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Facts
The appellant, Anirudh Daga, challenged an addition made by the AO under section 68 of the Income Tax Act for the AY 2012-13, which arose from a disallowance of long-term capital gains claimed as exempt under section 10(38) from the sale of 'Nouveau Global' shares. The department alleged these gains were bogus, resulting from penny stock operations, while the appellant contended the transactions were genuine, conducted through banking channels, and challenged the validity of the assessment reopening under section 147.
Held
The Tribunal upheld the validity of the assessment reopening. On merits, it noted the Ld.DR's submission of a SEBI Adjudication Order confirming price manipulation in the 'Nouveau Global' scrip, thereby establishing that such extraordinary profits from a manipulated stock warranted an addition under section 68. However, because this crucial SEBI order was not available to either party during the original assessment, the Bench decided to remit the issue back to the file of the CIT(A) for fresh adjudication after allowing the assessee an opportunity of hearing.
Key Issues
The key legal issues were the validity of reopening the assessment under section 147 and whether the long-term capital gains from the sale of 'Nouveau Global' shares constituted bogus exempt income, justifying an addition under section 68.
Sections Cited
10(38), 68, 143(3), 147
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Income Tax Appellate Tribunal, ‘K(SMC
ORDER
PER OMKARESHWAR CHIDARA, AM:
This appeal is filed by the appellant against the order of the Addl/JCIT(A)-7, Kolkata in DIN & Order No.ITBA/APL/S/250/2023- 24/1061592642(1) dated 27.02.2024 arising out of order passed by AO u/s 143(3) r.w.s.147 of the Income Tax Act, 1961 (“the Act”) for the A.Y.2012-13. 2 Anirudh Daga
The appeal to ITAT by appellant relates to disallowance of claim of appellant u/s 10(38) and consequent addition made by AO u/s 68 of the Act.
At the outset, the Ld.AR of appellant has stated that the profit from sale of scrip “Nouveau Global” is not a penny stock and for that proposition co-ordinate Bench decisions of DCIT Vs. Rajesh Agarwal, dt.23.10.2024 and some other cases were relied upon. These cases relate to filing of further appeals by Revenue and hence the issue of exceptions to monetary limits arose. The Ld.DR has also pointed that the orders of ITAT relied upon by Ld.AR were recalled by filing M.A. by the Department. Be that as it may, the present appeal is filed by appellant and not Revenue hence there is no need to adjudicate the issue as to whether appeal is maintainable or not due to monetary limits.
The appellant filed additional grounds of appeal
before the ITAT challenging the reopening of assessment by Ld.AO and argued that the reopening of assessment is invalid/bad in law. The Ld.DR had argued that the assessment was reopened after getting the information that the appellant claimed bogus exempt income through fraudulent means. He relied on the findings of Addl.CIT(A), where it was mentioned that the AO has got prima facie belief of undisclosed income and followed the 3. Anirudh Daga procedure laid down by Hon’ble Apex Court in the case of GKN 4.1. Since there is prima facie belief relating to escapement of income, the action of Ld.AO in reopening the case is confirmed and moreover, the entire procedure laid down by Apex Court was followed by AO, no fault can be found and Bench decides to reject this ground and proceed to adjudicate the case on merits.
5. Coming back to the merits of the case, the main contentions of Ld.AR of appellant is that the shares were purchased by making an account payee cheque, sold the shares on BSE Exchange platform through a registered broker and received the sale proceeds through banking channels and hence the transaction is genuine. In the written submissions filed by appellant, it was also mentioned that there is no SEBI enquiry to show that prices are manipulated nor the scrip is suspended from stock exchange. Several cases-law in favour of appellant were relied upon for the above propositions and it was submitted that the addition made by Ld.AO be deleted. Consequently, the exemption claimed u/s 10(38) is allowable.
Per contra, Ld.DR filed written submissions and the same is reproduced :
4 Anirudh Daga 5 Anirudh Daga 6 Anirudh Daga 7 Anirudh Daga 8 Anirudh Daga 9 Anirudh Daga 10 Anirudh Daga The Ld.DR has placed emphasis on the assessment order and appeal
order of First Appellate Authority also.
After going through the written submissions filed by both parties and perusing the cases-law relied upon by both parties, the appeal is adjudicated. At the outset, the Bench is of the view that there is no case which is identical to another and each case has to be analysed from its own facts and circumstances. There are several cases all over the country with reference to disallowance made by Revenue u/s 10(38) and cases were adjudicated in favour of Revenue and against Revenue depending on the facts of each case. So this case on hand also being adjudicated based on its facts and circumstances.
7.1. In view of the following discussion/reasoning the Bench is of the opinion that the addition made by Ld.AO is correct and upheld:
7.2. In this case, while filing written submissions before lower authorities, the appellant has argued there is no SEBI order to demonstrate that the prices of scrip in this case are manipulated. But, the Ld.DR has contradicted the same and filed a copy of Adjudication
Order No.Order/VV/NK/2021-22/14823 dt. 28.01.2022 and the relevant paras of the order (Para 43 and 49) is reproduced as under :
11 Anirudh Daga 12 Anirudh Daga This order of SEBI clearly shows that price manipulations are done in this scrip of Nouveau Global and accordingly, monetary penalty also was levied by SEBI.
7.3. Coupled with the above the reliance placed by Ld.DR on the decision cited by CIT(A) of Apex Court is worth mentioning here :
7.4. From the above para 43 of Adjudication Order, it is observed that once manipulation of shares is established, it is not necessary nor possible to show who are the beneficiaries. Once they get extraordinary profits, it is deemed that assessees are in the loop and part of manipulation of shares.
7.5. The Bench agrees with the following arguments of Ld.DR which is most logical and correct considering the facts of the case :
13 Anirudh Daga 14 Anirudh Daga 7.6. Hon’ble Bombay High Court in the case of Sanjay Bimalchand Jain 39 Taxman.com 196, held that where abnormal price rise in a share not in consonance with company fundamentals was there, then addition u/s 68 can be made.
7.7. But, the adjudication order filed by Ld. DR before ITAT was not available to the Department or Assessee at the time of passing the assessment order. In view of the same and subsequent orders passed by various Hon’ble High Courts and Hon’ble Supreme Court, on the issue of penny stock, the Bench decides to remit the issue back to the file of the Ld. CIT(A) for fresh adjudication. Needless to say that the assessee be given an opportunity of hearing before passing the order.
This space is left vacant intentionally 15 Anirudh Daga 7.8. In the result, the appeal of appellant is allowed for statistical purposes.