MUNJAL MRUGESH JAYKRISHNA,AHMEDABAD vs. THE DY.CIT, CIRCLE-1(1)(1), AHMEDABAD
Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: DR. B.R.R. KUMARSHRI T.R. SENTHIL KUMAR
PER: DR. B.R.R. KUMAR, VICE PRESIDENT:
This appeal has been filed by the assessee against the order of the Ld. Commissioner of Income-Tax (Appeals), National Faceless
Appeal Centre (NFAC), Delhi (hereinafter referred to as "CIT(A)" for short) dated 30.08.2024, passed u/s 250 of the Income-tax Act, 1961,
(hereinafter referred to as "the Act" for short) for the Assessment Year
(AY) 2013-14. 2. The core grievance raised by the assessee in the grounds of appeal is as under :-
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“That the learned CIT-Appeals erred in law and, on facts in confirming the addition of Rs.59,32,860 made by the Assessing Officer as Unexplained Cash Credit u/s. 68 of the IT Act.”
The brief facts of the case are that the assessee had filed his return of income for the year under consideration on 25.09.2013 declaring total income at Rs. 46,78,369/- after claiming deduction under Chapter VI-A for an amount of Rs.1,24,266/-. The assessee has claimed exemption u/s 10(38) of the LTCG of an amount of Rs.2,37,10,473/-, out of which the Assessing Officer alleged that an amount of Rs.59,32,860/- have been claimed in an unacceptable way. The assessment was reopened by the Assessing Officer u/s 147 of the Act since the assessee is found to have entered into suspicious share transactions in the relevant year. Since the scrip ‘NCL Research’ has been found by the Assessing Officer to be a bogus scrip in the nature of a penny stock being manipulated for the purpose of providing bogus capital gains, he was of the opinion that the assessee was required to be assessed u/s 147 of the Act. Subsequently, Assessing Officer framed assessment u/s. 143(3) r.w.s. 147 of the Act by disallowing Rs.59,32,860/- u/s 68 of the Act towards the claim of LTCG u/s 10(38) of Act, holding that the impugned gain on sale of shares was liable to be taxed.
Aggrieved by the order of the Assessing Officer, the assessee filed appeal before the Ld. CIT(A) who dismissed the appeal of the assessee. Asst.Years : 2013-14 - 3– 5. Aggrieved, the assessee is now in appeal before the Tribunal.
Before us, Ld. AR submitted that :-
• The Assessing Officer has not referred to an iota of evidence which can lead to the conclusion that the Long Term Capital
Gains earned by the assessee from the sale of the listed shares of NCL Research, which were purchased during the preceding year, through the Stock Exchange and were sold during the year under reference, also through the Stock Exchange, were sham or bogus, the addition made merely on surmise or suspicion can under no circumstances be justified.
• It was also submitted that nowhere under the statements recorded by the Investigation Wing, on the basis of which the reopening of the assessment was initiated, has the name of either the appellant or his broker.
• It was wholly preposterous on the part of the Assessing Officer to have presumed that the sale proceeds received by the assessee were not genuine and were liable to be added as unexplained credit u/s. 68 of the Act.
• While the assessee has fully discharged his onus in explaining the source and genuineness of the credit of the sale proceeds in his bank account, the Assessing Officer has, without leading any cogent evidence against the assessee, mechanically inflicted the Munjal Mrugesh Jaykrishna Vs. DCIT
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addition relying on the provisions of Sec.68, which have no basis or justification for being invoked, as done by the Assessing
Officer.
• The Ld. AR argued that the in the list of the persons alleged to be penny stock operators/exit providers/share brokers/
members, whose statements were recorded and the copies of the same was furnished to the assessee in the form of a CD drive, nowhere the assessee’s name or the name of assessee’s broker i.e. Shree Naman Securities & Financial Services Pvt Ltd appear, either directly or indirectly.
Not to left out any arguments of the Ld. AR, the written submissions of the Ld. AR are being reproduced hereunder:-
The present appeal is directed against the action of the learned Assessing Officer (AO) in making an addition of Rs.59,32,860/-, as Income being the nature of unexplained cash credit u/s 68 of the Act. The learned Assessing Officer has held that the assessee had introduced his unaccounted income under the guise of bogus/sham Long Term Capital Gains claimed as exempt u/s. 10(38) of the IT Act.
The present assessment is a reopened assessment relating to AY 2013-14. The original return of income declaring total income of Rs. 46,78,369 was processed u/s. 143(1). However, a notice u/s.148 was issued on 26/03/2018, pursuant to which the present assessment came to be framed by making an addition of Rs.59,52,860 u/s. 68 of the Act and determining the total taxable income at Rs.1,06,11,229/-.
During the year under consideration, the assessee was serving as Joint Managing director of two public companies, viz., Asst.Years : 2013-14 - 5– Asahi Songwon Colours Limited and Aksharchem India Ltd. The assessee derived income from Salary and also earned investment income by way of Capital Gains, Dividend and Interest.
During the course of the re-assessment proceedings, the assessee was served with a copy of the reasons recorded for reopening the assessment, wherein it was stated that as per the information provided by the investigation Department and the statement recorded of the related parties, it was found that the price of the penny stock NCL Research had been artificially manipulated on the stock exchange and raised in order to book bogus claim of Long Term Capital Gains. Thereafter, a Show- Cause Notice dated 12.10.2018 was served on the assessee calling upon the assessee to explain as to why the LTCG on sale of NCL Research claimed as exempt u/s. 10(38) should not be treated as bogus and added to the total income of the assessee.
Vide his reply dated 30.10.2018 in response to the aforesaid Show Cause Notice, the assessee, vehemently objecting to the proposed addition, submitted in detail as under:
a. I have been an investor in the stock market, buying and selling shares and declaring the LTCG and STCG earned thereon, in my tax returns for the past several years. Never ever has it been alleged in my case, that I have indulged in the dealing of penny stocks.
b. Even during the year under consideration, the total
LTCG earned by me was around Rs.2.37 crores arising from the sale of eight scripts.
c. The purchase of 10,000 shares of NCL Research and Financial Services Ltd (NCL) was done in the preceding FY 2011-12. It may kindly be noted that these shares were purchased from the stock market at prevailing listed price and this was not an off- market transaction.
d. The payments for the purchase were also made by cheque against the contract note dated 02/09/2011
of the broker Shree Naman Securities & Finance Pvt
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Ltd and the shares were duly credited in my Demat account with Kotak Securities Limited. Both these documents are attached herewith marked as Annexures 2 & 3. A copy of my bank account with HDFC Bank is duly attached herewith marked as Annexure-4, which reflects the payment made to the broker by cheque.
e. The sale of NCL shares were made in lots during the period September to December 2012 at the listed market price ranging between Rs. 523 to Rs. 922 per share. Here again, the shares were sold in the open market and the payments towards the same consideration were duly received as per contract notes from my broker Shree Naman Securities.
Similarly, the payments for the same were also received by me were duly deposited in my HDFC
Bank. The relevant documents being the copies of the contract notes and relevant pages of Bank statement are attached herewith marked as Annexure-5 & 6
f. Under para 3 of your show cause Notice, you have referred to the fact that as per the investigation conducted by the Kolkata Directorate, there was a syndicate of operators/exit providers engaged in entry providing business. You have further mentioned that during the course of Departmental investigation the statements of various operators/
share brokers/members were recorded on oath, confirming that certain beneficiaries transacted in this script by way of bogus LTCG and claimed exemption u/s. 10(38).
g. I wish to emphatically place on record that in the list of persons alleged to be penny stock operators/exit providers/share brokers/members, whose statements were recorded and the copies of the same was furnished to me in the form of a pen drive, nowhere does my name or the name of my broker
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Shree Naman Securities & Financial Services Pvt Ltd appear, either directly or indirectly.
h. Under the circumstances, I fail to understand as to how there is any basis of forming reason to believe that I had entered into penny stock transactions and claimed the same as exempt income, thereby not offering the same to tax. As has been held by the Hon’ble Supreme Court, the Juri ictional High
Court and several other High Courts and Tribunals,
“Suspicion, howsoever strong, cannot take the character of evidence. Where no specific evidence showing nexus of the assessee with the conversion of any unaccounted money into sale proceeds of shares is brought on record, an addition made merely on the basis of wild guess, surmise or suspicion cannot be sustained."
i.
I wish to reiterate that in the entire reassessment proceedings until now, I have not been confronted with any tangible or material evidence against me, on the basis of which your proposed action to add the alleged 'income as my unaccounted income can be sustained in law.”
Although, the assessee had made a fervent request to the learned Assessing Officer to the effect that “if you are inclined to take a different view in the matter, in the interest of equity and justice, I have to earnestly request your goodself to kindly share your reasoning for the same, so that I can meet with you point of view'’, the reassessment proceedings came to be completed without even giving an opportunity to the assessee of being heard. It is also a matter of record that in the entire assessment order, none of the aforesaid facts, as highlighted in para (4) hereinabove, have been controverted in any manner by the learned Assessing Officer. It is most respectfully submitted that while finalizing the assessment, the learned Assessing Officer has grossly flouted the principles of equity, justice and good conscious in as much as he has not even dealt with the merits of Munjal Mrugesh Jaykrishna Vs. DCIT Asst.Years : 2013-14 - 8– the assessee ’s elaborate submissions, both on facts and in law, in response to the Show Cause Notice.
The assessee wishes to rely on the ratio of the following judicial pronouncements which are squarely applicable on the facts and in the circumstances of the assessee ’s case:
(a)
“Therefore, when the Assessing Officer has not brought any material on record to show that the assessee has paid over and above the purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. The Hon’ble Juri iction High
Court in case of CIT v. Smt. Pooja Agrawal (supra) has upheld the finding of the Tribunal on this issue in para 12
as under:
"12. However, counsel for the respondent has taken us to the order of CIT(A) and also to the order of Tribunal and contended that in view of the finding reached, which was done through Stock
Exchange and taking into consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under:
"Contention of the AR is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the assessee that at the time of survey the assessee in his statement denied having made any transactions in shares. However, subsequently the facts came on record that the assessee had transacted not only in the shares which are disputed but shares of various other companies like Satyam
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etc. Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce & Ind. Ltd., assessee's account with P.K. Agarwal & co.
share broker, company's master details from