Mukesh Bhoormal Jain v. ITO

Case snapshot

Sections / provisions: 68

Questions before the Court / Tribunal

• S. 68 : Cash credits-Unexplained expenditure-Capital gains-Penny stocks-Accommodation entries-Purchase of shares at premium in off market Transaction-Sale after three years-Report of Investigation Wing-Information never provided nor cross-examination of Individuals allowed-Additions is not valid. [S. 10(38), 45, 69] The assessee purchased 20,000 equity shares of Premier Capital Services Ltd in an off-market transaction through preferential allotment. There was a one-year lock in period on September 4, 2012 and lock in release on September 4,; The payment for the purchase was made by cheque. The quantity of…
• What factual, statutory and procedural conditions control the relief?
• How does the operative order apply to the parties and the challenged proceeding?

Material facts and procedural background

Assessee by : Shri Vimal Punmiya Department by : Ms. Neha Thakur

1. This appeal is filed by the assessee against order of Learned

2. Brief facts of the case are that, the assessee is an individual filed his

observed that assessee purchased 20000 Equity Shares of each of

The assessee sold 2,00,000 Equity shares of Premiere Capital Services Ltd

Appellant / assessee submissions

assessee vide letter dated 11.12.2017 submitted that the long term capital

4. At the time of hearing, Ld. AR of the assessee submitted that facts

Revenue / respondent submissions

The packaged judgment does not separately label the respondent's submissions in an independently extractable passage. No contention is inferred; read the full order.

Court / Tribunal analysis and reasoning

“14. We have given a thoughtful consideration to the facts of the case and are of the considered view that the assessee had placed on record substantial documentary evidence to substantiate the genuineness and veracity of the purchase and sale of 10,200 shares of M/s Talent Infoways Ltd., viz. copy of the Contract note, dated. 15.04.2004 evidencing the purchase of shares; Copy of the contract note, dated. 06.04.2004 as regards the speculation income, and the copy of the cash receipt for Rs. 168/-; Copy of her account in the books of account of M/s MSPL; Copy of the letter from M/s Talent Infoways Ltd., dated. 29.05.2004, therein confirming the transfer of shares; Copy of the contract notes for sale of shares in the months of September and October, 2005; Copy of the bank statement evidencing receipt of payment for sale of shares; Copy of STT paid statements on the shares of M/s Talent Infoways Ltd ; Copy of its account as appearing in the books of account of M/s Alliance Intermediateries & Network Pvt. Ltd. evidencing the sale of the shares of M/s Talent Infoways Ltd.; Copy of delivery instructions of shares to the depository for dematerialization of the shares; and Copy of the…

statement of Sh. Mukesh Choksi (supra). We though do not approve of the reliance placed by the A.O on the stand alone statement of Sh. Mukesh Choksi (supra) for drawing of adverse inferences in respect of the share transactions carried out by the assessee during the year under consideration, but rather find that even no cross examination of Sh. Mukesh Choksi (supra), whose statement was so heavily being relied upon by the A.O, was ever provided to the assessee. We find that the failure on the part of the A.O to provide cross examination of the person, relying on whose statement adverse inferences are drawn in the hands of the assessee goes to the very root of the validity of such adverse inferences drawn in the hands of the assessee, had been looked into by the Hon'ble High Court of Bombay in the case of: CIT-13 Vs. M/s Ashish International (ITA No 4299 P a g e | 26 of 2009; dated. 22.02.2011), wherein the order of the Tribunal was affirmed by the Hon'ble High Court. We thus in the backdrop of our aforesaid observations, are neither able to persuade ourselves to subscribe to the adverse inferences drawn by the lower authorities in respect of the share transactions of the assessee…

Operative decision and relief

In the case of CIT vs. Mukesh Ratilal Marolia (supra). In this case, the issue is whether the amount received by the assessee on sale of shares can be treated as unexplained investment under section 69 of the Act. The Tribunal deleted the addition by allowing the appeal of the assessee by holding that the purchase of shares were duly recorded in the books of accounts and the source of funds is also explained and the shares were in fact transferred in the name of the assessee and thus the purchases of the assessee can not be fault with. Similarly, the sale of shares was effected can not be disputed because the amount received by the assessee is not in dispute and it is not the case of the Revenue that shares are still lying with the assessee or amount received by the assessee on sale of shares is more than the declared value by the assessee. Under these circumstances, the Hon’ble High Court has held that AO is not justified in holding that sale proceeds of Rs.1,41,08,484/- represented unexplained investment under section 69 of the Act and thus the order of the Tribunal was upheld by the Hon’ble High Court. The Hon’ble Supreme Court also dismissed the appeal of the Revenue filed…

statement of Sh. Mukesh Choksi (supra). We though do not approve of the reliance placed by the A.O on the stand alone statement of Sh. Mukesh Choksi (supra) for drawing of adverse inferences in respect of the share transactions carried out by the assessee during the year under consideration, but rather find that even no cross examination of Sh. Mukesh Choksi (supra), whose statement was so heavily being relied upon by the A.O, was ever provided to the assessee. We find that the failure on the part of the A.O to provide cross examination of the person, relying on whose statement adverse inferences are drawn in the hands of the assessee goes to the very root of the validity of such adverse inferences drawn in the hands of the assessee, had been looked into by the Hon'ble High Court of Bombay in the case of: CIT-13 Vs. M/s Ashish International (ITA No 4299 P a g e | 26 of 2009; dated. 22.02.2011), wherein the order of the Tribunal was affirmed by the Hon'ble High Court. We thus in the backdrop of our aforesaid observations, are neither able to persuade ourselves to subscribe to the adverse inferences drawn by the lower authorities in respect of the share transactions of the assessee…

13. We have also gone through other decisions cited by the Ld. A.R. and observed that the case of the assessee is squarely covered by the various decisions. We therefore respectfully following the same set aside the order of CIT(A) and direct the AO to delete the addition

8. In the net result, appeal filed by the assessee is allowed.

Ratio and legal principle

• The packaged judgment addresses S. 68 : Cash credits-Unexplained expenditure-Capital gains-Penny stocks-Accommodation entries-Purchase of shares at premium in off market Transaction-Sale after three years-Report of Investigation Wing-Information never provided nor cross-examination of Individuals allowed-Additions is not valid. [S. 10(38), 45, 69] The assessee purchased 20,000 equity shares of Premier Capital Services Ltd in an off-market transaction through preferential allotment. There was a one-year lock in period on September 4, 2012 and lock in release on September 4,; The payment for the purchase was made by cheque. The quantity of…. The precise proposition must be read with the Court/Tribunal's reasoning and operative directions.
• Reliance depends on matching the statutory version, jurisdiction, procedural stage and material evidence recorded in the judgment.

Why this judgment matters

This decision is relevant to practitioners and affected parties dealing with s. 68 : cash credits-unexplained expenditure-capital gains-penny stocks-accommodation entries-purchase of shares at premium in off market transaction-sale after three years-report of investigation wing-information never provided nor cross-examination of individuals allowed-additions is not valid. [s. 10(38), 45, 69] the assessee purchased 20,000 equity shares of premier capital services ltd in an off-market transaction through preferential allotment. there was a one-year lock in period on september 4, 2012 and lock in release on september 4,; the payment for the purchase was made by cheque. the quantity of… Its value lies in showing how the adjudicating forum connected the applicable rule to the proved facts and procedural posture.

Practitioner action points

• Match the statutory version, jurisdiction, procedural stage and decisive evidence before relying on the result.
• Verify current appellate, review and SLP history and any later amendment or controlling authority.
• Attach the complete judgment to the working paper or filing and cite the paragraph/page supporting the proposition.

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Section / provision impact

• 68 - apply the exact version considered in the judgment.

Case network

Similar issue / useful comparison

• SANJAY VRAJLAL KOTHARI V ITO 25(2)(3), MUMBAI - ITAT Mumbai - G Bench
• Ramachandra Kanu Mendadkar v. CIT(A) - ITAT Mumbai - D Bench
• ACIT v Ramlal Jewellers Pvt. Ltd. - ITAT Mumbai - D Bench

Different outcome / possible distinction

• Krishna D. Pawar v. ITO - Operative order controls
• ACIT, Circle-9(2), New Delhi Vs. Four Star Constructions Pvt. Ltd. - Operative order controls

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Source class: Sanitized local full-judgment copy; official primary replacement pending · Repository status: Published