ASHISH VANIJYA PVT LTD vs. Union of India AND ORS

WPO/162/2022HC CalcuttaWBCHCO000184202225 January 2022Bench: HON'BLE JUSTICE MD. NIZAMUDDIN4 pages

AI SummaryAllowed

What did the High Court hold?

The High Court held that the appeal filed by the Revenue was allowed and the substantial questions of law were answered in favour of the Revenue. The Court noted that an identical issue had been considered in a batch of cases, including PCIT Vs. SWATI BAJAJ (2022 SCC Online Cal 1572), where the appeals filed by the Revenue were allowed. The Court found no distinguishing features in the present case to warrant a different view. Therefore, following the precedent set in SWATI BAJAJ, the High Court allowed the Revenue's appeal. The operative direction was to answer the substantial questions of law in favour of the Revenue, implying that the ITAT's deletion of the LTCG disallowance was set aside. No issue was expressly left undecided.

What were the facts?

The appellant, Principal Commissioner of Income Tax-5, Kolkata (Revenue), filed an appeal before the High Court at Calcutta against an order dated June 26, 2019, passed by the Income Tax Appellate Tribunal (ITAT), Kolkata Bench. The appeal pertains to assessment year 2015-2016. The Revenue sought to challenge the ITAT's decision to delete the disallowance of Long Term Capital Gains (LTCG) amounting to Rs. 19,21,609/- claimed by the assessee, Shyam Kumar and Sons HUF. The Revenue also faced a significant delay of 984 days in filing the appeal, which was attributed partly to the lockdown period and a subsequent CBDT circular concerning monetary exemption limits for penny stock cases. The High Court condoned this delay.

What were the issues?

The Tribunal had to decide the following substantial questions of law raised by the Revenue: 1. Whether the ITAT erred in ignoring direct and circumstantial evidence presented by the Assessing Officer (AO) to establish that the assessee manipulated share prices of 'Kailash Auto Finance Limited' to record fictitious LTCG of Rs. 19,21,609/- for tax exemption. 2. Whether the ITAT's order was erroneous in law and fact for failing to give credence to investigations by the Income Tax Department and SEBI into astronomical price rises of companies lacking net worth and financial foundation, and for not applying the test of human probability to ascertain the true nature of transactions resulting in bogus LTCG. 3. Whether the ITAT's order was erroneous in law and fact for accepting share transactions as genuine solely based on documents supplied by the assessee, without piercing the veil of alleged manipulative and fraudulent transactions entered into by the assessee with share brokers and entry operators for tax evasion. 4. Whether the ITAT erred in deleting the disallowance of LTCG of Rs. 19,21,609/-, overlooking that the transactions were stage-managed to facilitate the assessee in ploughing back unaccounted income as fictitious LTCG for bogus exemption. Assessee's arguments: Not recorded in the judgment. Revenue's arguments: The Revenue contended that the ITAT ignored evidence of share price manipulation, failed to consider investigations by tax authorities and SEBI, and did not apply the test of human probability. It argued that the ITAT accepted transactions as genuine based only on documents without examining the manipulative nature of the transactions for tax evasion. The Revenue relied on the decision in PCIT Vs. SWATI BAJAJ 2022 SCC Online Cal 1572.

Which sections of the Income-tax Act were involved?

Section 260A

AI-generated summary — verify with the full judgment below

OD-25

IN THE HIGH COURT AT CALCUTTA SPECIAL JURISDICTION (INCOME TAX) ORIGINAL SIDE

ITAT/162/2022 IA No: GA/1/2022, GA/2/2022 PRINCIPAL COMMISSIONER OF INCOME TAX-5, KOLKATA VS. SHYAM KUMAR AND SONS HUF

BEFORE :

THE HON’BLE JUSTICE T.S. SIVAGNANAM

And THE HON’BLE JUSTICE SUPRATIM BHATTACHARYA Date : 26th September, 2022

Appearance : Mr. Soumen Bhattacharjee, Adv. … for appellant

GA/1/2022 The Court : We have heard Mr. Soumen Bhattacharjee, learned Counsel for the appellant. Though notice was served on the respondent, none appears for the respondent. There is a delay of 984 days in filing the appeal. On going through the relevant dates we find the substantial period of the delay is covered by the lockdown period. In these sort of matters, initially the department decided not to file any appeal, thereafter Circular was issued by the CBDT directing that monetary exempt limit shall not apply to cases of LTCG/STCG involving penny stocks.

2 In the case of Principal Commissioner of Income Tax-15, Kolkata Vs. Dinesh Kumar Bansal (HUF) dated 25.03.2022 in ITAT No. 31 OF 2020, the Court has elaborately considered an identical issue with regard to condonation of delay and the effect of the Circular issued by the CBDT. Thus following the above decision, the delay in filing the appeal is condoned. The application for condonation of delay is allowed.

ITAT/162/2022 This appeal by the revenue under Section 260A of the Income Tax Act, 1961 (the Act, for brevity) is directed against the order dated 26th June, 2019 passed by the Income Tax Appellate Tribunal “SMC” Bench, Kolkata (Tribunal) in ITA No. 1052 (Kol)/2019 for the assessment year 2015-2016. The revenue has raised the following substantial questions of law for consideration : i) Whether on the facts and circumstances of the case and in law the Hon’ble Income Tax Appellate Tribunal erred in ignoring the direct and circumstantial evidence brought on record by the Assessing Officer to establish that the assessee had indulged in manipulation of the share prices of ‘Kailash Auto Finance Limited’ with a view to record fictitious Long Term Capital Gains of Rs.19,21,609/- claiming these as exempted from taxation? ii) Whether the Hon’ble Income Tax Appellate Tribunal’s order was erroneous in law and in fact when it failed to give credence to investiations made by the assessing officer. Investigation Wing of Income Tax Department as well as SEBI on astronomical rise in prices of companies which have no

3 net worth and no financial foundation and thereby failed to apply the test of human probability to ascertain the true nature of transactions resulting in bogus LTCG? iii) Whether the Hon’ble Income Tax Appellate Tribunal’s order was erroneous in law and in fact in accepting the transactions in purchase/sale of shares as genuine, merely on the basis of documents supplied by the assessee, without piercing the veil of the manipulative and fraudulent transactions entered by the assessee in collusion with a cabal of share brokers and entry operators for the purpose of tax evasion? iv) Whether on the facts and in the circumstances of case and in law the Hon’ble Income Tax Appellate Tribunal erred in deleting the disallowance of Long Term Capital Gain of Rs.19,21,609/- overlooking the fact that the entire transactions were stage managed with the object to facilitate the assessee to plough back its unaccounted income in the form of fictitious Long Term Capital Gains of Rs.19,21,609/- and claim bogus exemption.?

We have heard Mr. Soumen Bhattacharjee, learned standing Counsel for the appellant. It cannot be disputed that an identical issue was considered in a batch of cases in PCIT Vs. SWATI BAJAJ 2022 SCC Online Cal 1572 and the appeals filed by the revenue were allowed. There are no distinguishing features in the case on hand to take a different view.

4 Thus following the said decision, the appeal filed by the revenue is allowed and the substantial questions of law are answered in favour of the revenue. The stay application stands closed.

(T.S. SIVAGNANAM, J.)

(SUPRATIM BHATTACHARYA, J.)

S.Pal/SN

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