RAJPAT PANDYA,KOLKATA vs. ITO, WARD-36(1), KOLKATA

Per Dr. Manish Borad, Accountant Member:- These captioned two appeals filed by different assessees are against the separate orders of ld. CIT(Appeals) passed against respective separate assessment orders by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”).

3.2. (A.Y. 2014-15): Brief facts of the case are that the assessee is in individual, who derived income from business, capital gain and other sources. The assessee filed his return of income on 24.07.2014 declaring total income of Rs.1,96,660/-. The case was selected for scrutiny assessment through CASS followed by serving of notices under section 143(2) and 142(1) of the Act. During the course of assessment proceedings, the ld. Assessing Officer noticed that the assessee has earned long-term capital gain of Rs.52,83,100/- from sale of equity shares of Parag Shilpa Investments Limited and exemption under section 10(38) was claimed. The ld. Assessing Officer based on the information received by it from Directorate of Income Tax & 1365/KOL/2019, Assessment Years: 2013-14 & 2014-15 (Investigation), Kolkata found that M/s. Parag Shilpa Investments Limited is part of the list of 84 listed companies, which were found to be the penny stock companies and are managed as dummy companies involved in the price rigging by the promoters and entry operators for providing bogus long-term capital gain to various beneficiaries. The assessee primarily purchased 10,000 equity shares of M/s. Swift IT Infrastructure & Services Pvt. Limited from off-market, which was subsequently merged with M/s. Parag Shilpa Investments Limited. The market prices of the scrip and market capitalization of the company in the month of May, 2012 were Rs.0.20/- and Rs.1.20 lakhs respectively. Thereafter within three years, the market price of the scrip and the market capitalization of the company had been rallied to Rs.90.50 and Rs.4865.28 crores respectively on 17.12.2014. Therefore, within twenty months, the price jumped nearly 381 times. The assessee failed to satisfy the ld. Assessing Officer that M/s. Parag Shilpa Investment is not a penny stock company by placing any credible information. The ld. Assessing Officer accordingly added the alleged long-term capital gain of Rs.52,83,100/- as unexplained cash credit under section 68 of the Act and also made an addition of commission expenditure @0.5% of the amount of loss on sale of shares i.e. Rs.26,416/- and assessed income at Rs.55,06,180/-. The addition made by the ld. Assessing Officer was challenged by the assessee before the ld. CIT(Appeals), but no relief was granted by the ld. CIT(Appeals). Being aggrieved, the assessee is now in appeal before the Tribunal.

5. Recently on 14.06.2022, the Hon’ble jurisdictional High Court of Calcutta passed a judgment in the case of Swati Bajaj and others [2022] 139 taxmann.com 352 (Cal) dealing with set of cases with similar fact patterns as narrated above for the present appeals under consideration before us. Hon’ble jurisdictional High Court by taking the report of the Directorate of Investigation of the Department as the basis, gave its observations and findings, which are summarized hereunder.

5.1. There are two category of cases dealt with by the Hon’ble High Court, viz. first category being those arising out of the order of Tribunal dated 26.06.2019 in which 90 appeals filed by the assessees were allowed and second category is of those cases where1 assessee has challenged the assumption of jurisdiction by CIT under section 263 of the Act. In the present set of appeals before us, we are concerned with the first category whose relevant observations and findings by the Hon’ble High Court are noted below:

& 1365/KOL/2019, Assessment Years: 2013-14 & 2014-15 a) From the assessment order passed in the case of the assessee Smt. Swati Bajaj, we find that the genesis of the issue commenced from an investigation report submitted by the Directorate of Income Tax, Investigation, Kolkata (DIT). The investigation report has been prepared by the Deputy Director of Income Tax, Investigation Unit -II and III, Kolkata. [para 43] b) The assessee were conscious of the fact that they have not been named in the report, therefore made a vague and bold statement that the non-furnishing of report would vitiate the proceedings. Therefore, merely by mentioning that statements have not been furnished can in no manner advance the case of the assessee. If the report was available in the public domain as has been downloaded and produced by the revenue, nothing prevented the assessees who are ably defended by the Chartered Accountants and Advocates to download such reports and examine the same and thereafter put up their defence. Therefore, the based on such statements of violation of principles of natural justice the assessees have not made out any case. [para 65] c) The test to be applied is the test of preponderance of probabilities to ascertain as to whether there has been violation of the provisions of the Income-tax Act. In such a circumstance, the conclusion has to be gathered from various circumstances like the volume from trade, period of persistence in trading in the particular scrips, particulars of buy and sell orders and the volume thereof and proximity of time between the two which are relevant factors. Therefore, the methodology adopted by the revenue cannot be faulted. [para 69] d) Test of preponderance of probabilities have to be applied and while doing so, the court cannot loose sight of the fact that the shares of very little known companies with in-significant business had a steep rise in the share prices within the period of little over a year. [para 73] e) The assessee was not named in the report and when the assessee makes the claim for exemption, the onus of proof is on the assessee to prove the genuinity. [para 73] f) It is incorrect to argue that the assessees have been called upon to prove the negative in fact, it is the assessees duty to establish that the rise of the price of shares within a short period of time was a genuine move that those penny stocks companies had credit worthiness and coupled with genuinity and identity. [para 73] g) The assessee cannot escape from the burden cast upon him and unfortunately in these cases the burden is heavy as the facts establish that the shares which were traded by the assessees had & 1365/KOL/2019, Assessment Years: 2013-14 & 2014-15 phenomenal and fanciful rise in price in a short span of time. [para 75] h) The exercise that was required to be done by the Tribunal is to consider the totality of the circumstances because the transactions are shown to be very complex, the meeting of minds of the 'players' can never be established by direct evidence and therefore the surrounding circumstances was required to be taken note of by the Tribunal which exercise has not been done. [para 99] i) The assessee had opportunity to prove that there was no manipulation at the other end and whatever gains the assessee has reaped was not tainted. This has not been proved or established by any of the assessee. [para 99] j) The tribunal being the last fact finding authority was required to go deeper into the issue as the matter have manifested large scale scam. Thus, the orders of the tribunal are not only perfunctory but perverse as well. The exercise that was required to be done by the tribunal is to consider the totality of the circumstances because the transactions are shown to be very complex, the meeting of minds of the "players" can never be established by direct evidence and therefore the surrounding circumstances was required to be taken note of by the tribunal which exercise has not been done. [para 99] k) In such factual scenario, the Assessing Officers as well as the Commissioner (Appeals) have adopted an inferential process which is found to be a process which would be followed by a reasonable and prudent person. The Assessing Officers and the Commissioner (Appeals) have culled out proximate facts in each of the cases, took into consideration the surrounding circumstances which came to light after the investigation, assessed the conduct of the assessee, took note of the proximity of the time between the buy and sale operations and also the sudden and steep rise of the price of the shares of the companies when the general market trend was admittedly recessive and thereafter arrived at a conclusion which is a proper conclusion. [para 99] l) For all the above reasons, we hold that the Tribunal committed a serious error in setting aside the orders of the CIT(A) who had affirmed the orders of the Assessing Officer. [para 101] m) In the result, these appeals are allowed and the substantial questions of law framed/suggested are answered in favour of the revenue and against the assessee restoring the orders passed by the respective Assessing Orders as affirmed by the CIT(A). [para 102]

6. In the context of factual matrix of the present appeals before us narrated above, the position of law as enunciated by the Hon’ble jurisdictional High Court & 1365/KOL/2019, Assessment Years: 2013-14 & 2014-15

of Calcutta in Swati Bajaj (supra) carrying force of binding nature on the issue under consideration for us, was confronted to the respective ld. Counsels of the assessee who appeared before us. Ld. Counsels were fair enough to state that issue involved in these appeals is squarely covered against the assessee by the said decision as the fact involved are identical to that which were before the Hon’ble High Court. For cases where none appeared before us on behalf of the assessee, the relevant factual matrix was captured with the assistance of Ld. Sr. DR / CIT DR (already narrated above). Since the matter is squarely covered by the decision of Hon’ble jurisdictional High Court of Calcutta in the case of Swati Bajaj & others (supra), we have taken up these also for adjudication ex parte, qua the assessee.

7. After hearing both the sides and taking into consideration the factual matrix of the cases before us vis-à-vis the decision of Hon’ble jurisdictional High Court of Calcutta in Swati Bajaj & others (supra), we respectfully following the said decision carrying the force of binding nature, being the jurisdictional High Court, dismiss the appeals of the assessee and restore the order of the respective ld. AO as affirmed by the respective ld. CIT(A)”.

(2) Rajat Pandya, 36, Strand Road, Kolkata-700001

(3) Income Tax Officer, Ward-22(2), Kolkata, 54/1, Rafi Ahmed Kidwai Road, Kolkata-700016 8 & 1365/KOL/2019, Assessment Years: 2013-14 & 2014-15

(4) Income Tax Officer, Ward-36(1), Kolkata, Aayakar Bhawan, 110, Shantipally, Kolkata-700107