UPENDRA P. DADIA, MUMBAI v. ACIT CEN CIR-3, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F MUMBAI BEFORE SHRI R V EASWAR PRESIDENT AND SHRI P M JAGTAP ACCOUNTANT MEMBER I T A NO: 485/MUM/2009 ASSESSMENT YEAR: 2004-05 I T A NO:1068/MUM/2009 ASSESSMENT YEAR: 2005-06 I T A NO:1193/MUM/2009 ASSESSMENT YEAR: 2006-07 SHRI UPENDRA P DADIA MUMBAI APPELLANT (PAN: AABPD9559Q) VS ASSISTANT COMMISSIONER OF INCOME TAX RESPONDENT CENTRAL CIRCLE 3 MUMBAI APPELLANT BY: SHRI V G GINDE RESPONDENT BY: SHRI A P SINGH O R D E R R V EASWAR PRESIDENT: THESE ARE THREE APPEALS ALL BY THE ASSESSEE. THE Y RELATE TO THE ASSESSMENT YEARS 2004-05 TO 2006-07. SINCE THE Y INVOLVE SOME COMMON ISSUES AND WERE ALSO HEARD TOGETHER TH EY ARE DISPOSED OF BY A SINGLE ORDER FOR THE SAKE OF CONVE NIENCE. 2. THE ASSESSEE IS AN INDIVIDUAL CARRYING ON BUSINE SS IN THE NAME AND STYLE OF M/S ARIHANT ENTERPRISES. THESE APPEALS ARISE OUT OF ASSESSMENT ORDERS PASSED ON THE SAME DAY NA MELY 28.12.2007. IN RESPECT OF THE ASSESSMENT YEARS 200 4-05 AND 2005- 06 THE ASSESSMENTS HAVE BEEN MADE UNDER SECTION 15 3A READ WITH SECTION 143(3) OF THE INCOME TAX ACT 1961; WH EREAS FOR THE ASSESSMENT YEAR 2006-07 THE ASSESSMENT ORDER HAS B EEN PASSED UNDER SECTION 143(3) OF THE ACT. ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 2 3. WE MAY FIRST TAKE UP THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05 IN ITA NO: 485/MUM/2009. A SEARCH TOOK PLACE IN THE ASSESSEES PREMISES ON 24.03.2006 UNDER SECTION 132 AND CONSEQUENT THERETO A NOTICE UNDER SECTION 1 53A WAS ISSUED TO THE ASSESSEE REQUIRING HIM TO FILE THE RE TURN OF INCOME. THE ASSESSEE FILED THE RETURN ON 06.12.2006 DECLARI NG TOTAL INCOME OF ` 5 14 860/-. THE INCOME CONSISTED OF SALARY PROFIT S FROM ARIHANT ENTERPRISES SPECULATION PROFIT INCOME BY WAY OF C APITAL GAINS ON SALE OF SHARES AND INTEREST FROM BANKS ETC. NO AD DITIONAL INCOME ON ACCOUNT OF THE SEARCH PROCEEDINGS WAS SHOWN IN T HE RETURN. THE ASSESSEE HAD HOWEVER CLAIMED DEDUCTION OF ` 54 20 000/- UNDER SECTION 54EC AGAINST THE LONG TERM CAPITAL GAINS OF ` 44 57 301/-. THIS LONG TERM CAPITAL GAINS IS THE NET FIGURE AFTE R ADJUSTING THE LONG TERM CAPITAL LOSS AGAINST THE LONG TERM CAPITAL GAI N ON SALE OF SHARES. IN EFFECT THE INVESTMENT CLAIMED UNDER SEC TION 54EC SET OFF THE LONG TERM CAPITAL GAINS (NET). 4. WHILE EXAMINING THE RETURN AND THE DETAILS FILED IN SUPPORT THEREOF THE ASSESSING OFFICER NOTICED THAT THE LON G TERM CAPITAL GAINS HAD ARISEN MOSTLY ON ACCOUNT OF THE SALE OF S HARES OF A COMPANY BY NAME BOLTON PROPERTIES LIMITED. THESE SHARES WERE SHOWN TO HAVE BEEN PURCHASED ON 28.01.2003 FOR ` 8.27 PER SHARE. THEY WERE ALL SOLD ON VARIOUS DATES IN MARCH 2004 A T THE AVERAGE RATE OF ` 175.70 PER SHARE. THE ASSESSING OFFICER ON THESE F ACTS WAS OF THE VIEW THAT THERE WAS AN ABNORMAL RISE IN THE PRICE OF THE SHARES WITHIN ONE YEAR FROM ` 8.27 PER SHARE TO ` 175.70 PER SHARE ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 3 AND WANTED TO PROBE THE SAME FURTHER. ACCORDING TO HIM THERE WERE NO CIRCUMSTANCES INDICATING THE POSSIBILITY OF SUCH DRASTIC RISE IN THE MARKET PRICE OF THE SHARES OF THE COMPANY. HE THER EFORE SUSPECTED THAT THE ABNORMAL PRICE INCREASE MIGHT BE DUE TO AR TIFICIAL MANIPULATION OF THE PRICE OF THE SHARES. IN AN ATT EMPT TO PROBE THE MATTER FURTHER HE FOUND THAT BOLTON PROPERTIES LIMI TED HAD ITS REGISTERED OFFICE AT ROOM NO.5 2 ND FLOOR COMMERCE HOUSE NO.2 GANESH CHANDRA AVENUE KOLKATA. IT HAD TWO DIRECTO RS NAMELY SHRI J P PUROHIT AND SHRI PUSHPAL CHANDRA. VERY LI TTLE BUSINESS ACTIVITY WAS SEEN TO HAVE BEEN CARRIED ON BY THE CO MPANY DURING THE FINANCIAL YEARS 2002-03 AND 2003-04. IN THE PR OFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31.03.2003 THE COMPANY HAD SHOWN ` 2 10 200/- AS SHARE TRADING PROFIT AND IN THE PROFI T AND LOSS ACCOUNT FOR THE YEAR ENDED 31.03.2004 THE COMPANY HAD SHOWN INTEREST INCOME OF ` 2 59 123/-. THE ASSESSING OFFICER ON THESE FACTS CAME TO THE CONCLUSION THAT THE ABNORMAL PRIC E RISE OF THE SHARES DURING THE FINANCIAL YEAR 2003-04 WAS NOT BA CKED BY THE FINANCIAL STRENGTH OF THE COMPANY. HE ALSO NOTED T HAT THE SHARES OF THE COMPANY WERE NOT BEING TRADED IN THE KOLKATA ST OCK EXCHANGE WHEN HE HAD STARTED ENQUIRY ABOUT THE COMPANY. 5. IN THE ABOVE BACKGROUND THE ASSESSING OFFICER P ROCEEDED TO EXAMINE THE FACTS RELATING TO THE PURCHASE AND S ALE OF SHARES BY THE ASSESSEE. HE REFERRED TO THE ASSESSEES STATEM ENT RECORDED DURING THE SEARCH AS ALSO DURING THE ASSESSMENT PRO CEEDINGS IN WHICH THE ASSESSEE HAD STATED THAT THE DECISION TO PURCHASE THE ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 4 SHARES OF BOLTON PROPERTIES LIMITED WAS TAKEN BY HI S BROTHER SHRI HARESH DADIA WHO WILL BE ABLE TO EXPLAIN THE RELEV ANT DETAILS. SHRI HARESH DADIA IN THE STATEMENT RECORDED FROM HIM DUR ING THE SEARCH HAD STATED THAT HE DID DEAL IN THE SHARES OF BOLTON PROPERTIES LIMITED AS WELL AS FAST TRACK LIMITED THAT HE PURC HASED THE SHARES IN THE YEAR 2002-03 THAT THE SHARES WERE LISTED IN THE KOLKATA STOCK EXCHANGE THAT HE HAD PURCHASED THE SHARES OF THE A FORESAID COMPANIES THROUGH A BROKER BY NAME PRAKASH IN KOL KATA AND THAT A FRIEND HAD INTRODUCED HIM TO THE STOCK BROKER. W HEN ASKED TO GIVE THE COMPLETE DETAILS AND ADDRESS OF SHRI PRAKA SH WHO HAD ALSO SOLD THE SHARES IN THE KOLKATA STOCK EXCHANGE SHRI HARESH DADIA WAS UNABLE TO GIVE THOSE DETAILS AND ALSO EXPRESSED HIS INABILITY TO PRODUCE SHRI PRAKASH FOR VERIFICATION. IN ANSWER T O QUESTION NO.23 SHRI HARESH DADIA FURTHER STATED THAT SINCE HE WOUL D NOT BE ABLE TO PRODUCE THE BROKER SHRI PRAKASH BEFORE THE ASSESSIN G OFFICER AND SUBSTANTIATE THE CLAIM FOR LONG TERM CAPITAL GAINS ON SALE OF THE SHARES OF BOLTON PROPERTIES LIMITED AND FAST TACK L IMITED HE WOULD OFFER THE SALE PROCEEDS OF THESE TWO SHARES A S UNDISCLOSED INCOME AND ALSO UNDERTOOK TO FURNISH A DETAILED WOR KING OF THE UNDISCLOSED INCOME BY 31.03.2006. HE FURTHER STATE D THAT HE HAD ALSO CONSULTED HIS BROTHER SHRI UPENDRA DADIA THE ASSESSEE HEREIN WHO WAS SITTING BESIDE HIM. 6. THOUGH SHRI HARESH DADIA HAS STATED THAT HE WOUL D OFFER ADDITIONAL INCOME ON ACCOUNT OF SALE OF SHARES OF B OLTON PROPERTIES LIMITED AND FAST TRACK LIMITED AFTER CONSULTING TH E ASSESSEE THE ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 5 ASSESSEE DID NOT DECLARE ANY ADDITIONAL INCOME IN T HE RETURN FILED IN RESPONSE TO THE NOTICE ISSUED UNDER SECTION 153A. THE ASSESSING OFFICER THEREFORE CALLED UPON THE ASSESSEE TO EXPLA IN WHY THE CAPITAL GAINS (LONG TERM) SHOULD NOT BE TREATED AS ADDITIONAL INCOME OF THE ASSESSEE. IN RESPONSE THERETO THE ASSESSEE FILED A REPLY ALONG WITH AN AFFIDAVIT DATED 06.06.2006 IN WHICH H E STATED THAT SHRI HARESH DADIA HAD RETRACTED FROM HIS STATEMENT RECOR DED DURING THE SEARCH. THEREUPON THE ASSESSING OFFICER RECORDED A STATEMENT FROM SHRI HARESH DADIA UNDER SECTION 131 OF THE ACT ON 07.12.2007. IN THIS STATEMENT SHRI HARESH DADIA ST ATED THAT HE HAD READ SOME NEWS ITEM REGARDING THE CONSTRUCTION ACTI VITIES PLANNED BY BOLTON PROPERTIES LIMITED AND THOUGHT THAT HE SH OULD INVEST IN THE SHARES OF THE SAID COMPANY. REGARDING THE SHAR ES OF FAST TRACK LIMITED ALSO HE SAID THAT HE READ IN MEDIA RE PORTS WHICH HE COULD NOT RECOLLECT ON THE BASIS OF WHICH HE INVES TED IN THE SHARES OF THAT COMPANY. HE ALSO MENTIONED THAT SINCE THE SHARE VALUE OF BOLTON PROPERTIES LIMITED WAS LESS THAN THE FACE VA LUE THE COMPANY WAS PLANNING SOME CONSTRUCTION ACTIVITY AND ON THIS BASIS HE HAD INVESTED IN THE SAID SHARES. TO A SPECIFIC QUESTION AS TO HOW HE ANALYZED THAT SHARE VALUE WAS VERY LOW AS CO MPARED TO THE FACE VALUE HE STATED THAT AS PER HIS COMMON SENSE GENERALLY A COMPANY WILL HAVE BUSINESS INVESTMENT TO THE EXTENT OF ITS CAPITAL BUT STATED THAT HE DID NOT ANALYZE THE BALANCE SHEE TS OF THE TWO COMPANIES BEFORE TAKING THE DECISION TO INVEST IN T HE SHARES. AGAIN TO A SPECIFIC QUESTION AS TO THE BASIS OF HIS DECIS ION TO SELL THE ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 6 SHARES OF THE ABOVE TWO COMPANIES HE ANSWERED THAT HE SOLD THE SHARES BY READING PRICE IN NEWSPAPER AND INTERNAL FEELING THAT RETURN ON INVESTMENT WAS GOOD AND THEREFORE I SOLD . 7. ACCORDING TO THE ASSESSING OFFICER SHRI HARESH DADIA HAD GIVEN CONTRADICTORY ANSWERS IN THE STATEMENTS REGAR DING THE TRANSACTIONS OF BOLTON PROPERTIES LIMITED AND FAST TRACK LIMITED WHICH THREW LIGHT ON THE REAL NATURE OF THE TRANSAC TION. THE CONTRADICTION ACCORDING TO THE ASSESSING OFFICER WA S THAT IN THE STATEMENT RECORDED DURING THE SEARCH SHRI HARESH DA DIA HAD STATED THAT HIS FRIEND INTRODUCED SHRI PRAKASH NAHATA A B ROKER WHO HAD SUGGESTED THAT HE PURCHASE THE SHARES OF BOLTON PRO PERTIES LIMITED AND FAST TRACK LIMITED WHEREAS IN THE STATEMENT UN DER SECTION 131 HE HAS STATED THAT HE PURCHASED THE SHARES ON T HE BASIS OF NEWS REPORTS IN THE MEDIA. THUS THERE WAS NO SATIS FACTORY EXPLANATION FOR THE PURCHASE OF THE SHARES. 8. AFTER REFERRING TO THESE FACTS THE ASSESSING OFF ICER ALSO REFERRED TO THE CIRCUMSTANCES WHICH LED TO THE SEAR CH ON DADIA GROUP. A SEARCH UNDER SECTION 132 HAD BEEN CONDUCT ED IN THE CASE OF M/S SCAN STEEL LTD. GROUP A LEADING MANUFACTURE R OF SPONGE IRON IN ORISSA ON 05.04.2004 BY THE INVESTIGATION WING O F BHUBANESHWAR. DURING THE POST SEARCH INVESTIGATION CERTAIN DUBIOUS BANK ACCOUNTS WERE TRACED WHICH LED TO THE ROLE OF KOLKATA BASED SHARE BROKER SHRI PRAKASH NAHATA. SUBSEQUENT ENQUIRIES REVEALED THE ROLE OF TWO INCOME TAX PRACTITIONERS NAMELY SHRI SUSHIL PUROHIT AND SHRI JAGDISH PUROHIT WHO IN COL LUSION WITH SHRI ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 7 PRAKASH NAHATA WERE GIVING ACCOMMODATION ENTRIES T O VARIOUS BENEFICIARIES ON ACCOUNT OF LONG TERM CAPITAL GAINS . ALL THESE THREE PERSONS OPERATED FROM KOLKATA. THE ASSESSING OFFIC ER IN THE PRESENT CASE HAD OBTAINED THESE FACTS FROM THE INVE STIGATION WING WHICH CONDUCTED THE SEARCH ON DADIA GROUP. HE NOTI CED THAT THERE WAS SIMILARITY BETWEEN THE TWO CASES INASMUCH AS SH RI PRAKASH NAHATA THE KOLKATA SHARE BROKER WAS COMMON IN BOT H THE CASES. HE FURTHER NOTICED THAT SHRI JAGDISH PUROHIT WHO H AD COLLUDED WITH SHRI PRAKASH NAHATA IN GIVING ACCOMMODATION ENTRIES TO M/S SCAN STEEL LTD. GROUP WAS ALSO A DIRECTOR OF BOLTON PRO PERTIES LIMITED. FROM THESE FACTS THE ASSESSING OFFICER DREW THE INF ERENCE THAT THE RISE IN THE SHARE PRICE OF BOLTON PROPERTIES LIMITE D IS ON ACCOUNT OF MANIPULATIONS BY SHRI PRAKASH NAHATA AND THE DIRECT ORS OF THE COMPANY. 9. THE FAMILY MEMBERS OF A GROUP CALLED PATEL GROU P HAD BEEN SIMULTANEOUSLY SEARCHED BY THE INVESTIGATION WING A ND THEY HAD ACCEPTED THAT THEIR TRANSACTIONS IN THE SHARES OF B OLTON PROPERTIES LIMITED AND FAST TRACK LIMITED WERE BOGUS. THIS FA CT WAS NOTICED BY THE ASSESSING OFFICER IN PARA 15 OF THE ASSESSME NT ORDER. HE ALSO REFERRED TO THE STATEMENT OF SHRI PRATAP CHAND RA B PATEL (OF THE PATEL GROUP) RECORDED DURING THE SEARCH. THE R ELEVANT QUESTION AND ANSWER ARE REPRODUCED IN THE ASSESSMENT ORDER. SHRI PRATAP CHANDRA B PATEL HAD STATED THAT THE SHARE TRANSACTI ONS IN BOLTON PROPERTIES LIMITED RESULTING IN CAPITAL GAINS OF ` 3.98 CRORES IN THE CASE OF HIS FAMILY MEMBER AND THE CHIEF ACCOUNTANT SHRI ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 8 MANUBHAI S SHAH ARE NOT GENUINE TRANSACTIONS AND TH AT THEY WERE ARRANGED BY HIS CHARTERED ACCOUNTANT SO THAT TAX BE NEFITS ATTACHED TO THE LONG TERM CAPITAL GAINS CAN BE AVAILED OF BY HIM AND THE OTHER FAMILY MEMBERS. HE HAD FURTHER STATED THAT FOR ARR ANGING THESE TRANSACTIONS HE HAD PAID EQUAL AMOUNT OF CASH FOR T HE PROFITS GENERATED FROM THESE TRANSACTIONS AGAINST THE CHEQU ES / DD RECEIVED TOWARDS SALE OF THE SHARES OF BOLTON PROPE RTIES LIMITED. HE FURTHER ADMITTED THAT HE PAID NORMAL BROKERAGE O F 0.25% IN CASH FOR ARRANGEMENT OF THE TRANSACTIONS. 10. AFTER THUS REFERRING TO THE STATEMENTS OF SHRI HARESH DADIA AND THE ASSESSEE THE SEARCHES CONDUCTED IN M/S SCA N STEEL LTD. ORISSA AND IN PATEL GROUP CASES AND THE STATEMENT O F SHRI PRATAP CHANDRA B PATEL THE ASSESSING OFFICER REFERRED TO THE FOLLOWING CIRCUMSTANCES ARISING IN THE PRESENT CASE: - (A) THE SHARE PRICE OF BOLTON PROPERTIES LIMITED HAS INCREASED UP TO 21 TIMES WITHIN 1 YEAR. (B) THE ASSESSEE HAS PURCHASED THE SHARE WHEN THE PRICES WERE VERY LOW AND SOLD THE SHARES WHEN THE PRICES INCREASED. (C) DURING THE SUBSEQUENT YEARS THE SHARE PRICE OF BOLTON PROPERTIES LIMITED HAVE NOT INCREASED FURTHER. (D) AT PRESENT THE SHARES OF BOLTON PROPERTIES LIMITED ARE NOT TRADED AT KOLKATA STOCK EXCHANGE. (E) THE FINANCIAL PROSPECTS OF BOLTON PROPERTIES LIMITED DO NOT JUSTIFY THE RISE IN THE SHARE PRICE. (F) THE COMPANY BOLTON PROPERTIES LIMITED WAS NOT CARRYING OUT ANY SUBSTANTIAL BUSINESS ACTIVITY. ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 9 (G) THE ASSESSEE HAS SOLD ALL THESE SHARES THROUGH SHRI PRAKASH NAHATA. (H) IT HAS ALREADY BEEN PROVIDED THAT SHRI PRAKASH NAHATA WAS INDULGED IN THE ACTIVITIES OF FLOATING PAPER COMPANIES AND GIVING ACCOMMODATION ENTRIES ON ACCOUNT OF LONG TERM CAPITAL GAINS. (I) THE FAMILY MEMBERS OF PATEL GROUP HAVE ACCEPTED THAT THE TRANSACTION RELATED TO THE BOLTON PROPERTIES LIMITED AND FAST TRACK LIMITED ARE NOT GENUINE. 11. THE ASSESSING OFFICER ALSO REFERRED TO THE FACT THAT NO GENUINE PERSON WILL BUY THE SHARES AT A PRICE OF ` 175.70 PER SHARE SINCE THE PRICE IS NOT BACKED BY THE FINANCIAL POSI TION OF BOLTON PROPERTIES LIMITED. HE THEREFORE PROBED THE FACT A S TO WHO PURCHASED THE SHARES FROM THE ASSESSEE AND FOUND TH AT THEY WERE PURCHASED BY THE SISTER CONCERNS OF THE COMPANY WHI CH WERE ALSO NOT DOING ANY BUSINESS ACTIVITIES. THE ASSESSING O FFICER FOUND THAT THIS WAS OPPOSED TO THE HUMAN PROBABILITIES. 12. THE ASSESSEE WOULD APPEAR TO HAVE CONTENDED THA T THE PURCHASE AND SALE OF THE SHARES WERE PUT THROUGH BY CHEQUES AND ALL THE SHARES WERE REFLECTED IN THE DEMAT ACCOUNT AFTER THE PURCHASE AND SALE. THE ASSESSING OFFICER REFUSED T O ATTACH MUCH IMPORTANCE TO THIS FACT ARGUING THAT THE CIRCUMSTA NTIAL EVIDENCE LED TO THE CONCLUSION THAT THE TRANSACTIONS WERE NOT GE NUINE AND PAPER WORK HAS BEEN GOT UP MERELY TO GIVE A COLOUR OF AUT HENTICITY TO THE TRANSACTION. HE REFERRED TO THE JUDGMENT OF THE SU PREME COURT IN CIT VS. DURGA PRASAD MORE (1971) 82 ITR 540 (SC) AN D SUMATI DAYAL VS. CIT (1995) 214 ITR 801 (SC). ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 10 13. ON THE BASIS OF THE ABOVE THE ASSESSING OFFICE R CAME TO THE CONCLUSION THAT THE TRANSACTIONS RELATING TO THE PU RCHASE AND SALE OF SHARES OF BOLTON PROPERTIES LIMITED ARE NOT GENUINE AND THEREFORE THE INCOME CREDITED BY THE ASSESSEE IN HIS BOOKS OF ACCOUNT AS CAPITAL GAINS FROM THE SALE OF SHARES OF BOLTON PRO PERTIES LIMITED IS TREATED AS UNEXPLAINED CASH CREDIT UNDER SECTION 68 OF THE ACT. ACCORDINGLY HE ADDED BACK THE AMOUNT OF ` 41 85 500/- UNDER SECTION 68 OF THE ACT BEING THE AMOUNT OF PROFIT S HOWN BY THE ASSESSEE ON THE SALE OF SHARES OF BOLTON PROPERTIES LIMITED. CORRESPONDINGLY THE EXEMPTION CLAIMED BY THE ASSESS EE UNDER SECTION 54EC WAS ALSO WITHDRAWN. 14. THE ASSESSEE FILED AN APPEAL TO THE CIT(A) WHO ENDORSED THE DECISION TAKEN BY THE ASSESSING OFFICER AND HEL D THAT THE CAPITAL GAINS SHOWN ON SALE OF SHARES OF BOLTON PROPERTIES LIMITED ARE NOT GENUINE AND THEY WERE RIGHTLY ASSESSED UNDER SECTIO N 68 OF THE ACT. 15. THE ASSESSING OFFICER HAD WITHOUT PREJUDICE TO HIS STAND THAT THE SALE PROCEEDS OF THE SHARES OF BOLTON PROP ERTIES LIMITED SHOULD BE ASSESSED UNDER SECTION 68 TAKEN THE ALTE RNATIVE POSITION THAT THE PROFITS ON THE SALE OF THE SHARES EVEN IF THEY ARE CONSIDERED TO BE GENUINE CANNOT BE ASSESSED AS LON G TERM CAPITAL GAINS BUT SHOULD BE ASSESSED AS BUSINESS INCOME. T HIS STAND TAKEN BY THE ASSESSING OFFICER WAS HOWEVER NOT APPR OVED BY THE CIT(A) WHO DIRECTED THE ASSESSING OFFICER TO RECOM PUTE THE INCOME AFTER TAKING INTO ACCOUNT THE LONG TERM CAPI TAL GAINS AS SHOWN BY THE ASSESSEE ON SALE OF SHARES OF BOLTON P ROPERTIES ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 11 LIMITED AS UNDISCLOSED INCOME UNDER SECTION 68 OF T HE ACT. THE CIT(A) ALSO UPHELD THE DENIAL OF THE EXEMPTION UNDE R SECTION 54EC OF THE ACT. 16. THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TR IBUNAL AND IN GROUND NOS. 1 TO 4 HAS CHALLENGED THE VIEW TAKEN BY THE DEPARTMENTAL AUTHORITIES THAT THE SALE PROCEEDS SHO WN BY THE ASSESSEE AS SALE PROCEEDS OF THE SHARES OF BOLTON P ROPERTIES LIMITED SHOULD BE ASSESSED UNDER SECTION 68 OF THE ACT. IN GROUND NO.6 THE ASSESSEE HAS ALSO CHALLENGED THE DENIAL OF THE EXEMPTION UNDER SECTION 54EC OF THE ACT. IN SUPPORT OF GROUN D NOS. 1 TO 4 THE LEARNED REPRESENTATIVE FOR THE ASSESSEE SUBMITT ED THAT THE ENTIRE PURCHASE AND SALE OF SHARES OF BOLTON PROPER TIES LIMITED IS SUPPORTED BY DOCUMENTARY EVIDENCE THAT THE PURCHAS E AND SALE WERE EFFECTED THROUGH CHEQUES THAT THERE WAS NO EV IDENCE TO SHOW THAT THE ASSESSEE MANIPULATED THE PRICES OF THE SHA RES IN THE STOCK EXCHANGE THAT THERE WAS NO MATERIAL TO CONTRADICT OR CONTROVERT THE DOCUMENTARY EVIDENCE THAT THE ASSESSING OFFICER HA S MERELY RELIED ON CIRCUMSTANTIAL EVIDENCE AND HAS INDULGED IN SPEC ULATION WHICH ARE NOT PERMISSIBLE THAT NO MATERIAL WAS FOUND DUR ING THE SEARCH TO IMPEACH THE DOCUMENTARY EVIDENCE AND THEREFORE IN T HESE CIRCUMSTANCES THE DEPARTMENTAL AUTHORITIES WERE NOT JUSTIFIED IN LAW OR ON FACTS IN ASSESSING THE SALE PROCEEDS OF BOLTO N PROPERTIES LIMITED SHARES UNDER SECTION 68 OF THE ACT REFUSIN G TO ACCEPT THE ASSESSEES CLAIM THAT THE SALE GAVE RISE TO LONG TE RM CAPITAL GAINS. OUR ATTENTION WAS DRAWN TO THE RELEVANT PAGES OF TH E PAPER BOOK FOR ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 12 THE PURCHASE AND SALE OF SHARES THROUGH THE SHARE B ROKER THE BANK STATEMENTS WHERE THE CHEQUES FOR THE PURCHASE OF TH E SHARES WERE DEBITED AND THOSE FOR THE SALE WERE CREDITED. IT W AS CONTENDED THAT THE DEPARTMENTAL AUTHORITIES WERE NOT JUSTIFIED IN REJECTING THE RETRACTION MADE BY SHRI HARESH DADIA SUPPORTED BY H IS AFFIDAVIT. IN ADDITION TO THE ABOVE STRONG RELIANCE WAS PLACED O N THE FOLLOWING AUTHORITIES: - (1) CIT VS. SMT JAMNADEVI AGRAWAL & ORS (2010) 46 DTR (BOM NAGPUR BENCH) 271 (2) SMT MEMO DEVI VS. ACIT (2008) 7 DTR (AGRA) (TRIB) 158 (3) CIT VS. K BHUVANEDRAN & ORS. (2008) 303 ITR 234 (MAD) (4) KAILASHBEN MANHARLAL CHOKSHI VS. CIT (2008) 220 CTR (GUJ) 138 OUR ATTENTION WAS ALSO DRAWN TO SOME OF THE OTHER O RDERS OF THE VARIOUS BENCHES OF THE TRIBUNAL COMPILED IN THE CAS E LAW PAPER BOOK. 17. ON THE OTHER HAND THE LEARNED CIT DEPARTMENTAL REPRESENTATIVE POINTED OUT TO THE GENESIS OF THE SE ARCH IN THE ASSESSEES CASE AND DREW OUR ATTENTION TO THE RELEV ANT PORTIONS OF THE ASSESSMENT ORDER WHERE THE ASSESSING OFFICER HA D TRACED THE GENESIS TO THE SEARCHES IN THE CASE OF M/S SCAN STE EL LTD. GROUP IN ORISSA AND IN THE CASE OF PATEL GROUP AND THE STATE MENTS RECORDED DURING THOSE SEARCHES FROM THE CONCERNED ASSESSEES WHO HAD ALSO DEALT WITH THE SHARES OF BOLTON PROPERTIES LIMITED. HE ALSO POINTED OUT THAT THERE WAS A LINK BETWEEN THOSE TWO CASES A ND THE ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 13 ASSESSEES CASE IN THE SENSE THAT (A) SHRI JAGDIS H PUROHIT WHO HAD COLLUDED WITH SHRI PRAKASH NAHATA THE BROKER IN GIVING ACCOMMODATION ENTRIES TO VARIOUS BENEFICIARIES FOR LONG TERM CAPITAL GAINS WAS A DIRECTOR OF BOLTON PROPERTIES LIMITED; (B) SHRI PRATAP CHANDRA B PATEL OF THE PATEL GROUP HAD ADMITTED THA T THE TRANSACTIONS IN THE SHARES OF BOLTON PROPERTIES LIM ITED ENTERED INTO BY HIS FAMILY MEMBERS AND CHIEF ACCOUNTANT WERE NOT GENUINE WERE ARRANGED BY HIS CHARTERED ACCOUNTANT FOR OBTAI NING TAX BENEFITS ATTACHED TO LONG TERM CAPITAL GAINS AND TH AT HE HAD PAID AN EQUAL AMOUNT OF CASH FOR THE PROFITS GENERATED FROM THE TRANSACTIONS AGAINST CHEQUES DD; AND (C) SHRI PRAKASH NAHATA W AS THE SHARE BROKER WHO WAS INVOLVED IN THE SEARCH IN M/S SCAN S TEEL LTD. GROUP AS WELL AS IN THE ASSESSEES CASE. IT WAS THUS SUB MITTED BY THE LEARNED CIT DEPARTMENTAL REPRESENTATIVE THAT THE SH ARES OF BOLTON PROPERTIES LIMITED WERE APPARENTLY BEING USED AS A MEANS OF FACILITATING ASSESSEES HAVING UNACCOUNTED INCOME T O BRING THE SAME INTO THEIR BOOKS OF ACCOUNT BY SHOWING PURCHAS E AND SALE OF THOSE SHARES THE PURCHASE BEING AT A VERY LOW PRIC E AND THE SALE WITHIN A SHORT SPAN OF TIME BEING AT ABNORMALLY HIG H PRICES THUS HELPING THE PERSONS WITH UNACCOUNTED INCOME TO BRIN G THEM INTO THEIR BOOKS OF ACCOUNT IN THE GUISE OF CAPITAL GAIN S ON THE SALE OF THE SHARES. SUCH PERSONS CLAIM EXEMPTION UNDER SECTION 54EC OF THE ACT BY INVESTING THE CAPITAL GAINS IN NOTIFIED BON DS. ACCORDING TO THE LEARNED CIT DEPARTMENTAL REPRESENTATIVE THERE WAS THUS A DEVICE ADOPTED BY PERSONS HAVING UNACCOUNTED INCOME TO BRING THE ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 14 SAME INTO THEIR BOOKS WITHOUT PAYING ANY TAXES A P RACTICE WHICH SHOULD BE DISCOURAGED. 18. THE LEARNED CIT DEPARTMENTAL REPRESENTATIVE FUR THER SUBMITTED THAT IN THE COURSE OF THE SEARCH PROCEEDI NGS THE ASSESSEES BROTHER SHRI HARESH DADIA AFTER CONSULT ING THE ASSESSEE ADMITTED THAT HE WOULD OFFER THE SALE PRO CEEDS OF THE SHARES OF BOLTON PROPERTIES LIMITED AND FAST TRACK LIMITED AS UNDISCLOSED INCOME AND ALSO UNDERTOOK TO FURNISH A DETAILED WORKING OF SUCH INCOME BY 31.03.2006. IN THIS STAT EMENT SHRI HARESH DADIA AFFIRMED THAT IN MAKING THE ADMISSION / OFFER HE HAD CONSULTED HIS BROTHER WHO IS THE ASSESSEE HEREIN. HAVING THUS ADMITTED THAT THE INCOME BY WAY OF CAPITAL GAINS ON WHICH EXEMPTION UNDER SECTION 54EC WAS CLAIMED WAS REALLY THE TAXABLE INCOME OF THE ASSESSEE AND HAVING THUS STOPPED THE INCOME TAX AUTHORITIES FROM PROBING THE MATTER FURTHER IT IS NOT OPEN TO THE ASSESSEE TO TURN AROUND AT A LATER STAGE AND SAY TH AT NO INVESTIGATION WAS CARRIED OUT BY THE INCOME TAX DEP ARTMENT TO DISCREDIT OR IMPEACH THE DOCUMENTARY EVIDENCE. HE STRONGLY RELIED ON THE FINDINGS OF THE DEPARTMENTAL AUTHORITIES AS WELL AS ON THE FOLLOWING ORDERS / JUDGMENTS: - (1) HIRALAL MAGANLAL & CO. VS. DCIT (2005) 96 ITD 113 (MUM) (2) CIT VS. OMPRAKASH K JAIN & ORS. (2010) 322 ITR 362 (BOM) (3) ACIT VS. HUKUM CHAND JAIN (2010) 191 TAXMAN 319 (CHHATTISGARH) ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 15 (4) RAVINDRA D TRIVEDI VS. CIT (2008) 215 CTR (RAJ) 313 AS REGARDS THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN CIT VS. SMT JAMNADEVI AGRAWAL (SUPRA) RELIED ON BY THE LEARNED REPRESENTATIVE FOR THE ASSESSEE THE LEARNED CIT DE PARTMENTAL REPRESENTATIVE SUBMITTED THAT THE FACTS OF THE AFOR ESAID CASE WERE DISTINGUISHABLE FROM THE FACTS OF THE PRESENT CASE INASMUCH AS THAT THERE WAS NO OFFER OR SURRENDER OF INCOME IN THE CI TED CASE WHEREAS IN THE PRESENT CASE THE ASSESSEE HAD OFFERED THE CA PITAL GAINS TO TAX IN THE COURSE OF THE SEARCH AND FURTHER IN THE PRESENT CASE A CLEAR LINK HAD BEEN ESTABLISHED AND VALID MATERIAL HAD BEEN BROUGHT ON RECORD TO SHOW THAT THE SHARES OF BOLTON PROPERT IES LIMITED WERE BEING USED AS A MEDIUM TO GENERATE HUGE CAPITAL GAI NS WHICH COULD BE SOLD TO PERSONS WHO ARE HAVING UNACCOUNTED INCOM E SO THAT THEY CAN CONVERT THEIR UNACCOUNTED INCOME INTO ACCO UNTED INCOME AT THE SAME TIME WITHOUT PAYING ANY TAX. IN THIS C ONNECTION THE LEARNED CIT DEPARTMENTAL REPRESENTATIVE DREW OUR AT TENTION TO THE SEARCH IN M/S SCAN STEEL LTD CASE AND THE PATEL GRO UP CASE WHERE ALSO THE SHARES OF BOLTON PROPERTIES LIMITED WERE I NVOLVED. HE THUS CONTENDED THAT THE ADDITION UNDER SECTION 68 WAS RI GHTLY MADE. 19. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE RIVAL CONTENTIONS. IN OUR VIEW THE DEPARTMENTAL AUTHORI TIES HAVE TAKEN THE CORRECT DECISION IN MAKING THE ADDITION UNDER S ECTION 68 OF THE ACT. THERE IS NO DOUBT DOCUMENTARY EVIDENCE TO SHO W THAT THE ASSESSEE PURCHASED AND SOLD THE SHARES THROUGH CHEQ UES AND THAT THESE CHEQUES HAVE ALSO BEEN DEBITED OR CREDITED TO HIS BANK ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 16 ACCOUNT. THERE IS ALSO EVIDENCE TO SHOW DEMATING O F THE SHARES OF BOLTON PROPERTIES LIMITED. BUT IT HAS TO BE REMEMB ERED THAT THE ASSESSEE HIMSELF DID NOT RELY ON THE DOCUMENTARY EV IDENCE DURING THE SEARCH. THE ASSESSEES BROTHER SHRI HARESH DAD IA AFTER CONSULTING THE ASSESSEE WHO WAS SITTING BESIDE HIM ADMITTED THE SALE PROCEEDS OF THE SHARES OF BOLTON PROPERTIES LI MITED AND FAST TRACK LIMITED AS UNDISCLOSED INCOME AND ALSO UNDERT OOK TO FURNISH THE DETAILED WORKING OF SUCH INCOME BY 31.03.2006 IN ANSWER TO QUESTION NO.23 OF THE STATEMENT RECORDED DURING THE SEARCH. RELEVANT PORTIONS OF THIS STATEMENT ARE EXTRACTED I N PARAGRAPH 10 OF THE ASSESSMENT ORDER. IT COULD POSSIBLY BE ARGUED THAT IT WAS ONLY BECAUSE OF THE INABILITY OF THE ASSESSEE TO PRODUCE SHRI PRAKASH NAHATA FOR VERIFICATION THAT THE OFFER WAS MADE. T HAT HOWEVER WOULD BE A FLIMSY ARGUMENT ESPECIALLY WHEN THE ASS ESSEE IS PLACING SUCH A STRONG RELIANCE ON THE DOCUMENTARY E VIDENCE EVEN BEFORE US. IF THE DOCUMENTARY EVIDENCE WAS REALLY GENUINE OR WAS OF SUCH NATURE THAT IT COULD NOT BE IMPEACHED AT AL L THERE WAS NO GOOD REASON WHY THE ASSESSEE OR HIS BROTHER THEMSEL VES DID NOT STICK TO THE EVIDENCE BUT CHOSE TO OFFER THE CAPIT AL GAINS AS UNDISCLOSED INCOME. THE STATEMENT WAS GIVEN BY SHR I HARESH DADIA ON THE DATE OF SEARCH WHICH WAS 24 TH 25 TH MARCH 2006 AND THEREAFTER IT WAS ON 06.06.2006 THAT SHRI HARESH DA DIA FILED AN AFFIDAVIT BEFORE THE ASSESSING OFFICER (PAGE 13 OF THE PAPER BOOK) AFFIRMING HIS RETRACTION MADE A FEW DAYS EARLIER ON 22.05.2006 (PAGE 10 OF THE PAPER BOOK). IN THE AFFIDAVIT WHI CH IS ALSO ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 17 CONFIRMED INTER ALIA BY THE ASSESSEE HEREIN IT H AS BEEN STATED THAT HE WAS UNDER TERRIBLE PRESSURE TO PRODUCE SHRI PRAK ASH NAHATA IMMEDIATELY AND THEREFORE IT WAS THAT THE OFFER OF INCOME WAS MADE. IT IS FURTHER EXPLAINED THAT THE SHARES OF BOLTON P ROPERTIES LIMITED WERE NOT PURCHASED THROUGH SHRI PRAKASH NAHATA BUT WERE ONLY SOLD THROUGH HIM. ALL THESE FACTS COULD NOT BE REC OLLECTED BY SHRI HARESH DADIA AT THE TIME OF THE SEARCH AND THEREFOR E IT WAS THAT HE GAVE INCORRECT DETAILS DURING THE SEARCH. THEREAFT ER HE WENT TO KOLKATA AND TOOK PRINTOUTS OF THE ACCOUNTS FROM THE BOOKS OF SHRI PRAKASH NAHATA. IN THE AFFIDAVIT SHRI HARESH DADIA FURTHER EXPLAINED THAT HE WAS SUFFERING FROM A PECULIAR DIS EASE KNOWN AS GUILLIAN BARRY SYNDROME UNDER WHICH A PERSON MOME NTARILY LOSES HIS MEMORY AND CONTROL OVER THE BODY AND THIS WAS T HE REASON FOR HIS INCORRECT ANSWERS DURING THE SEARCH. WE ARE HO WEVER NOT INCLINED TO ACCEPT THE RETRACTION. THERE IS STRONG CIRCUMSTANTIAL EVIDENCE AND SURROUNDING CIRCUMSTANCES TO DOUBT THE VERACITY OF THE DOCUMENTARY EVIDENCE. THE LEARNED CIT DEPARTME NTAL REPRESENTATIVE AS WELL AS THE ASSESSING OFFICER HAV E RIGHTLY POINTED OUT AND RELIED UPON THE GENESIS OF THE SEARCH IN TH E ASSESSEES CASE. THEY HAVE RIGHTLY REFERRED TO THE SEARCH IN M/S SCAN STEEL LTD. GROUP IN ORISSA DURING THE COURSE OF WHICH TH E ROLE OF SHRI PRAKASH NAHATA THE KOLKATA BASED SHARE BROKER CAME TO LIGHT. IT ALSO CAME TO LIGHT THAT SHRI SUSHIL PUROHIT AND SHRI JAGDISH PUROHIT WHO WERE STATED TO BE INCOME TAX PRACTITI ONERS IN COLLUSION WITH SHRI PRAKASH NAHATA WERE GIVING ACCO MMODATION ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 18 ENTRIES TO VARIOUS BENEFICIARIES ON ACCOUNT OF LONG TERM CAPITAL GAINS. IT CAME TO LIGHT THAT ALL THESE THREE PERSO NS OPERATED FROM KOLKATA. SHRI PRAKASH NAHATA IS THE PERSON WHO HAD PUT THROUGH THE ASSESSEES SALE TRANSACTIONS IN BOLTON PROPERTI ES LIMITED ALSO. IT MAY BE THAT THE PURCHASE TRANSACTION WAS NOT PUT THROUGH BY SHRI PRAKASH NAHATA BUT BY ANOTHER BROKER FIRM BY NAME B UBNA STOCK BROKING SERVICES LIMITED BUT THAT DOES NOT MAKE AN Y DENT IN THE CASE OF THE DEPARTMENT. THE DEPARTMENTAL AUTHORITI ES HAVE ALSO RIGHTLY RELIED ON THE LINK THROWN UP BY THE SEARCH IN THE PATEL GROUP OF CASES WHEREIN ALSO THE SHARES OF BOLTON PROPERTI ES LIMITED WERE INVOLVED. WE HAVE ALREADY REFERRED TO THE STATEMEN T OF SHRI PRATAP CHANDRA B PATEL IN SOME DETAIL EARLIER. TAKING THE CIRCUMSTANTIAL EVIDENCE AND THE SURROUNDING CIRCUMSTANCES INTO ACC OUNT IT APPEARS TO US THAT NOT MUCH RELIANCE CAN BE PLACED ON THE DOCUMENTARY EVIDENCE ADDUCED BY THE ASSESSEE. THE CIRCUMSTANCE THAT THE SHARES OF BOLTON PROPERTIES L IMITED FIGURE IN ANOTHER CASE NAMELY PATEL GROUP AS A MEDIUM THRO UGH WHICH UNACCOUNTED MONEY WAS BEING TURNED INTO ACCOUNTED M ONIES; THE CIRCUMSTANCE THAT SHRI PRAKASH NAHATA WAS INVOLVED IN THE SEARCH OF M/S SCAN STEEL LTD. AS A PERSON WHO COLLUDED WIT H TWO INCOME TAX PRACTITIONERS NAMELY SHRI SUSHIL PUROHIT AND SHRI JAGDISH PUROHIT FOR GIVING ACCOMMODATION ENTRIES TO BENEFIC IARIES ON ACCOUNT OF LONG TERM CAPITAL GAINS; THE CIRCUMSTANC E THAT ALL OF THEM WERE OPERATING FROM KOLKATA; THE CIRCUMSTANCE THAT THE SHARES OF BOLTON PROPERTIES LIMITED WERE BEING TRADED IN THE KOLKATA STOCK ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 19 EXCHANGE; THE FURTHER CIRCUMSTANCE THAT SHRI JAGDIS H PUROHIT WAS A DIRECTOR OF BOLTON PROPERTIES LIMITED ARE ALL CUMU LATIVELY STRONG ENOUGH TO DISCREDIT THE DOCUMENTARY EVIDENCE. THE FURTHER CIRCUMSTANCE THAT THE FINANCIAL POSITION EXHIBITED BY THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET OF BOLTON PROPERTIES LIMITED DID NOT JUSTIFY THE 21 TIMES INCREASE IN THE PRICE OF T HE SHARES IS ALSO SO STRONG THAT IT CANNOT BE IGNORED. IT IS COMMON KNO WLEDGE THAT UNLESS A COMPANYS FINANCIAL POSITION AS SEEN FROM ITS ACCOUNTS IS SO STRONG THE WORTH OF ITS SHARES CANNOT INCREASE 21 TIMES WITHIN A SPAN OF JUST 12 MONTHS. THIS ASPECT WAS PUT TO SHR I HARESH DADIA DURING THE SEARCH. IN QUESTION NO.18 HE WAS ASKED WHETHER HE HAD ENQUIRED ABOUT THE FINANCIAL POSITION OF THE CO MPANY BEFORE BUYING THE SHARES. THE ASSESSEE HAD STATED THAT HE HAD PUT IN THE MONEY WITHOUT STUDYING THEIR FINANCIAL STANDING WO RKING MERELY ON THE MARKET TIPS GIVEN BY THE BROKER. ONE IS ASKED TO BELIEVE THAT A BUSINESSMAN INVESTED ` 2 06 750/- IN THE SHARES OF BOLTON PROPERTIES LIMITED AT ` 8.27 PER SHARE WITHOUT ANY ENQUIRY ABOUT THE COMPANYS FINANCIAL STANDING AND SOLD THOSE VERY SH ARES FOR ` 175.70 PER SHARE WITHIN ABOUT 13 MONTHS TIME THERE BEING NO CHANGE IN THE FINANCIAL POSITION OF THE COMPANY. A PPARENTLY THE ASSESSEE HAD LOT OF FORESIGHT OR A STRONG GUT FEELI NG THAT THE PRICES WOULD RISE SO PHENOMENALLY ! THE ASSESSEE OR HIS BROTHER WERE NOT ABLE TO JUSTIFY THEIR DECISION TO BUY AND SELL THE SHARES IN BOLTON PROPERTIES LIMITED ON THE BASIS OF ANY FINANCIAL PR UDENCE. THEY HAVE NOT STATED THAT THEY WERE PRIVY TO ANY IMPORTA NT DECISION TAKEN ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 20 BY THE COMPANY WHICH WOULD BOLSTER THE VALUE OF THE SHARES IN THE NEAR FUTURE. IT IS ALSO ANOTHER CIRCUMSTANCE WORTH NOTING THAT THE ASSESSEE AND HIS BROTHER ARE IN CHEMICAL BUSINESS A ND SHARE BUSINESS IN MUMBAI WHICH IS SUPPOSED TO BE THE FIN ANCIAL CAPITAL OF THE COUNTRY BUT THEY CHOSE BOLTON PROPERTIES LIMIT ED WHOSE SHARES WERE BEING TRADED ONLY IN THE KOLKATA STOCK EXCHANG E FOR INVESTMENT. ALL THESE ARE CIRCUMSTANCES WHICH CUMU LATIVELY CONSIDERED; THROW CONSIDERABLE DOUBT ON THE VERACIT Y OF THE DOCUMENTARY EVIDENCE. THESE CIRCUMSTANCES HAVE ALS O BEEN POINTED OUT BY THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT DEPARTMENTAL REPRESENTATIVE BEFORE US. 20. THE ASSESSEE HAS PLACED STRONG RELIANCE ON THE JUDGMENT OF THE NAGPUR BENCH OF THE HONBLE BOMBAY HIGH COURT I N CIT VS. SMT JAMNADEVI AGRAWAL & ORS (SUPRA). WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT. IN PARAGRAPH 3 OF THE JUDGMENT THE H ONBLE HIGH COURT HAS RECORDED THE CONCESSION OF THE LEARNED CO UNSEL FOR THE REVENUE IN THE FOLLOWING WORDS: - THE LEARNED COUNSEL FOR THE REVENUE WHILE CONCEDING THAT HE IS NOT IN A POSITION TO FIND FAUL T WITH THE REASONING GIVEN BY THE TRIBUNAL IN DELETING THE ADDITIONS MADE BY THE ASSESSEES (SIC AO) SUBMITTED THAT THESE APPEALS BE DECIDED ON MERITS I N THE LIGHT OF THE FINDINGS RECORDED BY THE AO AND DECISION OF THE APEX COURT IN SUMATI DAYAL VS. CIT (1995) 125 CTR (SC) 124 . THE CASE THUS PROCEEDED ON A CONCESSION GIVEN ON BE HALF OF THE REVENUE. SECONDLY THOUGH THE ASSESSEE GROUP IN TH AT CASE OFFERED ADDITIONAL INCOME OF ` 2.00 CRORES CONSEQUENT TO THE SEARCH IT IS NOT DISCERNIBLE FROM THE JUDGMENT AS TO WHETH ER THERE WAS ANY ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 21 STATEMENT GIVEN BY THE ASSESSEES WHILE MAKING THE O FFER AND IF SO WHAT WERE THE CONTENTS THEREOF. IT IS PERTINENT TO NOTE IN THIS CONNECTION THAT IN THE PRESENT CASE THE ASSESSEES BROTHER SHRI HARESH DADIA AFTER CONSULTING THE ASSESSEE HAD GI VEN A STATEMENT DURING THE SEARCH IN WHICH HE DISCARDED THE DOCUMEN TARY EVIDENCE AND OFFERED ADDITIONAL INCOME THOUGH THAT OFFER WA S NOT GIVEN EFFECT TO IN THE RETURN. THIRDLY THE SHARES DEALT WITH I N THE PRESENT CASE ARE THOSE OF BOLTON PROPERTIES LIMITED WHICH WERE THE SHARES INVOLVED IN THE CASE OF M/S SCAN STEEL LTD. OF ORIS SA AND PATEL GROUP OF CASES IN WHOSE CASES ALSO THERE WERE SEAR CHES AND CONSEQUENT DISCLOSURES. FURTHER IN THE CASE OF M/S SCAN STEEL LTD. ALSO THE BROKER INVOLVED WAS SHRI PRAKASH NAHATA WH O IS THE BROKER INVOLVED IN THE CASE OF THE ASSESSEE BEFORE US ALSO . IN THE PATEL GROUP OF CASES WE HAVE ALREADY REFERRED TO THE STA TEMENT OF SHRI PRATAP CHANDRA B PATEL WHO HAS CONFESSED THAT THE S HARE TRANSACTIONS IN THE SHARES OF BOLTON PROPERTIES LIM ITED WERE ACCOMMODATION TRANSACTIONS ENTERED INTO IN ORDER TO OBTAIN TAX BENEFITS ONLY. HE HAS ALSO STATED THAT FOR ARRANGI NG THESE TRANSACTIONS HE HAD PAID BROKERAGE OF 0.25%. THUS NOT ONLY IN THE ASSESSEES CASE BUT ALSO IN THE CASE OF PATEL GROUP THE COMPANY WHOSE SHARES WERE INVOLVED WAS BOLTON PROPERTIES LI MITED. IN THE CASE OF M/S SCAN STEEL LTD. IT WAS FOUND BY THE IN COME TAX AUTHORITIES THAT SHRI PRAKASH NAHATA HAD COLLUDED W ITH TWO INCOME TAX PRACTITIONERS NAMELY SHRI SUSHIL PUROHIT AND SHRI JAGDISH PUROHIT FOR GIVING ACCOMMODATION ENTRIES. SHRI JAG DISH PUROHIT HAS ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 22 BEEN FOUND TO BE A DIRECTOR OF BOLTON PROPERTIES LI MITED. THUS THERE IS PERCEPTIBLE LINK IN ALL THE THREE CASES T HE COMMON FACTORS BEING BOLTON PROPERTIES LIMITED SHRI PRAKASH NAHAT A AND SHRI JAGDISH PUROHIT. ALL THESE LINKS DO NOT APPEAR TO HAVE BEEN PRESENT IN THE CASE BEFORE THE NAGPUR BENCH OF THE HONBLE BOMBAY HIGH COURT. THERE APART FROM THE CONCESSION GIVEN ON BE HALF OF THE REVENUE THE OTHER EVIDENCE WAS THE STATEMENT OF SH RI PRADEEP KUMAR DAGA THE BROKER WHO EXPLAINED THE MODUS OPERANDI OF THE ACCOMMODATION TRANSACTIONS. THE STATEMENT OF THE B ROKER WAS DEMONSTRATED TO BE WRONG BY PRODUCING DOCUMENTARY E VIDENCE. ONE MORE SIGNIFICANT ASPECT IN THE PRESENT CASE IS THE LACK OF ANY JUSTIFICATION FOR THE ABNORMAL INCREASE IN THE MARK ET PRICE OF THE SHARES OF BOLTON PROPERTIES LIMITED FROM A MERE ` 8.27 PER SHARE IN JANUARY 2003 TO ` 175.70 PER SHARE IN MARCH 2004. IN THE CASE BEFORE THE NAGPUR BENCH OF THE HONBLE BOMBAY HIGH COURT THOUGH THERE WAS AN ALMOST 30 FOLD INCREASE IN THE SHARE PRICE OVER A PERIOD OF 13 TO 15 MONTHS THERE ARE NO FACTS TO INDICATE WHETHER SUCH AN ABNORMAL INCREASE WAS OR WAS NOT BACKED BY A CORRESPONDING INCREASE IN THE FINANCIAL POSITION OF THE COMPANY. THE ASSESSING OFFICER HAS BROUGHT ON RECORD IN THE PRESENT CASE FACTS WHICH WE HAVE ALREADY REFERRED TO TO SHOW T HAT NEITHER THE PROFITS NOR THE FINANCIAL PROSPECTS OR BUSINESS ACT IVITY OF BOLTON PROPERTIES LIMITED WERE SOUND ENOUGH TO JUSTIFY SUC H A PHENOMENAL IN ITS MARKET PRICE OVER A PERIOD OF 13 TO 14 MONTH S. ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 23 21. THE JUDGMENTS OF THE SUPREME COURT IN THE CASE OF DURGA PRASAD MORE AND SUMATI DAYAL WHICH HAVE BEEN CITED IN THE ASSESSMENT ORDER ITSELF (PARAGRAPH 20) SUPPORT THE DEPARTMENTS CASE. IN THESE JUDGMENTS THE SUPREME COURT HAS HEL D THAT THOUGH THE APPARENT MUST BE TAKEN TO BE THE REAL GENERALLY THE INCOME TAX AUTHORITIES ARE NOT REQUIRED TO PUT ON BLINKERS WHI LE APPRECIATING THE DOCUMENTARY EVIDENCE AND IT IS EXPECTED OF THEM IF THERE IS ANY SUSPICIOUS FEATURE TO PROBE THE MATTER FURTHER AND THEY ARE AT LIBERTY TO REFUSE TO ACCEPT THE DOCUMENTARY EVIDENC E IF THERE ARE SURROUNDING CIRCUMSTANCES TO INDICATE THAT SUCH EVI DENCE IS UNRELIABLE. IN OUR OPINION THE ASSESSING OFFICER HAS RIGHTLY APPLIED THE TESTS OF HUMAN PROBABILITIES AND THE NORMAL COU RSE OF HUMAN CONDUCT TO THE FACTS OF THE PRESENT CASE AND THE EV IDENCE ADDUCED BY THE ASSESSEE. HE HAS TAKEN INTO ACCOUNT THE SUR ROUNDING CIRCUMSTANCES AND HAS RIGHTLY NOT PUT ON BLINKERS W HILE EXAMINING THE DOCUMENTARY EVIDENCE. WE ARE UNABLE TO FIND FA ULT WITH HIS APPROACH. THE CIT(A) IN OUR VIEW HAS RIGHTLY END ORSED THE DECISION OF THE ASSESSING OFFICER. WE ACCORDINGLY CONFIRM THE VIEW TAKEN BY THE DEPARTMENTAL AUTHORITIES AND UPHOLD TH EIR ACTION IN ASSESSING THE AMOUNT OF ` 41 85 500/- UNDER SECTION 68 OF THE ACT. GROUND NOS. 1 TO 4 ARE DISMISSED. 22. GROUND NO.6 IS WITH REGARD TO THE DENIAL OF THE EXEMPTION UNDER SECTION 54EC OF THE ACT. THIS IS CONSEQUENTI AL TO THE DECISION REGARDING GROUND NOS.1 TO 4. SINCE THERE ARE NO CAPITAL GAINS ON ACCOUNT OF THE SALE OF SHARES OF BOLTON PR OPERTIES LIMITED ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 24 THERE IS NO QUESTION OF CLAIMING ANY EXEMPTION UNDE R SECTION 54EC AGAINST THEM. THE GROUND IS ACCORDINGLY DISMISSED. 23. GROUND NO.5 IS IN RELATION TO THE TREATMENT TO BE GIVEN TO THE PROFIT ON THE SALE OF SHARES OTHER THAN THE SHARES OF BOLTON PROPERTIES LIMITED. ACCORDING TO THE ASSESSEE SUC H PROFITS ARE TO BE ASSESSED AS CAPITAL GAINS WHEREAS ACCORDING TO THE DEPARTMENT THEY ARE TO BE ASSESSED AS BUSINESS INC OME. THE ASSESSEE SOLD A NUMBER OF SCRIPS DURING THE RELEVAN T PREVIOUS YEAR THE DETAILS OF WHICH ARE GIVEN AT PAGES 6 TO 9 OF T HE PAPER BOOK. IT IS SEEN THEREFROM THAT A TOTAL OF 46 SCRIPS HAVE BE EN SOLD. SIMILAR SALES OF SHARES UPTO AND INCLUDING THE ASSESSMENT Y EAR 2003-04 WERE ACCEPTED BY THE ASSESSING OFFICER AND ASSESSED AS CAPITAL GAINS. THESE ORDERS ARE PLACED AT PAGES 39 (ASSESS MENT YEAR 2001-02) PAGE 41 (ASSESSMENT YEAR 2002-03) AND PAG E 43 (ASSESSMENT YEAR 2003-04). THESE ARE ASSESSMENT OR DERS PASSED UNDER SECTION 143(3) FOR ALL THE YEARS AND THE RELE VANT COMPUTATIONS ARE ALSO ATTACHED IN THE PAPER BOOK. IT NEEDS TO B E MENTIONED THAT IN THE ASSESSMENT YEAR 2007-08 THE ASSESSING OFFICE R ACCEPTED SHORT TERM CAPITAL GAINS OF ` 92 161/- VIDE ASSESSMENT ORDER DATED 30.11.2009 PASSED UNDER SECTION 143(3) OF THE ACT. THE ASSESSEE HAS ALSO FILED DETAILS AT PAGES 34 35 OF THE PAPE R BOOK TO SHOW THAT THE SHARES WERE SHOWN AS INVESTMENT IN THE BAL ANCE SHEET AS ON 31.03.2003. FOR THE YEAR UNDER APPEAL IN THE CO MPUTATION OF INCOME THE ASSESSEE HAS ALSO APPENDED TWO TABLES THE FIRST SHOWING LONG TERM CAPITAL GAINS ON SALE OF SHARES T AXABLE AT THE ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 25 RATE OF 10% AND THE SECOND SHOWING LONG TERM CAPITA L GAINS ON SALE OF SHARES TAXABLE AT 20%. 24. THE CONTENTION OF THE ASSESSEE IS THAT HIS MAIN BUSINESS IS IN CHEMICALS AND HE IS NOT IN THE BUSINESS OF BUYIN G AND SELLING SHARES THAT HE DID NOT BORROW ANY MONIES FOR ACQUI RING THE SHARES AND THAT IN ANY CASE THERE ARE NOT MANY TRANSACTION S EITHER NUMBER- WISE OR VOLUME-WISE TO JUSTIFY THE CONCLUSION OF TH E INCOME TAX AUTHORITIES THAT THE ASSESSEE WAS CARRYING ON A BUS INESS IN SHARES. AS AGAINST THIS THE LEARNED CIT DEPARTMENTAL REPRE SENTATIVE HAS POINTED OUT FROM PAGES 6 TO 9 OF THE PAPER BOOK THA T IN ALL THERE ARE 133 TRANSACTIONS PUT THROUGH DURING THE RELEVANT PR EVIOUS YEAR IN ABOUT 50 SCRIPS OUT OF WHICH 64 TRANSACTIONS REVEAL THAT THE SHARES WERE BOUGHT AND SOLD ON THE SAME DAY. THE DETAILS ALSO SHOW ACCORDING TO THE LEARNED CIT DEPARTMENTAL REPRESENT ATIVE THAT IN 80% OF THE TRANSACTIONS THE PERIOD OF HOLDING THE S HARES IS LESS THAN THREE MONTHS. HE CONTENDED THAT THESE FACTS UNMIST AKABLY SHOW A BUSINESS MOTIVE TO MAKE QUICK PROFITS BY SELLING T HE SHARES AND DOES NOT INDICATE A DESIRE ON THE PART OF THE ASSES SEE TO HOLD THE SHARES AS INVESTMENT. IT WAS ALSO CONTENDED BY HIM THAT THE RULE OF CONSISTENCY LAID DOWN BY THE SUPREME COURT IN THE C ASE OF RADHASOAMI SATSANG VS. CIT (1992) 193 ITR 321 (SC) CANNOT BE APPLIED TO THE PRESENT CASE AS CONTENDED BY THE ASS ESSEE BECAUSE THE FACTS IN THE EARLIER ASSESSMENT YEARS WERE DIFF ERENT. ACCORDING TO HIM IN THE ASSESSMENT YEAR 2000-01 (PAGE 47 OF THE PAPER BOOK) THERE WAS ONLY ONE TRANSACTION NAMELY ARIH ANT SHARES. IN ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 26 THE ASSESSMENT YEAR 2001-02 (PAGE 52) AND THE ASSES SMENT YEAR 2002-03 (PAGE 57) THERE WERE SEVEN TRANSACTIONS IN TWO SCRIPS AND SEVEN TRANSACTIONS IN FIVE SCRIPS RESPECTIVELY. IN THE ASSESSMENT YEAR 2003-04 (PAGE 61) THE ASSESSEE HAD ELEVEN TRAN SACTIONS IN FIVE SCRIPS. THE LEARNED CIT DEPARTMENTAL REPRESEN TATIVE THUS CONTENDED THAT THE FACTS IN THE EARLIER ASSESSMENT YEARS WERE DIFFERENT FROM THE FACTS AVAILABLE IN RESPECT OF TH E YEAR UNDER APPEAL IN WHICH THE ASSESSEE DEALT WITH 46 SCRIPS AND THERE WERE 133 TRANSACTIONS IN THEM. HE THUS CONTENDED THAT O N THESE FACTS THE ASSESSING OFFICER AND THE CIT(A) WERE JUSTIFIED IN HOLDING THAT THE ASSESSEE CARRIED ON A BUSINESS IN SHARES AND TH E SALE OF SHARES DID NOT GIVE RISE TO CAPITAL GAINS. 25. THE LEARNED CIT DEPARTMENTAL REPRESENTATIVE ALS O DREW OUR ATTENTION TO THE JUDGMENTS OF THE SUPREME COURT IN THE CASE OF RAJA BAHADUR VISHESHWARA SINGH VS. CIT (1961) 41 ITR 685 (SC) AND IN THE CASE OF NEW JEHANGIR VAKIL MILLS CO. LTD. VS. C IT (1963) 49 ITR 137 (SC) AND SUBMITTED THAT IN THESE CASES IT HAS B EEN HELD THAT THERE IS NOTHING AS RES JUDICATA IN INCOME-TAX MATT ERS AND THAT EACH YEAR HAS TO BE DECIDED ON THE BASIS OF THE FACTS AV AILABLE FOR THAT YEAR AND THAT IF THE FACTS JUSTIFY A DIFFERENT VIEW THAN THE ONE TAKEN IN THE EARLIER YEARS ON THE BASIS OF DIFFERENT FACT S THEN IT WAS OPEN TO THE INCOME TAX AUTHORITIES TO TAKE A DIFFERENT V IEW. HE POINTED OUT THAT BOTH THE CASES INVOLVED THE QUESTION WHETH ER THE ASSESSEE WAS A DEALER OR INVESTOR IN SHARES AND IN BOTH THE CASES THE ASSESSING OFFICER HAD DEPARTED FROM THE DECISION TA KEN IN THE ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 27 EARLIER YEARS. RELIANCE WAS ALSO PLACED ON THE ORD ERS OF THE MUMBAI BENCHES OF THE TRIBUNAL IN THE FOLLOWING CAS ES: - (1) SHAILESH L SHAH HUF VS. DCIT ITA NO: 3991 & 3992/MUM/2008 DATED 13.01.2010 (2) ACIT VS. MR V NAGESH ITA NO: 5410/MUM/2008 AND CO NO: 151/MUM/2009 DATED 24.09.2009 (3) SMT SADHANA NABERA VS. ACIT ITA NO: 2586/MUM/2009 DATED 26.03.2010 (4) SARNATH INFRASTRUCTURE (P) LTD. VS. ACIT (2009) 120 TTJ (LUCKNOW) 216 26. ON A CAREFUL CONSIDERATION OF THE FACTS WE ARE SATISFIED THAT THE DEPARTMENTAL AUTHORITIES ARE RIGHT IN TREATING THE ASSESSEE AS A TRADER IN SHARES AND ACCORDINGLY IN BRINGING THE SU RPLUS TO TAX AS BUSINESS INCOME REJECTING THE ASSESSEES PLEA THAT THE SURPLUS SHOULD BE ASSESSED UNDER THE HEAD CAPITAL GAINS. EVEN IF WE TAKE INTO ACCOUNT THE CONTENTION OF THE ASSESSEE TH AT TRANSACTIONS ON THE SAME DAY IN THE SAME SCRIPS SHOULD NOT BE CO UNTED AS SEPARATE TRANSACTIONS STILL FROM THE DETAILS WE FI ND THAT THE ACTIVITY IN BUYING AND SELLING SHARES IS QUITE FREQUENT JUS TIFYING THE INFERENCE THAT THE ASSESSEE IS TRADING IN THEM. TR ANSACTIONS OF PURCHASE OF THE SAME SHARES ON THE SAME DAY BUT IN DIFFERENT LOTS ARE ALSO SEEN TO BE FEW IN NUMBER. THE LIST OF SHORT TERM ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 28 CAPITAL GAINS IS PLACED AT PAGES 6 TO 9 OF THE PAPE R BOOK FILED BY THE ASSESSEE. AT PAGE 6 WE FIND THAT ONLY THE SHARES OF IDBI HAVE BEEN PURCHASED ON THE SAME DAY IN MORE THAN ONE TRA NSACTION I.E. ON 26.05.2003. AT PAGE 7 THE SHARES OF BANK OF IN DIA HAVE BEEN PURCHASED ON 10.06.2003 IN THREE DIFFERENT LOTS. T HE SHARES OF NOCIL WERE ALSO PURCHASED ON 10.06.2003 IN TWO LOTS ONE OF 2000 SHARES AND ANOTHER OF 4000 SHARES. WHEN WE TURN TO PAGE 8 WE FIND THAT THE SHARES OF NEYVELI LIGNITE CORPORATION LTD. WERE PURCHASED ON 30.12.2003 IN TWO SEPARATE LOTS OF 500 0 SHARES EACH. THE SHARES OF GNFC WERE SIMILARLY PURCHASED ON 13.1 0.2003 IN TWO LOTS OF 500 SHARES EACH. PAGE 9 DOES NOT SHOW ANY SHARES BEING PURCHASED MORE THAN ONCE ON THE SAME DAY. TH US THE TRANSACTIONS IN THE SAME SCRIPS ON THE SAME DAY ARE NOT SIGNIFICANT COMPARED TO THE TOTAL NUMBER OF TRANSACTIONS AND T HEREFORE EVEN IF THEY ARE ELIMINATED FROM CONSIDERATION OR TREATED A S A SINGLE PURCHASE TRANSACTION THE INFERENCE DRAWN BY THE IN COME TAX AUTHORITIES CANNOT BE DIFFERENT. 27. AS RIGHTLY POINTED OUT ON BEHALF OF THE DEPARTM ENT THE FACTS WERE DIFFERENT IN THE EARLIER ASSESSMENT YEARS IN W HICH THE ASSESSEE WAS TREATED AS AN INVESTOR IN SHARES AND T HE SURPLUS WAS BROUGHT TO ASSESSMENT UNDER THE HEAD CAPITAL GAINS . WE HAVE ALREADY NOTED THE SUBMISSION OF THE DEPARTMENT THAT IN THE ASSESSMENT YEARS 2000-01 TO 2003-04 THE TRANSACTION S WERE VERY FEW AND THEREFORE THE ASSESSEE WAS TREATED AS AN IN VESTOR IN SHARES. THOSE FACTS ARE NOT PRESENT IN THE YEAR UN DER ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 29 CONSIDERATION. THEREFORE THE RULE OF CONSISTENCY CANNOT BE APPLIED TO THE YEAR UNDER APPEAL AS RIGHTLY POINTED OUT BY THE DEPARTMENT. WE ACCORDINGLY CONFIRM THE ASSESSMENT OF THE SURPLU S IN THE SALE OF SHARES AS BUSINESS INCOME AND DISMISS GROUND NO.5. 28. GROUND NO.7 IS DIRECTED AGAINST THE LEVY OF INT EREST UNDER SECTION 234B OF THE ACT. IN CASE THE ASSESSEE IS F OUND TO BE ELIGIBLE FOR ANY CONSEQUENTIAL RELIEF HE SHALL GET IT. 29. THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT Y EAR 2004-05 IS DISMISSED SUBJECT TO OUR REMARK IN RESPE CT OF GROUND NO.7. 30. WE NOW TAKE UP THE APPEAL OF THE ASSESSEE FOR T HE ASSESSMENT YEAR 2005-06 IN ITA NO: 1068/MUM/2009. GROUND NOS. 1 TO 4 ARE SIMILAR TO GROUND NOS. 1 TO 4 IN TH E APPEAL FOR THE ASSESSMENT YEAR 2004-05 THE ONLY DIFFERENCE BEING THAT IN THIS YEAR THE ASSESSEE HAS SHOWN CAPITAL GAINS ON THE SALE OF SHARES IN A COMPANY BY NAME FAST TRACK LIMITED WHEREAS IN THE ASSESSMENT YEAR 2004-05 THE COMPANY CONCERNED WAS BOLTON PROP ERTIES LIMITED. PARTIES ARE AGREED THAT THE FACTS RELATI NG TO THE PURCHASE AND SALE OF SHARES OF FAST TRACKS LIMITED ARE THE S AME AS IN THE CASE OF THE SHARES OF BOLTON PROPERTIES LIMITED AND THAT THE DECISION GIVEN BY US IN THE APPEAL FOR THE ASSESSME NT YEAR 2004-05 IN ITA NO: 485/MUM/2009 SHOULD GOVERN THE POINT FOR THIS YEAR ALSO. ACCORDINGLY FOLLOWING OUR DECISION IN RESPECT OF G ROUND NOS.1 TO 4 IN THE APPEAL FOR THE ASSESSMENT YEAR 2004-05 WE H OLD THAT THE INCOME AUTHORITIES WERE RIGHT IN BRINGING THE AMOUN T OF ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 30 ` 12 70 100/- TO TAX UNDER SECTION 68 OF THE ACT. TH E GROUNDS ARE DISMISSED. 31. GROUND NO.5 IS TO THE EFFECT THAT THE SURPLUS O N THE SALE OF SHARES OTHER THAN THE SHARES IN FAST TRACK LIMITED SHOULD BE ASSESSED AS CAPITAL GAINS AND THAT THE ASSESSING OF FICER WAS NOT JUSTIFIED IN ASSESSING THE SAME AS BUSINESS INCOME OVERLOOKING THAT THE ASSESSEE WAS AN INVESTOR AND NOT A TRADER IN THE SHARES. HERE ALSO PARTIES ARE AGREED THAT OUR RULING IN RES PECT OF GROUND NO.5 IN THE APPEAL FOR THE ASSESSMENT YEAR 2004-05 SHOULD GOVERN THE PRESENT GROUND SINCE THE BASIC FACTS ARE THE SA ME. FOR THE SAKE OF COMPLETENESS OF RECORD WE MAY NOTICE THAT T HE ASSESSEE IN THIS YEAR HAS PURCHASED 53 SCRIPS AND SOLD 37 SCRIP S. A STATEMENT WAS RECORDED FROM THE ASSESSEE IN THE COURSE OF WH ICH IT WAS PUT TO HIM THAT CONSIDERING THE FREQUENCY OF THE TRANSA CTIONS IN SHARES THE SURPLUS CANNOT BE TAXED AS CAPITAL GAINS BUT SH OULD BE ASSESSED ONLY AS BUSINESS INCOME. THE ASSESSEE DEN IED THE SUGGESTION AND SUBMITTED THAT HE WAS BASICALLY AN I NVESTOR IN SHARES AND NOT A TRADER. BUT THE ASSESSING OFFICER REJECTED THE SUBMISSION ON THE BASIS OF THE FREQUENCY OF THE TRA NSACTIONS. THIS STATEMENT IS ALSO SEEN REFERRED TO IN THE ASSESSMEN T ORDER FOR THE ASSESSMENT YEAR 2004-05. SINCE THE PARTIES ARE AGR EED THAT THE FACTS OF THE CASE ARE THE SAME FOLLOWING OUR DECIS ION IN RESPECT OF GROUND NO.5 FOR THE ASSESSMENT YEAR 2004-05 WE UPH OLD THE DECISION OF THE INCOME TAX AUTHORITIES AND DISMISS THE GROUND. ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 31 32. GROUND NO.6 IS TO THE EFFECT THAT THE CIT(A) ER RED IN CONFIRMING THE DENIAL OF EXEMPTION UNDER SECTION 10 (38) OF THE ACT CLAIMED BY THE ASSESSEE IN RESPECT OF THE LONG TERM CAPITAL GAINS THAT AROSE ON SALE OF SHARES INCLUDING THOSE OF FAS T TRACK LIMITED. IT IS CONTENDED THAT THE EXEMPTION SHOULD BE ALLOWE D. THIS POINT IS PECULIAR FOR THIS YEAR. THE CIT(A) HAS HELD THAT S INCE THE ASSESSEE HAS BEEN HELD TO BE A TRADER IN SHARES THE EXEMPTI ON IS NOT AVAILABLE. IT APPEARS THAT THIS QUESTION IS CONSEQ UENTIAL TO OUR DECISION IN RESPECT OF GROUND NO.5. SECTION 10(38) GRANTS EXEMPTION IN RESPECT OF INCOME ARISING FROM THE TRA NSFER OF A LONG TERM CAPITAL ASSET BEING AN EQUITY SHARE IN A COMP ANY WHERE THE SHARE IS SOLD AFTER THE DATE ON WHICH CHAPTER VII O F THE FINANCE (NO.2) ACT 2004 COMES INTO FORCE AND SUCH TRANSACT ION IS CHARGEABLE TO SECURITIES TRANSACTION TAX UNDER THAT CHAPTER. THE SECTION APPLIES ONLY TO CAPITAL GAINS (LONG TERM) B UT WHERE THE SURPLUS IS ASSESSED AS BUSINESS INCOME THE EXEMPTI ON DOES NOT APPLY. WE THEREFORE ENDORSE THE DECISION OF THE IN COME TAX AUTHORITIES AND DISMISS THE GROUND. 33. GROUND NO.7 IS DIRECTED AGAINST THE LEVY OF INT EREST UNDER SECTION 234B WHICH IS CONSEQUENTIAL. 34. IN THE RESULT THE APPEAL FOR THE ASSESSMENT YE AR 2005-06 IS DISMISSED SUBJECT TO OUR REMARK IN RESPECT OF GROUN D NO.7. 35. WE NOW TAKE UP THE APPEAL FOR THE ASSESSMENT YE AR 2006-07 IN ITA NO: 1193/MUM/2009. GROUND NOS.1 AND 2 ARE D IRECTED AGAINST THE ASSESSMENT OF THE SURPLUS ON THE SALE O F SHARES AS ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 32 BUSINESS INCOME REJECTING THE ASSESSEES CLAIM THAT IT SHOULD BE ASSESSED AS CAPITAL GAINS AND THE DENIAL OF THE EXE MPTION UNDER SECTION 10(38) IN RESPECT OF THE SAID INCOME RESPE CTIVELY. PARTIES ARE AGREED THAT THE FACTS RELATING TO GROUND NO.1 A RE THE SAME FOR THE YEAR UNDER APPEAL. FOR THE SAKE OF COMPLETENES S OF RECORD WE MAY NOTICE THAT DURING THE YEAR THE ASSESSEE PURCHA SED 60 SCRIPS AND SOLD 61 SCRIPS. THE ASSESSING OFFICER HAS ALSO REFERRED TO THE ASSESSEES STATEMENT WHICH IS THE SAME THAT IS REF ERRED TO IN THE ASSESSMENT ORDERS FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06. SINCE ALL THE FACTS ARE THE SAME AS IN THOSE YEARS FOLLOWING OUR RULING IN RESPECT OF THOSE YEARS WE ENDORSE THE DE CISION OF THE INCOME TAX AUTHORITIES IN RESPECT OF GROUND NO.1 AN D DISMISS THE SAME. 36. AS REGARDS GROUND NO.2 RELATING TO SECTION 10(3 8) IT IS CONSEQUENTIAL TO OUR DECISION IN RESPECT OF GROUND NO.1 AS IN THE ASSESSMENT YEAR 2005-06. THAT GROUND IS ALSO DISMI SSED. 37. GROUND NOS. 3 AND 4 WHICH ARE DIRECTED AGAINST THE ADDITION OF ` 78 940/- MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT IN JEWELLERY ARE DISMISSED AS NOT PRESSED. 38. GROUND NO.5 IS DIRECTED AGAINST THE LEVY OF INT EREST UNDER SECTION 234B. THE ASSESSEE IS ELIGIBLE ONLY TO CON SEQUENTIAL RELIEF IF ANY. 39. IN THE RESULT THE APPEAL FOR THE ASSESSMENT YE AR 2006-07 IS DISMISSED SUBJECT TO OUR REMARK IN RESPECT OF GROUN D NO.5. ITA NO: 485/MUM/2009 ITA NO:1068/MUM/2009 ITA NO:1193/MUM/2009 33 40. TO SUM UP ALL THE THREE APPEALS ARE DISMISSED. NO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH FEBRUARY 2011. SD/- SD/- (P M JAGTAP) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI DATED 18 TH FEBRUARY 2011 SALDANHA COPY TO: 1. SHRI UPENDRA P DADIA 402 SMEET APARTMENTS KHOKHANI LANE GHATKOPAR (EAST) MUMBAI 400 077 2. ACIT CENTRAL CIRCLE 3 MUMBAI 3. CIT-CENTRAL 1 MUMBAI 4. CIT(A)-CENTRAL 1 MUMBAI 5. DR F BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI