ARVIND BHAGUJI KANGANE,MUMBAI vs. DY. COMMISSIONER OF INCOME TAX, CIRCLE-27(1), MUMBAI, MUMBAI

Brief facts of the case are that assessee is an individual and claimed to have been engaged in investment in shares. The assessee filed his return of income for assessment year (A.Y.) 2016-17 on 15.10.2016 declaring income of Rs. 30,85,930/-. Return of income was processed under section 143(1). Subsequently, case was reopened under section 147. Notice under section 148 dated 31.03.2021 was served upon the assessee. In response to notice under section 148, the assessee filed his return of income on 16.04.2021 declaring same income as declared earlier. The case of assessee was reopened on the basis of information received from DDIT (Inv.) Ajmer that Sanasa Tech Fab Ltd. which was earlier known as Jeevo Motors Finance Company Limited was identified as penny stock script company, used for generation of bogus capital gain or loss. The assessee traded in the script of such company. On the basis of such information, case of assessee was reopened. During the assessment, the assessing officer find that assessee has claimed long term capital gain and claimed exemption under section 10(38) of Rs. 2.40 crore on sale of shares of Sanasa Tech Fab Ltd. During the assessment, the assessee furnished copy of allotment advice, contract notes from Swastika Investments Ltd (Share broker) and bank statement showing payment of consideration and receipt of sales of shares during the year. The assessing officer on the basis of details furnished before him recorded that assessee made application for allotment to 1,00,000/- preferential share of Sanasa Tech Fab Ltd. which were earlier known on Jeevo Motors Finance Company Limited. The shares were allotted on 07.10.2014 at a price of Rs. 10/- per share. The assessee acquired such share off market. The assessee held such share for more than one year and sold between 16.11.2025 to 31.03.2016. The assessing officer examined the financials of such company as recorded on page 2, 3 and 4 of assessment order and recorded that such company was not having tangible asset nor any substantial investment. The shares were artificially rigged from Rs. 10/- to Rs. 284/-. Such company has not paid any dividend to the shareholders. The assessing officer further recorded that share of this company was traded from Bombay Stock Exchange and limited number of brokerage firms have made trading of its share. The names of various brokers are recorded on page no. 5 to 7 of assessment order. On recording such discrepancies, the assessing officer issued show cause notice to the assessee. The assessee filed its reply and submitted name of certain companies wherein the price of shareswas increased substantially including of Suzlon Energy Ltd., Eicher Motors Ltd. and other companies in which share prices were increased over 100 times. The reply of assessee was not accepted. The assessing officer by referring the decision of Hon’ble Supreme Court in Durga Prasad More and Sumati Dayal, treated the sale consideration of Rs. 2.50 crore as unexplained and added under section 68 and taxed the same under section 115BBE in the assessment order dated 23.03.2022.

Aggrieved by the additions in the assessment order, the assessee filed appeal before ld. CIT(A). Before ld. CIT(A), the assessee challenged the validity of reopening as well as additions on merit. On the merits of the case, the assessee submitted that he has furnished sufficient documentary evidence to justify the genuineness of purchase and sales and long-term capital gain earned thereon. The shares were sold on recognised stock exchange on which security transaction tax (STT) was paid. The holding period is more than one year. The shares were held in Demat account. The assessee furnished contract bills, Demat statement, bank statement, rate list and confirmation of stock broker. The assessee requested the assessing officer to provide the contrary material and statement of third party for rebuttal and to allow opportunity of cross-examination.No such opportunity was provided nor statement of third party provided. The assessee also given comparative list of other shares which were increased drastically during the relevant period. On validity of reopening the assessee submitted that objection of assessee was rejected mechanically. There was no sufficient tangible material. The reopening was based on borrowed satisfaction.

The ld. CIT(A) on considering the submission of assessee and the assessment order upheld that validity of reopening by taking view that sufficient opportunity was given to the assessee during assessment. The assessing officer followed due process and there was tangible information in the possession of assessing officer. On merit, the ld. CIT(A) by referring various decisions held that he has no reason to interfere with the order of assessing officer. Further, aggrieved, the assessee has filed present appeal before Tribunal.

We have heard the submissions of learned Authorised Representative (ld.

The ld. AR further furnished that he has also raised additional ground of appeal. In the additional ground of appeal, the assessee has challenged the validity of assessment order passed by faceless assessing officer. The ld. AR of the assessee submits that scheme of faceless assessment about reassessment that is income escaping assessment was brought on the statute book by taxation and other law (realization and amendment of certain provisions) Act, 2020 with effect from 01.11.2020 which were notified on 29.03.2022. Therefore, the assessment was taken by NFAC prior to 29.03.2022 is without jurisdiction as NFAC Scheme was not operational prior to 29.03.2022, hence, assumption of jurisdiction by assessing officer prior to that date is invalid. Assessment in the present case was completed on 23.03.2022, hence such assessment order is bad in law being without legal sanction. To support his submission on merit, the ld. AR of the assessee relied upon following decision:  PCIT vs Smt. Renu Aggarwal 456 ITR 249 (SC)  PCIT vs ParasbenKasturchand Kochar 130 Taxmann.com 177 (SC) & 130 Taxmann.com 176 (Guj-HC)  PCIT-31 vs Indravadan Jain HUF of 2018 (Bom-HC)  PCIT-3 vs Ziauddin A Siddique of 2017 (Bom-HC)  CIT vs Shyam R. Pawar 54 taxmann.com 108 (Bom-HC)

In short rejoinder submission, the ld. AR of the assessee submits that assessing officer on page 5, 6 & 7 has given the name of certain share broker, wherein the scrips were transacted through a very well-known brokers company which includes Aditya Birla Money Ltd., Mehta Equities Ltd. and Religare Broking Ltd. The action of assessing officer is simply based on the information of Investigation Wing which was not verified nor the assessing officer have brought any adverse material against the evidences furnished by assessee.

We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various case laws relied by ld. AR of the assessee and the various evidences furnished by assessee.We find that during the assessment, the assessing officer noted that assessee has shown capital gain of Rs. 2.40 crore on sale of shares of Sanasa Tech Fab Ltd., the assessee claimed exemption of capital gain of under section 10(38). On show cause, the assessee furnished share allotment advice, contract note from Swastika Investments Ltd. (assesses broker), bank statement and details of shares. The assessing officer also recorded that preferential allotment of 1.00 lakh shares of Jeevo Motors Finance Company Limited were allotted. The name of Jeevo Motors was changed to Sanasa Tech Fab Ltd. The assessing officer also accepted the fact that shares were held for more than one year, though acquired off market. The assessing officer by referring certain financial of such company noted that such company was not having meaningful tangible assets and the price of shares were increased up to Rs. 284/-. The shares were transacted by limited brokers.

We find that before assessing officer, the assessee furnished letter of allotment, bank statement for payment of purchase consideration, Demat account request, Demat statement. To substantiate the sale, the assessee furnished sale bills cum contract note confirmation of his brokers, Swastika Investmart, bank statement and Demat statement. No comments were made by assessing officer or by ld. CIT(A) nor any adverse material was brought on record. We find that assessee has filed his balance sheet as on 31.03.2015 wherein he has sold investment in various other shares.

We find that Hon'ble Gujarat High Court in the case of Himani M. Vakil (2014) 41 taxmann.com 425 (Guj) held that where assessee duly proved genuineness of sale transaction by bringing on record contract notes of sale and purchase, bank statement of broker and demat account showing transfer in and out of shares, assessing officer was not justified in bringing to tax capital gain arising from sale of shares as unexplained cash credit.

Wealso find of Hon'ble Jurisdictional High Court in the case of PCIT Vs. Indravadan Jain, HUF in Income Tax Appeal No.454 of 2018 dated 12.07.2023 also held that when assessing officer nowhere alleged that transactions made by assessee with a particular broker or share broker was bogus, merely because investigation was done by SEBI against the broker or its activities, the assessee cannot be said to have entered into ingenuine transaction.We find that assessee made sale of shares through BSE and paid security transaction tax and there is no allegation against the assessee or his share broker through whom assessee has made sales that they were indulging any price manipulation/ rigging. Therefore, we do not find any justification in treating the LTCG as unexplained cash credit in absence of any cogent evidence against the assessee specific. Thus, in view of aforesaid and factual and legal discussion, we do not find any justification on treating the long-term capital gain as fictitious and adding under section 68, particularly when the assessee has furnished sufficient evidence to discharge his primary onus. In the result, ground no. 2 and 3 of appeal are allowed.

Considering the fact that we have allowed appeal on merit, therefore, adjudication on other legal issue have become academic.

In the result, appeal of the assessee is allowed.