Zikrullah Chaudhary Vs DCIT (ITAT Pune)
The ITAT Pune dismissed the assessee’s appeal and upheld the order of the CIT(A), which had confirmed the Assessing Officer’s treatment of ₹93,48,858 claimed as long-term capital gain (LTCG) on sale of shares of M/s. Tanu Health Care Ltd. and M/s. Comfort Intech Ltd. as income from other sources for Assessment Year 2005-06. The case arose from a search conducted under Section 132 on 24.10.2007, pursuant to which proceedings under Section 153A were initiated. The assessee had declared LTCG of ₹65,97,975 and claimed exemption of ₹27,50,883 in the return of income.
During assessment proceedings, the Assessing Officer observed that the assessee had purchased the shares at nominal prices and sold them at substantially higher prices. It was further noted that the shares had been acquired in March 2004, while payment for their purchase was made only in April 2005. According to the Assessing Officer, the pattern of transactions, the trading history of the shares, and the surrounding circumstances suggested that the transactions constituted a colourable device to convert unaccounted money into long-term capital gains. The assessee was issued a show-cause notice proposing to treat the capital gain of ₹93,48,858 as income from other sources.
In response, the assessee submitted a letter dated 24.12.2009 stating that the share transactions were genuine, having been carried out through brokers, routed through the Demat account, and settled through account payee cheques. However, the letter also stated that there was constant pressure from the Assessing Officer’s office to surrender the income and that, to obtain mental peace and concentrate on business, the assessee agreed to the Department’s suggestion and undertook to pay tax, subject to computation without interest and penalty. Relying on this letter, the Assessing Officer treated the entire amount of ₹93,48,858 as income from other sources.
The CIT(A) upheld the assessment, observing that the assessee had unequivocally surrendered the income through the letter dated 24.12.2009. According to the CIT(A), the surrender prevented the Assessing Officer from carrying out further investigation, and no immediate retraction supported by evidence had been made. Referring to the decision in Hotel Kiran Vs. ACIT, the CIT(A) held that admissions possess substantial evidentiary value and can be retracted only if shown to have been made involuntarily or under a mistaken belief, neither of which had been established.
Before the Tribunal, the assessee contended that the surrender was made under constant pressure from the Department and that the transactions were genuine because the purchases and sales were effected through brokers, reflected in the Demat account, and settled through banking channels. The assessee relied on various judicial precedents to contend that the transactions should be accepted as genuine and that the surrender alone could not justify the addition. The Revenue argued that the assessee had never personally appeared before the Assessing Officer, that the allegation of coercion was unsupported by evidence, and that the surrounding circumstances demonstrated that the transactions lacked commercial credibility.
The Tribunal noted that the purchase consideration for the shares had been paid more than one year after their acquisition, that the assessee had acted on the advice of a friend, did not personally know the broker, and had not engaged in similar share transactions in preceding or subsequent years. It observed that it was difficult to accept that an unknown broker would purchase shares without payment, hold them for over a year, and later facilitate substantial profits for a person not known to him. The Tribunal held that these circumstances were contrary to normal human probabilities. Referring to the decisions of the Supreme Court in Sumati Dayal v. CIT and CIT v. Durga Prasad More, the Tribunal observed that taxing authorities are entitled to examine surrounding circumstances and apply the test of human probabilities to determine the real nature of transactions.
The Tribunal further held that the allegation of coercion was unsupported because the assessee had been represented by counsel throughout the assessment proceedings and had not produced material establishing coercion. It also relied on the Bombay High Court decision in Rameshchandra & Co. v. CIT, holding that where an assessee voluntarily makes a statement and the assessment is framed accordingly, the assessee cannot subsequently challenge the assessment without first seeking rectification if the statement was allegedly recorded under a mistaken belief.
Finding no infirmity in the orders of the Assessing Officer and the CIT(A), the Tribunal upheld the treatment of the claimed long-term capital gain as income from other sources and dismissed the assessee’s appeal.
Cases Discussed
- Ester Industries Ltd. Vs. CIT (Delhi High Court), 316 ITR 260
- CIT Vs. K. Bhuvanendran (Madras High Court), 303 ITR 235
- Mahesh B. Shah Vs. CIT (Kerala High Court), 238 ITR 130
- Sumati Dayal Vs. CIT (Supreme Court), 214 ITR 801
- Rameshchandra & Co. Vs. CIT (Bombay High Court), 168 ITR 375
- Sterling Machine Tools Vs. CIT, 123 ITR 181
- Chhat Mull Aggarwal v. CIT (Punjab & Haryana High Court), 116 ITR 694
- Ramanlal Kamdar Vs. CIT, 108 ITR 73
- Hotel Kiran Vs. ACIT (ITAT Pune), (2002) 82 ITD 453
- CIT Vs. Durga Prasad More (Supreme Court), 82 ITR 540
- Jivatlal Purtapshi’s case, 65 ITR 261
- Parimisetti Seetharamamma, 57 ITR 532
- Sreelekha Banerjee’s case, 49 ITR (SC) 112
- Pullangode Rubber Produce Co. Ltd.
- Mukesh R. Marolia Vs. Addl. CIT
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal filed by the assessee is directed against the order dated 20-02-2012 of the CIT(A) Central Pune, relating to Assessment Year 2005-06.
2. Facts of the case, in brief, are that the assessee is an individual. A search u/s.132 of the I.T. Act was conducted at the residential premises of the assessee on 24-10-2007 which was part of a search conducted in the case of Habibullah Chaudhary, Chetan Mehta and Vishal Malhotra Group of Pune consisting of its various business enterprises. In response to notice u/s.153A(a) the assessee filed return of income declaring the total income of Rs.97,58,950/-.
2.1 During the course of assessment proceedings the Assessing Officer noted from the return of income filed by the assessee that he had disclosed Long Term Capital Gain of Rs.65,97,975/- and claimed Rs.27,50,883/- as exempt capital gain. This long term capital gain has been claimed on sale of shares of M/s.Tanu Health Care Ltd. and M/s. Comfort Intech Ltd. The Assessing Officer observed that the assessee has purchased the shares for very nominal prices and has sold the same at very high price to claim the long term capital gain. From the various details furnished by the assessee, the Assessing Officer observed that the assessee has acquired the shares in March 2004 and the payment towards the same has been made only after one year, i.e., April 2005. When confronted about this, the assessee stated that he had asked his broker to buy the said stock for him and the payment was made by him later on. The Assessing Officer thoroughly discussed the modus operandi adopted by the assessee and came to the conclusion that the transactions in purchase and sale is a sham transaction and a colourful device to channelize the unaccounted income earned in the course of regular business. The Assessing Officer, therefore, asked the assessee to show cause as to why this capital gain of Rs.93,48,858/- should not be considered as income from other sources.
2.2 In response to the same the assessee filed a letter dated 24-12-2009 (a copy of which is placed at page 5 of the paper book) and which reads as under :
“Shri Zikrullah A. Chaudhary,
Sr.No.150, Plot No.6, Sukhneni
Imperial Pase-III, Moruwadi,
Pimpri, Pune-18.
To
The Asst. Commissioner of Income Tax,
Central Circle-2(3), 4th Floor,
PMT Building, Shankar Seth Road, Swargate,
Pune -411037.
Sub : Our Shares dealings of M/s. Tanu Health Care Ltd. Mumbai. Respected Sir,
Please refer to our discussions held and the explanations demanded by you, I have to state as under.
This is to bring to your kind notice that my shares dealings of M/s. Tanu Health Ltd. purchased the shares of M/s. Tanu Healthcare Ltd. through the brokers by paying Account payee Cheques. The purchase & sale of shares are made through my demat Account. Sale are also made through the brokers for which I have received the cheques. All these details I have submitted to your office.
But there is constant pressure from your office to surrender the income earned from the dealings in share of M/s Tanu Healthcare Ltd. As such to buy the metal peace and to concentrate on my business affairs uninterruptedly I submit to your suggestions.
Further, I assure you that I will pay the Income Tax on above income, provided the Tax Liability is arrived at without Interest & Penalty as promised by you.
Thanking you,
Yours faithfully,
Sd/-
Shri Zikrullah A. Chaudhary”
2.3 In view of the above the Assessing Officer treated the capital gain of Rs.93,48,858/- declared by the assessee as income from other sources.
3. In appeal the Ld.CIT(A) upheld the order of the Assessing Officer by observing as under :
“4. A careful perusal of the material available on record reveals that the AO, during the course of assessment proceedings, started investigating the transaction relating to the sale and purchase of the shares in respect of which long term capital gain has been shown by the appellant. His investigation revealed certain facts which made him believe that the capital gain, in fact, represented his income from other sources. Accordingly, he asked the appellant to show cause as to why the whole of capital gain be not treated as income from other sources. After this show cause, the appellant submitted to his suggestions to treat the capital gain as income from other sources. The relevant portion of the assessment order is reproduced below :
6. Capital Gain on Sale of Penny Stock (Rs. 93,48,858/-):
6.1 A perusal of assessee’s return of income shows that the assessee has disclosed long term capital gain of Rs. 65,97,975/- and has claimed Rs. 27,50,883/- as exempt capital gain. This LTCG has been claimed on shares of M/s Tanu Healthcare Ltd and M/s Comfort Intech Ltd (earlier known as comfort finvest Ltd). The assessee has purchased these shares for very nominal price and has sold at a very high price to claim a LTCG.
6.2 The modus operandi adopted by the assessee is typical of getting accommodation entries of LTCG from purchase and sale of penny stocks unearthed in other cases of Fast Track Finace Ltd and Data finance Ltd. Though the scrip of Tanu Health and Comfort Intech have been found to be listed in BSE but these appear to be dormant shares without any trading in these shares for a long time as seen from List of shares traded at NSE/BSE appearing in The Economic times suggesting that the trading in shares is restricted only for small periods and not distributed throughout the year. When gone through the history and pattern of share holding in respect of these companies, one gets stumbled at the startling fact as to how the pattern of share holding moves in a typical manner over a period of single financial year. It is observed that the prices of these stocks start picking up from May- June of a particular F. Y. and are at peak in the month of October and start falling as the month of March approaches. The financial results of these companies also suggest that these companies have nominal turnover and the annual results show loss which does not explain such volatility in prices of these companies whenever trading is taking place for shares of these companies. In the recent past enquiries with stock brokers in Mumbai and enquiries in cases of beneficiaries at Pune have established the practice of claiming bogus LT capital gains by converting unaccounted money through purchase and sale penny stock company shares and in a large number of cases the brokers as well as the beneficiaries have admitted to have manipulated the prices of penny stock companies.
6.3 Discrete enquiries have revealed that the address of Tanu Healthcare Ltd as per PAN data is I that of a small cyber cafe in Mumbai and the discrete enquiries have revealed that there is no office at that address and it is only a mailing address from where the dak is collected at frequent intervals by the persons connected with Tanu Healthcare. In view of these facts, these companies appear to be merely companies on paper and despite of efforts the functional unit of these companies could not be located. Accordingly, the capital gain claimed on purchase and sale of such dormant shares is nothing but a colorful device to convert unaccounted money into LT capital gain which is attracts the tax @ 10% only or no tax otherwise it would have attracted a higher rate of tax. Though in his statement u/s 132(4) during the course of search, the assessee has stated that these investments have been made as per the advice of his friend, the transaction which he has entered into do not appear to be normal share transactions.
6.4 In Zikrullah’s case, on one occasion it is observed that he has acquired the shares in March 2004 and the payment towards the same has been made only after one year i.e.in April 2005. When confronted about this, Zikrullah has stated that he had asked his broker to buy the said stocks for him and the payment was made by him later on. Normally while giving such accommodation entries the broker raises some nominal book profit (SFCG) in account of client (beneficiary) oil purchases/sales of some known shares and then against such accumulated profits, he debits the cost of penny stock shares as if the shares are purchased in back date in off market at a very nominal rate which is met by the profits already generated by the broker in client’s account. Thereafter, the broker immediately transfers the penny stocks for Demoting and after a series of manipulative transactions the prices of these shares are increased by internal trading in the cartel and then these shares are sold at high prices through same or different broker of the cartel and the sale consideration is paid through cheque/DD in lieu of the cash taken which is equivalent to the sale price plus the amount of commission charged for giving the accommodation entries. The time of purchase of shares is back dated in the manner so as to ensure that they are held for more than 12 months to claim the profits as LTCG. Since the actual transactions are done only when the beneficiary approaches these brokers for the accommodation entry, practically the shares are held only from the date of Demoting them till date of sale but by showing the purchase in off market in back date, they are shown to be held for more than 12 months. However, no profit on sale of shares which were used to buy the penny, stock shares have been disclosed in the returns of Zikrullah suggesting that the purchases shown by broker in respect of penny stocks was merely an accommodation entry and no pm-chases were made at that time and the entries are passed only afterwards just before getting the shares Demoted. Without prejudice to the fact that these are mere accommodation entries, even then the profits can be only STCG as there is no authentic proof of holding those shares before the date of Demat and accordingly taxable @ 30% instead of 10%. Zikrullah had not shown any income from sale of shares before or after AY 05-06 and he has traded mainly in these two shares only. Shri Zikrullah during search could not give satisfactory explanation to various questions posed to him such as why he preferred to do transaction in these shares only when he had never done any transaction in shares before. He did not know anything about these companies such as line of business, their products or turnover, profitability etc. He stated that he transacted in these shares as per advice of his friend.
6.5 When seen in this background, all these aspects appear to be abnormal and give rise to a suspicion that the transactions in purchase and sale is a sham transaction and a colorful device to channelize the unaccounted income earned in the course of regular business. Hence, the assessee was asked to show cause as to why this capital gain of Rs. 93,48,858/- should not be considered as income from other source. The relevant portion of the assessee’s reply vide letter dated 24.12.2009 is as under:
“Please refer to our discussions held and the explanations demanded by you, I have to state as under.
This is to bring to your kind notice that my shares dealings of M/s. Tanu Healthcare Ltd. Mumbai, are genuine and true transactions. This is so because the company is listed, I purchased the shares of M/s. Tanu Healthcare Ltd. through the brokers by paying Account Payee Cheques. The purchases &@ sales of shares are made through my Demat Account. Sales are also made through the brokers for which I have received the cheques. AH these details I have already submitted to your office along with the broker Notes.
But there is constant pressure from your office to surrender the income earned from the dealings in shares of M/s. Tanu Healthcare Ltd. As such to buy the mental peace and to concentrate on my business affairs uninterruptedly I submit to your suggestions.
6.6 In light of the above discussion and the assessee’s own acceptance, the income of Rs.93,48,858/– claimed as capital gain by the assessee is treated as income from other source. Since the assessee has concealed particulars of this income, separate penalty proceedings u/s 271(1)(c) of the I.T. Act, are being initiated.
5. The AO, in view of the acceptance of the exact nature of the transaction by the appellant, finalized the assessment without making further investigation. The appellant, instead of honouring his statement given vide letter dt.24/12/2009 filed appeal against the order of the AO objecting to his action in treating long term capital gain as income from other sources, even though, this treatment was done in pursuance of his statement given vide letter dt.24/12/2009. In his appeal, the appellant has stated that the AO assumed that he agreed to get his capital gain assessed as income from other sources. He further stated that the assessment order should be cancelled as it does not have legs to stand upon.
6. A careful perusal of a letter of the appellant dt.24/12/2009 does not leave any doubt on its interpretation. The letter, in unambiguous terms, surrendered the income earned by the appellant from the dealing in the share of M/s. Tanu Health Care Ltd. By surrendering this income, the appellant prevented the AO from making further investigation. It is a settled law that retraction, if any, has to be immediately after the statement. The person who gives the original statement has to explain delay in giving retraction. Retraction has to be supported by suitable evidenc It is a settled law that admission / statement is a good piece of evidence and the same can be used against the person who makes it. The reason behind this is that a person making a statement stops the opposite party from making further investigation. This view has been held by Hon’ble ITAT Pune Bench in the case of Hotel Kiran Vs. ACIT reported in (2002) 82 ITD 453. Although this decision has been given with reference to statement recorded u/s. 132(4), it is equally applicable to the statement given during the course of assessment proceedings. The Hon’ble ITAT has held that great evidentiary value has been attached to the statement u/s. 132(4) of IT. Act. The relevant portion is reproduced below :-
“7. Rival submissions of the parties as well as material placed before us and the case law referred to by the parties have been considered carefully. The crucial question is whether the addition can be made on the basis of statement recorded u/’s. 132(4) which is alleged to have been retracted by the assessee. It is settled law that admission by a person is a good piece of evidence through not conclusive and the same can be used against a person who makes it. The reason behind this is a person making statement stops the opposite party from making further investigation. This principle is also embedded in the provisions of the Evidence Act. But the statement recorded u/s. 132(4) is on a different footing. The legislature in its wisdom has provided that such a statement may be used in evidence in any proceedings under the IT, Act, 1961. Therefore, in our opinion, great evidentiary value has been attached to such statement.”
In the above judgment itself, the Hon’ble ITAT has laid down the condition in which admission made u/s. 132(4) can be retracted. The admission can be retracted only if it was made involuntarily i.e. obtained under coercion, threat, duress, undue influence etc. The relevant portion of the judgment is reproduced below :-
“8. However, there are exceptions to such admission where the assessee can retract from such admission. The first exception exists where such statement is made involuntarily i.e. obtained under coercion, threat, duress, undue influence etc. But the burden lies on the person making such allegations to prove that statement was obtained by the aforesaid means. The second exception is where the statement has been given under some mistaken belief either of fact or law. It is well settled that there cannot be estoppel against the law. If a person is not liable to tax in respect of any receipt, he cannot be made liable to pay tax merely because he has agreed to pay the tax in the statement under s. 132. He can always retract in such situation. For example, the assessee might have sold his agricultural land and not declared its sale proceeds in his income-tax return. If such agricultural land does not fall within the ambit of the words “capital asset” then no tax is payable. If the assessee had offered to pay tax on the profits on such sale under s. 132(4), in our opinion, he can always retract from such statement. Similarly, if the assessee can show that the statement has been made on mistaken belief on facts, he can retract from the statement if he can show that facts on the basis of admission so made were incorrect. This is what has been held by the Hon’ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. (supra).
9. In view of the above discussions, we are of the view that admission made in statement under s. 132(4) has great evidentiary value and is binding on a person who makes it. Therefore, the addition can be made on the basis of such admission by using the same in evidence. The legislature was well aware that under the general law mere admission may not be conclusive one. The IT Act is a specific Act and assessment has to be made on the basis of material gathered by the AO. For this purpose, vast powers have been conferred on the IT authorities for making investigation including the powers of search. If in the course of such search, the assessee makes some admission, he debars the authorized officer from making further investigation. In view of this, legislature in its wisdom has provided that such statement can be used in evidence and the assessment can be made on the basis of such statement. The sanctity of such provision would be lost if the assessee is allowed to contend that no addition can be made on the basis of such admission. However, such admission can be retracted by the assessee only if the circumstances as mentioned in the earlier paragraphs are established by the assessee to exist. “
Under the circumstances, the established law is that any statement / admission unless it is recorded under coercion, threat, duress or undue influence have good evidentiary value. In the present case, the statement was given in writing to the AO. There is nothing on record that the statement was given under coercion, threat or duress. Under the circumstances, the appellant cannot retract the same. Therefore, the AO was justified in his action in treating the long term capital gain shown by the appellant as income from other sources.”
3.1 Aggrieved with such order of the CIT(A) the assessee is in appeal before us with the following grounds :
“1. On the facts and in the circumstances of the case the learned CIT(A) has erred in confirming the addition made by the Assessing Officer treating the long term capital gain as income from other sources merely on the basis of the letter filed by the appellant surrendering the long term capital gain arose on sale of shares of M/s Tanu Health Care Ltd., which letter was given under constant pressure from the Assessing Officer as specifically so mentioned in the said letter itself and without examining and considering the factual evidences and submission proving the genuineness of long term capital gain.
2. On the facts and in the circumstances of the case both the learned CIT(A) and Assessing Officer have erroneously relied on some of the objectionable transactions of sale of shares of some other companies considered as dealing in penny stock and having absolutely no relevance direct or indirect to the genuine transactions of sale of shares by the appellant.
3. On the facts and in the circumstances of the case the lower authorities have erred in making this addition based on notional and imaginary situation and totally unsubstantiated.
4. The above grounds of appeal may kindly be allowed to be amended, altered modified etc., in the interest of natural justice.”
4. The Ld. Counsel for the assessee strongly challenged the order of the CIT(A). He submitted that the assessee in his statement recorded during the search u/s.132(4) had clearly stated that the transactions are genuine. Referring to the copies of the contract notes, he submitted that the purchase and sales are through broker and they have been routed through the Demat account of the assessee. The payments have been made and received by cheques and therefore the transaction should not be disbelieved merely because the payment has been made to the broker towards the cost of purchase after a lapse of one year. He submitted that the Assessing Officer only suspects and has not found any defect in the said transactions for which he forced the assessee to surrender.
4.1 Referring to the decision of the Pune Bench of the Tribunal in the case of Avinash Kantilal Jain he submitted that under identical facts and circumstances the Tribunal has treated the capital gain received on transfer of shares as Long Term Capital Gain and thereby allowed the deduction u/s.10(38). Referring to the decision of the Mumbai Bench of the Tribunal in the case of Mukesh R. Marolia Vs. Addl.CIT he submitted that in the said decision the Tribunal has held that purchase and sale of shares having been regularly accounted for by the assessee in its books and this fact having been confirmed in survey conducted by the department, addition of sale proceeds of shares u/s.69 could not be made solely on the basis of fact that transactions were not routed through stock exchange. He submitted that since the assessee was forced to surrender the income by the Department through pressure, therefore, the assessee had no other option but to surrender the same under coercion. He also filed a copy of the Pune Bench of the Tribunal in the case of Moti Udharam Panjabi & other connected appeals vide order dt. 31-10-2012
5. The Ld. Departmental Representative on the other hand heavily supported the order of the CIT(A). He submitted that any investigation by the Department in tax matters starts with suspicion. The assessee never appeared before the Assessing Officer and was represented by his counsel only, therefore, the assessee cannot say that he made the surrender due to coercion.
5.1 Referring to the Dictionary meaning of “Coercion” as per Wikipedia, he submitted that “Coercion is the practice of forcing another party to act in an involuntary manner by use of intimidation or threats or some other form of pressure or force, and describes a set of various different similar types of forceful actions that violate the free will of an individual to induce a desired response. These actions can include, but are not limited to, extortion, blackmail, torture, and threats to induce favors. In law, coercion is codified as a duress crime. Such actions are used as leverage, to force the victim to act in a way contrary to their own interests. Coercion may involve the actual infliction of physical pain/injury or psychological harm in order to enhance the credibility of a threat. The threat of further harm may lead to the cooperation or obedience of the person being coerced.”
5.2 He submitted that coercion may be either physical or psychological. However, in the instant case, the assessee never appeared before the Assessing Officer, therefore, the question of physical or psychological coercion does not arise at all. He submitted that the assessee in the instant case does not know the broker who purchased the shares for him. It is quite unbelievable that the broker at the instance of the friend of the assessee purchased the shares at a very nominal price without receiving any payment and sells the same after a period of one year and gives back the huge amount of money to the assessee. It is not possible by any prudent or sensible person to part with such huge amount to a stranger. Therefore, when these facts were detected by the Assessing Officer, the assessee surrendered the income.
5.3 Referring to the decision of Hon’ble Bombay High Court in the case of Rameshchandra & Co. Vs. CIT reported in 168 ITR 375 he submitted that the Hon’ble High Court in the said decision has held that where an assessee has made the statement of facts he could have no grievance if the taxing authority taxes him in accordance with that statement. If he can have no grievance he could file no appeal. Therefore, it is imperative if the assessee’s case is that his statement has been wrongly recorded or that he made it in a mistaken belief of fact or law, then he could make an application for rectification to the party which passed the order based upon that statement. Until rectification is made the appeal is not competent.
5.4 Referring to the decision of Hon’ble Kerala High Court in the case of Mahesh B. Shah Vs. CIT reported in 238 ITR 130 he submitted that the Hon’ble High Court in the said decision has held that when the petitioner agreed to treat the expenditure as a capital expenditure both before the Assessing Officer as well as before the revisional authority and when no evidence or material was furnished to show that the petitioner was coerced to make a statement, nothing prevented the petitioner to retract the same. The allegation of compulsion or coercion could not be accepted on a mere statement. In absence of any material to show before the authorities or before the High Court to establish that this was a Revenue expenditure and it was expended wholly and exclusively for the purpose of business, there was no scope to interfere with the order of the CIT under Article 226.
5.5 He also relied on the following decisions :
i. Ramanlal Kamdar Vs. CIT reported in 108 ITR 73
ii. Sterling Machine Tools Vs. CIT reported in 123 ITR 181
5.6 The Ld. Counsel for the assessee in his rejoinder referred to the decision of Hon’ble Delhi High Court in the case of Ester Industries Ltd. Vs. CIT reported in 316 ITR 260 and submitted that the Hon’ble High Court has held that admission is not conclusive evidence. Referring to the decision of the Hon’ble Madras High Court in the case of CIT Vs. K. Bhuvanendran reported in 303 ITR 235 he submitted that when there was no evidence or material found during the course of search operation and the statement recorded from the assessee was subsequently retracted and rebutted and when the sale deed disclosed the sale consideration, it is for the revenue to show that what was disclosed in the sale deed is not the correct sale consideration. The statement could not be the basis for making any addition. He accordingly submitted that even though the assessee has surrendered the amount due to coercion by the Department the same cannot be the basis for an addition in absence of any contrary material at the possession of the Revenue.
6. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find in the instant case the assessee declared long term capital gain of Rs.93,48,858/- on account of sale of shares of M/s. Tanu Health Care Ltd. and Comfort Intech Ltd. and claimed Rs.27,58,883/- as exempt. We find the Assessing Officer disallowed the claim of such long term capital gain of shares of M/s. Tanu Health Care Ltd. and Comfort Intech Ltd.on the ground that the assessee has purchased the shares for a very nominal price which was sold at a very high price to claim long term capital gain and when confronted the assessee surrendered the same income. Accordingly, the Assessing Officer treated the claim of long term capital gain of Rs.93,48,858/- as income from other sources.
6.1 We find the Ld.CIT(A) upheld the action of the Assessing Officer on the ground that the assessee in his letter in unambiguous terms surrendered the income earned by him from the dealing in shares of M/s. Tanu Health Care Ltd. and M/s. Comfort Intech Ltd. By surrendering this income the assessee prevented the Assessing Officer from making any further investigation and there was no retraction immediately after the statement.
6.2 It is the submission of the Ld. Counsel for the assessee that he has surrendered the income due to coercion by the Department since there was constant pressure to surrender the said income. It is also the submission of the Ld. Counsel for the assessee that the shares were purchased through broker by account payee cheques and the sale of shares were through his Demat account through the broker and the amounts have been received by cheque. It is the case of the Revenue that the surrounding circumstances point out that the transactions are bogus and a colourable device to convert the black money into white. When this was confronted to the assessee, the assessee surrendered the income. Therefore, the order of the CIT(A) being justified be upheld.
6.3From the various details furnished by the assessee we find the cost of purchase of shares of M/s. Tanu Health Care Ltd. were made after a lapse of more than one year from the date on which shares were purchased by the broker. The assessee was not known to the broker. During the course of search the statement of the assessee was recorded wherein he has stated that the sale transactions were done as per advice of his friend Shri Anand Jaju, Pune who has expertise in share market. The relevant question and answer of the assessee are as under :
“Q.No.11 In your statement recorded on oath on 24-10-2007, you were asked about your investment in shares of “Tanu Healthcare P. Ltd.” as it appears the transaction appears to be a colourable transaction wherein the payment for acquiring shares was made after a lapse of more than one year from the date on which the shares were actually acquired by you. Do you have to offer your comment about this?
Ans : As stated earlier, I have entered into this transaction with a genuine belief to earn some profit. Accordingly, I have made cheque payment for this investment and have recd. back some handsome returns through cheques only. As stated earlier, this was done as per advice of my friend Shri Anan Jaju from Pune who hold expertise in share market investment. To the best of my knowledge, the entire transaction is genuine and accounted for.”
6.4 From the submission of the Ld. Counsel for the assessee we find the assessee is not known to the broker and made the transaction of purchase of shares on the advice of his friend and the cost of purchase of shares was not given to the broker. Only a few days before the sale of shares the payment has been made and the assessee after selling the shares got huge amount of profit. It is strange to believe that a person not known to the assessee will invest in the purchase of shares on behalf of his unknown client without receiving any money and after a period of one year will give away an amount of above Rs.90 lakhs profit without retaining the same for himself. Even the middleman, i.e. in the instant case, friend of the assessee who had expertise in purchase and sale of shares has not made any profit for himself and has given away the money to the assessee which is very substantial. All these things in our opinion are against human probabilities.
6.5 We find the Hon’ble Supreme Court in the case of Sumati Dayal Vs. CIT reported in 214 ITR 801 has held as under :
“It is no doubt true that in all cases in which a receipt is sought to be taxed as income, the burden lies upon the Department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee. (See Parimisetti Seetharamamma [1965] 57 ITR 532 at page 536). But, in view of section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut it the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably. (See Sreelekha Banerjee’s case [1963] 49 ITR (SC) 112 at page 120).
In the instant case, the amount is credited in the capital account in the books of the appellant. The appellant has offered her explanation about the said receipts being her winnings from races. The said explanation has been considered in the light of the sworn statement of the appellant dated January 6, 1973, and other material on record. The Income tax Officer and the Appellate Assistant Commissioner have not accepted the explanation offered by the appellant. The two members constituting the majority in the Settlement Commission have also taken the same view.
There is no dispute that the amounts were received by the appellant from various race clubs on the basis of winning tickets presented by her. What is disputed is that were they really the winnings of the appellant from the races. This raises the question whether the apparent can be considered as the real. As laid down by this court the apparent must be considered the real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. (See : CIT v. Durga Prasad More [1971] 82 ITR 540 (SC), at pages 545, 547).”
6.6We find the Hon’ble Supreme Court in the case of CIT Vs. Durga Prasad More reported in 82 ITR 540 has held as under :
“though an apparent statement must be considered real until it was shown that there were reasons to believe that the apparent was not the real, in a case where a party relied on self serving recitals in document, it was for that party to establish the truth of those recitals. The taxing authorities are entitled to look into the surrounding circumstances to find out the reality of such recitals.”
6.7We further find that the assessee during the course of assessment proceedings has surrendered the income after the modus operandi as discussed by the Assessing Officer in the body of the assessment order was confronted. It is a fact that the assessee never appeared before the Assessing Officer and was always represented by his Advocate. Therefore, the submission of the Ld. Counsel for the assessee that the assessee has surrendered the income due to coercion in our opinion is not substantiated. It is only after the Department confronted the modus operandi adopted by the assessee that the assessee surrendered the income before the Assessing Officer.
6.8 We find the Hon’ble Bombay High Court in the case of Rameshchandra and CO. (Supra) has held as under :
“The judgment of this court in Jivatlal Purtapshi’s case [1967] 65 ITR 261 was, as the Tribunal held, squarely applicable. It was stated by this court (at p. 266) that ” what is voluntarily accepted cannot give rise to a grievance which can be taken further in appeal. In the appeal memo, which was filed by the Department, the only ground taken was that the deletion of the item by the Appellate Assistant Commissioner was erroneous. The said ground was obviously unsustainable, since there could be no error on the part of the Appellate Assistant Commissioner in accepting the concession which was made by the Department before him. In these circumstances, the preliminary contentions, which were raised on behalf of the assessee before the Tribunal, were entitled to succeed and the Tribunal should have held in favour of the assessee that the appeal of the Department in respect of the deletion of the said item was neither competent nor capable of being entertained by the Tribunal.”
Mr. Thakkar, learned counsel for the assessee, relied upon the judgment of the Punjab and Haryana High Court in Chhat Mull Aggarwal v. CIT [1979] 116 ITR 694, 696. The court was called upon to decide, inter alia, this question :
” Whether, on the facts and in the circumstances of the case, the Tribunal was, in law, right in holding that in the absence of a rectification application and in the absence of an affidavit of the assessee explaining the circumstances which misled the assessee to give his consent to the addition of Rs. 15,000, no appeal could lie to the Appellate Assistant Commissioner ? “
It said, in answer, that it could not be held as a matter of law that the remedy of appeal under the Act could not be availed of by the assessee without having filed a rectification application before the Income tax Officer in a case where the order of the Income tax Officer showed that the assessee had agreed to the addition to the income. There was no provision in the Act wherein the remedy of appeal against the order of the Income tax Officer or of the Appellate Assistant Commissioner was barred if the impugned order mentioned that the order had been passed on the agreement of the assessee. the provisions of the Act entitled an assessee to file an appeal against the order of the Income tax Officer before the Appellate Assistant Commissioner where the assessee denied his liability to be assessed under the Act. It was a different matter if the Appellate Assistant Commissioner came to the conclusion that the order was passed on the admission of the assessee and the assessee was unable to explain that the admission was wrongly recorded under some mistaken belief of fact and law. In that case, the Appellate Assistant Commissioner could dismiss the appeal on merits but it could not be held as matter of law that no appeal was competent. It was no doubt true that in a case where the admission of the assessee had been wrongly recorded in the assessment order, it was open to the assessee to file a petition for rectification; but if the order was appealable, it was equally open to the assessee to avail of the remedy of appeal and the appellate authority would have to decide the appeal on merits. Nor was it necessary for the assessee to file an affidavit in support of his submissions in all cases. The assessee might choose to file an affidavit in support of his submissions and, if he chose not to file it, the circumstances appearing on the file had to be judged in the light of the material available and if there were sufficient circumstances on the file to come to the conclusion that the admission made by the assessee was not binding on him, he would be entitled to the relief in appeal.
With great respect to the learned judges of the Punjab and Haryana High Court who decided Chhat Mull Aggarwal’s case [1979] 116 ITR 694, we are unable to agree. Where an assessee has made a statement of facts, he can have no grievance if the taxing authority taxes him in accordance with that statement. If he can have no grievance, he can file no appeal. Therefore, it is imperative, if the assessee’s case is that his statement has been wrongly recorded or that he made it under mistaken belief of fact or law , that he should make an application for rectification to the authority which passed the order based upon the statement. Until rectification is made, an appeal is not competent.
In these circumstances, we are of the view that the Tribunal was right in the conclusion to which it came and we answer the question in the negative and in favour of the Revenue.
The assessee shall pay to the Revenue the costs of the reference.”
6.9 Since the assessee in the instant case has surrendered the income before the Assessing Officer for which the Assessing Officer did not proceed for any further enquiry and completed the assessment by treating the long term capital gain as income from other sources and since the surrounding circumstances of the case also prove that the transactions in purchase and sale of shares is just a colourable device especially when the assessee had not done any such transaction in the preceding or subsequent year and the assessee even does not know the broker personally, therefore, we find no infirmity in the order of the CIT(A) confirming the action of the Assessing Officer. We accordingly uphold the same. Grounds raised by the assessee are accordingly dismissed.
7. In the result, the appeal filed by the assessee is dismissed.
Pronounced in the Open Court on 04-03-2014.
