NISHITH RAMESHCHANDRA SHAH,MUMBAI vs. INCOME TAX OFFICER WARD 23(2)(6), MUMBAI

Briefly stated the assessee is a partner in M/s. Shah Commercial Corporation carrying on the wholesale business in electrical goods and having income from business and profession, capital gains and income from other sources. The assessee filed its return of income dated 26.09.2012 declaring total income of Rs.12,98,762/-. The assessee’s case was reopened and assessment order u/s 143(3) r.w.s. 147 of the Act was passed on 03.12.2019 determining total income of Rs.18,78,540/- where, addition u/s 68 of the Act amounting to Rs.5,76,775/- was made on account of unexplained investment towards sale proceeds of shares of M/s. Diamant Infrastructure Limited during the impugned year. The assessee was in appeal before the learned CIT(A) challenging the addition made by the Assessing Officer (AO). The learned CIT(A) confirmed the addition on the ground that the assessee had failed to prove that the share transactions were genuine and that the assessee could not have earned huge profit within a period of few months from buying the shares of unknown company which does not have enough business worth and the same was held as unexplained investment. The assessee is in appeal before us as against the order of the learned CIT(A).

P a g e | 3 ITA NO. 1116/MUM/2022(A.Y.2012-13) NISHITH RAMCHANDRA SHAH 3. It is observed that the assessee’s case was reopened pursuant to the information received from DGIT (Inv.), Calcutta that M/s. Diamant Infrastructure Limited is listed on BSE as a penny stock and that they are into providing accommodation entry as long term/short term capital gain/loss. It is further observed that the assessee has found to have traded in the said script during the impugned year. The AO has further stated that the statements of various persons who are shares brokers, exit providers, entry providers were recorded during the investigation wherein the said parties are said to have accepted that they were giving bogus LTCG/STCL as accommodation entries and that M/s. Diamant Infrastructure Limited was one among them. It is also observed that the AO has verified the financial of the said company for past 5 years which indicated poor financial condition and a meagre profit only. The AO has also inferred that there is no substantial increase in the financial status of the company to attract such huge share price. The AO goes beyond this to compare the script analysis of M/s. Diamant Infrastructure Limited and held that there was no correlation in the phenomenal price rise of the shares and observed that the assessee has sold the shares during the peak of the price which subsequently had a sharp fall, thereby holding that the assessee has invested in penny stock and routed his unaccounted money through the impugned shares. The assessee has contended that the transactions pertaining to P a g e | 4 ITA NO. 1116/MUM/2022(A.Y.2012-13) NISHITH RAMCHANDRA SHAH the shares of M/s. Diamant Infrastructure Limited were done through open market from BSE/NSE and that the assessee has invested in shares and securities, and the purchase and sale of the impugned shares were done in the regular course. The assessee submitted that 5,000 shares were purchased in 2008 and in February 2010 bonus shares of 1:3 was allotted where the face value of these shares in October 2010 was Rs.10/- were split and 80,000 shares were issued at a face value of Rs.2/-. The assessee sold 10,000 shares out of the total holding of 80,000 on 15.07.2011 and held the balance stock to be sold for a good profit in the future. The assessee further stated that all relevant evidences pertaining to the purchase and share of sale by way of contract notes, brokers’ ledgers/global report, D-mat statements and bank statements were produced before the AO. The assessee contended that these evidences were not doubted by the AO as the AO failed to raise any queries as to genuineness of the documents furnished by the assessee. The assessee also stated that the entire shares were not sold and the remaining 70,000 shares of M/s. Diamant Infrastructure Limited remained with the assessee. The assessee contended that these were not preferential shares and the said shares were sold through ‘Zodiac Broking Pvt. Ltd.’ which are registered brokers of SEBI. The assessee also stated that the scripts were held for above P a g e | 5 ITA NO. 1116/MUM/2022(A.Y.2012-13) NISHITH RAMCHANDRA SHAH 1200 days and the assessee is in no way connected with the promoters of the company to be involved in rigging of shares.

The learned Authorized Representative (AR) for the assessee relied on various decisions in support of the assessee’s contention and laid emphasis on the fact that the AO has failed to conduct enquiry pertaining to the persons connected with the impugned transactions. The learned AR stated that inspite of the assessee discharging his onus by furnishing all the details pertaining to the transactions, the learned AO failed to conduct enquiry. The learned AR alleged that the AO has made addition on the impugned transaction merely on the basis of suspicion based on the reports of the investigation team. The learned Departmental Representative (DR) on the other hand, controverted the same and relied on the decision of the lower authorities.

Having heard the rival submissions and perused the materials available on record, we are of the considered opinion that the AO has reopened the assessee’s case based on the information received from the investigation wing. It is pertinent to point out that the assessment order in the present case does not have any mention about the independent inquiry that was conducted by the AO relevant to the impugned transaction. It is also observed that the AO has failed to examine the alleged Directors of M/s. Diamant Infrastructure Limited as to the