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Facts
The assessee purchased and sold shares of PPSL. The AO reopened the case based on an Investigation Wing report alleging a modus operandi involving shell companies and layering of funds. An addition was made to the assessee's income based on the difference between the sale price of shares to one party and the price at which shares were sold to another.
Held
The Tribunal held that the tax authorities reached their conclusion merely on presumptions, without sufficient evidence to support the valuation of stocks at a higher price than actually transacted. The grounds of appeal were sustained.
Key Issues
Whether the reopening of assessment was vitiated and if the addition made by the AO on account of alleged undervaluation of shares was justified without proper evidence.
Sections Cited
147, 143(3), 148, 133(6), 50CA, 234A, 234B, 234C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCHES: F : NEW DELHI
Before: SHRI ANUBHAV SHARMA
Assessment Year: 2010-11 Park View Automotive P. Ltd., Vs ITO, C/o RRA TaxIndia, Ward-19(3), D-28, South Extension, Part-I, New Delhi. New Delhi – 110 049. PAN: AAECP3499H (Appellant) (Respondent) Assessee by : Dr. Rakesh Gupta, Advocate & Shri Somil Agarwal, Advocate Revenue by : Ms Harpreet Kaur Hansra, Sr. DR Date of Hearing : 24.07.2025 Date of Pronouncement : 15.10.2025 ORDER
PER ANUBHAV SHARMA, JM:
This appeal is preferred by the assessee against the order dated 27.11.2017 of the Commissioner of Income-tax (Appeals)-38, Delhi (hereinafter referred to as the ld. First Appellate Authority or ‘the Ld. FAA’ for short) in Appeals No.94/2017-18 arising out of the appeal before it against the order dated 30.03.2016 passed u/s 147/143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the ITO, Ward-19(3), New Delhi (hereinafter referred to as the Ld. AO).
On hearing both the sides, we find that in regard to the assessee’s return which was processed u/s 143(1), on the basis of the report received from Investigation Wing, the case was reopened and the AO examined the fact that in the case of Purti Power and Sugar Ltd., Nagpur (PPSL) 12 companies of Mehta group transferred 4.73 crores of PPSL shares on 30.11.2009 to 14 companies which were allegedly shell companies of PPSL and after layering funds were transferred. It was observed that layer-1 company received share application money layer-2 companies to which they sold PPSL shares. Shares were allotted against share application money received by Layer-1 company to layer-2 company. Layer-2 companies further sold these shares to three companies of Mehta group. The case of the AO is that during FY 2001-02 to 2003-04, 47342500 shares of PPSL were allotted to 12 companies for a face value of Rs.10 and they sold these shares on 30.10.2009 @ 14.40 per share earning a profit of Rs.20.83 crores in all. The shares were sold to 22 companies with a registered office at Delhi including the name of the assessee. The AO examined that Layer-3 companies sold PPSL shares to Layer-4 companies which were shell companies of PPSL and, thereafter, these companies sold shares to Layer-4 companies. All these transactions were completed in the duration of one month. Thus, it was found that in case of the assessee, Layer-1 company was Empire Forgings Pvt. Ltd. from whom the assessee purchased shares @ Rs.14.4 and a total of 6,51,500 shares were purchased for a sum of Rs.938.16 lakhs. 15000 shares were sold to Chintamani Agrotech (India) Ltd. @ Rs.17.4 per share for a 2 sale consideration of Rs.2.61 lakhs and a loss of Rs.363.55 lakh was booked and 65 lakh shares were sold to Amrupa Engineering and Mining Pvt. Ltd. @ Rs.8.85 per share. The total sale consideration was 572 lakhs.
Now, this all was found suspicious and the assessee’s explanation was not found sustainable on the basis that shares were purchased on 07.11.2009 and sold on 30.11.2009. Thus, there was no reason to accept that the assessee wanted to become strategy partner. The statement of directors were recorded, but, was not found satisfactory on the basis that he was a director who had joined subsequently. Thus, an addition of Rs.559 lakh was made on the basis that the sale price of 65 lakhs shares of PPSL to Amrupa Engineering and Mining Pvt. Ltd. should also be considered at Rs.17.4 per share, i.e., at the same price at which the shares were sold to M/s Chintamani Agrotech (India) Ltd. on the same date. Accordingly, the sale value of 65 lakhs shares sold to Amrupa Engineering and Mining Pvt. Ltd. was considered at Rs.1,131 lakhs, i.e., 65 lakhs x 17.4. As these shares were shown to be sold at Rs.8.80 per share totaling to Rs.572 lakhs, accordingly, the differential amount of Rs.559 lakhs was added to the income of the assessee. The same has been sustained by the ld.CIT(A) for which the assessee is in appeal and has raised the following grounds:- “1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in framing impugned reassessment order and that too without assuming jurisdiction as per law and without complying with mandatory conditions u/s 147 to 151 a envisaged under the Income Tax Act, 1961.
2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in framing impugned reassessment order u/s 147/143(3), is bad in law and against the facts and circumstances of the case.
3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making an addition of Rs.5,59,00,000/- in the hands of assessee company on arbitrary basis and more so when no evidences were available on record to prove the contrary that assessee has sold 6500000 share at Rs. 17.40 per share instead of Rs.8.80 per share and impugned addition has been made by recording incorrect facts and findings and in violation of principles of natural justice.
4. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making an addition of Rs.5,59,00,000/-, is bad in law and against the facts and circumstances of the case.
5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234A, 234B and 234C of Income Tax Act, 1961.
6. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
Now, the ld. counsel has primarily stressed on the fact that reopening itself is vitiated which has been defended wholeheartedly by the ld. DR submitting that the whole modus operandi has been explained in the reopening reasons and as there was only processing of the return and no assessment u/s 143(3) of the Act, there was no occasion for the AO to go through the financials. The ld. counsel has also argued that in 2017, provisions of section 50CA of the Act were not applicable. Thus, no presumption of any deemed income could have been invoked. 4
As we go through the copy of notice u/s 148 of the Act dated 10.07.2014 which is available at page 17 of the paper book, the same does not show as if the reasons of reopening recorded were annexed. The ld. AR has submitted that the reasons are reproduced in the assessment order and we find that from the opening paragraph of page No.2 to 10, the AO has cryptically reproduced the reasons wherein alleged modus operandi has been narrated. It mentions that the notice u/s 133(6) dated 06.01.2016 was issued to M/s Amrupa Engineering & Mining Pvt. Ltd. and M/s Chintamani Agrotech (India) Ltd. seeking details. The assessee was also show caused as to why the transactions of sale of shares should not be considered to be sham and uniform rate of 17.4 should not be accepted.
The assessment order makes it very apparent that primarily it is the Investigation Wing report which was only relied. It is established that tax authorities have examined the transactions and proceeded on assumption that the assessee was also a beneficiary. Otherwise, there was no evidence of the assessee being part of the modus operandi as, admittedly, the assessee is not part of Mehta group which had allegedly purchased shares in 2009 while the assessee has purchased shares in 2019.
Now, whatever relevant and necessary evidence the assessee had to establish genuineness of transaction in the form of copy of bill raised by the assessee of M/s Amrupa Engineering & Mining Pvt. Ltd., which was confirmed 5 by a reply dated 15.02.2016 filed by M/s Amrupa Engineering & Mining Pvt. Ltd., in response to notice u/s 133(6) of the Act. The copy of Board Resolution of M/s Amrupa Engineering & Mining Pvt. Ltd. dated 05.11.2009 wherein it was resolved that the company will purchase 65 lakh shares was provided. Copy of ledger account of the assessee in the books of Amrupa Engineering & Mining Pvt. Ltd., showing purchase of shares and the payment for the same has been made during the year itself was provided. The copy of ITR of Amrupa Engineering & Mining Pvt. Ltd. for AY 2010-11 and the copy of bank statement were provided to AO. The same have not been examined to point out as to how they show that assessee was part of larger manipulation of entry operators and modus operandi noted by the investigation wing.
Then, there is justification in the contention of the ld. counsel that as 15000 shares only were sold, the price of the same was higher at Rs.17.40 and that cannot be a justification to question the bulk sale of 65 lakh shares at a lower price. The bulk sale of shares justifies lower price. The prudence of selling shares in bulk at lower price cannot be doubted without establishing that otherwise the valuation was on higher side but no such effort was made by ld. Tax authorities to show how assessee escaped income by selling stocks at lower prices.