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Facts
The Revenue appealed the CIT(A)'s order that deleted additions made under Sections 68 and 69C. The additions were based on the Assessing Officer's belief that the assessee, an NRI, was involved in bogus capital gain accommodation entries through the sale of shares of Kushal Limited, a penny stock company.
Held
The Tribunal held that the CIT(A) was correct in deleting the additions. The Revenue failed to provide material evidence to counter the assessee's claim that the transactions were genuine and the capital gains were offered to tax. The Assessing Officer relied heavily on an investigation report without independent verification.
Key Issues
Whether the transactions of sale of shares were genuine capital gains or bogus accommodation entries, and whether the additions made under Sections 68 and 69C were justified.
Sections Cited
68, 69C, 147, 144C(3), 250, 131, 132, 142(1), 10(38)
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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Appearance For the Appellant/ Department : Shri Swapnil Savant Shri Kiran Unavekar For the Respondent/ Assessee : Shri Hiren C. Date Conclusion of hearing : 10.01.2025 Pronouncement of order : 14.01.2025 O R D E R [ Per Rahul Chaudhary, Judicial Member: 1. The present appeal preferred by the Revenue is directed against the order, dated 09/02/2024, [read with Corrigendum, dated 13/02/2024] passed by the Commissioner of Income Tax (Appeals) - 56 [hereinafter referred to as ‘the CIT(A)’] under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] whereby the Ld. CIT(A) had allowed the appeal against the Assessment Order, dated 24/05/2022, passed under Section 147 read with Section 144C(3) of the Act for the Assessment Year 2017-18. Assessment Year 2017-2018 2. The Revenue has raised following grounds of appeal :
“1. Whether the Ld. CIT(A) erred in deleting the addition of Rs.3,86,67,259/- u/s.68 of the Act and addition of Rs.11,60,026/- u/s.69C of the Act made on account of sale consideration received from sale of shares of Kushal Limited of Kushal Group, which was found to be a penny stock based on the investigation carried out by the DGIT(inv.) Ahmedabad.
Whether the Ld. CIT(A) erred in holding that Assessing Officer has not pointed out that the sale consideration is found to be recorded in the books of account of assessee ignoring the fact that in case of individual who is not required to maintain books of account in sufficient and satisfactory to hold that such sum is credited into books of account.”
The relevant facts in brief are that the Assessee is a non-resident individual working in Muscat and deriving salary income. During the relevant previous year, the Assessee filed return of income on 19/05/2021 declaring income at INR.52,04,970/-. Reassessment proceedings under Section 147 of the Act were initiated in the case of the Assessee on the ground that the Assessee was one of the beneficiaries of bogus capital gain accommodation entry. In response thereto, the Assessee filed return of income on 19/05/2021 declaring, inter alia, Short Term Capital Gain of INR.7,99,040/-. In response to the notice under Section 142(1), dated 27/01/2021 and show cause notice dated 23/02/2022, the Assessee filed documents including Bank Statements, Computation of Income, reconciliation of income with Bank Statement and 26AS etc. along with the details of the purchase/sale transactions undertaken by the Assessee in respect of equity shares of Kushal Limited [formerly known as Kushal Tradelink Limited (BSE Code: 536170)]. Placing reliance upon the Investigation Wing, the Assessing Officer concluded that Kushal Limited was a penny stock company which has been used by the operators and entry/exit providers for introducing unaccounted cash in the books of accounts of the beneficiaries entering into bogus purchase/sale transactions resulting in pre-determined capital 2 Assessment Year 2017-2018 gain/loss. The Assessing Officer noted that the Assessee had sold shares of Kushal Limited for an aggregate consideration of INR.3,12,42,755/- which has resulted in capital gains of INR.74,24,567/- which were not offered to tax. Therefore, the Assessing Officer made an addition of INR.3,86,67,529/- under Section 68 of the Act. Further, the Assessing Officer also made addition of deemed commission expenses of INR.11,60,026/- (3% of INR.3,86,67,529/-) holding the same to be as unexplained expenditure in terms of Section 69C of the Act incurred by the Assessee for obtaining bogus accommodation entries. Thus, vide Assessment Order, dated 24/05/2022, passed under Section 147 read with Section 144C(3) of the Act the Assessing Officer determined the total income of the Assessee at INR.4,50,32,525/- as against returned income of INR.52,04,970/-.
Being aggrieved, the Assessee preferred appeal before CIT(A) which was allowed vide order, dated 09/02/2024, read with Corrigendum dated 13/02/2024 passed by the CIT(A).
Being aggrieved by the above relief granted by CIT(A), the Revenue has preferred the appeal before the Tribunal on the ground reproduced at paragraph 2 above.
We have heard the rival submissions and perused the material on record.
On perusal of the impugned order passed by the CIT(A) we find that the findings returned by the Assessing Officer were overturned by the CIT(A) in the following manner:
“6. Decision: During the year under consideration, the appellant sold scrip Kushal Limited of Kushal Group. The assessing officer treated the above company a fake company/penny stock and brought to tax the whole sale consideration of Rs.3,86,67,529/- as unexplained cash 3 Assessment Year 2017-2018 credit under section 68 of the Income Tax Act, 1961 treating the transactions as sham transactions. The assessing officer further held that the appellant might had also paid commission of 3% amounting to Rs.11,00,026/- to procure the entries of above sham transactions and taxed the same under section 69C of the Act being unexplained expenditure.
6.1. On perusal of the assessment order, it is seen that the assessing officer has relied upon the statement of one Shri Ashish Pannalal Shah recorded under section 131 of the Act by the Investigation Wing of the Department during the course of action under section 132 of the Act in the case of Kushal Group. As per the assessing officer, Shri Ashish Pannalal Shah had accepted that he was providing market manipulation services to companies and thereby rigging the share price to a certain level as desired by companies and for that he had received commission from these companies. As per the assessing officer, Shri Ashish Pannalal Shah had also accepted that he had used accounts of others for his market manipulation work. The assessing officer finally added the sale consideration amount of Rs.3,86,67,529/- as unexplained cash credit under section 68 of the Act. The assessing officer also made addition of Unexplained expenditure of Rs. 11,60,026/- under section 69C of the Act to the total income of the appellant.
6.2. The appellant is an NRI. The transactions are claimed to have taken place from the NRE Account of the appellant. The appellant has furnished statement on transactions in Kushal Scrips, bank statement, statement of capital gain from broker. The Short Term Capital Gain on the sale of shares has been offered to tax by the appellant. The appellant had purchased the shares which were transferred to his Demat Account, and, no specific 4 Assessment Year 2017-2018 allegation has been made by Shri Ashish Pannalal Shah against the appellant on the above purchase & sale of shares of Kushal Limited/Kushal Group by the appellant. The assessing officer has not pointed out from the statement of Shri Ashish Pannalal Shah that he (Ashsish Pannalal Shah) had taken the name of the appellant with regard to obtaining any benefit on the issue of such bogus /sham transactions of shares of Kushal Limited/Kushal Group. The sale of shares of Kushal Limited/Kushal Group has taken place through the demat account.
6.3 The ratio of the decision of the Hon'ble Supreme Court in the case of Pr. CIT Vs. Renu Aggarwal (WP for SLP Nos. 13033 of 2023 dated 03/07/2023 and the ratio of the decision of the Hon'ble Bombay High Court in the case of Pr. CIT Vs. Indravadan Jain, HUF (ITXA No. 454 of 2018) dated 12/07/2023 as relied upon by the appellant is found to be applicable to the present appellant's case.
6.4 In view of the above, it cannot be said that the purchase and sale of the shares of Kushal Limited/Kushal Group was bogus in nature and the transactions of purchase and sale were sham transactions.
6.5 In addition to above, it may also be mentioned here that the amount of sale consideration on sale of shares of Kushal Limited/Kushal Group is not pointed out by the assessing officer that the same was found recorded in the books of account of the appellant. Hence, one of the conditions to invoke provisions of section 68 of the Act in the case of the appellant is not found to have been satisfied by the assessing officer.
6.6. Cumulatively considering the facts & circumstances of the case, and the legal position prevailing over the issue, as discussed above, addition made under section 68 of 5 Assessment Year 2017-2018 the Act amounting to Rs.3,86,67,529/- and the addition made under section 69C of the Act amounting to Rs.11,60,026/- are deleted………” (Emphasis Supplied) 8. The above findings returned by the CIT(A) have gone uncontroverted during the appellate proceedings before us. We note that the Assessee has been settled outside India since 2002 and is stated to have been actively investing his savings in the Indian Share Market since 2006-07. During the relevant previous year the Assessee had purchased and sold shares of Kushal Limited. In the return of income filed in response to notice issued under Section 142(1) of the Act, the Assessee had offered to tax the short term capital gains income arising from sale of shares of Kushal Limited during the relevant previous year. The Assessing Officer treated the aforesaid transactions undertaken by the Assessee was held by the Assessing Officer to be in the nature of accommodation entry while the CIT(A) accepted the contention of the Assessee and held the transaction to be genuine in nature. On perusal of the material on record, we find that the Revenue has failed to bring any material on record to persuade us to take a view of the matter different from that of the CIT(A). On perusal of paper-book filed by the Assessee we note that the findings returned by the CIT(A) are supported by the material on record which includes computation of capital gains and computation of income for the Assessment Year 2017-18, relevant extract of Demat Account of the Assessee, Bank Statement of the Assessee for the relevant period and the Bank Statement of NRI Account. The aforesaid material on record shows that both purchase and sale transactions were made through stock exchange during the relevant previous year and the Assessee had earned Short Term Capital Gain from the purchase/sale transactions under consideration. A perusal of the Assessment Order shows that the Assessing Officer has moved on the premise that the Assessee has entered into transactions under consideration with the object of exploiting the Long Term Capital Gains exemption under Section 6 Assessment Year 2017-2018 10(38) of the Act whereas the Assessee has earned Short Term Capital Gains which have been offered to tax. The payments for purchase/sale of shares are reflected in the Bank Statements and the same reconcile with the entries in the Demat Account Statement. We note that the Assessing Officer has made the addition by primarily relying upon the report of investigation wing and had not carried out any independent inquiry or verification. Thus, while the Assessee had discharged the primary onus, the Revenue had failed to bring on record any material/information to shift the onus back onto the Assessee. Thus, we confirm the order passed by the CIT(A) deleting the addition of INR.3,86,67,529/- made by the Assessing Officer under Section 68 of the Act. Consequently, we also confirm the order of CIT(A) deleted the addition of deemed commission expenses of INR.11,60,026/- (3% of INR.3,86,67,529/-) made by the Assessing Officer under Section 69C of the Act. Accordingly, Ground No.1 raised by the Revenue is dismissed.
As regards Ground No. 2 raised by the Revenue is concerned, we find that the issue raised therein has been rendered academic and therefore, dismissed.
In the result, the appeal of the Revenue is dismissed in terms of paragraph 8 and 9 above.