VINAY CHAUDHARY,PITAMPURA vs. ACIT INT TAX 1(2)(1), DELHI

The Assessing Officer did not find the submissions tenable because the assessee failed to prove along with supporting documentary evidence as to why it made such investments in such a little known company when it did not make such huge investments in any other little known alike Vinay Chaudhary companies. The assessee has merely reiterated that the transactions were made through banking channels. As per assessment orders, it was beyond human probabilities as to why 10 different Kolkata based entities were holding the shares of a company like M/s. Gemini Merchandise Private Limited. The reliance on the share transfer forms was not accepted because it was suspicious that all 10 Kolkata based entities directors visited Delhi at same date and executed all the share sale transaction at the same place in front of the same witness. Further, share sale purchase agreement regarding the purchase of shares was also not submitted by the assessee and the assessee has failed to produce any director or person of the company to substantiate his claim. It was therefore, concluded that investment made by the assessee in M/s. Gemini Merchandise Pvt. Ltd. and the subsequent capital gains made in these shares do not satisfy the test of human probabilities. The transaction was therefore, held to be bogus, non-genuine and accordingly sum of Rs. 4,14,06,000/- was declared as capital gain for sale of shares as unjustified and was considered to be as unexplained money under section 69A of the Act.

The assessee has filed objection to the draft assessment order on 19th January, 2023 raising objection that section 69A of the Act was not attracted as the investment in shares and subsequent sale of share are duly Vinay Chaudhary explained; the AO erred in questioning the genuineness of purchase of shares done in A.Y. 2010-11 as it was never disputed during that assessment year and therefore, being statutory time barred in A.Y. 2021- 22; that the assessee has duly discharged its burden of proof by providing all necessary documentation/ information in relation to the genuineness of the purchasing of share transaction that took place in A.Y. 2010-11 and subsequent sale of the shares in A.Y. 2021-22. The AO exceeded its jurisdiction to question the source of individuals to transfer shares of M/s. Gemini Merchandise Pvt. Ltd. to the assessee but duly registered gift deed in A.Y. 2017-18.

The Ld. DRP observed that the transaction in shares under consideration pertain to the shares of M/s. Gemini Merchandise Pvt. Ltd.; 2,22,000 of these shares are stated to have been acquired by assessee on 15th September, 2009 from certain companies/ firms located in Kolkata and the remaining shares are stated to have been acquired by the assessee on 4th July, 2016 as gift from Mr. Jagbir Singh and Mr. Rajbir Singh. All these shares were sold to Mr. Gaurav Garg, Director of M/s. Gemini Merchandise Pvt. Ltd. on 14th September, 2020. It was also observed that after conducting certain inquiries by the AO and also issuing a show cause notice to the assessee, the AO reached to the conclusion that the entire Vinay Chaudhary transaction in purchase/sale of shares and consequent capital gains has been held to be bogus and treated as unexplained money u/s 69A of the Act. After considering the submissions on objections of the assessee, the Ld. DRP observed that during the DRP proceedings, no evidence is brought on record by the assessee; that the assessee has not produced any new material on record to specifically rebut the finding of the AO in pursuant of the inquiry through notice u/s 133(6) of the Act as well as by way of issuance of commission to DDIT Investigation Unit, Kolkata. The objections raised by the assessee to the draft assessment order were rejected by issuing various directions.

With respect to the denial of exemption u/s 54F of the Act in the draft assessment order, the Ld. DRP is of the opinion that the exemption u/s 54F of the Act would be admissible only if the capital gain has been earned by the assessee and certain investments have been made out of that in the prescribed capital assets within the specified time period from the date of earning of the capital gains. Since the panel has upheld the capital gains to be liable to be taxed as income u/s 69A of the Act and the capital gain/ income gain of the assessee do not qualify as a capital gain, therefore, applicability of the exemption u/s 54F of the Act does not arise. Hence, the Ld. DRP observed that the assessee was not entitled to 8 exemption u/s 54F of the Act and the objection raised against the draft assessment order were rejected. In pursuance of the Ld. DRP directions, the final assessment order was passed on 18.10.2023 holding a sum of Rs. 4,14,06,000/- as bogus LTCG and the AO made the addition of the said amount as unexplained income.

Aggrieved by the impugned assessment order, the assessee is in appeal before the Tribunal by filing concise grounds of appeal

That the Appellant craves leave to add, delete, modify or vary any of the grounds of appeal

We now proceed to adjudicate the above questions framed by us with regard to the legal ground raised by the assessee and if need arise we would adjudicate the issue on merit.

We have heard the learned AR and the learned DR at length. The learned AR has also filed written arguments in support of his oral arguments. We have considered the same and examined the record. The questions framed by us are decided as under:

Pease note that the matter is time barring. It is also mentioned that it is in the interest of the assessee to explain his/her/its case through a written explanation supported by documentary evidence in support of claims made in your submission to be upload. Therefore, the assessee is requested to furnish a reply to the notice.”

The ld. DR on the other hand argued that the AO has not exceeded the jurisdiction as he did not expand the scrutiny beyond ‘capital gains deduction’ and as such there is no expansion of scope of limited scrutiny into complete scrutiny. It is further argued that page 1 of Instruction 7/2014 empowers the Assessing Officer to carry out complete scrutiny. It is therefore submitted that the AO has done this scrutiny assessment lawfully and has not exceeded his jurisdiction by expanding the scope of scrutiny assessment.

We have considered the rival submissions. It is to be noticed that para 4 of CBDT Instruction No. 7/2014 referred (supra) which is extracted below categorically makes it clear when the case was selected under CASS if requiring substantial verification, the same may be taken up for comprehensive scrutiny with the approval of the PCIT/DIT concern who Vinay Chaudhary shall afford the same in writing after being satisfied about merit of the issues necessitating wider and detailed scrutiny in case, as under: “4. In case, during the course of assessment proceedings it is found that there is potential escapement of income exceeding Rs. 10 lakhs (for non-metro charges, the monetary limit shall be Rs. 5 lakhs) on any other issue(s) apart from the AIR/CIB/26AS information based on which the case was selected under CASS requiring substantial verification, the case may be taken up for comprehensive scrutiny with the approval of the Pr. CIT/DIT concerned. However, such an approval shall be accorded by the Pr. CIT/DIT in writing after being satisfied about merits of the issue(s) necessitating wider and detailed scrutiny in the case. Cases so taken up for detailed scrutiny shall be monitored by the Jt. CIT/Addl. CIT concerned.”

We have further noticed that Annexure placed at page 225 of the paper to the notice dated 17.12.2022 u/s 142(1) categorically states that it is a complete scrutiny under gone in the case of the assessee. For clarification, the said Annexure is extracted below, as under: अनुल�नकAnnexure “आयकरअिधिनयम, 1961क�धरा142(1)केतहतिन�निल�खतखात�याद�ताबेजयाजानकार�मांगीगयीहै: 1. The following accounts or documents or information is/are sought under section 142(1) of the Income-tax Act, 1961: In relation to the complete scrutiny proceedings undergoing in your case, your response have been perused. In this regard, you are required to provide the below additional details: 1. Since the residency certificate that you have submitted has already expired on 14.07.2022. In this regard,you are required to submit a valid residency Certificate.

The Agreement to sell submitted by you is having a time limit by 31.07.2021, therefore you are required to submit the extension made in relation to that (if any) as the sell agreement has not been executed until now.

In relation to sale of shares of Rs.4,14,06,000/- on 14.09.2020, you are required to submit the following documents: (i) Copy of the Bank Statement (Full Financial Year) for F.Y. 2020- 21 and 2021-22. (ii) Copy of sale purchase agreement of shares and details of the broker involved; in relation to the share transaction that has taken place. (iii) Detailed computation of sale of shares. (iv) Valuation report as per 11UA and Income-tax act. Note: In view of the time barring limitation, no adjournment shall be granted. In case you wish to avail a personal hearing before the undersigned, you can appear personally or through an authorized representative on the due date. Note: You are requested to upload your reply to the above notice through the e-filing portal. In case of any technical issues in uploading the reply on the portal, you may send your reply on the designated email of the undersigned along with a short description of the error faced in uploading the reply on the e-filing portal. Note: You are required to give copy of every agreement and invoice as asked for in the notice. In case of voluminous data, you may send the details in soft copy through a pendrive / CD to the office of the undersigned. Note: Please note that all details may be uploaded in the manner and order in which they appear above. The pages of the reply should be numbered and indexed. Please ensure that the answers and annexure filed should be to the point. Also note that non- compliance/part compliance to the above notice may lead to penalty proceedings under Section 272A(1)(d).”

All these documentary evidence discussed above shows that the limited scrutiny assessment initiated by the Assessing Officer was converted into complete scrutiny assessment without any statutory approval by the PCIT and as thus the Assessing Officer has definitely violated the Instruction No. 7/2014 issued by the CBDT which provides that the Computer Aided Scrutiny Selection (CASS) can be converted into comprehensive scrutiny/complete scrutiny with the approval of PCIT/DIT who is required to accord the same in writing after being satisfied about the merits of the issue that necessitate wider and detailed scrutiny in the case. Admittedly there is no such approval obtained by the learned Assessing Officer before expanding scope of the limited scrutiny initiated by him in the case of the assessee. We have noticed that the ld. AR on behalf of the assessee has relied upon the case of jurisdictional Tribunal in Nisha Goel Vs. ITO in order dated 04.06.2024 wherein the jurisdictional Tribunal has quashed the Assessment Order by observing in para 14 as under: “14. The AO has expanded the limited scrutiny by tinkering with cost of construction/improvement and total recasting the capital gains shown by the assessee. There is nothing on record to suggest Vinay Chaudhary that the AO obtained any permission to convert limited scrutiny into complete scrutiny. Therefore, the action of the AO is clearly in violation of the CBDT Instructions. Thus, the assessment order passed u/s 143(3) of the Act dated 30.12.2016 for the AY 2014-15 is in violation of the CBDT Instructions and, therefore, the same is quashed. Additional ground raised by the assessee is allowed.”

We have observed that so far as computation of capital gain is concerned, the assessee has given copies of bank statement evidencing the payment made for purchase of shares in 2009, copies of share certificates as well the copy of valuation report and CA certificate for valuing the shares at the time of sale and also valuing the land situated at Ghaziabad held by M/s Gemini Merchandise Pvt. Ltd. It is observed that the authorities below have not made any enquiry about the aforesaid documents given by the assessee. If the AO had any doubt about the genuineness of the capital gain, it ought to have made enquiries with respect of statutory records maintained by M/s Gemini Merchandise Pvt. Ltd., enquiries with RoC, MCA and also enquiries with respect to land revenue records and valuation of land at Ghaziabad held by M/s Gemini Merchandise Pvt. Ltd. with the statutory authorities. It is observed that the AO has not even referred the matter to DVO for valuation with respect thereof.

For the above reasons, we do not find any merit in the arguments on behalf of the Revenue submitted by the ld. DR that the AO has not expanded the scope of the scrutiny assessment. We therefore hold that the Assessing Officer has suo motu without obtaining approval of the PCIT has converted the limited scrutiny assessment into complete scrutiny assessment. For these reasons, the question No. 1 framed by us is accordingly decided in affirmative in favour of the assessee and against the department.

That, Ld. AO in the present case, under the shadow of powers vested u/s. 143(3)/ 144C(13) of the Act, has unlawfully and without having any jurisdiction made impugned addition u/s. 69A of the Act on the basis of perverse findings on acquisition and gift of shares of subject company pertaining to subject assessment years.

In this regard, your honor's kind attention is invited to the fact that, assessment of such purchase transactions for subject years is time barred and beyond the scope of scrutiny assessment limited to AY 2021-22.

The Ld. AO has no jurisdiction to challenge genuineness of the purchase of the impugned shares that took place in AY 2010- 11, 2012-13 and 2017-18 as it got statutorily time barred vide Section 143(2) of the Act in the following manner:

Thus, in light of the above facts, subject share acquisition transactions qua subject company executed by the Appellant in time barred AYs have attained finality and beyond the jurisdiction of the Ld. AO u/s. 143(3) of the Act qua subject AY 2021-22 vide the Hon'ble Apex Court ruling in the case of K.M. Sharma v. ITO [2002] 122 Taxman 426 and the Hon'ble Mumbai Tribunal ruling in the case of Babulal Lath v. ACIT [2002] 83 ITD 699.

Furthermore, the subject shares acquisition transactions have been indirectly/ unlawfully assessed by the Ld. AO (despite being time barred and beyond jurisdiction) vide impugned assessment order when the same cannot be directly assessed u/s. 143(3) of the Act qua subject AY 2021-22 vide Hon'ble Apex Court order in the case of Kanpur Edible (P.) Ltd. v. Commissioner of Trade Tax [2008] 17 STT 210 and in the case of CIT v. Paharpur Coolin Towers Pvt. Ltd. [1996] (8 SCC154).

It is further submitted that the field enquiry report relied upon by the Ld. AO was conducted by the Inspector on 27/28.12.2022 (viz., AY 2023-24) nearly after 13 years, purportedly to verify the existence and genuineness of Kolkata- based companies which had sold shares to the Appellant in AY 2010-11.

Relying upon the search results of such belated field enquiry, conducted long after the occurrence of the transaction, is legally unsustainable for lacking any true probative or evidentiary value.” 20. On the basis of these written submissions, the ld. AR submitted that the ld. Assessing Officer has examined the assessment for A.Ys. 2010-11, 2012-13 and 2017-18 which was already barred by limitation for the Vinay Chaudhary scrutiny assessment for A.Y. 2021-22 because the share were purchased in those years duly reflected in the ITR and the ITR was accepted without any intimation or proceedings u/s 143(3). It is therefore submitted that without reopening the assessment as per procedure laid down in section 147/148 of the Act, analyzing the assessment already completed and having become barred for the above said year has resulted into miscarriage of justice due to illegality committed by AO as the AO has exceeded his powers of on-going assessment for A.Y. 2021-22.

Ld. DR on the other hand argued that the AO has gone into the correctness of the claim of the assessee and he has the jurisdiction to verify the genuineness of the share purchase transaction carried out by the assessee on the basis of which the long term capital gains was claimed in the relevant assessment year. It is therefore argued that the AO has committed no illegality in examining the purchase of the shares which are the basis of claim of long term capital gains for which the scrutiny assessment was carried out for the relevant assessment year. We are of the considered view after hearing the arguments of both the parties that section 69A of the Act creates a deeming fiction and hence the contention of the assessee does not have merit. The question No. 2 is accordingly disposed off in above terms. 20 Question No. 3 22. This question pertains to the denial of deduction claimed u/s 54F of the Act by the ld. Assessing Officer on the direction of the ld. DRP. The appellant has earned LTCG of Rs4,07,88,000/- which he has applied towards purchase of residential house property in accordance with the provisions of section 54F of the Act. The ld. AO has denied the said deduction u/s 54F of the Act by observing in para 15 to 15.4 of the assessment order extracted below, as under: “15. ALLOWABILITY OF THE SECTION 54F To understand the allowability of deduction under section 54F, the provisions of section 54F of the IT Act. The same are as under. Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house 54F.

Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any Long- term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India (hereafter in this section referred to as the new asset), cbe capital gain shall be dealt with in accordance with the following provisions of this section, chat is to say,- 2. if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45;

if the cost of the new asset is Jess than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of' the capital gain in the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: Provided that nothing contained in this subsection shall apply where (a) theassessee, 1. Owns more than one residential House, other than the new asset, on the date of transfer of the original asset; or 2. purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or 3. Construct any residential house, other than the new asset, within a period of three years after the date of1 transfer of the original asset; and 15.2 On perusal of the above, It is found that the assessee in his submissions has relied on possession letter, transfer of funds and sale agreement only. He further submitted that transfer of property in form of registration/ sale deed is not mandatory to claim the benefit of section 54F and thus he failed to submit the copy of registration of property in order to claim exemption under section 54F of Income Tax Act, 1961. Since to claim the exemption u/s 54F, purchase by means of merely transferring money is not enough. Quite contrary to the terms and conditions of the agreement, the assessee has yet not entered into an agreement to purchase the said property and still he has not executed the transfer of ownership of property by means of sales deed or registry of the property in the name of the claimant. 15.3 This clearly shows the malafide intention of the assessee to claim the benefit of section 54F, without involving actual investment of capital gain for purchasing of residential property. 15.4. In view of the above, the receipt amounting to Rs.4,16,06,000/- is considered to add back to the net income of the assessee as unexplained money u/s 69A of IT Act. Since, the 22 assessee failed to justify the receipts from sale of shares as capital gain, the exemption u/s 54F is irrelevant to allow.” (Addition: Rs.4,14,06,000/-) 23. Regarding the above denial of deduction u/s 54F of the Act, the ld. AR in the written arguments submitted in para 26 to 29 as extracted below, as under: “26. Apropos to the sale/ transfer of subject shares to Mr. Gaurav Garg by the Appellant for a sum of Rs. 4,14,06,000/-, the Appellant earned LTCG of Rs. 4,07,88,000/- which was applied towards purchase of residential house property in accordance with the provisions of Section 54F of the Act.

Vide the impugned order, the Ld. AO denied the exemption solely on the premise of non-registration of sale deed of such property. While doing so, the Ld. AO completely disregarded the cogent documentary evidences in support of genuine purchase of property furnished: (i) Agreement to Sell with Ms. ShahistaGehlot (refer pg 323- 327 of paper book); (ii) Bank Statements of Appellant showing payment towards purchase of house property (refer pg 328-329 of paper book); (iii) Computation of Total Income for AY 2021-22 and Form 26AS (refer pg 331-334 of paper book); (iv) Possession Letter dated 31.07.2021 along with declaration (refer pg 206-207 of paper book) and (v) Receipt cum Confirmation letter from Mrs. Shahista Gehlot (refer pg 330 of paper book) 28. The denial of the Appellant's exemption claimed u/s. 54F of the Act on the sole basis that the sale deed qua residential property purchased by the Appellant, is legally unsustainable vide the binding ruling of the Hon'ble jurisdictional High Court of Delhi in the case of Balraj v. CIT [2002] (123 Taxman 290).

Further, it is pertinent to note that non execution of a registered document of transfer of title may have civil consequences in regard to tile qua rights between the seller and purchaser but in order to claim exemption u/s. 54/54F of the Act, the Appellant shall be deemed to have purchased the properties. Thus, for the purpose of benefits of Section 54/54F of the Act, the important question is that money out of LTCG should be paid/spent by the assessee before the end of statutory period vide the order of jurisdictional Hon'ble Delhi Tribunal in the case of ACIT v. Sanjay Choudhary: IT A No. 1274/Del/2020).”

In his argument, the ld. AR has relied upon the case of jurisdictional Tribunal in ACIT Vs. Sh. Sanjay Choudhary in order dated 23.01.2023 wherein similar issue has been dealt with by the ld. Jurisdictional Tribunal in paras 9 & 10 extracted below, as under: “9. Further the order of Ld. CIT(A) shows that after taking into consideration various judicial pronouncements for purposive interpretation of Section 54 and 54F of the Act concluded that acquisition of the three properties by the assessee, otherwise then by the registered sale deeds fall in the ambit of word ‘purchase’ used u/s 54/54F of the Act.

The Bench is of considered opinion that execution of the sale deed or any document of Conveyance in favour of vendee, only transfers the ‘ legal title’ for the purpose of civil consequences. The ownership of a property is a bundle of interests and apart from the registered sale deed or any other document of conveyance, vendee can acquire interest in semblance of right of owner by documents like GPA or agreement to sell. The ‘purchase’ of immovable property involves acquiring all those interests in the property. Same may be by some inchoate instruments in favour of the purchaser. Non execution of a registered document of transfer of title may have civil consequences in regard to his title, qua rights between the seller and purchaser but for thepurpose of benefits of Section 54/54F, the assessee shall be deemed to have ‘purchased’ the properties. As for the purpose of Section 54/54F of the Act, the important question is that money out of LTCG should be paid/spent by the assessee, before the end of statutory period, for claiming 24 exemption. When the Ld. AO had not doubted the payments out of LTCG made by assessee for purchase of three properties with inchoate documents executed in favour of the assessee. Then for not having the sale deed executed in his favour, assessee cannot be said to have not ‘Purchased’ the properties as a statutory compliance. Thus, the findings of Ld. CIT(A) in this regard require no interference.”

The ld. AR has further relied upon the case of Hon’ble jurisdictional High Court in Balraj Vs. CIT (2002) 123 taxmann.com 290 (Del) where similar issue has been dealt in para 3 by the Hon’ble jurisdictional High Court extracted below, as under: “3. The Assessing Officer, the appellate authority as well as the Tribunal rejected the claim of the assessee in respect of the assessment year 1975-76 on the ground that he did not become the owner of the property, as the said transaction was not evidenced by registration thereof as provided under section 17 of the Registration Act. For the purpose of attracting the provisions of section 54, it is not necessary that the assessee should become the owner of the property. Section 54 speaks of purchase. Moreover, the ownership of the property may have different connotations in different statutes. The question which arises for consideration appears to be squarely covered by a decision of the Apex Court in CIT v. T.N. Aravinda Reddy[1979] 120 ITR 461 where it has been held that the word 'purchase' occurring in section 54(1) of the Act had to be given its common meaning, viz., buy for a price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration. Each release in this case was a transfer of the releasor's share for consideration to the release and the transferee, the assessee, "purchased" the share of each of his brothers and the assessee was, therefore, entitled to the relief under section 54(1). The question now is no longer res Integra having regard to the decision of the Apex Court in CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 6252. The Apex Court categorically held that section 22 of the Act does not require registration of sale deed. The meaning of the word 'owner' in the context of section 22 has been held to be a person who is entitled to receive income in his own right. The Apex Court in Mysore Minerals Ltd. v. CIT [1999] 239 ITR 7751 and this Court in CIT v. R.L. Sood [2000] 245 ITR 7272 have held that registration of the document is not mandatory for claiming depreciation on the property. In this view of the matter, we have no doubt in our mind that the learned Tribunal went wrong in holding that for the purpose of applicability of section 54, registration of document is imperative. We, therefore, answer the question in the negative, i.e., the assessee is entitled to exemption in terms of section 54.”

The ld. DR on the other hand relied upon the Assessment Order and ld. DRP’s directions and also referred following citations:

On perusal of the citations, we have noticed that the case law referred by ld. DR pertains to the merit of the case and not to the legal ground raised in the appeal, hence not relevant for deciding the questions framed by us.

Thus respectfully following the jurisdictional High Court judgment in Balraj Vs. CIT (supra) as well as jurisdictional Tribunal in ACIT Vs. Sh.

Thus, for the above discussion, in view of our decision regarding question Nos. 1 & 3 enumerated in preceding paras, in favour of the assessee, the legal ground Nos. 1 & 6 are accordingly decided in favour of the assessee and against the Revenue. In view of our decision on legal grounds mentioned above, the decision on other ground on merit rendered academic and we have not decided the same.

In view of the above, the appeal of the assessee is accordingly allowed and the impugned assessment order which has been passed after expanding the scrutiny assessment into complete scrutiny without obtaining the approval of ld. PCIT, is accordingly quashed.