SANJAY ASHOK JAIN,DOMBIVLI vs. INCOME TAX OFFICER 3.2, KALYAN

In this case, the Assessee on 06th November 2012 had initially purchased 2,465 shares of NYSSA Corporation Limited, which subsequently 1 merged with ‘Sharekhan’ and thus the Assessee was allotted 24,650 shares of ‘Sharekhan’ by way of sub-division.

Thereafter, the Assessee sold 22,300 shares {purchased on a consideration of Rs.3,89,256/-} out of 24,650 shares, from 19th November, 2013 to 23rd January 2014 resulting in earning the Long term capital gain of Rs. 4,56,005/- which was claimed as exempt u/s 10(38) of the Act.

Somehow, subsequently, a search and seizure action was carried out in the case of Shri Naresh Jain and his associates, who were allegedly acting in collusion and executing managed transactions for generating bogus Long Term Capital Gains, Short Term Capital Losses, and Business Loss entries for various beneficiaries.

Accordingly, the case of the Assessee was reopened under Section 147 of the Act by issuance of notice dated 31.03.2021 under Section 148 of the Act. Thereafter, various statutory notices were issued and the Assessee was called upon to justify the impugned transactions.

The Assessee, in response thereto, filed a detailed reply claiming the genuineness of the transactions and furnished, inter alia, the following documents:

The AO, thus considering various judicial precedents, including Sumati Dayal vs. CIT (214 ITR 801) and CIT vs. Durga Prasad More (1971) 82 ITR 540, ultimately made an addition of Rs.8,45,261/- under Section 68 of the Act, on account of sale proceeds arising from the shares of NYSSA Corporation Ltd.

Thus, the Assessee being aggrieved, challenged the aforesaid addition before the ld. Commissioner, who substantially on the same reasoning as adopted by the AO, affirmed the addition and dismissed the appeal of the Assessee.

Thus, being aggrieved, the Assessee has preferred the instant appeal.

Heard the parties and perused the material available on record and given thoughtful consideration to the rival claims of the parties. The facts as culled out from the record are that on 06 November 2012, the Assessee purchased 2,465 equity shares of NYSSA Corporation Limited. Subsequently, pursuant to a merger/restructuring and subdivision of shares, the Assessee was allotted 24,650 shares of Sharekhan in exchange for the original holding. Thereafter, during the period from 19 November 2013 to 23 January 2014, the Assessee sold 22,300 shares out of the total holding of 24,650 shares. The cost of acquisition attributable to the shares sold was ₹3,89,256/-. On such sale, the Assessee earned a Long-Term Capital Gain (LTCG) of ₹4,56,005/-, which was claimed as exempt under Section 10(38) of the Income-tax Act, 1961. Admittedly, the Assessee had duly furnished the documentary evidences such as (i) Demat Account Statement (DP Transaction Account); (ii) Global Statement of Gains/Losses from the Broker;(iii) Statement of Capital Gains along with Computation of Total Income issued by the Broker, Motilal Oswal Ltd.; and (iv) Ledger Copy from the Broker, before the authorities below, in order to discharge the onus, cast upon him under Section 68 of the Act. It is also an admitted position that the authorities below have not controverted any of the documents filed by the Assessee. Further, the authorities below failed to establish any role of the Assessee in rigging or raising the share prices and/or any connection with the alleged manipulator, Shri Naresh Jain. It is also a matter of record that no investigation has been carried out against the Assessee by SEBI or any other regulatory authority, nor has the Assessee been held guilty of any wrongdoing in relation to the impugned transactions.

It is further a matter of record that both the authorities below failed to allow deduction of the purchase cost amounting to Rs.3,89,256/- incurred by the Assessee for acquisition of the shares, which were subsequently sold for a consideration of Rs.8,45,261/- after holding for more than 1 year. Consequently, the Assessee had earned Long Term Capital Gain and sought exemption thereof under Section 10(38) of the Act.

Thus, upon analysis of the facts on record, it is realized that the Assessee had purchased the shares and sold the same after holding them for a considerable period of more than 1 year. It is also undisputed that the transaction for sale was carried out through a recognized online trading platform. Further, no order alleging manipulation or involvement of the Assessee has been passed by SEBI or any other competent authority. The Assessee, by furnishing the relevant documentary evidences, has duly discharged the primary onus cast upon him under Section 68 of the Act. On the other hand, the Revenue Authorities have failed to bring on record any substantive or corroborative evidence establishing the involvement of the Assessee in the alleged accommodation entry operation.

Therefore, on the aforesaid analyzations, the addition made by the AO and sustained by the ld. Commissioner, is liable to be deleted. However, as an abundant precaution, the matter is restored to the file of the JAO for the limited purpose of verification of the purchase and sale transactions.

In the result, the appeal of the Assessee is allowed for statistical purposes and/or for the limited purpose of verification of the purchase and sale transaction only.