MRS SONALI MANOJ MATHURIA,MUMBAI vs. THE INCOME TAX OFFICER, WARD 20(3)(4), MUMBAI

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ITA 46/MUM/2023Status: DisposedITAT Mumbai31 March 2023AY 2011-125 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the AO erred in adding the entire sale consideration. It was noted that M/s. Comfort Intech Ltd. was not identified as a penny stock in the relevant investigation report, and the transaction was conducted through the Bombay Stock Exchange with STT paid. The Tribunal directed the deletion of the addition and allowed the STCG claim.

What were the facts?

The assessee claimed Short Term Capital Gain (STCG) on the sale of shares of M/s. Comfort Intech Ltd. The Assessing Officer (AO) reopened the assessment based on information that the scrip was a penny stock used for generating bogus LTCG. The AO rejected the STCG claim and added the entire sale consideration to the assessee's income.

What were the issues?

Whether the entire sale consideration of shares, claimed as STCG, could be added to income based on allegations of penny stock transactions without sufficient evidence. Whether the reopening of assessment was valid.

Which sections of the Income-tax Act were involved?

Section 147,Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH,

Before: SHRI ABY T. VARKEY, JM

For Appellant: Shri M. S. Mathuria
Hearing: 01/03/2023Pronounced: 31/03/2023

O R D E R

PER ABY T. VARKEY, JM:

1.

This is an appeal preferred by the assessee against the order of the Ld. CIT(A)/NFAC, Delhi dated 25.11.2022 for AY. 2011-12.

2.

The main grievance of the assessee is against the action of the Ld. CIT(A) confirming the addition of Rs.6,22,807/-. 3. Brief facts as noted by the AO is that the assessee had filed her return of income on 19.07.2011 declaring total income of Rs.5,04,890/-. Thereafter, the assessee’s case was reopened u/s 147 of the Income Tax Act, 1961 (hereinafter “the Act”) based on information from the investigation wing, Mumbai that organized racket was going on for generating bogus entries of Long Term Capital Gain (LTCG) through transactions of penny stocks which have been unearthed as a result of investigation carried out by the Investigation Wing. As per the information one of the penny stock was M/s. Comfort Intech 2 A.Y. 2011-12 Sonali Manoj Mathuria Limited . According to the information, the assessee has transacted in this scrip to the tune of Rs.6,22,807/- and therefore the AO after re- opening the assessment, confronted the assessee about this scrip. And pursuant thereto, the assessee brought to AO’s notice, the following facts to prove the genuineness of the transaction which are as under: - (a) Assessee has purchased and sold shares of M/s. Comfort Intech Ltd, through BSE and has paid STT. (b) Assessee has offered STCG in return of income. (c) All the transaction took place through the electronic platform of Bombay Stock Exchange (d) No incriminative evidence provided to take adverse view against the assessee in respect of Scrip M/s Confort Intech Ltd.. (e) No action has been taken by other agencies/(SEBI). (f) There is only reason to suspect and not reason to believe escapement of income. So re-opening itself is bad. . 4. And thereafter pleaded before the AO that no adverse view should be taken against the assessee in respect of Short Term Capital Gain (STCG) claim made by her. However, the AO did not agree according to him, she has purchased the scrip through rights issue; and even though she had sold the shares of M/s. Comfort Intech Ltd through BSE and has paid STT on it, still the main feature of this transaction was to take advantage of rigging the price and therefore, the assessee’s STCG claim of Rs.4,44,520/- was rejected. And he added the entire sale consideration of Rs.6,22,807/- u/s 68 of the Act. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the same. Aggrieved, the assessee is before this Tribunal.

3 A.Y. 2011-12 Sonali Manoj Mathuria 5. I have heard both the parties and perused the records. It is noted that the assessee has purchased scrip of M/s. Comfort Intech Ltd. through rights issue of Rs. four (4) per share at total cost of Rs.1,78,287/- ; and scrip was shown in her Demat account. And thereafter, in the same year, she had sold the scrip when price was Rs.14 per share through the Bombay Stock Exchange and paid STT on it. The assessee sold the scrip at total of Rs.6,22,807/-. And thus claimed STCG of Rs.4,44,520/-. However, the claim of STCG was not only denied but the entire amount /sale consideration of Rs.6,22,807/- was added u/s 68 of the Act which action was based on investigation wing report that this scrip which was transacted by the assessee (M/s. Comfort Intech Ltd.) was a penny-stock. However, it was brought to my notice that the as on date of hearing (i.e, 01.03.2023), the very same scrip M/s. Comfort Intech Ltd. is being traded in the Bombay Stock Exchange @ 32.50/- per share. Therefore, according to the Ld. AR, based upon purported statement of entry operators or some unscrupulous person who have indulged in rigging the price of the shares, innocent persons like assessee who have made a meagre profit of Rs.4,44,520/- should not have been first of all disallowed and at any rate the entire sale consideration should not have been brought to tax u/s 68 of the Act. The Ld. AR also brought to my notice the crucial fact that share in question (M/s Comfort Intech Ltd.) is not part of the investigation report and that no action has been taken by SEBI and drew my attention to the SEBI Report, [Chapter-8 of the report placed at page no. 17 to 73 of PB]. And I note that investigation report was 4 A.Y. 2011-12 Sonali Manoj Mathuria against scrip of M/s. Comfort Fincap Ltd. (Scrip no. 535267 and not M/s. Comfort Intech Ltd scrip no. 531216). And from perusal of the investigation report I find the name of M/s. Comfort Fincap Ltd. reflected at serial no. 11 in the 84 BSE listed companies identified as penny stock. (Page no. 72 to 73 of PB). However, the scrip named M/s. Comfort Intech Ltd which has been traded by assessee is not found in the penny stock list. And as noted, the assessee purchased rights issue of this share M/s. Comfort Intech Ltd. through cheque and shares were credited to assessee Demat account no. 1202200000017496 and the same was brought through registered share broker M/s. SPS share brokers Pvt Ltd. It is noted from perusal of the assessee’s Demat account, the assessee has done transactions in other shares also other than shares of M/s. Comfort Intech Ltd. (scrip code no. 531216) The assessee has filed following documents to prove the purchase/allotment of shares and sale of shares: - Copy of ‘Rights shares’ application forms. Copy of ‘Rights Renunciation Forms. Copy of Acknolwedgment slip of the said right application. Copy of Demat Account. Copy of Brokers ledger account. Bank statement. Copy of contract note cum bill for sale of the said shares through BSE.

6.

And it is noted that the assessee has sold the scrips through share broker M/s. SPS Share Broker Pvt. Ltd. which has been debited from her Demat account. The assessee has sold the shares through

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