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Income Tax Appellate Tribunal, ‘D’ (SMC
Before: SHRI ABRAHAM P. GEORGE]
आदेश / O R D E R
In this appeal filed by the assessee, which is directed against an order dated 30.11.2017 of ld. Commissioner of Income Tax (Appeals)-4, Chennai, it is aggrieved on denial of exemption of long term capital gains of �36,45,204/-, arising on transfer of shares, claimed u/s.10(38) of the Income Tax Act, 1961 (in short ‘’the Act’’) and treating the consideration of �36,60,000/- as unexplained income u/s.68 of the Act. Assessee is also aggrieved that there was an addition of �1,12,800/- u/s.69C of the Act for 3% commission paid by it on the share transactions.
Ld. Counsel for the assessee submitted that assessee had 2. sold 1,00,000 shares of one M/s. Kailash Auto Finance Ltd and long term capital gains of �36,45,204/- 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 �36,60,000/-. 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 1,00,000 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. Careful Projects Advisory Ltd. were genuine though it was done off market. The sale of the shares of M/s. Kailash Auto Finance Ltd. as
per the ld. Authorised Representative, was made through recognized stock exchange and ought not have been disbelieved. Contention of the ld. Authorised Representative was that statements recorded from various persons like Sunil Dokania, Harshvardhan Kayan and Narendra Balasia etc were relied on by the lower authorities for disbelieving the transactions and coming to a conclusion that prices of M/s. Kailash Auto Finance Ltd were jacked up artificially and assessee had made claim a bogus claim of long term capital gains. Ld. Authorised Representative submitted that these statements were never put to the assessee. Relying on the decision of Co-ordinate Bench in the cases of Vimalchand Gulabchand vs. ITO, Praveen Chand vs. ITO, Gatraj Jain & Sons (HUF) vs. ITO and Mahendra Kumar Bhandari vs. ITO (ITA Nos.2003/17, 1721/2017, 2293/17 and 2748/2017 dated 06.04.2018), ld. Authorised Representative submitted that in similar cases where there was a claim for exemption of long term capital gains on sale of equity shares of M/s. Kailash Auto Finance Ltd, the Tribunal had given directions to the ld. Assessing Officer for reconsidering the issue adhering to the rules of natural justice.
Per contra, ld. Departmental Representative strongly 3.
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.
Kailash Auto Finance Ltd. As per the ld. Departmental Representative, assessee could not produce any evidence to show how he indentified the shares of M/s. Careful Projects Advisory Ltd. for making an off market purchase.
I have considered the rival contentions and perused the 4. 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. Kailash Auto Finance Ltd. It is also not disputed that what the assessee had initially acquired the shares of one of M/s. Careful Projects Advisory Ltd, which was later merged with M/s. Kailash Auto Finance Ltd. In similar 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 of M/s.
Kailash Auto Finance Ltd, this Tribunal had held as under at para 13 to 16 of its order dated 6.04.2018.
‘’13. I have considered the rival contentions and perused the orders of the authorities below. The ld. Assessing Officer as well as Ld.CIT(A) had relied on SEBI order dated
29.03.2016, in the case of M/s.Kailash Auto Finance Ltd.. It is true that in the above order, there is a detailed analysis of modus operandi adopted by about eleven numbers of companies, inter alia including M/s.Kailash Auto Finance Ltd. It also mentions how M/s.Kailash Auto Finance Ltd., had built up a huge share premium within a short time of its incorporation. SEBI had also analysed the financials of M/s.CPAN and M/s.PML, which were merged with M/s.Kailash Auto Finance Ltd.,and found that there was disproportionate issue of bonus shares by these two companies. Apart from the SEBI report, lower authorities had also relied on a statement obtained from Mr.Sunil Dokania on 12.06.2015 and the report of Investigation Wing of the Department. What I can discern from the orders of the lower authorities is that the statement given by Mr.Sunil Dokania, nor the report of the Investigation Wing relied on by the Assessing Officer, was made available to the assessee, during the course of assessment proceedings. Since these went against the assessee, rules of natural justice require that assessee is given an opportunity to explain what was mentioned in such statement and if necessary, an opportunity to examine Mr.Sunil Dokania. I also find that the AO had not enquired how the assessee had become aware of the availability of the equity shares of M/s.Panchshul Marketing Ltd., when the said company was not listed and entitled. The finding of the ld. Assessing Officer that the financials of M/s.Kailash Auto Finance Ltd., were not strong enough for justifying the high value of its share is also not supported by sufficient empirical data.
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 facts and circumstances of the case, I am of the opinion that the question whether the transactions claimed by the assessee, as giving rise to the long term capital gains exempt from tax u/s.10(38) of the Act, were real or sham, requires a re-visit by the ld. Assessing Officer. I 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’’.
The fact situation being same, I am 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) are given herealso. I 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 case of Vimalchand Gulabchand, Praveen Chand, Gatraj Jain & Sons (HUF) and Mahendra Kumar Bhandari (supra).
In the result, appeal of the assessee partly allowed for 5. statistical purposes.
Order pronounced on Wednesday, the 4th day of July, 2018, at Chennai.