DHEERAJ BABULAL SHAH,MUMBAI vs. PR. CIT -17, MUMBAI

O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against the order of the Learned Principal Commissioner of Income Tax, Mumbai-17 [hereinafter in short “Ld. Pr.CIT”] dated 31.03.2021 for the A.Y.2012-13 passed u/s.263 of the Income-tax Act, 1961 (in short “Act”).

(A.Y: 2012-13) Dheeraj Babulal Shah 2. Brief facts of the case are, assessee filed his return of income on 31.08.2012 declaring total income of ₹.1,83,630/- which was processed u/s. 143(1) of Income-tax Act, 1961 (in short “Act”). The case was reopened on the basis of the information received from DGIT (Investigation), Kolkata that the assessee is one of the beneficiaries of obtaining accommodation entries of bogus Long Term Capital Gain. The Total income assessed u/s. 143(3) r.w.s. 147 of the Act at ₹.5,89,750/- vide order dated 20.12.2019. While perusing the assessment records, Pr.CIT, Mumbai – 17 observed that the penny stock scrips named “Essar India” and “Shri Nath” were not enquired into by the Assessing Officer. Further, he observed that while framing the Assessment Order, the Assessing Officer has not considered the above said issues while completing the assessment and without making the necessary enquiries and verification in these aspects which should have been made to ascertain the relevant facts for the purpose of deciding the issue in hand. According to him, the Assessment Order suffers from this infirmity and the same is erroneous in so far as it is prejudicial to the interest of the Revenue in the light of Explanation 2 of sub section 1 of section 263 of the Act.

(A.Y: 2012-13) Dheeraj Babulal Shah 3. Based on the above said facts, Ld. Pr.CIT issued show cause notice u/s. 263 of the Act dated 20.03.2021 to the assessee. In response assessee submitted submissions dated 27.03.2021 and the relevant submissions are reproduced below: - “a) Assessee had filed an appeal on 03/01/2020 with Ld. C.I.T. (Appeals)-45, Mumbai However assessee has opted to settle the said disputes under The Direct Tax Vivad se Vishwas Act, 2020 and accordingly application made under the said Act has been processed and on receipt of Form No.3 and after making the payment of disputed tax determined payable and applying for withdrawals the pending appeal Form No.4 under the said Act has also been filed by the assessee. b) Further assessee stated that he has not entered into any transaction either of sale. or purchase of the scrip 'Essar India' (the first scrip mentioned in 263 notice) in the above mentioned Assessment Year of 2012-13. Shares of 'Essar India' in fact were purchased by assessee under Share Purchase Agreement in March 2010 and only dematerialization of said shares was done in August 2011. And the said shares of 'Essar India' purchased by assessee in March, 2010 are duly reflected in the Demat Statement of assessee as on 31/03/2012. In this regard, assessee submitted copy of Demat A/c statement c) The second scrip Shreenath mentioned in show cause notice and categorized as penny stock for which revision has been proposed U/s 263, in this regard assessee stated that his assessment of the above assessment year was reopened U/s. 147 to specifically reassess the income in respect of transactions carried out by him in so called penny stocks, on the basis of information received from Investigation Wing Further term penny stocks has neither been defined either under the Securities Law nor under any other Act including Income Tax Act, 1961. And in the reassessment proceeding vide notice dated 04/06/2019 Issued U/s. 142(1) of the Act, Ld. A.O. in addition to bank statements of entire assessment year of all bank accounts of assessee also specifically requisitioned complete details of share transactions Le copy of broker's ledger, Global report, contract notes, Form 10DB and demat account statement of the financial year 2011-12 relevant to A.Y 2012-13. In response to earlier issued notice U/s 142(1) along with written submission dated 16th November 2019 assessee furnished the complete desired details and documents on assessment records before the ld. A.O. The scrip of (A.Y: 2012-13) Dheeraj Babulal Shah 'Sreenath was purchased by the assessee on 14/03/2011 for Rs. 14,598/- and same was sold on 13/04/2011 for Rs. 28,290/-. Both sale and purchase of shares of Shreenath were made through only SEBI registered stock broker on recognized stock exchange at prevailing quoted rate on the day of purchase and sale and which transactions have been duly subjected to STT levy and resulting Short Term Capital Gain in the said transaction of Rs. 13,692/-stands duly disclosed and offered as income in ITR filed by assessee for the above assessment year. And after examination and verification of above stated details and relevant documents with due application of mind id AO accepted the resulting STCG income earned on the sale of the above said scrip in view of the same allegation that Id. A.O. has accepted the transaction in the said scrip without examination hence assessment order passed is erroneous is not only far away from any truth but also contrary to facts of the case thus has no leg to stand on its own. d) Both the scrip mentioned in show cause notice are being traded actively and regularly even as on today on the Bombay Stock Exchange BSE) on which registered stock exchange they are listed and both the Companies are having active status on the BSE as well as on MCA as on date, as can be seen on their respective Websites. Also both the Companies till date have made their all the statutory compliances under the Securities Law as well as under the Companies Act. e) Sale and purchase of shares of "Shreenath has been executed by assessee through his regular SEBI registered stock broker Mangal Keshav Securities Ltd. against whom there is no complain or allegation of any nature either by SEBI or any other Law Enforcement Agency or even Investigation Wing of the Income Tax Department of any manipulation or rigging in any scrip till date. And also the said stock broker has never been alleged by any Law Enforcement Agency or even by Department to be part of any cartel or group engaged in providing accommodation transactions in shares and securities f) There is no shred of evidence that assessee has approached any alleged OPERATORS or SHAREBROKERS for such impugned STCG nor there is any shred of evidence as to involvement of assessee or dealing or refunds of cash in the transactions. Therefore drawing an adverse inference against the assessee that STCG is not genuine only on the basis of general information of Investigation Wing relating to penny stocks without getting any evidence as to cash movement in the transaction. The transaction of purchase and also sale of shares of Shreenath was through online trading system executed by the broker to and from whom the purchase and sale proceeds were paid/ received The share broker gets the proceeds

(A.Y: 2012-13) Dheeraj Babulal Shah from stock exchange in clearing mechanism, thus the seller and buyer cannot know the names of each other as well as their respective brokers who were involved in the trading transaction in the secondary platform in such a situation it cannot be presumed that there could be any transfer of cash between the buyers and sellers to convert the unaccounted money of the beneficiaries g) Further assesses stated that he is a regular investor in shares and securities and is not part of any dubious scheme or connected to any entry operator, nor has been a beneficiary of any accommodation entries as wrongly assumed. Assessee thus wants to record that allegation made in showcase notice is not only wrong on facts but also without backing of any evidence let any cogent evidence and purely on wrong assumption and based on conjecture and surmises. Jurisdiction under section 253 of the Act as per settled legal position an assessment order should not only be erroneous one alone but also it should be prejudicial to the interest of revenue as well. So powers U/s. 263 can legally be exercised only if both the above stated cumulative conditions are getting fulfilled STCG income offered at Rs. 13,692 on total sale proceeds of 28,290 on sale of shares of Shreenath in ITR filed by assessee was accepted by Ld. AO. after verification and examination of relevant supporting documentary evidences furnished in reassessment proceeding after finding the same in order with due application of mind since case of assessee of the above assessment year was reopened specifically to tax the transactions of assessee taken place in alleged penny stocks in the above assessment year on receipt of general information from Investigation Wing. In view of the above stated facts reason given in the show cause notice that A.O. has not examined the share transactions of Sreenath in the assessment proceeding hence terming the assessment order passed by the Ld. A.O. as erroneous is not correct and contrary to facts."

(A.Y: 2012-13) Dheeraj Babulal Shah have conducted search operation wherein the entire modus operandi of the manipulation of the penny stock prices to evade taxes was brought out. He observed that Assessing Officer brought out the modus operandi of stock price manipulation of accommodation entry transactions in another penny stock transaction but completely overlooked the transactions in scrips named “Essar India” and “Shri Nath”. He also observed that it was apparent that a common pattern and an established modus operandi was discernable indicating stock price manipulation and accommodation entry transaction in penny stock. He also brought on record in his order the relevant modus operandi. With reference to various case law he discussed in detail the impact of the bogus entry and colorable devises in the penny stock transactions in his order. Accordingly, by relying on the decision of the Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT [243 ITR 89] and decisions of the Coordinate Bench of the Tribunal in the case of Mahalakshmi Liquor Promotors (P) Ltd. CIT [2013] 29 taxmann.com 70 and M/s. Subhalakshmi Vinijya Pvt. Ltd. v. CIT in ITA.No. 1104/KOL/2014, he came to the conclusion that Assessing Officer failed to make the relevant investigations on these scrips and he brought on record that Assessing Officer has not enquired the amount of charges paid to the entry operator for providing the (A.Y: 2012-13) Dheeraj Babulal Shah accommodation entry by the assessee. Accordingly, he held that Assessment Order passed is erroneous and prejudicial to the interest of the Revenue, even on this count. Accordingly, he directed the Assessing Officer to conduct the requisite enquiries to arrive at the correct conclusion as per law and frame the assessment denovo, keeping in mind the observations made in his order, after providing adequate opportunity of being heard to the assessee.

5. Aggrieved assessee preferred an appeal before us raising following grounds in its appeal: - “1. That on facts and circumstances of the case and in law the Ld. Principal CIT, Mumbai -17 has erred in passing the order U/s.263 setting aside the reassessment order passed by Ld. A.O. 147 r.w.s. 143(3) erroneously holding that penny stock scrips named 'Essar India' and 'Shri Nath' were not inquired into by the Assessing Office during the reassessment proceedings, without appreciating the fact that 'Essar India' and 'Shri Nath' were forming part of the appraisal report of the Investigation Wing, Kolkata on the basis of which report assessment was reopened and which transactions were duly examined and considered by Ld. A.O. in the Reassessment Proceedings.

2. The Ld. Principal CIT has also erred by overlooking the fact that there were no transactions by the assessee either of sale or purchase in the Scrip of 'Essar India' during the year under consideration except only dematerialization of the physical shares purchased by Assessee in year 2010 and which was duly examined by Ld. A.O. in the reassessment proceeding and accepted after finding the same in order and correct.

3. The Ld. Principal CIT has also erred in holding that 'Shri Nath' scrip has not been looked into by the AO contrary to fact (A.Y: 2012-13) Dheeraj Babulal Shah that these transactions were duly examined by the Ld. A.O. and on finding the same in order and as per law no adverse conclusion was drawn accepting the STCG earned at Rs.13,692/- on sale proceed of Rs. 28,290/-of the said scrip.

4. That the Ld. Principal CIT has further erred on facts and in law by assuming that there may have been commission payment to alleged entry providers on the alleged penny stock transactions without backing of any shred of evidence of such payment by the appellant.

6. At the time of hearing, Ld. AR brought to our notice that Assessing Officer reopened the assessment specifically for verification of share transactions only, even though the original assessment was completed u/s.143(3) of the Act. He brought to our notice and also submitted that Assessing Officer has enquired extensively on the transactions involving scrip namely M/s. Tilak Ventures Ltd., and M/s. Banas Finance Ltd., scrips. Further, he submitted that Assessing Officer has made addition relating to M/s. Rockon Fintech Ltd., scrips. Further, he brought to our notice, notice issued u/s. 263 of the Act in which Ld. Pr.CIT has alleged that Assessing Officer has not made enquiry relating to the scrip “Essar India” and “Shri Nath”. In this regard he submitted that assessee has no transactions in the scrip “Essar India” and in A.Y. 2012-13 which is the impugned assessment year under consideration. With regard to the scrip

(A.Y: 2012-13) Dheeraj Babulal Shah “Shri Nath” assessee has declared short term capital gain which is the genuine transaction traded in Bombay Stock Exchange.

Order pronounced in the open court on 12th December, 2022