SHOBHA JAIN,DELHI vs. ITO, WARD- 47(5), NEW DELHI

Although a number of ground have been raised by the assessee however, these all relate to the order of the Ld. CIT(A) in confirming the addition of Rs.18,81,961/- made by the AO by disallowing the claim u/s 10(38) of the Act and confirming the addition Rs.94,099/- made by the AO u/s 69C of the Act being unexplained expenditure for obtaining the accommodation entry.

Facts of the case, in brief, are that the assessee is an individual and derives income from house property and income from other sources. She filed her return of income on 25.08.2015 declaring total income of Rs.6,09,460/-. The case was selected for scrutiny and statutory notices u/s143(2)/142(1) were issued and served on the assessee along with questionnaire.

During the course of assessment proceedings, the AO noted that the assessee has claimed exempt income u/s 10(38) of the Act amounting to Rs.18,81,961/- earned from sale of 50000 shares of M/s Kailash Auto Finance Limited. From the various details furnished by the assessee, the AO noted that purchases and sale of the shares of M/s Kailash Auto Finance Limited are as under:-

During the course of assessment proceedings, the assessee submitted that such transaction has been made through the registered broker M/s Bonanza Portfolio (P) Limited and the assessee filed the copy of contract note of the said broker. The AO examined the details of purchase and sale of the particular script and noted that the assessee has earned a return approximately 3763% over a very short period of just over 15 months. He noted that the financial results of M/s Kailash Auto Finance Limited are not very good and there was no chance of lucrative gain at the stage of purchase of the shares. From the details furnished, he noted that the shares were purchased by the assessee on 17.01.2013 from M/s Bonanza Portfoli (P) Ltd. in offline mode but the payment was made by cheque. The AO examined the modus operandi of the transaction, analysed the price/volume movement of the scrip and acquisition of promoter share of both PML, CAPAL and KAFL. He also examined the order of SEBI and noted that M/s Kailash Auto Finance Ltd. was found to be guilty of price manipulation of the scrip and had jacked up the rate so as to provide a Long Term Capital Gain entry to its investors.

In appeal, the ld. CIT(A) upheld the action of the AO.

Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal.

The ld. counsel for the assessee strongly challenged the order the ld. CIT(A) in sustaining the addition made by the AO. He submitted that the assessee is a regular investor and trader in the capital market in blue chip companies, midcap and small cap which is verifiable from the statement of holding in past as well as in subsequent years. He submitted that the assessee has purchased 100000 shares on 10.09.2012 of Panchsheel Marketing Ltd.(in short PML) through Jatadhar Marketing P. Ltd. and payment was made by cheque which was cleared on 05.01.2013. PML was subsequently amalgamated with Kailash Auto Finance Ltd. vide decision of the Hon’ble Allahabad High Court dated 09.05.2013 and thereafter the company has reduced the face value of the shares from Rs.10 to Rs.1 and all these shares have been put in DP. Out of 100000 shares, the assessee sold 50000 shares in F.Y.2013-14 which was accepted by the AO. The balance 50000 shares were sold in F.Y. 2014-15 resulting in Long Term Capital Gain of Rs.18,81,961/-. The ld. counsel for the assessee submitted that the shares were purchased on 10.09.2012 and sold between April-June 2014 which is much before the SEBI report which is of 2015. Referring to the coy of the order of SEBI, he submitted that SEBI has passed final order dated 21.09.2017 particularly on the scrip Kailash Auto by revoking the interim order as para 6 of order. He submitted that the assessee has shown the transaction duly supported by admissible evidence by way of purchase bill, sale bill, bank account payment, etc. The proceeds were duly credited in Dena Bank. Referring to the decision of the Co-ordinate Bench of the Tribunal in the case of Vidhi Malhotra vs ITO in and in the case of Santosh Mendiratta vs ITO in ITA No.94/Del/2018, for AY 2014-15, order dated 20.12.2018, he submitted that the Co- ordinate Bench of the Tribunal has allowed the claim of Long Term Capital Gain on account of sale of shares of M/s Kailash Auto Finance Limited. He submitted that since, the assessee in the instant case has produced all relevant documentary evidences, therefore, the ld. CIT(A) was not justified in sustaining the addition made by the AO by rejecting the claim of Long Term Capital Gain and further making addition of Rs.94,099/- being unexplained expenditure u/s 69C of the Act for availing the accommodation entry. He also relied on the following decisions:-

I have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find the assessee in the instant case claimed Long Term Capital Gain of Rs.18,81,961/- as exempt income u/s 10(38) of the Act being sale of 50000 shares of M/s Kailash Auto Finance Limited. I find the AO rejected the deduction claimed u/s 10(38) of the Act on the ground that the assessee has earned a return of approximately 3763% over a very short period of just over 15 months and the financial results of M/s Kailash Auto Finance Limited are not very good. While doing so, the AO examined the modus operandi of the transaction, analysed the price/volume movement of the scrip and acquisition of promoter share of both PML, CAPAL and KAFL and examined the order of SEBI wherein SEBI has held that M/s Kailash Auto Finance Ltd. was guilty of price manipulation of the scrip and had jacked up the rate so as to provide a Long Term Capital Gain entry to its investors, I find the ld. CIT(A) upheld the action of the AO. It is the submission of the ld. counsel for the assessee that the assessee was holding 100000 shares of M/s Kailash Auto Finance Ltd., out of which 50000 shares were sold in FY 2013-14 relevant to AY 2014-15 and it was accepted by the Revenue. Therefore, following the rule of consistency alone, the shares sold during the impugned assessment year should not have been doubted. It is also his submission that the SEBI had passed the final order on 21.09.2017 and the SEBI has rovoked the ban of M/s Kailash Auto Finance Ltd.

I find an identical issue had come up before the Co- ordinate Bench of the Tribunal in the case of Vidhi Malhotra vs ITO (supra), where identical issue was the subject matter before the Tribunal. I find the Tribunal after considering the final order of SEBI revoking the ban on M/s Kailsh Auto Finance Ltd. has allowed the claim of Long Term Capital Gain u/s 10(38) of the Act on account of sale of shares of M/s Kailash Auto Finance Ltd. by observing as under:-

Exactly similar facts are permeating in the case of Smt. Satosh Mendiratta, wherein the assessee has shown long term capital gain of Rs. 36,59,773/- on similar scrip. Even the finding of the AO and Ld. CIT(A) are exactly the same, therefore, our finding given above will apply mutatis mutandis for this appeal also. Accordingly the appeal of the assessee is allowed.”

Since, the facts of the instance case are identical to the facts of the case decided by the Tribunal cited (supra), therefore, respectfully following the same, I set-aside the order of the Ld. CIT(A) and direct the AO to delete the addition made by him rejecting the claim of deduction u/s 10(38) of the Act.

In the result, the appeal filed by the assessee is allowed.