Penny stocks

`          IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH `D' MUMBAI
BEFORE SHRI A.L.GEHLOT, AM &
SMT. P.MADHAVI DEVI, JM 
I.T.A.NO.5302/Mum/2008  -  A.Y 2005-06 
Asst. Commissioner of I.T. 14(3),
Mumbai 
Shri Ravindrakumar Toshniwal,
Gopal Bhavan, 5
th
Floor,
199, Princess Street,
Mumbai 400 002.
PAN NO.AAAOT 1909 P
(Appellant)  (Respondent)
 
Revenue by : Shri G. Gurswami, DR
Assessee by : Shri Tarun Ghia.
O R D E R
                         
Per  P.MADHAVI DEVI, JM:
This appeal of the revenue is directed against CIT(A)'s order
dated 24/06/2008.
2. The only grievance of the revenue in this appeal is against the
order of the CIT[A]  in deleting the addition of Rs.89,59,383/- made by
the AO as income from other sources in respect of long term capital
gains shown by the assessee on the sale of shares of M/s Buniyad
Chemical Ltd. and M/s Talent Infoway Ltd. 
3.  Brief facts of the case are that the assessee is an individual
who filed his return of income declaring total income of Rs.32,87,897/-.
During the assessment proceedings u/s.143[3], AO observed that the
assessee has credited Rs.91,19,608/- as share profit in his capital
account from the sale of shares of M/s Buniyad Chemical Ltd. and M/s
Talent Infoway Ltd.  and claimed long term capital  gain on the sale  2
proceeds. To verify the genuineness of the transaction notices
u/s.133(6) of the Act were sent to the share brokers through whom
assessee had carried on the said transactions. he observed that the
assessee had sold shares of M/s Buniyad Chemical Ltd. and M/s Talent
Infoway Ltd.  through share brokers M/s Alliance Intermediaries &
Network Pvt. Ltd. and M/s Mahasagar Securities Pvt. Ltd., both of
whom are located at the same address. In reply to the notices sent
u/s.133[6] of the Act, the share brokers vide letter dated 16-10-07
stated that the shares are sold by them on behalf of Shri
Ravindrakumar Toshniwal through stock Exchange in the market and it
is difficult to submit the details of the buyer as  they are not available
with them. The relevant daily quotations of Ahmedabad Stock
Exchange were enclosed. To verify the genuineness of the said
transaction, AO issued notice u/s.133(6) to the Ahmedabad Stock
Exchange Ltd. (ASEL) and in response to the same, (ASEL)  vide letter
dated 16-11-07 replied that there is no transaction reported at ASEL in
the scrip M/s Buniyad Chemical Ltd. and M/s Talent  Infoway Ltd. 
during the period from April 1, 2004 to March 31, 2005. Thus, AO
came to the conclusion that the brokers M/s Alliance Intermediaries &
Network Pvt. Ltd. and M/s Mahasagar Securities Pvt. Ltd., have given
false information about the sale of shares of M/s Buniyad Chemical Ltd.
and M/s Talent Infoway Ltd. Therefore, summons u/s.131 were issued
to the directors of both the companies. In response thereto, Shri
Mukesh M. Chokshi, director of the above two companies attended on  3
23-11-07 and his statement under oath was recorded  u/s.131 of the
Act. In the said statement the director stated that the shares of M/s
Buniyad Chemical Ltd. and M/s Talent Infoway Ltd.  on behalf of Shri
Ravindrakumar Toshniwal  were listed on the floor of ASEL and they
were off market transactions.
4. As regards the payment of sale proceeds through  Shri
Ravindrakumar Toshniwal , he stated that they have  been made
through Akola Urban Co-operative Bank Ltd. out of the funds provided
by Shri Ravindrakumar Toshniwal. AO also asked Mr. Mukesh Chokshi
about the business transactions of M/s Buniyad Chemical Ltd. and M/s
Talent Infoway Ltd.  to which he replied that he was not aware of the
business transactions and was not related to the said companies. 
5. After considering the said statement of Shri Mukesh Chokshi, AO
observed that the letter received from ASEL indicated that the contact
person of M/s Buniyad Chemical Ltd. was Shri Mukesh M. Chokshi and
for M/s Talent Infoway Ltd.  the contact person was Shri Ram P.
Mankad. He, therefore, came to the conclusion that  Shri Mukesh M.
Chokshi in reality was a person operating bogus/sheil companies and
the contact telephone numbers of M/s Buniyad Chemical Ltd. and M/s
Talent Infoway Ltd.  is that of M/s Alliance Intermediaries & Network
Pvt. Ltd. and M/s Mahasagar Securities Pvt. Ltd., and it is also the
address of Shri Mukesh Chokshi and M/s Buniyad Chemical Ltd. AO
also summoned the assessee u/s.131 of the Act and recorded his
statement on oath on 30-11-07 in which the assessee stated that the  4
transactions of sale were concluded on his instructions by the brokers.
Thereafter, AO came to the conclusion that the entire transactions i.e.
the purchase and sale of shares are part of accommodation entry of
sale by the assessee and through the guise of capital gains, it is the
unaccounted money of the assessee which has been converted into
accounted money. Accordingly, he added the entire sale consideration
of Rs.89,59,383/- to the total income of the assessee as income from
other sources and taxed the same accordingly.
6. Aggrieved, assessee filed an appeal before the CIT[A]  stating
that it has produced contact notes, bills, copies of cheques, copies of
bank statements, copies of account with the share brokers duly
confirmed by the share brokers, confirmation letters from concerned
banks and copies of demat accounts before the AO, but the AO has not
referred to or considered any of these documents during the
assessment proceedings. The assessee also submitted that the
statement given by Shri Mukesh Chokshi that the payments have been
made through Akola Urban Co-operative Bank Ltd. out of the funds
provided by the appellant was also incorrect as the statement was
without understanding the implications. The assessee stated that there
is no supporting evidence to show that the funds were provided by the
assessee through the broker before issuing the cheques against the
sale proceeds. 
7.  As regards the validity of the off market share transactions,
assessee placed reliance upon the decision of the Tribunal in the case  5
of Mukesh R. Marolia vs. Addl. CIT reported in (2006) 6 SOT 247
(Mum). The assessee also challenged the finding of  the AO on taking
adverse inference against him on the basis of material relied upon by
him from survey action taken u/s.133 upon the premises of the
director Shri Mukesh Chokshi without providing an opportunity to the
assessee to rebut the same. It was submitted that the AO cannot rely
upon the statement of a director in part and reject the other part.
8. The CIT[A]  after considering the documentary evidence on
record filed by the assessee and after taking into  consideration the
decision of the Tribunal in the case of Mukesh R. Marolia [cited supra],
came to the conclusion that the sale transactions of the assessee
cannot be held to be bogus as held by the AO. He accordingly deleted
the addition made by the AO. Aggrieved, by the relief given by the
CIT[A],  the revenue is in appeal before us. 
9. The ld. DR strongly relied upon the findings of the AO and drew
our particular attention to the statement of Shri Mukesh Chokshi
u/s.133(6) of the Act reproduced in the assessment order.
10. The ld. counsel for the assessee, on the other hand, supported
the order of the CIT[A]  and placed before us the copies of the
following decisions of the Tribunal in support of his contentions:
I. Mukesh R. Marolia vs. Addl.CIT 6 SOT 247 [Mum]
II. Order of `D' Bench of the Tribunal in the case  of Mrs.
Rajinidevi A. Chowdhary vs. ITO , in I.T.A.No.6455/M/07 dated
30-4-2008.  6
III. Order of `C' Bench of the Tribunal in the case of Dy. CIT vs.
Shri Pinakin L. Shah in I.T.A.Nos.3030 & 3453/M/08  dated
14/7/09.
11. Having heard both the parties and having considered their rival
contentions, we find that the AO has treated the said transactions as
bogus transactions on the ground that-
a) The sale transactions were not on the floor of the ASEL but
were off market transactions;
b) The address of the M/s Buniyad Chemical Ltd. and M/s Talent
Infoway Ltd.  was the same and the contact person for M/s
Buniyad Chemical Ltd. on the floor of ASEL was Shri Mukesh
Chokshi. 
c) Mr. Mukesh Chokshi had stated that the sale proceeds have
been paid to the  assessee through the funds provided by the
assessee.
12. As regards point (a) above, we find that the issue is covered by
the decision of the Tribunal in the case of Mukesh R. Marolia wherein it
has been held that off market transaction is not a unlawful activity and
there is no relevance in seeking details of share transaction from stock
exchange when the sale was not on stock exchange and relying upon it
for making addition. 
13. As regards points (b) & (c) above, we find that the assessee has
filed relevant documentary evidence before the AO but the AO has
failed to consider the same. The CIT[A]  in his order has considered
the said evidence and has come to the conclusion that the share
transactions are genuine. However, as held by the Tribunal in the case  7
of Rajinidevi A. Chowdhary [cited supra], which is  on similar set of
facts, the AO could have verified from the Registrar of companies as to
whether the shares have been transferred and the names of the
shareholders in whose names shares have been transferred. The
decision of the Tribunal in the case of Rajinidevi A. Chowdhary has also
been upheld by the jurisdictional High Court as taken note of by this
Tribunal in the case of Shri Pinakin L. Shah [cited supra], to which one
of us i.e. the Judicial Member, is a party. In these facts and
circumstances of the case, we do not see any reason to interfere with
the order of the CIT[A]  and the same is upheld.
14. In the result, revenue's appeal is dismissed.
Order pronounced on this  24
th
day of February, 2010.
Sd/-                        Sd/-
(A.L.GEHLOT) (P.MADHAVI DEVI)
Accountant Member          Judicial  Member
Mumbai:24
th
February, 2010.