The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) held that the irregularities committed by Share Broker cannot be a ground to suspect the genuineness of the purchase and sale of shares.
While completing assessment proceedings against the assessee, the AO noticed that the assessee had sold scrips of Kotak Mahindra, NIIT Ltd. and Steel Authority of India Ltd. on 27.4.2004 through M/s. DPS Shares and Securities P. Ltd. and the same has resulted in net gain of 47,133/-. On 29.4.2004, the assessee purchased 25,000 shares of M/s. Prraneta Industries Ltd. for an amount of ` 47,040/-, which was adjusted against the profit earned by the assessee. The 25000 shares were converted into 250000 shares of Rs.1.00 each. The assessee sold all the shares and earned long term capital gain of Rs.42.22 lakhs.
On further enquiry with the Bombay Stock Exchange, the AO came to know that the sale of shares of Kotak Mahindra, NIIT Ltd. on 27.4.2004 was genuine, but the BSE informed that there was no trading on 29.4.2004 in the shares of M/s. Prraneta Industries Limited. With this, the AO held that the capital gain reported by the assessee is not genuine.
The bench noted that the assessee has not directly undertaken transactions on the platform of BSE, i.e., he has purchased and sold shares through an authorized broker named DPS Shares and Securities P. Limited. The above-said broker has confirmed the genuineness of purchase and sale of shares by the assessee by filing an affidavit.
“In view of the affidavit so filed, Assessing Officer has examined the authorized person of DPS Share and Securities P. Limited, who has confirmed the genuineness of the purchase and sale of shares undertaken by the assessee. Further, the shares have been dematerialized and they were sold in dematerialized form only. We notice that the Assessing Officer could not bring any material on record to disprove the affidavit as well as the statement given by DPS Shares and Securities P. Limited and also the demat statement furnished by the assessee. From the point of view of the assessee, he has purchased and sold the shares through an authorized share broker, who has executed the transactions by furnishing broker notes. The report was given by BSE only shows that there may be some irregularities on the part of the share broker. In our view, such kind of irregularities, if any, committed by share broker cannot be a ground to suspect the genuineness of the purchase and sale of shares undertaken by the assessee.”
The bench further noted that the assessee has furnished copies of contract notes in support of the purchase and sale of shares. He has also furnished copies of demat account which shows entry and exit of shares. The assessee has also received payment towards the sale of shares though it was received from two other persons on behalf of DPS Shares and Securities P. Limited. It was, therefore, held that the genuineness of the capital gains earned by the assessee cannot be suspected.
Subscribe Taxscan Premium to view the Judgment
