 4F. THUS IT CANNOT BE SAID THAT THE APPELLANT OWNS TWO RESIDENTIAL HOUSES WHEREAS HE ACTUALLY STAYS ONLY IN ONE RESIDENTIAL PORTION OF THE TWO BLOCK RE SIDENTIAL COMPLEX. IN VIEW OF THE EXPLANATIONS SUBMITTED BY THE APPELLANT I CON CLUDE THAT THE APPELLANT OWNS ONLY SINGLE HOUSE OUT OF COMMON OWNERSHIP OF T HE TWO RESIDENTIAL BLOCKS AND ACCORDINGLY THE CLAIM OF EXEMPTION U/S 5 4F CANNOT BE DENIED. 12. AGGRIEVED THE REVENUE IS BEFORE US AND PLACED A HEAVY RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER. EXCEPT THE ORA L SUBMISSIONS NO DOCUMENTARY EVIDENCE WERE PLACED ON RECORD TO PROVE THAT THE DIFFERENT PLANS FOR THE CONSTRUCTION OF TWO BLOCKS WERE SANCT IONED BY THE MUNICIPALITIES AND THESE BLOCKS WERE CONSTRUCTED ONE AFTER THE OTH ER. THE LD. D.R. HAS SIMPLY CONTENDED SINCE THE ASSESSEE DID NOT FULFILL THE REQUISITE CONDITIONS IN ORDER TO AVAIL THE EXEMPTION U/S 54F THE EXEMPTION CANNOT BE ALLOWED. 13. THE LD. COUNSEL FOR THE ASSESSEES HAS PLACED A HEAVY RELIANCE UPON THE ORDER OF THE CIT(A). IT WAS HOWEVER CONTENDED O N BEHALF OF THE ASSESSEE THAT IF THE ASSESSING OFFICER WAS NOT CONVINCED WIT H THE EXPLANATIONS OF THE ASSESSEE HE COULD HAVE SUMMONED THE MUNICIPALITY R ECORD TO FIND OUT AS TO WHEN THE PLANS OF BOTH THE BLOCKS WERE SANCTIONED A ND WHEN THE CONSTRUCTION WAS COMPLETED. THE A.O. HAS PLACED A RELIANCE UPON THE LETTER OF THE MUNICIPAL CORPORATION IN WHICH HE HAS GIVEN A DATE OF COMPLETION OF MUNICIPAL TAX BUT IN THAT LETTER IT WAS NOT STATED AS TO WHEN THE DIFFERENT BLOCKS WERE COMPLETED. IN THESE CIRCUMSTANCES THE LETTER WRITTEN BY THE 19 MUNICIPAL CORPORATION CANNOT BE USED AGAINST THE AS SESSEE IN ORDER TO CONCLUDE THE DATE OF COMPLETION OF CONSTRUCTION. 14. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A C AREFUL PERUSAL OF THE RECORD AND ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD WE FIND THAT THE REVENUES CASE IS THAT THE ASSESSEES HAVE NOT CONSTRUCTED THE ENTIRE PROPERTY AT ONE TIME. THEY HAVE CONSTRUCTED FIRST RESIDENTIAL UNIT I.E. ONE BLOCK AND THEREAFTER THE SECOND RESIDENTIAL UNIT. THEREFORE THE ASSESSEE IS NOT ENTITLED FOR EXEMPTI ON U/S 54F OF THE ACT. BUT IN SUPPORT OF THESE CONTENTIONS THE REVENUE HAS NO T BROUGHT OUT ANY DOCUMENTARY EVIDENCE. WHEREAS THE ASSESSEE HAS EMP HATICALLY CONTENDED THAT THE CONSTRUCTION OF BOTH THE BLOCKS WERE START ED SIMULTANEOUSLY THOUGH IT WERE COMPLETED AT DIFFERENT POINT OF TIME. IN ORDE R TO DETERMINE THE DATE OF COMPLETION THE MUNICIPALITYS RECORD COULD HAVE BE EN SUMMONED BY THE ASSESSING OFFICER. WHENEVER THE PLAN IS SANCTIONED BY THE MUNICIPALITIES THE COMPLETION REPORT IS ALSO REQUIRED TO BE SUBMITTED TO THE MUNICIPALITIES TO OBTAIN THE COMPLETION CERTIFICATE AND THESE DOCUMEN TS ARE SUFFICIENT TO STATE AS TO WHEN THE CONSTRUCTION WAS COMPLETED. BUT THE ASSESSING OFFICER HAS RELIED UPON A LETTER IN WHICH THE DATE OF COMPLETIO N OF MUNICIPAL TAX WAS GIVEN WHEREAS THE RELEVANT DATE IS COMPLETION OF TH E CONSTRUCTION OF THE PROPERTY. ON THE OTHER HAND THE ASSESSEE HAS PLACE D A DOCUMENTARY EVIDENCE TO STATE THAT INITIALLY THE LOAN WAS GIVEN BY THE LIC HOUSING FINANCE LIMITED BUT THAT LOAN WAS NOT SUFFICIENT TO MEET TH E CONSTRUCTION EXPENSES OF THE ENTIRE PROPERTY AND LATER ON IT WAS TAKEN OVER BY THE UCO BANK IN MARCH 2003. MEANING THEREBY TILL THEN THE HOUSE WAS NO T COMPLETELY CONSTRUCTED. THE EVIDENCE PLACED BY THE ASSESSEE CATEGORICALLY S UGGEST THAT BOTH THE BLOCKS WERE CONSTRUCTED SIMULTANEOUSLY AND NOT ONE AFTER THE OTHER AS 20 CONTENDED BY THE REVENUE. WHEN THE CONSTRUCTION OF ENTIRE PROPERTY WAS STARTED AND IF ONE PORTION OF THE PROPERTY IS COMPL ETED BEFORE THE COMPLETION OF THE PROJECT IT DOES NOT MEAN THAT SECOND PORTION OF THE PROPERTY WAS STARTED AFTER THE COMPLETION OF THE FIRST PORTION O F THE PROPERTY IN ORDER TO DISENTITLE THE ASSESSEE FROM CLAIMING U/S 54F ON TH E ENTIRE PROPERTY . WE HAVE ALSO CAREFULLY EXAMINED THE ORDER OF THE CIT(A) AND WE FIND THAT CIT(A) HAS LUCIDLY DISCUSSED THE ENTIRE ISSUE IN HIS ORDER IN THE LIGHT OF DETAILED EXPLANATIONS OF THE ASSESSEES. SINCE WE DO NOT FIN D ANY INFIRMITY IN THE ORDER OF THE CIT(A) WE CONFIRM THE SAME. 15. IN THE RESULT THE APPEALS OF THE REVENUE ARE DI SMISSED. PRONOUNCED IN TH E OPEN COURT ON 18.8.2010 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM DATED 18 TH AUGUST 2010 COPY TO 1 SRI ALOK HARNATHKA D.NO.19-7-656 LANCHESTER ROA D SANGADIGUNTA GUNTUR 2 SRI NIRANJANLAL HARNATHKA REP. BY SRI ALOK HARNA THKA D.NO.19-7-656 LANCHESTER ROAD SANGADIGUNTA GUNTUR 3 SRI ANIL HARNATHKA D.NO.19-7-656 LANCHESTER ROA D SANGADIGUNTA GUNTUR 4 SRI ANUP GUPTA D.NO.19-7-656 LANCHESTER ROAD S ANGADIGUNTA GUNTUR 3 THE CIT (CENTRAL) HYDERABAD 4 THE CIT(A)-I HYDERABAD 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM