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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND Dr. M.L. MEENA
आदेश /O R D E R PER BENCH:
This appeal by the assessee is arising out of the order of Learned Commissioner of Income Tax (Appeals)-4, Chennai in ITA No.264/2016-17/A.Y.2014-15/CIT(A)-4 dated 19.10.2017. The assessment was framed by the Income Tax Officer, Non-Corporate Ward 3(2), Chennai for the assessment year 2014-15 u/s. 143(3) of 2 the Income Tax Act, 1961 (hereinafter ‘the Act’) vide order dated 29.12.2016.
The only issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO in making addition of unexplained profit on sale of shares of NCL Research & Financial Services Ltd., as unexplained credit u/s.68 of the Act and rejected the claim of exemption u/s.10(38) of the Act by holding the sale of shares as penny stocks. For this, assessee has raised various grounds, which we need not to reproduce.
Brief facts are that the assessee purchased 11000 shares of NCL Research & Financial Services Ltd., for a sum of Rs.16,10,046/- (Rs.146.36 per share) and sold the same for a sum of Rs.1,77,56,565/- within one year and claimed profit of Rs.1,61,46,519/- as exempt u/s.10(38) of the Act. The AO based on report of Investigation Wing of Kolkata and Delhi & SEBI report, treated the capital gain declared by assessee of Rs.1,61,46,519/- from sale of shares of NCL Research & Financial Services Ltd., as unexplained credit u/s.68 of the Act and exemption claimed u/s.10(38) of the Act was disallowed. Aggrieved, assessee preferred 3 appeal before CIT(A). The CIT(A) also confirmed the action of AO vide para 23 to 26 as under:- I have perused the above documents and papers but fail to agree 23. with the contentions of the appellant that the impugned transaction was genuine and bonafide. On going through the facts and circumstances of the case, as discussed in detail in the impugned assessment order and also incorporated in the investigation report of the investigation Wing of the Department and the report submitted by SEBI, it is evidently proved that the entire series of transaction was arranged and manipulated by the assessee in such a manner that it prima facie appeared to be a genuine transaction. However, the substance of the transaction was totally different from its form. In fact, the appellant, in connivance with the brokers and the entry operators, had created and arranged all possible documentary evidences to give the transaction a colour of genuineness. The question whether or not a transaction is a sham is primarily a factual one, on which the taxpayer bears the burden of proof in the abatement process. In the instant case, the relevant facts and circumstantial evidences clearly proved that the impugned transaction was sham in nature. The appellant had also failed to discharge the subsequent onus cast on her to substantiate the genuineness of the transaction.
The appellant cannot escape the consequences of law merely by relying on the documents and papers so prepared and arranged to manipulate the transaction to suit her vested interest. In this regard, the reliance can be placed on the decision of the Hon’ble Supreme Court in the case of CIT vs. Panipat Woollen & Gen Mills Co Ltd, 103 ITR 66. It is also pertinent to mention here that the manner in which entries are made in the books of accounts is not determinative of the question that the assessee had earned genuine profit. What is necessary to be considered is the true nature of the transaction. The Hon'ble Apex Court has held so in the case of Satluj Cotton Mills vs. CIT, 44 ITR 362.
In the present case of the appellant, SEBI which is the watchdog of all security -related transactions conducted on the floor of the stock exchanges in the country as well as the transactions conducted off market, has also established the nature of transaction carried out by the appellant was sham transaction which was further strengthened by the 4 findings of the Investigation Wing of the Income Tax Department. The documents, papers and the other evidences maintained and created by the appellant to substantiate her claim was a well thought and predetermined attempt to give a colour of genuineness to the impugned transaction.
Therefore, in view of the above discussed facts and circumstances of the case and considering the finding arrived at by the AO, I do hold that the impugned transaction was sham transaction. The ratio of the decisions in the case of Sumati Dayal vs. CIT, 214 ITR 801; Durga Prasad More vs. CIT, 182 ITR 540 and CIT vs. P. Mohanakala (2007), 161 Taxman 169, further strengthens the conclusion that the entire series of transaction was a colourable device to account for the unaccounted money in the form of Long Term Capital Gain claimed as exempt u/s 10 (38) of the Act. Accordingly, I do not find any infirmity in the finding of the AO. Hence, the addition made by the AO is confirmed.”
At the outset, it is noticed that in the case of penny stock, we are consistently taking a view, where the SEBI report and the report of the Investigation Wing of Kolkata & Delhi or any other report was not confronted to the assessee, the matter is being restored back to the file of the AO for confronting the material gathered and used against the assessee. Similar view in the cases of Smt. Vandana Jain in & 1904/Chny/2019, Shri Raj Kumar Jain in ITA Nos.1905 & 1906/Chny/2019 & Raj Kumar Jain HUF in ITA Nos.1907/Chny/2019, Smt. Mithu Kumari Ranka in ITA No.1970/Chny/2018 vide common order dated 31.03.2022 wherein (one of us Mahavir Singh, VP is a party) directed as under:-
5 12. We find from the submission made by the Ld. Sr. DR that the factual position in the light of provisions of section 142(3) of the Act read out in the course of hearing before us is uncontroverted. Copy of investigation report has been made available by the Ld. Sr. DR for the first time before the Bench through the email as stated above.
On perusal of the judgment of Hon’ble Madras High Court in the case of Mrs. Manish D. Jain (HUF) (supra), relied upon by the Ld. Sr. DR, it is noted from Para 27 of the judgment that the Hon’ble High Court stated, “As pointed out in the decision of this Court in the case of Cholamandalam MS General Insurance Co., we find in the instant case that there was no material, which necessitated the remand of the case to the Assessing Officer and it is a clear case where the Tribunal had failed to exercise its jurisdiction in the manner known to law. The Tribunal, being a last fact finding Authority, is under the legal obligation to record a correct finding of fact.” [emphasis supplied by us].
In the present case before us, it is an uncontroverted factual position accepted by the Ld. Sr. DR on the material made available to the assessee vis-à-vis requirements of provisions of section 142(3) of the Act. Furthermore, copy of investigation report of the Investigation Wing, Kolkata extensively relied upon by the Ld. AO is furnished before the Bench and made available to the Ld. AR now, for the first time. We note that compliance of provisions of section 142(3) is a mandatory statutory requirement in completing the assessment proceedings failing which may vitiate the entire assessment itself since this sub-section uses the word ‘shall’.
Per contra, the Ld. Counsel referred to another decision of Co-ordinate Bench, ITAT Bangalore in for A.Y. 2015-16 in the case of Shri Suresh J. Kothari (HUF) v. ITO, Ward 2(2)(1), Bengaluru, dated 31.07.2019 which in turn has followed the directions issued in the case of Chandra Devi Kothari (supra) by Hon’ble High Court of Karnataka. Relevant portion of the said order of co-ordiante Bench of ITAT Bangalore is reproduced herein below for the sake of clarity and ease of reference:
“3. The learned Authorised Representative submitted that an identical issue was considered by the SMC bench of Bangalore Tribunal in 6 assessee's brother case named Sri Vinod Kothari (HUF) in and the Tribunal, vide its order dt.03.7.2019, has restored the issue to the file of Assessing Officer for examining it afresh as per directions issued by Hon'ble Karnataka High Court, in the case of Chandra Devi Kothari Vs. ITA (Writ Petition No. 39370/2014 Dt. 2.2.2015). Accordingly, the learned Authorised Representative prayed that the issue contested in this appeal may also be restored to the file of Assessing Officer with similar directions.
4. The learned Departmental Representative did not object to the prayer put forth by the learned A.R.
5. We heard the parties and perused the record. We notice that the SMC Bench of Bangalore Tribunal has considered an identical issue in the case of Shri Vinod Kothari (HUF) (supra) and the matter has been restored to the file of Assessing Officer with the following observation: 4.3.1 I have considered the rival submissions and first of all, I reproduce Para No.8 of the judgment of Hon'ble Karnataka High Court rendered in the case of M/s. Chandra Devi Kothari (Supra) and this is as under:
"8. In the light of the facts and circumstances as adverted to above and as the petitioner has been denied an opportunity of fair hearing by providing copy of the statement and related details regarding the alleged share amount, I am of the view that the matter requires to be re-considered by the respondent by providing fair and reasonable opportunity of hearing to the petitioner and by furnishing the details / copy of the statement based on which the impugned assessment order has been passed." [emphasis supplied by us] 4.3.2 From the above Para 8 of the judgment of Hon'ble Kanataka High Court in the case of Chandra Devi Kothari (supra) it is seen that matter was restored back to the file of the AO for fresh decision after providing copy of the statement and other related details relied upon by the AO); in this case copy of the Report of Kolkata Investigation Directorate and other attendant details. As per the facts noted by the High Court in the earlier paras of judgment (supra) and as per the facts of the case on hand, there appears to be no difference in facts and therefore by respectfully following this judgment in the case of 7 Chandra Devi Kothari (Supra), I set aside the impugned order of learned CIT(A) for Assessment Year 2014-15 and restore the matters to the file of the AO for fresh decision with the same directions as were issued by the Hon'ble Karnataka High Court in the case as per Para No.8 of the judgment reproduced above. In view of this decision, no adjudication is called for at this stage regarding the merits of the addition." As the facts prevailing In the instant case is identical nature, following the aforesaid decision of the Tribunal, we set aside the order passed by the learned CIT (Appeals) and restore all the issues to the file of Assessing Officer with similar directions mentioned in ITAT Order (supra) for examining them afresh.
In the result, appeal of the assessee is treated as allowed for statistical purposes.”
Considering the uncontroverted factual position accepted by the Ld. Sr. DR on the material made available to the assessee vis-à- vis provisions of section 142(3) of the Act which casts a mandatory statutory procedural compliance requirement on the Ld. AO in completing the assessment proceedings which otherwise may vitiate the assessment itself, it necessitates us to remand back the present case to the Assessing Officer for its appropriate adjudication by respectfully considering the observation made by the Hon’ble Madras High Court in Para 27 in the case of Mrs. Manish D. Jain (HUF) (supra) on the availability of material to the assessee. Further, respectfully following the directions given in Para 8 in the judgment of Hon’ble Karnataka High Court in the case of Chandra Devi Kothari (supra) and the order of co-ordinate bench of ITAT, Bangalore in the case of Shri Suresh J. Kothari (HUF) (supra), we set aside the impugned order passed by Ld. CIT(A) and Ld. AO and restore the matter back to the file of the Ld. AO with the direction to comply with the mandatory statutory requirements of section 142(3) of the Act failing which may vitiate the assessment itself. We are of the considered view that the Ld. AO has to reconsider the issue afresh after furnishing to the assessee all the material relied upon by him/her while passing the assessment order. Since the matter is restored to the file of Ld. AO for fresh adjudication in terms of finding and observations made hereinabove, we are not expressing any 8 views on the merits of the case so as to limit the assessment procedure before the Ld. AO. The observations herein made by us in remanding the matter back to the file of Ld. AO will not impair or injure the case of the Revenue nor will it cause any prejudice to the defense/explanation of the assessee. Needless to say that assessee be given reasonable opportunity of being heard, who shall also cooperate by making all the required compliances for the completion of assessment proceedings. Accordingly, in terms of above, the appeal of the assessee is allowed for statistical purpose.
4.1 As in the present case before us, the material gathered during the course of investigation was never confronted to the assessee. Hence, taking a consistent view, as taken in to 1907/Chny/2019, supra, we remit the issue back to the file of the AO exactly on similar directions.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the court on 4th May, 2022 at Chennai.