THE PR COMMISSIONER OF INCOME TAX CENTRAL LUDH vs. PREM PAL GANDHI C/O KC TOWER CHD ROAD NAWANSHAHAR

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ITA/95/2017HC Punjab & HaryanaPHHC01117838201718 January 2018Author: MR. JUSTICE M.M. AGGARWAL,LOK ADALAT BENCH - 34 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the first three questions of law were covered against the appellant by a previous judgment of the same court in ITA-18-2017 (The Pr. Commissioner of Income Tax (Central), Ludhiana Vs Sh. Hitesh Gandhi). In that case, similar share transactions with substantial appreciation, routed through the bank and traded on the National Stock Exchange, were upheld as not being supported by any evidence of fictitiousness by the AO. The Court found no substantial question of law arising from these issues. Regarding question (iv), the Court noted that the documents relied upon by the AO were not put to the assessee during assessment proceedings. The CIT(A) considered these documents and found no correlation with the amounts sought to be added. The High Court found this appreciation of facts by the CIT(A) and ITAT to be neither perverse nor irrational, thus not giving rise to a question of law. Consequently, the appeal was dismissed.

What were the facts?

The appeal by the Pr. Commissioner of Income Tax (Central), Ludhiana (Revenue) challenges the Income Tax Appellate Tribunal's (ITAT) order dated 20.07.2016, which upheld the CIT(Appeals)'s order dated 14.02.2014. The dispute pertains to assessment year 2008-2009. The core issue involves the deletion of additions made by the Assessing Officer (AO) on account of alleged sham share transactions. The assessee, Prem Pal Gandhi, had purchased shares for Rs. 11,00,000/- and sold them for Rs. 4,23,45,295/- within less than two years. The AO suspected these transactions were not genuine, citing cash purchases, pre-dematerialization transactions, and an abnormal hike in share value. An additional addition of Rs. 12,59,000/- based on a seized document was also challenged.

What were the issues?

1. Whether on the facts and in the circumstances of the case, the ITAT erred in law by upholding the CIT(A)'s deletion of an addition of Rs. 4,11,77,474/- made by the AO on account of sham share transactions, considering that the shares were purchased at Rs. 11,00,000/- and sold at Rs. 4,23,45,295/- within two years, with cash purchases before dematerialization, and the company's worth at purchase/sale not being proven, all suggesting non-genuineness? 2. Whether the ITAT erred in upholding the CIT(A)'s deletion of the said addition, when the CIT(A) himself noted that the assessee had not substantiated the source of investment of Rs. 11,00,000/- and directed reopening for assessment year 2006-07? 3. Whether the ITAT erred in ignoring that in cases of sham transactions with abnormal value hikes, the AO is justified in drawing inferences from attendant circumstances? 4. Whether the ITAT erred in upholding the CIT(A)'s deletion of an addition of Rs. 12,59,000/- based on a seized document, despite the assessee attempting to explain the source of these receipts rather than challenging the AO's working? Assessee's contentions: Not explicitly recorded for these specific issues, but the ITAT and CIT(A) found no evidence from the AO to support the additions. Revenue's contentions: The transactions were sham due to abnormal appreciation, cash purchases, pre-dematerialization, and unproven company worth. The CIT(A) noted the unsubstantiated source of investment. The AO was justified in drawing inferences from circumstances. The assessee had tried to explain the source of Rs. 12,59,000/-.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

ITA-95-2017 (O&M) Date of decision:- 18.01.2018

The Pr. Commissioner of Income Tax (Central), Ludhiana

...Appellant Versus

Prem Pal Gandhi ...Respondent

CORAM: HON'BLE MR. JUSTICE S.J. VAZIFDAR, CHIEF JUSTICE

HON’BLE MR. JUSTICE AVNEESH JHINGAN

Present:- Mr. Rajesh Katoch, Advocate,

for the appellant.

* * * * S.J. VAZIFDAR, C.J. (ORAL)

This is an appeal against the order of the Income Tax Appellate Tribunal dated 20.07.2016 upholding the order of the CIT (Appeals) dated 14.02.2014. The matter pertains to the assessment year 2008-2009. 2. The following questions of law have been raised:- (i) Whether on the facts and in the circumstances of the case, the Hon’ble Income Tax Appellate Tribunal has erred in law in upholding the order of the CIT(A) deleting the addition of Rs. 4,11,77,474/- made by the AO on account of sham share transactions ignoring an important aspect that the transaction of shares showing their purchase price at Rs. 11,00,000/- and sale consideration at Rs. 4,23,45,295/- within a period of less than two years/purchases of shares made in cash not cheque that too before shares got dematerialized/worth of the company at the time of purchase/sale of shares not proved-All suggest non-genuineness of the said transaction?

Amodh Sharma 2018.01.22 12:16 I attest to the accuracy and integrity of this document Chandigarh

ITA-95-2017 (O&M)

2 (ii) Whether on the facts and in the circumstances of the case, the Hon’ble Income Tax Appellate Tribunal has erred in law in upholding the order of the CIT(A) deleting the addition of Rs. 4,11,77,474/- made by the AO on account of sham share transactions, whereas the CIT(A) himself had held that the assessee had not been able to substantiate the source of investment of Rs. 11,00,000/- in the said shares purchased during the financial year 2005-06 and the AO was directed to reopen the case of the assessee for the assessment year 2006-07 on this issue?

(iii) Whether the Hon’ble ITAT has erred in ignoring an important aspect that in such cases of sham transactions of shares showing abnormal hike in their value, where the facts themselves speak loud and clear, the AO is justified to even draw an inference from the attendant circumstances?

(iv) Whether on the facts and in the circumstances of the case, the Hon’ble Income Tax Appellate Tribunal has erred in law in upholding the order of the CIT(A) deleting the addition of Rs. 12,59,000/- made by the AO on the basis of seized document on the grounds that the Assessing Officer has not pointed out as to how the figure of Rs. 12.59 lacs has been worked out ignoring the fact that the assessee himself in his reply to the AO had tried to explain the source of the receipts of Rs. 12,59,000/- instead of challenging the working out of the said figure by the AO?

3.

The first three questions of law raised in this appeal are covered against the appellant by an order and judgement of a Division Bench of this Court dated 16.02.2017 in ITA-18-2017 titled as The Pr. Commissioner of Income Tax Amodh Sharma 2018.01.22 12:16 I attest to the accuracy and integrity of this document Chandigarh

ITA-95-2017 (O&M)

3 (Central), Ludhiana Vs Sh. Hitesh Gandhi, Bhatti Colony, Chandigarh Road, Nawanshahar.

4.

The issue in short is this: The assessee purchased shares of a company during the assessment year 2006-2007 at ` 11/- and sold the same in the assessment year 2008-2009 at ` 400/- per share. In the above case, namely, ITA-18-2017 also the assessee had purchased and sold the shares in the same assessment years. The Assessing Officer in both the cases added the appreciation to the assessees’ income on the suspicion that these were fictitious transactions and that the appreciation actually represented the assessees’ income from undisclosed sources. In ITA-18-2017 also the CIT (Appeals) and the Tribunal held that the Assessing Officer had not produced any evidence whatsoever in support of the suspicion. On the other hand, although the appreciation is very high, the shares were traded on the National Stock Exchange and the payments and receipts were routed through the bank. There was no evidence to indicate for instance that this was a closely held company and that the trading on the National Stock Exchange was manipulated in any manner.

5.

In these circumstances, following the judgement in ITA-18-2017, it must be held that there is no substantial question of law in the present appeal.

6.

Question (iv) has been dealt with in detail by the CIT (Appeals) and the Tribunal. Firstly, the documents on which the Assessing Officer relied upon in the appeal were not put to the assessee during the assessment proceedings. The CIT (Appeals) nevertheless considered them in detail and found that there was no co-relation between the amounts sought to be added and the entries in those documents. This was on an appreciation of facts. There is nothing to indicate that the Amodh Sharma 2018.01.22 12:16 I attest to the accuracy and integrity of this document Chandigarh

ITA-95-2017 (O&M)

4 same was perverse or irrational. Accordingly, no question of law arises.

7.

In the circumstances, the appeal is dismissed.

(S.J. VAZIFDAR) CHIEF JUSTICE

(AVNEESH JHINGAN) JUDGE 18.01.2018 Amodh Whether speaking/reasoned Yes/No Whether reportable Yes/No Amodh Sharma 2018.01.22 12:16 I attest to the accuracy and integrity of this document Chandigarh

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