Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI VIKAS AWASTHY, JM & SHRI PRASHANT MAHARISHI, AM
PER PRASHANT MAHARISHI, AM:
These are the cross appeals filed by the assessee Netlink Solutions India Pvt. Ltd. (appellant/ assessee) (ITA
The assessee has raised the following grounds of appeal:-
“1. The Learned CIT(A) has erred in law and in facts in confirming the assessment order passed under section 143 of the Act.
The learned CIT(A) has erred in law and in upholding that the transactions entered into by appellant of shares of M.P. Polypropylene Ltd., Kappac Pharma Ltd., Kuwer Industries Ltd. and Secure Earth Technology Ltd. are not genuine and sham transactions.
The Ld. CIT(A) has erred in law and in facts in holding that the short term capita loss of ₹2,34,03,346/- in the shares of Kappac Pharma Ltd. Kuwer Industries Ltd. and Secure Earth technology Ltd. was also not genuine.
The Ld. CIT(A) has erred in law and in facts in confirming the addition of long term capital gain of ₹1,39,79,838/-, short term capital gain of ₹82,18,221/- and treating the same as income from other sources.”
“1. On the facts and circumstances of the case and in law, the Learned. CIT(A) erred in directing the Assessing Officer to take the net resultant profit/ loss on the entire non-genuine transactions i.e. capital loss of ₹12,05,287/- without appreciating that the transaction related to Long Term Capital Gain (₹ 1,39,79,838/-) and Short Term Capital Gain (₹82,18,221/-) being sham transactions, the assessee had introduced its own unaccounted money to that extent and also when later it had paid on account of Short Term Capital Loss (₹2,34,03,346/-), that too being sham transactions, had received back the cash to that extent; and as such the Assessing Officer has rightly made an addition of ₹2,21,98,059/- (LTCG of ₹1,39,79,838/- _+ STCG of ₹82,18,221/- and disallowed the bogus Short Term Capital Loss of ₹2,34,03,346/-“
The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the AO be restored.
The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.”
Brief fact of the case shows that assessee is a company engaged in the business of website development, a domain registration services, service space booking, website maintenance, and publishing the magazines. It
Assessment was passed under section 143(3) of the Income-tax Act, 1961 (the Act) on 25/12/2017 determining total income of Rs. 2,00,39,275/-. The learned Assessing Officer found that assessee has claimed exemption on Long Term Capital Gain on sale of the shares amounting to ₹1,39,79,838/-. The learned Assessing Officer disallowed the exemption claimed by the assessee under section 10(38) of the Act. The assessee has also claimed a Short Term Capital Gain earned on the sale of shares amounting to ₹82,18,221/-. The Assessing Officer treated the same as income under the head other sources. The ld AO also disallowed Short term capital loss of Rs 2,34,03,346/-
Assessee preferred appeal before the learned CIT (A). The learned CIT (A) in principle confirmed the action of the learned Assessing Officer. He noted that ₹1,39,79,838/- is a Long Term Capital Gain and ₹82,18,221/- is a Short Term Capital Gain. The learned Assessing Officer has also disallowed the Short Term Capital Loss of ₹2,34,03,346/- and therefore, there are double additions as Gain and Loss both are considered as income. He allowed netting off. Accordingly, he upheld the disallowance of net Capital loss of ₹12,05,287/-. Therefore, both the parties are in appeal before us.
Fact shows that assessee company claimed Long Term Capital Gain of ₹1,28,11,519/- and Short Term Capital Loss of ₹1,40,43,580/-. The details were called for and genuineness of the Long Term Capital Gain was to be examined. The Assessing Officer noted that in five companies, assessee has earned Long Term Capital Gain and in five companies, assessee has earned Short Term Capital Gain. He found that assessee has traded in M P Polypropylene Limited wherein assessee has earned Long Term Capital Gain of ₹1,39,79,838/- and Short Term Capital Gain of ₹82,18,221/-. The name of the company was changed to Alkyam Intellectual Properties Consultancy Limited and found that Bombay Stock Exchange has suspended the above company due to penal reasons. He further noted that the share price of the above company as on that date is ₹7.10 against the price at which assessee traded is ₹22 to ₹ 25 per share. In case of Kappac Pharma Limited, assessee has earned Short Term Capital Gain of ₹2,15,55,652/- and which is also suspended by Bombay Stock Exchange due to penal reasons. The current price of the above stock was ₹112.85 against the price trade by assessee in the range of ₹473 to ₹ 29. With respect to Kuwer Industries Limited wherein assessee has shown Short Term Capital Gain of ₹ 10,88,515/- which were also suspended by the Bombay
Assessee explained that it has traded through its two brokers namely M/s Motilal Oswal Securities Limited and India Infoline Limited. It also produced broker’s note, ledger of the broker as well as contra confirmation of the broker. It also showed the Demat Account and bank statement for making payment and receipt of shares in the Demat Account. It was also stated that these are normal investment activities of the assessee. Assessee produced all available evidences of the trade.
The learned Assessing Officer rejected the contention of the assessee and held as under :-
The assessee has contended that all the sales transactions of all the companies have been made through stock exchange and the payment had been received through cheque. It is the peculiarity of this case that the promoter, mediators and the beneficiaries have used all these institution in a very systematic manner to bring their ill gotten money in their books without making payment of single penny as tax to the exchequer.
As stated above that the SEBI, which is a statuary body, established by the Government of India, in 1992 with a view to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto has carried out detailed, in-depth & systematic investigation in the cases of certain companies which had been indulged in the business of creating artificial long term capital gain/ loss by maliciously rigging the price of its shares. The companies i.e.
a. Alkyam Intellectual Properties Consultancy Limited (Formerly known as M P Polypropylene Limited)
b. Kappac Pharma Limited
c. Kuwer Industries Limited
d. Secure Earth Technologies Limited
ii) The contention of the assessee that the share were acquired through stock exchange and the payments were made through banking channel is also not acceptable for the reason as mentioned above that in this scandal the promoters, mediators and the beneficiaries have maliciously used the system to create un-genuine profit /loss by rigging the price of the shares of the company. Therefore, the contention of the assessee that the transactions of sale of shares were made through stock exchange and the sale consideration had been received through banking channel does not suffice to prove that the said capital gain genuine capital gain.
iii) All these facts establish that only payment made through cheque is not an ultimate evidence to prove the genuineness of a transaction as proved in the un-famous "Satyam Computer" scandal wherein it was proved that the company had claimed salary in the names of more than 10,000 bogus employees, to whom it had shown to have paid salary through cheque and further TDS had also been deducted. In the same way the contention of the assessee that all
Reliance is placed on the rationale laid down by the Apex Court of India in the case of M/s. Kachwala Gems vs. JCIT (2006) 206 CTR (SC) 585, wherein the Apex Court has affirmed the view taken by the ITAT, Jaipur holding that even payment by account payee cheque is not sufficient to establish the genuineness of purchases. The primary onus is on the assessee to establish the genuineness of the purchases claimed by it. If the investigation done by the Department leads to doubt regarding the genuineness of the purchases, it is incumbent on the assessee to produce the parties along with the necessary documents to establish the genuineness of the transaction and payment by account payee cheque is not sacrosanct.
5.7 After considering the entire material, I am of the opinion that the purchases and sales of the shares of the above mentioned companies the group of certain person has systematically misused the system of the stock exchange to generate fictitious long term as well as short capital gain so as to convert their unaccounted income into accounted one with no
From the facts and discussion made above it is clearly established that the exemption u/s 10 of the I.T. Act in respect of the long term capital gain, claimed to have earned by the assessee in the shares of Alkyam Intellectual Properties Consultancy Limited (formerly known as M P Polypropylene Limited) is nothing but the unaccounted income of the assessee. Also the short term capital loss that were created out of the various securities mentioned above, is just to make an adjustment of loss against the short term capital gain earned on the sale of securities. Hence the Long term capital gain of Rs. 1,39,79,838/- is added to the total income of the assessee for the year under consideration under the head 'Income from other sources and the short term capital loss that were arise on above securities is being disallowed amounting to Rs. 2,34,03,346/-. As the assessee company has claimed as short term capital gain, earned on the sale of security, namely Alkyam Intellectual Property Consultancy Limited (formerly known as M P Polypropylene Limited) amounting to Rs. 82,18,221/- under the head capital gain, the said income now treated as income under the head income from "other sources" as against the income from "capital gain" claimed by the assessee company.”
On appeal before the learned CIT(A), he upheld the order of the learned Assessing Officer on the ground of increase
Learned Authorised Representative submitted a Paper Book containing 434 pages. He referred to the computation of total income wherein the details of Long Term Capital Gain or loss has been given. He submitted that assessee has traded in 27 different scripts and only one script of M P Polypropylene Limited has been considered as bogus. He also referred to annexure of Short Term Capital Gain on losses wherein 56 transactions were entered into, however only 30 transactions 5 scripts were considered as bogus. He further stated that all the transactions are through stock exchange and carried at recognized stock exchange. He submitted that the transactions are supported by sale bills of the brokers and confirmations of stockbrokers were submitted. He further referred to that shares have been traded in Demat
With respect to the appeal of the learned Assessing Officer, he relied upon Para no. 5 of the order of the learned Commissioner of income tax (Appeal). He submitted that the learned CIT (A) has merely granted the set off profit and loss considering the allegedly non- genuine transactions.
The learned Departmental Representative vehemently supported the order of the lower authorities. The learned Departmental Representative further referred to the judicial precedence relied upon by the lower authorities and submitted that the mere documents and transactions through stock exchange and banking channel cannot prefer the genuineness of the above transactions. Hence, it was submitted that the addition made by the lower authorities is correct and may be upheld.
We have carefully considered the rival contentions and perused the orders of the lower authorities. The fact shows that assessee company in its computation of income has shown Long Term Capital Gain on sale of shares amounting to ₹1,28,11,519/- consisting of 27 different transactions in 5 different companies. Out of the 27 transactions in 12 transactions, there is a Long Term Capital Loss on sale of shares and in balance transactions; there is a Long Term Capital Gain. The net Long Term Capital Gain of ₹1,28,11,519/- was claimed as exempt under section 10(38) of the Act. The assessee has also
i. Alkyam Intellectual Properties Consultancy Limited
ii. Kappac Pharma Limited
iii. Kuwer Industries Limited
iv. Secure Earth Technologies Limited.
We find that assessee has supported all these transactions by the sale bill and purchase bill of M/s Motilal Oswal Securities Limited and India Infoline Limited, confirmation of brokers, bank statement where from payments are received and paid and demat accounts through which shares moved in /out. The assessee also produced the Demat account wherein the shares were held for more than 12 months in case of Long Term Capital Gain and other shares were routed through Demat account. The dates on which the assessee transacted were also supported by the Bhav copy of the Bombay Stock Exchange. None of these evidences produced by assessee was controverted. Assessing Officer has neither carried out in inquiry in respect of these transactions that whether the assessee acquired shares through fraudulent means nor sold those shares to exit providers. Merely because, there is a movement in the shares price downward or upward compared to the price at which transactions took place cannot be the reason for making the addition in the hands of the assessee. Further, merely because of the
Ground nos. 1 and 5 of the appeal are general in nature and hence, dismissed.
Coming to the cross appeal of the learned Assessing Officer, in view of our decision in appeal of the assessee, we dismiss ground no.1 of the appeal.
In the result, appeal of the assessee is partly allowed and the appeal of the learned Assessing Officer is dismissed.
Order pronounced in the open court on 12.05.2022.
Sd/- Sd/- (VIKAS AWASTHY) ( PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated:12.05.2022 Sudip Sarkar, Sr.PS Copy of the Order forwarded to :
Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai