Aftab E. Patel, Mumbai vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH "G", MUMBAI ी आर. सी. शमा , लेखा सद य एवं ी िववेक वमा , याियक सद य के सम । BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA No.: 792/Mum/2010 (Assessment year: 2003-04) Mr. Aftab E Patel, Vs ACIT- Central Circle -13, 28, Noon Baker Apartment, 7th Floor, Mumbai Motlibai Street, Agripada, Mumbai - 400 011 PAN: AABPP 1421 F अपीलाथ (Appellant) ू यथ (Respondent) Appellant by : Shri Deepak Tralshawala Respondent by : Shri Ajit K Srivastava ITA No.: 783/Mum/2010 (Assessment year: 2003-04) Mrs. Aisha Aftab Patel, Vs ACIT- Central Circle -13, 28, Noon Baker Apartment, 7th Floor, Mumbai Motlibai Street, Agripada, Mumbai - 400 011 ःथयी लेखा सं.:PAN: AGIPP 8217 G अपीलाथ (Appellant) ू यथ (Respondent) Appellant by : Shri Deepak Tralshawala Respondent by : Shri Ajit K Srivastava

सुनवाई क# तार%ख /Date of Hearing : 08-01-2015 घोषणा क# तार%ख /Date of Pronouncement : __ -02-2015

आ दे श ORDER

ि िववेक वमा , या स: PER VIVEK VARMA, JM:

The appeals are filed by the two assessees against the orders of CIT(A) 37, Mumbai, dated 14.12.2009. Since both the appeals have two common grounds, we propose to pass common and consolidated order for the sake of convenience and brevity.

ITA No. : 792/Mum/2010 : Aftab E Patel :

2. In this appeal assessee has taken following Grounds of appeal:

1) "On the facts and in the circumstances of the case and in 2 Aftab E Patel ITA 792/M/2010 Aisha Aftab Patel ITA 783/Mum/2010 law, the learned CIT (A) 37, Mumbai has erred in holding that the capital gains of Rs. 22,36,965/- returned by assessee is bogus and charged the same as unexplained cash credit on the grounds that the capital gains the appellant neither satisfactorily explained the purchases of shares nor the sales thereof and therefore the nature and sources of the income credited to the books of account remained not properly explained.

2) The Learned CIT (Appeals) has erred in holding that 5% service charge of Rs. 111,848/- being 5% of Rs.

22,36,965/- is charged to tax on the ground that source of purchase of above shares was not properly explained as no person will arrange the benefit of non-genuine long term capital gain to other person without charging the commission/service charges.

The appellant craves to leave to add, to alter and amend the above grounds of appeal as the occasion may demand or circumstances require".

3. The facts are that a search and seizure operations were conducted on the Mr. Aftab E Patel and Mrs. Aisha Aftab Patel on 10.01.2007, wherein the search party found certain jewellery and cash. Besides cash and jewellery, the search officers also found that the assessee had declared LTCG of Rs. 22,36,965/- on the sale of shares, which according to the revenue authorities were result of Penny Stocks dealings in the shares of M/s. Eltrol Ltd. and M/s. Database Finance Ltd. According to the details as found, the above scrips were purchased at Rs. 1.20 and Rs. 1.19 per share respectively and the assessee sold the shares during the years at Rs. 29.55 per share and Rs. 29.68 per share of Eltrol Ltd. and at Rs. 78.45 per share of Data base Finance Ltd.

4. Post search, in the proceedings u/s 153A, detailed enquiries were conducted and the assessee provided the details of purchase and sale of shares, as

S. Name of Scrip Quantity Sale Gross Actual Name no. year and sale con- long term of name of sideratio capital broker broker n gains(Rs from whom purcha sed the shares 3 Aftab E Patel ITA 792/M/2010 Aisha Aftab Patel ITA 783/Mum/2010 & yr. of purcha se 1 M/s Database 1400 FY 03-04 10,66,064 10,54,108 M/s Finance Ltd. Action Drishti Financial Securitie Services s P Ltd (India) FY Ltd. 2001-02 2 M/s Eltrol Ltd. 40000 FY 02-03 11,70,901 11,18,340 M/s Action Drishti Financial Securitie Services s P Ltd India Ltd. FY 2001-02 TOTAL 22,36,965 21,72,448 (Though claimed at 21,72,305)

5. The AO conducted enquiry from the broker from whom the shares were purchased, i.e. M/s Drishti Securities Ltd., wherein its Director Mr. Narendra R Shah deposed that no such shares were ever transacted for Mr. Aftab E Patel/Mrs. Aisha A Patel. On being questioned, the assessee submitted that he had made the purchases through the broker. If the broker had responded that no shares were not routed through the stock exchange, would not alter the fact that the assessee had made a genuine purchase. Similarly in case of sale of shares, through M/s Action Financial Services (India) Ltd., it was noticed that date of sale bills and contract notes did not match. On these sale of shares and consequent capital gains, the assessee claimed the capital gains. The entire exercise and explanation did not impress the AO. The assessee therefore, withdrew capital gains shown by the assessee and paid taxes thereon.

6. On this basic background, the AO proceeded to treat the sale proceeds as unexplained credit in the books and added the same u/s 68 of the Income Tax Act, 1961 and he further added back Rs. 1,11,848/- being 5% commission paid for this transaction.

4 Aftab E Patel ITA 792/M/2010 Aisha Aftab Patel ITA 783/Mum/2010

7. The assessee approached the CIT(A), before whom the assessee reiterated the submissions made before the AO. The CIT(A) after considering detailed submissions, concluded, "Having regard to the facts and circumstances of the case and in law, it is held that the appellant has not been able to conclusively prove the purchases of penny stock shares of Eltrol Ltd. and Database Finance Ltd. and the enquiry made by the Investigation Wing as well as by the Ld. Assessing Officer have established that the appellant had arranged purchases of artificial Long Term Capital Gain and purchases of artificial speculation gain by obtaining bogus purchases and sales bills showing share transactions. As a beneficiary, the appellant was given physical shares along with backdated bogus purchase bills reflecting purchases of penny stock shares at a very low price almost one year back for facilitating booking of artificial Long Term Capital Gain Having regard to the aforesaid facts and in the circumstances of the case and in law, it is held that Section 68 is squarely applicable in this case and since the appellant neither satisfactorily explained the purchases of penny stock nor the soles thereof, the nature and sources of the income credited to the books of account remain not properly explained. Therefore, the alleged capital gain of Ps. 22,36,965/- is chargeable to tax u/s.68 of the Act. Whereas the Ld. Assessing Officer has charged such sum of Rs. 22,36,965/- as income from other sources, the same is confirmed as unexplained cash credit u/s. 68 of the Act. The addition made by the Ld. Assessing Officer is accordingly confirmed, Ground Nos. 1 to 12 are therefore dismissed."

8. The CIT(A) also disallowed the Commission computed at 5% on Rs. 22,36,965/- at Rs. 1,11,848/- as the entire set of circumstance was sham and therefore not allowable.

9. Against this order of the CIT(A) the assessee now before the ITAT.

10. Before us, the AR submitted the facts and took us through the documents filed before the revenue authorities. The AR submitted that it is not just a case of paper transaction, but is a case where the assessee had actually taken the delivery of shares. This, he proved by showing that the share certificates bore the endorsement of his name on the back of the share 5 Aftab E Patel ITA 792/M/2010 Aisha Aftab Patel ITA 783/Mum/2010 certificate (APB 19-33). The AR also submitted that confirmation letters, bills and contract notes from the broker involved in purchase and sale, all documents and evidences were made available to the revenue authorities but they disregarded all the documents and made the addition.

11. The AR submitted before us that since the documents which had been placed before the revenue authorities, which were totally without prejudice should have been looked into judiciously. In such a circumstance, the cases should be restored to the AO for fresh adjudication.

12. The AR also pointed out that the assessee had taken an additional ground of appeal that since there was no incriminating material found during the search, the additions made were on presumptions.

13. The DR relied on the orders of the revenue authorities and submitted that the additional ground now taken has no strength to stand on, because the retraction of the statement and treating the LTCG as claimed earlier as normal profit in itself is incriminatory.

14. We have heard the arguments and have pursued the material on record and the orders of the revenue authorities. We first agree with the submissions of the DR that since the assessee changed his stand from LTCG to normal gain in itself would amount to incriminating. This is so, because, the assessee was forced to change his statement and claim in the return, after the search. This can only mean that what has been claimed in the ROI was not the complete truth. In such a circumstance, we reject the additional ground.

6 Aftab E Patel ITA 792/M/2010 Aisha Aftab Patel ITA 783/Mum/2010

15. Coming to the original GOA, though we appreciate the amount of spade work that the revenue authorities did to come to certain conclusion, but on the other hand, nowhere in either of revenue authorities orders, do we find the negation of the details and evidences filed by the assessee, so that the revenue authorities could clinch the initiative. We find that the certificates of brokers, i.e. Action Financial Services (India) Ltd. and District Securities Pvt. Ltd. along with complete details have not been considered in completeness. We find that the references were made, to those documents, which were at the disadvantage to the assessee.

16. In such a circumstance, we are of the opinion that the case needs fresh adjudication.

17. We, therefore, set aside the order of the CIT(A) and restore the case to the file of the AO for fresh and de novo proceedings, wherein the assessee shall provide details to the AO. The order, should be in accordance with law, and it may be mentioned that adequate and reasonable opportunity shall be provided to the assessee in the conduct of the proceeding.

18. Since we have restored the case to the file of the AO, ground no. 2 becomes academic.

19. Grounds 1 & 2 as raised are treated as allowed for statistical purposes.

20. In the result, the appeal is treated as partly allowed.

ITA No. : 783/Mum/2010 : Aisha Aftab Patel :

21. In this appeal assessee has taken following Grounds of appeal:

7 Aftab E Patel ITA 792/M/2010 Aisha Aftab Patel ITA 783/Mum/2010

1. "On the facts and in the circumstances of the case and in law, the learned CIT (A) 37, Mumbai has erred in holding that the capital gains of Rs. 21,06,273/-

returned by assessee is bogus and charged the same as unexplained cash credit on the grounds that in computing the capital gains the appellant neither satisfactorily explained the purchases of shares nor the sales thereof and therefore, the nature and sources of the income credited to the books of account remained not properly explained.

2. The Learned CIT (Appeals) has erred in holding that 5% service charge of Rs. 105,313/- being 5% of Rs. 21,06,273/- is charged to tax on the ground that source of purchase of above shares was not properly explained as no person will arrange the benefit of non-genuine long term capital gain to other person without charging the commission/service charges. The appellant craves to leave to add, to alter and amend the above grounds of appeal as the occasion may demand or circumstances require.

22. Since the grounds of appeal are the same and the facts are also identical with ITA No. 793/Mum/2010, we are inclined to take the same decision in this case as well, we therefore, set aside the order of the CIT(A) and restore the case to the file of the AO for fresh and de novo proceedings, wherein the assessee shall provide details to the AO. The order, should be in accordance with law, and it may be mentioned that adequate and reasonable opportunity shall be provided to the assessee in the conduct of the proceeding.

23. Since we have restored the case to the file of the AO, ground no. 2 becomes academic.

24. Ground no. 2 therefore becomes academic.

25. Ground no. 1 & 2 are treated as allowed for statistical purposes.

26. In the result, the appeal is treated as allowed for statistical purposes.

8 Aftab E Patel ITA 792/M/2010 Aisha Aftab Patel ITA 783/Mum/2010 To sum-up:

Both the appeals of the assessees in:

ITA 792/Mum/2010 & ITA 783/Mum/2010 Are allowed for statistical purpose Order pronounced in the open Court on 18th February, 2015.

(आर.

आर. सी.

सी. शमा ) (िववेक वमा ) Sd/- Sd/-

लेखा सदःय याईक सदःय (R C SHARMA) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Date: 18th February, 2015 ूित/Copy to:-

1) अपीलाथ /The Appellant.

2) ू यथ /The Respondent.

3) The CIT(A) -37, Mumbai.

4) The CIT-Central-I, Mumbai/CIT - Central-I, Mumbai.

5) .वभागीय ूितिनिध "G", आयकर अपीलीय अिधकरण, मुबं ई/ The D.R. "G" Bench, Mumbai.

6) गाड2 फाईल Copy to Guard File.

आदे शानुसार/By Order / / True Copy / /

उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, मुबं ई Dy./Asstt. Registrar I.T.A.T., Mumbai

*च9हान व.िन.स *Chavan, Sr.PS