Decided on May 22,2014

Purvi Nirav Vakharia Respondents


P.M.JAGTAP,AM. - (1.) THIS appeal is preferred by the Revenue against the order of ld. CIT(A) -34, Mumbai dated 22.7.2011 and the grounds raised therein are as under : "1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in deleting the addition of unaccounted purchases, ignoring the facts that the assessee failed to prove the genuineness of the transactions in spite of sufficient opportunity accorded to him. Moreover, the brokers were also reluctant to say anything in affirmative during the course of assessment proceedings; 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the AO to treat the income as short term capital gain as against income from business as assessed by the AO. The case is covered the decision of ITAT in the case of Smt. Sadhana Nabera V/s ACIT (ITA No.2586/Mum/2009), Jayshree P Shah V/s ACIT (ITA No.3608/Mum/2007) and in the case of ACIT V/s V Nagesh (ITA No.5410/Mum/2008)"
(2.) APROPOS Ground No.1, the relevant facts are that the assessee in the present case, who is an individual, filed her return of income for the year under consideration on 30.7.2009 declaring total income of Rs.1,05,06,771/ -. The income so declared was comprising of income from speculation, income from Short Term Capital Gain (STCG), income from Long Term Capital Gain (LTCG) and income from other sources. During the course of assessment proceedings, it was noticed by the AO from the relevant details of shares transactions furnished by the assessee that the assessee had claimed to have purchased 8000 and 6000 shares of M/s Orbit Corporation through the brokers M/s Priyasha Meven Finance Ltd and M/s Jalan Securities Pvt.Ltd on 22.5.2007 and 21.5.2007 for Rs.231.40 and Rs.225.19 per share respectively. In order to verify the exact date of purchase of shares , inquiry was directly made by AO with Bombay Stock Exchange and National Stock Exchange which revealed that there were no such purchases made in the name of the assessee during the financial year 2007 -08 The assessee was also found to have made payment against the purchases of these shares in the month of December, 2007. According to the AO 14,000 shares of M/s Orbit Corporation thus were purchased by the assessee only in the month of December, 2007 and not in the month of May 2007 as claimed by the assessee. He held that the price of shares of M/s Orbit Corporation in the month of May, 2007 was lower and in order to take advantage of the said lower price, the shares purchased in the month of December, 2007 at the prevailing high price were shown to have been purchased at lower rate in the month of May 2007. Accordingly, the difference in the purchase value of shares as worked out by him at Rs.84,24,629/ - was treated by the AO as the payment made by the assessee for purchase of shares from her unaccounted income and the said amount was added by him to the total income of the assessee under the head "income from other sources" in the assessment completed u/s 143(3) vide order dated 13.12.2010
(3.) AGAINST the order passed by the AO u/s 143(3) of the Income Tax Act, 1961 (the Act), appeal was preferred by the assessee before the ld. CIT(A) disputing inter -alia the addition of Rs.84,24,629/ - made by the AO on account of alleged unaccounted income invested in purchase of shares and after considering the elaborate submissions made on behalf of the assessee as well as material available on record, the ld. CIT(A) deleted the addition made by AO on this issue for the following reasons given in paras 2.3 of his impugned order: "2.3 I have gone through the contents of the impugned assessment order, statement of facts, submissions of the appellant along with the material available on record. I find that there is no dispute about the transactions to be off market on 21.5.2007 and 22.5.2007 respectively as found by the AO in her impugned order. The objections of the AO appear to be regarding the irregularities w.r.t. these transactions in not reporting within 7 days or so to BSE and NSE and also that the transacted shares kept standing in the names of the brokers only till these were transferred to the appellant's demat account in the month of December, 2007. Apart from this, the AO officer also doubted that these purchase in the month of May 2007, were not on behalf of the appellant by the brokers as the shares were stood in broker's names and codes respectively. I am unable to agree with the AO on this issue as there is no bar to have transactions to be off market. Even if, there are irregularities by brokers or appellant w.r.t. these transactions, I do not find any adverse material on record to suggest that either BSE and/or NSE had ever taken a punitive action against the brokers or appellant. I further find this AO has also not treated the existence or genuineness of these transactions in the month of May 2007 to be in doubt but she had refused to treat these purchases to have been made on behalf of the appellant by the brokers. First of all, one has to understand that unless, these transactions were made by brokers to transfer to appellant as the purchase are on appellant's behalf in the month of May 2007, no broker is going to transfer it on the same purchase price of May 2007 in the month of December 2007. This phenomenon is not in dispute as AO has also observed the fact that shares are transferred to appellant in December at the original purchase price of the shares in May 2007 but inference drawn by the AO is incorrect and baseless being devoid of any supportive adverse material on record. The brokers have never said that these purchases were not made in the month of May 2007 for appellant, though, for some reason or the other, the transfer of shares and payment thereto had taken place in December, 2007 as mentioned above. There is no further material available on record to suggest that either the brokers have received the differential amount of Rs.84,24,629/ - outside of their books of accounts or the appellant has made a payment to this extent outside of her books of accounts. Hence, I do not find any justification of the impugned addition of differential amount on notional basis which actually is on surmises and conjectures only. Thus, I find force in the arguments and submissions of the ld. Authorized representative that in view of various decisions relied upon by him (supra), the impugned addition cannot be upheld in the eyes of law. Accordingly, the impugned addition is deleted in the facts and circumstance of the instant case and in view of the above discussions". The ld. DR submitted that 14000 shares of M/s Orbit Corporation were not only transferred to the D - Mat account of the assessee in the month of December, 2007 but even the payment against the said shares was made by the assessee only in the month of December, 2007. He contended that since market price of the said shares was lower in the month of May 2007, an attempt was made by the assessee to claim the said purchases as having been made in the month of May 2007 so that the difference could be paid in cash from her unaccounted money and more capital gain could be shown on sale of the said shares to take the benefit of low rate of tax applicable to the capital gain. He contended that this attempt of the assessee was duly thwarted by the AO by making the necessary inquiries which revealed that the shares were purchased by the assessee only in the month of December, 2007 at higher price than that shown by the assessee. He contended that this difference in purchase value of shares paid by the assessee from unaccounted money was rightly treated byAO as undisclosed income of the assessee and the ld. CIT(A) was not justified in deleting the addition made by AO on this issue ignoring the specific findings recorded by AO which were sufficient to show that the shares were purchased by assessee in the month of December, 2007 at higher value. Relying the decisions of Hon'ble Supreme Court in the case of Commissioner of Income -tax V Durga Prasad More (1971) 82 ITR 540 (SC) and Sumati Dayal V/s Commissioner of Income -tax 214 ITR 801(SC), he contended that preponderance of probability is required to be seen to decide the exact period of purchases of shares by the assessee.;

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