JITENDRA UDAYLAL JAIN,MUMBAI vs. ITO WARD 15.2.1, MUMBAI

Ground No. 1 raised by the assessee relates to challenging the order of the Ld. CIT(A) in confirming the addition of Rs. 2,06,51,845 made by the AO under Section 69A of the Act. The ld. AR, appearing on behalf of the assessee, reiterated the same arguments as were raised before the Revenue Authorities and also relied upon the detailed written submissions filed before us and the same is reproduced herein below: 3

On the contrary, the ld. DR relied upon the order passed by the Revenue Authorities. We have heard the counsel for both parties, perused the material placed on record, the judgments cited before us, and the order passed by the Revenue Authorities. From the records, we noticed that during the year under consideration, the assessee had income from long- term capital gain from the sale of shares of M/s Unisis Software and Holding Industries Ltd. amounting to Rs. 2,06,51,845, of which Rs. 1,80,98,896 was claimed as exempt income under Section 10(38) of the Act. Consequently, the return of the assessee was processed under Section 143(1) of the Act.

However, information was received by the AO from the Director General of Investigation Wing, Kolkata, which had undertaken investigation of penny stock companies indicating bogus LTCG/STCG entries claimed by a large number of beneficiaries. The assessee was found to be a beneficiary of such bogus LTCG. Therefore, after providing an opportunity of being heard to the assessee, the AO treated the aforesaid transaction as bogus and passed the assessment order under Section 147 r.w.s. 143(3) of the Act, treating the entire sale consideration as bogus capital gain/penny stock and also made an ad hoc commission addition at the rate of 5% of the sale consideration.

On further appeal, the ld. CIT(A) reduced the commission addition from 5% to 2% of the sales, however, he sustained the addition on account of sale of shares of M/s Unisis Software and Holding Industries Ltd., thereby partly allowing the appeal of the assessee.

Now, the core question before us is whether the LTCG from the sale of shares of M/s Unisis Software and Holding Industries Ltd. is genuine or bogus. In order to prove that the LTCG earned by the assessee is genuine, the assessee submitted a bunch of documentary evidence, including sale/purchase contract notes, bank statements showing payment for purchase, bank receipts of sale proceeds, broker’s ledger, and LTCG workings. All these documents placed on record and relied upon by the assessee goes to prove that the shares were purchased through a registered broker and were held in a Demat account. The entire transaction was delivery-based, and ultimately the stocks were sold on a recognized stock exchange on which STT was also paid.

It is an undisputed fact that the holding period of the shares exceeded 12 months, and the entire trail of the shares in question was through banking channels. On the contrary, the assessment of the assessee was reopened only on the basis of information received from the DGIT (Investigation), Kolkata. During the entire assessment proceedings, the AO could not bring on record any proof of cash payments or unexplained deposits, nor was any link established between the assessee and the alleged entry operators. The transactions recorded in the books and Demat account could not be rebutted.

We also noticed that the assessee is a regular investor and has placed on record details of regular investments in shares (Paper Book pages 101– 102). In the present case, the assessee purchased one lakh shares of M/s Unisis Software and Holding Industries Ltd. for Rs. 25,57,949 through a SEBI-registered broker. Copies of bills-cum-contract notes are placed on record (Paper Book pages 17–73). It is an undisputed fact that all payments were made through proper banking channels (Paper Book pages 74–76). The shares purchased were credited to the assessee’s Demat account, and subsequently sold through a broker, namely Ambit Securities Broking Pvt. Ltd., listed on the BSE.

We further noticed that the assessee paid brokerage, STT, and service tax on the sale of shares. Copies of sale bills-cum-contract notes are placed on record (Paper Book pages 77–88). From the records, it is evident that the assessee held the shares for more than 12 months, and no evidence has been brought on record to show that the assessee paid any cash to entry operators. Since the shares were sold through a recognized stock exchange and STT and other statutory taxes were paid, and the entire transaction was routed through proper banking channels, the documentary evidence placed on record has not been controverted or rebutted by any independent inquiry or investigation. The addition was made solely on the basis of information received from the DGIT (Investigation), Kolkata.

We also noticed that the same scrip, M/s Unisis Software and Holding Industries Ltd., was the subject matter of dispute before Coordinate Benches of the ITAT, which have already examined the authenticity and veracity of the said company and deleted similar additions in other cases. The Coordinate Bench in the case of DCIT vs. Surendra B. Jiwrajka in ITA Nos. 2431 to 2434 (Mum) (Para 14), as well as in the cases of Meenu Goel vs. ITO in ITA No. 6235 (Delhi) of 2017 [AY 2014- 15] (Para 6) and Dilip B. Jiwrajka (Para 8) in ITA No. 2439/Mum/ 2021 and CO No. 93/Mum/2021, has dealt with the same scrip.

Apart from this, the assessee has also placed on record ROC Master data showing that the company’s status is still active (Paper Book page 127). The financial statements for FY 2012–13 (AY 2013–14) are placed on record (Paper Book pages 128–186). The price movement chart of the company for the relevant period is placed at Paper Book page 187, and the SEBI order relied upon by the AO is placed at Paper Book pages 198–240.

Therefore, considering the totality of facts and circumstances of the case, and keeping in view that the assessee has duly discharged the onus by placing complete documentary evidence on record, which has not been controverted or rebutted by the Revenue Authorities, and also following the decisions of Coordinate Benches in the cases of Surendra B. Jiwrajka (supra), Meenu Goel (supra), and Dilip B. Jiwrajka (supra), and also keeping in view of the doctrine of binding precedents and judicial consistency, direct the AO to delete the impugned addition.

Ground No. 2 raised by the assessee relates to challenging the order of the Ld. CIT(A) in sustaining the notional commission. Since we have already deleted the addition made under Section 69A of the Act, this ground becomes infructuous and requires no separate adjudication. Consequently, the appeal filed by the assessee stands partly allowed.

In the result, appeal filed by the Assessee is partly allowed.