REENA KHETAN,KODERMA vs. INCOME TAX OFFICER, KODERMA

“4. After hearing rival contentions and perusing the material on record, we note that undisputedly that M/s. Kailash Auto Finance Limited was classified as penny stock company by the Ministry of Corporate Affairs and SEBI has also passed various orders holding the said stock to be penny stock as the said stock was manipulated in order to give undue accommodation on the platform of stock exchanges in the form of long term capital gain. However, we note that the assessee has invested Rs. 99,500/- in the shares of M/s. Kailash Auto Finance Limited in FY 2012-13 and sold those shares after a period of two years thereby earning a long term capital gain of Rs. 32,95,110/-. The assessee has also furnished the broker’s bill and demat statement evidencing purchase and sale of shares and payment thereof through banking channels. Under these circumstances, the gain by way of long term capital gain cannot be doubted as the authorities below could not prove any money received into the share transactions. Besides, the case of the assessee is squarely covered by the decision of Hon'ble Jurisdictional High Court in the case of The Commissioner of Income Tax, Jamshedpur Vs. Arun Kumar Agarwal (HUF), Tax Appeal No.4 of 2011 dated 13.07.2012 wherein it has been held that the long term capital gain realized on sale of penny stocks has to be treated as genuine as the assessee has furnished all the evidences in support of his claim. The relevant finding of the Hon'ble High Court of is as under: “9. Learned counsel for the assessees submitted that a bare perusal of the reasons given in the two impugned orders, one passed by the C.I.T. Tax Appeal No.4 of 2011 with analogous case (Appeals) and another by the I.T.A.T will clearly reveal that the facts of the each case have been carefully considered by the C.I.T.(Appeals) and the facts mentioned in the order have not been disputed by the Revenue in any manner except alleging that the transactions are being sham. It is also not in dispute that the assessees disclosed the shares in their possession in earlier return and statement of accounts and they are duly entered into the books

P a g e 3 | 6 Assessment Year : 2012-13 of accounts of the accounts of the assessees and that was the position since last five years. It is submitted that even if the such transaction was there even that was duly proved by the Bank statement and by disclosure of Bank account number etc. The assessees produced the contract note of the transactions which were discarded by the Assessing Officer without any reason and without their being any evidence to rebut those contracts. It is also submitted that the I.T.A.T has not committed any mistake of fact or law in deciding all the appeals together because of the simple reason that all the appeals were argued as one case and all the facts of the individual assessee was duly considered by the first appellate authority and the I.T.A.T has decided the issues upholding the findings of the appellate authority and in concurring orders detail reasons may not be required to be given in much detail, if from the reasons given, the correctness in the decision of the second appellate authority can be found and in the case in hand, it finds support from the lower appellate authority's given reasons.

We have considered the submissions of the learned counsel for the parties and we are of the considered opinion that the learned Assessing Officer was much influenced by the enquiry report which may has been brought on record by the efforts of the Assessing Officer and that enquiry report was prepared by the SEBI and from the observations made by the Tax Appeal No.4 of 2011 with analogous case Assessing Officer himself, it is clear that after getting that enquiry report, the SEBI prima facie found involvement of some of the share brokers in unfair trade practices. Even in a case where the share broker was found involved in unfair trade practice and was involved in lowering and rising of the share price, and any person, who himself is not involved in that type of transaction, if purchased the share from that broker innocently and bonafidely and if he show his bonafide in transaction by showing relevant material, facts and circumstances and documents, then merely on the basis of the reason that share broker was involved in dealing in the share of a particular company in collusion with others or in the manner of unfair trade practices against the norms of S.E.B.I and Stock Exchange, then merely because of that fact a person who bonafidely entered into share transaction of that company through such broker then only by mere assumption such transactions cannot be held to be a shame transaction. Fact of tinted broker may be relevant for suspicion but it alone necessarily does lead to conclusion of all transaction of that broker as tinted. In such circumstances, further enquiry is needed and that is for individual case. Such further enquiry was not conducted in that case.”

In the present case the purchase of shares has not been disputed or doubted however the sale has been disputed in the current year to be bogus and in the nature of accommodation entries. The Hon'ble High Court

We have considered the rival submissions. Admittedly, the decision in the case of Swati Bajaj (supra) is of Hon’ble Calcutta High Court. The decision of the Hon’ble Jurisdictional High Court is in the case of Arun Kumar Agarwal (HUF). When there is decision of the Hon’ble Jurisdictional High Court on the issue, then it is not open to the appellate authority to rely upon the judgement of another Hon’ble High Court to deny the assessee relief. This being so, as it is noticed that the assessee has produced all documents to substantiate its claim for deduction u/s.10(38), respectfully following the decision of the Hon’ble Jurisdictional High Court in the case of P a g e 5 | 6 Assessment Year : 2012-13 Arun Kumar Agarwal (HUF)(supra), the addition as made by the AO and confirmed by the ld CIT(A) stands deleted.

In the result, appeal of the assessee stands allowed.