NEENA KAILAS JADHAV,THANE vs. ACIT CIRCLE 1, AURANGABAD

आदेश / ORDER

PER INTURI RAMA RAO, AM:

This is an appeal filed by the assessee directed against the

order of the National Faceless Appeal Centre, Delhi [‘NFAC’]

dated 01.11.2023 for the assessment year 2012-13.

individual who filed Return of Income for the assessment year

2012-13 on 05.12.2012 disclosing total income of Rs.17,42,817/-.

The appellant purchased and sold shares of M/s. KCL Infra

Projects Limited and claimed exemption of long term capital gain

2 ITA No.901/PUN/2023

on shares of Rs.3,36,748/- u/s.10(3) of the Act. Against the said

return of income, the assessment was completed by the Asstt.

Commissioner of Income Tax, Central Circle-1, Aurangabad (‘the

Assessing Officer’) vide order dated 23.12.2019 passed u/s 143(3)

of the Income Tax Act, 1961 (‘the Act’) at total income of

Rs.20,79,565/-. While doing so, the Assessing Officer analyzed

the modus operandi adopted by the appellant. During the course of

assessment proceedings, the appellant had failed to substantiate

that the transactions of purchase and sales of shares as genuine

one. In the circumstances, the Assessing Officer brought to tax the

sale proceeds of the shares as unexplained cash credit and

completed the assessment. Eventually, the Assessing Officer

denied the claim for exemption of capital gains u/s 10(38) of the

Act amounting to Rs.3,36,748/- by treating the same as

unexplained cash credit u/s.68 of the Act.

filed before the ld. CIT(A) who vide impugned order confirmed the

action of the Assessing Officer.

appellant is in appeal before the Tribunal in the present appeal.

3 ITA No.901/PUN/2023

behalf of the appellant-assessee despite due service of notice of

hearing.

covered by several judicial precedents as well as the Hon’ble

Calcutta High Court in the case of PCIT vs. Swati Bajaj, 446 ITR

56 (Calcutta), I proceed to dispose of the same after hearing the ld.

Sr. DR even in the absence of appellant.

submits that the order of the ld. CIT(A) be upheld.

issue in the present appeal relates to whether or not the claim for

exemption of capital gains u/s 10(38) of the Act is genuine. The

material facts to be noted herein are as under :

During the course of assessment proceedings, the Assessing

Officer noticed that the appellant had entered into a sale

transaction of shares of M/s. KCL Infra Projects Limited and

claimed exemption of Rs.3,36,748/- u/s 10(38) of the Act. The

appellant purchased 5000 shares at Rs.20/- each of M/s. KCL Infra

Projects Limited in 2009. The appellant sold 5920 shares at

market price of Rs.62.40 per share resulting in capital gain of

4 ITA No.901/PUN/2023

Rs.3,36,748/-, which was claimed exempt u/s 10(38) of the Act.

The case of the Assessing Officer is that M/s. KCL Infra Projects

Limited is an established penny stock company used by the

operators for the purpose of introducing unaccounted cash in the

books of account or to create fictitious losses by evading taxes and

explained the features of said penny stock company viz., the

company does not have any business activity, the market price of

the shares rose exponentially within a short period; the voluminous

purchase and buyers/exit providers do not have any credit

worthiness, etc.

In the First Appellate proceedings, the CIT(A) confirmed the

action of the AO by holding that the appellant had failed to

discharge the onus proving the transaction as genuine. While

holding so, he relied on the following judgments :

Calcutta High Court after making reference to the decisions of

Hon’ble Madras High Court in the case of CIT vs. Manish D. Jain,

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120 taxmann.com 180 (Mad.) and PCIT vs. Prabha Jain, 439 ITR

304 (Mad.) had confirmed the action of the Assessing Officer by

holding that the Assessing Officer had cogently brought out the

factual scenario to establish machinations of fraudulent,

manipulative and deceptive dealings and how the stock exchanges

system was misused to generate bogus LTCG.

confirm the addition made by Assessing Officer, in view of the

well settled principle of law that fraud vitiate everything and even

principle of natural justice have no application and such transaction

is void ab initio. The Hon’ble Supreme Court in the case of

Friends Trading Co. vs. Union of India in Civil Appeal No.5608 of

2011 vide order dated 23.09.2022 held in the context of availment

of alleged forged DEPB under the Customs Act, wherein, it was

found DEPB licenses were forged and it was held that the

exemption benefit availed on such forged DEPB are void ab initio

on the principle that fraud vitiate everything and the period of

limitation was held to have no application and the Department was

held to be justified in invoking the extended period of limitation

and the fact that whether the beneficiary had no knowledge of

about the fraud/forged and fake DEPB licenses have no bearing the

ITA No.901/PUN/2023

imposition of custom duty. The ratio of judgement is squarely

applicable to the transaction under consideration before me.

Further, the application of principle of the fraud under judicial Acts

was considered by the Hon’ble Supreme Court in the case of Smt.

Badami (Deceased) by her L.R. vs. Bhali in Civil Appeal No.1723

of 2008 dated 22.05.2012, wherein, the Hon’ble Apex Court held

as follows :

“20. In S. P. Chengalvaraya Naidu (dead) by L.Rs. v. Jagannath (dead) by L.Rs. and others [AIR 1994 SC 853] this court commenced the verdict with the following words:- ““Fraud-avoids all judicial acts, ecclesiastical or temporal” observed Chief Justice Edward Coke of England about three centuries ago. It is the settled proposition of law that a judgment or decree obtained by playing fraud on the court is a nullity and non est in the eyes of law. Such a judgment/decree - by the first court or by the highest court - has to be treated as a nullity by every court, whether superior or inferior. It can be challenged in any court even in collateral proceedings.” 21. In the said case it was clearly stated that the courts of law are meant for imparting justice between the parties and one who comes to the court, must come with clean hands. A person whose case is based on falsehood has no right to approach the Court. A litigant who approaches the court, is bound to produce all the documents executed by him which are relevant to the litigation. If a vital document is withheld in order to gain advantage on the other side he would be guilty of playing fraud on court as well as on the opposite party. 22. In Smt. Shrist Dhawan v. M/s. Shaw Brothers [AIR 1992 SC 1555] it has been opined that fraud and collusion vitiate even the most solemn proceedings in any civilised system of jurisprudence. It has been defined as an act of trickery or deceit. The aforesaid principle has been reiterated in Roshan Deen v. Preeti Lal [AIR 2002 SC 33], Ram Preeti Yadav v. U. P. Board of High School and Intermediate Education and other [(2003) 8 SC 311] and Ram Chandra Singh v. Savitri Devi and others [(2003) 8 SCC 319].

7 ITA No.901/PUN/2023

the information from the Assessing Officer as well as the ld.

CIT(A) which is within exclusive knowledge of appellant to

establish the genuineness of transactions of purchase of shares of

that company. It is nothing but a fraud played by the appellant

against the Assessing Officer as well as the ld. CIT(A) who are

quasi judicial authorities employed for execution of the provisions

of the Income Tax Act. Therefore, the principle of fraud can be

squarely applied to the facts of the present case and principles of

natural justice have no application. Applying the said doctrine, I

have no hesitation to hold that the transaction of purchase and sale

of shares of M/s. KCL Infra Projects Limited under consideration

before us is void ab-initio, this is nothing but sham, make believe

ITA No.901/PUN/2023

and colourful device adopted with excellent paper work with

intention to bring the undisclosed income into books of account.

Accordingly, I confirm the orders of the Assessing Officer as well

as the ld. CIT(A) and find no merit in the appeal preferred by the

appellant.

dismissed. Order pronounced on this 19th day of April, 2024.

/- Sd/- (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER

पुणे / Pune; �दनांक / Dated : 19th April, 2024. Satish

आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The Pr. CIT concerned. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “SMC” ब�च, 4. पुणे / DR, ITAT, “SMC” Bench, Pune. गाड� फ़ाइल / Guard File. 5. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.