SANJAY GUPTA ,HYDERABAD vs. DY. COMMISSIONER OF INCOME TAX , CIRCLE-3(1), HYDERABAD

PER A. MOHAN ALANKAMONY, A.M:

This appeal is filed by the assessee against the order of the Ld. CIT(A)-3, Hyderabad in appeal No. 10320/DCIT, Cir-3(1),Hyd/CIT(A)- 3/2018-19, dated 18/10/2019 passed U/s. 143(3) r.w.s 147 and U/s. 250(6) of the Act for the A.Y. 2012-13.

(i) The Ld. CIT(A) has erred in confirming the order of the Ld. AO, who has erroneously assumed jurisdiction U/s. 147 of the Act

without any tangible material, in respect of assessment completed earlier U/s. 143(3) of the Act. (ii) The Ld. CIT (A) has erred in sustaining the order of the Ld. AO who had treated the STCG Rs. 38,00,380/- accrued to the assessee as income under the head “business”. (iii) The Ld. CIT (A) has erred in sustaining the order of the Ld. AO who had treated the exempt income of Rs. 2,50,87,430/- U/s.10(38) of the Act being LTCG derived from sale of securities as bogus transaction and added the same as unexplained income of the assessee. (iv) The Ld. CIT (A) has erred in sustaining the order of the Ld. AO who had disallowed the aggregate financial cost of Rs. 34,17,969/- U/s. 57 of the Act as the assessee had failed to produce any supporting documentary evidence towards the expenditure incurred with respect to interest income of Rs. 53,71,247/-.

income was assessed at Rs. 71,83,680/-. Subsequently, the assessment was reopened, and notice U/s. 148 was served on the assessee and thereafter assessment was completed on 19/12/2018 wherein the Ld. AO made the above-mentioned additions which were further sustained by the Ld. CIT(A), aggrieved by which the assessee is in appeal before us.

4.1. On this ground, the Ld. AR reiterated the arguments made before the Ld. Revenue Authorities and the Ld. DR argued in support of the order of the Ld. CIT (A). From the order of the Ld. CIT (A) it is apparent that the Ld. Revenue Authorities had come across substantial materials against the assessee for having claimed deduction U/s. 10(38) of the Act towards bogus transactions. The relevant portion of the order of Ld.CIT(A) is extracted herein below for reference.

“IX) Ground Nos.2, 3 and 4 in appeal relate to reopening of assessment U/s.147 of Income Tax Act, 1961. The appellant has further contended that the appeal was beyond the time limit for reopening of the assessment and that the reopening was based on change of opinion by the Assessing Officer. Hence the appellant contended that the assumption of jurisdiction u/s.147 and issuing notice u/s.148 by the Assessing Officer was incorrect. Facts of the case, grounds of appeal, assessment order and submissions of the appellant were perused. It is seen that the notice for reopening was issued on 04.08.2017 by the Assessing Officer. Copy of the reasons recorded u/s.148 for Asst. Year 2012-13 was also sent to the appellant by the Assessing Officer during the course of assessment proceedings. The same are extracted below.

Reasons for the belief that income has escaped assessment:

i. The assessee Shri Sanjay Gupta is director in M/s. Sanjay Strips Pvt. Ltd (PAN: AAPCS5324R). He filed return of income for A.Y. 2012-13 on 22.11.2012 declaring, total income of Rs.71,83,680/-. The assessment was completed U/s. 143(3) on 07.01.2015 by the Income Tax Officer, Ward-3(1), Hyderabad on the total income of Rs. 71,83,680/-. The assessee has claimed deduction of Rs. 2,42,12,400/- as LTCG U/s. 10(38) on sale of shares of M/s. Oasis Cine Communications Ltd, Kolkata. ii. Information was received from DCIT, Circle-10(1) Hyderabad vide letter dated 27/03/2015 regarding false claim of deduction U/s. 10(38) in A.Y. 2012-13 I the case of Smt. Kiran Bala Guipta, Who happens to be the wife of the assessee here ie Shri Sanjay Gupta. iii. The assessment of Smt. Kiran Bala Gupta for A.Y. 2012- 13 was completed on 26/03/2015 by DCIT, Circle-10(1), Hyderabad by disallowing the claim U/s. 10(38) of LTCG, which was confirmed by CIT(A)-6, Hyderabad vide order dated 20/10/2016. iv. In the assessment for A.Y. 2012-13 of Smt. Kiran Bala Gupta, wife of Shri Sanjay Gupta, it is seen that she was also claimed the exemption U/s. 10(38) of an amount of Rs. 1,79,82,023/- as LTCG on sale of shares of M/s. Oasis Cine Communications Ltd Kolkata. She purchased 1,300 shares of M/s. Gravity Barter Pvt Ltd, Kolkata on 03/12/2010 @ 500 per share for Rs. 6,50,000/- in cash from M/s. Winall Vinimay Pvt Ltd, Kolkata. In view of the amalgamation of M/s. Gravity Harter P Ltd with M/s. Oasis Cine Communications Ltd, Kolkata, she tto got 57,200 shares of M/s. Oasis Cine Communications Ltd., which she later sold for Rs. 1,86,32,023/- on 12/03/2012 and 13/03/2012. v. During the course of assessment of Smt. Kiran Bala Gupta for A.Y. 2012-13, the Assessing Officer, DCIT, Circle-10(1), Hyderabad recorded the statement of Smt. Kiran Bala Gupta and Shri Sanjay Gupta u/s. 131 on 10/03/2015 (which is reproduced in the assessment order dated 26/03/2015 of Smt. Kiran Bala Gupta for A.Y. 2012-13), wherein Shri Sanjay Gupta in answer to Question No.20 voluntarily offered to tax the LTCG claim U/s. 10(38) in the hands of his wife for A.Y. 2012-13. vi. The DCIT, Circle-10(1), Hyderabad conducted extensive enquiries in respect of M/s. Gravity Barter Pvt Ltd (Kolkata Based Scrip Company), the seller company ie Winall Vinimay Pvt Ltd., Kolkata, as also the purchasers of Shares from Smt. Kiran Bala Gupta and verified the claimed bank transfer of sale proceeds. It was found that M/s. Gravity Barter Pvt Ltd is a company appearing in the list of 2G Scam related suspicious companies involved in providing bogus accommodation entries / round scripping. Consequently, information was obtained by DCIT, Circle- 10(1), Hyderabad from Asst. Director, Enforcement

Directorate, New Delhi including the deposition dated 04/12/2014 of Shri Anil Kumar Khemka (the entry provider) given before the Hon’ble Special CBI Judge, wherein he stated that M/s. Gravity Barter P Ltd is controlled by him through dummy directors and he used this company for giving bogus accommodation entries to other companies / individuals. Further, the statements of the alleged directors of M/s. Gravity Barter Pvt Ltd., Shri Rakesh Bajaj and Shri Mukesh Aarwal were obtained by DCIT, Circle-10(1), Hyderabad from the A.O. at Kolkata. Similarly, enquiries were conducted by the DCIT, Circle- 19(1), Hyderabad in respect of M/s. Winfall Vinimay Pvt Ltd and M/s. Oasis Cine Communications Ltd. vii. Consequent to all the enquiries conducted in the cine of Smt. Kiran Bala Gupta, her claim of exemption U/s. 10(38) amounting to Rs. 1,79,82,023/- in A.Y. 2012-13 was rejected in assessment U/s. 143(3) by DCIT, Circle-10(1), Hyderabad and accordingly the amount was brought to tax. viii. Smt. Kiran Bala Gupta went in appeal before the CIT(A)-6, Hyderabad, who vide order dated 20/10/2016 dismissed the appeal of Smt. Kiran Bala Gupta and confirmed the addition by holding that the onus was wholly on the assessee to explain the genuineness of the claim U/s. 10(38). ix. The assessment order U/s. 143(3) dated 26/03/2015 for A.Y. 2012-13 and order of CIT(A)-6, Hyderabad dated 20/10/2016 in the case of Smt. Kiran Bala Gupta is part of this record. x. In the case of the present assessee ie Shri Sanjay Gupta, Husband of Smt. Kiran Bala Gupta, it is noticed that assesse has claimed exemption of LTCG U/s. 10(38) amounting to Rs. 2,42,12,430/-. He has also purchased 1750 shares of Gravity Barter Pvt Ltd, Kolkata on 4/12/2010 @ 500 per share for Rs. 8,75,000/- from Winall Vinimay Pvt Ltd., Kolkata. The Company M/s. Gravity Barter Pvt Ltd., later got amalgamated with one M/s. Oasis Cine Communications Ltd., Kolkata as per order dated 25/08/2011 of the Hon’ble High Court of Kolkata. Consequently, the assessee got 77,000 shares of M/s Oasis Cine Communications Ltd (new name M/s. Eco Wave Infotech Ltd w.e.f 14/08/2012). These 77,000 shares were sold on 09/03/2012 and the resultant capital gain (Rs. 2,42,12,430/-) was claimed as exempt U/s. 10(38). xi. Thus, it is clear tht Shri Sanjay Gupta, the assessee here and the husband of Smt. Kiran Bala Gupta has also claimed exemption U/s. 10(38) in A.Y. 2012-13 by claiming purchase and sale of shares with the same set of companies and during the same period. xii. The assessment order of Smt. Kiran Bala Gupta for A.Y. 2012-13 along with the deposition of Shri Anil Kumar Khemka before the Special CBI Judge, statements dated 10/02/2015 of Smt. Kiran Bala Gupta and Shri Sanjay

Gupta (the assessee here) recorded U/s. 131, statements of the so called diretor4s of M/s. Gravity Barter P Ltd, constitute fresh tangible material (unearthed during the assessment proceedings of Smt. Kiran Bala Gupta) for formation of a reasonable and bonafide belief that the income to the extent of Rs. 2,42,12,430/- claimed as exempt U/s. 10(38) by Shri Sanjay Gupta in A.Y. 2012-13 has indeed escaped assessment. Therefore, at the initiation stage, there is reason to believe that the claim of exemption U/s. 10(38) made by Shri Sanjay Gupta is not correct and there is escapement of income to the extent of Rs. 2,42,12,430/-. xiii. In view of the above facts, there is reason believe that there is an escapement of income within the meaning of section 147 and hence assessment of Shri Sanjay Gupta needs to be reopened for the A.Y. 2012-13. As can be seen from the above, the reassessment was done within the time limit as can be seen from the provisions of Section 149 of Income Tax Act, 1961. Hence the appellant's contention on this ground does not merit and hence dismissed. In the context, on the issue of change of opinion which the appellant had contended, it is pertinent to refer to the facts and circumstances as brought out by the Assessing Officer for the reopening of the assessment. It is clear that there is new material which had necessitated the reopening of assessment and hence there was tangible material for the Assessing Officer to have taken appropriate action for tile reassessing the income of the appellant. The landmark judgement of the Hon'ble Supreme Court in the case CIT vs Kelvinator (320 ITR 561)(SC) is relied upon as there is live link with the reason to believe that reassessment was necessary. Hence, this Ground of appeal is dismissed. Further the appellant's contention that the assumption of jurisdiction and issuance of notice u / s.148 by the Assessing Officer is erroneous does not hold merit. Considering the totality of facts and circumstances, Ground Nos.2, 3 and 4 in appeal are dismissed.”

6.1. During the course of scrutiny assessment proceedings, it was observed that the assessee had entered into 14 transactions of purchase and sale of shares during the relevant assessment year with respect to 14 companies. The assessee has treated the gain derived out of the purchase and sale of shares as STCG. However, the Ld. AO opined that since assessee had made continuous purchase and sale of shares, it has to be treated as the business of the assessee and accordingly the gain derived from the purchase and sale of shares should be brought to tax under the head income from business. On appeal, the Ld. CIT(A) confirmed the order of the Ld. AO. On this issue also we don’t find any merit in the ground raised by the assessee. From the facts of the case, it is apparent that the assessee has invested in the shares of 14 different companies during the relevant assessment year and within a short span of time sold those shares regularly. Therefore, from the conduct of the assessee it is apparent that the assessee is purchasing and selling the shares in a short span of time for earning profit which is nothing but a business transaction. Therefore, the gains derived out of those transactions has to be obviously brought to tax under the head income from business. Reliance is placed in the decision of the jurisdictional High Court in the case PVS Raju vs. Addl. CIT, Hyderabad wherein it

was held that when purchase and sale of shares are carried out frequently then it could be presumed that the assessee is venturing into the business of purchase and sale of shares and not for investment purposes. Hence, we do not find any infirmity in the orders of the Ld. Revenue Authorities on this issue, accordingly the orders of the Ld. Revenue Authorities are hereby confirmed.

7.1. The assessee had purchased 1750 shares of M/s. Gravity Barter Private limited on 3/12/2010 at an aggregate consideration of Rs. 8,75,000/-. Subsequently, this company was amalgamated with M/s. Oasis Cine Communications Limited from which assessee had received 77,000 shares due to amalgamation. The assessee sold these shares in the month of March, 2012 for an aggregate sale consideration of Rs. 2,50,87,430/- and claimed deduction U/s. 10(38) of the Act. The Ld. AO treated these transactions to be sham because it was revealed that the entire transaction was bogus. Accordingly, the Ld. AO made addition of Rs. 2,50,87,430/- in the hands of the assessee which was subsequently confirmed by the Ld. CIT (A). At the outset, we find that this identical issue was decided in case of the spouse of the assessee M/s. Kiran Bala Gupta in ITA No. 64/Hyd/2017 for the same AY 2012-

13 vide order dated 10/12/2021. The relevant portion of the order of the Tribunal is extracted herein below for reference:

“7. Ground No.2 - Addition of Rs.1,86,32,023/- u/s 10(38) of the Act. During the scrutiny assessment proceedings, it was observed by the Ld.AO that the assessee had sold 57,200 equity shares of Oasis Cine Communications Ltd., aggregating to Rs. 1,86,32,023/- on 12.03.2012 & 13.03.2012. On query, it was submitted that the assessee had acquired the shares by virtue of the amalgamation scheme of M/s. Gravity Barter Pvt. Ltd. and M/s. Oasis Cine Communication Ltd sanctioned by the order of the Hon’ble Karnataka High Court dated 25.08.2011. It was further submitted that the assessee had acquired 1300 equity shares of M/s. Gravity Barter Pvt. Ltd originally on 03.12.2010, face value of those shares was Rs. 10 per share. The assessee had purchased those shares at a premium of Rs.490/- per share and the aggregate purchase consideration of 1300 equity shares was Rs.6.55 lakh. Subsequently the assessee had claimed exemption u/s 10(38) of the Act towards the long term capital gains of Rs.1,79,82,023/- (Rs.1,86,32,023/- - Rs.6,50,000/-). Assessee had furnished all the documentary evidence to justify the bonafide of the transaction. Thereafter summons was issued to the assessee and her husband, and their statements were recorded. From the various enquiries made by learned AO, it was revealed that M/s. Gravity Barter Pvt Ltd was involved in 2G spectrum money laundering cases. It was, further observed that the entire transactions made by the assessee have been concluded within a span of 10 months in a well-organized manner. It was further observed from the statements recorded u/s 131 of the Act that the assessee and her husband had confirmed the transactions were arranged by Shri Ramana Rao and Shri Nageshwara Rao and had voluntarily offered to pay tax on the long-term capital gains without claiming deduction u/s 10(38) of the Act. Hence it was obvious that all the documentary evidence produced by the assessee were manipulated which proved the transaction to be sham. Therefore, the learned AO relying on the theory of preponderances of human probabilities as enlightened by the hon’ble Apex Court in the case CIT Vs. Durga Prasad More (1971) 82 ITR 540 and Sumati Dayal Vs. CITCIT (5) 214 ITR 801 treated the entire amount of Rs.1,86,32,023/- as the income of the assessee. For the above addition, the learned AO has made elaborate discussion in the assessment order.

(iii) Sri Anil K Khemka was the person who controlled the companies and as per his confession, was involved in providing accommodation entries -to companies involved ill 2G scam. (iv) The purchase I sale of the shares did not conform to normal practice followed in share transactions, viz. (a) The payment for purchase was made after a gap of 10 months. (b) Shares were debited from DMAT A/c of the assessee after a gap of 11 months Of purchase. (c) Total consideration of Rs.1.80 Gores was not received by the assessee on sale of shares. (d) Shares were debited from DMAT A/c of the assessee prior to the date of sale. (v) The transaction was with a completely unknown company having no business activity, and whose shares were purchased at a premium of Rs.490 per share (face value was Rs.10/-). (vi) The shares were sold to companies which were paper entries with little 0'- no business activity used for providing accommodation entries having same or similar kind of dummy Directors and controlled by Sri Anil Kumar Khemka. 13.1 This casts a big shadow of doubt on genuineness of transaction. The Assessing Officer confronted the assessee with all the evidence. The assessee admitted that she could not prove the genuineness of the transaction and offered to pay tax on the alleged capital gain. There is nothing on record to show that she did so under duress. She has discussed the matter with her husband, who also confirmed the same. Thus, the admission of failure to substantiate the genuineness of transaction and offer of payment of tax was a considered decision. It was only after good 5 days of the original statement that she came up with the plea she-was unable to honour the commitment of paying the lax. Thus, she did not retract the admission of failure to explain the genuineness of the transaction nor did she actually explain the same. The inability to pay the tax on admitted income does not mean that the income is not admitted and that the same should not be charged to tax. In view of the suspect nature of the transaction, the onus was really heavy on the assessee to explain the genuineness of the same and in view of her failure to do so, it is held the Assessing Officer's action of treating the sum of Rs.1,86,32,023/- as income from 'Other Sources' is correct and the addition is upheld.

time viz., 10 months. The transaction made by the assessee was with completely unknown entity, who did not have any credentials. Further from the enquiry made, it was revealed that the entire transaction was manipulated. The alleged shares were dematerialized in the Demat account of the assessee after eleven months of the purchase which appears to be abnormal. The sale consideration received from sale of share was also after a substantial delay which also raises doubt about the bonafide of the transaction, because as per norms of the Stock Exchange the stockbroker it is required to deliver the security and make payment within 48 hours of settlement of trade by the stock exchange. It was informed by RoC, Mumbai vide letter dated 13/1/2015 that no such transaction had taken place. The purchaser of share from the assessee did not have good credentials and appears to be bogus. The assessee has not furnished any convincing evidence to dispute these findings of the Ld. Revenue Authorities. Further, the learned AR also could not present any cogent materials before us other than the manipulated documents to establish the transaction to be genuine or to counter the theory of preponderances of human probability as enlightened by the Hon’ble Supreme Court in the case relied upon by the learned AO (supra). Further it is apparent from the orders of the Ld. Revenue Authorities that the assessee is in the habit of introducing unexplained funds. In this situation, we do not find it necessary to interfere with the order of learned Revenue authorities on this issue.

9.1. During the course of scrutiny assessment proceedings, it was observed by the Ld. AO that the assessee had disclosed income from other source for Rs. 53,71,247/- on which assessee had claimed deduction U/s. 57 Rs. 44,18,329/-. On query it was explained that

major portion of the interest income viz., Rs.53,65,860/- was earned from the loan extended to M/s. Sanjay Strips Private Limited. It was further explained that the source of loan extended to M/s. Sanjay Strips Private Limited was out of the loan received by the assessee from 32 persons / entities to whom the assessee had paid interest viz., Smt. Kiran Bala Gupta (spouse) Rs. 17,50,275/-; Sanjay Gupta HUF Rs.4,04,860/-; Ramesh Kumar Vududala Rs. 1,23,970; Shaik Moulali Rs. 1,11,630/-, others Rs. 2,54,618/- etc., however assessee failed to produce confirmation letters from any of the persons / entities who had extended loan to the assessee. It was further noticed that most of loans extended to the assessee were either individuals or HUF towards which assessee had claimed bank charges, professional charges which were not justifiable. Therefore, in the absence of proper supporting evidence the Ld. AO disallowed the claim of deduction of Rs. 44,18,329/-and added the same in the hands of the assessee. On appeal, the Ld. CIT (A) confirmed the addition because even before him the assessee had not produced any documents to establish the same.

order to establish the genuineness of the interest paid by him to the 32 persons / entities. Before us the assessee has filed a paper book which contains the confirmation statement and statement of accounts of certain loan creditors. Therefore, in the interest of justice, we remit back the matter to the file of Ld. AO for de novo consideration. We also hereby direct the Ld. AO to admit any additional evidence filed by the assessee in order to justify his stand and thereafter pass appropriate order in accordance with law and merit.

Pronounced in the open Court on the 14th December, 2021.

Sd/- Sd/- (S.S. GODARA) (A. MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 14th December, 2021. OKK Copy to:- 1) Sri Sanjay Gupta, Flat No. 610, 6th Floor, Babukhan Estate, Basheerbagh, Hyderabad – 500 001. 2) DCIT, Circle-3(1), Signature Towers, Kondapur Road, Hyderabad. 3) The CIT(A)-3, Hyderabad. 4) The Pr. CIT-3, Hyderabad. 5) The DR, ITAT, Hyderabad 6) Guard File