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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH, AHMEDABAD
Before: SMT. ANNAPURNA GUPTA & SHRI T.R. SENTHIL KUMAR
PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER :
This is an appeal filed by the assessee against the order dated 22.11.2019 passed by the Ld. CIT(A)-5, Ahmedabad relating to the Assessment Year (A.Y.) 2011-12
The brief facts of the case are that the assessee is an individual and engaged in the business of share trading. For the A.Y. 2011-12, the assessee has not filed the return of income under Section 139(1) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). However, the assessee made trading in penny stock script M/s. Vax Housing Finance Corporation Limited to the tune of Rs.32,25,601/-. Therefore, a notice under Section 148 of the Act was served on the assessee on 30.03.2018. Inspite of 143(2) notices and show cause notice dated 16.10.2018 the assessee failed to respond before the Assessing Officer. Therefore, an ex-parte assessment order was passed under section 144 read with section 147 of the Act making addition of
ITA No.91/Ahd/2020 A.Y. 2011-12 Page 2 of 6 Rs.32,25,601/- as the escaped income of the assessee. The Assessing Officer also initiated penalty proceedings under Section 271(1)(c) of the Act and Section 271F of the Act for failure to furnish the return of income.
Aggrieved against the ex-parte assessment order, the assessee filed appeal before the Ld. CIT(A)-5 Ahmedabad. The main contention of the assessee before the Ld. CIT(A) was that the Assessing officer erred in making addition on account of trading in penny stock of M/s Vax Housing Finance Corporation Limited and also claimed that the so-called income was never accrued to the assessee and cannot be treated as income of the assessee. During the course of appellate proceedings, the assessee made an application dated 18.03.2019 and sought to file additional evidences under Rule 46A and the same has been admitted. Thereafter, the Ld. CIT(A) passed a very detailed order running into 41 pages and relied upon the jurisdictional High Court decision in the case of Pavankumar M. Sanghavi vs. ITO as follows :
“6.19. Reliance is also placed in the ratio laid down in the recent decision of Hon’ble Ahmedabad ITAT, Hon’ble High Court and Hon’ble Supreme Court in the case of Pavankumar M Sanghavi vs. ITO. The Hon’ble ITAT (81 taxmann.com 308) has held that when Assessee received unsecured loan but could not produce lenders for verification and these lenders were found to be shell companies, said loan transactions could not be said to be genuine merely because assessee filed loan confirmations copies of ledger accounts and other supporting evidences. The relevant observation of the ITAT is also reproduced herein below :
“8. As I proceed to deal with genuineness aspect, it is important to bear in mind the fact that what is genuine and what is not genuine is a matter of perception based on facts of the case vis-a- vis the ground realities. The facts of the case cannot be considered in isolation with the ground realities. It will, therefore, be useful to understand as to how the shell entities, which the loan creditors are alleged to be, typically function, and then compare these characteristics with the facts of the case and in the light of well settled legal principles. A shell entity is generally an entity without any significant trading, manufacturing or service activity, or with high volume low margin transactions to give it colour of a normal business entity used as a vehicle for various financial manoeuvres. A shell entity, by itself, is not an illegal entity but it is their act of abatement of, and being part of, financial manoeuvrings to
ITA No.91/Ahd/2020 A.Y. 2011-12 Page 3 of 6 legitimize illicit monies and evade taxes that takes it actions beyond what is legally permissible. These entities have every semblance of a genuine business. Its legal ownership by persons in existence, statutory documentation as necessary for a legitimate business and a documentation trail as a legitimate transaction would normally follow. The only thing which sets it apart from a genuine business entity is lack of genuineness in its actual operations. The operations carried out by these entities, are only to facilitate financial manoeuvrings for the benefit of its clients, or, with that predominant underlying objective, to give the colour of genuineness to these entities. These shell entities, which are routinely used to launder unaccounted moneys, are a fact of life, and as much a part of the underbelly of the financial world, as many other evils. Even a layman, much less a Member of this specialised Tribunal, cannot be oblivious of these ground realities.”
6.20 The Hon’ble Gujarat High Court has confirmed the decision of the ITAT and held as under :-
Perusal of the orders on record and in particular, the above quoted portion of the order of the Tribunal would make it clear that the entire issue is based on appreciation of evidence on record and thus factual in nature. The Tribunal has given elaborate reasons to come to the conclusion that the entire transaction was not genuine in absence of any perversity, we do not see any reason to interfere.
Learned counsel for the assessee however vehemently contended that the assessee had received loans through cheques from lenders who had confirmed the same. Their accounts are audited and failed before the Revenue authorities. Thus, the genuineness of the transactions, the capacity of the lender and the factum of lending all have been established. Addition under section 68 of the Act there could not have been made. However, as noted, the Tribunal has minutely examined the position of the lenders, the circumstances under which, the amounts were allegedly loaned to come to the conclusion that the “transactions were not genuine.”
The Hon’ble Apex Court on 01.05.2018 also dismissed the SLP filed against the order of the Hon’ble Gujarat High Court”
“6.25 The ratio laid down in the above decision of Hon’ble Supreme Court and various HC and tribunals others, it is crystal clear that the transactions should be real. Ait is further held that the assessee has to prove the genuineness of the transaction beyond doubt. It is evident that in the appeal under consideration that the appellant could not establish the genuineness of the transaction as there is no justification for purchase of share from unknown person and of the unknown company having no financial credentials. In present case Appellant was involved in buying the penny stock, which is similar to shell companies for which
ITA No.91/Ahd/2020 A.Y. 2011-12 Page 4 of 6 various investigations were already carried out by Kolkata Investigation Wing and SEBI Order referred supra hence long term capital in present case is nothing but preconceived scheme to convert the unaccounted money of the appellant. The entire sequence of transaction is sufficient to establish that the above share purchase and sales transaction were accommodation entries and sham transactions.
6.26 On the merits of the addition, the AO noted that the assessee was involved in the transaction in the script of Turbo Tech Engg. Ltd., a penny stock and that the company in which assessee has invested has been used by the beneficiaries to launder money in the garb of long terms capital gain by claiming exemption u/s.10(38) of the Act. The source of investment made in M/s. Vax Housing Finance Corporation Limited by the appellant was neither explained before the AO nor before the undersigned and therefore, the addition of Rs.32,25,601/- made to the total income of the appellant is confirmed. Grounds of appeal are dismissed.”
Aggrieved against the appellate order, the assessee is in appeal before us raising the following grounds of appeal
“1. The order passed by the learned CIT(A) is bad in law and on facts and against the natural justice. It is submitted that the same be held so now.
The Learned CIT(A) has erred in making an addition on account of trading in Penny Stock of M/s. Vax Housing Finance Corporation Limited.
While making an addition, the learned CIT(A) has clearly failed to appreciate the fact that income which never accrued to us cannot be treated as income.
The learned CIT(A) has learned in initiating penalty proceedings u/s 271(1)(c) when there is no concealment of income or furnishing inaccurate particulars of income. It is submitted that the additions made in the assessment order cannot be held as concealment of income. It is submitted that such type of incorrect and illegal notice be quashed.”
This appeal is coming up for hearing at 8th time before this tribunal. Notice sent by RPAD has been properly served and acknowledgement is also placed on record before the Tribunal. However, none appeared on behalf of the assessee. This was the same position even in the earlier hearing also. As the assessee is not ready to conduct the case, we need to proceed with this
ITA No.91/Ahd/2020 A.Y. 2011-12 Page 5 of 6 appeal with the available material on records and with the assistance of the Ld. D.R. The Ld. D.R. submitted that the concurrent finding of the lower authority makes it clear that the trading in penny stock of M/s Vax Housing Finance Corporation Limited is not disposed by the assessee by filing the return of income and also not co-operating with the Department in the reassessment proceedings. The assessee has neither filed any details nor any documents before the lower authorities to claim genuineness of her investments. Therefore, the order passed by the Ld. CIT(A) does not require any interference.
We have given our thoughtful consideration and finds that the assessee was not co-operative before the Assessing Officer even after providing six opportunities, therefore, the Assessing Officer was constrained to pass best judgement assessment. Even before the Ld. CIT(A) the assessee has not produced any details or evidences to substantiate her claim. However, the Ld. CIT(A) has passed a very detailed order running into 41 pages and thereby confirmed the addition of Rs.32,25,601/-. Even before us the assessee has simply raised general grounds without any material or evidence. In the absence of the same and having given seven opportunities, the assessee has not shown any interest in proceeding the matter further. We, therefore, see no reasons to interfere with the orders of the Lower Authorities and confirm the addition made by the Assessing Officer. Thus, the grounds of appeal are liable to be rejected and appeal is dismissed.
In the result, appeal filed by the assessee is dismissed.
Order pronounced in the open Court on this 27th day of April, 2022.
Sd/- Sd/- (ANNAPURNA GUPTA) (T.R. SENTHIL KUMAR) Accountant Member Judicial Member
Ahmedabad, the 27th day of April, 2022 PBN/*
ITA No.91/Ahd/2020 A.Y. 2011-12 Page 6 of 6
Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY
Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad