THE PRINCIPAL COMMISSIONER OF INCOME TAX 1 vs. JAGAT PRAVINBHAI SARABHAI

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TAXAP/332/2022HC GujaratGJHC24038499202204 July 2022Author: HONOURABLE MR. JUSTICE N.V.ANJARIA,HONOURABLE MR. JUSTICE BHARGAV D. KARIA3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial question of law arises from the order of the Income Tax Appellate Tribunal. The Tribunal had confirmed the view of the appellate authority, which had re-examined the issue and found that the assessee had furnished evidence to show the shares were purchased as genuine investments in the year 2000-01. The Tribunal noted that the shares were retained for a long time (more than ten years) before being sold in 2010-11, which indicated that the investment was not bogus or made in penny stock for the purpose of frequent trading. The genuineness of the investment was substantiated by the assessee's transaction statement. The findings of the appellate authority and the Tribunal were based on material before them and were considered findings of fact. Therefore, the appeal was dismissed.

What were the facts?

The assessee, Jagat Pravinbhai Sarabhai, filed his return of income for Assessment Year 2011-12 on March 29, 2012, declaring a total income of Rs. 3,11,490/-. The assessment was reopened based on information suggesting the assessee had engaged in transactions involving penny stocks, specifically M/s. Devika Proteins Ltd. The assessee claimed long-term capital gain of Rs. 2,10,474/- on the sale of these shares, seeking exemption under Section 10(38) of the Income Tax Act. The Assessing Officer treated the entire transaction as bogus and added Rs. 2,10,474/- to the assessee's total income under Section 68, assessing it at Rs. 5,21,964/-. The Commissioner of Income Tax (Appeals) and subsequently the Income Tax Appellate Tribunal (ITAT) upheld the assessee's claim.

What were the issues?

1. Whether, on the facts and circumstances of the case and in law, the decision of the Appellate Tribunal is ex-facie perverse because it deleted the addition of Rs. 2,10,474/- made on account of bogus long-term capital gain, without appreciating that the assessee transacted in penny stock (M/s. Devika Proteins Ltd.), thereby earning bogus long-term capital gain claimed as exempt under Section 10(38) of the Income Tax Act? Assessee's Contention: The judgment does not record any specific contentions made by the assessee before the High Court. Revenue's Contention: The revenue argued that the Appellate Tribunal's decision was perverse as it deleted the addition of Rs. 2,10,474/- made on account of bogus long-term capital gain. The revenue contended that the assessee had transacted in penny stock, M/s. Devika Proteins Ltd., and claimed bogus long-term capital gain as exempt under Section 10(38) of the Income Tax Act.

Which sections of the Income-tax Act were involved?

Section 260A,Section 10(38),Section 68

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
C/TAXAP/332/2022 ORDER DATED: 04/07/2022 Page 1 of 3 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 332 of 2022 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX 1 Versus JAGAT PRAVINBHAI SARABHAI ========================================================== Appearance: MR MANISH BHATT, SR.ADVOCATE with MR.KARAN SANGHANI for M R BHATT & CO.(5953) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 04/07/2022

ORAL ORDER (PER : HONOURABLE MR. JUSTICE N.V.ANJARIA)

The present Tax Appeal preferred under Section 260A of the Income Tax Act is directed against judgment and order dated 1.12.2021 of Income Tax Appellate Tribunal, Ahmedabad, ‘B’ Bench, Ahmedabad in ITA No.1505 of 2019. 2. As submitted by learned senior advocate Mr.M.R.Bhatt for M.R.Bhatt and Co., the appellant revenue proposes the following substantial questions of law, which according to the submission requires examination.

“Whether on the facts and circumstances of the case and in law, the decision of Appellate Tribunal is ex-facie perverse because the Appellate tribunal deleted the addition of Rs.2,10,474/- made on account of bogus long term capital gain, without appreciating the entire gamut of fact that the assessee transacted in penny stock namely M/s. Devika Proteins Ltd. thus earning bogus Long term Capital Gain and C/TAXAP/332/2022 ORDER DATED: 04/07/2022 claiming it to be exempt under section 10(38) of the Income Tax Act?”

3.

The assessee filed the return of income for the assessment year 2011-12 on 29.3.2012 declaring his total income Rs.3,11,490/-. Subsequently the assessment was reopened as information was received that assessee has indulged into script of shell company and had claimed long term capital gain on sale of shares of Devika Proteins Limited to the tune of Rs.2,10,474/- and that the amount was claimed as exemption under Section 10(38) of the Income Tax Act, 1961 (hereafter referred to as ‘the Act’)

3.

1 The Assessing Officer made addition of the said amount. The entire transaction was treated as bogus and in the nature of penny stock. By adding Rs.2,10,474/- under Section 68 of the Act, total income was assessed at Rs.5,21,964/-.

3.

2 In appeal by the assessee before the Commissioner of Income Tax (Appeals), the issue was re-examined. According to the appellate authority the appellant assessee had furnished evidence to show that the shares were brought as genuine investment which was long back in the year 2000-01. As the shares were in the nature of old investment, they could not be treated as penny stock by any stretch of imagination.

4.

The Income Tax Appellate Tribunal further examined the question in appeal preferred by the revenue and confirmed the view of the appellate authority noticing that the shares were purchased in the year 2001 and they were sold after long time in the year 2010-11. C/TAXAP/332/2022 ORDER DATED: 04/07/2022 5. The genuineness of investment in the shares by the assessee was substantiated by him by producing copy of transaction statement for the period from 1.6.2001 to 1.10.2010. The investment was made in the year 2000-01. The shares were retained for more than ten years and were sold after such long time. These circumstances suggested that the investment was not bogus or investment made in penny stock. The shares were purchased in order to invest and not for the purpose of earning exempted income by frequent trading in short span.

6.

The finding recorded by the appellate authority and confirmed by the appellate tribunal is based on material before them. They are in the realm of findings of fact. No error could be noticed in the findings and conclusion that the investment was longstanding and genuine and was not penny stock on the basis of which the capital gain was wrongly claimed.

6.

1 On the facts of case, no question of law much less substantial question of law arises.

7.

Resultantly, appeal is dismissed.

(N.V.ANJARIA, J)

(BHARGAV D. KARIA, J) Manshi

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