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Income Tax Appellate Tribunal, “SMC B” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN
This appeal by the assessee is against the order dated 22.12.2017 of CIT(Appeals)-V, Bengaluru relating to assessment year 2014-15.
The assessee is an individual. For the assessment year 2014-15, the assessee filed return of income in which he declared a long term capital gain on sale of equity shares of Rs.37,38,583. The details of purchase and sale of shares by the assessee was as follows:-
LTCG on sale of shares Scrip: Kailash Auto Buy Sell Capital Gain Date of quantity Rate Amount quantity Rate Amount purchase / sale 07.06.2012 100000 1 100000 20.09.2013 25000 972500 38.90 24800 04.10.2013 38.10 944880 09.10.2013 12700 38 482600 24.10.2013 2000 39.10 977500 06.11.2013 12500 39 487500 -i-- Other expenses 26397 100000* 100000 100000 38,38,583 37,38,583 2. *Careful Projects Advisory Limited was amalgamated with Kailash Auto Finance Ltd.
The Assessing Officer (AO) was of the view that the long term capital gain declared by the assessee which was claimed as exempt u/s. 10(28) of the Income-tax Act, 1961 ["the Act"] cannot be allowed and the said sum is liable to be taxed u/s. 68 of the Act for the following reasons:-
"10. Findings and conclusion 10.1 The submissions made by the assessee and reply to sh6w cause is considered. The facts of the case, investigations made by various directorates, statements recorded during the assessment proceedings are considered. From the discussion in the preceding paras it is concluded that long term capital gains booked by assessee in his books were pre-arranged method to evade taxes and launder money. Following are the findings and the reasons which substantiates the findings. a. Mode of acquisition of the shares: The assessee has purchased 100000 shares of Careful Projects Advisory Ltd. for Rs 1,00,000/-. The Careful Projects Advisory Ltd was amalgamation with Kailash Auto Limited and the assessee was allotted the same amount of shares i.e. 1,00,000 shares of Kailash Auto Limited. b. Sale of shares and unusual rise in the price: Further the assessee has sold the entire 1,00,000 shares for the sale consideration of Rs. 38,38,583/-, thus resulting the long term capital gain of Rs 37,38,583/-, which is approx. 38 times the increase of the cost price, and as discussed the rise in share prices is not holding to any commercial principles and market factors. c. Findings of Investigation wing: The findings of the Directorate of Investigation of Mumbai and Kolkata as discussed above have proved that associated brokers, entry operators and the assessee had worked out an arrangement in which the shares were acquired by the assessee, the share prices were rigged and then with the help of entry operators by routing the cash, shares were sold at high price to arrive at tax free capital gains. d. Analysis of transactions: Facts revealed that such trading transactions of purchase and sale of shares are not been effected, for commercial purpose but to create artificial gains, with a view to evade taxes - i. Transactions of shares were not governed by market factors prevalent at relevant time in such trade, but same were product of design and mutual connivance on part of assessee and the operators. ii. The assessee resorted to a preconceived scheme to procure long-term capital gains by way of price difference in share transactions not supported by market factors. iii. Cumulative events in such transactions of shares revealed that same were devoid of any commercial nature and fell in realm of not being bona fide and, hence, impugned long term capital gain is not allowable. f. Ignorance of the assesee about shares and penny stock companies: Assessee has failed to show of having any knowledge about the shares traded and having any knowledge about the fundamentals of the penny stock companies. g. Financial analysis of the penny stock companies: The networth of the penny stock company is negligible. Even though the networth of the company and the business activity of the company is negligible the share prices have been artificially rigged to unusual high. h. Cash trail in the accounts of the entry providers: The investigations in the fund flow analysed in the accounts of the entry providers have established that the cash has been routed from various accounts to provide accomodations to assessee. i. Arranged transactions: The transactions entered by the assessee involve the series of preconceived steps, the performance of each of which is depending on the others being carried out. The true nature of such share transactions lacked commercial contents, being artificially structured transactions, entered into with the sole intent, to evade taxes. 10.2 The facts and circumstances of the case, as recorded above, clearly suggest that the revenue cannot take or accept such make-believe transactions, as presented by the assessee. Truth or genuineness of such transactions must prevail over the smoke screen, created by way of pre-meditated series of steps taken by the assessee, with Awn view to imparting a colour of genuineness and character of commercial nature, such share transactions. Needless to say that one has to look at the whole transactions and a series of steps taken to accomplish such share transactions, in an integrated manner, with a view to ascertaining the true nature and character of such purchase and sale of shares. 10.3 Thus considering the findings of the search/survey, inquiries conducted in the case of assessee, brokers, operators and the entry providers and the nature of transaction entered into by the assessee the LTCG of Rs 37,38,583/- claimed exempt u/s 10(38) of the act by the assessee can not be allowed and the amount of Rs 38,38,583/- received back as sales proceeds on sale of shares is required to added back towards his taxable income under section 68 of the act. Penalty proceeding u/s 271(1)(c) is initiated for furnishing inaccurate particulars of income with a view to concealment of income.”
On appeal by the assessee, the CIT(Appeals) confirmed the action of the AO.
Aggrieved by the order of CIT(Appeals), the assessee has raised the following grounds of appeal before the Tribunal:-
“1. In the facts and circumstance of the case, the Impugned order passed by the learned commissioner of Income Tax (Appeals) confirming the order of the learned Assessing officer is highly unjust arbitrary and bad in law.
2. In the facts and circumstance of the case, the Learned commissioner ought to have appreciated that so for the appellant is concerned, he had acted Bona fide and in full conformity with law and that all transactions had been entered into with reputed Brokers and through banking channel and further that no cash payments were involved in the transaction.
3. In the facts and circumstance of the case ,the Learned Commissioner ought to have appreciated the learned assessing officer had drawn adverse inference, based on assumptions and presumptions merely based on the reported information received from the investigation wing of the department , without affording an opportunity to the appellant counter/ clarify / cross examine the concerned persons as required under law has laid down Hon'ble Supreme Court in the case of M/S ANDAMAN TIMBER INDUSTRIES VERSUS COMMISSIONER OF CENTRAL EXCISE,KOLKATA-II.
4. In the facts and circumstance of the case, learned Commissioner ought to have held the income earned by the appellant were in the nature of LTCG and which were exempt in term of section 10(38) of the Income Tax Act 1961.
5. In the facts and circumstance in the case, the learned Commissioner is not justified in not taking into consideration the written arguments dated14.12.2017 submitted by the appellant 6. In the facts and circumstances of the case, the Learned Commissioner ought to have followed the decisions in the case of CIT Vs Mukesh R. Marolia Bombay High Court; CIT Vs Sham R.Pawar Bombay High Court and CIT Vs Arun Kumar Agarwal, Jharkhand High Court, cited by the Appellant, in preference to the decision in the case of Sanjay Bimalchand, following the well settled principles of law as laid down by the Hon'ble Supreme Court in the case of CIT Vs Vegetable products Ltd as also the decision of the Hon'ble High Court of Mumbai in the case of Siemens India Ltd Vs K. Subramanyam ITO, in view of the conflicting views between two non-jurisdictional High Courts, as relied upon by the appellant.
7. For the above grounds and such other grounds that may be urged with kind permission, appellant humbly prays that the Hon'ble Tribunal may kindly be pleased to allow the Appeal in the interest of justice.”
During the course of hearing, the ld. AR for the assessee submitted that on similar facts and circumstances, the matter for consideration is squarely covered by the decision of the ITAT, Kolkata Bench in its order in in the case of Prakash Chand Butoria. It was submitted that in the cited case (supra) also, the assessee, an individual, filed his return of income claiming income on sale of shares as exempt u/s 10(38) of the Act. The Assessing Officer (AO) treated the receipt of sale consideration as unaccounted income and made an addition u/s 68 of the Act. On appeal, the CIT(A) upheld the AO’s order. However, on further appeal, the ITAT, Kolkata Bench allowed the assessee’s appeal observing that the addition was unsustainable since the AO made the addition in a routine and mechanized manner, merely on suspicions based on Report of enquiries made by the Investigation Directorate of DIT, Kolkata, without bringing the same on record or confronting the assessee with, OR, supplying the assessee copies of the documents relied upon for making the addition and providing him opportunities for rebuttal. It is prayed that in view of the above, the orders of the authorities below be set aside and the assessee’s appeal be allowed.
Per contra, the learned DR for Revenue submitted that on similar facts and circumstances as in the case on hand, issue for consideration is covered by the decisions of the Bengaluru ITAT in the cases of Arvind Kumar Moolchand in and Pukhraj Hasmukhlal in ITA No.1927/Bang/2017 wherein the Tribunal has restored the issue to the file of the AO, having observed that the additions were made based on reports of the Investigation Directorate at Kolkata and statements of various persons without confronting, OR, making them available to the assessee for rebuttal. In those cases, the Tribunal restored the matter to the file of the AO with the direction to confront the assessee with the reports / documents / statements proposed to be used against the assessee, allow rebuttal thereof and cross-examination of parties on whose testimony is proposed to be relied upon and the matter be adjudicated afresh after affording the assessee adequate opportunity of being heard and to also file details / submissions in this regard.
In the rejoinder, the ld.AR for the assessee did not dispute the proposition put forth by the ld. DR for restoring this issue to the file of the AO for de novo adjudication.
We have heard both parties and perused and carefully considered the material on record; including the judicial decisions cited and the orders of the authorities below. Taking into consideration the facts and circumstances of the case that the assessee specifically requested for cross-examination of the deponents whose statements were the basis of addition by the AO and also the report of the Investigation Directorate, Kolkata for rebuttal; from the judicial decisions cited, we find that the issue for consideration is squarely covered by the orders of the Bengaluru ITAT in the cases of Arvind Kumar Moolchand (supra) and Pukhraj Hasmukhlal (supra). Following the aforesaid orders (supra), we set aside the orders of the AO and restore the matter of treatment of profit declared on sale of shares, claimed as exempt u/s 10(38) of the Act, to the file of the AO to re- adjudicate the issue afresh; after making available to the assessee for rebuttal all documents; including Statements, Investigation Reports, etc., relied upon by Revenue for making the additions/disallowances and providing adequate opportunity to the assessee for cross-examination of persons whose statements are being relied upon. It is accordingly ordered. Consequently, ground No. 3 is disposed of as above.
In view of the above, the other grounds raised on merits are rendered academic and therefore not required to be adjudicated at this juncture.
In the result, the assessee’s appeal for assessment year 2014-15 is allowed for statistical purposes.
Pronounced in the open court on this 15th day of February, 2019.