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Income Tax Appellate Tribunal, Mumbai “H” Bench, Mumbai.
Before: Shri B.R. Baskaran (AM) & Shri Narender Kumar Choudhry (JM)
The assessee has filed this appeal challenging the order dated 28.11.2022 passed by the learned CIT(A), National Faceless Appeal Centre, Delhi and it relates to A.Y. 2011-12. The assessee is aggrieved by the decision of the learned CIT(A) in confirming the (a) addition of long term capital gains made by the Assessing Officer under section 68 of the Act and (b) addition made towards estimated expenses in procuring long term capital gains. (c) Validity of reopening of assessment.
The facts relating to the above said two issues are stated in brief. The assessee had filed her return of income for A.Y. 2011-12 on 15.6.2021 declaring a total income of Rs. 4,08,377/-. Subsequently the Assessing Officer reopened the assessment under section 147 of the Act on the basis of 2 Krutika Rajendra Jain information received from the investigation wing that a person named Vipul Vidur Bhatt and his group of companies are engaged in the business of providing accommodation entries, inter alia, in the form of long term capital gains. It was noticed that the assessee has earned long term capital gains on sale of shares of M/s. Sampada Chemicals Limited. Since the above said company belonged to Mr. Vipul Vidur Bhatt, the Assessing Officer took the view that the capital gain declared by the assessee is bogus in nature and accordingly reopened the assessment.
3. Before the Assessing Officer the assessee furnished details of purchase and sale of shares of M/s. Sampada Chemicals Ltd., viz., bank statement, DP statement, broker note etc. Accordingly the assessee contended that the capital gains declared by her should not be treated as unexplained cash credit. The Assessing Officer, however, did not accept the explanation given by the assessee. He expressed the view the rise in share price of M/s. Sampada Chemicals Ltd. is not commensurate with its fundamentals. Accordingly, the Assessing Officer assessed the long term capital gains declared by the assessee as unexplained cash credit under section 68 of the Act. The Assessing Officer also took the view that the assessee would have spent 5% for procuring the accommodation entry for generating long term capital gains. Accordingly, he assessed a sum of Rs. 3,47,578/- as unexplained expenditure under section 69C of the Act. The learned CIT(A) confirmed both the additions. Aggrieved the assessee has filed this appeal before the Tribunal.
Learned AR submitted that the assessee has purchased 16000 shares of M/s. Sampada Chemicals Ltd. through a broker named Sharekhan Limited through stock exchange platform on 29-09-2009 @ Rs. 29.50 per share. He further submitted that the purchased have been directly received in the Demat account of the assessee. The payments for the above said purchases were made through banking channel. Subsequently, the assessee
3 Krutika Rajendra Jain has sold all the shares through the very same broker Sharekhan Ltd. on 10.11.2010 to 12.11.2010 in three installments through recognized stock exchange. Accordingly, the assessee earned long term capital gains of Rs.68,71,572/-, which was claimed as exempt under section 10(38) of the Act. The Learned AR further submitted that the assessee is a regular investor in shares. During the year under consideration, the assessee has earned short term capital gains of Rs. 1,04,151/- and long term capital gains of Rs. 52,775/- on sale of various other shares. He submitted that the details of capital gains earned on sale of shares including shares of M/s. Sampada Chemicals Ltd. is given at page No. 4 of the paper book. He submitted that the AO has accepted the above said capital gains. He further submitted that the assessee was holding shares costing Rs. 52.85 lakhs as on 31.3.2011, which is evident from the Balance Sheet.
5. The Learned AR further submitted that the AO has referred to the search under taken in the hands of Vipul Vidur Bhatt. However, the assessee has not carried out any transaction with Vipul Vidur Bhatt group companies. The assessee has only purchased shares of M/s. Sampada Chemicals Ltd., which happened to belong to the group of Vipul Vidur Bhatt. He submitted that the assessee has dealt with the shares of above said company as an ordinary investor and the same would not amount to dealing with the above said group. Accordingly, he contended that the statement, if any given by Shri Vipul Vidur Bhatt will not have any impact upon the assessee. He submitted that the assessee has invested in many shares apart from the shares of M/s Sampada Chemicals Ltd. Accordingly, he submitted that there is no connection of the assessee with Vipul Vidur Bhatt. He submitted that the Assessing Officer has simply placed reliance on the report given by the investigation wing. He submitted that the Assessing Officer did not conduct any independent inquiry on the transactions entered by the assessee nor did he find any fault with the documents filed by the assessee. He also submitted that the broker M/s Sharekhan Ltd is not identified as a tainted
4 Krutika Rajendra Jain broker and the SEBI also has not taken any action against the broker Sharekhan Limited or the assessee. Accordingly he submitted that there is no reason to disbelieve the capital gains declared by the assessee. In support of his submission learned AR placed reliance on the decision rendered by Hon'ble Bombay High Court in the case of PCIT Vs. Indravadan Jain HUF (ITA No. 454 of 2018 dated 12.7.2023).
6. Learned DR submitted that the company M/s. Sampada Chemicals Ltd. has been identified as one of the penny stocks, whose share price has been rigged by the operators in order to generate bogus long term capital gains. Accordingly the Revenue has taken the view that the capital gains declared on the penny stocks are bogus in nature. Accordingly he contended that the learned CIT(A) was justified in confirming the additions made by the Assessing Officer.
We heard the parties and perused the record. There is no dispute with regard to the facts that the assessee has purchased the shares through a broker by paying the consideration in cheque in stock exchange platform. The said shares have been held for more than one year and sold through the stock exchange platform only. We further notice that the assessee has furnished all the documents in support of purchase and sale of shares. However, the AO did not examine those documents and find fault with them. Further, the shares have entered and exited the demat account of the assessee. In the facts of the case, it is clear that the assessee has not dealt with Vipul Vidur Bhatt Group. The assessee has invested in shares of M/s Sampada Chemicals Ltd as an ordinary investor. We also notice that it is not a case of isolated transaction, i.e., the assessee is a regular investor in shares. Further, there is also no allegation made that the assessee was part of ring which indulged in the alleged price rigging. We notice that the AO has placed reliance on the report of Investigation wing to hold that the assessee has availed accommodation entries by way of long term capital gains. We
5 Krutika Rajendra Jain notice that an identical case of allegations that the assessee has availed accommodation entries for bogus capital gains was examined by the Hon’ble jurisdictional Bombay High Court in the case of Shyam Power (2015) 55 taxman.com 108(Bom). The decision rendered by Hon’ble Bombay High Court in the above said case is extracted below:-
“3. Mr.Sureshkumar seriously complained that such finding rendered concurrently should not have been interfered with by the Tribunal. In further Appeal, the Tribunal proceeded not by analyzing this material and concluding that findings of fact concurrently rendered by the Assessing Officer and the Commissioner are perverse. The Tribunal proceeded on the footing that onus was on the Department to nail the Assessee through a proper evidence and that there was some cash transaction through these suspected brokers, on whom there was an investigation conducted by the Department. Once the onus on the Department was discharged, according to Mr.Sureshkumr, by the Revenue-Department, then, such a finding by the Tribunal raises a substantial question of law. The Appeal, therefore, be admitted.
4. Mr.Gopal, learned Counsel appearing on behalf of the Assessee in each of these Appeals, invites our attention to the finding of the Tribunal. He submits that if this was nothing but an accommodation of cash or conversion of unaccounted money into accounted one, then, the evidence should have been complete. Change of circumstances ought to have, after the result of the investigation, connected the Assessee in some way or either with these brokers and the persons floating the two companies. It is only, after the Assessee who is supposed to dealing in shares and producing all the details including the DMAT account, the Exchange at Calcutta confirming the transaction, that the Appeal of the Assessee has been rightly allowed. The Tribunal has not merely interfered with the concurrent orders because another view was possible. It interfered because it was required to interfere with them as the Commissioner and the Assessing Officer failed to note some relevant and germane material. In these circumstances, he submits that the Appeals do not raise any substantial question of law and deserve to be dismissed.
We have perused the concurrent findings and on which heavy reliance is placed by Mr.Sureshkumar. While it is true that the Commissioner extensively referred to the correspondence and the contents of the report of the Investigation carried out in paras 20, 20.1, 20.2 and 21 of his order, what was important and vital for the purpose of the present case was whether the transactions in shares were genuine or sham and bogus. If the purchase and sale of shares are reflected in the Assessee's DMAT account, yet they are termed as arranged transactions and projected to be real, then, such conclusion which has been reached by the Commissioner and the Assessing Officer required a deeper
6 Krutika Rajendra Jain scrutiny. It was also revealed during the course of inquiry by the Assessing Officer that the Calcutta Stock Exchange records showed that the shares were purchased for code numbers S003 and R121 of Sagar Trade Pvt Ltd. and Rockey Marketing Pvt. Ltd. respectively. Out of these two, only Rockey Marketing Pvt.Ltd. is listed in the appraisal report and it is stated to be involved in the modus-operandi. It is on this material that he holds that the transactions in sale and purchase of shares are doubtful and not genuine. In relation to Assessee's role in all this, all that the Commissioner observed is that the Assessee transacted through brokers at Calcutta, which itself raises doubt about the genuineness of the transactions and the financial result and performance of the Company was not such as would justify the increase in the share prices. Therefore, he reached the conclusion that certain operators and brokers devised the scheme to convert the unaccounted money of the Assessee to the accounted income and the present Assessee utilized the scheme.
It is in that regard that we find that Mr.Gopal's contentions are well founded. The Tribunal concluded that there was something more which was required, which would connect the present Assessee to the transactions and which are attributed to the Promoters/Directors of the two companies. The Tribunal referred to the entire material and found that the investigation stopped at a particular point and was not carried forward by the Revenue. There are 1,30,000 shares of Bolton Properties Ltd. purchased by the Assessee during the month of January 2003 and he continued to hold them till 31 March 2003. The present case related to 20,000 shares of Mantra Online Ltd for the total consideration of Rs.25,93,150/-. These shares were sold and how they were sold, on what dates and for what consideration and the sums received by cheques have been referred extensively by the Tribunal in para 10. A copy of the DMAT account, placed at pages 36 & 37 of the Appeal Paper Book before the Tribunal showed the credit of share transaction. The contract notes in Form-A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange regarding client Code has been referred to. But the Tribunal concluded that itself, is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal's order are not vitiated by any error of law apparent on the face of the record either.
7. As a result of the above discussion, we do not find any substance in the contention of Mr.Sureshkumar that the Tribunal misdirected itself and in 7 Krutika Rajendra Jain
law. We hold that the Appeals do not raise any substantial question of law. They are accordingly dismissed. There would no order as to costs.
8. Even the additional question cannot be said to be substantial question of law, because it arises in the context of same transactions, dealings, same investigation and same charge or allegation of accommodation of unaccounted money being converted into accounted or regular as such. The relevant details pertaining to the shares were already on record. This question is also a fall out of the issue or question dealt with by the Tribunal and pertaining to the addition of Rs.25,93,150/-. Barring the figure of loss that is stated to have been taken, no distinguishable feature can be or could be placed on record. For the same reasons, even this additional question cannot be termed as substantial question of law.”
The Hon’ble Jurisdictional High Court has considered an identical issue in yet another case of PCIT vs. Ziauddin A Siddique (Income tax Appeal No. 2012 of 2017 dated 4th March, 2022) and relevant discussions made by Hon’ble Bombay High Court are extracted below:- “2. We have considered the impugned order with the assistance of learned counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd (“RFL”) is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax (“STT”) has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against the assessee that it has participated in any price rigging in the market on the shares of RFL.
Therefore we find nothing perverse in the order of the Tribunal.
4. Mr. Walve placed reliance on a judgement of the Apex Court in Principal Commissioner of Income tax (Central)-1 vs. NRA Iron & Steel (P) Ltd (2019)(103 taxmann.com 48)(SC) but that does not help the revenue in as much as the facts in that case were entirely different.
5. In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law.
In the case of PCIT vs. Indravadan Jain HUF (Income tax Appeal No.454 of 2018 dated 12th July, 2013), the Hon’ble Bombay High Court held as under:-
8 Krutika Rajendra Jain
“4. …..The CIT(A) came to the conclusion that respondent brought 3000 shares of RFL, on the floor of Kolkatta Stock Exchange through registered share broker. In pursuance of purchase of shares the said broker had raised invoice and purchase price was paid by cheque and respondent’s bank account has been debited. The shares were also transferred into respondent’s Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkatta Stock Exchange. Pursuant to sale of shares the said broker had also issued contract notes cum bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instruction slip and also received payment from Kolkatta Stock Exchagte. The cheque received was deposited in respondent’s bank account. In view thereof, the CIT(A) found there was no reason to add capital gains as unexplained cash credit under Section 68 of the Act. The tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were purchased by the respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The ITAT, therefore, in our view, rightly concluded that there was no merit in the appeal.
5. We also find no infirmity in the order passed by the ITAT and no substantial question of law as proposed in the appeal arises.”
Accordingly, in the facts and circumstances of the case, we are of the view that the decision rendered by the jurisdictional Hon’ble Bombay High Court in the above said case of Shyam R Pawar (supra), Ziauddin A Siddique (supra) and Indravadan Jain, HUF (supra) are squarely applicable in the present case. Accordingly, we hold that the long term capital gains declared by the assessee cannot be doubted with. Accordingly, we hold that the AO was not justified in assessing the sale value of shares as unexplained cash credit in the year under consideration. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete the addition relating to capital gains.
Since we have deleted the addition relating to capital gains, the consequential addition of estimated expenses made by the AO is also liable to be deleted. We order accordingly.
9 Krutika Rajendra Jain
The assessee has raised a legal ground challenging the validity of reopening of assessment proceeding. Since we have deleted the addition on merits, we do not find it necessary to adjudicate the legal ground and accordingly leave the same open.
In the result, the appeal of the assessee is allowed.
Pronounced in the open court on 28.7.2023.