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DATE: January 16, 2017 (Date of pronouncement)
DATE: February 6, 2017 (Date of publication)
AY: 2011-12
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CITATION:
S. 68: Even if the premium at which the shares are issued defies commercial prudence, the receipt cannot be assessed as "unexplained credit" if the identity of the payer, genuineness of the transaction and capacity of the subscriber are not disputed. Interest earned on short-term fixed deposits is assessable as "profits and gains of business" and not as "income from other sources"

Mr.Chhotaray the learned counsel for the Revenue states that the impugned order itself holds that share premium of Rs.490/per share defies all commercial prudence. Therefore it has to be considered to be cash credit. We find that the Tribunal has examined the case of the Revenue on the parameters of Section 68 of the Act and found on facts that it is not so hit. Therefore, Section 68 of the Act cannot be invoked. The Revenue has not been able to show in any manner the factual finding recorded by the Tribunal is perverse in any manner

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DATE: January 6, 2017 (Date of pronouncement)
DATE: January 16, 2017 (Date of publication)
AY: 2005-06
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CITATION:
Bogus capital gains from penny stocks: The fact that the Stock Exchanges disclaimed the transaction is irrelevant because purchase and sale of shares outside the floor of Stock Exchange is not an unlawful activity. Off-market transactions are not illegal. It is always possible for the parties to enter into transactions even without the help of brokers. Therefore, it is not possible to hold that the transactions reported by the assessee were sham or bogus

Purchase and sale of shares outside the floor of Stock Exchange is not an unlawful activity. Off-market transactions are not illegal. It is always possible for the parties to enter into transactions even without the help of brokers. Therefore, it is not possible to hold that the transactions reported by the assessee were quite sham on the legal proposition arrived at by the CIT(A) that off-market transactions are not permissible. The assessee has stated that the transactions were made with the help of professional mediators who are experts in off-market transactions. When the transactions were off-market transactions, there is no relevance in seeking details of share transactions from Stock Exchanges. Such attempts would be futile. Stock Exchanges cannot give details of transactions entered into between the parties outside their floor. Therefore, the reliance placed by the assessing authority on the communications received from the Stock Exchanges that the particulars of share transactions entered into by the assessee were not available in their records, is out of place. There is no evidential value for such reliance placed by the assessing authority. The assessee had made it very clear that the transactions were not concluded on the floor of the Stock Exchange. The matter being so, there is no probative value for the negative replies solicited by the assessing authority from the respective Stock Exchanges. We are of the considered view that the materials collected by the assessing authority from the Stock Exchanges are not valid to dispel or disbelieve the contentions of the assessee

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DATE: December 14, 2016 (Date of pronouncement)
DATE: December 29, 2016 (Date of publication)
AY: 2010-11
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CITATION:
S. 69C Bogus Purchases: Though S. 133(6) notices were returned unserved and the assessee could not produce the alleged bogus hawala suppliers, the entire purchases cannot be added as undisclosed income. The addition has to be restricted by estimating Gross Profit ratio on the purchases from the alleged accommodation entry providers

The A.O. has doubted the purchases from these four alleged accommodation entry providers being hawala dealers as concluded by Sales Tax Department of Government of Maharashtra to be bogus purchases, that these four parties only provided accommodation bills and the goods were never supplied by these parties and the assessee allegedly made purchases from some other parties for which payments were made through undisclosed income. Thus, the A.O. observed that the assessee has purchased the material from someone else while bogus bills were organized by these hawala dealers, hence, section 69C of the Act was invoked by the AO and additions were made by the AO

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DATE: December 2, 2016 (Date of pronouncement)
DATE: December 23, 2016 (Date of publication)
AY: 2005-06
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CITATION:
Penny Stocks: The fact that the stock is thinly traded and there is unusually high gain is not sufficient to treat the long-term capital gains as bogus when all the paper work is in order. The revenue has to bring material on record to support its finding that there has been collusion / connivance between the broker and the assessee for the introduction of its unaccounted money

When purchase and sale of shares were supported by proper contract notes, deliveries of shares were received through demat accounts maintained with various agencies, the shares were purchased and sold through recognized broker and the sale considerations were received by account payee cheques, the transactions cannot be treated as bogus and the income so disclosed was assessable as LTCG. We find that in the instant case, the addition has been made only on the basis of the suspicion that the difference in purchase and sale price of these shares is unusually high. The revenue had not brought any material on record to support its finding that there has been collusion / connivance between the broker and the assessee for the introduction of its unaccounted money

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DATE: September 22, 2016 (Date of pronouncement)
DATE: November 1, 2016 (Date of publication)
AY: 2008-09
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CITATION:
S. 45/48: In valuing the shares of a privately held co, the “enterprise valuation” has to be taken by valuing even the assets held by subsidiaries of the Company. It is common for the sellers to charge a “controlling premium” for the sale of the shares. Such transfers to enable restructuring and re-aligning the shareholding pattern are genuine and bona fide. The alleged excess consideration for the sale of the shares cannot be treated as “unexplained income”

The exit from the closely held company BEC Industrial Investment Company Private limited with its subsidiaries could in commercial parlance definitely command premium in addition to the normal price based on NAV as first of all the valuation of the subsidiary would get embedded in the price of share of BEC Industrial Investment company Private Limited and that valuation has to be done based on present value of enterprise and not necessarily the book value as represented by financial statements and also controlling premium is embedded in the price for the shares paid by acquiring shareholders to the selling shareholder group to vest/strengthen their control in the BEC Industrial Investment Private Limited which shall get embedded in mutually agreed negotiated price between the buyer and the seller

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DATE: August 22, 2016 (Date of pronouncement)
DATE: August 26, 2016 (Date of publication)
AY: -
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CITATION:
S. 68: When the facts show that the loan applications of 37 alleged trade creditors were processed and handled by the assessee and that the loan amounts were not reflected in the returns of the alleged creditors, the High Court erred in remanding the matter to the AO on the ground that the AO ought to given notice to the alleged trade creditors

Both the Assessing Officer and the C.I.T. had recorded findings of fact adverse to the Assessee which has been upheld by the learned single judge of the High Court. The Division Bench of the High Court in the Writ Appeal thought it appropriate to reverse the said findings on the ground that the 37 persons who had advanced the loan to the Assessee ought to have been given notice. The jurisdiction of the Division Bench in a Writ Appeal is primarily one of adjudication of questions 6 of law. Findings of fact recorded concurrently by the authorities under the Act and also in the first round of the writ proceedings by the learned single judge are not to be lightly disturbed

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DATE: September 7, 2011 (Date of pronouncement)
DATE: June 13, 2016 (Date of publication)
AY: 2001-02
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CITATION:
S. 10(38)/ 69: Fact that a small amount invested in "penny" stocks gave rise to huge capital gains in a short period does not mean that the transaction is "bogus" if the documentation and evidences cannot be faulted

The explanations of the assessee seems to have been rejected by the assessing authority more on the ground of presumption than on factual ground. The presumption is so compelling that comparatively a small amount of investment made by the assessee during the previous year period relevant to the assessment years 1999- 2000 and 2000-01 have grown into a very sizable amount ultimately yielding a fabulous sum of Rs. 1,41,08,484 which was used by the assessee for the purchase of the flat at Colaba. The sequence of the events and ultimate realization of money is quite amazing. That itself is a provocation for the Assessing Officer to jump into a conclusion that the transactions were bogus. But, whatever it may be, an assessment has to be completed on the basis of records and materials available before the assessing authority. Personal knowledge and excitement on events, should not lead the Assessing Officer to a state of affairs where salient evidences are over-looked. In the present case, howsoever unbelievable it might be, every transaction of the assessee has been accounted, documented and supported. Even the evidences collected from the concerned parties have been ultimately turned in favour of the assessee. Therefore, it is, very difficult to brush aside the contentions of the assessee that he had purchased shares and he had sold shares and ultimately he had purchased a flat utilizing the sale proceeds of those shares

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DATE: April 27, 2016 (Date of pronouncement)
DATE: June 13, 2016 (Date of publication)
AY: 2005-06
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CITATION:
S. 10(38)/ 68: Long-term capital gains on sale of "penny" stocks cannot be treated as bogus & unexplained cash credit if the documentation is in order & there is no allegation of manipulation by SEBI or the BSE. Denial of right of cross-examination is a fatal flaw which renders the assessment order a nullity

There is no evidence on record to show that any action or enquiry was carried out either by the SEBI or BSE in respect of the alleged manipulation or propping up of the price rate movement of the ‘said shares’ of Shukun Constructions Ltd., as has been assessed by the AO. The shares of Shukun Constructions Ltd. is listed on BSE and that the sale transaction of the ‘said shares’ by the assessee is at the rate quoted on the date of sale has been confirmed both by BSE and the concerned stock broker M/s. Khambatta Securities Ltd. It is strange that the AO has made the addition under section 68 of the Act treating the entire sale proceeds of the ‘said shares’ received by the assessee through regular banking channels from stock broker registered with SEBI, M/s. Khambatta Securities Ltd., which facts have been confirmed by the said stock broker. In our considered view, the assessee has discharged the onus required under section 68 of the Act as she has established the identity of the payer, source of funds received on sale of the same shares and the genuineness of the transaction

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DATE: March 30, 2016 (Date of pronouncement)
DATE: April 10, 2016 (Date of publication)
AY: 2007-08
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CITATION:
S. 68: Share application money received from an associate concern cannot be assessed as cash credits if assessee has discharged its initial onus to prove the identity, creditworthiness and genuineness of the transaction

CIT(A) dealt with issue all the objections raised by the AO and after considering the documents placed on record, recorded a categorical finding to the effect that amount payable and receivable by the assessee was squared off which was in accordance with the provisions of Companies Act. Further finding was recorded to the effect that these companies were assessed with I.T. Department for several years. The identity and genuineness of the transaction was duly accepted. The detailed finding recorded by CIT(A) are as per material on record

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DATE: February 24, 2016 (Date of pronouncement)
DATE: March 30, 2016 (Date of publication)
AY: 2009-10
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CITATION:
Section 68- Cash Credit

In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under s. 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do anything further

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