THE PRINCIPAL COMMISSIONER OF INCOME TAX 1 vs. JAHNAVI ASHISHBHAI PATEL

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TAXAP/331/2022HC GujaratGJHC24038325202204 July 2022Bench: HONOURABLE MR. JUSTICE N.V.ANJARIA,HONOURABLE MR. JUSTICE BHARGAV D. KARIA4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial question of law arises from the ITAT's order. The Assessing Officer had disallowed the exemption of Rs. 3,94,375/- on long-term capital gains from the sale of shares of Radhe Developers India Ltd., considering the transaction to be bogus. However, both the Commissioner of Income Tax (Appeals) and the ITAT concurred in deleting the disallowance. The appellate authorities found that the assessee had provided evidence, including a contract note from IFCI Financial Services Limited, demonstrating that the shares were purchased for genuine investment in financial years 2004-05 and 2005-06. The ITAT noted that the period of increase in share value did not coincide with the financial year of sale by the assessee, supporting the genuineness of the investment. The court found these findings to be reasonably arrived at and supported by pertinent material, thus dismissing the appeal.

What were the facts?

The Revenue has appealed against an order of the Income Tax Appellate Tribunal (ITAT) dated December 8, 2021, for Assessment Year 2011-12. The assessee, Jahnavi Ashishbhai Patel, had declared a total income of Rs. 69,362, which included a long-term capital gain of Rs. 3,94,375 claimed as exempt under Section 10(38) of the Income Tax Act, 1961. The Assessing Officer (AO) reopened the case and disallowed the exemption, treating the transaction in shares of M/s. Radhe Developers India Ltd. as bogus. The AO concluded that the assessee failed to provide details regarding the purchase and sale of shares and that the capital gain calculation was incorrect. The assessee had claimed to have purchased shares in financial years 2004-05 and 2005-06 and sold them in the year under consideration.

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 the Appellate Tribunal deleted the addition of Rs. 3,94,375/- 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. Radhe Developers India Ltd., thus earning bogus Long term Capital Gain and claiming it to be exempt under section 10(38) of the Act? Assessee's Contention: Not recorded. Revenue's Contention: The decision of the Appellate Tribunal is perverse because it deleted the addition of Rs. 3,94,375/- made on account of bogus long-term capital gain. The revenue argued that the assessee transacted in penny stock, M/s. Radhe Developers India Ltd., resulting in bogus long-term capital gain claimed as exempt under Section 10(38).

Which sections of the Income-tax Act were involved?

Section 10(38),Section 260A

AI-generated summary — verify with the full judgment below

C/TAXAP/331/2022 ORDER DATED: 04/07/2022 Page 1 of 4

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

R/TAX APPEAL NO. 331 of 2022

========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX 1 Versus JAHNAVI ASHISHBHAI PATEL ========================================================== 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)

Heard learned advocate Mr.Manish R. Bhatt for M.R.Bhatt and Co. for the appellant.

2.

By filing this tax appeal under section 260A of the Income Tax Act, 1961 where the revenue has called in question judgment and order dated 8.12.2021 of the Income Tax Appellate Tribunal, SMC Bench, Ahmedabad in ITA No.1653 of 2019 with Cross Objection of 24 of 2020.

2.1 In challenging the said judgment and order in the appeal, the following substantial question of law is proposed before the court.

“Whether on the facts and circumstances of the case and in law, the decision of Appellate Tribunal is ex-facie perverse because the

C/TAXAP/331/2022 ORDER DATED: 04/07/2022 Page 2 of 4 Appellate Tribunal deleted the addition of Rs.3,94,375/- 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. Radhe Developers India Ltd., thus earning bogus Long term Capital Gain and claiming it to be exempt under section 10(38) of the Act?”

3.

The assessee filed his return of income for the assessment year 2011-12 on 6.12.2012 declaring total income Rs.69,362/- comprising income cum house property and other sources. He has earned long term capital gain to the tune of Rs.3,94,375/-, it was claimed as exempted under Section 10(38) of the Income Tax Act, 1961 (hereinafter referred to as the ‘the Act’). Subsequently the case was reopened.

3.1 On the basis of the information received by issuing notice under Section 148 of the Act, the assessing officer was of the view that transaction with one Radhe Developers regarding sale of shares was bogus and that the amount of 3,94,375/- was wrongly claimed as exempt. As noted by the assessing officer, the assessee had submitted before him that as on 1.4.2010, the assessee had 53763614 shares of Radhe Developers India Limited during the year of consideration. Out of these shares he sold 352550 shares.

3.2 According to the assessing officer, no details were furnished regarding sale of shares and purchase thereof by the assessee. The Assessing Officer concluded that it cannot be said that the shares sold were those which were purchased during the financial year 2005-06 and were not sold subsequently. It

C/TAXAP/331/2022 ORDER DATED: 04/07/2022 Page 3 of 4 was concluded that working of capital gain was therefore not correct. Finally, the assessing officer made disallowance to the tune of Rs.3,94,375/- treating it as income from undisclosed sources and adding in the total income chargeable to tax.

4.

However when assessee preferred appeal, the appellate authority rightly observed that the assessee had given evidence during the assessment proceedings that the shares were bought for genuine investment since financial year 2004-05 and 2005- 06. This was substantiated by production of copy of contract note of IFCI Financial Services Limited.

4.1 The income tax tribunal referred to the findings of the Commissioner of Income Tax (Appeals) to concur observing thus,

“A perusal of the findings of the revenue authorities would reveal that increase in the value of shares mentioned by AO enhanced from 3.1.2012 to 18.9.2017. The assessee’s assessment year is A.Y.2011-12. Its transaction does not fall in this period, and for this reason, the ld.CIT(A) has treated the investment with the assessee as genuine and deleted the disallowance made by the AO. After going through the well reasoned finding of ld.CIT(A), we do not find any error...”

5.

Thus it emerges that the Assessing Officer did not accept the claim of the assessee for exemption under Section 10(38) of the Act in respect of capital gain income on the sale of shares of Radhe Developmers Limited to the tune of Rs.3,94,375/- treating the transaction as bogus transaction. However, both the Appellate Authority and Income Tax Tribunal did not agree and concurrently found that exemption claim was allowable. The investment in the shares was bound to be genuine as was

C/TAXAP/331/2022 ORDER DATED: 04/07/2022 Page 4 of 4 supported by material such as contract note of IFCI Rnanaál Services Limited. The genuineness of the transaction was also supported with the other details like contract note of shares purchased and sold, filed before the assessing officer. The period of increase of price of the shares was not coinciding with the financial year during which the shares were sold by the assessee. The findings are reasonably arrived at supported by the facts and the pertinent material.

6.

In the above view, no question of law, much less substantial question of law arises in the present appeal. It is therefore liable to be dismissed.

7.

The appeal is accordingly dismissed.

(N.V.ANJARIA, J)

(BHARGAV D. KARIA, J) Manshi

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