THE issue before the Bench is - Whether mere fact that the broker through whom the assessee had purchased shares was banned by the SEBI much after the transactions of the assessee had taken place, there is any merit in the AO's opinion to treat the same as not genuine. And the answer goes against the Revenue.
Facts of the case
The assessee company is in the business of manufacture and sale of drilling, mining, construction tools and accessories. It declared a total income of Rs. 2,18,460 and claimed exemption of long term capital gain to the extent of Rs.24,87,000. Assessee had purchased 20,000 shares of AIC for a consideration of Rs.1,00,400 through a broker M/s. V.K. Singhania & Co., Kolkata. The share certificates in physical form were submitted to the said AIC for transfer and received back. These
shares subsequently, dematerialized through the depository service of HDFC Bank. This was subsequently sold through M/s. Ahilya Commercials P. Ltd., Kolkata for a sum of Rs.25,87,400/-.
The AO was of the opinion that SEBI had suspended trading in the shares of AIC vide their letter for unfair trade practices by some of the brokers and M/s. Ahilya Commercials P. Ltd., was also one such broker. A.O. was also of the opinion that while the shares were purchased the said broker M/s. V.K. Singhania & Co., Kolkata raised a bill and the payments were made in cash. A.O. also further noted that assessee had not invested anywhere earlier in shares and there was no proper reason for investing in this company at Kolkata through unknown brokers. On further enquiry, A.O. noted that assessee had claimed that the purchase and payments were done at Kolkata through the supplier of raw materials but neither the name and address of the supplier had been furnished nor an explanation was filed for making the payments to the Kolkata broker on six different dates in the month of April/May, 2002. A.O. was also of the opinion that assessee did not furnish the name of the person through whom the broker had been contacted. Doubting the entire transaction, A.O. treated the receipt of Rs.25,87,400 on sale of shares as income from other sources. The CIT(A) also upheld the order of the A.O.
On appeal, the Tribunal held that,
++ as far as the facts of purchase and sale are concerned, assessee has indeed filed necessary documents evidencing the purchase of shares as well as getting them transferred in its name and later on dematerialized form through HDFC Bank and subsequent sale thereof. It is also on record that A.O. did not doubt sale of shares through stock exchange. It is his contention that transaction of purchase is a make believe transaction as the assessee has not paid consideration through cheque and payment of cash was not explained properly. This contention alone cannot make the transaction as a bogus transaction as assessee got the shares and transferred in its name immediately. Moreover, these are also transferred demat form through HDFC Bank. Assessee also represented the investment in the balance sheet under the head "Investments" and for the year ending March, 2003 the shares were also shown to have market value less than the investment value. Why assessee has purchased this particular set of shares and why they are purchased through brokers at Kolkata are not the concerns of the A.O. as it is the prerogative of the assessee to transact on its own. What is required to be examined is whether the transaction is a genuine transaction or not. The evidence on record indicates that there is no dispute with reference to purchase of shares and subsequent transfer in assessee's name;
++ now coming to the sale of shares also, there is no dispute with reference to sale of shares on stock exchange. In view of these two facts, transaction of sale of shares results in capital gain only. A.O. did not dispute that the assessee has transferred the shares atleast, in July, 2003 in Demat form through HDFC Bank. Even if he doubts the purchase of shares in April, 2002 and subsequent transfer in 2002 itself in physical form, at least the Demat evidence furnished by the assessee cannot be rejected as there may not be any collusion when the shares are transferred in Demat form through the Bank. Moreover, as seen from the record, the share price has never increased to the astronomical extent at that point of time. In fact, the price as on 31.03.2003 as per the annual report is less than the investment of Rs. 1 lakh;
++ the value of 20,000 shares have been taken at cost price but market value of the same was Rs.72,000 at Rs.3.60 per share. This indicates that the shares invested in April, 2002 at 1,00,400 has in fact reduced to Rs.72,000 as on 31.03.2003. If assessee wanted to gain by dubious mean, at best, he could have shown the investment in March, 2003 at Rs.72,000 only when the share price was further reduced. This itself indicates assessee's contention that shares are purchased in April, 2002 cannot be doubted. Since there is no dispute with reference to subsequent sale thereof in the stock exchange, the transaction certainly results in capital gain only;
++ the contention that subsequently SEBI has banned the transaction in the said company and the broker through which assessee transacted was also suspended does not take away the genuineness of the transactions which happened much earlier to the above events. In fact, assessee received a price which is more than the investment but not so high as compared to subsequent transactions in the same share as obtained by the A.O. in the course of enquiries. In fact, if assessee wanted to enter into dubious transactions he could have sold at a later point of time so as to gain much more amount. These indicate that assessee has indeed purchased and sold as per its convenience, so as to gain a reasonable amount on the investment;
++ both on principles of law and on facts, assessee's transactions can be considered genuine. In the absence of any evidence on record that assessee has indulged in making adjustment entries the contentions of the A.O. which is based on presumptions and conjectures cannot be accepted. Capital gain earned by the assessee is to be taxed as such and A.O. erred in considering the entire sale proceeds as income from other sources. In view of this, assessee's contentions are accepted. AO is directed to accept the gain as long term capital gain. The addition stands deleted.
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