VIJAY KOTHARI,INDORE vs. DCIT (CENTRAL)-1, INDORE

आदेश/ O R D E R

Per B.M. Biyani, A.M.:

A.Y.:2015-16 2. Heard the learned Representatives of both sides at length and carefully perused the documents held on record including the orders of lower authorities and the papers/paper-books filed by both sides from time to time.

3.1 The Registry has informed that the present appeal has been filed after a delay of 382 days and therefore time-barred. Ld. AR for assessee submitted that the assessee has filed an application/affidavit for condonation of delay; the affidavit filed by assessee is scanned and re-produced:

A.Y.:2015-16 3.2 Ld. AR initially carried us to the averments made by assessee in Para 3 of above affidavit wherein the assessee has deposed that the notices of hearing and the impugned order were not served by CIT(A) on the e-mail provided by assessee in Form No. 35; they were served on a different e-mail id client_rsbco@yahoo.com [the assessee has given e-mail id:

“shailendrasolanki123@gmail.com” in Form No. 35], hence there occurred delay in filing present appeal before ITAT. Ld. AR further submitted that although the CIT(A) has not mentioned the details of hearings given to assessee in impugned order but in Para 3 of impugned order, the CIT(A) has re-produced the written-submissions made by assessee to him. Since there was an apparent contradication i.e. on one hand the assessee claimed not to have received notices of hearing from CIT(A) and on other hand the CIT(A) has re-produced the written-submission filed by assessee before him, the bench directed Ld. AR to file a detailed explanation qua the service of notices of hearing and impugned order by CIT(A). Pursuant to direction of bench, the Ld. AR filed following Chart giving complete details of the notices and impugned order u/s 250 served by CIT(A):

Page 5 of 25 A.Y.:2015-16 3.3 In support of above Chart, the Ld. AR also filed copies of notices issued by CIT(A). Finally, Ld. AR successfully demonstrated that the notices appearing at S.No. 4 to 8 were only issued to the e-mail id:

“sharedrasolanki123@gmail.com” supplied by assessee in Form No. 35; all other notices and impugned order (preceding at S.No. 1 to 3 as well as succeeding at S.No. 9 to 14 of Chart) were issued to other email id:

“client_rsbco@yahoo.com”. Being so, the assessee was able to make submissions to CIT(A) in response to the notices issued to correct email-id

Page 6 of 25 A.Y.:2015-16 “shailendrasolanki123@gmail.com” but, however, was unable to make submissions or even file present appeal in time since other notices as well as impugned order were served on e-mail id “client_rsbco@yahoo.com” not provided by assessee in Form No. 35.

3.4 Ld. AR very humbly submitted that there is no lethargy, negligence, mala fide intention or ulterior motive of assessee in making delay and the assessee does not stand to derive any benefit because of delay. He submitted that the sole reason of delay is as explained in the condonation- application/affidavit. He submitted that there is “sufficient cause” for delay and hence the delay should be condoned.

3.5 Ld. DR for Revenue left the matter to the wisdom of Bench without raising any objection.

3.6 We have considered the explanation advanced by assessee and in absence of any contrary fact or material on record, the assessee is found to have a “sufficient cause” for delay in filing present appeal as explained by Ld. AR. We find that section 253(5) of the Act empowers the ITAT to admit an appeal after expiry of prescribed time, if there is a “sufficient cause” for not presenting appeal within prescribed time. It is also a settled position by Hon’ble Supreme Court in Collector, Land Acquisition Vs Mst. Katiji and others 1987 AIR 1353, 1987 2 SCC 387 that whenever substantial justice and technical considerations are opposed to each other, the cause of substantial justice must be preferred by adopting a justice-oriented approach.

Page 7 of 25 A.Y.:2015-16 Thus, taking into account the facts of case, the provision of section 253(5) and the decision of Hon’ble Supreme Court, we take a judicious view, condone delay, admit appeal and proceed with hearing.

During scrutiny proceedings, the AO queried assessee qua the transactions of impugned capital gain declared by assessee. In reply, the assessee made submissions which the AO considered. Then, the AO also considered various aspects of modus operandi of availing bogus exempted capital gain through stock exchange; the investigation conducted by SEBI/Kolkata Investigation Wing of Income-tax Department in the matter of shares of Sunrise and against the brokers involved in arranging capital gain; the financial parameters of Sunrise; the mode of acquisition of impugned shares by assessee; the aspects of sudden price increase and price rigging in the share of Sunrise, etc. and ultimately noted his adverse conclusions in Para 8 of Page 8 of 25 CIT and Durga Prasad More Vs. CIT, the AO treated the exempted capital gain declared by assessee as “bogus” having been arranged through accommodation. Accordingly, the AO rejected the claim of exempted capital gain declared by assessee and in turn made an addition of Rs. 26,04,470/- on account of income from “undisclosed sources”. Aggrieved, the assessee carried matter in first-appeal but could not succeed. Now, the assessee has come in next appeal before us.

(a) The assessee purchased 6,000 shares of “Conart Traders Ltd.” [“Conart”] @ Rs. 25/- per share for a total consideration of Rs. 1,50,000/- from M/s P. SAJI TEXTILES LIMITED, Mumbai [“Seller”].

Copy of the Debit-Note dated 16.01.2012 issued by Seller is placed at Page 14 of Paper-Book-I.

(b) The assessee paid purchase consideration of Rs. 1,50,000/- to the seller through account payee cheque on 22.10.2011. The copy of assessee’s bank pass-book (alongwith a readable typed version of Page 9 of 25

1,50,000/- is placed at Pages 5-7 of Paper-Book-I.

(c) The shares purchased by assessee were in physical form. The copy of share-certificate is placed at Pages 15-16 of Paper-Book-I. These shares were transferred in the name of assessee on 16.01.2012. The transfer in favour of assessee is duly endorsed on the back of share- certificate in “Memorandum of Transfers”.

(d) The assessee got the physical shares of Conart converted into dematerialised [“demat”] form. The Copy of Demat A/c of assessee with “Stock Holding Corporation of India Ltd.” for the period

01.04.2013 to 31.03.2014 is filed at Pages 18-19 of Paper-Book-I. The Demat A/c clearly shows opening balance of 6,000 shares of Conart held by assessee as on 01.04.2013.

(e) The company ‘Conart Traders Ltd.’ [“Conart”] and one more company named ‘Santoshine Tradelinks Ltd.’ got amalgamated into ‘Sunrise

Asian Ltd.’ [“Sunrise”] under a scheme of amalgamation approved by Hon’ble Bombay High Court dated 22.03.2013. Copy of order of Hon’ble High Court is placed at Pages 8-13 of Paper-Book-I.

(f) Consequent upon such amalgamation, the assessee received 6,000 shares of Sunrise in lieu of original 6,000 shares of Conart.

Accordingly, in the Demat A/c of assessee, there is a debit entry of Page 10 of 25

6,000 shares of Conart with corresponding credit entry of 6,000 shares of Sunrise on 26.06.2013/28.06.2013.

(g) Finally, the assessee sold 6,000 shares of Sunrise in three tranches on 08.09.2014, 10.09.2014 and 24.12.2014 in Bombay Stock Exchange [“BSE”] through registered broker “M/s SHCIL Services Limited”, after holding for more than 1 year. The copies of Contract- Notes issued by broker are placed at Pages 20-25 of Paper-Book-I.

The Contract-Notes contain all details like broker’s details, assessee’s details, assessee’s PAN, order no./time, trade no./time, quantity, rate, brokerage. Further, the broker has charged various statutory levies like Securities Transaction Tax (STT), Service-tax, SEBI fee,

Stamp duty, etc. in Contract-Notes.

(h) The assessee paid purchase consideration from bank a/c and also received sale consideration in bank a/c. Copy of bank pass-book is placed at Pages 5-7 of Paper-Book-I. Neither the purchase consideration was paid in cash nor the sale consideration was received in cash.

Page 11 of 25 A.Y.:2015-16 transactions merely on the basis of some enquiries carried by Income-tax Department on the brokers or his own analysis of financial parameters of impugned shares, price rigging, etc. Ld. AR relied upon following decisions in which the transactions/capital gain declared by different assessees from the very same shares of Sunrise have been accepted as genuine:

(a) Smt. Hema Ramesh Jain Vs. ITO – (ITAT, Mumbai) (b) ITO-5(3)(1), Ahmedabad Vs. M/s Iceworth Realty LLP – & 566/Ahd/2020 (ITAT, Ahmedabad) (c) Shri Nilesh Jain (HUF) Vs. ITO-4(2), Indore – (ITAT, Indore) (d) The Chief Commissioner of Income-tax Vs. Shri Nilesh Jain (HUF) – of 2021 (Hon’ble MP High Court)

“6.3 It is important to mention here that the assessee has purchased the shares of Contract Traders Ltd. (subsequently merged in Sunrise Asia Ltd.) from P. Saji Textiles Ltd. The payment of Rs. 1,50,000/- in this regard was made to P. Saji Textiles Ltd. on 22/10/2011. However, the shares of Contract Traders Ltd was allotted to P. Saji Textiles Ltd. on 16/01/2012 and on the same day i.e. 16/01/2012 it was transferred in the name of assessee. It arises a big question as when P. Saji Textiles Ltd. have no shares of Contract Traders Ltd. on 22/10/2011 then why payment in this regard has been made by assessee. Secondly, P. Saji Textiles Ltd. has allotted shares on 16/01/2012 and on the same day transferred in the name of assessee whereas P. Saji Textiles Ltd. is Mumbai based company and assessee resides in Indore and transaction is offline. This is absolutely abnormal and asymmetrical against the accepted practice being followed while allotting preferential share by the companies.”

(i) The AO has given a very strong finding that the assessee payment to the seller i.e. P. Saji Textiles Ltd on 22.10.2011 whereas the shares of Conart were allotted to the seller on 16.01.2012 and on the same day i.e. 16.01.2012 those shares were transferred to assessee. Therefore, when the seller was not having any shares of Conart on 22.10.2011, how could the assessee enter into a deal with the seller for purchase of non-existent shares and make payment on 22/10/2011?

(ii) The share-certificate filed by assessee shows that the registered office of Conart was situated at Mumbai but the share-certificate has been issued at Coimbatore. This is also contradictory and raises a serious doubt on authenticity of share-certificate.

Basically, it is contended that the share-certificate itself contains a seal/marking “This certificate is being issued in lieu of Certified no. 841 dated 16/1/2012”. This, according to Ld. AR, reveals that there was a pre-existing certificate No. 841 and in lieu of such pre-existing certificate, the present/new share-certificate (i.e. the share-certificate purchased by assessee from seller) was issued. In Para 1.8 of Written-Submission, the Ld. AR has mentioned “It does not mean that certificate no. 841 was also issued on 16.01.2012”. Having said thus, Ld. AR submitted that the assessee does not have any detail of pre-existing certificate(s) held by seller but the factum of pre-existing share-certificate i.e. the shares existing prior to 16.01.2012, is clearly established by the seal/marking in present/new share-certificate purchased by assessee. Ld. AR went ahead to contend that the assessee has already filed copy of Demat A/c, which clearly reflects the holding of 6,000 shares of Conart as on 01.04.2013. When it is so, the holding of 6,000 shares of Conart by assessee before 01.04.2013 cannot be rebutted or doubted. According to Ld. AR, the 6,000 shares held in Demat A/c as on 01.04.2013 is nothing other than the 6,000 shares purchased by assessee from seller through present/new share-certificate. Ld. AR further contended that the entries of credit and debit transactions of original shares of Conart (before amalgamation) as well as new shares of Sunrise (after amalgamation) are very much available in Demat A/c. Therefore, there

We would like to deal these in subsequent discussions.

15.1 The first observation/finding relates to the timing of payment and the allotment/transfer of purchased shares. The assessee claims to have paid purchase consideration of Rs. 1,50,000/- on 22.10.2011 to the seller/P. SAJI TEXTILES LTD. for purchase of shares of Conart. The share-certificate was, however, allotted by Conart Traders Ltd. to the seller/P. SAJI TEXTILES LTD. on 16.01.2012 and the same was also transferred in the name of the assessee on 16.01.2012. Therefore, the AO’s question is when the company Conart Traders Ltd. allotted shares to the seller on 16.01.2012, how could the assessee enter into a deal for purchase of such non-existent shares and make payment of consideration to seller on 22.10.2011?

15.2 To address this observation of the AO, the limited submission of the assessee is that the seal/marking on the present/new certificate indicates that the said certificate was issued in lieu of an earlier share-certificate.

Page 20 of 25 (a) The AO requires evidence from the assessee to establish that the seller was actually holding shares of Conart on 22.10.2011 i.e. on the date on which the assessee paid purchase consideration to seller, but till now the assessee has not given any such evidence.

(b) The language of seal/marking in share-certificate being relied by assessee/Ld. AR is: “This certificate is being issued in lieu of Certified no. 841 dated 16/1/2012”. A careful reading of the language of seal/marking would show that the “Certificate No. 841 itself was dated 16.01.2012”. Therefore, the understanding projected by assessee/Ld. AR in these words - “It does not mean that certificate no. 841 was also issued on 16.01.2012” and thereby claiming that the Certificate no. 841 was pre-existing prior to 16.01.2012 is not convincing.

(c) The present/new share-certificate purchased by assessee also contains an endorsement: “Given under the Common Seal of the Company at Coimbatore, this 15th Jan Day of 2012.” This indicates that the present/new share-certificate was issued on 15.01.2012. When it is so, it remains unexplained as to how the present/new share-certificate No.

823 could be issued on 15.01.2012 in lieu of an earlier share- certificate No. 841 dated 16.01.2012.

Page 21 of 25 A.Y.:2015-16 15.3 Therefore, the mystery as to whether or not the seller was holding shares on 22.10.2011 (i.e., the date on which the assessee claims to have made payment of purchase consideration to the seller) remains unresolved on the basis of the material presently available before us. But at the same time, the copy of Demat A/c filed by the assessee reflects holding of 6,000 shares of Conart by assessee as on 01.04.2013.

16.1 The second observation/finding of lower-authorities is regarding mode of payment of purchase consideration. For this, we re-produce the findings made by AO as well as CIT(A):

Finding given by AO in assessment-order:

“➤The nature of transaction itself looks suspicious from the manner it has been conducted i.e. the abnormal appreciation in the value of shares, the mode of payment for purchase of shares not doing the transaction through the normal share dealing procedures. The assessee has shown to have received sale proceeds through cheque whereas purchases were consciously made in cash in the aforesaid manner to facilitate manipulation of the purchase for assessee’s benefit.” [emphasis supplied] Finding given by CIT(A) in impugned order:

“4.2.3. I have considered the facts of the case and various judgements relied upon by the Ld. AO and the appellant. Facts of the case are as under: (i) The appellant purchased 6000 shares of Conart Trading Ltd from M/s P. Saji Textiles Ltd though cash on 22.10.2011. Although the appellant has claimed that said purchase was made through cheque, no evidence in this regard placed by him either before the AO or me. However, the Ld. AO has given categorical finding that the said purchase was done through cash and offline plateform.” xxx

Page 22 of 25 A.Y.:2015-16 (v) The shares have been sold @ Rs. 441.25 to Rs. 484.95 per share during the period 08.09.2014 to 22.12.2014 with a unrealistic and abnormal growth of 1849% through a SEBI-registered broker. The Contract-Notes of sales demonstrate that the appellant has paid brokerage, service-tax and STT on sales. The sales is made through stock-exchange and the Order No., Trade No., Settlement No. and Trade-timings are duly mentioned in the Contract-Notes. Although the purchases were made in cash, the sale-consideration has been received through banking channel and the same has been found credited in the Bank A/c of appellant. Necessary evidences of sales have been submitted by the appellant. xxx 4.2.3.2. On the basis of above discussion, the summary of the facts is that the appellant had purchased 6000 shares @ Rs. 25 per share of Contract Traders Ltd, subsequently merged in M/s. SAL, from M/s P Saji Textiles Ltd by making payment of Rs. 1,50,000/- in cash on 22.10.2011. [emphasis supplied] 16.2 Thus, the AO has noted that the assessee made payment of purchase consideration in cash. Further, the CIT(A) has noted that although the assessee claimed before him that the payment was made through cheque but no evidence was filed before him. Ultimately, the CIT(A) has made his adjudication taking into account that the assessee made payment in cash and not through cheque. Before us, the assessee has filed a copy of bank pass-book at Pages 5-7 of Paper-Book-I and based on entries in pass-book claiming that the payment of Rs. 1,50,000/- was made through cheque. This bank pass-book filed by assessee is a new evidence, which has not been examined by lower authorities. Further, on perusal of debit entry of Rs.

1,50,000/- in pass-book, we find that the bank has mentioned payment made to “P DAJI TEXTILE” and not “M/s P. SAJI TEXTILES LIMITED”. Hence, there is a strong necessity to verify the assessee’s claim that the payment of purchase consideration was made through banking channel.

Page 23 of 25 A.Y.:2015-16 17. Therefore, we find that certain crucial aspects of the transaction require proper factual verification by AO. Firstly, the issue relating to the existence or holding of shares with the seller on 22.10.2011 (when the assessee claims to have made payment of purchase consideration) remains unresolved on the basis of the material presently available on record.

Secondly, there is a clear divergence in the findings of the lower authorities and the claim of the assessee regarding the mode of payment for purchase of shares in as much as the AO as well as the CIT(A) have proceeded on the premise that the payment was made in cash whereas the assessee now seeks to demonstrate, on the basis of the bank pass-book, that the payment was made through cheque. Considering these factual aspects, which go to the root of the matter, we are of the considered view that the issue requires fresh factual verification at the level of AO. Accordingly, in the interest of justice, we deem it appropriate to set aside the impugned order on this issue and restore the matter to the file of the AO for the limited purpose of verifying the aforesaid aspects and thereafter adjudicating the claim of the assessee afresh in accordance with law and judicial decisions. Needless to mention, the AO shall afford adequate opportunity of being heard to the assessee and the assessee shall also be at liberty to place on record such further evidences as may be considered necessary to substantiate his claim.