Sagar Construction , Mumbai vs Department Of Income Tax

ITA No.4646/Mum/2011 ( Assessment Year :2008-09) Sagar Constructions, C-402, Vs. The Addl.CIT, Range- Gokul Divine, Irla, S.V.Road, 25(2), Mumbai Vile Parle (West), Mumbai-56 PAN/GIR No. : AAGFS 8539 N ( Appellant) .. ( Respondent) AND ITA No.4711/Mum/2011 ( Assessment Year :2008-09) The Addl.CIT, Range - Vs. Sagar Constructions, C-402, 25(2), Mumbai Gokul Divine, Irla, S.V.Road, Vile Parle (West), Mumbai-56 PAN/GIR No. : AAGFS 8539 N ( Appellant) .. ( Respondent)

/Assessee by : Shri Vimal Punmiya /Revenue by : Shri Asghar Zain

Date of Hearing : 19/01/2015 Date of Pronouncement : 11/03/2015 ORDER

PER R.C.SHARMA (A.M.) :

These are the cross appeals filed by the assessee and Revenue

against the order of CIT(A) dated 28-3-2011 for the assessment years

2008-09, in the matter of order passed u/s.143(3) of the I.T.Act.

2. The only grievance of the assessee relates to treatment of capital

gains offered, which was treated by the AO as business income. 2

ITA Nos.4646&4711/2011

3. Rival contentions have been heard and record perused. Facts in

brief are that the main business of the assessee is building and

construction activity. The assessee was engaged in developing real

estate upto 31-3-2006. From the accounting year 2006-07, the company

started investment in shares and securities. The profit on speculation as

well as F&O transaction was considered as business income, whereas

profit from investment in share and securities was treated as short term

and long term depending on the period of holding. In the assessment year

2007-08, the assessee had claimed capital gains in respect of profit

earned on sale of shares which was treated by the AO as business

income. In an appeal filed before the Tribunal, the Tribunal vide its order

dated 3-5-2013, decided the issue in favour of assessee and held that

profit earned on sale of shares was liable to be taxed as capital gains.

4. Ld. AR submitted that facts and circumstances during the year

under consideration are same, therefore, the capital gains offered by the

assessee should be accepted as liable to capital gains tax.

5. We have considered rival contentions and found that the AO has

treated capital gains as business income on the plea of frequency,

regularity and volume of transaction. By the impugned order, the CIT(A)

confirmed the action of the AO. From the record we found that assessee

has dealt in following three types of share transaction during the year :-

i) Share Trading on Future & Option basis. ii) Share Trading on Speculation business i.e. selling & buying of same script on same day. iii) Share trading on Short Term Capital Gain.

The dispute in the present appeal relates only to third type of transaction,

profit on which was offered under the head capital gains. In support of the 3 ITA Nos.4646&4711/2011

proposition that investment can be liable to tax only under the head

capital gains, reliance was placed in the case of CIT Vs. S.

Ramaamirtham, (2008) 306 ITR 239 (Mad). Reliance was also placed on

the decision of Mumbai Bench of the Tribunal in the case of Gopal

Purohit, 122 TTJ 87 (Mum), wherein it was held that profit arising from

such transaction should not be treated as income from business and

profession. It was further submitted by ld.AR that the Tribunal has dealt

with each and every aspect of transaction in the immediately preceding

assessment year 2007-08 and held as under :-

"7. We have carefully considered the rival submissions in the light of the material placed before us. Undisputedly, the assessee in its books of account has shown the investment in the shares under the head "investment". This activity of the assessee has been started in the present year only. Initially the assessee had purchased certain shares and sold them within a short span. The reason for the same has been stated to be fall in the stock market. For proving so a chart has been filed, according to which there was a fall in the BSE index. It is for that reason the assessee has suffered loss in the initial transactions. From the sale and purchase entered into by the assessee it has been described that on three days assessee has purchased those shares and on 10 days those shares were sold. A substantial portion of the shares purchased are unsold and are outstanding in the balance sheet under the head "investment". From the transactions entered into by the assessee it cannot be said there was a frequent sale and purchase of shares. The reason of sale is supported by fall of BSE index. Thus according to facts and circumstances of the case, it cannot be said that assessee has entered into activity of sale and purchase of shares with a view to trade.

7.1 Though the AO in the assessment order has mentioned that assessee has utilized borrowed funds, but during the course of hearing reference was made to P&L account to show that assessee does not bear any interest liability except a paltry sum debited to P&L account which is an amount of Rs.18,541/-, and represents interest on cash/credit account. So far as it relates to amount borrowed by the partners it was shown by Ld. AR that assessee firm has charged interest of Rs.3,10,215/- from Mr. Binal S. Koradia and Rs.65,429/- from Mrs. Amisha Vinal Koradia At the same time interest of Rs. 2,13,318/- has been paid by assessee firm to Mr. Binal S. Koradia(HUF). Thus it is seen from the accounts of the partners that interest has been charged by the assessee where the partners were utilizing capital of the firm.

4 ITA Nos.4646&4711/2011

Similarly interest is paid to the partner where firm has utilized capital of the partner. Thus, there is no impact on the activity of the assessee regarding sale and purchase of shares so far as it relates to amount borrowed by partners. It is also observed by the A.O that partners have borrowed huge capital but he has not brought on record any single instance to substantiate such observation. On the contrary from the accounts it is seen that the interest has been charged and paid to the partners on their capital and thus the assessee firm has not paid any interest which can be said to be incurred for the purpose of investing in the activity of sale and purchase of shares.

7.2 Moreover, as per judicial decisions a discretion has been provided to the assessee to divide its activity of sale and purchase of shares into two categories i.e. one for "investment" in the shares giving rise to income from capital gain and the second is to deal in the sale and purchase of shares as a trader. Such discretion of the assessee has been recognized in various judicial pronouncements which have been relied upon by Ld. AR and have been discussed in the above part of this order. According to such discretion assessee has expressed its intention to assign such activity in the nature of "investment". Merely some entries of sale of immediate shares after purchase thereof cannot turn down that activity from "investment" into "trade" particularly when assessee has reason to sell the shares on account of fall in the B.S.E index. This position also has been recognized in the decisions relied upon by Ld. AR, wherein it has been held that no prudent person whether he is a trader or investor would like to see that such activity will turn out as an activity of loss or erosion in investment.

7.3 Keeping in view the above discussions and factual position, we are of the opinion that the activity of sale and purchase of shares entered into by the assessee during the year under consideration cannot be held to be an activity giving rise to an income assessable under the head income from business or profession. The investment was made by the assessee in the activity of sale and purchase of share was with an intention to invest and shares unsold have been shown under the head "investment". The sale at the short period was supported by just cause i.e. fall in price of shares. Therefore, we reverse the finding recorded by Ld. CIT(A) and hold that the gain earned by the assessee was from sale and purchase of shares is gain assessable under the head "short term capital gain". The grounds of appeal filed by the assessee is allowed."

6. On the other hand, Ld. DR relied on the decision of Hon‟ble

Bombay High Court in the case of Gopal Purohit, 188 Taxman 140 (Bom);

Wallfort Financial Services Ltd., 41 SOT 200; Manmohak Properties P.

Ltd., 39 taxmann.com 105; Koradia Construction P. Ltd., 39 taxmann.com 5 ITA Nos.4646&4711/2011

20; Circular No.4/2007, dated 15-6-2007; Karan R Bahl, 37 taxmann.com

29; Rajan R Bahl, 12 taxmann.com 447; Nashik Capital Financial

Services Ltd., 33 taxmann.com 190, Shah-La Investment & Financial

Consultants P. Ltd., 2 SOT 371; Mafatlal Fabrics Ltd., 17 taxmann.com

50; Devji Nenshi Palani, 28 taxmann.com 209; Veena Karla 37

taxmann.com 208 and Manoj Kumar Samdaria, 52 taxmann.com 247

(SC), and contended that in view of these decisions, the AO was justified

in treating the gains offered on sale of shares as business income. It was

argued by ld. CITDR that the dominant judicial, administrative opinion and

legal position is that although there is no bar on an assessee for

maintaining two portfolios, viz., an investment portfolio and a trading

portfolio. However, while accounts in respect of the said activities /

portfolios should not only be separately maintained, but, in addition a

systematic criteria needs to be adopted and consistently applied or

followed to bifurcate the various transactions into each of the portfolios, at

the very beginning of entering of these transactions and not in the case of

the assessee when the sales statements are received. Further, the very

basis of these transaction entered for profit motive, its conduct to carry out

such transactions, systematic, consistent, frequent, voluminous and

repetitive nature of these transactions coupled with speculative and

derivative transactions in similar shares with same brokers under same

demat accounts funded out of borrowed and margin funding; all shows

that these are business transactions and not investment transactions. In

the case of an investment activity the intention to acquire and hold the

underlying securities should be evident from the underlying facts from the 6 ITA Nos.4646&4711/2011

very beginning of the entry of such transactions and the same should be

accordingly brought on records. These transactions need to be separately

conducted or carried out in its separate demat accounts, trading accounts,

not out of same margin funding availed with same broker using the same

pool account etc. etc. The transactions should invariably be backed by

actual/constructive delivery of shares, but the same is missing in the case

of the assessee so far as shares traded through pool accounts of the

various brokers financed out of margin funding; in fact no such demat

accounts of the brokers with the shares belonging to the assessee

credited therein was ever produced by the assessee either before the AO

or before the CIT(A). And lastly, the very fact that the assessee is in the

business of speculation and trading in similar shares with same demat

account, broker, mixed funds, having maintained no separate accounts

prove that it is only in share trading business during the year under

consideration.

7. Ld. AR submitted that most of cases cited above by ld. DR favours

the plea taken by the assessee, which have also been upheld by the

Tribunal in assessee‟s own case in the immediately preceding

assessment year. In respect of decision in the case of Gopal Purohit, ld.

AR submitted that the ratio laid down by the jurisdictional High Court

squarely applies in assessee‟s case insofar as assessee has two

separate portfolios maintained and only delivery based transaction were

offered for Taxation under the Head "Income from Capital Gains". The

same are reflected in books of account under the head „investment‟ only.

In respect of Wallfort Financial Services Ltd. (supra), ld. AR contended 7 ITA Nos.4646&4711/2011

that facts are totally different insofar as shares were held by assessee as

investment whereas in the aforesaid case, shares were shown as stock-

in-trade, moreover, assessee itself has offered gain as business income

in the preceding year. As per ld. AR the case law relied by the ld. DR in

case of Manmohak Properties P. Ltd. (supra), the issue was related to

validity of order passed by CIT(A) u/s.263. However, no finding was given

relating to assessment of capital gain on sale of shares, hence, such case

cannot be relied in assessee‟s case. With respect to Koradia Construction

Pvt. Ltd. (supra), ld. AR submitted that this decision of Mumbai Bench

supports the case of the assessee insofar as the findings given in the

aforesaid case equally applicable to the assessee since the gain on sale

of shares reflected as investment was held to be liable to be assessed

under the head „income from capital gains‟. As per ld. AR even the

Circular No.4/2007 dated 15-6-2007 also supports the case of the

assessee since the assessee has offered income under the head „income

from capital gains‟ on shares which are held as „investment‟. In case of

Karan R Bahl (supra), ld. AR contended that no finding was given and

simply the case was remitted back to the file of AO, hence, has no

relevance in the present appeal. In case of Rajan R Bahl, the matter was

remanded back to the file of the AO as the assessee had not filed any

details, whereas in the instant case, the assessee has filed all the details,

therefore, reliance of aforesaid case has no relevance in the case of

assessee. With regard to the case of Nashik Capital Financial Services P.

Ltd., the ld. AR submitted that this case is related to applicability of

Section 73. However, the assessee is a partnership firm, therefore, the 8 ITA Nos.4646&4711/2011

aforesaid case has no relevance with the present appeal. In case of

Shah-La Investment & Financial Consultants P. Ltd. (supra), the ld. AR

submitted that this case is exclusively supports the case of the assessee,

therefore, applying the same, the gain is liable to be assessed under the

head „capital gain‟. In regard to decision in the case of Mafatlal Fabrics P

Ltd., the ld. AR submitted that the facts in the aforesaid case are totally

different to the present case, therefore the findings given in the aforesaid

case are not applicable to the instant case. Ld. AR submitted that in case

of Devji Nenshi Palani (supra); Veena S.Karla (supra) and in the case of

Manoj Kumar Samdaria, the facts and circumstances were totally different

to the facts of the present appeal, therefore, the findings given in the

aforesaid appeals have no relevance to the appeal of the assessee.

8. It was further contended by ld. AR that merely because assessee

liquidates its investment within short span of time which had given better

overall earning to assessee. It would not lead to conclusion that assessee

had no intention to keep on funds as investor in equity shares, but was

actually intended to trade in share. For this purpose reliance was placed

the decision of Tribunal in the case of DCIT V /s E-Cap Partners [2014] 45

taxmann.com 342 (Mumbai-Trib) and Manish Karwa V /s ACIT [2014] 45

taxmann.com 351 (Ind. Trib). As per ld. AR the Tribunal held assessee as

investor in earlier year, therefore, assessee has to be considered as

investor in subsequent year, for this purpose reliance was placed on the

decision of DCIT Vs. KRA Holding & Trading P. Ltd. {2012} 26

taxmann.com 48(Pune Trib.).

9

ITA Nos.4646&4711/2011

9. In view of the above discussion and after going through the order of

the Tribunal in assessee‟s own case for the immediately preceding

assessment year, wherein facts and circumstances were the same, we

direct the AO to treat the profit on sale of shares as short term and long

term capital gains depending on the period of holding of shares. We direct

accordingly.

10. In the appeal of the Revenue (i.e. ITA No.4711/M/2011), the

Revenue has taken following grounds :-

1.` "On the facts and in the circumstances of the case and in law, the Id. CIT(A) is erred in deleting the addition of Rs.45,60,000/- made by the Assessing Officer on account of undisclosed sale of shares of M/s.Rajesh Exports Ltd.,.

2. "On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in deleting the addition of Rs.76,13,675/-

made by the Assessing officer on account of undisclosed sale of shares of M/s. Hindustan Organics Ltd.

3. "On the facts and in the circumstances of the case and in law, the Id.CIT(A) erred in deleting the addition of Rs.5,78,70,000/- made by the Assessing officer on account of deemed dividend u/s.2(22)(e) of the I.T.Act, 1961.

4. "On the facts and in the circumstances of the case, and in law, the Id.CIT(A) erred in deleting the addition of Rs.13,11,123/- made by the Assessing officer u/s.14A of the I.T.Act. 1961."

5. "On the facts and in the circumstances of the case, and in law, the Id. CIT(A) erred in deleting the addition of Rs.56,54,598/- made by the Assessing Officer as unexplained cash credit of the assessee u/s.68 of the I.T.Act,1961 with regard to sale of 25000 scripts of M/s.Karuturi."

6. "The appellant prays that the order of the Ld.CIT(A) on the above ground be set aside and that of the Assessing Officer be restored."

11. With regard to addition of Rs.45,60,000/- on account of undisclosed

sale of shares of M/s Rajesh Exports, we found that addition was made by

the AO on misconception that assessee had purchased 5000 shares of

M/s Rajesh Exports, but neither these shares were sold during the year 10 ITA Nos.4646&4711/2011

nor shown in the closing inventory. The CIT(A) has deleted the addition

after having the following observations :-

"4.3.2 Regarding shares of M/s.Rajesh Exports, the A.O. noticed that the appellant purchased 5000 shares during this year and did not admit any sale and there was no closing stock. He, therefore, assumed that the appellant sold 5000 shares outside the books of accounts. He did not accept the explanation of the appellant that the same was sold through M/s. Koradia Construction for Rs.28,00,004/- on the ground that no evidence was filed. However as contended by the representative, the appellant filed a copy of account of the appellant in the books of accounts of M/s Koradia Construction as the A.O. himself accepted in page 14 of the assessment order while dealing with the issue Karuturi shares. As seen from the above account a sum of Rs 28,00,004/- is credited on 22-1-08 being sale proceeds of 5000 shares of Rajesh Exports. Further as per the statement of capital gain filed along with return of income, sale of 5000 shares is admitted on 22-1-08 at Rs.28,00,005/- by incurring loss of Rs 20,93,136/- in page 4 of the above statement. This means that the appellant has already admitted the sale of 5000 shares in the capital gain working and, therefore, the addition is not justified and the same is deleted"

Against the above order of CIT(A), the Revenue is in further appeal before

us.

12. We have considered rival contentions and found that the AO has

made addition of Rs.45,60,000/- by estimating value of 5000 shares of

M/s Rajesh Exports, which as per AO was neither sold nor shown in the

closing stock at the end of the year. From the record we found that shares

of Rajesh Exports were sold on 22-1-2008 for amount of Rs.28,00,004.55

and same has been accounted in computation of total income. However,

due to wrong billing code fill by Broker Bill Memo was issued in the name

of Koradia Construction. Therefore, the same was treated as shares sold

by Koradia Construction on behalf of assessee, and accordingly assessee

account was credited by the Koradia Construction. Confirmation of

account between Koradia Construction and assessee also reflects that

the shares were sold by Koradia Construction on behalf of the assessee. 11

ITA Nos.4646&4711/2011

Contract note of transaction enclosed in paper book reflect that the shares

purchased by the assessee was sold. The CIT(A) had recorded a finding

to the effect that assessee has sold 5000 shares of Rajesh Exports to M/s

Koradia Construction Pvt. Ltd. and same was pointed out by the assessee

in the dully filled up Annexure-A submitted along with the letter dated 20-

12-2010. After recording the finding to the effect that sale proceeds of

5000 shares of M/s Rajesh Exports have been credited by the assessee

in its books of accounts on 21-8-2008 i.e. before the end of the financial

year, the CIT(A) held that there was no escapement of sale proceeds of

5000 shares. The finding recorded by CIT(A) has not been controverted

by ld. DR. It is pertinent to mention here that no ground has been taken by

the Revenue with regard to violation of Rule 46A by the CIT(A) in respect

of any additional documents considered by him while deleting the

addition. Accordingly, there is no infirmity in the order of CIT(A) deleting

addition made on account of 5000 shares of Rajesh Exports.

13. The addition made on account of undisclosed shares of M/s

Hindustan Organic Chemicals ltd. amounting to Rs.76,13,675/- was

deleted by the CIT(A) after having following observations :-

"4.3 Regarding shares of M/ s. Hindustan Organics Chemicals Ltd. it is seen that the appellant has not maintained any opening stock. Further has taken the purchases during the year as 22651 shares in Annexure-A which the assessee pointed out that it formed part of the opening stock. Actually the appellant had only opening sock of 4,88,978 shares which were entire sold during this year. The AO even while preparing Annexure-A did not adopt any opening stock but while passing the assessment order, he took the opening stock at 6,91,739/- shares without giving opportunity to the appellant. A perusal of the opening stock statement filed along with the return for A.Y2007-08 reads as under :-

No. of Shares Total shares Amount(Rs.) 14.2.07 217761 13,573,212 28.2.07 217761 647,668 12 ITA Nos.4646&4711/2011

From the above, it could be seen that the appellant admitted purchase of 2,17,761 shares twice, once on 14-2-07 and again on 28-2-07 but the value of shares is drastically different. The value of shares purchased on 14.2.07 is 1,35,73,212 whereas the value of shares purchased on 28-2-07 was Rs.6;47,668/-. This cannot be correct. As contended by the representative (here was a typing mistake while preparing the above statement and instead of 15000 shares purchased for Rs 6,47,668/ - on 28-2-07 the appellant by mistake typed previous figure of 217761 and based on this wrong figure, the A .O. worked out the undisclosed sale which is not correct. The above explanation of the appellant is bonafide and acceptable.. In any case the A.O. ought to have verified the demat statement which W8.S submitted before him which was not done. In the circumstances, the A.O. is directed to delete the addition.

14. We have considered rival contentions and found that addition has

been deleted by the CIT(A) after observing that there was typographical

mistake with regard to purchase of shares of Hindustan Organics on 28-2-

2007, which was actually 15,000 shares and not 2,17,761 shares. Since

the addition was made by AO only on the basis of typographical mistake,

which has been detected by CIT(A) and after considering the correct nos.

of shares purchased on 28-2-2007, the CIT(A) recorded his finding at

para 4.3 and deleted the addition, we do not find any infirmity in the order

of CIT(A) for deleting the addition made on account of shares of M/s

Hindustan Organics Chemicals Ltd.

15. The addition made on account of deemed dividend u/s.2(22)(e) was

deleted by the CIT(A) after following the order of ITAT Special Bench in

the case of Bhaumik Colour Paint Pvt. Ltd. 118 ITD 1 and jurisdictional

High Court in case of Universal Medicare Pvt. Ltd.

16. We have considered rival contentions and found that addition was

made by the AO in respect of loan taken by the assessee firm from M/s 13 ITA Nos.4646&4711/2011

Koradia Construction Pvt. Ltd. The CIT(A) has deleted the addition after

having the following observations :-

"I have considered the submissions of the representative and the stand taken by the A.O. Admittedly, the appellant is a partnership firm which Shri Bania Koradia and Smt.Amisha Koradia were having share of profit of 20% and 40% respectively and they were having share holdings in M/s.Koradia Construction Pvt. Ltd. to the extent of 49% and 50% respectively. Thus, the appellant firm is not a share holder in M/s.Koradia Construction Pvt. Ltd., The A.O. taxed deemed dividend u/s.2(22)(e) on the ground that the partners of the appellant firm were having substantial share holding in M/s.Koradia Construction Pvt. Ltd. from which the appellant received loan. Thus, the appellant not being a share holder, deemed dividend cannot be considered in the hands of the appellant as held by the Mumbai Special Bench Tribunal in the case of ACIT vs. M/s.Bhaumik Colour Paint Pvt. Ltd., 118 ITD 1. ...........

...........

From the above, it is clear that the deemed dividend can be taxed only in the hands of the shareholder and not in the hands of non- share holder i.e. the concern. The above view of the Hon'ble Mumbai Tribunal has been confirmed by the Hon'ble Mumbai High Court in the case of CIT vs. Universal Medicare Pvt. Ltd. (3 taxmann.com 61) in ITA No.2264 of 2009 dated 22.03.2010.It was clearly held by the Hon'ble Murnbai High Court that payment even assuming that it was a dividend, would have to be taxed not in the hands of the assessee, but in the hands of the shareholder. In view of the decision of the jurisdictional Tribunal and High Court, I hold that the advance received by the appellant from M/s.Koradia Construction Pvt. Ltd. cannot be taxed u/s.2(22)(e) in the hands of the appellant firm."

Against the above order of CIT(A), the Revenue is in further appeal before

us.

17. We have considered rival contentions. It is not disputed that

assessee is not shareholder of M/s Koradia Construction Pvt. Ltd,

therefore, the amount of loan received by the assessee not in the capacity

of shareholder, is not liable to be treated as deemed dividend u/s.2(22)(e)

in the hands of assessee firm in view of the decision of Hon‟ble Bombay

High Court in the case of Universal Medicare Pvt. Ltd., 3 taxmann.com

61. The issue is also squarely covered by the decision of ITAT Special 14 ITA Nos.4646&4711/2011

Bench in the case of Bhaumik Colour Paint Pvt. Ltd., 118 ITD 1.

Accordingly, we do not find any reason to interfere in the order of CIT(A)

for deleting the addition made u/s.2(22)(e) of the Act.

18. The AO also disallowed Rs.13,11,123/- u/s.14A. By the impugned

order, the CIT(A) deleted the same.

19. We have considered rival contentions and found that the AO has

made disallowance of Rs.13,11,123/- by observing that assessee has

earned dividend income to the tune of Rs.1,35,630/- and incurred interest

expenditure of Rs.30,44,600/- in its future and options business. The AO

computed disallowance at Rs.13,11,123/- as per rule 8D. We found that

the AO has applied rule 8D which is applicable in the assessment year

2008-09 under consideration and worked out disallowance by taking into

account average investments made in shares which have earned

dividend. The Hon‟ble Bombay High Court in the case of Godrej Boyce,

328 ITR 81, held that Rule 8D is applicable from A.Y.2008-09. The

contention of ld. AR was that assessee has offered taxable income in

respect of future and options business, therefore, investment attributable

to such securities are to be excluded from the investment taken by AO

while computing disallowance under Rule 8D. His further contention was

that as against dividend income of Rs.1.35 lakhs, the assessee has

offered taxable capital gain of more than Rs.1 crore, therefore, suitable

adjustment should be made while computing disallowance under Rule 8D.

As per our considered view while computing disallowance under Rule 8D

only those investments which are made for earning exempt income is to

be taken into account and other investments which fetches taxable 15 ITA Nos.4646&4711/2011

income are to be excluded. Keeping in view the fact that assessee has

offered taxable income in respect of its investment in future and options

business as well as capital gains, we restore the computation of

disallowance under Rule 8D. We direct accordingly. In the result, ground

of the Revenue is allowed for statistical purposes.

20. On the disallowance of Rs.56,54,598/- made by the AO on account

of undisclosed income under the head other sources i.e. sale of shares,

the CIT(A) deleted the same after having following observations :-

"7.3 I have considered the submissions of the representative and the stand taken by the AO. the AO based on the contract notes submitted by the appellant adopted sale of 40,401 shares on 13.7.2007. It is true that as per the contract notes the appellant sold 40,401 shares of KML. However, as contended by the representative this includes 25,000 shares purchased by the appellant's sister concern M/s Koradia Construction Pvt. Ltd. in the earlier year which was lying in their demat account. Actually instead of issuing contract memo in the name of M/s Koradia Construction Pvt. Ltd., the broker issued contract memo for sale in the name of the appellant on 13.7.2007 for 25,000 shares. The appellant immediately treated the sale proceeds of 25,000 shares as loan from M/s Koradia Construction Pvt. Ltd. as seen from the copy of ledger account and same is accepted by the AO. This means that the shares were held by the appellant's sister concern and sold by them. The AO wrongly assumed that the appellant admitted sales without purchases. A perusal of the capital gain working filed by the appellant along with the return of income shows that the appellant sold only 15,401 shares on 13.7.2007 as per page 2 of the working whereas the AO wrongly adopted sale of 40,401 shares as per the contract notes. The appellant duly explained before the A.O. that 25,000 shares were sold on behalf of sister concern and the amount was transferred to them as per accounts. The above explanation is acceptable and there is no case for addition towards undisclosed income. In the circumstances, the addition is deleted."

21. We have considered rival contentions and found that the AO has

made the addition on the plea that assessee has sold 25000 shares of 16 ITA Nos.4646&4711/2011

Karuturi Communication on behalf of Koradia Construction, which is

reflected in the ledger account. As per the AO assessee could not prove

that said sale was on behalf of Koradia Construction. From the record we

found that during the year assessee has purchased 15401 shares of

Karuturi Communication and sold the same. M/s Koradia Construction

have shares 25000 shares of the Karuturi Communication. When the

order for sale of shares on 13.07.2007 was placed by assessee for 15401

shares and M/s Koradia Construction (sister concern) placed order for

sale of 25000 shares to Khandwala Integrated Financial Services Ltd.,

who was common broker for assessee and sister concern, by mistakenly

broker issued contract memo in the name of assessee for sale of 40401

shares. As the amount of sale proceeds of 25,000 shares is belong to

Koradia Construction, therefore, the same was credited to their account

which was reflected in confirmation of account. After considering all these

facts of the case, the CIT(A) vide para 7.3 held that assessee sold only

15401 share which has also been offered for tax, and 25000 shares

belonged to M/s Koradia Construction which was confirmed by them.

Therefore, addition for sale of 25,000 shares cannot be made in the

hands of assessee. The finding recorded by the CIT(A) is as per material

on record. Accordingly, we do not find any reason to interfere in the order

of CIT(A) for deleting the addition made with regard to sale of 25000

shares of Karuturi Communication Ltd.

22. In the result, appeal of the assessee (i.e. ITA No.4646/M/2011)

is allowed and appeal of the revenue (i.e. ITA No.4711/M/2011) is

allowed in part.

17

ITA Nos.4646&4711/2011

Order pronounced in the open court on this 11th March.2015.

Sd/- Sd/- ( ) ( ) (SANJAY GARG) (R.C.SHARMA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER Mumbai; Dated 11/03/2015 /pkm, PS Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. / BY ORDER, 3. / The CIT(A), Mumbai. 4. / CIT 5. / DR, ITAT, Mumbai

6. Guard file. (Asstt. Registrar) / ITAT, Mumbai //True Copy//