R.C. Enterprise, Gujrat vs Assessee

आयकर अपील य अ धकरण, मुंबई यायपीठ "डी " मुंबई IN THE INCOME TAX APPELLATE TRIBUNAL" D" BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM) सव ी बी.आर.बा करन, लेखा सद य एवं अ मत शु ला, या यक सद य के सम

आयकर अपील सं./I.T.A. No.3861/Mum/2012 ( नधारण वष / Assessment Year: 2003-04)

बनाम/ Income Tax Officer-14(2)(2), 3 rd M/s R C Enterprise, C/o Sureshchandra R Kapadia Vs. Floor, Earnest House, GIMTI, Near Three Gate, Nariman Point, Cambey, Mumbai-400021 Gujarat-388620 (अपीलाथ /Appellant) .. ( यथ / Respondent)

थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. :AADFR5410L

अपीलाथ ओर से / Assessees by Shri B V Jhaveri यथ क ओर से/Revenue by Shri Akhilendra P Yadav

सुनवाई क तार ख / Date of Hearing : 25.3.2015 घोषणा क तार ख /Date of Pronouncement : 8.4.2015

आदे श / O R D E R

PER B.R. BASKARAN (AM)

The appeal filed by the assessee is directed against the order dated

11.4.2012 passed by Ld CIT(A)-25, Mumbai and it relates to the

assessment year 2003-04.

2. At the time of hearing, the ld. Counsel for the assessee did not press

the ground relating to reopening of the assessment and hence the same is

dismissed as not pressed. The remaining ground relate to the assessment 2 I T A 3 8 6 1 / Mu m / 2 0 1 2

of Rs.1 crore as unexplained income under section 69A of the Income Tax

Act, 1961 (the Act).

3. Facts relating to the case are stated in brief. The assessee filed its

return of income for the year under consideration declaring total income of

Rs.4.83 crores which included income from Long Term Capital Gain "LTCG"

of Rs.4.46 crores. The AO received information from DDIT(Inv) that a

company named M/s Mahasagar Securities Private Limited and its related

Group Companies, mainly M/s Goldstar Invest Private Limited, were

engaged in the business of providing bogus speculation profit /loss, Short

Term Capital /loss, Long Term Capital gains/loss, which enabled the

parties to convert their undisclosed income into income from share

trading. During the year under consideration, the assessee had sold

2,00,000 shares of M/s Buniyad Chemicals Ltd through M/s Goldstar

Invest Pvt Ltd and received a cheque of Rs.99,69,498/-. The assessing

officer called for relevant details, but the assessee failed to furnish them.

The assessing officer noticed from the statement given by a person named

Shri Mukesh Chokshi, Director of M/s Mahanagar Securities Pvt Ltd before

the DDIT (Inv.) that Shri Mukesh Choksi had admitted about giving

accommodation bills. Since the assessee did not furnish the relevant

details, the AO took the view that the assessee had also received only

accommodation bills for purchase and sale of shares of M/s Buniyad 3 I T A 3 8 6 1 / Mu m / 2 0 1 2

Chemicals Ltd. Accordingly he held that the assessee has paid a sum of

Rs.1.00 crore to M/s Goldstar Invest Pvt Ltd and received the cheque for

Rs.99,69,498/- after deduction of commission amount, calculated at the

rate of 0.3% for providing accommodation entries, i.e., the AO took the

view that the claim of purchase and sale of shares of M/s Buniyad

Chemicals Ltd was only accommodation entries obtained by the assessee

from M/s Goldstar Invest Pvt Ltd. Hence the AO held that the amount of

Rs.1.00 crore, referred above, represents unexplained money u/s 69A of

the Act and assessed the same accordingly. It is pertinent to note that the

assessing officer also accepted and assessed the long term capital gain

arising on sale of shares of M/s Buniyad Chemicals Ltd declared by the

assessee in its return of income.

4. In the appellate proceedings, the assessee furnished before the ld.

CIT(A) all the details relating to purchase and sale of shares of M/s

Buniyad Chemicals Ltd. Hence Ld CIT(A) called for a remand report from

the AO. In the said remand proceedings, the assessing officer made

enquiries with the Stock exchange regarding the impugned purchase and

sale transactions. However, the Stock exchange replied that the share

transactions have not taken place either in the name of M/s R.C.

Enterprises or in the name of M/s Goldstar Finvest Pvt Ltd. Accordingly

the AO reported that the amount of Rs.1.00 crore represents undisclosed 4 I T A 3 8 6 1 / Mu m / 2 0 1 2

income of the assessee. Hence, the Ld CIT(A) also confirmed the order of

AO by following the decision of the Hon'ble Supreme Court in the case of

CIT V/s Durga Prasad More reported in 82 ITR 540 (SC) and also the

decision rendered by a Co-ordinate Bench of the Mumbai Tribunal in the

case of Ramesh Kumar D Jain V/s ITO (ITA No.3192/Mum/2010 dated

15.6.2011 for AY 2006-07). Aggrieved by the order of the ld.CIT(A) the

assessee has filed this appeal before us.

5. We heard rival contentions and perused the record. The assessee

has filed a fact sheet before us narrating therein about the sequence of

purchase and sale of shares of M/s Buniyad Chemicals Ltd. For the sake

of convenience, we extract the same below:-

"4. The facts on record are as under:

(i) The assessee firm purchased 2,00,000 shares of M/s.

Buniyad Chemicals Ltd. between 4th April, 2001 and 17th April, 2001, in piecemeal for the sum of Rs. 1,82,006/-. Copies of the Bill and the Contract Note of the broker, Ms. Richmond Securities Pvt. Ltd. are enclosed in the Paper Book. (pages 15 to 20).

(ii) The payment for purchase of the said shares was made by adjusting the speculative profit earned by the assessee firm in AY 2002-03 which was payable by the broker, i.e., M/s. Richmond Securities Pvt. Ltd. to the assessee firm.

iii) On 26th April, 2001, M/s. Buniyad Chemicals Ltd. transferred the said 2,00,000 shares in the name of Mr Suresh Ratilal Kapadia, Mr Dhirenkumar Navinchandra Kapadia and Mr Jigneshkumar Navinchandra Kapadia, partners of the assessee firm and forwarded the duly transferred shares to the assessee firm. A copy of covering letter of M/s. Buniyad Chemicals Ltd. enclosing the duly transferred share certificates in the name of partner of the assessee firm is enclosed in the Paper Book (Page 21).

5 I T A 3 8 6 1 / Mu m / 2 0 1 2

(iv) On 22 nd March, 2002 the assessee firm submitted 2,00,000 shares of M/s. Buniyad Chemicals Ltd. to M/s R.B.K. Share Broking Limited, Depository Participant of Central Depository Services (I) Ltd. for dematerializing the said shares and giving credit of the same in the demat account. A copy of acknowledgement issued by M/s. R.B.K. Share Broking Limited on receipt of the said shares for dematerialization and a copy of duly filled Dematerialisation Request Form are enclosed at pages 22 & 23 of the paper hook.

(v) The said 2,00.000 shares of MIs. Buniyad Chemicals Ltd. were credited to the assessee's demat account with M/s R.B.K. Share Broking Limited on 10 th April, 2002 (page 86). A copy of Depository Account Statement for the period from 11/03/2002 to 30/03/2002 along with the memo of DP charges and Postage & Courier charges payable by the assessee firm to M/s R.B.K. Share Broking Limited are enclosed. (Pages 24 to 26). The aforesaid evidence proves that the assessee firm was holding shares of Buniyad Chemicals Ltd. in physical form which were delivered t o t h e D ep o s i t o r y, vi z . , M /s . R B K Sha r e B r o k i n g L t d fo r d e m a t e r i a l i z a t i o n.

(vi) The said shares were reflected as investment in assessee's Balance Sheet as on 31st March, 2002 which was annexed to his return of income for A.Y.2002-03 filed on 12th September, 2002. (page 110)

(vii) The assessee firm sold the said shares in parts between 9 th May, 2002 and 31" May, 2002 through M/s. Goldstar Finvest Pvt. Ltd. (pages 27 to 81) and received the consideration by crossed account payee cheques which were deposited into the bank account of the assessee firm with Citi Bank. (Pages 96 to 100).

(viii) The assessee gave instructions for delivery of shares on sale of the same to MIs R.B.K. Share Broking Ltd. and accordingly the demat account of the assessee firm was debited. (Pages 82 to 86).

This fact also proves that the assessee firm was holding shares of Buniyad Chemicals Ltd. in the demat form which were sold and accordingly the demat account of the assessee firm was debited.

6 I T A 3 8 6 1 / Mu m / 2 0 1 2

(ix) The assessee firm received the consideration within a week from the date of the sale of shares. As per the demat statement (pg-86) the assessee firm sold the shares between 1 6 t h May, 2002 and 1 s t June, 2002 and accordingly the assessee received the consideration within one week of the date of sale i.e., between 23' May, 2002 and 6th June, 2002.

(x) It is required to be noted that a partnership firm is not a legal entity distinct from its partners and therefore, the shares of a limited company cannot be purchased and recorded in the name of a partnership firm.

Accordingly, the shares purchased by the assessee firm were recorded in the names of the partners).

6. The assessee has failed all the relevant documents in the paper book

filed before us. A perusal of the same would show that the assessee has

purchased the shares of M/s Buniyad Chemicals Ltd through a broker

named M/s Richmand Securities Pvt Ltd. In the assessment order, it is

stated that the above said broker has changed its name into M/s

Mahasagar securities Pvt Ltd, wherein Shri Mukesh Choksi was the

director. It is seen that the assessee has also purchased and sold shares

of M/s Adani Exports Ltd, M/s Digital Equipment (India) Ltd, Bharat Heavy

Electricals Ltd during the settlement period from 4.4.2001 to 10.4.2001

and from 11.4.2001 to 17.4.2001 and earned profit thereon. The said

profit has been declared as speculation profit, since the above said shares

were purchased and sold on the same day. The assessee has also

purchased the shares of M/s Buniyad Chemicals Ltd during the above said

settlement period and hence the amounts payable by the assessee on

purchase of shares of M/s Buniyad Chemicals Ltd were adjusted against 7 I T A 3 8 6 1 / Mu m / 2 0 1 2

the amounts receivable by the assessee towards the profit arising on sales

of shares cited above, i.e., Speculation profit. We further notice that the

assessee has declared the above said speculation profit as its income in

the return of income filed for AY 2002-03 and the same has also been

accepted by the assessing officer. The purchase of shares of M/s Buniyad

Chemicals Ltd has also been declared as Investment in the Balance sheet

as on 31.3.2002 and the said Balance Sheet has also been attached with

the return of income filed for AY 2002-03.

7. We notice that the assessing officer has disbelieved the claim of

purchase of shares by placing reliance on the statement given by shri

Mukesh Choksi before the DDI (Inv.). The assessing officer has also

extracted the relevant questions posed to Shri Mukesh Choksi and

answers given by him. As contended by the Ld A.R, they were general

questions and general answers given by Shri Mukesh Choksi before DDI

(Inv) with regard to his business transactions. It is pertinent to note that

the assessing officer has not examined Shri Mukesh Choksi with regard to

the transactions carried on by the assessee. From the fact sheet

extracted above, it can be noticed that the shares of M/s Buniyad

Chemicals Ltd were sent for dematerialization through M/s R.B.K share

broking Limited. The dematerialized shares were held by M/s Central

Depository Services (I) Ltd (CDSL) in demat form. It is pertinent to note 8 I T A 3 8 6 1 / Mu m / 2 0 1 2

that M/s CDSL is one of the reputed depositories and hence the

transaction carried on by it cannot be doubted with. Further, it cannot

also be denied that the shares cannot be sent for dematerialization

without purchasing the same. We notice that the tax authorities have not

disproved the fact of purchase of shares and its dematerialization by

bringing any materials contrary to the submissions made by the assessee.

On the other hand, the assessee has disclosed the speculation profit as its

income in AY 2002-03 and also declared the purchase of shares of M/s

Buniyad Chemicals Ltd as its investment in the return of income filed for

AY 2002-03. Further the shares purchased in the physical form have been

sent for name transfer and the company has also transferred the shares

to the name of the Partners of the firm. Since the assessee is a

partnership firm, which is not a legal entity in the eyes of law, the shares

were transferred in the name of the partners, since the partners and firm

are one and the same under the Partnership Act. Under these set of

facts, we are of the view that the tax authorities have not brought any

material on record to suspect the purchase of shares.

8. We further notice that the shares have been sold through M/s

Goldstar finvest Private Limited. We have already seen that the assessee

has dematerialized the shares before its sale. We have also noticed that

the dematerialized shares were held by M/s CDSL, one of the reputed 9 I T A 3 8 6 1 / Mu m / 2 0 1 2

depositories. Hence, in our view, holding of shares cannot be doubted

with under these set of facts. The tax authorities are suspecting the sale

of shares only on the basis of letters given by the Stock exchange,

wherein the Stock exchange had stated that the transactions were not

carried on either in the name of M/s R.C. Enterprises or M/s Goldstar

Finvest Private Limited. However, we have noticed that the De-mat

account has been opened in the name of the partners of the assessee

firm, i.e., the de-mat account was opened in the name of Shri

Sureshchandra Ratilal Kapadia (Partner held the shares on behalf of the

assessee firm). Hence the transactions of sales shall also take place in

the name of Shri Sureshchandra Ratilal Kapadia and not in the name of

M/s R.C. Enterprises. Hence the Stock exchange has stated that there

was no transaction in the name of M/s R.C Enterprises. The assessee has

also furnished copies of delivery instructions given by it at pages 82 to 85

of the paper book filed by it. A perusal of the same would show that the

assessee has given "Off-Market Delivery" of the shares, i.e., the Share

broker has sold the shares off-market. Hence the sale transactions did

not find place in the records of Stock exchange. However, sold shares

have been reduced in CDSL account. The above said discussion would

show that there are reasons to clarify as to why the transaction of sales

was not routed through the stock exchange either in the name of M/s R.C

Enterprises or in the name of M/s Goldstar finvest P Ltd. In view of the 10 I T A 3 8 6 1 / Mu m / 2 0 1 2

above, the letter given by the Stock exchange could not be taken support

of by the tax authorities in order to disbelieve the purchase and sale of

shares. Hence, we are of the view that the tax authorities are not

justified in placing reliance on the letters given by the Stock exchange

without appreciating the factual aspects discussed above.

9. The Ld CIT(A) has taken support of the decision rendered by Hon'ble

Supreme Court in the case of CIT Vs. Durga Prasad More (supra).

However, the facts prevailing in the instant case would show that the

assessee has adduced all the evidences to support the claim of purchase

of shares and also sale of shares. None of those evidences were proved

to be false by the tax authorities. It is also pertinent to note that the tax

authorities have not conducted enquiries with any of the brokers through

whom the assessee had purchased and sold the shares, the broker who

de-materialised the shares and M/s CDSL, the depository. The tax

authorities have simply placed reliance on the statement given by Shri

Mukesh Choksi before DDI (Inv), though it was generalized one. The tax

authorities did not make any enquiries with Shri Mukesh Choksi with

regard to the transactions carried on by the assessee. Under these set of

facts, we are of the view that the Ld CIT(A) was not justified in placing

reliance on the decision of Hon'ble Supreme Court rendered in the case of

Durga Prasad More (supra) to simply brush aside the evidences furnished 11 I T A 3 8 6 1 / Mu m / 2 0 1 2

by the assessee.

10. The Ld CIT(A) has also placed reliance on the decision rendered by

the co-ordinate bench in the case of Shri Ramesh Kumar D Jain (supra).

The Ld CIT(A) has also prepared a chart comparing the similarities of the

nature of transactions. However, in the case of Ramesh Kumar D Jain

(supra), the assessing officer has rejected the claim of Long term Capital

Gains and assessed the sale proceeds arising on sale of shares as

unexplained income of the assessee. However, in the instant case, the

assessing officer has accepted the Long term capital gain arising on sale

of shares of Buniyad Chemicals Ltd and assessed the same also.

However, the AO was of the view that the assessee would have given the

amount equal to the amount of Long term Capital gain plus commission

charges in order to get the accommodation entries. The AO has

estimated the amount so given by the assessee as Rs.1.00 crore and

assessed the same as unexplained income of the assessee. Since the

assessing officer has accepted the fact of sale of shares and also the Long

term capital gain arising on sale of shares in the instant case and since

the evidences furnished by the assessee have not been disproved, we are

of the view that Ld CIT(A) was not justified in taking support from the

decision rendered by the co-ordinate bench in the case of Ramesh Kumar

D Jain (supra), since there is marked difference in the approach of the 12 I T A 3 8 6 1 / Mu m / 2 0 1 2

assessing officer in both the cases.

11. The foregoing discussions would show that the tax authorities have

proceeded to assess the amount of Rs.1.00 crores on suspicion,

conjectures and surmises. Further they have not disproved the various

documents furnished by the assessee in support of purchase and sale of

shares by conducting specific enquiries with the brokers who had

purchased and sold the shares on behalf of the assessee. The strong fact

relating to the dematerialization of shares was not disproved by the tax

authorities. The fact of purchase of shares was disclosed by the assessee

in its return of income filed for AY 2002-03. The source of purchase was

the speculation profit arising on sale of certain shares and the said

speculation profit was also assessed in AY 2002-03. The assessee has

dematerialized the shares through M/s RBK Share Broking Ltd, one of the

depository participants of M/s CDSL. Without availability of physical

shares, one cannot set them for de-materialisation. These factual aspects

have not been disproved by the tax authorities. The shares were sold in

the off-market and hence the transaction of sales was not routed through

the stock exchange. The shares were held in the name of the partners on

behalf the assessee firm and hence, naturally, the name of assessee firm

would not find place in the transactions. Under these set of facts, the

letters issued by the Stock Exchange could not be relied upon by the tax 13 I T A 3 8 6 1 / Mu m / 2 0 1 2

authorities. The case law relied upon by the Ld CIT(A) were also not

found to be supporting the case of the tax authorities. We have also

noticed that the assessing officer has assessed the Long term capital gain

arising on sale of impugned shares. Under these set of facts, we are of

the view that the tax authorities are not justified in suspecting the claim

of purchase and sale of shares and also assessing the amount of Rs.1.00

crore as undisclosed income of the assessee. Accordingly, we set aside

the order of Ld CIT(A) on this issue and direct the assessing officer to

delete the assessment of Rs1.00 crore made in the hands of the assessee.

12. In the result, the appeal filed by the assessee is allowed.

Pronounced accordingly in the open court on 8.04.2015 घोषणा खल ु े यायालय म दनांकः 8th April, 2015 को क गई ।

Sd sd (अ मत शु ला / AMIT SHUKLA) (बी.आर.बा करन / B.R. BASKARAN) या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER

मुंबई Mumbai: 8th April,2015.

व. न.स./ SRL , Sr. PS

आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. आयकर आयु त(अपील) / The CIT(A)- concerned 4. आयकर आयु त / CIT concerned 5. वभागीय त न ध, आयकर अपील य अ धकरण, मुंबई / DR, ITAT, Mumbai concerned 6. गाड फाईल / Guard file. आदे शानुसार/ BY ORDER, True copy सहायक पंजीकार (Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई /ITAT, Mumbai