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Facts
The assessee purchased shares of M/s. Sampada Chemicals Limited through the stock exchange and later sold them. The Assessing Officer (AO) treated the sale proceeds as unexplained cash credit under section 68 and commission paid as unexplained expenditure under section 69C, alleging accommodation entries and bogus transactions. The Commissioner (Appeals) upheld the AO's additions.
Held
The Tribunal held that the assessee had provided sufficient documents to establish the genuineness of the share transactions and discharged her onus. Relying on various High Court judgments concerning identical issues and the involvement of the same scrip and promoter group, the Tribunal found that the additions were not sustainable.
Key Issues
Whether the sale proceeds of shares and commission paid thereon can be treated as unexplained cash credit and expenditure respectively, when the assessee has provided documentary evidence of genuine transactions through stock exchange and banking channels.
Sections Cited
147, 68, 69C, 250, 145(3)
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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI BR BASKARAN & SHRI NARENDER KUMAR CHOUDHRY
Per : Narender Kumar Choudhry, Judicial Member:
These appeals have been preferred by the Assessee against the orders dated 31.10.2023 and 29.9.2023, impugned herein, passed by the National Faceless Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2011-12 & 2014-15.
& 4178/M/2023 Ms. Arti Shailesh Jain 2. Both the appeals having involved identical issues except variation in the amounts and scrips involved, hence for the sake of brevity, the same were heard together and are being disposed of by this composite order by taking into consideration the facts and circumstances and issues involved in as a lead case and result of the same would be applicable mutatis mutandis to both the appeals under consideration. the case of the Assessee was reopened by recording reasons for reopening u/s 147 of the Act mainly on the reason that the Assessee during the assessment year has availed accommodation entries to the tune of Rs.43,43,857/- on account of scrip M/s. Sampada Chemicals Limited, from the bogus entities of Shri Vipul Vidur Bhatt group. Consequently, the notice dated 22.03.2018 was issued to the Assessee and thereafter various statutory notices were also issued, in response to which the Assessee filed various details as called for.
The Assessing Officer (AO), considering the information received from the DDIT (Inv.) – 7(4), Mumbai and statement of Shri Vipul Vidur Bhatt, who was a director of M/s. Sampada Chemicals Limited as well and managing and controlling many entities for providing bogus accommodation entries, as per the data obtained from various sources, verified the same thoroughly and therefore show caused the Assessee “as to why the sale proceeds of penny stock namely M/s. Sampada Chemicals Limited amounting to Rs.46,05,329/- and the accommodation charges of Rs.1,38,160/- being 3% of the sale proceeds of said amount of Rs.46,05,329/- should not be treated as unexplained cash credit u/s 68 of the Act”.
6. The AO though considered the reply of the Assessee, however, considering the findings of the search/survey, enquiries conducted in the case of the Assessee, brokers, operators and the entry providers and the nature of transaction entered into by the Assessee, ultimately made the addition of Rs.46,05,329/- on account of sale of scrip M/s. Sampada Chemicals Limited, as unexplained and added the same in the total income of the Assessee u/s 68 of the Act. Further, the AO also made the addition of Rs.1,38,160/- being 3% of Rs.46,05,329/- commission paid to the entry provider, u/s 69C of the Act and added the same to the total income of the Assessee.
7. The Assessee, being aggrieved, challenged the said additions before the Ld. Commissioner, but could not get any relief, as the Ld. Commissioner by affirming the same, dismissed the appeal of the Assessee.
8. The Assessee, being aggrieved, is in appeal before us.
The Assessee contradicted the orders passed by the authorities below, whereas the Ld. D.R. refuted the claim of the Assessee and supported the orders passed by the authorities below.
We have heard the parties and perused the material available on record. The Assessee had purchased 10,000 shares of M/s. Sampada Chemicals Limited @ Rs.26.10 per share, on a total consideration of Rs.2,61,473/- on dated 29.09.2009 through online stock exchange and on the same date, got the same dematerialized and later on sold the same through online platform i.e. Bombay & 4178/M/2023 Ms. Arti Shailesh Jain Stock Exchange, from 10.11.2010 to 12.11.2010, @ Rs.454.80 per share {totaling to Rs.46,05,330/-} and received the said amount through RTGS. In effect the Assessee held such share for a period of around 14 months. The Assessee in order to establish the genuineness of the purchase and sale of shares, duly furnished various documents including mentioned below:
(a) copy of contract note for the purchase of shares; (b) copy of bank statement evidencing of having made payment of Rs.2,61,413/-; (c) copy of Dmat statement highlighting the credit of 10,000 shares in electronic mode on dated 01.10.2009; (d) copy of contract – cum – bills in respect of sale of 10,000 shares of M/s. Sampada Chemicals Limited made on the floor of Bombay Stock Exchange; (e) copy of bank statement highlighting the receipt of sale consideration; (f) copy of Demat statement highlighting the outward delivery of 10,000 shares.
11. The Assessee, therefore has claimed that by producing the aforesaid documents, she has established the ingredients of section 68 of the Act and discharged the initial burden cast on her u/s 68 of the Act and therefore no additions as made by the AO and affirmed by the Ld. Commissioner, are sustainable. Even otherwise, the AO has not rejected the Assessee’s books of account u/s 145(3) of the Act and also not brought on record any cogent material/evidence to disprove the transactions carried out by the Assessee.
The Assessee further claimed that Jurisdictional Bench of the Tribunal in Assessee’s family member’s case titled as Krutika Rajendra Jain vs. ITO-19(2)(2) in decided on 28.07.2023 has also dealt with the identical issue concerning the involvement of Shri Vipul Vidur Bhatt and the scrip involved i.e. M/s. Sampada Chemicals Limited. The Hon’ble Co- ordinate Bench, by considering the peculiar facts and circumstances & 4178/M/2023 Ms. Arti Shailesh Jain of that particular case and the relevant judgments by the Jurisdictional High Court, ultimately deleted the identical additions, by observing and holding as under:
“7. We heard the parties and perused the record. There is no dispute with regard to the facts that the assessee has purchased the shares through a broker by paying the consideration in cheque in stock exchange platform. The said shares have been held for more than one year and sold through the stock exchange platform only. We further notice that the assessee has furnished all the documents in support of purchase and sale of shares. However, the AO did not examine those documents and find fault with them. Further, the shares have entered and exited the demat account of the assessee. In the facts of the case, it is clear that the assessee has not dealt with Vipul Vidur Bhatt Group. The assessee has invested in shares of M/s Sampada Chemicals Ltd as an ordinary investor. We also notice that it is not a case of isolated transaction, i.e., the assessee is a regular investor in shares. Further, there is also no allegation made that the assessee was part of ring which indulged in the alleged price rigging. We notice that the AO has placed reliance on the report of Investigation wing to hold that the assessee has availed accommodation entries by way of long term capital gains. We notice that an identical case of allegations that the assessee has availed accommodation entries for bogus capital gains was examined by the Hon’ble jurisdictional Bombay High Court in the case of Shyam Power (2015) 55 taxman.com 108(Bom). The decision rendered by Hon’ble Bombay High Court in the above said case is extracted below:-
“3. Mr. Suresh kumar seriously complained that such finding rendered concurrently should not have been interfered with by the Tribunal. In further Appeal, the Tribunal proceeded not by analyzing this material and concluding that findings of fact concurrently rendered by the Assessing Officer and the Commissioner are perverse. The Tribunal proceeded on the footing that onus was on the Department to nail the Assessee through a proper evidence and that there was some cash transaction through these suspected brokers, on whom there was an investigation conducted by the Department. Once the onus on the Department was discharged, according to Mr.Suresh kumr, by the Revenue-Department, then, such a finding by the Tribunal raises a substantial question of law. The Appeal, therefore, be admitted.
& 4178/M/2023 Ms. Arti Shailesh Jain 4. Mr. Gopal, learned Counsel appearing on behalf of the Assessee in each of these Appeals, invites our attention to the finding of the Tribunal. He submits that if this was nothing but an accommodation of cash or conversion of unaccounted money into accounted one, then, the evidence should have been complete. Change of circumstances ought to have, after the result of the investigation, connected the Assessee in some way or either with these brokers and the persons floating the two companies. It is only, after the Assessee who is supposed to dealing in shares and producing all the details including the DMAT account, the Exchange at Calcutta confirming the transaction, that the Appeal of the Assessee has been rightly allowed. The Tribunal has not merely interfered with the concurrent orders because another view was possible. It interfered because it was required to interfere with them as the Commissioner and the Assessing Officer failed to note some relevant and germane material. In these circumstances, he submits that the Appeals do not raise any substantial question of law and deserve to be dismissed.
We have perused the concurrent findings and on which heavy reliance is placed by Mr. Suresh kumar. While it is true that the Commissioner extensively referred to the correspondence and the contents of the report of the Investigation carried out in paras 20, 20.1, 20.2 and 21 of his order, what was important and vital for the purpose of the present case was whether the transactions in shares were genuine or sham and bogus. If the purchase and sale of shares are reflected in the Assessee's DMAT account, yet they are termed as arranged transactions and projected to be real, then, such conclusion which has been reached by the Commissioner and the Assessing Officer required a deeper scrutiny. It was also revealed during the course of inquiry by the Assessing Officer that the Calcutta Stock Exchange records showed that the shares were purchased for code numbers S003 and R121 of Sagar Trade Pvt Ltd. and Rockey Marketing Pvt. Ltd. respectively. Out of these two, only Rockey Marketing Pvt.Ltd. is listed in the appraisal report and it is stated to be involved in the modus-operandi. It is on this material that he holds that the transactions in sale and purchase of shares are doubtful and not genuine. In relation to Assessee's role in all this, all that the Commissioner observed is that the Assessee transacted through brokers at Calcutta, which itself raises doubt about the genuineness of the transactions and the financial result and performance of the Company was not & 4178/M/2023 Ms. Arti Shailesh Jain such as would justify the increase in the share prices. Therefore, he reached the conclusion that certain operators and brokers devised the scheme to convert the unaccounted money of the Assessee to the accounted income and the present Assessee utilized the scheme.
It is in that regard that we find that Mr.Gopal's contentions are well founded. The Tribunal concluded that there was something more which was required, which would connect the present Assessee to the transactions and which are attributed to the Promoters/Directors of the two companies. The Tribunal referred to the entire material and found that the investigation stopped at a particular point and was not carried forward by the Revenue. There are 1,30,000 shares of Bolton Properties Ltd. purchased by the Assessee during the month of January 2003 and he continued to hold them till 31 March 2003. The present case related to 20,000 shares of Mantra Online Ltd for the total consideration of Rs.25,93,150/-. These shares were sold and how they were sold, on what dates and for what consideration and the sums received by cheques have been referred extensively by the Tribunal in para 10. A copy of the DMAT account, placed at pages 36 & 37 of the Appeal Paper Book before the Tribunal showed the credit of share transaction. The contract notes in Form-A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange regarding client Code has been referred to. But the Tribunal concluded that itself, is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal's order are not vitiated by any error of law apparent on the face of the record either.
As a result of the above discussion, we do not find any substance in the contention of Mr. Suresh Kumar that the & 4178/M/2023 Ms. Arti Shailesh Jain Tribunal misdirected itself and in law. We hold that the Appeals do not raise any substantial question of law. They are accordingly dismissed. There would no order as to costs.
8. Even the additional question cannot be said to be substantial question of law, because it arises in the context of same transactions, dealings, same investigation and same charge or allegation of accommodation of unaccounted money being converted into accounted or regular as such. The relevant details pertaining to the shares were already on record. This question is also a fall out of the issue or question dealt with by the Tribunal and pertaining to the addition of Rs.25,93,150/-. Barring the figure of loss that is stated to have been taken, no distinguishable feature can be or could be placed on record. For the same reasons, even this additional question cannot be termed as substantial question of law.”
The Hon’ble Jurisdictional High Court has considered an identical issue in yet another case of PCIT vs. Ziauddin A Siddique (Income tax Appeal No. 2012 of 2017 dated 4th March, 2022) and relevant discussions made by Hon’ble Bombay High Court are extracted below:- “2. We have considered the impugned order with the assistance of learned counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of shares of the alleged penny stock of shares of Ram krishna Fincap Ltd (“RFL”) is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax (“STT”) has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against the assessee that it has participated in any price rigging in the market on the shares of RFL. 3. Therefore we find nothing perverse in the order of the Tribunal. 4. Mr. Walve placed reliance on a judgement of the Apex Court in Principal Commissioner of Income tax (Central)-1 vs. NRA Iron & Steel (P) Ltd (2019)(103 taxmann.com & 4178/M/2023 Ms. Arti Shailesh Jain 48)(SC) but that does not help the revenue in as much as the facts in that case were entirely different.
5. In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analyzed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law.
9. In the case of PCIT vs. Indravadan Jain HUF (Income tax Appeal No.454 of 2018 dated 12th July, 2013), the Hon’ble Bombay High Court held as under:- “4. …..The CIT(A) came to the conclusion that respondent brought 3000 shares of RFL, on the floor of Kolkatta Stock Exchange through registered share broker. In pursuance of purchase of shares the said broker had raised invoice and purchase price was paid by cheque and respondent’s bank account has been debited. The shares were also transferred into respondent’s Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkatta Stock Exchange. Pursuant to sale of shares the said broker had also issued contract notes cum bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instruction slip and also received payment from Kolkatta Stock Exchagte. The cheque received was deposited in respondent’s bank account. In view thereof, the CIT(A) found there was no reason to add capital gains as unexplained cash credit under Section 68 of the Act. The tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were purchased by the respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The ITAT, therefore, in our view, rightly concluded that there was no merit in the appeal.
5. We also find no infirmity in the order passed by the ITAT and no substantial question of law as proposed in the appeal arises.”
& 4178/M/2023 Ms. Arti Shailesh Jain 10. Accordingly, in the facts and circumstances of the case, we are of the view that the decision rendered by the jurisdictional Hon’ble Bombay High Court in the above said case of Shyam R Pawar (supra), Ziauddin A Siddique (supra) and Indravadan Jain, HUF (supra) are squarely applicable in the present case. Accordingly, we hold that the long term capital gains declared by the assessee cannot be doubted with. Accordingly, we hold that the AO was not justified in assessing the sale value of shares as unexplained cash credit in the year under consideration. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete the addition relating to capital gains.
Since we have deleted the addition relating to capital gains, the consequential addition of estimated expenses made by the AO is also liable to be deleted. We order accordingly.”