SUMITRA DILIP SHAH,MUMBAI MAHARASHTRA vs. CIT (A)-ADDN-JCIT(A) (1) KOLKATTA, KOLKATTA

On the facts and circumstances of the case as well as in law the Learned CIT(A) erred in confirming the reassessment proceeding initiated and subsequently passing of order u/s 148 which was passed merely on the basis of presumption, surmises and conjecture.

On the facts and circumstances of the case as well as in law the Learned CIT (A) erred in confirming the addition of Rs. 14,41,710/- being sale value in the alleged scrips as taxable income in the hand of the appellant.

On the facts and circumstance of the case as well as in law the Learned CIT (A) fails to appreciate that appellant has not provided any trade details in respect of the alleged scrip in spite of raising objection during the assessment proceeding. Further, total trade value of the appellant trade in the alleged scrip was only Rs. 2,23,792 and not Rs. 14,41,710/-as provided in the reason for reopening and appellant made profit of Rs. 13961/-in the said alleged scrips and same was offer in the tax return.

Brief facts of the case are that the assessee, an individual filed her return of income for the relevant year declaring total income at Rs. 1,82,160/- which was processed u/s. 143(1) of the Act. Subsequently, specific information was received by the AO from the Investigation Wing of the Department stating that one Swarnsarita Gems Ltd. (Formerly known as Shyam Star Gems Ltd.) was a penny stock listed on BSE and the said company had been used to facilitate introduction of unaccounted income of members of beneficiaries in the form of exempt capital gain or short term capital loss in their books of accounts. However, the financials of the company for the relevant period did not have any substantial change so as to support as huge share price movement. The company did not have business worthwhile to justify the sharp rise in market price in market price of shares. The sharp rise in the P a g e | 3 A.Y. 2011-12 Sumitra Dilip Shah market price of this entity was not supported by financial fundamentals of the company. Both purchase and sale of the shares were concentrated within few persons/entities. The exit providers did not have creditworthiness. They were either non-filers or had filed nominal return of income and had not paid any tax. It was found that the assessee, was one of the beneficiaries who had traded in the said scrip during F.Y.2010- 11. Total value of the trade was Rs. 14,41,710/-. As per the return of income she had traded in shares and securities and shown income under the head Capital Gain. Considering these facts, it was observed by the ld.AO that the assessee had taken accommodation entries by trading in above mentioned scrip which was pre-arranged transaction and had escaped assessment. Consequently, the case was reopened u/s. 148 of the Act and there being no compliance from the assessee during assessment proceedings, the AO made addition of Rs.14,41,710/-, being sales transactions as unexplained income which was taxed unexplained money u/s 69A of the Act.

In the subsequent appellate proceedings before the ld.CIT(A), the assessee stated that she was a senior citizen doing the business of share trading during the year. It was submitted that in response to the letter dated 06.11.2018 issued by the AO, she submitted scrip wise Global Report, Copy of ledger account with the broker, Copy of Demat

In so far as the contention regarding validity of reassessment proceedings is concerned, the ld.CIT(A) dismissed the same holding that the AO issued notice u/s 148 of the Act after recording reasons based upon material available on record. In this case, original assessment was merely passed u/s 143(1) of the Act and there was enough materials with the AO as provided by the Investigation wing to take recourse to section 148 of the Act. We do not find any infirmity in the order of the first appellate authority in dismissing the ground of appeal on the issue of reopening. Therefore, the ground no. 1 preferred by the assessee on validity of reassessment proceeding is dismissed.

On merits, the ld.CIT(A) has narrated the observations and findings of the AO as also the contents of the Investigation wing report. Following were the findings and the reasons given by the AO,

1 Accordingly, the ld.CIT(A) held that the facts and circumstances of the case as recorded in the assessment order, clearly suggested that assessee had traded of Rs. 14,41,710/- in the scrip of Swarnsarita Gems Ltd. and the amount of Rs.14,41,710/- received back as sales proceeds on sale of shares was required to be added back towards his taxable income under section 68 of the act. Hence, on the facts and circumstances of the case as well as in law, the AO had not erred in law in making addition of Rs.14,41,710/- by treating the amount of trading in the alleged scrips as taxable income in the hand of the assessee and the reasons assigned by him for doing the same were not wrong, illegal, arbitrary and insufficient. Moreover, the assessee had neither filed any satisfactory explanation on the issue nor filed satisfactory documentary evidence in this regard during the appellate proceedings. Therefore, the addition made was upheld by him.

Before us, the ld.AR submitted that the assessee is a small trader and doing trading on the basis of the value, volume and rate movement. In this scrip she had nothing do with the financial or the performance of the company when she traded the above scrip the said scrip was not a penny stock and above all, assessee had made profit of Rs 13,691/- in it by executing the transaction on the recognized stock exchange after paying applicable transaction charges and applicable

We have carefully considered all the relevant facts of the case. It appears to us that both the lower authorities have heavily relied on a generalized report of the Investigation wing and failed to take note of the evidences submitted by the assessee in support of the contention that she was a small trader having made the transactions on platform of BSE made through registered broker and also through banking channels. Shares were credited to her demat account. Nothing has been brought on record by the AO to specifically demonstrate that the assessee in any manner colluded with price manipulators for money laundering purposes. It appears to us that she is a genuine small time trader having nothing to do with any price manipulation. The ld.AO has not taken due consideration of her submission made dated 6.11.2018 and 21.11.2018 in which it was categorically stated that total sale value in the said scrip was only Rs 2,23,762/-and the purchase value Rs 2,10,101/-and the P a g e | 9 A.Y. 2011-12 Sumitra Dilip Shah assessee made a profit of Rs 13,691/- only on such transaction. The alleged transaction worth Rs 14,41,710/- was denied by the assessee. Neither the AO nor the ld.CIT(A) have taken cognizance of these facts at all in their respective orders. 8.1 We find that the investigation report prepared by Investigation Wing, Kolkata is a generalized report with regard to the modus operandi adopted in manipulation of prices of certain shares and generation of bogus capital gains. We notice that the AO has placed reliance on the said report, without bringing any material on record to show that the transactions entered by the assessee were found to be a part of manipulated transactions, i.e., it was not proved that the assessee has carried out the transactions of purchase and sale of shares in connivance with the people, who were involved in the alleged rigging of prices. We also notice that - a) the assessee has purchased these shares by paying consideration through banking channels. b) the shares have been purchased on online platform of stock exchange. c) the shares have been later dematerialised and kept in the Demat account. d) the assessee has sold the shares through stock exchange platform e) the assessee has received the sale consideration through banking channels.

3 Considering the above discussion, the facts on record and the legal position emerging out of catena of decisions of various courts of law on similar issue decided in favour of the assessees, we hold that the addition made by the AO is devoid of any merit. The documentary evidences could not be rejected without bringing on record any substantial piece of evidence. We have no hesitation in deleting the additions. The AO is therefore, directed to delete the addition made. As a result, ground no. 2 and 3 are allowed.

In the result, the appeal of the assessee is partly allowed.