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Income Tax Appellate Tribunal, DELHI BENCH “SMC” NEW DELHI
Before: SHRI AMIT SHUKLA
PER AMIT SHUKLA, J.M.: The aforesaid appeal has been filed by the assessee against the impugned order 30.06.2017 passed by Commissioner of Income Tax (Appeals)-I, New Delhi for the quantum of assessment passed u/s.143(3) for the Assessment Year 2014-15. In the various grounds of appeal, assessee has challenged the addition of Rs.34,43,093/- u/s.68 on the transaction of sale of shares shown as Long Term Capital Gain and denying the benefit of exemption u/s.10(38).
The facts in brief are that the assessee during the year under consideration had shown Long Term Capital Gain on sale of shares of M/s. Kappac Pharma Ltd. which was sold for Rs.34,43,093/- and had claimed exemption u/s.10(38). The computation of Long Term Capital Gain was shown in the following manner:
Name of Number Sale price Purchase Profit/Loss Long Term the of price (in Rs.) Capital Gain company shares exempt whose sold u/s.10(38) shares (in Rs.) sold Kappac 5000 34,43,093 65,000 33,78,093 33,12,544 Pharma Ltd. Penta 4800 3446 38994 (65549) Soft
In response to the show cause notice, the assessee submitted that the shares were purchased directly from M/s. Vishal Realty Management Ltd., based at Ahmadabad Gujarat for an amount of Rs.65,000/- paid in cash. It was off market transaction and the purchase price given for the share was Rs.13 per share as per the prevailing market price. The said shares were transferred by the company to the assessee on 09.10.2012. The physical shares were dematerialized and transferred to Demat account maintained with India Bulls Security Ltd. on 05.12.2011. The said shares were sold for share price of Rs.34,43,093/- during the financial year 2013- 14. The learned Assessing Officer had incorporated the brief history of scrip of M/s. Kappac Pharma Ltd. and noted that revenue from operation was zero and it is merely a sham company wherein no activity whatsoever was carried out. The company has converted/sub divided the share of face value of Rs.10 and converted the share holding of the shareholder to 70 times of the share value of the share they were holding. During the period there was an astronomical rise of shares price of the scrip. After noting this fact, he also discussed the background of the case wherein routing of unaccounted money in the garb of bogus Long Term Capital Gain claimed exemption u/s. 10(38) and the modus operandi has also been noted by him. He also recorded the statement of the assessee which has been incorporated from pages 6 to 14 of the assessment order and the inference drawn from the said statement is summarized by him in the following manner:
1. 1. In reply to question no. 10 wherein it has been asked that he is well aware of seller of shares M/s Vishal Reality Management Limited, furnish the details, the assessee replied that he was in connection with M/s Vishal Reality Management Limited through one of his friends.
2. In reply to question no. 05 wherein it has been asked why you purchased shares of M/s Kappac Pharma Limited, the assessee replied that he got the tip from his friends to purchase the shares of said company as they are likely to get appreciated.
3. The assessee could not furnish any detail about his so called friend under whose guidance the shares were purchased.
4. The counsel of the assessee vide order sheet dated 05.12.2016 asked to produce the Principal Officer of broker company M/s India Bull Securities Ltd. and also the friend from where the assessee connected with M/s Vishal Reality Management. The counsel vide his reply dated 20.12.2016 stated his inability to produce the broker for examination/cross-examination and the friend of the assessee and stated as under: "produce friend from whom, assessee got connected with M/s Vishal Realty Management Limited : It is submitted that the shares was purchased in the year 2012, four years back and it is informed by the assessee that presently he is not remembering the name and address of the friend who have suggested for purchase of shares from Vishal Realty Management Limited...." As far as Principal Officer of M/s India Bull Securities Ltd. is concerned, the assessee stated that the assessee is completely out of touch with the company M/s India Bull Securities Ltd. since 2014 and requested to call the information from .M/s India Bull Securities Ltd. The assessee has failed to discharge its onus to produce the broker. Therefore, summon u/s 131 dated 21.12.2016 was issued to M/s India Bull Securities Ltd. at the address given by the assessee which has been received back unserved. It clearly depicts that the assessee has voluntarily given wrong address and also proves that the assessee has not been able to discharge his onus.”
He also noted one very important fact that, due to dubious business activities and the share trading done by M/s. Kappac Pharma Ltd., notice has been issued by the SEBI and was also under the scanner of the SEBI. He also confronted to the assessee that the DDIT Kolkata had identified M/s. Kappac Pharma Ltd. as one of the entity involved in bogus Long Term Capital Gain and also noted that the detail investigation was carried out wherein it was found that it is purely a sham company and SEBI has suspended trading of the equity shares. This fact has also been accepted by the assessee vide submission dated 05.12.2016. After detailed discussion and on the basis of detail investigation carried out by the DDIT Kolkata, he came to the conclusion that the entire transaction of sale and purchase of share is bogus. Accordingly, the entire sale receipts as unexplained cash credit taxable u/s.68.
Ld. CIT(A) in a very brief and cryptic order has dismissed the assessee’s appeal after observing and holding as under: “5. The Id. counsel for the appellant on 13/04/2017 sought adjournment to file necessary details and evidence to corroborate its claim that the impugned assessment order was bad in law. The same was allowed and on 02/05/2017 the Id. counsel for the appellant submitted a written brief placing reliance on various authorities by various High Courts and the Benches of the Id. ITAT but none of which are of any help as the facts of those cases are different from the case of the appellant. It is not in dispute that the appellant has received credit in its accounts and has not been able to discharge its primary onus in terms of the law as applicable under section 68 of I.T. Act, 1961. Since the only legal ground raised by the appellant is that proceeds of share transactions cannot be treated as income of the appellant, it is incumbent upon the appellant to prove that the amount under consideration was indeed the proceeds of share transaction. The appellant failed to discharge this onus before the Id. A.O. and has also not been able to prove its claim in the present proceedings. The appellant has not been able to disprove the detailed legal grounds raised by the Id. A.O. That being the case the impugned assessment order calls for no interference and therefore the same is confirmed. The appeal of the appellant fails and is dismissed.”
Before us, the ld. counsel for the assessee submitted that entire documents proving the genuineness of the transaction as well as the price quotation of the said company before the Bombay Stock Exchange was also filed to show that the shares were purchased and sold at the quoted price. No discrepancy whatsoever has been found in the documents and evidences filed by the assessee and without any specific evidence in the case of the assessee addition has been made purely on surmises. Moreover, the ld. CIT (A) too without considering the material facts on record has dismissed the appeal without any discussion.
On the other hand, learned DR strongly relied upon the order of the Assessing Officer and submitted that Assessing Officer has categorically brought out on record as to how M/s. Kappac Pharma Ltd. was involved in providing bogus accommodation entry and has been found to be a bogus and sham company. Not only that, even the assessee in his statement could not give justification regarding both the limbs of the transaction to the satisfaction of the Assessing Officer and also the revenue from operation of this company was zero as on March, 2012 and March, 2013. This clearly shows that this company was rigging the price in the Stock Exchange and also it has came in the scanner of SEBI, therefore, it is a clear cut sham transaction for converting unaccounted money into a Long Term Capital Gain for claim exemption u/s.10(38).
After considering rival submissions and on perusal of the impugned orders, we find that assessee has filed all the necessary documents in the form of share certificate allotted to it, debit note by the broker for the purchase of 5,000 equity shares of M/s. Kappac Pharma Ltd. of Rs.65,000/- @13 per share, which have been sold by the assessee during the financial year 2013-14 for sum of Rs.34,54,750/- through registered stock broker. Even though contract notice, bank statement, Demat account, etc has been filed, but the Assessing Officer in his impugned assessment order has discussed and brought on record the fact that how this company, M/s. Kappac Pharma Ltd. without having any revenue from operations has rigged the price from Rs.13/- to Rs.695/- per share. Apart from that, he has also discussed as how the Investigation Wing Kolkata Unit has found that this company was found to be bogus and a sham company involved in providing and assisting bogus Long Term Capital Gain. The assessee thereafter has not discharge his onus to refute the finding of the Assessing Officer; and he was not even aware of the broker and merely stated that he got a tip from his friend to purchase the share of this company without giving any further corroborative or any credible rebuttal and also showed his inability to produce the broker for examination/cross-examination. Apart from that, the trading of the said company was also suspended by the SEBI. The ld. CIT(A) has neither discussed the finding and material brought on record by the Assessing Officer nor has taken into cognizance assessee’s documents. He has not given any finding as to why the documents filed by the assessee are not tenable in view of the information or material available on record brought by the Assessing Officer and why the assessment order has been sustained. Accordingly, in the interest of justice, we feel that matter should be restored back to the file of the ld. CIT (A) to consider all the materials on record and give a speaking order with a specific finding on the issue involved after giving due and effective opportunity to the assessee.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 10th December, 2018.