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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI V. DURGA RAO, HON’BLE & SHRI G. MANJUNATHA, HON’BLE
आदेश / O R D E R PER G. MANJUNATHA, AM: This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-13, Chennai, dated 26.06.2018 and pertains to assessment year 2014-15.
The assessee has raised the following grounds of appeal:
That on the facts and in the circumstances of the case and in law, the order passed by the learned Commissioner of Income Tax (Appeals) ['CIT (A)'] is bad in law and it is on the basis of conjectures and surmises.
2. That on the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the order of Assessing Officer (AO) in denying/rejecting the claim of exemption of long term capital gains of Rs.9,14,581/- in respect of shares transferred during the subject assessment year.
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3. That on the facts and in the circumstances of the case and in law, the CIT(A) failed to appreciate that the shares were purchased online after payment of Security Transaction Tax and they were sold online after payment of Security Transaction Tax and as such the denial exemption is completely unsustainable and unwarranted.
4. That on the facts and in the circumstances of the case and in law, the CIT(A) failed to appreciate that the AO has denied the claim of exemption under section 10(38) of the Act on the basis of assumptions/ presumptions/ conjectures and surmises and without any direct evidence.
5. That on the facts and in the circumstances of the case and in law, the CIT(A) AO grossly erred in treating the sum of Rs.9,14,581/- as undisclosed income under Section 68 of the Act.
6. That on the facts and in the circumstances of the case and in law, the CIT(A) ought to have appreciated that the Appellant has purchased shares through a registered share broker with Bombay Stock Exchange and the shares were purchased online not in off market. All transactions were done online through proper banking channels and through D-MAT account.
7. That on the facts and in the circumstances of the case and in law, the CIT(A) ought to have appreciated that the Appellant has held the shares for more than one year and has also paid Security Transaction Tax and as such the claim of exemption under Section 10(38) is valid and the same cannot be denied.
That on the facts and in the circumstances of the case and in law, the CIT(A) ought to have appreciated that the AO cannot place heavy reliance on statements recorded by DIT, Kolkata as he was not part the said proceedings.
Without prejudice to the above, the statements which are recorded by DIT, Kolkata which is sought to be heavily relied upon by the AO was neither furnished to the Appellant nor was the Appellant afforded an opportunity to cross examine the deponent and as such the said statement cannot be used against the Appellant.
Without prejudice to the above, that on the facts and in the circumstances of the case and in law, the CIT(A) failed to appreciate that the Appellant has disclosed the entire transaction in the tax return accordingly both the share transactions cannot be treated as undisclosed income under section 68 of the Act.
Without prejudice to the above, the CIT(A) ought to have appreciated that the AO having not mentioned a single word about RISA International Ltd, CIT(A) erred in confirming the denial of exemption under section 10(38) of the Act.
The Appellant prays for leave to add, alter, amend, substitute, rescind, modify and/or withdraw in any manner whatsoever all or any of the foregoing grounds of appeal before or at the hearing of the appeal.
The brief facts of the case are that the assessee is an individual filed his return of income for the AY 2014-15 on 13.12.2014 admitting total income of Rs..8,23,790/-. During the Financial Year relevant to the Mr.Dharmesh Ashwinkumar Davey :: 3 ::
assessment year 2014-15, the assessee has declared long term capital gains from sale of shares and claimed exemption u/s.10(38) of the Act.
The case has been subsequently re-opened u/s.147 of the Act, on the ground that income chargeable to tax, had been escaped assessment on account of exemption claimed towards long term capital gains derived from sale of shares of certain companies. During the course of assessment proceedings, the AO on the basis of information gathered during the course of investigation conducted by the Directorate of Investigation, Income Tax Department, Kolkata, opined that two scrips traded by the assessee, M/s.NCL Research and Financial Services Ltd., and M/s.RISA International Ltd., are treated as penny stock companies and some persons were involved in artificial jacking the sale price to provide accommodation entries to beneficiaries. Since, the assessee is one of the beneficiary of accommodation entries of long term capital gains by group of peoples, rejected arguments of the assessee and made addition towards consideration received for sale of shares as unexplained credit taxable u/s.68 of the Act. The assessee carried the matter in appeal before the First Appellate Authority, but could not succeeded. The Ld.CIT(A) for the reasons stated in their appellate order, sustained the additions made by the AO. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us.
The Ld.AR for the assessee referring to contract notes and bills submitted by the brokers submitted that purchase and sale of shares is Mr.Dharmesh Ashwinkumar Davey :: 4 ::
through stock exchange. The assessee has purchased shares through Mr.Vishal Vijay Shah, a broker registered under Bombay Stock Exchange (in short “BSE") and also sold shares through M/s.Globe Capital Market Ltd. a registered broker with BSE. Payment for purchase and sale of shares is through proper banking channel. Therefore, merely for the reasons that there is a scam in Kolkata and some persons are involved in providing accommodation entries, the assessee cannot be considered as part of that scam and also benefitted from the modus operandi of accommodation entry providers. In this regard, he relied upon the decision of Chennai Bench in the case of Mr.Ashwin Kumar v. ITO in and also the decision of coordinate bench in the case of Mrs. Neeta Bothra v. ITO in ITA Nos.2507 & 2508/Chny/2018 dated 08.09.2021.
The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A), and also the decision of the Hon’ble Supreme Court in the case of Securities and Exchange Board of India v. Rakhi Trading Pvt. Ltd., in Civil Appeal No.1969 of 2011 submitted that facts gathered during the course of investigation carried out by the Directorate of Investigation, Kolkata, coupled with statements recorded from certain persons clearly suggest that the shares of M/s.NCL Research and Financial Services Ltd., and M/s.RISA International Ltd., are penny stock companies and both the scrips were used to provide accommodation entries to beneficiaries and thus, the AO as well as the Ld.CIT(A) has rightly held that consideration received from sale of shares is unexplained cash credit taxable income u/s.68 of the Act.
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We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that the assessee has traded in two scrips namely M/s.NCL Research and Financial Services Ltd., and M/s.RISA International Ltd., and both companies’ shares were treated as penny stock by the Income Tax Department as well as SEBI. Further, the Investigation report of Directorate of Investigation, Kolkata, reveals modus operandi of entry providers through web of companies and also entry & exit providers through stock exchange and how such transactions are benefitted to individuals and companies who traded in those company shares. However, the investigation report as well as the AO is silent on the role of the assessee in the alleged scam in converting unaccounted income into genuine long term capital gains. Except stating that the assessee is one of the beneficiary of alleged bogus long term capital gains transaction of these two companies, but nothing was brought on record to link the transaction of the assessee with investigation report as well as any other evidences which suggest that the assessee is also part of that group of people who were involved in alleged scam. At the same time, although, the assessee claims to have purchased and sold shares of two companies through recognized stock exchange, but that itself is not a ground to accept arguments of the assessee when other evidences clearly prove that these shares were used to provide accommodation entries to various beneficiaries. Therefore, we are of the considered view that neither
Mr.Dharmesh Ashwinkumar Davey :: 6 :: assessee nor the AO has conclusively proved their case with necessary evidences. Hence, we deem it appropriate to set aside the issue to the file of the AO and direct the AO to provide necessary information used against assessee to take an adverse view on capital gain derived from sale of shares of two companies and further provide an opportunity of hearing to the assessee to refute allegations made by the Department and also if necessary to cross-examine the persons who gave statement on the issue.
The AO is directed to follow the principles of natural justice while dealing with the issue and also decide the issue in accordance with law.
In the result, appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on the 19th day of October, 2022, in Chennai.