THE PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA 1 vs. MUKTABEN NISHANTBHAI PATEL

This tax appeal under Section 260-A of the Income Tax Act, 1961 (for short “the Act, 1961”) is at the instance of the revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Surat Bench, Surat dated 07.01.2021 in the ITA No.7/SRT/2019 for the A.Y.2014-15. The revenue has proposed the following question of law for the consideration of this Court; “(a) Whether in the facts and circumstances of the case, learned ITAT has erred in law in deleting addition of Rs. 29,08,385/- u/s 68 and addition of Rs.2,87,047/- u/s 69C of the Income-tax Act, 1961 by holding that the Assessing Officer had failed to bring any cogent or admissible evidence on record?“

We have heard Mr. Varun Patel, the learned standing counsel appearing for the revenue and Mr. Tushar Hemani, the learned senior counsel assisted by Ms. Vaibhavi Parikh, the learned advocate appearing for the respondent-assessee.

It appears from the materials on record that during the course of the assessment proceedings, the Assessing Officer noticed that the assessee had declared long term capital gain on the sale of shares at Rs.29,08,385/- and claimed the same as exempt under Section 10(38) of the Act. The department came to know through the Investigation Wing that the assessee had indulged in receiving accommodation entries through sale of penny stocks only with a view to evade the capital gain taxation. The respondent-assessee had purchased 35,500 shares of one company by name M/s. Sun and Shine Worldwide Ltd on 30.10.2012 for Rs.19,525/- per share. The said shares were sold between February, 2014 and March, 2014 for the price ranging between 22.90 and Rs.25.25 for a total sale consideration of Rs.29,08,385/-. The Assessing Officer took the view that the assessee was not in a position to give any satisfactory explanation regarding the physical delivery of the shares etc. The Assessing Officer also took notice of the fact that the overall financial condition of the company was poor. The Assessing Officer further took notice of the fact that the entry operators had accepted the modus operandi of providing bogus LTCG through the purchase and sale of shares of few companies.

The CIT (A) dismissed the appeal filed by the respondent-assessee holding as under; “5.14 The assessee has not at all been able to adduce cogent evidences in this regard. There is no economic or financial justification for the sale price of these shares. The so called purchaser of these shares has not been identified despite efforts of the AO. The broker company through which shares were sold did not respond to queries in this regard. Hence the fantastic sale price realization is not at all humanly probable, as there is no economic or financial basis, that a share of little known company would jump from 0.55 to Rs.25. 25. In these circumstances, I do not find any infirmity in the order of the authorities below. Accordingly, I affirm the same and decide the issue against the assessee

0 The next issue regarding payment of commission paid to the entry operator/broker for arranging the bogus LTCG entry of Rs.2,87,047/-. The appellant has paid commission @ 0.10% to the entry operator/broker for purchase and sale of sham transactions to bring unaccounted money in the guise of exempted long term capital gains. Since, the commission amount paid on the bogus purchase and sale of penny stock scripts is an integral part of entire game plan, the action of the A.O. is upheld.”

The respondent-assessee went in appeal before the Tribunal. The Tribunal, while allowing the appeal filed by the respondent herein, held as under; “We note that there is no dispute regarding date of purchase of shares. Price of the shares Rs.2- /instead of Rs.0.55/- per share, confirmed from the party. The shares which the assessee had acquired were later on demated and then the assessee sold the shares at stock exchange through registered stock broker after making payment of STT. Neither the Stock Exchange or SEBI has disputed the assessee’s transaction nor was any action against the assessee’s broker taken by BSE or SEBI. The assessee’s dealings in shares are supported by the contract notes issued by broker as well as demat account. Genuineness of contract notes or demant accounts have not been disputed even in the show cause notice by the assessing officer. The Ld Counsel also stated that in the course of assessment proceedings, the Assessing Officer made inquiry with M/s. Corporate Commodity Broker Private Ltd. from whom assessee purchased shares. He stated that he sold the shares at Rs.2/- not at Rs.0.55/-. This doesn’t help the revenue as Corporate Commodity Broker Private Ltd. has only confirmed the sale of the shares to the assessee. Assessee purchased the shares on 30.10.2012 relevant to A.Y. 2013-14. No adverse inference was drawn in this regard in the Assessment order u/s. 143(3) r.w.s. 147 on 27.12.2017, by the assessing officer in the case of assessee. In order to prove the Sale of shares of Sun & Shine Worldwide Ltd., assessee filed the following documents before the assessing officer, viz: Ledger Account of Tradebulls Securities Pvt. Ltd, Contract Notes of Tradebulls Securities Pvtl Ltd and Bank Statement. In order to prove purchases of shares, assessee filed the following documents, viz: Contra confirmation of broker M/s. Corporate Commodity Broker Private Ltd, Share Certificate, Share Transfer Form, Debit Note and Cash Receipt. The payments were received through account payee cheque and transaction was done through recognized stock exchange. The inflow of shares is reflected by way of physical share certificate and demat account. The shares were transferred through demat account. There is no evidence that the cash was recycled back to the assessee. The assessing officer has failed to bring any cogent evidence on record to show that these documents and evidences filed by the assessee are false. The assessee merely acted on the basis of such market information and happened to get phenomenal gain. It could have been otherwise as well. The rags to riches story in the stock market are galore. It has been submitted that the alleged, circumstantial evidence and material has led the Assessing Officer to believe that the real is not the apparent. In the absence of any link between the assessee and the alleged, admissions of the directors and brokers, human probability is being used as a vague and convenient medium for the department’s conjectures. To draw an adverse inference without any admissible evidence on record, is bad in law. The Hon’ble Supreme Court in the case of Omar Salav Mohamed Sait reported in (19S9) [37 ITR 151] (SC) reported in [87 ITR 349], the Hon’ble Supreme Court held that, the onus to prove that the apparent is not the real is on the party who claims it to be so. The burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidences, which would directly prove the fact of bogusness or establish circumstance unerringly and reasonably raising an interference to that effect. The Hon’ble Supreme Court in the case of Umacharan Shah & Bros. Vs. CIT [37 ITR 271] held that suspicion however strong, cannot take the place of evidence. In the light of the discussions that have preceded and for the reasons alluded we are of the view that the addition made by the assessing officer and confirmed by the Ld. CIT(A) needs to be deleted. Accordingly, we delete the additions made by assessing officer in case of Smt. Muktaben N. Patel and Shri Nishant K. Patel in the assessment year 2014-15.”

Having regard to the aforesaid finding of facts recorded by the Tribunal, we are not inclined to interfere in this appeal. We are of the view that the question of law formulated by the Revenue is more on facts rather than on law. It cannot be said to be a substantial question of law.

In the result, this appeal fails and is hereby dismissed.

In view of the aforesaid, the connected Tax Appeal No.295 of 2021 also stands dismissed. (J. B. PARDIWALA, J) (NISHA M. THAKORE,J) Vahid