ORDER

1. All these assessees have filed these appeals challenging the orders passed by the learned Commissioner of Income-tax (Appeals) in their respective hands for the assessment years mentioned in the cause title against their respective names. Since the issues urged in these appeals are identical in nature and further since all the assessees belong to same family, all these appeals were heard together and they are being disposed of by this common order, for the sake of convenience.

2. All these assessees are aggrieved by the decision of the learned Commissioner of Income-tax (Appeals) in confirming the assessment of sale proceeds of shares declared by each of them as "income from other sources" by rejecting the claim of long-term capital gains.

3. The facts relating to the cases are stated in brief. All these assessees belong to "Birawat" group and all of them are family members. The Revenue carried out search and seizure operations in the residential premises of Birawat group under section 132 of the Income-tax Act, 1961. Consequent thereto, the present assessments were completed by the Assessing Officer under section 153A of the Act in the hands of the assessees cited above except in the cases of "Shweta K Birawat" and "Akshata Birawat", in whose hands the assessments were completed under section 153C of the Act. It is pertinent to note that the Department did not unearth any incriminating material during the course of search. All these assessees filed returns of income, wherein they, inter alia, declared income arising on sale of shares under the head "Capital gains".

4. The Assessing Officer noticed that the Investigation Wing of the Department has found that a person named Shri Narendra R Shah was using the names of two entities, viz., M/s. G.R. Pandya Share Broking Ltd. and M/s. T.H. Vakil Shares and Securities Pvt. Ltd., to issue bogus purchase bills relating to the shares of companies named "M/s. Interlink Financial Services Ltd." and "M/s. Data Finance Ltd.". The Investigation Wing also recorded a statement of Shri Narendra R Shah on October 9, 2006, wherein he confirmed the abovesaid fact. He also stated that he had issued bogus purchase bills on the instructions of Shri Paras Chalot and Shri Shirish Shah, both were called "operators".

5. The Assessing Officer noticed that the assessees herein have also purchased shares of M/s. Interlink financial services Ltd. They had received the shares in their respective demat accounts from other demat accounts, most of the times by transfer from demat accounts belonging to M/s. T.H. Vakil Shares and Securities Pvt. Ltd. and M/s. Amizara Securities and Finance P. Ltd. All these assessees had claimed to have purchased the shares in physical form from M/s. Amizara Securities and Finance P. Ltd. (a sub-broker). It was claimed that the physical share certificates were held by the abovesaid broker on behalf of the assessees, since at that point of time these assessees did not have any demat accounts. Subsequently, after opening the demat accounts in the name of the assessees, the shares were transferred from the demat account of the abovesaid sub-broker.

6. In the sworn statement, Shri Narendra R Shah had stated that the demat account belonging to M/s. T.H. Vakil Shares and Securities P. Ltd. was opened on December 22, 2004, only. He also stated that he had not purchased any shares of M/s. Interlink Financial Services Ltd. on behalf of sub-broker M/s. Amizara Securities and Finance P. Ltd. or on behalf of Birawat group prior to the abovesaid date. He further stated that purchase bills were issued to the persons who wanted to generate artificial capital gains. He also confirmed that the bills were issued without executing any actual sale and purchase of the shares. Hence, the Assessing Officer took the view that the shares of Interlink Financial Services Ltd. were not actually purchased by these assessees, but they have obtained only accommodation bills.

7. These assessees had also purchased and sold shares of "M/s. Suryadeep Salt Refinery and Chemicals Works Ltd.". The Assessing Officer made enquiries with the abovesaid company. The director of the abovesaid company, vide his letter dated November 20, 2008, submitted that the names of these assessees do not find place in their records and further his company has not received any request from them for transfer of shares to their names. The shares of "M/s. Suryadeep Salt Refinery and Chemicals Works Ltd." were also seen purchased through the sub-broker, i.e., M/s. Amizara Securities and Finance P. Ltd.

8. Hence, the Assessing Officer asked these assessees to produce anybody from M/s. Amizara Securities and Finance P. Ltd. But, according to the Assessing Officer, these assessees did not produce the sub-broker.

9. With the facts mentioned above, the Assessing Officer came to the following conclusions :

"11. The picture that emerges is that M/s. T.H. Vakil Shares and Securities Pvt. Ltd. have confirmed that they never actually bought any shares on behalf of the assessees of this group and the so-called purchase bills attributable to them are bogus, as these bills were mere accommodation bills, not backed by any real transactions. M/s. Suryadeep Salt Refinery and Chemicals Works Ltd. have confirmed that none of the assessee's in this group ever held any shares in the company, M/s. Suryadeep Salt Refinery and Chemicals Works Ltd. The persons from M/s. Amizara Securities and Finance P. Ltd. were never produced. Thus, the purchases of aforesaid shares being bogus were confirmed. When purchases themselves are bogus, the logical inference is that the whole transaction involving supposed earning of long-term capital gains/short-term capital gains was bogus and engineered. It is also logical to infer that the assessee would have paid certain remuneration or fee or commission or any such amount for obtaining these bogus gains. As per information in possession of the Department, a sum of 5 per cent. of the total proceeds would have been paid."

10. The Assessing Officer also noticed that the shares of the abovesaid two companies and also that of other companies were found credited to the demat account of the assessees only few days prior to their respective sales. However, they had claimed to have purchased shares much earlier and thus claimed long-term capital gains on their sales. These assessees produced all the relevant documents to prove the claim of purchases before the Assessing Officer. However, the Assessing Officer disbelieved all those documents. These assessees also sought an opportunity to cross-verify Shri Narendra R Shah, on whose statement the Assessing Officer had placed much reliance. With regard to M/s. Amizara Securities and Finance P. Ltd. (sub-broker), these assessees furnished last known address of the sub-broker as 170/172, Kalba Devi, 3rd floor, Kalbadevi Road, Mumbai-400 002 and also stated that the sub-broker has vacated from the abovesaid address. Accordingly, these assessees furnished the reason for not producing M/s. Amizara Securities and Finance P. Ltd. (AFSL). It was also pointed out to the Assessing Officer that the search did not reveal any incriminating documents and further none of the members have stated that these share transactions are bogus in their respective statements taken from each of them separately. They further stated that they do not have any connection with M/s. T.H. Vakil Shares and Securities Pvt. Ltd. or with Shri Narendra R Shah. Accordingly they pleaded before the Assessing Officer that the capital gains declared by them are genuine transactions.

11. The Assessing Officer was not convinced with the submissions made by these assessees. Accordingly, the Assessing Officer came to the following conclusions:

12. Accordingly, the Assessing Officer assessed the entire amount of sale proceeds of shares as income of the assessees under the head "Income from other sources". It is pertinent to note that these assessees have also purchased and sold shares of other reputed companies like Aravind Mills, Mahindra and Mahindra, Oriental Bank, Telco, etc. However, the Assessing Officer assessed the sale proceeds relating to them also as income from other sources, since he held that the sub-broker AFSL had issued bogus bills. Further, the Assessing Officer recognised the date of purchase of shares as the date on which they were credited in the demat accounts and accordingly expressed the view that these assessees have not "held or possessed" shares for a period exceeding one year in order to claim the gains as long-term capital gains.

13. The Assessing Officer further held that these assessees would have spent 5 per cent. of the gross amount for obtaining accommodation bills for purchase and sale of shares. Accordingly he assessed 5 per cent. of the gross sale receipts as unexplained money in possession of the assessee.

14. These assessees carried the matters by filing appeals before the learned Commissioner of Income-tax (Appeals). The first appellate authority discussed in detail the modus operandi adopted for engineering bogus capital gains using penny stocks and also discussed about the order passed by SEBI. Accordingly, he upheld the decision of the Assessing Officer in assessing the gross receipts as income of these assessees under the head "Income from other sources". He also upheld the assessment of 5 per cent. of gross receipts as income of these assessees. Aggrieved, all these assessees have filed these appeals before us. It is pertinent to note that these assessees had also raised certain legal grounds before the learned Commissioner of Income-tax (Appeals), but they did not find favour with him.

15. We shall first consider the arguments advanced by both parties on merits. The contentions of the learned authorised representative were summarised as under :

16. The learned Departmental representative furnished his contentions by way of written submissions. For the sake of convenience, we have extracted the relevant points below :

17. In the rejoinder, the learned authorised representative submitted that these assessees have accounted for the purchase of shares in the books of account and they have never admitted that the gains arising on sale of shares may be assessed as income from other sources. He further submitted that the entire assessments have been framed on the basis of statement given by Shri Narendra R Shah, which was not confronted with the assessees. He further submitted that the statement was taken from Shri Narendra RShah prior to the date of search.

18. We have heard the rival contentions and perused the record. The admitted facts are that the search operations did not reveal any incriminating material, meaning thereby, no evidence was found during the course of search in order to doubt the veracity of the long-term capital gains declared by the assessees. We notice that the Assessing Officer has fully relied upon the information given by the Investigation Wing of the Department with regard to the alleged penny stocks and their price rigging. We have earlier noticed that the Investigation Wing has furnished the statement recorded from a person named Shri Narendra R Shah to the Assessing Officer and in that statement, he had admitted to have issued bogus purchase bills for purchase of shares in the companies of M/s. Interlink Financial Services Ltd. and M/s. Data Finance Ltd. The assessees herein had also purchased shares of M/s. Interlink Financial Services Ltd. through a sub-broker named M/s. AFSL. Since the assessees have purchased shares of M/s. Interlink Financial Services Ltd., the Assessing Officer as well as the learned Commissioner of Income-tax (Appeals) have taken the view the assessees have also purchased accommodation bills and accordingly declared bogus long-term capital gains. Accordingly, the tax authorities have taken the view that the assessees have introduced their unaccounted money in the form of long-term capital gains. Accordingly they have rejected the claim of long-term capital gains and assessed the gross receipts as income from other sources. It is pertinent to note that the tax authorities have assessed the sale proceeds arising on sale of other companies also as income from other sources, even though the shares of M/s. Interlink Financial Services Ltd. alone was found to fall in the category of penny stocks, whose prices were alleged to have been rigged.

19. Now the issue that requires examination is whether the evidences/materials available in the case of these assessees were sufficient to entertain the view so taken by the tax authorities, i.e., whether these assessees can be considered to have taken the accommodation bills with the intention of generating bogus long-term capital gains.

20. We have already noticed that the Assessing Officer has fully placed reliance on the statement given by Shri Narendra R Shah. Admittedly this statement was taken by the Investigation Wing on October 9, 2006, i.e., much prior to the date of search conducted on January 10, 2007, in the hands of these assessees. Though Shri Narendra R Shah has admitted to have given bogus bills in respect of shares of M/s. Interlink Financial Services Ltd., yet he has categorically stated that he has not purchased or sold shares of the abovesaid companies prior to December 22, 2004 (date of opening of demat account) on behalf of M/s. ASFL (sub-broker) or the Birawat group. He has further stated that he has not purchased or sold shares of M/s. Interlink Financial Services Ltd. prior to December 22, 2004. However, the claim of the assessees is that they have purchased the shares of M/s. Interlink Financial Services Ltd. were purchased much prior to December 22, 2004. Thus, even according to the statement of Shri Narendra RShah, he has not purchased the shares of M/s Interlink Financial Services Ltd. prior to December 22, 2004. It is nobody's case that the assessees have purchased the shares of the abovesaid company after December 22, 2004. Thus, we are of the view that, from the statement given by Shri Narendra RShah, it may not be possible to presume that the shares purchased by the assessees are bogus purchases, more particularly in view of the fact that the Department has not established that there was link between ShriNarendra R Shah and M/s. ASFL.

21. We notice that the assessees herein have asked for cross-examination of Shri Narendra R Shah, since the Assessing Officer has totally relied upon his statement. However, such an opportunity for cross-examination was not given to the assessees. Further, Shri Narendra R Shah has stated that he has issued accommodation bills at the instance of two operators, viz., ShriParas Chalot and Shri Shirish Shah. However, there is no information on record to the effect that these two operators were examined by the Department. Hence, we find merit in the contentions of the learned authorised representative that the statement given by Shri Narendra R Shah should not have been relied upon on the face of it, without corroborating the same with other independent evidences.

22. The claim of the assessees is that they have purchased the shares from M/s. ASFL. In this regard, the case of the assessees is that they have furnished all the relevant details to support the claim of purchase of shares. The Assessing Officer has rejected the claim of purchases, only for the reason that the assessees have failed to produce anybody from M/s ASFL. However, we notice that the assessees have tried to locate the abovesaid broker, but could not find it, since the broker had vacated its office. This fact, we notice, was brought to the notice of the Assessing Officer. However, we notice that the Assessing Officer did not take any further steps to trace M/s. ASFL. Under these set of facts, in our view, the Assessing Officer should not have drawn adverse inference against the assessees, when they have expressed their inability for the reasons stated above.

23. The Assessing Officer has taken the view that the assessees have opened the demat account only subsequently and the shares have come to their demat account from other demat accounts only few days prior to the date of sale. Accordingly, the Assessing Officer has expressed the view that the period of holding should be computed from the date on which the shares have come to the credit of demat accounts. However, the submissions of the assessees in this regard are that they had purchased the shares in physical form and the said shares were held by the sub-broker on their behalf. After the assessees have opened the demat accounts, the shares were transferred to their account by the sub-broker. The assessees have cited the Central Board of Direct Taxes circular to submit that the period of holding of shares should be computed on the basis of the broker's note for purchase of shares. Another observation made by the Assessing Officer was that the shares have come to the demat account of the assessees from M/s. T.H. Vakil Shares and Securities P. Ltd., a concern belonging to Shri Narendra R Shah. In this regard, the assessees have submitted that they, as investors, are not concerned about the demat accounts from which the shares have been received. Similarly, in the case of shares of M/s. Suryadeep Salt Refinery and Chemicals Ltd. also, these assessees have received shares through demat account. Hence the procedure for name transfer of physical shares shall not apply to it. Hence the letter written by the director of that company may not have much relevance.

24. In this regard, we find force in the submissions made by the assessees. As per the Central Board of Direct Taxes circular, referred to earlier, the date of purchase of shares should be recognised as the date on which the broker has issued the contract notes. Hence, we are unable to agree with the view taken by the Assessing Officer that the date of purchase should be considered as the date on which the shares were credited to the demat account. The undisputed fact remains that the assessees have opened the demat account only subsequent to the date of purchase of shares. Hence, in the absence of a demat account, one could have purchased the shares in physical form only. Though the assessee has furnished the details of purchases of shares, we notice that the Assessing Officer has rejected them without examining them. This approach of the Assessing Officer, in our view, was not appreciable at all. When the assessees are furnishing the necessary details available with them and if the Assessing Officer feels that they are not reliable then he should have conducted further investigation and brought any other material on record to disprove the claims put forth by the assessees. However, the Assessing Officer has taken adverse inferences against the assessees without causing further examination of the materials furnished by the assessees. Further, we are aware that there is no compulsion under any law that the shares should be held only in demat account form. As per the trade practice, in our knowledge, the broker is liable to deliver the shares which were purchased on behalf of the clients and in this connection only the broker contract notes are issued. We further notice that the submissions of the assessees that the shares were in the possession of the broker were also rejected without making further examination.

25. The learned Departmental representative, in his written submissions, has stated that the assessees have to produce purchase bills, payment details, service tax payment details, broker books of account at the time of dematerialisation. The said submissions do not appear to be correct as per the prevailing practice. For dematerialisation, to our knowledge, only the share certificates have to be furnished. However, in the instant case, the sub-broker has got the shares dematerialised the share certificates and then transferred them to the account of the assessees herein. We have already noticed that the Assessing Officer has not taken any steps or brought any material on record to show that the claim of purchase of shares in physical form from M/s. ASFL was wrong. In the absence of such an exercise, in our view, it may not be proper on their part to suspect the receipt of shares in demat account.

26. Another point, which is pertinent to note is that all these shares have been sold through another broker through BSE. Hence, there is merit in the contentions of the learned authorised representative that, in the absence of purchase of shares, it would not be possible to sell the shares. The learned authorised representative also submitted that, if it were bogus transactions, then both purchases and sales would have been routed through the same broker. Further, we notice that the Assessing Officer has assessed the sale proceeds realised on sale of shares of reputed companies also as income from other sources. The said action of the Assessing Officer would only show that he has proceeded to assess the gross receipts realised on sale of shares as income from other sources only on presumptions, surmises and conjectures without bringing any credible evidence on record to refute the claim of the assessee. We have already noticed that the learned Commissioner of Income-tax (Appeals) has upheld the assessment order on this issue, simply on the basis of SEBI report without ensuring that the assessees herein have also participated in the clandestine deals. Further the fact that the Revenue, during the course of search operations, did not unearth any evidence about existence of unaccounted money or any document to disprove the claim of earning of long-term capital gains would only go to prove that there was no evidence to suspect the claim of long-term capital gains declared by these assessees.

27. During the course of hearing, the learned Departmental representative submitted that the assessees have confessed about the non-accounting of purchases and further submitted that they have also agreed for the addition of gross sale proceeds as income from other sources. The learned Departmental representative also furnished a copy of sworn statement recorded from Shri Uttamchand Birawat under section 131 of the Act on April 23, 2007. Apparently, the learned Departmental representative is referring to the answer given to question No. 2 and question No. 11. The relevant questions and answers are extracted below, for the sake of convenience :

Question 2. You have stated several times that you shall submit the details of capital gains on account of transactions in shares. However, you have not yet submitted the said details such as name of the scrip, date of purchase, name and address of the purchase broker, number of shares, amount and similarly the details of sale, etc. Please explain.

Answer : As stated earlier, the necessary details called for are not readily available with us. We are trying to trace out these details and shall submit the same as soon as we are able to trace out the same. . .

Question 11. On similar lines narrated in question No. 10, the total long-term capital gains claimed by you and your family members on account of transactions shown of "A" or "B" group stocks of BSE works out to Rs. 3.08 crores, approx. As per facts mentioned above, the period of holding shown by you is bogus and accordingly the purchases shown by you are also not genuine. Hence the said long-term capital gains is artificial and bogus. Please explain.

Answer : As stated in my statements dated January 25, 2007, January 31, 2007 and April 5, 2007, I am trying to trace out the details of capital gains of Rs. 10,22,64,376 (which includes the above Rs. 3.08 crores) and shall submit the same. In case, I am unable to trace out and furnish the required details, I hereby undertake to declare the same as our income for the respective assessment years in the hands of respective assessees. Since I have voluntarily agreed to declare this income, if I fail to submit the details, I request the Department to grant immunity from penalty under section 271(1)(c) of the Income-tax Act.

A careful perusal of the abovesaid questions and answers would show that the view expressed by the learned Departmental representative does not appear to be correct.

28. In view of the foregoing discussions, we are of the considered view that there was no credible material with the Department to disprove the claim of long-term capital gains made by these assessees in their respective returns of income. Accordingly we set aside the orders of the learned Commissioner of Income-tax (Appeals) passed in the respective hands of the assessees herein on this issue and direct the Assessing Officer to delete the assessment of gross sale receipts as income from other sources in all the years under consideration and accordingly direct the Assessing Officer to accept the long-term capital gains declared by these assessees in all the years under consideration.

29. Since we have upheld the disclosure of long-term capital gains, the question of assessing 5 per cent. of the gross sale receipts as unaccounted income of the assessees does not arise. Accordingly, we set aside the orders of the learned Commissioner of Income-tax (Appeals) on this issue and direct the Assessing Officer to delete this addition in the hands of all the assessees in all the assessment years under consideration.

30. The assessees have also urged following legal grounds before us :

31. We do not find it necessary to adjudicate the above said legal grounds, since we have decided the issue relating to the additions in favour of the assessee.

32. In the result, all the appeals filed by all the assessees are allowed.

RAHUL