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Income Tax Appellate Tribunal, DELHI BENCH “SMC”: NEW DELHI
Before: SHRI KUL BHARAT
O R D E R PER KUL BHARAT, JM:
This appeal, by the assessee, is directed against the order of the learned Commissioner of Income-tax (Appeals)-12, New Delhi, dated 31.05.2018, pertaining to the assessment year 2015-16. The assessee has raised following grounds of appeal:
“1. That order passed by Ld AO dated 22/12/2017 and further order passed by Id CIT A dated 31/05/2018 are bad in law in as much as notice u/s 143(2) on basis of CASS is not in accordance with jurisdictional conditions stipulated under the Act.
2. That order passed by Ld AO dated 22/12/2017 and further order passed by Id CIT A dated 31/05/2018 are bad in law in as much as addition of Rs 500,123 (break up : addition u/s 68 on a/c of bogus LTCG Rs 500,123) is made violating principles of natural justice and on basis of vague and generalized show cause notice (05/12/2017) without confronting any back material to assessee thus rendering the entire proceedings a nullity in eyes of law.
2.1 That order passed by Ld AO dated 22/12/2017 and further order passed by Id CIT A dated 31/05/2018 are bad in law in as much as addition of Rs 500,123 is made violating principles of natural justice without confronting any investigation wing report relevant extract, statements recorded by investigation wing , etc which is sufficient to quash the assessment order and order passe by Ld CIT-A.
3. That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the action of Id AO in making addition of Rs 500,123 without appreciating that burden to prove that transaction is bogus/sham has remained un-discharged from side of revenue.
4. That on the facts and in the circumstances of the case and in law, both Id CIT-A and Id AO erred in making subject additions without appreciating that the modus operandi relied extensively in impugned orders is never co- related even remotely to the facts of the present case as there is no iota of evidence brought on record which can display that assessee herein has inducted certain cash at the time of sale to certain indentified broker/middleman/syndicate member who has in turn introduced certain identified artificial paper company for alleged parking of said cash to buy the shares sold by the assessee which theoretical trail has remained inchoate completely nullifying the entire basis of the addition.
5. That on the facts and in the circumstances of the case and in law, Id AO erred in making subject additions without appreciating that law gives discretion to the assessing officer in applying deeming fictions u/s 68 etc which discretion has not been judiciouslyexercised in facts are present case as assessee has no economic capacity and source to generate given amount of unaccounted income. Further law requires that additions under said deeming fiction cannot be made sans incriminating material brought on record which is completely lacking in present case.
6. That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the action of Id AO in making addition of Rs 500,123 without appreciating that basis of findings of the lower authorities is “suspicion” and “human probabilities” only which is never converted to reliable and trustworthy material and entire assessment order is passed on sole basis of “borrowed satisfaction” and without any independent application of mind (like a rubber stamp order).
7. That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the action of Id AO in making addition of Rs 500,123 without appreciating that no opportunity is given to the assessee to be confronted with back material relied extensively in impugned orders like investigation wing report etc and no opportunity to cross examine the revenue’s witness was given despite specific written request in this regard made to Ld AO/CIT-A.
That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the action of Id AO in making addition of Rs 500,123 without appreciating that section 68 is not applicable to sale of shares as mentioned in impugned assessment order.
That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the action of Id AO in making addition of Rs 500,123 without appreciating that in identical facts in various orders relief has been granted to assessee accepting LTCG (long term capital gains) as genuine.
That the appellant craves leave to add add/alter any/all grounds of appeal before or at the time of hearing of the appeal.”
At the time of hearing no one attended the proceedings. It is seen from the records that no one has been attending the proceedings despite various opportunities granted by the Tribunal. It is seen that acknowledgement of notice of hearing is on record. Therefore, it can be presumed that assessee had received
notice of hearing. Under these circumstances, appeal of the assessee is taken up for hearing in the absence of the assessee and is being decided on the basis of material available on record.
3. The facts giving rise to the present appeal are that in this case the assessee filed his return of income on 30.8.2015 declaring total income at Rs. 13,99,170/-.
The case of the assessee was selected for complete scrutiny through CASS with the reason suspcious sale transaction. The statutory notices were issued. In response thereof the Authorized Representative of the assessee attended the proceedings.
The AO noticed that assessee had claimed exemption u/s 10(38) of the Act on capital gain amounting to Rs. 4,97,630/- for the year under consideration against the sale of scrips of M/s Channel Nine Entertainment Ltd. The Assessing Officer recorded that the Investigation Wing of the Department had carried out certain investigation wherein it surfaced under the garb of long term capital gain beneficiaries are routing their unaccounted income through colourable device and thus evading tax. The Assessing Officer after elaborately examining the issues at hand recorded that the Company was having market price of share at around Rs. 2.5 per share and during this period the assessee was allotted 1000 shares of the company for the share having face value of Rs. 2.50 in April, 2013. Thereafter, the price was jacked up to Rs. 500/- approximately from Rs. 2.5 till December, 2014.
Thus, within 20 months the price was jacked up nearly 200 times. The Assessing
Officer was of the view that such astronomical increase was not justified and the fundamentals of the company did not support such increase in share price. He, therefore, treated the same as sham transaction and made addition of Rs. 5,00,123/- u/s 68 read with Section 115BBE of the Act and thus assessed income at Rs. 18,99,290/- against the returned income of Rs. 13,99,170/-. Aggrieved against this, the assessee preferred appeal before the learned CIT(Appeals), who also sustained the addition and dismissed the appeal of the assessee. Now the assessee is in appeal before this Tribunal.
In respect of the impugned addition the assessee has taken various objections in the form of grounds of appeal. It is stated that there is gross violation of principles of natural justice. The assessment is not framed in accordance with law; the assessee was not confronted with the investment resources. It is further submitted that Section 68 of the act would not apply under the facts of the present case as it is the case of transaction in shares.
5. On the other hand, learned DR opposed the submissions and filed a brief note. The relevant contents of note are reproduced as under:
“DR's ARGUMENT NOTE & SYNOPSIS - CASE LAWS ON PENNY STOCK LTCG CASES
IT IS THE ASSESSEE WHO HAD CLAIMED THE LTCG BE EXEMPT UIS 10[38] AND PRIMARY ONUS IS ON IT TO PROVE ITS GENUINENESS.
2. THERE WAS CREDIBLE INFORMATION, FROM INV. WING ANOTHER LIMB OF THE DEPARTMENT ITSELF IN THE FORM OF RESULT OF INQUIRIES/IONVESTIGATON CONDUCTED WHICH HAD DIRECT LINK WITH THE TRANSACTION\CLAIM MADE BY THE ASSESSEE.
FURTHR ANALYSIS OF THE FACTS, CIRCUMSTANCES AND FINANCIALS OF THE SCRIP UNDER CONSIDERA TION WAS DONE BY THE AO.
4. ALL THE ADVERSE INPUTS A V AILABLE WERE CONFRONTED TO THE ASSESSEE TO SUBSTANTIATE THE GENUINENESS OF ITS CLAIM OF EXEMPTION U/S 10[38] DISCHARGING THE PRIMARY ONUS OF PROOF IN VIEW OF THOSE FINDINGS.
IN SPITE OF SUFFICIENT OPPORTUNITIES THE ASSESSEE HAS FAILED TO SUBSTANTIATE THE GENUINENESS OF THE CLAIM QUA THE ADVERSE FINDINGS CONFRONTED TO IT.
THAT CASE LAWS RELIED UPON BY THE AO AS WELL AS LD. CIT[A] MAY KINDLY BE READ AS MY ARGUMENTS INCLUDING THE FOLLOWING:
6. There are many cases in which modus operandi and evidences collected by the Investigation Wing of the Department was relied upon by the Assessing Officer and confirmed by the Hon'ble Courts/Tribunals, confirming the action of the Assessing Officer in treating them as bogus and sham transaction. Some of these cases are mentioned below:
Hon'ble Delhi High Court in the case of Udit Kalra Vs. ITO, Review Petition No. 215/2019 order dated 02.08.2019 [ITA No. 220/2019 Date of Order 08.03.2019)
Hon'ble Delhi High Court in the case of Udit Kalra Vs. ITO [ITA No. 220/2019 & eM No: 10774/2019] Date of Order 08.03.2019 Hon'ble ITAT Delhi in the case of Udit Kalra Vs. ITO Date of Order 08.01.2019 Hon'ble ITAT Delhi in the case of Anju Rastogi Vs. ITO [ITA No. 3809/DEL/2018 Anju Rastogi Vs. ITO [ITA No. 3810IDEL/2018) Date of Order 08.01.2019 Sanjay Bimalchand Jain LIH Shantidevi Bimalchand Jain Vs CIT ([2017) ITA No.
18/2017 [Bombay High Court (Nagpur Bench) POOJA AJMANI Vs. ITO IT AT, SMC Bench, Delhi [ITA No.5714IDeU2018) Date of order 25.04.2019
Sanat Kumar Vs. ACIT [ 2019-TIOL-1296-ITAT-DEL ) ITA No.18811Del.l2018 ITAT, Bench lEI New Delhi Sandeep Bhargava Vs. ACIT, IT AT, G-Bench, Delhi, Date of order:20.08.2019
Chandan Gupta Vs CIT ([2015) 54 taxmann.com 10 (P&H) 1 [2015)229 Taxman 173 Balbir Chand Maini vs CIT [2011) 12 taxmann.com 276 (P&H)I [2011) 201 Taxman 94 (P&H)(MAG.) 1 [2012) 340 ITR 161 (P&H )[2012) 247 CTR 468
Usha Chandresh Shah Vs ITO [ITAT Mumbai) [2014)2014-TIOL-1459-ITAT-MUM Ratnakar M Puiari Vs ITO [ITAT Mumbail [2016)2016-TIOL-1746-ITAT-MUM Abhimanyu Soin Vs ACIT [2018-TIOL-733-ITAT-CHD) Arvind M Kariya Vs ACIT [ ) Hon'ble ITAT Mumbai in the case of ITO Vs Shamim M Bharwani (2016) (69 Taxmann.com 65) Hon'ble ITAT, Pune in the case of Rajkumar B Aggarwal Vs DCIT ITA 1648 and 1649IPune 2015 order dated 04.1.2019
Hon'ble ITAT, Banglore in the case ofSmt M K Rajeshwari Rajkumar B Aggarwal Vs ITO 99 Taxmann.com 339 order dated 12.10.2018. Hon'ble Supremet Court in Sumati Dayal Vs CIT [214 ITR 801 Hon'ble Supremet Court in Mcdowell & Co. Ltd [1985) 154 ITR 148[SC]. Since the shares were purchased from off market and in physical form, therefore, not in conformity with SEBI Guidelines and the payments for purchase was also made in cash and the assessee was not a regular investor in shares, the AO rightly rejected the claim of exempt long term capital gain u/s 10[38] and made addition U/S 68, holding that the transactions were sham transactions made only to bring unaccounted money in the guise of exempted long term capital gain and paper work has been done merely to give a colour of authenticity to the transaction and by creating a facade of legitimate transaction, as per the ration of this decision of the Apex Court and various other decisions. Hon'ble ITAT Delhi in the case of Harsh Win Chadha in ITA No.s.3088 to 3098 &
3107/2015.
Hon'ble ITAT Chandigarh in the case of ACIT Vs Som ath maini [2006)100 TTJ Chd 917.
Hon'ble ITAT Bangalore in the case of M K Rajeshwari Vs ITO in ITA No.1723IBang.l2018.
Hon'ble ITAT Chandigarh in the case of Abhimanyu Soin Vs ACIT [2018) TIOL- 733/ITAT Chd. Hon'ble Punjab & Haryana HC in the case of Chandan Gupta Vs CIT [2015) 54 Taxmann.com 10/229 Taxmann 173.
Very recent decision of Hon'ble SMC Bench of ITAT, Delhi in the case of Sanjeev Kr. Agarwal [HUF] Vs ITO in ITA 63461Del/2019 order dated 17.5.2022 on similar issue i.e. 10[38] exemption on sale of Penny Stock Hon'ble Kolkata HC decision dated 14.06.2022 in Ref. No. ITAT 06 of 2022 and ETC Bench on the issue of Penny Stock cases Some more recent decisions of Hon'ble SMC Bench of IT AT, Delhi in the following cases on similar issue i.e. 10[38] exemption 011 sale of Penny Stock i.e. Aditya Saraf [HUF] Vs ITO in ITA 95811Del/2019 order dated 10.06.2022 Kumari Nidhi Sikka Vs ITO in ITA 39971Del/2019 order dated 10.06.2022 Sanjay Jain Vs ITO in ITA 4516/Del/2019 order dated 10.06.2022 Last but not least it may kindly be noted that in view of an apparent and notorious modus operandi of converting the unaccounted funds through willing dubious entities reference to the following decisions of the Hon'ble Supreme Court is very important: [a] CWT Vs Rohtas Industries Limited, 67 ITR 283 [SC] wherein it was held that- "In the absence of. any direct evidence, a judicial or quasi judicial Tribunal can base its conclusions on the basis of what are known as notorious facts bearing in mind tlte principles of Section 144 of tlte Evidence Act. " [b] Attar Singh Gurumukh Singh Vs ITO, 191 ITR 667 [SCL wherein, while interpreting the provisions of Section 40A(3), it was held that:- "In interpreting a taxing statute, the court cannot be oblivious of the proliferation of black money which is under circulation in our country." CIT Vs. Durga That though an appellant’s statement must be considered real until Prasad More it was shown that there were reasons to believe that the appellant was not the real in a case where the party relied on self serving
[1972] 82 ITR 540 recitals in the documents, it was for the party to establish the [SC] transfer of those recitals, the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals. Science has not yet invented any instrument to test the reliability of the evidence placed before a Court or Tribunal. Therefore, the Courts and the Tribunals have to judge the evidence before them by applying the test of human probability. Human minds may differ as to the reliability of piece of evidence, but, in the sphere, the decision of the final fact finding authority is made conclusive by law. The ratio laid down by the Hon SC in the case of Durga Prasad Sumati Dayal Vs. More case was reiterated and applied in this case holding that it is CIT essential on the part of the AO to look into the real nature of 214 ITR 801 transaction and what happens in the real world and contextualize the same to such transactions in the real market situation. [SC] “Tax planning may be legitimate provided it is within the McDowell & Co. framework of law. Colorable devices cannot be part of tax Ltd. [1995] 154 planning and it is wrong to encourage or entertain the belief that it ITR 148 [SC] is honorable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges.” Observation: When the AO has detailed the facts and circumstances of the case in the assessment order with proper analysis thereof and assessee has only submitted certain document/evidence to prove the genuineness of transaction they themselves found to serve as smoke screen to cover up the true nature of the transactions in the facts and circumstances of the case as it is revealed by the AO that the purchase and sale of alleged share [or transaction of share capital gain, loan etc] are arranged transactions to create bogus profit in the garb of tax exempt LTCG/Share capital etc. by well organized network of entry providers with the sole motive to sell such entries to enable the beneficiaries to account for their undisclosed income for a consideration or commission.
On the issue of ground of appeal in certain cases of beneficiaries of Bogus capital gain, share capital, loans, gifts etc from non descript penny stock companies through entry operators and other cases [where there are strong documentary evidences are available against the assessee, that assessee was not allowed the opportunity to cross examine the witness whose statement/deposition have been used against him by the AO, the following case laws are relevant:
J&K Vs. Bakshi Such right is not an absolute right and depends not only on the Gulam Mohd circumstances of the case but also on the statute concerned. AIR 1967 [SC] 122 Nath Right of hearing does not include a right to cross examine. The right to International cross examine must depend upon the circumstances of each case and Sales Vs. UOI also on the statute concerned. AIR 1992 Del 295 T. Devesahaya It is not an universal rule that any evidence upon which the department Nadar Vs. CIT may rely should have been subjected to cross examination. If the AO [1995] 51 ITR 20 refuses to produce an informant for cross examine by assessee there [Mad] cannot be any violation of natural justice.
GTC Industries Where statement and report of third party are only secondary and Ltd Vs. ACIT subordinate material which were used to buttress the main matter [1998] 60 TTJ connected with the amount of addition, denial of opportunity to cross [Bomb-Trib] 308 examine third party did not amount to violation of natural justice.
Observation: Each case has to be decided on the facts and circumstances, objective facts, evidences adduced, presumption of facts based on common human experience in life and reasonable conclusions. The assessee has failed to discharge his onus to negate the evidence on the basis of which proceedings have been initiated and discussed in details by the AO.
The appellant may consider taking reliance on several judgments presuming to be in its favour. However, as the facts are always distinct and separate in each case the principles of one case cannot be applied blindly to another case. In Union of India Vs Major Bahadur Singh [2006] 1SCC 368 [Para 9 & 11] the Hon’ble Supreme Court held that the observations made in a judgment must be read in the context in which they appear to have been stated. Their lordships of the Supreme Court further held that circumstantial flexibility, one additional or different fact, may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision was held to be not proper. Thus, principles enunciated therein are different from the facts of the instant case and hence the appellant’s plea that these judgments are applicable to the appellant has no locus standi.”
The assessee chose not to attend hearing of appeal and rebut the finding of lower authorities. Moreover, the assessee has not brought any evidence in support of the grounds of appeal filed by it. In the absence of material evidences, the contentions of the assessee are merely statements without being supported by any evidence. Hence, I do not see any reason to interfere in the findings of the authorities below. Same is hereby affirmed. Ground of appeal taken by the assessee, are dismissed.
Appeal of the assessee is dismissed.