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Facts
The assessee sold shares of Durga Enterprises P. Ltd. and incurred a Long Term Capital Loss, which was reflected in her return. The AO disputed the cost of acquisition, converting the loss into a Long Term Capital Gain. Separately, the AO added back Short Term Capital Gain on sale of PMC Fincorp Ltd. shares, deeming them penny stocks used for accommodation entries.
Held
The Tribunal held that the addition on account of Short Term Capital Gain on sale of PMC Fincorp Ltd. shares was wrongly deleted by the CIT(A) as the sale consideration was received through banking channels and the cost of acquisition was not unexplained. The Tribunal also held that the addition on account of Long Term Capital Gain on sale of Durga Enterprises P. Ltd. shares was wrongly deleted by the CIT(A) as the cost of acquisition was correctly claimed and substantiated, consistent with other shareholders.
Key Issues
Whether the cost of acquisition for Long Term Capital Gain on sale of shares was correctly determined by the assessee, and whether the sale of shares were bogus penny stocks.
Sections Cited
132, 132(4), 148, 147, 144B, 55(2)(b)(ii)
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Income Tax Appellate Tribunal, DELHI BENCH “A”, DELHI
(A.Y.2014-15) Assistant Commissioner of Income Tax, Circle 52(1), 14th Floor, E-2 Block Civic Centre, ...... अपीलाथ�/Appellant New Delhi 11002 बनाम Vs. Archana Dalmia, 3, Sikandra Road, Kalmia House, New Delhi ..... �ितवादी/Respondent PAN: AAGPD-7794-N Assessee by : S/Shri Kunal Agarwal, Chartered Accountant & Manish Agarwal, Advocate Department by: Shri Ashish Tripathi, Sr. DR सुनवाई क� ितिथ/ Date of hearing : 16/04/2025 घोषणा क� ितिथ/ Date of pronouncement : : 10/07/2025 आदेश/ORDER
PER VIKAS AWASTHY, JM:
This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘the CIT(A)] dated 26.06.2024, for the Assessment Year 2014-15.
2. The brief facts of the case as emanating from records are: The assessee sold 23,500 shares of Durga Enterprises P. Ltd., during the period relevant to assessment year under appeal to Pyramid Commodities (P) Ltd. (unrelated party) for a total consideration of Rs.19,97,50,000/-. The assessee suffered Long Term (AY 2014-15) Capital Loss of Rs.7.11 crores on the sale of aforesaid shares and the same was reflected by the assessee in her return of income for AY 2014-15. 2.1. A search and seizure operation u/s. 132 of the Income Tax Act,1961(hereinafter referred to as ‘the Act’) was carried out in the case of PMC Fin Corp Group on 11.10.2018. During the course of search Raj Kumar Modi, Director cum operator of the company in his statement recorded u/s. 132(4) of the Act admitted that the shares of M/s. PMC Fincorp Ltd. were rigged and were used to provide accommodation entries of Long Term Capital Gain to various beneficiaries in lieu of commission. The assessee has shown Short Term Capital Gain on bogus penny stocks of PMC Fincorp Ltd. The AO held that the assessee is one of the beneficiary of aforesaid accommodation entries. 2.2. On the aforesaid two issues, the assessment for AY 2014-15 in the case of assessee was reopened and notice u/s. 148 of the Act was issued to the assessee. In response to the said notice, the assessee filed return of income on 24.08.2022 declaring total income of Rs.1,33,06,444/-. The assessee made detailed submissions regarding acquisition of shares, valuation of shares of M/s. Durga Enterprises P. Ltd. along with supporting share certificate, mode of acquisition and also sale of shares to PMC Fincorp Ltd. The Assessing Officer (AO) rejected submissions of the assessee and made addition of Rs.18,79,42,074/- on account of Long Term Capital Gain on sale of unlisted shares of Durga Enterprise P. Ltd. Further, the AO made addition of Rs.1,50,93,000/- on sale of penny stock shares of PMC Fincorp Ltd. Aggrieved by the assessment order dated 31.05.2023 passed u/s.147 r.w.s. 144B of the Act, the assessee filed appeal before the CIT(A). The First Appellate Authority after considering submissions of the assessee and (AY 2014-15) documents on record deleted both the aforesaid additions vide impugned order. Hence, the Revenue is in appeal.
3. Shri Ashish Tripathi, representing the department vehemently supporting the assessment order prayed for reversing findings of the CIT(A) in deleting the additions on account of Long Term Capital Gain on sale of unlisted shares and confirming addition of Short Term Capital Gain on sale of penny stock. The ld. DR reiterated findings of the Assessing Officer.
4. Per contra, Shri Kunal Agarwal appearing on behalf of the assessee/respondent strongly supported the impugned order and prayed for upholding the same. The ld. AR further furnished written submissions in support of the impugned order, the same are reproduced herein below:- “1. That, the assessee sold 23,500 shares of Durga Enterprises Pvt. Ltd. in the relevant assessment year to an unrelated third-party, viz. Pyramid Commodities (P) Ltd. for total agreed consideration of Rs. 19,97,50,000. On the said sale, there was a long-term capital loss (LTCL) to the tune of Rs. 7.11 Crores which was duly reflected in the ITR of the assessee.
In order to substantiate the said LTCL, it was submitted that out of 23,500 shares, 6098 shares pertained to period prior to 01.04.1981 and as per the provisions of section 55(2)(b)(ii), in order to determine cost of acquisition, the assessee was eligible to opt for Cost or FMV of the capital asset, whichever is higher as on 01.04.1981.
In order to substantiate the cost of acquisition of 6098 shares, the assessee had relied upon the certificate of chartered accountant dated 28.07.2013 determining the valuation of shares based on net asset method as on 01.04.1981. Kindly refer Page no 218 of the PB. The value of shares was determined at Rs.4645 per share substantially on the basis of FMV of land considered as per the valuation report of Mr. Pradeep Kumar Mittal (Government Registered Valuer) Ata. 28.07.2017. Kindly refer Page no 212 - 217 of the PB.
That, the Ld. AO on frivolous and flimsy grounds rejected the cost of shares of Rs. 4645 and replaced the same to Rs. 120 based on the audited balance sheet of March 2013.
(AY 2014-15) Due to such treatment the rightful long term capital loss determined by the assessee was erroneously converted to long term capital gain of Rs. 18.79 Crores.
The Ld. AO made the said treatment on the premise that the impugned land was not owned by the company and had restricted uses. Kindly refer Page no. 07 -08 of the AO Order for these observations.
For the aspect of ownership of the said land, it was submitted by the assessee that the land was purchased by Bhagwati Glass Works Pvt. Ltd. from Delhi Glass Works Pvt. Ltd vide Sale deeds dated 25th June 1956 & 9th July, 1956 (Kindly refer Page no. 148 of the PB for assessee submission in this respect).
For the establishing the fact of ownership of the said land, the assessee has placed reliance on • Conveyance deed for Purchase of land at Page 224-253 of the PB; • Copy of agreement between UP Government and Durga Enterprises in order to use the Land for other industrial purposes at Page no. 257-280 of the PB. At Page no. 267 (Para iii onwards) & 269 of the PB, the fact of purchase of land is duly mentioned; • Copy of Hon'ble Allahabad High Court order at Page 286-318 of the PB (Kindly specifically refer Para 2 at Page no. 289 of the PB) 8. The name of Bhagwati Glass Works Pvt Ltd was subsequently changed to Durga Enterprises Pvt Ltd vide fresh certificate of incorporation dated 28.06.1968. (Kindly refer Page no. 254 of the PB). Thus, all these details and documents categorically proved that Durga Enterprises was the owner of the said land.
The assessee had also submitted that 6098 shares were received from family members by way of gifts and inheritance from her father and all of them held the shares prior to 01.04.1981. Kindly refer Page no. 198-202 of the PB & supportive documents in the form of copy of Will of assessee father, share certificates, share transfer form, copy of Gift deeds etc. at 396 - 673 of the PB.
During the proceedings, the assessee also submitted copy of affidavit duly sworn by public notary officer affirming all the vital facts of the case. (Kindly Refer Page no. 281- 283 of the PB) 11. The various restrictive uses of the land observed by the Ld. AO at Page no. 7 of the AO order are erroneous and arbitrary. Most of these observations has been picked up (AY 2014-15) from the valuer report itself on the basis of which valuation has been derived. (Kindly refer the relevant page 216 of the PB). Also, some of these observations were interpreted/manipulated wrongly on its own by the Ld.AO without any supportive material. All these observations have been controverted in detail in the reply to Ld. CIT(A) at Page no. 694-698 of the PB.
That, the Ld. AO has erred in rejecting the valuation determined by experts where by share valuation was determined by Chartered accountant and land valuation was determined by Government registered valuer without any cogent basis and frivolous and false observations.
The Ld. AO took a contradictory stand where it accepted share valuation of Durga enterprises for sale transaction of Rs. 8003/- per share computed by Chartered accountant vide certificate dtd. 24.07.2013 (Kindly Refer Page no. 211 of the PB) which had considered the valuation of land based on same valuer report. (Kindly Refer Page no. 203-210 of the PB).
That, most importantly, the same working of cost of acquisition for capital gain for sale of shares of Durga Enterprises in cases of relatives of the assessee for the same company, same assessment year and same valuation report was accepted by the Income tax department.
In the case of V.N Dalmia and sons and Vishvanidhi Dalmia, the exact same type of working was accepted during the assessment proceedings. And for Karunanidhi Dalmia, the same was accepted in appeal proceedings. (Kindly refer the relevant assessment and appeal orders at Page no. 320 - 369 of the PB.) Thus, the principles of consistency were totally breached by the Ld. AO by taking such arbitrary stand and making the impugned addition.”
5. We have heard the submissions made by rival sides and have examined the orders of authorities below. The Revenue in appeal has assailed the order of CIT(A) on two counts:- (i) Deleting the addition of Rs.1,50,93,100/- on account of Short Term Capital gain on sale of PMC Fincorp Ltd. held to be penny stock; & (ii) Deleting addition of Rs.18,79,42,074/- on account of alleged Long Term Capital Gain on sale of unlisted 23,500 shares of Durga Enterprise P. Ltd. (AY 2014-15) 6. The assessee had declared Short Term Capital Gains of Rs.49,39,666/- in return of income on transfer of shares held in PMC Fincorp Ltd. The AO held the sale of penny stock shares Rs.1,50,93,100/- as unexplained credits and made addition of the entire sale consideration. The CIT(A) deleted the addition by observing as under:- “4.4.1. _ _ _ _ _ _The sale consideration in the instant case has undisputedly been received through banking channels from the stock exchange therefore the same is not unexplained on the first instance. Secondly the effective addition is in respect of cost of acquisition which cannot be considered as unexplained cash credit. From a perusal of the factual matrix as above, it is clear that the cost is already the capital of Appellant and the capital gains is already offered to tax. Therefore, I uphold with the contention of Appellant that the Cost of acquisition cannot be considered as unexplained cash credit and therefore the addition cannot be sustained, and accordingly the addition of Rs.1,50,93,100/-is directed to be deleted. Accordingly, this ground of appeal
is allowed.” The Revenue has not been able to controvert findings of the CIT(A). We find no error in findings of the CIT(A), hence, the same are upheld and ground no.
1. (i) of the Revenue’s appeal is dismissed.
7. In so far as the addition of Rs.18,79,42,074/- made on account of Long Term Capital Gains on sale of shares of Durga Enterprises P. Ltd. We find that the assessee had sold 23,500 unquoted equity shares of Durga Enterprises P. Ltd. to M/s. Pyramid Commodities (P) Ltd. at the rate of Rs.8,500 per share. The transaction of sale of aforesaid shares and Long Term Capital Loss of Rs.7,11,60,422/- computed by the assessee is as under:-
(AY 2014-15) (Amount in Rs.) Share No. of Sale Value Cost FMV as on Indexed Cost Profit/Loss shares 01.04.1981/ Cost as on 31.03.1998 Equity shares 6098 5,18,33,000 6,09,800 2,83,25,210 26,59,73,722 (21,41,40,722) (acquired prior to 01.04.1981) [6,098 x Rs.8,500] Preference 17,402 14,798,17,000 17,40,200 49,36,700 14,29,80,300 shares & 17,40,200 Debentures [17,402 x converted into Rs.8,500] Equity shares 23500 19,97,50,000 23,50,000 Total 27,09,10,422 (7,11,160,422)
The assessee has taken deemed cost of acquisition in respect of 6098 shares acquired before 01.04.1981 at Rs.6,09,800/- due to which there was net Long Term Capital Loss on sale of said shares. The AO did not accept deemed cost of acquisition of shares held since 1981 and substituted the value with Rs.120/- per share which resulted in the impugned addition. The assessee claimed deemed cost of acquisition in accordance with the provisions of section 55(2)(b)(ii) of the Act. The AO observed that the value of the equity shares of the company is not acceptable, since, the value of shares is derived from value of land, which is not owned by the company and there are various restrictions on the land use, encroachments etc. The AO failed to take note of the submissions of the assessee and the judgment of Hon’ble Allahabad High Court in CM Writ Petition No. 24342 of 1994 titled Durga Enterprises P. Ltd. and Another versus Principal Secretary, Government of UP and Others. The Hon’ble High Court vide order dated 15.03.2011 directed the respondents not to interfere with the possession of the petitioners and allow the petitioners to use and occupy the premises in question.
(AY 2014-15) A perusal of the said judgment would reveal that the first petitioner i.e. Durga Enterprises P. Ltd. was in possession of land admeasuring 64 acres in Sahibabad, Districts Ghaziabad for last more than 50 years with a total constructed area of over 2,50,000 square feet. The petitioners were in continuous possession of the said land since 1941. Therefore, findings of the AO raising doubt over the ownership on land by the company are devoid of merit and contrary to the facts on record. Further, the ld. AR of the assessee has placed on record assessment order in the case of Shri Vishwanidhi Dalmiya, for AY 2014-15 dated 22.05.2023 wherein the AO has accepted valuation of Rs.8,500/- per share of Durga Enterprises P. Ltd. The AO accepted the valuation as per the same valuation report, which is at pages 203 to 210 of the paper book. Once the valuation has been accepted in the case of one of the shareholder by the Assessing Officer, the same cannot be questioned in the hands of another shareholders on identical set of facts. Further, the assessee has placed on record copy of the order of CIT(A) dated 22.09.2013 in the case of Karunanidhi Dalmia for AY 2022-23 (at pages 336 to 369 of the paper book). In the case of Karunanidhi Dalmia, the CIT(A) accepted the value of shares as per same valuation report at Rs.8,500 per share. The ld. AR pointed that no appeal has been filed by the Revenue against the said order of CIT(A), thus, the order of CIT(A) dated 22.09.2023 attainted finality. The Revenue has not placed on record any material to show that any appeal was filed against the order of CIT(A) in the case of Karunanidhi Dalmia. Once the value of share at the rate of Rs.8,500 per share has been accepted by the Department in the case of other two shareholders, there is no plausible reason to take a different view in the hands of the assesse on identical facts. Thus, we find no reason to interfere with findings of the CIT(A) on this issue. Hence, ground no. 1(ii) in Revenue’s appeal is dismissed.