NEETA BOTHRA,CHENNAI vs. ITO NON CORPORATE WARD 9(3), CHENNAI

आदेश / O R D E R

PER G.MANJUNATHA, AM: These two appeals filed by the assessee are directed

against separate, but identical orders of learned CIT(A)-10,

Chennai, both dated 12.06.2018 and pertains to assessment

years 2012-13 and 2013-14. Since, facts are identical and

issues are common, for the sake of convenience, these appeals

were heard together and are being disposed off, by this

consolidated order.

there is a delay in filing appeal by the assessee for assessment

2 ITA No. 2507 & 2508/Chny/2018

year 2012-13 for 18 days, for which necessary petition for

condonation of delay explaining reasons for delay has been

filed. The AR further submitted, in fact there is no delay, but the

delay of 18 days is on account wrong date mentioned in Form

36, for receipt of order from office of the CIT(A), as per which,

the date taken as 12.06.2018 instead of 16.07.2018. if, actual

date of receipt of order, i.e. 16.07.2018 is considered, then

there is no delay in filing appeal. Therefore, delay may be

condoned in the interest of advancement of substantial justice.

condonation of delay petition filed by the assessee submitted

that the reasons given by the assessee do not come within the

ambit of reasonable and bona-fide reasons, which can be

considered for condonation of delay and hence, appeal filed

by the assessee for assessment year 2012-13 may be

dismissed as not maintainable.

by the assessee for condonation of delay, we are of the

considered view that reasons given by the assessee for not

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filing the appeal within the time allowed under the Act comes

under reasonable cause as provided under the Act for

condonation of delay and hence, delay in filing of appeal is

condoned and appeals filed by the assessee for assessment

year 2012-13 is admitted for adjudication.

of appeal for both assessment years, therefore, for the sake of

brevity, grounds of appeal filed in ITA No.2507/Chny/2018 for

assessment year 2012-13 are reproduced as under:-

“The order of the learned Commissioner of Income (Appeals)- 10, is wrong, illegal and opposed to facts of the instant case.

Both the Assessing officer and the CIT(A) in total non- application of mind to the facts of the appellants case erred in law in disallowing the claim of appellant claim of relief under section 10(38) of the Income Tax Act.

The learned CIT(A) ought to have seen that there is absolutely no adverse material to implicate the Appellant was involved in manipulation of shares or that the transaction of purchase and sale of sale was bogus to disallow the appellants claim of relief under section 10(38) of the Income Tax Act.

The learned CIT(A) appeals erred in disallowing the claim of the appellant under section 10(38) of the Income Tax Act and consequently failed to follow the dictum laid by the supreme court in the case of TEJUA ROHITKUMAR KAPADIA while confirming the addition made under section 68.

The learned Assessing officer and the CIT(A) erred in assessing the income from purchase and sale of shares under the head un explained credit under section 68 and not as

ITA No. 2507 & 2508/Chny/2018

income exempt under section 10(38) of the Income Tax Act as claimed by the appellant despite the fact that the appellant produced salient evidences to prove the genuineness of the transaction. The said uncontroverted evidences are overlooked both by the assessing officer and CIT(A) without any rhyme of reason and orders passed in a stereo typed manner on the basis of suspicion and surmise without application of mind to the facts of the appellants case.

The learned CIT(A) erred in relying on the decision of Hon’ble Mumbai High Court in the case of PCIT Vs Sanjay Bimal Chand Jam wherein the transaction was off market and purchase was through cash. The learned CIT(A) ought to have seen that in the case of the appellant the transaction of purchase and sale of shares are through recognized stock exchange which is fully supported by uncontroverted Documentary evidences and payment of STY which establish the bonafide of the appellants claim.

The learned CIT(A) erred in law in not following the decision of the Jurisdiction Tribunal in the case of Nirav Kumar Mahendra Sapani and Kinner Prafulchand Sapani . The order passed by the learned CIT(A) is totally against judicial discipline and is bad in law.

The learned assessing officer as well as the CIT(A) erred in relying on a certain pattern of bogus claim which is totally irrelevant to facts of the appellants. The learned lower authorities erred in relying on investigation in the case of third party which has no bearing on the appellants transaction to disallow the claim of the appellant under section 10(38).

The learned assessing officer as well as the CIT(A) have not brought to record any evidences to prove that the said transaction that the assesse had entered into was bogus in nature, basing the above purely on assumptions and suspicion. The learned assessing officer as well as the CIT(A) have not followed the doctrine of Res inter alios acta alteri nocere non debet and have, without any evidence to the same, held a valid transaction of the appellant as an unexplained credit.”

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order for Asst. year 2012-13 are that the assessee is an

individual, derives income from business or profession and

income from other source, filed her return of income for

assessment year 2012-13 on 20.12.2013 declaring total

income at Rs.1,67,390/-. The case has been subsequently

reopened u/s.147 of the Income Tax Act, 1961, for the reasons

recorded as per which income chargeable to tax had been

escaped assessment on account of exemption claimed

u/s.10(38) of the Income Tax Act, 1961, in respect of long term

capital gain derived from sale of shares of certain companies

and hence, notice u/s.148 was served on the assessee. The

case has been taken up for scrutiny and during the course of

assessment proceedings, the Assessing Officer noticed that the

assessee had purchased 2000 shares of M/s. Tuni Textile Mills

Ltd. for financial year 2010-11 in two lots, one 950/- shares @

Rs.116.59 per share and another for 1050/- shares @

Rs.122.41 per share. The Assessing Officer further noticed that

subsequently the company has split its equity shares having

face value of Rs.10/- per share, into face value of Rs. 1 per

shares, consequently, 2000 shares held by the assessee

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became 20,000 shares of M/s. Tuni Textile Mills Limited. These

shares were subsequently sold on 05.03.2012 in the financial

year relevant to assessment year 2012-13 @ Rs.95.50 per

share for total consideration of Rs.19,05,200/-. The assessee

has computed long term capital gain and claimed exempt u/s.10

(38) of the Act.

gain u/s.10(38) and has not accepted explanation furnished by

the assessee and according to him, assessee is one the

beneficiary of bogus long term capital gain derived from penny

stocks. The Assessing Officer has discussed the issue at length

in light of financial statements of M/s. Tuni Textile Mills Limited,

and opined that although share price of company was escalated

in stock market, but such increase in share price was not

supported by financials. Therefore, he opined that the assessee

is part of organized racket of bogus long term capital gain

derived from trading in shares of M/s. Tuni Textiles Limited and

hence, entire consideration received from sale of shares has

been treated as unexplained cash credit and added back u/s.68

of the Act. The Assessing Officer has also taken support from

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investigation carried out by Department in respect of penny

stock companies to arrive at a conclusion that M/s. Tuni Textile

Mills Limited is named as penny stock in the report prepared by

investigation wing of the Department.

preferred an appeal before CIT(A). Before the learned CIT(A),

the assessee submitted that the Assessing Officer has erred in

making addition towards consideration received for sale of

shares u/s.68 of the Act as unexplained cash credit, without

appreciating fact that the assessee has purchased shares

through recognized stock exchange and further, sold shares in

recognized stock exchange for which necessary evidences

including broker note and bank statements evidencing payment

and receipt of consideration through cheque has been filed.

The learned CIT(A), after considering relevant submissions of

the assessee and also taken support from certain judicial

precedents held that although the assessee claims to have

purchased shares through recognized stock exchange and

also utilized services of broker M/s.Kunvarji Finstock Pvt.Ltd.

based at Ahmadabad, but failed to explain as to why she has

8 ITA No. 2507 & 2508/Chny/2018

availed services of a broker based at Ahmadabad for specific

transaction of purchase and sale of shares of M/s. Tuni Textile

Mills Limited., even though she is based at Chennai. The

learned CIT(A) further noted that the broker M/s.Kunvarji

Finstock Pvt.Ltd. was previously charged by SEBI under the

Prohibition of Fraudulent & Unfair Trade Practices relating to

Securities Market Regulations, 1995, and was also found guilty

of violating regulatory requirements. He further noted that

shares of M/s. Tuni Textile Mills Limited have been specifically

named as penny stocks by investigation wing of the

Department. The learned CIT(A) further noted that assessee is

also unable to explain how a company which is having

negligible financial strength has split its equity shares in the

ratio of 1 : 10 and further, failed to explain how price of shares

was quoted at a record 9400% growth rate in a short span of

two years. Therefore, he opined that mere furnishing certain

evidences, including broker notes to prove purchase and sale

of shares through online platform and further payment or

receipt of consideration through proper banking channel is not

sufficient to prove genuineness of transaction, when other

circumstantial evidences show that transaction of shares

9 ITA No. 2507 & 2508/Chny/2018

trading is not genuine. Therefore, he has rejected arguments of

the assessee and confirmed additions made by the Assessing

Officer. Aggrieved by the learned CIT(A) order, the assessee is

in appeal before us.

learned CIT(A) has erred in upholding additions made by the

AO towards consideration received for sale of shares u/s.68 of

the Income Tax Act, 1961, without appreciating fact that the

assessee never involved in rigging sale price of shares in the

market and also the AO has not brought on record any

evidence to prove that the assessee is part of group of people,

who are involved in rigging of share price in the market. The

AR further submitted that no doubt M/s. Tuni Textile Mills

Limited may be named as penny stock by investigation wing of

the Department, but what is to be seen is whether the assessee

is part of that group, who is involved in rigging of share price

and also beneficiary of artificial increase in share price trading.

Unless the AO brought on record some evidences to prove that

there is a direct nexus between income derived by the

assessee from sale of shares and rigging of share price in the

10 ITA No. 2507 & 2508/Chny/2018

market, he cannot treat genuine transactions of purchase and

sale of shared as unexplained cash credit u/s.68 of the Act.

The AR further referring to various decisions submitted that

various High Courts, including the Hon’ble Delhi High Court,

has considered similar issue in light of investigation carried out

by income-tax department to unearth organized racket of penny

stocks companies and after considering facts held that unless

the Assessing Officer proves that there was an agreement

between the parties to convert unaccounted money by taking

fictitious long term capital gain in a pre-planned manner, he

cannot proceed to make additions entirely on unsupported

material on record. The AR further submitted that no doubt,

there are divergent views on the issue, where some High

Courts have held that once it is proved that scrip is a penny

stock, then it is to be held that the assessee is also a

beneficiary of bogus long term capital gain, but fact remains

that in all those cases considered by Hon’ble High Courts and

decided in favour of revenue, the fact was that purchase of

shares was always offline either through private placement or

purchase in grey market and sale was through recognized stock

exchange. In this case, purchase as well as sale both are online

11 ITA No. 2507 & 2508/Chny/2018

and the assessee has paid and received consideration through

cheque, therefore, case laws relied upon by the revenue has no

application to the facts of present case. The learned CIT(A)

without appreciating facts has simply confirmed additions and

his order should be set aside.

order of the ld.CIT(A) submitted that facts brought out by the

AO as well as ld.CIT(A) categorically proves that scrip was traded in stock market with exorbitant increase in price, even

though financials of the company was not supported such

increase in price. He further submitted that no doubt, the

assessee has filed necessary evidences to prove that she has

purchased and sold shares through recognized stock

exchange, but what is to be seen is whether the assessee is a

regular investor in shares or has made an isolated transaction

of one purchase and sale in particular scrip. In this case, it is

abundantly clear that the assessee was never into purchase

and sale of shares, but entered into one isolated transaction of

purchase and sale of shares of a specific company M/s. Tuni Textile Mills Ltd. and said company was named as penny

stocks, upon consideration of facts gathered during the course

12 ITA No. 2507 & 2508/Chny/2018

of investigation . Therefore, there is no merit in the arguments

taken by the assessee that long term capital gain derived from

sale of shares is genuine transaction.

available on record and gone through orders of the authorities

below along with various case laws cited by both the sides.

There is no dispute with regard to facts that the assessee has

purchased shares of M/s. Tuni Textile Mills Ltd. through

recognized stock exchange and paid consideration by cheque.

It is also not in dispute that the assessee has sold shares

through recognized stock exchange and received consideration

by cheque. In fact, the Assessing Officer as well as learned

CIT(A) were never disputed fact that purchase and sale of

shares was online and consideration was paid and received by

cheque. The only dispute is that the scrip of M/s.Tuni Textile

Mills Ltd. is penny stock as per investigation carried out by the

Department and further, the assessee may be beneficiary of

bogus long term capital gain derived from purchase and sale of

shares.

13 ITA No. 2507 & 2508/Chny/2018

Officer to arrive at a conclusion that consideration received for

sale of shares of M/s.Tuni Textile Mills Ltd. is unexplained cash

credit and assessable u/s.68 of the Income Tax Act, 1961 and

we do not ourselves subscribe to reasons given by the

Assessing Officer as well as learned CIT(A), because both

authorities had proceeded predominantly on the basis of

analysis of financial statements of M/s.Tuni Textile Mills Ltd.

We do not find anything to comment on the analysis of

financials of the company by the Assessing Officer, but we do

not agree with the conclusion arrived at by the Assessing

Officer only on the basis of analysis of financial statement of the

company to treat consideration received for sale of transfer of

shares by the assessee as unexplained cash credit. No doubt,

M/s. Tuni Textile Mills Ltd. may be named as penny stock by

the income tax department based on facts gathered during the

course of investigation. It may also be correct that financials of

the company may not support such a huge rise in share price

within short span of two years. But, these two facts alone are

not sufficient to draw adverse inference against the assessee,

14 ITA No. 2507 & 2508/Chny/2018

unless the AO linked transactions of the assessee to organized

racket of artificial increase in share price.

assessee has filed relevant documents including contract note

issued by stock broker, as per which purchase and sale of

shares were through online. The assessee has paid

consideration for purchase of shares by cheque and had

received consideration for sale of shares by cheque. The

Assessing Officer has not made any adverse comments on the

evidences filed by the assessee, but he has disbelieved

documents filed by the assessee for simple reason that broker

was kept under watch list by the SEBI for fraudulent and unfair

trade practices relating to Securities Market Regulations, 1995.

We find that basis on which the Assessing Officer has

concluded his finding to hold the assessee is a beneficiary of

bogus long term capital gain is not supported by any

corroborative evidences. No doubt, broker may be kept under

watch list for some fraudulent activities, but whether the

assessee is part of that fraudulent activity or not has to be

seen. Moreover, there is no evidence on record to show that

15 ITA No. 2507 & 2508/Chny/2018

assessee was part of the organized racket of rigging price of

shares in the market. The findings of the Assessing Officer is

purely based on suspicious and surmise manner. Therefore, we

are of the considered view that unless the Assessing Officer

brings certain evidences to support his finding that the

assessee is also involved in rigging share price to get undue

benefit of exemption u/s.10(38) of the Income Tax Act, 1961,

the transactions of sale and purchase of shares through

recognized stock exchange cannot be treated as unexplained

cash credit u/s.68 of the Act. In this case, the Assessing Officer

has predominantly went on the basis of theory of human

behavior and preponderance of probabilities for the reason

that the assessee was never involved in purchase and sale of

shares, but has done isolated transaction of purchase and sale

of a particular company . The said finding of the AO is contrary

to facts, because, the assessee was a regular investor in

shares which is evident from Demat account furnished before

us, as per which along with this script, the assessee had

purchased and sold number of other scripts.

16 ITA No. 2507 & 2508/Chny/2018

learned A.R for the assessee and ld. AO as well as ld. CIT(A).

As we have already observed, there are divergent views of the

issue by various high courts and Tribunal and said view is

based facts of those case. Since it is a factual issue which can

be decided on the basis of facts of each case and evidences

placed on record, we do not wish to comment on various case

laws relied upon by both sides.

circumstances of this case, we are of the considered view that

the Assessing Officer as well as learned CIT(A) were erred in

treating consideration received for sale of shares as

unexplained cash credit u/s.68 of the Act. Hence, we direct the

Assessing Officer to delete additions made u/s.68 of the Act.

ITA No.2508/Chny/2018 (A.Y.2013-14):

considered in ITA No.2507/Chny/2018 for the assessment

17 ITA No. 2507 & 2508/Chny/2018

year 2012-13, but for change in scrip traded by the

assessee. The Assessing Officer has treated consideration

received for sale of shares as unexplained cash credit

u/s.68 of the Act, for similar reasons given for assessment

year 2012-13. Therefore, we are of the considered view

that reasons given by us in the preceding paragraphs in

ITA No.2507/Chny/2018 shall mutatis mutandis apply to

this appeal as well. Therefore, for similar reasons, we

direct the Assessing Officer to delete additions made

towards consideration received for sale of shares u/s.68 of

the Act. In the result, appeal filed by the assessee is

allowed.

assessment years are allowed. Order pronounced in the open court on 8th September, 2021

Sd/- Sd/- ( वी.दुगा� राव) ( जी. मंजुनाथ) (V.Durga Rao) ( G.Manjunatha ) $या�यक सद&य /Judicial Member लेखा सद&य / Accountant Member चे$नई/Chennai, )दनांक/Dated 8th September, 2021 DS आदेश क� ��त+ल,प अ-े,षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु.त (अपील)/CIT(A) 4. आयकर आयु.त/CIT 5. ,वभागीय ��त�न2ध/DR 6. गाड� फाईल/GF.