RATNAKAR M. PUJARI,MUMBAI vs. ITO WD 25(3)(3), MUMBAI

1. This appeal, filed by the assessee, being 25th November, 2011 passed by learned Commissioner of Income Tax (Appeals)- 35 Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2006-07, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 29th December, 2009 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) r.w.s. 147 of the Income Tax Act,1961 (Hereinafter called “the Act”).

The grounds of appeal raised by the assessee in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-

The Brief facts of the case are that assessee is engaged in the business of running a fast food and juice centre in Iraniwadi in Kandivali (W) under the name and style of Bhagvwati Juice Centre. Specific information was received from Addl. CIT (Inv.) , Unit-V , Mumbai that the assessee is indulging in non- genuine and bogus capital gains from the transactions of purchase and sale of shares of M/s Shiv Om Investment & Consultancy Ltd., a Kolkatta based company. It was also mentioned in the information received by the Revenue that M/s Shiv Om Investment & Consultancy Ltd. quoted at the Kolkatta Stock Exchange was only a penny stock company and for the purpose of showing the holding period of more than 12 months, M/s Badri Prasad & ITA 995/Mum/2012 3 Sons and other Kolkatta based brokers have issued pre-dated contract notes on the dates prior to July, 2004 for the sale of shares of this company at the rate of Rs. 4/- to Rs.4.50 per share to the various persons. It was also mentioned that assessee has purchased 4000 shares of M/s Shiv Om Investments on 11th May, 2004 for a consideration of Rs. 4,080/- and out of the same, 1000 shares were sold on 16th May, 2006 and 2500 shares were sold on 27th January, 2006 for a total consideration of Rs. 6,89,750/-. Thus, the Revenue has reason to believe that income chargeable to tax has escaped assessment in the case of the assessee and the assessment was re-opened by issue of notice u/s 148 of the Act dated 7th April, 2008 was issued and served upon the assessee on 1st May, 2008 , i.e. within a period of 4 years from the end of assessment year. In reply, the assessee vide letter dated 27th October, 2009 has submitted that original return filed on 5th June, 2006 may be treated as a return filed in response to the notice u/s 148 of the Act. The A.O. noticed that assessment in the case of the assessee for the assessment year 2005-06 i.e. the year in which the alleged shares were claimed to be purchased by the assessee was completed on 24th December, 2009 u/s 143(3) r.w.s. 147 of the Act wherein it was clearly proved that the assessee’s claim of purchase of alleged 4000 shares of M/s Shiv Om Investments and Consultancy Limited on 11th May, 2004 for a consideration of Rs. 4,080/- was bogus and was only a paper transaction. The relevant portion of the assessment order dated 24.12.2009 passed by the AO u/s 143(3) r.w.s. 147 of the Act for the assessment year 2005-06 is reproduced below:-

From the above, it was observed by the A.O. that the so called purchase of shares of M/s Shiv Om Investment and Consultancy Limited were fabricated transaction as held in the assessee’s own case for assessment year 2005-06. The A.O. observed that the payments for shares purchased were made through cash and not through banking channel. Thus, the A.O. came to the conclusion that the assessee’s claim of receipt of Rs. 4,92,750/- on alleged sale of shares purchased from M/s Shiv Om Investment and Consultancy Limited was not genuine and a fabricated transaction through which the unaccounted money has been converted into accounted money and the same has been treated as unexplained cash credits and brought to tax, vide assessment order dated 29.12.2009 passed u/s 143(3) read with Section 147 of the Act.

Before the learned CIT(A), the assessee submitted its submission which are reproduced as under:-

Mc Dowell and Company Limited v. CTO (1985) 154 ITR 148(SC) 2. Phoolchand Bajrang Lal v. ITO (1992) 203 ITR 456 (SC) 3. Consolidated Photo and Finvest Ltd. v. ACIT (Delhi HC) (2006) 151 Taxmann 41 (Delhi) 4. Indo Aden Salt Mfg. & Trading Co. Pvt. Ltd. V. CIT, 159 ITR 624 (SC) 5. Ram Prasad v. ITO (1995) 82 Taxman 199 (All) 6. Consolidated Photo & Finvest Ltd. ACIT (2006) 151 Taxmann 41 (Delhi) 7. Keventer (P.) Ltd. v. DCIT (2004) 89 ITD 347 (Kol.) Appeal Nos. 344 and 345 (Cal.) of 2001. 8. Brij Mohan Agarwal v. ACIT, (2004) 140 Taxman 317 (All) 9. ACIT v. Somnath Maini, IT Appeal No.829 (Chd.) of 2002, [2006] 7 SOT 201 (Chd.) 10. CIT v. Vipin Batra [2008] 166 Taxman 102 (Delhi) (IT Appeal No. 1189 of 2006). 11. DCIT v. Pawan Kumar Malhotra [2010] 2 ITR (Trib) 250 (Del) IT Appeal No. 3684 (Delhi) of 2008.

Aggrieved by the appellate orders dated 25.11.2011 passed by the learned CIT(A), the assessee is in appeal before the Tribunal.

The ld. Counsel for the assessee submitted that addition of Rs. 4,92,750/- has been made u/s 68 of the Act towards sale of 2500 shares of Shiv Om Investment and Consultancy sold through stock exchange which was treated as unexplained cash credits in the hands of the assessee. The ld. Counsel for the assessee drew our attention to the assessment order and submitted that in the assessment year 2007-08 the Revenue has accepted the gain earned on the sale of shares as long term capital gain u/s 143(1) of the Act. He submitted that the Revenue has reopened the assessment for the assessment year 2005-06 and treated the purchase of shares as bogus although no additions were made in monetary terms. The said assessment order has been placed in paper book page No. 42-52 filed with the Tribunal. The appellate order passed by the learned CIT(A) for assessment year 2005-06 has also been placed vide paper book page 53 to 55 and submitted that no additions were made for purchase although the same were treated as bogus and hence the assessee did not contested the findings of AO by treating the purchase of 4000 shares of Shiv Om Investment and Consultancy Limited as bogus and sham transaction. The ld. Counsel submitted that the assessee has not challenged the said findings as no addition was made by Revenue in the assessment year for 2005-06 on monetary terms and the assessee was not saddled with any liability to pay tax in the assessment year 2005-06 by holding of the Revenue by the said purchase of 4000 shares of Shiv Om Investment and Consultancy as bogus purchase. He submitted that the assessment for the assessment year 2007-08 the case was processed u/s 143(1) of the Act and the long term capital gain was accepted. The ld. Counsel submitted that the Revenue has treated the purchases of shares made from Shiv Om Investment and Consultancy Limited as bogus. He submitted that the company is active and the details from the Registrar of ITA 995/Mum/2012 16 Companies , ROC Kolkatta has been filed and placed at paper book page 24 to show that M/s Shiv Om investment and Consultancy Ltd. is an existing company and an active company. The ld. Counsel submitted that the shares were traded through stock exchange. The list of directors are also placed on record. The ld. Counsel drew our attention to paper book page No. 16 to show that the share were purchased from Badri Prasad & Sons by the assessee and similarly the details of which are placed at paper book page 16 to 19 and contended that these are off market purchases form registered brokers. Similarly, it was submitted that the sale has been made in the month of January, 2006 and the amount has been received on 6th February, 2006 in the bank account of the assessee. The said bank account details were placed at paper book page 37 of paper book . The ld counsel submitted that in the case of his brother Mr. Nagesh M Pujari , the learned CIT(A) has dismissed the appeal of the assessee confirming the action of the AO in assessing the said gains as short term capital gains.The said appellate orders of the learned CIT(A) in the case of brother of the assessee is placed in paper book page 64- 69 of paper book.

The ld. D.R., on the other hand, submitted that specific information was received that the assessee has indulged in bogus transaction in shares. In the assessment year 2005-06 the transaction for purchase of 4000 shares has been treated as bogus whereas no addition has been made. The assessee has accepted the transactions for purchase of shares were bogus and it cannot be treated as genuine transaction. The payments of the purchases were made in cash. The A.O. has rightly held that the activities of the assessee were creating suspicious, hence, the authorities has rightly treated the transaction as undisclosed cash credits. For the assessment year 2007- 08, it was submitted by learned DR that no scrutiny assessment has been made u/s 143(3) of the Act.

In the rejoinder, the ld. Counsel for the assessee relied upon the decision of the Hyderabad Bench of this Tribunal in the case of ITO v. Smt. Aarti Mittal reported in [2014] 41 taxmann.com 118 (Hyderabad – Trib).It is the submission of the assessee’s counsel that no enquiry has been made by the Revenue with stock exchange. It was submitted that the assessee filed balance sheet of Bhagvati Juice Centre along with the return of income filed with the Revenue for the assessment year 2005-06 which is at page 40 of the paper book and there is no requirement to disclose the purchase made on 11- 05-2004 in this balance sheet of business as personal balance sheet was not filed as there is no requirement to file the personal balance sheet with the Revenue along with return of income(page 38-41 /PB). But, it was submitted that capital gains was duly declared in return of income filed with the Revenue for the impugned assessment year .

We have considered the rival contentions and also perused the material available on record including the case laws cited by the parties. We have observed that no scrutiny assessment has been framed for the impugned assessment year by the Revenue u/s 143(3) of the Act originally, while based on information received from Addl.CIT(Inv.), Unit-V, Mumbai that the assessee is indulging in non-genuine and bogus capital gains from transaction of sale and purchase of shares of M/s Shiv Om Investment and Consultancy Limited which was penny stock company and pre-dated contract notes were issued by the Brokers to manipulate and introduce long term capital gains in favour of the assessee which are exempt from tax u/s 10(38) of the Act leading to escapement of income from taxation , which led to issue of notice dated 07-04- 2008 u/s 148 of the Act which is within four years from the end of the relevant assessment year , the receipt of afore-stated information from Addl. CIT(Inv) in our considered view is fresh and tangible material which has live link and nexus with the formation of belief that the income of the assessee has escaped assessment , and keeping in view that the original assessment was not framed ITA 995/Mum/2012 18 u/s 143(3) of the Act and no opinion was ever formed by the AO and hence there is no change of opinion keeping in view the ratio of decision of Hon’ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers Private Limited (2007) 291 ITR 500(SC), we uphold the re-opening of the assessment u/s 147/148 of the Act. We have observed that the assessee has made purchases of 4000 shares of M/s Shiv Om Investment and Consultancy Limited for Rs.4,080/- on 11th May, 2004 in the previous year relevant to the assessment year 2005-06. The said shares were purchased in off market transactions for which payments were made in cash. The said purchases have been treated as bogus and sham transactions by the Revenue as it is alleged that certain brokers have manipulated and issued pre-dated contract notes which even did not have details such as time of contract, trade number , transaction details etc and payments were also made in cash by the assessee against such sham and bogus purchase with the objective of introducing by manipulating tax free exempt long term capital gains u/s 10(38) of the Act leading to escapement of income from taxation , and the said findings of the AO with respect to bogus and sham purchases have become conclusive and final as the assessee has not challenged the findings of the learned AO made in the assessment order dated 24.12.2009 passed by the AO u/s 143(3) read with Section 147 of the Act in the first appeal filed with learned CIT(A) for the assessment year 2005-06 and hence the finding of the AO has attained finality. Since the said findings of the AO with respect to purchases of 4000 shares of M/s Shiv Om Investment and Consultancy Limited in assessment year 2005-06 have become conclusive having attained finality, the sales in consequence thereof the sham and bogus purchases cannot be accepted as genuine. The assessee has explained that the purchases were backed with contract notes of the brokers and payments were made in cash will not be of any help at this stage as the said finding of the AO treating the purchase of shares as sham and bogus in the assessment year 2005-06 has attained finality. Since, purchases are held to be bogus and sham which has attained ITA 995/Mum/2012 19 finality, the sale in consequence thereof whereby payments are received through cheque or shares being sold through stock exchange are not of any help to the assessee for claiming the exemption as long term capital gains as the allegation of the Revenue is that the assessee has in collusion with the Brokers has manipulated and camouflaged the entire transactions of sale and purchase of shares in getting issued pre-dated contract notes for purchases of shares for which payments were also made for these purchase in cash and hence these purchases never existed at that relevant time . It is the allegation of the Revenue that the entire sale and purchase of shares were manipulated by the assessee in collusion with the brokers in order to earn tax free exempt long term capital gains on sales of shares u/s 10(38) of the Act whereby un- accounted cash of the assessee has been introduced in disguise in lieu of sale proceeds of shares. Keeping in view facts and circumstances of the case and as per our discussions and reasoning as set out above, we find no infirmity in the orders of the learned CIT(A) which we uphold and sustain. The assessee relied upon the decision of the ITAT , Hyderabad in the case of ITO v. Smt Aarti Mittal (2014) 41 taxmann.com 118(Hyd.-Trib) whereby the Tribunal has arrived at the decision that sale and purchase was genuine even though purchase was off-market transaction which was routed not through stock exchange but backed by physical delivery of shares which was later de-mated and under the circumstances the ITAT held the transactions as genuine in nature and the assessee claim was found to be in order , but in the instant case there is a conclusive and final finding of fact that purchases of shares were bogus and sham as was held by the Revenue in the assessment year 2005-06 which has not been dislodged so far as the assessee accepted the said findings which became conclusive, thus the facts in the instant case are distinguishable as against the relied upon case of the assessee in Smt Aarti Mittal(supra) on that ground itself. Similarly, contentions of the assessee that the Revenue has accepted the gains on sale of 1500 shares of M/s Shiv Om Investment and Consultancy Limited in the succeeding assessment year 2007- ITA 995/Mum/2012 20 08 as long term capital gains while processing of return u/s 143(1) of the Act is not of help to the assessee as every assessment year is separate assessment year and merely because the Revenue has not selected the case under scrutiny by issuing notice u/s 143(2) of the Act and framing detailed scrutiny u/s 143(3) of the Act instead chose to process the return u/s 143(1) of the Act without scrutiny will not entitle the assessee to get the well reasoned assessment orders and appellate orders of the learned CIT(A) dislodged in the absence of the cogent material and evidences to demolish the findings of the authorities below. The Revenue in the case of the assessee’s brother has also declared the purchase and sale of shares as bogus but brought to tax , gains arising from sale of shares as short term capital gains . This in our considered view, is also not of help as the Revenue in the instant case has come to the conclusive finding which attained finality that the transactions of purchase of shares are sham and bogus transactions camouflaged with an intention to evade taxes . We order accordingly.

In the result, the appeal filed by the assessee in ITA N0. 995/Mum/2012 for the assessment year 2006-07 is dismissed.