It is seen that it is undisputed and uncontroverted that (a) the shares have been purchased against the payment (again supported by the contract notes); (b) such shares have been found to be credited into the DEMAT account of the assessee; (c) on sale of such shares there were debited from the DEMAT account of the assessee; (d) the assessee has received payment against the sale of such shares through banking channel and (e) the transaction of sale on the floor of BSE is found to be genuine and confirmed by the BSE. I fail to understand that when the shares were found to be credited and debited in the DEMAT account and sale of shares were found to be genuine, then what is the basis to contend that purchases of the said shares were not made by the appellant. Therefore, two observations of the assessing officer for making an addition under section 68 of the Income Tax Act, 1961 are not found unquestionable.
Full Text of the ITAT Order is as follows:-
These two appeals preferred by the department are directed against two separate orders of the Commissioner (Appeals)-XIV, Ahmedabad, dated 20-3-2013 and 22-3-2013 for the assessment year (AY) 2009-10, in the case of two different assessees.
2. First we take up the Revenue’s appeal in ITA No. 1440/Ahd/2013 for the assessment year 2009-10. The assessee has taken following grounds of appeal :–
(i) The learned Commissioner (Appeals) has erred in law and on facts in deleting the addition of Rs. 69,28,919 made under section 68 treating the STCG declared by the assessee as being unexplained cash credits.
(ii) The learned Commissioner (Appeals) has erred in law and on facts in accepting the contention of the assessee that purchase and sale of shares was genuine, which was substantiated by bogus documents.
(iii) On the facts and circumstances of the case, the learned Commissioner (Appeals) ought to have upheld the order of the assessing officer.
(iv) It is, therefore, prayed that the order of the learned Commissioner (Appeals) may be set-aside and that of the assessing officer be restored.
3. Now we take up the Revenues appeal in ITA No. 1441/Ahd/2013 for assessment year 2009-10. The revenue has taken the following grounds :–
(i) The learned Commissioner (Appeals) has erred in law and on facts in deleting the addition of Rs. 89,90,400 made under section 69 treating the share transaction as being unexplained source.
(ii) The learned Commissioner (Appeals) has erred in law and on facts in accepting the contention of the assessee that purchase and sale of shares was genuine, which was substantiated by bogus documents.
(iii) On the facts and circumstances of the case, the learned Commissioner (Appeals) ought to have upheld the order of the assessing officer.
(iv) It is, therefore, prayed that the order of the learned Commissioner (Appeals) may be set-aside and that of the assessing officer be restored.
4. The facts of the case are :–
After going through the details submitted by the assessee, it was noticed that, during the year under consideration assessee has shown STCG of Rs. 69,28,919 by share transactions and paying tax on the same under section 111A of the Income Tax Act, 1961. In all these share transactions assessee has purchase shares through the broker M/s. Mahasagar Securities Pvt. Ltd. and sold through the M/s. Krone Research and Brokerage Pvt. Ltd.
5. This broker M/s. Mahasagar Securities Pvt. Ltd. was claiming “dealer of Interconnected Stock Exchange of India Limited/Sub-broker of National Stock Exchange India Limited member – ISE Securities and Services Limited, SEBI Reg. No. INB-230683331/23-10777.”
6. Regarding the status of the Mahasagar Securities Pvt. Ltd., a letter under section 133(6) of the Income Tax Act, 1961 has been sent to the NSE and ISE. In response NSE furnished a reply dated 22-11-2011 and stated that “No similar name as M/s. Mahasagar Securities Pvt. Ltd. found as per membership database.” Further, in this regard ISE stated “Mahasagar Securities Pvt. Ltd. neither a trading member of ISE nor a sub-broker of ISS”.
7. Further, a letter under section 133(6) of the Income Tax Act, 1961 has been sent to NSE, BSE & ISE to verify the share transactions done by the assessee during the year. In reply ISE stated that “as per our record no trades were executed on our exchange in the name of Bhavik Bharatbhai Padia during F.Y. 2008-09”. Similarly NSE stated that “based on the PAN provided in your letter, record having matching pattern with data uploaded by trading members to the exchange as on date for the client Bhavik Bharatbhai Padia (PAN: ANFPP8202R) for the capital market segment are being enclosed as annexure-A.
Kindly note that as per the records available with exchange, no trade were found to be executed for the combination of member and client code for the period 1-4-2008 to 31-3-2009 in the capital market segment hence not furnished”.
8. It was also stated that there was a search & seizure action under section 132 of the Income Tax Act. was carried out in the group cases of Mahasagar Securities Pvt. (now Known as Alag Securities Pvt. Ltd.) and Shri Mukesh Choksi who had managed and control over the above group has admitted during the course of search that the group was engaged fraudulent billing activities in the business of providing bogus speculation profit/loss, short-term/long-term capital gain/loss, commodities profit/loss on commodity trading (through MCX). The assessee was one of the beneficiaries because assessee has also done some transactions with the M/s. Mahasagar Securities Pvt. Ltd.
9. The modus operadi adopted by the assessee is same as accepted by the prop. of the M/s. Mahasagar Securities Pvt. Ltd. as the shares reflected in the demat account of the assessee are coming within the one week of the sale.
10. Since, it is very clear that the sales of the assessee were genuine but purchases for the alleged shares were bogus. This facts was also supported by demat statement of the assessee in which the alleged share came within one week of the sale. Further, the payment for the all the shares purchase has been made after the sales.
11. Hence, considering the above facts and circumstances, assessee was given a show cause that your purchase from M/s. Mahasagar Securities Pvt. Ltd. seems bogus because as per NSE and ISE M/s. Mahasagar Securities Pvt. Ltd. is no more existed. Further, NSE and ISE has denied about any transactions in your name, so, why should not your capital gain be treated as cash credit under section 68 of the Income Tax Act, 1961 as it looks just accommodation entries on the basis of that you are claiming STCG.
12. The assessee filed the detail written a reply but after due considering the reply of the assessee and points raised by the assessee. There are some apparent points emerged as :–
Assessee is claiming that he has purchased the alleged shares through off market simultaneously he claimed that he has paid STT on purchase.
Since the key person of the M/s. Mahasagar Securities Pvt. Ltd., Shri Mukesh Ghoksi has already admitted in his statement on oath under section 131 of the Income Tax Act, 1961 during the search operation carried out by the Mumbai Investigation Wing that M/s. Mahasagar Securities Pvt. Ltd. was engaged in fraudulent billing activities for speculation profit/loss, short-term/ long-term capital gain/loss, commodities profit/loss on commodity trading (through MCX). In such a situation what is the validity of the affidavit. Further, if somebody is giving affidavit than it is necessary for him to present the person for cross verification but assessee did not discuss about the same and stated that he is unable to produce the Shri Mukesh Choksi. If it is treated that the statement taken by the Mumbai Investigation Wing during the search operation as cross examination than affidavit filed by the assessee will be Null and Void.
13. Hence, after due considering facts that the purchase of the assessee is bogus but BSE is confirming the sale so at max assessee can avail STCG for the period of shares coming in demat account and going out of the same (holding period). On the basis of market information (exchange) and demat account statements assessee the STCG for holding period as shown in demat account is worked out at Rs. (-)4,523. This STCG was calculated after taking consideration of the T + 2 days delivery system of share transactions and closing price of the scripts.
Working of the STCG:
