INCOME TAX OFFICER, WARD 20 (1)(1), , MUMBAI vs. ALIRAZA YUSUFALI HEMANI, MUMBAI
Facts
The Revenue appealed against the CIT(A)'s order that deleted an addition made by the AO regarding the sale of shares. The AO had made an addition of Rs. 5,44,455/- on account of the sale of shares of M/s. Nivya Infrastructure & Telecom Service Ltd, alleging it was a pre-arranged transaction through a penny stock company to evade tax.
Held
The Tribunal held that M/s Nivya Infrastructure Ltd. is not a penny stock and there is no SEBI/BSE order confirming price manipulations. The assessee is a regular investor, and the transactions were conducted through a reputed broker and reflected in bank accounts. The price fluctuations occurred in earlier years, and the assessee already has significant carried forward losses, rendering the alleged transaction insignificant for tax purposes. The CIT(A)'s order was also noted to have directed action only if short-term capital gains were adjusted against profits.
Key Issues
Whether the addition made by the AO on account of sale of shares of M/s. Nivya Infrastructure & Telecom Service Ltd. was justified, considering it was alleged to be a pre-arranged penny stock transaction for tax evasion.
Sections Cited
Sec. 68 of the I.T. Act
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “K (SMC
Before: SHRI OMKARESHWAR CHIDARA, AM
IN THE INCOME TAX APPELLATE TRIBUNAL “K (SMC)” BENCH, MUMBAI BEFORE MS KAVITHA RAJAGOPAL, JM & SHRI OMKARESHWAR CHIDARA, AM I.T.A. No. 4256/Mum/2024 (Assessment Year: 2012-13)
ITO Ward-20(1)(1), Aliraza Yusufali Hemani, Room No. 303, 3rd Floor, Tower C-1, Flat No. 601-602, Piramal Chambers, Lalbaug, Tower C-1, Flat No. 601-602 Lower Parel, Mumbai-400012. Sarkar Residency B and C CHS, Vs. 138, Dr. Mascarenhas Road, Near DCB Bank, Anjir Wadi, Maharashtra-400010. PAN : ABEPH3372H
Appellant) Respondent) :
Appellant /Assessee by : Shri Nishant Ruparel , AR (Virtually appeared) Revenue / Respondent by : Shri Uodal Raj Singh, Sr. DR Date of Hearing : 17.12.2024 Date of Pronouncement : 31.12.2024 O R D E R Per Omkareshwar Chidara, AM: This appeal by the Revenue is against the order of the Commissioner of Income Tax (Appeals)/ National Faceless Appeal Centre (NFAC), Delhi [for short 'the CIT(A)] dated 24.06.204 for the AY 2012-13.
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In this departmental appeal, the main ground of appeal is whether the appellant misused the provisions of Act to evade tax, a colourable device of penny stock trading was used. The grounds of appeal are reproduced as follow: “1. Whether on the facts and in circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition made of Rs.5,44,455/- on account of sale of shares of M/s. Nivya Infrastructure & Telecom Service Ltd without appreciating the fact that the transaction was pre-arranged and was carried out through penny scrip company i.e. M/s. Nivya Infrastructure & Telecom Service Ltd.
Whether on the facts and in circumstances of the case and in law, the Ld.CIT(A) erred in restricting the above addition to Rs. 1,25,466/- without appreciating the fact that the script involved was penny scrip and the entire transaction was a colorable device to evade tax by misusing the provision of the Act.”
The Ld. DR argued that there are huge price fluctuations, the stock price has surged exponentially without fundamentals and the price of penny stock was manipulated to the advantage of appellant to claim a fictitious loss of Rs. 1,25,466/-. It was argued further that the transactions are pre-arranged ones and the purchase and sale of shares of this scrip of Nivya Infrastructure & Telecom Service Ltd. is a sham transaction and hence the addition of Rs. 5,44,455/- should be confirmed as mentioned in assessment order. The Ld. DR continued to argue that the Ld. AO passed a detailed order along with a graphical representation to show that there is high jump and immediate fall in the price of scrip and hence the prices of stock is manipulated. In reply to the arguments of Ld. DR, the Counsel for appellant has stated that the appellant is a regular investor in shares and this is not the sole instance of buying and selling of shares. It was argued that the Ld.AO cannot add the entire
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purchase consideration of shares because it is not the case of unaccounted money. Similarly, the Ld. CIT(A) ought to have deleted the entire addition instead of restricting the addition to Rs. 1.25 lakhs. It was submitted that there is no incentive for him to create a fictitious loss because he has already huge of loss of more than Rs. 19 lakh which is being carried forward and never set off against any profits, otherwise also, loss cannot be added u/s. 68 of the I.T. Act, that too especially when the transactions were done through reputed Brokerage firm of M/s Kotak Securities Ltd. The Ld. AR has also relied on the decision of Delhi ITAT decision of Smt. Bhavna Nitin Bavisi in ITA No. 6219/Mum/2019 dated 08.12.2021, where it was held that the share of Nivyah Infra Co. cannot be treated as penny stock, as there is no SEBI / BSE order to state that manipulations in stock prices took place.
Rival submissions are heard and the Bench decides that the addition made by Ld. AO has no legs to stand for the following reasons:
(a) M/s Nivya Infrastructure Ltd. is not a penny stock and there is no order of SEBI / BSE to the effect that price manipulations have taken place.
(b) The assessee is a regular trader / investor in shares and this transaction of buying and selling took place through stock exchange and that too through a reputed share broker, M/s Kotak Securities Ltd. The amounts to buy shares were paid through his regular bank account which is reflected in his return of income and section 68 is not attracted.
(c) The huge price rise and fall took place in this stock in earlier years and not in AY 2012-13. The share price fell by 25% during the year which is
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common, and appellant incurred a loss of Rs. 1.25 lakh which is reflected in the return of income. (d) The appellant already has huge loses and there is no incentive for getting some more losses. This was not set off against any other profit also, in the next 8 years too and hence it does not have impact on taxes.
(e) Infact, the Ld. CIT(A) order says that, if short-term capital gain is adjusted against any profit, then AO was directed to take action to bring it to tax. Hence, there is no grievance to the Department to file an appeal.
In view of the above reasons, the addition made by the AO is deleted.
The appeal of Department is dismissed.
Order pronounced in the open court on 31-12-2024. Sd/- Sd/- (KAVITHA RAJAGOPAL) (OMKARESHWAR CHIDARA) Judicial Member Accountant Member *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT BY ORDER,
(Dy./Asstt. Registrar) ITAT, Mumbai
