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Facts
The assessee claimed exemption for Long Term Capital Gain on sale of shares of M/s Twenty First Century India Ltd. (TFCIL). The Assessing Officer (AO) reopened the assessment based on information suggesting that certain share brokers were involved in providing accommodation entries.
Held
The Tribunal held that the reopening of the assessment was valid, as the AO had a reason to believe that income had escaped assessment based on the information received. The Tribunal also found that the assessee had provided sufficient documentary evidence for the purchase and sale of shares, and the claim for exemption under Section 10(38) was genuine.
Key Issues
1. Whether the reopening of assessment under Section 148 was legally valid. 2. Whether the claim for Long Term Capital Gain exemption under Section 10(38) was genuine and supported by evidence.
Sections Cited
148, 10(38), 143(1), 147, 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI MANOJ KUMAR AGGARWAL
आदेश/ORDER PER RAJPAL YADAV, V.P.
The assessee is in appeal before the Tribunal against the order of the ld. Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 25.04.2024 passed for assessment year 2012-13.
2. The assessee has taken six grounds of appeal alongwith sub-grounds (a) (b) (c) and (d) under Ground No.1. However,
ITA 689/CHD/2024 A.Y. 2012-13 2 perusal of these grounds would reveal that grievance of the assessee revolves around two-fold, namely; a) The CIT(A) has erred in upholding the re-opening of assessment u/s 148 of the Income Tax Act ; b) The CIT(A) has erred in confirming the disallowance of exemption amounting to Rs.3,18,72,102/- claimed by the assessee u/s 10(38) of the Income Tax Act.
The brief facts of the case are that assessee has filed his return of income for assessment year 2012-13 on 30.03.2013 declaring total income at Rs.1,25,00,480/-. This return was accepted by the Revenue u/s 143(1) of the Income Tax Act. The assessee has claimed exemption of Long Term Capital Gain on sale of shares of M/s Twenty First Century India Ltd. (TFCIL) amounting to Rs.3,18,35,183/-. According to the AO, he has received an information from Director of Investigation, Kolkata who has conducted survey action on various share brokers and opined that certain share brokers were engaged in providing accommodation entries. Thus, AO harboured the belief that assessee traded in the penny stock and its claim for exemption of the Long Term Capital Gain is not a genuine one. The AO, accordingly, reopened the assessment.
ITA 689/CHD/2024 A.Y. 2012-13 3 4. A perusal of the record would reveal that on 04.08.2009, assessee has purchased 2700 shares of Sarathi Dealers Pvt. Ltd. (SDPL) for a total consideration of Rs.10,45,400/-. This Sarathi Dealers Pvt. Ltd. has been amalgamated with M/s Twenty First Century India Ltd. alongwith three more companies, namely, Highland Dealcom Private Ltd., Dignity suppliers Private Ltd., Astha Tradelink Ltd. and Sarathi Dealers Pvt. Ltd. In other words, four companies have been amalgamated in M/s Twenty First Century India Ltd. The approval of this amalgamation has been granted by the Hon'ble Kolkata High Court after due notice to the Income Tax Department. On 19.01.2011, the shares of M/s Twenty First Century India Ltd. were allotted at Rs.10/- each to the shareholders of amalgamated companies. The share holders of these four companies were entitled for 38 shares of M/s Twenty First Century India Ltd. in lieu of each share held by them. In other words, in lieu of 2700 shares held by the assessee of SDPL, he was granted 2700 x 38 shares of M/s Twenty First Century India Ltd. under the scheme of amalgamation. These shares have been sold by the assessee in the Accounting Year relevant to assessment year 2012-13 and he claimed Long Term Capital Gain exemption u/s 10(38).
ITA 689/CHD/2024 A.Y. 2012-13 4 It is also important to note that assessee had paid Security Transaction Tax on sale of shares which has also not been disputed by the AO. When assessee was confronted to demonstrate genuineness of his transaction, then the assessee has filed various details which has been placed in the Paper Book also, running into 71 pages. The following details are worth to note which are on page Nos. 14 to 49 of the Paper Book. These details are as under :
"Copy of reply dated 21.10.2019 as submitted to the assessing officer alongwith following annexures: a. Details of purchase and sale of shares made by assessee. 1 b. Copies of contract notes for sale of Shares. c. Copies of bank statements showing debit ft credit entries. d. Confirmed Copy of the account of the assessee in the books of the broker namely M/s Sunil Kumar Kayan & Co. e. Copy of the ITR and Computation of Income for AY 2009-10, AY 2010-2011 & AY 2011-2012.
Copy of letter dated 08.11.2019 as filed to the Assessing Officer along with details of commission paid by assessee on purchase/sales.
7. Copy of letter dated 20.11.2019 filed with the Assessing Officer along with contract notes for purchase of shares.
5. The ld. AO did not carry out any exercise. He simply recorded the statement of Shri Parveen Kumar, brother of the assessee and thereafter prefer to follow the report sent by the Director of Investigation, Kolkata. He disallowed the ITA 689/CHD/2024 A.Y. 2012-13 5 exemption claimed by the assessee u/s 10(38) of the Income Tax Act.
6. Appeal to the CIT(A) did not bring any relief to the assessee.
Before us, ld. counsel for the assessee submitted that assessee has purchased the shares in 2009. He has shown the purchase of shares in his books of accounts and filed the return for assessment year 2009-10, 2010-11 and 2011-12. The ownership of the shares in the accounts of the assessee has never been disputed. The purchase price was paid through banking channel, details of such payments have been shown to the AO. Similarly, sale proceeds have been received through banking channel. These details have also been submitted to the AO. Contract notes have been produced before the AO. The shares have been credited to the d-mat account of the assessee. He had paid Security Transaction Tax on sale of these shares. Contrary to this, nothing has been done by the Revenue except reliance on the report of Director of Investigation, Kolkata which has been prepared on the basis of some survey conducted upon the share brokers, out of which one is alleged to be the Share Broker from whom assessee has undertaken these transactions. In support of ITA 689/CHD/2024 A.Y. 2012-13 6 his contention, he relied upon a large number of judgements whose copies are placed in Paper Book running into 170 pages. We take note of the Index of the Paper Book which reads as under:
SL PARTICULARS NO. JUDGEMENTS ON THE ISSUE THAT IF ONUS HAS BEEN PROVED BY ASSESEE THEN ADDITION U/S 68 CANNOT BE MADE BY THE DEPARTMENT 1. Judgment in the case of PCIT vs. Parasben Kasturchand Kochar as reported in [2021] 130 taxmann.com 177 (SC).
Judgment in the case of Jatinder Kumar Jain vs. ITO as reported in [2022] 142 taxmann.com 234 (CHD-Trib.) 3. Judgment in the case of ACIT vs. Bhavik Bharatbhai Padia as reported in [2017] 78 taxmann.com 133 (Ahmedabad-Trib.) 4. Judgment in the case of Rama Mittal vs. ITO, NFAC as reported in [2024] 163 taxmann.com 612 (ASR-Trib.) 5. Judgment in the case of Durga Devi Bagree vs. ITO as reported in [2023] 157 taxmann.com 607 (Raipur-Trib.) 6. Judgment in the case of Sheela Ashok Bafna vs. ITO as reported in [2025] 170 taxmann.com 307 (MUM-Trib.) JUDGEMENTS ON THE ISSUE OF NON-APPLICATION OF MIND BY THE CONCERNED, WHILE ISSUE NOTICE U/S 148 7. Judgment in the case of PCIT vs. Meenakshi Overseas Pvt. Ltd. as reported in [ 017] 82 taxmann.com (Del-HC) 8. Judgment in the case of Signature Hotels (P) Ltd. vs. ITO as reported in [2012] 20 taxmann.com 797 (Del-HC).
9. Judgment in the case of Smt. Charanjit Kaur vs. ITO as reported in (2021) 88 ITR (Trib) 414 (CHD-Trib). JUDGMENT BASED ON REOPENING OF CASE MERELY ON BASIS OF INFORMATION RECEIVED FROM "INVESTIGATION WING" AND ON THE ISSUE OF BORROWED SATISFACTION 10. Judgment in the case of CIT vs. Smt. Paramjit Kaur as reported in [2008] 168 taxman 39 (P & H).
Judgment in the case of Reena Jain vs. ITO as reported in [2024] 159 taxmann.com 1489 (Kolkata - Trib.) 12 Judgment in the case of Holy Faith International Pvt. Ltd. vs. DCIT in vide order dated 15.01.2019. 13. Judgment in the case of PCIT vs. G & G Pharma Ltd. as reported in [2017] 81 taxmann.com 109 (Delhi).
ITA 689/CHD/2024 A.Y. 2012-13 7 14. Judgment in the case of CIT vs. Fair Finvest Limited as reported in [2014] 44 taxmann.com 356 (DEL-HC).
Judgment in case of Maple Destinations and Dreambuild (P.) Ltd. as reported in [2024] 162 taxmann.com 157 (Delhi-Trib.) 16. Judgment in the case of CIT vs. Mantri Share Brokers P. Ltd as reported in [2018] 96 taxmann.com 280 (SC) 17. Judgment in the case of Kohinoor Crafts vs. ACIT as reported in [2021] 133 taxmann.com 365 (Delhi-Trib) 18. Judgment in the case of PCIT vs. Nitin Cylinder Ltd. as reported in [2024] 159 taxmann.com 649 (BOM-HC).
Judgment in the case of ITO vs. Dr. R.L. Narang as reported in [2008] 174 taxman 96 (CHD) (MAG.) 20. Judgment in the case of CIT vs. Pashupati Nath Agro Food Products Pvt. Ltd in of 2010 (Allahabad HC).
Judgment in the case of PCIT vs. Kishore Kumar Mohapatra as reported in [2024] 162 taxmann.com 5 (SC) 22. Judgment in the case of Andaman Timber Industries vs. Commissioner of Central Excise as reported in (2015) 281 CTR 0241 (SC) 23. Judgment in the case of PCIT vs. DSG Papers (P.) Ltd as reported in [2024] 161 taxmann.com 586 (P 6 H) JUDGEMENT ON THE ISSUE REOPENING U/S 148 WHERE ASSESSMENT COMPLETED U/S 143(1) | 24. Judgment in the case of Orient Crafts Ltd. vs. Union of India fit Anr. as reported in (2006) 206 CTR 262 (DEL-HC).
Judgment in the case of ACIT vs. Samart Plywood Ltd. in vide order dated 01.07.2019 26. Judgment in the case of Akshar Builders ft Developers vs. ACIT as reported in [2019] 103 taxmann.com 162 (BOM-HC).
7.1 He further contended that identical issue was involved in the case of his brother Shri Avi Aggarwal which has been decided in favour of the assessee by ITAT Chandigarh in ITA No.971/CHD/2024. He placed on record copy of this order.
The ld. CIT DR, on the other hand, relied upon orders of Revenue Authorities. He put reliance upon the judgement of Hon'ble Gujrat High Court in the case of Akshat Pramodkumar
ITA 689/CHD/2024 A.Y. 2012-13 8 Chaudhary Vs DCIT reported in 153 taxmann.com 25. In this judgement, the assessee has transacted in the shares of M/s Twenty First Century India Ltd. and on the basis of Survey Report, re-opening was made. The assessee filed a writ petition challenging the notice issued u/s 148 of the Income Tax Act. This writ petition has been dismissed by the Hon'ble High Court holding that at the time of re-opening, only a prima-facie opinion is being made and it is not the ultimate adjudication of the issue.
We have duly considered the rival contentions and gone through the record carefully. As far as the first fold of dispute is concerned i.e., whether re-opening of the assessment is bad in the eyes of law or not, we are of the opinion that notice u/s 148 of the Income Tax Act was issued by the AO after receipt of a report from Director of Investigation, Kolkata. In this report, an apprehension was shown that Long Term Capital Gain shown by the assessee and similarly situated persons on sale of certain stocks are not genuine. A perusal of Section 147 would indicate that it contemplates that AO has a reason to believe that income has escaped assessment. This formation of belief is to be based on the information which prima-facie suggests escapement of income. To our mind, at the stage of ITA 689/CHD/2024 A.Y. 2012-13 9 forming a belief that income has escaped assessment or not, the AO was not required to prove that actually claim made by the assessee is bogus. He has to just made a prima-facie opinion subject to the assessment proceedings where explanation of the assessee will be sought for. Therefore, following the judgement of Hon'ble Gujrat High Court in the case of Akshat Pramodkumar Chaudhary, we do not find any error in the action of the AO as far as first fold of contention is concerned.
The ld. counsel for the assessee has relied upon a large number of judgements on the issue of re-opening. We do not deem it necessary to recite and recapitulate the propositions laid down in these judgements but, it would be sufficed to say that common propositions laid down in all these judgements are to the effect that if there is no information possessed by the AO which has a live nexus with the formation of belief that income has escaped assessment, then re-opening is not to be upheld. However, we have observed that information transmitted to the AO by the Investigation Wing is sufficient to form an opinion that income has escaped assessment and an enquiry is to be made.
ITA 689/CHD/2024 A.Y. 2012-13 10 11. The second fold of dispute is whether claim of the assessee u/s 10(38) is genuine or not. As observed earlier, assessee has purchased shares of SDPL on 04.08.2009. SDPL was amalgamated with M/s Twenty First Century India Ltd. This amalgamation has been approved by the Hon'ble Kolkata High Court and Income Tax Department was a party to the amalgamation proceedings. No one has raised any objection on the factum of purchases made by the assessee and shown in his books nor the Department has taken any objection during amalgamation proceedings. When four companies, namely, Highland Dealcom Private Ltd., Dignity suppliers Private Ltd., Astha Tradelink Ltd. and Sarathi Dealers Pvt. Ltd. amalgamated into M/s Twenty First Century India Ltd., then number of shares allotted to the shareholders in lieu of their holding has arisen to 1:38. Thus, the volume of share possessed by the assessee of SDPL has increased. He has sold shares after keeping them in D-mat Account for more than three years. The transactions have been made through banking channel. All the details have been submitted before the AO as noticed by us in the foregoing paragraphs. The AO has not carried out any enquiry, simply he has recorded the statement of brother of the assessee and he has not collected
ITA 689/CHD/2024 A.Y. 2012-13 11 any information from Kolkata. He simply put reliance upon a report submitted by Director of Investigation, Kolkata which was prepared during the course of survey. Thus, it is the opinion of an authority, prepared on the back of the assessee relevant to the case of some other assessee. It can be at best an information to put the assessment machinery in motion but it cannot ultimately take the seat of the AO who was required to investigate the issue. This report cannot be given preference unless it is being held that the circumstances pointed out by the assessee whereby transaction has been routed through banking channel, D-mat account payment of STT are not genuine.
Apart from the above, we find that ld. First Appellate Authority has recorded a finding from paragraph No. 5.3.2 page 19 to page 29. But a perusal of the whole finding would reveal that instead of touching any of the facts pointed out by the assessee, it is based on philosophy exhibiting the modus- operandi of share brokers undertaken for giving accommodation entries. These are general aspects of any transaction for doubting. The ld. CIT(A) has not pin-pointed the facts shown by the assessee as factually incorrect, namely, it has not been demonstrated as to how shares have come in ITA 689/CHD/2024 A.Y. 2012-13 12 the D-mat account of the assessee and it was only a make belief story. The ld. First Appellate Authority has just put observations from judgements and then affirming the finding of the AO. There is no observation against the order of the Hon'ble Kolkata High Court whereby amalgamation has been approved. Can a bogus company be amalgamated under a judicial proceeding wherein Revenue was also a party and how unilaterally it will become bogus ? We further observe that same issue has been considered in the case of assessee's brother in and the finding of the Tribunal reads as under :
“22. We have considered the rival submissions and the order of AO and CIT(A) and have also considered the submissions /arguments as advanced by the Ld. Counsel and CIT (DR) along with Paper Books, Brief Synopsis and 'judgment set' filed by the Ld. Counsel. The facts are not disputed by either side and the same are borne out even from the record of AO and CIT(A). The assessee had declared long term capital gain on the sale of shares amounting to 17140 and claimed the same as exempt u/s 10(38). During the reassessment proceedings, the documentary evidences of purchase and sale of shares in the shape of contract notes and confirmed copy of account of the assessee in the books of the broker, Sh. Sunil Kumar Kayan have been furnished, along with the assessee's bank account, in which, the sale proceeds of shares have been received by the assessee through banking Channel. The AO/CIT(A), have not been able to find any fault/defect in such documentary evidence. We have also gone through the assessment order for the year under consideration and for the Asstt. Year 2013-14, which has been placed in the Paper Book along with computation of income for Asstt. Year 2013- 14, wherein sale of shares of 'Twenty First Centre India Ltd.' amounting to 40360 shares have been considered and assessed by Assessing Officer. Thus, the total number of shares as sold in Asstt. Year 2012-13 & 2013-14 works out to Rs, 57500/- (17140/- + 40360/-). We have also gone through the 'demat account' and find that balance shares of 98300 are still lying with the assessee. Such documentary evidences have not been disproved by the lower authorities and in the impugned assessment order, the total number of shares amounting to Rs. 1,55,800/- have been considered and entire sale value of Rs. 5,05,29,200/- considered for the purposes of assessment which is contrary to the assessments ITA 689/CHD/2024 A.Y. 2012-13 13 framed for Asstt. Year 2013-14. The shares of 98300 lying in Demat account also shows that the assessment as framed for impugned year is not correct.
We have considered the findings given by the Assessing Officer in the assessment order. We have also considered the detailed written submissions filed by the ld. Counsel for the Assessee and his arguments. We have gone through the relevant papers and documents and we find that in this case the Assessee got shares of 'Twenty First Century India Ltd. after amalgamation of three companies duly approved by the Hon'ble Calcutta High Court on 24.12.2010. As discussed above, before according approval for amalgamation, the Hon'ble Calcutta High Court had taken a No Objection Certificate from the Income Tax Department which means that the Department had made necessary verification before giving No Objection for amalgamation / merger of such companies into 'Twenty First Century India Ltd. Once, No Objection had been given by the Income Tax Department for the amalgamation and three companies for allotment of shares by 'Twenty First Century India Ltd., we fail to understand how the Income Tax Department has come out (on the basis of statement of Mr. Ashok Kumar Khemka) that 'Twenty First Century India Ltd., was just a paper company. The Income Tax Department either did not make proper verification before giving No Objection to the Hon'ble High Court for the amalgamation of these companies or merely on the basis of a statement or findings regarding 'Twenty First Century India Ltd. (the basis of statement of Shri Ashok Kumar Khemka) is wrong. Both cannot be correct at the same time. In our considered view, once the Income Tax Department had given / filed ‘No Objection’ to the Hon'ble Calcutta High Court on which the Hon'ble High Court approved the amalgamation of companies into 'Twenty First Century India Ltd., it is no case for the Department to call the same company, a paper company just after a year. Therefore, we are of this considered view that the findings given by the Assessing Officer in the assessment order and Ld. CIT(A) in his appellate order are not based on sound basis and correct appreciation of the situation. Thus, we have no hesitation in rejecting the findings of both these authorities below. Accordingly, Assessee’s appeal on merit is allowed. Apart from addition made on the basis of sale of shares of 'Twenty First Century India Ltd.’, the Assessee has made addition of Rs. 1,11,11,519/- on the basis of sale of shares of DLC Exports Ltd. The Assessee right from the beginning has been arguing that it never dealt in the purchase and sale of shares of DLC Exports Ltd. but the Assessing Officer made the addition of the same without bringing any documentary evidence against the Assessee. The ld. CIT(A) has also confirmed it without bringing any relevant document for the same.
During proceedings before us, the Revenue could not produce any evidence regarding trading of shares of DLC exports Ltd. by the Assessee other than the assessment order and the appellate orders of the authorities below. The Counsel of the Assessee clearly and categorically stated that the Assessee has never dealt in the shares of DLC Exports Ltd, so this addition has been made on the basis of information of some other person. We have considered it and we find that this addition has been made without bringing any documentary evidence against the Assessee on record by the authorities below. Therefore, along with the addition for 'Twenty First Century India Ltd’, the addition made of Rs. 1,11,11,519/- for shares dealing in DLC Exports Ltd by authorities below are deleted and the exemption as claimed u/s 10(38) by the Assessee are allowed.
ITA 689/CHD/2024 A.Y. 2012-13 14 25. Since the appeal of the Assessee has been allowed on merit, therefore, discussion and findings on technical issue of reopening, just remains as an academic issue. We are not inclined to discuss in detail this academic issue here and accordingly, Assessee’s appeal on this technical issue is dismissed just for statistical purposes. 26. In the result, appeal of the Assessee is partly allowed.”
Respectfully following the order of the Co-ordinate Bench in the case of assessee's brother and in the case of Shri Sunny Jain in ITA 1167/CHD/2019 dated 04.08.2022, we are of the view that there is no disparity on the facts and circumstances. Accordingly, disallowance made of the claim u/s 10(38) of the Income Tax Act is deleted. In other words, assessee will be entitled for exemption of Long Term Capital Gain u/s 10(38) of the Income Tax Act.
In the result, appeal of the assessee is partly allowed.
Order pronounced on 17th September,2025.