Loading judgment…
Facts
The assessee claimed exemption on long-term capital gains from the sale of shares. The AO reopened the assessment under Section 147/148 alleging the transaction was a bogus attempt to generate LTCG. The AO made an addition under Section 68, which was sustained by the CIT(A).
Held
The Tribunal held that the assumption of jurisdiction by the AO was vitiated due to non-application of mind. The Tribunal also found no substance in the allegation of bogus LTCG, as the AO's findings were countered by the circumstances and background of the transaction.
Key Issues
Whether the assumption of jurisdiction under Section 147 was valid and whether the LTCG claim was genuine.
Sections Cited
147, 148, 144, 10(38), 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCHES : A : NEW DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI ANUBHAV SHARMA
This appeal is preferred by the assessee against the order dated 19.04.2024 of the Commissioner of Income-tax (Appeals), NFAC, Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in appeal No.NFAC/2016-17/10153384 arising out of the appeal before it against the order dated 28.03.2022 passed u/s 147 r.w.s. 144 of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the National Faceless Assessment Centre, Delhi (hereinafter referred to as the Ld. AO).
Heard and perused the records. The assessee filed the return of income on 02.08.2017 wherein he has claimed exemption of Rs.1,77,59,716/- as exempt income u/s 10(38) of the Act being long-term capital gains. The record and the submissions bring forth that on 13.05.2014, the assessee purchased 750000 shares of Fidelo Power and Infrastructure Limited (hereinafter referred to as FPIL) from M/s Surya Buildpro Pvt. Ltd. through account payee cheque. On 22.05.2014, the shares of FPIL were dematerialized. On 06.05.2015 FPIL amalgamated in Yamini Investments Company Limited (YICL) and consequently the assessee received shares of YICL in exchange of shares of FPIL. Subsequently, between 21.04.2016 and 08.09.2016 the appellant sold the shares of YICL in the price rate ranging from 31.22 to 38.70 per share. A total of 527577 shares were sold for Rs.1,84,41,892/-. The purchase consideration for the said shares was Rs.5,27,577/- and transfer expense incurred by the assessee was Rs.22,705/-. The assessee’s case was reopened u/s 147/148 of the Act and this exempt income has been considered to be arising out of alleged bogus transaction of LTCG. All the justifications for the benefit in the transactions did not find consideration with the AO and who, considering the modus operandi to generate bogus LTCG had concluded it to be a case of unnaturally high gain compared to meager investment. The assessment proceedings were, accordingly, concluded making an addition of Rs.1,78,02,074/- as unexplained cash credit u/s 68 of the Act. This was sustained by the ld.CIT(A) for which the assessee is in appeal and the primary contention of the assessee’s ld. counsel is that there was no meaningful application of mind while assuming the jurisdiction which has been rebutted strongly by the ld. DR by submitting that the AO has duly taken into consideration the information which was received from the Investigation Wing and finding a live link between the information and the material available on record, the reasons were recorded.
Justifying the transaction as bonafide, on merits of the transaction, the assessee has supported the transaction with following documents:- • Purchase invoice of share Fidelo Power and Infrastructure Ltd – available at page no 15 of the paper book • Demat statement with depository Elite Wealth Ltd for the period ending 31st March, 2014 to 2017 - available at 18 to 25 of the paper book • Bank statement evidencing payment made for purchase of shares in Fidelo Power and Infrastructure Ltd - available at page nos 26 and 27 of the paper book • Scheme of Arrangement and Order of Bombay High Court approving the merger of Fidelo Power and Infrastructure Ltd with Yamini 3
Investments Company Limited - available at page nos 28 to 71 of the paper book. • Detail of sale of shares in with Yamini Investments Company Limited during the year under consideration - available at page no 72 of the paper book • Ledger Statement of Depository Elite Wealth Ltd for the year under reference - refer page nos 73 to 81 of the paper book
Giving thoughtful consideration to the contentions and after taking into consideration the reasons for reopening of the assessment as provided to us at the time of hearing, we find that the allegations were against Ram Avtar Aggarwal who was allegedly involved in providing accommodation entries at Calcutta Stock Exchange and allegedly Ajay Gupta was one of the beneficiaries who had obtained accommodation entries. However, here, the assessee is not the initial investor of YICL, but, admittedly, the assessee had got the shares of YICL after it was amalgamated in due course with FPIL. The shares of FPIL were purchased by the assessee on 13.05.2014, but, the information which was considered for reopening was that trade data taken from the Kolkata Stock Exchange for the year before 2013 as Calcutta Stock Exchange has stopped trading in this scrip since 2013. The information was that trading in all penny stock prior to that period had yielded huge long-term capital gains to be beneficiaries while the assessee actually acquired the shares in the YICL on 06.05.2015. Thus, the manner in which the reasons are recorded would go to show that whatever information was made available by investigation wing to the AO was considered to be sacrosanct and without application of any due diligence the information was relied and processed to find a hypothetical live link with regard to escapement of income.
After taking into consideration the material on record and the submissions, we are of the considered view that certainly the documentary evidences cited on behalf of assessee documents in themselves are not sufficient to establish the genuineness of the transaction, but, the surrounding circumstances if considered indicate substance in the claim of the assessee that the allegations of a bogus long-term capital gain are not sustainable. It comes up that the scrip was trading above Rs.400 between September, 2012 to October, 2014 when it was considered to be penny stock, but, the acquisition of the shares of the assessee was only on 06.05.2015 consequent to the amalgamation of FPIL with YICL. The SEBI inquiries from September, 2013 to January, 2014 with regard to the behaviour of the scrip YICL are irrelevant to examine the transactions of sale of shares by the assessee during the period 21st April, 2016 to 8th September, 2016 which is much after the period of inquiry, hence, the excessive reliance of the AO on the SEBI order is certainly misplaced. Rather, the contention of the ld. AR is that the purchases are subsequent to revocation of SEBI order. Throughout the assessment order, there is nothing cited that in that investigation or otherwise during the assessment any connection or nexus of the transaction of the assessee with the tainted trader Ram Avtar Aggarwal was found. The ld. counsel has cited before us decisions of the coordinate Bench in the case Sujit Madan (ITA No.3436/Del/2023) and Jyoti Gupta (ITA No.2528/Del/2022) wherein the same scrip has been considered and not found to be tainted with regard to transactions quite similar to present assesse and the assessees’ appeals were allowed.
In the light of the aforesaid discussion, we are inclined to hold that the assumption of jurisdiction itself was vitiated as the same was on the basis of non- application of mind and, at the same time, there is no substance in the allegation of bogus LTCG claim as all the findings of the AO are well countered by the circumstances and background of the transaction. Consequently, the grounds are sustained. The appeal of the assessee is allowed.
Order pronounced in the open court on 26.11.2025.