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Facts
The assessee, Brijmohan Prasad Gupta, purchased 550 shares of M/s. Dristi Supplies Pvt. Ltd., which converted into 49,500 shares of M/s. Quest Financial Services Ltd. after amalgamation. He sold these shares for Rs. 40,51,063 and claimed Long Term Capital Gain (LTCG) of Rs. 37,76,063. The Assessing Officer treated this as bogus LTCG and made an addition under section 68 of the Income Tax Act.
Held
The Tribunal found that the CIT(A)'s order was a summary order, lacking facts, findings, and independent application of mind, thus violating principles of natural justice and the mandates of Section 250(4) & (6) of the Act. The Tribunal set aside the CIT(A)'s order and remanded the matter back for a de novo consideration, directing the CIT(A) to verify facts, consider all submissions and evidence, and pass a speaking order within three months.
Key Issues
1. Validity of addition made under section 68 for alleged bogus Long Term Capital Gain (LTCG) from share transactions. 2. Eligibility for exemption under section 10(38) for the claimed LTCG. 3. Procedural deficiencies and lack of proper adjudication by the CIT(A).
Sections Cited
u/s.68, u/s.10(38), u/s.139(1), u/s.250(4), u/s.250(6)
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Income Tax Appellate Tribunal, RAIPUR BENCH “SMC”, RAIPUR
Before: SHRI PARTHA SARATHI CHAUDHURY
आदेश / ORDER
PER PARTHA SARATHI CHAUDHURY, JM
The captioned appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, Delhi dated 30.12.2024 for the assessment year 2013-14 as per the following grounds of appeal:
1. On the facts and circumstances of the case and in law, Id CIT(A) has erred in sustaining addition of Rs.37,76,063 out of addition of Rs.40,51,063 made by AO u/s.68; Rs.40,51,063 is sale proceeds of listed shares in Stock Exchange (i.e., 49,500 shares of Quest) from DMAT account through registered share broker; 49,500 shares of Quest received on amalgamation on 22- 2-12 from undisputed investment of 550 listed shares in Dristi made in earlier year in AY11-12 (purchased on 13-11-10) as Id CIT(A) has duly accepted cost of purchase of 550 shares of Dristi at Rs.2,75,000 and sustained remaining amount of Rs.37,76,063; sec68 cannot be applied on sale proceeds of investments; addition sustained of Rs.37,76,063 is unjustified & is liable to be deleted; relied on Vikram N Chandan (2024) (Mum- Trib); Pardeep Kumar Aggarwal (2016) (Chd-Trib); Mamta Rajiv Kumar Agarwal (2023) (Guj HC).
1. 2. On the facts and circumstances of the case and in law, Id CIT(A) has erred in sustaining addition of Rs.37,76,063; when 49,500 shares of Quest is received on conversion of earlier investment of 550 shares of Dristi i.e., purchased on 13-11-10 as share certificates issued in name of assessee on 30-11-10 on his request on 20-11-10; as conversion of 550 shares of Dristi into 49,500 shares of Quest is due to amalgamation made on 22-2- 12; Id CIT(A) has duly accepted cost of purchase of 550 shares of Dristi at Rs.2,75,000 and sustained remaining amount of Rs.37,76,063; addition sustained of Rs.37,76,063 is unjustified & is liable to be deleted.
3. On the facts and circumstances of the case and in law, Id CIT(A) has erred in sustaining addition of Rs.37,76,063; onus cast u/s68 has been discharged by submitted documentary evidences which has not been proved false by the revenue by bringing contrary material/ evidence on record; no addition can be made on surmises, suspicion and conjectures; revenue has not brought any adverse material/ evidence on record, on his own investigation; in absence of this, addition sustained of Rs.37,76,063 is not justified, is liable to be deleted.
4. On the facts and circumstances of the case and in law, Id CIT(A) has erred in sustaining addition Rs.37,76,063 by denying exemption claimed u/s.10(38) on LTCG on sale of shares on wrong premise that it was held for less than 12 months; while 550 shares of Dristi was purchased on 13-11-10 as share certificates issued in name of assessee on 30-11-10 on his request made on 20-11-10 and it thereafter, converted into 49,500 shares of Quest on 22-2-12 on amalgamation and thereafter, it was sold on 5-6-12, thus, holding was for 19 months; pre-condition for claiming exemption u/s.10(38) has been duly complied with; addition sustained is liable to be deleted.
5. The appellant craves leave, to add, urge, alter, modify or withdraw any grounds before or at the time of hearing.”
2. The brief facts in this case are that the addition has been made by the A.O u/s.68 of the Income Tax Act, 1961 (for short ‘the Act’) for claim of Rs.40,51,063/- on account of bogus Long Term Capital Gain (LTCG) and the facts emanating at Para 5.14 of the assessment order are as follows:
5.14 The assessee has purchased 550 shares of M/s. Dristi supplies Pvt. Ltd for Rs.2,75,000/- from M/s.lshwar Distributors Pvt. Ltd. The assessee has stated that he as chased the share on 13/11/2010 and Name of the assessee on the share certificate was taken on 30/11/2010. There after M/s.Dristi supplies Pvt. Ltd was amalgamated into M/s. Quest financial services Ltd and the assessee received 49500 shares of M/s Quest financial services Ltd on 17/10/2011. The share price of M/s Quest financial services Ltd was in the range of Rs.62.60 to 74.30 from 27/09/2010 to 20/10/2011. As the assessee has 550 shares of M/s. Quest financial services Ltd., which is of Rs.2,75,000 only. Here he has been provided with 49,500 shares of M/s.Quest financial services Ltd price per shares of which is 74.30 on 20/10/2011. The value of which transaction out to be Rs. 36,77,850/-. There is no basis of providing 49500 shares of M/s. Quest financial services Ltd. Therefore the process itself is a sham. In amalgamation no of shares provided is on the basis of value of shares . Here the assessee failed to provide why he was provided with shares worth Rs.36,77,850/- in lieu of another shares of Rs.2,75,000/-. Further the assessee sold these share in Rs.82/- per shares on 08/06/2012 in Rs.40,51,063/- and claimed L.T.C.G of Rs.37,76,063(4051,063 -2,75,000). From the above it is clear that the assessee Shri Brijmohan Prasad Gupta has been provided with a bogus L.T.C.G.
The findings of the A.O on the aforesaid issue are as follows:
5.15 Without prejudice to above. In assessee own submission that the assessee has purchased shares of M/s. Dristi supplies Pvt. Ltd and made the payment of Rs.2,75,000/- on 06/08/2011. Then how the assessee was given copies of shares certificate on 13/11/2010 and his name was taken on the share certificate on 30/11/2010.This again shows that the assessee transaction is a sham transaction. 5.16 Further, when the assessee pays Rs.2,75,000/- on 06/08/2011 for purchase of M/s Dristi supplies Pvt. Ltd (assessee himself stated and provided copy of bank statement for the proof). Also D'mat account of the assessee also provides that shares of M/s Dristi supplies Pvt. Ltd were dematerialised on 17/10/2011.Which proof that actual transaction has taken place on 06/08/2011 which is amalgamated into M/s Quest financial services Ltd on 22/02/2012 (D'mat account statement of assessee which he himself submitted provides these details). Under the circumstances the assessee is not eligible to claim L.T.C.G as the shares (even of M/s. Dristi supplies Pvt. Ltd) is with assessee for less than 12 months. Therefore L.T.C.G claimed by the assessee is sham transaction. 5.17 The director of the assesse's own broker M/s sikaria Share & Stock Broking Services Pvt Ltd Shri Bal Krishna Sikaria & Shri Prakash Jajodia who is managing the affairs of M/s Quest financial services Ltd have in their statement accepted that they are in the business of providing accommodation entry in the form of bogus Long Term Capital Gain. In the case of the assessee, it is apparent that number of shares of M/s Quest financial services Ltd provided is much more than what the assessee is eligible for after merger of M/s Dristi supplies Pvt. Ltd in M/s Quest financial services Ltd. 5.18 It is also pertinent to mention that the assessee has not filed his original Return of Income within the prescribed limit u/s.139(1) of the I.T. Act, 1961. 5.19 In view of the above, Long Term Capital Gain claimed of Rs.40,51,063/- on sale of shares of M/s Quest financial services Ltd. is treated as bogus LTCG and added in the income of the assessee u/s.68 of the I.T. Act, 1961.
On appeal before the first appellate authority, the Ld. CIT(Appeals)/NFAC dismissed the appeal of the assessee observing as follows:
“5.1 I have considered the material on record including the assessment order, grounds of appeal and submissions filed by the appellant and the following are findings. 5.2 The main issue in the appeal is related to the bogus Long Term Capital Gain for trading of shares in Quest Financial Services Ltd. which are rotated through M/s. Maa Vasnavi Udyog & M/s Bhakti trading Co. in FY 2012-13. During the assessment proceeding the AO found that the appellant had purchased 550 shares of M/s Dristi supplies Pvt. Ltd. for Rs.2,75,000/-. The name of the assesse on share certificate was taken on 30.11.2010. Thereafter, M/s Drishti Supplies Pvt. Ltd. Was amalgamated into M/s Quest Financial Services Ltd. And the assesse received 49500 shares on 17.10.2011. The share price of above share was in the range 62.60 to 74.30 from 27.09.2010 to 20.10.2011. The value of 49500 shares was 36,77,850/-. Also, the assesse failed to provide the reason why he was provided with shares worth Rs.36,77,850/- in lieu of other shares of Rs.2,75,000/-. Further, the assesse sold these shares at Rs.82/- per share on 08.06.2012 at Rs.40,51,063/- and claimed LTCG of Rs.37,76,063/- (40,51,063-2,75,000). 5.3 During the assessment proceedings, the appellant has replied to the notices issued by the AO. The relevant paras from the assessment order is as under - The scrip Questfin is one of the such company/penny stock identified being used for providing bogus accommodation entry of Long Term Capital Gain/ Short Term Capital Loss (STCL) by manipulating its share prices by the syndicate of operators. The Director of M/s Sikaria Share & Stock Broking Services Pvt Ltd, Shri Bal Krishna Sikaria in his statement stated that he had provided the entries of Bogus LTCG/STCL etc. to various clients, Shri Brijmohan Prasad Gupta is one of the beneficiaries whose transaction amount was Rs.40,51,063/- The share price of M/s Quest financial services Ltd was in the range of Rs.62.60 to 74.30 from 27/09/2010 to 20/10/2011. As the assessee has 550 shares of M/s Quest financial services Ltd., which is of Rs.2,75,000 only. Here he has been provided with 49,500 shares of M/s Quest financial services Ltd price per shares of which is 74.30 on 20/10/2011. The value of which transaction out to be Rs.36,77,850/-. There is no basis of providing 49500 shares of M/s Quest financial services Ltd. Therefore the process itself is a sham. In amalgamation no of shares provided is on the basis of value of shares. Here the assessee failed to provide why he was provided with shares worth Rs.36,77,850/- in lieu of another shares of Rs.2,75,000/-. Further the assessee sold these share in Rs.82/- per shares on 08/06/2012 in Rs.40,51,063/- and claimed L.T.C.G of Rs. 37,76,063(4051,063 —2,75,000). From the above it is clear that the assessee Shri Brijmohan Prasad Gupta has been provided with a bogus L.T.C.G. From the above it is clear that the assessee Shri Brijmohan Prasad Gupta has been provided with a bogus L.T.C.G. 3.7 Without prejudice to above. In assessee own submission that the assessee has purchased shares of M/s Dristi supplies Pvt. Ltd and made the payment of Rs.2,75,000/- on 06/08/2011. Then how the assessee was given copies of shares certificate on 13/11/2010 and his name was taken on the share certificate on 30/11/2010.This again shows that the assessee transaction is a sham transaction. 3.8 Further, when the assessee pays Rs.2.75,000/- on 06/08/2011 for purchase of M/s.Dristi supplies Pvt. Ltd (assessee himself stated and provided copy of bank statement for the proof). Also D'mat account of the assessee also provides that shares of M/s Dristi supplies Pvt. Ltd were dematerialised on 17/10/2011.Which proof that actual transaction has taken place on 06/08/2011 which is amalgamated into M/s Quest financial services Ltd on 22/02/2012(D'mat account statement of assessee which he himself submitted provides these details). Under the circumstances the assessee is not eligible to claim L.T.C.G as the shares (even of M/s Dristi supplies Pvt. Ltd) is with assessee for less than 12 months.
Therefore L.T.C.G claimed by the assessee is sham transaction. 5.4 Considering the details as per para 5.3 above, I am of the view that the appellant failed to provide evidence for allotment of 49500 shares and also failed to provide the source of such shares. The AO has rightly justified in making addition of Rs.37,76,063/-. 6. In the result, the appeal of the appellant is dismissed and the action of the AO is upheld.”
I have carefully considered the facts on record and submissions of the parties herein. The addition had been made u/s.68 of the Act on account of bogus LTCG claimed by the assessee and as per facts of the case emanating from the assessment order, the assessee had acquired 550 shares of M/s.Dristi Suppliers Pvt. Ltd. There was an amalgamation of M/s. Dristi Suppliers Pvt. Ltd. to M/s. Quest Financial Services Ltd. and post this amalgamation, the assessee received 49500 shares. There is detailed discussion in the assessment order where the A.O had brought that this is a colourable device and a bogus transaction of LTCG. I am of the considered view that the order of the Ld. CIT(Appeals)/NFAC is absolutely silent about the issue and bereft of any findings and it has summarily disposed off the appeal of the assessee without recording any reasons or calling for an enquiry. It is neither a speaking order nor it has followed the mandate of provisions of Section 250(4) & (6) of the Act. That there is no adjudication on merits by the Ld.CIT(Appeals)/NFAC on the submissions of the assessee and facts emanating from the assessment order and also no remand report was called for regarding ground verification of facts and there is no reasoning reflected in the order of the Ld. CIT(Appeals)/NFAC for coming to the particular conclusion as per his order therefore the order u/s.250 of the Act attains the character of a summary order bereft of facts, findings and independent application of mind which is mandatory for a quasi-judicial authority. Any summary order by an appellate authority is a perverse order since violative of principles of natural justice. Accordingly, in the interest of justice, I deem it fit and proper that the matter should be revisited by the Ld. CIT(Appeals)/NFAC denovo while complying with the principles of natural justice. In view thereof, I set aside the order of the Ld. CIT(Appeals)/NFAC and remand the matter back to its file and the assessee is directed to comply with the hearing notices before the Ld. CIT(Appeals)/NFAC and submit all the documentary evidences after which the Ld.CIT(Appeals)/NFAC shall consider all the submissions/evidence on record and pass a speaking order in terms with Section 250(4) and (6) of the Act within three months from receipt of this order.
As per the above terms, the grounds of appeal raised by the assesse stands allowed for statistical purposes.
In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in open court on 9th day of April, 2025.