GAWTAM CHAND SETHIYA & SONS,CHENNAI vs. ITO NON CORPORATE WARD 3(1), CHENNAI

In this appeal filed by the assessee, which is directed against an order dated 21.08.2017 of ld. Commissioner of Income Tax (Appeals)-4, Chennai, it is aggrieved on denial of exemption of long term capital gains of �18,77,776/-, arising on transfer of shares, claimed u/s.10(38) of the Income Tax Act, 1961 (in short ‘’the Act’’) and treating such sum as unexplained income u/s.68 of the Act.

Ld. Counsel for the assessee submitted that assessee had sold 50,000 shares of one M/s. Kailash Auto Finance Ltd and long term capital gains of �18,77,776/- arising from such sale was claimed as exempt u/s.10(38) of the Act. As per the ld. Authorised Representative, consideration received on sale of the shares came to �19,27,776/-. Contention of the ld. Authorised Representative was that 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. Kailash Auto Finance Ltd was a penny stock company. As per the ld. Authorised Representative, assessee had initially purchased 50,000 shares of M/s. Careful Projects Advisory Ltd. which was later merged with M/s. Kailash Auto Finance Ltd. Further, as per the ld. Authorised Representative, assessee was allotted equal number of shares in the latter company on such merger, which was under a scheme approved by the High Court. Contention of the ld. Authorised Representative was that purchase of the shares of M/s.

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.

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? 11. 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’’.

The fact situation here, is similar to the above two cases decided by the Co-ordinate Bench. We are therefore of the opinion that the transactions claimed by the assessee whether real or sham, requires a revisit by the ld. Assessing Officer. Similar directions as given in the cases of Vimalchand Gulabchand, Praveen Chand, Gatraj Jain & Sons (HUF) and Mahendra Kumar Bhandari (supra), read alongwith the directions given in the case of Heerachand Kanunga (supra) are given herealso. We therefore set aside the orders of the lower authorities and remit the issue back to the file of the ld. Assessing Officer for consideration afresh in accordance with directions in the above two cases.