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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI S RIFAUR RAHMAN, AM & MS. KAVITHA RAJAGOPAL, JM
This appeal has been filed by the assessee as against the order of the learned Commissioner of Income Tax (Appeals) (‘ld.CIT(A) for short), u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2012-13.
The solitary issue involved in this appeal is the disallowance of short term loss of Rs.3,131/- and addition on sale proceedings, amounting to Rs.1,05,541/-, pertaining to share transaction made in the script of M/s. Vas Infrastructure Ltd. u/s.68 of the Act based on the information received from DDIT (Investigation), Unit-6(2), Mumbai.
The brief facts are that the assessee is an individual and had filed his return of income on 13.07.2012, declaring total income of Rs.8,22,030/-. Subsequently, the assessee’s case was reopened u/s.148 of the Act based on the information received from (A.Y. 2012-13) Lalita Gautamkumar Rathod vs. ITO DDIT(Investigation), Unit No.6(2), Mumbai that M/s. Vas Infrastructure Ltd. was a penny stock listed on BSE and that the said company has been used for introduction of unaccounted income of beneficiary by way of long term capital gain (LTCG) or short term capital loss (STCL for short). The Assessing Officer (A.O. for short) observed that the financials of the said company did not show any substantial change, so as to attract huge share price and that the said company does not have business to substantiate the sharp rise in the market price of the shares as alleged by the A.O. It is observed that the assessee has claimed STCL which are tabulated as below:
Sr. No. Qty Purchase Sale STCG Date Rupees Date Rupees 1 250 23.11.2010 33,788 07.04.2011 23,725 -10063 2 250 23.12.2010 24775 08.04.2011 24900 125 3 60 23.12.2010 6000 13.04.2011 6570 570 4 190 23.12.2010 19048 13.04.2011 20805 1758 5 75 23.12.2010 7519 27.06.2011 8865 1346 6 175 23.12.2010 17544 27.06.2011 20676 3133 108673 105541 -3131
The A.O. made disallowance of the impugned STCL u/s. 68 for the reason that script of M/s. Vas Infrastructure Ltd. is penny stock and has been used by beneficiaries for laundering unaccounted money by way of long term capital gain (LTCG for short)/STCL. The A.O. also observed that there was no progressive change in the financials of the company to substantiate the huge share price and that the purchase and sale of the shares were done through the close circuit of persons. The A.O. held that the credit worthiness of the said company was not proved, thereby disallowing the STCL claimed by the assessee u/s.68 of the Act.
The assessee was in appeal before the ld. CIT(A) as against the addition made by the A.O.
(A.Y. 2012-13) Lalita Gautamkumar Rathod vs. ITO 6. The ld. CIT(A) confirmed the said addition on the ground that the assessee has failed to substantiate its claim.
The assessee is in appeal before us. The ld. AR contended that the impugned purchase was made through BSE and that the assessee has held the shares for about six months and the assessee has furnished all the relevant details such as the copy of the profit and loss account, capital account, balance sheet, ledger account of long/short term capital gain/loss of past three years, details of current year/short term C/F loss of Rs.66,728/-. The details of payment made for purchase of the impugned share from bank account to the broker and the details of the broker, etc. The ld.AR relied on the decision of the co-ordinate bench in Devendra Surendra Shah vs. ITO (in and Shri Surendra D. Shah vs. ITO (in ITA No. 4820/Mum/2014) vide order dated 23.09.2015 had held that the reply given by the stock exchange cannot be considered to be the sole criteria to suspect the claim of purchase of shares when no other material has been brought on record adverse to the claim of the assessee and also relied on the decision of the Smt. Shikha Dhawan vs ITO, Ward-45(1), Gurgaon (in ITA No. 3035/Del/2018, Dated.27.06.2018 (Delhi ITAT)).
The ld. Departmental Representative (ld. DR for short) on the other hand, controverted the same and contended that as per the information received from DDIT, the scrip of M/s. Vas Infrastructure Ltd. was alleged to be penny stock and that the financials of the said company proved that it was only facilitating laundering of unaccounted money of the beneficiaries by way of LTCG and STCL. The ld. DR further contended that the (A.Y. 2012-13) Lalita Gautamkumar Rathod vs. ITO assessee has not justified the sharp rise in the market price of the said company and thereby relied on the decision of the lower authorities.
We have heard the rival submissions and perused the material available on record.
It is observed that the A.O. has relied on the financials of M/s. Vas Infrastructure Ltd. for an analysis of the transactions of the assessee with M/s. Vas Infrastructure Ltd. alleged to be an accommodation entry provider by issuing penny stock for the purpose of LTCG/STCL. It is observed that the assessee has furnished the details pertaining to the financials of the assessee, the details of the broker along with the copy of the broker ledger, broker notes and global rate of share transactions along with sauda report and Form 10DB certificate before the lower authorities. The assessee has also specified that the assessee has furnished details pertaining to the payments made for purchase of the impugned shares from the bank account to the broker. The assessee has further contended that the lower authorities have failed to consider the fact that the assessee had incurred the purchase cost of Rs.1,08,673/-. The assessee has also stated that the assessee has sold these shares through a broker named M/s. Ramanlal D. Shah, who according to the assessee is not connected to the alleged Mukesh Chokshi group. Further to this, it is observed that the assessee has furnished copies of transaction, summary evidencing delivery of shares before the ld. CIT(A), which was pointed out by the A.O. that the assessee has failed to prove the delivery of shares before him. The assessee contends that the lacuna specified by the A.O. was sorted out by the assessee by furnishing all the relevant documentary evidence to prove the genuineness of the sales and also the delivery of shares. The assessee contends that the purchasers of the shares were never in dispute
(A.Y. 2012-13) Lalita Gautamkumar Rathod vs. ITO and that the sales of the shares should also be not disputed. We have also observed that the A.O. has merely relied on the reply given by M/s. Interconnected Stock Exchange India, and has failed to consider the documentary evidences furnished by the assessee before the lower authorities. We would place our reliance on the decision of the co- ordinate bench relied upon by the assessee in the case of Devendra Surendra Shah (supra) and Shri Surendra D. Shah (Supra) on identical facts. The relevant extract of the said decision is cited below for case of reference:
Para 8. We notice that the assessee have sold the shares through some other broker named M/s Ramanlal D Shah. It Appeared that the said broker is not connected to MukeshChokshi group. In support of the sales, the assessee have furnished copies of broker notes and the evidences of payments received on sale of shares. The AO has expressed the view that the assessees have not proved delivery of shares. However, we notice that the assessees have furnished copies of However, transaction summary evidencing delivery of shares before Ld CIT(A). Thus, we notice that the deficiency pointed out by the AO has bee deficiency pointed out by the AO has been made good by the assessees by furnishing copies of transaction. Thus, we notice that the deficiency pointed out by the A.O. has been made good by the assessee by furnishing copies of transaction summary evidencing delivery of shares. However, the Ld.CIT(A) has held that the proof of delivery of shares are not sufficient to prove not sufficient genuineness of sales, when the purchases were found to be not to prove the purchases were found to be not genuine. We are unable to understand the said reasoning given by the Ld.CIT(A). If the tax authorities required any other evidence, apart from the evidences furnished by the assessees, they could have asked the assessees to furnish the same. Instead, they have proceeded to assess the long term capital as income under the head income from other sources. In our view, the said action of the tax authorities is not justified. There should not be any dispute that the delivery of shares Could not have been done without purchasing them. authorities is not justified. There should not be any dispute that the delivery of shares could not have been done without purchasing them. Para 9. From the foregoing discussions, we are of the view that the reply given by M/s Interconnected Stock Exchange India cannot be considered to shares. Barring this, no material is brought on record to suspect the claim of the assessees that they have earned long term capital gains. Accordingly, we are of the view that the LdCIT(A) was not justified in confirming the additions made by the AO. Accordingly, we set aside the orders passed by Ld CIT(A) on this issue in the hands of the assessees be the sole criteria to suspect the claim of purchase of herein for the assessment year under consideration and direct the AO to accept the claim of impugned Long term capital gain.
It is also pertinent to point out that the assessee has transacted the sale of shares through recognized stock exchange and purchases also from recognized stock exchange and the payments and receipts were made through proper banking channels. The assessee
(A.Y. 2012-13) Lalita Gautamkumar Rathod vs. ITO has placed its reliance on the decision of Smt. Shikha Dhawan (supra), wherein it was held that the assessee was able to prove the genuinety of the transaction of purchase and sale of shares and that the same has been routed through recognized stock exchange and when the Revenue has got no other material on record to rebut the claim of the assessee of exemption claimed u/s.10(38) of the Act, the addition is to be deleted. The said decision has also considered the Delhi Bench decision in the case of Meenu Goel v. ITO( SMC) (Delhi)(Trib).
From the above observation and by respectfully following the above decisions, we are of the considered view that the assessee has proved the genuinety of the transaction by furnishing all the required documentary evidence. It is also pertinent to point out that the lower authorities have not rebutted the claim of the assessee, other than the information received from DDIT that M/s. Vas Inrastructure Ltd. is a penny stock. The ld. CIT(A) has not dealt with the issue in details except for relying on the order of the A.O. No independent enquiries have been carried out by the lower authorities as to the impugned transaction. On this note, we set aside the order of the ld. CIT(A) and delete the addition of Rs.1,05,541/- made u/s. 68 of the Act.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 07.11.2022