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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI MANOJ KUMAR AGGARWAL
Date of hearing 23-03-2021 Date of pronouncement 18-06-2021 O R D E R Per : Saktijit Dey (JM):
This is an appeal by the assessee against order dated 14-06-2019 of learned Commissioner of Income Tax (Appeals)-33, Mumbai for the assessment year 2014-15. 2. The basic grievance of the assessee is against the addition of Rs.19,39,532/- under section 68 of the Act. 3. Briefly the facts are, the assessee is an individual. For the assessment year under dispute, assessee filed her return of income on 29-11-2014 declaring total
2 ITA 4721/Mum/2019 income ofRs.4,70,600/-. In course of assessment proceedings, the assessing officer found that the assessee, during the year had sold shares of GFL Financials. He further found, the gain derived from sale of such share was treated as long term capital gain and claimed to be exempt under section 10(38) of the Income Tax Act, 1961. To verify the genuineness of the capital gain derived from sale of shares of GFL Financials, the assessing officer issued summons under section 131 of the Act to the assessee. In the statement recorded, the assessee stated that she was ignorant about the share transaction and it was entirely managed by her son, Shri Ashok Samarth kumar Mali. Based on such statement of the assessee, the assessing officer issued summons under section 131 of the Act to assessee’s son and examined him on oath. In the statement recorded, assessee’s son admitted that he handled the share transaction of the assessee. Further, with reference to sale of shares of GFL Financials, assessee’s son submitted that the shares were purchased through a broker, viz. Pragati Shares & Stock Services, both, by him and his mother and were sold through Nirmal Bang Securities Pvt Ltd. Explaining the reason for purchases of shares of GFL Financials, it was stated that when the share prices reduced to around Rs.17 from Rs.118/-, he purchased the shares in his name as well as in the name of his mother. Further explaining the reasons for sale of shares, he stated that since the price of shares started falling, he sold a part of his mother’s shares in GFL Financials at the price of Rs.42/- per share. The assessing officer, however, was not convinced with the statement of assessee’s son. He observed, as per the report received from Investigation Wing of the department at Kolkata, GFL Financials is a penny stock company and the price of shares was artificially increased through rigging. After relying upon various judicial precedents, the assessing officer treated the amount
3 ITA 4721/Mum/2019 received towards sale consideration of shares of GFL Financials as unexplained cash credit under section 68 of the Act and added back to the income of the assessee. Though, the assessee contested the addition before learned Commissioner of Income Tax (Appeals); however, she was unsuccessful.
4. The learned counsel for the assessee submitted, the assessee had purchased 23,600 shares of GFL Financials, each having face value of Rs.5/- per share, at a cost of Rs.16.91 per share on 02-04-2012. He submitted, the shares were purchased through a broker, viz. Pragati Shares & Stock Services and payment was made through account payee cheque. He submitted, thereafter, the shares of GFL Financials were split into Rs.2/- per share and assessee became owner of 59,000 shares which was reflected in the balance-sheet. He submitted, out of the 59,000 shares, assessee sold 42,500 shares in the current year through another broker, viz. Nirmal Bank Securities Pvt Ltd and also received payment through account payee cheque. He submitted, the entire share transaction relating to purchase and sale of shares were through banking channel and reflected in assessee’s demat account. In this context, he drew our attention to the copies of the contract note, demat account, bank statement, etc. Further, he submitted, the purchase and sale of shares were also confirmed by the respective brokers. In this context, he drew our attention to the copies of confirmation received from the brokers. He submitted, the assessee had purchased the shares at around Rs.17/- per share and sold at the cost of Rs.42/- per share. Therefore, there is increase of only Rs.25 per share, which, under any circumstances cannot be considered as an artificial or exceptionally high increase in value. He submitted, the assessee is still holding 11,000 shares of GFL Financials. He submitted, relying upon some investigation report which was not confronted to 4 ITA 4721/Mum/2019 the assessee in course of assessment proceedings, the assessing officer, on mere presumption and surmises has treated the share transaction as non genuine and added back under section 68 of the Act. He submitted, result of enquiry conducted by the assessing officer with the brokers was never confronted to the assessee. He submitted, only after completion of assessment, the assessee could get a copy of the report by filing application under the RTI Act. He submitted, learned Commissioner of Income Tax (Appeals) simply relied upon the observations of the assessing officer while upholding the addition made. He submitted, in the report received from the Investigation Wing of the department, there is no reference to GFL Financials. Further, he submitted, neither the assessing officer nor learned Commissioner of Income Tax (Appeals) has conducted any independent enquiry with GFL Financials to ascertain the genuineness of the share transaction. He submitted, when the entire share transactions were done in a transparent manner and all supporting evidences have been furnished by the assessee to prove the genuineness of the share transaction, the assessing officer and learned Commissioner of Income Tax (Appeals) were unjustified in treating the amount received from sale of shares as unexplained cash credit under section 68 of the Act. He submitted, when the assessee has satisfied all the ingredients of section 68 of the Act by establishing identity, genuineness and creditworthiness, no addition could have been made under the said provision. In support of such contention, learned counsel relied upon the following decisions:- 1. CIT vs Shyam R Pawar (2015 54 taxmann.com 108 (Bom) 2. Kamlesh Mundra vs ITO, Wd.19(2)(3) ITA No.6248/Mum/2012
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3. ITO,Wd.2, Nizamabad vs Smt. Aarti Mittal (2014) 41 taxmann.com 118 (Hyderabad.Trib)
4. Arceli Realty Limited vs ITO (ITAT Mumbai)
5. CIT, Jamshedpur vs Arun Kumar Agrawal,HUF (2012) 26 taxmann.com 113 (Jharkhand) (2012) 210 Taxman 405 (Jharkhand)
6. Pr.CIT-5 vs Jatin Investments Pvt Ltd & 44/2016 (Del HC)
7. Shri Sunil Prakash vs ACIT-15(2), Mumbai ITA 6494/Mum/2014 (ITAT Mumbai “E” Bench)
8. Smt. Sunita Jain vs Income-tax Officer,Ward 10(3), Ahmedabad 502/AHD/2016 (ITAT Ahmedabad SMC Bench
9. Vasantraj Birawat vs Assistant Commissioner of Income tax (2015) 61 taxmann.com 295 (Mumbai-Trib)/(2015) 39 ITR (T) 450 (Mumbai-Trib)
10. (2017) 77 taxmann.com 260 (Ahmedabad – Trib) Pratik Suryakant Shah vs ITO, Ward 10(3), Ahmedabad
12. (2015) 55 taxmann.com 346 (Pune-Trib) Smt. Smita P Patil vs ACIT
Strongly relying upon the observations of the assessing officer and learned Commissioner of Income Tax (Appeals), learned departmental representative submitted, the assessee herself was completely ignorant about the share transaction conducted in her name. She submitted, as per assessee’s own admission, the entire share transaction was managed by her son. She submitted, the assessing officer had received specific information from the Investigation
6 ITA 4721/Mum/2019 Wing of the department at Kolkata that GFL Financials is a penny stock company and price of its shares have been increased through rigging to provide accommodation entries to various persons / entities. She submitted, in course of assessment proceedings the assessing officer, though, tried to ascertain the genuineness of the share transaction by conducting enquiries with the purchasers of shares from the assessee; however, except two individuals, no response was received from the other entities. Thus, she submitted, the enquiry conducted by the assessing officer clearly shows that the share transaction was non genuine. Drawing our attention to certain observations of learned Commissioner of Income Tax (Appeals), learned departmental representative submitted, the fact that the broker from whom the assessee claimed to have purchased the shares on 02-04- 2012 kept the shares in its pool account and transferred to the demat account of the assessee only on 16-04-2013 makes the transaction suspicious. Further, she submitted, the cheque issued by the assessee towards purchase of shares was also encashed with substantial delay. She submitted, looking at the standing of GFL Financials, the substantial increase in the price of shares within a short span of 18 months also makes the claim of the assessee doubtful. Thus, she submitted, the facts on record clearly prove that the assessee has been used as an intermediary to provide safe exit to some entities by selling the shares at a high price. Thus, she submitted, the assessing officer was justified in rejecting assessee’s claim of long term capital gain and making addition under section 68 of the Act. In support of her contentions, learned departmental representative relied upon the following decisions:- 1. Sanjay Bimalchand vs ITO, Wd.4(2), Nagpur Bombay High Court, Nagpur Bench dated 10-04-2017
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ITO Non Corporate Circle-6 vs Smt. Tharakumari Madras High Court dated 11-02-2019 Tax case appeal No.128 of 2019 and C.M.P. No.3353 of 2019
Commissioner of Income-tax Chennai vs Mrs Manish D Jain (HUF) In the High Court of Madras TCA No.223 of 2020 order dated 16/12/2020
Udit Kalra vs ITO,Wd.50-(1), Delhi (Delhi High Court) ITA 220/2019 & CM No.10774/2019 dt 08-03-2019
5. Suman Poddar vs ITO, Delhi ITA 842/019 in the High Court of Delhi dt 17-09-2019
6. Sumar Poddar vs ITO,Delhi Special Leave to Appeal (C) No.26864/2019 In the Supreme Court of India dated 22-11-2019
7. Ratnakar M Pujari vs ITO Ward 25(3)(3), Mumbai ITAT,D-Bench
8. Shamim Imtiaz Hingora vs ITO (ITAT Pune) Appeal No 1875/PUN/2018 dt. 01-03-2019
9. Shamim M Bharwani, Mumbai vs Department of Income-tax ITA 4906/Mum/2011 dated 27 March, 2015
Pooja Ajmani vs ITO (ITAT Delhi) ITA 5714/Del/2018 in the High Court of Delhi April 25, 2019
Shri Sanat Kumar vs ACIT, Circle 36(1), Delhi ITA No.1881/Del/2018
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Shri Sandeep Bhargava vs ACIT, Cir.60(1), New Delhi dt 20-08-2019
Shri Satish Kishore, Shri Nawal KIshore vs ITO Wd.47(2) & 47(4), Delhi ITAT Delhi “G” Bench dt 06-09-2019
We have considered rival submissions in the light of decisions relied upon and perused materials on record. Admittedly, the dispute in the present appeal is confined to the genuineness of long term capital gain derived from sale of shares of GFL Financials. It is evident, the assessee, in her statement recorded under section 131 of the Act has very clearly expressed her ignorance about the share transaction carried on by her and has stated that it is managed by her son. Though, in the statement recorded under section 131 of the Act assessee’s son had admitted of having purchased the shares of GFL Financials in his as well as in his mother’s name and has claimed that the share transaction is genuine; however, the assessing officer has disbelieved such claim. The primary reason for disbelieving the claim, as appears from the assessment order is, based on a report received from the investigation wing of the department at Kolkata. Learned Commissioner of Income Tax (Appeals) has also referred to the very same report of the investigation wing. However, it is the specific argument of learned counsel for the assessee that neither the assessing officer nor learned Commissioner of Income Tax (Appeals) has conducted any independent enquiry to get to the root of the matter and has simply relied upon the report of the investigation wing. To demonstrate that the share transaction is genuine, learned counsel for the assessee has drew our attention to the copies of the contract note, demat account, bank statement, confirmation received from the brokers through whom the assessee had purchased and sold the shares, etc.
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7. Undisputedly, the assessee had purchased the shares at the cost of about Rs.17 per share on 02-04-2012 and has sold a part of such shares in August/September, 2013 at Rs.42/- per share. Thus, there is definitely substantial increase in cost of shares within a short span of time. However, the crucial fact which requires examination is, what is the investigation/enquiry conducted by the investigation wing at Kolkata in respect of GFL Financials Ltd and whether there is any reference, at all, to GFL Financials in the report furnished by the investigation wing, Kolkata. From the extracted portion of the aforesaid report in the assessment order, nothing specific is forthcoming. However, we are unable to record any conclusive finding as entire report of the investigation wing, Kolkata is not available on record. It also appears, neither the assessing officer nor learned Commissioner of Income Tax (Appeals) has conducted any independent enquiry with GFL Financials at their own level to ascertain the genuineness of the transaction.
At the same time, it is a fact that the assessing officer has conducted enquiries with the brokers through whom the assessee had purchased and sold shares. Though, both the brokers have confirmed of having carried out the transaction with the assessee; however, it is evident that most of the entities who purchased shares of GFL Financials sold by the assessee did not respond to the notices issued Under section 133(6) seeking certain information. Further, as observed by assessing officer, some of the notices issued under section 133(6) have returned back unserved. It is also a fact that though the assessee had purchased the shares from Pragati Shares & Stock Services on 02-04-2012; however, they were not immediately transferred to assessee’s demat account, but were kept in the pool account of the broker and was transferred to assessee’s
10 ITA 4721/Mum/2019 demat account after more than a year on 16-04-2013. It is also surprising that the cheque issued by the assessee towards purchase of shares on 02-0-4-2012 was encashed only on 16-04-2013, i.e. after more than a year from the date of purchase. It has further been observed by learned Commissioner of Income Tax (Appeals) that even on the date on which the shares were split, i.e. on 09-03- 2013, the shares were not credited to the demat account of the assessee. All these facts certainly raise some amount of doubt and suspicion regarding the share transaction. However, it is trite that doubt and suspicion howsoever strong, cannot take the place of evidence. Therefore, merely based on doubt and suspicion, no addition can be made. Nonetheless, in our considered opinion, the assessee must also come clean on facts and prove the genuineness of the transaction by properly explaining the doubts raised by the departmental authorities with regard to the belated credit of the shares to her demat account and encashment of cheque after more than a year of transaction.
As it appears, the doubts raised by the departmental authorities in their respective orders, may not have been put forward to the assessee seeking clarification. It is also a fact that enquiry which was required to be done by the departmental authorities to go to the root of the matter and ascertain the genuineness of the shares of GFL Financials, have not been done. Thus, in our view, the entire issue relating to the genuineness of share transaction involving the shares of GFL Financials requires fresh consideration at the end of the assessing officer. As regards the decisions relied upon by learned counsels appearing for the parties, though, there cannot be any dispute regarding the principle/ratio laid therein; however, they have to be applied only after full facts are brought on record. Since, in the facts of the present case we are of the view
11 ITA 4721/Mum/2019 that the facts relating to the disputed issue have not been fully brought on record, we cannot apply the ratio laid down in the decisions relied upon in vacuum. Accordingly, we deem it appropriate to set aside the impugned order of learned Commissioner of Income Tax (Appeals) and restore the issue to the file of the assessing officer for fresh adjudication keeping in view our observations hereinabove. Needless to observe, the assessing officer must afford reasonable opportunity of being heard to the assessee before deciding the issue. Grounds are allowed for statistical purposes.
In the result, appeal is allowed for statistical purposes.