HEMLATA VISHNUBHAI GUPTA,AHMEDABAD vs. THE ITO, WARD--(3)(3), AHMEDABAD

PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER :

3. 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 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 :-

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 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.”

4. 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.

2. 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.

3. 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.

4. 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.”

Order pronounced in the open Court on this 27th day of April, 2022.