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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL,
Before: RAJESH KUMAR
IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK , CUTTACK (through virtual hearing) BEFORE BEFORE S/SHRI GEORGE MATHAN, JUDICIAL JUDICIAL MEMBER AND RAJESH KUMAR, ACCOUNTANT MEMBER , ACCOUNTANT MEMBER Assessment Year : 2014-15 Hanuman Khedaria (HUF), Hanuman Khedaria (HUF), Vs. ITO, Ward ITO, Ward-2, Rourkela. c/o. Kadmawala & Co., CA, c/o. Kadmawala & Co., CA, Budhram Budhram Oram Oram Market, Market, Kachery Road, Rourkela. Kachery Road, Rourkela. PAN/GIR No. PAN/GIR No. (Appellant) ) .. ( Respondent Respondent) Assessee by : Shri M.R.Sahu, CA .R.Sahu, CA Revenue by : Shri Charan Dass, Sr. Shri Charan Dass, Sr. DR Date of Hearing : 01/12 12/2023 Date of Pronouncement : 01/12 Date of Pronouncement : 01/12/2023 O R D E R Per Bench
This is an appeal filed by the assessee aga This is an appeal filed by the assessee against the order of the ld inst the order of the ld CIT(A),NFAC, CIT(A),NFAC, Delhi, Delhi, dated 10.7.03 in in Appeal Appeal No. No.CIT(A), Sambalpur/10349/2016 Sambalpur/10349/2016-17 for the assessment year 2014 2014-15.
Shri M.R.Sahu, Shri M.R.Sahu,ld AR appeared for the assessee and Shri Charan ld AR appeared for the assessee and Shri Charan Dass, ld Sr DR appeared for the revenue. Dass, ld Sr DR appeared for the revenue.
It was submitted by ld AR that the assessee It was submitted by ld AR that the assessee is deriving income from is deriving income from capital gains as also income from other sources. Ld AR drew our attention capital gains as also income from other sources. Ld AR drew our attention capital gains as also income from other sources. Ld AR drew our attention
P a g e 1 | 10 Assessment Year : 2014-15 to the assessment order, wherein, the Assessing Officer has mentioned that the assessee has derived income from other sources and Short Term Capital Gain (STCG) from the sale of land and Long Term Capital Gain (LTCG) from the sale of shares of Maa Tarini Industries and long term and short term capital loss from trading in the scrip of SHREENATH COMMERCIAL & FINANCE Ltd (in short ‘SHREENATH’). It was the submission that in respect of Shreenath Commercial & Finance Ltd., the Assessing Officer on the ground that there was information that the shares of Sreenath Commercial & Finance Ltd., had been used for creating suspicious transaction relating to LTCG of shares, disallowed the assessee’s claim of the loss on account of long term capital loss in respect of the scrips of Shreenath Commercial & Finance Ltd. It was the submission that the profit generated in respect of the long term capital gain from the trading of shares of Maa Tarini Industries Ltd., was accepted. It was the submission that in the course of assessment, the Assessing Officer has relied upon the statement of one Shri Sanjay Vora recorded u/s.131 of the Act on 8.4.2015 by the DDIT, (Investigation), Kolkata, wherein, he has mentioned the name of Shreenath Commercial & Finance Ltd., as one of the companies in which he has undertaken penny stock transaction. It was the submission that nowhere the said Shri Sanjaya Vora has referred to the assessee’s name or that the assessee has been assisted in deriving in long term capital gains/loss. It was the submission that the assessee had also requested an opportunity to P a g e 2 | 10 Assessment Year : 2014-15 cross examine Shri Sanjay Vora and the same was denied by the Assessing Officer on the ground that the share brokers, entry operators, promoters of the company, exit providers, etc had appeared before the I.T. authorities and their sworn statements had been recorded on oath. It was the submission that the Assessing Officer denied the cross examination on the ground that these persons had not retracted the statement before any other judicial authorities and consequently not lost their legal sanctity. It was the further submission that the Assessing Officer further went on to hold that the onus was on the assessee to prove the bonafide of the transaction and that the assessee cannot shift his burden on the department by asking for the opportunity to cross examine the 52 witness who have confirmed that the transactions are not genuine. It was the submission that the assessee has produced ledger accounts of the shares of purchase and sale during the impugned assessment year. It was the submission that the shares were purchased during the assessment year 2013-14 and they were sold during the assessment year 2014-15. The contract notes of M/s. Ashoka Stock Broking Ltd., were produced before the Assessing Officer and the ld CIT(A). It was the further submission that M/s. Ashoka Stock Broking Ltd., was never identified as one of the bogus entry providers nor have they been questioned. Ld AR further drew our attention to the bank statement reflecting the sale proceeds received from M/s. Ashoka Stock Broking Ltd. These evidences were found in the paper book from pages 1 to 23 of PB. It
P a g e 3 | 10 Assessment Year : 2014-15 was the further submission that the assessee has also paid STT in respect of the purchase and sale of the shares. It was the submission that the claim of the Assessing Officer that the assessee has done transaction for avoiding the tax in respect of the profit on the sale of shares of Maa Tarini Industries Ltd., would obviously not hold water insofar as the tax in respect of the sale of the shares of Maa Tarini Industries Ltd., would have been maximum of Rs.8.60 lakhs as against which no sensible assessee would be willing to incur loss in its business to an extent of Rs.86 lakhs. It was the submission that the assessee was also eligible to claim exemption u/s.10(38) of the Act in respect of the profits on the sale of shares of Maa Tarini Industries Ltd., insofar as the shares of Maa Trarini Industries Ltd., were purchased in assessment year 2010-2011 and the same were sold during the assessment year 2014-15 generating the long term capital gain of Rs.86,34,826/-. It was the submission that it was only on account of the loss that the assessee had incurred in the transaction of shares of Shreenath Commercial and Finance Ltd., that the assessee had actually to sell the shares of Maa Tarini Industries Ltd., to set off of the loss as otherwise the loss would have eaten into the capital of the assessee. It was the submission that under similar circumstances, the Co-ordinate Bench of this Tribunal in the case of Bimal Devi Singhania (023) 146 taxmann.com 449 (Cuttack.Trib.) dated July 6,022 has deleted the addition made therein and same has already been approved by the Hon’ble Jurisdictional High
P a g e 4 | 10 Assessment Year : 2014-15 Court of Orissa in & 85 of 2022 vide judgment dated 10.10.2023, wherein, the Hon’ble Jurisdictional High Court of Orissa has held as follows:
“6. On the basis of the pleadings available on record and also the arguments advanced by learned counsel appearing for the respective parties, this Court, vide order dated 13.09.2023, framed the substantial questions of law to the following effect:- “I) Whether the learned Tribunal has rightly accepted the claim of the assessee as per law regarding exemption under Section 10 (38) with respect to alleged income under the head “Long Term Capital Gain” on sale of shares of penny stock by ignoring the admission by their group before the Income Tax Authority that complete tax would be paid on the bogus LTCG claimed by the group subsequent to survey operation under Section 133A? II) Whether the learned Tribunal has rightly dismissed the appeal of the revenue with the observation that as the sale of shares were effected through recognized stock exchange and STT had been paid at the time of transfer, therefore it cannot be held as bogus?”
7. Before delving into the issues in question, the provisions contained under Section 10 (38) of the Income Tax Act, 1961 are extracted hereunder:- “Any income arising from the transfer of a long term capital asset, being an equity share in a company or a unit of an equity oriented fund [or a unit of a business trust] where- (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Page 17 of 23 Chapter VII of the Finance (No.2) Act, 2004 comes into force; and (b) such transaction is chargeable to securities transaction tax under that Chapter; [Provided that the income by way of long term capital gain of a company shall be taken into account in computing the book profit and income tax payable under section 115 JB;] [Provided also that nothing contained in sub-clause(b) shall apply to a transaction undertaken on a recognized stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in foreign currency;] [Provided also that nothing contained in this clause shall apply to any income arising from the transfer of a long term
P a g e 5 | 10 Assessment Year : 2014-15 capital asset, being an equity share in a company, if the transaction of acquisition, other than the acquisition notified by the Central Government in this behalf, of such equity share is entered into on or after the 1st day of October, 2004 and such transaction is not chargeable to securities transaction tax under Chapter VII of the Finance (No.2) Act, 2004 (23 of 2004]”
On bare perusal of the aforementioned provisions, it is made clear that for claiming the benefit of exemption under Section 10(38) of the Income Tax Act, 1961 three requirements need to be fulfilled. Firstly, the share should be held for more than one year, secondly, it should be listed and sold on recognized stock exchange and, thirdly, on the said sale necessary Security Transaction Tax (STT) has to be chargeable. If all these requirements are satisfied, then the benefit of exemption under Section 10 (38) of the Income Tax Act, 1961 is admissible.
In Bhoruka Engineering Industries Ltd. (supra), the Karnataka High Court has also laid down the above mentioned principles. Therefore, applying the provisions contained under Section 10 (38) of the Income Tax Act, 1961 and also the law laid down by the High Court of Karnataka mentioned supra, all the above noted three elements are existing in the present case and, thereby, the respondent-assessee is entitled to get the benefit under Section 10 (38) of the Income Tax Act, 1961. As such, a survey under Section 133A of the Income Tax Act, 1961 was conducted on 20.08.2015 and, without detecting any incriminating documents or evidence against the respondent-assessee, recorded the statement that tax will be paid on the claim made under Section 10 (38) of the Income Tax Act, 1961 in filing the IT return for the Assessment Year 2013-14 and to be disclosed as income from other source. But the said statement, being without any incriminating evidence against the respondent-assessee, cannot be ipso facto decided against the respondent-assessee. The present income tax appeal filed at the instance of the revenue involved no substantial question of law, as both the appellate authorities have decided on the basis of evidence and documents produced by the respondent- assessee and the revenue and, as such, on the basis of the facts, both the authorities have come to a conclusion that the respondent-assessee is entitled to the benefit under Section 10 (38) of the Income Tax Act, 1961 and held that the appellant-revenue had failed to bring any evidence in rebuttal nor was it proved that the documents produced were false, fabricated or fictitious, hence, the findings, as recorded by the appellate authorities, that the transaction of purchase and sale of shares could not be treated as non-genuine, were essentially in the realm of appreciation of evidence and, as such, no substantial question of law is involved.
In Vijaya Kumar Talwar (supra), it has been held that in absence of demonstrated perversity in the finding of the Tribunal, interference cannot be warranted, when on thorough consideration of the material on record it
P a g e 6 | 10 Assessment Year : 2014-15 was found that the transaction of purchase and sale of shares could not be treated as non-genuine.
In Khader Khan Son (supra), the apex Court held that statement recorded during survey under Section 133A of the Income Tax Act, 1961 has no evidentiary value, as it does not empower any Income Tax Officer to examine on oath, as the assessment has to be made on Page 21 of 23 the basis of materials and documentary evidence and not on a bare statement. Therefore, the substantial questions of law, as formulated, have no legs to stand.
It is worthwhile to mention here that, the Security Transaction Tax (STT) under Chapter-VII of Finance (No.2) Act, 2004 is a direct tax levied by Government of India on every purchase and sale of securities that are listed on the recognized stock exchanges in India. The STT was implemented to curb the tax avoidance on capital gains, which is similar to Tax Collected at Source (TCS) to be collected by a recognized stock exchange and both the buyer and seller will pay the said tax, as prescribed rate for carrying out the transaction of securities for financial gains, are liable to pay STT. All gains from such transactions are called capital gains and are classified as LTCG or STCG, depending on the holding period. Therefore, the alleged substantial questions of law as proposed by the Revenue cannot be sustained in the eye of law, as the same is contrary to clauses (a) and (b) of Section 10 (38) of the Income Tax Act, 1961 (Circular No.5/2005 dated 15.07.2005).
Mr. T.K. Satapathy, learned Senior Standing Counsel appearing for the Income Tax Department laid emphasis on the CBDT Circular No.23 of 2019 dated 06.09.2019, as the matter related to bogus Long Term Capital Gain on Penny stock. But the said circular can only be applied prospectively not retrospectively, because the present appeal is for the Assessment Year 2013-14. Thereby, the circular relied upon by the Senior Counsel appearing for the revenue has no application to the present case.
In view of the facts and circumstances, as well as the law, as discussed above, even though substantial questions of law have been framed vide order dated 13.09.2023, the same are not required to be answered. As such, CIT (A) and Income Tax Appellate Tribunal, being the fact finding courts, relying upon the evidences Page 23 of 23 available on record, having passed the orders impugned, there is no necessity of answering the substantial questions of law framed for adjudication.
Thus, both the appeals, being devoid of merits, are hereby dismissed. However, there shall be no order as to costs.”
It was the prayer that the addition as made by the Assessing Officer and as confirmed by the ld CIT(A) is liable to be deleted.
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In reply, ld Sr DR submitted that the assessee is not a regular dealer in share transactions. It was the submission that the assessee did produce the assessee’s brokers for examination. It was the submission that Shri Sanjay Vora was a broker/entry operator and he has confirmed before the DDIT (Investigation) that he has done bogus transaction in the shares of Shreenath Commercial and Finance ltd. It was the submission that no proof of purchase and sale of shares or the bank account have been produced. He vehemently supported the order of the Assessing Officer and ld CIT(A). Ld Sr DR took us through the order of the ld CIT(A) in detail which was just a replica of the assessment order. It was the submission that the order of the ld CIT(A) is liable to be upheld.
We have considered the rival submissions. At the outset, the claim of the Revenue that a statement has been recorded from entry operator by the DDIT (Investigation) Kolkata and the statement is under oath and the same has not been withdrawn and, therefore, opportunity of cross examination is not required to be given to an assessee is an absolute wrong stand. It is trite law that if any evidence is available with the Revenue and the same is going to be used against the assessee, it is compulsory that such evidence must be put to the assessee for assessee’s cross examination or rebuttal. The denial of opportunity of cross examination by the AO itself is absolute failure of principles of natural justice and this itself will make the evidence to be discarded. Other than the statement of Shri Sanjay Vora,
P a g e 8 | 10 Assessment Year : 2014-15 the Assessing Officer is not in possession of any evidence to show that the transaction entered into by the assessee in respect of purchase and sale of shares of Shreenath Commercial and Finance Ltd., as colourable device, is available. The assessee on the contrary has produced ledger accounts, purchase bills, sale bills and even bank account statement in respect of the transaction. It was very much open to the Assessing Officer to invoke his powers u/s.133(6) of the Act or to call for information from the stock brokers. This has not been done. The Assessing officer has blindly relied upon the statement recorded from one stock broker who has given names of various companies and Shreenath Commercial and Finance Ltd., is also one of them. The shares purchased by the assessee and sold by the assessee are on Bombay Stock Exchange. STT has also been clearly paid on both the transactions. These are not off-line transactions. The Assessing Officer has also not considered the fact that the assessee had to sell the shares of Maa Tarini Industries Ltd., to protect itself from the financial loss caused on account of loss incurred in the transactions of shares of Shreenath Commercial and Finance Ltd. This being so, respectfully following the principles laid down by the Hon’ble Jurisdictional High Court of Orissa in the case of Smt. Bimala Devi Singhania (supra) the disallowance of loss in respect of transaction of the shares of Shreenath Commercial and Finance Ltd., in the case of the assessee as made by the AO and as confirmed by the ld CIT(A) stands reversed.
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In the result, appeal of the assessee stands allowed.
Order dictated and pronounced in the open court on 01/12/2023.
Sd/- sd/- (Rajesh Kumar) (George Mathan) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 01/12/2023 B.K.Parida, SPS (OS) Copy of the Order forwarded to : 1. The Appellant : Hanuman Khedaria (HUF), c/o. Kadmawala & Co., CA, Budhram Oram Market, Kachery Road, Rourkela 2. The Respondent: ITO, Ward-2, Rourkela 3. The CIT(A)-NFAC, Delhi 4. Pr.CIT- Sambalpur, 5. DR, ITAT, Cuttack 6. Guard file. //True Copy// By order
Sr.Pvt.secretary ITAT, Cuttack
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