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CaseIQ

Commissioner Of Income Tax, Jaipur-Ii, Jaipur v. Smt. Pushpa Malpani

Rajasthan High Court

Nov 15, 2010

Judgment

CaseIQ

Smart Summary (Beta)

Factual and Procedural Background

This appeal was filed by the revenue against an order of the Income Tax Appellate Tribunal, Jaipur (ITAT) dated 28.11.2008, which dismissed the revenue's appeal against the order of the Commissioner of Income Tax (Appeals) [CIT (Appeals)] dated 10.01.2008. The CIT (Appeals) had directed the assessing officer to treat the sale consideration of shares amounting to Rs. 21,87,800 as long term capital gain, instead of income from other sources.

The assessee had originally filed a return declaring income of Rs. 21,45,950 on 29.03.2005 from the sale of twenty thousand shares of M/s. Nageshwar Investment Limited. These shares were purchased on 09.05.2002 at Rs. 2.02 per share through broker Shri V.K Singhania & Company of Calcutta, and sold on 22.07.2003 at Rs. 109.50 per share.

In the assessment order dated 29.12.2006, the assessing officer noted that only 1331 shares were transacted during December 2002 to April 2003, but the sale price increased dramatically in a short period. The assessing officer found that the assessee had not furnished supporting evidence such as balance sheets or final statements of M/s. Nageshwar Investment Limited to establish the company's worth, and therefore treated the sale consideration as income from other sources.

Legal Issues Presented

Whether the sale consideration of shares should be treated as long term capital gain or as income from other sources.
Whether the CIT (Appeals) and ITAT were justified in deleting the additions made by the assessing officer under the head of income from other sources despite the alleged artificial jacking up of share prices.
Whether the transactions were genuine or constituted accommodation entries to convert undisclosed income into long term capital gains.
Whether the involvement of a broker, who was allegedly barred by SEBI at the time of transaction, impacts the validity of the transaction and the treatment of income.

Arguments of the Parties

Revenue's Arguments

The revenue contended that the price of shares was artificially jacked up.
The broker through whom the shares were purchased, M/s Ahilya Commercial Private Limited, Kolkata, was barred by SEBI at the time of the transaction.
CIT (Appeals) and ITAT erred in deleting the additions made by the assessing officer treating the sale consideration as income from other sources.
The assessee did not engage in any genuine transaction and used accommodation entries to convert undisclosed income into long term capital gains.
The revenue raised a substantial question of law on whether the appellate authorities were justified in reversing the assessing officer’s additions despite discrepancies and the broker’s SEBI ban.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court noted that the question of whether the sale of shares and receipt of consideration at an appreciated value is genuine is essentially a question of fact. Both the CIT (Appeals) and ITAT provided reasons supporting their findings that the broker was not banned by SEBI at the time of the transactions. The assessee had produced various documents including purchase bills, contract numbers, share certificates, applications for transfer to Demat Account, holding statements, balance sheets as of 31.03.2003, sale bills, bank account statements, Demat Account statements, and official reports and quotations from the Calcutta Stock Exchange Association Limited dated 23.07.2003.

Based on this evidence, the appellate authorities concluded the transactions were genuine and that the sale consideration should be treated as long term capital gain. The court found no substantial question of law arising from the appeal and thus upheld the findings of the lower authorities.

Holding and Implications

The court dismissed the appeal filed by the revenue.

The direct effect of this decision is that the sale consideration of the shares will be treated as long term capital gain and not as income from other sources in the hands of the assessee. The court did not set any new precedent or elaborate on broader implications beyond affirming the factual findings and legal treatment of the transaction by the appellate authorities.

Show all summary ...

By the Court (Per Hon'ble Mohammad Rafiq, J.):-

This appeal has been filed by revenue against order of Income Tax Appellate Tribunal, Jaipur (for short, ‘ITAT’) dated 28.11.2008 which dismissed its appeal preferred against order of Commissioner of Income Tax (Appeals) {for short, ‘CIT (Appeals)} dated 10.01.2008 CIT (Appeals), in his order, directed assessing officer to treat sale consideration of shares at Rs. 21,87,800/- as long term capital gain instead of treating it as income from other sources. Assessee originally filed return declaring income of Rs. 21,45,950/- on 29.03.2005 on sale of twenty thousand shares of M/s. Nageshwar Investment Limited. Those shares were purchased by assessee on 09.05.2002 at the rate of Rs. 2.02 Per share through broker Shri V.K Singhania & Company of Calcutta, which were sold on 22.07.2003 at the rate of Rs. 109.50 per share. In assessment order passed on 29.12.2006 assessing officer held that total transaction in shares were only 1331 during period from December, 2002 to April, 2003 but sale price of shares shot up dramatically within a short span of time. Assessee having not furnished any supporting evidence like balance-sheet/final-statement of M/s. Nageshwar Investment Limited proving worth of the company, sale consideration of its shares was liable to be treated as income from other sources.

Shri R.B Mathur, learned counsel for revenue, argued that it was a case of artificial jacking up of price of shares and broker M/s Ahilya Commercial Private Limited, Kolkata through whom shares were purchased, had suffered a bar from Securities and Exchange Board of India at the time of transaction. CIT (Appeals) and ITAT both erred in law in deleting additions made by assessing officer under head of income from other source. There was no justification of their interference with well reasoned assessment order passed by assessing officer. Learned counsel argued that assessee had in fact not made any genuine transaction of shares and converted her undisclosed income into long term capital gain through accommodation entry of bogus sale consideration. It was therefore argued that substantial question of law arises in this matter whether despite numerous discrepancies pointed out by assessing officer in working of assessee and broker, who was later on banned by the Stock Exchange for artificially jacking up price of shares, ITAT/CIT (Appeals) were justified in reversing additions made by the assessing officer?

Upon hearing learned counsel for revenue and perusing impugned order, we find that whether or not sale of shares and receipt of consideration thereof on appreciated value is essentially a question of fact. CIT (Appeals) and ITAT have both given reasons in support of their findings and have found that at the time of transactions, the broker in question was not banned by SEBI at the time of transaction and that assessee had produced copies of purchase bills, contract number share certificate, application for transfer of share certificate to Demat Account along with copies of holding statement in Demat Account, balance-sheet as on 31.03.2003, sale bill, bank account, Demat Account and official report and quotations of Calcutta Stock Exchange Association Limited on 23.07.2003 In our view, present appeal does not raise any question of law, much-less any substantial question of law.

This appeal is accordingly dismissed.