RAKHEE JAIN,CHENNAI vs. ACIT NON CORPORATE CIRCLCE 17(1), CHENNAI

The assessee filed this appeal against the order of Commissioner of Income Tax (Appeals)-5, Chennai, in dated 26.03.2019 for the assessment year 2014-15.

Smt. Rakhee Jain, the assessee, filed her return of income for the assessment year 2014-15 on 25.12.2014 admitting a total income of Rs. 29,64,880/-, which was selected by CASS in order to examine suspicious transaction relating to LTCG. During assessment proceedings , the A O found that assessee purchased and sold penny stock of M/s Turbo Tech Engineering Ltd. and claimed exemption u/s. 10(38). An investigation carried out by the Investigation Wing, Kolkatta had revealed that large scale manipulation had been/being done in market price of shares of certain companies listed in the Bombay Stock Exchange by a group of persons acting as a syndicate in order to provide entries of tax exempt long term capital gains to a large number of persons (beneficiaries) in lieu of unaccounted cash. According to the information, the assessee is one of the persons who indulged in bogus/ non-genuine LTCG from the alleged purchase and sale of shares etc. After considering the assessee’s reply etc, the AO completed the assessment under Section 143(3) treating the entire sale consideration as an unexplained cash credit and added it to the returned income. Aggrieved on such order, the assessee filed an appeal before the CIT(A). The Ld CIT(A) dismissed the assessee’s appeal. Aggrieved against that order, the assessee filed this appeal .

It was submitted by Ld. A.R that the issue in this appeal was against the action of the Ld. CIT(A) in confirming the addition made by ld. Assessing Officer in treating the purchase and sale of shares by the assessee, as penny stock transactions. On the issue u/s 10(38), the Ld. AR submitted on the lines of grounds of appeal

We have considered the rival submissions. On the issue of exemption claim u/s 10(38), it is noticed that the assessee has not been given a fair opportunity to prove the genuineness but the assessment has been made based, primarily, on the evidences collected by the Revenue in the course of the investigation

Further, perusal of assessee’s case shows that it is similar to the facts in the case of Shri Heerachand Kanunga, a decision of the Co-ordinate Bench of this Tribunal made for assessment years 2010-11 & 2011-12 in & 2787/Mds/2017 dated 03.05.2018 . The relevant portions from that order is extracted as under :-

Admittedly, the assessee has claimed to have purchased 15000 shares from M/s.BPL @ Rs.20/- per share totaling into Rs.3,00,000/-. The assessee claims to have paid cash for the purchase of these shares. The primary question would be as to where the purchase was done? If the purchase has been done in Kolkata, how was the cash transferred? When did the assessee received the share certificates and the share transfer forms? How did the assessee overcome the provisions of Sec.40A(3)? Was there adequate cash availability in the books of the assessee on 24.04.2008? Did the assessee travelled to Kolkata? How was the transaction done? Who applied for the demating of the shares? When were they demated? When were the shares transferred to the demat account of the assessee? To whom were the shares sold during the Assessment Years 2010-11 & 2011-12? When were the cheques received by the assessee? From whom did the assessee received the cheques? Was there any cash deposit immediately prior to the issuing of the cheque from the bank account of the purchaser of the shares of the assessee? 11. A perusal of the Assessment Order at Para No.7.1 shows that in the Written Submissions, the assessee states that he has purchased 15000 shares of M/s.BPL from M/s.ABPL, Kolkata. However, in Para No.8.3, it is mentioned that the assessee in good faith has purchased the shares of M/s.BPL from a sub-broker in his friends circle. What is the true nature of the transaction? From whom did the assessee actually purchase the shares? Did the assessee take possession of the shares in its physical form? In Para No.8.1 of the Assessment Order, it is mentioned that the assessee is an investor and has been regularly trading in shares. If this is so, does the demat account show such transactions being done by the assessee or is this the only one of transaction. Thus, clearly the facts required for adjudicating the appeals are not forthcoming. There is no evidence whatsoever to show that the :-7-: 12 months. This is because assuming that the demat has been done and the shares of M/s.BPL has come into the assessee’s demat account and has immediately flown out. Then the factum of the possession of the shares for more than 12 months have to be proved by the assessee. This is also not forthcoming. In reply to a specific query, as the date of the demat of shares, it was submitted by the Ld.AR that the demat was done on various dates. Then the question rises as to why there is so much of difference in the dates of demating when 15000 shares have been purchased together on 24.04.2008. No details in respect of M/s.BPL company is known, what is the product of the company which had lead to the share value of the company to go up from Rs.20/- to Rs.352/- in a period of two years. This would clearly be a case where the share value of the company was hitting the circuit breaker of the stock exchange on a daily basis and obviously it would have drawn attention. This being so, as the facts are not coming out of the Assessment Order nor the order of the Ld.CIT(A) nor from the side of the assessee, we are of the view that the issues in this appeal must be restored to the file of the AO for re-adjudication after granting the assessee adequate opportunity to substantiate its case and we do so.

The statement recorded by the Revenue from Shri Ashok Kumar Kayan cannot be used as an evidence against the assessee in so far as the statement has not been given to the assessee nor has Shri Ashok Kumar Kayan been provided to the assessee for cross-examination. However, the assessee shall prove the transaction of the Long Term Capital Gains in respect of which the assessee has claimed the exemption u/s.10(38) by providing all such evidences as required by the AO to substantiate the claim as also by producing the persons through whom the assessee has undertaken the transaction of the purchase and sale of the shares which would include the sub-broker, friend and the broker through whom the transaction has been done, before the AO for examination.

Respectfully following the above orders, on the facts and circumstances of this case, we deem it fit to remit the issues of :-8-: A.O. for re- adjudication on the lines indicated above. Therefore, the A O shall require the assessee; to establish who, with whom, how and in what circumstances the impugned transactions were carried out etc., to prove that the impugned transactions are actual, genuine etc. The assessee shall comply with the A.O’s requirements as

In the result, the assessee’s appeal is treated as partly allowed for statistical purposes.