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Income Tax Appellate Tribunal, JAIPUR BENCH ‘A’, JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 740/JP/2019
PER VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 05.03.2019 of ld. CIT (Appeals), Ajmer for the assessment year 2011-12. The assessee has raised the following grounds of appeal :-
“ 1. Rs.615141/- : That the ld. CIT (A) was not justified in law and on facts of the case in sustaining the addition made by the ld. AO for so-called penny stock shares dealt by his son even when he admitted in his affidavit and declared in his assessment and particularly when addition was made for cash deposits in bank a/c on peak basis through which he dealt.
That the ld. CIT (A) was not justified in law and on facts of the case in sustaining the addition made by the ld. AO for so-called penny stock shares to the extent of profit which has already
been assessed on assumed basis by the ld. AO on total shares sales.
Rs.631480/- : That the ld. CIT (A) was not justified in law and on facts of the case in sustaining the addition made by the ld. AO for assumed profit on shares transactions done by his son even when he admitted in his affidavit and declared in his assessment.
The appellant prays your honour’s indulgence to add, alter, amend and/or withdraw any grounds of appeal on or before hearing.”
Ground No. 1 is regarding the addition made by the AO on account of purchase and sale of shares of M/s. Navyah Infrastructure & Telecom
2. The AO noted that the transactions of purchase and sale of shares are nothing but accommodation entries in penny stocks and, therefore, the entire sale consideration was added to the income of the assessee. On appeal, the assessee has contended that all the transactions of trading in shares have been done by his son Shri Sunil Mehta from the bank account no. 16220100008685 with Federal Bank Ltd., Mumbai in the name of the assessee. The assessee has explained that the said bank account has been operated by his son for the purpose of his transactions of share trading. Thus the assessee contended that he has not carried out any transaction of purchase and sale of shares and all the transactions are done through his bank account with Federal Bank Ltd., Mumbai which is operated by his son who has already admitted this fact in the affidavit. The ld. CIT (A) accepted this fact based on the affidavits of the assessee as well his son and further the assessment order passed by the AO in case of Shri Sunil Gyan Chand Mehta, the son of the assessee wherein the addition on account of deposit in the said bank account has been made in the hands of the son of the assessee. Therefore, the addition made by the AO in respect of deposits made in the said bank account was deleted by the ld. CIT (A) but the other addition on account of the capital gain arising from the purchase and sale of the shares of M/s. Navyah Infrastructure & Telecom Services Ltd. was restricted to actual amount of profit being the difference of sale consideration and purchase consideration. Therefore, the addition was restricted to Rs. 6,15,141/- as against the addition made by the AO of Rs. 22,24,710/-.
3. Before us, the ld. A/R of the assessee has submitted that though the transactions of purchase and sale of shares were done through bank account in the name of the assessee with Federal Bank Ltd., Mumbai, however, once it is accepted by the son of the assessee as well as the AO that these transactions were carried out by the son of the assessee, then the income arising from the transactions of purchase and sale of shares cannot be added in the hands of the assessee. He has further contended that the assessee has already filed an affidavit of his son as well as his own whereby the son of the assessee has admitted the fact that the said bank account in the name of the assessee has been operated by him for the purposes of these transactions. Since all the transactions are carried out from this bank account of the assessee, therefore, these are shown in the name of the assessee. Thus the ld. A/R has submitted that the addition sustained by the ld. CIT (A) may be deleted.
4. On the other hand, the ld. D/R has submitted that the ld. CIT (A) has already deleted the addition to the extent the same has been made in the hands of the son of the assessee. Since there was no addition made by the AO in respect of the profit from the purchase and sale of the penny stocks company, namely, M/s. Navyah Infrastructure & Telecom Services Ltd., therefore, the said addition was made by the AO and was sustained by the ld. CIT (A) only to the extent of actual income arising from the said transaction.
In the rejoinder, the ld. A/R has submitted that the AO has also made an addition on account of 0.10% profit on the entire transactions of purchase and sale of shares and, therefore, the sale of these shares were also considered for making the said addition. Thus it would amount to double taxation of the same amount.
We have considered the rival submissions as well as the relevant material on record. We find that the AO has made the addition on account of transactions in penny stocks of Rs. 22,24,710/- on protective basis which means that the AO has accepted that the substantive addition is required to be made in the hands of son of the assessee. The ld. CIT (A) while deleting the addition made by the AO on account of deposits made in the bank account in the name of the assessee in the Federal Bank Ltd. has accepted this fact that the said bank account was operated by the son of the assessee. The relevant finding in that respect has been given by the ld. CIT (A) in para 4.3 as under :-
“ 4.3. I have gone through the assessment order, statement of facts, grounds of appeal and written submission carefully. The assessee has contended that the account number 16220100008685 with Federal Bank was used by his son Shri Sunil Mehta and he has offered for taxation, the income arising out of the transactions appearing in that bank account. In support of his claim, the appellant has filed affidavit of the appellant himself, affidavit of Shri Sunil Mehta and copy of the assessment order dated 15.12.2018 for A.Y. 2011-12 in the case of Sunil Gyanchand Mehta. I have gone through the copy of assessment order dated 15.12.2018 of Sunil Gyanchand Mehta. It is seen from the assessment order that the AO has made addition of Rs. 20,06,840/- in respect of the peak credit appearing in the bank accounts discussed by the AO in the assessment order. The account number 16220100008685 of the appellant in which the deposits/credits of Rs. 1,68,84,807/- (Rs. 1,04,30,000 + Rs. 64,54,807) were made is also appearing in these accounts. In view of the assessment order dated 15.12.2018 of Sunil Gyanchand Mehta for A.Y. 2011-12, the contention of the appellant that this bank account has been owned by Sunil Gyanchand Mehta and the AO of Sunl Gyanchand Mehta has taxed the income arising with respect to the deposits/credits of Rs. 1,68,84,807/- (Rs. 1,04,30,000+Rs. 64,54,807) made in that bank account, is found to be correct. I am of the considered view that on the basis of the transactions recorded in a bank account, the income can not be taxed twice. As the AO of Sunil Gyanchand Mehta has already taxed the income arising with respect to the cash deposit/credits of Rs. 1,68,84,807/- (Rs. 1,04,30,000+Rs. 64,54,807) appearing in bank account number 16220100008685, therefore, there remains no justification for sustaining the addition of Rs. 25,26,447/- made by the AO, treating the cash deposits/credits as unexplained investment u/s 69 in the hands of the appellant. Accordingly, the addition of Rs. 25,26,447/- made by the AO is hereby deleted.”
Thus the ld. CIT (A) has accepted that all the transactions of deposits made in the said bank account number 16220100008685 with Federal Bank Ltd. were made by the son of the assessee Shri Sunil Mehta. The ld. CIT (A) has also considered the affidavit filed by the assessee and affidavit of his son as well as the assessment order dated 15.12.2018 in case of Shri Sunil Gyanchand Mehta. Once this fact is admitted that the said account was operated by the son of the assessee and the assessee has not done any transaction from the said bank account, then the transaction of particular script carried out through the same bank account cannot be ascribed to the assessee. Thus the said transaction which is carried out through the same bank account in the name of the assessee cannot be separated from the other transactions of similar nature being trading in the shares which are accepted as the transactions belonging to the son of the assessee. Accordingly, the addition sustained by the ld. CIT (A) to the extent of actual profit out of the transactions in the scripts of M/s. Navyah Infrastructure & Telecom Services Ltd. is not justified and the same is deleted.
Ground No. 2 is regarding the addition made by the AO on account of the profits on the share transactions done through the bank account in the name of the assessee with Federal Bank Ltd., Mumbai.
The AO has made an addition by applying 0.10% on the total transactions of Rs. 63,14,80,321/-. The ld. CIT (A) has confirmed the said addition only on the ground that since no such addition was made by the AO in the hands of the son of the assessee, therefore, the profit or loss arising from the transactions carried out through the bank account in the name of the assessee by estimating the profit @ 0.10% on the turnover in the hands of the assessee is justified.
We have considered the rival submissions as well as the relevant material on record. The AO has made the addition only on presumptive basis by applying 0.10% profit on the turnover. Once the fact is admitted that the bank account in question in the name of the assessee with Federal Bank Ltd., Mumbai has been operated by the son of the assessee for the purpose of doing the share trading, then the turnover of share trading activity carried out by the son of the assessee cannot be held to be the assessee’s transaction for the purpose assessing the income, if any, on the said transaction. The AO without giving a finding that these transactions 7 Shri Gyan Chand Mehta, Beawar. have resulted any profit has estimated the income. Once the transactions are accepted as belonging to the son of the assessee who has done the activity of trading in the shares through the said bank account, then the profit, if any, from such transactions cannot be fastened as income of the assessee. Accordingly, the addition cannot be made merely on the ground that no such addition has been made by the AO in the hands of son of the assessee. Once the fact of transaction carried out by the son of the assessee is admitted, then the income, if any, arising from such transaction cannot be added in the hands of the assessee and failure of the AO to assess the income in the hands of the son of the assessee cannot be a ground for assessing the income in the hands of the assessee. The addition is deleted.
In the result, appeal of the assessee is allowed.