Dolarrai Hemani vs. ITO (ITAT Kolkata)

DATE: December 2, 2016 (Date of pronouncement)
DATE: December 23, 2016 (Date of publication)
AY: 2005-06
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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

(i) The assessee duly submitted the following documents:-

a) Contract note for purchase of shares in off market for which payment was made in cash. This is not in dispute as the issue before us is only on the treatment of sale consideration of sale of shares as to whether the same is to be considered as LTCG or unexplained cash credit.

b) Contract Note for sale of shares through a registered stock broker with CSE.

c) Demat account reflecting the inflow of shares in demat account and outflow thereon pursuant to sale, which is the subject matter of dispute before us.

d) Payment of sale consideration received by the assessee through account payee cheque.

e) Shares were duly transferred from the demat account of the assessee to the demat account of the broker and thereafter to the ultimate buyer of the shares through a recognized stock exchange.

f) STT had been duly suffered on the sale transaction in the sum of Rs. 493/-.

g) The Broker had confirmed the purchase and sale transactions before the ld AO by furnishing a letter in writing in response to summons issued to him u/s 131 of the Act.

(ii) Just because the broker does not appear before the ld AO in response to the summons u/s 131 of the Act, but had furnished the requisite details called for thereon, it cannot be automatically concluded that the transaction of the assessee with that broker as bogus and sham and assessee cannot be faulted with for the same. The statute provides unfettered powers to the ld AO for taking action for non-appearance of a person in response to summons u/s 131 of the Act which could have been exercised by the ld AO in the instant case instead of drawing an adverse inference on the transactions of the assessee. (CIT vs. Cargo Industrial Holdings Ltd (2001) 244 ITR 422 (Cal) and CIT vs. Emerald Commercial Ltd reported in (2002) 120 Taxman 282 dated 23.3.2001 followed);

(iii) The revenue made a remark that the subject mentioned shares of
G.K.Consultants Ltd were bought by the assessee in off market which is against the rules framed by SEBI and others. We find from the Bye Laws of CSE placed on record in the paper book , that the said Bye Laws (vide Bye Law No. 9) permit purchase and sale of shares in off market. In any case, this is not relevant in as much as the issue before us is not on the purchase of shares but only the treatment of sale consideration received on sale of those shares.

(iv) On verification by the AO with the Calcutta Stock Exchange Ltd regarding the purchase and sale of shares of G.K.Consultants Ltd by the assessee through the broker, CSE had confirmed the fact that the share purchase and sale transactions of assessee had happened through the broker Mr Rajendra Prasad Shah on the said date but had only stated there was no trade vide Trade No. 1586. This alone would not automatically make the entire transaction as sham and bogus when other documents as stated supra prove the contrary.

(v) Similar issue had been adjudicated by the co-ordinate bench of this tribunal in the case of DCIT vs Sunita Khemka in ITA Nos. 714 to 718/Kol/2011 dated 28.10.2015 and in the case of ITO vs Rajkumar Agarwal in ITA No. 1330 (Kol) of 2007 dated 10.8.2007 wherein it was 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 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.

Cases referred:

Mukesh R Marola vs ACIT reported in (2006) 6 SOT 247 (Mum)
CIT vs Carbo Industrial Holdings Ltd reported in 244 ITR 422 (Cal)
CIT vs Emerald Commercial Ltd reported in 250 ITR 539 (Cal)

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