Case Law Details

Case Name : Commissioner of Income-tax, Jamshedpur Vs Arun Kumar Agarwal (HUF) (Jharkhand High Court)
Appeal Number : Tax Appeal No. 4 TO 14 16 TO 18 & 21 to 23 OF 2011
Date of Judgement/Order : 13/07/2012
Related Assessment Year :
Courts : All High Courts (4249)

HIGH COURT OF JHARKHAND

Commissioner of Income-tax, Jamshedpur

versus

Arun Kumar Agarwal (HUF)

TAX APPEAL NOS. 4 TO 14

16 TO 18 & 21 to 23 OF 2011

JULY 13, 2012

ORDER

1. Heard the counsel for the parties.

2. These bunch of Tax Appeals are arising out of the order passed by the I.T.A.T. Dated 29.4.2010 whereby the I.T.A.T has dismissed the appeals of the Revenue and upheld all the separate orders passed by the Commissioner of Income Tax (CIT) (Appeals) whereby the CIT (Appeals), Jamshedpur vide order dated 8.5.2009 set aside the order passed by the A.O. and held that the income declared by the assessee under the heading ‘Long Term Capital Gain’ is correct declaration given by the assessees.

3. The brief facts of the case are that all theses assessees submitted their Returns of income and therein they claimed that they purchased certain shares of various companies and those shares were sold after a period of 12 months, and therefore, the share transactions of all the assessees resulted into a long term capital gain only. The Assessing Officer examined each and individual case of the assessee, however, substantially in all the orders, the Assessing Officer took note of the fact that the Securities & Exchange Board of India (SEBI) finding unusual rise in the share of some of the companies was of the opinion that there may be a prima facie case of violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Security Market) Regulation, 2003 and ordered a detailed enquiry under Section 11 B and 114 of the Security & Exchange Board of India Act, 1992. In the enquiry, findings were recorded against eleven Stock Brokers and their trading was suspended by the Kolkata Stock Exchange from buying and selling the securities. The Assessing Officer in detail considered the report of the SEBI and referred the case of one of the Company M/s Srinidhi Trading Ltd. whose shares had market value Rs.9.02 as on 11.3.2004 which reached to Rs. 160.10 as on 29.8.2005. In the SEBI’s enquiry report that was one of the case whereby it has been held that it may be result of the bogus dealings by these brokers. After giving detailed facts of the enquiry report in all the orders and particularly with respect to the above company, M/s Srinidhi Trading Ltd. and M/s Ahilya Commercial Pvt. Ltd., Kolkata and their share dealings running in crores of rupees, the Assessing Officer has observed that in the facts and circumstances of transactions of all these assesses are identical to the cases surveyed and investigated by the D.I.T. (Inv.), Kolkata. Thus, the modus operandi adopted by the Brokers of the assessee is also identical with one adopted by M/s Ahilya Commercial Pvt. Ltd. On the basis of this, the Assessing Officer held that the transaction of the purchase of the shares and sale thereof is not genuine and is a sham transaction. We may again mention here that the Assessing Officer considered the facts of each case separately in its separate order for each assesses.

4. In Appeal, the C.I.T. (Appeals), Jamshedpur also considered the facts of the each case separately by giving reference of the purchase of shares by the assessees and sale thereof. In most of the cases, the C.I.T. (Appeals) found that the purchase of the shares were shown by the assessees in their Balance Sheet of the last five years and genuineness of the Books of Accounts was never questioned. In one of the case, for example, in the Tax Appeal No. 14 of 2011, before us, there is a transaction of shares of the same company namely M/s Srinidhi Trading Ltd. for which it has been noticed that the shares of this company having market value Rs. 9.02 on 9.3.2004 jumped to Rs.160 as on 31.3.2006 and before that on 29.8.2005 to Rs.159.53. The C.I.T. (Appeals) considering the facts of this assessee found that the assessee purchased the shares of the said company, but, purchase transaction is supported by the documents and the payment was made through the Bank and it is verified well from the Bank Statement and from the Bank Account number of EXIS Bank Ltd. The shares remained in the possession of the assessee. The fact of shares remaining in possession of the assessee is verifiable from the Statement of assessee’s D.MAT account number which has been given in the order. The shares is disclosed in the Balance Sheet as on 31.3.2004 and 31.6.2005. The shares were sold in the financial year 2006-07. The sale transaction was also verifiable. We have given this one of the example because of the reason that the Assessing Officer in all the cases gave instances of the transaction of this one company namely M/s Srinidhi Trading Ltd. from the report of the SEBI. So far as other assessees are concerned, even if they have not dealt with shares of the M/s Srinidhi Trading Ltd. or through M/s Ahilya Commercial Pvt. Ltd. or any tinted Broker, transaction of those assessees were also declared sham transaction by the Assessing Officer merely on the basis that the transaction of these assessees are identical to the transaction of the shares of the companies whose share price fluctuated and there is steep rise in the share price. The Assessing Officer admittedly did not proceed to hold enquiry after the receipt of the contract note and other material document submitted by the assessees in these cases and did not enquire the matter from the Brokers from whom the assessees purchased the shares.

5. The CIT (Appeals) after considering the facts of the individual case by narrating the facts of the individual share transaction, held that the Assessing Officer merely on the basis of the presumptions and conjecture condemned the share transaction of the assessees and merely because some share brokers in Kolkata were found to be indulged in some wrong that does not mean that the all persons were party to illegal transaction. It is also admitted fact that when these assessee purchased the shares or sold the shares at that time, the brokers were duly enlisted brokers of the Stock Exchange. There is no averments, materials or findings on record to say that subsequently, if any of the broker was blacklisted by the SEBI or Stock Exchange, he was blacklisted because of the transactions of the assessees. Therefore, the report of the SEBI may cast suspicion of unfair trade practices whereby the brokers and some of the persons may have earned profits by dealing in the shares of particular companies, but, that individual’s case was not the subject matter before the Assessing Officer. The Assessing Officer in the facts and circumstances could have valid reason to suspect the transactions, but upon such suspicion, he was under the obligation to hold the enquiry and could have decided the case according to the facts of the case as well as on the basis of the evidence and the averments on record.

6. One of the argument of learned counsel for the appellant is that, the I.T.A.T committed serious error of law in decided all the appeals by a common order and by not deciding the each individual appeal separately by separate order by giving separate facts and reasons for each of the appeal. Learned counsel for the Revenue submitted that all the transactions of the assessees were different, and therefore, if the I.T.A.T would have considered each of the appeals separately, it may have remanded either all the cases or some of the cases to reconsider the question of genuineness of the transactions carried out by the assessees.

7. Learned counsel for the appellant further submitted that in Tax Appeal No.04 of 2011, Tax Appeal No.10 of 2011, it has been shown that there was share transaction of one company namely Niharika India Ltd. whereas such transactions were not proved. Learned counsel for the appellant further submitted that, exemption clause under the statute has to be construed as such and cannot be extended beyond the clear language used in the Section and relied upon the judgment of Rajasthan High Court delivered in the case of Kota Co-operative Marketing Society Ltd. v. CIT [1994] 207 ITR 608/76 Taxman 245. The learned counsel for the appellant submitted that though the burden is upon the Revenue to show that the receipt concerned and the income is liable to tax but onus of showing how income is exempted lies on the assessee. It is submitted that it was the duty of the assessee to show that the assessee held the shares in fact for more than 12 months immediately preceding the date of transfer then only he could have got the benefit of long term capital gain. Learned counsel for the appellant submitted that even in a case where it has been stated that the transactions are through the cheques and even if where the transactions looked like real transactions but the authorities are permitted to look behind the transactions and find out the motive behind the transactions. Learned counsel for the appellant also submitted that it is highly improbable that the share price of a worthless company gone from Rs.3 to Rs.55/- in a short span of time and mere payment by cheque and receipt of cheque does not render its transaction genuine. It is also submitted that sometimes accounts apparent may not be real.

8. Be that as it may, according to the learned counsel for the appellant both the lower authorities committed serious error of law in holding that the transaction is genuine and the assessees were entitled to long term capital gain benefit.

9. Learned counsel for the assessees submitted that a bare perusal of the reasons given in the two impugned orders, one passed by the C.I.T. (Appeals) and another by the I.T.A.T will clearly reveal that the facts of the each case have been carefully considered by the C.I.T. (Appeals) and the facts mentioned in the order have not been disputed by the Revenue in any manner except alleging that the transactions are being sham. It is also not in dispute that the assessees disclosed the shares in their possession in earlier return and statement of accounts and they are duly entered into the books of accounts of the accounts of the assessees and that was the position since last five years. It is submitted that even if the such transaction was there even that was duly proved by the Bank statement and by disclosure of Bank account number etc. The assessees produced the contract note of the transactions which were discarded by the Assessing Officer without any reason and without their being any evidence to rebut those contracts. It is also submitted that the I.T.A.T has not committed any mistake of fact or law in deciding all the appeals together because of the simple reason that all the appeals were argued as one case and all the facts of the individual assessee was duly considered by the first appellate authority and the I.T.A.T has decided the issues upholding the findings of the appellate authority and in concurring orders detail reasons may not be required to be given in much detail, if from the reasons given, the correctness in the decision of the second appellate authority can be found and in the case in hand, it finds support from the lower appellate authority’s given reasons.

10. We have considered the submissions of the learned counsel for the parties and we are of the considered opinion that the learned Assessing Officer was much influenced by the enqiury report which may has been brought on record by the efforts of the Assessing Officer and that enquiry report was prepared by the SEBI and from the observations made by the Assessing Officer himself, it is clear that after getting that enquiry report, the SEBI prima facie found involvement of some of the share brokers in unfair trade practices. Even in a case where the share broker was found involved in unfair trade practice and was involved in lowering and rising of the share price, and any person, who himself is not involved in that type of transaction, if purchased the share from that broker innocently and bonafidely and if he show his bonafide in transaction by showing relevant material, facts and circumstances and documents, then merely on the basis of the reason that share broker was involved in dealing in the share of a particular company in collusion with others or in the manner of unfair trade practices against the norms of S.E.B.I and Stock Exchange, then merely because of that fact a person who bonafidely entered into share transaction of that company through such broker then only by mere assumption such transactions cannot be held to be a shame transaction. Fact of tinted broker may be relevant for suspicion but it alone necessarily does lead to conclusion of all transaction of that broker as tinted. In such circumstances, further enquiry is needed and that is for individual case. Such further enquiry was not conducted in that case.

11. At this juncture, it would be relevant to mention here that it is not disputed by the Revenue before us that the shares of these assessees were already shown in the earlier Balance Sheet submitted by the assessees, and therefore, in that situation, how the revenue condemned the transaction even on the ground of steep rise in the shares. If within a period of one year, the share price has risen from Rs.5 to 55 and from 9 to 160 and one person was holding the shares much prior to that start of rise of the share, then how it can be inferred that such person entered into sham transaction few years ago and prepared for getting the benefit after few years when the share will start rising steeply. In present case even there was no reason for such suspicion when the shares were purchased years before the unusual fluctuation in the share price. Here in this case, we have given example of one of the Tax Appeal wherein the shares were purchased in the year 2004 and were sold in the year 2006, which is said to be one of the case wherein the gap in the purchase and sale of the shares was narrowest. In other cases as we have noticed from the various orders of the C.I.T(Appeals) that, the shares of some of the companies were purchased by the assessees even five years ago from the time of sale and those purchasers were already disclosed in the Balance Sheet of the assessee, then from any angle, it is proved that the assessees had held the shares much prior to 12 months of the sale of the shares.

12. Hence, these Appeals are dismissed.

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