MR. S M KUPENDRA SETTY vs. THE INCOME TAX OFFICER

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WP/4515/2017HC KarnatakaKAHC01001712201723 November 2023Bench: B M SHYAM PRASAD7 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that it could not opine that the petitioner was prejudiced by the non-furnishing of the investigation report in the absence of indisputable material. The petitioner, seeking indulgence under Article 226, should have provided material to demonstrate that the respondent's findings were not even prima facie acceptable. Regarding the ground that the transaction was bona fide and had suffered STT, the Court observed that this aspect must be examined by the competent authority if the petitioner avails the statutory opportunity. Consequently, the petition was disposed of, subject to all just exceptions in law to the petitioner. The Court did not decide on the merits of the transaction itself but rather on the maintainability of the writ petition.

What were the facts?

The petitioner, Mr. S M Kupendra Setty, challenged an assessment order dated December 30, 2016, passed by the Income Tax Officer (ITO) for Assessment Year 2014-15 under Section 143(3) of the Income Tax Act, 1961. The ITO treated an amount of Rs. 59,44,750, representing alleged long-term capital gains (LTCG) on the sale of shares, as income from other sources. The ITO's reasoning was that the sale value of shares was inflated to match the assessee's investments, and the company involved, M/s. Lifeline Drugs and Pharma Limited, had not carried out trading activity in relevant assessment years and had minimal fixed assets. The petitioner had filed a reply to a notice dated November 23, 2016, before the assessment was completed.

What were the issues?

1. Whether the High Court should interfere with the impugned assessment order under Article 226 of the Constitution of India, given that the transaction in securities was allegedly bona fide, chargeable to Securities Transaction Tax (STT), and capital gains were offered to tax under Section 10(38) of the Income Tax Act, 1961? 2. Whether the petitioner was prejudiced by the non-furnishing of a copy of the investigation report and statements made by concerned parties, which were requested in the petitioner's reply? Assessee's Contentions: - The transaction in securities was bona fide and chargeable to STT, with capital gains offered to tax under Section 10(38). - The petitioner had invested a total sum of Rs. 49,91,983.75/- in shares of different companies during the relevant assessment year. - Copies of the investigation report and statements were not furnished. Revenue's Contentions: - The grounds raised by the petitioner are not reasons for interference under Article 226. - The petitioner should avail the statutory remedy of appeal if aggrieved by the assessment order. - The merits of the submissions should be examined in an appeal, if warranted, after examining all relevant facts.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 156,Section 10(38)

AI-generated summary — verify with the full judgment below

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NC: 2023:KHC:42286 WP No. 4515 of 2017

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23RD DAY OF NOVEMBER, 2023 BEFORE THE HON'BLE MR JUSTICE B M SHYAM PRASAD WRIT PETITION NO. 4515 OF 2017 (T-IT) BETWEEN:

MR. S M KUPENDRA SETTY S/O MR S MADHAVA SETTY, AGED ABOUT 67 YEARS, R/AT NO.55, SRI VIJAYESHWARI COTTON TRADING CO, A BLOCK, RMC YARD, CHITRADURGA-577502. …PETITIONER (BY SRI. HARISH V S.,ADVOCATE) AND:

THE INCOME TAX OFFICER WARD-1, TAMATAKAL ROAD, MEDEHALLI, CHITRADURGA-577502. …RESPONDENT (BY SRI. M DILIP.,ADVOCATE)

THIS WP IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE IMPUGNED ASSESSMENT ORDER PASSED BY RESPONDENT U/S 143(3) OF THE INCOME TAX ACT, 1961, DATED 30.12.2016 FOR THE ASSESSMENT YEAR 2014-15 I.E., ANNEX-C AND CONSEQUENTIAL NOTICE OF DEMAND ISSUED BY RESPONDENT UNDER SECTION 156 OF THE INCOME TAX ACT, 1961 DATED

Digitally signed by ANAND N Location: HIGH COURT OF KARNATAKA

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NC: 2023:KHC:42286 WP No. 4515 of 2017

30.12.2016 FOR THE ASSESSMENT YEAR 2014-15 I.E., ANNEX-C1.

THIS PETITION, COMING ON FOR PRELIMINARY HEARING IN ‘B’ GROUP, THIS DAY, THE COURT MADE THE FOLLOWING: ORDER

The petitioner has impugned the Assessment Order dated 30.12.2016 [Annexure – C] for the Assessment Year 2014-15 under Section 143[3] of the Income Tax Act, 1961 [for short, ‘IT Act’]. The petitioner is issued with the notice dated 23.11.2016, and with the petitioner filing reply thereto on 14.12.2016, the assessment is completed vide the impugned Assessment Order dated 30.12.2016. The relevant portion of the Impugned Assessment Order reads as under: “Under these circumstances, it can be easily pointed out that, the sale value of the shares is inflated to match the investments made by the assessee.

Hence, an amount of Rs.59,44,750/-, the alleged income from LTCG on sale of shares is brought to tax under the

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NC: 2023:KHC:42286 WP No. 4515 of 2017

head income from other sources as the assessee has taken an accommodative entry by means of transferring the shares at an inflated figure to explain the sources for investments.”

2.

The respondent, in the light of the afore and observing that M/s. Lifeline Drugs and Pharma Limited has not carried out trading activity of purchase and sale during the relevant assessment years 2012-13 and 2013-14, has opined that the petitioner has taken accommodative entries from the afore company which has indulged in splitting of shares and finally selling those shares at a higher price. The respondent has also observed that M/s. Lifeline Drugs and Pharma Limited does not have fixed assets worth more than Rs.1,00,000/-.

3.

Sri Harish V S, the learned counsel for the petitioner, submits that this Court must interfere with the impugned assessment order firstly, on the ground that the respondent has failed to notice that

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NC: 2023:KHC:42286 WP No. 4515 of 2017

the transaction in securities is a bona fide transaction and is chargeable to ‘securities transaction tax’, and capital gain from such transaction is offered to tax under Section 10[38] of the IT Act; Secondly, in reply, the petitioner had asked for a copy of the investigation report and statements made by the concerned and these copies have not been furnished. In support of the first ground, Sri Harish V S submits that the respondent has not denied that ‘securities transaction tax’ is paid on the subject transaction and the petitioner’s investments with the aforesaid company is not an one-off transaction, and in fact, during the relevant assessment year, the petitioner has invested a total sum of Rs.49,91,983.75/- in the shares of different companies.

4.

Sri M Dilip, the learned counsel for the respondent, while supporting the impugned Assessment orders, submits that none of the grounds

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NC: 2023:KHC:42286 WP No. 4515 of 2017

aforementioned would be a reason for this Court’s interference under Article 226 of the Constitution of India and that if the petitioner is aggrieved by the assessment order, he must avail statutory remedy. Sri. M Dilip also submits that the merits of the submissions on behalf of the petitioner must be examined, even if warranted, in the appeal permitted under the statute upon examination of all the relevant facts. The petitioner’s grievance as against the impugned Assessment Order is examined in view of the respondent’s defense.

5.

The petitioner has indeed sought for a copy of the investigation report qua M/s. Lifeline Drugs and Pharma Limited and the statements made by the concerned. However, at this stage, nothing is brought on record to undermine the respondent’s finding that M/s. Lifeline Drugs and Pharma Limited has not engaged in any trading activity during the assessment years 2012-13 and 2013-14; that the

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value of this company’s fixed assets was only a sum of Rs.1,00,000/-; that notwithstanding the afore, bonus shares have been allotted and shares are sub- divided resulting in the increase in the petitioner’s 500 shares [purchased at the cost of Rs.75,000/-] to 12,000 shares that are sold at the rate of Rs.242/- per share; and that the petitioner has brought those 500 shares offline at the rate of Rs.150/- per share while the same was available online at Rs.0.81/- per share.

6.

In the absence of indisputable material in this regard, this Court, in the present proceedings, cannot opine that the petitioner is prejudiced because a copy of the Report is not furnished. The petitioner, who seeks this Court’s indulgence under Article 226 of the Constitution of India, should have brought on record some material to demonstrate that the respondent’s findings cannot even be prima facie accepted. Insofar as the first ground viz., that the

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petitioner’s transaction is a bona fide transaction and has suffered ‘securities transaction tax’ and is part of the proceedings of investments in shares, it would suffice for this Court to observe that it must be examined by the competent authority if the petitioner avails such opportunity. In the light of the afore, subject to all just exceptions in law to the petitioner, the petition stands disposed of.

Sd/- JUDGE

AN/-

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