DY CIT CENTRAL CIRCLE-6(3), MUMBAI vs. HIRABEN KHANTILAL SHAH, MUMBAI

The facts relating to the cases are stated in brief. The Revenue carried out search and seizure action under section 132 of the Act in the hands of the assessees on 12.2.2016. Consequent thereto, the assessments of the years under consideration were completed under section 143(3) read with section 153A of the Act. The search was conducted on the basis of information received from the Investigation Directorate of Kolkata that all these assessees have declared bogus long term capital gains from purchase

He also took the view that these assessees would have incurred commission expenses in procuring bogus capital gains. Accordingly, he estimated commission expenses that would have been incurred by this assessee @ 7% of amount of capital gains.

The details of both the additions made in the hands of the assessees herein are extracted below:- NAME OF ASSESSEE SALE PROCEEDS ESTIMATED U/S 68 EXPENSES U/S 69 Bhavya Pankaj Shah 2,29,79,150 16,08,240 Hiloni Bhavik Shah 2,30,11,500 16,10,805 Kantilal Ramniklal Shah 2,09,53,450 14,66,742 (Through L/R Pankaj K Shah) Disha Pankaj Shah 2,29,89,500 16,09,265 Hiraben Kantilal Shah 2,29,99,150 16,09,940

These assessees challenged the above said additions by filing appeals before Ld CIT(A). The Ld CIT(A) deleted both the additions in the hands of all the assessees herein and hence the revenue has filed these appeals.

We heard the parties on these issues and perused the record. We notice that identical additions on sale of shares of M/s Matra Kaushal Enterprises Limited was made on identical reasoning in the hands of one of the family members of these assessees, viz., Shri Pankaj Kantilal Shah. The Tribunal, vide its order of even date passed in ITA No.898/Mum/2022 relating to

The AO noticed that the search team had questioned Shri Pankaj Shah during the course of search about the capital gains declared by the family members. In the statements, he submitted that all these share dealings were carried out by his father Late Shri Khantilal Ramanlal Shah during his life time. Since he could not answer various questions posed by search team, he admitted that he will withdraw the exemption claimed in respect of long term capital gains in the hands of all the family members and this undertaking was also confirmed by him in the statements taken from him subsequently also.

Thereafter, the assessing officer has made post search analysis of transactions, wherein he discussed about the general modus operandi adopted to generate bogus long term capital gains. In this regard,

However, in the return of income, the assessee did not forego the exemption claimed against long term capital gain. Hence the AO asked the assessee to explain as to why the long term capital gains should not be assessed as income of the assessee, as admitted during the course of search. In response thereto, the assessee submitted that the above said admission to withdraw the claim of exemption was made by him under the erroneous impression that he may not be having documents in support of the exemption claimed. Further, since these transactions were carried out by his father, he was unaware of the transactions carried by his father and he was under bonafide belief that his father had committed wrong under the Income tax Act. Accordingly, he agreed to withdraw exemption in the various Statements taken from him. He further submitted that he examined the details of share transactions afterwards and found that all the transactions are supported by proper documents and payments. Accordingly, the assessee submitted before the AO that the exemption claimed u/s 10(38) of the Act has been claimed as per law and the same should be granted. The assessee also submitted that the assessing officer has proposed to assess the capital gains u/68 of the Act, but the assessee has proved all the three ingredients with regard to sale of shares/long term capital gains.

The AO took the view that the long term capital gain declared by the assessee is bogus for the following reasons:-

The Ld CIT(A) noticed that the Mumbai bench of Tribunal has considered the sale of shares of M/s Matra Kaushal Enterprises Limited in the case of Manoj Kunverji Gala (ITA No.2225/M/2019 dated 08-02-2021) and deleted the addition made by the AO. Accordingly, the Ld CIT(A) followed the above said decision and deleted the addition in the instant case. We also notice that the Ld CIT(A) has also taken support of

The Ld D.R submitted that the assessee has shown payments and invoices for purchase of shares, but did not furnish copy of share certificate and share transfer form. The shares were dematerialized much after the date of purchase of shares. She further submitted that the financial statements of M/s Matra Kaushal Enterprises Ltd, would show that the financial position of the above said company would not justify the high share price movements. And it has also suffered losses. Accordingly, the Ld D.R submitted that the fundamentals of this company were very weak and hence no prudent business man will invest in this company. Hence, it is beyond human probabilities that the assessee has invested in this company. The Ld D R further submitted that accommodation entry providers and exit providers have confirmed that they were helping in manipulation of prices of this share. Accordingly, the Ld D.R submitted that there was pre-meeting of minds between the assessee, company and operators and this capital gain has been generated through collusion of all.

The Ld D.R placed her reliance on the following case laws to contend that the long term capital gains declared by the assessee were bogus and hence the AO has rightly assessed the sale proceeds as income of the assessee u/s 68 of the Act:-

The Ld D.R further submitted that the assessee had agreed to withdraw exemption u/s 10(38) of the Act in the statements taken from him during the course of search. He did not retract the same at the earliest possible opportunity, i.e., he has retracted from it only at the time of filing return of income. The Ld D.R contended that mere retraction of the statement will not disentitle the AO to make the addition and in support of this contention, he relied upon following case laws:-

The Ld D.R also referred to the decision rendered by Delhi bench of Tribunal in the case of Matra Kaushal Enterprises Ltd (ITA No.1010/Del/2018 dated 15-10-2019) and submitted that the addition made u/s 68 towards increase in Share capital has been confirmed by the Tribunal in the above said case. She further submitted that the addition made u/s 68 of the Act towards long term capital gains in the hands of Pravin B Jain HUF (ITA No.4788/Mum/2018 dated 21.11.2019) has been confirmed by the Tribunal.

The Ld A.R, on the contrary, submitted that the assessing officer has accepted genuineness of all the documentary evidences furnished by the assessee in support of purchase and sale of shares of above said company. He submitted that the assessee could not explain the details of purchase and sale during the course of search proceedings, since all these transactions were carried out by his father, who had since expired. Hence the assessee had agreed to withdraw exemption u/s 10(38) of the Act, since he was given impression by the search officials that some wrong was committed by his father and further, he was under the impression that all the relevant documents were not available. However, subsequently it was noticed that all the supporting evidences are available and accordingly, the assessee came to the conclusion that there was nothing wrong in the transactions of purchase and sale of shares made by his father. The Ld A.R submitted that the assessee has given detailed reply to the AO in this regard. He further submitted that the AO simply relied upon the report of investigation wing in order to draw adverse conclusions against the assessee. He submitted that the AO did not enquire the broker of the assessee in order to find out the veracity of the transactions, i.e., no

The Ld A.R further submitted that the contention of Ld D.R that the company M/s Matra Kaushal Enterprises Ltd is having weak financials is against the facts. He submitted that the turnover of the above said company stood at Rs.98 crores for the year ending March, 2015. He submitted that the AO has relied upon certain statements given by the operators without putting them to the assessee. He submitted that the assessee is a regular investor in shares and hence the AO was not justified in singling out this share alone on the basis of investigation report. He submitted that there was no SEBI order against the assessee and hence it cannot be said that the assessee was involved in price manipulations. The Ld A.R further submitted that the data collected from BSE on price movement of this share would show that it hit all time high of Rs.69/- per share, where as the assessee has sold the shares at an average price of Rs.51/- only. Had the assessee been part of alleged group, which were manipulating the prices, then the assessee would have sold the shares at the highest price mentioned above. Further, the assessee has not fully sold the shares, i.e., he is still holding part of shares. Accordingly, the Ld A.R contended that the above said facts would show that the assessee has acted as investor only and hence the allegations made by the AO are liable to be rejected. 20. In support of various contentions, the Ld A.R placed his reliance on the following case laws:-

We heard rival contentions and perused the record. We noticed that the assessee has furnished all the details in support of purchase and sale of shares of M/s Matra Kaushal Enterprises Ltd and the said fact has also

The case of the AO is that the assessee has agreed to withdraw the exemption claimed u/s 10(38) of the Act before the search officials. In this regard, it is submitted by the assessee before tax authorities as well as before us that he could not explain the details of purchase and sale during the course of search proceedings, since all these transactions were carried out by his father, who had since expired. It was further submitted that the assessee had agreed to withdraw exemption u/s 68 of the Act before the search officials, since he was given impression by the search officials that some wrong was committed by his father and further, he was under the impression that all the relevant documents may not be available. It is submitted that the assessee verified the records subsequently and noticed that all the supporting evidences are available. After consulting the tax consultants, the assessee came to know that there was nothing wrong in the transactions of purchase and sale of shares carried out by his father. Accordingly, it is stated that the assessee adhered to the claim for exemption u/s 10(38) of the Act. From the explanations so given, we notice that the assessee has agreed to withdraw the exemption claimed u/s 10(38) of the Act under misconception. Accordingly, we agree with the contentions that the declaration given by him under wrong impression should be ignored. In any case, as submitted by Ld A.R, the exemption given under the Act is a statutory right available to the assessee. Hence the same cannot be denied only on the reasoning that the assessee has waived his right, i.e., it is the duty of the assessing officer to allow the concession and benefits available to the assessee while computing total income as per the circulars issued by the CBDT. The case laws relied upon by the Ld D.R with regard to the addition made on the basis of sworn statements, in our opinion, are not applicable to the facts of the present case, in view of the discussions made supra.

Before us, the Ld D.R placed reliance on various case laws in support of the addition made by the AO. In our view, those decisions have been rendered on the basis of facts prevailing in those cases and hence they cannot considered as a straight jacket formula to decide the issue under consideration, i.e., the decision has to be taken on the basis of facts available in each of the cases. In any case, we are dealing with some case

We 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 (supra). The decision rendered by Hon’ble Bombay High Court in the above said case is extracted below:-

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 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.

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 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.

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.”

We may also refer to another decision rendered by Hon’ble Jurisdictional Bombay High Court in the 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:-

Therefore we find nothing perverse in the order of the Tribunal.

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.

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

In the case of Shri Yogesh P Thakkar vs. DCIT (ITA No.1065/Mum/2021 & others dated 03-02-2023, the co-ordinate bench has held that the addition made merely by placing reliance on the Kolkata Investigation Wing report, which are more general in nature, cannot be the basis for making addition u/s 68 of the Act, when the investigation wing has not implicated the assessee. Before us, the Ld D.R placed reliance on the decision rendered by Hon’ble Delhi High Court in the case of Suman Poddar (supra). In the case of Shri Yogesh P Thakkar (supra), the Tribunal has considered the above said decision and noticed that the same has been distinguished by Hon’ble Delhi High Court itself in the case of PCIT vs. Krishnadevi (ITA 125/2020 dated 15.01.2021). The relevant observations made by the co-ordinate bench are extracted below:-

We noticed earlier that the assessing officer has made the additions in the instant cases also on identical reasoning as given in the case of Pankaj Kantilal Shah (supra). We noticed that identical additions made in the hands of above said assessee has been deleted by Ld CIT(A) and his order has since been confirmed by the ITAT. Accordingly, following the decision rendered by the ITAT in the case of Pankaj Kantilal Shah (supra), we confirm the orders passed by Ld CIT(A) in deleting both the additions in the hands of all the assessees.

In the result, all the appeals of the Revenue are dismissed.