NAWAL KISHORE DHUPAR,NEW DELHI vs. ITO, WARD- 63(1), NEW DELHI

The grounds of appeal No.1 to 4 raised by the assesee are as under :-

Facts of the case, in brief, are that the assessee is an individual and filed its return of income on 19.07.2014 declaring total income of Rs.5,33,940/-. The assessee is a partner in the firm M/s. J. K. Enterprises and was deriving remuneration and interest income from it and also claimed an amount of Rs.21,65,606/- as exempted income of LTCG under section 10 (38) of the Act. During the course of assessment proceedings the Assessing Officer observed from various details filed by the assessee that the assessee has acquired 5,000 shares of M/s. Turbotech Engineering Ltd. on 09/04./2011 for a total cost of Rs.10,000/-. During the year the assessee has claimed long term capital gain by sale of these 5000 equity shares @ Rs.438/- on 07/06/2013 and claimed the exempted income of Rs.21,65,606/-. The Assessing Officer analysed the financials of the company which shows that at the time of investment by the assessee in April, 2011 the company was having no financial capabilities or future income prospectus. The net worth of the company was negative. The company was incurring losses and the financial capabilities or future income prospectus do not justify the choice of the company as an investment option. The trade patterns of M/s Turbotech Engineering Ltd. Vis a vis BSE SENSEX shows that the stocks of M/s Turbotech Engineering Ltd. were neither moving along with the SENSEX, nor the financial of the company show any reason for this extraordinary performance by its stock. The assessee acquired 5000 equity shares of M/s. Turbotech Engineering Ltd. for a consideration of Rs. 10,000/- at a cost price of Rs. 2/- per share on 09.04.2011 as per the debit note furnished by the assessee from M/s Shreeji Broking Pvt. Ltd. in cash. The shares were sold during the financial year 2013-14 on 07.06.2013 for a total consideration of Rs. 21,75,606/- resulting in appreciation in value of shares by approximately 216.5 times or, say the value of shares increased by a humongous 21650%. Further, the company has shown very nominal assets and the value of reserves is in negative figures which does not corroborate with the steep growth rate in the share prices of the company: 3.1 The Assessing Officer further noted that various search & survey operations have been conducted by the Directorate of Investigation, Kolkata, Delhi, Mumbai & Ahmedabad and the modus operandi of providing accommodation entry in such cases were found. Further, Investigation Wing, Kolkata identified 84 listed penny stock companies, shares of which were used for generating bogus LTCG by various entry operators for the beneficiaries who approached the entry operators. The large scale investigation resulted into identifying the beneficiaries who have taken such bogus LTCG by trading the shares of such penny stock companies and the company M/s Turbotech Engineering Ltd. has been identified which have been used for generating Bogus Long Term Capital Gain.

In appeal, the Ld. CIT(A) upheld the action of the Assessing Officer. While doing so he noted that during the course of assessment proceedings, letters were issued by the Assessing Officer to SEBI, BSE, Kotak Securities Ltd., and M/s. Shreeji Broking Pvt. Ltd. to gather relevant information. Letter(s) sent to M/s. Shreeji Broking Pvt. Ltd. at their registered address was returned back un-served. Further, the 11 member Special Investigation Team (SIT) of the Hon’ble Supreme Court of India on Black Money has also pointed out the above mentioned modus operandi in the Third SIT report on Black Money. Further, SEBI as surveillance measure banned the trading of securities of M/s. Turbotech Engineering Ltd. and suspended M/s. Turbotech Engineering Ltd. with effect from 07/01/2015. Though Assessing Officer has mentioned this fact in assessment order in para 12 but the order passed by the BSE has not been given by the Assessing Officer in the assessment order. In view of the above and relying on various decisions, the Ld. CIT(A) upheld the action of the Assessing Officer.

The Ld. Counsel for the assessee strongly challenged the order of the CIT(A) in sustaining the addition made by the Assessing Officer. Referring to page 1 to 3 of the paper book, he drew the attention of the bench to the purchase bill of Shree Broking Private Limited, payment receipt and copy of account for purchase of shares. Referring to page 4 to 7 of the paper book he drew the attention of the bench to the transfer of shares to the assessee. Referring to page 9 of the paper book he drew the attention of the bench to the copy of D-mat account with Kotak Mahindra Bank Ltd. Referring to page 10 of the paper book he drew my attention of the contract note for sale of shares from Kotak securities Limited. Referring to page 11 to 12 of the paper book he drew attention of the bench to the bank statements where sale proceeds were deposited at Kotak Mahindra Bank. He submitted that the assessee has no transactions with the persons whose statements were recorded. Further, those statements were never confronted to the assessee. Referring to the following decisions he submitted that the addition made by the Assessing Officer and sustained by the CIT(A) is not justified.

He accordingly submitted that the addition made by the Assessing Officer should be deleted.

The Ld. DR on the other hand heavily relied on the order of the Assessing Officer and CIT(A).

I have considered the rival arguments and perused the material available on record. I have also considered the various decision cited before me. I find the assessee in the instant case has sold shares of M/s. Turbotech Engineering Limited and claimed profit arsing out of sale of above shares of Rs.21,65,606/- as exempt u/s 10 (38) of the IT Act. I find the Assessing Officer rejected the claim of such exemption on the ground that assessee has entered into a colourable device for avoiding the tax and receipt of sale proceeds by way of cheque is nothing but unexplained cash credit u/s 68 of the IT Act. While doing so the Assessing Officer had referred to the statements from Nikhil Jain and Sh. Sanjay Vohra. I find the Ld. CIT(A) upheld the action of the Assessing Officer. It is the submission of the Ld. Counsel for the assessee that the transactions made by the assessee are not with the persons whose statements were recorded. Further such statements were never given or confronted to the assessee. The lower authorities have proceeded to tax the profit arising out of sale of such shares in the hands of the assessee on the ground that the assessee may be one of such beneficiaries. However, the shares according to the Ld. AR were sold through D-mat account maintained with Kotak Mahindra Bank, there were contract notes for purchase of the shares and the sale proceed were received by cheque. It is the submission of the Ld. Dr that the shares were purchased off maekt and there is no proper justification for huge rise in the price of the shares when the company has not done any substantial business so as to command such huge premium. Considering the totality of the facts of the case and in the interest of justice I deem it proper to restore the matter back to the file of the Assessing Officer with the direction to provide the statements of the persons which are the basis for making the addition in the instant case. The Assessing Officer shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. I hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purpose.

Ground No.5 of appeal by the assessee reads as under :- “The Car depreciation claimed at Rs.62210/- has been disallowed in full. It was claimed as deduction from business income (salary/interest from partnership firm) for the use of car for earning that business income. The asset in owned by appellant and was used for earning business income hence depreciation u/s 32 is allowable.”

Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings observed that assessee has claimed depreciation of Rs.62210/- on motor car. Since the assessee is a partner in M/s. Jay Kay Enterprises, no depreciation is allowable in the case of partners and such depreciation has to be claimed as business expenditure in the partnership firm only. He therefore, confronted the same to the assessee. Rejecting the various explanation given by the assessee the Assessing Officer disallowed the depreciation of Rs.62210/- and added to the same to the total income of the assessee.

In appeal the Ld. CIT(A) upheld the action of the Assessing Officer by observing as under :-

In the result, the appeal filed by the assessee is Partly Allowed for statistical purpose.