VEENA DEVI SARAF,CHENNAI vs. ITO NON CORPORATE WARD 3(5), CHENNAI

In this appeal filed by the assessee, which is directed against an order dated 13.07.2017 of ld. Commissioner of Income Tax (Appeals)-4, Chennai, it is aggrieved on denial of exemption of long term capital gains of �49,51,787/-, arising on transfer of shares claimed

Ld. Counsel for the assessee submitted that assessee had sold 80,000 shares of one M/s. Shree Shaleen Textiles Ltd for a consideration of �50,88,000/- and earned long term capital gains of �49,51,787/- arising from such sale, which was claimed as exempt u/s.10(38) of the Act. As per the ld. Authorised Representative, the lower authorities disbelieved the sale of the shares, relying on reports of Directorate of Income Tax (Investigation) Kolkata and Delhi, which mentioned that M/s. Shree Shaleen Textiles Ltd was a penny stock company. As per the ld. Authorised Representative, assessee had initially purchased 16,000 shares of the said company, which holding increased to 80,000 shares through issue of bonus shares. Contention of the ld. Authorised Representative was that purchase of the shares of M/s. Shree Shaleen Textiles Ltd was genuine though it was done off market. The sale of these shares as per the ld. Authorised Representative, was made through recognized stock exchange and ought not have been disbelieved.

Per contra, ld. Departmental Representative strongly supporting the orders of the authorities below submitted that there were sufficient and more reasons for lower authorities to disbelieve the transactions claimed by the assessee in the equity shares of M/s. Shree Shaleen Textiles Ltd. As per the ld. Departmental Representative, assessee could not produce any evidence to show how he indentified the shares of the said company for making an off market purchase. Ld. Departmental Representative also placed reliance on a decision of Co- ordinate Bench in the case of Shri Heerachand Kanunga vs. ITO (ITA Nos.2786 & 2787/Chny/2017, datd 03.05.2018).

We have considered the rival contentions and perused the orders of the authorities below. It is not disputed that long term capital gains claimed by the assessee as exempt u/s.10(38) of the Act arose on account of sale of equity shares of M/s. Shree Shaleen Textiles Ltd. It is also not disputed that the assessee had initially acquired the shares the said company, through an off market transaction. In the cases of Vimalchand Gulabchand, Praveen Chand, Gatraj Jain & Sons (HUF) and Mahendra Kumar Bhandari (supra) where also assessees had claimed exemption u/s.10(38) of the Act on sale of shares purchased through off market transaction, this Tribunal had held as under at para 13 to 16 of its order dated 6.04.2018.

Now, coming to the argument of the ld.A.R that assessment having been done pursuant to a search, ought have been u/s.153A to 153D of the Act and not u/s.143(3), I am afraid I cannot toe this line of reasoning. Relevant para in the assessment order relied by the ld.A.R, for buttressing this argument reproduced at para eleven above, hardly suggest that the assessment done on the assessee was pursuant to a search. Just because an investigation was done by the investigation Department of the Department, based on some leads they might have had, reports of which were used against the assessee, would not ipso facto mean that the assessment was pursuant to any search. There is nothing whatsoever on record to suggest that the assessment was based on materials unearthed during a search.

However, as already mentioned by me, rules of justice do require that the reports of investigation wing, relied on bythe ld. Assessing Officer, as well as the statement recorded from Mr.Sunil Dokania are put to the assessee and its explanation sought, before deciding whether these are relevant in the assessment of the assessee. I also find the SEBI through its order dated 21.09.2017(supra) did vacate its interim exparte order dated 29th March, 2016 restraining 244 entities, inter alia including M/s.Kailash Auto Finance Ltd., from buying, selling or dealing in securities.

In the case of Heerachand Kanunga (supra) relied on by the ld. Departmental Representative, Co-ordinate Bench had held as under:- ‘’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. 10. 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)

In the result, appeal of the assessee is partly allowed for statistical purposes.