Loading judgment…
Facts
The assessee, an NBFC engaged in investment, trading, and power generation, filed its return for AY 2015-16 showing a loss. The AO reopened the assessment u/s 147 and made additions on account of transactions in PMC Fincorp Ltd. shares, treating short-term capital loss as bogus and adding purchase cost and commission expenses u/s 69C. Similar additions were made for AY 2016-17 concerning transactions in PMC Fincorp Ltd. and ACI Infocom Ltd.
Held
The Tribunal held that the assessee had provided evidence of financial fraud and had filed police complaints much before the search action. The purchases were recorded in the books of accounts and made through banking channels. The AO failed to provide evidence that the expenditure was incurred outside regular books of accounts. Therefore, the additions made u/s 69C were not warranted.
Key Issues
Whether additions made u/s 69C on account of purchase of penny stock scrip, which the assessee claimed as a result of financial fraud and provided evidence of police complaints, are sustainable?
Sections Cited
147, 151, 148, 143(2), 142(1), 132(1), 132(4), 69C, 271(1)(C), 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘G’ BENCH
आदेश / O R D E R PER SUNIL KUMAR SINGH (J.M): The facts and issues under both the appeals are similar and interrelated. Hence, both these appeals are being disposed of by this common order for the sake of brevity and convenience. The facts of A.Y. 2015-16 are only being narrated as hereunder.
This appeal has been preferred against the impugned order dated 26.09.2024 passed in Appeal no. CIT (A) 52, Mumbai/10419/2014-15 by the Ld. Commissioner of Income– tax(Appeals)/ National Faceless Appeal Centre (NFAC) [hereinafter referred to as the “CIT(A)”] u/s. 250 of the Income- Tax Act, 1961 [hereinafter referred to as "Act"] for the Assessment year [A.Y.] 2015-16, wherein learned CIT(A) has partly allowed assessee's appeal.
The brief facts under appeal state that the respondent assessee company is an NBFC entity, which is engaged in the business of investment, trading and power generation. Assessee filed its return of income on 30.09.2015 for A.Y.2015-16, declaring total loss of Rs. 64,17,18,959/-. The return was processed u/s. 143(1) of the Act. Subsequently an information was received on insight portal that assessee has done certain transactions in penny stock namely PMC Fincorp Limited. After recording the reasons for reopening the assessment u/s. 147 of the Act and after obtaining the approval of Principal CIT(A), Central circle-2, Mumbai u/s. 151 of the Act, notice u/s. 148 of the Act was issued and served upon the assessee. In response thereof, assessee company filed return of income, declaring Nil income on 26.04.2021. Statutory notices u/s. 143(2) r/w 142(1) of the Act were issued and served upon the assessee. Assessee company furnished the required details such as form 3CA and Godavari Corporation Limited form 3 CD, copy of balance sheet, profit and loss account, computation of income etc. After considering assessee's submissions, learned assessing officer found that assessee has done certain transactions in penny stock namely M/s. PMC Fincorp Limited which was found to be bogus scrip during the search carried out u/s. 132(1) of the Act in the case of M/s. PMC Fincorp Group on 11.10.2018. During the course of search Mr. Rajkumar Modi, director cum operator of the company admitted in his statement recorded u/s. 132(4) of the Act that the scrip price was rigged and managed by him to provide accommodation entries of bogus LTCG/STCG/STCL etc. Assessee company was found to have purchased the scrip of PMC Fincorp Ltd for an amount of Rs. 2,39,93,359/- and sold the same @ Rs. 2,38,62,516/-, hence short term capital loss was treated as bogus and the purchase cost of Rs. 2,39,93,359/- and the commission expense amounting to Rs. 4,79,867/-, being 2% of purchase cost was added u/s. 69C of the Act. Penalty proceedings u/s. 271(1)(C) of the Act were also initiated against the assessee for furnishing inaccurate particulars of income.
Aggrieved, assessee preferred an appeal against the assessment order dated 27.03.2022 before learned CIT(A), who deleted the aforesaid additions made by learned assessing officer.
Appellant revenue has raised the following grounds in this appeal: “1) On the facts and in the circumstances of the case, the Ld.CIT(A) erred in not sustaining the addition u/s. 69C of the Income Tax Act, 1961 amounting to Godavari Corporation Limited Rs.2,39,93,359/- and Rs. 4,79,867/- on account of purchase of penny stock scrip of PMC Fincorp. 2) "On the facts and in the circumstances of the case, the Ld.CIT(A) erred in deleting addition made on account of transaction made with PMC Fincorp which was engaged in providing the accommodation entry of Long Term Capital Gain to various beneficiaries in lieu of Commission.”
Perused records. Heard learned DR for the appellant revenue and learned representative for the respondent assessee.
The main point for determination under appeal is as to whether the deletion of additions made by learned assessing officer u/s. 69C on account of purchase of penny stock scrip of PMC Fincorp Ltd. is unsustainable? 7. Learned DR for the appellant revenue has submitted that learned CIT(A) has erred in deleting the aforesaid additions made by learned assessing officer on account of penny stock scrip of PMC Fincorp Ltd., which was engaged in providing accommodation entry of long term capital gain to various beneficiaries in lieu of commission. Further submitted that the impugned order passed by learned CIT(A) be set aside and additions made by learned assessing officer be confirmed.
Learned AR for the respondent assessee has submitted that the entire investments were recorded in the assessee’s books of accounts. Contract note, trade confirmations were also submitted. The respondent assessee was duped and rigged and was a victim of financial fraud. Assessee filed a police complaint in the D.B. Marg police station Mumbai on 03.06.2016. Learned AR thus submits that learned CIT(A) has rightly deleted the said additions and prayed to dismiss revenue’s appeal.
Godavari Corporation Limited 9. We have carefully gone through the impugned order dated 26.09.2024 passed by learned CIT(A) and the material on record. The relevant paras 6 to 7.4 of the impugned order passed by learned CIT(A) are reproduced as under: “ 6. In the above background and after considering the entire material on record, the appeal is proceeded to be decided.
Points nos. a to j of Ground No. 1: The issue in these points relates to the additions made by the AO u/s. 69C of the Act. Although the ground of appeal
speaks of Sec.68C, the AO has made additions u/s. 69C of the Act. During the course of personal hearing the appellant stated that the grounds be considered against the Sec. 69C additions made by the AO. 7.1. According to the AO, the transactions in the shares of M/s PMC Fincorp Ltd. lack genuineness. After detailed discussion on the issue, the AO added entire purchase cost of Rs.2,39,93,359/- as taxable income u/s. 69C of the Act. He further taxed a sum of Rs.4,79,867/- being 2% of the purchase cost as unexplained commission expenditure. 7.2. According to the appellant, the entire investments are recorded in the books of accounts and that provisions of Sec. 69C do not apply. The appellant has also furnished contract note, trade confirmations, etc. The appellant has further submitted that it was a victim of financial fraud perpetrated by individuals named Mr. Mahendra Shah, Mr. Trilok Chand Kothari. Mr. Akash Doshi, Mr. Richi Doshi and Mr. Rajbi Doshi. 7.3. The appellant has also submitted that the transactions were conducted through M/s. SW Capital Pvt. Ltd. and that it was eventually defrauded by them. It is the case of the appellant that criminal complaints and FIR had been filed between 2016 and 2018. 7.4. Having considered the facts on record, I am of the view that the appellant deserves the benefit of doubt. The appellant has furnished the copies of complaints before the AO which shows that the first of the complaints to the Senior Police Inspector, D.B. Marg Police Station, Mumbai was filed dated 03.06.2016 with receipt stamp of 27.12.2016, Thus, this was much before the search action in the case of M/s PMC Fincorp Group. The complaint letter includes the name of the appellant as an affected party. Subsequent complaints have also been filed before the police including dated 19.10.2018. Given this set of facts, I am of the view that an addition u/s. 69C for unexplained expenditure is not warranted in the case of the appellant. It is a fact that the sum of Rs.2,39,93,359/- represents the purchase cost. No evidence has been brought out by the AO that such expenditure has been incurred outside the regular books of accounts. Considering the overall facts, the addition made u/s. 69C of Rs.2,39,93,359/- and Rs.4,79,867/- stands deleted.”
10. We notice that learned assessing officer has made the aforesaid additions on the ground that the assessee entered into transactions in the scrip of PMC Fincorp Ltd., which was Godavari Corporation Limited found to be bogus scrip on the basis of search investigation. However, the entire investments were recorded in assessee’s books of accounts. The assessee bought and sold the shares through a recognised stock exchange, where the assessee had no control. The payments have been made through banking channels. No independent inquiry was conducted by the learned assessing officer. It is further noticed that the assessee filed first information report in the DB police station, Mumbai in respect of the fraudulent transactions entered into by assessee’s broker without assessee’s knowledge. Learned assessing officer has ignored all these material facts. Learned assessing officer thus failed to bring out any evidence to show that the purchase cost of Rs. 2,39,93,359/- was incurred by the assessee outside regular books of accounts. Learned CIT(A) has thus rightly deleted the aforesaid amount. The aforesaid point is accordingly determined in negative against the appellant revenue and in favour of the respondent assessee. The impugned order is thus sustainable and the revenue’s appeal is liable to be dismissed.
(Assessment Year : 2016–17) 11. This appeal has been preferred against the impugned order dated 26.09.2024 passed in Appeal no. CIT (A) 52, Mumbai/10695/2015-16 by the Ld. Commissioner of Income– tax(Appeals)/ National Faceless Appeal Centre (NFAC) for the Assessment year [A.Y.] 2016-17. The addition of Rs. 1,90,06,877/- was made on account of assessee, being Godavari Corporation Limited beneficiary of the transaction in the case of PMC Fincorp Limited, whereas Rs. 4,45,402/- were added on account of the assessee company, having entered into transaction in scrip of M/s. ACI Infocom Ltd., which was also found by learned assessing officer as accommodation entry provider. Learned CIT(A) has deleted these additions also on the same lines as was done in . Our findings arrived at in shall mutatis mutandis apply in this appeal also. The impugned order is thus sustainable and the revenue’s appeal is liable to be dismissed.
In the result, both the revenue appeals for A.Y. 2015–16 and ITA No. 6044/Mum/2024 for A.Y. 2016-17 are dismissed. Both the separate impugned orders dated 26.09.2024 are confirmed. Let the copy of this order be placed on the records of ITA No. 6044/MUM/2024.
Order pronounced in open court on 17.01.2025.