COMMISSIONER OF INCOME TAX Vs. HAKUMAT RAI

JUDGEMENT

(1.) This appeal has been preferred by the Revenue under Section 260A of the IT Act, 1961 (hereinafter referred to as "the Act") against order dt. 12th Oct., 2007 passed by the Tribunal, Amritsar Bench, Amritsar in ITA No. 48/Asr/2007, for the asst. yr. 1997-98, proposing following substantial question of law:

(2.) Return of the Assessee for the year in question was processed under Section 143(1) of the Act. The Assessee claimed exemption of Rs. 7,92,232 under Section 54F of the Act as capital gain from purchase of shares by him for Rs. 47,313.75 on 21st March, 1995 which were sold for Rs. 8,43,587.50 on 22nd June, 1996. After initial assessment, information was received that the transaction of sale of shares by the Assessee was sham and accommodation entries were given to him, after taking cash amount equal to the value of profit, by M/s R.K. Aggarwal & Co., the alleged broker. Entries in share register of M/s Globe Commercial Ltd. whose shares were allegedly purchased and sold revealed that no transaction of shares was entered in the said register. M/s R.K. Aggarwal & Co. was not member of Kanpur Stock Exchange. The company in question was formed in the year 1985 and its issue came only in 1986. After 1999 only 55 transfers of shares had taken place. On receiving this information, the AO issued a notice under Section 148 of the Act for the reassessment and issued a questionnaire with regard to the claim of the Assessee for capital gain. The Assessee was confronted with the information received by the AO. The Assessee denied that the transaction was sham and claimed the same to be genuine. However, neither the Assessee was able to furnish the details of persons to whom shares were sold nor disputed the information that there was no entry in the share register about the transaction in question and also that the alleged broker was not registered with the Kanpur Stock Exchange. In the circumstances, the AO held that the Assessee failed to discharge the burden of showing that the transaction was genuine. It was further held that in case of transaction taking place otherwise than through stock exchange, onus was on Assessee to prove the genuineness of the transaction. Further instance relied upon against the Assessee was that this was the only transaction of the Assessee for dealing with the shares in which the Assessee made a huge profit from the shares of an unknown company through an unknown broker and profit was treated as exempted income on account of investment in construction of a house. Coupled with the denial of the transaction by the company and failure of the Assessee to rebut the material with which he was confronted, it was held that transaction could not be held to be genuine. Reliance was also placed on the judgment of the Supreme Court in Sumati Dayal v. CIT, 1995 214 ITR 801 for holding that the test of human probabilities could be applied to assess the genuineness of the transaction. It was further held that Assessee used colourable device to introduce his own undisclosed money. Accordingly, addition of Rs. 8,85,587 was made to the declared income of the Assessee.

(3.) On appeal, the CIT(A) set aside the addition mainly on the ground that Satish Goel proprietor of M/s R.K. Aggarwal & Co., the alleged broker was not called for cross-examination. It was held that the AO could not rely upon his statement in absence of his production for cross-examination. On reassessment the burden was on the Revenue to prove that the transaction was not genuine. The appeal of the Revenue against the order of the CIT(A) was dismissed by the Tribunal. It observed: