RAKESH M SHAH HUF,MUMBAI vs. COMMISSIONER OF INCOME TAX APPEAL, MUMBAI

Ground Nos. 1 to 4 raised by the assessee are interrelated and interconnected and relates to challenging the order of the Ld. CIT in upholding the additions made by the AO under Sections 68 and 69C of the Act. Therefore, we have decided to adjudicate these grounds through the present consolidated order.

The Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised by him before the Revenue Authorities and also relied upon the written submissions.

On the other hand, the Ld. DR relied upon the orders passed by the Revenue Authorities.

We have heard the counsel for both the parties, perused the material placed on record, the judgments cited before us, and also the orders passed by the Revenue Authorities. From the records, we noticed that the assessee is an investor in securities for the last 7 years and had made investment in the equity shares of M/s Santoshima Tradelink Ltd. (formerly Sunrise Asian Ltd.). The assessee had applied for 40,000 fully paid-up equity shares during the Financial Year 2011-12 at a cost of acquisition aggregating to Rs. 8 lakhs. The assessee paid the full consideration by account payee cheque, and thereafter the shares were dematerialized and credited to his demat account in the month of January, 2012.

The said company, M/s Santoshima Tradelink Ltd., was thereafter amalgamated with another company, namely M/s Sunrise Asian Ltd. Pursuant to the Scheme of Amalgamation filed by the transferor company under Sections 391 and 394 of the Companies Act, 1956, the scheme was approved by the Hon'ble Bombay High Court vide order dated 22.03.2013. As per the Scheme of Amalgamation, the assessee received shares of the transferee company, i.e., M/s Sunrise Asian Ltd., in the ratio of 1:1 against each equity share of M/s Santoshima Tradelink Ltd., and these shares were also credited to his demat account in the month of January, 2013 as a corporate action.

The transferee company, M/s Sunrise Asian Ltd., is a public limited company listed on the BSE and was classified as Group A by the BSE, signifying that the shares of the company were highly traded and enjoyed a higher degree of liquidity. The assessee, through his share broker, M/s Hornic Investment Pvt. Ltd., sold the shares after holding them for 24 months on an online trading platform recognized by the BSE and delivered the shares in demat form to the Stock Exchange clearing house. The assessee also received the sale consideration from the recognized Stock Exchange during the Financial Year 2013-14 relevant to the Assessment Year 2014- 15. The shares were sold through M/s Hornic Investment Pvt. Ltd., which is a registered share broker of the BSE. Copies of the sale bills issued have already been placed on record.

We also noticed that the sale consideration was received through proper banking channels and is duly reflected in the bank statements.

The assessee maintained a demat account wherein the inward and outward movement of the said shares is reflected in the transaction statement issued by Stock Holding Corporation of India Ltd. The said shares were sold through a recognized stock exchange, on which the assessee also paid STT and other statutory taxes. The entire transactions were carried out through proper banking channels. On the other hand, the AO could not bring on record any evidence to show that the assessee had given cash to any entry operators. Moreover, the documents placed on record in the shape of copies of share allotment, sale bills, bank statements, and contract notes were not found to be defective by the AO.

From the records, we noticed that on the BSE, the price of the shares from February, 2013 to July, 2015 remained active for a period of more than two years and the monthly trading volume of the shares was in the range of 5 lakhs during the said period. However, the Revenue Authorities, while relying upon the information of the Investigation Wing, concluded that the said company was a penny stock company and thus made the disallowance on account of the LTCG shown by the assessee.

We further noticed that the issue raised by the assessee in the present appeal is squarely covered by the decisions of the Coordinate Benches of the ITAT as well as the Hon'ble High Court of Madras in the following decisions:

In the above cases, we noticed that while dealing with the same scrip, the transactions were accepted by different Coordinate Benches of the ITAT as well as by the Hon'ble High Court, and thereafter in all the above cases, the respective additions were deleted.

Apart from this, we also noticed that the assessee had relied upon the decision of the Hon'ble Supreme Court in the case of PCIT vs. Kuntala Mahapatra, wherein it was held that:

And the decision of the Hon'ble Bombay High Court in the case of CIT vs. Shyam R. Pawar, wherein it was held that:

On the contrary, the Ld. DR could not place on record any relevant judgment to controvert or rebut the arguments advanced by the assessee or the decisions relied upon.

Therefore, considering the totality of the facts and circumstances as discussed above, and also keeping in view the decisions of the Coordinate Benches of the ITAT and the higher judicial courts, and following the doctrine of binding precedents while maintaining judicial consistency, we quash and set aside the orders passed by the Revenue Authorities and delete the impugned additions made.

Accordingly, Ground Nos. 1 to 4 raised by the assessee are allowed.

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