IT : Where transaction of shares of a listed company was done through Demat account as per recognized Stock Exchange quoted price, same cannot be held as non-genuine
■■■
[2013] 35 taxmann.com 211 (Ahmedabad - Trib.)
IN THE ITAT AHMEDABAD BENCH 'D'
Meenadevi N. Gupta
v.
Assistant Commissioner of Income-tax, Circle -5, Surat*
MUKUL KR. SHRAWAT, JUDICIAL MEMBER
AND D.K. SRIVASTAVA, ACCOUNTANT MEMBER
AND D.K. SRIVASTAVA, ACCOUNTANT MEMBER
IT APPEAL NOS. 4512 & 4513 (AHD.) OF 2007
[ASSESSMENT YEAR 2004-05]
[ASSESSMENT YEAR 2004-05]
MAY 10, 2013
Section 45, read with section 68, of the Income-tax Act, 1961 - Capital gains - Chargeable as [Share transactions] - Assessment year 2004-05 - Assessee filed return showing capital gain arising out of purchase and sales of shares done through a share broker - She furnished purchase and sale bills of share transaction - Since share brokers denied transaction, Assessing Officer concluded that share transaction was not genuine and, therefore, taxed it as income from undisclosed sources - However, it was found that shares were in respect of a listed company and transaction was through Demat account as per recognized Stock Exchange quoted price - Whether there was no reason to hold such nature of transaction as non-genuine - Held, yes [Para 5] [In favour of assessee]
FACTS
| ■ | The assessee filed the return declaring her income including income shown under the head long-term capital gain. The capital gain was out of the purchase and sales of shares. The assessee had purchased shares of a limited company through a share broker and furnished the purchase and sale bills of the share transaction. | |
| ■ | The Assessing Officer issued notices to the said brokers under section 133(6) and they denied the transaction. Also, no trading was recorded in the Stock Exchange. However, the assessee produced the 'dematerialization request form' which she was asked to fill up in respect of transaction of shares of the company in 'dematerialization request form'. Also, the assessee had duly disclosed in the balance-sheet the purchase of those shares in relevant assessment year. | |
| ■ | The Assessing Officer concluded that the purchase and sale Bills furnished by the assessee in respect of the share transactions was not genuine. | |
| ■ | The Assessing Officer held that the impugned long term capital gain was nothing but unaccounted income of the assessee. | |
| ■ | On appeal, the Commissioner (Appeals) affirmed the order of the Assessing Officer. | |
| ■ | On second appeal: |
HELD
| ■ | Even in the absence of the confirmation by those share brokers one has to examine that whether the shares have been purchased and after retaining them for a certain period those shares have actually been sold by the assessee. In the present case, facts have revealed that the shares of Sarang Chemicals were duly demated and thereupon the sales were made through banking transactions. The Demat account maintained with ICICI bank has revealed the shares numbers, etc. A certificate was also issued by 'share transfer agent' that the transfer of those shares in the name of the assessee was duly approved. The assessee has expressed to hold those shares in 'dematerialized form' therefore the assessee was asked to fill up the 'dematerialization request form'. This information is very vital and proves the fact that the assessee had in fact purchased the shares of Sarang Chemicals Ltd. Also the assessee in the past assessment year had duly disclosed in the balance-sheet the purchase of those shares. Although, it was an off market transaction but it was properly documented and duly supported by relevant evidences. | |
| ■ | Once the shares were in respect of a listed company and transaction was through Demat account which was as per the recognized Stock Exchange quoted price, then there was no reason to hold such nature of transaction as non-genuine. [Para 5] |
R.B. Shah for the Appellant. Rajesh Kumar for the Respondent.
ORDER
Mukul Kr. Shrawat, Judicial Member - These two appeals are hereby consolidated both emanated from the orders of CIT(A)-III, Surat identically dated 22/10/2007. We shall take up the lead case of Smt. Meenadevi N. Gupta, wherein the ground No.1 is as follows:-
[A] ITA No.4512/Ahd/2007
| 1. | On the facts and in circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in treating the income from capital gain on sale of shares as income from undisclosed sources. |
2. Facts in brief as emerged from the corresponding assessment order passed u/s.143(3) of the IT Act dated 18/12/2006 were that the assessee had filed the income-tax return declaring an income of Rs.15,16,700/- which has included an income shown under the head long-term capital gain. The working of the capital gain was submitted before the AO as under:-
| "Sales consideration received Date 06.05.2003 | Rs.15,93,625/- | |
| Less :- Cost of acquisition Date - 08.03.2002.. | Rs. 1,19,705/- | |
| Long Term Capital Gain….. | Rs.14,73,919/-" |
2.1 The capital gain was out of the purchase and sales of shares. Therefore, the assessee has furnished the purchase and sales bills of the share transaction. It was noted by the AO that the assessee had purchased 27500 shares of Sarang Chemicals through a share broker; viz. G.R. Pandya Share Broking Ltd. vide a Bill dated 08/03/2002. The cost of share was stated to be @ Rs.4.35 per share. Later on, shares were sold through a share broker namely Sanjay R. Shah as bill dated 06/05/2003 @Rs.57.95. To verify the genuineness of the transaction, the AO had issued notices u/s.133(6) of the Act to the said brokers. In response, one of the broker, namely Shri G.R. Pandya vide a letter has denied the transaction. He has written to the AO that no transaction was done nor any bill was issued. Likewise, the other broker Shri Sanjay R. Shah, through whom the shares were sold has also informed to the AO that the bills were false and no such transaction was carried out by him. The AO has also enquired from the Stock Exchange and noted that no trading was recorded in the Stock Exchange. He has concluded that the purchase and sales Bills furnished by the assessee in respect of the share transactions was not genuine. A show-cause notice was issued and in compliance assessee has narrated the facts as under:-
"2. Assessee showed long term capital gain of Rs.14,73,919/- on sale of 27,500 shares of sarang chemicals Ltd. assessee purchased these shares through the broker G.R. Pandya Share Broking Ltd. through bill no.B/239/0012 dated 8.3.2002 at Rs.4.35/- per share. Assessee purchased these shares through this broker, which is supported by cash voucher, bill and contract note. The market price prevailing on that day was at par with price at which assessee Purchased shares. The share purchased were duly transferred in assessee's name by the Company After obtaining the physical delivery of the shares, he said shares were dematerialized. (copy of demat account with ICICI bank is enclosed). The broker namely G.R. Pandya share Broking Ltd. might have denied the transaction in order to save their skin. The sales of the shares have also been done though broker namely Sanjay R Shah vide bill no.BW/03025/006 dated 6.5.2003 at 57.95/- per share. The sale of shares through this broker is supported by bill and contract note. On sale of the share assessee parted with the delivery of the shares from here demat account. (copy of demat account with ICICI bank is enclosed). The broker namely Sanjay R Shah might have denied the transaction in order to save his skin. As the shares have been purchased through off market transaction, the said transactions are not reflected in the stock exchange.
3. The assessee had purchased 27500 equity shares of sarang chemicals Ltd. on 08.03.2002 for Rs.119705/7. The said company was listed with Bombay stock exchange and Ahmedabad stock exchange. The equity shares purchased were held by the assessee for the period of approx. 14 months. The shares were purchased off market at prevailing market rate. Accordingly shares were transferred in the name of assessee by the company/company's register. The investment in above share being duly reflected in balance sheet as on 31.3.2003. Subsequently as required by the law in force the shares were dematerialized through ICICI bank Ltd. in the name of assessee. For your verification and record purpose we are furnishing photo state copy if relevant demat account and delivery slips.
4. In view to liquidate money assessee decided to offload its holding of equity shares of Sarang chemicals Ltd. on 6.5.2003 at prevailing market price of the shares in Ahmedabad stock exchange. In view if this, conclusion arrive by you that the transactions were not genuine is not correct.
5. Entire transaction were effected through the stock broker attached with stock exchanges, Relevant bills and contract note already being furnished to your good self Proceeds were received by account payee draft from the broker through whom we have sold these shares.
6. In view of the submission made here in before, the transactions effected by the assessee were fully genuine and accordingly gains were offered for taxation. Sir, it may be possible that the share broker of the assessee might have transacted the deal off market i.e. directly party to party.
7. In view of the above, your Honour is requested not to draw any adverse inference in regard to transaction of purchase and sale of shares."
2.2 However, the AO was not convinced and summarized that in the light of the information gathered from the share brokers, who have denied of any such transaction with the assessee, the purchase and sales of the shares was not genuine. He has noted that the contract note issued by those brokers did not mention the Order Number, Trade Number and time of the trade. The purchase transaction was made in cash, however, as per the SEBI's Circular dated 18.11.1993 member-brokers were directed not to accept cash for purchase of securities and/or give cash against sales of securities. The direction was that the payments received or made should be through crossed - payee account cheques. The AO was not even convinced that the shares were dematerialized in Demat account with ICICI bank. He has held that in a situation when purchases were not genuine, then there was no question of holding of Demat account. According to AO, the assessee has also not established that the transactions were intimated to the Stock Exchange. The AO has thus concluded that the sale consideration of Rs.15,93,625/- was the income from undisclosed sources and taxed accordingly in the hands of the assessee. The matter was carried before the first appellate authority.
2.3 The ld.CIT(A) has repeated the reasons given by the AO for holding that the impugned long term capital gain was nothing but unaccounted income of the assessee. The ld.CIT(A) has added that the assessee had tried to introduce her unaccounted money into the legitimate income by paying lesser tax as income from long term capital gain. At one place, he has also referred that the another lady of the same house Smt. Sunitadevi A. Gupta (the other appellant before us) has shown the same transactions but that transaction was also not accepted by him. Since the action of the AO was confirmed, hence the assessee is now further in appeal.
3. From the side of the assessee, ld.AR Mr. R.B. Shah A.R. appeared and argued that the main reason of denial of the transaction by those brokers was that they have not informed the transaction to the SEBI. Therefore, to safe their own skin, they have not accepted the transactions., although made through them. He has drawn our attention on certain documents which were made part of the paper-book. As per a letter of Ahmedabad Stock Exchange Ltd., the price quotation of transaction of Sarang Chemicals Ltd. was as per the price reported in the Stock Exchange. The price as per Stock Exchange of Sarang Chemicals Ltd. as on 06/05/2003 was shown as open rate at Rs.58 and close rate was shown at Rs.40/-. The assessee has also gathered the information in respect of the price of the share in the month April-2003. According to ld.AR, the share broker Shri Sanjay R. Shah has duly certified the sale of shares of Sarang Chemicals Ltd. at the rate of Rs.57.95 vide Bill dated 6/5/2003 which was also signed by the said broker. The ld.AR has vehemently placed reliance on a letter issued by share transfer agent namely suburban System Services dated 10/03/2003. The certificate was issued in respect of Unit Sarang Chemicals Ltd." which reads as under:-
"UNIT : SARANG CHEMICALS LIMITED
DEAR SIR(S)/MADAM
YOUR RQUEST FOR TRNASFER OF THE BELOW MENTIONED SHARES HAS BEEN APPROVED. YOU WISH TO HOLD THESE SHARES IN THE DEMATERILISED FORM, YOU MAY SEND THIS LETTER ALONGWITH THE DEMATERIALISATION REQUEST FORM THROUGH YOUR DEPOSITORY PARTICIPANT WITH WHOM YOU HAVE OPENED A DEPOSITORY ACCOUNT. IF THE DEMATERIALISATION REQUEST IS NOT RECEIVED WITHIN 21 DAYS FORM THE DTE OF THIS LETTER. THE RELEVANTCERTIFICATIE(S) SHALL BE DESPATCHED TO YOU. HOWEVER, IF YOU DESIRE TO OBTAIN THE CERTIFICATES SUBSEQUENTLY YOU MAY INDICATE THE SAME TO US."
3.1 The assessee was informed that the request for transfer of those shares had been approved. The said concern has also informed that the transfer of shares were recorded and the transfer was as per the reference of a folio number mentioning 27500 shares of Unit Sarang Chemicals Ltd. This letter was dated 15.12.2002. Further, ld.AR has drawn our attention Demat account maintained with ICICI bank. Through this information, it is evident that the sale was "Off Market Cell". The Demat account had reflected that the same was credited on 7/5/2003 and sale was recorded on 9/5/2003. The purchase was made through G.R. Pandya Share Broking Ltd. and his Bill dated 8/3/2002 with Bill Number has also been placed on record. Ld.AR has also mentioned that service charges has also been debited to the account of the assessee. The assessee has duly paid the brokerage with those brokers. When the sales were made, the ICICI bank duly mentioned the cheque numbers, therefore there was no occasion to deny the claim of long term capital gain by the assessee. Ld.AR has also strongly contested that the purchase of shares were duly reflected in the past as per the balance-sheet of the immediately preceding assessment year furnished with the Revenue Department. Ld.AR has also placed reliance on a CBDT Circular No.704 dated 28/04/1995 and relevant para-2; for ready reference is reproduced below:-
"2. When the securities are transacted through stock exchanges, it is the established procedure that the brokers first enter into contracts for purchase/sale of securities and thereafter, follow it up with delivery of shares, accompanied by transfer deeds duly signed by the registered holders. The seller is entitled to receive the consideration agreed to as on the date of contract. The Board are of the opinion that it is the date of broker's note that should be treated as the date of transfer in cases of sale transactions of securities provided such transactions are followed up by delivery of shares and also the transfer deeds. Similarly, in respect of the purchasers of the securities, the holding period shall be reckoned from the date of the broker's note for purchase on behalf of the investors. In case the transactions take place directly between the parties and not through stock exchanges the date of contract of sale as declared by the parties shall be treated as the date of transfer provided it is followed up by actual delivery of shares and the transfer deeds."
3.2 Reliance has also been placed on certain decisions; namely -
| 1. | Manojkumar Sarawagi HUF | ITA Nos.3233 & 3156/Ahd/2010 - AY 2007-08 (ITAT "A" Bench Ahmedabad order dated 16.3.2012) |
| 2. | Kantadevi Sarawagi | ITA Nos.3232 & 3157/Ahd/2010 - AY 2007-08 (ITAT "C" Bench Ahmedabad order dated 14.10.2011) |
| 3. | Smt.Vimalrani Biharilal Batra | ITA No.7662/Ahd/2009 for A.Y. 2005-06 (ITAT "D" Bench order dated 16.9.2011) |
| 4. | Smt.Kanta Gopal | ITA No.1858/Ahd/2005 for A.Y. (ITAT "C" Bench Ahmedabad order dated 23/09/2009) |
| 5. | Shri Prakashchand S. Sandh | ITA No.3270/Ahd/2009 for A.Y. 2005-06 (ITAT "D" Bench Ahmedabad order dated 24/02/2009) |
| 6. | Shri Sanjay K. Agarwal | ITA No.3142/Ahd/2007 (ITAT "C" Bench Ahmedabad for AY 2003-04 order dated 12/02/2010 |
4. From the side of the Revenue, ld. Sr. DR Mr. Rajesh Kumar has vehemently supported the view taken by the Revenue Department. He has pleaded that the assessee had failed to establish the genuineness of the purchaser of the shares, therefore the entire claim was bogus, hence the AO had rightly taxed the same under the head undisclosed income. The assessee was informed a bout the denial but the assessee has chosen not to cross-examine those share brokers. Ld. DR has also raised doubts about the correctness of the dates as mentioned in various services. He has also pleaded that the case laws cited by the assessee are distinguishable on facts basically on the ground that in those case laws there was no denial of any transaction by the share brokers. In assessee's case, there was a specific denial by both the share brokers; therefore the action of the AO should be confirmed.
5. We have heard both the sides at some length. We have carefully perused the orders of the authorities below in the light of the compilation filed and case laws cited. According to us, there are certain cogent evidences which otherwise corroborate the claim of the assessee. According to us, even in the absence of the confirmation by those share brokers one has to examine that whether the shares have been purchased and after retaining them for a certain period those shares have actually been sold by the assessee. In the present case, facts have revealed that the shares of Sarang Chemicals were duly demated and thereupon the sales were made through banking transactions. The Demat account maintained with ICICI bank has revealed the shares numbers, etc. From the side of the assessee, it is vehemently contested that there was a reason of denial of transaction by those share-brokers because they have not intimated the transaction to the SEBI and that one of them has also made the purchase transaction in cash which was against the SEBI guidelines. Apartment from these evidences, our attention has also been drawn on a certificate issued by "share transfer agent" that the transfer of those shares in the name of the assessee was duly approved. The assessee has expressed to hold those shares in "dematerialized form" therefore the assessee was asked to fill up the "dematerialization request form". This information is very vital and proves the fact that the assessee had in fact purchased the shares of Sarang Chemicals Ltd. It is also difficult to ignore an another factual position that the assessee is in the past assessment year had duly disclosed in the balance-sheet the purchase of those shares. Although, it was an off market transaction but it was properly documented and duly supported by relevant evidences. We have examined few case-laws, wherein the Respected Co-ordinate Benches have also taken a view that once the purchase of shares have duly been recorded in the balance-sheet in one financial year and later on, those very shares have been sold in another financial year, then the purchase of shares should not have been doubted, if duly recognized by the said company and later on transacted through banking channel. To keep brevity in mind, we are not discussing all those case-laws or cited decision of the tribunal, wherein almost on identical facts when the purchases were doubted by the Revenue Department, but considering the totality of the facts and circumstances of the case a conscious view have been taken that once the shares were in respect of a listed company and transaction was through Demat account which was as per the recognized Stock Exchange quoted price, then there was no reason to hold such nature of transaction as non-genuine. Respectfully following these decisions and other case laws, we hereby reverse the factual as also legal findings of the Authorities below and direct to assess the impugned transaction under the head long term capital gain.
6. Ground No. reads as under:-
2. On the facts and in circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax(Appeals) has erred in confirming the action of the Assessing Officer in making addition of Rs.65,000 for alleged low household expenses.
6.1 In respect of household expenditure, the AO has held that the family of the assessee consisted six members inclusive of four school/college going children. The addition as made by the AO for low-household expenditure was confirmed by CIT(A). After considering the totality of the circumstances of the case, we find no reason to interfere with the findings of the Revenue Authorities, therefore affirm the same. Resultantly, this ground of the assessee is dismissed.
7. In the result, appeal is partly allowed.
[B] ITA No.4513/Ahd/2007
8. Grounds read as under:-
| 1. | On the facts and in circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in treating the income from capital gain on sale of shares as income from undisclosed sources. | |
| 2. | On the facts and in circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in making addition of Rs.47,300/- for alleged low household expenses. |
8.1 At the outset, ld.AR has stated that the facts of the case are similar to the facts as discussed hereinabove. On perusal of the orders of the AO and CIT(A), it is evident that almost in an identical manner, the shares were purchased of Sarang Chemicals Ltd. through those very share-brokers. Further, in this case, as well, the assessee has maintained "demat account" with ICICI Bank. On sale of shares, assessee had parted with the delivery of the shares from the said demat account. The assessee had purchased 27500 equity shares of Sarang Chemicals Ltd. on 08/03/2002 for a sum of Rs.1,19,705/- and the same was duly disclosed as per the balance sheet shown on 31.3.2003. The transaction was as per the prevailing market rate because the said company was listed with Bombay Stock Exchange as well as Ahmedabad Stock Exchange. On these very facts, a view has already been expressed by us in favour of assessee, therefore in identical manner, ground No.1 goes in assessee's favour. However, in respect of ground No.2, after considering the facts of the case, we are of the view that no interference is required, hence dismiss this ground. Resultantly, this appeal of the assessee is also partly allowed.
9. In the result, ITA Nos.4512 and 4513/ahd/2007 both are partly allowed.
SB*In favour of assessee.
Regards
Prarthana Jalan
__._,_.___
No comments:
Post a Comment