What did the Tribunal hold?

The Tribunal held that the investigation report and other materials relied upon by the Assessing Officer were not furnished to the assessee. Therefore, the matter needs re-examination after providing these materials to the assessee.

The assessee purchased and sold shares through banking channels. The Assessing Officer and CIT(Appeals) disallowed the claim based on an investigation report from Kolkata, alleging investment in a penny stock company for accommodation entries. The assessee argued that transactions through a registered stock broker cannot be doubted.

What were the issues?

Whether the disallowance of long-term capital gains is valid when the investigation report relied upon by the revenue was not provided to the assessee for rebuttal.

Usha Kothari vs ITO | ITAT Chennai 2019

Income Tax Appellate Tribunal, ‘C’ SMC BENCH, CHENNAI

Before: SHRI N.R.S. GANESAN

For Respondent: Shri Sanath Kumar Raha, JCIT

Hearing: 03.07.2019Pronounced: 04.09.2019

आदेश /O R D E R

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -12, Chennai, dated 10.01.2019 and pertains to assessment year 2011-12.

Shri D. Anand, the Ld.counsel for the assessee, submitted that the assessee purchased and sold shares of M/s Splash Media through banking channel. According to the Ld. counsel, the Assessing Officer by placing reliance on the so-called investigation report said to be received from the Directorate of Investigation, Kolkata found that the assessee knowingly invested in a penny stock company. The CIT(Appeals) also confirmed the order of the Assessing Officer. Placing reliance on the order of this Tribunal in Vijay Kumar Baid (HUF) v. ITO in dated 24.01.2019 and in Shri Nirav Kumar Mahendra Kumar Sapani v.

DCIT in dated 08.02.2018, the Ld.counsel submitted that when the transactions were made through banking channel, the transactions cannot be doubted.

Shri Sanath Kumar Raha, the Ld. Departmental Representative, submitted that the assessee made investment in a penny stock company. Referring to the orders of the Assessing Officer and the CIT(Appeals), the Ld. D.R. submitted that the Assessing Officer found that M/s Splash Media Ltd. is one of the penny stock companies providing accommodation entries. This was admitted by Shri Anuj Agarwal during the course of examination.

Therefore, according to the Ld. D.R., the CIT(Appeals) has rightly confirmed the addition made by the Assessing Officer.

I have considered the rival submissions on either side and perused the relevant material available on record. The CIT(Appeals) as well as the Assessing Officer found that the entire transaction was fraudulently made by the assessee to get illegal benefit. During the course of examination, Shri Anuj Agarwal admitted that M/s Splash Media is one of the companies which provide accommodation entry for bogus long term capital gains.

The assessee claims that the shares were purchased from MSE Financial Services Ltd., a registered stock broker with SEBI. When the assessee claims that the shares were purchased through recognized stock broker, it is not known how the assessee entered into transaction fraudulently. The statement recorded at Kolkata and other material received from Kolkata Investigation Wing were not furnished to the assessee. Therefore, this Tribunal is of the considered opinion that the matter needs to be re-examined after furnishing all the materials to the assessee. On identical circumstances, this Tribunal in the case of Kanhaiyalal & Sons (HUF) v. ITO in has remitted back the matter to the file of the Assessing Officer for reconsideration. In fact, this Tribunal has observed at para 4 of its order dated 06.02.2019 as follows:-

“4. We heard Shri AR.V. Sreenivasan, the Ld. Departmental Representative also. Admittedly, the Assessing Officer disallowed the claim of the assessees on the basis of the information said to be received from the Investigation Wing of the Department at Kolkata with regard to investment made by the assessees in the penny stock company. It is not in dispute that a copy of the investigation report said to be received from Kolkata was not furnished to the assessee. Moreover, details of the enquiries said to be made by the Assessing Officer were also not furnished to the assessees. In those circumstances, this Tribunal is of the considered opinion that the Assessing Officer has to reconsider the issue afresh after furnishing the material relied upon by the Assessing Officer. Accordingly, the orders of both the authorities below are set aside and the entire issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall bring on record the role of the assessees in promoting the company and the relationship of the assessees, if any with the promoters, role of the assessees in inflating the price of shares, etc. The Assessing Officer shall also furnish a copy of the investigation report said to be received from the Investigation Wing of the Department at Kolkata and other materials if anything in his possession and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessees.”

In view of the above, the orders of both the authorities below are set aside and the issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter after furnishing all the material evidence to the assessee and thereafter decide the issue afresh after considering the decisions of this Tribunal in Vijay Kumar Baid (HUF) (supra) and in Shri Nirav Kumar Mahindra Kumar Sapani (supra).

In the result, the appeal filed by the assessee is allowed for statistical purposes.

Order pronounced in the court on 4th September, 2019 at Chennai.

USHA KOTHARI,CHENNAI vs. ITO, NON CORP WARD-10(4), CHENNAI

What did the Tribunal hold?

What were the facts?

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