D.b. Income Tax Appeal v. Date Of Judgment : 24[Th] February 2014

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANAT JODHPUR: JUDGMENT D.B. INCOME TAX APPEAL NO.54/2012Commissioner of Income Tax, Udaipur Vs.Smt. Sumitra Devi DATE OF JUDGMENT: 24 February 2014. HON’BLE MR. JUSTICE DINESH MAHESHWARIHON’BLE MR. JUSTICE P.K. LOHRA Mr. K.K. Bissa, for the appellant. <><><> BY THE COURT: By way of this appeal under Section 260A of the Income TaxAct, 1961 [‘the Act’], the Revenue seeks to question the order dated15.12.2011, passed by the Income Tax Appellate Tribunal, JodhpurBench, Jodhpur [‘the ITAT’] in ITA No.490/Jodh/2009 relating to theassessment year 2006-07 whereby, the ITAT has dismissed itsappeal after finding justified the order dated 02.06.2009 passed bythe Commissioner of Income Tax (Appeals), Udaipur [‘the CIT(A)’]deleting the additions made by the Assessing Officer [‘the AO’] in theassessment order dated 31.12.2008 to the tune of Rs.37,77,847/-towards the transactions of purchase and sale of shares and anotherRs.1,88,890/- towards the alleged undisclosed comission paid incash. Put in brief, the relevant facts and background aspects of thematter are that the respondent-assessee’s total income, as shown inthe return of income for the assessment year 2006-07, consisted ofthe income from Salary, Long Term Capital Gain [‘LTCG’], Interest and Other Income. In the computation, assessee had shown LTCGto the tune of Rs.37,77,847/- from the sale of shares; and it was alsoshown that commission was paid to the broker to the tune ofRs.1,88,890/-. LTCG was claimed as exempt under Section 10(38)of the Act. The AO, however, observed that the companies, whoseshares were allegedly dealt with, were not very well known and itwas entirely unlikely that there was a huge rise in the prices of theirshares in a very short span of time. The AO, ultimately, treated thishuge rise in the price as being of manipulation by the stock brokerand, while treating the transaction as sham, proceeded to make theadditions in the income of the assessee. Aggrieved by the assessment order so passed on 31.12.2008,the respondent-assessee preferred an appeal that was consideredand allowed by the CIT(A) by the impugned order dated02.06.2009. The CIT(A), inter alia, noted that the same issue hadbeen decided in favour of the appellant for the assessment year2004-05 by the Appellate Order dated 21.02.2007 in AppealNo.458/2006-07. The CIT(A) took note of the transactions andobserved that the appellant had furnished the requisite evidence;and payment of purchase consideration was made from out of theavailable cash balance with the appellant, as was appearing in thecash flow statements. The CIT(A) also observed that the shareswere sold by the appellant for consideration through the namedstock broker/s and the appellant had furnished all the evidence likebroker’s note, contract note, extract of cash book, balance-sheet,share certificate etc., which were in possession, to establish thegenuineness of transactions. The CIT(A) found that the AO hadfailed to bring any evidence in rebuttal nor was it proved that thedocuments produced by the assessee were false, fabricated or fictitious. After thorough and detailed consideration of the matter, theCIT(A) found that the AO proceeded only on presumptions butwithout any basis; and held that the AO was not justified in makingadditions under Section 68 of the Act. The detailed consideration ofCIT(A) on the principal issue could be usefully reproduced as under:- “I have considered the facts of the case and submissionsof the Ld. A/R and found that similar issue was decided in thecase of the appellant for the assessment year 2004-05 in favourof the appellant vide appellate order dated 21-2-2007 in appealNo.458/2006-07. The appellant has shown capital gain ofRs.37,77,847/- on sale of shares between the period 8-4-2005 to5-8-2005. The purchase and sale of shares is as under:- Purchase Sale: fictitious. After thorough and detailed consideration of the matter, theCIT(A) found that the AO proceeded only on presumptions butwithout any basis; and held that the AO was not justified in makingadditions under Section 68 of the Act. The detailed consideration ofCIT(A) on the principal issue could be usefully reproduced as under:- “I have considered the facts of the case and submissionsof the Ld. A/R and found that similar issue was decided in thecase of the appellant for the assessment year 2004-05 in favourof the appellant vide appellate order dated 21-2-2007 in appealNo.458/2006-07. The appellant has shown capital gain ofRs.37,77,847/- on sale of shares between the period 8-4-2005 to5-8-2005. The purchase and sale of shares is as under:- Purchase Sale: 10.The shares purchased were of M/s. V.K. Singhania. Thetransaction was effected through a broker namely M/s. M.Bhiwaniwala & Co. The transaction of purchase and sale ofshares were executed at prevailing marking rate. The identity ofbroker was beyond doubt as he was a SEBI registered broker.These shares were acquired in physical form and the appellantreceived certificates bearing share certificate Nos. and distinctiveNos of shares mentioned above. Prior to their sale, these shareswere dematerialized with Stock Holding Corporation of India Ltd.The dematerialized shares were held in appellant’s de-mataccount with ICICI Bank, Udaipur. The payment of purchaseconsideration were made in cash out of available cash balancewith the appellant which is evident from the cash flow statementfurnished before me as well as furnished before the AO also.These shares were sold by the appellant for a consideration ofRs.37,77,847/- through stock brokers M/s M. Bhiwantiwala & Co. and Ahilya Commercial P. Ltd Kolkatta and the appellant earnedlong term capital gain of Rs.36,60,435/-. and Ahilya Commercial P. Ltd Kolkatta and the appellant earnedlong term capital gain of Rs.36,60,435/-. 11.The appellant furnished al evidences i.e. broker note,contract note, relevant extract of cash book, balance sheet as on31-3-2005 and 31-3-2006, copy of share certificate etc. whichwere in his possession to establish genuineness of purchase andsale of shares. The AO failed to bring any evidence to show eitherback dating of purchases or collusion between the broker and thecompany. The AO also failed to bring any evidence to show thatthe appellant paid unaccounted cash to the brokers in order toreceive sale proceeds of shares by cheques. In the light of theabove undisputed facts, the following presumptions, on the basisof which the AO concluded that the entire transaction of purchaseand sale of shares was a sham transaction and anaccommodation entry given by the broker in the form of saleproceeds of shares in lieu of cash, have to be considered. The AOfurther failed either to show that a large number of documents likebroker note, contract note, relevant extract of cash book, copy ofshare certificate, de-mat statement etc. filed by the appellant werefalse, fabricated or fictitious or to rebut appellant’s claim regardingpurchase of shares. Rather the broker confirmed the entiretransaction. The reliance placed by the AO on facts liked noticeu/s 133(6) issued to the company being returned unserved,delayed payment to the broker, discrepancies in the name ofseller as per broker and as per endorsement of the sharecertificate, certificate for 5300, 1200 and 6000 enquiry sharesbeing received from the companies, dematerialization of sharesjust before sale etc. would alert an AO and arouse his suspicionfor a detailed examination and verification but these facts alone, inthe absence of anything else could not negate the impugnedtransaction in the face of overwhelming evidences produced bythe appellant. Moreover the AO did not confront the appellantabout the result of his enquiry. The ratio of the judgment of Punjab& Hariyana High Court in the case of Chiranjilal Steel Rolling MillsVs. CIT 84 ITR 22 is squarely applicable to the facts of theappellant’s case. Thus the presumption of the AO was withoutany basis. 12.As regards the presumption of the AO that the appellantpaid cash in lieu of accommodation entry given by the broker inthe form of sale proceeds of shares, the AO squarely failed tobring any evidence on record to show that the sale transactionwas fictitious and the appellant paid cash to broker for obtainingcheques in the form of sale proceeds of shares. While theappellant produced broker notes in support of sale proceeds andcould show that proceeds were received by account payeecheques and deposited in the appellant’s bank account, the AOcould not show anything to rebut the evidences produced by theappellant. Thus, this presumption of the AO was without anybasis. 13.From the above discussion, it is quite evident that the AOfailed to show that the transaction for purchase and sale of shareswas bogus and the appellant paid cash to the broker for availingaccommodation entry in the form of sale proceeds of shares.Suspicion, strange coincidences and grave doubts, how so everstrong it may be, cannot take place of legal proof. Therefore, theAO erred in treating the entire transaction of long term capitalgains as a sham transaction and bring it to tax as unexplainedcash credit u/s 68 of the Income tax Act, 1961. 14.As regards various judgments relied upon by the AO, theratio of these decisions would have been applied, had the AObeen able to establish that the transaction for purchase and saleof shares was fabricated, false and fictitious. However, the AO didnot bring any evidence on record to establish non-genuineness of 14.As regards various judgments relied upon by the AO, theratio of these decisions would have been applied, had the AObeen able to establish that the transaction for purchase and saleof shares was fabricated, false and fictitious. However, the AO didnot bring any evidence on record to establish non-genuineness of the impugned transaction. Moreover, the Ld. A/R of the appellantelaborately distinguished these judgments. In view of the above Ihold that the purchase of equity shares was not bogus andgenuine and the profit from sale of shares was assessable as longterm capital gain and not as unexplained cash credit u/s 68 of theAct. Therefore, the amount of Rs.16,73,142/- cannot be treatedas cash credit u/s 68 of the Act. The stand taken by the AO is notjustified and, therefore, rejected. The appeal is allowed on thisground. Since the issue involved in this case is fully covered bythe decision in the case of the appellant for assessment year2006-07, I hold that the AO was not justified in making theaddition u/s 68 of the Act as against capital gain declared by theappellant. The addition is deleted. The appeal is allowed on thisground.” In appeal by the Revenue against the aforesaid order of CIT(A), the ITAT found the finding on facts not suffering from anyinfirmity; and proceeded to affirm the same by the impugned orderdated 15.12.2011 while observing, inter alia, as under:- “13.After considering the submissions and perusing thematerial on record, we find no infirmity in the finding of ld. CIT (A).The ld. CIT(A) has examined the issue in thread bear and foundthat purchase of shares as well as sale of shares are genuine.The purchase of shares were made through Shri V.K. Singhania,Renu Poddar and Ballabh Das Daga. The shares werepurchased in earlier years and were sold during the year underconsideration. The shares were sold through another broker i.e.M/s. M.Bhiwantiwala & Co., M/s. Ahilya Commercial P. Ltd. All thepurchase and sale of shares were dematized in regular course oftransaction. Confirmation of purchase of shares through brokerswere filed. All the shares are of listed companies. The shareswere credited to demat account of the assessee and thereafter onsale of those shares the account of the assessee was debitedthrough demat account. Therefore, there is no question ofdoubting the genuineness of transactions. There is no evidencethat assessee has not purchased the shares in earlier year. Theyhave been shown in the Balance Sheet and the Balance Sheet ofearlier year has been accepted. The assessee has filed brokernote, contract note, relevant extract of cash book, balance sheetas on 31.3.2005 and 31.3.2006, copy of share certificate etc. andall these details established that the was in possession ofrespective shares. The objection of the AO was that notice issuedunder section 133 (6) were returned back and payment to brokerwas delayed and there were certain discrepancies in the name ofsellers as broker and as per endorsement in the share certificate.Clarification in respect of these deficiencies were filed before theAssessing Officer which were filed before ld. CIT(A) also. Theywere not appreciated by the Assessing Officer but wereappreciated by ld. CIT(A) and then only the ld. CIT(A) found thatall the transactions of purchase and sale of shares are genuine.It was also not the case of the department that assessee repaidthe sale consideration in hand. There is no such evidence onrecord. Therefore, inference drawn by the Assessing Officer, inour considered view was not correct by holding that the sharetransaction are bogus. The ld. CIT(A) was justified in holding thatshare transactions were genuine. Accordingly we confirm thefinding of ld. CIT(A) as they are finding of fact and remaineduncontroverted. 14.Deletion of addition of Rs.1,88,890/- is also confirmed asthe Assessing Officer made this addition on the basis that thetransaction of sale of shares are only accommodation entry andassessee must have paid some commission to the broker. Wehave already held that transaction of purchase and sale of shareswere genuine, therefore, we hold that this addition was rightlydeleted by ld. CIT(A). 15.In the result, appeal of the department is dismissed.” Seeking to question the orders so passed by the CIT(A) andthe ITAT, it is contended on behalf of the appellant-Revenue that theITAT was not justified in confirming the deletion of the additions whileignoring the discrepancies pointed out by the AO. It is submittedthat the assessee cannot use dubious method of tax planning tobring the money in the books; and colourable devices cannot beconsidered to be of legitimate tax planning. The decision of theHon’ble Supreme Court in the case of McDowell and Co. Ltd. Vs.Commercial Tax Officer: [1985] 154 ITR 148 has been relied upon. Itis submitted that truthfulness could not have been assumed on theself-serving recitals in the documents referred by a party.The AO,according to the appellant, recorded the finding after being satisfiedthat the referred transactions were sham and were of theaccommodation entries provided by the broker in lieu of cash; andthe fact is clearly seen from the phenomenal growth rates of shareswithin short span of time without any strong fundamentals. Having given thoughtful consideration to the submissionsmade and having examined the record, we are clearly of the viewthat no substantial question of law is involved; and this appeal doesnot merit admission. True it is that several suspicious circumstances were indicatedby the AO but then, the findings as ultimately recorded by him hadbeen based more on presumptions rather than on cogent proof. Asfound concurrently by the CIT(A) and the ITAT, the AO had failed to show that the material documents placed on record by the assesseelike broker’s note, contract note, relevant extract of cash book,copies of share certificate, de-mat statement etc. were false,fabricated or fictitious. The appellate authorities have rightlyobserved that the facts as noticed by the AO, like the notice underSection 136 to the company having been returned unserved; delayedpayment to the brokers; and de-materialisation of shares just beforethe sale would lead to suspicion and call for detailed examinationand verification but then, for these facts alone, the transaction couldnot be rejected altogether, particularly in absence of any cogentevidence to the contrary. In an overall view of the matter, the finding as recorded by theappellate authorities after a thorough consideration of the material onrecord that the transaction of purchase and sale of shares could notbe treated as non-genuine, remains a justified finding on facts; andwe are unable to find any substantial question of law worthconsideration in this case. There cannot be any doubt about the basic principles inMcDowell's case (supra) that the tax planning could be legitimateonly when it is within the frame work of law; and that colourabledevices cannot be the part of tax planning; and further thatavoidance of payment of tax by dubious methods is nevercountenanced. However, the decision in McDowell’s case (supra)operates on an entirely different fact situation; and has no applicationto the present case. Therein, the liability of sales tax was sought tobe avoided with reference to the invoicing by the manufacture ofliquor to the buyers, who themselves made the payment of exciseduty, though the same was payable by the manufacturer. TheHon’ble Supreme Court affirmed the order of the High Court wherein Cpgoyal/- There cannot be any doubt about the basic principles inMcDowell's case (supra) that the tax planning could be legitimateonly when it is within the frame work of law; and that colourabledevices cannot be the part of tax planning; and further thatavoidance of payment of tax by dubious methods is nevercountenanced. However, the decision in McDowell’s case (supra)operates on an entirely different fact situation; and has no applicationto the present case. Therein, the liability of sales tax was sought tobe avoided with reference to the invoicing by the manufacture ofliquor to the buyers, who themselves made the payment of exciseduty, though the same was payable by the manufacturer. TheHon’ble Supreme Court affirmed the order of the High Court wherein Cpgoyal/- it was held that excise duty, which was payable by the appellant buthad been paid by the buyers under an amicable arrangement, wasactually a part of turn over of the appellant and was, therefore,liable to be included for determining the appellant’s liability for salestax under the A.P. General Sales Tax Act, 1957. In the present case,as noticed, the fact situation remains entirely different and thequestion is about the genuineness of the transactions which havebeen accepted by the appellate authorities after examining therecord and on relevant considerations. In an overall analysis, in our view, the findings as concurrentlyrecorded by the CIT(A) and the ITAT, that addition under Section 68of the Act was not sustainable, remain essentially in the realm ofappreciation of evidence. The Appellate Authorities have returned thefinding of fact in favour of the assessee after due appreciation ofevidence on record, on relevant considerations, and on soundreasonings. The finding neither appears suffering from any perversitynor is of such nature that cannot be reached at all. Hence, nosubstantial question of law is involved in this appeal. In the result, the appeal fails and is, therefore, dismissed. (P.K. LOHRA),J. (DINESH MAHESHWARI),J.