PRINCIPAL COMMISSIONER OF INCOME TAX-1 vs. SHRI ARNAV GOYAL

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ITA/14/2024HC RajasthanRJHC02106903202319 February 2024Bench: AVNEESH JHINGAN,SHUBHA MEHTA4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial questions of law arose from the ITAT's order. The Tribunal had allowed the respondent's appeal by deleting the additions made by the AO. The ITAT considered that the respondent purchased 12,500 shares in FY 2012-2013 for Rs. 1,87,500/- and sold them after more than a year, resulting in a capital gain of Rs. 29,75,725/-. The purchase payment was by account payee cheque, and both purchase and sale were through a Demat Account managed by an independent agency, with sale executed through a registered share broker via online transaction at prevailing market prices. The ITAT found that the AO failed to contradict the evidence produced by the respondent. Furthermore, the Tribunal held that statements recorded without affording an opportunity for cross-examination were not evidence in the eyes of law and did not specifically state that the respondent's transactions were accommodation entries. The second addition on account of commission was consequential to the capital gain addition. The Tribunal's decision was based on the appreciation of evidence adduced by the respondent and the absence of contrary material from the department, without any plea of perversity. Therefore, no case was made out for interference.

What were the facts?

The Revenue, Principal Commissioner of Income Tax-1, Jaipur, has filed an appeal under Section 260A of the Income Tax Act, 1961, against the order dated 03.04.2023 passed by the Income Tax Appellate Tribunal (ITAT), Jaipur Bench. The ITAT had allowed the appeal of the respondent, Shri Arnav Goyal, for assessment year 2015-2016. The Assessing Officer (AO) had made an addition of Rs. 31,70,080/- on account of bogus long-term capital gain on the sale of shares of M/s. Kappac Pharma Limited and a further addition of Rs. 63,402/- for undisclosed expenditure towards commission for the sale of these shares. The respondent's appeal before the Commissioner Income Tax (Appeals) was unsuccessful, leading to the appeal before the ITAT.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the Tribunal was justified in deleting the addition of Rs. 31,70,080/- made by the AO under Section 68 of the IT Act, 1961, on account of bogus short-term capital gain, and if the Tribunal ignored the reports of SEBI and SIT. 2. Whether the Tribunal was justified in deleting the addition of Rs. 63,402/- made by the AO under Section 69C of the IT Act, on account of commission paid for acquiring accommodation entries. 3. Whether the Tribunal was justified in holding that the claim of long-term capital gain exemption under Section 10(38) of the IT Act did not suffer from infirmities and could not be held as bogus, ignoring that the impugned transaction was a manipulative/deceptive device to create profit/loss. 4. Whether the Tribunal was justified in deleting the addition made by the AO on account of commission paid for acquiring accommodation entry, ignoring that such synchronized trading violates transparent norms of trading in securities. Assessee's Contentions: The judgment does not record specific contentions made by the respondent (assessee) before the High Court. However, the ITAT's reasoning indicates the assessee relied on purchase and sale through Demat account, account payee cheques, independent agency, registered share broker, online transaction, and prevailing market prices. The assessee also argued that statements recorded without cross-examination are not evidence and did not specifically state the respondent's transactions were accommodation entries. Revenue's Contentions: The appellant (Revenue) argued that the ITAT erred in allowing the appeal. The department possessed material in the form of statements from Sh. Jai Kishan Poddar and Sh. Anil Kumar Khemka, indicating that accommodation entries in the guise of long-term capital gains were provided by the company. The steep rise in share prices within a short period also raised doubts about the transaction, which was allegedly not supported by any document.

Which sections of the Income-tax Act were involved?

Section 260A,Section 68,Section 69C,Section 10(38)

AI-generated summary — verify with the full judgment below

[2024:RJ-JP:8447-DB] HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 14/2024 Principal Commissioner Of Income Tax-1, Income Tax Department, New Central Revenue Building, Statue Cirlce , Jaipur. ----Appellant Versus Shri Arnav Goyal, 141, Vidyut Nagar-A, Prince Road, Ajmer Road, Jaipur. ----Respondent For Appellant(s) : Mr. Anuroop Singhi with Mr. Aditya Khandelwal For Respondent(s) : HON'BLE MR. JUSTICE AVNEESH JHINGAN HON'BLE MRS. JUSTICE SHUBHA MEHTA Order 19/02/2024 AVNEESH JHINGAN,J (ORAL):- 1. This appeal under Section 260A of Income Tax Act is filed against the order dated 03.04.2023 passed by Income Tax Appellate Tribunal, Jaipur Bench, Jaipur (for short ‘Tribunal’) allowing the appeal of the respondent. 2. Following substantial questions of law have been proposed:- “(i)Whether the Tribunal was justified in deleting the addition of Rs.31,70,080/- made by the AO u/s 68 of the I.T. Act, 1961 on account of bogus short Term Capital and the Tribunal has also in ignorance of report of SEBI and SIT?

[2024:RJ-JP:8447-DB] (2 of 4) [ITA-14/2024] (ii)Whether the Tribunal was justified in deleting the addition of Rs.63,402/- made by the Assessing Officer u/s 69C of the I.T. Act, on account of commission paid for acquiring accommodation entries? (iii) Whether the Tribunal was justified in holding that the claim of long term capital gain of exemption u/s 10(38) of IT Act do not suffer from infirmities and cannot be held as bogus ignoring that the impugned transaction was manipulative/deceptive device to create profit/loss? (iv) Whether the Tribunal was justified in deleting the addition made by the A.O. on account of commission paid for acquiring accommodation entry ignoring that such type of synchronized trading is violation of transparent norms of trading in securities?” 3. The brief facts of the case are that the respondent for assessment year 2015-2016 filed an income tax return declaring income of Rs.5,48,200/-. The case was taken up in scrutiny and vide order dated 21.12.2017 an addition of Rs.31,70,080/- was made on account of bogus long term capital gain on sale of shares of M/s. Kappac Pharma Limited (for short ‘company’). Further addition of Rs.63,402/- was made on account of undisclosed expenditure towards payment of commission for sale of the shares of company. The respondent was unsuccessful in appeal filed before the Commissioner Income Tax (Appeals). The Tribunal vide order dated 03.04.2023 allowed the appeal of the respondent and deleted the additions. Hence the present appeal.

[2024:RJ-JP:8447-DB] (3 of 4) [ITA-14/2024] 4. Learned counsel for the appellant submits that the Tribunal erred in allowing the appeal. The department had a material in shape of the statements recorded of Sh. Jai Kishan Poddar and Sh. Anil Kumar Khemka stating that accommodating entries in guise of long terms capital gains was being provided by the company. It is further argued that the steep rise in shares prices within a short period creates a doubt on the transaction which was not supported by any document. 5. The Tribunal while allowing the appeal took into consideration that 12500 shares of the company were purchased by the respondent in financial year 2012-2013 for an amount of Rs.1,87,500/-. After more than one year, on sale of the shares, respondent had a capital gain of Rs.29,75,725/-. The payment for purchase was through account payee cheque. The purchase and sale was through a Demat Account maintained by an independent agency. The shares were sold through registered share broker by an online transaction and as per the share prices prevalent on that day. The Assessing Officer failed to contradict the evidence adduced by the respondent to support the claim of long term capital gain. 6. It was considered that the statements recorded at the back of the respondent, without affording an opportunity of cross- examination was no evidence in eyes of law. Further the statements nowhere stated that the transactions of the respondent with regard to sale and purchase of the shares of the company was an accommodating entry. It would be appropriate to

[2024:RJ-JP:8447-DB] (4 of 4) [ITA-14/2024] note that second addition on account of undisclosed expenditure of commission paid was consequent upon addition made of long term capital gain. 7. The Tribunal allowed the appeal on appreciation of evidence adduced by respondent and considering that no contrary material produced by the department. No case is made out for interference. Moreso, when there is no case pleaded of perversity. No questions of law much less the substantial questions of law arises. 8. The appeal is dismissed. (SHUBHA MEHTA),J (AVNEESH JHINGAN),J Chandan/Himanshu—21 Whether reportable- Yes

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