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Income Tax Appellate Tribunal, ‘ C’ BENCH : CHENNAI
Before: SHRI GEORGE MATHAN & SHRI RAMIT KOCHAR
आदेश / O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER
This is an appeal filed by the assessee against the order of the Commissioner of Income-tax (Appeals)-5, Chennai in ITA No.128/C.I.T(A)-5/2017-18 dated 30.04.2019 for the assessment year 2012-13.
In this appeal, the assessee has raised the following grounds:-
The learned Commissioner of Income-tax (Appeals) erred in not considering the grounds raised
against the re-opening of the assessment itself u/s.148.
2. The appellant submits that the Assessing Officer has re-opened the assessment on the wrong impression that the appellant had not admitted capital gains on sale of the shares at all in her return of income whereas the appellant had admitted the capital gains and clamed exemption u/s.10(38) of the Act.
3. The appellant further submits that the assessing officer has not recorded any reason to hold that any income has escaped assessment and his mere statement that he has received information from the DIT(Inv) Kolkata that the appellant had sold shares of M/s. Multiplus Resources Ltd. in the financial year 2011-2012 relevant to the assessment year 2013 – 2014 cannot be considered as escapement of income to invoke the provisions of section 147 of the Act.
4. The appellant therefore prays that the re-assessment may be cancelled in limine on this ground alone.
5. The learned Commissioner of Income-tax (Appeals) erred in confirming the addition of Rs.89,11,200/- as unexplained credit under section 68 when it represented the long term capital gains exempt u/s.10(83) of the Act.
6. The learned Commissioner of Income-tax (Appeals) erred in confirming the addition of Rs.89,11,200/- as unexplained credit under section 68 when it represented the long term capital gains exempt u/s.10(38) of the Act.
7. The appellant submits that the amount duly reflected in the bank account representing sale of shares cannot be considered as unexplained credit under section 68 of the Act.
8. The Assessing officer erred in denying exemption on the long term capital gains sale of 50000 shares of M/s. Multiplus Resources Ltd. claimed u/s.10(38) of the Act on irrelevant considerations.
9. The appellant submits that she has satisfied all the conditions laid down in section 10(38) of the Act by adducing evidence to show that the shares were sold through demat, held for more than 12 months and the shares were listed in the stock exchange and share transaction tax was also paid. The assessing officer is therefore not correct in law in denying the exemption claimed u/s.10(38) of the Act.
10. The authorities below erred in doubting the purchase of shares simply because they were off market completely ignoring the fact that the purchase of shares was supported by debit notes, payment of sale consideration through banking channel, subsequent de-mat, contract note and banking statements.
11. The authorities below erred in holding that the shares sold are penny stocks based on the general statement and investigation conducted in other cases without any reference to the appellant in the documents relied on especially when the appellant was a regular investor in shares. 12. The Assessing Officer denied the principle of natural justice and fair play by not providing the documents relied on by him in the assessment to the appellant for any rebuttal. 13. The Assessing Officer’s observation that there was no infraction of any principle of natural justice by the absence of formal opportunity of oral cross examination and that neither cross examination nor the opportunity to lead evidence is an integral part of all quasi judicial adjudications is against the principles of taxation, fair lay and natural justice. 14. The appellant submits that it is not the case of the authorities below that unaccounted money exchanged between the appellant and the alleged share brokers in the transactions to suspect the transaction and to treat the same as same as held by the Bombay High Court in the case of C.I.T Vs. Lavanya Land P Ltd. (83 taxmann.com161) 15. The appellant submits that she has relied on various case laws in support of the decision and the learned Commissioner of Income-tax (Appeals) ought to have followed the decision favourable to the tax payer when there are contradictory decisions as per the principles laid down by the Supreme Court in the case of Vegetable Products Ltd., 16. The appellant therefore pray that the re-assessment made under section 148 may be cancelled as ab initio void and the addition of Rs.89,11,200 being the sale consideration of shares under section 68 may be deleted and the capital gains arising from the sale of shares of M/s. Multiplus Resources Ltd. may be allowed exemption u/s.10 (38) of the Act and render justice.
Shri M.Karunakaran represented on behalf of the Assessee, 3. and Shri DV Subha Rao represented on behalf of the Revenue.
It was submitted by ld.AR that re-opening of assessment is invalid in so far as the Assessing Officer has mentioned the reasons that the assessee has not disclosed capital gains. It was a submission that assessee has disclosed the long term capital gains, but has claimed exemption u/s.10(38) of the Act. It was submitted that the reasons recorded were invalid. It was a further submission that assessee had objected to the reopening of assessment in the course of assessment itself and the same has not been considered by the Assessing Officer. It was also a submission that even in the appeal before the ld.CIT(A), though the ground against the reopening had been raised, ld.CIT(A) had not adjudicated the same. It was submitted by ld.AR that the re-opening itself was liable to be quashed on merits.
The ld.AR further submitted that the issue was in respect of an alleged penny stock. It was submitted that the Assessing Officer has not provided the details of the evidences available with him for the purpose of making disallowance. It was a prayer that the assessee’s claim of deduction u/s.10(38) of the Act be accepted.
In reply, ld.DR submitted that the Assessing Officer has considered the objections of the assessee while completing the assessment in so far as the arguments of assessee have not been found favour with by the Assessing Officer. The ld.DR drew our attention to the order of ld.CIT(A) in para 6.2 to submit that ld.CIT(A) had rejected the assessee’s argument in respect of reopening. It was also submitted by ld.DR that reopening of assessment are valid and the valid reasons had been recorded. Ld.DR submitted that the details of the capital gains transactions had not been provided by the assessee and it was only on the basis of the information received from Investigation Wing, Income-Tax Department, Kolkatta office that the assessee had involved herself in the bogus capital gains transactions, which had led to the reopening. It was a prayer that the Revenue had no objection, if the issue in the appeal pertaining to claim of deduction u/s.10(38) of the Act was restored to the file of the AO for re- adjudication in line with the decision of Co-ordinate Bench of this Tribunal in the case of Heerachand Kanunga in & 768/Chny/2019 dated 03.05.2018. The ld.DR submitted that the decision of Hon’ble Supreme Court in the case of Dilip Kumar reported in 2018-TIOL-302-SC-CUS-CB was liable to be considered wherein the Constitution Bench of Supreme Court had categorically held that if an exemption has been claimed by the assessee, it is for the assessee to prove the eligibility to claim the exemption.
We have heard the rival contentions and perused the material available on record. In respect of assessee’s stand that the re- opening is invalid in so far as the Assessing Officer has recorded that the assessee has not disclosed the capital gains on sale of the shares at all in her return of income, but in fact, the assessee has offered the capital gains on which claimed exemption u/s.10(38) of the Act. The reasons recorded by the Assessing Officer are extracted herein below:
“In this case information relating to Bogus LTCG was received from DIT(Inv), Kotkatta, wherein it is noticed that the assessee during the F.Y 2011-12 relevant to A.Y 2012-13 sold shares of M/s.Multiplus Resources Limited to the tune of Rs.89,11,200/- and it is seen that the assessee has not admitted the income in her return of income. Hence, I have reasons to believe that there is escapement of income for the assessment year 2012-13 chargeable to tax.”
A perusal of the reasons shows that the words used by the Assessing Officer are that “the assessee has not admitted the income in her return of income”. A perusal of the return of income filed by the assessee shows that the assessee has claimed exemption u/s.10(38) of the Act in respect of long term capital gains generated by the assessee in respect of sale of the shares of M/s.Multiplus Resources Limited. Thus, it is very clear that there is no error in the reasons recorded by the Assessing Officer. In any case, the reopening has been done on the basis of an information received by Assessing Officer from DIT(Inv), Kolkatta referring to the transactions done by the assessee. At the time of recording reasons for reopening of assessment, it is not necessary that there should be finality of finding in respect of reasons.
All that is required is the clarity of the reasons. Challenge to reopening would not survive in respect of the sufficiency of the reasons. It is to be appreciated that the Court cannot examine the sufficiency of reasons on the basis of which the re-assessment is initiated. However, the existence or otherwise of such reasons to believe is certainly open verification. In the present case, there are reasons recorded and such reasons had been recorded on the basis of fresh evidences, which has come to the possession of the Assessing Officer after the return has been filed. This being so, the re-opening of the assessment stands upheld.
In respect of the argument raised by the ld.AR that the objections of the assessee has not been disposed of. It is noticed that in the letter dated 02.11.2017 to the Assessing Officer in pra-12, the assessee has stated as follows:-
“12. The assessee hereby confirms receipt of your letter dated 07.03.2017 providing reasons for reopening the assessment. The assessee doth hereby objects to the reopening of the assessment inasmuch as no specific reasons against the assessee has been pointed out nor any details thereof has been furnished to the assessee and hence it is requested that the proceedings initiated u/s.148 may kindly be dropped.”
This is not an objection, but is a submission in the course of assessment. In fact, the reasons recorded itself clearly give all the details as to why the reopening has been done. However, so as to grant the assessee another opportunity to raise all objections that she desires in respect of re-opening, following the principles laid down by the Hon’ble Supreme Court in the case of GKN Drivenshafts (India)
Ltd. Vs. ITO reported in (2003) 259 ITR 19(SC), the issues in the appeal re restored to the file of Assessing Officer for re-adjudication.
The assessee is at liberty to raise all such objections that she feels are necessary and appropriate in respect of reopening and the Assessing Officer shall consider such objections and adjudicate on the same before completing the set aside proceedings. The Assessing Officer shall also keep in mind the principles laid down by the Co-ordinate Bench of this Tribunal in the case of Shri Heerachand Kanunga for assessment years 2010-11 & 2011-12 in & 2787/Mds/2017 vide order dated 03.05.2018 wherein the Tribunal has been held as follows:-
“9. A perusal of the facts in the present case admittedly given room for suspicion. However, assessments are not to be done on the basis of mere suspicion. It has to be supported by facts and the facts are unfortunately not forthcoming in the Assessment Order, in the order of the Ld.CIT(A) nor from the side of the assessee. The main foundation of the assessment in the present case is the statement of one Shri Ashok Kumar Kayan who has admitted to have provided bogus Long Term Capital Gains to his clients. The said Shri Ashok Kumar Kayan also allegedly seems to have provided the assessee’s name and PAN as one of the beneficiaries. However, this statement given by Shri Ashok Kumar Kayan cannot be the foundation for the purpose of assessment in so far as Shri Ashok Kumar Kayan has not been provided to the assessee for cross-examination. In the absence of opportunity of cross-examination, the statement remains mere information and such information cannot be foundation for assessment.
Admittedly, the assessee has claimed to have purchased 15000 shares from M/s.BPL @ Rs.20/- per share totaling into Rs.3,00,000/-. The assessee claims to have paid cash for the purchase of these shares. The primary question would be as to where the purchase was done? If the purchase has been done in Kolkata, how was the cash transferred? When did the assessee received the share certificates and the share transfer forms? How did the assessee overcome the provisions of Sec.40A(3)? Was there adequate cash availability in the books of the assessee on 24.04.2008? Did the assessee travelled to Kolkata? How was the transaction done? Who applied for the demating of the shares? When were they demated? When were the shares transferred to the demat account of the assessee? To whom were the shares sold during the Assessment Years 2010-11 & 2011-12? When were the cheques received by the assessee? From whom did the assessee received the cheques? Was there any cash deposit immediately prior to the issuing of the cheque from the bank account of the purchaser of the shares of the assessee?
A perusal of the Assessment Order at Para No.7.1 shows that in the Written Submissions, the assessee states that he has purchased 15000 shares of M/s.BPL from M/s.ABPL, Kolkata. However, in Para No.8.3, it is mentioned that the assessee in good faith has purchased the shares of M/s.BPL from a sub-broker in his friends circle. What is the true nature of the transaction? From whom did the assessee actually purchase the shares? Did the assessee take possession of the shares in its physical form? In Para No.8.1 of the Assessment Order, it is mentioned that the assessee is an investor and has been regularly trading in shares. If this is so, does the demat account show such transactions being done by the assessee or is this the only one of transaction. Thus, clearly the facts required for adjudicating the appeals are not forthcoming. There is no evidence whatsoever to show that the assessee has held the shares for more than 12 months. This is because assuming that the demat has been done and the shares of M/s.BPL has come into the assessee’s demat account and has immediately flown out. Then the factum of the possession of the shares for more than 12 months have to be proved by the assessee. This is also not forthcoming. In reply to a specific query, as the date of the demat of shares, it was submitted by the Ld.AR that the demat was done on various dates. Then the question rises as to why there is so much of difference in the dates of demating when 15000 shares have been purchased together on 24.04.2008. No details in respect of M/s.BPL company is known, what is the product of the company which had lead to the share value of the company to go up from Rs.20/- to Rs.352/- in a period of two years. This would clearly be a case where the share value of the company was hitting the circuit breaker of the stock exchange on a daily basis and obviously it would have drawn attention. This being so, as the facts are not coming out of the Assessment Order nor the order of the Ld.CIT(A) nor from the side of the assessee, we are of the view that the issues in this appeal must be restored to the file of the AO for re-adjudication after granting the assessee adequate opportunity to substantiate its case and we do so.
The statement recorded by the Revenue from Shri Ashok Kumar Kayan cannot be used as an evidence against the assessee in so far as the statement has not been given to the assessee nor has Shri Ashok Kumar Kayan been provided to the assessee for cross- examination. However, the assessee shall prove the transaction of the Long Term Capital Gains in respect of which the assessee has claimed the exemption u/s.10(38) by providing all such evidences as required by the AO to substantiate the claim as also by producing the persons through whom the assessee has undertaken the transaction of the purchase and sale of the shares which would include the sub-broker, friend and the broker through whom the transaction has been done, before the AO for examination.”
As also the principles laid down by the Hon’ble Constitution Bench of the Supreme Court in the case of Dilip Kumar and Co., referred to supra wherein the Hon’ble Constitution Bench of the Supreme Court has categorically held that “the burden of proving applicability would be on the assessee to show that his/her case comes within the parameters of the exemption clause or exemption notification.” With this direction, the issues in this appeal are restored to the file of Assessing Officer for re-adjudication after granting the assessee adequate opportunity of being heard.
In the result, the appeal of assessee is partly allowed for statistical purposes.
Order pronounced in the open court after conclusion of hearing on 23rd October, 2019, at Chennai.