INCOME TAX APPELLATE TRIBUNAL
From the case observe the following fact... The learned CIT (Appeals), erred in confirming the finding of the Assessing Officer in not considering the gains on the sale of shares of Rs. 4,89,18,734/- as long term capital gains and thereby also confirming the consequent denial of exemption u/s 10(38) of the Income- tax Act, 1961. 2. The learned CIT (A) erred in confirming the finding of the Assessing Officer that the purchase of the shares can be considered only on the date of dematerialization and therefore the holding period becoming less than 12 months hence, the capital gains of Rs. 7,115,219 (50,095,894 — 42,980,675) be taxed as short term capital gains. 3. The learned CIT (A) further erred in holding that the purchase value of the shares sold be taken at the average of high and low price of the shares traded on the NSE and BSE on the date of dematerialization viz. Rs.42,980,675 and treating the same as unexplained investment in the shares.
Smt. Hamida J. Rattonsey, C/o. Dimexon Diamonds Ltd., 804, Raheja Chambers, 213, Nariman Point, Mumbai – 400 021. PAN: AADPR 7593 N (Appellant) Vs. D.C.I.T. Central Circle-5, Aayakar Bhavan, Maharshi Karve Road, Mumbai-400 020. (Respondent)
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES “H” MUMBAI
BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER
SHRI RAJENDRA, ACCOUNTANT MEMBER
Assessment Year 2006-07
Smt. Hamida J. Rattonsey,
C/o. Dimexon Diamonds Ltd.,
804, Raheja Chambers,
213, Nariman Point,
Mumbai – 400 021.
PAN: AADPR 7593 N
D.C.I.T. Central Circle-5,
Maharshi Karve Road,
Assessee by: Shri Sashi Tulsiyan
Revenue by: Shri Goli Sriniwas Rao
Date of hearing: 25-07-2012
Date of pronouncement: 01-08-2012
PER RAJENDRA, A.M.
Following Grounds of Appeal were filed by the Appellant against the order dated 19-06-2009 of the CIT(A) Central-II, Mumbai:
“On the facts and circumstances of the case and in law:
1. The learned CIT (Appeals), erred in confirming the finding of the Assessing Officer in not considering the gains on the sale of shares of Rs. 4,89,18,734/- as long term capital gains and thereby also confirming the consequent denial of exemption u/s 10(38) of the Income- tax Act, 1961.
2. The learned CIT (A) erred in confirming the finding of the Assessing Officer that the purchase of the shares can be considered only on the date of dematerialization and therefore the holding period becoming less than 12 months hence, the capital gains of Rs. 7,115,219 (50,095,894 — 42,980,675) be taxed as short term capital gains.
3. The learned CIT (A) further erred in holding that the purchase value of the shares sold be taken at the average of high and low price of the shares traded on the NSE and BSE on the date of dematerialization viz. Rs.42,980,675 and treating the same as unexplained investment in the shares.
4. Without prejudice to above, the appellant has made investment in shares in earlier year which were duly reflected in the books of account of the appellant, hence the addition of Rs. 42,980,675 unexplained investment for the year under consideration may be deleted.
5.Without prejudice to above, the transaction of investment in shares being genuine and sufficient evidences were produced, the long term capital gains shown by the appellant as exempt under section 10(38) of the Income-tax Act, 1961 may be accepted and additions confirmed by the CIT(A) may be deleted.
6. The appellant craves leave to add, amend, alter or delete any one of the above grounds of appeal.”
2. Assessee had filed her return of income on 29.12.2006 declaring income of Rs. 1,18,77,770/-. Assessment was finalised by the Assessing officer (AO) u/s. 143(3) of the Income-tax Act, 1961 (Act) on 31.12.2008 determining total income at Rs.6.19 Crores. The grounds of appeal filed by the assesee are inter-connected. Basic issue to be decided in the case under consideration is computation of Long Term Capital Gains (LTCG) / Short Term Capital Gains (STCG) on sale of shares of a few companies.
3. During the assessment proceedings assessing officer found that the assessee had declared long-term capital gains of Rs.4,89,18,734/-and the same was claimed as exempt under section 10 (38) of the Act. The appellant had submitted that she had purchased certain shares from a broker namely M/s. Mahasagar Securities Pvt. Ltd. (MSPL) and had sold the same through M/s. Techno Shares and Securities Ltd. AO recorded the statement of Shri Mukesh Choksi, director of MSPL, who denied having sold the impugned shares to the appellant. However, during the cross-examination the same person confirmed accepting the checks from the appellant. Though the AO had doubted the purchase of the shares from MSPL, but he did not express any doubt about the sale of the shares. Before the AO appellant submitted that the impugned shares were out of the balance held in her demat account, that the shares were transferred on the floor of the exchange, that the relevant bills and the contract notes for effecting transfer of shares were in her possession, that sale consideration of the shares was credited in her books of accounts through banking channels. Before the AO, she produced purchase contract notes, contact notes for sale, distinctive numbers of the shares purchased and sold copies of share certificates and the quotation of shares on the dates of purchase and sale.
After considering the material available with him the AO held that the purchase of shares through an MSPL was not genuine, that the impugned shares were dematerialised only on date of sale or 2 to 3 days before the date of sale. Invoking the provisions of section 68 of the Act AO held that the entire transaction of sale and purchase of the shares was manipulated and the entire sale proceeds of shares was unaccounted income of the appellant for the assessment year under consideration.
4. Assessee preferred an appeal before the First Appellate Authority (FAA). After considering the submissions of the assessee and the assessment order he held that the assessee was not entitled to claim exemption u/s. 10(38) of the Act, that the purchase of the shares can be considered only on the date of demetarialisation, that holding period of shares in the case of the assessee was less than 12 months, that capital gains amounting to Rs.71,15,219 (5,00,95,894/- (-) 4,29,80,675/-) was to be taxed as short term capital gains, that purchase value of the shares sold should be taken at the average of high and low price of the shares traded on the NSE and BSE on the date of dematerialasation, that the purchase value was unexplained investment of the assessee, that the sale of share was genuine.
5. Before us, Authorised Representative (AR) submitted that in the case of the husband of the assessee on similar facts and circumstances ‘J’ Bench of ITAT, Mumbai has decided the issue in his favour (ITA No.5068/Mum/2009-AY 2006-07, dtd. 25.01.2012). He also relied upon the cases of Saumya Agarwal (174 Taxman 60), Anupam Kapur (299ITR 179) and Smt. Kusumlata (105TTJ 265). DR relied upon the orders of the AO and the FAA. After considering the rival submissions and perusing the material available we are of the opinion that the assessee is entitle to exemption as envisaged by Section 10(38) of the Act on the long term capital gains. In our opinion transaction in question resulted in LTCG and not in STCG as held by the FAA. Investment made by the assessee in shares cannot be treated as unexplained investment u/s.68 of the Act. We would like to refer to the order of the husband of the assessee in this regard where it has been held:
We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. In the instant case the A.O. made addition of Rs. 5,09,25,802/- as unexplained cash credit holding the sale of shares by the assessee as bogus. While doing so he relied heavily on the statement given by Mr. Mukesh Choksi wherein he has stated that the transactions of purchase of shares are not carried out through them and the name of his company has been wrongly used and no transaction mentioned in the ledger has been carried out through them. The A.O. had also another proposition that the total purchase price on the date of dematerialisation comes to Rs. 44110775/- which becomes unexplained investment in shares. After deducting the investment in shares from sale price the short term capital gain comes to Rs. 80,03,027/-. However, since he considered the entire receipt on the sale of shares as un- accounted income and added the same to the total income of the assessee u/s 68 of the I.T. Act he did not make any separate addition under’ the head “unexplained investment and short term capital gain.
9.1 We find the 1d CIT(A) deleted the addition u/s 68 on the ground that the sale of shares has not been doubted by the A.O. in the assessment proceedings as well as during remand proceedings and the assessee has proved the genuineness of the sale of shares, therefore, no addition can be made u/s.68 of the Act. The Revenue is not in appeal before us against the ld.CIT(A). However, the ld. CIT(A) upheld the alternate proposition of the A.O. that the purchase price on the date of dematerialisation of shares become unexplained investment in the hands of the assessee and the difference between in sale and purchase of shares has to be treated as short term capital gain since the assessee could not substantiate the purchases. Therefore, the question that has to be answered in the grounds raised by the assessee is as to whether the purchase of shares by the assessee are genuine or not and whether the holding period is more than 12 months or not.
9.2 We find the assessee before the A.O. has filed the copies of contract notes and purchase bills of all the shares purchased from MSPL (copies of which are placed at paper book page 18 to 43). Similarly the bank statement maintained with HDFC bank shows evidence of payment to MSPL. The Xerox copy of the account payee cheque issued to MSPL dtd. 1.12.05 for Rs. 12,40.565/- is placed at paper book page 45 and was also filed before the A.O. and CIT(A). The copy of ledger A/c of MSPL ~n the books of the assessee and the copy of the ledger account of the assessée in books of MSPL were also filed before the A.O. Similarly the copies of contract notes and sale bills of all the shares transferred to Techno Shares & Stocks Ltd. Photocopy of D-Mat account and copy of confirmation letter dtd. 28.10.2005 Securities P. Ltd. were also filed before the A.O. Nothing was brought by the A.O. to prove that any of these evidences filed by the assessee is false or untrue. The Revenue has basically gone on the statement of Mr. Mukesh Choksi who denied to have known the assessee and denied to have made any transaction with the assessee on account of purchase of shares. The relevant questions and answers of Mr. Mukesh Choksi recorded by the A.O. on 24.12.2008, copy of which is placed at paper book page No. 19 to 23 are as under:
Q No. 7:- Do you know Shri Jafferali K. Rattonsey and Smt. Hamida Rattonsey?
Ans. No. I do not know them.
Q No. 8:- I am showing you the ledger account of Mahasagar Securities Pvt.Ltd. in the books of Shri J.K. Rattonsey and Smt. Hamida J. Rattonsey.From this account it is seen that the assessee have carried out regular transaction with Mahasagar Securities Pvt. Ltd. Pl. confirm the ledger account furnished by the assessee with the Copy Of ledger account of J.K. Rattonsey and Smt. Hamida J. Rattonsey appearing in the books of Mahasagar Securities Pvt. Ltd.
Ans.: I have seen the ledger and on the perusal of the same I found that the transactions are not carried out through us. It seems that our names have been used and no transaction mentioned in the ledger have been carried out through us. Mahasagar Securities have no relations with the J.K. Rattonsey and Smt. Hamida J. Rattonsey.
9.3.On the basis of the above statement of Mr. Mukesh Choksi the ld. CIT(A)upheld the alternate proposition of the A.O. that total purchase price date of dematerialisation of shares amounting to Rs. 4,41,10,775/- unexplained investment since the Purchases are not recorded in of the assessee on that date and the difference between the sale and the purchase price amounting to Rs. 80,03,027/ become short term capital gain, since the holding period of the shares is less than 12 months.
9.4.However we find during the Course of cross examination by the assesee before the A.O. on 29.12.2008 Mr. Mukesh Choksi confirmeded to have received the cheques from the assessee The relevant ‘Question No. 2 and answer thereof is as under:
Q.2.Question put up by Shri Digant Bhatt -We have issued a Cheque from Jaferalli K. Rattonsey Hamida Rattonsey for Rs. 12,40,565/ and Rs. 11,91,378/- respectively, which you have received, kindly confirm.
Ans. I confirm the above cheques have been received by me. Similarly reply given by Shrj Mukesh Choksi to Question No. 3 to 5 are as under:
Q.3 Question put up by Shri Digant Bhat - We have received the shares in Demat Account of Shri Jafferalli K. Rattonsey and Hamida Rattonsey from Sunchan Securities Ltd., on your behalf, kindly confirm.
Ans. I have not given any instructions.
Q.4 Question put up by Dr. Mahesh Akhade * In the statement recorded u/s.131 of the IT. Act on 24.12.2008, you have denied in the answer to Question No.8, 9, 12 & 13 that Mahasagar Securities Pvt. Ltd. and Alliance Intermediaries Network Pvt. Ltd. has no relationship to the assessees J.K. Rattonsey, Hamida Rattonsey, Sunay Mehta and Samit Mehta. You have also denied you have any share transactions with these persons. Kindly confirm the same.
Ans. I am preparing accounts on receipt basis and the cheques received by me are accounted as a general receipts and on which the commission earned by me has been accounted fully. Here the shares have been delivered by Sunchan Securities, I have not given any instructions to Sunchan Securities.
Q.No.5 Question put up by Dr. Mahesh Akhade — Kindly furnish the statement of bank accounts of Mahasagar Securities Pvt. Ltd. in which the above mentioned two cheques amounting to Rs.12,40,565/- and Rs .l1,91,378/- have been deposited.
Ans. At present they are not available with me, I will furnish the same after receipt of the same.
9.5 From the above, it is clear that Mr. Mukesh Choksi is double speaking in his statements i.e. one given before the A.O. and the one during cross examination before the A.O. Under these circumstances one has to see the evidentiary value of a person making double speaking. We find the Hon’ble Calcutta High Court in the case of Eastern Commercial Enterprises (supra) has held that a man indulging in double speaking cannot be said by any means a truthful man at any stage and no Court can decide on which occasion he was truthful. We find the co-ordinate bench of the Tribunal in the case of Mrs. Uttara S. Shorewala (supra) (in which one of us — the Accountant Member is a party) following the decision of Hon’ble Calcutta High Court upheld the order of the ld. CIT(A) in holding that the A.O. cannot make any addition in the assessee’s hands despite the assessee not having made any payment to the entities mentioned by Shri Choksi, whose statement is being relied upon by him. The CIT (A) also noted that Mr.Mukesh Choksi has been vacillating right through and has given different at different stages of the proceedings and therefore his evidence was unreliable.
9.6 In view of the above judicial decisions the statement of Mr. Mukesh Choksj cannot be a deciding factor for rejecting the genuineness of the purchase of shares by the assessee especially when all other supporting evidences filed by the assesee were neither proved to be false or untrue. We further find merit in the submission of the ld. Counsel for the assesse that the dematerializatjon of shares from physical holding is a lengthy process and takes considerable time. Therefore, when there is no dispute to the demateralization of shares before the date of sale, therefore, the shares were purchased much prior to the date of sale.
9.7 The CBDT Circular No. 704 dtd. 28.4.1995 states that it is the date of broker’s note that should be treated as the date of transfer in cases of sale transactions of securities provided such transactions are followed up by delivery of shares and also the transfer deeds. Similarly, in respect of the purchasers of the securities, the holding period shall be reckoned from the date of the broker’s note for purchase on behalf of the investors. The CBDT Circular No.768 dtd. 24.6.1998 was issued to clarify the determination of date of transfer and the period of holding of securities held in demat form. It has been stated there in that earlier Circular No. 704 issued by the CBDT relating to the “date of transfer” and “period of holding” does not change when securities are held in the dematerialized form. Therefore in view of the above two circulars of CBDT it is clear that in case of securities the “date of purchase” has to be taken from the broker’s note/contract note and the period of holding is also to be reckoned from the “date of purchase” and not from the “date of dematerialization”. Since the holding period of the shares as per the broker’s note and its subsequent sale after dematerialization is snore than 12 months, therefore, the shares become long term capital asset and the assessee’s claim of long term capital gain is correct. In this view of the matter we set aside the order of the Id. CIT(A) and direct the A.O. to accept the long term capital gain declared by the assessee. We hold and direct accordingly. The grounds raised by the assesseè are accordingly allowed.
10. In the result, appeal filed by the assessee is allowed.”
6. We find that there is no difference in the facts of both the cases. So, respectfully following the order of the coordinating bench we decided Ground Nos. 1 to 5 in favour of the assessee.
Appeal filed by the assessee stands allowed.
Order pronounced in the open court on 1st August, 2012.
(B.R. MITTAL) (RAJENDRA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date 1st August, 2012
3. The concerned CIT (A)
4. The concerned CIT
5. DR “H” Bench, ITAT, Mumbai
6. Guard File
Income Tax Appellate Tribunal,
Mumbai Benches, Mumbai