Case Law Details

Case Name : Ms. Farrah Marker Vs ITO (ITAT Mumbai)
Appeal Number : ITA No. 3801/Mum/2011
Date of Judgement/Order : 27/04/2016
Related Assessment Year : 2005-06
Courts : All ITAT (1731) ITAT Mumbai (490)

Facts of the Case

The assessee, an individual, filed her return of income for A.Y. 2005- 06 on 04.08.2005 declaring income of Rs. 1,19,653/- after claiming the income from long term capital gain (LTCG) of Rs. 93,00,0 12/- on sale of listed equity shares and subjected to STT as exempt under section 10(38) of the Income Tax Act, 1961 (in short ‘the Act’). The return was processed under section 143(1) of the Act and the case was subsequently taken up for scrutiny. In the course of assessment proceedings, the AO observed that the shares of Shukun Constructions Ltd. (hereinafter referred to as ‘the said shares’) are nothing but penny stock and that the assessee has back dated the purchase of the said shares in transactions to generate artificial gain. He required the assessee to substantiate her claim of exemption on the capital gain arising on the sale of the said shares. After considering the details, documents and submissions filed by the assessee in support of the claim of exemption from LTCG on sale of the said shares and discussion of available data on penny stocks, modus operandi generally adopted by interested persons to avail the arranged exemption of LTCG/STCG/ speculation profit/loss, stock price movement of the said company and on the basis of the statement recorded from one Shri Niraj Sanghvi, the AO concluded that the LTCG shown by the assessee on sale of the said shares of Shukun Constructions Ltd. is not a genuine transaction but a fabricated one. In that view of the matter, the AO, while concluding the assessment, treated the entire sale proceeds of the said shares amounting to `95,12,812/- as unexplained cash credit under section 68 of the Act and brought the same to tax in the assessee’s hand. The assessment was accordingly completed under section 143(3) of the Act, vide order dated 3 1.12.2007 wherein the assessee’s income was determined at Rs. 96,32,470/-; primarily due to the addition of the sale proceeds on sale of the said shares amounting to Rs. 95,12,812/- under section 68 of the Act.

Held by ITAT

Authorities below, i.e. AO/CIT(A) have made the addition under section 68 of the Act merely on presumptions, suspicions and surmises in respect of penny stocks; disregarding the direct evidences placed on record and furnished by the assessee in the form of brokers contract notes for purchases and sales of the ‘said shares’ of M/s. Shukun Constructions Ltd., copies of the physical share certificates and her D-MAT account statement establishing the holding of the shares in her name prior to the sale thereof; confirmation of the transactions of buying and selling of the ‘said shares’ by the respective stock brokers, receipt of sale proceeds through banking channels, etc. As observed earlier in this order, we are of the view that the statement recorded from Shri Niraj Sanghvi on 31.12.2007, the day the order of assessment was passed, would have no evidentiary or corroborative value to be the basis for coming to an adverse view in the case on hand, since it was recorded behind the assessee’s back, from a person who was not involved in the purchase of the said shares and also since the assessee was not afforded opportunity for rebuttal of the same and to cross-examine the said person. We are also of the view that the ratio and the factual matrix of the decisions in the cited case, i.e. Jatin Chhadwa (supra), Harkhchand K. Gada (HUF) & others (supra) and Andaman Timber Industries (supra) would be applicable and support the case of the assessee since no adverse finding has been rendered in respect of the direct material evidence placed on record in respect of her transactions of purchase and sale of the ‘said shares’ of M/s. Shukun Constructions Ltd. which stand duly disclosed in her audited Balance Sheets filed with the return of income of assessment years 2004-05 and the current year under consideration. In this factual and legal matrix of the case, as discussed above, we find that the addition of Rs. 95, 12,812/- under section 68 of the Act made and confirmed by the authorities below to be unsustainable and therefore direct the AO to delete the said addition and accept the LTCG income of Rs. 93,00,0 12/- shown as exempt under section 10(38) of the Act.

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Category : Income Tax (20879)
Type : Judiciary (8913)
Tags : ITAT Judgments (3705) Section 68 (137)

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