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DCIT vs. Sunita Khemka (ITAT Kolkata)

DATE: October 28, 2015 (Date of pronouncement)
DATE: October 30, 2015 (Date of publication)
AY: 2001-02 to 2005-06
FILE: Click here to download the file in pdf format
The AO cannot treat a transaction as bogus only on the basis of suspicion or surmise. He has to bring material on record to support his finding that there has been collusion/connivance between the broker and the assessee for the introduction of its unaccounted money. A transaction of purchase and sale of shares, supported by Contract Notes and demat statements and Account Payee Cheques cannot be treated as bogus

The assessee sold shares of various listed companies and declared long-term capital gains. The assessee submitted details of purchase and sale of the shares in aforesaid companies before the AO and stated that the payment has been made to the stock brokers through account payee cheque from the disclosed bank accounts. The shares were held as an Investment. During the course of assessment proceedings, the details of contract notes for purchase and sale of shares were duly filed by the assessee. The entire sale consideration for sale of these shares were received by the assessee from the stock brokers through account payee cheques. The assessee also duly paid the Securities Transaction Tax (STT) at the time of sale of shares. The AO doubted the computation of capital gains on sale of the aforesaid shares by stating that the shares of said companies could not have been sold at the prevailing market rates as per the Calcutta Stock Exchange and treated the long term capital gains as bogus and held that it is only assessee’s own unaccounted money that had surfaced in the form of long term capital gains with the connivance of the brokers and accordingly brought to tax under the normal provisions of the Act instead of concessional rate of tax applicable to long term capital gains. On first appeal, the assessee pleaded that there was a search and seizure operation conducted u/s 132 of the Act on Aparna Group of cases which includes assessee herein, wherein, no incriminating materials with regard to the subject mentioned issue before us was found by the search party. The CITA duly appreciated the contentions of the assessee and rejected the contentions of the AO. On appeal by the department to the Tribunal HELD dismissing the appeal:

(i) The decisions of the Hon’ble Calcutta High Court in the case of CIT-Vs- Carbo Industrial Holdings Ltd (244 ITR 422) and CIT –Vs- Emerald Commercial Ltd (250 ITR 549) are also relevant to the issue where the Hon’ble Court has held that where the payments are made by Account Payee Cheques and the existence of the brokers is not disputed the assessee cannot be punished for the default of the brokers and share transactions cannot be held to be bogus. The Hon’ble ITAT, Kolkata in the case of Rajkumar Agarwal (ITA 1330/Kol/2007 dated 10/08/07) has held that 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 recognised 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.

(ii)In the assessment orders under consideration the AO has not considered any of these facts. He has treated the transactions as bogus only on the basis of the suspicion that the difference in purchase and sale price of these shares are unusually high. It is a settled law that assessment cannot be made on the basis of suspicion or surmise. The AO has not brought any material on record to support his finding that there has been collusion/connivance between the broker and the appellant for the introduction of its unaccounted money.

Posted in All Judgements, Tribunal
One comment on “DCIT vs. Sunita Khemka (ITAT Kolkata)
  1. i wonder how suspicion alone can empower the AO, without right evidence is in place. sorry.

    i think, like in the past Act, unaccounted money could be shown on ROI and relevant taxes are paid would be a better solution, rather than to allow officers to indulge in obvious practices they indulge today thanks to CAs or Advocates becoming conduits to these ‘officers’.

    CBI in recent cases said CAs Auditors, lawyers were conduits to these kind of ‘officers’ for obvious reasons/

    care is needed.

    To cure an illness you cannot make multiply illnesses please.

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