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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL,
Before: BEFORE SHRI GEORGE MATHAN
O R D E R This is an appeal filed by the revenue an appeal filed by the revenue against the order of the ld inst the order of the ld CIT(A), CIT(A), NFAC, NFAC, Delhi Delhi dated 26.12.2024 in Appeal No.CIT(A),Sambalpur/10380/2016 Sambalpur/10380/2016-17 for the assessment year 2014 assessment year 2014-15.
Shri P.R.Mohanty, ld AR appeared for the assessee and Shri Shri P.R.Mohanty, ld AR appeared for the assessee and Shri Shri P.R.Mohanty, ld AR appeared for the assessee and Shri S.C.Mohanty, ld Sr DR appeared for the revenue. S.C.Mohanty, ld Sr DR appeared for the revenue.
It was submitted by ld AR that the assessee is a trader in Milk It was submitted by ld AR that the assessee is a trader It was submitted by ld AR that the assessee is a trader powder and Ghee. The assessee had disclosed long term powder and Ghee. The assessee had disclosed long term capital gain from capital gain from the trading in scripts NCL Research & Financial Services Ltd. It was the the trading in scripts NCL Research & Financial Services Ltd. It was the the trading in scripts NCL Research & Financial Services Ltd. It was the submission that the assessee had purchased 1000 shares of NCL Research submission that the assessee had purchased 1000 shares of NCL Research submission that the assessee had purchased 1000 shares of NCL Research
P a g e 1 | 13 Assessment Year : 2014-15 & Financial Services Ltd., on 1.8.2011 and the same had been sold between 22.11.2013 to 24.2.2014 as follows:
NCL RESEARCH BOUGHT SOLD Date qty. amount 1.8,.11 1000 227621.4 DATE QTY AMOUNT 22.11.13 50 61336.9 26.11.13 97 123128.61 26.11.13 25 31858.77 10.12.13 50 60836.23 18.12.13 3 3634.94 20.12.13 3 3575.29 23.12.13 50 55967.74 24.12.13 120 138706.31 27.12.13 160 23529.68 30.12.13 20 41110.81 31.12.13 5 5959.47 2.1.14 100 116635.59 3.1.14 20 22844.54 6.1.14 30 34674.05 7.1.14 11 12396.18 9.1.14 22 24940.5 31.1.14 20 18117.84 3.2.14 43 37063.63 4.2.14 11 9135.07 5.2.14 50 39523.07 6.2.14 20 15715.33 7.2.14 26 20158.09 11.2.14 9 6795.95 24.2.14 20 10759.04 1000 1107865.24 Long term profit -880244.21 Total: 1107866 4. It was the submission that the assessee had purchased shares for Rs.2,27,627.12 and same was sold at Rs.11,07,865.24 thereby generating long term profit of Rs.8,80,244.01, which the assessee has claimed exempt. It was the submission that the Assessing Officer treated the purchase and sale of the shares of NCL Research & Financial Services Ltd., as bogus
P a g e 2 | 13 Assessment Year : 2014-15 transaction and had denied the claim of exemption by the assessee. Consequently, the Assessing Officer treated the entire amount of Rs.11,15,401/- as the unexplained credit in the hands of the assessee. It was the submission that the ld CIT(A) had upheld the order of the Assessing Officer denying the assessee the benefit of exemption claimed u/s.10(38) of the Act. It was the submission by ld AR that STT had been paid on the purchase of the shares for which, ld AR produced before me the copy of the contract-cum-bill which is as follows:
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It was the further submission that NCL Research & Financial Services Ltd., has not been debarred by SEBI. It was the submission that under P a g e 3 | 13 Assessment Year : 2014-15 identical circumstances, the Co-ordinate Bench of this Tribunal in the case of Smt. Bimla Devi Singhania in order dated 6.7.2022 as also the decision in the case of Sandeep Kumar Agarwal in ITA No.80/CTK/2024 order dated 28.5.2024, had deleted the addition, which orders have been upheld by the Hon’ble Jurisdictional High Court. The Co- ordinate bench in the case of Sandeep Kumar Agarwal (supra) in para 6 of the order has held as follows: “6. We have considered the rival submissions. The facts in the present case clearly show the following:- The assessee is doing purchase and sale of shares. STT has been paid in respect of transaction of sale of shares. There is no evidence found in the investigation report against the assessee to say that the assessee has indulged in the manipulation of price of shares. The SEBI has investigated many companies and has drawn their conclusions but there is no adverse inference drawn against CCL International Ltd. The assessee has purchased shares as early as in 2011. The Hon’ble Delhi High Court has permitted merger of the shares of AAR Infrastructure Ltd with that of CCL International Ltd. The assessee has sold shares of the said company during the assessment year 2013-14 and has disclosed in his return of income and has claimed exemption u/s.10(38) of the Act. This return of the assessee has been accepted admittedly through intimation u/s.143(1) of the Act. No reopening has been proposed for the assessment year 2013-14. For the assessment year 2014-15, assessee’s return admittedly had been accepted u/s.143(1) of the Act and subsequently, reopening has been made. During the assessment year 2014-15, the assessee has again purchased shares of CCL International Ltd. Demat account of the assessee clearly show that the assessee is doing purchase and sale of various shares, and this is not an isolated act. The transaction of the assessee is through recognised stock exchange. The shares of CCL International Ltd., has also been sold through Edelweiss Broking Limited( EBL). EBL has not been identified as a broker who is indulging in any of the so called bogus transaction. The facts in the asssessee’s case are substantially identical to the facts of the assessee’s brother Hemanta Kumar Agarwal (supra) as also in the case of Bimla Devi Singhania
P a g e 4 | 13 Assessment Year : 2014-15 and Radheshyam Singhania (supra). The shares dealt with by the assessee are also in respect of same company. The Hon’ble Jurisdictional High Court of Orissa in the case of Bimla Devi Singhania and Radheshyam Singhania (supra) has upheld the orders of the Co- ordinate Bench of this Tribunal deleting the addition in those cases and directing to grant the benefit of exemption u/s.10(38) of the Act. The Hon’ble Jurisdictional High Court in the case of Bimla Devi Singhania and Radheshyam Singhania has held as follows: “6. On the basis of the pleadings available on record and also the arguments advanced by learned counsel appearing for the respective parties, this Court, vide order dated 13.09.2023, framed the substantial questions of law to the following effect:- “I) Whether the learned Tribunal has rightly accepted the claim of the assessee as per law regarding exemption under Section 10 (38) with respect to alleged income under the head “Long Term Capital Gain” on sale of shares of penny stock by ignoring the admission by their group before the Income Tax Authority that complete tax would be paid on the bogus LTCG claimed by the group subsequent to survey operation under Section 133A? II) Whether the learned Tribunal has rightly dismissed the appeal of the revenue with the observation that as the sale of shares were effected through recognized stock exchange and STT had been paid at the time of transfer, therefore it cannot be held as bogus?”
Before delving into the issues in question, the provisions contained under Section 10 (38) of the Income Tax Act, 1961 are extracted hereunder:- “Any income arising from the transfer of a long term capital asset, being an equity share in a company or a unit of an equity oriented fund [or a unit of a business trust] where- (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No.2) Act, 2004 comes into force; and (b) such transaction is chargeable to securities transaction tax under that Chapter; [Provided that the income by way of long term capital gain of a company shall be taken into account in computing the book profit and income tax payable under section 115 JB;] [Provided also that nothing contained in sub-clause(b) shall apply to a transaction undertaken on a recognized stock exchange located in any International Financial Services
P a g e 5 | 13 Assessment Year : 2014-15 Centre and where the consideration for such transaction is paid or payable in foreign currency;] [Provided also that nothing contained in this clause shall apply to any income arising from the transfer of a long term capital asset, being an equity share in a company, if the transaction of acquisition, other than the acquisition notified by the Central Government in this behalf, of such equity share is entered into on or after the 1st day of October, 2004 and such transaction is not chargeable to securities transaction tax under Chapter VII of the Finance (No.2) Act, 2004 (23 of 2004]”
8. On bare perusal of the aforementioned provisions, it is made clear that for claiming the benefit of exemption under Section 10(38) of the Income Tax Act, 1961 three requirements need to be fulfilled. Firstly, the share should be held for more than one year, secondly, it should be listed and sold on recognized stock exchange and, thirdly, on the said sale necessary Security Transaction Tax (STT) has to be chargeable. If all these requirements are satisfied, then the benefit of exemption under Section 10 (38) of the Income Tax Act, 1961 is admissible.
In Bhoruka Engineering Industries Ltd. (supra), the Karnataka High Court has also laid down the above mentioned principles. Therefore, applying the provisions contained under Section 10 (38) of the Income Tax Act, 1961 and also the law laid down by the High Court of Karnataka mentioned supra, all the above noted three elements are existing in the present case and, thereby, the respondent-assessee is entitled to get the benefit under Section 10 (38) of the Income Tax Act, 1961. As such, a survey under Section 133A of the Income Tax Act, 1961 was conducted on 20.08.2015 and, without detecting any incriminating documents or evidence against the respondent-assessee, recorded the statement that tax will be paid on the claim made under Section 10 (38) of the Income Tax Act, 1961 in filing the IT return for the Assessment Year 2013-14 and to be disclosed as income from other source. But the said statement, being without any incriminating evidence against the respondent-assessee, cannot be ipso facto decided against the respondent-assessee. The present income tax appeal filed at the instance of the revenue involved no substantial question of law, as both the appellate authorities have decided on the basis of evidence and documents produced by the respondent- assessee and the revenue and, as such, on the basis of the facts, both the authorities have come to a conclusion that the respondent-assessee is entitled to the benefit under Section 10 (38) of the Income Tax Act, 1961 and held that the appellant-revenue had failed to bring any evidence in rebuttal nor was it proved that the documents produced were false, fabricated or fictitious, hence, the findings, as recorded by the appellate authorities, that the transaction of purchase and sale of shares could not be treated as non-genuine, were essentially in the realm of appreciation of evidence and, as such, no substantial question of law is involved. P a g e 6 | 13 Assessment Year : 2014-15
10. In Vijaya Kumar Talwar (supra), it has been held that in absence of demonstrated perversity in the finding of the Tribunal, interference cannot be warranted, when on thorough consideration of the material on record it was found that the transaction of purchase and sale of shares could not be treated as non-genuine.
11. In Khader Khan Son (supra), the apex Court held that statement recorded during survey under Section 133A of the Income Tax Act, 1961 has no evidentiary value, as it does not empower any Income Tax Officer to examine on oath, as the assessment has to be made on the basis of materials and documentary evidence and not on a bare statement. Therefore, the substantial questions of law, as formulated, have no legs to stand. 12. It is worthwhile to mention here that, the Security Transaction Tax (STT) under Chapter-VII of Finance (No.2) Act, 2004 is a direct tax levied by Government of India on every purchase and sale of securities that are listed on the recognized stock exchanges in India. The STT was implemented to curb the tax avoidance on capital gains, which is similar to Tax Collected at Source (TCS) to be collected by a recognized stock exchange and both the buyer and seller will pay the said tax, as prescribed rate for carrying out the transaction of securities for financial gains, are liable to pay STT. All gains from such transactions are called capital gains and are classified as LTCG or STCG, depending on the holding period. Therefore, the alleged substantial questions of law as proposed by the Revenue cannot be sustained in the eye of law, as the same is contrary to clauses (a) and (b) of Section 10 (38) of the Income Tax Act, 1961 (Circular No.5/2005 dated 15.07.2005). 13. Mr. T.K. Satapathy, learned Senior Standing Counsel appearing for the Income Tax Department laid emphasis on the CBDT Circular No.23 of 2019 dated 06.09.2019, as the matter related to bogus Long Term Capital Gain on Penny stock. But the said circular can only be applied prospectively not retrospectively, because the present appeal is for the Assessment Year 2013-14. Thereby, the circular relied upon by the Senior Counsel appearing for the revenue has no application to the present case. 14. In view of the facts and circumstances, as well as the law, as discussed above, even though substantial questions of law have been framed vide order dated 13.09.2023, the same are not required to be answered. As such, CIT (A) and Income Tax Appellate Tribunal, being the fact finding courts, relying upon the evidences available on record, having passed the orders impugned, there is no necessity of answering the substantial questions of law framed for adjudication. 15. Thus, both the appeals, being devoid of merits, are hereby dismissed. However, there shall be no order as to costs.”
P a g e 7 | 13 Assessment Year : 2014-15
7. As it is noticed that the issues in this appeal are squarely covered by the principles laid down by the Hon’ble High Court of Orissa in the case of Bimla Devi Singhania and Radheshyam Singhania (supra) and as it is also noticed in assessee’s case for the assessment year 2013-14, the assessee has been granted the benefit of exemption u/s.10(38)of the Act in respect of same shares, the order of the AO and that of the ld CIT(A) denying the assessee the benefit of deduction u/s.10(38) of the Act is set aside and the Assessing officer is directed to allow the benefit of exemption u/s.10(38) of the Act as claimed. As we have granted the benefit of deduction u/s.10(38) of the act, the addition representing 5% alleged commission as made by the AO would also stands deleted.” 6. It was the submission that the addition as made by the Assessing Officer denying the claim of exemption u/s.10(38) of the Act, which has been upheld by the ld CIT(A) is liable to be reversed and the addition deleted.
7. In reply, ld Sr DR vehemently supported the order of the ld AR and ld CIT(A). Ld Sr DR drew my attention to the statement of facts filed before the Tribunal to submit that the assessee has submitted that he has incurred loss on purchase and sale of shares of NCL Research & Financial Services Ltd., which was false. Ld Sr DR also submitted that this was a classic case of fraud. It was the submission that the addition is liable to be upheld.
I have considered the rival submissions. A perusal of the facts in the present case clearly shows that this is not a single transaction, which has been done by the assessee. The assessee has been dealing in shares year after year. In fact, the Demat account of the assessee is noticed at page 17 of PB, which reads as follows:
P a g e 8 | 13 Assessment Year : 2014-15
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9. The assessee is having investment in listed and unlisted shares. The said Demat account is as on 31.3.2015. The demat account as on 31.3.2014 is found at page 14 of PB, which reads as follows:
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P a g e 9 | 13 Assessment Year : 2014-15
The list of shares shows variation. Thus, it is noticed that this is not a single transaction, which has been done by the assessee but the assessee is transacting in shares regularly. The holding statement as on 31.3.2013 shows the existence of NCL Research & Financial Services Ltd.,, which read as follows:
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The transaction in the demat account which is found at page 13 also shows that the transactions have been done through demat account only, which reads as follows:
P a g e 10 | 13 Assessment Year : 2014-15
P a g e 11 | 13 Assessment Year : 2014-15
This being so, as also on account of the fact that it is noticed that the transactions have been done through the National Stock Exchange and STT has also been paid, respectfully following the principles laid down by the Hon’ble Jurisdictional High Court in the case of Smt. Bimala Devi Singhania in IT Nos.84 & 85 of 2022 vide order dated 10.10.2023, I am of the view that no addition in the hands of the assessee is called for. Consequently, the addition as made by the Assessing Officer and confirmed by ld CIT(A) in respect of alleged penny stock stands deleted. The Assessing Officer is directed to allow the benefit of exemption claimed u/s.10(38) of the Act.
In the result, appeal of assessee stands allowed.
Order dictated and pronounced in the open court on 25/09/2024.