Tribunal Order — Appeal by Department against order of ld. CIT(A) (Assessment Year 2006-07)

Factual and Procedural Background

This appeal arises from a departmental challenge to the order of the learned Commissioner of Income Tax (Appeals) (ld. CIT (A)) in respect of assessment year 2006-07. The Assessing Officer (AO) had added Rs. 37,77,847 under section 68 of the Income Tax Act, 1961, treating long-term capital gains (LTCG) from sale of shares as unexplained cash credit, and had also made an addition of Rs. 1,88,890 alleged to be commission paid to a broker. The assessee had declared long-term capital gains arising from sale of shares of three companies (M/s Poonam Pharmaceuticals Ltd., M/s Gautam Resources Ltd., and M/s Star LTCR) and furnished broker notes, contract notes, share certificates, demat account statements, cash flow statements and bank receipts in support.

The AO concluded the transactions were sham/accommodation entries based on factors including significant and sudden price rise, inability to trace certain brokers/companies (returned notices under section 133(6)), and other indicia of suspicious dealings, and therefore invoked section 68. The ld. CIT (A) examined the material, accepted the documentary evidence produced by the assessee, concluded that the purchases and sales were genuine, deleted the additions under section 68 and the alleged commission addition, and allowed the appeal. The department appealed to the Tribunal against the deletion of the additions.

Legal Issues Presented

Whether the long-term capital gains declared by the assessee from the sale of listed shares (amounting to Rs. 37,77,847) were genuine transactions or accommodation/sham entries that could be taxed as unexplained cash credit under section 68 of the Income Tax Act, 1961.
Whether the addition of Rs. 1,88,890 alleged to be commission paid to brokers (premised on the accommodation-entry theory) was rightly made by the AO or correctly deleted by the ld. CIT (A).
Whether the AO’s inferences, drawn from circumstances such as returned notices, price fluctuations, delayed payments and alleged discrepancies in documentation, sufficed to displace the documentary and oral evidence produced by the assessee.

Arguments of the Parties

Department / Assessing Officer (as represented before the Tribunal)

The AO treated the LTCG declared by the assessee as suspicious and concluded that the transactions were sham/accommodation entries. The AO relied on indicia such as very large and rapid price rises in shares of not very well-known companies, returned letters sent under section 133(6), alleged discrepancies in company letterheads, and other circumstantial factors.
On that basis the AO added Rs. 37,77,847 under section 68 (treating the amount as unexplained cash credit) and also made an addition of Rs. 1,88,890 as alleged commission paid to broker(s).

Assessee / Authorized Representative

The assessee furnished broker notes, contract notes, share certificates with distinctive numbers, dematerialization (demat) statements (account with Stock Holding Corporation of India Ltd. and de-mat account with ICICI Bank), cash flow statements, DDs and account-payee cheques showing receipt of sale proceeds and deposit into bank accounts. These documents were placed before the AO and in appellate proceedings.
Explained that prices of shares fluctuate with market demand and sentiment; substantial appreciation in a short period is not by itself proof of sham transactions. Payments to brokers in installments were explained as convenience-based; delayed serviceability of notices could be due to address changes, etc.
Contended AO’s inferences were based on presumptions, conjecture and surmise without any concrete material to rebut the assessee's documentary evidence. Relied on multiple judicial decisions to support the proposition that suspicion cannot substitute legal proof and that AO must confront the assessee with evidence before basing assessment thereon.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Chiranji Lal Steel Rolling Mills v. CIT [1972] 84 ITR 222	It is open for AO to collect evidence from any source but it is his duty to confront the assessee before making such material the basis of assessment (as stated in the opinion).	The ld. CIT (A) (and the Tribunal) applied this ratio to hold that AO’s reliance on external material without confronting the assessee or producing rebuttal evidence was misplaced and could not form the basis for treating transactions as sham.
State of Kerala v. M.M. Mathew [1978] 4 SCC 65	The principle that strong suspicion, strange coincidences and grave doubts cannot take the place of legal proof (explicitly quoted in the opinion).	Relied upon by the assessee to argue that AO’s strong suspicions were insufficient; the Tribunal accepted that suspicion could not substitute proof in the present facts.
Cit v. Durga Prasad More [1971] 82 ITR 540 (SC)	This information was not available in the provided opinion.	Relied upon by the assessee’s representative; the opinion records reliance but does not detail specific application.
Sumati Dayal v. Commissioner Of Income Tax, Bangalore [1995] 214 ITR 801/80 Taxman 89 (SC)	This information was not available in the provided opinion.	Relied upon by the assessee’s representative; the opinion records reliance but does not detail specific application.
Commissioner Of Income-Tax v. L.N Dalmia [1994] 207 ITR 89 (Cal.)	This information was not available in the provided opinion.	Relied upon by the assessee’s representative; the opinion records reliance but does not detail specific application.
Commissioner Of Income-Tax, N. Delhi v. Sophia Finance Ltd. [1994] 205 ITR 98 / [1993] 70 Taxman 69 (Delhi)	This information was not available in the provided opinion.	Relied upon by the assessee’s representative; the opinion records reliance but does not detail specific application.
McDowell & Co. Ltd. v. Commercial Tax Officer [1985] 154 ITR 148 / 22 Taxman 11 (SC)	This information was not available in the provided opinion.	Relied upon by the assessee’s representative; the opinion records reliance but does not detail specific application.
Pullangode Rubber Produce Co. Ltd. v. State of Kerla [1973] 91 ITR 18 (SC)	This information was not available in the provided opinion.	Relied upon by the assessee’s representative (listed among additional authorities); specific usage not described in the opinion.
G. Murugesa & Bros. v. CIT [1973] 88 ITR 432 (SC)	This information was not available in the provided opinion.	Relied upon by the assessee’s representative; the opinion does not set out detailed application.
Commissioner Of Income-Tax v. Bhanwarlal [1997] 225 ITR 870 (Raj.)	This information was not available in the provided opinion.	Relied upon by the assessee’s representative; the opinion does not set out detailed application.
Jagdish Chand Gupta v. Asstt. CIT [1996] 58 ITD 142 (Chd.)	This information was not available in the provided opinion.	Relied upon by the assessee’s representative; the opinion does not set out detailed application.

Court's Reasoning and Analysis

The Tribunal reviewed the record, the orders of the AO and ld. CIT (A), and the submissions of both sides. The Tribunal's analysis proceeded along the following principal steps, as recorded in the opinion:

Examination of documentary evidence: The Tribunal (following the ld. CIT (A)) noted that the assessee produced broker notes, contract notes, share certificates with distinctive numbers and registered folios, dematerialization (demat) statements reflecting receipt of shares into the assessee’s demat account, cash-flow statements, DDs and account-payee cheques showing payments and receipts. These materials were on record before the AO and again before the ld. CIT (A).
Verification of brokers and listing: The Tribunal observed that the brokers involved were SEBI-registered members of the Calcutta Stock Exchange and that the shares were of companies listed/traded on the Calcutta Stock Exchange. The purchases were effected through identified brokers and the sales through other identifiable brokers; dematerialization and subsequent delivery through the demat system were recorded.
Assessment of AO's presumptions and evidentiary burden: The Tribunal accepted the ld. CIT (A)'s finding that the AO did not produce evidence to show that the documents produced by the assessee (broker notes, contract notes, share certificates, demat statements, etc.) were false, fabricated or fictitious. The AO's conclusions were found to be largely based on inference, suspicion and certain circumstantial facts (returned postal notices under section 133(6), delayed payments to brokers, alleged discrepancies in names), none of which by themselves disproved the genuineness of the transactions in the face of the documentary evidence.
Application of legal principles: The Tribunal applied the principle (as invoked from Chiranji Lal) that the AO must confront the assessee and cannot base an adverse conclusion merely on external material without giving the assessee an opportunity or producing evidence to rebut. The Tribunal also applied the principle (as invoked from State of Kerala v. M.M. Mathew) that suspicion, however strong, cannot replace legal proof.
Conclusion on transactions: On the totality of the record and having regard to the evidentiary gap in the AO’s case, the Tribunal found no infirmity in the ld. CIT (A)'s factual finding that the purchase and sale transactions were genuine and not sham transactions. Consequently, the addition under section 68 and the alleged commission addition had no sustainable basis.

Holding and Implications

Final Ruling: The departmental appeal is dismissed. The Tribunal confirmed the order of the ld. CIT (A) deleting the addition of Rs. 37,77,847 under section 68 (treated by the AO as unexplained cash credit) and confirmed deletion of the addition of Rs. 1,88,890 alleged as commission to brokers.

Implications:

Direct effect on the parties: The assessee's long-term capital gains, as declared in the assessment year 2006-07, stand accepted as genuine by the Tribunal; the AO’s additions under section 68 and the alleged commission addition are deleted and the departmental challenge to those deletions fails.
On precedent and law: The Tribunal's decision rests on findings of fact — acceptance of documentary evidence and rejection of AO’s presumptive inferences. The opinion does not record the creation of a new legal precedent; rather it applies established principles that suspicion cannot replace proof and that the AO must confront the assessee before relying on external material to form the basis of assessment.

Note: This summary is prepared strictly from the contents of the provided opinion and does not introduce or infer facts or legal propositions beyond what is explicitly recorded in that opinion.

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The Acit, Circle-2, Udaipur v. Smt. Sumitra Gaur, Panchratna Complex, Bhilwara Road, Kankroli (Rajsamand) .

ORDER

R.K. Gupta, Judicial Member - This is an appeal by department against the order of ld. CIT (A) relating to assessment year 2006-07.

2. The department is objecting in deleting the addition of Rs. 37,77,847/- made by the Assessing Officer under section 68 and deleting the addition of Rs. 1,88,890/- on account of alleged commission paid to broker.

3. During the assessment proceedings, the Assessing Officer noted that assessee has shown Long Term Capital Gain from sale of shares at Rs. 37,77,847/-. The details of capital gain and brief facts of the case has been discussed at pages 2 & 3 of the order of ld. CIT (A) are as under :-

"In the order the AO has observed that the assessee has shown a long term capital gain from sale of shares at Rs. 37,77,847/-. The details are as under:

Purchase

Name of the shares	Name of the broker	Purchase qty.	Total pur. price
M/s. Poonam Pharmaceuticals Ltd.	V.K. Singhania	5,300	35,616
M/s Gautam Resources Ltd.	Renu Poddar	1,200	24,324
M/s Star LTCR	Ballabh Das Daga	6,000	57,472

Sales

Name of the shares	Name of the broker	Sale qty.	Total sale price	Total Profit
M/s. Poonam Pharmaceuticals Ltd.	M. Bhiwantiwala & Co.	5,300	16,03,883	15,68,367
M/s Gautam Resources Ltd.	Ahilya Commercial (P.) Ltd.	1,200	1,19,777	95,453
M/s Star LTCR	-do-	6,000	20,54,185	19,96,713

As per the above details, the assessee has purchased 6000 shares of M/s Star LTCR on 19.01.2004, 5300 share of M/s. Poonam Pharmaceuticals Ltd. and 1200 shares of M/s Gautam Resources Ltd. & 5300 @ 9.58, Rs.6.72 and Rs.20.27 per share respectively while they were shown to have been sold between the period 80402005 and 5.8.2005 @ Rs.342.36, Rs.302.62 and 99.81 respectively aggregating to Rs.36,60,435/-. The transactions were made through brokers located at Calcutta. The facts of the case are similar to the facts discussed in the assessment order for assessment year 2004-05 in the case of the assessee and discussed in the appellate order dated 21.01.2007 in appeal no.458/2006-07 for assessment year 2004-05. The only change in facts is that the appellant purchases the share of M/s Star LTCR on 19.01.2004, 5,300 shares of M/s. Poonam Pharmaceuticals Ltd. and 1200 shares of M/s Gautam Resources Ltd. Considering the fact that the company is not very well known and such huge rise in the price in such short span of time is very unlikely and more so keeping in view unearthing of rackets providing entries in the form of long term capital gain the issue was investigated in detail. The AO also recorded the statement of the assessee. The extract of the statement recorded on oath u/s 131 also reproduced in the order on page 3 & 4. From the statement, the AO concluded that - (1) in his statement recorded u/s 131 on 08.12.2008, the assessee has been dealing in shares for last 5 to 6 years. (ii) The shares in respect of which LTCG has been shown during the year under consideration have been shown to be transacted through broker at Calcutta, (iii) The assessee did not received any dividend nor any annual report during the period of more than one year during which the assessee has shown to have kept the shares with him. (iv) The letters seeking information u/s 133(6) sent to M/s Bhiwanaiwala and Company were returned back as unserved by the Postal authorities with remark that the said address always remains closed. (v) The Company whose shares have been traded by the assessee (Poonam Corporation Ltd, on perusal of the letter head, some discrepancy found. In view of the similar discussion as made in the assessment order for preceding assessment years, the AO held that the income shown as long term capital gain was a sham transaction, in reality the assessee has not earned any long term capital gain. It has been used to bring in the money to build up capital b paying no taxed. The same was liable to be taxed as unexplained cash credit u/s 68 of the Act. The AO, therefore, added a sum of Rs. 37,77,847/- u/s 68 of the Act."

4. Detailed submissions were filed before ld. CIT (A) and it was submitted that the assessee has purchases 1200 equity shares of M/s Gautam Resources Ltd., Calcutta through stock broker M/s Renu Poddar, Kolkatta, a member of Calcutta Stock Exchange having SEBI Registration No.INB031066310 vide broker Note No. CL/23546D/0045(S) dated 26.03.2003 at Rs. 24,324/-. The payment was made through account payee DD No.679060 dated 09.04.2003 drawn at SBBJ, Calcutta. The assessee has purchased 5300 share of M/s. Poonam Pharmaceuticals Ltd. through stock broker M/s V.K. Singhaniya & Co., Kolkatta, a member of Calcutta Stock Exchange having SEBI Registration No.INB030036312 vide broker Note No. R030408 dated 14.04.2003 (Settlement No.2004309) at Rs.35,616/-.The payment was made out of cash in hand available with the assessee which is evident from the cash flow statement (enclosed). The assessee has purchased 1200 shares of M/s Gautam Resources Ltd. through stock broker M/s Ballabh Das Daga, Kolkatta, a member of Calcutta Stock Exchange having SEBI Registration No.INB030492218 vide broker Note No. 14 dated 19.01.2004 (settlement No.D- 2004500) at Rs.57,472/-. The payment was made through account payee DD No.679060 dated 09.04.2003 drawn at SBBJ, Calcutta. The assessee has received consolidated share certificates of distinctive Nos. from M/s. Poonam Pharmaceuticals Ltd., Calcutta for 5300 shares and M/s Gautam Resources Ltd., Kolkatta for 1200 equity shares and M/s Star LTCR of 6000 shares, which were duly transferred in her. The assessee deposited share certificates into his D-mat account No.3020679-31471365 with ICICI Bank, Udaipur. The copies of share certificates along with covering letter and D-Mat account statement were furnished to the AO during the course of assessment proceedings. The A/R also submitted the share certificate No. Registered folio No. distinctive Nos. and No. of shares. The assessee sold 5,300 equity shares of M/s. Poonam Pharmaceuticals Ltd., Calcutta through stock broker M/s Bhiwanaiwala & Co., a member of Calcutta Stock Exchange having SEBI Registration No.INB030049211 vide broker Note No. 087, 89 ,90//050802, 4 & 5/33847 dated 02.08.2005, 04.08.2005 & 05.08.2005 settlement No.2006087, 89 & 90 for Rs.16,03,883/-. The assessee has sold 1200 shares of M/s Gautam Resources Ltd. for a consideration of Rs.1,19,777.76 through stock broker M/s Ahilya commercial P. Ltd., Kolkatta, a member of Calcutta Stock Exchange having SEBI Registration No.INB031093439 through broker Note No.08 dated 27.05.2005 settlement No.D- 2006340. The assessee has also sold 1000 equity shares of M/s Star LTCR for Rs.349150 through Ahilya commercial P. Ltd., Kolkatta, a member of Calcutta Stock Exchange having SEBI Registration No.INB031093439 vide contract Note No.25 and 16 dated 08.04.2005/13.04.2005, settlement No.D-2006308/3111 dated 08.04.2005/13.04.2005, and sold 3000 shares through K.C. Somnai Stock Broking Services P. Ltd., Kolkatta, a member of Calcutta Stock Exchange having SEBI Registration No.INB030757133, contract No.1 dated 08.04.2005, settlement No.D-2006308 dated 08.04.2005 for Rs.10,47,450/-. The relevant broker notes and contract notes evidencing the sale of shares were placed before the AO and also in appellate proceedings. The sale proceeds were received through a/c payee cheques and deposited into appellant's bank account. Similarly the delivery of shares on sale was effected through De-mat account.

5. As regards the contentions of the AO of the significant price increase of share it is submitted that the prices of shares are determined in stock exchange and depends on moos and sentiments of customers. The assessee has sold shares of Manta On Line Ltd. as per quoted price of stock exchange, the copy of which has been placed before the AO at the time of assessment proceedings and the same is being furnished herewith for perusal. Therefore, any suspicion of the AO as regards to the price fluctuation is baseless, as regards to the contention of the AO about the prices of shares in reference to perusal of profit and loss account and balance sheet of the company disclosed in the annual report of the company with minuscule P & L it is stated that price of the shares depend on demand and supply concept and balance sheet and P&L account of the company is not only a criteria. The buyer of shares takes into consideration various factors like reputation of group of the company, future scope of growth of the company etc. As regards the payment made by the relative of the assessee at Kolkatta to the broker in three installments against purchase consideration it is submitted that it was made to her as per her convenience. Cash payment made to the broker in peace meal instead of lump sum did not vitiate the share of transaction. As regards the contention of the AO that broker could not be traced out it is submitted that the address of the alleged broker might have changed now and, therefore. He could not be traced at the given point of time. Otherwise the alleged broker, as far as price fluctuation of shares is concerned it depends on market conditions. The Hon'ble Punjab and Haryana High Court held in the case of Chiranji Lal Steel Rolling Mills v. CIT [1972] 84 ITR 222 that it is open for AO to collect evidence from any source but it is his duty it to the assessee before making it the base of his assessment.

6. As regards inference of the AO about the entire transaction being a sham transaction and accommodation entry given by the broker in the from of sale proceeds of shares in lieu of cash and disguised as long term capital gain by the assessee which was based upon presumptions like purchase transaction being bogus, unusual price fluctuation of shares, collusion between the broker and the company, it is submitted that the inference drawn by the AO are based upon wrong presumptions and no existent facts and hence pure conjecture and surmise. The conclusion drawn on these imaginary and no existent allegations by the AO. As against AO's case based upon wrong presumptions and nonexistent facts and hence presumptions are grossly erroneous. And far fetched, the assessee produced all evidences which were required by AO. The AO failed to bring any material on record either to rebut the evidences produced by the assessee or to support his conclusions. In support of the submissions the Ld. A/R also placed reliance in the cases of Cit v. Durga Prasad More [1971] 82 ITR 540 (SC) , Sumati Dayal v. Commissioner Of Income Tax, Bangalore. [1995] 214 ITR 801/80 Taxman 89 (SC) , Commissioner Of Income-Tax v. L.N Dalmia.. Dalmia [1994] 207 ITR 89 (Cal.) , Commissioner Of Income-Tax, N. Delhi… v. Sophia Finance Ltd…. [1994] 205 ITR 98/[1993] 70 Taxman 69 (Delhi) and MC Dowell & Co. Ltd. v. Commercial Tax Officer [1985] 154 ITR 148/22 Taxman 11 (SC) .

6.1. In this respect the Ld. A/R placed reliance in the cases of (i) Pullangode Rubber Produce Co. Ltd. v. State of Kerla [1973] 91 ITR 18 (SC) , (ii) G.Murugesa & Bros. v. CIT [1973] 88 ITR 432 (SC) , (iii) Commissioner Of Income-Tax v. Bhanwarlal [1997] 225 ITR 870 (Raj.) and (iv) Jagdish Chand Gupta v. Asstt. CIT [1996] 58 ITD 142 (Chd.) .

7. The Ld. A/R further stated that the appellant has furnished all evidences i.e. broker note, contract note, relevant cash flow statement, balance sheet as at 31.03.2002, copy of share certificates etc. which were in his possession to establish the genuineness of purchase and sale transaction of shares. The shares were listed in Calcutta Stock exchange and were regularly traded. The transaction of purchase and sale of shares was carried out at quoted price of stock exchange. The identity of brokers were beyond doubt as they were registered brokers with SEBI. The brokers confirmed the entire transaction of purchase of shares and sale thereof. The shares received in physical form were transferred in De-mat account of the appellant with ICICI Bank, Udaipur. Deliveries of shares were made from De-mat account of the appellant when these were sold. The fluctuations in the market rates of shares were a natural phenomena, depends upon market conditions and sentiments of customers. In the absence of any evidence regarding collusion the suspicion about market rate of shares were without any basis. The AO has failed to bring any evidence to show that the appellant has paid unaccounted cash to the broker in order to receive sale proceeds of shares by cheque. There is no cogent material or evidence to indicate that the impugned sale proceeds of shares reflected unaccounted income of the appellant.

8. The Ld. A/R further contended that the AO has neither controverted any material evidence submitted by the appellant nor proved any one fake or bogus. The genuineness of shares therefore, should not have been denied. Rather the AO has gathered few irrelevant informations and utilized on the back of the appellant without providing any opportunity of being heard to the appellant shows much eagerness of the AO to tax long term capital gain as unexplained cash credit. The reason of holding entire long term capital gain to be taxed as unexplained cash credits u/s 68 of the Act by the AO is based on his own assumption, presumptions and suspicion. Therefore, the opinion of the AO ignoring all material evidences is bad in law, arbitrary in nature and against natural justice. In this respect the Ld. A/R placed reliance in the case of State of Kerala v. M.M. Mathew [1978] 4 SCC 65 in which it has been held that strong suspicion, strange coincidences and grace doubts cannot take the place of legal proof. In view of the above submissions, the Ld. A/R contended that the AO was not justified in rejecting the claim of the appellant and in taxing the long term capital gain as unexplained cash credit u/s 68 of the Act. The action of the AO deserves deletion.

9. After considering the submissions and perusing the material on record, the ld. CIT (A) recorded his finding in paras 9 to 14 at pages 8 to 11 are as under :-

"9. I have considered the facts of the case and submission of the Ld. A/R and found that similar issue was decided in the case of the appellant for the assessment year 2004-05 in favour of the appellant vide appellate order dated 21.02.2007 in appeal no.458/2006-07. The appellant has shown capital gain of Rs. 37,77,847/- on sale of shares between the period 08.04.2005 to 05.08.2005. The purchase and sale of shares is as under:

Purchase

Name of the shares	Name of the broker	Purchase qty.	Total pur. price
M/s. Poonam Pharmaceuticals Ltd.	V.K. Singhania	5,300	35,616
M/s Gautam Resources Ltd.	Renu Poddar	1,200	24,324
M/s Star LTCR	Ballabh Das Daga	6,000	57,472

Sales

Name of the shares	Name of the broker	Sale qty.	Total sale price	Total Profit
M/s. Poonam Pharmaceuticals Ltd.	M. Bhiwantiwala & Co.	5,300	16,03,883	15,68,367
M/s Gautam Resources Ltd.	Ahilya Commercial (P.) Ltd.	1,200	1,19,777	95,453
M/s Star LTCR	- do-	6,000	20,54,185	19,96,713

10. The shares purchased were of M/s V.K. Singhania. The transaction was effected through a broker namely M/s M.Bhiwaniwala & Co. The transaction of purchase and sale of shares were executed at prevailing market rate. The identity of broker was beyond doubt as he was a SEBI registered broker. These shares were acquired in physical form and the appellant received certificates bearing share certificates baring share certificate Nos. and distinctive Nos. of shares mentioned above. Prior to their sale, these shares were dematerialized with Stock Holding Corporation of India Ltd. The dematerialized shares were held in appellants' de-mat account with ICICI Bank, Udaipur. The payment of purchase consideration were made in cash out of available cash balance with the appellant which is evident from the cash flow statement furnished before me as well as furnished before the AO also. These shares were sold by the appellant for a consideration of Rs.37,77,847/- through stock brokers M/s M.Bhiwaniwala & Co. and M/s Abhilya Commercial (P.) Ltd. Kolkatta and the appellant earned long term capital gain of Rs.36,60435/-.

11. The appellant furnished all evidences i.e. broker note, contract note relevant extract of cash book, balance sheet as on 31.03.2005 and 31.03.2006, copy of share certificate etc. which were in his possession to establish genuineness of purchase and sale of shares. The AO failed to bring any evidence to show either back dating purchases or collusion between the broker and the company. The AO also failed to bring any evidence to show that the appellant paid unaccounted cash to the brokers in order to received sale proceeds of shares by cheques. In the light of the above undisputed facts, the following presumptions, on the basis of which the AO concluded that the entire transaction of purchase and sale of shares was a sham transaction and an accommodation entry given by the broker in the form of sale proceeds of shares in lie of cash, have to be considered. The AO further failed either to show that a large number of documents like broker note, contract note, relevant extract of cash book, copy of share certificates, de-mat statement etc. Filed by the appellant were false, fabricates or fictitious or to rebut appellant's claim regarding purchase of shares. Rather the broker confirmed the entire transaction. The reliance placed by the AO on facts like notice u/s 133(6) issued to the company being returned unserved, delayed payment to the broker, discrepancies in the name of the seller as per broker and as per endorsement of the share certificate, certificate for 5300, 1200 and 6000 equity shares being received from the companies, dematerialization of shares just before sale etc. would alter an AO and arouse his suspicion for a detailed examination and verification but these facts alone, in the absence of anything else could not negate the impugned transaction in the face of overwhelming evidences produced by the appellant. Moreover, the AO did not confront the appellant about the result of his enquiry. The ratio of the judgment of Punjab & Hariyana High Court in the case of Chiranjilal Steel Rolling Mills v. CIT 84 ITR 22 is squarely applicable to the facts of the appellant's case. Thus the presumption of the AO was without any basis.

12. As regards the presumption of the AO that the appellant paid in cash in lieu of accommodation entry given by the broker in the form of sale proceeds of shares, the AO squarely failed to bring any evidence on record to show that the sale transaction was fictitious and the appellant paid cash to broker for obtaining cheques in the form of sale proceeds of shares. While the appellant produced broker notes in support of sale proceeds and could show that proceeds were received by account payee cheques and deposited in the appellant's bank account, the AO could not show anything to rebut the evidences produced by the appellant. Thus, this presumption of the AO was without any basis.

13. From the above discussion, it is quite evident that the AO failed to show that the transaction for purchase and sale of shares was bogus and the appellant paid cash to the brokers for availing accommodation entry in the form of sale proceeds of shares. Suspicion, strange coincidences and grave doubts, how so ever strong it may be, cannot take place of legal proof. Therefore, the AO erred in treating the entire transaction of long term capital gains as a sham transaction and bring it to tax as unexplained cash credit u/s 68 of the Income Tax Act, 1961.

14. As regards various judgments relied upon by the AO, the ratio of these transactions for purchase and sale of shares was fabricated, false and fictitious. However, the AO did not being any evidence on record to establish non-genuineness of the impugned transaction. Moreover, the Ld. A/R of the appellant elaborately distinguished these judgments. In view of the above I hold that the purchase of equity shares was not bogus and genuine and the profit from sale of shares was assessable as long term capital gain and not as unexplained cash credit u/s 68 of the Act.Therefore, the amount of Rs.16,76,142/- (correct Rs. 37,77,847/-) cannot be treated as cash credit u/s 68 of the Act. The stand taken by the AO is not justified and, therefore, rejected. The appeal is allowed on this ground. Since the issue involved in this case is fully covered by the decision in the case of the appellant for assessment year 2006-07, I hold that the AO was not justified in making the addition credit u/s 68 of the Act as against capital gain declared by the appellant. The addition is deleted. The appeal is allowed on this ground."

The ld. CIT (A) also deleted the addition of Rs. 1,88,890/- by holding that transaction of purchase and sale already held as genuine. Therefore, there is no question of holding that assessee has paid any commission to the broker over and above shown by assessee.

10. Now the department is in appeal here before the Tribunal.

11. The ld. D/R placed reliance on the order of the Assessing Officer. Pages 4 & 5 of the order of the Assessing Officer were read also.

12. On the other hand, ld. Counsel of the assessee placed reliance on the order of ld. CIT (A) and also filed a copy of written submission.

13. After considering the submissions and perusing the material on record, we find no infirmity in the finding of ld. CIT (A). The ld. CIT (A) has examined the issue in thread bear and found that purchase of shares as well as sale of shares are genuine. The purchase of shares were made through Shri V.K. Singhania, Renu Poddar and Ballabh Das Daga. The shares were purchased in earlier years and were sold during the year under consideration. The shares were sold through another broker i.e. M/s. M. Bhiwantiwala & Co., M/s. Ahilya Commercial P. Ltd. All the purchase and sale of shares were dematized in regular course of transaction. Confirmation of purchase of shares through brokers were filed. All the shares are of listed companies. The shares were credited to demat account of the assessee and thereafter on sale of those shares the account of the assessee was debited through demat account. Therefore, there is no question of doubting the genuineness of transactions. There is no evidence that assessee has not purchased the shares in earlier year. They have been shown in the Balance Sheet and the Balance Sheet of earlier year has been accepted. The assessee has filed broker note, contract note, relevant extract of cash book, balance sheet as on 31.3.2005 and 31.3.2006, copy of share certificate etc. and all these details established that the was in possession of respective shares. The objection of the AO was that notice issued under section 133(6) were returned back and payment to broker was delayed and there were certain discrepancies in the name of sellers as broker and as per endorsement in the share certificate. Clarification in respect of these deficiencies were filed before the Assessing Officer which were filed before ld. CIT (A) also. They were not appreciated by the Assessing Officer but were appreciated by ld. CIT (A) and then only the ld. CIT (A) found that all the transactions of purchase and sale of shares are genuine. It was also not the case of the department that assessee repaid the sale consideration in hand. There is no such evidence on record. Therefore, inference drawn by Assessing Officer, in our considered view was not correct by holding that the share transaction are bogus. The ld. CT (A) was justified in holding that share transactions were genuine. Accordingly we confirm the finding of ld. CIT (A) as they are finding of fact and remained uncontroverted.

14. Deletion of addition of Rs. 1,88,890/- is also confirmed as the Assessing Officer made this addition on the basis that the transaction of sale of shares are only accommodation entry and assessee must have paid some commission to the broker. We have already held that transaction of purchase and sale of shares were genuine, therefore, we hold that this addition was rightly deleted by ld. CIT (A).

15. In the result, appeal of the department is dismissed.

The Acit, Circle-2, ... v. Smt. Sumitra Gaur, P...