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Facts
The Revenue appealed against the Ld. Commissioner's order which deleted an addition of Rs. 21,56,936 made by the AO under Section 69A for unexplained money. The AO had initiated assessment under Section 148 and completed it under Section 144 due to non-compliance, alleging the amount stemmed from penny stock transactions. The assessee contended they were merely an 'exit provider' earning commission and had not claimed any exemption under Section 10(38).
Held
The Tribunal dismissed the Revenue's appeal, affirming the Ld. Commissioner's decision to delete the addition. It held that the assessee had only earned commission income and had not claimed capital gain exemption under Section 10(38), further noting the AO's failure to conduct proper inquiry into the evidence provided. The Tribunal found the Ld. Commissioner's order to be without perversity, impropriety, or illegality.
Key Issues
Whether the addition under Section 69A for unexplained money from alleged penny stock transactions was sustainable, considering the assessee's claim of being an 'exit provider' earning only commission, and the AO's failure to properly inquire into supporting evidence.
Sections Cited
250, 148, 144, 69A, 10(38), 69
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY
Per : Narender Kumar Choudhry, Judicial Member:
This appeal has been preferred by the Revenue against the order dated 03.09.2024, impugned herein, passed by the National Faceless Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) under section 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2012-13.
The Assessee by filing a petition dated 07.01.2025 and by taking refuge of the CBDT circular No.09/2024 dated 17.09.2024 prayed for dismissal of the Revenue’s appeal on the ground that the addition involved in the instant case is of Rs.21,56,936/- and the tax effect involved is Rs.12,51,410/- which is below than the limit prescribed in the said circular.
Shri Deepak Govindbhai Gangani 3. The Ld. D.R., on the contrary, demonstrated clause ‘h’ of the said circular wherefrom it clearly appears that the cases involved arising tax evasion including cases of bogus capital gain/loss through penny stocks and cases of accommodation entries fall under exception of clause 3.1(h) of the circular referred to above.
Considering the claim of the Ld. D.R./Revenue Department as plausible, this Court is not inclined to accede to the prayer of the Assessee for dismissal of the Revenue’s appeal. However, considering the case on merits, it is observed that according to the Assessing Officer (AO), as per information received from Investigation Wing, Mumbai to the effect that the Assessee has transacted in a penny stock scrip M/s. Aarya Global Shares Securities Ltd. and M/s. Exelon Infrastructure Ltd. for a sum of Rs.2,56,800 & 19,00,136/- totaling to Rs.21,56,936/- and therefore the notice u/s 148 of the Act was issued to the Assessee on 30.03.2019. However, the Assessee did not file any return of income. As the Assessee has not made any compliance in any manner whatsoever to the notice u/s 148 of the Act as well, therefore the AO was constrained to complete the assessment by invoking the provisions of section 144 of the Act and ultimately added the entire transacted amount of Rs.21,56,936/- in the total income of the Assessee u/s 69A of the Act.
The Assessee, being aggrieved, challenged the said addition before the Ld. Commissioner and has claimed that both the shares were purchased in the name of the Assessee but the Assessee is not a beneficiary of the shares purchased, as the transactions have been carried out by the broker/company on whom the Assessee had no control. Even otherwise, the Assessee has not claimed any benefit of the provision of section 10(38) of the Act. The AO did not have any concrete evidence, which could prove that the Assessee Shri Deepak Govindbhai Gangani has ever involved with the operators in the wrong deeds. The AO presumed that the Assessee is involved with the operators in these wrong deeds. The Assessee has also not offered any gains for tax. The Assessee in support of his case also filed duly sworn affidavit before the Ld. Commissioner. The Ld. Commissioner observed that the Assessee acted only as an exit provider and earned commission income which was declared by the Assessee in the return of income. Admittedly, the Assessee has not claimed any exemption u/s 10(38) of the Act. Even otherwise, the Department has already taxed the beneficiaries of Long-Term Capital Gain (LTCG) but still for the just and proper decision of the case the remand report from the AO was sought for, by forwarding the additional evidences filed by the Assessee. The AO vide remand report dated 22.07.2024 has not accepted the additional evidences filed by the Assessee.
5.1 The Ld. Commissioner by considering the peculiar facts and circumstances of the case and the additional evidences filed by the Assessee, ultimately deleted the addition by observing and concluding as under:
“9. In the present case the facts are very clear that the appellant is only an exit provider. Shri Deepak Rathod has given a clear-cut affidavit by enclosing list of all those exit providers for benefiting the ultimate beneficiaries who have claimed LTCG. The AO has reopened the assessment of the appellant on the investigation report received in his office. The AO invoked section 69A of the IT Act and added sale proceeds as unexplained money. In the written submission the appellant clearly brought on record that section 69A of the IT Act is not at all applicable to his case.
It is to be mentioned here that for the AY. 2011-12 on the similar set of facts, the assessment was reopened where the AO Shri Deepak Govindbhai Gangani treated the entire purchase as unexplained investment u/s 69 of the IT Act. For the AY. 2012-13 on the similar set of facts, the AO treated entire sale consideration as unexplained money u/s 69A of the IT Act. It is demonstrated that the AO do not know what kind of enquiries to be made in this case, when the entire facts were before him. In the present case, he has taken different stand for each AY. On the other hand, the appellant has admitted himself that he earned only the commission income by submitting the affidavit from Shri. Deepak Rathod and requesting for the AO to conduct enquiry on him. However, it is not done by the AO in spite of those evidences forwarded to him.
The appellant claimed that if the AO allow him to cross examine Sri. Deepak Rathod in the presence of the AO the matter can be solved smoothly. It is for this reason, the Remand Report was called for. On the other hand, the AO simply rejected those evidences without conducting any enquiry on Shri. Deepak Rathod who gave affidavit by explaining the modus operandi. In view of the above, the addition of Rs.21,56,936/- as unexplained money in the hands of the appellant is not maintainable. The AO is directed to delete the addition.”
This Court has given thoughtful consideration the decisions of the Authorities below. It is admitted fact that the Assessee has earned the commission income and had shown the same in his return of income and not claimed any capital gain u/s 10(38) of the Act and the AO without conducting any enquiry on the additional evidences referred by the Ld. Commissioner, rejected the same and therefore the Ld. Commissioner took the cognizance and ultimately by analyzing and considering all the peculiar facts and circumstances and the documents in totality, vide impugned order deleted the addition, which according to considered opinion of this Court, does not suffer from any perversity, impropriety and/or illegality, hence, the impugned order deserve no interference.
Order pronounced in the open court on 07.01.2025.